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Ritchie Brothers Auctioneers Inc (NYSE:RBA)
Q2 2019 Earnings Call
Aug 9, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Marcella and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ritchie Bros. Auctioneers second quarter conference call. [Operator Instructions].

I will now turn the call over to Mr. Zaheed Mawani of Investor Relations to open the conference call. Mr. Mawani, you may begin your conference.

Zaheed Mawani -- Vice President Investor Relations

Thank you, Marcella, and good morning, everyone. And thank you for joining us on today's call to discuss our second quarter 2019 results. The following discussion will include forward-looking statements as defined by the SEC and Canadian Rules and Regulations. Comments that are not a statement of fact including projections of future earnings, revenue, gross transaction value 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 transaction value may differ from those used by other participants in our industry, not a measure of financial performance liquidity or revenue and is not presented in our statement of operations. Our second quarter results were made available yesterday evening after market close.

We encourage you to review our earnings release and Form 10-Q which are available on our website as well as EDGAR and SEDAR. On this call, we'll discuss certain non-GAAP financial measures. For the identification of non-GAAP financial measures to the most directly comparable GAAP financial measure and a reconciliation between the two, see our earnings release and Form 10-Q. 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.

I'll now turn the call over to Ravi Saligram, our Chief Executive Officer. Ravi?

Ravi Saligram -- Chief Executive Officer and director of the board

Thank you, Zaheed. Good morning, everybody, and thank you for joining our second quarter earnings call. We have a lot to cover this morning. In the first half of the call, Sharon and I will focus on the quarter. In the second half I'll provide perspectives on our strategic planning initiatives, the CEO transition and then invite Sharon and Karl in their upcoming roles of Interim Co-CEOs, to make a few comments. Let's get started. We delivered impressive second quarter results, driven by our highest ever second quarter GTV performance of $1.5 billion and a 7% growth on a constant currency basis.

Furthermore, our strong second quarter performance demonstrates the leverage of our business models with top line growth and expense management. We generated 27% total revenue growth, together with a 4% reduction in SG&A, resulting in greater flow through and 20% operating income growth with record diluted earnings per share of $0.49. Going from strength to strength was the performance of Ritchie Bros. Financial Services, which achieved a 19% revenue growth, the 30th consecutive quarter of double-digit growth. We're also very pleased with our significant improvement in operating free cash flow. As you know Sharon and I are cash flow junkies. In fact OFCF increased 64% to $165 million, the highest in 13 quarters or since 2016.

And we have had excellent ongoing capital discipline. From a channel perspective, our online business grew GTV by 5% led by Marketplace-E delivering at tremendous quarter of growth, up 47% over last year, with strong GovPlanet GTV growth up over 200% from our non-rolling stock program. Our live channel was also up 5% led by the landmark Columbus, Ohio auction. Our live industrial auction also benefited from more selling days and 59 industrial auctions versus 50 last year. Our IronPlanet weekly featured auction was soft this quarter due to channel shifts, especially with U.S. strategic accounts.

Regionally, across all channels, our U.S. business posted 6% total GTV growth, led by 10% growth in the live channel fueled by the Columbus auction, along with strong online performances from GovPlanet and Marketplace-E. Canadian GTV was 3% higher than 2018 despite currency headwinds. On a constant currency basis, Canadian GTV would have increased 7%. Marketplace-E also posted impressive growth in Canada from both the special MPE events held in conjunction with our Edmonton auctions in both May and June, as well as closing a very significant Private Treaty transaction on this channel. Canada also benefited from a number of additional auctions in the quarter compared to 2018, including an additional Grande Prairie auction. GTV in our International Group declined 3% in the quarter as a result of the decline in the euro versus the U.S. dollar.

However, on a constant currency basis, GTV would have grown 3% on the strength of the live auction channel and strong performance at our Moerdijk site and modest growth in Australia. We're also very pleased today to announce an 11% increase to our dividend, raising our quarterly dividend to $0.20, underscoring the Board's and management's confidence in continuing cash flow generation and our commitment to rewarding shareholders through dividends. Turning now to our second quarter highlights. Live auction highlights include our standard Columbus auction, which delivered $94 million in GTV, our largest 2-day auction ever. There are very few companies in the world that could execute such a large auction bring the marketing global demand and buyer base all from the start or end within a 90-day time period and drive outstanding price realization.

Our U.S. strategic accounts teams and regional teams both executed exceptionally well. Other live auction highlights during the quarter include successes in Houston and Fort Worth, Los Angeles and Moerdijk. We continue to build strength online across all channels, including the simulcast live auction. We saw 63% of our total GTV was purchased by online buyers versus 57% last year. Turning specifically to our online marketplaces, our Marketplace-E GTV growth was underpinned by a 27% increase in buyers and a significant growth in bidders and buyers with overall lots modestly down. Our government business showed good growth aided by our non-rolling stock program as well as growth in rolling stock GTV with bids listed items and buyers growing significantly over the second quarter last year.

With that, let me turn the call over to my partner, Sharon.

Sharon Driscoll -- Chief Financial Officer

Thanks, Ravi, and good morning everyone. Total revenue for the quarter was up 27%, driven by 68% growth in inventory sales revenue and a 9% increase in total services revenue, which is comprised of straight and guarantee commissions revenue as well as all fee revenues earned on both inventory and commission contracts. Commission revenues increased 8%, exceeding GTV volume growth of 5%, resulting from strong guaranteed contract revenue performance from our U.S. region, led by our Columbus auction, as well as positive performance within our GovPlanet business unit and higher at risk return rates earned in the U.S. West region.

Our Canadian region also had strong guaranteed contract revenue performance with our international region contributing to growth through stronger straight commission rates. Fee revenues were up 12% in the quarter as a result of higher GTV volume, a higher mix of lower value lots, as well as the impact of our full buyer fee harmonization, which was implemented in June of this year. RBFS also contributed to revenue growth in the quarter with their strong performance. These improvements in fee revenues were partially offset by declines in logistics and ancillary revenue, driven by a reduction in the number and size of service contracts for logistics, paints, refurb, and repair services completed during the quarter.

This reduction in service contracts revenue are also accompanied by an offsetting reduction in cost of those services. The 68% growth in revenue from inventory sales was primarily due to a higher level of inventory deals transacted in the U.S., particularly from our Columbus auction. GovPlanet also posted a significant increase in inventory sales revenue, lifted by our government surplus contract. Inventory revenue was also up in our international region, primarily in Australia. Our operating income in the quarter was up 20%, driven by operating leverage on higher total revenue, partially offset by a 17% increase in cost of services, due primarily to a one-time fee paid to a third-party in the quarter related to the pipeline disbursal at our Columbus auction event, as well as higher warehouse and delivery cost in GovPlanet versus prior year.

Normalizing for the one-time payments relating to the large pipeline disbursal, cost of services for the quarter were in line with historic trends and expectations. SG&A costs declined 4% as a result of synergy actions taken in the latter part of 2018 and through disciplined cost management in the quarter. The operating profit growth led to an 18% increase in net income, which was partially impacted by a higher effective income tax rate over the second quarter of 2018. Turning to our Auctions & Marketplaces segment, service revenue was up 12% in the quarter. Regionally, the U.S. posted 13% growth, led by the strength of the Columbus auction, higher guarantee performance in the U.S. West region, and strong growth from Government Planet as well as some lifts from the recent buyer fee increase.

Canada was up 8% due to the addition of the Grande Prairie auction events in the quarter as well as a strong guarantee rates, including strong results from on-the-farm guarantee deals from our Ag division and an increase in smaller value lots in the period, resulting in higher per lot fee rates. Our international service revenue increased 18% as a result of higher straight commission rates as well as higher fee revenue. On a rate basis, we were pleased with our A&M service revenue rate performance in the second quarter, coming in at 13.4%, roughly 80 basis points higher than last year and the strongest rate performance over the last 8 quarters. The rate improvement was due to strong straight and guarantee commission rate performance across the board in conjunction with the fee revenue growth.

Moving onto our Auctions & Marketplaces segment inventory sales revenue. Overall, the 68% growth in our inventory sales revenue was largely attributable to the U.S., which was up 174% over last year, primarily driven by the pipeline inventory sold at the Columbus auction, as well as strong growth of inventory contracts through GovPlanet. Our Canadian inventory sales revenue increased 20%, primarily due to a large oil services equipment disbursal in the West during the quarter. Our international region was also up 13% driven by a higher number of inventory contracts in Australia. On a rate basis, our implied rate of return on inventory deals in the quarter was 6%. This is below our normal rate expectations, and while there is nothing structural impacting rates, we had a couple of attributable factors.

First, as we previously mentioned on our Q1 earnings call, we were expecting some continued rate pressure this quarter as we sold through some of the remaining lower rate inventory in both the U.S. and international regions from our Q1 contracts. The majority of that Q1 inventory is now sold through with the remainder expected to be sold in Q3, primarily within our international region. Some new in quarter inventory contracts performed at the lower end of expectations across all regions due to heightened competition, particularly on complete dispersals and liquidation packages as well as some price softening in some categories in the quarter. A single deal in our Canadian business unit, our best group in negotiating and pricing at risk contracts, explains 40% of the drop in inventory profit range from quarter one.

I will also remind investors and analysts that all ancillary service revenues and buy side fees related to the inventory transaction are not included in this measure as they are captured in our services revenues and service revenue rates. Despite our softer inventory rate, our overall at risk rates performed in line with strong historical at risk levels due to the excellent rate performance from our guaranteed contracts as we had previously mentioned. Partially offsetting these rate headwinds in the quarter was the contribution from higher volume and higher average inventory return rates from GovPlanet from the government surplus contracts. Moving on to SG&A expenses, SG&A costs declined 4% or $3.5 million over last year, driven by lower compensation costs and lower professional fees. These decreases were partially offset by continued investment in Ritchie Bros.

Financial Services and GovPlanet to support these growth areas of the business. And although we received an FX tailwind in the quarter on SG&A, as a result of the costs in our international and Canadian operations being translated to the U.S. dollar at lower rates than last year, the negative impact of FX on GTV and revenue was greater, resulting in a slight overall negative impact of FX on operating earnings. Our disciplined cost focus over the past 4 quarters are showing results as we were able to generate improved operating leverage and incremental flow through, leading to higher levels of profitability and revenue growth. When comparing SG&A expenses to service revenue, which we look at as one key measure as of the health of the business, we see the positive trend of cost discipline. This quarter demonstrated the strength of our business model and it's important to note that we are achieving lower cost growth while continuing to invest in the business and top line growth drivers such as RBFS, GovPlanet and other technology initiatives.

This disciplined approach to all cost management drives significant operating leverage and is most pronounced during our largest quarters of Q2 and Q4. Turning to our balance sheet and liquidity metrics. Our operating cash flow of $160 million for the six months ended June 30, improved 49% over last year. The improvement was driven by higher net income and improvements in working capital, primarily resulting from a decrease in inventory balances in the first half of 2019. On a trailing 12-month basis, our operating free cash flow increased 64% to $165 million, which is the highest we've seen in 13 quarters. Our year-to-date capex spend of $17 million is currently tracking under our full-year range for 2019 of $45 million to $55 million.

We continue to focus our capital spend on IT system improvements, including investments in our MARS initiatives. During the first half, we continued to reduce our long-term debt position with repayments of $15 million, with $2.3 million of scheduled repayments made in Q2. Also during the quarter, we executed $42 million of share repurchases to offset current year executive option dilution. Our strong cash position even after these share repurchases, the reduction in debt as well as the 23% increase in adjusted EBITDA on a trailing-12 month basis has resulted in an adjusted net debt-to-adjusted EBITDA ratio of 1.8x on a trailing 12 month basis, which is well within our Evergreen target of below 2.5x.

On a trailing 12-month basis, our return on invested capital increased to 8.3% from 6.6% in the second quarter of 2018, as we continue to make progress toward our Evergreen target level of 15% by 2021. I am very pleased with the overall health of our financial position. Our strong cash flow has enabled us to accelerate our debt repayment, repurchase shares, and support our $0.02 quarterly dividend increase, all while driving improved earnings, operating leverage and maintaining a solid balance sheet. Turning now to our capital allocation priorities for the second half of 2019. Overall, our priorities remain unchanged from what we have communicated in the fourth quarter and continue to reflect our intent to drive shareholder value through returns of capital and strategic investments.

Our Company has a strong cash generation profile and as we grow the business and continue to improve our working capital management, we will free up additional cash. Our first priority in the near term is to fully fund capital expenditures to support growth initiatives and requirements within our base business through ongoing investments in technology and back office efficiency projects, in addition to our normal maintenance capital program for our live sites. We continue to prioritize further debt repayments to reduce the interest burden on the Company and are confident we will deliver a leverage ratio for the full year of under 2x.

We will continue to grow our dividends with our earnings, as evidenced by the $0.02 dividend increase this quarter and will maintain our payout ratio within the Evergreen range of 55% to 60%. We will consider further share repurchases against our open authorization of $58 million before its expiry in the second quarter of 2020. Finally, rounding out our capital priorities, while we are laser focused on our core business and are not considering any major acquisitions at this time, we will remain open to considering small tuck-in acquisitions if accretive to our long-term growth agenda. In summary, we remain highly confident around the sound fundamentals and prospects for our business, while we continue to focus on execution and long-term value creation.

And with that, I'll turn the call back to Ravi.

Ravi Saligram -- Chief Executive Officer and director of the board

Thanks, Sharon. Post the acquisition of IronPlanet, our transformation has led us to a very clear strategy. We aspire to be more than an auction company. We want to penetrate each segment for the $300 billion used-equipment market, including auctions, midstream and upstream. We now have a full suite of multichannel solutions tailored to meet the needs of individual customers in each of these segments as depicted on the slide. In auctions, our objective is to protect and gain share. In midstream, we wish to offer compelling alternates to private sales and brokers, and in upstream we want to develop sticky, embedded partnerships with OEMs, OEM dealers, rental companies, and strategic accounts.

While the dominant share of heavy lifting over the past several years has been on fortifying and diversifying our GTV engine, we have been, in parallel, developing the services engine. We feel the combination of a robust multichannel transactional engine together with a world-class services engine allows us to diversify our sources of revenue and our customer basis. We see the services engine as a significant area of growth, especially because of the recurring fee streams which we believe are far more valuable in the long term and have begun to make investments to fuel this area of our business with the acquisition of Ritchie Bros. Financial Services, the acquisition of Mascus, and the development of Ritchie Bros. Asset Solutions, this past year. We also have other incubators in the work.

Today, the services business drives approximately 10% of our total revenue and we see tremendous runway for future growth, so 2 engines of fantastic core business, driving transactional GTV and a growth business in services. Our transformation has created 5 sources of competitive advantage, including first, being a strong cash engine; second, a platform to drive powerful network effects with a historic deep customer relationships that Ritchie Bros is known for; a full suite of multichannel technology enabled product solutions; rich data which will fuel insights; and a model that drives operating leverage.

As we continue to grow our platform, the network effect from acquiring new customers and driving incremental revenue from existing customers will create a powerful, sustainable, competitive advantage for the Company. Scale and the strength of the network create the pathway for long-term value as our platform creates a virtuous circle of connecting buyers and sellers. In 2018, we had over five million average monthly website visitors and that continues to grow and 580 million page views on our website. We're seeing tangible examples of customers interacting across multiple realms, and when they do, we're seeing significant uptick and a bigger multiple in GTV.

These multi-realm customers are very sticky and we are focused on driving demand to bring people into the ecosystem and we are agnostic on whether they enter through GovPlanet, Marketplace-E and IP Weekly on our live channel. As you know, on June 24, the Company announced that I'll be stepping down from my positions and that the Board has commenced the search for my successor. In our press release last night, we announced Sharon Driscoll, Chief Financial Officer and Karl Werner, President, International will serve as Interim Co-Chief Executive Officers to the Company effective October 1 concurrent with my departure date. I'll work closely with Sharon and Karl over the next 6 weeks to start transferring CEO responsibilities to ensure a smooth and orderly transition. Both Sharon and Karl have played important roles in our Company's success to-date.

Sharon has been an incredible partner with me in the transformation of Ritchie Bros. It's like we're two piece in a pod and she and I complete each other's sentences. Now, she may not be Ritchie Brother, but she certainly leads that Ritchie Sister's movement. Sharon joined Ritchie Bros. Four years ago, bringing with her 17 years of finance experience and a successful track record of driving strong financial performance. She has played a vital role in partnering with the management team to drive strong business results and has created financial rigor and discipline. Sharon did an outstanding job with our first time bond offering. Is highly focused on cash flow and I salute her for reducing our debt levels.

Karl is a 20-year Company veteran who started his career in sales and was Chief of our Global Live Auction operations when I started. Noting Karl's business savvy, I appointed Karl in a General Management role as Head of our Middle East business and subsequently promoted into President, International two years ago. He has given the International business new found energy and momentum and has done a terrific job of creating strong and deep customer relationships and motivating the individual country teams to drive growth, innovate through localization and embrace online. Karl is the man for all seasons and very versatile. I applaud him for rejuvenating our Japan business by leveraging the CAT alliance in Japan. Please join me in congratulating Sharon and Karl.

Let me now invite Sharon and Karl to make a few comments and share their perspective, Sharon?

Sharon Driscoll -- Chief Financial Officer

I would first like to acknowledge Ravi's significant contributions to Ritchie Bros. during his five years as CEO. Ravi, under your leadership, we've strategically position the Company to generate profitable growth and value for our shareholders. On behalf of our entire team, it's been an honor to work with you and be part of bringing your vision for our Company to life.

Together, we have strengthened our capabilities to better serve the evolving needs of our customers through people and technology. We are now the premier multi-channel Asset Management and Disposition platform, positioning Ritchie Bros. to grow, thrive and lead for years to come. Ravi, you have relentlessly focused on keeping our customers at the heart of our business. You have stressed the importance of remaining true to our values, especially teamwork and integrity.

Importantly, you've been a champion of diversity to drive innovation and it is great to see that over 20% of Director levels and above in the Company are now women's compared to 7% when you started in 2014. I look forward to working with Karl and the executive team to build on decision. The strong performance we've shown this quarter underscores our team's rigorous focus on executing on our strategy and our near-term priorities for this business.

I will now turn the call over to Karl.

Karl Werner -- President, International

Thank you, Sharon. I want to thank Ravi for his kind words about us and share a few brief thoughts. Having worked at Ritchie Bros for more than 20 years, I can that under the past five years, under Ravi's leadership, it has been truly transformational and exciting. Sharon and I are looking forward to keeping the progress going during the transition and the Board's succession process and to working with the new CEO selected to realize the tremendous potential of this great Company. We do have all the elements in place to deliver.

The Company is on a solid foundation with a great team. Our executive group is united behind a strategy that we worked hand in hand with Ravi to create and which is fully championed by the Board. We are laser-focused on executing our priorities under that strategy. The continued execution of the multi-channel platforms and the execution of our sales productivity program, SAGE, both will generate superior value and growth for our shareholders and all stakeholders. I can honestly say that we've never been better positioned to leverage global growth opportunities.

On behalf of the entire company, I'd like to thank Ravi for his inspirational leadership. Ravi has united all of us under one culture and never loses sight of the fact that the infrastructure we've built is only as good as our people. We are all committed to continuing the journey to deliver for our customers, our employees, and our shareholders. I look forward to working with Sharon and to make sure we deliver.

And now Ravi, I'll turn the call back over to you.

Ravi Saligram -- Chief Executive Officer and director of the board

Thank you both Karl and Sharon. I am supremely confident that these 2 leaders will provide excellent leadership during the transition and the Company will continue building on its momentum. I'd also like to touch on the management promotions which you've all would have read in the press release yesterday. We expanded Jeff's responsibilities and he'll continue to play an important role in driving our long-term growth initiatives. And we also promoted Kari Taylor and Kieran Holm to be Business Unit Presidents and Matt Ackley, as Chief Marketing Officer. These promotions reflect a move to move to an organization structure of geographic business units where a president has true P&L accountability which in turn will drive a strong executional focus on revenue growth and operating leverage.

We just completed updating our three-year strategic plan and the team is very excited by the growth prospects. We will drive growth through our base business on live auctions on IP Weekly and we have 6 key initiatives including Marketplace-E, SAGE, RB Asset Solutions, RB Financial Services and priority international markets, including markets like Germany and our government business, which will build momentum and add incremental growth not only in the next three years, but over the long-term. We're confident based on the modeling that the base and the initiatives will contribute to achieving our Evergreen Model growth profile for revenues.

And with continued focus on controlling SG&A, we will drive operating leverage and strong EPS. In summary, the management team and I feel confident about the achievement of the Evergreen Model. At some point late next year, once the new CEO settles, I expect that we will have an Investor Day to share the growth prospects by initiative on a more granular basis to help investors with their models. In the interest of time, we'll not go through all the initiatives, but I do want Jeff Jeter on behalf of all the business unit heads to make some observations about one key global initiative, SAGE, since he was part and parcel of the development of this program. Jeff?

Jeff Jeter -- President, Upstream and Emerging Businesses

Thank you, Ravi, and good morning. We are now in full implementation mode for our global SAGE initiative, which stands for Sales Activity Generation Engine. At the heart of it, SAGE is our enterprise productivity initiative to drive growth with a high level of focus on new customer acquisition, which in turn will drive online growth. Our sales teams do an outstanding job with our existing customers driving loyalty business. In fact, in 2018, 70% of GTV came from existing customers.

However, in order to drive incremental GTV, we are providing our territory managers salesforce.com tools, processes, and a more rigorous framework to drive behaviors that increase the number of customer calls, the number of contracts signed and the value of contracts by increasing total selling time for our territory managers. We kicked off the implementation of SAGE in Q2 and we're off to a very, very good start.Based on preliminary SAGE metrics, we are encouraged to see nearly 100% of our territory managers in U.S. now using Salesforce and we are already seeing some very positive shifts in behavior.

With that, I'll turn it back over to you, Ravi.

Ravi Saligram -- Chief Executive Officer and director of the board

Thank you, Jeff. Overall, we delivered very solid second quarter performance. We had strong performance across all our major financial metrics of GTV; revenue, operating income, and earnings per share. The improvement in operating leverage this quarter was very strong and we would expect as supply conditions improve, coupled with a strong ongoing expense management, to see the result in incremental cash flow -- incremental flow through to earnings. We are also pleased to see continued improvement in EBITDA margins in the quarter, based on previously reported methodology and our result reinforces that we are on track to achieve this Evergreen Model metrics. We continue to focus on the strength of our balance sheet and are seeing the strong cash flow generation characteristics of our Company.

Lastly, the performance of Marketplace-E and GovPlanet delivered solid growth and profit contribution in the quarter and at-risk is beginning to get back on track. Before we close out the prepared remarks portion of the call and move to questions, I'd like to take a moment to share some parting comments given this would be my final earnings call with this Company. The past five years have been challenging, yet the most fulfilling experience of my career. Together with the management team, we've transformed and pivoted the Company to a multi-channel disposition platform, a growing services business, and positioned the Company for long-term sustainable growth.

We're an amazing Company with a great management team, incredible talent and superior products and solutions. We value our people and we value our customer. They are what makes this Company tick. I've had, for the last five years, a true love affair with this Company and it is truly with mixed feelings that I leave. I want to thank our investors and analysts for their confidence in me and belief and in -- belief in my team. I know they'll move this forward. And I am supremely confident that the best days of Ritchie Bros are ahead of us onwards and upwards.

And with that, we're ready to take questions. Operator, please open the line to questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Derek Spronck from RBC Capital Markets. Your line is open

Derek Spronck -- RBC Capital Markets -- Analyst

Okay, thank you for taking my questions. And Ravi, just in case I get cut off here, it's been a real pleasure and best of luck in the future. My first question on the inventory sales, we've seen 2 pretty big quarters of inventory sales here. What's been the catalyst? Has there just been more opportunities that you're seeing or have you been more aggressive in pursuing those opportunities or some combination of both? And then, how should we think about it in the back half of the year?

Ravi Saligram -- Chief Executive Officer

Thank you, first, for your best wishes, Derek. I really appreciate it. Sharon, why don't you kick it off and then maybe Jeff and Karl, where there has been a lot of inventory deals can comment on it.

Sharon Driscoll -- Chief Financial Officer

Yes. So first, we are seeing some slight uptick in some liquidation and full dispersal activity. Those packages generally take the form of inventory deals. So that's partially driving what we're seeing. Also in key international markets, we do have to take title of assets to enable the flow of those goods into the final destination where they're going to sell. So that's really the kind of reason for the uptick. I will point out that we are still at a very low level of inventory performance compared to our historical levels and we know that that with the new accounting standard will add significant volatility to the revenue line. So we do kind of look at services revenue more as the gauge of overall health of our ongoing business.

Ravi Saligram -- Chief Executive Officer and director of the board

Thank you. Jeff, if you want to...?

Jeff Jeter -- President, Upstream and Emerging Businesses

Yes, I think -- yes, thank you, thank you Ravi and Sharon. I think one of the things, the way that I think about this is, as the market starts to shift slightly and supply starts to loosen up, I think you typically see and we will see an opportunity for increasing types of inventory type of deals. Over the last couple of years where we've been in a very tight supply high demand market, those sellers don't look to shift risk as much as they do when things start to turn. So I think we will start seeing some of that movement. We are starting to see a little bit of it, and I think that's the way I think about what's going on right now.

Derek Spronck -- RBC Capital Markets -- Analyst

And how much...

Ravi Saligram -- Chief Executive Officer

Sorry, go ahead.

Derek Spronck -- RBC Capital Markets -- Analyst

How much service revenue is generated on the inventory sales?

Sharon Driscoll -- Chief Financial Officer

We don't break that out, but it would be -- a lot of those inventory packages would have shipping type services repair maintenance. Those are the types of ancillary services that would also attract plus also all of the fees on the buyer side would all be included in the service revenue.

Ravi Saligram -- Chief Executive Officer

Okay, Karl do you have anything to add?

Karl Werner -- President, International

No, just on the international side, it is truly opportunistic right now. I mean as Sharon mentioned, the inter-country transactions do require us to take title ownership to it.

Ravi Saligram -- Chief Executive Officer

Great, thanks. I'll just add on a few things, Derek; #1, our preference is always for guaranteed deals, if we can do it. And in fact in Canada, I think -- recall that 98% of the deals was still, I think, guarantee deals. It was just 1 deal that didn't do well. But look, guarantees is what we really strive for. Second, I think there was some confusion about the GTV being influenced that our GTV was higher this quarter because of the inventory being up 64% or so.

Actually that is incorrect analyst, because inventory deals, at the end of the day, overall, are only 10% of our GTV. So they did not affect the GTV, the 7% constant currency growth, we got was very real and the 5% was very real, it's just the translation. So there should be no confusion that inventory deals are what made our GTV go up. The team worked very hard to drive that 7% across the globe. So with that, next question?

Operator

Your next question comes from the line of John Healy from Northcoast Research. Your line is open.

John Healy -- Northcoast Research -- Analyst

Thank you, and congrats on a great quarter, and Ravi, it has been pleasure getting to know you over the last five years. Wanted to just start on slide 14, I think it's a powerful slide of where you want to go. I was hoping you could talk to the upstream, midstream and the auction piece of the business, maybe how much of each piece of the business is segmented that way today? And potentially maybe five years from now, where could it be? And if you are successful in this kind of pivot, what do you think it does to the margins and revenues predictability of the business longer term?

Ravi Saligram -- Chief Executive Officer

Right. John, first, thanks for your best wishes. It's been a great pleasure knowing you as well, and keep those reports on GTV since we don't publish it, at least you keep the market, knowing what's happening. So, I think to meet the great pivot, the first three years of the strategy of the Company were really about efficiency, getting a lot of blocking and tackling. Once we bought IronPlanet, really the strategy shifted to becoming more than an auctions company. And the reason is, hey, we've quoted 2 numbers $300 billion or $360 billion, what's truly addressable, it's very tough to find. But what is very clear, the auction business is $25 billion and we have 20% share there.

And so -- and we are the leaders, I think we're still equal to the overall volume of maybe 40 plus competitors. But just in the U.S. alone, that's 200 competitors. So I think the way we look at it is the auction business is still a fantastic business, a real driver of cash flow for us. We are the best at it. And I'm very proud of that Ritchie, Dave Ritchie's legacy and we love it. And we've got 2 forms now, online as well as the live auction. But I think if we think about, this strategy is not like a three-year strategy for me, this is really a vision for the next 10, 20, 30 years to prepare the company, because there is so much opportunity in midstream and upstream. Just the midstream business is about $140 billion with brokers as well as private sales end user-to-end user.

And to me, lot of things and it's not just about disruption of brokers, there is a lot of brokers we want to partner with. We're looking incubating new solutions, which will actually help them on thing. So with some, there may be disruption, some we will actually become a backbone for them. And Marketplace-E, the fact that just in -- since the launch just a little over a year ago, it's over -- it's like $310 million and you saw the growth rates, and that is coming from a different set. Partially we are getting share of wallet from the auction customers, but mostly it's new customers and that is just fantastic because then that drives the network effect. Then upstream -- look in the old days, OEM dealers, OEM sometimes thought of Ritchie Bros as their enemy, those days are gone. You know the CAT strategic alliance is a great testimony to it.

We have a wonderful partnership with them. The relationship is the best in 60 years. But we are doing that now on different scales, not on that mammoth scale, but whether it's with OEM dealers, we want to be the chip inside their computer. We want to borrow ourselves, embed, add value and it is not about trying to compete with them or take away business from them, it is how do we help them do business better and this is where RBAS comes in. And RBAS is going to be so potent, we've already I think I've mentioned -- we've got -- we put 15 reference accounts, we've already got 9.

But in Europe with Mascus, we have 490 customers using ala carte RBAS, different solutions, which are fertile ground for us to build things on. So look, while I can't give you a number on where will we be, what I can tell you is, five years from now, 10 years from now, in addition to the core auction business, which is a fantastic business, you will have new ways of growing to create sustainable revenue and profit growth. That is the beauty of this strategy and it's very simple multichannel each segment, beautiful solutions and we'll keep innovating all the solutions, we're going to stand still.

Operator

Your next...

Ravi Saligram -- Chief Executive Officer

Does that answer your question, John?

John Healy -- Northcoast Research -- Analyst

Yes.

Ravi Saligram -- Chief Executive Officer and director of the board

Go ahead.

Operator

Your next question comes from the line of Kevin Condon from R.W. Baird. Your line is open

Kevin Condon -- R.W. Baird -- Analyst

Hi good morning everyone and thanks for taking my question. I was wondering if you could just comment on the SG&A trend and seen that lower year-over-year in the first half of the year, could it continue to be lower in the back half or just any color you can add there?

Sharon Driscoll -- Chief Financial Officer

Yes, it's Sharon. So clearly we're starting to see the synergy actions that we took over the last half of last year starting to come through. Really the disciplined cost management will continue over the back half. We're not really looking at any other kind of significant changes during this period, but we will still apply disciplined cost control for the back half of the year.

Operator

[Operator Instructions] Your next question comes from the line of Scott Fromson from CIBC. Your line is open.

Scott Fromson -- CIBC -- Analyst

Hi folks. Congratulations, Ravi, on your impending new adventure. Just wondering if we can talk a little bit about the sustainability of margins on the SG&A side, can we expect those -- that good cost control and cost efficiencies to continue?

Ravi Saligram -- Chief Executive Officer

I'll let Sharon answer, but I'll just make a quick comment. If you do, and we are not allowed to talk about it, but I invite you to do your own calculations based on the old methodology. And so we've been trending, if you do it on a TTM basis, every quarter progressing toward that magic number in that agency -- sorry, on the Evergreen Model, freudian slip there. So -- and hint in Q2, just do the calcs. That number I think starts with a number that Chinese don't like and thinking it's bad luck, but for us it's great luck. So I hear that number is 4, so I will give it to Sharon to talk about it.

Sharon Driscoll -- Chief Financial Officer

Yes. So, I'd say, Scott, that clearly in large quarters, we get tremendous flow through and so that's what you're really seeing is that phenomenal operating leverage that the model does generate. And as Ravi said, we really are on track to delivering on that Evergreen Model metrics and we would expect that to carry on probably more so in Q4 than Q3, because reminders that Q3 is a relatively small quarter for us.

Ravi Saligram -- Chief Executive Officer and director of the board

And one other thing to keep in mind is, down the road, once MARS really kicks in, that will keep adding efficiencies and will help cost avoidance. So those are the things that I think this is not like a flash in the pan. That is a sustainable run rate here.

Scott Fromson -- CIBC -- Analyst

Okay. Thanks Ravi I wish you nothing but in the future.

Ravi Saligram -- Chief Executive Officer and director of the board

Thank you very much.

Operator

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

Ben Cherniavsky -- Raymond James -- Analyst

Can you hear me?

Ravi Saligram -- Chief Executive Officer and director of the board

Ben? No, go ahead, sorry.

Ben Cherniavsky -- Raymond James -- Analyst

Hi. Great. Thank you. So obviously some significant achievements here this quarter in particular the Columbus auction, but what's the ability to carry this momentum forward through the back half of the year absent any big disbursals like this or I think there was -- there were a few auctions that got pulled from 3Q last year into 2Q this year. So can you just comment on what the back half of the year looks like for sustainability of GTV and earnings growth?

Ravi Saligram -- Chief Executive Officer and director of the board

I will have, Jeff, just give a quick comment on what he's seeing in the market, but I'd also like Kari Taylor who has joined us recently, but has thrown herself headlong to just give some quick impressions and what she sees as the prognosis. So, Jeff?

Jeff Jeter -- President, Upstream and Emerging Businesses

Yes, thanks, Ravi, hey Ben. So I would categorize the kind of environment right now as -- look there is a change occurring from a standpoint of inventory building, OEM lead times being largely caught up, fleet ageing, the somewhat anxiety of seller not wanting to be caught if things start to slow down. So there is a different feel in the air, if you will. Now having said that, there is a -- anywhere you go in the U.S., there is obviously a backdrop of a lot of work, utilizations are still high.

But it certainly doesn't feel like the headwinds were there that we experienced in prior quarters after the acquisition, so I'd say that, number one; number two, I would say, look, we have made and are making very good progress across all of our channels, initiatives like the MPE in that marketplace, the rollout of SAGE and some better adherence to some sales processes and better rigor in how we go drive new acquisition.

So I think there are just a lot of things lining up for us that I feel very, very good about, RBAS and there's just -- it just feels different and I'm just encouraged overall that we can keep this -- we can keep moving in a very positive direction like we saw in Q2.

Ravi Saligram -- Chief Executive Officer

Thank you, Jeff. Kari?

Kari Taylor -- Chief Sales Officer, USA

Yes, so first of all very -- feels great to be on this first call weeks into the role overall, I'll just offer a few comments and my observation. So first of all, no question, I see a very dedicated hard working team that's well in-tune with the markets. It has really impressive passion for the customer and the relationships that tie with that and we're good deal makers who take pride in what we're doing. Also at the regional level, we're seeing the signs of the harmonization of supply and demand and lots of questions from local customers on how to time the market, if you will. And as far as opportunities, our opportunities and I completely agree with Jeff, is squarely focused on the productivity gains associated with SAGE and much of that is rooted in time management.

You think about how to balance your time between our loyal customer base and new opportunities and it's exciting. We're 5 weeks and we have weekly targets at the TM level. And last week, we achieved 40% of those targets. And I would say in an uptick of a new way of life, very focused on execution and very pleased, still early in the game to report those numbers. Our opportunity also is to continue to elevate how we're seeing in the market as trusted advisors and the fact we're being asked about the timing and trends we're seeing I think is a good first time. Thank you, Ravi.

Ravi Saligram -- Chief Executive Officer

Great. And I think early on you're seeing, I want to say, some very good engagement levels.

Kari Taylor -- Chief Sales Officer, USA

Absolutely.

Ravi Saligram -- Chief Executive Officer and director of the board

Okay. So maybe, Karl, do you want to just quickly comment on what you're seeing internationally?

Karl Werner -- President, International

Sure. On the international side, Ben, we are seeing some increased churn activity, if you will, and not just for the U.S. Fed's but the central banks around other regions as you're aware, reducing rates too and that's a sign that there is a little bit of slowdown or pending slowdown in some different regions. So we're very hopeful that we're going to be seeing some increased tailwinds in our group going forward in H2.

Ben Cherniavsky -- Raymond James -- Analyst

Right. So it sounds like you [Speech Overlap] I'm trying to put all that together in -- I mean, I know you don't give guidance and don't want to sort of get boxed into a number, but this kind of performance in terms of the magnitude of GTV growth and earnings growth is sustainable for the back half, that's what you guys feel?

Ravi Saligram -- Chief Executive Officer

I can't, you know and you're right, we don't comment on or give guidance, Ben. But what I -- let me just sort of fill that. First, third quarter is always a smaller quarter. So you've got to be cognizant and we've also set heavier fewer options. I think the bigger issue is rather than looking at -- and I think you more than anyone and I applaud you, you don't try to put quarterly revised numbers because this business cannot be looked at on a quarterly basis, which is why we created the Evergreen Model in the first place. And so -- we feel pretty confident that on a kind of annual basis and on a second half that there is sustainability.

Clearly the Columbus auction helped in terms of GTV growth, but the bigger thing is how do you create a model where day in and day out you keep a constant stream and utilize all our products? And that's why say your MPE, the weekly auction etc. and the live auction business is a lumpy business. So all these other things are to smooth it out a bit but we feel pretty good about our growth prospects as we look at the second half and beyond in 2020. And the big structural thing, the '17 and '18 were really affected by the supply constraints in the U.S. and I think while we have not seen a tsunami or a flood of equipment explode out of the market to us. I do think there are green shoots of things that are beginning to come, there is at least conversations now.

And as Kari pointed out, how do I get out of this equipment, so -- and when you start looking at the OEMs releases the backlogs are shortening, the inventory at dealers are rising. So -- and there's a lot of things that are coming out from leases from the OEMs that are coming back. I think we will be the recipient of a lot of that so -- and we've got the kind of models which doesn't, it's not just based on one channel. So all in all, I feel pretty good and so we can't control the market. We can't control execution and this team, I can guarantee you that is absolutely laser focused on finding every dollar of GTV in every corner that we are out there.

Ben Cherniavsky -- Raymond James -- Analyst

Okay, well that's good color, Ravi. Thank you and good luck in the future. It's been lots of fun following you at Ritchie Bros.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Ravi Saligram -- Chief Executive Officer and director of the board

Well, thank you very much for everyone for your support onwards and upwards. Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Zaheed Mawani -- Vice President Investor Relations

Ravi Saligram -- Chief Executive Officer and director of the board

Sharon Driscoll -- Chief Financial Officer

Karl Werner -- President, International

Jeff Jeter -- President, Upstream and Emerging Businesses

Kari Taylor -- Chief Sales Officer, USA

Derek Spronck -- RBC Capital Markets -- Analyst

Ravi Saligram -- Chief Executive Officer

John Healy -- Northcoast Research -- Analyst

Kevin Condon -- R.W. Baird -- Analyst

Scott Fromson -- CIBC -- Analyst

Ben Cherniavsky -- Raymond James -- Analyst

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