Q1 2021 Ag Growth International Inc Earnings Call
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Good morning, ladies and gentlemen, welcome for the Hei 2021 first quarter results conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during this call you need assistance, Please press star zero for the operator.
This call is being recorded on May 12 for 2021 I would now like to turn the conference over to Tim close President and CEO. Please go ahead.
Good morning, Thank you for joining Jim Roddick and I. This morning to discuss from first quarter results and the outlook for the balance for 2021.
Good day, I will make a few brief remarks on the quarter and our overall strategic progress provide some comments on what we're seeing in our global supply chain and give an update on our outlook for 2021.
I'll, then hand, the call over to Jim for a more detailed recap of our first quarter.
I'll open the call for questions.
Like the rest of the World we are optimistic on the prospects for emerging from the COVID-19 pandemic.
The difference in pace of regional reopening is leading to an uneven rebound in activity across agi.
The U S is making solid progress on vaccinations and activity is rebounding accordingly across all segments.
Canada is well behind it vaccination, which is impacting some activity in the commercial segment, but generally not affecting the farm segment.
Activity in EMEA and APAC continued to be impacted across the commercial segment with a notable impact on site access from travel, which is serving to delay some meaningful projects.
The World is closely following the crisis from India, which is quite severe and the region is in perhaps the worst outbreak globally since the start of the crisis.
Despite significant ongoing challenges the daily operations of our business continues to safely operate as our local team in India remains vigilant.
We will continue to closely monitor the situation in India and support our team and customers in every way possible.
Brazil is also dealing with a very difficult environment, while we continue to operate effectively in that location as well.
Across Agi, we continued to follow strict adherence to our safety protocols in all regions and expect to continue to do so for the foreseeable future.
In certain regions.
These protocols make our facilities some of the safest places for our local teams to beat.
Turning to our supply chain the impact of volatility of steel price and availability is unprecedented and expected to impact our business on a global basis for the remainder of the year.
Steel markets have been impacted by a perfect storm, including mill specific production issues trade actions no supply chain interruptions and severe volatility in demand, which initially led to no shutdowns the constricted supply immediately prior to a significant rebound in real and anticipated demand across many.
Industry.
These dynamics have led to unprecedented price and steel availability across all our markets.
In February we had expected price and supply to moderate however.
Pricing continued to rise and product availability became even more unpredictable.
The severe conditions and steel markets have pressured pricing across many industries and we are dealing with the same issues across agi.
We have implemented multiple price increases across all products and market share as steel mills are increasing price he frequently and sometimes without much notice.
This extreme environment will lead to an impact on margins for the rest of 2020, one as we manage pricing across both our farm and commercial markets.
Spike the environment, we continued to actively mitigate to minimize this margin impact.
Turning to our first quarter 'twenty 'twenty. One results. We are pleased with Q1 results, which posted trade sales up 12% year over year, and adjusted EBITDA up 52% year over year, along with strong margin performance.
For intake accelerated in the quarter, resulting in backlogs up 40% year over year at the end of Q1.
These solid results were driven by broad based strength across agi.
Of note in the quarter.
It was our adjusted EBITDA margin, which came in at 15, 3% versus 11, 2% year over year.
Product and segment mix total sales volume and slightly reduced SG&A from lower travel and related expenses as well as continued progress on capturing operational efficiencies all combined to deliver the 410 basis point increase in the quarter.
A quick note here that Q1 is an interesting year over year comparison as Q1 2020 was pre COVID-19 and Q1 2021 is prior to FX and steel dynamics impacting our business our year over year Q1 comparison represents a relatively clean view of our progress and achieve.
<unk> operational productivity gains.
Growing market share in most markets and diversifying revenue into our shoulder quarters of Q1 Q4.
Some additional details to highlight for the quarter.
<unk> segment sales were strong in the quarter, increasing 14% with solid margins order intake was very strong with backlogs up 75 per cent year over year and farmer.
Demand for farm segment equipment has been robust as dealers and customers focus on securing their critical products ahead of price increases or any issues on product availability given the supply the steel supply issues commercial segment sales were up 8% in the quarter with increased margins within the commercial says.
Food platform sales were up 30% a great example of contribution from our diversification strategy.
Total commercial segment backlog is up 17% year over year as solid rebound in activity in the U S and internationally were offset by the ongoing slowdown in Canada.
Recent investments continue to perform well and contribute meaningfully.
Our operations in Brazil continue to make progress and we are pleased to see sustainable contributions from this business in.
In local currency sales were up 50% in Q1 as demand for our products within Brazil remains strong despite a tough COVID-19 environment note.
Note that this growth in Q1 is out for our sales grew 82% in 2020 again in local currency.
While activity investment in Green infrastructure continues to increase throughout the Brazilian market.
For two or other market supply chain is a key issue is pricing availability of steel are notable challenges.
In this market as well.
Our business in India continues to be a very solid contributor trade sales were up 12% year over year with backlogs up 44% at Q1, despite the substantial impact COVID-19 is having on the region.
A favorable monsoon season, and an increase in rice exports are key drivers for the strong backlog.
Our operations in EMEA.
<unk> contributed with a strong quarter as trade sales were up 28% year over year, and we expect the momentum in the region to continue with backlogs up 34 per cent.
Turning to our technology segment.
Throughout the first quarter, we completed extensive work in our technology business to facilitate accelerated growth.
Historically, our Iot products had been sold mostly through a direct sales day.
We are now launching the product to our existing dealers and Onboarding, new dealers focused on our Iot products.
This represents a massive expansion of our reach to customers and is a much more scalable sales model.
At the same time, we are expanding our strategic sales team, which focuses on commercial customers, including AG retailers grain traders and food processors.
We also continue to trial various sales models, including product bundling options, such as our smart pen initiative, which aims to make connected grant and a standard in the industry.
This iterative process and program refinement is extremely important as we better understand customer priorities and distribution strategies in these product lines.
To help accelerate the overall pace of growth, we engaged a consulting firm to complete a broad mandate focused on optimizing our Iot products are production and to bring significant expertise to our sales channel development.
The work with the third party is extensive.
And we've spent $1 9 million in the first quarter on this initiative.
The engagement.
And one time expense will continue into the second quarter as we further position our platform for accelerated growth given the sales program changes our sales on a retail equivalent basis actually fell 36 per cent of the court.
That was anticipated due to the program changes.
This pause in sales growth will be temporary and more than offset through substantially expanded sales channels going forward.
Supporting our expectation for a robust growth for the full year.
For example technology sales in the month of April were up more than 100% year over year as we launched our new sales programs.
While we expect this growth to moderate.
It serves to validate our expectation that sales growth will continue to ramp up through the rest of the year and then outpace our 2020 technology growth rate.
Further contributing to our positive outlook for the technology segment is our recent acquisition of our mobile.
For mobile has market, leading products with unique capabilities to capture and verify all field activity data.
This data is crucial for operating a farm and needed by all stakeholders in the developing carbon and traceability markets.
Our mobile it's simply the easiest and best way to capture this data and will be a key pillar of our technology platform going forward.
Moving onto our outlook.
Overall Agi has many levers coming together that will continue to create growth for.
From our expanded business in North America to our more recent investments in new geographies like Europe, Brazil, and India for new platforms like food and Technology AG.
<unk> set up for a period of continued sustainable growth.
Global demand continues to rise for the infrastructure required to support sustained increases in grain supply and food and feed consumption.
Near term visibility remains strong with backlogs at robust levels, while steel prices and FX will be persistent near term headwinds overall the outlook for 2021 is strong relative to 2020.
I will turn the call over to Jim for a review of the quarter and further discussion of our 2021 outlook.
Thanks, Tim and Hello, everyone for today's earnings call I'd like to cover four topics first I want to take some time to explain the additional disclosure we have provided in our MD&A this quarter.
I'll provide a brief overview of our financial results third I'll discuss our balance sheet and finally I'll provide an update on our outlook for the coming quarters in 2021 overall.
So building off our expanded disclosure process initiated last quarter, you'll notice that we have provided more detailed information about our business.
Recall last quarter, we began to disclose information specific to some of our new and exciting businesses those being our food and technology platforms.
We also broke out our trade sales by geography for farm commercial food and technology.
In addition, we began disclosing more details about our backlogs again by segment and geography.
Our aim is to provide readers with Richard detail about our business. So the growth trajectory and key trends within each can be better understood.
Given we manage these segments as operating divisions. In addition to managing them on a geographic basis, the new disclosure generally mirrors, how we're organized within agi.
To extend the visibility into our business. This quarter. We have included further disclosure on adjusted EBITDA by segment and geography to again provide visibility into how our business is performing.
We believe this new information will help readers to better understand our business and assess how AG is performing going forward.
One other housekeeping item to note. Many of you will have noticed that within our commercial segment, we have delineated between the commercial platform and food platform.
This is just nomenclature designed to provide greater clarity about when we talk about these two together at the segment level or individually at the platform level or.
Our commercial platform still consists of the grain and fertilizer infrastructure business consistent with how we would've described this in the years past prior to the addition of the food platform.
Turning to our first quarter 2021 results.
Tim outlined the strong performance for sales adjusted EBITDA and margins in the quarter I'd like to go into slightly more detail about our segmented EBITDA and EBITDA margins given day, our new disclosures for hei.
In our pharma segment adjusted EBITDA margin for the quarter improved to 25, 3% from 23% year over year.
A favorable product mix weighted towards portable versus permanent handling in addition to favorable supply dynamics contributed to the margin performance in the quarter.
As discussed elsewhere moving forward steel prices are expected to have an impact on the farm segment margin profile.
In our commercial segment adjusted EBITDA margins for the quarter also improved to 12.4% from eight 1% as increased sales were paired with a slightly slimmer commercial segment SG&A base.
Improving our margin margins in commercial has been a focus and to that end. We note progress on several initiatives, which supported our results for the quarter and will continue to provide benefits as we move forward.
We have consolidated and streamlined our sales team and processes. In addition, we have consolidated products to constitute concentrate production and benefit from scale and each manufacturing location.
This also helps optimize and simplify production going forward.
Overall, we believe the commercial segment is well positioned to grow with an improving margin profile.
Our technology segment adjusted EBITDA results of negative 1.4 million improved year over year from negative $2 million.
We note that we have completed a significant amount of work in support of our technology business.
We've expanded the team revamped production processes refined the product all in preparation for significant growth.
With strong gross margins in these product lines, approximately 40% to 50% for both hardware and software we expect meaningful EBITDA contribution this year as our sales growth.
Of note our segmented EBITDA.
It now includes a row for other costs.
These primarily represent head office expenses as well as other miscellaneous corporate costs that arent directly allocated to any of our reportable segments.
Now, let's take a look at our balance sheet.
In the first quarter, we continued to make progress in reducing our senior debt to EBITDA ratio, which now sits at 2.36 times versus 2.53 times at the end of Q4, 2020, and 3.16 times at the end of Q1 'twenty 'twenty.
We have over $190 million in available Undrawn credit facilities, and approximately $49 million of cash on hand.
While we closely monitor our liquidity position, we do not have any bank covenant concerns.
Disciplined capital management approach in combination with our strong results and growing EBITDA will naturally reduce our leverage ratios over the coming quarters and years.
And finally, a recap of our outlook order intake continues to be robust with solid backlogs, providing good visibility to sales growth.
However over the remainder of 2021 we do expect a negative impact to EBITDA margins on a year over year basis, as we respond to the rapid rise in steel costs. In addition to overall FX related headwinds.
Despite these challenges, though our full year trade sales and adjusted EBITDA expectations continue to be strong and above fiscal year 2020 levels.
Thank you very much for your time and with that we will turn it back to the operator to take any 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 a three Tom prompt acknowledging a request if.
If you ask a speaker phone please lift the handset before pressing any case.
The first question comes from Jacob bout CIBC. Please go ahead.
Good morning.
Good morning Jacob.
Yes.
Maybe I'll start off just on your comments about <unk>.
Higher steel costs and FX can you just review maybe the impact for farm versus commercial.
I always thought of commercial as being pass through and locked in at the time of sale.
And it was really more of an impact.
On the farm.
What is the typical lag and what's different this time.
Yes, good morning Jacob.
What's different is really the expense of the price increases and the timing of those Inc.
Our mills are operating those prices.
Frequently.
Just with respect to steel here is up anywhere from 70.
500.
Depending on the region.
And no one knows.
Very good free cash.
Sometimes with very little notice.
And so youll remember than are typical in the past our commercial deposits would be valid for 30 days.
Got it.
That doesn't work in this environment, so we're having to make a possible interest.
True.
Dave those close more frequently for there can be movement.
And even when we're committed to or when they are receiving that.
Really unprecedented dynamics this deal at all.
Now we are passing through that right.
Right.
Price increases.
Yes.
No there isn't a different dynamics anywhere.
Not always passing through a higher percentage than in all cases.
Net.
On every project.
And then in the farm side, where we are as well there youll know theres always been a bit of a lag and more retail environments.
Portable for instance, or simple more storage components and.
And then.
Well, we have more price increases.
On a more frequent.
More in terms of amount.
So we can share the pass through.
Yes.
Different lags between.
Reported farm and commercial will have an impact on margin.
Yeah.
But you said it was primarily a second quarter and third quarter. It feels like that's kind of a longer impact from what we've seen historically.
Yes, yes.
We did expect for that.
To moderate.
Somewhat.
He hasn't moderated.
Price continues.
Moving on predictably and so.
I would say that the.
The margin impact for the remainder of this year.
When do you expect some moderation in both supply and price next year.
Yes.
Dynamics are not going away anytime soon.
Okay.
My other question is just on the technology side.
So it sounds like Youre backing away from the subscription model.
What why are you doing this now.
We're fine.
Hi, Tony.
Customers Love.
The ability to pay post harvest.
We will retain but we also want to comment on all of the hardware.
And so we're retooling that program to meet those objectives.
Took a chance.
Yes.
Quarter for this Q.
Do you want to do that.
For more of a catch up.
As we introduced note.
<unk> revised program.
Probably more importantly, we total Q1 actually expand our dealer networks Iot devices, we've on boarded a significant amount of dealers in that channel.
<unk>, well, which is much more scalable.
We'll see that accelerating growth through the remainder of the year, So opportunistic times theirs.
On the foreign market.
Nobody is talking about.
Cable is in their bank during January and February.
So I'll leave it at that time to retool program.
Set up for really accelerate growth.
Understood.
So that retooling explains the drop in the retail equivalent Iot devices.
<unk>.
The benefit of that subscription plan one of the benefits was weighted with drink board sales.
In the Iot space, So Youre happy day.
To purchase that we're just fine on that.
<unk>.
Our program in January because the first payment is not until the summer and we have a number of months to give you latest.
So as we retool doors, we fully expected for a drop in that year.
Year over year because that.
From landing in place last Q1, we knew that would happen, but we also knew that as we introduced the revised programs, we'd see a significant jump and exactly what we saw in April.
As we mark for so very competent on surpassing our growth rate from last year in technology as we get through.
J J.
And sort of the end of the year.
And just last for here is the plan here just to take much more of a bundled approach to technology.
Absolutely, yes, yes, our smart bed for our programs to be launched a very successful and free.
We can actually recent sales as well to bundle those out of the product and then going for today's call overall.
This is mark.
We'll leave it there thank you very much for us.
Okay. Thank you Jacob.
Thank you next question comes from David Newman at Dacia, Dan. Please go ahead.
Good morning, gentlemen.
When did it go in 2020, one if I if I look at it is contained to it looks like it's relatively contained on the steel price again in FX, two well ethics for longer but to Q Q3, Q. If I go back for 2018, the downtown and EBITDA margin was in the range of two to three three points overall, but this is all of them.
He far more extensive than that period any frame of reference there and in terms of what we should expect on margin compression not asking for guidance, but just directionally.
Yes, so I can address.
The address that so there will be definitely an impact on the margin.
The extent in 2018 net it was more drastic we've been able to as we built up and.
<unk> developed a better operational processes and manage the supply chain much more effectively and also react from a pricing perspective, we have an ability to mitigate that impact much more significantly at this time around and so well we do see.
Some some margin pressure this year it will not be anywhere near as extensive as it was in 2018, Oh. That's key guidance. Thank you and then if I look at it sort of supply chain issues around the world you know some of it just kind of as the economy kind of.
It comes back and obviously, you pointed out steel availability and things like that but I and in other markets things like India, Brazil, obviously with extensive a pandemic and severe issues that they're facing.
If you are you at all concerned that a you can get the product into those markets in terms of raw materials or b that there could be any sort of you know impact on your facilities you do flag. It in the press release, but just maybe some thoughts around that in terms of how things look in those markets.
And just in supply chain in general in steel.
Great question.
India.
It's certainly a very tough environment.
We continue to operate there so we've had.
Very extensive protocols in place.
We are very very confident keep our staff safe and our facilities, there's very very little indications of any transmission in our facilities globally.
India is to say so.
We continue to operate the way we continue to try and talk for the team. There every day, obviously throughout the day and.
We are confident we will continue to operate.
As an essential service and really.
Are all of the food supply chain in India, where we're comparable continued operating all customers will continue to operate and supply chain is tough, but we're managing through it.
You are talking to our suppliers also daily in order to mitigate.
Top forecast availability.
Okay and then go.
Oh go ahead Sir.
Okay, good I and non technology side, just what was the high level thoughts on bringing consultants in other words, what were you what when you looked at your portfolio of technology offerings, what what was it that you you thought you.
You needed to sort of build fill the gap in like what was the reason for bringing them on board and what shortcomings in the offering where you're trying to I guess address and in the go to market strategy.
So Turkey were extremes here as our products and then our sales channels effectively and in the products side. We saw some good opportunity to look at our production our automation our time and labor are involved in the production side.
Architecture of our products to be able to look at making those products are easier to manufacture easier to install and the proper architecture for ongoing development of those products. So what is that.
We.
We needed to leverage additional resources to accelerate that process for the weekend, we have those products in market much sooner than doing it.
Organically.
And just the pace of development for pesos.
Our sales growth expected sales growth net we needed to prioritize.
That speed to market on the product side, and then sales channel development is.
Expense attached across our whole business as we leverage our dealer networks and our sales teams to introduce Iot.
New product and a different product different way to sell a product with quieter across that platform. So bringing in expertise that has done that across other industrial markets that have digitized was was again about acceleration and leveraging learnings and expertise from other other places.
And again that will that.
Just a a substantial impact on speed.
The element of those those sales channels, so that creates just a.
And we really really significantly expanded and more scalable sales channel for us.
Excellent and last one if I could squeeze one in here just on the on your on your facilities in commercial it sounds like you've taken this period to kind of think about properly aligning production and.
And consolidation of products by facilities et cetera, I saw that your your go to market and your production and operations are all aligned.
Got to get the best execution, what what was the thinking on the commercial side on that front.
Yes, so as part of an ongoing.
Initiative that we've been working on over the past year, we've done a number of acquisitions over the past several years and our 'twenty 'twenty and 2021. The intention was always to to revisit how we're set up how we're operating our producing and to take advantage of opportunities to.
For the efficiencies, whether it's through combining our product lines moving product lines for different facilities. So that's something that has been in the works for for few quarters now and we're starting to see the benefits.
Still have the opportunity is going for it to continue to do that and get even more benefits excellent. Thanks, Tim Thanks, Jim go.
Go ahead to get any other comments there.
Perfect. Thanks, guys I appreciate it.
Thank you next question comes from Steve Hansen of Raymond James. Please go ahead.
Yeah. Good morning, guys just a couple from me.
Tim on the lead time in the sector today, I mean, how should we think about orders that you're taking in today versus plan delivery or are you starting to stretch out here into into late fall into next year like how do we think about that that opportunity for for the demand side right now I I know on the others because it would've been channel.
Booking well into next year, but just trying to get a sense for your your product sets right now.
Yes, I'm back.
Those are high obviously, so we've got production that is slotted.
Accordingly, so backlog our lead times are a little bit longer across the board than a typical year.
<unk> a one on one of our advantages I mean, we've got us.
But investment into automation into capacity in most places I would say we are from our modern bring our lead times are shorter than that.
And the industry and in most of our competition.
So that brings me to your as you're entering part of my next question would be is this an opportunity here, particularly in some of the newer markets like I know the Brazilian market in particular, you often for.
A quick to point out your automation advantages are you are you able to take some scale some share in this market as an opportunity.
Yeah no exactly.
We're gaining share certainly in Brazil and.
Where our market share is move really substantially over the last.
Year year, and a half years and.
Alright, I think thats, that's equally true in most other markets.
Okay helpful.
Want to circle back on this this dealership expansion undertaking that youre doing in for track.
Can you perhaps just described is exactly who these new dealers are Tim I'm trying to understand the technology side.
Distribution relative to your current distribution for your more traditional equipment.
And whether or not they're the same channels I guess the first part and then the second part is if they are different then how does that work. When you were talking about bundling your product I'm just trying to understand you're adding all these new dealers or are they just adding the sure check product or are they just maybe give us some better color there, it's a bit confusing to me.
Yes, well good good good to clarify that it's been about so where we're at.
<unk> Iot product line for all of our existing dealers and then by the way.
With the business with all of our existing dealers and then we're onboarding new bid dealers and bundling there as well and then we're also taking the Iot products to other dealers those are or other non.
Not carrying all of our product lines and non big dealers. So theres we assess.
Yes.
Each dealer opportunity.
And look at the customer basically half the region around their products for rent and they typically they have around install and then we're onboarding those those dealers as well so for those.
Our non agi dealers. So we are we are still by the way bundling with <unk>.
Like bands or portable for other product combinations.
And so is this is this an opportunity for you for the balance of the business. Then I'm just trying to again turn understand is this sort of a thin edge for the wedge to get into new dealerships and then bring in more products over time of your more traditional nature.
Yeah, that's one of the main goals of the technology.
Interesting. Okay. That's helpful. And then just wanted just wanted to go back one more time on the margin question I know, it's been beaten to death, a little bit here, but but just trying to think about where you think the more acute hit is going to be oh on the farm side or the commercial side margins is actually held in.
Frankly quite well in Q1 here. So I'm just trying to get a sense. It sounds like it's going to be more on the farm side, but just wanted to get some sort of a sense for your expectation and what the duration will be the same on both sides as well.
Yeah. So in true. So just to clarify is your question more on where you feel it whereas the impact will be and for how long.
Correct by segments, and so the duration impact by segment and duration by segment.
Yeah, Okay. So so the bigger impact will definitely be in our pharma segment, that's where do you see.
A more immediate impact in terms of the steel headwinds and the effects that we're seeing what we will see more prominently and so we expect while we had very strong farm margins in Q1, we expect that to to normalize.
Normalize a bit through Q2, Q3, and even parts of Q4 I mean, you know farmers are they will react to what they're seeing out there and they'll place larger orders and so you know when we talk about our backlog being up quite significantly which is great.
And then that's true in Q1, we've been able to we had steel where we procure earlier that we were able to flow through and so we benefited from that but now as we're out there purchasing steel it's a much higher prices and steel continues to increase it does squeeze our margin even though we are passing on price increases, but the price increases are for the newer orders now.
With you they don't affect yours that are in backlog. So we will see that run through it and then in fact us through Q2 and Q3, a small part of Q4, but on the commercial side.
Not as big of an impact, we do see impact or the impact from or is on supply chain management and so what we expect to see there is is working with suppliers to make sure. We get this deal in time and so you may see delivery times being pushed out as we work for customers and suppliers to manage.
That whole process.
There will be slight impact, but not anywhere near as significant as farm in terms of the pressure on our margin in the commercial Tim mentioned earlier on one of the questions that.
We typically only leave orders for our quotes open for.
A shorter period than we used to we used to have a home for 30 days. That's now tightened up quite significantly. However, you know with the steel drop are increasing weekly so dramatically you still have a little bit of exposure there.
That's very helpful guys. Thank you and I appreciate the additional disclosure that's great. Thanks.
Yeah.
Thank you next question comes from Michael to Me at Scotia Bank. Please go ahead.
Hey, good morning, guys.
We already talked about the steel thing a bunch, but just just to clarify I mean, you. You commented that you don't expect the 2% to 3% margin compression in Q2 that you saw in 2018.
Is that strictly from steel like does that include headwinds from FX and offsets from volumes I mean can we use that two to three macs margin compression as a guidance for Q2.
And then just as a quick follow up I mean, how much of an improvement can we expect sequentially into Q3.
Yeah, So just to clarify the 2% to 3%, but I think for the full year impact.
Or whether that was talked about in 2018 versus <unk>.
Hum as opposed to just Q2 theres there there will be some.
Uh-huh variability through the quarters in Q2 Q3 from a margin for <unk> for <unk>.
But for the full year, we don't expect anywhere near that big of an impact two years to 3%.
Okay and can you comment on Q2, specifically.
Oh, well, yeah, so based on our visibility right right now what we see based on the forecasts or sorry. The consensus estimates that are out there, we do see a little bit of pressure versus consensus in Q2.
Still for the full year, though despite these headwinds so yeah I I think it's quite remarkable despite the steel are challenges we have in the cost increases and despite the FX, which is which is fairly significant we expect to come in at or above consensus right now based on what our people are.
Or are showing out there.
That's great and then when you were talking to at a consensus numbers is that the EBITDA dollar amount or the margin percentage.
All of them out.
Okay perfect.
Incredibly helpful I.
I guess just as a follow up are you finding some of your customers.
At this point might be deferring purchases until steel prices moderate I mean is that the risk to you in the second half demand and have you seen any of that so far or is it just too early.
Yeah.
Generally speaking no I mean, we we've always repeat that our underlying demand really isn't a price. It's helpful. You know favorable conditions, but.
And it really relates to volume.
For a product volume of grant on the par volume of grain being traded.
Of importance being used.
The rollout and then.
Is driving you know what is that sort of speaks for the infrastructure comment or a characterization of our of our offerings and it needs to be there and it needs to be invested interest facilitate that.
Those businesses through low crop prices and through our high power prices and a true high steel in most deals.
<unk> seen a very resilient demand for crossing across our business, despite a pretty significant price increases.
Great Alright, guys. Those are my questions. Thank you.
Thanks, Michael.
Thank you next question comes from Andrew Huang at RBC Capital markets. Please go ahead.
Hey, good morning.
Just wanted to go back on tax just to ask a little bit more about that.
The rework on the tech distribution model it sounds like it's a lot on the farm side and all the focus is on the farm side right. Now is that right I think I recall like the <unk>.
That business had an interest me model, where there's basically like an ecosystem that.
That connects farm and commercial I'm, Keith can you talk more about the commercial side are there any changes on the commercial side and the sales for this.
Yes.
Subscription and a change in that non subscription model is.
Mostly for <unk>.
And then on the commercial side, though we've expanded our what's called a strategic sales team quite a bit and now we have a <unk>.
And that process really around focusing customized.
<unk> for each commercial customer so we look at.
Uh huh.
What sort of storage they have whether they'd be a great buyer a co op or otherwise are a retailer and we are and the types of programs they have with growers.
And whether they're prioritizing traceability or grain content ore and ultimately then who their customers are and then we customize a program on Iot and digital program for each strategic customer. So that has changed significantly over the last three five months and the team is jazz will continue.
To build that out.
To wrap up our off those stores, our partnerships with the with commercial customers.
Okay, that's great Hum.
I do want to ask one more thing on the steel side.
Steel prices have risen and some kids like two three times versus last year and this and the rise is pretty steep can you just talk about what AG has been doing differently now in terms of steel procurement versus say in like 2018, so that the impact may not be as high as back then on the margin. Thank you.
Yeah.
Yeah.
We buy steel well I would assess how quickly a few weeks ago and for key markets. It's probably you know it has expanded our supply chain has expanded in order to get.
To augment our our total supply conversations around pricing probably went from weekly to daily.
And then the price increase has.
That has been much more free time and for Florida.
Larger amounts than really than any year in the past.
So I just I guess I'd just repeat that we continue to stay close to it as a whole sides of that equation on the supply side and then on the pricing side in order to mitigate it.
These three sort of unprecedented movements.
Okay, that's great and just a last one I got from the Canadian FX can you just talk about how that.
Can you help quantify that impact it's been a pretty big change over the quarter, but the impact for the rest of the year. Thank you.
Yeah, so from an FX perspective.
From a from an impacting results perspective.
We are.
We have a net we're net long I'd call. It we've talked about this before net long for an annual basis of about $100 million U S.
And so you can think about the impact on our results based on the change in the rate year on year.
With that kind of a rough order of magnitude in there so any quarter without the $100 million.
Into what your estimate of the quarter as versus the year and that's approximately what youll see is a year on year impact.
Okay. Thanks.
Thank you next question from Ron laid out at my desk financial. Please go ahead.
Good morning.
I would like to know here with the increased commodity prices here.
You still are in the acquisition mode at all you all many different brands.
From my observation, but many of these smaller grade manufactures Ah.
Probably.
Probably time for their exit strategy.
And if that's the case I was wondering about the size of the.
For me for manufacturers that you consider acquiring.
And secondly, I wanted to know your carbon fiber at all is.
Uh huh.
Type of material that you would consider.
The manufacturer right, but considering the steel prices going up and then lastly.
Are some of the product if you acquired new.
Vendors for manufacturers.
With this work where they are with combine their sources or combine their companies two different companies to buy the steel and hopefully get us a lower price.
Yeah.
Yeah. Good question. Thank you for those let me.
I'll run through these I guess, a fairly short short answers on these ones. The acquisition side I mean, we've just come through a pretty heavy investment day, but with M&A as we expand our product lines.
Around the World and then geographic expansion as well so we're very much focused on expansion and leveraging those investments so.
I guess the short answer on the grain side.
We don't expect that physicians in the short term.
On the department of five per Se, that's an interesting comment I mean, what we have seen some work done at wrapping a graph in our introduction into our.
Our products are.
And then I guess, maybe not exactly like ours, but as a replacement for for steel.
I don't see it happening anytime soon to be honest and we do expect steel prices to drop.
In the relatively near future and moderate or normalized.
Still still game, having a lot of advantages.
Across the network and I think there's some interesting work that they put in will be done on alternative products going into the future and we do we do track and pay attention.
To those.
As we as we do that.
Thank you.
Thank you. The next question is a follow up from Steve Hansen at Raymond James. Please go ahead.
Yeah, just to follow up quickly guys on the liability exposure. It looks like you drew down $7 million to $8 million.
On on the 70 is that the piece, we should expect to see going forward or how should we think about the evolution there.
No I think you'll see it.
Hum pick up a bit true the next three four months.
We work to remediate the one other customer sites and so.
But.
From from a total dollar resolve for $70 million. We would have we would expect still to have amounts remaining on that towards through the end of the year.
So any update on the insurance side, there, whether or not there's going to be any opportunity to recover.
No. That's still that's still we don't expect any insurance for which it can be.
Spector to receive insurance proceeds from it but in terms of the timing of that likely will be early next year.
Okay very helpful. That's it thanks.
Yeah.
Thank you next question from Michael Robertson at National Bank. Please go ahead.
Hey, good morning, Gents I figured I'd be real original and ask a question on the steel from I was just a sort of pondering I know you guys and in previous discussions.
I have noted that you know a lot of that the price increases are more or less permanent now with this sort of rapid rise I believe you already said you don't expect that to be at.
As reflected this time around just sort of thinking you know based on your commentary there that you expect steel prices to to normalize a bit eventually moving forward is there an opportunity maybe to you know capture back some of that margin on the back side of that if if you've got you know a price increase.
As more permanently baked in.
Yeah. It's a good it's a good point, an interesting dynamics I mean, where.
There's always a component of that.
Margin tendered to normalize over time.
So we'd expect that I mean, we are using surcharges in this in this instance across the board more so than usual just given the.
How unusual in these markets are and whether you know it wouldn't typically use surcharges with.
Incremental price.
<unk> increases, but in this instance, theres much more of that surcharge, which is more of a temporary.
The increase given the environment.
Got it thanks I appreciate it I'll turn it back.
Yeah.
Thank you there are no further questions at this time you May proceed.
Okay. Thanks, everybody for your time this morning.
They are.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines enjoy the rest of your day.
Okay.