Good morning ladies and gentlemen and welcome to the Ag Growth International Inc. 2021 Second Quarter Results Conference Call. At this time, all lines are in a listen-mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Note that this call is being recorded on Thursday, August 12, 2021. I would now like to turn the conference over to Tim Close, President and CEO. Please go ahead.

Good morning. Thank you for joining Jim Rudyk and I to discuss our second quarter results and the outlook for the balance of 2021. I will make a few remarks on highlights from the quarter then hand the call over to Jim for a more detailed recap of our second quarter and then open the call for questions. Our strong second quarter was anchored by exceptional results in our Canadian and US farm markets, in addition to meaningful contributions from Brazil, India, and our food platform. The second quarter and our outlook going forward are key indicators of the resilience of our diversified business model, which has moved into a sustainable growth bone from our build out and investment phase. Consolidated backlogs are up to 69% year-over-year, providing solid momentum from the first half of 2021 going to the second half of the year, and then into 2022. After years of careful planning, research, investment, product development and building customer relationships AGI Brazil is rapidly gaining market share and scaling operations. Q2 sales were up 180% year-over-year or up 230% in local currency, our record quarter in Brazil. Our Brazilian business has clearly hit an inflection point, becoming a positive contributor to overall AGI results, as well as a significant player in this large growing and strategically important market. Backlogs in our Brazilian business are up 112% including notable strength in the farm segment. We expect continued growth in Brazil into the second half of 2021 and into 2022. As COVID in supply chain related issues ease our outlook for continued growth in margins in Brazil are also reinforced. The broader LATAM market also reported very strong Q2 results of 65% year-over-year. Our operations in India posted strong results in Q2 with sales up 32% or up 40% in local currency. A very strong result in what is seasonally the slowest quarter for this business. India is the second largest producer, second largest consumer and the largest exporter of rice in the world. Demand for high quality equipment and solutions remain strong. Backlogs in India are up 45% and sit at a record high underpinning our robust outlook for second half results in this market. Progress has also continued on setting up a local grain bid manufacturing line to further expand our offerings and business in Indian. Food platform sales were up 49% in the second quarter, as food manufacturers continue to actively and aggressively invest in new equipment and facility upgrades. The US market led the way with sales up 92% as the benefits of strong strategic relationships supporting this growth. In EMEA food platform sales were up 66% with increasing share of wallet from existing customers augmented through adding additional new customers. Our food platform backlog is now up 175% year-over-year. The US market is again leading the way with an increase of 380% a solid contribution across both the food and beverage end markets. Our international food platform backlog are now up 56% with significant activity in our European business. We expect the food platform to be an area of ongoing strength with pent up demand for customers who have had somewhat reduced opportunities to move projects ahead, given COVID related restrictions. Our farm segment anchored the quarter with sales up 17% year-over-year, benefiting from strong contributions from Canada, the US and Brazil. Double digit volume growth is complemented by high single digit price increases partially offset by a significant FX impact. Portable products expensed a strong first half performance and demand remains robust across US and Canada. Farm systems also have a strong first half with significant strength in the US and international markets, particularly in Brazil. Further integration and bundling of our AGI SureTrack solutions into our farm systems offerings, such as our AGI smart bin initiative is adding to demand and supporting this growth. Looking forward, we expect continued strong results from the farm segment. Backlogs remain very healthy. Us outlook is favorable and activity in Brazil is accelerating. We expect the farm segment to finish well ahead of prior year based on its well-diversified global business portfolio, and strong pricing programs implemented across the first half of the year. Commercial platform sales were up 7% in the quarter, the softness in Canada offset by double digit growth in the US, APAC and South America. This growth was achieved despite some areas experiencing significant delays in steel availability, which led to revenue recognition being deferred to the future quarters for some projects. Our commercial platform backlog is up 41% year-over-year with notable strength in the US up 37% as well as international up 53%. EMEA has had strong sales intake and the dip versus a strong comparable in 2020 is timing limited where we're broke to solid road heading into the remainder of the year. As expected, our Canadian commercial platform sales were soft in Q2 down 47% with both grain and fertilizer sectors coming up peak prior activities. Our backlogs are down 20% year-over-year in the segment. We note that it sits - current backlog sits at its highest dollar amounts so far this year. We still expect to pick up in activity in the second half of 2021 and began seeing increased courting activity. Turning to our technology segment, our sales were up 58% of the quarter on an as reported basis. On a retail equivalent basis, sales of 7.8 million were down 9% year-over-year. Regardless, this is a strong performance across the board. The slight decline relative to last year on a retail basis was expected given the change in our sales programs. Technology segment adjusted EBITDA was negative 1.9 million in the quarter given the expansion of the team to facilitate continued growth and the ongoing integration of our mobile removing the negative impact of 1.5 million related to Farmobile the segment was close to breakeven on an EBITDA basis. We made significant progress in the quarter to help position that technology segment for rapid growth. During the quarter we achieved substantial procurement, supply chain achievements. We completed additional production automation projects, and had strong results in onboarding additional SureTrack dealers. In the quarter we also completed the acquisition of Farmobile. Farmobile brings market leading technology, which has accelerated AGIs participation in carbon and sustainability initiatives. Farmobile's ability to automatically collect significant amounts of agronomic and machine data in an easy to use interoperable format has made the company a key participant in numerous carbon sustainability programs where reliable and verifiable data is essential. These programs include participation in industry group initiatives, as well as direct programs with individual corporations. The objectives of these programs are diverse and range from data collection within carbon markets, participation in sustainability sourcing projects, yield assessment and GHG measurement. Farmobile Co-Founder Jason Tatge was announced as the new leader of AGI SureTrack in the quarter. Jason has an ideal background to grow the business and accelerate our technology development. We continue to forecast substantial growth over 2020 in our SureTrack business for the full year, with a robust second half expected. A few updates on items relevant to the grain bin incident from last fall. Work has begun at one of the two customer sites and is expected to be completed by the fall of this year. The second customer has decided to remediate themselves and with other suppliers. Based on remediation work completed so far, we have recorded an additional 7.5 million to the previously disclosed 70 million accrual. This increase is primarily the result of additional engineering, steel and labor costs required to ensure a satisfactory product solution as well as additional legal costs. To date, we have spent approximately 25 million of the accrual. We've also recently received two legal claims related to the big clumps. We are in the process of assessing these claims. We are confident that we have a number of legal and contractual defenses and AGI will fully defend our legal position. And as previously stated, we continue to expect that insurance proceeds will partially offset the costs related to the incident. We're closely monitoring the dry conditions across the US and Canada. However, the bulk of the US grain drought has received adequate repo and current USDA projections are calling for an increase in US corn and soybean production. The situation is more acute in Canada with severe drought across much of the prairies. However, the strong early season ordering activity has helped offset some of the impact of the drought in Canada. And we will carefully monitor the situation going forward. As discussed on our last call, steel price and steel availability was a key focus across AGI. In the second quarter, we were able to effectively manage the situation and mitigate the impact of steel positions taken in prior quarters and through price increases. Q2 was a strong quarter in a difficult environment with outstanding work from our global teams as they manage the difficult supply chain environment, producing exceptional financial results across the first half of the year and setting us up for a strong close to the year with a robust backlog. The high backlogs are a combination of input related price increases as well as strong volume growth. In addition, much of the growth in Brazil, EMEA, India, US farm and technology as well as our food platform are fundamental market share gains. It is also great to see the benefits of global growth, which has mitigated the impact of regional drought conditions and would have had a much more pronounced impact on AGI in prior years, highlighting just how much stronger AGI is today. I will now turn the call over to Jim for a review the quarter and further discussion of our 2021 outlook.

Thanks, Tim and hello, everyone. For today's earnings call, I'd like to cover three topics. First, I'll provide a brief overview of our financial results. Second, I'll discuss our balance sheet. And finally, I'll provide an update on our outlook for the coming quarters and 2021 overall. Our second quarter results continued the momentum from a strong first quarter. Trade sales of 302 million were up 15% from 261 million year-over-year. Broad based strength across our farm segment, as well as our commercial and food platforms helped to offset a few isolated pockets of softness, notably the commercial platform in Canada and EMEA. Adjusted EBITDA of 46.2 million was up 5% from 44.1 million year-over-year. Adjusted EBITDA margins of 15.3% were down 160 basis points from 16.9% year-over-year. As anticipated steel price and input cost inflation had an impact on gross margins, which decreased 230 basis points to 29.9% in the quarter, though steel positions taken in prior quarters, and our ability to pass along costs helped alleviate some of the cost pressure. Along with SG&A discipline, decreasing 50 basis points to 16.0% of trade sales as compared to Q2 2020, we were able to minimize the pressure on adjusted EBITDA margins in a tough supply chain and operating environment. Farm segment adjusted EBITDA margins increased from 23.5% to 25.3%, as product mix, sales volume, a disciplined effort on cost containment, pricing action, as well as scaling off of a relatively flat SG&A base for the segment all combined to drive the strong result for the quarter. Commercial segment adjusted EBITDA margins decreased from 13.3% to 9.4% as input cost inflation pressured segment margins in both the commercial and food platforms, though this was also partially offset by scaling off of a relatively flat SG&A base for the segment. As Tim mentioned in his comments, the technology segment posted adjusted EBITDA of negative 1.9 million in the quarter, though by removing the negative 1.5 million impact of Farmobile, adjusted EBITDA of negative 0.4 million is close to breakeven now. Overall, our second quarter results demonstrate a highly resilient result amid challenging operating conditions. Moving on to our balance sheet, in the second quarter, we continue to closely manage our senior debt to EBITDA ratio, which now sits at 2.8 times versus 2.4 times at the end of Q1 2021 and versus 3.0 times at the end of Q2 2020. The sequential increase in the ratio is largely the result of an increase in working capital and investment related activities. The working capital increase was due to steel price, sales mix, and a reduction in our warranty provisions as remediation work continued in the quarter. Investment related spending is primarily related to the acquisition of Farmobile and our ongoing CapEx requirements. Excluding our 150 million accordion, we have over 129 million in available undrawn credit facilities, and approximately 55 million of cash on hand. While we closely monitor our liquidity position, we do not have any bank covenant concerns. A disciplined capital management approach in combination with our strong results, and growing EBITDA will naturally reduce our leverage ratios over the coming quarters and years. And finally, a recap of our outlook, supported by a strong backlog up 69% year-over-year, we anticipate robust trade sales growth throughout 2021, with particular strength in Q4 2021, trade sales. And we continue to expect full year trade sales and adjusted EBITDA to be strong and above fiscal year 2020 levels. Thank you very much for your time. And with that, we will turn it back to the operator to take any questions.

Thank you, sir. [Operator Instructions] And your first question will be from Jacob Bout at CIBC. Please go ahead.

Good morning.

Good morning Jacob.

Backlog continues to be strong. But in the MD&A, you mentioned that there has been some pre-buy ahead of steel price increases. Can you - are you able to quantify what that pre-buy actually looks like? And then maybe also provide how many months of work is there in backlog? How should we think about that?

Yeah. Hey, good morning, Jacob. For the pre-buy we had a bigger impact in the growth of that backlog in Q2. And now it's actually - it's leveled off and been quite sustainable over the last few months, given strong intake really across the board around the world. And that lack of an impact as we go into three and four. In terms of time of backlog, I mean, that takes us - we've got a pretty significant amount of the remainder of the year in backlog, so you're up three, four or five months and we are in some markets, some segments booking into 2022 in probably a little bit more than we would have been prior years.

Sure. And then the 190 million lawsuit, A; was that a bit of a surprise and B; how does that square with your 77.5 million accrual?

Yeah, look, we did expect to see some of this activity out of the incident and our accrual, we spent a lot of time on in the details of facts and working with our advisors, legal and otherwise. And so that represents our expected costs associated with the incident. We can't generally comment on other clients.

Okay, fair enough. All right, I'll leave it there. Thank you.

Thank you. Next question will be from David Newman at Desjardins. Please go ahead.

Good morning, guys.

Good morning.

Solid impressive results here and the backlog was very impressive, so looks like you're gaining momentum. Just want to understand the steel dynamic a little bit better because I was - the one thing that kind of came out when I read the filings is that seems like commercial was a bit of a - bit of an area where it was impacting, whereas in farm it seemed to be you're getting the pricing. So is there a lagged impact this has been pushed out because your inventory positions may have buffered you to certain degree and why commercial more so than farm and is it related to supply chain hiccups and things like that?

Yeah. Hi, David. Couple of things here, as you saw our margins in the farm segment, gross margins were actually strong, stronger than last year. We do expect some margin pressure in farm despite very, very strong sales and our ability to maintain costs in other areas. But that is the area where some of our pre-buy of steel, we still saw some benefit of the purchasing activity we did earlier in the year to help offset some of the cost. Remember, in the farm segment, part of that business, we operate from a catalogue where we're able to raise prices. And we did so numerous times in advance of the steel, as a reaction to the steel cost increases, and so we're able to benefit from buying some steel earlier. And the timing of when the price case increases went in we were able to offset some of the increased quite nicely. That and also just higher volume in the farm business helps us more throughput of volume in our business, more efficiencies we gain, which naturally help our gross margins as well. However, the commercial business, I think we talked about this in previous quarters. But we typically when we quote business, we would hold - historically we would hold quotes open for up to 30 days, we reacted in the environment of rising steel costs to cut that timeline significantly. Now we're at the stage where we quote an opportunity, they're only valid for seven days. And so there still were some projects, that big projects that take some time to move from quote stage to actual production that went through Q2 that impacted us on a margin perspective where the quote was valid. And when we bought the steel, steel costs were higher than what the pro was. And so we've adjusted for that process, in our bidding for big projects in two ways. One, we've reduced the window that the quotes are valid for. But secondly, we're introducing more and more clauses that allow us to revisit the price if the cost of the inputs primarily steel vary by more than a certain percentage.

Got it, very helpful and if you look at the backlog, which is very, very impressive, offset by maybe the lagging impact of some of the steel, as you kind of work through your inventory of steel, and you're facing I guess more of the curve. Are you as confident in the guidance that you gave us in 1Q of being much higher, stronger than last year as you are today? In other words is the backlog and the top line going to lift it despite some margin pressure in terms of dollars such that you're kind of in the same zone?

Yeah, so good question. Couple of points to make on that. So when we look at this year, given where we're at in the year, the backlog that we have available, we feel very, very good about the year. We actually are starting to see a lot of opportunities that take us through into early next year as well, which is very strong, continue to be strong. However, we do have impacts from steel that everyone has their supply chain challenges. Last quarter we guided that it will put some pressure on margins in Q2 and Q3 we saw that in Q2 with our EBITDA margin down slightly. We will see a bit of that in Q3. However, we see a very good rebound in Q4 from a margin perspective. But overall, in terms of our business, if I look at the range of estimates that are out there, we feel very good and feel good actually about the high end of the range, even with and this is important even with the challenges we have with the supply chain. If you look at our results too where we're working with a third party in our technology business, we will incur significant cost there that we do not normalize out. We've got FX pressures that we deal with that Q2 we're more pronounced than we expect for the rest of the year, but still a headwind. So even with all of the - and the acquisition of Farmobile which initially is a bit of a negative move on our EBITDA. But even with all that, we still think we'll be - we're confident with the guidance and more so on the high end of the guidance.

Excellent and last one for me, I just overall on the Food and Commercial backlogs overall. How much of this do you think is a function of not just the reopening trade and normalization but also maybe a change in consumer, maybe I'll save pet behavior or people buying pets? And how much is supply chain investment. And two, after this whole incident or last 18 months of COVID that food supply chains are critical and governments need to invest in infrastructure. How much of those? Is that all playing into kind of these rising backlogs in commercial and food?

Yeah, so it's a good comment David. That's definitely a factor. We will see - had seen - or they're just with of your points, there is a bit of a pickup in projects post-COVID. I don't know if that's - I think I characterize it in words that have resumption of prior activity. And then there's a food security, there's a supply chain redundancy, aspect or expansion do account for similar sort of disruptions going forward. I think that's more prominent and more top of mind than maybe it had been in the past. And if you look at our fundamental growth around the world, maybe in Zambia, in Italy, out of Italy, and India, in Brazil, and food and tack and US farm, that's fundamental market share growth, so we're gaining share, while a lot of those are also very, very high growth markets in and out of themselves. So it's a little bit of everything, but certainly the factors you highlighted are coming up a little bit more active.

Excellent. Thanks, guys.

Thanks, David.

Thank you. Next question will be from Steve Hansen at Raymond James. Please go ahead.

Yeah, good morning, guys. Just a couple if I may, just on the lawsuit quickly. I know you can't comment too much. But is there - are there any milestones around timing we should expect? Or just how long do you think these types of situations will take to resolve, is it six months, two years and is kind of under?

It is expected to take some time. These are complex issues in clients obviously we expect it'll take years.

Okay, understood. And then just circling back now on the demand environment, particularly in Brazil, to start. You described some really great growth down there, Tim, taking market share. In a market like that, where they don't have the severe drought type issues we're facing down there. How are those customers reacting to steel price environment? Is the backlog or the order flow continuing down there, that we're continuing to see momentum? I think you described that. I'm just trying to understand the demand side impact of steel, relative to some of the crop dynamics.

Demand is very strong in Brazil and steel dynamics have been more extreme than most - or many parts of the rest of the world. All of a sudden in some cases, if you've got a steel that's the real deciding factor on who gets the project. So it's an area that our team is extremely focused on, we've been aggressive acquiring and supporting our inventory positions on steel, but demand is very strong.

Okay, that's good to hear. How should we think about then the balance of margins? I think Jim you described earlier, Q3 is going to see some sustained pressure to some degree, fourth quarter we should get a rebound of some magnitude. Is the recovery that you expect in Q4 going to get us back to where were before, I mean the steel price does seem like it's really big as I understand the back half dynamics would be better.

You mean from a margin perspective, Steve or from an operating [ph] dollars?

No. from a margin perspective. Yeah.

Yeah, that's what we expect to see some stabilization, but when I mean stabilization, parity between the pricing and the input costs. You have some variability as you've got timing issues, but we see that coming together in Q4. And then as steel as steel eventually adjust to whatever a normalized steel cost will be. We will see more normalization back to expected continued improvement in our gross margins because of all the investments we've made over the years. We're starting to see some nice efficiencies as we scale, our diversification approach that we've gone through the past several years. You're seeing the benefits right now. I mean, arguably, the number of headwinds with COVID, the steel, the FX, people talk about the drought in North America, all of those things aside, and we're producing continued strong growing results in those types of environments. Just really, I think is a strong restatement of the benefits of being diversified and being able to capitalize on different parts of the world and different regions of the world.

That's great. It just may be a housekeeping type item. But on the FX sensitivity, we have seen some relief in the dollar here recently down to close to $0.80, but is there sensitivity we should think about from an EBITDA standpoint, or I'm not sure how to think about it exactly.

It's still a headwind versus prior year, but yeah, it's nice to see some relief, for sure, at least from a Canadian perspective, Canadian dollar perspective and so - but it's still down versus the prior year.

Okay, great guys. Thank you.

Thank you. [Operator Instructions] And your next question will be from Andrew Wong at RBC. Please go ahead.

Hey, good morning. Just one asked on the tech segment, it sounds like some of the changes you're implementing there are almost employee. Can you talk about what the feedback has been from the customer side following some of those changes and how we should think about the sales growth trajectory over the next six or 12 months? Thanks.

Yeah. Good morning Wong. Well, we do expect a really solid, robust second half of the year in technology. So we spent a lot of time onboarding dealers, new dealers, for SureTrack or AGI and other OEM equipment dealers and that's been very successful. We continue to add more. And we continue to spend a lot of time in training those dealers to get them up to speed on selling, what is a very different product line versus the equipment side and how to successfully incorporate and bundle the technology with the equipment. And so we expect that to continue to gain momentum and add to our growth rates and the technology really on a on a weekly basis, but that'll build and produce a more scalable distribution network for us to channel for us in the dealer side. But we're likewise spending a lot of time in building out our other channels which are going to strategic customers both grain traders, food processors who purchase directly are looking for supply chain visibility. And we're spending more time with ag retail, really excited to have a lot of momentum, traction, and retail, as we look at their fleets opening or fleets with Farmobile equipment and to gain visibility into the operation of their fleets and the really strong ROI that that has for those retailers. We're spending time on our direct model as well, a direct and digital model. So you have these four different channels for us coming online in more and more - with more and more activity and volume and so that we expect to carry us through into next year, as well and continue to see really strong year-over-year growth in the technology sector.

Okay, great. That's a lot of really good detail there. I just wanted to ask kind of a follow up on legal claims. And I know you can't really say very much. I guess one of the things I wanted to ask is the original sales for the bins are roughly $20 million, the provisions are roughly $70 million, how are the legal claims as much as in excess of $190 million? If you can just - if there's anything you can say about that that'd be helpful. Thanks.

Yeah, look, I guess we are saying quite a bit in our group. So just to circle back to this, our accrual is our assessment of our obligations and our costs associated with this in this incident.

Okay, understood.

Did you have any further questions Mr. Wong?

No, thank you very much.

Thank you. Next question will be from Tim Monachello at ATB. Please go ahead.

Thanks for taking my questions. First one just on backlog, can you give some details on sort of a quarter-over-quarter comparison just because the sort of year-over-year I guess is getting a little bit muddied by steel price inflation?

Yeah, so quarter-over-quarter the backlog actually grew. It continues to be very strong and strong across all areas of the business. So, really, really strand - and the growth in the backlog, as Tim talked about - alluded to in his comments, introductory comments, you definitely have some benefit of the price is increasing. But you also see strong volume growth as well, in terms of the commercial side more projects, including the food platform, which is just on fire; internationally, very strong opportunities and items in the backlog as well.

Okay, if you were to look at the backlog on a margin contribution basis, would that also be at record levels?

The backlog in terms of - sorry, say that, again?

Like, if you were to strip out the margin within the backlog, adjusting for cost pass throughs and things like that, would that also be at record levels?

Yeah, so we see our - we look forward on the margin profile, so we do see some pressure as some of that backlog flushes through in Q3 on the margin. But coming back nicely in Q4, and then going forward are fully adjusted.

Okay. Second question here, just on the on the commentary around what you expect from margins, in terms of steel cost inflation, and that sort of rebounding in Q4. What gives you confidence in that read out, when you look at the steel price and it's kind of like on a stairway to heaven doesn't seem like it's ever going to start coming down. So what gives you confidence that you'll see some margin pressure alleviation in the fourth quarter?

Yeah, a couple, primarily, just the backlog, those are orders that we're fulfilling. And then we've got visibility as to when they're shipping. And so we know what the margins will be for those because we've procured steel for those orders in most of the cases. And so we have - and, you got that coupled with the cost containment initiatives that are going around in our business, you see SG&A scaling nicely. And then from a gross margin perspective, as I mentioned earlier, you've got a lot more volume being pulled through our facilities, which can handle more volume, much more volume. And so you get more efficiencies there, which help offset some of the pressure on the margins that the input cost have.

Okay, got it. And the margin in the second quarter seem to outperform what consensus is looking for? Has your view changed on the level of margin degradation that you're expecting to the back half of the year?

Well, yeah, we we're able to mitigate more than we thought in this quarter. I'd say that that holds the remainder of the year. We've done a lot of work around mitigating that supply chain pressure. So as Jim said, we feel pretty good about the remainder of the year and based on really strong backlogs to carry us through that period.

Okay. And then just wondering on the contingency for the civil legal issues there, one of the lawsuits was received after the end of the quarter and the contingency, I believe was, at the end of the quarter, is there a chance that contingency increases based on the lawsuit that was received after the quarter?

No, our assessment was inclusive of all of those facts.

Okay, great. Appreciate it. Turn it back.

Thank you. And at this time, gentlemen, we have no further questions. Please proceed.

Okay, fantastic. Thanks for your time this morning. We'll end the call there.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.