Q2 2020 Ritchie Bros. Auctioneers Inc Earnings Call
About auctions moving online our digital platform and big data led the way.
We couple the platform with the man driving digital marketing to deliver a very strong outcome for our customers.
RB dotcom saw tremendous live with online traffic up 44%.
Search conversions up 89%.
New accounts up 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 to bring product. 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 levels.
Using our data analytics tools now embedded in our best products to help our customers make the best decisions on what when and how to sell their products.
[noise] these growth numbers and metrics punctuate the confidence.
But we are giving our customers and 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 in place of 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 imposed 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 GTB 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 the 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.
Cash flow.
Digital 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 uncertain market dynamics to deliver positive GT group 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 guff 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 this strong performance using town, our agriculture team will be retaining the tell 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 resulting quarantine implications, thus, making equipment delivery in and out of our site challenging.
Oh are live events have now transitioned to 100% online through our Tao offering 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 shown the 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 of 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 its 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 quarter.
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 such 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 31st 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 GTB 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 revenue decreased 33%, primarily due to lower commissions and fees on lower overall services GTV.
The lower total GTV was due to softness in the international region, driven by pandemic related equipment mobility issues to 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%.
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 go 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 guaranteed and inventory purchase contracts.
We have done an exceptional job 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.
Threats 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 it.
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 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 companies 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 dividends 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.
Gross.
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 of 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 co. The 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.
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 have been able to deliver such stellar operating performance for the quarter.
With that let me turn the call back to an.
Thank you Sharon.
We are excited to continue our journey of delivering a true global omni channel marketplace for products and services.
It is through a customer lands with which we view our business.
Using our data analytics, who advised not only asset valuation, but optimize finding upcycle.
Offering liquidity solutions, which span listings.
Served auctions and unreserved auction platform to meet our customers need.
And service offerings, which spans data and analytics that include critical elements a product care custodian controls to facilitate the best value creation for our customers.
Before I close out the prepared remark I would like to share some consideration 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 a pandemic will undoubtedly continue to cloud the outlook and while we see a number of upside opportunity. When you can be considerate of the uncertainty in Wisconsin.
From an opportunity standpoint, we are 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.
When you were right in other words auction. This year would you didn't occur in July of 2019.
We are also key positive improvements in our international regions ability to move equipment across jurisdictions and we are optimistic we will see further improvement 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 can begin driving infrastructure spend as well as the potential the consigners currently taking a wait and see approach could decide to act in terms of equipment dispersals completely 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 progress through the quarter.
All in all there are number of puts and takes but we remain cautiously optimistic about the near term.
We will continue to focus on those things that are within our control.
Book 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 would like which are 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 like auction that I think it's been an important part of the franchise over time.
And so just curious to get your early thoughts on that.
Hi, Cherilyn this is that and a good to hear your voice I'm, hoping everybody staying safe out there.
Oh, we are super proud of the results. The team has achieved and our really mongering the balance of realize experience as well as the online experience. So just to kind of reiterate a point we made during the last call 100.
What kind of the auctions have shifted online our and our secret all along has been that we were a digital company.
That said, our light sites continue to be busier than ever odd taking care of custody and control of the equipment until we can get rich readied for sale.
Inspected marketed for our customers and obviously then realized.
The highest pocketable value for them during the online transaction. So we're really taking this opportunity as customers get more and more used to are they actual transaction happening online revaluate the entire life experience first and foremost who the customer learn the inquiry land as well as any operational efficiency.
It is being over the long term.
I think as Sharon said in the beginning a we are a sales first organization I and art you know, we're benefiting from 16 years of relationships and investments our sales organization because mood with your customer base I like any relationship are those will require a reinvest.
Then over time.
And we will continue to do those prudently when its seeking so.
Okay, and then you could 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 arrangements.
Oh, so share wins 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 installed and.
See deals where there are aspects to the close out of that business that we can't handle.
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 in queue 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 mode and going forward with the shift to online activity do you think that accrues to your mode in your differentiation and in some ways do you think.
At this 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 omni channel nature of what you do is being showcase odd during cold. So let me explain what I meant I'm glad that statement and the fact that yeah. If 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 had always been fully online for the transactions Ritchie brothers, even before co bid was two thirds online. So our pivot had more to do with going from that two thirds picking the to 100%.
And that was more about back then technology systems. The book I can though the bandwidth the low 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 live in online and the like site or during cobot, who bring more important than ever before for 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.
Got the optimum care costs, and then control for them, we'll take the product we will spin off when it needs that are we willing Brexit properly, we will market it properly and we will extract a little bit back the value for them. We are that you need.
In terms, though is that are most we certainly going so and.
Early performance would indicate that our 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 where we go to continue those investments to continue to drive that performance and the experience higher.
And higher both in the digital landscape as well as providing the best care particle 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.
Yes. So we are we are very very excited about Oh Ritchie brothers asset solutions. So the way to think about where we are in that journey anytime youre inventing right. When you go through phases.
Initially our plan was to have a 15 account.
In which we kinda who the value of you know what does that data what does analytics what to insights bring to our customers. We are now over eight and such accounts out in terms of demand customers a super strong and we are viewing it as a long term plan.
Form.
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 and 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 the shifts and the auction calendar. So.
Assuming you saw consistent momentum in the weekly and daily options, just wondering if you're seeing it.
Or what type of momentum were seeing any all paid off changed 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 GTB headline is a very strong outcome child, 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 our Columbus event as Sharon stated earlier in the call.
And we had significant headwinds in our international business.
As well is in our government business with base closures or both of us of which were obviously out of our controls. So if you peel that back in the U.S. business. None of those facts was up very healthy mid digit.
You are on your in terms of GTV and Ah North American General just saw an incredible incredible amount of momentum out strong demand.
Confidence from the Consigners and kind of a digital and live experience that magic of the two that really facilitated that from happening as well as the very very strong at risk performance, but typically notably in our Canadian and international business kind of came together to provide that 1.5 billion.
And moving pieces, where the headlines really doesn't tell the story of what happened underneath. So we are you know incredibly proud of what the organization was able to achieve.
And then on international GTV any just given the backdrop I would say because there are number consigners.
At least have the desire to sell dataquest equipments.
As you mentioned border restrictions.
Obviously, an obstacle or is this story there that equipment supplies pent up.
Or have you seen consigners go through other channels, maybe disposing assets through more local channels.
Carl you went on I think carl's on the lining with us so hard when you can see the people in person. If you are you want to comment.
Sure. This pro or we are seemed a bit of pent up supply, we're not seeing that moved to other channels right now, but as you noted the lockdowns border closures travel restrictions have been much more intense than in North America, but the good news is Q1 appears to be are your low watermark for Nash.
No.
Q2 was better than noted.
In Q3, Q4, we foresee that start to do so though.
Okay, great guys, great quarter, guys actually answers purchase.
Next question comes from Scott from some of the CBC.
Thanks, and good morning, just for your follow up question on RBS. It solutions are you seeing increases in the customer activity levels in the use of the services.
As well as a interest from potential customers.
Hi, Scott and again and I'm, hoping Matt Ackley, our Chief marketing Officer, and the you know the most passionate about our best wants to answer that.
Right, Yeah, no Scott, we are and and one of the 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 assets solutions platform.
In addition, we also monitor the number of assets that we say get worked flowed into our marketplaces.
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 you start to use some of our various tools that we've layered in two RV assets solutions, such as our new pricing tools, which we which weve introduced some beta price.
Production in Q2, where you 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 the services on the platform what kind of capital investment would that come with please.
So again I think it would be.
So its share in here you know certainly its technology based investment you know it.
Relatively light spend because the base and the foundation is is there and that certainly is already included in our current guidance range on overall capex spending per year.
Perfect I was just close off with one quick question on the.
So natural health of your buyer and seller customers can you comment on the trends you're seeing both through a Q2 and a Q3.
In other words, if you change have you seen a change in their financial health.
So I sure.
Go ahead here.
Okay, So chair and I'll start and then others can add color.
You know I think clearly in the regions that are expected by the downturn in oil prices.
We are seeing an acceleration of distressed, albeit at this time under cold conditions, what we're seeing with bank says, they're not necessarily applying pressure yet to force a distressed sales.
But they certainly we certainly do expect that that could be coming.
And that is you know we did experience some slowdown in performance inside of our own Ritchie brothers financial service business and really what we saw is the syndicate of banks in the background that support that business unit it put up more administrative type roadblocks.
Which affected our overall ability for ease and convenience 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 from action.
Then I presume that would fit into your insolvency disposition pipeline.
Oh, yes, it would.
Great. Thanks very much.
Next question comes from Ben Cherniavsky with Raymond James.
Morning, guys.
Good morning, Ben I bet.
I wanted to ask about well first of all just try to get a little more clarity on the nature of the you know quite dramatic increase in in profits because if you know the TV is flat.
Which you know under contract for the market was it was an accomplishment on severance you know very good performance. Nevertheless, it wasn't.
It wasn't the source of increased profit per se.
The same they can.
[noise] would do the same is the.
The revenue mix was.
Same revenue itself was the same the revenue mix was the same DNA is actually up a little bit. So it seems to me that it really all came down to.
Well your inventory performance was little better, but really the cost of services and that's making it used to call. The direct expenses were way lower first of all Sharon is that like I know there were a lot of puts and takes into commentary, which is very helpful. I understand into various leavers, but not really what was the main driver here.
The increase in the problem.
Yeah, So clearly I I'd say, there's two real things that drove it first kind of forced a reductions in spending so we were operating under distancing rules.
You had a very limited attendance and you know you know we did allow customers on site to inspect the days leading up to auction, but we didnt have anyone in the theater, Yeah, we were basically manning a customer queries and questions all online all over.
Her telephones as opposed to in person.
Support.
And you know we didn't ramp the equipment, we didn't put on the theater component of the of the of them.
So that's probably one driver of the spend reduction.
Second the element would've been the lack of travel so the restriction.
Meant a basically.
You know minimize the amount of spend that you could have in terms of people moving from one place to the other.
You know and.
I think then the other thing we did call out in that cost of services bucket was the lack of or for healthy a that was related to last year's large deal in Columbus, but.
But clearly what I think you're also seeing is in the U.S. business that large volume increase really speaks to the flow through operational profit potential of our business because not only do youve got.
The coverage on those cost of services that you could not spend.
You get that full advantage of that business performance against our SGN a performance and so that all combined is what really is led to the operating margin lift in Nigeria.
Okay. That's helpful, but just to clarify on the travel expenses, because you breakout travel and the S. You in a disclosure and it does show where they're pronounce decrease by us or their travel expenses that go direct to the.
We go into the direct expenses would be auction, which relate into a specific number there is there a separate cost that was lower and not components of it as well.
Yes, she if you'd have travel expenses in both buckets. If we have part time written them or part time bid catchers and they're moving from event to event. They did not move so SGN. They travel is only picking up the travel associated with our full time employee base, not our contractors and Ah man part.
Time workers.
Okay, well I'm, sorry, I'm, just not to belabor, it but I'm I'm, a little surprised that maybe I'd be curious on whether or not you guys were surprised by.
How much cost savings or at least from and how much cost were related to running those auctions I mean, why as you point out you still have to have a yard everyone's still inspection new dogs dry dock, so no delay, the argo, especially et cetera et cetera.
Why not buy simply not hosting an event in having a big catcher and running things over to ramp is that it really that pronounced on on the cost side, because I'm just trying to understand if the model does migrate more.
In that direction, how much of a lift you got versus the other things like reduced travel that's going to come back and referral fees and things that were sort of maybe more onetime in nature in the quarter.
Ben This is an odd so.
Fantastic questions and we're evaluating that right now so I just wanted to take your question into two parts. So one is where we surprised.
Surprise, you know would indicate kind of it happened.
Kind of to us and I think a sharing said, 100% cobot happened to us, but how we reacted a the rigor with which we controlled costs.
Across the buckets, a was 100% a testament to the team understanding the on certain nature of the environment, we were going to be operating in and the fact that they needed to be their part [noise].
Across the globe to ensure that we stay very financially viable unhealthy really to support our conference. So that's the first thing.
Second thing is I think youre youre getting at the question the Cherilyn kinda back the little bit in the beginning as well, which is around you know how much of the sustainable and we are going through that evaluation right now as we took the learnings from cold. So obviously, our business starts and stops what the customer experience.
And we are evaluating the gamut of that experience starting with obviously the relationships with our sales professionals, but then taking it all the way through every element. If you will all bar operation. So whether it's you know how equipment and it's dropped off you know at the site whether.
It's how we constructed the pickup procedures everything is one element of which is the live auction. So as you know with insurance spoke to.
Not an insignificant elements, but it just one element of our lives sites and the purpose they serve.
Obviously with the go flip 100% online it allows us a very clean way to look at each of those levers and understand what they mean.
We are very much in evaluation phase right now understanding which of those actually come out of cold that are truly ones that you can pick at the bottom line and which ones are investments when you can move back.
Into for example, the relationships with our with our sellers.
And buyers so.
When you were not being quite here, we are very much in the state of the evaluation.
Well, that's a that's a good answer and if I could squeeze one more im just because you know your your timing was very Oh.
Well you need to come in coming to Ritchie brothers and you know earlier you quipped, it's hard to a it's hard when you can see someone in the room.
What's the been like for you to try to get a sense of.
The Ritchie brothers people will hearts and minds, if you will and as you sort of size up the culture, and and where do you want to take this business.
No problem, which is used screen, what how is that.
Major your your your assessment to more difficult or maybe easier I don't know.
Yeah, Ben So as you know I started and in January So I think I had a solid 10 weeks under my belt before a border shutdown I will tell you though.
Oh Ritchie brothers is a jam packed action Frac fleet. So in the 10 weeks I got a chance to spend quite a bit of time, obviously in our burn in the office in our presence in office at our our Orlando auction with our employees and customers. In Vegas. These were you know kind of jam packed a you know full tilt events and.
I'm, so grateful I had that because it gave me a bird's eye view.
About what we do how we do it but really the passion that our employees have out for the customer and the business honestly. It is unlike anything I've ever seen before.
Uh Huh for me the word bad news with our board of directors isn't magical.
This is in magical business made up of people whose hard.
The mining.
Our customer first business for wanting to be there at all times and all things with our customers. So my my sat my personal sadness has been coming out of <unk> Vegas.
Carl Warner our head of international and I were about to set off on our kind of global tour. If you will so that I could have spent more in person the time with our international team.
And then my one of my that's my very favorite thing to do is spend time with our team and then a close second or maybe a first it spending time with our customers, which again I was only able to be briefly.
Orlando and Vegas, and haven't been able to do in person. So then everything has transitioned to zoom.
And you know I'm grateful that technology has been there so they could put an eventual face as could I, but I am a you know anxious to be able to meet people face to face share a meal and really think value for the magic that is this business from our employees our team members and their customers.
Okay, Thanks, very much and good quarter.
Thanks.
A question comes from Michael Feniger with Bank of America.
Yes, Thanks for squeezing me in it and taking my call I mean, we just a level set on on 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 didn't.
This call you mentioned, a few times that you're seeing some new customers with some of your initiatives since the last few months.
You must have learned a lot about pain points 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 just based on what you've observed in Q2 at some of those two metrics you shared our you bringing in a lot of new customers do you believe you're.
Finally, penetrating some areas that that richest troubled looked over the years with everything that's taken place.
So Michael Hi, San again Ah so absolutely. The Tam is a very large as you say or something that obviously I. The board shared with me a you know even in early days of me learning about the business.
And we have asked for clean since then.
Let me just give you some headlines of the things we're seeing 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 to industry. There are new to us.
And you know as a result, obviously a growing the base a in terms of the buyer side and you see it what the stats that I quoted a early on in the prepared remarks, when you see the number of new accounting so on and so forth.
In terms of pain swings I would say this is we are off stepping back and really understanding the roll up the life I.
Where maybe arguably in the path they were.
Linked with the live event.
And our ability to decouple Bath and really think grew the benefit that a lightweight offers the customer again much more about the clear capacity in control of their equipment, which is something new.
To Witching brothers, and God that we're going to dish or the organization goes into school wells. So this time has given us an opportunity to really understand that he got to the next level and as a result, we see our sites a busier than before.
We'll give you. One example of how that has really come to life. During this cobot environment that maybe we would have seen and that is that we see a couple of weeks ago or.
I want to go get a northeast sales, where we brought together several sites with minorities, concluding Maryland, Pittsburgh, Connecticut.
And we did an online kind of north the sale, we have never gum that the four so the technology. So there's a couple of which is here the technology allowed us to bring that together seamlessly. Okay. So that's all about platform.
And then again that who will buyer base and the seller base, because we were able to bring us scale of supply and demand. We wouldn't have done before so then ventral really a fantastic outcome.
For buyers and sellers and then similarly the sites themselves.
Pittsburgh, Maryland in Connecticut, we're very busy.
Ah because customers were once they knew the magnitude of Oh, what was about the happened in the supply and demand side with the help of our sales professionals that we acted as those trucks that advisers use the sites to drop equipment, we would get ready for sale would marketed or and then.
My own up the man, so kind of coming in kicking the tires really a was very very high and forced us to use technology could keep customer safe and ARPU, we see scheduling and doing those things in a very different way in social distancing than we've ever done before I highlight that event to say it really is a true work.
Manifestation of the Omni channel platform when you say the words, it's often over you.
But in our case it is really an exceptional go to market.
And solution for customers then that anybody has I think earlier somebody said that would moak, Craig and I would say that's that's it and then the last piece and this is the one.
That we're not we're a were just kind of starting a tip of iceberg as far back and data.
And utilizing the data to drive the underlying bands again in the piece of any event, but specifically the northeast example that I mean.
We go the data and analytics to know.
What to do how to advise our customers and how to drive demand, but then the product itself. The our best platform that inventory management system. There in allows that to become more and more oh, a tool that customers can use both for their own benefit which is first and foremost foremost our goal but.
And also eventually to either party car services or flow older equipment, you know through our various channels that we provide for them. So in fact, Oh circle to your question very long answer for me, we believe that family significant and our ability to penetrate it has really showcase during this can be.
Firemen and will continue to get better you know uncertainty of coal that is a real thing and so that's why we say we're cautious we're cautious because many of these things are out of our control.
The thing in our control we are very proud of the way the team stepped up the technology has delivered and here youre excited about what's to come although cautious you know how cold it.
Thank you and thanks for that a thoughtful answer I guess, just just lastly on the underwriting a ticked up a little bit and I'm curious, how you're viewing the underwriting right now people need liquidity, but Richie does have a track record of you know every year year and a half you can get caught.
All sides, especially if we start to see some you know liquidation into this pills. So I'm curious, how you're thinking of manning that going forward I'm, especially as we're kind of in this uncertain backdrop like you just mentioned.
I believe we had Doug Oliver with us and our children.
Yeah, So I'd say by Doug let it your take takes the lead.
Sure. Thanks, Michael we do see a lot of opportunities coming hottest right now for sure with or what the data. We have we've been fortunate we got a real nice show run through through Q2, we're being cautious like anything else Downs point, we don't know, what's what's down the road. So we're looking each in each.
Opportunity that comes out of silica independently what what's the makeup of the deals what worlds of Geo geography of the deals.
We're making sure that we do our thorough investigation of folks Raj to do end up at a place that's you toward benefit both for the confide around ourselves.
Thank you.
At this time I will turn the call over to Mr. money.
[noise] thick, 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 coal for today. Thank you.
This concludes today's conference call you may now disconnect.
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