Shares in agriculture technology provider Farmers Edge Inc. rose 17.5 per cent on their first day of trading after the Winnipeg company raised $125-million in its initial public offering.
Chief financial officer David Patrick said the company, controlled by Fairfax Financial Holdings Ltd., had expected a strong first day of trading after the company received roughly $900-million worth of orders for the $100-million in stock it had planned to sell. “We were very pleased with the reception we got,” he said during an online news conference Wednesday.
After setting an initial range of $10 to $17 per share, the deal priced at the top of that range. The IPO was underwritten by lead bookrunners National Bank Financial and CIBC Capital Markets and backed by Scotia Capital, Canaccord Genuity and Raymond James.
The stock opened Wednesday on the Toronto Stock Exchange at $20 and closed at $19.98, up 17.5 per cent from its $17 IPO price, giving the company a stock market capitalization of $813-million. ”I’m really happy today,” chief executive officer Wade Barnes told media. “Our focus is going out and achieving our goals. If we achieve our goals, the stock price will take care of itself.”
The company, co-founded in 2005 by Mr. Barnes, a former agronomist, collects data on a range of crop, land and weather conditions from sensors on 23 million acres of agriculture land and uses artificial intelligence and predictive modelling. The company then uses the data to help farmers “grow more with less inputs,” he said.
The company is also trying to grow more while shrinking its relative costs to do so. Farmers Edge has sustained heavy losses as it has scaled up, reaching an accumulated deficit of $363.4-million as of the end of 2019. The company has 500 employees and serves farmers in six countries, primarily Canada, the United States and Brazil.
But Farmers Edge, which competes against giants John Deere and Bayer, forecasts that it will narrow losses as it adds acres and increase revenue, as it frequently offers farmers their first year free to encourage adoption. Revenue in 2020 is expected to nearly double from $23.8-million in 2019, while earnings before interest, taxes, depreciation and amortization, or EBITDA, are forecast to improve to between negative $29-million and negative $33-million, from negative $74.2-million.
The company also recently switched the providers of its satellite imagery and cloud hosting services to Airbus and Google, respectively, which will reduce costs by more than $12-million this year.
Farmers Edge has forecast that in the medium term – which Mr. Patrick, the CFO, characterized as “over the next couple of years” – it could increase annual revenue to $125-million, increase the land it serves to 40 million acres and produce $15-million in positive EBITDA, while breaking even on a free cash flow basis.
Mr. Barnes said the IPO gives the company “a clean balance sheet and dry powder to go out at a time when digitalization is happening at a rapid pace in agriculture.” He said Farmers Edge plans to spend the IPO proceeds on expanding its free pilot offerings to farmers in core markets, adding channel partners including insurers to sell its services, and pursuing acquisitions.
Farmers Edge was also financed prior to the IPO by Mitsui & Co. Ltd. and Toronto-based Osmington Inc., which is controlled by David Thomson. (Woodbridge Co. Ltd., the Thomson family holding company, owns The Globe and Mail.)
Editor’s note: The company's EBITDA forecast has been corrected in the online version of this story.
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Sean Silcoff