Q4 2024 Ag Growth International Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the a G I fourth quarter 'twenty 'twenty four results conference call and webcast.
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Before we begin we caution listeners that this call contains forward looking information.
And that actual results could differ materially from such forecasts or projections further and preparing the forward looking information certain material factors and assumptions were used by management additional information about the material factors that could cause.
Cause actual results to differ materially.
From the forecast or projections and the material factors and assumptions used by management in preparing the forward looking information are contained in our fourth quarter M. D N a.
And press release, which are available on the Agi website.
Speaker Change: I would now like to turn the conference over to Paul householder President and CEO of Agi. Please go ahead Sir.
Speaker Change: Thank you operator.
Speaker Change: And welcome to Agi's fourth quarter 2024 results call I'm joined today by our CFO, 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. We will then open the call up for questions.
Speaker Change: As usual I'd like to begin today's call with a few comments that highlight our ongoing commitment to safety at Agi.
Speaker Change: I'm pleased to announce that we continue to set new records for all of our major safety Kpis across the company as well most of our facilities.
Speaker Change: With many of our safety Kpis showing significant improvement in recent years, we continued to prioritize near Miss reporting as a proactive approach to prevent work related safety incidents before they happen.
Speaker Change: Our focus on safety as a cornerstone of our one agi culture, ensuring that every employee returns home safely each day.
Speaker Change: Turning to our fourth quarter and full year results I am pleased to report fourth quarter adjusted EBITDA of $78 million.
Up 7% year over year, an all time record Q4 result.
Speaker Change: Full year adjusted EBITDA of $265 million represents our second best year as a company.
Speaker Change: This performance is a testament of the resilience and strength of our diversified business model, which.
Speaker Change: Which has allowed the company to continue to drive strong results despite challenging conditions across the North America farm market.
Speaker Change: For the fourth quarter consolidated revenue was up slightly to 381 million driven by strong growth in our commercial segment, particularly in international regions.
Speaker Change: Adjusted EBITDA margin expanded to 25%, reflecting a significant improvement in our operational efficiency and focus on controlling costs.
Speaker Change: Our full year adjusted EBITDA margin of 18.9% was near the all time record we achieved last year, which is notable to highlight considering the extent of headwinds we faced in the farm segment.
Speaker Change: Swift and significant actions were taken throughout the year across our entire integrated supply chain.
Speaker Change: To reduce cost and align with market conditions as well as internal adjustments to our cost structure inclusive of SG&A were critical in delivering another year of favorable margins.
Speaker Change: The success of our efforts in containing margin compression are particularly noteworthy when compared to some of our peers, who experienced a more pronounced margin impact in 2024.
Speaker Change: The commercial segment continued to perform exceptionally well with fourth quarter revenue, increasing by 30% year over year to $248 million.
Speaker Change: Our international regions, particularly Brazil, and EMEA drove this growth through the execution and delivery of several large scale projects.
Speaker Change: The segment's adjusted EBITDA margin expanded to 21.6%, reflecting the successful execution of our operational excellence initiatives and the benefit of some higher margin turnkey projects.
International commercial continues as a key focus for agi consistent with our strategy as it offers a large total addressable market, including several high growth emerging markets.
Speaker Change: Our increased capabilities has enabled by product transfers and other growth initiatives led to several large project wins throughout 'twenty 'twenty, four which are now a major contributor to our year end record order book.
Speaker Change: The opportunity in international commercial is significant.
Speaker Change: And importantly adds a critical diversification to our farm business, helping to stabilize overall results and provide differentiated growth opportunities for agi.
Speaker Change: For greater context, I'd like to share a few more details on the type of projects and success stories, we are seen in our international commercial businesses.
Speaker Change: In 'twenty 'twenty four we won 15 large scale projects and international commercial regions with a total value of over $500 million and an average value of approximately $34 million.
Speaker Change: This is our emerging market growth strategy in action.
Speaker Change: Where we focus on delivering differentiated value to our customers and.
Speaker Change: And cultivate long term relationships as a strategic partner.
Speaker Change: As we execute and deliver these large turnkey projects, they often become valuable reference sites that support securing further sales.
Speaker Change: We have a significant quotation pipeline, which creates the potential for another strong year for commercial in 2020 five.
Speaker Change: Our farm segment faced notable market headwinds in the fourth quarter with revenue declining by 29% year over year to 134 million.
Speaker Change: The U S bond market remained challenging due to elevated dealer inventories lower commodity prices and cautious farmer sentiment.
In Canada Farm segment revenue was relatively stable supported by strong order intake received earlier in the year for permanent grain handling equipment.
Speaker Change: The industry wide challenges felt across the North America farm segment, partially offset ati's growth in other segments.
Speaker Change: Macro level data points on the farm market were generally weak through 'twenty 'twenty four with crop prices largely below the cost of production and aggregate U S farm net cash income descending from a peak in 2022.
Speaker Change: While these indicators have begun to show the start of a stabilizing trend in early 2025.
Speaker Change: We expect challenging conditions in the farm segment to persist through at least the first half of the year.
Speaker Change: We have made several operating adjustments to preserve margin and minimize expenses, including direct labor management manufacturing optimization.
Speaker Change: SG&A streamlining.
Speaker Change: And new policies aimed at containing other administrative expenses.
Speaker Change: Our farm segment interest 2025, with a soft order book and slow order intake.
Speaker Change: The current situation provides limited visibility and an uncertain timeline for market recovery until possible catalysts emerge such as sustained rally in crop prices or in season replacement demand.
Speaker Change: Further complicating this path towards a farm recovery, our tariffs and trade related actions.
Speaker Change: Turning to our order book I'm pleased to report that our consolidated order book stands at a record level of $737 million up 4% year over year and up sequentially, 11% versus Q3.
Speaker Change: The commercial segment has been a critical contributor to this result, with a 46% year over year increase now representing more than 80% of the total order book.
Speaker Change: While the path and timing to a sustained recovery in the farm segment is uncertain continued progress across international commercial is exciting.
Speaker Change: The resulting benefits of our diversified and resilient business model are clearly demonstrated in the strength and composition of our order book entering 'twenty 'twenty five.
Speaker Change: Now moving on to our 2025 guidance.
Speaker Change: Our initial outlook for 'twenty twenty-five include full year guidance of adjusted EBITDA of at least $225 million and first quarter adjusted EBITDA in the range of $25 million to $30 million.
Speaker Change: For the first quarter, the relative softness in farm versus 'twenty 'twenty four is the key driver behind the guidance.
Speaker Change: Recall that in the first and second quarters of 'twenty 'twenty four or farm segment entered the year with positive momentum benefiting from a more normalize early order program and demand profile when compared to the current situation and market conditions.
Speaker Change: Our overall full year guidance is supported by significant strength in commercial and a record level order book.
Speaker Change: There is relatively good full year visibility for our commercial segment, though it is tempered by limited visibility on the farm segment and an uncertain timeline towards the recovery in the North America farm market.
Speaker Change: It is important to note our outlook does not include the impact of any tariff or trade related regulations.
Speaker Change: For context in 2025 age I expect approximately 10% of revenue from trade between U S and Canada with the majority of revenue exposure concentrated on our portable grain handling equipment.
Speaker Change: The main participants in the U S portable grain handling market are located in Canada and will be subject to the same tariff or trade related regulations.
Speaker Change: We are reviewing and implementing options to mitigate tariff or trade related actions, including inventory stocking.
Speaker Change: Supply chain strategies and manufacturing options among other possible tactics. The situation is dynamic and evolving and we cannot conclusively assessed the ultimate extent of the impact of any tariff or trade related actions. In addition, our markets supply chain customers and competitors will need time to adjust to new true.
Speaker Change: Regulations.
Speaker Change: As we move through the process the total potential impact to agi should start to become clearer.
Speaker Change: Our internal project teams are continually reviewing potential options and mitigation strategies.
Speaker Change: In closing I would like to thank our exceptional global team for their hard work and dedication.
Speaker Change: With a strong 'twenty 'twenty four result in the books I look forward to tackling the challenges and opportunities that 'twenty twenty-five will bring and seeing some of the exciting growth initiatives, we see particularly in international commercial.
Speaker Change: I will now hand, the call over to Jim for further commentary on our financial results.
Jim Reddick: Jim over to you.
Jim Reddick: Thank you Paul and good morning, everyone I'll touch on four areas, including a quick overview of our full year results and update on key balance sheet metrics. Some comments on cash flow and then a quick recap of our capital allocation priorities.
Jim Reddick: On a consolidated full year basis revenues and adjusted EBITDA were down from a record 20 twenty-three result, amid challenging conditions in the U S farm market.
Jim Reddick: This was partially offset by the momentum in our commercial segment adjust.
Jim Reddick: Adjusted EBITDA margins of 18.9% were down just 40 basis points from the record 20 twenty-three result.
Jim Reddick: Despite a considerable shift in mix and market conditions in 'twenty 'twenty four.
Jim Reddick: Activities, including restructuring certain groups and teams within agi, adopting new cost control measures and accelerating initiatives around supplier consolidation.
Jim Reddick: All contributed to our ability to deliver a strong margin profile and a variety of operating environments.
Jim Reddick: Our adjusted EBITDA for the fourth quarter includes approximately $30 million in transaction and transitional costs.
Jim Reddick: There are three major buckets that contribute to this amount, including legal restructurings and external advisory fees.
Jim Reddick: The legal expenses and accruals are primarily related to ongoing matters within our digital business.
Jim Reddick: Restructuring expenses, our customary onetime expenses associated with head count movement restructuring and fulfill and facility consolidations.
Jim Reddick: The external advisory fees are in relation to strategic initiatives and process was conducted throughout 'twenty 'twenty four.
Jim Reddick: These three areas. We're all about one third of the total fourth quarter transaction and transitional cost.
Jim Reddick: Moving on to our balance sheet.
Jim Reddick: Our net debt leverage ratio of 3.1 times held steady quarter over quarter.
Jim Reddick: We continue to focus on managing cash flow and maintaining a tight discipline on any expenditures.
Jim Reddick: Given our current outlook for adjusted EBITDA, and increasing working capital needs in our commercial segment, our net debt leverage ratio may temporarily expand towards the 3.5 times level in 2025.
Jim Reddick: We are now targeting to achieve our run rate net debt leverage ratio of 2.5 times.
Jim Reddick: After 2025.
Jim Reddick: Looking now at cash flow.
Jim Reddick: Over 'twenty 'twenty four our free cash flow is approximately $79 million roughly a 29% conversion against adjusted EBITDA and a 62% improvement relative to 'twenty to 'twenty three.
Jim Reddick: The improvement is partially attributable to a significant cash outflow made in the comparable L. T M period related to the resolution of large one time warranty provisions.
Jim Reddick: Overall, we are encouraged to see a clear uptrend in our free cash flow metric over recent years with progress accelerating.
Jim Reddick: Across 20 twenty-five free cash flow will be leveraged to support investment opportunities in the commercial segment given the number of strategic project opportunities, we anticipate coming together in that market.
Jim Reddick: Cash flow is an area. We are closely monitoring and we'll continue to provide updates on as the year progresses.
Jim Reddick: Yeah.
Jim Reddick: And finally, an update on our capital allocation priorities, which generally remained consistent with prior discussions.
Jim Reddick: One area, we prioritized in the quarter.
Jim Reddick: In addition to early 'twenty 'twenty five.
Jim Reddick: Was executing our share repurchase program.
Jim Reddick: In the fourth quarter, we repurchased $11 million in shares equivalent to approximately 200000 shares or 1% of total shares outstanding.
Jim Reddick: The initial automatic repurchase structure, we set up continued into the early part of 'twenty 'twenty five and has since been completed.
Jim Reddick: We are now reassessing further share purchase plans as we navigate through the first half of 2025.
Jim Reddick: I'll now hand, the call back to the operator and open up the lines for any questions.
Speaker Change: Thank you we will now begin the analyst 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 are using a speakerphone. Please pick up your handset before pressing any.
Speaker Change: Teams to withdraw your question. Please press Star then June as a reminder, please limit yourself to two questions and rejoin the queue. If you have further questions. We will pause a moment as callers join the queue.
Speaker Change: The first question comes from Steve Hansen with Raymond James. Please go ahead.
Hey, good morning, guys. Thanks for time.
Speaker Change: Hum.
Speaker Change: On yeah, well. Thanks, just a quick question on the margin profile. It actually looked quite good in the period just trying to reconcile some of the pressures we're seeing in international markets like Brazil on margins at one of your larger competitors relative to your margin profile is there specific regions that are you can attribute the nice gains.
Speaker Change: Yeah.
Speaker Change: Yeah. Thanks for the question I really appreciate the focus on our margin profile. Obviously that that is a continued area of focus for us and we were quite pleased with both the Q4 results as well as the full year. Our results certainly a testament to the outstanding work of our entire team in terms of <unk>.
Speaker Change: Margin profiles across various regions as you didn't know Brazil in particular.
Speaker Change: We are very impressed with the Brazil results in Q4 as well as the margin profile that we received there we saw pretty good margins down in our Brazil business that was largely supported by some of these exciting large commercial turnkey projects that were signed in Q3, we actually we actually are.
Speaker Change: Executed a good portion of those projects across Q4 and due to our percent of complete our policy, we were able to recognize some of the financial performance of those there's a particular project that I referenced are quite attractive margins and so that did provide an uplift to our margins in Brazil and as well.
Speaker Change: Supported that overall.
Speaker Change: Increase in our margin for our commercial business that.
Speaker Change: That was quite a positive Ah and it offset some.
Speaker Change: Some of the headwinds that we saw from a declining North America farm market as you know Steve that that North America bar market is our higher.
Speaker Change: Margin business. So we did have a negative mix occurring and and then the positive results down in Brazil and across commercial work too to offset that so net net a good performance for Q4 margins end up in a pretty good performance for our overall fiscal year margins.
Speaker Change: Okay. That's helpful. Thanks, and just focusing on the Euro Harper for a moment I understand a lot of manufacturers that are moving product across the border and the fleets have tariffs.
Speaker Change: I think it's a very logical move frankly, but it also sets the stage for potentially a lot of excess inventory sitting across the border and waiting for David Just described is what you've been doing and how you sort of see that lingering effect playing out here for the first half.
Speaker Change: Just as a derivative of that is what you've been doing your production rates. Thanks.
Speaker Change: Yes, Steve I outstanding question, obviously, the tariff situation that we're facing right now is.
Speaker Change: Rather complex.
Speaker Change: Dynamic any ballgame right, we'll continue to monitor that over the next several weeks with the expectation that we'll get a little more clarity on how this is going to unfold for <unk> for 2025, but it seems specific to your question, yes, absolutely in anticipation of the tariffs coming.
In the play at the beginning of this month.
Speaker Change: We ramped up our manufacturing production in Canada over the past several months.
Speaker Change: We produce quite a lot of product and proactively moved that across the U S. A Canada.
Speaker Change: Canada and the border we biased our lot of our order intake and order fulfillment to the U S side versus Canada. So that we do have a reasonable inventory position in advance of the tariffs going into play that was all a quite strategic it was very well managed I would say it was we had a good feel for what our.
Speaker Change: Order intake has been our run rate has been over the first few months of this year and we balanced that out to make sure we had the appropriate amount of inventory.
Speaker Change: In our stocking points in the U S. A that would enable us to kind of slow down the amount of product that is moving across the border you know say over the first few weeks of the tariff implications. So that we can mitigate that.
Speaker Change: Best we can so in summary, yes, we did ramp up manufacturing production. So we can proactively move finished goods across the border.
Speaker Change: A reasonable stocking position at our U S warehouses.
Speaker Change: Okay, that's great.
Speaker Change: For instance is that do you think that you what numbers are achievable.
Speaker Change: It appears you set the bar at a reasonably.
Speaker Change: I'll call it reasonable threshold just want to get your confidence that for the first quarter guidance in particular.
Speaker Change: Yes for sure.
Speaker Change: Guidance first quarter guidance full year guidance that that's absolutely our intention is to stack a rig.
Speaker Change: A reasonable guidance across both of those periods. So the direct answer to your question is yes, we believe our Q1 guidance is reasonable.
Speaker Change: And yet the team is is and remain focused on executing our operating the business and in delivering to that result.
Speaker Change: Okay. Thanks, I'll get back in the queue appreciate it.
Speaker Change: Yeah I appreciate it thank you.
Michael: The next question comes from Michael <unk> with TD Cowen. Please go ahead.
Michael: Thank you good morning.
Speaker Change: Hey, Michael.
Power or Jim can you talk about your.
Speaker Change: Consolidated EBITDA margin expectations for 2025, when we look at the the full year EBITDA guidance of at least $225 million that you provided.
Michael: Yeah, absolutely Michael I Love all these questions on our margins.
Michael: Obviously this is something that we work very hard at we were quite pleased with the roughly 400 basis point margin expansion that we've seen over the past few years and that we were able to largely hold across 2024 amidst those challenging market conditions.
Michael: We continue to talk about maintaining a margin profile EBITDA margin profile in that 18% to 20% range. That's ultimately where we see the business performing under under reasonably normal operating conditions and how we look to manage the business going forward.
Michael: Now to your question Michael We obviously have arent are expecting continued softness in the North America farm market. This.
Michael: This is our largest margin business. So that continued softness does create a headwind on margin mix.
Michael: We will continue to look to offset that with operational excellence initiatives as well as making sure that we've got the right cost structure in place that is aligned with our market and revenue realities that said, we do anticipate some margin pressure, perhaps this year, where operating instead of in an 18% to 20% range, where in a you know a 17% to 90.
Michael: <unk> percent range or somewhere somewhere in there.
Michael: Coal is certainly going to be to finish the year and an EBITDA margin level that is it is within the range of how we finished 2024.
Speaker Change: Okay. So maybe just maybe just to clarify there to the extent that you see any any pressure year over year and in terms of the full year margin versus what you did in 2024.
Speaker Change: Is that going to be should we think about the that entirely being driven by farm, but instead kind of holding in commercial but the farmers what pulls that down is that kind of how to think about the various components there.
Speaker Change: Yeah, Michael Yeah, you got it spot on that's exactly how to think about it we remain very excited about our international business. Our international commercial business are quite pleased with the Q4 results.
Speaker Change: The order book is quite strong heading into 2025, there's a lot of momentum there I would just like to further comment or our pipeline and quotation activity on that in a nurse international commercial side.
Speaker Change: <unk> robust and the mix of projects that we're quoting on and both that reside in our order book has a margin profile pretty consistent with what we saw say in the second half of Q3 into Q4. So we do see the potential for the margin profile across the commercial business to.
Speaker Change: To remain across 2025, and yes margin pressure largely from a softening North America farm market spot on Michael.
Speaker Change: Okay, perfect and then.
Speaker Change: Second question I guess, you were already asked about Q1's, a guidance of $25 million to $30 million in the cartoons there.
Speaker Change: I guess just two questions about that specifically so can you maybe help us understand how that breaks down across farm and commercial clearly farm is the area that you see the weakness, but just trying to understand.
Speaker Change: What the what the composition of that is in and the contributions.
Speaker Change: From each of your segments and then separately I mean, we're obviously you know already into March here and the tariffs just came to effect you've done some pre positioning as far as inventory to try to.
Speaker Change: Put yourself in the best position possible initially at least.
Speaker Change: But to the extent that that there is any kind of an impact here from tariffs, which is not built into your guidance, but could we see.
Speaker Change: Tariff related impacts actually hurts you in Q1 and cause you to come in below that $25 million to $30 million or is the concern around tariff related impacts something for future quarters. If in fact something comes that comes from those.
Speaker Change: Yeah. Thanks for the question Michael a couple of parts to it let me make sure I I I hit each of them Q1 guidance composition, the soft guidance in Q1, particularly relative to prior year is solely a factor of softness across our North America farm market across.
Speaker Change: 2024 in the second half, we could see some softness, particularly in the U S. A as we enter our 2025, we do see some softness in Canada, you know I do want to note that.
Speaker Change: Across Q4, and the first two months.
Speaker Change: <unk> of Q1, we have seen signs of market stabilization, a which is encouraging our order intake has remained fairly consistent across that period with some aspects of our North America farm, our order intake actually ticking up a bit.
Speaker Change: Which is also encouraging our order book in North America, Barb increase rather substantially sequentially Q3 to Q4 are still remaining for off of prior year levels. So just to give you a little bit of insight into what we're what we're specifically seen obviously uncertainty in the foreign markets still remain in.
Speaker Change: The second half of the year, but Michael composition, it's largely softness in the North America farm market that is impacting that.
Speaker Change: Q1 guidance realm.
Speaker Change: Relative to tariffs I mean, yes, you are correct. There is still three weeks left in the quarter tariffs.
Speaker Change: Went into effect earlier. This week there are still conversations going on on the on the full extent that those tariffs with some sure. Michael you are aware of are we did look to minimize the impact of tariffs in Q1 by the proactive steps that we took at the beginning part of the quarter so that while there.
Speaker Change: Would be some impact of tariffs to our Q1 guidance I wouldn't say that there's that there is zero risk are we would expect those to be largely minimized. The majority of the tariff related impacts would be in the outward quarters Q2, three and four obviously, depending on the on the ultimate outcome of where tariffs land.
Speaker Change: Perfect. Thank you for the time.
Speaker Change: Yeah, you got it Michael.
Christopher Friesen: The next question comes from Christopher Friesen with CIBC. Please go ahead.
Christopher Friesen: Thanks for taking my question.
Christopher Friesen: You got it I was just wondering as as we think about your guidance for <unk> for 2025.
Christopher Friesen: Can you talk about what is what expectations you have baked into that 225 number specifically for north American environment on kind of how you're thinking about it throughout.
Christopher Friesen: The remainder of this year.
Christopher Friesen: Yeah, absolutely Christa you know obviously, we gave our 2025 guidance quite a lot of consideration.
Christopher Friesen: The major elements.
Christopher Friesen: You know that was factored into our guidance was the North America farm market.
Christopher Friesen: As mentioned if you go back to 2024, we started to see that market soften in Q2.
Christopher Friesen: That softness then accelerated in the second half of the year, particularly across Q4, and we do expect that the North America farm market to be soft across the first half of 2025.
Christopher Friesen: That combined with the fact that at this point, they're really has limited visibility to the second half of the year for North America farm. So the combined are expected softness in the first half of the year with the limited visibility towards the second half of the year. We're absolutely factors that went into our full year guide.
Christopher Friesen: Now I'll just building on that limited visibility on the second half of the year. There's a number of factors that will ultimately impact our how the second half of the year unfold for the North America farm market, we referenced a couple of these in our prepared marks noting commodity prices.
Christopher Friesen: Farmer input costs, both of which would ultimately impact our farmer income and farmer sentiment to making a capital equipment purchases.
Christopher Friesen: I would say Christa another element to watch our farmer related government subsidies, which could come into a pack and be a nice boost to overall farmer sentiment in the second half of the year are all of those items will have an impact on how the second year unfold.
Christopher Friesen: For our North America farm, so a big element of our guidance was looking to get a read on the North America farm market with a bias of being a bit conservative given the uncertainty to the to the second half of the year on the other side of it the international commercial business I mean, we're quite pleased with how that is performing we're coming off a strong Q4.
Christopher Friesen: Our result, our order intake was obviously robust across Q3 and Q4, leading to that record level order book for the company. Our order intake continued to be good continues to be good quotation activity continues to be good. So we're pretty excited and we see the potential the potential for our international.
Christopher Friesen: Commercial business to have a quite a strong year. So you factor all that in.
Christopher Friesen: We came up with our guidance I wouldn't say there is there is upside potential to our guidance that is largely going to be dictated by that.
Christopher Friesen: That potential recovery in the North America farm market in the second half, which we would expect to have.
Christopher Friesen: Building on you know as we get close to and into Q3.
Christopher Friesen: Okay, Great maybe just to take in there so the back half of the year for North America Farm.
Christopher Friesen: <unk>.
What you're assuming for this guidance is.
Christopher Friesen: I guess kind of continued weakness are you baking in any sort of green shoots in that in that $2 25.
Christopher Friesen: Yeah, well yeah. Thanks for the further question there so to be more specific on what we have not assumed in our full year guidance is a is a pronounced recovery in the North America foreign market.
Christopher Friesen: So we have good visibility to the softness in the first half we did not bake in a strong recovery.
Christopher Friesen: In the second half of the year, so to the extent that the recovery comes in are better than we anticipated a that then would lead to some of the potential upside that was referenced.
Christopher Friesen: Okay, great. Thank you I'll jump back in the queue.
Christopher Friesen: Thank you.
Speaker Change: The next question comes from Tim Monticello with ATB capital markets. Please go ahead.
Tim Monticello: Hey, Thanks for taking my questions.
Speaker Change: How are you doing the same.
Speaker Change: Oh doing pretty well.
Tim Monticello:
Tim Monticello: So the guidance for Q1 $25 million to $30 million and then 225 for the rest of the for the full year I would assume.
Tim Monticello: On an average basis for the back half around 65 billion and EBITDA and the.
The remaining three quarters I mean so.
Tim Monticello: Is that uptick that you expect from Q1 to the remaining three quarters, primarily a function of the commercial.
Tim Monticello: Order book execution and.
Tim Monticello: And scheduling or are you seeing something changing in U S farm from Q1 to Q2.
Speaker Change: H M. Yeah, no a good call out there.
Tim Monticello: So as we.
Tim Monticello: Paul talked about our order book being predominantly a commercial based and extremely strong versus prior year. The commercial part of our business is doing extremely well and so we've got good visibility to that for 'twenty for at least the first half of 2025 and an actually ongoing in through the rest of the year.
Tim Monticello: And so when you do the analysis, if you factor in our Q1 guidance and then overlay that to our full year guidance. You know what we're expecting is commercial business two to grow in the year.
Tim Monticello: But we have been very cautious about farm and expecting North America farm to be down and that's not unusual.
Tim Monticello: As you look at some of the AG peers in the industry, they're calling for for 2025 to be down approximately 20% in the farm business and.
Tim Monticello: And so so we have not veer too much away from that expectation.
Tim Monticello: Okay, and so do you expect the commercial order book.
Tim Monticello: Execution and sort of the cadence of revenue through commercial to be relatively.
Tim Monticello: Flat quarter to quarter and if there's some variability that we should be aware of.
Tim Monticello: So when you say flat during the quarter. So so one thing of note, we do adopt a like to like a construction company that the percentage of completion approach. So as we produce and set up and make.
Tim Monticello: The items for the projects, we are recognizing revenue contractually and so that will create a more steady flow of of the business throughout the year. Unlike years past, where it could be a little bit more lumpy.
Tim Monticello: Based on when it was shipped.
Tim Monticello: Now, we have better visibility into and I guess more predictability of that commercial business.
Tim Monticello: Do you think Q1 was a high watermark.
Tim Monticello: For the next couple of quarters.
Tim Monticello: For commercial in particular.
Tim Monticello: So far for Q1, 2020 five.
Tim Monticello: I'm sorry Q4.
Tim Monticello: My apologies.
Tim Monticello: So yes, we had a very strong Q4 I think that are you know there is always some seasonality in our business, whether it's far more commercial Q1, historically has always been lower in terms of volume for various reasons, mostly weather related onsite construction getting equipment, there and actually getting worked.
Tim Monticello: So Q1 is always a bit lower but are in terms of if you're going to have symptoms of run rate for commercial.
Tim Monticello: Q4 was definitely very strong Q1 will be strong, but lower than Q4, but then as as weather picks up as as construction projects go into more full force, we expect more steady commercial business Q2, Q3, and Q4 and 2025.
Tim Monticello: Got it.
Tim Monticello: And then.
Tim Monticello: Second question just on the free cash flow outlook for 2025.
Tim Monticello: $30 million of transactional and additional costs in Q4, I assume part of that was probably to right size. The U S. Foreign business Theyre more where can he gotten there what do you think.
And sort of one time ish costs that we should expect at least through the first half of 2025.
Tim Monticello: And how should we think about working capital investment and 25, just given the strong commercial order book.
Tim Monticello: Okay. So a couple of things there first.
Tim Monticello: First I heard you talking about the the onetime costs the transaction and transitional costs that we called out yes. They were high in the quarter, we end and no definitely understand the frustration with these costs.
Tim Monticello: Just a further.
Tim Monticello: Color on those costs out about two thirds of those costs were.
Tim Monticello: We're related to either what we call historical issues, so primarily the legal costs on our digital or been incident areas that debt.
Tim Monticello: We inherited.
Tim Monticello: See challenges.
Tim Monticello: And then.
Tim Monticello: Another third was related to advisory fees related to the the process run in 2024 those costs should not reoccur.
Tim Monticello: You know those those are or should be behind us. However.
Tim Monticello: However, there is an amount that are that we have been incurring that likely will continue for a bit of time that relate to the work we're doing with restructuring activities. These are activities that we've been doing for the past few years to consolidate facilities to improve.
Tim Monticello: <unk> to really help drive the improvement in margins that we've been seeing and so there is still some activity that we expect in 2025 to happen, but significantly lower amounts than what we saw in 2024.
Tim Monticello:
Tim Monticello: Your next part of your question I heard was on on working capital investment in 2025.
Tim Monticello: Very good call out so it is our business in 25 shifts more to the commercial side there are some pretty exciting.
Tim Monticello: Growth opportunities that we will take a more balanced approach at managing the capital allocation approach, meaning we will be comfortable investing in some of the working capital needs for these large projects the commercial growth opportunities in parts of the world, whether it's in Brazil or EMEA in particular.
Tim Monticello: And so that will be.
Tim Monticello: B, a a priority for our free cash flow as you noted we do generate strong free cash flow. That's now improved from from earlier years $79 million last year, that's up significantly from the year before we will continue to generate strong free cash flow and we will take a more balanced approach as to use.
Tim Monticello: Of that free cash flow.
Tim Monticello: And and in 2025, there will be an investment in working capital for some of those commercial opportunities.
Tim Monticello: Okay I appreciate the commentary I'll get back in queue.
Tim Monticello: Yeah.
Andrew Wong: The next question comes from Andrew Wong with RBC capital markets. Please go ahead.
Hey, good morning.
Andrew Wong: Taking my question, so just to clarify on H two farm expectations, it sounds like you're saying.
Andrew Wong: Pulling up the guide assumes a moderate year over year rebound is that correct and then.
Andrew Wong: Just more broadly when we look now.
Andrew Wong: Let's say like a 2021 through 2023 period.
Andrew Wong: When there are some really strong years for farm sales how much of that would you say was driven by the stronger clean place environment and farmer expectations and.
Andrew Wong: When we look at 24 and 25 pharma sales.
Andrew Wong: These may be more reflective of the current crane pricing conditions that we're in today.
Andrew Wong: Hey, Andrew Great Great questions I think for those.
Andrew Wong: Yeah.
Speaker Change: In terms of the second half of the year for the North America farm market.
Speaker Change: I mean, it's right to to to look at that is certainly something that we're paying quite a lot of attention to is how does that farm market a recover in the second half of the year as he commented where we sit today, we really have little visibility.
Speaker Change: To that to the shape of that recovery AR as the year unfolds, we'll obviously get much better visibility and we expect that visibility to come into play more towards Q3. So I think you categorized it correctly, Andrew right now built into our guidance.
Andrew Wong: It would be more of a cautionary outlook.
Andrew Wong: For the second half of the year and that North America farm market and I did mentioned previously some of the parameters are.
Andrew Wong: That we are monitoring quite closely.
Andrew Wong: In terms of categorizing or looking at reference points, where are the North America farm market and our performance within that market across the different years different buckets, a 'twenty, one and 2023 2021 through 2020 three youre right.
Andrew Wong: Extremely strong performance for.
For our North American farm business, particularly in U S. A both U S and Canada, you know that was supported by favorable market conditions, we saw a good.
Andrew Wong: Commodity prices, we saw a reasonable input costs for farmers. So net net a farmer income what was it in a positive position so that enabled farmers yes.
What what what higher farmer sentiment to go out and make capital equipment purchases.
Andrew Wong: And certainly with our.
Andrew Wong: Industry, leading products in those areas, where we were the beneficiary.
Andrew Wong: Of that and we saw a really nice performance across the business in that time range.
Andrew Wong: Now you compare that to what we saw in 2024 and what we saw in 2025 I would not categorize 2024, and 2025 as more of a normal run rate going forward. This is definitely more of a cyclical ad period.
Andrew Wong: You typically see these are you know every so many years that.
Andrew Wong: The AG market goes through a down cycle that looks to be the case of what were experiencing in 2024 and 2025 I would not use. These are these years as a more normalized rate going forward, we absolutely expect.
Andrew Wong: To come out of this cycle.
Andrew Wong: And then once we do have our North America farm business returned to more normal operating levels. It Couldnt say right now whether that whether they're going to rebound to that 2021 to the 2023 time frame or if it would look a little bit different yeah, we would expect that.
Andrew Wong: With this downturn and with weaker farmer income there is going to be an element of pent up demand pent up interest in replacement equipment. So there is the potential that once you get through this this AG cycle.
Andrew Wong: The recovery could look attractive, but obviously, we will know better as we get closer to it.
Andrew Wong: Okay, great. Thank you for all that.
Speaker Change: Image is another one like that back in the middle of last year, there was a takeover offer for agi.
Andrew Wong: That was rejected by the board.
Andrew Wong: Since I'm just kind of curious like since then has there been another bid or any interest from that party or any other parties in.
Andrew Wong: Just curious as it has the board considered revisiting any strategic options.
Andrew Wong: Hey, Andrew Great question. Thanks for that question and yes, you are correct. If you go back to the I think it was actually the beginning of 2024, we did receive an unsolicited conditional inbound offer for the company are that that was referenced.
Andrew Wong: The global Mail article.
Andrew Wong: That the board gave that offer full consideration as well as bringing in advisors to support the evaluation of that proposal.
Andrew Wong: That initial.
Andrew Wong: Our offer was not accepted by the board at that point in time.
Andrew Wong: Our board is obviously focused on looking at all alternatives to enhance shareholder value.
Andrew Wong: Now the out of that initial offer the board did initiate a process to go out and.
Andrew Wong:
Andrew Wong: Encourage our interests are across the board on potentially.
Andrew Wong: You know, making bids to take the company private that process ran for several months.
Speaker Change: Across 2024, and these are actually some of the costs that Jim was.
Speaker Change: Referring to that we recognized in Q4 that process concluded.
Speaker Change: At the right around the November timeframe and out of that process. The board working with advisors concluded that it was not in the best interest at that time to move forward with any of the offers that were received so that that process has been concluded.
Speaker Change: Okay, Great and just one one longhorn.
Speaker Change: Spending.
Speaker Change: What are your expectations for buybacks.
Speaker Change: And given where share prices today like could you be a little bit more aggressive with that versus what you did last year and just on Capex. Please if you can give us.
Speaker Change: Thanks, Andrew So so for the <unk> stock repurchase program, we initiated that towards the end of last year.
Speaker Change: And then as we went into blackout, we did an automatic stock purchase program that ran through till February and.
Speaker Change: And we so we bought in total.
Speaker Change: <unk> last year and the beginning of this year $20 million worth of stock about 422000 shares.
Speaker Change: And for from a capital allocation priority perspective, as we think about the needs for our cash.
Speaker Change: The stock.
Speaker Change: Purchasing option is is relevant given our stock price is we're going to try to do more of a balanced approach to managing our AR our capital our cash.
We definitely will allocate amounts to grow the business continue to grow our business, but with the stock prices, where they are it is something that we continually discussing revisit regularly so that.
Speaker Change: That is a consideration that we will think very closely on as we go through the year. The program that we put in place the M C. I D.
Speaker Change: Last through the end of the year. So we do have that flexibility to continue to purchase some of that stock.
Speaker Change: In terms of Capex.
Speaker Change: No.
Speaker Change: I would expect 2025 to be a similar year in terms of total capex dollars to 'twenty 'twenty four.
Speaker Change: We do have we prioritize our maintenance Capex, which is one to one 5% of revenue all the time.
Speaker Change: That's ongoing we also invest in product development, what we call intangibles that continues and then growth capex.
Speaker Change: Will it be a similar levels as 'twenty 'twenty four.
Speaker Change: We do we've called out the India expansion as it is an opportunity that we continue to be excited about but we'll manage that the pace of that expansion given our the cash flow generation in our business through the year.
Speaker Change: Great I appreciate all the color. Thank you very much.
Speaker Change: The next question comes from maximum suggests with National Bank Financial. Please go ahead.
Speaker Change: Hi, good morning, gentlemen.
Speaker Change: Thank you Max.
Speaker Change: Could get most questions have been answered, but just a couple of small ones. So just to be crystal clear on the farm. So are you still assuming some sort of recovery.
Speaker Change: <unk> farm in the back half or is it slower deceleration versus the back half of 2024 just.
Speaker Change: Trying to gauge what is exactly embedded in your projections.
Max: Yeah sure Max.
Max: Thanks for the question and we obviously appreciate the interest in the second half of the year for the North America farm market.
A little bit of a difficult one to call given that we have had little visibility at this point in time on how that market is going to recover. So we did have to make some assumptions in our guidance.
Max: To get to your point, we did not assume that the market was going to deteriorate further from the first half of the year. So you can think of our guidance or what was included in our guidance for the second half of the year for North America farm to be kind of more flattish.
Max: Maybe a moderate improvement.
Max: Improvement.
Max: In that kind of flattish to moderate our area, but we did not assume that it would be a further deterioration from the first half of the year. We do expect the first half of this year to be to be soft in North America farm.
Speaker Change: Alright, I guess I mean like the news flow around retaliatory tariffs on corn and things like this I mean, thats kind of driving.
Max: Corn and wheat pricing down as well.
Max: Speak right now right. So like I mean, thats, presumably is not included in those in those projections right.
Speaker Change: That's a great call out Max Thank you for that so correct, we really didn't consider any tariff related impacts in our guidance quite simply that because.
Speaker Change: It's too dynamic right now and the extent of the impact.
Speaker Change: Are less visible.
Speaker Change: The way you've categorized it macro if I could build on that a bit when we look at tariffs right. There's both a direct impact and an indirect impact or to say it differently. There is things that are in our control and there's elements that are obviously outside of our control what's in our control we're extremely good at managing.
Speaker Change: So in terms of how we're going to balance our manufacturing facilities, how we're going to optimize our supply chain and how we're going to look to to put offsetting measures in place to mitigate the overall impact of the tariffs are we're quite confident company capable in that category we've already.
Speaker Change: <unk> implemented a quite a number of measures preemptively to get out in front of this but when you look at those indirect impacts Mac, which I think is what you were referring to is you know to.
Speaker Change: To the extent the tariffs are long standing to the extent retaliatory tariffs go into place there absolutely could be broader.
Speaker Change: Economic AG market related implications to that obviously outside of our control that ultimately could have an impact.
Speaker Change: Particularly on the second half of the year.
Speaker Change: For those situations will just continue to monitor at Max and then based on how it unfolds and how the reality looks we will absolutely adjust our operations accordingly, just.
Speaker Change: Just as we did quite successfully across 2024.
Speaker Change: No that makes a huge amount of sense and then I just wanted to clarify something that you.
Speaker Change: In response to the sort of.
Speaker Change: All mature from an M&A perspective question. So when you said there was a second process going private so wasn't a fan was thinking about going private or when you're just running a wider process.
Speaker Change: I just wanted to clarify your language specifically thanks.
Max: Yes, thanks for the clarification Max.
Speaker Change: Yes.
Speaker Change: Let me see if I can if I can be more clear right we had the the.
Speaker Change: The unsolicited unsolicited offer come in more towards the beginning of the year.
Speaker Change: The board and its advisories evaluated and did not accept based on that inbound.
Speaker Change: Born out with.
Speaker Change: With its fiduciary responsibilities to make sure that we're evaluating opportunities to enhance shareholder value. They then did kickoff a formal process that was supported by both.
Speaker Change: Legal and financial advisers that process ran for approximately six months across 2024.
Speaker Change: Are you know several external parties were invited into the process to.
Speaker Change: To evaluate the attractiveness of and their interest in the company that process concluded towards the end of November and based on a review with our financial and legal advisers. The board elected not to move forward.
Speaker Change: With any alternatives at that at that point in time.
Speaker Change: Okay. Okay I appreciate it.
Speaker Change: Clarification. Thank you so much.
Speaker Change: We got a Max thank you.
Speaker Change: The next question is a follow up from Tim Monticello with <unk> capital markets. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Just on the farm margins are pretty strong in the quarter and out of.
Speaker Change: That portable farm was down significantly year over year.
Speaker Change: What are you thinking.
Speaker Change: <unk> is a reasonable range to estimate farm margins in.
Speaker Change: In 2025.
Tim Monticello: Yeah. So thanks, Tim.
Speaker Change: You know as you're pointing out.
Speaker Change: Our farm business, there's really two types of products that are we sell in there one is what we call permanent till the end of the storage bins, the handling equipment et cetera, more permanent installations and then we have what we call portable equipment. So our augers in some of our portable conveyors.
Speaker Change: The the portable equipment does have the highest margins.
Speaker Change: But even combined with our permanent business overall farm tends to hover for the year between 24, and 26% in terms of EBITDA margins and commercials typically 17% to 18% overall, that's a full year basis.
Speaker Change: And so but we will have.
Speaker Change: Some challenges in in 'twenty, five with farm continuing to be down versus the prior year that mix impact, we expect to offset with some operational improvements, but as Paul alluded to earlier, you know to the extent that.
Speaker Change: The mix is signet is that significant we could see pressure overall.
Speaker Change: We operate between 18% to 20% generally from a margin perspective that could be between 17, and 19% and 2025, we're doing everything we can to make sure we stay in that 18% to 20% range, though to offset that mixed pressure.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: The tariff impacts obviously steel.
Speaker Change: Chris could have broad ranging impact on farmers and input costs in <unk>.
Speaker Change: And even you know further.
Speaker Change: Further downstream and I'm just curious.
Speaker Change: Are you do you think there's a risk that you can see contagion from what you're seeing on weakness in the upstream firm market into more of a downstream commercial markets at any point.
Speaker Change: Yeah Tim.
Tim Monticello: Maybe I'll take that question, that's an excellent question.
Tim Monticello: Yeah, So I would I would probably say that we remain pretty bullish on our commercial outlook for 2025 irrespective of tariffs.
Tim Monticello: And let me build on that a bit Tim and just put some color around it right.
Tim Monticello: Right now we have an extremely strong order.
Tim Monticello: Order book entering.
Tim Monticello: In the year for our commercial business as we noted in our prepared remarks that that order book is up just under 50% versus prior year.
Tim Monticello: And then prior year comparison is a strong one.
Speaker Change: Tim as you know so that order book in our commercial business is substantial and having that kind of position already locked in.
It helps us with the understanding that the impact due to tariffs would be minimal.
Speaker Change: Other thing to note there Tim is the majority of our commercial business and that order book is biased internationally.
Speaker Change: You can think of Brazil across EMEA are even into southeast Asia and right now at least from a tariff related standpoint, we don't anticipate impacts in those regions.
Speaker Change: So I wouldn't say, that's why we would not expect really a big impact from tariffs on our commercial business is certainly a far far smaller than what were monetary across North America.
Speaker Change: And does that order book have legal contingencies attached to it around steel pricing.
Speaker Change: Inflationary impacts are you hedging those order with purchases.
Speaker Change: Yeah terrific terrific question, Tim and Oh, let me make sure I understand it. So you know I think where you're getting at is if we see a lot of global inflationary prices, if we see spike spike up in steel or or other related costs with the potential impact in our order book.
Speaker Change: I'm assuming that's the question is if you go back to what we saw a couple of years ago went with was dramatically accelerating our steel costs, when we changed our standard contracts and our contractual provision so that we got the right language in those contracts to protect us from any.
Speaker Change: A significant spikes external spikes and in steel supplies fuel costs or other supply chain related events. So yeah, I would say the potential impact is a minimum related to our current order book.
Speaker Change: Okay, Great and then last one for me.
Speaker Change: Clearly as you're trying to delever the balance sheet, you're doing some share repurchases that over the last couple of quarters.
Speaker Change:
Speaker Change: So.
Speaker Change: How does the dividends fit into this instead of $11 million.
Speaker Change: Draw on cash.
Speaker Change: Not sure that people are buying the stock based on it being a yield investment I'm just curious if there's any consideration around.
Speaker Change: Potentially eliminating the dividend to sort of.
Speaker Change: Allocate cash to the balance sheet.
Speaker Change: Yeah. Thanks, Tim for that right now there is no no discussion on removing the dividend.
Speaker Change: But you know as certainly as we are you know.
Speaker Change: Continuing to execute through these are interesting times.
Speaker Change: You know.
Speaker Change: How we figure out our cash flow and the prioritization of what to do with it.
Speaker Change: Is a topic of ongoing discussion.
Speaker Change: To the extent that we want to divert more to buying back stock.
Speaker Change: And freeing up cash elsewhere.
Speaker Change: It could be a consideration, but right now it's not it's not a discussion it's not it's not on the table.
Speaker Change: Okay I appreciate I'll turn it back.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Paul householder for any closing remarks.
Speaker Change: Thank you.
Speaker Change: Yes first of all thanks to everybody for joining on our call here. This morning really appreciate the outstanding questions.
Speaker Change: Good morning.
Speaker Change: Navigating the challenges it really capitalizing on the opportunities that present a across 2025.
Speaker Change: We're a strong operating company and strong operating team is visible in our Q4 results and full year results and I'd just like to say, thanks, and appreciate all the outstanding efforts and achievements from our global team.
Speaker Change: Thanks again for joining us.
Speaker Change: This brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
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