Rb Global Inc. Q2 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Jim, and I will be your conference operator today. At this time, I am pleased to welcome you all to the RB Global Second Quarter 2025 Earnings Conference Call. Today's session is also being recorded. And now to get us started with opening remarks and introductions, I am pleased to turn the floor over to Vice President of Investor Relations, Mr. Sameer Rathod. Please go ahead, sir.

Hello and good afternoon. Thank you for joining us today to discuss our second 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 and the most directly comparable GAAP financial measures and the applicable reconciliation of the two, please see our earnings release and periodic SEC reports. At this time, I would 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 begin by recognizing the exceptional execution and dedication of our teammates, who remain the foundation of our ability to consistently over-deliver on our commitments and position us for long-term growth. As always, our approach remains unchanged as we stay focused on the factors within our control. Our disciplined execution was evident again in the quarter, with adjusted EBITDA increasing 7% on a 2% increase in gross transactional value. Starting with our automotive sector, the momentum continued as we outpaced the market for another quarter, achieving solid gains in market share. Unit volume increased by 9% year-over-year. With this increase in volume, I am especially proud to say that our teammates continue to perform at an exceptional level, consistently over-delivering against all of our service level agreements. On the demand side, our active buyer base continues to grow, reflecting the strength of our platform. Internationally, we are particularly pleased to welcome two new alliance partners, which extend our global footprint and enhance our diversity. We also continue to refine and optimize our multichannel auction format to drive premium price performance. These efforts translated into tangible results. We continue to deliver strong gross returns or salvage values as a percentage of pre-accident cash value, with U.S. insurance average selling prices increasing approximately 1% year-over-year. As we enter the peak season for catastrophic events, speed and coordination remain mission-critical for our partners. We prepare year-round for these events through detailed simulations and cross-functional alignment across real estate operations, logistics, and merchandising. This ensures we can respond seamlessly when the time comes. Our dedicated capacity continues to grow, and we have built additional agility and flexibility through our partnership with NASCAR and our ability to leverage Ritchie Bros. yards as needed. Last year, we demonstrated our unique ability to leverage the full strength of RB Global in managing the volume surge we experienced, and our teammates stand ready to respond again this year. All of this directly translates into superior execution, enabling us to consistently over-deliver on our commitments to our partners. We have a proven and scalable model for responding to catastrophic events, which provides a sustainable competitive advantage. We are also excited to announce a new joint venture in the U.K. with LKQ Corporation, a global leader in alternative and specialty parts. As a result, our SYNETIQ automotive parts in the mainland business will be jointly operated with LKQ and rebranded as LKQ SYNETIQ. RB Global will retain 100% of the salvage auction part of the business, which has been rebranded and will operate as IAA. This is a win-win where both organizations will bring their respective areas of expertise to the joint venture. Our regional partners are excited about the vision and value we bring to the industry. The joint venture will streamline the distribution of green parts into the repair network and elevate the customer experience. Moving to the commercial construction and transportation sector, I am pleased to share that we have successfully closed the acquisition of J.M. Wood. This transaction represents a strategic enhancement to our footprint in Alabama and the broader Southeast United States. We are proud to welcome a high-performing team with regional expertise to our organization. They have built their business much like ours by cultivating long-standing relationships founded on trust and exceptional service. By combining their strong brand, customer focus, and regional presence with our global reach, digital platform, and value-added services, we are well positioned to deliver even greater value to our customers and drive continued growth. While customers and partners in our commercial construction and transportation end markets continue to navigate macroeconomic uncertainty, we remain focused on factors within our control. We continue to invest in driving sustainable growth and enhancing operational efficiency. This includes ongoing optimization of our territory manager network and deployment of targeted productivity initiatives across the organization. Our disciplined approach is designed to position us as the partner of choice, ensuring we remain top of mind when customers are ready to engage and transact. Before I hand the call over to Eric to review our financial performance and outlook, I would like to thank our incredible team worldwide for their hard work, discipline, and perseverance. You power our momentum. We have the right strategy, the right people, and the right foundation in place, and I'm excited about the opportunities ahead as we continue to deliver long-term value for our customers, partners, and shareholders. Eric?

Thanks, Jim. Total GTV increased by 2%. Automotive GTV increased by 8%, driven by a 9% 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 a year-over-year increase in market share across salvaged and remarketed vehicles. As Jim noted, U.S. insurance ASP increased 1%. However, the average price per lot sold declined primarily due to a higher proportion of remarketed vehicles compared to insurance vehicles relative to the prior year. Second quarter salvage industry volumes benefited from ongoing secular growth in loss ratios, fueled by the favorable spread between repair cost inflation and used vehicle inflation. CCC Intelligent Solutions estimated that the total loss ratio increased by nearly 70 basis points in the second quarter to approximately 22.2% compared to 21.5% in the same period last year. GTV in the commercial construction and transportation sector decreased by 6%, driven by an 18% decline in lot volumes, partially offset by an increase in the average selling price. As you compare today's environment to that of 2024, it's essential to consider several key dynamics. Last year, our performance benefited from a significant release of aged fleet from our rental partners, a byproduct of prior COVID-related supply chain disruptions, as well as the unique impact of the Yellow Corporation bankruptcy, the largest in its category. Today, we are navigating a more complex macro backdrop characterized by higher interest rates, evolving trade policy uncertainty, and a more cautious posture from customers and partners amid growing optimism around mega projects. Excluding the impact of the Yellow Corporation bankruptcy, unit volumes declined approximately 2% year-over-year. The average price per lot sold increased, primarily due to an improvement in the asset mix. Asset mix tailwinds stemmed from declining 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 decline in GTV for the commercial construction and transportation sector would have been approximately 1%. Moving to service revenue, service revenue increased 3% on a higher level of GTV and a higher service revenue take rate. The service revenue take rate increased approximately 20 basis points year-over-year to 21.1%, driven by a higher average buyer fee rate structure, partially offset by a lower average commission rate and a decline in our marketplace services businesses. Moving to adjusted EBITDA, adjusted EBITDA increased 7% on GTV growth and expansion in the service revenue take rate. Our dedication to efficiency and disciplined execution was evident again in the second quarter, as adjusted EBITDA as a percentage of GTV increased to 8.7% compared to 8.3% in the prior year. Adjusted earnings per share increased by 14%, driven by a higher operating income, a lower net interest expense, and an adjusted lower tax rate. Before moving on to the outlook, I would like to highlight the financial implications of the LKQ joint venture that Jim just discussed. Given the relative size of the auto parts dismantling business, we do not expect any material impact on our topline or profitability for the remainder of 2025 as a result of this transaction. Going forward, we will account for this JV using the equity method, with our portion of the results included within other income. In connection with the JV, we revalued the assets, which resulted in a one-time loss on deconsolidation of $15.5 million and incurred an additional charge of $4.2 million associated with the deal, for a total loss of $19.7 million. Now moving to the outlook. For GTV growth, we are now expecting to be at the lower end of our guidance range. That said, we are raising and tightening our adjusted EBITDA guidance range to $1.34 billion to $1.37 billion. Additionally, as a reflection of our continued confidence in the strength of our strategy and our ability to drive sustainable long-term growth, we are increasing our quarterly dividend approximately 7% to $0.31 per quarter from $0.29 per quarter. As you refine your models for the second half of the year, please note that our guidance does not incorporate any contribution from cat-related GTV, given the unknowable nature of extreme weather events. Recall that cat volumes contributed approximately $169 million in automotive GTV in the fourth quarter of 2024, which will affect the year-over-year growth comparison for that period. To drive long-term profitable growth, we are investing in key technological initiatives and optimizing our sales force to improve the customer experience. The team also remains focused on structurally optimizing costs to help us navigate the current environment. With that, let's open the call for questions.

Maybe just following up on sort of those last comments there around kind of H2, just given the performance through H1, it feels like there might be a bit more room potentially on the full year EBITDA than even the guidance uptick suggests. So if you can maybe just give us some of the puts and takes from your perspective in addition to the color you just shared around what might be keeping you a bit more cautious? Or just what are some of the things you're keeping an eye on, the pros and the cons through the back half of the year that may have prevented the guidance increase from being a bit more meaningful just given the performance here to date?

Yes. Thank you for the question. This is Eric. As you look at the back half of the year, as I said in my prepared remarks, we do see a cautious wait-and-see approach from some of our partners and a lot more focus on potential mega projects later in the year. I think that's something that's continued, and I want to make sure we take that into consideration. But if you look at the EBITDA at the midpoint for the front half of the year versus the back half of the year, even with this guidance, you'll see an acceleration in growth in the second half versus the front half. So I feel comfortable with where I am on the guidance, and we'll obviously, as we do each quarter, assess the best path. But right now, I think the tightening of the range and then moving the midpoint conservatively here is the best approach for us.

Great. For my follow-up, could you elaborate a bit more on the CC&T side? There were similar comments shared last quarter regarding customers and equipment owners being somewhat cautious and uncertain. As we approach calendar Q3, are you noticing any signs of whether these individuals are opting to keep their machines or bring them to market? There was quite a bit of volatility during Q2 due to tariffs, so I'm interested in any changes you observed in Q2 compared to Q1, as well as your outlook for Q3 as we progress into the latter half of the year.

Yes. Look, it's Jim. I think we're too close to Q3 to really give you an answer at this point. The tariffs and interest rates are fluctuating; there's ongoing discussion on those matters, which makes forecasting challenging. As we think about it, you can see the progression from Q1 to Q2. We continue to feel good about progression that it should happen, but to Eric's earlier comments, there’s still some uncertainty that's hard for us to judge based on what's happening on the macro side of the business. But we feel really good that when the dam breaks, we are ready to accept the business and our partners will use us like they always have in the past. So we're excited to take it. But right now, we feel like it's better to be a little bit conservative on that side of our comments.

With the J.M. Wood acquisition now closed, I'm just curious about how you're thinking about the broader M&A pipeline. The assets you've acquired thus far have been pretty disparate to J.M. Wood and then Boom & Bucket come to mind. What are you on the hunt for now, and how does the pipeline look going forward? What are you looking to augment the platform with?

Yes. So look, I don't think we're going to get into specifics of our strategy, but we believe there are a lot of opportunities in the M&A side that stay core to our business. On the salvage side, we believe in organic growth that we can expand internationally inside of our holdco, which we already do today. We see a lot of tuck-ins that can happen, especially when you think about the global footprint that we have. So similar things that we've done with J.M. Wood, we see a whole pipeline there. But we're going to really stay focused on the things that complement our business, that do what we're good at, which is processing transactions and providing services to our buyers and sellers. We think we have a ton of opportunity and upside in the verticals that I mentioned.

That's very helpful. And just as a follow-up, earlier this year, you announced a fairly new marquee win in the U.K. with a prominent customer there. There's been some merger activity in the U.K. with large carriers. Just curious if that presents any opportunity or point of risk as you think about that new set of business that you're going after here?

Yes. No, great question. We see it more as an opportunity than a risk. We currently already do business with both. One, we do exclusively, and we have a smaller percent of the business, but we think of it as an opportunity for gaining more market share in that market.

Maybe just a follow-on on the IAA side of the business. Can you give us an update on how Australia is going and the buildout there? And just how that's progressing?

No. Thank you for your question. This is something that we're really excited about. We spent a lot of time getting ready to launch operations in Australia. I am proud to share that we are going to process our first set of cars for sale in the next 10 days. All the work to get our sites ready, to integrate systems with Suncorp, has come to fruition, and we're really excited about future market share once we have the infrastructure set up. So we're looking forward to processing those first cars.

Okay. That's great. And then maybe just here in North America, obviously still gaining market share. Can you speak to the competitive dynamics that you're seeing right now in the market?

Look, it's always hard when you talk about competitive dynamics. What we really stay focused on is what's in our control. And that is delivering the best operational performance against the SLAs that our partners value. We're laser-focused on being industry-leading in that. With our transparency program, we're sharing our SLAs and numbers to each and every insurance carrier we work with. The ongoing high-performance level is going to provide us with good opportunities as partners consider their future collaborations.

On the IAA side, I'm curious if you can give us an update on the trend in uninsured or underinsured motorists and the extent to which it's impacting your volume?

Yes. No, great question. The way I look at this in terms of the total, I think that question definitely has more of an impact on repairable type of claims than it does on total claims. For us, we haven't really seen a dramatic impact on our side of the business. We look closely at our partner conversations but haven't seen significant effects.

And on the CC&T side, I'm wondering about the new tax laws that were just passed and whether there's anything in there that might give you optimism about some mega projects or more construction activity that would be undeniably good for your business once you get past this period of hesitancy?

Yes. Look, I'll start, and if Eric wants to jump in, he can. We feel optimistic about bonus depreciation and other measures in the bill. For me, I believe in the intrinsic value of our business. These mega projects are about the timing of asset disposition and their return to the auction cycle. While I would like them to happen sooner rather than later, we maintain positive outlooks on what the future holds without getting too tied up in specific timings.

Yes. Just GTV, I think the guidance is now at the lower end of the range versus your initial assessment, but Q2 was better than I think everyone had expected. Just on the commercial construction side, excluding Yellow, down 1%. Is there anything you want to flag that might explain why that was so much better and whether that improvement is sustainable? Is there something in the mix? Anything you would want to highlight for us?

Yes. Thanks for the question. Starting with GTV and the guidance there, I think Jim commented on this. We are optimistic based on the performance improvements. I agree with your comments about Q1 to Q2. And while we aren't forecasting or giving specific guidance for the next quarter, we think the trend will continue. We're cautiously optimistic about our trajectory. Regarding overall GTV, I mentioned in my prepared comments the $170 million last year in Q4 related to cat events. I haven’t included that in my guidance due to the uncertainty surrounding it, which is part of why our range hasn’t shifted much. We will be prepared to react and assist our partners, but it's challenging to assess the future overall. On your second question about EBITDA, our expectation is that our EBITDA rate growth year-over-year will increase in the back half of the year. We don’t anticipate significant changes.

Yes, I understand the reluctance to guide on cat events that makes sense. But could you potentially provide us some insight into the range of outcomes from the last five years concerning performance?

Yes. And Steven, look, I think you just hit it. If you look at the last five years, you had some where it was zero. I don't want to say exactly zero, but some minor impacts from hail and similar events. Therefore, it’s very tricky for us. Last year represented one of the largest years in recent history. It could be zero again, or it could be as high as last year or more, but it’s a difficult element to foresee. So the way Eric described provides a solid reference point, and we gave the previous year's number to give context.

Okay, fair enough. And just one other follow-up is just around the broader enterprise strategy. Jim, I know you've talked about this in the past and your desire to pull more volume from large enterprise customers. Are there any specific initiatives you'd want to call out that you're working on today?

Yes. Look, I think when I think about the commercial construction and transportation sector, one of our goals is to provide greater blended net recovery. While we provide excellent recovery in the auction channel, there are wholesale and retail channels to explore as well. Our ability to get upstream is a priority with our partners. We’re piloting initiatives on Boom & Bucket, and we have other channels that are proving effective this year. It’s about creating additional value that sets us apart.

I just had a quick question regarding the attach rates in CC&T. Can you provide a bit of an update on how RBFS is doing, et cetera, and how there's a more recurring type of revenue being generated in that area?

I think we're not diving into specifics on those segments, Max. However, we feel good about RBFS. The current interest rate environment has impacted attach rates, but we remain positive about the overall business. We've also talked about VeriTread. Every transaction entails transportation, and providing that service brings additional value to our partners.

And would it be fair to say that transportation capacity will be beneficial for the IAA side as well? Can you provide an update on that?

Yes, Max, it's Jim. IAA does have a transportation business, but it's very small and still in its infancy. So I would view the focus on commercial construction and transportation where both buy and sell sides need transportation services.

Yes. You said it. I don’t specifically guide on take rates, but we remain optimistic. As I mentioned earlier, we have seen some expansion in the take rate. I view the take rate as our earning rate, meaning additional value-added activities we can provide to make transactions easier for our partners. I don't see anything in the back half of the year that would significantly change where we currently stand.

Thank you so much. Just like always, I want to thank all the RB Global teammates for their hard work. Hopefully, you can hear from Sameer, Eric, and myself our excitement about our future, which stems from the strong foundation our team has built. We are excited about the value we can bring to our partners going forward. I just want to thank our teammates for their contributions, as without them, we would not be at this point. For all our investors and stakeholders, thank you for your interest and reiterating our excitement for the future. We look forward to engaging with everyone over the next few weeks. Thank you for your time.

Ladies and gentlemen, this does conclude today's RB Global Conference, and we thank you all for your participation. You may now disconnect.