Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI fourth 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 one on your telephone keypad. As a courtesy to management and other participants on the call, please limit yourself to two questions. that lines will be muted after two questions and you are welcome to 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 1. Before we begin, we caution listeners that this call may contain forward-looking information and discussion and the 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 Brisebois, Interim President and CEO of AGI. Please go ahead, sir.

Thank you, operator, and good morning, everyone. I'm pleased to be speaking with you today from our corporate headquarters in Winnipeg. Our CFO, Jim Ruddock, is here with me, and we are eager to use this call as a kickoff to a new era for AGI. Before getting into a more detailed discussion on the quarter, as well as other relevant business and corporate updates, I would like to first introduce myself and share a few more details on my professional background. I've spent my entire career, which spans nearly 30 years, in the global agriculture business with a strong foundation in sales leadership, marketing, business development, and operations. I've been an executive with AGI since 2012, played a large part in the growth that we have accomplished going from a $300 million company to a $1.4 billion company, most recently leading our North American farm and global portables businesses. That role has kept me close to our customers and provided a clear view of the operating levers that drive performance across AGI. Agriculture is a compelling industry. People must eat and global demand continues to grow. But it is also cyclical, shaped by factors such as weather, geopolitics, interest rates, and government policy, to name a few. While I've seen significant change over the years, the fundamentals remain constant. Crops are grown every season, and grain must move from the field to storage to processing and ultimately to end markets. The industry generally follows a predictable seasonal rhythm, and understanding that rhythm is essential to understanding our customers, what matters, what's urgent, and where they need the most support. As the leader of the company, having decades of hands-on operating experience is particularly important as we navigate a cyclical North American market while managing through significant change internally. To support the pace of change and provide the appropriate level of strategic input, governance, and oversight, AGI has also made several important changes to the board of directors in recent months. Led by our board chair, Dan Hallock, the board now collectively brings a strong mix of hands-on operating experience, deep agriculture sector experience, restructuring and value creation knowledge, capital markets expertise, deep institutional knowledge from AGI's formative years, in addition to meaningful shareholder representation. Overall, this is a board that is well positioned, well equipped, and well aligned to support a renewed focus on operating fundamentals, improving shareholder returns, and enhancing return on invested capital metrics. I look forward to working closely with our board as we execute on our corporate priorities and strategies. Before getting into more detail on our current strategic priorities and recent restructuring activities, I'll provide some brief comments on our fourth quarter results, which Jim will expand on later in the call during his prepared remarks. Fourth quarter revenue increased 4% year over year to $396 million, supported by strength in our commercial segment, particularly in international markets, offset by continued softness in the North American farm segment. Canada in particular. However, adjusted EBITDA decreased to approximately 48 million, down 38%, and our adjusted EBITDA margin compressed to 12.2%, roughly 830 basis points year over year. Given the extent of margin compression in the quarter, it's important to be direct about the drivers of this result. First, within our farm segment, lower volumes for permanent storage and handling, especially in Canada, reduced overhead absorption and impacted profitability. Second, within our commercial segment, we experienced execution related cost pressures on various traditional equipment only projects in Brazil, including cost overruns, warranty charges, remediation expenses, and bad debt write-offs. For clarity, when we refer to our traditional Brazil operations, This includes everything other than the large-scale projects we've recently engaged in. Third, in our North American commercial business, a combination of product mix and production efficiency issues weighed on margins. Taken together, these items contributed to the bulk of the fourth quarter margin outcome. They also reinforce why we initiated a new phase of restructuring early in 2026. As we move forward in 2026 and beyond, we have three key guiding principles which taken together shape our actions and priorities. The first is simplification. We will continue to streamline layers, clarify accountability, and standardize core processes among other activities in a concerted effort to structurally reduce the overall complexity of how we operate. We are simplifying the organization end to end. from the high level organizational structure to how decisions are made day to day. The objective is to move faster with better discipline. The second is customer focus. We are refocusing resources on what matters most to customers from quoting through delivery and how we manage key accounts. The objective is to make customer first thinking a core part of our culture and day to day operations. The third is reducing debt and managing cash flow more broadly. We are operating with tighter financial discipline to improve cash generation and conversion. Outside of managing debt through operating cash flows, we are reviewing our options and alternatives to help accelerate debt repayment. As we work through 2026 in consultation with our board, we will continue to calibrate our strategy and priorities with greater precision and through the lens of ROIC metrics. Given the amount of change underway, We believe it's important to share our current direction as of today so stakeholders understand the priorities guiding execution and resource allocation in the near term. In our renewed commitment to enhance the AGI customer experience and simplify operations through the start of 2026, we have begun and are continuing to undertake a comprehensive strategic restructuring initiative. This process focuses on streamlining our operations and aligning our decision-making processes more closely with our customers' needs. By simplifying our business structure, we aim to empower our teams to respond more swiftly and effectively to customer feedback and market demands, ensuring a more agile and customer-focused approach. These actions include four main changes. First, we restructured the top level of the company what we call the executive operating team, going from a team of 17 down to a team of eight to facilitate accelerated decision-making and improved execution. Second, we implemented a significant overhaul of the North American business to simplify the leadership structure and reduce layers of siloed functions. The objective is to strengthen day-to-day execution and improve the speed of effectiveness of our response to customers in changing market conditions across North America. As part of this alignment, several smaller business units, including feed, food, and digital are being integrated into the broader North American organization, all of which will now operate under a single regional leader. Third, a streamlining of certain corporate functions and leadership capabilities to our Winnipeg headquarters, consolidating activities previously managed elsewhere. And finally, after careful consideration, and evaluation of our current operational landscape, we've made the strategic decision to terminate our ERP implementation. The ERP implementation has been challenging, delayed, resource heavy, and ineffective to date, raising concerns on the realization of expected benefits. Our executive team reviewed the ERP decision through the lens of simplicity, customer focus, and cash flow management. coming to the conclusion that we must cease implementation and refocus on other priorities. In addition, we have also suspended the dividend going forward, effective immediately. The objective of all of these actions are straightforward. They are aligned with our strategic focus areas of simplifying our business, increasing customer focus, and managing cash flow to reduce debt. Collectively, these actions will drive annualized SG&A cost savings of at least $20 million. In addition, terminating the ERP will enable about $20 million of cash cost avoidance over the next two years. Further initiatives to help remove cost and simplify the organization are under review. Stepping outside of these immediate actions, we have also made some other targeted refinements to our corporate strategy, including a decision to halt any new large-scale projects that include general contracting and financing elements in Brazil or elsewhere until balance sheet capacity improves, while continuing to pursue equipment-only opportunities in Brazil that are aligned with the company's traditional operating model, and a comprehensive internal review of our alternatives to reduce leverage and accelerate debt repayment. In addition, we are placing an increased focus on metrics such as return on invested capital to guide strategic decision-making alongside updates to corporate compensation structures, both of which are aligned with the objective of improving shareholder returns. Moving to some comments on order book and overall market conditions. We ended the year with an order book of 543 million, down 26% year over year primarily reflecting the execution of several significant projects in our international commercial segment. In the farm segment, areas of North America have shown some early signs of improvement, notably in our year-end early order program for 2026. With this provides some cautious optimism for 2026 farm segment, results could show an improvement over 2025. It is still early in the year and visibility remains limited. We'll need to get further into the season for additional validation of the demand picture and how to place 2026 within the broader agriculture cycle. In commercial, order intake softened in late 2025 and into early 2026, reflecting longer customer decision-making and project review cycles. Finally, an important note on the underlying makeup of our 2025 results so we can be clear for listeners, analysts, and shareholders as they set expectations for 2026. Our full year results in 2025 benefited from significant revenue connected to large-scale projects in Brazil, which included general contracting and financing components. That said, backfilling this volume of revenue with traditional commercial business projects to replenish the order book to 2025 levels will be challenging. Overall, the demand environment remains an issue in the near term. but we're leaning in, keeping opportunities in our pipeline moving forward, staying close to customers, and simplifying the organization so we can execute better and be ready to capture growth opportunities as conditions improve. To wrap up, I'm grateful and genuinely honored to be in the position to lead AGI through this next chapter. We see both challenges and opportunities ahead, and our team is ready to execute. We are firmly committed to strengthening alignment with shareholder returns and recognize that this is an area where improvement is required. Enhancing value creation for shareholders is a core priority, and we are taking deliberate steps to better align our strategic decision-making, capital allocation, and incentive structures with this objective. We are fully aware and aligned on the need for action to drive consistent, measurable improvement in shareholder returns and alignment. Jim, over to you.

Thanks, Paul, and good morning, everyone. I'll begin with a brief review of Q4 results and then discuss other key financial metrics, starting with farm. Farm segment revenue declined year over year in the fourth quarter, reflecting continued challenging market conditions across North America, including soft crop prices and ongoing uncertainty related to trade and tariff policies. Revenue decreased 8% to $123 million, with the decline concentrated in Canada. Canada farm revenue decreased 34% year over year, impacted by slow demand across both portable and permanent grain handling equipment, and declining, though still elevated, dealer inventory levels, alongside an overall cautious approach to purchasing behavior by farmers and end users. In contrast, U.S. farm revenue increased 11%, reflecting improved volumes versus prior periods, particularly in portable grain handling equipment and early signs of potential stabilization across certain portable and permanent categories. That said, demand remains below historical norms and visibility into sustained improvement remains limited entering 2026. International farm revenue increased 36% year over year, led by strong demand in Australia, though the overall contribution from international regions remained modest in relative terms. Adjusted EBITDA for the farm segment declined 39% to $19.8 million and margin compressed from 24.1% to 16%, driven primarily by lower volumes and margin pressure on permanent handling and storage solutions in Canada. Now turning to the commercial segment. Commercial segment revenue increased year-over-year in the fourth quarter, driven primarily by large-scale comprehensive projects in international markets, with Brazil again delivering a strong quarter and complemented by solid contributions from our EMEA region. overall segment revenue increased 10% to $273 million, with international commercial revenue up 18% to $206 million, reflecting the mix of large projects, notably in Brazil. In North America, US commercial revenue increased 9% on continued execution of projects secured earlier in the year, while Canada commercial revenue declined significantly as the prior year period benefited from substantial project wins and in Q4 2025 a few major projects were pushed from Q4 into Q1 2026. Adjusted EBITDA for the commercial segment declined 39% to $33 million and margins compressed from 21.6% to 12%. The decline was driven primarily by execution related pressures on traditional projects in Brazil that led to cost overruns, warranty charges, and remediation expenses, as well as product mix and production efficiency issues in our North American commercial business. While we are executing a plan to mitigate the margin pressure, we do expect some of these margin challenges to persist for both the Brazilian and North American commercial businesses into 2026. Moving on to adjusted EBITDA and a few comments on specific line items within that reconciliation. Some of the key items to note include transactional transitional this quarter of transactional expenses included a $21 million purchase of the interest of related parties for some of the large scale Brazilian projects. This represented the purchase of our Brazilian construction partners equity interest in three of the large scale projects. While this would normally be recorded as an equity transaction, it was expensed due to the timing of when the transactions close. Another key item is our ERP implementation cost, which will soon be removed given the strategic decision to terminate this activity going forward. Finally, I'll provide a few comments on a few of our focus financial metrics, including free cash flow and leverage. Free cash flow in Q4 was negative, driven mostly by temporary working capital requirements associated with large-scale international commercial projects in Brazil. Improving cash flow is a paramount objective for both management and the board. Of the negative $111 million of free cash flow in 2025, a very significant portion of this was tied to these large-scale projects in Brazil. As we monetize existing receivables and halt further investment, the cash flow pressure related to large-scale projects in Brazil should subside. From a leverage standpoint, our net debt leverage ratio was 4.7 times at year end compared to 3.9 times at quarter over quarter and 3.1 times year over year. We recognize that leverage is elevated and improving free cash flow generation and reducing leverage are key priorities. It is worth noting that our syndicate remains highly engaged and supportive. In Q1, we finalized an amendment agreement with the majority of our lending group that extends our senior credit facility maturity date out to 2030. One key element of our deleveraging plan is the investment vehicle established in Brazil to monetize financing receivables provided by AGI. To date, this vehicle has generated $7 million of inflows, and we have made progress on securing additional inflows in the near term. This structure is designed to relieve working capital support delivery of large projects, improve cash conversion, and strengthen leverage metrics over time. We are working through some of the detailed administrative aspects of the monetization process, and we expect meaningful progress on the long-term accounts receivable monetization effort shortly. For clarity, it is worth reiterating that following our strategic choice to stop pursuing large-scale projects in Brazil, which require general contractor and financing components, we will refrain from entering new customer or project agreements that would increase our long-term receivables or otherwise use our balance sheet. When our balance sheet improves, we may revisit, but for now, the priority is on reducing debt. In closing, our go-forward focus is clear. Improve execution, restore margin performance, strengthen cash conversion, and reduce leverage. With that, I'll turn it back over to the operator.