Ritchie Bros. Auctioneers Incorporated — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unless noted otherwise, financial amounts are in U.S. dollars; statements present amounts in thousands. The company provides global used-equipment and durable-asset disposition services through auctions, online marketplaces, brokerage, and related services. Operations are seasonal, with revenue and GTV typically higher in Q2 and Q4.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $303.4 million | $260.2 million | +17% |
| Service revenue | $172.4 million | $176.0 million | -2% |
| Inventory sales revenue | $131.1 million | $84.2 million | +56% |
| Operating income | $33.6 million | $32.9 million | +2% |
| Operating margin | 11.1% | 12.6% | -150 bps |
| Net income attributable to stockholders | $18.2 million | $17.1 million | +6% |
| Diluted EPS | $0.17 | $0.16 | +6% |
| Operating cash flow | $71.9 million | $67.2 million | +7% |
Revenue growth was driven by inventory sales, while service revenue fell as commissions declined 9%, partly offset by 7% growth in fees. Inventory sales’ share of revenue rose to 43.2% from 32.3%; management notes that contract mix can materially affect reported revenue growth. Operating expenses rose 19%, largely reflecting higher inventory costs. Income tax expense was $6.6 million and the effective tax rate was 26.8%, versus 23.4% a year earlier. Adjusted EBITDA, a non-GAAP measure, increased 5% to $51.9 million; the company reported no Q1 adjusting items.
Operating results and changes
- Gross Transaction Value (GTV), a non-GAAP operational measure and not revenue, increased 1% to $1.175 billion, or 3% excluding foreign exchange. Online marketplace GTV rose 9%; live auction GTV was approximately flat.
- Auction and Marketplaces revenue increased 18% to $274.5 million, mainly due to higher inventory-contract activity in the U.S. and Europe. Other Services revenue rose 5% to $28.9 million, while Other Services segment profit declined 3% to $7.7 million.
- Management attributed lower commissions to fewer straight-commission contracts and weaker guarantee-contract price realization, including softer prices for certain equipment in the February Orlando auction. It also cited a prior-year Grande Prairie oil-and-gas equipment sale that did not recur.
- Operating cash flow benefited from working-capital movements; auction proceeds payable and receivables can cause substantial period-to-period cash-flow swings. Net cash increased $17.7 million, including restricted cash.
Liquidity, debt, and capital allocation
At March 31, 2019, cash and cash equivalents were $266.5 million, restricted cash was $56.7 million, and total debt was $712.0 million, down from $731.2 million at December 31, 2018. Current liabilities were $531.5 million and current assets were $693.6 million. The company had $485.4 million of unused committed revolving credit facilities, of which $481.0 million was available until October 2021, and reported compliance with applicable debt covenants.
Q1 financing cash outflows included $23.4 million of net debt repayments and $19.6 million of dividends. Management reported trailing-12-month adjusted net debt/adjusted EBITDA of 1.7x, versus 2.5x a year earlier; this is a non-GAAP measure. A quarterly dividend of $0.18 per share was declared after quarter-end. On May 8, 2019, the board authorized a share repurchase program of up to $100 million over 12 months, subject to Toronto Stock Exchange approval.
Outlook, risks, and unusual items
- The filing provides no specific financial guidance or quantified forward outlook. Management emphasizes seasonal and event-driven revenue and cash flows.
- Guarantee contracts expose the company to proceeds risk. At quarter-end, $138.1 million of assets were under guarantee contracts, before estimated auction proceeds; 83% was expected to sell before June 30, 2019, with the remainder by September 30, 2021.
- The company had purchased $47.7 million of inventory under its U.S. Defense Logistics Agency contract during the initial 12-month period. The contract’s stated annual purchase commitment is between $11.1 million and $51.0 million, subject to goods being available.
- Adoption of lease accounting on January 1, 2019 added operating-lease right-of-use assets and liabilities; the filing reports no impact on retained earnings, cash flows, or debt-covenant compliance. Operating lease liabilities totaled $103.7 million at March 31.
- Management said ordinary-course legal claims were not expected to have a material financial effect; no material risk-factor changes or material market-risk changes were reported. Forward-looking statements remain subject to risks and uncertainties.
Key investor verification points
- Check whether inventory-contract growth and the related lower operating margin persist, and assess realized prices and guarantee-contract performance.
- Verify GTV trends separately from GAAP revenue, including the effect of changing contract and geographic mix and foreign exchange.
- Monitor working-capital and auction-proceeds timing when assessing cash generation and liquidity.
- Review total debt, lease obligations, covenant compliance, and the trajectory of debt reduction; distinguish the company’s non-GAAP leverage ratios from GAAP debt.
- Confirm TSX approval and execution of the announced buyback, alongside dividend commitments and the guarantee-contract exposure.