RB Global Inc. (Ritchie Bros. Auctioneers Incorporated) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and results
The company operates an omnichannel marketplace for used commercial assets, including auctions, online marketplaces, brokerage, and related services. Its reportable segment is Auctions & Marketplaces (A&M); other activities include Rouse, financing, logistics, and data services.
- Q2 revenue: $396.4 million, up 2% year over year. Service revenue rose 8% to $252.7 million; inventory sales revenue fell 7% to $143.6 million.
- Q2 earnings: Operating income was $89.5 million, up 1%; net income was $60.8 million, up 14%; net income attributable to stockholders was $60.7 million, up 15%. Diluted EPS was $0.55, up 12%.
- Q2 margin: Operating income was 22.6% of revenue versus 22.8% a year earlier. The filing does not provide a consolidated gross margin measure.
- First half: Revenue was $727.9 million, up 10%; operating income was $134.0 million, up 9%; net income attributable to stockholders was $88.9 million, up 17%; diluted EPS was $0.80 versus $0.69. Operating margin was 18.4% versus 18.6%.
- Operating activity: Q2 gross transaction value (GTV), a non-GAAP operating metric, was $1.53 billion, up 2% reported but down 3% excluding foreign exchange. First-half GTV was $2.80 billion, up 6% reported and 2% excluding foreign exchange. International and Canada grew in Q2, while U.S. GTV declined 7%.
- Non-GAAP measures: Adjusted EBITDA was $112.3 million in Q2, up 5%, and $178.6 million for the first half, up 9%. Adjusted diluted EPS was $0.55 in Q2, up 2%, and $0.80 for the first half, up 7%. These measures are not GAAP measures.
Cash flow, liquidity, and debt
- First-half cash provided by operating activities was $211.4 million, versus $198.3 million in 2020. Investing activities used $23.3 million and financing activities used $50.9 million.
- Cash, cash equivalents, and restricted cash totaled $442.7 million at June 30, including $301.8 million unrestricted cash and $141.0 million restricted cash.
- Total debt was $671.7 million: $35.2 million short-term debt and $636.5 million long-term debt. The company reported $448.3 million of unused revolving credit facilities and compliance with applicable covenants.
- Current assets were $833.6 million and current liabilities were $716.9 million. Auction proceeds payable were $445.1 million, up from $214.3 million at year-end; the filing notes operating cash flows can vary with auction timing and settlement of proceeds.
- Dividends paid in the first half totaled $48.5 million. A subsequent quarterly dividend of $0.25 per share was declared, up from $0.22, payable September 15, 2021. No shares were repurchased in the first half.
Material changes versus the prior comparable period
- Q2 service revenue increased while inventory sales revenue declined; service revenue’s share of total revenue rose to 63.8% from 60.2%.
- SG&A increased 11% in Q2 to $111.8 million, driven in part by higher compensation, growth-related spending, and foreign exchange. Acquisition-related costs were $3.0 million in Q2; depreciation and amortization also increased following the Rouse acquisition.
- The effective tax rate declined to 25.7% in Q2 from 34.2%, mainly reflecting a lower estimate of non-deductible expenses. This contributed to higher net income and EPS.
- Other Services revenue grew 20% to $41.3 million, including $6.2 million from Rouse, acquired in December 2020. RBFS revenue increased 39% in Q2.
- Net cash from operations rose, while investing cash outflow increased because the prior-year period included proceeds from land and equity investment dispositions. Financing cash outflow was lower, chiefly because there were no share repurchases in 2021.
Outlook, commentary, risks, and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management said existing working capital and credit availability were sufficient for current operating requirements and contractual obligations, while continuing to monitor COVID-19 effects.
- Management cited ongoing COVID-19 uncertainty, regional travel and border restrictions, higher shipping and freight costs, and new-equipment supply-chain disruption. Used-equipment supply constraints particularly affected North America; auction timing, asset mix, and foreign exchange also influenced results.
- All Q2 GTV was purchased online. The company said it would consider resuming some in-person attendance as restrictions ease, including select large U.S. events.
- At June 30, $131.9 million of assets were under guarantee contracts; 90% was expected to be sold by September 30, 2021. The amount is undiscounted and before expected auction proceeds. Legal claims were described as ordinary-course matters not expected to have a material effect.
- The former U.S. Government Defense Logistics Agency contract ended June 1, 2021. New two-year contracts began that date, with purchases capped on a combined basis at the lesser of 600,000 assets or assets with an expected minimum value of up to $77 million.
- Control weakness: Disclosure controls were reported ineffective at June 30, 2021 because previously disclosed material weaknesses had not been remediated. They concerned review and support for manual journal entries in one geography and completeness and accuracy of reports used in revenue controls. Remediation efforts were underway. Rouse was excluded from the internal-control assessment in its acquisition year.
- The company said it could not reasonably estimate the future financial impact of COVID-19. It reported no material change in risk factors during the quarter or first half.
Important facts for investors to verify
- Progress and testing evidence for remediation of the material weaknesses, and the effect of ineffective disclosure controls on reporting reliability.
- How much of reported growth reflects foreign exchange, acquired Rouse revenue, pricing, and underlying transaction volumes.
- Cash availability and restrictions on the $141.0 million of restricted cash, auction settlement timing, and the trajectory of receivables and auction proceeds payable.
- Potential outcomes and timing for the $131.9 million of guarantee-contract assets and purchase exposure under the new government contracts.
- Whether COVID-19, freight costs, equipment supply constraints, and auction-calendar shifts continue to affect volumes, margins, and cash flows.