Thank you for standing by. This is the conference operator. Welcome to the AGI First Quarter 2023 Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. [Operator Instructions] I would now like to turn the conference over to Paul Householder, President and CEO of AGI. Please go ahead, sir.

Good morning. Thank you, operator. And welcome everyone to AGI's first quarter 2023 results call. I'm joined today by our CFO, Jim Rudyk. On today's call, I'll provide an overview of our quarterly results and share my outlook for 2023 before passing the call over to Jim, who will review our financial results and key metrics in more detail. We will then open the call for questions. Our strong first quarter was not only a fantastic start to the year, but also continued our streak of outstanding results, making it six consecutive quarters of record results. With broad-based strength from our Farm and Commercial segments and across all geographies, we continue to see clear and consistent demand for AGI equipment, products and solutions. Along with our increased focus on operational excellence initiatives, we have been able to maintain a robust pace of organic growth, which gives us good visibility to the rest of the year. I'll start the call by providing an overview of our quarterly results and share my outlook for 2023 before passing the call over to Jim, who will review some of our financial results and key metrics in more detail. Before getting into more detail on our first quarter results, I'd like to briefly make a few comments on employee safety. Our key safety metrics continue to trend in a positive direction and have we made significant progress in reducing safety incidents, we've turned our attention to recording and studying near miss data. This helps us become more proactive in identifying risks before they become incidents. In addition, I'm pleased to announce that we recently launched our third annual safety week across AGI. This year, the team is specifically targeted on hand safety. Safety week is an excellent opportunity for our teams from around the world to collaborate on a critical aspect of our one AGI culture safety. Now turning to our first quarter results. With sales and adjusted EBITDA of $347 million and $48 million growing 19% and 16% year-over-year, we are encouraged to see sustained momentum across AGI. We continue to demonstrate success against our three corporate strategic priorities; profitable organic growth, operational excellence, and balance sheet discipline. The key KPIs we use to monitor progress of our strategic priorities are all generally trending in the right direction. For profitable growth, our growing sales and adjusted EBITDA are a positive indicator. For balance sheet discipline, a downtick in our net debt leverage ratio is an important metric we closely monitor and Jim will discuss this in a bit more depth later on this call. For operational excellence, our adjusted EBITDA margin came off slightly about 30 basis points year-over-year, which is mostly due to a temporary increase in corporate costs that includes several one-time professional fees and expenses. We expect us to normalize in the second quarter and going forward, supported by a recent initiative focused on streamlining SG&A costs across the organization. Several additional operational excellence initiatives gain traction across Q1 and will contribute favorably throughout the year. There is no change to our previously stated full year target of 100 basis points improvement in adjusted EBITDA margin or approximately 17%. Now turning to our results. Our Canada Farm and India businesses led the way for the first quarter. Canada Farm had a phenomenal first quarter and was a major contributor to the overall adjusted EBITDA growth. First quarter sales were up 88%. Adjusted EBITDA was up 124% and the order book increased 66%. We are seeing a sustained rebound off the 2021 drought, which weighed on our results through part of 2022. Permanent handling equipment has been a major source of customer demand as growers prepare for future increases in crop volume. It's also worth noting that within our Canada Farm order book, portable equipment orders have grown significantly and are at a record level for this time of year. This supports a favorable margin profile for Canada Farm through Q2 and Q3. Overall, the strong order book sets the stage for a banner 2023 year for Canada Farm with upside potential as we get further into the crop season. Along with Canada Farm, our business in India continues to be an important growth engine for AGI and was another key contributor to our first quarter results. With broad based demand for rice milling products, sales grew 19%. This led to a significant 46% increase in adjusted EBITDA as gross margins expanded to productivity efforts and pricing leverage. Exiting the quarter, the order book for India was up 6%, a solid base for continued momentum into 2023. We expect the order book to expand further incoming quarters as rice milling order intake remains robust and activity increases on recent product transfers. Favorable margins and continued market growth are also expected as we further penetrate the premium segment of the rice milling market. With regards to product transfer activity, we are pleased to announce that our operations in Bangalore are now capable of manufacturing our portable grain augers and conveyors. During the first quarter, production of these units was initiated, and we expect this new manufacturing capability in India to drive adoption of these products throughout the region. Target markets include both India and Australia. Australia has been steadily expanding with plans to further accelerate by leveraging this new production capability in India, as well as other planned initiatives. Given the tremendous growth, high caliber local management team and deep roster of product transfer opportunities, our India operations are an area we are closely evaluating for potential capacity expansion investment. Continuing with our review of other regions and businesses, once again, our US Farm business was a very meaningful contributor to AGI results. First quarter sales grew 12% driven by portable equipment demand. Pricing was relatively steady with growth coming largely from increasing volumes. The US Farm team continues to make progress on several key strategic initiatives, including strengthening our dealer network and channel partners with those relationships serving as one of the key drivers of growth within this large and strategically important market. To further support growth across our US and Canada Farm businesses, we recently completed a product transfer of a farm duty permanent material handling system from Brazil. After initial testing and market study, this product is now officially being rolled out to our dealer network in Q2. Initial orders are already surfacing in line with our expectations. This is an exciting new product offering with many innovative features that we expect to further energize our sales pipeline and order book in the quarters ahead. Our North America commercial business had a solid first quarter, sales and EBITDA up mid single digit percentage. The order book grew 13% versus last year and is up 58% versus two years ago reflective of the dramatic turnaround of the business. While the success for this team has been fantastic, we are seeing some softness in fertilizer equipment markets and demand. As part of our one AGI and operational excellence commitment, we have been completing an effort to consolidate our two US-based fertilizer equipment facilities. This will enable us to improve our cost structure, narrow the product catalog, focus sales efforts, and develop a more competitive edge in this attractive market for AGI. While North America commercial has been a leader in adopting many key one AGI principles, the journey is ongoing and we still have more room to grow. Our Brazil operation posted growth of 9% in the first quarter as we steadily gain market share. We are pleased with these results given challenging conditions in recent months. Farm customers have showed some resistance to execute projects as they adjust to a new political climate and arising interest rate environment. Farm segment activity did accelerate throughout Q1, and we expect a sequential improvement in Q2 and across the remainder of the year. As a result of some softness in Farm, we saw a significant mix towards the Commercial segment in the quarter. These commercial projects had an unusually high percentage of third-party pass-through content in Q1 leading to a downward gross margin impact. Overall, the Brazil operation has firmly adjusted EBITDA positive, with an order book up 11% in Brazil and 34% across the broader South America region. The outlook for 2023 remains bright and is further supported by the expectation of a record crop in Brazil. In addition, the team in Brazil has recently finalized the development of new dryer and storage products with key specifications tailored to this market. This will help develop the Farm segment pipeline and drives our expectation for sequential strength in Brazil results throughout 2023. On the Commercial side, the pipeline remains active and the team is working with many well-established customers know and trust AGI. Finally, the team in Brazil has developed a new manufacturing layout plan to create additional capacity and operational efficiencies, which will be implemented in the second half of 2023. This will help ensure we can accommodate the expected rise in volume throughout the rest of the year while managing our capital expenditure budget near-term as we continue our focus on balance sheet management. Our EMEA region continues to produce solid results. Sales grew 6% in the first quarter, overcoming both a challenging year-on-year comparable and a constrained operating environment from the ongoing conflict in Eastern Europe. A decrease in the EMEA order book is reflective of the completion of some large projects. Our focus remains squarely on building the order book in regions outside of Eastern Europe in addition to capitalizing on recent product transfers such as fertilizer equipment. Encouragingly, we continue to see strength across the Middle East supported by recent orders and new customer relationships. As we strengthen our relationships with these customers and increase our market activity across the Middle East, we see a broader investment cycle coming together. Through our recent moves, we are well positioned to capture additional opportunities and accelerate pipeline activity in this key region. Moving onto our food business, which as a reminder is now part of the Commercial segment from a financial reporting perspective. As expected, results are retrenching as anchor customers pause their spending following a multi-year phase of major investment. Recently our food platform began a deep integration and unification effort similar to the process at North America Commercial successfully completed over recent years. The new organizational structure developed for our global food platform includes key leaders from our North America Commercial business who bring valuable insights, learnings, and experiences from the prior transformation. This will help accelerate the food transformation and make the path to success shorter. While advancing the plan around food unification, the critical near term focus for 2023 is to strengthen our order book and diversify the customer base within this large and extremely exciting global platform. We are pleased to announce that these efforts have yielded early project wins with new and large customers, consistent and supportive of our short to medium range plan for the food business. While this unification effort will take a bit of time, the process is underway to execute a performance turnaround similar to our North America Commercial business. And finally, a few comments on our digital business. Our overall near term objective remains to right size the cost structure while also positioning for growth by narrowing the collective focus of the digital team on core products with the highest growth potential. I'm pleased to share that the comprehensive reorganization initiated in January is having the intended impact. First quarter sales grew 17% with notable gross margin improvement. The extensive restructuring efforts have drastically reduced the negative adjusted EBITDA drag. Q1 was marked with great progress, though it is still early days in the effort. Further actions were recently implemented in Q2 to help accelerate the path to breakeven EBITDA for this business. An objective we believe is achievable by early 2024, which will be a major accomplishment for the team. We are excited to start off 2023 with an excellent first quarter, and it's clear that the focus around our three key strategic priorities is helping drive progress and results. Our KPIs across the organization point to a strong setup for 2023, and as a result, we have increased our full year adjusted EBITDA guidance. We look forward to another record year and I'd like to thank all our employees, customers, suppliers, and partners for their contributions to the first quarter and going forward. I'd like to now hand the call over to Jim for further commentary on our Q1 performance.

Thank you, Paul and hello, everyone. For this call, I'd like to address four areas, including an overview of our first quarter results, an update on our balance sheet and related key metrics, a few comments on our cash flow, and finally an update to outlook and guidance for the year. In the first quarter, our Farm segment delivered $182 million in sales, growing 21% year-over-year. Adjusted EBITDA of $38 million grew 34% year-over-year with margins expanding 200 basis points to 21.1%. Growth in Canada and Australia, coupled with steady contributions from the US, drove the Q1 result. In the Commercial segment, sales of $165 million grew 17% over prior year. Adjusted EBITDA of $22 million grew 10% year-over-year with margin softening about 80 basis points, mostly on a shift in mix from commercial within Brazil as Paul outlined in his earlier remarks. The increase in other which represents general corporate costs was up about $5 million or 68% year-on-year and includes several one-time costs that we expect to normalize out overcoming quarters. The impact on several SG&A efficiency initiatives already underway will help us steadily lower SG&A as a percentage of sales as we move through 2023. As Paul mentioned, the digital restructuring and food platform unification are two key initiatives supportive of expected SG&A improvements. In addition, as the setup of our Chicago facility is well progressed, we are addressing redundant costs that were important for knowledge transfer from our facilities to the central office. This process was initiated in Q1 and will continue through coming quarters. One other housekeeping item, many of you may have noticed the change in terminology from backlog to order book. This is a straightforward update to how we reference our committed orders. There is no difference to the calculation, but we believe that for AGI, the term order book is more easily understood than backlog. Moving onto our balance sheet. We continue to make meaningful progress in our leverage ratios and working capital metrics, key indicators for the structural improvements across the strategic priority. Working capital investment is a critical element of our operational efficiency and balance sheet improvement focus. Our net investment of $191 million in the first quarter was down from $226 million year-over-year, a strong result considering this was achieved in tandem with growing sales. As a percentage of sales, working capital investment fell from 19% to 14% year-over-year on an annualized basis. Significantly less incremental working capital investment was required sequentially from Q4 2022 to Q1 2023 relative to Q4 2021 to Q1 2022 last year, despite strong growth in sales. This is a clear signal that our initiatives and commitment to operational excellence are taking hold. A key contributor to this result has been our focus on inventory and DSI, or day sales in inventory metrics, which we are managing closely on a facility by facility basis by leveraging our new centralized corporate resources in Chicago, promoting greater coordination and collaboration across facilities. While we are encouraged by our results, we expect more progress on this front through the rest of 2023. From a balance sheet perspective, our KPIs continue to trend positively. While we did make a relatively small draw on our revolving credit line in Q1, we note that the sequential increase in senior facilities of $28 million is down significantly from an $86 million increase in Q1 last year. Nevertheless, our net debt leverage ratio was 3.6 times in Q1. This is a significant improvement from 5.2 times year-over-year and 3.7 times sequentially. We are on track to achieve our previously stated target of getting this metric towards the low threes by the end of 2023. Longer term, the steady state leverage ratio target remains 2.5 times. I'm particularly proud of the progress made in these high impact areas while achieving another record Q1 sales and adjusted EBITDA result. From a cash flow perspective, Q1 delivered strong funds from operations of $21 million, slightly offset by higher non-operating costs, such as interest in taxes. Our funds from operations calculation typically excludes changes in networking capital, and if we were to include this, the result from the first quarter shows significant improvement year-over-year. And finally, turning to our outlook. We remain excited about 2023 performance supported by our order book up 7% year-over-year and up more than 25% versus two years ago. We are encouraged the order book continues to grow despite a few pockets where we are rebuilding the pipeline, such as in EMEA and our Food segment. Given the strong Q1 result and our favorable outlook for the year, we are raising our full year 2023 adjusted EBITDA guidance to be at least $265 million up from at least $260 million. Thank you for your time, and we'll now open up the call for questions.

Thank you. We'll now begin the analyst question-and-answer session. [Operator Instructions] The first question is from Jacob Bout from CIBC. Please go ahead.

Good morning.

Good morning.

Sounds like you're still comfortable achieving the 17% EBITDA margins in 2023. Maybe just talk through how mix impacts this outlook. I know you're talking about US permanent being a little stronger in second half of this year, but that would be lower margin for a seasonally strong quarter, at least in the third quarter anyway. So, maybe just talk us through though.

Yeah. Sure, Jacob. Thanks for the question and absolutely we're still confident in the guidance of 17% EBITDA margin for the full year. You are correct. We're expecting an uptick in the permanent business related to Farm, particularly in US Farm. That's actually quite encouraging. We've seen the pipeline and the order book increase on the permanent side across Q1. What we have, as a tailwind helping our margin projections is we expect our portable margins to continue to improve in the second half of the year, which is supported by efforts to increase throughput at our portable manufacturing facility. Part of our operational excellent focus, get more throughput out of that facility while still maintaining a consistent cost basis. So we do see some tailwinds on a margin perspective, both in portable and permanent that will work to offset that mix shift to the lower margin permanent business, while still providing us some margin gains.

Okay. And then maybe my second question here, these third-party sales in in Brazil have any impact in commercial margins in in the quarter. Does that continue into the second quarter? And then, what percentage of your product line can you produce in Brazil, and how has that changed over time? And what does that look like going forward?

Yeah. No, perfect question, Jacob. The first part of the question, the third-party sales that were part of that mix shift in commercial, putting some pressure on our margins, we do see this normalizing quite quickly in Q2, and then beyond, so that pressure that we saw on margins down in Brazil, we see that trending in a positive direction going forward. In terms of the amount of the product that we produce in Brazil, for the commercial side of the business, it is typically a quite high percentage. It might be in a 70% range or higher on a typical project. There are projects where the customer wants us to take on a broader scope and serve as that overall project manager providing full solutions to their requirements. In those cases, we do bring a little bit more third-party scope into the project so that we're managing the entire thing for the customer. So, it's a little bit project by project, but on a normal basis, the majority of the equipment for these commercial projects, we do manufacture ourselves locally in Brazil.

Could you get that to something close to 100%?

There's probably always going to be the opportunity where we provide some third-party services to the customer. It could be some construction related services. We don't have an intention of getting into the broad construction business within Brazil -- in Brazil, Jacob. Another thing to keep in mind is just the geographic coverage that exists in Brazil, and we're fortunate to be covering customers across a very wide region. So, there's always going to be cases where the customer would like us to pick up some third-party costs related to construction that's in the region. That's just not practical for AGI to do that ourselves.

Helpful. Thank you.

You got it, Jacob.

Next question is from Steve Hansen from Raymond James. Please go ahead.

Yes, good morning, guys. Thanks for the time. Maybe just staying on the Brazil topic, you referenced, I believe some challenges in the Farm segment that had to do with higher interest rates and I guess an expected shift towards more commercial work down there. Is that a trend that you think lasts through the balance of the year? Is it relatively short-term integration? How are you sort of seeing that split between the two and markets down in Brazil at the moment?

Yeah. Thanks Steve. We continue to be excited about the business in Brazil and obviously operating it in Brazil, it is a -- there is a lot of variability in that environment, and so we did see a little bit of a shift more towards commercial and farm in the first quarter as you point out. We see that normal -- actually pretty quickly already started in Q2. There was some softness in the farmer's sentiment in Q1. They were a little bit hesitant to make some decisions, some purchasing decisions on farm related equipment that reverse that, that that trend improved towards the tail end of Q1 and continues in a favorable direction in Q2. So, we see farm strengthening sequentially throughout the year, putting that mix of farm, commercial back to more historical levels. That's all supported by an expected very strong crop. In Brazil conditions continue to be good. The harvest is going to be high from a volume standpoint. So, there's a compelling motivation for farmers to invest in AGI equipment and to put more storage capacity on their farms.

Okay. That's helpful. Thank you. And then in your opening remarks, Paul, you referenced the number of, I'll call them projects, sufficient projects optimization and product transfer underway. And in particular on the product transfer side, it sounds like you've had some good success in India in particular, and you're now evaluating some capacity investment. Would you describe the India product transfer as the most that's successful thus far, the most exciting? You interestingly referenced one moving almost reversed into North America as well. I'm just trying to get a sense for where you've had the best success with this product transfer concept. Thanks.

Yeah. For sure, Steve. I mean, historically, we were very excited about the product transfers that we completed, actually a couple of years ago when we transferred enclosed belt technology down to Brazil, that proved to be extremely successful, but more near term, you highlighted two important ones for AGI. Establishing portable manufacturing capacity in India is going to be key to us growing India outside of our traditional rice milling business, as well as supporting portable opportunities across the greater Asia-Pacific region. But we are very excited about the capability that we've added in North America supporting our US and Canada Farm business, transferring up that farm duty permanent material handling product line from Brazil. This was a product gap for us. Adding this to our portfolio creates a lot of opportunity for us to continue to grow these two important businesses for AGI, and in concert works to strengthen our channel partners as we're able to offer that full portfolio of ADI products to give them the products that they need to serve their ultimate customers. The sea line is the product that we refer to that permanent -- farm duty permanent handling product that is out in front of the portable equipment down in India. So, we're already seeing that sea line activity enter into our order book, and commercial activity increase. And we're optimistic that that's going to continue through the second half of 2023.

Appreciate the time. Thanks.

The next question is from Michael Doumet from Scotiabank. Please go ahead.

Hey, good morning guys.

Good morning, Michael.

Morning there. There's not much you can control in this world except, maybe your SG&A. So, I wanted to dig in a little bit about that. Just wondering if you can break out first what you would qualify some of the temporary costs in Q1. And then also wanted to get a sense for whether you believe the $73 million, $74 million of SG&A in Q4 and Q1 represents potentially a high watermark for the year given -- again, given the one-time items. And again, what I'm trying to gather at presumably others is trying to triangulate what's embedded in the 2023 EBITDA guide in terms of just revenue and gross margin expectations.

Yeah. Thanks Michael. Appreciate the question. So for -- so the first question, getting you some context of some of these costs, and there's really two buckets to talk about. First of all, and most significantly is costs that I would call redundant costs that we've been incurring due to some of the initiatives we've been managing in terms of the food unification project, the digital restructuring, and some of our centralization efforts. What we've consciously done is made sure that we take our time as we transfer the knowledge to a centralized groups, we just don't want to make sure we foolishly cut some of the other areas that we're doing some of the work. And so there's going to be a brief period of overlap of those costs. So I will call those redundant costs. That's the bulk of the reason for the increase. But in addition to that, there were also some smaller one-time costs, some minor amounts, mostly related to some legal and in insurance areas, but not overly the -- not the majority of those costs in the quarter. Secondly, I think your second part was on, thoughts for the rest of the year. Can you take Q1 and just run it through the rest of the year? No, you cannot. So, our initiatives as we focus on the centralization efforts and operational excellence will mean that our SG&A costs will come down through the year. So, you can't just take the seven -- the number we reported and multiply it by four. So, if you look at overall our guidance that we've given from an EBITDA margin perspective, that's going to come from two areas. One is from improvements in SG&A. So we expect SG&A as a percentage of sales to be lower than the prior year, but also some gross margin improvement as well. So, overall, just -- I know it looks in Q1 higher in terms of SG&A, but it's right on track what we expected, as a matter of fact, better than what we expected, and that's why we raised guidance.

Got it. Okay. And then just thinking about the cadence of the decline potentially in SG&A and again, I think if I look at your guidance, Jim applies plus $25 million of EBITDA growth from Q2 to Q4. Just trying to think about the cadence, and how to better model, I guess, the upcoming quarters.

Well, so, traditionally, Q1 is always our lowest quarter in terms of sales. Q2 and Q3 are strongest. And then, Q4 is in between Q1 and Q2 type thing. So, you will see notable upticks in terms of our EBITDA margins through Q2 and Q3 as well as even Q4 this year. Q1 is always a struggle, because it is the lowest in terms of sales, and of course, in a growing business as we continue to make investments, you feel the impact mostly in Q1.

Got it. Those are my two. Thanks guys.

Thanks Michael.

Next question is from Gary Ho from Desjardins. Please go ahead.

Thanks. Good morning. Just maybe a high level question first. Just on the plus $5 million guidance change versus two months ago, if you can highlight maybe two or three areas that drove that guidance higher, whether that's Canada Farm or better efficiencies from your ongoing centralization initiatives or whatnot.

Yeah. Thanks for the question, Gary. And as Jim highlighted, we continue to gain visibility on the remainder of the year order book strong, up 7%. So it put us in a good condition, good position coming off of strong Q1 to raise the guidance. There's a number of pockets of strength in the business that supported that guidance. We're encouraged around our North America business just in general, that represents the significant part of our total EBITDA contribution. Canada Farm was really strong out of the gates, and the outlook continues to be favorable both across permanent and portable. We're noting that it's a little bit of a slow start to the growing season, as the soil conditions were still a bit cold. Outlook remains positive. As we start to get a look at the crop in Canada, we're optimistic that there could be even an upside to our Canada Farm business going forward. And the sentiment in the US continues to improve, good indications of the crop. Our permanent side of the business has improved through Q1, and now into Q2, which is coupled up with very strong portable business. So, we're optimistic about the US Farm and the North America Commercial continues strong performance off the turnaround that we completed a couple of years ago. So, I think strength across North America Commercial combined with continued growth on international supports our increased guidance, and our excitement about 2023.

Okay. And then my second question, hopefully you can -- maybe elaborate on where you stand your centralization efforts, particularly on purchasing of procurement or supply chain management. Are you seeing the expected benefits for more consolidated purchasing decisions, folks steel buying, et cetera?

Yeah. Thanks Gary. We're very encouraged with the functional capabilities that were established across 2022, as we stepped through that centralization effort. Now, obviously, as Jim highlighted, we on purpose carried some redundancy in our cost structure so that we could complete that important knowledge transfer and reach a business stabilization, which we feel we achieved at the end of 2022. Efforts to -- have that organization lead our operational excellence focus, continues to prove out quite well. We're encouraged with the initiatives that we have both within the supply chain as well as in manufacturing. And I can highlight just a couple. On the manufacturing side, you heard me comment earlier, one of our areas of focus is to drive a higher throughput in our portable manufacturing facility. This increased production combined with managing our cost leads to a net-net improvement on a productivity basis. And that area is particularly important just given the strong demand that we have for portable equipment globally. We're quite confident that as many units as we can produce out of that plant is going to quickly translate into sales. And then from the supply chain standpoint, absolutely, we've made strong improvements in streamlining our supply base, strengthening our partnership with key suppliers, and then net-net lowering our input cost into our business. Now, as this isn't the front end -- this activity is at the front end of our supply chain, it takes a little bit of time for that benefit to kind of work its way all the way through manufacturing into finished goods, and out to our customers. So, we expect the benefit from that excellent supply chain work in the partnership with our suppliers to be more visible in the P&L in the second half of the year.

Okay. That's helpful. Thank you very much.

Sure thing, Gary.

Next question is from Tim Monachello from ATB Capital Markets. Please go ahead.

Good morning, everyone.

Hey, Tim.

Just a few follow ups to Steve’s questions on Brazil there. So it sounds like the back half is expected to be very strong. Like you mentioned that the manufacturing layout is being changed to be able to absorb the demand that you're expecting in the second half. There's some sentiment weakness in in the first half. When do you expect to start to see positive year-over-year comps in Brazil?

Positive year-over-year comps in Brazil?

Yeah.

Yeah. So, you can look at Q1, and we were up 9% sales versus prior year. So, in that aspect, we did have a positive comp. Obviously, we had some pressure on the margins as Jim outlined from a mixed shift on the commercial basis. But we see that improving towards second half of the year. We're encouraged to see the Farm -- a sentiment improve and the order intake improve. So we expect Farm will improve sequentially. So you are right, Tim. We are expecting a strong second half to the year in Brazil, and we're confident that net-net we're going to maintain positive comps particularly by the end of the year in Brazil with 2023 being improved performance over 2022.

Okay. Sorry. I should have been more specific. I was meant Brazil Farm was down pretty significantly year-over-year. You mentioned some sentiment headwinds. I don't know if that was interest rates or the election. I'm not sure it matters all that much. It sounds like it's reversing. So, do you expect to see that demand inflection in the Farm segment as well as the Commercial segment, or are you expecting Farm to be down, I guess for a little out year on year-over-year business?

Good clarification, Tim. So, yeah, we expect Farm is going to improve through Q2. And we've got just a little bit of visibility at this point into the second half of the year, but with the very strong anticipated crops, our expectation is that the Farm will be strong in the second half of the year. And specifically to your question, we expect Farm to have a favorable comp in 2023 to 2022. Q2 will represent sequential improvement, and then, we're anticipating further strength in Q3 and Q4 in the Farm segment.

Okay. So, assuming that the blink in Q1 in Farm is just sort of a speed bump, and then alluding to the fact that you're increasing capacity in the manufacturing facility, can you speak to how much capacity you have for growth in Brazil and the potential capital outlays that you might need to fulfill demand over the next couple years in Brazil?

Yeah. For sure, Tim. And this is an exciting part of our business in that we've had such significant growth over the past three or four years, not only in Brazil, but as well as India and across North America Commercial. So as we get into the tail end of 2023 and into 2024, we have some exciting opportunities to evaluate for more step change investments to support growth from both a manufacturing capacity as well as a capability standpoint. Specific to your question, in Brazil, we have the capacity that we need to support 2023, particularly giving some of the efficiency improvements that we are making from the manufacturing standpoint that we highlighted in the call. As we get into 2024 and we've got greater visibility to the ongoing growth in Brazil, that would put us in a position where we would evaluate, making a more meaningful investment in capacity to support further growth. All of that planning fits very well with our current focus on our balance sheet and driving down the debt levels as Jim mentioned, all that will position us quite well to make some strategic investments and capacity more into 2024. We have the capacity that we need for 2023.

Okay. And then if I might just sneak one more in. I just wanted to ask a little bit more on the product transfers. Even moving through that strategy a little bit, I'm wondering if there's any learnings that you've run into with the product transfers you're working on. And if you have incremental visibility to product transfers and the -- yeah, look for that strategy longer term now?

Yeah. Thanks for the question, Tim. And I'll hit this one pretty quickly. In terms of learnings, absolutely. We have learnings each time that we go through a product transfer. So, the important part is that we formally capture these learnings. We feed them back to the team. We're honing our process. Our longer term expectation is that this will be a core competency for us and a key strength as our product transfer strategy and expectations are fairly robust and will be a multi-year plan. So yes, absolutely we're learning. And in terms of kind of where we're really right in line with our expectations. This is going to be a lengthy process. There's significant opportunity. We're excited where we're at this point in time.

Okay. Thanks Paul.

You got it, Tim.

Next question is from Andrew Wong from RBC Capital Markets. Please go ahead.

Hey, good morning. So just looking at the order book, Farm is up 25% year-over-year. Commercial is down a little bit. I guess, first, do you expect that divergence to normalize through the year, or is that a trend that we expect to see continue? And then just secondly, how much does that help lift your margins? You've kind of alluded to it a little bit previously, just wondering if you can help quantify that. Thanks.

Yeah. Thanks Andrew. Andrew, obviously, noted correctly, our commercial order book is slightly down, while Farm is extremely strong. We expect our Farm order book to continue to remain strong throughout the year as conditions are actually quite favorable as you look around our various businesses and geography. The commercial order book is down. It's predominantly down based on foods. As we noted, foods is now part of our Commercial segment. That is a big driver for the downward trajection on Commercial, as well as a little bit in EMEA. We expect food's order book to remain down for at least the first half of this year, and then starting to improve into the second half of the year. So we do expect a steady improvement in the commercial order book, but it will continue to be weighted down slightly from the foods business. Overall, the outlook for Commercial is quite strong. It's important to note that our India business falls into the commercial side, a great start to the year for India. The outlook looks favorable, and we continue to see plenty of opportunities to grow our business in India. So, India as well as improvements in Brazil will help that commercial order book improve going forward.

And in terms of margin lift from that mix shift?

Yeah. So, Farm is obviously higher margins than Commercial. So the fact that Farm is favorable supports our margin projections going forward. And then on Commercial, we see our margins improving and that improvement will really be driven two factors. One, the normalization of the mix that we saw down in Brazil from the third-party equipment that will provide some uplift to our Commercial segment margins. And then as well, the SG&A improvement that Jim noted, those will have a favorable impact on our commercial margin. So, a couple of tailwinds in the Commercial side from a margin perspective going forward.

Okay. And then just question for Jim on the working cap, also gets -- on track, so good job on that. Just wondering when you expect to achieve your 10% to 12% target, as working cap as a percentage of sales, and can you just talk about any expectations on the absolute number for your working capital cash flow needs this year. Thanks.

Yeah. So, the 10% to 12%, as you saw in the first quarter, dramatic improvement from 19% to 14%, which will help us get to that 10% to 12% much sooner than we expected. 10% to 12% is more an annualized number. You will have some variability in some of the quarters, particularly Q1 and Q2, where there's a lot of pressure to grow our working capital. However, despite the growth that we've had, we've been able to manage that quite nicely. In terms of an absolute number, I think, a couple of data points. Last year in H2, we were able to paydown $110 million of senior debt. This year we got off to a great start where our borrowing needs was significantly lower than last year, $26 million versus $86 million. And so, if you think about those two factors, we will fairly feel very good, continue the momentum in improving our working capital needs, meaning that it will not grow as quickly as our sales, which will just add more favorably to our ability to paydown debt, giving us a ton of confidence in our ability to get to our stated leverage ratio.

Okay. Thanks.

The next question is from Matthew Weekes from IA Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. I'm just wondering how you're thinking about the macro economic outlook at this point, and maybe if there's any kind of risk to the business there, thinking about tighter credit markets, higher interest rates for farmers and also grain prices and kind of benchmarks globally have come off a little bit? Just thinking about how you see that maybe impacting demand in different areas of the business. Thanks.

Yeah. Thanks Matthew. And for sure, you're pointing out some very important macro conditions that we watch, credit interest rates. We commented how that had an impact on our farm business down in Brazil. Grain prices, we continue to monitor. We are seeing fluctuations in some of the grain prices across our different regions. So there are quite a lot of macroeconomic conditions that we watch closely. And some of these could have short-term impacts on our business. What we're encouraged by is the overall strength of AGI, the diversification that we have, both from a geographic standpoint, as well as a market segment standpoint. And we continue to see this diversification provide us an opportunity to overcome and ride through any pressure from a macroeconomic standpoint, supported by just strong fundamentals in Farm segment globally. So, yes, we keep a very close eye on these macroeconomic conditions. They could have impacts in various parts of our business on our short-term basis. But our balance and our diversification across the company leads to a very exciting and favorable outlook.

Okay. Thanks. I appreciate the commentary. I'll turn it back.

Thanks Matthew.

Next question is from Steve Hansen from Raymond James. Please go ahead.

Yeah. Thanks for the follow up. Paul, I think in your optimization efforts, you referenced earlier consolidation of your fertilizer equipment plants, and the narrowing even I think of the product set. Is that something we should expect more broadly? I mean, as you look at the platform that you've got here across multiple continents, across multiple spaces, is there an ability to further optimize your base plant footprint and narrow the product set to improve velocity and margins? Thanks.

Yeah. Thanks Steve. And taking a look at our business from that standpoint, where are there opportunities for us to improve our facility footprint, our manufacturing capabilities, has been an ongoing effort for us to drive, say operational improvements. We are stepping through a consolidation of the two fertilizer plant. That effort is nearly done. So, we expect benefits from that to be visible in the second half of the year. We've actually been doing this for quite some time. This consolidation represents I think the sixth facility consolidation that we have completed over the past two to three years. And we do see opportunities for further facility consolidation going forward. So, yeah, that is part of our strategic planning and it is part of our multi-year view on optimizing our manufacturing footprint.

Helpful. Thank you.

Dorsey?

This concludes the question-and-answer session. I'd like to turn the conference back over to Paul Householder for any closing remarks. End of Q&A:

Thanks very much. And just want to close by saying congratulations to the AGI team on another great quarter. And thanks everyone for calling in this morning. Appreciate the clarifying questions. Thanks very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.