Q4 2019 Earnings Call
At this time I would like to welcome everyone to <unk> fourth and final yearend results released and conference call.
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Thank you Mr., Tim close you May begin your conference.
Hi, good morning.
Thank you for joining see someone told me this morning.
Oh, I'll start off with a insured apology I'd been dealing with a round.
No uncalled bid related illness in ER and my household so.
And they are mute.
Sporadically throughout the call is really a cop Arkansas.
We'd like to open our comps morning by recognizing our team members and northern Italy, who.
Until our recent complete walk down continued to operate across three locations. During this crisis.
All in one of the most intensely impacted regions in the world.
Our team there developed and implemented all season procedures to responsibly and safely operate without one single pausing to case, it's cold it.
The in telling team has been an industry inspiration to all the BG <unk>, we are implementing what we learned there across all of our facilities.
We learned that we can prioritize the safety bar people, while continuing to operate two also safeguard the likelihood of our people.
We have many shareholders with any geography in many that are listening this morning.
Stephen I would like to thank everyone in age Guy and our partners for the outstanding response and support reach other Greig <unk> and for our customers.
Now, let's jump in here and summarize where we stand today.
We entered this crisis with good momentum across a July we had record backlogs in our international business strong backlogs in our North American farm business and stable backlogs North American commercial.
As we move through Q1, our technology business is up over 200% year over year in we're set to launch B two of our Suretrack platform.
The data is I would now and it is a beautiful platform.
It drives tremendous value for farmers.
We are very excited to get this released.
Farmers are preparing to plan or our planting right now a much improved conditions over the last year.
These are good underlying fundamentals.
The Kobe crisis has created substantial uncertainties across all of our markets and operations.
Today, we had suspended production in France, Italy, Brazil, and India do district Lockdowns original conditions.
As it stands this is just suspensions excuse me are scheduled for two to three weeks.
Well production, it's just suspended.
We are continuing with all design and engineering work and quoting on new projects.
This work is carrying on rather well with their teams settling in the working from home.
This important work. This is very important work that represents roughly 25% and the work that goes into a typical project. So we are far from idle.
Continuing this work positions us well did resumed production goes post crisis.
[noise] Frank facilities was suspended production, we are utilizing vacation time leave in government programs to mitigate the impact.
No at this point, we believe our backlogs are solid the.
The pipeline of new business is solid and we can efficiently resumed production in the plants that are or may have production disruptions.
In fact, we continue to add to our backlogs each week.
For example, Saba is having a record month, the new orders and our North American farm business intake is higher over the past five weeks then the same period last year.
At the same time, the uncertainties graded by cold It will have an impact on capital decisions for projects and the timing of those delays is simply unknown.
The crisis has been steadily marching last and we've been preparing our businesses in Canada and the U.S. based on those important lessons for middle it.
Multiple states and provinces and declared our products services and technologies as essential services, providing us with the opportunity to use what we learned in Italy to implement strict policies and procedures and continue to safely in response, we operate in this environment.
We fully understand the severity of the current situation, we are living through the worst, but in Italy and across our operations in India, Brazil in France.
The most important unknown at this point is the duration of the Lockdowns. If the production Lockdowns are limited to two or four weeks than the impact can be mitigated.
As we move into longer lockdowns than the impact obviously starts to built.
At this point, we simply don't have this visibility into the ultimate link of the Lockdowns.
Now the world how the world looks post crisis will ultimately determine the longer term impact on each business.
Cruise line industry is unlikely to bounce back for instance.
For each yard the picture is quite clear.
Fertilizer in seed will need to make their way to fields farmers will plant spray harvest in market grain will trade animals will eat in grocery stores will continue to fill with fresh and processed products along with newly expanded toilet paper sections.
Our customers are critical participants in the world's food supply chain from farmer to feed lot to food processor, they're experiencing increased demand for their products now.
Current or acquired exemptions markdowns in order to continue to supply the world. Our customers are busy during this crisis. My bet is that they will be even does your post crisis is little builds additional capacity to the food infrastructure.
To better prepare for the next crisis that now seems that much more likely.
Let's talk about a liquidity.
We've been proactively dealing with our liquidity prior to coded as evidenced by the amended and extended credit facilities that we announced last week.
In combination with the debenture, we completed earlier in the year, we are well positioned from a liquidity perspective with 80 million in room in our current facilities and access to expand that VR accordion in a very supportive banking syndicate.
Given the current crisis, we earned steady communication with our banking partners working to prepare for the worst I remain confident that that support will continue.
[noise] simply do not know the extent or duration of this crisis. So acting reasonably we moved to monthly approvals for our dividend.
Each day brings more information.
And as you would expect we're digesting the developments each day to determine the impact on our business, we will do nothing in haste.
With those comments I'll turn the call over to Steve to review the corridor.
Okay. Thanks, Tim.
Our results in the fourth quarter of 2019 were consistent with our previously communicated guidance.
Great sales increased 7% to 230 million due largely to strong demand for portable grain handling and drawing equipment.
Contributions from acquisitions, both significantly Miltec in India.
However, adjusted EBITDA decreased compared to Q4 2019.
Due to the impact of very quick growing conditions in the U.S. the impact of trade uncertainties and the timing of sales related to our commercial backlog.
As well as an increase in investment in sales marketing and technical resources related to our AG I sure truck platform.
Prior to the emergence of Corbett my team activity in the first quarter of 2020 were generally consistent with management expectations.
Farm sales have been steady at our foreign backlog at the end of February 14% higher in the U.S. compared to the prior year, but we did not expect.
But we did not.
Back to carryover impact of a difficult 2019 grilling season in the U.S. meaningfully reverse prior to the 2020 planting in Q2.
Our international sales order backlog is 30% higher than the prior year and at record levels in Brazil. However, the sales remain weighted to the second half.
In addition, the investment in our growing each Asher type platform and other technology and marketing initiatives higher than the prior year.
Due largely to these factor when compared against the strong Q1 2019 that included a significant contribution from our commercial business in Canada.
It did not expect year over year organic growth in summary, and I've described more fully in the Mdna.
We expect adjusted EBITDA in Q1 up 2022 approximate Q4 2019 result.
Okay.
On March 20 or 2020.
We announced we amended and extended our credit facility with a syndicate a five Canadian banks led by sea I'd be seat.
With the outbreak of Corbett 19. This previously planned extension takes on an increased important.
The facility was extended to March 20, or 2025, and the amendment include an increase in the maximum senior debt leverage ratio up to 3.75 for the balance of 2020, Adam improved pricing grid.
At December 31st 2019 AG senior debt leverage ratio as defined in our credit agreement with 2.6 lifetimes.
And with that I will turn it back to Tim.
Thanks, Steve.
We will open the lines for questions. However, I'll preface this by repeating that there are simply too many I know ones would be speculating on possible events. We have 34 locations across five distinctly different regions that are all at different stages of this crisis.
Each region is implementing unique response to this this crisis.
The answer to many of your questions. We'll soon we'll be simply that it's too early to tell.
Let's focus on the taxes, we know them. This morning, now with that Joanna let's open the line to question questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
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The first question comes from GE Cutback FEMSA RBC. Please go ahead.
Hi, good morning.
And I hope you feel better soon Tim.
My first question here is.
Just as we think about what's going on right now and with these plants shutdown in Italy, India, France and Brazil.
Oh, those four areas what would that represent as a percentage of revenue and EBITDA.
Well it they are Jack Spade, Steve I mean, as a percentage of revenue with me not represent.
Almost all of our international production.
Our offshore production, you know, which.
Our international sales are trending along 30% of art our total sales.
I would note, though that our international sales also include exports from the U.S. So what you see in our international sales line that would be would be partially manufactured in the U.S., we haven't disclosed EBITDA on a regional basis.
Okay, and then if we think about.
When things start to improve.
How long does it take for plants to ramp up.
[noise] [noise] yeah. Its case by case, Jacob but you know right now because of the engineering design work that we're doing we believe we can do that a quite efficiently.
A lot of that work are all about work needs to be done.
Prior to two those those orders go into the shop floor. So as long as we have that work going on than those those orders are ready to hit the shop floor as soon as production.
He is back on.
And then if we think about your typical plant what would be.
You know, we think about on that on the call it from a cost.
[noise] versus variable.
Hey ticket that Steve again, so you know the majority of our costs are variable you know where out we are low low intense our CCAR capital intensity is low and you know the majority of our production cost we can flex.
Yes.
Wanted to move on to want to backlog, so you're talking about record backlog and.
But.
If we think about the projects that are are in backlog currently what is the ability ability of clients to postpone them in wouldn't see the ability to to actually cancel them and is there any type of a financial penalties or at all or or how should we think of Uh huh.
Yeah.
So you know the each each project is a little bit different we are but there are substantial deposits involved in news and these are projects I mean, each of our customers are dealing with the same the same scenario no. They it's hard for them to get this up that that they need.
Order to carry on with the those projects so.
We are in daily communication.
Cross our backlogs were with customers and you know.
Very good communication Buck stocking for.
Certainly everybody understands the situation of wall.
Okay, and maybe just last question here on the decline in North American commercial so it's been very strong for you know the investments some very strong for a number of years. So you know backing out covert 19.
In the impacts there.
He is he kind of reading between the lines are you expecting basically that this is going to be the new norm a after very strong investment that things are going to tail off over the next two to three years.
Hey, take risky again, so I think in Canada. That's the case you know we had a period of heightened activity and a year ago was really got at full steam you know the investment in Canada continues but not at the pace. It was 12 months ago.
The U.S. is a different story the U.S. has been bouncing along the bottom for a few years now you know we feel there's reason for optimism in the U.S. you know, especially you know covanta side again.
Especially you know with improved credit relationship between you and China and an approved macro AG backdrop. So you know.
A lot or the decrease in Canada may very well be taken up by an increasing in the U.S.
And can you remind us again, what the split up between Us and Canada for for North America commercial.
Yeah, so that would very much.
Change year to year, they the U.S. market. It certainly is much larger than the Canadian market.
Okay.
I'll leave it there I think you.
Thanks It.
Thank you. The next question comes from David Neumann update your Dan. Please go ahead.
Good morning, gentlemen.
Good morning, Good I hope, we feel very Tim. So obviously your hunkering down here a little that are you going to be putting some easier. Obviously you look what are the backburner I think on M&A.
I'm thinking about you know revisiting growth capex and it sounds like going to month to month on the dividend, you're just kind of seeing what the timing is related to how long. These plants might be close and then make that decision because he yield would suggest that maybe you know a cut might be coming so any any thoughts on a uses of cash.
Well, Yeah, I think the world is hunkering down too. So that's a no [laughter] maybe the understanding of the no today V., we are being extremely cautious so oh, all all capex and and is certainly on hold.
I mean, it assess still.
As we go through this crisis.
Yeah, I mean, it's Ah it is a day to day by day, and we're trying to be as cautious and and did you know bring together as I said in my comments is digested incorporate.
All the information that we're learning on the deal basis and so they tend to those are those delays will will determine or oh.
You know a couple of weeks shut down actually isn't isn't that an unusual.
Clients so.
It's it's completely comes down to how long this loss.
Okay, and then are you seeing any supply challenges either you know for input or for obviously marketing the product I mean, any any supply chain zones that you're seeing other than the blockades that we saw in the first quarter here by any other things you'd call out that you're seeing any slowdown and just supply chain.
Oh, well those blog, yeah, well I mean, they too they did two different yeah perspectives on not the our supply chain, where we've been facility by facility part by part.
We've we've SKU by SKU, we've looked at the credit how critical and what our inventories are in and what the supply chain looks like bye bye component.
Bipartite material.
Or implementing strategies to to ensure that we can continue to operate.
From a supply chain a it from our customers perspective, I think you know the challenges our movement people and region by region.
[noise], how Israel <unk> power trucking.
How are they able to upgrade in this environment. So.
You know its day by day.
Maybe you guys could just remind me you got some actually silver linings here, one being obviously steel costs.
Hi, Matt It represents pretty significant portion of your of your of your variable cost and then I look at foreign exchange I think he has a fairly substantial U.S. dollar component on translation, but obviously that'll be a bit of a bit of a tailwind I think just on your on your reported numbers.
And I kind of look at you know cry across a few other things that seem to be you know, obviously low interest rates and for your farmers and altering payment plans I mean, so maybe just kind of remind us on the steel side and the fact side and what you're doing it in terms of Ah you know taking advantage of these are near zero interest rate.
I'm sure you have to one on the feels I know you're correct, David our steel component typically 25% to 30% of our Cogs, we but we've always been very out given the steel market in a strategic with respect to our procurement strategy and you know well continue to do that.
Where do I guess your position today compared to the prior year, which will be a tailwind 2020.
Oh, you're right on the foreign exchange also we are we are long U.S. de novos disclosed in our audited financials, though the failed denominator in in the U.S. dollar down the costs and the but dealt with about a 100 million U.S. dollars.
The strong you ft impact other things you know the price of steel.
That's been put for foreign markets et cetera, but.
Generally it's a very positive thing for age <unk> when the when the CAD is weaker than the U.S.T. or we can compare to the U.S. Steve.
Closed index to the Canadian dollar in Canada.
Well I feel prices in Canada.
We'll increase with a weaker Canadian dollar right okay.
Okay, and then what would be just split U.S. deal Canadian steel kind of thing.
You know you would look again at well yet our production facilities. We have we have a you know field. The most important to our been business and we have a we've had been a manufacturing facility in Canada and one of the U.S. So yeah. You know, it's it's important in both markets.
And then instant steel pricing is overtime they pass through across the industry and I think the last part of your question David.
Farmers or are we getting and we'll continue to get a high level of support in this environment had been previously they had been historically they will will but we'll get the there's no support in this environment FCC I think and build a 5 billion dollar.
Support package from a credit a guaranteed perspective, but it.
Neither did not.
And we expect a robust support.
So.
As well so that could be a big tailwind coming out of this.
Well I think so you know if you look a anecdotally we can see our customers are old planting.
They are buying fuel will be knowledge. It because it's it's at record lows recent record lows stocking up and all of the inputs that they need a for a very typical your paid them they've been practicing work from home and.
And Ah quarantined a type of work environments for many many years yeah, No Fisher Reagan thanks, gentlemen.
Thank you.
Thank you. The next question comes from Michael Journey of Scotiabank. Please go ahead.
Hey, good morning, guys.
One so a lot of questions have been asked but just wondering.
And all your little quantify the EBITDA impact from the two to three weeks suspension.
You talked about the revenue, but just on the impacts and then as a clarification how much that impact [laughter] fell into Q1 versus Q2.
Hey, Good morning, you know as Tim mentioned in his comment there's so many unknowns today. So many variables that we aren't prepared to quantify impact you know, but I will say in <unk>.
The shutdown of the duration of two to three weeks you know there'll be a revenue impact in Q2, certainly, but it's it's a revenue that we believe we will make up in the back half of 21.
Yeah.
Okay. That's helpful.
Okay.
Obviously trying to think about the numbers here.
You guys have all right so some guidance.
Obviously last year, a number or challenges for Jive.
Yes, this year and we're starting with a lot of uncertainty maybe discuss some of your thoughts.
For the potential plus is you know I've covered is sort of a short shorter period.
Some of the minuses and just for context, I mean management the street, we all expected.
With that growth in 2020 or significant EBITDA growth versus 29 change.
Put all the pieces together I mean [noise].
It doesn't EBITDA expectation or he set back to 20 2019 levels makes sense for 2020, just any color really try to sir.
Yeah, we <unk>, we just Ah we just don't know at this point Michael itself, there's way too many variables for us to be making a local or forecast at this point.
Yeah, It's a it's just too early to tell.
Okay, No that's a totally fair answer.
It's hard for all of us to sort of figure this out.
Yes, I guess you just I do like should answer your first part of your question you asked for some of.
The positives.
You know then the negatives or the unknown and then certainly as evidenced by the suspension production suspension.
[noise] the positives I'm you know where are you I mentioned in my comments.
Our customers, primarily or are receiving exemptions from from shutdowns. They they have to operate it too for the world.
As part of the supply chain in support of those customers. We are captured by those essential services operations as well so bad that provides us the opportunity to operate in this one many in most businesses don't have that opportunity.
So we are we had we know a team across the guy that are overwhelmingly booking to continue to work and continue to do our part to contribute and during this crisis.
You know so two too you know what do we.
Traded.
In Italy, the ability to do that to two to safely and responsibly operate in this environment in one of the most intense regions and in the World. We were able to do that without a single paused the case up until the.
The 14 day lock down they had just on Saturday. So you know with with those I ignored repeated again here because it's an important point, but those lessons learned there that were implementing everywhere.
We believe there is a way to operate safely number one number one priority across our businesses. The safety of all of our people. We believe we can safely operate in <unk> and and as we as we go forward.
So you know it is a provides us with the opportunity to continue operations. So there's there's many pluses to that across the board.
They coming out of this crisis I think the importance of that supply chain that sort of unseen global food or infrastructure.
It is gonna be top of mind from a.
Government perspective, then and from a investment not perspective, the world will overbuild in order to account or.
This type of crisis in the future that concludes certainly highlights, but we've been talking boat or loss number of years is that.
There's there's a the massive amount investment needed.
A four up around the world even in mature markets to to make the existing infrastructure more efficient more productive and more reliable in good days and certainly certainly as needed.
Can days like these.
And I appreciate the comments gentlemen, I mean, obviously good job in Italy, and good luck for us.
Thank you.
Ladies and gentlemen, as a reminder, shouldn't have any questions. Please press star one.
The next question comes from Steve Hansen of Raymond James. Please go ahead.
Yeah. Good morning, guys, Tim the decision on dealing with this crisis in Italy, France, now India seems fairly logical is there any reason that Brazil was added to that list as well just out of curiosity.
Brazil's more regionally, it's not a they have been or move to.
Government.
Were required lockdowns it but at this point, it's it's just region by region and ER.
You know so it's a it it's <unk>.
You know each case is gonna be a slightly different so in that case were like many of the businesses in that region. Following I'm going to be the lead and other regional businesses. So.
Understood that's helpful and it just thinking forward I mean, I think we all recognize how answered so is it I appreciate the challenges, but do you think that are an update to the market intra quarter or if there is greater visibility of the time is going to be warranted I'm just trying to understand everywhere, we're sort of at the thought.
Period, and the calendar here now we're going to hear from you for a couple of months I'm just trying to just yet do you plan to give updates.
In short answer is yes, we plan to provide as much transparency as we had been collection points as we gather material information.
Plan to continue to be opened in and ER and continue to communicate.
Okay, Great and then just just maybe finally on a per talk of a more optimism around aegis. Your track I think you didn't your opening comments you suggest that you've had good traction there do you want to see maybe give us an update as to what you're seeing there. The last quarter you would had some constraints.
As I recall in implementation or beating demand, maybe just give us an update us where you're at.
Yeah, we ramped up production through Q4, and a into into Q1 from a hardware perspective, and now have very good inventory levels.
Uptown lead times across the board and we're sitting in a very good position those businesses continue to operate to manufacturer to install and and now with the release of our second version, which is just a which it's a beautiful platform to operate and has expanded capabilities.
We hope to launch and then in the company in the coming week. So.
Very positive on the roll over in the expansion of all of the technology business.
Having good impact on an integration and cross selling across C.G.I. over traditional.
Oh products that are being brought into and able to to monitor and manage and operate within the Fisher dropped level.
Very good good luck with a badge all this these challenges Gov shares.
Okay.
Thank you there no further questions at this time you May proceed.
Okay well.
Well. Thank you for your time. This morning are appreciate the continued interest and support.
Well a sign up here in just a.
Let's give everybody to stay safe.
Thank you very much quicker.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Okay.