Ritchie Bros Auctioneers Inc
TSX:RBA
Earnings Call Analysis
Q4-2023 Analysis
Ritchie Bros Auctioneers Inc
The company has faced challenges with declining inventory revenue, which dropped by 10% due to lower revenue contributions from key sectors like automotive, along with commercial construction and transportation. This decline was attributed to faster-than-expected price decreases and higher vehicle costs in these sectors. Despite these headwinds, the company delivered a robust 14% growth in adjusted EBITDA compared to the previous year, bolstered by its operational performance and the full quarter inclusion of IAA. Adjusted earnings per share saw an impressive 21% increase, offset by factors such as a higher share count and net interest expenses.
The company has maintained its focus on debt management, with adjusted net debt to trailing 12 months adjusted EBITDA at approximately 2.5x, achieving a decrease from the last quarter. Looking ahead, the company is committed to further deleveraging, with a target of reducing this ratio to approximately 2x by the first quarter of 2025. In terms of growth expectations for 2024, the company forecasts a gross transaction value growth of 1% to 4% year-over-year and an adjusted EBITDA ranging from $1.17 billion to $1.23 billion, indicating the company's confidence in continued growth and investment in operational excellence.
Operational efficiency remains a cornerstone of the company's philosophy, with the management team consistently seeking ways to streamline business processes while maintaining a long-term outlook for all asset classes they support. This approach is part of the culture and has been reinforced by the recent addition of a new executive to drive continuous improvement. Furthermore, every capital expenditure is diligently scrutinized to ensure a worthwhile return on investment, emphasizing the company's fiscal responsibility.
The company places significant emphasis on delivering on commitments and outperforming service-level agreements as a strategy to build trust with its customer base. Executive leadership expresses a strong belief in this approach as a means to gain market share, especially within the highly competitive automotive sector. Transparency with partners about progress, operations, and value-add strategies has been a priority, with the ultimate goal of enhancing customer experience and driving operational cost savings.
For the full year of 2024, the company expects its GAAP and adjusted tax rate to be between 25% and 28%, indicating the management's anticipations about their tax obligations within the current regulatory and business environment.
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Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers Fourth Quarter Conference Call. [Operator Instructions] I will now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence, to open the conference call. Mr. Rathod, you may begin your conference.
Hello, and good morning. Thank you for joining us today to discuss our fourth quarter results. Joining me today are Jim Kessler, our Chief Executive Officer; and Eric Guerin, our Chief Financial Officer.
The following discussion will include forward-looking statements, which can be identified by such words as expect, believe, estimate, anticipate, plan, intend, opportunity and similar expressions. Comments that are not a statement of fact, including, but not limited to, projections of future earnings, revenue, gross transaction value, debt and other items, business and market trends, and expectations regarding the integration of IAA, including the anticipated cost synergies, are considered forward-looking and involved risks and uncertainties. The risks and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this morning as well as our most recent quarterly report and annual report on Form 10-K, which are available on the Investor Relations website and EDGAR and SEDAR. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the 2, see our news release, Form 10-K, Form 10-Q and the investor presentation posted on our website. We are unable to present quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all the necessary components of such measures. Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. At this time, I would like to turn the call over to Jim. Jim?
Thank you, Sameer, and good morning to everyone. We finished the year strong with fourth quarter gross transaction value growth of 13% on a pro forma combined basis. All sectors contributed to solid GTV growth, fueled by our team's dedication to consistently over-deliver on the commitments we make to our customers. Our continued focus on operational excellence and driving incremental efficiencies across the organization resulted in strong adjusted EBITDA growth. Investing in our teammates through a best-in-class people experience remains core to our strategy. Our One Team All-In culture was recognized recently with the prestigious Great Place to Work Certification. The recognition underscores our ongoing progress in integrating our teams and solidifying RB Global as a highly attractive workplace. This translates to increased engagement and productivity with our teammates, which benefits our customers and all our stakeholders in the long term. Let me start by talking about our commercial construction and transportation sector. We continue to be the partner of choice for our customers as we guide them through their disposition needs. The consignment environment remains supportive as OEM production has ramped up, allowing equipment owners to act on fleets that were aged during the pandemic. That said, we are not resting on our laurels. We are reinforcing our winning strategy by investing in our sales force, recruiting top talent and providing better sales coverage in certain markets within North America. Every market share percentage point we capture translates to more satisfied customers, solidifying our commitment to excellence and remaining the partner of choice. Moving to the automotive sector. We continued our steady acceleration towards operational excellence by implementing enhanced processes to overdeliver against our service level agreements. Customer savings and operational efficiencies go hand in hand for us. That's why we prioritize optimizing total performance after transaction closing. Picking up the vehicles quickly and efficiently stops storage cost, rental car costs and other auxiliary costs for our customers and significantly impacts net returns. I am proud of the team and pleased to say that our process improvement, combined with strategically deploying internal total assets have dramatically improved our performance compared to prior levels. Our pickup compliance, an internal measure of our total performance, was approximately 98% in the fourth quarter, a substantial improvement year-over-year. More importantly, we have consistently been in the high 90s of compliance for several months. We are focused on streamlining volume processes and strategically leveraging technology to maximize gross returns for our customers. Our efforts yielded measurable results again in the quarter, with automotive average selling prices climbing an industry-leading 2.5% year-over-year. A prime example of our technology deployment is our recent implementation of J.D. Power ChromeData VIN descriptions with our IAA Interact merchandising platform. This gives buyers unparalleled and industry-leading insights for trim level data on vehicles in our marketplace while unlocking additional value for our sellers.
We are also getting phenomenal feedback on our recently launched Sales Decision Center. This system gives our sellers incredible real-time transparency into the variables impacting the market's micro structure of our auctions, allowing them to optimize their price realization further and unlock incremental value. As we continue to discuss our operational excellence program with our partners, we will launch a program that will provide our aggregated SLO performance to all of our insurance partners next week, creating an industry-leading level of transparency. The road ahead is paved with continuous improvement, and we're committed to exceeding customer expectations and our commitment to every turn. The momentum from our efforts to integrate IAA is fueling a broader focus on efficiencies and operational excellence across the entire organization. We have realized $17 million in actual cost synergies in the quarter and have actioned a total of $70 million in annual run rate cost synergies since the close of the transactions. We are confident, with all the plans in place, to achieve our cost synergy target on the timetable we previously communicated. Our responsibility is to manage overall costs, not just cost synergies, and more importantly, deliver overall results. We are keenly focused on top line growth and margin expansion opportunities across the entire organization. And therefore, we will no longer be reporting progress on cost synergies quarterly. By continually exploring ways to efficiently manage the cost of our business through operational excellence, we will enable strong flow-through, which will drive shareholder value. In our discussions with our valued partners, land ownership is not necessary for meeting or exceeding our service level agreements or winning additional market share. We maintain a surplus of land capacity across our asset classes, allowing us to accommodate our operational requirements easily. As we indicated last quarter, we will continue to purchase property strategically and opportunistically in regions acceptable to CATs where the market opportunity makes strong financial sense for us to make these investments. In certain markets, we proactively have and will continue to acquire space to better service the needs of our customers. Before passing the call to Eric, I'd like to introduce him formally. When seeking our new CFO, we had 3 critical criteria in mind. Firstly, we wanted someone who could enhance operational excellence by collaborating closely with the sales and operational teams. Secondly, a people-oriented leader who seamlessly aligned with our One Team All-In culture. Lastly, someone with a deep understanding of a customer-centric company. Eric embodies all these qualities and his experience within the automotive ecosystem has allowed him to dive in and make immediate impact. Let me pass the call to Eric to discuss our financial results for the fourth quarter and our outlook for 2024. Eric?
Thank you, Jim. I'm thrilled to be here and wanted to add my welcome to everyone joining the call. I want to thank the entire team at RB for making me feel so welcome and right at home. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison to the pro forma combined results of Ritchie Bros. and IAA for the prior year period. Total GTV increased 13%, with strength across all sectors. Automotive GTV increased by 10%, benefiting from higher unit volumes and a higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the fourth quarter, CCC estimated that the loss ratio increased to approximately 20.4%, compared to 20% in the same period last year. Recall that the total loss ratio is the number of vehicles deemed salvaged as a percentage of total accidents. Used automotive prices continue to trend lower year-over-year, while repair costs remain elevated, creating a productive environment to consider a car a total loss after an accident. GTV in the commercial construction and transportation sector increased by 20%, driven by increases in lot volumes, partially offset by declines in average price per lot sold. Part of the decline in the average price per lot sold was due to asset mix as lot volume growth came from rental and transportation customers where asset values are intrinsically at lower ASPs compared to traditional earthmoving assets. Additionally, we continue to observe declines in price year-over-year on an apples-to-apples basis. I also want to note that the yellow corporation dispersal had a negligible impact on our GTV in the fourth quarter. Moving to service revenue. Service revenue increased 14%, with our service revenue take rate expanding approximately 20 basis points to 20.2%. Service revenue increased due to growth in GTV and a higher average service revenue take rate. The increase in the average take rate was driven by a higher average buyer fee rate and growth in our marketplace services revenue, partially offset by a lower average commission rate. The lower average commission rate was primarily driven by a higher mix of automotive-related GTV and a higher mix of construction and transportation assets from strategic accounts. Moving to inventory. Inventory revenue declined 10%, with lower revenue contributions from the automotive and commercial and construction and transportation sectors. Inventory rate for the quarter contracted 620 basis points year-over-year to approximately 5%. The decline in the inventory rate year-over-year can be attributed to prices declining faster than anticipated between the purchase date and the data sale of inventory in our commercial and construction and transportation sector, and an increase in the cost of vehicles sold in our automotive sector. As previously noted, we expect the environment for at-risk deals to remain competitive in our commercial construction and transportation sector. Turning to earnings. Adjusted EBITDA increased 14% compared to the combined adjusted EBITDA of IAA and Ritchie Bros. for the year ago period. Growth in adjusted EBITDA was in line with our pro forma service revenue and GTV growth. Adjusted earnings per share increased 21% on strong operational performance and the full quarter impact of IAA inclusion, partially offset by higher share count, higher net interest expense and the impact of the Series A senior preferred shares. At the end of the fourth quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately 2.5x. Adjusted net debt to trailing 12 months combined adjusted EBITDA was approximately 2.2x, down 2x of a turn compared to last quarter. We remain focused on deleveraging to approximately 2x by the end of the first quarter of 2025. Moving to the outlook. We wanted to provide our initial thoughts on 2024. We expect gross transaction value growth between 1% and 4% year-over-year in 2024, compared to the pro forma combined gross transaction value of 2023. We expect adjusted EBITDA from $1.17 billion to $1.23 billion in 2024, reflecting continued growth, our commitment to operational excellence program, and prudent investment in growth initiatives. We expect our full year 2024 GAAP and adjusted tax rate to be between 25% and 28%. Moving to CapEx. We currently expect full year capital expenditures, which include PP&E, net of proceeds on disposals and additions to intangible assets, to be between $275 million and $325 million. With that, let's open the call for questions.
[Operator Instructions] First question comes from Michael Doumet from Scotiabank.
Welcome, Eric. Super quarter. But I'd like to start with the 2024 guidance. At the midpoint, it looks like you're looking for about 2.5% GTV growth, about 5% on an EBITDA basis pro forma. And that compares to EBITDA growth of close to 20% on a pro forma basis in the last 3 quarters. So I know the customer loss partly explained some of the slowdown. But wondering what else is contemplated within the guide, what market trend and perspectives for legacy and IAA as well?
Michael, thank you so much. Look, I think you got a big part of it right first, is the customer loss. And then also as we look out in the industrial side and you look at years over years of what happens in the history of price going up and down and units going up or down, in the back half of the year, we do see that pricing unit dynamic changing where units are going to drop from where they are today and pricing, who knows where it goes up, right, and what percent it does. So those 2 things are the biggest reflection of the guidance that we gave.
Got you. And then maybe just turning to the cost. Now it looks like the operating leverage is really starting to click here. You're still working on some synergies between the 2 businesses. And it also sounds like there's a bunch of efficiencies you're targeting as well, Jim. So maybe expand on some of the major drivers for SG&A into '24 and how we should think about SG&A more broadly?
Yes. Look, I think SG&A, just in general, the philosophy that we have as a management team, we're constantly looking at how do we get more efficient. And no matter what process or activity that we have in our organization, we're taking a look at it. Think about all the portfolios and all the businesses that we have, Rouse, SmartEquip, different services that we provide, we're constantly looking at each of our businesses of how do you get more efficient, how do you get better.
But along with getting efficient, the one thing I don't want to lose sight of is we are looking at how do we drive long-term value for everyone as we're doing this. So it's the combination of both of what we're looking at, is, look, we're always going to want to be efficient no matter what year, what quarter, what day, as a management team. We're going to look at how do we drive the most efficiency out of the business and invest in the things that make sense for the long term that keep us viable and in everyone's mind when it comes to all the asset classes that we support. So I think it's just the philosophy of what you're seeing and what we're trying to drive. But we're never going to stop how do we become more efficient. It's the culture of the management team that we have in place right now, a big reason why we brought in Eric to help us continue this pace. And we want to be diligent about every dollar we spend on capital, we want to get a return for it. And look, I think all good companies have this in mind of what they try to drive; we're just very committed to it.
The next question comes from Steve Hansen from Raymond James.
Look, the service performance metrics you described being in the high 90s now are quite impressive. How do you feel about parlaying those into some additional market share gains through 2024 on the IAA side? I know in the deck you've described that as part of your priority, but just like some additional color on that, if you might, and how you feel like that's being reflected in the customer reception and ultimately winning new business.
Yes. Steve, the winning the business is always the hard part, right? Because it's not my decision to make it someone else's. What I can control is making sure when we make a commitment on any SLA or anything, no matter what segment or asset class we have, because I include this on the industrial construction ag side, just as like I do in automotive, when we make a commitment, we're going to over deliver on that commitment. And I believe when we do that consistently, the trust that we're going to build with our customer base, and I can hear it now in our quarterly QBRs, that they're seeing the difference and they're appreciating the difference. But again, I'm very realistic as we talk about the U-shape last quarter, I know I need to get some months behind us. Because I think the only way you build trust and confidence is by showing month-over-month that you can deliver, and we look at it day over day, week over week. And when you do that, the type of industry that we're in for the automotive side, when you're in this, and there's 2 main players in that space, when you create a viable competitor, then what it comes down to for each of our customers is who do you trust to deliver on a consistent basis. And I feel really good about the progress we're making. And we're being very transparent with our partners about where we're at, what we're working on, and how we're going to add value to them, right? Because at the end of the day, our biggest thing that we're focused on is their customers' experience, driving cost savings out of their business, operationally, how we do that day in and day out and driving the SLAs down to the branch level where they feel I'm totally accountable for it. So we're really confident about it. But again, I don't get the chance to make the decision of when it happens, that's someone else's decision.
No, that's fair, I appreciate that. And just a follow-up maybe on one of your earlier comments about moderating growth, in units, particularly in the auto sector. Is there anything specific that you're seeing in the current framework or like in the current story time frame, current quarter, that's starting to suggest that's already evident, or is that something where you expect to the back half?
Yes. I'm going to give Sameer this in a second. But again, I think it's more what we see in the history as we look at trends and cycles of what happens. Yes, Sameer?
Yes. So Steve, the moderating growth in automotive reflects what we discussed last quarter with the customer loss. So if you think about the fourth quarter, we still had a full impact for this customer. We'll probably get a half a quarter impact in the first quarter. And then the second quarter, you'll get the full run rate without the customer loss. So that's what that reflects.
Steve, my comment was more on the industrial side, just to make sure we're clear.
Understood, and I appreciate that.
The next question comes from Craig Kennison at Baird.
I know there have been questions on the auto side where share has been an issue, but I wanted to ask about the competitive dynamic on the construction side. You're clearly the market leader there, but your auto competitor has made an acquisition that could threaten that share over time. I'm wondering if you could just share an update on the competitive dynamic in the construction space.
Yes. No, happy to do so. So for us, we're not taking granite of our position of where we are on the industrial side. Like we've mentioned before, we are actively invested in territory managers to make sure we're in the market, building relationships and having conversations. We're actually entering markets where the competitor that you mentioned are in. But we're not going to take it for granted, and we're constantly building our relationships with our customers. I'm in Orlando today and have spent the last 5 days with our customers building that confidence.
Yes. And maybe as a follow-up on the territory manager comment, I just wonder if you'd share with us how that role has evolved and what your philosophy is today in terms of your go-to-market strategy and the importance of a territory manager versus call centers and other marketing approaches?
Yes. Look, we're doing both at the same time. I think the change in dynamic of people wanting to be self -- completely self-service, it's not immediate. But we have both programs going on where we have inside sales that work on the long tail. But the one thing that we know for sure, the industrial dynamics is a little bit behind and our customers appreciate that personal relationship, especially when you're dealing with a piece of equipment that's $200,000, $300,000, they want to have that relationship and that trust that what they're doing -- especially when you think about an unreserved auction. So they want that commitment, that trust that someone is going to deliver.
So we still see the value in territory managers having that in-person relationship as we're going through it. But we still realize, look, the world is going to evolve and transform, and we're making sure with our marketplace that we're building self-service capabilities and we have an inside sales team to help. So we have both going. But in the short term, over the next 3 years, this in-person relationship will not dramatically go away from what it is today.
The next question comes from Gary Prestopino at Barrington Research.
Jim and Eric, glad to get reacquainted again. Jim, I wanted to ask you, there's a lot of low-hanging fruit at IAA and, in particular, in the issue with centralized versus decentralized decision-making. Has that issue of moving from centralized to decentralized been implemented at all of the salvage sites at this point?
Yes. So it's a tough question because, as I mentioned, we're always looking at ways to get more efficient and what works better for our customers, right? So what should be decentralized, what centralized. And sometimes there's a mixture of both, right? Using centralized to support the decentralized, and back and forth. But what I can tell you is the culture of the branch manager feeling ownership of the process and this is my SLA to manage, and we have implemented a new bonus program for the branch manager starting January 1, that bonuses then off of your ownership of the SLAs, so what I feel really confident is the culture of the branch manager owns it. And the things that should be in the branch, we've shifted the low-hanging fruit stuff to the branch. But we're constantly going to always evaluate what's the best support mechanism for the branch and how to be as efficient as possible.
Okay. So as you talked to, or your people, talk to the insurance companies, the consignors of vehicles, what is some of their wish list that they would like to see IAA implement to improve service levels?
Yes. So it's such a diverse when you say our insurance partners, right? When you take what I'll call a tier 1, the larger insurance carriers, then you work your way down to a regional and the different like farm bureaus, they all have a different -- it's such a diverse background of what's important. But look, the way we look at our business for all of our partners is how do we stop all the advanced charges as quickly as possible and how do we keep them as low as possible for them, right? So we're constantly looking at that. Then when we have possession of the car, if it's inspection services and images and data and getting the title as quickly as possible, how do we make that so they stop depreciation as we're going through it. And then ultimately, what is the right auction platform of how we drive ASPs, and how do we make sure we categorize things that are running drives first that are truly salvaged. So we're constantly looking at how do you drive ASPs. And then ultimately, when you take those 3 things, you get down to how do you get the best net return, right? So I think they all want the best net return, but how they go about it and different partners and software and integrations, like everyone has a different philosophy of how they're going about it and what they believe is important, but we're very flexible where we're able to integrate with various partners, have data APIs going back and forth. But the things we key on is net returns and then we have 3 major buckets with a lot of stuff that go under those buckets of how we manage the business for them.
The next question comes from John Healy from Northcoast Research.
Jim, I just wanted to get your thoughts just about what you mentioned in the prepared remarks about the transparency program on the auto side. Can you talk a little bit about what that look and what that feel is, if you think it's something that competitively others have? How it will make a difference for you?
And then secondly, just if and when you guys get the opportunity to win some share on that side of the business, what's your general thought process of how that will come online? Are these typically a couple of states, a pilot? Do they last 3 months before you can prove yourself? Just would love to see kind of if you do get a chance to win, how we might see it kind of unfold in contributing the business.
Yes. No, John, I think you -- everything that you said at the end, it could be any of those ways, right, as you're going through it. But, look, I came from collision. And inside of the collision world, there's a very transparent model of date because you have so many more competitors in that space where you get, okay, you're this, and this is where you're hitting your SLAs and this is your peer A, B, C and D and where they're at, right? So you typically had a very transparent way to measure how you're performing. And that came from the insurance carriers.
With the model we're in for salvage, with it being really just 2 players in this space, you don't get that level of transparency. And at different partners, some do their own comparison, which is great. And other smaller accounts, they don't have that capability to do the analytics and do it themselves. So they're dependent on both of us giving them an indication of what's happening. So in my world, I'm getting so confident with where we're performing with the team. My plan is, with our partners, and we actually have our industry event next week, is to share how we're performing in the top performance categories every quarter with them. So they don't have to guess anymore what our competitors are saying, what we're doing. We're going to hand out our metrics to them and tell them how we're doing. Now we're going to do our quarterly QBRs with them or monthly reviews and share the data that's just specifically for them. But we are going to share our industry data with them, so they have confidence of what we're doing, what we're going after and how we're performing. And that's the level of transparency that I want to have. And then our competitors will decide whatever they want to do. But I'm confident on my side that we can drive these numbers consistently where we're at. And I'm happy to share it with them to show our commitment and to drive an operational excellence in that space.
Great. No, that's helpful. And then you mentioned you're down in Orlando right now. I don't know if you mentioned it earlier because I'm hopping between calls, but any kind of thoughts in terms of how Orlando is looking performing for you guys? And any sort of early indications of what might be in hold for the industry this year just by spending time on the ground there?
Yes. I'll just speak more to our customers. It was the biggest turnout that we've had from a customer event as we're going through this. And I think we did the press release where we talked about a historical number of lots that we're selling. So I think our customers, what I got, are very happy with what they're seeing down here in Orlando, and it was great to get the turnout, which just gets back to the relationship that we have and the trust that we've built with our customers. And -- but I think everyone's going to be happy with how Orlando turned out this year.
The next question comes from Larry De Maria from William Blair.
Just the first question -- the CapEx, I think, is $275 million plus. Is that -- what's the run rate or how to think about that over the next few years? Is that a good starting point, and then kind of grow from there? Can you just give us some color on that?
Yes. It's Eric. On the CapEx, $275 million to $325 million range is specifically to 2024. Obviously, we'll continue to invest in our digital platforms, our PP&E as required. But I wouldn't build that into your long-term model at this point. I'm just providing guidance for 2024 at this time.
Okay. And then maybe to put a finer point, I know you've discussed this a few times already, but on the IAA share and the U-shape comments, and then in the presentation you noted some market share gains. Is it safe to say, correct me if I'm wrong, we're assuming kind of flattish here in '24 in your GTV, excluding the prior loss? And to follow up on that, are there any levers besides the SLAs and execution that could lead to share shifts? I mean I think price is a possibility, but I know buyer fees are more likely not to change, obviously, and that's the big bulk of the profits there. And any preview on the tenders that can move the needle this way -- one way or the other this year?
Look, again, it's always a tough conversation because we don't get to make the final decision of who decides to move, when they move, right? Of course, we know when all the contracts come up and all that fun stuff. But look, we're just laser focused on what's in our control, how do we drive those results. And then we know, with the type of industry we're in, having 2 viable players that people can choose from, our hope is there's some rational market share that comes out of that, that logically makes sense for the type of environment we're in on the salvage side.
Okay. Well, I can appreciate that and sensitivity around it. But is it safe to say that we're assuming a flat year for IAA excluding the share losses? Or actually we think we're going to pick up some share?
Okay. Yes. We're not going to give specifics on automotive by itself. But what I would say on the guidance, we've built in the impact of the carrier that we lost. As Sameer described earlier, that will roll off in Q2 through Q4, that is built in.
The next question comes from Maxim Sytchev from National Bank Financial.
I just wanted to circle back if it's possible on kind of on the legacy equipment side. I mean as pricing has started to normalize, I mean, what we've seen in the past was that there's a high probability of kind of attaching additional services, whether it's like painting, small repairs and things like that. Are we starting to see this already in the field or you think that's more of a sort of a back half dynamic from your perspective?
Yes. We -- I think your point is correct. And in our mind, I think it's more of a back half type of environment. We saw a little bit in Orlando as we're kind of going through it this year. But definitely, as units and price start to change, that becomes an opportunity. And look, I think as the environment changes, all of our services have a different profile to them, right? Our financial services look different in different economic environments. Transportation looks different. So we constantly look at how do we drive more services no matter what environment, but some of them do act a little bit differently in certain environments, and refurbishment and paint we think could look differently in the back half. But again, it's a small part of our complete business.
Yes, sure. And then as we think about -- as you're trying to high-grade IAA's capability, in terms of, I mean, if you can paint us a little bit your path for the journey, is it driven right now by adopting sort of the technology tools that you have in the legacy part of the business, processes sort of improvements? Do you mind maybe just talking about those 2 dynamics and where we stand right now?
Yes. Look, I think it's a lot of everything, right? The one thing we've been impressed with on the salvage side of the business is what they built, and we didn't have a lot of CATs this year. But the process they built, I think, is an unbelievable, flexible, efficient process, that does some amazing pickup of cars when a flood happens, and then the ASPs they get, even though we had a small season this year, what we saw in due diligence, I've been completely impressed with. And the AI investment that IAA has made in IAA Vehicle Score and different technologies, I'm completely impressed with, and some of their ideas bringing over to the industrial construction side. And then on the operational at the branch level, I think the team just needed an understanding of who's accountable for what, right? Whose responsibility is it? Who's going to drive it? And how do we do this as a complete team, and creating clarity. So there was no "Am I waiting for a central thing to do this, or decentralize, who's responsible for it." So we spend a lot of time making sure we are very clear of who's responsible for what. And then we took the analytics and said, okay, where do we have our problems? Where do we drive it? And like I mentioned, we made sure from a financial standpoint, people's bonuses are tied to -- and this goes from the ELT down to the branch -- that were all tied to the same thing to drive the results that we want. So I think at the branch level, it was more the clarity and making sure we bring visibility to where we have problems, and then being able to train against those problems, really helped it. And our commitment, we're going to deliver on our SLAs, right? Yes, we're going to manage our costs as we do it. But our commitment is SLAs, drive the results for our customers, over-deliver. And then like I mentioned, everything else, there's technology things that help. And I think as you look at our ASPs and being up what they were this quarter on the salvage side, a lot of that is the technology that the company has driven. So I think it's a combination of both.
Right. And in terms of -- have you seen any turnover kind of at a branch level as you have kind of delinked some of the legacy compensation structure? Or what do you see...
No. The funny thing is, I think they appreciate it now because they know what they're accountable and they know what to drive and they know, okay, it's -- like it's in my control to go after this and get it. right? I'm not missing a tool where I can't get it. Where before in the past, they didn't know how to go and get it, right? And it was just left to, okay, maybe I get one bonus, maybe I don't. Now it's completely in their control of what they're driving, and I think they're very appreciative of it. And I think they're very appreciative of the clarity now of the business as we're going through it.
So I think the team is excited. I'm actually excited that I'm spending, in 3 different regions, we're getting all the branch managers together from IAA over the next 2 months. And this is going to be -- I've met some of them, but this is going to be my chance to meet every branch manager and making sure the culture of what we're trying to deliver really comes through. But I think the team on the salvage side is very excited to be part of RB Global and they're appreciative of the changes that we've made so far.
Okay. Maybe just one last one, if I may. In terms of whole car, any update on that side would be great.
So a big part of our strategy, right? So it's part of what we want to go after, just like growing salvage share. And I'll probably just say growing all the share across all of our asset classes, no matter which one we're talking about. And we believe whole car is another opportunity for us to go after and grow share. And the same thing we did at the branch level. We created clarity, bonus programs and for sales teams and commissions of how do you go after this business. So I think the team is excited, but they're getting started, and this is really their kickoff in 2024 to go after this business. But like everything, look, it's building relationships and confidence, so it takes a little bit of time to get it. But we believe in the whole car business, and we're going to invest in it and go after that side of the business too and grow share, just like we do with all the asset classes that we're very proud of with the growth that we've had over the last 3 quarters.
[Operator Instructions] Next question comes from Sabahat Khan from RBC Capital Markets.
Just maybe a question on the leverage side and capital allocation. Leverage looks like it's trending well. Presumably the yellow sale disposition helps maybe a bit on the cash flow side. Can you maybe give a little bit of color on, maybe not just CapEx, maybe just on capital allocation maybe 2 years out and then maybe 3 to 5 years out? I think in an earlier question, you said CapEx could potentially moderate. Just what are the other things you'd be focused on as CapEx moderate? Would we think about return of capital, other initiatives? Maybe just walk us through what that looks like a few years out.
Yes. I think just to be fair, Eric has only been here for 1.5 months. So I don't think it's fair. I'll pass it to Eric in a second, but I don't think it's fair yet to give that much detail as Eric and I and the management team work through in detail all your questions. But I'll pass it to Eric for a few comments.
Yes. What I would say is -- our commitment to the 2x net debt to adjusted EBITDA by the Q1 of 2025 is where we're focused. So we'll continue to get to that leverage level while continuing to invest in our digital platform as well as PP&E. So I feel really good about where we are against our commitment. As you noted in my prepared remarks, we're at 2.2x net debt through Q4 and on a trajectory to hit our target by Q1 of '25. To Jim's point, still looking at capital allocation. I think some of the things you brought up are obviously opportunities that we will look at as we get to the optimal capital structure for the business.
Yes. And I think just in general, I just want to reiterate, as a management team, our commitment to taking any capital we spend to get a proper return for it. And that was the one of the biggest things having Eric come in as our CFO, of that commitment and working across all departments to make sure that it really gets instilled in each of us down through the organization of our commitment of the return we want to get for any dollar that we spend. And as a leadership team with Eric here, we're going to be spending a lot of time on this conversation to make sure we're aligned on it.
That helps. And then maybe to put you back in the spot, Jim, just along, I guess, the synergy side, understanding you don't want to get into the details maybe going forward. But if you just kind of look ahead in terms of maybe an update on what are the bigger buckets that you're completely done with. And as you think about the remaining kind of integration period, maybe just what are going to be the bigger sources of synergies kind of through the kind of 2025 here?
Yes. Look, the funny thing is when we first combined companies, like every company, you go through all the departments. And as you can imagine, procurement becoming one, they're the easy low-hanging fruit that happens. Unfortunately, we had a CFO transition, right? So Eric just got here. So like every new person coming into an organization, he'll look at his organization and what makes the most sense for the future. But look, we're going to be laser-focused on every area as a management team of are we operating as efficiently as possible. And this is just never going to stop, right? It's just going to be a process that we're always looking at. And kind of think about your organization of people, as you think about having a sales team, you have so many of them. There's always the bottom 10, right, and the top 10, and people in the middle and you're constantly making sure you have the right people in place. So that's always going to evolve as we're going through this. So we're constantly looking at all the different areas, all the portfolio companies that we have. Are they living up to the return that we want? Are they expected? And based on what we're seeing, we're going to make decisions. I think the great thing is we had the opportunity to look at all the organizations with the 2 companies coming together and putting our plans in place to get our -- and I hate using cost synergies of this. We're just running the business efficiently because I don't want this to sound like that we're just focused on the short term, because we're not. We're focused on how do we run a business efficiently that operates in the long term at the same time. So we're doing both. And that's why at this point, I think we've done all the organization work. We have some plans in place to get done to live up to our commitment, which we're executing against. But we're never going to stop of, are we as efficient as possible. And we're going to push each other to make sure we stay as efficient as possible as we go through this because we want to grow the company, we want to expand margins, and we want that to flow through to the bottom line.
Great. If I could just squeeze in one quick one. There's a comment in your slide deck around the land strategy. Obviously, you and ourselves also got a lot of questions on just what that will eventually look like. Is this sort of kind of an evolving strategy, you'll see how things progress? Or do you have sort of a more definitive view on, look, this is what we want our land ownership to look like? Just any directional view on how you're thinking about that today.
Yes. What I'll just say in general, I don't think we -- to be able to gain share in this business, I don't think we have to have a profile that's one way or the other, right? If it's lease versus owning land. I don't think our partners care what financial decision we make. I think this is truly a financial decision, what's the best use of our cash? And what do we do with the cash that we have, right?
So I don't think this is, to get business, to hit SLA, do you own or do you lease land? I think for us is, what's the best use of our cash? Land's a component of the capital and we make financial decisions and, dependent on the economic environment, if interest rates are really high, it might mean we own land today, but then we do a sale or leaseback in the future.
But a big part of what we want Eric and his team to support the organization through is what's the right financial decision for us as an organization. That's the most important thing that we have. And I feel really good with the conversations with our partners that, if it's own or lease isn't dictated in how we're hitting our SLAs, right? This is really a financial decision. And we're being very clear with our partners that we're making the best financial decision so we can invest back into the business.
There are no further questions at this time. I will turn the call back over to Jim Kessler for closing comments.
Again, I just wanted to thank everyone so much for taking the time and listening to our story about RB Global. And again, this is RB Global. This is just not one asset class. What I am impressed with, with the team is, we're managing multiple asset classes and we're growing each of our asset classes. So I just wanted to end thanking the team for all their hard work as being part of RB Global. And thank you for taking your time, and we'll talk to everyone soon. Thank you so much.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.