Q1 2023 Ritchie Bros Auctioneers Incorporated Earnings Call
Speaker 1: I to gr con AC.
Speaker 2: Good afternoon ladies and gentlemen my name is Michelle and I will be your conference operator today.
Speaker 2: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
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Speaker 2: I would now like to turn the call over to Mr. Samir Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call.
Speaker 2: Mr. Rathak, you may begin, sir.
Speaker 3: Thanks and hello and good afternoon to everyone joining on our call today to discuss our first quarter results. Joining me on the call today are Anne Sandozy, our chief executive officer and Eric Jacobs, our chief financial officer.
Speaker 3: The following discussion will include forward-looking statements which can be identified by such words as Expect, Believe, Estimate, Anticipate, Plan, Intend, Opportunity in similar expressions.
Speaker 3: Comments that are not a statement of fact, including but not limited to projections of future earnings, revenue, gross transaction value, debt, and other items, business and market trends, and other items. This issing a
Speaker 3: And expectations regarding integration of IAA, including the anticipated cost energies are considered for looking in involved risk and uncertainties.
Speaker 3: The risk and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this afternoon, as well as our most recent quarterly report and annual report on form 10K, which are available on our Investor Relations website on Edgar and Cedar.
Speaker 3: On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures and the most directly comparable GAAP financial measures and the applicable reconciliation of the two, we will discuss
Speaker 3: affiliation, a board looking non-GAAP financial measures as management cannot predict all the necessary components of such measures.
Speaker 3: Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures.
Speaker 3: All figures discussed on today's calls are US dollars unless otherwise indicated. Following the prepared remarks, we will open the call to questions. Now I'd like to turn the call over to Ian Fendon's lead.
Speaker 4: Thank you, Samir, and good afternoon to everyone joining our call today. Our team continues to deliver great outcomes for our customers with unwavering focus on execution.
Speaker 4: As a result, we delivered strong first quarter performance, including double-digit GTV and service revenue growth, excluding the impact of the IAA acquisition, which closed on March 20th.
Speaker 4: Our results reflect an acceleration in GTV growth late in the quarter from our Ritchie Brothers customers, particularly from strategic accounts.
Speaker 4: Over the past several quarters, we have discussed the supply chain issues spacing strategic accounts, which have limited their ability to refresh and grow their fleet.
Speaker 4: Now, supply chains have started to loosen for several categories, and macroeconomic uncertainty has increased.
Speaker 4: We are beginning to see increased activity in our commercial construction and transportation sectors.
Speaker 4: Notwithstanding, asset mix pricing continues to be a moderate headwind. Turning to IAA, the financial results were in line with our expectations and included an 8% year-over-year increase in service revenue on a pro-formal full-quarter basis.
Speaker 4: buyer fee increases.
Speaker 4: The GTV decline was primarily driven by lower average selling prices in line with broader industry trends, as well as expected modestly lower unit volumes due to the previously announced loss of significant volume from one customer.
Speaker 4: Of note, we expect to cycle through the impact of this customer loss in the second quarter.
Speaker 4: driven by organic growth from other insurance customers.
Speaker 4: We are starting to see a slight increase in the automotive total loss ratio to approximately 19.4% from 18.2% in the same period last year, which is positively impacting volumes.
Speaker 4: Recall that the total loss ratio is the number of vehicles deemed salvage as a percentage of total accidents and it has historically been influenced by used car values. More used car values make it more economical to deem a car a total loss after an accident.
Speaker 4: With the IA acquisition now closed, we are embarking on an exciting new chapter for our business. To signify this new chapter as a combined company, we are unveiling a new corporate name, RB Global. Our new corporate identity reflects our structure as a diverse portfolio of verticals under a singular umbrella and our vision for the future of our company as the premier global marketplace for business.
Speaker 4: Senior Leadership Organization.
Speaker 4: I'm pleased with how quickly the team has come together and confident that the new organizational structure will allow us to drive accountability across the entire company. As we continue integrating IEA and Ritchie Brothers, each member of the leadership team is focused on their area of expertise.
Speaker 4: For me personally, iding and strengthening relationships with current and prospective customers in the automotive vertical to ensure we are doing all we can to drive value for them and reinforce by RB Global is the right partner.
Speaker 4: and strengthening relationships with current and prospective customers in the automotive vertical to ensure we are doing all we can to drive value for them and reinforce why RV Global is the right partner. As part of this work, you can find more information about RV Global at RV.gov.
Speaker 4: We are focusing on driving the very highest levels of service to IA customers on a more consistent basis and reduce the kind of turn that the salvage industry has experienced in the past.
Speaker 4: Jim Kessler, our President and Chief Operating Officer, has died deep into the work streams that will drive significant value creation from this combination.
Speaker 4: Jim is focusing in our transaction and service offerings, which will ultimately drive revenue growth and cost savings, which will meaningfully enhance the margin profile of the combined business.
Speaker 4: We are in the process of constructing tests to validate the various opportunities we highlighted during diligence, which will form the basis for prioritization and ultimate execution.
Speaker 4: As always, we will keep you informed of our learnings and progress as we move forward in the coming quarters.
Speaker 4: Our chief transformation and people officer is leading the execution of IEA integration planning to drive cost synergies.
Speaker 4: In the weeks following the close of the transaction, we've already identified and implemented actions that will result in approximately $15 million in annual run rate cost synergies. Based on our progress, we continue to expect to deliver $100 to $120 million plus of annual run rate synergies by the end of 2025.
Speaker 4: Finally, I would like to highlight our focus on ESG. We have published our 2022 Sustainability Reports for both Ritchie Brothers and IAA.
Speaker 4: Both reports can be found under the sustainability tab of our investor relations website.
Speaker 4: With that, I will now hand the call over to our Chief Financial Officer, Eric Jacobs, to discuss our financial results for the first quarter and to provide some additional outlook and commentary. Thank you for watching provequeue.org
Speaker 3: Thank you, Anne. Welcome, everyone, who is joining our call this afternoon.
Speaker 5: Since we are including 11 days of IAA activity in our reported financial results and we have a considerable number of new investors, I will make some preliminary and other remarks throughout my section that we aren't expecting to repeat each quarter.
Speaker 5: First, as you look at our results, please note that we are now reporting our financials as one business segment. We made this change to reflect how we are managing the business post the acquisition of IA and the implementation of our new senior leadership structure.
Speaker 5: As we have said previously, we view the IAA business as an additional vertical for our broader marketplace.
Speaker 5: I also want to note that we will be reporting our results on a calendar quarter basis, in line with how Richie Brothers has done so in the past, but differing from a 13-week fiscal quarter that I had previously reported on.
Speaker 5: A couple more preliminary items. To aid in the modeling of the combined company and to allow you to track trends, we included five quarters of pro forma combined GTV and revenue data as a supplemental table in our press release today.
Speaker 5: preliminary items. To aid in the modeling of the combined company and to allow you to track trends, we included five quarters of Proformer combined GTV and revenue data as a supplemental table in our press release today. With the acquisition,
Speaker 5: We will also update how we report gross transaction value, or GTV.
Speaker 5: We will now report GTV in three sectors or categories. Automotive.
Speaker 5: Commercial construction and transportation, and other. Please note that each sector can be comprised of salvage and non-solved transactions from both Richie Brothers and IAA.
Speaker 5: included in this category. It will make historical volume figures reported by IAA not comparable.
Speaker 5: Commercial construction and transportation consist of construction equipment.
Speaker 5: Reversal construction and transportation consists of construction equipment, which is also known as yellow iron.
Speaker 5: The other category is broadly comprised of transactions from our agriculture, oil and gas, and governments or plus verticals.
Speaker 5: as well as equipment attachments and other sundry items.
Speaker 5: We believe segmenting our GTV by sector will better allow us to talk about various and market trends impacting the business.
Speaker 5: Now, turning to our actual GTV results.
Speaker 5: On a reported basis, GTV increased 32% year-over year.
Speaker 5: GTV growth for Ritchie Brothers, excluding the impact of the IAA acquisition, was 10% for the quarter. This was driven by a continued rebound and unifying growth.
Speaker 5: partially offset by lower prices, unfavorable asset mix, and unfavorable foreign currency exchange rates.
Speaker 5: When you exclude the negative impact foreign exchange, GTV growth for Richie Brothers stand alone increased 12%.
Speaker 5: Excluding the impact of the IA acquisition, lot volumes were up 28% year-over-year in a quarter driven by strategic accounts.
Speaker 5: However, the average price per lot sold was down 14% versus the first quarter of 2022.
Speaker 5: and assets. Geographically, we saw strength and richie brothers down on GTV growth in the United States.
Speaker 5: This growth was partially offset by declines in GTV in Canada and international, due to significant auction events that did not repeat in those parts of the world, as well as the impact of foreign currency exchange rates.
Speaker 5: On a pro forma combined basis, GTV increased 1% year over year, driven by the strength in the commercial construction and transportation category offset by the weakness in automotive that Ann discussed. GTV increased 1.5% year over year, driven by the strength in the commercial construction category offset by the weakness in automotive that Ann discussed.
Speaker 5: If you plan to model GTV, we expect the trend of higher unit volumes in our commercial, construction and transportation sector to continue in the second quarter.
Speaker 5: This growth should be partially offset by continued pressure on average selling prices.
Speaker 5: should be partially offset by continued pressure on average selling prices due to asset mix and software category pricing.
Speaker 5: In the automotive sector, we are expecting a modest increase in unit volumes and continued pressure on average selling prices.
Speaker 5: Taking all this into account, we expect GTV growth in the second quarter to be up low to mid single digits year over year on a pro forma combined basis.
Speaker 5: Moving now to revenue.
Speaker 5: Let me first discuss our types of revenue. Service revenues comprise the seller commissions, buyer fees, and revenue from our marketplace services.
Speaker 5: Historically, Richard Brothers was 60% commissions versus 40% buyer fees, whereas IA was about 20% commissions and 80% buyer fees. On a pro forma combined basis,
We are at roughly 35% to 65% split between commissions and buyer fees respectively.
Inventory revenue is the gross transaction value of the assets we purchase before they are subsequently resolved through our marketplace.
Historically, both Ritchie Brothers and IAA have had inventory revenue. In the commercial construction and transportation category, inventory revenue tends to be driven by consigner preferences, which can vary over time.
In the automotive category, it's a combination of contractual obligations and vehicles purchased for dismantling, which can also vary quarter to quarter.
There also tends to be more inventory revenue transactions in international markets. As a result, consider preferences, large bulk transactions, and-or changes in the dollar amount of international activity could distort our total revenue growth.
Therefore, we continue to suggest that investors look at our total GTV, particularly for our commercial, construction, and transportation sector, as another metric to gauge growth and performance.
Next slide, please. On an as reported basis, our service revenue increased 40% year-over-year.
And our take rate, where service revenue as a percentage of DTV was 18.1%.
Excluding the impact of IA in the quarter, service revenue increased 13% with their take rate expanding 40 basis points to a take rate of 17.4%.
The increase in take rate for Richie Brothers on a standalone basis.
It was driven by growth in marketplace services revenue and the impact of higher buyer fees, partially offset by lower seller commission rates.
As we discussed last quarter, we expected lower commission rates through the higher mix of GTV from Ritchie Brothers Strategic Accounts.
We expect this trend of lower commission rates to continue in coming quarters with the expected continued growth of strategic accounts.
We continue to see strong growth in smart, equipped, and routes. However, Richie Brothers Financial Services experienced stagnated growth in the first quarter due to the impacts of tighter credit standards, higher interest rates, and changes in asset mix. The current environment makes it more difficult to match customers with our lending partners.
In some cases, our banking partners have completely stopped lending against commercial transportation assets due to weakness in that end market. Now let me move to the next slide. On a pro forma combined basis, service revenue increased 10% year over year, driven primarily by 160 basis point expansion and our take rate. Both Ritchie Brothers and IAA benefited from higher buyer fees. There was also an increase in marketplace services revenue at Ritchie Brothers. The increase in buyer fees helped offset the decrease in seller commission rates, which we previously discussed. Returning to Inventory Revenue.
On an as-reported basis, our inventory revenue increased 13% year-over-year with an inventory rate of 11.7%. Excluding the impact of IAA, inventory revenue increased 5% with an inventory rate of 10.2%. As previously stated, we view inventory deals as driven by customer preferences.
and we leverage our data and analytics to set appropriate targets for these packages. There was 160 basis point contraction in the Ritchie Brothers inventory rate compared to the rate in the prior year period.
This decrease was due primarily to increase competition and non-favorable mix of inventory packages in the recent quarter. That said, the Richie Brothers' inventory rate has been at the higher end of historical ranges more recently. As we focus on accelerating our commercial construction and transportation GTV, we will continue to structure at-risk deals to win where it makes financial sense.
On a pro forma combined basis, inventory revenue declined 10% and the inventory rate declined 300 basis points year over year, primarily due to lower used vehicle pricing, coupled with less non-insuring vehicles being purchased due to a tight supply environment and fewer contractual bulk automotive sales in the prior year quarter.
Before turning to earnings, let me discuss our expense categories.
Cost of services includes yards that support weekly auctions, such as IAA Yards and Ritchie Brothers
Cost of services also includes any direct costs incurred to earn auction revenue or marketplace services.
Who are the costs of our inspectors for auction services and costs of services?
This is consistent with how each company is historically reported. Non-general and administrative expenses include yards not used for events weekly.
such as our typical Richie Brothers yards.
It also includes expenses for our corporate functions.
Once again, this is consistent with our prior historical reporting. Acquisition related and integration costs include certain legal, finance, and advisory and other costs related to acquisitions.
It also includes integration costs such as Sabrin's. On an Azure Porter basis, our Adjusted EBITDA increased 26% year-to-year, and our Adjusted DeLuda earnings per share increased 24%.
A substantial portion of the growth in adjusted EBITDA came from the inclusion of IEA this quarter. Please note that on our most recent earnings call, IEA's growth in adjusted EBITDA came
We indicated that we were expecting headwinds in our flow-through on a Ritchie Brothers standalone basis.
as we continue to add the necessary resources to support higher unit volumes. In the first quarter, we also invested in incremental salespeople to expand our market coverage, continue driving unit growth into our marketplace to sustain strong growth in the coming quarters. Our expenses also increase year over year due to headcount and
One adjustment that we've already made is related to IAA's prepaid consigned vehicle charges of $73 million.
which were adjusted to their fair value of $9 million in the opening balance fee. During the first quarter, this adjustment resulted in a $12 million reduction in our costs of services.
that would have otherwise occurred absent this purchase accounting adjustment. This adjustment will also result in an additional $52 million reduction in our cost of services.
occurred absent this purchase accounting adjustment. This adjustment will also result in an additional $52 million reduction in our cost of services, primarily in the second quarter of this year.
with any remaining amount in subsequent periods. Any income statement benefit from the fair value adjustment of these prepaid costs as part of purchase accounting is being treated as a reduction to adjusted EBITDA and adjusted net income in the quarter when we receive the benefit.
As we continue to work on finalizing purchase accounting, we may identify value adjustments, which may have an impact on our income statement in the future.
Since the close of the acquisition, IAEA's Adjust to EBITDA has been broadly in line with our expectations. There are few rights
Since the close of the acquisition, IAA's adjusted EBITDA has been broadly in line with our expectations. With higher service revenue…
I'll set by incremental higher-toe and branch-related costs when you compare that to prior year. As Ann noted earlier, we have started to implement our integration plan and have already axed into approximately $15 million and analyze run rate cost synergies in the first quarter.
The cost to achieve these synergies in the first quarter was approximately $14 million.
We previously highlighted we expect cost-saving synergies realized, net of the cost to achieve those synergies.
to be a net $28 million incremental expense for 2023.
In accounting for synergies and business needs, we expect selling general and administrative expenses to be between $175 million and $190 million in the second quarter.
of adjusted items to be between 24% and 26% for the second quarter. This corresponds to a gap tax rate of 26% to 28%.
Next slide please. As a March 31st, our total net debt was approximately $2.7 billion.
And our total net debt to trailing 12 month adjusted EBITDA was 5.4 times.
Note that trailing 12 months adjusted EBITDA only includes 11 days of contribution from IEA
However, if you calculated the ratio on a pro forma basis, we would be below three times.
We remain committed to deleveraging to approximately two times by the end of the first quarter of 2025. And as part of our plan, we expect to pay down at least $150 to $175 million of debt in 2023.
of deferred financing costs. Our total blended interest rate is currently approximately 8%. At the end of the quarter, our fixed to floating interest rate mix was approximately 40 to 60% respectively.
Just a quick note on capital expenditures. We previously sold our Bolton facility for $169 million pre-tax gain in the first quarter of 2022, with the plan of investing proceeds from the sale into several new yards. One of those new yards properties, in Amrith, was originally expected to be purchased in the early 1990s.
the fourth quarter of 2022. However, the purchase of the Amrith property for $17 million did not actually close until the first quarter of 2023. Therefore, we now expect total capital expenditures to be between $275 million to $290 million on an as-reported basis.
in 2023. It's driven by continued investment in yard capacity as well as an increase in internally developed software capitalization.
driven by continued investment in yard capacity, as well as an increase in internally developed software capitalization. Next slide, please.
This is the same slide as we showed last quarter. We wanted to continue to highlight how we will be accounting for the convertible preferred equity that was issued in the first quarter and the impact it will have on calculating our earnings per share, both reported and adjusted. As we noted last quarter, we will be using the two-class method.
as it is expected to be more dilutive. The impact of the convertible preferred equity in the first quarter decreased our adjusted diluted earnings per share available for common shareholders by approximately 5 cents per share. And this impact on earnings per share is expected to continue.
Thank you all again for your time today.
and now back to Ann. I think our incredible team for their relentless focus on execution and dedication to our company.
With IAA, we have a brighter future ahead.
Operator, you can now open the call for questions. Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
If you would like to ask a question, please press star followed by the number 1 on your telephone keypad.
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And if you are using a speakerphone, please lift your handset before pressing any keys. One moment please for your first question.
Your first question will come from Sabahat Khan at RBC Capital Markets. Please go ahead.
Great, thanks and good afternoon. I guess this is on the 15 million of synergies.
Can you provide maybe a little bit of color on where they came from and the $40 million of costs?
Can you provide maybe a little bit of color on where they came from and the $40 million of costs?
Yeah, hi, Sabah. Thank you. Start and good afternoon to everyone on the call. So, as we stated, the integration work is off to a very, very strong start with, you know, UN on I
one month reported and already that level of synergies. So if you recall the various buckets that we highlighted, we were very clear that the first set of synergies was going to come from a kind of duplicate of executive ranks. And we took those actions and communicated those changes. That was a big portion of that work.
The other piece of it was really think about kind of exactly duplicate of functions like HR where we took actions. And the bulk of the one-time cost in order to achieve, think about the bulk of those the severances, those kinds of things.
So again, we are very, very pleased with how the pieces are coming together. Okay, great. And then maybe we get a little bit of color on sort of the underlying trends. Maybe in the Richie business, I think you called out some fleet realignments. That helped. Maybe just how the base level trends on that business are going, maybe just the dynamics.
On the IA side as well, obviously a lot of headlines around used car prices moderating, maybe how that trend is going and maybe how volumes are turning. Just some base level trends on both businesses at this point in the year. Yeah, perfect. I'd love to.
Talk about, you know, both businesses, which is why we were so excited, are both cyclical and counter cyclical, so do kind of well on both sides of the equation.
So for Ritchie Brothers at a high level, and we highlighted this previously, the way to think about our businesses, that side of the business, is think about the kind of the construction equipment, that yellow iron that hasn't exactly started to loosen up yet.
But other categories like transportation, like the lower price items that you often see in rental, like the aerial equipment, that kind of stuff, we're starting to see more.
with our strategic accounts where historically, in the last couple of years during COVID, they just have not had equipment to sell. As they're selling equipment, obviously they're bigger customers, so the seller, our seller rates there are lower than our average business, but the volume coming in is very, very strong. So we're very pleased with that. think
Again, as Eric said, we're expecting to see strong growth and are very happy with, we're starting to see supply chain shift and open up, not in every category, but we're starting to see the light at the end of the tunnel.
vehicle prices are expected to reduce, that increases the total loss ratio. And again, as a reminder for certainly the Richard brothers investors that maybe aren't worse than the IEA business, the higher the used vehicle price, the more apt those vehicles are to get fixed and not to clear the total loss.
As the vehicle price falls, you know, the volume more than offsets the reduction in price. So again, very, very good news on the IAA side. Net net, again, that is why we're out looking for T2, kind of that low to mid single digit growth that Eric referenced.
Great. And then maybe just one last one. Just a higher level question. If you can maybe share some perspective on the on fool literature.
kind of what your integration team looks like. You know, I think you may have alluded to at some point thinking about getting some external support there. You know, how many folks do you have dedicated to that and just what kind of the, who's leading the process and just how we should think about it, just the evolution of, you know, that team and what we should expect on that front. Yeah, so as, let's pick that up.
and the results in the quarter, you know, people very focused on their business, driving results, driving SLAs, driving the focus on the customer. That is the vast majority, you know, over 99% of the employees. The integration team, think about experts across the areas. It was important for us to make the head of integration.
you know, every area knows what their portion is to deliver of the 100 to 120 and per the proxy when the delivery is expected. And of course sooner or always better than later. And then similarly, the revenue opportunities, prioritize, highlight it and a portion of the integration team focused on kind of starting to put some of the tests in place to start testing hypotheses.
and we have partnered with
I don't know, we don't normally talk about it, but we partner with things. There are the name and integration. Many of us have worked with them over the years. They understand the speed with which we want to move. The very high bar that's in ourselves in terms of execution and commitment to shareholders.
and they are helping us drive the process forward. So again, very, very tight team with very high bar of expertise. Thanks very much.
forward. So again, very, very tight team with very high bar of expertise. Thanks very much. Thank you.
Your next question comes from Michael Dume at Scotiabank. Please go ahead. Hi, Hen, hey Eric. A few weeks back, you announced a transaction for land. I wonder if you can talk about how active you think it is.
and ask us to gain sure, just wondering how ready you guys are with what you currently have. Yes, so hello, Michael. Let me start and then I'll turn it over to Eric. So let me start with kind of the second part of the first part of the question, which is we are first and foremost committed to that paydown and getting to the leverage.
that we committed to our shareholders. So that's number one.
Number two, we were clear during diligence, we're even more clear now that to accomplish the goals that we set forward, we have the real estate footprint to accomplish those goals. That's always going to be opportunistic and candidly there were things already in the pipeline, which is the announcement that was made. All of those were in the process.
in terms of the CAPEX numbers. In fact, as Eric will speak, to some were supposed to actually happen last year. They just simply were delayed, which is why you kind of saw them recently announced. That said, we are obviously very, very focused on both.
So, driving Richie Brothers DTB using IA real estate as part of our satellite yard strategy. In fact, we have two pilots kicking off in the next 60 days without any permitting issues as we anticipated.
and similarly looking to drive IAA share expansion through kind of SLAs and given where their utilization of the yards stands, plenty of room to run. So feeling very good about it. Eric don't know if there's anything else you want to add to the...
real estate acquisitions. Yeah just real quick so the announcement that went out IEA was essentially there were three properties that they were purchasing two were lease buyouts one was a new facility Ritchie Brothers when we sold Bolton planned on buying three properties although as Ann said those are all reflected.
and our projections that we had in the S-4. And so you can kind of get a sense in the near term what our CAPS-X requirements are. And then over time as we deliver, we'll look at the ROI on buying any additional properties and make that determination.
Very good, Color. Thanks. And then we just turning over and I think you commented about total loss ratios just above 19% versus pre-pandemic. I think closer to 21, 22%. You know, higher salvage volumes will come with presumably at some points lower salvage prices.
You know, IA has adjusted its fee structure, so I was hoping that you can walk us through, you know, the incremental contribution dollar impact from higher volumes and lower prices, ideally really what the buyer fee is from a fixed variable standpoint.
Yeah, so let me just drumroll this. We are always better off the volume, even without the service
that obviously we plan on enhancing at IAA the way we've done at Ritchie Brothers over the last three and a half years. We are always better off with volume that's not linear because a big portion of the fee base is fixed.
So, as you've noted, the total loss ratio has a long way to go to recover from pre-pandemic levels, number one. Number two, that is a permanent tailwind with cars obviously getting more and more complex, the driving of a real thing.
that we're always better off with volumes and we're seeing those turn and becoming a tailwind for IA. And also we are obviously cycling next quarter should be the last quarter of the kind of...
years-long loss of a single large customer. So it'll be clean numbers and allow us to perform and take a lot of the benefit from this total loss ratio recovery. Perfect, I'm gonna try to sneak a third in. Apologies, but.
For Eric, you know the expected pay down $159 to $175, if I add the dividends is that effectively what you're gonna or you're targeting for free cash flow this year? So, I mean, it's at least 150 to 175. We'll evaluate to see whether or not it makes more sense. So the number could be high.
may move a little bit with inventory and such, but those are the major things that we're thinking about.
I'll pass the line. Thanks, guys. Thank you, Michael. Your next question comes from Craig Kennison at RW Baird. Please go ahead. Hey, good afternoon. Thanks for taking my question.
And it sounds like you've already had conversations with your new insurance customers. What are they telling you about changes you can make and whether it will actually lead to incremental market share? Yeah, Craig, hello. And yeah, as I said originally.
were my customers there. So a lot of refreshing, all of those relationships.
Look, for me, and for those of you guys getting to know us, we always think of the world as in our control and out of our control.
Share is an output. That is not the thing that we're controlling. What we are controlling is driving the very best service levels for our customers.
Understanding what those are, very minutely customer by customer, mapping our operations to ensure that day in and day out, we deliver the very best service in the industry, and then share becomes an output. So absolutely, we've been meeting with the top insurance carriers and other customers of IA as well, understanding again what it is they require and how best
Prior to the IAA acquisition, of course, that was one of the key performance indicators that we were trying to do.
Yes, absolutely. So obviously, very good to IMS. Let me just take a step back. So inventory management system is what IMS is again for those shareholders getting to know Richie brothers. We launched a con-expo in Vegas.
in March, a new version of IMS called the Rouse Fleet Manager. And the reason that was an important launch is, as we've said all along, think about IMS and now Rouse Fleet Manager as a critical building block of the marketplace.
So when you think about a marketplace, think about the gateway in is this route sleep manager, the artist formerly known as IMF.
And then now you want to be able to form transactions, so that very first building block was the IMS.
It did incredibly well. It continues to do incredibly well. We didn't publish the number, but IMS activation increased 184% versus prior year. So, again, another stellar performance. What we're focused on now is the next building block, which is really, right, the reason we want that gateway strong is because you want to now start transacting.
And so we are about to pilot the next building block of Ritchie Brothers 2.0, which is the Marketplace technology in Sacramento with the transaction engine. So that will be the first time that we are going to automate the transaction function within Ritchie Brothers 2.0.
and the items coming into IMS or Rouse Fleet Manager. So really think about, we've set all along the journey. We've set all along that IMS, now called Rouse Fleet Manager, the gateway. And so we're going to be reporting out each of the building blocks as we go. Ultimately, again, those are going to translate to attachments and revenue and services.
same play on the IA side of the business. So we are right at that second building block and launching that into Sacramento next month. So we're very excited.
on the IAA side of the business. So we are right at that second building block and launching that into Sacramento next month. So we are very excited. Great, thanks, Anne.
Thank you. Your next question comes from Michael Seniger at Bank of America. Please go ahead. Hey everyone, thanks for taking my questions. You guys guided last quarter for Richard Brothers to SGA to be $125 to $130 million.
The P&L has 148. Obviously that includes a lot of other costs in the IAA. Did RICHE costs come in higher than expected? I'm just trying to understand the RICHE EBITDA of 3% year-over-year in that bridge chart, yet your service revenue growth was 13%.
So, just trying to understand if there's anything you should be aware of in the first quarter on the SGA line as growth picked up. Yeah, Michael, so there is a little bit of noise in there, but it was a couple of million dollars higher than than we expected. And we kind of gave some of the reasons for that. You know, the, the lower commission rates do the higher impact of of strategic accounts.
You had on the cost side, you had some events, and you also had a higher cost to process than we were originally expecting. So those contributed. Also, when you think about comparing Epedal last year versus last year, we had all-time record-high pricing last year, and so the flow through was significantly higher because you had you benefited all in price.
And so I hired commission rates. So that was a big, you know, if you look in sort of the trends, what happened? Okay. Eric, you said IAA adjusted, but I was in line with your expectations. So what are the expectations for IAA this year? I believe the EBITDA last year for IAA was 540 million.
I could be wrong. Is that the number to start with? Are you growing that number in 23? I think right now when we're talking about expectations, it's what was in the S4 as in the proxy statement, is you kind of saw in there the plan for Richie Brothers in IAA. As we said during the process, particularly, that is essentially our budget for the business and what we're operating to.
And so IA was right on plan if not slightly ahead. He'd been done pretty much, you know, most of the earnings metrics for the business. All right, if I could just speak one in, like the guidance for Q2 on GTV, like what are we kind of thinking for the standalone GTV and stand on IA? It sounds like IA's volume should be...
I might be getting better. So I guess I'm just trying to understand the puts and takes to that GTV guidance for Q2 and what, you know, with also the core RICHE business seems like it's also saw a pickup towards the end of the quarter. Yeah, so on a pro forma basis, we were 1% for Q1 kind of combined. So we say, you know, it's, you know, low to mid, single, low to mid.
single digits for Q2 on a combined basis. So, you know, IAA had a tough comp and for Q1 and it was down, I think, 5%. So, yes, we do expect it to do better and we expect Burtchey Brothers to do better. I really don't want to break it out in terms of percentages of each since we're just giving a range.
But we expect both, you know, both to do better. And I should say, we expect IAA to do better. Ritchie Brothers had a very strong.
expect both both to do better and I should say we expect to do better. Richie brothers had a very strong. Thank you.
Thank you, Michael. Ladies and gentlemen, once again, if you would like to ask a question, please press star one now. Your next question will come from Maxim Sachev at National Bank. Please go ahead. Please press star one now.
Thank you, Michael. Ladies and gentlemen, once again, if you would like to ask a question, please press star 1 now. Your next question will come from Maxim Sajchez at National Bank. Please go ahead. Hi, good afternoon.
I was wondering if you don't mind please commenting on sort of the pro forma capex intensity for the business because in the slides we talk about 275 to 291 as reported and maybe if you don't mind tying this into your.
you know, evolving yard, yard strategy for the combined business that could be super helpful. Thanks.
evolving yard strategy for the combined business would be super helpful. Thanks.
Please stand by.
Hello? Am I back on? Yes, you are. Please continue.
I believe I'm back in. Sorry Max, it disconnected me. I didn't hear your question. No worries. I was just wondering if you don't mind please commenting on the pro forma CapEx intensity for the business because in the slides you talk about 275 to 290 on as reported.
And if you don't mind maybe combining your answer with your thoughts around the yard strategy and how that will fit for both businesses. Thank you. Yeah, so why don't I take the second part and I'll let Aaron talk about the pro form on cap-up numbers. So as we said before, no further land is required to execute what it is we put forward.
Again, everything that we had in our sites we put into the proxy in terms of CapEx requirements, like Eric said, the bolts and replacements. So the pieces, the building blocks we highlighted in our thesis for the acquisition are holding very strong. Eric, do you want to add anything? Yeah, I think the...
CAPEX goes down in the outer years in the proxy because as we said, I think we have line of sight into the replacement properties for Bolton on the Ritchie Brothers side. I had some current plans.
the, you know, just to remind the group, the CapEx number that I gave and what we talked about in the proxy really included PPE CapEx as well as capitalized software, internally developed software, and historically if you look at our CapEx under that definition
more than half for both companies was on internally developed software. We've talked about the investments in Ritchie Brothers, our marketplace technology as part of the integration. We expect to use technology as a way of us gaining some of the synergies, particularly in finance. Those have heard me talk about a lot of the manual nature, a lot of the processing.
the Ritchie Brothers, that gets addressed with some of the technology enhancements that we're doing. That's in the CapEx numbers as well. So it's not just land, it's technology. Right. Okay, that's great. And then maybe just one follow up, if I may. Anne, do you have any sort of incremental early thoughts on gaining traction in international markets or.
days before the end of Q1. So think about where we are right now is.
scoping and thinking through pilots and partnership on the one side, on the other side bringing the teams together. So part of the integration work is intended to really connect the sales teams together to understand how it is they work.
So, you know, they get a little feel for each other's business as we move forward and start executing. So, very early days......
Very optimistic, again, as we're laying out the pilots. Don't see any deterrent on the land side. Don't see any deterrent on the people side. And now, a matter of starting the test. Again, for those that are new to us.
We are a big fan of test and learn. I'm a geeky engineer. We have a hypothesis. We put tests in place. There's never a good and a bad. There is a learning cycle for us. And then we are very transparent according to our investors about how we're doing.
those tests are getting identified and put in place as we speak. Okay, excellent. Thank you so much. That's it for me. Your last question will come from Larry DeMaria at William Blair. Please go ahead.
Hi, thanks and good afternoon everybody. Just trying to understand the price volume outlook a little bit more. Obviously, you're doing a nice job driving volume, which you've done for a while here, and ASP is a mixer headwind. But just for clarification, do we expect at some point, given what your comments are around opening up supply chains, that you think mix will substantially change into the second half?
Obviously being an improvement, secure your thoughts on driving better mix because pricing is still going to be under pressure. That's what you're applying. And I know you touched on this even recently on the call here. As it relates to site leverage, should we expect cross-leverage of the Florida site this year or is that in the test and learn in more likely 24? Thank you. Yeah, hello Larry. So yeah, so again.
and very hopeful for what that means for MIPS. But again, early, you know, seeing a light and actually seeing equipment are two very different things. But again, back to our control and out of our control, we play the hand we are dealt. And I think the team is just incredible, doing an incredible job with driving the volume.
holding the margin rate and really driving an incredible business. And on the IEA side, a very similar thing Eric said, expecting a good Q2 there as well.
And just to add, I'm sorry, Larry, how you doing just to your 2nd, part of the question regarding Florida. So, as we said, when we were.
in the pre-close phase of this transaction. The way we look at Florida is really for overflow for catastrophic events. It's not part of the plan, not saying that it won't be able in certain cases to leverage virtue by these yards, but...
and for day to day business. It was really about if there's a catastrophic event in Florida making available the Ritchie Brothers Orlando location if it was needed. The good news is that we've learned is that IEA's done an incredible job in Florida with recent events and over the last couple years in terms of getting capacity availability when they need it. And so we should be, as we build out the business and grow that.
thing to see the capabilities exactly as their team at IEA has built for catastrophic events with this overflow, you know, NASCAR lots and how the storms are tracked and which sites light up for the potential of where the volume is going to go. It was just an incredibly fascinating learning and the team did a stellar job. It wasn't a big event....
But I will tell you, I heard from some of our top customers, insurance carriers in Florida, literally saying, you know, incredible performance, incredible kudos to the team. Hopefully some are listening because it was fantastic to see firsthand. Okay, thanks. Yeah, obviously we understand. Can't predict the weather. But,
So before I end the call, I would be remiss not to take the opportunity to thank our shareholders for their support of the combination of Ritchie Brothers and IA. We are deep, deep, deep into the integration work and it is off to a very strong start. For the shareholders on this call that are new to our quarterly calls, welcome.
We thank you for all of your support and with that we also thank you for your time and have a wonderful rest of your day and your week.