Q4 2020 Ag Growth International Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Hei Q4, and 2020 year end results. At this time of all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Sort of anytime during this call you need assistance. Please press star zero for the operator.
Call is being recorded on Wednesday March 17th 'twenty, 'twenty, one and I would now like to turn the conference over to Tim close. Please go ahead.
Good morning, and thank you for joining Jim and I to discuss our results for Q4 2020 as well as our outlook for 2021.
Note that we have amended our disclosure this quarter to include additional detail on our food and technology businesses.
These are relatively new segments within Agi, which had come together the the loss of <unk>.
Couple of years, both segments have unique characteristics, which warrant breaking the mode to provide more clarity on the demand drivers and opportunities.
Both segments have also had strong growth with significant momentum. So the timing was appropriate to add detail and discuss in more depth.
Q4 capped off an unusual year that highlighted the progress we've made in transforming and diversifying hei into a global business with strong platforms in each of the strategic regions and products that form of strong foundation for our continued growth and success.
Agi is now uniquely positioned to accelerate our growth in our targeted markets.
The North American business is the dominant player in providing equipment solutions to grain and fertilizer markets.
We've established a solid foothold in Brazil, where we continue to gain market share we.
We have the leading rice equipment business in India.
In the Asia Pacific businesses.
Now also earning significant share and expanding from the solid base, our food platforms come together over the last two years to be positioned from exciting growth in our technology business is rapidly growing both in customer adoption and capabilities.
This agi is fundamentally stronger less cyclical and better positioned to accelerate our growth than ever before in our history.
2020 was also a transformational year for our people and the structure of our business, we have built out and strengthened each of our regional leadership teams. We now have all regions represented on our S. L T.
That means we are positioned to be better partners with our customers in each region.
This regional strength was demonstrated in our 2020 results, which saw Covid and regional cyclical elements result in sales declines in some of our traditional segments. However, the newer components of hei more than offset the turn in a solid performance in the challenging year.
We ended 2000 21 billion in trade sales are first year, reaching this milestone and sales volume.
Adjusted EBITDA grew three 5% per the year to $149 million, while adjusted EBITDA margins inched up by 50 basis points from the year.
The project delays product interruptions and the logistical challenges within the year.
Q4 sales were flat year over year. However, adjusted EBITDA grew 20% in the quarter due to a favorable product mix and operational efficiency gains at several locations, including EMEA, Brazil and in our portable segment.
As mentioned with the growth in technology and food, we have begun breaking of these key components of our MD&A to highlight the strategic impact and value of these businesses.
These two segments of our unique within hei and the key focus in 2021 for Jim.
We'll be on communicating the characteristics of these businesses along with the total addressable markets and potential for these segments of hei.
Yes.
This morning, we will focus on the technology platform given the large strategic impact of the segment is happening across all of hei and given the spotlight that has been focused on AG tech as the world wakes up to the digital transformation happening in agriculture.
Along with the new segmentation. We are also completing the work to carve out hei sure track from an accounting legal and incentive perspective to formally create of business within our business. While the technology business is deeply aligned and integrated within hei dysfunctional carve outs in recognition of the unique aspects in terms of culture culture people pace in.
The innovation that is required to provide a fast growing technology business with the oxygen and fuel for growth and success.
Hey, Joshua crack is built on the foundation of Iot products, which established deep long lasting relationships with our customers. These iot devices generate rich robust and very practical operational data feeds into our three key software platforms AG.
Sure track farm share correct pro and our grain marketplace the.
<unk> platform is the system of record that automates the collection of all data across the bar and provides the pharma with an operating system to collect.
Monitor operate and manage their operations, including inputs production activity and final product management.
The farm platform is agnostic place from the farmer to own and share all the data with the advisors, including farm employees Agronomists bankers insurance partners as well as carbon the sustainability markets, which are now starting to rapidly take four.
All of the stakeholders of require robust verifiable and easily transferred and digestible data, which is exactly what we deliver and hei <unk> bulk.
On the commercial side, we provide all of the Iot and hazard monitoring sensors for a commercial grain and fertilizer operator to monitor and operate their facilities to maximize safety and productivity.
This platform then extends to become of supply chain management tool through our grain marketplace, where our grain buyer can easily locate grain bid for grain manner.
And the interact with the farmer than manage the logistics and filled fulfillment of each contract.
With the farmers consent. The green buyers can also view of the Grand day of contracted to purchase to monitor the temperature moisture COPD conditions of the product and also view the content of each load of grain that we need to the debt.
They can see the protein oil and starch content of what they are buying the.
The farmer can also offer to provide additional data on the grain, including the seed application and conditioning records black ranked the.
Buyer can easily access the nutrient applications of that deal the <unk>.
Buyer can access fuel usage on the field the fields of the grain was sourced the buyer can verify the farming practices utilized in the production of background the <unk>.
Buyer can access the data to verify the carbon footprint of the growing and conditioning activity for that great Rob.
Robust data that is critical for the emerging carbon sustainability traceability markets, we are working to leverage and expand our capabilities of these markets.
Important to note here that AG is approach to AG Tech is significantly different from the data perspective share track as a tool for farmers to manage the business and accordingly, all data is owned and controlled by the farmer. It is not connected to a supplier nor is the connected to an advice the.
Farmer can use the data as they would like and share of utilize the data to run their business as they see fit.
As obvious as of the sounds much of AG Tech is seeking to use control or otherwise restrict the use of Jupiter farmers data.
The Agi approach sets us apart and is of strategic benefit for us in this space.
We sell the share drag platforms through three principal channels direct to farm direct to commercial users, including grain buyers and food processors. We also sell the Iot hardware through our extensive dealer networks. We have approximately 1000 agi dealers just in the U S. And we are working to onboard additional share correct specific dealers to <unk>.
Inefficiently increase our reach and distribution of our Iot products.
We design manufacture and install the Iot sensors and hardware the form of unique portfolio of Iot devices that are embedded in.
In our customers' operations, we supply of these devices to both farm and commercial customers and the product portfolio includes weather stations soil probes grain bin monitoring sensors for moisture and temperature C. O two inventory sensors for fuel tanks grain and fertilizer bins.
Driver monitoring and controls ban actuators to automate grain conditioning. We also supply of the Barnwell ballpark of device that is installed on field equipment, including planters applicators of complex to record and transmit machine and agronomic data to our platform. The farm of ballpark is agnostic to equipment brand provides two way very accurate data.
It is that live off the field the data is cleaned and standardized to make it very easy for the farmer or their agronomists to use.
In the commercial space, we of sensors that go on bearings belts and are handling equipment to provide constant monitoring of critical equipment to ensure safe operations and detect issues that would impact operational uptime.
The commercial sensors also include proximity sensors vibration sensors locational sensors and other sensors that measure temperature of activity that would indicate operational issues.
We are developing additional devices to add to this Iot portfolio that will effectively turn all of our products and diodes devices, beating back data to our customers and extending their ability to monitor operate and automate more of their operations.
As mentioned these Iot products form a unique long term relationship with our customers that is very sticky as our products become integral and integral part of operating these businesses.
The Iot capabilities fundamentally changed the functionality of our equipment and differentiate our equipment from the rest of the market.
The data gathered from these devices den creates the opportunity to provide our share of track software solutions.
Now, let's turn to look at the addressable markets and scope of this business.
There are roughly $1 2 million farms in the U S and 65 million farms in Canada that are focused on Greg.
We believe that all farms will become digitally engaged they are already starting that engagement in terms of cell phones and tools in the cabs the combines and field the combi.
Combines with the auto steer section of control of precision plant and apply capabilities are now common across the swaps. This digital.
Engagement will extend to all equipment across the farm.
Okay.
Our commercial customers will also deploy technology across their entire operations. Both in terms of their equipment and in their supply chain management from a facility perspective, our commercial customers will deploy out Iot sensors across their entire operations to achieve digital engagement with all components of their system to monitor and automate the facilities to make significant gains.
In productivity and gain back or enhance the operating margins.
Digital tools also mean reductions in downtime and increased safety and productivity.
Now moving to the software platforms. We are in the early days of developing wrapping up bolt platform usage of our capabilities, we charge an annual platform fees for each of the South software platforms. We are currently focused on adoption of the platforms as we build awareness of the capabilities. We fully expect to create additional means to drive revenue from the software.
Platforms.
As reported in our segmentation, we had $36 million in retail equivalent sales in our technology business in 2020, the total addressable market for share track includes both the Iot device market and then an annual SaaS payment market.
We believe that the total addressable market just in North America is well over 10 billion per Iot devices as well as the SaaS market of well over 2 billion annually.
Our technology business is an immense opportunity per hei will be aggressively building out our Iot and software platforms going forward.
Before I hand, the call over to Jim for additional detail like the briefly touch on 2021 of the outlook for the year.
We are seeing very robust markets across both farm and commercial and in most regions.
Backlogs of continued to increase from the end of 2020, and they're now up 40% over this time last year.
Some of this is timing and is unique to sort of circumstances in 2020 one the exceptional steel price increases of driven sales to lock in product and the dance of this increases higher planting intentions of driving demand. We're also seeing market share gains in the U S. Brazil, India via ended portable equipment in North America strong crop prices are supporting this pause.
Ziv environment.
Altogether this positions us for strong expectations for 2021.
With that I will turn the call over to Jim for additional details of the quarter and the outlook.
Thanks, Tim and Hello, everyone for this earnings call I would like to cover four topics first I wanted to take some time to explain the additional disclosure we have provided in our MD&A this quarter.
Next I'll provide a brief overview of our financial results.
The third I'll discuss our liquidity position and then finally leave you with our thoughts on how the year of shaping up so far.
To start off you will notice that we have provided more detailed information in our MD&A that our business we.
We've always described our business is operating in what we call either of the farm our commercial segments.
These two broad segments operate in Canada, the U S and the international regions. However, the business is much more diverse now and warrants further detail to help you better understand how we are doing and where the opportunities are for us going forward.
Within our farm segment, we have provided information about our sales of equipment and services to farms as well as carved out our fast growing technology platform.
On the commercial side of the business, we have broken out sales of equipment and services to large commercial operations that is non farms.
As well as sales to the food processing sector.
And for each of these four business areas, we have provided sales and sales backlog information now for Canada. The U S EMEA Asia Pacific and the South American regions.
In addition to the above added disclosures.
For the technology platform, you will see we have provided two different perspectives to help with our with your analysis.
Our technology business consists of selling Iot hardware.
Software subscription services and other services such as warranty.
We have historically sold all three of those items using a subscription fee sales model.
However, starting in 2020, one we will now be selling our Iot hardware and other services upfront.
And continuing with the subscription model for just the software.
We call our new approach the retail equivalent view and we believe it provides more useful information to help assess how the business is operating.
Particularly in a high growth environment.
So as we talk about how the technology business is doing well generally talk about the retail equivalent view.
Okay with that disclosure update out of the way, let me discuss our Q4 and full year results.
Our Q4 results were in line with our expectations trade.
Trade sales were 227.4 million versus $229.6 million last year.
As sales growth in our farm technology, and food businesses offset the lower sales in our North American commercial business for the full year overall trade sales reached the 1 billion level, which was marginally greater than the prior year.
Our diversification strategy helped us offset the weakness we saw in the North American and EMEA of commercial segments.
The strength in our farm technology and food business platforms.
Adjusted EBITDA for Q4 was 27.8 million versus $23 2 million in the prior year.
The higher adjusted EBITDA was primarily the result of strong gross margins.
Our gross margins improvement was due to a favorable mix of farm sales versus commercial sales, which are traditionally at slightly higher margins as.
As well as the operational efficiencies and leverage we are getting from our growing Brazil and EMEA locations.
Adjusted EBITDA for 'twenty, 'twenty was $149.3 million versus the $144.3 million in 2019.
Very strong results in a very tough year.
The increase versus prior year is again due to our strengthening gross margins.
Mix did play a part in the increase but we continue to see improving margins across our businesses as we benefit from our historical investments.
As a percentage of sales our adjusted EBITDA margin in Q4, and full year, 'twenty 'twenty was 12.2% and 14.9%.
Versus 10, 1% and 14.4% and in 2019.
These strong results were driven by the large improvement in gross margin and our steady management of SG&A costs.
Now, let's take a look at our liquidity position.
As we talked about last quarter, improving our liquidity position is the big priority for us.
In Q4, we continued to make progress of reducing our senior debt to EBITDA ratio, which ended the year of 2.53 times versus 2.65 times at the end of 2019.
At the end of 'twenty 'twenty, we had over 194 million in available Undrawn credit facilities, and approximately $62 million of cash on hand.
We do not have any bank covenant concerns our strong.
Results reduced growth capex needs, our focus on reducing our working capital requirements and a reduced dividend payout. We will continue to give us higher free cash flow in a much stronger balance sheet.
Finally, I'd like to end with a quick recap of our outlook.
Our backlog position across all segments and geographies has never been better.
Overall backlog at the end of the year was up 21% versus the prior year and continues to grow.
This sets us up for a strong 2021.
We will have some headwinds to deal with including the meteoric rise in steel costs as well as the weakening U S dollar but.
But overall, we feel very good about growing both sales and adjusted EBITDA in 2020 one.
Our focus in 2021 will be the continued to leverage our investments around the world to improve margins.
Grow organically.
Pay down debt.
And accelerate the value creation opportunities in our technology business.
Thank you very much for your time and with that we will turn it back to the operator to take questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear of today, Tom prompt acknowledging everquest if.
If you are using the speaker phone please lift the handset before pressing any Keith.
First question comes from Jacob bout CIBC. Please go ahead.
Can you please mute your line Jacob.
Sure.
Can you hear me now.
Yes, Hi, Jacob yes, perfect good morning.
My first question is just on the EBITDA margins.
For 2021.
What are your expected expectations, there maybe talk a bit about how.
How rising steel costs are planned to the Olson and in your mind do you think you can get back to the.
16% plus type EBITDA margins.
Hey, good morning Jacob.
Great question.
The steel extremely dynamic.
No.
Are they pretty close on price.
The minute around the world in the steel.
So when do you expect an impact, particularly in Q2.
And then we expect though.
And expect to continue.
The one.
The steel price increases.
And as we're moving to Q3 Q4, we'll be able to moderate net impact.
Q1 non.
Hey.
We expect to be fairly.
Well that's of an impact Q2 is where we really expected.
A more pronounced.
The moderate into the <unk>, yeah, and I'll just add on to that Jacob overall, when we look at the full year EBITDA margins.
Your comments value.
In the sense of we're marching up towards the historical numbers that are one hundreds of 200 basis points higher than what we've currently been delivering.
Primarily as a result of all of the investments we've made in automation.
The benefits, we're seeing now as of Brazil continues to scale and our facilities around the world continue to benefit from from improved economics from scaling. However, the the challenges this year any way of particular that we'll manage through it.
The steel cost as Tim alluded to.
The address the weakening U S dollar to spin of of headwind for us as well that we've got to manage through.
And then the other thing too.
Factor in your analysis is the <unk>.
Mix of our businesses, so as I mentioned on the call.
Our farm business is the slightly higher gross margins than our in our commercial businesses.
And so.
That is the commercial business rebounds in 2021.
May I have a bit of an offset in terms of an overall impact to our EBITDA margins as a result of that nothing nothing bad, but just the mix may influence some of that in the short term because of the bounce back.
Okay.
And then and then of the backlog.
Very strong as of year end.
But you know some weakness on the the Canadian commercial and food I think was the one standout for me are you seeing the same trend in mid March and.
Maybe you can talk a bit about the the driver of this and what turns the surround.
Yeah No look.
Our business really is focused in the U S and the international.
Non.
The big item.
I think you're specifically talking about in the overall our food businesses.
Doing very well and backlogs.
Pipeline is very strong.
It wouldn't be.
So in honor of aware of the arc.
The assessment customers are expanding in any given year.
And.
I would extend of not comment of the Canadian commercial there is.
The all of the traders the global traders are allocating capital on their footprint their infrastructure globally, and Youll see regional ups and downs in its George.
Why.
We've aggressively pursued of global footprint.
To be able to be relevance of our customers in every region.
They are building out of Canada.
Last three four years.
We're again.
In the region.
The partner and then one of those shifts the other regions were likewise the department was up so.
All of the expected to see a moderation of commercial in Canada.
We also believe some type of or not.
Some of the good deal of day.
In 2020 was due to COVID-19.
We're already seeing a rebound in that quoting activity, particularly in the east.
We expect the.
The last to come back as well so fundamentally the more infrastructure you build the more maintenance and ongoing retrofits.
Sure.
So you would expect to be able to.
J J contributed to volume.
Nothing surprising or unexpected day menu.
Last last question here just on the technology side and thank you for breaking that out in the commentary that you've.
Given today.
Maybe you could just help us with your expectations for both hardware and subscription services growth.
Over the next three to five years.
We've got lots of expectations as I said in the comments.
We believe every farm will be digitally engaged.
Our non adoption has already started.
The ramp up I think significantly going forward of North American potential alright. Thank you.
We get to every every part of the digitally engaged from the operational perspective, an extension beyond just sort of the the old technology, that's more and more common.
Every business every industrial business in particular.
There's a base line expectation and the ability to connect to.
The operations and automates the generation of the collection of of that data. So.
These are for us from an Iot perspective, these are robust markets.
With Jim.
And the enormous amount of growth potential so all of our objective is to each.
Each farm with value.
Oh suite of Iot sensors.
From an Iot product portfolio.
We are a leader in product.
And in terms of looking at the old activity and then all of the surrounding the net.
The activity net.
The business of borrowing cash.
The.
The field is essentially of production space.
The infrastructure around it is critical to your input and net your final product.
Our operating uniquely extends that Inc.
All of the business of farming non.
Just production is important is that as of August so we have.
Very robust expectations based on.
The reality of the thoughts.
The products that.
Our partner relationships, we have.
Appointment of most farms in North America, and we have the most extensive distribution channels in the.
The space as well so.
All said.
So very very robust expectations of growth.
I'll leave it there thank you.
The next question comes from Steve Hansen at Raymond James. Please go ahead.
Yeah, Good morning, guys.
I'll stick with the technology theme here of just for a moment.
Just don't and again, thank you for the disclosure of team.
The team at first glance. It does strike me that a large portion of the revenue you're disclosing here is hardware related versus recurring subscription.
Even at the threshold slightly off of below the broader Tam that you described I believe so just could you perhaps walk us through what the plan is to work up that recurring revenue base would be over time, what are the specific services that you're planning to add or how should we think about the growth of that the SaaS related piece specifically.
Yes, great Great question and good morning.
The Iot hardware is critical in terms of generation of the <unk>.
Data from our customers with Windows of the Iot suite of products. You don't you don't have you don't have a lot of automated data and you don't have a SaaS or a software so the.
The the importance of the Iot I just can't overemphasize the.
The.
Iot adoption.
Yes.
And Richard is the.
The software offerings so the.
Hardware sales is that the bid are more important than the.
The software part of August.
They work hand in hand.
The distinctly different types of revenue, though all of our.
<unk> sales.
All of our more of more of that upfront of equipment.
Type revenue and then that enables all of the ongoing build of B.
Software platforms and the SaaS model.
The pad and the <unk>.
Iot AR strength, and it's really differentiates the the software offering.
Okay helpful and just maybe as a a question related to that then and the strength of the you know.
The importance of the lead sort of sales you will have you guys thought about discounting that to any degree of your as you're likely aware there is a land grab going on and in many of the other players not direct competitors of course, but are there any other players in the broader I take landscaper or discounting upfront sales to get faster adoption I mean, how do you think about that trade off.
Well.
We've got programs going on right now.
Across Iot net.
The two Meg.
The the hardware extremely price competitive.
On the market.
We were underweight.
Total <unk> sensors with our products.
I had a very good value all of that.
Yes.
We take the approach of type ones launching.
Over the next couple of days.
<unk> are sort of been offering as an example, you can get a hei's heartburn.
Very small premium over our sort of of what you'd call. It.
Non non connected.
So, yes, we've got programs marketing programs pricing programs.
And the like programs that are launching.
Sure Amit.
No I think fundamentally yes.
If you look around the AG Tech space of the product is being provided to you I guess youll have the AG product.
The provided.
Free cash.
No the reality is youre not the customer.
And.
As I said in my notes when we take the uniquely different view this as the.
The data.
<unk> is owned by the farmers for them to use it in their business and manage their operations.
And so while we don't take a set of free approach because the fact.
We're providing.
Exceptional value of exceptional product.
Sure.
Utilizing that.
The other way.
And I think that model as well, which I think its what the.
Customers appreciate just like all of us as consumers from a part of us.
Arsenal consumption perspective.
We certainly more and more recognized where something is free.
It is just too good to be true of.
Are you paying for one way or another.
Okay helpful. And then just one follow up here. If I may is on this remediation issue I am struggling with is sort of a little bit on the one hand. It seems to suggest one of your customers has elected to go with another supplier and effectively scrap the current facility.
It seems pretty extraordinary measures to take on their part of both from a cost and risk perspective.
On the other hand, you know.
That approach.
Also seems to suggest that you no longer need the repair immediate that site.
Which could be construed as the net positive on the margin for you guys, but I think in either case, whether you lean one way or the other it does strike me. The the one thing it's clear the fact, rather than the change, but your remediation of is not here and nor any of your messaging. So what can you tell us to get comfortable with this sort of new set of information in it.
We should be thinking about.
Yeah, I know I appreciate the question.
The customer on one of the customers and voluntarily decided to go a day.
Overall solutions.
That doesn't change our obligations.
And so.
After the obviously very thorough review in an ongoing analysis I mean does it doesn't change our assessment. So you know I'd say.
Yeah.
We have.
I'll walk through that <unk> disclosed that previously no change from our perspective.
Okay very good thank you.
The next question comes from David Newman at Day Chardan. Please go ahead.
Good morning, gentlemen.
Good morning.
Just looking going back to Jacob's question on on the margins So pro forma given the investments that you had made in.
Certainly in Italy, and and in India and Brazil.
As well as the AG Tech overall pro forma of everything was the operating where full.
Full steady steady state and maturity, where do you think the margins would likely settle out at given you know assuming the mix is constant.
I think of it as we all jump in the Jimmy.
It builds on but I mean, as we've said in the past.
Thanks for the Chad.
A lot of the investment period over the last three years and beyond that into our tools.
Both of the selling tools and.
Well, a lot of it and selling tools and increased marketing and other the other expenses net.
Well, we expect it to elevate them to come back down.
That contributed to some of the impact on margins EBITDA margins of the loss.
A couple of years gross margins are holding in pretty steady and then as we can.
The newer businesses segments of the investments come online we expect the walk those margins back up to two of stroke of loans, Okay, and then and just on the AG Tech itself.
Are we going to see the sort of typical if you break it out the typical margins that you would seen kind of of SaaS like our offering in around gross margins. They know of $6 70 per cent and EBITDA margin of around 20%, maybe just kind of give us some thoughts on what the expectation is there as you are as you roll it out and you get the.
The the fast traction as well.
Yes, that's true.
Correct I mean, these are generally higher margin product lines, both on the Iot and in the.
And obviously in the SaaS.
SaaS model in terms of bottom line, Okay, and then just on the cadence of I guess the progression on the top line. We know we know the margin because of because of the steel, but just the cadence of the AR growth quarter by quarter. What is your expectation, there and where I'm kind of going with that is we're clearly getting the international market starting to really re.
The open here and demand growing in China in particular, and all of that so we're of commercial comes back in and of bigger way and maybe just kind of walk us through what your what your thinking is quarter by quarter and I have to think at some point here infrastructure spend might weigh on the actual outlook as well to the positive.
Oh, Yeah, Yeah, great question the.
So they may the timing throughout the year I think.
It's going to be some.
What unique impacted by.
The the dynamics, we outlined that have led to strong and elevated backlogs the steel dynamics of abroad.
A lot of all of her broad waters forward as people are dealers and customers look to get ahead of the steel.
<unk> issues. So some of the backlog build is certainly timing related and so we'll see how that plays out over the next.
Three months in particular, so you'd expect some of the worst that might've been in all of.
July or August of been Rockport.
Underpinned by strong demand in it.
Basically all regions. So it's a positive outlook of positive elements.
As I said on Q2, we expect EBITDA margin to be impacted by the steel dynamics yeah.
But from a strong Q1 and expect of us.
<unk> Q3 Q4.
And that impact.
Yeah, I mean look it's still it's a pretty dynamic we expect an impact across the year, but we expect the more of it to be to hit in Q2, Okay and last one from me guys I just from the food side, obviously, you've been able to really showcase your capabilities through this downturn.
With the food processors, and I'm, just kind of thinking like they must be gaining confidence and your capabilities. So you know beyond what your backlog is are you seeing traction in the space, obviously, you're highlighting as a separate segment. So you must believe so but maybe just give us the comments on <unk>.
How you are resonating with the out of your food customers yeah. The another another great question.
Short answer is yes.
And while we are focused on are highlighted the tech business. This morning, our next call we'll spend more time on the business.
I was getting at.
Excellent traction across the platform and our model in general and partnering across of process design project management of equipment supply and turnkey offerings that is certainly resonating across our customer base and we're expanding into new markets new customer.
Or is that new.
The new new offerings so.
Very bullish on the on the food space, it's probably the.
One of the the largest total addressable markets for us given the extensive amount of an increasing amount of the processing going on globally.
Sure excellent great results guys I appreciate it thank.
Thank you.
The next question comes from Michael <unk> at Scotiabank. Please go ahead.
Yes.
Hey, good morning, guys.
First question on just some of the backlog.
How should we think about the read through is for revenue projections I mean, specifically like how large is backlog at this point in the year in farm and commercial versus the respective annual sales and whats the typical duration.
Yes.
That's kind of a little bit of that.
<unk> question the.
As I noted in my comments the backlog.
While the strong at the end of the year has since Inc.
Accelerating.
Even more to put us at about on an overall basis of about 40% year over year, and there's different components to that debt.
Some of that is timing given the steel dynamics, bringing some more orders forward and then we'll but then also as I said underpinned by really.
Good good demand.
Fundamentals everywhere.
Nice growth in Brazil.
Very solid growth and performance in India.
As a percentage.
In North America so.
Well, we'll see how these dynamics play out and order intake.
Take moderates as we move into the growing season, but all in all of the very positive setup of the year.
Perfect and I'm just wondering Tim.
All of the 40 per cent backlog versus the 21% you know.
The mid March versus end of year I'm wondering if at this point of last year, you had any sort of negative impacts from COVID-19 and backlog.
Good good question, let's see.
Thank God.
Yes.
In March of last year, no, we wouldn't know out of pad star.
Starting to see anything I mean, it would have been into.
April May June where all of them.
Really everybody was starting to understand the depth of the impact of Covid.
But at this point of last year no it wouldn't.
Any of that.
Yeah.
Comparable or the I think that's what are you doing.
Okay, but does the number of specifically the backlog is up on a sort of a dollar amount right from the mid March to the end of year.
Correct perfect. Okay, and then all of your comments for where margins can sort of land in 'twenty 'twenty. One I mean, you talked about mix shifting back to commercial I think of the potential I mean do you expect more growth in commercial in 2020 one versus the farm despite what I missed.
This adjusted by backlog I'm, just trying to get that squared away and I'm, assuming that most of the growth will come from international there.
All of a couple of them all types of share of U S farm is growing.
Very nicely as of the Brazil, part, so I think people.
Maybe maybe forget the farmers.
Farm is a big component of our Brazil business, so that balances out some of the overall international book, which outside of the Brazil International tends to be majority of commercial and so yes that yes that the international platform is growing nicely and then a balance of debt by the farm.
Growth in Brazil.
Got you, but just in general I mean, do you expect farmed oh of commercial to outpace farm growth in 'twenty, one and just trying to think about the impact to margins there how much that can be skewed.
Yeah.
Good question, I mean, I think it'll be slightly but not really impacting our our combined EBITDA outlook.
Gotcha Okay.
And then just one last one I mean, you touched on it a couple of times, but just to get a little bit more specific on translational and transactional sensitivities around the.
Depreciating Canadian dollar if you can give us some details there.
Yeah. So so we have the net exposure to the U S dollar.
No I think we've provided some estimates in the past if it goes even from some data in the MD&A that suggest oh.
The point change in the exchange rate is about a million dollar impact.
We've got about $100 million net U S dollar exposure.
That we try to manage.
Perfect. Thank you.
The next question comes from Michael Robertson at National Bank Financial. Please go ahead.
Hey, good morning, Thanks for taking my call one maybe for Jim I think you touched on in some of your opening commentary on.
Dialing back our Capex and.
The free up more of our free cash flow could you provide any sort of bookends on what that might look like moving forward.
Yeah.
So historically so what's the maintenance so we think about capex of two components maintenance Capex and then growth Capex.
Our maintenance Capex traditionally is quite low it ranges anywhere from eight to one 2% of revenue.
So will the AR at the lower end of that in 2021, and then of our growth Capex. You know the last few years, there has been quite of bit of investment in terms of automation and building out of Greenfield facilities in places like Brazil that dials back a fair bit. This year. However, we still continue.
To invest particularly in projects that have strong paybacks and so on.
You will see some of it but it'll be out of the lower end and what we've done in the traditional last two to three years.
Okay. So maybe up small from from 2020 levels of all in but not quite to 2019 like would you feel comfort yeah, yeah, it'd be similar to 2020 levels. Okay. Okay.
That's helpful color are the the other question I had sort of the.
Related to what Steve mentioned I'm, just trying to trying to wrap my head around the dynamic with with one of the two customers from that product line are choosing to go with another supplier to resolve the issue.
How does that exactly work with respect to your remediation cost estimate because this the situation where you know you're going to foot the bill for what that costs or I'm, just trying to you know.
I'll get my head around this a bit better.
Yes.
The use ours or somebody else you know of.
Of our obligations of the rest of <unk> will always be able to provide or the.
In order to remediate the site and so they'll fundamentally is.
That obligation doesn't change versus all of which.
Who's doing the work of site. So no that's very very simply with the lease.
Please.
Or was the only of Havent remediation at one of the sites.
We certainly will not be able to oh.
The good visibility to one type of remediation shouldn't kind of an awful lot of what it looks like.
Okay got it.
I appreciate it guys I'll turn it back.
Yeah.
The next question comes from Steven Martin at RBC. Please go ahead.
Hi, guys. This is Steven on for Andrew Wong of RBC. Thanks for having me on a just a one question most of mine have been answered already but E. S. T. Can you provide some of your thoughts around AG is approached the S. G. Do you of any playing through of the sustainability report in the future. Thanks.
Yeah.
The commercial we are.
The initial report.
I think at the end of last year, when we put that out and then we have a follow up work going on.
To broaden that both of the effort and the communication of that are we.
The other day.
The new member of the team specifically focused on ESG efforts across Agi.
Patrick's and communication.
And as.
As I mentioned.
We have specific products.
Products and ongoing I've heard of and the sustainability efforts that are linked to her track.
From a trace the delay of sustainability and carbon perspective are.
All of the carbon markets are are dependent on robust data or verification.
All the pad.
The those carbon credits become more valuable as you get better verification and fundamentally that that spectrum kind of the James Webb.
A farmer interest.
Binding authority on farming practices nutrient application or otherwise the Val.
All of you love that.
The carbon credits increases as you can back up that statement.
What day.
Peter.
And our suite of biology products provides the most robust source of that data in the industry.
So you know that's the key focus for us is contributing to those markets with that that the rich dataset. We fundamentally believe all all buyers of the credits would prefer.
One of any price point, but will prefer a a credit or income as well.
Uh huh verification data and so where we're focusing a lot of efforts on all of that space and then more.
More broadly looking at.
Everything from the.
Diversity across the entire platform and there's the DNI.
And then each of our operations from a sustainability perspective, I'm kind of our own sort of carbon footprint minimization.
Great. Thanks, a lot.
Thank you and the last question comes from Steve Hansen at Raymond James. Please go ahead.
Yeah. Thank you just two quick follow ups here, Tim first of all just on the insurance estimate for the the silo issue.
It may be moving target I'm not sure, but you you suggested a couple of times now that you expect insurance proceeds to come in here can you give us a rough estimate at this point as to what that might be.
Yeah. Thanks, Thanks, Steve I mean.
We don't have any guidance all of that further guidance on that nothing's changed in fact, it's a it's an extremely small of the overall process and so there.
There is.
Way too early at this point to be.
Uh huh.
And with the math I don't want to provide any additional color or detail.
Okay.
That's helpful.
Just a second one here is on your your broader footprint and just capacity optimization. You know we've got obviously of a very strong macrocycle that's emerging here.
But at the same time of I think back to your platform evolution here over the last sort of five to seven years. You you went through a number of large acquisitions like global and others. You've also invested significant capital of your overseas footprint, whether it be Italy are Brazil, and others, but just trying to think about now how you optimize all of your capacity going forward I know you did have.
One small facility I think for sale at one point, but just how do you feel about the broader footprint today as it stands are you well serviced from of capacity standpoint in the right places do you have too much capacity of the wrong places how do you feel about that and is there opportunity there.
Yes interesting.
The.
This is a big part of what our team has been focused on over the last.
The three five years and building out the the right capacity. So the some of the growth Capex that Jim talked about those.
Of those programs that were really 18 19.
We've gone through those programs some of the tailed into 'twenty early 2020 in Italy in particular, but all of the projects like like Brazil, and other capacity increases of 2020, we actually we built out our Iot capacity.
Okay facilities.
Very significantly.
And so now sit with great capacity across the board.
So that that feeds right into Jim's Jim's comment on decreased gross Capex program in the.
In the near term.
We're and then we're optimizing product offering across the platforms, we moved a lot of product to Brazil, and we've done product expansion.
The and Italy.
And then across North America, so a lot of activity going on across the board over over that period of time and then.
So now we'll be leveraging that investment phase.
For the foreseeable future.
The fact that bodes well for sort of cash generation and the margin profile.
Operating leverage across really all of the all of the business of what.
Well, we don't have any facilities for sale of I'm not sure what.
Which one of your copy of your.
Youre, referring to there, but we have we sit really nicely from a capacity per se.
Yes.
Okay very good that's helpful. Thanks.
And we do have a follow up from David Newman at Dish again. Please go ahead.
Quick one Guy says I'm modeling of the next year on the steel cost maybe you can just remind us on the I'm sure I can track to someone else, but the sensitivity on the on the steel costs I think it's 30% of your costs or thereabouts is steel related.
U S dollar denominated so that should give you a bit of the hedge but is there any inventory that you're kind of working through or do you have hedges on steel just trying to understand the dynamics on the and how we should be modeling.
Yeah, well this is an exciting.
Dynamic space. So so we buy steel and for principal markets.
And.
Of the Pacific and in India, particularly in Europe of Brazil, and actually five total when you break it down.
The U S and Canada, so we buy in different currencies of lot of that hedge to our revenue in each of the.
Each of the regions and then steel in general of the supply chain is extremely disrupted.
Across the board and leading to really significant price increases across the board and then our ability to pass through slightly differently at all but in.
In commercial generally we pass those through on a on a per project basis, and the retail environment in places like Western Canada.
We pass those through incrementally through some price of surcharge application and so it's not something you can generalize to say, it's X percent of sales and therefore in over half of this impact is a little bit different everywhere, but we expect there to be of dry as we as in particular, the the commercial space.
Catches up to Jim to the the supply chain catches up to the well its the were in backlog of the business.
Backlog and that that in fact, we expect to be in.
More pronounced Inc.
The Q2.
And then and then come through as those our ability to pass through our cash.
Q3, Q4, Okay and do you set up that you have of price obviously the price list for the for the farm business. When typically do you guys put out the the price list for the year are for the farmers.
So in general it comes out of it starts for any given year. It starts in the priority of the end of the prior year with the end of your programming or were are working with our distributor distribution partners to get them product and production spots and.
And then that.
The changes throughout the year, depending on things like price.
Our steel activity is still moving and so the the entire industry like all industries has been a challenge to be able to predict to moderate the monitor us the steel movements.
In North America in particular for example, there has been.
Nice increases the incremental price increases through.
January and February across the board.
With ourselves and the rest of the industry got.
Got it perfect. That's very helpful. Thanks, guys.
Thank you there are no further questions that you may proceed.
Okay Fantastic. Thank you for your time this morning kind of.
Well all of the call there take care.
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.
Yes.