RB Global Inc. (Ritchie Bros. Auctioneers Incorporated) — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 18, 2021. Amounts are in U.S. dollars unless noted. The filing is an annual report; selected fourth-quarter results are noted below.
Business context and reporting period
Ritchie Bros. operates equipment auctions, online marketplaces and brokerage services, with related financing, appraisal, logistics and data services. It reported $5.41 billion of gross transaction value (GTV) in 2020. Beginning in March, the company shifted traditional live-site auctions to online bidding in response to COVID-19 restrictions. It acquired equipment-data and benchmarking provider Rouse on December 8, 2020, for a reported purchase price of $251.7 million.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Total revenue | $1,377.3 million | $1,318.6 million | +4% |
| Service revenue | $871.6 million | $804.0 million | +8% |
| Inventory sales revenue | $505.7 million | $514.6 million | -2% |
| Operating income | $263.2 million | $223.2 million | +18% |
| Operating margin | 19.1% | 16.9% | +220 bps |
| Net income attributable to stockholders | $170.1 million | $149.0 million | +14% |
| Diluted EPS | $1.54 | $1.36 | +13% |
| Adjusted EBITDA (non-GAAP) | $353.5 million | $294.7 million | +20% |
| Cash from operating activities | $257.9 million | $332.8 million | -23% |
| Operating free cash flow (non-GAAP) | $231.1 million | $297.7 million | -22% |
Revenue growth reflected higher service activity and fees, including the full-year effect of buyer-fee harmonization, partly offset by lower inventory revenue. GTV rose 5% to $5.41 billion; online marketplaces grew 33%, while live-site auction GTV declined 1%. Online buyers accounted for 94% of GTV, versus 65% in 2019. Underwritten guarantee and inventory contracts remained 20% of GTV.
Fourth quarter: Revenue was $383.4 million versus $332.2 million in Q4 2019; operating income was $72.9 million versus $71.5 million. Net income attributable to stockholders was $48.9 million versus $51.6 million, and diluted EPS was $0.44 versus $0.47.
Balance sheet and funding: At year-end, unrestricted cash was $278.8 million and restricted cash was $28.1 million. Total debt was $665.8 million, compared with $650.2 million a year earlier; adjusted net debt was $387.0 million, versus $290.5 million. Working capital fell to $42.2 million from $178.3 million, principally reflecting the Rouse cash acquisition and dividends. The company reported $455.1 million of unused committed revolving capacity, including $445.1 million under its main credit agreement. The amended facilities mature in October 2023; $500 million of 5.375% senior notes mature in January 2025. The company said it was compliant with debt covenants.
Declared dividends were $0.84 per share for 2020. The regular quarterly dividend was increased to $0.22 per share; the Q4 2020 dividend was declared but not yet paid at year-end. Operating cash flow declined largely because of working-capital movements, including auction timing and inventory changes. Investing cash outflow was $276.7 million, mainly due to the Rouse acquisition.
Material changes, outlook, risks and unusual items
- Strategy and acquisition: Management formalized a strategy to become a trusted global marketplace for commercial-asset insights, services and transactions. Rouse expands data, appraisal and benchmarking offerings; its preliminary purchase accounting included $165.8 million of goodwill and $79.3 million of acquired intangible assets.
- COVID-19: The company continued modified operations and online bidding, reporting strong North American results but transport and auction-volume constraints in parts of Europe and Asia. Management said the continuing effects on equipment supply, demand, pricing, customers and operations could not be reasonably estimated. No quantified earnings guidance was provided.
- Taxes and one-time costs: The effective tax rate rose to 27.8% from 21.8%, including a $7.8 million unfavorable adjustment tied to U.S. hybrid-financing tax rules, higher tax uncertainties and a greater share of income in higher-tax jurisdictions. Reported operating expenses also included $5.2 million of Rouse acquisition-related costs and $4.3 million of severance costs. Adjusted results are non-GAAP measures.
- Financial reporting controls: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2020. Material weaknesses involved review and support for manual journal entries in one geography and completeness and accuracy of reports used in revenue controls. No 2020 financial-statement adjustments were required as a result. The auditor nevertheless issued an adverse opinion on internal-control effectiveness; its opinion on the financial statements was unqualified. Rouse was excluded from the controls assessment as a recent acquisition.
- Contingencies and business risks: Management reported no material pending legal proceedings beyond ordinary-course matters. Risks include pandemic disruption, market and equipment-price volatility, losses on guarantees or inventory contracts, cyber and technology incidents, foreign exchange and floating-rate exposure, and leverage. The two U.S. Defense Logistics Agency contracts were due to expire in April 2021, with renewal dependent on a new bidding process; the company said it intended to participate. Outstanding guaranteed assets were $22.8 million at year-end.
- Other financial exposures: A 100-basis-point change in rates was estimated to change annual pre-tax interest by about $1.7 million on floating-rate borrowings. The company did not hedge foreign currency exposure. Foreign currency translation adjustments increased comprehensive income by $24.9 million in 2020.
Key facts for investors to verify
- Progress, timing and independent testing of remediation for the two material weaknesses in financial reporting controls.
- Rouse integration, realized benefits, final purchase-price allocation and continuing-employment share costs.
- Renewal and economics of the DLA contracts, and the disposition and returns of government-surplus inventory.
- Whether the working-capital decline and lower operating cash flow reverse, and how liquidity changes after acquisition spending, dividends and debt service.
- Future GTV mix by channel and contract type, fee realization, inventory margins and the durability of online-auction growth.
- COVID-19 effects on equipment transport, consignments, buyer demand and pricing, especially in international markets.