Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI first quarter 2026 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. Please note 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 zero. Before we begin, we caution listeners that this call may contain forward-looking information and discussion 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 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 speak with you today about AGI's first quarter 2026 results. Joining me is Nicole Parker, our interim chief financial officer, who will walk through the financial results in more detail during her prepared remarks. As we've discussed over the last several quarters, AGI continues to operate in a cyclical environment, and 2026 is unfolding against a continued backdrop of uncertainty across North American and global agriculture markets. That uncertainty is influencing purchasing behavior across both farm and commercial customers, and it continues to weigh on near-term visibility, especially where our customers are making larger capital decisions. Against that backdrop, we're concentrating on the things we can control, simplifying how we run the business, tightening operational execution, and improving the customer critical metrics that track how well we are managing the ongoing downturn as well as the trajectory of our recovery when conditions in our markets eventually normalize. Importantly, while we saw some encouraging signals in parts of our farm segment, particularly on order intake activity, we still remain cautious on a full farm recovery, continuing to stay close to our dealers and supporting their stocking and in-season needs as they gauge the demand signals from customers. In commercial, the operating environment remained difficult, and margins compressed year over year. The pressure was most pronounced in North America and India, and we've taken initial actions to respond, aligning capacity and cost to current volumes, workforce rate sizing actions, and protecting our ability to ramp up quickly when demand returns by staying close to our customers, even if ordering patterns are subdued in certain areas. Turning to Q1 results, consolidated revenue in Q1 was $282 million, down 2% year-over-year. Adjusted EBITDA was 25 million, down 19% year-over-year, and our adjusted EBITDA margin was 8.9%, down approximately 200 basis points from last year. At a segment level, farm revenue increased 7% year-over-year to 102 million, while commercial revenue declined 6% year-over-year to 180 million. Farm adjusted EBITDA was 18.9 million, Effectively flat year over year and commercial adjusted EBITDA was 13.6 million, down notably versus prior year. This was mostly due to softening margins in our North America commercial and India rice milling equipment businesses, which are both navigating slow overall market conditions. There are three main themes I want to highlight on the quarter, including tariff related timing in farm. margin pressure in commercial, and continued restructuring actions to better align costs and improve resilience. First theme, farm was heavily influenced by timing effects and underlying demand remains challenging. Farm segment performance reflected meaningful tariff-related timing dynamics between Canada and the U.S. markets. Canada farm delivered a stronger year-over-year result, largely due to an unusually weak prior year comparable period that was impacted by tariff-related pre-shipments into the U.S. in Q1 2025. In many cases, absent the introduction of tariffs, these products would have shipped within Canada, but were prioritized for U.S. customers due to the pending U.S. tariff actions. Those same dynamics created an offsetting headwind in U.S. farm in Q1 2026, where the prior year period benefited from elevated pre-buying activity. Timing impacts aside, we did observe improved order intake activity in certain product groups within our farm segment through Q1, though we remain cautious in interpreting these near-term signals as indicative of a turn in the cycle. Order book levels remain below historic levels, and it is too early to suggest a swift or sustained broad-based recovery in underlying demand is materializing. Customer purchasing behavior continues to be influenced by elevated input costs such as diesel and fertilizer and uncertainty around trade and tariff dynamics, as well as broader macroeconomic pressures. In summary, while there is potential for a modest full year improvement in the farm segment, it remains challenging and should be viewed in the context of a low 2025 base. Second theme, commercial margins were compressed with pressure concentrated in North America and India, and we have levers in motion to mitigate. Commercial segment adjusted EBITDA declined from 24.5 million in Q1 2025 to 13.6 million in Q1 2026, and margins compressed from 12.8% to 7.6%, a contraction of roughly 520 basis points. The drivers were not evenly distributed. Approximately half of the margin compression is attributable to North America commercial with the balance driven primarily by India and to a lesser extent, EMEA. In North America, lower volumes in the permanent material handling business were the primary driver of margin pressure. Given limited near-term workforce flexibility at our flagship North America permanent material handling facility, we absorbed the cost of maintaining skilled labor with a focus on increasing the order book going into Q2. This impacted margins in Q1, but more aggressive pricing in a challenging market enabled us to build our Q2 order book to improve our labor force utilization, though it still will be at the cost of some margin compression from historical norms. In parallel, we're taking short-term pricing actions intended to support volumes while continuing to nurture product innovation to strengthen our competitive position over the medium term. We do not view pricing actions as a substitute for competitive differentiation, but in a soft volume environment, it's part of the toolkit to stay competitive and protect the long-term customer relationships. In India, the margin headwinds were driven by market-related volume softness, both domestically and in export markets, reflecting a difficult regional backdrop, including significant rice stocks, regional conflict, and evolving government policies. In response, we took significant workforce reduction action early in Q2, which we expect will help mitigate some of the pressure until volumes strengthen. With these actions in motion, the company expects to see some sequential improvement in Q2 commercial segment margins relative to Q1, even against an overall soft volume and market backdrop. A more fulsome recovery to typical margin levels in commercial will require a corresponding recovery in volumes across our key commercial markets. Third theme, we continued to streamline the business in Q1 and into Q2 to better align our cost structure with demand and improve resilience. As we've discussed, the absence of a broad-based demand recovery means we have to align the cost structure and operating model to today's reality, not yesterday's volumes. Through Q1 and into Q2, we continue to take actions to streamline the organization and advance restructuring initiatives, positioning AGI to better align operations with current demand levels and improve margin resilience. We now expect annualized savings to exceed our previously disclosed target of at least $20 million, with a refined estimate of at least $30 million as actions are fully implemented. Also, since the decision to terminate the ERP transformation, we have successfully reimplemented the previous ERP system, enabling the teams to more effectively serve our customers. Turning to some focus comments on adjusted EBITDA margin performance by segment for the quarter. Consolidated adjusted EBITDA margin declined 197 basis points from 10.9% in Q1 2025 to 8.9% in Q1 2026. The biggest driver was the commercial segment where adjusted EBITDA margin declined from 12.8% to 7.6%, reflecting pressure concentrated in North America and India. Farm margin declined from 20.2%, to 18.5% driven primarily by mix, a higher weighting of lower margin storage equipment, partially offset by benefits from cost saving initiatives. Offsetting some of the margin pressure was our other segment, which primarily represents corporate costs. Improvement here reflects cost actions taken across our corporate structure, office locations, and teams. The bottom line is this, Q1 margin performance is a reflection of low volume in our commercial business, particularly in North America and India. We have mitigation levers in motion, but volume recovery remains a necessary ingredient for a full return to typical commercial margin levels. We ended Q1 with a consolidated order book of $589 million, down 19% year-over-year, reflecting softness in commercial partially offset by an uptick in farm. Farm segment order book increased year-over-year, supported by early signs of improvement in both Canada and U.S. farms. That said, order book remains below historic levels and it is too early to indicate any meaningful or sustained shift in broader market conditions. Commercial segment order book declined year over year, primarily reflecting skewed comparables from large project wins included in prior year order book, particularly in EMEA and continued softness in North America and India. This was partially offset by good momentum in traditional equipment only project wins in Brazil. underscoring the breadth of the market opportunity in this region, independent of how we go to market. Moving on to an important corporate update as it relates to monetization of long-term accounts receivable in Brazil. After quarter end, approximately 105 million related to long-term accounts receivable in Brazil was released from escrow, with 55 million officially in hand currently. We are in the final administrative stages of transferring the additional 50 million to AGI-controlled accounts, a process expected to be completed in May, and the proceeds will be applied to reduce outstanding debt on our senior credit facilities. These funds relate to the large-scale comprehensive projects in Brazil that have carried longer payment terms and higher working capital intensity than our traditional operating model. The release of escrowed funds helps create additional breathing room under our senior facilities at a time when the ag cycle remains uncertain and flexibility on the timing and extent of additional strategic actions is helpful. Consistent with the objective of managing our balance sheet and as previously discussed, we have paused offering general contractor and financing solutions in Brazil for new large-scale comprehensive projects until balance sheet conditions strengthen. We will continue to execute on remaining commitments already in progress, but our intention is to participate in Brazil primarily as an equipment supplier under normal commercial terms going forward. To wrap up, we're not satisfied with the quarter, particularly on commercial margins, but our priorities are clear and we're taking action. We're focused on disciplined execution and improving customer outcomes. We've put mitigation levers in motion and will continue to tighten operations so we're positioned for a stronger performance as markets normalize. With that, I'll turn it over to Nicole.

Thank you, Paul, and good morning, everyone. I'll review our first quarter results by segment and then get into more detail on key financial metrics. Farm segment revenue increased 7% year-over-year to $102 million, driven primarily by timing-related impacts in Canada and the U.S. Canada Farm delivered a meaningful year-over-year improvement, though the improvement was driven primarily by a favorable comparable, as Q1 2025 was impacted by tariff related pre-shipments into the U.S. that would otherwise have been directed to Canadian customers. While Q1 benefited from that timing effect, underlying market conditions remain generally soft. U.S. farm declined year over year as Q1 2025 benefited from elevated pre-buy activity ahead of the U.S. trade tariffs. pulling demand forward and creating a difficult comparison. Excluding these timing effects, underlying conditions remain challenging and customer purchasing behavior continues to reflect macro uncertainty, escalating input costs and soft commodity prices. Adjusted EBITDA for the farm segment was $18.9 million, essentially flat year over year. Adjusted EBITDA margin was 18.5%, down 162 basis points, driven primarily by a higher mix of low-margin storage equipment, partially offset by cost-saving initiatives. Commercial segment revenue declined 6% year-over-year to $180.2 million, with performance varying by region. Brazil delivered higher revenue driven by continued execution of legacy large-scale projects secured in prior periods. EMEA declined year-over-year against a tough prior year comparable that included significant Middle East contract wins. India experienced near-term headwinds from regional conflict, significant domestic rice inventories and evolving government policies on rice content that dampened incremental demand. In North America commercial, results reflected a challenging market environment with lower permanent material handling volumes and some continued softness with parts of the U.S. commercial food platforms. Adjusted EBITDA for the commercial segment declined to $13.6 million from $24.5 million in the prior year quarter, with adjusted EBITDA margin compressing to 7.6% from 12.8%. Approximately half of this margin compression is attributed to North America commercial. with the balance driven primarily by India and, to a lesser extent, EMEA. Paul covered most of the details related to this in his prepared remarks. The overall adjusted EBITDA reconciliation includes a couple of notable items. The ERP system transformation costs include program termination expenses. Going forward, this line item should effectively be minimal in line with the strategic decision to forego this project, serving to increase earnings quality and overall free cash flow generation. Transactional, transitional and other costs are also elevated versus prior year given the extensive restructuring activities completed in the quarter. Finally, there is also a heightened impairment charge this quarter. This relates to a terminated business transaction in Brazil that is non-core to normal operations, as well as the impact of the Chicago office closure. On an LTM basis, free cash flow in Q1 was negative $123 million, primarily reflecting additional working capital requirements in Q1 and growth in non-current accounts receivable related to Brazil's large-scale comprehensive projects executed throughout 2025 and into 2026. The monetization of approximately 105 million of long-term accounts receivable in Brazil together with cost savings initiatives in flight through 2026, is expected to support a step change in our free cash flow profile. In addition, a halt on new large-scale comprehensive projects in Brazil that require financing support should further stabilize our free cash flow profile as we progress through 2026 and beyond. Our expectation is for free cash flow to be positive for the full year, including approximately $30 million of additional incremental investment required for Brazil large-scale projects already in place. With the first tranche of monetization nearing completion and clear visibility on outstanding cash costs remaining for projects already committed to, We are beginning to turn our attention to our options for a second smaller tranche of monetization to substantially clear up remaining long-term accounts receivable connected to Brazil. The $105 million in long-term receivable monetization on a Performa basis would have held our leverage ratio flat at 4.7 times relative to last quarter. The reported ratio of 5.2 times reflects the typical first quarter build in working capital, as well as continued progress on the Brazil large-scale projects, both of which are temporary in nature. With the proceeds of the long-term receivables going towards senior debt repayment, there is an important benefit to our bank covenant calculations. Thank you for joining us this morning. Operator, we can now open the line for questions.