Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI fourth quarter 2024 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. To join the question queue, you may press star then 1 on your telephone keypad. As a courtesy to management and other participants on the call, please limit yourself to two questions and rejoin the queue if you have further questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero. 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 forecast or projections and the material factors and assumptions used by management in preparing the forward-looking information are contained in our fourth quarter MD&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 Thank you, operator. Good morning, and welcome to AGI's fourth quarter 2024 results call. I'm joined today by our CFO, Jim Reddick. 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. I'm pleased to announce that we continue to set new records for all our major safety KPIs across the company, as well most of our facilities. With many of our safety KPIs showing significant improvement in recent years, we continue to prioritize near-miss reporting as a proactive approach to prevent work-related safety incidents before they happen. Our focus on safety is a cornerstone of our OneAGI culture, ensuring that every employee returns home safely each day. Turning to our fourth quarter and full year results, I'm pleased to report fourth quarter adjusted EBITDA of $78 million, up 7% year-over-year, an all-time record Q4 result. Full year adjusted EBITDA of $265 million represents our second best year as a company. This performance is a testament of the resilience and strength of our diversified business model, which has allowed the company to continue to drive strong results despite challenging conditions across the North America farm market. For the fourth quarter, consolidated revenue was up slightly to $381 million, driven by strong growth in our commercial segment, particularly in international regions. Adjusted EBITDA margin expanded to 20.5%, reflecting a significant improvement in our operational efficiency and focus on controlling costs. Our full year adjusted EBITDA margin of 18.9% was near the all-time record we achieved last year, which is notable to highlight considering the extent of headwinds we faced in the farm segment. Swift and significant actions were taken throughout the year across our entire integrated supply chain to reduce costs and align with market conditions as well as internal adjustments to our cost structure inclusive of SG&A, were critical in delivering another year of favorable margins. The success of our efforts in containing margin compression are particularly noteworthy when compared to some of our peers who experienced a more pronounced margin impact in 2024. The commercial segment continued to perform exceptionally well. with fourth-quarter revenue increasing by 30 percent year-over-year to $248 million. Our international regions, particularly Brazil and EMEA, drove this growth through the execution and delivery of several large-scale projects. The segment's adjusted EBITDA margin expanded to 21.6 percent, reflecting the successful execution of our operational excellence initiatives and the benefit of some higher-margin turnkey projects. International commercial continues as a key focus for AGI, consistent with our strategy, as it offers a large total addressable market, including several high growth emerging markets. Our increased capabilities, as enabled by product transfers and other growth initiatives, led to several large project wins throughout 2024, which are now a major contributor to our year end record order book. The opportunity in international commercial is significant. and importantly, adds a critical diversification to our farm business, helping to stabilize overall results and provide differentiated growth opportunities for AGI. For greater context, I'd like to share a few more details on the type of projects and success stories we are seeing in our international commercial businesses. In 2024, we won 15 large-scale projects in international commercial regions with a total value of over 500 million and an average value of approximately 34 million. This is our emerging market growth strategy in action, where we focus on delivering differentiated value to our customers and cultivate long-term relationships as a strategic partner. As we execute and deliver these large turnkey projects, they often become valuable reference sites that support securing further sales. We have a significant quotation pipeline, which creates the potential for another strong year for commercial in 2025. Our farm segment faced notable market headwinds in the fourth quarter, with revenue declining by 29% year over year to $134 million. The U.S. farm market remained challenging due to elevated dealer inventories, lower commodity prices, and cautious farmer sentiment. In Canada, farm segment revenue was relatively stable, supported by strong order intake received earlier in the year for permanent grain handling equipment. The industry-wide challenges felt across the North America farm segment partially offset AGI's growth in other segments. Macro-level data points on the farm market were generally weak through 2024, with crop prices largely below the cost of production and aggregate U.S. farm net cash income descending from a peak in 2022. While these indicators have begun to show the start of a stabilizing trend in early 2025, we expect challenging conditions in the farm segment to persist through at least the first half of the year. We have made several operating adjustments to preserve margin and minimize expenses, including direct labor management, manufacturing optimization, SG&A streamlining, and new policies aimed at containing other administrative expenses. Our farm segment enters 2025 with a soft order book and slow order intake. The current situation provides limited visibility and an uncertain timeline for market recovery until possible catalysts emerge, such as a sustained rally in crop prices or in-season replacement demand. Further complicating this path towards a farm recovery are tariffs and trade-related actions. Turning to our order book, I'm pleased to report that our consolidated order book stands at a record level of $737 million, up 4% year-over-year, and up sequentially 11% versus Q3. The commercial segment has been a critical contributor to this result, with a 46% year-over-year increase, now representing more than 80% of the total order book. While the path and timing to a sustained recovery in the farm segment is uncertain, continued progress across international commercial is exciting. The resulting benefits of our diversified and resilient business model are clearly demonstrated in the strength and composition of our order book entering 2025. Now, moving on to our 2025 guidance. Our initial outlook for 2025 includes full year guidance of adjusted EBITDA of at least $225 million and first quarter adjusted EBITDA in the range of $25 to $30 million. For the first quarter, the relative softness in farm versus 2024 is the key driver behind the guidance. Recall that in the first and second quarters of 2024, our farm segment entered the year with positive momentum, benefiting from a more normalized early-order program and demand profile when compared to the current situation and market conditions. Our overall full-year guidance is supported by significant strength in commercial and a record-level order book. There is relatively good full-year visibility for our commercial segment, though it is tempered by limited visibility on the farm segment and an uncertain timeline towards recovery in the North America farm market. It is important to note our outlook does not include the impact of any tariff or trade-related regulations. For context, in 2025, AGI expects approximately 10 percent of revenue from trade between U.S. and Canada, with the majority of revenue exposure concentrated on our portable grain handling equipment. The main participants in the U.S. portable grain handling market are located in Canada and will be subject to the same tariff or trade-related regulations. We are reviewing and implementing options to mitigate tariff or trade-related actions, including inventory stocking, supply chain strategies, and manufacturing options, among other possible tactics. The situation is dynamic and evolving, and we cannot conclusively assess the ultimate extent of the impact of any tariff or trade-related actions. In addition, our markets, supply chain, customers, and competitors will need time to adjust to new trade regulations. As we move through the process, the total potential impact to AGI should start to become clearer. Our internal project teams are continually reviewing potential options and mitigation strategies. In closing, I would like to thank our exceptional global team for their hard work and dedication. With a strong 2024 result in the books, I look forward to tackling the challenges and opportunities that 2025 will bring and seizing some of the exciting growth initiatives we see particularly in international commercial. I will now hand the call over to Jim for further commentary on our financial results. Jim, over to you.

Thank you, Paul, and good morning, everyone. I'll touch on four areas, including a quick overview of our full year results, an update on key balance sheet metrics, some comments on cash flow, and then a quick recap of our capital allocation priorities. On a consolidated full year basis, Revenues in adjusted EBITDA were down from our record 2023 result amid challenging conditions in the U.S. farm market. This was partially offset by the momentum in our commercial segment. Adjusted EBITDA margins of 18.9 percent were down just 40 basis points from the record 2023 result despite a considerable shift in mix and market conditions in 2024. Activities including restructuring certain groups and teams within AGI, adopting new cost control measures, and accelerating initiatives around supplier consolidation all contributed to our ability to deliver a strong margin profile in a variety of operating environments. Our adjusted EBITDA for the fourth quarter includes approximately $30 million in transaction and transitional costs. there are three major buckets that contribute to this amount, including legal, restructurings, and external advisory fees. The legal expenses and accruals are primarily related to ongoing matters within our digital business. Restructuring expenses are customary, one-time expenses associated with headcount movement, restructuring, and facility consolidations. The external advisory fees are in relation to strategic initiatives and processes conducted throughout 2024. These three areas were all about one-third of the total fourth quarter transaction and transitional costs. Moving on to our balance sheet. Our net debt leverage ratio of 3.1 times held steady quarter over quarter. we continue to focus on managing cash flow and maintaining a tight discipline on any expenditures. Given our current outlook for adjusted EBITDA and increasing working capital needs in our commercial segment, our net debt leverage ratio may temporarily expand towards the 3.5 times level in 2025. We are now targeting to achieve our run rate net debt leverage ratio of 2.5 times after 2025. Looking now at cash flow, over 2024, our free cash flow is approximately $79 million, roughly a 29% conversion against adjusted EBITDA and a 62% improvement relative to 2023. The improvement is partially attributable to a significant cash outflow made in the comparable LTM period related to the resolution of large one-time warranty provisions. Overall, we are encouraged to see a clear uptrend in our free cash flow metric over recent years, with progress accelerating. Across 2025, free cash flow will be leveraged to support investment opportunities in the commercial segment, given the number of strategic project opportunities we anticipate coming together in that market. Cash flow is an area we are closely monitoring and will continue to provide updates on as the year progresses. And finally, an update on our capital allocation priorities, which generally remain consistent with prior discussions. One area we prioritized in the quarter, in addition to early 2025, was executing our share repurchase program. In the fourth quarter, we repurchased $11 million in shares equivalent to approximately 200,000 shares or 1% of total shares outstanding. The initial automatic repurchase structure we set up continued into the early part of 2025 and has since been completed. We are now reassessing further share purchase plans as we navigate through the first half of 2025. I'll now hand the call back to the operator and open up the lines for any questions.