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

Pleasure to see you all here today. We're going to get right into it because we're running about a minute late. But thanks for the time. Welcome to AIIC. I'm Steve Hansen. Very pleased to have the RB Global team here today with us. It's been a journey for sure. I think as many of you will know, it's been a real progression of value creation for the last couple of years, but I think their runway looks really good going forward. Today, we're just going to touch on a bunch of the key topics that are relevant to, I think, many of you, and we'll get right into it.

I'm going to start with -- before we get into the real part of the business, Jim is going to open it with a question on AI. It's been topical in the markets more broadly. But I mean, how do you think AI impacts your business, if at all? Are there specific parts of the business that are more vulnerable than others? Or how do you feel about the broader concept of at all?

Yes. Look, we look at AI more as an enabler for our business than we do a disruptor to our business. We're currently using AI as we think about data and how to set reserves and all the pictures that we take to be able to do that. We look at AI from expense control. So how do you dispatch cars, how do you use it in the call center. Our technology team uses it, how do we code more efficiently and better as we do it. So we definitely see it as more as an enabler than disrupting all the care custody control, the data that we have and all the services that we offer to our partners. So we don't really look at it as a disruptor or more as an enabler.

That's fair. I had to ask because I feel like it's been...

It's been out there for 2 weeks.

There's a big narrative out there. So let's focus a little more on the core business then and the GTV trends. I mean you guys came out with relatively constructive guidance, I'd argue this year, particularly relative to last year. People have argued that you've been conservative in the past. And so maybe just give a sense for what's driving sort of that performance into '26 and where you see the puts and takes maybe across the board.

Yes. So just for RB Global and everyone has called Eric conservative since I've been here for the last year or so. So it's been interesting. But the auto side of our business is a little bit easier for us to kind of think about and how it's going to trend in '26. So there's contracts that we won, there's market share that we've taken. When you kind of look at ASPs and how they grow, it's a little bit more predictable. On the Ritchie side, the great thing is we don't have any big onetime events that we had in the year before, where we had Yellow that we had to offset $350 million of GTV and where is that going to come from. So as we think about our partners, they're very cautiously optimistic is how I would term of what they're telling us right now. We're also seeing some insolvency and bankruptcies pick up some big chunky deals that we feel really good about. But what's nice right now is as you look at the third and fourth quarter for RB Global, it's really the first time where both businesses have been trending in the right direction and not having something they're going to -- if it's a CAT event, if it's a Yellow bankruptcy, whatever that we're not going up against. So we feel really good about what we're seeing from our partners right now. And I think Eric's guidance reflects how we feel about the business.

Okay. That's helpful. And maybe just on the recent quarter, you touched on some new contract wins or renewals, I should say, and talked about some expanded scope there. That did feel fairly deliberate. So why are the customers upping the volume sort of commitments? What goes into that -- those renewals? And maybe just give us some context around that pattern.

Yes. So for us, why it was important to get these renewals behind us. These 2 renewals represent the top of the insurance carrier food chain, right? So when you really think about economics and going through an RFP process that's very detail oriented, they all have procurement teams. They all go through the data and the insight to figure out, okay, what market should you have, what market shouldn't you have? And when you kind of get that process behind you and think about over a year process of going through this, and it really -- when you look at the top 7 insurance carriers, they make up a large portion of salvage. And when you get the top 2 behind you, that just gives you a lot of stability and foundation. And then what's great for us is when I think about the future and I think about what comes up over the next 3 to 4 years in terms of RFPs and contracts that come up, we have a lot more shots on goal. There's a lot more contracts that come up where we don't have the business, and it gives us a lot more opportunity to continue to gain share.

And just to ask the same question another way. I mean, it sounds like then the market share opportunity for you is still pretty significant. I mean you've talked about 50-50 in the past as being sort of a long-term target, but the progression towards there, is it going to be lumpy? Steady? How do we think about sort of that progression?

Yes. It's a hard question to answer just because if you think of any of the 2 big carriers if they move volume, it's lumpy in a big way, right? If you think about the middle tier, it's nice, right? And then you look at the lower, it's just you won't notice it, right? It's just too small. So I think it all depends on who moves it and when they move it and what cadence they move it in to know if it's lumpy or if it's more steady.

Okay. That's helpful. And you did mention on the call as well in the guidance that the take rate might come under a little bit of -- I know you don't like the word pressure, but I'll say pressure in the year. Just describe to us exactly what's going into sort of that formula and why you think that is a mix issue, what's driving that?

Yes. And I'll just give an example, and please do not take any -- I'm going to use very round, round numbers that are examples and not saying these are the numbers as you go through it. So we announced not this quarter, last quarter that we won the GSA contract. So in that contract, say the unit economics are $1,000 a car, but the GTV is $12,000 a car. So when you do the math, it's like a 10% take rate. In salvage, if you get $1,000 a car, it's $4,000, so you have a 25% take rate. Now I love the $1,000 that we get in the economics, and I would take 15 more GSAs. I wouldn't say no to it. But when you look at it as a percent, your mix is going to start to change and your GTV looks differently. And as we mix into more whole car, that's kind of what you're going to see higher GTV, but very good unit economics. When we entered Australia, the Australian economics are different than the U.S. economics. So that compresses it. And look, as we think about the bigger carriers and as you gain share, typically the way the RFP goes for big carriers, you kind of have a volume tier, right? If you have 50% share, you get this for a sell-side fee. If you have 75%, you get this, if you have 100%, you get this. And as you can imagine, as you get more, your discount gets bigger, right? So as you get more share, your take rate, but now we're very happy with the economics and getting x number of cars as we think about the dollars that we get. So for us, we're not managing the business as a percent. We're managing the business on incremental dollars that we drive through the P&L. So these are just examples as we think about and why I hate the word pressure. I don't consider a pressure. I think these are very good things for the business that we're generating incremental dollars. But I can get when someone looks at a percent, you really have to deconstruct what GTV is and what it looks like. And as we tell the story, this is what we're trying to tell on the call.

That's actually really good color. You're not quite at the year anniversary for Australia, but that's sort of one of the new sort of main markets you've ventured into. Ritchie Bros. historically, the legacy had a footprint there. You've kind of gone in with an initial contract and building that business out. Two questions. One is, how is that business performing to date? What are the broader opportunities there? And then if we think about that playbook as part 2, like where else do you apply that around the world?

No, no, great question. So in Australia, before we got there, there were 2 players kind of just like the U.S., a duopoly in the Australia market. The one thing that we found out is the 2 players really weren't innovating. So where the U.S. was with services and towing and capabilities, technology, Australia just was not changing. So Suncorp is the contract that we won. They really wanted someone to come in and become a strategic partner versus vendor. And they wanted someone to come in and innovate and improve the business and the experience. So we were able to go in. We won the contract, then we start making our investments. So we're about 8 months into it. It's been seamless. We actually did our IAA Industry Event last week where we have all of our partners come and we do a 2-day kind of meeting and go through industry stuff, go through IAA-specific stuff. Suncorp came from Australia to support us there, which is great to see a new partner taking a 20-hour flight to come here for 2 days and participate in our event. They were part of our advisory board, so they can hear all the innovation and what's to come to Australia, and they were even left more excited than what it was. But look, our biggest thing right now is when you go into a new market like Australia is building the buyer base, right? Because cars and how they drive different steering wheel, different side, all that fun stuff, we're building the buyer base, right? So that's our big thing. The great thing is we're executing really well from SLA. We're hitting the ASPs that we said, but we really want that buyer base to continue to grow and evolve.

Okay. That's great. And are there other markets where that would apply? If I think of the legacy Ritchie, they've got a platform broadly?

Yes. Kind of the first thing we want to make sure we do is get this playbook right for Australia and not lose focus on what we made our commitment to because one of the most important things for us as an organization to get to a strategic partner from a vendor is when you say something, you over deliver on it and you actually do it. But we're getting a lot of requests internationally from different insurance carriers, would you come to this country, right, and provide the same service. Now what we like about the model in Australia is you typically already have an RFP and you won the contract before you have to make the investments in that model. So we have high interest to do it, but we don't want to lose focus. And look, even in Australia, it's a duopoly. We expect because it's going to be a duopoly with us that we can get up to 50% share, and we don't see any reason. So we want to make sure we don't lose focus on that and go somewhere else and take our eye off the ball, but we see other countries where we can apply this model to in Europe.

And in the U.K., you sort of -- you've kind of won the similar concept in terms of breaking into the market through an initial contract. I mean, is that a market where there's opportunity for growth? There was some consolidation at the carrier level as well. But I mean, how do you feel about the opportunities there? And how is that contract performing thus far?

Yes. So far -- and DLG was the insurance carrier that we won in the U.K. But I would take Australia was different because it was really an international player and a local player. We're really the 2. In the U.K., it's very similar to the U.S. with the 2 main players. Our current competitor in the U.S. is the main competitor in the U.K. and there are some local players, but they're starting to fizzle out. They can't keep up with the capital and the need of innovation to keep it going. So we feel really good. It's a very similar playbook that we apply to the U.S. that we're applying to the U.K. and the same type of thing. We see no reason why there shouldn't be this very rational duopoly in the U.K.

I'm going to bridge now to the other legacy of the business because I feel like one of the key parts of our thesis coming into the year was that you would actually start to see the benefits of that side of the business showing. And it's not that it was underperforming per se, but there was a bunch of little headwinds along the way, some tough comps. You mentioned Yellow, few things. But maybe just get a sense for how that business is starting to perform. What gets you excited about this year? Be it on the volume side or pricing side, market share opportunities?

What I'm really excited about on the Ritchie Bros. side is -- and this kind of ties to IAA. When you look at IAA and the strategic partnerships that we're building and when I'm sitting in the room and the insurance carriers are sharing their 5-year plan and then how do you fit into their 5-year plan and how do you add value, that's the concept that we're bringing to our partners on the Ritchie side. So when you really start to think about a rental company, what are your priorities and where do you need us to add value when you think about a CAT dealer, Volvo, like pick whoever it is. What's your priorities? And what are you trying to add? What I love about Ritchie, no one has all the tools that we have. So we can sell something at retail, we can sell something at wholesale, we can do auction. We can provide these services, what we do with Rouse, what we do with SmartEquip, no one else has the full suite of products. And that really starts to build that trusted partnership and that strategic relationship with everyone. And there's really not another auction company, especially if you're a big public company and you have to hit numbers every quarter, who you can depend on to be consistent in what you do. And I think that's the one thing people don't really realize about Ritchie Bros. Our real magic is at the scale we're at, when we tell you something and we're going to get you this value, we deliver that value. And we do it on a very consistent basis. And we do it at scale. And no one else in this space has that capability. So what gets me excited is all the tools we have, now that we're telling our story as a strategic partner and really building that moat around our business gets me really excited.

And the competitive landscape there has often talked about. It's changed over the years, but it's talked about in the sense that one of your competitors in the other side of the business has got a small stake in the business. I mean, how do you feel like your ability to compete against these other, I'll call it, channels, if that's the right word, or modes of operation out there that exist today?

No, no. I laugh because our competitor who said when I and Ritchie came together was a dumb idea then went out and did their own acquisition to do what we're doing. So that was always fun. But look, when I look at our competitors on the Ritchie side, what they do more of is they try to get very specific in something that we do. Like an example, in transportation, Taylor And Martin, they just do transportation. So they try to stay very specific, but they're a regional player. They can't do the whole globe. So for them to service an account like Penske, it's really hard, right? You have someone like JJ Kane, who does utility trucks, right? And they're very focused in that. So kind of what our competitors have tried to do is they're very regionalized and they get very specific in an asset class that they try to serve. First trying to replicate all the tools and everything that Ritchie has that we've built over 68 years. So for us, we're very -- as we think about competition, it's very specific of how do we compete against a certain segment of the business of how we think about it.

In M&A, I just want to shift to that sort of side of the business for a minute. You've done a number of small acquisitions, tuck-ins, if you want to call them that. They've been actually pretty tilted towards the legacy Ritchie side. How do you feel about the M&A landscape out there today? What have you learned thus far from like a J.M. Wood, for example? And how do you think about the pipeline going forward?

Yes. So kind of when we think about Canada, we're pretty much the dominant share, right? So when I think about Canada, it's how do we protect Canada. Then when we get it into the U.S., and this applies to international also. we're dominant in industrial transportation, construction equipment. We're not in ag or government business. So for us, the real opportunity is that ag business in the U.S. and international, that government type of business, especially in the U.S. And what we learned from J.M. Wood is they do an unbelievable job in Alabama with all the municipalities of how they manage all their equipment that they have. And it's a model we really want to take and apply to other areas inside of the U.S. And we've been really impressed by it as we went through this. But we think there's a lot of opportunity in the states of tucking things in, building things out as we think about the model.

And just thinking about the balance sheet, Eric, you're pretty flexible as it stands today, but where do you sort of think about sort of target leverage from the M&A standpoint?

Yes. So what I've said publicly, our target is around 2x net debt to adjusted EBITDA. Right now, we exited at about 1.4x, 1.5x. So we have some flexibility and some dry powder as we look at M&A opportunities for the business.

And just keeping on the capital spend side. I mean, you guys have guided -- I'd say CapEx has actually come up over the last couple of years from the initial statement. Maybe just give us a sense for where that's going. There's always a debate in this business about land and owning land versus not. But maybe just give us a sense for how that current CapEx profile is split out and what we should think about?

Yes. So the guide that we put out is $350 million to $400 million. And I've said that, that split is probably 2/3, 1/3. So 2/3 related to traditional PP&E, and that would include land purchases and then 1/3 related to technology-related spend. So that's how we're looking at it. And then the question around land, owned versus leased, we really look at it through a decision tree in essence. Does it make sense financially to purchase this or lease it? That's one filter. But then another filter is, is it a strategic piece of property that we need to have? Is it in a location that we couldn't replicate relatively easily. So those are some other -- is it a landlord that may be a challenge to deal with long term. So we want to take that property out. So there's other filters besides the financial filter, but that is our first filter. We look at land.

So I just want to tie 2 things together. You said here recently because I'm just -- narratives in the market can run all different ways, as we all know. But I mean, owned versus lease is always like a big debate upfront. Early in the transaction anyways, you guys were under owned effectively of land. And then the performance metrics was a separate piece. And I think maybe admittedly coming in, we didn't have great clarity on that, but you've actually been publishing some metrics now on how the SLA stand. So if I put those 2 together, how do you feel about the SLA performance today? And again, this relative land footprint and your ability to compete and take share back? Sounds like pretty good, but I just want to get your sense.

Yes. No, no. So I'll start with the SLA part of it. So look, when we came in, we wanted to make sure we built a foundation of consistent performance. And to me, the most important thing is when you make a commitment to someone, you have to overdeliver on that commitment. And period, that's what you have to do. So when we sat together as a team probably 2.5 years ago, I had the whole IAA team in front of me, it was like, look, the only way we're going to stop this nonsense of your competitor going out and saying that you suck pretty much is let's be transparent and show the data. Like it's the only way to do it, right? And there's this whole book about selling through fear right? And that's what our competitor does. They sell through fear. Like if you don't do this, this is going to happen. And the only way you be fear is you have to be transparent and factual. So we started 2.5 years ago publishing our numbers, what's our tow performance, what's our title performance, what's our ASP growth, what's our buyer base look like? So the 4 or 5 most important things in insurance carrier that pretty much match every contract that we have. So we've been issuing those numbers for over 2.5 years, and we send it to everyone in the insurance space. So if you're a carrier that does business with us, you do it, not with us, you get it. And what I love that the team did is, look, we all know a metric. You can include this, not include this. We give the exact definition of how we calculate it inside of the metric. So we don't play any games of, okay, if you gave me a car before 12 or 4, it looks this way. We tell everyone exactly how we're calculating it to be completely transparent. So as we start that, we are operating at a very high level. We're 99-point something every week, every quarter, every month when it comes to tow, when it comes to title in compliance with our contracts, we're well over delivering. And I think the industry feels that now. So they know that foundation is there. Now the challenge is for us, you can't go backwards, right? So once when you do this, like you have to keep operating at this high level at this point. So that's kind of where we're at. Look, when I think about this lease versus own kind of theory, I just think about it financially. What's the best financial decision for our shareholders, right? Is it -- do I want to be a real estate company? Do I want to be an operator in a company in this lease? And to Eric's point, look, we're fully cognizant of if I have a piece of land in Hollywood, California, the chance of replicating that inside of L.A. right down the street from Hollywood, right, it's small. So you probably own that land. But if I'm out in the Cornfield and there's multiple 50 acres of land, I don't think I need to own that land and I can lease it. So for us, we're just going to run it through our financial model, make sure we make the right financial decision. And because I own something today, it doesn't mean I won't do a sale leaseback to generate capital and do something else with the capital. So we don't think because I own it, like the SLA doesn't know if I own or lease the land. My team doesn't know if I own or lease the land. They don't care less. Sameer always gives the analogy, if you go to McDonald's, like the hamburger doesn't taste better if you own or lease the land, right? So for us, it's a financial decision, and we're going to make the right financial decision for our investors and our teammates as we think about do you own or lease land.

Okay. A few minutes left, and I wanted to give a few people an opportunity. We have a breakout afterwards, but if people wanted to ask a question on the floor, I wanted to open up for anyone with questions. Okay. I can keep going if not. I wanted to come back to operating leverage because it's been like a key part of the story thus far. You can look at it different ways, SG&A percentage, GTV, EBITDA or GTV, for example. I mean, how do we think about the leverage going forward? Again, you've given us a few puts and takes, right? Take rates slightly lower, but again, operating leverage across fixed assets. So how do we think about that?

Yes. So Jim and I have been really clear with the organization and are obviously very aligned on this. There's opportunities within our P&L to continue to create operating leverage. And there will be times where we will invest ahead of volume coming, right? So we won't say every quarter, it's going to show operating leverage. However, over the medium term and long term, there's opportunities to continue to create operating leverage in our P&L. And what do I mean by that is that the bottom line growing faster than the top line. The nuance in our business is we also have this tool within our -- being global is that we can purchase inventory, right? And in certain quarters, we may have more inventory that has a different profile. So then it's not as easy to just say, take it as a percent of revenue. But over time, our commitment is we'll continue to improve the operating leverage of the P&L. The piece what we say is nonnegotiable and where maybe the legacy IAA has gotten a little bit of a challenge is we will not go backwards on any of our SLAs to take cost out of the business, right? So we will always make sure that, that is first and most important, and then we will optimize the rest of the P&L.

And can you describe the pricing strategy a little bit for us? I mean it's seller fees, buyer fees. But I mean, how do you think about rating that on a regular basis? How often do you adjust it? Is it a leadership strategy, fast follow? I mean, how do we think about sort of the regular pace of pricing?

Yes. So I think when you look at -- I would look at both sides of the business, a little bit different when you look at the legacy IAA side, look, there's only 2 of us in the marketplace. We look at it continually. Actually, I think usually in January, we usually will make an adjustment if we want to. But for the most part, we look at that ongoing, and there's only 2 players in that space. On the RV side, I look at us more as an industry leader. We are the largest player in that space. But with that said, we do look at what's going on with competitors and making sure we can maximize value for our partners. But we continue to look at it in both sides of the business.

And then just the last one here, we're running short of time, but I wanted to ask about Orlando because it's like a big flagship event for you guys. It just finished up, and I know you had the industry event, but the numbers look pretty promising coming out the other side. I mean maybe just give us a sense for what was driving results this year, what worked, what didn't work, volumes, pricing and how we think about it?

Yes. So Orlando is always interesting because it's the biggest event that you have, and it really gets into a lot of analytics around supply and demand, right? Because if you end up with a lot of the similar equipment, similar hours, right, and you don't have enough demand for it, then pricing just drops, right? And the one issue that we had this year is international with all the tariffs. Typically, we have a lot of equipment, not a lot, but a good portion of equipment that comes into Orlando from international with all the tariffs that was kind of a whole different. So for me, being really proud of the team to be able to offset and go above last year's numbers with not having any of that really international business is something I'm really proud of. And then when I look at pricing stabilizing and pricing was a little bit better than what we thought it was when we kind of predicted out what we thought the event would be. So it really gives you a really good feel on as you head into the end of the first quarter and into the second. And then I think the one thing that I'm always amazed about is we typically get about 2,000 customers to the event and over 4.5 days, selling $270 million worth of equipment and all the interaction, it's kind of like -- and we're about to head the Con Expo. I think I'm heading there tonight. We're about to see the customers again. So inside of 3 weeks, being able to build relationships and talking to your customers about what they value, what they need, it's just -- it's an amazing event that no one else has the capability of doing. But when you get to touch almost all your customers in one spot during a 4-day period of time and have very intimate conversations, it's one of the most unique events that I've been a part of in my career.

Could pricing be a surprise this year like to the upside? It's been so -- I mean it's been such a drag for so long on the equipment side. Like 2-plus years now. We're actually just kind of fluttering kind of between breakeven and positive. I mean, how do you think about pricing as an opportunity this year?

Well, Eric, the conservative CFO would say, look, it's early days. I think we saw pricing stabilize in Q4. We saw Orlando pretty stable. Let's see how the year progresses. But it could be -- to your question, it could be a bit of a tailwind.

And just one last one is just on the buyback. It's not been part of the toolkit thus far. Stock is a reasonable valuation, but some people would argue that there's room for a small buyback in place. I mean how do you feel about it?

All right. I'll start with -- we currently don't have an authorization at the Board. But I would say, look, the dislocation of the stock with this AI was not lost on us. We review our capital allocation with the Board ongoing. We did it earlier this year, but we currently don't have an authorization in place. But definitely, the dislocation is not lost on us as we saw that AI article.

True value. I like it. Okay. We're going to leave it there. We'll cut it off. There's a breakout room downstairs. I'm not sure, I think it's maybe Cordova 6, but you can check your schedule it will be down there.

Perfect. Thank you so much.

Thank you.