Q2 2022 Ritchie Bros Auctioneers Inc Earnings Call

Like many other companies, however, we continue to face challenges in finding and onboarding new talent, which we are working through.

Better sales coverage, local yards, and our marketplace technology are designed to reduce the friction for our customers and allow the flywheel to spin faster.

All of this is to make it easier to do business with us and Richie Brothers to create shareholder value for you, regardless of what is happening in the macro environment.

As most of you know, when times are good, Richie Brothers tends to do well as there is a lot of activity for our customers and equipment is naturally churning.

Likewise, when times are tough, we also tend to benefit from increased supply albeit at lower prices. Am I doing all this too?

COVID, however, has brought us an unprecedented environment because despite the robust end markets over the past several quarters, the supply chain has not been able to keep up. Customers have not been able to buy new equipment to replace their aging equipment, which has resulted in a tough equipment supply environment for us.

Since we are seeing the pricing of used equipment come off their all-time highs set in February , we are hopeful that supply and demand may start to come back into balance.

We will talk more about this later.

What we expect for sure is that our customers will meet us more than ever if we experience a voucher.

When times are tough, people need liquidity, and they need it quickly.

We expect Richie Brothers to be at or near the top of their list.

We have an Army Channel platform that will cater to all different types of disposition needs our customers will have.

Ultimately, this should allow us to highlight the historic countercyclicality of our business. The historic countercyclicality of our business.

Moving to our Inventory Management System, or IMS.

We had another strong quarter with 50% sequential growth compared to the first quarter.

We define an activation on IMS as an organization that has signed an annual contract to allow equipment to be work-flow digitally.

What is critical here is that the annual contract dramatically reduces friction for our customers.

as it eliminates the need to have contracts for each consignment throughout the year.

The KPI we continue to focus on is the number of organizations.

Think of organizations as the number of pipes being connected to our ecosystem.

Right now, without the digital marketplace fully running, there is not a lot of water flowing through those pipes.

We are fine with that. As the marketplace technology starts coming together to our thin wedge approach, we can quickly turn the tap on and adjust inventory at scale.

This is why I'm laying the pipes today with annual contracts is so important.

Before I formally introduce our new Chief Financial Officer, Eric Jacob, let me take a moment to thank our outgoing CSB old Sharon Driscoll.

Over the past seven years, Sharon has been instrumental in the company success and has been an excellent steward of capital.

She provided Richie Brothers the financial flexibility to navigate not only large acquisitions, but also the craziness of COVID. She provided a lot of support for the financial flexibility to navigate not only large acquisitions, but also the financial flexibility to navigate not only large acquisitions,

Although she is no longer in the CFO role, Sharon remains an executive vice president and a personal advisor to me.

On behalf of the entire team, you're at Richie Brothers, the board of directors and our shareholders. I want to thank Sharon for her contribution to Richie Brothers.

Now, let me embarrass Eric for a minute.

When Sharon came to me and said we should start planning for her retirement, she gave us the luxury of time.

Two years to ensure a smooth transition to find and recruit the perfect TFO for Richie Brothers. Prooffully, I Darling will not accept it for the time being.

I had a purpose-built spec. I wanted a highly experienced public company CFO .

who have digital marketplace experience.

Someone who has helped scale businesses while transforming them from analog to digital.

Someone who wants to win.

Basically someone who has been there and done that.

Oh, and Jerk's need not applied.

When the recruiter called and said the search was over and I connected with Eric, I knew very quickly that he would be a phenomenal addition to our team.

We will certainly accelerate our strategic vision to become the trusted global marketplace for insights, services, and transaction solutions for commercial assets.

Let me hand it over to Eric, who will take a few minutes to introduce himself and then talk about our second quarter of court prohibiting history.

Eric?

Over to you.

Thanks, Dan.

Let me add my welcome to everyone on the call today, and a huge thank you to the entire team at Richie Brothers.

Everyone has been so welcoming and helpful.

It speaks volumes about the strong family-like culture that company has dealt.

Going a lot to Dave Ritchie.

Let me spend a few minutes on my background.

As a public company CFO , you get a lot of calls.

And quite frankly, I wasn't looking for a change.

When the recruiter told me it was for a large global marketplace and an analog to digital transformation that was wildly profitable and generating a ton of cash flow, it definitely piqued my interest.

Then I met Anne in the team and heard about the strategic vision of being the trusted global marketplace for Insights Services and Transaction Solutions for Commercial Assets.

It was hard to contain my excitement about the opportunity.

I was part of something very similar in the auto space.

and it was transformational to that industry and wildly successful as well.

So let me start with my background in reverse.

I was recruited from Wheels Up, a public company and an industry leading marketplace for private aviation.

Through organic growth and targeted M&A.

The company has grown revenue from a run rate of $250 million to over $1.5 billion in four short years.

And it also went public.

Before wheels up, I was at deal attack technologies in cox sort of motives.

ELA Track also grew revenue from $250 million to over a billion dollars while I was a public company at CFO for almost eight years.

before we sold to Cox Automotive in a transaction valued at over $4 billion.

Deal attract, like wheels up, was also an analog to digital transformation.

It's truly amazing the number of similarities between what Ritchie Brothers will do for commercial assets and what Deal Attract and Cox did for auto.

Cox had an inventory management system for auto dealers.

Cox also has businesses and auctions, inspections, lean and title administration, financial services, parts and services, listings, and data analytics. well,

including Calib Blue Book.

These capabilities were transformational to the auto industry and ultimately I believe a successful inventory management and analytics platform like RVs Rouse will be transformational to our industry.

I also have M&A experience benefiting from my career as a corporate lawyer. I've been involved in over 40 acquisitions.

with many of them technology driven or international.

Where I focus much of my time is on integration. Getting deals done is nice, but being able to fully integrate quickly and driving revenue and cost energies is what helps make transactions successful. What helps make transactions successful?

Each of my prior companies have had a large and growing international business.

In a deal track, I was also the president of the Canadian business and spent almost three days a week in Canada for several years.

So, Ruchi Brothers is a natural extension of all my professional experience.

Lastly, I have long believed that innovation plus execution equals success.

And since my prior industry experience tells me that Richie Brothers' strategy and playbook is spot on from an innovation perspective,

It's about execution, which is where I believe I can help the team excel.

Now, let's turn to our financial results.

In the second quarter, GTV increased 10% or 13% on a constant currency basis.

But the strongest growth coming from Canada would solve the contributions from the US and international regions as well. And international regions as well.

We had a few GTV records this quarter, and we're particularly proud of them.

Both Canada and Australia had the largest quarters ever in terms of GTV.

Congratulations to those teams.

Canada was up 14% compared to last year.

driven by our leveraging of our timed oxygen lot technology, or TAO, to hold more auctions more frequently.

In Australia, our investments in local yards enabled that market to hold their first national event, which greatly boosted their performance.

Overall, we continue to see strong contributions from our regional self teams.

Partially offset by the softness and our strategic account screw.

Something that the leaders of team has spoken about in the past due to limited equipment supply.

Although year-on-year mix adjusted prices of equipment continue to be positive, we have been seeing sequential declines in the pricing of substantially all asset categories.

For most, transportation assets.

This was expected as it was not likely that used equipment pricing would be sustainable at these levels.

As I discuss, we see lower prices as a longer term positive because it is a sign that supply and demand are starting to come back into balance.

And as Anne has also stated in the past, we will take volume over price almost any day, given our ability to attach other services to volume.

So overall, we are very pleased with our second quarter growth, given the very low levels of use of equipment in the market and the FX headwinds to GTV do the strong dollar. The FX headwinds to GTV do the strong dollar.

Total service revenue increased 13% compared to last year.

On an organic basis, excluding the impact of smart equipment, total service revenue increased approximately 11%. Total service revenue increased approximately 11%.

Total service revenue continues to exceed total GTV growth, in line with the Evergreen model laid out at the 2020 Investor Day.

Other service revenue continued grow nicely, increasing 29% of the quarter and up approximately 16% on an organic basis.

excluding smart equipped revenue of approximately $5.000.

Richie brother financial services put up another amazing quarter, growing its revenue 69%.

This growth was partially offset by lower ancillary revenue from logistics, which we further spent in repair due to lower unit volumes in the overall mix of equipment. Look at this. This includes workroom features, standards and terms and current raised suspension. You can list some of those relevant details that are clarity and adjustment as a protection brauchen for a job only. you

With regards to earnings, our adjusted EVA DAW increased 11% on strong revenue performance, even with the impact of higher SGNA costs, which was expected as we continually to prudently invest our growth initiatives and market play special. Our growth initiatives marked the play special.

Also non-gap adjusted earnings per share increased 10%.

Also, non-GAAP adjusted earnings per share increased 10% to 74 sets.

In the second quarter, it effective tax rate, excluding the impacts of adjusted items, but it's approximately 26%, slightly higher than the 25% in the same quarter last year.

We expect the effective tax rate excluding the impact of adjusted items to be between 25 to 27% for the full year, corresponding to a GAAP tax rate of 22% to 24%.

Turning now to our auction and marketplace segment, A&M Services revenue increased 11%.

and our A&M tape rate, or A&M service revenue as a percentage of total GTV.

Came in at a robust 14% for the quarter.

Up approximately 10 basis points compared to last year.

The increase was primarily driven by an uplift in the buyer fee.

Moving to A&M's inventory sales.

As Sharon noted in the past, and as I expect to continue to note in the future, inventory sales tend to be lumpy.

and driven by consigner preferences.

In the second quarter, inventory sales increased 38%, with strong growth contributed from all regions, particularly Canada.

For the quarter, inventory rate increased approximately 220 basis points year over year, so 11%.

which reflects excellent performance.

Passive service, but selling general administrative expenses, we're up 25%

Note that SGNA expenses, exclusive share-based payments and non-recurring charges, was approximately $128 million for the quarter. This was at the low end of the range given last quarter.

We continue our prudent investments in our strategic growth initiatives, leveraging this period of higher selling prices in the market.

The position ourselves for success in driving incremental unit volumes.

which will be required to sustain our GTV growth as market pricing momentum slows.

Also, in 2022, we added Smart Equip to our portfolio, which was not in our prior year results.

The increase in SGNA expenses, exclusive and non-recurring and share-based payments, was also driven by a strong financial performance.

which is resulting in higher incentive-based compensation compared to prior year.

Additionally, like many companies, we're seeing inflationary pressures on our operating costs.

as it relates to labor, durable goods, consumables, and travel.

The team is working hard to offset these increases through improved productivity, and we will remain diligent in managing our costs within an acceptable range.

For the third quarter of 2022, we expect our SG&A expenses, exclusive of share-based payments and non-recurring expenses, to be between $128 million and $133 million.

Turning to cash flow and liquidity, our cash flow remains very robust with trailing 12 months operating free cash flow of $428 million.

which is 179% of our non-gapuchotcinet income.

Delivering well above our stated evergreen model target.

At the end of the quarter are adjusted net debt to TTM non-gap adjusted event saw ratio to 0.7x.

As Anne also mentioned, we are very pleased to announce an 8% increase in our quarterly dividend to 27 cents.

delivering on our stated capital allocation priorities of growing dividends as we grow earnings.

Recall that in April we abandoned our acquisition of Euro auctions.

And while we are currently below our desired lever ratio, our capital allocation priorities have not changed.

We want maximum flexibility to be able to accelerate our strategic vision, either through M&A or investing in technology or organic growth initiatives.

For modeling purposes, we currently project interest expense of $10 million to $12 million in the third quarter. For modeling purposes, we currently project for modeling purposes.

Overall, a very strong quarter across all financial dimensions.

Thank you all for your support of Richie Brothers and with that I will turn it back to Ann.

Thank you, Eric. Before we take questions, let me reiterate what the operating environment is today.

While we are committed to driving results continuously up and to the right, and have clearly demonstrated that commitment through strong double digit growth at past two quarters. The last two quarters. The last two quarters. The last two quarters. The last two quarters. The last two quarters. The last two quarters. The last two quarters. The last two quarters.

The equipment supply chain continues to be stretched.

This, coupled with the fact that GTV in the third quarter is typically seasonally lower than the second quarter, and we will be cycling over the $100 million burial deal from last year's third quarter. We would expect our GTV growth rate to be less than the growth rate for the second quarter of this year.

In the broader market, utilization levels of equipment are high and customers are busy.

The equipment is being used and it continues to age.

We see this as nondestructible demand, as almost all of this equipment will need disposition services in the future.

Should a recession take hold, we have historically seen this translate to higher unit volumes, lower pricing, and an improvement in mix as younger equipment comes into our channel.

In short, it should continue to translate in up and to the right performance.

Until that time, we are focused on roles in today's Constraing the Environment by focusing on what we can control. most of months the

Our teams are focused on providing the best solutions for our customers, continuing to test, learn, and invest in growth initiatives, and executing on our vision to becoming the global trusted marketplace for insight, services, and transaction solutions.

With that, operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by one on your touch tone phone. You will hear a three tone prompt acknowledging your request and your questions will be pulled in the order that they are received. If you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question.

Your first question comes from Michael Dumet with Scotiabank. Please go ahead.

Hey, Ann and welcome, Eric.

Thank you.

Compared with construction, Richie's generated a lot more GTV growth this quarter, and I guess since 2019 in the transportation sector. So I noted the two large inventory contracts in Canada this quarter, but any color that describes, what looks to be outside success in that end market in the last couple quarters.

Hi, Michael. I'll start and then actually turn it over to Carrie, our chief revenue officer to take a bow. So we have had as a reminder, we have had, you know, Richie Brothers is an incredible business, you guys know, and has been, you know, incredible cash flow model, cyclical, counter cyclical, all of those things. Really, if we had an Achilles heel historically, it's been the growth rate. Very inemic, low single digit.

When we, when this team set forward our 20, our new strategic plan in 2020 about the coming the global trusted marketplace for insight services and transaction solutions, the commitment we made in the Evergreen model was to take that growth rate up.

go from low single digits to mid single digits to high single digits to low double digits, that kind of thing and how we got there and how we're continuing to get there as a test and learn model. And we put a lot of those tests in in 2020, early 21, sales coverage model, satellite yards, so on and so forth. And what you're seeing in GTV, again, in the areas that we control is kind of the proof of that labor and it's going to be, you know, it's never completely smooth. We learn we, we breathe.

Yeah, I would say strong execution on the Canadian front to call out the Canadian team in particular, but we also called out the Australian team. We had double digits pretty much across the board globally in the regional team. And when we talk about sales coverage, we also talk about customer focus. And it's no question some markets are moving faster than others. We've seen obviously an uptick in focus in one market versus another when we're watching utilization rates, but we are.

would consider, you know, quote unquote pure inflation versus investments for growth.

Yes, so let me start and then I'll turn it over to Eric. So the way we think about SG&A again, coincides with the commitments we're making for growth and here's how that looks. I'm going to use Richie Brothers Financial Services as an example. So again, we have a very strong point of view in the growth ability of this business given the fact that we're in a $300 billion industry and today we're kind of in that $6 billion of...

GTV, so a long way to go. RBS is a great example. We started doing some tests in 2020 about different models to grow RBS, Richard Brothers Financial Services, and we saw just incredible ROI coming off of those tests. And we saw just incredible ROI coming off of those tests.

So we started putting the pedal to the metal in the beginning of 2021, adding resources, those have had incredible returns. Obviously as we're seeing Richie Brothers financial services growth, you know, 70 percent, I mean, you know, just incredible numbers. Similarly with satellite yards, coverage model, all of the things that we're doing, we continue to test and learn and where we see a prudent return.

or prudent growth and incredible returns, we then start investing. Now in the backdrop of the supply environment, you are seeing some of those results, incredible as they are, double digit again, still dampened by the supply environment. We are very, very proud of that.

Eric, anything to add on the SDN inside?

Not that much, and I think you kind of hit it. I think, look, ultimately, the growth in SGNA is really tied to the investments, as well as the over-performance in TGTV driving sales comp and incentive comp. I mean, the comparison versus prior year sales comp and incentive comp were down. As we look forward, it's difficult to quantify the exact dollars of inflation, but we are traveling more. We are.

seeing fuel costs increase and such. You know, we're doing that. We're offsetting that by managing prudently our costs, but you know, we can't really quantify the exact hours for you. We can't really quantify the exact hours for you.

Okay, helpful. Thanks very much guys.

Thank you. You're next.

Your next question comes from Michael Finiger with Bank of America. Please go ahead.

Hey everyone, thanks for taking my question. I understand you're saying you're trying to control what you can control. The market's trying to figure out this spike in S-GNA. You reported a GTV of 10%, even our growth was up 11. So the operating leverage was limited. We recognize everyone recognizes you're doing these initiatives. I guess the question is going into 2023. Are we still scaling up?

the this type of SNA level so if you in 2023 grow GTV 10% You know, what's the SNA gross level gonna be kind of looking like that's where I think there's just some concern on this growth initiatives how that's gonna be scaling into next year

Yeah, Michael is saying, no completely understand the question. So the first thing to note is if you take a look at a year on year basis, and I think this is where Eric was headed at the back half of his answer to the previous question, if you take a look at year on year, we had a fairly dampened outlook in Q2 of last year, much lower accrues, a bunch of noise if you compare year on year. If you actually compare...

Q1 of this year, the Q2 of this year, the flow through of the increased growth quarter was actually quite impressive.

quite impressive. So let me just tell you how we're thinking about SGNA. We do not invest.

in new initiatives unless we are very confident about their return. That's number one. Number two, we prudently control the underlying cost, kind of the steady state cost of this business. No question, we are not immune like anybody else to the inflation pressures of employee costs, travel, those kinds of things. We try to very much offset them with anything in our control. So we are head down focused on...

You know, we invest when there's a positive ROI, we prudently control the costs that exist, and laying the foundation, and this is the key, we know that sooner or later, the tight supply environment turns.

We're actually incredibly proud of the fact that all of the investments we've made actually are having, you know, very high returns. And again, you see it in the sequential flow. So we'll see you take a look at Q1 versus Q2. So later this supply will turn. This equipment continues to age. And the things that we've put in place, we are super proud of, you know, will come to us. The one commitment we have, first and foremost to ourselves and our employees, our board of directors and of course to the investors.

is that when we see the return slowing down, forget stopping. We stop the investments. We pivot. We learn. So on and so forth. So that's how we are looking at 2023. That's how we are looking at 2022. You are seeing the kinds of numbers we are putting up despite the backdrop of what you are hearing from everybody else which is down, double digit, youth equipment sales.

And just to follow up on that, you know, you touched on the relationship between volumes items versus use values. If volume and lockout does gradually pick up, how does that drive your service revenue growth? And if service revenue growth starts to really outpace GTP growth, this is just a longer term question. You know, what does that mean for the profitability and margin?

Go forward for the business. Thank you. Yeah, no, Michael, you hit the nail on the head. And Eric covered this a little bit in the prepared remarks, but let me just reiterate. We are naturally hedge. It's an incredible business, right? One time they're tough and equipment is tight. Prices go up. Great. One time they're, you know, loose and equipment, you know, and equipment comes to us. Prices go down and we're naturally hedge. However, in no way shape of form.

Does the pricing ever offset the volume for us because of the services?

you hit the nail on the head. Services, because we can't attach, if we only have one piece of equipment to sell and its price is up, we can't attach multiple services to that piece of equipment. The other benefit of services is that those are largely purely incredible flow-through, almost pure margin in terms of the vast majority of our services. So yes, we are very, very bullish on the profile of the business that as the inventory comes up, and again, don't forget...

Next question comes from Gary Prestipatino with Barrington Research. Please go ahead....

Good morning, Ann and hello Eric. Welcome.

Thank you. And you talked a little bit about

some kind of a pilot you were doing to buy equipment and I didn't quite catch it and then talked about adding wedges throughout. Could you just go through that again, please?

Yes, Gary, so let me start and then I'm going to turn it over to Jim Kessler, our President and Chief Operating Officer. So let me just talk a little bit about the marketplace that we're building and the marketplace technology that we're putting in place. So we've talked about this for a couple of quarters. We obviously covered it at our recent investor day, but we are transforming this business right here.

to make it much more seamless and much easier for customers to do business with. So, you know, we can grow GTV as we have been improving with or without kind of the marketplace fully operational. We can attach services, those kinds of things. We just want to do a smoother, we want to do a faster and we want to have a higher penetration. That's what the technology marketplace is all about.

And the way we're building it, don't think about it as an ERP, where I think a lot of questions I get is like, when is it gonna be done? It's never gonna be done, right? This is a constant evolution, we're constantly gonna keep bringing new features, new models, but the approach we're taking are these thin wedges, where we pick off a product or service, and I'm gonna use the example of the one we pick off. We bring it to life, but by bringing it to life, we put in place the foundations of the digital marketplace.

this technology of a solution that are critical for other services as well. So the one we launched, and don't think of it as kind of a huge impact to the bottom line, but think of it as a set of capabilities that were put in place, and ultimately a new revenue stream that will come from it. And ultimately a new revenue stream that will come from it.

We have never, traditionally we do inspection reports, and we have ironclad inspections for Iron Planet, and we have kind of much more limited inspections, if you will, when somebody drops a piece of equipment at our yard, historically, because they've come to live sales and they're able to check out the equipment themselves, but now less and less people are doing that, obviously since that, during COVID.

So what we've put in place is the ability for a buyer to ask for a hugely granular level of understanding about their equipment and an ability to pay for it.

And so think about, once you do that, all of the pieces that have to get put in place in the digital marketplace, the connection to the physical auction, the connection to the live equipment, the connection to the customer, all the stuff you don't see, and again, it's about putting these wedges in place, but really then ultimately an ability for buyers to quick throw buy and inspection reports to think about almost like a car facts model, gain more and more confidence about the equipment that they're buying.

all of that.

Thank you, and Gary, great question. As Ayn mentioned, with the inspection report and being able to monetize the new revenue, but the ability to have a platform that you can invoice across all of our platforms is super important. As you can imagine, we're constantly looking at what are the ways that we can monetize and gain share in our ecosystem of services and...

and that goes for auction and regular services. So a big part of what we look at are what are those areas that have a big upside side that are incremental to our business that we haven't participated in in the past. So thinking about models of if we are gonna buy inventory, there's a whole broker business that we don't play in today. And the real reason we don't play into it today is because of speed, but at this point with the Rouse acquisition, the data that RB has.

We have a unique opportunity with data to make very quick decisions and very profitable decisions for virtue brothers. And how do we start to bring all that together? So when we think about buying inventory, playing in markets that we haven't played in, how do we gain market share. And these are all the things we're starting to pilot and look at and really it all comes down to what are big spaces that we don't play in. What's incremental to our business.

and is the flow through and profitability something that we want to attack? So there are the things we're kind of piloting in this process.

Okay, thank you.

Okay, thank you.

Your next question comes from StabahackCon with RBC Capital Markets. Please go ahead.

Great, thanks and good morning. I think as Anne's comment earlier around, if you're seeing the returns or the opportunity when some of these investments decrease, you'll pull back on investment. Just thinking, I guess, how you think about it. Is it certain IRs or ROICs that you're using at thresholds? Or can you just share some color on how you make those decisions?

Yeah, no, that's a great question. So, you know, we're, so one thing I can say for the team, the threat that cuts across us, we are wildly analytical.

And so, we look at, we are looking for, historically, this business has made a commitment to a return of 15%, healthy returns on investments. We look at similar kinds of numbers. So we have not forgotten and are very, very proud of our prowess to drive those level of returns.

And so when I say pullback, I mean kind of the, so one, obviously in an absolute one, we're launching a new initiative as Jim said, in a much different way using our technology. We look at the return, but what I meant is that if we're not seeing them or not seeing into the same level, we pullback, we reassess. I mean, it allows us an ability to move very, very quickly. And here, let me just use an example of satellite art.

So we've said from the beginning, the magic of this business is that in some ways, it's huge, 300 billion of potential GTE. It's also very straight forward, right? If you're a seller, what you're looking for is liquidity and what that means is you want the most money in your pocket.

And if you're a buyer, you want selection, you want confidence in that position, and you want a very intuitive, simple process to go through. So what we need to do is straightforward. Satellite yards is an example. The thinking there was, hey, we put a yard closer to a seller. The transportation costs are lower for them. The yards themselves are effectively just parking lots that we rent. So it's very, very low cost for us. And do we make it easier for sellers?

kind of continuously across the models. In the coverage model that we launched in Texas and are now going to be scaling across the globe, you know, the same kind of thing. It's how should we look at territories? What about the long tail and the inside tail seam? The nice thing is that those people can work remotely. So if it's not this region, it's that region, we can still cover it. So we look at the returns. Absolutely. We look at also flexibility and we look at our ability to be able to pivot on the data.

And as Jim said, more and more using technology to be able to get that data and pivot much quicker and find new revenue streams, as we move along.

Thanks for that, and I guess, and if we look at the SDNA commentary in terms of the different initiatives that you're working on in the press release, it seems to be...

Quite a few things that are going on. I guess from your perspective, where are you looking to direct capital? What are the big bucket spending items that we should expect over the next?

four to six quarters in terms of whether it's investment specific capabilities or other functional others hiring. So we get some perspective on that. So we get some perspective on that.

Yeah, so I'm going to start and then turn it over to Eric. So I think our headline is for our capital structure and our capital deployment is flexibility to drive incredible returns into this business. And so the way we think about capital deployment is obviously returns and being very, very flexible, whether they are organic growth initiatives like the yards, like the sales coverage model, like Richie Brothers financial.

or leverage ratio, if you will, when the Euro deal, Euro auction deals didn't happen, but we remain very bullish on the inability for this business to scale, through either M&A, organic, or technology investment. So that's how we're gonna continue to look at the world. Are there anything to add?

Yes, thanks. So look, we don't expect a step function in costs over the next couple quarters here. I think we're continuing to make the investments that we're seeing. I think that, you know, from a capital perspective, you'll probably see more capitalized software on the technology side as we build out these thin wedges and gain more experience there. So, you know, that that would step up a little bit. But like you saw the strong growth from RBFS in the quarter, almost 70 percent. We want to continue to invest in that business and grow it.

And so, but nothing of a step function and where you're gonna see a dramatically increase. I mean, we've been adding some costs in the business. We're incurring additional costs due to inflation. So, you know, that, you know, there's not a step drop in the short term either, but, you know, we don't see significant change.

Okay, then just the last one for me, I guess I want to comment on capital allocation, I guess just with the market as volatile as it is. You know, how actively aggressively are you considering emanating, you know, transactions like your options be possible even over the next 12, 24 months. And then on, I mean, kind of what are specific things that you're looking for at this point, whether it's a market cycle or a decentralized strategy.

Yeah, so absolutely market volatility, but we are focused on the long term, right? Market volatility's come and go, we are focused on kind of, you know, we've had the first 60 years with Richie Brothers who are focused on the next 10, 20, and 60 year kind of cycle. So the way we look at M&A is, as we've said, the KPI for our M&A is three things. One, we look for, you know, incredible businesses in their own right. Two, we look at very strong management.

teams that can continue to drive it. And then three, we look at a step change for the underlying Ritchie Brothers ecosystem that these acquisitions can bring. So whether it's something like a Euro auction where it just gave us almost overnight a significantly enhanced coverage model on which we can then sell services, all of these kinds of things that that business wasn't doing, or whether it's Ralph Story, or if BrNDV is right to go, you can allregor

an incredible data business allowing us to leverage the footprint of Richie Brothers to be able to help that business grow but then also leverage Rouse in kind of helping our own understanding of the industry as we do at RIS SEALs or anything else or a smart equipped that allows us to tap into the parts and service ecosystem by actually making it better for our dealer partners.

to attach parts at the time of purchase, again when the marketplace is up and running, we ensure that when we look at M&A, all three of those things hold.

And so that's the same focus we have today, as we've always had, which is we have a very full M&A pipeline. And when we see businesses that fit those three bills, we relax. Until that time, we will not. And our balance sheet certainly gives us the flexibility to do all of the above.

Thanks very much.

Ladies and gentlemen, as a reminder, if you do have any questions, please press star 1.

Your next question comes from Brian Fast with Raymond James. Please go ahead.

Yeah, good morning in Woke American. Just on IMS, well the growth metrics, I guess are appreciated. Could you give some more color on what you're seeing when it comes to early adoption by those customers? Are you seeing examples of increased transactions through the Richie Club for months that they've adopted the system?

Yeah, so I'm going to turn this over to Keri in a minute, as she and her team have been really driving this initiative. The way to think about IMS, and again, we covered it, is really laying the foundation and the pipes of the digital marketplace. And this is where we are now, where the single KPI is the number of organizations. And that's what we're focused on with an ability. So when you think about a pipe today, it's...

It's kind of a trickle going through that pipe, and then tomorrow a stream, and then a gush, and then whatever analogy you want to use. But we are really very, very proud of what the organization is driving in laying that foundation for the future. And really, Kerri our Chief Revenue Officer and her team are at the helm of that. Kerri, do you want to chat a little bit more about it?

Yeah, thanks Anne. It should be for IMS.

Literally every transaction a customer did with us with signed deal by deal which means contracted deal by deal.

And it's first real big step of unpacking where we've been, starting to move customers to annual contracts.

And we first started by customers who can sign with us multiple times a year. And now we're targeting step by step. We want to get many of our customers on here so it's business as usual.

Our focus has been the number of organizations, so we can build that map.

And just like Anne said, you can't get to the digital marketplace unless there's enough pipes out there.

So where I get excited right now is, hey, how do we rally the team quarter over quarter? Who isn't on? How do we add what's needed? Then as more capabilities are within the digital marketplace, I'm confident that we'll be able to add share of wallet scale.

Okay, thanks. And then you saw a sizable jump in revenue from financial services. Could you just go into a bit more detail on the drivers there and maybe the sustainability of those levels?

Yeah, let me start and then I'm gonna turn it over to Jim. We were very proud of the revenue growth, obviously, in the quarter, which continues. Right, continues. Up into the right is our message. And our focus on the evergreen commitment of taking our, if there is an acually seal in this business, historically, it's been the growth rate taking that higher and higher. So kind of from that anemic, very low single digits, to high, to low double digits.

and how those pieces come together is by the various pieces that are all under Jim's purview as president. I think Ritchie Brothers Financial Services is the perfect example of how they're thinking about the world. Jim, over to you.

No thanks, Anne. And the great thing with Richie Brothers financial services, what gives us confidence is not only when you look at the leads we get for our transactions, it also allows anyone who wants to finance equipment to bring them with them if they can't find with Richie Brothers.

So taking full advantage of our current transactions is great and we still have plenty of upside inside of Richie Brothers of the buyers who win. To still optimize our financial services, but what's also great about it is if you're the second third bitter in any of our options and you still need to go out find an equipment because you have a job coming up. You use Richie Brothers financial services in that transaction.

As we've been going through this tough supply time, we're seeing a lot more of that taken place. So we feel really confident that there's still tremendous upside in the business. On both Richie Brother transactions and also outside of us, participate in those transactions in the future.

I love it and eric anything to ask.

Yeah, thanks. So look, the number of deals is going up, the average size of the deals is going up, and because of the way we're structured, we can address all different credit spectrums. So it's a great business when I look back at my history and Cox and what they had in terms of their ability to help dealers finance either wholesale or otherwise, you know, there's great opportunity here for us. It was super exciting to me when I came on board.

Okay, thanks. Appreciate the color.

There are no further questions at this time. Please proceed.

Thank you so much. So let me just close with thanking everybody for joining our call on behalf of the team. We are very proud of the performance that we continue to drive and specifically drove last quarter. Again, delivering on the commitment made in the Evergreen model, making food and investments and setting us up for success in the future for many, many years to come. So. So.

Thank you to everybody joining our call. And with that, have a wonderful rest of your day. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.