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

Good morning ladies and gentlemen and welcome to the Ag Group International 2021 Fourth Quarter Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Tim Close. Please go ahead.

Good morning. I will start this call by joining the world and expressing our support for the people of Ukraine and strongly denouncing Russia and the actions we are all witnessing. Our team in the region is safe, and we're looking for ways to contribute to the world's effort to support Ukraine. Now, I thank you for joining Jim Rudyk and I to discuss our fourth quarter results and our outlook for 2022. As usual, I will make a few remarks in the quarter and the call over to Jim for a more detailed recap and then open the call for questions. We had a record fourth quarter with sales and adjusted EBITDA up 44% and 61% supported by strong results across our Farm, Commercial, Food and Digital segments. Our fourth quarter concluded an outstanding year for AGI, setting records for both sales and adjusted EBITDA, solid organic growth, market share gains and resilient margin performance contributed to our results. For the full year, sales and adjusted EBITDA grew 20% and 18% respectively. As a healthy combination of strong activity in our legacy businesses, including our portable Farm segment was augmented by robust growth from areas we've invested in recently, including Brazil, AGI Food, EMEA, U.S. Farm and AGI Digital. Our global platform is now nicely diversified by geography segment and customer group, this diversification has increased both our growth potential and the resiliency of AGI. There was a time not long ago where a severe drought in Western Canada or conflict in Ukraine had a material impact on AGI, at that time close to half our Farm business was in Western Canada and nearly 100% of our international business was in Ukraine in the Black Sea region. Our efforts diversified enabled AGI to post record results in 2021, despite a severe drought in Western Canada, and today, Ukraine and Russia represent approximately 3% of our total business. Over the past 5 years, we've invested with a sense of urgency, building a strong foundation for AGI, that also provides robust opportunities for continued growth. This is very much the case coming into 2022 with backlogs continuing to build despite very strong year-over-year comparable. Sales intake in [quoting] remain very active with notable strength in Brazil, U.S. Farm, North American Commercial, EMEA and India. The combination of strong backlogs and sales pipelines provide solid visibility for 2022 and inform our expectation for double-digit growth in sales and adjusted EBITDA in 2022. In fact, our current expectation is that 2022 adjusted EBITDA will exceed $200 million for the first time. Our success in 2021 and our continued growth plan in 2022 is due in large part to an outstanding team that is aligned on shared goals, thrives on collaboration and is excited about creating a truly unique business focused on delighting our customers. Now, let's turn to a more detailed review of our fourth quarter and 2021 results. AGI's business in Brazil continues to hit its stride, and it was significant source of growth throughout 2021 and in the fourth quarter. Sales grew 131% for the full year and 271% for the quarter. Sales in the fourth quarter alone were greater than all of 2020 combined. AGI Brazil now accounts for approximately 10% consolidated sales. As of the fourth quarter our margins in Brazil have caught up to overall AGI margins. And we are focused on continued improvement. In terms of materiality the AGI results, sales growth and margin profile 2021 was a breakout year for AGI Brazil, with a now a well established brand, market leading solutions, increased market share and strong fundamental demand for our products and systems. Our Brazil operation is well positioned for continued momentum and success in 2022. Our Farm segment posted another strong result in the fourth quarter with sales up 28% supported by significant strength in the U.S. and abroad. Solid market dynamics underpinned our growth in the Farm segment as a good sized crop in the U.S. drove continued demand in addition to a push across our dealer network to replenish generally low local inventories. Sales were augmented by a strategic focus on growing our farm systems dealership network, while we have an extensive dealership network for our portable equipment. We currently have a very small farm system dealer channel, as this is still a relatively new business for AGI in the U.S. We see a significant opportunity for AGI in this channel, as we offer farm system dealers a market leading package comprised of the broadest and best product catalog. Significant production capacity, best in class lead times, extensive dealer services, leading financial support, extensive marketing resources, and cutting edge technology products that further differentiates our offering and positions our dealers to win more business. We made solid progress in farm system dealer on-boarding in 2021 and expect to accelerate our efforts in 2022. In our International Farm segment, we grew 174% in the quarter with meaningful contributions from Australia and Brazil. Heading into 2022 the Farm segment backlog was up 48% year-over-year underpinning our expectations or a strong start to 2022. Momentum and growth in our Commercial platform continued with sales up 70% in the quarter, strong demand for commercial handling and storage with many large projects coming to market around the globe helped drive very strong results in the U.S., EMEA and South America. Within EMEA we were active in the Black Sea region including Russia and Ukraine primarily supporting the ongoing Commercial infrastructure build out in that region. While these markets are important to AGI and the opportunity to help develop critical green infrastructure is significant, a region is not material to AGI's overall consolidated sales. Annual Sales to Russia and Ukraine are now generally around 3% of AGI's total sales. Our current backlog in the region is similar to these levels. Now this time all project activities and customer contracts in the region are suspended. While we are reviewing internal along with the support of specialized external counsel, we do not operate production facilities in either country. As I mentioned the region was central to AGIs international growth ambitions 5 to 6 years ago. But this area is now complemented by our growth in Brazil, India and the wider EMEA region including quickly growing sales in Africa and the Middle East. We will continue to monitor the situation but any significant or [lengthy] disruption in the region should not be considered material to AGI. Regional disruption aside, we expect continued growth in our Commercial business as supported by our backlog which is up 23% along with an active quoting pipeline. This activity includes the Canadian Commercial platform, which after a difficult 2021 is showing strong signs rebounding with backlogs up 154% year-over-year, now sitting at their highest levels since H1 2020. Our Food platform continued to ramp up growing 13% in the fourth quarter and 31% in 2021 overall. We are seeing broad based demand across all regions for Food, but our capacities in terms of people and production space became an issue towards the end of 2021. Given the strong demand vast addressable market and capacity constraints, we acquired Eastern Fabricators early in 2022. To further bolster our capabilities and capacity. Eastern has several key assets to enable accelerated growth, with 3 production facilities, in-house engineering capabilities and installation teams, Eastern helps to reinforce and expand capacity along all 3 aspects of our design, supply and project management offering in AGI Food. Eastern specialization in high quality stainless steel products will increase AGI's share of wallet on food processing projects. Eastern also brings strong relationships with several multinational food processors. The revenue synergies will be very meaningful and we have already validated in the 2 months since the acquisition as the combined AGI Food and Eastern teams have collaborated on proposals and successfully secured multimillion dollar projects. We expect significant growth in 2022 for AGI Food and our backlog levels up 212% year-over-year support the strong forecast for the year ahead. As we move into Q1 2022, we plan to break out the Food platform into a standalone segment in our quarterly financial reporting. This will provide increased and appropriate visibility to this exciting part of AGI. Turning to our AGI Digital segment. To begin with, I want to highlight that we have now formally brought our various technology business together under the AGI Digital name, this is in line with our broader efforts to integrate our technologies and facilitate more rapid development of the overall platform. From a disclosure standpoint, our prior technology segment will now be referenced as AGI Digital. The Digital segment posted 27% and 43% sales growth in the fourth quarter and 2021 respectively. This growth was despite ongoing chip availability issues which restricted our ability to produce some pieces of IoT hardware, as well as, widespread disruption to trade show activities which limited our ability to utilize one of our most effective sales channels. Despite these obstacles, we make critical progress on several fronts in the Digital segment throughout 2021. Critical manufacturing initiatives to reduce production costs were completed. We also built up the team to accelerate growth and product development initiatives in 2022. With enhance production capabilities and an expanded team the focus heading into 2022 will be on sales growth, customer adoption and channel development. Supply chain issue is another disruptions ease the Digital segment is set for rapid scaling. A quick update on steel and supply chain. Following extreme conditions in 2021, the environment for steel has stabilized, supply chain for some components and materials continue to be more challenging than in the past. But we have been successful in sourcing what is needed for production. The impact is generally limited to some delays in shipping which may affect timing of revenue recognition. Moving on to a quick update on accruals, remediation work and related issues. The accrual for the bin incident was revised in the quarter with an increase of $8.6 million. We have now completed the remediation at 1 of the 2 impacted sites and we are very pleased to see that site commissioned and fully operational. Our team work productively and professionally with that customer and their design and construction partner to rebuild the site in record time despite supply chain and COVID challenges. We now have certainty on the cost of remediation our accrual provides very thorough coverage of our obligations. And we do not foresee any additional increases. In addition we have increased the accrual for the previously disclosed equipment rework by $10 million. As a reminder, this is not connected to bin incident, but has been a major warranty obligation relating to towers and structures supplied. The relevant site is currently operational and will continue to operate, as this final phase of remediation work is completed over the coming 3 months. Throughout this extensive process our estimates of scope have been based on facts as no one at the time. In a very dynamic environment we have modified our projections as new facts came to light. However, we now have certainty on the full scope of rework and give this as our final adjustment to put this issue behind us as well. Following extensive analysis we are confident today that these are final adjustments which address all equipment remediation and account for the legal claims. We are now very pleased to be on a path putting these matters behind us. But it's important to highlight that we have accelerated transformation of AGI to addressing these unfortunate issues. Our recently announced office in Chicago will be the home of our new application engineering, customer success, global product management and sales execution teams. We have been heavily recruiting top talent into these groups and have transformed our capabilities in the process. All of these teams are currently come together in a temporary space in Chicago as we build out a dynamic and extensive space for this center of excellence. I'm very excited about our expanded team and capabilities. We are already seeing a positive impact as our North American Commercial backlogs and sales pipelines grow as we build new and expanded relationships with Commercial and Farm customers. While, I'm very pleased with our fourth quarter and record 2021 results and the incredible efforts from our team to manage unprecedented conditions. We have our eyes set on an even bigger year in 2022. Across the board, we've seen strong demand and as of late February, our backlog continued to grow and sits at an all time high providing solid visibility into 2022. I'll now hand the call over to Jim for further comments on our results.

Thanks Tim and hello everyone. For today's earnings call I would like to cover 4 topics. First, I will provide a brief overview of our financial results. Second, I will discuss our balance sheet. Third, I will touch our accruals for remediation work. And finally, I will provide an update on our outlook for 2022. Our strong fourth quarter results kept a record 2021 overall for AGI. For the quarter consolidated sales of $327 million were up 44% from $227 million year-over-year. This result was supported partially by higher prices to mitigate steel costs, but more prominently through strong fundamental sales growth across all segments, particularly the Commercial platform, specifically EMEA, Brazil and the U.S., as well as the Farm segment specifically the U.S., Brazil and Australia. Consolidated fourth quarter adjusted EBITDA of $44.6 million was up 61% from $27.8 million year-over-year. Adjusted EBITDA margins of 13.7% were up 150 basis points from 12.2% year-over-year. Farm segment sales and adjusted EBITDA grew 28% and 78% respectively in the quarter. Segment adjusted EBITDA margins increased from 18% to 26%. As product mix, strong sales volume and pricing increases all combined to drive the solid results for the quarter. Commercial segment sales and adjusted EBITDA grew 60% and 64% respectively, in the quarter. Segment adjusted EBITDA margins held steady at 13% as the impact of higher input costs were offset by SG&A scaling and operational efficiency. The Digital segment posted sales growth of 27% in the quarter. Adjusted EBITDA of negative $4.5 million includes a negative $1.9 million impact from the Farmobile transaction. As Tim mentioned in his prepared remarks, several factors including supply chain and tradeshow disruption, constrained sales throughout 2021, including the fourth quarter. In addition, we continue to build up the team to enable accelerated sales growth and advance our product development priorities. As conditions stabilize, the Digital segment is well positioned for growth in 2022. Our annual results are worth highlighting as well, given we were able to achieve record results amid highly challenging conditions. Sales of $1.2 billion were up 20% from $1 billion in 2020. Adjusted EBITDA of $176 million was up 18% from $149 million in 2020. Adjusted EBITDA margins of 14.7% were generally in line with 14.9% from 2020. And, along with the growth of the overall business is a clear indication of the resilience embedded in AGI's business model and global team. Moving on to our balance sheet, we continue to closely manage our senior debt to EBITDA ratio, which sits at 2.5x exiting the quarter. On a year-over-year basis, this is in line with Q4 2020. But sequentially, the ratio has improved from 2.9x exiting the third quarter. We have sufficient room against our covenant of 3.25x, and we do not have any bank covenant concerns. That said, we remain vigilant and closely monitoring our senior credit facility usage and overall cash flow management while also balancing credit facility usage to help enable growth, particularly in our international regions. While we are comfortable with our senior debt ratio, throughout 2022, we will continue to focus on free cash flow conversion and managing the overall balance sheet with a clear objective to continue deleveraging. On an all in net debt to adjusted EBITDA basis. We expect the ratio to trend towards the 4x level from its current level of approximately 5x by the end of 2022. As previously stated, this will be achieved through a combination of discipline capital management, and the benefits of strong results and growing EBITDA. Excluding our $150 million accordion, we have approximately $169 million in available undrawn credit facilities and $61 million of cash on hand. We closely monitor our liquidity position, ensuring we are flexible to react quickly to new opportunities. From a working capital perspective, we continue to make great progress in optimizing our position. While noncash net working capital investment increased from $123 million to $147 million year-over-year. We note that as a percentage of sales, our working capital intensity fell from 14% to 11% on an annualized basis, an impressive result when the strong sales growth from the quarter is considered. Further, on a sequential basis, our working capital investment fell from $175 million to $147 million on a similar level of sales. While working capital requirements will vary quarter-to-quarter, we are encouraged to see that our initiatives promote greater working capital efficiency in our results. Continued success with managing noncash working capital will help us not only grow but also provide us options on deleveraging our balance sheet. Turning to our remediation work, as Tim mentioned in his prepared remarks, we have increased our accruals for both the bin incident and equipment rework. The incremental $10 million for the equipment rework is expected to be released over the next 3 months. The remaining accrual related to the bin incident, including the incremental amount announced with the quarter isn't as straightforward to predict timing, given this customer's decision to remediate with other suppliers and the related legal claims. However, we remind listeners that this accrual will be partially offset by insurance proceeds. And finally, turning to our outlook for the upcoming year, supported by a strong backlog of 47% year-over-year and the high level of sustained customer demand across all segments, we anticipate full year adjusted EBITDA to be at least $200 million in 2022. Thank you all very much for your time. And with that, we will turn it back to the operator to take questions.

[Operator Instructions]. Your first question comes from Michael Doumet with Scotiabank.

Nice quarter and obviously, nice outlook. First question I had was on the $11.4 million onetime sales concession. That was in your adjusted EBITDA, again related to a previous contract. I'm just wondering how that came about, what the amount relates to?

Yes, so we have a few customers, primarily in North America that have a fairly complex sale of arrangements, pricing arrangements with us. And so, as we work through this to clear those up, we were able to come -- to come a reconciliation on the amounts that will be funded from a cash flow perspective over the next couple of years.

Got it. Okay. And I guess, is there any WIP related to work expected for delivery in Russia or the Ukraine. Just trying to think in terms of inventory risk as it relates to the conflict there?

Yes. So a couple of comments there. So from a raw material perspective, fortunately, our steel buying approach allows us to easily divert any steel that would have been earmarked for any projects to other customers. So we don't have any risk from a raw material perspective. There's no WIP in process. And any finished goods that we would have a very small amount are easily to divert to other customers. So from an exposure perspective -- from an inventory perspective, nothing.

And at this point, I'm wondering, have you recovered the margin spread as it relates to steel costs? Or should we think that there could be more price increases through the beginning of the year. And I'm just wondering, maybe on your Commercial and Farm backlog -- have you -- in your backlog, yes, have you locked in steel prices? And I'm just trying to think about the margin implications through 2022 and I guess, the dynamic of steel prices going forward.

Michael, good question. No, we have locked in our supply and we're sort of [dollar] good on that backlog in those components. So any further changes or disruptions in supply chain, what we would expect to be less than '21, for instance, and we would look back and address pricing again as we see both the changes in pricing and the outlook for those prices.

Your next question comes from David Newman with Desjardins.

Just to clarify, guys, just on the steel prices. You're not hedging, you're not instituting hedging, you didn't hedge in Q3. I assume, you're not hedging here. So really it's just about the dynamic pricing that you're seeing in Commercial and through the Farm catalogs? Is that how you're approaching it still?

Yes, David, I mean, we approach actually more around locking in certainty margin. So when we have -- we're securing the supply for the backlog and in doing that, we've got the firm pricing on those components that then locks in our margin for that backlog. And so -- and then we just continue to do that roll forward and look at the outlook for pricing across steel principally, but then all components and materials.

And on the Commercial side, with sort of the volatility we're seeing in commodity prices rising interest rates and war in Ukraine and et cetera, et cetera, and maybe the dynamic pricing. Are you seeing at all at the margin any deferrals on the Commercial side at all in terms of just customers thinking, well, we'll wait this out and see how this plays out?

Well, the projects in Ukraine and Russia obviously impacted. So...

Outside of the Ukraine and Russia.

No. Outside of that, in fact, what you'll see the world needs to make up for what will almost certainly be a lower supply of Ukraine and then that region. So -- we don't see any delays in other projects. I'd say just the opposite.

Interesting. Okay. And then just on the Russian-Ukraine conflict, obviously -- you're taking out a major player here in terms of a wheat exporter. And I have to think that some of your other regions will have some big knock-on benefits in terms of grain growing regions. India is obviously a big wheat producer, et cetera. What's the benefit for some of these areas in terms of -- I would think Brazil and India, in particular, could benefit from Ukraine being taken out as a basically a supplier.

Yes. No, that's right...

But I mean, obviously, it's a supplier, right?

Yes, this will be the fourth year with substantial disruption in grain production and trade flows. You revert back to 2019, we had the trade wars with China essentially withdrew from buying beans in the U.S. And then, of course, they had swine flu and had to call their [herd] and that reduced demand of that region. 2020, where we had substantial disruption in 2020 as well, and then '21 of course COVID and then into now this disruption. So all that does is highlight the need for redundancy and infrastructure and pushing to more sophisticated, more efficient, more productive infrastructure, good infrastructure in the rest of the world. So that there is -- world is able to shift supply patterns, the trade patterns more nimble than shifting those. And they have more redundancy, essentially to run in, to account for – [these steps] of major disruptions.

And then last one from me. Just on the commodity price rally that we're seeing, particularly wheat obviously is exploding. I would think that your customers at these sort of commodity prices are salivating and obviously, what their cash receipts could be on the back of that will more than offset any sort of inflation they might have in equipment prices. Am I reading that wrong?

No, you got it right.

Excellent. And great results in Brazil, by the way Awesome.

Your next question comes from Jacob Bout with CIBC.

Maybe I'll just start with Brazil. And clearly, a very amazing story that's a journey there. It appears it was more profitable in the fourth quarter than in Canada. Can you talk about the sustainability of this growth? And do you need to -- what is the plant capacity [current rate] there right now? And do you need to invest more?

Very, very sustainable. Our market share fundamentally is growing in a robust market and an overall growing market. We consider -- we will -- we expect to see continued growth in market share in that environment in that growing market environment, with the overall market growing for our products growing faster than most parts of the world, maybe the fastest in the world. And so, you've got this multiplication effect of our share growing and the market growing. So those 2 things bode well for sustainability, in fact, sustainable growth. We're coming from the start-up phase. So that growth through '22 or '21 was huge. We expect to see that growth rate moderate somewhat, but those 2 factors lead into a very sustainable growth going forward.

And then how much of the demand within Brazil is actually provided from the production in Brazil? Or are you still watching importing product?

Yes, I know your plant capacity. Yes, we're building everything for Brazil and in fact, for other parts of South America, from Brazil, South America is augmented by supply from the U.S. and Canada to some degree, which is -- gives us some options and flexibility around capacity. Brazil, you remember was a -- is a very efficient automated plant. So we do have -- continue to have good capacity to keep our lead times low. This type of growth obviously is going to put pressure on capacity. We'll be looking at some ways to debottleneck -- continued ways to debottleneck some of which were included in our original plan. So we're recently adding additional laser capacity, for instance, which have been -- we've left room for that addition in the early days and setup and structure of that plant. Those things will continue debottlenecking and leading up the current facilities to get expanded capacity, bringing on additional ships, expansion of our team. It is all occurring right now and planning for increased capacity going forward. At these types of growth rates, we will be looking at investment to provide the capacity in future years. I mean, at the half point -- those are good problems to have in that robust market.

And then with the outstanding legal issues, where are you at with the claim with Farmers Edge. When do you expect a resolution there, same with AGT? And then what is the dialogue been with the insurance company or when do you expect a rolling settlement there?

Yes. Farmers Edge where that's all in public record, but we're due to go to trial on that, where we were the plaintiff in that case around our patent infringement. That's due to happen around midyear. And so, that continues on track. I mean, we're very interested in, while looking at Commercial means to settle all of these accounts, by the way. When we switch over to the other appliance, including the [indiscernible] you mentioned, I mean it's fully provided for. We're very comfortable in our provisions we've now taken. We do, as I said in my remarks, we view these as final amendments that more than account for our obligations. And we will pursue and we're very optimistic. I'm personally optimistic around finding a very reasonable Commercial means to put these behind us and settle up sooner rather than later. But with the claim of the accruals we've taken account for either scenario. In fact, I think if it goes longer, we'd expect to be well within our -- what we provided for.

And then on the insurance?

Insurance, as Jim mentioned, we do expect to see an offset here, very clear that we -- that, that expectation continues. There's multiple -- already multiple policies involved. So it will take -- it will continue to take some time. I mean another small way we would look at a discussion with various policyholders and try to come to a good reasonable resolution and solution as quickly as possible. We can do that inside 2022, that would be wonderful.

Your next question comes from Andrew Wong with RBC Capital Markets.

Can you just talk about longer-term EBITDA margin expectation? There's obviously been a lot of impacts over the last few years from steel, from investing in new businesses like Brazil, Digital and some product mix shift that we've seen. So with the current mix shift with the current kind of business conditions that you're looking at, could we see EBITDA margins kind of get lifted into -- like maybe into the high teens at some point?

Yes, absolutely. I think, we've seen very resilient margins as we come through a pretty heavy investment phase, including a lot of startup businesses, start-up and launch -- business launches. So that just gives us a lot of confidence around the resilience and on the ability to expand. So mix is a big part of it, you're right. But also there's positive contributions to mix. As we look at India, for instance, expansion in that market as we look at Food, as we look at Digital in the midterm, all expected to be positive contribution. The delta and the catch-up in -- through the launch phase in Brazil, we'll have a big impact on that as well. And then some of the investments we've made in selling tools will start to taper, and we'll see a combination of all of those things, including stabilization in supply chain and pricing environment, we do expect to -- we'll continue to expect to see EBITDA margins start to tick up by about 2 over the coming years.

Okay. And then just like on farmers with grain prices where they are, they're obviously -- it looks like their farm profitability looks pretty good. But nobody likes to pay more for equipment that they paid a lower price previously. So in the Farm segment, are there any cost pressures that as you [pass through] to farmers, has there been any pushback?

No. I think the environment is well understood by everybody. They're getting much more on marketing their grain. And so, it's in that context. If those things were reversed, maybe there'll be a little bit more pressure, price was down and commodity price was down, government prices way out. You generally don't see that [because] the March lockstep. You're right and, of course, nobody likes to pay more, but we're seeing the general inflationary environment across everything. So it's not our equipment or our segment is not different than what people are generally seeing. So backlogs are way up. Our sales are way up in the Farm segment across the board in really all geographies. So I think that bodes well. We may see pricing come down. But for the time being, the environment has more or less stabilized.

Your next question comes from Steve Hansen with Raymond James.

Just a couple from me. First, just on the Food segment, Tim, you described that you're setting up again for a significant growth this year, which is encouraging. You also described previous capacity constraints prior to acquiring Eastern. I'm just trying to get a sense for how your capacity sits today to handle the growth that you're expecting? Are you good for the next year or 2? Or just give us some context around how well positioned you are to handle the growth.

Yes, great question. The business has been growing very strongly. And so again, like Brazil, both at these kind of rates will -- we need to address or continue to address capacity. Eastern gives us a big leg up in that right away, both in people and in production, because we have other facilities where we can leverage to produce some of the equipment. So including our businesses in EMEA, in India, in the U.S. and Canada. So we have flexibility around some of this production space. So we're very positive about our capacities now and into the rest of this year. And then growth at just kind of rates, we will augment that -- look to augment it as we look over the next couple of years. There's a lot that can be done with debottlenecking [indiscernible].

And just on the dealer build-out that you described, you've already got good portable distribution capabilities. But can you just maybe give us a bit more context in terms of how much broader you want the dealer network to look on the broader package side on the Farm side, sorry. Are you -- is there a context around the quantity of dealers, I guess, that you're looking at? I'm just trying to understand how that's going to increase your penetration rates into the U.S. and to what magnitude?

Yes, we're looking to bring on really robust [expansive] partnerships with our dealer network in the Farm permanent space. And that's coming from a fairly low base. And then we're looking to expand our full-line AGI dealers. And we only have a handful of those today to give us some perspective to it. We sell through about 150 dealers on the Farm permanent space, close to 2,000 or 1,500, I guess, backing up the -- closing of 1,500 portable to give you an idea. Now it's very much the 20-year rule. But the -- in the Farm permanent space, there's a lot of smaller dealers. And we're looking to really expand our partnerships with solid dealers that are full line AGI dealers. And that just in building those partnerships out, there's enormous growth potential in U.S.

And you described a number of attributes in your prepared remarks around why you've got a comprehensive package to offer now. But what is the real hook because you do have some bigger competitors in the U.S., what is it, in particular, you're finding that's allowing you to really wrap the additional dealer mind share?

Well, I look at it as just a comprehensive package as any partner would. So we need to have the best product, the best breadth of product, service support, financial support, configuration tools for a -- these are engineered order environments. And then it's solid delivery and lead times. I look at it as a package of everything and then that's augmented by our technology capabilities. And I would -- we look to be #1 in every one of those categories. And I think we are, and we will continue to demonstrate that, improve that. And as we do, just naturally, if you're #1 in those categories, you're going to see the expansion in your distribution channels. And so, it's really that basic. We'll just continue to position ourselves to be #1 across every important category to our channel partner.

Your next question comes from Tim Monachello with ATB Capital.

First question here, just on the Digital segment. You saw revenue ticked down slightly quarter-over-quarter. And you mentioned chip shortages is -- chip shortages and the limitations on trade shows as some of the factors there. Was there anything onetime in the quarter? And can you provide, I guess, an outlook on how you see chip shortages developing through 2022 and what you're seeing on the trade show front so far in the year?

Yes. So there's also a seasonal impact there, Tim. So Q4 in Digital, I mean, once you get the grain in the bid, it's -- you're going to see a natural pause in some of the sales activity in those product lines. And remember, we're putting a lot of what we're doing is monitoring bins, getting sensors in bins, the protection of that crop and automated conditioning. Once you get the grain in the bin, that's going to naturally have a slowdown impact. So factoring the seasonal there and that can account or fills out the picture as you laid that out. Trade shows, yes, we continue to have a big impact. We would have expected more growth in '21 if we've been able to interact and get in front of customers, our win rates when we're in front of the customer are very high. They will come down as the further we get away from that customer, no surprise. So we are very excited to get back in person across the board in 2022, and that will augment our growth rates in that segment going forward. And then there was a third part of that question, what did I miss?

Just the chip shortages. Are you seeing that starting to be clear? Or do you have some suppliers that you've got the grains out there?

The short answer is that environment continues to be very difficult. But what we've done is we design our products to be -- to be able to use products or supply components that are available. So we've been heavily pursuing that to give us more flexibility currently. And then as we look forward, we avoid sort of single source or single component situations, I think the world in general, we'll be heading in that direction after this supply chain shop.

Next question sort of related on supply chain. Can you talk a little bit about the lead times in your Farmer Commercial segment, how those have progressed since Q3? And where you're seeing the biggest pinch points in supply chain, sounds like steel is less of an issue than it was previously?

It's really stabilized. Everything is relative to parts or months in '21, of course, but we are well positioned for our backlog, for our pipelines, our expectations for the year. Steel, you're right, has generally eased up in terms of both availability and pricing environment. Components across the board, there is some components that continue to be a challenge that might account for some delays from month-to-month or quarter-to-quarter. But largely speaking, we're comfortable with supply chain environment as we sit here today. And we've got further disruption in the world. We can't predict what might happen, but we're comfortable with where we sit today.

Okay. So you don't anticipate any major capacity constraints based on supply chain in the context of, I guess, growing bond demand given where commodity prices are going in 2020?

No, Tim, not at this stage. I mean, our situation is obviously different depending on where in the world. But we do stay on top of this very closely, weekly reviews, worldwide reviews in terms of supply chain challenges and how to resolve them. And we've been -- I mean, we've come through the last couple of years of some very, as you know, very challenging supply chain environment and we put in place the right governance and process to make sure we can react and accommodate. And that's actually been one of the -- I think one of the key reasons why we've been able to do well through these turbulent times is our ability to react and adjust for the challenging supply chain issues.

And then last one from me. Obviously, Russia is a great supplier of potash, and there's some supply chain issues even in the Canadian potash segment. if there's a fertilizer constraint in the North American market, just it develops in 2022, how could that impact, I guess, your Farm segment?

Yes. Well, right now, we expect, I think, general expectation is that farmers will be able to get the nutrient and see that all in what they need to get to planting indications and expectations. So there obviously going to be some changes in the flow of those goods around the world, but there -- we do expect that we'll see that will more interrupt or reduce planning expectations. And fundamentally, it's that volume, that planted acreage and yields and volume [indiscernible]. So we don't see an impact as we sit here today.

We have a following question from Michael Doumet.

Just wanted a couple of clarifications. On the bin incident, these final amendments, does that exclude any potential settlement on the legal issue, if that's what you'd like to pursue? And I'm assuming that also excludes any potential offsets from insurance?

It excludes any offset from insurance for sure. I mean, that process needs to get into full swing and usually happens towards the end -- these types of events usually takes a lot longer. Tim mentioned the number of parties involved and insurance companies generally want to take their time to review all the facts to come up with all the details of the insurance recovery. But that recovery will come. And then in terms of the -- what our accrual covers, yes, it does cover our -- if you know from an accrual perspective how we do this is we look at various scenarios, including settlement costs, actual costs, legal costs, et cetera, and incorporate all of those to come up with our estimate of our accruals. So the answer is yes.

And good to know. I guess the next comment is, while I wanted to comment first on the solid job on the working capital. Again, I think you talked about reaching net debt-to-EBITDA of 4 turns at the end of the year. Just trying to think how you got there. Obviously, you've got to pay the provisions, the $65 million you've closed Eastern there's the dividend. So I'm just trying to think, is the fair characterization that we effectively de-levered to that 4 turn ratio through EBITDA growth. And I guess just a follow-up question to that. How much CapEx should we be expecting in 2022? And maybe just directionally, where working capital could get to you and if there are further improvements that you're working on.

Okay. So a lot of points there. So from a [indiscernible] couple of things to note, we generate a lot of free cash flow. But yes, you pointed out there are some uses for it, the Eastern acquisition and your question on CapEx. Based on our forecast for this year, we expect CapEx levels to be similar to the last couple of years, they'll be slightly higher, but nothing too dramatic. And so, that allows us to generate quite a bit of free cash flow that we can use to apply to various business needs. Working capital management, as I noted in my comments, has been very good this year despite the strong growth. We have had a need to increase working capital but at a much lower percentage than we have in the past. We do expect strong growth to continue this year, so there likely will be some working capital needs. But again, our focus on accounts receivable management, inventory management and IP management will continue. We have not let up on that. And so, we expect to be able to hit our low-4s total leverage ratio by 2 factors: one, applying some of that excess free cash flow to our debt levels, but also as importantly, the growth in our EBITDA, which will have a significant impact to us.

We have a following question from Steve Hansen.

Just a quick one. I just wanted to follow up, Tim, I think you said the quoting activity in Canada on the Commercial side had really picked up of late. I just wanted to get a sense for whether you guys are involved or seeing any benefits from this renewable diesel push that continues to be capturing headlines, it feels like every other day. But just trying to get a sense of whether that's driving part of it or if it's just a broader separate to the -- that you're seeing?

No, no, that's definitely a factor, and we're involved in quoting on all of those. We expect to be involved in some of them for sure -- you look around the world I think you'll see similar opportunities, expansion into those sectors. So it continues to be part of an active part of our quoting and our focus around the world.

Your next question comes from Michael Robertson with National Bank.

You guys touched on the majority of these questions already. I just had a follow-up on the backlog. Going off memory, I seem to remember, exiting Q3, the increase in the backlog was sort of like an even split between pricing increases and volume increases. Just wondering if there was any sort of change their quarter-over-quarter or if it's still sort of a 50-50 drive there?

Yes. No. Pricing certainly has had a part of the impact for sure, but we are seeing strong volume benefits, particularly in the Commercial, International segments, even North America for that matter in commercial segments. But there is a mix. It hasn't changed too dramatically from Q3 in terms of the split between pricing and growth.

There are no further questions at this time. Mr. Close, you may proceed.

Great. Thank you very much for the time this morning, and we'll close up the call. Thank you.

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