RB Global Inc. (Ritchie Bros. Auctioneers Incorporated) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited, U.S. GAAP. Amounts are U.S. dollars. The company operates an equipment and commercial-asset marketplace spanning auctions, online marketplaces, brokerage, financing, data and related services.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $411.5m | $329.7m | $1,289.9m | $1,057.6m |
| Service revenue | $246.7m | $214.2m | $778.1m | $673.0m |
| Inventory sales revenue | $164.8m | $115.5m | $511.9m | $384.6m |
| Operating income | $64.0m | $53.6m | $388.7m | $187.6m |
| Net income attributable to stockholders | $42.9m | $32.3m | $274.4m | $121.3m |
| Diluted EPS | $0.38 | $0.29 | $2.45 | $1.09 |
| Cash from operating activities | Not separately stated | Not separately stated | $263.9m | $304.1m |
- Q3 revenue rose 25%, operating income 19%, net income 33%, and diluted EPS 31%. Q3 adjusted EBITDA, a non-GAAP measure, increased 12% to $102.5m; adjusted diluted EPS increased 18% to $0.53.
- For the first nine months, revenue grew 22%; adjusted EBITDA rose 20% to $343.7m and adjusted diluted EPS rose 20% to $1.73. Reported operating income and net income were materially boosted by the Bolton property sale; adjusted net income was $193.9m, up 21%.
- Q3 operating margin was 15.5%, versus 16.3%; adjusted operating margin was 20.8%, versus 23.0%. Nine-month reported operating margin was 30.1%, versus 17.7%, reflecting the property-sale gain; adjusted operating margin was 23.4%, versus 22.7%.
- Q3 gross transaction value (GTV, an operating metric, not revenue) increased 7% to $1.36bn, or 10% excluding foreign exchange. Nine-month GTV increased 10% to $4.48bn, or 13% excluding foreign exchange.
- Revenue growth included higher inventory sales, higher buyer fees, and contributions from SmartEquip and other services. Inventory sales revenue grew faster than service revenue, changing the revenue mix; inventory sales include the gross sale value and corresponding inventory cost.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $438.8m; restricted cash was $76.3m, for total cash, cash equivalents and restricted cash of $515.1m. Current assets were $953.9m and current liabilities $752.2m.
- Total debt was $639.0m, down from $1.744bn at December 31, 2021. The company redeemed approximately $931m of 2021 Notes in May after discontinuing the Euro Auctions acquisition and repaid $164m on revolving facilities using Bolton sale proceeds. Debt included $500m of 5.375% notes due 2025 and facility borrowings.
- Committed revolving capacity unused at quarter-end was about $691.2m; the company reported compliance with applicable debt covenants. Management said working capital and available facilities were sufficient for current operating needs and growth plans.
- Nine-month investing cash flow was $108.3m, primarily reflecting approximately $165m net proceeds from the Bolton sale, partly offset by capital spending. Financing cash outflow was $1.194bn, principally from debt repayments. Nine-month operating cash flow fell 13%, to $263.9m.
- Management-reported trailing-twelve-month adjusted net debt/adjusted EBITDA was 0.5x, versus 0.7x a year earlier. These are non-GAAP measures; the filing also reports debt/net income of 2.1x versus 3.8x.
Material changes and unusual items
- On March 17, the company sold and leased back its Bolton, Ontario property for approximately $165m net proceeds and recorded a $169.1m gain. It continues operating there under a leaseback while a replacement site in Amaranth is developed. The gain drove much of the increase in nine-month GAAP operating income and affected the effective tax rate.
- The Euro Auctions purchase agreement terminated in June 2022 after the company discontinued the U.K. competition review. The company terminated related currency contracts and redeemed the escrowed 2021 Notes; the redemption resulted in a $4.8m loss, with other related debt costs also reported.
- Debt repayment and release of escrowed funds explain much of the year-over-year change in cash and debt balances. Foreign-currency translation also reduced comprehensive income: nine-month foreign-currency translation loss was $54.5m.
- The company paid $85.3m in dividends during the first nine months. A subsequent quarterly dividend of $0.27 per share was declared, payable December 14, 2022.
Outlook, commentary and risks
- No formal numeric revenue or earnings guidance is provided in the filing. Management noted the business is seasonal, with activity generally higher in Q2 and Q4 and lower in Q3.
- Management expected inflationary pressures to continue raising costs through the remainder of 2022, including freight, fuel, supplies, travel and labor. A stronger U.S. dollar adversely affected translation of results from Canada, Europe and Australia.
- The Russia-Ukraine conflict, sanctions, fuel and shipping costs, supply-chain disruption and macroeconomic conditions could affect costs, equipment transport and customer activity. The company reported no direct or significant operations in Russia or Ukraine and said it could not reasonably estimate the conflict’s future financial impact. COVID-related supply and transportation effects also remained relevant.
- Subsequent event: On November 7, 2022, the company agreed to acquire IAA, Inc. for approximately $7.3bn, including assumption of about $1.0bn net debt. IAA shareholders would receive $10 cash plus 0.5804 RB Global share per IAA share; expected ownership of the combined company is approximately 59% for existing RB Global shareholders and 41% for IAA shareholders. Closing was expected in the first half of 2023, subject to shareholder, regulatory and other conditions.
- For the IAA transaction, lenders committed up to a $2.8bn 364-day bridge facility and a $750m backstop revolving facility. The company expected to replace the bridge with permanent financing. Added debt could increase debt-service costs and constrain liquidity; specified termination circumstances could require a $189m fee.
- Other matters to monitor include a CRA audit of tax years 2014, 2015, 2017, 2018 and 2019; $41.2m of assets subject to consignor guarantees; and ordinary-course legal claims that management did not expect to be material. The filing states disclosure controls were effective and reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Separate recurring operating performance from the $169.1m Bolton sale gain when assessing nine-month earnings, margins, ROIC and tax rate.
- Review operating cash-flow trends and working-capital timing, and confirm the availability and covenant terms of credit facilities.
- Track the IAA transaction’s approvals, financing, expected leverage, integration risks, potential synergies and any termination-fee exposure.
- Assess revenue mix and underlying auction activity, including GTV, buyer-fee changes, inventory-contract returns, foreign exchange and seasonality.
- Monitor inflation, fuel and freight costs, currency movements, the CRA audit and outstanding guarantee exposure.