Mr. Tim Close reports

AGI ANNOUNCES STRATEGIC ADDITION TO SURETRACK PLATFORM; PROVIDES MARKET UPDATE

Ag Growth International Inc. has acquired 100 per cent of the shares outstanding of Affinity Management Ltd. Affinity was launched in 2007 and currently has 18 employees, with headquarters in Oakville, Ont. The transaction was financed from the company's operating facilities.

Affinity was founded by Neal Dilawri and was developed over 12 years in partnership with one of the world's largest agricultural inputs manufacturers. Affinity is a provider of software solutions to the agriculture industry under the brand name Compass and includes a comprehensive enterprise resource planning (ERP) system for growers and ag retailers, as well as an agronomy tool. The ERP system provides full accounting functionality, including management of accounts receivable, accounts payable, payroll and inventory tracking. Additionally, Affinity employs on-staff accountants who provide bookkeeping services to its grower customers. Compass also acts as a central data repository and portal, which allow for the sharing of information with a grower's trusted advisers, including agronomists, accountants, lenders and insurance providers.

The Compass product suite is highly complementary to Ag Growth's current offering and will be a key component of the full Ag Growth SureTrack platform. Compass customers include independent growers, agronomy companies and ag retailers, representing over 8,000 individual farmers across North America.

Mr. Dilawri will take on a senior leadership role with the Ag Growth SureTrack platform and will provide vision and guidance to the platform going forward.

"AGI SureTrack is an independent platform, bringing together data across the farm, providing our customers with the ability to manage their crop production, manage their overall business, and market their grain based on content and robust traceability," said Tim Close, president and chief executive officer of Ag Growth. "Compass takes AGI SureTrack to the next level, adding comprehensive ERP capabilities for AGI dealers and agriculture retailers, and significantly adding to our offering for farmers. I am looking forward to working closely with Neal in his new leadership role with AGI SureTrack as we continue to grow this platform. I also want to welcome the entire Affinity team to the AGI family."

Update on fourth quarter 2019 and outlook

Ag Growth results in fourth quarter 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 fourth quarter 2019 results falling below prior-year levels. In 2019, Ag Growth demonstrated the success of its Ag Growth SureTrack subscription model as demand exceeded capacity, and the company increased retail equivalent sales by 70 per cent, despite the challenges of a soft U.S. ag market. In the fourth quarter of 2019, Ag Growth increased its investment in sales, marketing and technical resources at Ag Growth SureTrack to address capacity and accelerate the future pace of new user additions, thereby increasing the company's recurring revenue stream and adding significant equipment cross-sell opportunities. The accounting implications of the conversion of Ag Growth SureTrack to a subscription model, particularly in a seasonally weak quarter, coupled with an increased investment in the platform, resulted in negative fourth quarter 2019 adjusted EBITDA (profit before income taxes, finance costs, depreciation, amortization and Ag Growth's share of the associate's net income (loss)) of approximately $2.7-million. Ag Growth will continue to invest in the SureTrack platform in fiscal 2020; however, the quarterly amount of negative adjusted EBITDA is expected to be lower than experienced in fourth quarter 2019. Secondly, a very wet and late harvest in the United States and a continuation of the weak macroenvironment had a greater-than-anticipated impact on Ag Growth's grain storage systems business, resulting in lower-than-expected sales and adjusted EBITDA. Lastly, at the request of customers, several commercial projects in Canada and offshore were postponed into first quarter 2020, resulting in a deferral of sales and earnings. In sum, management anticipates adjusted EBITDA in the fourth quarter, inclusive of the impact of subscription accounting, will approximate $23-million.

Management retains its positive outlook for 2020. In 2019, Ag Growth demonstrated the success of its Ag Growth SureTrack subscription model by increasing retail equivalent sales by 70 per cent, despite capacity constraints and a challenging U.S. ag market, and in 2020, that growth is expected to continue as Ag Growth builds on existing relationships with processors, merchandisers, grain buyers and producers throughout North America. In addition, management anticipates robust farm demand with the beginning of the 2020 planting season due to an increase in U.S. planted acres, an improvement in weather conditions compared with historically poor conditions in 2019, and better farmer economics and sentiment should the United States and China fully implement phase 1 of a trade agreement. Offshore, management expects continued growth in India and Brazil, and anticipates an improvement in the global trade environment will result in increased demand in its commercial business. In sum, farm and commercial backlogs have returned to the very strong levels experienced leading into 2019, and management expects sales and adjusted EBITDA in 2020 to significantly exceed 2019 results.

Update on project rework

In the third quarter of 2019, Ag Growth recognized a pretax charge of $7-million for estimated rework costs on specific projects. Planning and related rework have advanced significantly since Ag Growth announced the preliminary estimate on Oct. 16, 2019, and the company now estimates total costs will be in the range of $8.5-million to $10-million. Ag Growth is incurring this increased charge to continue to stand behind its customer partnerships and to ensure the projects meet Ag Growth's high standard for quality.

About Ag Growth International Inc.

Ag Growth is a leading provider of equipment solutions for agriculture bulk commodities, including seed, fertilizer, grain and feed systems with a growing platform in providing equipment and solutions for food processing facilities. Ag Growth has manufacturing facilities in Canada, the United States, the United Kingdom, Brazil, France, Italy and India, and distributes its product globally.

Preliminary unaudited financial information

The estimated pretax charge to be taken in Ag Growth's financial results for the year ended December, 2019, and expectations for the company and Ag Growth SureTrack adjusted EBITDA in the fourth quarter of 2019 are based on, among other things, the anticipated costs of the rework of the related equipment, including the additional time, material, services and other costs required to ensure the applicable projects meet Ag Growth's high standard for quality and customer satisfaction, and Ag Growth's financial results for the three months and year ended Dec. 31, 2019. The actual rework costs and Ag Growth's financial results for the three months and year ended Dec. 31, 2019, have not yet been finalized or approved. Accordingly, the amount of the pretax charge and Ag Growth's guidance for the three months and year ended Dec. 31, 2019, may change upon the completion, audit and approval of the financial statements for the three months and year ended Dec. 31, 2019, and the changes could be material.

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