David Raso: Hi. Thank you for the time. I was curious, the thought about replacement demand and the market fundamentals are supportive of purchasing at replacement demand. Can you help us how you’re thinking about where retail sales will be this year versus replacement demand? Like you’re saying basically one for one. And obviously, when you model out, you obviously think about replacement demand in coming years. What is the base case right now for replacement demand, say, next year versus this year? I know it’s just a framework analysis, but if you can help us with, again, retail this year versus replacement and how to think about underlying replacement beyond this year? Thank you.
Josh Jepsen: Yes, good morning, David. Its Josh Jepsen. I’ll start. I would say in ’24, I think we’re relatively aligned kind of on replacement to retail. And again, the dynamics — the fleet fundamentals would say, “Hey, we’re still relatively aged. We’re above our long-term averages on high horsepower combines, slightly above kind of the long-term average. So the fleet age, while coming through a few years strong demand really has not gotten tremendously younger from where we’ve been in the past. So I think that continues to be supportive. The one other thing I would note is the incremental tool we have — this go around than we maybe did it a decade ago is our ability to drive technology and technology that can directly impact our customers’ bottom line.
So taking cost out, improving their profitability, improving their margins. And I think that is particularly helpful for us. As we think about precision upgrades, the ability to go back across the installed base, machines. We mentioned a few things. We’ve got a limited launch on See & Spray retrofit, which called See & Spray Premium or the precision ag essentials, which I noted. We’re seeing strong uptick. It’s allowing customers to get into these machines. We’re going deeper in the installed base and driving incremental business. So I think the combination of the desire to take cost out of their operations and improve overall productivity and profitability will remain, and we think that’s particularly important.
Operator: Our next question comes from Steven Fisher with UBS. Your line is open.
Steven Fisher: Great. Thanks. Good morning. You gave us some color on the visibility of the order book. But on the lower large ag sales outlook, I guess to what extent was that guidance reduction driven more by what you’re actually seeing at the level of the order books today on that visibility versus really kind of the momentum and the sentiment indicators and the grain prices are suggesting? Just kind of curious how you frame the confidence you have in the second half outlook. Do you think you’ve gotten enough ahead of where that momentum is trending at the moment? Thank you.
Josh Beal: Yes. I mean thanks for the question, Steve. Our best indicator of demand is our order book, and I think that was, by and large, the biggest driver here as we made these adjustments. As we noted large tractors, as we looked at velocity of orders, and we mentioned we’re out into the third quarter on orders, but we do see some velocity moderating there. And given that, I think that was a big driver of the change for the segment this quarter was reflecting what we’re seeing in our order books. Again, we talked some of the other changes beyond that. Similarly, I think some softening in the European side and some desire to take down inventories there is the other piece.
Josh Jepsen: Steve, the one thing I’d add is the other thing we watch closely is what’s going on with used? What’s happening with used inventories, what’s happening with used prices? And what we’ve seen is we’ve seen some uptick in used combine, for example, and used high horsepower, but still relative to historical — in decent shape. And pricing has held in pretty well. I think we’ve seen combines from a quarter ago have been up slightly. High horsepower tractors have been flat. However, watching that trend and being mindful and lessons learned from the past to tell us, hey, we want to make sure we’re exercising good caution there, knowing where our order books are, but also what are the some of the leading indicators, and that’s been a bit of a guide for us as well as we think about our revision here. Thanks, Steve.
Steven Fisher: Thank you.
Operator: Our next question will come from Tami Zakaria with JPMorgan. Your line is open.
Tami Zakaria: Hi. Good morning. Thank you so much. I was curious about the partnership with SpaceX. Could you give some color on how exactly this gets integrated into your product? Is this more about a tech enhancement that will come as a default in new machines? Or is there more to come? And more importantly, how do you think this partnership can be monetized over the long-term, be it in terms of share gains or price mix gains or maybe subscriptions? So any color there would be helpful.
Josh Jepsen: Yes. Thanks for the question, Tami. And I’ll tell you, we’re really excited about this. Aaron mentioned this in some of the opening comments, but connectivity is the foundation of Precision ag. And candidly, there are parts — there are regions around the world where there’s gaps in the connectivity. We talked about 70% gap in Brazil, even 30% gap in the U.S. as it relates to the total ag farmland. And so as we’ve introduced this, it provides a solution for that gap and really is a foundational piece to introduce new technologies. And what I would tell you is that the level of interest we’ve seen from growers really exceeded our expectations as we came out with the announcement. And what it really presents, it’s an opportunity to make Precision ag work in their operations.
In the very near-term, it provides benefit today in terms of things like access to data, remote data access, infield data sharing, which enables customers to run their operations better. And this also serves as the foundation for future technology. So as you think about autonomy in the future and the opportunity that, that presents, a foundational piece of this is getting on our machines. So Aaron, is there anything else you’d add there?
Aaron Wetzel: Yes. First of all, it’s super exciting to be able to announce the relationship with SpaceX and the value that this really unlocks for our customers, particularly in the areas where we don’t have connectivity available to them. Just having been in Brazil a few weeks ago and talking to customers there, they’re very excited about the opportunities this presents for their operations, being able to now connect their machines and to be able to do the things that Josh just referenced. In the short-term, we’ll be planning a retrofit solution as we bring this to market towards the latter part of ’24 and make this more fully available in 2025 and beyond. But the intent would be to bring that into factory installed options available for customers.
At the end of the day, we want to provide the tools for our customers, to be able to take advantage of the full tech stack and be able to improve the operation and the efficiencies of their farms, and this is a key enabler for them to do that. So we’re excited about the future that this brings.
Josh Jepsen: Tammy, it’s Josh Jepsen. To one part of your question there around how does this — as e create value, how do you monetize? I think there’s a couple of things. One, we would expect these to come through a solution as a service model. And on top of that, enabling — as you enable automation and enable autonomy, that comes with the combination of hardware and the potential for more of a SaaS solution as these things are getting better over time, and there’s ability to continue to improve on those products. So this is foundational, particularly for Brazil, but we think it’s going to drive a key component of how we think about solution-as-a-service going forward.
John May: Yes, Tammy, you can tell we’re excited. This is John May. I just want to jump in as well. The trend is definitely customers are wanting higher levels of technology, and they want us to rapidly accelerate that in markets where they don’t have the infrastructure to support it. Telematics, obviously, and the satellite solution gives us the ability to transfer data onboard and offboard the machine, but we also have several, several products that rely on that telematics connection, whether we’re sharing maps between machines, planters in a given field. So we’re going to monetize it through additional technologies that we offer today. In markets like North America, we’ll be able to quickly adapt those products and solutions, now that we have this connectivity in markets like Brazil, and we’re really excited about it. Thanks for your question.
Operator: Our next question will come from Nicole DeBlase with Deutsche Bank. Your line is open.
Nicole DeBlase: Just wanted to ask about particularly within Production and Precision ag, any help that you guys can give on quarterly cadence from here of both revenue and margins? Like is that under production more focused in the second half? Are you guys really going after that in the second quarter? That would be really helpful.
