Operator: Our next question will come from Mig Dobre with Baird. You may now go ahead.
Mig Dobre: 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?
Eric Hansotia: 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?
Damon Audia: No.
Mig Dobre: And as far as talking about this order book kind of an apples-to-apples basis, can you help us there?
Greg Peterson: 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.
Mig Dobre: 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?
Damon Audia: 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.
Mig Dobre: Appreciate the color. Thanks.
Operator: Our next question will come from Stephen Volkmann with Jefferies. You may now go ahead.
Stephen Volkmann: 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?
Damon Audia: 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.
Stephen Volkmann: 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
Eric Hansotia: 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.
Stephen Volkmann: Got it. Thank you, guys.
Eric Hansotia: Thank you.
Operator: Our last question will come from Nicole DeBlase with Deutsche Bank. You may now go ahead.
Nicole DeBlase: Yes. Thanks. Good morning guys. Thanks for fitting me in.
Eric Hansotia: Good morning Nicole.
Nicole DeBlase: I think Chris 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?
Damon Audia: 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.
Nicole DeBlase: 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?
Damon Audia: 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.
Nicole DeBlase: Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks.
