Ag Growth International Inc.

Thank you for standing by. This is the conference operator. Welcome to the AGI's second quarter 2026 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 and then one on your telephone keypads. As a courtesy to management and other participants on the call, we do ask that you please limit yourselves 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 and zero. Before we begin, we caution listeners that this call may contain forward looking information, 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, the material factors and assumptions used by management in preparing the forward-looking information are contained in our fourth quarter MD&A press release, which are available on the AGI website. I would now like to turn the comments call over to Paul Brisebois, 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 second quarter 2026 results. Joining me is Nicolle Parker, our Interim Chief Financial Officer, who will walk you through some of our second quarter financial metrics 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 persistent backdrop of uncertainty across North American and global agricultural markets. Our results reflect two very different realities across the business. On one hand, our North American farm business continued to improve, delivering double digit revenue growth and EBITDA expansion. On the other hand, commercial markets remain soft globally, particularly in North America and certain international regions. resulting in lower project activity and margin pressure. While we are not satisfied with the overall financial performance, we are encouraged by the actions we are taking to strengthen the business, improve our balance sheet, and position AGI for long-term value creation. Let me begin with an overview of our Q2 results. At a segment level, our Q2 featured a continuation of the trend from the first quarter with farm picking up year over year while conditions and commercial slowed. Farm delivered a solid quarter with revenue up 10% to $140 million and adjusted EBITDA up 12% to $33 million. The most encouraging aspect of the quarter was the continued improvement we are seeing within our North American farm business. Farm revenue increased 16% year-over-year driven by both the United States and Canada. We experienced stronger demand conditions for portable equipment in the U.S. and permanent storage and handling equipment in Canada. Farm EBITDA increased and margins remain strong, demonstrating the leverage and profitability of the business as demand begins to improve. While we are not yet calling a full agricultural cycle recovery, we believe the market is stabilizing and we are seeing encouraging signals from customers and channel partners. The commercial segment, by contrast, remained under pressure. Revenue declined 17% to $183 million and adjusted EBITD fell to $19 million. Commercial performance continued to be impacted by lower customer investment levels and reduced project activity, as geopolitical uncertainty, including ongoing conflicts in key regions, continues to weigh on customer confidence, financing conditions, and the timing of capital deployment. Across North America, EMEA, and portions of Asia Pacific, customers remain cautious and are delaying capital spending decisions. This resulted in lower revenue, lower plant utilization, and reduced margin performance versus last year. On a consolidated basis, while a pickup in U.S. farm activity and cost savings initiatives served to partially offset some of the softness in commercial, Overall adjusted EBITDA was $43 million, down 20%, with an adjusted EBITDA margin of 13.4%, a decline of roughly 217 basis points from last year. Outside of our quarterly results, we continue executing several initiatives designed to improve the organizational effectiveness and earnings power of AGI. First, our structural cost reduction program remains on track, and we continue to target over 30 million of annualized savings with a large majority of this amount already in hand. Importantly, these savings are largely structural and are tied to permanent changes in organizational design and footprint rather than temporary spending deferrals. This means that volume recovery should drive incremental margin recovery on top of these savings. These are sustainable improvements that will enhance margins and cash flow over time. Outside of cost containment actions, we have taken some tactical steps to capture incremental volume growth across the business. For example, in Q2, we initiated a strategic facility consolidation plan in the U.S. aimed at regaining historical storage and material handling volumes lost in the U.S. market. As part of this consolidation, we are making a measured capital investment to restart our grain bin business out of our Clay Centre Kansas facility. Even as the broader farm market remains soft, this is a deliberate high return move to recover storage and material handling volumes we have seeded in the U.S. market. By retooling Clay Centre for bin line production and establishing it as a centre of excellence for North American farm manufacturing, we restore delivery certainty, can introduce a standardized North American bin design, and create freight consolidation benefits our dealers have specifically asked for. The associated capex is modest, phased over roughly nine months from the second half of 2026 into the first half of 2027, and is more than covered by the expected proceeds from unused facility and asset sales underway as part of the same facility consolidation initiative. We announced this facility realignment in June, and we view it as an example of investing selectively behind the parts of the business where we can win even in a down cycle. Moving on to a few comments on governance and leadership matters. Reflecting the board's continued focus on maximizing shareholder value, we have formally established a strategic review committee comprised of independent directors who will oversee a formal review of the range of strategic alternatives and options available to the company. The committee's mandate is straightforward. Carefully assess opportunities that could maximize long-term value for all shareholders. This review reinforces our commitment to maintaining a disciplined and objective approach toward capital allocation, portfolio optimization, and value creation. While the process is ongoing, our management team remains focused on executing our operating plan and delivering results. Finally, we strengthened our leadership team with the appointment of Aris Uddin as Chief Financial Officer, effective August 4, 2026. We welcome Horace to the team and look forward to his official start date next week. I also want to personally thank Nicolle Parker for her leadership and partnership throughout the transition process and for her significant contributions to the business. The finance organization remains in her capable hands as we continue executing our transformation and leveraging priorities. Looking ahead, our outlook reflects the same divergence we saw this quarter. In farm, conditions are showing early signs of stabilization but the pickup and activity remains modest. It is measured against a very low base and it is too early to call a definitive turn in the cycle. We'll continue to stay close to our dealers, support their stocking and in-season needs, and watch order intake closely for a more durable signal of recovery. In commercial, we expect continued softness. With pressure concentrated in North America and India, alongside the absence of new large-scale comprehensive project contributions in Brazil. Taken together, the combination of a still-guarded farm recovery, continued commercial softness, and the strategy shift in Brazil are expected to weigh on second half and full year results relative to the prior year. Stepping back into the bigger picture, while current order environment remains below prior year levels, and market visibility continues to be limited in several regions. We believe that as volumes eventually recover and as the cycle strengthens, the benefits of our structurally reduced cost base will drive an outsized improvement in earnings performance. In closing, we recognize that current market conditions remain uneven, particularly in our commercial business, and we are taking decisive actions to strengthen AGI's foundation. Our farm business is showing encouraging signs of recovery, our cost reduction initiatives are progressing, and we are working to transform our balance sheet through debt reduction and asset optimization. Most importantly, we are creating options. Every dollar of debt repaid, every dollar of cost removed, and every operational improvement we make increases AGI's strategic flexibility and long-term value potential. We recognize that our shareholders expect results and we remain intensely focused on delivering them. The work we are doing today is positioning AGI to emerge stronger, more resilient, and better positioned to generate sustainable returns through the cycle. We believe the intrinsic value of AGI is not reflected in our current valuation. Our objective is straightforward. Stay disciplined operationally, unlock the value embedded in our business, and deliver meaningful long-term value for our shareholders. Thank you to our employees, customers, partners, and shareholders for your continued support and confidence in AGI. I'll now hand the call over to Nicolle.

Thank you, Paul, and good morning, everyone. I'll focus my remarks on the following areas. Our leverage, position, margins for the quarter, free cash flow, order book, and impairments. Our leverage ratio was 5.2 times at the end of Q2, effectively flat quarter over quarter. While we are focused on bringing this down over time, the flat result this quarter reflects the offsetting dynamics of softer trailing EBITDA against the benefit of applying long-term receivable proceeds to debt reduction. With the majority of our Brazil monetization proceeds now directed toward our senior credit facilities, asset sales and disciplined free cash flow will further support our deleveraging objectives. Turning to margin performance for the quarter, consolidated adjusted EBITDA margin declined 217 basis points. from 15.6% to 13.4%. The primary driver was commercial where margin compressed 602 basis points from 16.6% to 10.6% reflecting lower volumes across the commercial segment. Farm was a partial offset with margins expanding modestly supported by higher volumes and the benefit of our cost saving initiatives. Our other corporate segment also improved year over year, reflecting the structural cost actions taken across our corporate footprint. The bottom line is that margin performance this quarter is fundamentally a function of low commercial volume, and volume recovery means the key ingredient for the full return to typical commercial margins. On free cash flow, we saw meaningful improvement this quarter, driven largely by the monetization of long-term accounts receivable in Brazil. We have now completed approximately $106 million of long-term accounts receivable monetization with proceeds applied to reduce borrowings under our senior credit facilities and to fund the final stages of certain Brazil contracts. This represents the majority, but not all, of anticipated proceeds from the monetization program. Importantly, we expect more to come. As we consolidate facilities and rationalize the business, a number of locations and assets are in the process of being sold, and we expect to monetize more than $20 million in the third and fourth quarters, more than covering the capital requirements for our U.S. consolidation initiative with funds to spare for debt repayment. Combined with our structural cost savings and a disciplined approach to capital allocation, these actions are expected to support a stronger free cash flow profile as we move forward. One of our key corporate priorities is to generate consistent free cash flow, an initiative we are executing as we continue to restructure and simplify operations. A few comments on our order book. We ended the quarter at 516 million, down 22% year over year. The composition of our order book tells the same divergent story as our results. On the farm side, North America continues to strengthen. North America portable was up 77% and North America farm permanent up roughly 16%, providing improved near-term visibility as demand stabilizes in certain areas. The order book pressure remains concentrated in commercial. North America commercial, EMEA, and India all face challenging market conditions that have slowed customer decision making, which ultimately impacts order intake and our reported order book. In short, North America farm is beginning to turn, but that improvement is currently outweighed by continued softness across our commercial and international markets. Finally, during Q2, management identified impairment indicators within certain commercial segment businesses. These included the food platform within North America Commercial Operations, as well as within our Brazil business. These developments reflect evolving demand conditions, margin pressure, Operating outlook changes and strategic decisions made since the most recent annual impairment assessment. Thank you for joining us this morning. Operator, we can now open the line for questions.