Ag Growth International Inc. announced its financial results for the three-months and year-ended December 31, 2019.
AGI results in Q4 2019 were mixed as strong demand for portable grain handling and drying equipment, a solid performance in India and significantly improved results in Brazil were offset by a combination of factors that resulted in a decrease in Q4 2019 adjusted EBITDA compared to the prior year.
In 2019, AGI demonstrated the success of its AGI SureTrack subscription model as demand exceeded our capacity and retail equivalent sales increased by 70%.
In the fourth quarter of 2019, AGI increased its investment in sales, marketing and technical resources at AGI SureTrack to address capacity and accelerate the future pace of new user additions, resulting in negative Q4 2019 adjusted EBITDA at AGI SureTrack of $2.7 million. Secondly, a very wet and late harvest in the United States and a continuation of the weak macro environment negatively impacted AGI’s grain storage systems business, resulting in lower adjusted EBITDA compared to Q4 2018.
Lastly, at the request of our customers, several Commercial projects in Canada and offshore were postponed into 2020, resulting in a deferral of sales and earnings.
Adjusted EBITDA as a percentage of sales in AGI’s seasonally weak Q4 decreased to 10% in 2019 from 13% in the prior year due to the investment in AGI SureTrack, the impact of poor growing conditions in the United States in 2019 and the negative effect of trade disruption.
In Q4 2019, adjusted loss and adjusted loss per share decreased from the prior year, largely due to lower adjusted EBITDA and higher finance costs, while loss and loss per share improved as the 2 Company recorded non-cash losses on foreign exchange and the equity compensation swap in Q4 2018, compared against non-cash gains in Q4 2019.
“As the world comes to terms with how to respond to the developing COVID-19 crisis I would like to thank all of the employees, suppliers and customers of AGI for their perseverance in a period of such heightened stress and uncertainty,“ saiys Tim Close, president and CEO of AGI. “The one certainty we have now is that the safety of our people is our highest priority.
"I’d like to acknowledge our team in Northern Italy who developed the policies and procedures to safely and responsibly operate, right up to the recent mandatory suspension, in one of the hardest hit regions and without a single positive COVID-19 case," he continues. "They have been an inspiration to the rest of AGI as we implement many of those same procedures across our business to provide a safe environment for all of our teams. AGI’s products, services and technologies have been declared an essential service in multiple states and provinces; recognition of the critical nature of the global food infrastructure that we supply. The COVID-19 crisis will have an impact on our business in 2020, however we are working to mitigate the impact and prepare for the post COVID-19 world."
Summary
Activity in the first quarter of 2020, absent COVID-19, has been consistent with management expectations, and results in the second quarter, to a lesser degree, are expected to be impacted by similar factors, namely the carryover impact of very poor conditions in the U.S. in 2019 and the timing of international orders.
AGI entered 2020 with expectations that adjusted EBITDA would grow significantly over 2019, and we expected that growth over the prior year would occur primarily in the second half fiscal 2020. Positive Farm sentiment and an improving trade environment, evidenced by strong Farm and Commercial backlogs, supported our expectations.
The emergence of COVID-19, discussed above, has created substantial uncertainly and is expected to have negative impacts in the short-term and management is focused on mitigating its impact. Management remains optimistic with respect to the business of AGI and its longer-term growth prospects. Trade sales and adjusted EBITDA will be influenced by, among other factors, the extent, duration and impact of the COVID-19 outbreak, weather patterns, crop conditions, the timing of harvest and conditions during harvest and changes in input prices, including steel.
AGIendeavors to mitigate its exposure to higher input costs through strategic procurement of steel, sales price increases and limiting the length of time commercial quotes remain valid; however, the pace and volatility of input price increases may negatively impact financial results.
Other factors that may impact results include the impact of existing and potential future trade actions, the ability of our customers to access capital, the rate of exchange between the Canadian and US dollars, changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets, and the timing of commercial customer commitments and deliveries.
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