Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers First Quarter Conference Call. [Operator Instructions] I'll now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.

Hello and good afternoon. Thank you for joining us today to discuss our first quarter results. With me on the call today are Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, which can be identified by such words such as expect, believe, 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, business and market trends and expectations regarding the integration of IAA, including 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 are detailed in our news release issued this afternoon as well as our most recent quarterly report and annual report on Form 10-K, which are available on our Investor Relations website and on EDGAR and SEDAR. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the 2, see our news release, Form 10-K and Form 10-Q posted on our website. We are unable to present a quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all necessary components of such measures. Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. At this time, I'd like to turn the call over to Jim. Jim?

Thank you, Sameer, and good afternoon to everyone. We are off to a solid start to the year with first quarter gross transactional value growth of 10% on a pro forma combined basis. I am proud of the team as they continue driving GTV growth. This strong performance directly reflects our One Team All-In culture and our dedication to over delivering on our commitments to our customers. Furthermore, our focus on continuous improvement and drive an operational efficiency throughout the organization translate into strong adjusted earnings per share growth of 58%. Let's start by discussing trends in our commercial construction and transportation sector. The equipment consignment market remains strong. However, we are beginning to see a normalization of equipment supply following the surge we experienced post pandemic. Strategic accounts, specifically within the rental vertical are carefully evaluating the cadence of their dispositions for the rest of the year as they access business conditions. Within the region's business, the higher interest rate environment, the higher replacement costs, and the upcoming U.S. election are leading some customers to postpone investments in new equipment, reducing their immediate need for transaction solutions. Growing our market share is a top priority, and we're executing our growth algorithm by expanding sales coverage. In the first quarter, we actively recruited new talent to strengthen the Ritchie Bros. brand and to ensure we have the right coverage where we have identified the most significant growth opportunities. Our physical presence in digital omnichannel platform remain a key differentiator, making us the partner of choice. The yellow corporation bankruptcy demonstrates the power and versatility of our platform and how we over-deliver for our partners. We complemented the broader logistical efforts of moving their assets to RB Global locations by utilizing [indiscernible], a marketplace service on our platform to source competitively…

Thank you, Jim. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison to the pro forma combined results of Ritchie Bros. and IAA for the prior year period. Total GTV increased by 10%. Automotive GTV increased by 6%, benefited from higher unit volumes and as Jim noted, a 3.3% higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the first quarter, [indiscernible] estimated that the loss ratio increased to approximately 21.1% compared to 19.6% in the same period last year. The previously announced customer loss partially offset organic growth. Note that starting in the second quarter, we will see the full impact of the customer loss on GTV and unit volumes. GTV in the commercial construction and transportation sector increased 20%, driven by increases in [indiscernible] volumes, partially offset by declines in average price per lot sold. The decline in average price per lot sold was due to asset mix as lot volume growth came from rental and transportation assets or asset values are intrinsically at lower ASPs and continued declines in pricing on an apples-to-apples basis. Note that GTV growth in commercial construction and transportation, excluding the impact of the yellow bankruptcy, would have been approximately 13%. Moving to service revenue. Service revenue increased by 14%, with our service revenue take rate expanding approximately 80 basis points to 20.8%. Service revenue increased due to growth in GTV, a higher average buyer fee rate and growth in our marketplace services revenue. Marketplace service revenue growth was driven by higher ancillary revenue and a higher auction-related fee structure. As you think about inflation and deflation asset values, it is essential…

[Operator Instructions] Your first question comes from Sabahat Khan, RBC Capital Markets.

Great. So I guess just taking the Q1 results into account and sort of the guidance increase, can you maybe just walk through a bit more of the details around sort of the expected cadence for the rest of the year and how you settled on sort of the $30 million increase to the EBITDA line. Just any more color in addition to the outlook commentary you just provided would be great.

Yes. Thank you for the question. As I mentioned in the prepared remarks, Q1 came in pretty much in line with our expectations. So the guidance movement of $30 million was based on our forecast and where we were seeing the year flow out. So again, Q1 was in line with what we were expecting and the increase of the guidance was tied to that performance.

And then provide a little bit of color on sort of the capital allocation philosophy here, with the leverage where it is today, I think indicating that you're at the levels, the 2x and below levels one year early. Can you maybe just talk about the preference between sort of the organic versus how are you thinking about some of these opportunities that you have in front of you? And what is directionally a comfortable leverage ratio for you as you look at the business mix?

Yes. So the 2x is comfortable for us. As I said in the prepared remarks, we are going to flex a little bit probably on both sides of that 2. Our focus for the remainder of the year is to continue to pay down on Term Loan A and invest in the business. So we're going to continue our investment in technology and our footprint as we evaluate that. So those are our priorities. And as I noted as well, we'll continue to look at acquisitions, but that's not our focus this year. It's really to focus on integrating IAA and the other acquisitions we've done. So we'll continue to focus in that space.

Your next question comes from Steve Hansen, Raymond James.

Congrats on a great quarter. I just wanted to go back to the auto performance here. Jim, I think you referenced some of the things you've been doing to outperform on the ASP basis. But can you maybe just unpack that a little bit further and just give us a sense for where you think you're getting the best upside of the performance versus what we're seeing in the broader indices?

Yes, I will. Look, I don't think it's one thing. So it's a hard question to go through all the tactics that we're applying. But I'll just give you a basic one. We did a press release and we've added trim level data for the buyers, right? The technology improvement. We were one of the first to implement something like that. We know when we can give the buyers more information, and we can achieve a higher ASP on the auto side. But our whole team is -- we've heard from our partners the areas where they deem very important to them and ASP is one that they're focused on. So as we think about our tactics, we have many different things we're trying from different auction channels, trim level data, data for buyers to make sure we maintain ASPs we can.

And then I think as you described your SLA performance has been in the high 90s now, and it sounds like relatively consistent on a consistent basis. The discussions with the partners that you described at your recent event. I mean it sounds like this is saving the path to potential market share gains over time. But I mean, any visibility on when that might come to fruition or any sort of color on timing in terms of some of these contracts coming due?

Great question. And look, I'm going to stick to kind of what I went over last quarter when we had this question. As an organization, we're very focused on what's in our control. And what is in our control is how we deliver against our commitments and our SLAs. And I am extremely comfortable that we're over delivering for our partners. And as we do our quarterly QBRs with each partners, we're getting that feedback from them. But look, I'm a realist, when we talked about the U-shape -- we just hit a year anniversary of the 2 companies coming together. But we're going to stay focused on what's important to us and our partners, and that's what's in our control. And then I expect good things to happen as we continue down this path and being consistent and my expectation is we're going to be consistent with where we're at right now.

Next question comes from Michael Doumet, Scotiabank.

Maybe circling back just to the guidance. I mean if I use the midpoint of the guidance, you're effectively calling for 0 GTV growth through the balance of the year and very little EBITDA growth. And obviously, I understand the dynamic with the customer loss, but just trying to understand the assumption on the commercial side because it does feel conservative. Just is the expectation for negative comps effectively in the second half?

Look, I just want to remind everyone, I'll start with the auto side of the obvious thing that we're going to experience in the back half of this year of the carrier loss that we announced last year. Those cars are out of our network at this point or they're very small as we are into the second quarter. So an obvious thing of what everyone is already aware of on the auto side of what's going to happen. And then when you get into the construction and industrial side, and we said this in our remarks, when the pandemic hit and people couldn't get equipment, they held on to the equipment longer, new equipment start to come in. So last year, we got an influx of rental equipment, certain sectors that really came to us and rental transportation. So as we go into the back half of the year, it's a heavy comp that we have to go up against, we believe our partners are going to normalize in the back half of the year, which is still a great place for us to be. It's just not the place where we were a year ago when you had the pandemic and all that pent-up equipment and everything came in. So that's what we're using to set the guidance.

Understood. And then maybe just flipping to cost. If I look at the SG&A, I mean, look, you've been on a flat trend for several quarters here. How much more can you do with this cost base? Or has the rationalization kind of run its course here? Or is there maybe more you can do either way, depending on whether you want to support more volumes on it or lower costs?

Yes. And let me just answer that by just from a philosophy that we have as a leadership team. We are never going to stop managing this business effectively and efficiently. It's core of what we do every day. It's part of what our directors, our Vice Presidents or our extended leadership team. So we are never going to stop of how do we optimize this business, right? And that goes to margin expansion. That goes to SG&A management. It is what we're building in the culture. So we're just never going to stop. So I really don't have an answer of [indiscernible] stop. We're going to be diligent and constantly look to make sure we're as efficient as possible.

Your next question comes from Maxim Sytchev, National Bank Financial.

Jim, just one question for you, if I may. I mean given the context and the difficulty of completing IAA, what are your thoughts regarding the size of any potential transactions and sort of the need to do that? And where it will be the most accretive, whether strategically or financially?

Look, it's a great question. And again, we're very focused as a leadership team on the business that we have, the verticals that we have, and look, all the verticals that we're in right now, we love the margin profile and the financial outlook of each of them, right? So as we think about what we want to do in the future. And Eric talked about this. As we think about the future, we know there are certain places where there are holes on the map, right, that would fit in nice with us as we think about the future, if that's M&A. But right now, we want to make sure we're driving the business that we have. We're running it effectively and efficiently, and we're always going to be opportunistic of what fits in for us. But right now, we're so focused on running this business and running a very profitable effective company, and that's where our focus is right now.

Your next question comes from Steve Hansen, Raymond James.

Just a quick follow-up. The one thing that struck me as interesting on the inventory rate was the sequential improvement. I know it's down year-over-year, but on a sequential basis, we saw a nice improvement. I mean you described that business as still being competitive in the broader landscape. But how do you feel about the sustainability of that sort of high single-digit rate?

Yes. Well, look, I think we're going to just go back to the same guidance that we've been giving quarter after quarter. Look, it's a competitive market, sometimes the deals go in your favor, sometimes they don't, right? And each time a deal is different depending on if it's Canada, the U.S., international, who we're competing against. We're in this to grow share, and we have the best data to make the best decisions of where to use that data. So the guidance that we kind of said that low to middle historical end, I think, is still a place where and we're expecting. But I think there's going to be times when you see what you saw this quarter where it's going to look like that. But look, I think we're in the best position for any of these competitive deals [indiscernible] and the data and analytic tools that we have to make the best decisions and we're very confident that it's a place where we can compete and be successful at.

There are no further questions at this time. Please proceed.

All right. Hey, first and foremost, I want to thank the RB Global team for everyone's hard work, dedication, commitment to our customers and over-delivering on those commitments. Thank you so much for your hard work. And I just want to thank everyone on this call. Thank you for your confidence in RB and we look forward to talking to you the next time. Thank you so much.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.