Q2 2024 Ag Growth International Inc Earnings Call

August 8, 2024

Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the AGI second quarter 2024 results conference call and webcast.

Operator: As a reminder, all participants are in lesson only mode, and the conference is being recorded. To join the question queue, you may press star then 1 on your telephone keypad. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero. I would now like to turn the conference over to Paul Householder, President and CEO of AGI. Please go ahead, sir.

Operator: As a reminder, all participants are in lesson-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 any further questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero. I would now like to turn the conference over to Paul Householder, President and CEO of AGI. Please go ahead, sir.

Speaker Change: 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.

Speaker Change: 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 any further questions.

Speaker Change: Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero.

Speaker Change: I would now like to turn the conference over to Paul Householder, President and CEO of AGI. Please go ahead, sir.

Paul Householder: Thank you, Operator. Good morning and welcome to AGI's second quarter 2024 results call. I am joined today by our CFO, Jim Reddick. I'll start the call with a review of our results, then turn the call over to Jim for additional commentary on the quarter. Following our prepared remarks, the call will be opened for questions.

Paul Householder: Thank you, Operator. Good morning, and welcome to AGI's second quarter 2024 results call. I am joined today by our CFO, Jim Reddick. I'll start the call with a review of our results, then turn the call over to Jim for additional commentary on the quarter. Following our prepared remarks, the call will be opened for questions. To start today's call, I will begin with a few customary comments on safety and AGI. Our last time incident rate decreased to 0.3 in the last 12 months.

Paul Householder: Thank you, Operator. Good morning, and welcome to AGI's second quarter 2024 results call. I am joined today by our CFO , Jim Rudyk. I'll start the call with a review of our results, then turn the call to Jim for additional commentary on the quarter.

Paul Householder: To start today's call, I will begin with a few customary comments on safety at AGI. I'm proud to announce that the key metrics we use to track safety performance continue to make significant progress. Our last time incident rate decreased to 0.3 in the last 12 months. This is approximately a 60% improvement over 2022 and a 75% improvement over 2021. This type of extraordinary progress over a relatively short period of time clearly highlights the commitment of our workforce to improve safety and working conditions day in and day out. Moreover, we view this as a reliable measure of the meaningful strides we are making with our one AGI group.

Speaker Change: Following our prepared remarks, the call will be opened for questions.

Speaker Change: To start today's call, I will begin with a few customary comments on safety and AGI.

Speaker Change: I'm proud to announce that the key metrics we use to track safety performance continue to make significant progress.

Speaker Change: Our last-time incident rate decreased to 0.3 over the last 12 months. This is approximately a 60% improvement over 2022 and a 75% improvement over 2021.

Speaker Change: This type of extraordinary progress over a relatively short period of time clearly highlights the commitment of our workforce to improve safety and working conditions day in and day out. Moreover, we view this as a reliable measure of the meaningful strides we are making with our one AGI culture.

Paul Householder: Moreover, we view this as a reliable measure of the meaningful strides we are making with our one AGI group. Several important steps were taken at the end of the first quarter and early in the second quarter to successfully protect margins within challenging market conditions. Strategic decisions that impact our facility footprint are always difficult.

Paul Householder: Turning to our results, our second quarter was slightly lower than our expectations, largely due to a temporary manufacturing outage in Canada and some expected softness across the farm market, such as Brazil, the U.S., and Australia. However, several important steps were taken at the end of the first quarter and early in the second quarter to successfully protect margins within challenging market conditions. Actions taken included headcount reductions across certain facilities, tighter SG&A controls, and acceleration of planned facility consolidations within our North America farm grain storage business.

Speaker Change: Turning to our results, our second quarter was slightly lower than our expectations, largely due to a temporary manufacturing outage in Canada and some expected softness across the farm market such as Brazil, US and Australia.

Speaker Change: Several important steps were taken at the end of the first quarter and early in the second quarter to successfully protect margins within challenging market conditions.

Speaker Change: Actions taken included headcount reductions across certain facilities, tighter SG&A controls, and acceleration of planned facility consolidations within our North America farm grain storage business.

Paul Householder: Leveraging a recent standardization project for our North America grain storage products, we will be closing our Grand Island, Nebraska facility and transitioning production to other AGI manufacturing facilities, most notably our Westfield operation in Winnipeg, Canada. Strategic decisions that impact our facility footprint are always difficult.

Speaker Change: Leveraging a recent standardization project for our North America grain storage products, we will be closing our Grand Island, Nebraska facility and transitioning production to other AGI manufacturing facilities.

Speaker Change: Most notably, our Westfield operation in Winnipeg, Canada.

Speaker Change: Strategic decisions that impact our facility footprint are always difficult.

Paul Householder: We extend our sincere thanks and tremendous appreciation to the outstanding Grand Island team and the employees who have greatly contributed to our success in building our U.S. business. Globally, we continue to advance our product transfer program, securing additional orders and accelerating completion of initial projects that will serve as powerful and important in-region representation. We anticipate revenues generated from our product transfer strategy to contribute approximately 4% of total consolidated revenue in 2024, with a clear path to becoming an even more significant contributor over the next several years.

Speaker Change: We extend our sincere thanks and tremendous appreciation to the outstanding Grand Island team and the employees who have greatly contributed to our success in building our U.S. business.

Speaker Change: Globally, we continue to advance our product transfer program, securing additional orders and accelerating completion of initial projects that will serve as powerful and important in-region reference sites.

Paul Householder: We anticipate revenues generated from our product transfer strategy to contribute approximately 4% of total consolidated revenue in 2024, with a clear path to becoming an even more significant contributor over the next several years. An important aspect of this strategic growth initiative is the minimal capital expenditure required to deliver incremental revenues, which is critical and complementary to our balance sheet discipline. It further speaks to the overall potential of our global business position.

Speaker Change: We anticipate revenues generated from our product transfer strategy to contribute approximately 4% of total consolidated revenue in 2024, with a clear path to becoming an even more significant contributor over the next several years.

Paul Householder: For clarity, the 2024 product transfer results include incremental orders received subsequent to our press release from earlier this year, where we highlighted $55 million in total product transfer orders received to date. An important aspect of this strategic growth initiative is the minimal capital expenditure required to deliver incremental revenues, which is critical and complementary to our balance sheet discipline.

Speaker Change: For clarity, 2024 product transfer results include incremental orders received subsequent to our press release from earlier this year, where we highlighted $55 million in total product transfer orders received to date.

Speaker Change: An important aspect of this strategic growth initiative is the minimal capital expenditure required to deliver incremental revenues, which is critical and complementary to our balance sheet discipline.

Paul Householder: It further speaks to the overall potential of our global business position. We can meaningfully and efficiently expand our total addressable market to enable accelerated growth across a multiyear timeframe, particularly in high-growth regions such as India and Brazil, where we are already well-established with local teams and local production capability. In addition to product transfers, we continue to realize significant results from our focus on penetrating high-growth emerging markets across the Middle East, Africa, and Southeast Asia.

Paul Householder: We can meaningfully and efficiently expand our total addressable market to enable accelerated growth across a multiyear timeframe, particularly in high-growth regions such as India and Brazil, where we are already well-established with local teams and local production capabilities. Deepening our reach in these key markets has been a strategic priority for AGI over the past several years. And, similar to product transfers, we are at the start of an ongoing multi-year growth trend for AGI. As we get into more discussion of the quarter, I'd like to turn to an update on our three strategic corporate priorities.

Speaker Change: It further speaks to the overall potential of our global business positions.

Speaker Change: We can meaningfully and efficiently expand our total addressable market to enable accelerated growth across a multi-year time frame.

Speaker Change: Particularly, in a high growth region such as India and Brazil, where we are already well established with local teams and local production capabilities.

Speaker Change: In addition to product transfers, we continue to realize significant results from our focus on penetrating high growth emerging markets across the Middle East, Africa, and Southeast Asia.

Paul Householder: These are highly strategic markets with strong growth rates given their large populations and underdeveloped agricultural infrastructure. Deepening our reach in these key markets has been a strategic priority for AGI over the past several years. Emerging markets will be a meaningful contributor to 2024 results.

Speaker Change: These are highly strategic markets with strong growth rates given their large populations and underdeveloped agriculture infrastructure.

Speaker Change: Deepening our reach in these key markets has been a strategic priority for AGI over the past several years.

Paul Householder: And, similar to product transfers, we are at the start of an ongoing multi-year growth trend for AGI. As we get into more discussion of the quarter, I'd like to turn to an update on our three strategic corporate priorities. As a reminder, these include profitable organic growth, operational excellence, and balance. For profitable organic growth, revenue and adjusted EBITDA increased sequentially, though came in lower on a year-on-year basis against last year's record results. We continue to expect solid year-on-year growth for the full year through a strong second half performance supported by a record order book.

Speaker Change: Emerging markets will be a meaningful contributor to 2024 results, and similar to product transfers, are at the start of an ongoing multi-year growth trend for AGI.

Speaker Change: As we get into more discussion on the quarter, I'd like to turn to an update on our three strategic corporate priorities.

Speaker Change: As a reminder, these include profitable organic growth, operational excellence, and balance sheet discipline.

Paul Householder: For profitable organic growth, revenue and adjusted EBITDA increased sequentially, though came in lower on a year-on-year basis against last year's record results due to the continued execution of large product transfer and emerging market projects and steady order intake with improving farm segment market conditions. For operational excellence, second quarter margins increased sequentially and were quite strong relative to historical second quarter results. Our margin performance and resilience are key indicators that AGI's margin profile has substantially moved higher, even within challenging market conditions. For balance sheet discipline, we are on pace to achieve our target net debt leverage ratio of two and a half times in 2024.

Speaker Change: For profitable organic growth, revenue and adjusted EBITDA increased sequentially, though came in lower on a year-on-year basis against last year's record results.

Speaker Change: We continue to expect solid year-on-year growth for the full year through a strong second-half performance supported by a record order book.

Paul Householder: Continue to execute large product transfer and emerging market projects and steady order intake with improving farm segment market conditions. For operational excellence, second quarter margins increased sequentially and were quite strong relative to historical second quarter results. Our margin performance and resilience are key indicators that AGI's margin profile has substantially moved higher, even within challenging market conditions. We remain on track to deliver on full-year margin performance expectations. For balance sheet discipline, we are on pace to achieve our target net debt leverage ratio of two and a half times in 2024.

Speaker Change: Continue to execution of large product transfer and emerging market projects and steady order intake with improving farm segment market conditions.

Speaker Change: For operational excellence, second quarter margins increased sequentially and were quite strong relative to historical second quarter results.

Speaker Change: Our margin performance and resilience are key indicators that AGI's margin profile has substantially moved higher, even within challenging market conditions.

Speaker Change: We remain on track to deliver on full-year margin performance expectations.

Speaker Change: For balance sheet discipline, we are on pace to achieve our target net debt leverage ratio of two and a half times in 2024.

Paul Householder: A heightened focus on free cash flow generation complements ongoing efforts around working capital improvement and CapEx discipline, which will help us accomplish this objective. Now turning to a review of revenue results and trends across our segment and geographies, beginning with our farm. Overall Farm Segment results for the second quarter were challenged as key markets such as the U.S. and Brazil navigated generally soft market conditions. In addition, one of our Canadian facilities experienced a temporary unplanned outage which delayed deliveries expected in Q2 into the second half.

Speaker Change: A heightened focus on free cash flow generation complements ongoing efforts around working capital improvement and CapEx discipline, which will help us accomplish this objective.

Speaker Change: Now turning to a review of revenue results and trends across our segment and geographies, beginning with our farm segment.

Paul Householder: Overall, farm segment results for the second quarter were challenged as key markets such as the U.S. and Brazil navigated generally soft market conditions. In addition, one of our Canadian facilities experienced a temporary unplanned outage which delayed deliveries expected in Q2 into the second half. This is an unusual event as our planned maintenance program and team are quite strong and do an excellent job of driving high manufacturing utilization. While the first half of the year was slower for our farm segment, we do see early signs of improving conditions across these markets and momentum that could pick up through the rest of the year. These indicators include demand for storage equipment, increasing inventory turnover across our farm dealer network, and the prospect of a very large harvest. I will provide a bit more color on each.

Speaker Change: Overall farm segment results for the second quarter were challenged as key markets such as the US and Brazil navigated generally soft market conditions.

Speaker Change: In addition, one of our Canadian facilities experienced a temporary, unplanned outage which delayed deliveries expected in Q2 into the second half. This is an unusual event as our planned maintenance program and team are quite strong and do an excellent job of driving high manufacturing utilizations.

Paul Householder: This is an unusual event, as our planned maintenance program and team are quite strong and do an excellent job of driving high manufacturing utilization. For clarity, this is a Q2 timing item and will not negatively impact the full year.

Speaker Change: For clarity, this is a Q2 timing item and will not negatively impact the full year.

Paul Householder: While the first half of the year was slower for our farm segment, we do see early signs of improving conditions across these markets and momentum that could pick up through the rest of the year. These indicators include demand for storage equipment, increasing inventory turnover across our farm dealer network, and the prospect of a very large harvest. I will provide a bit more color on each. Within our farm product mix, we have seen solid demand for storage and other permanent products.

Speaker Change: While the first half of the year was slower for our farm segment, we do see early signs of improving conditions across these markets and momentum that could pick up through the rest of the year.

Speaker Change: These indicators include demand for storage equipment, increasing inventory turnover across our farm dealer network, and the prospect of a very large harvest. I will provide a bit more color on each of these points.

Speaker Change: Within our farm product mix, we have seen solid demand for storage and other permanent products.

Paul Householder: It is important to note that our dealers generally carry minimal inventory of these products. Typically, orders are placed with AGI as they are received from end-users, leading to relatively fast and efficient channel activity. In recent weeks, we have seen stable to increasing demand for storage and other permanent products. This early positive shift in farmer sentiment translates directly to revenue generation and serves as an important leading indicator of potential future demand for other AGI farm products such as portable handling equipment.

Paul Householder: It is important to note that our dealers generally carry minimal inventory of these products. Typically, orders are placed with AGI as they are received from end-users, leading to relatively fast and efficient channel activity. This early positive shift in farmer sentiment translates directly to revenue generation and serves as an important leading indicator of potential future demand for other AGI farm products such as portable handling equipment. Also supporting our optimism for the farm segment is the positive outlook for the upcoming crop.

Speaker Change: It is important to note that our dealers generally carry minimal inventory of these products.

Speaker Change: Typically, orders are placed with AGI as they are received from end users, leading to relatively fast and efficient channel activity.

Speaker Change: Over recent weeks, we have seen stable to increasing demand for storage and other permanent products.

Speaker Change: This early positive shift in farmer sentiment translates directly to revenue generation and serves as an important leading indicator of potential future demand for other AGI farm products such as portable handling equipment.

Paul Householder: For our product lines where we manage and leverage dealer inventory, most notably our portable handling equipment, we are seeing increasing dealer inventory turnover based on direct feedback from our dealer partners, observations from the frontline sales team, and measured uptake from a recent rebate program.

Speaker Change: For our product lines where we manage and leverage dealer inventory, most notably our portable handling equipment, we are seeing increasing dealer inventory turnover based on direct feedback from our dealer partners.

Speaker Change: Observations from the Frontline Sales Team

Paul Householder: Net-net, this is another positive signal that demand is improving. Also supporting our optimism for the farm segment is the positive outlook for the upcoming crop. Grain harvest estimates are robust, with expectations for a favorable crop in most grain-growing regions, including across North America. We expect the sheer volume of grain that will need to move through the food supply chain will be supportive of further improving farmer sentiment, leading to a positive impact on equipment purchasing decisions for AGI products. Our candidate farm segment revenue declined 6% versus the prior year, largely due to the temporary production outage referenced earlier.

Speaker Change: measured uptake from a recent rebate program. Net-net, this is another positive signal that demand is improving.

Speaker Change: Also supporting our optimism for the farm segment is the positive outlook for the upcoming crop.

Speaker Change: Grain harvest estimates are robust with expectations for a favorable crop in most grain growing regions, including across North America.

Speaker Change: We expect the sheer volume of grain that will need to move through the food supply chain will be supportive of further improving farmer sentiment, leading to a positive impact on equipment purchasing decisions for AGI products.

Paul Householder: Our candidate of farm segment revenue declined 6% versus the prior year, largely due to the temporary production outage referenced earlier. However, we are equally optimistic about the second half based on expectations for improving market conditions, generating solid demand across our grain storage, Permanent Material Handling, and Portable Handling Products.

Speaker Change: Our candidate of farm segment revenue declined 6% versus prior year, largely due to the temporary production outage reference earlier.

Paul Householder: Overall, we feel good about our Canadian farm segment performance on an absolute and relative basis, noting that conditions are more favorable than other farm-centric markets. We are equally optimistic about the second half based on expectations for improving market conditions, generating solid demand across our grain storage, Permanent Material Handling, and Portable Handling Products.

Speaker Change: Overall, we feel good about our Canadian farm segment performance on an absolute and relative basis, noting that conditions are more favorable than other farm-centric markets.

Speaker Change: We are equally optimistic about the second half based on expectations for improving market conditions, generating solid demand across our grain storage, permanent material handling, and portable handling products.

Paul Householder: As anticipated in our first quarter earnings call, the U.S. farm segment was particularly slow in the second quarter due to cautious purchasing behavior, higher dealer inventories, and tepid farmer sentiment. However, several notable actions were taken across the quarter to effectively manage cost, capacity, and manufacturing utilization through the slowdown. These actions supported both the right-sizing of business operations relative to second-quarter market conditions, as well as structural changes that will serve as an Operational Excellence tailwind for several quarters to come.

Paul Householder: As anticipated in our first quarter earnings call, the U.S. farm segment was particularly slow in the second quarter due to cautious purchasing behavior, higher dealer inventories, and tepid farmer sentiment. However, several notable actions were taken across the quarter to effectively manage cost, capacity, and manufacturing utilization through the slowdown. These actions supported both the right-sizing of business operations relative to second-quarter market conditions, as well as structural changes that will serve as an operational excellence tailwind for several quarters to come.

Speaker Change: As anticipated in our first quarter earnings call, the U.S. farm segment was particularly slow in the second quarter due to cautious purchasing behavior, higher dealer inventories, and tepid farmer sentiment.

Speaker Change: Several notable actions were taken across the quarter to effectively manage costs, capacity, and manufacturing utilization through the slowdown.

Speaker Change: These actions supported both the right sizing of business operations relative to second quarter market conditions, as well as structural changes that will serve as an operational excellence tailwind for several quarters to come.

Paul Householder: Importantly, the outlook for the upcoming crop has improved across the second quarter and appears to be tracking towards a strong harvest. As with Canada Farm, this potential for large crop volumes supports improving farmer sentiment, which is a key demand driver, particularly for grain storage products. To further explore this demand dynamic, it is relevant to note that multi-year low crop commodity prices have led to higher than normal on-farm grain storage inventories across the U.S.

Speaker Change: Importantly, the outlook for the upcoming crop has improved across the second quarter and appears to be tracking towards a strong harvest.

Paul Householder: As with Canada Farm, this potential for large crop volumes supports improving farmer sentiment, which is a key demand driver, particularly for grain storage products. To further explore this demand dynamic, it is relevant to note that multi-year low crop commodity prices have led to higher than normal on-farm grain storage inventories across the U.S. When combined with the size of the upcoming harvest, this creates a strong incentive for grain storage investment. With many existing on-farm storage silos remaining full, there potentially would be insufficient storage capacity for the new harvest without investment.

Speaker Change: As with Canada Farm, this potential for large crop volumes supports an improving farmer sentiment which is a key demand driver, particularly for grain storage products.

Speaker Change: To further explore this demand dynamic, it is relevant to note that multi-year low crop commodity prices have led to higher than normal on-farm grain storage inventories across the U.S.

Paul Householder: When combined with the size of the upcoming harvest, this creates a strong incentive for grain storage investment. With many existing on-farm storage silos remaining full, there potentially would be insufficient storage capacity for the new harvest without investment.

Speaker Change: When combined with the size of the upcoming harvest, it creates a strong incentive for grain storage investment. With many existing on-farm storage silos remaining full, there potentially would be insufficient storage capacity for the new harvest without investment.

Paul Householder: This dynamic, along with our tactical adjustments made to further stimulate the market, creates a potential for a pronounced rebound in U.S. activity across the second half of the year. However, our international farm segment posted a decrease in revenue of 27% versus the prior year due to challenging market conditions across Brazil and Australia. As with the U.S., several actions were taken in Brazil to ensure our operations aligned with market conditions. To gain operational leverage, we intend to maintain these actions across the second half of the year as market conditions improve.

Speaker Change: This dynamic, along with our tactical adjustments made to further stimulate the market, creates a potential for pronounced rebound in U.S. activity across the second half of the year.

Speaker Change: Our international farm segment posted a decrease in revenue of 27% versus prior year with challenging market conditions across Brazil and Australia.

Speaker Change: as with the u s several actions were taken in brazil to ensure our operations aligned with market conditions

Speaker Change: to gain operational leverage we intend to maintain these actions across the second half of the year as market conditions improve

Paul Householder: To further drive growth and order intake, we continue to promote our new finance program. As with the U.S. market, the upcoming harvest in Brazil is expected to be strong, supporting optimism for a strengthening second half. Conditions in Australia have also improved, as measured by our dealer partners working through inventory positions in our portable handling products, with some restocking already occurring. Now, turning to our commercial segment. Overall, second quarter commercial segment revenue was flat as ongoing soft conditions in Canada offset a consistent performance from the U.S. and international markets.

Paul Householder: To further drive growth and order intake, we continue to promote our new finance program. Now turning to our commercial segment, overall, second quarter commercial segment revenue was flat as ongoing soft conditions in Canada offset a consistent performance from the U.S. and international markets.

Speaker Change: To further drive growth and order intake, we continue to promote our new finance programs.

Speaker Change: As with the U.S. market, the upcoming harvest in Brazil is expected to be strong, supporting optimism for a strengthening second half.

Speaker Change: Conditions in Australia have also improved as measured by our dealer partners working through inventory positions in our portable handling products with some restocking already occurring.

Speaker Change: Now turning to our commercial segment.

Speaker Change: Overall, second quarter commercial segment revenue was flat as ongoing soft conditions in Canada offset a consistent performance from the U.S. and internationally.

Paul Householder: Our international regions continue to successfully execute a sizable order book, with many key projects now well-progressed and on pace to deliver accelerated results throughout the second half of the year. Equally important and encouraging is the continuing pattern of robust demand and an exceptional order pipeline across our international commercial operations. This heavy demand led to strong order intake and an overall record order book for the quarter, which directly supports the high expectations for the second half of 2024, as well as continued momentum into 2025. Our U.S. commercial segment performed well with consistent demand for grain products, complemented by rising demand for our food and fertilizer platforms. Both of which recently underwent a reorganization process to reposition them for growth.

Speaker Change: Our international regions continue to successfully execute a sizable order book, with many key projects now well progressed and on pace to deliver accelerated results throughout the second half of the year.

Speaker Change: Equally important and encouraging is a continuing pattern of robust demand and an exceptional order pipeline across our international commercial operations.

Paul Householder: This heavy demand led to strong order intake and an overall record order book for the quarter, which directly supports the high expectations for the second half of 2024, as well as continued momentum into 2025. Our U.S. commercial segment performed well with consistent demand for grain products, complemented by rising demand for our food and fertilizer platforms. We provided guidance back in 2023 that we expected this year to be a turnaround year for our food business, one of our three growth platforms.

Speaker Change: This heavy demand led to strong order intake and an overall record order book for the quarter, which directly supports the high expectations for the second half of 2024, as well as continued momentum into 2025.

Speaker Change: Our U.S. commercial segment performed well with consistent demand for grain products complemented by a rising demand for our food and fertilizer platforms.

Speaker Change: Both of which recently underwent a reorganization process to reposition for growth.

Paul Householder: We provided guidance back in 2023 that we expected this year to be a turnaround year for our food business, one of our three growth platforms. The food order book is now up approximately 58% over the prior year. Combined with the recently implemented initiatives to improve order execution, it is clear that the turnaround is now fully underway.

Speaker Change: we provideda guidance back in two thousand and twenty-three that we expect this year to be a turnaround year for our food business one of our three growth platforms

Speaker Change: The food order book is now up approximately 58% over prior year. Combined with the recently implemented initiatives to improve order execution, it is clear that the turnaround is now fully underway.

Paul Householder: The international commercial business gained significant momentum sequentially, up 50% versus the first quarter, with results also up slightly over last year. Strong first half momentum, in addition to an exceptional order book, will continue to be a key driver towards an overall record second half of the year for AGI. The EMEA region will be a bright spot for the company in 2024, with a strong second quarter as a precursor to an exceptional second half.

Speaker Change: the international commercial business gained significant momentum sequentially up fifty percent versus the first quarter with results also up slightly over last year

Paul Householder: Strong first half momentum, in addition to an exceptional order book, will continue to be a key driver towards an overall record second half of the year for AGI. The focus and success within emerging markets such as the Middle East and Africa are the foundation for this strong performance. Business development activities in Southeast Asia, another prioritized emerging market, remain strong with the order book up 144% versus the prior year and sits at its highest level on record by a notable margin. Finally, a few comments about our Indie-A-Bit.

Speaker Change: Strong first half momentum in addition to an exceptional order book will continue to be a key driver towards an overall record second half of the year for AGI.

Speaker Change: The EMEA region will be a bright spot for the company in 2024, with a strong second quarter as a precursor to an exceptional second half.

Paul Householder: The focus and success within emerging markets such as the Middle East and Africa is the foundation for this strong performance. Favorable order intake across the second quarter kept pace with revenue recognition, netting off to keep the EMEA order book at a near record level.

Speaker Change: The focus and success within emerging markets such as the Middle East and Africa is the foundation for this strong performance.

Speaker Change: favorable order intake across the second quarter kept pace with revenue recognition netting off to keep the email order book at near record levels

Paul Householder: Business development activities in Southeast Asia, another prioritized emerging market, remain strong with the order book up 144% versus prior year and sits at its highest level on record by a notable margin. Our Brazil commercial segment is showing strong signs of ramping activity with extremely high order intake contributing to an overall Brazil commercial order book now up 83% versus prior year, further supporting an outstanding second half. Having progressed through a few challenging quarters of market slowdown, confidence is high that our Brazil business is back on track to delivering strong growth. Finally, a few comments about our Indie-A-Bit.

Speaker Change: Business development activities in Southeast Asia, another prioritized emerging market, remain strong with the order book up 144% versus prior year and sits at its highest level on record by a notable margin.

Speaker Change: Our Brazil commercial segment is showing strong signs of ramping activity with extremely high order intake, contributing to an overall Brazil commercial order book now up 83% versus prior year, further supporting an outstanding second half.

Speaker Change: Having progressed through a few challenging quarters of market slowdown, confidence is high that our Brazil business is back on track to delivering strong growth.

Paul Householder: Demand for our core rice milling products remained robust, and progress with key product transfer projects is on schedule, notably for storage bins and permanent material handling. With expectations for a favorable monsoon season and an all-time record order book, the business is positioned extremely well going forward. Overall, our international business, largely measured within the commercial segment, is performing extremely, extremely well. Results to date have been in line with expectations, and the outlook for the second half of the year is highly positive. Continued demand has tracked well above prior year, leading to a historic record level order book, up over 60% versus prior year.

Speaker Change: finally a few comments about our india business

Speaker Change: demand for our core ricemilling products remained robust and progress with key product transfer projects is on schedule notably for storage bins and permanent material handling

Speaker Change: With expectations for a favorable monsoon season and an all-time record order book, the business is positioned extremely well going forward.

Speaker Change: Overall, our international business, largely measured within the commercial segment, is performing extremely, extremely well. Results to date have been in line with expectations, and the outlook for the second half of the year is highly positive.

Paul Householder: Continued demand has tracked well above prior year, leading to a historic record level order book up over 60% versus prior year. Our international business continues to represent a significant growth engine for the company. We see 2024 coming together largely as anticipated, successfully navigating through a slow U.S. farm market segment within a broader agriculture down cycle. We have updated our full-year adjusted EBITDA guidance to a range of $300 to $310 million, with EBITDA margins greater than 19%.

Speaker Change: Continued demand has tracked well above prior year leading to a historic record level order book up over 60% versus prior year. Our international business continues to represent a significant growth engine for the company.

Paul Householder: Our international business continues to represent a significant growth engine for the company. This is a testament to our exceptional teams, our great geographic positions, and the effectiveness of our growth strategy, in particular the Emerging Market and Product Transfer Growth Initiative. Before handing the call over to Jim, I'd like to walk through a few additional comments on the Outlook for AGI. We see 2024 coming together largely as anticipated, successfully navigating through a slow U.S. farm market segment within a broader agriculture down cycle. We have updated our full-year adjusted EBITDA guidance to a range of $300 million to $310 million, with EBITDA margins greater than 19 percent.

Speaker Change: This is a testament to our exceptional teams, our great geographic positions, and the effectiveness of our growth strategy, in particular, the emerging market and product transfer growth initiatives.

Speaker Change: Before handing the call over to Jim, I'd like to walk through a few additional comments on the Outlook for AGI.

Jim: we see two thousand and twenty four coming together largely as anticipated successfully navigating through a slow u s farm market segment within a broader agriculture down cycle

Speaker Change: We have updated our full-year adjusted EBITDA guidance to a range of $300 million to $310 million, with EBITDA margins greater than 19 percent.

Paul Householder: This favorable outlook would extend our multi-year growth trend even amid challenging market conditions. Several factors contribute to our favorable outlook. First, nearly all regions of the business are performing well or have a solid order book for the remainder of the year. The Consolidated Order Book is at an all-time record for this time of year and up 8% over prior years. Strong contributions are expected from international commercial with key projects underway, increasing confidence for delivery within the second half.

Speaker Change: This favorable outlook would extend our multi-year growth trend even amid challenging market conditions.

Paul Householder: First, nearly all regions of the business are performing well or have a solid order book for the remainder of the year. Additionally, we are seeing leading indicators that point to changing sentiment in U.S. and Brazil farm markets with a positive outlook on the upcoming harvest. Relative to prior years, only an average level of order intake in the second half is required to achieve expected year-on-year growth. And finally, our operational excellence focus and commitment is performing well, with notable additional initiatives implemented within Q2 that will accrue incremental benefits as we move forward. I will now hand the call over to you.

Speaker Change: Several factors contribute to our favorable outlook.

Speaker Change: First, nearly all regions of the business are performing well and or have a solid order book for the remainder of the year.

Speaker Change: The Consolidated Order Book is at an all-time record for this time of year and up 8% over prior year.

Speaker Change: Strong contributions are expected from international commercial with key projects underway, increasing confidence for delivery within the second half.

Paul Householder: We are seeing leading indicators that point to changing sentiment in U.S. and Brazil farm markets, with a positive outlook on the upcoming harvest. Relative to prior years, only an average level of order intake in the second half is required to achieve expected year-on-year growth.

Speaker Change: We are seeing leading indicators that point to turning sentiment in U.S. and Brazil farm markets with a positive outlook on the upcoming harvest.

Speaker Change: Relative to prior years, only an average level of order intake in the second half is required to achieve expected year-on-year growth.

Paul Householder: Our product transfers and emerging market growth strategies are well on track. And finally, our operational excellence focus and commitment is performing well, with notable additional initiatives implemented within Q2 that will accrue incremental benefits as we move forward. Overall, our strategy is working. Despite headwinds across the broader agriculture market, we are confident that our full-year results will demonstrate the unique value of our differentiated business model, which provides business resilience through diversification across products, markets, and geographies. I will now hand the call over to you.

Speaker Change: Our product transfers and emerging market growth strategies are well on track.

Speaker Change: And, finally, our operational excellence focus and commitment is performing well with notable additional initiatives implemented within Q2 that will accrue incremental benefits as we move forward.

Speaker Change: Overall, our strategy is working.

Speaker Change: Despite headwinds across the broader agriculture market, we are confident that our full-year results will demonstrate the unique value of our differentiated business model, which provides business resilience through diversification across products, markets, and geographies.

Jim Reddick: Thank you, Paul, and good morning, everyone. On today's call, I will touch on four areas that include an overview of our second quarter results, an update on key balance sheet metrics, and a summary of the data that we've collected. Some comments on cash flow. And finally, a quick recap of our outlook for the remainder of the year.

Speaker Change: I will now hand the call over to Jim.

Jim Reddick: For today's call, I will touch on four areas that include an overview of our second quarter results, an update on key balance sheet metrics, and finally, a quick recap of our outlook for the remainder of the year. The year-over-year margin change is largely due to a challenging market in our U.S. farm segment, which impacted both volume and mix, in addition to a higher proportion of lower margin installation services in South America.

Jim: Thank you, Paul, and good morning, everyone.

Jim: For today's call, I will touch on four areas that include an overview of our second quarter results, an update on key balance sheet metrics, some comments on cash flow, and a brief overview

Jim: And finally, a quick recap of our outlook for the remainder of the year.

Jim Reddick: On a consolidated basis, second quarter revenues of $352 million decreased 10% and adjusted EBITDA decreased 23%. On an adjusted EBITDA margin basis, our second quarter result of 19.3% was down 325 basis points, but is still a very strong result compared to our historic second quarter margin results, demonstrating the resilience of our margins in a variety of operating environments. The year-over-year margin change is largely due to a challenging market in our U.S. farm segment, which impacted both volume and mix, in addition to a higher proportion of lower-margin installation services in South America, as well as ongoing operational improvements across the company.

Speaker Change: On a consolidated basis, second quarter revenues of $352 million decreased 10% and adjusted EBITDA decreased 23%.

Speaker Change: On an adjusted EBITDA margin basis, our second quarter result of 19.3% was down 325 basis points, but is still a very strong result compared to our historic second quarter margin results.

Speaker Change: demonstrating the resilience of our margins in a variety of operating environments.

Speaker Change: The year-over-year margin change is largely due to a challenging market in our U.S. farm segment, which impacted both volume and mix, in addition to a higher proportion of lower margin installation services in South America.

Jim Reddick: Our focused efforts to control costs at the corporate level provided a partial offset to adjusted EBITDA in the quarter. Adjusted EBITDA excludes approximately $12 million in transaction and transitional costs that are largely one-time items relating to our storage product facility consolidation and product standardization initiatives in North America. These types of projects rationalize low-volume product lines, standardize our offering, lower overall costs, simplify the supply chain, and improve capacity utilization, all of which will help reinforce and sustain margin improvements well into the future.

Speaker Change: as well as ongoing operational improvements across the company.

Speaker Change: Our focused efforts to control costs at the corporate level provided a partial offset to adjusted EBITDA in the quarter.

Speaker Change: Our adjusted EBITDA excludes approximately $12 million in transaction and transitional costs that are largely one-time items relating to our storage product facility consolidation and product standardization initiative in North America.

Jim Reddick: These types of projects rationalize low-volume product lines, standardize our offering, lower overall costs, simplify the supply chain, and improve capacity utilization, all of which will help reinforce and sustain margin improvements well into the future. Our farm segment delivered $194 million in revenue, adjusted EBITDA of $53 million, and margins of 27.4%. As discussed earlier, the soft U.S. market, which persisted from Q1 into Q2, was the main driver of the

Speaker Change: These types of projects rationalize low-volume product lines.

Speaker Change: standardize our offering, lower overall costs.

Speaker Change: Simplify the supply chain and improve capacity utilization, all of which will help reinforce and sustain margin improvements well into the future.

Jim Reddick: Our farm segment delivered $194 million in revenue, adjusted EBITDA of $53 million, and margins of 27.4%. As discussed earlier, the soft U.S. market, which persisted from Q1 into Q2, was the main driver of the results. In the commercial segment, revenues of $157 million were flat year over year, with ongoing difficult conditions in Canadian commercial offset by incremental growth in the U.S. and internationally. Adjusted EBITDA of $23 million declined 20% year-over-year, with margins contracting roughly 370 basis points to 14.8%.

Speaker Change: Our farm segment delivered $194 million in revenue, adjusted EBITDA of $53 million and margins of 27.4%.

Speaker Change: As discussed earlier, the soft U.S. market, which persisted from Q1 into Q2, was the main driver of the result.

Jim Reddick: In the commercial segment, revenues of $157 million were flat year over year, with ongoing difficult conditions in Canadian commercial offset by incremental growth in the U.S. and internationally. Adjusted EBITDA of $23 million declined 20% year-over-year, with margins contracting roughly 370 basis points to 14.8%. As mentioned earlier, a higher proportion of lower-margin installation service revenue within South America and slow conditions in Canada compress segment margins year-over-year. Moving on to our balance sheet. Our net debt leverage ratio of 3.1 times decreased from 3.3 times year over year.

Speaker Change: In the commercial segment, revenues of $157 million were flat year-over-year, with ongoing difficult conditions in Canadian commercial offset by incremental growth in the U.S. and internationally.

Speaker Change: Adjusted EBITDA of $23 million declined 20% year-over-year, with margins contracting roughly 370 basis points to 14.8%.

Jim Reddick: As mentioned earlier, a higher proportion of lower-margin installation service revenue within South America and slow conditions in Canada compress segment margins year-over-year. Moving on to our balance sheet, We continue to make consistent and meaningful progress on our working capital metrics and key leverage ratios, clear indicators of the structural improvements we are making to how we manage the business. From a balance sheet perspective, we remain disciplined with our credit facility use. Our net debt leverage ratio of 3.1 times decreased from 3.3 times year over year.

Speaker Change: As mentioned earlier, a higher proportion of lower margin installation service revenue within South America and slow conditions in Canada compress segment margins year over year.

Speaker Change: Moving on to our balance sheet.

Speaker Change: We continue to make consistent and meaningful progress on our working capital metrics and key leverage ratios, clear indicators of the structural improvements we are making to how we manage the business.

Speaker Change: From a balance sheet perspective, we remain disciplined with our credit facility usage. Our net debt leverage ratio of 3.1 times decreased from 3.3 times year over year.

Jim Reddick: Our full-year adjusted EBITDA guidance and our plan to use free cash flow to accelerate deleveraging provide us with full confidence that we will reach our stated objective of 2.5 times by year end. It is also worth noting that in the quarter, we rolled a maturing tranche of our senior unsecured subordinated debentures into our credit facility. This is in line with our effort to streamline and simplify our overall capital structure over the coming years on an annualized percentage of sales base.

Speaker Change: Our full year adjusted EBITDA guidance and our plan to use free cash flow to accelerate deleveraging provide us with full confidence that we will reach our stated objective of 2.5 times by year end.

Speaker Change: It is also worth noting that in the quarter we rolled a maturing tranche of our senior unsecured subordinated debentures into our credit facilities.

Speaker Change: This is in line with our effort to streamline and simplify our overall capital structure over the coming years. We appreciate the support and cooperation of our banking partners to make this a smooth transaction.

Jim Reddick: Turning to working capital investment, which continues to be a key focus across the organization, our net investment of $220 million in the second quarter was up slightly from $212 million year over year, on an annualized percentage of sales base. Working capital intensity increased from 14% to 16% year over year. However, this comparable period analysis includes the impact of the accruals related to large nonrecurring provisions, which have since been settled.

Speaker Change: Turning to working capital investment, which continues to be a key focus across the organization. Our net investment of $220 million in the second quarter was up slightly from $212 million year-over-year.

Jim Reddick: Working capital intensity increased from 14% to 16% year over year. However, this comparable period analysis includes the impact of accruals related to large nonrecurring provisions, which have since been settled. Normalizing for this would demonstrate a clear improvement in our total net dollar working capital investment and as a percentage of revenue. Starting next quarter, the large non-recurring provisions will no longer be in the comparable period, so year-over-year comparisons for working capital will no longer need this call-out and will be a bit more straightforward to analyze and understand.

Speaker Change: on an annualized percentage of sales basis.

Speaker Change: Working capital intensity increased from 14% to 16% year-over-year. However, this comparable period analysis includes the impact of the accruals related to large non-recurring provisions which have since been settled.

Jim Reddick: Normalizing for this would demonstrate a clear improvement in our total net dollar working capital investment and as a percentage of revenue. Starting next quarter, the large non-recurring provisions will no longer be in the comparable period, so year-over-year comparisons for working capital will no longer need this call-out and will be a bit more straightforward to analyze and understand. In addition, the makeup of our order book, with its weighting towards commercial, required some temporary but strategic investment in working capital during the quarter. Typically, the second quarter is our peak level of working capital investment. But that pattern may change slightly as we move into the second half of the year.

Speaker Change: Normalizing for this would demonstrate a clear improvement in our total net dollar working capital investment and as a percentage of revenue.

Speaker Change: Starting next quarter, the large non-recurring provisions will no longer be in the comparable period, so year-over-year comparisons for working capital will no longer need this call-out and will be a bit more straightforward to analyze and understand.

Speaker Change: In addition, the makeup of our order book, with its weighting towards commercial, required some temporary but strategic investment in working capital in the quarter. Typically, the second quarter is our peak level of working capital investment.

Speaker Change: But that pattern may change slightly as we move into the second half of the year. Nevertheless, the overall trend points to a clear and ongoing improvement in net working capital, which is a key initiative that supports both our leverage ratio and free cash flow improvement objectives.

Jim Reddick: Nevertheless, the overall trend points to a clear and ongoing improvement in net working capital, which is a key initiative that supports both our leverage ratio and free cash flow improvement objectives. Now, moving on to cash flow. This is an area we discuss frequently internally, and we've taken the step to introduce a free cash flow metric into our MD&A, replacing the prior funds from operations metric. The funds from operations metric was more relevant when AGI operated as an income trust, and we felt that now was the appropriate time to refresh our view of how we measure our cash-generating ability.

Jim Reddick: And now, moving on to cash. This is an area we discuss frequently internally, and we've taken the step to introduce a free cash flow metric into our MD&A, replacing the prior funds from operations metrics. The free cash flow definition draws from three lines on our cash flow statement, beginning with cash provided by operating activities. Over the last 12 months, our free cash flow has been approximately $65 million, roughly a 25% conversion against adjusted EBIT, most often driven by working capital. Finally, turning to our. We anticipate some further incremental operational excellence gains to accrue to margins.

Speaker Change: And now moving on to cash flow.

Speaker Change: This is an area we discuss frequently internally, and we've taken the step to introduce a free cash flow metric into our MD&A, replacing the prior funds from operations metric.

Speaker Change: The funds from operation metric was more relevant when AGI operated as an income trust and we felt that now was the appropriate time to refresh our view of how we measure our cash generating ability.

Jim Reddick: The free cash flow definition draws from three lines on our cash flow statement, beginning with cash provided by operating activities. And deducting the acquisition of property, plant, and equipment, as well as the development of intangible assets. From our review, this definition is in line with market standards. Though we appreciate individual analysts or investors will often apply their own view to determine free cash flow, over the last 12 months, our free cash flow has been approximately $65 million, roughly a 25% conversion against adjusted EBIT. We believe that a last 12-month period is the most relevant timeframe to assess free cash flow performance, given the potential for quarterly swings in this measure, although most often driven by working.

Speaker Change: The free cash flow definition draws from three lines on our cash flow statement.

Speaker Change: Beginning with cash provided by operating activities and deducting acquisition of property plant and equipment as well as development of intangibles.

Speaker Change: From our review, this definition is in line with market standard, though we appreciate individual analysts or investors will often apply their own view to determine free cash flow.

Speaker Change: Over the last 12 months, our free cash flow has been approximately $65 million, roughly a 25% conversion against adjusted EBITDA.

Speaker Change: We believe that a last 12 month period is the most relevant time frame to assess free cash flow performance given the potential for quarterly swings in this metric.

Speaker Change: Most often driven by working capital.

Speaker Change: A last 12-month time frame smooths out quarterly variations into a more relevant figure which better represents our free cash flow generating ability.

Jim Reddick: A last 12-month time frame smooths out quarterly variations into a more relevant figure which better represents our free cash flow generating ability. Finally, turning to our For 2024, our adjusted EBITDA guidance now calls for a range of $300 to $310 million. As Paul highlighted in his prepared remarks, the timing of our commercial projects continues to support our expectation for a strong second half, amongst other important areas of contribution. In terms of margin levels, on a go-forward basis, we expect our full-year margin levels to stabilize above 19%.

Speaker Change: Finally, turning to our outlook, for 2024, our adjusted EBITDA guidance now calls for a range of $300 to $310 million.

Speaker Change: As Paul highlighted in his prepared remarks,

Paul Householder: The timing of our commercial projects continues to support our expectation for a strong second half, amongst other important areas of contribution.

Speaker Change: In terms of margin levels, on a go-forward basis, we expect our full-year margin levels to stabilize above 19%.

Jim Reddick: We anticipate some further incremental operational excellence gains to accrue to margins, although offset by a shift in mix towards commercial, which is typically at lower margins than farm. And with that, I'll hand the call back to the operator and open up the lines for questions.

Speaker Change: We anticipate some further incremental operational excellence gains to accrue to margins, offset by a shift in mix towards commercial, which is typically at lower margins than farm.

Operator: G.I., Second Quarters, 2024 results conference call and webcast. As a reminder, all participants are in lesson 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, Q, you may first start, then one, on the telephone seat bed. As a clerk, dizzyed to management and other participants on the call, please limit yourself to two questions and rejoin the Q, if you have any further questions.

Speaker Change: And with that, I'll hand the call back to the operator and open up the lines for questions.

Operator: We'll now begin the analyst question and answer session. Sorry, question and answer session.

Speaker Change: Thank you.

Speaker Change: We will now begin the analyst question and answer session.

Operator: Sorry, question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press the star then choose. As a reminder, please limit yourself to two questions and rejoin the queue if you have further questions. The first question comes from Jacob Bout from CIBC. Please go ahead.

Operator: To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing anything. To withdraw your question, please press star then choose. As a reminder, please limit yourself to two questions and rejoin the queue if you have further questions. We'll pause for a moment as more scholars join the queue. The first question comes from Jacob Bout from CIBC. Please go ahead.

Speaker Change: Sorry, question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request.

Speaker Change: If you're using a speakerphone, please pick up your handset before pressing anything.

Operator: Should anyone eat assistance during the conference call, they may signal an operator by present start, then zero.

Speaker Change: to withdraw your question. Please press start and choose.

Speaker Change: As a reminder, please limit yourself to two questions and rejoin the queue if you have further questions.

Paul Householder: I would now like to turn the conference over to Paul Householder, President, and CEO of AGI. Please go ahead sir. Thank you operator.

Speaker Change: We'll pause for a moment as scholars join the queue.

Paul Householder: Good morning and welcome to AGI's second quarter, 2024 results call. I am joined today by RCFO 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. Following our prepared remarks, the call will be opened for questions. To start today's call, I will begin with a few customary comments on safety and AGI. I'm proud to announce that the key metrics we use to track safety performance continue to make significant progress.

Speaker Change: The first question comes from Jacob Bout from CIBC. Please go ahead.

Jacob Bout: Good. Trying to quantify the comments on the form, it looks like the second half of the year, the U.S. and Brazil lagged in the first half, but what are you seeing in the third quarter year-to-date? It sounds like things are improving. Is this in line year-on-year?

Jacob Bout: good morning

Speaker Change: How you doing, Jacob?

Jacob Bout: second half of the year. The US and Brazil lagged in the first half. What are you seeing in the third quarter year-to-date? It sounds like things are improving. Is this in line year-on-year?

Jacob Bout: Good. Trying to quantify the comments on the form.

Speaker Change: Second half of the year, you know, U.S. and Brazil lagged in the first half, but what are you seeing third quarter year-to-date? It sounds like things are improving, you know, is this in line year-on-year?

Paul Householder: Yeah, so thanks for the question, Jacob. Obviously, the U.S. farm and Brazil farm are something that we're monitoring very closely. A little bit of soft conditions in Q2, particularly in the U.S. farm, as we commented in the prepared marks. That came in slightly below expectations.

Paul Householder: Our last time incident rate decreased to 0.3 over the last 12 months. This is approximately a 60% improvement over 2022 and a 75% improvement over 2021. This type of extraordinary progress over a relatively short period of time clearly highlights the commitment of our workforce to improve safety and working conditions day in and day out. Moreover, we view this as a reliable measure of the meaningful strides we are making with our one AGI culture.

Speaker Change: Yeah, so thanks for the question, Jacob. Obviously, the U.S. farm and Brazil farm are something that we're monitoring very closely, a little bit of soft conditions in Q2, particularly in U.S. farm, as we commented in the prepared marks.

Paul Householder: Offsetting that, we saw conditions improve and a number of positive signs across Q2 that supported some optimism into the second half. There were quite a number of items that jumped out for us, Jacob. The first one, we did see steady demand for our permanent side of equipment for U.S. Farm. Most recently, we saw a notable uptick in inventory turnover for our portable equipment. We initiated a rebate program for our portable equipment about midway through the second half of the year, partnering up with our dealers to significantly move that inventory and prepare for a stronger second half of the year.

Speaker Change: Bout, that came in slightly below expectations.

Jacob: Offsetting that, we saw conditions improve and a number of positive signs across Q2 that supported some optimism into the second half. There's quite a number of items that jumped out for us, Jacob.

Paul Householder: Turning to our results, our second quarter was slightly lower than our expectations largely due to a temporary manufacturing outage in Canada and some expected softness across the farm markets such as Brazil, US, and Australia. Several important steps were taken at the end of the first quarter and early in the second quarter to successfully protect margins within challenging market conditions. Actions taken included headcount reductions across certain facilities, tighter S-GNA controls, and acceleration of planned facility consolidations within our North America farm grain storage business.

Speaker Change: The first one, we did see steady demand in order intake for our permanent side of equipment for U.S. Farm. Most recently, we saw a notable uptick in the inventory turnover for our portable equipment.

Speaker Change: We initiated, Jacob, a rebate program for our portable equipment about midway through the second half of the year, partnering up with our dealers to significantly move that inventory and prepare for a stronger second half of the year.

Paul Householder: That rebate program worked quite successfully and really accelerated towards the end of Q2 and now early into Q3. This gives us a level of confidence that we're making great progress in reducing that inventory level, which was a key measure for us to drive a strong second half of growth. That was absolutely a positive indicator for us. And then just finally, you know, this interesting dynamic with an expected strong harvest forthcoming, coupled with the fact that when we look at on-farm storage and even into elevator storage, our grain storage levels remain highly elevated compared to the prior year.

Paul Householder: Leveraging a recent standardization project for our North America grain storage products, we will be closing our Grand Island Nebraska facility and transitioning production to other AGI manufacturing facilities, most notably our Westfield operation in Winnipeg Canada. Strategic decisions that impact our facility footprint are always difficult. We extend our sincere thanks and tremendous appreciation to the outstanding Grand Island team and the employees who have greatly contributed to our success in building our US business.

Jacob Bout: That rebate program worked quite successfully and really accelerated.

Jacob: towards the end of Q2 and now early into Q3. This gives us a level of confidence that we're making great progress in reducing that inventory level, which was a key measure for us to drive a strong second half of growth. That was absolutely a positive indicator for us. And then just finally...

Speaker Change: You know, this interesting dynamic with an expected strong harvest forthcoming.

Speaker Change: Coupled with the fact that when we look at the on-farm storage and even into the elevator storage.

Paul Householder: Globally, we continue to advance our product transfer program, securing additional orders and accelerating completion of initial projects that will serve as powerful and important We anticipate revenues generated from our product transfer strategy to contribute approximately 4% of total consolidated revenue in 2024 with a clear path to become an even more significant contributor over the next several years. For clarity, 2024 product transfer results include incremental orders received subsequent to our press release from earlier this year where we highlighted 55 million in total product transfer orders received to date.

Paul Householder: Our estimate shows on-farm storage up over 30% versus the prior year. When coupled with an expected favorable harvest, it is a positive indicator that we're going to see an uptick on the permanent side of our equipment as farmers make decisions to purchase this equipment and increase the amount of inventory capacity they have.

Speaker Change: Our grain storage levels remain highly elevated compared to prior year. Our estimate has

Speaker Change: on-farm storage up over 30% versus prior year when coupled with an expected favorable harvest.

Speaker Change: It is a positive indicator that we're going to see an uptick on the permanent side of our equipment as farmers make decisions to purchase this equipment and increase the amount of inventory capacity they have.

Jacob Bout: Because it's an interesting dynamic in the U.S. with, you know, volumes look to be strong for grain, but pricing has been down, you know, in your experience. Is it volume that primarily drives some portable business? Maybe just, you know, a couple of follow-ups there just on, you know, how big is U.S. Portable now in terms of overall farm?

Speaker Change: because it's an interesting dynamic in the u us with volumes look to be strong for grain but but pricing has been down in your experience is it it volume that primarily drives drive somesupportable business and

Paul Householder: An important aspect of this strategic growth initiative is the minimal capital expenditure required to deliver incremental revenues, which is critical and complimentary to our balance sheet discipline. It further speaks to the overall potential of our global business positions. We can meaningfully and efficiently expand our total addressable market to enable accelerated growth across a multi-year timeframe, particularly in high growth regions such as India and Brazil, where we are already well established with local teams and local production capabilities.

Speaker Change: Maybe just, you know, a couple follow-ups there just on, you know, how big is U.S. Portable now of overall farm?

Paul Householder: Yeah, great, great question. And you're spot on, Jacob.

Speaker Change: Yeah, great, great question. And you're spot on, Jacob. That is the dynamic that we're closely watching this year. To answer the question, yes, volume we have seen drives demand a little bit more so than the commodity prices, because ultimately,

Paul Householder: That is the dynamic that we're closely watching this year. To answer the question, yes, volume, we have seen drives demand a little bit more so than commodity prices because, ultimately, there does need to be investment to move and store the grain. Now, no doubt, commodity prices have been a headwind this year that is leading to lower farmer income, but the interesting aspect of that is that it has led farmers to keep a high level of storage in their facilities.

Speaker Change: there does need to be investment to move and store the grains now no doubt tomodity prices have been a headwind this year that is leading to a lower farmer income

Paul Householder: In addition to product transfers, we continue to realize significant results from our focus on penetrating high growth emerging markets across the Middle East, Africa, and Southeast Asia. These are highly strategic markets with strong growth rates, given their large populations and underdeveloped agriculture infrastructure. Deepening our reach in these key markets has been a strategic priority for AGI over the past several years. Emerging markets will be a meaningful contributor to 2024 results, and similar to product transfers are at the start of an ongoing multi-year growth trend for AGI.

Speaker Change: The interesting aspect of that is that it has led farmers to keep a high level of storage on their facilities, so it just further emphasizes the expectation for investment in storage and handling equipment.

Paul Householder: So, it just further emphasizes the expectation for investment in storage and handling equipment. The second half of your question, the portable product line; our portable equipment in the U.S. is an extremely strong part of our business. We have an excellent market share position in portable. We did have high inventory levels of our portable equipment across Q1 and Q2. That is why the rebate program and the notable progress that we have made over the past several months in moving that inventory have been pretty important.

Speaker Change: The second half of your question, the portable product line, our portable equipment in the U.S. is an extremely strong part of our business. We have an excellent market share position in portable. We did have high inventory levels of our portable equipment across Q1 and Q2. That is why the rebate program and the notable progress that we have made over the past several months in moving that inventory has been pretty important.

Paul Householder: As we get into more discussion on the quarter, I'd like to turn to an update on our three strategic corporate priorities. As a reminder, these include profitable organic growth, operational excellence, and balance sheet discipline. For profitable organic growth, revenue and adjusted EBITDA increased sequentially, though came in lower on a year-on-year basis against last year's record results. We continue to expect solid year-on-year growth for the full year through a strong second half performance supported by a record-order book, continue to execute of large product transfer and emerging market projects, and steady order intake with improving farm segment market conditions.

Paul Householder: We typically see the second half of the year to be the strongest demand portion of the year for our portable equipment. That is typically when a lot of farmers make investments in portable equipment. It's when we run our early order program to support restocking across our network. Moving that inventory in advance of this anticipated demand cycle was important, and we saw that occur pretty favorably for us at the end of Q2.

Speaker Change: We typically see...

Speaker Change: The second half of the year to be at the strongest.

Speaker Change: demand portion of the year for our portable equipment that is typically when a lot of farmers make investments importortable equipment it's when we run our early order program to support retocking across our network moving that inventory in advance of this anticipated demand cycle was important and we saw that occur pretty favorably for us at at the end of q

Paul Householder: And this is probably still your highest-margin product. This is our highest-margin product, too.

Paul Householder: For operational excellence, second quarter margins increased sequentially, and were quite strong relative to historical second quarter results. Our margin performance and resilience are key indicators that AGI's margin profile has substantially moved higher, even within challenging market conditions. We remain on track to deliver on full year margin performance expectations. For balance sheet discipline, we are on pace to achieve our target net debt leverage ratio of two and a half times in 2024.

Paul Householder: It is predominantly why you see elevated farm margins relative to commercial margins. It's on the back of our portable equipment. So, having this product move and be in a better position on our portable product lines, both across Canada and the U.S., is encouraging for us. I'll leave it there. Thank you. The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead.

Paul Householder: This is our highest-margin product. Absolutely, Jacob.

Paul Householder: This is our highest-margin product. Absolutely, Jacob. It is predominantly why you see elevated farm margins relative to commercial margins.

Speaker Change: and this is probably to your highest margin product

Speaker Change: This is our highest margin product. Absolutely, Jacob. And it is predominantly why you see elevated farm margins relative to commercial margins. It's on the back of our portable equipment. So having this product move and being in a better position on our portable product lines, both across Canada and the U.S., is encouraging for us.

Operator: It's on the back of our portable equipment. So, having this product move and be in a better position on our portable product lines, both across Canada and the U.S., is encouraging for us. I'll leave it there. Thank you. Thanks, Jacob. The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead. Hey, good morning, guys. It's Harrison.

Speaker Change: I'll leave it there. Thank you.

Kika: Thank you, Kika.

Paul Householder: A heightened focus on free cash flow generation complements ongoing efforts around working capital improvement and CAPEX discipline, which will help us accomplish this objective. Now, turning to a review of revenue results and trends across our segment and geographies, beginning with our farm. Overall, a farm segment results for the second quarter were challenged as key markets such as the US and Brazil navigated generally soft market conditions. In addition, one of our Canadian facilities experienced a temporary unplanned outage with delayed deliveries expected in Q2 into the second half.

Speaker Change: and

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

Operator: The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead. Hey, good morning, guys. It's Harrison Reynolds on behalf of Andrew Wong.

Harrison Reynolds: Hey, good morning, guys. It's Harrison Reynolds on for Andrew Wong.

Harrison Reynolds: Hey, good morning guys. It's Harrison Reynolds on for Andrew Wong. Really appreciate the commentary so far. Just switching over to commercial, can you guys give us a sense of how much of the larger project revenues are realized as the projects progress?

Speaker Change: versus what gets realized when the projects are completed and then kind of as to follow-up canyou characterize to the size and number of large product project deliveries in h two is it is it possible any of this ends up getting recognized in two thousand and twenty-five

Harrison Reynolds: Yeah, that's a fantastic question, and it's one that we've given more and more attention to as we've gained further success in accelerating the growth of the commercial side of our business. You know, just commenting there for a moment, if you look at our strategic growth initiatives around product transfers, around emerging markets, and even in our growth platforms, they naturally bias towards an improving commercial segment and growth on the international side. So, the fact that our commercial order book is up as much as it is, that the international order book is up as much as it is, is a clear measure of the progress that we're making across those growth initiatives.

Paul Householder: Yeah, that's a fantastic question, and it's one that we've given more and more attention to as we've gained further success in accelerating the growth of the commercial side of our business. You know, just commenting there for a moment, if you look at our strategic growth initiatives around product transfers, around emerging markets, and even in our growth platforms, they naturally bias towards an improving commercial segment and growth on the international side. So the fact that our commercial order book is up as much as it is, that the international order book is up as much as it is, is a clear measure of the progress that we're making across those growth initiatives.

Paul Householder: This is an unusual event as our planned maintenance program and team are quite strong and do an excellent job of driving high manufacturing utilizations. For clarity, this is a Q2 timing item and will not negatively impact the full year. While the first half of the year was slower for our farm segment, we do see early signs of improving conditions across these markets and momentum that could pick up through the rest of the year.

Speaker Change: Yeah, that's a fantastic question, and it's one that we've given more and more attention to as we've gained further success in accelerating the growth on the commercial side of our business.

Speaker Change: Just commenting there for a moment, if you look at our strategic growth initiatives around product transfers, around emerging markets, and even in our growth platforms, they naturally bias towards an improving commercial segment and growth on the international side. So the fact that our commercial order book is up as much as it is, that the international order book is up as much as it is, is a clean measure on the progress that we're making across those growth initiatives.

Paul Householder: These indicators include demand for storage equipment, increasing inventory turnover across our farm dealer network, and the prospect of a very large harvest. I will provide a bit more color on each of these points. Within our farm product mix, we have seen solid demand for storage and other permanent products. It is important to note that our dealers generally carry minimal inventory of these products. Typically, orders are placed with ADI as they are received from end users, leading to relatively fast and efficient channel activity.

Paul Householder: Now, recognizing that that dynamic was going to occur, we did increase our attention to revenue recognition across these commercial projects because they can be lumpy because some of them are quite large in magnitude. At the beginning of this year, we implemented a more gradual revenue recognition program on a percentage of complete basis, and that was done largely to mitigate the timing impacts of subtle movements in the delivery of these commercial projects.

Harrison Reynolds: Now, recognizing that that dynamic was going to occur, we did increase our attention to revenue recognition across these commercial projects because they can be lumpy because some of them are quite large in magnitude. At the beginning of this year, we implemented a... a more gradual revenue recognition program on a percentage of complete basis. And that was done largely to mitigate the timing impacts of subtle movements in the delivery of these commercial projects.

Speaker Change: now recognizing that that dynamic was occurred was going to occur we did increase our attention into revenue recognition across these commercial projects because they can be lumpy because some of them are are quite large in magnitude

Speaker Change: At the beginning of this year, we implemented a

Paul Householder: Over recent weeks, we have seen stable to increasing demand for storage and other permanent products. This early positive shift in farmer sentiment translates directly to revenue generation and serves as an important leading indicator of potential future demand for other ADI farm products such as portable handling equipment. For our product lines where we manage and leverage dealer inventory, most notably our portable handling equipment, we are seeing increasing dealer inventory turnover based on direct feedback from our dealer partners, observations from the frontline sales team, and measured uptake from a recent rebate program.

Speaker Change: more gradual revenue recognition program on a percentage of complete basis and that was done largely to mitigate the timing impacts of subtle movements of the delivery of these commercial projects

Paul Householder: That's largely in place, particularly for all of our most significant projects, so that decreases our risk of the timing impact that commercial can have on our overall results. So the net answer is that we do not see a high level of risk from a timing standpoint on the delivery of our commercial projects, largely on the back of that percent complete revenue recognition program that we implemented at the beginning of the year.

Harrison Reynolds: That's largely in place, particularly for all of our most significant projects, so that decreases our risk of the timing impact that commercial can have on our overall results. So the net answer is that we do not see a high level of risk from a timing standpoint on the delivery of our commercial projects, largely on the back of that percent complete revenue recognition program that we implemented at the beginning of the year.

Speaker Change: that's largely in place particularly for all of our most significant project so that decreases or risk the timing impact that commercial can have on our overall results so the net net answer is that we do not see a high level of risk from a timing standpoint on the delivery of our commercial projects largely on the back of that percent of complete revenue recognition program that we implemented at the beginning of the year

Paul Householder: NetNet, this is another positive signal that demand is improving. Also supporting our optimism for the farm segment is the positive outlook for the upcoming crop. Grain harvest estimates are robust with expectations for a favorable crop in most grain growing regions, including across North America. We expect the sheer volume of grain that will need to move through the food supply chain will be supportive of further improving farmer sentiment, leading to a positive impact on equipment purchasing decisions for ADI products.

Paul Householder: Now in terms of the makeup of our commercial order book, size and number, one of the positive aspects of our order book in commercial is the diversity that is included in that order book. We do have a number of very large commercial projects. I would put that number around three to four.

Harrison Reynolds: Now in terms of the makeup of our commercial order book, size and number, one of the positive aspects of our order book in commercial is the diversity that is included in that order book. We do have a number of very large commercial projects. I would put that number around three to four.

Speaker Change: Now, in terms of the makeup of our commercial order book, size and number,

Speaker Change: one of the positive aspects of our order book in commercial is the diversity that is that is included in that order book we do have a number of very large commercial projects i would put that number around three to four we've had three to four large commercial projects

Paul Householder: We've had three to four large commercial projects that have always been scheduled to deliver in Q3, and more notably in Q4. Now those handful of very large projects are complemented by an extensive portfolio, a very high number of small and medium projects. So that diversification in project size and number within our commercial order book also adds a level of resiliency to our revenue reputation.

Paul Householder: We've had three to four large commercial projects that have always been scheduled to deliver in Q3 and, more notably, in Q4. Now, those handful of very large projects are complemented by an extensive portfolio, a very high number of small and medium projects. So, that diversification in project size and number within our commercial order book also adds a level of resiliency to our revenue record.

Paul Householder: Our candidate of farm segment revenue declined 6% versus prior year largely due to the temporary production outage reference earlier. Overall, we feel good about our Canadian farm segment performance on an absolute and relative basis, noting that conditions are more favorable than other farm-centric markets. We are equally optimistic about the second half based on expectations for improving market conditions generating solid demand across our grain storage, permanent material handling, and portable handling products.

Speaker Change: that have been always scheduled to deliver in Q3 and more notably in Q4.

Speaker Change: now those handful of very large projects are complemented by an extensive portfolio a very highine number of small and medium projects so that diversification and project size a number within our commercial order book also as the level of resiliency to our revenue recognition

Speaker Change: Awesome, that's very helpful. Thanks so much.

Operator: The next question comes from Steve Hansen with Raymond James. Please go ahead.

Steve Hansen: The next question comes from Steve Hansen with Raymond James. Please go ahead.

Paul Householder: As anticipated in our first quarter earnings call, the US farm segment was particularly slow in the second quarter due to cautious purchasing behavior, higher dealer inventories, and tepid farmer sentiment. Several notable actions were taken across the quarter to effectively manage costs, capacity, and manufacturing utilization through the slowdown. These actions supported both the right sizing of business operations relative to second quarter market conditions, as well as structural changes that will serve as an operational excellence tailwind for several quarters to come.

Speaker Change: the next question comes from ste henson with raymond janees please go ahead

Steve Hansen: Paul, I just want to follow up on Brazil in particular. The market there has understandably been going through some changes, commercial versus on-farm, but one of your large competitors had reported fairly strong on-farm results, at least on a year-over-year basis, and they have talked about some of the stimulation programs going on down there with the government. That wasn't necessarily referenced directly by you guys, but I was just curious maybe as to why you might be lagging there to some degree in that context and how important you might think those stimulation programs are from a support standpoint or on a support basis.

Ste Henson: Paul, I just want to follow up on Brazil in particular. The market there has understandably been going through some changes, commercial versus on-farm, but one of your large competitors had reported fairly strong on-farm results.

Speaker Change: at least on a year-over-year basis.

Speaker Change: We've talked about some of the stimulation programs going on down there with the government. That wasn't referenced necessarily directly by you guys, but just curious maybe as to why you might be lagging there to some degree in that context and how important you might think those stimulation programs are from a support standpoint or on a support basis.

Paul Householder: Importantly, the outlook for the upcoming crop has improved across the second quarter and appears to be tracking towards a strong harvest. As with Canada Farm, this potential for large crop volume supports an improving farmer sentiment, which is a key demand driver, particularly for grain storage products. To further explore this demand dynamic, it is relevant to note that multi-year low crop commodity prices have led to higher than normal on farm grain storage inventories across the U.S.

Paul Householder: Yeah, fantastic, Steve. Thanks for the question.

Speaker Change: Yeah, fantastic, Steve. Thanks for the question. And yeah, we keep a very close eye on our valuable competitor down there in Brazil. So, we did get a look at their results.

Paul Householder: And yeah, we keep a very close eye on our valuable competitor down there in Brazil. So, we did take a look at their results. If you look at our Brazil business, I'll talk a little bit about farm and commercial. I'm going to start with commercial just quickly, because I know the point of your question is the farm segment. But yeah, we've seen overall very strong performance from our Brazil business. Just commenting quickly, our Brazil order book entering into the second half of the year is up 50% over the prior year.

Speaker Change: if you look at our brazil business i'll talk a little bit about farmand commercial i'm going to start with commercial just quickly because i know ' the point of your question is is on the farm segment

Paul Householder: When combined with the size of the upcoming harvest, it creates a strong incentive for grain storage investment. With many existing on-farm storage silos remaining full, there potentially would be insufficient storage capacity for the new harvest without investment. This dynamic, along with our tactical adjustments made to further stimulate the market, creates a potential for pronounced rebound in U.S, activity across the second half of the year. Our international farm segment posted a decrease in revenue of 27% versus prior year, with challenging market conditions across Brazil and Australia.

Speaker Change: But yeah, we've seen overall very strong performance from our Brazil business. Just commenting quickly, our Brazil order book entering into the second half of the year is net-net up 50% over prior year. So, in total, we feel very good about our Brazil business, particularly where it is going to end up in the second half of the year. Now, more specific to your comment around farm, our Q2 results on the farm segment for Brazil were soft.

Paul Householder: So, in total, we feel very good about our Brazil business, particularly where it is going to end up in the second half of the year. Now, more specifically to your comment about the farm, our Q2 results in the farm segment for Brazil were soft. If you recall, Steve, we had a very strong performance in Q1 Brazil farm. Net-net year-to-date, our farm business in Brazil is directly in line with where we were last.

Speaker Change: if you recall steve we had a very strong performance in q one brazil farm net net year to date our farm business in brazil is is directly in line with where we were last year

Paul Householder: As with the U.S., several actions were taken in Brazil to ensure our operations aligned with market conditions. To gain operational leverage, we intend to maintain these actions across the second half of the year as market conditions improve. To further drive growth and order intake, we continue to promote our new finance programs. As with the U.S, market, the upcoming harvest in Brazil is expected to be strong, supporting optimism for a strengthening second half. Conditions in Australia have also improved, as measured by our dealer partners working through inventory positions in our portable handling products, with some restocking already occurring.

Paul Householder: In addition to that, we do agree that a number of the programs that have been initiated in Brazil are positive indicators that that farm segment is going to continue to improve. Combined with a favorable outlook on the harvest, net-net, we would agree that the second half of the year within the farm segment should be positive and should be strong. And that will be a great complement to our commercial business, which we have a high level of confidence we're going to deliver accelerated results.

Paul Householder: in

Speaker Change: In addition to that, we do agree that a number of the programs that have been initiated in Brazil are positive indicators that that farm segment is going to continue to improve.

Speaker Change: Combined with a favorable outlook on the harvest, net-net we would agree that the second half of the year within the farm segment should be positive, should be strong.

Speaker Change: and that which will be a great complement to our commercial business which we have a high level confidence we're going to deliver accelerated results

Paul Householder: Now turning to our commercial segment. Overall, second quarter commercial segment revenue was flat, as ongoing soft conditions in Canada offset a consistent performance from the U.S, and internationally. Our international regions continue to successfully execute a sizable order book with many key projects now well-progressed and on pace to deliver accelerated results throughout the second half of the year. Equally important and encouraging is a continuing pattern of robust demand and an exceptional order pipeline across our international commercial operations.

Steve Hansen: Okay, that's helpful. Thank you. I appreciate that comment.

Speaker Change: Okay, that's helpful. Thank you. Appreciate that comment. Maybe just going back to, I think there was a reference, Jim, perhaps you're referencing maybe a working capital build on the commercial side just to manage through some of these large projects in the Q3. Did I catch that right? I think Q2 is typically the peak.

Steve Hansen: said there could be some sort of shift, and I'm just guessing that it's related to these larger commercial projects. Maybe you could clarify that.

Speaker Change: you said there could besome sortof i'm ' get that'srelated to the larger commcial projects be clarify behelpful

Jim Reddick: Maybe just going back to, I think there was a reference, Jim, perhaps you're referencing maybe a working capital build on the commercial side just to manage through some of these large projects in Q3. Did I catch that right? I think Q2 is typically the. There could be some sort of shift, and I'm guessing that's related to these larger commercial projects. Yeah, thanks, Steve. Yeah, so normally, in our

Jim Reddick: Yeah, thanks, Steve. Yeah, normally in our business, our working capital grows in the early part of the year, Q1, Q2, and then starts to level off in Q3 and Q4. That's a typical pattern we've seen for many years. As we continue to diversify and get stronger internationally and in the commercial space, as the mix of our commercial and farm levels out, this year is unique in the sense that commercial is a little bit of a higher mix than farm or expected to be a higher mix than farm.

Paul Householder: Yeah, thanks, Steve. Yeah, normally in our business, our working capital grows in the early part of the year, Q1, Q2, and then starts to level off in Q3 and Q4. That's a typical pattern we've seen for many years. As we continue to diversify and get stronger internationally and in the commercial space, as the mix of our commercial and farm levels out, this year is unique in the sense that commercial is a little bit of a higher mix than farm or expected to be a higher mix than farm. With that and some of the projects that are underway, we've begun to build on those projects.

Jim: Yeah, thanks, Steve. Yeah, so normally in our business, our working capital grows.

Jim: early part of the year q one q two and then starts to level off q three and q four 's a typical pattern we've seen for many years as as we continue diversify and get stronger internationally and in the commercial space

Paul Householder: This heavy demand led to strong order intake and an overall record order book for the quarter, which directly supports the high expectations for the second half of 2024, as well as continued momentum into 2025. Our U.S, commercial segment performed well with consistent demand for grain products, complemented by a rising demand for our food and fertilizer platforms, both of which recently underwent a reorganization process to reposition for growth. We provided guidance back in 2023 that we expect this year to be a turnaround year for our food business, one of our three growth platforms.

Paul Householder: as the mix of our commercial and farm levels out.

Jim: This year is unique in the sense that commercial is a little bit of a higher mix than farm, or expected to be higher mix than farm. And with that, and some of the projects that are underway, we've begun to build on those projects.

Jim Reddick: With that and some of the projects that are underway, we've begun to build on those projects and procure the inventory. So we expect this year our working capital to slightly increase in Q3 and then right-size in Q4. So typically, in the back half of the year, you see a release of working capital or a drop in our working capital, and it contributes a lot to the strong cash that we generate in our free cash flow in the back half of the year.

Paul Householder: The food order book is now up approximately 58% over prior year, combined with the recently implemented initiatives to improve order X- It is clear that the turnaround is now fully underway. The International Commercial Business gained significant momentum sequentially of 50% versus the first quarter, with results also up slightly over last year. Strong first half momentum in addition to an exceptional order book will continue to be a key driver towards an overall record second half of the year for AGI.

Jim: and procuring the inventory so we expect

Speaker Change: this year our working capital to slightly uptick in q three and then right size in q four so typically the back half of the year

Speaker Change: You see a release of working capital, or a drop in our working capital.

Speaker Change: And it contributes a lot to strong cash.

we dining our free cash flowin the backhalf of year we expect to see that pattern

Jim Reddick: We expect to see that pattern this year as well, but it'll be more skewed towards Q4 as we continue to fill out the order book or fill out the orders and produce for commercial projects for the back half of the year.

Paul Householder: this year as well, but it'll be more skewed towards Q4 as we continue to fill out the order book or fill out the orders in Purdue's for the commercial projects for the back half of the year.

Paul Householder: The MA region will be a bright spot for the company in 2024, with a strong second quarter as a precursor to an exceptional second half. The focus and success within emerging markets such as the Middle East and Africa is the foundation for this strong performance. Favourable order intake across the second quarter kept pace with revenue recognition netting off to keep the MAO order book at near record levels. Business development activities in Southeast Asia, another prioritized emerging market, remains strong with the order book up 144% versus prior year and sits at its highest level on record by a notable margin.

Speaker Change: get you pretty commcomments

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

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

Gary Ho: Thanks. Good morning.

Operator: Thanks. Good morning.

Speaker Change: thanks good morning so i think in your preared marks tomentioned you know shif in sentiment on far side particularly from dealer channel checks

Gary Ho: So, I think in your previous remarks, you mentioned a shift in sentiment on the farm side, particularly from dealer channel checks. So, just curious how much of your revised 300 to 310 guidance reflects this better sentiment? I just want to size up this variable. And I think you also mentioned that you need average order intake in the second half to hit this number. Is that right? And then, a related question, I think Q3 is usually stronger than Q4, but Paul, you just mentioned in one of the questions that there are larger commercial projects delivering in Q4. How should we think about the split between the two quarters?

Gary Ho: So, just curious how much of your revised 300 to 310 guidance reflects this better sentiment.

Speaker Change: just want to signze up this dariable and i think you also mentioned that you need average order in tick in the second half to hit this numbers that right

Paul Householder: Our Brazil commercial segment is showing strong signs of ramping activity with extremely high order intake contributing to an overall Brazil commercial order book now up 83% versus prior year, further supporting an outstanding second half. Having progressed through a few challenging quarters of market slowdown, confidence is high that our Brazil businesses back on track to delivering strong growth. Finally, a few comments about our India business demand for our core rice milling products remained robust and progress with key product transfer projects is on schedule notably for storage bins and permanent material handling with expectations for a favorable monsoon season and an all-time record order book that businesses positioned extremely well going forward.

Speaker Change: A related question, I think Q3 is usually stronger than Q4, but Paul, you just mentioned and went into questions that there's larger commercial projects delivering in Q4. How should we think about the split between the two quarters?

Gary Ho: So, I think in your previous remarks, you mentioned a shift in sentiment on the farm side, particularly from dealer channel checks. So, just curious how much of your revised 300 to 310 guidance reflects this better sentiment? I just want to size up this variable. And I think you also mentioned that you need average order intake in the second half to hit this number. Is that right? And then, on a related question, I think Q3 is usually stronger than Q4. But Paul, you just mentioned and went into questions that there are larger commercial projects delivering in Q4. How should we think about the split between the two quarters?

Speaker Change: terrific i think as much of those questions and let's start with up what the farm segment guidance order intake we do see within our business a shifting sentiment within our farmers particularly in the u s as as we mentioned in the prepared remarks canada actually been pretty steady has looked good continues to look good

Paul Householder: Terrific, Gary. Thanks so much for those questions.

Paul Householder: And, Ian, let's start with the farm segment guidance order intake. We do see within our business a changing sentiment among our farmers, particularly in the U.S. As we mentioned in the prepared remarks, Canada has actually been pretty steady, has looked good, and continues to look good. That business is largely performing consistent with the prior year, with a very positive order book and a solid outlook for the second half. So, really, the softness has been in the U.S. That's where we've been focusing our attention.

Speaker Change: That business is largely performing consistent with prior year with a very positive order book and a solid outlook for the second half, so really the softness has been in the U.S.

Paul Householder: Overall, our international business largely measured within the commercial segment is performing extremely well results to date have been in line with expectations and the outlook for the second half of the year is highly positive. Continued demand has tracked well above prior year leading to a historic record level order book up over 60% versus prior year. Our international business continues to represent a significant growth engine for the company. This is a testament to our exceptional teams, our great geographic positions and the effectiveness of our growth strategy in particular the emerging market and product transfer growth initiatives.

Paul Householder: The positive sentiment comes from some of the points that we've made. Largely, the outlook for the harvest continues to improve. One of the most recent expectations that we've seen is for a record harvest. There is going to be a very strong harvest. That's quite a lot of grain for the farmers to move and store.

Speaker Change: That's where we've been focusing our attention.

Speaker Change: The positive sentiment.

Speaker Change: It comes from some of the points that we've made, you know, largely the outlook for the harvest continues to improve. Some of the most recent expectations that we've seen is for a record harvest. There is going to be a very strong harvest. That's quite a lot of grain for the farmers to move and store. Historically, that has led to a pretty significant uptick.

Paul Householder: Historically, that has led to a pretty significant uptick in order intake and order deliveries in the second half. So, that is a key measure of the improving sentiment that we are expecting and starting to see. Then the second one, which really is key, and we touched on it with Jacob's comments, is the accelerated movement of the inventory for our portable product line across our dealer network. That inventory was rather high in Q1 entering Q2.

Paul Householder: in order intake and order deliveries in the second half. So, that is a key measure of the improving sentiment that we are expecting and starting to see. And then the second one, which really is key, we touched on it with Jacob's comments, is the accelerated

Paul Householder: Before handing a call over to Jim, I'd like to walk through a few additional comments on the outlook for AGI. We see 2024 coming together largely as anticipated successfully navigating through a slow US farm market segment within a broader agriculture down cycle. We have updated our full year adjusted EBITDA guidance to a range of 300 to 310 million with EBITDA margins greater than 19%. This favorable outlook would extend our multi-year growth trend even amid challenging market conditions.

Speaker Change: a movement of the inventory for our portable product line across our dealer network.

Paul Householder: It was part of the reason why we were expecting softness in the Q2 results, particularly with U.S. Farm, with a low level of orders within the quarter for portable. Now that that inventory has favorably moved, it does position us much better heading into the second half of the year. Those are key elements for improving sentiment.

Speaker Change: That inventory was rather high in Q1, entering Q2. It was part of the reasons why we were expecting softness in the Q2 results, particularly with U.S. Farm, you know, with a low level of orders within the quarter for portable. Now that that inventory has favorably moved, it does position us much better.

Paul Householder: Several factors contribute to our favorable outlook. First, nearly all regions of the business are performing well and or have a solid order book for the remainder of the year. The consolidated order book is at an all-time record for this time of year and up 8% over prior year. Strong contributions are expected from international commercial with key projects underway, increasing confidence for delivery within the second half. We are seeing leading indicators that point to turning sentiment in US and Brazil farm markets with a positive outlook on the upcoming harvest.

Speaker Change: Heading into the second half of the year. Those are key elements for the improving sentiment.

Paul Householder: That is consistent with our guidance and where we left our guidance at 300 to 310, expecting growth this year over last year. As we looked at where we are at this point in the year, the revenue that we have booked, and our order book that we'll book in the second half, you can do the numbers. That leaves an element of order intake that we need to achieve and deliver within the quarter. We analyzed that in great detail.

Speaker Change: That is consistent with our guidance and where we left our guidance at 300 to 310 expecting growth this year over prior year.

Speaker Change: as we looked at where we are at this point of the year the revenue that we have booked our order book that we'll book in the second half

Paul Householder: You can do the numbers. That leaves an element of order intake that we need to achieve and deliver within the quarter. We analyzed that in great detail. We compared that expected order intake across the past four to five years, and the amount of order intake that we would require to hit our guidance is actually on the lower end of what we have achieved over the past four to five years. That gives us a little bit more confidence in our ability to achieve the results and deliver growth over the previous year.

Paul Householder: You can do the numbers. That leaves an element of order intake that we need to achieve and deliver within the quarter. We analyzed that in a great level of detail. We compared that expected order intake across the past four to five years.

Paul Householder: We compared that expected order intake across the past four to five years, and the amount of order intake that we would require to hit our guidance is actually on the lower end of what we have achieved over the past four to five years. That gives us a little bit more confidence in our ability to achieve the results and deliver growth over the prior year.

Paul Householder: Relative to prior years, only an average level of order and take in the second half is required to achieve expected year-on-year growth. Our product transfers and emerging market growth strategies are well on track. And finally, our operational excellence focus and commitment is performing well with notable additional initiatives implemented within Q2 that will accrue incremental benefits as we move forward. Overall, our strategy is working. Despite headwinds across the broader agriculture market, we are confident that our full-year results will demonstrate the unique value of our differentiated business model which provides business resilience through diversification across products, markets, and geographies.

Paul Householder: and the amount of order intake that we would require to hit our guidance is actually on the lower end of what we have achieved over the past four to five years.

Gary Ho: So that gives us a little bit more confidence in our ability to achieve the results and deliver growth over a prior year. And Gary, just to build, and so I guess the second part of your question was on the Q3 versus Q4, how to think about it. Thank you.

Jim Reddick: And Gary, just to build on, and so I guess the second part of your question was on Q3 versus Q4, how to think about it, you know. In our business, historically, Q2 and Q3 are the stronger quarters, with lower Q1 and Q4, and that's certainly been the case with the mix of farm versus commercial we've achieved historically. But as we continue to grow our commercial business, that business is not as consistent as the farm in terms of when the results come in.

Paul Householder: Our business, historically, Q2 and Q3 are the stronger quarters with lower Q1 and Q4.

Jim Reddick: I will now hand the call over to Jim. Thank you, Paul, and good morning everyone. For today's call, I will touch on four areas that include an overview of our second-quarter results, an update on key balance sheet metrics, some comments on cash flow, and finally, a quick recap of our outlook for the remainder of the year. On a consolidated basis, second-quarter revenues of 352 million decreased 10 percent, and adjusted evita decreased 23 percent.

Paul Householder: And that's certainly been the case with the mix of farm versus commercial we've achieved historically.

Paul Householder: Continue to grow our commercial business.

Speaker Change: that business is is not as consistent as the farm in terms of when the results come in

Jim Reddick: And so what we're seeing this year is more back half-weighted, more Q4 weighted. And so, relative to prior years, our expectations are to have a good Q3, but a very strong Q4. And so as you think about allocating out the remainder of the earnings we need to achieve for the back half of the year, it will be slightly more skewed towards Q4 versus Q3. Part of the reason why it's challenging for us to give quarterly guidance, which we don't do, is because of that dynamic. I mean, farming, unlike our agriculture peers, farming is much more predictable. You can tell the patterns. You know when it's going to hit in the quarters.

Paul Householder: And so what we're seeing this year is more back half-weighted, more Q4 weighted.

Jim Reddick: On an adjusted evita margin basis, our second-quarter result of 19.3 percent was down 325 basis points but is still a very strong result compared to our historic second-quarter margin results. Demonstrating the resilience of our margins in a variety of operating environments. The year over year margin change is largely due to a challenging market in our US farm segment which impacted both volume and mix in addition to a higher proportion of lower margin installation services in South America.

Jim Reddick: The commercial business, as you're probably aware, can be a little bit more lumpier in a year. And so predicting out exactly that quarter can be difficult. We think of our business in an annual cycle, and that's typically why we just stick to the annual guidance. But this year, where we are at this point in the year, I can tell you it will be more weighted towards Q4 versus Q3.

Jim Reddick: As well as ongoing operational improvements across the company, our focused efforts to control costs at the corporate level provided a partial offset to adjusted evita in the quarter. Our adjusted evita excludes approximately 12 million in transaction and transitional costs that are largely one-time items relating to our storage product facility consolidation and product standardization initiative in North America. These types of projects rationalize low-volume product lines, standardize our offering, lower overall costs, simplify the supply chain and improve capacity utilization, all of which will help reinforce and sustain margin improvements well into the future.

Gary Ho: Okay, that's really helpful. And then my second question, I know you can't comment much on the solicited offer, but now that it's out there and the board has rejected it, has management or the board discussed kind of what other ways they could do to kind of serve shareholder value outside of just executing on your three pillars? I feel like, you know, the softer first half might have pushed the board to react kind of more proactively. I want to hear your thoughts on that.

Speaker Change: Just feel like with the softer first half might've pushed can afford to react kind of more proactively.

Speaker Change: One here your thoughts on that.

Paul Householder: Yeah, fantastic question, Gary. In quite a lot of the conversations that we had, obviously, we just finished up our board meeting where that topic was very relevant. The answer to the question on how we expect to deliver.

Paul Householder: Yeah, fantastic question, Gary. 100% agree that management has continued its conversation with the very supportive board on the importance of driving shareholder value. That is front and center. In quite a lot of the conversations that we had, obviously, we just finished up our board meeting where that topic was very relevant. The answer to the question on how we expect to deliver shareholder value and where we see the biggest opportunity is in our strategy, delivering on our strategy, and executing against our strategy.

Gary Ho: Yeah Fantastic question Gary.

Jim Reddick: Our farm segment delivered 194 million in revenue adjusted evita of 53 million and margins of 27.4 percent. As discussed earlier, the soft US market which persisted from Q1 into Q2 was the main driver of the result. In the commercial segment, revenues of 157 million were flat year over year with ongoing difficult conditions in Canadian commercial offset by incremental growth in the US and international. Ajusted Evita of 23 million decline, 20% year over year, with margins contracting roughly 370 basis points to 14.8%. As mentioned earlier, a higher proportion of lower margin installation service revenue within South America and slow conditions in Canada compressed segment margins year over year.

Paul Householder: 100% in that management has continued conversations with the very supportive board on the importance of driving shareholder value you know that that is front and center.

Paul Householder: In a quite a lot of the conversations that we had obviously, we just finished up our our board meeting in which that.

Speaker Change: Topic was a was very relevant the ads.

Paul Householder: To the question on how we expect to deliver shareholder value and where we see the biggest opportunity. It is in our strategy delivering to our strategy executing against our strategy. There is a high level of confidence in the direction that we're going.

Paul Householder: There is a high level of confidence in the direction that we're going. Our strategy is capable of delivering not only in 2024 but in the several years thereafter. And we ultimately feel that it is, by far and away, the best opportunity to deliver shareholder value, which remains obviously a top priority.

Paul Householder: Our strategy, we're able to deliver not only on 2024, but on the several years thereafter, and we ultimately feel that is by far and away the best opportunity to deliver shareholder value, which remains obviously a top priority.

Jim Reddick: Moving on to our balance sheet. We continue to make consistent meaningful progress on our working capital metrics and key leverage ratios, clear indicators of the structural improvements we are making to how we manage the business. From a balance sheet perspective, we remain disciplined with our credit facility usage. Our net debt leverage ratio of 3.1 times decreased from 3.3 times year over year. Our full year adjusted evita guidance and our plan to use free cash flow to accelerate the leveraging provide us with full confidence that we will reach our stated objective of 2.5 times by year end.

Gary Ho: Okay, perfect. Thanks for those comments.

Gary Ho: Okay, perfect and so those comments.

Operator: The next question comes from Tim Monachello with ATB Capital Markets. Please go ahead.

Speaker Change: The next question comes from.

Speaker Change: <unk> with <unk> capital markets. Please go ahead.

Paul Householder: Thanks.

Speaker Change: Hey, good morning, everyone.

Tim Monachello: Most of my questions have been answered, but I'm just curious if you can provide a little bit more context on, I guess, margin enhancement initiatives, in particular, the facility closure and your expectations for the costs of that closure through the back half of the year, and then also, you know, where do you stand in terms of I guess the inning you're in, in terms of margin enhancement initiatives, you still have a lot to go, and where do you think the margin could end up trending towards over a longer period of time?

Speaker Change: How are you doing they're mostly.

Speaker Change: Doing great.

Gary Ho: Most of my questions have been answered.

Speaker Change: I was just curious if you can provide a little bit more context on I guess margin enhancement initiatives.

Speaker Change: In particular, the facility closure and your expectations for the cost of that closure for the back half of the year and then also where do you stand in terms of.

Jim Reddick: It is also worth noting that in the quarter, we rolled a maturing tranche of our senior unsecured subordinate debentures into our credit facilities. This is in line with our effort to streamline and simplify our overall capital structure over the coming years. We appreciate the support and cooperation of our banking partners to make this a smooth transaction.

Tim Monachello: I guess the inning you're in, in terms of margin enhancement initiatives, you still have a lot to go. Where do you think the margin could end up trending towards over a longer period of time?

Speaker Change: I guess.

Speaker Change: Any near in.

Gary Ho: In terms of margin enhancement initiatives do you still have a lot to go where do you think the margin could end up.

Tim Monachello: Turning towards over a longer period of time.

Paul Householder: That's terrific, terrific. It's a great topic for us to explore here, Tim, that of margin enhancement operational excellence. So, thank you very much.

Tim Monachello: That's terrific terrific, it's a great topic for us to explore here Tim that the margin enhancement operational excellence. So thank you very much.

Jim Reddick: Turning to working capital investment, which continues to be a key focus across the organization. Our net investment of 220 million in the second quarter was up slightly from 212 million year over year. On an annualized percentage of sales basis, working capital intensity increased from 14% to 16% year over year. However, this comparable period analysis includes the impact of the rules related to large non-recurring provisions, which have since been settled. Normalizing for this would demonstrate a clear improvement in our total net dollar working capital investment and as a percentage of revenue.

Paul Householder: For this question, let me take that question and comment a little bit specifically on the second half of the year and our confidence around delivering margins greater than 19 percent. We've got a lot of positive initiatives that are underway and that were launched across Q2 that are supportive of our margin guidance for the second half of the year. First and foremost, we actually do see mix improving in the second half of the year.

Speaker Change: For this question.

Tim Monachello: Let me take that question and comment a little bit specifically into the second half of the year and our confidence around delivering.

Speaker Change: Margins are great.

Tim Monachello: Greater than 19%, we've got a lot of positive initiatives that were underway and that were launched.

Speaker Change: <unk> Q2 that are supportive towards our margin guidance in the second half of the year.

Speaker Change: First and foremost, we actually do see mix improving in the second half of the year. We commented on some of the mix headwinds that we had in Q2.

Paul Householder: We commented on some of the mix headwinds that we had in Q2 on a product line perspective, portables slightly down relative to permanent within Q2, but that will improve in the second half of the year. Some mix within our commercial segment with a high level of third-party that we saw in Q2, that mix will improve in the second half of the year, particularly as some of these large projects come into play.

Speaker Change: On a product line perspective, portable slightly down relative to permanent within the Q2 that improving in the second half of the year. Some mixed within our commercial segment with a high level of third party that we saw in Q2 that mix will improve in the second half of the year, particularly as some of these large projects come into play so even before <unk>.

Jim Reddick: Starting next quarter, the large non-recurring provisions will no longer be in the comparable period. So year over year comparisons for working capital will no longer need this call out and will be a bit more straightforward to analyze and understand. In addition, the makeup of our order book with its waiting towards commercial required some temporary but strategic investment in working capital in the quarter. Typically, the second quarter is our peak level of working capital investment, but that pattern may change slightly as we move into the second half of the year. Nevertheless, the overall trend points to a clear and ongoing improvement in net working capital, which is a key initiative that supports both our leverage ratio and free cash flow improvement objectives.

Paul Householder: Even before commenting on operational excellence, there are a number of favorable tailwinds from a margin standpoint as we get into the second half of the year. Turning a little bit to operational excellence, it remains a key focus for us, and a highlight of our performance. The effort around the closure of the Grand Island facility is quite notable.

Speaker Change: Any non operational excellence theres, a number of a favorable tailwind from a margin standpoint, as we get into the into the second half of the year.

Tim Monachello: Turning a little bit to our operational excellence that remains a key focus for us a highlight of our performance.

Speaker Change: The effort around the closure of the Grand Island facility is quite notable that will have a tangible impact on results. This year as well as be a tailwind for us in 2025.

Paul Householder: That will have a tangible impact on results this year as well as be a tailwind for us in 2025. And this is worth commenting on because it is an example of the opportunity that we've had from an operational excellence standpoint that we've touched on, you know, really for the past 12 months or so. And it is focused and centered around our opportunity to standardize and rationalize out some of the complexity that is currently inherent in our product lines. In this particular example, Tim, we had two different storage bin and storage silo product lines across Canada and the U.S. Step one was to move to a standard bin design.

Jim Reddick: And now moving on to cash flow. This is an area we discussed frequently internally, and we've taken the step to introduce a free cash flow metric into our MDNA, replacing the prior funds from operations metric. The funds from operation metric was more relevant when AGI operated as an income trust. And we felt that now was the appropriate time to refresh our view of how we measure our cash generating The free cash flow definition draws from three lines on our cash flow statement, beginning with cash provided by operating activities, and deducting acquisition of property plant and equipment, as well as development of intangibles.

Paul Householder: And this is worth commenting on because it is an example of the opportunity that we've had from an operational excellence standpoint that we've touched on, you know, really for the past 12 months or so. And it is focused and centered on our opportunity to standardize and rationalize out some of the complexity that is currently inherent in our product lines. In this particular example, Tim, we had two different storage bins and storage silo product lines across Canada and the U.S. Step one was to move to a standard bin design.

Speaker Change: And this is this is worth commenting on because it is an example of the opportunity that we've had from an operational excellence standpoint that we've touched on you know really for the past 12 months or so and it is focused and centered around our opportunity to standardize and rationalize out some of the complexity that is.

Paul Householder: Currently inherent in our product lines. In this particular example, Tim we had two different storage bin storage silo product lines across Canada, and the U S. Step one was to move to a standard <unk> design. This is not only a key step in operational.

Paul Householder: This is not only a key step from an operational excellence standpoint but also very important for us to continue to support and grow our farm business. We now have and will be launching a superior bin design than we've had in the past that will enable us to continue to partner with our dealers and, you know, accelerate our performance within the market. So, product standardization directly supports growth and business results.

Jim Reddick: From our review, this definition is in line with market standard, though we appreciate individual analysts or investors will often apply their own view to determine free cash flow. Over the last 12 months, our free cash flow has been approximately $65 million, roughly, a 25% conversion against suggested EBITDA. We believe that our last 12 month period is the most relevant time frame to assess free cash flow performance, given the potential for quarterly swings in this metric, most often driven by working capital. A last 12 month time frame, smoothed out quarterly variations into a more relevant figure, which better represents our free cash flow generating ability.

Speaker Change: Excellent standpoint, but also very important for us to continue to support and grow our farm business. We now have and we will be launching a superior been designed than we've had in the past that will enable us to continue to partner up with our dealers.

Paul Householder: And you know accelerate.

Paul Householder: They accelerate our our performance within the market so that product standardization directly supports our growth and business results now that we have standardized that product, we're able to more efficiently leverage our manufacturing footprint and in this case they gave us the opportunity to close our Grand Island facility, which is always difficult to make those type of decision.

Paul Householder: Now that we have standardized that product, we're able to more efficiently leverage our manufacturing footprint. And in this case, it gave us the opportunity to close our Grand Island facility, which is always difficult to make those types of decisions, and then move that product line to our manufacturing facility in Canada. That will leave us with a much more efficient, cost-effective manufacturing capability for our important grain storage silo business across North America.

Paul Householder: And then move that product line up to our manufacturing facility in Canada that will that will leave us with a much more efficient cost effective manufacturing.

Jim Reddick: Finally, turning to our outlook. For 2024, our adjusted EBITDA guidance now calls for a range of 300 to 310 million. As Paul highlighted in his prepared remarks, the timing of our commercial projects continues to support our expectation for a strong second half amongst other important areas of contribution. In terms of margin levels, on a go-forward basis, we expect our full-year margin levels to stabilize above 19%. We anticipate some further incremental operational excellence gains to accrue to margins offset by a shift in mix towards commercial, which is typically at lower margins than farm.

Paul Householder: <unk> capability for our important grain storage silo business across North America that standardization not only helps drive manufacturing efficiency, but cascades through our entire integrated supply chain. It allows us to partner better with our suppliers were able to rationalize our supplier base.

Paul Householder: That standardization not only helps drive manufacturing efficiency but cascades through our entire integrated supply chain. It allows us to partner better with our suppliers. For example, we're able to rationalize our supplier base and improve our leverage with suppliers to drive down input costs.

Paul Householder: That standardization not only helps drive manufacturing efficiency but cascades through our entire integrated supply chain. It allows us to partner better with our suppliers. We're able to rationalize our supplier base and improve our leverage with suppliers to drive down input costs, as another example. So, this was a pretty significant move for us and is going to be quite favorable for us into 2025.

Paul Householder: And improve our leverage our suppliers to drive down input costs. As another example, so this was a pretty significant move for us and is going to be quite favorable for us into 2025.

Paul Householder: So, this was a pretty significant move for us and is going to be quite favorable for us into 2025. To the latter part of your question, what inning are we in, and what other opportunities exist? This is a tangible example of the notable steps that we can take that would provide a step change at our margin level and at our performance level. There are additional opportunities out there of similar size and magnitude that we continue to evaluate. Some of those opportunities, Tim, do exist in North America, and, as Jim has commented in the past, they also exist in India.

Paul Householder: So that so the latter part of your question what what inning are we in a what other opportunities exist. This is a tangible example of the notable steps that we can take that would that would provide a step change at.

Operator: And with that, I'll hand the call back to the operator and open up the lines for questions. Thank you.

Tim Monachello: At our at a margin level and at our performance level. There are additional opportunities out there of similar size and magnitude that we continue to evaluate some of those opportunities Tim do exist in North America and as Jim has commented in the past. They also exist out in India that is likely the next step.

Operator: We will now begin the finalized question and session. Sorry, question and answer session. To join the question, you may press start and want on your telephone keypad. You hear a tone and knowledge in your request. If you're using a speaker phone, please pick up your hands up before pressing anything. To withdraw your question, please press start and choose. As a reminder, please limit yourself to two questions. And rejoin the key if you have further questions. We'll pause for a moment as colors join the queue.

Paul Householder: That is likely the next step that we will take that would be a strategic initiative to consolidate our manufacturing footprint and drive efficiencies in our cost structure and supply chain. So what inning are we in? Using the baseball analogy, I'd say we have progressed from where we were previously in the third inning to now we are in the fourth or fifth type of inning. So there's still a fair amount of positive runway going forward.

Paul Householder: That we will take that would be a strategic initiative to consolidate our manufacturing footprint and drive efficiencies in our cost structure and supply chain. So what inning are we in you know are you using the baseball analogy I'd say, we've progressed from where we were previously in the third inning. So now were.

Paul Householder: Now were in the fourth fifth type of innings. So there's still a fair amount of positive runway going forward.

Paul Householder: We continue to see this as a lever that we can use to not only maintain and grow margins but also be supportive of growth. So ultimately, we do see margins remaining in that 19, above that 19% range, and then using the additional benefits to support ongoing growth.

Paul Householder: We continue to see this as a as a.

Paul Householder: A lever that we can use to not only maintain.

Jacob Bout: The first question comes from Jacob about from CIBC. Please go ahead. Good morning. Hey, Jacob. Trying to quantify that the comments on the appointment look for the second half of the year. You know, US Brazil lagged in the first half, but what are you seeing third quarter year to date? Sounds like things are improving. You know, is this in line? You're in here. Yeah, so thanks for the question. Jacob, obviously the US farm and Brazil farm are something that we're monitoring very closely.

Paul Householder: Maintain and grow margins, but also be supportive of growth. So ultimately we do see margins remaining in that 19.

Paul Householder: Above that 19% range and then using the additional benefit to support Oh.

Paul Householder: Ongoing growth.

Paul Householder: Okay, that's helpful. And then last one for me, just on the product transfers, you provided some guidance, and I think that implies something in the mid-60s range for revenue recognition in 2024. Are you getting visibility into 2025 product transfer demand? And I guess, can you talk a little bit about your order flow for product transfers and how we should be thinking of that longer term? Yeah, fantastic.

Tim Monachello: Okay, that's helpful. And then last one for me, just on the product transfers, you provided some guidance, and I think that implies something in the mid-60s range for revenue recognition in 2024. Are you getting visibility into 2025 product transfer demand? And I guess, can you talk a little bit about your order flow for product transfers and how we should be thinking of that longer term?

Speaker Change: Okay. That's helpful and then last one for me.

Tim Monachello: The product transfers you provided some guidance and I think that implies suddenly in the mid 60 range for revenue recognition in 2024 are.

Tim Monachello: Are you getting visibility into 2025 credit transfer.

Speaker Change: Demand in.

Jacob Bout: A little bit of soft conditions in Q2, particularly in US farm as we comment in the prepared marks. Out that came in slightly below expectations offsetting that we saw conditions improve and a number of positive signs across Q2 that supported some optimism into the second half. There's quite a number of items that jumped out for us, Jacob. The first one we did see steady demand in order intake for our permanent side of equipment for US farm.

Tim Monachello: I guess can you talk a little bit about.

Tim Monachello: Your order flow for product transfers and how we should be thinking about that longer term.

Paul Householder: Yeah, fantastic question, Tim. We're extremely excited about the progress that the teams have made with the product transfers. You know, you got the math absolutely correct. That is what we're expecting for 2024. We're quite pleased from a product transfer standpoint that that is contributing approximately 4% of our total revenue. We see this continuing to improve heading into 2025. Our pipeline, our quote pipeline for product transfers remains quite strong. We continue to have order intake specifically related to product transfers.

Paul Householder: Yeah, fantastic question, Tim. We're extremely excited about the progress that the teams have made with the product transfers. You got the math absolutely correct. That is what we're expecting for 2024. We're quite pleased from a product transfer standpoint that that is contributing, you know, approximately 4% of our total revenue. We see this continuing to improve heading into 2025.

Speaker Change: Yeah fantastic.

Paul Householder: Tim we're extremely excited about the progress that the teams have made with the product transfers.

Paul Householder: Got the math absolutely correct that is what we're expecting for 2024, we're quite pleased that from a product transfer standpoint that that's contributing approximately 4% of our total revenue. We see this continuing to improve heading into 2025, our pipeline our pipeline in <unk>.

Operator: Our pipeline, our quote pipeline for product transfers remains quite strong. We continue to have order intake specifically related to product transfers, so we see 2025 as an opportunity for us to take another incremental step forward in the contributions product transfers are making to our total growth. A lot of this is centered around Brazil and India and biased to the commercial side of our business, so the net impact of continued progress in product transfers will be accelerated growth from the international side of our business under the strength of a growing commercial segment.

Jacob Bout: Most recently we saw a notable uptick in the inventory turnover for our portable equipment. We initiated Jacob a rebate program for our portable equipment about midway through the second half of the year, partnering up with our dealers to significantly move that inventory and prepare for our stronger second half of the year. That rebate program worked quite successfully and really accelerated towards the end of Q2 and now early into Q3. This gives us a level of confidence that we're making great progress in reducing that inventory level, which was a key measure for us to drive a strong second half of growth.

Paul Householder: Product transfers remained quite strong.

Paul Householder: We continue to have order intake specifically related to product transfer. So we see 2025 as an opportunity for us to take another incremental step forward in the contributions product transfers is making to our total growth a lot of this is centered around Brazil, and India and bias to the commercial side of our.

Paul Householder: So, we see 2025 as an opportunity for us to take another incremental step forward in the contributions product transfers are making to our total growth. A lot of this is centered around Brazil and India and biased to the commercial side of our business. So, the net impact of continued progress in product transfers will be accelerated growth on the international side of our business under the strength of a growing commercial segment. But, you know, there is a lot of positive activity in Brazil from a food segment, feed segment, and fertilizer segment standpoint.

Paul Householder: Business. So the net net impact of continued progress and product transfers will be accelerated growth on the international side of our business under the strength of a growing commercial segment, but a lot of positive activity in Brazil from a food segment feed segment and fertilizer statement standpoint, those are three of the items that have been.

Operator: But, you know, a lot of positive activity in Brazil from a food segment, feed segment, and fertilizer segment standpoint. Those are three of the items that have been part of our product transfer activity, and then also in India, where we have launched our bin and permanent material handling capabilities. We are seeing favorable markets and good demand and interest for those product lines in those markets.

Jacob Bout: That was absolutely a positive indicator for us. And then just finally, you know, this interesting dynamic with an expected strong harvest forthcoming, coupled with the fact that when we look at the on farm storage and even into the elevator storage, our grain storage levels remain highly elevated compared to prior year. Our estimate has on farm storage up over 30% versus prior year. When coupled with an expected favorable harvest, it is a positive indicator that we're going to see an uptick on the permanent side of our equipment as farmers make decisions to purchase this equipment and increase the amount of inventory capacity they have.

Paul Householder: Part of our product transfer activity and then also over in India, where we have launched our bin and permanent material handling of capabilities, we are seeing favorable markets.

Paul Householder: Those are three of the items that have been part of our product transfer activity. And then also, in India, where we have launched our bin and permanent material handling capabilities. We are seeing favorable markets and good demand and interest for those product lines in those markets.

Paul Householder: And good demand and interest for those product lines in those markets.

Steve Hansen: Once again, if you have a question, please press star then 1. The next question comes from Steve Hansen with Raymond James. Please go ahead.

Speaker Change: Once again, if you have a question please.

Steve Hansen: Yes.

Steve Hansen: Anyone.

Speaker Change: Your next question comes from Steve Hansen Raymond.

Speaker Change: Raymond James Please go ahead.

Steve Hansen: Hey guys, thanks for the follow-up. I apologize if it was already referenced, but I wanted to go back to the free cash flow conversion topic. I commend you for moving towards that metric, but I think it's probably a bit more broadly understood and focused on. But the 25% conversion number I think you referenced, Jim, how should we think about that progress going forward and where you expect to be over time? Yeah, good question, and thanks, and so.

Steve Hansen: Hey guys, thanks for the follow-up. I apologize if it was already referenced, but I wanted to go back to the free cash flow conversion topic. I commend you for moving towards that metric. I think it's probably a bit more broadly understood and focused on. But the 25% conversion number I think you referenced, Jim, how should we think about that progress going forward and where you expect to be over time?

Steve Hansen: Yeah, Hey, guys. Thanks for the follow up.

Steve Hansen: I apologize who has already referenced but I wanted to go back to the free cash flow conversion topic.

Jacob Bout: Because it's an interesting dynamic in the US with volumes, you know, look to be strong for grain, but pricing has been down in your experience. Is it volume that primarily drives drive some portable business and maybe just, you know, a couple follow ups are just on, you know, how big is your affordable now overall farm? Yeah, great, great question. And your spot on Jacob, that is the dynamic that we're closely watching this year that to answer the question, yes, volume we have seen drives demand a little bit more so than the commodity prices because ultimately there does need to be investment to move and store the grain.

Steve Hansen: Before moving towards that metric I think it's probably a bit more broadly understood and focused on but the 25% conversion number I think you referenced Jim how should we think about that progress going forward and where you expect to be overtime.

Jim Reddick: Yeah, good question, and thanks. We moved away from that payout ratio analysis that we had done in the past and tried to tie directly into the cash flow statement and then into the operating cash flows, and then just removing our capex spend to come up with that free cash flow calculation. You know, 25% is the ratio for the LTM basis. We see that continuing through the rest of this year and progressing up to the 30 to 40% range on a go-forward basis is what you can expect in our business. And that presumes, you know, an appropriate level of investment in capex into the initiatives that we've talked about, the expansion opportunities from an organic growth perspective. So I'm quite comfortable with that number.

Jim Reddick: Yeah. Good question and thanks, and so we are we moved away from that a payout ratio analysis that we had done in the past and trying to tie directly into the cash flow statement and then so the operating cash flows and then just removing our capex spend to come up with.

Jim Reddick: That free cash flow calculation.

Jim Reddick: 5% is the ratio for the LTM basis, we see that.

Jim Reddick: Continuing through the rest of this year and and progressing up to the 30% to 40% range on a go forward basis is what you can expect in our business and that presumes, you know an appropriate level of investment capex into the initiatives that we've talked about the expansion opportunities from an organic growth perspective. So.

Jacob Bout: Now, no doubt commodity prices have been a headwind this year that is leading to a lower farmer income. The interesting aspect of that is that has led farmers to keep a high level of storage on their facility, so it just further emphasizes the expectation for investment in storage and handling equipment. The second half of your question, portable of the portable product line, our portable equipment in the US is an extremely strong part of our business.

Jim Reddick: Quite comfortable with that number.

Speaker Change: I appreciate that thank you.

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

Steve Hansen: This concludes the question and session I would like to turn the conference back over to Paul.

Steve Hansen: Causing lack.

Paul Householder: Thank you very much, Operator. Really appreciate everybody calling into our results call here in Q2, and, as we do with the majority of our results calls, just a special thanks to the outstanding team, all the efforts and contributions, and we look forward to a very strong second half of the year. Thank you.

Speaker Change: Thank you very much operator, really appreciate everybody calling in to our results call here in Q2.

Jacob Bout: We have an excellent market share position in portable. We did have high inventory levels of our portable equipment across Q1 and Q2. That is why the rebate program and the notable progress that we have made over the past several months in moving that inventory. It has been pretty important. We typically see the second half of the year to be the strongest demand portion of the year for our portable equipment. That is typically when a lot of farmers make investments in portable equipment.

Paul Householder: And as we do our work with the majority of our results caused us say a special thanks to the outstanding team all the efforts and contributions and we look forward to a very strong second half of the year. Thank you.

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

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

Paul Householder: Bill brings Seroquel today's conference call.

Operator: Caroline.

Speaker Change: Thanks and have a plan.

Operator: [music]

Operator: Okay.

Jacob Bout: It's when we run our early order program to support restocking across our network moving that inventory in advance of this anticipated demand cycle was important. We saw that a curve pretty favorably for us at the end of Q2. And this is probably your highest margin product. This is our highest margin product. Absolutely, Jacob. And it is predominantly why you see elevated farm margins relative to commercial margins. It's on the back of our portable equipment. So having this product move and being in a better position on our portable product lines both across Canada and the US is encouraging for us. Leave it there. Thank you. Thanks, Jacob.

Operator: [music].

Operator: Yeah.

Operator: Hum.

Operator:

Andrew Wong: The next question comes from Andrew Wong with RBC Capital Markets. Please go ahead. Hey, good morning guys.

Operator: Hum.

Operator:

Harrison Reynolds: It's Harrison Reynolds on for Andrew Wong. Really appreciate the commentary so far. Just switching over to commercial.

Operator: [music].

Harrison Reynolds: Can you guys give us a sense of how much of the larger project revenues are realized as the projects progress versus what gets realized when the projects are completed. And then kind of as a follow up. Can you characterize the size and number of large product project deliveries in age two. Is it, is it possible any of this ends up getting recognized in 2025?

Paul Householder: Yeah, that's a fantastic question. And it's one that we've given more and more attention to as we've gained further success in accelerating the growth on the commercial side of our business. You know, just commenting there for a moment. If you look at our strategic growth initiatives around product transfers around emerging markets and even in our growth platforms, they naturally bias towards an improving commercial segment and growth on the international side. So the fact that our commercial order book is up as much as it is that the international order book is up as much as it is, is a clean measure on the progress that we're making across those growth initiatives.

Operator: Okay.

Operator: Hum.

Operator: Yeah.

Operator: [music].

Operator: Okay.

Paul Householder: Now recognizing that that dynamic was occurred was going to occur. We did increase our attention into revenue recognition across these commercial projects because they can be lumpy because some of them are quite large in magnitude. At the beginning of this year, we implemented a more gradual revenue recognition program on a percentage of complete basis. And that was done largely to mitigate the timing impacts of subtle movements of the delivery of these commercial projects.

Paul Householder: That's largely in place, particularly for all of our most significant projects. So that decreases or risk of the timing impact that commercial can have on our overall results. So the net net answer is that we do not see a high level of risk from a timing standpoint on the delivery of our commercial projects largely on the back of that percent of complete revenue recognition program that we implemented at the beginning of the year.

Operator: [music].

unknown: SAMUELSKA

Paul Householder: Now in terms of the makeup of our commercial order book size and number, one of the positive aspects of our order book in commercial is the diversity that is included in that order book. So we do have a number of very large commercial projects. I would put that number around three to four. We've had three to four large commercial projects that have been always scheduled to deliver in Q3 and more notably in Q4.

Paul Householder: Now those handful of very large projects are complemented by an extensive portfolio, a very high number of small and medium projects. So that diversification and project size and number within our commercial order book also adds a level of resiliency to our revenue recognition.

Harrison Reynolds: That's very helpful. Thanks so much.

Steve Hansen: You got it. The next question comes from Steve Hansen with Raymond James, please go ahead. Yeah, thanks.

Steve Hansen: That's the time. Appreciate it. Post want to fall upon Brazil in particular. The market there has understandably been going through some changes commercial versions on farm, but you know when your large competitors report it's really strong on farm results, at least on a year-to-year basis. And have talked about some of those denulation programs going on down there with the government. That was a reference necessarily directly by you guys, but just curious maybe as to why you might be lagging there to some degree in that context and how important you might think those denulation programs are from a support standpointer on the forward basis.

Steve Hansen: Thanks. Yeah, fantastic. Thanks for the question. And we're, we're keep a very close eye on our valuable competitor down there in Brazil. So we did get a look at their results. If you look at our Brazil business, I'll talk a little bit about farm and commercial. I'm going to start with commercial just quickly because I know you're the point of your question is on the farm segment. But yeah, we've seen overall very strong performance from our Brazil business.

Steve Hansen: Just commenting quickly, our Brazil order book entering into the second half of the year is net net up 50% over prior year. So in total, we feel very good about our Brazil business, particularly where it is going to end up in the second half of the year. Now more specific to your comment around farm. Our Q2 results on the farm segment for Brazil were solved. If you recall Steve, we had a very strong performance in Q1 Brazil farm.

Steve Hansen: Net net year to date, our farm business in Brazil is directly in line with where we were last year. In addition to that, we do agree that a number of the programs that have been initiated in Brazil are positive indicators that that farm segment is going to continue to improve combined with a favorable outlook on the harvest. Net net we would agree that the second half of the year within the farm segment should be positive, should be strong. Net net, which will be a great complement to our commercial business, which we have a high level of confidence we're going to deliver accelerated results.

Jim Reddick: Okay, that's helpful. Thank you. Appreciate that comment. Maybe just going back to who I think there was a reference, Jim, perhaps you're referencing, we've been working out a little build on the commercial side just to manage through some of these large projects in the Q3. Did I catch that right? I think Q2 is typically you said there could be some sort of shift and I'm just I'm guessing that's related to the larger commercial projects.

Jim Reddick: Maybe you clarify that helpful. Yeah, thanks, Steve. Yeah, so normally in our business our working capital grows early part of the year Q1, Q2 and then starts to level off Q3 and Q4. That's a typical pattern we've seen for many years. As we continue to diversify and get stronger internationally and in the commercial space as the mix of our commercial and farm levels out, this year is unique in the sense that commercial is a little bit of a higher mix than farm or expected to be higher mix than farm and with that and some of the projects that are underway, we've begun to build on those projects and procuring the inventory.

Jim Reddick: So we expect this year are working capital to slightly uptake in Q3 and then right size in Q4. So typically the back half of the year, you see a release of work gap or a drop in our working capital and it contributes a lot to strong cash that we generate in our free cash flow in the back half of the year. We expect to see that pattern this year as well but it'll be more skewed towards Q4 as we continue to fill out the order book or fill out the orders and produce for the commercial projects from back half of the year.

Steve Hansen: Okay, thank you for your comments.

Gary Ho: The next question comes from Gary Ho, Desjardins, Capital Markets. Please go ahead. Thanks good morning. So I think in your prepared remarks you mentioned, you know, shift in sentiment on the farm side, particularly from dealer channel checks. So just curious how much of your revised 300 to 310 guidance reflects this better sentiment. Just want to size up this variable. And I think you also mentioned that you need average order intake in the second half to hit this number is that right?

Gary Ho: And then a related question, I think Q3 is usually stronger than Q4, but Paul, you just mentioned and went into questions that there's larger commercial projects delivering in Q4. How should we think about the split between the two quarters? Terrific, Gary. Thanks so much for those questions. And yeah, let's start with the farm statement guidance order intake. We do see within our business a shifting sentiment within our farmers, particularly in the U.S., as we mentioned in the prepared remarks, Canada's actually been pretty steady, has looked good, continues to look good.

Gary Ho: You know, that that business is largely performing consistent with prior year with a very positive order book and a solid outlook for the second half. So really the softness has been in the U.S. That's where we've been focusing our attention. The positive sentiment comes from some of the points that we've made, you know, largely the outlook for the harvest continues to improve some of the most recent expectations that we've seen is for a record harvest.

Gary Ho: There is going to be a very strong harvest. That's quite a lot of brain for the farmers to move and store. Historically that has led to a pretty significant uptick in order intake and order deliveries in the second half. So that is a key measure of the improving sentiment that we are expecting and starting to see. And then the second one, which really is key. We touched on it with Jacob's comments is the accelerated movement of the inventory for our portable product line across our dealer network.

Gary Ho: That inventory was rather high in Q1, entering Q2. It was part of the reasons why we were expecting softness in the Q2 results, particularly with U.S, farm, you know, with a low level of orders within the quarter for portable. Now that that inventory has favorably moved, it does position us much better heading into the second half of the year. Those are key elements for the improving sentiment. That is consistent with our guidance and where we let our guidance at 300 to 310, expecting growth this year over prior year.

Gary Ho: As we looked at where we are at this point of the year, the revenue that we have booked, our order book, the will book in the second half. You can do the numbers. That leads an element of order intake that we need to achieve and deliver within the quarter. We analyze that in a great level of detail. We compared that expected order intake across the past four to five years. And the amount of order intake that we would require to hit our guidance is actually on the lower end of what we have achieved over the past four to five years.

Gary Ho: So that gives us a little bit more confidence in our ability to achieve the results and deliver growth over prior year. Gary, just to build, and so I guess the second part of your question was on the Q3 versus Q4, how to think about it. You know, our business historically, Q2 and Q3 are the stronger quarters with lower Q1 and Q4. And that's certainly been the case with the mix of farm versus commercial we've achieved historically.

Gary Ho: But as we continue to go our commercial business, that business is not as consistent as the farm in terms of when the results come in. And so what we're seeing this year is more back half weighted, more Q4 weighted. And so relative to prior years, our expectations are to have a good Q3 but a very strong Q4. And so as you think about allocating out the remainder of the earnings we do achieve for the back half of the year, it will be slightly more skewed towards Q4 versus Q3.

Gary Ho: That's part of the reason why it's challenging for us to give quarterly guidance, which we don't do, is because of that dynamic. I mean, farm, unlike our agriculture peers, farm is much more predictable. You can tell the patterns, you know, when it's going to hit in the quarters. The commercial business as you're probably aware can be a little bit more lumpier in a year. And so predicting out exactly that quarter can be difficult.

Gary Ho: So we don't, we think of our business in an annual cycle. That's typically why we just stick to the annual guidance. But this year, where we're at, at this point in the year, I can tell you that the more weighted towards Q4 versus Q3. Okay, that's really helpful. And then my second question. No, you can't comment much on the solicited offer, but now that it's out there and the board has rejected it.

Gary Ho: As management and board discuss kind of what other ways, you know, could you do to kind of service shareholder value, outside of just executing on your three pillars. It's feel like, you know, with the software first half might have pushed kind of board to react kind of more proactively. Want to hear your bottom that. Yeah. Yeah, thanks, thanks, and question, Gary. A hundred percent in that management has continued conversation with the very supportive board on the importance of driving shareholder value.

Gary Ho: You know, that is front and center in quite a lot of the conversations that we had. Obviously, we just finished up our board meeting in which that topic was was very relevant. The answer to the question on how we expected deliver shareholder value. And where we see the biggest opportunity, it is in our strategy, delivering to our strategy, executing against our strategy. There is a high level of confidence in the direction that we're going.

Gary Ho: Our strategy able to deliver not only on 2024, but on the several years thereafter. And we ultimately feel that is by foreign away, the best opportunity to deliver shareholder value, which remains obviously a top priority. Okay, perfect. And so those comments.

Tim Monachello: The next question comes from team Monicello with ATB capital markets. Please go ahead. Hey, good morning, everyone. How are you doing there? Mostly doing great.

Paul Householder: Most of my question has been answered, but I'm just curious if you have got a little bit more context on, I guess, margin enhancement initiatives in particular facility closure and the expectations for the costs of that closure through the back half of the year. And then also, you know, where do you stand in terms of, I guess, the ending year in terms of margin enhancement initiatives, you still have a lot to go.

Paul Householder: And where do you think the margin could end up training towards over a longer period of time? That's terrific, terrific. And it's a great topic for us to explore here, Tim, that the margin enhancement to operational excellence. So thank you very much for this question. Let me take that question and come in a little bit specifically into the second half of the year and our confidence around delivering margins greater than 19%.

Paul Householder: That we've got a lot of positive initiatives that were underway and that were launched across Q2 that are supportive towards our margin guidance in the second half of the year. First and foremost, we actually do see mix improving in the second half of the year. We commented on some of the mix headwinds that we had in Q2 on a product line perspective, portable, slightly down relative to permanent within the Q2, that improving in the second half of the year.

Paul Householder: Some mix within our commercial segment with a high level of third party that we saw in Q2, that mix will improve in the second half of the year, particularly as some of these large projects come into play. So even before commenting on operational excellence, there's a number of favorable tailwinds from the margin standpoint as we get into the second half of the year. Turning a little bit to operational excellence, it remains a key focus for us, a highlight of our performance.

Paul Householder: The effort around the closure of the Grand Island facility is quite notable that we'll have a tangible impact on results this year, as well as the tailwind for us in 2025. And this is worth commenting on because it is an example of the opportunity that we've had from an operational excellence standpoint that we've touched on really for the past 12 months or so. And it is focused and centered around our opportunity to standardize and rationalize out some of the complexity that is currently inherent in our product lines.

Paul Householder: In this particular example, Tim, we had two different storage bins, storage silo product lines across Canada and the US. Step one was to move to a standard bin design. This is not only a key step from an operational excellence standpoint, but also very important for us to continue to support and grow our farm business. We now have and we'll be launching a superior bin design that we've had in the past that will enable us to continue to partner up with our dealers and accelerate our performance within the market.

Paul Householder: So that product standardization directly supports growth and business results. Now that we have standardized that product, we're able to more efficiently leverage our manufacturing footprint. And in this case, it gave us the opportunity to close our Grand Island facility, which is always difficult to make those type of decisions and then move that product line up to our manufacturing facility in Canada. That will leave us with a much more efficient cost effective manufacturing capability for our important grain storage silo business across North America.

Paul Householder: That standardization not only helps drive manufacturing efficiency, but cascades through our entire integrated supply chain. It allows us to partner better with our suppliers, we're able to rationalize our supplier base and improve our leverage with suppliers to drive down input costs as another example. So this was a pretty significant move for us and is going to be quite favorable for us into 2025. So the latter part of your question, what do you mean are we in?

Paul Householder: What other opportunities exist? This is a tangible example of the notable steps that we can take that would provide a step change at a margin level and at our performance level. There are additional opportunities out there similar size and magnitude that we continue to evaluate. Some of those opportunities to do exist in North America and as Jim has commented in the past, they also exist out in India. That is likely the next step that we will take that would be a strategic initiative to consolidate our manufacturing footprint and drive efficiencies in our cost structure and supply chain.

Paul Householder: So what are we in using the baseball analogy, we progress from where we were previously in the third inning so now we're in the fourth fifth type of inning. So there's still a fair amount of positive runway going forward. We continue to see this as a lever that we can use to not only maintain and grow margins, but also be supportive of growth. So ultimately we do see margins remaining in that above that 19% range and then using the additional benefits to support ongoing growth.

Paul Householder: Okay, that's helpful. And then, last one for me, some of the product transfers, it provides some guidance, and I think that implies something in the mid-60s, range for revenue recognition in 2024. Are you getting visibility into 2025 product transfer demand? And I guess he can talk a little bit about your order flow for product transfers and how we should be thinking about that longer? Yeah, that's a fantastic question. We're extremely excited about the progress that the teams have made with the product transfers.

Paul Householder: You know, you got the math absolutely correct. That is what we're expecting for 2024. We're quite pleased. It's from a product transfer standpoint that that's contributing, you know, approximately 4% of our total revenue. We see this continuing to improve heading into 2025 are pipeline our pipeline in product transfers remains quite strong. We continue to have order intake specifically related to product transfers. So we see 2025 as an opportunity for us to take another incremental step forward in the contributions product transfers is making to our total growth.

Paul Householder: A lot of this is centered around Brazil and India and bias to the commercial side of our business. So the net net impact of continued progress in product transfers will be accelerated growth from the international side of our business under the strength of a growing commercial segment. But you know, a lot of positive activity in Brazil from a food segment, feed segment and fertilizer statement standpoint. Those are three of the items that have been part of our product transfer activity and then also over in India where we have launched our bin and permanent material handling capabilities. We are seeing favorable markets and good demand and interest for those product lines in those markets.

Steve Hansen: Once again, if you have a question, please first start in one. The next question comes from Steve Henson with Raymond James. Please go ahead. Yeah, hey guys, thanks for the follow-up. I apologize if it was already referenced.

Jim Reddick: I wanted to go back to the free cash flow conversion topic. Command you for moving towards that metric. I think it's probably a bit more broadly understood and focused on. But the 25% conversion number I think you referenced Jim. How should we think about that progress going forward and where you expect to be over time? Yeah, a good question and thanks. And so we moved away from that payout ratio analysis that we had done in the past and trying to type directly into the cash flow statement and then so the operating cash flows and then just removing our cafe expand to come up with that free cash flow calculation.

Jim Reddick: You know, 25% is the ratio for the LTM basis. We see that continuing through the rest of this year and progressing up to the 30 to 40% range on a go forward basis is what you can expect in our business. And that presumes an appropriate level of investment in CAPEX into the issues that we've talked about, the expansion opportunities from an organic growth perspective. So quite comfortable with that number. Appreciate that. Thank you.

Paul Householder: This concludes the question and answer session. I would like to turn the conference back over to Paul Householder for any closing remarks. Thank you very much operator. I really appreciate everybody calling into our results call here in Q2. And as we do with the majority of our results call, just a special thanks to the outstanding team, all the efforts and contributions. And we look forward to a very strong second half of the year. Thank you.

Operator: These brings your close to the conference call. You may disconnect your lines. Thank you for first waiting and have a pleasant day. Andrew Wong, Steven Hansen, Jacob Bout, Gary Ho, James Rudyk, Paul Householder

Q2 2024 Ag Growth International Inc Earnings Call

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