Ritchie Bros. Auctioneers Incorporated — Form 10-Q summary
Filing and period: The filing is for the quarter ended September 30, 2021, with comparative results for the three and nine months ended that date. The issuer named in the filing is Ritchie Bros. Auctioneers Incorporated (NYSE/TSX: RBA).
Business context
The company operates auctions, online marketplaces and brokerage services for used commercial assets, alongside financing, data, appraisal, logistics and other services. Its business is seasonal, with activity generally higher in the second and fourth quarters. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2021 | Change vs. Q3 2020 | Nine months 2021 | Change vs. 2020 |
|---|---|---|---|---|
| Total revenue | $329.7 million | Down 1% | $1.058 billion | Up 6% |
| Service revenue | $214.2 million | Down 4% | $673.0 million | Up 5% |
| Inventory sales revenue | $115.5 million | Up 6% | $384.6 million | Up 9% |
| Operating income | $53.6 million | Down 20% | $187.6 million | Down 1% |
| Net income attributable to stockholders | $32.3 million | Down 29% | $121.3 million | Essentially unchanged |
| Diluted EPS | $0.29 | Down 29% | $1.09 | Down 1% |
Q3 operating margin was 16.3%, versus 20.3% a year earlier; nine-month operating margin was 17.7%, versus 19.1%. Q3 net margin was approximately 9.8%, versus 13.7%; nine-month net margin was approximately 11.5%, versus 12.2%. The Q3 effective tax rate rose to 28.8% from 25.3%; the nine-month rate fell to 26.0% from 28.6%.
Operating indicators: Gross Transaction Value (GTV), a non-GAAP operating measure and not revenue, was $1.270 billion in Q3, down 4% (down 5% excluding foreign exchange), and $4.072 billion for nine months, up 3%. Management cited tight equipment supply and lower volumes, partly offset by strong used-equipment pricing. Adjusted EBITDA, a non-GAAP measure, was $90.6 million in Q3, down 9%, and $286.2 million for nine months, up 6%. Adjusted diluted EPS was $0.44 in Q3, down 10%, and $1.43 for nine months, up 6%; the company changed its non-GAAP adjustment methodology in Q3 and applied it retrospectively.
Cash flow, liquidity and debt
- Cash from operating activities was $304.1 million for the first nine months, up from $265.6 million. Investing activities used $32.4 million and financing activities used $103.3 million. Cash, cash equivalents and restricted cash totaled $468.4 million at quarter-end, including $362.6 million unrestricted and $105.7 million restricted.
- Total debt was $652.2 million at September 30, 2021, compared with $665.8 million at December 31, 2020. The company reported $289.6 million of non-GAAP adjusted net debt and a 0.7x adjusted net debt/adjusted EBITDA ratio for the trailing 12 months. It was in compliance with its debt covenants.
- A September credit agreement amendment extended facility maturity to September 2026, increased total commitments to approximately $1.045 billion, reduced borrowing margins and commitment fees, and added provisions for replacing LIBOR. The company reported $205 million undrawn under its delayed-draw term facility and $686.3 million of unused revolving capacity, subject to covenants.
- The board declared a $0.25-per-share quarterly dividend after quarter-end, payable December 15, 2021. Nine-month dividends paid were $76.1 million.
Material changes, outlook and risks
- Q3 earnings fell despite inventory revenue growth: Total revenue slipped 1%, while operating expenses rose 5%. Operating income was affected by $10.3 million of acquisition-related costs and higher depreciation and amortization, including acquired Rouse intangible assets. The company attributed lower service revenue chiefly to supply constraints and lower service GTV.
- Acquisitions: The proposed Euro Auctions purchase was approximately £775 million (about $1.04 billion) in cash and remained subject to regulatory clearance and other closing conditions at September 30. The company had reduced its bridge financing commitment to $950 million. SmartEquip was acquired on November 2, 2021, after quarter-end, for $175 million subject to adjustments, with a portion paid in shares. Rouse, acquired in December 2020, contributed $6.5 million of Q3 revenue.
- Other notable developments: The company agreed to sell its Bolton, Ontario property for approximately $170 million, subject to conditions, and planned to relocate its auction operation. It expected to use sale proceeds largely to repay debt. No share repurchases were made in the first nine months of 2021.
- Management commentary and uncertainty: COVID-19 restrictions continued to hinder equipment movement and inspections in some regions; higher shipping costs and supply-chain disruption affected customer activity and used-equipment supply. Management said the pandemic’s future impact could not be reasonably estimated. No specific financial guidance was provided in the filing.
- Acquisition and financing risks: The Euro Auctions transaction could be delayed or fail to close; integration costs, execution challenges and failure to realize synergies could affect results. The company expected to incur substantial additional debt to fund Euro Auctions, which could increase interest, covenant and liquidity risks.
- Controls and contingencies: Disclosure controls were reported ineffective because previously identified material weaknesses had not been remediated. These involved manual journal-entry support and the completeness and accuracy of reports used in revenue controls. Management described remediation work but had not concluded the weaknesses were cured. Management did not expect ordinary-course legal claims to have a material effect. Outstanding guarantee contracts covered $63.8 million of assets before estimated auction proceeds.
Key investor verification points
- Confirm the issuer and reporting entity: this filing names Ritchie Bros. Auctioneers Incorporated, rather than RB Global Inc.
- Track Euro Auctions’ regulatory clearance, closing conditions, final financing mix and resulting debt and covenant headroom.
- Assess whether supply constraints, auction timing, freight costs and used-equipment pricing support a recovery in GTV and service revenue.
- Review acquisition-related costs and integration progress, including the post-quarter SmartEquip acquisition and the contribution from Rouse.
- Monitor remediation and testing of the disclosed material weaknesses in financial reporting controls.
- Distinguish unrestricted cash from restricted cash and note that GTV, adjusted EBITDA, adjusted EPS and adjusted leverage are non-GAAP or operating measures.