Business context and reporting period
Ritchie Bros. Auctioneers Incorporated (NYSE/TSX: RBA) filed this Form 10-K for the fiscal year ended December 31, 2019. It operates global live auctions, online marketplaces and related asset services for used industrial equipment. The filing also provides unaudited fourth-quarter results; amounts below are in U.S. dollars.
Key financial metrics
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Gross Transaction Value (GTV) | $5.14 billion | $4.96 billion | +4% (+5% excluding foreign exchange) |
| Total revenue | $1,318.6 million | $1,170.0 million | +13% |
| Service revenue | $804.0 million | $749.5 million | +7% |
| Inventory sales revenue | $514.6 million | $420.5 million | +22% |
| Operating income | $223.2 million | $185.2 million | +21%; margin 16.9% vs. 15.8% |
| Net income attributable to stockholders | $149.0 million | $121.5 million | +23% |
| Diluted EPS | $1.36 | $1.11 | +23% |
| Cash provided by operating activities | $332.8 million | $144.3 million | +131% |
| Adjusted EBITDA (non-GAAP) | $294.7 million | $257.3 million | +15% |
Fourth quarter 2019 unaudited revenue was $332.2 million, operating income $71.5 million, net income attributable to stockholders $51.6 million, and diluted EPS $0.47. In Q4 2018, those figures were $356.0 million, $56.3 million, $35.5 million and $0.32, respectively.
At year-end, cash and cash equivalents were $359.7 million, restricted cash $60.6 million, working capital $178.3 million, and total assets $2.23 billion. Total debt was $650.2 million, down from $731.2 million; cash-adjusted net debt was $290.5 million. The company reported $489.9 million of unused revolving credit facilities and said liquidity was sufficient for current needs and planned growth. Adjusted net debt/adjusted EBITDA, a non-GAAP measure, was 1.0x versus 1.9x.
Material changes versus prior period
- Online marketplace GTV grew 16%, while live on-site auction GTV grew 1%. Online buyers represented 65% of winning bids, up from 59%.
- Inventory sales revenue grew faster than service revenue, increasing to 39.0% of revenue from 35.9%. Underwritten guarantee and inventory contracts accounted for about 20% of GTV, versus 17% in 2018.
- SG&A was essentially flat at $382.4 million despite revenue growth. Operating income benefited from higher revenue, expense discipline, foreign-exchange gains and a $4.1 million share-based payment recovery related to the former CEO’s departure.
- Operating cash flow rose substantially, supported by a positive change in operating assets and liabilities, including lower inventory and larger U.S. auctions near year-end.
- The company repaid $76.3 million of long-term debt, including $62.7 million of voluntary repayments, repurchased $42.0 million of shares, and paid $82.5 million in dividends.
Outlook, commentary, risks and unusual items
- Management’s strategy is to grow auction-market share and expand upstream into private-sale and retail channels, while improving efficiency and optimizing the balance sheet. The filing gives no specific numerical revenue, earnings or GTV guidance.
- Ann Fandozzi became CEO on January 6, 2020, following the departure of Ravi Saligram and a period with interim co-CEOs. The transition and execution of the company’s multi-channel strategy are relevant factors for investors.
- The company extended its U.S. Defense Logistics Agency non-rolling-stock contract through March 2021. It purchases inventory under the contract and warns that unsold or hard-to-market inventory could hurt results. The auditor identified valuation and existence of government surplus inventory as a critical audit matter; year-end inventory was $65.0 million.
- Guarantee contracts covered $63.6 million of assets at year-end, before estimated auction proceeds. Actual proceeds below guaranteed amounts can reduce commissions or cause losses. Inventory write-downs were $4.2 million in 2019, versus $1.0 million in 2018.
- Other key risks include equipment-market supply, demand and prices; competition; foreign exchange; floating-rate borrowing and LIBOR transition; cybersecurity and privacy; and successful implementation of the MARS systems transformation. Management also cited pandemics, including COVID-19, as a potential risk to auctions and operations.
- Unusual/comparability items include the $4.1 million former-CEO share-based payment recovery in 2019 and a $4.9 million gain on sale of an equity-accounted investment in 2018. Adjusted earnings and leverage measures are non-GAAP and may not be comparable across companies.
Important facts for investors to verify
- Review the balance between service/commission revenue and inventory sales, and the profitability and sell-through of underwritten and DLA-related inventory.
- Assess the sustainability of the 2019 operating cash flow increase, which included a substantial working-capital contribution, and the company’s debt repayment and liquidity plans.
- Check execution and costs of MARS, digital-channel growth initiatives and leadership transition, including any subsequent developments not covered by this filing.
- Read the debt covenant terms, maturities, variable-rate exposure and lease obligations; the filing reports $167.4 million of future minimum operating lease payments.
- Consider that the filing is an annual report for FY 2019, not a standalone Q4 filing; quarterly figures are unaudited. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.