Rb Global Inc. Q1 FY2025 Earnings Call

Good day, everyone, and welcome to the RB Global First Quarter 2025 Earnings Call. This call is being recorded. At this time, I would like to hand the call over to Mr. Sameer Rathod. Please go ahead, sir.

Hello, and good afternoon. Thank you for joining us today to discuss our first 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 the cautionary statements contained in our earnings release and 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'd like to turn the call over to our CEO, Jim Kessler. Jim?

Thanks, Sameer, and good afternoon to everyone joining the call. I want to recognize our teammates' dedication to our partners and customers, particularly in this rapidly evolving macroeconomic environment. The recently announced tariffs have introduced a new level of uncertainty. And we are actively monitoring the impact to help our partners navigate their environment and make the best business decisions. As always, we have not changed our approach and are focused on factors we control to ensure we can consistently over deliver on our commitments. Our disciplined execution was evident again in this quarter with adjusted EBITDA declining 1% on a 6% decline in gross transactional value. Recall that we highlighted on last quarter's call that we anticipated a decline in GTV in the first quarter due to year-over-year comparison issues. To start, we are thrilled to announce the acquisition of J.M. Wood for approximately $235 million. Our shared values and culture are aligned naturally, particularly in our commitment to put our partners and customers first. This move enhances our geographical coverage in Alabama and adjacent states and brings a talented team of sales professionals with deep local relationships on board. They primarily focus on commercial construction and transportation assets and have a strong footprint with municipal customers. We expect to close this acquisition in the second or third quarter, subject to regulatory approvals and customary closing conditions. Moving to the CC&T end markets, while our customers and enterprise partners exercise caution amid ongoing uncertainty, we continue proactively investing in our future by focusing on controllable factors that drive growth while improving operational efficiencies. This includes having the most comprehensive network of territory managers while continuously implementing new programs to improve productivity. This strategic approach will ensure we stay top of mind with our customers and partners when they want to or need to transact. Regarding our enterprise partners, our strategy remains focused on delivering solutions that optimize their total cost of ownership and deliver premium price performance based on our liquidity preferences. We leverage our data and insights, products and parts procurement technology to solidify our position as the natural choice for fleet realignment. This integrated approach ensures we are deeply embedded in their operational workflows, driving long-term value and partnerships. From an operational standpoint, since joining last year, Steve Lewis, our COO, has made excellent strides in implementing a metric-driven framework for our Ritchie Bros. branded yards to help us accelerate efficiency and elevate the experience of our partners and customers. As part of these efforts, we have increased the number of planned sales events in North America by approximately 15% this year. We are also strategically adjusting the timing of all of our events to balance supply throughout the quarter and better position us to support premium price performance for our consignors. The new schedule is expected to improve load-out times of assets for our buyers, enhancing their experience and enabling us to manage our cost structure more efficiently by smoothing out peaks and valleys of activities. Turning to the automotive sector, we hosted IAA's 22nd Industry Leadership Summit, which again shattered attendance records. This premier event is a key platform for engaging North American insurance, fleet and remarketing partners and reinforces our commitment to exceeding customers' expectations through robust and consistent performance. We welcomed several prospective partners who had not attended in over a decade. Many approached me after our presentations saying they heard about the new IAA and had come to see it for themselves. I can confidently say we delivered. We are energized by the positive momentum in our automotive business. And in the first quarter, we are excited to announce that a new partner in the UK has selected us, Direct Line Group, as their sole salvage provider. We have signed a multi-year contract and will start supporting them in the third quarter of this year. I am also very pleased to say that we have gained market share globally in salvage in the first quarter on a year-over-year basis. In conjunction with the summit, we also hosted the IAA Advisory Council. This is an open and collaborative form where key insurance partners share insights, and we worked together to identify opportunities to drive value to their P&L. One area that continues to be a top priority for them is advanced charges, costs such as towing and storage that are incurred before a vehicle reaches our facilities. In response, we've launched several initiatives to improve predictability and cost management, including developing data-driven models to forecast storage expenses and optimize asset routing. We believe there is significant opportunity to reduce advanced charges by grounding vehicles more efficiently from the accident scene to the final destination. We recently launched the IAA total loss predictor, a new AI-driven tool that helps our partners better classify vehicles that should go directly to our yard versus a repair shop. We are also actively exploring the best venue concept to better support our insurance partners. While most of the assets they supply are automotive salvage, there is also a meaningful volume of construction and transportation assets that RB Global is uniquely positioned to help with. The opportunity is sizable. Over the past 12 months, our insurance partners have provided over 100,000 CC&T assets. We believe we can unlock premium price performance by cross-syndicating these assets to Ritchie Bros. branded properties. Our early pilots have shown promising results, reinforcing our belief in the potential of this approach. Overall, we continue to drive strong gross returns for salvage values as a percent of actual cash value for our partners. This stems from our continuous improvement in process and investment in technology. From an operational standpoint, we had another robust quarter with the team overdelivering against our service level agreements. Our transparency program continues to be industry-leading. I am very proud of the results we are driving for our partners. We also continue to make excellent strides in attracting new international automotive buyers to our marketplace, with the percentage of vehicles sold to international buyers hitting all-time highs. That said, we are cycling over significant product enhancements and process changes from the previous year, exposing ASP to broad macro forces. I would also note that at the margin, we saw some buyer hesitancy in the first quarter due to the threat of tariffs. This, combined with year-over-year mix headwinds, drove US insurance ASPs down approximately 3%. I will now pass the call to Eric to review our financial performance and outlook.

Thanks, Jim. Total GTV decreased by 6%. Automotive GTV increased by 2%, driven by a 7% increase in unit volumes, partially offset by a decline in the average price per vehicle sold. Unit volume growth was driven by strong organic growth from existing partners and year-over-year increase in salvage market share. First quarter salvage industry volumes benefited from ongoing secular growth in loss ratios, fueled by a favorable spread between repair cost inflation and used vehicle inflation. PCC Intelligent Solutions estimated that the total loss ratio increased nearly 100 basis points in the first quarter to approximately 22.8% compared to 21.8% in the same period last year. GTV in the commercial construction and transportation sector decreased by 18%, driven by a 19% decline in lot volumes, partially offset by an increase in average selling price. In combination with a shift in trade policies, uncertainty in the end markets is causing customers and partners to take a wait-and-see approach to disposition. Excluding the impact of the Yellow Corporation bankruptcy, lot volumes would have declined approximately 6% year-over-year. The average price per lot sold increased primarily due to an improvement in asset mix, partially offset by continued deflation in asset values. Asset mix tailwind stemmed the decline in lot volume from the rental and transportation industries, where asset values are intrinsically at lower ASPs. Excluding the impact of the Yellow Corporation bankruptcy from the prior period, the GTV decline in the commercial construction and transportation sector would have been approximately 14%. Moving to service revenue, service revenue was broadly flat on a higher service revenue take rate, offset by a lower level of GTV. The service revenue take rate increased approximately 150 basis points year-over-year to 22.3%, driven by a higher average buyer fee rate, offset by a lower average commission rate and a decline in our marketplace services businesses. Moving to adjusted EBITDA, adjusted EBITDA declined 1% on lower levels of GTV and a higher operating expense level, partially offset by an expansion in our service revenue take rate and a higher contribution from inventory returns. Our dedication to efficiency and disciplined execution was evident again in the first quarter as adjusted EBITDA as a percentage of GTV increased to 8.6% compared to 8.1% in the prior year. Adjusted earnings per share declined 1%, which is in line with the decline in adjusted EBITDA. Before we move to the outlook, I want to note that on April 3, we repriced our Term Loan A and revolver. This will reduce our bank spread by approximately 85 basis points and the undrawn revolver fee by 20 basis points. We also increased the revolver capacity to $1.3 billion, improved financial covenants for more financial flexibility and extended the maturity date to April 2030. Now moving to the outlook, we are keeping our full year outlook unchanged. We are traversing an unprecedented level of market uncertainty and changes in trade policy. While the direct impact on our business is relatively small, many customers and partners are trying to assess the impact on their business. These second and third order impacts are challenging to measure and predict, increasing the range of possible outcomes. We remain committed to advancing our long-term growth strategy by investing in key technological initiatives and expanding the sales force. We're also controlling what we can and are exercising prudent expense management while limiting discretionary spending to help us navigate the current environment. With that, let's open the call for questions.

Our first question comes from Sabahat Khan at RBC Capital Markets.

Thank you. I wanted to ask about the commercial segment. In the past, our legacy business has typically experienced a rise in volume during times of macroeconomic uncertainty. What is your assessment of customer behavior right now? It seems like there’s a wait-and-see attitude, but are they feeling uncertain about the overall situation? What is their current stance? Are there customers who might proceed with decisions if they gain more clarity? Any additional insights on the CC&T segment would be appreciated.

Yes. Happy to do so. And again, I think Eric mentioned this in his message that we started with when you kind of get down to lower levels of the chain of how to make decisions, what decision gets made, it gets really hard. But the one thing I would just point out is that when you think about the environment we came out of, a year ago, on this side of the business, all that COVID equipment came in, and then it all got disposed of. Then we immediately went into a higher interest rate environment, and then you add the change in the presidency in the US and tariffs and that uncertainty. I think there is still some optimism out there from our partners about mega projects and other projects in general coming through. So I think where the level of interest rates are, investment in new equipment versus holding on to it and then waiting to see if these mega projects come through, I think, is where their mind is at right now. And then for us, with all the different services and everything we have, what we're trying to do right now is understand what their strategic priorities are and how do we add value in this environment. So we're very focused with all of our partners. And for us, the disposition is just more of a timing issue of when it comes in this environment. But we want to make sure we're adding value every day inside their P&L.

Great. And then just for my follow-up, on the UK customer win that you announced, I think you indicated it starts to contribute in Q3. Anything you can share on the scale in terms of units of this customer? And then in terms of the IAA presence or capabilities in the UK, is it similar to the Australia situation, where there might be some sort of a build required? Just maybe thoughts on what the setup in the UK for IAA capabilities and then anything on the scale of this customer?

No, you got it. So just to start with scale, the UK already had a presence, unlike Australia, where we're building a presence. Ritchie Bros had the presence in Australia and not salvage cars. So the UK, we already have a presence, we already have a footprint. So really, there is no heavy investment that it takes. It's more just like in the US, how do we go out and get more market share? And really, what I'm proud of, of the team is this was a customer where we did no business before, and now we're doing an exclusive deal. And our partner did ask us not to talk about units specifically, so we're going to honor that. But what I would say is they're in a top tier of insurance carriers.

Up next, we'll hear from Krista Friesen, CIBC.

Hi. Thanks for taking my question. Following up on the IAA topic, could you provide more details about the growth in market share that you experienced last quarter? If possible, could you quantify that?

I don't think we're going to get into the details of the quantification. But I think if you go back to past calls, we've announced a bunch of different insurance carrier changes that have taken place. And that's all starting to come through the P&L as they get fully realized each quarter.

Okay. Great. You mentioned some hesitancy among your customers. Did that persist throughout the quarter? Have you observed any improvement in the first half of Q2?

I think, I want to separate this question into two things because I think there's a macro question and there's also an RB Global kind of question. And I just want to remind everyone, the one thing that RB Global is going through is so unique than any past years or quarters that we've had, about 1.5 years ago, a year ago, we won the Yellow deal, which was a big one-time bankruptcy that no one else has ever had. On the rental side of the business and equipment and transportation, a couple of our big partners had all that new equipment from COVID that got delayed to come in. So it created a disposition cycle that was different than everyone else. I'm extremely proud of our team to be able to look at liquidity for our partners at a very good level back then. But now we're in an environment where interest rates are higher for new equipment, tariffs of what's going on in the macro environment. So this is such a unique environment. When we go back and look at the history of Ritchie Bros., I don't think there's ever been an environment with these dynamics. What we went through because of COVID delayed equipment, equipment coming in, and a bunch of dispositions that had to happen – and then you're in an environment where interest rates are higher than they've been in the past, and people have to make decisions regarding what projects are coming up, what do I want to do with new equipment and compare it to the interest rate and buy into new equipment or dispose and hold on to. So we're in this environment. And I wouldn't say the macro environment has changed dramatically for someone to make a substantial decision different than they had in the past quarter.

Thanks. I really appreciate that color. I'll get back in the queue.

Up next is Michael Feniger, Bank of America.

Thank you for taking my question. With the GTV down 6% in Q1, you confirmed the full year guidance of 0% to 3%. Can you help us understand the situation? Are we expecting to stay flat in Q2, or be positive in the second half? Is there a chance it could still decrease slightly due to uncertainty, and that the improvement might be more in the latter half of the year? I'm considering how the year has begun and the commentary regarding hesitancy, so I would like to understand how we will progress through the rest of the year concerning GTV.

Yes. Thank you for the question, Michael. This is Eric. As I said on the fourth quarter earnings call, we anticipated the mid-single digits down in Q1 for some of the things that Jim described that we were lapping over a very strong prior year. So our expectation is for the full year that we're still within our range. I typically don't give guidance on a quarterly basis. But with that said, I would say as we progress through the year, we are anticipating the back half to be a bit stronger, if that’s helpful for you.

That's helpful. Jim, I know there has been some discussion about hesitancy on the commercial side. I'm curious about the auto side. There are various implications at different levels. What are you observing regarding potential tariffs on autos, how that might affect pricing for new vehicles, what filters to consider, and also repair prices? If the loss ratio is improving, how should we think about these different factors in relation to tariffs?

Hey, Michael, it's Sameer. Like you said, there are a lot of different moving pieces that we follow very closely. I think at a high level, when you think about it, the equation that we've laid out: if the repair cost inflation is greater than used car inflation, you would expect the loss ratio to expand. And then conversely, if the used car pricing increases faster than repair costs, the situation changes. I think at this point, we've just been speculating on what's going to happen given the tariffs, and things are changing by the hour. But we feel comfortable with the guidance that we provided in terms of GTV growth.

We'll go next to Craig Kennison from Baird.

Yes. Good afternoon. Thanks for taking my question. I wanted to focus on the acquisition of J.M. Wood. I'm curious, what synergies do you bring to the table on a deal like that?

Yes, happy to take you through it at a high level. So one, J.M. Wood is in a state where we didn't have any yard presence. So we're really happy to fill in Alabama. And just think about the scale of any large company like ours when you buy a business that's been owned by a family. There is technology and scale, services, and attach rate, financial services, and transportation services. Think about all the platforms we have from boom and bucket to MPE to IronPlanet to the Ritchie Bros. live event. What we love about J.M. Wood is they do certain things where we really haven't expanded like municipalities in this CC&T space, where we want to take their expertise and expand that across the US as we do it. But just think about all the back office, all the accounting, and all the finance activities that a large company can help a family-owned business with, as well as the technology component.

Thank you, Jim. And as a follow-up, to what extent is this a template for other deals like this, given your opportunity to consolidate in this market?

Yeah. Look, in general, we're excited about the M&A that is out there for us to go after. What we want to stay focused on, and Eric's kind of been giving this guidance for the last year, is now that we got the leverage ratio where we want it, having these tuck-ins come in, and we think we have opportunity in the US in the international space to leverage our scale. We believe there are ample opportunities to pursue acquisitions like you see with J.M. Wood.

Up next is Maxim Sytchev from NBF.

Hi. Good afternoon, gentlemen. Just a quick question around Australia and how the ramp-up is going there with the relatively recently signed client there? Thanks.

Yeah. So for Australia, just as a reminder, it really starts in the mid-summer timeframe is when we'll start accepting cars. And then think about the process of titles and everything else until you kind of see your first car for sale, which happens after that date. But think about mid-summer is the plan for us to start accepting cars at an IAA/RB Global lot.

Okay. Okay. That’s fair. That's it for me. Thank you very much.

Next up is Michael Feniger, Bank of America.

Hey, guys. Thanks for squeezing me back in. Just a promise is just one here. Just on the service revenue take rate, it was up 150 basis points. Can you guys just unpack that a little bit more? Is this a higher buyer fee that is onetime in nature for the quarter? Is that a kind of buyer fee that's going to be implemented for the rest of the year? I'm just kind of curious if you could talk about that service take rate expanding 150 basis points, which helps offset some of the other weakness you guys saw in other areas of the business?

Thanks for the question, Michael. Yeah, we typically won't comment on the composition of the take rate. What I would say is we continue to monitor ongoing what our fees and commission rates are and adjust accordingly within the market dynamics. So we're really comfortable with where we ended for this quarter, but I don't give guidance for the specific take rate.

And everyone, at this time, there are no further questions. I'd like to hand the call back to Mr. Jim Kessler for any additional or closing remarks.

Thank you so much. So first, I just wanted to thank all the RB Global teammates for your hard work and your continued dedication to adding value to each and every partner that we have. Really, that consistency and dedication to making sure we're at our partners' first is utmost important to our success in the future. So thank you so much for doing it. And everyone on the call, thank you for taking the time to listen to our story. We're looking forward to talking to everyone soon. Thank you so much.

Once again, ladies and gentlemen, that does conclude today's conference. Thank you all for your participation today. You may now disconnect.