Q2 2019 Earnings Call
At this time I'd like to welcome everyone to the Ritchie Bros. Auctioneers second quarter conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star and then the number one on your telephone keypad, if youd like to withdraw your question press. The pound key. Thank you I will now turn the call over to Mr. Zaheed Mawani of Investor Relations to open the conference call Mr. money you may begin your conference.
Thank you Marcel and good morning, everyone and thank you for joining us on today's call to discuss our second quarter 2019 results. The following discussion will include forward looking statements as defined by the FCC and Canadian rules and regulations comments that are not a statement of fact, including projections of future earnings revenue gross transaction value and other items are considered forward looking and involve risks and uncertainties the risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward looking statements are detailed in our FCC and Canadian Securities filings available on the FCC and SEDAR websites as well as our Investor Relations website at Investor Dot Ritchie brothers Dot com.
Our definition of gross transaction value may differ from those used by other participants in our industry not a measure of financial performance liquidity or revenue and is not presented in our statement of operations.
Our second quarter results were made available yesterday evening after market close we encourage you to review our earnings release and Form 10-Q , which are available on our web site as well as Edgar and SEDAR.
On this call, we'll discuss certain non-GAAP financial measures for the identification of non-GAAP financial measures and the most directly comparable GAAP financial measure and a reconciliation between the two see our earnings release and Form 10-Q .
Presentation slides accompany our commentary today. These slides can be viewed through the live or recorded webcast or downloaded from our web site.
All figures discussed on today's call are in us dollars unless otherwise indicated I'll now turn the call over to Ravi Saligram, Our Chief Executive Officer Robby.
Thank you Julie.
Good morning, everybody and thank you for joining our second quarter earnings call.
We have a lot to cover this morning.
And the last half of the call Chen my sort of focus on the quarter.
And the second half I'll provide perspective on our strategic plan initiatives, let's CEO transition.
And then in by Chad I'm calm in the upcoming growth some interim co Ceos to make a few comments, let's fix Todd we deliver.
Second quarter results, driven by our highest ever second quarter GTV performance, a $1.5 million on a 7% growth on a constant currency basis. Furthermore, our strong second quarter performance demonstrates the leverage of our business model with topline growth and expense management, we generated 27% total revenue growth together with a 4% reduction next year, and then resulting in greater flow through and 20% operating income growth with record diluted earnings per share of 49 cents.
Going from strength to strength was the performance of Ritchie brothers financial services, which achieved a 19% revenue growth the thirtyth consecutive quarter of double digit growth. We're also very pleased without significant improvement in operating free cash flow as you know Sharon our cash flow Junkies in fact, all FCS increased 64% to $165 million the highest.
Our team caught us off since 2016.
And we have excellent ongoing capital discipline.
From a channel perspective, our online business grew GTV by 5% led by marketplace. He delivering a tremendous quarter of growth up 47% over last year with strong dominant south Atlanta, GTV growth up almost 200% from our non rolling stock program.
I like China and was also up 5% led by the landmark Columbus, Ohio auction.
A live industrial auction also benefited from all selling days and 59 industrial auctions versus 50 last year Ironplanet weekly featured auction was softest quarter.
Due to channel shifts, especially with U.S. strategic accounts.
Regionally across all channels, our us business posted a 6% total GTV growth led by 10% growth in the life channel fueled by the Columbus auction, along with strong long line performances from Gulf Planet end marketplace.
Good evening, GTV was 3% higher than 2018, despite currency headwinds on a constant currency basis Canadian GTV would have increased 7%.
Marketplace. He also posted impressive growth in Canada from both the special MP events held in conjunction with our Edmonton auctions in both May and June as well as closing a fairly significant private treaty transaction on the channel.
Canada also benefited from a number of additional auctions in the quarter compared to 2018, including an additional grand Prairie option.
GTB about international group declined 3% in the quarter as a result of the decline in the euro versus the US dollar. However on a constant currency basis GTV would have grown 3% from the strength of the live auction channel.
And strong performance at our more dog side and modest growth in Australia.
We're also very pleased today to announce 11% increase to our dividend.
Raising our quarterly dividend to 20 cents underscoring the boards and managements confidence in continuing cash flow generation and our commitment to rewarding shareholders through dividends.
Turning now to our second quarter highlights Livewatch and highlights include our stand our Columbus auction, which delivered $94 million in GTB, a largest do day auction.
There are very few companies in the world that could execute such a large auction, bringing the marketing global demand and buyer base all from the stop there and within a 90 day time period and drive outstanding price realization.
Our us currency accounts teams and regional teams both executed exceptionally well.
I'll go live auction highlights during the quarter include successes in Houston for.
Los Angeles and more about.
We continue to build strength online across all channels, including the simulcast live auction, we saw 63% of our total GTV was purchased by online buyers versus 57% last year.
Turning specifically to our online marketplaces, our marketplace GTV growth was underpinned by 27% increase in buyers when a significant growth in bidders and buyers with overall loss modestly down.
Our government business showed good growth aided by our non rolling stock program I was under the growth and rolling stock GTV with bits listed items and buyers growing significantly over the second quarter last year.
With that let me turn the call though.
My partner Shannon.
Thanks, Robby and good morning, everyone.
Total revenue for the quarter was up 27% driven by 68% growth in inventory sales revenue and a 9% increase in total services revenue.
Which is comprised of straight and guaranteed commissions revenue as well as all fee revenues earned on both inventory and commission contracts.
Commission revenues increased 8% exceeding GTV volume growth of 5%, resulting from strong guaranteed contract revenue performance from our U.S. region led by our Columbus auction as well as positive performance within our gas planets business unit and higher at risk return rates are in the U.S. West region. Our Canadian region also had strong guaranteed contract revenue performance with our international region contributing to growth through stronger straight Commission rate.
Fee revenues were up 12% in the quarter as a result of higher GTD volume, a higher mix of lower value lots as well as the impact of our full buyers ecommerce harmonization, which was implemented in June of this year.
RBS has also contributed to see revenue growth in the quarter with their strong performance.
These improvements in fee revenues were partially offset by declines in logistics and ancillary revenue driven by a reduction in the number and size of service contracts for logistics paint refurb and repair services completed during the quarter.
This reduction in services contract revenue are also accompanied by an offsetting reduction in cost of services.
The 68% growth in revenue from inventory sales was primarily due to a higher level of inventory deals transacted in the U.S., particularly from our Columbus auction.
Gov Planet also posted a significant increase in inventory sales revenue lifted by our government surplus contract.
Inventory revenue was also up in our international region, primarily in Australia.
Our operating income in the quarter was up 20% driven by operating leverage on higher total revenue, partially offset by a 17% increase in cost of services due primarily to a onetime fee paid to a third party in the quarter related to the pipeline disbursal at our Columbus auction events.
As well as higher warehouse and delivery costs instead of planets versus prior year.
Normalizing for the onetime payments relating to the large pipeline disbursal cost of services for the quarter were in line with historic trends and expectations.
As DNA cost declined 4% as a result of synergy actions taken in the latter part of 2018 and through disciplined cost management in the quarter.
The operating profit growth led to an 18% increase in net income, which was partially impacted by a higher effective income tax rate over the second quarter of 2018.
Turning to our auctions in marketplaces segment service revenue was up 12% in the quarter.
Regionally the U.S. posted 13% growth led by the strength of the Columbus auction higher guarantee performance in the U.S. West region and strong growth from government planet as well as some lift from the recent buyer fee increase.
Canada was up 8% due to the addition of the Grand Prairie auction events in the quarter.
As well as us as strong guaranteed rate, including strong results from on the farm guaranteed yields from our AG Division and an increase in smaller value lots in the period, resulting in higher per lot fee rate.
Our international service revenue increased 18% as a result of higher straight commission rates as well as higher fee revenue.
On a rate basis, we were pleased with our Nm service revenue rate performance in the second quarter coming in at 13.4%.
Roughly 80 basis points higher than last year, and the strongest rate performance over the last eight quarters.
The rate improvement was due to strong straight and guarantee commission rate performance across the board in conjunction in conjunction with the fee revenue growth.
Moving onto our options in marketplaces segment inventory sales revenue overall, the 68% growth in our inventory sales revenue was largely attributable to the U.S., which was up 174% over last year, primarily driven by the pipeline inventory sold at the Columbus auction.
As well as strong growth of inventory contracts through Gov planets.
Our Canadian inventory sales revenue increased 20%, primarily due to a large oil services equipment dispersal in the west during the quarter.
Our International region was also up 13% driven by a higher number of inventory contracts in Australia.
On a rate basis, our implied rate of return on inventory deals in the quarter was 6%. This is below our normal rate expectation and while there is nothing structural impacting rates, we had a couple of attributable factors.
First as we previously mentioned on our Q1 earnings call. We were expecting some continued rate pressure this quarter as we sold through some of the remaining lower rate inventory in both the U.S. and international region from our Q1 contracts.
The majority of that Q1 inventory is now sold through with the remainder expected to be sold in Q3, primarily within our international region.
Some new in quarter inventory contracts performed performed at the lower end of expectations across all regions due to heightened competition, particularly on complete dispersals and liquidation packages as well as some price softening in some categories in the quarter.
A single deal in our Canadian business unit, our best group in negotiating in pricing at risk contracts explains 40% of the drop in inventory profit rate from quarter one.
I will also remind investors and analysts that all ancillary service revenues and buyside fees related to the inventory transactions are not included in this measure as they are captured in our services revenue and service revenue rates.
Despite our softer inventory rate our overall at risk rate performed in line with strong historical at risk levels due to the excellent rate performance from our guaranteed contracts as we had previously mentioned.
Partially offsetting these rate headwinds in the quarter was the contribution from higher volume and higher average inventory return rates from Gov planet from the government surplus contract.
Moving on to M&A expenses at unit costs declined, 4% or 3.5 million over last year, driven by lower compensation costs and lower professional fees.
These decreases were partially offset by continued investment in Ritchie brothers financial services and up planet to support these growth areas of the business.
And although we received an FX tailwind in the quarter on SDMA as a result of the costs in our international and Canadian operations being translated to the US dollar at lower rates than last year, the negative impact of FX on GTV and revenue was greater resulting in a slight overall negative impact of FX on operating earnings.
Our disciplined cost focus over the past four quarters are showing results as we were able to generate improved operating leverage and incremental flow through leading to higher levels of profitability and revenue growth.
When comparing SGN a expenses to service revenue, which we look at as one measure one key measure of the health of the business, we see the positive trend of cost discipline.
This quarter demonstrated the strength of our business model and its important to note that we are achieving lower cost growth, while continuing to invest in the business and topline growth drivers such as our BFS planet and other technology initiatives.
This disciplined approach to all cost management drive significant operating leverage and is most pronounced during our largest quarters of Q2 and Q4.
Turning to our balance sheet and liquidity metrics, our operating cash flow of $160 million for the six months ended June thirtyth improved 49% over last year.
The improvement was driven by higher net income and improvements in working capital, primarily resulting from a decrease in inventory balances in the first half of 2019.
On a trailing 12 month basis, our operating free cash flow increased 64% to $165 million, which is the highest we've seen in 13 quarters.
Our year to date Capex spend of $17 million is currently tracking under our full year range for 2019 $45 million to $55 million.
We continue to focus our capital spend on the IP system improvements, including investments in our Mars initiatives.
During the first half we continued to reduce our long term debt position with repayments of $15 million with $2.3 million of scheduled repayments made in Q2.
Also during the quarter, we executed $42 million of share repurchases to offset current year executive off option dilution.
Our strong cash position, even after these share repurchases the reduction in debt as well as a 23% increase in adjusted EBITDA on a trailing 12 month basis has resulted in an adjusted net debt to adjusted EBITDA ratio of 1.8 times on a trailing 12 month basis.
Which is well within our evergreen target of below two and a half times.
On a trailing 12 month basis, our our return on invested capital increased to 8.3% from 6.6% in the second quarter of 2018, as we continue to make progress towards our evergreen target level of 15% by 2021.
I am very pleased with the overall health of our financial position, our strong cash flow has enabled us to accelerate our debt repayment repurchase shares and support our two cents quarterly dividend increase all while driving improved earnings operating leverage and maintaining a solid balance sheet.
Turning now to our capital allocation priorities for the second half of 19 overall, our priorities remain unchanged from what we have communicated in the fourth quarter and continue to reflect our intent to drive shareholder value through return of capital and strategic investments.
Our company has a strong cash generation profile and as we grow the business and continue to improve our working capital management, we will free up additional cash.
Our first priority in the near term is to fully fund capital expenditures to support growth initiatives and requirements within our base business through ongoing investments in technology and back office efficiency projects. In addition to our normal maintenance capital program for our lives sites.
We continue to prioritize further debt repayment to reduce the interest burden on the company and are confident we will deliver a leverage ratio for the full year of under two times.
We will continue to grow our dividends with our earnings as evidenced by the two cents dividend increase this quarter and we'll maintain our payout ratio within the evergreen range of 55% to 60%.
We will consider further share repurchases against our open authorization of $58 million before its expiry in second quarter of 2020.
Finally, rounding out our capital priorities, while we are laser focused on our core business and are not considering any major acquisitions. At this time, we will remain open to consider a small tuck in acquisition is accretive to our long term growth agenda.
In summary, we remain highly confident around the sound fundamentals and prospects for our business. While we continue to focus on execution and long term value creation with that I will turn the call back to Robby.
Thanks Shannon.
Gross to acquisition of ours.
Our transformation has led us to a very clear strategy.
We aspire to be more than an option component, we want to penetrate each segment of the 300 billion dollar used equipment market, including options midstream and upstream.
We now have a full suite of multichannel solutions tailored to meet the needs of individual customers in each of these segments as depicted on the slide.
Im auctions, our objective is to protect and gain share.
In midstream, we wish to offer compelling alternatives to private sales and brokers.
And then in upstream we want to develop sticky embedded partnerships with Oems OEM dealers rental complements and strategic accounts.
While the dominant.
Share of heavy lifting.
Over the past several yes has been on fortifying and diversifying our GTV engine.
We have been in parallel developing the services and you.
We feel the combination of a robust multi chen with channel transactional engine.
Together with our World Class services engine allows us to diversify our sources of revenue and our customer basis. We see the services engine has had significant area of growth, especially because.
During fee streams, we see believe are far more valuable in the long term and have begun to make investments to fuel. This area of our business with the acquisition of Ritchie Brothers financial services, the acquisition of Mascus and the development of Ritchie brothers asset solutions this past year.
We also have other incubators in the world.
Today, the services business drives approximately 10% of our total revenue and we see tremendous runway for future growth.
So George engines fantastic core business, driving transactional GTV and a growth business in services.
Our transformation.
Has created five sources of competitive advantage, including first being a strong cash changing second a platform to drive.
Powerful network effects.
The historic.
Deep customer relationships that Ritchie brothers is known for.
Our full suite of multi channel technology enabled products solutions.
Rich data, which will fuel insights and a model that drives operating leverage.
As we continue to grow our platform.
The network effects from acquiring new customers.
And driving incremental revenue from existing customers will create a powerful sustainable competitive advantage for the company.
Scale and the strength of the network creates the pop say for long term value as our platform creates a virtuous circle of connecting buyers and sellers in 2018, we had over 5 million average monthly website visitors and that continues to grow.
And 580 million page views on our website.
We're seeing tangible examples of customers interacting across multiple realms and when they do we're seeing significant uptick in a bigger multiple in GTB.
These multivalent customers are very sticky and we are focused on driving demand to bring people into the ecosystem.
And we are agnostic on whether they entered forgot planet marketplace.
IP weekly online channel.
As you know on June 24th the company announced that our be stepping down from my positions and that the board has commenced has commenced a search for my successor.
Not press release last night, we announced Sharon Driscoll, Chief Financial Officer, and Paul Vice President International will serve as interim co Chief Executive officers of the company effective October one concurrent with my departure date.
I will work closely with chairman Paul over the next six weeks to stop transferring CEO responsibilities to ensure a smooth and orderly transition.
Board Chairman Paul have played important roles in our company success to date.
Sharon has been an incredible partner with me in the transformation of Ritchie brothers, it's like where to piece it apart and she had I complete each other's sentences now she may not be at Ritchie brother, MACI suddenly leads the chief Justice movement.
Shannon going Ritchie brothers four years ago, bringing with 17 years, So finance experience and successful track record of driving strong financial performance.
She's played a vital role in partnering with the management team to drive strong business results and has created financial rigor and discipline.
Shannon did an outstanding job with that first time bond offering is highly focused on cash flow I am I. So long term further reducing our debt levels.
Paul is a 20 year company veteran who started his career in sales and was chief of our global live auction operations. When I started knocking parts business savvy I have been appointed policy in a general management role as head of our Middle East business and subsequently promoted him for President International two years ago.
He has given the international business newfound energy and momentum and has done a terrific job of creating strong and deep customer relationships and motivating the individual country teams to drive growth innovate through localization and embrace online Carlos a man for all seasons and very versatile.
I applaud them for rejuvenating, our Japan business by leveraging the power lines in Japan beat.
Andy Yep, we've strategically positioned the company to generate profitable growth and value for our shareholders on behalf of our entire team. It's been an honor to work with you and be part of bringing your vision for our company to life.
Together, we have strengthened our capabilities to better serve the evolving needs of our customers through people and technology.
We are now the premier multichannel asset management and disposition platform positioning Ritchie brothers to grow thrive and lead for years to come.
Ravi you have relentlessly focused on keeping our customers at the heart of our business you have stressed the importance of remaining true to our values, especially teamwork and integrity.
Importantly, you've been a champion of diversity to drive innovation and it is great to see that over 20% of director levels and above in the company are now women compared to 7% when you started in 2014.
I look forward to working with Carl and the executive team to build on decision.
The strong performance, we've shown this quarter underscores our teams' rigorous focus on executing on our strategy and our near term priorities for this business I will now turn the call over to Carl.
Thank you Sharon.
I want to thank Rob for his kind words about us ensure a few brief thoughts.
Having worked at Ritchie brothers for more than 20 years I can tell you that the under the past five years and revenues leadership has been truly transformational and exciting.
Sure and I are looking forward to keeping the progress going during the transition.
But the board succession process and to working with the new CEO selected to realize the tremendous potential of this great company.
We do have all the elements in place to deliver.
The company is on a solid foundation with a great team.
Our executive group is United kind of strategy that we worked hand in hand, with Robby to create and which is fully championed by the board.
We are laser focused on executing our priorities under that strategy.
The continued execution of the multichannel platforms and the execution of our sales productivity program Sage, both will generate superior value and growth for our shareholders and all stakeholders.
I can honestly say.
We've never been better positioned to leverage global growth opportunities.
On behalf of the entire company I'd like to thank Robbie.
For instance, inspirational leadership.
Revvy as United All of US under one culture and never lose sight of the fact that the infrastructure Weve built is only as good as our people.
We're all committed to continuing the journey to deliver for our customers our employees and our shareholders I look forward to working with Sharon and to make sure we deliver in our Revvy I'll turn the call back over to you.
Thank you both Karlan Sharon.
I'm supremely confident.
But these two ddas were provide excellent leadership during the transition and the company will continue building on its momentum.
I'd also like to touch on the management promotions, but you all would have read in the press release yesterday, we expanded Jeff's responsibilities and will continue to play an important role in driving our long term growth initiatives.
We also promoted Terri Taylor and care and home to be business unit presidents on Matt Ackley as Chief marketing Officer.
These promotions inflectra move to move to an organization structure.
Of geographic business units, where the president has true piano accountability, which entitlements drive a strong executional focus on revenue growth and operating leverage.
We just completed updating our three year strategic plan and the team is very excited by the growth prospects will drive growth for our base business of live auctions on our TV.
And we have six key initiatives, including market pretty sage.
RV assets solutions, RB financial services, and priority international markets, including markets like Germany, and our government business, which will build momentum and that incremental growth not only in the next three years.
But over the long term.
We are confident based on the modeling the base as many initiatives will contribute to achieving our evergreen model growth profile, Paul revenues and with continued focus on controlling as DNA, we will drive operating leverage and strong EPS.
In summary, the management team and I feel confident about the achievement of the evergreen model.
At some point late next year once the new CEO settled I expect that we would have an investor day to share the growth prospects by initiative on a more granular basis to help investors with their models.
And then for some time will not go through all the initiatives, but I do want just jeter on behalf of all the business unit heads to make some observations about one key global initiative Sage since he was part and parcel of the development of this program jet.
Thank you Ravi and good morning.
We are now in full implementation mode for our global stage initiative, which stands for sales activity generation engine.
At the heart of it stages, our enterprise productivity initiative to drive growth with a high level of focus on new customer acquisition, which in turn will drive online growth.
Our sales teams do an outstanding job with our existing customers driving loyalty business.
In fact in 2018, 70% of GTV came from existing customers.
However in order to drive incremental GPV, we're providing our territory managers salesforce dot com tools processes and a more rigorous framework the dry behaviors that increased the number of customer calls the number of contracts signed and the value of contracts by increasing total selling time for our territory managers.
We kicked off the implementation of stage in Q2, and we're off to a very very good start.
Based on preliminary stage metrics, we're encouraged to see nearly 100% of our territory managers to us now using salesforce and we're already seeing some very positive ships and behave.
With that I'll turn it back over to you Robby.
Thank you Jeff.
Overall, we delivered very solid second quarter performance.
We had strong performance across all our major financial metrics of GTV revenue operating income and earnings per share.
The improvement in operating leverage this quarter was very strong and we would expect a supply conditions improve coupled with our strong ongoing expense management to see the result in incremental cash flow.
Incremental flow through to earnings were also pleased to see continued improvement in EBITDA margins in the quarter based on previously reported methodology and our result reinforces that they are on track to achieve this evergreen model metric.
We continue to focus on the strength of our balance sheet and are seeing the strong cash flow generation characteristics of our company.
Lastly, the performance of marketplaces, and Veltliner delivered solid growth and profit contribution in the quarter. An actress is beginning to get back on track.
Before we close out the prepared remarks portion of the call and move to questions I would like to take a moment.
To share some parting comments given this will be my final earnings call that this company.
The past five years have been challenging the most fulfilling experience of my career.
Together with the management team, we have transformed and pivoted the company for a multi channel disposition platform, a growing services business and position the company for long term sustainable growth.
We are an amazing company.
With a great management team incredible talent.
And.
Superior products and solutions.
We value our people.
And we value our customer.
They are what makes this company tick.
I've had for the last five years.
Our true Love affair with this company and it is truly with mixed feelings that I leave.
I want to thank our investors and analysts for their confidence in me and belief and then beliefs and my team.
I know they'll move this forward.
And I'm supremely confident but the best days of Ritchie brothers are ahead of us.
Onwards, and upwards and with that we're able to take questions. Operator. Please open the line to questions.
At this time I'd like to remind everyone in order to ask a question. Please press star number one on your telephone keypad. Your first question comes from the line of Derek Spronck from RBC capital markets. Your line is open.
Okay. Thank you for taking my questions and Ravi just because I get cut cut off here, it's been a real pleasure and best of luck in the future.
My first question on the inventory sales, we've seen two pretty big quarters of.
Inventory sales here.
What's been the catalyst as Theyre just been more opportunities that you're seeing or have you been more aggressive in pursuing those opportunities or some combination of both and how should we think about it in the back half of the year. Thank you.
Thank you first for your best vicious Derek I really appreciate it.
Sharon.
Why don't you pick it off and then maybe Jeff and carload, where there's been a lot of inventory deals can comment on that.
Yes. So first we are seeing some slight uptick in some liquidation in full dispersal activity those.
Packages generally take the form of inventory deals as to that partially driving what we're seeing also in key international markets.
We do have to take title of assets to enable the flow of those goods into the final destination, where they are going to sell so thats really the the kind of reason for the uptick I will point out that we are still at a very low level of inventory performance compared to our historical levels and we know that that with the new accounting standard will add significant volatility to the revenue line.
So we we do kind of look at.
Services revenue more as the gauge of overall health of our ongoing business.
Jeff you want to.
Yes, I think yes. Thank you. Thank you Ravi and shared I think one of the things the way that I think about this as the market starts to.
She up slightly.
And supply starts to loosen up I think you typically see and we will see as an opportunity for increasing types of inventory type of deals.
Over the last.
A couple of years, where we've been in a very tight supply high demand market.
Those sellers you know don't look to shift risk as much as they do when things start fish turn so I think I think we will start seeing some of that movement, we are starting to see a little bit of it.
And I think that that's the way I think about what's what's going on right now.
And how much and ill turn it over.
Sorry go ahead, Brian .
Yes.
How much service revenue is generated on the inventory sales.
We don't break that out.
But it would be a lot of inventory packages would have shipping type services repair.
Maintenance those are the types of ancillary services that would also attract plus also all of the C. On the buyer side will be included in service.
Okay. Thank you I'll turn it over budget.
Okay call, if you have anything to add.
No I just on the international side its it is truly opportunistic right now.
And as Sharon mentioned, the inter country transactions do require us to take take title ownership to it.
Great. Thanks, I'll, just add a few things Derek.
Number one our preference is always for guaranteed deals if we can do it and.
And in fact in Canada, I think the car 98% of the deals we're still.
I think guaranteed deals it was just one deal that didn't do well.
But guarantees as what we really strive for second I think there was some confusion.
About the GTV being influenced our GTB was higher this quarter because of the inventory.
Being up 64% or so actually that is incorrect.
Analysis because.
Inventory deals at the end of the day overall, our only 10% of our GTB. So they did not affect the GGB, the 7% constant currency growth, regardless very real and the 5% was very real it's just the translation. So there should be no confusion that inventory deals or walk made our GTV go up the team very worked very hard to drive that 7% across the globe.
Said that next question.
Your next question comes from the line of John Healy from Northcoast Research. Your line is open.
Thank you and congrats on a great quarter and Robbie it's been a pleasure again in the over the last five years.
Wanted to just start on slide 14, I think it's a powerful side of where you want to go on I was hoping you could talk to the upstream midstream and the auction piece of the business.
Maybe how much of each piece of the business.
His segment is that way.
And.
Potentially maybe five years from now where can it be and if you are successful in this kind of pivot.
What do you think it does to the the margins and revenues.
Predictability of the business longer term.
Great John first thanks for your best fishes, it's been a great pleasure, knowing you as well and keep those reports on GTV since we don't publish apparently if you keep the market knowing what's happening.
So.
I think.
To me the great pivot the first three years of the strategy of the company. We are really about efficiency getting a lot of blocking and tackling once we bought Ironplanet Hey, this strategy shifted to becoming more them options company and the reason is a potent two numbers $300 billion to 360, what's truly addressable it's very tough to find but what is very clear. The auction business is 25 billion and we have 20% share there and.
So and we are the leaders I think were still.
Equal to the overall volume up maybe 40 plus competitors, but.
Just in the US alone. This 200 competitors. So I think the way we look at it as the auction business is still a fantastic business a real driver of cash flow for US. We are the best at it and I'm very proud of that Ritchie, Dave Ritchie his legacy and we love It and we've got two farms now online as well as the live auction, but I think if we think about this strategy is not like a three year strategy for me. This is really a vision for the next 10 2030 years to prepare the company because there is so much opportunity in midstream and upstream just the midstream business about 140 billion with brokers as well as.
Private sales end user to end user and to me.
Lot of things and it's not just about disruption on brokers. This lot of brokers, we want to partner with we're looking into breaking new solutions, which will actually help them.
On things service some there may be disruption, some we will actually become a backbone.
And.
Marketplace see the fact that just in since the launch or just a little over a year ago. It's over it's like $210 million you saw the growth rates and that is coming from a different set.
Actually we are getting share of wallet from the auction customers, but mostly its new customers and that is just fantastic. Because then that price. The network effect then upstream look in the old days OEM dealers Oems, sometimes thought of Ritchie brothers as the enemy those days are gone.
We know the Cat's strategic alliance is a great testimony to it we have a wonderful partnership with them the relationship with the best in 60 years, but we're doing that now on different scales not on that mom upscale, but further to OEM dealers, we want to be the chip inside their computer we want to borrow ourselves embedded value and it is not about trying to compete with them our takeaway business from them. It is how do we help them do business better and this is where our bascome set and our bias is going to be so potent we've already I think I mentioned.
Good God, we put 15 reference accounts, we've already got nine and but in Europe with Mascus, we have 490 customers using our cart our boss different solutions, which are fertile ground for us to build things aren't so look while I can't give you a number on variable VB. While I can tell you is five years from now 10 years from now in addition to the core auction business, which is a fantastic business you will have new ways of growing to create sustainable revenue and profit growth that is the beauty of this strategy and it's very simple multichannel each segment beautiful solutions and we keep innovating our distribution silica sand standstill.
Your next move onto your questions.
Right.
Your next question comes from the line of Kevin Conroy from R.W. Baird. Your line is open.
Hi, good morning, everyone and thanks for taking my question.
I was wondering if you could just comment on the SGN, a trend and seeing that lower year over year in the first half of the year.
Could it continue to be lower in the back half or just any color you can add there.
Oh, Yeah Sharon.
So clearly we're starting to see the synergy actions that we took over the last half of last year are starting to come come through you know really the HM disciplined cost management will continue over the back half a we're not really looking at any other kind of significant changes during this period, but we will still apply disciplined cost control for the back half the year.
Thank you.
Again I'd like to ask a question. Please press star and the number one on your telephone keypad. Your next question comes from the line of Scott first from RBC. Your line is open.
Hi, folks for congratulations Ravi on your.
Impending new adventure I'm, just wondering if we can talk a little bit of a sustainability of margins.
On the S.J. side can we create spec phones.
The the good cost control and cost efficiencies to continue.
I'll, let Sharon answer I'll, just make a quick comment if you do and we are not allowed to talk about it but I invite you to do your own calculations based on the old methodology.
And so we've been trending if you do it on a TTM basis every quarter progressing towards that magic number in that agency sorry on the evergreen model probably didn't slip there.
So.
And hinted during Q2 just knew the calix.
That number I think starts with a number of the Chinese don't like competing bad luck, but for US it's great luck.
So I hear the number is for Sir Alan.
Patricia and talk about.
Yeah, So I would say Scott that clearly in large quarters, we get tremendous flow through and so that's what you're really seeing is that phenomenal operating leverage that the model does generate and as Ravi said is.
Yes, we really are on track to delivering on that evergreen model metric.
And we would expect that to carry on probably more so in Q4 than Q3, because reminders that Q3 is a relatively small quarter.
And one other thing to keep in mind us down the road once markets really kicks in.
That'll keep.
Adding efficiencies and will help cost avoidance. So those are the things that I think this is not like a fashion. The time that is a sustainable run rate here.
Okay. Thanks, Ravi I wish you nothing but aides in the future.
[laughter]. Thank you very much.
Your next question comes from the line of Ben Sherman of asking from Raymond James Your line is open.
Can you hear me.
No no go ahead, sorry, Hi, Dan.
Great. Thank you. So obviously some a significant achievements here this quarter in particular, the Columbus auction, but.
What's the ability to carry this momentum forward through the back half of the year.
Absent any big Dispersals like this or I think there was there were a few auctions that got pulled from.
Three few last year into Twoq of this year. So can you just comment on what the back half of the year looks like for sustainability of GTV and earnings growth.
I will try to provide Jeff just give a quick comment on Washington, seeing in the market, but I'd also like Kerry.
Hey, there who has joined US recently, but has its own our set of headlong do just give some quick impressions and walk Ccs as the prognosis. So I guess.
Yes, thanks, rather it then.
So I would categorize.
The kind of environment right now as a look there there is.
There is a change occurring.
From the standpoint of inventory building.
Our OEM lead times being largely caught up.
Fleet aging.
All the somewhat anxiety of sellers not wanting to be call.
Oh, if things start to slow down so there is a different.
Feel in the air if you will now having said that there is that you know anywhere you go into you asked there is obviously a backdrop of a lot of work Utilizations are still high.
But it certainly does it feel.
Oh like the headwinds were there that we experience.
You know in prior quarters. After the acquisition. So I'd say that number one number two I would say look we have made and are making very good progress across all of our channels.
Initiatives like the MP in that marketplace, and the rollout of Sage and some better adherence to some sales processes and better rigor and how we go drive new acquisition.
So I think they're just a lot of things lining up for us a that I feel very very good about our at bats, and there's just there's just it just feels different not just encouraged overall that we can keep that we can keep this we can keep moving in a very positive direction like we saw in Q2.
Thank you, Jeff Kent, Yes. So first is very tail grapes me on this first call.
We intend to Raul I'll just offer a few comments and my observation. So first of all no question I see a very dedicated and hard working team.
As Wellington with the markets have.
Really impressive passion for the customer and the relationships that tie with that.
Good deal makers, who take pride in what we're doing.
Also at the regional level were seeing the signs of the harmonization of supply and demand and lots of questions from local customers on how to time the market. If you will.
As far as opportunities are opportunities and I completely agree with Jeff is squarely focused on the productivity gains associated with it.
I'm not sure that is rooted in time management, you think about how to balance your time between our loyal customer base and new opportunities and it's exciting we're five weeks and we have weekly targets at the TM level.
And lastly, we achieved 40% of those targets and I would say in an up tick of a new way of life very focused on execution Im very pleased so early in the game to report those numbers.
Our opportunity also is to continue to elevate how were seen in the market as trusted advisors and the fast are being asked about the timing and trends. We are seeing I think is a good first time. Thank you Robby Greg I think early on you're seeing on say some very good engagement levels absolutely.
So I have maybe Carlos do you want to just quickly comment on what you are seeing internationally.
Sure.
On the international side, Ben we are seeing some increased churn activity, if you will and.
And not just for the us feds, but the central banks around the other regions as you're aware reducing rates too and that's.
A sign that there is a little bit a slowdown or pending slowdown in some different region. So we're very hopeful.
We're going to be seeing some increase tailwinds in our in our group going forward in each deal.
Right. So it sounds like you.
Okay, all right. Thanks.
Just is not right I'm trying to put all that together in I mean, I know you don't give guidance and don't want to sort of get boxed into a number but.
This kind of performance in terms of the magnitude of.
GTV growth and earnings growth is sustainable for the back half Thats, where you guys feel.
Hi, Tom.
You're right, we don't comment on.
On to give guidance, but what I, let me just sort of pulled up yes.
First quarter is always a smaller partners they've got to be cognizant than the also said hey, fewer options I think the bigger issue is robin looking at him and I think you more than anyone and I applaud you don't try to put forward a revised numbers because this business cannot be looked at on a quarterly basis, which is why we created the evergreen model in the first place.
And.
So.
We feel pretty confident that.
On a kind of annual basis.
On a second half that is sustainability clearly the Columbus auction helped in terms of.
GTV growth, but the bigger thing is how do you create a model where Dane and day out can keep a constant stream and utilize all our products and thats why sage RMP, the VT auction et cetera, and then live auction business is a lumpy business. So all these other things start to smooth that out a bit.
But we feel pretty good about our growth prospects as we look at the second half and.
Beyond the 20, Fannie and the big structural thing.
The 17, and 18 were really affected by the supply constraints in the us and I think while we have not seen a tsunami for a lot of equipment explode out of the market to us I do think there are green shoots so things that are beginning to come there is at least conversations now.
Seeing as Kevin pointed out how do I get out of this equipment. So.
And when you start looking at.
The Oems releases.
Of the backlog so shocked me.
Inventory at dealers are rising so and there is a lot of things that are coming out from leases from the Oems that are coming back I think we will need the recipient of a lot of that so and we've got the kind of models, which doesn't it's not just based on one one channel. So all in all I feel pretty good.
And so we can't control the market, we can control execution and this team I can guarantee you that is absolutely laser focused on finding every dollar of GTL GTV in every corner that we.
Our out there.
Okay, well that's good color. Thank you and good luck in the future. It's been it's been lots of fun, calling it Ritchie brothers.
Thank you so much Ben.
There are no further questions at this time I turn the call back over to the presenters.
So thank you very much for everyone for your support onwards and upwards. Thank you.
This concludes today's conference call you may now disconnect.