Ritchie Bros. Auctioneers Incorporated (RBA)

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Ritchie Bros. Auctioneers Incorporated (RBA)

Q1 2010 Earnings Call

May 4, 2010 11:00 a.m. ET

Executives

Peter Blake - CEO

Rob Mackay - President

Jeremy Black - Vice President, Business Development

Rob McLeod - CFO

Bob Armstrong - Chief Operating Officer

Analysts

Bert Powell - BMO Capital

David Wells - Thompson Research Group

Scott Stember - Sidoti & Company

Ben Cherniavsky - Raymond James

Craig Kennison - Robert W. Baird

Gary Prestopino - Barrington Research

Mike Marburg - Ramsey

Cyrus de Weck - QVT

Presentation

Operator

Good morning. My name is Tracy and I will be your conference operator today. At this time I would like to welcome everyone to the Ritchie Brothers Auctioneers 2010 Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks will be a question and answer session. (Operator Instructions).

Thank you. Mr. Peter Blake, you may begin your conference.

Peter Blake

Thanks, Tracy. Good morning, everyone and thanks for joining us today on the Ritchie Brothers Auctioneers investor conference call for the quarter ended March 31, 2010. I'm Peter Blake, CEO of Ritchie Brothers. I'm joined by Bob Armstrong, our Chief Operating Officer, Rob Mackay, our President, Rob McLeod, our CFO and Jeremy Black, our VP of Business Development and Corporate Secretary.

Before we get into the details of what's happening so far in 2010, I'd like to make a Safe Harbor statement. The following discussion will include forward looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact are considered forward-looking and involve risks and uncertainties.

These risks and uncertainties are detailed from time to time in our SEC and Canadian securities filings, including our management's discussion and analysis of financial condition and results of operations for the period ended March 31, 2010 which will be filed this morning and is available on the SEC, SEDAR and company websites. Actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained in this call, which we'll speak only as of today's date.

We started seeing many signs of improvement at our auctions in the first quarter of 2010, signs that have provided us a measure of optimism for an economic recovery. However, we remain cautious on the outlook in several of our major markets, including the U.S. and Europe. Our GAAP for the quarter came in at $730 million, which is within the expected range we discussed on our last call.

We had anticipated the uncertain market conditions from 2009 to continue into the first part of Q1 and that’s exactly what we experienced. Right now we are optimistic that auction values and customer optimism are showing signs of sustained improvement and we are still expecting accelerating growth from our continued improving economies through the year.

Our caution stems from lingering uncertainty in economic and construction activity levels in the U.S. and Europe. Before I continue, I should point out that all of our comments today about gross auction proceeds; auction revenues and auction revenue rate exclude the $47 million in gross auction proceeds and $850,000 in auction revenues from the auction of the yacht Apoise in March 2010.

This was by far the largest single item we have ever sold and it was an exciting auction. However due to its unique nature we are excluding the results from our discussions so as not to skew our performance metrics for the quarter. It may seem disappointing to some that our adjusted net earnings for the first quarter were down $0.07, compared to the first quarter of 2009. Yet we anticipated this erosion and executed pretty much on plan for our first quarter.

The decline in earnings in Q1 was mainly due to our continued investments in our people, auction sites and systems and processes in preparation for targeted future growth. As many of you have heard us say in the past, we do not manage the business for a single quarter. We invest capital and build our team for longer-term results.

Recall that our sales force grew 14% last year. We grew an additional net 4% in the first quarter of this year and this, combined with overall FX changes have had a meaningful impact on our G&A. We will talk in more detail in a few minutes about our G&A and earnings guidance but let me assure you that our Q1 results were in line with our plan and we remain on track for the flat earnings that we forecasted on our last call.

Given the uncertainty and fragility of the global used equipment market and to ensure that we aren't caught flat-footed if things take a turn for the worse, we have taken a number of proactive steps to slow the growth in our G&A for the balance of 2010. Until we see a little more sustained certainty in the market, we intend to be extra vigilant about our operating costs growth.

We had some very exciting developments in the quarter that I would like to highlight before we start addressing some of the questions we might expect you have. We made significant steps forward in continuing implementation of our sales force automation tool, launching our new powerful industry leading website and commencing the rollout of our new timed auction system.

Each of these innovations has the potential to have a highly positive impact on our business. Our sales force automation tool has been very well received by our team and we are already seeing signs of the benefit this tool will have on our productivity. Our new website was launched two weeks ago and the feedback we have received to date has been very favorable.

The new site addresses what our customers have told us is most important when buying equipment online, more detailed high-resolution zoomable photographs and better ability to compare multiple units. Our customer focus groups and other research indicated that these features rank much higher than written inspection reports in terms of importance.

Almost 90% of our customers said they prefer to trust their own judgment rather than rely on third-party inspection reports. Another important aspect of the new site is that we have a full features in 21 languages, which makes it significantly more appealing to a much broader range of customers. This is particularly critical, considering the growth of developing economies is expected to outpace that of developed economies in the near term.

In 2009, we had more than 2.8 million purely unique visitors to our website, which represents growth of 23% over 2008. Now with our new website, we believe it will prove to be a very powerful tool for gathering market intelligence and for generating leads, particularly because the vast majority of these visitors are not yet part of our customer database.

Our new website is allowing us to extract much more information about and develop richer relationships with these customers. Our timed auction system is a computerized auction process that enables bidders to place bids online from kiosks at the auction site or through their own computers, blackberries, iPhones, or other PDAs.

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