Q1 2023 Ritchie Bros Auctioneers Incorporated Earnings Call
Good afternoon, ladies and gentlemen, my.
This time I would like to welcome everyone to the Ritchie brothers Auctioneers first 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 withdraw your question. Please press Star then the number two.
I would now like to turn the call over to Mr. Samir Rethought, Vice President of Investor Relations and market intelligence to open the conference call.
Mr. Russell you may begin sir.
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 <unk>.
Our Chief Executive Officer, and Eric Jacobs, our Chief Financial Officer.
The following discussion will include forward looking statements, which can be identified by such words as expect believe estimate anticipate plan intend opportunity and similar expression.
Comments that are not equal effect, including but not limited to projections of future earnings revenue growth transaction value debt and other items.
End market trends.
Expectations regarding integration of IAA, including the anticipated cost synergies are considered forward looking and involve risks and uncertainties.
The risks 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 10-K, which are available on our Investor Relations website.
On Edgar and SEDAR.
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.
We are unable to prevent quantitative reconciliation of forward looking non-GAAP financial measure as management cannot predict all the necessary components of such measures.
Not to place undue reliance on forward looking non-GAAP financial measures.
All figures discussed on today's calls are in U S dollars unless otherwise indicated.
Following the prepared remarks, we will open the call to questions now I would like to turn the call over to independently.
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.
As a result, we delivered strong first quarter performance, including double digit GTD and service revenue growth, excluding the impact of the IAA acquisition, which closed on March 28.
Our results reflect an acceleration in GTD growth late in the quarter from our Ritchie brothers customers, particularly from strategic accounts.
Over the past several quarters, we have discussed the supply chain issues facing strategic accounts, which have limited their ability to refresh and grow their fleet.
Now our supply chains have started to loosen for several categories and macroeconomic uncertainty has increased.
Notwithstanding asset mixed 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 forma full quarter basis, and approximately 5% decline in GCB.
The increase in service revenue for IAA was primarily driven by previously implemented buyer fee increases.
The GTE 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.
Of note, we expect to cycle through the impact of this customer loss in the second quarter.
Excluding the loss of volume from this customer volumes increased one 6% driven by organic growth from other insurance customers.
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.
Recall that the total loss ratio is the number of vehicles being salvage as a percentage of total accident.
And it has historically been influenced by used car values.
Lower used car values make it more economical to deem a car a total loss after an accident.
With the IAA 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 <unk> 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 leader.
We will continue to do business under the Ritchie brothers in IAA brands.
As we continue integrating IAA and Ritchie brothers each member of the leadership team is focused on their area of expertise.
For me personally and strengthening relationships with current and prospective customers in the automotive vertical to ensure we're doing all we can to drive value for them and reinforced by RV Global is the right partner.
As part of this work.
We are focusing on driving the very highest levels of service to IAA customers on a more consistent basis and reduce the kind of churn that the salvage industry has experienced in the past.
Jim Kessler, our President and Chief operating Officer has dive deep into the work streams that will drive significant value creation from this combination.
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.
As always we will keep you informed of our learnings and progress as we move forward in the coming quarters.
Chief transformation and people officer is leading the execution of IEA integration planning to drive cost synergies in.
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.
First on our progress we continue to expect to deliver $100 million to $120 million plus of annual run rate synergies by the end of 2025.
These reports can be found under the sustainability tab of our Investor Relations website 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 Ann and welcome everyone, who is joining our call. This afternoon.
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.
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 <unk> and the.
<unk> of our new senior leadership structure.
As we have said previously we view the IAA business as an additional vertical for our broader marketplace.
I also want to note that we will be reporting our results on a calendar quarter basis.
In line with how Ritchie brothers has done so in the past, but differing from the 13 week fiscal quarter that IAA previously reported on.
A couple more preliminary items.
To aid in the modeling of the combined company to allow you to track trends.
We included five quarters of pro forma combined GTD and revenue data as a supplemental table in our press release today.
With the acquisition.
We will also update how we report gross transaction value or <unk>.
We will now report CTV in three sectors or categories automotive <unk>.
Commercial construction and transportation and other please note that each sector can be comprised of salvage and non salvage transactions from both Ritchie brothers ni.
Automotive is comprised of consumer automotive vehicles since automotive vehicles sold by Ritchie Brothers are now included in this category.
It will make historical volume figures reported by IAA not comparable.
Commercial construction and transportation consists of construction equipment.
Which is also known as yellow iron.
It also includes lift and material handling equipment vocational transportation trucks as well as truck trailers.
The other category is broadly comprised of transactions from our agriculture.
Oil and gas and government surplus verticals as well as equipment attachments now theres sundry items.
We believe segmenting our G television by sector will better allow us to talk about various end market trends impacting the business.
Now turning to our actual <unk> results on a reported basis.
<unk> increased 32% year over year.
TV growth for Richie brothers, excluding the impact of the IAA acquisition was 10% for the quarter.
This was driven by a continued rebound in unit volume growth, partially offset by lower prices unfavorable asset mix and unfavorable foreign currency exchange rates.
When you exclude the negative impact of foreign exchange CTV growth for Richie brothers stand alone increased 12%.
Excluding the impact of the IAA acquisition.
Volumes were up 28% year over year in the quarter driven by strategic accounts. However.
However, the average price per lot sold was down 14% versus the first quarter of 2022.
In recent quarters I've discussed the crossover between price and volume that we are experiencing we are cycling over the all time high pricing for the first quarter of 2022, and seeing our lot volumes increase and lower dollar value rental and transportation assets.
Geographically, we saw strength of Ritchie brothers challenge CTV growth in the United States. This growth was partially offset by declines in CTV, and 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.
On a pro forma combined basis, <unk> increased 1% year over year, driven by the strength in the commercial construction and transportation categories.
Offset by the weakness in automotive that and discussed.
If you plan to model G. TV, we expect the trend of higher unit volumes in our commercial construction and transportation sector to continue in the second quarter.
This growth should be partially offset by continued pressure on average selling prices due to asset mix and software category pricing.
In the automotive sector, we are expecting a modest increase in unit volumes and continued pressure on average selling prices taking.
Taking all this into account, we expect CTV growth in the second quarter to be up low to mid single digits year over year on a pro forma combined basis.
Moving now to revenue.
Let me first discuss our types of revenue.
Service revenues comprised of seller commissions buyer fees and revenue from our marketplace services.
Historically, Ritchie brothers was 60% commissions versus 40% buyer fees.
Whereas IAA was about 20% commissions and 80% biases.
On a pro forma combined basis.
We were at roughly 35% to 65% split between commissions and buyer fees respectively.
Inventory revenue as the gross transaction value of the assets we purchase before they are subsequently resolved through our marketplace.
Historically, both Ritchie brothers in IAA have had inventory revenue.
In the commercial construction and transportation category inventory revenue tends to be driven by consignor preferences, which can vary over time and.
In the automotive category, it's a combination of contractual obligations and vehicles purchased for dismantling, which could also vary quarter to quarter.
There also tends to be more inventory revenue transactions in international markets.
As a result, <unk> preferences large bulk transactions and our 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 GTD, 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 <unk> was 18, 1%.
Excluding the impact of IAA in the quarter service revenue increased 13% with our 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 due to the higher mix of GTD 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 continued to see strong growth of smart equipped and routes.
However, Ritchie 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 in our take rate.
The increase in buyer fees helped offset the decrease in seller commission rates, which we previously discussed.
Turning to inventory revenue.
On an as reported basis, our inventory revenue increased 13% year over year with the inventory rate of 11, 7%.
Excluding the impact of IAA inventory revenue increased 5% with an inventory rate of 10, 2%.
This decrease was due primarily to increased competition and unfavorable mix of inventory packages in the recent quarter.
That said the Ritchie brothers inventory rate has been at the higher end of historical ranges more recently.
As we focus on accelerating our commercial construction and transportation G. TV, 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 noninterest vehicles being purchased due to tightened supply environment and fewer contractual bulk automotive sales in the prior year quarter.
<unk>.
Before turning to earnings let me discuss our expense categories.
Cost of services includes yards that support weekly auctions, such as <unk> and Ritchie brothers Gov planet locations.
Cost of services also includes a direct cost incurred to earn auction revenue or marketplace services.
Clearly the cost of our inspectors for auction services and cost of services. This is consistent with how each company has historically reported.
Selling general and administrative expenses includes yards not used for events weekly such as our typical Ritchie brothers yards.
It also includes expenses for our corporate functions.
Once again this is consistent with our prior historical reporting.
Okay.
Acquisition related and integration costs include certain legal finance and advisory and other costs related to acquisitions. It also includes integration costs such as severance.
On an as reported basis, our adjusted EBITDA increased 26% year over year and our adjusted diluted earnings per share increased 24%.
A substantial portion of the growth in adjusted EBITDA came from the inclusion of IAA this quarter.
Please note that in our most recent earnings call.
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 sales people to expand our market coverage continue driving unit growth into our marketplace to sustain strong growth in the coming quarters.
Our expenses also increased year over year due to head count investments to process the gross in services revenue and.
And higher levels of travel expenses associated with customer events and industry conferences and internal annual kickoff meetings.
We are in the preliminary stage of determining the fair value of the assets acquired in the IAA acquisition.
One adjustment that we've already made is related to Ias prepaid consigned vehicle charges of $73 million, which were adjusted to their fair value of $9 million in the opening balance sheet.
During the first quarter. This adjustment resulted in a $12 million reduction in our cost of services that would have otherwise occurred absence as purchase accounting adjustments.
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 received the benefit.
As we continue to work on finalizing purchase accounting.
You may identify a value adjustments, which may have an impact on our income statement in the future.
Since the close of the acquisition.
<unk> adjusted EBITDA has been broadly in line with our expectations.
With higher service revenue offset by incremental higher talc and branch related costs, when you compare that to prior year.
As Ed noted earlier, we have started to implement our integration plan.
And have already accident, approximately $15 million in annualized 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 savings synergies realized net of the cost to achieve those synergies to be a net $28 million incremental expense for 2023.
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.
Exclusive of share based payments and other adjusting items.
Regarding income taxes, we currently expect the effective tax rate exclude.
Excluding the impact of adjusted items to be between 24% and 26% for the second quarter.
This corresponds to a GAAP tax rate of 26% to 28%.
Next slide please.
As of March 31, our total net debt was approximately $2 7 billion.
And our total net debt to trailing 12 month adjusted EBITDA was five four times.
Note that trailing 12 months adjusted EBITDA only includes 11 days of contribution from IAA.
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 million to $175 million of debt in 2023.
Our forecast for interest expense in the second quarter is expected to be between 65% and $68 million.
The amortization of deferred financing cost.
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 with.
We previously sold our bulk 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 Amyris was originally expected to be purchased in the fourth quarter of 2022. However, the purchase of the Amyris 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, 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 <unk> <unk> 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 Anne.
I, thank 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 one on your telephone keypad.
If your question has been answered and you would like to withdraw from the queue. Please press star followed by the number too.
And if you are using a speaker phone please lift your handset before pressing any keys.
One moment. Please for your first question.
Your first question will come from <unk> Khan at RBC capital markets. Please go ahead.
Great Thanks, and good afternoon.
I guess just on the $15 million of synergies.
Can you provide maybe a little bit color on where that came from and $40 million of costs.
Yes, hi solid start.
Good afternoon to everyone on the call.
So as we stated the integration work is off to a very very strong start.
With.
One month reported in already at that level of synergies. So if you recall the various buckets that we highlighted.
We were very clear that the first set of synergies what's going to come from kind of duplicative 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 <unk>.
<unk> duplicative functions.
Like HR, where we took actions and the bulk of the one time cost in order to achieve think about the bulk of the severance.
Those kinds of things so.
Again, we are very very pleased with how the pieces are coming together.
Okay, Great and then maybe if you get a little bit of color on sort of the underlying trends maybe in the Ritchie business. I think you called out some fleet realignments that help maybe just have the base level trends on that business are going and maybe just the dynamics.
The IAA side as well, obviously a lot of headlines around used price used car prices moderating maybe how thats.
That trend is going and maybe how volumes are trying to get some kind of.
Base level trends on both businesses.
At this point in the year.
Yes, perfect I'd love to so.
Both businesses, which is why we're so excited our both cyclical and countercyclical, so dean kind of well on both sides of the equation.
For Ritchie brothers at a high level and we highlighted this previously.
The way to think about our businesses.
<unk>.
Think about the kind of the construction equipment that yellow iron that hasnt exactly started to loosen up yet.
But other.
Like transportation like the lower priced items that you often see in rental like the aerial equipment that kind of stuff we're <unk>.
Turning to see more.
So what you see on the Ritchie brothers side, and Eric alluded to it in the prepared remarks is as we see.
And a global with our strategic accounts, where historically.
In the last couple of years during Covid. They just have not had equipment to sell as they are selling equipment, obviously, they're bigger customers. So the seller or seller rates they are lower than our average business, but the volume coming in is very very strong. So we're very pleased with that.
Net net.
Again, as Eric said, we're expecting to see strong growth and are very happy with.
We're starting to see supply chain shifts.
And open up not in every category, but we're starting to see the light at the end of the tunnel.
And on the IAA side as you know.
Saba as used vehicle prices are expected to reduce.
That increases the total loss ratio and again as a reminder for.
The Ritchie brothers investors that maybe aren't burst in the IAA business.
The higher the nickel price.
Apple's vehicles are to get fixed and not declared a total loss as the used vehicle price fall.
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 outlook for Q2 kind of that low to mid single digit growth that Eric referenced.
Great and then maybe just one last one.
High level question, if you can maybe share some perspective on.
Kind of what's your integration team looks like I think <unk> alluded to at some point thinking about getting some external support there and how many folks do you have dedicated to that and just kind.
Who's leading that process and just how we should think about it just.
Just the evolution of that team and what we should expect on a farm.
Yeah. So.
Let's take a step back.
One of the things we committed to and obviously is almost a maniacal focus on day to day execution. So as we said previously the percentage of employees that are.
Part of the innovation team is a very very low percentage of employees, we have people and you see it in the results in the quarter.
People are very focused on their business driving results driving SLA driving the focus on the customer that is the vast majority over 99% of the employees.
Gration team think about experts across the areas. It was important for us to make the head of the integration.
Our chief people officer, because so much of the integration work is kind of bringing the people side together. So that team is very purpose built.
That team has kind of the cost synergies broken down by functional area. Each areas represented so think about every area and that was what.
They're pushing us to deliver of the 100 to 120 and per the proxy when when the delivery is expected and of course sooner or at least better than later and then similarly the revenue.
<unk> prioritized highlighted in 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.
Thanks.
Uh huh.
I don't know, we don't normally talk about it but we partner with banks.
The name in 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 between ourselves too 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.
Great. Thanks very much.
Thank you.
Your next question comes from Michael <unk> at Scotiabank. Please go ahead.
Hi, Ann.
Eric.
A few weeks back you.
Announced transaction for for land I Wonder if you could talk about how active you think there'll be in terms of making adjustments to the land assets.
With a combined lot land assets in the near term.
And on the topic two of the largest revenue synergy opportunities you guys highlighted pre deal centric.
That required more optimal use.
A blend assets to gain share just wondering.
How ready you guys are with.
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 your question, which is we are first and foremost committed to.
Debt pay down and getting to the leverage so that we can.
And 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 that where things already in the pipeline, which is the announcement that was made.
All of those were in the proxy in terms of the Capex number.
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 Ritchie brothers ETB.
Using <unk>.
Real estate as part of our satellite yard strategy in fact, we have done.
Two pilots kicking off in the next 60 days without any permitting issues as we anticipated.
And similarly looking to drive.
<unk>.
E share expansion drove kind of escalates and given where their utilization of the yards.
<unk> plenty of room to Brian So feeling very good about it Eric don't know if theres anything else you want to add to that.
Real estate acquisitions.
Yes, just real quick so the announcement that went out IAA was essentially there were three properties that they were purchasing two or at least buyouts, one was a new facility Richie.
Ritchie brothers, when we saw Bolton planned on buying three properties as Anne said those are all reflected in our projections that we had in the S. Four and so you can kind of get a sense in the near term what our cap ex requirements are and that over time as we delever. We will make we will look at the ROI on buying any.
Additional properties and make that determination.
Okay very good color. Thanks, and then maybe just turning over and I think you commented about total loss ratios just above 19% versus pre pandemic I think closer to 'twenty, one 'twenty, 2%.
Higher sales volumes will come with presumably at some point lower salvage prices.
<unk> has adjusted its fee structure. So I was hoping that you can walk us through the incremental contribution dollar impact from higher volumes and lower prices ideally really what the buyer fee is from a fixed to variable standpoint.
Yeah. So let me just drum roll this we're always better off with volume even without the service.
And obviously, we plan on enhancing at IAA the way we've done at Ritchie brothers over the last three and a half years.
We're always better off with volume, it's not linear because a big portion of the fee basis.
So and as you've noted the total 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.
Track the driving.
Thing.
So theres a lot of tailwind in the business. So the drum roll is that we're always better off with volumes and we're seeing those turn.
And becoming a tailwind for IAA.
And also we're obviously cycling next quarter should be the last quarter.
Kind of.
Yours long loss of a single large customer so it'll be clean numbers and allow.
Allow us to perform and take.
A lot of the benefit from this total loss ratio will recovery.
Perfect I'm going to try to sneak a third in.
Apologies, but.
For Eric the expected pay down 159 to 175, if I add the dividends is that effectively what you're.
Are you targeting for free cash flow this year.
So I mean, it's at least 150 to 175 will evaluate to see whether or not makes more sense. So the number could be higher that was more of a minimum.
We declared a dividend of <unk> 27 per share.
For this for this coming quarter, we havent sort of indicated what were planning to do for the remainder of the year at this point.
But.
Our working capital 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 R. W. Baird. Please go ahead.
Hey, good afternoon, Thanks for taking my question.
It sounds like you 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.
Yes, Craig Hello, and yes, as I said originally it's been kind of.
In some ways a homecoming just for the folks on the call that may not be aware the business I ran prior to Ritchie brothers was called Abra auto body and collision. These same insurance customers literally the same people.
Sure my customers there so a lot of refreshing.
All of those relationships.
Look for me.
And for those of you guys getting to know what we always think of the world as in our controls and out of our control.
Here is an outlook.
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 mindfully 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.
Other customers of <unk> as well.
Understanding again what.
What it is they require and how best we can meet them mapping those plans. So very very excited about driving those things that are in our control.
Thanks, and then on a different topic.
What should we expect in the way of disclosures related to IMS.
Adoption rates prior to the IAA acquisition of course that was one of the key performance indicators that we were trying.
Yes, absolutely so obviously.
Gary.
To IMS, let me just take a step back so inventory management system is what ims's again for those shareholders getting to know Richie brothers.
We launched at Con Expo in Vegas.
In March a new version of IMS called the routes fleet manager and the reason that was an important launch is as we've said all along.
About IMS and now routes fleet manager as a critical building block of the marketplace. So when you think about our marketplace think about the gateway in is this routes fleet manager the artist formerly known as <unk>.
And then now you want to be able to form transaction. 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 activations increased 184% versus prior year. So again another stellar performance what we're focused on now.
Is the next building, which is really right. The reason once 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 to <unk>, which is the marketplace technology.
In Sacramento, we did.
The transaction engine, so that'll be the first time that.
We are going to automate the transaction function within Ritchie brothers too.
And the items coming into IMS or routes fleet manager. So really think about we said all along that the journey. We've said all along the IMF now called browse fleet mandatory as a 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 growth.
Please expect what we've said all along which is we're going to be driving GTD growth, we're going to be driving service attachment, we're going to be automating how that goes and then.
Which should drive higher service.
Revenue then GTD growth.
And then running that exact same play on the IHS 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.
Great. Thanks, Sam.
Thank you.
Your next question comes from Michael Feniger at Bank of America. Please go ahead.
Hi, everyone. Thanks for taking my questions you guys guided last quarter four for Richie brothers, SG&A to be $125 million to $130 million.
The P&L has 148, obviously that.
That includes.
A lot of other costs and the IAEA did Richie Cogs come into higher than expected I'm, just trying to understand the Ritchie EBITDA grew 3% year over year that Bridge chart. Yet your service revenue growth was 13%. So just trying to understand if there's anything we should be aware of the first quarter on the SG&A line as growth picked up.
Yes, Michael So there is a little bit of noise in there, but it was a couple million dollars higher than than we expected and you kind of gave some of the reasons for that.
The lower commission rates due to the higher impact.
Strategic accounts you had on the cost side you had some events and you also had a higher cost to process than we originally expected. So those those contributed also when you think about sort of comparing EBITDA loss. This year versus last year. I mean, we had all time record high pricing last year and.
So the flow through was significantly higher.
Because.
<unk> benefited all in price so at higher commission rates. So that was a big if youre looking sort of the trends what happened.
Okay.
Adjusted EBITDA was in line with your expectations. So what are the expectations for 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 'twenty three.
So.
Right now when we're talking about expectations. It's what was in the S. Four as our in the proxy statement.
Saw in there.
The plan for Richie brothers in IAA and as we said during the process, particularly that is essentially our budget for the business and we're operating two and so IAA was right on plan if not slightly ahead on EBITDA and pretty much most of the earnings metrics or or.
For the business.
Alright, if I could just sneak one in like the guidance for Q2 on CTV.
What are we kind of thinking for the Standalone GTD.
And Standalone.
Sounds like ice volumes should be higher.
Begin better so I guess I'm, just trying to understand the puts and takes to that GTP guidance for Q2 and but.
It's also the core Ritchie business seems like its also saw a pickup towards the end of the quarter.
Yes, so on a pro forma basis, we were 1% for Q1 kind of combined so we say it's.
Low to mid single low to mid single digits for Q2 on a combined basis.
So.
They had a tough comp in Q1, and it was down I think 5%.
So yes, we do expect it to do better and we expect Ritchie 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 both to do better.
And I should say, we expect IAA to do better Ritchie 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 CTO at National Bank. Please go ahead.
Hi, good afternoon.
And then.
I was wondering if.
I was wondering if you don't mind, please commenting on sort of the pro forma capex and <unk>.
<unk> four for the business because in the slides you talked about 275 to 291 as reported.
Maybe if you don't mind trying to send into your.
Evolving.
Yard strategy quarter for the combined business would be super helpful. Thanks.
Hello.
Hello.
Please standby.
Hello Sandoz.
Yes, you are please continue.
So im not sure what happened to leave him back in sorry, Max disconnected me.
I didn't hear your question.
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 91 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.
Yes, so why don't I take the second part and I'll, let Eric talk about the pro forma Capex numbers. So as we've said before.
And so.
As we're running the local yard strategy again, the two pilots that are starting and doing.
We're excited no issues with that.
Using the land.
The capacity available at IAA, so on and so forth, we're feeling great about it.
Again, everything that we had in our sights, we put into the proxy in terms of Capex requirements like Eric said, the bolt and replacement so.
The pieces are the building blocks, we highlighted in our thesis for the acquisition.
Our holding.
Very strong Eric do you want to add anything.
Yes, I think I think the.
Capex goes down in the outer years and the and the.
Proxy because as we said that we have line of sight into the replacement properties for Bolton on that Ritchie brothers side.
I had some book some very some current plans.
Just to remind the group the Capex number that I gave and what we talked about <unk>.
Oxy really included.
Yes.
PP&E 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 an internally developed software we've talked about the investments in Ritchie brothers.
Place 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 heard me talk about a lot of the manual nature Emmanuel nature, a lot of the processing for Richie 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 it's not just land its technology.
Alright, Okay. That's great and then maybe just one follow up.
And do you have any sort of incremental early thoughts on.
Getting traction in international markets on IAA side.
Just wondering where you stand on this right now thanks.
Yeah, So Matt.
It is one of our.
Top 10 initiatives, because we put forward.
We're doing now is think about so first of all be closed.
10 days before the end of Q1, so think about where we are right now is scoping and thinking through pilots and partnerships.
On the one side on the other side, bringing the teams together so.
Part of the integration work is an extended to really connect the sales teams together to understand how it is they work.
So.
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 pilot don't see any difference on the land side.
You won't see any of that to turn on the people side and matter of starting to test again for those that are new to us.
We are a big fan of test and learn Mcgee engineer, we have a hypothesis, we put test in place there is never a good and a bad there is a learning cycle for US and then we're very transparent reporting out to our investors about how we're doing so.
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 de Maria William Blair. Please go ahead.
Hi, Thanks, and good afternoon everybody.
Just trying to understand the price volume outlook, a little bit more obviously youre doing a nice job driving volume, which you've done for a while here and A&P as a mix of a headwind.
Just for clarification do we expect at some point given what your comments are around opening up supply chain that you think mix will substantially change into the second half obviously being an improvement. So curious on your thoughts on really on driving better mix, because obviously pricing probably still going to have pressure.
If that's what you're implying and secondly, I know you touched on this even recently on the call here as it relates to slight leverage should we expect cross leverage.
Florida site this year or is that in the test and learn and more likely 'twenty four thank you.
Yes, Hello, Larry So, yes, so again, we have no crystal ball, but.
That are new to Us Ritchie brothers, we've had a volume issue, but we've had a very significant mix issue in that the.
Higher end equipment has been harder and harder to get.
We are starting to see the light at the end of the tunnel. It is early early days, but we are expecting that to get better.
And.
Very helpful for what that means for mix, but again early.
Being a light and actually seeing equipment are two very different things.
Right.
Well again back to are in our control and out of our control we play the hand, we're dealt and.
Just incredible doing an incredible job with driving the volume.
Holding the margin rate and really driving an incredible business and on the IAA side are very similar.
Similar thing Eric said, we're expecting.
Q2.
There as well.
And just Eric.
Yes, just to add.
I'm sorry, Larry how are you doing.
Your second part of your question regarding Florida, So as we said when we were.
And the pre close.
Phase of this transaction the way we look at Florida is really for overflow for catastrophic events we didn't.
It was never that's not part of the <unk>.
<unk>, not saying that it won't it won't we won't be able in certain cases to leverage Ritchie brothers yards, but.
And for <unk>.
Day to day business. It was really about if theres a catastrophic event.
Florida, making available the Ritchie brothers, our Orlando location. It was if it was needed. The good news is that we've learned is that he has done an incredible job in Florida.
With recent events and over the last couple of years in terms of getting capacity availability when they need it.
So.
We should be.
As we as we build out the business and grow that well covered in Florida and other places.
Thanks, Thats I mean, thats, what I was getting at whether you thought we'd see some cat business on the Florida side. This year. Thank you.
Yes that would be a total of a crystal ball.
Yes.
Yeah, and yours, what's very interesting with the recent flood and I know I'm going along in some years, giving us a distinct but.
With the recent flood in Florida, we were able to see firsthand. Its one thing when you're diligent another thing to see the capabilities exactly as they were in.
At IAA has built for catastrophic events with this overflow NASCAR lots and how the storms. Our track then which cites light up toward the potential of where the volume is going to go with just a incredibly fascinating learning and the team did a stellar job of 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.
Incredible performance incredible kudos to the team hopefully some are listening because it was fantastic.
Fantastic to see firsthand.
Okay. Thanks, Yeah, obviously, we understand can't predict the weather but.
Hopefully you had the site. Thank you.
At this time, we have no further questions. So I will turn the conference back to <unk> for any closing remarks.
Wonderful thank you.
Where 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 in IAA.
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 are an open book with how we're doing and how we're doing is driving a very unique marketplace strategy offer insight services and transaction solutions across verticals.
Stellar progress incredible team and 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 name your week.
Ladies and gentlemen, this does conclude your conference call for this afternoon, we would like to thank you all for participating and ask you to please disconnect your lines.
Okay.
Okay.
Yes.