Rb Global Inc. Q4 FY2024 Earnings Call

Hello and welcome to the RB Global Fourth Quarter 2024 Earnings 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. The operator provided instructions to participants. I would now like to turn the conference over to Sameer Rathod, Vice President of Investor Relations and Market Intelligence. You may begin.

Hello and good afternoon. Thank you for joining us today to discuss our fourth quarter results. Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer, are with me on the call today. The following discussion will include forward-looking statements, including projections of future earnings, business and market trends. These statements should be considered in conjunction with our cautionary statements contained in our earnings release and in our periodic SEC reports. On this call, we will also discuss certain 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 earnings release and periodic SEC reports. At this time, I would like to turn the call over to Jim Kessler. Jim?

Thanks, Sameer and good afternoon to everyone joining the call. I want to start by thanking our teammates for their hard work and dedication as we continue over delivering for our partners and customers. RB Global's fourth quarter highlights our commitment to disciplined execution and we finished the year strong, with fourth quarter adjusted EBITDA increasing 13% on a 2% increase in gross transactional value. I want to provide an update on the strategic review we conducted in 2024 and share how the new leadership team is shaping the vision for RB Global's future. At the heart of our company, we are defined by our commitments to our partners and customers and, more importantly, our ability to execute those commitments. We recognize that the world around us has constantly evolved as have our partners' needs and expectations. However, what remains unchanged is their desire to work with a trusted partner, one who listens, understands their challenges and takes a proactive approach to delivering solutions that drive superior business outcomes. This is the foundation of our growth strategy: put our partners first and over deliver on our commitments. By consistently doing this, we will solidify our position as their trusted global partner for insights, services and transaction solutions. And of course, we will do this with an eye toward operational efficiency and excellence. We see significant opportunities to drive transactions and grow our market share by creating a seamless and trusted experience for our sellers and buyers. We have three key areas of strategic focus. First, we aim for premium price performance for the assets transacted across our omnichannel marketplace while effectively accommodating our partners' liquidity preferences. This is about managing supply and creating deep liquidity pools by expanding the global buyer base. We are doing this by harnessing technology to merchandise assets at scale and providing a diverse, thoughtful and selective range of assets to meet each buyer's unique needs. Second, we are focused on growing our enterprise partner base. This includes insurance companies in our automotive sector and large fleet owners in our commercial construction and transportation sector. Our partners increasingly rely on our expertise to enhance their profitability by optimizing the life cycle of the assets they transact through us. The more effectively we can communicate and demonstrate our value upstream from the transaction the stronger our position will be in earning more transactions from partners and gaining market share. This means helping insurance partners with the first notice of loss, shortening total cycle times and reducing advanced charges. In CC&T this involves supporting partners with insights, minimizing maintenance costs with SmartEquip and streamlining asset transportation with VeriTread. At the end of the day, it's about driving quantified value to their P&L. Lastly, we remain focused on driving growth with our regional commercial customers, comprised of small and midsized businesses that highly value personalized engagement and relationships with our territory managers. By leveraging the expertise of our sales team as trusted advisers, we are confident in our ability to strengthen existing relationships and build new ones. As we optimize and expand our sales coverage, we are well positioned to capture additional market share and deliver sustained growth. We will enable all of this by continuing to focus on modernizing our technology capabilities, investing in the development of our teammates and strategically deploying M&A to expand our capabilities and market reach. Looking back to 2024, we made significant progress on all these enablers to accelerate growth. I am proud of the advancements of our technology capabilities with the launch of rbauction.com on a modern technology stack. This will be the cornerstone for efficient and scalable growth in the CC&T sector. We invested in our team and welcomed several talented senior leaders to our organization, including Eric, our CFO; Steve Lewis, our COO; and Nancy King, our CTO. Lastly, we enhanced our omnichannel marketplace by acquiring a new channel, Boom & Bucket, a technology-enabled fixed-price marketplace. Now let's move to the business trends we have been seeing recently. Although we are hearing more confidence and optimism from our partners and customers in CC&T, they continue to evaluate business conditions in the face of continued uncertainty in 2025. Much like last quarter, we would continue to describe the environment as wait and see. We are the ideal partner to help the industry navigate its fleet management needs in either a slowdown where the customers execute a deep fleeting strategy or a reacceleration where customers start purchasing new equipment and driving decisions on aged equipment. We are focused on driving sustainable growth and continue to invest in our North American sales organization. Now let's move to the automotive sector. I am proud of the team and pleased that we consistently delivered exceptional performance to all of our partners in the fourth quarter. All key SLA metrics remain strong at a very high level. Fourth quarter salvage industry volumes benefited from catastrophe events and the ongoing secular growth in loss ratios fueled by the favorable spread between repair cost inflation and used vehicle inflation. In the fourth quarter, CCC Intelligent Solutions estimated that the total loss ratio increased nearly 230 basis points to approximately 23.8% compared to 21.5% in the same period last year. We continue to attract new international buyers to our marketplace, achieving a record high percentage of vehicles sold to international buyers in our automotive sector. That said, we are starting to cycle over some of the significant process and technology improvements from last year and are, therefore, more exposed to the weakness in the broader macro environment. Average selling prices of salvage U.S. insurance vehicles declined less than 1%. And when excluding the impacts from catastrophe events, they declined approximately 2% year-over-year. I will now pass the call to Eric to review our financial performance and outlook.

Thank you, Jim. As I conclude my first full year as CFO, I am proud of the financial discipline we've instilled as a team. This past year, we have maintained a strong focus on operational efficiency, strategically investing in long-term growth opportunities and substantially reducing our leverage. Total GTV increased by 2%. Automotive GTV increased by 4%, driven by a 7% increase in unit volumes, partially offset by a decline in the average price per vehicle sold. Excluding catastrophe-related impacts, our automotive sector GTV would have declined by approximately 4%, while unit volumes would have increased by approximately 1%. Unit volume growth, excluding the impact of the catastrophe in the quarter, was driven by strong organic growth from existing partners, partially offset by the previously announced customer loss. We expect to completely lap the volume loss associated with this customer in the second quarter of 2025. GTV in the commercial construction and transportation sector decreased by 1% driven by a decline in the average price per lot sold, partially offset by an 18% increase in lot volumes. The average price per lot sold declined due to both asset mix and continued deflation in asset values. Asset mix headwinds stemmed from lot volume growth from rental and transportation industries where asset values are intrinsically at lower average selling prices. Excluding the impact of the Yellow Corporation bankruptcy, the GTV decline in the commercial construction and transportation sector would have been approximately 2%. By the end of the fourth quarter, most of the unit volumes related to Yellow had been sold. Moving to service revenue. Service revenue increased by 8% due to a higher service revenue take rate and higher GTV. The service take rate increased approximately 110 basis points year-over-year to 21.3% driven by a higher average buyer fee rate and growth in our marketplace services. Moving to adjusted EBITDA. Adjusted EBITDA increased 13% on the expansion in our service revenue take rate, a higher level of GTV and a higher contribution from inventory returns. Our dedication to efficiency and disciplined execution was evident again in the fourth quarter as adjusted EBITDA as a percentage of GTV increased to 8.4% compared to 7.7% in the prior year. Adjusted earnings per share increased by 16% on higher operating income and lower net interest expense, partially offset by a slightly higher adjusted tax rate. Our solid operational performance and continued debt paydown drove a 0.1 turn decline in our adjusted net debt to trailing 12 months adjusted EBITDA to approximately 1.6x compared to the third quarter of 2024. Moving to the outlook. We wanted to provide our initial thoughts for 2025. We expect full year gross transaction values to grow between 0% and 3% year-over-year as we continue to gain market share in 2025. Note that we will face the most challenged comparison in the first quarter of 2025 and expect consolidated GTV to decline mid-single digits year-over-year. We remain dedicated to our operational excellence program, while prudently investing in growth initiatives. We expect full year adjusted EBITDA between $1.32 billion and $1.38 billion, or approximately 1% to 6% year-over-year growth. We also expect our full year 2025 GAAP and adjusted tax rate to be consistent with 2024 and be between 25% and 28%. Moving to CapEx. We currently expect full year capital expenditures, which include property, plant and equipment net of proceeds on disposal and additions to tangible assets, to be between $350 million and $400 million. This is a step-up compared to 2024, mainly due to our investment to support our greenfield expansion in Australia, selectively acquiring property to optimize our portfolio while supporting volume growth and continued investment in technology. With that, let's open the call for questions.

The operator provided instructions to participants. Your first question comes from Steven Hansen with Raymond James.

Just a quick question on the market share gains that you described. How do you feel about progressing that through the balance of 2025? You've spoken to some wins already that are on your belt; do you expect additional wins through the balance of this year? Anything large and material or is it going to be small incremental wins as you go?

Steven, great question. I'm just going to stick to what's in our control. We're going to be very focused on providing the highest level of service to our partners. More specifically, the team is very focused on, especially in this environment, how we add value to our partners so they can see it in their P&L. That's what the team is really focused on. We believe by staying focused on that, that's going to produce the outcome we want as additional market share. But to fully answer your question, the one part of the equation that is not in my control is when someone says yes. So what we're going to stay focused on is what is in our control and make sure we keep delivering value to our partners.

And I'll just ask one more here and then turn it back in the queue. Just curious, Jim, I think you mentioned a couple of different items in terms of capital allocation priorities and one of them was M&A. Where does that land in the collective priority list for you as it stands? It sounds like you've got a bunch of things you want to invest in. Just curious if M&A overrides the potential for buybacks at some point in the future as well.

Eric, do you want to take that one?

Yes. As we laid out a couple of quarters ago, our capital allocation framework has always included M&A. My focus for most of 2024 was to get within our net debt to adjusted EBITDA range. As I articulated on this call, we're at 1.6x. So we're in a good place there. M&A is part of our strategy; it always has been, as we laid out earlier in 2024. We continue to look at M&A opportunities, but it's an element of our broader capital allocation. We'll continue to look at paying down debt. We'll look at M&A and we'll look at reinvesting in the business and organic opportunities, like I described on the capital allocation side. So we'll look at technology and continue to look at properties.

The operator provided instructions to participants. Your next question comes from Michael Feniger with Bank of America.

Yes. Just on the GTV growth outlook, you mentioned a tough comp in Q1. Is there any help you can give us between the split of auto, which seems like you guys are gaining share, versus the commercial transportation? Clearly, you guys have a tough comp you're cycling through with Yellow, still a good performance in Q4. Just curious, I know you guys have Orlando in a few days and you're seeing how that builds. I'm just curious what you're kind of expecting with some of the puts and takes, how we should think of that GTV makeup. Also, Jim, if I could just squeeze one more in. I'd love to get your sense of what you're hearing on the auto side. Obviously, you guys are gaining share. There's a lot of headlines around tariffs and what that might mean for the auto side. Is there any impact on the salvage side? Are you hearing that come up with buyers or sellers? What might the knock-on effect be of tariffs on new automobiles, how that might flow through salvage? Or maybe there's really no impact. I'd love to get that sense.

I'll start and then I'll pass it over to Eric to add any more color if he would like. Let me just start with automotive first. As a reminder, the carrier loss that we announced a little over a year ago is the last quarter that we have to do with that conversation. Then all other gains that we talked about start to kick in. So I think we feel really good about the trajectory of automotive and where it is. When we get into CC&T along with Yellow, I want to remind the group: when COVID created very erratic supply chains and equipment wasn't getting produced, and then a couple of years later new equipment was produced and there was a lot of disposal, with the very large strategic accounts we have, we got the benefit over a year ago. That disposal was a one-time event; that is similar to Yellow. It was really a COVID-related one-time event that happened. We got the benefit. So when you look over two years, you get a normalized growth rate that you would expect for this sector, and that's what you will see. That's why we're calling it out because very unique things happened over that time period. When we start looking into the back half, it starts to look normal without those things. We still have Yellow that we have to deal with for the whole year but that starts to become less as you go through the year. Eric, is there anything you would like to add?

I think Jim covered it.

On the tariffs question, first, between Mexico and Canada or other trade actions, everything got delayed and we continue to work with our customers and partners to understand potential impacts if actions are taken. The great thing about our marketplace, whether it's CC&T or the automotive side, is there is a need for these assets. It's up to our team, with insights and data, to help them navigate the world because there is a need for these assets as we go through it. We're going to be very focused on what's really going to happen, how we navigate it and how we use all the data and insights. Again, we want to make sure we're adding value to our partners no matter the environment. One benefit we have is being a global company with access to a lot of liquidity in many markets, which helps us assist partners through these times. The one thing we're hearing more apprehension about from our automotive partners is automotive parts and potential supply chain impacts if tariffs are enacted, versus the salvage car itself. We will continue to work closely with partners. Sameer or Eric, anything to add?

The operator provided instructions to participants. Your next question comes from Craig Kennison with Baird.

Jim, you mentioned in the CC&T business a wait-and-see market. I think that was an appropriate description last quarter as well. Wondering what you see as a potential trigger to change the nature of this market so that transactions start to flow a little better?

For us, we're constantly in communication with our partners. I think interest rates not coming down further is a factor; many hoped for more cuts which might have encouraged investment in new equipment. There's also uncertainty around tariffs and whether mega projects come to fruition. Everyone has to manage their balance sheet and cash flow. The great thing for our business is we realize we won't control our partners' decision timing on dispositions. We will add value through data, insights, transportation services, inspections and appraisals to help partners optimize their P&L when they are ready for dispositions. We demonstrated this during COVID when a lot of new equipment disposals occurred; I don't think anyone else at our scale could have helped manage premium pricing through the auction channels as we did. So when partners are ready to make decisions, we're the right partner to help them through it. That's where we stay focused.

Maybe as a follow-up, it looks like the federal government is taking a harder look at efficiency through certain initiatives. I'm curious if you're seeing any uptick in activity on your platform as it relates to potential RFPs or projects associated with assets that may not be needed anymore.

When you think about surplus items and categories on a large scale, we definitely see surplus items in different segments we serve that fit that. But I wouldn't call it anything abnormal at this point.

The operator provided instructions to participants. Your next question comes from Gary Prestopino with Barrington.

Jim, since we're almost over a year into the IAA transaction, can you give us some idea of how much you've reduced the cycle times and how much you've increased the salvage returns for your customers on average?

We're not going to provide specific metrics here. We issue a quarterly KPI report to all insurance partners that explains these items. What I will say is we are confident that we consistently overperform to the SLAs we've committed to for our partners and we will be relentless in driving those numbers up. We will continue to innovate and look for ways to improve. We've been issuing our performance results to the global insurance community to create transparency and show our confidence in our performance. I believe our performance has been very consistent over the last 18 months and I'm very proud of the team.

In terms of your international buyers of salvage, these tariffs being discussed—would they have much impact? There was a lot of noise about tariff differentials on new cars. Is there potential for onerous tariffs on salvage that's exported out of this country?

It's a difficult question because there hasn't been clarity on what exactly would be covered by tariffs. Our belief is these assets are needed. We worry more about short-term disruption; long-term, there could be a tailwind to prices and average selling prices. Our role is to show partners value in their P&L and to navigate globally with the footprint we have. We're one of the few truly global players, whether Europe, Mexico or Canada, and we can help partners through this. In the short term there may be noise; long term, it could be favorable to prices.

The operator provided instructions to participants. Your next question comes from Maxim Sytchev with NBF.

I was wondering if you could expand on the first point of the strategy, the desire to achieve premium price performance across channels. Would you build a little bit on what exactly you're going to be doing from an operational perspective to achieve that?

We take premium price very seriously and also the buyer experience so buyers have the information and data to make confident decisions. We evaluate different auction channels and balance liquidity needs with price maximization. For example, certain channels where there's a buy-now price and negotiation over time can produce a higher percentage than an unreserved live event. But with a live event you often get liquidity. We consider a liquidity-to-price scale and actively listen to partner needs to solve them. The Boom & Bucket transaction is an example of innovation to build another marketplace to drive higher price. We're focused on how we market, how we bring new buyers to our marketplaces and ensuring buyers have the most accurate information and descriptions for equipment and autos. A concrete example in auto: we added trim level data to our automotive listings; we're now over 95% complete on that and it improved ASPs. These are examples of things we constantly work on.

Maybe one quick question for Eric. In terms of the CapEx investments, how should we think about the incremental ROI? Is this to support future growth or to support market share you already have and to enable investments to support clients? How should we think about this?

It's a combination of both. Some of it is to support existing opportunities where it makes sense and to purchase properties where appropriate. As I mentioned earlier, we won the Australia automotive business and are excited about that opportunity, but it comes with incremental investment. On the technology side, with Nancy on board, we continue to improve our technology and customer experience. All investments are evaluated with a return on investment lens.

And Max, to add to Eric's point on Australia: we secured our first win there, but the investment is based on multiple wins we expect to get over time to reach the ROI we want. Bringing the number two player to say yes was a great team effort. Our expectation over a five-year horizon is to secure more wins and reach the desired ROI.

The operator provided instructions to participants. Your next question comes from Steven Hansen with Raymond James.

You previously referenced initiatives such as hiring additional sales representatives to broaden your territory coverage from an origination standpoint. Can you give us an update on how that strategy has been going from a market share gain perspective?

It's going really well and we feel comfortable with the progress. We want to improve how quickly new hires get up to speed. We recently added someone to our HR team who I have worked with before, and I feel good that will help the onboarding process. We see a great ROI from the program. As we get more efficient at bringing people in and getting them productive, there are areas where we can add more people to take market share. We'll stay focused on the program and on improving ramping efficiency.

You've been criticized in the past for CAT performance. Your comments suggest current SLAs on CAT performance have been meeting or exceeding expectations. Does that reduce the hindrance you've had in the past on winning market share back? Do you view this as a step change forward in your ability to win new business and perform well on CATs?

I wasn't here for some of the perceived issues in the past. Since I've been here and reviewed the data, I believe IAA has performed very well in most catastrophe events. There was a partner issue historically, and my focus is to show consistent and reliable service. For this recent season, the emails I've received from partners reflect strong performance by the team and I'm proud of that. We've been transparent and immediately shared performance results industry-wide so people can evaluate how well we performed. I don't think there should be any doubt that whether it's daily salvage processing or a catastrophe event, IAA can perform. Some people will make their own judgments, but I'm proud of our transparency and the team's work this year.

The operator provided instructions to participants. Your next question comes from Michael Feniger with Bank of America.

I noticed SG&A was down year-over-year on the reported number while GTV was up. I know you guys are investing back in the business. Is there anything you want to flag on the cost line we should be aware of? Also, Jim, great performance this year on the take rate. As we think about 2025, what are you embedding in that outlook? Are you assuming the take rate stays where it is? Is there an assumption for increases in buyer fees or incremental growth from marketplace services? Anything early this year that is driving the take rate would be helpful.

At a high level, we have a very disciplined take rate review process that we conduct every year and we follow it this year as well. I'm not going to get into specific forecast assumptions. We implement our review typically at the beginning of the year and we evaluate as the year progresses for any adjustments that need to be made. Eric, do you want to add on SG&A?

On SG&A, in line with what Jim described, since I came on board we've continued to focus on managing operating efficiency while over-delivering on partner expectations. The SG&A performance reflects that discipline: we are managing costs effectively while investing where it makes sense. We continue sales force expansion and will balance removing unnecessary costs with investing in the business. That discipline will continue under my tenure.

To add to Eric's comment, RB Global became what it is through many integrations and acquisitions over time. We're focused on running the business efficiently and effectively. We'll be relentless in improving structure, roles and responsibilities. Even if we get to a very efficient organization, there's always more to do. The one constant is we must over-deliver on our commitments to partners and add value to their P&L. I feel good when partners tell me in quarterly reviews they can see the value in their P&L. That feedback shows our team is delivering. We'll keep pushing to operate efficiently and capture opportunities from prior acquisitions.

This concludes the question-and-answer session. I'll turn the call to CEO Jim Kessler for closing remarks.

Thank you so much. I want to thank everyone for their participation. The executive team is down here in Orlando; we are at the World Famous Orlando auction on the construction and transportation side of the business. This week is always an exciting week. We just had our customer appreciation event last night, probably the most well attended since I've been here and likely in the history of the company. With the amount of GTV we're going to process in a very short period of time this week, I want to thank all of our teammates for their hard work. It is very much appreciated. After this week, next week we turn our attention to the automotive side; IAA has their industry event next week where we'll see a lot of our partners, review 2024 and discuss 2025 innovations and how we're going to add value. Thank you to all our teammates for your hard work. We really appreciate it and we're going to keep it going. Thank you so much and everyone, have a great night.

This concludes today's conference call. Thank you for joining. You may now disconnect.