Q1 2025 Ag Growth International Inc Earnings Call

Thank you very much.

Thank you for standing by. This is the conference operator.

Welcome to the AGI First Quarter 2025 results conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity for analysts to ask questions.

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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.

Cause actual results to differ materially from the forecasts or projections and the material factors and assumptions used by management in preparing the forward looking information are contained in our fourth quarter MDNA and press release, which are available on the AGR website.

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 first quarter 2025 results call. I'm joined today by our CFO Jim Retic. I'll start the call with the 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.

Paul Householder: As usual, I'd like to begin today's call with a few comments that highlight our ongoing commitment to safety at AGI.

Paul Householder: In late April , our global teams came together to participate in our fifth annual Safety Week, a cornerstone event for safety at AGI. This is an important opportunity for our teams to unite around a common priority in making our operations and facilities as safe as possible.

Paul Householder: This year's theme was spotted, reported, fix it, and was focused on proactive, near-miss, and hazard identification.

Paul Householder: With safety metrics improving significantly over recent years, we continue to shift to a more proactive approach for detecting and neutralizing potential safety risks before they become a safety incident.

Paul Householder: Safety is a key part of our culture, and I am privileged to participate in events such as our annual Safety Week.

Paul Householder: Thank you to all who participated and supported making this another safety milestone event at AGI.

Paul Householder: Turning to our first quarter results, I'm pleased to report Q1 adjusted EBITDA of $31 million which came in just above the high end of our expectations for the quarter.

Paul Householder: Consolidated Revenue for the Quarter was 287 million, a decrease of 9% compared to Q1 2024, with significant strength in our commercial segment helping to offset some of the ongoing industry-wide challenges that largely impact our North America farm business.

Paul Householder: Our overall first quarter performance, inclusive of our strong order book, reflects the resilience and strength of our diversified business model, which has allowed the company to continue to drive strong results amidst challenging conditions in certain regions.

Paul Householder: The commercial segment continued to perform exceptionally well, with first quarter revenue increasing by 53% year-over-year to 192 million.

Paul Householder: Our International Regions, particularly Brazil and Emea, drove this growth through the execution and delivery of several large-scale turnkey projects.

Paul Householder: Commercial revenue from Brazil and EMAIA increased significantly relative to prior year, demonstrating solid momentum in our two largest international business units.

Paul Householder: The commercial segments adjusted EBITDA margin expanded to 12.8% reflecting the successful execution of our operational excellence initiatives and the benefit of some higher margin turnkey projects.

Paul Householder: Revenue in our North America commercial business was down slightly in the quarter, though the team has been diligent in managing the quoting pipeline and was able to secure several new project wins in the quarter.

Paul Householder: The North America Commercial Order book, Excluding Foods, is up nearly 40% and along with a robust pipeline sets the stage for solid performance in upcoming quarters.

Paul Householder: Overall, our strategic focus on building and establishing the right processes, teams, and capabilities in the commercial segment over the last few years continues to deliver favorable results.

Paul Householder: As expected, our farm segment faced market headwinds in the first quarter, particularly across North America.

Paul Householder: Volodil terror policies and a lack of clarity of potential government farmer subsidies in the US create a degree of uncertainty that impacts farmer sentiment in both the US and Canada.

Paul Householder: The farm segment remains subject to these challenging conditions which are expected to last through at least the first half of 2025 with limited visibility to the second half. [inaudible]

Paul Householder: We remain focused on what we can control and are closely managing our costs across the farm business.

Paul Householder: from direct labor, manufacturing and supply chain costs to overheads and office costs.

Paul Householder: In addition, we remain in close contact with our farm dealers ensuring we are fully aware of and coordinated on any shifts in market conditions.

Paul Householder: We will continue to closely manage the situation and look towards progressing through the growing season towards harvest as a potential catalyst to stir demand and improve market conditions.

Paul Householder: Turning to our order book, I'm pleased to report that our consolidated order book stands at a near record level of 725 million, up 5% your year.

Paul Householder: The commercial segment has been a critical contributor to this result with sustained momentum in demand for large-scale projects and engineered solutions, particularly in Brazil where the

Paul Householder: Other areas including North America commercial are also solid contributors to the order book, helping to offset relative weakness in farm segment order intake.

Paul Householder: The overall commercial order book is up 26% year-over-year providing great visibility to our full-year expectations for that segment.

Paul Householder: The global quoting pipeline remains active, particularly commercial as we monitor any potential broader impacts the ongoing tariff discussions could have on the global economic outlook and capital spending.

Paul Householder: In addition, we observed an encouraging trend in our Farm Order book, which increased 25% sequentially versus Q4 2024, with order intake ticking up for permanent storage and handling products across North America.

Paul Householder: While it's too early to declare a definitive change in where we are in the North America Farm Market Cycle, this is an encouraging data point and is an area we continue to monitor closely.

Paul Householder: Moving on to a few other key topics relative for AGI in the first quarter and the remainder of the year.

Paul Householder: Tara's continued to be an area, re-regularly monitor for developments in potential impacts to AGI.

Paul Householder: As of today, the current terror policies outlined that US MCA compliant products will be exempt from additional tariffs, which includes Agized Canadian-made equipment.

Paul Householder: That said, the Canadian-made steel content that goes into Canadian-made storage and permanent handling products sold into the US is currently subject to a 25% tariff.

Paul Householder: Assuming current policies and regulations remain in place, we estimate a relatively minor direct cost impact in 2025, attributable to newly imposed tariffs, and this has been factored into our outlook.

Paul Householder: Overall, caravan trade policies have been a prominent topic for global markets with the full potential impact remaining to be seen.

Paul Householder: Terrorist and Trade Policies could ultimately impact our current financial outlook, should it hamper farmer sentiment, aggregate equipment demand, and the global economy more broadly.

Paul Householder: We remain vigilant in our actively reviewing and implementing options to mitigate tariff or trade-related actions, including inventory stocking, supply chain strategies, and manufacturing options among other tactics.

Paul Householder: Now moving on to our 2025 guidance. We reiterate our outlook for 4-year 2025 guidance for adjusted EBITDA of at least 225 million.

Paul Householder: For the second quarter, we are targeting adjusted EBITDA in a range of approximately 50 to 55 million with a similar pattern to Q1 in terms of

Paul Householder: As we move into the second half of the year, we anticipate the extent of softness in our year-over-year comparisons for the farm segment to become less pronounced as the second half of 2024 experienced the initial impact of the current North America farm cyclical downturn.

Paul Householder: Through extensive engagement with our top shareholders, a topic to the surface is the analysis and understanding of the current ag cycle, and what a mid-cycle EBITDA could look like for AGI. Of course we do not know when the cycle will turn, or the pace at which a recovery will take place. [inaudible]

Paul Householder: We can make some commentary on this topic based on previous ag cycles and our current performance, which we believe are helpful for listeners who are trying to understand what an eventual recovery could look like.

Paul Householder: Based on our analysis and support from third parties, the farm segment cycle has a pronounced reset about once every 20 years, which generally lasts a few years before returning to and extending beyond the prior cycle peaks.

Paul Householder: During this period, we have and will continue to navigate the farm-saving dynamics as well as focus on growing our commercial segment.

All while implementing ongoing company-wide operational efficiency improvements.

Paul Householder: Before the reset in 2023, the farm segment cycle was peaking, and AGI was nearing $300 million in adjusted EBITDA.

Paul Householder: This was prior to the current momentum of our commercial segment growth initiatives, more recently materializing from successful execution of our differentiated strategy.

Paul Householder: As we look forward over the next few years, we expect the farm segment to fully recover and our commercial segment to grow at a steady pace.

Paul Householder: With these expectations, we would be in excess of 300 million EBITDA within our near-term planning horizon, though exact timing will depend largely on the North America farm recovery.

Paul Householder: To conclude, I want to express my gratitude to our outstanding global team who continue to drive with AGI forward each and every day.

Paul Householder: While we navigate a variety of market challenges and uncertainty, I'm energized by the teamwork, collaboration, and success we are having in executing our growth strategies, particularly for international commercial.

Jim Overtillum.

Jim Rudyk: Thank you, Paul, and good morning, everyone. Today I will touch on four areas that include a quick overview of our first quarter results, an update on key balance sheet metrics, some comments on cash flow, and a quick recap of our capital allocation priorities.

Jim Rudyk: On a consolidated basis, as expected, revenue and adjusted EBITDA were down from Q1 2025 amid challenging conditions in the North American farm market.

Jim Rudyk: This was partially offset by the momentum in our commercial segment, driven by key projects in Brazil and Amia.

Jim Rudyk: Adjusted EBITDA margins of 10.9% were down from 15.9% in Q1 2024. This is mostly due to a higher weighting of commercial revenue relative to farm.

Jim Rudyk: Cost containment on the SGNA side helped to mitigate further slippage in the Q1 2025 margin results.

Jim Rudyk: One item worth expanding on is our other segment expenses that are deducted from Adjusted Evidence, which increase to 12 million from 8 million dollars year over year largely due to the timing of certain expenses.

As a reminder, these are largely unallocated corporate costs.

Among a few other miscellaneous items.

Jim Rudyk: In the quarter, we experienced an uptick in certain legal costs as well as a decrease in other income which drove the increase.

Jim Rudyk: Going forward, the approximate level of these costs should be around $10 million on a quarterly basis.

Jim Rudyk: Moving on to our balance sheet, our net debt leverage ratio of 3.6 times was driven largely by the anticipated temporary increase in our working capital needs for our commercial segment.

Jim Rudyk: In a moment, I'll provide some further commentary on our ability to reduce working capital throughout the year, which will help improve our leverage ratio, though for 2025, our current objective is to stabilize our net debt leverage ratio in the mid-3x range.

Next, let's look at cash flow.

Jim Rudyk: On an LTM basis, our free cash flow is approximately $41 million.

Jim Rudyk: As outlined in previous calls, across 2025, free cash flow will be leveraged to support working capital requirements in the commercial segment.

Jim Rudyk: That said, we are pleased to see positive cash flow generation despite the temporary increase in working capital needs.

Jim Rudyk: We note that while $41 million is a bit lower than what we've generated in the last few years, it's still well above our free cash flow profile from four or five years ago, signaling a better balance between our investment plans and financial performance.

Another casual topic to review is connected to our growth in international commercial, particularly in Brazil.

Jim Rudyk: For large projects, where project financing is required, AGI has provided or arranged financing options for our customers.

Jim Rudyk: Last year, we were successful in monetizing receivables for our Brazilian farm business with a third party partner.

Jim Rudyk: We are actively progressing a similar structure for our commercial business in Brazil.

Jim Rudyk: This would have the benefit of reducing our working capital and improving our leverage ratio.

Jim Rudyk: We expect to have further updates on our plans in this area in the second and third quarter of this year.

Jim Rudyk: And finally, an update on our capital allocation priorities which generally remain consistent with our prior discussion.

Jim Rudyk: One area we prioritized early in the quarter was executing our share repurchase program.

In the first quarter, we repurchased $9 million in shares.

Jim Rudyk: Bringing our total repurchase program since inception late in 2024 to a total of $20 million with approximately 425,000 shares repurchased or about 2% of total shares outstanding.

Jim Rudyk: We are now reassessing further share repurchased plans as we navigate through the first half of 2025.

Jim Rudyk: Other key areas of capital spending in 2025 include operational improvements such as the ERP implementation.

Jim Rudyk: Our Capital Budget for 2025, Inc. of Maintenance, ERP, Intangibles, and Select Operational Improvement and Opportunities remains approximately $70 million.

Jim Rudyk: Importantly, and for clarity, this budget does not include the temporary working capital requirements necessary to support several of our large commercial projects.

Jim Rudyk: I'll now hand the call back to the operator and open up the lines for questions.

Jim Rudyk: Thank you. We will now begin the analyst question and answer session.

Speaker Change: To join the question queue, you may press star than one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys.

Speaker Change: To withdraw your question, please press star then two. As a reminder, please limit yourself to two questions and rejoin the queue if you have further questions.

Speaker Change: We will pause for a moment as Collars joined the queue.

The first question comes from Kyle McVee with Cornmark Securities.

Please go ahead.

Kyle McPhee: Everyone. First one from me, you know, can you guide us to our much more capital? I need to go into the working capital. They're a counter-tuel for these.

Kyle McPhee: Commercial projects that you're executing on, and you know, you've classified it as kind of long-term, not non-current account receivable because, you know, that indicates it's maybe over a year before you can monetize this topic.

Yes. Thank you, Kyle. Appreciate the question.

Kyle McPhee: So, a couple of things just as background. So, this is in response to what we're seeing as some incredible opportunities in places like Brazil and Rio, where we've been able to capitalize on the work we've been doing over the past few years to participate and win some of these large.

Kyle McPhee: Scale, Term, what we call turnkey projects. And so these are bigger in scope, bigger in nature, and some of the requirements of these projects, particularly in Brazil, are for us to help the customer from a financing perspective. Thank you.

Kyle McPhee: The financing arrangements typically are anywhere from three to five years. However, this is not

Kyle McPhee: unusual for us. So we did this last year where in the farm segment we had the same scenario where we were able to arrange a financing structure that enabled third parties to do the financing for those projects. So we expect to do the exact same thing here.

Kyle McPhee: From a timing perspective, you're talking anywhere from two to four months to have everything in place.

Kyle McPhee: And so what you'll see in our results, and you see all that's sought in Q1, is a temporary increase, particularly in our non-current receivables, and as we put in place the financing structure that will be reduced significantly.

Speaker Change: Got it. Okay. Thanks for that additional color on that. Section one for me.

Speaker Change: You know, you're benefiting from major tailwinds for the commercial side of your business, and I have two kind of questions about that. So first, how much of this is concentrated and maybe a handful of major projects that you're executing? It may not repeat next year, but it's being more widespread.

Speaker Change: You know, across a lot of activity around the globe. And then second, regardless of that answer, do you think you can still be building on top of such a strong year for commercial as you get into 2026? Like how much visibility do you have on more year-over-year growth next year? You know, commercial backlog replenishment throughout the rest of this year?

Kyle McPhee: Yeah, Kyle. Thanks for that question. We are quite pleased with the progress that we've been making on our commercial segment, particularly on the international side. It's great to see the results of the strategy that we put in place several years ago. The team has done an outstanding job. Thank you very much.

Kyle McPhee: Executing against that strategy and driving success in the growth levers that we've articulated here in the past few calls, our product transfers, emerging markets, and our growth platforms.

Kyle McPhee: When you look at the diversification of the projects that we want in the commercial space, we do have very good diversification. We continue to win what we would categorize as...

Kyle McPhee: Most notably, down in Brazil, within the past six months, we secured a number of large orders at the tail end of Q3 and across Q4, which will support our results in 2025.

Kyle McPhee: To your point, we expect to continue to be able to secure some large projects.

Kyle McPhee: complemented by a strong intake of small and medium-sized projects, which does give us a level of confidence that the progress that we've been making from the commercial standpoint will translate into 2026.

Kyle McPhee: Further to that, we are quite excited about the progress in the execution of our strategic growth platforms. All of these were identified and promoted because of our expectation that they're going to have.

Kyle McPhee: Quite a lot of runway in terms of contributing strong growth out in the foreseeable future. So even beyond 2026, we see potential and opportunity for good commercial performance out for the next two, three years and beyond. Thank you very much.

Speaker Change: Great. Appreciate all that, Carla. And I'm going to squeeze in one more just on that working capital dynamic. When you potentially monetize the commercial long-term receivable, does that feed them into your goal of keeping leverage in the mid-3s, or is that would that be an experimental benefit?

Speaker Change: Well, so what we'll see through the year, and this is not unusual. Working capital YouTube typically is a build for us in the first half of the year, and then comes down quite significantly through the back half of the year.

Speaker Change: It will be a little bit higher this year than built.

Speaker Change: through the mid-half until we put in place that financing structure and then it will drop quite significantly.

Speaker Change: The one thing that is a bit of a wild card still is the farm segment in the back after the year.

Speaker Change: To the extent that that stays where we expect, we would expect overall leverages to be down in the low threes. That's net of the financing program for these large growth opportunities.

Okay, that's it for me. Thank you.

Thanks, Kyle.

Speaker Change: The next question comes from Krista Friesen with CIBC. Please go ahead.

Krista Friesen: Hi, thanks for taking my question. I was just wondering if you can maybe walk us through how you're thinking about margins on your 225 guidance through the rest of the year.

Krista Friesen: Yeah, sure, Krista. Thanks for that question. Obviously, we've done quite a lot of work on margins over the past several years, significantly improving our overall margin performance. Thank you very much.

Krista Friesen: heading into 2025. We did expect and continue to expect that we'll see some margin pressure versus 2024 predominantly driven from next.

Krista Friesen: Our farm segment is the higher margin segment relative to commercial and as we step through the challenges in the North America farm market and see that continue to be under some pressure in 2025, we expect from a margin standpoint that to translate to AP.

Mixed headwind, grieving some margin softness.

Krista Friesen: Consistent with Ali Guided in Q4 of last year, we would expect 2025 to perform in a range of 17 to 19%.

Speaker Change: EBITDA Margin, the one build on top of that Krista that we are now monitoring is the Direct Cost Impact of Terrace.

Speaker Change: That wasn't initially in our guidance of 17 to 19 percent as of this point in time. We believe the cost impact from tariffs to be nominal and we still maintain an expectation of performance within that even a margin expectation. However, the overall tariff scenario is quite dynamic and will continue to monitor as that progresses. The tariff will continue to monitor as much as the tariff will continue to monitor as much as the tariff.

Speaker Change: Okay, great. And then maybe just on that, are there any sort of additional kind of cost optimization that you can pull on at this point in time or are we kind of where you'd like to be on that front?

Speaker Change: Yeah, thanks, Krista. You know, operational excellence remains one of our three strategic areas of focus. We do have additional opportunities going forward that we would execute on. One of them Jim mentioned a couple here briefly, Krista, one of them Jim mentioned is the implementation of our ERP system. We are making good progress on that. We expect that activity to continue through 2025 and 2026 as the implementation of ERP. We are making good progress. We are making good progress on that.

Speaker Change: He gets rolled out across our global platform. That will translate into operational efficiencies that would be visible within our cost structure.

Speaker Change: We continue to focus on quite a number of initiatives we've made outstanding progress from a manufacturing footprint consolidation standpoint. We've consolidated 15 facilities over the past three years, moving in operations into other existing facilities.

Speaker Change: There is opportunity for additional facility consolidation both within North America.

Speaker Change: And notably in India, we've mentioned several times our intention of moving forward with a manufacturing expansion and consolidation in India. That would result in five to six facilities being consolidated down into one. And so we're going to move forward with a manufacturing expansion.

Speaker Change: The final one, Krista, that I'll point out, and initiative that we've just kind of kicked off within the past six months is product rationalization across our North America, farm portfolio. This is another example of really simplifying our product offerings, which would then flow through everything from supply chain engineering to manufacturing.

Speaker Change: So there are opportunities and we continue to prioritize those to improve the efficiency and effectiveness of our operations and get to a more efficient cost structure.

Great. Thanks. I'll jump back in the queue.

Thanks for coming.

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

Gary Ho: Thanks, good morning, Paul. Just wanted to dig through your analysis on the ex-cycle.

So, as you look across your business,

Speaker Change: Maybe if you assume the mid-cycle being indexed to 100, like, what would the peak and cross-cycle be? And where are we today? I'm assuming this is the most relevant to your farm segment. Commercials should be relatively stable. And then a fall one, the 300 million that you mentioned, is that more a mid-cycle number or is that where we're looking at kind of more of a peak? Yeah, I think so.

Speaker Change: What we've seen Gary from that analysis is those two ag cycles or a typical pronounced ag cycle peak to peak can last in duration anywhere from four to six years. Gary Ho, James Rudyk, John

Speaker Change: And that typically, as you come out, you come out to a peak, an elevated peak of where you were going in. That is what we've concluded from the analysis of prior ad cycles. Obviously, not a direct indicator of what we can conclude going forward, but more of our reference.

Speaker Change: Based on our current situation, we would say that we are down in that trough portion of the cycle that's largely where the industry's expectation is that 2025 will be the trough year, and then we'll start to see some improvements in 2026. Obviously a variable and all that is the terrorist situation.

Speaker Change: So, when you talk about our expectations of the 300 million in EBITDA that we referenced in our opening comments, that would be more of a mid-cycle point in that correction, not coming all the way out to the ending peak, but what we could expect as we progress through the improvements from the trough performance.

Speaker Change: Great. That's great color. Thanks for that. And then my full-on question, just with all the tear of noise between China and US, their speculation Brazil could stand out to benefit.

Speaker Change: I wonder if you're seeing, beginning to see that on the ground, I know in the past you've identified Brazil as a key international growth driver, and I think in the earlier question you kind of talked about the quotation pipeline in Brazil, bringing pretty strong, if you can elaborate on that, that would be great.

Speaker Change: Great question, Gary. One of the things that we are very pleased with and encouraged with is the overall geographic footprint of our business. We've got very strong positions in all of the key ag geographies around the world, excluding China. It's a very strong presence across North America, Brazil, Emeia, India, Asia, Pacific. One of the things that helps us out with is managing the dynamics of...

Speaker Change: of Global Impact of the Ag Market, and more specifically, as one area may be experiencing specific challenges, that oftentimes translates into a tailwind in another region as the global Ag Supply Chain of Jusks.

Speaker Change: As China potentially shifts away from a soybean supply in the US, that could translate to an increase in soybean demand down in Brazil.

Speaker Change: We are seeing a significant amount of commercial activity in Brazil that is also supported by that potential dynamic as Brazil continues to invest in and build out the infrastructure necessary to move commodities such as corn and soybean out to ports.

Gary Ho: to support that trade activity. So not only Gary with your expectancy improvements on the farm segment, absolutely you would see improvements on the commercial segment, what we are seeing

Gary Ho: On the farm segment, we are seeing some encouraging signs. I'll be it early that we could see improvements in the second half of the year down in Brazil. The most notable one is our quotation activity, which is just about twofold of where it was this time prior year. We're still a bit early in the cycle down into in Brazil on when decisions are made and capital equipment are made. We expect that to happen within the next few months.

And we'll continue to monitor that closely.

Speaker Change: Okay, perfect. Now, thanks for those comments. Those are my two.

Yeah, you got it, Gary.

Speaker Change: The next question comes from Michael Tupholme with TV Cowan. Please go ahead.

Thank you. Good morning.

Michael.

Speaker Change: Good morning. Regarding the the farm segment, I wonder if you can talk a little bit more about dealer inventory levels and farm specifically, I guess.

Speaker Change: Where they sit now versus what would be normal for this time of year, and then perhaps you can maybe provide your thoughts on when we could see a return to normal levels.

Speaker Change: Higher inventory levels across the dealers. I would build on that microphone, just clarify. That's really an overall channel situation. We've made and we'll continue to make progress in improving the inventory position across our dealers for our product. Thank you.

Speaker Change: And when I mention our product, that's specifically our portable equipment. Our dealers no longer inventory, the permanent side, the bins and the permanent material handling. It's just a portable equipment. We continue to make progress. We ran that rebate program. And we're going to start the program.

Speaker Change: Started in Q3 prior year. We ran it through Q4 even into a little bit of Q1. That was helpful driving down inventories.

Speaker Change: We expect our inventory levels, Michael, to continue to come down across Q2 and Q3. Our ultimate goal is to have our inventory levels back at a normal point in advance of the early order program that would occur in that October , November timeframe this year. So that's what we're working towards and that is our current expectations of when we can see our inventory level return to a more normal state. [inaudible]

Grace, that's helpful. Thank you.

Speaker Change: And then I want to talk about commercial for a minute. I guess just thinking about your response to Gary's last question. They're talking about Brazil and potentially the dynamics there as it relates to reaction and response to. Thank you.

Speaker Change: Tariff and Trade Uncertainty, but I'm thinking about commercial kind of more broadly.

Speaker Change: It sounds like you're very upbeat on the outlook for that segment. I'm just wondering, you know, when you have discussions with customers, sort of at the margin, are there any customers that have expressed to you that they're getting a little bit more cautious in any way just while they're sort of navigating the current trade related uncertainties that exist right now? Yeah.

Speaker Change: Yeah, Mark Michael, the question is right on point for sure. It's something that we're paying a very close attention to given that the extremely positive momentum right now that we do have in the commercial segment. I mentioned that our pipeline is quite robust. We're currently negotiating. Thank you, Steven.

Speaker Change: Quite a number of large deals, particularly in Brazil, but across our entire international commercial statement, we're listening very closely for those type of signals.

Speaker Change: We'll continue to monitor, that's obviously subject to change as we progress through a lot of the tariff uncertainty, but at this point in time, Michael, we have not received those types of indications yet from our customers or from the market.

Okay, that's great. I will turn it over. Thank you.

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

Steve Hansen: Yeah, good morning guys, thanks for the time. I just want to circle back to the US Farm side. One of the challenges we've been hearing about with respect to US portable products in particular is the ability to pass on price.

Steve Hansen: Again, in the context of higher elevated inventories out there, and pretty volatile steel movements.

Steve Hansen: As we think about the margin profile, that is. [inaudible]

Steve Hansen: of the portable segment is you get sort of this recovery pullback, is it going to be also sort of like below normal until we get back to this normal inventory levels like how are the dynamics out there in terms of passing on steel price and the context of all this inventory. This is going to be a temporary recovery.

Steve Hansen: Yeah, great, great question, Steve. We obviously enjoy an outstanding business for our portable equipment, particularly in North America as well as global, you know, extending out to Australia. We have my leading market position.

Both in Canada and in particular, U.S.

Steve Hansen: A very strong brand and brand recognition and an outstanding dealer network that does give us good strengths and good positioning in the market. Thank you very much.

Steve Hansen: We continue to closely monitor the cost and the cost dynamics that are occurring in 2025. We have seen some inflationary pressure on our cost stack, as you note Steve, particularly on steel. We did move forward with pricing actions in Q1 relative to our portable equipment. [inaudible]

Steve Hansen: So that we can sustain margins and compensate for the cost pressures that we're seeing. We're obviously very cautious on managing price versus demand and volumes going forward. But at this point in time, we're optimistic that we will be able to hold on to our margin position across our portable equipment while we progress through the challenging market conditions.

Speaker Change: Okay, great. That's good to hear. Just wriggling back to the Brazil side again. I think I asked a similar question last quarter but the performance sounds like it continues to quite strong. [inaudible]

Speaker Change: which is encouraging. I think it's just that it is still another departure though from one of the larger competitors in the market. I'm different understand what would allow you to outperform so well down there relative to the largest peer. Is this difference in strategy, product type? I mean, how do you attribute sort of that difference in sort of performance? [inaudible]

Speaker Change: Yeah, Steve, thanks for that. We are extremely encouraged about the performance that we're seeing down in Brazil on the commercial segment, as well as Emeia, and several other parts of our international commercial business directly supported by our strategy.

Speaker Change: Just to kind of build on your point in Brazil, we did see revenues in Q1 versus prior year up over 100%, so an extremely strong result down in Brazil, that's inclusive of farm, but obviously carried.

Speaker Change: By our commercial statement, it is a direct result of our strategy.

Speaker Change: And the team that we have down there, we have an outstanding team. Our capabilities are differentiated relative to our peers, particularly our ability to successfully win and execute large, complex, turnkey projects. So we do believe this is the direct result of the strategy and decisions that we've made in capabilities that we've built over the past two plus years that have positioned us well to capitalize on the exciting market that is developing.

on the Commercial Side Down in Brazil.

Jim Rudyk: Okay, helpful. And then just real quick on for Jim, perhaps the free casual slide is helpful as our many of the new slides, frankly, in the deck. So thanks for that. I just want to get a sense for where you think the free casual conversion should trend towards here over time. I understand there's some all the working capital stuff, but where are we targeting for free casual conversion over time?

Jim Rudyk: Yeah, so we've been marching up towards a pre-castle conversion rate, seeing on how you want to look at it, if you look at adversity, but of around 30% as are what we're managing towards.

Jim Rudyk: You know, it'll be a little bit, it'll grow to that level through this year as we fund some of those large opportunities in Brazil and in America, but as we put in place the financing structures.

Jim Rudyk: We've made quite a bit of progress over the past couple of years. A lot of the one-time costs are now in the rearview mirror, and so looking forward, we have a lot of confidence to get into that 30% level on a regular basis.

Okay, very helpful. Thank you.

Thank you.

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

Andrew Wong: Hey, good morning and through to my questions. So just regarding that mid-cycle epithet guidance, can you maybe just provide some more details and the revenue that the student for farming commercial and is that using an 18 to 19% because like margin guidance?

Andrew Wong: Great question. When we look at that mid-cycle EBITDA analysis, again that was in response to a lot of excellent conversations that we've had with our shareholders to look to provide some visibility what our performance could look like as we come out of the current cycle that we're seeing in North America bar.

So, you can see from the...

Andrew Wong: Chart provided we are expecting a recovery in the North America Farm Statement complemented by continued growth in our commercial segment from a margin standpoint. Our expectation is that along with the recovery, we're going to see an experience at tailwind to margins as farm does come back being our higher margin segment. That should put us back into that 18 to 20% operating range for EBITA margins. That's currently our...

Our expectation and the potential of the business as we recover from the current North America

Andrew Wong: Okay, thank you. And then just go back to the working capital needs for some of these large projects. So I understand that at one time it's not recurring.

Andrew Wong: But I'm just kind of curious, like as you target these larger projects into the future and as you grow the business and you target larger and larger projects, like these also have larger and higher working travel requirements.

Andrew Wong: Yep, they will. You're right. The Toursill Business Working Capital needs are a little different.

in the farm side of our business needs.

Andrew Wong: But what's great about the opportunities that we're exploring, they're with extremely large, well-established customers, and what we're finding in various places around the world is that there's a lot of appetite to help in the financing of these projects. And so, to the extent that our business mix...

Andrew Wong: continues to be more heavily weighted to these opportunities. We expect to be able to participate in them and find great partners that will assist with the financing so that we can continue to invest and benefit from what we're seeing around the world right now is just upsurge.

Andrew Wong: in the build-out of the infrastructure in a lot of the countries around the world.

Speaker Change: Okay, so there's a fair for like, has that mixed, which is more towards commercial? Would your working capital requirements relative to what that mixed previously was? Is that go up as a percentage of your sales or does that?

Speaker Change: Yeah, and so it does go up in the short term, but then as we finance them, it comes back to normal expected levels. We are art. [inaudible]

Speaker Change: Our operating approach for these as we move forward is to finance the growth opportunities entirely with getting these financing programs in place so that it will not be a requirement for us to fund a lot of the customer financing requirements.

Speaker Change: So, said differently, the portion capital percentage should be trend to normal historical levels despite the mixed shift into these large commercial projects.

Hopefully now it's clear. Yeah, we got it. Thank you. Thanks.

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

Thanks very much.

Oh.

Speaker Change: Can you hear me? Yeah. All right. Let me just unmute for a second.

Speaker Change: Can we just talk a little bit about the health of the U.S. farmer currently. Obviously, this egg cycle is a little bit different than past ones given trade uncertainties. You've got cost inflation.

Speaker Change: We've got sort of a budding trade world with China and China's pretty large customer of US products. So.

I'll let you know.

Speaker Change: Can you just talk about the characteristics of the sentiment that you're seeing from US farmers on a few different aspects that I just mentioned?

Speaker Change: Yeah, a fantastic question, Tim. And then let's start with the talent of your question, the farmer sentiment. I would characterize that to him at the beginning of the year as cautiously optimistic the sentiment was that we clued.

Speaker Change: Start to see some improvements in the market towards the tail end of 2025.

Speaker Change: That was an advance of the terror of discussions. At that point in time, the farmers still were seeing some pressure on farmer income, commodity prices, corn and soybean would be the most relevant benchmarks.

Speaker Change: have remained under pressure while input costs have remained high or slightly increasing. But despite that, there was a cautious optimism to farmer sentiment in the second half of the year.

Speaker Change: Prior to tariffs, the tariff situation is certainly putting pressure on that cautious optimism and as we discuss could have an impact.

Speaker Change: Trade Dynamic for commodities and as we've noted previously soybean in particular, we're seeing some of that even play out within the most recent weeks.

Speaker Change: I'll be it early days or something that we'll have to monitor going forward. So in summary, I would put farmer sentiment at right around, cautiously optimistic with some pressure on that sentiment based on tariffs and the uncertainty that is created in the second half of the year. Farmer income still under some pressure. One of the barometers that we are watching there as a tailwind would be government subsidies. They are still a lack of clarity there.

which could improve as we step through the second half.

Speaker Change: Okay, and in terms of the portables out of the business with

Speaker Change: Healer Inventory is elevated currently. You speak a little bit about where you're.

Speaker Change: I guess, revenue for portable stance day relative to mid-cycle levels and how you expect that to...

Speaker Change: As those inventory levels at the dealers, hits normalized levels, do you see anything like a shark inflection or is that sort of a moderate improvement in sales of the portable set?

Speaker Change: They've both been under pressure over the past six months and we would expect that to continue as we work through.

Speaker Change: The AG cycle, as mentioned previously, are dealers and the channel in general does inventory portable equipment while they do not inventory permanent equipment. This is an interesting dynamic for us. It does enable us to watch very carefully the order intake of our permanent equipment as a potential leading indicator to a shift in sentiment and an improvement in demand. So that's where we would expect. The AG cycle, as mentioned previously, is a potential leading indicator of our permanent equipment as a potential leading indicator to a shift in sentiment and an improvement in demand.

Speaker Change: Improvements to Manifest First is on the permanent side which would then correlate to an improvement in our inventory and then be followed up by an increase in demand on our portable equipment.

Speaker Change: Now, how that curve looks like, in terms of recovery coming out, really can't comment on. It was a pretty sharp decline going into this ag cycle.

Speaker Change: That's not a direct indicator of what it could look like coming out of what I can say is across our operations and supply chain. We're not only staying close to the market to be very, uh,

Speaker Change: They have good visibility to these potential leading indicators, but preparing ourselves to be able to react to either scenario, whether that's a sharp increase. [inaudible]

Speaker Change: Okay, that's helpful. And then last one for me, just again on the work and capital set, is you move into these finance or third-party financing regions for commercial projects?

Speaker Change: Can you speak a little bit to potential margin impacts? I assume you'd be earning some margin on the financing portion of those contracts. So is there a negative margin impact when you move to a third party? And what's the quantum of? And what's the negative margin impact when you move to a third party?

Speaker Change: Working capital outfanding currently that you expect to move into third-party financing arrangements to the mid-perlier.

Speaker Change: So, yes, as we do finance some of these opportunities, there is a cost.

Speaker Change: However that cost is factored in as we work with the customer and build the pricing to the customer so from a margin impact perspective. Thank you.

Speaker Change: There would not be any impact from how we see the business for the year and as Paul talked about our margin expectation for the year, all that has been factored in.

Speaker Change: So we're quite comfortable with how we're pricing these opportunities and making sure that the cost of the financing has been built in with the customer.

Speaker Change: In terms of confidence level, very high level of confidence, as I mentioned earlier.

Speaker Change: These structures are things that we've done in the past. They're also primarily with vehicles that are very common in the markets that we're working in.

Speaker Change: And the customer base of ours are very, very high, strongly rated customers.

Speaker Change: So, they're very attractive with a number of financing institutions. So, we do not expect any concerns at all, as a matter of fact, that we have options that we're evaluating, and so we're,

Speaker Change: Before we rush into doing any of these, we evaluate several bids from financing parties and so the market is quite strong for these financing packages. Thank you very much.

Speaker Change: I meant more of the quantum of like the dollar value of working capital that is currently outstanding that you think you can move into these financing arrangements, just trying to get a handle on kind of what the net cash flow impact is going to be from these financing arrangements to the year.

Speaker Change: Yeah, so we'll finance significant portion of the new business that we entered into. So now it'll vary depending on the nature of the customer and the project itself.

Speaker Change: We will do some of the receivables ourselves, but the majority of it will get financed.

Speaker Change: Put these packages together and then offload it, but that's what you should be thinking about in terms of the quantum. [inaudible]

Okay, appreciate it. I'll turn it back.

Thank you.

Speaker Change: The next question comes from Maxim Sytchev with National Bank Financial. Please go ahead.

Hi, everyone.

Bye, you're back.

Speaker Change: I just had one quick follow-up in relation to what was seen in the US farmer's subsidy dynamic, because roughly if I'm wrong, so we had like an ad hoc package that was...

Speaker Change: House in December . And so what are you guys seeing on the ground right now? Is it the

Speaker Change: It's been possible to, you know, pay out those packages. Can we just maybe start to sort of, you know, provide a bit more color there so we can have better grasp on, but actually, you know, the back half of the year for far, thanks.

Speaker Change: That could roll out here in the second half would be another tailwind specifically.

Speaker Change: To your question, I think the areas that were watching specifically on the government subsidies is the timing of when they roll out as well as where and how those subsidies will be applied. Still a little bit of lack of clarity and certainty on that as we get better visibility to when they will roll out how and where they will be provided. That gives us [inaudible]

Speaker Change: An indication of what kind of pale wind that could lead to from a capital equipment purchase standpoint. So max that, that's specifically what we're watching.

Speaker Change: Okay, but I, is it fair to say that you're not accounting for those subsidies to like make up the backup of the year, or are you signing some sort of, I don't know, like 20% probability how, how again should we think about that?

Okay, that's super helpful. Thank you so much.

You got it next.

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

Paul Householder: Yeah, thanks very much. Really appreciate everybody joining the call today. We would just like to conclude with a thanks and appreciation to the outstanding performance of our global teams. The resiliency that our teams have shown over the past six to nine months with some of the challenges that we're seeing in some of our markets has been extraordinary complemented by the outstanding execution of our international and commercial teams in terms of driving our growth strategy. Really appreciate it. Team nicely done. Thank you very much.

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