RITCHIE BROS AUCTIONEERS INC

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.

The majority of the Company‘s operating leases have a fixed term with a remaining life between one month and 20 years, with renewal options included in the contracts. The leases have varying contract terms, escalation clauses and renewal options. Generally there are no restrictions placed upon the lessee by entering into these leases, other than restrictions on use of property, sub-letting and alterations. At the inception of a lease, the Company determines whether it is reasonably certain to exercise a renewal option and includes the options in the determination of the lease term and the lease liability where it is reasonably certain to exercise the option. If the Company’s intention is to exercise an option subsequent to the commencement of the lease, the Company will re-assess the lease term. The Company has included certain renewal options in its operating lease liabilities for key property leases for locations that have strategic importance to the Company such as its Corporate Head Office. The Company has not included any purchase options available within its operating lease portfolio in its determination of its operating lease liability.

The decline in service revenue resulted from a 9% decrease in commissions offset by a 7% increase in fees. Lower commissions were attributable to lower price realization on guarantee contracts as well as a decrease in the volume of straight commission contracts. The lower rates earned from guarantee contracts was partially due to softer price performance on specific assets in greater supply at the 2019 Orlando auction. Fee revenue increased 7% due to moderately higher GTV volume with an increased proportion of low value lots, online inspection fees and fees earned from RBFS.

Foreign exchange had an unfavourable impact on total revenue in Q1 2019 due to fluctuations in the Euro and Canadian exchange rate relative to the U.S. dollar.

Cash provided by operating activities increased $4.7 million in Q1 2019 compared to Q1 2018. This increase was primarily due to changes in certain of our operating assets and liabilities and a $1.0 million increase in our net income over the comparative period. Changes in operating assets and liabilities generated $2.1 million more cash in Q1 2019 than Q1 2018, which included a $34.0 million increase in cash from changes in inventory, partially offset by changes in trade and other payables. Inventory changes consisted primarly of a reduction in inventory in the United States and Europe during Q1 2019. Changes in trade and other payables were driven by payment of annual bonus, interest on senior notes, as well as, the timing, size, and number of auctions over the comparative period, as well as the volume of our inventory contracts.

We declared and paid a regular cash dividend of $0.17 per common share for the quarter ended March 31, 2018, and $0.18 per common share for the quarters ended June 30, 2018, September 30, 2018, and December 31, 2018. We have declared, but not yet paid, a dividend of $0.18 per common share for the quarter ended March 31, 2019. All dividends that we pay are “eligible dividends” for Canadian income tax purposes unless indicated otherwise.
Our dividend payout ratio, which we calculate as dividends paid to stockholders divided by net income attributable to stockholders, decreased to 62.9% for the 12 months ended March 31, 2019 from 89.0% for the 12 months ended March 31, 2018. This decrease is primarily due to the increase in net income attributable to stockholders over the comparative period. Our adjusted dividend payout ratio (non-GAAP measure) decreased to 64.9% for the 12 months ended March 31, 2019 from 79.0% for the 12 months ended March 31, 2018.