AG GROWTH INTERNATIONAL INC. 
[thousands of dollars except per share amounts] | Three-months Ended | Nine-months Ended | |||
2020 $ | 2019 $ | 2020 $ | 2019 $ | ||
Trade sales [1][2] | 282,450 | 261,134 | 772,745 | 770,344 | |
Adjusted EBITDA [1][3] | 51,769 | 39,091 | 121,513 | 121,083 | |
Profit (loss) | (12,261) | (2,819) | (46,633) | 22,919 | |
Diluted profit (loss) per share | (0.66) | (0.15) | (2.49) | 1.21 | |
Adjusted profit [1] | 32,276 | 17,542 | 51,522 | 42,739 | |
Diluted adjusted profit per share [1][4] | 1.62 | 0.91 | 2.70 | 2.26 | |
[1] | See "Non-IFRS Measures". |
[2] | See "OPERATING RESULTS – |
[3] | See "OPERATING RESULTS – EBITDA and Adjusted EBITDA" in our MD&A. |
[4] | See "Diluted profit (loss) per share and diluted adjusted profit per share". |
Continued robust performance in
"Q3 2020 was a record third quarter for AGI in terms of both sales and adjusted EBITDA with broad-based and robust performance across all platforms except for NA Commercial, which has been hardest hit with COVID challenges.", said
"We have taken a significant accrual in the quarter due to an incident that occurred at a customer's Commercial facility, as previously disclosed in
"While AGI has accrued
"We are committed to supporting our customers to ensure we mitigate the impact of the incident and strengthen our business as result of this experience."
Gross margin grew in the quarter to 33.7%, an increase of 240 basis points ('bps') over Q3 2019. The strong results in Q3 also delivered a 70 bps gain in gross margin on a YTD basis as compared to
WARRANTY ACCRUAL
Insurance Coverage Expected to Partially Offset Accrual Charge
The Company has taken a
While AGI has accrued
The investigation of the Incident is ongoing and if the investigation determines that AGI contributed to or caused the Incident, the Company will take responsibility for its actions and the related remediation. The safety and security of our customers and products is our top priority and AGI has responded with a thorough analysis of the relevant processes, procedures, people and products.
Unrelated Rework Costs and Accruals
This Incident accrual is in addition to the
The Incident and the Rework are Isolated
AGI manufactures thousands of bins each year. The Company is involved in hundreds of projects each year, supplying a variety of equipment solutions to customers around the world. The AGI engineering team has access to the world's top resources and significant experience designing and providing leading products in our industry.
The Incident and the Rework are isolated and discrete. AGI will manage, mitigate, learn and grow from addressing these two issues, irrespective of the results of the ongoing investigation. Quality control has and will continue to be of paramount importance for AGI.
AGI follows industry leading and all applicable engineering, building, safety codes and standards, and regularly reviews its internal design and manufacturing processes to maintain optimal product quality. Despite our robust talent and procedures across AGI, we will go further to ensure the root causes involved are addressed.
Important Context for Hopper Design and Installation
Over the past three years, and in response to market demand, AGI developed the Hopper as an extension of our storage product line. These Hoppers are used to increase throughput capacity and minimize clean out time to increase productivity of a commercial facility.
Similar to any new product line, AGI carefully considered and developed the Hopper based on extensive analysis from our engineering teams. AGI's design and engineering teams utilized their decades of experience and considered all applicable code and standards in developing the Hopper.
The Hopper was first sold to a customer for use in a frac sand operation, a niche application. This customer purchased two Hoppers. AGI was not retained to construct and install the Hoppers. Rather, the Hoppers were constructed and installed by an independent third party. One of these two Hoppers failed during start-up of the facility. An investigation was commenced immediately and is currently ongoing. This failure prompted AGI to conduct additional and robust reviews of the Hopper design. While the cause of the failure has not yet been identified, AGI's review indicates that there were clear indications of improper construction and installation of the Hopper at this facility that led to or contributed to this failure.
Subsequent to the additional review and design work, AGI sold 35 Hoppers to two different customers constructing grain storage projects. On
There are a total of 15 Hoppers on the site of the Incident and 20 Hoppers on the second site. The second site has yet to be commissioned. The site with the Incident is still being cleaned up to enable a proper investigation.
OUTLOOK
Farm
Year-over-year increases in planted acreage and generally favourable weather contributed to strong crop volumes across North America. A relatively early harvest further underpinned strong momentum in Farm results in the quarter. Demand was broad based across regions and products driven by positive dynamics and has led to relatively lower inventory levels across our dealers and stocking points. The backlog for Farm sales at the end of the third quarter is down 11% year-over- year ('YOY'), however, the majority of this decrease is due to a positive reduction in our AGI SureTrack backlog, a business with distinctly different fundamentals. We have increased automation and inventory at SureTrack to substantially reduce lead times for customers. Our annual early order programs that launched across Farm products in September are expected to be positive as dealers replenish inventory in preparation for 2021 and consequently management anticipates Farm Sales to be slightly higher than 2019 levels in Q4 and positioning us well for H1 2021.
COVID-19 has had a substantial impact on project activity, quoting, project development and project progression across North America. We expect a rebound in Commercial activity post COVID-19 as customers move to address mandatory maintenance, facility automation, capacity expansion, and loading efficiencies.
In
In
Overall, we expect lower sales in North American Commercial as we head into our seasonally slower fourth quarter and see the ongoing impact of COVID-19 on this segment. Management expects a slow rebound in North American Commercial activity going into 2021.
International
The International group continued to demonstrate strength and resiliency in light of the headwinds created by the COVID-19 crisis. Our International sales grew 10% over Q3 2019 and overall international sales increased 16% YTD over 2019. Quoting activity is rebounding across all regions leading to an increase in order intake post Q3 resulting in solid backlogs that are equal to a strong 2019 comparative.
In
Momentum remains strong in
Our platform in EMEA contributed a strong Q3 with sales increasing 15% YOY and this region posted margin improvement driven by our recent investments in automation and successful product launches. Despite the aforementioned COVID-19 challenges and strong YTD sales, our backlogs are equal to the prior year with positive order intake. Pipeline activity is rebounding as customers resume capital projects across the region. Management expects results to be above prior year in Q4 and backlog to grow through the end of the year positioning us well for 2021.
Technology
AGI SureTrack continues to grow significantly with retail equivalent sales increasing 42% in Q3 YOY against a robust comparative in 2019. From an earnings perspective, if we normalized for a retail equivalent sales method as opposed to the current hardware as a service subscription model, SureTrack (inclusive of Affinity) would have represented a positive EBITDA despite significant continued investments, including expansion of the sales team, engineering, software developers, product management and facilities. Our move to our new facility in
Summary
Management is very pleased with how resilient AGI has been through the challenges that COVID-19 has presented. AGI's 5-6-7 strategy to provide system solutions across five platforms, 6 continents, and across 7 components has led to the diversification in terms of products, geographies, and customers which has proven valuable during these uncertain times.
Based on existing conditions, management anticipates adjusted EBITDA for 2020 to approximate 2019 results and continued momentum going into 2021.
Diluted profit (loss) per share and diluted adjusted profit per share
The Company's diluted profit (loss) per share for the three and nine-month periods ended
[thousands of dollars except per share amounts] | Three-months Ended | Nine-months Ended | |||
2020 $ | 2019 $ | 2020 $ | 2019 $ | ||
Profit (loss) | (12,261) | (2,819) | (46,633) | 22,919 | |
Diluted profit (loss) per share | (0.66) | (0.15) | (2.49) | 1.21 | |
Loss (gain) on foreign exchange | (5,333) | 4,006 | 10,663 | (2,413) | |
Fair value of inventory from acquisition [2] | - | 522 | - | 1,742 | |
M&A expenses (recovery) | 75 | (18) | 1,346 | 3,046 | |
Other transaction and transitional costs [3] | 3,927 | 301 | 11,077 | 6,427 | |
Loss (gain) on financial instruments | (290) | 7,592 | 16,477 | 3,060 | |
Loss (gain) on sale of PP&E | (10) | 124 | 119 | 124 | |
Gain on settlement of leases | (3) | - | (5) | - | |
Equipment rework [4] | 40,000 | 7,000 | 50,000 | 7,000 | |
Share of associate's net loss | 1,060 | 788 | 3,367 | 788 | |
Impairment [5] | 5,111 | 46 | 5,111 | 46 | |
Adjusted profit [1] | 32,276 | 17,542 | 51,522 | 42,739 | |
Diluted adjusted profit per share [1] | 1.62 | 0.91 | 2.70 | 2.26 | |
[1] | See "Non-IFRS Measures". |
[2] | Non-cash expenses related to the sale of inventory that acquisition accounting required be recorded at a value higher than manufacturing cost. |
[3] | Includes restructuring and other acquisition related transition costs, as well as the accretion and other movement in contingent consideration and amounts due to vendors. |
[4] | To record the pre-tax charge for the estimated cost of rework including additional time, material and services. |
[5] | See "DETAILED OPERATING RESULTS - Impairment Charge" in our MD&A. |
MD&A and Financial Statements
AGI's financial statements and management's discussion and analysis (the "MD&A") for the three and nine-months ended
Conference Call
Management will hold a conference call on
Company Profile
AGI is a leading provider of equipment solutions for agriculture bulk commodities including seed, fertilizer, grain, feed and food processing systems. AGI has manufacturing facilities in
Further information can be found in the disclosure documents filed by AGI with the securities regulatory authorities, available at www.sedar.com and on AGI's website www.aggrowth.com.
NON-IFRS MEASURES
In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with International Financial Reporting Standards ("IFRS") with a number of non-IFRS financial measures including "trade sales", "EBITDA", "Adjusted EBITDA", "gross margin", "funds from operations", "payout ratio", "adjusted profit", and "diluted adjusted profit per share". A non-IFRS financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes [includes] amounts, or is subject to adjustments that have the effect of excluding [including] amounts, that are included [excluded] in the most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business.
In this press release, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable, and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in our MD&A.
Management believes that the Company's financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. These measurements are non-IFRS measurements. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.
References to "EBITDA" are to profit before income taxes, finance costs, depreciation, amortization and share of associate's net loss. References to "adjusted EBITDA" are to EBITDA before the gain or loss on foreign exchange, non-cash share based compensation expenses, gain or loss on financial instruments, M&A expenses, other transaction and transitional costs, gain or loss on the sale of property, plant & equipment, gain on settlement of leases, equipment rework costs, fair value of inventory from acquisitions and non-cash asset impairment charge. Management believes that, in addition to profit or loss, EBITDA and adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Management cautions investors that EBITDA and adjusted EBITDA should not replace profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. See "Operating Results –EBITDA and Adjusted EBITDA" in our MD&A for the reconciliation of EBITDA and Adjusted EBITDA to profit before income taxes.
References to "trade sales" are to sales net of the gain or loss on foreign exchange. Management cautions investors that trade sales should not replace sales as an indicator of performance. See "Operating Results -
References to "gross margin" are to trade sales less cost of inventories, and thereby exclude depreciation, amortization, fair value of inventory from acquisitions and equipment rework from cost of sales. Management believes that gross margin provides a useful supplemental measure in evaluating its performance. See "Operating Results – Gross Margin" in our MD&A for the calculation of gross margin.
References to "funds from operations" are to adjusted EBITDA less interest expense, non-cash interest, cash taxes and maintenance capital expenditures. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating its performance. References to "payout ratio" are to dividends declared as a percentage of funds from operations. See "Funds from Operations and Payout Ratio" in our MD&A for the calculation of funds from operations and payout ratio.
References to "adjusted profit" and "diluted adjusted profit per share" are to profit for the period and diluted profit per share for the period adjusted for the gain or loss on foreign exchange, fair value of inventory from acquisitions, M&A expenses or recoveries, other transaction and transitional costs, gain or loss on financial instruments, gain or loss on sale of property, plant and equipment, cost of equipment rework, share of associate's net loss and non-cash asset impairment charge. See "Diluted profit (loss) per share and diluted adjusted profit per share" in our MD&A for the reconciliation of diluted profit per share and diluted adjusted profit per share to profit.
FORWARD-LOOKING INFORMATION
This press release contains forward-looking statements and information [collectively, "forward-looking information"] within the meaning of applicable securities laws that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "postulates", "predict", "will" or similar expressions suggesting future conditions or events or the negative of these terms are generally intended to identify forward-looking information. Forward-looking information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. In addition, this press release may contain forward-looking information attributed to third party industry sources. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which it is based will occur. In particular, the forward-looking information in this press release includes information relating to our business and strategy, including our outlook for our financial and operating performance including our expectations for our future financial results including sales, EBITDA and adjusted EBITDA for the 2020 year and fourth quarter, industry demand and market conditions, the anticipated ongoing impacts of the COVID-19 outbreak on our business, operations and financial results; the estimated costs to the Company that may result from the Incident and the availability of insurance coverage to offset such costs; the sufficiency of our liquidity; long term fundamentals and growth drivers of our business; future payment of dividends and the amount thereof; and with respect to our ability to achieve the expected benefits of recent acquisitions and the contribution therefrom. Such forward-looking information reflects our current beliefs and is based on information currently available to us, including certain key expectations and assumptions concerning: the anticipated impacts of the COVID-19 outbreak on our business, operations and financial results; anticipated grain production in our market areas; financial performance; the financial and operating attributes of recently acquired businesses and the anticipated future performance thereof and contributions therefrom; business prospects; strategies; product and input pricing; regulatory developments; tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; political events; currency exchange and interest rates; the cost of materials; labour and services; the value of businesses and assets and liabilities assumed pursuant to recent acquisitions; the impact of competition; the general stability of the economic and regulatory environment in which the Company operates; the timely receipt of any required regulatory and third party approvals; the ability of the Company to obtain and retain qualified staff and services in a timely and cost efficient manner; the timing and payment of dividends; the ability of the Company to obtain financing on acceptable terms; the regulatory framework in the jurisdictions in which the Company operates; and the ability of the Company to successfully market its products and services. Forward-looking information involves significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking information, including the effects of global outbreaks of pandemics or contagious diseases or the fear of such outbreaks, such as the recent COVID-19 pandemic, including the effects on the Company's operations, personnel, and supply chain, the demand for its products and services, its ability to expand and produce in new geographic markets or the timing of such expansion efforts, and on overall economic conditions and customer confidence and spending levels, changes in international, national and local macroeconomic and business conditions, as well as sociopolitical conditions in certain local or regional markets, weather patterns, crop planting, crop yields, crop conditions, the timing of harvest and conditions during harvest, the ability of management to execute the Company's business plan, seasonality, industry cyclicality, volatility of production costs, agricultural commodity prices, the cost and availability of capital, currency exchange and interest rates, the availability of credit for customers, competition, AGI's failure to achieve the expected benefits of recent acquisitions including to realize anticipated synergies and margin improvements; changes in trade relations between the countries in which the Company does business including between
SOURCE
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