Jamie Kokoska - Ritchie Bros. Auctioneers, Inc. Ravi Saligram - Ritchie Bros. Auctioneers, Inc. Sharon Ruth Driscoll - Ritchie Bros. Auctioneers, Inc. Randall J. Wall - Ritchie Bros. Auctioneers, Inc. Rob Whitsit - Ritchie Bros. Auctioneers, Inc. James Barr - Ritchie Bros. Auctioneers, Inc..

Sara O'Brien - RBC Dominion Securities, Inc. Joe G. Box - KeyBanc Capital Markets, Inc. Ben Cherniavsky - Raymond James Ltd. Scott Schneeberger - Oppenheimer & Co., Inc..

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers Fourth Quarter and 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Ms.

Jamie Kokoska, Director of Investor Relations, you may begin your conference..

Thank you, Melissa. Good morning, everyone, and thanks for joining us on our fiscal fourth quarter and 2016 full year results conference call. We are hosting our call today from Orlando, so we do apologize in advance if there is any background noise. Discussing Ritchie Bros.

performance today are Ravi Saligram, Chief Executive Officer; and Sharon Driscoll, Chief Financial Officer.

Joining them for the Q&A session following the formal remarks will be Jim Barr, Group President; Randy Wall, President, Canada; Rob Whitsit Senior Advisor to the CEO and Acting Chief Sales Officer in the U.S.; as well as Doug Olive, SVP of Valuations and Appraisals.

The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not a statement of fact, including projections of future earnings, revenue, gross auction proceeds, and other items are considered forward-looking and involve risks and uncertainties.

The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our SEC and Canadian securities filings, available on the SEC and SEDAR websites, as well as our Investor Relations website at investor.ritchiebros.com.

Our definition of gross auction proceeds may differ from those used by other participants in our industry. It is not a measure of financial performance, liquidity or revenue, and is not presented in our statement of operations. Our fourth quarter and 2016 full year results were made available earlier this morning before market open.

We encourage you to review our earnings release and Form 10-K annual report, which includes our MD&A and financial statements which are available on our website as well as EDGAR and SEDAR. On this call, we will discuss certain non-GAAP financial measures.

For the identification of non-GAAP financial measures to the most directly comparable GAAP financial measures and a reconciliation between the two, please see our earnings release and Form 10-K. Presentation slides accompany our commentary today. These slides can be viewed through the live or recorded webcast or downloaded from our website.

All figures discussed on today's call are in U.S. dollars unless otherwise indicated. And while we may use million or billion dollar figures for brevity in today's discussion, all percent changes have been calculated using full and rounded figures. And now I'll turn the call over to Ravi Saligram, Chief Executive Officer..

adjusted results which remove non-recurring items, and comparable results which remove both non-recurring and acquisition-related items. We believe and strongly believe that comparable results better demonstrate the true operational health of our business, absent the noise from corporate development and non-operating activities.

Revenue grew 10% to a record $566 million. SG&A expenses rose 11% during the year, driven largely by increased compensation costs related to an 8% increase in staffing levels, new executive hires, and mark-to-market adjustments related to stock-based compensation.

$11.8 million of acquisition-related costs were booked during the year, mostly related to our announced acquisition of IronPlanet, but also related to the acquisitions of Mascus, Petrowsky Auctioneers, and Kramer Auctions.

Adjusted operating income in non-GAAP measure, inclusive of acquisition-related expenses, decreased 1% or $164 million, reducing an adjusted operating income margin of 28.9% for the year. Operating free cash flow decreased 19% relative to last year to $148 million, due mostly to lower reported net income.

Return on invested capital, excluding the bonds which are inaccessible until the close of the IronPlanet transaction, increased 40 basis points to 15.5% in 2016. Turning to our comparable results now, which we believe are a better demonstration of the health of our underlying business.

As a reminder, comparable results remove the impact of non-recurring items, acquisition-related costs, debt extinguishment costs, and interest paid on the bonds currently held in escrow, a reconciliation which can be found on slide 8. All comparable figures are considered non-GAAP measures.

Comparable diluted EPS attributable to shareholders for 2016 was $1.24. Comparable operating income for 2016 was $176 million and our comparable operating income margin was 31%.

This translates to a 10% increase – 10% growth in comparable EPS attributable to shareholders and a 5% increase in comparable operating income, though 140 basis point reduction in operating income margin.

So, as slide 11 demonstrates, on a comparable basis, our 2016 performance was solid though operating expenses, which consists of both SG&A and costs of services, increased at a higher rate than we would've liked.

As mentioned, much of this increase was due to employee compensation-related costs, including a larger employee base, new senior executive roles, and mark-to-market share-based payment adjustment related to the strength of our stock price during 2016.

So, how does our comparable performance compare to our Evergreen Model targets? As you know, our Evergreen Model is our expectation of how we believe our business will grow on an average annual basis over a five-year to seven-year cycle.

On a single year basis, that is 2016, we hit seven out of the 10 targets during 2016, but missed on GAP growth, operating expense growth, and operating income margin improvement.

We exceeded our revenue growth target due to the strength of our revenue rate during the year and the support of new fee-based revenue streams from business lines we acquired throughout the year or launched, such as Private Treaty. Informally, revenue grew 10% and comparable diluted EPS grew 10%, so that's 10% and 10%.

We also continue to be a strong cash generator and delivered adjusted operating free cash flow at 118% of adjusted net income in 2016, again reinforcing that Ritchie Bros. is a strong cash engine. On an average basis, in the two years since we initially introduced our Evergreen Model, we met all our targets but GAP growth.

To be quite frank, as we grow revenue streams, not associated with GAP production and I'm talking gross auction proceeds here, GAP growth itself is becoming less relevant to the performance of our revenue, net income, and EPS. It's an important metric to track for the health of our core auction business.

However, it is no longer representative of the strength of our overall quarterly or annual performance, as evidenced by our fourth quarter and 2016 full year results. As you see, gross auction proceed growth fell short of our growth expectations in 2016 at just 2%, but we delivered 10% growth in both revenue and comparable EPS.

As a reminder, we've provided you with a new Evergreen Model for our expectations of our business performance following our acquisition of IronPlanet and that Evergreen Model has been provided again in the Appendix of today's presentation. During 2016, we accomplished many key milestones.

And I believe our business is in a far stronger position today to cater to a wider range of customer needs and to deliver stronger shareholder returns due to many of the initiatives and activities we undertook during the year. As I just went through, we delivered solid financial performance and met important Evergreen Model targets.

Much of this was driven by an improvement of our underwritten revenue rate and through strong performance in both Canada and Australia. Our performance and strategy throughout the year, alongside our dividend payout, helped us to achieve a whopping 49.4% total shareholder return in 2016.

We spent a great deal of time and energy evaluating and negotiating and announcing our acquisition of IronPlanet.

A business combination we believe will be transformational for our company and we will point at acquisition integration committees that have already built strong integration plans to help us deliver as seamless a business combination as possible.

Related to our acquisition of IronPlanet, we also successfully negotiated and completed an important long-term strategic alliance with Caterpillar for the combined company. This was a significant shift from prior strategies undertaken by Ritchie Bros. And it's an indication we want to work more collaboratively with key OEMs to help meet their needs.

Under Sharon's leadership, we've already completed all financing requirements to finance the acquisition of IronPlanet. This includes the refinancing of our credit facility and successfully completing a $500 million bond offering, the proceeds of which are currently held in escrow until the acquisition closes.

We're also quite busy building out our multichannel platform and sector coverage through acquisitions of Mascus, Petrowsky and Kramer. And we acquired the minority interest of Ritchie Bros. Financial Services, obtaining full ownership of this growth-oriented loan origination business.

As a reminder, we do not leverage our balance sheet for loans provided to customers for RBFS. We act as a broker and intermediary, securing loans for our customers with our buying partners at competitive rates and with great speed.

We also invested in talent at the executive level as well as through our VP and director levels, with many important new hires and promotions. We believe these investments were required to adequately prepare our business and platform for our expanding multichannel offering.

I'm particularly pleased with the meaningful progress and growth we're seeing from our Private Treaty offering. This sales offering provides a broker-based service to privately match sellers of highly-specialized, often high-value assets with qualified buyers.

Not only is this channel proving successful in its own right, it's also driving business to our other channels as we approach RFPs with a true best channel for each asset approach. And on the operational side, we made some important progress in fixing some of the pain points caused by some of the IT systems we use.

Our investments in our systems and more specifically the data transfer and sharing of information between systems has provided for some new operational efficiencies and it's reflected in some increased CapEx spend during 2016. On the auction side, 2016 was a banner year for our business.

We held new all-time record auctions in Denver, Columbus, and Tipton, California in the U.S. and new all-time record auctions in Edmonton, Grande Prairie, Lethbridge and Toronto in Canada. We also held our largest ever on-the-farm agricultural auction in Canada during the year in Bonanza, Alberta.

And the momentum of our Private Treaty channel delivered $46 million of GAP during the year, mostly through contracts with customers in Canada and the Middle East.

Regionally, Canada and Australia provided the most revenue growth of all the regions we operate in, increasing the proportion of revenue generated for our business in each of these countries. Canada generated 33% of our total revenue during 2016, up from 32% last year. Our U.S.

performance was not what we had hoped to achieve, given the significant growth opportunity we believe exists in that country. Territory manager turnover in the first half of the year, a greater mix of transportation lots, and an overall economic uncertainty due to the U.S. election in the second half of the year, contributed to this stunted growth.

However, we have to take ownership that we could have executed our growth strategy better in the U.S. during the year. As a consequent, we've made the appropriate leadership changes. I fervently believe in the opportunity in the U.S. and remain firmly committed to it as our top priority. We've made excellent progress in strategic accounts in the U.S.

and in North Central U.S. in 2016, with revenue growth in the high-teens in both of these divisions. We have a strong ag team now in place in the U.S. Territory manager turnover continues to be an issue, but has significantly moderated in the second half.

I've also brought back a sales veteran leader and visionary, Rob Whitsit, who's providing excellent leadership to the sales teams in the U.S. Our operational metrics demonstrated strong auction growth during the year. The number of industrial auction lots sold, number of consignments and number of auction registrants, all grew roughly 12% during 2016.

And the number of registered bidders increased over 8%. This growth led to all-time annual records for each of these metrics. We're also seeing more of our customers choosing to transact on our simulcast online bidding solutions, with 53% of our equipment buyers choosing to transact online, up from 50% in 2015 and 47% in 2014.

Similarly, in 2016, 47% of our gross auction proceeds were transacted either through online bidding or through EquipmentOne. As we announced early in 2016, we made investments in our IT capabilities and digital offerings to better cater to the shift towards online bidding and mobile technologies. Specifically, we officially launched the Ritchie Bros.

app in July 2016, after months of customer trial and testing. And while still relatively early on, we've seen a lot of momentum and received a lot of positive feedback from this new customer app. In just the first five months of its launch, more than 22,000 people have downloaded and used it, 11,000 of which actively use it monthly.

More than 10,500 bids were made using this app which resulted in 736 winning bids, representing approximately 2% of our total gross auction proceeds during the period the app was live. Until now, the app has only been available in English, but it'll soon be available for our customers to use in Spanish, French, Italian, and German.

We've also recently launched a new way finding app to assist our auction participants in finding specific lots in our rather large auction yards. Much like Google Maps, this new tool allows auction registrants to enter a lot number and the app will guide them to its exact location.

We first tested this app at our Phoenix auction in February, but we are pleased to have it available to everyone at this week's Orlando auction as well. EquipmentOne and Mascus continue to be important growth engines to help drive our multichannel sales approach.

Together, they comprise our other reporting segment, but it's important to know that individually each business line generated positive EBITDA. During 2016, EquipmentOne generated gross transaction value of $148 million and produced $16.5 million of revenue.

As you know, Mascus does not transact any sales, but rather generate advertising and listing revenue from private equipment sellers. And during 2016, Mascus generated $7.5 million of revenue. Ritchie Bros. Financial Services was one of our star business lines during 2016, with 30% revenue growth relative to 2015.

Its operational stats for the years were quite impressive, as credit applications up 44% and funded loans up 30% relative to 2015. We continue to see a lot of opportunity at RBFS and plan on unveiling new products to meet customer needs in the coming quarters and years.

And with that overview of our 2016 performance, I'll now pass the call on to Sharon, to discuss our fourth quarter performance in detail.

Sharon?.

Thank you, Ravi, and good morning, everyone. During the fourth quarter, there were several noteworthy auctions including the CAD 129 million four-day auction that was held in Edmonton at the end of October. But it was several Private Treaty transactions that completed during the quarter that helped to drive this strong revenue rate.

More than $38 million of assets were sold through our Private Treaty offering during the fourth quarter. As we called out on our third quarter earnings call, there were some significant auction timing differences that affected our reported GAP in both the third and fourth quarter of 2016.

We reported just over $1 billion of GAP in the fourth quarter of 2016, down approximately 8% from $1.1 billion in the same quarter last year. Much of the year-over-year decline was due to the shifting of the Montreal and Columbus auctions that took place in the fourth quarter last year, being scheduled in the third quarter of this year.

Together, these two auctions accounted for $53 million of GAP last year. If we were to move this GAP from the fourth quarter 2015 into the third quarter of 2015 to normalize the comp, GAP in the fourth quarter of 2016 would have declined only 3.8%.

Used equipment pricing relative to the year-ago quarter was the other contributing factor for the lower GAP, as lot count did grow relative to the fourth quarter of 2015 even with fewer auctions held inside the quarter. Overall, used equipment pricing was down approximately 5% from the pricing we saw in the year-ago quarter.

However, pricing was relatively stable for the third quarter to the fourth in 2016. Construction sector assets continue to meet or exceed our expectations, with excavators holding about 10% more value compared to what we saw at the dip that occurred in the second quarter.

Transportation assets continued to face some pricing pressure with truck tractors seeing about a 5% decline relative to the pricing in the third quarter. And in what we believe maybe a positive indication of pricing trend reversals, mining assets experienced some stronger demand in pricing in the last several months, better than Ritchie Bros.

has seen for a couple of years now. We have also seen a notable shift in the U.S. to stronger pricing in our U.S.-based auction sales post the U.S. election results, due to renewed optimism in infrastructure spending that Ravi will speak to later in his closing remarks.

Lot count grew 3.5% during the fourth quarter relative to Q4 2015, while there was no real meaningful change in the number of consigners, bidders, and buyers. As I said before, there were too fewer large auctions in the fourth quarter than there was in Q4 2015.

So, flat growth of these figures still indicate underlying growth on a normalized auction calendar.

In terms of where our lot count growth came from, there were meaningful upticks in the number of lots we've received from the equipment sales and leasing sector and rental sector, the finance and insurance sector and from the manufacturing and light construction sectors.

Similar to the trends that we have seen in recent quarters, lower-value lots comprised a larger portion of lots sold compared to prior fourth quarters. 56.5% of lots sold in the fourth quarter of 2016 were less than $2,500 in local currency, up from 53.2% in the same period a year ago.

Moving to our financial results for the quarter, revenue for the fourth quarter was $147 million, representing 8% growth relative to the same quarter in 2015. This was driven by a new all-time record quarterly revenue rate of 14.11%. SG&A expenses were $74 million, a 10% increase from the same period a year ago.

$4.6 million of pre-tax acquisition-related costs were also booked in the quarter, primarily related to ongoing legal and integration planning activities for the pending acquisition of IronPlanet.

As we communicated on our last earnings call, there was a one-time charge related to the early extinguishment of debt in the fourth quarter, totaling $6.8 million. Reported fourth quarter diluted EPS attributable to shareholders was $0.26.

Removing the impact of debt extinguishment costs, diluted adjusted EPS was $0.30; and also removing the impact of acquisition-related costs and interest paid on bonds held in escrow, comparable diluted EPS was $0.34 for the fourth quarter. A complete reconciliation of these figures is available on slide 28 of today's presentation.

On a comparable basis, operating net income was $45 million, a 6% increase from Q4 2015 and represents a 30.8% operating income margin. Comparable EBITDA for the quarter was $58 million, an 8% increase from the same quarter of 2015. And comparable diluted EPS of $0.34 was 13% higher than comparable EPS in the fourth quarter of 2015.

Even though GAP volume declined 8%, an exceptionally strong revenue rate in contributions from fee-based revenue streams helped to drive meaningful revenue growth during the quarter.

As this quarter proved, GAP growth is becoming less correlated to our true revenue and earnings performance, given the spectrum of revenue inputs now driving our results. In fact, our revenue rate was 218 basis points higher in the fourth quarter than it was in the same quarter of 2015.

The performance of our Private Treaty channel contributed 97 basis points of rate; fee revenue from Ritchie Bros. Financial Services contributed 37 basis points of rate; while revenues from new fee-based revenue streams contributed 31 basis points.

But just as important, our core auction business drove great rate improvement as well with auction commissions improving by 41 basis points compared to Q4 of 2015 and auction fees driving 46 basis points of rate improvement.

The proportion of underwritten business during the fourth quarter declined to 25.6% relative to 29.3% in the same quarter of 2015 and 34.6% in the fourth quarter of 2014. The underwritten business we did pursue performed exceptionally well during the quarter across many packages and many auctions.

So, while we're being disciplined, in which underwritten contracts we're entering into, our approach is generating better results. That said, we're still very open to doing higher volumes of underwritten business if the right economics and opportunities present themselves.

As well, we are cycling over 2015's poor Q4 at-risk performance, especially in Mexico, which resulted in us discontinuing underwritten contracts in that country. On the expense side, SG&A grew 10% during the quarter with 2% of that 10% growth due to new business lines that were not on our platform in the fourth quarter of 2015.

Removing the impact of these new business lines, expense growth within our pre-existing business lines grew 6.7% during the quarter.

Employee compensation saw the highest year-over-year growth due to an 8% increase in overall head count, several new executive positions that were not on our payroll in the fourth quarter of 2015, and a separation agreement payment for an executive no longer with our company.

A $1.1 million net reduction in bonus and share-based payment expenses during the fourth quarter was offset by a $1.3 million mark-to-market adjustment related to our share based compensation and the increased value of our stock price at quarter-end.

Auction timing, as well as our efforts to contain costs throughout the organization helped to drive expense declines in our travel, advertising, and promotion costs which declined by approximately $250,000.

Our approach and definition of acquisition-related costs changed this quarter to now also include the costs of deferred compensation related to earn-outs for each of our acquisitions. In 2016, the total value of these costs were $2.5 million.

As a result of this change, we have reclassified these expenses that were previously presented in SG&A into acquisition-related costs. For consistent modeling, we recommend analysts and investors to update your models to include this change in classification with the changes outlined on slide 34 of today's presentation.

These changes are also outlined in our Form 10-K. Adjusted net income attributable to stockholders for the fourth quarter was $32.9 million, a 5% increase compared to the same period of 2015.

Adding back the acquisition related and bond interest expense costs, comparable net income attributable to stockholders was $37.1 million, a 16% increase relative to the same comparable results in Q4 2015.

Turning to our balance sheet and cash flow metrics, operating free cash flow at the end of 2016 was $147.8 million or on adjusted basis 118% of net earnings, well-above our evergreen target of greater than 100% of adjusted net income.

The decline to last year's performance is due to the significant improvements in cash flow generated from working capital in 2015 when we first launched our cash is king initiative.

CapEx intensity or CapEx as a percentage of revenue increased to 5.3% in 2016, mostly due to investments we're making to improve our IT infrastructure and proprietary programs.

For comparable year-on-year return and leverage metrics, we have adjusted our ROIC and debt-to-EBITDA metrics to remove the impact of the bond that was issued at the end of 2016, as it is capital that is in escrow and only available to the company upon the completion of the IronPlanet acquisition.

On this basis, ROIC, excluding the escrow debt, is 15.5%, up 40 basis points and adjusted leverage ratio went up slightly to 0.6 times adjusted EBITDA. We successfully completed our bond offering on December 21, 2016, raising $500 million to partially fund the acquisition of IronPlanet.

As mentioned, the proceeds from this offering are currently being held in escrow and can only be accessed when the transaction closes. The bonds were issued at a 5.38% coupon rate and were issued at par.

Interest expense associated with the bonds will be approximately $26.9 million annually and payable on the 15th of January and July each year for the next eight years. Both S&P and Moody's issued ratings on our debt. S&P published a corporate rating of BB for Ritchie Bros. with the bonds rated BB-.

Moody's published a corporate family rating of Ba3 for Ritchie Bros. with a bond rating of B2. Given our new capital structure with the issuance of bonds, our capital allocation priorities will shift slightly.

We understand our dividend payments are sacred to many of our equity holders, so we will continue to place our highest priority on continued dividend payments. But our second priority will become paying down debt in order to get our net debt-to-EBITDA ratio, post-acquisition, down to below 2.5 times as quickly as possible.

Our third priority will be pursuing opportunistic bolt-on acquisitions, if the right opportunities arise. Given recent acquisitions we've done to build out our platform in both the U.S. and Canada, future acquisition activity would likely focus on international markets.

Until we get our debt-to-EBITDA ratio in line with our targets, we do not expect to pursue share repurchases to offset dilution from management options. You'll recall that share repurchases done in the first quarter last year cost approximately $36.7 million, so you should not expect a similar cash outlay to be incurred in the first quarter of 2017.

And with that overview of fourth quarter performance and financial results, I'll now pass the call back over to Ravi..

Thank you, Sharon. We are announcing a few operational updates today, as outlined in our earnings release issued this morning. First, a few management changes will be occurring in the next several months, including the retirement of Randy Wall, our President of Canada Operations. Randy is a long-time executive for Ritchie Bros.

and someone who's become an amazing and good friend. He's one of the few executives who built on his past experience and remained open-minded to new ideas and embraced the vision that I've articulated for the company. For example, Randy has done a tremendous job in growing our Private Treaty channel in Canada.

While I'm sad that he has decided to retire, I'm so grateful that he agreed to come out of his earlier retirement three-and-a-half years ago to help lead our Canadian group. He's been an instrumental member of our executive team and someone that has shared great insight and experiences with many of us who are new to Ritchie Bros.

Randy intends to retire during the second quarter, following a smooth transition of his leadership role to a successor. We're currently considering internal candidates for Randy's succession and we'll provide an update on future leadership appointments for the Canadian business once a decision has been made.

Of course, I'll continue to try to persuade Randy to continue to extend, though I did promise him that I would officially announce this on the call today. And so if investors feel like calling Randy directly, you're welcome. He's an amazing executive.

I'm also very pleased to announce that we have promoted Karl Werner to President, International, beginning on April 1, 2017. Karl's done an amazing job in the Middle East and so I'm really confident that in his new role, Karl will oversee all regions outside of North America and Latin America, including having P&L responsibility.

Karl is a longstanding executive at Ritchie Bros. and has spent more than 20 years with Ritchie Bros. in a variety of leadership, operational and sales roles. Most recently, Karl was Chief Operational Support and Development Officer and Managing Director of the Middle East. I think his experience will really add value to our International businesses.

I'm also very pleased to announce that Kieran Holm has been promoted to Senior Vice President of Operational Excellence & Efficiencies, beginning April 1, 2017.

In this role, Kieran will be responsible for driving cost reductions through implementing global procurement and sourcing strategies, delivering site efficiencies through best in class benchmarking and transferring best practices, while proactively optimizing the site network, focusing initially on North America.

Kieran has spent nearly 13 years with Ritchie Bros. in a variety of sales and marketing and leadership roles and, most recently, as VP and Managing Director of Asia Pacific. Kieran has done a terrific job in Australia, articulating a strategy and his leadership has helped the growth of Australia and making it a high-priority country.

We're also expanding Sharon Driscoll's role to have more oversight on our Financial Services businesses and real estate assets. In addition to her current role as CFO, she'll now Chair the board of Ritchie Bros. Financial Services and also oversee our properties team and real estate assets.

Related to real estate and auction sites, we have been busy evaluating the returns and future strategy of several of our auction sites. As a result of that analysis – or our preliminary analysis, we have decided to close our Beijing, China and Panama auction sites.

Our Beijing lease was an early termination in December (sic) [November] of 2016 and we are currently in negotiations to exit our lease in Panama. We will maintain a strong sales presence in China and intend to continue serving customers in that country through both offsite auctions and sourcing equipment for auctions held at sites in other countries.

We see opportunity in China in the long-term but not through a permanent auction site. In Panama, we'll consider holding offsite auctions if and when opportunities arise.

After months of evaluating go-to-market strategies, building strong relationships with domestic customers and OEMs, and testing different business models, we have come to the conclusion that our biggest opportunity in Japan is to position it as a source market for high-quality used equipment that can be exported throughout the Asia Pacific region and the Middle East.

We also believe the most efficient way to serve the Japanese market is primarily through digital channels, while leveraging our OEM relationships. As a result of this decision, we have made the decision to exit our Narita, Japan auction site and will begin marketing this site for sale at the appropriate time to maximize value.

As you're all aware, we're awaiting the Department of Justice to complete their review of our acquisition of IronPlanet. We're still working closely with the DoJ to ensure they have the information materials they need in order to complete their evaluation. Our best estimate for this process to complete is during the second quarter of 2017.

So we believe the IronPlanet transaction is likely to close by the end of the second quarter. We continue to be very confident about the merits of the transaction and the benefits it'll bring customers, in particular, both sellers and buyers in all the countries we serve. This is a very pro-customer acquisition.

While the review process has been underway, we've been very busy planning for the eventual integration of our businesses. We've established an integration management office with members from both companies which meet frequently to ensure integration plans are progressing appropriately.

Some key highlights for our planning include the decision to have one integrated sales force that can offer an integrated sales solution offering to customers as soon after close as possible.

We're also aggressively looking at cost synergies and ways to improve the overall efficiency of our combined operation – or of our combined organization; as we have already defined clear IT plans for day 1, day 30, day 60 and day 90 following the close of the acquisition to ensure our IT priorities are clearly set.

We have already confirmed that we would be fully ready to extract and share the appropriate data with Caterpillar as part of that agreement when it comes into place with the close of the acquisition of IronPlanet.

As we near the completion of our integration planning, the appropriate organizational structure for the combined business is becoming very clear. Plans for reporting structures and future executive roles are now nearly final. We will share future appointments and executive roles for the combined business once the transaction closes.

As many of you have already likely seen, historical financial information about IronPlanet's business was disclosed at the end of November, coinciding with the marketing of our bonds. Information contained in that 8-K filing does provide some increased visibility into the IronPlanet business.

We know there have been some questions about determining what adjusted EBITDA was for IronPlanet in the 12 months trailing September 2016 period. And to assist you with you this reconciliation, we've included a detailed table in the appendix of today's presentation.

As you will see, we would calculate adjusted EBITDA for IronPlanet during this period to be approximately $19.2 million. While we haven't held many auctions so far in 2017, those that we have, have demonstrated very strong results. At our Phoenix, Arizona sale on February 9, pricing ended up being significantly higher than we expected.

We were also encouraged to see that 9% of GAP sold go into Mexico-based buyers. At our February 14 auction at Donington Park in the UK, revenues grew from the comparable sale last year, while we experienced relatively stable pricing relative to Q4.

At our Houston sale on February 15, we've surpassed last year's comparable auction and hit $43 million in GAP and also saw strong pricing. And this week, we are holding a huge five-day auction in Orlando, Florida where – and we're holding the call from Orlando today from a hotel and so you hear some of the disturbance.

Only one day of the auction has currently been completed so far, but based on what we are seeing at this point, I can tell you that pricing so far, based on the first day of this five-day auction, has been very strong and ahead of our expectations.

We have more than 10,000 lots consigned to the auction and the mix of auction lots is trending positively in terms of good quality, low-hour brand name equipment. We have sold $2.88 billion of assets through our Orlando site since it was first opened. And I am confident we will easily surpass $3 billion over the next several days.

I look forward to updating you on the outcome of our Orlando sale when we press release its results once the auction completes. A few other first quarter 2017 considerations to help you with your modeling and expectations.

We have seen some softening of equipment supply so far in 2017 due mostly to stronger confidence in contractor pipelines in North America. However, equipment pricing so far has also been stronger than we anticipated. Let me just amplify.

As I've been meeting and talking to customers, I am impressed that many of them have lot of jobs are in the process of bidding for them. This is not just the Trump effect.

It appears that special taxes such as the gas tax recently done in Georgia or other mechanisms are being used in certain states to finally fund infrastructure projects and we're seeing confidence – some confidence and momentum with contractors beginning in 2017. This is also being aided by public-private partnerships.

Unfortunately, it is also coupled with OEM inventory constraints which is causing both dealers and end users to hold on to their used equipment. The corollary is that demand for used equipment is going up, therefore driving up pricing.

So, we think it's important to highlight to you that we do not have a large one-time auction scheduled in the first quarter of this year as we had in the last two years.

As you'll recall, we added a $62 million Canadian auction in Grande Prairie in the first quarter last year and added a large $54 million offsite sale in Wyoming in the first quarter of 2015. So the auction calendar in the first quarter of 2017 will more closely resemble that of the first quarter of 2014.

I want to reiterate to you again that Ritchie Bros. is a lumpy business given that opportunistic one-time auctions are regularly added to our auction calendar and these sales do cause lumpiness in our results.

We strongly encourage you to review our business on an annual basis rather than monthly or quarterly when making investment decisions to smooth out auction calendar differences.

In terms of revenue rate, we're especially pleased with the rate we achieved in the fourth quarter but fully acknowledge that it is – it was an exceptionally strong quarterly rate that was supported both by the performance of some underwritten packages and large contracts that were executed through our Private Treaty channel.

So we do not believe the rate we generate in the fourth quarter should be used as a benchmark for future quarters. We continue to expect that our core auction business, so excluding new fee based business lines, will generate a revenue rate between 11% and 12%.

And we believe our total business inclusive of the new fee-based businesses will generate a revenue rate in excess of 12%.

It's still a bit early for us to determine a range for the entire company, especially when our Private Treaty channel is gaining momentum as contracts in this model take time to complete and the sales results of it can also be very lumpy. On the macro side, infrastructure promises made by the new U.S.

administration is driving increased confidence and optimism in the U.S. construction sector, which we expect will support equipment pricing but as I said earlier, lead to softer used equipment supply. The approval of the Keystone and other pipelines has also generated some optimism in the oil and gas services sector.

This combined with the receding supply of oil and gas specific equipment hitting the market should bode for improvement in the pricing of used oil and gas equipment. So before we open the line up to questions, I'll provide you with my priorities as CEO for 2017 that have been cascaded down in the organization.

This will hopefully give you a sense of my key focus for 2017. First, I'm committed to driving our performance to hit our stated evergreen targets. So I'm holding my team accountable to their forecasts and I'm laser-focused on executing our business strategies and monitoring our KPIs.

And as I said earlier, on average in the two years, we'll hit all our evergreen targets expect for GAP.

Second, I intend on improving the overall customer experience offered through both our new multi-channel offerings, but also at our live auction sites where I believe innovation can help to expand our customer base, especially amongst younger demographics. Third, I'm focused on driving our U.S.

growth, specifically and working personally alongside our U.S. sales leaders with Rob Whitsit to galvanize our U.S. team on hitting their growth targets.

Fourth, I'm reinforcing our commitment to operating as efficiently as possible and today's announced promotion of Kieran Holm as SVP, Operational Excellence and Efficiencies, demonstrates how committed I am to keep OpEx low – growth lower than revenue growth.

We believe there're also significant cost savings we can capture by further integrating businesses we've recently acquired with our existing platform. Finally, on international growth, we see meaningful growth opportunities in many regions with Australia and Germany being key countries that have strong future growth potential.

And with that, we'd like to welcome questions from analysts and institutional investors. Given the level of participation on today's call, we would ask that you limit yourself to one question before re-queuing to provide time for others on today's call.

Operator?.

Thank you. Your first question comes from the line of Sara O'Brien from RBC. Your line is open..

Hi. Good morning. Ravi, can you comment on the changes in management recently in the U.S.

and now in Canada and maybe what the impact is going forward on – or what you've seen so far in terms of employee response to this and response to the IronPlanet deal?.

So, morning, Sara. Look, on the Canada thing, I wish Randy would stay forever, but he had retired once before and I've been sort of persuading, he wanted to only stay for six months, I've got him so far for three and a half years. So, I respect what he wants to do. He's been amazing.

But one great legacy of a great leader is that he prepares successors and we have some incredible talent in Canada.

So I think Randy – we've already been in the process of identifying both the structure and the right leader for Canada and I'm very confident that Randy's legacy will be preserved and continued, so I have no concerns at all about Canada. In the U.S., look, sometimes we – I think we put the right structure.

You get to some – we have made some terrific hires and sometimes you don't get the right leadership in place and we made the right decision both for the individual and for the company. I think the team in the U.S. is absolutely pumped up. The fact that I've brought back Rob Whitsit out of retirement. Rob's an amazing leader.

He is helping me a lot with the U.S. teams. I think the U.S. is just going to be – the team is very, very excited. They have a direction. They have clarity. I'm very involved with them, but Rob's been a tremendous help. I think the U.S. will be just fine. As far as IronPlanet acquisition, I've got to tell you, the chemistry between our two teams is terrific.

We just have to keep reminding ourselves we are still competitors and we compete in the field. But I think this is – I have done many, many acquisition integrations; this, by far, is one of the very best I've seen in my entire career. We are just united by a passion for the customer. They have terrific talent. We have terrific talent.

I have a very clear idea. All the organizational steps we are making are not sort of reactive, they're very planned, very deliberate. I have had a Phase I or Phase II, so I know exactly how this all going to come out and approved by the board.

So I just think that part of it, I am – I can't tell you how excited I am about our people, our teams, and the acquisition going forward with IronPlanet. We think we have a very strong case with the DoJ and we just need to be patient and wait for the mechanisms to take their place..

Okay. Maybe just the follow-up, is it as enthusiastic in the Canadian operations as the U.S.

in terms of the cross-selling necessity for the sales teams?.

So in Canada, Sara, the IronPlanet is not a significant factor today. And so – but having said that, Randy has been part of the team and in the sales integration and so have Brian Glenn has been part of the sales integration. They're very excited because they see tremendous opportunity.

Look, the whole point about IronPlanet was not about trying to – we didn't – this is all about expanding the market. This market is $300 billion – globally, $360 billion. How do we – our biggest competitor, frankly, is private sales, and how do we start.

We now have tools that will allow us to really – because they're different customers with different needs. So I think it's very exciting. And Randy and his team are very excited about taking IronPlanet into the fold.

Randy, do you want to say anything on that?.

I sure would, Ravi. Thank you. I totally concur with what you just said.

We see the addition of the IronPlanet and the different solutions that we can bring from their channels to our customer base and really expand the entire offering that we have to the customers at large and gaining market share, if you will, from other channels, private dealers and private sale.

And the team is very excited to have the extra tools at their disposal and we see this as a wonderful positive for both organizations and groups..

Okay. Thank you..

Your next question comes from the line of Scott Schneeberger from Oppenheimer. Your line is open..

Scott, are you there? Let's try the next caller..

Your next question comes from the line of Joe Box from KeyBanc Capital Markets. Your line is open..

Hey. Good morning, everybody..

Hi, Joe..

So given the importance of the sales force, can you guys just talk about maybe why you decided to modify your strategy to now have a fully integrated sales force between Ritchie and IronPlanet? And maybe just how you see the consolidated sales department kind of selling the various channels?.

Let me kick it off and then I'll have Rob also comment on it. First, you said modified our sales strategy. It's not a modification. We have just articulated.

Now, this was for me – from the day we did the acquisition, this was very clear because what – the acquisition represents really being having multichannel offerings to provide a full set of solutions to customers based on their usage occasions, based on the type of customer, based on the psyche. So truly, this is about expanding what we can do.

And really, for those customers who want a reserved option, you have both EquipmentOne and IronPlanet Daily Marketplace and those two brands will likely come together. Then you've got – if you don't want to move the equipment but want flow business, which is every week, the weekly unreserved option from IronPlanet, is great.

And then when you want a event-driven live auction, which is unreserved, then we have got the Ritchie Bros.' traditional RBA. So I think you've got three and we want our sales people to really be trusted advisers who provide the optimum solution. So that is the whole intent here and that's why we're doing the integrated sales force.

And, clearly, they'll be trained on each other's models. But we think there was not a single person in my management team who thought we should do it differently.

Rob, do you have anything you want to comment?.

No. I think that's absolutely right, Ravi. And it's exciting to see the enthusiasm from both sides and are anxious to get together and perform as one team. And that's the selling solution we have, is performing as one team. And adding on – it's not an acquisition to get rid of. It's an acquisition to increase our footprint in the marketplace today.

And that's what our intention is and that what's driving the business..

Got it..

And I think from a customer perspective, they don't want multiple sales people calling on them....

No..

Joe, they want one face of Ritchie Bros..

I agree. All right. I'll leave it at that. Thanks, guys..

Thank you..

Your next question comes from the line of Ben Cherniavsky from Raymond James. Your line is open..

Good morning, guys..

Hello, Ben..

Good morning..

Just on the IronPlanet pro formas. In the customer equity incentives, you guys have eliminated those numbers in the pro forma statements.

And I'm just curious if you can speak to – I mean, I understand that you would stop offering those incentives, but weren't those incentives linked to equipment that was coming into the yard and so does it affect your ability to still attract Iron and maybe you can just elaborate a little bit on how those incentives work?.

Sure, Ben. It's Sharon. I think it's important to note that the reason those equity incentives were there, were results of an agreement on the purchase of Cat Auction Services. So, it was seen more as kind of an earn-out program for dealers.

The reason it gets the presentation on the financials that it does is it was a program that was extended to all dealers; not just the dealers that had an ownership position in Cat Auction Services. That agreement also naturally expired at the end of December 2016.

So, certainly, we did look at that particular element when we were in due diligence and we were satisfied that it had more to do with the acquisition of the company as opposed to driving the behavior.

It's certainly – the value that I think the Cat dealers really get is the information in the data from IronPlanet and that's really what was driving the results. And so, that's why it's been eliminated..

So you expect the revenue to continue because of the data you're offering and not the incentives..

Yeah. It was a non-cash. They just were getting more shares in IronPlanet, so..

Yeah. Ben, I think, look, they had made that decision to eliminate that incentive even before we came into the picture.

And we're pretty confident really as I've renegotiated the whole agreement for the combined company with Cat dealers, that we have a very – there are a lot of things in the agreement that make this alliance work and part of it is data sharing, part of it is telematics. We get different things from them.

So I think this is going to be very attractive and so we didn't see any need. And since they'd already made the decision and even if they'd not, I don't know that they'd have continued it anyway. But I think they had made it, and so we don't see that as an issue going forward..

Okay. Thanks very much. That's my question..

Your next question comes from Scott Schneeberger from Oppenheimer. Your line is open..

Thanks very much.

Can you hear me this time?.

Yes, Scott. Hi..

Yeah. Hi, Scott..

Great. Sorry about that last time, technical difficulty. Ravi, question about the – outside of the Americas, the international strategy, obviously some things going on in China, Japan, and then I saw that you're working to bolster Germany and Australia.

So, just how you're thinking about outside the Americas via the international development? Thank you..

So, Scott, just to clarify, you want me to amplify more on the international?.

That's right..

Okay. So yeah, I think, look, I am pretty familiar, as you know, with international markets, having lived in six countries and worked in about 50. So, the big thing for me for international business is not to go on a flags – on maps sort of a thing with a lot of breadth. It's depth that's quite important.

So as we've looked at it, Europe has been sort of in the doldrums for the last several years because it's been very supply-constrained. We've got a terrific team under Jeroen there. And so the key is, how do we crack the code. And when Kieran was in Asia, I think we looked at Japan and I think I've said this before.

I'm not sure – really Japan is not a place where – Japanese are not big on using second-hand cars or used equipment. They're more exporter. So they've got great OEMs. So we came to the conclusion. It's really best served as a source market as well as digital channels were better.

In retrospect, maybe we should never have put the site there, but that's neither here, nor there. So we'll come to a view that, over time, we're going to exit the site once we get the right value for it. So, as we've been going through this process, China again, I think it's a long-term thing.

You really have to say, where are we, where can we really drive revenues and profits. For me, Australia – and Kieran did some great work here, and I have spent a lot of time in Australia in my career, Australia is a lot like Canada, lot of natural resources, the home of mining.

So, we've been doing some private equity deals – sorry, our Private Treaty deals. And so, I think Australia has a lot more potential and we've built the unreserved model, but there are a lot of other models you can build.

So we've actually said, hey, get some of the – we had probably too many resources in China, so we've started diverting some of that to Australia and building depth. So, I am a big believer in drive depth, have a few key drive countries; clearly U.S. and Canada are those.

And then to me, Australia that – down the road, I mean it should stop resembling Canadian performance over the next 10 years or so. There is a lot of potential and we've got the right foundation in Australia to do it. Germany on the other hand is a huge market.

We have just not cracked the code, because our unreserved auction model does not fit with the cultural mores and the temperament of the German customer. And to me, IronPlanet acquisition will be a great fillip for us, as we enter that.

And so, we need to really put some focus on that country, because long term that can be a great because it's big in construction, big in transportation, et cetera. Now clearly, we've got a good foundation in the UK. We'll continue to build that. We've got a good agricultural foundation in France, we'll build that.

We are very strong in Southern Italy, but those economies of Spain and Italy are right now really problematic. So we've got to really say, where is this going to come from. And to me, it's also interesting what Karl's done in the Middle East.

And very interesting, we're just doing a thing called 3-in-1 which is Private Treaty, EquipmentOne, and live auction in the Middle East. And I think that is also beginning to get us more GAP and bringing some business. So, I think international is going to be exciting. My first focus was getting U.S.

and Canada growing, and now I think it's appropriate time, hence the appointment of Karl as President of International..

Great. Sounds good. Thanks. I'll pass it on..

Your next question comes from the line of Sara O'Brien from RBC. Your line is open..

Hi.

Just wanted to ask about the Shell agreement that was signed last week, and how material that can be? Maybe if you can comment on other such types of deals that might be in the pipeline?.

So I will have Randy first comment on the Shell deal and then Jim Barr more about our whole ESS strategy on EquipmentOne because they are linked..

Thank you, Ravi. Thank you, Sara. On the – Shell is a great example of using the multiplatform solutions that we have for larger organizations. And we're developing an enterprise solution that first provides a platform for Shell to redeploy within their own divisions globally and then failing that to go to the external marketplace.

And they want a simple solution that can handle all those things, and our products can do that. So we're already doing business with Shell even before that transaction both on Private Treaty as well as live auction and E1. And that will expand and focus on the enterprise or online solution.

So, it's in the tens of millions a year and could be much larger than that, but it all depends on realization and in many cases, the assets are in challenged locations globally around the world.

So we're being cautious in terms of our expectations, but it could also be a proving ground for us to be able to service the energy sector in a much, much larger way with these super nationals.

And so we believe the upside can be fairly significant, Sara, but we're learning as we go in the beginning and here in building a platform that really works to service their needs. And as I've said, we've already been doing business with them to date, using our other channels without the special solution crafted just for them..

And I'll be just careful about taking any numbers and putting that into the model. This is really more indicative of the strategy and because we talked about asset management and disposition, this covers really as more to asset management side. And again, these things are lumpy. You never know when they'll come.

But these are all the innovative things we're doing as a company and it shows the sea change that has occurred, because we keep bleating about multi-channel, but this is manifestation of what does that really mean.

Jim, you want to add some color?.

Sure. Yeah. I think it's been spoken about correctly so far. I mean, really what we're looking for is to really take another step in being trusted advisors to our customers and give them more alternatives and this one is very much in an asset management model where we get a good look at our customers' overall asset portfolio.

And that puts us in a position to help with being a trusted advisor, helping them determine the best ways to dispose of equipment, the best time to dispose of equipment, the best channels to dispose of equipment and it's part of our overall strategy.

We do it for companies like Shell, but we've also done it for dealers as well and dealer in OEM networks where we're able to get into the asset stream of dealer to dealer transfers which is another part of the $360 billion industry that we're after and a set of really revenue stream and an assistance to customers that we've not been able to do before.

So we're getting deeper into our customers in order to give them more options and help them do more parts of their business and obviously that gives us great visibility into other ways we can help them..

Okay. Maybe just....

And this is really getting to the heart of strategic account customers and some of these maybe big on GAAP, but may actually with the dealer side maybe very small margins. But the important thing is, once you get in, you're really becoming part of their fabric.

And so when the need arises for auctions or EquipmentOne or whatever, then you sort of become preferred in their mindset..

Okay.

So it is sort of a graduated approach to commission versus just a fee-based kind of deal with the customers?.

Well, it varies, right. The Shell thing is on a whole different platform versus what we do with dealers. We don't comment specifically on how we do these.

I think the important thing to look at is, hey, we're – just with the multichannel offering, we're really becoming closer to our customers and offering them a variety of solutions which over time should help us – what I'm trying to do – the vision is how do we create models which are a little bit more predictable and add in addition to our lumpy businesses?.

Okay. Thank you..

There are no further questions at this time. Mr. Saligram, I turn the call back over to you..

Great. Well, I think I'm very proud of what the team accomplished in 2016, and we look forward to 2017, and thank you all investors for your support, onwards and upwards..

This concludes today's conference call. You may now disconnect..