AGI Announces Third Quarter 2022 Results

WINNIPEG, Manitoba–(BUSINESS WIRE)–Ag Growth International Inc. (TSX: AFN) (“AGI”, the “Company”, “we” or “our”) today announced its financial results for the three- and nine-month periods ended September 30, 2022¹.

Consolidated Segment Results Summary ²

AGI continued its strong performance in the third quarter with another record for sales and Adjusted EBITDA, which increased 28% and 65% year-over-year (‘YOY’) for the three-months ended September 30, 2022 (“Q3”), respectively. “Our all-time record quarterly results for sales and Adjusted EBITDA continue to highlight the strength and growth of AGI,” commented Paul Householder, President and CEO of AGI. “Taking over CEO responsibilities during a time with significant momentum across our global Farm and Commercial businesses, including many opportunities for further growth, is an ideal setup to drive continued success. Our backlog³ provides solid visibility into the fourth quarter and the start of 2023. We’ve increased our full year Adjusted EBITDA guidance for 2022 to at least $228 million⁴ which represents another record year in sales and Adjusted EBITDA for AGI, meaningful growth over 2021, and a strong setup for 2023.”

Farm segment sales and Adjusted EBITDA increased 20% and 52% YOY in Q3 with strong results from Canada, U.S., Asia Pacific, and South America. In particular, sales of our portable grain handling equipment remain robust as rising crop sizes and low dealer inventories combined to create solid demand. Commercial segment sales and Adjusted EBITDA increased 40% and 97% YOY in Q3 with significant growth in North America, Europe, Middle East and Africa (“EMEA”), South America, and Asia Pacific markets. The Brazil region continues to experience significant growth in both sales and Adjusted EBITDA achieving 30% and 67% YOY increases in Q3. With strong macroeconomic fundamentals, we expect the momentum to continue in the Brazil region in the fourth quarter (“Q4”) of 2022. The India region reached an all-time quarterly record in Q3 with sales and Adjusted EBITDA growing 59% and 101% YOY.

The Digital segment sales increased 9% YOY in Q3 as a result of continued demand and strong order intake. Adjusted EBITDA was a loss of $4.0 million in Q3 2022 as compared to a gain of $0.3 million in Q3 2021. The loss was primarily due to the increase of subscription sales in proportion to retail sales in Q3 YOY as a new subscription program was introduced late in Q4 2021. This increase in proportion of subscription sales has a negative impact on the short-term performance of the Digital segment as sales and associated variable costs are deferred and spread out over the term of the subscription.

On a consolidated basis, the $30 million increase in our Adjusted EBITDA for Q3 was led by a significant increase in sales across all segments with notable contributions from U.S. Farm, Canada Farm, North America Commercial as well as Brazil and India. This was complemented by a notable improvement in gross margin driven by operational efficiencies, sales mix favoring portable grain handling equipment in the Farm segment, increased volume within the Commercial segment, and the benefit of lower steel prices YOY.

The demand for AGI equipment, systems, and solutions continues to grow across our segments and geographies. Consolidated backlog was up 4% YOY, just above the record level from the prior year which itself was up 99% from Q3 2020 levels. The moderation of backlog growth was expected as the backlog resets at higher levels relative to historic amounts given our increased mix of project-based work.

In recent years, our organization has adopted an operational excellence mindset and undertaken a number of initiatives with the goal of creating value for our customers. We strive to improve our customers’ experience by further integration of our business teams and processes for all equipment in the AGI portfolio. By building this capability, we have vastly improved the efficiency of the business across the Commercial segment and are beginning to realize the benefits of our investments, most notably, the sales growth and margin expansion of our Canadian and U.S. Commercial segments.

Our pipelines remain robust and we are continuing to see strong interest from customers across all segments and regions as they continue to invest in critical infrastructure equipment and solutions. We now expect full year 2022 Adjusted EBITDA of at least $228 million which represents another very strong year, driven primarily by organic growth. Our ability to capture the ongoing demand for agriculture equipment, infrastructure and solutions has positioned us to cap off another record year in sales and Adjusted EBITDA with good momentum heading into 2023.

BASIS OF PRESENTATION

For the year ended December 31, 2021, the effect of foreign currency translations arising from the settlement of accounts receivables and payables recorded in a currency other than the Company’s functional currency have been presented within finance income (expenses); historically, the foreign exchange impact was presented in sales and a reconciliation was made to trade sales as presented in prior management’s discussion and analysis. This change in presentation effectively eliminates the need for trade sales and therefore sales is presented in this press release with the reclassification of comparative information.

The Company’s change in presentation in its unaudited interim condensed consolidated comparative financial statements for the three- and nine-month periods ended September 30, 2022 (“consolidated financial statements”) was made in accordance with IAS 1 and IFRS 8. Under IFRS 8, a change in accounting policy is permitted if the change results in the financial statements providing more reliable and relevant information about the effects of transactions on the entity’s financial position. In addition, IAS 1 requires an entity to reclassify its comparative information when making such changes in presentation and therefore comparative figures have been restated accordingly.

Description of Business Segments and Platforms

AGI’s demand drivers are closely linked to crop production volumes, global grain movement, and global food and feed consumption levels. A relative lack of investment in food infrastructure in developing regions along with required ongoing maintenance capital requirements in developed regions provide positive demand dynamics for AGI. These core demand drivers are further augmented by increasing population, changing dietary trends, and increased focus on food security infrastructure.

Farm Segment

AGI’s Farm segment includes the sale of grain, seed, and fertilizer handling equipment. Our two main categories of products include portable grain handling solutions as well as permanent grain handling solutions including storage, drying, material handling, and conditioning equipment.

Commercial Segment

AGI’s Commercial segment includes the sale of larger diameter grain storage bins, high-capacity grain handling equipment, seed and fertilizer storage and handling systems, feed handling and storage equipment, aeration products, automated blending systems, control systems, and food processing solutions.

Food Platform

The AGI Food platform falls within AGI’s Commercial segment and it provides full process design engineering, overall project engineering, project management services, and equipment supply for our customers in the food and beverage processing industry.

Digital Segment

AGI’s Digital segment designs, manufactures, and supplies IoT (Internet of Things) hardware that monitors, operates, and automates our equipment and the collection of key operational data for our customers. These products are available both as standalone offerings, as well as in combination with larger farm or commercial systems from AGI.

OPERATING RESULTS and OUTLOOK ⁵

Farm Segment

Farm segment sales and Adjusted EBITDA increased 20% and 52% YOY in Q3 with strong results from Canada, the U.S., and South America. Robust demand for portable grain handling equipment in North America continued as many dealers report low inventory levels. Elevated crop prices generally leads growers to monetize crops shortly after harvest which resulted in lower overall demand for storage equipment and solutions throughout the 2022 season. Adjusted EBITDA benefited from the sales mix favoring higher margin portable grain handling equipment over lower margin permanent grain handling and storage products. In addition, there was some benefit of lower input costs associated with improved steel pricing YOY. Looking ahead, we anticipate Farm Segment’s Q4 performance to be in line with Q4 2021.

Canada

Sales increased 6% and backlog increased 16% YOY in Q3 as improved crop yield drove demand for our grain handling equipment. Management expects that the Canadian Farm segment will continue to rebound in Q4 2022 as dealers continue to move their inventory in the upcoming months.

United States

Sales increased 26% in Q3 over a very strong Q3 2021 result as demand for portable grain handling equipment remains strong and inventory levels continue to remain low throughout our dealer network. This was offset by a decrease in demand for grain storage equipment as grain producers are generally motivated by high crop prices to monetize crops after harvest versus utilizing on-farm storage capacity. However, the trend of generally larger crop sizes and increasing farmer sophistication continues, providing an optimistic outlook for customer demand for permanent grain handling equipment and storage over time.

International

Farm segment sales increased 34% YOY in Q3, with continued growth in South America supported by strong demand for permanent grain handling equipment and storage as a result of increasing crop volumes and rising investment in critical grain handling infrastructure. Sales to Asia Pacific decreased 11% mainly due to timing of planned shipments being delayed into Q4 2022. EMEA’s Q3 results were consistent with the prior year despite the impact of the Russia-Ukraine conflict (see “Russia-Ukraine Conflict”). Our ability to temporarily pivot away from the Russia-Ukraine region without significantly impacting our overall results highlights the benefit of our diversified growth strategy.

Commercial Segment

Commercial segment sales and Adjusted EBITDA increased 40% and 97% YOY in Q3 with a significant rebound in Canadian sales, continued growth in the U.S., and strong results in our international markets. Key contributors to the growth included the Food platform which continues to grow in response to strong customer demand with sales increasing 61% YOY, and 33% net of acquisitions in Q3. The increase in Adjusted EBITDA is primarily due to scaling on an increased revenue base which helped capture incremental gross margin as well as a favorable steel pricing trend in 2022. In addition, the Canadian Commercial platform continued to rebound with sales and backlog up 34% and 6% YOY.

Looking ahead, we anticipate the momentum in the Commercial segment to continue into Q4 2022. A key focus remains on securing components on a timely and cost-effective basis amid supply chain disruptions which have been challenging. Many of AGI’s Commercial segment contracts include provisions to pass along some or all of the key raw material cost increases and open sales quotes are continuously reviewed and updated for changes in market conditions.

Overall, the Commercial segment is seeing continued demand with backlogs up 6% YOY in Q3.

Canada

Commercial segment sales increased 31% YOY for the three-months ended September 30, 2022. Specifically:

• Commercial platform sales in Canada increased 34% YOY as increased quoting activities in Q4 2021 and the first six months of 2022 for grain terminal projects drove a recovery of this sector in 2022. We continue to expect the Canadian Commercial platform to perform well in Q4 2022.
• The grain terminal and grain processing markets resumed capital spending following a temporary decrease in spending after significant build out from 2015 through 2020. We are also seeing demand return in the fertilizer equipment market. Consequently, the Canadian Commercial platform’s backlog is up 6% YOY in Q3.
• Food platform sales increased 20% YOY, with continued strong demand in Q3 2022 and the acquisition of Eastern Fabricators (“Eastern”) which provided additional production capacity and resources to support the Food platform’s sales growth trajectory.

Management anticipates the momentum will continue in Q4 2022 for the Canadian Commercial platform. We also anticipate strong Q4 2022 results from the Canadian Food platform driven by the significant backlog in this region, which is up 88% YOY in Q3.

United States

Commercial segment sales increased 34% YOY for the three-months ended September 30, 2022. Specifically:

• Commercial platform sales in the U.S. increased 24% YOY, with sales growth driven by the demand in commercial infrastructure and supported by a positive export outlook.
• Food platform sales in the U.S. increased 64% YOY, as a result of continued demand in the petfood market and our efforts to develop strategic relationships with key partners.

Overall, we anticipate the U.S. Commercial Segment’s Q4 performance to be in line with Q4 2021.

International

Commercial segment sales increased 48% YOY for the three-months ended September 30, 2022. Specifically:

• Commercial platform sales increased 45% YOY with solid growth in all areas including EMEA despite the impact of the Russia-Ukraine conflict. We were able to replace lost volumes with other projects within the EMEA region given the broad demand for investment in food infrastructure globally. Additional information on the potential impact of the conflict between Russia and Ukraine can be found in “Russia-Ukraine Conflict”.
• Results from Brazil and India continued their momentum in Q3 as sales increased 30% and 59% YOY, respectively.
  • Brazil continued to see a strengthening demand for AGI products and systems in the Commercial segment, supported by a favorable macroeconomic environment and their backlog is up 79% YOY.
  • India delivered a record quarterly result in Q3 as demand for rice milling equipment continued to increase throughout 2022; the backlog for India increased 39% YOY.
  • We continue to anticipate both regions will be strong contributors to our Q4 2022 performance as well as going forward into 2023.
• Food platform sales increased 92% YOY in Q3, driven by growth across all regions. As noted in Q2 2022, both Asia Pacific and South America are relatively new markets for the Food platform and we expect their performance to fluctuate. However, we anticipate momentum to build in these regions given our sustained focus on pipeline building and quoting activities.

Overall, we continue to expect significant growth opportunities within the various international regions for our Commercial segment in Q4 2022, particularly Brazil and India, supported by favorable macroeconomic conditions. While the Russia-Ukraine conflict may impact our performance in the EMEA region, we anticipate the impact will be temporary as we have the ability to refocus our sales efforts to other regions.

Digital Segment

The Digital segment continues to make progress in market development with sales up 9% YOY in Q3, despite continued industry-wide component shortages of critical chips required for production. Initiatives to support Digital growth continued including adding dealer channels for Digital products, expanding direct sales channels, automating areas of production, and increasing capacity. Clear benefits from these efforts are materializing with the Digital segment securing record order intake in Q3 2022.

Digital segment Adjusted EBITDA was a loss of $4.0 million in Q3 2022 primarily due to the increase of subscription sales in proportion to retail sales in Q3 YOY as a new subscription program was introduced late in Q4 2021. This increase in proportion of subscription sales has a negative impact on the short-term performance of the Digital segment as sales and associated variable costs are deferred and spread out over the term of the subscription.

A clear trend of increasing demand for our Digital offerings is expected to continue in Q4 2022, as more end customers realize the value and efficiencies of digitizing aspects of their operations. However, the ongoing chip availability issues will continue to be a risk to our ability to produce some pieces of IoT hardware. Management is working on several initiatives to help proactively reduce the impact of supply chain bottlenecks on Digital’s ability to grow and meet customer demand.

Summary

Our record third quarter results in sales and Adjusted EBITDA reflect our significant market share in North American portable grain handling equipment, the strength in our Commercial capabilities and product offerings as well as the continued growth in various international regions. Our strategy of product, geographic, and customer diversification has provided us with stability and resilience during the trade wars of 2019, the COVID crisis in 2020, the extreme supply chain environment in 2021, and the inflationary pressure and Russia-Ukraine conflict in 2022. Our focus on achieving operational excellence and creating value for our customers has led us to various efficiency improvements, particularly in the North America Commercial segment, resulting in sales growth and margin expansion. We expect the momentum and success from these efforts to carry across the organization more broadly and to further support our results going forward.

Our pipelines remain robust and we are continuing to see strong interest from customers across all segments and regions as they continue to invest in critical infrastructure equipment and solutions. We expect full year 2022 Adjusted EBITDA of at least $228 million which represents another very strong organic growth year. Our ability to capture the ongoing demand of agriculture equipment, infrastructure and solutions has positioned us to cap off another record year in sales and Adjusted EBITDA with good momentum heading into 2023.

See “RISKS AND UNCERTAINTIES” in our MD&A and “FORWARD-LOOKING INFORMATION” and “FINANCIAL OUTLOOK” in this press release for, among other things, a description of the risks, uncertainties and other factors to which the Company, its business and our full year 2022 Adjusted EBITDA guidance are subject and that may cause our actual results to differ materially from those anticipated in our guidance.

The following table presents YOY changes in the Company’s backlogs^[1] as at September 30, 2022:

The following table presents YOY changes in the Company’s international backlogs^[1] as at September 30, 2022 further segmented by region:

Profit (loss) before income taxes and Adjusted EBITDA

The following table reconciles profit (loss) before income taxes to Adjusted EBITDA.

Contacts

Investor Relations

Andrew Jacklin

1-437-335-1630

[email protected]

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