RB Global Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

Key Takeaways

  • Strong Q1 results: Ritchie Bros. delivered double-digit GTV and service revenue growth excluding IAA, with reported GTV up 32% year-over-year and pro forma combined GTV up 1%.
  • Integration progress: Following the March 20 IAA close, the combined company—now named RB Global—has launched detailed integration planning, established a new senior leadership team, and realized $15 million of annualized cost synergies toward a $100–120 million target.
  • Q2 outlook: Management expects pro forma combined GTV growth of low to mid single digits% year-over-year, driven by continued unit volume gains in commercial construction and transportation partially offset by price pressure.
  • Service revenue & take rate expansion: Reported service revenue rose 40% YoY, with standalone Ritchie Bros. service revenue up 13% and take rate expanding 40 basis points to 17.4%, led by higher buyer fees and marketplace services.
  • Balance sheet & deleveraging: Net debt totaled $2.7 billion (5.4× trailing EBITDA or below 3× on a pro forma basis), with a commitment to reduce leverage to ~2× by Q1 2025 and pay down at least $150–175 million of debt in 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
RB Global Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session.

Operator

On your telephone keypad. And strong financial results. I would now like to turn the call over to Mr. Samir Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr.

Operator

Rathod. You may begin, sir.

Speaker 1

Thanks, and hello, and good afternoon to everyone joining team on our call today to discuss our Q1 results. Joining me on the call today are Ann Sandozi, our Chief Executive Officer and Eric Jacobs, our Chief Financial Officer. The following discussion will include forward looking statements, which can be identified by such words as expect, belief, estimate, anticipate, plan, intend, opportunity and similar expressions. Comments that are not a statement of fact, including but not limited to projections of future earnings, revenue, gross transaction value, debt and other items, and market trends and expectations regarding integration of IAA, including the anticipated cost synergies are considered forward looking and involve risks and uncertainties. The risks and uncertainties that could cause actual results to differ significantly from such forward looking statements and detailed in our news release issued this afternoon as well as our most recent quarterly report and annual report on Form 10 ks, and the most directly comparable GAAP financial measures and the applicable reconciliation of the 2, see our news release, Form 10 ks and investor presentation posted on our website.

Speaker 1

We are unable to present quantitative reconciliation of forward looking non GAAP financial measures and strong financial results as management cannot predict all the necessary components of such measures. Investors are cautioned and strong financial results. All figures discussed on today's financial results. Following the prepared remarks, we will open the call to questions. Now I'd like to turn the call over to Ann Fendesli.

Speaker 2

Thank you, Sameer, and good afternoon to everyone joining our call today. Our team continues to deliver great outcomes for our customers with unwavering focus on execution. As a result, we delivered strong Q1 performance, including double digit GTV and service revenue growth, Excluding the impact of the IAA acquisition, which closed on March 20th. Our results reflect and Acceleration in GTV Growth Late in the Quarter from our Ritchie Bros. Customers, particularly from strategic accounts.

Speaker 2

Over the past several quarters, we have discussed the supply chain issues facing strategic accounts, which have limited their ability to refresh and grow their fleets. Now, as supply chains have started to loosen for several categories and macroeconomic uncertainty has increased, We are beginning to see increased activity in our commercial construction and transportation sectors. Notwithstanding, asset mix pricing continues to be a moderate headwind. Turning to IAA, the financial results were in line with our expectations and included an 8% year over year increase in service revenue and a pro form a full quarter basis and approximately 5% decline in GTV. The increase in service revenue for IAA was primarily driven by previously implemented buyer fee increases.

Speaker 2

The GTV decline was primarily driven by lower average selling prices in line with broader industry trends as well as expected modestly lower unit volumes due to the previously announced loss of significant volume from 1 customer. Of note, we expect to cycle through the impact of this customer loss in the Q2. Excluding the loss of volume from this customer, We are starting to see a slight increase in the automotive total loss ratio to approximately 19.4% from 18.2% in the same period last year, which is positively impacting volumes. Recall car values. Lower used car values make it more economical to deem a car a total loss after an accident.

Speaker 2

With the IA acquisition now closed, we are embarking on an exciting new chapter for our business. To signify this new chapter as a combined company, we are unveiling a new corporate name, RB Global. Our new corporate identity reflects our structure as a diverse portfolio of verticals under a singular umbrella and our vision for the future of our company as a premier global marketplace leader. We will continue to do business under the Ritchie Bros. And IA brands.

Speaker 2

We expect to be united as one organization under the RB Global name. More broadly, integration is off to a strong start. We've already kicked off detailed planning through our integration management office and implemented our new senior leadership organization. I'm pleased with how quickly the team has come together and confident that the new organizational structure will allow us to drive accountability across the entire company. As we continue integrating IEA and Ritchie Bros, each member of the leadership team is focused on their area of expertise.

Speaker 2

For me personally, I'm meeting and strengthening relationships with current and prospective customers in the automotive vertical to ensure we are doing all we can to drive value for them and reinforce why RB Global is the right partner. As part of this work, We are focusing on driving the very highest levels of service to IA customers on a more consistent basis and reduce the kind of churn that the salvage industry has experience in the past. Jim Kessler, our President and Chief Operating Officer, has dived deep into the work streams that will drive significant value creation from this combination. Jim is focusing in our transaction and service offerings, which will ultimately drive revenue growth and cost savings, which will meaningfully enhance the margin profile of the combined business. We are in the process of constructing tests to validate the various opportunities strategic initiatives we highlighted during diligence, which will form the basis for prioritization and ultimate execution.

Speaker 2

As always, we will keep you informed of our learnings and progress as we move forward in the coming quarters. Our Chief Transformation and People Officer is leading the execution of IEA integration planning to drive cost synergies. In the weeks following the close of the transaction, We've already identified and implemented actions that will result in approximately $15,000,000 in annual run rate cost synergies. Based on our progress, we continue to expect to deliver $100,000,000 to $120,000,000 plus We have published our 2022 sustainability reports for both Ritchie Bros. And IAA.

Speaker 2

Both reports can be found and strong financial results under the Sustainability tab of our Investor Relations website. With that, I will now hand the call over to our Chief Financial Officer, Eric Jacobs, to discuss our financial results for the Q1 and to provide some additional outlook and commentary.

Speaker 3

Thank you, Anne. Welcome everyone who is joining our call this afternoon. Since we are including 11 days of and high end of the year. I'll make some preliminary and other remarks throughout my section quarter that we aren't expecting to repeat each quarter. First, as you look at our results, please note that we are now reporting our financials as one business segment.

Speaker 3

We made this change to reflect how we are managing the business post the acquisition of IAA and the implementation of our new senior leadership structure. As we have said previously, we view the IAA business as an additional vertical for our broader marketplace. I also want to note that we will be reporting our results on a calendar quarter basis, in line with how Ritchie Bros. Has done so in the past, differing from the 13 week fiscal quarter that IAA previously reported on. A couple more preliminary items.

Speaker 3

To aid in the modeling of the combined company and to allow you to track trends, we included 5 quarters of pro form a combined GTV and revenue data as a supplemental table in our press release today. With the acquisition, We will also update how we report gross transaction value or GTV. We will now report GTV in 3 sectors or categories: Automotive, Commercial Construction and Transportation and Other. Please note that each Company. The Rich's merger can be comprised of salvage and non salvage transactions from both Ritchie Bros.

Speaker 3

And IAA. Automotive is comprised of consumer automotive vehicles. Since automotive vehicles sold by Ritchie Bros. Are now included in this category, We will make historical volume figures reported by IAA not comparable. Commercial construction and transportation consist of construction equipment, which is also known as Yellow Iron.

Speaker 3

It also includes lift and material handling equipment, vocational transportation trucks, and government surplus verticals as well as equipment attachments and other sundry items. We believe segmenting our GTV by sector will better allow us to talk about various end market trends impacting the business. Now turning to our actual GTV results. On a reported basis, Ritchie. GTV increased 32% year over year.

Speaker 3

GTV growth for Ritchie Bros. Excluding the impact of the IA acquisition share repurchase program. This was driven by a continued rebound in unit volume growth, partially offset by lower prices, Unfavorable Asset Mix and Unfavorable Foreign Currency Exchange Rates. When you exclude the negative impact of foreign exchange, GTV growth for Ritchie Bros. Standalone increased 12%.

Speaker 3

Excluding the impact of the IA acquisition, Lot volumes were up 28% year over year in the quarter driven by strategic accounts. However, the average price per lot sold was down 14% versus and Company's Q1 of 2022. In recent quarters, I've discussed the crossover between price and volume that we are experiencing. We are cycling over the all time high pricing for the Q1 of 2022 and seeing our lot volumes increase in lower dollar value Rental and Transportation Assets. Geographically, we saw strength in Ritchie Bros.

Speaker 3

Standalone GTV growth in the United States. This growth was partially offset by declines in GTV in Canada and International due to significant auction events that did not repeat in those parts of the world

Speaker 4

and strong financial results as well as

Speaker 3

the impact of foreign currency exchange rates. On a pro form a combined basis, GTV increased 1% year over year, Driven by the strength in the commercial construction and transportation category, offset by the weakness in automotive that Anne discussed. If you plan to model GTV, we expect the trend of higher unit volumes in our commercial construction and transportation sector to continue in the 2nd quarter. This growth should be partially offset by continued pressure on average selling prices due to asset mix and softer category pricing. In the automotive sector, we are expecting a modest increase in unit volumes and continued pressure on average selling prices.

Speaker 3

Taking all this into account, We expect GTV growth in the 2nd quarter to be up low to mid single digits year over year on a pro form a combined basis. Moving now to revenue. Let me first discuss our types of revenue. Service revenues comprised of seller commissions, Ritchie's buyer fees and revenue from our marketplace services. Historically, Ritchie Bros.

Speaker 3

Was 60% commissions versus 40% buyer fees, Whereas IAA was about 20% commissions and 80% buyer fees, on a pro form a combined basis, We are at roughly 35% to 65% split between commissions and buyer fees respectively. Inventory revenue is the gross transaction value of the assets we purchase before they are subsequently resold through our marketplace. Ritchie Bros. And IAA have had inventory revenue. In the commercial construction and transportation category, Inventory revenue tends to be driven by consignor preferences, which can vary over time.

Speaker 3

In the automotive category, it's a combination of contractual obligations and vehicles purchased for dismantling, which can also vary quarter to quarter. There also tends to be more inventory revenue transactions in international markets. As a result, consignor preferences, large bulk transactions and or changes in the dollar amount of international activity could distort our total revenue growth. Therefore, we continue to suggest that investors look at our total GTV, particularly for our commercial, construction transportation sector as another metric to gauge growth and performance. Next slide, please.

Speaker 3

On an as reported basis, our service revenue increased 40% year over year and our take rate or service revenue as a percentage of DTV quarter. Excluding the impact of IA in the quarter, service revenue increased 13% with our take rate expanding 40 basis points to a take rate of 17.4%. The increase in take rate for Ritchie Bros. On a standalone basis Was driven by growth in marketplace services revenue and the impact of higher buyer fees, partially offset by lower seller commission rates. As we discussed last quarter, we expected lower commission rates due to the higher mix of GTV from Ritchie Bros.

Speaker 3

Strategic accounts. We expect this trend lower commission rates to continue in coming quarters with the expected continued growth of strategic accounts. We continue to see strong growth in SmartEquipment routes. However, Ritchie Bros. Financial Services experience stagnated growth in the Q1 due to the impacts of tighter credit standards, higher interest rates and changes in asset mix.

Speaker 3

The current environment makes it more difficult to match customers with our lending partners. In some cases, our banking partners have completely stopped lending against commercial transportation assets due to weakness in that end market. Now let me move to the next slide. On a pro form a combined basis, Service revenue increased 10% year over year, driven primarily by 160 basis point expansion in our take rate. Ritchie Bros.

Speaker 3

And IEA benefited from higher buyer fees. There was also an increase in marketplace services revenue at Ritchie Bros. The increase in buyer fees helped offset the decrease in seller commission rates, which we previously discussed. Turning to inventory revenue. On an as reported basis, our inventory revenue increased 13% year over year and Company.

Speaker 3

As previously stated, we view inventory deals as driven by customer preferences, And we leverage our data and analytics to set appropriate targets for these packages. There was 160 basis point contraction in the Ritchie Bros. Inventory rate compared to the rate in the prior year period. This decrease was due primarily to increased competition and unfavorable mix of inventory packages in the recent quarter. That said, the Ritchie Bros.

Speaker 3

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

Speaker 3

GovPlanet locations. Cost of services also includes any direct costs incurred to earn auction revenue or marketplace services. Include the cost of our inspectors for auction services and costs of services. This is consistent with how each company has historically reported. Selling, general and administrative expenses includes yards not used for events weekly, such as our typical Ritchie Bros.

Speaker 3

Yards. That also includes expenses for our corporate functions. Once again, this is consistent with our prior historical reporting. Acquisition related and integration costs include certain legal, finance and advisory and other costs related to acquisitions. It also includes integration costs such as severance.

Speaker 3

On an as reported basis, our adjusted EBITDA increased 26% year over year and our adjusted diluted earnings per share increased 24%. A substantial portion of the growth in adjusted EBITDA Ritchie Bros. Standalone basis as we continue to add the necessary resources to support higher unit volumes. In the Q1, we also invested in incremental sales people to expand our market coverage, continue driving unit growth into our marketplace and strong growth in the coming quarters. Our expenses also increased year over year due to headcount investments To process the gross and services revenue and higher levels of travel expenses associated with customer events, industry conferences and internal annual kickoff meetings.

Speaker 3

We are in the preliminary stage of determining the fair value of the assets acquired in the IAA acquisition. One adjustment that we've already made is related to IAA's prepaid consigned vehicle charges of $73,000,000 and the $12,000,000 reduction in our cost of services that would have otherwise occurred absent this purchase accounting adjustment. This adjustment will also result in additional $52,000,000 reduction in our cost of services, primarily in the Q2 of this year, share repurchase program. Any income statement benefit from the fair value adjustment of these prepaid costs community. As part of purchase accounting, it is being treated as a reduction to adjusted EBITDA and adjusted net income in the quarter when we received the benefit.

Speaker 3

As we continue to work on finalizing purchase accounting, we may identify our value adjustments, which may have an impact on our income statement in the future. Since the close of the acquisition, IEA's adjusted EBITDA has been broadly in line with our expectations, with higher service revenue As Anne noted earlier, we have started to implement our integration plan and have already actioned approximately $15,000,000 and annualized run rate cost synergies in the Q1. The cost to achieve these synergies in the Q1 was approximately $14,000,000 We previously highlighted, we expect cost savings synergies realized net of the cost to achieve those synergies

Speaker 4

To be

Speaker 3

a net $28,000,000 incremental expense for 2023. Accounting for synergies and business needs, We expect selling, general and administrative expenses to be between $175,000,000 $190,000,000 in the 2nd quarter, Exclusive of share based payments and other adjusting items. Regarding income taxes, we currently expect the effective tax rate, and strong financial results.

Speaker 4

Excluding the impact of adjusted items

Speaker 3

to be between 24% 26% for the 2nd quarter. This corresponds to a GAAP tax rate of 26 Rich. Next slide, please. As of March 31, our total net debt was approximately $2,700,000,000 and our total net debt to trailing 12 month adjusted EBITDA was 5.4 times. Note that trailing 12 months Adjusted EBITDA only includes 11 days of contribution from IAA.

Speaker 3

However, if you calculated the ratio on a pro form a basis, We would be below 3x. We remain committed to deleveraging to approximately 2x by the end of the Q1 of 2025. And strong financial results. And as part of our plan, we expect to pay down at least $150,000,000 to $175,000,000 of debt in 2023. Our forecast for interest expense in the 2nd quarter is expected to be between $65,000,000 $68,000,000 Including the amortization of deferred financing costs.

Speaker 3

Our total blended interest rate is currently approximately 8%. At the end of the quarter, our fixed to floating interest rate mix was approximately 40% to 60% respectively. Just a quick note on capital expenditures. We previously sold our Bolton facility for $169,000,000 pretax gain in the Q1 of 2022 and strong financial results in the Q4 of 2022. However, the purchase of the Amyrth property for $17,000,000 did not actually close until the Q1 of 2023.

Speaker 3

Therefore, we now expect total capital expenditures to be between $275,000,000 to $290,000,000 and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and rich and

Speaker 4

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Speaker 3

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Speaker 2

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Speaker 5

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Speaker 3

Next slide, please. This is the same slide as we showed last quarter. We wanted to continue to highlight how we will be accounting for the convertible preferred equity that was issued in the Q1 and the impact it will have on calculating our earnings per share, both reported and adjusted. As we noted last quarter, We will be using the 2 class method as it is expected to be more dilutive. Impact of the convertible preferred equity in the Q1 Decreased our adjusted diluted earnings per share available for common shareholders by approximately $0.05 per share.

Speaker 3

And this impact on earnings per share is expected to continue. Thank you all again for your time today. And now back to Ann.

Speaker 2

I thank our incredible team for their relentless focus on execution and dedication to our company. With IAA, We have a brighter future ahead. Operator, you can now open the call for questions.

Operator

Your first question will come from Sabahat Khan at RBC Capital Markets. Group. Please go ahead.

Speaker 6

Great. Thanks and good afternoon. I guess just on the $15,000,000 of synergies, Can you provide maybe a little bit color on where they came from and the $40,000,000 of costs?

Speaker 2

Yes. Hi, Saba. It's Anne. Good afternoon to everyone on the call. So as we stated, the integration work is off to a very, very strong start with 1 month reported and already that level of synergies.

Speaker 2

So if you recall the various buckets that we highlighted, we were very clear that the first set of synergies was going to come from kind of duplicative executive ranks, and we took those actions and communicated those changes. That was a big portion of that work. And the bulk of the one time costs in order to achieve, think about the bulk of those as severances, those kinds of things. So again, we are very, very pleased with how the pieces are coming together.

Speaker 6

Okay, great. And then maybe we get a little bit of color on sort of the underlying trends. Maybe in the Ritchie business, I think you called out Some fleet realignments that helped. Maybe just how the base level trends on that business are going and maybe just the dynamics on the IA side as well. Obviously, a lot of headlines around used car prices moderating, maybe how that trend is going and maybe how volumes are trending, just some Base level trends on both businesses at this point in

Speaker 4

the year. Yes, perfect.

Speaker 2

I'd love to. So talk about both businesses, which is why we're so excited, our both cyclical and countercyclical to do kind of well on both sides of the equation. So for Ritchie Bros. At a high level and we highlighted this previously, the way to think about our businesses that side of the business is think about the kind of the construction equipment, that yellow iron that hasn't exactly market. It's not started to loosen up yet, but other like transportation, like the lower priced items that you often see in rental like the aerial equipment that kind of stuff.

Speaker 2

We're starting to see more. So what you see on the Ritchie Bros. Guide and Eric alluded to it in the prepared remarks is as we kind of grow with our strategic accounts where historically or in the last couple of years during COVID, they just have not had equipment to sell. As they're selling equipment, obviously, they're bigger customers. So the seller our seller rates there are lower than our average business, But the volume coming in is very, very strong.

Speaker 2

So we're very pleased with that. Net net, Again, as Eric said, we're expecting to see strong growth and are very happy with we're starting to see supply chain shift and open up, not in every category, but we're starting to see the light at the end of the tunnel. And on the IA side, as you noticed Saba, as new vehicle prices are expected to reduce, and not declare the total loss. As the used vehicle price falls, the volume more than offsets the reduction in price. So again, very, very good news on the IA side.

Speaker 2

Net net, again, that is why we're outlook in Q2 kind of that lowtomidsingle digit growth that Eric referenced.

Speaker 6

Great. And then maybe just one last one. Just a higher level question. If you can maybe share some perspective on kind of what your integration team looks like? I think May have alluded to at some point thinking about getting some external support there.

Speaker 6

How many folks do you have dedicated to that and just What kind of the who's leading the process and just how we should think about it, just the evolution of that team and what we should expect on that front?

Speaker 2

End. So as we said previously, the percentage of employees that are part of the integration team is a very, very low percentage of employees, Right. We have people and you see it in the results in the quarter, people very focused on their business, driving results, driving SLAs, Driving the focus on the customer. That is the vast majority, over 99% of the employees. The integration team, quarter because so much of the integration work is kind of bringing the people side together.

Speaker 2

So that team is very purpose built. That team has kind of the cost synergies broken down by functional area, each area is represented. So think about every area knows what their portion is to deliver of the 100 to 120 and per the proxy when the delivery is expected and of course sooner always better than later. And then similarly the revenue opportunities prioritized, highlighted and a portion of the integration team focused on kind of starting to put Some of the tests in place to start testing the hypotheses and we have partnered with I don't know, we don't normally talk about it, but we partner with Bain. They're the name in integration.

Speaker 2

Many of us have worked with them over the years. They understand the speed with which we want to move, the very high bar we turn ourselves team in terms of execution and commitment to shareholders, and they are helping us drive the process forward. So again, very, very tight team with very high bar activity.

Speaker 6

Great. Thanks very much.

Speaker 2

Thank you, Saba.

Operator

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

Speaker 7

Hi, Anne. Hey, Eric. A few weeks back, you announced a transaction for land. I wonder if you could talk about how active you think you'll be in terms of making adjustments to the land assets or the combined land assets in the near term. And on the topic, 2 of the largest revenue synergies opportunities you guys highlighted pre deal that required more optimal use of the land assets to Gainsher.

Speaker 7

Just wondering how ready you guys are with what you currently have?

Speaker 2

Yes. So hello, Michael. Let me start and then I'll turn it over to Eric. So let me start with The second part of or the first part of their question, which is we are 1st and foremost committed to debt pay down and getting to the leverage show that we committed to our shareholders. So that's number 1.

Speaker 2

Number 2, we were clear during diligence, we're even more clear now that to accomplish the goals that we set forward. We have the real estate footprint to accomplish those goals. That's Always going to be opportunistic and candidly there were things already in the pipeline, which is the announcement that was made. All of those were in the proxy in terms of the CapEx numbers. In fact, as Eric will speak to some were supposed to actually happen last year.

Speaker 2

They just simply were delayed, which is driving Ritchie Bros. GTB using IA Real Estate as part of our satellite yard strategy. In fact, we have 2 pilots kicking off in the next 60 days without any permitting shoes as we anticipated, and similarly looking to drive IAA share expansion through kind of SLAs and given where their utilization of the yards stand plenty of room to run. So feeling very good about it. Eric, don't know if there's anything else you want to add to the Real Estate Acquisitions.

Speaker 3

Yes, just real quick. So the announcement that went out, IEA was essentially there were properties that they were purchasing, 2 were lease buyouts, 1 was a new facility. Ritchie Bros, when we sold Bolton, and Company. And on buying 3 properties, although as Ann said, those are all reflected in our projections that we had in the S-four. And so you can kind of get a sense in the near term what our CapEx requirements are.

Speaker 3

And then over time as we delever, we'll make we'll look at the ROI on

Speaker 7

Very good color. Thanks. And then maybe just turning over, Ann, I You commented about total loss ratios just above 19% versus pre pandemic, I think closer to 21%, 22%. Higher salvage volumes will come with presumably at some point lower salvage prices. IA has adjusted its fee structure.

Speaker 7

So I was hoping that you can walk us through the incremental contribution dollar impact from higher volumes And lower prices, ideally really what the buyer fee is from a fixed to variable standpoint.

Speaker 2

Yes. So let me just thing at IAA the way we've done at Ritchie Bros. Over the last three and a half years. We are always better off with volumes. It's not linear because a big portion of the

Speaker 4

fee base

Speaker 2

is fixed. So and so as you've noted, the total loss ratio with cars obviously getting more and more complex, distracted driving, a real thing. So There's a lot of tailwinds in the business. So the drum roll is that we're always better off with volumes and we're seeing those turn and becoming a tailwind for IA. And also we are obviously cycling next quarter or should be the last quarter of the kind of years long loss of a single large customer.

Speaker 2

So it will be clean numbers and allow us to perform and take a lot of the benefit from this total loss ratio recovery.

Speaker 1

Perfect. I'm going

Speaker 7

to try to sneak a third in, apologies, but for Eric, the expected pay down $159,000,000 to 175, If I add the dividends, is that effectively what you're going to or you're targeting for free cash flow this year?

Speaker 3

So I mean it's at least $150,000,000 to $175,000,000 We'll evaluate to see whether or not it makes more sense. So the number could be higher. It was more of a minimum. We declared a dividend of $0.27 per share for this coming quarter. We haven't sort of indicated what we're planning to do for the remainder of the year at this point.

Speaker 3

But our working capital may move a little bit with inventory and such, but those are the major things that we're thinking about.

Operator

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

Speaker 4

Hey, good afternoon. Thanks for taking my question. It sounds like you've already had conversations with your new insurance customers. What are they telling you about changes you can make and whether it will actually lead to incremental market share?

Speaker 2

Yes, Craig, hello. And yes, as I said originally, it's been kind of in some ways a homecoming, just for the folks on the call that may not be aware. The business I ran prior to Ritchie Bros. Was called Abra Auto Body and Collision. These same insurance customers, literally the same people were my customers there.

Speaker 2

So a lot of refreshing, all of those relationships. Look, for me, and for those of you guys getting to know us, we always think of the world as in our control and out of our control. Share is an output. That is not the thing that we're controlling. What we are controlling is driving the very best service levels and to ensure that day in and day out, we deliver the very best service in the industry and then share becomes an output.

Speaker 2

So absolutely, we've been meeting with the top insurance carriers and other customers of IA as well, understanding again what it is they require and how best we can meet them, mapping those plans. So very, very excited about driving those things that are in our control.

Speaker 4

Thanks. And then on a different topic, IMS, what should we expect In the way of disclosure related to IMS adoption rates Prior to the IAA acquisition, of course, that was one of the key performance indicators that we were tracking.

Speaker 2

Yes, absolutely. So obviously, very committed to IMS, let me just take a step back. So Inventory Management System is what IMS is, again for those shareholders getting to know Ritchie Bros. We launched at ConExpo in Vegas in March, a new version of IMS called the Rouse Fleet Manager. And the reason that was an important launch is, as we've said all along, think about IMS and now Rous Fleet Manager as a critical building block of the marketplace.

Speaker 2

So when you think about a marketplace, think about the Gateway Inn is this route's Fleet Manager, the artist formerly known as IMS. And then now you want to be able to form transactions. So that very first building block was the IMS. It did incredibly well. It continues to do incredibly well.

Speaker 2

We didn't publish the number, but IMS activations increased 184% versus prior year. So again, another stellar performance. What we're focused on now is the next building block, Which is really right, the reason we want that gateway strong is because you want to now start transacting. And so we are about to pilot the next building block of Ritchie Bros. 2.0, which is the marketplace technology in Sacramento with the transaction engine.

Speaker 2

So that will be the first time that we are going to automate the transaction function within Ritchie Bros. 2.0 and the items coming into IMS or Roush fleet managers. So really Think about we've said all along with the journey, we've said all along that IMF now called Browse Fleet Managers and Gateway. And so we're going to be reporting out each of the building blocks as we go. Ultimately, again, those are going to translate to attachments and revenue and services growth.

Speaker 2

And so at the end, please expect what we've said all along, which is we're going to be driving GTV growth, we're going to be driving service attachments,

Speaker 1

We're going to

Speaker 2

be automating how that goes and then which should drive a higher service revenue than GTV growth and then running that exact same play on the IAA side of the business. So we are right at that second building block and launching that into Sacramento next month. So we're very excited.

Speaker 4

Great. Thanks Ann.

Speaker 2

Thank you.

Operator

Your next question comes from Michael Senager at Bank of America. Please go ahead.

Speaker 8

Hey, everyone. Thanks for taking my questions. You guys guided last quarter for Ritchie Bros. SG and A to be $125,000,000 to $130,000,000 The P and L has $148,000,000 Obviously, that includes a lot of other costs in IAA. Did Ritchie costs come in higher than expected?

Speaker 8

I'm just trying to understand Ritchie EBITDA grew 3% year over year in that bridge chart, yet your service revenue growth was 13%. So just Just trying to understand if there's anything we should be aware of in the Q1 on the SG and A line as growth picked up.

Speaker 3

Yes, Michael. So there is a little bit of noise in there, but it was a couple of $1,000,000 higher than we expected and we kind of gave some of the reasons for that. The lower commission rates due to the higher impact of strategic accounts. You had on the cost side, I do have some events and you also had a higher cost to process than we were originally expecting. So those contributed.

Speaker 3

Also when you think about sort of comparing EBITDA this year versus last year, I mean we had all time record high pricing last year. And so the flow through was significantly higher, because you benefited all in price and so on higher commission rates. So That was a big if you look in sort of the trends, what happened.

Speaker 8

Okay. And then Eric, you said IA adjusted EBITDA was in line with your expectations. So what are the expectations for IAA this year? I believe the EBITDA last year for IAA was $540,000,000 I could be wrong. Is that the number to start with?

Speaker 8

Are you growing that number in 23?

Speaker 3

So, I think right now when we're talking about expectations, it's what was in the S-four as our in the proxy statement. As you kind of saw in there, the plan for Ritchie Bros. And IEA. And as we said during the process, Particularly that is essentially our budget for the business and what we're operating to. And so IEA was right on plan, if not slightly ahead

Speaker 8

If I could just sneak one in like the guidance for Q2 on GTV, like what are we kind of thinking for the standalone GTV And stand on IA, it sounds like IA's volume should be IA might be getting better. So I guess I'm just trying to understand the puts and takes to that GTV guidance for Q2 and what with also the core Ritchie business seems like it's also saw a pickup towards the end of the quarter.

Speaker 3

Yes. So on a pro form a basis, we were 1% for Q1 kind of combined. So we say it's low to mid single lowtomidsingledigits for Q2 on a combined basis. So IAA had a tough comp and For Q1, it was down, I think, 5%. So yes, we do expect it to do better and we expect Virtu Brothers to do better.

Speaker 3

I really don't want to break it out in terms of percentages of each since we're just giving a range, but we expect both to do better. I should say, we expect IAA to do better. Ritchie Bros. Had a very strong

Speaker 4

Thank you. Thank you, Michael.

Operator

Rich. Your next question will come from Maxim Sytchev at National Bank. Please go ahead.

Speaker 5

Hi, good afternoon. Hey, Mac. I was wondering if you don't mind please commenting on sort of the pro form a CapEx intensity for the business because in the slides you talked about $275,000,000 to $290,000,000 on as reported. And maybe if you don't mind tying this into your evolving yard strategy for the combined business would be super helpful. Thanks.

Operator

Hello, am

Speaker 4

I back on?

Operator

Yes, you are. Please continue.

Speaker 5

Hi, Max. I believe

Speaker 2

I'm back in. Sorry, Max. It disconnected me. I didn't hear your question.

Speaker 5

No worries. I was just wondering if you don't mind, please commenting on the pro form a CapEx intensity for the business because In the slide, you talk about $275,000,000 to $290,000,000 on as reported. And if you don't mind maybe combining your answer with your thoughts around the Yacht strategy and how that will fit for both businesses. Thank you.

Speaker 2

Yes. So why don't I take the second part and I'll let Erev talk about the pro form a CapEx numbers. So as we said before, no further land is required to execute what it is we put forward. And so as we're running the local yard strategy, again, the 2 pilots that are starting and doing and easy to see available at IEA, so on and so forth. We're feeling great about, again, everything that we had in our sites, we put into the proxy in terms of CapEx requirements, like Eric said, the bolt in replacements.

Speaker 2

So the pieces the building blocks we highlighted in our cost thesis for the acquisition, our holdings, very strong. Eric, do you want to add anything?

Speaker 3

Yes. I think the CapEx goes down in the outer years in the proxy because as we said, I think we have line of sight into the replacement properties Ritchie Bros. Side and IEA had some current plans. Just to remind the group, the CapEx number that I gave and what we talked about in the proxy really included CPE CapEx as well as capitalized software, internally developed software. And historically, if you look at and Company.

Speaker 3

Our CapEx under that definition, more than half for both companies was on internally developed software. We've talked about the investments in Ritchie Bros. Our marketplace technology, as part of the integration, we expect to use technology as a way of us gaining some of the synergies, Particularly in finance, those have heard me talk about a lot of the manual nature, a lot of the processing Ritchie Brothers. That gets addressed with some of the technology enhancements that we're doing. That's in the CapEx numbers as well.

Speaker 3

So it's not just It's not just land, it's technology.

Speaker 5

Right. Okay, that's great. And then maybe just one follow-up, if I may. Anne, Do you have any sort of incremental early thoughts on gaining traction in international markets on IA side? Just wondering where you stand on this right now.

Speaker 5

Thanks.

Speaker 2

Yes. So Max, it is one of our top Chen initiatives as we put forward. What we're doing now is think about so first of all, we closed 10 days before the end of Q1. So think about where we are right now is scoping and thinking through pilots and partnerships on the one side, on the other side, bringing the team together. So, part of the integration work is an extended to really connect and strong sales teams together to understand how it is they work.

Speaker 2

So they get a little feel for each other's business as we move forward and start team. So very early days, very optimistic. Again, as we're laying out the pilots, don't see any deterrent on the land side, don't see any return on the people side and matter of starting the test. Again, for those that are new to us, We are a big fan of test and learn. I'm a geeky engineer.

Speaker 2

We have a hypothesis. We put tests in place. There's never a good and a bad. There is a learning cycle for us. And then we're very transparent reporting out to our investors about how we're doing.

Speaker 2

So those tests are getting identified and put in place as we speak.

Speaker 5

Okay, excellent. Thank you so much. That's it for me.

Operator

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

Speaker 9

Hi, thanks and good afternoon everybody. Just trying to understand the price volume outlook a little bit more. Obviously, you're doing a nice job driving volume, which you've done for a while here and ASP is a mix or a headwind. But just for clarification, do we expect at some point, Given what your comments are around opening up supply chains that you think mix will substantially change into the second half, obviously being an improvement. So curious on your thoughts on really on driving better mix because obviously pricing probably is still going to be under pressure, if that's what you're implying?

Speaker 9

And secondly, I know you touched on this even recently on the call here. As it relates to site leverage, should we expect cross leverage of the Florida site this year or is that in the test and learn and more like late 2024? Thank you.

Speaker 2

Yes. Hello, Larry. So yes, so again, we no crystal ball, But for those that are new to us, Ritchie Bros, we've had a volume issue, but we've had a very significant mix issue in that the higher end equipment has been harder and harder to get. We are starting to see the light at the end of the tunnel. It is early, early days, We are expecting that to get better and very hopeful for what that means for mix.

Speaker 2

But again, early Seeing a light and actually seeing equipment are 2 very different things. But again, back to our in our control and out of our control, we play the hand we're dealt and I think the team just incredible doing an incredible job with driving the volume, Very similar. Eric said, we're expecting a good Q2 there as well. And

Speaker 4

I just want to add

Speaker 3

Just to add, I'm sorry, Larry. How are you doing? Just to your 2nd part of the question regarding Florida. So as we said when we were in the pre close phase of this transaction. The way we look at Florida is really for overflow for catastrophic events.

Speaker 3

We didn't It's never it's not part of the plan, not saying that it won't we won't be able in certain cases to leverage Ritchie Bros. Yards, but And for day to day business, it was really about if there's a catastrophic event in Florida Ritchie Bros. Orlando location if it was needed. The good news is that we've learned is that IA has done an incredible job and Company. In Florida, with recent events and over the last couple of years in terms of getting capacity availability when they need it.

Speaker 3

And so we should be as we build out the business and grow that well covered in Florida and other places.

Speaker 9

Thanks. That's what I was getting at, whether you thought we'd see some cat business on the Florida site this year. Thank you.

Speaker 3

Yes, that would be a total crystal ball.

Speaker 2

Yes. And here's what's very interesting with the recent flood and I know I'm going long and and you're giving us the same guide. But with the recent flood in Florida, we were able to see firsthand, that's one thing when you diligent, Another thing to see the capabilities exactly as Eric said, team at IEA has built for catastrophic events with this overflow, NASCAR lots and how the storms are tracked and which sites light up for the potential of where the potential of where the volume is going to go. It was just an incredibly fascinating learning and the team did a stellar job. It wasn't a big event, But I will tell you, I heard from some of our top customers, insurance carriers in Florida literally saying, incredible performance, incredible kudos to the team.

Speaker 2

Hopefully, some are listening because it was fantastic to see firsthand.

Speaker 9

Okay. Thanks. Obviously, we understand, can't predict the weather, but hopefully use the site. Thank you.

Operator

At this time, we have no further questions. So I will turn the conference back to Anne Sandozi for any closing remarks.

Speaker 2

Wonderful. Thank you. Before I end the call, I would be remiss not to take the opportunity to thank our shareholders for their support of the combination of Ritchie Bros. And IA. We are deep, deep, deep into the integration work and it is off to a very and strong start.

Speaker 2

For the shareholders on this call that are new to our quarterly calls, welcome. We are an open book with how We're doing and how we're doing is driving a very unique marketplace strategy for insight services and transaction solutions across verticals. Stellar progress, incredible team, and we thank you for all of your support. And with that, we also thank you for your time and have a wonderful rest of your day and your week.

Operator

Shareholders. Ladies and gentlemen, this does conclude your conference call for this afternoon.

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