Ag Growth International Inc. (AFN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the AGI Q4 and 2020 Year-end Results. [Operator Instructions] This call is being recorded on Wednesday, March 17, 2021. And I would now like to turn the conference over to Tim Close. Please go ahead.

Good morning, and thank you for joining Jim and I to discuss our results for Q4 and 2020 as well as our outlook for 2021. Note that we have amended our disclosure this quarter to include additional detail on our Food and Technology businesses. These are relatively new segments within AGI, which have come together over the last couple of years. Both segments have unique characteristics which warrant breaking them out to provide more clarity on their demand drivers and opportunity set. Both segments have also had strong growth, with significant momentum, so the timing was appropriate to add detail and discuss in more depth. Q4 capped off an unusual year that highlighted the progress we have made in transforming and diversifying AGI into a global business, with strong platforms in each of the strategic regions and products that form a strong foundation for our continued growth and success. AGI is now uniquely positioned to accelerate our growth in our targeted markets. Our North American business is a dominant player in providing equipment solutions to grain and fertilizer markets. We have established a solid foothold in Brazil, where we continue to gain market share. We have a leading rice equipment business in India. Our EMEA and Asia Pacific businesses are now also earning significant share and expanding from a solid base. Our Food platform has come together over the last 2 years to be positioned for exciting growth. And our Technology business is rapidly growing, both in customer adoption and capabilities. This AGI is fundamentally stronger, less cyclical and better positioned to accelerate our growth than ever before in our history. 2020 was also a transformational year for our people and the structure of our business. We have built out and strengthened each of our regional leadership teams. We now have all regions represented on our SLT. That means we are positioned to be better partners with our customers in each region. This regional strength was demonstrated in our 2020 results, which saw COVID and regional cyclical elements result in sales declines in some of our traditional segments. However, the newer components of AGI more than offset to turn in a solid performance in a challenging year. We ended 2020 at $1 billion in trade sales, our first year reaching this milestone in sales volume. Adjusted EBITDA grew 3.5% for the year to $149 million, while adjusted EBITDA margins inched up by 50 basis points in the year, despite the project delays, product interruptions and logistical challenges within the year. Q4 sales were flat year-over-year. However, adjusted EBITDA grew 20% in the quarter due to a favorable product mix and operational efficiency gains at several locations, including EMEA, Brazil and in our portable segment. As mentioned, with the growth in Technology and Food, we have begun breaking out these key components in our MD&A to highlight the strategic impact and value of these businesses. These 2 segments are unique within AGI and a key focus in 2021 for Jim and I will be on communicating the characteristics of these businesses, along with the total addressable markets and potential for these segments of AGI. This morning, we will focus on the Technology platform, given the large strategic impact the segment is having across all of AGI and given the spotlight that has been focused on AgTech as the world wakes up to the digital transformation happening in agriculture. Along with the new segmentation, we are also completing the work to carve out AGI SureTrack from an accounting, legal and incentive perspective to formally create a business within a business. While the Technology business is deeply aligned and integrated within AGI, this functional carve-out is in recognition of the unique aspects in terms of culture, people, pace and innovation that is required to provide a fast-growing Technology business with the oxygen and fuel for growth and success. AGI SureTrack is built on a foundation of IoT products, which establish deep, long-lasting relationships with our customers. These IoT devices generate rich, robust and very practical operational data that feeds into our 3 key software platforms: AGI SureTrack Farm, SureTrack Pro and our grain marketplace. The Farm platform is a system of record that automates the collection of all data across a farm and provides a farmer with an operating system to collect, monitor, operate and manage their operations, including inputs, production activity and final product management. The Farm platform is an agnostic place for the farmer to own and share all their data with their advisers, including farm employees, agronomists, bankers, insurance partners as well as carbon and sustainability markets, which are now starting to rapidly take form. All of these stakeholders require robust, verifiable and easily transferred and digestible data, which is exactly what we deliver in AGI SureTrack Farm. On the Commercial side, we provide all the IoT and hazard monitoring sensors for a commercial grain and fertilizer operator to monitor and operate their facilities to maximize safety and productivity. This platform then extends to become a supply chain management tool through our grain marketplace, where our grain buyer can easily locate grain, bid for grain and interact with the farmer, then manage the logistics and fulfillment of each contract. With the farmer's consent, the grain buyers can also view the grain they have contracted to purchase to monitor the temperature, moisture, CO2 conditions of the product, and also view the content of each load of grain that went into the bin. They can see the protein, oil and starch content of what they are buying. \The farmer can also offer to provide additional data on the grain, including the seed, application and conditioning records for that grain. The buyer can easily access the nutrient application for that field. The buyer can access fuel usage on the field of fields that the grain was sourced. The buyer can verify the farming practices, utilizing the production of that grain. The buyer can access the data to verify the carbon footprint of the growing and conditioning activity for that grain, robust data that is critical for the emerging carbon sustainability and traceability markets. We are working to leverage and expand our capabilities of these markets. Important to note here that AGI's approach to AgTech is significantly different from a data perspective. SureTrack is a tool for farmers to manage the business. And accordingly, all data is owned and controlled by the farmer. It is not connected to a supplier nor is it connected to an adviser. The farmer can use the data as they would like and share or utilize the data to run their business as they see fit. As obvious as this sounds, much of AgTech is seeking to use, control or otherwise restrict the usage of its farmer's data. The AGI approach sets us apart and is a strategic benefit for us in this space. We sell the SureTrack platforms through 3 principal channels: direct to farm, direct to commercial users, including grain buyers and food processors. We also sell the IoT hardware through our extensive dealer networks. We have approximately 1,000 AGI dealers just in the U.S., and we are working to onboard additional SureTrack-specific dealers to significantly increase our reach and distribution of our IoT products. We design, manufacture and install the IoT sensors and hardware that form a unique portfolio of IoT devices that are embedded in our customers' operations. We supply these devices to both farm and commercial customers. And the product portfolio includes weather stations, soil probes, grain bin monitoring sensors for moisture and temperature and CO2, inventory sensors for fuel tanks, grain and fertilizer bins, driver monitoring and controls, fan actuators to automate grain conditioning. And we also supply the Farmobile PUC, a device that is installed on field equipment, including planters, applicators and combines to record and transmit machine and agronomic data to our platform. The Farmobile PUC is agnostic to equipment brand, provides 2-way, very accurate data that is fed live off the field. The data is cleaned and standardized to make it very easy for the farmer or their agronomists to use. In the Commercial space, we have sensors that go on bearings and belts in our handling equipment to provide constant monitoring of critical equipment to ensure safe operation and detect issues that would impact operational uptime. Commercial sensors also include proximity sensors, vibration sensors, locational sensors and other sensors that measure temperature or activity that would indicate operational issues. We are developing additional devices to add to this IoT portfolio that will effectively turn all of our products into IoT devices, feeding back data to our customers and extending their ability to monitor, operate and automate more of their operations. As mentioned, these IoT products form a unique long-term relationship with our customers that is very sticky as our products become an integral part of operating these businesses. The IoT capabilities fundamentally change the functionality of our equipment and differentiate our equipment from the rest of the market. The data gathered from these devices then creates the opportunity to provide our SureTrack software solutions. Now let's turn to look at the addressable markets and scope for this business. There are roughly 1.2 million farms in the U.S. and 65 million farms in Canada that are focused on grain. We believe that all farms will become digitally engaged. They are already starting that engagement in terms of cell phones and tools [ and the caps ] of their combines and field equipment, combines with auto-steer section of control, precision plant and applied capabilities are now common across these farms if digital engagement will extend to all equipment across the farm. Our commercial customers will also deploy technology across their entire operations, both in terms of their equipment and in their supply chain management. From a facility perspective, our commercial customers will deploy IoT sensors across their entire operations to achieve digital engagement with all components of their system to monitor and automate the facilities to make significant gains in productivity and gain back or enhance their operating margins. Digital tools also mean reductions in downtime and increased safety and productivity. Now moving to the software platform. We are in the early days of developing ramping up full platform usage of our capabilities. We charge an annual platform fee for each of the software platforms. We are currently focused on adoption of the platforms as we build awareness of the capabilities. We fully expect to create additional means to drive revenue from the software platforms. As reported in our segmentation, we had $36 million in retail equivalent sales in our Technology business in 2020. The total addressable market for SureTrack includes both the IoT device market and then an annual SaaS payment market. We believe that the total addressable market just in North America is well over $10 billion for IoT devices as well as a SaaS market of well over $2 billion annually. Our Technology business is an immense opportunity for AGI. We'll be aggressively building out our IoT and software platforms going forward. Before I hand the call over to Jim for additional detail, I'd like to briefly touch on 2021 and the outlook for the year. We are seeing very robust markets across both Farm and Commercial and in most regions. Backlogs have continued to increase from the end of 2020 and are now up 40% over this time last year. Some of this is timing and is unique to circumstances in 2021. The exceptional steel price increases have driven sales to lock in product in advance of these increases. Higher planting intentions are driving demand. We are also seeing market share gains in the U.S., Brazil, India, EMEA and in portable equipment in North America. Strong crop prices are supporting this positive environment. Altogether, this positions us for strong expectations to 2021. With that, I will turn the call over to Jim for additional detail on the quarter and the outlook.

Thanks, Tim, and hello, everyone. For this earnings call, I would like to cover 4 topics. First, I want to take some time to explain the additional disclosure we have provided in our MD&A this quarter. Next, I will provide a brief overview of our financial results. Third, I'll discuss our liquidity position. And then finally, leave you with our thoughts on how the year is shaping up so far. To start off, you will notice that we have provided more detailed information in our MD&A about our business. We have always described our business as operating in what we call either the Farm or Commercial segments. These 2 broad segments operate in Canada, the U.S. and the international regions. However, the business is much more diverse now and warrants further detail to help you better understand how we are doing and where the opportunities are for us going forward. Within our Farm segment, we have provided information about our sales of equipment and services to farms as well as carved out our fast-growing Technology platform. On the Commercial side of the business, we have broken out sales of equipment and services to large commercial operations, that is non-farms, as well as sales to the food processing sector. And for each of these 4 business areas, we have provided sales and sales backlog information now for Canada, the U.S., EMEA, Asia Pacific and the South American regions. In addition to the above added disclosures, for the Technology platform, you will see we have provided 2 different perspectives to help with our -- with your analysis. Our Technology business consists of selling IoT hardware, software subscription services and other services such as warranty. We have historically sold all 3 of those items using a subscription fee sales model. However, starting in 2021, we will now be selling our IoT hardware and other services upfront and continuing with the subscription model for just the software. We call our new approach the retail equivalent view, and we believe that it provides more useful information to help assess how the business is operating, particularly in a high-growth environment. So as we talk about how the Technology business is doing, we will generally talk about the retail equivalent view. Okay. With that disclosure update out of the way, let me discuss our Q4 and full year results. Our Q4 results were in line with our expectations. Trade sales were $227.4 million versus $229.6 million last year, as sales growth in our Farm, Technology and Food businesses offset the lower sales in our North American Commercial business. For the full year, overall trade sales reached the $1 billion level, which was marginally greater than the prior year. Our diversification strategy helped us offset the weakness we saw in the North American and EMEA Commercial segments, with strength in our Farm, Technology and Food business platforms. Adjusted EBITDA for Q4 was $27.8 million versus $23.2 million in the prior year. The higher adjusted EBITDA was primarily the result of strong gross margins. Our gross margins improvement was due to a favorable mix of Farm sales versus Commercial sales, which are traditionally at slightly higher margins as well as the operational efficiencies and leverage we are getting from our growing Brazil and EMEA locations. Adjusted EBITDA for 2020 was $149.3 million versus $144.3 million in 2019, very strong results in a very tough year. The increase versus prior year is again due to our strengthening gross margins. Mix did play a part in the increase, but we continue to see improving margins across our businesses as we benefit from our historical investments. As a percentage of sales, our adjusted EBITDA margin in Q4 and full year 2020 was 12.2% and 14.9% versus 10.1% and 14.4% in 2019. These strong results were driven by the large improvement in gross margin and our steady management of SG&A costs. Now let's take a look at our liquidity position. As we talked about last quarter, improving our liquidity position is a big priority for us. In Q4, we continued to make progress at reducing our senior debt-to-EBITDA ratio, which ended the year at 2.53x versus 2.65x at the end of 2019. At the end of 2020, we had over $194 million in available undrawn credit facilities and approximately $62 million of cash on hand. We do not have any bank covenant concerns. Our strong results, reduced growth CapEx needs, our focus on reducing our working capital requirements and our reduced dividend payout will continue to give us higher free cash flow and a much stronger balance sheet. Finally, I'd like to end with a quick recap of our outlook. Our backlog position across all segments and geographies has never been better. Overall backlog at the end of the year was up 21% versus the prior year and continues to grow. This sets us up for a strong 2021. We will have some headwinds to deal with, including the meteoric rise in steel costs as well as the weakening U.S. dollar. But overall, we feel very good about growing both sales and adjusted EBITDA in 2021. Our focus in 2021 will be to continue to leverage our investments around the world, to improve margins, grow organically, pay down debt and accelerate the value creation opportunities in our Technology business. Thank you very much for your time. And with that, we will turn it back to the operator to take questions.

[Operator Instructions] First question comes from Jacob Bout at CIBC.

So my first question is just on EBITDA margins for 2021. What are your expectations there? Maybe talk a bit about how rising steel costs play into this. And in your mind, do you think you can get back to the 16%-plus type EBITDA margins?

Yes. A great question. So steel is extremely dynamic, as you know, pretty close on for us movement around the world in steel. So we do expect an impact, particularly in Q2. And then we expect though -- we are and expect to continue to pass along those steel price increases. And as we move into Q3, Q4, we'll be able to moderate that impact. So Q1, not a -- we expect to be fairly well less of an impact. Q2 is where we really expect it to be more pronounced, and then moderate into 3, 4.

Yes. And just to add on to that, Jacob. Overall, when we look at the full year EBITDA margins, your comments about in the sense that we're marching up towards our historical numbers that are 100 to 200 basis points higher than what we've currently been delivering, primarily as a result of all the investments we've made in automation, the benefits we're seeing now as Brazil continues to scale and our facilities around the world continue to benefit from an improved economics from scaling. However, the challenges this year, anyway, in particular, that we'll manage through is the steel costs, as Tim alluded to. The weakening U.S. dollar is a bit of a headwind for us as well that we've got to manage through. And then the other thing too to factor in, in your analysis is the mix of our businesses. So as I mentioned on the call, our Farm business is a slightly higher gross margins than our Commercial businesses. And so as that -- as the Commercial business rebounds in 2021, you may have a bit of an offset in terms of an overall impact to our EBITDA margins as a result of that. Nothing bad, but just the mix may influence some of that in the short term because of the bounce back.

Okay. And then on the backlog, very strong as of year-end. But some weakness on the Canadian Commercial and Food, I think, was the one standout for me. Are you seeing the same trend in mid March? And maybe you can talk a bit about the driver of this and what turns this around.

Yes. No. Look, our Food business really is focused in the U.S. and international. So it's not a big item in Canada. I think you're specifically talking about it. And overall, our Food business is doing very well and backlogs and pipeline, very strong. So it wouldn't be -- it's a matter of where our food processing customers are expanding in any given year. And I mean I'd extend that comment to Canadian Commercial. There's -- all of the traders, the global traders are allocating capital on their footprint, their infrastructure globally. And you'll see regional ups and downs. And it's why, in fact, we've aggressively pursued a global footprint and capability to be able to be relevant to our customers in every region. So while they're building out Canada, as they did over the last 3, 4 years, we're in the region and can partner. And then when those shift to other regions, we're likewise able to partner with them. So fully expected to see a moderation in Commercial in Canada. But we also believe some of that -- we don't -- not some of it, a good deal of it in 2020 was due to COVID. And we're already seeing a rebound in that quoting activity, particularly in the East. We expect the West to come back as well. But fundamentally, the more infrastructure you build, the more maintenance and ongoing retrofit and where tariff you'd expect to be able to contribute to volumes going forward. So nothing surprising or unexpected in my view of them.

Last question here, just on the Technology side. And thank you for breaking that out in the commentary that you've given today. Maybe you could just help us with your expectations for both hardware and subscription services growth over the next 3 to 5 years.

Well, look, we've got robust expectations. As I said in the comments, we believe every farm will be digitally engaged, and that adoption has already started and will ramp up, I think, significantly going forward. In North America, in particular, I think we get to every farm being digitally engaged from an operational perspective, an extension beyond just sort of the field technology that's more and more common. Like every business, every industrial business in particular, all of -- there's a baseline expectation and ability to connect to their operations and automate the generation or collection of that data. So these are for us. From an IoT perspective, these are robust markets and with just an enormous amount of growth potential. So our objective is to outfit each farm with that whole suite of IoT sensors. I think we're -- from an IoT product portfolio, we are a leader in product depth in terms of looking at both field activity. And then all of the surrounding equipment and activity that the business of farming habits, to the extent that the field is essentially a production space, but the infrastructure around it is critical to your input and then your final product. And our offering uniquely extends and includes all of the business of farming. And not just production, as important as that is, obviously. So we have very robust expectations based on that, the reality of the product set, our relationships. We have equipment on most farms in North America, and we have the most extensive distribution channels in this space as well. So all said, very robust expectations for growth.

The next question comes from Steve Hansen at Raymond James.

Yes. I'll stick on the Technology theme here just for a moment. Just -- and again, thank you for the disclosure. Tim, at first glance, it does strike me that a large portion of the revenue you're disclosing here is hardware related versus recurring subscription, even had a threshold slightly off or below the broader TAMs that you described, I believe. So just can you perhaps walk us through what the plan is to walk up that recurring revenue base would be over time? What are the specific services that you're planning to add? Or how should we think about the growth of that SaaS-related piece specifically?

Yes. Great question. The IoT hardware is critical in terms of generation of the data for our customers. Without the IoT suite of products, you don't have data. You don't have automated data, and you don't have a SaaS or a software offering. So the importance of the IoT, I just can't overemphasize the -- with -- as that IoT adoption expands, then that just enriches the software offering. So the hardware sale is every bit or more important than the software platform. Obviously, they work hand in hand in distinctly different types of revenue though. Our hardware sales are more of that upfront equipment-type revenue. And then that enables though the ongoing build of the software platforms and the SaaS model, so hand in hand. And the IoT strengthens and really differentiates the software offering.

Okay. Helpful. And just maybe as a question related to that then and the strength of -- the importance of that lead sort of sale, if you will. Have you guys thought about discounting that to any degree? As you're likely aware, there is a land grab going on and many of the other players, not direct competitors, of course, but any other players in the broader AgTech landscape are discounting upfront sales to get faster adoption. I mean how do you think about that trade-off?

Well, I mean we've got programs going on right now in -- across IoT that do make the hardware extremely price competitive in the market. We're bundling the IoT sensors with our products at a very good value all-in. And we take the approach when launching over the next couple of days. Our SmartBin offering is an example. You can get an AGI SmartBin at a very small premium over a sort of like, you'd call it, a nonconnected bin. So yes, we've got programs, marketing program, pricing programs and bundling programs that are launching, and more coming. I think fundamentally, if you look around the AgTech space, the product is being provided to you, I guess, beyond AgTech. If the product is being provided to you for free, then the reality is you're not the customer, you're the product. And as I said in my notes, we take a uniquely different view. This is -- the data is owned by the farmers for them to use in their business and manage their operations. And so while we don't take a free approach because, in fact, we're providing, I think, exceptional value and exceptional product, depth for and not utilizing that in other ways. And I think that model is what wins. I think it's what the customers appreciate. Just like all of us is consumers from a personal consumption perspective, we certainly, more and more recognize where something is free, there's -- it hit -- it's too good to be true. And there's -- you're paying for it one way or another.

Okay. Helpful. And then just one follow-up here, if I may, is on this remediation issue. I am struggling with this one a little bit. On the one hand, it seems to suggest one of your customers has elected to go with another supplier and effectively scrap the current facility. That seems pretty extraordinary measures to take on their part, both from a cost and risk perspective. On the other hand, that approach also seems to suggest that you no longer need to repair and remediate that site, which could be construed as a net positive on the margin for you, guys. But I think in either case, whether you mean one way or the other, it does strike me that the one thing that's where fact pattern has changed, but your remediation estimate is not here and nor has your messaging. So what can you tell us to get comfortable with this sort of new set of information? And what we should be thinking about?

Yes. I do appreciate that question. I mean the customer -- one of the customers involved here has decided to go with a different overall solution. That doesn't change our obligations in the instance. And so after, obviously, a very thorough review and ongoing analysis. I mean it doesn't change our assessment. So it's a -- we've walked through that, fully disclosed that previously. No change from our perspective.

The next question comes from David Newman at Desjardins.

Just looking -- going back to Jacob's question on the margins. So pro forma, given the investments that you have made in -- certainly in Italy and India and Brazil as well as AgTech overall, pro forma, if everything was operating where full steady state and maturity, where do you think the margins would likely settle out at given -- assuming the mix is constant?

Yes. I think, as we -- I'll jump in. Jim, you can build on. But I mean, as we've said in the past, nothing has really changed. We saw a lot of that investment period over the last 3 years and beyond that into tools, both selling tools, and -- well, a lot of it in selling tools and increase in marketing and other expenses that we expect it to elevate and to come back down. That's contributed to some of the impact on margins, EBITDA margins over the last couple of years. Gross margins are holding pretty steady. And then as we -- the newer businesses, the new segments and investments come online, we expect to walk those margins back up to historical levels.

Okay. And then -- and just on AgTech itself, are we going to see the sort of typical -- if you break it out, the typical margins that you would see in kind of a SaaS-like offering in around gross margins, 60%, 70% and EBITDA margin around 20%? Maybe just kind of give us some thoughts on what the expectation is there as you roll it out and you get the SaaS traction as well?

Yes. That's correct. I mean these are generally higher-margin product lines, both on the IoT and in the -- and obviously, the SaaS model and product lines.

Okay. And then just on the cadence of, I guess, the progression on the top line, we know the margins is all because of steel. But just the cadence of growth quarter-by-quarter, what is your expectation there? And where I'm kind of going with that is, we're clearly getting the international markets starting to really reopen here and demand growing in China, in particular, and all that. So where -- if Commercial comes back in a bigger way, maybe just kind of walk us through what you're thinking is quarter-by-quarter. And I have to think at some point here, infrastructure spend might weigh on the actual outlook as well to the positive.

Yes, yes. Great question. The -- so the timing throughout the year, I think, is going to be somewhat unique, impacted by the dynamics we outlined that have led to strong and elevated backlog. The steel dynamics have brought a lot of broad orders forward as people, our dealers and customers look to get ahead of the steel supply issues. So some of the backlog build is certainly timing related. And so we'll see how that plays out over the next 3 months in particular. So you'd expect some of the orders that might have been out in July or August have been brought forward, underpinned by strong demand in basically all regions. So it's a positive outlook, a positive development. As I said, on Q2, we expect EBITDA margin to be impacted by those steel dynamics. Then -- but a strong Q1, and we expect a strong Q3, Q4. And that impact -- I mean, look, steel is pretty dynamic. We expect an impact across the year but we expect more of it could be -- to hit in Q2.

Okay. And last one for you, guys, just on the Food side. Obviously, you've been able to really showcase your capabilities through this downturn with the food processors. And I'm just kind of thinking like, they must be gaining confidence in your capability. So beyond what your backlog is, are you seeing traction in the space? Obviously, you're highlighting as a separate segment so you must believe so. But maybe just give us a comment on how you're resonating with your Food customers.

Yes. Another great question, Dave. Short answer is yes. And while we focused on or highlighted the Tech business this morning, our next call, we'll spend more time on the Food business. But getting excellent traction across the platform and our model in general and partnering across process design, project management, equipment and supply and turnkey offerings, that is certainly resonating across our customer base. And we're expanding into new markets, new customers and new offerings. So very bullish on the Food space. It's probably the -- one of the largest total addressable markets for us given the extensive amount and increasing amount of food processing going on globally.

The next question comes from Michael Doumet at Scotiabank.

First question, just on the backlog. How should we think about the read-throughs for revenue projections? I mean specifically, like how large is backlog at this point in the year in Farm and Commercial versus the respective annual sales? And what's the typical duration?

Yes. Well, I touched on a little bit in the last question. The -- as I noted in my comments, backlogs, while strong at the end of the year, have since accelerated even more to put us at about, on an overall basis, up about 40% year-over-year. And there's different components to that, that -- some of that is timing, given the steel dynamics, bringing some more orders forward. And then we'll -- but then also, as I said, underpinned by really good demand fundamentals everywhere, nice growth in Brazil, a very solid growth in performance in India, Asia Pacific and farm in North America. So we'll see how these dynamics play out and order intake moderates as we move into the growing season. But all in all, a very positive setup for the year.

Perfect. And I'm just wondering, Tim, on the 40% backlog versus the 21% mid-March versus end of year, I'm wondering if at this point last year, you had any sort of negative impacts from COVID in backlog.

Good question. Let's see. I had to think back to the -- we -- in March of last year, no, we would not have had -- starting to see anything. I mean it would have been into in April, May, June, where really, everybody was starting to understand the depth and impact of COVID. But at this point, last year, no, we wouldn't have seen any of that as a comparable or if I think that's where you're going.

Okay. But is the number, specifically, the backlog is up on a sort of a dollar amount, right, from mid-March to the end of the year?

Correct.

Perfect. Okay. And then on your comments for where margins could sort of land in 2021. I mean you talked about mix shifting back to Commercial, I think, is the potential. I mean do you expect more growth in Commercial in 2021 versus Farm despite what misadjusted by backlog? I'm just trying to get that squared away. And I'm assuming that most of the growth will come from international there.

Well, a couple of factors here. U.S. Farm is growing very nicely, as is Brazil Farm. So I think people maybe forget that the Farm is a big component of our Brazil business. So that balances out some of the overall international growth, which outside of Brazil, international tends to be majority Commercial. And so yes, yes, that international platform is growing nicely and then balanced a bit by the Farm growth in Brazil.

Got you. But just in general, I mean, do you expect Farm -- or Commercial to outpace Farm growth in '21? Just trying to think about the impact to margins there and how much that can be skewed.

Yes. Good question. I mean I think it will be slightly, but it's not only impacting our combined EBITDA outlook.

Got you. Okay. And then just one last one. I mean you touched on it a couple of times, but just to get a little bit more specific on translational and transactional sensitivities around depreciating Canadian dollar, if you can give some details there.

Yes. So we have net exposure to the U.S. dollar. But I think we've provided some estimates in the past. I think there's even some data in the MD&A that suggest a point change in the exchange rate is about $1 million impact. We've got about $100 million net U.S. dollar exposure that we try to manage.

The next question comes from Michael Robertson at National Bank Financial.

So one maybe for Jim. I think you touched on in some of your open commentary on dialing back CapEx to free up more free cash flow. Could you provide any sort of bookends on what that might look like moving forward?

So historically, so maintenance -- so we think about CapEx as 2 components, maintenance CapEx and then growth CapEx. Our maintenance CapEx traditionally is quite low. It ranges anywhere from 0.8% to 1.2% of revenue. So we'll be at the lower end of that in 2021. And then our growth CapEx, the last few years, there's been quite a bit of investment in terms of automation and building out greenfield facilities in places like Brazil. That dialed back a fair bit this year. However, we still continue to invest, particularly in projects that have strong paybacks. And so you will see some of it, but it will be on the lower end than what we've done in the traditional last 2 to 3 years.

Okay. So maybe up small from 2020 levels all-in, but not quite to 2019? Like would you feel comfortable with that?

Yes, yes. Would be similar to 2020 levels.

Okay. Okay. I appreciate that. That's helpful color. The other question I had, sort of related to what Steve mentioned. I'm just trying to wrap my head around the dynamic with 1 of the 2 customers from that product line choosing to go with another supplier to resolve the issue. How does that exactly work with respect to your remediation cost estimate? Because this is a situation where you're going to foot the bill for what that costs. Or I'm just trying to get my head around this a bit better.

Yes. Whether they use us or somebody else, our obligations reflect what we'd be able to provide or the -- in order to remediate the site. And so fundamentally, it's -- that obligation doesn't change versus which -- who's doing the work in site. So very simply, we've -- we're going ahead with remediation at one of the sites, and we certainly will know and be able to have a good visibility to what that remediation should, could and what it will look like.

The next question comes from Stephen Morton at RBC.

This is Stephen Morton on for Andrew Wong at RBC. Just one question. Most of mine have been answered already. But on ESG, can you provide some of your thoughts around AGI's approach to ESG? Do you have any plans to release a sustainability report in the future?

Yes. Good question. We published our initial report. I think at the end of last year is when we put that out. And then we have follow-up work going on to broaden that -- both the effort and the communication of that. We've added a new member of the team specifically focused on ESG efforts across AGI. Both efforts and communication is -- as I mentioned, we have specific products and ongoing effort in the sustainability efforts that are linked to SureTrack, both from a traceability, sustainability and carbon perspective are -- all of the carbon markets are dependent on robust data or verification. And the -- those carbon credits become more valuable as you get better verification. And fundamentally, that spectrum kind of begins with a farmer just signing off on farming practices, nutrient application or otherwise. The value of that carbon product increases as you can back up that statement by the farmer with data. And our suite of IoT products provides the most robust source of that data in the industry. So that's a key focus for us. It's contributing to those markets with that rich data set. We fundamentally believe all buyers of credits will prefer -- at any price point, but will prefer a credit that comes with a deep verification data. And so we're focusing a lot of efforts on that space. And then more broadly, looking at everything from diversity across the entire platform and the D&I perspective, and then each of our operations from a sustainability perspective and our own sort of carbon footprint minimization.

And the last question comes from Steve Hansen at Raymond James.

Just 2 quick follow-ups here. Tim, first, just on the insurance estimate for the silo issue. I mean it may be a moving target, I'm not sure, but you suggested a couple of times now that you expect insurance proceeds to come in here. Can you give us a rough estimate at this point as to what that might be?

Yes. Thanks, Steve. I mean we don't have any guidance on that, further guidance on that. Nothing's changed. In fact, it's extremely slow, the overall process. And so there's -- way too early at this point to be able to map or provide any additional color or detail.

Okay. That's helpful. Just a second one here is on your broader footprints and just capacity optimization. We've got, obviously, a very strong macro cycle that's emerging here. But at the same time, if I think back to your platform evolution here over the last sort of 5 to 7 years, you went through a number of large acquisitions, like Global and others. You've also invested significant capital into your overseas footprint, whether it be Italy or Brazil and others. But just trying to think about now how you optimize all of your capacity going forward. I know you did have one small facility, I think, for sale at one point. But just how do you feel about the broader footprint today as it stands? Are you well serviced from a capacity standpoint in the right places? Do you have too much capacity in the wrong places? How do you feel about that? And is there opportunity there?

Yes. Yes. Interesting. The -- it's a big part of what our team has been focused on over the last 3, 5 years in building out the right capacity. So some of the growth CapEx that Jim talked about, those programs that were really '18, '19, we've come through those programs. Some of it tailed into '20, early 2020, in Italy in particular, but the projects like Brazil and other capacity increases. 2020, we actually -- we build out our IoT capacity, our capabilities very significantly. And so now sit with great capacity across the board. And so that feeds really to Jim's comment on decreased growth CapEx program in the near term. We're -- and then we're optimizing product offering across the platform. We moved a lot of product to Brazil and we've done product expansion in India and Italy and then across North America. So a lot of activity going on across the board over that period of time. And then -- so now we'll be more in leveraging that investment base for the foreseeable future. And that bodes well for sort of cash generation and margin profile and operating leverage across really all of the business. We don't have any facilities for sale. I'm not sure which one you're talking here, you're referring to there. But we sit really nicely from a capacity perspective.

And we do have a follow-up from David Newman at Desjardins.

Just a quick one, guys, as I'm modeling up the next year. On steel costs, maybe you can just remind us on the -- and I'm sure it's in track with someone else, but the sensitivity on the steel cost. I think it's 30% of your cost or thereabouts is steel related. It's U.S. dollar denominated, so that should give you a bit of a hedge. But is there any inventory that you're kind of working through? Or do you have hedges on steel? Just trying to understand the dynamics and how we should be modeling it.

Yes. Well, this is an extremely dynamic space. So we buy steel in 4 principal markets: in Asia Pacific; in India, in particular; in Europe, Brazil -- and actually 5. We break it down in the U.S. and Canada. And so we buy in different currencies. A lot of that hedged to our revenue, in each of the regions. And then steel, in general, the supply chain is extremely disrupted across the board and -- leading to really significant price increases across the board. And then our ability to pass-through slightly different in all. But in Commercial, generally, we pass those through on a per project basis. In the retail environment, in places like Western Canada, we pass those through incrementally through some price or surcharge application. And so it's not something you can generalize to say it's x percent of sales and, therefore, it will have this impact. It's a little bit different everywhere. But we expect there to be a drag as we -- as in particular, the Commercial space catches up to the supply chain, catches up to the quotes that were in backlog or the business that was in backlog. And that impact, we expect to be in -- more pronounced in Q2 and then come through as those -- our ability to pass-through catches up in Q3 and Q4.

Okay. And do you see set up -- you have a price, obviously, a price list for the Farm business. When typically do you guys put out the price list for the year for the farmers?

So in general it comes out, it starts for any given year, it starts in the prior year, the end of the prior year, with end of year programming. We're working with our distributor -- distribution partners to give them the product and production spots. And then that then changes throughout the year depending on things like principally steel activity and steel movement. And so the entire industry, like all industries, have been a challenge to be able to predict, to moderate, to monitor the steel movements. And in North America, in particular, for example, there's been price increases, incremental price increases through January and February across the board, both ourselves and the rest of the industry.

There are no further questions. You may proceed.

Okay. Fantastic. Thank you for your time this morning, and we'll end the call there. Take care.

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