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Press Release

Ritchie Bros. reports fourth quarter and 2018 annual results

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02/28/2019

VANCOUVER, Feb. 28, 2019 /CNW/ - Ritchie Bros. Auctioneers Incorporated (NYSE & TSX: RBA, the "Company" or "Ritchie Bros.") reports results for the fourth quarter and full year ended December 31, 2018. 

(All figures are presented in U.S. dollars)

Fourth quarter highlights

Operating income of $56.3 million increased 41% compared to $40.0 million in the fourth quarter of 2017. Net income attributable to stockholders of $35.5 million decreased 3% compared to $36.8 million in the fourth quarter of 2017, mainly due to the non-repeating tax benefit resulting from the U.S. tax reform in the prior year. Diluted earnings per share ("EPS") attributable to stockholders decreased 6% to $0.32 in the fourth quarter of 2018, versus $0.34 in the fourth quarter of 2017, while diluted adjusted EPS attributable to stockholders (non-GAAP measure) increased 23% to $0.32 versus $0.26 in the fourth quarter of 2017. Other key fourth quarter highlights included:

Consolidated results:

  • Total revenues of $356.0 million increased 22% over the fourth quarter of 2017
  • Total Company Agency Proceeds (non-GAAP measure) of $193.1 million increased 8% from $178.8 in the fourth quarter of 2017
  • Total selling, general and administrative expenses ("SG&A") of $95.6 million increased 3% from $93.0 million in the fourth quarter of 2017

Auctions & Marketplaces ("A&M") segment results:

  • Gross Transaction Value1 ("GTV") of $1.34 billion increased 3% compared to $1.29 billion in the fourth quarter of 2017
  • Total revenues of $321.1 million increased 22% compared to $262.6 million in the fourth quarter of 2017
  • A&M agency proceeds (non-GAAP measure) of $178.6 million increased 9% from $163.7 million in 2017
  • A&M revenue rate of 24.0% increased 370 bps from 20.3% in 2017, and A&M agency proceeds rate (non-GAAP measure) of 13.4% increased 80 bps from 12.6% in 2017

Full year highlights

Net income attributable to stockholders of $121.5 million increased 62% compared to $75.0 million in 2017. Diluted earnings per share ("EPS") attributable to stockholders increased 61% to $1.11 versus $0.69 in 2017, while diluted adjusted EPS attributable to stockholders (non-GAAP measure) increased 33% to $1.08 from $0.81 in 2017. Other key highlights included:

Consolidated results:

  • Total revenues of $1.17 billion; increased 20% compared to $971.2 million in 2017
  • Total Company agency proceeds (non-GAAP measure) of $729.1 million increased 19% from $610.5 million in 2017
  • Cash provided by operating activities of $144.3 million for the year ended December 31, 2018
  • Declared quarterly dividends aggregating to $0.70 per common share in 2018

Auctions & Marketplaces segment results:

  • GTV of $4.96 billion up 11% compared to $4.47 billion in 2017
  • A&M total revenues of $1.05 billion increased 20% compared to $870.8 million in 2017
  • A&M agency proceeds (non-GAAP measure) of $672.2 million increased 19% from $564.3 million in 2017
  • A&M revenue rate of 21.1% increased 160 bps from 19.5% in 2017, and A&M agency
  • proceeds rate (non-GAAP measure) of 13.5% increased 90 bps from 12.6% in 2017

"We delivered strong fourth quarter performance with good revenue growth of 22% and Agency Proceeds growth of 8% coupled with operating income growth of 41% versus prior year.

It was a fitting end to an excellent year in 2018 in which we achieved full-year revenue growth of 20% with Agency Proceeds growth of 19% and both diluted and diluted adjusted Earnings Per Share growth improving 61% and 33% respectively. Significantly contributing to our growth were our live and online auction channels, US Strategic Accounts, the US West region, Canada and International as well as RBFS and Mascus. We are proud that the combined Ritchie Bros. delivered $829 million in online full-year GTV, significantly surpassing what IronPlanet achieved in pure online as a standalone company, excluding live events in its peak year of 2016. We are delighted with the strength of our balance sheet as we systematically paid down debt and significantly reduced our leverage ratio well below our target ceiling." said Ravi Saligram, Chief Executive Officer of Ritchie Bros.

Continued Saligram, "The record sale in Orlando last week is indicative that supply and demand are harmonizing and we are encouraged to see supply loosening. We're enthusiastic about our growth prospects in 2019 as our technology and operational initiatives take hold, our multi-channel sales execution improves and both Marketplace-E and RB Asset Solutions start to build momentum."

_________________________________

We present both GAAP and non-GAAP measures to provide investors with additional information. We believe that providing these non-GAAP measures along with GAAP measures allows for increased comparability of our ongoing performance from period to period. Non-GAAP financial measures referred to in this report are labeled as "non-GAAP measure" or designated as such with an asterisk (*). Please see pages 12-15 for explanations of why we use these non-GAAP measures and the reconciliation to the most comparable GAAP financial measures.


GTV represents total proceeds from all items sold at the Company's live on site auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in our consolidated financial statements.

 

Financial Overview
(Unaudited)


(in U.S. $000's, except EPS)

Three months ended December 31,


Year ended December 31,




%Change



% Change


2018

2017

2018 over
2017



2018


2017

2018 over
2017

Service revenues

$

197,779

$

182,351

8%


$

749,515

$

624,417

20%

Revenue from inventory sales


158,193


109,399

45%



420,511


346,774

21%

Total revenues


355,972


291,750

22%



1,170,026


971,191

20%

Costs of services


46,315


39,096

18%



159,058


133,189

19%

Cost of inventory sold


142,505


98,895

44%



374,339


306,498

22%

Selling, general and administrative expenses


95,624


92,983

3%



382,676


323,270

18%

Acquisition-related costs


54


3,110

(1%)



5,093


38,272

(87%)

Operating income


56,327


40,038

41%



185,189


107,454

72%

Operating income margin


15.8%


13.7%

210 bps



15.8%


11.1%

470 bps

Adjusted operating income (non-GAAP measure)


56,327


42,204

33%



186,690


133,793

40%

Adjusted operating income margin (non-GAAP measure)


15.8%


14.5%

130 bps



16.0%


13.8%

220 bps

Net income attributable to stockholders


35,486


36,754

(3%)



121,479


75,027

62%

Adjusted net income attributable to stockholders (non-GAAP measure)


35,486


28,298

25%



117,669


87,662

34%

Diluted earnings per share attributable to stockholders

$

0.32

$

0.34

(6%)


$

1.11

$

0.69

61%

Diluted adjusted EPS attributable to stockholders (non-GAAP measure)

$

0.32

$

0.26

23%


$

1.08

$

0.81

33%

GTV

$

1,337,614

$

1,294,932

3%


$

4,964,165

$

4,467,982

11%

Agency proceeds (non-GAAP measure)

$

193,133

$

178,785

8%


$

729,111

$

610,517

19%

A&M revenue

$

321,124

$

262,628

22%


$

1,046,518

$

870,797

20%

A&M revenue rate


24.0%


20.3%

370 bps



21.1%


19.5%

160 bps

A&M agency proceeds (non-GAAP measure)

$

178,619

$

163,733

9%


$

672,179

$

564,299

19%

A&M agency proceeds rate (non-GAAP measure)


13.4%


12.6%

80 bps



13.5%


12.6%

90 bps

 

Consolidated Performance Highlights

Total Revenues  increased 22% to $356.0 million in the fourth quarter 2018 compared to $291.8 million in the fourth quarter of 2017. This increase is primarily due to the increased inventory sales in the United States and Europe, higher fee revenues, and RBFS growth.  For the full year, total revenues increased $198.8 million, or 20%, driven principally by the Acquisition, as well as increased fee revenue, and services growth.

Agency Proceeds (non-GAAP measure)  increased 8% to $193.1 million in the fourth quarter 2018 compared to $178.8 million in the fourth quarter of 2017 driven by overall GTV growth with notably strong momentum in the online channel, as well as higher fee revenue, partially offset by some inventory rate softness in the United States. For the full year, agency proceeds (non-GAAP measure) increased $118.6 million, or 19%, driven principally by the Acquisition of IronPlanet, as well as increased fee revenue, and services growth.

Costs of services increased $7.2 million, or 18%, to $46.3 million compared to $39.1 million in the fourth quarter of 2017. This increase is primarily due to higher ancillary costs, as well as costs to support the Company's GovPlanet operations. Cost of services for the full year increased $25.9 million, or 19%, to $159.1 million compared to $133.2 million in 2017 primarily due to the Acquisition.

Selling, general and administrative ("SG&A") expenses increased $2.6 million, or 3%, in the fourth quarter of 2018 compared to the fourth quarter of 2017. This increase is primarily due increased costs to implement the GovPlanet non rolling stock contract with the US Department of Defence, offset by reduced share unit expenses. For the full year, SG&A expenses of $382.7 million increased $59.4 million, or 18%, compared to 2017.

Operating income increased 41% to $56.3 million in the fourth quarter of 2018 compared to $40.0 million in the fourth quarter of 2017. This was primarily due to increased revenue, more disciplined SG&A expense management and lower acquisition-related costs.  For the full year, operating income increased 72% to $185.2 million compared to $107.5 million in 2017. Adjusted operating income(non-GAAP measure) increased 33% in the fourth quarter of 2018 compared to the fourth quarter of 2017, which excluded the impact of non-recurring acquisition related costs and severance costs in the fourth quarter of 2017.  For the full year, adjusted operating income (non-GAAP measure) increased 40%.

Net income attributable to stockholders decreased 3% to $35.5 million in the fourth quarter of 2018 compared $36.8 million in the fourth quarter of 2017. The decrease was primarily due to the year over year difference in tax rates from the favourable impact in the fourth quarter of 2017 from the US tax reform changes.  Adjusted net income attributable to stockholders (non-GAAP measure), which removes $10.1 million of the tax benefit related to the US tax reform changes increased 25%.  For the full year, net income attributable to stockholders increased 62% to $121.5 million compared to $75.0 million in 2017, and adjusted net income attributable to stockholders (non-GAAP measure) increased 34% to $117.7 million.

Diluted EPS attributable to stockholders decreased 6% to $0.32 in the fourth quarter of 2018 compared to diluted EPS attributable to stockholders of $0.34 in the fourth quarter of 2017, and diluted adjusted EPS attributable to stockholders (non-GAAP measure) increased 23%. For the full year, diluted EPS attributable to stockholders increased 61% to $1.11 from $0.69 in 2017 and diluted adjusted EPS attributable to shareholders (non-GAAP measure) of $1.08 increased 33% compared to $0.81 for 2017.

Auctions & Marketplaces Segment Performance Highlights

GTV increased 3% to $1.34 billion in the fourth quarter of 2018 compared to $1.29 billion in the fourth quarter of 2017. The increase was led by consecutive double digit online auction growth and positive growth in the live auction channel from stronger year over year comparable growth in live industrial auctions offset by a lower number of auctions.  For the full year, GTV increased 11% to $4.96 billion compared to $4.47 billion in 2017.

A&M total revenues revenue increased 22% to $321.1 million in the fourth quarter of 2018 compared to $262.6 million in the fourth quarter of 2017. This increase was primarily due to GTV growth, higher inventory sales in the United States and Europe, and increased fee revenue.  A&M revenue rate grew 370 basis points to 24.0% in the fourth quarter of 2018 from 20.3% in the fourth quarter of 2017. For the full year, A&M revenue increased 20% to $1.05 billion in fiscal 2018 compared to $870.8 million in 2017. A&M revenue rate grew 160 basis points to 21.1% in 2018 compared to 19.5% in 2017.

A&M agency proceeds (non-GAAP Measure) increased 9% to $178.6 million driven by overall GTV growth with notably strong momentum in the online channel, as well as higher fee revenue, partially offset by some inventory rate softness in the United States.  A&M agency proceeds grew 19% to $672.2 million for the full year 2018.

Dividend Information
Quarterly dividend
The Company declared on January 25, 2019, a quarterly cash dividend of $0.18 per common share payable on March 8, 2019 to shareholders of record on February 15, 2019.

Q4 2018 Earnings Conference Call
Ritchie Bros. is hosting a conference call to discuss its financial results for the quarter ended December 31, 2018, at 8:00 am Pacific time / 11:00 am Eastern time / 4:00 pm GMT on March 1, 2019.  A replay will be available shortly after the call.

Conference call and webcast details are available at the following link:
https://investor.ritchiebros.com

About Ritchie Bros.:
Established in 1958, Ritchie Bros. (NYSE and TSX: RBA) is a global asset management and disposition company, offering customers end-to-end solutions for buying and selling used heavy equipment, trucks and other assets. Operating in a number of sectors, including construction, transportation, agriculture, energy, oil and gas, mining, and forestry, the company's selling channels include: Ritchie Bros. Auctioneers, the world's largest industrial auctioneer offers live auction events with online bidding; IronPlanet, an online marketplace with featured weekly auctions and providing the exclusive IronClad Assurance® equipment condition certification; Marketplace-E, a controlled marketplace offering multiple price and timing options; Mascus, a leading European online equipment listing service; and Ritchie Bros. Private Treaty, offering privately negotiated sales. The company's suite of multichannel sales solutions also includes RB Asset Solutions, a complete end-to-end asset management and disposition system. Ritchie Bros. also offers sector-specific solutions including GovPlanet, TruckPlanet, and Kruse Energy Auctioneers, plus equipment financing and leasing through Ritchie Bros. Financial Services. For more information about Ritchie Bros., visit RitchieBros.com.

Forward-looking Statements
This news release contains forward-looking statements and forward-looking information within the meaning of applicable U.S. and Canadian securities legislation (collectively, "forward-looking statements"), including, in particular, statements regarding future financial and operational results, including growth prospects and payment of dividends. Forward-looking statements are statements that are not historical facts and are generally, although not always, identified by words such as "expect", "plan", "anticipate", "project", "target", "potential", "schedule", "forecast", "budget", "estimate", "intend" or "believe" and similar expressions or their negative connotations, or statements that events or conditions "will", "would", "may", "could", "should" or "might" occur. All such forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Forward-looking statements necessarily involve assumptions, risks and uncertainties, certain of which are beyond the Company's control, including the numerous factors that influence the supply of and demand for used equipment; economic and other conditions in local, regional and global sectors; the Company's ability to successfully integrate IronPlanet, and to receive the anticipated benefits of the Acquisition; and the risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, which is available on the SEC, SEDAR, and Company websites. The foregoing list is not exhaustive of the factors that may affect the Company's forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate, and actual results may differ materially from those expressed in, or implied by, these forward-looking statements. Forward looking statements are made as of the date of this news release and the Company does not undertake any obligation to update the information contained herein unless required by applicable securities legislation. For the reasons set forth above, you should not place undue reliance on forward looking statements.

GTV and Consolidated Financial Information

GTV and Consolidated Income Statements – Fourth Quarter
(Expressed in thousands of United States dollars, except share and per share amounts)
(Unaudited)







Three months ended December 31,


2018



2017

GTV

$

1,337,614


$

1,294,932

Revenues:






Service revenues

$

197,779


$

182,351

Revenue from inventory sales


158,193



109,399

Total revenues


355,972



291,750

Operating expenses:






Cost of services


46,315



39,096

Cost of inventory sold


142,505



98,895

Selling, general and administrative expenses


95,624



92,983

Acquisition-related costs


54



3,110

Depreciation and amortization expenses


17,163



15,647

Gain on disposition of property, plant and equipment


(1,773)



(585)

Foreign exchange (gain) loss


(243)



2,566

Total operating expenses


299,645



251,712

Operating income


56,327



40,038

Interest expense


(11,807)



(10,980)

Other, net


2,855



1,885

Income before income taxes


47,375



30,943

Income tax expense (recovery)


11,915



(5,894)

Net income

$

35,460


$

36,837

Net income attributable to:






Stockholders


35,486



36,754

Non-controlling interests (loss)


(26)



83


$

35,460


$

36,837

Earnings per share attributable






to stockholders:






Basic

$

0.33


$

0.34

Diluted

$

0.32


$

0.34

Weighted average number of share outstanding:






Basic


108,649,637



107,198,875

Diluted


109,983,224



108,245,291

 

GTV and Consolidated Income Statements – Year-to-Date
(Expressed in thousands of United States dollars, except share and per share amounts)
(Unaudited)







Year ended December 31,


2018



2017

GTV

$

4,964,165


$

4,467,982

Revenues:






Service revenues

$

749,515


$

624,417

Revenue from inventory sales


420,511



346,774

Total revenues


1,170,026



971,191

Operating expenses:






Cost of services


159,058



133,189

Cost of inventory sold


374,339



306,498

Selling, general and administrative expenses


382,676



323,270

Acquisition-related costs


5,093



38,272

Depreciation and amortization expenses


66,614



52,694

Gain on disposition of property, plant and equipment


(2,731)



(1,656)

Impairment loss


-



8,911

Foreign exchange (gain) loss


(212)



2,559

Operating expenses


984,837



863,737

Operating income


185,189



107,454

Interest expense


(44,527)



(38,291)

Other, net


11,850



8,231

Income before income taxes


152,512



77,394

Income tax expense


31,006



2,088

Net income

$

121,506


$

75,306

Net income attributable to:






Stockholders


121,479



75,027

Non-controlling interests


27



279


$

121,506


$

75,306

EPS attributable to stockholders:






Basic

$

1.12


$

0.70

Diluted

$

1.11


$

0.69

Weighted average number of share outstanding:






Basic


108,063,349



107,044,348

Diluted


109,388,236



108,113,151

 

Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share data)
(Unaudited)







As at December 31

2018


2017

Assets












Cash and cash equivalents

$

237,744


$

267,910

Restricted cash


67,823



63,206

Trade and other receivables


129,257



92,105

Inventory


113,294



38,238

Other current assets


49,055



27,610

Income taxes receivable


6,365



19,418

Total current assets


603,538



508,487







Property, plant and equipment


486,599



526,581

Other non-current assets


29,395



31,554

Intangible assets


245,622



261,094

Goodwill


671,594



670,922

Deferred tax assets


15,648



18,674

Total assets

$

2,052,396


$

2,017,312







Liabilities and Equity












Auction proceeds payable

$

203,503


$

199,245

Trade and other payables


201,255



164,553

Income taxes payable


2,312



732

Short-term debt


19,896



7,018

Current portion of long-term debt


13,126



16,907

Total current liabilities


440,092



388,455







Long-term debt


698,172



795,985

Other non-current liabilities


41,980



46,773

Deferred tax liabilities


35,519



32,334

Total liabilities


1,215,763



1,263,547







Commitments






Contingencies






Contingently redeemable performance






share units


923



9,014

Stockholders' equity:






Share capital:






Common stock; no par value, unlimited shares






authorized, issued and outstanding shares:






108,682,030 (December 31, 2017: 107,269,783)


181,780



138,582

Additional paid-in capital


56,885



41,005

Retained earnings


648,255



602,609

Accumulated other comprehensive loss


(56,277)



(42,514)

Stockholders' equity


830,643



739,682

Non-controlling interest


5,067



5,069

Total stockholders' equity


835,710



744,751

Total liabilities and equity

$

2,052,396


$

2,017,312

 

Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
(Unaudited)


Year ended December 31,

2018



2017

Cash provided by (used in):






Operating activities:






Net income

$

121,506


$

75,306

Adjustments for items not affecting cash:






Depreciation and amortization expenses


66,614



52,694

Impairment loss


-



8,911

Stock option compensation expense


8,252



13,700

Equity-classified PSU expense


11,256



3,529

Deferred income tax expense (recovery)


6,239



(17,268)

Unrealized foreign exchange loss


951



254

Gain on disposition of property, plant and equipment


(2,731)



(1,656)

Amortization of debt issuance costs


4,995



3,056

Gain on disposition of equity investment


(4,935)



-

Other, net


(2,317)



(1,237)

Net changes in operating assets and liabilities


(65,550)



10,279

Net cash provided by operating activities


144,280



147,568

Investing activities:






Acquisition of IronPlanet, net of cash acquired


-



(675,851)

Property, plant and equipment additions


(16,860)



(10,812)

Intangible asset additions


(26,152)



(28,584)

Proceeds on disposition of property, plant and equipment


10,586



4,985

Proceeds on disposal of equity investment


6,147



-

Other, net


(4,674)



(692)

Net cash used in investing activities


(30,953)



(710,954)

Financing activities:






Dividends paid to stockholders


(75,678)



(72,785)

Dividends paid to NCI


-



(41)

Issuances of share capital


28,524



9,936

Payment of withholding taxes on issuance of shares


(3,901)



-

Proceeds from short-term debt


19,715



6,971

Repayment of short-term debt


(6,628)



(24,479)

Proceeds from long-term debt


-



325,000

Repayment of long-term debt


(91,013)



(108,985)

Debt issue costs


-



(12,624)

Repayment of finance lease obligations


(3,950)



(2,322)

Other, net


(1,176)



(1,408)

Net cash provided by (used in) financing activities


(134,107)



119,263

Effect of changes in foreign currency rates on






cash, cash equivalents, and restricted cash


(4,769)



17,150

Decrease


(25,549)



(426,973)

Beginning of period


331,116



758,089

Cash, cash equivalents, and restricted cash, end of period

$

305,567


$

331,116

 

A&M Segmented Information
(Expressed in thousands of United States dollars)


(in U.S. $000's)

Three months ended December 31,


Year ended December 31,






% Change






% Change


2018

2017

2018 over
2017



2018


2017

2018 over
2017

Service revenues

$

162,931

$

153,229

6%


$

626,007

$

524,023

19%

Revenue from inventory sales


158,193


109,399

45%



420,511


346,774

21%

Total revenues


321,124


262,628

22%



1,046,518


870,797

20%

Costs of services


24,542


23,739

3%



87,430


75,685

16%

Cost of inventory sold


142,505


98,895

44%



374,339


306,498

22%

SG&A expenses


91,046


89,049

2%



363,549


308,873

18%

Impairment loss


-


-

-



-


8,911

(100%)

A&M profit

$

63,031

$

50,945

24%


$

221,200

$

170,830

29%

 

Selected Data
(Unaudited)

Live industrial auction data



Three months ended December 31,


Year ended December 31,




% Change




% Change


2018

2017

2018 over
2017


2018

2017

2018 over
2017

Number of consignments at industrial auctions

14,900

14,900

0%


53,950

56,850

(5%)

Number of bidder registrations at industrial auctions

171,500

171,500

0%


555,000

575,500

(4%)

Number of buyers at industrial auctions

38,500

39,250

(2%)


135,250

139,900

(3%)

Number of lots at industrial auctions

103,500

106,500

(3%)


377,000

382,500

(1%)

Number of permanent operational sites

35

39

(10%)


35

39

(10%)

Number of regional operational sites

5

6

(17%)


5

6

(17%)

Total auction sites

40

45

(11%)


40

45

(11%)

Number of industrial auctions

53

76

(30%)


183

245

(25%)

 

Additional Topic 606 Information

The following table reconciles revenues as previously reported to total revenues under Topic 606:




Prior to January 1, 2018


New Revenue Standard Adjustments


On and after January 1, 2018

(in U.S. $000's)


Revenues as previously
reported (a)


Cost of inventory sold1 (b)


Ancillary and logistical
service expenses2 (c)


Total revenues under the new
standard (a)+(b)+(c)=(d)

Quarter ended:









December 31, 2017

$

178,785

$

98,895

$

14,070

$

291,750

September 30, 2017


141,047


72,476


13,878


227,401

June 30, 2017


166,186


71,726


14,701


252,613

March 31, 2017


124,499


63,401


11,527


199,427

Full year 2017

$

610,517

$

306,498

$

54,176

$

971,191

 

The following table reconciles cost of services as previously reported to cost of services under Topic 606:




Prior to January 1, 2018


New Revenue Standard Adjustments


On and after January 1, 2018

(in U.S. $000's)


Costs of services (a)


Ancillary and logistical
service expenses2 (b)


Costs of services under the new standard
(a) + (b) = (c)

Quarter ended:







December 31, 2017

$

25,026

$

14,070

$

39,096

September 30, 2017


19,583


13,878


33,461

June 30, 2017


21,591


14,701


36,292

March 31, 2017


12,813


11,527


24,340

Full year 2017

$

79,013

$

54,176

$

133,189

(1)

These amounts were historically disclosed under the Consolidated Financial Statement note entitled "Revenue" and are now presented on the face of the Company's consolidated income statements effective January 1, 2018. Second and third quarter 2017 amounts were restated in the fourth quarter of 2017 to conform with current presentation of certain government contracts.

(2)

Effective January 1, 2018, ancillary and logistical service expenses are now reported within costs of services under the Consolidated Financial Statement note entitled "Operating Expenses".

 

Non-GAAP Measures
This news release references various non-GAAP measures. These measures do not have a standardized meaning and are, therefore, unlikely to be comparable to similar measures presented by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles.

As previously disclosed, effective January 1, 2018, the Company adopted Topic 606, under which revenue from inventory sales and ancillary and logistical services are presented gross of the related expenses rather than net.  In conjunction with such adoption of Topic 606, the Company introduced agency proceeds as a supplemental, non-GAAP measure in addition to total revenues, as management felt this would be helpful to investors in better understanding the sometimes-volatile nature of our revenues given that the portion of our revenues derived from inventory, as opposed to consignments, can fluctuate considerably. Further, agency proceeds was introduced to provide supplementary information to investors and analysts consistent with what management uses to assess the performance of our business and was never intended to substitute the Company's revenue, which is calculated in accordance with US GAAP.  The Company believed it was important to present agency proceeds to help readers understand the relationship of revenues with the cost of the assets sold under inventory contracts and ancillary and logistical service expenses.

Notwithstanding the foregoing, following receipt of a recent comment letter from, and subsequent communications with, the Division of Corporation Finance of the Securities and Exchange Commission (the "SEC"), the SEC has requested that the Company discontinue use of such agency proceeds measure.  As such, while the Company have made continued use of agency proceeds in this news release as part of an agreed transition period, beginning in the first quarter of 2019 the Company's future news releases will no longer disclose agency proceeds.

Agency Proceeds* and Adjusted Operating Income* Reconciliation
The Company's income statement scorecard includes the performance metric, agency proceeds*. Agency proceeds* is also an element of the performance criteria for certain annual short-term incentive awards the Company grants to employees and officers. Management believes that comparing these for different financial periods provides useful information about the growth or decline of our operating income for the relevant financial period. Adjusted operating income margin eliminates the financial impact of adjusting items which are after-tax effects of significant non-recurring items that management does not consider to be part of the Company's normal operating results.

The following table reconciles agency proceeds*, adjusted operating income*, and adjusted operating income margin* to total revenues, operating income, and operating income margin, which are the most directly comparable GAAP measures in, or calculated from, our consolidated income statements:


(in U.S. $000's)

Three months ended December 31, 2018


Year ended December 31,







% Change







% Change


2018

2017


2018 over
2017



2018


2017


2018 over
2017

Operating income


56,327


40,038


41%


$

185,189

$

107,454

$

72%

Pre-tax adjusting item:














Accelerated vesting of assumed options


-


-


-



-


4,752


(100%)

Acquisition and finance structure advisory


-


-


-



-


9,063


(100%)

Severance and retention


-


2,166


(100%)



1,501


3,613


(58%)

Impairment loss


-


-


-



-


8,911


(100%)

Adjusted operating income (non-GAAP measure)


56,327


42,204


33%



186,690


133,793


40%

Total revenues


355,972


291,750


22%



1,170,026


971,191


20%

Less: cost of inventory sold


(142,505)


(98,895)


44%



(374,339)


(306,498)


22%

Less: ancillary and logistical service


(20,334)


(14,070)


45%



(66,576)


(54,176)


23%

Agency proceeds (non-GAAP measure)

$

193,133

$

178,785


8%


$

729,111

$

610,517

$

19%















Operating income margin


15.8%


13.7%


210 bps



15.8%


11.1%


470 bps

Adjusted operating income margin (non-GAAP measure)


15.8%


14.5%


130 bps



16.0%


13.8%


220 bps

(1)

Please refer to page 15 for a summary of adjusting items for the years ended December 31, 2018 and 2017.

(2)

Adjusted operating income* is calculated by eliminating adjusting items from operating income.

(3)

Agency proceeds* is calculated by subtracting the cost of inventory sold and ancillary and logistical service expenses from total revenues.

(4)

Adjusted operating income margin* is calculated by dividing adjusted operating income* by total revenues.

* Non-GAAP measure

 

Adjusted Net Income Attributable to Stockholders* and Diluted Adjusted EPS Attributable to Stockholders* Reconciliation
The Company believes that adjusted net income attributable to stockholders* provides useful information about the growth or decline of our net income attributable to stockholders for the relevant financial period and eliminates the financial impact of adjusting items the Company does not consider to be part of our normal operating results. Diluted Adjusted EPS attributable to stockholders* eliminates the financial impact of adjusting items which are after-tax effects of significant non-recurring items that the Company does not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, severance, retention, gains/losses on sale of an equity accounted for investment, plant and equipment, impairment losses, and certain other items, which are referred to as 'adjusting items'.

The following table reconciles adjusted net income attributable to stockholders* and diluted adjusted EPS attributable to stockholders* to net income attributable to stockholders and diluted EPS attributable to stockholders, which are the most directly comparable GAAP measures in our consolidated income statements:


(in U.S. $000's, except share and

Three months ended December 31, 2018


Year ended December 31,

per share data)






% Change







% Change


2018

2017


2018 over
2017



2018


2017


2018 over
2017

Net income attributable to stockholders

$

35,486

$

36,754


(3%)


$

121,479

$

75,027


62%

Pre-tax adjusting items:














Accelerated vesting of assumed options


-


-


-



-


4,752


(100%)

Acquisition and finance structure advisory


-


-


-



-


9,063


(100%)

Severance and retention


-


2,166


(100%)



1,501


3,613


(58%)

Gain on sale of equity accounted for investment


-


-


-



(4,935)


-


100%

Impairment loss


-


-


-



-


8,911


(100%)

Current income tax effect of adjusting items:














Acquisition and finance structure advisory


-


-


-



-


(2,447)


(100%)

Severance and retention


-


(184)


(100%)



(376)


(748)


(50%)

Deferred income tax effect of adjusting items:














Impairment loss


-


-


-



-


(2,361)


(100%)

Severance and retention


-


(368)


(100%)



-


(368)


(100%)

Current income tax adjusting item:














Change in uncertain tax provision


-


-


-



-


2,290


(100%)

Deferred tax adjusting item:














Remeasurement of deferred taxes


-


(10,070)


(100%)



-


(10,070)


(100%)

Adjusted net income attributable to














stockholders (non-GAAP measure)

$

35,486

$

28,298


25%


$

117,669

$

87,662


34%

Effect of dilutive securities

$

-

$

(475)


(100%)


$

-

$

(152)


(100%)















Weighted average number of














dilutive shares outstanding


109,983,224


108,245,291


2%



109,388,236


108,113,151


1%















Diluted earnings per share attributable to stockholders

$

0.32

$

0.34


(6%)


$

1.11

$

0.69


61%

Diluted adjusted EPS attributable to














stockholders (non-GAAP measure)

$

0.32

$

0.26


23%


$

1.08

$

0.81


33%

(1)

Please refer to page 15 for a summary of adjusting items for the years ended December 31, 2018 and 2017.

(2)

Adjusted net income attributable to stockholders* represents net income attributable to stockholders excluding the effects of adjusting items.

(3)

Diluted adjusted EPS attributable to stockholders* is calculated by dividing adjusted net income attributable to stockholders*, net of the effect of dilutive securities, by the weighted average number of dilutive shares outstanding.

 

* Non-GAAP measure

 

A&M Agency Proceeds* and A&M Agency Proceeds Rate* Reconciliation
The Company believes A&M agency proceeds* and A&M agency proceeds rate* provide useful information about the performance of our operations by comparing the margins the Company earns on our contracts for different financial periods. The Company believes A&M segment total revenues are best understood by considering their relationship to GTV. The metric which management uses to measure this performance is A&M revenue rate.

The following table reconciles A&M agency proceeds* and A&M agency proceeds rate* results to A&M total revenues and A&M revenue rate, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements


(in U.S. $000's)

Three months ended December 31, 2018


Year ended December 31,







% Change






% Change


2018

2017


2018 over
2017


2018


2017


2018 over
2017

A&M total revenues

$

321,124

$

262,628


22%

$

1,046,518

$

870,797


20%

Less: cost of inventory sold


(142,505)


(98,895)


44%


(374,339)


(306,498)


22%

A&M agency proceeds (non-GAAP measure)


178,619


163,733


9%


672,179


564,299


19%

GTV

$

1,337,614

$

1,294,932


3%

$

4,964,165

$

4,467,982


11%

A&M revenue rate


24.0%


20.3%


370 bps


21.1%


19.5%


160 bps

A&M agency proceeds rate (non-GAAP measure)


13.4%


12.6%


80 bps


13.5%


12.6%


90 bps

(1)

A&M revenue rate is calculated as A&M total revenues divided by GTV.

(2)

A&M agency proceeds rate* is calculated by dividing A&M agency proceeds* by GTV. 

 

* Non-GAAP measure

 

Adjusting items for the year ended December 31, 2018

  • $1.5 million ($1.1 million after tax, or $0.01 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $4.9 million ($4.9 million after tax, or $0.04 per diluted share) due to gain on sale of an equity accounted for investment.

Adjusting items for the year ended December 31, 2017

  • $2.2 million ($1.6 million after tax, or $0.02 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $10.1 million (or $0.10 per diluted share) benefit on remeasurement of deferred taxes due to the Tax Cuts and Jobs Act.
  • $4.8 million ($4.8 million after tax, or $0.04 per diluted share) of stock option compensation expense related to the accelerated vesting of certain IronPlanet stock options assumed as part of the Acquisition;
  • $9.1 million ($6.6 million after tax, or $0.06 per diluted share) of acquisition and finance structure advisory costs;
  • $1.4 million ($0.9 million after tax, or $0.01 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $8.9 million ($6.6 million after tax, or $0.06 per diluted share) impairment loss recognized on various technology assets.
  • $2.3 million ($2.3 million after tax, or $0.02 per diluted share) charge related to the change in uncertain tax provisions.

Cision View original content:http://www.prnewswire.com/news-releases/ritchie-bros-reports-fourth-quarter-and-2018-annual-results-300804601.html

SOURCE Ritchie Bros. Auctioneers

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