AGCO Corporation (AGCO) Earnings Call Transcript & Summary

Good evening to those of you joining us for our webcast. My name is Greg Peterson. I head up Investor Relations for AGCO. It's my pleasure to welcome you to AGCO's third annual technology event. We have 3 important objectives to accomplish over the next 2 days. First objective is to demonstrate to the group the significant progress we're making against the technology deployment goals that we gave you in December. That's number one. Number 2 is to highlight the benefit that AGCO is going to see both to the top line into our operating margins as we deploy the technology and grow our Precision Ag business. And lastly and most importantly, we want to show you the benefits that are accruing to the farmers, the pain points that we're helping them with. And as importantly, we've had a long-standing target of improving farmers' net income by 20%. And -- over the next 2 days, we're going to demonstrate savings or net income improvement of at least that much. So a lot to think about and a lot to digest over the next couple of days. So with those objectives in mind, let's look at the agenda for this evening. We're going to start Eric Hansotia, our Chairman, President and Chief Executive Officer, is going to start tonight with a brief overview of our Pharma First strategy. He's going to explain how growing our Precision Ag business fits with that strategy. Next after Eric, our Global Head of Engineering, Kelvin Bennett is here to share with us our plans for clean energy product development, our strategy for clean energy in the coming years. And then lastly, Seth Crawford, our Chief Technology Architect and Head of our Precision Ag business is going to give us a technology update and give us an overview of what we're going to see tomorrow in the field event. So with that, let's cover the safe harbor information. Tonight, we will make forward-looking statements, including statements with respect to strategic plans, demand, product development and technology deployment, engineering expense, supply chain disruption, inflation, acquisitions, financial outlook, input cost sales, market share, margins, earnings cash flow and other financial metrics. Actual results may differ materially from those suggested in these statements for a number of reasons, including declines in product demand and other adverse developments in the agricultural equipment industry, including those resulting from COVID-19, supply chain disruption, weather, cyber incidents, exchange rate volatility, commodity prices inflation, changes in product demand. Additional reasons are provided under risk factors in our Form 10-K for the year ended December 31, 2023, and the other filings and in the other filings with the Securities and Exchange Commission. We disclaim any obligation to update any forward-looking statements except as required by law. The slides we use this evening will be posted on our website at www.acocorp.fincom. And finally, we'll have a replay of this meeting on our Investor Relations web page. And then I also want to mention that after our speakers, we will save about 15 or 20 minutes for Q&A. And since it is webcast, we'll ask that you raise your hand. We'll get to you with the mic. We'll introduce you and let you ask your questions. So I appreciate your patience. And with that, Eric, please join us.

Very good. Thanks. That safe harbor act just never gets old, right? Well, hey, I'm really excited about the next couple of days. We're going to be able to go out in the field and see real life solutions in action. We've been talking about it a lot with you folks over the last couple of years, and we're excited that we went through the effort to be able to really get your hands on. Greg talked about the fact that I want to frame this up a little bit, 2, 3 years ago, we started redesigning our strategy. And he said, what's the future of AGCO and where do we want to position ourselves. And you folks are all bottom line folks. So I'm going to start with the element of that strategy that deals with results. And essentially, it's really just a simple thing. The results that we zeroed in on as most critical for our company. And we try and have everything that we do run through these filters. The first one is to be the most farmer-focused company in the industry, become the partner of choice to our farmers. What does that mean? What does Farmer focus mean? -- aren't all of our competitors are as farmer focused. I would say no. The difference is many companies are product focused. And essentially, the difference here is if I can kind of make it a little bit more clear for you, when a product-focused person goes on to the farm, they say, "Well, tell me about your tractor? What do you like about its horsepower? -- lift capacity -- is the seat comfortable? How about the fuel economy? Asked a lot of questions when we're all done, they leave. Like the whole discussion was about their product. A farmer-focused company person goes to that farmer and says, "Tell me about your farming operation. What are your major pain points? What are you struggling with today? What would be the 1 or 2 things that if we could fix somehow would make the biggest difference for you. It's about the farmer, it's about their success, it's about their challenges, it's about what they aspire to become. That's an entirely different conversation. We didn't mention the word product once. Now it's our job to hear what we -- to go back and take what we heard and say, now, what do we need to do with our product, with our data, with our dealers, with our services to attack the issue that they identified from a lot of different angles and solve it. And how do we make them money. It's a fundamental rewiring of the company. And so we're not all the way there yet, but we're getting a lot -- we're making great traction on the pursuit of being the most farmer-focused company in the industry. I talked to a number of our dealers today that came through and they said they're really feeling it. It's showing through to the customers. So that's number one. Number 2, with any organization that's going after a very big audacious goal, you've got to get an organization aligned to the target but then get a fire in their belly to go get it. And so it's about the spirit in the organization, the excitement about where we're going, the meaningfulness about what we're pursuing and the impact we can make to farmers all around the world and the value we can create for shareholders. So we want to be the employer of choice for our employees. And the only way you do that is get them really aligned and really excited about what they're doing. So on the first one, we're holding ourselves accountable to that farmer first ambition by measuring Net Promoter Score. It's so much so that we're putting it right in our incentive system. And the second one, we're measuring employee engagement. That's also in our incentive system. So we're holding ourselves accountable and putting our teeth in the game. And then the third one is when you do those 2 -- first 2 things really well, we want to be the investment of choice for folks like -- that you represent. And so we've got some targets here about 12% operating margin as just a milestone on a larger journey to goals even higher than that. And then strong cash flow generation and return on net assets is our way of measuring kind of an overarching measure that takes into account asset efficiency and things like that as well. So these are also in our incentive system to make sure that we're driving those. So the outcomes are really critical. We got to make sure that we're driving results, and these are the 3 things that we've really focused on. You've heard me say, how do we get those results? How do you get the margins to go up? How do you add more value to farmers? Well, to simplify it down, there's 3 growth drivers that we're really excited about. The first one is taking our Fendt business making it full-line, tractors, sprayers, combines, planters, hay equipment, all the solutions a farmer needs throughout their cropping cycle. So we've expanded that and we filled in a full line of equipment now. And secondly, take that full line and bring it to the global market wherever the best of the best farmers are that expect the most. It's a new value proposition to the marketplace. It's better than anything else out there. And when you talk to the farmers that have experienced the Fendt machine and the Fendt experience because there's a whole different kind of experience they have, different warranty packages from kind of service experience. When they feel that entire thing, they don't want to let the demo machine get off the farm. We're seeing great closure rates by taking Fendt Global. North America and South America. We've doubled our business in North America in the first couple of years. We ended to double it again in the [ 4-5 ] after that. Steadily growing this business. Number 2, and it's our carrier of the advanced technology. These best of the best customers want the most productive machine, highest-quality machine with the best service. So it's our platform to carry out to the farmer ready-made technology solutions. The second business is the one that Seth's going to talk to you about a fair bit in a little bit, but I'll just give it a headline, and that is our Precision ag and digital business. We go to market with a couple of brands here. One is Fuse. That's for our internal technology. When we put it on a Fendt tractor or Massey Ferguson tractor or something like that [indiscernible], we call it Fuse is our carbon technology, guidance, telemetry, things like that, common technology that is carried out across all of our brands. And then precision planting is where AGCO is very unique in the marketplace. It's about retrofit, but it's about mixed fleet retrofit. And that takes an entirely different culture. Some of our competitors are starting to talk about retrofit now because of our success. But it's a very different retrofit that they're describing. They're saying, we'll take some of our technology and sell it to some of our customers that have some of our older machines. What we say is the scope of our approach is to add value to all customers in the marketplace, no matter what brand they own, we're going to allow them to upgrade it to have more capability. So we -- our mindset, our innovation process, our investment, it's all different. It takes an entirely different culture to be a mixed fleet retrofit company. And our whole mission is to get this technology out to everyone. This business we said at the beginning of last year, we said we're going to grow this business to $800 million, the combination of Fuse. -- then halfway through the year, we said you know what's going so well, we're going to raise the $900 million. And last December, we committed to it, we're going to grow to $1 billion. Highly confident, we're going to nail that goal. So this business is high margin, high growth because it's adding a lot of value to customers. And the third one is service and parts. Service and parts is all about moving from reactive to proactive. I'm remotely monitoring the machine, understanding when an issue is about to happen and bringing a solution to that machine before it happens. The combination of these 3 businesses, if I put it in your language, not only a high margin, not only high growth, but they also reduce the cyclicality of our business because service and parts, we've never had a down year. Precision AGCO, we've not had a down year. They're just growth businesses. There's no cyclicality to them. So the larger they become, the less cyclical our overall businesses. Our Fendt business as we grow at global, it's a new entrant to the market. It's a new value proposition that doesn't exist in the marketplace. So as we're spreading our wings having a broader product range and a broader geographic playground, it's also [ new ] whether the market is up or down or up or down, we can grow. So the net of all these things is exciting growth, adding a lot of value to farmers and less cyclicality. And finally, I'll just introduce what you're going to see tomorrow. You're going to see some really cool stuff. You can see it all operating in real farm conditions, planting real seeds, harvesting real crops, bailing real [ straw ]. It matches right up with the commitments we shared with you in December. We planted some flags, and we said, "You know what, we're going to commit. We're going to commit #1 through our farmer-focused innovation to be rolling out autonomous solutions. In the near term, a retrofit autonomy solution, you'll see that in 2024. Many more to come after that because once you solve the first one, you can use a lot of those modules to do other applications, such that we have the entire cropping cycle covered with autonomous solutions all the way around the cropping cycle by 2030. You'll see some -- you'll see a couple of applications of that tomorrow. Targeted spraying is just an example, but I'll talk about targeted spraying is using artificial intelligence libraries to be able to identify the difference between a weed and a plant spray only the wheat. You'll see that in action tomorrow too. It's one of those machines that is a smart machine that has the capability on board to be able to make decisions for itself. -- and it's automating features. So you're going to see several things tomorrow about automating features, you're going to see autonomy. And then finally, you can see some clean energy solutions. Kelvin is going to talk a lot more about this, but you're going to see E-100. It's our model of fully electric tractor. Not only is a clean emissions for society in general, but it doesn't use any diesel fuel. So for a lot of applications, the farmer can get a good payback on that just as it is, not to mention the other benefits of very low sound in terms of using a municipality, indoor applications, a vineyard, all these kinds of things. I think there's a lot of niches that this is going to be winning for. So we've got a great program for you. You're going to hear a lot more about the details Buckle up, tomorrow is going to be a great day. Thanks so much for being here. And with that, I'm going to turn over to Kelvin.

Thanks, Eric. Greetings, everyone. Good evening. Kelvin Bennett, I'm Senior Vice President of Engineering. Several of you I saw last year at Live. So if these new faces. So I look forward to engaging with you in the next 15 days. I think it's going to be a cool time. So thanks, Eric. Good segue. So I'm going to talk a little bit about our product strategy to get ready to support our sustainability effort. I'm a farmer, I'm a family man of a concerned citizen, -- so sustainability is really important to me, but it's also important to our company. There's a ribbon in that advanced goal that goes right across talks about sustainability. And one of the best things that we can do to do that is to improve our products. And what I'm going to share about today is not only future tents, it's present tense. I think we have some really good solutions we're going to talk about today, and you'll see tomorrow in the hallway. But there's also a lot of good things coming. As Eric said, our commitments we made last December. So what are we going to do? Again, sustainability is important to me as a farmer, but there's a lot of challenges out there. And when we developed our strategy as a management team together, we put a lot of thought into this. And some of those challenges are the availability and affordability of clean fuel on the farm, not in some other country, not in some other place in the city on the farm. So that -- we have some really good solutions today that could achieve better if this was on the farm. So projecting that result was very important. The total cost of ownership, I think Greg alluded to, you've seen us, we want to increase the net farm income by 20% with these smart solutions that we're developing. So this product, these solutions that we develop have to contribute to that. There has to be a market there, a pull. So that's also ingrained in our strategy that I'm going to talk about. And then lastly, complexity. We're in a business that's been dominated by diesel-driven products for 50 years. That's a very simple portfolio. As we look to the future, it's going to get a little more complex, not only for us, but also for our customers that has to deal and carry multiple fuel types different ways of infrastructure to support this. So all of this rolled up, all these challenges is what we put into our strategy. And maybe a simple way to do it, Eric, and Greg, we talked in 3. I'll take you back to a fifth grade science class, fifth grade science class, the 3 stages of matter, solid liquid and gas. And each one of those can carry energy, and we can take that energy and deploy it for use. So we have a solid energy system, battery electric. You probably have a car that's battery electric. A little more challenging in a tractor you drove -- or many of you drove the 100 last year, you'll see it this year or tomorrow, and we're going to bring it to the market soon. We'll have a detailed discussion on that. The bottom, liquid fuels, so diesel, but we can get better. We can use more renewable diesels. We can make our systems way more efficient. And that's another solution enabler that will be part of our overall scope. And then crunched in the middle, the other form of matter, liquid fuel -- or excuse me, gases fuels, clean gases fuels. Architecturally, it's a little bit closer to a conventional tractor, but it's got some unique use cases that drives some changes in the products, but we think can be a great enabler for a cleaner future. And I'm going to talk about each one in more detail. But as we looked at all of this innovation, maybe the top left, we're focused on the customer. What is their total cost of ownership? What's our ramp-up curve so that we can bring these technologies to the market at the right pace to match demand, but we're also not overrunning the market, and we can scale quickly. So I think we'll do that. And lastly, I'm just going to say, a lot of our competitors, very good competitors out there, they may have lawnmowers. They may have UTVs. They may have construction equipment. Those are a lot easier to challenging but easier to some advantages to get it more sustainable. If you remove that and you keep the ag portion of their business and compare it to our fleet, -- we're convinced we're very, very competitive today in our internal measurements and what we hear from our customers. And we think we'll maintain that advantage going forward with this strategy. So let's look at the details. There's a picture graphic of what I'm talking about a little bit on these 3 phases. So on the x-axis is horsepower. So this is our product lineup from smallest to biggest, right below it is our technology options or enablers. And then on the Y axis is some of the use cases where some of these products are used. Again, starting on the left, the electrification, E-100 you'll see it tomorrow, we'll talk about it, but you already know that one, I take. But we're going to electrify, as we talked about last December, we're going to electrify many of our products in that portfolio. And we think there's some great use cases with a good total cost of ownership for the customer that we're going to bring to the market between now and 2030. Right in the middle is the core engine. I don't know if you saw it. It's a little wider than 32 inches. So it's not in here. It's in the hallway. But if you passed, you got the food, hopefully, you stopped and looked at it. That's a backbone of future proof engine that we've developed. We brought to the market last year. We're going to bring its baby brother to the market later this year. And then we're going to deploy them more broadly. And we're going to talk about that. That's already at 10% today benefit versus the previous models we did. So it's no change. It's there. There's an engine change, but it's on the farm, no change for the customer, and it's already providing value. Here's a sweet spot of some gases fuels. So there's some unique applications there. I'll show you a picture of a prototype plug-in hybrid. So hybrid is not for every use case, but there are some. So we're going to bring that to the market. And then lastly, improved efficiency on our high horsepower product. So we think we're bringing a lot of different solutions to the market that's going to help this, and that's going to allow us to scale as the markets open up. And one last thing, the little gray font, the cloud, the thing, that's a projected cradle-to-grave product CO2 efficiency improvement versus the previous model. So a lot of good things. We have a model that we predict this, and this is the backbone of our strategy. E-100, again, we drove it, you're going to drive it tomorrow. That's a unique one. That's going to position us in the market. We've got the diesel tractor, and we'll have the electric tractor. So we're going to already start seeing consumer buying preferences where they use it, how it's being deployed so that we can learn. And the models below it. The next generation is on the drawing boards, and we're already developing them now. So as we learn where this is effective, we're going to be able to apply all that to the next generation, more broadly scale it and bring that to the market. It will be in Europe. So it will be launched this fall at AGRITECHNICA. It will be rolled out in Europe next year and then in North America the year after. So really looking forward to it. And then once we add the other models, we think this will fill it up to about 150 horsepower. Gases fuels, so which field, there's a couple. So biomethane, -- this is a prototype. You won't see that tomorrow. That's why I included this picture. That's in sugarcane fields running right now. So it's kind of a unique use case that provides a great CO2 reduction versus the current one. It's all decked out in camo, but it's being run on some sugar mills right now in South America. We think we can mature in the next 2 to 3 years and bring it to the market around 2027. Another gas fuel is hydrogen. There's a lot of buzz for good reason in hydrogen. Hydrogen and biomethane is a challenge. There's a little Fendt tractor on the table there. I can show you later, but getting enough onboard storage of the fuel to get your autonomies a challenge. So it's not going to work for everything. But for some applications, we think it's a really great solution. Hydrogen and gensets for sure will come. You'll see a hydrogen-powered version of that engine out there at AGRITECHNICA this year that we're going to continue to evolve and improve and make it available for the market once we think the market is ready for it in our applications. So really exciting stuff with that. And then back to the old liquid fuel that tried and true, we can still improve it. That core engine that we launched last year, 5% to 10% better than the one before, but it's future proof. It's future proof for tomorrow, whether it's hydrogen, a combustion -- or excuse me, spark ignition on hydrogen, run biodiesel, ethanol, methanol, I forgot to include that we are ready today ship from Valtra, all of our tractors that's filled up with renewable diesel. I wish they ran on renewable diesel the entire life. I mean -- 70% to 90% improvement, but that fuel is not available everywhere. But the tractor is ready. The engine is ready and as infrastructure evolves and improves, they've already got it there. So let's keep that improving. But there's other fuels that's ready. So it's a very future-proof engine, our backbone, and we're launching other sizes of it soon. And then lastly, hybrid capable. So we'll add a hybrid version of that over time for their specific use cases where that's a value and there are some for sure. So lastly, AGCO is investing in a broad spectrum of technologies. And -- but we're also very keenly focused on what the farmer wants, where there's value for the farmer in the market and there's an equal pull to it. So we're going to bring it to the market, get it ready. It's in a use case that's we think we see high value starting today with the E-100 in this engine all the way to 2030. And then we've got the technology, we have supply chain. We got manufacturing, we've got service and support. We're going to scale as the market matures and is ready for it. And that's fuel infrastructure. I mean just the last couple of points, it's a big piece of the puzzle. So there's clean fuel and every day, you read on the news about investments in it, and that's really good, and I hope it accelerates. But that's one of the pacing factors of us achieving what we want to achieve because we think the products will be ready is just getting the fuel ready as well. So with that, I want to turn it over to my colleague, Seth, who is going to talk about a lot of technology stack, some good stuff that's going to put on these products. And the combination of the 2 is going to take us to a winning place. Thank you, Seth?

So I get the luxury of working with Kelvin and our teams together develop a lot of these products. Kelvin has the platforms, I get the technology that goes on those platforms, and that's what's exciting to talk to you about today and what's even more exciting is what we get to do tomorrow. Because for us, it's one of the best stays of the year because we're out in the field operating the machines. And I hope you're looking forward to it.

It might be a little warm.

But that's okay. We've got plenty of water. Just remember, we're going to have a lot of fun. In all of our presentations where we've been getting together lately, we talk about this addressable market, and we talk about how AGCO is going to market. But the key for us is not whether it's $150 billion or $250 billion, whatever it might be, the key is how do we get it down to that farmer level. And that is truly the key in this space. And what we've learned -- and you're going to ask these questions, and we're ready for them, you're going to say, "Well, how much are you going to charge for that? When are you going to bring that to market?" The reality is we're going to go to the farmers, and we're going to learn as we tackle different parts of the crop cycle, what's it worth to them? How are we delivering value to them. And as we're delivering value, we're able to determine what's the payback period for those customers. And we identify that, then we have a good understanding of what's the value that we can gather as we grow our business. But the key is we have to be able to determine that, that value is there, agronomically, economically and that we can apply the technology and then harden it, so it's ready for market, and we're truly able to deliver for that farmer with an easy-to-use product. In many of our sessions that we've had, we've talked a lot about planting. It's in the name of precision planting. Well, we're going to talk about more than that. In fact, we're going to talk mostly about all the other things because we want to talk about big opportunities that we see on the horizon. We've shared previously that we want to go beyond planting in the crop cycle. We want to start at the preparation and planning phase, continue to build our presence in the planting phase, into the protection and nursing that plant, the harvesting and then the storage phase. We think those are all areas ripe for our retrofit technology, and we're excited to show off what we're doing. So what you're going to see are examples are examples of what we're doing in the nutrient management space. And really I think you're going to learn through that session is just how our cake that is. It hasn't changed in 100 years. And we think we can truly disrupt it, and we think we're very well positioned to do it. The next area is the crop protection phase, and there is a bunch of information out there on selective spraying technologies and how we're using targeted spring to take care of weed issues in the field, and you hear it from everybody. But what you're going to hear from us is how we're different, how we're going to market and how we're building on that to address much broader scope of the total addressable market. And then the final piece is labor. And the labor part is important because a lot of times, we hear that -- well, the farmer only needs somebody for 3 weeks in the spring and 3 weeks during the harvest time. And it's only $15, $20 for a labor. What's the problem? The reality is for a farmer, it is a huge headache -- it's hard to employ someone year around, and it's hard to find someone for very short seasons that they can have operate at a very high level. So when we talk about the labor problems, it's about labor that can do the job right and where it's trusted. And so we see a tremendous opportunity, not just in autonomy to solve the labor problem, but in all the automation steps along the way to get there. So with that, the farmers face a dilemma. And this dilemma is in how do I sample by soil and get the right prescription so I'm delivering the right amount of nutrients to my products throughout the year. Because farmers will be able to tell you I can put -- in some cases, they can put $1 of fertilizer on their field and get a return of $5 in crop output if they time it right and do it in just the right way. Now here's the dilemma that we all face. There are 200 million tons of fertilizer applied in the world and half is wasted. The plants only take up half of that fertilizer. So all in the farmer is conflicted like I know more is generally better here, but you've got to get it in the right spot. And so what farmers haven't been doing is sampling their soil because you had to bag it up, you had to package it, send it off or have somebody do it, go out, take the sample and send it off to the lab. With our technology, in the radical lab, which you see behind me, we're able to take 27 steps of this soil sampling process down to one step. So it automatically puts it in the cylinder, it georeferences it. So as it flows through the lab and that local agronomist puts it through that lab, they're able to do that, load it up overnight, come back in the morning, and they're ready and that information is automatically uploaded so that farmer can see it, their agronomists can see it, and they can share that data wherever they go. And what's really helped us succeed with our precision planting portfolio is that, first, we're able to shine the light on a problem for a farmer, and we teach them about the differences that they can make in that operation. And then we provide the tools to help them solve it. And that's exactly what we're doing. So radical is one big flashlight that we're coming with to shine on that problem to take precision to a whole new level. The next area that's a big area and a big focus is the path to autonomy. And in autonomy, we don't see autonomy as a product. It's really an evolution of automating features. And you've heard a lot in the industry about the grain cart and combine synchronization, you've heard a lot in the industry about tillage automate. And we think those are going to be valuable to farmers. And we have farmers that are engaging with us now as we work through the development. And Eric showed the dates when we're going to bring those to market. But we're also a key leader in the hay business. In the commercial hay space, we're #1 in the world. And so why not go after that. Anybody here know how often a hay farmer in the high production areas, how many times they cut and harvest their hay a year. Very good. Jerry? Jerry, you've been here too many times. Jerry is right. 12x. Sometimes they're doing it every 21 days. They cut it, they may fertilize it, they're irrigating it, and they're going right back down those same paths and do it again. And the areas where they're doing that -- it's heavily focused on migrant labor, and there's a huge opportunity there because they want the repetition, they want the perfection in everything they're doing, and there's a lot of value there. The other thing is when you're in those areas, you're not necessarily bailing that, hey, during the daytime, -- you're doing it in the evening when the do sets in because then it holds its leaves better, and it's -- there's more value for that, hey, as it goes through the value chain. So you're able to do it in a more consistent way and get more for your output. So it's quite exciting. So the next topic, there are a couple of topics out there that I think are really confusing. And so as you go through the stations tomorrow, we're going to talk about automation and autonomy. On the automation topic, this is where you have an operator in the cab but they're not interacting with the machine. The interactions are automatic, and it's -- we're -- if you want to use the tech term, leveraging RPA to automate these features all the way through. What it means to a farmer is my life is easier and the job gets done better because I don't have to hit 10 buttons as I come to the end of the field and do something, and I don't have to adjust the machine as we go through. But that's the automation of the feature. And what's great about this is we're able to take feature after feature and bring value to the farmer where the job gets done right day in and day out. And when they hire an unskilled operator, that unskilled operator gets up to a higher level, much, much faster. And that's very exciting for the farmer. It's exciting for us. They get the job done right. The other thing that's exciting about this from a business aspect is we get paid for it. from a business standpoint, they want to buy this, they want to automate it, and we're able to bring these features to market. On autonomy, this is performing a specific task without the operator, yet having the full -- without the interaction with the machine. The farmer is still going to be able to view this anywhere they want, whether that's through a tablet or the phone or whatever it may be. But it's really separating out and now we're able to pull the operator out. We think there's a tremendous growth path in both of these areas. We believe automation has to come along to enable autonomy. And the beauty is we're investing heavily in both, and we think both will yield over the long run. I think automation will yield the most. And that's why we're so heavily focused on it. And you're going to see more of that. But you're also going to see the teasers about autonomy over the long run. The other thing that I wanted to highlight, Eric talked about what our aspirations are and what we're going to be delivering by 2024, '25, '26 and then 2030. 2030 is when we're going to have the entire crop cycle automated. So the planning prep, the planting, the care of the crop, the feeding of the crop, the application during the season, the harvesting of the crop all the way through the storage, having that automated all the way through that crop cycle. That's the moonshot that we've called out for our organization, and that's where we're driving. So that means we're not going to have the operator in the cap in 2030 across those operations. And that's a huge step forward for us. And we're quite excited and it's very motivating for the whole organization to pull together. Not waiting for what's one next step, we're now looking at the full portfolio. And that's a big step forward for us. But I think what's important there to build on the theme from the prior side, it's the fact that all those features that we're building, the capabilities that we're building from one customer experience platform up to the tasks that we're automating each step of the way. Those are things that are going to bring value to the farmer and they can buy incrementally because we're very focused on that scalable architecture that allows them to build into their fleet and that we can make good business off so that we're not betting on huge R&D expenditures only to let down our shareholders in 2030 if it wouldn't happen just that way. We believe that we're going to build, learn and bring value to the farmer and bring value to our shareholders along the way. The next area I want to talk about is the targeted spraying or selective spraying. And there are a lot of questions about what does that go doing? Everybody else got one solution, and they're all in on it. And here you are with a couple of different solutions. The reality is farms come in all shapes and sizes, and there are differences around the world. And the technology that you're seeing on the screen and that you're going to see in the field is interesting to more than just the largest of the large farms. And for most of the technology that's out there today, it's out of reach for most farmers. But I have yet to meet a farmer that doesn't want to get better every year. Our data shows that the majority of farmers expect to get better, and they know that their current approach is not yielding the best results. They all want to reduce cost. They all want to increase their yield in the end. So what we're doing in this space is we do have the Bosch BASF partnership that we've publicly announced that will be coming with factory availability on our industry-leading rotator sprayers. And that's quite exciting for a lot of our producers. But the other thing that we're coming with is our Symphony portfolio from Precision Planting. It's not just for new sprayer owners. It's not for those sprayers that you see in the video that might be driving a different colored new sprayer. It's also for the farmers that have the 20-year-old spray coup. And even more so, if you want to talk about total addressable market, it's even for those farmers that have a pull type sprayer. So we're not talking thousands of units a year. We're talking hundreds of thousands of units of addressable product in the market. And like all products that we bring from precision planting, it will be highly scalable. So a farmer that has $20,000 or $50,000 to invest -- they can invest the money and they will see returns, and we're always committed to bringing products to market that will be able to yield that payback in 1 to 2 years. And that's quite exciting. And so small farms to large farms, pull-type sprayers to old sprayers to brand-new sprayers. We're going to have a solution. We're super excited of where this is going. And this is one where we're going to open up the orders this fall with limited commercial sales for 2024, and we're quite excited about where this one is going to go. What we wanted to do today is bring up that we're more than just planting when we talk about precision ag, and we're more than just guidance on our integrated products on our Fendt and Massey Ferguson products. That -- those products between the precision planting portfolio of automating the planter and the guidance and the rate in section control in those machine control developments, that's really gotten us to this point in our technology between our precision planting and our fuse portfolio. We're taking it across the entire crop cycle. And in 2017, we learned what it was to be a retrofitter when we bought precision planting. And we didn't just try to change precision planting. And I think if you ask anybody that at Precision Planting, it's fun actually for me. It's in my business unit for them to say, AGCO leaves us alone. We're a standalone business unit. And what's great about that is there are actually a lot of back-office things that have been integrated, but they feel that their culture is intact. And that culture is we're going to be innovative. We don't want to be beholden to new machine sales. We're going to innovate for the benefit of the farmer. We're going to be in the field with our genes on and dirty boots. If your boots aren't dirty, when you come to work, you're not doing your job. That culture remains, and we've grown it substantially with the growth in engineering talent and capabilities and the acquisitions that we brought into the same family of companies now is precision planting. That culture remains and -- we're the only player in the industry to truly serve mixed fleet customers in the retrofit business with a specialized channel. And we're growing that channel, and we closely monitor how much we're selling through that channel versus all other channels because we -- if we ever start to see that decline, it means we're not innovative enough, and we need to be able to do that to prove out that technology, prove out that it can work, that is reliable, that it's easy to use and most importantly, that it adds to our portfolio and delivering that net farm income. So we're pretty excited to now take this all the way around the crop cycle. You're going to see more of it tomorrow and experience it. And that's where I wanted to touch on the stations because this is where we want you to experience what we have in a benefit statement. So first of all, you're going to see and experience the station talking about our alternative fuels and propulsion. You're going to see the autonomous bailing. You're going to be able to see what that's going to bring to a farm and how that could be put to use in not too distant future, and that's exciting. And what we show on here, we show what it does to the net farm income for that farmer from a percent standpoint. And then you'll see small letters below each block, and that talks about what we're going to be able to demonstrate from our tech stack. And so you'll be able to see those come to life, whether that's our sensing or automation capabilities in those areas, you'll be able to -- we don't want to make you an engineer by the end of the day, but it's leveraging this and the reuse that we're able to capture across the full crop cycle. You're going to see targeted spraying. You're going to see how we're going to be able to reduce the herbicide usage and what that's going to mean for a farmer. And the autonomy with the grain cart, that's going to be in the field. I think it's the first time we've shown it to this group. It's quite exciting for us. It's for sure, quite exciting to the farmer. One of my favorite stations is the soil fertility station because it really starts to complete the full cycle or enable us to complete the full cycle. Because historically, the agronomist would drop a map and you kind of blow and go, you go across the field, blowing this fertilizer all over, and they're going to talk about this tomorrow. But now that's kind of a wild way to do it when you think about half of the nutrients that we're putting out don't actually get used by the plant. So how do we put it out and how do we get that uptake and you're going to see it. You're going to see how we are the only company in this space and we're the leader in being able to feed to measure what you need and feed that crop all year long. And then you're going to see the automation that we're bringing to the planting business as well. We can't be here and talk about our technology and how we're leading edge and not talk a little bit about planning. But when we add it all up, with the other piece is the grain view. You know that we have the grain and protein business. And what's exciting is farmers in that space want technology, too. And it's not a whole lot of fun running out to your grain bin and checking samples to see do I need to turn the fans on, do I need to turn them off, what's my moisture, et cetera. You get to see how we're innovating there, and I think we're really going to be able to change that for the better as we go forward applying that technology. So in the end, we say we want to improve the net farmer income by 20%. Here's how we're showing off some of our developments this year and our innovations. We're excited to show it off. And with that, I'm going to invite Greg up to so we can start our Q&A.

Thank you. Webcast, and I'm going to ask that everybody waits until the microphone gets to you. And when it does, I want you to introduce yourself and then ask the question. So with that, Karan will be around with a mic and we'll get started. Actually, you guys want to come up and…

Hi. Good afternoon, everyone. This is Chad Dillard from Bernstein. I was hoping you guys could talk a little bit more about your recurring revenue opportunities and how you're thinking about it from each of the product in production cycles.

Do you want me to start? Sure. Okay. So as you go around the session tomorrow, the ones where it's the most obvious recurring revenue, I talked about Grain view to finish my portion. And then prior to that or during the presentation, I was talking about radical. Those were designed really from the ground up. They have natural consumables and recurring revenue with those. On our base today, Chad, we have our guidance systems with the correction signals. The other thing that we've just enabled, and this isn't necessarily recurring revenue, but we've enabled -- we now have over 55,000 connected assets out there running in fields around the world. And we've now enabled those vehicles to be able to unlock features throughout the life and then be able to, in some cases, push the future. But the key is to unlock a feature. So you maybe bought the tractor first, you didn't want something, but later, it either switches hands or that farmer does want it, they can unlock it. So it's an immediate uptick in revenue opportunity for us. So those are some of the areas where we've been innovating, not just in the product, but also in the business model. And when we get to -- we didn't talk about Panorama today, our precision planning data sharing app that will have recurring revenue for our targeted spraying. We haven't announced pricing there, but there are obviously opportunities as well. So lots of opportunities, definitely something that we're thinking about, but we don't have a specific target as far as an absolute dollar amount that we're ready to share.

Jerry Revich, Goldman Sachs. I'm wondering if you could just talk about the technology path to get fully autonomous farming by 2030. Where does R&D need to go for AGCO to get there? Who are the key partners? And how do you envision sharing labor? And as we get there, what's the revenue opportunity if we hit that goal for AGCO?

Yes. Well, the R&D path automation to autonomy. So any feature or adjustment a person does today, we want to operate that or take the manual element out and fully automated. So in the field, you can adjust feature to feature. So we're putting that on all the products across the crop cycle in a retrofit application and then a factory install. Maybe there's a higher degree of sophistication in the factory install, but they're both for both customer bases. So we're going to add that. We're going to add revenue and sales along the way to help pay for this. And then as the machines get ready, we'll be fully automated again with the full complement of solutions by the end of it. You've seen the commitments on tillage grain cart. I mean these are some of the first movers. And then we're going to add to it every year, every couple of years, a new thing. And we think it's going to -- by the year 2030, we're going to have a full complement of solutions that we'll do it in at least North and South America. Revenue, we're not announcing anything that I'm aware of. We're still addressing the market, the take rate and things like that. But if it has a value and a return like what we think it is, we think it's going to be it's going to have a pretty good ramp-up curve. Anything else?

Just maybe a little bit the Kelvin's description of the automation of features. We've got a list of about 150 of those. We've got a clear line of sight to what needs to be automated all the things that are being done in the cab. What other partnerships do we need? We actually feel really good about our tech stack. We're looking at -- we're -- and we invested in Apex AI. It's a good functional safety layer expert company to make sure that as we drive forward with autonomous software development that we're leveraging their skill set. So that's a partnership. We bought JCA last year, kind of an industry -- a hidden leader in autonomous development. You're going to meet the engineering manager of that tomorrow at one of the stations, He'll talk to you about what they've been doing and what they are doing. So we feel pretty good about our internal tech stack and the investment in Apex AI.

Damon, do you want to hit on financial amounts?

I think, Jerry, the way to think about from an R&D perspective, we've been increasing our R&D over the last couple of years. I think directionally, 4% of sales sort of the long-term run rate. This year, again, we've got asked questions. It's about a $100 million increase from $22 to $23 million. The vast majority of that is technology orientated. So we're hiring software engineers around the world. We're working on the iron as well. But think about 4% directionally per year. But again, it's about $100 million this year increase.

Steve Fisher from UBS. Eric, you mentioned in the beginning about how you've doubled the Fendt business over the last couple of years, and you're going to double it again. Can you talk about sort of the makeup of the different -- what's going to be different in the second doubling than the first doubling? Was it maybe more tractors first, then it's going to be the combines, leveraging different customers? How is this each phase going to be different?

2 things. You had to earn the right to be fed. -- had earned right to be a Fendt product you had to earn a right to be a Fendt dealer. So step by step, we've been bringing in Fendt products. One after another, we've been bringing tractors into the North America and South America markets that have earned the right to be Fendt. So historically, say, 10 years ago and say, why didn't you bring Fendt over then? They weren't designed for North America farming. They were designed for European farming and they were kind of locked in. So one after another, we've been redesigning the entire tractor platform to be able to be greater the European farming and greater North America pharma. It's a different tread spacing of how wide you plant the rows of crop in North America versus Europe. Now the tractors fit. So tractors was one evolution, bringing on the ideal combine, developing the Momentum planter. We just launched the sprayer, which is the latest new product. Sprayer, planter, tractor, combine. So step by step over the last 5 years, we've been adding the portfolio, and that's been kind of a ramp-up period. And that's why we -- some of these are still fresh. And in fact, we still haven't brought all of those into the market yet. So there's a product element. Then there's a dealer element. We grew from maybe 20% market coverage to about 75% market coverage today with the stores we've turned on to say you can offer Fendt -- in a given dealer we had several of our best dealers here today. In a given dealership, maybe they have 20 stores. Store by store, they had to earn the right to sell Fendt. I don't think there's any dealers that all their stores can sell fend -- they had to have the highest bar of technician training part stocking, all the capabilities to deliver the world-class experience of Fendt. So there's a channel growth element, product maturity element, and we think both of those still haven't fully deployed in the marketplace. Thank you.

Larry De Maria, William Blair. Just a follow-up on Steve's question on Fendt first. Can you talk about the -- you doubled one to kind of double again the cannibalization of Massey, what the impact has been over the last few years and how you think it plays out over the next few years? Where is that share coming from? Obviously, some of that must be coming internally. And then secondly, on the targeted spraying we have a green solution. You have your Precision Symphony and then there's kind of a shared bush solution. Why do you need Bosch to come in for your solution if you're going to obviously develop one internally? And then what are the shared economics going to be like? And what's the margin impact?

Yes, yes, yes. Okay. kept thinking about your second question. Cannibalization, I feel really clear about. These are 2 very different products going after very different customer segments. So before we even reset our strategy, we had a whole project on brand identity, brand value proposition, targeted customers. So we've segmented the customer -- the marketplace in every region in the 5 customer groups. Fendt goes after a certain set, Massey goes after an entirely different set. And so they have -- if you sit in a tractor and a Massey tractor side by side, it will be very clear to you that -- you don't even have to ask anybody any question to say, "Okay, this is going after a different customer than this one. The go-to-market strategy is different in terms of the service offering we offer. So I feel very, very comfortable. There's been minimal cannibalization so far, and we expect it will remain that way. We have a whole brand governance group within the company to make sure everybody plays their position on the field. Second one is on targeted spraying. Why I have 2 solutions, Seth hit on this. It's essentially going after 2 different kind of customer groups again. There's the Bosch BASF that's highly featured but then highly more high-priced solution for most likely larger farmers that demand a very high precision solution. The retrofit solution is going to go on anybody's existing sprayer, all the brands but at a much lower price point. And so we're going after 2 different segments that way with 2 different solutions. 10 years from now, we'll see how much sharing goes on back and forth and all that type of thing. But right now, it's such a huge opportunity going from spring and entire field with every square inch to targeting, we felt like having 2 horses in the race is a good thing.

Kristen Owen from Oppenheimer. A follow-up to Larry's question first. Regarding the unit economics since Seth, you mentioned we should ask that question. Today, if we look at that net farm income impact that you're having, 6% for planting, I think, if I'm remembering the slide correctly, what is your share of that value capture today? And how should we think about some of the future product pipeline in terms of what you can capture of that 20% net farm income impact?

Yes. The way we look at it is we want to be able to capture half of that and because we think that the value is there for the farmer and especially with the short payback period, we found very good success with that. So it's a very simple formula. I won't say it applies perfectly because farmers have different results. in different areas. There are times when they say, "Boy, you messed up in pricing that one and makes us feel good about what they got, but probably could have been a little more economically viable on our side. But then there are something that takes a little bit longer. So we're working through that. But I think, again, the key is we don't see autonomy as a product. We see it as an evolution of automating many, many steps, and we expect to leverage this model all the way along as we automate those steps.

Awesome. Great. Well, thank you very much for your attention. Thanks, everybody, on the Internet for joining us. And we wish everybody a pleasant evening, and we look forward to talking to you soon. Thank you.