Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI second quarter 2025 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 forecasts or projections and the material factors and assumptions used by management in preparing the forward-looking information are contained in our second quarter M, D, 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. Thank you, operator. Good morning, and welcome to AGI's second quarter 2025 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. With significant progress achieved on key safety KPIs in recent years, we continue to focus on proactive measures to enhance our safety culture. A key component of this is our newly implemented biweekly safety forum. This brings together a global team of safety leaders, coordinators, and plant managers to share best practices, discuss challenges, and develop solutions. This new meeting cadence is a direct connection to and extension of our AGI-wide annual safety week, which I've discussed in the past and was held in April earlier this year. We look forward to continuing to evolve and progress the safety culture here at AGI. Turning to our second quarter results, I am pleased to report Q2 adjusted EBITDA of $54 million which came in at the high end of our expectations. Consolidated revenue for the quarter was $349 million, approximately flat compared to Q2 2024. Our commercial segment continued its strong performance, helping to offset market softness in the farm segment. This performance underscores the resilience of our diversified business model and the benefits of our strategic focus on international and commercial growth bolstered by our capabilities to manage large and comprehensive projects, which are further enabled through product transfers. Our commercial segment continues to excel with strong revenue growth and EBITDA contribution of $37 million, up 58% year-over-year, with positive results from most areas within this segment. We are executing several long-term projects across various international regions, with Brazil and EMEA remaining key growth engines. These regions have seen significant project wins and successful execution of large and comprehensive project solutions. Our integrated offering, which includes engineering, design, equipment supply, and installation, has been a key differentiator. Not to be overlooked, our North America commercial business delivered favorable results across Q2, leveraging a healthy order book. All three of these commercial businesses Brazil, EMEA, and North America delivered impressive double digit EBITDA growth year over year. As a result, adjusted EBITDA margin percent for the overall commercial segment increased to 16.6% from 14.8% in Q2 2024, reflecting our excellent customer relationships, project execution capabilities, and strong revenue growth. Encouragingly, Our quoting pipeline is strong and active across a number of our international regions, providing good visibility and potential that the current momentum can be sustained through the second half of 2025 and into 2026. Brazil, in particular, is an area we have seen strong activity with numerous ongoing projects and several upcoming opportunities of varying sizes. In our view, the pace of activity in Brazil has been driven by three factors, all of which we are well positioned to capitalize. First is the significant push into value-added processing applications. From corn ethanol to soybean crushing, fertilizer blending and feed milling, to food processing, this sector-wide push in Brazil to expand processing capacity has created significant opportunities for AGI and directly leverages our expanded capabilities and product transfers. Second is the overall demand for grain movement and handling. With Brazil now the top soybean producer and exporter globally, the demand for increased efficiency and capacity across inland terminals, export ports, and other collection points has increased substantially. This is a great fit for our broad commercial engineering and product offerings. And third is the demand for on-farm storage. As we are all aware, the grain storage capacity deficit in Brazil is significant. With an expanding crop size and two seasonal harvests, the need for additional storage capacity is also a key driver of the pace of project work we are seeing in Brazil. Our core on-farm storage and handling offering will support this attractive long-term trend. We are seeing similar types of market dynamics and trends across other international geographies, which rounds out the strength we are experiencing in our financial results, order book, pipeline, and quoting activity globally. Overall, our first half of the year in commercial is a clear indication that our differentiated strategy is providing value to our customers and delivering favorable financial results for our shareholders. As expected, the farm segment continued to navigate challenging market conditions through the second quarter. Soft commodity prices, shifting tariff policies, uncertainty on subsidy programs, and elevated dealer channel inventories all contributed to cautious farmer sentiment, particularly in North America. Adjusted EBITDA margin percent in the farm segment compressed year over year due to lower volumes, with some offset from ongoing cost containment initiatives. The timing and shape of an eventual farm market recovery are unclear, and we look towards the upcoming harvest as a possible event to prompt demand and help improve dealer channel inventory levels, though we do not anticipate this to become clear for several months. Overall, the farm segment remains subject to limited visibility into the second half of 2025. Turning to our order book, I am pleased to report that our consolidated order book stands at $660 million, up 4% year-over-year. Similar to the first quarter, the commercial segment was a key contributor with sustained momentum and demand for large-scale projects, particularly in Brazil. Other areas, including LATAM, were also solid contributors to the order book, helping to offset the relative weakness in farm segment order intake. The commercial order book is up 15% year-over-year and accounts for approximately 85% of the overall order book, providing great visibility to our full-year expectations for this segment, as well as into early 2026. The global clothing pipeline remains highly active across Brazil, EMEA, India, and other areas, providing strong potential for the momentum in commercial to be sustained. As example, subsequent to the quarter, significant momentum in our international commercial regions continued with several notable order commitments secured across a mix of geographies with an aggregate value in excess of $100 million. These are incremental to the $660 million order book reference as of the end of the second quarter. Based on the cadence and milestones of these projects, some revenue will be recognized from these contracts in 2025, and more importantly, they will contribute to our 2026 results. Having some established contracts that are already forming the foundation for next year's results is helpful to ensure the considerable momentum we've earned this year continues. Now moving on to a few comments on tariffs. Tariff policies remain dynamic. Leveraging a dedicated internal team, we have successfully implemented several mitigating actions, including negotiations with steel suppliers in both the U.S. and Canada, as well as targeted pricing actions. Through these tactical adjustments and based on current regulations, we anticipate only a modest direct cost impact to AGI in 2025, which has been incorporated into our outlook. We continue to closely monitor as tariffs could impact customer sentiment and overall equipment demand. And finally, a few comments on our outlook. We reiterate our outlook for full-year 2025 guidance for adjusted EBITDA of at least $225 million. With the continued strength in international commercial and the uncertainty in our farm segment, the mix of contributions that underpin the 2025 million guidance has shifted slightly with our favorable expectations for additional strength in commercial to be offset by tempered expectations for the farm segment netting out to unchanged full year guidance levels. We are encouraged by the recent overall revenue performance of the company with second quarter revenue demonstrating a measurable improvement on a sequential basis. We expect top line momentum to continue into the second half of the year as the overall company returns to growth supported by the strong order book and the exceptional performance of the international commercial business. Based on the cadence of the project work in international commercial, including the recently awarded projects received subsequent to the quarter, it should weight our second half EBITDA contributions towards the fourth quarter. In closing, I want to extend my sincere appreciation to our exceptional global team for their commitment and outstanding efforts. The collaboration and resilience are critical to driving our results and growth. Jim, over to you.

Thank you, Paul, and good morning, everyone. Today, I will touch on a few areas that include a quick overview of our second 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, revenue totaled $349 million, holding steady with our Q2 2024 results. Our commercial segment continues to perform strongly, helping to counterbalance persistent challenges in the farm segment. Adjusted EBITDA of $54 million was near the high end of our expectations. Adjusted EBITDA margins of 15.6% were below prior year, primarily reflecting the increased commercial segment mix with some offset achieved through operational excellence initiatives aimed at optimizing our SG&A spend, including marketing, headcount, and professional fees. Before we talk about the balance sheet, there are two items worth expanding on. One is the other segment expenses that is deducted from adjusted EBITDA, and the second is our transactional, transitional, and other line item in our adjusted EBITDA reconciliation. Our other segment expenses increased to $12 million from $8 million year over year. As a reminder, these are the SG&A costs and other income that are not specifically allocated to either the farm or commercial segment. There are two main drivers of the increase. The first is that we have received less miscellaneous other income due to some favorable sales tax recoveries in the prior year. The second is related to variable compensation accruals and commission expenses which have been aligned to reflect the exceptional performance of our commercial business. Our total company SG&A costs that include these other expenses as well as expenses allocated to the farm and commercial segments continue to improve year over year as a percentage of revenue. Going forward, the approximate level of these other segment expenses should be around $10 million on a quarterly basis. The second callout is our transactional, transitional, and other line item amounts in the adjusted EBITDA reconciliation. These amounts decreased from $12 million to negative $6 million year over year. This is attributable to a recovery of insurance claims as well as an approximate $9 million reduction in fees associated with the strategic review process conducted in 2024, offset by one-time operational restructuring charges. Going forward, we expect the transactional, transitional, and other line item to be a positive number, but trending towards being smaller and less variable than what we've reported historically. Moving on to our balance sheet and cash flow. As expected, our net debt leverage ratio increased to 3.9 times in the quarter, while our free cash flow was approximately breakeven. Both of these figures reflect the sizable but temporary working capital investments required to support some of the large-scale projects we are working on, particularly in Brazil. More specifically, For large projects where project financing is required, AGI has provided or arranged financing options for customers. As discussed last quarter, we are actively in the process of setting up a structure with a third-party partner to monetize significant amounts of the receivables for our Brazilian business, which are largely captured in the non-current accounts receivable line item on our balance sheet. This would have the benefit of simultaneously reducing our working capital and improving our net debt leverage ratio as well as increasing our free cash flow. Recall that last year we progressed through a similar exercise of monetizing farm segment receivables in Brazil, though on a smaller scale. We have experience and relationships that are valuable as we move through this process again. We are targeting the end of the third quarter to finalize the effort to monetize these receivables. Overall, our current objective is to stabilize our net debt leverage ratio in the low to mid three times range by the end of the year. And finally, just a few comments about our capital spending plans for the year. We have reduced our capital budget expectations for 2025. We are now targeting approximately $40 million for the full year, down from our prior estimate of $70 million. The $40 million is inclusive of maintenance, ERP implementation, intangibles, and routine maintenance costs. The main variance between the prior $70 million estimate is movement of our India consolidation project into early 2026 instead of the second half of this year. As a reminder, we have purchased land for the new site in India and have performed summation so that we are in an optimal position to start execution in 2026. One other comment for clarity, the capital budget does not include the temporary working capital requirements necessary to support several of our large commercial projects. We remain very focused on our leverage ratios and free cash flow generation as priority metrics that are relevant to all stakeholders. Our capex expenditures influence both and which is why we routinely review our overall capital allocation strategy and plans. We look forward to accelerating our exciting long-term CAPEX plans, which will be supported by successfully monetizing our Brazilian receivables, as well as an eventual return to more normalized farm market conditions. I'll now hand the call back to the operator and open up the lines for any questions.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. As a reminder, please limit yourself to two questions. and rejoin the queue if you have further questions. The first question comes from Steve Hansen with Raymond James. Please go ahead.

Yeah, good morning, guys. Thanks for the time. Just hoping you could speak to progression on inventory reduction in the channel. on the farm side, it's probably early just given that the selling season is probably only just getting started here. But any indications that you're starting to see that inventory start to clear down or move lower here is sort of a sign for things to improve through the back half.

Yeah, Steve, how you doing? Thanks for the question. You know, you're right. We continue to focus on the North America farm segment as we move through the current cycle. Inventory in general, channel inventory is an important leading indicator, as you point out. We've been working very closely with our excellent dealer partnerships over the past year, really, to continue to make the necessary moves to improve our inventory conditions. And just as a reminder, and I think, Steve, this is what you're getting at, it predominantly relates to our portable equipment. If you go back to Q3, we put in a rebate program for our portable equipment to incent the movement of those inventory levels. That started a positive momentum directionally in reducing inventory level. We've continued to partner with our dealers across 2025. We've continued to offer those rebate programs. They have proven to be successful, and we are seeing our portable inventory levels trending down. So that is a nice, favorable leading indicator. As you note, Steve, we'll continue to keep those rebate programs in place, making the necessary adjustments as we progress through Q3. Our overall goal from an inventory standpoint is to have our portable inventory levels back near historic approximately around the time that we kick off an early order program heading into Q4. So directionally positive. We do not have the inventory levels back at its historic rates at this point, but directionally improving.

That's great. Appreciate the call. And just one more on the commercial side domestically. I know Brazil and the international markets are the focus and the momentum seems strong there, but it sounds like domestic commercial is also a little bit better. Just maybe any clarity around what might be driving that or if there's some sort of duration to that or durability to that going forward. Appreciate any comments there. Thanks.

Yeah, thanks for the question, Steve. Obviously, our commercial business in general is performing extremely well, and regions such as Brazil and EMEA rightfully get quite a lot of attention given their strong performance over the past six to 12 months. We are quite pleased with our North America commercial business. We've got an excellent customer base, an extremely favorable installed equipment base. These are very positive aspects that provide continued momentum in this area. I would like to note that from a North America commercial basis, our revenue for the quarter was up just under double digits, just under 10% for the quarter. It's a good mix across our product lines. We obviously support a lot of grain storage and handling at a commercial scale across North America. We also got a nice mix of fertilizer equipment and other equipment into the space, all of those performing reasonably well. Thank you, Steve.

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

Thanks. Good morning. Paul, I'm wondering if you can elaborate on the order book that was up 4% year over year. commercial being, I think you said 85% of that. Where are you seeing the strength come from? Are you taking share from competitors? Also maybe provide a bit more color on the 100 million plus contract wins post quarter. What type of clients are they and maybe some color on the RFP pipeline?

Yeah, great. Thanks for the question, Gary, and appreciate calling out the order book. It is certainly one of several areas that we're quite pleased from a performance standpoint being up 4%. over prior year. And this is a trend now that we've seen really for the past year or longer as the momentum in our international commercial continue to build. And I would like to note that that's all supported by a lot of nice strategic moves we've made as a company over the past two to three years, anticipating some very solid international growth potential and making sure that we had the right products and the right capabilities in those regions to capitalize on it. A lot of that growth in order book and strength in order book is centered around Brazil and EMEA. Both of those order books continue to perform extremely well. Commenting on each of those regions and getting to your point, in EMEA, A lot of activity in the Middle East area, Gary. As you recall, we saw this opportunity start to develop almost two years ago. We positioned ourselves extremely well. And from a market share position, we absolutely are at the top market share for Middle East grain storage and food security standpoint. So that would absolutely represent a nice market share position for AGI. And pretty similar down in Brazil, we commented on the three areas that are really driving growth down in Brazil. Two of those are directly commercial, the expansion of processing capabilities, as well as notable investments to improve capacity and efficiency in storage and handling throughout Brazil. We do feel we are extremely well positioned here. We do feel that our commercial business is outperforming in this sector and that we've got a very nice and favorable market share position in that space down in Brazil. I think getting to your second half of your question and the additional projects that we have won subsequent to the quarter, it's also very similar themes. They're mostly in Brazil and EMEA. They represent projects of varying sectors and sizes. Some of those projects quite large, Gary, which is very exciting.

Perfect. And then my follow-up for Kim is, Can you provide some color on the new FDIC arrangement vehicle to kind of monetize receivables? If possible, kind of more clarity on the timing and size of it. How confident are you in standing this up and freeing up capital to deliver to the low to mid kind of three times exceeding this year?

Hey, Gary. Yeah, thanks for the question. And, you know, if you recall, we talked about this last couple of quarters here, but with all the exciting growth in particularly in Brazil, but with these large project opportunities, our debt levels have increased. And you saw the net debt leverage at 3.9 times at the end of the quarter, largely a result of us financing, agreeing to finance these new large opportunities. We are on track. to monetize a significant amount of those receivables related to those projects this year. We are actually targeting to pay down approximately 80 to $100 million of debt by the end of this year. And the new FDIC is on track to get established by the end of September. So this, so the new FDIC is setting that up as well as our strong focus on working capital management, And then I commented earlier in terms of our discipline, CapEx management. Are the reasons why we have comfort that we'll end up in the low threes in terms of a net leverage ratio by the end of this year?

Got it. Okay, that's helpful. We'll look for the update in the next call. Okay, those are my two questions. Thank you. Thanks, Gary.

The next question comes from Michael Tepholm with TD Cowan. Please go ahead.

Thank you. Good morning.

Hi there, Michael.

Good morning. And maybe just to follow up on that last question there about the receivables monetization, I guess sort of a two-part question. First off, Jim, you had talked in the opening remarks about most of that being concentrated in the non-current receivables. Just wondering if that sort of 80 to $100 million of debt reduction, like how much of that is due to the receivables reduction? How much of that is long term versus current? I guess that'd be the first part of the question.

Yeah, so the game plan is to finance all the long term receivables. You know, if it's current and short-term, you know, we're collecting cash payments from these customers ongoing. And so, you know, depending on the timing of when that funding happens, we will be collecting those current receivables on an ongoing basis.

Okay. And then? Second question is, it sounds like you had a similar structure in place in the past. You're now working on this new structure. As you continue to hopefully see further growth in the commercial business, are you going to have to do this sort of on a one-off basis every once in a while, or can you put a structure in place that allows this to be a little bit more automated and sort of not require the efforts you're putting in every time?

Yeah, that's an excellent question and thank you for it. And so the partner that we're working with is what we're doing is we're setting up a fund that will start with an initial amount and we're setting up the structure such that we can, as we progress and continue to win these opportunities, we can effectively just what they call upsizing the fund. And so we'll do that periodically. and the intention is to, as we progress these, in Brazil in particular, these opportunities, we'll go lock and step with the fund and increase the size of it to be able to fund any long-term receivable contractual elements of those contracts.

Okay, that's very helpful. Thank you. And just one other one here. Just given the ongoing commercial strength and And obviously still in the short term here, some challenges on the farm side. Can you talk a little bit about how you're thinking about margins for the full year at this point? Obviously, there's a mixed impact given the dynamics you're seeing.

Yeah, thanks, Michael. I'll take that question. And you're right, you got the dynamic correct. Obviously, a lot of strength, a lot of exciting growth on the commercial side that is helping offset some of that market weakness that we're seeing in the farm segment. As you know, in aggregate, our farm segment does have the higher margins relative to commercial. So that dynamic creates a mixed shift, which is putting some weight on our margins. As we look out to the full year, the continued strength in commercial, you know, we do see our margin expectations for the full year of around 17%, which is pretty much in line with expectations and largely reflects the mixed shift in the business between farm and commercial. That's worth noting. We still... see the long-term potential for margin performance in that 18% to 20% as our farm segment rebounds in 2026 and beyond. That will then turn into a tailwind on margins, a favorable mixed shift, and a movement of us back to that 18% to 20% range going forward.

All right, that's very helpful.

Thank you. Thank you, Michael.

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

Hi, thanks for taking my question. Maybe just to follow on the last question there, can you talk a little bit about the pricing and margins that you're seeing in your order book right now and maybe just kind of the recent orders that you've taken?

Yeah, thanks for that question, Krista. So, yeah, the one aspect of our order book, it does give us visibility going forward, particularly on the commercial side. It is good to note that from a commercial standpoint, the projects that we have recently won and added to the order book inclusive of those received after the close of Q2 do represent good margins. So that is part of our expectation. of margin improvement into the second half of the year. So strength from a margin standpoint in the commercial side, and we expect that to be visible in our results in the second half of the year. Krista, on the farm segment, what we're seeing is really steady margins, so really an expectation In the second half of the year, our farm margins will be largely reflective of what we saw in the first half of the year. Obviously, with the market down and putting demand under a little bit of pressure, it does take away a little bit of the pricing opportunities across North America. We do look to manage price relative to our supply chain costs and any tariff impacts. But from a margin standpoint on farm, second half margins steady to first half order magnitude.

Okay, great. And then I was just wondering on last quarter you did provide quarterly guidance for Q2. I don't believe I saw it in the press release this time. Maybe any more color just on the weighting to Q4 versus Q3 for EBITDA?

Yeah, Krista, thanks for calling that out. And so in this quarter, what was important, what we thought in the first two quarters of this year was that because it was, for us anyway, very different than the prior year with farm. Remember, last year for us, farm in the first half was actually good. And so we thought at the start of this year it was important to ensure that everyone understood that it would be very different in Q1 and Q2 versus our prior year. So that's why we thought it was prudent to give you the guidance for Q1 and Q2, but going forward for the rest of this year, you know, we looked at how consensus is aligned in terms of the quarterly guidance, and there's nothing really unusual or a big change versus prior year. So, the only thing to note is that we do expect our Q4 will be very strong due to our commercial activity, and for us, more of our expectations have shifted to Q4.

Okay, great. Thank you. I'll jump back in the queue.

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

Hey, good morning. Thanks for taking my questions. Can you just provide some of your expectations on CapEx Beyond this year? And would it be fair for us to assume that most of that delayed CapEx in 2025 gets pushed out into 2026? And then just regarding Brazil, given the growth that we're seeing there, that's pretty strong. Do you anticipate needing to invest more in Brazil?

Hi, Andrew. Yeah, thanks. So CapEx levels for us, I mean, I think how you're thinking about it is spot on. So this year we talked about for the full year around the $40 million level. If you go forward in 2026, given the timing of how we're progressing in the India expansion opportunity, I would expect that to climb to the $70 million level, which is where we were expecting for this year. And so our normal CapEx expenditures, whether it's maintenance or the small amount of other gross stuff we do and intangibles, is quite consistent on a regular basis. It's really the timing of those growth initiatives. And so with India, as we progress that forward, next year would be in the $70 million level approximate range.

Yeah, Andrew, and picking up on the second half of your question on Brazil, obviously quite excited about the growth opportunities there, which we do see being sustained into 2026 with the potential to go beyond, given the very positive market dynamics and tailwinds that exist down there. We have completed a couple of studies of our manufacturing capacity in Brazil and feel good that we have the capacity that we need to support those opportunities through 2026. We have positioned ourselves to be able to do an expansion in our Brazil manufacturing facility when the opportunity presents itself. Specifically, we have acquired some additional land directly adjacent to our existing manufacturing facility. At the current time, we do not have plans to or needs to invest in and expand that manufacturing capacity in Brazil just yet. We will continue to look at it and revise our plans as needed. As Jim noted, the next large CapEx opportunity that we have is India.

uh really related around expanding uh capacity as well further enhancing capabilities for some of our product transfers that we've recently executed okay that makes sense thank you and then um just regarding the farm segment equipment and what's your sense on the um the replacement cycle and i guess like what's the average age of the fleet that's being in use is that Is that younger? Is that older than typical? And how might that impact the demand from the farmer's side, not necessarily just from the dealer's side?

Yeah, thanks, Andrew. And I'll give you a broad answer to that question in terms of the farm segment. Obviously, quite a lot of attention, rightfully so, over the past 12 months on our North America farm segment. We've commented on extensively. We obviously – other elements of our global farm business are down in Brazil as well as over in Australia. Just a couple of notes on Brazil and Australia. We did – And we have expected that those two segments would be leading indicators to a farm recovery. We have seen improvements in our farm segment performance across both Brazil and Australia. Just to give you some notes, in Brazil, our farm order book sequentially is up twofold versus Q1 and is showing improvements versus prior year. And in Australia, our order book, this is the first time in a while our Q2 order book is up both sequentially and over prior year. So we are seeing some pockets of improvements within our global farm business. From a replacement cycle, a pivot to Australia, a lot of that improvement in Australia is in our portable product lines. That's really where the replacement cycle comes into play. Typically, we would say portable equipment replacement cycle is plus or minus around seven years. It is influenced by the size of harvest, the moisture level of the harvest, the type of commodities that are put through. Those factors can both shorten as well as lengthen. that replacement cycle. But, you know, give or take, Andrew, we see it around seven years. So there is, you know, there is a point in time in which the replacement, the need to replace the equipment, particularly on our portable side, would be, would look to improve demand. So that is another aspect that we're watching closely, Andrew. Okay. Thank you.

Again, if you have a question, please press star then one. The next question comes from Maxim Sychev with National Bank Financial. Please go ahead.

Good morning, gentlemen. Good morning, Max. Maybe the first question for you. I was wondering if you can comment, please, on the commercial visibility as it's right now kind of the bulk of the business. Obviously, I have work at hand, but what's the visibility as we look beyond the end of 2025? Thanks.

Yeah, thanks, Max. Terrific question. Obviously quite a lot of strength right now in our commercial order book that we have touched on. You know, typically a commercial project for us would be, say, in a six-month, six to nine-month duration scenario. I would comment, Max, that we are now starting to win some larger projects, as we noted in our opening comments. Those could give us visibility out 9 to 12 months. So when you take a look at where we are currently positioned, our order book provides terrific visibility for the second half of this year, largely covering us from a performance expectation standpoint and starts to provide early views into 2026. So we do have a portion of our commercial order book that will fall into Q1, some of it even into Q2 of next year.

Okay, but I guess my question is more sort of around the visibility. I mean, given where the grain pricing is, et cetera, et cetera, like how do you think sort of the next batch of these commercial projects, I mean, like what triggers the clients to give them go ahead on these CapEx investments? So that's, yeah, that's kind of the general gist.

Yeah, for sure, Max. And you bring up a great point. What is the driver for commercial investments? Why are we seeing such a significant uptick now? What we have seen is large commercial investments are less tied to commodity prices And more tied to some of those trends that I noted, particularly in commenting down to Brazil, it would be trends around moving more and more into the processing space or further building out capacity to improve the efficiency in grain movement, both in country and around the world. Just to Max point out a little bit, a few examples on what we mean by processing. If you go down to Brazil, a trend that we're currently seeing is significant investment in corn ethanol production. There's been a number of government passed regulations to increase the amount of ethanol blend into gasoline. That has been a strong catalyst to notable investments across Brazil on corn to ethanol production. We've studied this market extensively, Max. We do feel that this has a multi-year runway. We expect ethanol production to continue to increase across Brazil to not only, Max, support ethanol demand in Brazil, but also the future opportunity for Brazil to move to a net exporter of ethanol to support global demand. Quite an attractive dynamic there to support future commercial business. Pretty similar in other areas. Soy crushing is a big one that we're seeing in Brazil and starting to see in other regions. Fertilizer will be the third one that I comment on. One of the nice project wins that we've had down in Brazil is a substantial fertilizer capacity project. There's a number of countries when you look around the world, Brazil, Africa, India, that are behind in terms of fertilizer capacity. A lot of our product transfers and inherent capabilities that we've built out across these regions directly support this expected market trend. We see that fertilizer capacity expansion also being a multi-year opportunity.

Okay, super helpful. And then a couple of questions for Jim. So in terms of the ERP costs, do you mind providing a bit of color around the duration of these adjustments and I guess when the project is going to be complete. Thanks.

Yeah, so we are undergoing, you know, transforming really or installing a common system around the world to drive a number of operational enhancement opportunities. Very exciting. We've been at this now for a couple of years. We're in the deployment stage now and expect to have fully deployed by the end of 2027. And so from an order of magnitude for these costs, if you look at our current quarter of costs, that will run through by quarter through this year into next year and then start to get dropped significantly and end at the end of 2027. Okay.

So the intensity of kind of the current adjustments will persist into 2026?

For the transformation cost, the ERP cost, yes, in through 2027. Okay.

Okay, thank you. And then in terms of the kind of the working capital dynamic, I don't know, have you thought about, you know, thinking about these things as a percentage of revenue that we should be thinking about it as kind of, you know, commercial business ramps up? I mean, what is the correct number that, which should be using on a prospective basis? Thank you.

So it depends how you look at it. So we tend to look at it a number of ways. But in terms of from your perspective, if you think about percentage of revenue, so we under normal mixed conditions, a percentage of revenue will trend towards the 13% to 14% level. Right now, it's a little bit higher at 15% as a result of some of the commercial activities and the mix shift. But on a normal basis, we're targeting to manage the business around the 13% to 14% as a percentage of revenue. Okay. Okay.

That's great. Thanks so much.

Thanks, Max. The next question comes from Tim Monatello with ATB Capital Markets. Please go ahead.

Hey, good morning. I just want to understand a little bit more about your expectations for revenue cadence on a year-over-year basis between farm and commercial. Obviously, it sounds like commercial will be pretty strong, although the Q4 of 24 was also a very strong quarter for commercial. Do we be expecting both farm and commercial revenue to be up on a year-over-year basis in the second half of the year, or are you expecting farm to be down a little while commercial offsets is up?

Yeah, thanks, Tim, for the question. As we look at the second half of the year, it is going to be underpinned by notable strength in our commercial area, for sure. So we see our commercial growth revenue being up versus prior year across the second half. And we see our farm revenue being stable or soft relative to the second half of the year. Net, Tim, as commented in our opening statements, we do expect the second half of the year to return to revenue growth over prior year. You know, this is particularly positive that we're in a position to return to revenue growth in advance of the farm recovery, which we would expect, you know, there's a general expectation out there to see that in 2026. So the second half of the year should establish real nice momentum heading into 2026.

Okay, got it. And then on the farm side, You've got the rebate program ongoing. Do you think that when portable inventories normalize with dealers, that the market is in a place where it can accept normalized pricing as well for products? Or do you think that there's going to be discounts on new inventory going to dealers as well as the market conditions remain relatively soft?

Yeah, thanks, thanks, Tim. You know, I'll start by saying, you know, we couldn't be more pleased in general with our portable product line. This is a terrific product, a terrific business for us across our global farm business, particularly in North America, U.S., and Canada quite strongly. As you note, we are partnering with our dealers with the rebate program to move the inventory levels that we have currently, get those back down to a historic level. At that point, Tim, we would expect, you know, pricing to also return to historic conditions. I would say that our team has done just a fantastic job in the portable space, managing the business and managing our margins. Within the portable, our margins continue to look good on an absolute and on a relative basis. We've also done a lot of fantastic work from an overall product line standpoint within the portable equipment. We were just recently out at a farm show in western Canada in which we launched four new portable product lines. We got extremely favorable feedback within that trade show. We'll bring those products down to the trade shows in the U.S., expecting similar favorable feedback. This is worth noting, Tim, because it's really product innovation and it's us maintaining a premium product out there in the market that supports our brand and it supports our pricing. So, you know, beyond just moving inventory levels down and getting stability there, we're focusing on innovation and maintaining a leading product line as also a brand positioning standpoint.

Okay. That's helpful. And then you mentioned, um, you know, roughly seven year replacement cycles for portable, um, is North America, like is the install base getting closer to, um, I guess a replacement cycle, uh, demand pull, or is that not really a factor in, in what you're seeing? Cause it's been a, you know, a prolonged period of sort of weakness and demand.

Yeah, thanks, Tim, for the question. You are correct that when we look at the current North America farm market conditions, the demand for our portable equipment has been part of the weakness supported by the high inventory levels. The replacement cycle of portable equipment is relevant. You know, obviously, with farmer income down and farmer sentiment where it's been over the past 12 months, the farmers have been in a little bit of a capital or have been watching capital expenditures very closely. At some point in time, we would expect that the replacement cycle becomes a catalyst to demand. It's very difficult to say when does that really start to push demand, but it certainly could be a factor heading into 2026. Okay.

And then on the receivables monetization, having that structure set up, hopefully by the end of September, do you expect to monetize those receivables in Q3 or is that going to be a Q4 event?

No, we're targeting Q3 to have a good tranche of that, but there will be a continued monetization through Q4. Okay.

And then are those long-term receivables included in the order book?

No. The order book is just for future things that have not shipped. So receivables are for ship things. So they come out of the order book and go into our revenue and receivables. Does that make sense?

That's fair.

Yeah, that's what I thought I just wanted to clarify. And then just last one, I'm curious if you can provide a little bit of detail around how that $9 million reversal of costs related to the strategic review came to pass.

Yeah, so if you recall, remember last year we accrued a significant amount of fees associated with the strategic review process that we went through. So that process now that it's finished, we were actually able to reach an agreement and reduce the fees by the $9 million.

Okay, so that was just with third parties?

Yeah, sorry, with third parties.

Okay. That's all my questions. I appreciate all the detail.

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

Thanks very much. Appreciate everybody joining us for the call. Again, quite pleased with how Q2 finished. We look forward to the second half of the year. And again, want to send my thanks and appreciation out to our outstanding global team, all the excellent work that has been completed and the initiatives that we continue to have in place, and also terrific appreciation for our shareholders. Thank you very much.

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