Ag Growth International Inc.

revenue dipped relative to the prior year, while EBITDA increased, directional with expectations in terms of 2024 results being biased to the second half of the year. Overall, our near record order book continues to reinforce the prospect of full year growth and achievement of our guidance. Adjusted EBITDA growth will be weighted towards our commercial business and supported by a continued operational excellence focus. For operational excellence, the first quarter continued to solidify our sustained performance at heightened margins up over 200 basis points relative to prior year. With the first quarter typically being our lowest margin quarter, we are committed to sustaining overall margin levels towards the 19% range on a full year basis. For balance sheet discipline, we remain on track to achieve our target net debt leverage ratio in 2024. Through Q1, the ratio remained below three times level and is a notable improvement over the 3.6 times level from the first quarter of last year. Moving ahead with a review of our first quarter performance by segment. Strength in the farm segment within the quarter was offset by timing of our commercial segment, which is currently focused on upfront design, engineering, and manufacturing work to accommodate a sizable order book weighted towards second half delivery. Our first quarter results show the extent and consistency of the margin levels that AGI can deliver. With revenue lower than prior year, adjusted EBITDA improved 4% year over year through the support of over 200 basis points of margin expansion. Improved gross margins from operational excellence initiatives implemented throughout 2023 and overall cost discipline supported this result. Exiting the quarter, our order book was up approximately 12% an extremely encouraging position given the challenging market conditions across the farm segment and underscoring the resiliency of our business. We have and are continuing to adjust our farm business operations, leveraging our centralized demand planning and revenue management processes, and integrated supply chain and manufacturing teams. Within our commercial segment, global demand remained strong, order intake was favorable, and the pipeline is robust. This is indicative of a broad level of positive performance across our EMEA, India, Southeast Asia, U.S., and Brazil commercial businesses. We continue to work closely with our valued commercial customers to partner on delivering projects flawlessly. Turning to a review of revenue results and trends across our segments and geographies. Overall, first quarter farm segment revenue grew by 4% year over year. In our Canada farm segment, revenue declined 2% versus prior year. This segment faced a very challenging comparable period from the first quarter of 2023. Within the quarter, strong demand for our portable grain handling equipment continued to drive results. In our U.S. farm segment, revenue was flat versus prior year with an even mix of contributions from portable and permanent grain handling equipment sales. Order intake was soft through the quarter as farmers monitored the outlook for the upcoming crop. U.S. farm is a key market for us, and as outlined earlier, we are carefully monitoring market conditions, making adjustments across the business as necessary. Our international farm segment posted an increase in revenue of 41% versus prior year. Strong results in Brazil from key project deliveries helped support results, and offset some weakness from other areas, notably Australia. Based on market conditions and our order book mix, we expect Brazil to be weighted more towards commercial as the year progresses. However, we've recently announced some key financing programs and options for farm segment customers in Brazil, a new sales tool we plan to fully leverage across all channels to help combat overall difficult operating conditions. Now turning to commercial segment results. Our Canadian commercial segment faced difficult conditions throughout the first quarter. Customers are moving cautiously and timing of new projects is unclear in many instances. The team is focused on building our pipeline and continuing in-depth discussions with customers about their plans, keeping AGI well positioned to wind orders as projects eventually move forward. Our U.S. commercial segment fared better than Canada, though still down slightly year over year. Healthy customer demand for grain handling and storage equipment and resurging demand for fertilizer equipment was offset by a slower result in the food side of our commercial business. Lower food performance was due to challenges faced during order execution. Overall demand for our food products and solution remains strong. The food order book is up approximately 35%, outpacing overall order book growth, providing a solid setup for increasing momentum into the second quarter and second half as initiatives to improve order execution are implemented. The international commercial segment result was driven largely by project timing. The order book for international is extremely strong broadly across EMEA, Brazil, and India. All regions have directly benefited from our strategic growth initiatives. EMEA has increased focus on achieving positive results across emerging markets, specifically Middle East and Africa. India and Brazil have been a key focus for product transfers, gaining significant traction within fertilizer, grain storage, and material handling solutions. The positive outlook for a second half remains as projects progress through execution and move into delivery. As we enter the second quarter and look ahead for the rest of the year, we remain squarely focused on key near-term objectives that will enable us to continue growing the business throughout 2024 and beyond. I'll provide a few comments on each and note the items included here are presented in no particular order. Executing the commercial order book. We have an exciting mix of larger scale projects, particularly in our international regions, which we are focused on executing to plan. Successful commissioning of these projects will serve as a value reference site, further supporting order pipeline development activity. Completing initial set of product transfers. Our first wave of product transfers continues to progress with several now transitioning into execution and order delivery, particularly in India and Brazil. We continue to focus on and support these product transfers to ensure they are fully ramped up in advance of moving on to other priorities, including potential net new product transfer initiatives. Monitoring North America farm market. As noted above and in our disclosure, we are carefully monitoring customer behavior in this critical market Anticipating a challenging Q2 while proactively working through scenarios to swiftly react to a range of market outcomes. Cash flow focus. We have steadily increased focus on our cash flow metrics to ensure we are fully capturing the benefits of our growing EBITDA. We are reviewing potential KPIs in this area to ensure we are transparent and accountable to all parties on how we are performing. Achieving target balance sheet metrics. As mentioned earlier, we are now under three times leverage. and are confident that reaching 2.5 or lower is achievable in 2024, most likely in the second half of the year. Sustaining margin performance. We are confident that AGI has stepped up into a new bracket of margin performance through the benefit of our operational excellence capabilities. The higher commercial segment mix and softening North America farm business is a headwind to overall consolidated margins, though overall we expect full-year margins to be relatively consistent with 2023. 2025 India expansion. Finally, we continue preparations and detailed planning for an eventual India expansion investment. Having secured land for a future site, we are steadily progressing detailed plans for a new facility, anticipating additional spending and groundbreaking in 2025. Overall, we are encouraged with how we are currently positioned with the value of our diversified and resilient business model clearly on display in both our results and our outlook. Against the backdrop of tightening conditions in certain farm markets, our ability to deliver adjusted EBITDA growth and meaningful margin expansion in Q1, along with a strong order book and favorable full-year outlook, is exceptional. Before handing the call over to Jim, I'd like to reiterate our commitment to delivering a strong 2024, successfully navigating both the challenges and opportunities in front of us. We have an exceptional global team focused on providing value to our customer partners through an extensive product line, rigorous project execution, and increasingly streamlined operations. AGI will continue to benefit from the growing importance of food security and building a highly functioning and efficient global food supply chain, a critical trend that is important to each and every one of us. I will now hand the call over to Jim.

Thank you, Paul, and good morning, everyone. For today's call, I'll touch on four areas, including an overview of our first quarter results, an update on key balance sheet metrics, a few comments on cash flow, and finally a recap of our outlook for the remainder of the year. On a consolidated basis, first quarter revenues of $315 million decreased 9% over last year's record first quarter results. The trend in expanding gross margins continued from previous quarters, and combined with ongoing SG&A cost containment improvements to drive approximately 200 basis points of adjusted EBITDA margin expansion. Overall, adjusted EBITDA of 50 million grew 4% in the quarter and clearly demonstrates the resilience of our business. Our farm segment delivered 189 million in revenue, growing 4% year over year. Adjusted EBITDA of 45 million grew 17% year-over-year with margins expanding by approximately 275 basis points to 24%. Similar to recent quarters, the margin result was a combination of operational excellence initiatives as well as the product mix tilted towards our portable grain handling equipment. In the commercial segment, revenues of $126 million were down 24% year-over-year. Adjusted EBITDA of $13 million declined 40% year-over-year, with margins contracting roughly 275 basis points to 10.5%. Project timing impacted the quarter, and we are looking ahead to the remainder of the year where we move into execution and delivery of our sizable commercial order book, particularly in international regions. Moving on to our balance sheet. We continue to make consistent and meaningful progress on our working capital metrics and key leverage ratios, clear indicators of the structural improvements we are making to how we manage the business. From a balance sheet perspective, we remain disciplined with our credit facility usage. Our net debt leverage ratio of 2.9 times in the quarter marked a significant improvement from 3.6 year over year and is our second consecutive quarter under the 3.0 level. As noted in our last quarterly call, the first quarter required some inventory investment in connection with our commercial order book. We plan for this to normalize as we move into the second half of the year and execute on order deliveries. We are well on track to achieve our stated objective of 2.5 times in 2024, most likely in the second half of the year. Turning to working capital investment, which continues to be a key focus across the organization. Our net investment of $223 million in the first quarter was up from $191 million year over year. On an annualized percentage of sales basis, working capital intensity increased from 14% to 18% year over year. However, this comparable period analysis includes the impact of the accruals related to large non-recurring provisions which have since been settled. Normalizing for this would demonstrate a clear improvement in our total net working capital investment and a stable performance as a percentage of revenue. Managing working capital is a priority and we continue to strive for further improvement to ensure we can grow the business without an excess working capital drag. However, it is worth repeating that the makeup of our order book may require us to temporarily invest strategically in working capital in the first half of 2024. The overall underlying trend still points to a clear and ongoing improvement. Connected to our success in managing the balance sheet and optimizing business performance is our progress on managing cash flow. Funds from operation of $31 million was up over 47% from $21 million in the first quarter of last year, driven primarily by a reduction in cash taxes. Funds from operations as a percentage of adjusted EBITDA continues to trend higher, indicative of improving conversion of adjusted EBITDA into cash flow. Finally, turning to our outlook, we are pleased to reaffirm our previously stated adjusted EBITDA guidance for 2024 of at least $310 million. This is supported by a near record order book level that's generally weighted towards commercial. While our overall outlook for the full year has not changed, we have observed a trend in commercial project timing, which has further shifted expected deliveries into the second half of the year. As a result, we expect all of the full year 2024 adjusted EBITDA growth over 2023 to occur in the second half of 2024, with first half 2024 adjusted EBITDA results generally expected to be down relative to first half 2023. On balance, the yellow continues to remain bright for AGI. And with that, I'll hand the call back to the operator and open up the lines for questions.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then two. Our first question is from Jacob Bout with CIBC. Please go ahead.