Q2 2021 Ritchie Bros Auctioneers Inc Earnings Call
Okay.
Good morning, My name is Victor and I'll be your conference operator today at this 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 this time simply press Star then 1 on your telephone keypad.
If you'd like to withdraw your question press the pound key. Thank you now I'll turn the call over to Mr somebody ever thought.
This president and Investor Relations and Mark and Kevin is to open the conference call.
Sure 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 2020.1 results.
Joining me today are intended to be 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 on this call.
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 we are.
Our forward looking statements are detailed in our SEC and Canadian Securities filings available on our Investor Relations website Investor Day Ritchie Bros. Dot Com, we encourage you to review.
Our earnings release, and form 10-Q, which are available on our website as well as Edgar and SEDAR on this call, we will discuss certain non-GAAP financial measures.
And as 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.
And teach and fly 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.
Unless otherwise indicated I will now turn the call over to answer on Tuesday.
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.
The COVID-19 variance have been challenging for so many regions across the world and as we traversed dependent on that 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 cents.
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 as a point and 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 and the physical world.
While driving transactions for buyers and 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 and we are pleased to announce that we are welcoming customers back to where yards for auction day and nice to for social activities and select larger events.
This is very important to our customers and these events will bring back the opportunity for them to interact with the Ritchie brothers team.
To be clear our yards have been opened and the entire duration of the pandemic and have been busier than ever with inspections, dropbox pick up 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 pick up which ramping largely precluded and.
As always we will continue to listen and learn and continue to evolve our business based on our customers' needs and technology enabled innovations.
Yeah.
1 way and 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 and the quarter by launching 6 locations and the U S. Under the satellite yard strategy with more to come in the next few quarters.
Moving to IMS, we are building and 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 a market places 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 K P. I have 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 and the second quarter. The number of organizations that are activated on our platform increased 34% from Q1 to Q2.
Well 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 G T V increased 2%.
With puts and takes across FX tailwind auction shifts headwind and equipment mix.
We see this level of G. T V and overall good result, given how tight the U S supply and market is.
Although auction sales and things are up. This reflects the addition of smaller timed auction lot of them, but 3 larger events that shifted into Q1 caused a 52 million dollar drag on G television performance.
Normalizing to remove the impact of shifts and the auction calendar Q2 G. T V growth is 6% equal to our year to date GTD growth performance of 6%.
Our first half G. T 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 and 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 and equipment sales transaction in exchange for hosting fees.
And the second quarter customers that use this service and disposed of $36 million of asset, which is an increase of over 155% over the 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.
And the underlying business trends in the quarter.
Despite cycling over our Covid protocols, 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 G. T V coming in at a robust 13, 8% for the quarter.
It is important to note once again the contract mix can significantly skew total revenue growth depending on consignor preference for how the deals are structured.
That said inventories sales tends to be lumpy and day 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 inventories sale and service revenues improved versus prior year.
Total operating expenses increased only 2% year on year in line with total G. T 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 and 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 cost and.
And overall FX had a slightly positive impact on the bottom line and the quarter.
The reduction and cost of goods sold is in line with the quarter decline and inventory revenue and delivered and improved profit rate as previously mentioned.
Cost of services remained flat to last year, supporting and 8% increase and 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, and a select events and we do expect our cost of services to increase to reflect that income and 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 G. T V being roughly flat in the same timeframe.
SG&A investments to drive revenue growth most notably the addition of the Roche and services team and continued investment and Ritchie Brothers financial services 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 and 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 2.2 levels compared to last year given these changes.
At the end of the quarter, our balance sheet and liquidity remain in a very strong position, providing an excellent foundation to support our growth initiatives and we are pleased to announce a 14% increase and our quarterly dividend to <unk> 25 cents deliver.
Delivering on our stated capital allocation priorities of growing dividend as earnings grow.
And with that let me pass it back over to Ann.
Thanks Sharon.
I am very pleased that the progress we are making on our new strategy to becoming the trusted global marketplace for 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 call out 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 and our view here, we still see the environment is dynamic and our tone and outlook remain cautiously optimistic.
Let me reiterate that we see the current environment is a point and 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 a resulting GTD growth of 22%.
With that operator, please open the line for questions.
As a reminder to ask a question you will need to press star 1 on your telephone.
And to withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes on line of Michael Dummett from Scotiabank you may begin.
Oh, Hey, good morning.
So maybe thanks for the commentary.
And I guess I look forward to the Kpis on the IMS.
If we can frame the micro services at a high level for now any weak and help us think about the ramp up.
And the revenues and 2022 and beyond I mean will it be a slow start and an acceleration and the outer years and.
How should we think.
Think about the the margins of those.
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. You know we look at the world is in our control and out of our control.
Price decline.
Out of our control are all of the underlying things, we're doing to build and incredibly healthy company and organization and drive our technology to the marketplace, a 100% and our control. So just to put things in perspective, the 34% increase and organizations.
Focused on for this quarter are kind of is an annualized number of north of 300% growth now do we see lots of studies debt no, but it's a signal of you know just how very very compelling and it so.
So then just as he Michael where we are then going to move our attention to okay. That's all the organization and signing up now what is the usage right. What are the athletes and the system, what's our attachment rate of services to the assets and I'm about to get to your question and then.
And 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 that the services revenue growth would be a couple of percentage points above revenue growth, which we've committed to be a.
High 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 D. T V. That's coming through our auction channels.
Which will always be important.
And I'd be doing reserved on reserves and so on and so forth that GAAP that growth rate. So you know.
For modeling purposes.
On a steady state as high single digit low double digit on kind of the G. P. D. Based business. Then you can kind of keep growing 2 point Delta and then higher and higher as the attachment of services is unrelated to the underlying and GTT, but our commitment is just like we were showing the organs.
Now that's what we're looking at as we start getting the asset focus and we started doing our attachment we'll be putting those out as well. So that you guys can see that live and in person. The last part of the answer to your question is we've been very clear that these services that we're providing.
And we're gonna come in the form of Ritchie Brothers services, but also third parties.
Partnering with dealers and Oh.
Other partners and our ecosystem to offer services on their behalf.
You know to our income customers.
Okay.
Very comprehensive answer thank you.
And my pleasure.
Our next question comes from the line of Craig Kennison.
Dan you may begin.
Good.
Hey, good morning, Thanks for taking my question, it's really on infrastructure and sort of government policy, but I'm wondering if there's anything and 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 that is we view this as a very exciting time, so let's just I'll take a step back again here for a second so the environment is tight we notice.
Sooner or later, it's going to catch up right. So the oem's originally when all of this started and I'm, telling you guys everything that you already know we all heard this together.
When they started the Oems came forward and said Hey don't worry about it we will catch up and the first half of 'twenty 'twenty 1.
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 and the equipment that is out there continues to age. So theres no question that it's going to come forward and is gonna have to be replenished.
And then the infrastructure buildup coming forward is only going to increase demand. So we view these things as highly favorable tailwind.
You know and 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 and time will last but we know it's going to go away and.
And its older and the infrastructure spending is coming and only means goodness for Ritchie brothers, because when equipment turns.
And 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 alive human interaction at these auctions how are you leveraging those.
Tools to drive more active.
Activations on biomass.
Yeah, and and our this is.
And 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 are we up to the net sale. It really is now with IMS and place them.
And it really is more about let me become that trusted adviser that you guys have heard us talk about now we have a tool.
And our sales People's hands to do that so what IMS is becoming for our sales organization is just and input tool for our customers that they can help them with Oh, 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 it and the second and so were before let's say you have you know 100 pieces of equipment on your yard.
And our salespeople work with you to put let's say 8 into the next sale now the conversation is all about hey, let's see let's put that eat into the eye on that.
Let us show you all of the data the richness and the single button click and then push it into the various channels of Ritchie brothers B and marketplaces for reserve you know 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.
You're 100 pieces becomes very very clear and evident and it's really that process and that our sales organization is embarking on and very very successfully.
And as you see the numbers growing.
In terms of return to why this was interesting and you know again just with the sharing so you know customers are would be the worst winter and glad you're going to reopen up and.
And John Kessler with you guys. When we are in a little while he's our chief operating officer, you Havent heard from him, but he's I think on.
On this call who joined us during Covid.
Basically kicked off a campaign on.
To jump on calls with as many customers and Ken with the sales organization and to talk about what does reopening I mean, we've been open the whole time right. We're open you can drop equipment broke and you can pick up equipment. We've inspected it we're selling it we're selling it very successfully on line what is reopened and eat and what.
Became very very clear to those conversations.
And the interaction that is what they're missing and that's what Ritchie brothers are so great at and now it's not just interactions for you know the.
The next sale and growth, which of course is very important to us, but now the interactions on or around the data. The richness. Let me show you what I am asking do for you. So we are very excited to bring customers back and 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.
And next question on comes from the line of Cherilyn Radbourne from TD Securities May begin.
Thanks, very much and good morning.
Was hoping you could speak to the changes that you've made to your buyer fee structure during the quarter and it.
It just doesn't feel like it's been very long since the company last increased buyer fees.
Hi, Sherlin and say 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 and Ritchie brothers the way it actually is and most other [noise] excuse me companies around the world.
So the way, we think about old fees is the way that.
You know all companies think about pricing and 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 you know this.
This is a practice, we're going to engage and regularly.
And as a company.
That operates and the competitive landscape and whatever that tells US we will react right. So we saw an opportunity a debt.
And that in fact, there were parts of our business, where we were you know as for sure a premium service provider actually charging less than some of our competitors, we saw an opportunity to increase those prices.
And to become more competitive and we did we are going to be doing that analysis at a minimum annually. So whatever 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.
Sure and would you add anything.
Yeah, sure Lynne and I think what I would add is also just with the strength and pricing that we realized we were starting to see that some of those smaller items and we're moving up the grid and 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 tiers to basically keep pace with current.
Current pricing and inflation that we were seeing in those smaller categories and Ah you know and 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 and on the buy side.
And also just related to the mix of what we're selling.
Okay. So it sounds like those tiers.
And 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.
And sorry up or down Yeah, I was just going to say the way to think about it as items that used to be and the $10000 range. The price was taking it up so to capture those we escalated that tier and we will look at it in terms of whether if 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 how it very tight freight environment is impacting Ritchie brothers and I guess you know.
Just the mobility of used equipment generally.
Yeah, so shoreline and that is actually part of the headwinds facing us and when we say tight supply environment, we mean the supply chain.
So it's both the production for Microchip.
The shipping constrained it's the Covid lockdown protocols are when we say types of buy and that's across the board we're feeling it.
And again in our control and out of our control. So that is out of our control, we're feeling and 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 I did not mentioned, but it is on the chart that Ritchie list will be bringing a listing service and Q4.
And again, just filling out a division for the marketplace real time, which is very much and our control. We're also driving the underlying productivity levers of our auction business. So what does that mean.
And we're monitoring very closely though.
The items that our sales folks are selling so even though the mix is down and the G. P E and the.
Corresponding June Tvs are down as well, we see that our sales organization is actually much more productive so theyre getting more contracts per head. Similarly.
Similarly, and the operation side of the organization as the mix is down and we have a lot older and smaller equipment that actually and a lot more equipment and our yards for them to process and they're doing an incredible job and driving productivity there as well so supply chain issues broadly are affecting us a great deal.
But the underlying business that we're driving so that when those things become up and things of the past are fundamentally get us to a different kind of growth rate and we feel very very good about.
That's my 2 thank you.
Yes.
And our next question will come from the line of.
Michael Feniger from Bank of America, you may begin.
Hey, guys. Thanks for our team.
And my question Shannon and 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 that 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 output.
And 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 sale day, and we've certainly seen some activities.
And that have added value and some of the changes that we've made on sale day in Covid and 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.
And the yards, we're expecting that that cost will stay at current levels and albeit we may add it back into a few of our premier events debt that is really the benefit to the buyer at ways and and also the safety of both customers and employees.
It weighs 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.
Those 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 and 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 site.
And events specific start to shift a little bit more into SG&A over time, as we move to that and kind of always on positioning and but that would be a relatively minor cliffs and the great scheme of things. It really is the more permanent reduction that that we would see in those and those kind of service expenses.
That's that's helpful and sure and any visibility right now on on GTA V. I mean I think this is.
And kind of the question right I mean July obviously is a smaller month.
GTA V is kind of flattish flattish and are waiting for 2020 and Q2, but also 22019, so I guess I'm just trying to <unk>.
Level set and gauge what we're kind of looking out and in the third quarter anything you could provide on calendar days number of auctions that you're that you're looking at here and.
Anything on the comp last year, we should be aware of just color on kind of help us level set for for this tough comp and the third quarter.
Yeah. So why don't I start and then I can throw it back to and you know clearly as Ann mentioned in her remarks, we are up against a I think a plus 22% GDP growth in Q3 is a very small quarter, so that will be difficult to comp.
And that being said, we did announce we do have a very large sale that we are planning so I think hard.
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 firm.
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 and time more talk about these transitory issues are you are you confident that at least in 2022, and we are we back to the evergreen model.
Targets and algorithm there.
Yeah. So that's the crystal ball and so I wanted to say, yes, but again debt.
From our standpoint things were in control of which is the underlying productivity of our sales associates.
And our operations staff, what's happening with iron mask, what's happening with the broader marketplace what's happened on.
Our confidence assumed the role and the thing we're not in control of its kind of this OEM will call. It supply chain again, so I just bring us back to we're watching avidly and what the Oems are saying and in terms of catch up and 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 and where we were hearing at the first half problem and now that problem continues so I'm watching very cautiously and the production numbers the shipment numbers that inventory dealer number and there was.
Leading indicators for whats happening again, the thing we know for sure that that equipment is it's not getting slipped out. This evening, we'll need to get flipped and the infrastructure Bill coming up.
<unk> is only going to get is only going to mean more movement of equipment. So we are very optimistic and.
And when we think about Q3 as Sharon said and 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, you know those types of things so kind of plus 6%. So feeling reasonably good about Q1 are very good.
With the backdrop on the tight supply environment and reasonably good overall.
You know Q3 has a problem, it's a premium problem, but the problem is the comp coming against the 22% increase and it would be last year.
Hum.
And we were again the things we're very confident on is we know our sales folks are on and we know we're driving and incredible price recovery for our customers.
Customers Nowadays she was gonna be will there be enough inventories moving hands and all to.
And to make the numbers work.
Thank you.
Yeah.
Our next question will come from the line of Gary Prestige personal PMO from Barrington Research you may begin.
And could you.
And maybe remind us of some of the benefits of these satellite yards versus your standard yards that you have and the U S and international markets.
Yeah, let me kick off and then I'm going to introduce Jim Kessler to you guys. If you haven't met Jim.
So the whole idea behind satellite yards as a test to be cleared by definition tests mean, we don't know what the answer is going to be when we embark on.
But the answer is we received from international and we're so positive that now were moving back to 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 want to take us through it.
Yeah, and I think hey garage and.
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 and as we're adding the G T V and 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.
And so far as we are seeing to keep your eyes were definitely cig and.
<unk> per square foot increase and seen good flow through compared to our larger yards that we have.
So would the goal be to.
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.
Cities, just to make it easier for some and it used to get their equipment to you.
And 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 second dairy and third kind of markets, but think about it where there's just a limitation towards transportation and it.
Could be east coast West Coast.
This model could work very well, where you have a hub and spokes around the hub.
Okay. Thank you.
And.
Our next question will come from the line of.
Larry Demaria from William Blair you may begin.
Hey, Thanks, good morning, everybody.
Just going back to like a price.
Question here on.
And you have a tough comp and <unk>, but can you actually give us the auction day comp year over year and sequentially and percentages and.
Weighted to the third quarter SG&A to be lower year over year because of the.
Comp challenges or with travel coming back and might actually be up can you give us some color on on that and as well. Thanks.
Yeah, sure and do you want to kick off and I'll pick up after that.
Sure. So I think we haven't provided auction days and 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.
And 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.
And that we have the acquisition of the rest of associates and the investments inside of our BFS as well as the FX increases and cost that we would expect to continue on into Q3.
And.
I think.
In terms of other costs to consider we do expect and as conditions.
Start to become.
And hopefully with the Delta variance.
Stopping it again.
Starting to see more event costs and our sales associate travel costs to be able to support them to support them do events inside of Q3, So I.
And I would stand by our guidance that we said on the script around us and Q2 is more on the SG&A guidance or.
On method that you should be used and clear models for Q3.
Okay very helpful. Thanks.
Thank you and then a follow up on the IMS up 34% just to be closer to clarify things come on.
Pretty sure that's customers that have re engaged is there a total units number that's relevant and maybe we just have to wait for that as you guys can give us more material and more information and then.
Led 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 and 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 coming you know the answer to the second part of your question is obviously equipment is coming transactions on the easy buttons are all in place and the marketplace. So that when the equipment is loaded into I am as you can literally order and inspection.
And you can push it today into either M. P. E. A live event you know our 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 debt that's associated with it that you know.
Kind of aggregated anonymised data from Rouse aggregated data from Ritchie brothers, all of that richness exists and IMS.
And equipment, and certainly coming with that right that that's how people engage or activate and 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 you know the focus was on.
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 will they bring more business.
And yes, we we like it.
And with I methods and the same thing, but you know what.
What does on 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%, but.
The growth rate is really a very.
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 2 to put a customer up and running we're focused on that very.
Very much because again right the longer it takes on the last customers, we can kind of get through the throughput of activation to then be able to focus on how many assets. In my example of you on 100 and the yard you put kind of sale, how we're gonna be focusing starting end of this year beginning of next year, how do we then.
Our 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.
So that 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 and services and the monetization.
Okay, Thanks and.
Yeah.
And as a reminder, that started 1 for any question star 1.
Our next question on comes from the line of Brian <unk> from Raymond James You May begin.
Thanks. Good morning, just 1 question for me just on the new buyer fee structure are you able to quantify how much of an impact.
And the quarter.
So Brian it's Sharon I'll take that I think the best way and.
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 and with our BFS and then the CS impact was smaller than that and I.
And would say that the other pieces. We did also see lift not just through the increase and 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 have seen.
On 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 pick up would have been and and we did.
And have a 14% overall fee growth year on year of which rose our BFS and those fees that I just talked about what would have driven.
Okay. That's helpful. Thanks, Sharon.
Thank you and.
And I'm not showing any further questions and Nick here at this moment.
Yeah.
Alright.
Thank you for joining.
Actually 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.
And you mentioned the share in these.
Is it 1 off events.
And auctions and 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 rate. What's the puts and takes to think about debt outlook and the trajectory on on.
Right the service revenue rate and the.
Inventory rate.
And 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 and our minds, how that outlook that could play out and the back half. Thanks, everyone.
Michael its and let me start and then I'll turn it over to Sharon for color so to be clear the event the children and spoke about.
So let.
Let me just click up and then and then and then we'll talk about it so more and more and we are moving to what we're calling regional events with a smaller amount and so you know when you think about.
You know 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.
And the better pricing for our customers, so where we have a lot of confidence that scale.
Scale matters, a lot and obviously Ritchie brothers at the scaled 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 the chair and made so instead of doing and event, let's say in Pittsburgh or in Maryland, and Connecticut.
You saw us do let's say on northeast event earlier, this year, where we link those 3 yards together virtually.
And and presented all of that supply to buyers at the same time and it drove really very impressive results for our consignments.
So we know that's the case swing here that we're gonna be reopening.
Some of our balance when we say select events for 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 on Pittsburgh and others are and Connecticut like that that's nice.
The purposes interaction and that's not going to work on like an event like and Orlando.
Or and even you know look and Edmonton and so on and so forth. So what's happening here, it's not and you will that so if the Houston sale, which we had last year as well.
But theres a large package that's actually on site. So we have a functionality called via so which basically allows you that even in a single labatt and much like these regional sales, we can link inventory from disparate locations.
And for that event, so more and more you're going to be seeing us really when we see omni channel. The magic of our businesses. We can do a houston event, but bring inventories virtually into that event from other areas of the country and and candidly up the world and Youre going to see us more and more.
We're on to those types of things so when we say offsite if they could be the equipment can be off site, but the event is the same.
St Calendaring. It 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 you know we kind of out there just Cal based and they were just on site 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 good we feel about the underlying business, we're driving again.
And it's back to in our control and out of our control.
Supply chain disruption out of our control what's in our control is productivity of our folks and then getting a kind.
Kind of driving incredible outcomes for our customers they've got and result in a fantastic rates for us.
And so in fact, the things that you're seeing or you know the.
The result of much work on the part of the organization.
To kind of attached services to dry grade continue to grow those services again, that's going to continue to drive those retire 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 and then a result, and a healthy business for the long term and and the rates. We're seeing are a result of all that hard work.
Sure and anything to add.
No I think you captured it with you know again just the traditional.
And inventory rate pressures does that isn't at risk position pricing has been very strong you know as as we said in terms of the infrastructure, we expect demand to stay very high however.
However, 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.
Our current performance is a rate improvement over prior year.
We would hope that that would continue for the remainder of day here.
Sounds good thanks, everyone.
Thank you and I'm not showing any further questions and the queue I'd like to turn the call back over to the speakers for any closing remarks.
Wonderful.
Thank you so much for joining us this morning, and listening to our story I hope the takeaway here is how very.
Excited we are about the business and.
And the journey on and thank you.
And we're being on that journey with us.
This concludes today's conference call. Thank you for participating you may now disconnect.
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