Q3 2020 Ritchie Bros. Auctioneers Inc Earnings Call
Now turning to slide five I would like to share our progress against our Q3 priorities, which we outlined on our last earnings call.
Our number one priority continues to be the health and safety of our employees and our customers and we take every opportunity to reinforce our cobot protocols.
Our disinfection, social distancing and working from home policies remain unchanged.
Second.
Being there for our customers is our truenorth.
We are learning organization and we continue to look at all the tools in our technology toolbox to drive customer experience and value for both buyers and sellers.
We have seen attitude towards adoption of technology with our buyers and sellers evolve during cobot.
This has forced all of us to successfully experiment and ask what if questions.
For example.
We have learned that pooling smaller regional events into larger virtual events is driving more demand and solid price performance.
We have also learned to further leverage our timed auction lots or cow technology.
Tuniu to new use cases, such as our traditional on the farm auctions as well as in our international markets.
We are seeing great success, both price performance and seller and buyer experience in fact, we have customers in this segment now proactively requesting pal.
This period has also definitively proven to us that our physical sites are a strategic advantage that widens our mode and offers our customers a unique service.
Our sites are busier than ever with the care custody and control for record levels of equipment.
We continue to curtail auction day events and ramping due to the pandemic.
By not staging our yards for ramping however, we have learned that it has enabled auction day pickup for buyers enhancing our overall customer experience.
We are spending this time thinking through how wells are post cold environment will evolve.
For example.
One area, we're going to experiment with is having bigger and better premium base to expand strengthened and heighten the buzz around the equipment for our Consigners all the while keeping the benefit of auction they pick up for our buyers.
Overall, we continue to learn and respond to our customers' needs as they remain as fluid and dynamic as ever.
Sharon will speak about what we expect our cost savings to be in a pandemic environment going forward.
The movement to 100% online transactions has allowed our marketing organization to drive demand to new Heights.
They are able to use web based signals such as priority bidding watch lists and page views.
We obtained prior to the sale.
In conjunction with machine learning algorithms to allocate marketing dollars in order to maximize recovery for our sellers.
This never would have been possible if not for the shift to a 100% online bidding.
As you can see we continue to post significant growth across all metrics.
Finally, our third priority was to focus on financial flexibility and the strength of our balance sheet.
Sharon will go deeper into the numbers, however, I am very clean with a focused cost control and stewardship of our capital.
We are also able to remain nimble as highlighted by our recent proposed acquisition of crops.
We believe it will meaningfully contribute to long term shareholder value as data and analytics, our fundamental building blocks to build excellent customer service in today's world.
We also continue to leverage our balance sheet intelligently to meet the needs of our customers looking for liquidity via Atlas contract.
And now over to Richie Brothers CFO Sharon Driscoll.
Thank you Andy and good morning to everyone joining the call.
Overall this was a very strong quarter for Richie brothers and the numbers speak for themselves.
I am pleased to report an increase of 22% year on year in our gross transaction value and a 14% increase in our total revenue driven by solid execution across all channels and geographic regions.
Although we continue to experience some international border issues the conditions dramatically improved in the third quarter, enabling us to conduct options that have been postponed from previous quarters, most notably in Italy, Spain and Mexico.
That said, we remain cautious and vigilant about the possibility of increased restrictions globally.
Noting that France, Germany, and England have recently announced tighter lockdowns, which could impact our operations in these regions.
As our first priority is to keep our employees our customers and our communities safe. During this unprecedented health crisis, we will diligently follow our COVID-19 protocol as well as comply with local jurisdictional restrictions.
As Dan mentioned, we continue to see a reduction of indirect costs due to our cobot protocols as well as the shift to online during this time.
Beyond this we also remain disciplined and diligent on the cost we can't control as well.
The stronger revenue combined with our operational leverage allowed us to generate 91% year over year growth in adjusted earnings per share to 44 cents.
I cannot emphasize enough how proud I am of the entire team here at Ritchie brothers and our ability to serve our customers in this uncertain time.
Let me quickly touch on each geographic region.
The U.S. team delivered over 20% GTV growth in the quarter compared to last year, driven by higher sales productivity by both our regional and strategic accounts teams.
This was also our strongest online quarter ever for Ironplanet weekly featured events.
The Canadian team delivered mid teens GTV growth in the quarter driven by strength of live auction events aided partially by auction calendar shifts as Toronto and Lethbridge auctions fell into this quarter, partially offset by the shift of the Grand Prairie event into Q4.
Our eastern Canada team drove strong growth led by transportation sector volume.
Our international team delivered high teens GTV growth.
Well hard to quantify we realized part of the growth here was pent up supply. In addition to auction timing, which we did see play out early in the quarter.
How continues to be a great solution for this market and we see increases in new and end user participation at these events.
Although year to date cash flow is down year on year I want to note that this is due to timing of auction payouts and compensation accruals Rick.
Recall that we specifically called out the exceptionally strong cash flow performance in our third quarter last year, primarily due to timing of auctions and auction proceeds disbursements.
I have absolutely no concerns regarding our cash flow from operations and note that with operating free cash flow at 151% of net income on a 12 trailing month basis, we are delivering well ahead of our evergreen guidance.
Overall, we have very strong operational metrics as our talented marketing team continues to drive traffic interest and participation across our global buyer base there.
This is supported by the numbers as we are now seeing year over year price increases on a mix adjusted basis here in the U.S. and Canada for used equipment.
For those of you interested I do encourage everyone to check out our free monthly report the covers used equipment pricing.
Moving now to the financial highlights.
The 14% growth in our total revenue was driven by a 25% increase in our services revenues, partially offset by a modest decline in our inventory sales.
It is important to note once again that contract mix can significantly skew revenue growth depending on consigners preference for how the deals are structured.
We are agnostic between service and inventory oriented contracts and stand ready to serve our customers in any capacity they choose.
As such we believe that service revenue growth is the best indicator of our overall top line performance for our business model and most reflective of underlying business trends in the quarter.
The commission revenue increased 24% year on year in line with the 25% increase in services GTB.
The improvement was due to stronger guaranteed contract rates, partially offset by softer straight commission contract rates compared to last year the.
The strength in fees were primarily driven by increases in total GTV volumes and lot volumes.
Operating income increased 68% to $67 million due to higher revenue and lower cost of services expenses due to our aforementioned coven protocols.
While we have started to see a slight uptick in travel and entertainment expenses.
I think overall these levels of reduction in direct expense are likely to continue as the pink pandemic continues to unfold.
While we expect COVID-19 protocols to remain in place for the entirety of Q4, we project the cost of services relative to prior year will trend at half the rate of growth of overall service revenues.
Recall that we have transitioned to 100% online bidding and continue to leverage towel technology for international and on the farm agriculture events.
Resulting in meaningful cost reductions in temporary employee compensation travel advertising and promotion expenses.
Adjusted net income increased 92% year over year to $49 million, primarily due to higher operating income and lower interest expense, partially offset by higher taxes post the publication of the final regulations related to hybrid fine.
Sensing arrangements.
Also we have a onetime adjustment to net income of $3.2 million after tax due to severance costs incurred in the quarter related to the realignment of leadership to support the new global operations organization as well as to physician talent to deliver on our strategic growth.
Priorities.
We are only expecting modest run rate savings associated with these actions as we will continue to upgrade talent and invest to support various growth initiatives.
Turning to our auctions in marketplaces segment, we delivered robust results both in terms of growth and rate.
Service revenue was up 26% with strong contributions by all regions due to service GTV growth and solid commission rates.
This drove a stellar 14.3% an m. service revenue as a percent of GTV.
Moving onto our auctions in marketplaces segment inventory sales revenue.
Overall, our inventory sales revenue declined 2%, let me dig a bit deeper into each region to explain the moving parts.
The U.S. region inventory sales saw a decline of 17% primarily due to lower inventory volumes from our government's surplus contract.
This business unit is still recovering from the abrupt stoppage of inventory inflows during Q2 due to the defense Logistics agency base closures in response to COVID-19.
The bases did reopen during Q3 and inventory inflows are back on track with pre covered levels.
Our Canadian inventory sales were down 43% due to the shift of the Grand Prairie auctions from Threeq to Fourq two 2020.
The one bright spot was international which was up 24% driven by a large private treaty deal in Australia easing border restrictions as well as strong auction execution on the Telo platform.
Despite the decline in volumes on inventory sales, we did quite well on margin with an implied rate of 11.6% up over 400 basis points better than our third quarter of 2019, driven by strength in both the U.S. in Canada.
I would add that our disciplined approach to at risk deals, particularly inventory contracts combined with strong price realization drove these results and we are very pleased with overall rate performance during the quarter.
Moving on to SGN a expenses overall.
Overall, our SGN, a increased 18% or was up 13%, excluding our onetime severance severance costs included in the quarter.
Costs increased primarily due to higher variable and incentive compensation driven by the company's stronger operating performance.
We also saw a slight increase due to continued investment in talent to support our growth initiatives, partially offsetting these increases were lower travel and entertainment costs.
Our thinking around T. Any costs have has not changed we our sales driven organization and when it is safe to do so we expect to see any expenses to come back as our talented sales force gets back on the road developing and cultivating customer relationships.
Overall, we are pleased with our expense discipline and will continue to be prudent as we manage our cost structure going forward although.
Although we will stay nimble and open to continued investment necessary to drive growth opportunities and the strategic priorities for the company and the management team will be unveiling in full at our announced Investor day in December.
Moving to slide 12, just to recap our balance sheet and liquidity metrics, our operating cash flow of $261 million is 151% of net income well ahead of our evergreen targets.
At the end of the third quarter, we had $590 million in cash cash equivalents and restricted cash. In addition to available credit facilities of $637 million of which $470 million was unused at the end of the quarter.
We continue to be comfortably within our debt covenants and our treasury team successfully amended and extended our credit facility from October 2021 to October 2023 in the quarter and we have no material debt maturities until October two.
2023.
We continue to focus our capital spend on supporting our technology programs and essential property investments.
And our trailing 12 month net cap capex spend of $29 million is currently tracking within our full year target of $35 million to $45 million.
Our solid cash position does provide us with the flexibility to make meaningful investments to accelerate our journey against our long term strategic vision and our proposed acquisition of ROE services does just that.
At the end of the third quarter, our adjusted net debt to adjusted EBITDA ratio was 0.5 times continuing to be well inside our target ceiling of 2.5 times.
Lastly, our return on invested capital measure of 11.5% is showing good improvement up from 8.6% in Q3 of last year and is well above our internal weighted average cost of capital.
We are now through the third quarter under the pandemic conditions and continue to believe we are well positioned with a strong balance sheet and liquidity position to navigate any economic scenarios.
Additionally, our proposed acquisition of ROE services highlights our ability and willingness to actively engage in opportunities that we think are strategic and will enhance the long term value of our company.
Shortly and we'll be walking you through the strategic rationale of the acquisition, but let me highlight a few of the financial considerations of the steel.
Under the terms of the definitive agreement Ritchie brothers will acquire ROE services for approximately $275 million and will fund the transaction through cash and stock.
We expect it could close as early as December of this year. However, note that it is subject to customary regulatory approvals.
Given that rose services was a privately held LLC and was not U.S. GAAP compliant. We are unable to comment on the company's financial metrics that said, we do expect Roes services to be accretive to earnings within 12 to 18 months post close with minimal sooner.
Please.
To conclude my remarks, I would like to thank again, our employees for their continued focus on health and safety as well as their results to meet all of the unique challenges. This environment has created in serving our customers.
Without them, we would not have been able to deliver such a phenomenal operating performance for the quarter and with that let me turn the call back to him.
Thank you Sharon we are very excited about the announcement of our intention to acquire ROV services and bring to very customer centric companies together.
We see it as an excellent opportunity to accelerate our evolution from an auction company to a global trusted marketplace for equipment and services.
Sharon has already walked you through the financial aspects of the transaction and I will go into more details about the strategic fit.
Routes services is a market leader in data and analytics in the industrial equipment industry.
There are three flavors of what they do differ.
The first is targeted at the analytics around the rental vertical.
We estimate that a majority of all construction and industrial equipment rental revenue in the U.S. flows through the route system via proprietary ERP connections with their customers that get updated Nike.
From the due diligence we conducted a vast majority of browses customers love the service, primarily because it provides them with industrial benchmarks against which they can measure their performance.
The second big part of their business is providing data and analytics for their customers that want to sell equipment on their own.
And the third part is appraisals of used equipment, primarily for asset backed lenders.
Brown services is a subscription based data as a service model.
He stable with a growing client base.
It comes with revenue and profit and has strong operating leverage.
Overall, what they do is impressive with customer sales great.
But what was the best for US as we got to know them was the quality of the team.
Gary and the team will be coming over in full force in joining Ritchie brothers family.
What struck us from the very first conversation is what they are willing to do for their customers.
Fewer Ritchie brothers, we have a saying, we bleed orange, which means we go to great lengths to do anything for our customers.
Just so perfectly aligned from the get go and we are Super excited.
Driving the very best experience for our customers starts with data in.
It starts with arming our customers with the information they need to make the right decisions the susan's around how they want to transact.
How they want to go to market and ultimately how they want to dispose of their equipment.
And when we think about these things they are deeply ingrained in routes in Ritchie brothers.
Lastly, both Ritchie brothers and Rouse strongly sheer the core principles around data integrity and confidentiality.
Every day, we have customers drop off valuable equipment their livelihood and our yards would little concern because we have earned their trust over the last 62 years to do the right thing.
This concept around care custody and control is deeply ingrained in our culture and extends to our digital assets and data as well.
We believe that the combination will benefit not just Ritchie brothers customers and not just rough service with customers, but the entire industry.
Now I would like to share some considerations on our fourth quarter.
From a priority standpoint, as you can see on slide they remain unchanged.
We continue to see upside opportunities balanced by uncertainty and risk as well.
From an opportunity standpoint, we had a strong Q3 execution and October was off to a strong start.
We continue to see Consigners that are focused on cash flow and inventory management, which should continue to drive liquidity.
We are also watching for both timing and magnitude of any government stimulus to begin driving infrastructure spend.
As the us election passes.
We see potential the Consigners that were previously taking a wait and see approach changed their thinking and start to ask in terms of equipment Dispersals and fleet realignment.
All that said there remains risks as the implications of coated continue to cloud the outlook.
The recent ramp in the cobot tasers in infections globally are a great source of concern.
And may cause border restriction.
We may see a negative impact and equipment financing with recovery, taking a longer duration.
Lastly, we continue to carefully monitor any potential changes in the sentiment, which could impact equipment demand and soften the current pricing environment as we progressed through the quarter.
In closing.
I say, how proud I am of our entire team in the face of this pandemic.
And their continued dedication to our customers.
And I'm equally proud of how our technology enabled multichannel platform continues to deliver a strong experience for our customers.
Before I open it up for questions I want to remind everyone on the call that we will be holding our investor day on December 7th.
As much as I would have loved to meet all of you in person we will be conducting it virtually.
With that operator, please open the line to questions.
At this time I would like to remind everyone. They motor task. A question. Please press Star then the number one on your telephone keypad.
Our first question is from Craig Kennison with Baird. Your line is open.
Hey, good morning, Thanks for taking my question, just a really impressive transition here right.
Hi, the whole team I'm curious you know there is still this social dynamic that takes place at your live auction events, especially.
In Orlando for example.
Is there a need to find a way to replicate that social dynamic or can even that pivot online somehow.
Hi, Craig I am here. Thank you for your kind words, we're very proud you are exactly correct. The social dynamics or you know is is difficult to replicate.
What we have kicked off a in my opening remarks, we talked about the fact that we're a learning organization and we're gonna be experimenting.
What we offer is really what we call kind of reinventing sale. They if you will which is really picking off each of their activities that we provide during sailed a social dynamic being one and thinking through is there a different way to do that in an online environment and even in a physical world.
Cobot are there better ways to do the things that our customers value very much. So I think there was about eight sub teams we've broken the day opt into eight element so.
Social dynamic being one and really about celebrating our customers and its about kind of bringing the sales organization closer to the customer all of these types of things and really grew how do we do those are even better in the physical world and alternatives in the digital world.
Thanks, and then maybe a similar question, but the role of a territory manager clearly has changed as I get that you want to retain some of the travel and entertainment component of that but you know to what extent you know has that role permanently changed in and what other considerations are.
In play there for for that role.
Yeah. So the the role of morphing and I think it's really morphing into the vision that we've had all along is the territory managers, becoming much more trusted advisors.
And not simply kind of focusing on what the next upcoming auction is so the rolls become more critical than ever before because these people are armed with all of the beat out all of the analytics to help our customers.
Manage their day to day business, a really as it relates to their equipment.
In many capacity beyond just the auction platform. So if anything the goal is actually heighten its important not lessened, but for sure morphine.
Great. Thank you.
Thank you.
Your next question is from Michael the month with Scotia Bank. Your line is open.
Hey, good morning, and good morning, John.
Oh, great quarter, well I guess to sucking the results of the bed the Austrian Erie was a large driver to the earnings season, and that's despite you know the inclusion of about $9 million short term and long term incentive comp, which I presume is linked to the share price performance. So we have a lot.
To think about modeling yesterday going forward. It anyway, you can provide.
Any goalpost for Q4, a read of growth industrial versus service run their revenues just just thoughts in general base.
Yeah sure, Mike, let Sharon I'll handle that skills Gil clearly, we don't really give guidance, but I'm. We have offered in the past that you know our goal is to keep our SGN a growth rate well below our services revenue growth rate you know what you are seeing in the quarter is a combination.
To pick up due to share price, but most mostly you know these are changed outlook for performance during the year and you know again, we kind of entered.
Kind of Q1, and Q2, a little more hesitant and cautious about what was what was possible and the teams have really done such a fabulous job of being able to support and deliver value for our customers. So that's really what you're seeing as that pickup you know so I I would I would still.
Look at this rate of growth as as not indicative of what you'd see inside of of Q4, but our commitment that we will hold it to less than services revenue growth.
Got you that's helpful. Thank you and just flipping it over.
I'm curious about the switch.
Oh from lives to our mine in Australia, and the overall successful that transition I mean, what's unique about Australia that would motivate you to do that transition over there and could it be considered a pilot for for other regions.
Carl would you like to talk a little bit about Australia, and then I will take the other regions question.
Sure. So for Australia like we started off with two options. One we would travel is one option, which we exercised in a in a media right. As you know and then our other option for the online model what should we served our reserve.
Sorry, I T E reserved.
Model. So that was the one we went with in Australia and it was mainly because we had a whole bunch of consigners their.
We wanted to.
First of all the rich skepticism to going 100% on line, but you're not market, that's who we want to keep your mature model as an option for them and we've started off slow but actually in the past. So three to four months. We've actually gained very good popularity in results with our our teams there and with our customers.
And so we're going to be doing that and also looking at the total auction going into Q1 as well as to complement each other.
To be sure Jim unreserved model.
And just thank you very much Carl and for the second part of your question, Michael We pride ourselves on being a learning organization and testing different models around the globe probing for different hypotheses. So let me drum roll our December seven session.
We're we're going to take you guys through the vision that strategy and equally the way we are going to experiment and learn and so this is just one example of we learned something in Europe, we learn something different in Australia, something different again with our AD events in Canada, and kind of bringing all of that learn.
Around the globe thatll be very much a topic of discussion at the summer.
Got it and looking forward to hearing about it does thank you very much guys great quarter.
Thank you.
Your next question is from Larry de Maria with William Blair. Your line is open.
Hi, Thanks, and good morning, everybody.
So obviously.
Obviously, great quarter, what's the kind of custom to thinking about.
Parliament being high volume low price or low volume high price.
Hi, Suraj, because we think that the next cycle, which appears to be starting and do we think we can smooth out some of that kind of volume price noise because of the services and your upstream approach. That's wishful thinking just trying to understand how you think the cyclical play out in a little more smoother fashion.
Yeah, Larry So again, thank you for the kind words about the quarter.
You know I'm I'm a firm believer. This is animal firm believer in kind of basic laws of supply and demand.
And Ah the biggest thing that we can do in order to drive the pieces that are already in our control is to drive demand to be very very high levels, Oh, regardless of the supply a cycle and we're doing that with technology in a way we've never done before so let me talk a little bit about what we are.
We're doing to drive it and then pick off campus affiliates with the rest of your question. So what moving entirely online has given us.
He was a visibility eyeballs that we could never have when we split our transaction who lives in online.
And what I mean by that is we have much radio signals of demand down to individual piece of equipment.
And then we use all of those signals ABS.
Add to it our artificial intelligence and machine learning algorithms to drive market olmos down to an individual piece of equipment around the globe I would say of all of the learnings we're having those are the big.
About the impact that having all of those eyeballs much earlier.
I'm in the process is giving us in order to drive our part in the <unk>. How can you have you know kind of high volume and then and then so even higher demand to drive higher price. So that's the first thing.
The second is obviously, we're looking towards an eye of what is going to happen around stimulus again as we talked about in the prepared remarks, we fully expect.
Back then and understand if that goes forward. The demand you know what the high and again, our marketing tools will work with them and if for whatever reason that doesn't happen again. We're we're we're very bullish on our ability to do our part to drive demand and ultimately pricing.
Greater Heights, and we were able to do before.
Okay. Thank you for that.
The second part question. The as you guys move online obviously, you've pivoted, there's a lot of other online auctions out there do you have enough confidence in Europe.
Your services in the footprint et cetera that you could continue to collect the premium pricing model.
Yes, so we're actually excited about the fact that our omni channel platform. We believe is just a really a source of competitive advantage. We offer an online model for the transaction itself that comes with the benefits, we talked about about driving demand, but equally the light side just play in.
Ratably important role.
In our Consigners lives right literally the care custody and control the vast majority of our consign or when they are done with the piece of equipment or they need liquidity. They want it just means that over to Richie brothers forget about it and then have a you know ship them their money.
And so the the this duality of this platform in the Allied World with online transactions, we who being <unk> incredible source of competitive advantage that we believe will continue.
And then if you layer on the services business around kind of our best platform and the ability to then layer on services into that transaction engine. It pains really Ah you know offense assets its a moving forward.
Okay. Thank you very much and good luck.
Thank you.
Your next question is from Michael Feniger with Bank of America. Your line is open.
Yes, Hi, hi, everyone. Thanks for taking.
Thank you taking my questions I'm, just curious and you know you get this question a lot I mean, how are you thinking right now about the total addressable used equipment market.
And how that breaks down into auctions, but the fact that not every transaction those two auctions. So.
Do you feel like in the opportunity is is still that you can gain share in the live online auction market or is the big opportunity and maybe this goes to the Rouse acquisition that you guys can get your hands and touch on more transactions outside of the auction channel is that the bigger opportunity that you see.
See for this property going forward.
So Michael Hi, and again, and I would say, yes, and yes, and again drum roll for our December 7th I don't want to steal any of the Thunder, but we will be addressing a exactly these thoughts around how we view the market.
In the prepared remarks, and then our routes announcement, we did talk about our transformation to a global trusted marketplace.
You know, we believe that that allows us to both grow auctions as well as the entirety of the platform that is a fairly significant in size you get more on that in December.
Fair enough and.
And you come from the auto industry, you have that background I'm from my understanding the used auto market is undergoing a lot of changes right now there's omni channel players others, Disruptors like Peru, and Ah with with how the used auto market, which is really massive these changing dynamics.
I'm just curious what's your background and auto what you've seen and what you've observed I'm curious if you see any parallels on on the used equipment side, you know for that side of the market compared to what you experienced you know being being a leader in the <unk>.
Auto industry.
Yeah, Michael So it's a very interesting that you make that comment. So the answer is very much. So we see parallels and then candidly the drive to opportunities.
The leadership team, who you see before you I think on on the slide.
We actually spend time this summer on a nine day strategy sessions. So let me if there was a question about how much time with the team spending together really a lot a lot in the virtual environment and why we spend so much time is exactly doing that what are parallels to our industry what are just.
Up goes to our industry.
I, we view the world and auto.
It's a really a fantastic model. So let me give you one very very small example, and I think that'll that'll kind of solidify the essence of the question.
In the automotive world very basic everybody here, you know understands there's something called a bit and so you type in your then which is Ah you know alphanumeric identifiers vehicle and outcome everything you need to know about that car right trim options everything all you need is wearing hearing mileage. We've got you are ready to go.
That doesn't exist in our industry, even that small example, and so oh no we believe.
That if we're gonna be enabling a marketplace and really widen the very best decision, making to our customers' needs to make sure that these types of things that set their solid that they are ubiquitous and able to drive our decision making for both obviously the sellers and the buyers in a very transparent.
Way. So if you take that small example, and then roll it through the totality as you've described it about the transformation and disruption in these type of thing they for sure help inform our 90 strategy, which he will then be the outcome of onto some or something.
Thank you.
Thank you.
Your next question is from a smile, even see RBC. Your line is open.
Well those citizens going first of all thank you very much for taking my question regarding the commentary on the S. Ginnie Mae. Please ask if you could provide more details on existing or planned initiatives for long.
Yes, Jennifer thanks very much.
I'm sorry, I missed the answer that question at Sharon can you just repeat it.
Just looking for additional details on any existing or planned initiatives, we're lowering the fixed assets of the extra week off.
Yeah. So I guess a couple of things so actually in a is mostly people and you know so particularly in this period where of travel and entertainment is right now very low.
And you know this is a company that is still very people dependent, albeit becoming more technology supported.
So I wouldn't say that there are active initiatives to change that.
As but it is I think being mindful that we are very conscious and I'm going to echo Annes comments about a learning organization.
That we are pilot piloting an awful lot of things and will really only be investing additional head count once we feel that we've proven it out the viability of that hypothesis that we've had that it can grow.
Either transactional volume or revenue stream.
So you know again this is very much a up professional services organization that is very dependent on people and you know we will be looking at and we'll be talking about different components at our investor day about efficiency type initiatives that we're working on.
But I do think you know the the overall fixed component of our estimate of our estimated cost is is likely to remain intact.
For at least the foreseeable future.
Thank you very much I was very helpful.
Again, if you like to ask a question. Please press Star then the number one on your telephone keypad. Your next question is from Brian Sofitel Raymond James Your line is open.
Thanks, Good morning, everyone.
Now that you have a couple of quarters of being fully online I'm just looking for what you view as the biggest surprises or pinch points of the move to.
100% on line and the further what have been some of the push backs from customers and then how do you talk about those issues.
Yes, Brian Hello, saying, so let me actually take a step back for everybody because I think the first surprise was Mike what was to me when I came in so the nature of how we have talked about our business in the past was live and online auction and I think to the uninitiated.
I, who parallels to the retail industry thinking Oh, as we move more to online we will have less reliance on kind of like right and I in a parallel those two brick and mortar retail location.
Nothing could have been a further from the truth, because even before cobot for those of you that have been with us for a while 70% of the transactions during a libel that we're already happening online and obviously all of the Ironplanet enabled we compete your auction and E. All of that had been 100% of.
So the very biggest surprise was this incredible value that our lives sites offer that at a time, where 100% of our transactions are online. Our sites are big are busier than ever before with the cure custody and control.
That customers need and we can't.
The end of the week, we provide so that has been really for me personally one of the biggest surprises.
The second I would say and and and very very pleasant is the resiliency of this organization and.
Oh Crazy Crazy turbulent times are in the world.
Our people, who you know it's been two years of lenders see no. Our job is to be there for our customers and what I observe I give you cannot be say I've never seen before in my career in the organization Beach to hold our customers' hands through this uncertain time, so was it related to salaries. So.
Really explain what the online because it was going to look like a 100%.
And explained at the time theoretically and now we know realistically what benefits a 100% of the transactions online could need from our ability to market digitally and kind of drive the demand that we've already talked about before.
But equally our customer service organization.
Certain that maybe buyers needed to be let the process in the first couple of months literally get an outreach I've never seen anything like it through 100% of our registered buyers similarly to hold their hand through this time of uncertainty it it left and just speech lists and.
In all of the power of this organization the strength of the team and then though billing nearing really the technology and the strength of that but the reality of the physical world and the need for that but our cost and without it it's something.
Something we use the word mode. It is so unique and such a source supply.
Hi, Thanks, So I guess not to feel it's under from the upcoming Investor day, but maybe just.
Some high level thoughts on capital allocation priorities set up.
Additionally, as the business thrives in the current environment.
Yeah, I think then just to echo she earns words really is about we want to stay you know stewards of cost and capital and use the money very very prudently, we want to experiment and test we want to understand what will by our strategic focus for.
Well again, you guys are going to hear about it in December.
When things cross our path like route odd that fits so perfectly with that agenda, we want to be able to be flexible and nimble to act.
And as Sharon said all of its steeped in deep analytics and experimentation and testing so that no with high high degrees of surfing, so certainty before deploying significant dollars.
Okay. That's it for me thank you.
Thank you.
Your final question is from Maxim Sytchev with National Bank Financial your line is open.
Hi, good morning, and I'm sure.
Hi, Matt.
A very impressive performance, obviously I'm I was.
Curious to think if if you can touch it should did the acceleration off of GGP momentum between kind of call the oil.
And Ah potentially unearthing new clients. We're just trying to see if there is sort of a structural shift in terms of golf momentum on a prospective basis or is this sort of more of a cyclical upturn I mean, how how do you guys internally think about this.
Yes, so how 'bout, let me kick off and then I'll turn it over to Sharon for some color as well.
So as we think about Q3, obviously very proud of the performance in the quarter. We were also very proud of the performance in Q2.
So as I break down kind of what what has happened and kind of the over arching drivers of GTB I tend to think about it as something that are kind of out of our control and then and then many things in our control, though obviously construction remain central during cold bid and now.
Shutting down.
You know wasn't quite a tailwind, but certainly prevented what could have been a giant headwind.
What we experienced in Q1, and then saw the reversal of in Q3 is in fact, we did have a headwind in our international markets with the border closure or you saw that reverse in Q3 and you heard from children in coral some of that pent up demand I came our way into three similarly in Q1.
And earlier in the year or a we've had some you know.
Other customers, so nothing no rental space kind of maybe holding on to some equipment with a wait and see attitude and then kind of a.
In Q2, we are needing to drive utility a utilization rate and a liquidity through our channels. So that's kind of a little bit up very very high level. How this has been playing out oil and gas certainly it is an element of Oh goodness NRG.
T.V., however, the kind of the larger or.
No. If we believe that there may be some displacement in that space and maybe Sean can speak to that we have yet to see any of that really come our way in that.
The things that are we believe I'm very much in our control isn't back our go to market model.
And Ah our omni channel platform. The fact that that we are able to kind of give that basketball world.
Now to our customers in the physical world, giving them both the peace of mind that liquidity is there, but also taking care of the equipment soup to nuts with our service offering right just drop it off at one of our yard we can inspect that we can upgrade that you can split that up for you we will market it.
Ah we will transact, we'll manage the though a drop off and pick up and we will send you. Your money is really proving to be just an incredibly valuable tool.
And then add to that whatever spoken about some time this ability of 100% of the transaction the visibility that we bring to the man and a unit by unit basis, allowing our marketing <unk>, who that I'm really glad demand and then ultimately the recovery in meaningful ways, we think.
That combination has really come to the forefront during this environment and will not be going away.
Sure anything that's very helpful Oh, yeah.
As of Max I was just going to add I think the piece that we still see right now whether it's oil or coal good related banks right now still aren't acting like banks, they're being very patient with their capital.
And so what we are seeing is is more kind of voluntary dispersals as people are planning their future. So is this a market I want to be in a sector I want to be in and we are starting to see some de fleeting as perhaps some financial institutions and rental companies.
We are projecting what might happen in terms of potential decreases in rental utilization or.
Picking up kind of defaulted items once they start to apply pressure. So I think we are starting to see that activity today, but you know what we still see around the corner is more the forced dispersals as the banks start to apply more pressure on non.
Payments or or a laggard payments and create more distress. So I hope that's helpful.
Yes, or no and I don't mean to watching the same obviously from a kind of bankruptcy trucking. So we get that makes sense. Thank you so much for the color.
Your next question is from Michael Feniger with Bank of America Your line.
Open.
Hey, guys. Thanks for I, just one quick follow up I believe you flagged a really nice margin rate performance on on inventory children U.S. in Canada, Shannon I think you referenced that the strong used pricing backdrop, but your underwriting is still very low as a percent of GPV.
Well at least this quarter I know, it's been that did not support for a few quarters now are you seeing anything in terms of.
The data analytics that you guys have invested in helping you performed better on these packages or is the supply demand backdrop kind of starting to favor Ritchie <unk> in this turns the mis business area. So just any color on that would be great. Thanks a lot.
Yeah. So its share on here. So I think thats a great question I think you know clearly we're still very much open for business.
Risk, we are probably taking a little bit more of a disciplined approach on making sure that our risk.
He is realistic and that in our underwriting of those contracts in some cases customers when they look at the pricing that we offer on that risk will choose to go straight Commission.
And so I think you know the way I look with you know Doug in our valuations team and appraisal team as that were really here to provide value, but we're we're basically two I'm also underwrite wisely for our customers.
I think the strengths that we've noted and pricing is coming from US you know.
Various pieces I think theres still believe that infrastructure spending will be very active to pull the economy through those coal that crisis.
And also we are seeing challenges with new dealer inventories still as theirs as they're struggling to kind of get back on track with what was supply chain disruption that started kind of late Q1, and it was really only starting to get back online now.
But again I think the team our team has done a very good job of using data using you know the extreme experience knowledge that we have on equipment and making great underwriting decisions.
Yeah, we have no further questions at this time I turn the call back to presenters for closing remarks.
This concludes today's conference call you may now disconnect.
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