Good morning and welcome to the AGCO Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead.

Thanks Anthony and good morning. Welcome to those of you joining us for AGCO’s fourth quarter 2022 earnings conference call. We will refer to a slide presentation this morning that’s posted on our website at www.agcocorp.com. The non-GAAP measures used in that presentation are reconciled to GAAP metrics in the appendix of that presentation. We will also make forward-looking statements this morning on our call with respect to demand, product development and capital expenditure plans, production levels, engineering expense, exchange rates, pricing, share repurchases, dividends, interest rates, future commodity prices, crop production, supply chain disruption, inflation, component delivery, sales, margins, earnings, cash flow, tax rates and other financial metrics. We wish to caution you that these statements are predictions and that actual events may differ materially. We refer you to the periodic reports that we file from time-to-time with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2021. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. These factors include, but are not limited to, adverse developments in the agricultural industry, including those resulting from COVID-19, such as plant closings, workforce availability and product demand. They also include supply chain disruption, weather, exchange rate volatility, commodity prices and changes in product demand. We disclaim any obligation to update any forward-looking statements except as required by law. A replay of this call will be available on our corporate website later today. On the call with me this morning are Eric Hansotia, our Chairman, President and Chief Executive Officer; and Damon Audia, our Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead.

Thanks, Greg. Good morning. It’s great to be with you. We finished 2022 incredibly well from both an operational and financial perspective. But before we get into those details, I want to start with a quick recap of the Investor Day we hosted in December. Those of you that attended will recognize this slide from that meeting. It’s the foundation of our strategy all in one page. The purpose, vision and overarching strategy we laid out at the 2021 investor meeting haven’t changed. We are concentrated on delivering farmer-focused solutions to sustainably feed our world. These solutions are more than machinery. They are all about the data, technology, connectivity and digital solutions around the machines. Sustainability is also key to who we are. It weaves through our day-to-day activities and is a cornerstone of our strategy. Finally, feeding the world energizes our purpose. While our strategy hasn’t changed, we are doubling down on our key strategic initiatives, growing faster than the market, optimizing our business and fostering a culture that enables success. We have raised the bar on our technology commitments and our financial performance, particularly in our operating margin performance. You will see that as we move to our fourth quarter results. This focus is already paying off in terms of strong top line growth and a very healthy margin expansion. Slide 4 highlights our great finish to 2022. We posted a record fourth quarter and full year in terms of sales, operating margin and earnings. I would like to deeply thank AGCO’s 25,000 employees for their hard work that resulted in the world class support for our farmer customers throughout this challenging year. These efforts helped deliver fourth quarter sales growth of 24%, with adjusted operating margins expanding by 340 basis points to 12%. For the full year,…

Thank you, Eric and good morning everyone. I will start on Slide 10 with an overview of AGCO’s regional net sales performance for the fourth quarter and the full year. Net sales were up approximately 33% in the quarter compared to the strong fourth quarter of 2021 when excluding the negative effects of currency translation. Pricing in the quarter, which was around 13% contributed to higher sales, along with strong growth in high horsepower tractors, combines and precision ag products. By region, the Europe/Middle East segment reported an increase in net sales in the fourth quarter of approximately 38%, excluding the negative effect of currency translation compared to the prior year. The increase in sales was the result of solid execution of product deliveries, coupled with favorable pricing and strong retail demand in Germany, France and Turkey. In South America, net sales in the fourth quarter grew approximately 58% year-over-year, excluding favorable currency translation, driven by significant pricing as well as increased volume and positive mix. Sales were up strongly across the South American markets with high horsepower tractors and combines showing the largest increases. Net sales in North America increased approximately 23%, excluding the unfavorable impact of currency translation compared to the fourth quarter of 2021. The increase resulted from higher sales of large tractors, Precision Planting products and combines as well as strong year-over-year price increases. On a constant currency basis, net sales in our Asia/Pacific/Africa segment decreased about 15% compared to the fourth quarter of 2021. Delays of shipments from our European factories resulted in lower sales across the Asia/Pacific/Africa markets relative to the strong fourth quarter last year. Finally, consolidated replacement parts sales were approximately $366 million for the fourth quarter, approximately flat year-over-year. Unfavorable currency effects were around 10% during the fourth quarter. Turning to…

Thanks, Damon. [Operator Instructions] Anthony, with that, please get us started.

[Operator Instructions] Our first question will come from Jamie Cook with Credit Suisse. You may now go ahead.

Good morning, and congrats on a nice quarter. I guess my first question, just South America, I don’t think I’ve ever seen a 20% margin for you guys in South America. But just as we think about the margin performance that you put up in 2022, how much is sort of structural or related to increased sales of Fendt or aftermarket or Precision Ag versus just pricing power? And I’m just wondering how I think about the margins longer-term, just given the strength you guys have seen in 2022. And then my second question, again, strong margin performance. What parts of the portfolio are underperforming, if any? Perhaps GSI, can you help us with where GSI margins ended this year versus the opportunity going forward? Thank you.

Yes. Sure, Jamie. So if we look at South America, your first point, as we’ve said for the last couple of quarters now, the margins have been exceptional and really twofold. One has been the structural improvements that we’ve made in South America over the last several years to really move to the higher horsepower type tractors, introducing Fendt there, and that has created some structural differences to our overall operating performance. That, coupled with probably the strongest end market that we have right now around the world, is really catering to stronger pricing. So like you said, the 20% in the quarter was exceptional. As we tried to guide, we do think margins will come down a little bit here in 2023 as our pricing, our team down there has done a really good job in pricing in advance of material costs rising. So we know that will come down. What we would say is longer term we do expect to see South America structurally different and sort of in that low to mid-teens for the long-term. So again, a lot of improvement over the past couple of years, but we’re at sort of a high point, and we continue to expect to see that at least for the foreseeable future but a little bit lower as we move into 2023. To your second part of your question on some of the underperforming areas, I think we would say the grain and protein group did struggle a little bit relative to what we were expecting. It was sort of challenged by a couple of things in the start of the year with the steel prices really affected here in North America. We dealt with the cyber event, as you recall, in the second quarter, which really put incremental pressure on grain and protein here in North America. And then the Asia-Pacific part of grain and protein was really challenged by the challenges in China with the COVID lockdowns affecting a lot of the business there. So those two parts of grain and protein, I would say, were below what we were hoping. South America grain and protein did quite well, was a contributor there. We’ve taken some structural actions, as you know, to really improve that business. We’ve done some factory closures. We’ve added some technology-type acquisitions as part of that portfolio. So as we move into ‘23, we are expecting it to improve profitability. It was profitable here in 2022, I would say, low single digits, but again, overall profitable business with a big improvement or a bigger improvement expected here in 2023.

Thank you very much. I will get back in queue.

Our next question will come from Tami Zakaria with JPMorgan. You may now go ahead.

Hi, thanks. This is Sean McMullen on for Tami. Last quarter, I think you mentioned around $300 million of sales that got pushed into 4Q. Can you just provide an update on where kind of red-tag units stand today and whether that all got worked through at year-end? And then also in your prepared remarks, you mentioned the mix shipments in APA. Can you provide just some quantification or details on whether that all kind of gets delivered in 1Q?

Yes, Sean. So I think the team did a really good job in working through the semi-finished inventory around the world. Asia – I’d say Europe did an exceptional job where very little, if any, left over there. I’d say the one region where we still have a little bit of semi-finished inventory was here in North America. And again, that was driven more by some supply challenges. As things are getting better, there are still one or two suppliers that pop up. And so we had a little bit of semi-finished inventory here in North America. But overall, the teams around the world did a very good job. My comment about the in-transit inventory again, as we work through some of the products, again, a couple of hundred million are probably on the water here that we would expect to move through the system, depending on the selling season, more likely in the first half of 2023 rather than just the first quarter. But again, that’s more of a hopefully a timing issue for us than anything.

Great. Thanks, Damon. And my second question is more focused on Precision Ag. Can you just kind of give the split of kind of your expectations for growth this year as well as kind of Precision Planting versus Fuse? And then also, do you expect kind of more normal seasonality for Precision Planting this year?

Yes. I think, Sean, historically, it was much more of a first half weighted sales, given the planting season. Last year, with the strong demand, some supply chain disruptions, we saw more of an equal cadence of sales. I would tell you, as we look at the demand right now, we’re probably going to see something similar to what we had in 2022, so a little bit more balanced than the historical first half, second half. But overall, still strong demand there. Precision Planting itself was up around 39% last year, so very strong demand, a little bit stronger than what we saw in Fuse again. And that’s given that OEM-agnostic backdrop where we’re able to cater to all OEMs from a retrofit basis. So very strong demand there. And again, as we think about that growth from $700 million this year to our target of $1 billion by 2025, a lot of that is coming from our Precision Planting business. So we see good growth coming here in ‘23 as well.

Great, thanks. Appreciate the color.

Our next question will come from Jerry Revich with Goldman Sachs. You may now go ahead.

Yes. Hi, good morning, everyone. Eric, I wonder if we could just talk about in North America, considering how strong the margins are of the Precision Planting product, it looks like on the legacy tractor products, you folks might be running in the mid-single digit margin range. And so given the Fendt rollout, can you just talk about how much line of sight do you have to use that rollout as a tool to take North America margins higher? What’s an opportunity set?

Yes, the demand generation is well on track for Fendt in North America and South America, our globalization of the full Fendt product line. We’re step-by-step establishing more and more dealers that meet the stringent qualifications of being a Fendt dealer. And so that’s in place. In reality, we underserved that demand in 2022. We could have sold a lot more, and we’ve actually got a few dealers that are frustrated. They want to grow with this new product line, and we weren’t able to feed that enough. So we’re working very hard in ‘23 to make sure that we can match supply and demand more closely. But so far, what we’re seeing is the Fendt experience, the brand value proposition is being maintained in terms of the best of the best for product and support. The dealers are doing a great job of delivering that. The products are living up to the expectations and it’s really about us just feeding the channel.

Okay. And can I ask in terms of on the used inventory side over the past, call it, 3 months, where we’ve seen increases in 100, 200-horsepower used tractor inventories in North America. Is that what you’re seeing as well? Can you just comment on the demand cadence for those product lines? Specifically, I know you spoke about large ag being very healthy. I’m wondering can you address that product range specifically?

Yes, I would say there is an inflection point right around the 150 horsepower. So below 150 horsepower, the market is softening. And it’s tied more to – directly to GDP. There is a lot of – over COVID time, there is a lot of pull-ahead buying, we would say, strong market demand there for low horsepower tractors. That’s cooled off, and we’ve been seeing that now for a few quarters that, that order rate is cooling off. Dealer inventory levels are back closer to target on the low horsepower. When you get above 150 horsepower, the demand is still strong. There is just simply not enough grain in the marketplace and so prices are staying high. Fertilizer prices and fuel prices are coming down off their peaks from last year. So even though the grain prices have moderated a little bit, so have some of the input costs. So farmer profitability was very strong in 2022. We expect it to be very strong in 2023, and we expect large ag purchase power to be strong. And the channel is still lean, both in new and used, and we don’t expect that to change throughout the full 2023 season.

Thank you.

You are welcome.

Our next question will come from Kristen Owen with Oppenheimer. You may now go ahead.

Hi, good morning. Thank you for the question. I was wondering if you could talk a little bit about your expectations for margin cadence in 2023. I mean, you noted some of the unusual seasonality in Precision Planting. Obviously, the cyber issue in 2Q. Just help us in terms of how you’re thinking about the cadence for margins and incremental margins as we go through the year. Thank you.

Yes. I think, Kristen, maybe a couple of comments. I would say couple of differences year-over-year. Again, you alluded to Q2, I would say, given the cyber event we experienced last year, you would expect to see a significant improvement in margin in Q2 year-over-year. I would say, Q4, so the very strong performance that we just delivered here based on South America, the pricing, maybe not as much of an incremental increase year-over-year. So I think those are probably two unique quarters. If I think about the pricing, the 8% pricing that we talked about, a lot of that is carryover. So as you move through the year here, you’re going to see probably a little bit pricing stronger in the first half. We will assess the markets as we always do. But then as we look at that carryover sort of tailing off in the back half of the year, so you’ll see the pricing sort of tail out. And then the other income and expense line as – in my opening comments, I said would be up around $50 million. The majority of that would be in the first half of the year as well. And then you’ll start to see that come back down year-over-year as we start to lap some of these higher interest rates. So that’s sort of how we’re thinking through the sequential or the movements year-over-year on a quarterly basis.

That’s really helpful. Thank you. And then just as a follow-up to one of the previous questions, at a high level, you talked about doubling North and South American Fendt revenue over the next 4 to 6 years. Just help us understand how much of that incremental penetration is baked into your outlook for market share gains in 2023. Thank you.

So we do have market share growth planned in both North America and South America related to the Fendt rollout, as Eric alluded to, for one of our challenges is getting more products to our dealers and our farmers here. I don’t think we’re going to give a specific forward-looking market share gain plan, but we do have plans to grow that in both regions in Fendt next year or this current year.

Our next question will come from Tim Thein with Citigroup. You may now go ahead.

Yes, thanks. Damon, just to piggyback on the last one, as you kind of sum up everything you mentioned, just from a bottom-line perspective, in first quarter, you would expect to be up, presumably, on a year-over-year basis? Is that correct? I know that a pretty big headwind from other expense, but should we be thinking first quarter compared to the like 239 first quarter of this year? Should that be up year-over-year?

Yes, Tim. I think we – even with the incremental operating expenses, we do see good pricing, as I said, alluded, we’re going to have a strong pricing in the first quarter. So hopefully, we would expect to be up Q1 versus the prior year.

Got it, okay. And then maybe one for you, Eric, just forecasting these markets and I am asking specifically about large ag, can be challenging for a number of reasons in terms of predicting things like the weather or geopolitical events. But as you look out and you talk to dealers and customers, how are you thinking about managing the business as you look beyond? I mean I think it’s pretty clear what kind of the demand profile appears to be in this year. But how are you thinking about as you think about staffing and just running the business, it’s kind of the longevity of the cycle, which we know has been unique for a number of reasons. But again, just trying to get your perspective for how this cycle potentially, it kind of shapes up, looking beyond this year. I would be interested in any thoughts you have on that. Thank you.

Yes. The way we view this cycle is that it’s been peak-shaved because of capacity. So, we likely would have sold more in 2021 and 2022 if we could have built more, but we couldn’t and neither could our competitors. And so the whole market was starved, which essentially pushes that peak out into the future. And so 2023, we have got the order board solid already right now into quarter three for most of our products, especially for large ag and the channel is very light on inventory, and our order rates continue strong. And you say, well, what are the underlying leading indicators you look at? Well, there is still drought conditions in much of the production ag portions of the world that suggests and that we are still in the La Niña weather cycle, which suggests drier weather in the production areas. So, until the market can replenish those stocks, they are all in – it’s like 5-year to 8-year lows for the stock-to-use ratios on all the primary grains wheat, soybeans, corn. Until those can get replenished, the prices are likely to stay high. And if the prices stay high and as long as these input costs continue to moderate, farmer profitability will be strong. So, we are expecting ‘23 to be very strong. And right now, unless something dramatic happens, we think ‘24 will also be a good year. But that’s a ways out. So, a lot of things will come into play. We will be watching how the spring harvest goes in the Southern Hemisphere, see how much grain comes in through that and then watch the demand for ‘24 and how the planting season happens in the Northern Hemisphere. Those are good indicators for 6 months to 18 months out.

Great. Thanks a lot.

You bet.

Our next question will come from Larry De Maria from William Blair. You may now go ahead.

Thank you. Good morning everybody. In the prepared remarks, you mentioned future cash returns based on cash flow gen investment needs, obviously, given the strong outlook, balance sheet, etcetera, can you discuss how you are thinking about it this year? Are you leaning towards a special dividend, maybe some buyback, or is there potential M&A out there?

Yes. Larry, I think for us, as I have said in my remarks, we will stay disciplined on how we have approached this. We will look at our quarterly dividend on an annual basis as we normally have. Last year, we raised that 20%. We will look at that relative to our sustainable cash flow generation, see whether that $0.24 still makes sense. As we have talked before, we have an active M&A pipeline, looking for opportunities to accelerate our technology where we can buy that rather than having to invest and build it. And so we do have an active pipeline, and we will look at the potential costs associated with those acquisitions, along with the macro outlook. And as Eric said, we expect ‘23 to be good. We expect ‘24 to be good based on we see it today. And so based on those things, that would sort of drive what we come down to on any sort of special variable dividend we would pay in 2023. Historically, our repurchases have been more in the line of keeping our shares outstanding at around 75 million shares. And so again, I expect as we look at ‘23 to probably follow that similar path. And we will revisit the special variable dividend, probably more in the Q2 timeframe as we have in the last couple of years.

Okay. That makes sense. Thank you. And then we have heard a lot about Fendt, and you guys have obviously grown that business quite a bit more to go. But can you sort of layer in the IDEAL combine? How is that doing? What’s the performance like? And are you bundling the combine with the Fendt tractors, or just maybe an overall update on there, because we have heard a lot about that for a couple of years and now here obviously a lot more about Fendt tractors? Thank you.

Yes. The IDEAL combine, we walked ourselves slowly into the market to make sure that we had both great productivity and great reliability. This past year was the year where we really turned the corner on. We have always had a great performing machine, but we had some early reliability issues in the first couple of years. 2022 was a year where we felt really great about reliability in all the major markets. And so now we are ready to allow that product to ramp up more aggressively. And so we have got plans over the next couple of years to put more capacity in place and things like that. We generally don’t bundle it with other products. The bundling that would happen would be with our Momentum planter and the tractor. Those two often get bundled together. But the combine is one that will stand on its own and sell based on its own performance.

And Larry, just to maybe give you a couple of statistics of the strength of the IDEAL combine, in both North America and South America, it was up over 70% in sales in ‘22 versus ‘21. So, it’s a very strong demand and performing quite well.

Prefect. Thank you.

Our next question will come from Seth Weber with Wells Fargo Securities. You may now go ahead.

Hey guys. Good morning. I wanted to just ask about, there was a comment in the prepared remarks about limiting the order intake in North America. I wanted to just see if you could expand on that. Is that supply chain-driven? Is it AGCO’s production constraints driven, or just any more color around that? Thanks.

Yes. I talked about it. There is a couple of dynamics at play here. One is that we are launching the Fendt product line, bringing on new dealers and getting that business accelerating. While we are doing that, we want to – we are taking on new customers as well with that product. And so we want to have a great first impression. The product impression has been great and the dealer service has been great. The fly in the ointment in that whole system has been our ability to deliver on time. That’s been our biggest negative in our ramp-up opportunity. And so because of that, we decided to, instead of having an open order book, we shortened the order book window to be able to give higher reliability on our commitment dates. And this is happening with some of our competitors as well. It’s the volatility that still remains in the supply chain of suppliers having issues that then constrain our ability to finish the machine and delay the production. So, it’s all around that issue, nothing else.

And that, Eric, that’s primarily a North America issue though, just on the supply chain?

Well, it’s because that’s a growth market. The supply chain in South America is – we already – the order book, we already were going one quarter at a time. So, that was in place. Europe is a bit more of a stable market strategy, whereas North America and South America, it’s a conquest where we are adding a new brand to the market. And so we are establishing more new first impressions. And we want to be a little bit more cautious and certain with the delivery dates that we are giving in those markets because we are first, engaging with new customers. We want the entire experience to be positive. We had deep relationships – yes, the relationships in Europe are deep and long-lasting and they understand the one issue – they already know the product, they already know the dealer. It’s delivery uncertainty, and we feel like we can manage that in the relationship there. But we wanted to tighten it up in North America and South America.

Got it. Okay. Thank you. And then just there are a couple of times your comments around the strength in Brazil. I just wanted to make sure – your guys, your dealers, the guys on the feet on the street, you are not hearing anything about any hiccups related to the election or any changes in sentiment around or pausing just around the election that occurred down there?

I mean at a tactical level for a short period, there were disruptions in transportation and a few things like that because some of the streets were blocked. But that’s very – is very tactical, short-lived, kind of spot-related. Big picture, farmers are still making fantastic profits in South America. They are the ones adding more ground into production to feed the global demand gap that exists. And so farmer profitability is extremely strong. Demand pulling from that market continuing to grow. We expect a very strong year in 2023. And we don’t see anything of significance structurally coming from the new government to try and slowdown that vital part of their economy.

I appreciate it guys. Thank you very much.

You’re welcome.

Our next question will come from Mig Dobre with Baird. You may now go ahead.

Thank you. Good morning. I also want to ask a question on the orders. You talked about them being relatively flat to 2020 – relative to the prior year. But obviously, there is quite a few limitations that you still have in a way you structured the order book. Is there a way to talk about it on an apples-to-apples basis to kind of have a better sense for where the underlying demand is? And what do you need to see in order to be able to maybe open these order books a little bit first?

Well, right now, what we need to see is more stability in our supply chain. That’s it, it’s pretty straightforward in that regard. We continue to see macro overall easing of the supply chain challenges, but not enough to where it’s stable. It’s getting better and better every quarter, but it’s still our number one challenge to having a predictable supply chain system. So, that’s – and I think that’s what we would say. Anything else?

No.

And as far as talking about this order book kind of an apples-to-apples basis, can you help us there?

Mig, I think the two markets probably that had somewhat – have changed a little bit just in terms of how we are handling orders is North America. And I think Damon and Eric did a nice job explaining how we are limiting there. In South America, last year, we really curtailed order intake to handle inflation and pricing. That situation maybe is getting a little better. So, maybe we are a little looser in South America and a little tighter in North America. But on balance, I would say it’s not too far from apples-and-apples.

Okay. Then my follow-up, just a question on the margin outlook, I don’t know if I understand you properly. But it seems that Latin America, we are going to see lower margins in 2023. Is it fair to assume that the other segments are going to see margin expansion?

Yes. I think Mig, the – if I think about the margins in ‘23 versus ‘22, I think the two primary drivers that will dampen the improvement year-over-year, one is the engineering. So, we are going to be increasing engineering spend approximately $100 million year-over-year. So, that’s going to tamp down the margins. That’s sort of global, more in the North America, Europe markets, but we are doing that. And then the second primary driver is going to be the sort of contraction in our South American margins. So, those two things coupled with a couple of one-offs here and there about the euro-dollar exchange of importing European products are sort of what’s tamping down a little bit the margins. But generally, it’s going to be engineering in those couple of regions and then South America.

Appreciate the color. Thanks.

Our next question will come from Stephen Volkmann with Jefferies. You may now go ahead.

Hey guys. Thanks for taking me in here. Damon, I think it was you who said that as we go forward, you would expect the margins to be more balanced among the regions. I guess for that to happen, North America probably has to make the strongest positive move. So, is that just all about sort of mix and more Fendt and more Precision, or is there something else that you guys can do to help the North American margins get better?

I think, Steve, it’s a couple of things. It’s continuing the growth of our big three, so Fendt growth in North America, precision ag growth in North America and then parts. I think the other two drivers there is, remember, grain and protein is a business that really struggled in ‘22 in North America, given the steel costs, given the cyber event. We still see good recovery there, good margin, which will help to enhance the underlying margin. And then the Massey Ferguson Group, it’s been – probably it’s been turning around its performance over the last couple of years, did really well. We still see opportunities for cost improvements in the Massey brand as well. So, those two coupled with the big three growth initiatives are sort of the drivers for North America.

Okay. Great. And maybe a quick follow-up for Eric about bringing GSI, let’s call it. And I am curious, you have been in your seat for a while now, but you sort of inherited this thing. Is this sort of core to your plans going forward? Does it really fit with the rest of the strategy in your view? Just how are you thinking about GSI sort of over the longer…

Yes. Steve, it’s core to our business today. We are putting a lot of scrutiny on that business, though, to extract the value out of the transformation. We launched two major transformations over the last couple of years in addition to the growth engines. The South America transformation has delivered. And now it’s also had some nice tailwinds of a strong market, but it’s delivered and we have got that business turned around nicely. Grain and protein have gone through the actions. This year, we just had a lot of headwinds, China shutdowns, steel prices, the cyber attack. But we have made moves. We have consolidated factories, reduced the amount of brands, reduced the amount of business, things like that. We think that will shine through in ‘23. But we also recognize that it’s got to deliver. And the team is very, very clear about needing to deliver strong results and earn the right to grow further.

Got it. Thank you, guys.

Thank you.

Our last question will come from Nicole DeBlase with Deutsche Bank. You may now go ahead.

Yes. Thanks. Good morning guys. Thanks for fitting me in.

Good morning Nicole.

I think Chris [ph] already asked about like the quarterly cadence of margins, and that was some helpful color. But anything on the quarterly cadence of revenue, should we expect like the normal seasonal pattern versus disruption over the past several years?

Yes. Again, I have to say, Nicole again, similar to the prop margin, Q2, again, given the cyber event, you might see a little bit of above traditional and then Q4 is we had a very strong quarter here sort of outpacing our own expectations that you might see a little bit of a less, smaller sort of year-over-year change relative to Q1 and Q3, but nothing significant.

Okay. Thank you. And then working capital, what have you guys embedded for working capital improvement in the conversion guidance or free cash flow conversions for the guidance for the full year?

Yes. What we – I think as I have said in my scripted remarks, we expect it to be a modest positive in ‘23. In ‘22, it was a use of cash as we were – had built up some inventory, given the supply chain challenges. It was – I think we were about $350 million to $400 million of a use of working capital in 2022. We still expect inventories to be elevated. But as we see supply chain hopefully improving, I think what I said is a modest positive in ‘23.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.

Well, I will just close today by saying thank you very much for your participation and your support of AGCO. We are really, really proud of what we have accomplished in 2022. It was a record year in many, many ways. If you peel back the onion, you will see that the key success areas are right at the core of the strategy that we shared with you in December, and the origin of it was back in 2021. Our focus is on growing our margin-rich businesses like Fendt, parts and service and our precision ag smart machine business. We have also committed to you to improve some of our other businesses like Massey Ferguson and our grain and protein business. In ‘23, you will see the results come through in all of those, whether they are improvement businesses or our growth businesses. We have been investing heavily in the last few years. And in ‘23, we are making even bigger investments to continue the development of these farmer-focused solutions that are solving critical farmer problems with – many of them with very short paybacks. Yes, we target essentially 1 year, 2 years max. we are seeing take rates that are very high and the margins are very high. We are also seeing our innovations receive strong recognition in the form of industry awards. Most recently, the 10 Innovation Awards at AE50 that I mentioned earlier in my comments. We are using our precision ag tools to really engage strongly on sustainability, putting more and more of our technology efforts there, capturing a lot more data, helping our farmers make the transition to not only more productive farming, but more sustainable farming. Lastly, the large ag markets are very strong globally. Farm fundamentals are healthy and supporting farmers’ investments. So, we are excited about 2023 and beyond. We are convinced that the best days of AGCO are still in front of us. Thank you for your partnership all along the journey. I appreciate the call today.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.