RBA - NYSE

Ladies and gentlemen, thank you for standing by. My name is Jim, and I will be your conference operator today. At this time, I am pleased to welcome you all to the RB Global Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's session is also being recorded. And now to get us started with opening remarks and introductions, I am pleased to turn the floor over to Vice President of Investor Relations, Mr. Sameer Rathod. Please go ahead, sir.

Hello and good afternoon. Thank you for joining us today to discuss our second quarter results. Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer, are with me on the call today. The following discussion will include forward-looking statements, including projections of future earnings, business and market trends. These statements should be considered in conjunction with the cautionary statements contained in our earnings release and periodic SEC reports. On this call, we will also discuss certain non-GAAP financial measures. For the identification of non-GAAP financial measures and the most directly comparable GAAP financial measures and the applicable reconciliation of the 2 see our earnings release and periodic SEC reports. At this time, I would like to turn the call over to our CEO, Jim Kessler. Jim?

Thanks, Sameer, and good afternoon to everyone joining the call. I want to begin by recognizing the exceptional execution and dedication of our teammates who remain the foundation of our ability to consistently over deliver on our commitments and position us for long-term growth. As always, our approach remains unchanged as we stay focused on the factors within our control. Our disciplined execution was evident again in the quarter. with adjusted EBITDA increasing 7% on a 2% increase in gross transactional value. Starting with our automotive sector. The momentum continued as we outpaced the market for another quarter, achieving solid gains in market share. Unit volume increased by 9% year-over-year. With this increase in volume, I am especially proud to say that our teammates continue to perform at an exceptional level, Consistently overdelivering against all of our service level agreements. On the demand side, our active buyer base continues to grow, reflecting the strength of our platform. Internationally, we are particularly pleased to welcome 2 new alliance partners, which extends our global footprint and enhances fire diversity. We also continue to refine and optimize our multichannel auction format to drive premium price performance. These efforts are translated into tangible results. We continue to deliver strong gross returns or salvage values as a percentage of pre- accident cash value with U.S. insurance average selling prices increasing approximately 1% year-over-year. As we enter the peak season for cat events, speed and coordination remains mission-critical for our partners. We prepare year-round for these events through detailed simulations and cross-functional alignment across real estate operations, logistics and merchandising. This ensures we can respond seamlessly when the time comes. Our dedicated cat capacity continues to grow and we have built an additional agility and flexibility through our partnership with NASCAR and our ability to leverage Ritchie Bros. yards as needed. Last year, we demonstrated our unique ability to leverage the full strength of RB Global and managing the volume surge we experienced and our teammates stand ready to respond again this year. All of this directly translates into superior execution enabling us to consistently over deliver on our commitments to our partners. We have a proven and scalable model for responding to cat events, which provides a sustainable competitive advantage. We are also excited to announce a new joint venture in the U.K. with LKQ Corporation, a global leader in alternative and specialty parts. As a result, our SYNETIQ automotive parts in the mainland business will be jointly operated with LKQ and rebranded as LKQ SYNETIQ. RB Global will retain 100% of the salvage auction part of the business, which has been rebranded and will operate as IAA. This is a win-win where both organizations will bring their respective areas of expertise to the joint venture. Our regional partners are excited about the vision and value we bring to the industry. The joint venture will streamline the distribution of green parts into the repair network and elevate the customer experience. Moving to the commercial construction and transportation sector I am pleased to share that we have successfully closed the acquisition of J.M. Wood. This transaction represents a strategic enhancement of our footprint in Alabama and the broader Southeast United States. We are proud to welcome a high-performing team with regional expertise to our organization. They have built their business much like ours by cultivating long-standing relationships founded on trust and exceptional service. By combining their strong brand, customer focus and regional presence with our global reach, digital platform and value-added services, we are well positioned to deliver even greater value to our customers and drive continued growth. Why customers and partners in our commercial construction and transportation end markets continue to navigate macroeconomic uncertainty, we remain focused on factors within our control. We continue to invest in driving sustainable growth and enhancing operational efficiency. This includes ongoing optimization of our territory manager network and deployment of targeted productivity initiatives across the organization. Our disciplined approach is designed to position us as the partner of choice. Ensuring we remain top of mind when customers are ready to engage and transact. Before I hand the call over to Eric to review our financial performance and outlook, I would like to thank our incredible team worldwide for their hard work, discipline and perseverance. You power our momentum. We have the right strategy, the right people and the right foundation in place, and I'm excited about the opportunities ahead as we continue to deliver long-term value for our customers, partners and shareholders. Eric?

Thanks, Jim. Total GTV increased by 2%. Automotive GTV increased by 8%, driven by a 9% increase in unit volumes, partially offset by a decline in the average price per vehicle sold. Unit volume growth was driven by strong organic growth from existing partners and a year-over-year increase in market share across salvaged and remarketed vehicles. As Jim noted, U.S. insurance ASP increased 1%. However, the average price per lot sold declined primarily due to a higher proportion of remarketed vehicles compared to insurance vehicles relative to the prior year. Second quarter salvage industry volumes benefited from ongoing secular growth in loss ratios, fueled by the favorable spread between repair cost inflation and used vehicle inflation. CCC Intelligent Solutions estimated that the total loss ratio increased by nearly 70 basis points in the second quarter to approximately 22.2% compared to 21.5% in the same period last year. GTV in the commercial construction and transportation sector decreased by 6%, driven by an 18% decline in lot volumes, partially offset by an increase in average selling price. As you compare today's environment to that of 2024, it's essential to consider several key dynamics. Last year, our performance benefited from a significant release of aged fleet from our rental partners, a byproduct of prior supply COVID-related supply chain disruptions, as well as the unique impact of the Yellow Corporation bankruptcy, the largest in its category. Today, we are navigating a more complex macro backdrop characterized by higher interest rates evolving trade policy uncertainty and a more cautious posture from customers and partners amid growing optimism around mega projects. Excluding the impact of the Yellow Corporation bankruptcy, unit volumes were declined approximately 2% year-over-year. The average price per lot sold increased primarily due to an improvement in the asset mix. Asset mix tailwinds stemmed to decline volume from the rental and transportation industries where asset values are intrinsically at lower ASPs. Excluding the impact of the Yellow Corporation bankruptcy from the prior period, the decline in GTV for the commercial construction and transportation sector would have been approximately 1%. Moving to service revenue. Service revenue increased 3% and on a higher level of GTV and a higher service revenue take rate. The service revenue take rate increased approximately 20 basis points year-over-year to 21.1% and driven by a higher average buyer fee rate structure, partially offset by a lower average commission rate and a decline in our marketplace services businesses. Moving to adjusted EBITDA. Adjusted EBITDA increased 7% on GTV growth and expansion in the service revenue take rate. Our dedication to efficiency and disciplined execution was evident again in the second quarter, as adjusted EBITDA as a percentage of GTV increased to 8.7% compared to 8.3% in the prior year. Adjusted earnings per share increased by 14% and driven by a higher operating income, a lower net interest expense and an adjusted lower tax rate. Before moving on to the outlook, I would like to highlight the financial implications of the LKQ joint venture that Jim just discussed. Given the relative size of the auto parts dismantling business, we do not expect any material impact on our top line or profitability for the remainder of 2025 as a result of this transaction. Going forward, we will account for this JV using the equity method, with our portion of the results included within other income. In connection with the JV, we revalued the assets, which resulted in a onetime loss on deconsolidation of $15.5 million and incurred an additional charge of $4.2 million associated with the deal for a total loss of $19.7 million. Now moving to the outlook. For GTV growth, we are now expecting to be at the lower end of our guidance range. That said, we are raising and tightening our adjusted EBITDA guidance range to $1.34 billion to $1.37 billion. Additionally, as a reflection of our continued confidence in the strength of our strategy and our ability to drive sustainable long-term growth we are increasing our quarterly dividend approximately 7% to $0.31 per quarter from $0.29 per quarter. As you refine your models for the second half of the year, please note that our guidance does not incorporate any contribution from cat-related GTV, given the unknowable nature of extreme weather events. Recall that cat volumes contributed approximately $169 million in automotive GTV in the fourth quarter of 2024, which will affect the year-over-year growth comparison for that period. To drive long-term profitable growth, we are investing in key technological initiatives and optimizing our sales force to improve the customer experience. The team also remains focused on structurally optimizing costs to help us navigate the current environment. With that, let's open the call for questions.

[Operator Instructions] We'll hear first from the line of Sabahat Khan at RBC.

Maybe just following up on sort of those last comments there around kind of H2, just given the performance through H1, it feels like there might be a bit more room potentially on the full year EBITDA than even the guidance uptick suggests. So if you can maybe just give us some of the puts and takes from your perspective in addition to the color you just shared around what might be keeping you a bit more cautious? Or just what are some of the things you're keeping an eye on the pros and the cons through the back half of the year that may have prevented the guidance increase from being a bit more meaningful just given the performance here to date?

Yes. Thank you for the question. This is Eric. As you look at the back half of the year, as I said in my prepared remarks, we do see still the cautious or to wait and see on some of our partners and a lot more focus on potential mega projects later in the year. And I think that's something that's continued, and I want to make sure we take that in consideration. But if you look at the EBITDA at midpoint front half of the year versus back half of the year, even with this guidance, you'll see an acceleration in growth in the second half versus the front half. So I feel comfortable with where I am on the guidance, and we'll obviously, as we do each quarter, assess the best path. But right now, I think the tightening of the range and then moving the midpoint conservatively here is the best approach for us.

Great. And then just for my follow-up, I guess, you could just dig a little bit more into the CC&T side. I think similar commentary shared last quarter around the customers there, the equipment owners there being still a bit cautious, uncertain. Are you -- as we get into sort of calendar Q3, are you seeing any indications of the folks deciding either we either they're keeping machines or want to bring them to market? It was obviously a lot of volatility during Q2 with the tariffs. But just curious if you saw any change in Q2 versus Q1? And anything into Q3 as we look ahead to the back half?

Yes. Look, it's Jim. I think we're too close into Q3 to really give you answer at this point. And look, the tariffs sort of piece of it interest rates and what's going to happen with it, you go back and forth? Are they going to stay? Are they going to come down? What's going on? Trump and our Fed Chairman have an argument back and forth all the time. So for us, as we think about it, you can see the progression of what happened from the first to the second. We continue to feel good about progression that it should happen, but to Eric's earlier comments, there's still some uncertainty that's hard for us to judge based on what's happening on the macro side of the business. But we feel really good that we're -- when this dam breaks, we are ready to accept the business and our partners we'll use us like they always have in the past. So we're excited to take it. But right now, we feel like it's better to be a little bit conservative on that side of our comments.

Our next question will come from Steven Hansen at Raymond James.

With the J.M. Wood acquisition now closed, I'm just curious about how you're thinking about the broader M&A pipeline out there the assets you've acquired thus far have been pretty disparate to J.M Wood and then Boom & Bucket come to mind. I mean what's in the -- what are you on the hunt for now and how does the pipeline look going forward? What are you looking to augment the platform was?

Yes. So look, I don't think we're going to get into specifics of our strategy, but we believe there are a lot of opportunities in the M&A side that stay core to our business. On the salvage side, we believe in organic growth that we can expand internationally inside of holdco, we already do that today. We believe there's big upside there. We see a lot of tuck-ins that can happen, especially when you think about the global footprint that we have. So similar things that we've done with J.M. Wood, we see a whole pipeline there. But we're going to really stay focused on the things that really complement our business that really do what we're good at, which is process transactions and provided services to our buyers and sellers. And we think we have a ton of opportunity and a ton of upside in the verticals that I mentioned.

That's very helpful. And just as a follow-up, earlier this year, you announced a fairly new marquee win in the U.K. with a prominent customer there. There's been some merger activity in the U.K. with large carriers. Just curious if that presents any opportunity or point of risk as you think about that new set of business that you're going to be going after here?

Yes. No, great question. We see it more as an opportunity than a risk. We currently already do business with both. One, we do exclusive when we have a smaller percent of the business, but we think it as an opportunity of gaining more market share in that market.

Our next question will come from Krista Friesen at CIBC.

Maybe just a follow-on on the IAA side of the business. Can you give us an update on how Australia is going and the buildout there? And just how that's progressing?

No. Thank you for your question. So something that we're really excited about. We spent a lot of work getting ready to get Australia up and running, and I am so proud of the team we are going to process our first set of cars for sale in the next 10 days. So all the work to get our sites ready to get the process, the systems up and running, the integration with Suncorp. And we're really excited to see that all that work come to fruition and not only come into the fit with Suncorp, but what it means for future market share for us once when we have the infrastructure set up. So we're really excited. But in the next 10 days, we'll be processed in our first cars.

Okay. That's great. And then maybe just here in North America, obviously, still gaining market share. Can you speak to the competitive dynamics that you're seeing right now in the market?

Look, it's always hard when you talk about competitive dynamics. What we really stay focused on is what's in our control. And what's in our control is delivering the best operational performance against the SLAs that our partners value, and we're laser-focused on being industry leading in that. And with the coming up to make sure we're able to provide the best service for that. So we continue with our transparency program, where we're issuing our SLAs and our numbers to each and every insurance carrier if they do business with us or not. So they know how we're performing. And I am so pleased with our continued high level that we have. I think it's only going to become a good thing for us and an opportunity that we're going to have as we think about the next 5 years. And as people think who they want their partner to be, I think we are going to be one of the ones they want to partner with.

Our next question will come from the line of Craig Kennison with Baird.

On the IAA side, I'm curious if you can give us an update on your perspective on the trend in uninsured or underinsured motorist and the extent to which it's impacting your volume?

Yes. No, great question. Look, the way I look at this in terms of the total, I think that question definitely has more of an impact on repairable type of claims than it does on total. For us, we haven't really seen a dramatic impact on our side of the business. that we look at, it's conversations that we have with our partners. But I do think that's more of a repairable thing, but it's something that we look at but we haven't seen any significant impact on our side of the business.

And on the CC&T side, I'm wondering if you look at the tax law that was just passed, whether there's anything in there that maybe over the next let's say, 4, 5 years gives you optimism about some mega projects or just more construction activity that would be undeniably good for your business if you -- once you get past this hesitancy moment?

Yes. Look, I'll start and if Eric wants to jump in with anything. Look, bonus depreciation and things in the bill, we feel optimistic about. But I made this comment on a couple of calls ago. For me, I believe in the intrinsic value of our business. And for me, like these mega projects, it's just timing of when asset gets disposed of and gets back into the auction cycle and everything else. So I don't get tied up into when it happens. Of course, I would like to happen sooner and often as you go through all that. But we look at it very optimistically of what the future holds, but we try not to get into exactly when it's going to happen.

Our next question will come from Michael Feniger at Bank of America.

Yes. Just GTV, I think the guidance is now at the lower end of the range versus your initial assessment but Q2 was better than I think everyone had expected. Just on the commercial construction side, ex Yellow, down 1%. Is there anything you want to flag that -- of why that was so much better that maybe doesn't repeat in Q3, Q4 or gives you hesitancy of that sustainable improvement is it -- with the mix? Is there anything you would want to highlight there? And just the second question, Service revenue up 3%, EBITDA up 7%, really good flow through. Is there anything we should be aware of in the second half in terms of investments, inflationary costs, some of the investments you might be making on customer experience. Just that maybe tempers maybe some flow-through in the back half relative to what we saw with a strong second quarter?

Yes. Thanks for the question. Maybe starting on GTV and the guidance there, and I think Jim commented on this. Look, we are optimistic based on the performance improvement. I agree with your comments, the Q1 to Q2 ex Yellow being down in the 1% range. And again, not forecasting or giving specific guidance on the next quarter, but we think that trend will continue. So we're again, cautiously optimistic about where we're going here with the improvement from Q1 to Q2 and seeing that continue into Q3. The thing on the overall GTV, and I mentioned it in my prepared comments that we had about $170 million last year in Q4 related to cat events, right? And I don't include that in my guide because I can't forecast that. I don't know what that number is going to be. So that's part of the hesitation in moving that range too much because we just don't know what that impact is, and that will be a tough compare in the fourth quarter. Hopefully, we don't have as big a cat season for people will be impacted. But we'll be prepared to obviously react and help our partners, but that's the impact on GTV. On your second one on EBITDA, I think I commented to the earlier question. Our expectation is that our EBITDA rate growth year- over-year will increase in the back half of the year. So we don't have any significant changes. What I would note, even though we had a little bit of a headwind related to Australia in we'll start to see some improvement in that. As Jim mentioned, we'll have some volume going through there in Q3, and then we have DLG coming online. So I think it's just making sure how those new agreements perform as we get into the third quarter.

[Operator Instructions] We'll return to the line of Steven Hansen with Raymond James.

Yes. I understand the reluctance to guide on the cat events that makes sense. But is it possible to maybe just look into for us a little bit around what the range of outcomes have been over the last 5 years as you look back through sort of the performance, just to give us a sense for what it could be. I mean, it could be 0, I suppose. But just give us a reference for the book ends in the last 5 years.

Yes. And Steven, look, I think you just hit it, right? If you look at the last 5, you had years where it's been 0. And I don't want to say exactly 0, so you have some hail and some other things that aren't because of a hurricane and a flood event. And so it's really hard for us. Last year was one of the largest years in the last years. So it's such a hard thing. This thing could be 0, it could be what it was last year, it could be more something happened. So it's such a hard thing for us to be able to guide to. So I think the way Eric described it is the right way to do it, and that's why we gave you the last year number to give you something of, okay, what did it do last year and knowing that there's nothing in our guidance for this year. It makes the most sense to us.

Okay. Fair enough. And just one other follow-up is just around the broader enterprise strategy. Jim, I know you've talked about this in the past and your desire to pull more volume from large enterprise customers. Are there any specific initiatives you'd want to call out that you're working on today that you think are advancing that progress and where you sort of stand at that broader initiatives?

Yes. Look, I think when I think about CC&T, one of the things that we want to make sure of, and it was mentioned earlier in one of the questions with Boom & Bucket, as we think about the auction channel, we feel really good about where we are and what we provide to our partners. But we also realize they're trying to get a better blended net recovery right? So they know we provide great recovery in auction channel, but there's a wholesale channel, there's a retail channel. And our ability to get upstream is one of the areas where we're really focused on with our partners and we're piloting stuff on Boom & Bucket. We have MPE that you heard us talk about before. That channel is doing really well for us this year. So it's really that blended net recovery for our partners and being the only person with a buyer base that's able to do that. That really creates and makes us different than anyone else and really builds a moat around our relationships at that level. So that's what we're focused on.

Our next question today will come from Maxim Sytchev at NBF.

I just had a quick question around the attach rates in CC&T. Is it possible to provide a bit of an update on how RBFS is doing, et cetera, and how, I guess, there's a more recurring type of revenue is being driven right now in that bucket?

I think we're not talking specifically to each one of these, Max. But what I would say is we feel good about RBFS. Now it's a different interest rate environment and the attach rate may not be as high as it was in the past, but we feel good about that business. We've talked in the past also about VeriTread. Look, every transaction needs transportation, and we offer that service, and that is a place where we believe there is growth for us, and it's a helpful part of the transaction for our partners where we think we can add additional value. So we continue to focus there as well. So those are just a couple of examples between RBFS and Verite of areas we look to attach to the transaction.

And would it be fair to say that transportation capacity will be benefiting both the IAA side as well? Can you provide a bit of an update as well?

Yes, Max, it's Jim. So IAA does have a transport business, but it's very small in infancy. So I would kind of think about the CC&T side and think about the sell side and buy side where transportation, both sides need that service if it's coming to our yard. So that's what makes us really excited about it that you can get both tied to the transaction.

Yes, makes sense. And then, Eric, just a quick question for you. In terms of -- I know that you don't like to specifically guide on sort of the take rate, but anything that we should keep in mind for the remainder of the year in terms of potential trends there?

Yes. Mac, you said it. I don't guide specifically to the take rate. But I would say we feel good about the take rate, as I said in my prepared comments, we did see some expansion in the take rate. And again, the way I look at the take rate is our earn rate, right? What do we -- additional value-added activities can we provide to the transaction for our partners to make it more frictionless and we'll continue to focus there. So I don't see anything in the back half of the year that I would note that would be different than where we are today that would move us significantly in either direction.

And ladies and gentlemen, at this time, I am pleased to turn the floor back to our CEO, Mr. Jim Kessler for any additional or closing remarks.

Thank you so much. And like always, I want to thank all the RB global teammates for all your hard work. Hopefully, you can hear from Sameer or Eric and myself, our excitement about our future. And really that excitement comes from the strong foundation that our team has built, we're really excited about what we can bring to our partners the future, but I just really wanted to thank our teammates for all their hard work because without them, we would not be at point. And just for everyone from an external standpoint, all of our investors and everyone who keeps an eye on the stock. Thank you for your interest. And again, reiterating our excitement for the future. Thank you for your time, and we look forward to talking to everyone over the next couple of weeks. So thank you so much.