RB (RBA) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the company's unaudited consolidated financial statements, management's financial analysis, market risk, and internal controls ITEM 1: Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes on accounting policies and financial disclosures Condensed Consolidated Income Statements This statement details the company's revenues, operating income, net income, and diluted EPS for specified periods Three months ended September 30, 2021 vs 2020 (in thousands of USD) | Metric | 2021 | 2020 | Change | | :------------------------- | :----- | :----- | :----- | | Total revenue | $329,682 | $331,542 | -1% | | Operating income | $53,619 | $67,384 | -20% | | Net income | $32,357 | $45,490 | -29% | | Diluted EPS | $0.29 | $0.41 | -29% | Nine months ended September 30, 2021 vs 2020 (in thousands of USD) | Metric | 2021 | 2020 | Change | | :------------------------- | :------- | :------- | :----- | | Total revenue | $1,057,598 | $993,847 | +6% | | Operating income | $187,638 | $190,266 | -1% | | Net income | $121,277 | $121,438 | -0.1% | | Diluted EPS | $1.09 | $1.10 | -0.9% | Condensed Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income components, including foreign currency translation adjustments Three months ended September 30, 2021 vs 2020 (in thousands of USD) | Metric | 2021 | 2020 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net income | $32,357 | $45,490 | -29% | | Foreign currency translation adjustment | $(8,859) | $12,549 | -171% | | Total comprehensive income | $23,498 | $58,039 | -60% | Nine months ended September 30, 2021 vs 2020 (in thousands of USD) | Metric | 2021 | 2020 | Change | | :-------------------------------- | :------- | :------- | :----- | | Net income | $121,277 | $121,438 | -0.1% | | Foreign currency translation adjustment | $(17,751) | $7,445 | -338% | | Total comprehensive income | $103,526 | $128,883 | -20% | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific dates As of September 30, 2021 vs December 31, 2020 (in thousands of USD) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------------- | :----------- | :----------- | :----- | | Total assets | $2,576,349 | $2,351,529 | +9.6% | | Total current assets | $825,412 | $556,778 | +48.2% | | Cash and cash equivalents | $362,612 | $278,766 | +30.1% | | Total liabilities | $1,513,992 | $1,339,130 | +13.1% | | Total stockholders' equity | $1,062,357 | $1,012,399 | +4.9% | Condensed Consolidated Statements of Changes in Equity This statement outlines changes in stockholders' equity, including net income, other comprehensive loss, and dividends Nine months ended September 30, 2021 (in thousands of USD) | Item | Amount | | :-------------------------------- | :------- | | Balance, December 31, 2020 | $1,012,399 | | Net income | $121,273 | | Other comprehensive loss | $(17,727) | | Stock option exercises | $13,915 | | Issuance of common stock related to vesting of share units | $(9,325) | | Acquisition of remaining interest in NCI | $(5,216) | | Share-based continuing employment costs | $7,938 | | Stock option compensation expense | $5,903 | | Equity-classified share units expense | $9,465 | | Cash dividends paid | $(76,144) | | Balance, September 30, 2021 | $1,062,357 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities for the reporting periods Nine months ended September 30, 2021 vs 2020 (in thousands of USD) | Cash Flow Activity | 2021 | 2020 | Change | | :------------------------------------------ | :------- | :------- | :----- | | Net cash provided by operating activities | $304,118 | $265,551 | +14.5% | | Net cash used in investing activities | $(32,376) | $(10,192) | +217.7% | | Net cash used in financing activities | $(103,256) | $(91,142) | +13.3% | | Net increase in cash, cash equivalents, and restricted cash | $161,459 | $170,043 | -5.0% | 1. General information This section provides an overview of Ritchie Bros. Auctioneers' business model and service offerings - Ritchie Bros. Auctioneers Incorporated provides a marketplace for insights, services, and transaction solutions for commercial assets through an omnichannel platform including auctions, online marketplaces, listing services, and private brokerage[16] - The company also offers value-added services, asset management software, and data solutions to assist customers in business decisions[16] 2. Significant accounting policies This section outlines the company's significant accounting policies, including revenue recognition and business combinations - Financial statements are prepared in accordance with United States generally accepted accounting principles (US GAAP)[17] - Revenue is recognized when control of promised goods or services is transferred to customers, or upon completion of the performance obligation, and is comprised of service revenue (commissions, fees) and inventory sales revenue[20][21] - Business combinations are accounted for using the acquisition method, with goodwill representing the excess of purchase price over the fair value of acquired assets and assumed liabilities[62] 3. Significant judgments, estimates and assumptions This section discusses management's significant judgments, estimates, and assumptions used in financial statement preparation - The preparation of financial statements requires management to make significant judgments, estimates, and assumptions, which are evaluated on an ongoing basis[66][68] - Significant estimates include recoverable amounts of goodwill and indefinite-lived intangible assets, useful lives of assets, share-based compensation, lease terms, deferred income taxes, and contingencies[68] - A qualitative assessment of the A&M, Rouse, and Mascus reporting units as of September 30, 2021, indicated no impairment[69] 4. Seasonality This section describes the seasonal nature of the company's operations, with higher revenues typically in Q2 and Q4 - The Company's operations are seasonal, with revenues typically highest in the second and fourth calendar quarters due to a higher number of auctions[70] - Volumes tend to be lower in the third quarter as used equipment is actively in use and less available for sale[70] - The COVID-19 pandemic has impacted and may continue to impact these seasonal trends[71] 5. Business combinations This section details recent and planned acquisitions, including Rouse, Euro Auctions, and SmartEquip, and their financial impact - The Rouse acquisition (December 8, 2020) had a total purchase price of $251,724,000, resulting in $163,968,000 of goodwill and $79,300,000 in identifiable intangible assets[73][76][77] - The Company agreed to acquire Euro Auctions for approximately £775,000,000 (approximately $1.04 billion) cash, subject to regulatory clearances and other closing conditions[85] - The SmartEquip acquisition was closed on November 2, 2021, for $175,000,000, paid in cash and common shares, aiming to enhance parts and service sales and digital solutions[90][91][188] 6. Segmented information This section provides revenue breakdowns by business segment and geographic region for the reporting period Segment Revenue (Three months ended September 30, 2021, in thousands of USD) | Segment | Service Revenue | Inventory Sales Revenue | Total Revenue | | :-------------------- | :-------------- | :---------------------- | :------------ | | Auctions & Marketplaces | $178,344 | $115,489 | $293,833 | | Other Services | $35,849 | — | $35,849 | | Consolidated | $214,193 | $115,489 | $329,682 | Geographic Revenue (Three months ended September 30, 2021, in thousands of USD) | Region | Total Revenue | | :------------- | :------------ | | United States | $173,137 | | Canada | $55,925 | | Europe | $40,620 | | Other | $60,000 | | Consolidated | $329,682 | 7. Revenue This section presents a detailed breakdown of total revenue by type, including commissions, fees, and inventory sales Revenue (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Revenue Type | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Commissions | $110,275 | $112,762 | -2.2% | | Fees | $103,918 | $109,917 | -5.5% | | Total Service Revenue | $214,193 | $222,679 | -3.8% | | Inventory sales revenue | $115,489 | $108,863 | +6.1% | | Total Revenue | $329,682 | $331,542 | -0.6% | Revenue (Nine months ended September 30, 2021 vs 2020, in thousands of USD) | Revenue Type | 2021 | 2020 | Change | | :-------------------- | :------- | :------- | :----- | | Commissions | $343,584 | $331,711 | +3.6% | | Fees | $329,387 | $308,230 | +6.8% | | Total Service Revenue | $672,971 | $639,941 | +5.2% | | Inventory sales revenue | $384,627 | $353,906 | +8.7% | | Total Revenue | $1,057,598 | $993,847 | +6.4% | 8. Operating expenses This section details the company's operating expenses, including costs of services, SG&A, and depreciation and amortization Costs of Services (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Expense Type | 2021 | 2020 | Change | | :-------------------------------- | :----- | :----- | :----- | | Ancillary and logistical service expenses | $11,433 | $16,550 | -30.9% | | Employee compensation expenses | $12,182 | $11,442 | +6.5% | | Total Costs of Services | $33,038 | $39,223 | -15.8% | SG&A Expenses (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Expense Type | 2021 | 2020 | Change | | :-------------------------------- | :----- | :----- | :----- | | Wages, salaries and benefits | $66,880 | $69,862 | -4.3% | | Share-based compensation expense | $5,627 | $8,568 | -34.3% | | Total SG&A Expenses | $108,578 | $110,186 | -1.5% | Depreciation and Amortization (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Expense Type | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Depreciation expense | $8,127 | $7,705 | +5.5% | | Amortization expense | $13,780 | $10,731 | +28.4% | | Total D&A | $21,907 | $18,436 | +18.8% | 9. Income taxes This section provides income tax expense and effective tax rates, along with factors influencing rate changes Income Tax Expense and Effective Tax Rate (Three months ended September 30, 2021 vs 2020) | Metric | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Income tax expense | $13,057 | $15,437 | -15.4% | | Effective tax rate | 29% | 25% | +400 bps | Income Tax Expense and Effective Tax Rate (Nine months ended September 30, 2021 vs 2020) | Metric | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Income tax expense | $42,541 | $48,741 | -12.8% | | Effective tax rate | 26% | 29% | -300 bps | - The effective tax rate increased in Q3 2021 primarily due to a decrease in deductible stock options exercised and a greater estimate of non-deductible expenses, partially offset by lower income taxes related to tax uncertainties[101] - The effective tax rate decreased for the nine months ended September 30, 2021, primarily due to a decrease in non-deductible expenses, a higher tax deduction for share unit expenses, and lower income taxes related to tax uncertainties[103] 10. Earnings per share attributable to stockholders This section presents basic and diluted earnings per share attributable to stockholders for the reporting periods Earnings per share attributable to stockholders (Three months ended September 30, 2021 vs 2020) | EPS Type | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Basic EPS | $0.29 | $0.42 | -31.0% | | Diluted EPS | $0.29 | $0.41 | -29.3% | Earnings per share attributable to stockholders (Nine months ended September 30, 2021 vs 2020) | EPS Type | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Basic EPS | $1.10 | $1.11 | -0.9% | | Diluted EPS | $1.09 | $1.10 | -0.9% | - Diluted EPS calculation includes potentially dilutive securities such as unvested Performance Share Units (PSUs), Restricted Share Units (RSUs), and outstanding stock options[107] 11. Supplemental cash flow information This section provides additional details on cash flow activities and non-cash transactions affecting liquidity Nine months ended September 30, 2021 vs 2020 (in thousands of USD) | Item | 2021 | 2020 | Change | | :---------------------------------------------------- | :------- | :------- | :----- | | Net changes in operating assets and liabilities | $79,938 | $53,912 | +48.3% | | Interest paid, net of interest capitalized | $31,054 | $31,173 | -0.4% | | Net income taxes paid | $56,016 | $32,750 | +71.0% | | Non-cash right of use assets obtained (reassessed) in exchange for new lease obligations | $13,545 | $595 | +2176.5% | | Cash, cash equivalents, and restricted cash (end of period) | $468,354 | $306,895 | +52.6% | 12. Fair value measurement This section describes the fair value hierarchy and measurement of financial instruments, including debt - Financial instruments are categorized into a fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[110] - The carrying values of cash, restricted cash, trade and other receivables, and short-term debt approximate their fair values due to short terms to maturity[111] - Senior unsecured notes are valued using Level 1 inputs (quoted market price), while term loans and long-term revolver loans are valued using Level 2 inputs (approximated by carrying value due to short-term interest rates)[111] 13. Trade receivables This section details trade receivables, their security, and the allowance for expected credit losses - Trade receivables are generally secured by the equipment they relate to, as equipment is not released until payment is collected[112] Allowance for expected credit losses (in thousands of USD) | Item | Amount | | :------------------------------ | :------- | | Balance, December 31, 2020 | $(5,467) | | Current period provision | $(392) | | Write-offs charged against the allowance | $1,721 | | Balance, September 30, 2021 | $(4,138) | 14. Other current assets This section itemizes other current assets, including advances, assets held for sale, and prepaid expenses Other Current Assets (in thousands of USD) | Item | Sep 30, 2021 | Dec 31, 2020 | | :------------------------ | :----------- | :----------- | | Advances against auction contracts | $3,107 | $6,487 | | Assets held for sale | $7,067 | — | | Prepaid expenses and deposits | $21,622 | $20,787 | | Total Other Current Assets | $31,796 | $27,274 | - The Company classified its Bolton, Ontario property, with a net book value of $7,067,000, as an asset held for sale, with an anticipated selling price of approximately $170,000,000[113] 15. Other non-current assets This section lists other non-current assets, such as right-of-use assets, tax receivables, and deferred debt costs Other Non-Current Assets (in thousands of USD) | Item | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Right-of-use assets | $118,972 | $116,503 | | Tax receivable | $9,830 | $11,050 | | Loans receivable | $3,907 | $4,870 | | Deferred debt issue costs | $5,516 | $2,263 | | Other | $11,594 | $12,922 | | Total | $149,819 | $147,608 | - As of September 30, 2021, the Company held $7,889,000 in non-recourse financing lending arrangements, fully collateralized by certain equipment[115] 16. Debt This section outlines the company's debt structure, including short-term and long-term obligations and credit facilities Total Debt (in thousands of USD) | Item | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Short-term debt | $18,481 | $29,145 | | Long-term debt | $633,692 | $636,648 | | Total Debt | $652,173 | $665,793 | - The Company amended its Credit Agreement on September 21, 2021, extending the maturity date of facilities to September 21, 2026, and increasing the total size to $1,045,000,000[119] - As of September 30, 2021, the Company had unused committed revolving credit facilities aggregating $686,313,000 and was in compliance with all financial covenants[117] 17. Other non-current liabilities This section details other non-current liabilities, including operating lease liabilities and tax payables Other Non-Current Liabilities (in thousands of USD) | Item | Sep 30, 2021 | Dec 31, 2020 | | :------------------------ | :----------- | :----------- | | Operating lease liability | $114,068 | $112,818 | | Tax payable | $18,253 | $19,706 | | Finance lease liability | $14,809 | $17,109 | | Other | $6,430 | $3,367 | | Total | $153,560 | $153,000 | 18. Equity and dividends This section provides information on common shares outstanding, equity changes, and dividends declared and paid - As of September 30, 2021, 110,467,596 common shares were issued and outstanding[11] - The Company acquired the remaining 25% membership interest in Xcira, LLC for $5,555,555, increasing its ownership to 100%[131] Dividends Declared and Paid (per common share) | Quarter | Declaration Date | Dividend per share | | :---------------- | :--------------- | :------------------- | | Q4 2020 | January 22, 2021 | $0.2200 | | Q1 2021 | May 7, 2021 | $0.2200 | | Q2 2021 | August 4, 2021 | $0.2500 | | Q3 2021 (declared) | Post Sep 30, 2021 | $0.2500 | 19. Share-based payments This section details share-based compensation costs and unrecognized expenses for stock options and share units Share-based Payments Compensation Costs (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Expense Type | 2021 | 2020 | Change | | :-------------------------------- | :----- | :----- | :----- | | SG&A expenses | $5,627 | $8,568 | -34.3% | | Acquisition-related costs | $2,707 | — | +100% | | Total | $8,334 | $8,568 | -2.7% | - Unrecognized stock-based compensation cost for non-vested stock options was $7,052,000, expected to be recognized over a weighted average period of 2.2 years[138] - Premium-priced stock options were granted on August 12, 2021, with exercise prices above fair market value, and an unrecognized cost of $4,988,000[139][142] 20. Leases This section presents total lease costs, operating lease liabilities, and finance lease assets and liabilities Total Lease Cost (Three months ended September 30, 2021 vs 2020, in thousands of USD) | Item | 2021 | 2020 | Change | | :-------------------- | :----- | :----- | :----- | | Operating lease cost | $4,592 | $4,310 | +6.5% | | Finance lease cost | $2,889 | $2,574 | +12.2% | | Short-term lease cost | $2,845 | $2,115 | +34.5% | | Sublease income | $(15) | $(110) | -86.4% | | Total | $10,311 | $8,889 | +16.0% | - As of September 30, 2021, the total operating lease liability was $126,151,000, with a weighted average remaining lease term of 14.1 years[159] - The net carrying amount of computer and yard equipment and other assets under finance leases was $23,531,000, with a total finance lease liability of $23,965,000[162][163] 21. Commitments This section outlines the company's contractual commitments, including new contracts with the Defense Logistics Agency - The Company has new contracts with the DLA (Defense Logistics Agency) to purchase surplus non-rolling and rolling stock in the Eastern and Western United States[164] - Under these contracts, the Company is committed to purchase up to 600,000 assets or assets with an expected minimum value of up to $77,000,000 over a two-year period[164] - As of September 30, 2021, the Company had purchased 94,769 assets with a total value of $16,941,000 under these contracts[164] 22. Contingencies This section addresses legal claims and other contingencies, including assets guaranteed under contract - The Company is subject to legal and other claims in the ordinary course of business, which management does not believe will have a material effect on its financial statements[165] - As of September 30, 2021, there were $63,776,000 of assets guaranteed under contract, with 74% expected to be sold by December 31, 2021[167] ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operational results, acquisitions, and liquidity, including non-GAAP measures Cautionary Note Regarding Forward-Looking Statements This section provides a cautionary note regarding forward-looking statements, highlighting inherent risks and uncertainties - Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations[169] - The Company does not intend to publicly update any forward-looking statements unless required by applicable securities law[170] Overview This section provides a business overview, recent acquisitions, and the ongoing impact of the COVID-19 pandemic - Ritchie Bros. is a global leader in asset management technologies and disposition of commercial assets, operating through unreserved auctions, online marketplaces, and private brokerage services[175][176] - The Company is acquiring Euro Auctions for approximately $1.04 billion cash, aiming to enhance international presence and accelerate growth[179][180][183] - The acquisition of SmartEquip for $175 million (cash and shares) is expected to accelerate parts and service sales and deepen inventory management system connectivity[187][188] - COVID-19 continues to impact operations, with regional variations in equipment movement, increased shipping costs, and disruptions to new equipment supply, though the Company has transitioned to 100% online bidding for live auctions[190][192] Revenue Mix Fluctuations This section explains how changes in the mix of service and inventory sales revenue impact reported growth - Revenue is composed of service revenue (commissions and fees) and inventory sales revenue (from inventory contracts)[203] - Changes in the mix between service revenues and inventory sales revenue can significantly impact reported revenue growth percentages[204] Performance Overview This section highlights key financial performance metrics for the quarter, including net income and total GTV Q3 2021 Performance Highlights (in millions of USD, except EPS) | Metric | Value | Change YoY | | :------------------------------------------ | :---- | :--------- | | Net income attributable to stockholders | $32.3 | -29% | | Diluted EPS attributable to stockholders | $0.29 | -29% | | Total revenue | $329.7 | -1% | | Operating income | $53.6 | -20% | | Total GTV | $1.3B | -4% | | A&M total revenue | $293.8 | -1% | | Other Services total revenue | $35.8 | +6% | | RBFS revenue | $11.3 | +55% | | Rouse revenue | $6.5 | N/A | - The number of organizations activated on the Company's Business Inventory Management System (IMS) increased by 141% compared to Q2 2021[208] Results of Operations This section provides a detailed analysis of the company's financial results, including GTV, revenue, and operating income Key Financial Metrics (Q3 2021 vs 2020, in thousands of USD, except percentages) | Metric | 2021 | 2020 | % Change | | :------------------------------------------ | :------- | :------- | :------- | | Total GTV | $1,270,258 | $1,321,379 | (4)% | | Total revenue | $329,682 | $331,542 | (1)% | | Service revenue | $214,193 | $222,679 | (4)% | | Inventory sales revenue | $115,489 | $108,863 | 6 % | | Operating income | $53,619 | $67,384 | (20)% | | Net income attributable to stockholders | $32,336 | $45,387 | (29)% | | Diluted earnings per share attributable to stockholders | $0.29 | $0.41 | (29)% | - Total GTV decreased 4% in Q3 2021 primarily due to an unfavorable supply environment and auction calendar shifts, partially offset by strong pricing for used equipment[212] - Underwritten contracts (inventory and guarantee) increased to 22.5% of total GTV in Q3 2021, up from 15.4% in Q3 2020[228] US dollar exchange rate comparison This section analyzes the impact of foreign currency exchange rate fluctuations on revenue and expenses Average Exchange Rate (Three months ended September 30, 2021 vs 2020, value of one local currency to USD) | Currency | 2021 | 2020 | % Change | | :--------------- | :----- | :----- | :------- | | Canadian dollar | 0.7942 | 0.7506 | 6 % | | Euro | 1.1793 | 1.1686 | 1 % | | Australian dollar | 0.7351 | 0.7148 | 3 % | - Foreign exchange fluctuations had a favorable impact on total revenue and an unfavorable impact on expenses in Q3 2021, primarily due to the appreciation of the Canadian dollar, Australian dollar, and Euro relative to the US dollar[238] Non-GAAP Measures This section details the company's non-GAAP financial measures, including adjusted net income, EBITDA, and debt ratios - The Company updated its non-GAAP measure calculations in Q3 2021 to add back share-based payments expense, all acquisition-related costs, amortization of acquired intangible assets, and gain or loss on disposition of property, plant and equipment, applied retrospectively[241][324][329][335] Non-GAAP Adjusted Metrics (Q3 2021 vs 2020, in millions of USD, except EPS) | Metric | 2021 | 2020 | % Change | | :------------------------------------------ | :---- | :---- | :------- | | Non-GAAP adjusted net income attributable to stockholders* | $49.3 | $54.6 | (10)% | | Non-GAAP diluted Adjusted EPS attributable to stockholders* | $0.44 | $0.49 | (10)% | | Non-GAAP adjusted EBITDA* | $90.6 | $99.8 | (9)% | Non-GAAP Adjusted Metrics (Nine months ended September 30, 2021 vs 2020, in millions of USD, except EPS) | Metric | 2021 | 2020 | % Change | | :------------------------------------------ | :---- | :---- | :------- | | Non-GAAP adjusted net income attributable to stockholders* | $159.6 | $148.3 | 8 % | | Non-GAAP diluted Adjusted EPS attributable to stockholders* | $1.43 | $1.35 | 6 % | | Non-GAAP adjusted EBITDA* | $286.2 | $270.5 | 6 % | Debt Ratios (As at and for the 12 months ended September 30, 2021 vs 2020) | Metric | 2021 | 2020 | % Change | | :------------------------------------------ | :----- | :----- | :------- | | Debt/net income | 3.8 x | 3.8 x | 0 % | | Non-GAAP adjusted net debt*/Non-GAAP adjusted EBITDA* | 0.7 x | 0.5 x | 40 % | | Operating Free Cash Flow* (OFCF) | $252.5 | $260.4 | (3)% | | ROIC* | 13.4 % | 13.0 % | 40 bps | Segment Performance This section analyzes the financial performance of the Auctions and Marketplaces and Other Services segments Auctions and Marketplaces (A&M) Segment Revenue (Q3 2021 vs 2020, in thousands of USD) | Metric | 2021 | 2020 | % Change | | :-------------------- | :------- | :------- | :------- | | Service revenue | $178,344 | $188,949 | (6)% | | Inventory sales revenue | $115,489 | $108,863 | 6 % | | Total revenue | $293,833 | $297,812 | (1)% | Other Services Segment Revenue (Q3 2021 vs 2020, in thousands of USD) | Metric | 2021 | 2020 | % Change | | :-------------------- | :------- | :------- | :------- | | Service revenue | $35,849 | $33,730 | 6 % | - A&M Total GTV decreased 4% in Q3 2021, with International GTV decreasing 16% and Canada GTV decreasing 5%, while US GTV remained flat[251] - Other Services revenue increased 6% in Q3 2021, driven by the inclusion of Rouse ($6.5 million) and higher RBFS revenues ($4.0 million), partially offset by lower ancillary revenue[287] - RBFS revenue increased 55% in Q3 2021 due to higher funded volume (up 51% to $176.4 million) and improved rates[290] Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flow activities, and compliance with debt covenants - Principal liquidity sources are cash from operating activities and borrowings from revolving credit facilities, which were renewed on September 21, 2021[295] Cash Flow Activities (Nine months ended September 30, 2021 vs 2020, in thousands of USD) | Activity | 2021 | 2020 | % Change | | :-------------------------- | :------- | :------- | :------- | | Operating activities | $304,118 | $265,551 | 15 % | | Investing activities | $(32,376) | $(10,192) | 218 % | | Financing activities | $(103,256) | $(91,142) | 13 % | - The Credit Agreement was amended on September 21, 2021, extending maturity to September 21, 2026, and increasing total facilities to $1.045 billion[308] - The Company was in compliance with all financial and other covenants applicable to its credit facilities as of September 30, 2021[313] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements impacting financial condition - The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition[316] Critical Accounting Policies, Judgments, Estimates and Assumptions This section confirms no material changes to critical accounting policies, judgments, estimates, and assumptions - There were no material changes in critical accounting policies, judgments, estimates, and assumptions from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[317] - The adoption of ASU 2020-04, Reference Rate Reform, is not expected to have a material impact on the consolidated financial statements[318] Adjusting Items Non-GAAP Measures This section details specific adjusting items used in non-GAAP financial measures, such as acquisition costs - Adjusting items for non-GAAP measures include share-based payments expense, amortization of acquired intangible assets, gain or loss on disposition of property, plant and equipment, and acquisition-related costs[355] - In Q3 2021, $10.3 million of acquisition-related costs were recognized related to the acquisitions of Rouse, Euro Auctions, and SmartEquip[352] - In Q3 2020, $4.3 million of severance costs were recognized related to the realignment of leadership[357] ITEM 3: Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to the company's market risk disclosures since the prior annual report - There have been no material changes to the Company's market risk during the nine months ended September 30, 2021, compared to the disclosures in the Annual Report on Form 10-K for 2020[361] ITEM 4: Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures, noting un-remediated material weaknesses and remediation plans Disclosure Controls and Procedures This section concludes that disclosure controls and procedures were not effective due to un-remediated material weaknesses - Management concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2021, due to un-remediated material weaknesses[363] - The recently acquired Rouse was excluded from the scope of the assessment over the effectiveness of internal control over financial reporting[364] Remediation Plan and Status of Material Weaknesses in Internal Control Over Financial Reporting This section outlines the remediation plan and status for identified material weaknesses in internal control over financial reporting - Material weaknesses identified include issues with the review of manual journal entries in one geography and the completeness and accuracy of key reports used for revenue controls[365] - Remediation steps include engaging third-party advisors, providing training, implementing new tools and controls, increasing resources, and performing additional monitoring procedures[367][370] - Material weaknesses will be considered remediated once applicable controls operate for a sufficient period and are tested effectively by management[369] Changes in Internal Control over Financial Reporting This section confirms no material changes in internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[372] - The Company is continuing to take steps to remediate the identified material weaknesses[373] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits ITEM 1: Legal Proceedings This section confirms no material legal proceedings are pending, beyond routine litigation incidental to business - The Company has no material legal proceedings pending, other than ordinary routine litigation incidental to the business[375] ITEM 1A: Risk Factors This section outlines new risk factors, primarily related to acquisition costs, integration challenges, and substantial debt - Significant costs are expected to be incurred for the consummation and integration of acquisition targets, including Euro Auctions, covering legal, accounting, financial advisory, and other integration-related expenses[378] - The Company may not realize the anticipated benefits and synergies from acquisitions, and integration may be difficult, unpredictable, and subject to delay, potentially diverting management's attention from operations[379][381][383] - The substantial debt incurred for the Euro Auctions acquisition could have a material adverse effect on the Company's business and financial condition, limiting its ability to obtain additional financing and requiring a significant portion of cash flow for debt service[386][387] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds This section reports no share repurchases and details common shares issued for the SmartEquip acquisition - No share repurchases were made during the nine months ended September 30, 2021[391] - On November 2, 2021, the Company issued 63,971 common shares to certain former shareholders of SmartEquip as part of the acquisition[392] ITEM 3: Defaults Upon Senior Securities This section confirms no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities[393] ITEM 4: Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[394] ITEM 5: Other Information This section confirms no other information is required to be reported - No other information is reported[394] ITEM 6: Exhibits This section lists the exhibits filed, including acquisition agreements, financing documents, and officer certifications - Exhibits include the Agreement and Plan of Merger for SmartEquip, Share Purchase Agreement for Euro Auctions, and the Fourth Amendment to the Credit Agreement[396] - Certifications from the Chief Executive Officer and Chief Financial Officer are also filed as exhibits[396] SIGNATURES This section contains the official certifications and signatures of the company's executive officers SIGNATURES This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer - The report is duly signed on November 4, 2021, by Ann Fandozzi, Chief Executive Officer, and Sharon R. Driscoll, Chief Financial Officer[400]