Q2 2020 Ritchie Bros. Auctioneers Inc Earnings Call
We use and our customers.
As a continuation of our culture. The response efforts from Q1, we stay vigilant in sustaining hygiene and disinfection protocols as well as that hearing for social distancing guideline.
The vast majority of our employees continue to work from home.
But for those that needed to come to one of our offices our auction site over visiting customers. They were provided with full personal protective equipment packages.
We are taking every opportunity to reinforce safety protocols and guidelines at our town Hall meeting company communication and local form so we have a consistent and sustain drumbeat around health and safety.
Second.
A key focus area for us was to ensure our customers will receiving a world class experience during these unprecedented plants.
With all of our auctions moving online our digital platform and big data led the way.
We couple the platform with demand driving digital marketing to deliver a very strong outcome for our customers.
RB dotcom saw tremendous slipped with online traffic up 44%.
Search conversions of 89%.
New accounts of 109% an online registrations up 81%.
Our lifecycle also played an integral role in our second quarter results.
Despite 100% of our auctions being held on line the sites allowed our customers a single quake could bring products. So we could take care custody and control on their behalf.
Getting the equipment ready for sale inspecting it marketing the items and finally closing the transaction.
Furthermore, our sales professionals took their role as trusted advisors to a whole new level.
Using our data analytics tools now embedded in our best products to help our customers make the best decisions of what when and how to sell their product.
[noise] these growth numbers and metrics punctuate the confidence that we are giving our customers in our ability to facilitate a two sided marketplace and drive solid outcomes for buyers and sellers.
Even under these pandemic condition.
Finally, our third priority was to focus on the strength of our balance sheet and maintain our financial flexibility in very unpredictable clients.
Sharon will go through our balance sheet and liquidity insights in detail shortly but I'm very proud of the teams focused on cost control together with tremendous stewardship of our capital.
We were able to leverage our balance sheet intelligently and mitigate risk while meeting the needs of our customers looking for liquidity via at Wisconsin.
And now.
Over to Ritchie brothers CFO Sharon Driscoll.
Thank you and good morning, everyone.
Despite very challenging pandemic impose operating conditions and coupled with cycling over a large nonrecurring U.S. auction event in Columbus, Ohio. During Q2 of 2019, we were able to deliver 1.5 billion in GTV.
Equal to last year's GTV performance.
This was a very positive outcome and a clear testament to the level of execution from all our employees across the enterprise.
Our cautious tone going into the quarter was warranted given the uncertain nature of the pandemic and potential operating challenges, we faced resulting from movement restrictions of both people and equipment.
And while we did experience some sizable headwinds due to covert in our international region, the government sector and in our Ritchie Brothers financial services business unit.
We were also met with better than expected equipment supply with Consigners actively seeking liquidity, primarily due to the depression in oil and gas prices and continued pressure was in the transportation sector.
As Dan mentioned, we manage our cost with a high degree of discipline and also experienced some incremental cost efficiencies as a result of our shift to online.
Through this strong cost performance, we were able to generate significant operating leverage and deliver 10% earnings growth with adjusted earnings per share a 54 cents together with operating income growth of 14% and they 24% year to date improvement in operating cash.
Hello.
Two little deliver this level of performance in this pandemic environment is just exceptional and I could not be prouder of the entire team.
How are you s. team had a very strong quarter.
Once again, both our regional and strategic accounts teams executed through uncertainty market dynamics to deliver positive GT Greek GTV growth across all channels and posted its strongest online quarter ever.
This U.S. team delivered these results despite cycling the nonrecurring 94 million dollar Columbus, Ohio auction last year and softer GVE planet business due to military base closures.
Normalizing for these two events the U.S. team delivered mid teen levels of GTV growth.
Underpinning the U.S. teams exceptional performance was higher sales team productivity as out all our U.S. divisions continued to build momentum and achieved improved performance against our internal stage targets.
The Canadian team also delivered a remarkable quarter with solid positive GTV growth across all regions.
Our eastern Canada team drove strong growth led by transportation sector volume. The addition of the rescheduled Montreal auction from Q1 and solid growth in our marketplace E format.
Our agriculture team had a very strong quarter with the online hosting of 95 on the farm auctions plus two offsite events and the team received tremendous positive reception to the town or timed auction lot format.
As a result of the strong performance using town, our agriculture team will be retaining the tells format for the remainder of 2020.
[noise] GTV in our international group was down significantly again in the quarter, but did show improvement over first quarter results.
The majority of our international regions were still in various forms of walk down or managing through border restrictions and the result in corn team implications.
Thus, making equipment delivery in and out of our sites challenging.
Oh, our lives events have now transitioned to 100% online through our towel offerings, along with our Ironplanet and marketplace East solutions.
The tell solution is delivering a very positive buyer experience based on customer feedback and our ability to quickly pivot to 100% online has not only show me international market, our online capabilities, but proven that we can deliver exceptional price realization on this platform.
During these uncertain times.
We're also seeing early signs of reaching a whole new type of customer both buyers and sellers as a result of utilizing the town solution, which is an encouraging sign and one we are monitoring closely.
Overall, we continue to deliver positive operational metrics. Despite a reduction in the number of listed items, resulting primarily from the government shutdowns and softer international volumes.
Buyer demand metrics surged in the quarter with prices holding well in most categories.
Our marketing team is doing an exceptional job, bringing buyers in and driving strong interest and participation across our global buyer base.
Moving now to the financial highlights.
Our total revenue decline of 1% was attributable to our inventory sales revenue being down 2%.
Partially offset by flat service revenue.
Commission revenues decreased 7% on flat service GTV, primarily due to softer commission rate performance from a higher proportion of GTV sourced from strategic accounts and lower revenues from our government operations.
Total fees were up 9% driven primarily by the mix of small value lots, the harmonization of buyer fees and higher fees from services within our U.S. operations, which was partially offset by fees, we waived for Canadian on the farm auctions as part of our Covidien <unk>.
Team pandemic response.
Operating income increased 14% to $89 million, primarily related to lower cost of service expenses.
These lower expenses were the result of changes we made to our operations due to covert which included our transition from lives onsite auctions to 100% online bidding.
Transitioning over to timed auction lot solutions for selected international and on the farm agricultural events and if hearing to impose travel restrictions.
These operational changes resulted in significant cost reductions in employee compensation travel advertising and promotion expenses.
In addition, we incurred lower year over year referral fees.
Which are fees, we pay out from time to time to third parties for referral business.
Reported net income decreased 2% to $53 million, primarily related to the increase in the effective tax rate due to a one time 6.2 million dollar tax adjustment.
Partially offset by the higher operating income and lower interest expenses in the corner.
On an adjusted basis, excluding the 6.2 million dollar income tax expense in the quarter. Our net income was up 9.7%.
As a reminder, the onetime tax adjustment was primarily due to final regulations published on April eight that's 2020 by the United States Department of Treasury and the IRS. The clarified the income tax treatment related to hybrid financing arrangements, which the company recorded.
In 2019 and in the first quarter of Twentytwenty and that they would not be deductible.
We had recorded income tax benefits of approximately 6.2 million in the 12 month ended December 30, Onest 2019, and an additional 1.1 million in the three months ended March 31st Twentytwenty.
Which are no longer deductible.
Turning to our auctions and marketplaces segment service revenue was essentially flat in the quarter.
On a regional basis U.S. service revenues increased 5%, primarily due to an increase in fee revenue driven by the mix of small locks the harmonization of buyer fees higher volume of GTV and inspection service fee revenues, resulting from the increase in our online platform volume.
The increase in fees was partially offset by lower commissions due to softer rate performance driven by a higher proportion of services GTV sourced from strategic accounts and lower revenues from our government sector.
Canada service revenues were up 2%, primarily due to higher fee revenue driven by the biopsy harmonization and higher total GTV, including the shift in the Montreal auction coming into Q2.
Partially offset by the weighting of the buyer fees for Canadian on the farm auctions as they move to the tell format.
Our international service revenues decreased 33%, primarily due to lower commissions and fees on lower overall services GTB.
The lower total GTV was due to softness in the international region, driven by pandemic related equipment mobility issues due to walk down and general economic uncertainty.
On a rate basis, our auctions and marketplaces service service revenue rate came in at 13.4%, which was essentially flat to last year.
Moving onto our auctions and marketplaces segment inventory sales revenue.
The 2% decline in our inventory sales revenue was primarily driven by cycling over nonrepeating large inventory deals in the U.S. during Q2 of 2019.
And lower sales of government surplus inventory due to cope with related government shutdowns.
Well, our U.S. region inventory sales were down 18%.
Hi, Merrily due to last year's Columbus event, and this year's Gov Planet declines, our Canadian and total international regions inventory sales revenue was notably up 43% and 11% respectively over last year.
On a rate basis, our implied rate of return on inventory deals in the quarter was 7.7%.
Which was up over 200 basis points better than our second quarter of 2019.
Each of our major regions posted strong positive year over year rate growth with our Canadian business, leading the way with over 900 basis points of improvement, partially offset by lower planet rate performance.
Our at risk portfolio of business continues to be active and we're very pleased with the overall performance during the quarter.
Where we faced unprecedented uncertainty as we were pricing and underwriting guarantee in inventory purchase contracts.
We have done an exceptional job of finding that right balance to support our sellers in search of downside risk protection, while applying appropriate rigor in our valuations to mitigate our risk.
Moving on to SGN a expenses.
As we continue to operate in this unpredictable environment. We have continued to rigorously manage our costs across the company and actively manage our expenses as we apply companywide efforts to control discretionary spending where possible.
Overall, our SGN, a increased 3% primarily driven by higher incentive compensation based on our stronger operating performance together with a special onetime bonus accrual we took in the quarter earmarked to recognize frontline employees for their above and beyond.
The efforts to keep our business running and continuing to look after our customers without missing a beat.
Partially offsetting those increases were lower overall operating costs.
The pandemic has undoubtedly resulted in lower expenses in the form of reduced travel and entertainment costs as well as other operating expenses as the majority of our employee base is still working from home.
Excluding the higher incentive compensation special bonus and share based compensation elements are SGN, a declined 5.6% versus last year.
Keep in mind. Some of these costs are expected to come back overtime as we are a sales organization and when it is safe to do so our sales team will be back on the road developing and nurturing customer relationships that have been and we'll continue to be integral to our success.
As a trusted advisor.
We're pleased with our overall expense discipline. During this period of uncertainty and we'll continue to apply a high level of diligence as we manage our cost structure and day to day expects expense management going forward.
Our disciplined capital allocation continues to be the cornerstone for our ability to navigate the current macro and economic challenges.
We remain confident that we have sufficient liquidity and access to capital to not only whether this health and economic crisis, but to invest and strengthen our company for the long term.
Our strong second quarter cash flow generation and disciplined capital allocation enabled us to strengthen our capital structure.
At the end of the second quarter, we had $538 million in cash cash equivalents unrestricted cash.
In addition to available credit facilities of $640 million.
Of which 470 million was unused at the end of the quarter.
We continue to be comfortably within our debt covenant threshold and don't have any material debt maturities until October of 2021.
Our treasury team has already started the process of renewing our existing revolving credit facility and term loan with the intention of extending the maturity by a further two years and we expect to close on this agreement at some point in August.
Our capital allocation priorities in this environment are still focused on disciplined cash management and investing wisely to support our business operations, while continuing to prioritize our dividend and where appropriate offsetting dilution with share repurchases.
Given our strong capital and liquidity position, we're very pleased today to announce a 10% increase to our dividend raising our quarterly dividend to 22 cents.
Underscoring the boards and management's confidence in continuing cash flow generation and our commitment to rewarding shareholders through dividend growth.
Also as announced yesterday, our board of directors authorized share repurchase program for the repurchase of up to $100 million worth of common shares of the company over the next 12 months subject to exchange approvals.
Finally at the end of the second quarter, our adjusted net debt to adjusted EBITDA ratio was 0.9 times continuing to be well inside our target ceiling of 2.5 times.
We are now through the second quarter under the pandemic conditions and continue to believe that we are well positioned with a strong balance sheet and liquidity position to navigate a multitude of economic scenarios and we plan to maintain our disciplined approach to investing capital to enhance the long term value.
Our company.
Turning to our balance sheet and liquidity metrics.
Our operating cash flow of $198 million for the six months ended June thirtyth improved 24% over last year.
The improvement was driven by higher net income and improvements in working capital.
Partially offset by changes in inventory levels and the timing of auctions versus Q2 of last year.
On a trailing 12 month basis, our operating free cash flow increased 112% to $349 million, which is the highest level of free cash in the second quarter in the history of our company.
Our year to date Capex spend of $19.3 million is currently tracking within our full range estimate for 2020 or $35 million to $45 million.
We continue to focus our capital spend on supporting our technology programs and essential property investments.
Lastly, our return on invested capital measure of 10.1% is showing good improvement.
From 8.3% in Q2 of last year.
As a reminder, as we stated during our Q1 earnings call pre coded 19, we were on track to achieve our stated evergreen ROI see target of 15% by the end of 2021.
However, with our priority shifting to preserving optionality in this dynamic period and maintaining access to cash in capital. We can no longer commit that this target will be achieved during this timeframe.
To conclude my remarks, I would like to thank our entire Ritchie brothers global team for their enduring commitment to serving our customers are.
Our frontline teams have demonstrated tremendous heart and character as they have gone above and beyond to support our customers at these difficult times and our people enabled with technology are the reason why we've been able to deliver such stellar operating performance for the quarter.
With that let me turn the call back to end.
Thank you Sharon.
We are excited to continue our journey of delivering a cool global omni channel marketplace for products and services.
It is through a customer lands with which we view our business.
Using our data analytics to advise not only asset valuation, but optimized finding a player.
Offering liquidity solutions, which span listings reserved auctions and unreserved auction platform to meet our customers me.
And service offerings, which spans data and analytics that include critical elements, a product care cost cutting and controls to facilitate the best value creation for our customers.
Before I close out the prepared remark I would like to share some considerations on our third quarter.
From a priority standpoint, they remain unchanged from Q2, as we stay focused on the health and safety of our employees and customers.
Continue to improve and optimize our customer experience.
And maintain our advantage position by continuing to focus on our balance sheet of strong liquidity position.
As we look forward, we are taking a balanced approach as the pandemic will undoubtedly continue to cloud the outlook and while we see a number of upside opportunities when he could be considerate of the uncertainty in Wisconsin.
From an opportunity standpoint, we're coming out of Q2 executing well in July is off to a strong start.
Auction comps are coming in well versus last year, including the addition of four auctions in July that shifted from Q2 last year into Q3 this year.
Costs, a new more dike, Netherlands auction. This year would you didn't occur in July 29.
We are also to positive improvements in our international regions ability to move equipment across jurisdictions and we are optimistic we will see further improvements in our international before.
But we are aware that any resurgence in the virus could quickly codes things down when again.
Additionally, consigners are focused on cash flow and inventory management, which should continue to drive liquidity.
We are also watching for both timing and magnitude of potential for government stimulus packages to begin driving infrastructure spend as well as the potential that consigners currently taking a wait and see approach could decide to act in terms of equipment Dispersals and fleet we aligned.
Looking at some of the factors that are driving the risks or uncertainties. We're very mindful of the surge in new cobot cases in the U.S. and there's a risk broadly, but things can take a step back and restrictions maybe reinstated in the U.S. and potentially in other jurisdictions globally.
Also.
We may see a negative impact on equipment financing with recovery, taking a longer duration.
Lastly, we continue to carefully monitor any potential changes in the sentiment, which could impact the equipment demand and soften the corn pricing environment as we progressed through the quarter.
All in all there're a number of puts and takes but we remain cautiously optimistic about the near term we.
We will continue to focus on those things that are within our control.
Look to build off of Q2 with.
In closing I want to once again, thank our employees for their dedication and hard work in delivering a very strong quarter and serving our customers safely.
With that operator.
Please open the line to question.
If you'd like to ask a question at this time. Please press star one on your telephone keypad, if you'd like to withdraw your question press. The pound key first question comes from Cherilyn Radbourne with TD Securities.
Thanks, very much and good morning.
So strategically these results would seem to beg the question of whether Ritchie brothers can move more of the business online permanently and retain some of the current cost efficiencies without sort of losing their community and crowd atmosphere of the live auction, but I think it's been an important part of the franchise over time.
Fine So just curious to get your early thoughts on that.
Hi, Cherilyn this is that and Ah the to hear your voice, hoping everybody staying safe out there.
Oh, we are super proud of the results. The team has achieved and our really mom during the balance of the lies experience as well as the online experience. So just to kind of reiterate a point we made during the last call 100.
For kind of the auctions have shifted online our and our secret all the long had been that we were a digital company.
That said, our light sites continue to be busier than ever odd taking care of custody in control of the equipment until we can get ready for sale.
Inspected market it for our customers and obviously then realized a the highest possible value for them during the online transaction.
So we're really taking this opportunity as customers get more and more used to.
The actual transaction happening online revaluate, the entire life experience first and foremost who the customer learn the inquiry line as well as any operational efficiencies to be over the long term.
I think as Sharon said in the beginning a we are a sales first organization and Oh, you know we are benefiting from 16 years of relationship and investments our sales organization because mood with your customer base like any relationship are those will require a reinvestment.
Over time.
And we will continue to do those prudently when it Creek.
Okay, and then you Didnt make reference in your comments to lower fees paid to an unrelated party, who makes referrals on large dispersals with equipment that was due to me I was just hoping to get some color on those arrangements.
Oh, so sherwin that its share in here that particular comment related to the large deal that we did a year ago. We do frequently go into partnership type agreements or referral type arrangements I'm, particularly on large insolvency.
Deals, where there are aspects to the close out of that business that we can't handle a so that that really was I'm not totally unusual but it was a larger amount the normal a year ago, just simply because of the one transaction that basically seated.
That Columbus, Ohio event.
Okay. That's helpful I'll get back into and keeping the time.
Next question comes from Craig Kennison with Baird.
Yeah. Good morning. Thank you for taking my question kind of a follow up to the prior question, but I'm curious how you think of your remote and going forward with the shift to online activity do you think that accrues to your mode to in your differentiation and in some ways do you think that.
As pandemic my I.
I guess or widen that mode overtime.
Hi, Greg Yeah, we are.
Super proud of our platform, we can call it a mode.
And really the omni channel nature of what do is being showcase our during cold. So let me explain what I meant I'm right that statement and the fact that yes to your question that will only continue.
The real how customers, where I would call the best of both worlds.
There was an online transaction experience and to remind folks on the phone Ironplanet has always been fully online to the transactions Ritchie brothers, even before comp co bid was two thirds online. So our pivot had more to do with going from that two thirds, taking it to 100%.
And that was more about back then technology systems. The book I can though the bandwidth the low wood and really driving demand.
To a level, we've never seen before in terms of online.
In terms of our operation, there's always been a balance of lie than online cannibalized by our during cold with who bring more important than ever before for our customers with the need to provide liquidity. So quickly they're desperate for an opportunity to kind of dropped their product off without.
Knowing we got it we've got the optimum therakos and control for them, we'll take the product we will spirit up when it needs that Ah we will expect it properly we will market it properly and we will extract a little bit back the value for them. We are that's needed.
In terms, though is that are most we certainly going so and the early performance would indicate that you know it as being very well received by our customer base and they're getting the optimum value for what we provide a and similarly it gives us a you know the wherewithal to continue to go can.
Batsmen to continue to drive that performance and the experience higher and higher.
Both in the digital landscape as well as providing the best care cost control of the product itself.
Thank you and then could you comment on our B assets solutions, How's that product evolving and what does your adoption curve look like today are you satisfied with it.
Yeah. So we are we are very very excited about Oh Ritchie brothers assets solutions. So the way to think about where we are in that journey anytime you're inventing right. When you go through phases.
Initially in our plan was to have a 15 account in which we kinda who the value of you know what does the data what does analytics what to insights bring to our customers.
We are now over 80 such accounts.
Now in terms of demand customers, a super strong and we are viewing it as a long term platform.
First and foremost could provide customers with critical data and analytics, they need to drive though business.
And then ultimately to use it as a platform by which could provide other services some of which were currently in the business. So today I in some that would that will come along because only the technology platform can facilitate them coming into being so we are super excited and moving.
Cautiously and appropriately from the invention phase of our bass, beginning a scaling phase or.
Thank you I'll get back into queue.
Next question comes from Michael domain with Scotiabank.
Hey, good morning, Great quarter I'm, just wondering if you guys could elaborate Holly increased GTV momentum exiting Q2, and [laughter], there's always been business such as you know getting apples to apples comparison is difficult to do a shift in the auction calendar. So I'm, assuming you sockets, just as long as I mean that weekly.
And daily options, just wondering if you're seeing it.
For what type of momentum were seeing any outside auctions and if that's more pronounced region to region in any numbers would be helpful.
Yes, Michael So I'm very very proud of the business and certainly the 1.5 billion dollar GTT headline is a very strong outcome, but we need to unpack it to really explain whats happening a under the surface and put it into context. So the first thing is we.
Cycled, a very large nonrecurring Columbus event Fisher and stated earlier in the call.
And we had significant headwinds in our international business.
As well is in our government business with base closures are both a list of which were obviously out of our controls. So if you peel that back in the U.S. business net of those effect was up very healthy mid digit a year on year in terms of GTV.
And North American General just saw an incredible incredible amount of momentum out strong demand.
Passional business kind of came together to provide that one 5 billion, but amusing unique pieces with a headline really doesn't tell the story of what happened underneath so we are incredibly proud.
Of what the organization was able to achieve.
And then on International G. T V. I mean, just give them a backdrop I would think is there a number of consignor is.
Or at least have the desire to sell down.
Equipment.
As you mentioned border restrictions.
See an obstacle I mean as a story there that equipment supplies pent up.
Or have you seen containers go through other channels, maybe disposing assets through more local channels.
Carl you want to I think Carl's underlining with him so hard when you can't see the people in person if you are.
Comment.
Sure This girl Worner.
We are seeing a bit of pinup supply, we're not seen it moved to other channels right now, but as you noted the lockdowns border closures travel restrictions had been much more intense.
North America, but the good news is Q1 appears to be are are low watermark for international.
You too was betters and noted.
Q3, Q for we're seeing that start to loosen up.
Okay, great 'cause greatcoat again, thanks for the answers I appreciate it.
Next question comes from Scott from some of the CIBC.
Thanks, and the good morning, just a follow up question on the RBS that solutions are you seeing increases in customer activity levels in the use of the services.
As well as interest from potential customers.
Hi, Scott and again, and I'm, hoping that ackley or.
Officer.
The most passionate about our best once the answer that.
Alright, Yeah no Scott.
We are and one other ways, we measure that is assets under management.
So we're seeing an increase of that we currently have over 1 million assets under management in the inventory management system.
Which is really the key to the RV asset solutions platform.
A dish and we also monitor the number of assets that we say get work flowed into our market places.
And we're seeing an increase in that activity as well it was up over 10000 assets a year to date so that is.
In addition to users who <unk>, who start to use some of our various tools that we've layered in two RB asset solutions, such as our new pricing tools, which we which we've introduce some beta products and cute too we really start to measure the assets under management and how they're flowing to the to the various marketplaces.
So it sounds like you're working on expanding the services on the platform what kind of capital investment with that come with please.
I think it would be.
So it's Sharon here.
Certainly.
It's technology based investment.
Relatively light spend because the based on the foundation is is there and it certainly is already included in our.
Current guidance range on overall capex spending per year.
Perfect.
Goes off with one quick question on.
Financial health of your buyer and seller customers can your comments on this trends you're seeing both through Q2 and two.
Two three.
In other words of your chain have you seen a change in their their financial health.
So if I sure I'll go ahead Sir.
Okay. So Sharon I'll start and then others can add color.
I think clearly in the regions that are affected by the downturn in oil prices.
Are seeing an acceleration of distress.
B at at this time undercover conditions, what we're seeing with banks is there not necessarily apply pressure yet to force.
Distress sales.
But they certainly we certainly do expect that that could be coming.
And that is.
Experienced some slow down and performance inside of our own Richie brothers financial service business.
Really what we saw the syndicate of banks in the background that support that business unit.
Put up more administrative type roadblocks.
Which affected our overall ability for he's inconvenience and speed in that in that sector.
So I do think we are starting to see an escalation of distress.
But we have not yet seen banks take action.
And I presume that would feed into your insolvency disposition pipeline.
Yes, it would.
Alright, thanks very much.
Next question comes from Ben <unk> with Raymond James.
Good morning, guys.
Good morning, then goodbye.
I wanted to ask about well first of all just trying to get a little more clarity.
On the nature of the quite traumatic increase in and profits.
Because.
T T V was flat.
Which you know in the context in the market was was an accomplishment. So it was very good performance. Nevertheless, it wasn't.
It wasn't the source of increase profits per se Hussein.
I would say the same as the the revenue mix.
The same the revenue itself was the same the revenue mix.
Does the same G&A is actually up a little bit so it seems to me.
I didn't really all came down too.
Well your inventory performance was a little better but really the cost of services are nice changing it used to call the direct expenses.
<unk> way lower.
First of all Sharon is that like I know there were a lot of puts and takes then the commentary which is very helpful. Understanding the various flavors, but not really what was the main driver here.
[noise] increasing the problem.
Yeah, So clearly I'd say, there's two things that drove it first.
Forest.
Reductions in spending so we were operating under distancing rules.
You had a very limited attendance.
And.
Yeah, we did allow customers on site to inspect the days, leading up to auction, but we didn't have anyone in the theater.
We were basically manning customer queries and questions all online all over telephones as opposed to in person.
Support.
And we didn't ramp the equipment, we didn't put on the theater component of the of the events.
So that's probably one driver of the spend reduction.
Second element would've been the lack of travel so the restriction.
<unk>.
Basically.
You know minimize the amount of spend that you could have in terms of people moving from one place to the other.
And I think than the other thing we did call out in that constant services bucket was the lack of a referral fee that was related to last year's.
Large deal in Columbus.
Clearly what I think you're also thing is in the U S business.
Large volume increase really speaks to the flow through operational profit potential of our business.
Because not only do you bet.
Coverage on those costs of services that you could not spend.
Get that full advantage of that business performance against our SG&A performance and so that all combined is what really has led to the operating margins list Ikea.
Okay. That's helpful, but just to clarify on the travel expenses, because you breakout travel and the SG&A disclosure and it does show or pronounce decrease but are there travel expenses that go directly to.
Go into the directly expenses would be auction if it's related to a specific your bedroom is.
Is there a separate costs that was lower than that component of as well.
Yeah see if you'd have travel expenses in bulk bucket. Since we have part time Renan are part time did catchers and they're moving from event to event.
They did not move so SG&A travel is only picking up the travel associated with our fulltime employee base, not our contractors and and part time workers.
Okay, well I'm, sorry, I'm, just not to belabor, but I'm I'm, a little surprised and maybe I'd be curious on whether or not you guys were surprised by.
How much cost savings or at least how many how much costs were related to running those options. I mean, you as you pointed out you still have to have a yard everyone's storms back schnoodle I'm sorry to access.
Delay the yard out efficiently et cetera, et cetera by not by simply not hosting and events and having a big catcher in running things over to ramp is that does it really that pronounced on on the cost side, because I'm just trying to understand if the model does migrate Moore.
In that direction, how much of a lift you got versus the other things like reduce travel that's going to come back and referral fees and things that were sort of maybe more one time in nature and the appointment.
Then this is an so.
Fantastic questions and we're evaluating that right now so I just wanted.
Take your question into two parts. So one is where we surprised to.
Surprised.
Would indicate kind of it happened.
Kind of to us and I think of sharing sad.
Hundred per cent Corbett happened to us, but how we reacted.
Regular with which we control costs.
The bucket.
100% of Testament to the team understanding the uncertain nature of the environment, we were going to be operating in and the fact that they needed to do their part.
Cross the globe to ensure that we stay very financial valuable unhealthy really to support our customers. So that's the first thing.
The second thing is.
You're getting at the question that Sherlin kind of asked a little bit in the beginning as well which is around how much of this is sustainable and we are going to that evaluation right now.
Can we take the learning from Coalbed, So obviously, our business starts and stops with the customer experience.
And we are evaluating the gamut of that experience starting with obviously into relationships with our sales professional but then taking it all the way through every element if you will of our operation so whether it.
How equipment has dropped off.
At the site, whether it's how it's inspected the pick up procedures everything one element of which is the live-action itself is you know what insurance spoke to.
Not an insignificant element, but it just one element of our lives sites.
And the purpose they serve.
Obviously with.
The flip 100% online it allows us a very clean way to look at each of those levers and understand what they mean.
But we are very much and evaluation phase right now understanding which of those.
Actually come out of cold bed are truly ones that you can pull to the bottom line and which ones are investments when you can make back.
Into for example, the relationships with our with our.
Sellers.
Buyers so.
We're not being coy here, we are very much in mistake of day evaluation.
No. That's that's a good answer.
If I could squeeze one more interest because.
Oh, you're timing.
Very.
Oh, well unique to come coming to hit your brothers in earlier you equipped it's hard to it's hard when you can see someone in the room.
What's it been like for you to try to get a sense of.
The Richie brothers people will hearts and minds, if you will.
Size up the culture, and and where do you want to take this business.
From <unk>.
And the screen.
How is that.
Major your your assessment more difficult or maybe easier I don't know.
Yeah I've been so as you know I started in.
January so I think I had a solid 10 weeks under my belt.
Four border shut down.
I will tell you though.
Richie Brothers is a jam packed action packed place. So in the 10 weeks I got a chance to spend quite a bit of time, obviously and R. Berner the office in our Pleasant an office that are are Orlando auction with our employees and customers in Vegas. These were kind of jam packed.
Full tilt events and I'm, so grateful I had that because it gave me a bird's eye view.
About what we do have we do it but really passion that our employees have.
For the customer and the business.
Honestly it is unlike anything I've ever seen before.
For me the word that use with our board of directors is magical.
This is in magical business made up <unk>.
People, whose heart.
Mine.
Customer first business for wanting to be there at all times and all things with our customers. So my sat my personal Fatteners has been coming out of Vegas.
Warner ahead of international and I were about to set off on our kind of global tour. If you will so that I could've spent more in person time with our international team.
And then my one of my that's my very favorite thing to do with spend time with our team and then close second or maybe a first is spending time with our customers, which again I was only able to be briefly.
Orlando in Vegas, and haven't been able to do in person. So then everything has transition to zoom.
And I'm grateful the technology has been there so they could put a name to face as could I, but I am.
Inches to be able to meet people face to face Sharon meal and really.
For the Magic that is this business from our employees our team members and our customers.
Okay, Thanks, very much and good quarter.
Thank you.
[noise] question comes from Michael Feniger with Bank of America.
Yeah. Thanks for Squeaky me in and taking my call I mean can we just level set.
The big picture the addressable market for used equipment transaction is massive over the years investors have doubted if you could really penetrate this this market if there's a risk of cannibalization, but in this call you mentioned a few times that you're seeing some new customers with some of your initiatives.
Last few months.
You must have learned a lot about pinpoints with certain channels the competitive landscape push and pull factors on why someone is selling a piece of equipment online to another channel or just a private sale.
And what you've observed in Q too and someone is June metrics. You shared are you, bringing in a lot of new customers do you believe you finally penetrating some areas that Richie struggled with over the years.
With everything's taken place.
Michael Hi, San again.
Oh, absolutely. The Tam is very large as you say something that obviously.
The aboard shared with me even in early days of new learning about the business.
And we have asthma clean since then.
Let me just give you some headlines of the things were seen so undoubtedly through this pandemic and the shift online we are seeing quite a bit more and customer.
Penetration than we've ever seen before so they're not new the industry their new to us.
And as a result, obviously.
Growing the base in terms of the buyer side and you see it what the stats that I quoted early on in the prepared remarks, when you see the number of new accountants, so on and so forth.
In terms of Pinpoints I would say this is we are asked stepping back and really understanding the role of the license plate.
There may be arguably in the past they were.
Link with alive of bank, and our ability to decoupled app and really think through the benefit that alight site offer the customer again much more about the cure custody and control.
Of the equipment.
Just something unique to Richie brothers and.
The organization to organization goes well for this kind of give business an opportunity to really understand that it got to the next level and as a result E. C. R sites busier than before I will give me. One example of how that has really come to life. During this corporate environment that maybe we wouldn't obscene.
And that is that we a couple of weeks ago or.
Oh did a northeast sale.
Really brought together several sites from the northeast, including Maryland, Pittsburgh, Connecticut.
And we did an online kind of is northeast I've never done that before so the technology. So there's a couple of.
The technology allowed us to bring that together seamlessly okay. So that's all about platform.
And then again bedroom the higher base in the cellar me, because we were able to bring a scale of supply and demand.
Wouldn't have done before so then ventral really a fantastic outcome.
Buyers and sellers.
And then similarly the sites themselves.
Pittsburgh, Maryland, and Connecticut, we're very busy.
Because customers were once they knew the magnitude.
What was about to happen in the supply and demand side with the help of our sales professionals that really acted as those trust that advisors use the site to drop equipment, we would get ready for sale wood marketed and then the amount of demand for kind of coming in kicking the tires really.
Was very very high and four stuffed to use technology can keep customer safe in our employee safely scheduling and who knows things in a very different way in social distancing than we've ever done before I highlight that event to say it really is the truth manifestation of this channel platform, let's say the words it's.
Often overused.
But in our case.
It is really an exceptional go to market.
And.
Solution for customers.
Anybody have I think earlier somebody said that was moat, Craig and I would say that's that's it and then the last piece and this is the one.
We're not we're we're just kind of starting tip of the ice bogus are baths and data.
And utilizing the data to drive the underlying bank and down in the piece of any event that specifically the northeast example that I used.
The beta and analytics to know.
What's your new how to advise our customers and how to drive demand, but then the product itself. Our best platform. The inventory management system. There in allows that to become more and more.
Of a tool that customers can use both for their own benefit which is first and foremost foremost our goal. But then also eventually to either partake of our services or flow their equipment through our various channels that we provide for them. So in fact.
Both circle to your question very long and so for me, we believe the Pam a significant.
And our ability to penetrate it has really showcase during this environment.
And will continue to get better.
Uncertainty of cold It is a real thing and so that's why we say, we're cautious where cautious because many of these things are out of our control.
In our control we are very proud of the way the team stepped up the technology has delivered and we are excited about what's the come although cautious.
<unk>.
Thank you and thanks for that thoughtful answer I guess, just just lastly.
On the underwriting picked up a little bit.
And I'm curious how your viewing the underwriting.
Right now people need liquidity, but Richard does have a track record of every year year and a half you can get caught off sides of special restart to see some liquidations specials. So I'm curious, how you're thinking of managing that going forward.
Especially as we're kind of in this on certain Doctor I think you just mentioned.
I believe we dug olive with us and Sharon.
Yeah, So I'd like.
You take the lead.
Sure Thanks, Michael <unk>.
We do see a lot of opportunities coming hottest right now for sure.
What the data we have <unk> been Fortunately, we got a real nice so run through through Q too.
Being cautious like anything else towns point.
We don't know what's down the road. So we're looking each in each opportunity that comes out us we're looking at independently what what's the makeup of the deals what whereas the geography of the deals.
Ensure that we do our thorough investigation of of such.
To end up in a place that's new toward benefit both for the confined around ourselves.
Thank you.
At this time I will turn the call over to Mister Melanie.
Thanks, Sharon and thank you everyone for joining us today on our call. Please continue to stay safe and we look forward to speaking with you again in November at our Q3 earnings call that concludes our call for today. Thank you.
This concludes today's conference call you may know disconnect.
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