Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI third quarter 2025 results conference call and webcast. As a reminder, all participants are in a 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 reach 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 third 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.

Good morning, and thank you for joining AGI's third quarter 2025 results call. Today, I'll review our Q3 performance and how the execution of our strategy is driving results. After my remarks, I'll turn the call over to Jim for additional commentary on the quarter. I'll begin with safety, which remains a top priority at AGI. Our recordable incident rate decreased 15% year over year to a new all-time low. In addition, more than half of our production facilities have now surpassed one year without a lost-time accident, clear evidence of our progress on safety and the benefits of embracing a zero-harm culture. We continue to invest in proactive measures, including enhanced training, digital monitoring, and near-miss reporting. Safety isn't a standalone metric. It's embedded in how we plan, operate, and make decisions each and every day across the entire company, from our facilities to our corporate offices. To begin our prepared remarks this quarter, I would like to first address the delay in filing our results. This quarter, we experienced a delay in our third quarter filings and were unable to meet the prescribed timelines for releasing financial results and related disclosures. We concluded that further time was required to confirm and finalize the accounting treatment of operations in Brazil as we had become aware through our internal channels of various financial reporting and internal control matters that required additional time to evaluate. Additionally, over a relatively short period of time, We created and launched a new business model, secured several large and comprehensive projects, and formed an investment fund to support current and future projects. These measures, while delivering favorable profitable growth, added significant complexity to our business, which contributed to our auditors needing to fully review. Additionally, our audit committee performed an independent and comprehensive review of various matters relating to our financial reporting and internal controls with respect to operations in Brazil. Through this comprehensive review, we identified specific opportunities to improve our financial reporting processes and internal controls related to Brazil. These findings were determined to constitute a material weakness in our internal control over financial reporting. We are actively addressing this material weakness and have initiated remediation measures, which are further detailed in the Disclosure Controls and Procedures and Internal Control over Financial Reporting section of the MD&A. Turning to a recap of our Q3 results, as well as a broader discussion on our key corporate strategies. AGI delivered a solid quarter with growth in both revenue and adjusted EBITDA, despite a challenging market segment backdrop. Consolidated revenue reached $389 million, which represents 9% growth year-over-year. Importantly, this is consistent with our prior commentary on realizing second-half revenue growth. Adjusted EBITDA came in at $71 million, up 4% versus prior year. Our third quarter results reflect both the strength of our strategy and the realities of our markets. While the North America farm market navigates challenging ag equipment dynamics, Our commercial segment, in particular within the international regions of our business, are quite strong and continue to demonstrate a steady growth profile. Our third quarter results are perhaps the clearest example yet of the benefits we're realizing from the successful execution of the key strategies and tactics put into place over the last few years. AGI is now better positioned to capitalize on market opportunities across diverse geographies. As a reminder, we've organized our corporate strategies into three areas, profitable organic growth, operational excellence, and balance sheet discipline. As we get into our third quarter results, I'd like to use this framework to provide updates across all three of these areas, including where these strategies have been implemented over recent years and how they are delivering value and supporting growth potential. I'll begin with profitable organic growth. Recall this strategy included three areas. product transfers, emerging markets, and growth platforms. An inherent strength of our strategy is that each of these areas are interrelated which serves to reinforce their effectiveness. I will address each in order. Undoubtedly, product transfers have been a growth driver for AGI. As a reminder, product transfers involve taking highly successful products from one region within AGI and running an internal transfer program to migrate the sales through to manufacturing capabilities to other attractive regional markets. Product transfers often include some local market product customization to ensure it will fit the requirements of a new customer base within that new region. Similar to the first half of the year, international commercial segments benefited from our efforts on executing product transfers. Customer demand for complete solutions is high in Brazil, and our team is actively advancing several major projects secured in both 2024 and 2025 across food, feed, and fertilizer, in addition to our longstanding presence in the grain market. All these elements have come together to deliver strong customer engagement and a high pace of activity. our comprehensive offering is a competitive advantage which has enabled us to rapidly grow market share in one of the most strategically important and high-growth agriculture markets in the world. We are encouraged by the highly active pipeline and note the significant opportunities remain as we move into 2026. Product transfers have also been a key part of our success in areas outside of Brazil. In India, our storage bins, permanent material handling, and portable material handling solutions have added important capabilities which are providing top line stability and serving as a catalyst to access large and rapidly growing markets within India and across Asia Pacific. As a relatively early entrant into this emerging market, we remain optimistic about the potential of these new in-country capabilities to provide long-term profitable growth. Food, feed, and fertilizer product transfers are the next areas of focus for India as we look towards 2026 and beyond, building on our success in Brazil. The second pillar of our profitable organic growth strategy is a focus on emerging markets, particularly within our EMEA business. A strategic deployment of business development resources into the Middle East has yielded several large project wins. Activity has also been steady in Africa and Southeast Asia with a consistent stream of new project wins. Preliminary visibility into potential new projects in Ukraine has begun to emerge. In aggregate, we have expanded our presence in many areas of the world, which supports the overall diversification and resilience of our business. Finally, the third pillar of our profitable organic growth strategy is our growth platforms. These include food and feed equipment businesses as well as our digital products. These businesses have a focus on enhancing processing capabilities, which naturally complement our core storage and handling expertise. In addition, these areas all participate in very large and growing addressable markets. So far, our efforts have been mostly on enhancing and developing solution offerings. leveraging capabilities within AGI, and pulling them together into comprehensive standalone global business units. With that process largely complete, we are now gaining momentum and making positive contributions to our financial results. The feed business has a large pipeline with numerous opportunities in advanced quoting stages. The food platform is benefiting from concentrated efforts to develop new customer relationships and diversify across global end markets. And finally, the digital business, which has primarily been a North America offering, is now being taken to new regions around the world, most notably into Brazil. Overall, these three strategies implemented just a few years ago have generated favorable financial and strategic results for AGI. These strategies are collectively driving the above-market growth we are delivering in the commercial segment. As conditions in the farm market eventually stabilize, our strategy provides upside potential to our results, which fundamentally did not exist just a few years ago. A few further comments on the other two core elements of our corporate strategy, operational excellence and balance sheet discipline. Our operational excellence program continues to progress and is designed to optimize the business and deliver margin-enhancing efficiencies. Two significant facility consolidations within North America are nearing completion, enabling us to streamline production and remove costs, helping to create a more agile manufacturing network that can quickly and efficiently respond to market shifts and customer needs. In addition, towards the end of 2025, we also divested one of our smaller, non-core Canadian facilities to a new owner, further streamlining our footprint within North America. Building on these consolidations, we've advanced several initiatives to optimize manufacturing throughput and streamline our supply chain. Our teams have implemented process improvements across key sites, rationalized product lines, and enhanced logistics coordination. These efforts are already delivering benefits in cost structure and working capital efficiency and set the stage for improved profitability as volatile market conditions stabilize and and demand rebounds in the North America farm market. Finally, our ERP implementation remains a cornerstone of our overall transformation. This enterprise-wide initiative is now progressing through a series of deployment phases. Once fully implemented, our new ERP platform will unify our systems, accelerate quoting and engineering workflows, and unlock significant efficiencies across finance, operations, and supply chain, among other areas, which all ultimately serve to enhance the customer experience. This expanded organizational capability will deliver cost savings in addition to the potential for additional revenue through a more effective and integrated information system. While we are encouraged by the progress we've made in managing what is in our control by streamlining costs and finding more efficient ways to operate the business, As we look towards 2026, we expect to take additional steps to improve our operating efficiency across North America. These actions are designed to both optimize our operating cost structure while enhancing the customer experience. The measure of success of these actions will be to strengthen our North America operating margins across 2026. Finally, an update on our balance sheet discipline strategy. We continue to make meaningful progress on working capital, advancing the deployment of upgraded and consistent processes, tools, and capabilities to each of our facilities, and improving overall working capital visibility and control across the organization. In September, we launched a new commercial investment fund in Brazil, complementing the existing farm structure. This innovative investment vehicle allows us to bring differentiated offerings to the market while monetizing AGI's long-term financing receivables tied to large commercial projects. With the fund now in place, future cycles of project financing and receivables monetization will be more streamlined, creating structural competitive advantages for our Brazil business. The first monetization of financing receivables occurred shortly after Q3. We expect additional inflows in early 2026, providing both liquidity and support for debt reductions. Finally, through a partnership with a leading Canadian financing institution, we have initiated a payables optimization program aimed at improving terms and increasing our average length of payables with certain high-volume suppliers. This will help maximize cash flow and incrementally further reduce overall working capital. Moving on to our order book. Our current order book remains healthy, supported by momentum in the commercial segment. At the end of the quarter, our order book stood at approximately $667 million, up slightly year over year. Consistent with the first half of the year, the order book is heavily weighted towards commercial, given ongoing industry-wide challenges in the farm ag equipment segment. With over 90% of the order book allocated to commercial, our order book is more impacted by the timing of successfully winning large commercial projects. The overall composition of our order book reflects a strategic shift toward higher-value projects with longer execution timelines. This approach enhances revenue visibility, strengthens customer relationships, while partially mitigating the impact from the slow farm segment activity. A few comments on tariffs and recent developments. Tariff dynamics remain fluid, and our internal teams are actively monitoring developments across key markets. New regulations and increased tariff rates were introduced in the third quarter. Our teams continue to explore available avenues to mitigate the effect of tariffs, including modifying and redesigning our supply chain. Overall, our agile organization, global sourcing strategies, and flexible supply chain enable us to manage these uncertainties effectively, minimizing disruption and margin impacts. we will continue to closely monitor the situation for new developments. Progressing through the fourth quarter, activity and quoting pipeline across our international commercial segment remained steady. However, soft sentiment across the North American agriculture sector, particularly in our Canadian farm business, continues to weigh on our overall performance with unclear timing for a meaningful farm market recovery. The near-term focus for our North America farm business is order intake and a successful execution of our early order program. In addition, business activity in India and North America commercial, historically strong market for AGI, began to slow through the end of the year with expectations to remain subdued into early 2026. Despite these headwinds, the strength of our order book within certain areas of the commercial segment highlight the resiliency of our diversified business model helping to partially offset the challenges across certain markets. Overall, Q4 expectations are for lower adjusted EBITDA sequentially and versus prior year, largely from challenging market conditions, negative mix, and notably higher SG&A costs from a comparatively lower prior year. We remain excited about the potential of the company with the compounding impact of our strategy delivering international commercial momentum combined with an eventual rebound in the North America Ag Equipment segment. I'll now turn the call over to Jim.

Thank you, Paul, and good morning, everyone. Today, I'll touch on a few areas that includes an overview of our third quarter results, an update on key balance sheet metrics, some comments on cash flow, and a quick recap of our capital allocation priorities. Total revenue for Q3 was $389 million, up 9% year over year, while adjusted EBITDA reached $71 million, an increase of 4%. Adjusted EBITDA margin came in at 18.2%, down about 100 basis points from last year, primarily reflecting the mixed shift toward commercial projects. Our commercial segment continues to deliver strong year-over-year revenue growth. This performance reflects our execution of large-scale projects across multiple international markets. Brazil remains a standout contributor. Customer demand for comprehensive solutions is high, and our team is actively advancing several major projects secured in both 2024 and 2025. Thanks to our product transfer program, technical support from strategic third-party partners, and customized financing options, we are able to maintain a high pace of activity. Elsewhere, our AMIA region continues to make meaningful contributions, driven by the execution of several major projects in the Middle East and Africa. Strong third quarter revenue growth was coupled with excellent cost control initiatives to enable an outsized capture of incremental adjusted EBITDA contribution from this region. As a result of execution of large-scale projects, increased volume, and disciplined cost containment, our commercial segments adjusted EBITDA margin expanded to 19.5% up from 17.9% year-over-year. It's worth clarifying that we did have some commercial revenue, which was anticipated in Q4, move into Q3 based on project timing and accelerated achievement of certain milestones, though this doesn't impact our overall outlook for second half revenue growth on a fully consolidated basis, which also includes expectations for a strong Q4 result for our commercial segment. Turning to our farm segment, while overall revenue declined this quarter, performance varied across regions. Brazil showed improvement with revenue and order book up quarter over quarter, the U.S. saw only a slight revenue decline and early signs of order book stabilization, and Canada softened after a strong 2024, with conditions now broadly in line with the U.S. Low commodity prices continued to pressure farmer income, and while dealer inventory for portable equipment declined through Q3, it's still above historic levels. As a result, our farm segment adjusted EBITDA margin remains compressed due to lower volumes and an unfavorable product mix. We recently launched our annual early order program for portable grain handling equipment, a category hit hard by current market conditions. Adjustments have been made to better align with today's environment, but early feedback suggests purchasing trends may mirror last year's weak performance. While the program offers insight into sentiment, it's too early to call a trough in the overall market. Conditions remain challenging, and we're focused on cost control and preparing for recovery. The simple reality is that industry conditions within our farm market have not changed. Crop prices are still low, dealer inventories are still high, and tariffs and subsidy support remain uncertain. We expect the near-term uncertainty in the North American farm market to persist into early 2026. One final comment on some of the details of our adjusted EBITDA in the quarter. It's worth calling out the transactional, transitional, and other line item in our adjusted EBITDA reconciliation. We have diligently worked to reduce this figure as we have now progressed through several one-time expenses and projects related to streamlining the business. As a percentage of total adjusted EBITDA, this line item is largely immaterial this quarter. While certain transient projects and one-time expenses can come up on occasion, we believe we are now in a place where this line item should be smaller and less variable than prior quarters, enhancing our overall earnings qualities. Moving on to our balance sheet and cash flow. Our net debt leverage ratio held steady at 3.9 times on a quarter-over-quarter basis. This was primarily due to the sizable but temporary working capital investments required to support large-scale projects, particularly in Brazil. Importantly, operating cash flow in the quarter remained strong, demonstrating the underlying strength of our business, though free cash flow was impacted by the requirement for some additional project financing in Brazil. We anticipate this cash flow dynamic will shift in the coming months and quarters as a previously announced investment fund set up in Brazil steadily monetizes these long-term receivables. This increases our cash flow while decreasing our overall working capital investment. The process of monetizing these receivables through the investment fund has already started with AGI collecting some initial inflows in Q4. As we proceed into 2026, further monetization actions are expected. Strategically, with the investment fund in place, further projects and related transactions will be able to more rapidly move through our balance sheet and produce cash inflows, a unique advantage for AGI in the Brazilian market. And finally, a few comments about our capital spending plans for 2025 We remain on pace for total capex of approximately $30 million for the full year 2025, with about $21 million incurred through the third quarter. The expenses for our ERP implementation are not included in these figures. We're continuing to evaluate larger, more strategic capital investment opportunities and our advancing planning efforts in parallel. In closing, I would like to reiterate the importance of AGI delivering a solid Q3 amid varied market conditions. This is a tangible signal that our strategic initiatives are working and delivering real value to the business. Thank you for your continued support, and we look forward to updating you on our progress in the quarters ahead. Now back over to you, operator, to open up the call for questions.