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Good morning. My name is Pam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AGI's Second Quarter Results Release and Conference Call. [Operator Instructions] Thank you.Mr. Tim Close, you may begin your conference.
Good morning. Thank you for joining Steve and I to discuss Q2 and our outlook going forward.Our business has performed well through an unprecedented quarter despite all the issues associated with COVID crisis and most directly, manufacturing closures we've had. Our sales were down just 11% from Q2 2019, coming in at $261, and our adjusted EBITDA at 41 -- $44.1 million was down 14% as COVID-related items impacted costs in the quarter. Our gross margin also increased in the quarter, year-over-year, to 32.2% due to favorable product mix with a strong North American Farm environment, a stable commercial margin profile, augmented by strong performance in India, EMEA and substantial improvement in Brazil. Our resilient results in Q2 and going forward have been directly driven by the outstanding performance across our teams, which allowed us to continue operating where and when possible.As I've outlined in prior communications, we moved very early in this crisis to develop and implement robust safety protocols across our entire operation from standard PPE to robust tracking and tracing in every location. In the face of a wall of uncertainty, conflicting and changing advice from the professionals and rapidly adjusting markets, our team responded with calm, deliberate actions to maximize safety and minimize uncertainty across our entire business.Now we have been pushing hard over the last number of years to diversify our business from a geographic and end-market basis to move away from regional exposure and draw our demand drivers closer to global food supply infrastructure build and maintenance to become an integral partner in that global ecosystem. Our historical and, in particular, our performance in 2020 has highlighted the resilience of our business and our position in our end markets. That track record points to resilient business through regional weather events, through economic cycles, and now we can add global pandemic to that list.Now turning to our regional review of our operations. Our Farm business in North America remains robust. Our investments in quoting tools, dealer training, dealer onboarding, infield inventory, product development, customer service have positively impacted our results and our growth in the Farm segment. We continue to focus on expanding our relationships with our dealers as well as growing our dealer base in key regions to ensure that we have the product, service and support needed by our customers in all regions.Demand and intake at the Farm level in North America has remained strong throughout the past 6 months, as dealer development and expectations for crop volumes has resulted in robust demand for storage and portable equipment. Overall Farm backlogs are up substantially year-over-year heading into the back of the year.North America Commercial has been more impacted by COVID-related delays in projects. Although these delays and postponements have impacted projects as our customers focused on operations and working through COVID-related uncertainties in their markets, our diversification across 5 platforms has resulted in a backlog higher than at the same time in 2019. We expect that COVID will continue to impact activity, but we have seen initial signs of projects resuming with quoting and design activity picking up.India continues to have elevated COVID activity, which was -- which has impacted rice millers throughout the country over the last 4 months. Our facility was closed for roughly 3 weeks, and many of our customers' operations have been closed for much longer, all of which has resulted in a temporary reduction in order intake volume. Despite the challenges in the quarter, sales were flat to the prior year and margins remained strong as we made significant progress on lean projects, which have positively impacted margins going forward. As the country opened up later in Q2, order intake increased and backlogs are again robust in India as milling activity comes back online and the rice crop remains in good shape.In Italy, we completed the investment of our new production line earlier this year and have seen the benefit of increased capacity and productivity having a positive impact on operations and margins. Although activity in EMEA region has been impacted by travel restrictions and a similar theme of uncertainty causing delays in projects, backlogs are also up substantially year-over-year in this region as we capture sales in an expanded footprint and sell more complete projects with integrated storage and handling.Our operations in Brazil were also impacting the quarter including a 2-week shutdown and restricted capacity in additional periods. Despite these headwinds, we're seeing excellent momentum in Brazil with sales climbing to record levels, positive EBITDA in the quarter, representing a nice delta from a subdued Q2 in 2019, and backlogs are now up over -- up 60% year-over-year. Farm sales in Brazil are strong, aided by strong crop volumes, increasing propensity to store and add crop at the farm level. We've also completed lean projects in Brazil to increase productivity, provide better detail on our individual product costing and rolled out an automated quoting tool to decrease quoting time, better serve our customers.Our Technology business continues to come together. We moved the entire operation into a new facility in Kansas City over the last few weeks. This new facility provides spaces to substantially increase our IoT hardware assembly and manufacturing as well as a dynamic space to bring our developers and IoT device engineering teams together as we continue to map out the expansion of the products and platform. We continue to use several programs to facilitate expanding our sales and onboarding farmers to the IoT and the farm management platform including sales through our dealers, direct sales, hardware as a service, data subscription options and financing options. Normalizing for the changes in these sales methods, our retail equipment sales increased 80% year-to-date as at June 30. We are entering a critical time now as farmers turn their attention to harvest and they require capacity in tools to properly condition stores and market that crop.During the quarter, the scope of the required refurbishment in the troubled commercial project previously discussed increased significantly, adding $6 million to AGI's cost to complete the project. Our assessment of the original and subsequently amended scope was based on extensive assessment at the time. However, the issues leading to the increased costs were due to issues that are cascaded throughout more of the project than was expected by our team and consultants as well as substantially higher costs for all associated materials, labor and third-party expenses.This site has moved to commissioning pays. And as such, we are satisfied this increased amount is a comprehensive estimate of the entire project. As previously reported, the cause of this disappointing project was identified early in our investigation, and we've changed our team, processes and structure to quarantine the cause, eliminate similar events and restrict this to a onetime event. At the end of the day, this issue has accelerated our restructuring, which has raised our expertise and improved our design engineering sales and project execution skills.With that comment, I will turn the call over to Steve for a more detailed review of the quarter.
Okay. Thanks, Tim.Sales and adjusted EBITDA in the second quarter of 2020 were $261 million and $44 million, respectively, compared to $293 million and $51 million in the prior year. Robust Farm demand in North America and solid results in Brazil, EMEA and India contributed to a strong performance in Q2 2020 despite the headwinds presented by the emergence of COVID-19. Our results reflect resilience of our business in the face of COVID challenges as well as the benefits of diversification across geographies and product lines.Our Farm business remained very strong as dealers responded to robust end user pull and expectations of a high-yield, high-volume harvest, the primary demand driver for AGI. Offshore, sales and new order intake remained steady despite the significant impact of COVID in our primary hub countries of Italy, India and Brazil, and backlogs are consistent with the prior year.Our results in Q2 2020 reflect a very strong operational performance across our businesses and geographies, as our gross margin increased at 32.2% in 2020 from 31.6% in 2019. It is significant that the gross margin percentage was achieved despite COVID-related production interruptions at all of our international facilities and at several facilities in the U.S.As a percentage of sales, our adjusted EBITDA margin increased a significant 570 basis points from Q1 2020 and normalized for the investment in our emerging technology platform was higher than Q2 2019. Margin growth was a result of a continued strong Farm performance as well as sustainable increases in offshore margins that resulted largely from strategic capital projects in EMEA and strong momentum in Brazil.With respect to outlook, we expect adjusted EBITDA in the second half of 2020 will exceed 2019 results. As of June 30, 2020, our Farm backlogs were 25% higher than the prior year. And the strong momentum has continued into Q3, as favorable crop yields and volumes are expected in both Canada and the United States. Likewise, our international backlogs remained strong and at levels consistent with the prior year despite macro COVID-related uncertainties. Overall, our total sales order backlog is 7% higher than a year ago, and we remain positive on the outlook for AGI in the second half of 2020 and beyond.With respect to balance sheet, as noted previously, we amended our credit facilities in April 2020 in light of the substantial uncertainty caused by the emergence of COVID-19. Although our covenant tests are currently suspended, our net senior debt to adjusted EBITDA ratio of 3x remains well below the pre-suspension requirement of 3.75x, and we expect the ratio will decrease further in the second half of 2020. In April 2020, we also expanded our credit facility to add flexibility and additional liquidity, and as at June 30, 2020, had $184 million of undrawn revolver capacity plus $100 million untapped accordion.With that, I will turn it back to Pam for questions.
[Operator Instructions] Your first question comes from Jacob Bout with CIBC.
So maybe I want to just start off with the rework. So the total rework estimate now is $20 million?
That's it. That's right. Yes.
Okay. And maybe just talk a bit about what led to this increase? And could we see the same issue pop up at other projects?
Yes, I think the answer is no. We don't expect it to pop up elsewhere. And per my comments, we've changed -- made many changes to limit this to one time and [indiscernible] throughout the 20-year history is a onetime event. And it was an error in design elements that we cascaded -- ended up cascading up throughout the entire project. And so while at initial stages of assessments, we had been limiting that impact on a project and ended up cascading through the entire project. So obviously, a disappointing result here. And -- but very satisfied that the changes we made limit this to this onetime event.
So this was something on the design side for this specific project. Is that...
That's right.
And when is this project expected to be completed? You said you're moving into commissioning phase now. When is the [ commissioning expected ] to be done?
Yes. So literally, in commissioning of the project over the coming days here. So the -- from our perspective, fab and install is substantially complete.
Okay. I guess what I'm thinking about like -- so when is it -- when does the client expect to sign off on this? And really, how confident you're that there'll be no further rework costs in the third quarter?
Yes. That's what's happening right now and very confident that this is the end of this project, we can put it behind us and reap the benefits from changes we've made in acceleration on a lot of the changes we made and look for salvage of the deposit from an event like this.
Okay. And then I also wanted to ask about Brazil. It sounds like things have really improved there. Maybe talk a bit about capacity utilization of the plant currently, what products are you manufacturing there? And what else is going to come out of this plant?
We've got lots of capacity. The team there has done a phenomenal job over the last quarter or so in terms of, well, increasing the output of that. Not coming close to the capacity, but increasing the output is still obviously very challenging. And then doing that well, we were shut down for a number of weeks and restricted in terms of what we could do in the plant, even when we brought people back on. We -- some of our protocols obviously involve a certain amount of distancing. So it can temporarily impact the capacity of the plant. But we've got lots of room left from a capacity perspective. Sales and the backlog is high, but equally, so is the pipeline, the -- and expectations for continued momentum of those sales. So you're seeing very nice improvement in fundamentals in market share, in brand awareness, in execution of projects, just incremental improvement on every KPI.
So running at 50% capacity utilization? And what do you think the EBITDA contribution would be like in 2021?
Yes. We'll -- we haven't mapped out an exact number for 2021, Steve (sic) [ Jacob ], but it's positive now, and we expect just incremental growth in that, getting to our margin, a similar margin that we have in a blended basis across the rest of AGI.
Your next question comes from Steve Hansen with Raymond James.
Just wanted to touch on the margins here, if I could, briefly, very strong performance. Just curious how we should expect the blended margin to look going forward? I understand the Farm side is quite strong, so you had the mix benefits, and the international side is also strong, but I'm also aware this can be lumpy. So just trying to get a sense for how we should expect that margin profile to trend through the back half [indiscernible]?
Steve, it's Steve. The margins in Q2 were very strong. And I noted in my comments opening this call, sustainable margin improvements. The mix was favorable with respect to the Farm business being very strong in Q2, which is not unusual for a Q2 for our Farm business to be -- or for our business to be more heavily weighted to the Farm. I think what's most important is the margin gains we've made offshore, particularly in Brazil, where Tim noted incremental improvements, stronger sales, higher market share, better execution. All of those things are leading to sustained margin improvements. And also noted in the MD&A was the capital project in Italy. We refurbished their -- or replaced their storage bin production line and they're reaping the gains with it. So there will be obviously some fluctuations quarter-to-quarter, but there was nothing in Q2 of 2020 that stood out as unusual or not sustainable.
Okay. Great. That's helpful. And just on SureTrack or the technology platform. We've seen a number of investments over the past 2 years or so, and it sounds like the sales trajectory is moving well. But are you going to continue to invest in this for the next 1.5 years or 2 years before we start to see that drag fade? I mean how should we think about that drag relative to the growth profile? And maybe just some context around how much further we -- how much more rapidly we should see this growth profile accelerate? I think you mentioned 80% in your remarks, Tim?
Yes. Good question, Steve. The increased volume, sales levels and changes in business will decrease that drag in the near term. So we do expect to have a positive contribution to the business in the near term. And then it is growing nicely right now, and we've got additional plans for maintaining that growth, and that will bring a nice positive contribution to the business directly and indirectly through augmenting our equipment sales, building our relationships with customers and dealers, and the digitization or the -- and somewhat automation of our equipment is just necessary. It's expected and necessary in part of the baseline offering for products pretty much across industries, but especially into equipment like ours. So it's something that we will continue to spend a good deal of time on. We've made substantial investments. We have a great platform right now. We're focused on executing on that platform capabilities and expansion of the product offering with what we have.
Your next question comes from Michael Robertson with National Bank Financial.
Congrats on the strong quarter. We were a little surprised by the results in Canada being down as much as they were year-over-year in Q2 given that there were no production suspensions. I know you highlighted normalization in Commercial sales relative to a really strong Q2 in 2019. But you also noted a change in preseason buying programs that resulted in some sales being moved to Q3 2020. Can you talk a little more about those changes with the specifics of those changes and maybe ballpark how much sales you expect to see moved from Q2 to Q3?
Yes. I mean there were really 2 things in our Farm business in Western Canada that are important. One was the very late seeding we had in 2020. The farmers got the crop in and seeded well and it was looking like a very strong harvest, but the timing of it in Q2 did impact Q2 sales. The change in preseason buying programs was significant. It was very different than prior years where we would normally receive our preseason orders in Q1 and begin to fill those in Q2. It was a change in the buying pattern of a customer at their behest. And over the course of fiscal 2020, it will not impact AGI, but the reason -- one of the reasons why our backlog at the end of June is as high as it is, is because of the late ordering pattern, the orders received in June. So the business is bullish with the timing change from prior year, and you'll see the benefit of it in Q3.
Got it. So yes, we shouldn't really expect an overall change in the year, just a movement from Q2 to Q3?
Absolutely.
Okay. On the AGM call, you had pointed to expected record sales in Brazil in Q3. Given the strength in your international markets including Brazil so far this year, are you still expecting those record sales? Or did you maybe realize some of that anticipated revenue a little earlier than expected?
No, no. It's -- Q3 is still looking very strong. We've -- with good momentum heading into the fourth quarter actually. So did -- none of that was brought forward. If anything, some was pushed out of Q2.
Your next question comes from David Newman with Desjardins.
Just on the margins, again, not to beat a dead horse, but I'm just trying to understand, these periods often give us an opportunity to kind of look at our cost structures and look at the mirror and maybe take some permanent cost reductions overall. Was there any cost actions that you took during 2Q? And as you kind of dug down deeper that you identified other cost savings that might be more permanent such that when we get in the back half of the year, the margins could actually do even better?
Well, I think you heard me talk to margin improvements, and Steve talked to sustainable margin improvements through quite a few of our regions. So we've -- those were a result of lean -- new capital automation and lean projects that did remove substantial amount of cost to make those margins sustainable. I think we also note our volumes are -- haven't changed substantially and, in fact, backlogs are up. So we need the teams that we have in place from a design engineering. We're actually expanding and augmenting that team from a regional systems engineering perspective and sales, getting the right salespeople in the right places. So in order to take advantage and keep up with what we see as an improving conditions through 2020 and into 2021. So a good -- it's an excellent point. It's one that we're focused on, in general, making -- getting the margin improvements that we've talked about over the last number of quarters. But some early or some good recent results in achieving those margin improvements.
Any steel cost benefits that you cascaded through this quarter? Or do you expect to kind of hit up 3Q, 4Q kind of thing?
Sorry, David...
Any steel cost benefits to the quarter or that will be in the second half?
Yes. Well, steel has been -- we buy significantly in 4 different markets. And so it's a little bit different everywhere, but we've been looking at and opportunistically buying steel as much as possible, as usual. And so steel did have -- did contribute to some of the improvement in the year. But I wouldn't say it's any different than any other quarter right now.
Okay. And then on international -- 2 questions, 1 is on international and 1 is on more domestic. But in international, any change in sentiment? Did you see any pull-in or push-out? It looks like you had a little bit of push-out in deferrals. But any change in confidence or sentiment? And have you had any telltale signs that there will be any cancellations amid the environment? Or is it improving?
Now there's no cancellations. I mean in our -- something in our backlog is -- everything stated in our backlog, no changes there. There was a pause. There was definitely -- it was largely because of the travel restrictions. Our people couldn't get to sites. And on a lot of the projects, you need to be there to do assessment, to do some of the design work. But -- so that impacted intake and pipeline for a number of weeks. That has started to normalize. I would -- certainly hasn't back to normal yet. But that said, we expanded the footprint we're selling into, we expanded our teams. And just that expansion is partially why we've got -- our backlogs are up substantially internationally.
Okay. And last one for me. Just on the domestic front, maybe I'm reading too much into this, but you called out new dealer relationships in the U.S., and it looks like you're winning new mandates down there. Is it because of the comprehensive lineup that you're offering? Or is there any change in environment that you're winning these mandates? Or any comments there?
No, absolutely related to our expansion of our product lines and -- across the board. So not long ago, our product lines were more restricted in the U.S. to portable. And then we've expanded over that time into permanent systems on the Farm and then in through all types of commercial operation. So that complete product offering and service offering and technology offering is absolutely why we're expanding those -- able to expand those dealer relationships and adding dealers.
Do you think you're winning share there?
I do, yes.
Your next question comes from Michael Doumet with Scotiabank.
I wanted to circle back to the gross margin conversation one more time. I mean understanding you called out favorable mix and realized structural improvements. You also did realize there were significant headwinds related to COVID shutdowns in the quarter. So presumably, we shouldn't see the negative impact from the shutdowns, at least not the same extent going forward. And it sounds like favorable mix will be sustained at least through the second half. So I'm just wondering if, again, based on that type of thinking, if we should, as we sort of lap COVID shutdown costs in the quarter, if we should think margin expansion should actually improve for the balance of the year?
Yes. Michael, it's Steve. I mean it's a good question. The impact in Q2 of COVID can't be understated. We had relatively lengthy shutdowns at all of our international plants and sporadic protocol-mandated production interruptions in the U.S. Shutting down production and restarting is no easy task and absolutely had an impact on margin, a negative impact on margin in Q2. Absent the interruptions, our margin would have been higher than it was. So your premise is correct that Q3 and going forward, all other things being equal, our margin will be higher than you saw in Q2.
Okay. That's great, Steve. I mean any way you could quantify the impact of the shutdowns in the quarter, just to give us a sense?
Well, really, we provided some guidance on the length of the shutdowns, 2 to 4 weeks internationally. The shutdowns in the U.S. were generally 3 to 10 days, but what -- there were several of them. And what's important to note is it's the shutting down and restarting, whether you're down for a week or 3 weeks, you come back from a cold start, there's inefficiencies. I can't quantify the percentage impact on our margin, but I can tell you that it matters. It was no insignificant event.
Okay. Well, that's good color. I appreciate it. And maybe just a higher level question for you guys. I mean if I roll back the clock, I think we've had this discussion before, back to the early days of 2019 before COVID, before the trade tensions, before the poor weather conditions in the U.S., consensus was calling out for 2019 EBITDA of $170 million. I didn't feel unreasonable back then in terms of expectations. And I would think that in a normal world, whenever that time comes, that number wouldn't necessarily feel unreasonable then, too. So I guess the question is, if you look at the business today, where -- in which areas do you guys see the most potential for growth or for catch-up, having sort of been impacted from the macro conditions in the last couple of years?
Yes. Well, I guess a couple of parts to the question there. But our international business is -- I don't know if you can call it catch-up or continued growth, I mean the -- India is growing nicely, Brazil is essentially a start-up that's growing nicely, and EMEA continues to grow as well with new products, new product manufacturing, and entering new countries, new markets in those regions. So continued growth. I mean -- so Farm markets have been robust and continued. So the catch-up, there are some delays. The only real aspect is projects around globally, North America and internationally, where that might have been postponed during COVID, and you can call that some catch-up as people reassess where they're going to allocate their capital going forward. Otherwise, I think it's a continuation of the path we've been on is this growth in each of the markets and platforms that we're in.
Okay. Great. And Tim, just on that, I mean last year, storage, the business in the U.S. is quite challenged given some of the conditions. Just give us a sense for the year-over-year improvement in that business.
Yes. Substantially different profile last year from a weather perspective in the U.S. And I wouldn't say the political noise has gone away, but maybe it's been normalized somewhat. And so there -- projects are moving ahead. There are some regions maybe still impacted by some of those, more on the political side, trade tensions, but for the most part, farmers and Commercial continue to invest in the facilities. This year, we'll see large crops, we'll see -- and we have seen good, steady demand in each of those categories, each of those segments.
Your next question comes from Andrew Wong with RBC Capital.
First, I just want to ask about cash flow. Do we expect a reversal in the working capital in the second half of the year? And just in general, I mean working cap has been kind of a cash drawdown for the past few years. And I'm guessing acquisitions also have an impact on this. But how should we be thinking about this going forward? Like what's the proper cash conversion from like EBITDA, for example, for the business?
Right. So typically for AGI, our cash flow in the second half of the fiscal year is stronger than the first half, due largely to the timing of Farm sales and Farm receipts. We were asked several questions last quarter regarding COVID and its impact on our cash flow and working capital. And we've been watching it very closely. And I can tell you that our cash flows in Q2 of 2020 were not significantly impacted by COVID. There was no discernible pattern of a change in cash receipts.Going forward, the use of cash in our working capital depends largely on a couple of things, I guess. It's our approach to buying steel. You will see some lumpiness quarter-to-quarter. We're very proactive on acquiring steel at an opportune time to lock in margins and lock in our cost base. Generally, though, as we grow, you would expect a usage in working capital. However, you're correct, the last couple of years prior to 2020, it was higher than typical, largely due to investments in Brazil, for example, where we were really creating a start-up business, plenty of investment in inventory, financing tools, that sort of thing.So that's a long-winded answer, I suppose, but Q2 2020, we expect favorable cash flows. COVID hasn't been a significant factor in 2020. And going forward, we'll remain opportunistic on steel buys. However -- and working capital as we grow, there will be a minor investment, but not what you've seen in prior years.
Okay. That's great. And then just still on cash flow. What are the CapEx expectations for the rest of this year and the next year? Like are there any new kind of investment projects that we should be thinking about as we kind of model that out into next year?
Yes. No. CapEx, maintenance CapEx remains unchanged as a percent of sales. And then we've completed quite a few CapEx projects over the last number of quarters and years. And those -- there's nothing like, say, Brazil or even the expansion in Italy that we just went through, there's nothing on the -- in the near term on our plate. It [Technical Difficulty] down next couple of quarters.
Okay. That's great. And then just lastly, we've seen some pretty big fluctuations around the U.S. dollar just in the past couple of weeks. How does that impact the conversations you have? Like you mentioned you have a very strong backlog. Like could the fluctuation in U.S. dollar push those decisions back? And then just generally, like how would you think about the USD in terms of costs and how you recognize sales?
Right. So I mean we sell in the U.S. in U.S. dollars, if I'm understanding your question correctly. So from our customers' perspective, fluctuations in the USD to the CAD is not a relevant metric. It impacts our earnings here in Canada, our reported earnings on a translation basis. But as we sell into the U.S., our customers aren't affected by the change in exchange rates.
But what about like internationally for Commercial projects in international markets?
Yes. Well, we sell predominantly there. I mean we're selling in Brazil in reals. We're selling in Europe or EMEA in a combination of euro and USD, but -- and in India, we're selling in local currency or USD, but mostly local currency. So it would be just in some portions of that EMEA, but we haven't seen any impact due to the exchange rate in those markets. And if so, it'd be pretty isolated.I guess, the one where the strong dollar has had a positive impact is on farmers in Brazil. And they may be -- while they're paying us in reals, they're selling in USD in some cases. So that translates, whether they're directly or indirectly selling. The stronger dollar does give them a better price.
[Operator Instructions] Your next question comes from Steve Hansen with Raymond James.
Just 1 quick follow-up. Tim, this is just a broader strategy question around your EMEA strategy, in particular. Obviously, an enormous market opportunity, but also pretty difficult to tackle, I think, given the breadth and complexities of all those different markets that you'd be tackling. So I'm just really trying to understand what you need to do to enhance your competitive position in the EMEA space? There's some lower cost competitors out there. I understand you've made some investments in Italy. I think that's where you base that EMEA group out of, if I'm not mistaken. But how do you really fundamentally attack some of these larger new market opportunities in Africa and these places? Really, what you need to do to enhance your competitive position there as you think about those markets?
It's a good question. We've been investing. You maybe heard us talk about regional teams, regional engineering teams and systems design teams. It's bringing more than just the product, the -- augmenting it with the expertise, the design elements and then being best-in-class in project execution. So -- and that's what we've been investing in, in EMEA and each of the other regions that we're in. So move beyond just the steel product and augment it with -- whether it be service execution or technologies that they need to -- that are -- that become critical to operating those systems going forward.So -- and we've continued expansion of the product lines. So part of the EMEA project, recently, we've added additional product lines at different capacity levels to ensure we have the right product match to our customers' operations and what they -- levels of throughputs that they operate at, for instance, and that helps with costing across their projects and systems and expands the markets that we can enter into. So the type of project that you're selling into in Northern Africa, as you rightly point out, very different than what you might see in Ukraine, for instance, and having the right product line tailored to those regions is key to be -- to remaining competitive, but to expanding our relationships in each of the regions.And so that's what we've done over time. We've taken a lot of the expertise that would have been in North America, we've regionalized it and got that expanded it and grown our expertise as is relevant to those regions and then placed it close to our customers. And we'll continue doing that. That's the best way to build those relationships and build the most sustainable growing business.
Okay. And just as a follow-up to that, is there a service component to that in the emerging markets as well? Domestically, obviously, you've got a good established team and footprint here with long-standing relationships. But as you sell in these new markets, do you need boots on the ground from a service standpoint?
Yes. We have less of a service business internationally, we have -- outside of India. But -- and we don't want to plan to substantially increase that service component in the near term. Service that we're talking about more upfront in terms of helping design the right system and choose the right sizing of site and equipment for the intended use of the project. And while there's plenty of that expertise in North America, it gets a little bit more limited as you go internationally. So -- and then we are working on strategies to increase our parts of business and that would be globally. And then service would be -- expansion of our service business would be more regionally tailored.
There are no further questions at this time. Please proceed.
Okay. Well, thank you very much for your time this morning. And we'll again look forward to catching up, maybe not in person but over a video with more of you going forward in the quarter. I appreciate your time.
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.