雅虎香港財經 Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) Q4 2023 Earnings Call Transcript
Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) Q4 2023 Earnings Call Transcript February 23, 2024
Ritchie Bros. Auctioneers Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Joanna, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers Fourth Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.
Sameer Rathod: Hello, and good afternoon. Thank you for joining us today to discuss our fourth quarter results. Joining me today are Jim Kessler, our Chief Executive Officer, and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, which can be identified by such words as expect, believe, estimate, anticipate, plan, intend, opportunity and similar expressions. Comments that are not a statement of fact, including, but not limited to, projections of future earnings, revenue, gross transaction value, debt and other items, business and market trends and expectations regarding integration of IAA, including the anticipated cost synergies are considered forward-looking and involve risks and uncertainties.
The risks and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this afternoon as well as our most recent quarterly report and annual report on Form 10-K, which are available on the Investor Relations website and EDGAR and SEDAR. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the two, see our news release, Form 10-K, Form 10-Q and investor presentation posted on our website. We are unable to present a quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all the necessary components of such measures.
Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. At this time, I would like to turn the call over to Jim. Jim?
James Kessler: Thank you, Sameer, and good afternoon to everyone. We finished the year strong with fourth quarter gross transaction value growth of 13% on a pro forma combined basis. All our sectors contributed to solid GTV growth, fueled by our team's dedication to consistently over deliver on the commitments we make to our customers. Our continued focus on operational excellence and driving incremental efficiencies across the organization resulted in strong adjusted EBITDA growth. Invested in our teammates through a best-in-class people experience remains core to our strategy. Our ONE Team, All In culture was recognized recently with a prestigious Great Place To Work certification. The recognition underscores our ongoing progress in integrating our teams and solidifying RB Global as a highly attractive workplace.
This translates to increased engagement and productivity with our teammates, which benefits our customers and all our stakeholders in the long term. Let me start by talking about our Commercial Construction and Transportation sector. We continue to be the partner of choice for our customers as we guide them through their disposition needs. The consignment environment remains supportive as OEM production has ramped up, allowing equipment owners to act on fleets that were aged during a pandemic. That said, we are not resting on our laurels. We are reinforcing our winning strategy by investing in our sales force, recruit in top talent and providing better sales coverage in certain markets within North America. Every market share percentage point recapture translates to more satisfied customers, solidifying our commitment to excellence and remain in the partner of choice.
Moving to the Automotive sector. We continued our steady acceleration towards operational excellence by implementing enhanced processes to overdeliver against our service level agreements. Customer savings and operational efficiencies go hand in hand for us. That's why we prioritize optimizing total performance after transaction closing. Picking up the vehicles quickly and efficiently stop storage cost, rental car cost and other auxiliary costs for our customers that significantly impacts net returns. I am proud of the team and pleased to say that our process improvement, combined with strategically deploying internal tow cost, tow assets have dramatically improved our performance compared to prior levels. Our pickup compliance and internal measure of our tow performance was approximately 98% in the fourth quarter, a substantial improvement year-over-year.
More importantly, we have consistently been in the high 90s of compliance for several months. We are focused on streamlining buying processes and strategically leveraging technology to maximize gross returns for our customers. Our efforts yielded measurable results again in the quarter, with automotive average selling prices climbing an industry lead in 2.5% year-over-year. A prime example of our technology deployment is our recent implementation of JD Power ChromeData VIN Descriptions with our IAA Interact merchandising platform. This gives buyers unparalleled and industry-leading insights for trim level data on vehicles in our marketplace while unlocking additional value for our sellers. We are also getting phenomenal feedback on our recently launched Sales Decision Center.
This system gives our sellers incredible real-time transparency into the variables impacting the market's micro structure of our auctions, allowing them to optimize their price realization further and unlock incremental value. As we continue to discuss our operational excellence program with our partners, we will launch a program that will provide our aggregated SLA performance to all of our insurance partners next week, creating an industry-leading level of transparency. The road ahead is paid with continuous improvement, and we're committed to exceeding customer expectations and our commitment to every turn. So momentum from our efforts to integrate IAA is fueling a broader focus on efficiencies and operational excellence across the entire organization.
We've realized $17 million in actual cost synergies in the quarter and have actioned a total of $70 million in annual run rate cost synergies since the close of the transactions. We are confident with all the plans in place to achieve our cost synergy target on the timetable we previously communicated. Our responsibility is to manage overall costs, not just cost synergies and more importantly, deliver overall results. We are keenly focused on top line growth and margin expansion opportunities across the entire organization. And therefore, we will no longer be reporting progress on cost synergies quarterly. By continually exploring ways to efficiently manage the cost of our business through operational excellence, we will enable strong flow-through, which will drive shareholder value.
In our discussions with our valued partners, land ownership is not necessary for meeting or exceeding our service level agreements or winning additional market share. We maintain a surplus of land capacity across our asset classes, allowing us to accommodate our operational requirements easily. As we indicated last quarter, we will continue to purchase property strategically and opportunistically in regions surplus of cats for where the market opportunity makes strong financial sense for us to make these investments. In certain markets, we proactively have and will continue to acquire space to better service the needs of our customers. Before passing the call to Eric, I would like to introduce him formally. When seeking our new CFO, we have three critical criteria in mind.
Firstly, we wanted someone who could enhance operational excellence by collaborating closely with the sales and operational teams. Secondly, a people-oriented leader who seamlessly aligned with our ONE Team all-in culture. Lastly, someone with a deep understanding of a customer-centric company. Eric embodies all these qualities and his experience within the automotive ecosystem has allowed him to dive in and make immediate impact. Let me pass the call to Eric to discuss our financial results for the fourth quarter and our outlook for 2024. Eric?
Eric Guerin: Thank you, Jim. I'm thrilled to be here and wanted to add my welcome to everyone joining the call. I want to thank the entire team at RB for making me feel so welcome and right at home. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison to the pro forma combined results of Ritchie Brothers and IAA for the prior year period. Total GTV increased 13% with strength across all sectors. Automotive GTV increased by 10%, benefiting from higher unit volumes and a higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the fourth quarter, CCC estimated that the loss ratio increased to approximately 20.4% compared to 20% in the same period last year.
Recall that the total loss ratio is the number of vehicles deemed salvage as a percentage of total accidents. Used automotive prices continue to trend lower year-over-year, while repair costs remain elevated, creating a productive environment to consider a car a total loss after an accident. GTV in the commercial construction and transportation sector increased by 20%, driven by increases in lot volumes, partially offset by declines in average price per lot sold. Part of the decline in the average price per lot sold was due to asset mix, as lot volume growth came from rental and transportation customers, where asset values are intrinsically at lower ASPs compared to traditional earthmoving assets. Additionally, we continue to observe declines in price year-over-year on an apples-to-apples basis.
I also want to note that the Yellow Corporation dispersal had a negligible impact on our GTV in the fourth quarter. Moving to service revenue. Service revenue increased 14% with our service revenue take rate expanding approximately 20 basis points to 20.2%. Service revenue increased due to growth in GTV and a higher average service revenue take rate. The increase in the average take rate was driven by a higher average buyer fee rate and growth in our marketplace services revenue, partially offset by a lower average commission rate. The lower average commission rate was primarily driven by a higher mix of automotive-related GTV and a higher mix of construction and transportation assets from strategic accounts. Moving to inventory. Inventory revenue declined 10%, with lower revenue contributions from the automotive and commercial and construction and transportation sectors.
Inventory rate for the quarter contracted 620 basis points year-over-year to approximately 5%. The decline in the inventory rate year-over-year can be attributed to prices declining faster than anticipated between the purchase date and the data sale of inventory in our commercial and construction and transportation sector and an increase in the cost of vehicles sold in our automotive sector. As previously noted, we expect the environment for at-risk deals to remain competitive in our commercial, construction and transportation sector. Turning to earnings. Adjusted EBITDA increased 14% compared to the combined adjusted EBITDA of IEA and Ritchie Brothers for the year ago period. Growth in adjusted EBITDA was in line with our pro forma service revenue and GTV growth.
Adjusted earnings per share increased 21% on strong operational performance and the full quarter impact of IAA inclusion, partially offset by higher share count, higher net interest expense and the impact of the Series A senior preferred shares. At the end of the fourth quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately 2.5 times. Adjusted net debt to trailing 12 months combined adjusted EBITDA was approximately 2.2 times, down two tenths of return compared to last quarter. We remain focused on deleveraging to approximately 2 times by the end of the first quarter of 2025. Moving to the outlook. We wanted to provide our initial thoughts on 2024. We expect gross transaction value growth between 1% and 4% year-over-year in 2024 compared to the pro forma combined gross transaction value of 2023.
We expect adjusted EBITDA from $1.17 billion to $1.23 billion in 2024, reflecting continued growth, our commitment to operational excellence program and prudent investment in growth initiatives. We expect our full year 2024 GAAP and adjusted tax rate to be between 25% and 28%. Moving to CapEx. We currently expect full year capital expenditures, which include PP&E net of proceeds on disposals and additions to intangible assets to be between $275 million and $325 million. With that, let's open the call for questions.
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