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Operator: Good afternoon ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers First 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. [Operator Instructions]. Thank you. I would 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 sir.

Sameer Rathod: Thanks, and hello and good afternoon to everyone joining on our call today to discuss our first quarter results. Joining me on the call today are Ann Fandozzi, our Chief Executive Officer and Eric Jacobs, our Chief Financial Officer. The following discussion will include forward-looking statements which can be identified by words such as expect, believe, estimate, anticipate, plan, intend, opportunities 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 innovation 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 Reports and Annual Report on Form 10-K, which are available on our Investor Relations website on 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 and Investor presentation posted on our website. We are unable to present quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all necessary components of such measures.

Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. All figures discussed on today’s call are in U.S. dollars unless otherwise indicated. Following the prepared remarks we will open the call to questions. Now, I’d like to turn the call to Ann Fandozzi.

Ann Fandozzi: Thank you, Sameer, and good afternoon to everyone joining our call today. Our team continues to deliver great outcomes for our customers with unwavering focus and execution. As a result, we delivered strong first quarter performance, including double digit GTV and service revenue growth, excluding the impact of the IAA acquisition, which closed on March 20. Our results reflect an acceleration in GTV growth late in the quarter from our Ritchie Bros. customers, particularly from strategic accounts. Over the past several quarters, we have discussed the supply chain issues facing strategic accounts, which have limited their ability to refresh and grow their fleets. Now, supply chains have started to loosen for several categories, and macro economic uncertainty has increased.

We are beginning to see increased activity in our commercial construction and transportation sectors. Notwithstanding, asset mix pricing continues to be a moderate headwind. Turning to IAA, the financial results were in line with our expectations and included an 8% year-over-year increase in service revenue and a pro forma full quarter basis and approximately 5% decline in GTV. The increase in service revenue for IAA was primarily driven by previously implemented buyer fee increases. The GTV decline was primarily driven by lower average selling prices, in line with broader industry trends, as well as expected modestly lower unit volumes due to the previously announced loss of significant volume from one customer. Of note, we expect to cycle through the impact of this customer loss in the second quarter.

Excluding the loss of volume from this customer ,volumes increased 1.6% driven by organic growth from other insurance customers. We are starting to see a slight increase in the automotive total loss ratio to approximately 19.4% from 18.2% in the same period last year, which is positively impacting volumes. Recall, that the total loss ratio is the number of vehicles deemed salvage as a percentage of total accident, and it has historically been influenced by used car values. Lower used car values make it more economical to deem a car a total loss after an accident. With the IAA acquisition now closed, we are embarking on an exciting new chapter for our business. To signify this new chapter as a combined company, we are unveiling a new corporate name RB Global.

Our new corporate identity reflects our structure as a diverse portfolio of verticals under a singular umbrella and our vision for the future of our company as a premier global marketplace leader. We will continue to do business under the Ritchie Bros. and IAA brands. We expect to be united as one organization under the RB Global name. More broadly, integration is off to a strong start. We’ve already kicked off detailed planning through our integration management office and implemented our new senior leadership organization. I’m pleased with how quickly the team has come together and confident that the new organizational structure will allow us to drive accountability across the entire company. As we continue integrating IAA and Ritchie Bros, each member of the leadership team is focused on their area of expertise.

For me personally, IAA has been strengthening relationships with current and prospective customers in the automotive vertical to ensure we are doing all we can to drive value for them and reinforced by RB Global is the right partner. As part of this work, we are focusing on driving the very highest levels of service to IAA customers on a more consistent basis and reduce the kind of churn that the salvage industry has experienced in the past. Jim Kessler, our President and Chief Operating Officer has dived deep into the workstreams that will drive significant value creation from this combination. Jim is focusing in our transaction and service offerings, which will ultimately drive revenue growth and cost savings which will meaningfully enhance the margin profile of the combined business.

We are in the process of constructing tests to validate the various opportunities we highlighted during diligence, which will form the basis for prioritization and ultimate execution. As always, we will keep you informed of our learnings and progress as we move forward in the coming quarters. Our Chief Transformation and People Officer is leading the execution of IAA integration planning to drive cost synergies. In the weeks following the close of the transaction, we’ve already identified and implemented actions that will result in approximately $15 million in annual run rate cost synergies. Based on our progress, we continue to expect to deliver $100 million to $120 million plus of annual run rate synergies by the end of 2025. Finally, I would like to highlight our focus on ESG.

We have published our 2022 sustainability reports for both Richie Bros. and IAA. Both reports can be found under the Sustainability tab of our Investor Relations website. With that, I will now hand the call over to our Chief Financial Officer, Eric Jacobs, to discuss our financial results for the first quarter, and to provide some additional outlook and commentary.

Eric Jacobs: Thank you, Ann. Welcome everyone who’s joining our call this afternoon. Since we are including 11 days of IAA activity in our reported financial results, and we have a considerable number of new investors, we will make some preliminary and other remarks throughout my section that we aren’t expecting to repeat each quarter. First, as you look at our results, please note that we are now reporting our financials as one business segment. We made this change to reflect how we are managing the business post the acquisition of IAA and the implementation of our new senior leadership structure. As we have said previously, we view the IAA business as an additional vertical for our broader marketplace. I also want to note that we will be reporting our results on a calendar quarter basis in line with how Ritchie Bros.

has done so in the past, but differing from the 13 week fiscal quarter that IAA previously reported on. A couple more preliminary items. To aid in the modeling of the combined company and to allow you to track trends we included five quarters of pro forma combined GTV and revenue data as a supplemental table in our press release today. With the acquisition, we will also update how we report gross transaction value or GTV. We will now report GTV in three sectors or categories; automotive, commercial construction and transportation, and other. Please note that each sector can be comprised of salvage and non-salvage transactions from both Ritchie Bros. and IAA. Automotive is comprised of consumer automotive vehicles. Since automotive vehicles sold by Ritchie Bros.

are now included in this category. It will make historical volume figures reported by IAA not comparable. Commercial construction and transportation consists of construction equipment, which is also known as yellow iron. It also includes lift in material handling equipment, vocational transportation trucks, as well as truck trailers. The other category is broadly comprised of transactions from our agriculture, oil and gas, and government surplus verticals, as well as equipment attachments now there is sundry items. We believe segmenting our GTV by sector who better allow us to talk about various end market trends impacting the business. Now, turning to our actual GTV results. On a reported basis GTV increased 32% year-over-year. GTV growth for Ritchie Bros.

excluding the impact of the IAA acquisition was 10% for the quarter. This was driven by a continued rebound in unit volume growth, partially offset by lower prices, unfavorable asset mix and unfavorable foreign currency exchange rates. When you see the negative impact of foreign exchange, GTV growth for Ritchie Bros. standalone increased 12%. Excluding the impact of the IAA acquisition, lot volumes were up 28% year-over-year in a quarter driven by strategic account. However, the average price per lot sold was down 14% versus the first quarter of 2022. And recent quarters, I’ve discussed the crossover between price and volume that we are experiencing. We are cycling over the all time high pricing for the first quarter of 2022 and seeing our lot volumes increase and lower dollar value, rental and transportation assets.

Geographically, we saw strength of Ritchie Bros’ down on GTV growth in the United States. This growth was partially offset by declines in GTV in Canada and international due to significant auction events that did not repeat in those parts of the world, as well as the impact of foreign currency exchange rates. On a pro forma combined basis GTV increased 1% year-over-year, driven by the strength in the commercial construction and transportation category, offset by the weakness in automotive that Ann discussed. If you plan a model GTV, we expect the trend of higher unit volumes and our commercial construction and transportation sector to continue in the second quarter. This gross will be partially offset by continued pressure on average selling prices due to asset mix and software category pricing.

In the automotive sector, we are expecting a modest increase in unit volumes and continued pressure on average selling prices. Taking all this into account. We expect GTV growth in the second quarter to be up low-to-mid single digits year-over-year on a pro forma combined basis. Moving now to revenue. Let me first discuss our types of revenue. Service revenues comprised of seller commissions, buyer fees and revenue from our marketplace services. Historically Ritchie Bros. with 60% commission’s versus 40% buyer fees. Whereas IAA was about 20% commissions and 80% buyer fees. On a pro forma combined basis, we were at roughly 35% to 65% split between commissions and buyer fees respectively. Inventory revenue is the gross transaction value of the assets we purchase before they are subsequently resolved through our marketplace.

Historically, both Ritchie Bros. and IAA have had inventory revenue. In the commercial construction and transportation category inventory revenue tends to be driven by consigner preferences which can vary over time. In the automotive category, it’s a combination of contractual obligations and vehicles purchased for dismantling which can also vary quarter-to-quarter. There also tends to be more inventory revenue transactions in international markets. As a result, with higher preferences, large bulk transactions and/or changes in the dollar amount of international activity could distort our total revenue growth. Therefore, we continue to suggest that investors look at our total GTV particularly for our commercial, construction and transportation sector as another metric to gauge growth and performance.

Next slide please. On an as reported basis, our service revenue increased 40% year-over-year, and our take rate or service revenue as a percentage of GTV was 18.1%. Excluding the impact of IAA in the quarter, service revenue increased 13% with our take rate expanding 40 basis points to a take rate of 17.4%. The increase in take rate for Ritchie Bros. on a standalone basis was driven by growth in marketplace services revenue and the impact of higher buyer fees partially offset by lower seller commission rates. As we discussed last quarter, we expect a lower commission rates to the higher mix of GTV from Ritchie Bros. strategic accounts. We expect this trend of lower commission rates to continue in coming quarters with the expected continued growth of strategic accounts.

We continue to see strong growth and smart equipment routes. However, Ritchie Bros. financial services experienced stagnated growth in the first quarter due to the impacts of tighter credit standards, higher interest rates and changes in asset mix. The current environment makes it more difficult to match customers with our lending partners. In some cases, our banking partners have completely stopped lending against commercial transportation assets due to weakness in that end market. Now, let me move to the next slide. On a pro forma combined basis, service revenue increased 10% year-over-year driven primarily by 160 basis point expansion in our take rate. Both Ritchie Bros. and IAA benefited from higher buyers. There was also an increase in marketplace services revenue at Ritchie Bros.

The increase in biographies help offset the decrease in seller commission rates, which we previously discussed. Turning to inventory revenue. On an as reported basis, our inventory revenue increased 30% year-over-year with an inventory rate of 11.7%. Excluding the impact of IAA, inventory revenue increased 5% with an inventory rate of 10.2%. As previously stated, we view inventory deals as driven by customer preferences. And we leverage our data and analytics to set appropriate targets for these packages. There was 160 basis point contraction in the Ritchie Bros. inventory rate compared to the rate in the prior periods. This decrease was due primarily to increased competition and unfavorable mix of inventory packages and the recent quarter.

That said, the Ritchie Bros. inventory rate has been at the higher end of historical ranges more recently. As we focus on accelerating our commercial, construction and transportation GTV, we will continue to structure average deals to win where it makes financial sense. On a pro forma combined basis, inventory revenue declined 10% and the inventory rate declined 300 basis points year-over-year, primarily due to lower use vehicle pricing, coupled with less non insurance vehicles being purchased due to a tightened supply environment and fewer contractual bulk automotive sales than the prior year quarter. Before turning to earnings, let me discuss our expense categories. Cost of services includes yards that support weekly auctions, such as IAA yards, and Ritchie Bros.

GovPlanet locations. Cost of services also includes indirect costs incurred to earn auction revenue or marketplace services. Includes the cost of our inspectors for auction services and costs of services. This is consistent with how each company has historically reported. Selling, general administrative expenses includes yards not used for events weekly, such as our typical Ritchie Bros. yards. It also includes expenses for our corporate functions. Once again, this is consistent with our prior historical reporting. Acquisition related and integration costs includes certain legal finance and advisory and other costs related to acquisitions. It also includes integration costs such as severance. On an as reported basis, our adjusted EBITDA increased 26% year-over-year, and our adjusted diluted earnings per share increased 24%.

A substantial portion of the growth in adjusted EBITDA came from the inclusion of IAA this quarter. Please note that in our most recent earnings call, we indicated that we were expecting headwinds in our flow through on a Ritchie Bros. standalone basis as we continue to add the necessary resources to support higher units volumes. In the first quarter we also invested in incremental salespeople to expand our market coverage, continue driving unit growth into our marketplace to sustain strong growth in the coming quarters. Our expenses also increased year-over-year due to headcount investments to process the growth in services revenue and higher levels of travel expenses associated with customer events, industry conferences and internal annual kickoff meetings.

We are in the preliminary stage of determining the fair value of the assets acquired in the IAA acquisition. One adjustment that we’ve already made is related to IAA’s prepaid consigned vehicle charges of $73 million, which were adjusted to their fair value of $9 million in the opening balance sheet. During the first quarter, this adjustment resulted in a $12 million reduction in our costs of services that would have otherwise occurred absences purchase accounting adjustment. This adjustment will also result in additional $52 million reduction in our cost of services primarily in the second quarter of this year with any remaining amount and subsequent periods. Any income statement benefits and the fair value adjustment of these prepaid costs, as part of purchase accounting is being treated as a reduction to adjusted EBITDA and adjusted net income in the quarter when we received the benefit.

As we continue to work on finalizing purchase accounting, we may identify our value adjustments, which may have an impact on our income statement in the future. Since the close of the acquisition, IAA’s adjusted EBITDA has been broadly in line with our expectations. With higher service revenue, offset by incremental higher tow [ph] and branch related costs when you compare that to prior year. As Ann noted earlier, we have started to implement our integration plan and have already acts in approximately $15 million and annualized run rate cost synergies in the first quarter. The cost to achieve these synergies in the first quarter was approximately $14 million. We previously highlighted, we expect cost savings synergies realized net of the cost to achieve those synergies to be a net $28 million incremental expense for 2023.

Accounting for synergies and business needs, we expect selling, general and administrative expenses to be between $175 million and $190 million in the second quarter, exclusive of share based payments and other adjusting items. Regarding income taxes, we currently expect the effective tax rate excluding the impact of adjusted items to be between 24% and 26% for the second quarter. This corresponds to a GAAP tax rate of 26% to 28%. Next slide, please. As of March 31, our total net debt was approximately $2.7 billion and our total net debt to trailing 12 month adjusted EBITDA was 5.4 times. Note, that the trailing 12 months adjusted EBITDA only includes 11 days of contribution from IAA. However, if you calculated the ratio on a pro forma basis, we would be below three times.

We remain committed to deleveraging to approximately two times by the end of the first quarter of 2025, and as part of our plan, we expect to pay down at least $150 million to $175 million of debt in 2023. Our forecast for interest expense in the second quarter is expected to be between $65 million and $68 million including the amortization of deferred financing costs. Our total blended interest rate is currently approximately 8%. At the end of the quarter, our fixed to floating interest rate mix was approximately 40% to 60% respectively. Just a quick note on capital expenditures. We previously sold our Bolton facility for $169 million pre-tax gain in the first quarter of 2022 with the plan of investing proceeds from the sale into several new yards.

One of those new yards properties, an AmRest was originally expected to be purchased in the fourth quarter of 2022. However, the purchase of the AmRest property for $17 million did not actually close into the first quarter of 2023. Therefore, we now expect total capital expenditures to be between $275 million to $290 million on as reported bases in 2023, driven by continued investment in yard capacity, as well as an increase in internally developed software capitalization. Next slide please. This is the same slide as we saw last quarter. We wanted to continue to highlight how we will be accounting for the convertible preferred equity that was issued in the first quarter and the impact it will have on calculating our earnings per share, both reported and adjusted.

As we noted last quarter, we will be using the two class method as it is expected to be more diluted. Impact of the convertible preferred equity in the first quarter, decreased our adjusted diluted earnings per share available for common shareholders by approximately $0.5 per share. And this impact on earnings per share is expected to continue. Thank you all again for your time today. And now back to Ann.

Ann Fandozzi: I thank our incredible team for their relentless focus and execution and dedication to our company with IAA we have a brighter future ahead. Operator, you can now open the call for questions.

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Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question will come from Sabahat Khan at RBC Capital Markets. Please go ahead.

Operator: Your next question comes from Michael Doumet at Scotiabank. Please go ahead.

Operator: Your next question comes from Craig Kennison at R. W. Baird. Please go ahead.

Operator: Thank you. Your next question comes from Michael Feniger at Bank of America. Please go ahead.

Operator: [Operator Instructions] Your next question will come from Maxim Sytchev at National Bank. Please go ahead.

Operator: Please stand by.

Operator: Yes you are. Please continue.

Operator: Your last question will come from Larry De Maria at William Blair. Please go ahead.

Operator: At this time, we have no further questions. So I will turn the conference back to Ann Fandozzi for any closing remarks.

Ann Fandozzi: Wonderful. Thank you. Before I end the call, I would be remiss not to take the opportunity to thank our shareholders for their support of the combination of Ritchie Bros. and IAA. We are deep, deep, deep into the integration work, and it is off to a very strong start. For the shareholders on this call that are new to our quarterly calls, welcome. We are an open book with how we’re doing and how we’re doing is driving a very unique marketplace strategy for insights, services and transaction solutions across verticals. Stellar progress, incredible team, and we thank you for all of your support. And with that, we also thank you for your time and have a wonderful rest of your day and your week.

Operator: Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank you all for participating and ask you to please disconnect your lines.