Earnings call transcript: Ag Growth International sees Q1 revenue dip 9% in 2025

Ag Growth International Inc. (AFN) reported a challenging first quarter in 2025, with a notable decline in revenue and earnings that fell short of expectations. The company’s stock saw a 3.4% drop in after-hours trading following the earnings announcement, continuing a difficult period that has seen shares decline over 62% in the past six months according to InvestingPro data. Despite these setbacks, AGI remains optimistic about its future, projecting a stronger performance and exploring strategic initiatives.

Key Takeaways

• AGI’s Q1 revenue decreased by 9% year-over-year to $287 million.
• Adjusted EBITDA margins fell to 10.9% from 15.9% in the previous year.
• The company aims for a full-year adjusted EBITDA of at least $225 million.
• AGI’s stock price declined by 3.4% in after-hours trading.

Company Performance

AGI’s overall performance in the first quarter highlighted the challenges in the North American farm market, which is currently in a trough cycle. The company reported a consolidated revenue of $287 million, marking a 9% decline from the previous year. Despite this, AGI’s strong international presence, particularly in Brazil and EMEA, provided some offset to the North American challenges.

Financial Highlights

• Revenue: $287 million, down 9% year-over-year.
• Adjusted EBITDA: $31 million, slightly above expectations.
• Adjusted EBITDA Margins: 10.9%, down from 15.9% in Q1 2024.
• Net Debt Leverage Ratio: 3.6x.
• Free Cash Flow (LTM): Approximately $41 million.

Earnings vs. Forecast

AGI reported an earnings per share (EPS) of -$0.26, missing the forecast of -$0.184. This represents a negative surprise of approximately 41.3%. The revenue of $286.75 million surpassed the forecast of $262.33 million, indicating a positive revenue surprise despite the overall decline.

Market Reaction

Following the earnings release, AGI’s stock price fell by 3.4% in after-hours trading, closing at $32.64. This movement reflects investor concerns over the company’s declining margins and earnings miss. The stock is trading closer to its 52-week low of $30.81, indicating a cautious market sentiment. According to InvestingPro’s Fair Value analysis, the stock appears undervalued at current levels. For more insights on undervalued opportunities, visit our Most Undervalued Stocks list.

Outlook & Guidance

Looking ahead, AGI has set a full-year adjusted EBITDA target of at least $225 million and a Q2 adjusted EBITDA target of $50-55 million. The company is optimistic about achieving mid-cycle EBITDA of $300 million and aims for 18-20% EBITDA margins during recovery. AGI is also exploring third-party financing for large commercial projects to bolster its growth strategy.

Executive Commentary

CEO Paul Householder expressed confidence in the company’s near-term planning, stating, "We would be in excess of $300 million EBITDA within our near-term planning horizon." He also noted the cautiously optimistic sentiment among farmers, which could bode well for future demand.

Risks and Challenges

• North American farm market downturn, expected to bottom in 2025.
• Potential impact of US-China trade tensions on global markets.
• Ongoing cost management and operational efficiency challenges.
• Execution risks associated with ERP system implementation.
• Market saturation and competitive pressures in key regions.

Q&A

During the earnings call, analysts raised questions about AGI’s working capital needs for commercial projects and dealer inventory levels in the farm segment. Executives addressed concerns about margin expectations and the potential impact of US-China trade tensions, indicating strategic measures to mitigate these risks.

AGI’s first-quarter performance underscores the challenges facing the agricultural sector, but the company’s strategic initiatives and international presence position it for potential recovery in the coming quarters. InvestingPro data reveals that analysts expect net income growth this year, with the company projected to return to profitability. For comprehensive analysis including 7 additional ProTips and detailed financial metrics, explore the full AGI Pro Research Report, available exclusively to InvestingPro subscribers.

Full transcript - Ag Growth International Inc (AFN) Q1 2025:

Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the AGI First Quarter twenty twenty five Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions.

Before we begin, we caution listeners that this call contains forward looking information and that actual results could differ materially from such forecasts or projections. Further, in preparing the forward looking information, certain material factors and assumptions were used by management. Additional information about the material factors that could cause actual results to differ materially from the forecasts or projections and the material factors and assumptions used management in preparing the forward looking information are contained in our fourth quarter MD and A and press release, which are available on the AGI website. I would now like to turn the conference over to Paul Householder, President and CEO of AGI. Please go ahead, sir.

Paul Householder, President and CEO, AGI: Thank you, operator. Good morning, and welcome to AGI’s first quarter twenty twenty five results call. I’m joined today by our CFO, Jim Redick. I’ll start the call with a review of our results, then turn the call to Jim for additional commentary on the quarter. We will then open the call up for questions.

As usual, I’d like to begin today’s call with a few comments that highlight our ongoing commitment to safety at AGI. In late April, our global teams came together to participate in our fifth Annual Safety Week, a cornerstone event for safety at AGI. This is an important opportunity for our teams to unite around a common priority in making our operations and facilities as safe as possible. This year’s theme was Spot It, Report It, Fix It, and was focused on proactive near miss and hazard identification. With safety metrics improving significantly over recent years, we continue to shift to a more proactive approach for detecting and neutralizing potential safety risks before they become a safety incident.

Safety is a key part of our culture, and I am privileged to participate in events such as our annual Safety Week. Thank you to all who participated and supported making this another safety milestone event at AGI. Turning to our first quarter results, I’m pleased to report Q1 adjusted EBITDA of $31,000,000 which came in just above the high end of our expectations for the quarter. Consolidated revenue for the quarter was $287,000,000 a decrease of 9% compared to Q1 twenty twenty four, with significant strength in our commercial segment helping to offset some of the ongoing industry wide challenges that largely impact our North America farm business. Our overall first quarter performance, inclusive of our strong order book, reflects the resilience and strength of our diversified business model, which has allowed the company to continue to drive strong results amidst challenging conditions in certain regions.

The Commercial segment continued to perform exceptionally well with first quarter revenue increasing by 53% year over year to $192,000,000 Our international regions, particularly Brazil and EMEA, drove this growth through the execution and delivery of several large scale turnkey projects. Commercial revenue from Brazil and EMEA increased significantly relative to prior year, demonstrating solid momentum in our two largest international business units. The Commercial segment’s adjusted EBITDA margin expanded to 12.8%, reflecting the successful execution of our operational excellence initiatives and the benefit of some higher margin turnkey projects. Revenue in our North America commercial business was down slightly in the quarter, though the team has been diligent in managing the quoting pipeline and was able to secure several new project wins in the quarter. The North America commercial order book, excluding foods, is up nearly 40% and along with the robust pipeline sets the stage for solid performance in upcoming quarters.

Overall, our strategic focus on building and establishing the right processes, teams and capabilities in the Commercial segment over the last few years continues to deliver favorable results. As expected, our Farm segment faced market headwinds in the first quarter, particularly across North America. Crop prices remain low, while higher dealer inventories steadily improve, though remain elevated. Volatile tariff policies and a lack of clarity of potential government farmer subsidies in The U. S.

Create a degree of uncertainty that impacts farmer sentiment in both The U. S. And Canada. The Farm segment remains subject to these challenging conditions, which are expected to last through at least the first half of twenty twenty five with limited visibility to the second half. We remain focused on what we can control and are closely managing our costs across the farm business from direct labor, manufacturing and supply chain costs to overheads and office costs.

In addition, we remain in close contact with our farm dealers, ensuring we are fully aware of and coordinated on any shifts in market conditions. We will continue to closely manage the situation and look towards progressing through the growing season towards harvest as a potential catalyst to stir demand and improve market conditions. Turning to our order book. I’m pleased to report that our consolidated order book stands at a near record level of $725,000,000 up 5% year over year. The Commercial segment has been a critical contributor to this result with sustained momentum in demand for large scale projects and engineered solutions, particularly in Brazil where the order book is up over 200%.

Other areas including North America Commercial are also solid contributors to the order book helping to offset relative weakness in farm segment order intake. The overall commercial order book is up 26% year over year, providing great visibility to our full year expectations for that segment. The global quoting pipeline remains active, particularly commercial as we monitor any potential broader impacts the ongoing tariff discussions could have on the global economic outlook and capital spending. In addition, we observed an encouraging trend in our farm order book, which increased 25% sequentially versus Q4 twenty twenty four with order intake picking up for permanent storage and handling products across North America. While it’s too early to declare a definitive change in where we are in the North America farm market cycle, this is an encouraging data point and is an area we continue to monitor closely.

Moving on to a few other key topics relative for AGI in the first quarter and the remainder of the year. Tariffs continue to be an area we regularly monitor for developments and potential impacts to AGI. As of today, the current tariff policies outline that U. S. MCA compliant products will be exempt from additional tariffs, which includes AGI’s Canadian made equipment.

That said, the Canadian made steel content that goes into Canadian made storage and permanent handling products sold into The U. S. Is currently subject to a 25% tariff. Assuming current policies and regulations remain in place, we estimate a relatively minor direct cost impact in 2025 attributable to newly imposed tariffs, and this has been factored into our outlook. Overall, tariff and trade policies have been a prominent topic for global markets with the full potential impact remaining to be seen.

Tariff and trade policies could ultimately impact our current financial outlook should it hamper farmer sentiment, aggregate equipment demand and the global economy more broadly. We remain vigilant and are actively reviewing and implementing options to mitigate tariff or trade related actions, including inventory stocking, supply chain strategies and manufacturing options, among other tactics. Now moving on to our 2025 guidance. We reiterate our outlook for full year 2025 guidance for adjusted EBITDA of at least $225,000,000 For the second quarter, we are targeting adjusted EBITDA in a range of approximately $50,000,000 to $55,000,000 with a similar pattern to Q1 in terms of farm softness being offset by strength in commercial. As we move into the second half of the year, we anticipate the extent of softness in our year over year comparisons for the farm segment to become less pronounced as the second half of twenty twenty four experienced the initial impact of the current North America farm cyclical downturn.

Through extensive engagement with our top shareholders, a topic that has surfaced is the analysis and understanding of the current ag cycle and what a mid cycle EBITDA could look like for AGI. Of course, we do not know when the cycle will turn or the pace at which a recovery will take place. We can make some commentary on this topic based on previous ag cycles and our current performance, which we believe are helpful for listeners who are trying to understand what an eventual recovery could look like. Based on our analysis and support from third parties, the farm segment cycle has a pronounced reset about once every twenty years, which generally lasts a few years before returning to and extending beyond the prior cycle peaks. During this period, we have and will continue to navigate the farm segment dynamics as well as focus on growing our commercial segment, all while implementing ongoing company wide operational efficiency improvements.

Before the reset in 2023, the farm segment cycle was peaking and AGI was nearing $300,000,000 in adjusted EBITDA. This was prior to the current momentum of our commercial segment growth initiatives more recently materializing from successful execution of our differentiated strategy. As we look forward over the next few years, we expect the farm segment to fully recover and our commercial segment to grow at a steady pace. With these expectations, we would be in excess of 300,000,000 EBITDA within our near term planning horizon, though exact timing will depend largely on the North America farm recovery. To conclude, I want to express my gratitude to our outstanding global team who continue to drive AGI forward each and every day.

While we navigate a variety of market challenges and uncertainty, I’m energized by the teamwork, collaboration and success we are having in executing our growth strategies, particularly for international commercial. Jim, over to you.

Jim Redick, CFO, AGI: Thank you, Paul, and good morning, everyone. Today, I will touch on four areas that include a quick overview of our first quarter results, an update on key balance sheet metrics, some comments on cash flow and a quick recap of our capital allocation priorities. On a consolidated basis, as expected, revenue and adjusted EBITDA were down from Q1 twenty twenty five amid challenging conditions in the North American farm market. This was partially offset by the momentum in our commercial segment driven by key projects in Brazil and EMEA. Adjusted EBITDA margins of 10.9% were down from 15.9% in Q1 twenty twenty four.

This is mostly due to a higher weighting of commercial revenue relative to farm. Cost containment on the SG and A side helped to mitigate further slippage in the Q1 twenty twenty five margin results. One item worth expanding on is our other segment expenses that are deducted from adjusted EBITDA, which increased to $12,000,000 from $8,000,000 year over year largely due to the timing of certain expenses. As a reminder, these are largely unallocated corporate costs among a few other miscellaneous items. In the quarter, we experienced an uptick in certain legal costs as well as a decrease in other income, which drove the increase.

Going forward, the approximate level of these costs should be around $10,000,000 on a quarterly basis. Moving on to our balance sheet. Our net debt leverage ratio of 3.6 times was driven largely by the anticipated temporary increase in our working capital needs for our Commercial segment. In a moment, I’ll provide some further commentary on our ability to reduce working capital throughout the year, which will help improve our leverage ratio, though for 2025, our current objective is to stabilize our net debt leverage ratio in the mid-3x range. Next, let’s look at cash flow.

On an LTM basis, our free cash flow is approximately $41,000,000 As outlined in previous calls, across 2025, free cash flow will be leveraged to support working capital requirements in the Commercial segment. That said, we are pleased to see positive cash flow generation despite the temporary increase in working capital needs. We note that while $41,000,000 is a bit lower than what we’ve generated in the last few years, it’s still well above our free cash flow profile from four or five years ago, signaling a better balance between our investment plans and financial performance. Another cash flow topic to review is connected to our growth in international commercial, particularly in Brazil. For large projects where project financing is required, AGI has provided or arranged financing options for our customers.

Last year, we were successful in monetizing receivables for our Brazilian farm business with a third party partner. We are actively progressing a similar structure for our commercial business in Brazil. This would have the benefit of reducing our working capital and improving our leverage ratio. We expect to have further updates on our plans in this area in the second or third quarter of this year. And finally, an update on our capital allocation priorities, which generally remain consistent with our prior discussion.

One area we prioritized early in the quarter was executing our share repurchase program. In the first quarter, we repurchased $9,000,000 in shares, bringing our total repurchase program since inception late in 2024 to a total of $20,000,000 with approximately 425,000 shares repurchased or about 2% of total shares outstanding. We are now reassessing further share repurchase plans as we navigate through the first half of twenty twenty five. Other key areas of capital spending in 2025 include operational improvements such as the ERP implementation. Our capital budget for 2025 inclusive of maintenance, ERP, intangibles and select operational improvement opportunities remains approximately $70,000,000 Importantly, and for clarity, this budget does not include the temporary working capital requirements necessary to support several of our large commercial projects.

I’ll now hand the call back to the operator and open up the lines for

Conference Operator: The first question comes from Kyle McPhee with Cormark Securities. Please go ahead.

Kyle McPhee, Analyst, Cormark Securities: Hi, everyone. First one from me. Can you guide us to how much more capital may need to go into the working capital, the accounts receivable for these commercial projects that you’re executing on? And you classified it as kind of long term non current accounts receivable. Does that indicate it’s maybe over a year before you can monetize this stuff?

Jim Redick, CFO, AGI: Yes. Thank you, Kyle. Appreciate the question. So a couple of things just as background. So this is in response to what we’re seeing is some incredible opportunities in places like Brazil and EMEA, where we’ve been able to capitalize on the work we’ve been doing over the past few years to participate and win some of these large scale, what we call turnkey projects.

And so these are bigger in scope, bigger in nature. And some of the requirements of these projects, particularly in Brazil, are for us to help the customer from a financing perspective. The financing arrangements typically are anywhere from three to five years. However, this is not unusual for us. So we did this last year where in the farm segment, we had the same scenario where we were able to arrange a financing structure that enabled third parties to do the financing for those projects.

So we’ll we expect to do the exact same thing here. From a timing perspective, you’re talking anywhere from two to four months to have everything in place. And so what you’ll see in our results, and you see saw it in Q1, is a temporary increase, particularly in our non current receivables. And then as we put in place the financing structure, that will be reduced significantly.

Kyle McPhee, Analyst, Cormark Securities: Got it. Okay. Thanks for that additional color on that. Second one for me. You’re benefiting from major tailwinds for the commercial side of your business.

And I have two kind of questions about that. So first, how much concentrated in maybe a handful of major projects that you’re executing and may not repeat next year versus it being more widespread across a lot of activity around the globe? And then second, regardless of that answer, do you think you can still be building on top of such a strong year for commercial as you get into 2026? Like how much visibility do you have on more year over year growth next year, commercial backlog replenishment throughout the rest of this year?

Paul Householder, President and CEO, AGI: Yes, Kyle. Thanks for that question. We are quite pleased with the progress that we’ve been making on our commercial segment, particularly on the international side. It’s great to see the results of the strategy that we put in place several years ago. The team has done an outstanding job executing against that strategy and driving success in the growth levers that we’ve articulated here in the past few calls, our product transfers, emerging markets and our growth platforms.

When you look at the diversification of the projects that we won in the commercial space, we do have very good diversification. We continue to win, but we would categorize as small and medium sized commercial projects. They are quite important as you’re alluding to Kyle. We want that strong diversification in our order book. So quite a number of complemented projects in that small and medium size, both represented in Brazil as well as EMEA, Southeast Asia and more recently down into India.

Good point, we are and we’re very pleased to be winning some of the large commercial projects, large turnkey projects, most notably down in Brazil. Within the past six months, we secured a number of large orders at the tail end of Q3 and across Q4, which will support our results in 2025. We also, Kyle, have a very active quotation pipeline of both small and medium as well as large scale projects. So going forward, to your point, we expect to continue to be able to secure some large projects complemented by a strong intake of small and medium sized projects, which does give us a level of confidence that the progress that we’ve been making from the commercial standpoint will translate into 2026. Further to that, we are quite excited about the progress in the execution of our strategic growth platforms.

All of these were identified and promoted because of our expectation that they’re going to have quite a lot of runway in terms of contributing strong growth out in the foreseeable future. So even beyond 2026, we see a potential and opportunity for good commercial performance out for the next two, three years and beyond.

Kyle McPhee, Analyst, Cormark Securities: Great. I appreciate all that color. And I’m going to squeeze in one more just on that working capital dynamic. When you potentially monetize those commercial long term receivables, does that feeding into your goal of keeping leverage in the mid-3s? Or is that would that be an incremental benefit?

Jim Redick, CFO, AGI: Well, so what we’ll see through the year and this is not unusual. Working capital typically is a build for us in the first half of the year and then comes down quite significantly through the back half of the year. It will be a little bit higher this year, the build, through the mid half until we put in place that financing structure, and then it will drop quite significantly. The one thing that is a bit of a wildcard still is the farm segment in the back half of the year. To the extent that, that stays where we expect, we would expect overall leverage ratios to be down in the low 3s.

That’s net of the financing program for these large growth opportunities.

Kyle McPhee, Analyst, Cormark Securities: Got it. Okay. That’s it for me. Thank you.

Jim Redick, CFO, AGI: Thanks, Kyle.

Conference Operator: The next question comes from Krista Friesen with CIBC. Please go ahead.

Krista Friesen, Analyst, CIBC: Hi, thanks for taking my question. I was just wondering if you can maybe walk us through how you’re thinking about margins on your 2.25% guidance kind of through the rest of the year?

Paul Householder, President and CEO, AGI: Yes, sure, Krista. Thanks for that question. Obviously, we’ve done quite a lot of work on margins over the past several years, significantly improving our overall margin performance. Heading into 2025, we did expect and continue to expect that we’ll see some margin pressure versus 2024 predominantly driven from mix. Our farm segment is the higher margin segment relative to commercial and as we step through the challenges in the North America farm market and see that continue to be under some pressure in 2025, we expect from a margin standpoint that to translate to a mix headwind creating some margin softness.

Consistent with how we guided in Q4 of last year, we would expect 2025 to perform in a range of 17% to 19% EBITDA margin. The one build on top of that, Christa, that we are now monitoring is the direct cost impact of tariffs. That wasn’t initially in our guidance of 17% to 19% as of this point in time. We believe the cost impact from tariffs to be nominal and we still maintain an expectation of perform within that EBITDA margin expectation. However, the overall tariff scenario is quite dynamic and we’ll continue to monitor as that progresses.

Krista Friesen, Analyst, CIBC: Okay, great. And then maybe just on that, are there any sort of additional kind of cost optimization levers that you can pull on at this point in time or are we kind of where you’d like to be on that front?

Paul Householder, President and CEO, AGI: Yes. Thanks, Christa. Operational excellence remains one of our three strategic areas of focus. We do have additional opportunities going forward that we would execute on. One of them, Jim mentioned I’ll mention a couple here briefly, Christo.

One of them Jim mentioned is the implementation of our ERP system. We are making good progress on that. We expect that activity to continue through 2025 and 2026 as the implementation of ERP gets rolled out across our global platform that will translate into operational efficiencies that would be visible within our cost structure. We continue to focus on quite a number of initiatives. We’ve made outstanding progress from a manufacturing footprint consolidation standpoint.

We’ve consolidated 15 facilities over the past three years, moving operations into other existing facilities. There is opportunity for additional facility consolidation both within North America and notably in India. We’ve mentioned several times our intention of moving forward with the manufacturing expansion and consolidation in India that would result in five to six facilities being consolidated down into one. The final one, Christa, that I’ll point out an initiative that we’ve just kind of kicked off within the past six months is product rationalization across our North America farm portfolio. This is another example of really simplifying our product offerings, which would then flow through everything from supply chain engineering to manufacturing.

So there are opportunities and we continue to prioritize those to improve the efficiency and effectiveness of our operations and get to a more efficient cost structure.

Krista Friesen, Analyst, CIBC: Great. Thanks. I’ll jump back in

Maxim Sytchev, Analyst, National Bank Financial: the queue.

Paul Householder, President and CEO, AGI: Thanks, Krista.

Conference Operator: The next question comes from Gary Ho with Desjardins Capital Markets. Please go ahead.

Gary Ho, Analyst, Desjardins Capital Markets: Thanks. Good morning. Paul, just wanted to dig through your analysis on the ag cycle. So as you look across your business, maybe if you assume the mid cycle being indexed to 100, like what would the peak and trough cycle be? And where are we today?

I’m assuming this is the most relevant to your farm segment. Commercial should be relatively stable. And then a follow on, the $300,000,000 that you mentioned, is that more a mid cycle number? Is that where were you looking at kind of more of a peak?

Paul Householder, President and CEO, AGI: Yes. Thanks, Gary. That is an outstanding question. The current ag cycle that we are stepping through is obviously a very important topic. We’ve been studying past Ag cycles to get more familiar and increase our expectations of what a peak to peak might look like, what a peak to trough might look like.

We’ve referenced back to Ag cycles in 02/2008 and in the early 90s as indicators. What we’ve seen, Gary, from that analysis is those two ag cycles or a typical pronounced ag cycle, peak to peak can last in duration anywhere from four to six years. And that typically, as you come out, you come out to a peak an elevated peak of where you were going in. That is what we’ve concluded from the analysis of prior ag cycles. Obviously, not a direct indicator of what we can conclude going forward, but more of a reference.

Based on our current situation, we would say that we are down in that trough portion of the cycle. That’s largely where the industry’s expectation is that 2025 will be the trough year and then we’ll start to see some improvements in 2026. Obviously, a variable and all that is the tariff situation. So when you talk about our expectations of the $300,000,000 in EBITDA that we referenced in our opening comments, that would be more of a mid cycle point in that correction, not coming all the way out to the ending peak, but what we could expect as we progress through the improvements from the trough performance.

Gary Ho, Analyst, Desjardins Capital Markets: Great. Okay. That’s great color. Thanks for that. And then my follow on question, just with all the tariff noise between China and U.

S, there’s speculation Brazil could stand out to benefit. Wondering if you’re seeing beginning to see that on the ground. I know in the past you’ve identified Brazil as a key international growth driver. And I think in the earlier question you kind of talked about the quotation pipeline in Brazil being pretty strong. If you can elaborate on that, that would be great.

Paul Householder, President and CEO, AGI: Yes. Great question, Gary. One of the things that we are very pleased with and encouraged with is the overall geographic footprint of our business. We’ve got very strong positions in all of the key ag geographies around the world, excluding China. So very strong presence across North America, Brazil, EMEA, India, Asia Pacific.

1 of the things that helps us out with is managing the dynamics of global impacts of the ag market. And more specifically, as one area may be experiencing specific challenges that oftentimes translates into a tailwind in another region as the global ag supply chain adjusts. To your point, Gary, that is a bit of our expectation of what we could see as an impact of tariffs and the situation between The U. S. And China, particularly on soybeans as China potentially shifts away from a soybean supply in The U.

S. That could translate to an increase in soybean demand down in Brazil. We are seeing a significant amount of commercial activity in Brazil that is also supported by that potential dynamic as Brazil continues to invest in and build out the infrastructure necessary to move commodities such as corn and soybean out to ports to support that trade activity. So not only Gary, would you expect to see improvements on the farm segment, absolutely you would see improvements on the commercial segment, which we are seeing right now. On the farm segment, we are seeing some encouraging signs, albeit early, that we could see improvements in the second half of the year down in Brazil.

The most notable one is our quotation activity, which is up just about twofold of where it was this time prior year. We’re still a bit early in the cycle down into in Brazil on when decisions are made and capital equipment are made. We expect that to happen within the next few months, and we’ll continue to monitor that closely.

Gary Ho, Analyst, Desjardins Capital Markets: Okay, perfect. Thanks for those comments. Those are my two.

Paul Householder, President and CEO, AGI: Yes, you got it, Gary.

Conference Operator: The next question comes from Michael Tupholme with TD Cowen. Please go ahead.

Michael Tupholme, Analyst, TD Cowen: Thank you. Good morning.

Paul Householder, President and CEO, AGI: Hey, Michael.

Michael Tupholme, Analyst, TD Cowen: Good morning. Regarding the farm segment, I wonder if you can talk a little bit more about dealer inventory levels in farm specifically, I guess, where they sit now versus what would be normal for this time of year? And then perhaps you can maybe provide your thoughts on when we could see a return to normal levels?

Paul Householder, President and CEO, AGI: Yes. Thanks, Michael. Yes, current challenges in the North America farm segment as we step through that ag cycle, one of the things that has contributed to some of the challenges that we’re seeing is higher inventory levels across the dealers. I would build on that, Michael, and just clarify that that’s really an overall channel situation. We’ve made and we’ll continue to make progress in improving the inventory position across our dealers for our products.

And when I mentioned our product, that’s specifically our portable equipment. Our dealers no longer inventory, the permanent side, the bins and the permanent material handling. It’s just a portable equipment. We’ve continued to make progress. We ran that rebate program started in Q3 prior year.

We ran it through Q4 even into a little bit of Q1 that was helpful driving down inventories. We expect our inventory levels, Michael, to continue to come down across Q2 and Q3. Our ultimate goal is to have our inventory levels back at a normal point in advance of the early order program that would occur in that October, November timeframe this year. So that’s what we’re working towards and that is our current expectations of when we can see our inventory level return to a more normal state.

Michael Tupholme, Analyst, TD Cowen: Great. That’s helpful. Thank you. And then I want to talk about commercial for a minute. I guess just thinking about your response to Gary’s last question there, talking about Brazil and potentially the dynamics there as it relates to reaction in response to tariff and trade uncertainty.

But I’m thinking about commercial kind of more broadly. It sounds like you’re very upbeat on the outlook for that segment. I’m just wondering when you have discussions with customers sort of at the margin, there any customers that, have expressed to you that they’re getting a little bit more cautious in any way just while they’re sort of navigating the current trade related uncertainties that exist right now?

Paul Householder, President and CEO, AGI: Yes. Michael, the question is right on point for sure. It’s something that we’re paying a very close attention to given the extremely positive momentum right now that we do have in the commercial segment. I mentioned that our pipeline is quite robust. We’re currently negotiating quite a number of large particularly in Brazil, but across our entire international commercial segment.

We’re listening very closely for those type of signals. We have not heard them yet. We’ll continue to monitor. That’s obviously subject to change as we progress through a lot of the tariff uncertainty. But at this point in time, Michael, we have not received those types of indications yet from our customers or from the market.

Michael Tupholme, Analyst, TD Cowen: Okay. That’s great. I will turn it over. Thank you.

Conference Operator: The next question comes from Steve Hansen with Raymond James. Please go ahead.

Steve Hansen, Analyst, Raymond James: Yes. Good morning, Thanks for the time. Just want to circle back to The U. S. Farm side.

One of the challenges we’ve been hearing about with respect to U. S. Portable products, in particular, is the ability to pass on price, again, in the context of higher elevated inventories out there and pretty volatile steel movements. How should we think about the profile, the margin profile that is of the Portable segment as you get sort of this recovery pullback? It going to be also sort of like below normal until we get back to this normal inventory levels?

Like how is it how are the dynamics out there in terms of passing on steel price in the context of all this inventory?

Paul Householder, President and CEO, AGI: Yes. Great question, Steve. We obviously enjoy an outstanding business for our portable equipment, particularly in North America as well as global, extending out to Australia. We have a leading market position both in Canada and in particularly U. S, very strong brand and brand recognition and an outstanding dealer network that does give us good strength and good positioning in the market.

We continue to closely monitor the cost and the cost dynamics that are occurring in 2025. We have seen some inflationary pressure on our cost stack, as you know, Steve, particularly on steel. We did move forward with pricing actions in Q1 relative to our affordable equipment so that we can sustain margins and compensate for the cost pressures that we’re seeing. We’re obviously very cautious on managing price versus demand and volumes going forward. But at this point in time, we’re optimistic that we will be able to hold on to our margin position across our portable equipment while we progress through the challenging market conditions.

Steve Hansen, Analyst, Raymond James: Okay, great. That’s good to hear. Just circling back to the Brazil side again, I think I asked a similar question last quarter, but the performance sounds like it continues to be quite strong, which is encouraging. I think it’s just it is still another departure though from one of the larger competitors in the market. I’m just trying to understand what would allow you to outperform so well down there relative to the largest peer.

Is it a difference in strategy, product type? I mean, how do you attribute sort of that difference in sort of performance?

Paul Householder, President and CEO, AGI: Yes, Steve, thanks for that. We are extremely encouraged about the performance that we’re seeing down in Brazil on the commercial segment as well as EMEA and several other parts of our international commercial business directly supported by our strategy. Just to kind of build on your point in Brazil, we did see revenues in Q1 versus prior year up over 100%. So an extremely strong result down in Brazil that’s inclusive of farm, but obviously carried by our commercial segment. It is a direct result of our strategy.

And the team that we have down there, we have an outstanding team. Our capabilities are differentiated relative to our peers, particularly our ability to successfully win and execute large complex turnkey projects. We so we do believe this is a direct result of the strategy and decisions that we’ve made and capabilities that we’ve built over the past two plus years that have positioned us well to capitalize on the exciting market that is developing on the commercial side down in Brazil.

Steve Hansen, Analyst, Raymond James: Okay, helpful. And then just real quick one for Jim, perhaps, the free cash flow slide is helpful as are many of the new slides frankly in the deck. So thanks for that. I just want to get a sense for where you think the free cash flow conversion should trend towards here over time. I understand there’s some all the working capital stuff, but where are we targeting for free cash flow conversion over time?

Jim Redick, CFO, AGI: Yes. So we’ve been marching up towards a free cash flow conversion rate, depending on how you want to look at it, if you look at it versus EBITDA of around 30% as our what we’re managing towards. It will be a little bit it will grow to that level through this year as we fund some of those large opportunities in Brazil and EMEA. But as we put in place the financing structures, we’ve made quite a bit of progress over the past couple of years. A lot of the onetime costs are now in the rearview mirror.

And so looking forward, we have a lot of confidence of getting to that 30% level on a regular basis.

Steve Hansen, Analyst, Raymond James: Okay. Very helpful. Thank you.

Paul Householder, President and CEO, AGI: Thanks, Steve.

Conference Operator: The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Andrew Wong, Analyst, RBC Capital Markets: Hey, good morning. Thanks for taking my questions. So just regarding that mid cycle EBITDA guidance, can you maybe just provide some more details on the revenue that’s assumed for farm and commercial? And is that using an 18% to 19% EBITDA margin guidance?

Paul Householder, President and CEO, AGI: Yes, great question, Andrew. Yes, so when we look at that mid cycle EBITDA analysis, again, that was in response to a lot of excellent conversations that we’ve had with our shareholders to look to provide some visibility what our performance could look like as we come out of the current cycle that we’re seeing in North America farm. So you can see from the chart provided, we are expecting a recovery in our North America farm segment complemented by continued growth in our commercial segment. From a margin standpoint, our expectation is that along with the recovery, we’re going to see an experience at tailwind to margins as farm does come back being our higher margin segment that should put us back into that 18% to 20% operating range for EBITDA margins. That’s currently our expectation and the potential of the business as we recover from the current North America ag cycle headwinds.

Kyle McPhee, Analyst, Cormark Securities: Okay. Thank you. And then

Andrew Wong, Analyst, RBC Capital Markets: just going back to the working capital needs for some of these large projects. So I understand that it’s onetime, it’s nonrecurring. But I’m just kind of curious, like as you target these larger projects into the future and as you grow the business and you target larger and larger projects, would these also have larger and higher working capital requirements?

Jim Redick, CFO, AGI: Yes, they will. You’re right. The commercial business working capital needs are a little different than the farm side of our business needs. But what’s great about the opportunities that we’re exploring, they’re with extremely large, well established customers. And what we’re finding in various places around the world is that there’s a lot of appetite to help in the financing of these projects.

And so as to the extent that our business mix continues to be more heavily weighted to these opportunities, we expect to be able to participate in them and find great partners that will assist with the financing so that we can continue to invest and benefit from what we’re seeing around the world right now is this upsurge in the build out of the infrastructure in a lot of the countries around the world.

Andrew Wong, Analyst, RBC Capital Markets: Okay. So just to clarify, like as that mix switches more towards commercial, would your working capital requirements relative to what that mix previously was? Does that go up as a percentage of your sales? Or does

Kyle McPhee, Analyst, Cormark Securities: that stay the

Andrew Wong, Analyst, RBC Capital Markets: same or down?

Jim Redick, CFO, AGI: Yes. So they yes. And so it does go up in the short term. But then as we finance them, it comes back to normal expected levels. Our operating approach for these as we move forward is to finance the growth opportunities entirely with getting these financing programs in place so that it will not be a requirement for us to fund a lot of the customer financing requirements.

So said differently, working capital percentage should be a trend to normal historical levels despite the mix shift into these large commercial projects. Hopefully, was clear. Yes.

Paul Householder, President and CEO, AGI: Got it.

Kyle McPhee, Analyst, Cormark Securities: Thank you. Thanks.

Conference Operator: The next question comes from Tim Monachello with ATB Capital Markets. Please go ahead.

Paul Householder, President and CEO, AGI0: Hey, thanks very much.

Gary Ho, Analyst, Desjardins Capital Markets: Can you hear me? Yes.

Paul Householder, President and CEO, AGI0: All right. I was on mute for a second. Can we just talk a little bit about the health of The U. S. Farmer currently?

Obviously, this ag cycle is a little bit different than past ones given trade uncertainties. You’ve got cost inflation. You’ve got sort of a budding trade war with China, and China is a pretty large customer of U. S. Ag products.

So how can you just talk about the characteristics of the sentiment that you’re seeing from U. S. Farmers on a few different aspects that I just mentioned?

Paul Householder, President and CEO, AGI: Yes, fantastic question, Tim. And then let’s start with the tail end of your question, the farmer sentiment. I would characterize that Tim at the beginning of the year as cautiously optimistic. The sentiment was that we could start to see some improvements in the market towards the tail end of 2025. That was in advance of the tariff discussions.

At that point in time, the farmers still were seeing some pressure on farmer income, commodity prices, corn and soybean would be the most relevant benchmarks have remained under pressure while input costs have remained high or slightly increasing. But despite that, there wasn’t a cautious optimism to farmer sentiment in the second half of the year prior to tariffs. The tariff situation is certainly putting pressure on that cautious optimism. And as we’ve discussed, could have an impact on demand expectations in the second half of the year, particularly as you noted, Tim, that the specific impact of that China U. S.

Trade dynamic for commodities and as we’ve noted previously, soybean in particular. We’re seeing some of that even play out within the most recent weeks, albeit early days, it’s something that we’ll have to monitor going forward. So in summary, I would put farmer sentiment as at right around cautiously optimistic with some pressure on that sentiment based on tariffs and the uncertainty that is created in the second half of the year. Farmer income still under some pressure. One of the barometers that we are watching there as a tailwind would be government subsidies.

There’s still a lack of clarity there, which could improve as we step through the second half.

Paul Householder, President and CEO, AGI0: Okay. And in terms of the portable side of the business, with dealer inventories elevated currently, can you speak a little bit about where your, I guess, for portable stands today relative to mid cycle levels and how you expect that to change as those inventory levels at the dealers hits normalized levels? Do you see like a sharp inflection? Or is that sort of a moderate improvement in sales of the portable side?

Paul Householder, President and CEO, AGI: Yes. Thanks for that question, Tim. Obviously, the current ag cycle is having a direct impact on our North America farm business. We’ve got the two sides of it, both portable and permanent. They’ve both been under pressure over the past six months and we would expect that to continue as we work through the ag cycle.

As mentioned previously, our dealers and the channel in general does inventory portable equipment while they do not inventory permanent equipment. This is an interesting dynamic for us. It does enable us to watch very carefully the order intake of our permanent equipment as a potential leading indicator to a shift in sentiment and an improvement in demand. So that’s where we would expect improvements to manifest first is on the permanent side, which would then correlate to an improvement in our inventory and then be followed up by an increase in demand on our portable equipment. Now how that curve looks like in terms of a recovery coming out, really can’t comment on.

It was a pretty sharp decline going into this ag cycle. That’s not a direct indicator of what it could look like coming out. What I can say is across our operations and supply chain, we’re not only staying close to the market to be very to have good visibility to these potential leading indicators, but preparing ourselves to be able to react to either scenario, whether that’s a sharp increase or a more steady increase, we’ll our intention is to be prepared to be able to respond quickly to those changing market conditions.

Paul Householder, President and CEO, AGI0: Okay, that’s helpful. And then last one for me, just again on the working capital side. As you move into these third party financing arrangements for commercial projects, can you speak a little bit to potential margin impacts? I assume you’d be earning some margin on the financing portion of those contracts. So is there a negative margin impact when you move to a third party?

And what’s the quantum of working capital outstanding currently that you expect to move into third party financing arrangements through the mid part of the year?

Jim Redick, CFO, AGI: So yes, as we do finance some of these opportunities, there is a cost. However, that cost is factored in as we work with the customer and build the pricing to the customer. So from a margin impact perspective, there would not be any impact from how we see the business for the year. And as Paul talked about, our margin expectations for the year, all of that has been factored in. So we’re quite comfortable with how we’re pricing these opportunities and making sure that the cost of the financing has been built in with the customer.

In terms of confidence level, very high level of confidence. As I mentioned earlier, these structures are things that we’ve done in the past. They’re also primarily with vehicles that are very common in the markets that we’re working in. And the customer base of ours are very, very high strongly rated customers. So they’re very attractive with a number of financing institutions.

So we do not expect any concerns at all. As a matter of fact, we have options that we are evaluating. And so we before we rush into doing any of these, we evaluate several bids from financing parties. And so the market is quite strong for these financing packages.

Paul Householder, President and CEO, AGI0: Sorry. I meant more of the quantum of like the dollar value of working capital that is currently outstanding that you think you can move into these financing arrangements. Just trying to get a handle on kind of what the net cash flow impact is going to be from these financing arrangements through the year.

Jim Redick, CFO, AGI: Yes. So we will finance a significant portion of the new business that we entered into. So now it will vary depending on the nature of the customer and the project itself. We will do some of the receivables ourselves, but the majority of it will get financed by these third parties. In terms of absolute dollars, I’ve talked about before, our free cash flow expectations will trend towards that 20% to 30% of EBITDA.

There may be a temporary lag through the year as we put these packages together and then offload it. But that’s how you should be thinking about in terms of the quantum.

Paul Householder, President and CEO, AGI0: Okay. Appreciate it. I’ll turn it back.

Paul Householder, President and CEO, AGI: Thanks, Gary.

Conference Operator: The next question comes from Maxim Sytchev with National Bank Financial. Please go ahead.

Maxim Sytchev, Analyst, National Bank Financial: Hi, good morning.

Paul Householder, President and CEO, AGI: How are you, Max?

Maxim Sytchev, Analyst, National Bank Financial: I just had one quick follow-up in relation to what was seen in The U. S. Farmer subsidy dynamic because, if I’m wrong, so we had like an ad hoc package that was passed in December. And so what are you guys seeing on the ground right now? Is it the fact that those subsidies are not sort of cycling through or they’re still harboring around whether it’s impossible to pay out those packages?

Can you just maybe try to sort of provide a bit more color there so we can have a better grasp on potentially the back half of the year for farm? Thanks.

Paul Householder, President and CEO, AGI: Yes. Thanks, Mike. Max, and that’s absolutely one of the variables that we’re closely watching across North America farm. And just building on that, we’re obviously keeping a close eye on commodity prices and how they trend. We’d love to see corn get above $5 That’s a pretty positive indicator that farmers have now moved into squarely into a profitability range.

Obviously, the government subsidies that could roll out here in the second half would be another tailwind. Specifically to your question, I think the areas that we’re watching specifically on the government subsidies is the timing of when they roll out as well as where and how those subsidies will be applied. Still a little bit of lack of clarity and certainty on that as we get better visibility to when they will roll out, how and where they will be provided, that gives us an indication of what kind of tailwind that could lead to from a capital equipment purchase standpoint. So Max, that’s specifically what we’re watching.

Maxim Sytchev, Analyst, National Bank Financial: Okay. But is it fair to say that you’re not accounting for those subsidies to like make up the back half of the year or are you signing some sort of, don’t know, like 20% probability? How again should we be thinking about that?

Paul Householder, President and CEO, AGI: Our outlook for North America farm in the second half of the year remains pretty cautious. Until we get better visibility on where demand is, how order intake starts to come in impacts on tariffs as well as the government subsidies in aggregate max, we’re taking a very cautious view on farm for the second half of the year. That’s inclusive of the government subsidies.

Maxim Sytchev, Analyst, National Bank Financial: Okay. That’s super helpful. Thanks so much.

Paul Householder, President and CEO, AGI: You got it, Max.

Conference Operator: This concludes the question and answer session. I would like to turn the conference back over to Paul Householder for any closing remarks.

Paul Householder, President and CEO, AGI: Thanks very much. Really appreciate everybody joining the call today. We’d just like to conclude with thanks and appreciation to the outstanding performance of our global teams. The resiliency that our teams have shown over the past six to nine months with some of the challenges that we’re seeing in some of our markets has been extraordinary, complemented by the outstanding execution of our international and commercial teams in terms of driving our growth strategy. Really appreciate it, team.

Nicely done.

Conference Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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