Q1 2020 Earnings Call
Morning.
Name is James and I'll be your conference operator today at this time I'd like to welcome everyone to the Richie Brothers Auctioneers first quarter conference call.
Lines have been placed on mute to prevent any background noise.
After the speakers remarks, there'll be a question and answer session.
If you would like to ask a question. During this time simply press Star and then the number one on your telephone keypad.
If you'd like to withdraw your question. Please press the pound key thank you.
Monitoring the call over to this because the he'd molony of Investor Relations to open the conference call. Mr. <unk>, you may be getting your conference.
Good morning, you. Thank you for joining us on could each call to discuss our first quarter 2020 results join you need to date <unk>, Our chief Executive Officer, and sharing <unk> aren't Chief Financial Officer, along with other members of management, who will be available for the Keaveny portion of the call.
Falling discussions will include forward looking statements comments that are not a statement effect, including projection for the future earnings revenue growth transaction value in other items are considered forwardlooking involved risks in certain keys.
The risks in a certain keys that could cause her natural financial and operating results to differ significantly from our forward looking statements are detailed in R.S.T.C. in Canadian Securities filings available on our Investor Relations website, and constricted Richie brothers Dot com.
We encourage you to review earnings release, inform 10, Q., which are available on her website as well as that guaranteed here.
This call, we will discuss certain on gap financial measures for the identification of non gap financial measures. The most directly comparable gap financial measure reconciliation between the two c. earnings releasing form team cute.
Presentation slides the company or commentary kidding.
Sides can be viewed through the library recorded with Castro downloaded from our website all figures discussed on today's call. Our in U.S. dollars, unless otherwise indicated oh now carrying the call over <unk>.
Thank you and good morning, everyone.
These are truly extraordinary time and on behalf of all about suddenly cheap.
I'd like to express our deepest gratitude, if a sound clips individuals on the front lines as the battle that's global pandemic.
Everyday yeah reminded of a few things.
The critical roles are service equations in the lives of our customers.
Perseverance of Ireland pulling in the face of adversity.
And the resilience of our business.
Reinforced by our unique technology enabled multi channel.
Before we get into the details at the court I would like to share some insight on the impact code that 19 has had in our company.
As you all know Cobot 19 has created a tremendous amount of uncertainty and financial strain for people and businesses around the globe.
And although our business has not gone unaffected, we have rallied and strengthened around the common purpose.
Which we call our true anyway.
Being Jennifer customers, while keeping them in our employees safe.
This is actually north and we are aligned and committed to this common purpose.
At a time when our customers need liquidity mode.
I'm, so proud of the resiliency demonstrated by.
In their commitment to our customers and each other.
Why not been here with about a company's culture, sometimes the things difficult to put into words.
Well after just a few months at Richie brothers I can tell you our culture, it's all about customer focus.
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I am proud of how quickly pivoted our business.
In a matter of 96 hours.
We transition 100 per cent of our business to online sales.
Flexible work arrangements and our people remotely supported by technology, and working and safe environment.
It's clear that never that are multi your investments in digital capabilities are prepared to swell for this moment, we took turned very much into a competitive advantage for us.
And it's also important to recognize that we entered the situation with an exceptionally strong balance sheet illiquidity position.
And from a financial in business continuity standpoint.
We are well positioned to continue operating in creating a long term value.
Despite challenges that arose during the quarter concluded 19.
Deliberate very strong first quarter results.
Sharon will take you through the operational and financial highlights.
Delivered 24% earnings per share grow while achieving better than expected outcomes for our confined area in the midst of a crisis.
Is nothing short of exceptional.
Now turning to slide five.
Spend a few minutes, describing our response to cold at night.
From the beginning of the crisis, we established we keep priorities would you <unk> our response up.
First the health and safety of our employees, our customers and their families.
Second continuing our operation Thankfully to ensure we were there for customers and third strictly yet hearing to all safety regulations and guidelines.
Such as those implemented by the C.D.C. World Health organization and other government entities. There was no compromise there.
Are crisis management steering <unk> with swiftly put in place with a mandate to implement business continuity Clinton's while responding to a quickly rebounding safety and regulatory requirements.
As a result of the coded 19 pandemic.
We instructed employees that many of our offices across the globe, including our corporate headquarters to work from home and a temporary basis.
Implemented company wide travel restrictions.
Are non field based employees, 94% transitions in currently working from home.
For our P.A. teams that employees at auction sites approximately 55% are working remotely follow the remainder of working in shift alternating between auction sites and home.
Ooh, the Richie brothers platform abduction technology solutions, our company was able to largely continue operations and sold our customers liquidity.
In addition to our digital only solution.
Which include our Ironplanet weeklies marketplace mm and golf planet online auction.
We modified in transition all of our traditional live auction stuff online.
While the life of Ben's transition to 100% online betting.
Colors for granted access to drop off the equipment to our physical auction guards under the strictest stuck safety and health guidelines.
We were equally able to keep our buyer safe.
Staggering pre auction inspections, and keeping equipment pickup similarly staggered schedules.
In addition to these steps you have also implemented measures to change how we physically interact with our customers.
Installing plexiglas protective guard.
Transitioning away from cash to accepting only electronics came in.
Fewer said humans to hygiene and disinfection protocols.
From a technology standpoint, the proactively looked for ways to optimize our transaction website and a customer experience.
We quickly scaled up our systems to be able to handle 400%.
More online activity at a single period of time.
As a result of these efforts and others are business swimming operational with limited disruptions to date.
We have only had to postpone for life events due to lock down situations in certain region.
It was impossible for Consigners buyers are our employees to be at our site for equipment drop off a pick off.
I'm pleased to see that Los Angeles in Montreal, where we schedule and very successfully executed in April.
Leading to the next slide.
I'd like to pick a moment and discuss how we reported results today using lie been online to delineate our best.
Online is what you would expect a fully digital auction experience.
But if we Peel back on my boxing business, we find something interesting.
Even before coded 19 across all channels, 65% of our winning bids.
Already coming it online.
And today, 100% of the <unk> digital.
So what then does lie versus online really means.
As I've gotten to know where business I've come to learn but the demarcation of life versus online has little to do with the transaction of the auction itself.
The demarcation has to do with where the physical equipment.
For many customers they simply put food to drop the equipment off at our auction site.
So we can manage the entire process on their behalf storing the equipment inspecting get on site scheduling delivering post sales et cetera.
For other customers they prefer to hold onto the equipment and for us to provide our services like inspection.
Title and leaned search closing up the transaction et cetera remotely.
The bottom line is that.
We are a digital company.
It also has world class light operation.
This is the key sorts of competitive advantage, allowing us to be there for customers, however, and wherever they.
Would that.
Let me transition to call to Sharon.
Gosh, the quarters operational and financial highlights.
Thank you and and good morning, everyone.
We had a lot to cover today, so I'm going to jump right in.
Our first quarter G.T.V. would down 2% and was adversely impacted by four option postponements in Japan, Italy, Los Angeles and Montreal.
For a comparable reference these four options generated $63 million in G.T.V. into one last year, so on that basis and adjusting for these timing differences are G.T.V. would've been up 3% on a comfortable basis.
Total G.T.V. purchased online with 75 per cent this quarter from 60 per cent into one of 2000 in 19.
This includes the last two weeks of March where 100 per cent of all purchases were completed online.
In addition are pure play online G.T.V. from our planet weekly marketplace, E. and Gulf planets have robust growth of 17% in the core.
Our lives option G.T.V. declined 6%, primarily due to the auction postponements or essentially equal to last year on a comparable basis. After removing these events from the 2019 base.
In the U.S., both the regional and strategic account teams once again delivered another strong quarter.
The team delivered positive G.T.V. growth all channels and posted it the largest quarter in the history of our U.S. business.
The live event growth was particularly impressive as the team rally to overcome not only the lower comparable year over year Orlando event, but also the effect of the postponement of our L.A. auction.
The Canadian team came off of a challenging Q4, and we're trend thing well through mid March, but ultimately posted a decline a G.T.V. for the quarter due to the postponement of the Montreal auction.
Excluding does postponement our Canadian team would have delivered positive G.T.V. grow.
Eastern Canada continued to outpaced the rest of the country and once again delivered strong results.
We also had strong online gross from marketplace see which was 111% in the quarter.
G.T.V. in our international group was down sharply in the quarter, principally driven by three factors.
First the international region was already navigating economic uncertainty and a general slowed down in Europe and Asia.
Second we were also cycling strong nonrepeating inventory packages from Q1 of last year.
Third the calm pounding effects of cope with 19.
The code 19 impacts where more pronounced in our international region as the spread of the virus began in mid February resulting in locked down and social distancing challenges ahead of North America.
With much of the European region region, and Asia Pacific and locked down we had to postpone our options in Japan in Italy.
The international team moved all other life auctions over to online or timed auction lot capabilities.
Notably are Australian team moved their life auction events over to the Ironplanet weekly feature platform and have huge success with that online model in the quarter with both positive buyer and seller reactions.
Overall, our operational metrics remain strong with you over your growth in most of our key measures.
With the shift to 100 per cent online or digital marketing team kick into high gear, creating strong demand and bringing the buyer base like no others in our industry can do.
Moving now to the financial highlights.
Our total revenue decline of 10 per cent was primarily from our 31% decline in inventory sales revenue.
Partially offset by the six per cent increase in service revenues.
Commissioned revenues increased 1% with fee revenue up 12 per cent in the quarter.
P revenue was up as a result of our fee harmonization, which incidentally, we will laugh on June 1st.
A higher volume of small a lot and our lake and Gov planet auction events.
R.B.F. has also produce double digit revenue growth of 16%.
Are operating income was up 1% driven by our service revenue growth and solid operating leverage partially offset by approximately 2 million of non recurring depreciation and amortization and other expenses.
These costs relate to the termination of a U.K. business arrangement for our Gulf Planet business unit.
The collapse of the U.S. property transactions and executive departures announced during the quarter.
No income improve 26% from the combination of operating income growth lower interest expenses.
Lower year over year affected tax rate and a receipt of 1.7 million of proceeds on contingent consideration from the sale of our machine L. investment in 2019.
Before I move on I would like to inform everyone about a subsequent events, which will need to be considered for q. too.
On April 8th Twentytwenty, the United States Department at Treasury, and the internal revenue service published final regulations related to hybrid transactions that were introduced in the initial U.S. tax Reform Act.
They started earlier preliminary <unk> regulations and in accordance with generally accepted accounting principles. We recorded income tax benefits of approximately $6 million in the 12 months ended December 31st 2019, and 1 million in the three months ended March 31st 2020, which will.
The effectively nullified by these final regulations.
As a result, we will be reflecting an unfavorable adjustment of approximately $7 million in our second quarter earnings.
Excluding the impact of this retroactive charge, we expect or go forward tax rate to be in the range of 25% to 27% for subsequent quarters.
Turning to our options and marketplaces segment service revenue was up eight per cent in the quarter.
On a regional basis U.S. service revenue increase 17% driven by higher fees from our harmonization G.T.V. growth and very strong guarantee rate performance versus Q1 of last year.
Canada's service revenues decrease 6%, primarily due to lower commissions and fees earned on the lower service G.T.V. as a result of postponing our Montreal event.
This was partially offset by an increase in revenue driven by fee harmonization.
[noise] our international service revenue decreased 23 per cent, primarily due to lower commission and fee revenue from sharply lower G.T.V., resulting from the postponement have to live options impacted by the covert 19 pandemic and lower lower overall volume of contracts in this region.
On a rate basis, we were pleased with our N.M. service revenue rate coming in at 13.5%.
Roughly 130 basis points higher than last year.
The rate improvement was due to fee revenue growth from the harmonization plus our lake auction and go planet sales.
Moving onto our options and marketplaces segments inventory sales revenue.
The 31% decline in our immaturity sales revenue was due to lower inventory volumes in our international and U.S. regions, partially offset by stronger performance in our Canadian region.
The 31% decline was not attributable to any cope with 19 related impact our Canadian inventory sales revenue was 117% over last year with international revenue declining, 58% and R.U.S. region also declining 16%.
On a rape basis are applied rate of return on inventory deals in the quarter was 9.5%, which was 141 basis point improvement over year over year, and roughly a 400 basis points sequential improvement from Q. for.
Looking ahead based on our strong balance sheet, we are very much open for underwriting quality inventory deals, but we are applying a higher degree of rigor in our valuations.
Moving on to S.G.N.A. expenses R.S.G.N.A. dollar increase was driven by continued investment in strategic growth initiatives and key growth and neighbors like technology and improving our customer experience.
These investments combined with higher travel and entertainment expenses through mid February accounted for the majority of the growth in R.S.G.N.A. and were partially offset by lower costs of sharebased compensation due to the mark to market volatility of our D.S.U. program.
Notably we continue to apply a strong discipline on expense management as R.S.G.N.A. only grew 3%, which was half the rate of growth of our service revenue.
Since the covert 19 pandemic began we've been critically looking at our costs across the company and we are taking steps to manage expenses as we apply companywide efforts to control discretionary spending where possible and monitor productivity levels in response to the new operating environment.
Due to our strong cash position and our ability to keep generating revenues, we have taken some moderate S.G.N.A. cost actions to date.
We have been able to keep our business operational through this pandemic the future impacts are insertion and not easily predictable.
Should our business experience material volume declines, resulting from increased severity or duration of the downturn, we are fully prepared and ready to take necessary cost actions to optimize our business structure, while preserving our ability to rebound when market conditions improve.
As over 70% of our costs are fixed in nature, primarily people and site costs.
We do anticipate possible erosions to operating margins in future quarters in the event of service revenue declines across certain regions.
Our disciplined capital allocation and the substantial efforts, we had put into d. leveraging our balance sheet over the past three years has made a tremendous difference and as a result, we believe we are very well equipped from a liquidity standpoint to navigate the unprecedented global environment that we are facing today.
In addition to our ongoing ability to continue to generate cash flows at the end of the first quarter, we had $356 million in cash cash equivalents unrestricted cash in addition to available credit facilities of $640 million.
<unk> 462 million was on used at the end of the quarter.
Additionally, at this time, we are comfortably within our debt covenant thresholds and don't have any material debt maturities until October of 2021.
And in this context or capital allocation priorities shift to cash preservation and investing wisely to support our business operations, while continuing to prioritize our dividend.
Specifically with regard to the dividend. We currently have no intention to change our approach at this time, but are carefully monitoring the ongoing situation as the pandemic impact unfolds.
We have also repositioned our Catholics program to support only essential property spend and our technology programs as such we are revising down our full year twentytwenty expected cap expend to now be between $35 million to $45 million.
Consistent with our directive up repurchasing shares to offset option dilution, we purchased 1.5 million shares for $53 million during the first quarter, however, suspended or instructions once the economic severity of the pandemic became clear.
Existing authority under our current M.C.I.B. share repurchase program expires on May 8th and we have no intention to renew at this time.
[noise] finally at the end of the first quarter are adjusted net debt to adjusted either dog ratio was 1.3 times well inside of our target feeling of 2.5 times.
We believe we are very well positioned with a strong balance sheet and liquidity position to navigate a multitude of economics scenarios and we plan to maintain or disciplined approach to investing capital to enhance the long term value of our company.
Before closing are prepared remarks related to our balance sheet metrics I'd like to provide some color on our operating cash for for the quarter, a $4.1 million at 94% decrease over last year.
There were two primary drivers first 2009 teams to one operating cash flow was exceptionally strong as the higher than normal inventory positions held at 2000, an 18 year and sold through at our your U.S. and European events.
Second our cash flow was negatively impacted by approximately $30 million to $40 million due to the postponements of the to North American options into Q. too.
Even with these considerations on a trailing 12 month basis are operating free cash flow increased 94% to $228 million.
Lastly, I want to touch on our return on investment capital measure of 10 per cent showing solid improvement from 7.7 per cent in Q1 of last year.
We are pleased with our continued progress and pre cope with 19, we we're on track to achieve our stated evergreen R.Y.C. targeted 15% by the end of 2021.
However, with our priority shifting to cash preservation and focusing on stabilizing our business. During this crisis, we can no longer commit that this target will be achieved during this time for him.
To conclude my remarks, I would like to thank our Richie brothers global team for their tremendous effort and results in this quarter your dedication resilience and commitment to serving our customers is nothing short of amazing with that let me turn the call back to an.
Thing to Sharon.
In these moments of uncertainty it is clear just how much of an asset and competitive advantage are multi channel platform truly yet.
As an example of the power of our platform in our recently completed Los Angeles auction in April.
84% of the equipment received online.
Even before the auction started.
V.O.C. true, we called priority bed, which opens up well in advance of auction day.
And the food or now toward technical agility, we quickly shifted all our agricultural auctions, the pine docks and loss.
Well when Australia, we combine several technologies and offered the market a unique ironplanet you reserve solution.
The answer up how we were able to act so quickly is quite simple.
We were already in on line company.
Hobin 19 highlighted the spears between our lie been online round or blurring interconnected and strengthen one another.
Whether we call it lie or we call it online, you're providing or customers with 100% digital auction experience.
Bind with World Class live operations, which managed to care in custody of their equipment.
However, and wherever they need us to be.
Before I close out to prepare the marks I would like to share some considerations on our second quarter.
We the lines are wouldn't innovation around key priorities.
<unk>.
The health and safety.
<unk>.
Seconds being there for customers to serve their unique.
And third.
Focus on staying both position with a strong balance sheet any improvement quitting.
As we look ahead weeks bad, but I'm certain environment to remain.
And current conditions indicate that you too could be the most challenging for the 2020.
Historically, Richie brothers does well and downturn and we expect that to continue.
Q too is you mean because of the uncertainties surrounding the quicker.
As all of you can really modeling right now was difficult given the number of unknown.
However, let me share some of what we are seeing in our business in in the broader macro environment.
Are international region is still very challenge by Lockdowns and border wish Clifton restriction hindering equipment movement, coupled with a high degree of uncertainty around the timing and strength.
As international economy starts to slowly we open.
We mentioned earlier that are international service revenue Q1 decline 23%.
We expect a moderately <unk> two two but still looks back the challenging operating environment in this region to compete.
Looking at North America now several forecast for the U.S. economy are suggesting G.D.P. declines up 25% Oh great.
The pandemic together with a dramatic lunges will prices will put more distress on to many of our customers.
And without question many consigners when you look like.
This pressure may drive incremental supply.
But some consigners that are able to me hold onto their equipment and take a wait and see approach in this certain pricing environment.
Equal bankruptcies in Queens those deals can take as long as close to 18 months.
The equipment finds its way into the auction channel predisposition.
A further notable item for our North American business is that we are cycling over the massive $93 million Columbus, Ohio auction from last year.
Which had a large liquidation packaged up will not repeat and Q2 2020.
Looking at current trends.
We're about a month in school quarter, and so far we're off to a reasonable start.
Are reschedule, Los Angeles sale was up 17% versus last year.
And the we scheduled Montreal sales was 29% above last year.
Although or more like Netherlands April auction goes down 74% versus the same events.
Last year.
Removing showing the impact of the constraints international business.
As for the balance of the quarter, it's still early as our auction calendar for the quarter is how believed back and waited with the majority of our auction events scheduled in June.
Are cautious approach to Q. too is also informed by the macro conditions.
The H.T.I. and nonresidential construction data are showing uncertainty in decline.
And it is unknown at this point, how or when governments stimulus can help offset any potential decline and demand for use equipment.
Recently announced or young production costs and issues around only on supply chains may affect the availability of new equipment.
In the would be some credence affecting our used equipment supplies.
And finally rental companies are cutting cap x. and eating out.
Which could negatively impact equipment, but this vertical brings to auction.
Oh, and taking everything into consideration you can understand why we're viewing you too.
<unk> quarter of the of.
As far as looking further into 2020 and the back half of the or it would not be responsible for us to speculate that far given the degree of uncertainty lack of visibility that's all right.
In closing.
While the new tune would be challenging you remain very confident in the strings and resiliency of our business over the long so.
I want to think.
Our employees for those dedication and hard work.
There is nothing normal about the situation in which we find ourselves today.
And our employees have risen to the challenge, taking the extra steps necessary to each other safe and to serve our customers.
I could not be proud or to be a part of this great something.
Would that operator, we've opened the line two questions.
At this time I'd like to tell everyone. If you'd like to ask a question. Please press star than one on your telephone keypad.
Or first question comes from the line of Michael Do me with.
Quarterback go ahead.
Open.
Hey, good morning.
<unk>.
Understanding is so early.
Long to get a sense for one you know how long you expects to maintain online only options.
Two you know what long term implications.
The transition.
And three you just you know where the spaces you amongst your competitors implications fiber chips or.
<unk>.
Hi, Michael and go see here happy to handle the question. So the the answer to the first question how long we expect to be online only I think we're going to let the surroundings. The the environment dictate that our business has proven that we can continue to operate and <unk>.
<unk>.
Keeping our customers and employees save.
While driving a very healthy marketplace. So the timeline of that.
Well continually.
Broader questions Bob Hope in 19 learning, it's actually been in it you know for me kind of just through my fourth month, it's been a fascinating journeying odd to see all of the learning in small ways and Billy very big waves. So on the small side of the blonde.
Fascinating to see how remotes work arrangements can very much work for us, allowing us to leverage talent in many parts of the globe virtually so that for sure. We we're we're going to take that for words, but also really the spelling this lie versus online kind of.
Dichotomy of our business, so kind of what I said in the prepared remarks. So when you think about the transactions building, 100% online that was a incredibly fast to that I want to give a huge not both to our customers, but also to our sales force to really.
Access to trusted advisers and change the entire sales process advisory services everything that we provide to our customers in a virtual always.
Ah, but equally important lead to remember that lie still continues imply despite the fact of transactions happened on line lie began as I said is more about where to see equipments. It.
So our customers simply prefer the vast majority to drop off the equipment at all auction site. So that we can perform all of the services inspections old way through closing of the sale I'm there'll be half and that continues been in this environment. The steps we've taken a staggering the drop off staggering to pick up.
Ah ensuring that you know all employees and customers. They say, but these are all of the learning stuff, we're going to be taken forward with us.
Okay, great interest so the last part thank God for that.
<unk> Oh.
I guess, you're competitive advantage to extra up again, so your competitors.
Yeah, you know it's interesting in our industry and I can still Queen you know being new don't really have great market share Mexico.
This is actually something that we are going to be putting in place. So stay tuned for that as we build our our broader data competency.
We've been investigating or capabilities and developing dum as you've seen with the launch a bar market trends summary report we show started in March.
And it deeply embedded data to me in our our bass products that so we're really not virginians flexing the muscle that is the the data source of Richie brothers to drive a lot of ask him in about our business figuring out market share is just kind of mix on the horizon. If you will first and foremost because it was.
I would understanding what's happening with the market, including being the leaders in the data space that we are and again that was the launch in March of the market trends report then you've seen and then much deeper integration into the our best product does all of the data sources available school, but we do in fact.
But we used that.
On almost any metres the trend is very positive for us.
Okay great.
<unk>.
Unrelated color for once you get your thoughts.
How we should think about the N.M. right revenue rate.
As it starts to run into some tougher Cobb subject you to.
Luckily for the near term.
Consideration being given to flexing commissions or she used to just sort of optimize the overall.
Yeah. Some Michael is sharing <unk> Oh handle that you know again, you're correct. We do start to cycle. Some pricing actions honesty signs that we choking June 1st of last year.
But again, we're seeing you know continued growth.
You the the mix of assets that there's really driving some incremental biographies and that's just the lower item end up not being cap at the top end of the rate.
You know and again the purpose of the buyer female really should make sure. The buyer was agnostic between each channel they purchased on and so that has been highly advantageous for us to enable that's <unk> that we can be so we expected rage, you know to at least toll.
Groom slightly but not at the same case that we've seen over the last year.
Perfect. Thank you I've got a shorter.
[noise] next question comes from the line of Gary pressed you know from Burrington Research go ahead. Please your learners open.
Yeah.
Mm.
I don't know if question was from Gary <unk> Research. If you learn is rooted please I'm your line.
No next question comes from the line of Michael Furniture from Bank of America.
Go ahead. Please your line is open.
Everyone. Thanks for thanks for taking my question.
Just following up on on the way I mean, just just bigger picture I know where lopping.
Harmonization see June June 1st, but just bigger picture, Sharon Sharon and why.
Give us the movie piece of wash it rate.
Go go down if that all I mean as it is goodbyes for ready to go upside with seeing more of these small value lots of you guys are adding a lot more services R.B.S. US you just walk us through the puts and takes and why.
Year for now wait like <unk>.
So again like all take that so just the first question was related to R.N.M. right. So that does not benefit from all the services that you talked about in terms of Richie brothers financial services, and we did say that we don't expect it to decline. We just don't expect rate increase should be at the same.
Late but we've seen for the last year. So we are still expecting it to hold and increase.
And you're absolutely right as we continue to drive further grows through our other value added service offerings, but don't calmly T.T.V. He wouldn't teach half of the homes you know revenue rage, increasing that we would expect you continue to drive.
<unk>.
Thanks, and under right. I mean, you guys were able to put up impressive corridor, which under it and think of only 15%.
The T.V. very low.
How do you guys manage this going forward because obviously, there's been some some years, where you have to supply demand balance and and you get caught off all sides with the <unk> out with the at risk portion of the business I'm. Just curious if you see yourself driving that 50% of underwriting up and.
Did you guys are going about that.
Yeah, So Michael and sharing again I'll handle that you know clearly <unk> balance sheet. We believe we are ones and the only competitor in space. They can actually support underwritten business at this time and that's going to be a much needed service that or.
Customers need and they're looking for liquidity.
Yeah, one of the things that we do look out we have tremendous data.
<unk> and you know we certainly so.
And you know over the road trucks, we call that would include for that we had already begun to see pricing compression in that category and so you know just all and and our evaluation team of just done really exceptional John.
Mitigating our risk exposure to those place declined by using that data and being very on top of where we see future price and can be you know clearly with this those oil and gas shock and cope with 19, but you know you're certainly taking a very prudent.
Coach to valuation and you know again, we will continue to take risk you know as it's required goes through in taking inventory position or guaranteed contracts. When right deal comes along and then you know also do a bit of a pitch for.
After that we have those <unk> pricing tool, which we just launched this quarter and so certainly that you know pricing information is not only available to us, but it's also now available to others and you have access to that.
Buster website.
That's that's helpful and they just when you're referring to other downturn and just focus on the market I was hoping to just flush out how close it is maybe impacting your ability to gain share in the other aspect categories. Obviously, you have government planet and other platforms are you seeing.
Because of your platform investment technology are you guys seeing an increase in ability of the auction marketing other off the categories. Aside from just the construction and heavy equipment, but you get that served and prior cycles. Thank you.
Yeah.
So I can start and maybe and you can add some color you have clearly our primary business is construction assets and over the road trucks transportation assets you know close.
And we'll continue to be or prime focus area, particularly in the underwriting and deal.
Yeah. So we don't you were not at this point looking at sector expansion Oh. It we do expect that with the pressure. This now on oil and gas assets do you believe that that will bring more construction transportation or oil fields services trains.
Location assets to market you know certainly we will you endeavor to support consigners in whatever way they need and whatever I since they have but clearly are.
Reach you know is is really focus on driving or poor asset category being construction and over the moon trucks.
Yup sharing and I would only add to the Suzanne that the platforms that we have the technology investment is ubiquitous.
So it's really they are to provide a service with our customer for our customers in whatever way they need us to provided our customers. Obviously, the construction segment, but if you take a look at any of our sales, especially <unk> featured and marketplace in there.
White c. span of equipment, so across a category means anything from you know vehicles all the way some very very having a mining equipment. So the technology.
Allows it to be whatever we needed to be and in fact, that's more our customers focus our land 60 use of expertise in this industry that is kind of causing construction to be our bull's eye, but lots and lots of brings around that center, allowing customers teens our platform for.
Liquidating anything.
Yeah.
Next question comes from the line of Scott Trabzon see I'd go ahead. Please your line is open.
Thank you good morning, so driven the pain to the your competitors and physical auction you planning to put some initial efforts into identifying the competitors. That's that's a good bolstered certain geography is auction product lines or or you already well into this process.
So it's got its Sharon you know I I don't know is that.
Acquisition find his question is that what you're asking.
Exactly.
Yeah. So <unk> you know clearly you know our first priority is to get through this crisis and make sure that we have cash.
Porch, you know the needs of our operational business and again, it's important to dividend. So although there may be opportunistic Oh, you know options that become available still state dark primary focus we will look at things if they do fit our network, but right now.
Would not say that could pop priority for us to add on additional regional competitors.
This is from the you'd look up further down the line or do you need to see how things really should code.
Yeah. So you know clearly we're always looking at acquisitions that we think that you know we bought the technology that you actually takes us beyond regional boundaries you know so our approach on regional acquisitions in.
<unk>, we believe that our technology is actually the the primary and basically allows for that grows but as as I said, we're always open to look good opportunities that they Ross.
Yeah.
Is this pandemic permanently changes the.
Kind of the landscape of how auctions done.
So it's very helpful.
Oh next question comes from the line of venture Nice ski from Raymond James Go ahead. Please your line is open.
Morning.
Mmm Hello can you hear me.
Yes.
<unk>.
Hi, guys.
I guess I'm trying to figure out how you like what.
What's the net impact for you guys from the current macro environment I mean cause a couple of puts and takes.
As you've outlined you've got you know you become the one source of liquidity you moved your auctions online other capability.
You drive off dislocations.
And yet on the other hand, you know you're protecting the balance sheet, you sort of withdrawn targets on our or see I understand that we we just don't know where we're like the you know visibility and modeling that's.
<unk> no but I.
I guess I'm trying to figure out what the not take away is here is is is something that's going to be yeah, even beyond the second quarter, which I appreciate.
Already quite visible.
How does this impact your business is <unk>.
I met negative for the time being.
Yeah. So let me start and so this is an high band and then we'll cheering can't of course, adding.
So modeling I think is is the key word here and so we are running scenarios, taking all of the publically available information.
And running model. After models. So we have models that looks like L. that says you know recovery will be a ways away. We have models that look like means that how about much trawl, but then a fairly quick rebounds, and then we have double use that kind of bounce around.
And under all of the scenarios first and foremost we want to make sure that from about when shooting equipment simply you know we'd have no issues and that's what you heard from Sharon so that symbol.
Number two is Q1 is a microcosm then you see the puts and takes for our company are largely in kind of improve positive in the long run we're confident it is very positive.
Question for offices, what is the link of the uncertainty, but less than the length of the recovery, but really the length of the uncertainties. So if things get worse, and we know that or maybe even more need for liquidating because you know books or let's say going out of business those things for sure.
Or come our way, but they can take as much as 12 to 18 months to work through the system. The bankruptcy process until it finally makes its way to auction.
During the snapped back and recovery then obviously all the stimulus packages and you know kind of construction boom that bodes well.
I think what you're hearing from us as in the long run were very bullish obviously, a very strong Q1, we believe cute too is are they just challenge again April started while but the uncertainty around surrounding too too you know something you just can't look away from it's a reality.
And I appreciate that you've migrated these events on line and that most people are already bidding on line anyway, but.
How do you feel the pipeline of trends like your business.
Dairy relationship.
Transactional your territory managers are out there hustling deals every day, how do you how do you fill the pipeline of lots and transaction going you're under a lot don't travel restrictions customers will watch on their sides to inspect or if they do it's very difficult to do that.
What's that impact of those kinds of variables on your business.
Yeah. So <unk> you know I have had some really incredible learning since I've been here and very positive surprises. So I think that when you're highlighting has been maybe the most positive up demo. Besides the fact that we were a digital company along.
And now just acting like it with a very strong light operations. So what has been very surprising in a positive way is that our sales organization is actually not missing a beep.
They have moved all communications and advisory services to our client base, which of course had over 60 years into virtual environment. So completely staying on top of every development finger on the polls.
Candidly been busy are now than they ever have been before but meeting to ensure that will really listening and understanding our customers and what their needs are what their time lines are and and it's Sharon said, obviously, having all of the tools that our disposal all of the data the new pricing tools to help and Mormon guy either.
What our customers should do so that's been really incredible turn of events.
And then secondarily with those stay in place <unk>, we have had no issues stuffs are very very.
Very spotty if any at all on inspection services. So our inspectors are out and about obviously, taking all of the health and safety precautions.
But inspecting kratos, bringing them to market. So on the sales side I mean inspection side on the supply side of the business interesting very very strong you know virtual environment. It's just a testament.
Yeah, but I can appreciate that and I imagine that is very impressive I would still.
Question, whether you know what the human factor in his with all of this if you can really build relationships over a screen versus the fishing boat and.
Dinner on the way the business traditionally was developed the relationships and the trust was built I don't know so.
Maybe that's changed in the World guess, we'll see but I I thought to think that has an impact on the long term market development opportunities for Richie brothers for your your sales force.
Return managers.
Well, let's hoping the long run we can get back to both fishing trips and governors, let's hope [laughter] forever.
No kidding.
And so I guess another long run question, just given what's happened here and in your transition to the digital platform.
Do you see a permanent change in the model when we do <unk> return to normal like do you think you need.
Five auctions anymore do you need the big.
Fitting groups and as many sites as you've got or you know does this I I appreciate the central depository component to the business, but like the model could look radically different if you don't.
If you really don't think you need these yards anymore.
Or as many of okay.
So then that is that is interesting question and that's been my biggest awesome I've been here is really when I came in.
I was thinking or borrow live operations versus online more as you would think about you know retail landscape right. So you're shopping and a physical brick and mortar store tomorrow, you know I'm home and I click on a button and the warehouse that used to ship something to the physical store just shifted to my.
That was my preconceived notion coming into Richie brothers, what I have found coming in here is that that is not what online, though so by those for us kind of as I as I shared a little bit into prepared remarks.
As as you stated the majority of our actual transaction the bidding Oh alive auction already what's happening online.
So when we say we were always a digital company that shift was more about the technology back and ensuring that can handle that higher volume low, but all of our systems and prophecies were set up to us to handle that already because that's who work.
<unk> Oh this is really about.
Or something to shoot for the customer and understanding what they want to do with the equipment and the vast majority of our customers want to hand over their equipment, you know when they no longer needed, but for us to handle soup to nuts. So drop it off at her site. We do the inspection we do all the <unk> the product we we we.
Though you know customers coming in to take a look support auction. We obviously manage the transaction and then we are the ones that manage the kind of pick up and delivery part of it that is the vast majority of our customers <unk> desire that that's a huge source of advantage for us and really world class light operations that allow that.
Happen some portion of our customers. They know look I don't mind I'm going to keep the product.
When handle everything remotely where we send out inspectors are kind of do everything buccilli with the title immune search the customer than kind of handles the interaction with the seller to ensure pickup you know when we still close the transaction. So I think as as we think about like besides it actually has very little.
To do with the auction the transaction. So it has to do with this ridiculous service we provide for customers for care custody in control of their products, we intend to be there for our customers. However, whenever they need us and though the thinking around number of sites and all of that will be through that lens I in terms of providing.
Service to our customers and not at all around you know, Dave auctions and even before this the vast majority of that did not happen is alive auction site.
Yeah, <unk> proximity to airport in hotels to facilitate on site bidders and <unk>.
Those kind of factors in where you're located your options are big they were <unk> could all change.
I think all of that isn't you know in consideration, but first and foremost is ensuring that we provide the service that our customers want need and.
Value.
Okay. Thanks, a lot of insurance.
Right.
Then again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keep card.
Question comes from the line of Shirlon Radborne Treaty Securities Go ahead. Please your line is open.
Thanks, very much in good morning.
So on that on balance your outlook commentary for Q. too was pretty cautionary and I guess I'm just trying to square that against some pretty impressive performance at the Montreal and L.A. auctions in April really kind of at the height of the lock down.
In this part of the World is there a reason that we shouldn't see those as sort of encouraging data points.
Yep, So sherlin Hello with fan that's why would we the the answer is of course April encouraging. The answer also is cute too is fraught with uncertainty.
For everything and this is more kind of on the macro considerations, you know or been company specific who just comes back but I highlighted during the prepared remarks, but let me bring the more to like right. It is a fast we're going to be laughing, a Columbus, Ohio auction versus keep two of last year, that's not going to <unk>.
It is the fact that are international business.
What's hit hard disk and we don't expect that to significantly change in some too.
Other macro considerations and you know we're hearing them candidly as much from you guys as as anybody else, which is obviously the volatility in the women gas that couldn't what does that mean, some all young taking production club. So does that mean those in short term supply chain impact.
Rental companies potentially cutting kept back so holding onto equipment a little bit longer again, we believe these are.
Short term in nature of course the question.
Is how short term.
And so again, that's why we all of that makes us cautious about cute too.
And you know potentially making that the toughest quarter of the your your common sherlin are exactly right sums up from any kind of reasonably long term perspective.
This is a company that does Wow period, and good times and bad during the short periods up on certain team that that we find ourselves cure for can to want to be cautious another approach.
Okay and do you have any theory as to why you know the mobility of equipment and locked down to have had a greater impact on your international territory versus domestically in North America.
Yeah. So I think it's a little bit back to words children's comments in the beginning witches and they were those markets were ready so off even in the back half of last year. So that's number one number two Kobe Pittsburgh and it hit hardest obviously asia than spreading to.
One of the first outbreaks in Italy happens to be very very close in close proximity to to that site. So I would say the backdrop was not you know the trend was already saw coming in and then it was hit hardest and now with slowly reopening.
We're very cautious we're optimistic about what we're seeing but again the thought of that kind of turning on a diamond too too.
That that is not not something that we think is a high probability event. Yeah. In parallel parking was also on the line.
We want to to add anything from an international.
Sure Shirlon I think.
The question around the border control so the difference between North America and Europe, mainly.
<unk> in North America someone buys something in Washington State more strict to California, There's no quarantine when you go back and forth compared to Europe now with the border closures, where the customer from Poland goes to Germany to buy something they the drive rest quarantine for for two days and vice versa. When they come back to pull miffed quarantine. So that's kind of put a damper on.
How the equipments moving from country to countries, even within the U.
Okay. That's very helpful color, maybe if I can just sneak in the last one you came to the end of your initial performance period on go planets, you've renewed that free year. Maybe you can just comment on how you would evaluate that first a two year performance period and.
Terms of cross selling with the existing Richie brothers customer base and you know the return on capital employed into things like warehouses in inventory.
Yeah. So let me start and then maybe we cannot sharing to pick up the thread. So I would say the headline from gum planet for me is learning about new competent seems a new customers and candidates and but it has been invaluable. So as we you know on the surface.
We're in auction house, but obviously and and we've been in the Gulf printed business on the rolling stock for quite some time really it's been nonbuilding that was new to us required us to build warehousing competencies, a different kind of interaction with customers and I feel like that's been a tremendous.
Oh, we obviously so good up me we extended.
And really what we're going to be doing over this next period of time is thinking through our competencies how to bolster the what came as business we drive Ah.
Values and get out I'd to the various customers, obviously buyers and sellers. So we're still very much and now taking the learning something to pad and then moving them into the space. So what if that and it's a long term and cooking in terms of additional investments or anything else looking forward. So we're very much.
Wishing to bad now now what state.
Thinking.
<unk> anything you would like to add.
Oh, I think you you can handle it and that's great.
Okay. That's all for me thank you.
Thank you.
The next question comes from line of Kevin Condon with R.W. Baird. Please your line is open.
Good morning, and thanks for taking my question many of them have been answered, but I was hoping you could shut a little more light on what lovers you have with US you know expenses mentioned, a fairly six cost base, but you know would potentially an accelerated shift to a more digital model understanding you've had the online channel for a while you're physical infrastructure is still important and advantage with online.
But are there are opportunities to meetings. We change your costs are lovers, you can pull to reduce S.G.N.A., especially I'm going up essentially more challenging G.G.T.V. environment.
Yeah totally sharing all all handle that and so good question you know we didn't actively monitoring nurse and since the last few years and you and so we are looking mostly yet productivity on a daily basis now both regionally sites to really try to understand during the.
Downturn, how best to respond.
And we have done some very small action.
In a couple of business units in a couple of region, but mostly our teams are are fully active in particularly in our core U.S. in Canadian business. So we've not had to take significant actions. There you know I think you're you're commented the shifting.
To the online model.
You know as long as customers still want us to take care of costing control of their assets. The sites continued to be essential handling that that equipment can ensure that they are cared for appropriately bother you know <unk> still essential so we will okay.
H really learned during this period about what are the learnings around efficiencies that we could continue with in the long term.
But we you know just really want to point out. This is not really a typical you know beat as she online business in just simply because of the needs of our customers and the need that they have for us to store and handle their equipment to prepare for sale.
Understood. Thank you.
[noise] printer or no further questions about this time I'd like for him to call back over to Mr. My wanting for some closing remarks.
Thank you James Yeah. Thank you everyone for joining us when it first quarter call. You have these bills are full of course, please don't hesitate to reach out to me otherwise we look forward to speaking you all again in a in August for our kids you go.
Computer cool thank you very much.
This does conclude today's conference call you may know disconnect.
[music].
Oh.