Q2 2021 Ritchie Bros Auctioneers Inc Earnings Call

Time, I would like to welcome everyone to the Ritchie Brothers Auctioneers second quarter Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then 1 on your telephone keypad.

If you'd like to withdraw your question. Please press the pound key. Thank you now I'll turn the call over to Mr. Samir ever thought.

President of Investor Relations and market intelligence to open the conference call.

Is there a thought you may begin your conference.

Hello, and good morning, and thank you for joining us on today's call to discuss our second quarter 2021, Theres All day.

Joining me today are our Chief Executive Officer, Sharon Driscoll, our Chief Financial Officer, as well as other members of the management team who will be available for the Q&A portion of this call.

The following discussion will include forward looking statements comments that are not a statement of fact, including projections of future earnings revenue gross transaction value and other items are considered forward looking and involve risks and uncertainties.

Risks and uncertainties that could cause our actual and operating results to differ significant debt Lee from <unk>.

Forward looking statements are detailed in our SEC and Canadian Securities filings available on our Investor Relations website, Investor Doc Ritchie Bros. Dot com.

Encourage you to review our earnings release and form 10-Q, which are available on our website as well as Edgar and SEDAR on.

On this call, we will discuss certain non-GAAP financial measures.

What is the identification of non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation between the 2 see our earnings release and form 10-Q.

Presentation slides accompany our commentary today.

These slides can be viewed through the live or recorded webcast or downloaded from our website. All figures discussed on today's call are U S dollars.

Otherwise indicated I will now turn the call over to Ann San Jose.

Thank you Samir and good morning to everyone joining our call today.

First I would like to start the call by thanking our team members and their continued vigilance.

COVID-19 variance have been challenging for so many regions across the world and as we traverse the pandemic, we continue to look for ways to support our communities.

Our top priority is the health and safety of our customers and team members and continuing to follow the best practices and updating our protocols based on regional or local recommendations.

Our omni channel platform continued to deliver strong outcomes for our customers with bits per lot sold increasing 9% and used equipment pricing remaining robust.

This translated to solid financial results for shareholders with total service revenue increasing 8%.

We believe this is a critical measure of performance and growth trajectory to which we have committed.

As a strong signal of our continued confidence we are increasing our quarterly dividend approximately 14% to 25.

You don't need me to tell you that this is an unprecedented environment as we have noted in the past few quarters. We are seeing a tight supply environment caused by low inventory levels and continued supply chain issues hampering oem's production levels.

While a tight market is not good from a supply perspective, we are seeing very positive signs from new customers entering our ecosystem.

And while the equipment availability will certainly open back up we believe these new customers will remain having experienced Ritchie brothers for the first time.

That said, we see the current dynamic of tight equipment is a point in time event and we continue to move forward and control our own destiny.

For us the starts and stops with serving our customers.

We always remember that our omni channel platform exists for the benefit of our customers both sellers and buyers.

Throughout the pandemic sellers have needed us to take care custody and control of their equipment in the physical world.

While driving transactions for buyers in the virtual world.

We are now hearing from our customers once again that they crave a return to some type of normalcy.

Our face to face interaction with our sales teams our operations teams as well as each other.

To that end, we are pleased to announce that we are welcoming customers back to where yards for auction day and night before social activities at select larger events.

This is very important to our customers in these events will bring back the opportunity for them to interact with the Ritchie brothers team.

To be clear our yards have been open the entire duration of the pandemic and have been busier than ever with inspections, Dropbox pickups et cetera.

Some activities like ramping will be a thing of the past as we have learned how to better showcase our equipment digitally and allowed by our same day pickup which ramping largely preclude it.

As always we will continue to listen and learn and continue to evolve our business based on our customers' needs and technology enabled innovations.

Okay.

1 way we are controlling our destiny is through our accelerated growth pillar.

We have been closely analyzing our satellite yard pilots internationally and we have been impressed across the board with how they are doing well.

We started to scale the learnings in the quarter by launching 6 locations in the U S. Under the satellite yard strategy with more to come in the next few quarters.

Moving to IMS, we are building an industry, leading inventory management system that will help our customers make decisions and allow us to simplify our workflow by making it more digital automated and scalable.

Our evolution to our marketplaces, a journey, which begins with activating organizations in the IMS much like a gateway.

Future phases will include monitoring and driving assets per organization.

And then services provided and monetize per each of those assets all resulting in a final kpis of revenue growth.

You see here, our current thinking of future Kpis, we will release around IMS, while 2021 will focus on organizational activations.

These metrics over time will ultimately allow you to go from the organizations to total assets to total transactions to revenue generated by multiplying them together.

We launched our business IMS product late last year and in the second quarter. The number of organizations that are activated on our platform increased 34% from Q1 to Q2.

While this implies a very large annual growth trajectory, we are still learning from our customers and are excited about the journey. We are on both with our customers and our partners.

After share and discusses our financials I will talk about how we are executing against our strategic pillars and outlook and then we will move to Q&A.

And now over to Sharon.

Thank you Anne.

Overall <unk> increased 2%.

With puts and takes across FX tailwind auction shifts headwind and equipment mix.

We see this level of GTA V. As an overall good result, given how tight the U S supply market is.

Although auction sales days are up this reflects the addition of smaller timed auction lot event, but 3 larger events that shifted into Q1 caused a $52 million drag on GTA V performance.

Normalizing to remove the impact of shifts in the auction calendar Q2, GDP growth is 6% equal to our year to day GTD growth performance of 6%.

Our first half GTA V growth is well above our volume performance in 2020, which posted a decline of 1% during the same timeframe and double the growth of our first half performance in pre pandemic conditions during first half of 2019.

Again overall, a good result, given how tight the used equipment supply market is in the U S.

In addition, as we evolve to a marketplace. We have provided additional disclosure in our 10-Q this quarter on the transactions that we facilitate for retail and peer to peer private auction events in equipment sales transaction in exchange for hosting fees.

In the second quarter customers that use this service disposed of $36 million of asset, which is an increase of over 155% over prior year.

Although total reported revenue increased only 2% we are very pleased with our total service revenue growth of 8% and we continue to think that this measure of total service revenue growth is the best indicator of overall top line performance for our business model and most of them.

Of underlying business trends in the quarter.

Despite cycling over our Covid protocol, and our pivot to a 100% online bidding last year, we managed to keep total operating expenses in line with revenue growth and delivered operating income growth of 1% and adjusted EPS growth of 2% to 55.

In the quarter.

Auction and marketplace service revenue grew 6% with A&M service revenue as a percentage of total GTA V coming in at a robust 13, 8% per the quarter.

It is important to note once again that contract mix can significantly skew total revenue growth depending on can signers preference for how the deals are structured.

That said inventory sales tend to be lumpy and they declined 7% driven by weakness in the U S and Canada offset by strength in our international region.

Overall, we are pleased with our revenue rate performance as both profit on inventory sales and service revenue improved versus prior year.

Total operating expenses increased only 2% Europe on year in line with total GTA V and total revenue growth.

I would like to note that all operating expense categories, except cost of goods sold increased due to the Roche services acquisition that has not yet cycled past its December acquisition date.

Also all categories were impacted year on year by higher foreign exchange currency movements in 3 of our major markets of operation.

While we don't break out FX impact by line item. It is important to note that we are naturally hedged given our geographically distributed operational structure for both revenue and call and overall FX had a slightly positive impact on the bottom line in the quarter.

The reduction in cost of goods sold is in line with the quarter decline in inventory revenue and delivered an improved profit rate as previously mentioned.

Cost of services remained flat to last year supporting an 8% increase in service revenue growth.

This despite operating with a higher number of sales day, easing COVID-19 protocols and significant FX pressure.

And mentioned that we are welcoming back customers on auction day at a select events and we do expect our cost of services to increase to reflect that income in quarters.

Although the key message here is that even with these add backs, we do expect a permanent level of cost savings going forward.

I would highlight that cost of services is down approximately 22% since 2019 with GTA V being roughly flat in the same timeframe.

SG&A investments to drive revenue growth most notably the addition of the Roche services team and continued investment in Ritchie Brothers financial services.

It did lead to higher levels of SG&A compared to last year.

In addition, there was a significant FX impact included in these costs.

And we are starting to see some increases in travel related expenses as our team gets back out onto the road.

I would like to note that we expect our SG&A run rate to be closer to the <unk> levels compared to last year given these changes.

At the end of the quarter, our balance sheet and liquidity remained in a very strong position, providing an excellent foundation to support our growth initiatives and we are pleased to announce a 14% increase in our quarterly dividend to <unk> 25 day.

Delivering on our stated capital allocation priorities of growing dividends as earnings growth.

And with that let me pass it back over to Ann.

Okay.

Thanks Sharon.

I am very pleased that the progress we are making on our new strategy to becoming the trusted global marketplace insights services and transaction solutions for commercial assets.

And this slide you can see all of the achievements of the past 90 days.

The only other callout that I would like to make here is that we are enhancing the safety programs for our field employees, which to me personally is very important.

Now turning to current trends and outlook. There is no change in our view here, we still see the environment is dynamic and our tone and outlook remain cautiously optimistic.

Me reiterate that we see the current environment is a point in time and we are structurally improving this business for the long term through our strategy.

That said as you think about the third quarter, we are facing some pretty difficult comps recall that our third quarter call last year, we saw a release of pent up supply due to COVID-19 disruptions with the resulting GTD growth of 22%.

With that operator, please open the line for questions.

Yeah.

As a reminder to ask a question you will need to press star 1 on your telephone.

To withdraw your question press the pound key.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Michael Millman.

From Scotiabank you may begin.

Hey, good morning.

So maybe it's actually commentary.

Hey, guys I look forward to the Kpis on the IMS.

If we can frame the micro services at a high level for now any way you can help us think about the ramp up.

And the revenues in 2022 and beyond I mean will it be a slow start and an acceleration in the outer years.

How should we.

Think about the.

The margins.

Associated revenues.

Yeah, Michael Foods and Hello, Yeah. We are we are very very excited about where we are with IMS and just as a reminder for everyone. We look at the world is in our control and out of our control.

Price and volume.

Out of our control are all of the underlying things, we're doing to build an incredibly healthy company and organization and drive our technology to the marketplace 100 per cent in our control. So just to put things in perspective, the 34% increase in organizations.

Focused on for this quarter.

Kind of is an annualized number of north of 300 per cent growth now do we think that the study's debt no, but it's a signal.

Just how very very compelling in it so.

So then just Michael.

Michael where we are then going to move our attention to okay. That's all the organization signing up now what is the usage right. What are the assets in the system, what's our attachment rate of services to the assets and I'm about to get to your question and then.

Obviously, then the resulting revenue.

It's interesting to think about services, so when Sharon and I in December put out our evergreen model, even there we were very clear.

The services revenue growth would be a couple of percentage points above revenue growth, which we've committed to.

B.

Hi high single digits low double digits, that's still our commitment.

What you can expect to see over time I think the best guidance. We can give is that that delta that GAAP will continue to widen right as we provide more and more services. This skirt and apart from the PPD, that's coming through our auction channels, which will always be important.

Day reserve from reserves, so on and so forth that GAAP that growth rate. So.

For modeling purposes.

<unk>.

Our steady state is high single digit low double digit on kind of the pay TV base business. Then we will kind of keep growing 2 point Delta and then higher and higher.

As the attachment of services is unrelated to the underlying G. T D. But our commitment is just like we were showing the organizations now that's what we're looking at as we start getting the asset focus and we started doing the attachment we'll be putting those out as well. So that you guys can see that live in person the last part of the answer.

To your question is we've been very clear that the services that we're providing.

Are going to come in the form of Ritchie brothers services, but also third parties.

Partnering with dealers and Oh.

Other partners in our ecosystem to offer services on their behalf.

You know to our income.

Customers.

Okay.

Yeah.

Very comprehensive answer thank you Ann.

My pleasure.

Our next question will come from the line of Craig Kennison from Baird you may begin.

Hey, good morning, Thanks for taking my question, it's really an infrastructure and sort of government policy, but I'm wondering if there's anything in the U S infrastructure spending bonanza that might trigger more activity on your platform anything you would call out there.

Yeah, Craig So you know that.

Oh that is we view this as a very exciting time, so let's just take a step back again for a second so the environment is tight we notice.

Sooner or later, it's going to catch up right. So the Oems originally when all of this started and I'm, telling you guys everything that you already know we all heard this together.

When this started the Oems came forward and said Hey don't worry about it we will catch up in the first half of 2021.

And then since then they've come out, saying Wow, you know, it's going to take us a little bit longer but 1 thing we know for sure is they're gonna catch up okay. So that's that's 1 thing we know the other thing we know is equipments agent. The equipment that is out there continues to age. So theres no question that it's going to come forward and it's gonna have to be replenished.

And then the infrastructure build that's coming forward is only going to increase demand. So we view these things as highly favorable tailwind.

Giving us a lot of confidence that's part of why we're increasing the dividend where we're seeing very positive trends. We remain cautiously optimistic because we just don't know how long. This point in time, we lapped, but we know it's going to go away.

It's older and the infrastructure spending is coming and only means goodness for Ritchie brothers, because when equipment turns.

We benefit on both sides of that equation.

Thanks, and then just shifting gears to the IMS I would think that you've got a couple of drivers 1 being rouse, which is great data that would help your prospects for prospective clients and then the other being the returned to live human interaction at these auctions how are you leveraging those.

Tools to drive more active.

Activations on IMS.

Yeah, and this is Mike.

That's why the growth rate continues to move up and up.

We are sad.

Debt, we are a sales driven organization.

And so interaction with our customers is paramount to what we do and how we do it and it's not just hey, what do we have for the next sale it really is.

Now with IMS in place.

It really is more about letting me to become that trusted adviser that you guys have heard us talk about now we have a tool.

Our salespeople scans to do that so.

What IMS is becoming for our sales organization is just an input tool for our customers that they can help them with.

Let me explain what I mean, and then the return to life and again really for the purposes of customer interactions I'll talk about in a second so where before let's say you have 1.

100 pieces of equipment in your yard and our salespeople work with you to put let's say 8 into the next sales now the conversation is all about hey, let's see let's put that ate into the I M M.

Let us show you all of the data the richness and the single button click to then push it into the various channel of Ritchie brothers B at marketplaces for reserve.

Unreserved or the weekly featured auction with iron planet, how easy it is but the richness of the data that we can provide on all of your 100 pieces becomes very very clear and evident and it's really that process.

That our sales organization is embarking on and very very successfully.

As you see the numbers growing.

In terms of return to why this was interesting and again just because of sharing so you know customers.

When are you guys going to reopen up.

And John Kessler of you guys. When we are in a little while he's our chief operating officer, you haven't heard from him on.

On this call who joined them during Covid.

Basically kicked off a campaign.

To jump on calls with as many customers as we can with the sales organization to talk about what does reopening I mean, we've been open the whole time right. We're open you can drop up equipment for open you can pick up equipment. We've inspected it we're selling it we're selling it very successfully online what does reopening and what.

Became very very clear to those conversations.

The interaction that is what they're missing and Thats, what Ritchie brothers are so great at and now it's not just interactions for then.

The next sale and growth, which is of course is very important to us but now the interactions are around the data. The richness. Let me show you what I am asking do for you.

We are very excited to bring customers back half.

Have them interact with our sales folks and show them all of the tools at their disposal and the breadth of Ritchie brothers.

Great. Thank you.

Thank you.

Okay.

The next question will come from the line of Cherilyn Radbourne from TD Securities you may begin.

Okay.

Thanks, very much and good morning.

We're hoping you could speak to the changes that you've made to your buyer fee structure during the quarter. It just doesn't feel like it's been very long since the company lost increased buyer fees.

Hi share limits and let me kick off and then I'll turn it over to Sharon So the way to think about buyer fees.

It hasn't really been a normal practice in Ritchie brothers the way it actually is in most other [noise] excuse me companies around the world.

So the way, we think about old fees or the way that.

All companies think about pricing, where once a year twice a year you just take a look at the competitive landscape and you say where are you with your offering visa b where are others.

And.

This is a practice, we're going to engage in regularly.

As a company.

That operates in a competitive landscape and whatever that tells us are.

We will react right. So we saw an opportunity that.

And that in fact, there were parts of our business, where we were you know as for sure a premium service provider are actually charging less than some of our competitors, we saw an opportunity to increase those prices.

It can become more competitive and we did we are going to be doing that analysis at a minimum annually.

Whatever it tells us and the reason I say that is if it shows us the market is actually lowering prices will react that way increasing will react the other the other way as we recently did but this will be more matter of course.

Sharon would you add anything.

Yeah sure Lin I think what I would add is also just with the strength in pricing that we realized we were starting to see that some of those smaller items, we're moving up the grid in pricing in terms of fee rate unexpectedly and so to keep that kind of mix the right way.

I am probably the best way to think about it is we just changed our tears to basically keep pace with.

Current pricing and inflation that we were seeing in those smaller categories and Ah you know again as Anne said pricing is a journey. We will continue to kind of look at this mix both against how other competitors are using pricing on on the buy side.

And also just related to the mix of what we're selling.

Okay. So it sounds like those tiers.

In a different used equipment pricing environment might need to be moved back down at some point is that fair.

I think all of them.

Sorry up or down Yeah, I was just going to say the way to think about it as items that used to be in the $10000 range. The price was taking it up so to capture those we escalated that tier.

We will look at it in terms of whether it requires to be taken up or down according to the market that we're in.

Okay. That's helpful.

Can you also speak to have a very tight freight environment is impacting Ritchie brothers and I guess, just the mobility of used equipment generally.

Yeah, So share Lynn that is actually part of the headwinds facing us so when we say tight supply environment.

I mean, the supply chain.

So it's both the production it's the microchip.

The the shipping constrained, it's the Covid lockdown protocols, when we say types of bi that's across the board we're feeling it.

Again in our control and out of our control. So that is out of our control we're feeling it for sure. What we are driving separate and apart from all of the pillars and the technology enhancements that you guys saw with IMS.

I did not mentioned, but it is on the chart that Ritchie list will be bringing a listing service in Q4, so again just filling out.

The vision for the marketplace real time, which is very much in our control. We're also driving the underlying productivity levers of our auction business. So what does that mean.

We're monitoring very closely zone.

The items that our sales folks are selling so even though the mix is down in the <unk>. The corresponding continues down as well we see that our sales organization is actually much more productive so theyre getting more contracts per head.

Similarly in the operations side of the organization as the mix is down and we have a lot older and smaller equipment that actually a lot more equipment in our yard for them to process and they're doing an incredible job of driving productivity, there as well so supply chain issues broadly affecting us a great deal.

But the underlying business that we're driving so that when those things become up a thing of the past.

On the mentally get us to a different kind of growth rate, we feel very very good about.

That's my 2 thank you.

Okay.

And our next question will come from the line of.

Michael Feniger from Bank of America, you may begin.

Hey, guys. Thanks for taking my question share. It was very helpful with the color on the SG&A run rate closer to Q2.

With Q3, I mean, maybe you can help US you kind of talked about a little bit, but how do we look at that cost of service line in Q2, it was flat to even down a little bit.

I feel like we've always kind of looked at our cost of service lines relative to G television growth or television, but obviously the comps are a little strange because of last year and you guys are kind of returning back to normal any type of.

A proxy you can kind of provide us there on how to think about these other cost of services or expenses outside of just the SG&A.

Yeah.

Sure. Thanks, Michael.

Yeah, I think what Dan was referring to in terms of kind of that change to sales day that we've certainly seen some activities.

That have added value and some of the changes that we've made on sales day in Covid.

They have added value to the buyers by having less equipment moving through the yards. So technically those ramping cost that where we would have brought in additional part time labor.

To be able to facilitate that activity in the yards, we're expecting that that cost.

We'll stay at current levels.

And albeit we may add it back into a few of our premier events.

That is really the benefit to the buyer at ways.

And also the safety of both customers and employees outweighs the cost benefit of bringing that back and so I think we're seeing permanent reductions in that cost of services space I would say that the other change that that's kind of happening is.

Cost of service definitions are things that really only our incurred based on the event as we start to flip them kind of to always on them through the marketplace. You may start to see some of that kind of cost of service marketing type activity that we would've done that was very tight.

An event specific start to shift a little bit more into SG&A over time.

As we move to that kind of always on positioning.

But that would be a relatively minor in the scheme of things. It really has been more permanent reduction that we would see in those in those kind of service expenses.

That's that's helpful and share in any visibility right now on on GTA V. I mean I think this is.

Kind of a question right I mean July obviously is a smaller month.

<unk> is kind of flattish flattish and are waiting for 2020 in Q2, but also 22019, so I guess I'm just trying to.

Level set and gauge what we're kind of looking out in the third quarter anything you can provide of calendar days number of auctions that youre that youre looking at here.

Anything on the comp last year, we should be aware of just color to kind of help us level set for for this tough comp from the third quarter.

Yeah. So why don't I start and then I can throw it back to Ann you know clearly as Ann mentioned in her remarks, we are up against.

Plus 22% GDP growth in Q3, which is a very small quarter, so that will be difficult to comp.

That being said, we did announce we do have a very large sale debt.

We are planning so I think.

Hard to give direction, we don't we don't give forecast.

Unfortunately on a go ahead as you know, but you know I think that probably safe to say that it would not be at kind of our first half levels.

But I think that's all we'll say.

Understood and then just and I know you said this is a point in time more talk about these transitory issues are you are you confident that at least in 2022, where we are we back to the evergreen model.

The targets an algorithm there.

Yeah. So that's the crystal ball, so I wanted to say, yes, but again.

From from our standpoint things were in control of which is the underlying productivity of our sales associates.

Our operation staff, what's happening with <unk>, what's happening with the broader marketplace what's happening.

Our confidence is through the roof.

The thing we're not in control of its kind of this OEM will call it supply chain.

So I just bring us back to we're watching avidly, what the Oems are saying in terms of catch up they certainly are giving confidence that this is a this calendar year problem. So we are hearing that with everybody else.

You know I'm, a little once bitten twice shy, where we were hearing at the first half problem and now that problem continues so I'm watching very cautiously the production numbers the shipment number inventory dealer number.

Leading indicators for whats happening again, the thing we know for sure that that equipment is it's not getting without this evening it will need to get a clip and the infrastructure Bill coming.

<unk> is only going to get is only going to mean more movement of equipment. So we are very optimistic.

And when we think about Q3 a share inside in the first half we were up 6% because again, there was ebbs and flows and FX and some sales happening in Q1 that didn't happen in Q2, those types of things so kind of plus 6%.

So feeling reasonably good about Q1 are very good with the backdrop of a tight supply environment reasonably good overall.

Q3 has a problem, it's a premium problem, but the problem is the comp coming against the 22% increase since the day last year.

Hum.

We were again the things we're very confident on is we know our sales folks are on we know we're driving incredible price recovery for our customers.

Customers know they issue is going to be will there be enough inventory moving hands at all to.

To make the numbers work.

Thank you.

Yeah.

Our next question will come from the line of Gary Principal personal chemo from Barrington Research you may begin.

Dan.

Could you.

Maybe remind us of some of the benefits of these satellite yards versus your standard yards that you have in the U S and international markets.

Yeah, let me kick off and then I'm going to introduce Jim Kessler 2 guys. If you haven't met Jim.

So the whole idea behind satellite yards at the test to be cleared by definition tests mean, we don't know what the answer is going to be when we embark.

The answers we received from international were so positive that now we're moving that from North America and just as a reminder, it's all about getting yards closer, making us easier to do business with.

Customers and making it easier for them to handle their equipment, but with that Jim went to take us through it.

Yeah, and I think hey, Gerry it's Jim.

And I think you you really covered it it's really getting closer to our customers cutting out some transportation cost as we're going through this process and then for Ritchie brothers internally the smaller yards as we're adding the GTA V a better flow through making us more efficient as we're going through it but really.

For the focus on our customer to get closer to them become more efficient.

And so far as we're seeing the Kpis, we're definitely see in <unk>.

<unk> per square foot increase and seen a very good flow through compared to our larger.

<unk> that we have.

Okay.

So with the goal of beta.

Realizing these are tests, but the goal would be to look at these yards and say, we're going to open them in.

Secondary or tertiary markets away from major major.

Our cities just to make it easier for some entities to get their equipment to you.

It could be that but also think about very populated areas, along the east coast, where traffic and other constraints just make it difficult to transport equipment. So I wouldn't think about it just as a second dairy and third kind of markets, but think about it where there's just a limitation towards transportation in it.

It could be east coast West Coast.

This model could work very well, where you have a hub and spokes around the hubs.

Okay. Thank you.

Yeah.

Our next question will come from the line of.

Larry Demaria from William Blair.

Yes.

Thanks, Good morning, everybody.

Just going back to work.

My question here.

Understand you have a tough comp in <unk>, but can you actually give us the auction day comp year over year and sequentially in percentages.

Related to the third quarter SG&A to be lower year over year because of the COVID-19.

Year over year comp challenges or with travel coming back it might actually be up third can you give us some color on on that as well. Thanks.

Yes, Sharon do you want to kick off and I'll pick up after that.

Sure. So I think we haven't provided auction day I will point out if you look on kind of the pre calendar. We do have a very large event in Houston, and new mask, Mexico coming up.

In August I think next week.

The point I would make on SG&A and I think the direction that we're trying to give here Larry.

Is we do expect to kind of what we experienced in Q2 in terms of both dollars and rates are is kind of where you should be looking in terms of Q3 SG&A.

SG&A.

Is more fixed.

It does have some event pieces, but wouldn't necessarily go down versus prior year and I will point out.

That we have the acquisition of the Rosa associates and the investments inside of our BFS as well as the FX increases in costs that we would expect to continue on into Q3.

And.

I think.

In terms of other costs to consider we do expect as conditions.

Start to become.

Hopefully with the Delta variance.

Stopping it again.

Starting to see more event costs and a sales associate travel costs to be able to support them to support them do events inside of Q3, So I.

I would stand by our guidance that we said in the script around using Q2 is more the SG&A guidance or.

Nothing that you should be using clear models for Q3.

Okay very helpful. Thanks, that's good thank you.

And then as a follow up on the IMS of 34% just to be closer to clarify.

I'm pretty sure. That's that's customers that have re engaged is there a total unit number that's relevant or maybe we just have to wait for that as you guys gave us more material more information and then as it relates to any business transactions, yet or is that more of a 2022 events.

Yeah, Larry So this is where we're we're very excited so its organization. So when you think about customers their entities, which then means obviously a significant amount of equipment and so the way we are and it's come at you know the answer to the second part of your question is obviously equipment is coming transactions or the.

Easy buttons are all in place in the marketplace. So that when the equipment is loaded into IMS you can literally order an inspection you can push it.

Today into either M. P E a live event.

Weekly featured as of Q4, you can push it into a listing service that Ritchie brothers has.

So on and so forth. There's obviously all of the data that's associated with it that kind of aggregated anonymised data from Rouse aggregated data from Ritchie brothers all of that richness exists in IMF.

And equipment is certainly coming with that right that that's how people engage or activate in IMS is to start loading equipment.

So we are the plan is let's really focus on organizations. This year much like the yards that Jim talked about the focus was.

Are they going to drive incremental customers are they going to be more you know very very productive are they going to drive the transportation costs lower for customers, where they bring more business.

Yes, we like it.

With IMS, it's the same thing.

What what does activation look like how easy is it how quickly can stand up these things so that growth rate I want to make sure is really resonating again implies an annual growth rate of over 300 per cent, but.

The growth rate is really a very.

It's very interesting because not only is it does it showcased the demand from customers, it's actually showcasing our ability to turn this on very quickly as you guys recall right. We were on the last call. We were talking about how quickly it takes to put a customer up and running we're focused on that very.

Very much because again right the longer it takes the.

The last customers, we can kind of get through the throughput of activation could then be able to focus on how many assets.

In My example of you of 100 and the yard you put tenant sales, how we're going to be focusing starting end of this year beginning of next year, how do we then.

I work with customers to say, okay, let's get everything loaded let's get the data flowing and then turn our attention towards monetizing that and and so on and so forth, but really exciting our commitment just like it has been is to as we start focusing on those things more and more we will be putting the kpis out so.

You guys are with us on the journey right now we are almost singularly focused on this organizational activation because of that is the gateway to then all of the equipment the services and the monetization.

Okay. Thanks Ann.

Yeah.

And as a reminder, that star 1 for any question Star 1.

Next question will come from the line of Brian Fast from Raymond James You May begin.

Thanks. Good morning, just 1 question from me just on the new buyer fee structure are you able to quantify how much of an impact.

It has had in the quarter.

So Brian it's Sharon I'll take that.

I think the best way to frame it up is when we call out the fees increases inside of the 10-Q, we list them in order of size.

You know kind of the impact so the first driver was rouse the second driver with our BFS and then the <unk> impact was smaller than that.

I would say that the other pieces. We did also see lift not just through the increase in the fee the fee change, but if you recall, we had previously waived fees on agricultural events, which would've been big in the second quarter. So we.

Would've seen an uplift from that and in addition, our golf planet, which also comes with a higher fee base also started to come into into play. So I don't know if that helps you frame it but I would look at that to help you figure out the size of what the fee pickup would've been.

We did have a 14% overall fee growth year on year of which rose our BFS and those fees that I just talked about what it would have driven.

Okay. That's helpful. Thanks, Sharon.

Yeah.

Thank you and.

And I'm not showing any further questions in the queue at this moment.

Okay.

Alright.

So net.

Thank you for joining.

Hum.

I think we have 1 more question from Michael can we picked up.

Of course, Michael Your line is open.

Hey, guys yeah. Thanks for.

Let me squeeze 1 in.

You mentioned Ms Sharon.

Is it 1 off events.

Auctions in August I guess it wasn't there last year can you just help us understand what are those 1 off events again.

How sizable can they be and then just to follow up the rates been good obviously, it's gone up year over year quarter over quarter can you help US understand is is is where we are with the right. What's the puts and takes to think about the outlook and the trajectory on on.

Right you know the service revenue right.

Inventory rate.

In the back half like what are some things we should be looking at that would.

Keep keep that rate expansion going what are some things that could pressure. It just so we can kind of have in our mind, how the outlook of that could play out in the back half. Thanks, everyone.

Mike Willis and let me start and then I'll turn it over to Sharon from color so to be clear they event that share and spoke about so let.

Let me just kick up and then and then and then we'll talk about it so more and more we are moving to what we're calling regional events for the smaller about so when you think about.

Supply demand curves, we definitively have done all the modeling that says you know the more supply we can bring the more interest we generate on demand.

The better pricing for our customers, so where we have a lot of confidence that you know.

Scale matters, a lot and obviously Ritchie brothers at the scale player. So as a result, you've seen us move to more regional events, let me explain them and then I'll explain what's happening with the comment that that share and made so instead of doing an event, let's say in Pittsburgh or in Maryland or in Connecticut.

You saw us do let's say a northeast event earlier this year, where we link those 3 yards together virtually.

And presented all of that supply to buyers at the same time and it drove really a very impressive results for our consignors.

So we know that's the case so when you hear that we're gonna be reopening.

Some of our volume when we say select events per live interaction. They are the bigger events because they can stand alone right. If we had opened this northeast event. What does that mean you know some customers are in Pittsburgh and others are in Connecticut.

That's not what the purposes interaction that's not gonna work, Unlike an event like in Orlando.

Or an event you know looking Edmonton, so on and so forth so what's.

Happening here, it's not a new bat, so if a Houston sale, which we had last year as well.

But theres a large package that's actually off site. So we have a functionality called via so which basically allows you that even in a single event much like these regional sales, we can link inventory from disparate locations.

Into that event, so more and more you're going to be seeing us really when we say omni channel. The magic of our businesses. We can do a houston event, but bring inventory virtually into that event from other areas of the country and candidly up the world Youre going to see us moving more and more.

Onto those types of things so when we say off site.

They could be the equipment can be off site, but the event is the same.

Think calendaring, if you will as the previous year, which is the case you are to Houston events.

You will also see us doing some upside events much like and where they are purely kind of out there just tau based and they're just oxide and that's how they work. So that's just an answer to the Q3 question. Your question about right is the answer around how we go.

We feel about the underlying business, we are driving organic growth.

Back to in our control and out of our control.

Chain disruption out of our control what's in our control is productivity of our folks and then getting.

Kind of driving incredible outcomes for our customers that then result in a fantastic rates for us.

So in fact, the things that Youre seeing.

Are the result of much work on the part of the organization.

To kind of.

Attached services to drive rate continue to grow those services. That's again, that's going to continue to drive those rates higher and higher the pricing analysis that you heard us talk about which we're going to do on a regular cadence as any competitive company does.

All of those things are going to result in a healthy business for the long term and the rates. We're seeing are a result of all of that hard work.

Sharon anything to add.

No I think you captured it with you know again just the traditional.

Inventory rate pressures does that isn't at risk position price.

He has been very strong.

You know as as we said in terms of the infrastructure, we expect demand to stay very high.

You know, we want to be increasingly competitive on those deals.

So you know again I think we were very good at this business and you know.

Our current performance is a rate improvement over prior year.

We would hope that that would continue for the remainder of the year.

Sounds good thanks, everyone.

Yeah.

Thank you I'm not showing any further questions in the queue I'd like to turn the call back over to the speakers for any closing remarks.

Yeah.

Wonderful Inc.

So much for joining us this morning.

And listening to our story I hope the takeaway here is you know.

How very excited we are about the business.

And the journey, they're on and thank you for being on that journey with us.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.

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