Q3 2021 Ag Growth International Inc Earnings Call
Ladies and gentlemen, please standby your conference will begin in a few moments.
[music].
Good morning, ladies and gentlemen, welcome to the Agi growth International 2021 third quarter results Conference call.
At this time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on November 11, 2021, I would now like to turn the conference over to Tim close.
Didn't and CEO. Please go ahead.
Good morning, Thank you for joining Jim Ruddick, and I discuss our third quarter results and the outlook for the balance of 2021.
As usual I will make a few remarks on the highlights from the quarter I hand, the call over to Jim for a more detailed recap of the quarter then open the call for questions.
Our third quarter results were highlighted by continued momentum in sales growth of 11% year over year in the quarter and up 13% year to date with double digit growth across the farm commercial and technology segments.
Our consolidated backlog continues to remain strong up 99% year over year at the end of Q3 with additional growth into Q4 on continued strong order intake.
Throughout 2021 sustained record backlogs, representing robust growth across our business segments.
With the growth of our business into India, Brazil, EMEA and food.
The components and characteristics of our backlog has changed along with the nature of the underlying businesses.
We had seen a step change in the level of our backlogs as well as an increase in the duration of the backlog as we add more project based work to our overall mix.
The substantial growth in the backlog is driven by strong demand and the extended duration provides increased visibility into coming quarters.
As expected and communicated the impact of steel and other input cost increases dampened margins in the quarter.
Going forward, we expect the extent of margin pressure to taper as cost stabilize on a relative basis and the full impact of price increases are reflected in our backlogs.
As we all know supply chain challenges had been highly unusual throughout 2021.
We have significantly mitigated these challenges through a combination of pricing action supplier expansion strategic purchasing and contract management.
Given the extended supply chain disruption.
Impact contained in our quarter is relatively light and clear evidence of the significant and effective mitigation work our team has achieved.
Kudos to everyone across Agi stepping up yet again to manage through this latest challenge.
Now turning to review our business segments and some additional color on our regional performance.
Our farm segment was again one of the highlights in the quarter.
Segment sales were up 11% with strength in the U S market in South America as our Brazilian business continues to rapidly scale and grow market share.
While the drought conditions in Canada slowed sales growth during the quarter. We note the farm backlog in Canada is up significantly year over year in anticipation of improvement in the next crop cycle complemented by solid demand from Eastern Canada.
Global Farm segment backlog was up 202% with robust demand for both our portable and permanent product lines as dealers restock inventories and we gained share in permanent farm.
<unk> the segment nicely for a strong fourth quarter.
Difficult momentum heading into 2022.
Our commercial platform sales grew 5% in the quarter with considerable strength in South America, particularly in Brazil, and the APAC region.
Offset by North America was which was impacted by some temporary supply chain and customer project timing delays.
Yes he is.
Positive to the North American commercial platform.
Backlog in the U S is up 91% and while the Canadian backlog is essentially flat year over year. We note the significant quoting activity for the first half of the year has begun to materialize into orders in Q3 and is expected to continue into Q4 2022.
To further support growth in project execution in North America going forward, we are consolidating our commercial platform, including parts of our Canadian and U S teams into a centralized office based in Chicago.
This new structure will enable better coordination through the entire sales cycle, including quoting manufacturing activity customer.
Customer account management, and overall order execution across the commercial platform as well as our permanent farm business.
This center of excellence approach will remove cost and time from a project execution and increased overall project quality, leading to continued growth in sales and market share.
The food platform continued to execute and perform well with particular strength in the U S market.
Sales in the quarter were up 46% as we deepened our relationship with existing customers and were successful in adding new strategic customers to this platform.
Food backlog is up 153% with considerable activity in the U S supported by some larger orders in animal nutrition and pet food projects.
Yeah.
Looking forward, we continue to see strong customer demand for facility expansion retrofits and upgrade programs to accommodate product volume growth ingredient in product form changes and new food products.
Based on our leading solutions and capabilities in this space the outlook for further growth in this business is robust.
Our technology segment posted sales growth of 41% in the quarter.
While we are pleased with the double digit growth. We note that the widespread cancellation of farm tradeshows significantly impeded our ability to interact directly with customers.
Which essentially a limit needed our primary sales channel in the technology segment.
During 2021.
Fortunately, we mapped out an expansion to our multichannel sales approach early in the year, but significant dealer onboarding completed year to date positioning us for further scale up moving forward.
Looking ahead to the 2022 growing season, we anticipate the resumption of Tradeshow activity substantial progress and additional channel development across dealers and strategic partners to accelerate our growth rates in 2022 and beyond.
And we have moved away from reporting retail equivalent sales in the technology segment. We now have too many moving pieces in this category to extrapolate to a meaningful comparison.
In the past has led to significant confusion.
Retail equivalent was a useful comparison of the quarters immediately following the temporary suspension of our hardware subscription program.
However, we now have software subscriptions bundled Iot product programs and retail Iot sales all in a mix of different sales programs as well as a newly launched hardware subscription program.
Going forward, we will now report actual accounting skills made made up of the dynamic combination of subscription bundled product and retail sales.
Mentally this is a simpler cleaner more accurate way to show our results for readers subtractive broker.
We are also assessing additional kpis to provide visibility decor expansion of a technology platform.
Our Brazilian operation continues to gain momentum in.
In the quarter sales were up 128% year over year in Brazil with strong contributions from both the commercial and farm segments.
Note that the sales growth numbers are roughly equivalent in local currency was stable in the quarter.
With growth continuing to accelerate Brazil has moved past its inflection point as well on route to becoming a sustained and meaningful contributor to agi results.
Profitability.
Also continues to trend higher closing the gap to global corporate levels.
Total backlogs are up 116% in Brazil, and we expect this growth trajectory to continue with an expectation.
Another record quarterly result in Q4.
We.
Dissipate the strong performance and momentum in Brazil to carry into 2022 on the back of continued market share gains as shown in high quoting pipelines and substantial backlogs.
Our mill Tech business in India posted another solid quarter with sales up 7%.
We have several levers that will drive continued growth in India, including further development of export sales into the broader region, which had begun to grow as a share of backlog and the introduction of an expanded product portfolio, including grain storage and handling equipment, which is now manufactured in India.
With backlog up 45% the outlook for continued growth in India remains firmly positive.
Overall, we are pleased to see the execution and significant progress on several key strategic initiatives, including the very strong growth in Brazil significant sales and backlog look in our farm segment, a strong food platform solid execution of our global commercial platform and the development of our technology segment.
We have significant momentum heading into what is shaping up to be a record fourth quarter, which will carry into 2022.
With that I will now hand, the call over to Jim to delve into additional detail.
Thanks, Tim and Hello, everyone for today's earnings call I'd like to cover four topics first I'll provide a brief overview of our third quarter financial results.
I'll discuss our balance sheet and recent debenture offering.
Third I'll provide an update on the accrual as it relates to the bin incident.
And finally, I'll provide an update on our outlook for the fourth quarter and 2021 overall.
Our third quarter results continued the momentum from a strong first half of the year trade.
Trade sales of $314 million were up 11% from $282 million year over year.
Significant strength in our farm segment, particularly the U S and Brazil was.
It was complemented by solid results from the commercial segment that featured notable strength in South America for our commercial platform and the U S for our food flat platform.
Technology segment also contributed to the growth with sales up 41% year over year.
Adjusted EBITDA of $46 3 million was down 11% from $51 8 million year over year.
Adjusted EBITDA margins of 14, 8% were down approximately 350 basis points from 18, 3% year over year.
As anticipated and previously discussed.
Steel price and input cost increases had an impact on gross margins, which decreased approximately 350 basis points to 32% year over year.
The steel price and general input cost increases are expected to be most pronounced in the third quarter as orders received in prior quarters were shipped.
These orders often had a fixed price and did not fully benefit from all price increases.
Going forward <unk>.
Margin pressure is possible due to the rapidly changing supply chain environment.
But we anticipate smaller year over year variations relative to our third quarter results.
This is attributable to our updated countermeasures, which include a revised approach to catalog prices for the farm segment and.
And newly updated policies on surcharges significant variation clauses open.
Open contract Windows and other tactics employed in the commercial segment.
The technology segment posted adjusted EBITDA of zero point $3 million in the quarter, the first quarter with approximately breakeven adjusted EBITDA for the technology segment.
Positive sign that this important segment continues to trend in the right direction as we look towards the end of 2021 and the start of 2022.
Of note the adjusted EBITDA reported for the quarter includes a negative $1.2 million impact from the fire mobile transaction.
Absent this impact technology segment, adjusted EBITDA would have been stronger and firmly positive.
Overall, our third quarter results continued to display the benefits of our resilient and diversified business model.
Moving on to the balance sheet subsea.
Subsequent to the quarter, we executed a convertible unsecured subordinated debenture offering with net proceeds of approximately $110 million.
The proceeds will be used to redeem the prior issuance of convertible unsecured subordinated debentures due June 2022, with an aggregate principal of approximately $86 million.
The difference will be allocated towards pay down of senior debt and general corporate purposes.
The coupon of the newly issued debentures is 5% per annum 15 basis points higher than the debentures being redeemed.
We continue to closely manage our senior debt to EBITDA ratio, which remained stable at 2.9 times.
On a year over year basis. This is the same level as Q3 2020.
While we have sufficient room against our covenant of 3.25 times, we continue to closely monitor our senior credit facility usage.
We do not have any bank covenant concerns.
Of note if we were to look at the covenant on a pro forma basis, taking into consideration of the recent debenture offering and applying the excess proceeds raised beyond what is required for the redemption to our senior credit facility the.
The senior leverage ratio would have been approximately two seven times exiting the quarter.
Excluding our $150 million accordion, we have approximately 155 million in available undrawn credit facilities and $49 million of cash on hand.
We closely monitor our liquidity position and have several initiatives underway to help optimize our working capital position and noticed sequential and year over year decrease in our working capital position.
While working capital requirements can vary quarter to quarter and improvement on this front will be a journey. We are encouraged that our efforts. Thus far are beginning to surface in our results.
In the quarter, we continued to make progress on the remediation work related to the bin incident.
Work at the second site the site unrelated to the bin incident continued in the quarter and is nearing completion.
As of the end of the quarter, we have spent $41 million of the 77.5 million accrual.
We expect a small amount of the accrual to be spent in the fourth quarter with the balance expected to be released in line with the resolution of the legal matters related to the site of the incident.
And finally, a recap of our outlook.
<unk> by a strong backlog up 99% year over year, we anticipate strong sales as well as adjusted EBITDA growth in Q4 2021.
With full year 2021 adjusted EBITDA expected to be at least $170 million, representing very strong growth over 2020.
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 star followed by one on your Touchtone phone, you'll hear three ton prompt acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process.
Please press star followed bite you.
A speaker phone please lift your handset before pressing any teeth one moment for your first question.
Your first question comes from David Newman with Chardan. Please go ahead.
Good morning, gentlemen, sorry about that I was on mute.
The backlog.
Being up 99%, which is phenomenal and it looks like it's still contain increase how much is volume related growth growth versus inflation to cover off the underlying steel inflation I just want to get a sense of what the volume momentum that youre seeing in terms of without the price component in it.
Yes, Hi, David It's Jim here.
Thank you for the question, yes. So good good opening topic on our backlog, which we continue to see very strong and growing demand for our products everywhere around the world and in all of our segments. There is a component of it thats definitely related to pricing however was.
A very encouraging as we are.
It is a significant increase in demand in terms of volume product and it depends on which segment you're in.
We will have different <unk>.
Fluent has a price versus quantity the panic because that really depends on how much of the components are with steel. So it's a product that has a higher skill component would have a higher pricing influence versus products that have less.
But overall you know, what's great about our backlog and our growth.
Is that a lot of it is.
Volume related as well not just price.
Excellent Okay, and then just on the margin front.
Looking have you covered that not now in terms of and I do see it as kind of starting to roll over a little bit here in the steel steel costs.
Having covered the night and what do you think the path forward is in terms of normalizing the margins by quarter.
Yes. So good question I think that.
We pointed out in the past as we because of our the way our business works, where we take orders well in advance and we have good visibility we knew that Q2 and Q3 would be.
More difficult from a margin perspective, but as we look going forward starting in Q4, we see.
Year over year margin.
Stabilization or enhancement.
Mixed mixed may influence, a little bit, but but generally we're past the pain from from the steel impact and now we just typically deal with difficult supply chain challenges. Obviously costs are are changing everywhere around the world, which we manage just as a regular basis, but the impact from the steel is now behind us.
Yes.
Okay and supply chain has obviously been a big issue as well with a number of industries, it's been horrendous and a few that I cover.
You flagged it as well.
What is the ability.
Convert the backlog into revenue and I know you have a longer duration project based contracts now, but any sense on backlog turnover and how you would frame the current state of supply chain.
Yes, great point.
We're in very good shape from a backlog and conversion perspective.
<unk>.
We have all third party.
Ponant in steel on hand for that conversion for that backlog so.
Youre right it remains challenging, but we're very well placed for that conversion.
Okay, and then last one for me just in terms of your guidance overall guidance I think you sort of flagged for Q2 be better than three Q is that does that still stand.
Terms as you monetize the backlog.
Yeah, that's right. So we've got again that backlog number is significant we've got visibility very good visibility to Q4 and that backlog now is extending well into the first half of 2022 and so we're feeling very good. Okay last one for me and then I'll hand over the line just at Chicago, You mentioned something Tim.
Just maybe just recap what youre doing in Chicago.
Yes, we are bringing together, our sales execution and product management and our customer service teams into Chicago.
In order to really get better coordination across our entire sales cycle.
From from quoting upfront involvement with the customer in the design process all the way through.
Our configuration internally of the different components from different.
Our manufacturing facilities through to execution.
Execution on the on those projects and so thats really a big impact on our commercial North America, and our permanent Pharm systems execution across North America.
Oh, It's farm North America, or farm and commercial North America.
Yes, so it's all it's a biggest impact is on our project work so.
It's farm permanent.
And commercial commercials are always sort of engineered to order configured our projects and so not.
Another way of saying it.
Not directly farm portable, but really focused on farm permanent systems and commercial yes, the big projects got it and is there any one time costs or what are the actual cost savings that you might get out of this.
Yes, we will see a little bit of a swell in cost in 2020.
And then but we do expect to see significant synergies both in quality of execution flowing into sales increases share gains and then ultimately some cost synergies as well iPhone, thanks, gentlemen, I'll handle that.
Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Yes, good morning, guys.
Tim I think we all understand that Brazil has been a big growth opportunity for you for some time now but.
The results in the backlog and I think maybe more importantly, your comments today suggested that starting to inflect, even better do you want maybe just give us a sense for whats changing there from your footprint out of the ground, maybe just trying to separate the company strategy component through just the macro to some degree if you can just understand how you're getting share there.
Yes, great question, Thanks for highlighting Brazil.
It really really happy and pleased with our positioning and our growth over the last couple of years in particular as we come out of the sort of start out years.
Just just substantial share growth in Brazil, so that business is growing tremendously successful across.
Both parts of the farm and commercial parts of the business.
And.
It is a wonderful market to be and then of course we.
<unk> got a fantastic position from a production perspective from a product portfolio perspective, and now all of the hard yards that our team have done over the last few years too.
To build that foundation are paying off and we're seeing rapid gain in sales as you are seeing here more to come as we go into Q4, a record Q4 expected.
And and then into 2022 and going forward and quite frankly, it's just a very active environment and quoting so the backlog will continue to build the sales growth will will will continue and we're really happy with our success here and in Brazil.
Okay very helpful.
And then just curious about the technology platform here you've made some good strides this accounting shifts I think I understand but I'm just trying understand what the.
<unk> progress going forward as we based on it sounds like it's really just now building out the platform that <unk> sorry.
Selling the platform you've already developed.
Is it just really now distribution and sales strategy or is there additional products and services that will be built on top of that as well.
<unk> got a directionally right. There. So 2021 was a lot about bringing together different parts of that business and then optimizing product in production and then.
And then and then now it is largely focusing on optimizing our distribution channels. So a lot of work done in that in the year.
I think I noted in my comments that and just to put a finer point on it prior 20 to 2021, we sold that product line almost entirely through a direct sales team.
And that was largely based on interaction with farmers at Tradeshows and we.
That channel largely disappeared in 2020, but we were able to just still have.
A substantial sales and growth with our current customers at that point in 2020, but by the time, we get to 2021 those are sort of at that expansion within current customers starts to wane.
How do we not really pivoted to multichannel, we would've had substantial challenge in 2021, we did a lot of that work and so able to keep the momentum going to growth going in the business with.
With the now its sort of nascent channel additional channels that we built throughout <unk>.
2021, So then going forward.
We will see our our traditional channel come back and then substantial expansion of the ones. We built this year and expect that to carry into pretty substantial growth continue.
Continued growth of that platform going forward. So I think you kind of nailed the directionally optimized that foundation across team product and foundation. So still more work to do in product development as you know.
In the technology space, there's lots more that we have in the development pipeline, but a lot of that now just organic development expansion of the platform of product and offerings.
Okay, Great and then just lastly, just wanted to clarify on the bin incident issue.
How does the completion of the second phase.
The non active and that is how does that change.
The process going forward or just what we're going to see from our side going forward does it change your positioning from a legal standing at all by Remediated. The one sided proving out that you've got a solution or is that relevant to the process.
Well, yes, I mean sure it's relevant but we're.
We're pleased with now getting that remediation completed that site is commissioned and now is going through a settlement area, but it has been.
<unk> got commissioning commissioning work has been completed so so certainly yes, yes net net positive.
Given the circumstances.
And that doesn't change our legal position.
Certainly supports.
<unk>.
The position brand in a position we've communicated.
Okay very good thank you.
Your next question comes from Jacob bout with CIBC. Please go ahead.
Good morning.
Good morning, Jacob wanted to want to go back to the EBITDA margins.
Down I think 350 basis points year on year.
Do you think you can get back to historic margins.
Given wage pressure and inflation and.
With this center of Excellence do you think.
Longer term, we could actually move past historic margins.
Yes.
Short answer is yes, we fully expect to bring margins back to historical levels.
And.
<unk> seen our ability to pass through some up some pretty dramatic price increases across inputs and.
We see that as Jim Jim said and I noted, we're seeing that already in Q4 and then it will.
Will come through in 2022 as well so yes, we're very bullish on.
On.
Those margin that margin rebound or.
After we get through this real supply chain related disruption.
Okay.
And then on the technology side.
Be interested what is the mix right now for bundled versus subscription sales and are you offering that first year free.
For the subscription itself.
Yes, no we don't offer no theres no abroad first first year free program at all everything.
And it's quite a dynamic mix Jacob.
As we introduce different programs, we have strategic relationships with grain buyers that are interested in digital connect connectivity to their growers and so they are sponsoring those.
Those programs to their growers and and so that mix is very dynamic between subscription.
Software subscription hardware subscription retail Iot sale direct retail Iot sale through a dealer and then the strategic programs or are sponsored by grain buyers.
So that's I understand thats quite a wide, but that's the reality of this business and the distribution and the.
The end markets that we are attracting and developing and so that's the.
The rationale for the change in presentation and then the rationale for for how we'll handle it going forward is based on that changing landscape. So we will introduce additional kpis. They talk about expansion cohort expansion of.
Digital and connected devices for instance, or other metrics that we will give some.
Additional color to the growth of the platform.
Okay.
Last question here is just.
On backlog and really just wanted to square the software how we should be thinking about revenue growth.
I know you talked a bit about duration.
How has the duration of your backlog changed.
Is everything that you mentioned in backlog harder soft backlog.
And so basically firm orders or indications and if it's hard backlog that you're reporting.
What are the indications right now or how would you frame the soft backlog.
So our backlog is continuing to be.
Absolute sales so nothing goes into backlog it isn't a closed sale.
So as the dynamics of our business have changed so too is the mix in makeup of that backlog and so as we go into India into Brazil into EMEA growth, our food platform growth, our technology growth that changes the mix and dynamics of that backlog.
The net the net result of that as we have seen a step change or a dramatic step change in our in our amount of backlog, giving us visibility out into further quarters, and and then more and more of our project based work in terms of mix and so that's a longer dated backlog and sales. So we would.
Close something with a customer today that we would be working on through design issues Finalization and then execution of production and then act.
<unk>, which is also impacted by there.
The project.
Civil work site in preparation of the site, which is longer dated so that leads to a longer duration for that backlog. So then as a comparable.
Youre fundamentally have a different mix of that backlog. So as we move into 2022, you're getting looking back and it will be.
A more equivalent.
Year over year comparison, as the mix starts to settle in.
And then maybe just how does it translate to your backlog and two months of work.
Yes, that's the duration comments so the months of work in our backlogs longer much longer today.
It has been in the past so we are seeing.
It changes a little bit in terms of.
Which are food for instance is very long going out through 2022.
And then overall, probably Jim another two months and sort of visibility on top of where we would have been in the past, which is kind of around three months visibility. So we're now getting sort of four or five months visibility into rich.
Okay.
That's helpful. Thank you Tom.
Your next question comes from Andrew Wong with RBC. Please go ahead.
Hi, good morning.
Can you talk about if youre seeing any kind of labor cost pressures, we talked a lot about steel, but obviously, we're seeing a lot of headlines around labor pressures and can you also remind us how much of your business is staffed by unionized labor and is there any of those kind of contract negotiations that might come up.
Yes, no very topical.
Language.
Labor wage pressure.
In most markets.
So there is.
But I guess, yes.
It's manageable.
We're actually.
It had been increasing some of our wage wages across the board anyway, as we look to.
To add to attract and retaining top talent.
And fundamentally address churn within some of our plants, which is which is more expensive in fact, so as we look to address those things, we've been raising and bringing up our overall comp.
<unk> and targets anyway, but we are now while its childhood it it can be a more challenging it's still manageable across all of our markets.
Yes.
We don't think that way.
We have two and.
As a percentage of our fleet that would be very small and no we're not.
<unk>.
There is no meaningful negotiations on horizon.
Okay. That's good color.
And then just.
Jim in your prepared remarks, you talked about.
<unk> capital improvements can you talk about just some of the specific actions that have been taken.
And just where we should think about that going directionally and if you can help quantify anything around that that'd be great.
Yes, so I want to focus on so our working capital year over year improved almost $10 million, which is phenomenal in this environment with the cost increasing so much particularly for a big component of our inventory being steel.
And so the way we have been tackling it is twofold.
Priorities have been.
Counts receivable management and also inventory in terms of levels needed and so.
If I dive into each of those.
Accounts receivable has been a function of.
Two things really making sure that as all companies do manage in terms of flexibility, making sure that.
Customers don't go past due dates and so we've made very dramatic improvements in terms of older accounts receivable past due receivables, but the second part of that more important part of it is really in terms of the terms upfront and working with our teams across the world.
Two to make sure that we're properly betting what is required from a terms perspective.
Being being responsible with customers, who need terms, but also making sure. We're not just being free-for-all, giving up terms, where we don't need to and we've seen a huge impact on there on the inventory side. There's a number of things. We're look that we've been working on this year to try to offset.
Yes.
The requirement to have higher dollar value of inventory and that's really just a function of steel going up so our inventory levels are up versus prior year, but we've done a great job managing the amount of quantity, we need to be able to mitigate that that increase needed inventory as best in Canada.
Okay. That's great. Thank you very much.
Your next question comes from Tim.
Hello, with ATB capital. Please go ahead.
Hey, good morning, everyone.
Good morning, I just wanted to quickly.
Quickly touch on the backlog progression.
Obviously very strong year over year progression, but the <unk>.
<unk> 2020 would have been sort of the.
The middle of Covid, So I'm curious on a quarter over quarter progression.
Some balance on how youre seeing that progress.
Yes, I know.
The backlog last year the comp as it was.
Quite quite strong would have been.
As strong as the prior year.
So there wasn't that growth is really substantial.
Growth in nominal basis and as a comparable.
Okay. So are you still seeing sort of record backlogs.
That ticked down.
Since.
Q2 levels.
No no.
To be at record levels of order intake is strong.
Pipeline is strong across the board.
Okay. That's helpful.
In terms of the Iot hardware subscription program and you've touched on this a few times on the call already but I just wanted to clarify.
For hardware sales that are under a subscription program would that also include.
Non Iot hardware like lets say you had a bin manager on a day and you saw that but then also be on a subscription basis.
No no. It's just the just the technology components.
Okay.
In the MD&A you mentioned a couple of risks around Covid in India in Brazil, I was wondering if you could just touch on those a little bit.
Well I think probably a blanket statements around COVID-19 or are continuing to R. R.
It could be.
Surprises from Covid, but the Dod environment is stable across our business and certainly in India, and Brazil and elsewhere.
Our teams are 100% vaccinated in both of those locations.
And.
Look it's not back to normal by any means but restrictions.
Restrictions lifting and we've operated really effectively.
Throughout this crisis and we continue to so there's nothing notable or different I would say stable to improving is a good way to characterize it.
Okay. That's helpful and then.
Then last one for me.
Subsequent to the quarter closed a couple of plants in the commercial segment.
Can you speak to which classes, where and what the rationale was there.
From a cost savings perspective.
What youre, hoping to accomplish with those closures.
Yes, so part of what we talked about doing.
We've made a number of acquisitions in the past several years and one of the opportunities we have as you revisit our needs for the number of facilities. We have everywhere. It is there are opportunities to consolidate production from one location to another and so what we talked to.
What we announced.
There is an opportunity over in Europe to relocate.
Facility there to another facility in Europe that has capacity.
And benefit from some of those synergies.
Okay.
So not related to.
New York on the sales side in Chicago the Europeans.
This is yes, I mean remember.
Remember, we've got over 30 facilities around the globe and.
For the most part all of our acquisitions have been kind of left stand alone and as we work through the.
The opportunity to look at how to streamline processes improve things you see that with Chicago happening in North America. We also have opportunities from a facility perspective, and so those will be factors that will help drive continued improvements in our overall margins.
Got it.
So.
Yes.
Kind of come out of this.
Acquisition growth phase over the last few years and sort of stabilizing to a free cash flow harvest deleveraging phase and youre looking for efficiencies across your platform globally, what stage or what inning would you say you're in in terms of.
Scrubbing the portfolio.
Sorry, I missed the last part of that in terms of what what inning. We are in if you had a baseball analogy.
Yes, yes.
What <unk>.
Trying to find efficiencies across the platform in terms of.
Closing facilities, and reorganizing sales tools and things of that nature.
In terms of re org, well look I'd say, well I'll answer it a couple of ways that we're in early innings in terms of our growth but.
In terms of efficiencies I mean, there is.
It's very early days too, where we're still getting.
Baseline foundation built for for selling across our platform or collaborating across the different groups, whether it be food or.
Even India Wright's equipment for instance.
Exporting out of India or into other regions are actually manufactured in other regions. So so quite.
Quite a.
A few earnings ahead of us and a lot of opportunity to continue to leverage in.
But whether it's efficiency productivity collaboration and bringing along.
Margin improvement, but entering new markets and bringing.
Our products across the whole platform, where we're early days. We're very team is very excited about the opportunities across the board.
Alright, fantastic I'll turn it back thanks.
Your next question comes from Matthew Weekes with <unk> capital markets. Please go ahead.
Good morning, Thanks for taking my question I'm not sure. If this was mentioned in the prepared remarks I was just wondering if you could provide a little color.
In terms of the backlog increase is internationally and you know how that separates between bridge.
Brazil at.
The APAC region in the EBA in terms of both farm and commercial.
Yes, we had a few numbers there we could we could to highlight those maybe Jim you can jump in.
I mean international backlogs are up substantially and I would say just.
Yes.
It's really contribution of net new parts of our business and so as you think about that it's not.
Cycle, a season or or a blip.
Net new business is contributing now to tomorrow, our global platform.
And then Matt can you just.
As you dive into the numbers, you'll see it in the MD&A to the table provided that kind of breaks out the 99% year on year overall backlog growth by by our operating segment and then also by region around the World and then if you look at that table Youll see that.
Everywhere around the world.
Is showing quite substantial growth the only one thats flat is our commercial platform in Canada, which is which is a smaller component of the overall business, but but still other than that everyone else is very very strong growth year on year and internationally, we further broken that down into the <unk>.
International regions, we operate in so you could get a good context.
Just the overall strength of demand, we're seeing around the globe.
Okay. Thank you appreciate the color on that and then one last question for me I'm. Just wondering if you can comment on sort of how youre seeing.
The sales pipeline and things progressed in terms of developing the foreign platform in the APAC region.
Farm in APAC Okay.
Majority of our platform in APAC is focused on commercial and a lot of the investment there is.
Fundamentally what the dollars are going.
Farms are smaller.
And a lot of consumption there without a lot of production so.
Our focus predominantly in APAC.
It's commercial now inclusive inclusive of Australia.
In the broader region areas, Australia, we see strong growth in farm and strong backlogs in farm and continue to see opportunity to expand our platform and in Australia.
Okay Thats everything for me, Thanks, I'll turn it back.
Ladies and gentlemen, as a reminder, if you do have any questions. Please star one.
Next question comes from Steve Hansen with Raymond James. Please go ahead.
Yes, just one quick follow up just curious Tim one of your larger competitors in South America has started to rollout their technology platform with.
With a fair degree of earnings and I'm, just curious I know your focus is North America, but just given that theyre starting to be competing presence down. So on the technology side do you have any ambitions to start pushing the technology stack into Latin America, Brazil in particular.
Yes.
Sure.
Absolutely, we'll be rolling out launching.
Our digital products and in Brazil in 2022.
In a material way so lots of work on the across the team in terms of.
Our preparation for that and expect to be.
In market and leading in that market are very soon.
Okay helpful. And then just actually one last one just I think you referenced some strategic partnerships that you've been nurturing are developing on the food side in particular in the U S. I know thats still a smaller segment, but it's growing pretty quickly. So I'm just trying to understand exactly what that means just like large strategic customers that you've been.
Trying to develop greater.
And within furnaces, and what strategic partner means I guess.
Yes. So these are food buyers either in largely a food processors that are buying director have looking for digital connectivity.
To their supply chain, so for a variety of reasons either for basic supply chain management. So you want to know what we're wearing the product you want to buy where it is.
Sure.
Jason we have a direct and drive.
Our relationship with the growers they wanted to know exactly what.
What was behind it how it is growing.
Those harvests that digital activity.
And the guidance going through their supply chain.
And so enable sponsor.
The program. So they are encouraging through premiums through direct payment to those growers there.
They're sponsoring the use of Archrock products. So farmer uses if they get paid.
By the Greenbrier.
And and so that's.
When you look at traceability and supply chain management.
There is most.
It's a key priority for most food processors or grain buyers freighters, each with a slightly different nuances.
We're looking for whether it be through too.
Seed genetics growing conditions are growing.
Station.
More.
Post harvest conditioning and status.
And of that Brian and then one more just the quantity we are there.
And how how.
Ready is it for them.
<unk> received.
That's just sort of add back or supply chain supply chain digitization that we offer and we're expanding and then.
The grain buyers now really gravitating to look for and harness that that data.
Understood Okay very helpful. Thanks.
Your next question comes from Michael Roberts with National Bank. Please go ahead.
Hey, good morning, Jim and Jim. Thanks for taking my question just had a couple of follow ups.
Just some things you touched on earlier.
Did you see in managing the inflationary pressure as well I was just wondering if you had any concerns regarding availability or <unk>.
Sourcing any component parts to some of your product offerings is yes, it's pretty pretty topical right now given the supply chain disruptions.
Yes so.
We are able to get our hands on all the components and inputs that we need.
Got it.
We're often.
Taking longer or buying more.
On inventory to account for logistical challenges or delays expected delays are real delays.
So that's a little bit different across basically every component as you can imagine but.
And requiring more work than it would have it has done in the past.
But we do have all inputs on hand for our backlog and where there is some.
Ah.
More severe acute challenges our chips for some of our Iot products.
And Thats taking.
Chips in particular as you probably read about across the board is a significant challenge that would have some impact on production numbers, but in the near term but.
<unk>.
Very small part of our product mix and sales overall, but one that isn't rather acute.
Got it got it yes, the chips would've been sort of my concern.
Concern there so that's good to hear.
Just last question from me.
Are you still working with the.
That third party consultants sort of Reorienting and building out the short track pads sales channels or is that process largely wrapped up at this point.
Yes.
We did work with a third party to help us in a couple of areas in our digital space mostly from.
As Tim has talked about in terms of our go to market approach and our distribution.
Broaches.
And in addition to that they've been working with us in helping us refine some of our product manufacturing in that space in the technology space and a lot of that work.
Actually I'd say almost all of it is complete now.
And it's now really just us working and transitioning a lot of the great learnings we've had in <unk>.
Executing on it and you're starting you're seeing those results through the quarter and you'll continue to see us.
Get better at that.
Enhanced go to market approach. So yes, so we're done with that.
Okay.
Great.
The color and I'll turn it back.
There are no further questions at this time. Please proceed.
Okay, well wrap it up there. Thanks for your time this morning, and look forward to talking.
Take care.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.
Okay.