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Executives

Peter Blake – CEO

Rob Mackay – President

Jeremy Black – VP, Business Development and Corporate Secretary

Bob Armstrong – COO

Rob McLeod – CFO

Analysts

Bert Powell – BMO Capital Markets

Scott Stember – Sidoti & Company

Jamie Sullivan – RBC Capital Markets

Hamzah Mazari – Credit Suisse

Scott Schneeberger – Oppenheimer

David Wells – Thompson Research Group

Craig Kennison – Robert W. Baird & Company

Gary Prestopino – Barrington Research

Ritchie Bros. Auctioneers Incorporated (RBA) Q3 2010 Earnings Call Transcript November 2, 2010 11:00 AM ET

Operator

Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers 2010 quarter three earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Peter Blake of Ritchie Brothers, you may begin your conference.

Peter Blake

Great, thanks Beth, and good morning everyone. I am Peter Blake, CEO of Ritchie Brothers, and thanks for joining us on the call today, our Q3 2010 investor conference call. I am joined today by Bob Armstrong, our Chief Operating Officer; Rob Mackay, our President; Rob McLeod, our CFO; and Jeremy Black, our Vice President of Business Development and Corporate Secretary.

Before we start, I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact, including projections of future earnings, revenue, gross auction proceeds or other financial items are considered forward-looking and involve risks and uncertainties.

These risks and uncertainties that may affect our performance significantly or could cause our actual, financial, and operating results to differ significantly from our forward-looking statements are detailed from time to time in our SEC, and Canadian Securities Filings, including our management’s discussion and analysis of financial conditions, and results of operations for the period ended September 30th, 2010 and subsequent quarters, which is available on the SEC, SEDAR, and company websites.

Actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained in this call, which speaks only as of today’s date. I would also like to note that during today’s call, we will talk about gross auction proceeds, which represents the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. Gross auction proceeds are an important measure we use in comparing and assessing our operating performance, and it is not a measure of financial performance, liquidity or revenue and is not presented in our statement of operations. The most directly comparable measure in our financial statements is auction revenues, which represent the revenues we earn in the course of conducting our auctions.

Today, we plan to give you a quick recap of our recent strategic development process and some of the highlights of Q3 before opening the call to questions. Our prepared comments will take about 25 minutes.

We are pleased to report that our third quarter represented the highest third quarter auction revenue performance in our history and reflected solid gross auction proceeds growth and a strong auction revenue rate. Although we are very pleased with our performance in the third quarter of this year, we are still seeing considerable uncertainty in our major marketplaces and the used equipment market has not yet returned to what we would consider a balanced state.

Rob Mackay is going to talk in a moment about our impressions of the current equipment landscape, but I will say that we remain cautious, because like many other participants, we continue to face challenging market conditions particularly in the United States, and we expect this will continue for the remainder of 2010. We believe we have increased our market share meaningfully during these many months of economic uncertainty and are therefore well positioned to capitalize once equipment transaction volumes stabilize.

Many of you will have seen our press release this morning announcing our planned launch during 2011 of a number of strategic initiatives designed to build off our focus on people, places and processes to help grow and enhance our core business as well as make our auctions more appealing to a broader range of equipment owners. As we have gone through our extensive strategic planning process over the last number of months, we have been paying particular attention to the reasons why equipment owners do and do not take advantage of our auctions to manage their fleets.

Our recent customer surveys have highlighted the fact that the vast majority of equipment owners do not even know who we are, never mind understanding the compelling value of our auctions. As a result, a major focus of our new initiatives will be to continue to extend the appeal of our auctions to equipment owners around the world. We aim to continue to make our auctions as compelling as possible by providing business solutions that enable equipment owners around the world to easily and confidently exchange their equipment. At the end of the day, we want to create as many reasons as possible for new and existing customers to participate in our auctions to ensure we continue to capture in increasing share of the large and fragmented equipment market.

Over the last five years, we have been on an accelerated CapEx program designed to expand our auctions site network and provide higher quality services to an increasing number of equipment owners in more markets around the world. In that time, we have invested roughly $370 million in our network and $50 million in our systems to provide the highest possible level of service for our customers. These investments and our focus on innovation have made our auctions more appealing to equipment owners as evidenced by the increase in bidder registrations at our auctions over the last few years, and by the increase in unique visitors to our Website, which Bob will highlight in a few minutes.

Attracting bidders is an important first step in the evolution of customer and this is often their very first introduction to our auctions. If we can contain to attract an increasing number and diversity of bidders to our auctions, this will help grow our consignments and ultimately our net earnings. In response to extensive feedback received from our customers and to broaden and deepen our appeal to new customers and enhance the convenience and ease of our auctions, we intend to introduce some new features during 2011. One of the more significant changes will be a bundle of new services for bidders and buyers of equipment.

This bundle services will include enhanced equipment information, a customer-financed program, and other value-added services designed to make our customers experience easier and instill even more confidence in the process. Providing enhanced equipment information will address a growing need among equipment buyers who is simply looking for more when buying used equipment. High on their list of needs is a high quality zoomable photographs to which we have already responded with the recent launch of our new 21-language Website.

We will be adding substantially more narrative information to accompany these photographs to satisfy our customers’ additional needs. We also intend to amend and simplify our administrative fee structure effective July 1, 2011. We are planning to eliminate the 2% fee charge on Internet and proxy bid purchases and revise the administrative fee currently charged to buyers to address the cost of providing the new and significantly enhanced bidder and buyer services that we will be launching during 2011 as well as the cost of other buyer initiative launched in recent years.

The current 10% administrative fee will continue to be charged on all lots that sell for $2,500 or less and we intend to introduce a 2.5% administrative fee to be charged on all lots that sell for more than $2,500 with a maximum fee of $950 per lot. Interestingly, most auction companies already charge similar or higher fees to buyers but do not offer the range and quality of service that we currently provide. The changes to our fee structure that will take effect during 2011 are designed to ensure we can continue to deliver the highest possible level of service to our customers and maintain our track record of innovation.

We expect the new services that we will be introducing during 2011 will make our customers experience easier and give them a higher level of confidence when they buy and sell equipment their auctions. While the services will start rolling out in the first half of 2011, the revised fee structure will not come into effect until July 1, 2011. We intend to invest in the introduction of these new services and features, which will cause an increase in our G&A costs, starting in early 2011. It will also result in an increase in our revenue starting July 1, 2011, with an overall positive impact on our net earnings for 2011 and future years.

I will let Jeremy address the expected impact of our new initiatives and earnings guidance, but let me conclude by saying that the changes we introducing are an important step in our evolution. Our fee structure needs to keep pace with the investments we have made and will be making as well as to be simple and transparent for our customers. I will stay for the details for our updated strategic plan for future calls. For the time being, please note that we are very focused on growing our business and many of the initiatives we will introduce over the coming months and years are being designed with that in mind.

We are looking to do more business with our traditional customer groups as well as introduce new customer groups and markets into the mix. The growth, development, and productivity of our team will continue to be an important emphasis for us, and we will be layering on new business and information solutions that enable our customers to easily and confidently exchange equipment.

With that, let me turn the call over to Rob Mackay for an update on what we are seeing in the equipment markets.

Rob Mackay

Thanks Pete. Although our Q3 GAAP performance came in strong, it is probably too soon to say that we are out of the woods. There are lot of signs of improvements in the global economy, with some meaningful changes that will positively affect our business in time, including increasing equipment manufacturing levels, demand for new machines returning albeit cautiously, stabilization of prices and continued improvement for late model lower assets and construction spending inching its way back.

We still however have a clouded view of activity levels as we look into our business for the balance of the year. Achieving our targeted GAAP for Q4 could still be affected by a number of market factors. In particular, these are supply challenges are an issue by which I mean, we are continuing, we are seeing continued tightness of use of equipment supply, the dramatically lower production levels of new equipment over the last few years and managed distribution for new equipment from the OEMs are affecting supply. Equipment owners are slowly starting to replace their aging fleets and combined with the OEM’s managed production, the supply and demand imbalance continues to fluctuate. Low interest rates, lack of confidence in the economy, some lack of urgency on the part of creditors to react and liquidate assets continue to result in lack of movement by potential sellers, previously noted apprehension about price increases for Tier 4 EPA-compliant equipment continues to be a very common discussion with our customers.

All of these factors challenge the supply of available equipment in the marketplace for RBA to sell. And second factor we are faced with is competition, which continues to intensify. As the pricing environment continues to firm and most categories of late model equipment attract stronger values in the market, the competition for equipment has heated up significantly. We are seeing more competition for late model equipment coming from dealers, in some cases, they are purchasing this late model equipment for the rental fleets, in other cases, they are taking these near new items into inventory because of uncertain OEM production of delivery times along with the potential for price increases on new Tier 4 compliant products.

Brokers also have taken strong confidence in the firming of prices and now are very aggressive on small deals or individual items. As production and sales of new equipment continue to pick up, we expect to see the overall used equipment market become more balanced and rationale and this should have a positive impact on our growth. Factor number three would be dealer consignments. In normal markets, dealer consignment activity is quite regular and provides additions to many of our sales. Today, many dealers are gaining more comfort with their inventories and are able to move their stock as need resulting in diminished consignment levels from this customer group.

Factor number four is debt. This still remains a consideration in our business. It’s still affecting certain deals that we are pursuing, and we are experiencing a fair amount of auction business where consignments get signed and committed to the auctions only to have the banks refuse to release their interest in the equipment, because the projected proceeds are lower than the loan balances.

Lastly, a final wild card is the large deals we are working on. Our sales team has a significant number of large deals under discussion, but may or may not come to market in Q4. While we may not get these consignments committed to Q4 sales, there may not be loss to other sales channels. The customer may choose to wait for a number of reasons including they may need to finish current work underway, they may proceed better pricing levels in the spring, and they may be awaiting the outcome of the U.S. election and may have the belief things will improve if their preferred party gains influence.

While we remain optimistic, it is still too soon to say we are close to turning the corner. Although there have recently been a number of articles and industry analysts comments indicating constructions spending and setting up, a lot has to happen to give the equipment owners visibility into the future and the necessary confidence to make equipment buying and selling decisions. We remain confident that our slowdown in sales and the contraction of the used equipment market are timing issues and a return to more familiar state is inevitable.

However this is tough to predict due to the many factors affecting the global used equipment market, in any of them, we are very comfortable in our view that our growth story and business model are very much intact and only the timing is uncertain. Back to you, Pete.

Peter Blake

Okay. Thanks Rob. Clearly, the current used equipment market is complex and we are not the only market participants that are facing challenges, however we are not sitting idly by and hoping for a return to the good old days, and we continue to take prudent steps now to focus on performance in the near term and set ourselves up for success over the long term.

The strategic initiatives that I have discussed previously are just some examples of what we are doing, and our G&A performance to date is a testament to our commitment and ability to manage our business prudently in the face of challenging market conditions that we see as temporary in nature. Now, over to Jeremy for an update on our guidance.

Jeremy Black

Thanks Pete. First, let me talk about the remainder of 2010 before talking about 2011. Our previous gross auction proceeds guidance of $3.3 billion to $3.5 billion for 2010 remains valid, though it is now looking like we will come in at the bottom of this range given the continued supply side challenges Rob alluded to in his discussion. Our previous adjusted net earnings guidance is 25% to 30% below 2009 adjusted net earnings is still valid.

Our auction revenue rate for the first nine months of 2010 is 10.85%, and we expect it to remain above trend for the full year though we expect some moderation in Q4. Although we expect to grow our business in 2011, the environment remains somewhat opaque right now, and this means accurate predictions remain challenging. We didn’t do a good job of predicting 2010 and next year is still too uncertain to forecast reasonably right now. As a result, we are not going to provide any detail about our 2011 GAAP or auction revenue expectations at this time. Our strategic initiatives and revised fee structure will result in increased costs and revenues in 2011, with an overall positive impact on adjusted net earnings for the year.

It is too soon to give more details about the effect of the new initiatives on specific line items, so it is probably best to think in terms of a lump sum impact for now. By applying GAAP levels consistent with the current year, we would expect incremental pretax earnings for 2011 to be in the range of $10 million, and for 2012 being our first full fiscal year with these new initiatives in place, we would expect annual incremental pretax earnings in the range of $30 million. This is on top of any earnings growth derived from increased GAAP. I will caution you that these are preliminary numbers and many of our initiatives need to be scoped out further before we can be more precise. However, based on our current information, we believe these to be reasonable estimates of the positive effect we are expecting from new initiatives to be launched in 2011.

We are telling you now because we view the expected impact of our new initiatives to be material. Bob, do you want to talk about our CapEx and expected impact of our new initiatives?

Bob Armstrong

Thanks Jeremy. We have been very busy over the last few years rolling out systems designed to enhance the level of service we are offering our customers and to create efficiencies and improve scalability. A great example of these initiatives is our time to auction system, used for selling many lower value lots, and we are on track to have the majority of our permanent sites up and running by the end of this year. This system helps to deliver more convenience and ease to our buyers and value to our sellers, while allowing us to be much more efficient and scalable in a sale of these lots.

The positive impact on direct expenses is already being felt, and once our rollout is complete, we will be able to provide more details of the positive financial impact of this system. We have also continued our auction site development efforts that which we have talked about in the past, the accelerated program on which we embarked in 2004, is now winding down, in line with our expected timing.

Our current expectation is that we will continue to add auction sites to our network in the future, but the pace will be slower and our CapEx will be lower. Current near-term replacement targets include replacement permanent auction sites in Olympia and Phoenix among others. We are on track to have our grand opening sale of our new regional auction unit in Germany in November, and that will bring our network to 43 sites by the end of the year.

Based on our current expectations for auction site development and systems and processes, we expect to introduce as a result of our new strategic initiatives, we are looking at CapEx in the range of $70 million to $80 million per year for each of the next several years. I know some people might question the dramatic drop in CapEx from the 2009 peak, but as a reminder, this reduction was planned and the peak CapEx program was not intended to be sustained over the long term. We currently have excess capacity in our network, and we are well positioned to handle the growth we expect in the coming years.

Before I pass the call to Rob McLeod to talk about the highlights of our financial performance of the third quarter, I want to outline some exciting statistics regarding our online presence. As you may recall, we launched our significantly improved Website in May of this year. After the initial teething pains of adapting to new technology, our customers have really taken to our new site. In Q3 alone, we saw a 15% increase in unique visitors to our Website and a 23% increase in new visitors both compared to Q3 of last year. The average time of visitors spending on our new site was up 12% compared to Q3 last year. And on top of the stats, we are also seeing activity from customers in countries where we do not even have a physical presence, which points to the power of our multi-language Website. A great example is recent online activity from customers in Vietnam who have not in the past been able to navigate through our site in their own language. Now they can and they conduct equipment searches and other activities in their native language, which makes it much easier for them to do business with us.

Rob, do you want to talk now about our Q3 performance?

Rob McLeod

Thanks Bob. As Pete mentioned previously, our quarter three auction revenues were a record for a third quarter. This was driven by solid gross auction proceeds growth and a strong auction revenue rate. The auction revenue rate continues to performance above our long-term expected rate and this above-trend performance continues to be driven by our at-risk business.

As anticipated, our G&A for the first nine months of 2010 was higher than 2009 as a result of our ongoing investments in people and facilities. In addition, foreign exchange fluctuations resulted in a $6 million increase in our G&A for the nine months compared to last year. I would also like to update you on our CapEx plans for the remainder of 2010. As we do each quarter, we have gone through a detailed review of all capital projects in the pipeline to reconfirm the timing of projects.

As a result of this review, we now expect CapEx for 2010 to be in the range of $70 million. We have some important projects in the hopper waiting for the right conditions to proceed. As Bob mentioned, our CapEx is being reduced in line with our plan and previous guidance, and we are continuing to focus on making investments that are prudent in light of the current economic environment, in which we are operating. Pete, back to you.

Peter Blake

Okay. Thanks Rob and thank you again all of you for joining us today on the call. Before I finish with our prepared comments and open it to questions, I want to briefly recap the main takeaways from today.

Adjusted net earnings came in at approximately $0.49 per diluted share for the first nine months of 2010, in line with our expectations for the period and on the back of record auction revenues in the third quarter. We are reiterating our 2010 full-year earnings guidance be in the range of 25% to 30% below our 2009 adjusted net earnings. During 2011, we will be introducing a number of bidder and buyer-focused services designed to make our auctions more compelling and provide our customers with increased confidence and ease which are expected to enhance our growth.

We intend to modify and simplify our administrative fee structure commencing July 1, 2011 to ensure we are earning a reasonable return on the buyer facing services we have rolled out in recent years and in the new ones that will be coming in 2011. The net effect of these changes to our fee structure and the costs we expect to incur to implement the new initiatives is anticipated to be incremental earnings before tax in the range of $10 million for 2011, and in the range of $30 million for 2012. And most importantly, our business model is very much intact. We are experiencing used equipment market conditions primarily in the USA that are challenging our ability to grow in the short term. These will undoubtedly improve the equipment markets return to a more balanced state.

We have made important investments over the last number of years and that leaves us well positioned for future high margin growth. So, we remain focused on making prudent decisions to set our company out for success over the long term. We look forward to sharing more information with you on our next scheduled call in February.

Beth, can you please open the call to questions?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Bert Powell of BMO Capital Markets. Your line is open.

Bert Powell – BMO Capital Markets

Thanks. Pete, can you give us a little bit more detail in terms of what you mean by the enhanced services as it relates to customer finance programs? And then on the equipment information, you talked about more narrative and better pictures, is there anything more to it than that, is this starting to look like more like a certificate of what the equipment is? Just help us get a little bit more clarity on what you mean by that?

Peter Blake

Sure Bert. I will take the first part of customer finance and I will let Bob speak to the equipment info. On customer finance, it’s not intended that Ritchie Brothers take a position or credit risk in this. It will be much like an uShip relationship where we are a platform and we coordinate and match interested loans to interested debtors and creditors.

Bert Powell – BMO Capital Markets

So, you haven’t gotten into a white label situation with anybody at this point, kind of back to the Citigroup days?

Peter Blake

No, no, the intent, well even the Citigroup that wasn’t in any form us taking a risk position, but what the intent is, is the thing that we do best, Bert is we coordinate a marketplace. It’s going to help coordinate a marketplace, there’s already a demand for loans that are coming from people who come in attend the auctions. There is a whole bunch of people who want to supply loans and we just have to coordinate and assemble in a coordinated manner, all of the lenders to all of the interested people that are coming to the auctions, and the intent is for us to create a platform for that, and that will be rolling out prior to mid of next year.

We have been playing around with this since the Citi relationship and GE came in and acquired Citi. So, we have been playing with this for quite some time, and we felt that now is the time to bring this forward primarily because of customer interest and demand.

Bert Powell – BMO Capital Markets

So, will you be developing technology to do, I guess what sounds like matching, is that something that you are going to do, or is that something you are going to do as you mentioned, Pete, with like the uShip? You bring somebody else in who has the technology and has the hooks back into the providers and let them worry about your managing and spending money on that platform and you guys just sort of have it as, you know, we are endorsing this approach and we have it on site available for our customers.

Peter Blake

Well, rather than get into specifics, Bert, let me just sort of to aggregate the comment. Listen, our effort is to coordinate interested people that want loans and interested people that want to make loans, and we are going to act in the middle. We are not going to take credit risk, but we will be assembling a very efficient, very effective and an online type program where people can get connected very, very quickly. The specifics of that, we are not going to speak to you today, but there is something that’s been in development for a little while here. So, let me end with that, and I will let Bob speak to the equipment info.

Bert Powell – BMO Capital Markets

Sure.

Bob Armstrong

Sure. And I guess a similar background, I guess the reason we got into the equipment finance or getting into the equipment finance side is the same reason we are planning to provide increased and enhanced equipment information. These are just some of the number one requests that our customers had for us for years, and we have been debating it internally for quite some time about increasing the quantity and quality of information about the equipment we provide. You asked the question, would we be providing like a certificate, and the intention there is no. We are not looking to get away from as is, where is, but we do want significantly increase the confidence level of our buyers and bidders when they are looking at the equipment either in person or online, and we know that the way to do that is to provide more and higher quality and more detailed information providing photographs in increased number and quality of photographs was the first step, we did that this year.

In 2011, we are looking to expand meaningfully the quantity and quality of information that we provide to accompany those photographs, but it’s important to point out, it will not be extending to a guarantee of condition and so on. We are still a very much an as is, where is, operation. The goal here is provide easy, easy access for customers and give them increased levels of confidence when they are making their decisions. You have to recall here, but we are still marshalling the equipment centrally. It is still on display at our yards and we are still expecting the vast majority of our customers do a physical inspection. We want to enhance that experience.

Bert Powell – BMO Capital Markets

Okay. So, out of the $78 million to $80 million in CapEx, how much is going to be directed towards these kinds of initiatives, because you have said, there is going to be costs incurred in the beginning half of the year with the revenue following later and then add for 2011 is $10 million. So, I am just trying to figure out how to think about the investments that you are going to make in initiatives that I assume is more than just what you have articulated here.

Bob Armstrong

Yes, there’s two sides of the investment, Bert. There will be some capital investment for certain software development for example. In addition, additional staff, so that’s why, and I think with Jeremy and Rob’s remarks, there is comment on increased operating expenses, and I think comparing this more of the impact here will be felt on the operating expense side than on the CapEx side.

Bert Powell – BMO Capital Markets

Okay. Thanks very much.

Peter Blake

Thanks Bert.

Operator

Your next question comes from Scott Stember, Sidoti & Company. Your line is now open.

Scott Stember – Sidoti & Company

Good morning.

Peter Blake

Good morning.

Scott Stember – Sidoti & Company

Could you guys talk about the cadence of auctions towards the end of the quarter? Was there anything that would traditionally happen in the fourth quarter that moved towards the third quarter, just trying to nail down the auction count, third quarter versus fourth quarter?

Peter Blake

You are talking about auction calendar and timing of auctions, Scott?

Scott Stember – Sidoti & Company

Yes, exactly.

Peter Blake

No, there is nothing in particular that in terms of shifting of timing of auctions in the Q3 or Q4. I am just looking over at Rob Mackay right now. He lives and breathes this every day, and he is shaking his head saying – are you aware of anything, Rob?

Rob Mackay

No.

Peter Blake

No.

Scott Stember – Sidoti & Company

Do you have the auction count this year versus last year for the quarter?

Peter Blake

You mean, like auctions were there in the third quarter?

Scott Stember – Sidoti & Company

Yes, versus last third quarter.

Peter Blake

I can get it for you here, just a second. I mean, again Scott for us, we will happily hold an auction for $1 million or $2 million because for us, it’s a very, very effective way to introduce new people to sales and those typically are offsite sales that are held in new regions or regions where we don’t normally operate. So, 46 last year and 52 this year in Q3, industrial auctions, not including the farms sales, yet.

Scott Stember – Sidoti & Company

Got you, okay. And talk about your sales force and how does the evolution of the sales force play into your plans for your strategic initiatives for 2011?

Peter Blake

When you say evolution of sales force, are you referring to, you are talking about ads or –?

Scott Stember – Sidoti & Company

Yes, the ads, yes.

Peter Blake

We are still in the same path, our goal is to keep growing and keep hiring good quality sales guys and give them tools they need to be effective and be productive. So, that hasn’t changed. We are just kind of carrying on what we will be doing as I think getting better and raising our borrowing on a process to make sure that we are acquiring good talent.

We basically have two programs when we hire a salesman and we call them TMs or territory managers that are sort of the frontline sales guys. We also hire in young people, tend to be young people that really don’t have as much experience in our industry and we go through a very regiment and specific training program we call TTMs or Territory Manager Trainees. We will probably be focusing a lot more on the trainees as we go forward with more structure and more behind that program. But as we go forward for us, we understand the importance of quality. If you take any business, I mean, you can’t run it without really, really great people and we are very blessed to have some amazing staff with us, and we just got to keep building on that as we grow forward.

I wonder if implicit in Scott's question isn't a question about whether or not these new strategic initiatives are in some way replacing our existing initiatives and the easy answer for that is no, they are very much in addition to and enhancements to, but we are still moving on adding sales force, adding sites to our system, a lot of the things that we have talked in the past in terms of growing the core business remain unchanged. We are I think as Rob Mackay said it in the prepared remarks, we are extremely comfortable with our business model and its position and the foundation we built, we love the way we are positioned as this market returns to more predictable and traditional patterns.

So, we are continuing to fuel that system. What we are doing today really is announcing a number of strategic initiatives around beside of that, which we think will allow us to attract even more customers and do more business.

Scott Stember – Sidoti & Company

All right. Just last question, the sales force addition for 2010, are we still in the 5% increase range?

Peter Blake

Bob?

Bob Armstrong

I think we are at 4% year-to-date.

Peter Blake

Tracking 4% right now.

Scott Stember – Sidoti & Company

Got you. Thanks a lot.

Peter Blake

Thank you.

Operator

Your next question comes from the line of Jamie Sullivan, RBC Capital Markets. Your line is open.

Jamie Sullivan – RBC Capital Markets

Hi, good morning.

Peter Blake

Good morning.

Jamie Sullivan – RBC Capital Markets

Quick question, just on the earnings guidance, it looks like with what you are saying, that implies something in the $0.12 to $0.16 range for the fourth quarter, is that right?

Peter Blake

We actually aren’t giving guidance on that specific level on the quarter, Jamie.

Jamie Sullivan – RBC Capital Markets

Okay. So, so you are staying down 25% to 30% this year?

Peter Blake

For the full year.

Jamie Sullivan – RBC Capital Markets

You have $0.87 last year, and $0.49 year-to-date?

Peter Blake

We are staying down 25% to 30% for the full year.

Jamie Sullivan – RBC Capital Markets

From the $0.87?

Peter Blake

Adjusted net earnings, yes.

Jamie Sullivan – RBC Capital Markets

Yes, okay. And so, that’s just a math, as it implies $0.12 to $0.16 if I am doing that correctly, so –

Peter Blake

I am trusting you.

Jamie Sullivan – RBC Capital Markets

Okay, great. All right. And then just a follow-up on the buyers’ fees, I am just wondering about the timing of the initiative, given some of the uncertainty in the market, you have talked about some of the contractors and the buyers having a heightened level of competition for a smaller number of jobs. You have rising equipment prices, and it seems like this would be an additional cost to the contractors. So, I am just wondering what your confidence is that you will be able to do this without any disruption to your marketplace?

Bob Armstrong

Jamie, it’s Bob. I will take a first crack at it. I guess if we just sort of threw a fee out there with no additional value being added, we would be victim of what you just described it. We are trying to take quite a different approach. We are launching this bundle of new services through the first half of the year. We are going to start charging people for it essentially by the middle of the year. We are looking to put the value in and then ask people to pay for that as well as what we have been providing over the last few years without increasing fees.

So, I appreciate your question. We are extremely careful in structuring this program to avoid exactly that. We think that we are adding on extremely level of value for our buyers. It’s responsive to exactly what they are asking for. Our belief will be that while we are already providing a higher value than other channels, we are about to ramp that up materially, and we will now be starting to charge a fee that puts us in line with kinds of fees that the other channels are already charging. So, I think your question is excellent. I think we have tried to address it in terms of the quality and quantity of services we are adding as well as the timing of the fee itself.

Jamie Sullivan – RBC Capital Markets

Okay, and then just one last quick one. On the direct costs in the quarter, it looked like they are about the same number of auction days as last year even though you had more auctions, so you could see the benefit of the timed auction lots and some other things, but direct costs were down about 8% year-over-year. I was just wondering have you found some other costs to trim in the operating of the auctions that you have seen some benefits from?

Peter Blake

The easy one to jump on, Jamie, was the answer you gave us which is TAL. The time to auction system has allowed us to sell more lots in fewer days, which is clearly an initiative that has driven the value. I think that’s probably the only one that’s really moved the needle. There are other things that we have been doing, because we have been focusing on operating efficiency for quite some time. So, I am really proud of our guys for what they pulled off, that’s a great statistic for us, especially at a time like this when we are working hard to find everything we can to sell. It’s great to see the operating efficiency kicking in, but in terms of easy to point at things, I would suggest the timed auction lots as the big one. Rob, do you have any other thoughts?

Rob McLeod

It's Rob McLeod. Probably, the only other factor is having a better view to the size of the auction. At this time last year, probably we were at individual auctions, we were expecting those auctions to be bigger than they turned out to be, and we may not have been doing as good a job planning the costs for that, for smaller auctions, whereas now we are much more in tune with what the eventual size of the auction is going to be. So, we are probably doing a better job of planning the cost for that size of auction.

Jamie Sullivan – RBC Capital Markets

Okay. Great. That’s helpful. Thanks very much.

Operator

Your next question comes from the line of Hamzah Mazari of Credit Suisse. Your line is open.

Hamzah Mazari – Credit Suisse

Thank you. Maybe if you could just touch on your at-risk business and how much of a contribution that was to the quarter, and you know, how aggressive you are being there and what we can expect in that business going forward?

Peter Blake

Sure, Mazari, you are talking about the percentage of our GAAP in the quarter that was at-risk versus the aggregate?

Hamzah Mazari – Credit Suisse

Right.

Peter Blake

I think there was nothing unusual in the quarter, I think it was in the 20 range, 20 to 25 range, which is pretty consistent with prior, Rob’s looking at the exact stat.

Rob McLeod

22.5%.

Peter Blake

22.5%, hey how about that? So, it’s right in the right range. I think that Rob’s comment, Rob Mackay’s comment during the prepared remarks being that, yes, competition is heating up for sure, and we are prepared to step up and do what we need to do to get the business and we are not being shy about that in any manner. That may result in more at-risk or not. It’s really it depends in the end on the owner. We offer him the alternative of taking that risk or at-risk or not straight commission deal one or the other and whatever suits his comfort levels what we try to aim our services towards. So, even through the last quarter with the increased competition that we did see, we are still only at 22 odd percent of at-risk versus the total. Rob, do you have any comments, Mackay?

Rob Mackay

Yes, Rob Mackay here. We are aggressive out there on deals today, and there’s lots of people chasing it and as we experienced in past economic downturns, you follow the market down when the recession is starting and then you follow the market up as we go back to more stabilized prices, and today, we are competing on lots of deals with individual brokers, with dealers, with many others out there in the industry, and each and every deal that we write, and each and every auction that comes along, there is continued surprising events as to what the market eventually produces. So, pricing has been inching its way back up and it’s been accelerated on the late model of our stuffs. So, we are pushing on the deals out there, and we are as aggressive as we can be.

Peter Blake

It’s ironic. I would just add one more comment. Ironic that one of the challenges we face is because there are some owners out there that are perhaps sitting on idle equipment, bidding on jobs that might not get, there is still lots of people bidding and margins are relatively thin. We have got lots of time on our hands and when you see the market increasing in pricing, they get a bit more comfortable and they believe, well, why would I pay Ritchie Brothers a fee to go and sell it for me, I will do it myself because the market is little hiring on. What they end up doing is they are selling into a market that is increasing, but they only peg it at a certain point in time and inevitably when we get a chance to get the iron and bring into market, we are still exceeding expectations, the elevated expectations are some of these equipment owners that are surprised to see the pricing where it is. So, you hate to see it happen where you see a bit of leakage in the market where some of the owners are selling it themselves, because they have the time on their hands, but they are still walking by some significant value when they don’t access that global market.

So, part of our marketing efforts we show in our sales guys effort is to make sure that they understand the impact that we can bring in the global value that we can bring to the table when we do the business for them.

Hamzah Mazari – Credit Suisse

Okay. And then just on, it seems like things haven’t really gotten worse, but things really haven’t gotten better in the used equipment market besides pricing moving up. What kind of catalyst are you guys looking for, for this to turn particularly in the U.S., and then maybe frame for us your operating leverage when this thing turns around? Thanks.

Rob Mackay

Hi, it’s Rob here. I will answer the first part. What we are looking for is, number one, predominantly in the U.S. market is stability. There is a lot of our customers that are waiting to see what happens today, and a lot of them are going to take comfort in the results if it goes their desired way or if it moves another way, they may free up their surplus equipment. So, number one, in the U.S. market is some confidence returning to the market, and from that, will there be more work it comes off the market, and will this launch people into freeing up their surplus equipment and starting to trade and buy new or move on.

Other parts of the world, we are starting to see the economy return to more stabilized levels. Asia, Australia, that part of the world, it is rolling along quite nicely. Commodity prices are stable and strong, and so lot’s of activity going on in the mining side of the world all over the place. Europe is emerging out of it relatively slowly. Manufacturing has increased somewhat, but a lot of the production is coming out of the European manufacturers is going out of Europe to Brazil, India and China. So, the increase that we are seeing in some of the manufacturing level there is not being sold domestic, but there is a more calming return going on there and the biggest issue for us right now is the U.S. and the competence in the market.

Peter Blake

The second half of your question was on operating leverage. I will quickly address that. We sort of anticipated few years ago that we would be doing more volume today than we currently are. And so, we already have in place the systems and people and the facilities to do significantly more business than we are at today. Our view is that during the last several years, we increased our market share meaningfully as the market shrunk, we did not which implies to a nice jump up in our market share. Our plan, our goal, our hope is that we will maintain that share as the market comes back to more familiar levels. And in terms of our capacity alone, in the auction site, our network of sites, we have added meaningfully to that capacity in the last few years, while our sales have not been going up.

So, we have significant capacity which is a real treat for us. Staffing-wise, both on the support side and the sales side, we definitely have the capacity to handle more volume than we are currently handling. So, we have quite a bit of leverage right there. And the processes and systems that we have laid down and built over the last few years, it’s boring to continually say we are laying the foundation, but now we have laid an excellent foundation, and we are more than ready to handle the volume. So, the leverage, I think would be quite exciting. We are certainly looking forward to it. As I say, we are currently built to do more volume than we are doing today.

Hamzah Mazari – Credit Suisse

All right.

Rob McLeod

And I will just add one comment to that. This is Rob McLeod. Over the last couple of years, although our gross auction proceeds have been flat, the number of consigners, bidders, buyers and the number of lots that we have been processing as an organization have been increasing significantly. And so, if you use that as a measure of leverage, we have been doing pretty well at in terms of our performance, but granted for sure, there is capacity in the system for additional growth.

Hamzah Mazari – Credit Suisse

All right. Thank you.

Rob Mackay

Thank you.

Operator

Your next question comes from Scott Schneeberger of Oppenheimer. Your line is open.

Scott Schneeberger – Oppenheimer

Thanks, good morning. I guess a couple of questions. First one, when you mentioned that you are increasing market share, how do you measure that, is that North American-centric, is that global, if you could just give a little bit of more color on the granularity there? Thanks.

Bob Armstrong

Sure. Scott, it’s Bob. The way we go at that market share comment, it really is a high-scale global one. We look at two components in particular, one is the value of the equipment and the other is the number of transactions. By any measure, our statistics or others, the value of used equipment has been coming down over the last two, three, four years. We would say it’s probably been going up this year, but if I were to look at the pricing today compared to three or four years ago, it’s down meaningfully, and when you are in a business like Ritchie Brothers where you are in a commission, a decrease in the value of what’s being sold, that shrinks the market.

So, the value has been going down. At the same time, if I pay attention to equipment financing data, particularly U.S. driven data, which is more readily available, there is good evidence to say that the total volume of transactions has also been shrinking. And I have seen people talk about total shrinkage of transactions anywhere from 20% to 30% over the last two or three years, again, I think picking up a little bit this year, but if I add 20% or 30% drop in transaction volume plus, increase the number for the amount of – values have come down, it’s easy to get to a total market shrinkage if you like, value of used equipment transaction shrinkage, 30%, 40%, 50% at a time when we have managed to maintain essentially flat sales.

So, arguably we have had a significant, perhaps even doubling of our market share. Very large numbers, I couldn’t support them on a court of law if I had to, but using the best information and analysis available to us, we come to that conclusion.

Scott Schneeberger – Oppenheimer

It sounds very top down, and I get it all, do you survey-wise anecdotally from bottoms up, are you hearing, I mean, obviously you see competitive pricing, but from different types of competitors, but anything anecdotally from a bottoms up that you can share on that front?

Bob Armstrong

You are actually right. It’s very much a top-down thing. There’s nobody that does field research in this area. So, the best that we can do is talk to our own field teams who live in that marketplace and what they are seeing which support the same analysis. It’s just that it’s not possible to put pennies and dollars on it. So, it’s easier and I think more appropriate for us in a call like this to talk at a high, high level.

Scott Schneeberger – Oppenheimer

All right. Thanks, fair enough. And then on the pseudo-guidance for contribution on the new fee structure for 2011 and 2012, $10 million to $30 million incremental. Just to clarify, is that kind of a consistent GAAP level in the next two years with 2010 making that assumption obviously? And is that all on the fee structure, is there something that’s financing business for you, were you the matching partner, is that contributing to that as well and then kind of the follow-up there is, I assume that that’s going to be a profit center, the financing matching, but if you could just speak to that a little bit? Thanks very much.

Rob McLeod

It’s Rob McLeod. Yes, the financing and the other bundle of services will be net positive, but really the majority of the benefit comes from the revised administrative fee, and also, not surprisingly the majority of the additional costs, G&A costs, and some capital costs as well relate to the revised administrative fee as well and enhanced equipment information that we would be providing.

Jeremy Black

And Scott, this is Jeremy, just to confirm the first part of your question. It does assume a consistent GAAP level with 2010.

Scott Schneeberger – Oppenheimer

Okay, thanks. And just to clarify that so, it’s predominantly the administrative fees makes up the bulk of the $10 million and $30 million?

Peter Blake

Let’s really be clear, because there is a whole bunch of costs and also some revenues. So, the $10 million and $30 million are net numbers, and the number one additional revenue fees is the fee, but the costs relate to the entire basket of services that are being rolled out. The fee is the one main way where we are going to be earning revenue to cover the costs and I guess receive payments for the value we are creating. So, it’s important to think for a second that Scott, the $10 million and $30 million are very much net numbers.

Scott Schneeberger – Oppenheimer

Okay, I understand. I got that, thanks. That’s helpful guys. I appreciate it.

Operator

Your next question comes from David Wells, Thompson Research Group. Your line is open.

David Wells – Thompson Research Group

Good morning everyone.

Peter Blake

Good morning David.

David Wells – Thompson Research Group

First off, on the new fee front, does that change your longer-term expectations for your auction revenue rate where maybe you can be more aggressive, given for a little bit to the seller, because you are getting it on the buyer side?

Rob Mackay

It’s Rob here, Rob Mackay. To be more aggressive, I don’t think there is a requirement to be more aggressive on the consignment side. Our auction revenue rate varies from year-to-year depending upon our underwritten business, and we will continue to be aggressive on that side of the business when and how we need to be, and the fee that we are charging now is for a bundle of services that we are providing to the buyer side, which should enhance more buyers coming to the auction, and by way of that, greater selling prices of the auction.

David Wells – Thompson Research Group

So you don't feel like that moderates the 9 and three quarters to 10 and a quarter range that you have discussed previously?

Rob Mackay

We are not anticipating to.

David Wells – Thompson Research Group

Okay, that’s helpful. And then jumping to what you are seeing in the marketplace currently, I am just trying to get a sense of, if the auction calendar in the third quarter was relatively unchanged on a year-over-year basis, and yet you reported gross auction proceeds kind of near to almost 2008 type levels and you are looking at – in the Q4 and seeing that you are going to finish up the full year probably closer to the low end of your range, what is it that’s going on right now in the marketplace that’s contributing to some of those headwinds that maybe you didn’t see in the third quarter that helped to contribute to the stronger quarter then?

Rob Mackay

Yes, Rob here again. It’s pretty much the same stuff we have seen throughout. In Q3, we started to see some I guess cracks in the armor if you will and we have had a lot of people that were sitting around and we had this overhang of supply that was there because 12 months back, the market pricing was so low, nobody was interested to move, finance equipment wasn’t going to be sold because of the debt versus the value of it. And we slowly worked through that over the last 12 months and that overhang of supply has moved sort of across the street to still being a supply because it’s idle, yet the owners of it are looking at it from a different point of view. Some of their equipment managers have been selling off onesies and twosies and they may now have the supply of surplus that is more manageable or more desirable for them to sit on, but there are all out there bidding on work that’s very competitive.

Margins in it are very thin, and many of these contractors have ridden this crest trying to maintain long-term employees, to keep people employees that’s been with them for a long time and they are now reaching the point that they either have to get out for cash flow reasons and take on some of this low margin work, or they have to accept the fact that it’s going to be like this still for a while and they are going to lay off people and take that pool of idle assets and bring it to market and now that we are seeing some enhanced pricing levels, which is what we saw in Q3, we are starting to see from more and more of our mid-sized contractors that they are moving off of this indecision point and saying, I am not going to bid work like this, I am not going to bite into my money that I put away for the last 10 years that I have made, and I am going to now let some of this fleet or all of this fleet go and when the market returns to something more buoyant, I will re-enter, either through rental or I will go back to the manufacturing, start to buy new, if I have got enough work in my plate.

So, we have seen a fair bit of activity in discussions with customers like that for Q3, and there’s lots of dialog going on with many customers right now for potential Q4 business, but there is still sitting there someone in the state of indecision and as I mentioned earlier, just focusing on the U.S., a lot of them, their decision I think will be effective on what happens today.

David Wells – Thompson Research Group

That’s helpful. And then just one last housekeeping question. Where do you anticipate your tax rate finishing up the year?

Peter Blake

Tax rate, over to Rob.

Rob McLeod

David, it’s Rob McLeod. Yes, the tax rate for the full year will probably be somewhere in the range of the 30% to 32% that we had talked about previously.

David Wells – Thompson Research Group

Okay, great. Thank you.

Operator

Your next question comes from the line of Craig Kennison, Robert W. Baird. Your line is open.

Craig Kennison – Robert W. Baird & Company

Good morning. Thanks for taking my question. Could you just clarify, did you say you expected an impact on the auction revenue rate from this new program?

Peter Blake

Well, I guess yes and no. On a line item basis, Craig, the answer is yes. I think for accounting, some of the additional revenues are going to show up in auction revenue rates and we will have to find a way to describe that to you guys in due course, but we didn’t actually talk about that. We were talking more about our net earnings impact when we talked about $10 million and $30 million.

Craig Kennison – Robert W. Baird & Company

Got it. But you don’t necessarily expect again the gross auction proceed line from this action?

Peter Blake

I think there will be an impact, that probably will be a positive one. Craig, this is Pete here. The whole purpose behind what we are trying to achieve here is broadening, and when you look at the big market, the $100 billion number or maybe it’s $70 billion or $60 billion or down market, but when you are doing three or four, there are lot of businesses that’s not coming through your channel right now. So, the extensive work we do on the marketing side as to say why not and who else is playing and how are they playing, and the reality is, when you zero in and look at the emotional needs of the customers that do or do not business with us, choose to do business with us, a lot of the reasons why are around this comfort and ease.

So, if we can increase our appeal to that hugely broad market that today doesn’t come to our auctions, number one, because they don’t even know who we are, which is unbelievable, but true, you know. So, let’s get off our horse and say, hey, there’s lots of people that don’t even know us. And secondly, they may know us, but they have a misconception or preconceived idea about the auction. So, we have to create increased confidence and comfort for them and increased services for them. So, I expect that we will or our whole initiative around this is to increase number that is retaining the auctions, and when you broaden the appeal as we have shown in real time, as you broaden the appeal of your auctions, that creates more competition, that creates firming of prices and higher prices.

So, I expect that you will see even more and that’s the reason for the whole – the whole reason for the initiative is to continue to penetrate more of that bidding audience today that doesn’t come to the auctions and let’s convince them that we can really add value on the way through here and show them, and we have done that in the past and we are just about to hit the boosters and do it in even greater way in 2011 and beyond. So, ex the fees related to new services, we are expecting no particular change to the auction revenue rate that we currently earn. That’s the fees, and that’s the fees.

Craig Kennison – Robert W. Baird & Company

Okay. So, I apologize for being dense here, but the fees, you will get incremental from these fees, and it will show up somewhere on the income statement.

Peter Blake

Yes, sure. It will probably be a component of the auction revenue rate. So, excluding the impact of the fees, if you have the auction revenue rate today, we don’t expect that rate to be diminishing at all. It will be added to by the impact of the gross impact of fees on the way through and we will give you guidance on that as we go forward, but overall, we are saying, hey, the fee that we see or the rate, the auction revenue rate that we experience today, we don’t expect to be impacted at all in a negative way.

Craig Kennison – Robert W. Baird & Company

Okay. And as long as I am asking dumb questions, I will follow-up a bit. If you look at the last year, your issue has not been the fee structure. That’s been the one metric that’s been surprisingly good. The issue has been more on the gross auction proceed line and then expectedly high costs because the revenues weren’t what you expected, and yet the strategic focus of the Board is really on that fee structure. You guys are a thoughtful group here, so what am I missing about that?

Peter Blake

So, we are all jumping in at once.

Bob Armstrong

We obviously did a poor job of communicating, so it’s not your poor question, it’s our poor script.

Peter Blake

The focus of the management team and the focus of the Board was on trying to bundle together services that our customers want and that’s where we started from. Nothing comes for free though, and so the fee is more, that’s what comes out of the decision to in particular provide enhanced equipment information. That’s a very expensive proposition. I mean, we haven’t described how we are going to do it, but it’s not free. Our customers want this. We just rolled out a very powerful website that they wanted, putting all the additional photographs on, we have done a number of things that we haven’t been sort of collecting for. Now, we are going to really dial it up, provide significantly enhanced services, things they have been asking for, and yes, we are going to charge for that.

We are quite comfortable that on balance, it’s a net positive for our customers and for our shareholders. This is not a – this wasn’t a let’s charge a fee initiative, this was a let’s improve our business, and if we have to charge a fee to collect for it, yes, of course we have to do that.

Craig Kennison – Robert W. Baird & Company

And lastly, as you said a material change to your structure, was this something you could have tested in a local market or given the global nature of your business, you really can’t test a change like this on a local basis?

Rob Mackay

Yes, I think your latter comment is spot on, Craig. You can't – it is really a good question because we did debate that and for us it’s not something it’s more systemic and because we operate in such a global environment, we have an auction in Regina, Saskatchewan tomorrow and you will have bidders from all over the U.S. and Canada and probably some offshore guys as well dialing in. So, when you got guys that are bidding in one environment for one fee structure and another for different one, that creates confusion. And part of our whole management is to be transparent and open, and fair and consistent and easy. And that doesn’t create easy or consistent or any of that stuff. So, really more was, okay, our intent is to raise the bar globally on the buyer services and the bidder information that they can get in advance to create that comfort and ease. And to do that, we need to do this in a measured way, and it has to be done in a coordinated manner.

Craig Kennison – Robert W. Baird & Company

Great, thank you.

Peter Blake

Okay. Operator, we probably have time for one more question. If there is one, then we will carry on.

Operator

Your next question, Gary Prestopino from Barrington Research. Your line is open.

Gary Prestopino – Barrington Research

Hi guys. I have got a couple of questions. First of all, on the D&A, it jumped up pretty substantially in the quarter. I would assume that’s due to some of the new sites, correct?

Rob Mackay

Hi Gary, it’s Rob Mackay. Yes, you are correct. The new sites and the new IT initiatives such as the website for example that came on-stream in the second quarter. And so, in the third quarter, you have got a pull-pull if you will in regards to those assets and for sure, as new sites come on-stream, you are increasing your depreciation.

Gary Prestopino – Barrington Research

Can you give us an idea of what you are thinking that will run in Q4?

Rob Mackay

It should be a pretty similar rate, because we are not bringing on any new facilities in the quarter.

Gary Prestopino – Barrington Research

Okay. All right. And then, I will be real quicker, just want to make sure, with these new strategic initiatives, the contribution that you are saying is after-tax, correct?

Rob Mackay

That was pretax.

Gary Prestopino – Barrington Research

That’s pretax, okay, because I heard net and then pretax, so it’s pretax contribution from these initiatives?

Rob Mackay

Correct, it’s pretax, it’s a net number netting the revenue and the costs associated with the new services net. So, pretax of $10 million in 2011 full year and full-year run rate I guess because we are introducing the fees halfway through the year, but the costs will be incurred earlier in 2011 as we roll them up. So, the full-year impact of 2012 is a net $30 million pretax.

Gary Prestopino – Barrington Research

Okay. And then, as I understand it, you are adding a 2.5% fee on – what is that, some admin say for lots over what price fee?

Peter Blake

So, the summary, Gary, it’s the fees that are in place today, 10% for items $2,500 or less that are sold at the auction, that stays in place. We eliminate the 2% fee that’s charged currently to people that don’t attend the auction but still want to bid and buy. So, that’s on the Internet or proxy, and that’s a 2% fee that will go away. There’s a max $500 on that one, and the new fee that will be introduced to apply equally to all bidders, be they Internet proxy or onsite, will be 2.5% of items $2,500 up or above $2,500, but the cap on that fee of $950 per lot, and that $950 will be in the currency of the auction to be translated into the local currencies.

Gary Prestopino – Barrington Research

For that, when you look at that kind of fee structure, it puts your Internet better at the same fee level as your physical buyer where the Internet bidder had a higher fee structure going in before this, correct?

Peter Blake

Yes, that’s correct.

Gary Prestopino – Barrington Research

Okay, so does that beg the question that you continue to get bidders on the Internet every quarter, what would be the rationale for not keeping that fee on the Internet bidders?

Peter Blake

I think for us it’s consistency and equal treatment. Today, I think the people that come to the auctions, we still about 80% of everything sold to people that are live at the auction sites. So, don’t forget that. But the people that come to the auctions have probably an advantage because there again, you got to look, and you have been to the auctions before, the people that attend the auctions are these are the people that build the world, these are the guys that are out there that are putting up schools, bridges and whatnot, and they run machines every day. So, the advantage that they gain in a huge way is to sit on the machines and run them and hear them and try the hydraulics and now they know what the value of that thing is, because they know they are running them every day, so they are very familiar with it.

People that are buying on the Internet, they can get information, will enhance the ability to get more information for them, but at the same time, they are buying it without being able to sit and run the engine and feel the hydraulics themselves. So, there is an advantage to taking the time to come out and inspect the equipment on your own. We make that on purpose, we make that available because we believe it is significant and it is foundational for our bidders who are highly, highly skewed to the end user population.

These are the guys that sit on machines every day, so if you don’t make it available to them, you put everyone at disadvantage. So, we still intend to marshal the machinery. We coordinate it, we have care, custody, control and we allow people to inspect and test machines. They trust their own eyes, don’t trust the report. We will give them information, an enhanced information, but trust your own eyes, and our guys appreciate that. So, even like say 80% of them that end up buying are the guys that buy on site.

Gary Prestopino – Barrington Research

Okay, thank you.

Peter Blake

Okay. All right, Beth, we will wrap the call up. Thanks everyone, appreciate your attendance and we will carry on here. We will look forward to chatting with you on our next scheduled call.

Operator

This concludes today’s conference call. You may now disconnect. Thank you.

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