UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31 2019, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-13425
Ritchie Bros. Auctioneers Incorporated
(Exact Name of Registrant as Specified in its Charter)
Canada |
| 98-0626225 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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9500 Glenlyon Parkway |
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Burnaby, British Columbia, Canada V5J 0C6 |
| (778) 331-5500 |
(Address of Principal Executive |
| (Registrant’s Telephone Number, including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Exchange on Which Registered |
Common Shares | | RBA | | New York Stock Exchange |
Common Share Purchase Rights | | N/A | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: Restricted Share Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, ”smaller“smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☑ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ |
|
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At June 30, 20192022 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s common shares held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers and directors are "affiliates" of the registrant) was approximately $3,573,759,165.$7,200,381,824. The number of common shares of the registrant outstanding as of February 26, 2020,17, 2023, was 109,528,545.111,142,700.
Documents Incorporated by Reference
Certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission (“SEC”) pursuant to Regulation 14A not later than 120 days after the registrant’s fiscal year ended December 31, 2019,2022, in connection with the registrant’s 20192022 Annual and Special Meeting of Shareholders, are incorporated herein by reference into Part III of this Annual Report on Form 10-K.
RITCHIE BROS. AUCTIONEERS INCORPORATED
FORM 10-K
For the year ended December 31, 20192022
INDEX
Cautionary Note Regarding Forward-Looking Statements
The information discussed in this Annual Report on Form 10-K of Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the “Company”, “we”, or “us”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and Canadian securities laws. Forward-looking statements are typically identified by such words as “aim”, “anticipate”, “believe”, “could”, “continue”, “estimate”, “expect”, “intend”, “may”, “ongoing”, “plan”, “potential”, “predict”, “will”, “should”, “would”, “could”, “likely”, “generally”, “future”, “long-term”, or the negative of these terms, and similar expressions intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. These statements are based on our current expectations and estimates about our business and markets, and may include, among others, statements relating to:
● | our future strategy, objectives, targets, projections |
● | our ability to drive shareholder value; |
● | potential growth and market opportunities; |
● | our internet initiatives and the level of participation in our auctions by internet bidders, and the success of |
● | our ability to grow our businesses, acquire new customers, enhance our sector reach, drive geographic depth, and scale our operations; |
● | the impact of our initiatives, services, investments, and acquisitions on us and our customers; |
● | the severity, magnitude and duration of the COVID-19 pandemic (“COVID-19”) and the direct and indirect impact of such pandemic on our operations and personnel, commercial activity and demand across our business and our customers' businesses, as well as responses to the pandemic by the government, business and consumers; |
● | the acquisition or disposition of properties; |
● | potential future mergers and acquisitions, including the proposed acquisition of IAA, Inc. (“IAA”); |
● | our |
● | the impact of our |
● | our future capital expenditures and returns on those expenditures; |
● | our ability to add new business and information solutions, including, among others, our ability to maximize and integrate technology to enhance our existing services and support additional value-added service offerings; |
● | the supply trend of equipment in the market and the anticipated price environment for late model equipment, as well as the resulting effect on our business and Gross Transaction Value (“GTV”) |
● | fluctuations in our quarterly revenues and operating performance resulting from the seasonality of our business; |
● | our compliance with all laws, rules, regulations, and requirements that affect our business; |
● | effects of various economic, financial, industry, and market conditions or policies, including inflation, the supply and demand for property, equipment, or natural resources; |
● | the geopolitical situation in Eastern Europe in light of Russia’s invasion of Ukraine; |
● | the behavior of equipment pricing; |
● | the relative percentage of GTV represented by straight commission or underwritten (guarantee and inventory) contracts, and its impact on revenues and profitability; |
● | the projected increase to our fee revenues as a result of the harmonization of our fee structure; |
● | our future capital expenditures and returns on those expenditures; |
● | the effect of any currency exchange and interest rate fluctuations on our results of operations; |
● | the grant and satisfaction of equity awards pursuant to our compensation plans; |
● | any future declaration and payment of dividends, including the special dividend to be paid to our shareholder in connection with the proposed acquisition of IAA, and the tax treatment of any such dividends; |
● | financing available to us from our credit facilities or other sources, our ability to refinance borrowings, and the sufficiency of our working capital to meet our financial needs; and |
● | our ability to satisfy our present operating requirements and fund future growth through existing working capital, credit facilities and |
Forward-looking statements may appear throughout this report, including the following section "Management's Discussion and Analysis of Financial Condition and Results of Operations". Forward-looking statements are typically identified by such words as “aim”, “anticipate”, “believe”, “could”, “continue”, “estimate”, “expect”, “intend”, “may”, “ongoing”, “plan”, “potential”, “predict”, “will”, “should”, “would”, “could”, “likely”, “generally”, “future”, “long-term”, or the negative of these terms, and similar expressions intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially.
While we have not described all potential risks related to our business and owning our common shares, the important factors discussed in “Part I, Item 1A: Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 20192022 are among those that we consider may affect our performance materially or could cause our actual financial and operational results, performance or achievements to differ significantlymaterially from our expectations.those expressed or implied by forward-looking statements. Except as required by applicable securities law and regulations of relevant securities exchanges, we do not intend to update publicly any forward-looking statements, even if our expectations have been affected by new information, future events or other developments. You should consider our forward-looking statements in light of the factors listed or referenced under “Risk Factors” herein and other relevant factors.herein.
SUMMARY OF RISK FACTORS
The following is a summary of the principal risks described below in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K. We believe that the risks described in the “Risk Factors” section are material to investors, but other factors not presently known to us or that we currently believe are immaterial may also adversely affect us. The following summary should not be considered an exhaustive summary of the material risks facing us, and it should be read in conjunction with the “Risk Factors” section and the other information contained in this Annual Report on Form 10-K:
Risks Related to the Proposed Acquisition of IAA
● | The pendency of our acquisition of IAA or our failure to complete such acquisition could have a material adverse effect on our business, results of operations, financial condition and stock price. |
● | While the Merger Agreement is in effect, we are subject to restrictions on our business activities. |
● | We may experience difficulties in integrating our operations with those of IAA and realizing the expected benefits of the acquisition. |
● | We will incur a substantial amount of debt to complete the acquisition of IAA, which could have a material adverse effect on our business, cash flows and financial condition. |
● | Significant costs have been incurred and are expected to be incurred in connection with the consummation of the acquisition of IAA. |
Risks Related to Our Business
● | We may not realize the anticipated benefits of, and synergies from, acquisitions and may become responsible for certain liabilities and integration costs as a result. |
● | Damage to our reputation could harm our business. |
● | We may incur losses as a result of our guarantee and inventory contracts and advances to consignors. |
● | The availability and performance of our technology infrastructure, including our websites, is critical to our business and continued growth. |
● | Consumer behavior is rapidly changing, and if we are unable to successfully adapt to consumer preferences and develop and maintain a relevant and reliable inventory management and multichannel disposition experience for our customers, our financial performance and brand image could be adversely affected. |
● | We rely on data provided by third parties, the loss of which could limit the functionality of certain of our platforms and disrupt our business. |
● | Government regulation of the Internet and e-commerce is evolving, and unfavorable changes in this or other regulations could substantially harm our business and results of operations. |
● | If our ability, or the ability of our third party service partners, cloud computing platform providers or third party data center hosting facilities, to safeguard the reliability, integrity and confidentiality of our and their information technology systems is compromised, if unauthorized access is obtained to our systems or customers’, suppliers', counterparties' and employees' confidential information, or if authorized access is blocked or disabled, we may incur significant reputational harm, legal exposure, or a negative financial impact. |
● | Our future expenses may increase significantly and our operations and ability to expand may be limited as a result of licenses, laws and regulations governing auction sites, environmental protection, international trade and other matters. |
● | Losing the services of one or more key personnel or the failure to attract, train and retain personnel could materially affect our business. |
● | Failure to maintain safe sites could materially affect our business and reputation. |
● | Income and commodity tax amounts, including tax expense, may be materially different than expected and there is a trend by global tax collection authorities towards the adoption of more aggressive laws, regulations, interpretations and audit practices. |
● | Our substantial international operations expose us to foreign exchange rate fluctuations that could harm our results of operations. |
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● | Our business operations may be subject to a number of federal and local laws, rules and regulations including export control regulations. |
● | Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the Corruption of Foreign Public Officials Act, or the CFPOA, and similar laws associated with our activities outside of the U.S. could subject us to penalties and other adverse consequences. |
● | We are pursuing a long-term growth strategy that may include acquisitions and developing and enhancing an appropriate sales strategy, which requires upfront investment with no guarantee of long-term returns. |
● | We are regularly subject to general litigation and other claims, which could have an adverse effect on our business and results of operations. |
● | Privacy concerns and our compliance with current and evolving domestic or foreign laws and regulations regarding the processing of personal information and other data may increase our costs, impact our marketing efforts or decrease adoption and use of our products and services, and our failure to comply with those laws and regulations may expose us to liability and reputational harm. |
● | Our business continuity plan may not operate effectively in the event of a significant interruption of our business. |
● | Our insurance may be insufficient to cover losses that may occur as a result of our operations. |
● | Our business operations, results of operations, cash flows and financial performance may continue to be affected by the COVID-19 pandemic. |
● | Certain global conditions may affect our ability to conduct successful events. |
Financial Risks
● | Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price. |
● | We have substantial indebtedness, and the degree to which we are leveraged may materially and adversely affect our business, financial condition and results of operations. |
● | Our debt instruments have restrictive covenants that could limit our financial flexibility. |
● | Our operating results are subject to quarterly variations. |
Risks Related to Our Intellectual Property
● | We may be unable to adequately protect or enforce our intellectual property rights, which could harm our reputation and adversely affect our growth prospects. |
● | Our use of open source software could subject us to risks, including with respect to the terms of open source licenses. |
Risks Related to Our Industry
● | Competition could result in reductions in our future revenues and profitability. |
● | Decreases in the supply of, demand for, or market values of used equipment, could harm our business. |
Risks Related to Our Organization and Governance
● | Our articles, by-laws, shareholder rights plan and Canadian law contain provisions that may have the effect of delaying or preventing a change in control. |
● | U.S. civil liabilities may not be enforceable against us, our directors, or our officers. |
● | We are governed by the corporate laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware. |
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PART I
ITEM 1: BUSINESS
Company Overview
Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the “Company”, “we”, or “us”) (NYSE & TSX: RBA) was founded in 1958 in Kelowna, British Columbia, Canada and is a world leader in asset management and disposition of used industrial equipment and other durabletechnologies for commercial assets, selling $5.14 billion of used equipment and other assets during 2019.assets. Our expertise, unprecedented global reach, market insight,insights, and trusted portfolio of brands provide us with a unique position inwithin the used equipment market. We sell used equipment for our customers through live, unreserved auctions at 40 auction sites worldwide, which are also simulcast online to reach a global bidding audience and through our online marketplaces.
Through our unreserved auctions, online marketplaces, listings, and private brokerage services, we sell a broad range of primarily used commercial and unused equipment, including earthmoving equipment, truck trailers,industrial assets, as well as government surplus, oil and gas equipment and other industrial assets.surplus. Construction and heavy machinerycommercial transportation assets comprise the majority of the equipment sold.sold by GTV dollar value, though we sell a wide variety of assets. Customers selling equipment through our sales channels include end users (such as construction companies), equipment dealers, original equipment manufacturers (“OEMs”) and other equipment owners (such as rental companies). Our customers participate in a variety of sectors, including heavy construction, commercial transportation, agriculture, energy, and mining.natural resources.
We also provide our customers with a wide array of value-added services aligned with our growth strategy to create a global marketplace for used equipment services and solutions. Our other services include equipment financing, asset appraisals and inspections, online equipment listings, logistical services, and ancillary services such as equipment refurbishment. We offer our customers asset technology solutions to manage the end-to-end disposition process of their assets and provide market data intelligence to make more accurate and reliable business decisions. Additionally, we offer our customers an innovative technology platform that supports equipment lifecycle management and parts procurement integration with both original equipment manufacturers and dealers, as well as a software as a service platform for end-to-end parts procurement, and access to digital catalogs and diagrams.
We operate globally with locations in more than 1213 countries, including the U.S., Canada, Australia, the United Arab Emirates, and the Netherlands, and maintain a presence in 42 countries where customers can sell from their own yards. We employ more than 2,400 full time2,800 full-time employees worldwide.
Recent DevelopmentsProposed Acquisition of IAA
On May 21, 2019,November 7, 2022, the Company received TSX approval for Normal Course Issuer Bid (Share Repurchase Program) commencingentered into an Agreement and Plan of Merger and Reorganization, which was subsequently amended on May 23, 2019January 22, 2023 (the “Merger Agreement”), pursuant to which it agreed to acquire IAA, Inc., a leading global digital marketplace connecting vehicle buyers and terminating on May 22, 2020 or on such earlier date as the Company may complete its purchases thereunder or as it may otherwise determine. Under the NCIB, the Company may purchase up to the lesser of 5,449,204 common shares (such amount representing 5% of thesellers. IAA stockholders will receive $12.80 in cash and 0.5252 common shares of the Company issuedfor each share of IAA common stock they own. Accordingly, the Company will (i) issue approximately 70.3 million shares of its common stock to the stockholders of IAA and outstanding as(ii) pay to the stockholders of May 10, 2019) or that numberIAA approximately $1.7 billion in cash consideration. In addition, the Company will repay approximately $1.2 billion of IAA’s net debt. The acquisition of IAA is expected to close in the first half of 2023, subject to the satisfaction of various conditions, including, among other things, (1) the approval of the issuance of our common shares worthby the affirmative vote of a majority of the votes cast by holders of our outstanding common shares, (2) the adoption of the Merger Agreement by holders of a majority of the outstanding shares of IAA’s common stock, and (3) other customary closing conditions.
The Company plans to fund the proposed acquisition of IAA through a combination of cash, borrowings under its credit facilities and proceeds from the sale of debt securities. In connection with the Merger Agreement, the Company entered into a debt commitment letter with certain financial institutions that committed to provide, subject to certain terms and conditions, the bridge loan facility in an aggregate principal amount of US$100up to $2.8 billion and a backstop senior secured revolving credit facility in an aggregate principal amount of up to $750.0 million. Under the program,On December 9, 2022, the Company repurchased US$42subsequently closed an amendment to its existing credit agreement with a syndicate of lenders pursuant to which, among other things, the Company obtained (a) amendments to the facility to specifically permit the proposed acquisition of IAA (b) commitments for a term loan A facility in an aggregate principal amount of up to $1.8 billion to be used to finance the proposed IAA acquisition and (c) the ability to borrow up to $200.0 million worth of the revolving facility on a limited conditionality basis to finance the proposed IAA acquisition. The amendment allowed the Company to permanently terminate the backstop senior revolving credit commitments and reduce the senior secured bridge facility commitments by the amount of the term loan A facility and the amount of the existing term loans under the existing credit agreement.
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On January 23, 2023, the Company announced that it expectsto approve the payment of a one-time special dividend to the Company’s shareholders in the amount of $1.08 per share, contingent upon the completion of the merger and consent of the TSX. IAA stockholders will not be entitled to receive the special dividend with respect to any of the Company’s common shares in 2019.
On June 24, 2019,received as consideration. We will not pay the Board of Ritchie Bros. announced its succession plan andspecial dividend if the stepping down of its Chief Executive Officer, Ravi Saligram. Mr. Saligram ledMerger Agreement is terminated or if the merger is not completed. Furthermore, if the Merger Agreement is terminated under specified circumstances, the Company andor IAA may be required to pay the multi year transformation effort since July 2014. Subsequently, the Boardother a termination amount of Ritchie Bros. announced that Sharon Driscoll, Chief Financial Officer, and Karl Werner, President, International, were named interim Co-Chief Executive Officers of$189 million or the Company effective October 1st, 2019 concurrentmay be required to reimburse IAA for its out-of-pocket expenses incurred in connection with the dateMerger Agreement up to an aggregate amount of Mr. Saligram’s departure.$5 million.
On December 16, 2019,
We believe that the Boardproposed acquisition of Ritchie Bros. announced Ann Fandozzi wouldIAA accelerates our journey to become the new Chief Executive Officer of the Company,trusted global marketplace for insights, services and Ms. Fandozzi was appointed CEO effective January 6, 2020. Ms. Fandozzi comestransaction solutions. The transaction is expected to diversify our customer base by providing the Company with a track record of designingsignificant presence in the vehicle remarketing vertical that has strong industry fundamentals with proven secular growth. We believe that the combination will accelerate our growth and executing winning strategiesstrategic vision to create a next-generation global marketplace for commercial assets and driving profitable growth, with a strong customer focus, deepvehicles, supported by advanced technologies and data analytics. Additionally, our management team has extensive experience in technology,the automotive and outstanding management capabilities thatinsurance ecosystem, which we believe will further Ritchie Bros. strategic transformationhelp shape the go-forward customer experience. With enhanced scale and an expanded addressable market, the Company believes it will be able to drive additional GTV growth through its platforms and auction sites, in turn generating more insights for its customers and expanding the adoption of our other high-margin tech-enabled services.
Impact of Russia-Ukraine Conflict on Our Business
On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia’s invasion of Ukraine, sharply affecting economic and global financial markets. Subsequent economic sanctions on Russia have exacerbated ongoing economic challenges, including issues such as rising inflation, disruption to global supply chains and increases in hydrocarbon prices.
The rise in transportation costs, in part driven by higher fuel costs, has globally impacted both costs and timing of import and export of commercial assets between countries and has contributed to higher costs in operating our equipment. Further, increases in natural gas prices in Europe may also lead to a slowdown in its economy and as a multi‐channel, technology‐enabled global business.result may negatively impact the import and export of equipment in Eastern Europe, which could affect our operations.
Strategies
We operatedo not have any operations in Russia or Ukraine or any material operations in neighboring countries. We have a limited number of direct customers in the effected region and have sourced a limited number of assets in 2022 from neighboring countries to sell through our operations. However, we cannot estimate the extent of the ongoing conflict’s impacts or future developments, including the continued evolution of military activity and sanctions imposed with Russia’s invasion of Ukraine, which could adversely affect the domestic economy generally and our business specifically.
Impact of Inflation on Our Business
Inflation impacted our global business operations in 2022, with the rise of costs in freight, fuel, supplies, labor, non-durable goods and consumables at our yards and in our operations. Our travel costs have also increased, partly due to higher travel activity post pandemic, increased travel to support our growth strategy and acquisitions, as well as due to inflation. In addition, we have seen an increase in labor costs with the labor market remaining fairly strong. We expect inflationary pressures to continue into 2023 and we regularly evaluate operational productivity improvements that may offset these pressures while continuing to drive growth and strong financial performance.
The United States Federal Reserve is also continuing to raise interest rates, contributing to a stronger U.S. dollar, which has had an unfavorable impact on the translation of some of our operations to a U.S. dollar presentation currency, particularly in Canada, Europe and Australia.
Impact of COVID-19 and Supply Chain Constraints to Our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic (“COVID-19”). In response, we transitioned all of our traditional live onsite auctions to online bidding utilizing our existing online bidding technology. In 2022, with the lifting of travel restrictions and quarantine requirements we began to return to live in-person onsite bidding at some of our auction events, offering both onsite and online bidding, and we significantly improved our ability to move equipment to and from our auction sites and across borders. However, we also saw heightened transportation costs, extended lead times and supply chain delays and disruptions, negatively impacting our business and the buying and selling behaviours of our customers. Supply of equipment was
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tight with increased constraints as our customers were delaying disposition of aged equipment and turnover of equipment slowed down, primarily from lease and rental companies. In our operations, we also incurred higher maintenance costs from the delay in turnover of our leased vehicle fleets. These impacts were partly due to the impact of COVID -19, but also partly due to other more recent macroeconomic factors such as inflation and the Russian-Ukraine conflict.
Strategy
Our strategy to become the trusted global marketplace for insights, services and transaction solutions for commercial assets andvehicles will help us address the large and fragmented used equipment marketplace andthat we operate in today. We believe thatour strategy will help us unlock significant growth opportunities can be captured by building on Ritchie Bros.’ established salescore business and operations infrastructure combined with IronPlanet’s online formats. Our wide range of sales channels and sales formats offer our customers unprecedented choice from our well-known live and online simulcast options to featured online auctions and marketplaces to private contract negotiations.expanding into additional services. We are building on our position as a trusted advisors and areadvisor to our customers by evolving from transactional selling to meeting the needs of our customers through solution selling.
We see significant growth opportunities ahead by becoming the trusted global marketplace for insights, services, and transaction solutions for commercial assets and vehicles. This represents not a shift, but an expansion of our transaction solutions for which we are already well known. We value our long-tenured relationships with our customers, and the trust they have in our brand and platform. We are leveraging our sales channels to create a global marketplace for services and solutions that help our customers gain the insights they need to make decisions and run their businesses. We also intend to offer complimentary third-party services on our platform where it will help our customers.
This strategy is supported by five strategic pillars on which we will build our future success:
Customer Experience -At the beginning of 2015,Ritchie Bros., we formalizedhave a new strategy that centered around becoming along history, culture and passion for helping our customers. We continue to find ways to enrich our customers’ experience by making our processes easier, our offerings more diversified, multi-channel company that offered a full range of asset managementcomplete and disposition solutions, all on a greater scale, that would provide even more choice to customers. Our strategy focuses on two overarching strategic objectives: (i) grow share of the auction segment and (ii) penetrate the upstream market. The executable pillars of the strategy are Grow, Drive and Optimize.
our brands simpler.
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Employee Experience - We cannot deliver a great customer experience without great employees. We continue to strive to create the best workplace for all employees and to create a place where they want to build a career. We encourage open and honest dialogue and are committed to robust communications from management to employees and creating channels for them to give feedback, as well as fixing processes and technology to improve the work environment for the benefit of both customers and employees.
Modern Architecture - We are transitioning to a modern architecture based in the cloud and comprised of microservices that allow us to create a single presence for our customers across all of our solutions. A modern architecture will allow flexibility and agility to enable scalable growth for us, our customers, and our partners.
Inventory Management System - We see our Inventory Management System, which integrates and tracks inventory data for selected customers, as a gateway for our customers to access our marketplaces and services. With the data, we can offer more timely and proactive advice and solutions to our customers with more ease of use.
Accelerate Growth – We continually seek to identify areas to pilot improved business processes to positively impact the customer experience. We look to accelerate growth by scaling the learnings from these pilots into our global operations.
We believe our strategy of becoming the global trusted marketplace for commercial assets will allow us to better serve our customers and will facilitate better penetration into non-auction markets and associated services. Building an integrated, easy to use marketplace, and becoming the trusted advisor to our customers opens significant potential for our business. We will start, as always, with our customers and our partners, and make sure we are building what they need.
Service Offerings
We offer our equipment buyer and seller customers multiple distinct, complementary, multi-channel brand solutions that address the range of their needs. Our global customer base has a variety of transaction options, breadth of services, and the widest selection of used equipment available to them.
Auctions and Marketplace
The tables below illustrate the various channels and brand solutions available under our Auctions and Marketplaces (“A&M”) segment, as well as our other services segment.
Auctions and Marketplace
Channels |
| Brand Solutions |
| Description of Offering | |
Live |
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| Live unreserved | ||
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Online Auctions and Marketplaces |
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| Online marketplace for selling and buying used equipment | ||
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| Online marketplace offering multiple price and timing options | |||
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| Online marketplace for the sale of government and military assets | |||
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Brokerage Service |
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| Confidential, negotiated sale of large equipment |
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Gross Transaction Value (“GTV”)
We record Gross GTV for our A&M business, which represents total proceeds from all items sold at our auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in our consolidated financial statements.
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Contract options
We offer consignors several contract options to meet their individual needs and sale objectives. Through our A&M business, options include:
● | Straight commission contracts, where the consignor receives the gross proceeds from the sale less a pre-negotiated commission rate; |
● | Guarantee contracts, where the consignor receives a guaranteed minimum amount plus an additional amount if proceeds exceed a specified level; and |
● | Inventory contracts, where we purchase, take custody, and hold used equipment |
We collectively refer to guarantee and inventory contracts as underwritten or “at-risk” contracts. In 2019,2022, our underwritten business accounted for approximately 20%19% of our GTV, compared to 17%18% in 20182021 and 2017.20% in 2020.
Value-added services
We also provide a wide array of value-added services to make the process of buyingselling and sellingbuying equipment convenient for our customers. In addition to the other services listed in the table below, we also provide the following value-added services to our customers:
● | conducting title searches, where registries are commercially available, to ensure equipment is sold free and clear of all liens and encumbrances (if we are not able to deliver clear title, we provide a full refund up to the purchase price to the buyer); |
● | making equipment available for inspection, testing, and comparison by prospective buyers; |
● | displaying high-quality, zoomable photographs of equipment on our website; |
● | providing 360-degree video inspection technology to increase buyer confidence in equipment being purchased; |
● | providing industry-leading professional equipment inspections and reports; |
● | providing free detailed equipment information on our website for most equipment; |
● | providing access to insurance and powertrain warranty products; |
● | providing access to commercial transportation companies and customs brokerages through our logistical services; |
● | handling all pre-auction marketing, as well as collection and disbursement of |
● | providing equipment sales and rental data intelligence and performance benchmarking solutions; and |
● | providing an innovative technology platform that supports customers' management of the equipment lifecycle and integrates parts procurement with both original equipment manufacturers and dealers. |
Our IronClad Assurance equipment condition certification provides online marketplace buyers with information on the condition of the equipment that includes, but is not limited to, providing buyers with pictures and comprehensive inspection information of key systems and components.
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Other Services
The tables below illustrate the various services and brand solutions available under our other services segment.
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| Description of Offering | |
Financial Service | | | Loan origination service that uses a brokerage model to match loan applicants with appropriate financial lending institutions | ||
Appraisal Service | | | | Unbiased, certified appraisal services | |
Inspection Service | |
| Truck and lease return inspection services | ||
Online Listing Service | | | Online equipment listing service and B2B dealer portal | ||
Ancillary Services | |
| | Repair, paint, and other make-ready services | |
Logistical Service | | | End-to-end transportation and customs clearance solution for sellers and buyers with shipping needs | ||
Software Service | | | Cloud-based platform to manage end-to-end disposition | ||
Data Service | | | A leading provider of construction equipment market intelligence | ||
Parts Service | | | Digital marketplace connecting equipment owners with parts manufacturers |
Intellectual Property
We believe our intellectual property has significant value and is an important factor in marketing our organization, services, and website, as well as differentiating us from our competitors. We own or hold the rights to use valuable intellectual property such as trademarks, service marks, domain names and tradenames. We protect our intellectual property in Canada, the U.S., and internationally through federal, provincial, state, and common law rights, including registration of certain trade marktrademark and service marks for many of our brands, including our core brands. We also have secured patents for inventions and have registered our domain names.
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We rely on contractual restrictions and rights to protect certain of our proprietary rights in products and services. Effective protection of our intellectual property can be expensive to maintain and may require litigation. We must protect our intellectual property rights and other proprietary rights in many jurisdictions throughout the world. In addition, we may, from time to time, be subject to intellectual property claims, including allegations of infringement, which can be costly to defend. For a discussion of the risks involved with intellectual property litigation and enforcement of our intellectual property rights, see the related information in “Part I, Item 1A: Risk Factors” of this Annual Report on Form 10-K.
Competition
Competition Overview
The global used equipment market is highly fragmented with total annual global used equipment volumes estimated at more than $300$300.0 billion. We estimate the used equipment auction segment is $25$30 billion. Ritchie Bros. is the largest live auction company and claimswith approximately 20% market share of the live auction space with its $5.14$6.0 billion in GTV volume in 2019.2022. We compete based on breadth, brand reputation, security, technology, and global reach of our services, as well as in the variety of contracts and methods and channels of selling equipment. In addition to the auction segment, two other major segments include private sales and brokers, as well as the retail segment which includes OEM’s,OEMs, OEM dealers, rental companies and large strategic accounts. We also compete with private sales – often securing new business from equipment owners who had previously tried selling their equipment privately. Given the fragmentation in the auction market as well as upstream opportunities in private sales and retail, there is significant opportunity for growth.
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Competitive advantagesAdvantages
Our key strengths provide distinct competitive advantages and have enabled us to achieve significant and profitable growth over the long term.
Global platformPlatform
We pride ourselves on our unparalleled ability to connect buyers and sellers through our digital channels, as well as a global network of over 40 operational auction sites in 1213 countries, including the U.S., Canada, Australia, the United Arab Emirates, and the Netherlands and via multiple online sales channels.Netherlands. Our online bidding technology and Ritchie Bros. website are currently available in 10 and 22 languages, respectively. Our global presence ensures weallows us to generate deep pools of liquidity for transactions enabling global market pricing for our equipment sellers, as we reach international buyers and equipment demand, helping to deliver strong and efficient price realization through our sales channels. This global reach provides us and our selling customers with the ability to transcend local market conditions.for assets.
Customer Relationships
Relationships are the core of Ritchie Bros. – delighting customers and treating them like friends while meeting their business needs. By offering an unprecedented choice of solutions that best suit our customers’ needs, making their lives easier in the process, we develop relationships that can last across generations. We take a long-term approach with our customers and as such we position our sales force to act as trusted advisors to our customers.
Breadth of solutionsSolutions
Post the acquisition of IronPlanet, we now possessOur platform provides us with the ability to meet all the buyers’ and sellers’ unique needs in a one-stop-shop manner. The event-driven live on site auction, which has been Ritchie Bros.’ core business for nearly 60 years, is now just one—albeit powerful solution—to meet our customers’ varied needs. By delivering choice the Companythrough our disposition channels, we can work with customers as a trusted advisor to provide them each with a tailored suite of equipment disposition solutions and asset management capabilities to best meet their needs.
WhileIn addition to transaction solutions, Ritchie Bros. hasoffers a full suitevariety of solutions, mostvalue-added services to our customers including financial services, market data, valuation insights, inspections, appraisals, commercial transportations, refurbishment and digital parts procurement.
Delivering Insights and Services Through Data & Analytics
A core part of its volumes are generatedthe Ritchie Bros.’ strategy is delivering insights and services through threerich data and analytics. Based on the world’s largest used equipment transaction dataset, we provide data products that allow customers to analyze market dynamics and value assets. Additionally, Rouse Services is the leading provider of rental metrics benchmarks and equipment valuations to lenders, rental companies, contractors and dealers. Rouse’s business model is built upon an extensive data ecosystem, proprietary analytics and Data Science techniques, and trusted customer relationships rooted in service and confidentiality.
We continue to invest in data science to deliver asset value predictions, generate user leads, prioritize marketing investments, interpret price trends and more. Proprietary algorithmic asset pricing is used internally to set target values and optimize marketplace operations and externally to provide users of Ritchie Bros. Asset Solutions with instant asset values on inventory. The monthly Ritchie Bros. Used Equipment Market Trends Summary report features our proprietary use of Machine Learning to provide Mix-Adjusted Price Indexes for core solutions.asset groups around the globe. Correlated with other leading economic indicators, these price indexes have been quickly adopted by customers, analysts, and manufacturers as a key insight into pricing trends. Machine Learning also supports important strategic and operational decisions such as site expansion, testing marketplace performance, and experimentation with improved formats.
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Data & AnalyticsOur People
The Company’s deep
Human Capital
At December 31, 2022, we employed approximately 2,800 full-time employees (up 3.7% from 2021) and 1,400 part-time employees (down 12.5%) worldwide, representing approximately 67% and 33%, respectively, of our global workforce. We also periodically hire contractors as needed to support our auctions, various businesses, and other projects.
Of our total full-time employees, 966 people work locally in the field to support our global auction historyoperations (2021: 950) and strategic investments in technology has enabled us to develop a rich database of information which we intend to leverage to provide421 people are focused on sales and solutions for our customers with value-added insights, equipment pricing trends, and differentiated service offerings.(2021: 394).
We are also deriving enterprise value from data by using it to improve operational efficiencies and augment our transactional products services. We have invested in analytics talent, data infrastructure and integration, and machine learning to provide near real-time strategic and operational insights and services to enable us to deliver on our multi-channel business objectives.
We have also invested in predictive machine learning to deliver highly scalable asset valuation predictions to enable enhanced and scalable asset valuation capabilities. Ritchie Bros. possesses one of the most complete collections of transparent transaction data in the industries we serve. As a paid service, we have recently launched a Data and Insights Module within Ritchie Bros. Asset Solutions. This allows customers to gain self-service insights into market trends, asset pricing and their sales activity on Ritchie Bros. platforms.
Our People
Our continued success is largely dependent on the strength and capabilities of our employees, and we believe that the development of a safe, engaged and inclusive workforce is critical to the achievement of our strategic goals. Along with a strong reputation among customers and the general public, Ritchie Bros. is acknowledged as a great place to work and was recently awarded one of British Columbia’s Top Employers in 2018.
Development and Engagement
Ritchie Bros. recognizesWe believe that our people are our greatest asset and that engaged employees are paramount to the health and success of our business. We invest in a variety of training, development and engagement practices to deliver on our growth agenda and create more leaders.
In 2022, we invested $1.4 million in employee development (2021: $1.7 million) and $0.6 million in development for sales employees (2021: $1.3 million). All full-time employees are encouraged to have development plans that focus on functional and career growth. We provide all our employees access to instructor-led courses, as well as a library of over 3,000 online courses, videos, books, and resources for ongoing personal, functional, and professional growth. In addition, our Tuition Reimbursement program provides tuition assistance to eligible employees for professional development courses outside of the organization. We have curated tools and resources and developed training programs to provide our leaders and employees with the skills to successfully work remotely and manage the challenges in these uncertain times. We check in with our employees through pulse surveys and communicate through distribution of a weekly newsletter named #RitchieStrong. Our newsletter, which comes directly from our CEO to all of our employees, promotes our successes, highlights our people and encourages social distancing and safety practices. Each newsletter ends with a reminder that employees can raise comments and ask questions directly to our CEO via email.
During 2022, we achieved the following objectives to strengthen the development and engagement of our people:
1. | Continued roll out of PRINT®, a human motivation model, to our people-leaders and their teams to gain insights on what drives them so that they can operate at their highest level; |
2. | Rolled out the Diversity, Equity & Inclusion training, delivered by Eagle’s Flight Creative Training Excellence Inc., to our leaders to understand personal biases and create an inclusive environment. To date, 62% of our senior-leaders and 41% of our people-leaders have completed the training. Our facilitators became certified to deliver the training to our employees in the third quarter of 2022 and accordingly, 11% of our employees have completed the training. We will continue to deliver the training throughout 2023; |
3. | Continued quarterly performance conversations to drive performance and engagement with a simplified year-end review process without performance ratings to allow for more meaningful conversations about accomplishments, values and opportunities; and |
4. | Launched a new sales coverage model for North America and a long tail sales team. As a result, we conducted six new hire bootcamp workshops. |
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We continue to look for ways to create on the-job learning opportunities so that our employees feel invested and engaged. Employees are our greatest assets. Employee development is not just importantinvolved in strategic initiatives and finding ways to the Company but also for the professional and personal growth of our employees. We foster our employees’ development through a wide range of development programs, instructional services and learning products. Ritchie Bros. is creating a learning culture where managers are responsible for providing an environment that supports the growth and development needs of their employees, and where employees are motivated to establish development plans and look for opportunities to apply their learning on the job.
The Company’s employees and officers conduct the Company’s business on a day-to-day basis in a manner that promotes and protects our reputation and the trust thatbetter serve our customers and investors have in the Ritchie Bros. brand. To further promote and instill strong operating practices and foster appropriate behaviours and decision making, the Company promotes and mandates the following:each other.
Health & Safety
Our Company’s 2,400+ employees have an unreserved commitmentobjective is to safetykeep our people healthy and is committedsafe – to send everyone home, every day, the way they came to work.
All new employees are required to complete a safety onboarding training that captures our health and safety programs, our policy statement and provides an overview of our global Employee Health and Safety (“EHS”) policies and expectations. Our 2022 completion rate for the safety onboarding program was 93.4% (2021: 98%).
We also have a risk management process to support thisour safety orientation programs and our health and safety commitment throughwhich ensures that our employees are exposed to the uselowest possible level of a Safety Steering Team made up of a cross section of functions within the organization, the use of Continuous Improvement Teams made up of Operations, Sales and Administration personnel,risk. Our risk management process begins with an active Risk Identification process at the field level and open communications around safety both on and off the job.
The Safety Steering Team identifies continuous improvement activities using a quarterlyannual review of all incidents acrossfrom the organizationprior year to identify commontrends to see if we need to address findings through changes in our policies and procedures.
Daily, our employees conduct either a field level hazard assessment or complete a risk identification card to identify risks relating to the performance of their roles. These risk identification cards are monitored by our yard managers and/or our regional operations managers and corrective actions are taken to ensure that the risk is reduced or eliminated. During 2022 we had over 17,000 (2021: 14,000) risk identification cards completed by our staff.
We also conduct annual online safety training with employees who perform certain operational tasks. In 2022, our completion rate for this training was 91% (2021: 98.5%). In 2022 we switched platforms on which the training was provided, and as a result the online safety training was only available from January to June contributing to the lower completion rate. Additionally, in 2022, managers at our sites were also required to complete a series of online courses as part of their professional development. In 2022, we had a completion rate of over 94% (2021: 94.5%).
We also measure our Total Recordable Injury Rate (“TRIR”) which measures the number of reportable incidences per 100 full-time workers during the year. Our annual TRIR goal is to meet or do better by being below the industrial average. TRIR for 2022 was 1.14 (2021: 1.38), which was below the industrial average.
Every region within our organization also has a Safety Steering team that provides feedback on our safety journey and assists in identifying issues or concerns that require attention. Inmay arise. Our success in health and safety relies on everyone taking an active role in the past three years, we have improved not onlydevelopment and implementation of our TRIR (Total Recordable Incident Rate)programs, participating in training and severity rating but we have seen an overall reductionproviding feedback on our progress in total incidents throughout the organization supporting our unreserved commitment to safety and to send everyone home, every day, the way they came to work.journey.
Diversity & Inclusion
We aspire to have a culture that fosters respect, inclusion and opportunity for growth for all, where everyone feels like they belong. Specifically, we want our teams to understand the strength of diversity, the power that comes from an inclusive environment and the effect it can have on our teams, customers and stakeholders. Outlined below are the initiatives that demonstrate our dedication to diversity, equity and inclusion (“DE&I”).
Gender Diversity and Equality
We continue to be committed to gender diversity. Representation of women at our most senior executive leadership level is at 33% (2021: 40%). We also continue to maintain strong representation of women at the Board of Directors level with four (out of nine) Board members being women, representing 44% (2021: 50%) of the Board. Approximately 36% of our full-time employees are women and 64% are men, consistent with 2021.
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In 2022 and beyond, we will continue to measure and analyze recruitment efforts and strive to increase the number of candidates and hires from underrepresented groups. We plan to improve our partnership with diversity-focused organizations and increase the number of outreach campaigns to candidates from underrepresented groups.
Employee Resource Groups (“ERG”)
Women’s LINK, our first ERG established in 2018, which focuses on gender diversity and equality, had 34 new members join in 2022 and maintains a membership of around 200 colleagues.
Our second ERG, the Black Lives Matter (“BLM”) Committee, which was established in 2020 and has approximately 80 members, encourages courageous conversations and brings awareness to issues affecting the Black community. In late 2021, a book club was formed to further foster connections and dialogue among its members. In 2022, the BLM Committee made a donation to Title I schools in Atlanta to help students, including students from low-income families, expanded the number of profiles on Black History Month and promoted several roundtable discussions.
In 2021, we further delivered on our commitment to create a framework to support our employees’ diverse needs by establishing two new ERGs – Pride and SERVE. In 2022, the core teams for each group worked to support and bring awareness about issues facing the communities of focus for their groups as outlined below.
The Pride ERG, which focuses on creating a welcoming and inclusive workplace for Two Spirit, lesbian, gay, bisexual, transgender, queer or questioning, and nonbinary (2SLGBTQ+) employees, had a positive impact in 2022 by donating funds to GATE, an international advocacy organization working towards justice and equality for transgender, gender diverse and intersex communities, in honor of International Transgender Day of Visibility. The Company also supports an inclusive workplace culturemade a donation to the Human Rights Watch LGBT program, which documents and isexposes abuses based on sexual orientation and gender identity worldwide, in honor of International Day Against Homophobia, Transphobia & Biphobia. The ERG also participated in and celebrated Pride month.
The SERVE ERG embraces our proud community of military service members and Veteran colleagues by building awareness and providing resources to past or present military service members and their families. We became the main sponsor for the Lincoln Marathon in 2022 a celebration of the Lincoln, Nebraska community, which included sponsorship of a veteran and three members of the National Guard running the marathon. SERVE ERG also honored Memorial Day, Remembrance Day and Veteran Day by sharing service stories of Ritchie Bros. colleagues and family members who have served or are serving in the military throughout the month of November.
We are committed to investing the education, recruitment, developmenttime and advancementresources needed to ensure we continue to live up to our diversity, equality and inclusion vision of diverse team members worldwide. Women’s LINK,having a global initiative to support women within our company was launched in late 2018culture that fosters respect, inclusion and is focused on strengthening our core valueopportunity of being a diverse and inclusive global organization as we look to drive innovation through diversity of thought, gender, nationality and ethnicity. LINK is an Employee Resource Group (ERG) to serve as a resourcegrowth for the women at Ritchie Bros. and the organization itself. Although the ERG’s primary goal is to support Ritchie Bros. women, the broader mandate is to make the resources and services available to all, employees. Ritchie Bros. is a signatory to the Minerva Pledge on gender diversity.where everyone feels like they belong.
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Promoting Community Giving
The Company has been rooted in community since our founding over 60 years ago and we are committed to use our global scale and success to give back to our local communities. Our objective is to continue to engage in efforts to maintain community giving as our employees are passionate about having a meaningful impact in their communities.
In 2021, we developed a community giving framework centered around supporting local economies and people in the communities in which we operate. In 2022, we delivered on this framework by launching the #RitchieGives Community Impact platform in Canada and the United States to allow employees to sign up for volunteer opportunities and complete charitable donations with the Company matching donations. In Canada, in 2021, we established the Ritchie Bros. Community Impact fund to support causes across Canada and in 2022, in the United States, we granted funds to Local Initiatives Support Corporation’s (LISC) Bridges Careers Opportunities program, which connects unemployed and underemployed people to career and training pathways in heavy machinery related fields in the Los Angeles area, a region of expected growth.
Flexible Workplace
COVID-19 has changed the way we work and, to maintain the health and well-being of all employees, employees who are able to work remotely continued to do so throughout 2022. Flexibility has become the future of work at Ritchie Bros. as we work to support employees’ safety, health and well-being while continuing to meet business needs in a hybrid world.
Ethical Conduct
Our success and reputation isare founded upon our commitment to honesty, integrity, and doing what is right.right—each element highlighted under our value of Integrity. Our objective is to monitor and facilitate reporting of unethical conduct. We depend on our employees and officers to conduct the Company’s business on a day-to-day basis in a manner that promotes and protects our reputation and the trust that our customers and investor have in the Ritchie Bros. brand. Our Code of Conduct and Ethics helps our employees understand what we meando this by ethical behavior and to exemplify our core values. Employees are required to complete annual scenario-based training on our Code to reinforce awareness and understanding of how to put these principles into practice each day.
Ethics Hotline
We maintainmaintaining a confidential and anonymous independent third-party telephone line and web access hotline for anyone to submit concerns regarding potential code violations or other ethics-related matters without fear of repercussions. All reported matters are investigated fully and reported to the Audit Committee of our Board of Directors.
Environmental, Social & Governance
We have advanced our commitment to Environmental, Social and Governance (“ESG”) matters in 2022 and developed a ESG framework to help guide and communicate our high-level goals, targets and performance metrics. We also updated our ESG governance structure and identified individuals to advance and integrate our ESG objectives.
Environmental
The Company is regulated by federal, state and international environmental laws governing the protection of the environment, health and safety, the use, transport and disposal of hazardous substances and control of emissions including greenhouse gases into the environment. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position. However, climate change initiatives and changing laws and regulations governing the environment may affect the supply of, the demand for, and the market values of equipment in the future.
We support the transition to a low-carbon world through enabling a circular economy of vehicles and equipment and through our efforts to manage our greenhouse gas emissions. We engage our customers to optimize the use and efficiency of equipment, to re-use, refurbish and recycle before disposition, as extending the life of heavy equipment is core to our business model. In turn, we believe this reduces waste and lessens the need to extract natural resources to produce equipment. Our largest sources of emissions are direct combustion of diesel fuel and natural gas, as well as our electricity consumption. During 2022, we invested in developing our baseline inventory of our Scope 1 and 2 greenhouse gas emissions and have a target of completing our Scope 3 inventory in 2023 to allow us to set reduction targets in 2024 and in the future. In addition, we improved the efficiency and effectiveness of our operations to lessen our environmental footprint in delivering our services. We provide virtual ramping which allows large machines to be sold by video screen and eliminates emissions from transportation of equipment across the ramp. We also improved yard lanes and optimized the equipment delivery and loadout schedules to minimize equipment movement and idling.
We continue our commitment to environmental management by ensuring availability of treatment systems to manage wastewater, a recycling system to promote waste management and air filtration systems when necessary. We also promote environmentally conscious facilities including electrification at our sites and corporate offices.
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Social
Please refer to the “Our People” section for a summary of our human capital programs to promote employee engagement and development, health and safety, and diversity and inclusion, as well as our commitment to community giving.
Governance
We believe in doing the right thing for everyone involved in our business and seek to do business with third parties who follow the same core values. This is reflected in our Code of Business Conduct and Ethics which is delivered through annual training to our employees, and supported by our third-party Ethics Hotline. With the exception of our CEO, our Board of Directors consists of elected independent individuals and are selected in accordance with our Director Selection Guidelines to promote diversity.
Oversight of our ESG enterprise strategy is provided by the Nominating and Corporate Governance Committee, while our ESG Steering Committee provides strategic direction and oversight of ESG across key business functions. We have also established an ESG Working Group for the implementation of ESG initiatives across the organization.
We will continue to integrate ESG across our teams and are working to dedicate additional roles to ESG to provide support and momentum behind our ESG programs.
The Role of Technology
Implementing a modern architecture on which we can scale and grow profitably is a core strategic pillar for Ritchie Bros. The role of technology in our business continues to evolve and become more meaningfuldependent as more buyers adopt mobile and online channels to transact their business with us.us while sellers further utilize our inventory management system. We have been oncontinue to invest in technology to further transition to a pathway to leverage digitalmodern cloud-based architecture driven by microservices that allows for agility, flexibility and technology capabilities to improve the consumer auction and leverage technology as a competitive differentiator.
The acquisitionscalability of IronPlanet was an inflection point in our business and was a step change in this direction as it positioned us as a technology-enabled asset disposition company. The combination of IronPlanet’s technology and our existing assets results in tools and capabilities that provide our customers, both buyers and sellers, with more efficient and richer experiences and value-added differentiators creating deeper brand loyalty.solutions.
We remain focused on technology enablement to transform the way we compete, the way we work and the way we leverage technology to drive future growth. Our technology capabilities are delivering choicechoices for our customers in the form of multiple channels for buyers and sellers, meeting customer’s asset management needs through information-rich software solutions and leveraging our rich data repository to drive strong sales and improved pricing decisions. We are also providing our customers with leading tools and capabilities to deliver full life-cycle asset management for used equipment.
Data Privacy and Security
As the role of technology and data in our business expands, so too does the importance of cybersecurity. The Company takesWe take protecting our customers, employees, brand, systems and data very seriously. The CompanyWe actively monitorsmonitor and managesmanage security risks and lookslook to mitigate them through enterprise-wide programs, employee training and vulnerability assessments. We have made – and continue to make – investments in dedicated information security resources, leadership and technology. We continue to strengthen and enhance our programprograms and controls around people, processprocesses and technology and apply risk-based strategies to enhance detection, protection and response efforts.
Our commitment to data security and privacy is demonstrated in the Company’sour overall approach to governance. We are incorporating security and privacy by design and increasing awareness around the companyCompany with support from management and our board, which include:Board by taking certain actions, including the following:
● | We have formed a Data Privacy Committee. The oversight of the committee is to develop and approve our general strategy and policies on data privacy and data protection, assess the data privacy risks associated with |
● | Our |
● | All eligible employees complete mandatory privacy and information-security training courses, which are refreshed annually. Through continual awareness-building, such as our Cybersecurity Awareness Month every October, we work to promote a culture that understands the critical importance of data security and privacy, areas of vulnerability and how to remain vigilant when handling data. |
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● | We invested in enterprise leading cybersecurity tools and solutions to improve our detection, protection and response capabilities, as well as grew our internal dedicated cybersecurity team. |
Seasonality
Our GTV and associated A&M segment revenues are affected by the seasonal nature of our business. GTV and A&M segment revenues tend to increase during the second and fourth calendar quarters, during which time we generally conduct more business than in the first and third calendar quarters. Given the operating leverage inherent in our business model, the second and fourth quarter also tend to produce higher operating margins, given the higher volume and revenue generated in those quarters.
Revenue Mix Fluctuations
Our revenue is comprised of service revenuesrevenue and revenue from inventory sold.sales revenue. Service revenuesrevenue from A&M segment activities includeincludes commissions earned at our live auctions, online marketplaces, and private brokerage services, and various auction-related fees, including listing and buyer transaction fees. We also recognize revenuesfees from our Other Services activities as service revenues. Revenue from inventoryrevenue. Inventory sales revenue is recognized as part of our A&M activities and relates to revenues earned through our inventory contracts.
Revenue from inventoryInventory sales revenue can fluctuate significantly, as it changes based on whether our customers sell using a straight or guarantee commission contract, or an inventory contract at time of selling.contract. Straight or guarantee commission contracts will result in the commission being recognized as service revenues,revenue, while inventory contracts will result in the gross transaction value of the equipment sold being recorded as revenue from inventory sales revenue with the related cost recognized in cost of inventory sold. As a result, a change in the revenue mix between service revenues and revenue from inventory sales can have a significant impact on revenue growth percentages.
Governmental Regulations and Environmental Laws
Our operations are subject to a variety of federal, provincial, state and local laws, rules, and regulations throughout the world. We believe that we are compliant in all material respects with those laws, rules, and regulations that affect our business, and that such compliance does not impose a material impediment on our ability to conduct our business.
We believe that, among other things, laws, rules, and regulations related to the following list of items affect our business:
● | Imports and exports of equipment. Particularly, there are restrictions in the U.S. and Europe that may affect the ability of equipment owners to transport certain equipment between specified jurisdictions. Also, engine emission standards in some jurisdictions limit the operation of certain trucks and equipment in those regions. |
● | Development or expansion of auction sites. Such activities depend upon the receipt of required licenses, permits, and other governmental authorizations. We are also subject to various local zoning requirements pertaining to the location of our auction sites, which vary among jurisdictions. |
● | The use, storage, discharge, and disposal of environmentally sensitive materials. Under such laws, an owner or lessee of, or other person involved in, real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. These laws often impose liability without regard to whether the owner or lessee or other person knew of, or was responsible for, the presence of such hazardous or toxic substances. |
● | Worker health and safety, privacy of customer information, and the use, storage, discharge, and disposal of environmentally sensitive materials. |
Available Information
The information contained on or accessible through our website is not part of this Annual Report on Form 10-K. We file requiredwith the SEC reports on Form 10-K, Form 10-Q, Form 8-K, proxy materials and other filings required under the Exchange Act. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers thatInvestors may access any materials we file electronically with the SEC.
We maintain aSEC through the EDGAR database on the SEC’s website at www.rbauction.com and copies of our reports on Form 10-K, Form 10-Q and Form 8-K, proxy materials and other filings required under the Exchange Act, are available on our website, free of charge, as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the SEC. We have an investor website at www.investor.ritchiebros.com. None of the information on our websites is incorporated into this Annual Report on Form 10-K by this or any other reference.
www.sec.gov.
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In addition, investors and others should note that we announce material financial information using our company website (www.ritchiebros.com) and investor relations website (https://investor.ritchiebros.com), which host our SEC filings, press releases, public conference calls, and webcasts. Information about Ritchie Bros., its business, and its results of operations may also be announced by posts on the following social media channels:
● | Facebook: https://www.facebook.com/RitchieBros |
● | LinkedIn: https://www.linkedin.com/company/ritchie-bros/ |
● | Twitter: https://twitter.com/RitchieBros |
● | YouTube: https://www.youtube.com/ritchiebros |
The information that we post on these social media channels could be deemed to be material information. As a result, we encourage investors, the media, and others interested in Ritchie Bros. to review the information that we post on these social media channels. These channels may be updated from time to time on Ritchie Bros.’s investor relations website.
We are providing these website addresses solely for the information of investors, and the information on or accessible through our websites and social media channels is not incorporated by reference in this Annual Report on Form 10-K.
Also available for investors on our website in the Corporate Governance section for investorsof our investor relations website are the Code of Business Conduct and Ethics for our directors, officers and employees (“Code of Conduct”), Board Mandate, Audit Committee Charter, Nominating and Corporate Governance Committee Charter, Compensation Committee Charter, Corporate Governance Guidelines, Diversity Policy, Shareholder Engagement Policy, Articles and Bylaws, Majority Voting Policy and Board Chair Role and Description.
Additional information related to Ritchie Bros. is also available on SEDAR at www.sedar.com.
As a Canada Business Corporations Act (“CBCA”) company with our principal place of business in Canada, U.S. civil liabilities may not be enforceable against us. Please see “Item 1A. Risk Factors—U.S. civil liabilities may not be enforceable against us, our directors, or our officers,” which is incorporated into this Item 1 by this reference.
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ITEM 1A: RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition to the other information included in this Annual Report on Form 10-K, you should carefully consider each of the risks described below before purchasing our common shares. The risk factors set forth below are not the only risks that may affect our business. Our business could also be affected by additional risks not currently known to us or that we currently deem to be immaterial. If any of the following risks actually occur, our business, financial condition and results of operations could materially suffer. As a result, the trading price of our common shares could decline, and you may lose all or part of your investment. Information in this section may be considered “forward-looking statements.” See “Cautionary Note Regarding Forward-Looking Statements” for a discussion of certain qualifications regarding such statements.
Risks Related to the Proposed Acquisition of IAA
The pendency of our acquisition of IAA or our failure to complete such acquisition could have a material adverse effect on our business, results of operations, financial condition and stock price.
On November 7, 2022, we entered into an Agreement and Plan of Merger and Reorganization with IAA (the “Merger Agreement”), amended on January 22, 2023, providing for our acquisition of IAA. Consummation of the acquisition is subject to the satisfaction of various conditions, including, among other things, (1) the approval of the issuance of our common shares by the affirmative vote of a majority of the votes cast by holders of our outstanding common shares, (2) the adoption of the Merger Agreement by holders of a majority of the outstanding shares of IAA’s common stock, and (3) other customary closing conditions.
The acquisition may be delayed, and may ultimately not be completed, due to a number of factors, including the failure to satisfy these conditions to the completion of the acquisition, or the possibility that a material adverse effect on our business or IAA’s business would permit IAA or us, respectively, not to close the acquisition. There is no assurance that all of the various conditions will be satisfied or waived, or that the acquisition will be completed on the proposed terms, within the expected timeframe, or at all. Also, potential litigation filed against us or IAA could prevent or delay the completion of the acquisition or result in the payment of damages following completion of the acquisition.
In the event that the proposed acquisition is not consummated or is materially delayed for any reason, we will have spent considerable time and resources, and incurred substantial costs related to the acquisition, many of which must be paid even if the acquisition is not completed. If the acquisition is not completed, our business and shareholders would be exposed to additional risks, including, but not limited to the following: (a) to the extent that the market price of our common shares reflects an assumption that the acquisition will be completed, the price of our common shares could decrease if the acquisition is not completed; (b) investor confidence could decline, litigation could be brought against us, relationships with existing and prospective sellers, customers, service providers, investors and other business partners may be adversely impacted, we may be unable to retain key personnel, and profitability may be adversely impacted due to costs incurred in connection with the pending acquisition; and (c) the requirement that we pay a termination fee of $189 million if the Merger Agreement is terminated under certain circumstances.
Also, during the period prior to the closing of the acquisition, our business will be exposed to certain inherent risks due to the potential impact of the announcement or pendency of the acquisition on our business, financial condition and operating results, including, but not limited to the following: (a) the possibility of disruption to our business and operations, including diversion of management attention and resources; (b) the inability to attract and retain key personnel, and the possibility that our current employees could be distracted and their productivity decline, due to uncertainty regarding the pending acquisition; (c) the inability to pursue alternative business opportunities or make material changes to our business pending the completion of the acquisition; (d)the amount of the costs, fees, expenses and charges related to the acquisition; and (e) other developments beyond our control, including, but not limited to, changes in domestic or global economic conditions, capital markets and interest rates that may affect the timing or success of the proposed acquisition.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
While the Merger Agreement is in effect, we are generally required to use reasonable efforts to conduct our business in the ordinary course in all material respects, and are restricted from taking certain actions set forth in the Merger Agreement without IAA’s prior consent. These limitations include, among other things, certain restrictions on our ability to amend our organizational documents, acquire other businesses and assets that would reasonably be expected to delay or impair the consummation of the acquisition, dispose of certain assets, reclassify or issue certain securities, and pay dividends (other than our regular quarterly dividend). These restrictions
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could prevent us from pursuing strategic business opportunities and taking actions with respect to our business that we may consider advantageous and may, as a result, materially and adversely affect our business, results of operations and financial condition.
We may experience difficulties in integrating our operations with those of IAA and realizing the expected benefits of the acquisition.
The success of the proposed acquisition of IAA, if completed, will depend in part on our ability to realize the anticipated business opportunities and cost synergies from combining with IAA in an efficient and effective manner. We may not realize these business opportunities and cost synergies to the extent expected or at all. Further, our management might have its attention diverted while trying to integrate operations and corporate and administrative infrastructures. The post-closing integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of IAA’s business with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the proposed transaction, and our business, results of operations and financial condition could be adversely affected.
We will incur a substantial amount of debt to complete the acquisition of IAA, which could have a material adverse effect on our business, cash flows and financial condition.
We will incur significant debt to complete the acquisition of IAA, including borrowing up to $2.8 billion under a bridge loan facility, inclusive of $1.8 billion of bridge commitments with term A loan commitments, or pursuant to other permanent financing that replaces such facility, which may include the issuance of debt securities and/or one or more senior term loan facilities. On an expected combined company basis, we expect that together with IAA, we would have approximately $3.4 billion of indebtedness, excluding $709.8 million of undrawn commitments under our revolving credit facility. Our ability to make payments on our debt, fund our other liquidity needs and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash is subject in part to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures. If our cash flows and capital resources are insufficient to fund debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. The degree to which we are currently leveraged and will be leveraged following the completion of the acquisition of IAA could have important consequences for shareholders. For example, it could: (a) limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; (b) require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends and other corporate purposes; (c) increase our vulnerability to general adverse economic or industry conditions; (d) expose us to the risk of increased interest rates for any borrowings at variable rates of interest; (e) limit our flexibility in planning for and reacting to changes in our industry; and (f) place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, our debt agreements, including any agreements that we may enter into in connection with the proposed acquisition of IAA, may contain a number of covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. Any failure to comply with covenants in the instruments governing our debt could result in an event of default which, if not cured or waived, would have a material adverse effect on us.
Significant costs have been incurred and are expected to be incurred in connection with the consummation and integration of the acquisition of IAA.
We expect to incur one-time costs in connection with integrating our operations, products and personnel with those of IAA, in addition to costs related directly to completing the acquisition. Additional unanticipated costs may be incurred as we integrate our business with IAA following the closing. Although we expect the elimination of duplicative costs, as well as the realization of other efficiencies
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related to the integration of our operations with IAA, may offset incremental transaction and transaction-related costs over time, this net benefit may not be achieved in the near term or to the extent anticipated.
Risk Related to Our Business
We may not realize the anticipated benefits of, and synergies from, acquisitions and may become responsible for certain liabilities and integration costs as a result.
We have acquired, and may continue to acquire, businesses that have previously operated independently from us. The integration of our operations with those of acquired businesses, including IAA, is intended to result in financial and operational benefits, including certain tax and run-rate synergies. There can be no assurance, however, regarding when or the extent to which we will be able to realize these and other benefits. Integration may also be difficult, unpredictable and subject to delay because of possible company culture conflicts and different opinions on future business development. We may be required to integrate or, in some cases, replace, numerous systems, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance, many of which may be dissimilar. Difficulties associated with the integration of acquired businesses could have a material adverse effect on our business.
In addition, in connection with acquisitions, we have assumed, and may assume in connection with future acquisitions, certain potential liabilities. To the extent such liabilities are not identified by us or to the extent indemnifications obtained from third parties are insufficient to cover such liabilities, these liabilities could have a material adverse effect on our business.
For a description of risks related to our pending acquisition of IAA, see “Risks Related to the Proposed Acquisition of IAA” below.
Damage to our reputation could harm our business.
One of our founding principles is that we operate a fair and transparent business, and consistently act with integrity. Maintaining a positive reputation is key to our ability to attract and maintain customers, investors and employees. Damage to our reputation could cause significant harm to our business. Harm to our reputation could arise in a number of ways, including, but not limited to, employee conduct which is not aligned with our Code of Business Conduct and Ethics (and associated Company policies around behavioural expectations) or our Company’s core values, safety incidents, failure to maintain customer service standards, loss of trust in the fairness of our sales processes, and other technology or compliance failures.
We may not realize the anticipated benefits of, and synergies from, the Acquisition.
Business acquisitions involve the integration of new businesses that have previously operated independently from us. The integration of our operations with those of IronPlanet is expected to result in financial and operational benefits, as well as operating synergies. There can be no assurance, however, regarding when or the extent to which we will be able to realize these and other benefits. Integration may also be difficult, unpredictable, and subject to delay because of possible company culture conflicts and different opinions on future business development.
Although we have moved beyond the most complex stage of our integration, we may not realize the full benefits that we anticipate. If we achieve the expected benefits, they may not be achieved within the anticipated time frame. Also, the benefits from the Acquisition may be offset by costs incurred in integrating Ritchie Bros. and IronPlanet, increases in other expenses, operating losses or problems in the business unrelated to the Acquisition. As a result, there can be no assurance that such synergies or other benefits will be achieved.
We have incurred substantial indebtedness in connection with the Acquisition, and the degree to which we are leveraged may materially and adversely affect our business, financial condition and results of operations.
We have incurred substantial indebtedness in connection with the Acquisition. As at December 31, 2019, we have $650.2 million of total debt outstanding, consisting of $159.5 million under a five-year credit agreement (the “Credit Agreement”) with a syndicate of lenders entered into on October 27, 2016, and $500.0 million aggregate principal amount of 5.375% senior unsecured notes issued December 21, 2016 (the “Notes”), partially reduced by $9.9 million of unamortized debt issue costs, as well as $0.6 million under our foreign credit facilities. There is $480.5 million of availability under the Credit Agreement.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred pursuant to the Acquisition as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take certain actions, including reducing spending on marketing, advertising and new product innovation, reducing future financing for working capital, capital expenditures and general corporate purposes, selling
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assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry, including both the live and online auction industry, could be impaired.
The lenders who hold our debt could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt.
In addition, our substantial leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our substantial leverage could also impede our ability to withstand downturns in our industry or the economy in general.
We may incur substantial additional indebtedness in the future. The terms of the Credit Agreement and the indenture governing the Notes will limit, but not prohibit, us from incurring additional indebtedness. If we incur any additional indebtedness that has the same priority as the Notes and the guarantees thereof, the holders of that indebtedness will be entitled to share rateably with the holders of the Notes and the guarantees thereof in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us.
Subject to restrictions in the Credit Agreement and the indenture governing the Notes, we also will have the ability to incur additional secured indebtedness that would be effectively senior to the Notes offered hereby, to the extent of the value of the assets securing such obligations. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.
Our debt instruments have restrictive covenants that could limit our financial flexibility.
The terms of the Credit Agreement, as well as the indenture governing the Notes, contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our ability to borrow under our Credit Agreement is subject to compliance with a consolidated leverage ratio covenant and a consolidated interest coverage ratio covenant.
The Credit Agreement includes other restrictions that limit our ability in certain circumstances to: incur indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. The indenture governing the Notes contains covenants that limit our ability in certain circumstances to:
Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of substantially all of our funded debt. We do not have sufficient working capital to satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding indebtedness.
Uncertainty regarding LIBOR may adversely impact our indebtedness under our credit and loan facilities.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Similarly, it is impossible to predict what rate or rates may become accepted alternatives to LIBOR. Potential changes, or uncertainty related to such potential changes, may adversely affect the cost of our borrowings. If LIBOR ceases to exist, the method and rate used to calculate our variable-rate debt in the future may result in interest rates and/or payments that are higher than, lower than, or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. The potential effect of the phase-out or replacement of LIBOR on our financial condition and results of operations cannot yet be determined.
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Competition could result in reductions in our future revenues and profitability.
The global used equipment market, including the auction segment of that market, is highly fragmented. We compete for potential purchasers and sellers of equipment with other auction companies and with non-auction competitors such as equipment manufacturers, distributors and dealers, equipment rental companies, and other online marketplaces. When sourcing equipment to sell at our auctions or other marketplaces, we compete with other on site and online auction companies, OEM and independent dealers, equipment brokers, other third parties, and equipment owners that have traditionally disposed of equipment in private sales.
Some of our competitors have significantly greater financial and marketing resources and name recognition than we do. New competitors with greater financial and other resources and/or different business models/strategies may enter the equipment auction market in the future. Additionally, existing or future competitors may succeed in entering and establishing successful operations in new geographic markets prior to our entry into those markets. They may also compete against us through internet-based services and other combined service offerings.
If commission rates decline, or if our strategy to compete against our many competitors is not effective, our revenues, market share, financial condition and results of operations may be adversely impacted. We may be susceptible to loss of business if competing selling models become more appealing to customers. If our selling model becomes undesirable or we are not successful in adding services complementary to our existing selling model and business, we may not be successful increasing market penetration over the long-term, which could prevent us from achieving our long-term earnings growth targets.
Our relationships with key long-term customers may be materially diminished or terminated.
We have long-standing and/or strategic relationships with a number of our customers and business partners, many of whom could unilaterally terminate their relationship with us or materially reduce the amount of business they conduct with us at any time. Market competition, business requirements and financial conditions could adversely affect our ability to continue or expand our relationships with our customers and business partners. There is no guarantee that we will be able to retain or renew existing agreements, or maintain relationships with any of our customers or business partners, on acceptable terms or at all. The loss of one or more of our major customers or business partners could adversely affect our business, financial condition and results of operations.
Decreases in the supply of, demand for, or market values of used equipment, could harm our business.
Our revenues could decrease if there was significant erosion in the supply of, demand for, or market values of used equipment, which could adversely affect our financial condition and results of operations. We have no control over any of the factors that affect the supply of, and demand for, used equipment, and the circumstances that cause market values for equipment to fluctuate — including, among other things, economic uncertainty, global geopolitical climate, disruptions to credit and financial markets, lower commodity prices, and our customers’ restricted access to capital — are beyond our control. Recent economic conditions have caused fluctuations in the supply, mix and market values of used equipment available for sale, which has a direct impact on our revenues.
In addition, price competition and the availability of equipment directly affect the supply of, demand for, and market value of used equipment. Climate change initiatives, including significant changes to engine emission standards applicable to equipment, may also adversely affect the supply of, demand for our market values of equipment.
We may incur losses as a result of our guarantee and inventory contracts and advances to consignors.
Our most common type of auction contract is a straight commission contract, under which we earn a pre-negotiated, fixed commission rate on the gross sales price of the consigned equipment at auction. We use straight commission contracts when we act as agent for consignors. In recent years, a majority of our annual business has been conducted on a straight commission basis. In certain other situations, we will enter into underwritten transactions and either offer to:to (a) guarantee a minimum level of sale proceeds to the consignor, regardless of the ultimate selling price of the consignment; or (b) purchase the equipment outright from the seller for sale through one of our sales channels.
We determine the level of guaranteed proceeds or inventory purchase price based on appraisals performed on equipment by our internal personnel. Inaccurate appraisals could result in guarantees or inventory values that exceed the realizable auction proceeds. In addition, a change in market values could also result in guarantee or inventory values exceeding the realizable auction proceeds. If auction proceeds are less than the guaranteed amount, our commission will be reduced, and we could potentially incur a loss, and, if auction proceeds are less than the purchase price we paid for equipment that we take into inventory temporarily, we will incur a loss. Because a majority of our auctions are unreserved, there is no way for us to protect against these types of losses by bidding on or acquiring any of the items at such auctions. In addition, we do not hold inventory indefinitely waiting for market conditions to improve. If our exposure to underwritten contracts increases, this risk would be compounded.
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Occasionally, we advance to consignors a portion of the estimated auction proceeds prior to the auction. We generally make these advances only after taking possession of the assets to be auctioned and upon receipt of a security interest in the assets to secure the obligation. If we were unable to auction the assets or if auction proceeds were less than amounts advanced, we could incur a loss. Additionally, we have two vendor contracts with the U.S. Government’s Defense Logistics Agency (“DLA”) pursuant to which we acquire, manage and resell certain assets of the DLA. Each of the DLA contracts obliges the Company to purchase rolling and non-
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rolling stock assets in an amount and of a type over which we have limited ability to control. In many cases, the type of assets purchased are not what we typically sell through any of our other channels. Although the prices we pay for the non-rolling stock inventory are a fraction of the original acquisition value, we may not have the ability to attract buyers for those assets and we may be unable to sell those assets on a timely basis or at all. This would have an adverse effect on our financial results.
The availability and performance of our technology infrastructure, including our websites, is critical to our business.business and continued growth.
The satisfactory performance, reliability and availability of our websites, online bidding service, auction management systems, enterprise resource planning system, transaction processing systems, and network infrastructure and customer relationship management system are important to our reputation, our business and our business. Ourcontinued growth. We currently rely on both our own proprietary technology and licensed on-premise systems, as well as third-party cloud computing platform providers located in the United States and other countries. The technology and systems we rely on may experience service interruptions or degradation because of hardware or software defects or malfunctions, computer denial of service cyberor ransomware attacks and other cybersecurity events, human error and natural events beyond our control. Some of our systems are not fully redundant, and our recovery planning may not be sufficient for all possible disruptions.
Further, we will need tolicensed hardware, software and cloud computing platforms may not continue to expand, consolidate, and upgrade our technology, transaction processing systems and network infrastructure bothbe available at reasonable prices, on commercially reasonable terms or at all. Any loss of the right to meet increased usageuse any of these hardware, software or cloud computing platforms or the loss of the functionality of our online bidding serviceinternet systems could significantly increase our expenses, damage our reputation and other new services and solutions being offered tootherwise result in delays in provisioning of our customers, to implement new features and functions and as a result of the Acquisition.services. Our business and results of operations couldwould be particularly harmed if we were unable to expand and upgrade in a timely manner our systems and infrastructure to accommodate any increases in the use of our internet services, or if we were to lose access to or the functionality of our internet systems for any reason, especially if such loss of service prevented internet bidders from effectively participating in one of our auctions. Frequent, persistent or ill-timed interruptions to our internet services could cause current or potential customers to believe that our systems are unreliable, which could lead to the loss of customers and harm our reputation.
We use both internally developed and licensed systems for transaction processing and accounting, including billings and collections processing. We continually upgrade and improve these systems to accommodate growth in our business. If we are unsuccessful in continuing to upgrade our technology, transaction processing systems or network infrastructure to accommodate increased transaction volumes, it could harm our operations and interfere with our ability to expand our business.
We may not realize the anticipated benefits of, and synergies from, a systems transformation project that the Company is currently developing and implementing.
We are in the process of developing and implementing our new multichannel administration and reporting system ("MARS") in order to retire or integrate legacy technologies used across our sales platforms. This initiative requires the execution of complex projects involving significant systems and operational changes, which place considerable demands on our management, our employees, our information and other systems. Our ability to successfully implement and realize the benefits from these projects is dependent on management’s ability to manage these projects effectively and implement and operate them successfully, without adversely affecting our existing systems, and on our employees’ ability to effect the required operational changes. If we fail to implement these projects effectively, including aligning them with our sales operations, we experience significant delay or cost overruns or the necessary overall operational changes are not effected properly, we may not realize the return on our investments that we anticipate, we may adversely affect the operation of other systems, and our business, financial position, operating results, and cash flows could be materially adversely affected.
Consumer behavior is rapidly changing, and if we are unable to successfully adapt to consumer preferences and develop and maintain a relevant and reliable inventory management and multichannel disposition experience for our customers, our financial performance and brand image could be adversely affected.
Our business continues to evolve into a one-stop inventory management and multichannel disposition company where customers can buy, sell, or list equipment, when, how, and where they choose- both onsite and online, and manage their existing fleets and/or inventory using our online inventory management tools. As a result of this evolution, increasingly we interact with our customers across a variety of different channels, including live auction, online, through mobile technologies, including the Ritchie Bros. mobile app, social media, and inventory management systems. Our customers are increasingly using tablets and mobile phones to make purchases online and to get detailed equipment information for assets that they own or are interested in purchasing. Our customers also engage with us online, including through social media, by providing feedback and public commentary about all aspects of our business. Consumer shopping patterns are rapidly changing and our success depends on our ability to anticipate and implement innovations in customer experience and logistics in order to appeal to customers who increasingly rely on multiple channels to meet their equipment management and disposition needs. If for any reason we are unable to implement our inventory management and multichannel initiatives, provide a convenient and consistent experience for our customers across all channels, or provide our customers the services they want, when and where they want them at a compelling value proposition, then our financial performance and brand image could be adversely affected.
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A deterioration of general macroeconomic conditions could materially and adversely affect our business.
Our performance is subject to macroeconomic conditions and their impact on customer spending. Adverse macroeconomic conditions typically result in a general tightening in credit markets, lower levels of liquidity, increased default and bankruptcy rates, and depressed levels of activity and investment.
Challenging macroeconomic conditions may have a negative impact on the operations, financial condition and liquidity of many customers and, as a result, may negatively impact the volume of equipment listed for sale and the prices of equipment sold in our marketplace, thereby having a negative impact on our revenue and ability to grow our business. If sellers choose not to sell their assets as a result of adverse economic conditions, buyers are unable to purchase equipment based on their inability to obtain sufficient financing or are unwilling to do so given the market climate, or if customers are in general financial distress, our operations may be negatively affected and revenue from our marketplace may decrease.
Our ability to provide a high-quality customer experience may depend on third parties and external factors over which we may have little or no control.
Our ability to provide a high quality and efficient customer experience is also dependent on external factors over which we may have little or no control, including, without limitation, the reliability and performance of the equipment sold in our marketplaces and the performance of third-party carriers who transport purchased equipment on behalf of buyers. If for any reason we are unable to implement our inventory management, data solutions, bidding tools and other multichannel initiatives, provide a convenient and consistent experience for our customers are dissatisfied withacross all channels, or provide our customers the accuracyservices they want, when and where they want them at a compelling value proposition, then our financial performance and brand image could be adversely affected.
We rely on data provided by third parties, the loss of which could limit the functionality of certain of our appraisalsplatforms and inspections, the quality of the business insightsdisrupt our business.
Our analytics teams rely on asset, pricing and other data including personal data provided to us by our customers and other value-added services,third parties. Some of this data is provided to us pursuant to third-party data sharing policies and terms of use, under data sharing agreements by third-party providers or do not receive the equipment they purchased in a timely manner orby customers with consent. If in the condition that they expect,future any of these parties could change their data sharing policies and terms of use, including by making them more restrictive, terminating or not renewing agreements, or, if customers may stop using usrevoke their consent, any of which could result in the loss of, or significant impairment to, purchase equipment. Failureour ability to collect and provide customersuseful data or related services to our customers.
These third parties could also interpret our data collection and use policies or practices as being inconsistent with high quality and efficient customer experiences could substantially harm our reputation and adversely impact our efforts to develop customer and industry trusttheir policies or business objectives, or lose confidence in our brands.data protection and privacy practices, which could result in the loss of our ability to
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collect this data. Any such changes could impair our ability to deliver our analytics service to our customers in the manner currently anticipated or at all, impairing the return on investment that our customers derive from using our analytics platform and related products, as well as adversely affecting our business and our ability to generate revenue.
Government regulation of the Internet and e-commerce is evolving, and unfavorable changes in this or other regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as certain federal, provincial, state and local laws, rules and regulations including those governing the internet and e-commerce. Existing and future laws and regulations may impede the growth of the internet, e-commerce or other services, and increase the cost of doing business, including providing online auction services. These regulations and laws may cover taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, and other communications, consumer protection, broadband residential Internetinternet access and the characteristics and quality of services. It is not always clear how existing laws governing issues such as property ownership, digital, sales use and othersimilar taxes, libel, and personal privacy apply to the Internet and e-commerce. Changes to laws, rules and regulations and unfavorable resolution of these issues may harm our business and results of operations.
We have two vendor contracts withIf our ability, or the U.S. Government’s Defense Logistics Agency (“DLA”) as partability of our GovPlanet business unit pursuantthird party service partners, cloud computing platform providers or third party data center hosting facilities, to which we acquire a significant amount of inventory. If we are unable to sellsafeguard the purchased inventory our financial results would be adversely impacted. Also, if our relationship with the DLA is disrupted for any reason, our GovPlanet business unit would be adversely impacted.
We have two vendor contracts with the DLA pursuant to which we acquire, managereliability, integrity and resell certain assets of the DLA. One of the DLA contracts obliges the Company to purchase non-rolling stock assets in an amount and of a type over which the Company has limited ability to control. In many cases, the type of assets purchased are not what we typically sell through anyconfidentiality of our other channels. Although the prices paid by the Company for the non-rolling stock inventory are a fraction of the original acquisition value, we may not have the ability to attract buyers for those assets and the Company may be unable to sell those assets on a timely basis or at all. This would have an adverse affect on the Company’s financial results. In addition,their information technology systems is compromised, if our relationship with the DLAunauthorized access is impaired, we are not awarded new DLA vendor contracts when our current contracts expire, the DLA vendor contract is terminated or the supply of inventory under such contracts is significantly decreased, our GovPlanet business unit would experience a decrease in revenue and GTV.
Our business is subject to risks relatingobtained to our ability to safeguard our information systems including the cyber-security and privacy of ouror customers’, suppliers', counterparties' and employees' confidential information.information, or if authorized access is blocked or disabled, we may incur significant reputational harm, legal exposure, or a negative financial impact.
We rely on information technology (“IT”) resources to manage and operate our business, including maintaining proprietary databases containing sensitive and confidential information about our customers, suppliers, counterparties and employees (which may include personal information and credit information). An increasing number and utilizing approved third-party technology providers to support the management and operation of websites have disclosed cyber breaches of their security, some of which have involved sophisticatedIT systems and highly targeted attacks on portions of their websites or infrastructure. BecauseAs the malicious tools and techniques used to breach, obtain unauthorized access disableto or degrade service, or sabotageimpair IT systems and devices and the data processed thereby become more sophisticated and change frequently, the risk of a cybersecurity event increases, given that we may not be able to anticipate these malicious tools and techniques or to implement adequate preventative and protective measures. Unauthorized parties have in the past, and may also in the future, attempt to gain access to our and our providers’ primary and backup systems or facilities through various means, including hacking into ourIT systems or facilities, fraud, trickery or other means of deceiving our and their employees or contractors. A partyAlthough we have policies restricting the access to the personal and confidential information we store, there is a risk that these policies may not be effective in all cases. Ransomware attacks are becoming increasingly prevalent and severe, and can lead to significant interruptions in our operations, loss of data and income, reputational loss, and diversion of funds. Further, breaches experienced by other companies may also be leveraged against us and sophisticated actors can mask their attacks, making them increasingly difficult to identify and prevent. There can be no assurance that impacts from these incidents will not be material or significant in the future.
In addition, our limited control over our customers may affect the security and integrity of our IT systems and create financial or legal exposure. For example, our customers may accidentally disclose their passwords, use insecure passwords, or store them on a device that is ablelost or stolen, providing bad actors with access to circumventa customer’s account and the possible means to redirect customer payments. Further, users on our platforms could have vulnerabilities on their own devices that are entirely unrelated to our systems and platforms but could mistakenly attribute their own vulnerabilities to us. Under credit card payment rules and our contracts with credit card processors, if there is a breach of payment card information used to process transactions, we could be liable to the payment card issuing banks for certain fraudulent credit card transactions and other payment disputes with customers, including the cost of issuing new cards and related expenses. If we were liable for a significant number of fraudulent transactions or unable to accept payment cards, our results of operations would be materially and adversely affected.
Although we implement, maintain and adjust information security measures to mitigate our risks with respect to IT-related cybersecurity incidents, there can be no assurance that these measures will ensure that our operations are not disrupted, that we will prevent an attack from occurring in the future, or that our internal controls, for instance relating to user access management, will perform as intended to prevent unauthorized access to our systems and data. Any breach of our IT systems may have a material adverse impact on our business, the assessment of the performance of our internal control environment, results of operations, reputation, stock price and our ability to access capital markets, and may also be deemed to contribute to a material weakness in internal controls over financial reporting.
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could misappropriate ourSecurity events, hacking or our customers’ confidential information, cause interruption to our operations, damage our computing infrastructureother malicious or otherwise damage our reputation. Although we maintain information security measures, there can be no assurancesurreptitious activity (or the perception that we will be immune from these security risks, and any breach of our information security maysuch activities have a material adverse impact on our business and results of operations.
Under credit card payment rules and our contracts with credit card processors, if there is a breach of payment card information that we collect to process transactions, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. We may also be held liable for certain fraudulent credit card transactions and other payment disputes with customers. If we were unable to accept payment cards, our results of operations would be materially and adversely affected.
Security breachesoccurred), could damage our reputation, cause a loss of confidence in the security of our services and thereby a loss of customers, and expose us to a risk of loss, governmental investigations and enforcement actions or litigation and possible liability for damages. We may be required to make significant expenditures and divert management attention to protect againstmonitor, detect and prevent security breachesevents, to remediate known or potential security vulnerabilities, or to alleviate problems caused by any breaches.security events. In addition, circumvention of our security measures may result in the loss or misappropriation of valuable business data, intellectual property or trade secret information, misappropriation of our customers’ or employees’ personal information, damage to our computing infrastructure, networks and stored data, service delays, key personnel being unable to perform duties or communicate throughout the organization, loss of sales, significant costs for data restoration and other adverse impacts on our business. Further, such a breach may require us to incur significant expenses to notify governmental agencies, individuals or other third parties pursuant to various privacy and security laws.
The costs of mitigating cybersecurity risks are significant and are likely to increase in the future. Our third-party service providers may be vulnerable to interruption or loss of valuable business data and information of our customers and employees (among others). Data stored by our third party providers might be improperly accessed or unavailable due to a variety of events beyond our control, including, but not limited to, employee error or negligence, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. Additionally, if any of our third-party technology providers violate applicable laws or our contracts or policies, such violations may also put our customers’ information at risk and could in turn have a material and adverse effect on our business. These issues are likely to become costlier as we expand.grow. Our insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to fully collect, if at all, under these insurance policies.
Our future expenses may increase significantly and our operations and ability to expand may be limited as a result of licenses, laws and regulations governing auction sites, environmental protection, international trade and other regulations.matters.
A variety of federal, provincial, state and local laws, rules and regulations throughout the world including localapply to our business, relating to, among other things, tax and accounting rules, apply to our business. These relate to, among other things, the auction business, imports and exports of equipment, property ownership laws, licensing, worker safety, privacy and security of customer information, land use and the use, storage, discharge and disposal of environmentally sensitive materials. Complying with revisions to laws, rules and regulations could result in an increase in expenses and a deterioration of our financial performance. Failure to comply with applicable laws, rules and regulations could result in substantial liability to us, suspension or cessation of some or all of our operations, restrictions on our ability to expand at present locations or into new locations, requirements for the acquisition of additional equipment or other significant expenses or restrictions.
The development or expansion of auction sites depends upon receipt of required licenses, permits and other governmental authorizations. Our inability to obtain these required items could harm our business. Additionally, changes or concessions required by regulatory authorities could result in significant delays in, or prevent completion of, such development or expansion. International bidders and consignors could be deterred from participating in our auctions if governmental bodies impose additional export or import regulations or additional duties, taxes or other charges on exports or imports. Reduced participation by international bidders and consignors could reduce GTV and harm our business, financial condition and results of operations.
Under some environmental laws, an owner, operator or lessee of, or other person involved in, real estate may be liable for the costs of removal or remediation of hazardous or toxic substances located on or in, or emanating from, the real estate, and related costs of investigation and property damage. These laws often impose liability without regard to whether the owner, operator, lessee or other person knew of, or was responsible for, the presence of the hazardous or toxic substances.
Environmental contamination may exist at our owned or leased auction sites, or at other sites on which we may conduct auctions, or properties that we may be selling by auction, from prior activities at these locations or from neighboring properties.
In addition, auction sites that we acquire or lease in the future may be contaminated, and future use of or conditions on any of our properties or sites could result in contamination. The costs related to claims arising from environmental contamination of any of these properties could harm our financial condition and results of operations.
There are restrictions in the U.S.,United States, Canada, and Europe and other jurisdictions in which we do business that may affect the ability of equipment owners to transport certain equipment between specified jurisdictions or the saleabilitysalability of older equipment. One example of these restrictions is environmental certification requirements in the U.S.,United States, which prevent non-certified equipment from entering into commerce in the U.S.United States. In addition, engine emission standards in some jurisdictions limit the operation of certain trucks and equipment in those markets.
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These restrictions, or changes tothe adoption of more stringent environmental laws, including laws enacted in response to climate change, could inhibit materially the ability of customers to ship equipment to or from our auction sites, reducing our GTV and harming our business, financial condition and results of operations.
International bidders and consignors could be deterred from participating in our auctions if governmental bodies impose additional export or import regulations or additional duties, taxes or other charges on exports or imports. Reduced participation by international bidders and consignors could reduce GTV and harm our business, financial condition and results of operations.
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Losing the services of one or more key personnel or the failure to attract, train and retain personnel could materially affect our business.
Our future success largely depends on our ability to attract, develop and retain skilled employees in all areas of our business, as well as to design an appropriate organization structure and plan effectively for succession. Although we actively manage our human resource risks, there can be no assurance that we will be successful in our efforts. If we fail to attract, develop and retain skilled employees in all areas of our business, our financial condition and results of operations may be adversely affected, and we may not achieve our growth or performance objectives.
The growth and performance of our business depends to a significant extent on the efforts and abilities of our employees. Many of our key employees have extensive experience with our business. These employees have knowledge and an understanding of our company and industry that cannot be readily duplicated. The loss of any key personnel, or the inability to replace any lost personnel with equally trained personnel, could impair our ability to execute our business plan and growth strategy, cause us to lose customers and reduce our revenues. In addition, the success of our strategic initiatives to expand our business to complimentary service offerings will require new competencies in many positions, and our management and employees will have to adapt and learn new skills and capabilities. To the extent they are unable or unwilling to make these transformational changes or we are unable to attract new employees who are able to do so, we may be unable to realize the full benefits of our strategic initiatives. We do not maintain key person insurance on the lives of any of our executive officers or other key personnel. As a result, we would have no way to cover the financial loss if we were to lose the services of such employees. This uncertainty may adversely affect our ability to attract and retain key employees.
If any of our key personnel were to join a competitor or form a competing company, existing and potential customers could choose to form business relationships with that competitor instead of us. There can be no assurance that confidentiality, non-solicitation, non-competition or similar agreements signed by our former directors, officers, or employees will be effective in preventing a loss of business.
Failure to maintain safe sites could materially affect our business and reputation.
Our employees and customers are often in close proximity with mechanized equipment, moving vehicles and chemical and other industrial substances. Our auction sites and warehouses are, therefore, potentially dangerous places and involve the risk of accidents, environmental incidents and other incidents which may expose us to investigations and litigation or could negatively affect the perception of customer and employee safety, health and security. Even in the absence of any incidents, unsafe site conditions could lead to employee turnover or harm our reputation generally, each of which would affect our financial performance. While safety is a primary focus of our business and is critical to our reputation and performance, our failure to implement safety procedures or implement ineffective safety procedures would increase this risk and our operations and results from operations may be adversely impacted.
Income and commodity tax amounts, including tax expense, may be materially different than expected, and there is a trend by global tax collection authorities towards the adoption of more aggressive laws, regulations, interpretations and audit practices.
Our global operations are subject to tax interpretations, regulations, and legislation in the numerous jurisdictions in which we operate, all of which are subject to continual change.
We accrue and pay income taxes and have significant income tax assets, liabilities, and expense that are estimates based primarily on the application of those interpretations, regulations and legislation, and the amount and timing of future taxable income as well as our use of applicable accounting principles. Accordingly, we cannot be certain that our estimates and reserves are sufficient. The timing concerning the monetization of deferred income tax amounts is uncertain, as they are dependent on our future earnings and other events. Our deferred income tax amounts are valued based upon substantively enacted income tax rates in effect at the time, which can be changed by governments in the future.
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The audit and review activities of tax authorities affect the ultimate determination of the actual amounts of commodity taxes payable or receivable, income taxes payable or receivable, deferred income tax assets and liabilities, and income tax expense.
There is no assurance that taxes will be payable as anticipated or that the amount or timing of receipt or use of the tax-related assets will be as currently expected. Our experience indicates that taxation authorities are increasing the frequency and depth of audits and reviews. FutureThe Canada Revenue Agency (“CRA”) has been conducting audits for our 2014, 2015, 2017, 2018 and 2019 taxation years. On February 13, 2023, the CRA issued a proposal letter to Ritchie Bros. Auctioneers (International) Ltd., asserting that one of its Luxembourg subsidiaries was resident in Canada from 2010 to 2015 and that its worldwide income should be subject to Canadian income taxation. In the event that the CRA issues a notice of assessment or reassessment and a court of competent jurisdiction makes a final determination that the income of the Luxembourg subsidiary for 2010 through 2015 was subject to Canadian income tax laws, the Company may ultimately be liable for additional total Canadian federal and provincial income tax, interest and penalties for such period which could have a material negative effect on our operations. The CRA may also challenge the manner in which the Company has filed its tax returns and reported its income with respect to 2016 to 2020 taxation years and may assert that the income of the Luxembourg subsidiary was subject to Canadian income tax because the Luxembourg subsidiary was also resident in Canada during these years. The Company could then incur additional income taxes, penalties and interest which could have a material negative effect on our operations. In addition, future tax authority determinations, including changes to tax interpretations, regulations, legislation or jurisprudence, could have a material impact to our financial position. The fact that we operate internationally increases our exposure in this regard given the multiple forms of taxation imposed upon us.
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Further and more generally, there has been increased political, media and tax authority focus on taxation in recent years; the intent of which appears to be to enhance transparency and address perceived tax avoidance. As such, in addition to tax risk from a financial perspective, our activities may expose us to reputational tax risk.
The effects of new regulations and interpretations of the enacted U.S. tax legislation have not yet been fully analyzed and could be materially different from our current estimates.
On December 22, 2017, U.S. tax legislation known as the Tax Cuts and Jobs Act, or TCJA, was signed into law, significantly reforming the U.S. Internal Revenue Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorial system and modifies or repeals many business deductions and credits. The TCJA added a minimum tax on a U.S. corporation’s taxable income after adding back certain deductible payments to non-U.S. affiliates. In addition, the TCJA disallows deductions for interest and royalty payments from U.S. companies to non-U.S. affiliates that are hybrid payments or made to hybrid entities. We continue to examine the impact the TCJA may have on our business. The overall impact of the TCJA remains uncertain. There is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals. It is possible that the application of these new rules may have a material and adverse impact on our operating results, cash flows and financial condition.
Our substantial international operations expose us to additional risks that could harm our business, including foreign exchange rate fluctuations that could harm our results of operations.
We conduct business in many countries around the world and intend to continue to expand our presence in international markets, including emerging markets. Fluctuating currency exchange rates may negatively affect our business in international markets and our related results of operations.
Although we report our financial results in U.S. dollars, a significant portion of our revenues and expenses are generated outside the U.S., primarily in currencies other than the U.S. dollar. In particular, a significant portion of our revenues are earned, and expenses incurred, in the Canadian dollar and the Euro. As a result, our financial results are impacted by fluctuations in foreign currency exchange rates. We do not currently engage in foreign currency hedging arrangements, and, consequently, foreign currency fluctuations may adversely affect our results of operations.
The results of operations of our foreign subsidiaries are translated from local currency into U.S. dollars for financial reporting purposes. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated revenues or expenses will result in increased U.S. dollar denominated revenues and expenses. Similarly, if the U.S. dollar strengthens against foreign currencies, particularly the Canadian dollar and the Euro, our translation of foreign currency denominated revenues or expenses will result in lower U.S. dollar denominated revenues and expenses. We do not currently engage in foreign currency hedging arrangements on any of our revenues or expenses. Fluctuating currency exchange rates may negatively affect our business in international markets and our related results of operations.
In addition, currency exchange rate fluctuations between the different countries in which we conduct our operations impact the purchasing power of buyers, the motivation of consignors, asset values and asset flows between various countries, including those in which we do not have operations. These factors and other global economic conditions may harm our business and our results of operations.
Our business is subject to the risks of operating internationally.
We operate in many international jurisdictions. There areOther risks inherent in doing business internationally including,include, but are not limited to:
to the following: (a) trade barriers, trade regulations, currency controls, import or export regulations, and other restrictions on doing business freely; (b) local labor, environmental, tax, and other laws and regulations, and the potential for adverse changes in such laws and regulations or the interpretations thereof; (c) difficulties in staffing and managing foreign operations; (d) economic, political, social or labor instability or unrest; (e) terrorism, war, hostage-taking, or military repression; (f) corruption; (g) expropriation and nationalization, or difficulties in enforcing or protecting our property rights, including with respect to intellectual property; (h) increased exposure to high rates |
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Table of Contentsinflation; and (i) unpredictability as to litigation in foreign jurisdictions and enforcement of local laws.
If we violate the complex foreign and U.S. laws and regulations that apply to our international operations, we may face fines, criminal actions or sanctions, prohibitions on the conduct of our business and damage to our reputation. These risks inherent in our international operations increase our costs of doing business internationally and may result in a material adverse effect on our operations or profitability.
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Our business operations may be subject to a number of federal and local laws, rules and regulations governing international trade, including export control regulations.
Our business operations may be subject to a number of federal and local laws, rules and regulations, including the Export Administration Regulations, or EAR, maintained by the U.S. Department of Commerce, the International Traffic in Arms Regulations, or ITAR, maintained by the U.S. Department of State, economic and trade sanctions regulations maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, and similar laws and regulations in Canada, the UK and the European Union (“EU”).EU. These laws and regulations restrict us from providing services to, or otherwise engaging in direct or indirect transactions or dealings with, certain countries, territories, governments, and persons. We have implemented procedures regardingdesigned to maintain compliance with these laws, including monitoring, on an automatic and manual basis, the identity and location of potential sellers and buyers in our marketplace and restricting business from certain countries.buyers. We can offer no assurances that these procedures will always be effective.
We have implemented certain processes and procedures to prevent sellers and buyers that are located in a prohibited jurisdiction or are prohibited persons from participating in our marketplaces. Such processes and procedures are designed so that our business is in compliance with OFAC-administered sanctions regulations and other applicable sanction regulations, including those in Canada and the EU.
If we were to violate applicable export control or sanctions, regulations, we could be subject to administrative or criminal penalties which, in certain circumstances, could be material. We could be subject to damages, financial penalties, denial of export privileges, incarceration of our employees, other restrictions on our operations, and reputational harm. Further, any action on the part of the U.S. Department of State, the U.S. Department of Commerce, OFAC or other applicable regulator against the company or any of our employees for potential violations of these laws could have a negative impact on our reputation, business, operating results and business, which might decrease stockholder value.prospects.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the Corruption of Foreign Public Officials Act, or the CFPOA, and similar laws associated with our activities outside of the U.S. could subject us to penalties and other adverse consequences.
We are subject to the FCPA, the CFPOA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act of 2010, or the U.K. Bribery Act, and possiblysimilar other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities or facilitate the buying and selling of equipment.equipment, including the EU. We face significant risks if we fail to comply with the FCPA, the CFPOA and other anti-corruption and anti-bribery laws that prohibit companies and their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties or candidates, employees of public international organizations, and private-sector recipients for the corrupt purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA, the CFPOA or other applicable laws and regulations. In addition, we leverage various third parties to sell our solutions and conduct our business abroad. We our channel partners, and our other third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We may be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. Our Code of Business Conduct and Ethics and other corporate policies mandate compliance with these anti-bribery laws, which often carry substantial penalties.
Any violation of the FCPA, other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, business, operating results and prospects. In addition, responding to any enforcement action may result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
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We are pursuing a long-term growth strategy that may include acquisitions and developing and enhancing an appropriate sales strategy, which requires upfront investment with no guarantee of long-term returns.
We continue to pursue a long-term growth strategy, including developing and enhancing an appropriate sales strategy, that contemplates upfront investments, including (i) investments in emerging markets that may not generate profitable growth in the near term, (ii) adding new business and information solutions, and (iii) developing our people. Planning for future growth requires investments to be made now in anticipation of growth that may not materialize, and if our strategies do not successfully address the needs of current and potential customers, we may not be successful in maintaining or growing our GTV and our financial condition and results of operations may be adversely impacted. We may also not be able to improve our systems and controls as a result of increased costs, technological challenges, or lack of qualified employees. A large component of our selling, general and administrative expenses is considered fixed costs that we will incur regardless of any GTV growth. There can be no assurances that our GTV and revenues will be maintained or grow at a more rapid rate than our fixed costs.
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Part of our long-term growth strategy includes growth through acquisitions, such as the Acquisition, which poses a number of risks. We may not be successful in identifying appropriate acquisition candidates, consummating acquisitions on satisfactory terms or integrating any newly acquired or expanded business with our current operations. Additionally, significant costs may be incurred in connection with any acquisition and our integration of such businesses with our business, including legal, accounting, financial advisory and other costs. We may also not realize the anticipated benefits of, and synergies from, such acquisition. We cannot guarantee that any future business acquisitions will be pursued, that any acquisitions that are pursued will be consummated, or that we will achieve the anticipated benefits of completed acquisitions.
We are regularly subject to general litigation and other claims, which could have an adverse effect on our business and results of operations.
We are subject to general litigation and other claims that arise in the ordinary course of our business. The outcome and impact of such litigation cannot be predicted with certainty, but regardless of the outcome, these proceedings can have an adverse impact on us because of legal costs, diversion of management resources and other factors. While the results of these claims have not historically had a material effect on our business, financial condition or results of operations,us, we may not be able to defend ourselves adequately against these claims in the future, and these proceedings may have a material adverse impact on our financial condition or results of operations.
In addition to other legal proceedings, weWe may also be subject to intellectual property claims, which are extremely costly to defend, could require us to pay significant damages, and could limit our ability to use certain technologies in the future. Companies in the Internetinternet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights.
We periodically receive notices that claim we have infringed, misappropriated, or misused other parties’ intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims.
Third-party intellectual property rights may cover significant aspects of our technologies or business methods or block us from expanding our offerings. Any intellectual property claim against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of our management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters.
Many potential litigants, including some patent holdingpatent-holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against us could subject us to significant liability for damages, and we may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights. We also might be required to seek a license for third-party intellectual property. Even ifSuch a license is available, we couldmay be requiredunavailable or may require us to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could harm our business.
Privacy concerns and our compliance with current and evolving domestic or foreign laws and regulations regarding the processing of personal information and other data may increase our costs, impact our marketing efforts, or decrease adoption and use of our products and services, and our failure to comply with those laws and regulations may expose us to liability and reputational harm.
Governments around the world continue to propose and adopt new, or modify existing, laws and regulations addressing data privacy, data protection, data sovereignty and the processing of data, generally. Although we monitor the regulatory environment and have invested in addressing these developments, such as through our cybersecurity and privacy readiness programs, these laws may require us to incur further compliance costs to make changes to our practices, products and services to enable us or our customers to meet the new legal requirements. In addition, if we are found to have breached any such laws or regulations, we may be subject to enforcement actions that require us to change our practices, products and services, which may negatively impact our revenue, as well as expose us to liability through new or higher potential penalties and fines for non-compliance, civil and criminal penalties, and litigation for alleged violations, as well as adverse publicity that could cause our customers to lose trust in us and negatively impact our reputation and business in a manner that harms our financial position. These new or proposed laws and regulations are subject to differing interpretations that may change over time resulting in further compliance costs, as well as diversion of resources to monitor and address developments. New and proposed laws and regulations may also be inconsistent among jurisdictions or conflict with other laws and regulations. As a result, these requirements and other potential self-regulatory standards and industry codes of conduct could require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer and otherwise process data or, in some cases, impact our ability to offer certain services in certain locations, to deploy our software or data solutions, to market to current and prospective customers, or to derive insights from customers’ online activity and data globally.
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We believe that laws and regulations in the United States, Canada, the United Kingdom, Australia the European Union and in other jurisdictions will be increasingly restrictive in the field of data privacy and protection and will in turn result in an increase in regulatory burdens for us to address to continue meeting our customers’ expectations, in particular in relation to the sharing of personal information with third parties, the use of machine learning and big data, and the tracking of online activities for advertising. As our capacity to process large volumes of data increases, customer sentiment towards increased transparency and control and further interpretive guidance from regulatory agencies may require us to change our operations and practices in a manner adverse to our business. In this uncertain and shifting regulatory and trust climate, even the perception that the privacy and security of personal information are not satisfactorily addressed or do not meet regulatory requirements could result in adverse publicity and reputation loss.
Our business continuity plan may not operate effectively in the event of a significant interruption of our business.
We have implemented a formal business continuity plan covering most significant aspects of our business that would take effect in the event of a significant interruption to our business, or the loss of key systems as a result of a natural or other disaster. Although we have tested our business continuity plan as part of the implementation, there can be no assurance that it will operate effectively or that our business, results of operations and financial condition will not be materially affected in the event of a significant interruption of our business. If we were subject to a disaster or serious security breach, it could materially damage our business, financial condition and results of operations.
Our insurance may be insufficient to cover losses that may occur as a result of our operations.
We maintain property and general liability insurance. This insurance may not remain available to us at commercially reasonable rates, and the amount of our coverage may not be adequate to cover all liabilities that we may incur. Our auctions generally involve the operation of large equipment close to a large number of people, and despite our focus on safe work practices, an accident could damage our facilities, injure auction attendees and harm our reputation and our business. In addition, if we were held liable for amounts exceeding the limits of our insurance coverage or for claims outside the scope of our coverage, the resulting costs could harm our financial condition and results of operations.
Our business operations, results of operations, cash flows and financial performance may continue to be affected by the COVID-19 pandemic.
Since 2020, a novel strain of coronavirus (COVID-19) has spread throughout the world, including in all of the countries in which we operate. National, state, provincial and local governments have responded to COVID-19 in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home. Although we have recently begun to offer in-person onsite bidding alongside online-only bidding at some of our auction events, transportation costs and supply chain delays remain elevated, and further restrictions or the rollback of reopening measures due to higher infection rates may further disrupt our operations and the operations of our partners and customers. In addition, COVID-19 has also adversely impacted, and may continue to adversely impact, the businesses and needs of our customers including their ability to secure financing. The ultimate impact of the COVID-19 pandemic on our business remains uncertain at this time and will depend on future developments, including the severity of evolving variants, availability, efficacy and distribution of various vaccines and treatments for COVID-19, as well as any longer-term effects of the pandemic on the global economy, including in the industries our customers serve.
Certain global conditions may affect our ability to conduct successful events.
Like most businesses with global operations, we are subject to the risk of certain global or regional adverse conditions, such as pandemics or other disease outbreaks, including COVID-19, or natural disasters including extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires or floods that could hinder our ability to conduct our scheduled auctions, restrict our customers’ travel patterns or their desire to attend auctions or impact our online operations, including disrupting the internet or mobile networks or one or more of our service providers. If any of these conditions were to occur, we may not be able to generate sufficient equipment consignments to sustain our business or to attract enough bidders to our auctions to achieve world fair market values for the items we sell. This could harm our financial condition and results of operations. To the extent that climate change causes rising sea levels, increased intensity of weather, and increased frequency of extreme precipitation and flooding, the risks noted above may increase.
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Financial Risk Factors
Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price.
As a public company, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting. This assessment is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting identified by our management. We are also required to have our independent registered public accounting firm issue an opinion on the effectiveness of our internal control over financial reporting on an annual basis.
As previously reported, during the fiscal year ended December 31, 2020, we identified two material weaknesses in our internal control over financial reporting. These material weaknesses were remediated as of December 31, 2021, and we did not identify any additional material weaknesses during the fiscal year ended December 31, 2022. However, we may identify additional material weaknesses in our internal control over financial reporting in the future, and, if we do, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses in our internal control over financial reporting in the future.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude in the future that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, our stock price could decline, and we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
We have substantial indebtedness, and the degree to which we are leveraged may materially and adversely affect our business, financial condition and results of operations.
At December 31, 2022, we have $0.6 billion of total debt outstanding, consisting of:
● | $114.6 million under an amended and extended credit agreement entered into in December 2022 (the “Credit Agreement”) with a syndicate of lenders; |
● | $500.0 million aggregate principal amount of 5.375% senior unsecured notes issued December 21, 2016 (the “2016 Notes”); and |
● | net of $4.0 million of unamortized debt issue costs. |
There are no current drawings under our foreign credit facilities, and we can borrow an additional $709.8 million under the Credit Agreement.
Our ability to make payments on and to refinance our indebtedness, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take certain actions, including reducing spending on marketing, advertising and new product innovation, reducing future financing for working capital, capital expenditures and general corporate purposes, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry, including both the live and online auction industry, could be impaired.
The lenders who hold our debt could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt. In addition, our leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our leverage could also impede our ability to withstand downturns in our industry or the economy in general. We may incur substantial additional indebtedness in the future. The terms of the Credit Agreement and the indentures governing the Notes will limit, but not prohibit, us from incurring additional indebtedness. If we incur any additional
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Ritchie Bros. | 29 |
indebtedness that has the same priority as the Notes and the guarantees thereof, the holders of that indebtedness will be entitled to share ratably with the holders of the Notes and the guarantees thereof in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Company. Subject to restrictions in the Credit Agreement and the indenture governing the Notes, we also will have the ability to incur additional secured indebtedness that would be effectively senior to the Notes offered hereby, to the extent of the value of the assets securing such obligations. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.
Our debt instruments have restrictive covenants that could limit our financial flexibility.
The terms of the Credit Agreement and the 2016 Notes indenture contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our ability to borrow under our Credit Agreement is subject to compliance with a consolidated leverage ratio covenant and a consolidated interest coverage ratio covenant.
The Credit Agreement includes other restrictions that limit our ability in certain circumstances to: incur indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. The indentures governing the 2016 Notes contain covenants that limit our ability in certain circumstances to: incur additional indebtedness (including guarantees thereof); incur or create liens on their assets securing indebtedness; make certain restricted payments; make certain investments; dispose of certain assets; allow certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; engage in certain transactions with affiliates; and consolidate, amalgamate or merge with or into other companies.
Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of substantially all of our funded debt. We do not have sufficient working capital to satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding indebtedness.
Our operating results are subject to quarterly variations.
Historically, our revenues and operating results have fluctuated from quarter to quarter. We expect to continue to experience these fluctuations as a result of the following factors, among others, (a) the size, timing, nature and frequency of our auctions; (b) the seasonal nature of the auction business in general, with peak activity typically occurring in the second and fourth calendar quarters, mainly as a result of the seasonal nature of the construction and natural resources industries; (c) the extent and performance of our underwritten (guarantee and outright purchase) contracts; (d) general economic conditions in the geographical regions in which we operate; and (e) the timing of acquisitions and development of auction facilities and related costs.
In addition, we may incur substantial costs when entering new geographies, and variability in the number and size of auctions at new sites can cause volatility in our operations. These and other factors may cause our future results to fall short of investor expectations or not to compare favorably to our past results. Further, as our results generally fluctuate from quarter to quarter, period-to-period comparisons of our results of operations may not be meaningful indicators of future performance.
Risks Related to Our Intellectual Property
We may be unable to adequately protect or enforce our intellectual property rights, which could harm our reputation and adversely affect our growth prospects.
We regard our proprietary technologies and intellectual property as integral to our success. We protect our proprietary technology through a combination of trade secrets, third-party confidentiality and nondisclosure agreements, additional contractual restrictions on disclosure and use, and patent, copyright, and trademark laws.
We currently are the registered owners of many Internet domain names internationally. As we seek to protect our domain names in an increasing number of jurisdictions, we may not be successful in doing so in certain jurisdictions. Our competitors may adopt trade names or domain names similar to ours, thereby impeding our ability to promote our marketplace and possibly leading to customer confusion. In addition, we could face trade name or trademark or service mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations of our brand names. The legal means we use to protect our proprietary technology and intellectual property do not afford complete protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot guarantee thatthat: any of our present or future intellectual property rights will not lapse or be invalidated, circumvented, challenged or abandoned; our
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intellectual property rights will provide competitive advantages to us; our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; any of our pending or future patent applications will be issued or have the coverage originally sought; or our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak.
We also may allow certain of our registered intellectual property rights, or our pending applications or registrations for intellectual property rights, to lapse or to become abandoned if we determine that obtaining or maintaining the applicable registered intellectual property rights is not worthwhile.
Further, although it is our practice to enter into confidentiality agreements and intellectual property assignment agreements with our employees and contractors, these agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy, reverse engineer, or otherwise obtain and use our products or technology. We cannot be certain that we will be able to prevent unauthorized use of our technology or infringement or misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights. Effective patent, copyright, trademark, service mark, trade secret, and domain name protection is time-consuming and expensive to maintain. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of our resources. In addition, our efforts may be met with defenses and counterclaims challenging the validity and enforceability of our intellectual property rights or may result in a court determining that our intellectual property rights are unenforceable. If we are unable to cost-effectively protect our intellectual property rights, then our business could be harmed. If competitors are able to use our technology or develop proprietary technology similar to ours or competing technologies, our ability to compete effectively and our growth prospects could be adversely affected.
We areOur use of open source software could subject us to risks, including with respect to the terms of open source licenses because our technology platform incorporates open source software..
Some of the software powering our marketplace incorporates software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our marketplace. Under certain open source licenses, we could be required to publicly release the source code of our software or to make our software available under open source licenses. To avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software which could significantly interrupt our operations.
In addition, use of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide maintenance, warranties or controls on the origin of the software. Open source software may also present risks of unforeseen or unmanaged security vulnerabilities that could potentially unintentionally be introduced into our software. Use of open source software may also present additional security risks because the public availability of this software may make it easier for hackers and other third parties to determine how to compromise our technology platform. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial condition and results of operations.
Risk Related to Our Industry
Competition could result in reductions in our future revenues and profitability. | |
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TableThe global used equipment market, including the auction segment of Contentsthat market, is highly fragmented. We compete for potential purchasers and sellers of equipment with other auction companies and with non-auction competitors such as equipment manufacturers, distributors and dealers, equipment rental companies, and other online marketplaces. When sourcing equipment to sell at our auctions or other marketplaces, we compete with other onsite and online auction companies, OEM and independent dealers, equipment brokers, other third parties, and equipment owners that have traditionally disposed of equipment in private sales.
OurSome of our competitors have significantly greater financial and marketing resources and name recognition than we do. New competitors with greater financial and other resources and/or different business continuity planmodels/strategies may not operate effectivelyenter the equipment auction market in the event of a significant interruption of our business.
We depend on our informationfuture. Additionally, existing or future competitors may succeed in entering and other systems and processes for the continuity and effective operation of our business. We have implemented a formal business continuity plan covering most significant aspects of our business that would take effectestablishing successful operations in the event of a significant interruption to our business, or the loss of key systems as a result of a natural or other disaster. Although we have tested our business continuity plan as part of the implementation, there can be no assurance that it will operate effectively or that our business, results of operations and financial condition will not be materially affected in the event of a significant interruption of our business.
If we were subject to a disaster or serious security breach, it could materially damage our business, financial condition and results of operations.
Our insurance may be insufficient to cover losses that may occur as a result of our operations.
We maintain property and general liability insurance. This insurance may not remain available to us at commercially reasonable rates, and the amount of our coverage may not be adequate to cover all liabilities that we may incur. Our auctions generally involve the operation of large equipment close to a large number of people, and despite our focus on safe work practices, an accident could damage our facilities or injure auction attendees. Any major accident could harm our reputation and our business. In addition, if we were held liable for amounts exceeding the limits of our insurance coverage or for claims outside the scope of our coverage, the resulting costs could harm our financial condition and results of operations.
Certain global conditions may affect our ability to conduct successful events.
Like most businesses with global operations, we are subject to the risk of certain global or regional adverse conditions, such as pandemics or other disease outbreaks, including COVID-19, or natural disasters including extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires or floods that could hinder our ability to conduct our scheduled auctions, restrict our customers’ travel patterns or their desire to attend auctions or impact our online operations, including disrupting the Internet or mobile networks or one or more of our service providers. If this situation were to occur, we may not be able to generate sufficient equipment consignments to sustain our business or to attract enough bidders to our auctions to achieve world fair market values for the items we sell. This could harm our financial condition and results of operations. Some climatic models indicate that global warming may result in rising sea levels, increased intensity of weather, and increased frequency of extreme precipitation and flooding. To the extent these phenomena occur, the risks noted above may increase.
Our operating results are subject to quarterly variations.
Historically, our revenues and operating results have fluctuated from quarter to quarter. We expect to continue to experience these fluctuations as a result of the following factors, among others:
In addition, we may incur substantial costs when entering new geographies and the profitability of operations at new locations is uncertain as a result of the increased variability in the number and size of auctions at new sites. These and other factors may cause our future results to fall short of investor expectations or not to compare favorably to our past results. Further, as our results generally fluctuate from quarter to quarter, period-to-period comparisons of our results of operations may not be meaningful indicators of future performance.
New regulation in the areas of consumer privacy and commercial electronic messages may restrict or increase costs of our marketing efforts.
Our operation and marketing activities are subject to various types of regulations, including laws relating to the protection of personal information, consumer protection and competition. User data protection and communication-based laws may be interpreted and applied inconsistently from country to country, and these laws continue to develop in ways we cannot predict and that may adversely affect our business. Complying with these varying national requirements could cause us to incur substantial costs or require us to change our marketing practices in a manner with adverse effects on our business, and violations of privacy-related laws can result in significant penalties. See “— We process, store, and use personal information and other data, which subjects us to a variety of evolving governmental regulation, industry standards and self-regulatory schemes, contractual obligations, and other legal obligations related to privacy and data protection, which may increase our
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Ritchie Bros. |
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costs, decrease adoption and use ofnew geographic markets prior to our products andentry into those markets. They may also compete against us through internet-based services and expose usother combined service offerings.
If commission rates decline, or if our strategy to liability.” A determination that there have been violationscompete against our many competitors is not effective, our revenues, market share, financial condition and results of laws relatingoperations may be adversely impacted. We may be susceptible to loss of business if competing selling models become more appealing to customers. If our selling model becomes undesirable or we are not successful in adding services complementary to our marketing practices under communications-based lawsexisting selling model and business, we may not be successful increasing market penetration over the long-term, which could damageprevent us from achieving our reputation and expose us to significant damage awards, fines and other penalties that could, individually orlong-term earnings growth targets.
Decreases in the aggregate, materially harm our business.
We process, store, and use personal information and other data, which subjects us to a varietysupply of, evolving governmental regulation, industry standards and self-regulatory schemes, contractual obligations, and other legal obligations related to privacy and data protection, which may increase our costs, decrease adoption and usedemand for, or market values of our products and services and expose us to liability.
There are a number of national, federal, provincial, state, local laws, rules and regulations, as well as contractual obligations and industry standards, that provide for certain obligations and restrictions with respect to data privacy and security, including with regard to the collection, storage, use, sharing, disclosure and deletion of personal information and other customer or employee data. The scope of these obligations and restrictions is changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules, and their status remains uncertain.
Within the EU, the General Data Protection Regulation (“GDPR”), which replaced the EU Directive 95/46/EC, applies to a company which processes personal information as part of its activities or one its branches established in the EU, regardless of where such data is processed, or where a company established outside the EU offers goods or services or monitors the behaviour of individuals in the EU. GDPR governs the collection, storage, use, sharing, disclosure, deletion and other processing of personal information and other customer or employee data. Penalties for non-compliance with the GDPR are considerable, allowing EU regulators to impose a monetary penalty equal to the greater of €100 million or 4% of a non-compliant organization’s worldwide annual turnover. Such penalties would be in addition to the rights of individuals to sue for damages in respect of any data privacy breach which causes them to suffer loss.
GDPR, and applicable member states’ implementations thereof, require the transfer of personal information to us and by us from the EU to be governed by a lawful transfer mechanism. If the lawful transfer mechanisms we rely on for such transfers are considered illegitimate by EU member state courts or supervisory authorities, our ability to transmit and share data with our affiliated entities, service providers and third-party partners may be limited and could cause us to incur substantial costs to change our business practices in a manner adverse to our business.
As Internet commerce and related technologies continue to evolve, thereby increasing capacity to process large volumes of personal information, consumer sentiment towards increased transparency and control and further regulation by federal, provincial, state or foreign governments and agencies becomes more likely. We believe that the adoption of increasingly restrictive regulation in the field of data privacy and security is likely in both the U.S. and in other jurisdictions, possibly as restrictive as the EU model. California’s new law, the California Consumer Privacy Act (“CCPA”), came into force at the start of 2020 and gives the Attorney General of California the right to levy civil penalties and commence lawsuits for alleged violations. In other jurisdictions, data protection regulators, in addition to imposing penalties, have the power to seek injunctive relief and make various orders, including the cessation of certain data processing activities. Obligations and restrictions imposed by CCPA and other current and future applicable laws, regulations, contracts and industry standards could increase the cost of our operations and may affect our ability to provide all the current features of our products and services requiring us to change our business practices in a manner adverse to our business. Failure to comply with these obligations and restrictions could subject us to lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity and other losses thatused equipment, could harm our business.
Our revenues could decrease if there is significant erosion in the supply of, demand for, or market values of used equipment, which could adversely affect our financial condition and results of operations. We have no control over any of the factors that affect the supply of or demand for used equipment and the circumstances that cause market values for equipment to fluctuate including, among other things, economic uncertainty, the global geopolitical climate, disruptions to credit and financial markets, lower commodity prices, and our customers’ restricted access to capital. Recent economic conditions have caused fluctuations in the supply, mix and market values of used equipment available for sale, which has a direct impact on our revenues.
In addition, price competition and the availability of equipment directly affect the supply of, demand for, and market value of used equipment. Climate change initiatives, including significant changes to government activity, privacy advocacy groups and industry groups have adopted and are considering the adoption of various self-regulatoryengine emission standards and codes of conduct that, if appliedapplicable to our business or current practices may place additional burdens on us, which may increase the costs of our products and services further reducing demand and harming our business.
Our customersequipment, may also accidentally disclose their passwords or store them on a mobile device that is lost or stolen, creating the perception that our systems are not secure against third-party access. Additionally, our third-party contractors may have access to customer data. If these or other third-party vendors violate applicable laws or our policies, such violations may also put our customers’ information at risk and could in turn have a material and adverse effect on our business. Any failure by us to protect our customers’ privacy and data, including as a result of our systems being compromised by hacking or other malicious or surreptitious activity, could result in a loss of customer confidence and ultimately in a loss of customers, which could materially and adversely affect the supply of, demand for our business.market values of equipment.
Risk Related to Our Organization and Governance
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Our articles, by-laws, shareholder rights plan and Canadian legislationlaw contain provisions that may have the effect of delaying or preventing a change in control.
Certain provisions of our articles of amalgamation and by-laws, as well as certain provisions of the Canada Business Corporations Act (the “CBCA”) and applicable Canadian securities law, could discourage potential acquisition proposals, delay or prevent a change in control or materially adversely impact the price that certain investors might be willing to pay for our common shares. OurFor instance, our articles of amalgamation authorize our board of directors to determine the designations, rights and restrictions to be attached to, and to issue an unlimited number of, junior preferred shares and senior preferred shares.
Our In addition, our by-laws contain provisions establishing that shareholders must give advance notice to us in circumstances where nominations of persons for election to our board of directors are made by our shareholders other than pursuant to either a requisition of a meeting made in accordance with the provisions of the CBCA or a shareholder proposal made in accordance with the provisions of the CBCA.
Among other things, these advance notice provisions set a deadline by which shareholders must notify us in writing of an intention to nominate directors for election to the board of directors prior to any shareholder meeting at which directors are to be elected and set forth the information required in this notice for it to be valid.
Our board of directors has adopted a shareholder rights plan (the “Rights Plan”), pursuant to which we issued one right in respect of each common share outstanding. Under the Rights Plan, following a transaction in which any person becomes an “acquiring person” as defined in the Rights Plan, each right will entitle the holder to receive a number of common shares provided in the Rights Plan. The purposes of the Rights Plan are (i) to provide our board of directors time to consider value-enhancing alternatives to a take-over bid and to allow competing bids to emerge; (ii) to ensure that shareholders are provided equal treatment under a take-over bid; and (iii) to give adequate time for shareholders to properly assess a take-over bid without undue pressure. The Rights Plan can potentially impose a significant penalty on any person commencing a takeover bid that would result in the offeror becoming the beneficial owner of 20% or more of our outstanding common shares.
Any of these provisions, as well as certain provisions of the CBCA and applicable Canadian securities law, may discourage a potential acquirer from proposing or completing a transaction that may have otherwise presented a premium to our shareholders.
U.S. civil liabilities may not be enforceable against us, our directors, or our officers.
We are governed by the CBCA and our principal place of business is in Canada. Many of our directors and officers reside outside of the U.S.United States, and all or a substantial portion of their assets, as well as a substantial portion of our assets, are located outside the U.S.
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United States. As a result, it may be difficult for investors to effect service of process within the U.S.United States upon us and such directors and officers or to enforce judgments obtained against us or such persons, in U.S. courts, in any action, including actions predicated upon the civil liability provisions of U.S. federal securities laws or any other laws of the U.S.United States.
Additionally, rights predicated solely upon civil liability provisions of U.S. federal securities laws or any other laws of the U.S.United States may not be enforceable in original actions, or actions to enforce judgments obtained in U.S. courts, brought in Canadian courts, including courts in the Province of British Columbia.
We are governed by the corporate laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware.
We are governed by the CBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deferring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance.
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2: PROPERTIES
We own and lease various properties in Canada, the United States and 10 other countries globally. We use the properties as auction sites, storage warehouses, and as executive and administrative offices.
Our corporate headquarters are located in Burnaby, Canada, and are held through a lease that expires in May 2030. We also lease a U.S. Leadership Office in Chicago, United States, a European head office in Breda, the Netherlands, and IronPlanet’s head office in Pleasanton, United States. following other properties which support our businesses:
● | A European head office in Breda, Netherlands; |
● | IronPlanet’s head office in Pleasanton, United States; |
● | Rouse’s head office in Los Angeles, United States; |
● | SmartEquip’s head office in Connecticut, United States; |
● | An administrative office in Fort Worth, United States; and |
● | Two warehouses supporting GovPlanet operations in Las Vegas and Chambersburg, United States. |
We also own an administrative office in Lincoln, Nebraska, United States.
International networkNetwork of auction sitesAuction Sites
We generally attempt to establish our auction sites in industrial areas close to major cities. Our auction sites benefit consignors who prefer to drop off their equipment on premise, where we offer “care, custody and control”. Our auction sites also allow buyers to come in advance of the onsite auction and physically inspect the equipment they plan to bid on. Although we lease some auction sites, we have historically preferred to purchase land and construct purpose-built facilities once we have established a base of business and determined that a region can generate sufficient financial returns to justify the investment.
We generally do not construct a permanent auction site in a region until wecurrently have conducted several offsite sales in the area, and often we will operate from a regional auction site for several years before considering a more permanent investment. This process allows us to establish our business and evaluate the market potential before we make a significant investment. We will not invest in a permanent auction site unless we believe there is an opportunity for significant, profitable growth in that region. Our average expenditure on a permanent auction site has been in the range of $20 to $25 million, including land, improvements and buildings.
We currently haveover 40 locations in our auction site network comprised of 35 permanent auctions sites and five regional sitesthat are either owned or leased as of the date of this Annual Report on Form 10-K. A permanentWe have 22 local satellite yards (4 were added in 2022 compared to 18 added in 2021) globally to reduce transportation barriers for our customers and increase their accessibility to our auctions and online marketplaces. We also have 28 GovPlanet yards and 2 GovPlanet warehouses in the United States, which are used for servicing our US military agreements.
In March 2022, we completed the sale and leaseback of our Bolton property, a parcel of land including all buildings, in Bolton, Ontario, Canada. We intend to lease the Bolton property for our auction site includes locations thatoperations until mid-2024 when we own and on which weexpect to have constructed an auction theatre and other facilities (e.g. refurbishment), and that we lease with an original term longer than three years and on which we have built permanent structures with an investment of more than $1.5 million.
A regional auction site is a location that we lease on a term longer than one year, have limited investment in facilities (i.e. less than $1.5 million) and on which we average more than two auctions per year on a rolling two-year basis and have at least two full time staff. This category also includes sites located on land that we own with limited investment in facilities.
Our auction site network as of the date of this discussion is as follows:
| | | | | | | | | | | | |
|
| Number of acres |
| Year placed |
| |
| Lease | ||||
| | Total |
| Developed |
| Developable | | into service | | Nature | | expiry date |
Permanent auction sites |
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Canada: |
|
|
|
|
|
|
|
|
|
|
|
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Edmonton, Alberta |
| 267 |
| 175 |
| 92 |
| 2002 |
| Owned |
|
|
Grande Prairie, Alberta |
| 153 |
| 68 |
| 68 |
| 2009 |
| Owned |
|
|
Montreal, Quebec |
| 91 |
| 68 |
| — |
| 2000 |
| Owned |
|
|
Toronto, Ontario |
| 65 |
| 65 |
| — |
| 1998 |
| Owned |
|
|
Saskatoon, Saskatchewan |
| 60 |
| 40 |
| 11 |
| 2006 |
| Owned |
|
|
Regina, Saskatchewan |
| 47 |
| 17 |
| 30 |
| 2007 |
| Owned |
|
|
Halifax, Nova Scotia |
| 25 |
| 25 |
| — |
| 1997 |
| Owned |
|
|
Chilliwack, British Columbia |
| 24 |
| 24 |
| — |
| 2010 |
| Owned |
|
|
United States: |
|
|
|
|
|
|
|
|
|
|
|
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Orlando, Florida |
| 225 |
| 189 |
| 27 |
| 2002 |
| Owned |
|
|
Chehalis, Washington |
| 204 |
| 131 |
| 40 |
| 2012 |
| Owned |
|
|
North East, Maryland |
| 193 |
| 80 |
| 28 |
| 2001 |
| Owned |
|
|
Denver, Colorado |
| 143 |
| 70 |
| 72 |
| 2007 |
| Owned |
|
|
Columbus, Ohio |
| 130 |
| 95 |
| 25 |
| 2007 |
| Owned |
|
|
Houston, Texas |
| 128 |
| 116 |
| — |
| 2009 |
| Owned |
|
|
Minneapolis, Minnesota |
| 122 |
| 70 |
| 52 |
| 2009 |
| Owned |
|
|
Fort Worth, Texas |
| 127 |
| 127 |
| — |
| 1994 |
| Owned |
|
|
Atlanta, Georgia |
| 94 |
| 62 |
| 7 |
| 1996 |
| Owned |
|
|
Chicago, Illinois |
| 91 |
| 71 |
| 20 |
| 2000 |
| Owned |
|
|
Sacramento, California |
| 90 |
| 90 |
| — |
| 2005 |
| Owned |
|
|
completed
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Ritchie Bros. |
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| Number of acres |
| Year placed |
| |
| Lease | ||||
| | Total |
| Developed |
| Developable | | into service | | Nature | | expiry date |
United States (continued): | | | | | | | | | | | | |
Las Vegas, Nevada |
| 77 |
| 77 |
| — |
| 2012 |
| Leased | | 31-May-33 |
Los Angeles, California |
| 65 |
| 63 |
| 2 |
| 2000 |
| Owned | |
|
Phoenix, Arizona |
| 48 |
| 48 |
| — |
| 2002 |
| Owned | |
|
Nashville, Tennessee |
| 46 |
| 40 |
| 6 |
| 2006 |
| Owned |
|
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Kansas City, Missouri |
| 40 |
| 40 |
| — |
| 2008 |
| Owned |
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Salt Lake City, Utah |
| 37 |
| 37 |
| — |
| 2010 |
| Leased | | 28-Feb-24 |
Other: |
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|
|
|
|
|
|
|
|
| |
|
Mexico City (Polotitlan), Mexico |
| 324 |
| 82 |
| 207 |
| 2008 |
| Owned | |
|
Madrid (Ocaña), Spain |
| 85 |
| 65 |
| 20 |
| 2010 |
| Owned | |
|
Moerdijk, The Netherlands |
| 62 |
| 62 |
| — |
| 1999 |
| Owned | |
|
Milan (Caorso), Italy |
| 62 |
| 42 |
| 10 |
| 2010 |
| Owned | |
|
Paris (St. Aubin sur Gaillon), France |
| 50 |
| 50 |
| — |
| 2008 |
| Owned | |
|
Dubai, United Arab Emirates |
| 44 |
| 44 |
| — |
| 1999 |
| Leased | | 30-Jun-29 |
Brisbane, Australia |
| 42 |
| 42 |
| — |
| 1999 |
| Owned | |
|
Meppen, Germany |
| 41 |
| 41 |
| — |
| 2010 |
| Leased | | 31-Oct-24 |
Melbourne (Geelong), Australia |
| 40 |
| 40 |
| — |
| 2013 |
| Owned | |
|
Tokyo (Narita), Japan |
| 17 |
| 17 |
| — |
| 2010 |
| Owned | |
|
Regional auction sites |
|
|
|
|
|
|
|
|
|
|
|
|
Tipton, United States |
| 60 |
| 60 |
| — |
| 2010 |
| Leased | | 30-Jun-21 |
Lethbridge, Canada |
| 30 |
| 25 |
| 5 |
| 2011 |
| Leased | | 30-Jun-23 |
Maltby, United Kingdom |
| 25 |
| — |
| 25 |
| 2019 |
| Leased | | 31-Jan-35 |
North Franklin, United States |
| 23 |
| 23 |
| — |
| 2017 |
| Leased | | 31-Jul-21 |
North Battleford, Canada |
| 21 |
| 11 |
| 10 |
| 2017 |
| Leased | | 14-Nov-22 |
Wethe acquisition and development of a replacement property located in Ontario, Canada. In September 2022, we also owncompleted the following developable properties that are not currently under development but are available for futurepurchase of an auction site expansion:in Maltby, United Kingdom.
The general location and ownership of our auction site network properties and our yards used in our A&M segment are set forth below:
| | | | | | | | | | |
Location |
| Number of Auction Sites | | Owned Acreage | | Leased Acreage | ||||
Main auction sites | | | | | | | ||||
United States |
| 20 | | 1,747 |
| 210 | ||||
Canada |
| 10 | | 672 |
| 117 | ||||
Europe |
| 6 | | 325 |
| — | ||||
Australia | | 2 | | 82 | | — | ||||
Other |
| 3 | | 341 |
| 44 | ||||
Total | | 41 | | 3,167 | | 371 | ||||
|
| Number |
| Year | | | | | | |
Local satellite yards | | | | | | | ||||
United States |
| 11 | | 113 |
| 107 | ||||
Canada |
| 3 | | — |
| 26 | ||||
Europe |
| 3 | | — |
| 14 | ||||
Australia |
| 5 | | — |
| 17 | ||||
Total | | 22 | | 113 | | 164 | ||||
| | of acres | | acquired | | | | | | |
Casa Grande, United States |
| 125 |
| 2010 | ||||||
Tulare, United States |
| 99 |
| 2011 | ||||||
GovPlanet yards | | | | | | | ||||
United States |
| 28 | | — |
| 259 | ||||
Total | | 28 | | — | | 259 |
We believe that our administrative offices and developed auction sites are adequate and suitable for theto conduct our operations. In 2022, many of our operations. Further, we believe thatemployees continued to work remotely. The longer-term strategy with respect to our properties that are being developed to expand our existingadministrative offices and auction sites are sufficient to support the growthwill reflect on-going review of our live on-site business.
In early 2018, the Company entered into long-term leases in Las Vegas, Nevadabusiness and Chambersburg, Pennsylvania to support the Company’s government business. These warehouses became fully operational in the third quarter of 2018 and continue to support the U.S Government’s Defense and Logistics Agency non-rolling stock contract.
In December 2018 we entered into a long-term lease agreement for a property in Maltby, United Kingdom to replace our Donnington Park, United Kingdom auction site in the East Midlands. We have commenced the long-term development process and expect this site to be complete in 2021. We conducted our first sales at this location in 2019 using temporary facilities while the development process continues.customer needs, as well as consider employee preferences.
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ITEM 3: LEGAL PROCEEDINGS
We have no material legal proceedings pending, other than ordinary routine litigation incidental to the business, and we do not know of any material proceedings contemplated by governmental authorities.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
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Ritchie Bros. | 34 |
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Outstanding Share Data
We are a public company and our common shares are listed under the symbol “RBA” on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”). Financial information about our equity and share-based payments is set forth in our consolidated financial statement footnotes 2324 “Equity and dividends” and 2425 “Share-based payments” in “Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Market Information
Our common shares, without par value, are issued in registered form. The transfer agent for the shares is Computershare Trust Company of Canada, 100 University Avenue, 9th9th Floor, Toronto, Ontario M5J 2Y1. Our common shares trade on the NYSE and on the TSX under the symbol “RBA”. On February 27, 2020,21, 2023, there were 417625 holders of record of our common shares that do not include the shareholders for whom shares are held in a nominee or street name.
Dividend Policy
We currently pay a regular quarterly cash dividend of $0.20$0.27 per common share. We currently intend to continue to declare and pay a regular quarterly cash dividend on our common shares; however, any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors, after considering our operating results, financial condition, cash requirements, financing agreement restrictions and any other factors our Board of Directors may deem relevant.
Because Ritchie Bros. Auctioneers Incorporated is a holding company with no material assets other than the shares of its subsidiaries, our ability to pay dividends on our common shares depends on the income and cash flow of our subsidiaries. No financing agreements to which our subsidiaries are party currently restrict those subsidiaries from paying dividends.
Pursuant to income tax legislation, Canadian resident individuals who receive “eligible dividends” in 2006 and subsequent years will be entitled to an enhanced gross-up and dividend tax credit on such dividends. All dividends that we pay are “eligible dividends” unless indicated otherwise.
Special Dividend
On January 23, 2023, we announced that our Board of Directors expects to approve the payment of a one-time special dividend to our shareholders in the amount of $1.08 per share, contingent upon the closing of the merger with IAA. The special dividend will be payable to holders of record of our common shares as of a record date prior to the effective time to be determined with the consent of the TSX and only if the merger is completed. Our shareholders will only be eligible to receive the special dividend if they own their common shares through the record date determined for the special dividend, which we will publicly announce following determination. IAA stockholders will not be entitled to receive the special dividend with respect to any of our common shares received as consideration in the merger. We will not pay the special dividend if the merger agreement is terminated or the merger is otherwise not completed for any reason.
Comparison of Cumulative Return
The following graph compares the cumulative return on a $100 investment in our common shares over the last five fiscal years beginning December 31, 20142017 through December 31, 2019,2022, to that of the cumulative return on a $100 investment in the Russell Global Index (“Russell 2000”), the S&P / TSX Composite Index (“S&P/TSX”) and the Dow Jones Industrial Average Index (“DJIA”) for the same period. In calculating the cumulative return, reinvestment of dividends, if any, is assumed. The indices are included for comparative purpose only. This graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
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Ritchie Bros. |
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Company / index |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 | ||||||||||||
RBA (NYSE) | | $ | 100.00 | | $ | 107.8 | | $ | 151.2 | | $ | 133.5 | | $ | 145.7 | | $ | 162.6 | | $ | 100.0 | | $ | 111.1 | | $ | 148.8 | | $ | 244.9 | | $ | 218.8 | | $ | 210.3 |
Russell 2000 | | $ | 100.00 | | $ | 97.6 | | $ | 116.6 | | $ | 132.0 | | $ | 115.9 | | $ | 138.5 | | $ | 100.0 | | $ | 88.1 | | $ | 110.6 | | $ | 132.6 | | $ | 152.3 | | $ | 121.1 |
S&P/TSX | | $ | 100.00 | | $ | 95.5 | | $ | 112.2 | | $ | 119.0 | | $ | 105.1 | | $ | 116.6 | | $ | 100.0 | | $ | 90.6 | | $ | 111.3 | | $ | 117.5 | | $ | 147.1 | | $ | 138.6 |
DJIA | | $ | 100.00 | | $ | 105.1 | | $ | 119.2 | | $ | 149.1 | | $ | 140.7 | | $ | 160.1 | | $ | 100.0 | | $ | 96.1 | | $ | 120.5 | | $ | 132.2 | | $ | 159.9 | | $ | 148.9 |
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information about the Company’s equity compensation plans as ofat December 31, 2019.2022.
| | | | | | | | | | | | | | | | |
|
| |
| | |
| Number of securities remaining |
|
| |
| | |
| Number of securities remaining |
|
| | Number of securities to be issued | | Weighted average exercise | | available for future issuance under |
| | Number of securities to be issued | | Weighted average exercise | | available for future issuance under |
| ||
| | upon exercise of options, | | price of outstanding options, | | equity compensation plans (excluding |
| | upon exercise of options, | | price of outstanding options, | | equity compensation plans (excluding |
| ||
| | warrants and rights | | warrants and rights | | securities reflected in column (a)) |
| | warrants and rights | | warrants and rights | | securities reflected in column (a)) |
| ||
Plan Category | | (a) | | (b) | | (c) |
| | (a) | | (b) | | I |
| ||
Equity compensation plans approved by security holders |
| 3,463,333 | (1) | $ | 29.05 | (2) | 9,343,445 | (3) |
| 4,682,264 | (1) | $ | 59.77 | (2) | 5,299,246 | (3) |
Equity compensation plans not approved by security holders |
| — | |
| — | | — | |
| — | |
| — | | — | |
Total |
| 3,463,333 | | $ | 29.05 | | 9,343,445 | |
| 4,682,264 | | $ | 59.77 | | 5,299,246 | |
(1) | Reflects our Stock Option Plan, the IronPlanet Stock Plans, PSUs granted under the Executive PSU Plan and the Employee PSU Plan, and equity-classified RSUs. This amount reflects 100% of target numbers of PSUs granted and includes dividend equivalent rights credited in connection with such PSUs. Under the PSU Plans, the number of PSUs that vest is conditional upon specified market, service, and/or performance vesting conditions being met. For the |
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Ritchie Bros. | 36 |
cash or in shares.For further discussion on the PSUs granted under our Plans, refer to Note 25 of the consolidated financial statements, Share-based Payments. |
(2) | Weighted average exercise price does not include the effect of our outstanding share units. The remaining term of our stock options is |
(3) | Consists of: (a) |
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Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to U.S. Resident Holders (as defined below) of our common shares, except as discussed in “Certain Canadian Federal Income Tax Considerations for U.S. Residents” below.
There are no limitations under the laws of Canada or in our organizational documents on the right of foreigners to hold or vote our common shares, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of control of Ritchie Bros. by a “non-Canadian”. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
Certain Canadian Federal Income Tax Considerations for U.S. Residents
The following summarizes certain Canadian federal income tax consequences generally applicable under the Income Tax Act (Canada) and the regulations enactedpromulgated thereunder (collectively, the “Canadian Tax Act”) and the Canada-U.S. Income Tax Convention (1980) (the “Convention”) to the holding and disposition of common shares.shares by a U.S. Resident Holder (as defined below).
This summary is restricted to holdersbeneficial owners of common shares each of whom, at all material times for the purposes of the Canadian Tax Act and the Convention, (i) is resident solely in the U.S., (ii) is entitled to the full benefits of the Convention, (iii) holds all common shares as capital property, (iii) holds no common shares that are “taxable Canadian property” (within the meaning of the Canadian Tax Act) of the holder,, (iv) deals at arm’s length with and is not affiliated with Ritchie Bros., (v) does not and is not deemed to use or hold any common shares in a business carried on in Canada, and (vi) is not an "authorized foreign bank" (as defined in the Canadian Tax Act) or an insurer that carries on business in Canada and elsewhere (each such holder, a “U.S. Resident Holder”).
Certain U.S.-resident entities that are fiscally transparent for U.S. federal income tax purposes (including limited liability companies) may not be regarded by the Canada Revenue Agency (“CRA”) as entitled to the benefits of the Convention. Members of or holders of an interest in such an entity that holds common shares should consult their own tax advisers regarding the extent, if any, to which the CRA will extend the benefits of the Convention to the entity in respect of its common shares.shares held by such entity.
Generally, a U.S. Resident Holder’s common shares will be considered to be capital property of a U.S. Resident Holder provided that the U.S. Resident Holder acquired the common shares as a long-term investment; is not a trader or dealer in securities; diddoes not acquire, hold or dispose of the common shares in one or more transactions considered to be an adventure or concern in the nature of trade;trade and does not hold the common shares as inventory in the course of carrying on a business.
This summary is based on the provisions of the Canadian Tax Act and the Convention in effect on the date hereof, all specific proposals to amend the Canadian Tax Act and Convention publicly announced by or on behalf of the Minister of Finance (Canada) on or before the date hereof (the “Tax Proposals”), and the current published administrative and assessing policies of the CRA. It is assumed that the Tax Proposals will be enacted as currently proposed, and that there will be no other material change to any applicable law or administrative or assessing practice, whether by judicial, legislative, governmental or administrative decision or action, although no assurance can be given in these respects. Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign tax considerations, which may differ materially from those set out herein.
This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common shares, and no representation with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly, holders of common shares should consult their own tax advisers with respect to their individual circumstances.
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Ritchie Bros. |
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Disposition of common sharesCommon Shares
A U.S. Resident Holder will not be subject to tax under the Canadian Tax Act in respect of any capital gain realized by such U.S. Resident Holder on a disposition of common shares unless the common shares constitute “taxable Canadian property” (within the meaning of the Canadian Tax Act) of the U.S. Resident Holder at the time of disposition and the U.S. Resident Holder is not entitled under the Convention to an exemption from Canadian tax on the gain.
Generally, a U.S. Resident Holder’s common sharesshare will not constitute “taxable Canadian property” of the U.S. Resident Holder at a particularthe time at which the common shares areof disposition provided that such share is listed on a “designated stock exchange” for purposes of the Canadian Tax Act (which currently includes the TSX and NYSE) unless at any time during the 60-month period immediately preceding athe disposition both of the following conditions are true:
(i) | the U.S. Resident Holder, any one or more persons with whom the U.S. Resident Holder does not deal at arm’s length, or any partnership in which the holder or persons with whom the holder did not deal at arm’s length holds a membership interest directly or indirectly through one or more partnerships, alone or in any combination, owned 25% or more of the issued shares of any class or series of our share capital; and |
(ii) | more than 50% of the fair market value of |
In certain circumstances set out in the Canadian Tax Act, a common share may be deemed to be “taxable Canadian property” for purposes of the Canadian Tax Act.
Even if the common shares constitute “taxable Canadian property” to a U.S. Resident Holder, under the Convention, such a U.S. Resident Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized by such holder on a disposition of such common shares, provided the value of such common shares is not derived principally from real property situated in Canada (within the meaning of the Convention).
U.S. Resident Holders whose shares may be taxable Canadian property should consult their own tax advisors
Dividends on common sharesCommon Shares
Under the Canadian Tax Act, dividends on sharesDividends paid or credited, or deemed to be paid or credited, on common shares to a non-resident of Canada (or amounts paid or credited on account, or in lieu of payment of, or in satisfaction of, dividends)U.S. Resident Holder will generally be subject to Canadian withholding tax attax. Under the Canadian Tax Act, the rate of withholding tax is 25% of the gross amount of thesuch dividends, (subjectwhich rate may be subject to reduction under the provisions of anyan applicable income tax treaty).treaty or convention. Under the Convention, a U.S. Resident Holder that beneficially owns the dividendswho is a beneficial owner of a dividend will generally be subject to Canadian withholding tax at the rate of 15% of the gross amount of such dividendsdividend, unless the beneficial owner is a company which owns (or is deemed under the Convention to own) at least 10% of the voting shares of Ritchie Bros. at that time, in which case the rate of Canadian withholding tax is generally reduced to 5%.
Share Repurchase ProgramITEM 6: [RESERVED]
On May 9, 2019, we announced a share repurchase program for the repurchase of up to $100 million worth of our common shares, approved by the Toronto Stock Exchange (“TSX”), over a period of 12 months, ending May 8, 2020. For additional information on our share repurchases, please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outstanding Share Data—Share Repurchase Program,” the contents of which are incorporated by reference into this Item 5.
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Ritchie Bros. |
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ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of and for the years ended December 31, 2015 through December 31, 2019. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
Effective January 1, 2018, we adopted ASU 2014-09 Revenue from Contracts with Customers (“Topic 606”) using the full retrospective method. The primary impact of the adoption of Topic 606 is the change in the presentation of revenue earned from inventory sales and ancillary and logistical services. These revenues are presented gross of the related expenses rather than net. All prior period revenue figures below have been restated to reflect the adoption of Topic 606.
Effective January 1, 2019, we adopted ASU 2016-02 Leases (“Topic 842”) using the “optional transition method”, which allows us to adopt this new lease standard at the adoption date. The comparative periods presented below are reported pursuant to Topic 840.
The following selected consolidated financial information should be read in conjunction with “Part II, Item 7: Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and the consolidated financial statements and the notes thereto included in “Part II, Item 8: Financial Statements and Supplementary Data” presented elsewhere in this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | |
| | Year ended and as at December 31, | |||||||||||||
(in U.S.$000's, except per share amounts) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Consolidated Income Statements Data | | | | | | | | | | | | | | | |
Service revenue | | $ | 804,024 | | $ | 749,515 | | $ | 624,417 | | $ | 555,843 | | $ | 524,672 |
Inventory sales revenue | |
| 514,617 | |
| 420,511 | |
| 346,774 | |
| 571,134 | |
| 555,827 |
Total revenue | | $ | 1,318,641 | | $ | 1,170,026 | | $ | 971,191 | | $ | 1,126,977 | | $ | 1,080,499 |
Operating income | |
| 223,202 | |
| 185,189 | |
| 107,454 | |
| 135,722 | |
| 174,840 |
Income before income taxes | |
| 190,763 | |
| 152,512 | |
| 77,394 | |
| 130,494 | |
| 176,436 |
Net income attributable to stockholders | |
| 149,140 | |
| 121,479 | |
| 75,027 | |
| 91,832 | |
| 136,214 |
Earnings per share attributable to stockholders: | |
|
| |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 1.37 | | $ | 1.12 | | $ | 0.70 | | $ | 0.86 | | $ | 1.27 |
Diluted | |
| 1.36 | |
| 1.11 | |
| 0.69 | |
| 0.85 | |
| 1.27 |
Consolidated Balance Sheets Data | |
|
| |
|
| |
|
| |
|
| |
|
|
Working capital | | $ | 178,326 | | $ | 163,446 | | $ | 120,032 | | $ | 125,164 | | $ | 140,133 |
Total assets | |
| 2,229,430 | |
| 2,052,392 | |
| 2,017,312 | |
| 1,599,533 | |
| 1,120,115 |
Long-term debt | |
| 645,481 | |
| 711,298 | |
| 812,892 | |
| 595,706 | |
| 97,915 |
Contingently redeemable non-controlling interests | |
| — | |
| — | |
| — | |
| — | |
| 24,785 |
Stockholders' equity | |
| 901,833 | |
| 830,643 | |
| 739,682 | |
| 687,057 | |
| 703,176 |
Consolidated Statements of Cash Flows Data | |
|
| |
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| |
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| |
|
| |
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|
Dividends declared per common share | | $ | 0.76 | | $ | 0.70 | | $ | 0.68 | | $ | 0.66 | | $ | 0.60 |
Acquisition of subsidiaries, net of cash acquired | | $ | — | | $ | — | | $ | 675,851 | | $ | 45,511 | | $ | 12,107 |
Net capital spending | |
| 35,075 | |
| 32,426 | |
| 34,411 | |
| 29,785 | |
| 14,152 |
| |
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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
About Us
Established in 1958, Ritchie Bros. (NYSE and TSX: RBA) is a globalworld leader in asset management technologies and disposition company, offeringof commercial assets. We offer customers end-to-end solutions for buying and selling used heavy equipment, trucks and other assets. Operating in a number of sectors, including construction, commercial transportation, agriculture, energy, oil and gas, mining, and forestry, the company’sour selling channels include: Ritchie Bros. Auctioneers, the world’s largest industrial auctioneer offers live auction events with online bidding;bidding and onsite bidding (at certain auction events); 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& RitchieList, online equipment listing service;services; Rouse, a leader in market intelligence on sales and rental equipment data; SmartEquip, an innovative technology platform offering equipment lifecycle support and part procurement; and Ritchie Bros. Private Treaty, offering privately negotiated sales. The company’sOur suite of multichannel sales solutions also includes RB Asset Solutions, a complete end-to-end asset management and disposition system. Ritchie Bros.We also offersoffer sector-specific solutions including GovPlanet, TruckPlanet, and Kruse Energy Auctioneers,TruckPlanet, plus equipment financing and leasing through Ritchie Bros. Financial Services.
Through our unreserved live on siteonsite and online bidding auctions, online marketplaces, and private brokerage services, we sell a broad range of used and unused equipment,commercial assets, including earthmoving equipment, truck tractors, truck trailers, government surplus, oil and gas equipment and other industrial assets. Construction and heavy machinery comprise the majority of the equipment sold through our multiple brand solutions.sold. Customers selling equipment through our sales channels include end-users (such as construction companies), equipment dealers, original equipment manufacturers (“OEMs”), and other equipment owners (such as rental companies and government bodies)companies). Our customers participate in a variety of sectors, including heavy construction, commercial transportation, agriculture, energy, and mining.
Overview
This section of the Form 10-K generally discusses 20192022 and 20182021 items and year-to-year comparisons between 20192022 and 2018.2021. Discussions of 20172020 items and year-to-year comparisons between 20182021 and 20172020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2021. This discussion and analysis should be read in conjunction with the “Cautionary Note Regarding Forward-Looking Statements”, “Part II, Item 6: Selected Financial Data”, and the consolidated financial statements and the notes thereto included in “Part II, Item 8. Financial Statements and Supplementary Data” presented in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those expressed or implied in any forward-looking statements due to various factors, including those set forth under “Part I, Item 1A: Risk Factors” in this Annual Report on Form 10-K. The date of this discussion is as of February 27, 2020.
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“US GAAP”). Except for GTV, which is a measure of operational performance and not a measure of financial performance, liquidity, or revenue, the amounts discussed below are based on our consolidated financial statements. Unless indicated otherwise, all tabular dollar amounts, including related footnotes, presented below are expressed in thousands of United States (“U.S.”) dollars.
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with US GAAP. Certain of these data are considered “non-GAAP financial measures” under the SEC rules. The definitions and reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable US GAAP financial measures are included either with the first use thereof or in the Non-GAAP Measures“Non-GAAP Measures” section within the MD&A. Non-GAAP financial measures referred to in this report are labeled as “non-GAAP measure” or designated as such with an asterisk (*)“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
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Ritchie Bros. |
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Performance Overview
Net income attributable to stockholders for 2022 increased 23%110% to $149.0$319.7 million compared to $121.5$151.9 million in 2018.2021. Diluted earnings per share (“EPS”) attributable to stockholders increased 23%110% to $2.86 from $1.36 from $1.11 per share, while dilutedshare. Adjusted net income attributable to stockholders increased 25% to $269.9 million in 2022 as compared to $216.1 million in 2021. Diluted adjusted EPS attributable to stockholders*stockholders increased 23%24% to $1.33 from $1.08$2.41 per share in 2018.2022 as compared to $1.94 per share in 2021.
For the year ended December 31, 2022 as compared to the year ended December 31, 2021:
Consolidated results:Results:
● | Total revenue increased |
o | Service revenue increased |
o | Inventory sales revenue increased |
● | Operating income increased 89% to $454.5 million |
● | Adjusted operating income increased 24% to $400.4 million |
● | Net income increased 111% to $319.8 million |
● | Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) increased 21% to |
● | Cash provided by operating activities was |
● | Cash on hand was $625.9 million, of which $494.3 million was unrestricted |
A&M segment results:Auctions & Marketplaces Segment Results:
● | GTV increased |
● | A&M total revenue increased |
o | Service revenue increased |
o | Inventory sales revenue increased |
Other Services segment results:Segment Results:
● | Other Services total revenue increased |
RBFS revenue increased |
o | Rouse revenue increased 17% to $31.3 million |
o | SmartEquip revenue of $20.5 million was recognized in 2022, which was its first full year since acquisition on November 2, 2021 |
Operational highlightsHighlights
In 2019,2022, the organization focused on our operationalgrowth strategy and vision of becoming the trusted global marketplace for insights, services, and transaction solutions for commercial assets and vehicles. We also continue to focus continuedon the needs of our customers, stakeholders, partners and our people to strengthen our sales execution and drive incremental network effects from our foundational core customer solutions andshort-term results while building on opportunities to achieve long term success for the IronPlanet acquisition. Under our strategic framework of GROW, DRIVE and OPTIMIZE, shownCompany. Shown below are some notable highlights:
GROW Revenues and Earningshighlights during the year:
● |
● | We also achieved record setting GTV from Marketplace-E, our online reserved format, which increased 39% year-over-year, driven by continued strong adoption of the platform, particularly in North America. |
● | For the first time in its 11-year history, RBFS surpassed $1.0 billion in annual funded volume, helping tens of thousands of customers around the world purchase used equipment, vehicles and |
● | Our |
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Ritchie Bros. |
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● | We |
DRIVE Efficiencies and Effectiveness
● | We |
● | We continued to expand our |
OPTIMIZEWe further accelerated our balance sheetjourney against many of our strategic pillars by entering into a Merger Agreement to acquire IAA in November 2022, subsequently amended in January 2023. The proposed acquisition of IAA is expected to close in the first half of 2023. IAA is a leading global digital marketplace connecting vehicle buyers and sellers. The proposed acquisition will diversify our customer base by providing the Company with a significant presence in the vehicle remarketing vertical that has strong industry fundamentals with proven secular growth.
In addition to the proposed acquisition of IAA, we took several steps to advance our new growth strategy in 2022 highlighted below:
Customer Experience
● |
● |
● | We expanded our complete suite of |
Best Employee Experience
● | We rolled out online safety trainings for all onsite managers to make sure employees return home every day the way they came to work. |
● | We enhanced our employee experience in areas of diversity, equity and inclusion (DE&I) and community given, including launch of the Diversity, Equity & Inclusion training to our senior leaders and people leaders, with sessions rolling out to all employees in 2023. |
● | We conducted six new hire bootcamp workshops with the launch of a new sales coverage model for North America and for a long tail sales team. |
● | We continue to provide our employees with flexible work arrangements. |
● | We recognized Juneteenth as a company holiday for employees in the United States and recognized National Day of Truth and Reconciliation for employees in Canada. |
● | We continued to have positive community impact from Pride (2SLGBTQ+) and Serve (Military Veterans) Employee Resource Groups |
● | We enhanced our community giving efforts by launching #RitchieGives Community Impact platform which includes providing our employees with extensive volunteering opportunities. |
Modern Architecture
● | At the beginning of 2022, we partnered with Thoughtworks, a global technology consultancy, to accelerate our modernization and digitization journey to deliver our vision of a modern, digital marketplace that is seamless for our customers, employees and partners. During the year, our engineering teams, together with Thoughtworks, designed and built certain capabilities in the development of our digital marketplace ecosystem, such as the check-out functionality and delivery of inspection reports. |
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Results of Operations
| | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| |||||||||||||
| | | | | | | | | | | % Change | | ||||
(in U.S. $000's, except EPS and percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2019 over 2018 |
| 2018 over 2017 |
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| |
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Service revenue: | | | | | | | | | | | | | | | | |
Commissions | | $ | 431,781 | | $ | 420,160 | | $ | 394,397 | | | 3 | % | | 7 | % |
Fees | | | 372,243 | | | 329,355 | | | 230,020 | | | 13 | % | | 43 | % |
Total service revenue | | | 804,024 | | | 749,515 | | | 624,417 | | | 7 | % | | 20 | % |
Inventory sales revenue | | | 514,617 | | | 420,511 | | | 346,774 | | | 22 | % | | 21 | % |
Total revenue | | | 1,318,641 | | | 1,170,026 | | | 971,191 | | | 13 | % | | 20 | % |
Service revenue as a % of total revenue | | | 61.0 | % | | 64.1 | % | | 64.3 | % | | -310 bps | | | -20 bps | |
Inventory sales revenue as a % of total revenue | |
| 39.0 | % |
| 35.9 | % |
| 35.7 | % |
| 310 bps | |
| 20 bps | |
Costs of services | |
| 164,977 | |
| 159,058 | |
| 133,189 | |
| 4 | % |
| 19 | % |
Cost of inventory sold | |
| 480,839 | |
| 374,339 | |
| 306,498 | |
| 28 | % |
| 22 | % |
Selling, general and administrative expenses | |
| 382,389 | |
| 382,676 | |
| 323,270 | |
| 0 | % |
| 18 | % |
Operating expenses | | | 1,095,439 | | | 984,837 | | | 863,737 | | | 11 | % | | 14 | % |
Cost of inventory sold as a % of operating expenses | |
| 43.9 | % |
| 38.0 | % |
| 35.5 | % |
| 590 bps | |
| 250 bps | |
Operating income | |
| 223,202 | |
| 185,189 | |
| 107,454 | |
| 21 | % |
| 72 | % |
Operating income margin | | | 16.9 | % | | 15.8 | % | | 11.1 | % | | 110 bps | | | 470 bps | |
Net income attributable to stockholders | |
| 149,039 | |
| 121,479 | |
| 75,027 | |
| 23 | % |
| 62 | % |
Adjusted net income attributable to stockholders* | |
| 145,649 | |
| 117,669 | |
| 87,662 | |
| 24 | % |
| 34 | % |
Diluted earnings per share attributable to stockholders | | $ | 1.36 | | $ | 1.11 | | $ | 0.69 | | | 23 | % |
| 61 | % |
Diluted adjusted EPS attributable to stockholders* | | $ | 1.33 | | $ | 1.08 | | $ | 0.81 | | | 23 | % |
| 33 | % |
Effective tax rate | |
| 21.8 | % |
| 20.3 | % |
| 2.7 | % |
| 150 bps | |
| 1760 bps | |
Total GTV | | | 5,140,587 | | | 4,964,165 | | | 4,467,982 | | | 4 | % | | 11 | % |
Service revenue as a % of total GTV- Rate | | | 15.6 | % | | 15.1 | % | | 14.0 | % | | 50 bps | | | 110 bps | |
Inventory sales revenue as a % of total GTV-Mix | | | 10.0 | % | | 8.5 | % | | 7.8 | % | | 150 bps | | | 70 bps | |
Inventory Management System (“IMS”)
● | IMS (business version) was launched in 2021, which offers our customers end-to-end asset management and disposition services, data analytics, dashboards, branded e-commerce sites and multiple external sales channels to help our customers achieve optimal returns. During 2022, organizations activated on IMS grew 465% compared to 2021. |
● | Improved backend systems and processes to enable faster growth. |
● | Increased use of IMS for transactional workflow. |
Total revenue
Total revenue increased 13% to $1.3 billion as compared to 2018.
Service revenue increased 7%, driven by 3% increase in commissions revenue and a 13% increase in fee revenue. The increase in commissions revenue was in line with higher Service GTV of 2%, with strong performance in our US region, where we experienced volume growth through both our live auctions and weekly featured online businesses. The increase in fee revenue was driven primarily by higher total GTV, full buyer fee harmonization implemented in June 2019, and RBFS fee revenue growth. These were partially offset by lower RB Logistics revenue earned in the International region.
Inventory sales revenue as a percent of total GTV increased to 10.0% as compared to 8.5% in 2018.
Inventory sales revenue increased 22% primarily due to our US region, where we had a greater volume of inventory contracts at our live auctions including a large dispersal of pipeline equipment at the Columbus, Ohio auction in Q2 2019 and increased inventory contracts at our Orlando, Florida auction in Q1 2019. Continued revenue growth in our GovPlanet surplus contract also contributed to the increase in inventory sales revenue. This increase was partially offset by large non-repeating dispersals of oil and gas equipment and agricultural real estate in Canada during 2018.
Operating income
Operating income increased 21% to $223.2 million compared to $185.2 million in 2018. This increase was primarily due to the 13% increase in total revenue. Operating expenses increased 11%, less than the rate of increase in revenue primarily due to strong cost control, a $4.1 million recovery of share-based payment expense related to the departure of our former Chief Executive Officer (“CEO”), and higher foreign exchange gains.
Income tax expense and effective tax rate
We recorded an income tax expense of $41.6 million in 2019 compared to $31.0 million in 2018. Our effective tax rate was 21.8% compared to 20.3% in 2018. The increase in effective tax rate over the comparative period was primarily the result of a greater proportion of earnings taxed in jurisdictions with higher tax rates.
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Ritchie Bros. |
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Results of Operations
| | | | | | | | | | | | | | | | |
| | Year ended December 31, |
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| | | | | | | | | | | % Change | | ||||
(in U.S. dollars $000's, except EPS and percentages) |
| 2022 |
| 2021 |
| 2020 |
| 2022 over 2021 |
| 2021 over 2020 |
| |||||
Service revenue: | | | | | | | | | | | | | | | | |
Commissions | | $ | 485,916 | | $ | 469,718 | | $ | 452,882 | | | 3 | % | | 4 | % |
Fees | | | 564,667 | | | 448,041 | | | 418,714 | | | 26 | % | | 7 | % |
Total service revenue | | | 1,050,583 | | | 917,759 | | | 871,596 | | | 14 | % | | 5 | % |
Inventory sales revenue | | | 683,225 | | | 499,212 | | | 505,664 | | | 37 | % | | (1) | % |
Total revenue | | | 1,733,808 | | | 1,416,971 | | | 1,377,260 | | | 22 | % | | 3 | % |
Costs of services | |
| 168,127 | |
| 155,258 | |
| 164,528 | |
| 8 | % |
| (6) | % |
Cost of inventory sold | |
| 608,574 | |
| 447,921 | |
| 458,293 | |
| 36 | % |
| (2) | % |
Selling, general and administrative | |
| 539,933 | |
| 456,203 | |
| 410,291 | |
| 18 | % |
| 11 | % |
Total operating expenses | | | 1,450,096 | | | 1,178,260 | | | 1,115,659 | | | 23 | % | | 6 | % |
Gain on disposition of property, plant and equipment | | | 170,833 | | | 1,436 | | | 1,559 | | | 11,796 | % | | (8) | % |
Operating income | |
| 454,545 | |
| 240,147 | |
| 263,160 | |
| 89 | % |
| (9) | % |
Operating income as a % of total revenue | | | 26.2 | % | | 16.9 | % | | 19.1 | % | | 930 | bps | | (220) | bps |
Adjusted operating income | | | 400,358 | | | 323,471 | | | 314,514 | | | 24 | % |
| 3 | % |
Adjusted operating income as a % of total revenue | | | 23.1 | % | | 22.8 | % | | 22.8 | % | | 30 | bps | | — | bps |
Net income attributable to stockholders | |
| 319,657 | |
| 151,868 | |
| 170,095 | |
| 110 | % |
| (11) | % |
Adjusted net income attributable to stockholders | |
| 269,919 | |
| 216,106 | |
| 208,660 | |
| 25 | % |
| 4 | % |
Adjusted EBITDA | | | 465,215 | | | 385,324 | | | 374,295 | | | 21 | % | | 3 | % |
Diluted earnings per share attributable to stockholders | | $ | 2.86 | | $ | 1.36 | | $ | 1.54 | | | 110 | % |
| (12) | % |
Diluted adjusted earnings per share attributable to stockholders | | $ | 2.41 | | $ | 1.94 | | $ | 1.89 | | | 24 | % |
| 3 | % |
Effective tax rate | |
| 21.2 | % |
| 26.0 | % |
| 27.8 | % |
| (480) | bps |
| (180) | bps |
| | | | | | | | | | | | | | | | |
Total GTV | | | 6,025,889 | | | 5,533,931 | | | 5,411,218 | | | 9 | % | | 2 | % |
Service GTV | | | 5,342,664 | | | 5,034,719 | | | 4,905,554 | | | 6 | % | | 3 | % |
Service revenue as a % of total GTV | | | 17.4 | % | | 16.6 | % | | 16.1 | % | | 80 | bps | | 50 | bps |
Inventory GTV | | | 683,225 | | | 499,212 | | | 505,664 | | | 37 | % | | (1) | % |
| | | | | | | | | | | | | | | | |
Inventory return | | $ | 74,651 | | $ | 51,291 | | $ | 47,371 | | | 46 | % | | 8 | % |
Inventory rate | | | 10.9 | % | | 10.3 | % | | 9.4 | % | | 60 | bps | | 90 | bps |
| | | | | | | | | | | | | | | | |
Service GTV as a % of total GTV - Mix | | | 88.7 | % | | 91.0 | % | | 90.7 | % | | (230) | bps | | 30 | bps |
Inventory sales revenue as a % of total GTV - Mix | | | 11.3 | % | | 9.0 | % | | 9.3 | % | | 230 | bps | | (30) | bps |
Certain amounts in the prior period have been reclassified from selling, general and administrative expenses to costs of services, refer to note 2(a) of our consolidated financial statements.
Total GTV
Total GTV increased 9% to $6.0 billion as compared to 2021, and increased 12% in 2022 as compared to 2021 when excluding the impact of foreign exchange.
In 2022, total GTV increased 9% driven by continued strong demand, strong asset pricing and higher lot counts, partially offset by an unfavourable impact of foreign exchange and an unfavorable asset mix. We saw growth across all regions but most notably in Canada and the United States. In Canada, GTV growth was driven by strong performances across several auction events, including agricultural events, strong execution by our Canadian strategic accounts teams, higher volume from RBFS from providing escrow services for private brokered transactions, and a higher number of inventory packages sold primarily in the commercial transportation sector. In the United States, GTV volume increased primarily from positive performances across numerous auctions and on our online marketplaces mainly due to higher volume of inventory contracts including strong results from our strategic accounts in the rental and finance sectors. We also saw growth from several of our strategic initiatives, including from our local yards and continued investments made in our sales coverage model. These increases were partially offset by the non-repeat of a large dispersal of pipeline construction equipment in a single-owner auction event in 2021. In International, Australia saw significant growth from improved market conditions and the lifting of border restrictions, as well as from a higher mix of inventory packages and strong performances at several auction events. We also saw improved year-over-year performances in Europe mainly offset by an unfavorable foreign exchange impact.
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Ritchie Bros. | 43 |
The Tax CutsTotal Revenue
Total revenue increased 22% to $1.7 billion as compared to 2021, with total service revenue increasing by 14% and Jobs Act, or TCJA was enactedinventory sales revenue increasing by 37%.
Foreign currency fluctuation also had an unfavourable impact on our revenue primarily due to the depreciation of the Euro, the Australian dollar and the Canadian dollar relative to the U.S. dollar.
Service Revenue
Service revenue is comprised of commissions that are earned on Service GTV, and fees that are earned on total GTV, as well as from our other services such as RBFS, Ancillary Services, Rouse, SmartEquip, Mascus, and RB Logistics. In 2022, service GTV increased 6% to $5.3 billion driven by positive results across all regions due to strong pricing despite the unfavourable supply environment.
In 2022, total service revenue increased 14% with fees revenue increasing 26% and commissions revenue increasing 3%. Fees revenue increased 26% with buyer fees growing faster than GTV of 9%, reflecting the increase in certain buyer fee rates implemented in early 2022. Fees revenue also increased due to higher RBFS revenues on higher funded volumes, the inclusion of fees from SmartEquip since its acquisition on November 2, 2021 and higher revenue from our Rouse business. Commissions revenue increased 3%, slightly less than the 6% increase in service GTV, primarily driven by lower straight commission rate performances in Canada from a higher proportion of GTV contributed by RBFS from facilitating financing arrangements, as well as the non-repeat of several high performing guarantee contracts. These decreases were partially offset by improved straight commission and guarantee rate performances in the United States.
Inventory Sales Revenue
Inventory sales revenue as a percent of total GTV increased to 11% from 9% in 2021.
In 2022, inventory sales revenue increased 37% predominantly in the United States on December 22, 2017. It is possible that additional legislation, regulations and/or guidance may be issued,partly due to an increased number of inventory packages sourced, including from our strategic accounts team and possibly with retroactive effect,primarily in the future that may resultfinance and rental sectors. We also saw increased volumes selling through our auction events, including higher volumes from our GovPlanet non-rolling and rolling stock contracts. In Canada, we saw improved year-over-year performances from inventory sold mainly in additional adjustmentsthe commercial transportation and construction sectors. In International, inventory sales revenue grew in Australia from the overall improvement in market conditions and the lifting of border restrictions, as well as from several new auction events. We also saw slightly lower year-over-year performances in Europe primarily due an unfavourable foreign exchange impact, as well as the non-repeat of several inventory contracts.
Underwritten Contracts
We offer our customers the opportunity to use underwritten commission contracts to serve their disposition strategy needs, entering into such contracts where the risk and reward profile of the terms are agreeable. Our underwritten contracts, as a percentage of total GTV, which include inventory and guarantee contracts, increased to 19% in 2022, compared to 18% 2021 primarily due to increased GTV signed with inventory contracts.
Operating Income
Operating income increased 89% due to the inclusion of a gain of $169.1 million from the sale of the Bolton property in the first quarter of 2022. Operating income increased 21%, when excluding the impact of the gain, primarily due to flow through from higher revenue, partially offset by higher selling, general and administrative expenses, higher depreciation and amortization expense from the investments made in developing our new digital marketplace platform and ecosystem and from the intangible assets acquired in SmartEquip, and higher acquisition related costs primarily in relation to the proposed acquisition of IAA. Selling, general and administrative expenses increased due to higher short-term incentive expenses driven by strong performance. Building, facilities and technology costs also increased, mainly due to the amortization of the right-of-use asset of the Bolton property from the sale and lease back arrangement completed in the first quarter of 2022, higher costs to support our new local satellite yards, as well as higher costs as we shift to cloud-based solutions to improve customer experiences. Share-based payments also increased as a result of higher expense relating to share-based awards issued to senior executives and higher expense from the premium-priced options and PSUs with market conditions granted in late 2021. In addition, we saw higher travel, advertising and promotion costs from increased activity from the return to global travel to support and promote our various growth initiatives with the easing of COVID-19 restrictions. We also saw higher wages, salaries and benefits expenses from higher headcount to accelerate our growth initiatives and our transformational journey to become a trusted global marketplace. We also saw higher professional fees driven by our investment in new modern architecture to support our future marketplace and services strategy. In addition, high inflationary pressures and rising costs have
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Ritchie Bros. | 44 |
further contributed to higher selling, general and administrative expenses. These increases were partially offset by a favourable impact of foreign exchange.
Income Tax Expense and Effective Tax Rate
We recorded an income tax expense recorded relatedof $86.2 million in 2022 compared to $53.4 million in 2021. Our effective tax rate was 21.2% compared to 26.0% in 2021. The decrease in the effective tax rate over the comparative period was primarily due to the TCJA.non-taxable gain portion of the sale of the Bolton property and a lower estimate of non-deductible expenses. Partially offsetting this decrease was a higher estimate of income taxes in jurisdictions with higher tax rates and a lower tax deduction for PSU and RSU share unit expenses that exceeded the related compensation expense.
Net incomeIncome
Net income attributable to stockholders increased 23%110% to $149.0$319.7 million compared to $121.5$151.9 million in 2018.2021. The increase was primarily due to the inclusion of a gain of $169.1 million on property, plant and equipment from the sale of the Bolton property. The increase was also due to higher operating income and a lower interest expense,effective tax rate as discussed above, partially offset by higher taxes andinterest expense from our 2021 Notes, which included a non-recurring gainloss on sale of equity accounted investment recorded in 2018.redemption.
Diluted EPS
Diluted EPS attributable to stockholders increased 23%110% to $1.36$2.86 per share compared to $1.11$1.36 in 2018.2021. This increase iswas primarily due to the increase in net income attributable to stockholders.stockholders as discussed above, combined with an increase in the weighted average number of dilutive shares outstanding over 2021.
U.S. dollar exchange rate comparisonDollar Exchange Rate Comparison
We conduct global operations in many different currencies, with our presentation currency being the U.S dollar. The following table presents the variance in select foreign exchange rates over the comparative reporting periods:
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| 2019 over |
| 2018 over |
| | | | | | | | | |
| 2022 over | | 2021 over |
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Value of one local currency to U.S dollar |
| 2019 |
| 2018 |
| 2017 |
| 2018 | | 2017 | | |||||||||||||||||
Period-end exchange rate |
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Value of one local currency to U.S. dollar |
| 2022 |
| 2021 |
| 2020 |
| 2021 | | 2020 | | |||||||||||||||||
Period-end exchange rate - December 31, |
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Canadian dollar | | | 0.7656 | | | 0.7331 | | | 0.7954 |
| 4 | % | (8) | % | | | 0.7378 | | | 0.7846 | | | 0.7843 |
| (6) | % | 0 | % |
Euro | |
| 1.1202 | |
| 1.1469 | |
| 1.2002 |
| (2) | % | (4) | % | |
| 1.0661 | |
| 1.1322 | |
| 1.2296 |
| (6) | % | (8) | % |
Australian dollar | | | 0.7002 | | | 0.7052 | | | 0.7809 | | (1) | % | (10) | % | | | 0.6765 | | | 0.7250 | | | 0.7689 | | (7) | % | (6) | % |
Average exchange rate | |
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Average exchange rate - Year ended December 31, | |
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Canadian dollar | | | 0.7537 | | | 0.7716 | | | 0.7704 |
| (2) | % | 0 | % | | | 0.7690 | | | 0.7977 | | | 0.7462 |
| (4) | % | 7 | % |
Euro | | | 1.1195 | |
| 1.1804 | |
| 1.1273 |
| (5) | % | 5 | % | | | 1.0543 | |
| 1.1834 | |
| 1.1413 |
| (11) | % | 4 | % |
Australian dollar | | | 0.6951 | | | 0.7469 | | | 0.7664 | | (7) | % | (3) | % | | | 0.6949 | | | 0.7514 | | | 0.6901 | | (8) | % | 9 | % |
In 2019,2022, approximately 42% of our revenues and 44%34% of our operating expenses were denominated in currencies other than the U.S. dollar, compared to 50%45% and 53%47%, respectively, in 2018.2021.
We recognized $2.9$1.0 million in foreign exchange gains in 20192022 and $0.2$0.8 million of gainslosses in 2018.2021. Foreign exchange had an unfavourable impact on total revenue and a favourable impact on expenses. These impacts were primarilymainly due to the fluctuations in the Euro, Australian dollar and the Canadian dollar exchangeexchanges rates relative to the U.S. dollar.dollar during the year.
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Ritchie Bros. | 45 |
Key Operating Metrics
We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, and make operating decisions. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our operational strategies.
We define our key operating metrics as follows:
Gross transaction value: Represents total proceeds from all items sold at the Company’s auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in the Company’s consolidated financial statements.
Inventory return: Inventory sales revenue less cost of inventory sold.
Inventory rate: Inventory return divided by inventory sales revenue.
Inventory management system activations: Number of organizations activated on IMS. An organization is considered activated on IMS when a customer has signed an annual multi-channel contract and has an IMS instance setup to allow for equipment to be directed to one of our transaction solutions digitally.
Bids per lots sold: Each bid is completed electronically through our real-time online bidding system. A lot is defined as a single asset to be sold, or a group of assets bundled for sale as one unit. This metric calculates the total number of bids received for a lot divided by the total number of lots sold. GovPlanet business metrics are excluded from this metric as management reviews industrial equipment auction metrics excluding GovPlanet.
Total lots sold: A single asset to be sold, or a group of assets bundled for sale as one unit. Low value assets are sometimes bundled into a single lot, collectively referred to as “small value lots”.GovPlanet business metrics are excluded from this metric as management reviews industrial equipment auction metrics excluding GovPlanet.
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Ritchie Bros. | 46 |
Non-GAAP Measures
As part of management’s non-GAAP measures, we may eliminate the financial impact of adjusting items which are after-tax effects of significant non-recurringcertain items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, severance, share-based payment expense recovery due to the departure of our former CEO, retention, gains/losses on sale of an equity accounted for investment, plant and equipment, impairment losses, and certain other items, which we refer to as ‘adjusting items’.results.
Adjusted net income attributable to stockholders*stockholders increased 24%25%, to $145.6$269.9 million compared to $117.7$216.1 million in 2018.2021.
Diluted adjusted EPS attributable to stockholders*stockholders increased 23%24% to $1.33$2.41 per share compared to $1.08$1.94 per share in 2018.2021.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)*EBITDA increased 15%21% to $294.7$465.2 million compared to $257.3$385.3 million in 2018.2021.
Debt at December 31, 20192022 represented 4.41.9 times net income for 2019,2022, compared to debt at December 31, 2018,2021, which represented 6.011.5 times net income for 2018.2021. The decrease in this debt/net income multiplier was primarily due to lower debt balances atfollowing the redemption of our 2021 Notes and higher net income for the year ended December 31, 20192022 compared to December 31, 2018, as a result of our voluntary and mandatory debt repayments.2021. The adjusted net debt/adjusted EBITDA*EBITDA was 1.00.3 times at December 31, 20192022 compared to 1.91.3 times at December 31, 2018.2021. The decrease in adjusted net debt/adjusted EBITDA*EBITDA was primarily due to lower adjusted net debt balancesbalance at December 31, 2019,2022, as well as a 14%21% increase in adjusted EBITDA compared to the prior year.
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Segment Performance
We provide our customers with a wide array of services. The following table presents a breakdown of our consolidated results between the A&M segment and Other services segment. A complete listing of channels and brand solutions under the A&M segment, as well as our Other“Other services segment,segment”, is available under Item 1 of this Annual Report.
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| | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | Year ended December 31, 2022 | | Year ended December 31, 2021 | | Year ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||
(in U.S $000's) |
| A&M |
| Other |
| Consolidated |
| A&M |
| Other |
| Consolidated |
| A&M |
| Other |
| Consolidated | ||||||||||||||||||||||||||||||||||||
Service revenue | | $ | 678,823 | | $ | 125,201 | | $ | 804,024 | | $ | 626,007 |
| $ | 123,508 |
| $ | 749,515 | | $ | 524,023 | | $ | 100,394 | | $ | 624,417 | |||||||||||||||||||||||||||
(in U.S. dollars $000's) |
| A&M |
| Other |
| Consolidated |
| A&M |
| Other |
| Consolidated |
| A&M |
| Other |
| Consolidated | ||||||||||||||||||||||||||||||||||||
Service revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
Commissions | | $ | 485,916 | | $ | — | | $ | 485,916 | | $ | 469,718 | | $ | — | | $ | 469,718 | | $ | 452,882 | | $ | — | | $ | 452,882 | |||||||||||||||||||||||||||
Fees | | | 366,079 | | | 198,588 | | | 564,667 | | | 293,408 | | | 154,633 | | | 448,041 | | | 291,775 | | | 126,939 | | | 418,714 | |||||||||||||||||||||||||||
Total service revenue | | | 851,995 | | | 198,588 | | | 1,050,583 | | | 763,126 | | | 154,633 | | | 917,759 | | | 744,657 |
| | 126,939 |
| | 871,596 | |||||||||||||||||||||||||||
Inventory sales revenue | | | 514,617 | | | — | | | 514,617 | | | 420,511 | | | — | | | 420,511 | | | 346,774 | | | — | | | 346,774 | | | 683,225 | | | — | | | 683,225 | | | 499,212 | | | — | | | 499,212 | | | 505,664 | | | — | | | 505,664 |
Total revenue | | | 1,193,440 | | | 125,201 | | | 1,318,641 | | | 1,046,518 | | | 123,508 | | | 1,170,026 | | | 870,797 | | | 100,394 | | | 971,191 | | $ | 1,535,220 | | $ | 198,588 | | $ | 1,733,808 | | $ | 1,262,338 | | $ | 154,633 | | $ | 1,416,971 | | $ | 1,250,321 | | $ | 126,939 | | $ | 1,377,260 |
Ancillary and logistical service expenses | | | — | | | 59,252 | | | 59,252 | | | — | | | 66,576 | | | 66,576 | | | — | | | 54,176 | | | 54,176 | | | — | | | 52,628 | | | 52,628 | | | — | | | 52,301 | | | 52,301 | | | — | | | 59,982 | | | 59,982 |
Other costs of services | | | 99,821 | | | 5,904 | | | 105,725 | | | 87,430 | | | 5,052 | | | 92,482 | | | 75,685 | | | 3,328 | | | 79,013 | | | 104,902 | | | 10,597 | | | 115,499 | | | 97,423 | | | 5,534 | | | 102,957 | | | 103,232 | | | 1,314 | | | 104,546 |
Cost of inventory sold | |
| 480,839 | |
| — | |
| 480,839 | |
| 374,339 |
| | — |
| | 374,339 | |
| 306,498 | |
| — | |
| 306,498 | |
| 608,574 | |
| — | |
| 608,574 | |
| 447,921 | |
| — | |
| 447,921 | |
| 458,293 | |
| — | |
| 458,293 |
SG&A expenses | |
| 358,016 | |
| 24,373 | |
| 382,389 | |
| 363,549 |
| | 19,127 |
| | 382,676 | |
| 308,873 | |
| 14,397 | |
| 323,270 | |||||||||||||||||||||||||||
Impairment loss | |
| — | |
| — | |
| — | |
| — |
| | — |
| | — | |
| 8,911 | |
| — | |
| 8,911 | |||||||||||||||||||||||||||
Selling, general and administrative | |
| 466,251 | |
| 73,682 | |
| 539,933 | |
| 406,360 | |
| 49,843 | |
| 456,203 | |
| 382,254 | |
| 28,037 | |
| 410,291 | |||||||||||||||||||||||||||
Segment profit | | | 254,764 | | | 35,672 | | | 290,436 | | | 221,200 | | | 32,753 | | | 253,953 | | | 170,830 | | | 28,493 | | | 199,323 | | $ | 355,493 | | $ | 61,681 | | $ | 417,174 | | $ | 310,634 | | $ | 46,955 | | $ | 357,589 | | $ | 306,542 | | $ | 37,606 | | $ | 344,148 |
| |
Ritchie Bros. | 47 |
Auctions and Marketplaces segmentSegment
Results of A&M segment operations are presented below for the comparative reporting periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | | | Year ended December 31, | | ||||||||||||||||||||||
| | | | | | | | | | | % Change | | | | | | | | | | | | | % Change | | ||||
|
| | | | | | | | |
| 2019 over |
| 2018 over | |
| | | | | | | | | |
| 2022 over |
| 2021 over | |
(in U.S. $000's, except EPS and percentages) | | 2019 |
| 2018 |
| 2017 | | 2018 | | 2017 | | ||||||||||||||||||
Service revenue |
| $ | 678,823 | | $ | 626,007 | | $ | 524,023 | | 8 | % | 19 | % | |||||||||||||||
(in U.S. dollars $000's, except percentages) | | | 2022 |
| 2021 |
| 2020 | | 2021 | | 2020 | | |||||||||||||||||
Service revenue: | | | | | | | | �� | | | | | | | | ||||||||||||||
Commissions | | | $ | 485,916 | | $ | 469,718 | | $ | 452,882 | | 3 | % | 4 | % | ||||||||||||||
Fees | | | | 366,079 | | | 293,408 | | | 291,775 | | 25 | % | 1 | % | ||||||||||||||
Total service revenue |
| | | 851,995 | | | 763,126 | | | 744,657 | | 12 | % | 2 | % | ||||||||||||||
Inventory sales revenue |
| | 514,617 | | | 420,511 | | | 346,774 | | 22 | % | 21 | % |
| | | 683,225 | | | 499,212 | | | 505,664 | | 37 | % | (1) | % |
Total revenue | | | 1,193,440 | | | 1,046,518 | | | 870,797 | | 14 | % | 20 | % | | | $ | 1,535,220 | | $ | 1,262,338 | | $ | 1,250,321 | | 22 | % | 1 | % |
A&M service revenue as a % of total A&M revenue | | | 56.9 | % | | 59.8 | % | | 60.2 | % | -290 bps | | -40 bps | | | | | 55.5 | % | | 60.5 | % | | 59.6 | % | (500) | bps | 90 | bps |
Inventory sales revenue as a % of total A&M revenue | | | 43.1 | % | | 40.2 | % | | 39.8 | % | 290 bps | | 40 bps | | | | | 44.5 | % | | 39.5 | % | | 40.4 | % | 500 | bps | (90) | bps |
Costs of services | | | 99,821 | | | 87,430 | | | 75,685 | | 14 | % | 16 | % | | | | 104,902 | | | 97,423 | | | 103,232 | | 8 | % | (6) | % |
Cost of inventory sold | | | 480,839 | | | 374,339 | | | 306,498 | | 28 | % | 22 | % | | | | 608,574 | | | 447,921 | | | 458,293 | | 36 | % | (2) | % |
SG&A expenses | | | 358,016 | | | 363,549 | | | 308,873 | | (2) | % | 18 | % | |||||||||||||||
Impairment loss | | | — | | | — | | | 8,911 | | 0 | % | | | |||||||||||||||
Selling, general and administrative | | | | 466,251 | | | 406,360 | | | 382,254 | | 15 | % | 6 | % | ||||||||||||||
A&M segment expenses | | | 938,676 | | | 825,318 | | | 699,967 | | 14 | % | 18 | % | | | | 1,179,727 | | | 951,704 | | | 943,779 | | 24 | % | 1 | % |
Cost of inventory sold as a % of A&M expenses | | | 51.2 | % | | 45.4 | % | | 43.8 | % | 580 bps | | 160 bps | | | | | 51.6 | % | | 47.1 | % | | 48.6 | % | 450 | bps | (150) | bps |
A&M segment profit | | | 254,764 | | | 221,200 | | | 170,830 | | 15 | % | 29 | % | | | $ | 355,493 | | $ | 310,634 | | $ | 306,542 | | 14 | % | 1 | % |
Total GTV | | | 5,140,587 | | | 4,964,165 | | | 4,467,982 | | 4 | % | 11 | % | | | | 6,025,889 | | | 5,533,931 | | | 5,411,218 | | 9 | % | 2 | % |
A&M service revenue as a % of total GTV- Rate |
| | 13.2 | % | | 12.6 | % | | 11.7 | % | 60 bps | | 90 bps | |
| | | 14.1 | % | | 13.8 | % | | 13.8 | % | 30 | bps | — | bps |
Gross Transaction Value
To facilitate the auction process, we enable equipment drop off at our physical yards, with buyers able to conduct inspections pre-auction and collect equipment post auction. In addition, we utilized Timed Auctioned Lots (“TAL”) solutions for nearly all our agricultural events in Canada, International auctions and at several of our United States auction sites. In 2022, we began to return to live in-person onsite bidding at some of our auction events, offering both onsite and online bidding.
We believe it is meaningful to consider revenue in relation to GTV. Total GTV and Service GTV by channel andgeographical regions, as well as GTV by revenue typesector, are presented below for the comparative reporting periods.
GTV by Channel
| | | | | | | | | | | | | | |
| | Year ended December 31, | | |||||||||||
| | | | | | | | % Change |
| |||||
|
| | |
| |
| | |
| 2019 over |
| 2018 over |
| |
(in U.S. $000's, except percentages) | | 2019 | | 2018 | | 2017 |
| 2018 |
| 2017 | | |||
Live on site auctions | | $ | 4,175,527 | | $ | 4,134,838 | | $ | 3,947,730 | | 1 | % | 5 | % |
Percentage of total | | | 81.2 | % | | 83.3 | % | | 88.4 | % | | | | |
Online marketplaces including featured (1) and other (2) | |
| 965,060 | |
| 829,327 | |
| 520,252 | | 16 | % | 59 | % |
Percentage of total | | | 18.8 | % | | 16.7 | % | | 11.6 | % | | | | |
GTV | | $ | 5,140,587 | | $ | 4,964,165 | | $ | 4,467,982 | | 4 | % | 11 | % |
GTV increased 4% and increased 5% when excluding the impact of foreign exchange as compared to 2018. The increase in GTV was led by a 16% increase in online marketplaces and 1% growth in live on site auctions. Online marketplaces increased due to US strategic accounts and alliances, as well as GovPlanet. International and Canada online GTV also increased due to growing demand for listings on the Marketplace-E platform.period.
| |
Ritchie Bros. |
|
GTV from live on site auctions increased primarily due to increased volume at our US live on site auctions with growth performance at our year-on-year industrial auctions, including a $94 million auction in Columbus, Ohio and our largest auction held in Orlando, Florida, coupled with higher number of auctions held during the year. This increase was partially offset by softer performance in the Western Canada region, partly due large non-repeating dispersals of oil and gas equipment and agricultural real estate in Canada during 2018. We also experienced lower demand in the International region particularly during the second half of 2019.
GTV by Revenue TypeGeography
| | | | | | | | | | | | | | |
| | Year ended December 31, |
| |||||||||||
| | | | | | | | | | | % Change |
| ||
(in U.S. $000's, except percentages) |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| |||
Service GTV | | $ | 4,625,970 |
| $ | 4,543,654 |
| $ | 4,121,208 |
| 2 | % | 10 | % |
Percentage of total | |
| 90.0 | % |
| 91.5 | % |
| 92.2 | % |
|
|
| |
Inventory GTV | |
| 514,617 | |
| 420,511 | |
| 346,774 |
| 22 | % | 21 | % |
Percentage of total | |
| 10.0 | % |
| 8.5 | % |
| 7.8 | % |
|
|
| |
GTV | | $ | 5,140,587 | | $ | 4,964,165 | | $ | 4,467,982 |
| 4 | % | 11 | % |
| | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| |||||||||||||
| | | | | | | | | | | | | % Change |
| |||
(in U.S. dollars $000's, except percentages) |
| 2022 | |
| 2021 | |
| 2020 |
| 2022 over 2021 | |
| 2021 over 2020 |
| |||
Total GTV by Geography | | | | | | | | | | | | | | | | | |
United States | | $ | 3,432,366 | | | $ | 3,230,708 | | | $ | 3,235,548 | | 6 | % | | (0) | % |
Canada | | | 1,707,072 | | |
| 1,441,929 | | | | 1,392,249 | | 18 | % | | 4 | % |
International | | | 886,451 | | |
| 861,294 | | | | 783,421 | | 3 | % | | 10 | % |
Total GTV | | $ | 6,025,889 | | | $ | 5,533,931 | | | $ | 5,411,218 | | 9 | % | | 2 | % |
| | | | | | | | | | | | | | | | | |
Service GTV by Geography | |
|
| | |
|
| | |
|
|
|
|
| |
|
|
United States | | $ | 3,081,001 | | | $ | 3,029,661 | | | $ | 3,017,404 | | 2 | % | | 0 | % |
Canada | | | 1,636,642 | | | | 1,410,252 | | | | 1,307,992 | | 16 | % | | 8 | % |
International | | | 625,021 | | | | 594,806 | | | | 580,158 | | 5 | % | | 3 | % |
Total Service GTV1 | | $ | 5,342,664 | | | $ | 5,034,719 | | | $ | 4,905,554 | | 6 | % | | 3 | % |
1 Service GTV is calculated as total GTV less inventory sales revenue
GTV increased 4% while Inventory GTV increased 22%, and Service GTV increased 2%. by Sector
The increase in Inventory GTV was primarily driven by a strong volume performance in our US live auctions and continued growth in our GovPlanet surplus contract.
We offer our customersfollowing pie charts illustrate the opportunity to use underwritten commission contracts to serve their disposition strategy needs, entering into such contracts where the risk and reward profile of the terms are agreeable. Our underwritten contracts, which include inventory and guarantee contracts, increased as a percentagebreakdown of total GTV to 20% compared to 17% in 2018 primarily due to increased GTV signed with inventory contracts.
Online bidding
Across all channels, 65% of total GTV was purchased by online buyers compared to 59% in 2018. These increases in internet bidders and online buyers demonstrate the continued growth in adoption of multi-channel participation at our auctions.
Industrial Live On Site Metrics
Total industrial live on site auction metrics
| | | | | | | | | | | |
| | For the year ended December 31, |
| ||||||||
| | | | | | | | % Change |
| ||
|
| 2019 |
| 2018 |
| 2017 |
| 2019 over 2018 |
| 2018 over 2017 |
|
Number of auctions |
| 194 |
| 183 |
| 245 |
| 6 | % | (25) | % |
Bidder registrations |
| 732,550 |
| 555,000 |
| 575,500 |
| 32 | % | (4) | % |
Consignors |
| 58,850 |
| 53,950 |
| 56,850 |
| 9 | % | (5) | % |
Buyers |
| 153,400 |
| 135,250 |
| 139,900 |
| 13 | % | (3) | % |
Lots |
| 422,800 |
| 377,000 |
| 382,500 |
| 12 | % | (1) | % |
In 2019, we held 11 additional industrial auctions and these additional auctions contributed to the 1% growth in our live on site auctions GTV. The 11 additional industrial auctions added were each of a smaller scale compared to our average auctions.
The total number of industrial lots increased 12% to 422,800 and the total number of lots including agricultural lots increased 10% to 448,050 lots. These increases were partially due to an increase in small value lots sold in the US and Canada.
GTV on a per lot basis generated at our industrial live on site auctions decreased 9% to $9,400 compared to $10,300 in 2018, partially due to a higher number of small value lots sold in the US and Canada, and price softening of agricultural equipment.
12 months average metrics per industrial live on site auction
| | | | | | | | | | | | | | |
| | For the year ended December 31, |
| |||||||||||
| | | | | | | | | | | % Change |
| ||
(in U.S. $000's, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2019 over 2018 |
| 2018 over 2017 |
| |||
GTV | | $ | 20.5 million | | $ | 21.2 million | | $ | 15.2 million | | (3) | % | 39 | % |
Bidder registrations | |
| 3,776 | |
| 3,033 | |
| 2,348 | | 24 | % | 29 | % |
Consignors | |
| 303 | |
| 295 | |
| 232 | | 3 | % | 27 | % |
Lots | |
| 2,179 | |
| 2,060 | |
| 1,562 | | 6 | % | 32 | % |
Forsector for the year ended December 31, 2019, we saw2022, December 31, 2021, and December 31, 2020.
The construction sector includes heavy equipment such as trucks, excavators, cranes and dozers. The commercial transportation sector includes vehicles, buses, trailers and trucks that are used for transport. The other sector primarily includes equipment sold in the agricultural, forestry and energy industries.
In 2022, total GTV mix compared to 2021 increased by 2 percentage points in the commercial transportation sector, offset by a 3 percentage point decrease in average GTVthe construction sector and 1 percentage point increase in the others sector.
Total Auction Metrics
| | | | | | | | | | | |
| | For the year ended December 31, |
| ||||||||
| | | | | | | | % Change |
| ||
| | 2022 |
| 2021 |
| 2020 |
| 2022 over 2021 |
| 2021 over 2020 |
|
Bids per lot sold * | | 28 |
| 28 |
| 24 |
| 0 | % | 17 | % |
Total lots sold * | | 520,959 |
| 493,371 |
| 543,342 |
| 6 | % | (9) | % |
* Management reviews industrial equipment auction metrics excluding GovPlanet; as a result, GovPlanet business metrics are excluded from these metrics
The number of bids per industrial auctionlot sold remained flat at 28 in 2022 when compared to the prior year periods.2021.
| |
Ritchie Bros. |
|
Productivity
The majority of our business continues to be generated by our A&M segment operations. Sales Force Productivity within this segment is an operational statistic that we believe provides a gauge of the effectiveness of our Revenue Producers in increasing GTV. Revenue Producers is a term used to describe our revenue-producing sales personnel. This definition is comprised of Regional Sales Managers and Territory Managers.
Our Sales Force Productivity for the year ended December 31, 2019total lots sold increased 6% to $12.3 million per Revenue Producer as compared to $11.6 million per Revenue Producer520,959 in 2018.2022 primarily driven by an increase in lot counts mainly in the United States and Canada.
A&M revenueRevenue
Total A&M revenue increased 14%22% to $1.2$1.5 billion as compared to $1.0 billion in 2018.2021.
A&M revenue by geographical region are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | Year ended December 31, |
| ||||||||||||||||||
| | | | | | | | % Change |
| | | | | | | | | | % Change |
| ||||
(in U.S. $000's, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2019 over 2018 |
| 2018 over 2017 |
| |||||||||||||
(in U.S. dollars $000's, except percentages) | | 2022 | |
| 2021 | |
| 2020 |
| 2022 over 2021 | 2021 over 2020 |
| ||||||||||||
A&M Revenue by Geography | | | | | | | | | | | | | | |||||||||||
United States | | |
|
| | | | | | | | | | |
|
| | | | | | | | |
Service revenue |
| 419,164 |
| 373,555 | | 298,566 |
| 12 | % | 25 | % | $ | 526,590 | | $ | 476,759 | | $ | 480,264 |
| 10 | % | (1) | % |
Inventory sales revenue |
| 270,616 |
| 126,627 | | 110,991 |
| 114 | % | 14 | % | | 351,365 | |
| 201,047 | | | 218,144 |
| 75 | % | (8) | % |
A&M revenue- United States |
| 689,780 |
| 500,182 | | 409,557 |
| 38 | % | 22 | % | |||||||||||||
A&M revenue - United States | | 877,955 | |
| 677,806 | | | 698,408 |
| 30 | % | (3) | % | |||||||||||
Canada |
|
|
|
| |
|
|
|
|
| | |
| |
|
| | |
|
|
|
|
| |
Service revenue |
| 167,389 |
| 160,751 | | 137,150 |
| 4 | % | 17 | % | | 226,798 | |
| 193,850 | | | 179,232 |
| 17 | % | 8 | % |
Inventory sales revenue |
| 40,634 |
| 88,680 | | 81,740 |
| (54) | % | 8 | % | | 70,430 | |
| 31,677 | | | 84,257 |
| 122 | % | (62) | % |
A&M revenue- Canada |
| 208,023 |
| 249,431 | | 218,890 |
| (17) | % | 14 | % | |||||||||||||
A&M revenue - Canada | | 297,228 | |
| 225,527 | | | 263,489 |
| 32 | % | (14) | % | |||||||||||
International |
|
|
|
| |
|
|
|
|
| | |
| |
|
| | |
|
|
|
|
| |
Service revenue |
| 92,270 |
| 91,701 | | 88,307 |
| 1 | % | 4 | % | | 98,607 | |
| 92,517 | | | 85,161 |
| 7 | % | 9 | % |
Inventory sales revenue |
| 203,367 |
| 205,204 | | 154,043 |
| (1) | % | 33 | % | | 261,430 | |
| 266,488 | | | 203,263 |
| (2) | % | 31 | % |
A&M revenue- International |
| 295,637 |
| 296,905 | | 242,350 |
| 0 | % | 23 | % | |||||||||||||
A&M revenue - International | | 360,037 | |
| 359,005 | | | 288,424 |
| 0 | % | 24 | % | |||||||||||
Total |
|
|
|
| |
|
|
|
|
| | |
| |
|
| | |
|
|
|
|
| |
Service revenue |
| 678,823 |
| 626,007 | | 524,023 |
| 8 | % | 19 | % | | 851,995 | |
| 763,126 | | | 744,657 |
| 12 | % | 2 | % |
Inventory sales revenue |
| 514,617 |
| 420,511 | | 346,774 |
| 22 | % | 21 | % | | 683,225 | |
| 499,212 | | | 505,664 |
| 37 | % | (1) | % |
A&M total revenue |
| 1,193,440 |
| 1,046,518 | | 870,797 |
| 14 | % | 20 | % | |||||||||||||
Total A&M revenue | $ | 1,535,220 | | $ | 1,262,338 | | $ | 1,250,321 |
| 22 | % | 1 | % |
United States
Service revenue increased 12% with fee growth from higher total10% while Service GTV and alsoincreased 2% primarily due to higher buyer fee rates implemented in early 2022, and higher document fees from the full harmonization of buyer fees. Commissions revenueonline document fees and increase in the total number of titled lots sold. We also increased in line with higher GTV on the growth performancesaw slightly improved rate performances on both our onlinestraight commission and live auction platforms. guarantee contracts.
Inventory sales revenue increased 114%75% primarily due to growth in our year-on-year comparative auctions, particularly driven by a higher proportionvolume of inventory selling through our strategic accounts, primarily in the financeand rental sectors, and higher volumes sold at several of our auctions. We also saw increased volumes selling through our GovPlanet business from our non-rolling and rolling stock contracts at the larger Columbus, Ohio and Florida, Orlando auctions. Continued growtha large dispersal of the GovPlanet surplus contract which started operations in Q2 2018 also contributed to the increase ina construction equipment inventory sales revenue.package.
Canada
Service revenue increased 4%17%, primarily in line with the 16% increase in Service GTV. The increase in fees was primarily due to higher fees from the full harmonization of buyer fees and higher volume of small value lots. Our buyer fees are earned on a per transaction basis, and as such, the higher volume of small value lots is also a contributing factor to the increasefee rates implemented in fees revenue. This increase wasearly 2022. These increases were partially offset by lower commissions earnedfrom lower rates contributed by a higher proportion of GTV in RBFS, lower buyer fees on a lower GTV from softer performance inproportion of small value lots, as well as the Western Canada region. non-repeat of several high performing guarantee contracts.
Inventory sales revenue decreased 54% primarily due toincreased 122% mainly driven by strong performances from two large non-repeating dispersals of oil and gas equipment and agricultural real estate during 2018.inventory contracts in the commercial transportation sector.
International
Service revenue increased 1%7% primarily in line with a 5% increase in Service GTV. The remaining increase was primarily due to the full harmonizationimproved buyer fee rate performance in Australia from a favourable mix of buyer fees offset by lower commissions earned from lower GTV in Asia and Europe. The 1% decrease in contracts.
Inventory sales revenue was driven by lower demand and tightened supply markets in the European and Asia macroeconomic environment, particularly during the second half of 2019.
Costs of services
A&M cost of services increased 14% to $99.8 million primarilydecreased 2% mainly due to a one-time fee paid toslightly lower volumes of inventory contracts in Europe, an unrelated third partyunfavourable foreign exchange impact, as well as lower inventory sales from private treaty transactions in connection with a dispersalAustralia. Offsetting these decreases we saw higher volumes of the pipeline equipmentinventory contracts sold at our Columbus, Ohioseveral auction costs incurred to support our GovPlanet surplus contracts, and overall cost increase in-line with the growth in service GTV.
events throughout Australia.
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Ritchie Bros. |
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CostCosts of inventory soldServices
A&M costcosts of services increased 8% to $104.9 million, primarily in line with total GTV increase of 9%.
Cost of Inventory Sold
A&M costs of inventory sold increased 28%36% to $480.8$608.6 million, higher thanprimarily in line with the overall37% increase in inventory sales volume,revenue.
Selling, General and Administrative
A&M selling, general and administrative increased 15% to $466.3 million primarily due to higher short-term incentive expenses driven by strong performance. Building, facilities and technology costs also increased, mainly due to the amortization of the right-of-use asset of the Bolton property from the sale and lease back arrangement completed in the first quarter of 2022, higher costs to support our new local satellite yards, as well as higher costs as we shift to cloud-based solutions to improve customer experiences. Share-based payments also increased as a result of higher expense relating to share-based awards issued to senior executives and higher expense from the trailing effect of selling through some lower performing inventory packages acquired within our International region.premium-priced options and PSUs with market conditions granted in late 2021. In addition, rates earned onwe saw higher travel, advertising and promotion costs from increased activity from the return to global travel to support and promote our GovPlanet surplus contractsvarious growth initiatives with the easing of COVID-19 restrictions. We also saw higher wages, salaries and benefits expenses from higher headcount to accelerate our growth initiatives and our transformational journey to become a trusted global marketplace. We also saw higher professional fees driven by our investment in new modern architecture to support our future marketplace and services strategy. In addition, high inflationary pressures and rising costs have normalized after a full year of operation. There was also discrete lower price performance on certain equipment categories whichfurther contributed to higher selling, general and administrative expenses. These increases were in greater supply at our Orlando auction in Q1 2019.
SG&A expenses
A&M segment SG&A expenses decreased 2% to $358.0 million due topartially offset by a favourable impact of foreign exchange fluctuations and a $4.1 million share-based payment expense recovery related to the departure of our former CEO. This was partially offset by on-going incremental costs related to GovPlanet operations and additional headcount to support our growth initiatives.exchange.
Other Services Segment
Results of Other Services segment operations are presented below for the comparative reporting periods.
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| | Year ended December 31, |
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| 2019 |
| 2018 |
| 2017 |
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| 2018 over 2017 |
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| 2020 |
| 2022 over 2021 |
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Service revenue | | $ | 125,201 | | $ | 123,508 | | $ | 100,394 |
| 1 | % | 23 | % | | $ | 198,588 | | $ | 154,633 | | $ | 126,939 |
| 28 | % | 22 | % |
Ancillary and logistical service expenses | |
| 59,252 | |
| 66,576 | |
| 54,176 |
| (11) | % | 23 | % | |
| 52,628 | |
| 52,301 | |
| 59,982 |
| 1 | % | (13) | % |
Other costs of services | |
| 5,904 | |
| 5,052 | |
| 3,328 |
| 17 | % | 52 | % | |
| 10,597 | |
| 5,534 | |
| 1,314 |
| 91 | % | 321 | % |
SG&A expenses | |
| 24,373 | |
| 19,127 | |
| 14,397 |
| 27 | % | 33 | % | ||||||||||||||
Selling, general and administrative | |
| 73,682 | |
| 49,843 | |
| 28,037 |
| 48 | % | 78 | % | ||||||||||||||
Other services profit | | $ | 35,672 | | $ | 32,753 | | $ | 28,493 |
| 9 | % | 15 | % | | $ | 61,681 | | $ | 46,955 | | $ | 37,606 |
| 31 | % | 25 | % |
Other Services revenue increased 1%28% to $125.2$198.6 million primarily due to growthhigher RBFS revenues of RBFS$21.9 million and a full year revenue of $5.6$20.5 million offset by lower RB Logistics servicerecognized for SmartEquip since its acquisition on November 2, 2021. In addition, we saw higher revenue of $4.4 million from our Rouse business.
Other costs of services increased 91% to $10.6 million mainly due to lower inventory salesthe inclusion of SmartEquip since its acquisition on November 2, 2021. Selling, general and administrative increased 48% to $73.7 million primarily due to the inclusion of SmartEquip, higher wages, salaries and benefits expenses due to the growth in Europe requiring logistics.our RBFS business, and higher headcount in Rouse to support our growth initiatives.
RBFS revenue increased 24% in 2019 as compared to 2018 due to growth in47% driven by higher funded volume. Fundedvolumes and improved rate on fees earned from facilitating financing arrangements. Our funded volume, which represents the amount of lending brokered by RBFS, increased 18%38% to $510.2 million.$1.0 billion, and increased 44% when excluding the impact of foreign exchange.
Other Services profit increased 9%31% to $35.7$61.7 million primarily due to higher proportion of profit earned from RBFS. The lower revenue from RB Logistics resulted in a similar magnitude of decrease in ancillary and logistical service expenses.
Share repurchase program
On May 9, 2019, we announced a share repurchase program for the repurchase of up to $100 million worth ofdriven by our common shares, approved by the Toronto Stock Exchange (“TSX”), over a period of 12 months, ending May 8, 2020.RBFS business.
During the year ended December 31, 2019, we executed the following share repurchases at a total cost of $42.0 million.
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| | Issuer purchases of equity securities | ||||||||
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| (d) Maximum | |
| | | | | | | (c) Total number of | | approximate dollar | |
| | | | | | | shares purchased as | | value of shares that | |
| | (a) Total number of shares | | (b) Average price paid | | part of publicly | | may yet be purchased | ||
| | purchased | | per share | | announced program | | under the program | ||
May 23-31, 2019 |
| 387,480 | | $ | 33.49 |
| 387,480 | | $ | 87.0 million |
June 1-21, 2019 |
| 836,194 | |
| 34.71 |
| 836,194 | |
| 58.0 million |
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| 1,223,674 | | $ | 34.32 |
| 1,223,674 | | $ | 58.0 million |
Additionally, in the first quarter of 2021, we launched a business version of our IMS, which offers our customers asset management and disposition services, data analytics, dashboards, branded e-commerce sites and multiple external sales channels to help our customers achieve optimal returns. We continue to grow the number of organizations activated on IMS. In 2022, the number of organizations activated on our IMS increased by 465% compared to 2021.
As we evolve to a marketplace, we also facilitate retail and peer-to-peer auction events and equipment sale transactions via our online technology in exchange for hosting fees. In 2022, customers that used this service disposed of $108.3 million, a 24% decrease as compared to the prior year primarily driven by an unfavourable supply environment.
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Liquidity and Capital Resources
Our principal sources of liquidity are our cash provided by operating activities and borrowings from our revolving credit facilities. facilities, which we renewed on September 21, 2021 and amended on December 9, 2022.
Our short-term cash requirements include (i) payment of quarterly dividends to common shareholders on an as-declared basis, (ii) settlement of contracts with consignors and other suppliers, (iii) personnel expenditures, with a majority of bonuses paid annually in the first quarter following each fiscal year, (iv) income tax payments, primarily paid in quarterly installments, (v) payments on short-term debt, (vi) payment of amounts committed under certain service agreements to build our modern IT architecture and (vii) purchase price cash consideration and acquisition-related costs related to our acquisitions.
In January 2023, we acquired approximately 10.0 million units of VeriTread, LLC (“VeriTread”) for approximately $28 million of cash consideration, funded from existing cash on hand, and as a result, we now hold approximately a 75% investment in VeriTread.
We believe that our existing working capital and availability under our credit facilities are sufficient to satisfy our present operating requirements and contractual obligations (detailed below), as well as to fund future growth, including but not limited to, mergers and acquisitions, development of our A&M, RBFS, and Mascus operating segments, as well as other growth opportunities.obligations. Our long-term recurring cash requirements include:
● | Debt principal repayments of $585.5 million, of which $4.4 million is due within one year, as well as associated interest payments of $32.3 million due within one year. For more information on our debt, including long term debt principal repayments listed according to maturity, see Note 22 in our consolidated financial statements. |
● | Payments on our operating and finance lease obligations of $185.6 million, of which $27.6 million is due within one year. This includes our Bolton property under a sale leaseback arrangement. For more information on our leases, see Note 26 in our consolidated financial statements. |
We assess our liquidity based on our ability to generate cash and secure credit to fund operating, investing, and financing activities. Our liquidity is primarily affected by fluctuations in cash provided by operating activities, significant acquisitions of businesses, payment of dividends, voluntary repayments of term debt, share repurchases, our net capital spending1, and significant acquisitionsrepayments of businesses.debt. We are also committed under various letters of credit and provide certain guarantees in the normal course of business. We believe our principal sources of liquidity, which include cash flow from operations and our unused capacity under our revolving credit facilities of $719.8 million, is sufficient to fund our current and planned operating activities.
Cash provided by operating activities can fluctuate significantly from period to period due to factors such as differences in the timing and amount of tax and employee compensation payments, timing, size and number of auctions during the period,year, the volume of our inventory contracts, the timing of the receipt of auction proceeds from buyers and of the payment of net amounts due to consignors, as well as the location of the auction with respect to restrictions on the use of cash generated therein.
Cash flows
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| | Year ended December 31, |
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| | | | | | | | | | % Change |
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| | | | | | | |
| 2019 over |
| 2018 over |
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(in U.S. $000's, except percentages) | | 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||
Cash provided by (used in): |
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Operating activities | | $ | 332,793 | | $ | 144,280 | | 147,568 | | 131 | % | (2) | % |
Investing activities | |
| (36,057) | |
| (30,953) | | (710,954) | | 16 | % | (96) | % |
Financing activities | |
| (187,218) | |
| (134,107) | | 119,263 | | 40 | % | (212) | % |
Effect of changes in foreign currency rates | |
| 5,171 | |
| (4,769) | | 17,150 | | 208 | % | (128) | % |
Net increase in cash, cash equivalents, and restricted cash | | $ | 114,689 | | $ | (25,549) | | (426,973) | | 549 | % | (94) | % |
Cash Our cash provided by operating activities increased $188.5 million in 2019. This increase was primarily due to a net positive impact from changes in our operating assetscan also fluctuate depending on the timing and liabilities, which was driven by our reduction in inventory and an increase in the size of auctions that transacted inour tax installments.
During the US at the endfirst quarter of 2019 compared to the end of 2018. The increase in our net income in 2019 also contributed to the increase in cash provided by operating activities.
Net cash used in investing activities increased $5.1 million in 2019. This increase was primarily due to net $10.8 million less proceeds on2022, we completed the sale and leaseback of assets, with $6.1 million onthe Bolton property for a total sale consideration and net proceeds of approximately $165.0 million. The proceeds from the sale were used to repay our revolving credit facilities. We have also leased back the Bolton property while we complete the acquisition and development of an equity accounteda replacement property and auction site located in Amaranth, Ontario, Canada over the next two years. We intend to fund the material cash requirement for investmentthe acquisition and development of the replacement property from cash flows from ongoing operations.
During the second quarter of 2022, as a result of the Company’s decision to discontinue the phase 2 review by the United Kingdom’s Competition and Markets Authority (“CMA”) in Q3 2018 and $4.7 million fewer proceeds onconnection with the sale of property, plant and equipment in 2019 compared to 2018. This was partially offset by a $4.7 millionproposed acquisition of Leake AuctionEuro Auctions, the Company redeemed all of the 2021 Notes, which were held in Q1 2018, as well as $3.3escrow, at a redemption price equal to 100% of the original offering price of the notes, plus accrued and unpaid interest. As such, on May 4, 2022, the Company paid net proceeds of approximately $931.0 million less cash spent on property, plant and equipment additions in 2019 compared to 2018.its bondholders.
Net cash used in financing activities increased $53.1 million in 2019. This increase was driven primarily by our $42.0 million share repurchase in Q2 2019, a $28.6 million increase in the net repayment of short-term debt in 2019, and a $6.9 million increase in dividend payments in 2019. The increase was partially offset by $17.3 million fewer voluntary term debt repayments and a $12.6 million increase in cash raised from the issuance of share capital related to stock option exercises in 2019. The latter included the exercise of stock options by our former CEO in Q4 2019.
Dividend information
We declared and paid regular cash dividends of $0.18 per common share for the quarters ended December 31, 2018 and March 31, 2019. We declared and paid regular cash dividends of $0.20 per common share for the quarters ended June 30, 2019 and September 30, 2019. We have declared, but not yet paid, a dividend of $0.20 per common share for the quarter ended December 31, 2019. All dividends we pay are “eligible dividends” for Canadian income tax purposes unless indicated otherwise.
Our dividend payout ratio, which we calculate as dividends paid to stockholders divided by net income attributable to stockholders, decreased to 55.4% in 2019 from 62.3% in 2018. This decrease was primarily due to the increase in net income attributable to stockholders over the comparative period. Our adjusted dividend payout ratio (non-GAAP measure) decreased to 56.7% in 2019 from 64.3% in 2018.
1 | We calculate net capital spending as property, plant and equipment additions plus intangible asset additions less proceeds on disposition of property, plant and equipment. |
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In February 2023, we closed a securities purchase agreement with Starboard Value LP and certain of its affiliated funds to issue and sell in a private placement $485.0 million of newly-issued shares of our senior preferred stock and $15.0 million of common shares. The newly-issued preferred equity securities provide rights, preferences and privileges senior to those of our common stock. The preferred shareholders will receive annual dividends on a cumulative basis initially equal to 5.5% of the aggregate principal amount of $485.0 million, which will be payable quarterly in arrears in cash or in common shares at our election. The preferred shares are also entitled to receive, on an as-converted basis, any regular dividends paid to common shareholders, subject to a $0.27 per share per quarter floor. We expect that our net income attributable to common stockholders will decrease as a result of the cumulative dividends rights of the senior preferred shares and the rights of the senior preferred shares to participate in the allocation of undistributed earnings with common shares and the senior preferred shares. We also expect to use the funds for general corporate purposes and to repay certain obligations.
Proposed Acquisition of IAA
In connection with the signing of the Merger Agreement in relation to our proposed acquisition of IAA,we have agreed to various covenants and agreements, including, among others, agreements to use reasonable best efforts to conduct our business in the ordinary course in all material respects between the execution of the Merger Agreement and the closing of the proposed acquisition and not to take certain actions described in the Merger Agreement. We do not believe that these provisions will prevent us from meeting our ongoing costs of operations, working capital needs or capital expenditure requirements. In addition, if the Merger Agreement is terminated in certain circumstances, we or IAA, as applicable, would be required to pay the other a termination fee of $189.0 million.
In connection with the proposed acquisition of IAA, the Company also entered into a debt commitment letter with certain financial institutions that committed to provide, subject to certain terms and conditions, a bridge loan facility in an aggregate principal amount of up to $2.8 billion and a backstop senior secured revolving credit facility in an aggregate principal amount of up to $750.0 million. On December 9, 2022, the Company subsequently closed an amendment to its existing credit agreement with a syndicate of lenders. The amendment allowed the Company to terminate the backstop commitments and replaced an additional $1.8 billion of bridge commitments with new term loan A facility commitment. We plan to fund the cash portion of the proposed IAA acquisition through a combination of (i) cash from the balance sheet, (ii) borrowings under certain credit facilities, (iii) the proceeds from the sale of debt securities or for any combination for the foregoing.
If we were to consider further acquisitions to deliver on our strategic growth drivers, we may seek financing through equity markets or additional debt markets. The issuance of equity securities may result in dilution to our shareholders. Issuance of preferred equity securities could provide for rights, preferences or privileges senior to those of our common stock. Further, this additional capital may not be available on reasonable terms, or at all.
Cash Flows
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| | Year ended December 31, |
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| | | | | | | | | | % Change |
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| | | | | | | | | | 2022 over | | | 2021 over | |
(in U.S. dollars $000's, except percentages) | | 2022 |
| 2021 |
| 2020 |
| 2021 |
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| 2020 | | ||
Cash provided by (used in): | | |
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Operating activities | | $ | 463,055 | | $ | 317,586 | $ | 257,872 | | 46 | % | | 23 | % |
Investing activities | |
| 77,332 | |
| (214,066) | | (276,722) | | (136) | % | | (23) | % |
Financing activities | |
| (1,258,122) | |
| 960,908 | | (111,461) | | (231) | % | | (962) | % |
Effect of changes in foreign currency rates | |
| (18,771) | |
| (8,871) | | 16,950 | | 112 | % | | (152) | % |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | $ | (736,506) | | $ | 1,055,557 | $ | (113,361) | | (170) | % | | (1,031) | % |
Net cash provided by operating activities increased by $145.5 million during 2022, mainly due to higher cash inflows from the change in operating assets and liabilities and by an increase in our net income. The deferral of cash tax relating to the taxable gain portion of the sale of our Bolton property combined with higher taxable income and lower income tax payments as a result of timing of installments further contributed to cash inflows. We also saw positive net cash flow related to timing of higher employee compensation payments, prepayment in the fourth quarter of 2021 the first quarter of 2022 interest on the 2021 Notes held in escrow and timing, size and number of auctions. These positive impacts are partially offset by the timing of inventory purchases and higher advances on auction contracts.
Net cash provided by investing activities increased $291.4 million in 2022. This increase was primarily due to minimal cash outflows in the current year on acquisitions compared to $171.0 million cash outflow in 2021 for the acquisition of SmartEquip. We also saw
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Ritchie Bros. | 53 |
cash inflows from the sale of our Bolton property for total net cash proceeds of approximately $165.0 million. These were offset by cash outflows for the purchases of property plant and equipment primarily for the purchase of our Maltby auction site in the United Kingdom, higher issuances of loans receivables in our RBFS business, and higher investments for the development of a new digital technology platform and modern architecture.
Net cash used in financing activities increased $2.2 billion in 2022. In 2021 we raised financing through the issuance of our 2021 Notes to fund the Euro Auctions acquisition which were fully redeemed and repaid during the current year, contributing to $1.8 billion of the change year-over -year. In addition, we had borrowed $0.2 billion on our long-term revolver loan in 2021 to fund the acquisition of SmartEquip which was repaid in the current year using proceeds from the sale of the Bolton property and with cash on hand, also contributing to $0.4 billion of the change year-over year.
Working Capital
Working capital is calculated as total current assets less total current liabilities. Working capital at December 31, 2022 was $167.8 million, a decrease of $6.0 million compared to 2021.
Dividend Information
We declared and paid a regular cash dividend of $0.25 per common share for the quarters ended September 30, 2021, December 31, 2021, and March 31, 2022. We declared and paid regular cash dividends of $0.27 per common share for the quarter ended June 30, 2022 and September 30, 2022. We have declared, but not yet paid, a dividend of $0.27 per common share for the quarter ended December 31, 2022. All dividends that we pay are “eligible dividends” for Canadian income tax purposes unless indicated otherwise.
Return on average invested capitalAverage Invested Capital
OurDuring the quarter ended September 30, 2022, we updated our calculation of return on average invested capital is calculated as net income attributable to stockholders divided by our average invested capital. We calculate average invested capital over a trailing 12-month period by adding the average long-term debt over that period(“ROIC”) and adjusted ROIC. Refer to the average stockholders’ equity over that period.
non-GAAP measures section below, specifically our Adjusted Return on average invested capitaland Adjusted ROIC Reconciliation, for further information.
ROIC increased 170720 bps to 9.6%15.2% in 20192022 from 7.9%8.0% in 2018.2021. This increase is primarily due to a $27.5 million, or 23%,an increase in net income attributable to stockholders over the comparative period, combinedmainly driven by the gain from the sale of the Bolton property. Adjusted ROIC increased 210 bps to 15.8% in 2022 compared to 13.7% in 2021, primarily due to a higher adjusted return as a result of higher operating income.
Credit Facilities
During 2016, we entered into a credit agreement with a syndicate of lenders (as amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). The Credit Agreement is comprised of multicurrency revolving facilities (the “Revolving Facilities”) and a delayed-draw term loan facility (the “DDTL Facility”, together with the impactRevolving Facilities, the “Facilities”).
The Credit Agreement was most recently amended in December 2022 (the “December 2022 Amendment”), which, among other things, (i) permits the proposed merger with IAA, (ii) provides commitments for a term loan A facility (the “TLA Facility”) in an aggregate principal amount of $62.7up to $1.8 billion to be used to finance, in part, the IAA merger, (iii) provides us the ability to borrow up to $200.0 million of the Revolving Facilities under the Credit Agreement on a limited conditionality basis to finance, in voluntary debt repayments on average invested capital during 2019. Return on invested capital (“ROIC”) (non-GAAP measure) increased 180 bpspart, the IAA merger, and (iv) provides the ability for us to 9.4%add a term loan B facility in 2019 from 7.6%a future incremental amendment, the proceeds of which would be used to finance, in 2018.part, the proposed IAA acquisition.
Credit facilities
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Ritchie Bros. | 54 |
Credit facilities at December 31, 20192022 and 20182021 were as follows:
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| | Year ended December 31, |
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(in U.S. $000's, except percentages) |
| 2019 |
| 2018 |
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| December 31, 2022 |
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Committed |
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Term loan facility | | $ | 155,355 | | $ | 224,581 |
| -31 | % | |||||||||
DDTL Facility | | $ | 85,523 | | $ | 298,284 |
| (71) | % | |||||||||
Revolving credit facilities | |
| 750,000 | |
| 750,000 |
| — | % | |||||||||
Uncommitted | | | | | | | | | | |||||||||
Revolving credit facilities | |
| 500,000 | |
| 500,000 |
| 0 | % | | | 10,000 | | | 10,000 | | — | % |
Total credit facilities | | $ | 655,355 | | $ | 724,581 |
| -10 | % | | $ | 845,523 | | $ | 1,058,284 |
| (20) | % |
Unused | |
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DDTL Facility | | $ | — | | $ | 205,000 |
| (100) | % | |||||||||
Revolving credit facilities | |
| 489,937 | |
| 467,801 |
| 5 | % | |
| 709,807 | |
| 525,581 |
| 35 | % |
Total credit facilities unused | | $ | 489,937 | | $ | 467,801 |
| 5 | % | | $ | 709,807 | | $ | 730,581 |
| (3) | % |
Revolving Credit Facilities
At December 31, 2019,2022, of the remaining $500.0$760.0 million in committed, revolving credit facilities, $490.0$750.0 million relates to our syndicated credit facility and $10.0 million relates to credit facilities in certain foreign jurisdictions.
On December 31, 2019,2022, we had $489.9$719.8 million of unused committed revolving credit facilities, which consisted of:
● | $ |
● | $5.0 million under a foreign credit facility that expires on October 27, |
● | $ |
Borrowings under our
Term Loan Facility
The amendment to the Credit Agreement bear floating ratesmade in September 2021 (i) extended the maturity date of interest, which, at our option, are based on either a base rate (or Canadian prime rate for certain Canadian dollar borrowings) or LIBOR (or such floating rate customarily used by the syndicate for currencies other than U.S. dollars). In either case, anFacilities from October 27, 2023 to September 21, 2026, (ii) increased the total size of the Facilities provided under the Credit Agreement to up to $1.0 billion, including $295.0 million of commitments under the DDTL Facility, (iii) reduced the applicable margin is added to the rate. The applicable margin ranges from 0.25% to 1.50% for base rate loans and 1.25%LIBOR loans at each pricing tier level, (iv) reduced the applicable percentage per annum used to 2.50%calculate the commitment fee in respect of the unused commitments under the Facilities at each pricing tier level, and (v) included customary provisions to provide for the eventual replacement of LIBOR (or the equivalent of such currency) loans, depending on our leverage ratio at the time of borrowing.as a benchmark interest rate.
AsIn connection with the September 2021 Amendment, the Company refinanced $90.0 million with the proceeds from a borrowing under the DDTL Facility. Under the terms of the September 2021 Amendment, mandatory principal repayments began in the third quarter of 2022 and are subject to an annual amortization rate of 5%, payable in quarterly installments, with the balance payable at December 31, 2019, we also had $10.0maturity. The remaining $205.0 million in credit facilities in certain foreign jurisdictions including a $5.0 million revolving credit facility expiringcommitments under the DDTL Facility was not drawn and accordingly expired on October 27, 2021 and a demand facility that has no maturity date.
Term loan facility
During 2019, we madeJune 28, 2022. We did not make any voluntary prepayments totalling $62.7 million on the term loan denominatedto our drawn DDTL in U.S. dollars. Prepayments are applied against future scheduled mandatory payments. The amount available pursuant to the term loan facility was only available to finance the Acquisition and is not available for other corporate purposes upon repayment of amounts borrowed under that facility.2022.
Senior unsecured notesUnsecured Notes
At December 31, 2019,2022, we had senior unsecured notes (the “Notes”“2016 Notes”) outstanding that expire on January 15, 2025 for an aggregate principal amount of $500.0 million, bearing an interest rate of 5.375% per annum. The proceeds of the offering of the 2016 Notes were used to finance the Acquisition.IronPlanet acquisition. The 2016 Notes are jointly and severally guaranteed on an unsecured basis, subject to certain exceptions, by each of our subsidiaries that is a borrower or guarantees indebtedness under the Credit Agreement.
On December 21, 2021, we completed the offering of two series of senior notes: (i) $600.0 million aggregate principal amount of 4.750% senior notes due December 15, 2031 and (ii) $425.0 million Canadian dollar aggregate principal amount of 4.950% due December 15, 2029 (together the “2021 Notes”). On May 4, 2022, the Company redeemed all of the 2021 Notes at a redemption price equal to 100% of the original offering price of the notes, plus accrued and unpaid interest as the proposed Euro Auctions Acquisition was not completed.
Debt Covenants
We were in compliance with all financial and other covenants applicable to our credit facilities at December 31, 2022. Our debt covenants applicable as of December 31, 2022 did not change as a result of the amendments made effective on December 9, 2022 to
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Ritchie Bros. |
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Debtour Credit Agreement. However, we expect that certain baskets under covenants will increase once the proposed acquisition of IAA closes.
Our ability to borrow under our syndicated revolving credit facility is subject to compliance with financial covenants of a consolidated leverage ratio and a consolidated interest coverage ratio. In the event of sustained deterioration of global markets and economies, we expect the covenants pertaining to our leverage ratio would be the most restrictive to our ability to access funding under our Credit Agreement.
The Credit Agreement contains certain covenants that could limit the ability of the Company and certain of its subsidiaries to, among other things and subject to certain significant exceptions: (i) incur, assume or guarantee additional indebtedness; (ii) declare or pay dividends or make other distributions with respect to, or purchase or otherwise acquire or retire for value, equity interests; (iii) make loans, advances or other investments; (iv) incur liens; (v) sell or otherwise dispose of assets; and (vi) enter into transactions with affiliates. The Credit Agreement also provides for certain events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Credit Agreement to be declared immediately due and payable.
TheOur 2016 Notes were issued pursuant to an indenture, dated December 21, 2016, with U.S. Bank National Association as trustee (the “Indenture”).trustee. The Indentureindenture contains covenants that limit our ability, and the ability of certain of our subsidiaries to, among other things and subject to certain significant exceptions: (i) incur, assume or guarantee additional indebtedness; (ii) declare or pay dividends or make other distributions with respect to, or purchase or otherwise acquire or retire for value, equity interests; (iii) make any principal payment on, or redeem or repurchase, subordinated debt; (iv) make loans, advances or other investments; (v) incur liens; (vi) sell or otherwise dispose of assets; and (vii) enter into transactions with affiliates. The Indentureindenture also provides for certain events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding 2016 Notes under the applicable indenture to be declared immediately due and payable.
At inception of the Credit Agreement and the Indenture, all parties anticipated the increase in indebtedness that followed the Acquisition. As such, covenants pertaining to our leverage ratio provide for a six-quarter expansion of debt levels, after which the leverage ratio settles to a moderately higher tier than pre-Acquisition conditions.
We were in compliance with all financial and other covenants applicable to our credit facilities at December 31, 2019.
Contractual obligations at December 31, 2019
| | | | | | | | | | | | | | | |
| | Payments due by period | |||||||||||||
| | | | | Less than | | 1 to 3 | | 3 to 5 | | More than | ||||
(in U.S. $000's) |
| Total |
| 1 year |
| years |
| years |
| 5 years | |||||
Long-term debt obligations: |
| |
|
| |
|
| |
|
| |
|
| |
|
Principal | | $ | 655,356 | | $ | 18,277 | | $ | 137,079 | | $ | — | | $ | 500,000 |
Capital lease obligations | |
| 25,522 | |
| 8,369 | |
| 12,174 | |
| 4,905 | |
| 74 |
Operating lease obligations | |
| 167,397 | |
| 16,051 | |
| 25,912 | |
| 19,499 | |
| 105,935 |
Purchase obligations | |
| 6,295 | |
| 6,295 | |
| — | |
| — | |
| — |
Share unit liabilities | |
| 5,130 | |
| 5,130 | |
| — | |
| — | |
| — |
Other non-current liabilities | |
| 2,963 | |
| — | |
| 100 | |
| 20 | |
| 2,843 |
Total contractual obligations | | $ | 862,663 | | $ | 54,122 | | $ | 175,265 | | $ | 24,424 | | $ | 608,852 |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, financial performance, liquidity, capital expenditures or capital resources.
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Ritchie Bros. |
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Critical Accounting Policies, Judgments, Estimates and Assumptions
In preparing our consolidated financial statements in conformity with US GAAP, we must make decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances and historical experience. On an ongoing basis, we evaluate these judgments and estimates, including:
|
Actual amounts could differ materially from those estimated by us at the time our consolidated financial statements are prepared.
The following discussion of critical accounting policies and estimates is intended to supplement the significant accounting policies presented in the notes to our consolidated financial statements included in “Part II, Item 8: Financial Statements and Supplementary Data” presented in this Annual Report on Form 10-K, which summarize the accounting policies and methods used in the preparation of those consolidated financial statements. The policies and the estimates discussed below are included here because they require more significant judgments and estimates in the preparation and presentation of our consolidated financial statements than other policies and estimates. Actual amounts could differ materially from those estimated by us at the time our consolidated financial statements are prepared.
Business Combinations
Accounting for business combinations requires management to make significant estimates and assumptions, particularly for the valuation of intangible assets. The fair value of intangible assets are based upon widely-accepted valuation techniques, including discounted cash flows, multi period excess earnings method, and relief from royalty method, depending on the nature of the assets acquired or liabilities assumed. Inherent in each valuation technique are critical assumptions, including future cash flows and growth rates, gross margins, attrition rates, royalty rates, discount rates, and terminal value and forecast period assumptions. The discount rates used to discount expected cash flows to present values are typically derived from a weighted average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results. We have also issued common shares in return for continuing employment services from certain previous unitholders or shareholders which are measured at the fair value on acquisition date and amortized to acquisition-related costs until restrictions lapse and the common shares have vested.
Goodwill
Goodwill is not amortized, but it is tested annually for impairment as of December 31, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one level below an operating segment. We determined our reporting units to be A&M, Mascus, Rouse and SmartEquip.
We have the option of performing a qualitative assessment of a reporting unit to determine whether a quantitative impairment test is necessary. A qualitative assessment involves evaluating factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the fair value of the reporting unit to which goodwill belongs is less than its carrying amount. If the qualitative assessment indicates that the fair value of the reporting unit is more likely than not less than the carrying amount, then a quantitative impairment test would be performed.
If a quantitative impairment test is required, the process is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount. The reporting unit’s fair value is determined using various valuation methodologies based on an income approach or a market approach. In determining the reporting unit’s fair value, management is required to make judgments and assumptions relating to future cash flows, growth rates and economic and market conditions. Historically, our reporting units have generated sufficient returns to recover the cost of goodwill.
A&M reporting unit goodwill
For the year ended December 31, 2022, we performed a qualitative assessment of the A&M reporting unit and we concluded there were no indicators of impairment that existed.
Mascus reporting unit goodwill
For the year ended December 31, 2022, we performed a qualitative assessment of the Mascus reporting unit and we concluded there were no indicators of impairment that existed.
Rouse reporting unit goodwill
For the year ended December 31, 2022, we performed a quantitative assessment of the Rouse reporting unit using an income approach based on discounted cash flows. The fair value of the Rouse reporting unit was measured based on the present value of the cash flows that we expect the reporting unit to generate. In determining our future cash flows, we estimated an annual revenue growth rate
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Ritchie Bros. | 57 |
ranging between 4% to 30%, an operating margin ranging between 31% to 50% from 2023 to 2032, based on our best estimate of the reporting units’ growth trajectory. We estimated a discount rate of 16% reflecting the risk premium, including company specific risk, on this reporting unit, and a terminal growth rate of 4% for the period beyond ten years, based on our best estimate of the cash flows and using market comparatives. As the fair value of the Rouse reporting unit was greater than its carrying amount, we concluded that Rouse goodwill was not impaired at December 31, 2022. An increase of one percentage to the discount rate used would not have resulted in goodwill impairment.
SmartEquip reporting unit goodwill
For the year ended December 31, 2022, we performed a quantitative assessment of the SmartEquip reporting unit using an income approach based on discounted cash flows. The fair value of the SmartEquip reporting unit was measured based on the present value of the cash flows that we expect the reporting unit to generate. In determining our future cash flows, we estimated an annual revenue growth rate ranging between 3% to 37% and an operating margin ranging between 19% to 62% from 2023 to 2032, based on our best estimate of the reporting units’ growth trajectory. We estimated a discount rate of 20% reflecting the risk premium on this reporting unit, including company specific risk, on this reporting unit, and a terminal growth rate of 3% for the period beyond ten years, based on our view of the cash flows and using market comparatives. As the fair value of the SmartEquip reporting unit was greater than its carrying amount, we concluded that SmartEquip goodwill was not impaired at December 31, 2022. An increase of one percentage to the discount rate used would not have resulted in goodwill impairment.
In the quantitative assessments performed, if estimates for future cash flows, which are driven by reporting units’ ability to generate revenue growth were to decline, the overall reporting units’ fair value would decrease, resulting in potential goodwill impairment charges. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions. As a result, there can be no assurance that the estimates and assumptions made for purposes of impairment tests will prove to be an accurate prediction of the future.
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets are tested at least annually for impairment, and between annual tests if indicators of potential impairment exist. To test our indefinite-lived intangible assets for impairment we first perform a qualitative assessment to determine if it is more likely than not that the carrying amount of our indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Based on our qualitative assessment, we determined there were no potential indicators of impairment of our indefinite-lived intangible assets at December 31, 2022.
Long-lived Assets
We test long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. Our assessment concluded that the carrying amounts of our long-lived assets are recoverable at December 31, 2022.
Recoverability of Trade Receivables
Our trade receivables are generally secured by the equipment. Refer to Note 14 of the consolidated financial statements, Trade Receivables, regarding the activity in the allowance for expected credit losses.
Collapse Provision
Under our standard terms and conditions for our auction sales, we are not obligated to pay a consignor for an asset that has not been paid for by the buyer, provided that the asset has not been released to the buyer. If the buyer defaults on its payment obligation, also referred as a collapse sale, the sale is cancelled and the asset is returned to the consignor or re-sold at a future time. We estimate the expected sales that may collapse at each reporting period relating to service revenue recognized and record a collapse provision for expected cancelled sales. The collapse provision estimate is based on our historical experience with collapses and cancelled sales, our knowledge of the customer, data, and reasonable and supportable forecasts of the outcome of such transactions.
Sale Leaseback Transactions
From time to time, we enter into sale leaseback transactions. In 2022, we completed the sale and leaseback of our Bolton property. To determine the gain on sale, we estimated the present value of relevant market rental payments, the expected lease term in the leaseback arrangement and our incremental borrowing rate based on information available at the commencement date of the lease.
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Ritchie Bros. | 58 |
Valuation of equity-classified share unitsInventories
Inventory consists of equipment and other assets purchased for resale in an upcoming onsite auction or online marketplace events. We typically purchase inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. We value our inventory at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation.
For the year ended December 31, 2022, we reviewed our Inventory to ensure that it is recorded at the lower of cost and net realizable value. Refer to Note 15 of the consolidated financial statements, Inventory, regarding the activity in inventory write-downs.
Share-based Compensation
We measure the fair value of equity-classified sharesshare units as of the grant date. We calculate the fair value of stock options on the grant date using the Black-Scholes option pricing model. We calculate the fair value of share units without market conditions on the grant date based on the Company’s share price. We determine the fair value of share units with market conditions using the Monte Carlo simulation model. The fair value of awards expected to vest is expensed over the respective remaining service period, with the corresponding increase to APIC recorded in equity. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate may require determination of the most appropriate inputs to the valuation model, including the expected life of the share units or stock options, volatility and dividend yield, as well as making assumptions about them.
Recoverability of goodwill
We perform impairment tests on goodwill on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one level below an operating segment. We determined our reporting units to be at the same level as our operating segments for A&M and Mascus.
On January 1, 2017, we early adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment(“ASU 2017-04”), which eliminates Step 2 from the goodwill impairment test. Under ASU 2017-04, we still have the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. We exercise judgment in performing our qualitative assessment of whether indicators of impairment exist.
When we determine that an annual or interim quantitative impairment test is necessary, we now only perform one step to identify potential impairment, which is to compare the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what we believe a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value to the extent the difference does not exceed the total amount of goodwill allocated to the reporting unit.
We measure the fair value of our reporting units using an earnings valuation approach, which employs a discounted cash flow valuation technique. In applying this valuation approach, management is required to make significant estimates and assumptions about the timing and amount of future cash flows, revenue growth rates, and discount rates, which requires a significant amount of judgment. Accordingly, actual results may differ from those used in the goodwill impairment test.
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|
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A&M reporting unit goodwill
For the year ended December 31, 2019, we performed a qualitative assessment of the A&M reporting unit and we concluded there were no indicators of impairment that existed.
Mascus reporting unit goodwill
Goodwill arising from the acquisition of Mascus forms part of the reporting unit on December 31, 2019, and we performed the US GAAP goodwill impairment test. Using the cash flow methodology of the earnings approach, the fair value of the Mascus reporting unit was measured based on the present value of the cash flows that we expect the reporting unit to generate. In determining our future cash flows, we estimated an annual revenue growth rate ranging between 6% to 8% and an operating margin ranging between 36% to 44% from 2020 to 2024. We estimated a discount rate of 12% reflecting the risk premium on this reporting unit, and a terminal growth rate of 3.5% for the period beyond five years. As the fair value of the Mascus reporting unit was greater than its carrying amount, management concluded that Mascus goodwill was not impaired at December 31, 2019.
Recoverability of indefinite-lived intangible assets
We perform impairment tests on indefinite-lived intangible assets, which includes trade names and trademarks, on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Indefinite-lived intangible asset impairment testing involves determination of the unit of accounting, which we determined to be at the same level as our operating segments for A&M and Mascus. For the year ended December 31, 2019, we determined that there were no indicators of impairment for the indefinite-lived intangible assets under our A&M and Mascus reporting units.
Accounting for income taxesIncome Taxes
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences (differences between the accounting basis and the tax basis of the assets and liabilities) and non-capital loss, capital loss, and tax credit carry-forwardscarry-forwards. These are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss, capital loss, and tax credits carry-forwards, are recognized to the extent that realization of such benefits is considered more likely than not.
Liabilities for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. We also continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.
Adoption of New Standards
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Topic 606 Adoption
Effective JanuaryOctober 1, 2018,2021, we have early adopted Topic 606 usingASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The update primarily addresses the full retrospective method. The primary impactaccounting for contract assets and contract liabilities from revenue contracts with customers acquired in a business combination. An entity that early adopts in an interim period should apply the amendments (i) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the adoptionfiscal year that includes the interim period of Topic 606 isearly application and (ii) prospectively to all business combinations that occur on or after the change indate of initial application. We have applied the presentation of revenue earned from inventory sales and ancillary and logistical services. These revenues are presented gross of the related expenses rather than net. There was no impact on the timing of revenues recognized, amount of operating income or net income, or on the consolidated balance sheet or consolidated statements of cash flows dueamendments to the adoption of Topic 606. Prior periods presented have been restated to conform with this new revenue standard.
The following table reconciles revenues as previously reported to total revenues under Topic 606:SmartEquip acquisition, which was completed on November 2, 2021.
| | | | | | | | | | | | |
| | Prior to January 1, 2018 | | New Revenue Standard Adjustments | | On and after January 1, 2018 | ||||||
|
| Revenues as previously |
| | |
| Ancillary and logistical |
| Total revenues under the | |||
(in U.S. $000's) |
| reported (a) |
| Cost of inventory sold1 (b) |
| service expenses2 (c) |
| 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 costFor a discussion 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 | |||
|
| | |
| Ancillary and logistical service |
| Costs of services under the | ||
(in U.S. $000's) |
| Costs of services (a) |
| expenses2 (b) |
| 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 |
For further details on Topic 606,our new and amended accounting standards refer to the Annual Report on Form 10-K for the years ended December 31, 2017, and December 31, 2018 and the Quarterly Reports on Form 10-Q for the periods ended March 31, 2018, June 30, 2018, and September 30, 2018.
Topic 842 Adoption
Effective January 1, 2019, we adopted Topic 842, which requires lessees to recognize almost all leases, including operating leases, on the balance sheet through a right-of-use asset and a corresponding lease liability. We utilized the optional transition approach, which permits us to apply the new lease standards at the adoption date.
On adoptionNote 2 of the new standard, we recognized a right-of-use asset relating to operating leases of $103,897,000 with a corresponding increase in operating lease liability. Offsetting the increase in the ROU asset recognized was the reclassification of a deferred rent liability from other non-current liability to ROU asset of $5,752,000. There was no impact on retained earnings or cash flows.consolidated financial statements, Significant Accounting Policies.
The adoption of the standard had no impact on our debt-covenant compliance under our current agreements.
Recent Accounting Pronouncements
Recent accounting pronouncements that significantly impact our accounting policies or the presentation of our consolidated financial position or performance have been disclosed in the notes to our consolidated financial statements included in “Part II, Item 8: Financial Statements and Supplementary Data” presented elsewhere in this Annual Report on Form 10-K.
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Non-GAAP Measures
We reference various non-GAAP measures throughout this Annual Report on Form 10-K. 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. Non-GAAP financial measures referred to in this report are labeled as “non-GAAP measure” or designated as such with an asterisk (*).US GAAP.
Adjusted Operating Income*Income Reconciliation
AdjustingWe believe that adjusted operating income*income provides useful information about the growth or decline of our operating income for the relevant financial period and eliminates the financial impact of adjusting items we do not consider to be part of our normal operating results.Adjusted operating income enhances our ability to evaluate and understand ongoing operations, underlying business profitability, and facilitate the allocation of resources.
Adjusted operating income eliminates the financial impact of adjusting items from operating income, which are significant recurring and non-recurring items that we do not consider to be part of our normal operating results, such as share-based payments expense, acquisition-related costs, amortization of acquired intangible assets, management reorganization costs, and certain other items, which we refer to as ‘adjusting items’“adjusting items”. We believe that comparing
In 2021, we updated the calculation of adjusted operating income*income to add-back share-based payments expense, all acquisition-related costs (including any share based continuing employment costs recognized in acquisition-related costs), amortization of acquired intangible assets, and gain or loss on disposition of property, plant and equipment. We have also adjusted for different financialcertain non-recurring advisory, legal and restructuring costs. These adjustments have been applied retrospectively to all periods provides useful information about the growth or decline of our operating income for the relevant financial period.presented, as applicable.
The following table reconciles adjusted operating income to operating income, which is the most directly comparable GAAP measure in our consolidated incomefinancial statements.
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| | Year ended December 31, |
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| | | | | | | | | | | % Change |
| ||
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| | |
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| | |
| 2019 over |
| 2018 over |
|
(in U.S. $000's, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||
Operating income | | $ | 223,202 | | $ | 185,189 | | $ | 107,454 |
| 21 | % | 72 | % |
Pre-tax adjusting items: | |
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|
| |
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Share-based payment recovery | | | (4,078) | | | — | | | — | | -100 | % | 0 | % |
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4,752 |
| 0 | % | -100 | % |
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9,063 |
| 0 | % | -100 | % |
Severance and retention | |
| — | |
| 1,501 | |
| 3,613 |
| -100 | % | -58 | % |
Impairment loss | |
| — | |
| — | |
| 8,911 |
| 0 | % | -100 | % |
Adjusted operating income* | | $ | 219,124 | | $ | 186,690 | | $ | 133,793 |
| 17 | % | 40 | % |
| | | | | | | | | | | | | | |
| | Year ended December 31, |
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| | | | | | | | | | | % Change |
| ||
| | | |
| | |
| | |
| 2022 over |
| 2021 over |
|
(in U.S. dollars $000's, except percentages) | | 2022 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||
Operating income | | $ | 454,545 | | $ | 240,147 | | $ | 263,160 |
| 89 | % | (9) | % |
Share-based payments expense | | | 36,961 | | | 23,106 | | | 21,882 | | 60 | % | 6 | % |
Acquisition-related costs | | | 37,261 | | | 30,197 | | | 6,014 | | 23 | % | 402 | % |
Amortization of acquired intangible assets | | | 33,387 | | | 27,960 | | | 21,098 | | 19 | % | 33 | % |
Loss (gain) on disposition of property, plant and equipment and related costs | | | (166,857) | | | (1,436) | | | (1,559) | | 11,520 | % | (8) | % |
Non-recurring advisory, legal and restructuring costs | | | 5,061 | | | 3,497 | | | 3,919 | | 45 | % | (11) | % |
Adjusted operating income | | $ | 400,358 | | $ | 323,471 | | $ | 314,514 |
| 24 | % | 3 | % |
(1) | Please refer to |
(2) | Adjusted operating |
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Ritchie Bros. |
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Adjusted Net Income Attributable to Stockholders*Stockholders and Diluted Adjusted EPS Attributable to Stockholders*Stockholders Reconciliation
We believe that adjusted net income attributable to stockholders*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 we do not consider to be part of our normal operating results. Diluted Adjustedadjusted EPS attributable to stockholders*stockholders eliminates the financial impact of adjusting items which are after-tax effects of significant non-recurring itemsfrom net income attributable to stockholders that we do not consider to be part of our normal operating results, such as share-based payments expense, acquisition-related costs, amortization of acquired intangible assets, management reorganization costs, and certain other items, which we refer to as ‘adjusting items’“adjusting items”.
In 2021, we updated the calculation of diluted adjusted EPS attributable to stockholders to add-back certain adjustments that have been applied retrospectively to all periods presented, as applicable (refer to adjusted operating income reconciliation above).
The following table reconciles adjusted net income attributable to stockholders*stockholders and diluted adjusted EPS attributable to stockholders*stockholders to net income attributable to stockholders and diluted EPS attributable to stockholders, which are the most directly comparable GAAP measures in our consolidated incomefinancial statements.
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| | Year ended December 31, |
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| | | | |
| | |
| | | % Change |
| |||
(in U.S. $000's, except share and |
| | |
| | |
| | |
| 2019 over |
| 2018 over | | |
per share data, and percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||||
Net income attributable to stockholders | | $ | 149,039 | | $ | 121,479 | | $ | 75,027 |
| | 23 | % | 62 | % |
Pre-tax adjusting items: | |
|
| |
|
| |
|
|
| |
|
|
| |
Share-based payment recovery | | | (4,078) | | | — | | | — | | | -100 | % | 0 | % |
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4,752 |
| | 0 | % | -100 | % |
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9,063 |
| | 0 | % | -100 | % |
Severance and retention | |
| — | |
| 1,501 | |
| 3,613 |
| | -100 | % | -58 | % |
Gain on sale of equity accounted for investment | |
| — | |
| (4,935) | |
| — |
| | 100 | % | -100 | % |
Impairment loss | |
| — | |
| — | |
| 8,911 |
| | 0 | % | -100 | % |
Current income tax effect of adjusting items: | |
| | |
|
| |
|
|
| |
|
|
| |
Acquisition and finance structure advisory | |
| — | |
| — | |
| (2,447) |
| | 0 | % | 100 | % |
Severance and retention | |
| — | |
| (376) | |
| (748) |
| | 100 | % | -50 | % |
Deferred income tax effect of adjusting items: | |
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| |
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|
| |
|
|
| |
Share-based payment recovery | | | 688 | | | — | | | — | | | 100 | % | 0 | % |
Impairment loss | |
| — | |
| — | |
| (2,361) |
| | 0 | % | 100 | % |
Severance and retention | |
| — | |
| — | |
| (368) |
| | 0 | % | 100 | % |
Current income tax adjusting item: | |
|
| |
|
| |
|
|
| |
|
|
| |
Change in uncertain tax provision | |
| — | |
| — | |
| 2,290 |
| | 0 | % | -100 | % |
Deferred tax adjusting item: | |
|
| |
|
| |
|
|
| |
|
|
| |
Remeasurement of deferred taxes | |
| — | |
| — | |
| (10,070) |
| | 0 | % | 100 | % |
Adjusted net income attributable to stockholders* | | $ | 145,649 | | $ | 117,669 | | $ | 87,662 | | | 24 | % | 34 | % |
Weighted average number of dilutive shares outstanding | |
| 109,759,123 | |
| 109,388,236 | |
| 108,113,151 | |
| 0 | % | 1 | % |
| | | | | | | | | | | | | | | |
Diluted earnings per share attributable to stockholders | | $ | 1.36 | | $ | 1.11 | | $ | 0.69 | | | 23 | % | 61 | % |
Diluted adjusted EPS attributable to stockholders* | | $ | 1.33 | | $ | 1.08 | | $ | 0.81 | | | 23 | % | 33 | % |
| | | | | | | | | | | | | | | | |
(in U.S. dollars $000's, except share and per share data, and percentages) | | | Year ended December 31, |
| ||||||||||||
| | | | | |
| | |
| | | % Change |
| |||
| | | | |
| | |
| | |
| 2022 over |
| 2021 over | | |
| | | 2022 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income attributable to stockholders | | | $ | 319,657 | | $ | 151,868 | | $ | 170,095 |
| | 110 | % | (11) | % |
Share-based payments expense | | | | 36,961 | | | 23,106 | | | 21,882 | | | 60 | % | 6 | % |
Acquisition-related costs | | | | 37,261 | | | 30,197 | | | 6,014 | | | 23 | % | 402 | % |
Amortization of acquired intangible assets | | | | 33,387 | | | 27,960 | | | 21,098 | | | 19 | % | 33 | % |
Loss (gain) on disposition of property, plant and equipment and related costs | | | | (166,857) | | | (1,436) | | | (1,559) | | | 11,520 | % | (8) | % |
Loss on redemption of the 2021 Notes and certain related interest expense | | | | 9,664 | | | — | | | — | | | 100 | % | — | % |
Change in fair value of derivatives | | |
| (1,263) | |
| 1,248 | |
| — |
| | (201) | % | 100 | % |
Non-recurring advisory, legal and restructuring costs | | |
| 5,061 | |
| 3,497 | |
| 3,919 |
| | 45 | % | (11) | % |
Related tax effects of the above | | | | (3,952) | | | (20,334) | | | (20,544) | | | (81) | % | (1) | % |
Change in uncertain tax provision - tax effect | | |
| — | |
| — | |
| 7,755 |
| | — | % | (100) | % |
Adjusted net income attributable to stockholders | | | $ | 269,919 | | $ | 216,106 | | $ | 208,660 | | | 25 | % | 4 | % |
Weighted average number of dilutive shares outstanding | | |
| 111,886,025 | |
| 111,406,830 | |
| 110,310,984 | |
| 0 | % | 1 | % |
Diluted earnings per share attributable to stockholders | | | $ | 2.86 | | $ | 1.36 | | $ | 1.54 | | | 110 | % | (12) | % |
Diluted adjusted earnings per share attributable to stockholders | | | $ | 2.41 | | $ | 1.94 | | $ | 1.89 | | | 24 | % | 3 | % |
(1) | Please refer to |
(2) | Adjusted net income attributable to |
(3) | Diluted adjusted EPS attributable to |
| |
|
|
Operating Free Cash Flow* (“OFCF”) Reconciliation
We believe OFCF*, when compared on a trailing 12-month basis to different financial periods provides an effective measure of the cash generated by our business and provides useful information regarding cash flows remaining for discretionary return to stockholders, mergers and acquisitions, or debt reduction. Our balance sheet scorecard includes OFCF* as a performance metric. OFCF* is also an element of the performance criteria for certain annual short-term and long-term incentive awards.
The following table reconciles OFCF* to cash provided by operating activities, which is the most directly comparable GAAP measure in, or calculated from, our consolidated statements of cash flows:
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
| ||||||||||||
| | | | | | | | | | | % Change |
| |||
|
| | | | | | | | | | 2019 over | | 2018 over | | |
(in U.S. $ millions, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||||
Cash provided by operating activities | | $ | 332.8 | | $ | 144.3 | | $ | 147.6 | | | 131 | % | -2 | % |
Property, plant and equipment additions | |
| 13.6 | |
| 16.9 | |
| 10.8 | |
| -20 | % | 56 | % |
Intangible asset additions | |
| 27.4 | |
| 26.1 | |
| 28.6 | |
| 5 | % | -9 | % |
Proceeds on disposition of property plant and equipment | |
| (5.9) | |
| (10.6) | |
| (5.0) | |
| -44 | % | 112 | % |
Net capital spending | | $ | 35.1 | | $ | 32.4 | | $ | 34.4 | | | 8 | % | -6 | % |
OFCF* | | $ | 297.7 | | $ | 111.9 | | $ | 113.2 | | | 166 | % | -1 | % |
Adjusted EBITDA*
We believe adjusted EBITDA* provides useful information about the growth or decline of our net income when compared between different financial periods.
The following table reconciles adjusted EBITDA* to net income, which is the most directly comparable GAAP measure in, or calculated from, our consolidated income statements:
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
| ||||||||||||
| | | | |
| | |
| | | % Change |
| |||
|
| | |
| | |
| | |
| 2019 over |
| 2018 over | | |
(in U.S. $000's, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||||
| | | | | | | | | | | | | | | |
Net income | | $ | 149,140 | | $ | 121,506 | | $ | 75,306 | | | 23 | % | 61 | % |
Add: depreciation and amortization expenses | |
| 70,501 | |
| 66,614 | |
| 52,694 | |
| 6 | % | 26 | % |
Add: interest expense | |
| 41,277 | |
| 44,527 | |
| 38,291 | |
| -7 | % | 16 | % |
Less: interest income | |
| (3,802) | |
| (2,888) | |
| (3,194) | |
| 32 | % | -10 | % |
Add: income tax expense | |
| 41,623 | |
| 31,006 | |
| 2,088 | |
| 34 | % | 1,385 | % |
Pre-tax adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Share-based payment recovery | | | (4,078) | | | — | | | — | | | -100 | % | 0 | % |
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4,752 | |
| 0 | % | -100 | % |
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9,063 | |
| 0 | % | -100 | % |
Severance and retention | |
| — | |
| 1,501 | |
| 3,613 | |
| -100 | % | -58 | % |
Gain on sale of equity accounted for investment | |
| — | |
| (4,935) | |
| — | |
| 100 | % | -100 | % |
Impairment loss | |
| — | |
| — | |
| 8,911 | |
| 0 | % | -100 | % |
Adjusted EBITDA* | | $ | 294,661 | | $ | 257,331 | | $ | 191,524 | | | 15 | % | 34 | % |
| |
Ritchie Bros. |
|
Adjusted EBITDA
We believe adjusted EBITDA provides useful information about the growth or decline of our net income when compared between different financial periods. We use adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period and it provides management with the ability to monitor its controllable incremental revenues and costs.
In 2021, we updated the calculation of adjusted EBITDA to add-back certain adjustments that have been applied retrospectively to all periods presented, as applicable (refer to adjusted operating income reconciliation above).
The following table reconciles adjusted EBITDA to net income, which is the most directly comparable GAAP measure in, or calculated from, our consolidated financial statements:
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
| ||||||||||||
| | | | |
| | |
| | | % Change |
| |||
| | | |
| | |
| | |
| 2022 over |
| 2021 over | | |
(in U.S. dollars $000's, except percentages) | | 2022 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income | | $ | 319,758 | | $ | 151,854 | | $ | 170,358 | | | 111 | % | (11) | % |
Add: depreciation and amortization | |
| 97,155 | |
| 87,889 | |
| 74,921 | |
| 11 | % | 17 | % |
Add: interest expense | |
| 57,880 | |
| 36,993 | |
| 35,568 | |
| 56 | % | 4 | % |
Less: interest income | |
| (6,971) | |
| (1,402) | |
| (2,338) | |
| 397 | % | (40) | % |
Add: income tax expense | |
| 86,230 | |
| 53,378 | |
| 65,530 | |
| 62 | % | (19) | % |
EBITDA | |
| 554,052 | |
| 328,712 | |
| 344,039 | |
| 69 | % | (4) | % |
Share-based payments expense | | | 36,961 | | | 23,106 | | | 21,882 | | | 60 | % | 6 | % |
Acquisition-related costs | |
| 37,261 | |
| 30,197 | |
| 6,014 | |
| 23 | % | 402 | % |
Loss (gain) on disposition of property, plant and equipment and related costs | | | (166,857) | | | (1,436) | | | (1,559) | | | 11,520 | % | (8) | % |
Change in fair value of derivatives | |
| (1,263) | |
| 1,248 | |
| — | |
| (201) | % | 100 | % |
Non-recurring advisory, legal and restructuring costs | | | 5,061 | | | 3,497 | | | 3,919 | | | 45 | % | (11) | % |
Adjusted EBITDA | | $ | 465,215 | | $ | 385,324 | | $ | 374,295 | | | 21 | % | 3 | % |
(1) | Please refer to pages 67-69 for a summary of adjusting items during the years ended December 31, 2022, 2021, and 2020. |
(2) | Adjusted EBITDA is calculated by adding back depreciation and amortization, interest expense, income tax expense, and subtracting interest income from net income, as well as adding back share-based payments expense, acquisition-related costs, loss (gain) on disposition of property, plant and equipment, change in fair value of derivatives, non-recurring advisory, legal and restructuring costs which includes terminated and ongoing transaction costs, and excluding the effects of any non-recurring or unusual adjusting items. |
| |
Ritchie Bros. | 62 |
Adjusted Net Debt*Debt and Adjusted Net Debt/Adjusted EBITDA*EBITDA Reconciliation
We believe that comparing adjusted net debt/adjusted EBITDA*EBITDA on a trailing 12-monthtwelve-month basis for different financial periods provides useful information about the performance of our operations as an indicator of the amount of time it would take us to settle both our short and long-term debt. We do not consider this to be a measure of our liquidity, which is our ability to settle only short-term obligations, but rather a measure of how well we fund liquidity. Measures of liquidity are noted under “Liquidity and Capital Resources”.
The following table reconciles adjusted net debt*debt to debt, adjusted EBITDA*EBITDA to net income, and adjusted net debt*/debt/ adjusted EBITDA*EBITDA to debt/ net income, respectively, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | Year ended December 31, | |||||||||||||||||||||||
| | | | | | | | | | | % Change |
| | | | | | | | | | | % Change |
| ||||
(in U.S. $millions, except percentages) | | 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| |||||||||||||||||
(in U.S. dollars in millions, except percentages) | | 2022 | | 2021 | | 2020 | | 2022 over 2021 | | 2021 over 2020 |
| |||||||||||||||||
Short-term debt |
| $ | 4.7 |
| $ | 19.9 |
| $ | 7.0 |
| -76 | % | 184 | % | | $ | 29.1 |
| $ | 6.1 |
| $ | 29.1 |
| 377 | % | (79) | % |
Long-term debt | |
| 645.5 | |
| 711.3 | |
| 812.9 |
| -9 | % | -12 | % | |
| 581.5 | |
| 1,737.4 | |
| 636.7 |
| (67) | % | 173 | % |
Debt | |
| 650.2 | |
| 731.2 | |
| 819.9 |
| -11 | % | -11 | % | |
| 610.6 | |
| 1,743.5 | |
| 665.8 |
| (65) | % | 162 | % |
Less: long-term debt in escrow | | | — | | | (933.5) | | | — | | (100) | % | 100 | % | ||||||||||||||
Less: cash and cash equivalents | |
| (359.7) | |
| (237.7) | |
| (267.9) |
| 51 | % | -11 | % | |
| (494.3) | |
| (326.1) | |
| (278.8) |
| 52 | % | 17 | % |
Adjusted net debt* | |
| 290.5 | |
| 493.5 | |
| 552.0 |
| -41 | % | -11 | % | ||||||||||||||
Adjusted net debt | |
| 116.3 | |
| 483.9 | |
| 387.0 |
| (76) | % | 25 | % | ||||||||||||||
Net income | | $ | 149.1 | | $ | 121.5 | | $ | 75.3 |
| 23 | % | 61 | % | | $ | 319.8 | | $ | 151.9 | | $ | 170.4 |
| 111 | % | (11) | % |
Add: depreciation and amortization expenses | |
| 70.5 | |
| 66.6 | |
| 52.7 |
| 6 | % | 26 | % | ||||||||||||||
Add: depreciation and amortization | |
| 97.2 | |
| 87.9 | |
| 74.9 |
| 11 | % | 17 | % | ||||||||||||||
Add: interest expense | |
| 41.3 | |
| 44.5 | |
| 38.3 |
| -7 | % | 16 | % | |
| 57.9 | |
| 37.0 | |
| 35.6 |
| 56 | % | 4 | % |
Less: interest income | |
| (3.8) | |
| (2.9) | |
| (3.2) |
| 31 | % | -9 | % | |
| (7.0) | |
| (1.4) | |
| (2.3) |
| 400 | % | (39) | % |
Add: income tax expense | |
| 41.6 | |
| 31.0 | |
| 2.1 |
| 34 | % | 1,376 | % | |
| 86.2 | |
| 53.4 | |
| 65.5 |
| 61 | % | (18) | % |
Pre-tax adjusting items: | |
|
| |
|
| |
|
|
|
|
|
| | ||||||||||||||
Share-based payment recovery | |
| (4.1) | |
| — | |
| — |
| -100 | % | 0 | % | ||||||||||||||
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4.8 |
| 0 | % | -100 | % | ||||||||||||||
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9.1 |
| 0 | % | -100 | % | ||||||||||||||
Severance and retention | |
| — | |
| 1.5 | |
| 3.6 |
| -100 | % | -58 | % | ||||||||||||||
Gain on sale of equity accounted for investment | |
| — | |
| (4.9) | |
| — |
| 100 | % | -100 | % | ||||||||||||||
Impairment loss | |
| — | |
| — | |
| 8.9 |
| 0 | % | -100 | % | ||||||||||||||
Adjusted EBITDA* | | $ | 294.6 | | $ | 257.3 | | $ | 191.6 |
| 14 | % | 34 | % | ||||||||||||||
EBITDA | |
| 554.0 | |
| 328.8 | |
| 344.1 |
| 69 | % | (4) | % | ||||||||||||||
Share-based payments expense | |
| 37.0 | |
| 23.1 | |
| 21.9 |
| 60 | % | 5 | % | ||||||||||||||
Acquisition-related costs | |
| 37.3 | |
| 30.2 | |
| 6.0 |
| 24 | % | 403 | % | ||||||||||||||
Loss (gain) on disposition of property, plant and equipment and related costs | | | (166.9) | | | (1.4) | | | (1.6) | | 11,821 | % | (13) | % | ||||||||||||||
Change in fair value of derivatives | | | (1.3) | | | 1.2 | | | — | | (208) | % | 100 | % | ||||||||||||||
Non-recurring advisory, legal and restructuring costs | |
| 5.1 | |
| 3.5 | |
| 3.9 |
| 46 | % | (10) | % | ||||||||||||||
Adjusted EBITDA | | $ | 465.2 | | $ | 385.4 | | $ | 374.3 |
| 21 | % | 3 | % | ||||||||||||||
Debt/net income | |
| 4.4 | x |
| 6 | x |
| 10.9 | x | -43 | % | -45 | % | |
| 1.9 | x |
| 11.5 | x |
| 3.9 | x | (83) | % | 195 | % |
Adjusted net debt*/adjusted EBITDA* | |
| 1 | x |
| 1.9 | x |
| 2.9 | x | -47 | % | -34 | % | ||||||||||||||
Adjusted net debt/adjusted EBITDA | |
| 0.3 | x |
| 1.3 | x |
| 1.0 | x | (77) | % | 30 | % |
(1) | Please refer to |
(2) | Adjusted |
(3) | Adjusted net |
(4) | Adjusted net |
| |
Ritchie Bros. | 63 |
Operating Free Cash Flow (“OFCF”) Reconciliation
We believe OFCF, when compared on a trailing twelve-month basis to different financial periods provides an effective measure of the cash generated by our business and provides useful information regarding cash flows remaining for discretionary return to stockholders, mergers and acquisitions, or debt reduction. Our balance sheet scorecard includes OFCF as a performance metric. OFCF is also an element of the performance criteria for certain annual short-term and long-term incentive awards.
The following table reconciles OFCF to cash provided by operating activities, which is the most directly comparable GAAP measure in, or calculated from, our consolidated statements of cash flows:
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
| ||||||||||||
| | | | | | | | | | | % Change |
| |||
(in U.S. dollars in millions, except percentages) | | 2022 |
| 2021 |
| 2020 |
| 2022 over 2021 |
| 2021 over 2020 | | ||||
Cash provided by operating activities | | $ | 463.1 | | $ | 317.6 | | $ | 257.9 | | | 46 | % | 23 | % |
Property, plant and equipment additions | |
| 32.0 | |
| 9.8 | |
| 14.3 | |
| 227 | % | (31) | % |
Intangible asset additions | |
| 40.0 | |
| 33.7 | |
| 28.9 | |
| 19 | % | 17 | % |
Proceeds on disposition of property plant and equipment | |
| (165.5) | |
| (1.9) | |
| (16.4) | |
| 8611 | % | (88) | % |
Net capital spending | | $ | (93.5) | | $ | 41.6 | | $ | 26.8 | | | (325) | % | 55 | % |
OFCF | | $ | 556.6 | | $ | 276.0 | | $ | 231.1 | | | 102 | % | 19 | % |
(1) | OFCF is calculated by subtracting net capital spending from cash provided by operating activities. |
| |
Ritchie Bros. |
|
Adjusted Net Income Attributable to Stockholders*Return and Adjusted Dividend Payout Ratio*ROIC Reconciliation
We believe that comparing adjusted net income attributable to stockholders*ROIC on a trailing twelve-month basis for different financial periods provides useful information about the growth or decline ofafter-tax return generated by our investments. Adjusted ROIC is a measure used by management to determine how productively the Company uses its long-term capital to gauge investment decisions.
Previously, we calculated ROIC as net income attributable to stockholders fordivided by average invested capital. During the relevant financial period and eliminatesquarter ended September 30, 2022, we updated our calculation of ROIC to better align to industry standards. ROIC is now calculated as reported return divided by average invested capital. Reported return is defined as net income attributable to stockholders excluding the financial impact of adjustingnet interest expense, tax effected at the Company’s adjusted annualized effective tax rate. We also updated the calculation of average invested capital to include average short-term debt.
Similarly, we updated our calculation of adjusted ROIC. Adjusted ROIC is calculated as adjusted return divided by adjusted average invested capital. Adjusted return is defined as reported return, updated as noted above, and adjusted for items that we do not consider to be part of our normal operating results. We believe that disclosing our adjusted dividend payout ratio* for different financial periods provides useful information about how well our net income supports our dividend payments.
The following table reconciles adjusted net income attributable to stockholders* and adjusted dividend payout ratio* to net income attributable to stockholders, and dividend payout ratio, which areresults, tax effected at the most directly comparable GAAP measuresapplicable tax rate. Adjusted average invested capital is calculated as average invested capital, updated as noted above, but excludes any long-term debt in or calculated from, our consolidated financial statements:escrow.
| | | | | | | | | | | | | | | |
| | Year ended December 31, | | ||||||||||||
| | | | |
| | |
| | | % Change | | |||
|
| | |
| | |
| | |
| 2019 over |
| 2018 over | | |
(in U.S. $millions, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||||
Dividends paid to stockholders | | $ | 82.5 | | $ | 75.7 | | $ | 72.8 | | | 9 | % | 4 | % |
Net income attributable to stockholders | | $ | 149.0 | | $ | 121.5 | | $ | 75.0 | | | 23 | % | 62 | % |
Pre-tax adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Share-based payment recovery | | | (4.1) | | | — | | | — | | | -100 | % | 0 | % |
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4.8 | |
| 0 | % | -100 | % |
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9.1 | |
| 0 | % | -100 | % |
Severance and retention | |
| — | |
| 1.5 | |
| 3.6 | |
| -100 | % | -58 | % |
Impairment loss | |
| — | |
| — | |
| 8.9 | |
| 0 | % | -100 | % |
Gain on sale of equity accounted for investment | |
| — | |
| (4.9) | |
| — | |
| 100 | % | -100 | % |
Current income tax effect of adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Acquisition and finance structure advisory | |
| — | |
| — | |
| (2.4) | |
| 0 | % | 100 | % |
Severance and retention | |
| — | |
| (0.4) | |
| (0.7) | |
| 100 | % | -43 | % |
Deferred income tax effect of adjusting items: | |
| | | | | |
|
| |
|
|
|
| |
Share-based payment recovery | | | 0.7 | | | — | | | — | | | 100 | % | 0 | % |
Severance and retention | |
| — | |
| — | |
| (0.4) | |
| 0 | % | 100 | % |
Impairment loss | |
| — | |
| — | |
| (2.4) | |
| 0 | % | 100 | % |
Current income tax adjusting item: | |
|
| |
|
| |
|
| |
|
|
|
| |
Change in uncertain tax provision | |
| — | |
| — | |
| 2.3 | |
| 0 | % | -100 | % |
Deferred tax adjusting item: | |
|
| |
|
| |
|
| |
|
|
|
| |
Remeasurement of deferred taxes | |
| — | |
| — | |
| (10.1) | |
| 0 | % | 100 | % |
Adjusted net income attributable to stockholders* | | $ | 145.6 | | $ | 117.7 | | $ | 87.7 | | | 24 | % | 34 | % |
Dividend payout ratio | |
| 55.4 | % |
| 62.3 | % |
| 97.1 | % |
| -690 bps | | -3480 bps | |
Adjusted dividend payout ratio* | |
| 56.7 | % |
| 64.3 | % |
| 83.0 | % |
| -760 bps | | -1870 bps | |
These changes have been applied retrospectively to all periods presented, as applicable. Accordingly, the Company will no longer report adjusted ROIC excluding escrowed debt as one of our non-GAAP measures as previously labeled.
| |
Ritchie Bros. |
|
Adjusted Net Income Attributable to Stockholders* and ROIC* Reconciliation
We believe that comparing ROIC on a trailing 12-month basis for different financial periods, provides useful information about the after-tax return generated by our investments.
The following table reconciles adjusted net income attributable to stockholders*return and ROIC*adjusted ROIC to net income attributable to stockholders and return onadjusted average invested capital to average invested capital, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements:
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
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| | | | |
| | |
| | | % Change |
| |||
|
| | |
| | |
| | |
| 2019 over |
| 2018 over | | |
(in U.S. $millions, except percentages) |
| 2019 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | | ||||
Net income attributable to stockholders | | $ | 149.0 | | $ | 121.5 | | $ | 75.0 | | | 23 | % | 62 | % |
Pre-tax adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Share-based payment recovery | | | (4.1) | | | — | | | — | | | -100 | % | 0 | % |
Accelerated vesting of assumed options | |
| — | |
| — | |
| 4.8 | |
| 0 | % | -100 | % |
Acquisition and finance structure advisory | |
| — | |
| — | |
| 9.1 | |
| 0 | % | -100 | % |
Severance and retention | |
| — | |
| 1.5 | |
| 3.6 | |
| -100 | % | -58 | % |
Impairment loss | |
| — | |
| — | |
| 8.9 | |
| 0 | % | -100 | % |
Gain on sale of equity accounted for investment | |
| — | |
| (4.9) | |
| — | |
| 100 | % | -100 | % |
Current income tax effect of adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Acquisition and finance structure advisory | |
| — | |
| — | |
| (2.4) | |
| 0 | % | 100 | % |
Severance and retention | |
| — | |
| (0.4) | |
| (0.7) | |
| 100 | % | -43 | % |
Deferred income tax effect of adjusting items: | |
|
| |
|
| |
|
| |
|
|
|
| |
Share-based payment recovery | | | 0.7 | | | — | | | — | | | 100 | % | 0 | % |
Severance and retention | |
| — | |
| — | |
| (0.4) | |
| 0 | % | 100 | % |
Impairment loss | |
| — | |
| — | |
| (2.4) | |
| 0 | % | 100 | % |
Current income tax adjusting item: | |
|
| |
|
| |
|
| |
|
|
|
| |
Change in uncertain tax provision | |
| — | |
| — | |
| 2.3 | |
| 0 | % | -100 | % |
Deferred tax adjusting item: | |
|
| |
|
| |
|
| |
|
|
|
| |
Remeasurement of deferred taxes | |
| — | |
| — | |
| (10.1) | |
| 0 | % | 100 | % |
Adjusted net income attributable to stockholders* | | $ | 145.6 | | $ | 117.7 | | $ | 87.7 | | | 24 | % | 34 | % |
Opening long-term debt | | $ | 711.3 | | $ | 812.9 | | $ | 595.7 | | | -12 | % | 36 | % |
Ending long-term debt | |
| 645.5 | |
| 711.3 | |
| 812.9 | | | -9 | % | -12 | % |
Average long-term debt | | | 678.4 | | | 762.1 | | | 704.3 | | | -11 | % | 8 | % |
Opening stockholders' equity | | $ | 830.6 | | $ | 739.7 | | $ | 687.1 | | | 12 | % | 8 | % |
Ending stockholders' equity | |
| 901.8 | |
| 830.6 | |
| 739.7 | | | 9 | % | 12 | % |
Average stockholders' equity | |
| 866.2 | |
| 785.2 | |
| 713.4 | | | 10 | % | 10 | % |
Average invested capital | | $ | 1,544.7 | | $ | 1,547.3 | | $ | 1,417.7 | | | 0 | % | 9 | % |
| | | | | | | | | | | | | | | |
Return on average invested capital | |
| 9.6 | % |
| 7.9 | % |
| 5.3 | % | | 170 bps | | 260 bps | |
ROIC* | |
| 9.4 | % |
| 7.6 | % |
| 6.2 | % | | 180 bps | | 140 bps | |
| | | | | | | | | | | | | | | |
| | Year ended December 31, |
| ||||||||||||
| | | |
| | |
| | |
| 2022 over |
| 2021 over | | |
(in U.S. dollars in millions, except percentages) | | 2022 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income attributable to stockholders | | $ | 319.7 | | $ | 151.9 | | $ | 170.0 | | | 110 | % | (11) | % |
Add: | | | | | | | | | | | | | | | |
Interest expense | | | 57.9 | | | 37.0 | | | 35.6 | | | 56 | % | 4 | % |
Interest income | | | (7.0) | | | (1.4) | | | (2.3) | | | 400 | % | (39) | % |
Interest, net | | | 50.9 | | | 35.6 | | | 33.3 | | | 43 | % | 7 | % |
Tax on interest, net | | | (12.7) | | | (9.1) | | | (9.1) | | | 40 | % | — | % |
Reported return | | $ | 357.9 | | $ | 178.4 | | $ | 194.2 | | | 101 | % | (8) | % |
| | | | | | | | | | | | | | | |
Add: | | | | | | | | | | | | | | | |
Share-based payments expense | |
| 37.0 | |
| 23.1 | |
| 21.9 | |
| 60 | % | 5 | % |
Acquisition-related costs | |
| 37.3 | |
| 30.2 | |
| 6.0 | |
| 24 | % | 403 | % |
Amortization of acquired intangible assets | | | 33.4 | | | 28.0 | | | 21.1 | | | 19 | % | 33 | % |
Loss (gain) on disposition of property, plant and equipment and related costs | | | (166.9) | | | (1.4) | | | (1.6) | | | 11,821 | % | (13) | % |
Change in fair value of derivatives | |
| (1.3) | |
| 1.2 | |
| — | |
| (208) | % | 100 | % |
Non-recurring advisory, legal and restructuring costs | |
| 5.1 | |
| 3.5 | |
| 3.9 | |
| 46 | % | (10) | % |
Related tax effects of the above | |
| (4.0) | |
| (20.3) | |
| (20.5) | |
| (80) | % | (1) | % |
Change in uncertain tax provision - tax effect | |
| — | |
| — | |
| 7.8 | |
| — | % | (100) | % |
Adjusted return | | $ | 298.5 | | $ | 242.7 | | $ | 232.7 | | | 23 | % | 4 | % |
| | | | | | | | | | | | | | | |
Short-term debt - opening balance | | $ | 6.1 | | $ | 29.1 | | $ | 4.7 | | | (79) | % | 519 | % |
Short-term debt - ending balance | | | 29.1 | | | 6.1 | | | 29.1 | | | 377 | % | (79) | % |
Average short-term debt | | | 17.6 | | | 17.6 | | | 16.9 | | | — | % | 4 | % |
Long-term debt - opening balance | | | 1,737.4 | | | 636.7 | | | 645.5 | | | 173 | % | (1) | % |
Less: long-term debt in escrow | | | (933.5) | | | — | | | — | | | (100) | % | — | % |
Adjusted opening long-term debt | | | 803.9 | | | 636.7 | | | 645.5 | | | 26 | % | (1) | % |
Long-term debt - ending balance | |
| 581.5 | |
| 1,737.4 | |
| 636.7 | | | (67) | % | 173 | % |
Less: long-term debt in escrow | | | — | | | (933.5) | | | — | | | (100) | % | (100) | % |
Adjusted ending long-term debt | | | 581.5 | | | 803.9 | | | 636.7 | | | (28) | % | 26 | % |
Average long-term debt | | | 1,159.5 | | | 1,187.1 | | | 641.1 | | | (2) | % | 85 | % |
Adjusted average long-term debt | | | 692.7 | | | 720.3 | | | 641.1 | | | (4) | % | 12 | % |
Stockholders' equity - opening balance | | | 1,070.7 | | | 1,007.2 | | | 901.8 | | | 6 | % | 12 | % |
Stockholders' equity - ending balance | |
| 1,289.6 | |
| 1,070.7 | |
| 1,007.2 | | | 20 | % | 6 | % |
Average stockholders' equity | |
| 1,180.2 | |
| 1,039.0 | |
| 954.5 | | | 14 | % | 9 | % |
Average invested capital | | $ | 2,357.3 | | $ | 2,243.7 | | $ | 1,612.5 | | | 5 | % | 39 | % |
Adjusted average invested capital | | $ | 1,890.5 | | $ | 1,776.9 | | $ | 1,612.5 | | | 6 | % | 10 | % |
| | | | | | | | | | | | | | | |
ROIC | |
| 15.2 | % |
| 8.0 | % |
| 12.0 | % | | 720 | bps | (400) | bps |
Adjusted ROIC | |
| 15.8 | % |
| 13.7 | % |
| 14.4 | % | | 210 | bps | (70) | bps |
(1) | Please refer to |
(2) |
(3) |
(4) |
| |
Ritchie Bros. |
|
Adjusting items for the year ended December 31, 2019:2022:
Recognized in the fourth quarter of 20192022
● | $ |
● | $22.2 million |
● | $8.2 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet, SmartEquip, and Rouse. |
● | $0.9 million loss on disposition of property, plant and equipment and related costs includes a $1.3 million non-cash cost in the quarter relating to the adjustment made to recognize the Bolton property sale proceeds at fair value when calculating the $169.0 million gain on the Bolton property in the first quarter of 2022, partially offset by $0.3 million gain on disposition of property, plant and equipment in the quarter. |
● | $0.2 million of non-recurring advisory, legal and restructuring costs relating to retention costs in connection with the restructuring of our |
Recognized in the third quarter of 20192022
● |
● | $2.0 million of acquisition-related costs primarily relating to the share-based continuing employment costs for the acquisitions of Rouse and SmartEquip. |
● | $8.2 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet, SmartEquip, and Rouse. |
● | $0.9 million loss on disposition of property, plant and equipment and related costs includes a $1.3 million non-cash cost in the |
● | $1.5 million of non-recurring advisory, legal and restructuring costs, which include $1.1 million of terminated and ongoing transaction and legal costs relating to mergers and acquisition activity, $0.3 million of severance and retention costs in connection with the restructuring of our information technology team during the first quarter of 2022, driven by our strategy to build a new digital technology platform, and $0.1 million of advisory costs relating to a cybersecurity incident detected in the fourth quarter of 2021. |
Recognized in the second quarter of 20192022
● |
Recognized in the first quarter of 2019
● |
● | $8.4 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet, SmartEquip, and Rouse. |
● | $1.2 million loss on disposition of property, plant and equipment and related costs includes a $1.3 million non-cash cost in the quarter relating to the adjustment |
Adjusting items for the year ended December 31, 2018:
Recognized in the fourth quarter of 2018
Recognized in the third quarter of 2018
● | $ |
● | $1.1 million |
Recognized in the second quarter of 2018
Recognized in the first quarter of 2018
Adjusting items for the year ended December 31, 2017:
Recognized in the fourth quarter of 2017
Recognized in the third quarter of 2017
Recognized in the second quarter of 2017
Recognized in the first quarter of 2017
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Ritchie Bros. |
|
Recognized in the first quarter of 2022
● | $5.4 million share-based payments expense. |
● | $8.5 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet, SmartEquip, and Rouse. |
● | $169.8 million gain recognized on the disposition of property, plant and equipment of which $169.1 million related to the sale of a property located in Bolton, Ontario. |
● | $9.6 million of acquisition-related costs related to the proposed acquisition of Euro Auctions and the completed acquisitions of SmartEquip and Rouse. |
● | $1.3 million gain due to the change in fair value of derivatives to manage our exposure to foreign currency exchange rate fluctuations on the purchase consideration for the proposed acquisition of Euro Auctions. |
● | $2.3 million of non-recurring advisory, legal and restructuring costs, which include $0.9 million related to severance and retention costs in connection with the restructuring of our information technology team driven by our strategy to build a new digital technology platform, $0.5 million of terminated and ongoing transaction and legal costs relating to mergers and acquisition activity, $0.4 million of SOX remediation costs, and $0.6 million of advisory costs relating to a cybersecurity incident detected in the fourth quarter of 2021. |
Adjusting items for the year ended December 31, 2021:
Recognized in the fourth quarter of 2021
● | $6.2 million share-based payments expense. |
● | $7.9 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet, SmartEquip, and Rouse. |
● | $14.0 million of acquisition-related costs related to the proposed acquisition of Euro Auctions and the completed acquisitions of SmartEquip and Rouse. |
● | $0.1 million gain recognized on the disposition of property, plant and equipment. |
● | $1.3 million loss due to the change in fair value of derivatives to manage our exposure to foreign currency exchange rate fluctuations on the purchase consideration for the proposed acquisition of Euro Auctions. |
● | $2.6 million of non-recurring advisory, legal and restructuring costs, which include $1.4 million of terminated and ongoing transaction and legal costs relating to mergers and acquisition activity, $0.7 million of SOX remediation costs relating to our efforts to remediate the material weaknesses identified in 2020, and $0.5 million of advisory costs relating to a cybersecurity incident detected in the fourth quarter of 2021. |
Recognized in the third quarter of 2021
● | $5.6 million share-based payments expense. |
● | $6.6 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet and Rouse. |
● | $10.3 million of acquisition-related costs related to the acquisitions of Rouse, and SmartEquip and proposed acquisition of Euro Auctions. |
● | $1.1 million gain recognized on the sale of a property in Denver, Colorado. |
● | $0.7 million of non-recurring advisory, legal and restructuring costs related to SOX remediation costs relating to our efforts to remediate the material weaknesses identified in 2020, which has been retrospectively applied to the third quarter of 2021. |
Recognized in the second quarter of 2021
● | $7.5 million share-based payments expense. |
● | $6.8 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet and Rouse. |
● | $3.0 million of acquisition-related costs related to the acquisition of Rouse. |
● | $0.2 million gain recognized on the disposition of property, plant and equipment. |
● | $0.2 million of non-recurring advisory, legal and restructuring costs related to SOX remediation costs relating to our efforts to remediate the material weaknesses identified in 2020, which has been retrospectively applied to the second quarter of 2021. |
Recognized in the first quarter of 2021
● | $3.8 million share-based payments expense. |
● | $6.6 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet and Rouse. |
● | $2.9 million of acquisition-related costs related to the acquisition of Rouse. |
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Ritchie Bros. | 68 |
Adjusting items for the year ended December 31, 2020:
Recognized in the fourth quarter of 2020
● | $4.6 million share-based payments expense. |
● | $5.6 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet and Rouse. |
● | $6.0 million of acquisition-related costs related to the acquisition of Rouse. |
● | $1.5 million of current income tax expense recognized related to an unfavourable adjustment to reflect final regulations published in the second quarter of 2020 regarding hybrid financing arrangements. |
Recognized in the third quarter of 2020
● | $8.6 million share-based payments expense. |
● | $5.0 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet. |
● | $0.3 million gain recognized on the disposition of property, plant and equipment. |
● | $3.9 million of severance costs, recognized in non-recurring advisory, legal and restructuring costs, related to the realignment of leadership to support the new global operations organization, in line with strategic growth priorities led by the new CEO. These severance costs were reclassified to non-recurring advisory, legal and restructuring costs in 2021. |
Recognized in the second quarter of 2020
● | $6.4 million share-based payments expense. |
● | $4.9 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet. |
● | $1.2 million gain recognized on the sales of property in Manchester, New Hampshire and in St. Louis, Missouri. |
● | $6.2 million tax expense related to an unfavourable adjustment to reflect final regulations published regarding hybrid financing arrangements, of which $0.8 million relates to current income tax expense. |
Recognized in the first quarter of 2020
● | $2.4 million share-based payments expense. |
● | $5.5 million amortization of acquired intangible assets primarily from the acquisitions of Iron Planet. |
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Ritchie Bros. | 69 |
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
We conduct operations in local currencies in countries around the world, but we use the U.S. dollar as our presentation currency. As a result, we are exposed to currency fluctuations and exchange rate risk. We cannot accurately predict the future effects of foreign currency fluctuations on our financial condition or results of operations, ornor quantify their effects on the macroeconomic environment. The proportion of revenues denominated in currencies other than the U.S. dollar in a given period will differ from the annual proportion for the year ended December 31, 2019,2022, which was 42%, depending on the size and location of auctions held during the period. On an annual basis, we expect fluctuations in revenues and operating expenses to largely offset and generally act as a natural hedge against exposure to fluctuations in the value of the U.S. dollar.
During 2019,2022, we recorded a net decrease in our foreign currency translation adjustment balance of $2.9$29.2 million, compared to a net decrease of $13.8$21.7 million in 2018 and a net increase of $24.6 million in 2017.2021. Our foreign currency translation adjustment arises from the translation of our net assets denominated in currencies other than the U.S. dollar to the U.S. dollar for reporting purposes. Based on our exposures to foreign currency transactions as at December 31, 2019,2022, and assuming all other variables remain constant, a 10% appreciation or depreciation of the Canadian dollar and Euro against the U.S. dollar would result in an increase/decrease of approximately $28.4$34.7 million in our consolidated comprehensive income, of which $26.8$35.2 million relates to our foreign currency translation adjustment and $1.6is offset by $0.5 million to our net income.
We enter into forward contracts to protect against foreign currency exchange rate risks related to certain intercompany balances denominated in currencies other than the U.S. dollar.
Interest Rate Risk
Loans under our syndicated and foreign credit facilities bear interest, at our option, at a rate equal to either a base rate (or Canadian prime rate for certain Canadian dollar borrowings) or LIBOR (or such floating rate customarily used by the syndicate for currencies other than U.S. dollars).and depending on the borrowing currency, including LIBOR, SOFR, SONIA, €STR, EURIBOR, and TIBOR. In either case, an applicable margin is added to the rate. As atAt December 31, 2019,2022, we had a total of $159.3$114.6 million in loans (short-term facilities(facilities drawn and term loans) bearing floating rates of interest, as compared to $242.1$319.1 million at December 31, 2018.2021. Based on the amount owing as at December 31, 2019,2022, and assuming all other variables remain constant, a change in the interest rate by 100 bps would result in an increase/decrease of approximately $1.6$1.1 million in the pre-tax interest we accrue per annum.
Our exposure to interest rate risk decreased atAt December 31, 2019 compared to December 31, 2018, primarily due to the repayment of $76.3 million of term loans during 2019. The Notes of US $500.0 million, which represent 76%2022, fixed rate debt (the 2016 Notes) represents 82% of our long-term debt bearand bears interest at a fixed rate of 5.375% per annum.annum (2021: 91% of our long-term debt bearing interest at fixed rates between 4.750% and 5.375% per annum). The proportion of fixed-to-floating interest ratesdebt is expectedanticipated to increase as we makechange upon consummation of the IAA merger and the related funding of the $1.8 billion of new Term Loan A commitments, which are floating rate, and from the issuance of any debt securities and/or additional debt financing required principal repayments on our term loans and execute on our debt management strategies.to complete the proposed acquisition of IAA. We continue to monitor our exposure to interest rate risk, and while we have not adopted a long-term hedging strategy to protect against interest rate fluctuations associated with our variable rate debt, we may consider hedging specific borrowings if we deem it appropriate in the future.
Inflation
Although we cannot accurately anticipate the future effect of inflation on our financial condition or results of operations, inflation historically has not had a material impact on our operations.
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Ritchie Bros. |
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data should be read in conjunction with “Part II, Item 6: Selected Financial Data” of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ritchie Bros. Auctioneers Incorporated
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ritchie Bros. Auctioneers Incorporated (the “Company““Company”) as of December 31, 20192022 and 2018,2021, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “consolidated financial statements“statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with USU.S. generally accepted accounting principles.
Adoption of New Accounting Standard
As discussed in Note 2(y) to the consolidated financial statements, the Company changed its method for accounting for leases in 2019.
Report on Internal Control over Financial Reporting
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’sCompany's internal control over financial reporting as of December 31, 2019,2022, based on the criteria established in Internal Control –- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 202021, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company‘sCompany's management. Our responsibility is to express an opinion on the Company‘s consolidatedCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the USU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
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Ritchie Bros. |
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Valuation of Goodwill related to the SmartEquip and | ||
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Description of the Matter |
| At December 31,
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Auditing management’s annual goodwill impairment |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review, including controls over management’s review of the significant assumptions described above.
Our substantive procedures to test the Company’s estimated fair |
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/s/Ernst & Young LLP
Chartered Professional Accountants
We have served as the Company‘s auditor since 2013.
Vancouver, Canada
February 27, 202021, 2023
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Ritchie Bros. |
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Consolidated Income Statements
(Expressed in thousands of United States dollars, except share and per share data)
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Year ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| | 2022 |
| 2021 |
| 2020 | ||||||
Revenue: | | | | | | | | | | | | | | | | | | | |
Service revenue | | $ | 804,024 | | $ | 749,515 | | $ | 624,417 | | | $ | 1,050,583 | | $ | 917,759 | | $ | 871,596 |
Inventory sales revenue | |
| 514,617 | |
| 420,511 | |
| 346,774 | | |
| 683,225 | |
| 499,212 | |
| 505,664 |
Total revenue | |
| 1,318,641 | |
| 1,170,026 | |
| 971,191 | | |
| 1,733,808 | |
| 1,416,971 | |
| 1,377,260 |
| | | | | | | | | | | | | | | | | | | |
Operating expenses: | |
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| | |
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Costs of services | |
| 164,977 | |
| 159,058 | |
| 133,189 | | |
| 168,127 | |
| 155,258 | |
| 164,528 |
Cost of inventory sold | |
| 480,839 | |
| 374,339 | |
| 306,498 | | |
| 608,574 | |
| 447,921 | |
| 458,293 |
Selling, general and administrative expenses | |
| 382,389 | |
| 382,676 | |
| 323,270 | ||||||||||
Selling, general and administrative | | |
| 539,933 | |
| 456,203 | |
| 410,291 | |||||||||
Acquisition-related costs | |
| 777 | |
| 5,093 | |
| 38,272 | | |
| 37,261 | |
| 30,197 | |
| 6,014 |
Depreciation and amortization expenses | |
| 70,501 | |
| 66,614 | |
| 52,694 | ||||||||||
Gain on disposition of property, plant and equipment | |
| (1,107) | |
| (2,731) | |
| (1,656) | ||||||||||
Impairment loss | |
| — | |
| — | |
| 8,911 | ||||||||||
Depreciation and amortization | | |
| 97,155 | |
| 87,889 | |
| 74,921 | |||||||||
Foreign exchange (gain) loss | |
| (2,937) | |
| (212) | |
| 2,559 | | |
| (954) | |
| 792 | |
| 1,612 |
Total operating expenses | |
| 1,095,439 | |
| 984,837 | |
| 863,737 | | |
| 1,450,096 | |
| 1,178,260 | |
| 1,115,659 |
Gain on disposition of property, plant and equipment | | | | 170,833 | | | 1,436 | | | 1,559 | |||||||||
Operating income | |
| 223,202 | |
| 185,189 | |
| 107,454 | | |
| 454,545 | |
| 240,147 | |
| 263,160 |
| | | | | | | | | | | | | | | | | | | |
Interest expense | |
| (41,277) | |
| (44,527) | |
| (38,291) | | |
| (57,880) | |
| (36,993) | |
| (35,568) |
Interest income | | | | 6,971 | | | 1,402 | | | 2,337 | |||||||||
Change in fair value of derivatives, net | | |
| 1,263 | |
| (1,248) | |
| — | |||||||||
Other income, net | |
| 8,838 | |
| 11,850 | |
| 8,231 | | |
| 1,089 | |
| 1,924 | |
| 5,959 |
Income before income taxes | |
| 190,763 | |
| 152,512 | |
| 77,394 | | |
| 405,988 | |
| 205,232 | |
| 235,888 |
| | | | | | | | | | | | | | | | | | | |
Income tax expense (recovery): | |
|
| |
|
| |
|
| ||||||||||
Current income tax | |
| 32,797 | |
| 24,767 | |
| 19,356 | ||||||||||
Deferred income tax | |
| 8,826 | |
| 6,239 | |
| (17,268) | ||||||||||
| |
| 41,623 | |
| 31,006 | |
| 2,088 | ||||||||||
| | | | | | | | | | ||||||||||
Income tax expense | | | | 86,230 | | | 53,378 | | | 65,530 | |||||||||
Net income | | $ | 149,140 | | $ | 121,506 | | $ | 75,306 | | | $ | 319,758 | | $ | 151,854 | | $ | 170,358 |
| | | | | | | | | | | | | | | | | | | |
Net income attributable to: | |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
|
Stockholders | | $ | 149,039 | | $ | 121,479 | | $ | 75,027 | | | $ | 319,657 | | $ | 151,868 | | $ | 170,095 |
Non-controlling interests | |
| 101 | |
| 27 | |
| 279 | | |
| 101 | |
| (14) | |
| 263 |
Net income | | $ | 149,140 | | $ | 121,506 | | $ | 75,306 | | | $ | 319,758 | | $ | 151,854 | | $ | 170,358 |
| | | | | | | | | | | | | | | | | | | |
Earnings per share attributable to stockholders: | |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
|
Basic | | $ | 1.37 | | $ | 1.12 | | $ | 0.70 | | | $ | 2.89 | | $ | 1.38 | | $ | 1.56 |
Diluted | | $ | 1.36 | | $ | 1.11 | | $ | 0.69 | | | $ | 2.86 | | $ | 1.36 | | $ | 1.54 |
| | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding: | |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
|
Basic | |
| 108,519,739 | |
| 108,063,349 | |
| 107,044,348 | | |
| 110,781,282 | |
| 110,315,782 | |
| 109,054,493 |
Diluted | |
| 109,759,123 | |
| 109,388,236 | |
| 108,113,151 | | |
| 111,886,025 | |
| 111,406,830 | |
| 110,310,984 |
See accompanying notes to the consolidated financial statements.
| |
Ritchie Bros. |
|
Consolidated Statements of Comprehensive Income
(Expressed in thousands of United States dollars)
| | | | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | | |
Year ended December 31, |
| 2019 |
| 2018 |
| 2017 | | 2022 |
| 2021 |
| 2020 | ||||||
| | | | | | | | | | | | | | | | | | |
Net income | | $ | 149,140 | | $ | 121,506 | | $ | 75,306 | | $ | 319,758 | | $ | 151,854 | | $ | 170,358 |
Other comprehensive income (loss), net of income tax: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Foreign currency translation adjustment | |
| (2,836) | |
| (13,792) | |
| 24,670 | |
| (29,154) | |
| (21,712) | |
| 24,861 |
| | | | | | | | | | |||||||||
Total comprehensive income | | $ | 146,304 | | $ | 107,714 | | $ | 99,976 | | $ | 290,604 | | $ | 130,142 | | $ | 195,219 |
| | | | | | | | | | | | | | | | | | |
Total comprehensive income attributable to: | |
|
| |
|
| |
|
| |||||||||
Total comprehensive income (loss) attributable to: | |
|
| |
|
| |
|
| |||||||||
Stockholders | | $ | 146,217 | | $ | 107,716 | | $ | 99,639 | | $ | 290,526 | | $ | 130,190 | | $ | 194,899 |
Non-controlling interests | |
| 87 | |
| (2) | |
| 337 | |
| 78 | |
| (48) | |
| 320 |
| | $ | 146,304 | | $ | 107,714 | | $ | 99,976 | | $ | 290,604 | | $ | 130,142 | | $ | 195,219 |
See accompanying notes to the consolidated financial statements.
| |
Ritchie Bros. |
|
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share data)
| | | | | | | | | | | | |
As at December 31, |
| 2019 |
| 2018 | ||||||||
| | December 31, | | December 31, | ||||||||
|
| 2022 |
| 2021 | ||||||||
Assets | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash and cash equivalents | | $ | 359,671 | | $ | 237,744 | | $ | 494,324 | | $ | 326,113 |
Restricted cash | |
| 60,585 | |
| 67,823 | |
| 131,622 | |
| 102,875 |
Trade and other receivables | |
| 137,402 | |
| 129,257 | |
| 186,448 | |
| 150,895 |
Less: allowance for credit losses | | | (3,268) | | | (4,396) | ||||||
Inventory | |
| 64,956 | |
| 113,294 | |
| 103,050 | |
| 102,494 |
Other current assets | |
| 50,160 | |
| 49,055 | |
| 48,341 | |
| 64,346 |
Income taxes receivable | |
| 6,810 | |
| 6,365 | |
| 2,600 | |
| 19,895 |
Total current assets | |
| 679,584 | |
| 603,538 | |
| 963,117 | |
| 762,222 |
| | | | | | | | | | | | |
Restricted cash | | | — | | | 933,464 | ||||||
Property, plant and equipment | |
| 484,482 | |
| 486,599 | |
| 459,137 | |
| 449,087 |
Other non-current assets | |
| 145,679 | |
| 29,395 | |
| 163,375 | |
| 142,504 |
Intangible assets | |
| 233,380 | |
| 245,622 | |
| 322,652 | |
| 350,516 |
Goodwill | |
| 672,310 | |
| 671,594 | |
| 948,816 | |
| 947,715 |
Deferred tax assets | |
| 13,995 | |
| 15,648 | |
| 6,630 | |
| 7,406 |
Total assets | | $ | 2,229,430 | | $ | 2,052,396 | | $ | 2,863,727 | | $ | 3,592,914 |
| | | | | | | | | | | | |
Liabilities and Equity | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | |
Auction proceeds payable | | $ | 276,188 | | $ | 203,503 | | $ | 425,716 | | $ | 292,789 |
Trade and other payables | |
| 194,279 | |
| 201,255 | ||||||
Trade and other liabilities | |
| 294,763 | |
| 280,308 | ||||||
Income taxes payable | |
| 7,809 | |
| 2,312 | |
| 41,307 | |
| 5,677 |
Short-term debt | |
| 4,705 | |
| 19,896 | |
| 29,118 | |
| 6,147 |
Current portion of long-term debt | |
| 18,277 | |
| 13,126 | |
| 4,386 | |
| 3,498 |
Total current liabilities | |
| 501,258 | |
| 440,092 | |
| 795,290 | |
| 588,419 |
| | | | | | | | | | | | |
Long-term debt | |
| 627,204 | |
| 698,172 | |
| 577,111 | |
| 1,733,940 |
Other non-current liabilities | |
| 151,238 | |
| 41,980 | |
| 147,290 | |
| 147,260 |
Deferred tax liabilities | |
| 42,743 | |
| 35,519 | |
| 53,961 | |
| 52,232 |
Total liabilities | |
| 1,322,443 | |
| 1,215,763 | |
| 1,573,652 | |
| 2,521,851 |
| | | | | | | | | | | | |
Commitments | |
|
| |
|
| ||||||
Contingencies | |
|
| |
|
| ||||||
Contingently redeemable performance share units | |
| — | |
| 923 | ||||||
Commitments and Contingencies (Note 27 and Note 28 respectively) | |
| | | | | ||||||
Stockholders' equity: | |
|
| |
|
| |
|
| |
|
|
Share capital: | |
|
| |
|
| |
|
| |
|
|
Common stock; 0 par value, unlimited shares authorized, issued and outstanding shares: 109,337,781 (December 31, 2018: 108,682,030) | |
| 194,771 | |
| 181,780 | ||||||
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 110,881,363 (December 31, 2021: 110,618,049) | |
| 246,283 | |
| 227,504 | ||||||
Additional paid-in capital | |
| 52,110 | |
| 56,885 | |
| 85,261 | |
| 59,535 |
Retained earnings | |
| 714,051 | |
| 648,255 | |
| 1,043,169 | |
| 839,609 |
Accumulated other comprehensive loss | |
| (59,099) | |
| (56,277) | |
| (85,104) | |
| (55,973) |
Stockholders' equity | |
| 901,833 | |
| 830,643 | |
| 1,289,609 | |
| 1,070,675 |
Non-controlling interest | |
| 5,154 | |
| 5,067 | ||||||
Non-controlling interests | |
| 466 | |
| 388 | ||||||
Total stockholders' equity | |
| 906,987 | |
| 835,710 | |
| 1,290,075 | |
| 1,071,063 |
Total liabilities and equity | | $ | 2,229,430 | | $ | 2,052,396 | | $ | 2,863,727 | | $ | 3,592,914 |
See accompanying notes to the consolidated financial statements.
| |
Ritchie Bros. |
|
Consolidated Statements of Changes in Equity
(Expressed in thousands of United States dollars, except where noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Attributable to stockholders | | | | | | | | Contingently | | Attributable to stockholders | | | | | | | |||||||||||||||||||||||||
|
| |
| | |
| Additional |
| | |
| Accumulated |
| Non- |
| | |
| redeemable |
| |
| | |
| Additional |
| | |
| Accumulated |
| Non- |
| | | |||||||
| | Common stock | | paid-In | | | | | other | | controlling | |
| | | performance | | Common stock | | paid-In | | | | | other | | controlling | |
| | |||||||||||||
| | Number of | | | | | capital | | Retained | | comprehensive | | interest | | Total | | share units | | Number of | | | | | capital | | Retained | | comprehensive | | interest | | Total | |||||||||||
| | shares | | Amount | | ("APIC") | | earnings | | loss | | ("NCI") | | equity | | ("PSUs") | | shares | | Amount | | ("APIC") | | earnings | | income (loss) | | ("NCI") | | equity | |||||||||||||
Balance, December 31, 2016 |
| 106,822,001 | | $ | 125,474 | | $ | 27,638 | | $ | 601,071 | | $ | (67,126) | | $ | 4,773 | | $ | 691,830 | | $ | 3,950 | ||||||||||||||||||||
Balance, December 31, 2019 |
| 109,337,781 | | $ | 194,771 | | $ | 52,110 | | $ | 714,051 | | $ | (59,099) | | $ | 5,154 | | $ | 906,987 | |||||||||||||||||||||||
Net income |
| — | |
| — | |
| — | |
| 75,027 | |
| — | |
| 279 | |
| 75,306 | |
| — |
| — | |
| — | |
| — | |
| 170,095 | |
| — | |
| 263 | |
| 170,358 |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 24,612 | |
| 58 | |
| 24,670 | |
| — | ||||||||||||||||||||
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| 24,804 | |
| 57 | |
| 24,861 | |||||||||||||||||||||||
|
| — | |
| — | |
| — | |
| 75,027 | |
| 24,612 | |
| 337 | |
| 99,976 | |
| — |
| — | |
| — | |
| — | |
| 170,095 | |
| 24,804 | |
| 320 | |
| 195,219 |
Change in value of contingently redeemable NCI |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | ||||||||||||||||||||
Stock option exercises |
| 444,571 | |
| 13,017 | |
| (3,081) | |
| — | |
| — | |
| — | |
| 9,936 | |
| — |
| 1,563,941 | |
| 55,669 | |
| (11,541) | |
| — | |
| — | |
| — | |
| 44,128 |
Issuance of common stock related to vesting of share units | | 187,825 | | | 3,181 | | | (9,900) | | | — | | | — | | | — | | | (6,719) | |||||||||||||||||||||||
Issuance of common stock related to business combinations | | 312,193 | | | — | | | 1,459 | | | — | | | — | | | — | | | 1,459 | |||||||||||||||||||||||
Share-based continuing employment costs related to business combinations |
| — | |
| — | |
| 802 | |
| — | |
| — | |
| — | |
| 802 | |||||||||||||||||||||||
Stock option compensation expense |
| — | |
| — | |
| 13,700 | |
| — | |
| — | |
| — | |
| 13,700 | |
| — |
| — | | | — | | | 5,853 | | | — | | | — | | | — | | | 5,853 |
Assumption of stock options on acquisition of IronPlanet |
| — | |
| — | |
| 2,330 | |
| — | |
| — | |
| — | |
| 2,330 | |
| — | ||||||||||||||||||||
Settlement of equity-classified PSUs | | 3,211 | | | 91 | | | | | | | | | | | | | | | 91 | | | (172) | ||||||||||||||||||||
Modification of PSUs |
| — | |
| — | |
| — | |
| (382) | |
| — | |
| — | |
| (382) | |
| 1,803 | ||||||||||||||||||||
Equity-classified share units expense |
| — | |
| — | |
| 340 | |
| — | |
| — | |
| — | |
| 340 | |
| 3,189 |
| — | |
| — | |
| 9,897 | |
| — | |
| — | |
| — | |
| 9,897 |
Equity-classified share units dividend equivalents |
| — | |
| — | |
| 78 | |
| (227) | |
| — | |
| — | |
| (149) | |
| 149 |
| — | |
| — | |
| 491 | |
| (491) | |
| — | |
| — | |
| — |
Change in value of contingently redeemable equity-classified PSUs |
| — | |
| — | |
| — | |
| (95) | |
| — | |
| — | |
| (95) | |
| 95 | ||||||||||||||||||||
Cash dividends paid |
| — | |
| — | |
| — | |
| (72,785) | |
| — | |
| (41) | |
| (72,826) | |
| — |
| — | |
| — | |
| — | |
| (91,737) | |
| — | |
| (320) | |
| (92,057) |
Balance, December 31, 2017 |
| 107,269,783 | | $ | 138,582 | | $ | 41,005 | | $ | 602,609 | | $ | (42,514) | | $ | 5,069 | | $ | 744,751 | | $ | 9,014 | ||||||||||||||||||||
Shares repurchased | | (1,525,312) | | | (53,170) | | | — | | | — | | | — | | | — | | | (53,170) | |||||||||||||||||||||||
Balance, December 31, 2020 |
| 109,876,428 | | $ | 200,451 | | $ | 49,171 | | $ | 791,918 | | $ | (34,295) | | $ | 5,154 | | $ | 1,012,399 | |||||||||||||||||||||||
Net income |
| — | |
| — | |
| — | |
| 121,479 | |
| — | |
| 27 | |
| 121,506 | |
| — |
| — | |
| — | |
| — | |
| 151,868 | |
| — | |
| (14) | |
| 151,854 |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| (13,763) | |
| (29) | |
| (13,792) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (21,678) | |
| (34) | |
| (21,712) |
|
| — | |
| — | |
| — | |
| 121,479 | |
| (13,763) | |
| (2) | |
| 107,714 | |
| — |
| — | |
| — | |
| — | |
| 151,868 | |
| (21,678) | |
| (48) | |
| 130,142 |
Stock option exercises |
| 1,235,154 | |
| 37,308 | |
| (8,784) | |
| — | |
| — | |
| — | |
| 28,524 | |
| — |
| 495,021 | |
| 20,013 | |
| (3,763) | |
| — | |
| — | |
| — | |
| 16,250 |
Issuance of common stock related to vesting of share units | | 177,093 | | | 5,890 | | | (1,662) | | | (326) | | | — | | | — | | | 3,902 | | | (7,803) |
| 238,139 | |
| 2,276 | |
| (11,724) | |
| — | |
| — | |
| — | |
| (9,448) |
Acquisition of remaining interest in NCI | | — | | | — | | | (1,170) | | | 70 | | | — | | | (4,614) | | | (5,714) | |||||||||||||||||||||||
Issuance of common stock related to business combinations | | 63,971 | | | — | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||
Forfeiture of common stock related to business combinations | | (55,510) | | | — | | | (98) | | | — | | | — | | | — | | | (98) | |||||||||||||||||||||||
Share-based continuing employment costs related to business combinations | | — | | | 4,764 | | | 6,105 | | | — | | | — | | | — | | | 10,869 | |||||||||||||||||||||||
Stock option compensation expense |
| — | |
| — | |
| 8,252 | |
| — | |
| — | |
| — | |
| 8,252 | |
| — |
| — | |
| — | |
| 8,365 | |
| — | |
| — | |
| — | |
| 8,365 |
Modification of PSUs |
| — | |
| — | |
| 12,365 | |
| 958 | |
| — | |
| — | |
| 13,323 | |
| (6,622) | ||||||||||||||||||||
Equity-classified share units expense |
| — | |
| — | |
| 5,384 | |
| — | |
| — | |
| — | |
| 5,384 | |
| 5,872 |
| — | |
| — | |
| 12,199 | |
| — | |
| — | |
| — | |
| 12,199 |
Equity-classified share units dividend equivalents |
| — | |
| — | |
| 325 | |
| (678) | |
| — | |
| — | |
| (353) | |
| 353 |
| — | |
| — | |
| 450 | |
| (450) | |
| — | |
| — | |
| — |
Change in fair value of contingently redeemable PSUs |
| — | |
| — | |
| — | |
| (109) | |
| — | |
| — | |
| (109) | |
| 109 | ||||||||||||||||||||
Cash dividends paid |
| — | |
| — | |
| — | |
| (75,678) | |
| — | |
| — | |
| (75,678) | |
| — |
| — | |
| — | |
| — | |
| (103,797) | |
| — | |
| (104) | |
| (103,901) |
Balance, December 31, 2018 |
| 108,682,030 | | $ | 181,780 | | $ | 56,885 | | $ | 648,255 | | $ | (56,277) | | $ | 5,067 | | $ | 835,710 | | $ | 923 | ||||||||||||||||||||
Balance, December 31, 2021 |
| 110,618,049 | | $ | 227,504 | | $ | 59,535 | | $ | 839,609 | | $ | (55,973) | | $ | 388 | | $ | 1,071,063 | |||||||||||||||||||||||
Net income |
| — | |
| — | |
| — | |
| 149,039 | |
| — | |
| 101 | |
| 149,140 | |
| — |
| — | |
| — | |
| — | |
| 319,657 | |
| — | |
| 101 | |
| 319,758 |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (2,822) | |
| (14) | |
| (2,836) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (29,131) | |
| (23) | |
| (29,154) |
|
| — | |
| — | |
| — | |
| 149,039 | |
| (2,822) | |
| 87 | |
| 146,304 | |
| — |
| — | |
| — | |
| — | |
| 319,657 | |
| (29,131) | |
| 78 | |
| 290,604 |
Stock option exercises |
| 1,672,022 | |
| 49,117 | |
| (8,023) | |
| — | |
| — | |
| — | |
| 41,094 | |
| — |
| 159,920 | |
| 7,226 | |
| (1,354) | |
| — | |
| — | |
| — | |
| 5,872 |
Issuance of common stock related to vesting of share units |
| 207,403 | |
| 5,886 | |
| (10,064) | |
| 1 | |
| — | |
| — | |
| (4,177) | |
| (1,083) |
| 103,394 | |
| 2,905 | |
| (6,814) | |
| — | |
| — | |
| — | |
| (3,909) |
Share-based continuing employment costs related to business combinations | | — | | | 8,648 | | | (1,148) | | | — | | | — | | | — | | | 7,500 | |||||||||||||||||||||||
Stock option compensation expense |
| — | |
| — | |
| 4,697 | |
| — | |
| — | |
| — | |
| 4,697 | |
| — |
| — | |
| — | |
| 12,145 | |
| — | |
| — | |
| — | |
| 12,145 |
Equity-classified share units expense |
| — | |
| — | |
| 7,933 | |
| — | |
| — | |
| — | |
| 7,933 | |
| 114 |
| — | |
| — | |
| 22,019 | |
| — | |
| — | |
| — | |
| 22,019 |
Equity-classified share units dividend equivalents |
| — | |
| — | |
| 682 | |
| (709) | |
| — | |
| — | |
| (27) | |
| 46 |
| — | |
| — | |
| 878 | |
| (878) | |
| — | |
| — | |
| — |
Cash dividends paid |
| — | |
| — | |
| — | |
| (82,535) | |
| — | |
| — | |
| (82,535) | |
| — |
| — | |
| — | |
| — | |
| (115,219) | |
| — | |
| — | |
| (115,219) |
Shares repurchased |
| (1,223,674) | |
| (42,012) | |
| — | |
| — | |
| — | |
| — | |
| (42,012) | |
| — | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Balance, December 31, 2019 |
| 109,337,781 | | $ | 194,771 | | $ | 52,110 | | $ | 714,051 | | $ | (59,099) | | $ | 5,154 | | $ | 906,987 | | $ | — | ||||||||||||||||||||
Balance, December 31, 2022 |
| 110,881,363 | | $ | 246,283 | | $ | 85,261 | | $ | 1,043,169 | | $ | (85,104) | | $ | 466 | | $ | 1,290,075 |
See accompanying notes to the consolidated financial statements.
| |
Ritchie Bros. |
|
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
| | | | | | | | | | | | | | | | | | |
Year ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| 2022 |
| 2021 | | 2020 | ||||||
Cash provided by (used in): |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Operating activities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net income | | $ | 149,140 | | $ | 121,506 | | $ | 75,306 | | $ | 319,758 | | $ | 151,854 | | $ | 170,358 |
Adjustments for items not affecting cash: | |
| | |
|
| |
|
|
|
|
|
|
| | |
|
|
Depreciation and amortization expenses | |
| 70,501 | |
| 66,614 | |
| 52,694 | |||||||||
Impairment loss | |
| — | |
| — | |
| 8,911 | |||||||||
Stock option compensation expense | |
| 4,697 | |
| 8,252 | |
| 13,700 | |||||||||
Equity-classified share units expense | |
| 8,047 | |
| 11,256 | |
| 3,529 | |||||||||
Deferred income tax expense (recovery) | |
| 8,826 | |
| 6,239 | |
| (17,268) | |||||||||
Depreciation and amortization | |
| 97,155 | |
| 87,889 | |
| 74,921 | |||||||||
Share-based payments expense | |
| 41,664 | |
| 31,335 | |
| 16,552 | |||||||||
Deferred income tax expense | |
| (253) | |
| 3,859 | |
| 9,152 | |||||||||
Unrealized foreign exchange (gain) loss | |
| (3,058) | |
| 951 | |
| 254 | |
| (6,468) | |
| (107) | |
| 2,453 |
Gain on disposition of property, plant and equipment | |
| (1,107) | |
| (2,731) | |
| (1,656) | |
| (170,833) | |
| (1,436) | |
| (1,559) |
Loss on redemption of the 2021 Notes | | | 4,792 | | | — | | | — | |||||||||
Amortization of debt issuance costs | |
| 4,086 | |
| 4,995 | |
| 3,056 | |
| 3,872 | |
| 2,926 | |
| 3,123 |
Gain on disposition of equity investment | |
| — | |
| (4,935) | |
| — | |||||||||
Amortization of right-of-use assets | | | 12,280 | | | — | | | — | | | 19,373 | | | 12,832 | | | 12,240 |
Gain on contingent consideration from equity investment | | | — | | | — | | | (1,700) | |||||||||
Change in fair value of derivatives | | | (1,263) | | | 1,248 | | | — | |||||||||
Other, net | |
| 2,779 | |
| (2,317) | |
| (1,237) | |
| 4,076 | |
| 2,752 | |
| 1,466 |
Net changes in operating assets and liabilities | |
| 76,602 | |
| (65,550) | |
| 10,279 | |
| 151,182 | |
| 24,434 | |
| (29,134) |
Net cash provided by operating activities | |
| 332,793 | |
| 144,280 | |
| 147,568 | |
| 463,055 | |
| 317,586 | |
| 257,872 |
Investing activities: | |
| | |
|
| |
|
| |
| | |
|
| |
|
|
Acquisition of IronPlanet, net of cash acquired | |
| — | |
| — | |
| (675,851) | |||||||||
Acquisitions, net of cash acquired | |
| (63) | |
| (170,976) | |
| (250,039) | |||||||||
Property, plant and equipment additions | |
| (13,589) | |
| (16,860) | |
| (10,812) | |
| (31,972) | |
| (9,816) | |
| (14,263) |
Proceeds on disposition of property, plant and equipment | |
| 165,542 | |
| 1,911 | |
| 16,385 | |||||||||
Intangible asset additions | |
| (27,415) | |
| (26,152) | |
| (28,584) | |
| (39,965) | |
| (33,671) | |
| (28,873) |
Proceeds on disposition of property, plant and equipment | |
| 5,929 | |
| 10,586 | |
| 4,985 | |||||||||
Proceeds on disposal of equity investment | |
| — | |
| 6,147 | |
| — | |||||||||
Issuance of loans receivable | | | (22,037) | | | (2,622) | | | (9,071) | |||||||||
Repayment of loans receivable | | | 5,487 | | | 1,108 | | | 3,227 | |||||||||
Distribution from equity investment | | | — | | | — | | | 4,212 | |||||||||
Proceeds on contingent consideration from equity investment | |
| — | |
| — | |
| 1,700 | |||||||||
Other, net | |
| (982) | |
| (4,674) | |
| (692) | |
| 340 | |
| — | |
| — |
Net cash used in investing activities | |
| (36,057) | |
| (30,953) | |
| (710,954) | |||||||||
Net cash provided by (used in) investing activities | |
| 77,332 | |
| (214,066) | |
| (276,722) | |||||||||
Financing activities: | |
| | |
|
| |
|
| |
| | |
|
| |
|
|
Share repurchase | | | (42,012) | | | — | | | — | | | — | | | — | | | (53,170) |
Dividends paid to stockholders | |
| (82,535) | |
| (75,678) | |
| (72,785) | |
| (115,219) | |
| (103,797) | |
| (91,737) |
Acquisition of remaining interest in NCI | | | — | | | (5,556) | | | — | |||||||||
Dividends paid to NCI | |
| — | |
| — | |
| (41) | |
| — | |
| (104) | |
| (320) |
Issuances of share capital | |
| 41,094 | |
| 28,524 | |
| 9,936 | |||||||||
Proceeds from exercise of options and share option plans | |
| 5,872 | |
| 16,250 | |
| 44,128 | |||||||||
Payment of withholding taxes on issuance of shares | |
| (5,260) | |
| (3,901) | |
| — | |
| (3,955) | |
| (9,283) | |
| (6,656) |
Proceeds from short-term debt | |
| 13,169 | |
| 19,715 | |
| 6,971 | |||||||||
Repayment of short-term debt | |
| (28,684) | |
| (6,628) | |
| (24,479) | |||||||||
Net increase (decrease) in short-term debt | | | 776 | | | (21,608) | | | 21,431 | |||||||||
Proceeds from long-term debt | |
| — | |
| — | |
| 325,000 | |
| — | |
| 1,106,957 | |
| — |
Repayment of long-term debt | |
| (76,282) | |
| (91,013) | |
| (108,985) | | | (1,131,000) | | | (5,328) | |
| (13,711) |
Debt issue costs | |
| — | |
| — | |
| (12,624) | |
| (4,257) | |
| (5,655) | |
| (2,038) |
Repayment of finance lease obligations | |
| (6,708) | |
| (3,950) | |
| (2,322) | |
| (10,339) | |
| (10,968) | |
| (9,388) |
Other, net | |
| — | |
| (1,176) | |
| (1,408) | |||||||||
Net cash provided by (used in) financing activities | |
| (187,218) | |
| (134,107) | |
| 119,263 | |
| (1,258,122) | |
| 960,908 | |
| (111,461) |
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash | |
| 5,171 | |
| (4,769) | |
| 17,150 | |
| (18,771) | |
| (8,871) | |
| 16,950 |
Increase (decrease) | |
| 114,689 | |
| (25,549) | |
| (426,973) | |||||||||
(Decrease) Increase | |
| (736,506) | |
| 1,055,557 | |
| (113,361) | |||||||||
Beginning of period | |
| 305,567 | |
| 331,116 | |
| 758,089 | |
| 1,362,452 | |
| 306,895 | |
| 420,256 |
Cash, cash equivalents, and restricted cash, end of period | | $ | 420,256 | | $ | 305,567 | | $ | 331,116 | | $ | 625,946 | | $ | 1,362,452 | | $ | 306,895 |
See accompanying notes to the consolidated financial statements.
| |
Ritchie Bros. |
|
Notes to the Consolidated Financial Statements |
|
(Tabular amounts expressed in thousands of United States dollars, except where noted) |
|
1. General informationInformation
Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”, “Ritchie Bros.”, “we”, “us”, or “our”) provide global asset managementa marketplace for insights, services and disposition services, offeringtransaction solutions for commercial assets. The Company offers its customers end-to-end transaction solutions for buying and selling used industrial equipmentcommercial and other durable assets through its unreserved live on siteomnichannel platform, which includes auctions, online marketplaces, listing services, and private brokerage services. The Company also offers a wide array of value-added services connected to commercial assets as well as asset management software and data as a service solutions to help customers make more accurate and reliable business decisions. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”).
2. Significant accounting policiesAccounting Policies
(a) Basis of preparationPreparation
These financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting policies have been consistently applied, except as otherwise noted, in the preparation of the consolidated financial statements.
Unless otherwise indicated, all amounts in the following tables are in thousands except share and per share amounts.
On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia’s invasion of Ukraine, sharply affecting economic and global financial markets. Subsequent economic sanctions of Russia have exacerbated ongoing economic challenges, including issues such as rising inflation, increasing fuel costs and global supply chain disruption. The Company does not have any direct or significant operations in Russia or Ukraine, or any material operations in neighboring countries and only has limited number of direct customers in the effected region. The extent of the ongoing impacts of the conflict on our operational and financial performance, the impact of higher fuel costs globally adding to inflationary pressures, including our ability to execute on our business strategies and initiatives and sustain our operations in Europe and globally, will depend on future developments, including the continued evolution of military activity and sanctions imposed with Russia’s invasion of Ukraine. Given the evolving nature of the crisis, the Company cannot currently reasonably estimate the impacts of the conflict on its business operations, results of operations, cash flows or financial performance.
Reclassification
Certain amounts in the prior period financial statements have been reclassified from selling, general and administrative expenses to costs of services for certain employee costs related to equipment inspections to conform to the presentation of the current period financial statements.
(b) Basis of consolidationConsolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and non-wholly owned subsidiaries in which the Company has a controlling financial interest either through voting rights or means other than voting rights. All inter-company transactions and balances have been eliminated on consolidation. Where the Company’s ownership interest in a consolidated subsidiary is less than 100%, the non-controlling interests’ share of these non-wholly owned subsidiaries is reported in the Company’s consolidated balance sheets as a separate component of equity or within temporary equity. The non-controlling interests’ share of the net income of these non-wholly owned subsidiaries is reported in the Company’s consolidated income statements as a deduction from the Company’s net earnings to arrive at net income attributable to stockholders of the Company.
Investments in entities that the Company has the ability to exercise significant influence over, but not control, are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial costs and are adjusted for subsequent additional investments and the Company's share of earnings or losses and distributions.
| |
Ritchie Bros. | 78 |
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(b) Basis of Consolidation (continued)
The Company consolidates variable interest entities (“VIEs”) if the Company has (a) the power to direct matters that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. For VIEs where the Company has shared power with unrelated parties, the Company uses the equity method of accounting to report their results. The determination of the primary beneficiary involves judgment.
(c) Revenue recognitionRecognition
Revenues are comprised of:
● | Service revenue, including the following: |
i. | Revenue from auction and marketplace (“A&M”) activities, including commissions earned at our live and online bidding auctions, online marketplaces, and private brokerage services where we act as an agent for consignors of equipment and other assets, and various auction-related fees, including listing and buyer transaction fees; and |
ii. | Other services revenue, including revenue from listing services, refurbishment, logistical services, financing, |
| |
|
|
|
|
|
|
2. Significant accounting policies (continued)
(c) Revenue recognition (continued)
● | Inventory sales revenue as part of A&M activities |
The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service, or a series of distinct goods or services, to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The transaction price is reduced by estimates of variable consideration such as volume rebates and discounts. All estimates, which are evaluated at each reporting period, are based on the Company’s historical experience, anticipated volumes, and best judgment. For live event-based auctions or online auctions, revenue is recognized when the auction sale is complete and the Company has determined thatperformance obligation is satisfied at the sale proceeds are collectible.end of the auction process. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Service revenuesRevenues
Commissions from sales at the Company’s auctions represent the percentage earned by the Company on the gross proceeds from equipment and other assets sold at auction. The majority of the Company’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor.
The Company accepts equipment and other assets on consignment stimulatingand stimulates buyer interest through professional marketing techniques and matchesby matching sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering an item for sale on its online marketplaces, the Company also performs inspections.
Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage of the hammerwinning bid price of the property sold at auction. Fees are also charged to sellers for listing and inspecting equipment. Other revenue earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees.
On
| |
Ritchie Bros. | 79 |
Notes to the fallConsolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(c) Revenue Recognition (continued)
Service Revenues (continued)
With the final acceptance of the auctioneer’s hammer,winning bid, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer pricewinning bid of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer pricewinning bid less any seller’s commissions. Commission and fee revenue are recognized on the date of the auction sale upon the fallfinal acceptance of the auctioneer’s hammer.winning bid.
Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. HistoricallyThe Company recognizes a provision for expected collapsed or cancelled sales havewhich is the Company’s best estimate of the service revenues relating to transactions which may not been material.complete and where the buyer may default on its obligation. The Company determines the provision based on historical collapse experience, customer data and reasonable and supportable forecasts of the outcome of such transactions.
Online marketplace commission revenue is reduced by a provision for disputes, which is an estimate of disputed items that are expected to be settled at a cost to the Company, related to settlements of discrepancies under the Company’s equipment condition certification program. The equipment condition certification refers to a written inspection report provided to potential buyers that reflects the condition of a specific piece of equipment offered for sale, and includes ratings, comments, and photographs of the equipment following inspection by one of the Company’s equipment inspectors.
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|
|
|
|
2. Significant accounting policies (continued)
(c) Revenue recognition (continued)
Service revenues (continued)
The equipment condition certification provides that a buyer may file a written dispute claim during an eligible dispute period for consideration and resolution at the sole determination of the Company if the purchased equipment is not substantially in the condition represented in the inspection report. Typically disputes under the equipment condition certification program are settled with minor repairs or additional services, such as washing or detailing the item; the estimated costs of such items or services are included in the provision for disputes.
Commission revenue areis recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee risk and reward sharing arrangement.
Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time.
Other services revenue also includes fees for refurbishment, logistical services, financing, appraisal feesappraisals, data and software subscriptions, and other ancillary and transactional service fees. Fees are recognized in the period in which the service is provided or the product is delivered to the customer.
| |
Ritchie Bros. | 80 |
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(c) Revenue Recognition (continued)
Inventory sales revenueSales Revenue
Underwritten commission contracts can take the form of inventory contracts. Revenue related to inventory contracts is recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.
OnWith the fallfinal acceptance of the auctioneer’s hammer,winning bid, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer pricewinning bid of the property purchased. Title to the property is transferred in exchange for the hammerwinning bid price, and if applicable, the buyer transaction fee plus applicable taxes. In a private treaty transaction where inventory is sold in a private process or inventory contracts are sold on our online marketplaces, commission and fee revenue is recognized on the date the buyer has obtained control of the asset.
(d) Costs of servicesServices
Costs of services incurred in earning A&M revenues are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenue, and earning other fee revenue. Direct expenses include direct labour,labor, buildings and facilities charges, travel, advertising and promotion costs and fees paid to unrelated third parties who introduce the Company to equipment sellers who sell property at the Company's auctions and marketplaces.
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|
2. Significant accounting policies (continued)
(d) Costs of services (continued)to operate our online marketplace revenue excludes hosting costs where we leverage a shared infrastructure that supports both our internal technology requirements and external sales to our customers.
Costs of services incurred to earn online marketplace revenue in addition to the costs listed above also include inspection costs. Inspections are generally performed at the seller’s physical location. The cost of inspections includes payroll costs and related benefits for the Company’s employees that perform and manage field inspection services, the related inspection report preparation and quality assurance costs, fees paid to contractors who perform field inspections, related travel and incidental costs for the Company’s inspection service organization, and office and occupancy costs for its inspection services personnel. Costs of earning online marketplace revenue also include costs for the Company’s customer support, online marketplace operations, logistics, and title and lien investigation functions.
Costs of services incurred in earning other fee revenue include ancillary and logistical service expenses, direct labourlabor (including commissions on sales), cloud infrastructure and hosting costs, software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.
(e) Cost of inventory soldInventory Sold
Cost of inventory sold includes the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis.
| |
Ritchie Bros. | 81 |
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(f) Share-based paymentsPayments
The Company classifies a share-based payment award as an equity or liability payment based on the substantive terms of the award and any related arrangement.
Equity-classified Share-based Payments
The cost of equity-settled share-based paymentspayment arrangements is recorded based on the estimated fair-value at the grant date and charged to earnings over the vesting period.
Share unit plansUnit Plans
The Company has a senior executive performance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date. If the PSU includes a market condition, the Company assesses the probability of satisfying the market condition in its estimate of fair value. PSUs vest based on the passage of time and achievement of performance criteria.criteria or market conditions. Share-based compensation expense for PSUs with a market condition is recognized regardless of whether the market condition is satisfied subject to continuing service over the requisite service period.
The Company also has a senior executive restricted share unit (“RSU”) plan and an employee RSU plan that provides for the award of RSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle all grants on and after 2017them in shares. The cost of RSUs granted is measured at the fair value of the underlying RSUs based on the fair value of the Company’s common shares at the grant date. RSUs vest based on the passage of time and include restrictions related to employment.
ThisThe fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.
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2. Significant accounting policies (continued)
(f) Share-based payments (continued)
Equity-classified share-based payments (continued)
Stock option plansOption Plans
The Company has three stock option compensation plans that provide for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model.date. The fair value of options expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. Upon exercise, any consideration paid on exercise of the stock options and amounts fully amortized in APIC are credited to the common shares.
Liability-classified share-based paymentsShare-based Payments
The Company maintains other share unit compensation plans that vest over a period of up to three years after grant. Under those plans, the Company is either required or expects to settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf, where the settlement amount is determined based on the average price of the Company’s common shares prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.
| |
Ritchie Bros. | 82 |
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(f) Share-based Payments (continued)
Liability-classified Share-based Payments (continued)
These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in note 24.Note 25. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest.
The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payablesliabilities while settlements due beyond 12 months of the reporting date are presented in other non-current liabilities.
(g) Leases
The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain vehicle and equipment leases, management applies a portfolio approach to account for the right-of-use ("ROU") assets and liabilities for assets leased with similar lease terms.
Operating leasesLeases
Operating leases are included in other non-current assets, trade and other payables,liabilities, and other non-current liabilities in our consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Lease expense for lease payments is recognized on a straight-line basis over the lease term and areis included in costs of services and selling, general and administrative ("SG&A") expenses.
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2. Significant accounting policies (continued)
(g) Leases (continued)
Finance leasesLeases
Finance lease ROU assets and liabilities are included in property, plant and equipment, trade and other payables,liabilities, and other non-current liabilities in our consolidated balance sheets.
Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal, purchase options, or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.
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Ritchie Bros. | 83 |
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(g) Leases (continued)
Sale and Leaseback
The transfer of the asset shall not be accounted for as a sale if the leaseback would be classified as a finance lease or a sales-type lease. For sale and leaseback transactions, the Company applies the requirements of ASC 606 Revenue from Contracts with Customers to determine whether the transfer of the asset should be accounted for as a sale and applies ASC 842 Leases when accounting for the sale and leaseback transactions. If the transfer of the asset is a sale, the Company derecognizes the underlying asset and recognizes the gain on sale of property, plant and equipment. The Company recognizes a lease obligation arising from the leaseback and the corresponding ROU asset. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, the Company will make adjustments to measure the sale proceeds at fair value. Any below-market terms are accounted for as a prepayment of lease payments and any above-market terms are accounted for as additional financing provided by the buyer-lessor. If the transaction does not qualify for sale and leaseback accounting treatment, and control of the asset has not transferred, then the asset is not derecognized, and no gain or loss is recorded as the transaction is accounted for as a financing transaction.
(h) Derivative Financial Instruments
Derivative instruments are recorded on the consolidated balance sheet at fair value. Unrealized gains and losses on derivatives not designated in a hedging relationship are recorded as part of operating income (expense) or non-operating income (expense) within change in fair value of derivatives in the consolidated income statement depending on the nature of the derivative. Fair value measurementvalues for derivative instruments are determined using inputs based on market conditions existing at the balance sheet date as well as the settlement date of the derivative, if applicable. Derivatives embedded in non-derivative contracts are recognized separately unless they are closely related to the host contract.
(i) Fair Value Measurement
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures financial instruments or discloses select non-financial assets at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortized cost are disclosed in noteNote 12.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements at fair value are categorized within a fair value hierarchy, as disclosed in noteNote 12, based on the lowest level input that is significant to the fair value measurement or disclosure. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purposes of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the assets or liability and the level of the fair value hierarchy as explained above.
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Ritchie Bros. | 84 |
(i)Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(j) Foreign currency translationCurrency Translation
The parent entity’s presentation and functional currency is the United States dollar. The functional currency for each of the parent entity’s subsidiaries is the currency of the primary economic environment in which the entity operates, which is usually the currency of the country of residency.
Accordingly, the financial statements of the Company’s subsidiaries that are not denominated in United States dollars have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the monthly average exchange rate for amounts included in the determination of earnings. Any gains or losses from the translation of asset and liability amounts are included in foreign currency translation adjustment in accumulated other comprehensive income.
In preparing the financial statements of the individual subsidiaries, transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Foreign currency differences arising on retranslation of monetary items are recognized in earnings.
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2. Significant accounting policies (continued)
(j)(k) Cash and cash equivalentsCash Equivalents
Cash and cash equivalents is comprised of cash on hand, deposits with financial institutions, and other short-term, highly liquid investments with original maturity of three months or less when acquired, that are readily convertible to known amounts of cash.
(k)(l) Restricted cashCash
In certain jurisdictions, local laws require the Company to hold cash in segregated bank accounts, which are used to settle auction proceeds payable resulting from live on siteonsite auctions and online marketplace sales conducted in those regions. In addition, the Company also holds cash generated from its online marketplace sales in separate escrow accounts, for settlement of the respective online marketplace transactions as a part of its secured escrow service. Restricted cash balances also include funds held in accounts owned by the Company in support of short-term stand-by letters of credit to provide seller security. Non-current restricted cash consists of funds that are restricted as to withdrawal or use for other than current operations and are designated for expenditure in the acquisition of non-current assets and in business combinations.
(l)(m) Trade and other receivablesOther Receivables
Trade receivables principally include amounts due from customers as a result of live on siteonsite auction and online marketplace transactions. The recorded amount reflects the purchase price of the item sold, including the Company’s commission. The allowance for doubtful accountscredit losses is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience, and customer economic data.data and reasonable and supportable forecasts of future economic conditions.
The Company reviews the allowance for doubtful accountscredit losses regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Company believes that the receivable will not be recovered.
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Ritchie Bros. | 85 |
(m) InventoriesNotes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(n) Inventory
Inventory consists of equipment and other assets purchased for resale in an upcoming live on siteonsite auction or online marketplace event. The Company typically purchases inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. In addition, certain jurisdictions require auctioneers to hold title to assets and facilitate title transfer on sale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation. As part of its government business, the Company purchases inventory for resale as part of its commitment to purchase certain surplus government property (note 26)(Note 27). The significant elements of cost include the acquisition price, in-bound transportation costs of the inventory, and make-ready costs to prepare the inventory for sale that are not selling expenses and in-bound transportation costs.expenses. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.
(n)(o) Property, plantPlant and equipmentEquipment
All property, plant and equipment are stated at cost less accumulated depreciation. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits.
The cost of self-constructed assets includes the cost of materials and direct labour,labor, any other costs directly attributable to bringing the assets to working condition for their intended use, the costs of dismantling and removing items and restoring the site on which they are located (if applicable), and capitalized interest on qualifying assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
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2. Significant accounting policies (continued)
(n) Property, plant and equipment (continued)
All repairs and maintenance costs are charged to earnings during the financial period in which they are incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item and are recognized net within operating income on the income statement.
Depreciation is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage as follows:
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Asset |
| Basis |
| Rate / term |
|
Land improvements |
| Declining balance | | 10 | % |
Buildings |
| Straight-line | | 15 - 30 | years |
Yard equipment |
| Declining balance | | 20 - 30 | % |
Automotive equipment |
| Declining balance | | 30 | % |
Computer software and equipment |
| Straight-line | | 3 - 5 | years |
Office equipment |
| Declining balance | | 20 | % |
Leasehold improvements |
| Straight-line | | Lesser of lease term or economic life | |
No depreciation is provided on freehold land or on assets in the course of construction or development. Depreciation of property, plant and equipment under capitalfinance leases is recorded in depreciation expense.
Legal obligations to retire and to restore property, plant and equipment and assets under operating leases are recorded at management’s best estimate in the period in which they are incurred, if a reasonable estimate can be made, with a corresponding increase in asset carrying value. The liability is accreted to face value over the remaining estimated useful life of the asset. The Company does not have any significant asset retirement obligations.
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Ritchie Bros. | 86 |
(o)Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(p) Long-lived assets heldAssets Held for saleSale
Long-lived assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use are classified as assets held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are measured at carrying amount in accordance with the Company’s accounting policies. Thereafter, the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell and are not depreciated. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognized in operating income on the income statement.
(p)(q) Intangible assetsAssets
Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets, including scientific research and experimental development tax credits. Costs of internally developed software and technology assets are amortized on a straight-line basis over the remaining estimated economic life of the software product.product and technology assets. Costs related to software and technology assets incurred prior to establishing technological feasibility or the beginning of the application development stage of software and technology assets are charged to operations as such costs are incurred. Once technological feasibility is established or the application development stage has begun, directly attributable costs are capitalized until the software isand technology assets are available for use.
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2. Significant accounting policies (continued)
(p) Intangible assets (continued)
Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:
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Asset |
| Basis |
| Rate / term |
Trade names and trademarks |
| Straight-line |
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Customer relationships |
| Straight-line |
| 6 - 20 years |
Software and technology assets |
| Straight-line |
| 3 - 7 years |
Backlog | | Straight-line | | 2 years |
Customer relationships includes relationships with buyers and sellers.
(q)(r) Impairment of long-livedLong-lived and indefinite-lived assetsIndefinite-lived Assets
Long-lived assets, comprised of property, plant and equipment, ROU assets, and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
Indefinite-lived intangible assets are tested annually for impairment as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amountfair value of the indefinite-lived intangible asset is less than its faircarrying value. If the qualitative assessment indicates it is not more likely than not that the carrying amountfair value is less than its faircarrying value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value.
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Ritchie Bros. | 87 |
(r)Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(s) Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.
Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amountfair value of the reporting unit to which goodwill belongs is less than its faircarrying value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s carrying amountfair value is less than its faircarrying value, a quantitative impairment test is not required.
If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting unit’s carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit.
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2. Significant accounting policies (continued)
(s)(t) Deferred financing costsFinancing Costs
Deferred financing costs represent the unamortized costs incurred on the issuance of the Company’s long-term debt. Amortization of deferred financing costs is provided on the effective interest rate method over the term of the facility. Deferred financing costs relating to the Company’s term debt are presented in the consolidated balance sheet as a direct reduction of the carrying amount of the long-term debt. Deferred financing costs relating to the Company’s revolving loans are presented on the balance sheet as a deferred charge.
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Ritchie Bros. | 88 |
(t)Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
2. Significant Accounting Policies (continued)
(u) Taxes
Income tax expense represents the sum of current tax expense and deferred tax expense.
Current taxTax
The current tax expense is based on taxable profit for the period and includes any adjustments to tax payable in respect of previous years. Taxable profit differs from income before income taxes as reported in the consolidated income statement because it excludes (i) items of income or expense that are taxable or deductible in other years and (ii) items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date.
Deferred taxTax
Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are based on temporary differences, which are differences between the accounting basis and the tax basis of the assets and liabilities, and non-capital loss, capital loss, and tax credits carryforwards are measured using the enacted tax rates and laws expected to apply when these differences reverse. Deferred tax benefits, including non-capital loss, capital loss, and tax credits carryforwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that enactment occurs. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided.
Interest and penalties related to income taxes, including unrecognized tax benefits, are recorded in income tax expense in the income statement.
Liabilities for uncertain tax positions are recorded based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.
(u) Contingently redeemable non-controlling interest
Contingently redeemable equity instruments are initially recorded at their fair value on the date of issue within temporary equity on the balance sheet. When the equity instruments become redeemable or redemption is probable, the Company recognizes changes in the estimated redemption value immediately as they occur and adjusts the carrying amount of the redeemable equity instrument to equal the estimated redemption value at the end of each reporting period. Changes to the carrying value are charged or credited to retained earnings attributable to stockholders on the balance sheet.
Redemption value determinations require high levels of judgment (“Level 3” on the fair value hierarchy) and are based on various valuation techniques, including market comparable and discounted cash flow projections.
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2. Significant accounting policies (continued)
(v) Earnings per sharePer Share
Basic earnings per share has been calculated by dividing net income attributable to stockholders by the weighted average number of common shares outstanding. Diluted earnings per share has been determined after giving effect to outstanding dilutive stock options and share units calculated by adjusting the net income attributable to stockholders and the weighted average number of shares outstanding for all dilutive shares.
(w) Defined contribution plansContribution Plans
The employees of the Company are members of retirement benefit plans to which the Company matches up to a specified percentage of employee contributions or, in certain jurisdictions, contributes a specified percentage of payroll costs as mandated by the local authorities. The only obligation of the Company with respect to the retirement benefit plans is to make the specified contributions.
(x) Advertising costsCosts
Advertising costs are expensed as incurred. Advertising expense is included in costs of services and selling, general and administrative (“SG&A”) expenses on the accompanying consolidated income statements.
(y) New and amended accounting standards
Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). The Company adopted the new standard utilizing the “optional transition method”, which permits the Company to apply the new lease standard at the adoption date. As the optional transition method is being utilized, the Company’s reporting for the comparative periods presented in the financial statements in which it adopts Topic 842 will continue to be reported pursuant to Topic 840.
On adoption, the Company elected to utilize the package of practical expedients permitted within the new standard, which among other things, allows the Company to carryforward the historical lease classification. In addition, the Company elected to utilize the hindsight practical expedient to determine the reasonably certain lease term for existing leases. While lease classification will remain unchanged, hindsight will result in generally longer accounting lease terms where the Company has determined that it is reasonably certain to exercise certain renewal options and thereby increasing the useful lives of the corresponding leasehold improvements. The Company also elected not to recognize the lease assets and liabilities for leases with an initial term of 12 months or less and will recognize those lease payments on a straight-line basis over the lease term.
On adoption of the new standard the Company recognized ROU assets of $103,897,000 with a corresponding increase in operating lease liability. Offsetting the increase in ROU assets recognized was the reclassification of prepaid rent and deferred rent liabilities to ROU assets of $5,752,000. There was no impact on retained earnings or cash flows.
The adoption of the standard had no impact on our debt-covenant compliance under our current agreements.
(z) Recent accounting standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking “methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.” To clarify or address stakeholders’ specific issues about certain aspects of ASU 2016-13, the FASB issued ASU 2019-04, Codification Improvement to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.
The Company will adopt the new standard prescribed by ASU 2016-13 and ASU 2019-04 effective January 1, 2020. The Company is currently updating processes and controls in preparation of the adoption. We do not expect the adoption of the new standard to have a material effect on our consolidated financial results.
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Ritchie Bros. |
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| Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 2. Significant Accounting Policies (continued) (y) Business Combinations Business combinations are accounted for using the acquisition method. The purchase price is determined based on the fair value of the assets transferred, liabilities incurred, and equity interest issued, after considering any transactions that are separate from the business combination. The Company allocates the aggregate of the fair value of the purchase consideration transferred to the tangible and intangible assets acquired and the liabilities assumed at their estimated fair values on the date of acquisition with any excess recorded as goodwill. The fair value determinations require judgement and may involve the use of significant estimates and assumptions, especially with respect to intangible assets and contingent liabilities. The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized to the assets and liabilities assumed, with the corresponding offset to goodwill, in the period in which the adjustment amounts are determined. Acquisition-related costs associated with the acquisition are expensed as incurred. (z) New and Amended Accounting Standards In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The update primarily addresses the accounting for contract assets and contract liabilities from revenue contracts with customers acquired in a business combination. The update requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 - Revenue from Contracts with Customers, whereas prior to the adoption of the update, contract assets acquired and contract liabilities assumed in a business combination were recognized at fair value on the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company early adopted the update as of October 1, 2021 and therefore has applied the amendments to all acquisitions completed since January 1, 2021, which includes only the acquisition of SmartEquip, which was completed on November 2, 2021.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 3. Significant The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods. Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items subject to estimates include, In December 2022, the Company performed a qualitative goodwill assessment of the A&M and Mascus reporting units, and concluded that there were no indicators of impairment. The Company performed a quantitative goodwill assessment of the Rouse and SmartEquip reporting units and concluded that the fair value of both reporting units exceeded their carrying amounts. Significant items subject to estimates and judgments in 2022 were made in accounting for the completed sale and leaseback transaction of our Bolton property (Note 18 & Note 26). The Company determined the following estimates in calculating the gain on sale: the present value of market rental payments of the Bolton property sold, the expected lease term in the leaseback arrangement and the Company’s incremental borrowing rate based on information available at the commencement date of the lease. Accounting for business combinations also requires estimates with respect to the fair value of the assets acquired and liabilities assumed. Such estimates of fair value may require valuation methods which use significant estimates and assumptions. At the acquisition of SmartEquip, we estimated the fair value of the intangible assets acquired, using valuation methods, which required management to make estimates with respect to expected future cash flows and growth rates, gross margins, attrition rates, royalty rates, discount rates, terminal value, and forecast period. The Company based these estimates on historical and anticipated results, industry trends, economic analysis, and various other assumptions that it believes are reasonable, including assumptions as to future events.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 4. Business Combinations Proposed IAA Acquisition On November 7, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization which was subsequently amended on January 22, 2023 (the “Merger Agreement”), pursuant to which it has agreed to acquire IAA, Inc. (“IAA”). Under the terms of the Merger Agreement, IAA stockholders will receive $12.80 in cash and 0.5252 shares of the Company for each share of IAA common stock they own. Pursuant to such terms, the Company will (i) issue approximately 70.3 million shares of its common stock to the stockholders of IAA and (ii) pay to the stockholders of IAA approximately $1.7 billion in cash consideration. In addition, the Company will repay approximately $1.2 billion of IAA’s net debt. Certain outstanding equity awards will also be cancelled and exchanged into equivalent outstanding equity awards covering the Company’s common shares based on the equity award exchange ratio. Upon completion of the acquisition, the Company’s shareholders will own approximately 59% of the common shares of the combined company on a fully diluted basis, IAA’s stockholders will own approximately 37%, and Starboard will own approximately 4% (Note 24). The acquisition of IAA is expected to close in the first half of 2023, subject to the satisfaction of various conditions, including, among other things, (1) the approval of the issuance of our common shares by the affirmative vote of a majority of the votes cast by holders of our outstanding common shares, (2) the adoption of the Merger Agreement by holders of a majority of the outstanding shares of IAA’s common stock, and (3) other customary closing conditions. In connection with the Merger Agreement, the Company entered into a debt commitment letter with certain financial institutions that committed to provide, subject to certain terms and conditions, a bridge loan facility in an aggregate principal amount of up to $2.8 billion and a backstop senior secured revolving credit facility in an aggregate principal amount of up to $750.0 million. On December 9, 2022, the Company subsequently closed an amendment to its existing credit agreement (Note 22) with a syndicate of lenders and obtained commitments for term loan A facility in an aggregate amount of up to $1.8 billion to be used to finance the proposed IAA acquisition. The amendment also allowed the Company to permanently terminate the backstop senior revolving credit commitments and reduce the senior secured bridge facility commitments by the amount of the term loan A facility and the amount of the existing term loans under the existing credit agreement. The Board of Directors of the Company also expectsto approve the payment of a one-time special dividend to the Company’s shareholders in the amount of $1.08 per share, contingent upon the completion of the merger and consent of the TSX. IAA stockholders will not be entitled to receive the special dividend with respect to any of the Company’s common shares received as consideration. We will not pay the special dividend if the Merger Agreement is terminated or if the merger is not completed. Furthermore, if the Merger Agreement is terminated under specified circumstances, the Company or IAA may be required to pay the other a termination amount of $189.0 million or the Company may be required to reimburse IAA for its out-of-pocket expenses incurred in connection with the Merger Agreement up to an aggregate amount of $5.0 million. VeriTread Acquisition On January 3, 2023, the Company acquired 8,889,766 units of VeriTread, LLC (“VeriTread”), a Florida limited liability company, for approximately $25.0 million from its existing unitholders and acquired another 1,056,338 units through an investment of $3.0 million cash. As a result, the Company increased its investment in VeriTread from 11% to 75%. VeriTread is a transportation technology company that provides an online marketplace solution for open deck transport, connecting shippers and service providers. Also, on January 3, 2023, the Company entered into a put/call agreement with one of the minority unitholders of VeriTread for their remaining units. Pursuant to this agreement, the minority unitholder has rights, in certain circumstances, to put its remaining units of VeriTread to the Company, subject to VeriTread achieving certain performance targets, and the Company has the right to call the remaining units of the minority unitholder upon achievement of certain integration milestones.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 4. Business Combinations (continued) SmartEquip Acquisition On November 2, 2021, the Company acquired all of the issued and outstanding common shares of SmartEquip for a total cash purchase price of $173.7 million. During 2022, the Company finalized the net working capital adjustment under the purchase agreement and increased the purchase price by $0.1 million, resulting in a total purchase price of $173.8 million. The Company also decreased the deferred tax asset acquired by $3.8 million to $5.1 million, with a corresponding adjustment to goodwill, as a result of additional information obtained about the facts and circumstances that existed at the date of the acquisition. Accordingly, the purchase price allocation was finalized. SmartEquip is an innovative technology platform that supports customers' management of the equipment lifecycle and integrates parts procurement with both original equipment manufacturers and dealers. The acquisition was accounted for in accordance with ASC 805, Business Combinations. The following table summarizes the final allocation of the purchase price to the fair value of assets acquired and liabilities assumed. SmartEquip purchase price allocation
The deferred tax assets are presented net of a valuation allowance of $0.9 million. The following table summarizes the fair values of the identifiable intangible assets acquired:
Goodwill relates to benefits expected from the acquisition of SmartEquip’s business, its assembled workforce and associated technical expertise, as well as anticipated synergies from applying the Company’s auction expertise and transactional capabilities to SmartEquip’s existing customer base. The transaction is considered a non-taxable business combination and the goodwill is not deductible for tax purposes.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 4. Business Combinations (continued) Euro Auctions Acquisition On August 9, 2021, the Company entered into a Sale and Purchase Agreement (“SPA”) pursuant to which it agreed to purchase Euro Auctions Limited, William Keys & Sons Holdings Limited, Equipment & Plant Services Ltd, and Equipment Sales Ltd. (collectively, “Euro Auctions”), each being a private limited company incorporated in Northern Ireland (the “Euro Auctions Acquisition”). Under the terms of the SPA, the Company was to acquire all of the outstanding shares of Euro Auctions from their existing shareholders for approximately £775.0 million (approximately $1.02 billion) cash consideration, to be paid on closing. On April 29, 2022, the Company made a decision to discontinue the Phase 2 review by the United Kingdom’s Competition and Markets Authority (“CMA”). The SPA automatically terminated on June 28, 2022. In addition, in April 2022, the Company terminated, without cost, its deal contingent forward currency contracts (Note 13) and on May 4, 2022, redeemed all of the 2021 Notes (Note 22) at a redemption price equal to 100% of the original offering price of the notes, plus accrued and unpaid interest. 5. Segmented The Company’s principal business activity is the management and disposition of used industrial equipment and other durable assets. The Company’s operations are comprised of
The Chief Operating Decision Maker “CODM” does not evaluate the performance of the Company’s operating segments or assess allocation of resources based on segment assets and liabilities, nor does the Company classify liabilities on a segmented basis. The carrying values of goodwill are allocated as follows to A&M and Other:
The Company’s geographic information as determined by the revenue and location of assets, which represents property, plant and equipment is as follows:
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted)
The Company’s revenue from the rendering of services and sale of inventory is as follows:
Auction related fees primarily relate to buyer transaction fees and other fees required to generate revenue from auction and marketplaces activities. Financing fees are fees earned in RBFS relating to loan origination services. Other fees include revenue from other services, including ancillary, parts, data, logistics, inspection, appraisal and online listing services.
Costs of
Acquisition-related Acquisition-related costs consist of operating expenses
During the year ended December 31,
8. Other
Other income primarily includes rental income, as well as costs relating to settlement of legal disputes. In 2020, the
9. Income The expense for the year can be reconciled to income before income taxes as follows:
The income tax expense (recovery) consists of:
The foreign provision for income taxes is based on foreign pre-tax earnings of
9. Income The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as follows:
At December 31,
The Company has capital loss carryforwards of approximately Tax losses are denominated in the currency of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax loss and tax credit carry forwards in future years.
9. Income
Interest expense and penalties related to unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December 31, In the normal course of business, the Company is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2014 to The Canada Revenue Agency (“CRA”) has been conducting audits of the Company’s 2014, 2015, 2017, 2018 and 2019 taxation years. If the CRA challenges the manner in which the Company has filed its tax returns and reported its income with respect to any of the audits, the Company will have the option to appeal any such decision. While the Company believes it is, and has been, in full compliance with Canadian tax laws and expects to vigorously contest any proposed assessments or any notice of assessments or reassessments received from the CRA, the Company is unable to predict the ultimate outcome of these audits and the final disposition of any appeals pertaining to such audits. If the CRA makes an adverse determination and the Company is unsuccessful in appealing such determination reflected in any assessment or reassessment, then the Company could incur additional income taxes, penalties, and interest, which could have a material negative effect on its operations. On February 13, 2023, the CRA issued a proposal letter to Ritchie Bros. Auctioneers (International) Ltd. asserting that one of its Luxembourg subsidiaries was resident in Canada from 2010 through 2015 and that its worldwide income should be subject to Canadian income taxation. The Luxembourg subsidiary was in operation from 2010 until 2020. In the event that the CRA issues a notice of assessment or reassessment, the Company expects to vigorously contest such notice as the Company disagrees with the assertion regarding Canadian residency. In the event that a court of competent jurisdiction makes a final determination that the income of the Luxembourg subsidiary for 2010 through 2015 was subject to Canadian income tax laws, the Company may ultimately be liable for additional total Canadian federal and provincial income tax of approximately $26.0 million - $30.0 million, exclusive of interest and penalties, for the period specified in the proposal letter. The CRA may also challenge the manner in which the Company has filed its tax returns and reported its income with respect to 2016 to 2020 taxation years and may assert that the income of the Luxembourg subsidiary was subject to Canadian income tax because the Luxembourg subsidiary was also resident in Canada during these years. The Company could then incur additional income taxes, penalties and interest which could have a material negative effect on its operations.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 10. Earnings Basic earnings per share (“EPS”) attributable to stockholders was calculated by dividing the net income attributable to stockholders by the weighted average (“WA”) number of common shares outstanding during the period. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders by the
11. Supplemental
12. Fair All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:
The carrying The Company holds derivative financial assets and liabilities that are required to be measured at fair value on a recurring basis. The fair values of the deal contingent forward contracts are determined using a probability weighted mark to market valuation and observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and an unobservable Level 3 input, the expected date of settlement. The change in the valuation of the derivatives due to the range of possible expected settlement dates was not significant to the financial statements. The fair value of the forward currency contracts are determined using observable Level 2 inputs, including foreign currency spot exchange rates and forward pricing curves. The fair value considers the credit risk of the Company and its counterparties.
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) 13. Derivative Financial Instruments The Company’s derivative financial instruments are accounted for as derivatives under ASC 815, Derivatives and Hedging, and are classified in other current assets and other current liabilities. The Company has not applied hedge accounting to these instruments. The Company enters into forward currency contracts from time to time to manage its exposure to foreign currency exchange rate fluctuations recognized by its subsidiaries on specific monetary loan receivables. In 2022, a loss of $4.6 million was recognized for the change in fair values of the forward currency contracts within foreign exchange loss (gain) in the consolidated income statement (2021: $nil). The Company also held two deal contingent foreign exchange forward currency contracts to manage its exposure to foreign currency exchange rate fluctuations against the U.S. and Canadian dollar on £343.0 million of the £775.0 million purchase consideration for the proposed Euro Auctions Acquisition. The notional amounts of the derivative instruments were £216.0 million (U.S. dollar forward) and £127.0 million (Canadian dollar forward). These forward contracts were terminated by the Company in April 2022 at no cost.
Trade receivables are generally secured by the equipment that they relate to as it is Company policy that equipment is not released until payment has been collected. Trade receivables are due for settlement within three to seven days of the date of sale, after which they are interest bearing.
Consumption taxes receivable are deemed fully recoverable unless disputed by the relevant tax authority. Other receivables are unsecured and non-interest bearing. The
At each period end, inventory is reviewed to ensure that it is recorded at the lower of cost and net realizable value. Specific consideration was given to the valuation of the surplus government inventory. The Company determined that the valuation provision During the year ended December 31,
Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted)
Advances Advances against auction contracts arise when the Company pays owners, in advance, a portion of the expected gross auction proceeds from the sale of the related assets at future auctions. The Company’s policy is to limit the amount of advances to a percentage of the estimated gross auction proceeds from the sale of the related assets, and before advancing funds, require proof of owner’s title to and equity in the assets, as well as receive delivery of the assets and title documents at a specified auction site, by a specified date and in a specified condition of repair. Advances against auction contracts are generally secured by the assets to which they relate, as the Company requires owners to provide promissory notes and security instruments registering the Company as a charge against the asset. Advances against auction contracts are usually settled within two weeks of the date of sale, as they are netted against the associated auction proceeds payable to the owner. Assets
At December 31,
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