Good morning. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to AGI’s First Quarter Results Release and Conference Call. [Operator Instructions]. Mr. Tim Close, you may begin your conference.

Good morning. Thank you for joining Steve Sommerfeld and I this morning. We have some brief comments on the quarter and outlook, and then we will turn the call over for questions. We are hosting our AGM later this morning. Our meeting is in Winnipeg. I’m excited to say that we have a distinctly different audience this year. Following the rollout of our employee stock plan in 2018, we have welcomed several hundred employees as new shareholders. Many of those new, very aligned shareholders will join us today to discuss our strategy, progress and outlook in more detail. Ownership drives a very different approach to work. Ownership brings a focus and alignment on finding ways to improve and grow your business. Steve and I are excited to address this audience later today. A very busy first quarter saw us close three important acquisitions. Our platform acquisition of Milltec in India provided AGI with expertise in rice milling solutions as well as a deep management team beginning a new era for AGI given the significant growth opportunities of rice processing in India and in the surrounding region. The bin manager sensor network and field data manager tools brought together in IntelliFarms’ SureTrack grain management solution has opened new ways for us to add unique value for our customers and further differentiate AGI. The acquisition of Improtech expanded our food platform and provided AGI with additional process engineering expertise in the food and beverage industry. Our acquisition activity over the past several years has allowed us to map out our strategy, which has redefined AGI in terms of our growth opportunities, diversification and demand drivers. As we achieve our growth objectives, our demand drivers are shifting from regional drivers like weather and cyclical spending in each market to more closely align with global consumption across the global food infrastructure annual spend. Global consumption drives constant and urgent demand and the infrastructure required to support this consumption must be built, maintained and must operate efficiently and through economic cycles as stomachs must be filled regardless of GDP growth. We have the foundation within AGI today to achieve this shift in diversification and demand drivers. Our opportunity now is designing and implementing the model to integrate our businesses and have them work together to deliver market-leading complete solutions for our customers. Put very simply, we are moving from each business selling equipment to AGI delivering complete systems. This is our challenge and our opportunity. To meet this opportunity, we’ve been organizing AGI into regional systems teams. Each focused on a "execute and support model." To enable these teams to work with higher quality and efficiency, we’ve been investing in digital tools, product configurators to dealer sales tools. These investments have impacted EBITDA margin over the past year or so; however, these tools are starting to go live. We expect to see the benefit of recent initiatives as we move into the back half of 2019. With 75% of AGI in North America and predominantly in our grain platform, we still see the impact of regional events. We saw that impact in the first quarter as a late winter and generally slow pace in commercial project development colluded to push some sales and activity out of the first quarter. However, backlogs remain strong in farm and commercial, quoting volume in our pipeline is robust and we’re seeing backlogs building in commercial and farm markets in North America, in Brazil and internationally as we move through Q2. Q1 2018 had very different dynamics with more typical timing on farm sales and an aggressive start to the year on commercial projects resulting in record Q1 results in 2018. It had adjusted EBITDA that was 20% above any previous Q1, versus this comparable and despite the headwinds in the quarter, our results were equal to 2018 in Q1 2019. Going forward, we expect India to have a significant positive impact on our Q1 and Q4 to further diversify our seasonality. Milltec had a great start to the year and projections are robust moving into 2019. Q2 and Q3 are typically, they’re slower quarters; however, backlogs are building nicely there as well and expectations are for solid growth year-over-year. Our team has spent a lot of time in India the last six weeks working on integration and growth opportunities. We are more positive than ever on our opportunities in Milltec in India and the region. Our first quarter was slightly positive in Brazil as sales increased, productivity improved and we moved through the growing pains of the start-up. We remain generally positive on the year in Brazil; however, expect some weakness in Q2 and then a strong back half of 2019. With that, I’ll turn the call over to Steve for review of the quarter, outlook and a look at the financials.

All right. Thanks, Tim. Sales and adjusted EBITDA in Q1 2019 were relatively flat compared to the prior year at $216 million and $31 million respectively. Sales of AGI farm equipment remained strong despite the impact of a long and difficult winter with strength in portable handling and grain drying equipment. Our commercial sales declined compared to first quarter of 2018 due to lower international sales. In 2018, AGI delivered on two large projects in Ukraine that resulted in the highest international Q1 sales total in AGI’s history, 72% above 2017. In 2019, we recorded our second highest Q1 total, but it fell below the prior year largely due to the absence of a large project delivery in the quarter. AGI’s gross margin in the first quarter of 2019 was 32% and was higher than the previous year due largely to improved results in Brazil and product mix while our adjusted EBITDA margin of 14% reflected quarterly seasonality at AGI and was consistent with the prior year. Overall, positive demand drivers for AGI farm equipment including the expectation of another large crop in North America are expected to drive sales growth across all farm product categories in 2019. Commercial sales in North America and internationally are expected to benefit from existing backlogs and near-term opportunity. In addition, we expect a strong EBITDA contribution from Milltec in India in 2019, particularly in the second half of the year. And with that, we’ll now turn the call back to Joanna for some Q&A.

[Operator Instructions] Your first question is from Michael Doumet from Scotiabank. Please go ahead.

Hey, good morning guys.

Good morning, Michael.

So I think international business, I’m just trying to put together what 2019 might look like compared to 2018. This quarter was a little lighter, but backlog is now consistent and appears poised for an increase. Is the revenue expectation in the second half driven by sizable programs that you have good visibility on? I’m just trying to get a little bit more color there.

Yes, sure. It is a mix like it always is, Michael. We have a large component of smaller, you might call, recurring projects in size and scope and some larger projects in our backlog that are – in our – in our quote log that we believe are near-term opportunities. So you categorized it correctly. We have expectations of growth year-over-year and it will be a mix of smaller typical sized projects and some larger projects.

Okay, and I might have missed your Q2 comments. So for international Q2, what should we expect?

We would expect another strong quarter, Michael. Backlogs today are consistent with where they were in 2018 and we expect a strong Q2 and especially a strong H2.

Okay, now I got it. Maybe just turning to the storage business in the U.S. In your outlook, you indicated that there is a shortfall in the existing farm storage capacity. My understanding is that the storage capacity in the U.S. is more weighted towards commercial than on-farm at least versus Canada. In your view, does the lower, now I guess more volatile, pricing commodities create a long-term trend for farmers to build on-farm storage?

It does. We are – the U.S. farmers have underinvested in storage in the last three, four years. All the while crop volumes remained very high and are increasing. And like you said, with low commodity prices, farmers are incentivized to sit on the grain until they feel there are no better opportunities in the future. So today the bins are relatively full and farmers require storage and we expect that to be a positive demand driver for the near future.

Okay. And then maybe just one last question. You talked about increased spend to support growth and I think, Tim called it regional hubs, but I’m assuming some of that was spent in branding and advertising. Can you maybe just talk about where those dollars are being spent? And then what your overall expectations are?

You know it’s – that’s right. A little bit of voltage in people, in each of the regions, but the digital tools are more where the investment has gone, so product configurators is the best example, Michael. It’s a way for us to deliver the products quicker with less waste and more accurately.

Was this spend across the whole platform or whether certain regions where there is a little more SG&A dollars invested?

A little bit in each region, slightly different tool and model in each region, each model depending on our business models there. Brazil configurator is different than what we’re doing in North America, for instance, but tailored to the business we have, the systems we have in each of those locations, but each with the same goal, make it easier to do business with us.

Perfect. Makes sense, thanks guys.

Your next question is from Jacob Bout from CIBC. Please go ahead, Jacob.

Good morning.

Good morning, Jacob.

Maybe help us with how much was pushed from the first quarter to the second quarter? Sounds like there was one project delivery and was that weather related or?

Hey, Jacob, it’s Steve. No it wasn’t weather related. We referenced one project, which was an EMEA project and it was related to shipping terms as it often is. The product was manufactured and shipped. Shipping terms required we recognize revenue when it arrives at destination port and it was on the water. In all quarters, we have some ins and some outs and we’re not speaking to them specifically each quarter. Q1 was heavier than usual on sales that were manufactured, shipped, but we were not able to recognize revenue.

Okay, and in order magnitude, what would that impact be?

It would have bridged the gap you see from 2018 to 2019.

Okay. And then, Milltec. I’m assuming there was no contribution in the quarter. Should we still be thinking kind of EBITDA $10 million a year?

We expect them to grow year-over-year. Q2 is their seasonally lowest quarter. Their backlogs are higher than the prior year. Their outlook for 2019 is to have a higher EBITDA contribution than 2018.

Okay, and then Brazil. It sounds like it was a positive contribution. Can you talk a bit about what you’re selling and what you expect the ramp in growth to be there?

Yes, Jacob. It’s a bit of a mix through farm and commercial, continues to be a good split. You’ll – month-to-month, it does swing a little bit back and forth between farm and commercial, but good development across the business there. Q1 was positive, nice ramp-up in sales through the end of last year, leading into good production through Q1, pretty solid and consistent. Q2 is a bit of an anomaly. We expect some weaker results in sales in Q2. Backlogs are there, sales are there, but they’re landing in Q3, Q4. I view that as an anomaly on the mix of that – those projects in the regions they’re in and where they’re coming from. So, I don’t see that as being a pattern at all, but we expect to finish up the year, the back half of the year to be strong given the current backlogs and what we see those building currently. Last week was AGRISHOW, and the most significant AGRISHOW in Brazil and it was a great show for us from customer development relationship and backlog perspective closing a lot of deals at that show. So overall, seeing the model come together nicely in Brazil, lots of opportunity, lots of quoting, and teams – the teams executing well and coming together well, as we move through Q2 here.

So if you stand back and the guidance you are giving now versus what you gave at the back of fourth quarter, I mean, there is obviously a lot of moving parts between the wet weather, the Canola, the trade issues. Are you more optimistic or kind of the same or how should we think about that?

Yes, our guidance is very similar, Jacob. In fact, I almost said that much in my opening remarks. We expect a very strong Q2 and we expect it to be higher than last year. But the more significant growth for AGI will be in the second half and it’s for a number of reasons, including timing of international sales, the timing of North American commercial projects. The wet weather has delayed both commercial and to an extent farm. Our farm sales were higher than prior year’s Q1, but they were negatively impacted by the weather. It could have been a bigger beat compared to Q1 than we reflected in our release this morning. So we do expect a good Q2. We expect a very good H2 as we messaged after our Q4 – in our Q4 release in March.

Okay. That’s helpful. Thank you.

Thank you. Your next question is from Damir Gunja from TD Securities. Please go ahead.

Thank you. Good morning. Just wanted to touch on – it sounds like with your Q2 outlook, it’s likely not a factor, but just wanted to get your take on the flooding in the Midwest and if there’s any incremental effect here heading into Q2, Q3?

Sure. There is an impact, it’s not significant to AGI. In some localized areas of the U.S., it is a significant issue for certain farmers and certain dealers. Those areas are near, are kind of the most significant stakes in our storage business, so we think there have been some delays in U.S. storage, not significant again in the overall scope of AGI. The portable equipment has not, from what we’ve seen, been impacted by wet weather or flooding. The sales and backlog are very robust.

Okay, appreciate that. And maybe just on Milltec, I realize it’s early days, sort of close, close, but wondering if there’s any sort of initial takeaways or incremental thoughts now that you have had the asset for a little bit here?

Just as I mentioned in opening comments, the more time we spend with Milltec, the team in India, the more impressed we are. We’ve got a great foundation there. We see multiple ways to grow the business organically and through additions to the platform in that region. So we’re very pleased with the – with where we are at with the business, to have that team on board and really excited about the future with Milltec.

Is geographic expansion sort of part of the story there potentially?

Yes, for the business, for sure. Organically as we move from sort of focus on Southern India to pan India and then into export markets for them, where we already have a presence, we’re already selling, and rice is an important grain in the broader region as well. So it completes the product catalog for us. In addition, the storage products we are already bringing to that market, to the rice market in those markets, so relative to product catalog, gives us a great foundation to build in that region.

Maybe just a final, more general one for me. Under your strategy, certain non-grain verticals, is there any – even just general color you can give us some sort of what the quote log looks like considering those new buckets of – or areas of business?

Yes, sure. Fertilizer is, we’re seeing some nice uptake now with the – certainly in North America, where most of our fertilizer platform is focused. The late spring had an impact on activity in that market, but with sort of moving through that and finally seeing spring coming, we’ve seen some uptick in activity. So that is translating into some of the build in backlogs we talked about moving into Q2 was coming from fert. Seeing a little bit of add in feed in different parts of North America, and then food platform, our Danmare, Improtech teams are doing phenomenal. They are adding and building the team to meet demand. Danmare is moving into a new office over the next few days, vastly expanded their space and their team, to keep up with demand and we’ll see that have an influence on the food platform build throughout the back half of 2019 and 2020. In 2020, we’ll see a nice inflection point in our food business.

Appreciate that. Thanks.

Thank you. Your next question is from Steve Hansen from Raymond James. Steve, please go ahead.

Yes. Good morning, guys. Just a couple quick ones here. First on the Canadian commercial side. We had a very nice tailwind here over the past year or so. Just curious if you could give some color on the backlog in quoting you’re seeing in that market? And what kind of longevity we should continue to expect from that cycle here? We still have another year left or because we are running into some tough comps, is it going to start to fade modestly in the next year? I’m trying to get a sense of that cadence.

Yes. the tough comps are there, that’s very true. There is additional bills coming in the Canadian commercial market, we’ve added to our backlog in the recent weeks and we expect that will continue well into 2020. So the comp – the beating year-over-year will be, I guess, more difficult in the Canadian commercial space due to the tough comps, but there is more business – more business to be had and we expect a couple of strong years ahead.

Okay, helpful. And maybe just on the digital solution side, if I could, you guys have put together a decent complementary set of assets that appears through IntelliFarms, CMC, I think you’ve even had some of your own internal developments over the past year or two. Maybe just give us a better sense of whether you still see that you need as part of that broader digital solution package, is there an area of focus that you still see as a gap, I guess, is what I’m asking or you feel like you’re good with your existing products up there?

Well, that would take – it can take a long time to answer that question. There are – there’s great opportunities as we look at different sensors, technologies that can continue to gather data, add more data to our system, so we – and then finding the right ways to present those to our customers, so they can use those in a very practical way to improve their operations. There’s a lot more work we can do to bring together the different parts of that, that we have today. So organically, we’ve got a lot of work ahead of us. There are additional sensors and technologies that we’re looking at, that we are considering that could be a meaningful part of that, but as with any CapEx or growth opportunity, we are looking at, number one, getting the components we have today working as best as we can and adding the most value and then look at priorities across what we can add organically or through acquisition. So there’s lots more opportunity in that space with the sort of what we have and what we do with it. So it also needs to be a practical approach. There is a lot of packet data in agriculture and the – our priority, our take is that it needs to be very user friendly, it needs to be in a formed and timing wise that adds real practical value to farmers or to the commercial customers. Whether that be data from their operations or means to automate their facilities, equipment or operations and not automation opportunity just on the farm and in commercial facilities, both on the input side and on post harvest side. So it remains a key part of our focus for opportunity going forward.

Okay, great. And just this last one quickly on the India side. How should we get comfortable with the risk profile there? It does strike me that the business you have acquired has got a good strong track record of growth and a good footprint and market position, but it’s all the nuances of India that are difficult to observe from a distance and so whether it’s the macro risk around the election cycle, the monsoons, new tariffs were added to tariffs again this year. How we think about all that or, I guess, how do you get comfortable with all that from over here given that’s a relatively foreign market? I’m just trying to understand how you manage that risk internally?

Yes. Hey, Steve, it’s Steve. So let me – again, it could be a pretty long answer. We went down to a very, kind of a perfect sized company for AGI in India. So just remember Milltec has been in business for 20 years. It’s a mature, well run, a deep management team, high EBITDA margin business. Importantly, they’ve been growing last several years. Through some two years of poor monsoons, Milltec was able to grow their sales in India because they were expanding from being a relatively regional company in the south of India to becoming a pan India company and furthermore are increasing their scope now outside of – more and more so outside of India, into the Southeast Asia and Africa. Being – with the growth profile they have, they are able to withstand some weather events and the geographic diversification also helps them withstand some weather events. Politics are politics in India and like they are anywhere else, but we don’t believe there is a significant risk to Milltec’s business with the upcoming election cycle.

Okay. Very helpful. Billy had suggested that it would be great to be able to meet the Milltec team at some point here if we get the opportunity. The rest of us on the call would also like that opportunity because it does strike to me that, they’re going to be really key to all of this in managing that down there for you. So at some point, it would be great to meet them. All right, thanks guys.

Sounds good.

Your next question is from David Newman from Desjardins. Please go ahead, David.

Good morning, gentlemen.

Good morning.

So, if you look at just buying patterns, trends, the volatility in the commodity markets and conflicts with China and sea intentions. At the margin, are you seeing any slippage in farm competence at all? And maybe just where do you stand right now with the dealer inventories?

Dealer inventories are fine.

They are a bit elevated, Steve, are they still the same status?

No, I wouldn’t say they are elevated. I would say they are where we would want to be this time of year. We had a good intake in Q1 and a very good backlog heading into Q2. I don’t believe farmer competence has eroded in the last several months. I think it is consistent to where it was in the back half of 2018. The guidance being, the Canadian farmer economics and the Canola issue with initiatives to the farmers in Canada, I don’t want to minimize the impact of it, but we don’t believe it’ll have a significant impact on AGI. The farmers will grow a crop and we are somewhat agnostic to the type of crop they grow in Canada. In the U.S., the farmer economics obviously are positive, however, as we have said consistently throughout the history of AGI, we’re a volume story and the farmers in the U.S. are expected to have another large plan and we expect another large crop in the U.S. So we are seeing it in the backlog of our portable equipment and we are seeing it in the quote log of our storage equipment.

Okay, and the other side of coin is to the positive is, obviously, I think when your customers call those the impact of African swine flu and how it might actually lead to a pickup in exports of pork out of the U.S. and then a knock-on sort of meal demand, you guys have any sense of that at all?

It is difficult to gauge, I guess, how much that might impact our near-term results. One of many things, the trade patterns, consumption patterns are always changing and that just emphasizes the need for our geographic diversification and being in all the markets that we are and we’re able to benefit from pros and cons of changes in those trade falls.

Okay, and last one for me guys, just on Brazil. Just to be clear. Were you EBITDA positive in the quarter or where were you?

Yes, we were EBITDA positive in Q1.

Just marginally or just like...

I mean, yes, sure, it was a marginal EBITDA positive result, and we were very pleased with though, I mean, I don’t want to minimize it. We had decent volumes. Importantly, our margins were well above where they had been in 2018. And it reflected the improvements we made on the plant floor and in our systems. Like Tim said earlier, our revenue in Q2 was not expected to be at the same levels of Q1; however, our backlog is very good. Our order intake has been very good in the last few weeks and we expect a nice result in the second half of 2019.

Okay, and are you – what remains to be added in terms of IP and Brazil? And any sort of early sense on the uptake on your financing program?

Well, we’ve added sort of a lot of IP recently. So, we’re pretty focused on getting those efficiently produced to be there.

Okay.

Going forward, there’s more opportunity from a fertilizer perspective for us to add additional products to Brazil. Some of the portable as well, but the focus right now is bringing together the components we have and doing it efficiently, productively, profitably. Financing program is going very well. It’s having a meaningful impact on our business there. We’re expanding it. We are rolling it out to in more ways driven by our sales team there that we have expanded recently, invested in recently, and then some digital tools, so some back to that theme, but we have payback calculators that we’re deploying across our sales team to demonstrate the profitability and payback of – the fundamentality of storing grain and marketing grain in different ways, taking benefit of that carry essentially, but that together with our financing options and program is having a real meaningful impact on the business there and part of growing those backlogs.

Great, guys. Thanks gentlemen.

Thank you. Your next question is from Anthony Linton from National Bank. Please go ahead.

Hey, good morning guys.

Good morning.

So just thinking about, I’ve seen a couple of big working capital draws in the past two quarters. I was just wondering how we could think about maybe working capital intensity moving forward?

Sure, yes. We expect the investment in working capital to be lower in Q2 and H2 of 2019 as compared to what you saw in Q1 and throughout most of 2018. Inventory levels are expected to decrease, and we saw that in certain divisions in Q1 even though it’s masked by the overall number, but in certain areas including Brazil, our inventory levels decreased and we expect that to continue in 2019.

Okay, maybe just – is that a – so is that a seasonality or is that due to the acquisitions or what’s kind of driving that?

Yes, well, there’s a lot of moving pieces to it in a business like ours as you might imagine. In Brazil in particular, we had a supplier issue in 2018 that required that we procure more steel than really needed late in the year and that is part of the reason why our balance at the end of 2018 was higher than probably it needed to be. And we’re drawing it down. And I guess, as a general statement, it is partially related to seasonality. We will – from a purely seasonal perspective, our inventory levels in Q2 would increase and come down in the second half of 2019 as farm warehouse items lower and our commercial business as we’ve – as we’ve messaged will be higher in the second half of 2019. So, it’s partially seasonal, it’s partially due to 10 different reasons that are related to procuring steel in 2018, be it – to get ahead of price increases, supplier issues in Brazil, et cetera. But we do expect it to decrease in the second half of 2019.

Okay, great. That’s great color. It was good to hear Brazil is a positive contributor in the quarter. Is that kind of how we should think about it moving forward? Or are we going to see a little bit of seasonality throughout 2019?

Right, well, I think I heard the message that obviously we’ve been trying to portray to the investment community over the last while is that things are getting better in Brazil, incrementally volumes are improving, our manufacturing processes are improving. It is still going to be – it’s not going to be a straight line anywhere, and as Tim mentioned earlier in this call, due to the timing of customer commitments, their delivery schedule, we don’t expect revenues in Q2 to be as high as Q1, which would lead to a lower EBITDA expectation in Q2. Having said that, as I mentioned a few minutes ago, our backlogs are very good, our order intake has been very good and we’re setting up quite well for a nice Q3. So over the longer term, you’re going to see that results from Brazil continue to improve, but we don’t want to message that each quarter is going to be higher than the previous one. There is going to be a bit of an up and down as we improve over the years.

Okay. Maybe just on the backlog. Just thinking about the margin profile there. Is it going to be similar to existing? Or is it going to – how should we think about that?

It will be similar to existing, yes.

Perfect.

I think that’s it from me. Thanks a lot.

Thank you. Your next question is a follow-up from Steve Hansen of Raymond James. Please go ahead.

Hey, Steve. You might be on mute, Steve.

Hello, can you hear me?

Yes.

Did you hear this?

Yes.

Oh, sorry. Just a follow-up quickly. I don’t know what happened there. Tim, in your prepared remarks, you mentioned that – I believe you mentioned that you, some of the results or some of the tools you had developed to help these new regional solutions teams had eaten into margins thus far, but we should start to see some sort of benefit in the second half. Can you just help us through that a little bit? Do you recall in the third quarter report last year, you talked about some increased sales and marketing expenses, but I am not too sure that’s related to the same thing you’re referring to or not. Maybe just a little color there on how that should flow through the back half?

Yes, it’s in fact the – so the best example there is product configurator. So a fairly complex systems that were – that do take a fairly – a relatively large investment upfront to build out – to in order to – so that we can deliver our products more efficiently with higher quality and more consistency to our customers. So it’s taking time out of the quoting process for us. Really to put it simply, it automates the configuration, sort of engineer to order project, bringing together different components of that project and system much faster, which lowers cost, increases consistency, reliability and quality.

I see, so those investments are paying off now, then is that the idea and you got the tools in place to help the teams and you don’t anticipate further recurring expenses in magnitude?

Yes, they never go away, but they are lumpier upfront, and we’re moving through that part of the process and then we expect it’s either long dated in terms of getting the inputs correct, the structure of those tools right, and then – but those tools are going live now, so now we expect to see the impact of those across our business.

I see. So just to be clear it’s going to be a sales benefit, but a slight margin benefit as well, I guess, on EBITDA although not so much gross to margin, but we should see some EBITDA benefit from that as well on the margin side?

That’s a good way to think of it, yes.

Okay, very good. Thanks guys.

At this time, we have no further questions. You may proceed.

Okay, we will wrap it up there. Thank you very much and looking forward to our AGM and seeing some of you there. Take care, I look forward to talking in the next quarter.

Ladies and gentlemen, this concludes today’s conference call. We thank you for participating, and we ask that you please disconnect your lines.