RITCHIE BROS AUCTIONEERS INC, 10-Q filed on 11/5/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 04, 2020
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 001-13425  
Entity Registrant Name Ritchie Bros. Auctioneers Incorporated  
Entity Incorporation, State or Country Code CA  
Entity Tax Identification Number 98-0626225  
Entity Address, Address Line One 9500 Glenlyon Parkway  
Entity Address, Address Line Two Burnaby  
Entity Address, City or Town British Columbia  
Entity Address, Country CA  
Entity Address, Postal Zip Code V5J 0C6  
City Area Code 778  
Local Phone Number 331-5500  
Title of 12(b) Security Common shares  
Trading Symbol RBA  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   109,400,129
Entity Central Index Key 0001046102  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.20.2
Condensed Consolidated Income Statements - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues:        
Total revenue $ 331,542,000 $ 289,796,000 $ 993,847,000 $ 986,447,000
Operating expenses:        
Selling, general and administrative expenses 110,186,000 93,691,000 309,203,000 286,589,000
Acquisition-related costs   45,000   752,000
Depreciation and amortization expenses 18,436,000 17,692,000 55,586,000 51,919,000
Gain on disposition of property, plant and equipment (276,000) (821,000) (1,536,000) (1,071,000)
Foreign exchange loss 336,000 237,000 1,330,000 1,118,000
Total operating expenses 264,158,000 249,636,000 803,581,000 834,729,000
Operating income 67,384,000 40,160,000 190,266,000 151,718,000
Interest expense (8,737,000) (10,090,000) (26,801,000) (31,023,000)
Other income, net 2,280,000 1,962,000 6,714,000 5,680,000
Income before income taxes 60,927,000 32,032,000 170,179,000 126,375,000
Income tax expense 15,437,000 6,760,000 48,741,000 28,800,000
Net income 45,490,000 25,272,000 121,438,000 97,575,000
Net income attributable to:        
Stockholders 45,387,000 25,266,000 121,239,000 97,466,000
Non-controlling interests 103,000 6,000 199,000 109,000
Net income $ 45,490,000 $ 25,272,000 $ 121,438,000 $ 97,575,000
Earnings per share attributable to stockholders:        
Basic $ 0.42 $ 0.23 $ 1.11 $ 0.90
Diluted $ 0.41 $ 0.23 $ 1.10 $ 0.89
Weighted average number of shares outstanding:        
Basic 109,018,469 108,003,390 108,887,026 108,453,525
Diluted 110,369,718 109,381,173 110,060,712 109,634,195
Service Revenue [Member]        
Revenues:        
Total revenue $ 222,679,000 $ 178,577,000 $ 639,941,000 $ 585,555,000
Operating expenses:        
Direct expenses 39,223,000 36,382,000 118,026,000 122,719,000
Inventory Sales Revenue [Member]        
Revenues:        
Total revenue 108,863,000 111,219,000 353,906,000 400,892,000
Operating expenses:        
Direct expenses $ 96,253,000 $ 102,410,000 $ 320,972,000 $ 372,703,000
v3.20.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Condensed Consolidated Statements of Comprehensive Income        
Net income $ 45,490 $ 25,272 $ 121,438 $ 97,575
Other comprehensive loss, net of income tax:        
Foreign currency translation adjustment 12,549 (9,703) 7,445 (8,880)
Total comprehensive income 58,039 15,569 128,883 88,695
Total comprehensive income attributable to:        
Stockholders 57,910 15,586 128,654 88,614
Non-controlling interests 129 (17) 229 81
Total comprehensive income $ 58,039 $ 15,569 $ 128,883 $ 88,695
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 470,285 $ 359,671
Restricted cash 120,014 60,585
Trade and other receivables 333,110 142,627
Less: allowance for credit losses (4,635) (5,225)
Inventory 62,101 64,956
Other current assets 26,279 50,160
Income taxes receivable 5,619 6,810
Total current assets 1,012,773 679,584
Property, plant and equipment 481,047 484,482
Other non-current assets 134,973 145,679
Intangible assets 220,791 233,380
Goodwill 672,746 672,310
Deferred tax assets 15,659 13,995
Total assets 2,537,989 2,229,430
Liabilities and Equity    
Auction proceeds payable 496,936 276,188
Trade and other payables 215,110 194,279
Income taxes payable 11,241 7,809
Short-term debt 20,285 4,705
Current portion of long-term debt 9,926 18,277
Total current liabilities 753,498 501,258
Long-term debt 622,635 627,204
Other non-current liabilities 144,677 151,238
Deferred tax liabilities 52,312 42,743
Total liabilities 1,573,122 1,322,443
Commitments and Contingencies (Note 19 and Note 20 respectively)
Share capital:    
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 108,630,537 (December 31, 2019: 109,337,781) 195,727 194,771
Additional paid-in capital 48,253 52,110
Retained earnings 767,188 714,051
Accumulated other comprehensive loss (51,684) (59,099)
Stockholders' equity 959,484 901,833
Non-controlling interest 5,383 5,154
Total stockholders' equity 964,867 906,987
Total liabilities and equity $ 2,537,989 $ 2,229,430
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
Condensed Consolidated Balance Sheets    
Common stock, no par value $ 0 $ 0
Common stock, issued shares 109,381,891 109,337,781
Common stock, outstanding shares 109,381,891 109,337,781
v3.20.2
Condensed Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Common stock [Member]
Additional paid-in capital ("APIC") [Member]
Retained earnings [Member]
Accumulated other comprehensive income (loss) [Member]
Non-controlling interest ("NCI") [Member]
Contingently Redeemable Performance Share Units [Member]
Total
Balance at Dec. 31, 2018 $ 181,780 $ 56,885 $ 648,255 $ (56,277) $ 5,067 $ 923 $ 835,710
Balance, shares at Dec. 31, 2018 108,682,030            
Net income     97,466   109   97,575
Other comprehensive loss       (8,852) (28)   (8,880)
Comprehensive income     97,466 (8,852) 81   88,695
Stock option exercises $ 14,119 (1,679)         12,440
Stock option exercises, shares 544,576            
Issuance of common stock related to vesting of share units $ 5,886 (10,064) 1     (1,083) (4,177)
Issuance of common stock related to vesting of share units, shares 207,403            
Stock option compensation expense   4,852         4,852
Equity-classified PSU expense   8,640       114 8,640
Equity-classified PSU dividend equivalents   655 (700)     46 (45)
Cash dividends paid     (60,791)       (60,791)
Shares repurchased $ (42,012)           (42,012)
Shares repurchased, shares (1,223,674)            
Balance at Sep. 30, 2019 $ 159,773 59,289 684,231 (65,129) 5,148   843,312
Balance, shares at Sep. 30, 2019 108,210,335            
Balance at Jun. 30, 2019 $ 150,585 54,633 680,915 (55,449) 5,165 1,049 835,849
Balance, shares at Jun. 30, 2019 107,836,674            
Net income     25,266   6   25,272
Other comprehensive loss       (9,680) (23)   (9,703)
Comprehensive income     25,266 (9,680) (17)   15,569
Stock option exercises $ 8,451 (135)         8,316
Stock option exercises, shares 363,217            
Issuance of common stock related to vesting of share units $ 737   1     (1,083) 738
Issuance of common stock related to vesting of share units, shares 10,444            
Stock option compensation expense   1,653         1,653
Equity-classified PSU expense   2,830       21 2,830
Equity-classified PSU dividend equivalents   308 (320)     $ 13 (12)
Cash dividends paid     (21,631)       (21,631)
Balance at Sep. 30, 2019 $ 159,773 59,289 684,231 (65,129) 5,148   843,312
Balance, shares at Sep. 30, 2019 108,210,335            
Balance at Dec. 31, 2019 $ 194,771 52,110 714,051 (59,099) 5,154   906,987
Balance, shares at Dec. 31, 2019 109,337,781            
Net income     121,239   199   121,438
Other comprehensive loss       7,415 30   7,445
Comprehensive income     121,239 7,415 229   128,883
Stock option exercises $ 50,611 (10,417)         $ 40,194
Stock option exercises, shares 1,430,545           1,430,545
Issuance of common stock related to vesting of share units $ 3,515 (7,459)         $ (3,944)
Issuance of common stock related to vesting of share units, shares 138,877            
Stock option compensation expense   4,401         4,401
Equity-classified PSU expense   9,155         9,155
Equity-classified PSU dividend equivalents   463 (463)        
Cash dividends paid     (67,639)       (67,639)
Shares repurchased $ (53,170)           (53,170)
Shares repurchased, shares (1,525,312)            
Balance at Sep. 30, 2020 $ 195,727 48,253 767,188 (51,684) 5,383   964,867
Balance, shares at Sep. 30, 2020 109,381,891            
Balance at Jun. 30, 2020 $ 169,255 47,958 746,048 (64,207) 5,254   904,308
Balance, shares at Jun. 30, 2020 108,630,537            
Net income     45,387   103   45,490
Other comprehensive loss       12,523 26   12,549
Comprehensive income     45,387 12,523 129   58,039
Stock option exercises $ 26,470 (5,701)         20,769
Stock option exercises, shares 751,268            
Issuance of common stock related to vesting of share units $ 2 (7)         (5)
Issuance of common stock related to vesting of share units, shares 86            
Stock option compensation expense   1,671         1,671
Equity-classified PSU expense   4,138         4,138
Equity-classified PSU dividend equivalents   194 (194)        
Cash dividends paid     (24,053)       (24,053)
Balance at Sep. 30, 2020 $ 195,727 $ 48,253 $ 767,188 $ (51,684) $ 5,383   $ 964,867
Balance, shares at Sep. 30, 2020 109,381,891            
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Operating activities:    
Net income $ 121,438,000 $ 97,575,000
Adjustments for items not affecting cash:    
Depreciation and amortization expenses 55,586,000 51,919,000
Stock option compensation expense 4,401,000 4,852,000
Equity-classified share unit expense 9,155,000 8,754,000
Deferred income tax expense (recovery) 8,250,000 (4,760,000)
Unrealized foreign exchange (gain) loss 2,049,000 (129,000)
Gain on disposition of property, plant and equipment (1,536,000) (1,071,000)
Amortization of debt issuance costs 2,375,000 2,701,000
Amortization of right-of-use assets 9,194,000 8,867,000
Gain on contingent consideration from equity investment (1,700,000)  
Other, net 2,427,000 1,025,000
Net changes in operating assets and liabilities 53,912,000 139,372,000
Net cash provided by operating activities 265,551,000 309,105,000
Investing activities:    
Property, plant and equipment additions (9,865,000) (6,915,000)
Intangible asset additions (19,886,000) (18,377,000)
Proceeds on disposition of property, plant and equipment 16,277,000 5,610,000
Distribution from equity investment 4,212,000  
Proceeds on contingent consideration from equity investment 1,700,000  
Other, net (2,630,000) (1,000,000)
Net cash used in investing activities (10,192,000) (20,682,000)
Financing activities:    
Share repurchase (53,170,000) (42,012,000)
Dividends paid to stockholders (67,639,000) (60,791,000)
Issuances of share capital 40,194,000 12,440,000
Payment of withholding taxes on issuance of shares (3,870,000) (5,260,000)
Proceeds from short-term debt 35,799,000 10,519,000
Repayment of short-term debt (22,357,000) (24,979,000)
Repayment of long-term debt (11,134,000) (29,022,000)
Debt issue costs (2,038,000)  
Repayment of finance lease obligations (6,927,000) (4,848,000)
Net cash used in financing activities (91,142,000) (143,953,000)
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash 5,826,000 1,350,000
Increase 170,043,000 145,820,000
Beginning of period 420,256,000 305,567,000
Cash, cash equivalents, and restricted cash, end of period $ 590,299,000 $ 451,387,000
v3.20.2
Summary of significant accounting policies
9 Months Ended
Sep. 30, 2020
Summary of significant accounting policies  
Summary of significant accounting policies

1.    Summary of significant accounting policies

Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide global asset management and disposition services, offering customers end-to-end solutions for buying and selling used industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”).

(a) Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). They include the accounts of Ritchie Bros. Auctioneers Incorporated and its subsidiaries from their respective dates of formation or acquisition. All significant intercompany balances and transactions have been eliminated.

Certain information and footnote disclosure required by US GAAP for complete annual financial statements have been omitted and, therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in equity for the interim periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. The extent of the impact of the COVID-19 pandemic on the operational and financial performance of the Company, including the ability to execute on business strategies and initiatives, will depend on future developments, including the duration and spread of the pandemic and related restrictions placed by oversight bodies and respective global governments, as well as supply and demand impacts driven by the Company’s consignor and buyer base, all of which are uncertain and cannot be easily predicted. Given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on its business operations, results of operations, cash flows or financial performance.

(b) Revenue recognition

Revenues are comprised of:

Service revenue, including the following:
i.Revenue from auction and marketplace (“A&M”) activities, including commissions earned at our live auctions, online marketplaces, and private brokerage services where we act as an agent for consignors of equipment and other assets, and various auction-related fees, including listing and buyer transaction fees; and
ii.Other services revenue, including revenue from listing services, refurbishment, logistical services, financing, appraisal fees and other ancillary service fees; and
Inventory sales revenue as part of A&M activities

The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For live event-based auctions or online auctions, revenue is recognized when the auction sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.

Service revenue

Commissions from sales at the Company’s auctions represent the percentage earned by the Company on the gross proceeds from equipment and other assets sold at auction. The majority of the Company’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor.

1.    Summary of significant accounting policies (continued)

The Company accepts equipment and other assets on consignment stimulating buyer interest through professional marketing techniques and matches sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering an item for sale on its online marketplaces, the Company also performs inspections.

Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage of the hammer price of the property sold at auction. Fees are also charged to sellers for listing and inspecting equipment. Other revenue earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees.

On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission and fee revenue are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer.

Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. Historically cancelled sales have not been material.

Online marketplace commission revenue is reduced by a provision for disputes, which is an estimate of disputed items that are expected to be settled at a cost to the Company, related to settlements of discrepancies under the Company’s equipment condition certification program. The equipment condition certification refers to a written inspection report provided to potential buyers that reflects the condition of a specific piece of equipment offered for sale, and includes ratings, comments, and photographs of the equipment following inspection by one of the Company’s equipment inspectors.

The equipment condition certification provides that a buyer may file a written dispute claim during an eligible dispute period for consideration and resolution at the sole determination of the Company if the purchased equipment is not substantially in the condition represented in the inspection report. Typically disputes under the equipment condition certification program are settled with minor repairs or additional services, such as washing or detailing the item; the estimated costs of such items or services are included in the provision for disputes.

Commission revenue are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor in an auction guarantee risk and reward sharing arrangement.

Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time.

Other services revenue also includes fees for refurbishment, logistical services, financing, appraisal fees and other ancillary service fees. Fees are recognized in the period in which the service is provided to the customer.

1.    Summary of significant accounting policies (continued)

Inventory sales revenue

Underwritten commission contracts can take the form of inventory contracts. Revenue related to inventory contracts is recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.

On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased. Title to the property is transferred in exchange for the hammer price, and if applicable, the buyer transaction fee plus applicable taxes.

(c) Costs of services

Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenue, and earning other fee revenue. Direct expenses include direct labour, buildings and facilities charges, travel, advertising and promotion costs and fees paid to unrelated third parties who introduce the Company to equipment sellers who sell property at the Company’s auctions and marketplaces.

Costs of services incurred to earn online marketplace revenue in addition to the costs listed above also include inspection costs. Inspections are generally performed at the seller’s physical location. The cost of inspections includes payroll costs and related benefits for the Company’s employees that perform and manage field inspection services, the related inspection report preparation and quality assurance costs, fees paid to contractors who perform field inspections, related travel and incidental costs for the Company’s inspection service organization, and office and occupancy costs for its inspection services personnel. Costs of earning online marketplace revenue also include costs for the Company’s customer support, online marketplace operations, logistics, title and lien investigation functions.

Costs of services incurred in earning other fee revenue include ancillary and logistical service expenses, direct labour (including commissions on sales), software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.

(d) Cost of inventory sold

Cost of inventory sold includes the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis.

(e) Share-based payments

The Company classifies a share-based payment award as an equity or liability payment based on the substantive terms of the award and any related arrangement.

Equity-classified share-based payments

Share unit plans

The Company has a senior executive performance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date. PSUs vest based on the passage of time and achievement of performance criteria.

The Company also has a senior executive restricted share unit (“RSU”) plan and an employee RSU plan that provides for the award of RSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle all grants in shares. The cost of RSUs granted is measured at the fair value based on the fair value of the Company’s common shares at the grant date. RSUs vest based on the passage of time and include restrictions related to employment.

1.    Summary of significant accounting policies (continued)

The fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.

Stock option plans

The Company has three stock option compensation plans that provide for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. The fair value of options expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. Upon exercise, any consideration paid on exercise of the stock options and amounts fully amortized in APIC are credited to the common shares.

Liability-classified share-based payments

The Company maintains other share unit compensation plans that vest over a period of up to three years after grant. Under those plans, the Company is either required or expects to settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf, where the settlement amount is determined based on the average price of the Company’s common shares prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.

These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in note 17. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest.

The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in other non-current liabilities.

(f) Leases

The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain vehicle and equipment leases, management applies a portfolio approach to account for the right-of-use (“ROU”) assets and liabilities for assets leased with similar lease terms.

Operating leases

Operating leases are included in other non-current assets, trade and other payables, and other non-current liabilities in our consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Lease expense for lease payments is recognized on a straight-line basis over the lease term and are included in Costs of services or Selling, general, and administrative (“SG&A”) expenses.

1.    Summary of significant accounting policies (continued)

Finance leases

Finance lease ROU assets and liabilities are included in property, plant and equipment, trade and other payables, and other non-current liabilities in our consolidated balance sheets.

Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal, purchase options, or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.

(g) Inventories

Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company typically purchases inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. In addition, certain jurisdictions require auctioneers to hold title to assets and facilitate title transfer on sale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation. As part of its government business, the Company purchases inventory for resale as part of its commitment to purchase certain surplus government property (note 19). The significant elements of cost include the acquisition price of the inventory and make-ready costs to prepare the inventory for sale that are not selling expenses and in-bound transportation costs. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.

(h) Impairment of long-lived and indefinite-lived assets

Long-lived assets, comprised of property, plant and equipment and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.

Indefinite-lived intangible assets are tested annually for impairment as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the indefinite-lived intangible asset is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the carrying amount is less than its fair value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value.

(i) Goodwill

Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.

Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative impairment test is not required.

1.    Summary of significant accounting policies (continued)

If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting unit’s carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit.

(j) New and amended accounting standards

a.Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The new standard replaces the ‘incurred loss methodology’ credit impairment model with a new forward-looking “methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.” In applying the new standard, the Company has adopted the loss rate methodology to estimate historical losses on trade receivables. The historical data is adjusted to account for forecasted changes in the macroeconomic environment in order to calculate the current expected credit loss. The Company’s adoption of ASC 326 did not result in a material change in the carrying values of the Company’s financial assets on the transition date. Periods prior to January 1, 2020 that are presented for comparative purposes have not been adjusted.
b.In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides “optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.” The amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company’s use of LIBOR is applicable on short term drawings on the committed revolving credit facilities in certain jurisdictions. If applicable, the Company will use the optional expedients available when reference rate changes occur.
c.Effective January 1, 2020, the Company adopted ASU 2018-15, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract on a prospective basis. The update aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service agreement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The adoption of ASU 2018-15 on January 1, 2020 using the prospective transition approach did not result in a material impact to the consolidated financial statements.

v3.20.2
Significant judgments, estimates and assumptions
9 Months Ended
Sep. 30, 2020
Significant judgments, estimates and assumptions  
Significant judgments, estimates and assumptions

2.    Significant judgments, estimates and assumptions

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.

Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur. Significant items subject to estimates include purchase price allocations, the carrying amounts of goodwill, the useful lives of long-lived assets, share based compensation, the determination of lease term and lease liabilities, deferred income taxes, reserves for tax uncertainties, and other contingencies.

As of September 30, 2020, the Company performed a qualitative assessment of the A&M reporting unit and the Mascus reporting unit with consideration of the current global economic downturn as a result of COVID-19 and the Company concluded there were no indicators of impairment.

v3.20.2
Seasonality
9 Months Ended
Sep. 30, 2020
Seasonality  
Seasonality

3.    Seasonality

The Company’s operations are both seasonal and event driven. Historically, revenues tend to be the highest during the second and fourth calendar quarters. The Company generally conducts more live, on site auctions during these quarters than during the first and third calendar quarters. Late December through mid-February and mid-July through August are traditionally less active periods. Online volumes are similarly affected as supply of used equipment is lower in the third quarter as it is actively being used and not available for sale.

The restrictions imposed and effects of the overall economic environment as a result of the COVID-19 pandemic may continue to impact these trends.

v3.20.2
Segmented information
9 Months Ended
Sep. 30, 2020
Segmented information  
Segmented information

4.    Segmented information

The Company’s principal business activity is the management and disposition of used industrial equipment and other durable assets. The Company’s operations are comprised of one reportable segment and other business activities that are not reportable as follows:

Auctions and Marketplaces – This is the Company’s only reportable segment, which consists of the Company’s live on site auctions, its online auctions and marketplaces, and its brokerage service;
Other includes the results of Ritchie Bros. Financial Services (“RBFS”), Mascus online services, and the results from various value-added services and make-ready activities, including the Company’s equipment refurbishment services, asset appraisal services, and Ritchie Bros. Logistical Services.

Three months ended September 30, 2020

Nine months ended September 30, 2020

    

A&M

    

Other

    

Consolidated

    

A&M

    

Other

    

Consolidated

Service revenue

$

188,949

$

33,730

$

222,679

$

543,340

$

96,601

$

639,941

Inventory sales revenue

 

108,863

 

 

108,863

 

353,906

 

 

353,906

Total revenue

$

297,812

$

33,730

$

331,542

$

897,246

$

96,601

$

993,847

Costs of services

 

21,733

 

17,490

 

39,223

 

69,018

 

49,008

 

118,026

Cost of inventory sold

 

96,253

 

 

96,253

 

320,972

 

 

320,972

Selling, general and administrative expenses ("SG&A")

 

103,933

 

6,253

 

110,186

 

290,077

 

19,126

 

309,203

Segment profit

$

75,893

$

9,987

$

85,880

$

217,179

$

28,467

$

245,646

Depreciation and amortization expenses ("D&A")

 

  

 

  

 

18,436

 

  

 

  

 

55,586

Gain on disposition of property, plant and equipment ("PPE")

 

  

 

  

 

(276)

 

  

 

  

 

(1,536)

Foreign exchange loss

 

  

 

  

 

336

 

  

 

  

 

1,330

Operating income

 

  

 

  

$

67,384

 

  

 

  

$

190,266

Interest expense

 

  

 

  

 

(8,737)

 

  

 

  

 

(26,801)

Other income, net

 

  

 

  

 

2,280

 

  

 

  

 

6,714

Income tax expense

 

  

 

  

 

(15,437)

 

  

 

  

 

(48,741)

Net income

 

  

 

  

$

45,490

 

  

 

  

$

121,438

4.    Segmented information (continued)

Three months ended September 30, 2019

Nine months ended September 30, 2019

    

A&M

    

Other

    

Consolidated

    

A&M

    

Other

    

Consolidated

Service revenue

$

150,093

$

28,484

$

178,577

$

494,580

$

90,975

$

585,555

Inventory sales revenue

 

111,219

 

 

111,219

 

400,892

 

 

400,892

Total revenue

261,312

 

28,484

 

289,796

$

895,472

$

90,975

$

986,447

Costs of services

 

21,431

 

14,951

 

36,382

 

74,799

 

47,920

 

122,719

Cost of inventory sold

 

102,410

 

 

102,410

 

372,703

 

 

372,703

SG&A expenses

 

88,138

 

5,553

 

93,691

 

268,786

 

17,803

 

286,589

Segment profit

$

49,333

 

7,980

 

57,313

$

179,184

$

25,252

$

204,436

Acquisition-related costs

 

 

  

 

45

 

  

 

  

 

752

D&A expenses

 

  

 

 

17,692

 

  

 

  

 

51,919

Gain on disposition of PPE

 

 

 

(821)

 

  

 

  

 

(1,071)

Foreign exchange loss

 

 

 

237

 

  

 

  

 

1,118

Operating income

 

 

 

40,160

 

  

 

  

$

151,718

Interest expense

 

 

  

 

(10,090)

 

  

 

  

 

(31,023)

Other income, net

 

 

  

 

1,962

 

  

 

  

 

5,680

Income tax expense

 

  

 

  

 

(6,760)

 

  

 

  

 

(28,800)

Net income

 

  

 

  

 

25,272

 

  

 

  

$

97,575

The Company’s geographic breakdown of total revenue is as follows:

United 

  

States

Canada

Europe

Other

Consolidated

Total revenue for the three months ended:

    

  

    

  

    

  

    

  

    

  

September 30, 2020

$

177,883

$

58,059

$

41,891

$

53,709

$

331,542

September 30, 2019

156,380

 

56,129

 

34,522

 

42,765

 

289,796

Total revenue for the nine months ended:

 

 

 

 

 

September 30, 2020

$

573,001

$

191,692

$

115,659

$

113,495

$

993,847

September 30, 2019

552,186

 

178,069

 

136,590

 

119,602

 

986,447

v3.20.2
Revenue
9 Months Ended
Sep. 30, 2020
Revenue  
Revenue

5.    Revenue

The Company’s revenue breakdown is as follows:

Three months ended

Nine months ended

    

September 30, 

September 30, 

 

2020

2019

2020

2019

Service revenue:

  

    

  

    

  

    

  

Commissions

$

112,762

$

90,928

$

331,711

$

317,674

Fees

 

109,917

 

87,649

 

308,230

 

267,881

 

222,679

 

178,577

 

639,941

 

585,555

Inventory sales revenue

 

108,863

 

111,219

 

353,906

 

400,892

$

331,542

$

289,796

$

993,847

$

986,447

v3.20.2
Operating expenses
9 Months Ended
Sep. 30, 2020
Operating expenses  
Operating expenses

6.    Operating expenses

Costs of services

Three months ended

Nine months ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Ancillary and logistical service expenses

$

16,550

  

$

13,285

$

45,368

  

$

43,516

Employee compensation expenses

11,442

 

11,555

35,057

 

37,268

Buildings, facilities and technology expenses

1,653

 

1,655

7,768

 

5,961

Travel, advertising and promotion expenses

4,782

 

5,765

17,518

 

24,440

Other costs of services

4,796

 

4,122

12,315

 

11,534

$

39,223

$

36,382

$

118,026

$

122,719

SG&A expenses

Three months ended

Nine months ended

September 30, 

 

September 30, 

    

2020

    

2019

    

2020

    

2019

Employee compensation expenses

$

78,430

 

$

60,680

$

211,732

$

186,033

Buildings, facilities and technology expenses

 

15,901

 

14,569

 

46,108

 

45,066

Travel, advertising and promotion expenses

 

5,479

 

10,033

 

20,565

 

28,400

Professional fees

 

4,546

 

3,685

 

13,570

 

11,915

Other SG&A expenses

 

5,830

 

4,724

 

17,228

 

15,175

$

110,186

 

$

93,691

$

309,203

$

286,589

Depreciation and amortization expenses

Three months ended

Nine months ended

September 30, 

    

September 30, 

    

2020

    

2019

    

2020

    

2019

Depreciation expense

$

7,705

$

7,305

$

23,278

$

21,630

Amortization expense

 

10,731

 

10,387

 

32,308

 

30,289

$

18,436

$

17,692

$

55,586

$

51,919

v3.20.2
Income taxes
9 Months Ended
Sep. 30, 2020
Income taxes  
Income taxes

7.    Income taxes

At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

For the three months ended September 30, 2020, income tax expense was $15,437,000, compared to an income tax expense of $6,760,000 for the same period in 2019. The effective tax rate was 25% in the third quarter of 2020, compared to 21% in the third quarter of 2019.

The effective tax rate increased in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to an increased proportion of income taxed in jurisdictions with higher tax rates, a greater income tax expense related to increases in tax uncertainties in 2020 compared to 2019, and a higher estimate of non-deductible expenses. The higher estimate of non-deductible expenses are primarily due to final regulations published on April 8, 2020 by the United States Department of Treasury and the Internal Revenue Service (“IRS”) that clarified income tax benefits related to hybrid financing arrangements would not be deductible (“Hybrid Interest”).

For the nine months ended September 30, 2020, income tax expense was $48,741,000, compared to an income tax expense of $28,800,000 for the same period in 2019. The effective tax rate was 29% for the nine months ended September 30, 2020, compared to 23% for the nine months ended September 30, 2019.

The effective tax rate increased in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to Hybrid Interest benefits that are no longer deductible as of January 1, 2019. The Company had recorded approximately $6,228,000 in Hybrid Interest benefits in the twelve months ended December 31, 2019. In addition, there was greater income tax expense related to increases in tax uncertainties in 2020 than in 2019, and a greater proportion of income taxed in jurisdictions with higher tax rates. Partially offsetting these increases was the reduced impact of the US tax reform.

v3.20.2
Earnings per share attributable to stockholders
9 Months Ended
Sep. 30, 2020
Earnings per share attributable to stockholders  
Earnings per share attributable to stockholders

8.    Earnings per share attributable to stockholders

Basic earnings per share (“EPS”) attributable to stockholders was calculated by dividing the net income attributable to stockholders by the weighted average (“WA”) number of common shares outstanding during the period. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders by the WA number of shares of common stock outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include unvested PSUs, unvested RSUs, and outstanding stock options. The dilutive effect of potentially dilutive securities is reflected in diluted EPS by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

Three months ended

Nine months ended

September 30, 2020

September 30, 2020

Net income

WA

Per

Net income

WA

Per

 

attributable to

 

number

 

share

attributable to

 

number

 

share

 

    

stockholders

    

of shares

    

amount

    

stockholders

    

of shares

    

amount

Basic

$

45,387

 

109,018,469

$

0.42

$

121,239

 

108,887,026

$

1.11

Effect of dilutive securities:

 

 

 

 

 

 

Share units

 

 

548,859

 

 

 

519,915

 

Stock options

 

 

802,390

 

(0.01)

 

 

653,771

 

(0.01)

Diluted

$

45,387

 

110,369,718

$

0.41

$

121,239

 

110,060,712

$

1.10

8.    Earnings per share attributable to stockholders (continued)

Three months ended

Nine months ended

September 30, 2019

September 30, 2019

Net income

WA

Per

Net income

WA

Per

 

attributable to

 

number

 

share

attributable to

 

number

 

share

    

stockholders

    

of shares

    

amount

stockholders

    

of shares

    

amount

Basic

25,266

108,003,390

0.23

$

97,466

 

108,453,525

$

0.90

Effect of dilutive securities:

 

 

 

Share units

481,268

 

 

430,175

 

Stock options

896,515

 

 

750,495

 

(0.01)

Diluted

$

25,266

109,381,173

$

0.23

$

97,466

 

109,634,195

$

0.89

v3.20.2
Supplemental cash flow information
9 Months Ended
Sep. 30, 2020
Supplemental cash flow information  
Supplemental cash flow information

9.    Supplemental cash flow information

Nine months ended September 30, 

2020

2019

Trade and other receivables

 

$

(185,899)

 

$

(123,667)

Inventory

3,938

58,791

Advances against auction contracts

6,566

4,528

Prepaid expenses and deposits

2,184

309

Income taxes receivable

1,191

(4,123)

Auction proceeds payable

213,596

248,587

Trade and other payables

20,675

(48,882)

Income taxes payable

4,179

14,050

Operating lease obligation

(8,809)

(10,762)

Other

(3,709)

541

Net changes in operating assets and liabilities

 

$

53,912

 

$

139,372

Nine months ended September 30, 

2020

2019

Interest paid, net of interest capitalized

 

$

31,173

 

$

34,955

Interest received

1,775

2,491

Net income taxes paid

32,750

23,193

Non-cash purchase of property, plant and equipment under finance lease

 

8,431

 

10,747

Non-cash right of use assets obtained (reassessed) in exchange for new lease obligations

 

595

 

28,121

September 30, 

December 31, 

2020

2019

Cash and cash equivalents

 

$

470,285

$

359,671

Restricted cash

120,014

60,585

Cash, cash equivalents, and restricted cash

 

$

590,299

$

420,256

v3.20.2
Fair value measurement
9 Months Ended
Sep. 30, 2020
Fair value measurement  
Fair value measurement

10.    Fair value measurement

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at measurement date;
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: Unobservable inputs for the asset or liability.

10.    Fair value measurement (continued)

September 30, 2020

December 31, 2019

Carrying

Carrying

    

Category

    

amount

    

Fair

value