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Ritchie Brothers Auctioneers Inc (NYSE:RBA)
Q3 2020 Earnings Call
Nov 6, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers Third Quarter Conference Call. [Operator Instructions]

I will now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.

Sameer Rathod -- Vice President of Investor Relations and Market Intelligence

Hello, and good morning. Thank you for joining us on today's call to discuss our third quarter 2020 results. Joining me today are Ann Fandozzi, our Chief Executive Officer; and Sharon Driscoll, our Chief Financial Officer, along with other members of the management team who will be available for the Q&A portion of the call. The following discussion will include forward-looking statements. Comments that are not a statement of fact, including projections of future earnings, revenue, gross transaction value as well as other items and the proposed acquisition of Rouse Services and the anticipated benefits of the acquisition 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 our Investor Relations website at investor.ritchiebros.com. 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 will discuss certain non-GAAP financial measures. For the identification of non-GAAP financial measures, the most direct comparable GAAP financial measures and a reconciliation between the 2, see our earnings release and Form 10-Q. Presentation slides accompany our comments 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 U.S. dollars, unless otherwise indicated.

I'll now turn the call over to Ms. Fandozzi.

Ann Fandozzi -- Chief Executive Officer

Thank you, Sameer, and good morning to everyone joining our call today. I would like to start this call by saying that all of us at Ritchie Bros. hope that you and your loved ones remain safe and healthy during this global health crisis. Yesterday, we reported record Q3 results in the midst of a lot of macro uncertainty. These results would not be possible without our outstanding teams who during this unprecedented time have kept their highest priority and health and safety while executing for our customers. I appreciate, and I'm thankful to each and every one of them. The talent of our organization combined with our omnichannel platform continues to show strength and resiliency by delivering 14% top line growth, combined with a record third quarter adjusted earnings per share of $0.44. I am going to review our third quarter priorities and how we executed against them. Sharon will then briefly talk about the specifics around our results, and then we will discuss our announced acquisition of Rouse Services. Now turning to slide five. I would like to share our progress against our Q3 priorities which we outlined on our last earnings call. Our number one priority continues to be the health and safety of our employees and our customers, and we take every opportunity to reinforce our COVID protocols. Our disinfection, social distancing and working-from-home policies remain unchanged. Second, being there for our customers is our [Indecipherable]. We are a learning organization and we continue to look at all the tools in our technology toolbox to drive customer experience and value for both buyers and sellers. We have seen attitude toward adoption of technology with our buyers and sellers evolve during COVID. This has forced all of us to successfully experiment and ask what if questions. For example, we have learned that pooling smaller regional events into larger virtual events is driving more demand and solid price performance. We have also learned to further leverage our Timed Auction Lots or TAL technology to new use cases, such as our traditional on-the-farm auctions as well as in our international markets. We are seeing great success, both price performance and seller and buyer experience.

In fact, we have customers in this segment now proactively requesting TAL. This period has also definitively proven to us that our physical sites are a strategic advantage that widens our moat and offers our customers a unique service. Our sites are busier than ever with the care of custody and control for record levels of equipment. We continue to curtail auction day events and ramping due to the pandemic. By not staging our yards for ramping, however, we have learned that it has enabled auction day pickup for buyers, enhancing our overall customer experience. We are spending this time thinking through how else our post-COVID environment will evolve. For example, one area we are going to experiment with is having bigger and better preview days to expand, strengthen and heighten the buzz around equipment for our confiners, all the while keeping the benefit of auction day pickup for our buyers. Overall, we continue to learn and respond to our customers' needs as they remain as fluid and dynamic as ever. Sharon will speak about what we expect our cost savings to be in a pandemic environment going forward. The movement to 100% online transactions has allowed our marketing organization to drive demand to new heights. They are able to use web-based signals, such as priority bidding, watchlists and page views that we obtained prior to the sale in conjunction with machine learning algorithms to allocate marketing dollars in order to maximize recovery for our sellers. This never would have been possible if not for the shift to a 100% online bidding. As you can see, we continue to post significant growth across all our metrics. Finally, our third priority was to focus on financial flexibility and the strength of our balance sheet. Sharon will go deeper into the numbers. However, I am very pleased with the focused cost control and stewardship of our capital. We are also able to remain nimble as highlighted by our recent proposed acquisition of Rouse. We believe it will meaningfully contribute to long-term shareholder value as data and analytics are fundamental building blocks to build excellent customer service in today's world. We also continue to leverage our balance sheet intelligently to meet the needs of our customers looking for liquidity via at-risk contracts.

And now over to Ritchie Bros. CFO, Sharon Driscoll.

Sharon Driscoll -- Chief Financial Officer

Thank you, Ann, and good morning to everyone joining the call. Overall, this was a very strong quarter for Ritchie Bros., and the numbers speak for themselves. I am pleased to report an increase of 22% year-on-year in our gross transactional value and a 14% increase in our total revenue, driven by solid execution across all channels and geographic regions. Although we continued to experience some international border issues, the conditions dramatically improved in the third quarter, enabling us to conduct auctions that have been postponed from previous quarters, most notably in Italy, Spain and Mexico. That said, we remain cautious and vigilant about the possibility of increased restrictions globally, noting that France, Germany and England have recently announced tighter lockdowns, which could impact our operations in these regions. As our first priority is to keep our employees, our customers and our community safe during this unprecedented health crisis, we will diligently follow our COVID-19 protocols as well as comply with local jurisdictional restrictions. As Ann mentioned, we continue to see reductions in direct costs due to our COVID protocols as well as the shift to online during this time. Beyond this, we also remain disciplined and diligent on the costs we can control as well.

The stronger revenue combined with our operational leverage allowed us to generate 91% year-over-year growth in adjusted earnings per share to $0.44. I cannot emphasize enough how proud I am of the entire team here at Ritchie Bros. and our ability to serve our customers in this uncertain time. Let me quickly touch on each geographic region. The U.S. team delivered over 20% GTV growth in the quarter compared to last year, driven by higher sales productivity by both our regional and strategic account teams. This was also our strongest online quarter ever for our IronPlanet weekly featured events. The Canadian team delivered mid-teens GTV growth in the quarter, driven by strength of live auction events aided partially by auction calendar shifts as Toronto and Lethbridge auctions fell into this quarter, partially offset by the shift of the Grande Prairie event into Q4. Our Eastern Canada team drove strong growth, led by transportation sector volume. Our International team delivered high-teens GTV growth. While hard to quantify, we realized part of the growth here was pent-up supply in addition to auction timing which we did see play out early in the quarter. TAL continues to be a great solution for this market, and we see increases in new and end-user participation at these events. Although year-to-date cash flow is down year-on-year, I want to note that this is due to timing of auction payouts and compensation accruals. Recall that we specifically called out the exceptionally strong cash flow performance in our third quarter last year, primarily due to timing of auctions and auction proceeds disbursements.

I have absolutely no concerns regarding our cash flow from operations, and note that with operating free cash flow at 151% of net income on a 12- trailing month basis, we are delivering well ahead of our Evergreen guidance. Overall, we have very strong operational metrics, as our talented marketing team continues to drive traffic, interest and participation across our global buyer base. This is supported by the numbers, as we are now seeing year-over-year price increases on a mix adjusted basis here in the U.S. and Canada for used equipment. For those of you interested, I do encourage everyone to check out our free monthly report that covers used equipment pricing. Moving now to the financial highlights. The 14% growth in our total revenue was driven by a 25% increase in our services revenues, partially offset by a modest decline in our inventory sales. It is important to note once again that contract mix can significantly skew revenue growth depending on consignor's preference for how the deals are structured. We are agnostic between service and inventory-oriented contracts and stand ready to serve our customers in any capacity they choose. As such, we believe that service revenue growth is the best indicator of our overall top line performance for our business model and most reflective of underlying business trends in the quarter. The commission revenue increased 24% year-on-year, in line with the 25% increase in services GTV. The improvement was due to stronger guaranteed contract rates, partially offset by softer straight commission contract rates compared to last year.

The strength in fees were primarily driven by increases in total GTV volumes and lot volumes. Operating income increased 68% to $67 million due to higher revenue and lower cost of services expenses due to our aforementioned COVID protocols. While we have started to see a slight uptick in travel and entertainment expenses, we think overall, these levels of reduction in direct expense are likely to continue as the pandemic continues to unfold. While we expect COVID-19 protocols to remain in place for the entirety of Q4, we project the cost of services relative to prior year will trend at half the rate of growth of overall service revenues. Recall that we have transitioned to a 100% online bidding and continue to leverage TAL technology for international and on-the-farm agriculture events, resulting in meaningful cost reductions in temporary employee compensation, travel, advertising and promotion expenses. Adjusted net income increased 92% year-over-year to $49 million, primarily due to higher operating income and lower interest expense, partially offset by higher taxes post the publication of the final regulations related to hybrid financing arrangements. Also, we have a onetime adjustment to net income of $3.2 million after-tax due to severance costs incurred in the quarter related to the realignment of leadership to support the new global operations organization as well as to position talent to deliver on our strategic growth priorities. We are only expecting modest run rate savings associated with these actions as we will continue to upgrade talent and invest to support various growth initiatives.

Turning to our Auctions and Marketplaces segment. We delivered robust results, both in terms of growth and rate. Service revenue was up 26% with strong contributions by all regions due to service GTV growth and solid commission rates. This drove a stellar 14.3% A&M service revenue as a percent of GTV. Moving on to our Auctions and Marketplaces segment inventory sales revenue. Overall, our inventory sales revenue declined 2%. Let me dig a bit deeper into each region to explain the moving parts. The U.S. region inventory sales saw a decline of 17%, primarily due to lower inventory volumes from our government surplus contracts. This business unit is still recovering from the abrupt stoppage of inventory inflows during Q2 due to the defense logistics agency based closures in response to COVID-19. The bases did reopen during Q3 and inventory inflows are back on track with pre-COVID levels. Our Canadian inventory sales were down 43% due to the shift of the Grande Prairie auction from 3Q to 4Q 2020. The one bright spot was International, which was up 24%, driven by a large private treaty deal in Australia, easing border restrictions as well as strong auction execution on the TAL platform. Despite the decline in volumes on inventory sales, we did quite well on margin with an implied rate of 11.6%, up over 400 basis points better than our third quarter of 2019, driven by strength in both the U.S. and Canada. I would add that our disciplined approach to at-risk deals, particularly inventory contracts, combined with strong price realization drove these results, and we are very pleased with overall rate performance during the quarter. Moving on to SG&A expenses. Overall, our SG&A increased 18% or was up 13% excluding our onetime severance costs included in the quarter. Costs increased primarily due to higher variable and incentive compensation, driven by the company's stronger operating performance. We also saw a slight increase due to continued investment in talent to support our growth initiatives.

Partially offsetting these increases were lower travel and entertainment costs. Our thinking around T&E cost has not changed. We are a sales-driven organization. And when it is safe to do so, we expect T&E expenses to come back as our talented sales force gets back on the road, developing and cultivating customer relationships. Overall, we are pleased with our expense discipline and will continue to be prudent as we manage our cost structure going forward, although we will stay nimble and open to continued investment necessary to drive growth opportunities and the strategic priorities for the company that Ann and the management team will be unveiling in full at our announced Investor Day in December. Moving to slide 12. Just to recap our balance sheet and liquidity metrics. Our operating cash flow of $261 million is 151% of net income, well ahead of our Evergreen targets. At the end of the third quarter, we had $590 million in cash, cash equivalents and restricted cash in addition to available credit facilities of $637 million, of which $470 million was unused at the end of the quarter. We continue to be comfortably within our debt covenants, and our treasury team successfully amended and extended our credit facility from October 2021 to October 2023 in the quarter, and we have no material debt maturities until October 2023. We continue to focus our capital spend on supporting our technology programs and essential property investments, and our trailing 12-month net capex spend of $29 million is currently tracking within our full year target of $35 million to $45 million.

Our solid cash position does provide us with the flexibility to make meaningful investments to accelerate our journey against our long-term strategic vision and our proposed acquisition of Rouse Services does just that. At the end of the third quarter, our adjusted net debt to adjusted EBITDA ratio was 0.5 times, continuing to be well inside our target ceiling of 2.5 times. Lastly, our return on invested capital measure of 11.5% is showing good improvement, up from 8.6% in Q3 of last year and is well above our internal weighted average cost of capital. We are now through the third quarter under the pandemic conditions and continue to believe we are well positioned with a strong balance sheet and liquidity position to navigate any economic scenarios. Additionally, our proposed acquisition of Rouse Services highlights our ability and willingness to actively engage in opportunities that we think are strategic and will enhance the long-term value of our company. Shortly, Ann will be walking you through the strategic rationale of the acquisition, but let me highlight a few of the financial considerations of this deal. Under the terms of the definitive agreement, Ritchie Bros. will acquire Rouse Services for approximately $275 million and will fund the transaction through cash and stock. We expect it could close as early as December of this year. However, note that it is subject to customary regulatory approvals. Given that Rouse Services was a privately held LLC and was not U.S. GAAP compliant, we are unable to comment on the company's financial metrics. That said, we do expect Rouse Services to be accretive to earnings within 12 to 18 months post close with minimal synergies. To conclude my remarks, I would like to thank again our employees for their continued focus on health and safety as well as their resolve to meet all of the unique challenges this environment has created in serving our customers. Without them, we would not have been able to deliver such a phenomenal operating performance for the quarter.

And with that, let me turn the call back to Ann.

Ann Fandozzi -- Chief Executive Officer

Thank you, Sharon. We are very excited about the announcement of our intention to acquire Rouse Services and bring two very customer-centric companies together. We see it as an excellent opportunity to accelerate our evolution from an auction company to a global trusted marketplace for equipment and services. Sharon has already walked you through the financial aspects of the transaction, and I will go into more details about the strategic fit. Rouse Services is a market leader in data and analytics in the industrial equipment industry. There are three flavors of what they do. The first is targeted at analytics around the rental vertical. We estimate that a majority of all construction and industrial equipment rental revenue in the U.S. flows through the Rouse system via proprietary ERP connections with their customers that get updated nightly. From the due diligence we conducted, a vast majority of Rouse's customers love this service, primarily because it provides them with industrial benchmarks against which they can measure their performance. The second big part of their business is providing data and analytics for their customers that want to sell equipment on their own. And the third part is appraisals of used equipment, primarily for asset-backed lenders. Rouse Services is a subscription-based data-as-a-service model, highly stable with a growing client base. It comes with revenue and profit and has strong operating leverage. Overall, what they do is impressive, what customers say is great. But what was the best for us as we got to know them was the quality of the team.

Gary and the team will be coming over in full force in joining Ritchie Bros.' family. What struck us from the very first conversation is what they are willing to do for their customers. Here at Ritchie Bros., we have a saying, we bleed orange, which means we go to great lengths to do anything for our customers. It just felt perfectly aligned from the get-go, and we are super excited. Driving the very best experience for our customers starts with data. It starts with arming our customers with the information they need to make the right decisions, decisions around how they want to transact, how they want to go to market and ultimately, how they want to dispose off their equipment. And when we think about these things, they are deeply ingrained in Rouse and in Ritchie Bros. Lastly, both Ritchie Bros. and Rouse strongly share the core principles around data integrity and confidentiality. Every day, we have customers drop off valuable equipment, their livelihood, at our yards with little concern because we have earned their trust over the last 62 years to do the right thing. This concept around care, custody and control is deeply ingrained in our culture and extends to our digital assets and data as well. We believe that the combination will benefit not just Ritchie Bros.' customers and not just Rouse Services' customers, but the entire industry. Now I would like to share some considerations on our fourth quarter. From a priority standpoint, as you can see on the slide, they remain unchanged. We continue to see upside opportunities balanced by uncertainty and risks as well.

From an opportunity standpoint, we had a strong Q3 execution, and October was off to a strong start. We continue to see consignors that are focused on cash flow and inventory management, which should continue to drive liquidity needs. We are also watching for both timing and magnitude of any government stimulus to begin driving infrastructure spend. As the U.S. election passes, we see potential that consignors that were previously taking a wait-and-see approach change their thinking and start to act in terms of equipment dispersals and fleet realignment. All that said, there remains risks as the implications of COVID continue to cloud the outlook. The recent ramp in the COVID cases and infections globally are a great source of concern and may cause border restrictions. We may see a negative impact on equipment financing with recovery taking a longer duration. Lastly, we continue to carefully monitor any potential changes in the sentiment, which could impact equipment demand and soften the current pricing environment as we progress through the quarter. In closing, I say how proud I am of our entire team in the face of this pandemic and their continued dedication to our customers. And I'm equally proud of how our technology-enabled multichannel platform continues to deliver a strong experience for our customers. Before I open it up for questions, I want to remind everyone on the call that we will be holding our Investor Day on December 7. As much as I would have loved to meet all of you in person, we will be conducting it virtually.

With that, operator, please open the line to questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Craig Kennison with Baird. Your line is open.

Craig Kennison -- Baird -- Analyst

Hey, good morning. Thanks for taking my question. Just a really impressive transition here by the whole team. I'm curious there is still this social dynamic that takes place at your live auction events, especially in Orlando, for example. Is there a need to find a way to replicate that social dynamic? Or can even that pivot online somehow?

Ann Fandozzi -- Chief Executive Officer

Hi Craig, Ann here. Thank you for your kind words. We're very proud. You are exactly correct. The social dynamic is difficult to replicate. What we have kicked off in my opening remarks, we talked about the fact that we're a learning organization, and we're going to be experimenting. What we thought is really what we call kind of reinventing sale day, if you will, which is really picking off each of the activities that we provide during sale day, social dynamic being one and thinking through is there a different way to do that in an online environment? And even in a physical world post COVID, are there better ways to do the things that our customers value very much. So I think there was about eight subteams. We've broken the day up into eight elements, the social dynamic being one and really about celebrating our customers and it's about kind of bringing the sales organization closer to the customer, all of these types of things and really grow how do we do those even better in the physical world and alternatives in the digital world.

Craig Kennison -- Baird -- Analyst

Thanks. And then maybe a similar question, but the role of a territory manager clearly has changed. I get that you want to retain some of the travel and entertainment component of that. But to what extent has that role permanently changed? And what other considerations are in play there for that role?

Ann Fandozzi -- Chief Executive Officer

Yes. So the role is morphing. And I think it's really morphing into the vision that we've had all along, that the territory managers becoming much more trusted advisors and not simply kind of focusing on what the next upcoming auction is. So the roles become more critical than ever before because these people are armed with all of the data, all of the analytics to truly help our customers manage their day-to-day business really as it relates to their equipment in many capacities beyond just the auction platform. So if anything, the role is actually tightening its importance, not lessening, but for sure, morphing.

Craig Kennison -- Baird -- Analyst

Great, thank you.

Ann Fandozzi -- Chief Executive Officer

Thank you.

Operator

Your next question is from Michael Doumet with Scotiabank. Your line is open.

Michael Doumet -- Scotiabank -- Analyst

Hey, good morning Anne. Good morning Sharon. Great quarter. I guess just dissecting the results a bit. The SG&A rate was a large driver to the earnings [Indecipherable] and that's despite the inclusion of about $9 million of short-term and long-term incentive comp, which I presume is linked to the share price performance. Now we have a lot to think about modeling SG&A going forward. Any way you can provide maybe goalpost for Q4 or rate of growth in SG&A versus service revenues? Just thoughts in general, please?

Sharon Driscoll -- Chief Financial Officer

Yes, sure. Michael, it's Sharon. I'll handle that. Clearly, we don't really give guidance, but we have offered in the past that our goal is to keep our SG&A growth rate well below our services revenue growth rate. What you are seeing in the quarter is a combination of pickup due to share price, but mostly the -- our changed outlook for performance during the year. And again, we kind of entered kind of Q1 and Q2 a little more hesitant and cautious about what was possible, and the teams have really done such a fabulous job of being able to support and deliver value for our customers. So that's really what you're seeing as that pickup. So I would still look at this rate of growth as not indicative of what you'd see inside of Q4, but our commitment that we will hold it to less than services revenue growth.

Michael Doumet -- Scotiabank -- Analyst

Got you. That's helpful. Thank you. And just flipping it over. I'm curious about the switch from live to online in Australia and the overall success of that transition. I mean what's unique about Australia that would motivate you to do that transition over there? And could it be considered a pilot for other regions?

Ann Fandozzi -- Chief Executive Officer

Karl, would you like to talk a little bit about Australia? And then I will take the other regions question.

Karl Werner -- President, International

Sure. So for Australia, Michael, we started off with two options. One, we went with TAL is one option, which we exercised in EMEA, right, as you know. And then our other option for the online model was that we served I reserve -- or sorry, IPE reserve model. So that was the one we went with in Australia. And it was mainly because we had a whole bunch of consignors there that we wanted to -- first of all, there was skepticism to going 100% online in that market. And so we wanted to keep the reserve model as an option for them. And we've started off slow, but actually, in the past three to four months, we've actually gained very good popularity and results with our teams there and with our customers. And so we're going to be doing that and also looking at the TAL option going into Q1 as well as to complement each other, so with a reserved and an unreserved model.

Ann Fandozzi -- Chief Executive Officer

And just -- thank you very much, Karl. And for the second part of your question, Michael, we pride ourselves on being a learning organization and testing different models around the globe, probing for different hypotheses. So let me drumroll our December seven session where we're going to take you guys through the vision, the strategy and equally the way we are going to experiment and learn. And so this is just one example. We learned something in Europe. We learned something different in Australia, something different again with our ad events in Canada and kind of bringing all of that learning around the globe that will be very much a topic of discussion [Indecipherable]

Michael Doumet -- Scotiabank -- Analyst

Got it. Looking forward to hearing about it then. Thanks very much. That's a great quarter.

Ann Fandozzi -- Chief Executive Officer

Thank you.

Operator

Your next question is from Larry De Maria with William Blair. Your line is open.

Larry De Maria -- William Blair -- Analyst

Hi, thanks and good morning everybody. So obviously, a great quarter. We've been kind of accustomed to thinking about the environment being high volume, low price or low volume high price, etc. But as we think about the next cycle, which appears to be starting, can -- do we think we can smoothe out some of that kind of volume price noise because of the services and your upstream approach? Or is that wishful thinking? Just trying to understand how you think the cycle could play out in a little more smoother fashion?

Ann Fandozzi -- Chief Executive Officer

Yes, Larry. So again, thank you for the kind words about the quarter. I'm a firm believer -- this is an animal, firm believer in kind of basic laws of supply and demand. And the biggest thing that we can do in order to drive the pieces that are in our control is to drive demand to very, very high levels regardless of the supply cycle. And we're doing that with technology in a way we've never done before. So let me talk a little bit about what we're doing to drive it and then take half a step back and answer the rest of your question. So what moving entirely online has given us is a visibility to eyeballs that we could never have when we split our transactions between live and online. And what I mean by that is, we have much earlier signals of demand down to an individual piece of equipment. And then we use all of those signals, add to it our artificial intelligence and machine learning algorithms to drive market almost down into an individual piece of equipment around the globe.

I would say of all of the learnings we're having, those are the biggest about the impact that having all of those eyeballs much earlier in the process is giving us in order to drive our part in the -- how can you have kind of high volume and then still even higher demand to drive higher prices. So that's the first thing. The second is, obviously, we're looking toward an eye of what is going to happen around stimulus. Again, as we talked about in the prepared remarks, we fully expect and understand if that goes forward, the demand will stay high. And again, our marketing tools will work with them. And if for whatever reason that doesn't happen, again, we're very bullish on our ability to do our part to drive demand and ultimately pricing to greater heights than we were able to do before.

Larry De Maria -- William Blair -- Analyst

Okay, thank you for that async Second part of the question. The -- as you guys move online, obviously, you've pivoted, there's a lot of other online auctions out there. Do you have enough confidence in your -- for your services and footprint, etc, that you can continue to collect the premium pricing model?

Ann Fandozzi -- Chief Executive Officer

Yes. So we're actually excited about the fact that our omnichannel platform, we believe, is just really a source of competitive advantage. We offer an online model for the transaction itself that comes with the benefits we talked about, about driving demand. But equally, the live sites just play an incredibly important role in our consignors' lives. Like literally, the care, custody and control, the vast majority of our consignors, when they are done with a piece of equipment or they need liquidity, they want to just hand it over to Ritchie Bros., forget about it and then have us ship them their money. And so this duality of this platform in the live world with online transactions is really proving to be an incredible source of competitive advantage that we believe will continue. And then if we layer on the services business around kind of the RBAS platform and the ability to then layer on services into that transaction engine, it paints really a fantastic picture moving forward.

Larry De Maria -- William Blair -- Analyst

Okay. Thank you very very much. Good luck.

Ann Fandozzi -- Chief Executive Officer

Thank you.

Operator

Your next question is from Michael Feniger with Bank of America. Your line is open.

Michael Feniger -- Bank of America -- Analyst

Yes, hi. Hi everyone and thanks for -- taking my question. I'm just curious, and -- we get this question a lot. I mean, how are you thinking right now about the total addressable used equipment market? And how that breaks down into auctions, but the fact that not every transaction goes to auctions? So is -- do you feel like any opportunity is still that you can gain share in the live online auction market? Or is there bigger opportunity? And maybe this goes to the Rouse acquisition that you guys can get your hands and touch on more transactions outside of the auction channel, is that the bigger opportunity that you see for this company going forward?

Ann Fandozzi -- Chief Executive Officer

So Michael, hi, Ann again. And I would say, yes and yes, and again, drumroll for our December seven as I don't want to steal any of the thunder, but we will be addressing exactly these thoughts around how we view the market. In the prepared remarks and in our Rouse announcement, we did talk about our transformation to a global trusted marketplace. We believe that, that allows us to both grow auctions as well as the entirety of the platform that is fairly significant in size. And again, more on that in December.

Michael Feniger -- Bank of America -- Analyst

Fair enough. Ann, you come from the auto industry, you have that background. From my understanding, the used auto market is undergoing a lot of changes right now. There's omnichannel players, there's disruptors like Carvana with how the used auto market, which is really massive, these changing dynamics. I'm just curious with your background in auto, what you've seen and what you've observed. I'm curious if you see any parallels on the used equipment side for that side of the market compared to what you experienced being a leader in the auto industry.

Ann Fandozzi -- Chief Executive Officer

Yes, Michael, so it's very interesting that you make that comment. So the answer is very much so. We see parallels and then candidly, the drive to opportunities. The leadership team, who you see before you, I think, on the slide, we actually spent time this summer on a 9-day strategy session. So let me -- if there's a question about how much time is the team spending together, really a lot in this virtual environment. And why we spend so much time is exactly doing that. What are parallels to our industry? What are disruptors to our industry? How do we view the world? And auto is really a fantastic model. So let me give you one very, very small example, and I think that will kind of solidify the essence of the question. So in the automotive world, very basic, everybody here understands there's something called the bin.

So you type in your bin, which is alphanumeric identifier of a vehicle and outcomes everything you need to know about that car, right, trim, options, everything. All you need is wear and tear and mileage, you've got it. You are ready to go. That doesn't exist in our industry, even that -- small example. And so we believe that if we are going to be enabling a marketplace and really driving the very best decision making to our customers, we need to make sure that these types of things exist, that they're solid, that they are ubiquitous and able to drive decision-making for both, obviously, the sellers and the buyers in a very transparent way. So if you take that small example and then roll it through the totality, as you've described it, about the transformation and disruption and these types of things, they, for sure, help to inform our 9-day strategy, which you will then see the outcome of on December 7.

Michael Feniger -- Bank of America -- Analyst

Thank you.

Ann Fandozzi -- Chief Executive Officer

Thank you.

Operator

Your next question is from Ace Mirali with CIBC. Your line is open.

Ace Mirali -- CIBC -- Analyst

Hello. This is Ace, I'm on for Scott Fromson. Thanks very much for taking my question. Regarding the commentary on the SG&A, may I please ask if you could provide more details on existing or planned initiatives for lowering the fixed aspect of the SG&A costs? Thank you very much.

Sharon Driscoll -- Chief Financial Officer

Sorry, I missed the end of that question. It's Sharon, can you just repeat it?

Ace Mirali -- CIBC -- Analyst

Sure. Just looking for additional details on any existing or planned initiatives for lowering the fixed aspect of the SG&A cost.

Sharon Driscoll -- Chief Financial Officer

Yes. So I guess a couple of things. So SG&A is mostly people. And so particularly in this period where travel and entertainment is right now very low. And this is a company that is still very people dependent, albeit becoming more technology supported. So I wouldn't say that there are active initiatives to change that. As -- but it is, I think, being mindful that we are very conscious, and I'm going to echo Ann's comments about a learning organization, that we are piloting an awful lot of things, and we'll really only be investing additional headcount once we feel that we've proven out the viability of that hypothesis that we've had that it can grow either transactional volume or revenue stream. So again, this is very much a professional services organization that is very dependent on people. And we'll be looking at and we'll be talking about different components at our Investor Day about efficiency-type initiatives that we're working on, but I do think the overall fixed component of our SG&A cost is likely to remain intact for at least the foreseeable future.

Ace Mirali -- CIBC -- Analyst

Thank you very much. That was very helpful.

Operator

[Operator Instructions] Your next question is from Bryan Fast with Raymond James. Your line is open.

Bryan Fast -- Raymond James -- Analyst

Thanks, good morning everyone. Now that you have a couple of quarters of being fully online, I'm just looking for what you view as the biggest surprises or pinch points of the move to 100% online. And then further, what have been some of the pushbacks from customers? And how have you tackled those issues?

Ann Fandozzi -- Chief Executive Officer

Yes. Brian, hello, it's Ann. So let me actually take a step back for everybody because I think the first surprise was my -- was to me when I came in. So the nature of how we have talked about our business in the past was live and online auctions, and I think to the uninitiated. I grew parallels to the retail industry, thinking, oh, as we move more to online, we will have less reliance on kind of site, right? And I paralleled those to brick-and-mortar retail locations. Nothing could have been further from the truth because even before COVID, for those of you that have been with us for a while, 70% of the transactions during a live event were already happening online. And obviously, all of the IronPlanet-enabled weekly feature auction, NPE, all of that had been 100% online. So the very biggest surprise was this incredible value that our live sites offer that at a time where 100% of our transactions are online. Our sites are big -- are busier than ever before with the care, custody and control that customers need, and we candidly uniquely provide. So that has been really, for me personally, one of the biggest surprises. The second, I would say, and very, very pleasant is the resiliency of this organization.

At a crazy, crazy turbulent time in the world, our people through 62 years of legacy know our job is to be here for our customers. And what I observed, I will candidly say, I've never seen before in my career an organization engage to hold our customers' hands through this uncertain time. So is it related to sellers to really explain what the online pivot was going to look like 100% and explain at the time theoretically, and now we know realistically, what benefits 100% of the transactions online could mean from our ability to market digitally and kind of drive the demand that we've already talked about before. But equally, our customer service organization concerned that maybe buyers needed to be led through the process in the first couple of months, literally good an outreach, I've never seen anything like it. So a 100% of our registered buyers similar to hold their hands through this time of uncertainty. It left me just speechless and in awe of the power of this organization, the strength of the team and then the ability to marry really the technology and the strength of it with the reality of the physical world and the need for that, that our customers have. It's something we use the word moat, it is so unique and such a source of pride.

Bryan Fast -- Raymond James -- Analyst

Thanks Ann. And I guess not to steal the thunder from the upcoming Investor Day, but maybe just some high-level thoughts on capital allocation priorities, especially as the business thrives in the current environment?

Ann Fandozzi -- Chief Executive Officer

Yes. I think the -- just to echo Sharon's words really is about we want to stay stewards of cost and capital and use the money very, very prudently. We want experiments and tests. We want to understand what will drive our strategic focus forward. Again, you guys are going to hear about it in December. When things cross our path like Rouse that fit so perfectly with that agenda, we want to be able to be flexible and nimble to apt and assurance that all of it's steep and deep analytics, an experimentation and testing, so that we know with high degrees of certainty before we deploy significant dollars.

Bryan Fast -- Raymond James -- Analyst

Okay, that's it for me. Thank you.

Ann Fandozzi -- Chief Executive Officer

Thank you.

Operator

Your final question is from Maxim Sytchev with National Bank Financial. Your line is open.

Maxim Sytchev -- National Bank Financial -- Analyst

Hi, good morning Ann and Sharon.

Ann Fandozzi -- Chief Executive Officer

Hi Max.

Maxim Sytchev -- National Bank Financial -- Analyst

Very impressive performance, obviously. I was curious to think if you can try to attribute the acceleration of GTV momentum between kind of COVID, oil and potentially unearthing new clients. We're just trying to see if there is sort of a structural shift in terms of growth momentum on a prospective basis. Or is this sort of more of a cyclical upturn? I mean, how do you guys internally think about this?

Ann Fandozzi -- Chief Executive Officer

Yes. So how about, let me kick off and then I'll turn it over to Sharon for some color as well. So as we think about Q3, obviously, very proud of the performance in the quarter. We were also very proud of the performance in Q2. And so as I break down kind of what has happened, kind of the overarching drivers of GTV, I tend to think about it as something that are kind of out of our control and then many things in our control. So obviously, construction remaining essential during COVID and not shutting down wasn't quite a tailwind, but certainly prevented what could have been a giant headwind. What we experienced in Q1 and then saw the reversal of in Q3 is, in fact, we did have a headwind in our international markets with the border closures. We saw that reverse in Q3, and you heard from Sharon and Karl, some of that pent-up demand came our way in Q3. Similarly, in Q1 and earlier in the year, we had some other customers, specifically in the rental space, kind of maybe holding on to some equipment with a wait-and-see attitude and then kind of in Q3 needing to drive utility -- utilization rates and liquidity through our channel.

So that's kind of a little bit of very, very high level how this has been playing out. Oil and gas certainly is an element of goodness in our GTV. However, the kind of the larger if we believe that there may be some displacement in that space and maybe Sharon can speak to that, we have yet to see any of that really come our way in that. The things that are -- we believe very much in our control is, in fact, our go-to-market model and our omnichannel platform. The fact that we are able to kind of give that best of all worlds to our customers in a physical world, giving them both the peace of mind, liquidity is there, but also taking care of the equipment soup to nuts with our service offering, right? Just drop it off at one of our yards, we can inspect it, we can appraise it, we can pick it up for you, we will market it, we will transact, we will manage the drop-off and pickup, and we will send you your money is really proving to be just an incredibly valuable tool. And then add to that what I've already spoken about a few times, this ability of 100% of the transaction, the visibility that's giving to demand on a unit-by-unit basis, allowing our marketing team to use tools that really drive demand and then ultimately, recovery in meaningful ways, we think that combination has really come to the forefront during this environment and will not be going away. Sharon?

Maxim Sytchev -- National Bank Financial -- Analyst

That's very helpful.

Ann Fandozzi -- Chief Executive Officer

Sure.

Sharon Driscoll -- Chief Financial Officer

Yeah. So Max, I was just going to add. I think the piece that we still see right now, whether it's oil or COVID related, banks right now still aren't acting like banks. They're being very patient with their capital. And so what we are seeing is more kind of voluntary disbursals as people are planning their future. So is this a market I want to be in, a sector I want to be in. And we are starting to see some defleeting as perhaps some financial institutions and rental companies are projecting what might happen in terms of potential decreases in rental utilization or picking up kind of defaulted items once they start to apply pressure. So I think we are starting to see that activity today. But what we still see around the corner is more the forced disbursals as the banks start to apply more pressure on nonpayments or laggard payments and create more distress. So hope that's helpful.

Maxim Sytchev -- National Bank Financial -- Analyst

Yeah, yeah. and I mean, I see the same obviously from bankcrupts and trackings. So yeah, that makes sense. Thank you so much for the color.

Operator

Your next question is from Michael Feniger with Bank of America. Your line is open.

Michael Feniger -- Bank of America -- Analyst

Hey guys, thanks for -- Just one quick follow-up. I believe you flagged a really nice margin rate performance on inventory sales in U.S. and Canada. Sharon, I think you referenced the strong used pricing backdrop, but your underwriting is still very low as a percent of GTV, at least this quarter, and I know it's been that for a few quarters now. Are you seeing anything in terms of the data analytics that you guys have invested in? Is it helping you perform better on these packages? Or is the supply demand backdrop kind of starting to favor Ritchie in this terms of -- in this business area? So just any color on that would be great. Thanks everyone.

Sharon Driscoll -- Chief Financial Officer

Yes. So it's Sharon here. So I think that's a great question. I think clearly, we're still very much open for business at at-risk. We are probably taking a little bit more of a disciplined approach on making sure that our risk is realistic and that in our underwriting of those contracts, in some cases, customers, when they look at the pricing that we offer on at-risk will choose to go straight commission. And so I think the way I look with Doug and our valuations team and appraisal team is that we're really here to provide value, but we're basically to also underwrite wisely for our customers. I think the strength that we've noted in pricing is coming from various pieces. I think there's still belief that infrastructure spending will be very active to pull the economy through this COVID crisis.

And also we are seeing challenges with new dealer inventory still as they're struggling to kind of get back on track with what was supply chain disruption that started kind of late Q1 and is really only starting to get back online now. But again, I think our team has done a very good job of using data, using the extreme experience knowledge that we have on equipment and making great underwriting decisions.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Sameer Rathod -- Vice President of Investor Relations and Market Intelligence

Ann Fandozzi -- Chief Executive Officer

Sharon Driscoll -- Chief Financial Officer

Karl Werner -- President, International

Craig Kennison -- Baird -- Analyst

Michael Doumet -- Scotiabank -- Analyst

Larry De Maria -- William Blair -- Analyst

Michael Feniger -- Bank of America -- Analyst

Ace Mirali -- CIBC -- Analyst

Bryan Fast -- Raymond James -- Analyst

Maxim Sytchev -- National Bank Financial -- Analyst

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