Q1 2024 RB Global Inc Earnings Call
Chris: Good afternoon. My name is Chris, and I will be your conference operator today. At 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.
Good afternoon, My name is Chris and I'll be your conference operator today at 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.
Chris: If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star then the number two.
Chris: I'll now turn the call over to Mr. Sameer with THAAD, Vice President of Investor Relations and market intelligence to open the conference call. Mr. <unk> you may begin your conference.
Chris: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then number two. Thank you. I'll now turn the call over to Mr. Samir Rathod, Vice President of Investor Relations and Market Intelligence, to open the conference call. Mr. Rathod, you may begin your presentation.
Chris: Yeah.
Sameer Rathod: Hello and good afternoon. Thank you for joining us today to discuss our first quarter results. With me on the call today are Jim Kessler, our Chief Executive Officer, and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, which can be identified by such words such as expect, believe, estimate, anticipate, plan, intend, and opportunity or similar expressions. 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 expectations regarding the integration of IAEA, including anticipated cost synergies, are considered forward-looking and involve risk and uncertainty.
Sameer Rathod: Hello. Good afternoon. Thank you for joining us today to discuss our first quarter results with me on the call today are Jim Kessler, Our Chief Executive Officer, and Eric <unk>, Our Chief Financial Officer.
Sameer Rathod: 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 in our most recent quarterly report and annual report on Form 10-K, which are available on our investor relations website and on Edgar and Cedar. 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, the most directly comparable GAAP financial measures, and the applicable reconciliation of the two, see our news release, Form 10-K and Form 10-Q, posted on our website. We are unable to present quantitative reconciliation of forward-looking non-GAAP financial measures, as management cannot predict all necessary components of such measures. Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures.
Sameer Rathod: The following discussion will include forward looking statements, which can be identified by such words, such as expect believe estimate anticipate plan intend opportunity and similar expressions.
Sameer Rathod: Comments that are not a statement of fact.
Sameer Rathod: But not limited to projections of future earnings.
Sameer Rathod: The new gross transaction value debt and other items.
Sameer Rathod: And market trends and expectations regarding the integration of IAA, including anticipated cost synergies are considered forward looking involve risks and uncertainties.
Sameer Rathod: 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.
Sameer Rathod: Which are available on our Investor relations website and on Edgar and SEDAR.
Sameer Rathod: On this call. We will also discuss certain non-GAAP financial measures, including forward looking non-GAAP financial measures.
Sameer Rathod: The identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliations of the to see our news release Form 10-K, and Form 10-Q posted on our website.
Sameer Rathod: We are unable to prevent quantitative reconciliation of forward looking non-GAAP financial measures as management cannot predict all necessary components of such measures investors are cautioned not to place undue reliance on forward looking non-GAAP financial measures at this time I'd like to turn the call over to Jim Jim.
James F. Kessler: At this time, I'd like to turn the call over to Jim. Okay?
James F. Kessler: Thank you, Sameer, and good afternoon to everyone. We are off to a solid start to the year with first quarter gross transactional value growth of 10% on a pro forma combined basis. I am proud of the team as they continue driving GTV growth. The strong performance directly reflects our one team, all in culture and our dedication to exceeding our commitments to our customers. Furthermore, our focus on continuous improvement and drive for operational efficiency throughout the organization translated to strong, adjusted earnings per share growth of 58%.
Jim: Thank you Samir and good afternoon to everyone.
James F. Kessler: We are off to a solid start to the year with first quarter gross transactional value growth of 10% on a pro forma combined basis.
James F. Kessler: I am proud of the team as they continue driving <unk> growth.
James F. Kessler: Strong performance directly reflects our one team all in culture, and our dedication to over delivering on our commitments to our customers.
James F. Kessler: Furthermore, our focus on continuous improvement and driving operational efficiency throughout the organization translate into strong adjusted earnings per share growth of 58%.
James F. Kessler: Let's start by discussing trends in our commercial construction and transportation sector. The equipment consignment market remains strong. However, we are beginning to see a normalization of equipment supply following the surge we experienced post-pandemic. Strategic accounts, specifically within the rental vertical, are carefully evaluating the cadence of their dispositions for the rest of the year as they assess business conditions, including the higher interest rate environment.
Speaker Change: Let's start by discussing trends in our commercial construction and transportation sector.
James F. Kessler: Equipment consignment market remained strong.
James F. Kessler: However, we are beginning to see a normalization of equipment supply following the surge we experienced post pandemic.
James F. Kessler: Strategic accounts, specifically within the rental vertical are carefully evaluate weight and the cadence of their dispositions for the rest of the year.
James F. Kessler: The excess business conditions.
James F. Kessler: Within the regions business, the higher interest rate environment.
James F. Kessler: The higher replacement costs in the upcoming U.S. election are leading some customers to postpone investments in new equipment, reducing their immediate need for transaction solutions. Growing our market share is a top priority, and we're executing our growth algorithm by expanding sales coverage. In the first quarter, we actively recruited new talent to strengthen the Ritchie Brothers brand and to ensure we have the right coverage where we have identified the most significant growth opportunities. Our physical presence and digital omnichannel platform remain a key differentiator, making us the partner of choice. The yellow corporation bankruptcy demonstrates the power and versatility of our platform and how we over deliver for our part.
James F. Kessler: The higher replacement costs in the upcoming U S election are leading some customers to postpone investments in new equipment, reducing their immediate need for transaction solutions.
James F. Kessler: Growing our market share is a top priority and we're executing our growth algorithm by expanded sales coverage in the first quarter, we actively recruited new talent to strengthen the Ritchie brothers brand and to ensure we have the right coverage, where we have identified the most significant growth opportunities.
James F. Kessler: Our physical presence and digital Omnichannel platform remain a key differentiator, making us the partner of choice.
James F. Kessler: Yellow Corporation bankruptcy demonstrates the power and versatility of our platform and how we over deliver for our partners. We complemented the broader logistical efforts of moving their assets to RB global locations by utilizing birch right.
James F. Kessler: We complemented the broader logistical efforts of moving their assets to RB global locations by utilizing Burrard Tread, a marketplace service on our platform, to source competitively priced transportation services. Our extensive network of locations, bolstered by IEA's acquisition, meant that 90% of Yellow's assets were within 100 miles of one of our RB global locations, enabling transportation cost savings and seamless care, custody, and control of their equipment. At the end of the quarter, we had approximately 9,000 trucks and trailers at IAEA locations, which were flexed as R.B. Global Satellite Storage. Our ability to flex these yards eliminated potential incremental expenses to execute short-term leases for stores.
James F. Kessler: Marketplace service on our platform to source competitively priced transportation services.
James F. Kessler: Our extensive network of locations bolstered by IAA acquisition meant that 90% of yellows assets were within 100 miles of one of our RV global locations, enabling transportation cost savings and seamless care custody and control of their equipment at.
James F. Kessler: At the end of the quarter, we had approximately 9000 trucks and trailers at IAA locations, which were flagged as RMB global satellite store charts, our ability to flex these yards eliminate that potential incremental expenses to execute short term leases for storage.
James F. Kessler: To be clear, even with this transaction, we have more than enough capacity in our air yards to effectively service all of our parts, for Omnichannel Platform's full potential is being deployed to optimize price realization. We began with strategic bulk sales late last year. As these continue, we are directing assets across various regions and channels and hosting yellow dedicated auctions. This dynamic approach ensures we are constantly matching the supply of these assets with the best buyers.
James F. Kessler: To be clear even with this transaction, we have more than enough capacity our yards to effectively service all of our partners.
James F. Kessler: For omni channel platforms full potential is being deployed to optimize price realization.
James F. Kessler: We began with strategic bulk sales late last year.
James F. Kessler: Those continue we are direct in assets across various regions and channels and hosting yellow dedicated auctions.
James F. Kessler: This dynamic approach ensures we are constantly matching the supply of these assets with the best buyers.
James F. Kessler: All of this is a testament to our marketplace's ability to cater to businesses of all sizes with a robust offering of services and transaction solutions. Moving to the automotive sector, we hosted IEA's 21st Industry Leadership Summit under RB Global, a shattered attendance record that has attracted new and potential partners across North America's insurance, fleet, and remarketing sectors. This premier event served as a platform to introduce RB Global's leadership team, our culture, and our unwavering commitment to exceeding customers' expectations through robust and consistent performance.
James F. Kessler: Or this is a testament to our marketplaces ability to cater to business of all sizes with a robust offering of services and transaction solutions.
James F. Kessler: Moving to the automotive sector, we hosted ies twenty-first industry leadership summit under RV global.
James F. Kessler: Shattered attendance records.
James F. Kessler: <unk> been attracted new and potential partners across North America, as insurance fleet and remarketing sectors.
James F. Kessler: This premier event served as a platform to introduce RB Global's leadership team, our culture, our unwavering commitment to exceeding customer expectations through a robust and consistent performance.
James F. Kessler: As we maintain and grow our partnerships with those who share similar values and want to build long-lasting partnerships based on trust and transparency, we hosted the inaugural session of the IAEA Advisory Council in conjunction with the summit.
James F. Kessler: As we maintain and grow our partnerships with those who share similar values and want to build long lasting partnerships based on trust and transparency. We hosted the inaugural session of the IEA Advisory Council in conjunction in conjunction with the summit.
James F. Kessler: It was a dynamic exchange between key insurance partners and our leadership team, yielding overwhelmingly positive feedback and actionable short and long-term items. We're excited to keep the conversation going, tackle these initiatives, and solidify our industry-wide partnership. We also use this event to highlight our performance improvements and the accurate measure of our gains by launching our Partner Transparency Program and dispelling any misconceptions. We laid out a framework and now communicate our service level agreement performance to the industry quarterly.
James F. Kessler: It was the dynamic exchange between key insurance partners and our leadership team yield yielding overwhelmingly positive feedback and actionable short and long term items.
James F. Kessler: We're excited to keep the conversation going tack on these initiatives and solidify our industry wide partnerships.
James F. Kessler: We also use this event to highlight our performance improvement and the accurate measure of our games by launching our partner transparency program and dispelling any misconceptions.
James F. Kessler: We laid out a framework and now communicate our service level agreement performance to the industry quarterly.
James F. Kessler: The feedback from our partners, especially about our data-driven operational improvements, has been very positive. Speaking of operational improvements, I am proud of the team and pleased that our continuous improvement program continues to drive meaningful SLA improvements in the first quarter. Our pickup compliance, an internal measure of our tow performance, continues to be strong at approximately 99%. In our on-time total performance, an internal measure of our ability to process vehicle titles that meet our customers' demands, was approximately 98%.
James F. Kessler: Feedback from our partners, especially about our data driven operational improvements had been very positive.
James F. Kessler: Speaking of operational improvements I am proud of the team and I'm pleased that our continuous improvement program continues to drive meaningful SLA improvements in the first quarter.
James F. Kessler: Our pickup compliance and internal measure of auto performance continues to be strong at approximately 99% and our onetime total performance an internal measure of our ability to process vehicle models that meet our customers' demands was approximately 98%.
James F. Kessler: We also continue to make excellent strides in attracting new international automotive buyers to our marketplace. Partially driven by IEA leverage in historical Ritchie Brothers relationships in Europe, in the first quarter, the percentage of vehicles sold to international buyers hit an all-time high.
James F. Kessler: We also continue to make excellent strides in attracting new international automotive buyers to our marketplace, partially driven by IAA leveraging historical Ritchie brothers relationships in Europe.
James F. Kessler: In the first quarter the percentage of vehicles sold to international buyers hit an all time high.
Eric Guerin: These advancements, combined with our focus on continuous process improvement and investment in technology, continue to drive average selling price higher, with automotive ASPs climbing an industry-leading 3.3% year-over-year. We're focused on continuous improvement because consistent strong performance is the critical level in our growth algorithm to unlock market share in this industry, and the results speak for themselves. Our partners are noticing a positive shift in the transformation culture, built on trust, transparency, collaboration, and a clear focus on consistently delivering exceptional results. This momentum propels us forward, and we're optimistic it will translate into market share gains in the coming quarter. Now, I will pass the call to Eric to review our financial performance and outcomes.
James F. Kessler: These advancements combined with our focus on continuous process improvement and investment in technology continue to drive <unk> selling price higher with automotive asp's climate in an industry, leading three 3% year over year.
Eric Guerin: We're focused on continuous improvement because consistent strong performance is a critical level or an outgrowth algorithm to unlock market share in this industry and the results speak for themselves. Our partners are noticing the positive shift and transform culture built on trust transparency collaboration.
Eric Guerin: And clear focus on consistently delivering exceptional results. This momentum propels us forward and we're optimistic it will translate into market share gains in the coming quarters.
Eric Guerin: Now I will pass the call to Eric to review, our financial performance and outlook.
Eric Guerin: Thank you, Jim. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison of the pro forma combined results of Ritchie Brothers and IAA for the prior year period. Total GTV increased by 10%, and automotive GTV increased by 6%, benefited from higher unit volumes and, as Jim noted, a 3.3% higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the first quarter, PCC estimated that its loss ratio increased to approximately 21.1% compared to 19.6% in the same period last year.
Eric Guerin: Thank you Jim before we jump into the details. Please note that year over year comparisons for GTA V and revenue referred to a comparison to the pro forma combined results of Ritchie brothers and IAA for the prior year period.
Eric Guerin: Total <unk> increased by 10% automotive GCB increased by 6%.
Eric Guerin: <unk> benefited from higher unit volumes and as Jim noted, a three 3% higher average selling price.
Eric Guerin: The existing customer portfolio drove the growth in unit volumes has the salvage industry continues to benefit from a rebound in the total loss ratio.
Eric Guerin: In the first quarter CCC estimate and that the loss ratio increased to approximately 21, 1% compared to 19, 6% in the same period last year.
Eric Guerin: The previously announced customer loss partially offset organic growth. Note that starting in the second quarter, we will see the full impact of the customer loss on GTV and unit volume. GTV in the commercial construction and transportation sector increased 20% driven by increases in lot volumes, partially offset by declines in average price per lot sold. The decline in average price per lot sold was due to asset, As lot volume growth came from rental and transportation assets, or asset values are intrinsically at lower ASTs, and continued declines in pricing on an apples-to-apples basis.
Eric Guerin: Previously.
Eric Guerin: <unk> customer loss, partially offset organic growth.
Eric Guerin: Note that starting in the second quarter, we will see the full impact of the customer loss on GTA V and unit volumes.
Eric Guerin: G television and commercial construction and transportation sector increased 20% driven by increases in lot volumes, partially offset by declines in average price per lot sold with.
Eric Guerin: The decline in average price per lot sold was due to asset mix as lock volume growth came from rental and transportation assets, where asset values are intrinsically at lower asps.
Eric Guerin: And continued declines in pricing on an apples to apples basis.
Eric Guerin: Note that GTV growth in commercial construction and transportation, excluding the impact of the Yellow Bankruptcy, would have been approximately 13%. Moving to service revenue. Service revenue increased by 14%, with our service revenue take rate expanding approximately 80 basis points to 20.8%. Service revenue increased due to growth in GTV, a higher average buyer fee rate, and growth in our marketplace services revenue. Marketplace service revenue growth was driven by higher ancillary revenue and a higher auction-related fee structure.
Eric Guerin: Note that GDP growth in commercial construction and transportation, excluding the impact of the yellow bankruptcy would have been approximately 13%.
Eric Guerin: Moving to service revenue.
Eric Guerin: Service revenue increased by 14% with our service revenue take rate expanding approximately 80 basis points to 28%.
Eric Guerin: Service revenue increased due to growth in <unk>.
Eric Guerin: A higher average buyer fee rate and growth in our marketplace services revenue.
Eric Guerin: Marketplace service revenue growth was driven by higher ancillary revenue at a higher auction related fee structure.
Eric Guerin: As you think about inflation or deflation asset values, it is essential to note that our revenue model has been demonstrated to be resilient to swings in asset values in our marketplace. Historically, we have seen unit volumes and prices move in opposite directions. DTV growth and take rate expansion have allowed us to grow service revenue above broader economic inflation. However, inventory revenue declined 12% with lower revenue contributions from the automotive, commercial construction, and transportation sectors. The inventory rate for the quarter contracted 100 basis points year over year to approximately 8.8%.
Eric Guerin: As you think about inflation or deflation asset values. It is essential to note that our revenue model has been demonstrated to be resilient to swings in asset values in our marketplace. Historically, we have seen unit volumes and price move in opposite directions.
Eric Guerin: <unk> growth and take rate expansion have allowed us to grow service revenue above broader economic inflation.
Eric Guerin: Inventory revenue declined 12% with lower revenue contributions from the automotive commercial construction and transportation sectors.
Eric Guerin: Inventory rate for the quarter contracted 100 basis points year over year to approximately eight 8%.
Eric Guerin: The lower inventory rate is due to commercial construction and transportation and automotive, partially offset by strength in our government surplus business. As previously noted, we expect the environment for at-risk deals to remain competitive in our commercial construction and transportation sector. Turning to earnings, adjusted earnings per share increased 58% on strong operational performance and the full quarter impact of the IAA inclusion, partially offset by a higher share count, higher net interest expense, and the impact of the Series A Senior Preferred Shares. At the end of the first quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately two times.
Eric Guerin: The lower inventory rate is due to commercial construction and transportation and automotive.
Eric Guerin: Partially offset by strength in our government surplus business.
Eric Guerin: As previously noted we expect the environment for at risk deals to remain competitive in our commercial construction and transportation sector.
Eric Guerin: Turning to earnings.
Eric Guerin: Adjusted earnings per share increased 58% on strong operational performance and the full quarter impact of the IAA inclusion.
Eric Guerin: Partially offset by higher share count higher net interest expense.
Eric Guerin: And the impact of the series a senior preferred shares.
Eric Guerin: At the end of the first quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately two times this.
Eric Guerin: This accomplishment comes nearly a year ahead of schedule, showcasing our commitment to overdelivering, the strength of the strategy, and our ability to execute. We wanted to lay out our guiding principles for deploying our capital to maximize shareholder value. Let me walk you through our priorities. We see our target net leverage at around two times. That said, you could flex either way for a period of time.
Eric Guerin: This accomplishment comes nearly a year ahead of schedule.
Eric Guerin: Casing, our commitment to over deliver.
Eric Guerin: Strength of this strategy and our ability to execute.
Eric Guerin: We wanted to lay out our guiding principles for deploying our capital to maximize shareholder value.
Eric Guerin: Let me walk you through our priorities.
Eric Guerin: We see our target net leverage around two times.
Eric Guerin: That said, we could flex either way for a period of time.
Eric Guerin: In the near term, we plan on continuing to pay down Term Loan A for the remainder of the year, will continue to invest in the business strategically, and are not changing our 2024 CapEx guidance. Historically, the company has grown through acquisitions, and as we advance, we will continue to monitor opportunities to help us accelerate growth and unlock our strategic vision. For 2024, we are principally focused on integrating and driving returns on the recent acquisition.
Eric Guerin: In the near term, we plan on continuing to pay down term loan a for the remainder of the year.
Eric Guerin: Continuing to invest in the business strategically.
Eric Guerin: We are not changing our 2020 for Capex guidance.
Eric Guerin: Historically, the company has grown through acquisitions and as we advance we will continue to monitor opportunities to help us accelerate growth and unlock our strategic vision for.
Eric Guerin: For 2024, we are principally focused on integrating and driving returns for the recent acquisitions.
Eric Guerin: Delivering superior returns to our shareholders is a core principle. We believe in returning excess capital. This approach demonstrates our confidence in executing and exceeding expectations. Our financial strength assures our customers that we can consistently overdeliver on our commitment. Moving to the Outlook, we are reiterating our full-year GTV guidance as GTV growth in the first quarter broadly aligned with our expectations. As Jim noted in his remarks, we are starting to see a normalization of equipment supply in our construction and transportation sector. Additionally
Eric Guerin: Delivering superior returns to our shareholders is a core principle, we believe in returning excess capital.
Eric Guerin: This approach demonstrates our confidence in executing and exceeding expectations, our financial strength assures our customers, we can consistently over deliver on our commitments.
Eric Guerin: Moving to the outlook.
Eric Guerin: We are reiterating our full year <unk> guidance as GDP growth in the first quarter broadly aligned with our expectations.
Eric Guerin: As Jim noted in his remarks, we are starting to see a normalization of equipment supply and our construction and transportation sector.
Eric Guerin: Additional.
Eric Guerin: We will see the full impact of the previously announced customer loss beginning the second quarter.
Eric Guerin: Given these two factors, we anticipate that our year over year GTP growth for the remainder of the year will considerably moderate compared to the first quarter.
Eric Guerin: That said, we are increasing our adjusted EBITDA guidance to one to one $2 6 billion.
Eric Guerin: Based on strong flow through from the top line.
Eric Guerin: And continued operational excellence.
Eric Guerin: We're also tightening our tax rate guidance to reflect the lower than expected tax rate in the first quarter.
Chris: We will see the full impact of the previously announced customer losses beginning in the second quarter. Given these two factors, we anticipate that our year-over-year GDP growth for the remainder of the year will be considerably moderate compared to the first quarter. That said, we are increasing our adjusted EBITDA guidance to $1.2 to $1.26 billion based on strong flow through from the top line and Continued Operational Excellence. We're also tightening our tax rate guidance to reflect the lower than expected tax rate in the first quarter. With that, let's open the calls for questions.
Speaker Change: With that let's open the call for questions.
Chris: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be answered in the order they are received. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone you will hear three tone prompt acknowledging a request in your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by two <unk>.
Chris: Using a speaker phone please lift the handset before pressing any keys one.
Sabahat Khan: One moment, please, for your first question. Your first question comes from Sabahat Khan, RBC Capital Markets. Sabahat, please go ahead.
Chris: One moment. Please for your first question.
Sabahat Khan: Your first question comes from sub out Khan RBC capital markets. Please go ahead.
Eric Guerin: Great. Thanks, and good afternoon. So, I guess just taking the Q1 results into account and sort of the guidance increase, can you maybe just walk through a bit more of the details around sort of the expected cadence for the rest of the year and how you settled on the $30 million increase to the EBITDA line? Any more color in addition to the outlook commentary you just provided would be great.
Sabahat Khan: Okay, great. Thanks, and good afternoon. So I guess, just taking the Q1 results into account and sort of the guidance increase can you maybe just walk through.
Eric Guerin: A bit more of the details around sort of your expected cadence for the rest of the year and what how you settled on.
Eric Guerin: $30 million increase to the EBITDA line, just any more color. In addition to the outlook commentary you just provided would be great.
Eric Guerin: Yeah, thank you for the question. As I mentioned in the prepared remarks, Q1 came in pretty much in line with our expectations. So the guidance movement of $30 million was based on our forecast and where we were seeing the year flow out. Again, Q1 was in line with what we were expecting, and the increase in guidance was tied to that performance.
Speaker Change: Yes. Thank you for the question as.
Eric Guerin: As I mentioned in the prepared remarks Q1 came in pretty much in line with our expectations.
Eric Guerin: So the guidance movement of $30 million was based on our forecast and where we were seeing the year.
Eric Guerin: Flow out so.
Eric Guerin: Again Q1 was in line with what we were expecting and the increase.
Eric Guerin: The guidance was was tied to that performance.
Eric Guerin: Great And then, you know, Fred, a little bit of color on sort of the capital allocation philosophy here with the leverage where it is today, I think, you know, indicating that you're at the levels, the two times and below levels, one year and early. Can you maybe just talk about, you know, the preference between sort of the organic versus how are you thinking about some of these opportunities that you have in front of you? And what is a directionally comfortable leverage ratio for you? As you look at the business, Yeah, so the
Speaker Change: Okay, Great and then.
Eric Guerin: Credit a little bit of color on sort of the capital allocation philosophy here with the leverage where it is today I think.
Eric Guerin: They were at the levels.
Eric Guerin: The two times and below levels wondering early can you maybe just talk about.
Eric Guerin: The preference between sort of the organic versus M&A. How are you thinking about some of these opportunities that you have in front of you and.
Fred: What is directionally, a comfortable leverage ratio for you.
Eric Guerin: As you look at the business mix.
Eric Guerin: Yes, so the two times is comfortable for us. As I said in the prepared remarks, we are going to flex a little bit, probably on both sides of that too. Our focus for the remainder of the year is to continue to pay down term loan A and invest in the business. So we're going to continue our investment in technology and our footprint as we evaluate that. So those are our priorities.
Fred: Yes. So the two times is comfortable for us as I said in the prepared remarks, we are going to flex a little bit probably on both sides of that to our focus for the for the remainder of the year is to continue to pay down on term loan a and invest in the business. So we're going to continue our <unk>.
Eric Guerin: <unk> and technology and our footprint as we evaluate that so those are our priorities.
Eric Guerin: And as I noted as well, we'll continue to look at acquisitions, but that's not our focus this year. It's really to focus on integrating IAEA and the other acquisitions we've done. So we'll continue to focus on that.
Eric Guerin: And as I noted as well we will continue to look at.
Eric Guerin: Acquisitions, but that's not our focus this year its really to focus on.
Eric Guerin: Integrating IAA and the other acquisitions, we've done so well continue to focus in that space.
Speaker Change: Great. Thanks very much.
Steven P. Hansen: No problem. Thank you. Your next question comes from Steve Hansen, Raymond James. Steve, please go ahead.
Eric Guerin: No problem. Thank you. Your next question comes from Steve Hansen, Raymond James Steve. Please go ahead.
James F. Kessler: Yeah, thanks for your time, guys. I appreciate it. Congratulations on a great quarter. I just wanted to go back to the auto performance. Jim, I think you referenced some of the things you've been doing to outperform on the ASP basis. But can you maybe just unpack that a little bit further and just give us a sense for where you think you're getting the best upside on the performance versus, you know, what we're seeing in the broader indices?
Steven P. Hansen: Yeah, Thanks, guys I appreciate it.
James F. Kessler: That's on a great quarter, just wanted to go back to the audit performance here, Jim I think you referenced some of the things you've been doing to outperform on the ASP basis, but could you maybe just unpack that a little bit further and just give us a sense for where you think you are getting the best upside of the performance versus what we're seeing in the broader <unk> disease.
James F. Kessler: Yeah, I will. Look, I don't think it's one thing, so it's a hard question to go through all the tactics that we're applying, but I'll just give you a basic one. We did a press release, and we've added, you know, trim level data for the buyers, right? A technological improvement. We were one of the first to implement something like that. We know that when we can give the buyers more information, we can achieve a higher ASP on the auto side.
Jim: Yeah, I will look I don't think its one thing so it's a hard question to go through all the tactics that we're applying but I'll just give you a basic one we did a press release and we've added trim level data for the buyers of technology improvement we were one of the first to implement <unk>.
James F. Kessler: Something like that we know when we can give the buyers more information and we can achieve a higher ASP on the auto side.
James F. Kessler: But our whole team is we've heard from our partners and the areas, where they deem very important to them and AOSP is one that they are focused on.
James F. Kessler: But our whole team is, you know, we've heard from our partners the areas that they deem very important to them, and ASP is one that they're focused on. So, as we think about our tactics, we have many different things we're trying from different auction channels, trim level data, data for buyers, to make sure we maintain the highest ASPs we can.
James F. Kessler: So as we think about our tactics, we have many different things, we're trying from different auction auction channels trim level data data for buyers to make sure we maintain asp's we can.
James F. Kessler: Okay, that's great. And then, as you described, your SLA performance has been in the high 90s now, and it sounds relatively consistent on a consistent basis. The discussions with the partners that you described at your recent event, I mean, it sounds like this is paving the path to potential market share gains over time. But I mean, any visibility on when that might come to fruition or any sort of color on timing, in terms of some of these contracts coming due? Yeah, no.
James F. Kessler: Okay. That's great and then I think as you described your your SLA performance has been in the high <unk> now.
James F. Kessler: It sounds like relatively consistent on a consistent basis the.
James F. Kessler: The discussions with the partners that you described at your recent event I mean, it sounds like this is paving the path to potential market share gains over time, but any visibility on when that might come to fruition or any sort of color on timing in terms of some of these contracts coming due.
James F. Kessler: Yeah, no, great question. And look, I'm going to stick to kind of what I went over last quarter when we had this question. As an organization, we're very focused on what's in our control, and what is in our control is how we deliver against our commitments and our SLAs. And I am extremely comfortable that we're over-delivering for our partners. And as we do our quarterly QBRs with each partner, we're getting that feedback from them. But look, I'm a realist.
Speaker Change: Yes, no great question, and look I'm going to stick to kind of what I went over last quarter. When we had this question and as an organization. We're very focused on what's in our control and what is in our control is how we deliver against our commitments and our SLA.
James F. Kessler: And I am extremely comfortable that we're over delivering for our partners and as we do our quarterly qbr's with each partners.
James F. Kessler: Getting that feedback from them, but look.
James F. Kessler: I'm, a realist and when we talked about the U shape.
James F. Kessler: We just hit a year anniversary of the two companies coming together.
James F. Kessler: And when we talked about the U-shape, we just hit the year anniversary of the two companies coming together. But we're going to stay focused on what's important to us and our partners. And that's what's in our control. And then I expect good things to happen as we continue down this path and be consistent. And my expectation is that we're going to be consistent with where we are right now.
James F. Kessler: But we're going to stay focused on what's important to us and our partners and that's what's in our control and then I expect good things to happen as we continue down this path and being consistent and my expectation is we're going to be consistent with where we're at right now.
James F. Kessler: Okay.
Speaker Change: Appreciate the color. Thanks.
Michael Doumet: Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star 1 on your touchtone phone. Your next question comes from Michael Doumet, Scotiabank. Michael, please go ahead.
James F. Kessler: Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone you're.
Michael Doumet: Your next question comes from Michael Dumais Scotiabank, Michael Please go ahead.
Michael Doumet: Hey, guys.
Eric Guerin: Maybe circling back just to the guidance. I mean, if I use the midpoint of the guidance, you're effectively calling for zero GTV growth through the balance of the year and very little EBITDA growth. And I obviously understand the dynamic with the customer loss. But just trying to understand the assumption on the commercial side because it does feel that way.
Michael Doumet: Maybe circling back just to the guidance I mean, if I use the midpoint of the guidance, you're effectively calling for zero GTD growth through the balance of the year and very little.
Eric Guerin: EBITDA growth and I, obviously understand the dynamic with the customer loss, but just trying to understand the assumption on the commercial side because it does feel.
Eric Guerin: Derivative just you know is the expectation for negative comps effectively in the second half.
James F. Kessler: Look, I just want to remind everyone, I'll start with the auto side of the obvious thing that we're going to experience in the back of this year with the carrier loss that we announced last year. Those cars are out of our network at this point, or they're very small as we are into the second quarter.
Speaker Change: Hello, guys I, just want to remind everyone I'll start with the auto side of the obvious thing that were going to experience in the back half of this year of the carrier loss that we announced last year those cars or are out of our network at this point or very small as we are into the.
James F. Kessler: Second quarter, so an obvious thing of what everyone is already aware of on the auto side of what's going to happen and then when you get into the construction and industrial side and we said this in our remarks.
James F. Kessler: So, an obvious thing of what everyone is already aware of on the auto side of what's going to happen. And then when you get into the construction industrial side, and we said this in our remarks, when the pandemic hit and people couldn't get equipment, they held on to the equipment longer, and new equipment started to come in. So, last year, we got an influx of rental equipment, certain sectors that really came to us, and rental transportation.
James F. Kessler: When the pandemic hit and people couldn't get equipment, they held onto equipment longer new equipment start to come in so last year, we got an influx of rental equipment certain sectors that really came to us and rental transportation and so as we go into the back half of the year is the heavy comp that we have to go up against.
James F. Kessler: So, as we go into the back half of the year, it's a heavy comp that we have to go up against. But we believe our partners are going to normalize in the back half of the year, which is still a great place for us to be. It's just not the place where we were a year ago when the pandemic came in, and all that penicillin equipment and everything came in. So, that's what we're using to set the guidance.
James F. Kessler: We believe our partners are going to normalize in the back half of the year, which is still a great place for us to be it's just not the place where we were a year ago. When you had the pandemic and all of that pent up equipment and everything came in and so that's what we're using to set the guidance.
James F. Kessler: And then maybe just flipping the cost, if I look at SG&A, I mean, like, you've been on a flat trend for several quarters here, you know, how much, you know, how much more can you do with this cost base? Or, you know, has rationalization kind of run its course here? Or is there, you know, maybe more you can do either way, you know, depending on whether you want to support more volumes on it or lower costs? Yeah, let me just answer that.
Speaker Change: Understood and then maybe just flipping to cost if I look at the SG&A I mean look you've been on a flat trend for several quarters here how much how.
Speaker Change: How much more can you do with this cost base or.
Speaker Change: The rationalization kind of run its course, he or is there maybe more you can do either way depending on whether you want to support more volumes on it or lower costs.
James F. Kessler: Let me just answer that from a philosophy that we have as leadership. We are never going to stop managing this business effectively and efficiently. It's the core of what we do every day. It's part of what our directors, our vice presidents, our extended leadership team. So we are never going to stop thinking about how do we optimize this business, right? And that goes to margin expansion, that goes to SG&A management.
Speaker Change: Yeah, Let me just answer that by just from a <unk>.
James F. Kessler: Philosophy that we have as a leadership team we are never going to stop managing this business effectively and efficiently its core of what we do everyday it's part of what our directors, our vice President's our extended leadership team. So we are never going to stop of how do we optimize this business right and that goes to margin expansion.
James F. Kessler: That goes to SG&A management. It is what we're building in the culture. So we're just never going to stop so I really don't have an answer of a start and stop we're going to be diligent and constantly look to make sure we're as efficient as possible.
James F. Kessler: It is what we're building in the culture. So we're just never going to stop. So I really don't have an answer about when to start and when to stop. We're going to be diligent and constantly look to make sure we're as efficient as possible. Perfect. Thank you.
Speaker Change: Perfect. Thanks, Jim.
Maxim Sytchev: Thank you. Your next question comes from Maxim Sytchev, from National Bank Financial. Maxim, please go ahead.
Speaker Change: Thank you. Your next question comes from Maxim <unk> National Bank Financial Maxim. Please go ahead.
Maxim Sytchev: Hi, good afternoon gentlemen.
Maxim Sytchev: Hey, how are you.
James F. Kessler: Good, good. Jim, just one question for you, if I may. I mean, given the context and the difficulty of completing IEA, what are your thoughts regarding the size of any potential transactions and the sort of need to do that, and where it would be the most accretive, whether strategically or financially? Thanks.
Maxim Sytchev: Could could Jim just one question for you if I may.
James F. Kessler: Given the context of the difficult completing IEA what are your thoughts regarding the size of any potential transactions and sort of they need to do that.
James F. Kessler: And where it will be the most accretive whether strategically or financially.
James F. Kessler: Look, it's a great question, and again, we're very focused as a leadership team on the business that we have, the verticals that we have, and look, all the verticals that we're in right now, we love the margin profile and the financial outlook of each of them, right? So as we think about what we want to do in the future, and Eric talked about this, as we think about the future, we know there are certain places where there are holes on the map, right, that would fit in nice with us as we think about the future, if that's M&A, but right now, we want to make sure we're driving the business that we have, we're running it effectively and efficiently, and we're always going to be opportunistic of what fits in for us, but right now, we're so focused on running this business and running a very profitable, effective company, and that's where our focus is right now.
Jim: No look it's a great question and again.
James F. Kessler: We're very focused as the leadership team on the business that we had the verticals that we have.
James F. Kessler: And look all the verticals that we're in right now we love the margin profile and the financial outlook of each of them right. So as we think about what we want to do in the future and Eric talked about this as we think about the future. We know there are certain places where there are holes on the math right that would fit in nicely with us as we think about the future if that's M&A.
James F. Kessler: And but right now we want to make sure we're driving the business that we have we're running at effectively and efficiently and we're always going to be opportunistic of what fits in for us and but right. Now. We're so focused on running this business and run in a very profitable effective company and that's where our focus is right now.
Maxim Sytchev: Okay, that's great. That's it for me. Thank you so much.
Speaker Change: Okay. That's great. That's it from me. Thank you so much.
Speaker Change: Thank you.
Steven P. Hansen: Thank you. Your next question comes from Steve Hansen, Raymond James. Steve, please go ahead.
Speaker Change: Thank you. Your next question comes from Steve Hansen, Raymond James Steve. Please go ahead.
Eric Guerin: The one thing that struck me as interesting about the inventory rate was the sequential improvement. I know it's down year over year, but on a sequential basis, we saw a nice improvement. You described that business as still being competitive in the broader landscape, but how do you feel about the sustainability of that high single-digit rate?
Steven P. Hansen: Oh, Hey, guys, just sorry, just a quick follow up.
Eric Guerin: The one thing that struck me as interesting on that inventory right was the sequential improvement.
Eric Guerin: I know it was down year over year, but on a sequential basis, we saw a nice improvement I mean, you described that business is still being competitive.
Eric Guerin: In the broader landscape, but how do you feel about the sustainability.
Eric Guerin: Of that.
Eric Guerin: Sort of high single digit rate.
Eric Guerin: I think we're going to just go back to the same guidance that we've been given quarter after quarter. Look, it's a competitive market. Sometimes the deals go in your favor, sometimes they don't, right? And each time a deal is different, depending on if it's Canada, the U.S., international, who we're competing against. We're in this to grow share. We have the best data to make the best decisions if we're to use that data.
Speaker Change: Yeah look I think we're going to just go back to the same guidance that we've been given.
Eric Guerin: Quarter after quarter.
Eric Guerin: Look it's a competitive market.
Eric Guerin: <unk> deals go in your favor sometimes they don't write in each time a deal is different depending on if it's Canada U S International who were competing against and we're in this to grow share and we have the best data to make the best decisions of where to use that data. So the guidance that we kind of said that loaded middle historical.
Eric Guerin: The guidance that we kind of said, that low to middle historical end, I think is still a place where we're expecting, but I think there's going to be times when you see what you saw this quarter where it's going to look like that. But look, I think we're in the best position for any of these competitive deals with having the routes and the data and analytic tools that we have to make the best decisions. We're very confident that it's a place where we can compete and be successful.
Eric Guerin: And I think is still a place where and we're expecting but I think theres going to be times. When you see what you saw this quarter, where it's going to look like that but.
Eric Guerin: But look I think we are in the best position for any of these competitive deals with happen to ralphs in the data and analytic tools that we have to make the best decisions and we're very confident that it's a place where we can compete and be successful at.
Steven P. Hansen: Okay, very helpful. I appreciate that, guys.
Speaker Change: Okay very helpful. Appreciate that guys.
Chris: Thank you. There are no further questions at this time. Please proceed.
Speaker Change: Thank you there are no further questions at this time. Please proceed.
James F. Kessler: All right. Hey, first and foremost, I want to thank the RB Global team for everyone's hard work, dedication, commitment to our customers, and over-delivering on those commitments. Thank you so much for your hard work, and I just want to thank everyone on this call. Thank you for your confidence in RB, and we look forward to talking to you the next time. Thank you so much.
Speaker Change: Alright, Hey, first and foremost I want to thank the RB global team for everyone's hard work dedication commitment to our customers and over delivering on those commitments. Thank you. So much for your hard work and I just want to thank.
James F. Kessler: Everyone on this call. Thank you for your confidence in RV, and we look forward to talking to you and the next time. Thank you so much.
Chris: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.