RB Global, Inc. (RBA) Earnings Call Transcript & Summary

Welcome. Thank you for coming. I'm excited to introduce. So my name is Regina Savage. I'm in the Investment Banking division at Morgan Stanley, and I lead our North American Industrials practice. And I'm excited to be joined here today by Eric Guerin, the CFO of RB Global as well as Steve Lewis, the COO; and Sameer Rathod, the Head of Investor Relations. So we'd like to ask a few questions and have a conversation, and then I invite you all to join into the conversation as well and hear about what RB Global is up to.

So -- you guys have had an awful lot of change. And a few years ago, you did a transformational acquisition where you acquired IAA and you entered the salvage automotive market. And since then, you've had some substantial increases in market share and really improve the operations of that business. Can you share with us how that integration is going and how you have sort of transformed what that business is under your leadership?

Yes. Thanks for the question. IAA has been a great addition to the RB Global footprint. And we're really excited about where that business is. If you look back when the transaction closed back in March of 2023, we knew during the diligence process that it was a great business. It was just a business that needed some focus on operations and the SLA, service level agreement performance, and that's really where we dug in to the business and made significant improvements in our operations and making sure that our goals are really aligned from the branch level all the way up to the executive team. So when you look at the branch level, their bonuses and compensation is tied to how we are performing against our service level agreements. And Jim Kessler, our CEO, likes to say, we don't make products. What we do is make commitments and overdeliver against those commitments, and that's been a driving force for us. And what we do now is we've created an industry-leading transparency program where we put all of our results out to the industry, how we're performing on ASP, how we're performing on tow compliance. And that has really led to us gaining some market share that you had alluded to. I think another part of our business now with Steve Lewis, who came in as our COO about a year ago, he has now all of operations across RB Global. When he first came in, he had the legacy Ritchie Bros. Now he has the IAA business, and that's just been a great addition to the team and the discipline to help us move forward.

Well, then maybe, Steve, this question is for you. What do you think have been the biggest sort of culture and operational hurdles in getting that integration on track and getting to the success you've had?

Yes, that's a great question. I think that one of the things we've talked about is from a culture, we say one team all in, and it's really everybody looking to see what are we committed to our partners, how do we over deliver on those commitments in a safe and cost-effective manner and then build that consistency. And so one of the things that Eric just touched on is for the last 7 to 8 quarters, we're continuously sharing with those that are our partners and those that are prospective partners, how well we're performing in the industry, just trying to create that transparency, take any noise out of the signal and say, hey, this is where we're at. This is where we're performing. And we've done that not only on our quarterly SLAs, but then also just sharing our results on our 2024 CAT performance on the IAA side.

And so what are those key metrics that your team is focused on that you've been sharing with these prospective as well as existing customers that you sort of have been measuring yourselves against?

These are SLAs that are important to -- specifically on the IAA side, our carriers. So it will be average selling price, on-time tow, on-time title, and then the different KPIs that ladder up to those specifics. These are KPIs and SLAs that reduce advanced charges. So really, this is how value shows up in the carrier's P&L.

And how do those metrics align overall with customer expectations and industry benchmarks?

Yes. So when you look at customer expectations, we align these to our SLAs with our customers, and we've been overdelivering against those key metrics, and our feedback from our partners is very positive. As far as the industry, our expectations and the way we look at it, we believe we are industry-leading. When we look at our competitive set, which is not many, that transparency hasn't been provided to the industry yet. So it's hard to compare to our competitor in that way.

So I mean, presumably, you do have some feedback from your customers when -- and maybe for those who are maybe not as deeply familiar with the base, what is it about the operational performance that really translate to value for your customers? And can you give us some examples of how like your improved performance has helped you get traction there and really please them?

Yes. So if you -- maybe if you start from the beginning of this -- the transaction on the salvage side, a vehicle is in an accident, it's either going to go to get repaired or it's going to be salvaged and it's going to come to us. And what you want to do is make sure from when that vehicle is in the accident to when it gets to auctions sold and funds recouped, you can minimize the time it takes to do that and maximize the selling price of that vehicle. And those are the key metrics that are important to the carriers because if you think about from the carrier's perspective, they already have a loss related to this insured vehicle. You want to make sure you can get both for the customer experience, they're in a rental vehicle for a period of time. They're upset that they've lost that vehicle. So you want that customer experience to be good, but you also want to make sure you can recover as quickly and as much as you can during that transaction. So a lot of the things that we're going after are along that continuum, as Steve had mentioned, right? How quickly can you get that salvage title for the vehicle? How quickly do you pick it up from the yard? How quickly can you make sure you reduce the advanced charges, which are the charges that the yard is charging, right? So you can make sure you optimize the net recovery. So those are all the things that have really resonated with our customers and our partners.

And of those, where do you think you've made the most progress?

Yes. I think it's actually across the full continuum of those. We are highly confident around ASPs and that we have industry-leading ASP performance. So I think at the end of the day, all of those things lead up to what's the value that you can create in your market.

Okay. And then in recent periods in North America, you guys have won back market share. And where do you think that market share is today? And where do you think it's going to go?

Yes. So we estimate our market share at about 35%. Our expectation is in a rational duopoly, which we compete in that the share should get to approximately 50-50. I can't tell you if it's going to be 45-55, 55-45. But over time, our expectation is this that share will get to closer to 50-50.

Okay. And then in the international markets, you've won several contracts. Can you talk about why you won in Australia with Suncorp and in the U.K. for Direct Line group?

Yes. Suncorp is an interesting experience there because legacy Ritchie Bros. already had a presence in Australia, but IAA did not have a presence in Australia. And we were actually contacted to bid on that business. And we were excited that we understood the market from the Ritchie Bros. side, and it was a market we would want to enter from a salvage perspective. So we went in, we understood what Suncorp was looking for. We bid on that business. We won that business exclusive. So we're excited again about that opportunity. It gets us about 18% share in Australia. And our expectation, like in the U.S. is that we land and expand and continue to grow share in Australia.

And what are the learnings from winning those bids that you think you can apply to sort of future opportunities globally?

Yes. I think it's not just those bids. It's what we've done in the U.S. is really understanding what the partners are looking for and how can we help them achieve their strategic initiatives. And when you put that lens on, it really helps you look for win-win opportunities. The other one you had brought up was DLG, and that was another one that we had won. And part of that bid was they were really looking for hey, we like green parts and is that an opportunity that you can bring to us as part of your proposal. And we were able to partner to make sure we were able to answer that question. So what we've learned is just make sure you understand the strategic initiatives that the partners are looking for because we don't look at ourselves as a supplier. We really are a partner or a vendor. We are a partner, and we want to make sure we optimize the business.

And how are those ramp-ups working in Australia and the U.K.?

Yes. So early days in both, but we're excited about how they're doing. Maybe I'll let Steve comment. He has operations. Maybe he has some color on those, too.

Yes. No, every time you start up a new site, there's always going to be some learnings here and there. But overall, it's been a very positive, positive feedback from our partners, and we're looking to see these operations ramp up here in 2026.

Great. So we can sort of switch gears a little bit to pull out and talk about the macro environment, which has been on everybody's minds. We have seen repairable claim trends lower over the past year. Are you seeing any impact on your salvage business?

When you look at the repairable claims, for us, the complexity of the vehicles is one, right? So you have ADAS and some other things. So when these vehicles get into accidents that look like, hey, that's a repairable vehicle. But when you look at what the cost would be to repair with cost of labor and parts going up, you see the total loss ratio continue to expand to approximately 22%. So that has been a tailwind for us in our business.

And how do you feel about just overall the industry backdrop?

I think for us, the complexity of the vehicles is going to continue. If you look at some of the estimates, they say that the total loss ratio is probably going to continue to expand over time. So maybe from this low 20s to maybe that 30% range. So we're excited with the tailwinds in this business.

And then sort of the big macro trends that people are focused on in terms of economic backdrop, geopolitical issues, taxes, tariffs, which of those do you think are probably most significant for your business?

Yes. I think what we're looking at, there's so many that you named. It's really...

You could name more, too.

Yes. No, it's just -- we're seeing more clarity in right tariffs. I didn't check Twitter today, but tariffs are a bit clearer. We see the Big Beautiful Bill. We see bonus depreciation opportunities. So I think these things help us gain clarity. The other thing is large mega projects. We haven't seen those start, but we see a lot of the indicators saying that construction is actually slowing, but we haven't seen the unlock of our auction business on the CC&T as the leading indicators would show because you can't design out optimism, and we are still seeing that optimism in the industry.

Well, so I want to talk about CC&T a little bit more. So maybe we'll switch gears again. So can you describe the market between your enterprise partners and customers and then Ritchie Bros.? Because we've talked a lot about sort of the partnership, but mainly on the salvage side. But can we talk about it in this context as well and what you're doing there?

Yes. So when you look at what we call enterprise customers or strategic accounts, we're the only company in the business that can really satisfy all of the needs they would have in auction, whether that be, hey, we need liquidity at the end of the quarter, and we have the largest buyer base in the industry or we have some other services that we can attach to the transaction. We have Rouse data, which I would call it the kind of Kelley Blue Book of commercial construction and transportation where you can really see how these assets are renting in the market. So we're really excited about the moat around our business on the enterprise because we can, again, to the earlier comment around what's their strategic vision, what are they looking for, and how do we optimize their returns and how do we show up in their P&L, right? For example, at the end of quarter, if they're looking to transact assets, we can transact those very quickly. If they're looking to be more on the retail side. We have Boom & Bucket where we can list some of the assets and try to transact them. When you look at the regional part of the business, it's more of a meeting those customers where they are. So it's smaller businesses and you're having to sit across for them and say, "Hey, we want to sell your asset in an unreserved auction." You have to earn that business in a little bit different way.

Right. So I mean, you guys have been growing faster in the market. And maybe this question is for both of you. You've talked about sort of the regional focus. How have you been doing that? And how is the territory manager program sort of played into those wins?

Yes. So what we've done on the sales side is really mapped out how does the U.S. look and where are we underpenetrated, overpenetrated, not really overpenetrated in most cases, but really underpenetrated and making sure we have our territory managers where that business is. To my earlier comment, in order to gain that business, you have to be in that conversation and you have to be sitting across from that potential partner. So we continue to optimize our sales force and focus on productivity because what happens is they have to learn the business, get up to speed quickly and you want to make sure you can minimize that ramp time.

And in general, like how is that program going? And how long is it taking somebody to sort of ramp up where you want them to be?

Yes. So what we've said historically, it could take up to 2 years for folks to get fully ramped up, but we've tried to reduce that time using some additional training and some territory manager mentor programs, but it typically takes 18 to 24 months. But again, we're trying to minimize that. As far as how it's going, we're really excited about where that sales force is and how they're executing. But at the same time, we just announced the acquisition of J.M. Wood, and that was an opportunity for us to get into a region that we weren't in. So in Alabama, it gets us a yard there and then a sales force as well.

And how does that fit into your broader M&A strategy? You also made some other acquisitions recently, Boom & Bucket. Like how do all of those fit together in your focus? And how do you think about inorganic opportunities like that?

Yes. So with J.M. Wood, for example, it was a regional player that allows us to get into Alabama in a more robust way. So in some cases, yes, you can build out the sales force. In other cases, it may make more sense to do those acquisitions, and we're really excited with the capabilities that J.M. Wood brings to the business. In our recent org redesign, we assigned M&A under my purview now. So I've really been excited about what our pipeline looks like. And what we're doing now is just making sure we're really focused and disciplined on the M&A opportunities. Do they add a strategic capability or a region to us, and that's where these things fit into our strategy.

And then in terms of sort of going back to the CC&T business, I mean, you talked earlier about how sometimes that's a leading indicator. Can you walk through like what the dynamic is there and what you're seeing?

Can you say that again?

You talked earlier about how -- what you see in the CC&T business can actually be a leading indicator of what you're seeing around construction. Can you walk us through that dynamic? And then what exactly it is that you're seeing in that market?

Yes. So what we're seeing in CC&T is we haven't seen significant large projects starting. And what's challenging for our business is when we're in a time period, which we've been in for a period here of not big projects starting, but not a recession, right? So we needed either big projects to start or the economy to slow to a point where transactions happen. So that's where we've been cautiously optimistic when you look at our Q2 results where we saw volume down about 1% related if you exclude the Yellow Corporation bankruptcy, which we executed that disposition, and we saw price ASP relatively flat. So we're seeing kind of supply and demand level out. We'll see how that progresses through the year.

So is it fair to say you're sort of sitting there on this precipice and you're just trying to figure out which way it's going to go and either way, then you have the flexibility to sort of run the business in a slightly different way. Is that the right way to think about it? And can you talk through a little bit the strategy of increasing the attach rates when you're progressing that and the outlook for those?

We're really -- like really looking at the VeriTread offering that we have, which is a transportation attachment. If you think about -- on the CC&T side, when an asset transacts, the seller and the buyer have to move that asset. And we have an offering called VeriTread, where we can provide that transportation. And we just haven't seen a large attachment there because it's more of a manual process today. We're trying to make it more of a tech-first offering, and that's a great opportunity for us to attach that transportation, also makes it easier for our buyers and sellers because we'll make sure that it's the right equipment to transport the asset to our site or to their site. So again, it's a great opportunity for us. I don't know, Steve, any additional comments on that?

I think you hit it right on the head. I think that this new technology that we'll be rolling out in the near future will ensure that we have the right assets matched up. It will make sure that our buyers and sellers can be more efficient in how the inbound or outbound assets to our Ritchie yards. And so I think there's just going to be a lot of goodness all the way around.

Are there any other investments you've made in sort of your technology platform that you think are going to turbocharge or enhance the customer experience for the offerings, both on the salvage and the CC&T side?

Yes. So we've invested in -- on the inspection side. And on the inspection side, we're getting more robust inspection results as far as higher resolution photos. Greater details, whether it's on the automotive side with VIN Descriptions or even on the CC&T side to make sure there's just more data. So that allows our buyers to bid more confidently. And of course, that has a rising force on ASP.

And then you mentioned earlier the slight reorganization with your management team. Can you walk us through what those changes are and how you think that's going to help propel the business going forward?

Yes. So we announced a little bit over a month ago some management changes. And maybe I have to go back to when Jim took over as CEO. When Jim took over as CEO, it was a quick transition. Our prior CEO had moved on from the company. And we had a couple of senior executives that graciously agreed to stay on longer than they would have otherwise. And I think the biggest change really was our Chief Revenue Officer, Jeff Jeter, who had all purview of all of revenue. And when he made the decision to retire, what we did is put the two leaders of the sales for legacy Ritchie Bros. and IAA on Jim's staff. And that enabled Jim to get even closer to the business. So we're excited about that opportunity. And then from an operations perspective, we had -- when Steve came in, he had legacy Ritchie Bros. operations. We had somebody else operating the IAA operations piece. Now with Steve a year in, we've been able to give him full purview of all of operations end-to-end. And we've rolled technology under Steve. So now you have operations and technology married together across the full organization. So those were the main changes. And again, enabled us to get much closer to the business from a leadership team perspective.

So Steve, what's been your biggest learning from sort of the integration of those platforms underneath you?

Yes. I think one of the things that was insightful was how well the IAA team performed by just setting alignment on goals, specifically the five star branches and how we move the needle for our partners. And so we took those learnings and we pushed that over into the CC&T side and it really created that viewpoint of what good and great looks like for the five star Ritchie yards. And then how does that show up not only at the yard perspective, but how does it improve buyer and seller services. And so we've seen a lot of lift there. And at the regional operation manager level, that competitiveness across from one manager to the other has just lifted the bar and raised the bar and then our buyers and sellers are actually the ones that benefit from it.

And how well has sort of been the convergence of sort of cultures across those two divisions now that you're doing that?

Yes. So one of the things we talk about our culture is our motto is one team all in. And so we've actually had a couple of recent IAA yards that have been essentially co-branded, right? So we have Ritchie on one side, IAA on the other. And I think bringing those teams together, we're seeing where shared resources, whether that could be a loader operator or some leadership. And I think that it's really driving the teams together.

Great. So just a few questions about the balance sheet. We talked about M&A and how it's something that you're a little bit more focused on. What are your criteria for that? And now that it's under you and so you're accountable, what can investors hold you accountable for in terms of returns or discipline around the M&A?

Yes. So on the M&A side, what we've really focused on, does it bring additional capabilities to RB Global. Does it bring us a unique region like in the J.M. Wood situation or in even the DLG where we brought in some additional services to that part of the business. So what we're really focused on is making sure that whatever we bring in is bringing additional strategic value to the business or additional geographies to the business or new capabilities. And if you look at the last couple of transactions that we did, J.M. Wood was a geography. Boom & Bucket was a new capability that would move us from auction to give us some capability -- additional capability in retail, even though we have Marketplace-E. So we'll just be laser-focused on what fits within our strategic initiatives and how these opportunities can help us. And then obviously, from a finance lens, I'm looking for strong returns on those businesses as we look at them.

And how do you think about balancing investments in the business, both organic and inorganic as well as returning capital to shareholders? How do you balance those things? And where do you think the leverage ought to be?

Yes. So I put in place a little bit over a year ago that the target leverage for our business was about 2x net debt to adjusted EBITDA. At the end of Q2, we're at approximately 1.6x. So we're in a good place there. We also put out the capital allocation strategy, and I put 4 prongs out there, which was we were going to pay down our Term Loan A, which we have done, and then we refinanced it. We're going to focus on our technology investment and our real estate investments as well as other investments in that space and then M&A and then return to shareholders. So I don't look at any of those as an or statement, it's an end statement. At the end of Q2, we announced a 7% increase in our dividend. So we'll continue to focus there. We've already talked about the M&A activity and tech activity we've done. And then we've discussed what we've done on our leverage at 1.5 or 1.6x. So I again, look at all of those as that's where we're focused, and there's different focuses in different proportions over time.

Okay. Great. Well, I'd like to open up to questions. Does anybody in the audience have any questions for the team?

I'd love to hear a little bit more about competition in your, let's say, core business, not the automotive. like how fragmented? What do you see from these competitors? And how much runway to consolidate do you have?

Yes. So you mentioned it. It is a very fragmented market. As you know, we're the largest in that space, but it is a fragmented market. I think -- look, we respect all of our competitors. There's a number of competitors in the marketplace. And I think we compete well against them and have offerings and a buyer base that is second to none. But we have seen one of the ones that obviously comes up on the -- is Purple Wave and they're competing, but there's bid to do and there's other competitors in the marketplace that we feel like we compete well against.

But do you think you can still grow your market share? If you can give me any color how big you are already and how do you grow from there?

Yes. So we don't quote our market share. I will say we are the largest in the market. And absolutely, we are confident we can continue to grow our market share because we have world-class offerings and can generate the best net returns for our sellers, right? And that's the ultimate goal for us. I don't know, Steve, do you have any additional color?

No, I think you hit it on the head.

Yes. I think maybe you should talk about the non-auction solutions we offer as well. Eric?

Yes. Go ahead.

Yes. So in addition to like the auction part of the market, which is 20% of the market, we offer a panoply of additional services that are non-auction related. So we can -- if you're someone who wants to transact the equipment, you can listed with us. We have power listings. We have a reserve marketplace, which is a buy now, make offer type marketplace. We have the best data in the industry, and we see data as a lubricant on our marketplace. So the market is very fragmented, not only in auction, but across all the channels. And we think we're in the pole position to leverage our technology and scale to drive more value to both buyers and sellers.

You mentioned about 20% of the whole market or of the auction market.

Yes. So we estimate total transactions in North America for construction transportation is about $100 billion. 20%, we estimate is auction. And so sitting here today, we estimate our percentage of total auction transactions is, call it, 15%, 16%, 17%, somewhere in there. For non-auction transactions, we're less than 1%. So in aggregate, our market share of the total transaction market is mid single digits to low single digits. So lot of opportunity to continue to grow the business. And you heard Eric talk about the acquisition of J.M. Wood. So that's part of our toolbox as well to consolidate the market and kind of drive the best results for our customers.

Any other questions?

Can I ask one more?

Yes.

On the IAA, what are the key ingredients to take that market share? Because historically, it has always been a promise, but the trends have been the opposite. So where you are today and what are the key ingredients?

Yes. I think it's to the earlier comments I made, it's sustained industry-leading performance. And that's the point that we have to focus on is sustained. And we provide that transparency for the last 8 quarters in a row, we've put out to the industry our key performance metrics. So the key to gaining share is making sure that you sustain that high level of performance, make sure you perform during the CAT season, so catastrophic events. And last year, we made sure that we put our performance out very quickly, and we were pleased with our performance and more importantly, our partners were happy with our performance. So I think those are the areas we need to continue to focus on, maintain this industry-leading performance, make sure you perform in challenging times like during CAT season.

Is there a pricing component, the take rate component to make your clients change or the insurance companies change volumes?

Yes. I think in a rational duopoly, it's about your performance and making sure you're performing at the highest level. When you look at the model, the structure from the carriers is not a significant portion of the revenues, right? Really, where you want to focus is, are you getting the best performance for your carriers? Because if you're outperforming on ASP, that's going to be much more than what a fee upfront would be if you reduce that fee.

I think we have time for one more question, if there's any more. Well, thank you for coming, and thank you for your time. I appreciate it.

Yes. Thank you.

Thank you.

Thanks.