Ritchie Bros. reports fourth quarter 2021 results

VANCOUVER, BC, Feb. 17, 2022 /PRNewswire/ - Ritchie Bros. Auctioneers Incorporated (NYSE: RBA) (TSX: RBA) (the "Company", "Ritchie Bros.", "we", "us", or "our") reported the following results for the three months ended December 31, 2021.

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

"As a result of investments we are making to accelerate growth, our services revenue grew 6% in the quarter, despite a very challenging supply environment. We are seeing an acceleration in non-GTV related services outpacing that rate, with Ritchie Bros. Financial Services growing 61%," said Ann Fandozzi, CEO of Ritchie Bros.

Fandozzi concluded "We are pleased with the momentum in our transformation to a trusted global marketplace. Total Inventory Management System (IMS) activations, the gateway into the Ritchie Bros ecosystem, increased a robust 89% compared to last quarter."

Fourth quarter highlights
Net income attributable to stockholders decreased 37% to $30.6 million, compared to $48.9 million in Q4 2020. Diluted earnings per share ("EPS") attributable to stockholders decreased 39% to $0.27 per share in Q4 2021 compared to $0.44 per share in Q4 2020. Non-GAAP diluted adjusted EPS attributable to stockholders* decreased 7% to $0.50 per share in Q4 2021 compared to $0.54 per share in Q4 2020.

In 2021, we updated the calculation of our non-GAAP diluted adjusted EPS attributable to stockholders* 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 certain non-recurring advisory, legal and restructuring costs and the change in fair value of derivatives. These adjustments in 2021 have been applied retrospectively to all periods presented, as applicable.

For the fourth quarter of 2021 as compared to the fourth quarter of 2020:

Consolidated results:

• Total revenue in Q4 2021 decreased 6% to $359.4 million
• Service revenue in Q4 2021 increased 6% to $244.8 million
• Inventory sales revenue in Q4 2021 decreased 24% to $114.6 million
• Operating income in Q4 2021 decreased 28% to $52.5 million
• Non-GAAP adjusted operating income* decreased 7% in Q4 2021 to $83.0 million
• Net income in Q4 2021 decreased 37% to $30.6 million
• Non-GAAP adjusted Earnings Before Interest, Taxes, Depreciation and Amortization* ("EBITDA) in Q4 2021 decreased 5% to $98.2 million
• Cash provided by operating activities was $317.6 million for 2021
• Cash on hand at the end of Q4 2021 was $1.4 billion, of which $326.1 million was unrestricted and $933.5 million was restricted relating to our two senior notes entered into in December 2021 to finance the proposed Euro Auctions Acquisition, and the remainder is restricted for use

Auctions & Marketplaces segment results:

• GTV¹ in Q4 2021 increased 1% to $1.5 billion and increased 0.5% when excluding the impact of foreign exchange
• A&M total revenue in Q4 2021 decreased 10% to $313.4 million
• Service revenue in Q4 2021 increased 1% to $198.8 million
• Inventory sales revenue in Q4 2021 decreased 24% to $114.6 million

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Other Services segment results:

• Other Services total revenue in Q4 2021 increased 32% to $46.0 million
• RBFS revenue in Q4 2021 increased 61% to $14.7 million
• Rouse revenue of $8.0 million was recognized in Q4 2021, which was its fourth full quarter since its acquisition on December 8, 2020
• SmartEquip revenue of $2.9 million was recognized in Q4 2021, which was its first two months since its acquisition on November 2, 2021

In addition, total number of organizations activated on our Business Inventory Management System ("IMS"), a gateway into our marketplace, increased by 89% as compared to Q3 2021.

Full year highlights
Net income attributable to stockholders for 2021 decreased 11% to $151.9 million compared to $170.1 million in 2020. Diluted earnings per share ("EPS") attributable to stockholders decreased 12% to $1.36 from $1.54 per share. Non-GAAP diluted adjusted EPS attributable to stockholders* increased 3% to $1.94 per share in 2021 as compared to $1.89 per share in 2020.

For the full year of 2021 as compared to the full year of 2020:

Consolidated results:

• Total revenue increased 3% to $1.4 billion
• Service revenue increased 5% to $917.8 million
• Inventory sales revenue decreased 1% to $499.2 million
• Operating income decreased 9% to $240.1 million
• Non-GAAP adjusted operating income* increased 3% to $323.5 million
• Net income decreased 11% to $151.9 million
• Non-GAAP adjusted Earnings Before Interest, Taxes, Depreciation and Amortization* ("EBITDA") increased 3% to $385.4 million
• Cash provided by operating activities was $317.6 million for the year ended December 31, 2021
• Cash on hand was $1.4 billion, of which $326.1 million was unrestricted and $933.5 million was restricted relating to our two senior notes entered into in December 2021 to finance the proposed Euro Auctions Acquisition, and the remainder is restricted for use

Auctions & Marketplaces segment results:

• GTV increased 2% to $5.5 billion and decreased 0.4% when excluding the impact of foreign exchange
• A&M total revenue increased 1% to $1.3 billion
• Service revenue increased 3% to $759.4 million
• Inventory sales revenue decreased 1% to $499.2 million

Other Services segment results:

• Other Services total revenue increased 20% to $158.4 million
• RBFS revenue increased 46% to $47.0 million
• Rouse revenue of $26.4 million was recognized in 2021, which was its first full year since its acquisition on December 8, 2020
• SmartEquip revenue of $2.9 million was recognized in Q4 2021, which was its first two months since its acquisition on November 2, 2021

Financial Overview
(Unaudited)

Segment Overview

Q4 2021 Consolidated Performance Overview

Total GTV increased 1% to $1.5 billion and increased 0.5% when excluding the impact of foreign exchange in Q4 2021. GTV increased in the US and International, offset by a lower performance in Canada. We continued to see strong mix adjusted price performances across all regions as a result of a high demand for used equipment and lower lot volumes from a tight supply environment. In the US, GTV increased mainly due to a large single-owner construction event in Alabama which resulted in a dispersal of $35.0 million of equipment. We also saw strong year-over year performances at our Orlando and Chehalis auctions. These increases were partially offset by lower volumes sourced from our US strategic accounts in the rental and original equipment manufacturer sectors as high asset utilization, supply chain challenges and new inventory availability continued to impact disposition volumes. In International, we saw positive year-over year performances in Australia and France which benefited from the use of our new local satellite yards, offset by softer year-over-year performances in Europe. In Canada, GTV decreased as a result of the non-repeat of a large inventory package dispersal of pipeline equipment in Grand Prairie and lower volumes in our Western region. These decreases were offset by strong results in the Canadian agricultural market with the shift to online driving a higher number of events and a larger buyer base and increased volumes in RBFS from providing escrow services for private brokered transactions.

Total revenue decreased 6% to $359.4 million in Q4 2021, with inventory sales revenue decreasing by 24%, partially offset by an increase in total service revenue of 6%.

Inventory sales revenue decreased 24% as a result of a lower mix of inventory contracts, primarily in Canada. We also saw lower inventory contracts in the US offset by higher activity in Australia which contributed to the increase in inventory sales revenue in International. In Canada, the decrease in inventory sales revenue was mainly driven by the non-repeat of a large inventory package dispersal of pipeline equipment in Grand Prairie and lower inventory volumes primarily in our Western region. In the US, we saw lower inventory volumes across several auctions, partially offset by increased volumes sold through our GovPlanet business. In addition, Australia and the Middle East had strong year-over-year performances, offset by lower inventory contracts in Europe due to the tight supply environment.

Service revenue increased 6%, with fees revenue increasing 7% and commissions revenue increasing 4%. Fee revenue increased 7% primarily due to higher fee revenue earned from the continued growth in RBFS and from a full quarter contribution from Rouse, which was acquired in early December 2020. Fee revenue increased in part due to an increase in buyer fees implemented earlier in the year as well as a re-instatement of buyer fees at the on-the-farm auctions in Canada. These increases were partially offset in the US by lower fees on mix of lower proportion of small value lots, lower listing fees from lower online volumes, and lower document fees due to a decline in the total number of titled lots sold in the US. We also saw lower fees from our Ancillary services in the US and International as some sellers have elected to forgo paint or repair services driven by a strong market demand for used equipment. Commissions revenue increased 4%, in line with the increase in Service GTV of 4%. Commission revenue increased due to strong straight commission rate performances in the US attributable to lower volumes from our US strategic accounts, and a favourable mix of contracts in our GovPlanet business. These increases were offset by softer rates in GTV contributed by RBFS from facilitating financing arrangements.

Costs of services decreased 1% to $38.8 million. This decrease was primarily due to lower inspection costs in the US driven by lower inspection activity, and lower ancillary and logistical service expenses, in line with the decrease in ancillary fees. These decreases were primarily offset by an increase in cost of services as a result of the acquisitions of SmartEquip on November 2, 2021 and Rouse on December 8, 2020.

Cost of inventory decreased 25% to $103.2 million, primarily in line with lower inventory sales revenue.

Selling, general and administrative ("SG&A") expenses increased 18% to $128.1 million. SG&A includes share-based payments of $6.2 million, non-recurring advisory, legal, and restructuring costs charges of $2.6 million, as well as SG&A from Rouse and SmartEquip of $5.8 million. The increase in SG&A was primarily due to higher wages, salaries and benefit expenses driven by a higher headcount, in part due to acquired companies, to accelerate our growth initiatives and our transformational journey to a trusted global marketplace. We also increased headcount to support enhanced financial controls and compliance. Building, facilities and technology costs increased due to higher licensing and subscription technology expenses as we shift to cloud-based solutions to improve customer experience, higher global travel expenses as COVID-19 restrictions have eased, and higher advertising and promotion costs for new tradeshow events and marketing initiatives to support new product launches.

Net income attributable to stockholders decreased 37% to $30.6 million primarily related to lower operating income. Non-GAAP adjusted net income attributed to stockholders* decreased 8% to $55.8 million in Q4 2021 compared to $60.4 million in Q4 2020.

Primarily for the same reasons noted above, diluted EPS attributable to stockholders decreased 39% to $0.27 per share for Q4 2021 from $0.44 per share in Q4 2020. Non-GAAP diluted adjusted EPS attributable to stockholders* decreased 7% to $0.50 per share in Q4 2021.

Dividend Information

Quarterly dividend
On January 13, 2022, the Company declared a quarterly cash dividend of $0.25 per common share payable on March 4, 2022 to shareholders of record on February 11, 2022.

Q4 2021 Earnings Conference Call
Ritchie Bros. is hosting a conference call to discuss its financial results for the quarter ended December 31, 2021 at 8am Pacific time / 11am Eastern time / 4pm GMT on February 18, 2022. The replay of the webcast will be available through March 18, 2022.

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

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

Forward-looking Statements
This news release contains forward-looking statements and forward-looking information within the meaning of applicable U.S. and Canadian securities legislation (collectively, "forward-looking statements"), including, in particular, statements regarding future financial and operational results, including future auctions and estimated GTV thereof, and growth and value prospects and payment of dividends. Forward-looking statements are statements that are not historical facts and are generally, although not always, identified by words such as "expect", "plan", "anticipate", "project", "target", "potential", "schedule", "forecast", "budget", "estimate", "intend", or "believe" and similar expressions or their negative connotations, or statements that events or conditions "will", "would", "may", "could", "should", or "might" occur. All such forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Forward-looking statements necessarily involve assumptions, risks and uncertainties, certain of which are beyond the Company's control, including the duration and impact of the COVID-19 pandemic on the Company's operations, the operations of customers, and general economic conditions; the numerous factors that influence the supply of and demand for used equipment; economic and other conditions in local, regional and global sectors; the Company's ability to successfully integrate acquired companies, and to receive the anticipated benefits of such acquisitions; and the risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, which are available on the SEC, SEDAR, and Company websites. The foregoing list is not exhaustive of the factors that may affect the Company's forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate, and actual results may differ materially from those expressed in, or implied by, these forward-looking statements. Forward looking statements are made as of the date of this news release and the Company does not undertake any obligation to update the information contained herein unless required by applicable securities legislation. For the reasons set forth above, you should not place undue reliance on forward looking statements.

GTV and Selected Condensed Consolidated Financial Information

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

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

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

Selected Data
(Unaudited)

Total auction metrics

Non-GAAP Measures

This news release references non-GAAP measures. Non-GAAP 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 GAAP. Non-GAAP financial measures referred to in this report are labeled as "non-GAAP measure" or designated as such with an asterisk (*).

Non-GAAP Adjusted Operating Income* Reconciliation
We believe that non-GAAP adjusted operating 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.

Non-GAAP adjusting operating income* eliminates the financial impact of adjusting items 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 the Company refers to as 'adjusting items'.

In 2021, we updated the calculation of non-GAAP adjusted operating 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 certain non-recurring advisory, legal and restructuring costs and the change in fair value of derivatives. These adjustments in 2021 have been applied retrospectively to all periods presented, as applicable.

The following table reconciles non-GAAP adjusted operating income* to operating income, which is the most directly comparable GAAP measure in our consolidated income statements.

Non-GAAP Adjusted Net Income Attributable to Stockholders* and Non-GAAP Diluted Adjusted EPS Attributable to Stockholders* Reconciliation
The Company believes that non-GAAP adjusted net income attributable to stockholders* provides useful information about the growth or decline of the net income attributable to stockholders for the relevant financial period and eliminates the financial impact of adjusting items the Company does not consider to be part of the normal operating results. Non-GAAP diluted adjusted EPS attributable to stockholders* eliminates the financial impact of adjusting items which are after-tax effects of significant recurring and non-recurring items that the Company does not consider to be part of the 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 the Company refers to as 'adjusting items'.

In 2021, the Company updated the calculation of non-GAAP diluted adjusted EPS attributable to stockholders* to add-back share-based payments expense and 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 certain non-recurring advisory, legal and restructuring costs and the change in fair value of derivatives. These adjustments in 2021 have been applied retrospectively to all periods presented, as applicable.

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

Non-GAAP Adjusted EBITDA*
The Company believes non-GAAP adjusted EBITDA* provides useful information about the growth or decline of our net income when compared between different financial periods. The Company uses non-GAAP adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period.

In 2021, the Company updated the calculation of non-GAAP adjusted EBITDA* to add-back share-based payments expense and all acquisition-related costs (including any share-based continuing employment costs recognized in acquisition-related costs), and gain or loss on disposition of property, plant and equipment. We have also adjusted for certain non-recurring advisory, legal and restructuring costs and the change in fair value of derivatives. These adjustments in 2021 have been applied retrospectively to all periods presented, as applicable.

The following table reconciles non-GAAP adjusted EBITDA* to net income, which is the most directly comparable GAAP measure in, or calculated from, our consolidated income statements:

Adjusting Items Non-GAAP Measures

In 2021, the Company began adjusting for the following items that we do not consider to be part of our normal operating results. These adjustments in 2021 have been applied retrospectively to all periods presented.

The following describes the nature of these adjusting items recognized:

• Share-based payments expense - includes stock option compensation expense, and compensation expense for equity classified share units, liability classified share units, and employer contributions related to our employee share purchase plan.
• Amortization of acquired intangible assets – includes amortization of all intangible assets acquired primarily from the acquisitions of IronPlanet, Rouse and Mascus.
• Gain or loss on disposition of property, plant and equipment – includes any gain or loss recognized for the difference between the sales proceeds and the carrying amount of the disposed property, plant and equipment.

The following are additional adjusting items which the Company does not consider to be part of its normal operating results.

Additional adjusting items for the year ended December 31, 2021:

Recognized in the fourth quarter of 2021

• $14.0 million ($11.6 million after tax, or $0.10 per diluted share) of acquisition-related costs related to the acquisitions of Rouse, SmartEquip and the proposed acquisition of Euro Auctions.
• $1.2 million ($1.1 million after tax, or $0.01 per diluted share) 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 ($1.9 million after tax, or $0.01 per diluted share) of non-recurring advisory, legal and restructuring costs which include $1.4 million ($1.0 million after tax, or $0.01 per diluted share) of terminated and ongoing transaction and legal costs relating to mergers and acquisition activity, $0.7 million ($0.5 million after tax, or $0.00 per diluted share) of SOX remediation costs relating to our efforts to remediate the material weaknesses identified in 2020, and $0.5 million ($0.4 million after tax, or $0.00 per diluted share) of advisory costs relating to a cybersecurity incident detected in Q4 2021.

Recognized in the third quarter of 2021

• $10.3 million ($8.3 million after tax, or $0.07 per diluted share) of acquisition-related costs related to the acquisitions of Rouse, Euro Auctions and SmartEquip.
• $0.7 million ($0.5 million after tax, or $0.00 per diluted share) 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 Q3 2021.

Recognized in the second quarter of 2021

• $0.2 million ($0.2 million after tax, or $0.00 per diluted share) 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 Q2 2021.

Recognized in the first quarter of 2021

• There were no adjusting items recognized in the first quarter of 2021.

Recognized in the fourth quarter of 2020

• $5.2 million ($3.9 million after tax, or $0.04 per diluted share) of acquisition-related costs related to the acquisition of Rouse.
• $1.5 million ($0.01 per diluted share) of current income tax expense recognized related to an unfavourable adjustment to reflect final regulations published in Q2 2020 regarding hybrid financing arrangements.

Recognized in the third quarter of 2020

• $4.3 million ($3.2 million after tax, or $0.03 per diluted share) of severance 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, of which $364,000 has been retrospectively recognized within share-based payments expense as an adjusting item. These severance costs were reclassified to non-recurring advisory, legal and restructuring costs in 2021.

Recognized in the second quarter of 2020

• $6.2 million ($0.06 per diluted share) 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

• There were no adjusting items recognized in the first quarter of 2020.

SOURCE Ritchie Bros. Auctioneers