Ag Growth International Weighs Growth Against Cash Strain

Ag Growth International ((TSE:AFN)) has held its Q3 earnings call. Read on for the main highlights of the call.

Ag Growth International Balances Growth with Control Issues and Cash Strain in Latest Earnings Call

Ag Growth International’s latest earnings call painted a cautiously balanced picture: solid revenue and EBITDA growth, strong momentum in its global commercial business and safety performance, and the launch of a sizable receivables monetization vehicle in Brazil were offset by margin compression, negative free cash flow, a material weakness in Brazil internal controls, and persistent softness in the North American farm market. Management emphasized that the building blocks for better liquidity and margins are being put in place, but also acknowledged that execution and timing risks, especially into 2026, remain significant.

Revenue Growth Amid Headwinds and Modest EBITDA Expansion

AGI reported consolidated revenue of $389 million for the quarter, up 9% year-over-year, with adjusted EBITDA rising 4% to $71 million. While this shows the company is still growing even in a difficult market, profitability did not keep pace with the top line. Adjusted EBITDA margin slipped to 18.2%, about 100 basis points lower than the prior year, underscoring the impact of product mix and ongoing pressure in the farm segment. Investors will likely see this as a sign that the growth story is intact, but not costless, as the company leans more heavily on large commercial projects to drive results.

Commercial Segment and Brazil Projects Power the Growth Story

The commercial segment remains the core engine of AGI’s growth, with particularly strong contributions from large-scale projects in Brazil and continued demand across the Middle East, Africa, and other emerging markets. The company’s order book stands at roughly $667 million, up slightly (around 1%) year-over-year and now more than 90% weighted to commercial projects. Commercial adjusted EBITDA margin expanded to 19.5% from 17.9%, a roughly 160-basis-point improvement that highlights the segment’s earnings power. Management pointed to a robust project pipeline and a product transfer program in Brazil as key drivers of near- and multi-year opportunity, although the concentration in large projects also increases timing risk and revenue lumpiness.

Safety Metrics Highlight Operational Discipline

Operationally, AGI continues to post improvements in safety, which management positioned as both a cultural and financial positive. The recordable incident rate fell 15% year-over-year to a new all-time low, and more than half of the company’s production facilities have now gone over a year without a lost-time accident. Continued investments in worker training, digital monitoring, and near-miss reporting underline a disciplined approach on the shop floor. While not a direct earnings driver in the short term, these safety gains support operational reliability, reduce potential disruptions, and reinforce AGI’s claims of execution discipline at a time when its large projects and control issues are under scrutiny.

Receivables Monetization Fund Targets Liquidity Relief

A major financial development is AGI’s launch of a Brazil commercial investment fund—announced with roughly $1.2 billion in capacity and reportedly since increased—to monetize long-term financing receivables tied primarily to Brazilian projects. Initial monetization occurred in Q4, with more inflows expected in early 2026. Management aims to monetize about 60–80% of eligible sales financing, a move intended to free up working capital, support deleveraging, and shift the company toward positive free cash flow. Net debt leverage held steady at 3.9x quarter-over-quarter, so the success of this vehicle will be critical to easing balance sheet strain without relying solely on operational improvements.

Efficiency Actions and ERP Rollout Seek Structural Margin Gains

AGI is pushing ahead with a range of operational efficiency measures to shore up margins longer term. Two facility consolidations in North America are nearing completion, and the company is divesting a small, non-core Canadian site with less than $10 million in revenue. Management detailed ongoing efforts around process improvement, product rationalization, and supply-chain optimization as levers to counteract margin pressure from mix and weaker end markets. On the systems side, the company’s global ERP implementation has reached a key milestone: global design is complete, the first deployment in Canada is live, and India is targeted for rollout in the first half of 2026. CapEx for 2025 is guided at about $30 million, with roughly $21 million already incurred through Q3, suggesting most of the heavy lifting is underway and benefits should increasingly show through in the coming years.

Internal Control Weakness in Brazil Casts a Shadow

Despite operational and commercial progress, governance and controls emerged as a clear concern. AGI delayed its Q3 filing to allow an extended review of its Brazil operations, which resulted in the identification of a material weakness in internal control over financial reporting related to that region. Management emphasized that remediation actions have begun, but the company’s MD&A explicitly states the weakness cannot yet be considered remediated. This admission leaves timing uncertain and introduces a cloud over the reliability of reporting from a geography that is increasingly central to AGI’s growth story. For investors, the combination of rapid Brazil expansion and a control weakness is likely to be a key risk factor to watch.

North American Farm Segment Remains a Drag

AGI’s North American farm segment continues to struggle and remains a clear drag on overall performance. Farm revenue declined in the quarter as dealer inventories for portable equipment, while somewhat improved in the second half of 2025, still sit above historical levels. Early order program results suggest that farm purchasing behavior may mirror last year’s weak performance rather than signaling a sharp rebound. Management indicated that uncertainty in the North American farm market is expected to persist into early 2026 and suggested that the trough may not be reached until sometime in 2026. This prolonged softness limits the company’s ability to offset commercial lumpiness and keeps the overall growth and margin profile more volatile.

Margin Compression and Expected Q4 Earnings Headwinds

While commercial margins expanded, the overall company margin profile deteriorated in the quarter. Adjusted EBITDA margin of 18.2% was down roughly 100 basis points year-over-year, largely due to a shift in mix toward lower-margin large commercial projects and weakness in the farm business. Looking ahead, management warned that Q4 adjusted EBITDA will be lower both sequentially and compared with the prior year. They cited ongoing market challenges, negative mix effects, and higher SG&A costs—partly due to timing and bonus expenses—as key headwinds. For investors, this sets expectations for a softer near-term earnings run-rate, even as the company’s operational projects and financing initiatives aim to set up improvement beyond 2025.

Working Capital Pressure and Negative Free Cash Flow

Working capital has become a major pressure point as AGI builds out large projects, particularly in Brazil. Long-term receivables tied to these projects rose sharply, with analysts highlighting increases of around $127 million in Q2 and $169 million in Q3. This expansion contributed to last-twelve-month free cash flow of negative $61 million and forced AGI to secure additional project financing to keep execution on track. Management is counting on the Brazil receivables monetization fund to alleviate this strain in early 2026, but until the monetization ramps, the business remains cash-hungry. The interplay between growth, cash generation, and leverage will be central to how the stock is valued over the next several quarters.

Revenue Lumpiness and Emerging Geographic Slowdowns

AGI’s increasingly commercial-heavy order book—over 90% weighted toward commercial projects—adds a layer of volatility to reported results. Large project awards translate into lumpy revenue recognition, creating quarter-to-quarter swings that can complicate trend analysis. Management also flagged slowing activity in India, particularly in rice milling, and some softening in North American commercial activity late in 2025. These pockets of slowdown, combined with the heavy reliance on big-ticket projects, introduce additional risk to delivering consistent year-over-year growth, even as the overall pipeline remains healthy.

Guidance and Outlook: Cautious Near Term, Liquidity Upside in 2026

Management’s guidance struck a cautious tone for the immediate future but underscored a more constructive outlook on liquidity heading into 2026. For the quarter just reported, AGI delivered 9% revenue growth and 4% adjusted EBITDA growth, but with a 100-basis-point margin decline, reinforcing that growth is currently coming at a cost. Management expects Q4 adjusted EBITDA to decline both sequentially and year-over-year due to soft markets, adverse mix, and elevated SG&A. North American farm weakness is expected to extend into early 2026, while commercial markets remain supportive but uneven. On the balance sheet, net debt leverage stands at 3.9x, and CapEx is pegged around $30 million for 2025. The build-up of long-term receivables has pressured free cash flow, which sits at negative $61 million over the last twelve months. However, the Brazil investment fund has begun to monetize receivables, and management expects to monetize roughly 60–80% of eligible receivables, improve working capital, support debt reduction, and pivot to positive free cash flow in 2026. Execution of that plan will be critical to the investment case.

In sum, Ag Growth International’s earnings call outlined a company with strong commercial momentum and improving operational discipline, but also with notable financial and control challenges to overcome. Revenue and commercial margins are moving in the right direction, yet the combination of farm market weakness, cash flow strain, and a material internal control weakness in Brazil tempers the growth narrative. If AGI can successfully monetize its receivables, execute its efficiency and ERP initiatives, and resolve its control issues while maintaining its commercial pipeline, the groundwork is laid for a healthier margin and liquidity profile in 2026. Until then, the stock is likely to trade on a balance of opportunity and execution risk.