RB GLOBAL INC. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-13425

Ritchie Bros. Auctioneers Incorporated

(Exact Name of Registrant as Specified in its Charter)


Canada		98-0626225
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9500 Glenlyon Parkway
Burnaby, British Columbia, Canada		V5J 0C6
(Address of Principal Executive Offices)		(Zip Code)

(778) 331-5500

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares	RBA	New York Stock Exchange
Common Share Purchase Rights	N/A	New York Stock Exchange

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No ⌧

Table of Contents

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: 108,685,255 common shares, without par value, outstanding as of August 5, 2020.

Table of Contents

RITCHIE BROS. AUCTIONEERS INCORPORATED

FORM 10-Q

For the quarter ended June 30, 2020

INDEX


PART I – FINANCIAL INFORMATION
ITEM 1:	Consolidated Financial Statements	1
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk	49
ITEM 4:	Controls and Procedures	49

PART II – OTHER INFORMATION
ITEM 1:	Legal Proceedings	50
ITEM 1A:	Risk Factors	50
ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	51
ITEM 3:	Defaults Upon Senior Securities	51
ITEM 4:	Mine Safety Disclosures	51
ITEM 5:	Other Information	51
ITEM 6:	Exhibits	52

SIGNATURES		53

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PART I – FINANCIAL INFORMATION

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Income Statements

(Expressed in thousands of United States dollars, except share and per share data)

(Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue:
Service revenue	$	234,139	$	234,606	$	417,262	$	406,978
Inventory sales revenue		154,911		158,616		245,043		289,673
Total revenue		389,050		393,222		662,305		696,651

Operating expenses:
Costs of services		39,448		50,268		78,803		86,337
Cost of inventory sold		143,134		149,818		224,719		270,293
Selling, general and administrative expenses		100,632		97,714		199,017		192,898
Acquisition-related costs		—		38		—		707
Depreciation and amortization expenses		17,857		17,112		37,150		34,227
Gain on disposition of property, plant and equipment		(1,213)		(101)		(1,260)		(250)
Foreign exchange loss		392		403		994		881
Total operating expenses		300,250		315,252		539,423		585,093
Operating income		88,800		77,970		122,882		111,558

Interest expense		(8,882)		(10,117)		(18,064)		(20,933)
Other income, net		857		1,679		4,434		3,718
Income before income taxes		80,775		69,532		109,252		94,343

Income tax expense		27,656		15,401		33,304		22,040
Net income	$	53,119	$	54,131	$	75,948	$	72,303

Net income attributable to:
Stockholders	$	53,043	$	54,036	$	75,851	$	72,200
Non-controlling interests		76		95		97		103
Net income	$	53,119	$	54,131	$	75,948	$	72,303

Earnings per share attributable to stockholders:
Basic	$	0.49	$	0.50	$	0.70	$	0.66
Diluted	$	0.49	$	0.49	$	0.69	$	0.66

Weighted average number of shares outstanding:
Basic		108,387,490		108,707,708		108,818,903		108,725,871
Diluted		109,323,343		109,942,768		109,903,808		109,982,763

See accompanying notes to the condensed consolidated financial statements.


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Condensed Consolidated Statements of Comprehensive Income

(Expressed in thousands of United States dollars)

(Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income	$	53,119	$	54,131	$	75,948	$	72,303
Other comprehensive income (loss), net of income tax:
Foreign currency translation adjustment		10,764		2,457		(5,105)		823
Total comprehensive income	$	63,883	$	56,588	$	70,843	$	73,126

Total comprehensive income attributable to:
Stockholders	$	63,795	$	56,486	$	70,743	$	73,028
Non-controlling interests		88		102		100		98
	$	63,883	$	56,588	$	70,843	$	73,126

See accompanying notes to the condensed consolidated financial statements.


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Condensed Consolidated Balance Sheets

(Expressed in thousands of United States dollars, except share data)

(Unaudited)


	June 30,		December 31,
	2020		2019
Assets

Cash and cash equivalents	$	389,720	$	359,671
Restricted cash		148,293		60,585
Trade and other receivables		334,488		142,627
Less: allowance for credit losses		(4,559)		(5,225)
Inventory		63,089		64,956
Other current assets		27,486		50,160
Income taxes receivable		3,937		6,810
Total current assets		962,454		679,584

Property, plant and equipment		475,936		484,482
Other non-current assets		131,326		145,679
Intangible assets		223,130		233,380
Goodwill		671,368		672,310
Deferred tax assets		14,299		13,995
Total assets	$	2,478,513	$	2,229,430

Liabilities and Equity

Auction proceeds payable	$	499,415	$	276,188
Trade and other payables		213,036		194,279
Income taxes payable		16,023		7,809
Short-term debt		21,980		4,705
Current portion of long-term debt		17,588		18,277
Total current liabilities		768,042		501,258

Long-term debt		614,375		627,204
Other non-current liabilities		142,518		151,238
Deferred tax liabilities		49,270		42,743
Total liabilities		1,574,205		1,322,443

Commitments and Contingencies (Note 19 and Note 20 respectively)
Stockholders' equity:
Share capital:
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 108,630,537 (December 31, 2019: 109,337,781)		169,255		194,771
Additional paid-in capital		47,958		52,110
Retained earnings		746,048		714,051
Accumulated other comprehensive loss		(64,207)		(59,099)
Stockholders' equity		899,054		901,833
Non-controlling interest		5,254		5,154
Total stockholders' equity		904,308		906,987
Total liabilities and equity	$	2,478,513	$	2,229,430

See accompanying notes to the condensed consolidated financial statements.


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Condensed Consolidated Statements of Changes in Equity

(Expressed in thousands of United States dollars, except where noted)

(Unaudited)


	Attributable to stockholders													Contingently
				Additional				Accumulated		Non-				redeemable
	Common stock			paid-In				other		controlling				performance
	Number of			capital		Retained		comprehensive		interest		Total		share units
Three months ended June 30, 2020	shares	Amount		("APIC")		earnings		loss		("NCI")		equity		("PSUs")

Balance, March 31, 2020	108,198,739	$	153,801	$	46,147	$	714,816	$	(74,959)	$	5,166	$	844,971		—
Net income	—		—		—		53,043		—		76		53,119		—
Other comprehensive loss	—		—		—		—		10,752		12		10,764		—
	—		—		—		53,043		10,752		88		63,883		—
Stock option exercises	431,831		15,457		(3,086)		—		—		—		12,371		—
Issuance of common stock related to vesting of share units	(33)		(3)		(7)		—		—		—		(10)		—
Stock option compensation expense	—		—		1,543		—		—		—		1,543		—
Equity-classified share units expense	—		—		3,231		—		—		—		3,231		—
Equity-classified share units dividend equivalents	—		—		130		(130)		—		—		—		—
Cash dividends paid	—		—		—		(21,681)		—		—		(21,681)		—
Balance, June 30, 2020	108,630,537	$	169,255	$	47,958	$	746,048	$	(64,207)	$	5,254	$	904,308		—

Three months ended June 30, 2019

Balance, March 31, 2019	108,958,906	$	189,297	$	50,054	$	646,614	$	(57,899)	$	5,063	$	833,129		984
Net income	—		—		—		54,036		—		95		54,131		—
Other comprehensive income (loss)	—		—		—		—		2,450		7		2,457		—
	—		—		—		54,036		2,450		102		56,588		—
Stock option exercises	98,433		3,190		(694)		—		—		—		2,496		—
Issuance of common stock related to vesting of share units	3,009		110		—		—		—		—		110		—
Stock option compensation expense	—		—		1,660		—		—		—		1,660		—
Equity-classified share units expense	—		—		3,488		—		—		—		3,488		47
Equity-classified share units dividend equivalents	—		—		125		(143)		—		—		(18)		18
Cash dividends paid	—		—		—		(19,592)		—		—		(19,592)		—
Shares repurchased	(1,223,674)		(42,012)		—		—		—		—		(42,012)		—
Balance, June 30, 2019	107,836,674	$	150,585	$	54,633	$	680,915	$	(55,449)	$	5,165	$	835,849		1,049


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Condensed Consolidated Statements of Changes in Equity

(Expressed in thousands of United States dollars, except where noted)

(Unaudited)


	Attributable to stockholders													Contingently
				Additional				Accumulated		Non-				redeemable
	Common stock			paid-In				other		controlling				performance
	Number of			capital		Retained		comprehensive		interest		Total		share units
Six months ended June 30, 2020	shares	Amount		("APIC")		earnings		loss		("NCI")		equity		("PSUs")

Balance, December 31, 2019	109,337,781	$	194,771	$	52,110	$	714,051	$	(59,099)	$	5,154	$	906,987	$	—
Net income	—		—		—		75,851		—		97		75,948		—
Other comprehensive loss	—		—		—		—		(5,108)		3		(5,105)		—
	—		—		—		75,851		(5,108)		100		70,843		—
Stock option exercises	679,277		24,141		(4,716)		—		—		—		19,425		—
Issuance of common stock related to vesting of share units	138,791		3,513		(7,451)		—		—		—		(3,938)		—
Stock option compensation expense	—		—		2,730		—		—		—		2,730		—
Equity-classified share units expense	—		—		5,017		—		—		—		5,017		—
Equity-classified share units dividend equivalents	—		—		268		(268)		—		—		—		—
Cash dividends paid	—		—		—		(43,586)		—		—		(43,586)		—
Shares repurchased	(1,525,312)		(53,170)		—		—		—		—		(53,170)		—
Balance, June 30, 2020	108,630,537	$	169,255	$	47,958	$	746,048	$	(64,207)	$	5,254	$	904,308	$	—

Six months ended June 30, 2019

Balance, December 31, 2018	108,682,030	$	181,780	$	56,885	$	648,255	$	(56,277)	$	5,067	$	835,710	$	923
Net income	—		—		—		72,200		—		103		72,303		—
Other comprehensive loss	—		—		—		—		828		(5)		823		—
	—		—		—		72,200		828		98		73,126		—
Stock option exercises	181,359		5,668		(1,544)		—		—		—		4,124		—
Issuance of common stock related to vesting of share units	196,959		5,149		(10,064)		—		—		—		(4,915)		—
Stock option compensation expense	—		—		3,199		—		—		—		3,199		—
Equity-classified share units expense	—		—		5,810		—		—		—		5,810		93
Equity-classified share units dividend equivalents	—		—		347		(380)		—		—		(33)		33
Cash dividends paid	—		—		—		(39,160)		—		—		(39,160)		—
Shares repurchased	(1,223,674)		(42,012)		—		—		—		—		(42,012)		—
Balance, June 30, 2019	107,836,674	$	150,585	$	54,633	$	680,915	$	(55,449)	$	5,165	$	835,849	$	1,049

See accompanying notes to the condensed consolidated financial statements.


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Condensed Consolidated Statements of Cash Flows

(Expressed in thousands of United States dollars)

(Unaudited)


Six months ended June 30,	2020		2019
Cash provided by (used in):
Operating activities:
Net income	$	75,948	$	72,303
Adjustments for items not affecting cash:
Depreciation and amortization expenses		37,150		34,227
Stock option compensation expense		2,730		3,199
Equity-classified share unit expense		5,017		5,903
Deferred income tax expense		6,657		1,056
Unrealized foreign exchange (gain) loss		1,129		(51)
Gain on disposition of property, plant and equipment		(1,260)		(250)
Amortization of debt issuance costs		1,577		1,765
Amortization of right-of-use assets		6,318		5,845
Gain on contingent consideration from equity investment		(1,700)		—
Other, net		1,934		322
Net changes in operating assets and liabilities		62,824		36,036
Net cash provided by operating activities		198,324		160,355
Investing activities:
Property, plant and equipment additions		(6,140)		(4,618)
Intangible asset additions		(13,244)		(12,175)
Proceeds on disposition of property, plant and equipment		16,106		583
Distribution from equity investment		4,212		—
Proceeds on contingent consideration from equity investment		1,700		—
Other, net		(2,782)		(1,000)
Net cash used in investing activities		(148)		(17,210)
Financing activities:
Share repurchase		(53,170)		(42,012)
Dividends paid to stockholders		(43,586)		(39,160)
Issuances of share capital		19,425		4,124
Payment of withholding taxes on issuance of shares		(3,321)		(4,915)
Proceeds from short-term debt		35,799		12,879
Repayment of short-term debt		(19,941)		(24,985)
Repayment of long-term debt		(8,633)		(14,514)
Repayment of finance lease obligations		(4,384)		(2,937)
Net cash used in financing activities		(77,811)		(111,520)
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash		(2,608)		1,802
Increase		117,757		33,427
Beginning of period		420,256		305,567
Cash, cash equivalents, and restricted cash, end of period	$	538,013	$	338,994

See accompanying notes to the condensed consolidated financial statements.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies

Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide global asset management and disposition services, offering customers end-to-end solutions for buying and selling used industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”).

(a) Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). They include the accounts of Ritchie Bros. Auctioneers Incorporated and its subsidiaries from their respective dates of formation or acquisition. All significant intercompany balances and transactions have been eliminated.

Certain information and footnote disclosure required by US GAAP for complete annual financial statements have been omitted and, therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in equity for the interim periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. The extent of the impact of the COVID-19 pandemic on the operational and financial performance of the Company, including the ability to execute on business strategies and initiatives, will depend on future developments, including the duration and spread of the pandemic and related restrictions placed by oversight bodies and respective global governments, as well as supply and demand impacts driven by the Company’s consignor and buyer base, all of which are uncertain and cannot be easily predicted. Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on its business operations, results of operations, cash flows or financial performance.

(b) Revenue recognition

Revenues are comprised of:

●	Service revenue, including the following:

Revenue from auction and marketplace (“A&M”) activities, including commissions earned at our live auctions, online marketplaces, and private brokerage services where we act as an agent for consignors of equipment and other assets, and various auction-related fees, including listing and buyer transaction fees; and

ii.

Other services revenue, including revenue from listing services, refurbishment, logistical services, financing, appraisal fees and other ancillary service fees; and

●	Inventory sales revenue as part of A&M activities

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For live event-based auctions or online auctions, revenue is recognized when the auction sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.

Service revenue

Commissions from sales at the Company’s auctions represent the percentage earned by the Company on the gross proceeds from equipment and other assets sold at auction. The majority of the Company’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies (continued)

(b) Revenue recognition (continued)

Service revenue (continued)

The Company accepts equipment and other assets on consignment stimulating buyer interest through professional marketing techniques and matches sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering an item for sale on its online marketplaces, the Company also performs inspections.

Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage of the hammer price of the property sold at auction. Fees are also charged to sellers for listing and inspecting equipment. Other revenue earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees.

On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission and fee revenue are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer.

Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. Historically cancelled sales have not been material.

Online marketplace commission revenue is reduced by a provision for disputes, which is an estimate of disputed items that are expected to be settled at a cost to the Company, related to settlements of discrepancies under the Company’s equipment condition certification program. The equipment condition certification refers to a written inspection report provided to potential buyers that reflects the condition of a specific piece of equipment offered for sale, and includes ratings, comments, and photographs of the equipment following inspection by one of the Company’s equipment inspectors.

The equipment condition certification provides that a buyer may file a written dispute claim during an eligible dispute period for consideration and resolution at the sole determination of the Company if the purchased equipment is not substantially in the condition represented in the inspection report. Typically disputes under the equipment condition certification program are settled with minor repairs or additional services, such as washing or detailing the item; the estimated costs of such items or services are included in the provision for disputes.

Commission revenue are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee risk and reward sharing arrangement.

Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time.

Other services revenue also includes fees for refurbishment, logistical services, financing, appraisal fees and other ancillary service fees. Fees are recognized in the period in which the service is provided to the customer.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies (continued)

(b) Revenue recognition (continued)

Inventory sales revenue

Underwritten commission contracts can take the form of inventory contracts. Revenue related to inventory contracts is recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.

On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased. Title to the property is transferred in exchange for the hammer price, and if applicable, the buyer transaction fee plus applicable taxes.

Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenue, and earning other fee revenue. Direct expenses include direct labour, buildings and facilities charges, travel, advertising and promotion costs and fees paid to unrelated third parties who introduce the Company to equipment sellers who sell property at the Company’s auctions and marketplaces.

Costs of services incurred to earn online marketplace revenue in addition to the costs listed above also include inspection costs. Inspections are generally performed at the seller’s physical location. The cost of inspections includes payroll costs and related benefits for the Company’s employees that perform and manage field inspection services, the related inspection report preparation and quality assurance costs, fees paid to contractors who perform field inspections, related travel and incidental costs for the Company’s inspection service organization, and office and occupancy costs for its inspection services personnel. Costs of earning online marketplace revenue also include costs for the Company’s customer support, online marketplace operations, logistics, title and lien investigation functions.

Costs of services incurred in earning other fee revenue include ancillary and logistical service expenses, direct labour (including commissions on sales), software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.

(d) Cost of inventory sold

Cost of inventory sold includes the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis.

(e) Share-based payments

The Company classifies a share-based payment award as an equity or liability payment based on the substantive terms of the award and any related arrangement.

Equity-classified share-based payments

Share unit plans

The Company has a senior executive performance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date. PSUs vest based on the passage of time and achievement of performance criteria.

The Company also has a senior executive restricted share unit (“RSU”) plan and an employee RSU plan that provides for the award of RSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle all grants in shares. The cost of RSUs granted is measured at the fair value based on the fair value of the Company’s common shares at the grant date. RSUs vest based on the passage of time and include restrictions related to employment.


Ritchie Bros.	9

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies (continued)

(e) Share-based payments (continued)

Equity-classified share-based payments (continued)

Share unit plans (continued)

The fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.

Stock option plans

The Company has three stock option compensation plans that provide for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. The fair value of options expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. Upon exercise, any consideration paid on exercise of the stock options and amounts fully amortized in APIC are credited to the common shares.

Liability-classified share-based payments

The Company maintains other share unit compensation plans that vest over a period of up to three years after grant. Under those plans, the Company is either required or expects to settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf, where the settlement amount is determined based on the average price of the Company’s common shares prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.

These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in note 17. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest.

The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in other non-current liabilities.

(f) Leases

The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain vehicle and equipment leases, management applies a portfolio approach to account for the right-of-use (“ROU”) assets and liabilities for assets leased with similar lease terms.

Operating leases

Operating leases are included in other non-current assets, trade and other payables, and other non-current liabilities in our consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Lease expense for lease payments is recognized on a straight-line basis over the lease term and are included in Costs of services or Selling, general, and administrative (“SG&A”) expenses.


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Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies (continued)

(f) Leases (continued)

Finance leases

Finance lease ROU assets are included in property, plant and equipment, trade and other payables, and other non-current liabilities in our consolidated balance sheets.

Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal, purchase options, or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.

(g) Inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company typically purchases inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. In addition, certain jurisdictions require auctioneers to hold title to assets and facilitate title transfer on sale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation. As part of its government business, the Company purchases inventory for resale as part of its commitment to purchase certain surplus government property (note 19). The significant elements of cost include the acquisition price of the inventory and make-ready costs to prepare the inventory for sale that are not selling expenses and in-bound transportation costs. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.

(h) Impairment of long-lived and indefinite-lived assets

Long-lived assets, comprised of property, plant and equipment and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.

Indefinite-lived intangible assets are tested annually for impairment as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the indefinite-lived intangible asset is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the carrying amount is less than its fair value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value.

(i) Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.

Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative impairment test is not required.


Ritchie Bros.	11

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

1. Summary of significant accounting policies (continued)

(i) Goodwill (continued)

If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting unit’s carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit.

(j) New and amended accounting standards

Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The new standard replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking “methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.” In applying the new standard, the Company has adopted the loss rate methodology to estimate historical losses on trade receivables. The historical data is adjusted to account for forecasted changes in the macroeconomic environment in order to calculate the current expected credit loss. The Company’s adoption of ASC 326 did not result in a material change in the carrying values of the Company’s financial assets on the transition date. Periods prior to January 1, 2020 that are presented for comparative purposes have not been adjusted.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides “optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” The amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company’s use of LIBOR is applicable on short term drawings on the committed revolving credit facilities in certain jurisdictions. If applicable, the Company will use the optional expedients available when reference rate changes occur.

Effective January 1, 2020, the Company adopted ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract on a prospective basis. The update aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service agreement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The adoption of ASU 2018-15 on January 1, 2020 using the prospective transition approach did not result in a material impact to the consolidated financial statements.

2. Significant judgments, estimates and assumptions

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.

Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items subject to estimates include purchase price allocations, the carrying amounts of goodwill, the useful lives of long-lived assets, share based compensation, the determination of lease term and lease liabilities, deferred income taxes, reserves for tax uncertainties, and other contingencies.

For the six months ended June 30, 2020, the Company performed a qualitative assessment of the A&M reporting unit and the Mascus reporting unit with consideration of the current global economic downturn as a result of COVID-19 and the Company concluded there were no indicators of impairment.


Ritchie Bros.	12

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

3. Seasonality

The Company’s operations are both seasonal and event driven. Historically, revenues tend to be the highest during the second and fourth calendar quarters. The Company generally conducts more live, on site auctions during these quarters than during the first and third calendar quarters. Late December through mid-February and mid-July through August are traditionally less active periods. Online volumes are similarly affected as supply of used equipment is lower in the third quarter as it is actively being used and not available for sale.

The restrictions imposed and effects of the overall economic environment as a result of the COVID-19 pandemic may continue to impact these trends.

4. Segmented information

The Company’s principal business activity is the management and disposition of used industrial equipment and other durable assets. The Company’s operations are comprised of one reportable segment and other business activities that are not reportable as follows:

●	Auctions and Marketplaces – This is the Company’s only reportable segment, which consists of the Company’s live on site auctions, its online auctions and marketplaces, and its brokerage service;

●	Other includes the results of Ritchie Bros. Financial Services (“RBFS”), Mascus online services, and the results from various value-added services and make-ready activities, including the Company’s equipment refurbishment services, asset appraisal services, and Ritchie Bros. Logistical Services.


	Three months ended June 30, 2020						Six months ended June 30, 2020
	A&M		Other		Consolidated		A&M		Other		Consolidated
Service revenue	$	199,648	$	34,491	$	234,139	$	354,391	$	62,871	$	417,262
Inventory sales revenue		154,911		—		154,911		245,043		—		245,043
Total revenue	$	354,559	$	34,491	$	389,050	$	599,434	$	62,871	$	662,305
Costs of services		22,190		17,258		39,448		47,285		31,518		78,803
Cost of inventory sold		143,134		—		143,134		224,719		—		224,719
Selling, general and administrative expenses ("SG&A")		94,559		6,073		100,632		186,144		12,873		199,017
Segment profit	$	94,676	$	11,160	$	105,836	$	141,286	$	18,480	$	159,766
Depreciation and amortization expenses ("D&A")						17,857						37,150
Gain on disposition of property, plant and equipment ("PPE")						(1,213)						(1,260)
Foreign exchange loss						392						994
Operating income					$	88,800					$	122,882
Interest expense						(8,882)						(18,064)
Other income, net						857						4,434
Income tax expense						(27,656)						(33,304)
Net income					$	53,119					$	75,948


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Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

4. Segmented information (continued)


	Three months ended June 30, 2019						Six months ended June 30, 2019
	A&M		Other		Consolidated		A&M		Other		Consolidated
Service revenue	$	201,050	$	33,556	$	234,606	$	344,487	$	62,491	$	406,978
Inventory sales revenue		158,616		—		158,616		289,673		—		289,673
Total revenue		359,666		33,556		393,222	$	634,160	$	62,491	$	696,651
Costs of services		32,551		17,717		50,268		53,368		32,969		86,337
Cost of inventory sold		149,818		—		149,818		270,293		—		270,293
SG&A expenses		91,466		6,248		97,714		180,648		12,250		192,898
Segment profit	$	85,831		9,591		95,422	$	129,851	$	17,272	$	147,123
Acquisition-related costs						38						707
D&A expenses						17,112						34,227
Gain on disposition of PPE						(101)						(250)
Foreign exchange loss						403						881
Operating income						77,970					$	111,558
Interest expense						(10,117)						(20,933)
Other income, net						1,679						3,718
Income tax expense						(15,401)						(22,040)
Net income						54,131					$	72,303

The Company’s geographic breakdown of total revenue as determined by the revenue and location of assets, which represents property, plant and equipment, is as follows:


	United
	States		Canada		Europe		Other		Consolidated
Total revenue for the three months ended:
June 30, 2020	$	204,588	$	97,990	$	47,430	$	39,042	$	389,050
June 30, 2019		212,233		90,410		47,283		43,296		393,222
Total revenue for the six months ended:
June 30, 2020	$	395,118	$	133,633	$	73,768	$	59,786	$	662,305
June 30, 2019		395,806		121,940		102,068		76,837		696,651

5. Revenue

The Company’s revenue from the rendering of services is as follows:


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Service revenue:
Commissions	$	125,465	$	134,466	$	218,950	$	226,746
Fees		108,674		100,140		198,312		180,232
		234,139		234,606		417,262		406,978
Inventory sales revenue		154,911		158,616		245,043		289,673
	$	389,050	$	393,222	$	662,305	$	696,651


Ritchie Bros.	14

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

6. Operating expenses

Costs of services


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Ancillary and logistical service expenses	$	16,060	$	16,472	$	28,818	$	30,231
Employee compensation expenses		11,311		14,906		23,615		25,713
Buildings, facilities and technology expenses		2,076		2,172		6,115		4,306
Travel, advertising and promotion expenses		6,161		12,807		12,736		18,675
Other costs of services		3,840		3,911		7,519		7,412
	$	39,448	$	50,268	$	78,803	$	86,337

SG&A expenses


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Employee compensation expenses	$	70,807	$	63,889	$	133,302	$	125,353
Buildings, facilities and technology expenses		14,616		14,582		30,207		30,497
Travel, advertising and promotion expenses		4,817		9,225		15,086		18,367
Professional fees		4,577		4,155		9,024		8,230
Other SG&A expenses		5,815		5,863		11,398		10,451
	$	100,632	$	97,714	$	199,017	$	192,898

Depreciation and amortization expenses


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Depreciation expense	$	7,536	$	7,157	$	15,573	$	14,325
Amortization expense		10,321		9,955		21,577		19,902
	$	17,857	$	17,112	$	37,150	$	34,227


Ritchie Bros.	15

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

7. Income taxes

At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

For the three months ended June 30, 2020, income tax expense was $27,656,000 compared to an income tax expense of $15,401,000 for the same period in 2019. Our effective tax rate was 34% in the second quarter of 2020, compared to 22% in the second quarter of 2019.

The effective tax rate increased in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to final regulations published on April 8, 2020 by the United States Department of Treasury and the Internal Revenue Service (“IRS”) that clarified income tax benefits related to hybrid financing arrangements that the Company recorded in 2019 and the first quarter of 2020 would not be deductible. The Company had recorded net income tax benefits of approximately $6,228,000 in the twelve months ended December 31, 2019 and $1,072,000 in the three months ended March 31, 2020 which are no longer deductible. In addition, the Company had a smaller income tax recovery related to decreases in uncertain tax positions in 2020 than it did in 2019. Offsetting these increases was the reduced impact of the US tax reform.

For the six months ended June 30, 2020, income tax expense was $33,304,000, compared to an income tax expense of $22,040,000 for the same period in 2019. The effective tax rate was 30% for the six months ended June 30, 2020, compared to 23% for the six months ended June 30, 2019.

The effective tax rate increased in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the reasons described above.

8. Earnings per share attributable to stockholders

Basic earnings per share (“EPS”) attributable to stockholders was calculated by dividing the net income attributable to stockholders by the weighted average (“WA”) number of common shares outstanding during the period. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders by the WA number of shares of common stock outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include unvested PSUs, unvested RSUs, and outstanding stock options. The dilutive effect of potentially dilutive securities is reflected in diluted EPS by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.


	Three months ended					Six months ended
	June 30, 2020					June 30, 2020
	Net income		WA	Per		Net income		WA	Per
	attributable to		number	share		attributable to		number	share
	stockholders		of shares	amount		stockholders		of shares	amount
Basic	$	53,043	108,387,490	$	0.49	$	75,851	108,818,903	$	0.70
Effect of dilutive securities:
Share units		—	424,812		—		—	505,443		—
Stock options		—	511,041		—		—	579,462		(0.01)
Diluted	$	53,043	109,323,343	$	0.49	$	75,851	109,903,808	$	0.69


Ritchie Bros.	16

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

8. Earnings per share attributable to stockholders (continued)


	Three months ended					Six months ended
	June 30, 2019					June 30, 2019
	Net income		WA	Per		Net income		WA	Per
	attributable to		number	share		attributable to		number	share
	stockholders		of shares	amount		stockholders		of shares	amount
Basic		54,036	108,707,708		0.50	$	72,200	108,725,871	$	0.66
Effect of dilutive securities:
Share units		—	442,601		—		—	464,613		—
Stock options		—	792,459		(0.01)		—	792,279		—
Diluted	$	54,036	109,942,768	$	0.49	$	72,200	109,982,763	$	0.66

9. Supplemental cash flow information


Six months ended June 30,	2020		2019
Trade and other receivables	$	(191,182)	$	(208,486)
Inventory		1,447		33,584
Advances against auction contracts		5,207		188
Prepaid expenses and deposits		1,980		739
Income taxes receivable		2,873		(306)
Auction proceeds payable		222,006		252,765
Trade and other payables		19,769		(40,263)
Income taxes payable		8,852		3,341
Operating lease obligation		(6,167)		(7,415)
Other		(1,961)		1,889
Net changes in operating assets and liabilities	$	62,824	$	36,036


Six months ended June 30,	2020		2019
Interest paid, net of interest capitalized	$	16,524	$	19,024
Interest received		1,265		1,918
Net income taxes paid		13,850		18,455

Non-cash purchase of property, plant and equipment under finance lease		5,930		8,335
Non-cash right of use assets obtained (reassessed) in exchange for new lease obligations		(139)		20,179


	June 30,		December 31,
	2020		2019
Cash and cash equivalents	$	389,720	$	359,671
Restricted cash		148,293		60,585
Cash, cash equivalents, and restricted cash	$	538,013	$	420,256

10. Fair value measurement

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:

●	Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at measurement date;

●	Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

●	Level 3: Unobservable inputs for the asset or liability.


Ritchie Bros.	17

Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

10. Fair value measurement (continued)


		June 30, 2020				December 31, 2019
		Carrying				Carrying
	Category	amount		Fair value		amount		Fair value
Fair values disclosed:
Cash and cash equivalents	Level 1	$	389,720	$	389,720	$	359,671	$	359,671
Restricted cash	Level 1		148,293		148,293		60,585		60,585
Short-term debt	Level 2		21,980		21,980		4,705		4,705
Long-term debt
Senior unsecured notes	Level 1		491,829		513,125		490,933		520,625
Term loans	Level 2		140,134		140,702		154,548		155,355

The carrying value of the Company’s cash and cash equivalents, restricted cash, trade and other receivables, advances against auction contracts, auction proceeds payable, trade and other payables, and short term debt approximate their fair values due to their short terms to maturity. The carrying value of the term loan, before deduction of deferred debt issue costs, approximates its fair value as the interest rate on the loan was short-term in nature. The fair value of the senior unsecured notes is determined by reference to a quoted market price.

11. Trade receivables

Trade receivables are generally secured by the equipment that they relate to as it is Company policy that equipment is not released until payment has been collected. The following table presents the activity in the allowance for expected credit losses for the period ended June 30, 2020:


Opening balance at January 1, 2020		(5,225)
Year to date provision		(1,601)
Write-offs charged against the allowance		2,267
Balance, June 30, 2020	$	(4,559)

12. Other current assets


	June 30,		December 31,
	2020		2019
Advances against auction contracts	$	7,669	$	12,925
Assets held for sale		—		15,051
Prepaid expenses and deposits		19,817		22,184
	$	27,486	$	50,160


Assets held for sale
Balance, December 31, 2019		15,051
Reclassified from (to) property, plant and equipment		(6,888)
Disposal		(8,163)
Balance, June 30, 2020	$	—

During the three months ended June 30, 2020, the Company sold excess auction site acreage in the United States. The Company also sold the property that was reclassified to property, plant and equipment during the first quarter of 2020. The sale of the two properties resulted in combined proceeds of $15,555,000 and a combined gain of $1,090,000.


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Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

13. Other non-current assets


	June 30,		December 31,
	2020		2019
Right-of-use assets	$	107,760	$	116,209
Tax receivable		9,631		11,792
Equity-accounted investments		—		4,276
Deferred debt issue costs		958		1,403
Other		12,977		11,999
	$	131,326	$	145,679

During the three months ended March 31, 2020, the Company received a final distribution of its equity-accounted investments in the Cura Classis entities. The transaction did not result in a significant gain or loss.

14. Debt


	Carrying amount
	June 30,		December 31,
	2020		2019
Short-term debt	$	21,980	$	4,705

Long-term debt:

Term loan:
Denominated in Canadian dollars, secured, bearing interest at a weighted average rate of 2.555%, due in monthly installments of interest only and quarterly installments of principal, maturing in October 2021		140,702		155,355
Less: unamortized debt issue costs		(568)		(807)
Senior unsecured notes:
Bearing interest at 5.375% due in semi-annual installments, with the full amount of principal due in January 2025		500,000		500,000
Less: unamortized debt issue costs		(8,171)		(9,067)
Total long-term debt		631,963		645,481

Total debt	$	653,943	$	650,186

Long-term debt:
Current portion	$	17,588	$	18,277
Non-current portion		614,375		627,204
Total long-term debt	$	631,963	$	645,481

Short-term debt is comprised of drawings in different currencies on the Company’s committed revolving credit facilities, and for the three months ended June 30, 2020, have a weighted average interest rate of 1.9% (December 31, 2019: 2.3%).

As at June 30, 2020, the Company had unused committed revolving credit facilities aggregating $472,658,000 of which $468,224,000 is available until October 27, 2021 subject to certain covenant restrictions. The Company was in compliance with all financial and other covenants applicable to the credit facilities at June 30, 2020.

15. Other non-current liabilities


	June 30,		December 31,
	2020		2019
Operating lease liability	$	103,518	$	111,322
Tax payable		18,997		20,232
Finance lease liability		16,801		16,336
Other		3,202		3,348
	$	142,518	$	151,238


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

16. Equity and dividends

Share capital

Preferred stock

Unlimited number of senior preferred shares, without par value, issuable in series.

Unlimited number of junior preferred shares, without par value, issuable in series.

All issued shares are fully paid. No preferred shares have been issued.

Share repurchase

There were no share repurchases made during the three months ended June 30, 2020 (three months ended June 30, 2019: 1,223,674 common shares repurchased for $42,012,000). There were 1,525,312 common shares repurchased for $53,170,000 during the six months ended June 30, 2020 (six months ended June 30, 2019: 1,223,674 common shares repurchased for $42,012,000).

Dividends

Declared and paid

The Company declared and paid the following dividends during the six months ended June 30, 2020 and 2019:

Dividend

Total

Declaration date

per share

Record date

dividends

Payment date

Six months ended June 30, 2020:

Fourth quarter 2019

January 24, 2020

0.2000

February 14, 2020

21,905

March 6, 2020

First quarter 2020

May 6, 2020

0.2000

May 27, 2020

21,681

June 17, 2020

Six months ended June 30, 2019:

Fourth quarter 2018

January 25, 2019

0.1800

February 15, 2019

19,568

March 8, 2019

First quarter of 2019

May 8, 2019

0.1800

May 29, 2019

19,592

June 19, 2019

Declared and undistributed

Subsequent to June 30, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.22 cents per common share, payable on September 16, 2020 to stockholders of record on August 26, 2020. This dividend payable has not been recognized as a liability in the financial statements. The payment of this dividend will not have any tax consequences for the Company.

Foreign currency translation reserve.

Foreign currency translation adjustments include intra-entity foreign currency transactions that are of a long-term investment nature, which generated a net gain of $5,158,000 and net loss of $2,334,000 for the three and six months ended June 30, 2020 (2019: net gain of $2,508,000 and $1,653,000).


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Table of Contents

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

17. Share-based payments

Share-based payments consist of the following compensation costs:


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Stock option compensation expense:
SG&A expenses	$	1,543	$	1,660	$	2,730	$	3,199
Share unit expense (recovery):
Equity-classified share units		3,231		3,535		5,017		5,903
Liability-classified share units		971		90		(185)		240
Employee share purchase plan - employer contributions		610		572		1,199		1,125
	$	6,355	$	5,857	$	8,761	$	10,467

Share unit expense and employer contributions to the employee share purchase plan are recognized in SG&A expenses.

Stock option plans

Stock option activity for the six months ended June 30, 2020 is presented below:


				WA
	Common	WA		remaining		Aggregate
	shares under	exercise		contractual		intrinsic
	option	price		life (in years)		value
Outstanding, December 31, 2019	2,797,189	$	29.05		7.1	$	38,874
Granted	772,074		40.84
Exercised	(679,277)		28.60				9,600
Forfeited	(28,651)		30.55
Expired	(1,201)		21.82
Outstanding, June 30, 2020	2,860,134		32.33		7.6		24,496
Exercisable, June 30, 2020	1,397,769	$	27.41		6.1	$	18,785

The significant assumptions used to estimate the fair value of stock options granted during the six months ended June 30, 2020 and 2019 are presented in the following table on a weighted average basis:


Six months ended June 30,	2020		2019
Risk free interest rate	0.70	%	2.5	%
Expected dividend yield	1.98	%	2.06	%
Expected lives of the stock options	5	years	5	years
Expected volatility	27.8	%	26.8	%


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

17. Share-based payments (continued)

Stock option plans (continued)

As at June 30, 2020, the unrecognized stock-based compensation cost related to the non-vested stock options was $7,109,000, which is expected to be recognized over a weighted average period of 2.5 years.

Share unit plans

Share unit activity for the six months ended June 30, 2020 is presented below:


	Equity-classified awards						Liability-classified awards
	PSUs			RSUs			DSUs
		WA grant			WA grant				WA grant
		date fair			date fair				date fair
	Number	value		Number	value			Number	value
Outstanding, December 31, 2019	428,724	$	32.89	237,420	$	29.72	$	118,368	$	29.64
Granted	286,773		41.79	25,832		40.80		10,772		40.78
Vested and settled	(156,238)		31.94	(7,724)		36.23		—		—
Forfeited	(9,129)		33.79	(42,817)		27.20		—		—
Outstanding, June 30, 2020	550,130	$	37.78	212,711	$	31.34	$	129,140	$	30.57

PSUs

The Company grants PSUs under a senior executive PSU plan and an employee PSU plan (the “PSU Plans”). Under the PSU Plans, the number of PSUs that vest is conditional upon specified market, service, or performance vesting conditions being met. The PSU Plans allow the Company to choose whether to settle the awards in cash or in shares. The Company intends to settle in shares. With respect to settling in shares, the Company has the option to either (i) arrange for the purchase shares on the open market on the employee’s behalf based on the cash value that otherwise would be delivered, or (ii) to issue a number of shares equal to the number of units that vest.

As at June 30, 2020 the unrecognized share unit expense related to equity-classified PSUs was $14,139,000, which is expected to be recognized over a weighted average period of 2.3 years.

RSUs

The Company has RSU plans that are equity-settled and not subject to market vesting conditions.

As at June 30, 2020, the unrecognized share unit expense related to equity-classified RSUs was $1,921,000, which is expected to be recognized over a weighted average period of 1.3 years.

DSUs

The Company has DSU plans that are cash-settled and not subject to market vesting conditions.

Fair values of DSUs are estimated on grant date and at each reporting date. DSUs are granted under the DSU plan to members of the Board of Directors. There is no unrecognized share unit expense related to liability-classified DSUs as they vest immediately and are expensed upon grant.

As at June 30, 2020, the Company had a total share unit liability of $5,349,000 (December 31, 2019: $5,130,000) in respect of share units under the DSU plans.

Employee share purchase plan

The Company has an employee share purchase plan that allows all employees that have completed two months of service to contribute funds to purchase common shares at the current market value at the time of share purchase. Employees may contribute up to 4% of their salary. The Company will match between 50% and 100% of the employee’s contributions, depending on the employee’s length of service with the Company.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

18. Leases

The Company’s breakdown of lease expense is as follows:


	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Operating lease cost	$	3,969	$	4,071	$	8,470	$	9,283
Finance lease cost
Amortization of leased assets		2,195		1,692		4,309		3,452
Interest on lease liabilities		229		199		462		354
Short-term lease cost		2,151		2,510		5,031		5,075
Sublease income		(148)		(143)		(296)		(297)
	$	8,396	$	8,329	$	17,976	$	17,867

Operating leases

The Company has entered into commercial leases for various auction sites and offices located in North America, Europe, the Middle East and Asia. The majority of these leases are non-cancellable. The Company also has further operating leases for computer equipment, certain motor vehicles and small office equipment where it is not in the best interest of the Company to purchase these assets.

The majority of the Company’s operating leases have a fixed term with a remaining life between one month and 20 years, with renewal options included in the contracts. The leases have varying contract terms, escalation clauses and renewal options. Generally, there are no restrictions placed upon the lessee by entering into these leases, other than restrictions on use of property, sub-letting and alterations. At the inception of a lease, the Company determines whether it is reasonably certain to exercise a renewal option and includes the options in the determination of the lease term and the lease liability where it is reasonably certain to exercise the option. If the Company’s intention is to exercise an option subsequent to the commencement of the lease, the Company will re-assess the lease term. The Company has included certain renewal options in its operating lease liabilities for key property leases for locations that have strategic importance to the Company such as its Corporate Head Office. The Company has not included any purchase options available within its operating lease portfolio in its determination of its operating lease liability.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:


Remainder of 2020	$	8,327
2021		13,352
2022		12,092
2023		10,478
2024		8,752
Thereafter		103,710
Total future minimum lease payments	$	156,711
less: imputed interest		(43,116)
Total operating lease liability	$	113,595
less: operating lease liability - current		(10,077)
Total operating lease liability - non-current	$	103,518

At June 30, 2020 the weighted average remaining lease term for operating leases is 15.5 years and the weighted average discount rate is 4.1%.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

18. Leases (continued)

Finance leases

The Company has entered into finance lease arrangements for certain vehicles, computer and yard equipment and office furniture. The majority of the leases have a fixed term with a remaining life of one month to six years with renewal options included in the contracts. In certain of these leases, the Company has the option to purchase the leased asset at fair market value or a stated residual value at the end of the lease term. For certain leases such as vehicle leases the Company has included renewal options in the determination of its lease liabilities. The Company has not included any purchase options available within its finance lease portfolio in its determination of the finance lease liability.

As at June 30, 2020, the net carrying amount of computer and yard equipment and other assets under capital leases is $24,461,000 (December 31, 2019: $23,258,000), and is included in the total property, plant and equipment as disclosed on the consolidated balance sheets.


			Accumulated		Net book
As at June 30, 2020	Cost		depreciation		value
Computer equipment	$	13,717	$	(6,748)	$	6,969
Yard and others		25,490		(7,998)		17,492
	$	39,207	$	(14,746)	$	24,461


			Accumulated		Net book
As at December 31, 2019	Cost		depreciation		value
Computer equipment	$	15,314	$	(7,832)	$	7,482
Yard and others		21,525		(5,749)		15,776
	$	36,839	$	(13,581)	$	23,258

The future aggregate minimum lease payments under non-cancellable finance leases are as follows:


Remainder of 2020	$	4,730
2021		8,359
2022		6,501
2023		4,510
2024		2,357
Thereafter		247
Total future minimum lease payments	$	26,704
less: imputed interest		(1,572)
Total finance lease liability	$	25,132
less: finance lease liability - current		(8,331)
Total finance lease liability - non-current	$	16,801

At June 30, 2020 the weighted average remaining lease term for finance leases is 3.4 years and the weighted average discount rate is 3.8%.

Subleases

As at June 30, 2020, the total future minimum sublease payments expected to be received under non-cancellable subleases is $359,000.


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Notes to the Condensed Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where noted)

(Unaudited)

19. Commitments

Commitment for inventory purchase

The Company entered into a two-year non-rolling stock surplus contract with the U.S. Government Defense Logistics Agency (the “DLA”) in December 2017 with the option to extend for up to four-years. Pursuant to the contract, the original performance period commenced in April 2018 and concluded in March 2020. The Company has exercised its option for one year, extending the performance period to March 2021.

The Company has committed to purchase between 150,000 and 245,900 units of property with an expected minimum value of $11,104,000 and up to $51,028,000 annually to the extent that goods are available from the DLA. At June 30, 2020, the Company has purchased $1,412,000 pursuant to the 12-month period of this contract which commenced in April 2020.

20. Contingencies

Legal and other claims

The Company is subject to legal and other claims that arise in the ordinary course of its business. Management does not believe that the results of these claims will have a material effect on the Company’s consolidated balance sheet or consolidated income statement.

Guarantee contracts

In the normal course of business, the Company will in certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that consignor’s equipment.

At June 30, 2020, there were $48,920,000 of assets guaranteed under contract, of which 74% is expected to be sold prior to September 30, 2020 with the remainder to be sold by December 31, 2020 (December 31, 2019: $63,612,000 of which 39% was expected to be sold prior to the end of March 31, 2020 with the remainder to be sold by June 30, 2020).

The outstanding guarantee amounts are undiscounted and before estimated proceeds from sale at auction.

21. Subsequent event

On August 5, 2020, our Board of Directors authorized a share repurchase program for the repurchase of up to $100,000,000 worth of our common shares subject to Toronto Stock Exchange approval over the next 12 months.


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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Forward-looking statements may appear throughout this report, including the following section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements are typically identified by such words as “aim”, “anticipate”, “believe”, “could”, “continue”, “estimate”, “expect”, “intend”, “may”, “ongoing”, “plan”, “potential”, “predict”, “will”, “should”, “would”, “could”, “likely”, “generally”, “future”, “long-term”, or the negative of these terms, and similar expressions intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially.

While we have not described all potential risks related to our business and owning our common shares, the important factors discussed in “Part II, Item 1A: Risk Factors” of this Quarterly Report on Form 10-Q and in “Part I, Item 1A: Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which is available on our website at www.rbauction.com, on EDGAR at www.sec.gov, or on SEDAR at www.sedar.com, are among those that we consider may affect our performance materially or could cause our actual financial and operational results to differ significantly from our expectations. Except as required by applicable securities law and regulations of relevant securities exchanges, we do not intend to update publicly any forward-looking statements, even if our expectations have been affected by new information, future events or other developments.

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“US GAAP”). Except for Gross Transaction Value (“GTV”)¹, which is a measure of operational performance and not a measure of financial performance, liquidity, or revenue, the amounts discussed below are based on our consolidated financial statements. Unless indicated otherwise, all tabular dollar amounts, including related footnotes, presented below are expressed in thousands of United States (“U.S.”) dollars.

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with US GAAP. Certain of these data are considered “non-GAAP financial measures” under the SEC rules. The definitions and reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable US GAAP financial measures are included either with the first use thereof or in the Non-GAAP Measures section within the MD&A. Non-GAAP financial measures referred to in this report are labeled as “non-GAAP measure” or designated as such with an asterisk (*). Please see pages 43-48 for explanations of why we use these non-GAAP measures and the reconciliation to the most comparable GAAP financial measures.

Overview

Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the “Company”, “we”, or “us”) (NYSE & TSX: RBA) was founded in 1958 in Kelowna, British Columbia, Canada and is a world leader in asset management and disposition of used industrial equipment and other durable assets, selling $5.14 billion of used equipment and other assets during 2019. Our expertise, unprecedented global reach, market insight, and trusted portfolio of brands provide us with a unique position in the used equipment market. We sell used equipment for our customers through live, unreserved auctions at 40 auction sites worldwide, which are also simulcast online to reach a global bidding audience and through our online marketplaces.

Through our unreserved auctions, online marketplaces, and private brokerage services, we sell a broad range of used and unused equipment, including earthmoving equipment, truck trailers, government surplus, oil and gas equipment and other industrial assets. Construction and heavy machinery comprise the majority of the equipment sold. Customers selling equipment through our sales channels include end users (such as construction companies), equipment dealers, original equipment manufacturers (“OEMs”) and other equipment owners (such as rental companies). Our customers participate in a variety of sectors, including heavy construction, transportation, agriculture, energy, and mining.

We operate globally with locations in more than 12 countries, including the U.S., Canada, Australia, the United Arab Emirates, and the Netherlands, and employ more than 2,500 full time employees worldwide.

¹GTV represents total proceeds from all items sold at our live on site auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in our consolidated financial statements.


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Impact of COVID-19 to our Business

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. The COVID-19 pandemic has resulted in significant global economic disruption and has materially impacted a number of countries and regions in which we operate, including the United States, Canada, Europe, the Middle East and Asia. It has resulted in travel restrictions and business slowdowns or shutdowns in affected areas and has negatively disrupted global manufacturing and workforce participation, including our own.

During the second quarter, many regions lifted lockdown policies and eased border restrictions, improving our ability to move equipment to and from our auction sites. Notwithstanding, our European region was constrained by the cross-border quarantine requirements making equipment transport challenging and consequently impacting our overall auction volumes. Our North America region also lifted lockdown policies which positively impacted our businesses but unlike Europe and Asia, the dependency to move equipment across country borders within Canada and the US was not as large a factor in our ability to operate our business.

Our top priority with regard to the COVID-19 pandemic remains the health and welfare of our employees, customers, suppliers and others with whom we partner to run our business activities. We are strictly enforcing all local government and jurisdictional safety guidelines, and, in some instances, the Company is applying additional over-and-above safety measures. In the first quarter, we implemented our business continuity plans and instructed employees at many of our offices across the globe (including our corporate headquarters) to work from home on a temporary basis and implemented travel restrictions. These work-from-home orders and travel restrictions continued to be observed and were enforced throughout the second quarter.

For the full second quarter, the Company was able to operate and serve our customers’ equipment and immediate liquidity needs through our platform of auction technology solutions and online auction capabilities. In addition to running our IronPlanet weekly featured online auction, our online Marketplace-E solution and GovPlanet online auctions, we modified our live operations in March 2020 which transitioned all our traditional live onsite industrial auctions to online bidding. Buyers are still able to visit our live auction sites in advance of the virtual auctions to conduct inspections and pick up equipment post auction, but we are restricting attendance at our live theatres. We are enforcing rigid guidelines for equipment drop off, buyer inspections and post auction pickup of equipment to ensure the highest regard for the safety of our employees and customers. In addition, as implemented in the first quarter, we are using our Time Auctioned Lots (TAL) solution for selected International and on-the-farm agriculture events.

We are actively taking steps to be prudent on expenses and other cash outflows. Our priority is to support our employees, and we are actively monitoring the situation and changing dynamics in each of our respective regions and adjusting our operations as necessary. To this date, layoffs or furlough activities were limited in scope. As at the end of the second quarter, we held a solid balance sheet and strong liquidity position. As of June 30, 2020 with $389.7 million of unrestricted cash and $472.7 million of unused committed capacity under our revolving credit facility, we are prudently also taking steps to maximize positive cash flow and have developed comprehensive contingency plans should the COVID-19 pandemic have a prolonged adverse impact on our business impeding our ability to generate revenue.

The extent of the ongoing impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives, will depend on future developments, including the duration and spread of the pandemic and any related restrictions placed by respective global governments, as well as supply and demand impacts driven by our consignor and buyer base, all of which are uncertain and cannot be easily predicted. Although at the time of this filing, we continue operating our modified live site operations in all of the jurisdictions in which we operate, there is no assurance that our operations could not be impacted in the future. If we were to be subject to government orders or other restrictions on the operation of our business, we may be required to limit our operations at, or temporarily close, certain live site locations in the future. Any such limitations or closures could have an adverse impact on our ability to service our customers and on our business, and results of operations.

We are actively monitoring the situation and remain ready to take additional actions based on any new governmental guidance or recommendations. We are continuously reviewing and assessing the pandemic’s impacts on our customers, our suppliers and our business so that we can seek to address the effect on our business and service our customers. It is unknown how long the pandemic will last, how many people are ultimately going to be affected by it, and the long-term implications to local or global economies. Equally, it is still not easily discernable at this time to understand the real effects of the COVID-19 pandemic on equipment supply, buyer demand, and potential pricing volatility, nor the potential impact on our buyers’ ability to pay or secure financing. Additionally, there is a level of uncertainty on the impact COVID-19 may have on our third party vendors, partners and the service providers we currently do business with today. Their ability to partner with us may be temporarily or permanently constrained and for some, the business terms under which they continue to partner with us could change as they manage their business through these unprecedented times. As such, given the ongoing nature of this situation, the Company cannot reasonably estimate the future impacts of the COVID-19 pandemic on our business operations, results of operations, cash flows, financial performance or the ability to pay dividends.


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Service Offerings

We offer our equipment seller and buyer customers multiple distinct, complementary, multi-channel brand solutions that address the range of their needs. Our global customer base has a variety of transaction options, breadth of services, and the widest selection of used equipment available to them. For a complete listing of channels and brand solutions available under our Auctions & Marketplace ("A&M") segment, as well as our Other Services segment, please refer to our Annual Report on Form 10-K for the year ended December 31, 2019, which is available on our website at www.rbauction.com, on EDGAR at www.sec.gov, or on SEDAR at www.sedar.com.

Contract options

We offer consignors several contract options to meet their individual needs and sale objectives. Through our A&M business, options include:

●	Straight commission contracts, where the consignor receives the gross proceeds from the sale less a pre-negotiated commission rate;

●	Guarantee contracts, where the consignor receives a guaranteed minimum amount plus an additional amount if proceeds exceed a specified level; and

●	Inventory contracts, where we purchase, take custody, and hold used equipment and other assets before they are resold in the ordinary course of business.

We collectively refer to guarantee and inventory contracts as underwritten or “at-risk” contracts.

Value-added services

We also provide a wide array of value-added services to make the process of selling and buying equipment convenient for our customers, including repair and refurbishment services, financial services through Ritchie Bros. Financial Services (“RBFS”), logistical services, and appraisals.

Seasonality

Our GTV and associated A&M segment revenues are affected by the seasonal nature of our business. GTV and A&M segment revenues tend to increase during the second and fourth calendar quarters, during which time we generally conduct more business than in the first and third calendar quarters. Given the operating leverage inherent in our business model, the second and fourth quarter also tend to produce higher operating margins, given the higher volume and revenue generated in those quarters.

The restrictions imposed and effects of the overall economic environment as a result of the COVID-19 pandemic may continue to impact these trends.

Revenue Mix Fluctuations

Our revenue is comprised of service revenue and inventory sales revenue. Service revenue from A&M segment activities include commissions earned at our live auctions, online marketplaces, and private brokerage services, and various auction-related fees, including listing and buyer transaction fees. We also recognize revenues from our Other Services activities as service revenue. Inventory sales revenue is recognized as part of our A&M activities, and relates to revenues earned through our inventory contracts.

Inventory sales revenue can fluctuate significantly, as it changes based on whether our customers sell using a straight or guarantee commission contract, or an inventory contract at time of selling. Straight or guarantee commission contracts will result in the commission being recognized as service revenue, while inventory contracts will result in the gross transaction value of the equipment sold being recorded as inventory sales revenue with the related cost recognized in cost of inventory sold. As a result, a change in the revenue mix between service revenues and revenue from inventory sales can have a significant impact on revenue growth percentages.


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Performance Overview

Net income attributable to stockholders decreased 2% to $53.0 million, compared to $54.0 million in Q2 2019. Diluted earnings per share (“EPS”) attributable to stockholders was flat at $0.49 per share in Q2 2020 and Q2 2019. Diluted adjusted EPS* which excludes a $6.2 million income tax expense in Q2 2020 related to an unfavourable adjustment to reflect final regulations published regarding hybrid financing arrangements, increased 10% to $0.54 per share in Q2 2020 compared to $0.49 per share in Q2 2019.

Consolidated results:

●	Total revenue in Q2 2020 decreased 1% to $389.1 million as compared to Q2 2019

Service revenue in Q2 2020 was $234.1 million, flat compared to Q2 2019

Inventory sales revenue in Q2 2020 decreased 2% to $154.9 million as compared to Q2 2019

●	Total selling, general and administrative expenses (“SG&A”) in Q2 2020 increased 3% to $100.6 million as compared to Q2 2019

●	Operating income in Q2 2020 increased 14% to $88.8 million as compared to Q2 2019

●	Net income in Q2 2020 decreased 2% to $53.1 million as compared to Q2 2019

●	Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization* (“EBITDA”) (non-GAAP measure) in Q2 2020 increased 12% to $107.1 million as compared to Q2 2019

●	Cash provided by operating activities was $198.3 million for the first half of 2020

●	Cash on hand at Q2 2020 was $538.0 million, of which $389.7 million was unrestricted

Auctions & Marketplaces segment results:

●	GTV in Q2 2020 was flat at $1.5 billion compared to Q2 2019

●	A&M total revenue in Q2 2020 decreased 1% to $354.6 million as compared to Q2 2019

Service revenue in Q2 2020 decreased 1% to $199.6 million as compared to Q2 2019

Inventory sales revenue in Q2 2020 decreased 2% to $154.9 million as compared to Q2 2019

Other Services segment results:

●	Other Services total revenue in Q2 2020 increased 3% to $34.5 million as compared to Q2 2019

●	RBFS revenue in Q2 2020 increased 5% to $8.5 million as compared to Q2 2019

Other Company developments:

●	On May 4, 2020, the Company announced the appointment of Jim Kessler as Chief Operating Officer, effective May 11, 2020

●	Increased quarterly cash dividend by 10% to $0.22 per share


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Results of Operations

Financial overview


	Three months ended June 30,									Six months ended June 30,
							% Change										% Change
(in U.S. $000's, except EPS and percentages)	2020			2019			2020 over 2019				2020			2019			2020 over 2019
Service revenue:
Commissions	$	125,465		$	134,466			(7)	%	$		218,950		$	226,746			(3)	%
Fees		108,674			100,140			9	%			198,312			180,232			10	%
Total service revenue		234,139			234,606			(0)	%			417,262			406,978			3	%
Inventory sales revenue		154,911			158,616			(2)	%			245,043			289,673			(15)	%
Total revenue		389,050			393,222			(1)	%			662,305			696,651			(5)	%
Service revenue as a % of total revenue		60.2	%		59.7	%		50	bps			63.0	%		58.4	%		460	bps
Inventory sales revenue as a % of total revenue		39.8	%		40.3	%		(50)	bps			37.0	%		41.6	%		(460)	bps
Costs of services		39,448			50,268			(22)	%			78,803			86,337			(9)	%
Cost of inventory sold		143,134			149,818			(4)	%			224,719			270,293			(17)	%
Selling, general and administrative expenses		100,632			97,714			3	%			199,017			192,898			3	%
Operating expenses		300,250			315,252			(5)	%			539,423			585,093			(8)	%
Cost of inventory sold as a % of operating expenses		47.7	%		47.5	%		20	bps			41.7	%		46.2	%		(450)	bps
Operating income		88,800			77,970			14	%			122,882			111,558			10	%
Operating income margin		22.8	%		19.8	%		300	bps			18.6	%		16.0	%		260	bps
Net income attributable to stockholders		53,043			54,036			(2)	%			75,851			72,200			5	%
Adjusted net income attributable to stockholders*		59,271			54,036			10	%			82,079			72,200			14	%
Diluted earnings per share attributable to stockholders	$	0.49		$	0.49			—	%	$		0.69		$	0.66			5	%
Diluted adjusted EPS attributable to stockholders*	$	0.54		$	0.49			10	%	$		0.75		$	0.66			14	%
Effective tax rate		34.2	%		22.1	%		1210	bps			30.5	%		23.4	%		710	bps

Total GTV		1,493,982			1,497,757			(0)	%			2,641,006			2,672,438			(1)	%
Service revenue as a % of total GTV- Rate		15.7	%		15.7	%		—	bps			15.8	%		15.2	%		60	bps
Inventory sales revenue as a % of total GTV-Mix		10.4	%		10.6	%		(20)	bps			9.3	%		10.8	%		(150)	bps

Total revenue

Total revenue decreased 1% to $389.0 million in Q2 2020 and decreased 5% to $662.3 million for the first half of 2020.

In Q2 2020, total service revenue was flat at $234.1 million. Service revenues comprise of commissions which are earned on Service GTV, and Fees which are earned on total GTV as well as from our Other Services such as RBFS and Ancillary Services.

In Q2 2020, Service GTV was flat with significant variability by region where US and Canada had higher activity, but International was lower due to the severe impact of the COVID-19 pandemic in that region. The increase in the US Service GTV was primarily due to record online performance driven from strong execution by the US region and the US strategic accounts sales teams, year-over-year growth performance at the Fort Worth auction, and shifting the Los Angeles auction to Q2 2020 in response to the COVID-19 pandemic. The US region recognized higher Service GTV despite the prior year large dispersal of pipeline equipment as part of the $94 million Columbus, Ohio auction held in June 2019. In Canada, Service GTV increased largely due to the shift in the Montreal auction from Q1 2020 to Q2 2020.

Additionally, in Q2 2020, commissions revenue decreased 7% on flat Service GTV primarily due to softer commission rate performance from a higher proportion of GTV sourced from strategic accounts, and lower rates from our government operations. Total fees were up 9% on flat total GTV driven primarily by the mix of small values lots, the harmonization of buyer fees and higher fees from Services within our US operations, which was partially offset by fees waived for Canadian on-the-farm auctions as part of our COVID-19 pandemic response.

For the first half of 2020, total service revenue increased 3% to $417.3 million.

For the first half of 2020, Service GTV increased 1% with increases in the US and Canada offsetting lower performance in International. Service GTV in the US increased due to strong online and Strategic Account performance, as well as year-over-year growth performance at our Las Vegas, Fort Worth and Houston auctions, partially offset by the non-repeat of the Columbus, Ohio


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auction in June 2019 and lower GTV in the Orlando live auction. International was lower due to the impact of the COVID-19 pandemic.

For the first half of 2020, fee revenue increased 10% despite total GTV lower by 1%. This increase was driven mainly by the full harmonization of buyer fees, a greater proportion of small value lots in the US region, higher fees revenue from other services provided, and continued growth in RBFS fee revenue. This increase was partially offset by lower RB Logistics revenue earned due to lower activity in the International region during the first half of 2020, as well as buyers fees waived related to on-the-farm auctions in our Canada region. The decrease in commissions of 3% was due to softer rate performance as discussed above, even though Services GTV increased 1%.

Inventory sales revenue as a percent of total GTV decreased to 10.4% from 10.6% in Q2 2020 and to 9.3% from 10.8% in the first half of 2020.

In Q2 2020, inventory sales revenue decreased 2% primarily related to a non-recurring large dispersal of pipeline equipment as part of the $94 million Columbus, Ohio auction in June 2019, and selling through certain non-repeating large inventory deals from Europe and Asia in Q2 2019. We also earned lower inventory revenue through our government surplus contracts due to government shutdowns in response to the COVID-19 pandemic. This decrease was partially offset by strong year-over-year performance in the US and Canada regions.

For the first half of 2020, inventory sales revenue decreased 15% primarily due to the same reasons above for Q2 2020.

Operating Income

For Q2 2020, operating income increased 14% to $88.8 million, primarily related to a lower cost of services expense. In response to the COVID-19 pandemic, we transitioned our live on site auctions to online bidding, utilized TAL solutions for selected International and on-the-farm agricultural events, and implemented travel restrictions. These operational changes resulted in significant temporary cost reductions in employee compensation and travel, advertising, and promotion expenses. In addition, we incurred lower net fees paid to an unrelated party who referred us to large dispersals of equipment. For the first half of 2020, operating income increased 10% to $122.9 million, primarily for the same reasons noted above.

Income tax expense and effective tax rate

At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

For Q2 2020, income tax expense increased 80% to $27.7 million and our effective tax rate increased 1,210 bps to 34.2% as compared to Q2 2019. For the first half of 2020, income tax expense increased 51% to $33.3 million and our effective tax rate increased 710 bps to 30.5% as compared to the first half of 2019.

Increases in the effective tax rates for Q2 2020, and for the first half of 2020 were primarily due to final regulations published on April 8, 2020 by the United States Department of Treasury and the IRS that clarified income tax benefits related to hybrid financing arrangements that the Company recorded in 2019 and the first quarter of 2020 would not be deductible. We had recorded income tax benefits of approximately $6.2 million in the twelve months ended December 31, 2019 and $1.1 million in the three months ended March 31, 2020, which are no longer deductible. In addition, we had a smaller income tax recovery related to decreases in uncertain tax positions in 2020 than it did in 2019. Offsetting these increases was the reduced impact of the US tax reform.

Net income

In Q2 2020, net income attributable to stockholders decreased 2% to $53.0 million, primarily related to the increase in the effective tax rate, as discussed above, partially offset by the higher operating income and lower interest expense. For the first half of 2020, net income attributable to stockholders increased 5% to $75.9 million, primarily due to the increase operating income, lower interest expense, partially offset by the higher effective tax rate.


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Diluted EPS

Diluted EPS attributable to stockholders was flat at $0.49 per share for Q2 2020 and Q2 2019 and increased 5% to $0.69 per share for the first half of 2020.

U.S. dollar exchange rate comparison

We conduct global operations in many different currencies, with our presentation currency being the U.S dollar. The following table presents the variance in select foreign exchange rates over the comparative reporting periods:


					% Change
Value of one local currency to U.S dollar	2020		2019		2020 over 2019
Period-end exchange rate
Canadian dollar		0.7367		0.7638	(4)	%
Euro		1.1235		1.1371	(1)	%
Australian dollar		0.6902		0.7020	(2)	%

Average exchange rate -Three months ended June 30,
Canadian dollar		0.7210		0.7477	(4)	%
Euro		1.1009		1.1239	(2)	%
Australian dollar		0.6557		0.7000	(6)	%

Average exchange rate -Six months ended June 30,
Canadian dollar		0.7334		0.7500	(2)	%
Euro		1.1021		1.1297	(2)	%
Australian dollar		0.6572		0.7061	(7)	%

For Q2 2020, foreign exchange had an unfavourable impact on total revenue and a favourable impact on expenses. These impacts were primarily due to the fluctuations in the Euro, Canadian dollar, and Australian dollar exchange rates relative to the U.S. dollar.

Non-GAAP Measures

As part of management’s non-GAAP measures, we may eliminate the financial impact of adjusting items which are after-tax effects of significant non-recurring items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, severance, retention, gains/losses on sale of an equity accounted for investment, plant and equipment, impairment losses, and certain other items, which we refer to as ‘adjusting items’. In Q2 2020 we adjusted $6.2 million in current and deferred income tax expense related to an unfavourable adjustment to reflect final regulations regarding hybrid financing arrangements. There were no adjusting items in Q2 2019.

Adjusted net income attributed to stockholders (non-GAAP measure) increased 10% to $59.3 million in Q2 2020 and increased 14% to $82.1 million for the first half of 2020.

Diluted Adjusted EPS attributable to stockholders (non-GAAP measure) increased 10% to $0.54 per share in Q2 2020 and increased 14% to $0.75 per share for the first half of 2020.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (non-GAAP measure) increased 12% to $107.1 million in Q2 2020 and increased 11% to $163.4 million for the first half of 2020.

Debt at the end of Q2 2020, represented 4.3 times net income as at and for the 12 months ended June 30, 2020. This compares to debt at Q2 2019, which represented 5.4 times net income as at and for the 12 months ended June 30, 2019. The decrease in this debt/net income multiplier was primarily due to lower debt balances at June 30, 2020 compared to June 30, 2019, as a result of our voluntary and mandatory debt repayments. The adjusted net debt/adjusted EBITDA (non-GAAP measure) was 0.9 times as at and for the 12 months ended June 30, 2020 compared to 1.8 times as at and for the 12 months ended June 30, 2019.


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Segment Performance

We provide our customers with a wide array of services. The following table presents a breakdown of our consolidated results between the A&M segment and Other Services segment. A complete listing of channels and brand solutions under the A&M segment, as well as our Other Services segment, is available in our Annual Report on Form 10-K for the year ended December 31, 2019.


	Three months ended June 30, 2020						Six months ended June 30, 2020
(in U.S $000's)	A&M		Other		Consolidated		A&M		Other		Consolidated
Service revenue	$	199,648	$	34,491	$	234,139	$	354,391	$	62,871	$	417,262
Inventory sales revenue		154,911		—		154,911		245,043		—		245,043
Total revenue		354,559		34,491		389,050		599,434		62,871		662,305
Ancillary and logistical service expenses		—		16,060		16,060		—		28,818		28,818
Other costs of services		22,190		1,198		23,388		47,285		2,700		49,985
Cost of inventory sold		143,134		—		143,134		224,719		—		224,719
SG&A expenses		94,559		6,073		100,632		186,144		12,873		199,017
Segment profit		94,676		11,160		105,836	$	141,286	$	18,480	$	159,766


	Three months ended June 30, 2019						Six months ended June 30, 2019
(in U.S $000's)	A&M		Other		Consolidated		A&M		Other		Consolidated
Service revenue	$	201,050	$	33,556	$	234,606	$	344,487	$	62,491	$	406,978
Inventory sales revenue		158,616		—		158,616		289,673		—		289,673
Total revenue		359,666		33,556		393,222		634,160		62,491		696,651
Ancillary and logistical service expenses		—		16,472		16,472		—		30,231		30,231
Other costs of services		32,551		1,245		33,796		53,368		2,738		56,106
Cost of inventory sold		149,818		—		149,818		270,293		—		270,293
SG&A expenses		91,466		6,248		97,714		180,648		12,250		192,898
Segment profit		85,831		9,591		95,422	$	129,851	$	17,272	$	147,123

Auctions and Marketplaces Segment

Results of A&M segment operations are presented below for the comparative reporting periods.


	Three months ended June 30,								Six months ended June 30,
							% Change								% Change
							2020 over								2020 over
(in U.S. $000's, except percentages)	2020			2019			2019		2020			2019			2019
Service revenue	$	199,648		$	201,050		(1)	%	$	354,391		$	344,487		3	%
Inventory sales revenue		154,911			158,616		(2)	%		245,043			289,673		(15)	%
Total revenue		354,559			359,666		(1)	%		599,434			634,160		(5)	%
A&M service revenue as a % of total A&M revenue		56.3	%		55.9	%	40	bps		59.1	%		54.3	%	480	bps
Inventory sales revenue as a % of total A&M revenue		43.7	%		44.1	%	(40)	bps		40.9	%		45.7	%	(480)	bps
Costs of services		22,190			32,551		(32)	%		47,285			53,368		(11)	%
Cost of inventory sold		143,134			149,818		(4)	%		224,719			270,293		(17)	%
SG&A expenses		94,559			91,466		3	%		186,144			180,648		3	%
A&M segment expenses	$	259,883		$	273,835		(5)	%	$	458,148		$	504,309		(9)	%
Cost of inventory sold as a % of A&M expenses		55.1	%		54.7	%	40	bps		49.0	%		53.6	%	(460)	bps
A&M segment profit	$	94,676		$	85,831		10	%	$	141,286		$	129,851		9	%
Total GTV		1,493,982			1,497,757		(0)	%		2,641,006			2,672,438		(1)	%
A&M service revenue as a % of total GTV- Rate		13.4	%		13.4	%	0	bps		13.4	%		12.9	%	50	bps


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Gross Transaction Value

In response to the COVID-19 pandemic, beginning in March 2020, we transitioned all our traditional live on site auctions to online formats utilizing our existing online bidding technology and simultaneously ceased all public attendance at our live auction theaters. Our core online auction channels (IronPlanet.com, GovPlanet.com, Marketplace-E) continued to operate as usual.

To facilitate the live auction process transition to a virtual platform and under strict safety guidelines, we enabled equipment drop off at our physical yards prior to the online event, with buyers able to conduct inspections pre-auction and collect equipment post auction. In addition, where auctioneers were not able to attend a physical site, we used Time Auctioned Lots (TAL) solutions for selected International and on-the-farm agriculture events.

GTV recognized through online bidding at live on site auctions and TAL have been counted towards the Live on site auction metrics. The percentage of live GTV dollars that transacted on TAL rose to 29% in Q2 2020, up from 8% in the prior year, and increased to 22%, up from 8% in the first half of 2020.

We believe it is meaningful to consider revenue in relation to GTV. GTV by channel and by revenue type are presented below for the comparative reporting period.

GTV by Channel


	Three months ended June 30,								Six months ended June 30,
							% Change									% Change
(in U.S. $000's, except percentages)	2020			2019			2020 over 2019		2020			2019				2020 over 2019
Live on site auctions	$	1,181,262		$	1,261,194		(6)	%	$	2,091,058			$	2,232,793			(6)	%
Percentage of total		79.1	%		84.2	%				79.2	%			83.5	%
Online marketplaces including featured ⁽¹⁾and other ⁽²⁾		312,720			236,563		32	%		549,949				439,645			25	%
Percentage of total		20.9	%		15.8	%				20.8	%			16.5	%
GTV	$	1,493,982		$	1,497,757		(0)	%	$	2,641,007			$	2,672,438			(1)	%

Percentage of total GTV purchased by online buyers
Live on site auctions		100	%		56	%	4400	bps		86	%			54	%		3200	bps
Online marketplaces including featured⁽¹⁾ and other⁽²⁾		100	%		100	%	0	bps		100	%			100	%		0	bps
Total GTV		100	%		63	%	3700	bps		89	%			62	%		2700	bps

(1)	This represents GTV from IronPlanet’s Weekly Featured Auction, which operates under an unreserved auction model.

(2)	This includes GTV from Marketplace-E.

GTV remained flat at $1.5 billion in Q2 2020 and for the first half of 2020 decreased 1% to $2.6 billion.

For Q2 2020, live on site GTV decreased 6% to $1.2 billion. The 6% decrease in GTV was primarily due to the non-repeat large dispersal of pipeline equipment at the $94 million Columbus, Ohio auction held in June 2019, and softness in the International region due to the COVID-19 pandemic. Also, Australia switched their selling platform from Live to Online. The decreases were partially offset by strong year-over-year GTV performance in the US and Canada, driven by an increased supply of transportation equipment.

Shifts to our auction calendar in response to the COVID-19 pandemic did not have a material impact on our live on site GTV performance in Q2 2020. The shift of the Montreal, Canada and Los Angeles, US auctions from Q1 2020 to Q2 2020, were partially offset by the postponement of the Polotitlan, Mexico, and Ocana, Spain auctions from Q2 2020 to Q3 2020. The shift of the Australia live on site auctions to our online platform also transferred GTV to the online channel.

For the first half of 2020, GTV from live on site auctions decreased 6%. This decrease was primarily related to our response to the COVID-19 pandemic, as we shifted our Australia live auctions to our online platform, and postponed three live auctions from Q2 2020 to Q3 2020, including: (1) Polotitlan, Mexico; (2) Ocana, Spain; and (3) Caorso, Italy. The decrease was also due to lower GTV at the Columbus and Orlando auction, as well as impacts of the COVID-19 pandemic in our International region as discussed above. Partially offsetting these declines were higher GTV sourced from our US region and the US strategic accounts sales teams, and year-over-year growth performance at the Las Vegas, Fort Worth, and Houston auctions.

For Q2 2020, online marketplace GTV increased 32% primarily due to increased online performance driven from strong execution by the US region and the US strategic accounts sales teams, and the shift of our Australia live on site auctions to our online platform. This increase was partially offset by lower government surplus GTV due to the COVID-19 pandemic government shutdowns.


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For the first half of 2020, online marketplaces GTV increased 25% for the same reasons discussed above, and was partially offset by lower Marketplace-E performance in our Europe region.

Online bidding

Across all channels, 100% of total GTV was purchased by online buyers in Q2 2020 compared to 63% in Q2 2019. For the first half of 2020, GTV from online buyers was 89% compared to 62% in the comparable prior year period. The increase in internet bidders and online buyers is a direct impact of the COVID-19 pandemic, as we pivoted to 100% online bidding at our live auctions where onsite attendance was not permitted. Prior to the COVID-19 pandemic restrictions, 67% of total GTV was purchased by online buyers in the first half of 2020.

GTV by Revenue Type


	Three months ended June 30,								Six months ended June 30,
							% Change								% Change
(in U.S. $000's, except percentages)	2020			2019			2020 over 2019		2020			2019			2020 over 2019
Service GTV	$	1,339,071		$	1,339,141		(0)	%	$	2,395,963		$	2,382,765		1	%
Percentage of total		89.6	%		89.4	%				90.7	%		89.2	%
Inventory GTV		154,911			158,616		(2)	%		245,043			289,673		(15)	%
Percentage of total		10.4	%		10.6	%				9.3	%		10.8	%
GTV	$	1,493,982		$	1,497,757		(0)	%	$	2,641,006		$	2,672,438		(1)	%

In Q2 2020, Service GTV remained flat at $1.3 billion, while Inventory GTV decreased 2% to $155.0 million.

For the first half of 2020, Service GTV increased 1% with Inventory GTV decreasing 15%. The 15% decrease in Inventory GTV is due to a large dispersal of pipeline equipment at our Columbus auction in June 2019, certain non-repeat large inventory deals from Europe and Asia in Q1 2019, and a decrease in volume of inventory contracts at our Orlando auction compared to the prior year. This was partially offset by strong year-over-year performance in several of our US and Canada live auctions as we had a greater level of transportation equipment.

We offer our customers the opportunity to use underwritten commission contracts to serve their disposition strategy needs, entering into such contracts where the risk and reward profile of the terms are agreeable. Our underwritten contracts, which includes inventory and guarantee contracts, increased slightly to 24.4% in Q2 2020, compared to 24.0% in Q2 2019. For the first half of 2020, our underwritten contracts were 20.3% compared to 20.7% in the prior period.

Industrial Live On Site Metrics

Total industrial live on site auction metrics


	Three months ended June 30,				Six months ended June 30,
			% Change				% Change
	2020	2019	2020 over 2019		2020	2019	2020 over 2019
Number of auctions	51	59	(14)	%	81	94	(14)	%
Bidder registrations	284,550	200,250	42	%	445,550	343,250	30	%
Consignors	14,400	17,450	(17)	%	25,350	29,000	(13)	%
Buyers	44,350	43,500	2	%	74,250	74,250	—	%
Lots	114,700	120,500	(5)	%	197,050	206,750	(5)	%

In Q2 2020, we held eight fewer industrial live on site auctions, which led to a 6% decrease in our GTV from our live on site auctions. As discussed above, live auction calendar shifts as a result of our response to the COVID-19 pandemic had minimal impact on our live on site GTV performance.

In Q2 2020, the total number of industrial lots decreased 5% to 114,700 and the total number of lots including agricultural lots decreased 8% to 127,250, primarily due to fewer industrial live on site auctions held as discussed above. For the first half of 2020, total number of industrial lots decreased 5% to 197,050 and the total number of lots including agricultural lots decreased 6% to 213,100 lots.

GTV on a per lot basis generated at our industrial live on site auctions was flat at $9,400 in Q2 2020 and Q2 2019. For the first half of 2020, the GTV on a per lot basis generated at our industrial live on site auctions decreased 1% to $9,900 compared to $10,000 in the prior year.


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12 months average metrics per industrial live on site auction


	12 months ended June 30,
					% Change
(in U.S. $000's, except percentages)	2020		2019		2020 over 2019
GTV	$	21.3 million	$	20.5 million	$	4	%
Bidder registrations		4,612		3,322		39	%
Consignors		305		300		2	%
Lots		2,281		2,081		10	%

For the 12 months ended June 30, 2020, we saw a 4% increase in average GTV per industrial auction compared to the prior year period, and a 39% increase in average bidder registration per auction, a strong indicator of higher demand from buyers.

Productivity

The majority of our business continues to be generated by our A&M segment operations. Sales Force Productivity within this segment is an operational statistic that we believe provides a gauge of the effectiveness of our Revenue Producers in increasing GTV. Revenue Producers is a term used to describe our revenue-producing sales personnel. This definition is comprised of Regional Sales Managers and Territory Managers.

Our Sales Force Productivity for the trailing 12-month period ended June 30, 2020 was $12.2 million per Revenue Producer compared to $11.7 million per Revenue Producer for the trailing 12-month period ended June 30, 2019.

A&M revenue

Total A&M revenue decreased 1% to $354.6 million in Q2 2020 and decreased 5% to $599.4 million for the first half of 2020.

A&M revenue by geographical region are presented below:


	Three months ended June 30,					Six months ended June 30,
			% Change						% Change
(in U.S. $000's)	2020	2019	2020 over 2019			2020		2019	2020 over 2019
United States
Service revenue	115,796	110,622	5	%	$	236,134	$	213,597	11	%
Inventory sales revenue	72,196	87,788	(18)	%		129,144		155,732	(17)	%
A&M revenue- United States	187,992	198,410	(5)	%		365,278		369,329	(1)	%
Canada
Service revenue	67,357	65,752	2	%		85,917		85,520	0	%
Inventory sales revenue	19,126	13,373	43	%		27,321		17,158	59	%
A&M revenue- Canada	86,483	79,125	9	%		113,238		102,678	10	%
International
Service revenue	16,496	24,676	(33)	%		32,340		45,370	(29)	%
Inventory sales revenue	63,588	57,455	11	%		88,578		116,783	(24)	%
A&M revenue- International	80,084	82,131	(2)	%		120,918		162,153	(25)	%
Total
Service revenue	199,648	201,050	(1)	%		354,391		344,487	3	%
Inventory sales revenue	154,911	158,616	(2)	%		245,043		289,673	(15)	%
A&M total revenue	354,559	359,666	(1)	%		599,434		634,160	(5)	%

United States

In Q2 2020, service revenue increased 5% primarily due to an increase in fee revenue driven by the mix of small value lots, the harmonization of buyer fees, fee growth from higher total GTV, and higher fees from Services within our US operations. We recognized lower commissions despite higher Services GTV, due to softer rate performance, with a higher proportion of Services GTV sourced from strategic accounts, and lower rates from our government operations.

Service GTV in the US was higher, with record online performance driven by strong execution from the US region and the US strategic accounts sales teams, an increase in supply of transportation equipment, and shifting the Los Angeles auction to Q2 2020 in response to the COVID-19 pandemic. This increase in Services GTV was partially offset by the lower GTV arising from the non-repeat of the large Columbus, Ohio auction held in June 2019.


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In Q2 2020, inventory sales revenue decreased 18% as we had a large dispersal of pipeline equipment as part of the $94 million Columbus, Ohio auction held in June 2019. We also recognized lower inventory contracts related to our government surplus contracts due to the COVID-19 pandemic government shutdowns, which ceased all shipment of surplus contract inventories. This decrease was partially offset by strong live on site performance in the US as we saw an increase in supply of transportation equipment.

For the first half of 2020, service revenue increased 11% primarily due to an increase in fees revenue driven by the harmonization of buyer fees, the mix of small value lots, fee growth from higher total GTV, and higher fees from services in the US operations. Service revenue in the US also increased due to commissions earned from higher volumes on Service GTV growth as discussed above, and higher rates earned on our guarantee contracts. This increase was partially offset by softer rate performance due to higher proportion of GTV sourced from strategic accounts and lower rates from our government operations. Inventory sales revenue decreased 17% for the same reasons discussed above.

Canada

In Q2 2020, service revenue increased 2% primarily due to higher fees revenue driven by the full harmonization of buyer fees, fees earned on higher total GTV, partially offset by fees waived for Canadian on-the-farm auctions as part of our COVID-19 pandemic response. Service GTV in Canada was higher primarily due to the shift in the Montreal auction from Q1 2020 to Q2 2020. Inventory sales revenue increased 43% primarily due to year-over-year growth performance at our Western Canada auctions.

For the first half of 2020, service revenue was flat at $85.9 million. Fees revenue increased due to the full harmonization of buyer fees and higher total GTV, which was offset by lower commissions revenue. Inventory sales revenue increased 59% to $27.3 million primarily for the same reasons discussed above.

International

In Q2 2020, service revenue decreased 33% primarily due to lower commissions on lower services GTV. In addition, International had lower fees revenue in line with decreased total GTV. The lower total GTV was due to softness in the International region driven by economic uncertainty during the COVID-19 pandemic. Inventory sales revenue increased 11% with strong performance at our Maltby, UK auction, which was partially offset by the non-repeat of supply contracts in Europe and Asia that were garnered in a more favourable supply environment in the prior year.

For the first half of 2020, service revenue decreased 29% with lower commissions and fees revenue earned on lower GTV for the same reasons discussed above. Inventory sales revenue decreased 24% due to the non-repeat of supply contracts in Europe and Asia that were garnered in a more favourable supply environment as well as lower volumes driven by the economic uncertainties in this region as discussed above.

Costs of services

A&M costs of services decreased 32% to $22.2 million in Q2 2020 compared to Q2 2019. In response to the COVID-19 pandemic, we transitioned our live on site auctions to online bidding, utilized TAL solutions for selected International and on-the-farm agricultural events, and implemented travel restrictions. These operational changes resulted in significant temporary cost reductions in employee compensation, and travel, advertising, and promotion expenses. In addition, we incurred lower net fees related to referral payments.

For the first half of 2020, A&M costs of services decreased 11% to $47.3 million for the same reasons noted above. In addition, the decrease was partially offset by additional facilities costs incurred to support our Q1 2020 Leake auction and expenses incurred to support our government surplus contracts.

Cost of inventory sold

A&M cost of inventory sold decreased 4% to $143.1 million in Q2 2020 compared to Q2 2019, primarily in line with lower activity in inventory sales revenue. Cost of inventory sold decreased at a higher rate than the decrease of inventory sales revenue, indicating an increase in the revenue margin. The margin also improved as a result of equipment sold at a lower price performance in the prior year within the International region, which was not repeated in Q2 2020.

For the first half of 2020, A&M cost of inventory sold decreased 17% to $224.7 million due to the reasons noted above.

SG&A expenses

A&M SG&A expenses increased 3% to $94.6 million in Q2 2020 compared to Q2 2019. The increase was primarily due to higher incentive expense, including a one-time incentive accrual to employees who have been instrumental during the COVID-19 pandemic to continue keeping our operations running and servicing our customers. These increases were partially offset by lower SG&A expenses related to lower travel, advertising, and promotion costs as we implemented travel restrictions.


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For the first half of 2020, A&M segment SG&A expenses increased 3% to $186.1 million primarily due to the same reasons noted above, and higher overhead personnel costs incurred to support our growth initiatives.

Other Services Segment


	Three months ended June 30,						Six months ended June 30,
					% Change						% Change
(in U.S. $000's)	2020		2019		2020 over 2019		2020		2019		2020 over 2019
Service revenue	$	34,491	$	33,556	3	%	$	62,871	$	62,491	1	%
Ancillary and logistical service expenses		16,060		16,472	(3)	%		28,818		30,231	(5)	%
Other costs of services		1,198		1,245	(4)	%		2,700		2,738	(1)	%
SG&A expenses		6,073		6,248	(3)	%		12,873		12,250	5	%
Other services profit	$	11,160	$	9,591	16	%	$	18,480	$	17,272	7	%

In Q2 2020, Other Services revenue increased 3% to $34.5 million primarily due to an increase in Ancillary revenue of $0.6 million and RBFS revenue of $0.4 million. In the first half of 2020, Other Services revenue increased 1% to $62.9 million due to higher revenue in RBFS of $1.4 million, Ancillary of $0.9 million, and Mascus of $0.4 million. This increase was partially offset by lower revenue from RB Logistics of $2.3 million caused by lower inventory sales in Europe requiring logistics.

RBFS revenue increased 5% in Q2 2020, driven by an increase in the rate of fees earned from facilitating financing arrangements. In Q2 2020, our funded volume, which represents the amount of lending brokered by RBFS, decreased 4% to $140.4 million in Q2 2020, and remained flat when excluding the impact of foreign exchange. In the first half of 2020, our funded volume decreased 3% to $256.3 million, and decreased 1% when excluding the impact of foreign exchange. Credit approvals tightened in Q2 2020 due to the economic uncertainties during the COVID-19 pandemic, resulting in lower rate of funding and revenue growth of our RBFS business.

In Q2 2020, Other Services profit increased 16% to $11.2 million primarily due to lower cost of services and SG&A costs driven by our Ancillary and RBFS operations. In the first half of 2020, Other Services profit increased 7% to $18.5 million primarily due to the same reasons noted above. The lower revenue from RB Logistics resulted in a similar magnitude decrease in logistical service expenses.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash provided by operating activities and borrowings from our revolving credit facilities.

In the first half of 2020, our operations were not materially impacted by the COVID-19 pandemic. However, with rapidly changing global markets and economic environments, there is significant uncertainty as to the future impact on our business and liquidity. Today we believe that our existing working capital and availability under our credit facilities are sufficient to satisfy our present operating requirements and contractual obligations. With the future uncertainty, we will continue to evaluate the nature and extent of any impacts to our liquidity as events unfold. Our future growth strategies continue to include but are not limited to the development of our A&M, RBFS, and Mascus operating segments, as well as other growth opportunities including mergers and acquisitions.

We assess our liquidity based on our ability to generate cash to fund operating, investing, and financing activities. Our liquidity is primarily affected by fluctuations in cash provided by operating activities, payment of dividends, voluntary repayments of term debt, share repurchases, our net capital spending, and significant acquisitions of businesses.

Cash provided by operating activities can fluctuate significantly from period to period due to factors such as differences in the timing, size and number of auctions during the period, the volume of our inventory contracts, the timing of the receipt of auction proceeds from buyers and of the payment of net amounts due to consignors, as well as the location of the auction with respect to restrictions on the use of cash generated therein.


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Cash flows

Our cash, cash equivalents, and restricted cash was $538.0 million at June 30, 2020, a 59% increase over the $339.0 million balance at June 30, 2019. The $84.3 million of cash generated over the comparative period is detailed in the following table:


	Six months ended June 30,
					% Change
(in U.S. $000's)	2020		2019		2020 over 2019
Cash provided by (used in):
Operating activities	$	198,324	$	160,355	24	%
Investing activities		(148)		(17,210)	(99)	%
Financing activities		(77,811)		(111,520)	(30)	%
Effect of changes in foreign currency rates		(2,608)		1,802	(245)	%
Net increase in cash, cash equivalents, and restricted cash	$	117,757	$	33,427	252	%

Net cash provided by operating activities increased $38.0 million in the first half of 2020. This increase was primarily due to a net positive impact in our operating assets and liabilities, as well as an increase in our net income over the comparative period. We saw net positive cash flows from changes in our operating assets and liabilities primarily due to the timing of payments on a mix of third-party suppliers and local payroll, consumption, and income taxes, as well as an increase in the size and number of auctions over the comparative period. The increase in cash provided by operating activities was partially offset by changes in inventory over the comparative period. At the end of 2018, we saw particularly high levels of inventory in Europe, which turned over in the first half of 2019.

Net cash used in investing activities decreased $17.1 million in the first half of 2020. This decrease was primarily due to net proceeds of $15.5 million on the sale of land in the United States and $4.2 million on the distribution of equity investments in the first half of 2020. This increase was partially offset by a $2.6 million increase in property, plant and equipment and intangible asset additions over the comparative period.

Net cash used in financing activities decreased $33.7 million in the first half of 2020. This decrease was driven primarily by a $28.0 million increase in net proceeds from short-term debt draws, primarily to fund inventory purchases in the US and Australia. In addition, we raised $15.3 million more cash from the issuance of share capital related to stock option exercises in the first half of 2020 over the comparative period in 2019. Partially offsetting this was an increase of $11.2 million in share repurchases in the first half of 2020 versus the first half of 2019.

Dividend information

We declared and paid a regular cash dividend of $0.20 per common share for the quarter ended June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020. We have declared, but not yet paid, a dividend of $0.22 per common share for the quarter ended June 30, 2020. All dividends that we pay are “eligible dividends” for Canadian income tax purposes unless indicated otherwise.

Our dividend payout ratio, which we calculate as dividends paid to stockholders divided by net income attributable to stockholders, decreased to 57.0% for the 12 months ended June 30, 2020 from 59.9% for the 12 months ended June 30, 2019. This decrease is primarily due to the increase in net income attributable to stockholders over the comparative period. Our adjusted dividend payout ratio (non-GAAP measure) decreased to 54.7% for the 12 months ended June 30, 2020 from 61.7% for the 12 months ended June 30, 2019.

Return on average invested capital

Our return on average invested capital is calculated as net income attributable to stockholders divided by our average invested capital. We calculate average invested capital over a trailing 12-month period by adding the average long-term debt over that period to the average stockholders’ equity over that period.

Return on average invested capital increased 150 bps to 10.0% for the 12-month period ending June 30, 2020 from 8.5% for the 12-month period ending June 30, 2019. This increase is primarily due to an increase in net income attributable to stockholders over the comparative period. Return on invested capital (“ROIC”) (non-GAAP measure) increased 180 bps to 10.1% during the 12 months ended June 30, 2020 compared to 8.3% for the 12 months period ending June 30, 2019.


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Credit facilities

Credit facilities at June 30, 2020 and December 31, 2019 were as follows:


(in U.S. $000's, except percentages)	June 30, 2020		December 31, 2019		% Change
Committed			.
Term loan facility	$	140,702	$	155,355	(9)	%
Revolving credit facilities		500,000		500,000	—	%
Total credit facilities	$	640,702	$	655,355	(2)	%
Unused
Revolving credit facilities		472,657		489,937	(4)	%
Total credit facilities unused	$	472,657	$	489,937	(4)	%

Debt covenants

We were in compliance with all financial and other covenants applicable to our credit facilities at June 30, 2020.

Our ability to borrow under our syndicated revolving credit facility is subject to compliance with a consolidated leverage ratio covenant and a consolidated interest coverage ratio covenant. In the event of sustained deterioration of global markets and economies, we expect the covenants pertaining to our leverage ratio would be the most restrictive to our ability to access funding under our credit agreement. We continue to assess the impact of the COVID-19 pandemic on our business and evaluate courses of action to maintain current levels of liquidity and compliance with our debt covenants.

Share repurchase program

On May 8, 2019, our Board of Directors authorized a share repurchase program for the repurchase of up to $100 million worth of our common shares (subject to the Toronto Stock Exchange approval) over a total period of 12 months. The share repurchase program ended May 8, 2020.

For the six months ended June 30, 2020, we executed the following share repurchases at a total cost of $53.2 million.


	Issuer purchases of equity securities
					(d) Maximum
				(c) Total number of	approximate dollar
				shares purchased as	value of shares that
	(a) Total number of shares	(b) Average price paid		part of publicly	may yet be purchased
	purchased	per share		announced program	under the program
March 5-23, 2020	1,525,312	$	34.85	1,525,312	$	4.8 million

On August 5, 2020, our Board of Directors authorized a share repurchase program for the repurchase of up to $100 million worth of our common shares (subject to the Toronto Stock Exchange ”TSX” approval) over the next 12 months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, financial performance, liquidity, capital expenditures or capital resources.

Critical Accounting Policies, Judgments, Estimates and Assumptions

In preparing our consolidated financial statements in conformity with US GAAP, we must make decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances and historical experience. The COVID-19 pandemic resulted in significant global economic disruption, which can cause a greater degree of uncertainty around our long-term cash projections. As a result, we have further evaluated our judgments and estimates, particularly in the following areas:

●	Recoverability of goodwill;

●	Recoverability of long-lived and indefinite-lived assets;

●	Recoverability of trade and other receivables; and

●	Valuation of inventories.


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The following discussion of critical accounting policies and estimates is intended to supplement the significant accounting policies presented in the notes to our consolidated financial statements included in “Part II, Item 8: Financial Statements and Supplementary Data” presented in our Annual Report on Form 10-K, which summarize the accounting policies and methods used in the preparation of those consolidated financial statements. The policies and the estimates discussed below are included here because they require more significant judgments and estimates in the preparation and presentation of our consolidated financial statements than other policies and estimates. Actual amounts could differ materially from those estimated by us at the time our consolidated financial statements are prepared.

Recoverability of goodwill

We perform impairment tests on goodwill and indefinite-lived intangible assets on an annual basis in accordance with US GAAP, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one level below an operating segment. We determined our reporting units to be at the same level as our operating segments for A&M and Mascus.

In accordance with Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), we begin with a qualitative assessment to determine whether a quantitative impairment test is necessary. If we determine, after performing an assessment based on the qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, or that a fair value of the reporting unit substantially in excess of the carrying amount cannot be assured, then a quantitative impairment test would be performed. The quantitative test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. These evaluations are based on determining the fair value of a reporting unit or asset using a valuation method such as discounted cash flow or a relative, market-based approach. Historically, our reporting units have generated sufficient returns to recover the cost of goodwill.

A&M reporting unit

For the six months ended June 30, 2020, we performed a qualitative assessment of the A&M reporting unit with consideration of the current global economic downturn as a result of the COVID-19 pandemic and we concluded there were no indicators of impairment that existed.

Mascus reporting unit

For the six months ended June 30, 2020, we performed a qualitative assessment of the Mascus reporting unit with consideration of the current global economic downturn as a result of the COVID-19 pandemic and we concluded there were no indicators of impairment that existed.

Recoverability of long-lived and indefinite-lived assets

We test long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. As a result of the COVID-19 pandemic, we reviewed for any events or changes in circumstances that indicate the carrying amount of our long-lived assets may not be recoverable. Our assessment concluded that despite the economic impact of the COVID-19 pandemic, we believe the carrying amounts of our long-lived assets are recoverable as at June 30, 2020.

Indefinite-lived intangible assets are tested at least annually for impairment, and between annual tests if indicators of potential impairment exist. Amid the COVID-19 pandemic, we determined there are potential indicators of impairment and prepared an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the indefinite-lived intangible asset is less than its fair value. Based on our qualitative assessment, we determined there were no indicators of impairment of our indefinite-lived intangible assets at June 30, 2020.

Recoverability of trade receivables

Our trade receivables are generally secured by the equipment, and we determined the COVID-19 pandemic did not have a significant impact on our allowance for expected credit losses. Refer to Note 11 of the financial statements, Trade Receivables, regarding the activity in the allowance for expected credit losses.


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Valuation of inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. We typically purchase inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. We value our Inventory at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation.

For the six months ended June 30, 2020, we reviewed our inventories balance to ensure that it is recorded at the lower of cost and net realizable value. Specific consideration was given to the impact on the net realizable value of our inventories balance given the global economic downturn triggered by the COVID-19 pandemic.

Adoption of New Standards

Topic 326

Effective January 1, 2020, we adopted Topic 326, which replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of the standard had no material effect on the carrying values of our financial assets on the transition date. Periods prior to January 1, 2020 that are presented for comparative purposes have not been adjusted.

Topic 848

Effective January 1, 2020, we adopted Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides relief for companies preparing for discontinuation of reference rates such as LIBOR. This guidance is effective immediately and can be applied until December 31, 2022. Our use of LIBOR is applicable on short term drawings on the committed revolving credit facilities in certain jurisdictions. If applicable, we will use the optional expedients available when reference rate changes occur.

Topic 842

Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). Refer to Note 18 of the financial statements, Leases, for a discussion of our lease accounting.

Other

In addition, effective January 1, 2020, we adopted ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40), Customer’s Accounting for implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract on a prospective basis. The adoption of ASU 2018-15 on January 1, 2020 using the prospective transition approach did not result in a material impact to the consolidated financial statements.

For a discussion of our new and amended accounting standards refer to Note 1 of the financial statements, Summary of significant accounting policies.


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Non-GAAP Measures

We reference various non-GAAP measures throughout this Quarterly Report on Form 10-Q. These measures do not have a standardized meaning and are, therefore, unlikely to be comparable to similar measures presented by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles. Non-GAAP financial measures referred to in this report are labeled as “non-GAAP measure” or designated as such with an asterisk (*).

Adjusted Operating Income* Reconciliation

Adjusting operating income* eliminates the financial impact of adjusting items which are significant non-recurring items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, and certain other items, which we refer to as ‘adjusting items’.

The following table reconciles adjusted operating income to operating income, which is the most directly comparable GAAP measure in our consolidated income statements.


	Three months ended June 30,						Six months ended June 30,
					% Change						% Change
(in U.S. $000's, except percentages)	2020		2019		2020 over 2019		2020		2019		2020 over 2019
Operating income	$	88,800	$	77,970	14	%	$	122,882	$	111,558	10	%
Adjusted operating income*	$	88,800	$	77,970	14	%	$	122,882	$	111,558	10	%

(1)	Adjusted operating income* represents operating income excluding the effects of adjusting items.


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Adjusted Net Income Attributable to Stockholders* and Diluted Adjusted EPS Attributable to Stockholders* Reconciliation

We believe that adjusted net income attributable to stockholders* provides useful information about the growth or decline of our net income attributable to stockholders for the relevant financial period and eliminates the financial impact of adjusting items we do not consider to be part of our normal operating results. Diluted Adjusted EPS attributable to stockholders* eliminates the financial impact of adjusting items which are after-tax effects of significant non-recurring items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, and certain other items, which we refer to as ‘adjusting items’.

The following table reconciles adjusted net income attributable to stockholders* and diluted adjusted EPS attributable to stockholders* to net income attributable to stockholders and diluted EPS attributable to stockholders, which are the most directly comparable GAAP measures in our consolidated income statements.


	Three months ended June 30,						Six months ended June 30,
(in U.S. $000's, except share and per share data,					% Change						% Change
and percentages)	2020		2019		2020 over 2019		2020		2019		2020 over 2019
Net income attributable to stockholders	$	53,043	$	54,036	(2)	%	$	75,851	$	72,200	5	%
Current income tax adjusting item:
Change in uncertain tax provision		766		—	100	%		766		—	100	%
Deferred tax adjusting item:
Change in uncertain tax provision		5,462		—	100	%		5,462		—	100	%
Adjusted net income attributable to stockholders*	$	59,271	$	54,036	10	%	$	82,079	$	72,200	14	%
Weighted average number of dilutive shares outstanding		109,323,343		109,942,768	(1)	%		109,903,808		109,982,763	(0)	%
Diluted earnings per share attributable to stockholders	$	0.49	$	0.49	—	%	$	0.69	$	0.66	5	%
Diluted adjusted EPS attributable to Stockholders*	$	0.54	$	0.49	10	%	$	0.75	$	0.66	14	%

(1)	Adjusted net income attributable to stockholders* represents net income attributable to stockholders excluding the effects of adjusting items.

(2)	Diluted adjusted EPS attributable to stockholders* is calculated by dividing adjusted net income attributable to stockholders*, net of the effect of dilutive securities, by the weighted average number of dilutive shares outstanding.

Adjusted EBITDA*

We believe adjusted EBITDA* provides useful information about the growth or decline of our net income when compared between different financial periods.

The following table reconciles adjusted EBITDA* to net income, which is the most directly comparable GAAP measures in, or calculated from, our consolidated income statements:


	Three months ended June 30,						Six months ended June 30,
					% Change						% Change
(in U.S. $000's, except percentages)	2020		2019		2020 over 2019		2020		2019		2020 over 2019
Net income	$	53,119	$	54,131	(2)	%	$	75,948	$	72,303	5	%
Add: depreciation and amortization expenses		17,857		17,112	4	%		37,150		34,227	9	%
Add: interest expense		8,882		10,117	(12)	%		18,064		20,933	(14)	%
Less: interest income		(393)		(1,063)	(63)	%		(1,063)		(1,918)	(45)	%
Add: income tax expense		27,656		15,401	80	%		33,304		22,040	51	%
Adjusted EBITDA*	$	107,121	$	95,698	12	%	$	163,403	$	147,585	11	%

(1)	Please refer to page 48 for a summary of adjusting items during the three and six months ended June 30, 2020 and June 30, 2019.

(2)	Adjusted EBITDA* is calculated by adding back depreciation and amortization expenses, interest expense, and income tax expense, and subtracting interest income from net income excluding the pre-tax effects of adjusting items.


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Adjusted Net Debt* and Adjusted Net Debt/Adjusted EBITDA* Reconciliation

We believe that comparing adjusted net debt/adjusted EBITDA* on a trailing 12-month basis for different financial periods provides useful information about the performance of our operations as an indicator of the amount of time it would take us to settle both our short and long-term debt. We do not consider this to be a measure of our liquidity, which is our ability to settle only short-term obligations, but rather a measure of how well we fund liquidity. Measures of liquidity are noted under “Liquidity and Capital Resources”.

The following table reconciles adjusted net debt* to debt, adjusted EBITDA* to net income, and adjusted net debt*/ adjusted EBITDA* to debt/ net income, respectively, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements.


	As at and for the 12 months ended June 30,
							% Change
(in U.S. $millions, except percentages)	2020			2019			2020 over 2019
Short-term debt	$	22.0		$	8.0		175	%
Long-term debt		632.0			704.9		(10)	%
Debt		654.0			712.9		(8)	%
Less: Cash and cash equivalents		(389.7)			(210.4)		85	%
Adjusted net debt*		264.3			502.5		(47)	%
Net income	$	152.7		$	130.9		17	%
Add: depreciation and amortization expenses		73.4			68.1		8	%
Add: interest expense		38.4			43.2		(11)	%
Less: interest income		(3.1)			(3.6)		(14)	%
Add: income tax expense		52.9			38.7		37	%
Pre-tax adjusting items:
Share-based payment expense recovery		(4.1)			—		(100)	%
Severance and retention		—			1.5		(100)	%
Gain on sale of equity accounted for investment		—			(4.9)		(100)	%
Adjusted EBITDA*	$	310.2		$	273.9		13	%
Debt/net income		4.3	x		5.4	x	(20)	%
Adjusted net debt/adjusted EBITDA		0.9	x		1.8	x	(50)	%

(1)	Please refer to page 48 for a summary of adjusting items during the trailing 12-months ended June 30, 2020 and June 30, 2019.

(2)	Adjusted EBITDA* is calculated by adding back depreciation and amortization expenses, interest expense, and income tax expense, and subtracting interest income from net income excluding the pre-tax effects of adjusting items.

(3)	Adjusted net debt* is calculated by subtracting cash and cash equivalents from short and long-term debt.

(4)	Adjusted net debt/adjusted EBITDA is calculated by dividing adjusted net debt* by adjusted EBITDA*.

Operating Free Cash Flow* (“OFCF”) Reconciliation

We believe OFCF*, when compared on a trailing 12-month basis to different financial periods provides an effective measure of the cash generated by our business and provides useful information regarding cash flows remaining for discretionary return to stockholders, mergers and acquisitions, or debt reduction. Our balance sheet scorecard includes OFCF* as a performance metric. OFCF* is also an element of the performance criteria for certain annual short-term and long-term incentive awards.

The following table reconciles OFCF* to cash provided by operating activities, which is the most directly comparable GAAP measure in, or calculated from, our consolidated statements of cash flows:


	12 months ended June 30,
					% Change
(in U.S. $ millions, except percentages)	2020		2019		2020 over 2019
Cash provided by operating activities	$	370.8	$	196.8		88	%
Property, plant and equipment additions		15.1		15.7		(4)	%
Intangible asset additions		28.5		26.1		9	%
Proceeds on disposition of property plant and equipment		(21.5)		(9.5)		126	%
Net capital spending	$	22.1	$	32.3		(32)	%
OFCF*	$	348.7	$	164.5		112	%

(1)	OFCF* is calculated by subtracting net capital spending from cash provided by operating activities.


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Adjusted Net Income Attributable to Stockholders* and Adjusted Dividend Payout Ratio* Reconciliation

We believe that adjusted net income attributable to stockholders* provides useful information about the growth or decline of our net income attributable to stockholders for the relevant financial period and eliminates the financial impact of adjusting items we do not consider to be part of our normal operating results. We believe that disclosing our adjusted dividend payout ratio* for different financial periods provides useful information about how well our net income supports our dividend payments.

The following table reconciles adjusted net income attributable to stockholders* and adjusted dividend payout ratio* to net income attributable to stockholders, and dividend payout ratio, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements:


	12 months ended June 30,
							%Change
(in U.S. $millions, except percentages)	2020			2019			2020 over 2019
Dividends paid to stockholders	$	87.0		$	78.3			11	%
Net income attributable to stockholders	$	152.7		$	130.8			17	%
Pre-tax adjusting items:
Severance and retention		—			1.5			(100)	%
Gain on sale of equity accounted for investment		—			(4.9)			(100)	%
Current income tax effect of adjusting items:
Severance and retention		—			(0.4)			(100)	%
Current income tax adjusting item:
Change in uncertain tax provision		0.8			—			100	%
Deferred tax adjusting item:
Change in uncertain tax provisions		5.5			—			100	%
Adjusted net income attributable to stockholders*	$	159.0		$	127.0			25	%
Dividend payout ratio		57.0	%		59.9	%		(290)	bps
Adjusted dividend payout ratio*		54.7	%		61.7	%		(700)	bps

(1)	Please refer to page 48 for a summary of adjusting items during the trailing 12-months ended June 30, 2020 and June 30, 2019.

(2)	Adjusted net income attributable to stockholders* represents net income attributable to stockholders excluding the effects of adjusting items.

(3)	Adjusted dividend payout ratio* is calculated by dividing dividends paid to stockholders by adjusted net income attributable to stockholders*.


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Adjusted Net Income Attributable to Stockholders* and ROIC* Reconciliation

We believe that comparing ROIC on a trailing 12-month basis for different financial periods, provides useful information about the after-tax return generated by our investments.

The following table reconciles adjusted net income attributable to stockholders* and ROIC* to net income attributable to stockholders and return on average invested capital which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements:


	As at and for the 12 months ended June 30,

							% Change
(in U.S. $millions, except percentages)	2020			2019			2020 over 2019
Net income attributable to stockholders	$	152.7		$	130.8			17	%
Pre-tax adjusting items:
Share-based payment expense recovery		(4.1)			—			(100)	%
Severance and retention		—			1.5			(100)	%
Gain on sale of equity accounted for investment		—			(4.9)			(100)	%
Current income tax effect of adjusting items:
Severance and retention		—			(0.4)			(100)	%
Current income tax adjusting item:
Change in uncertain tax provision		0.8			—			100	%
Deferred tax adjusting item:
Change in uncertain tax provisions		5.5			—			100	%
Adjusted net income attributable to stockholders*	$	154.9		$	127.0			22	%
Opening long-term debt	$	704.9		$	750.4			(6)	%
Ending long-term debt		632.0			704.9			(10)	%
Average long-term debt		668.5			727.7			(8)	%
Opening stockholders' equity	$	830.7		$	786.4			6	%
Ending stockholders' equity		899.1			830.7			8	%
Average stockholders' equity		864.9			808.6			7	%
Average invested capital	$	1,533.4		$	1,536.3			(0)	%

Return on average invested capital		10.0	%		8.5	%		150	bps
ROIC*		10.1	%		8.3	%		180	bps

(1)	Please refer to page 48 for a summary of adjusting items during the trailing 12-months ended June 30, 2020 and June 30, 2019.

(2)	Return on average invested capital is calculated as net income attributable to stockholders divided by average invested capital. We calculate average invested capital as the average long-term debt and average stockholders’ equity over a trailing 12-month period.

(3)	ROIC* is calculated as adjusted net income attributable to stockholders* divided by average invested capital.

(4)	The adoption of Leases (Topic 842) requires lessees to recognize almost all leases, including operating leases, on the balance sheet through a right-of-use asset and a corresponding lease liability. The lease liability is not included in the calculation of debt.


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Adjusting items during the trailing 12-months ended June 30, 2020 were:

Recognized in the second quarter of 2020

●

$6.2 million ($0.06 per diluted share) in current and deferred income tax expense related to an unfavourable adjustment to reflect final regulations published regarding hybrid financing arrangements.

Recognized in the first quarter of 2020

●

There were no adjustment items recognized in the first quarter of 2020.

Recognized in the fourth quarter of 2019

●

$4.1 million ($3.4 million after tax, or $0.03 per diluted share) in share-based payment expense recovery related to the departure of our former CEO.

Recognized in the third quarter of 2019

●

There were no adjustment items recognized in the third quarter of 2019.

Adjusting items during the trailing 12-months ended June 30, 2019 were:

Recognized in the second quarter of 2019

There were no adjustment items recognized in the second quarter of 2019.

Recognized in the first quarter of 2019

●

There were no adjustment items recognized in the first quarter of 2019.

Recognized in the fourth quarter of 2018

●

There were no adjustment items recognized in the fourth quarter of 2018.

Recognized in the third quarter of 2018

●

$1.5 million ($1.1 million after tax, or $0.01 per diluted share) of severance and retention costs in a corporate reorganization that followed the IronPlanet acquisition;

●

$4.9 million ($4.9 million after tax, or $0.04 per diluted share) due to gain on sale of an equity accounted for investment.


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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk during the six months ended June 30, 2020 from those disclosed in Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2019, which is available on our website at www.rbauction.com, on EDGAR at www.sec.gov, or on SEDAR at www.sedar.com.

ITEM 4: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management of the Company, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), have evaluated the effectiveness of the Company’s disclosure controls and procedures as at June 30, 2020. The term “disclosure controls and procedures” means controls and other procedures established by the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based upon their evaluation of the Company’s disclosure controls and procedures, the CEO and the CFO concluded that, as at June 30, 2020, the disclosure controls are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

The Company, including its CEO and CFO, does not expect that its internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Changes in Internal Control over Financial Reporting

Management, with the participation of the CEO and CFO, concluded that there were no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

We have no material legal proceedings pending, other than ordinary routine litigation incidental to the business, and we do not know of any material proceedings contemplated by governmental authorities.

ITEM 1A: RISK FACTORS

Our business is subject to a number of risks and uncertainties, and our past performance is no guarantee of our performance in future periods. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties discussed in “Part I, Item 1A: Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which is available on our website at www.rbauction.com, on EDGAR at www.sec.gov, or on SEDAR at www.sedar.com, before purchasing our common shares. Our business could also be affected by additional risks not currently known to us or that we currently deem to be immaterial. If any of the risks actually occur, our business, financial condition and results of operations could materially suffer. As a result, the trading price of our common shares could decline, and you may lose all or part of your investment.

Except as set out below, there were no material changes in risk factors during the three months or six months ended June 30, 2020.

Our business operations, results of operations, cash flows and financial performance may be affected by the recent COVID-19 pandemic.

An outbreak of a novel strain of coronavirus (COVID-19) has occurred, including in all of the countries in which we operate. National, state, provincial and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home.

The COVID-19 pandemic has caused certain disruptions to our business and operations and could cause further material disruptions to our business and operations in the future as a result of, among other things, quarantines, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions. For similar reasons, the COVID-19 pandemic has also adversely impacted, and may continue to adversely impact, the businesses and needs of our customers. Depending on the extent and duration of all of the above-described effects on our business and operations and the business and operations of our customers, our costs could increase, including our costs to address the health and safety of personnel, our ability to source assets to sell may be adversely impacted, our ability to transport and/or sell the assets that we source may be adversely impacted, our ability to service certain customers could be adversely impacted, and our ability to transfer ownership to the assets that we do sell could be adversely impacted. As a result of the foregoing, our business operations, results of operations, cash flows and financial performance could be materially adversely affected.

Although we have been permitted to continue to operate our auction sites in most of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses, we have had to either forbid customer access altogether or limit the number of customers that are able to access our auction sites; in each case leading to online-only bidding for our live auctions. There is no assurance that we will be permitted to operate under every future government order or other restriction and in every location. If we were to be subject to government orders or other restrictions on the operation of our business, we may be required to limit our operations at, or close, certain auction sites and office locations in the future. Any limitations on, or closures of, our auction sites or our customers’ sites could have a material adverse impact on our ability to carry out auctions or facilitate online sales, allow customers or our inspection teams to inspect assets or allow customers to retrieve purchased assets. Any such limitations or closures could have a material adverse impact on our business operations, results of operations, cash flows and financial performance.


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Any sustained disruption in the capital markets from the COVID-19 pandemic could negatively impact our ability to raise capital. As of the end of our second fiscal quarter of 2020 we have a strong balance sheet and do not anticipate the need to raise capital. However, we cannot predict when the macro-economic disruption stemming from the COVID-19 pandemic will ebb or when the economy will return to pre-COVID-19 pandemic levels, if at all. If the macro-economic disruption continues for prolonged periods we may need to raise capital and capital may not be available on acceptable terms, or at all. The impact of the COVID-19 pandemic on economic activity, and its effect on our sales force and our customers are uncertain at this time and could have a material adverse effect on our results, especially to the extent theses effects persist or exacerbate over an extended period of time. Additionally, any such impact could also result in financial and/or operational constraints for our service providers, buyers of the assets sold through our sales channel, as well as other counterparties, thereby increasing the risk that such counterparties default on their obligations to us.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None.


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ITEM 6: EXHIBITS

Exhibits

The exhibits listed in below are filed as part of this Quarterly Report on Form 10-Q and incorporated herein by reference.


Exhibit
Number		Document


10.1		Employment Agreement between Ritchie Bros. Auctioneers (Canada) Ltd. and James Kessler, dated May 1, 2020
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T , for the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Income Statements; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Changes in Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to the Condensed Consolidated Financial Statements
104		Cover page from the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020, formatted in Inline XBRL and contained in Exhibit 101


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	RITCHIE BROS. AUCTIONEERS INCORPORATED


Dated: August 6, 2020	By:	/s/ Ann Fandozzi
		Ann Fandozzi
		Chief Executive Officer

Dated: August 6, 2020	By:	/s/ Sharon R. Driscoll
		Sharon R. Driscoll
		Chief Financial Officer


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