Ritchie Bros. Auctioneers Incorporated — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated statements are prepared under U.S. GAAP; amounts below are U.S. dollars. The company operates equipment auctions, online marketplaces, brokerage and related services.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | First nine months 2020 | First nine months 2019 |
|---|---|---|---|---|
| Total revenue | $331.5m (+14%) | $289.8m | $993.8m (+1%) | $986.4m |
| Service revenue | $222.7m (+25%) | $178.6m | $639.9m (+9%) | $585.6m |
| Inventory sales revenue | $108.9m (−2%) | $111.2m | $353.9m (−12%) | $400.9m |
| Operating income | $67.4m (+68%) | $40.2m | $190.3m (+25%) | $151.7m |
| Operating margin | 20.3% | 13.9% | 19.1% | 15.4% |
| Net income attributable to stockholders | $45.4m (+80%) | $25.3m | $121.2m (+24%) | $97.5m |
| Diluted EPS | $0.41 (+78%) | $0.23 | $1.10 (+24%) | $0.89 |
- Cash flow: Operating activities provided $265.6m in the first nine months, down from $309.1m. Investing activities used $10.2m and financing activities used $91.1m. Cash, cash equivalents and restricted cash increased $170.0m from year-end 2019 to $590.3m.
- Liquidity: September 30 cash included $470.3m unrestricted and $120.0m restricted. Current assets were $1,012.8m and current liabilities $753.5m.
- Debt: Total debt was $652.8m at September 30, 2020, versus $650.2m at December 31, 2019. The company reported $469.4m of unused revolving capacity and compliance with credit covenants. Its amended credit facilities mature in October 2023; pricing and unused commitment fees increased.
- Margins and non-GAAP measures: Management reported Q3 adjusted EBITDA of $91.9m, up 55%, and nine-month adjusted EBITDA of $255.1m, up 23%. Adjusted net debt/adjusted EBITDA was 0.5x for the trailing 12 months. These are non-GAAP measures and may not be comparable across companies.
Material changes and operating trends
- Q3 Gross Transaction Value (GTV), an operating measure rather than GAAP revenue, rose 22% to $1.32bn; nine-month GTV increased 5% to $3.96bn. Online marketplaces grew 35% in Q3, and all Q3 GTV was purchased by online buyers as live auctions shifted to online bidding.
- Service revenue growth and improved inventory margins supported profitability. Q3 service revenue rose across regions; the mix shifted toward service revenue. Inventory sales revenue fell, partly because of lower U.S. government surplus activity and the shift of the Grand Prairie auction to Q4.
- For the first nine months, lower International activity—especially in Europe—reduced inventory revenue; service revenue growth was stronger in the U.S. and Canada. Auction timing and non-recurring prior-year inventory sales also affected comparisons.
- SG&A increased 18% in Q3 to $110.2m, including higher incentive compensation, growth-related headcount and $4.3m of severance. Management’s adjusted results exclude the severance charge.
- The effective tax rate rose to 25.3% in Q3 and 28.6% for the nine months, primarily reflecting jurisdictional income mix, tax uncertainties and the non-deductibility of certain hybrid financing benefits.
Outlook, risks and unusual items
- COVID-19: Operations continued with modified, largely online auction formats. Management cited cross-border transport constraints in Europe and government shutdowns affecting U.S. surplus contracts. It said the pandemic’s future effects on equipment supply, buyer demand, pricing, customer payment capacity and cash flows could not be reasonably estimated.
- Liquidity and outlook: Management said available working capital and credit facilities were sufficient for current operating needs and described the balance sheet as strong. The filing provides no quantified financial guidance. The company warned that renewed restrictions or auction-site closures could affect service, sales and results.
- Acquisition after quarter-end: On October 28, 2020, the company agreed to acquire Rouse Services for approximately $275m—about $250m cash and $25m in shares, subject to adjustment and closing conditions. Completion, integration and expected benefits are uncertain.
- Capital returns: The company repurchased 1.53m shares for $53.2m in the first nine months and authorized a new buyback of up to $100m through August 23, 2021. A $0.22-per-share dividend was declared after quarter-end, payable December 16, 2020.
- Contingencies and commitments: Assets under auction guarantee contracts totaled $75.9m, before estimated auction proceeds; 85% were expected to sell by year-end 2020. The company reported no material pending legal proceedings beyond ordinary-course matters. Its U.S. government surplus contract requires eligible purchases within stated annual value ranges.
Important facts for investors to verify
- Whether online-auction growth and higher service revenue persist as COVID-related restrictions and auction timing change.
- How much of reported cash is restricted and how auction proceeds payable affect operating cash flow and liquidity.
- The financing, closing conditions, purchase-price adjustments and integration risks for the Rouse acquisition.
- Debt-facility pricing, covenant headroom and the company’s ability to maintain liquidity under a prolonged downturn.
- The effect of higher tax rates, guarantee-contract exposure and inventory margin changes on future earnings.