RB Global, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars unless stated otherwise.
Business context
RB Global operates marketplaces and provides services for used commercial assets and vehicles. Results include IAA from its March 20, 2023 acquisition and VeriTread from January 2023. IAA materially changed the company’s scale and business mix; year-over-year comparisons are therefore not fully like-for-like. Management reports one operating and reportable segment.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Total revenue | $1,019.8 million | $411.5 million | +148% |
| Service revenue | $773.8 million | $246.7 million | +214% |
| Inventory sales revenue | $246.0 million | $164.8 million | +49% |
| Operating income | $145.8 million | $63.5 million | +130% |
| Net income | $63.2 million | $42.9 million | +47% |
| Net income available to common stockholders | $54.7 million | $42.9 million | +28% |
| Diluted EPS available to common stockholders | $0.30 | $0.38 | -21% |
| Adjusted EBITDA (non-GAAP) | $285.8 million | $102.5 million | +179% |
| Gross transaction value (GTV) | $3.875 billion | $1.358 billion | +185% |
IAA contributed $557.4 million of Q3 revenue and $71.3 million of net income. Excluding IAA, Q3 revenue increased 12% and GTV increased 23%. Total service revenue take rate was 20.0%, compared with 18.2%. Inventory return was $16.0 million and inventory rate was 6.5%, down from 10.6%, reflecting weaker pricing on inventory contracts. Approximate GAAP operating margin was 14.3% versus 15.4%; net margin was 6.2% versus 10.4%.
Nine months: Revenue rose 105% to $2.639 billion and GTV rose 121% to $9.919 billion. Operating income fell 23% to $300.5 million and net income fell 56% to $121.8 million, primarily reflecting the non-recurrence of the $169.1 million Bolton property gain recorded in 2022, as well as higher interest and acquisition-related costs. Excluding the prior-year property gain, management said operating income increased 43%. Diluted EPS was $0.61 versus $2.45; adjusted diluted EPS (non-GAAP) was $2.16 versus $1.73.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $206.7 million, down from $263.9 million. Working-capital changes used $260.4 million, including higher receivables, prepaid consigned vehicle charges, tax payments and lease outflows.
- Investing cash outflow was $3.002 billion, mainly reflecting $2.755 billion for IAA and $24.7 million for VeriTread, plus capital and intangible-asset spending. Financing cash inflow was $2.729 billion, including acquisition-related borrowing and preferred/common equity proceeds.
- At September 30, cash and cash equivalents were $428.3 million; restricted cash was $130.9 million. Current assets were $1.835 billion and current liabilities were $1.403 billion.
- Total debt was $3.127 billion, versus $610.6 million at year-end 2022. Adjusted net debt was $2.699 billion and trailing-twelve-month adjusted net debt/adjusted EBITDA was 3.2x, versus 0.5x a year earlier. The company reported $740.1 million of unused revolving facilities and compliance with applicable debt covenants.
- Q3 interest expense was $63.7 million, compared with $9.2 million. Debt raised for IAA includes $1.8 billion of term loans and $1.35 billion of notes bearing coupons of 6.75% and 7.75%.
Changes, outlook and notable matters
- The IAA acquisition added substantial automotive marketplace volume and expanded the company’s footprint. IAA purchase accounting remains preliminary; valuation adjustments may affect goodwill and future depreciation and amortization.
- Management expects IAA to support growth, broaden the addressable market and create integration and synergy opportunities. The filing does not provide quantitative full-year guidance. Management stated current working capital and available revolving capacity were sufficient for present operating requirements and contractual obligations.
- In October, an IAA customer representing approximately 3% of consolidated revenue on an annual run-rate basis notified the company it would shift assignment volume away from IAA. The shift is expected to begin in Q4 2023, with most revenue impact starting in Q1 2024. Management also described the customer as about 4% of GTV and 5% of lot volume.
- The former CEO’s departure is disputed; mediation was scheduled to begin in January 2024. The company recorded a $5.5 million Q3 expense based on its current estimated settlement amount; a change in the estimate could be material. The former CEO had not resigned from the board as of the filing.
- The CRA is auditing several tax years and proposed that a Luxembourg subsidiary was Canadian tax-resident for 2010–2015. If the CRA position were ultimately upheld, estimated additional Canadian tax for that period is $26–30 million, excluding interest and penalties. The company disputes the assertion and is contesting it.
- Seasonality affects asset supply and results; management noted that Q3 supply is generally lower. The company also reported elevated operating costs from inflation. It received court approval in October to act as agent and liquidator for Yellow Corporation transportation assets, involving approximately 60,000 units; the filing does not quantify expected revenue or profit from the engagement.
Important facts for investors to verify
- Track the IAA customer volume shift and its revenue, GTV and lot-volume effects from Q4 2023 onward.
- Monitor IAA integration, realization of expected synergies, preliminary acquisition valuations and related amortization expense.
- Assess debt service, interest costs, leverage and covenant headroom against operating cash generation and working-capital needs.
- Follow inventory rates and pricing, which weakened during the quarter, and distinguish underlying growth from acquisition-driven increases.
- Review developments in the CRA tax matter and former CEO dispute, including any material changes to potential costs.
- Consider GAAP results alongside management’s non-GAAP measures and their adjustments; adjusted metrics are not substitutes for GAAP results.