Q1 2022 Ag Growth International Inc Earnings Call

Speaker 2: Thank you for standing by. This is the conference operator. Welcome to the AGI first quarter 2022 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded.

Speaker 2: After the presentation, there'll be an opportunity to ask questions.

Speaker 2: To join the question Q. you may press Star than one on your telephone keypad. Should you need assistance during the conference call, you may signal on operator by pressing Star and zero. I would now like to turn the conference over to Tim close. President and CEO of AGI. Please go ahead, sir.

Speaker 3: Good morning and thank you for joining jimrodk and I to review our first quarter results and our outlook for 2020 -two.

Speaker 3: With 2021, servingto validate the benefits of a diversified business model. That trend has continued into the first quarter of 2020 -two.

Speaker 3: Sales and adjusted EBITDA were up 14% and 6% year-over-year, both setting first quarter records, despite two significant headwinds in key areas of our business.

Speaker 3: lastyear's drroth in Western Canada had a significant impact on our farm business, which is historically in anchre for our Q1 results 2021. crop production volumes dropped materially in Western Canada, with wheat- Canada's largest crop- down 40% year-over-year. As expected, this type of decrease in crop production had a material impact on our business in the region.

Speaker 3: In addition, our digital segment was a material drag on adjusted EBITDA in the quarter. Despite record order intake, the supply chaain constraints impacted our ability to manufacture product to meet demand.

Speaker 3: Supply chain issues pushed some revenue recognition into Q2. Our investments to continue to build the digital team to support our ambitious digital growth plan also contributed to the higher drag in the quarter.

Speaker 3: Our first quarter results, despite these two impacts, highlight the strength of a now well diversified AGI.

Speaker 3: With three of our last five quarters setting adjusted EBITDA records. Our results continue to validate our recent investment phase leading up to 2021 and.

Speaker 3: This stable foundation is important as we move into the next phase of AGI's evolution and focus on deep integration, optimization and organic growth.

Speaker 3: Now we'll turn to some highlights from the quarter.

Speaker 3: Brazil continues to be a tremendous success story for aggi.

Speaker 3: Sales were up 75% in the quarter against the strong 2021 comparable.

Speaker 3: Our backlog for South America is up 6%, while we also have a very strong pipeline that features a wide range of small, medium and large projects that will continue to fuel the growth of Brazil throughout 2022 and going forward.

Speaker 3: Looking ahead, we expect a sustain trend of strong demand in sales growth in Brazil. The grain, fertilizer and general food infrastructure gap in Brazil is massive in this market has many decades of strong growth ahead. Our commercial platform grew 17%.

Speaker 3: With Canada, the? U us, EMEA and South America all leadaving the way.

Speaker 3: In Canada, our commercial sales and backlog were up 63% and 119% respectively.

Speaker 3: In the commercial market was slow, will be the last couple of years following a heavy investment period to the grain and fertilizer industry in Canada.

Speaker 3: Current dynamics have led to an increased spending cycle, which has been very supportive for our sales and backlog. Agi is well positioned to capture much of this demand and we expect continued momentum for the Canadian commercial platform.

Speaker 3: The EMEA region posted 18% overall growth in the quarter, anchored by 48% growth in the commercial platform.

Speaker 3: Midway through the quarter, activity on projects in Russia and Ukraine largely came to a whole. Ukraine produces significant graine export volumes, which are critical to global food supplies, and our relationships in currain ukrainian customers go back well over a decade. Going forward, the industry in the region will recover. We are well positioned to participag ordin a rebuild and expansion phase. In the meantime, we have pivoted our efforts that have already replaced value the impactedof projects in russia- Ukraine with new work sourced elsewhere within the India regionstrengthen India continued with sales of 33% and backlog increasing 31%. We continuue to expand our wice processing system export sales from India.

Speaker 3: We have also finished the installation of a new grain production line in India. With a substantial reduction to wheat production and exports expected from rushing Ukraine, India will now increase wheat and other grain production, leading to substantial opportunities for BR Hi in the region now that we have grain storage production in the country.

Speaker 3: The farm segment, sales grew by 6%. So, as I mentioned upfront, this includes overcoming a major hurdle with a 31% sales decline in Canada, as the Western Canadian market faced extremely challenging growth conditions in 2021.

Speaker 3: The challenges were felt across the industry and AGI is able to retain market share.

Speaker 3: In this key market, despite the temporary dipt sales.

Speaker 3: The impact of blasyear's growth all a carryover effect of the first half of 2022. But as we move into the new ROP season.

Speaker 3: The Canadian farm market will be down. The growth in the Farm segment was largely resuved of strong contributions from the U's and Brazil. In both markets we continue to grow market share and permanent grain systems.

Speaker 3: Additionally in the? U's, portable handl equipment was a key growth driver, as the combination of an expanding dealer network and overall low dealer inventories supported robust demand for a jaz products.

Speaker 1: Our food platform continues to be an area of very high growth, with sales up 62% in the quarter.

Speaker 3: Given the purchase of Eastern fabricators in January , there is an element of acquired revenue embedded in the quarter, but the results also include strong organic contributions which are representative of the significant demand we are seeing in this market.

Speaker 3: Throughout 2022. We see a pace of growth continuing, as supported by significant backlog growth, which was up 153%, with a strong backlog in hand.

Speaker 3: The near-term priorities for our Food platform will be on the Eastern integration, with a focus to build on early wins for revenue synergy capture, in addition to recruiting as we continue to build the team to keep pace with significant demand.

Speaker 3: ngii digital sales wereup 8% in the quarter.

Speaker 3: However as I mentioned in my opening remarks, this does not fully reflect the strength segment, as chronic industry-wide chip shortages constrained our production.

Speaker 3: Q1 was a record quarter for agerintake, following our focus to expand the dealer channel through 2021.

Speaker 3: However from my timing perspective, the chip shortages delayed some key revenue recognition into Q2.

Speaker 3: The combination of strong order intake, expanded sales channel and additional resources to help drive growth sets up a positive outlook for AGI digital.

Speaker 4: Supply chain challenges continue to impact the global economy.

Speaker 3: As discussed for most of 2021. supply chain dynamic for steel is an area we closely monitor and we have made dynamic adjustments to manage our supply effectively.

Speaker 3: Through the first quarter we saw lead times for steel improved marginally in most regions.

Speaker 3: Overall steel pricing remains at elevated levels, causing a corresponding increase of working capital investment.

Speaker 3: Out outside of steel, we are seeing more pronounced inflation for freight components and labor. However, our supply chain dynamics are manageable. We do not foresee a material impact to our margin profile.

Speaker 5: Overall our record first quarter results and current outlook confirm the ability for our diversified business to mitigate the impact of regional issues while maintaining robust growth. We have increased confidence in our outlook for 2022, which we expect to be another record year for AGI.

Speaker 5: one final note before I turn the call over to Jim.

Speaker 3: I'd like to reiterate AGI support for the people of Ukraine. To show our support and help address the humanitarian cris, we launched our step-up for Ukraine collaboration in early April with the goal of delivering urgently needed medical supplies to the country.

Speaker 5: Thus far we have raised over $75 thousand. We are delivering high priority supplies into Ukraine.

Speaker 3: We are in the process of arring additional deliveries and remain committed to providing ongoing help to those impacted.

Speaker 3: A special thanks to our EI team for stepping up to quarter back this great initiative.

Speaker 3: I'll now turn the call over to Jim for further discussion of our first quarter results.

Speaker 6: Thanks Tim, and hello everyone for today's earnings call. I'll cover three topics. First, I'll provide a brief overview of our first quarter results.

Speaker 6: Second I'll discuss our balance sheet and finally, I'll provide an update on our outlook for 2020 -two.

Speaker 6: Our first quarter results continued the momentum from a record 2021, with record first quarter results for both sales and adjusted EBITDA, and impressive result, especially when considering the headwinds we needed to overcome to generate this result. Consolidated sales of 292 million were up 14% from 255 million year over year, with growth in all segments and all geographies except for Canada. Adjusted EBITDA of 41.3 million was up 6% from 39.1 million year over year. Adjusted EBITDA margins of 14 point 2% were down approximately 110 basis points from 15% year over year. But it is important to note that there was a significant change in our input cost structure in comparing the year over year results. The input costs used to support Q1 021 sales were purchased largely in late two twentthousand 20 ahead of the steep increases in steel priceswhile we are generally able to pass along input cost increases.

Speaker 6: Our ability to largely preserve margins despite the extremely challenging environment is a significant accomplishment. Farm segment sales and adjusted EBITDA grew 6% and decline 2% respectively in the quarter.

Speaker 6: Segment adjusted EBITDA margins declined from 25% to 23%, as the rise in steel prices did have some impact.

Speaker 6: We are extremely proud of these results, given we were able to overcome a very challenging quarter for the Canadian farm segment, which is typically strongest in Q1 and.

Speaker 6: Despite the headwind, our U's and Brazilian divisions were more than able to make up the difference and led to a phenomenal quarter for the Farm segment overall.

Speaker 6: As farmers in Canada recover from the extreme drought from last year, we anticipate results to recover throughout 2020. -two and.

Speaker 6: Commercial segment sales and adjusted EBITDA grew 24% and 40% respectively in the quarter. Adjusted EBITDA margins expanded from 12% to 14% as overall higher volumes benefited both gross margins in our ability to scale our SGNA base for the segment.

Speaker 6: The digital segment posted sales growth of 8% in the quarter. Adjusted EBITDA of negative four point eight million is up from negative one point four million as we invest in building the team in preparation for rapid growth and further product development. As Tim mentioned in his remarks, we have begun seeing this growth materialize with record order intake in Q1, but revenue recognition and timing was delayed due to chip availability required for production.

Speaker 6: On balance we expect strong growth in the digital segment in 2022 and aimed to be EBITDA neutral by the end of the year. Turning to our balance sheet.

Speaker 6: First I'd like to highlight two key announcements made subsequent to the quarter. We announced a credit agreement amendment for our senior facilities that will provide us with more flexibility to meet the needs of our growing business, particularly in international geographies. Importantly, the interest rates on these facilities will remain essentially unchanged.

Speaker 6: We'd like to thank our long-standing members of the lending syndicate for their continued support and extend a warm welcome to four new members to the group who will help add depth of service and coverage to AGI.

Speaker 6: In April , we closed a convertible unsecured subordinated debenture offering with net proceeds of 99.7 million, including a partial exercise of the overall allotment option.

Speaker 6: The proceeds will be used to redeem the prior issuance of convertible unsecured subordinated debentures due December 20- 22, with an aggregate principle of approximately 86 million. The difference will be allocated towards paydown of senior debt and general corporate purposes. The coupon of the newly issued debentures is 5% per anum, 70 basis points higher than the debentures being redeemed. Turning to key balance sheet metrics from the quaridter, from a working capital perspective, our investment in noncash net working capital investment increased from 143 million to 232 million year-over-year and also grew as a percentage of sales, moving from 14% to 20 cent on an annualized basis. This increase was driven primarily by our strategic investment in inventory.

Speaker 6: Given the ongoing supply chain, delivery timing and availability of steel, we made the decision to invest in our steel inventory to ensure we can me strong customer demand and maintain high levels of on-time delivery. In addition, the overall increase in the cost of steel further magnified the extent of the increase in inventory.

Speaker 6: We do not expect this level of inventory to be required as part of our run rate operations into the future, but believe that strategic benefits of a temporary investment in inventory are justified given the unique supply chain circumstances we are managing. In the short term, we expect our initiatives to optimize our accounts payable and accounts receivable positions to help offset some of the investment in inventory.

Speaker 6: We continue to closely manage our senior debt to EBITDA ratio, which sits at two point nine X exiting the quarter. This is up from Q: zero point four X from Q1 021 year-over-year and two point five X from Q4 2021, sequentially.

Speaker 6: We have sufficient room against our covenant of three point seven five X and we do not have any bank covenant concerns. The increase is primarily attributable to the strategic investment we've made in inventory to support our robust backlog in the coming quarters.

Speaker 6: That said, we remain vigilant in closely monitoring our senior credit facility usage in overall cash flow management, while also balancing credit facility usage to help enable growth, particularly in our international regions.

Speaker 6: While we are comfortable with our senior debt ratio, throughout 2022, we will continue to focus on free cash flow conversion and managing the overall balance sheet with a clear objective to continue deleveraging.

Speaker 6: On an all in net debt to adjusted EBITDA basis, we expect the ratio to trend towards the four x level from its current level of approximately five point three X by the end of 2020. -two and.

Speaker 6: As previously stated, this will be achieved through a combination of disciplined capital management and the benefits of strong results in growing EBITDA.

Speaker 6: We have approximately 186 million in available undrawn credit facilities, taking into consideration of the credit agreement amendment, as well as the repayment of senior debt in excess of what was required for the redemption of our 2022 debventures, and $6 million of cash on hand. We closely monitor our liquidity position, ensuring we are flexible to react quickly to new opportunities. And finally, Turning to our outlook for the upcoming yearsupported by a strong backlog up- 19% year-over-year- and that record levels, as well as significant pipeline and quoting activity across many regions, we expect full year adjusted EBITDA to be at least two million in 2022, with growth weighted particularly towards Q2 and Q3 of the year. Thank you very much for your time and with that, we will turn it back to the operator to take questions.

Speaker 2: Thank you. We will now begin the analyst question and answer session. To join the question you, you may press Star, then one on your telephone he pad. You'll hear a tone acknowledging your request. If you are using a speaker phone, Please pick up your hands set before pressing any keys to withdraw your question. Please press Star, then two.

Speaker 2: We will pause for a moment as colors during the queue. Our first question comes from Jacob out of ciibc. Please go ahead. Good morning.

Speaker 7: My name Jacob. The first question is on margins.

Speaker 8: And just given that the current environment we're in, with the inflation pressure, supply chain procurement and the shoes.

Speaker 8: Steel costs. Is your expectation margins is going to be higher or lower year-on, -year-end, and do you think you can get to 15% margins with margins for the year?

Speaker 7: Yes So good question. And so in Q1, you do see are, if you're talking evenbitda margins, you see us declining year on year slightly by gross margins- fairly consistent. A big factor of that is is our investment in's G a that will benefit significantly as volumes increased. Through Q2 and Q3 we're right on track to where we need to be and, as you recall, we guided our margins to continually tick up between one hundred and two hundred base points over the next couple of years. This year we see us to be slightly higher than our historical or last year's adjusted EBITDA margin based on what we see right now. Even despite all the challenges in the supply chain, we've gotten fairly good at being able to react and manage through a combination of pricing initiatives and procurement and operational approaches. My next question is just on on Ukraine and I think you highlighted in the historical relationship.

Speaker 8: You've done there. You know considerable amount of work ag I has done there historically. So given the Intel that you're hearing right now, how much damage you think has been done in that area? As far as agricultural infrastructure, how long do you think it's going to take to rebuild and how big of a role you expect to play in the eventual rebuild? Good morning take.

Speaker 3: Well we don't have perfect information like everybody but we do have our team in the ground there that are giving us fairly unique insights. I think I expect very heavy damage. I think odesa being targeted currently has been and will be where there's much of the infrastructure is exists and look. I think it's pretty grim. I think the outlook is for a lot of damage to that infrastructure. Most the most of the work we've done is in the commercial space in the.

Speaker 9: Both at the port and then and then inland. I think it has been targeted So we're coming out of this. I expect it'll be years, I think, what we spent. We spent third part of the eight years, 10 years.

Speaker 9: Doing projects there and I expect that it'll take that long rebuild whenever we come out of this. I think we are very well positioned. We continue to increase our commitment to the area from a team and resources perspective and ability to operate and so.

Speaker 9: We expect to be a big part of the eventual we buil there. Thank you.

Speaker 1: Our next question comes from Michael demet, a Scotia Bank. Please go aheadhey. Good morning everybody.

Speaker 10: My first question is on the margin profiles of fire versus commercial. Historically did, if I remember correctly, I think you suggest that the margins of the two segments were roughly similar and we saw a nice improvement in commercial this quarter. Should we expect the margins of the two segments eventually conversion? I'm just wondering if that's part of the hundred to two hundred basis point margin improvement story in the next early years.

Speaker 7: Yeah I no, I'm sorry, I Don. I'm like apologize if that suggestion is the made, but now the farm margin profile is very different than the commercial margin profile. one of the new things about farm is our portable business. There, if you recall, our farm business is comprised of two types of products when we call portable and then another one we call more permanent. The permanent side of the farm business trends more towards the commercial margins. The farm, the portable side though, is much higher margins.

Speaker 7: And so, to the extent that suportable sales weigh in on the mix, we will always see the Farm segment reporting higher margins overall. In terms of our recovery, though for the business overall there. 2, there's a few factors that will be benefiting it. one is the scaling of SGA, So all the investments we've made will continue to benefit the increased volume that we continue to see running through the system. But in addition to that, especially if you're looking versus last year, in the last two years we acted very nicely to create processes and approaches to ensure our pricing more quickly react and adapts to the variability in a lot of the input costs, particularly steel, and so that will benefit the commercial segment in particular as margins will creep. You saw that in Q1 this year, where margins increased quite healthfully, but that's really that the story on why overall corporate margins will will trend higher. So you get the SA benef of scaling.

Speaker 7: And then slight benefits in some of the gross marginins, as we've adopted better practices to ensure that any variability in the cost inputs get matched with offsetting price increasesyou. That's really helpful in terms of commentary things about that. And then I guess the second question: the commercial sales in Canada. That with down- I think 30% last year versus 2020 and much more versus the prior year. The cicensee activity backlog increase. Here can you give us a sense? I mean, we provide some conacts in terms of the medium term outlook and maybe sort of what levels you expect to get back to.

Speaker 11: Yes So in Canada. You're right. We've talked about this a number of times for the last couple of years. Expectedly, given the high period of investment in the 2017 18 years in Canada, you had- and the COVID-19 challenges, you had- a bit of a delay or end-up bills of demand for commercial produjects in Canada. We've been talking about our robust pipeline for the last couple of quarters in Canada and that's starting to materialize. We continue to see very strong pipeline both around the world but particularly in Canada, given it coming off a couple of years of delay in the project, and so, from a outlook perspective, we certainly have visibility through the rest of this year of commercial Canada continueing to remain strongperfect. Just sneak 1, last one again on Canada.

Speaker 12: You talk about the inventory levels at the dealer level as it rel specifically to farm equipment. Look at're looking at just Canada dealer levels are, you know, I'd say, normal or maybe slightly less than normal levels, as the Canadian, the Canadian market comes out of that drug, So dealers are cautious and looking for for activity in the new crop cycle with which it there's moisture- some cases were much too much moisture- but good expectations for planting as good expectations for crop volumes. So I think the Canadian market cautiously optimistic and we'll see some restocking as we move into Q2, through Q2 and you know more or less the same in the U's want to broaden that question a little bit. There's, we'll see, inventory levels are very, very healthy levels, probably less that normal, slightly less than normal, and we'll see some restocking and re.

Speaker 9: So some increased order intake as we again like Canada as we move through Q2. Perfect, thanks guys. Next quarter: Thank you thanks, Michael.

Speaker 2: Our next question comes from Gary D of days: capital markets. Please go ahead. Thanks then, good morning. First, one just want to get an update on the dealer penetration in the? U's Form per minute space. I know that has been a key focus for you. Any targets you even share with us, pect to how many dealer relationships you hope to achieve, let's call it, you know, over the next 2, three years. So we can. The progression of this: yes, we continue to make really solid progress in the in the? U's market on boarding new dealers, expansion of share within dealers, both of those coming along very well. We don't have a public K P? I for that. We, you know, we can tell you that we're we're very satisfied with with those, with that progress and you know aggressive targets and expectations internally around development of those of that, that sales channel. So it's come ong very nicely. Expectations were solid results in twenty two and going forward.

Speaker 7: Paying here one data point for you to reference: we do track sales in the U's specifically just in the Farm segment. So without a specific measic of just new dealer conversions, you will appreciate the? U's farm segment grew 19% here on year in Q1. A good chunk of that is certainly our current dealers buying more, but also there are some new dealers in there. So you WOn't have those types of growth rates without our ability to start converting dealers.

Speaker 13: Great that's helpful. And then second, in your prepared remarks you mentioned the digital a few times. Maybe you can elaborate on the headwind: this quarter how much? How do you plan to resolve the chip shortage issues there? And perhaps can you quantify how much was pushed into Q2?

Speaker 11: Yes So a combination for resolution is new sources of supply a.

Speaker 9: The industry is dealing with the shortages and coming out of that, or are using of that, those constraints. And then we have redesigned some components, some products be able to manufacture with more readily available components.

Speaker 9: So those that now put us for instance we don't have those constraints now in Q2 currently in Q2 unless something changes. Drastically. We should have a better ability to produce in the quarter in Q2 Q3 going forward and then yes we would 't quantify the push but it was was material and did have did result in that larger drive to burn in the quarter for digital with the.

Speaker 3: With the expected sales that we should have had in Q1 would have if you get above an operating leverage, our point and we would have much better results in the quarter. But that's okay. It pushes to two and then two and going forward. We have very, very good expectations and forecast.

Speaker 13: Okay perfect. And then just lastly, more of a numbers question, just on the leverage side you mentioned step down from the current total leverage five point three times 4- roughly four times by year end. Can you help us kind of bridge that gap? How much would be kind of EBITDA growross, how much would be winding down up the working capital and or other bucketsyes? So the working capital will reverse significantly as we worked through the year. Part of the growth I talked about on the call was was strategically making sure we had the supply we've talked about and, as we've shown in our material, our backlogs continue to be at record high and our pipeline is very strong. So we have very good visibility to the sales coming through pipe and committed orders, and so we want to just wanted to make sure we had the inventory to, not the wayigh any production and shipments of that goods, and so we took that decision is significant. If you look at inventory alone, it grew versus last year.

Speaker 6: At this time almost $9 million. So that's an unusual growth and typically not generally required under normal circumstances. But with with the draffic cost increase year-on-year and then the supply chain challenges, we decided to do that effort. So a good chunk will come from working capital management, but a significant amount of- as you, if you just run through the numbers- given our out guidance, we will benefit from the strong growth in EBITDA as well.

Speaker 11: Okay as my question. Our next question comes from andreyour one of R B, C capital markets. Please go aheadbig morningjust want to ask about the backlog. So I remember when it was first introduced the numbers were they were comping against market conditions that included COVID-19 and steel pricing but kind of impacted a lot of the numbers. So it was a little bit more difficult to use the backlog figures next, except for you know, directionally telling us things are getting strongerand now that we started to analualyze some of those impacts that COVID-19 and steel to still a little bit of that, but it seems to be normalizing a little bit. Are these backlog figures a little bit more representative of the potential revenue growth from from the different segments and how do you expect the backlog numbers to kind of evolve?

Speaker 9: Backlog and the pipeline- very important. That pipeline today, the quality of our pipeline, the visibility into that pipeline is for us as important as the backlog and our win rate within the pipeline. So for us it's more around our characterization. Our view is to whether that that backlog supports our outlook, which it definitely does. And so there's, I think, too many, too many moving pieces at this point to have that direct correlation. But it has to be augmented and informed by our view and opinion of both, that backlog that translates into outlook.

Speaker 14: Okay that makes sense. And just maybe, looking at Brazil, what's the mix there between market share growth versus some just a broader market strength that you're seeing that region and then what kind of the impact might there be from a volatility in the real?

Speaker 15: Yes So very much. Unfortunately, another complicated answer for you think the market itself is growing very.

Speaker 9: Very well they're very healthy growth there overall and for us. It is a I'd say if I had the ballpark I know I'd probably say if either our growth being.

Speaker 9: Big being a result able overall robust conditions. But market share maybe that's not maybe that's too simimpple like. It's probably majority is market share gains and then augmented by a quickly growing market if you look in the Q1% 75% growth. That's mostly market share and then as we look forward and I think we'll see.

Speaker 9: As we grow, the market share will moderate and the and we'll steer more towards that growth, but it's probably quite a few quarters out.

Speaker 14: Okay I only asked because one of the strategy that think I remember was agia, kind of introducing a lot of different equipment or just different platforms that maybe are better or weren't really introduced previously in that region. So part of the thesis was also G, some market share with the better equipment and the different platforms and things like that. There's a comonent of that. We we have some unique solutions in commercial, but the market in general is catching up and so it's. We have some on the farm, but it was largely focused on commercial. But there is.

Speaker 9: The market itself continues to evolve and change, to grow and some good, healthy competition in result. But I think we have quite a runway to continue to gain share in a quickly growing market okay.

Speaker 11: Thank you. Our next question comes from Tim monocello of ATB capital markets. Please go ahead. Good morning, just a followll question on Russia and Ukraine and just want want to understand, I guess, what's happening to displace volumes as principally for we and other grains in the region- and you mentioned India. But is there any other areas of the business where you're expecting to see, we know, more investment in storage infrastructure as a result of this conflict and perhaps also just greater focus on on supply and security of supply? Is that impacting you people countries, willingness to invest in and strategic storage infrastructure?

Speaker 16: I think Tim well that's a global story. There will be more redundancy built into the tiire supply chain worldwide back to North America. For sure. We we production will increase in North America in Brazil into other parts the region IA. For sure they have a substantial ability to uptake in in production wheat and other grains. So but Northern Africa what we're seeing a lot of activity around food security and going from a pretty low basase. On infrastructure. They have substantial investments make there we're very busy in the region. In fact a lot of we mentioned some of the projects that have been postponing in Ukraine and Russia. particularally Ukraine we've already made up for that and those delay produredicts in the value of those and coming from places that are focused on good. Security or are are investing are around that same thee So.

Speaker 9: I think globally though, though we're seeing an increased propensity to invest in the, in the increasing supplies on that and I it is weited to regions that have very little today and they're just they're just getting to the reasonable level, but it is a general being globally. Is that a trend that you expected to play out over sort of a medium term period, or is there sort of an initial reaction or people or shifting investment and trying to build out infrastructure that to replace the volumes that we're coming out of the Ukraine Russia, that well, at a good point and know this will be decades like? The amount of infrastructure needed in emerging markets is huge and it takes substantial investment in order to just to get to sort a 1% of supplies or production or a 1% increase in crops. Sort of farm, for instance, in North America is just takes a massive amount of infrastructure storage handling it otherwise.

Speaker 6: Across the chain. So these are big, big statements. When the industry says we're going to have more across sort of arm or more redundancy, more storage available, that is, that's represents decades of investment.

Speaker 1: Okay second question, just a a follow up on the working capital building the quarter, understanding the strategic in nature. But you saw backlogs building pretty significantly- 302.021 thousand- and there was supply chain issues there as well. So curious what change the mentality around building a that inventory andsecondly, the thought around reducing inventory levels through out the rest of the year? Is that contingent on supply chain issues mitigating and backlog stabilizingyes? So thank Tim to to reactions to that first question. The difference is vers last year, one cost. So in Q1 particular steel cost, if you follow the charts and the trends depending on what region we buy in, anywhere from from seven cent to one hundred percent higher on a cost per time.

Speaker 6: A lot of the cost increases, as you know, affected us through Q2 and Q3 last year, when cost continue to increase very dramatically. So that's one factor that would have weighed into the difference. The second factor is the war last year through through the year we did have a COIT challenges which we were getting comfortable MAN manage through, but the unique dynamic now is the uncertainty that's created because of what's going on over in Europe , and so that's another factor that has caused us to be a little bit more on the conservative side to protect the inputs and the raw materials that we need for the orders that we have. I'm sorry. Your second question, that again is from mining, just around the process, around that mitigating, or I guess we're coming down through rest the years that continue on supply chain issues get help or yes, yes. So So the cost year on your impact will?

Speaker 7: The MIT. It actually it should turn the corner is starting in Q3 as cost or year should be lower than the prior year, So that'll help of a cost perspective and then from a how we react. evenven what's went on the world. I don't know and mean I don't have the crystal ball up what we know now we're starting to see supply chain getting a steel starting to stabilize, getting back to more consistent levels as the world the justs, and so that will impact our strategies in our plans as well in terms of this, potentially the need to stockpile a lot of steel. But I don't have a definitive advantage because I don't know what really the world looks like month to months. What's going on over there?

Speaker 17: Great okay, So that mekes a lot sense. I appreciate your toy. Ok thanks, timim. Once again, if you have a question, please press Star, then one our next question comes from Anthony linton of laurerenian Bank. Please go ahead. Good morning guys and not thanks for taking my questions.

Speaker 12: Good morning. Just wanted to start with a arification from what of your prepared remarks? I think you talked about the digital segment moving towards even a neutral. I'm just mjust woning if the imjust woning, if that's full year on a quarterly basis and then some of the moving parts to get there, yes I'm long a full year basis yet. So it's a combination of increase in sales as we normalize that production and catchch up to some of the backlog 'in that segment, growth in the overall business and, along with an increase, but closely watch, expansion of the team and the, the SG within that division.

Speaker 7: Yes the digital space is fairly with' right are seasonal, I guess, where Q2 and Q3, you see, will be the bulk of our sales. So it's not unusual that you'll lose, you'll have a negative contribution in the outer quarters- Q1 and Q4, but Q2 and Q3 you benefit significantly by the volume human. So that's what we turn, we are seeing, and so for a full year we're looking at driving close to neutral.

Speaker 3: Okay that's great to hear. Thanks to that just then. Just on the backlog: I was just wondering how the margin profile of the backlog, particularly on the commercial side, compares to what you seen today. I believe last quarter you talked about some lumpier projects, particularly in the international regions.

Speaker 10: Backlog is strong across the Board, is up over really high comparable last year. We have it's a very good pipeline as well. I mentioned how important that is and really is, and more so backlog and the quality size and quality of the pipeline. So both of those give us very high confidence around this year and certainly the momentum moving into even next year and particularly advertzing into the, our confidence in outlooking margins, EBITDA margins at overall EBIT, our results. So because it's such at such a strong level and because of our approach at supply chain management, we're very good at think, understanding and knowing what those margins will be.

Speaker 3: Okay that's great year. That's all ING you guys. i'turn turnit back. Thank youour next question comes from Michael robertson of National Bank financial. Please go ahead.

Speaker 18: amore and all Congrats on a solid quarter, and like to take up my questionions. Just had a couple quick follow off. First off, just just seeking to clarify the the increase in the senior leverage covenant ratio from three point two five to 3.75. was that on a permanent basis moving forward? Yes, they sorry. The only CA V ated is to the say we do in a that would get up to be enough to for for, I think, a one year period post acquisition got it, got it. And then the other question I had: I would assume that you know supply chain snares aren't necessarily, you know, ubiquitous across regions and I just wondering if there's, if there's any regions that you know were more difficult than others to, you know, be able to deliver on time, convert the backlog. You know what sort of pressures you're seeing in on a region specific basis.

Speaker 19: Interesting question, thejust thinking, if there's 1, if there's any standards, I mean Brazil has been a challenge more because we seem to be well ahead of our delivery dates, or at least on time market that's. It's not used to on time delivery, So there's there's some components of it there, but certainly not supply chain related or due to ue, to anything on our sideitei know I think logistically has logistics continue to be a challenge around the world for sure, So our team has got pretty used to factoring that in now as we're making commitments around timing. We talked about digital, that certainly a component there, but then otherwise I don't don't see a lot. Yes, the general thing that we see more of is we are not just shipping our finished product to our customers, getting containers.

Speaker 6: Especially with what's happening over in shanghaithe. Container availability has been difficult and that's can be region specific. Certainly we've seen some struggles in over to me up and all that done is impacted the timing of the delivery to our and our customer. It may shift it out, but that'swe've been dealing with those struggles now for a fair bit of time. It's slightly exaggerated now but we're getting good management through it.

Speaker 18: gotit, that's helpful color. Thank, take my question. We will turn aboutthis concludes the question-and-answer session. I would like to turn the conference back over to Tim close for any closing remarks.

Speaker 10: Okay thanks your time this morning. We'll go. There are some great questions and just just to summarize, we'll really Please with these: the quarter: great results, given the components that drug and the dynamics in the Ukraine region, but very solid outlook for the remainder of the year that you given the set up, the backlog, the pipeline, with increasing confidence around that forecast. And again, special thanks to all the aghiis me together to implement and execute on our step up for Ukraine initiative. So thanks again for the time this morning and we'll end the call there. Thank, youthis. Concludes today's conference call. You may disconnect your lines. Thanks for participating and have a pleasant day.

Speaker 19: Young.