Corteva Inc (CTVA) — Q2 2023 Earnings Call Transcript

Good morning and welcome to Corteva's second quarter and first half 2023 earnings conference call. Our prepared remarks today will be led by Chuck Magro, Chief Executive Officer; and Dave Anderson, Executive Vice President and Chief Financial Officer. Additionally, Tim Glenn, Executive Vice President, Seed Business Unit; and Robert King, Executive Vice President, Crop Protection Business Unit, will join the Q&A session. We have prepared presentation slides to supplement our remarks during this call posted on the Investor Relations section of the Corteva website and through the link to our webcast. During this call, we will make forward-looking statements which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including but not limited to, those discussed on this call and in the Risk Factors section of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we'll be making references to certain non-GAAP financial measures. Reconciliations of the non-GAAP measures can be found in our earnings press release and related schedules, along with our supplemental financial summary slide deck available on our Investor Relations website. It's now my pleasure to turn the call over to Chuck.

Thanks, Kim. Good morning, everyone, and thank you for joining us. In the first half of 2023, Corteva continued to deliver top and bottom-line growth with over 180 basis points of operating EBITDA margin expansion driven by strong demand for Corteva's proprietary technology. This is translating to another year of anticipated growth and significant margin improvement as we remain on track to deliver the 2025 financial targets we laid out at Investor Day last September. Seed continues what can only be called a terrific performance in the first half of the year, with about 240 basis points of operating EBITDA margin expansion and double-digit organic sales gains in corn. North America is benefiting from higher corn acres and pricing actions, both of which offset higher input costs. Our market share in Seed remains strong. In the U.S., the first half of the year saw double-digit revenue growth in Pioneer and Brevant as customers recognize the value our products provide. We are pleased to see Enlist E3 recognized by the market. This year, Enlist E3 is the number one selling soybean technology in the U.S. We expect E3 beans to be on at least 55% of U.S. soybean acres in 2023. Further strengthening our portfolio, we launched PowerCore Enlist Advanced RA for corn, providing farmers with the added flexibility of a new technology along with an advanced combination of aboveground insect control, herbicide tolerance, and industry-leading genetics available to farmers in 2024. This enhances the strong technology position for our leading seed brands as well as creates new out-licensing opportunities. In Crop Protection, farmers continue to invest in products to enhance and protect crop yields. However, customers are adjusting their purchasing patterns to reflect the macroeconomic environment. A combination of factors from interest rates to supply availability, to working capital management is motivating buyers, including retailers and distributors, to adjust the timing of their purchases to be closer to their intended use. We see these actions as a result of supply chain rebalancing and believe they could persist at least through the end of 2023. Our Crop Protection business remains resilient by focusing on levers within our control. The team is delivering on our strategy, including pricing for our new and differentiated technologies as well as executing on portfolio and productivity actions. We have made excellent progress on building our Biologicals business, including the integration of our recent acquisitions which are on track to deliver $90 million of EBITDA in 2023. We continue to advance our pipeline of new active ingredients with the expected global launch of Reklemel Active later this year, pending regulatory approval. This is a first-of-its-kind selective nematocide that targets harmful organisms while not impacting beneficial organisms in the soil. This reflects the continued journey of introducing new sustainable differentiated tools to the farmer. Agriculture fundamentals remain positive. Our products continue to be in high demand and we are laser-focused on executing our strategy and becoming more efficient. At the same time, to reflect the current industry environment, we are adjusting our full-year net sales guidance down by about 4% versus the midpoint of what we guided last quarter, driven by muted sales growth in Crop Protection as the channel destocks. We are also modestly reducing the midpoint of our 2023 EBITDA guidance, reflecting the revenue reduction, partially offset by strength of product mix, royalty reductions, and cost actions. Now, let's turn to the market outlook. Recent USDA estimates have yields in the U.S. to be below trend line for the third year in a row. Even with below-trend yields, given forecasted production in the U.S. and Brazil, ending stocks are expected to build, which may put pressure on prices. Commodity prices for the 2023 crop are expected to be down from recent highs but still remain above historical averages. The continued impact of Russia's war on Ukraine, along with projected record demand for grains and oilseeds for food, feed, and biofuels are currently expected to keep prices at profitable levels. The demand for biofuels hit a record in 2023, with the expectation this will grow again in 2024. At the end of the day, the world needs to produce more crops with less land and a reduced environmental impact. This, we believe, is a recipe for our top-tier genetics and differentiated crop protection technology solutions. We're seeing strong demand for Biologicals and Biofuels and we're investing in those areas. Therefore, our overall view is that we will continue to see favorable farm income and demand for inputs. In this environment, farmers are more incentivized to increase and protect their yields. Following a record year in 2022, 2023 is estimated to be in the top 5 on record for U.S. farm net income, allowing farmers, particularly in the Americas, to expand planted acres and also invest in proven technology to safeguard their profitability. Now, let's take a look at the Crop Protection market in more detail. When we spoke to you in early May, we highlighted a change in buying patterns, driven by improvements in supply chain reliability as well as higher interest rates, particularly in Latin America, where we were expecting order patterns in the second half of '23 to look closer to pre-'22. We also noted two weather-driven hotspots of elevated channel inventories, fungicides in Latin America due to drought and insecticides in Asia Pacific due to wet conditions. What became clear in the latter part of the second quarter is the combination of events that have caused orders to shift to a more just-in-time approach. This focus on inventory levels has resulted in a pullback in orders late in the second quarter which was most pronounced in Latin America, followed by North America. Order books are closer to where we'd expect them to be in Brazil at this time of year based on historical patterns. We've included in our updated guidance the pushout of Latin America volume to the second half and continued destocking in North America. Against this backdrop, farmers continue to invest in top-tier technology to drive productivity at the farm. From Corteva's perspective, we believe our renewed focus on differentiated and sustainable solutions makes us more efficient and better able to lead through these dynamic market conditions. The strategic and operational decisions we made last year have allowed us to get ahead of the crop protection industry-wide channel destocking and set us apart from our peers. We continue to advance our strategy by strengthening our portfolio and investing in R&D to drive strong, sustainable growth. Our first-half performance and continued demand for our differentiated technology provide confidence in our 2025 targets with clear value creation levers largely within our control. And now, let me turn the call over to Dave.

Thanks, Chuck, and welcome, everyone, to the call. Let's start on Slide 7, which provides the financial results for the quarter and half. As Chuck said, and you can see from the numbers, we had a solid first half against quickly evolving market conditions. Briefly touching on the quarter, organic sales were down 4% compared to the prior year with pricing gains in both segments more than offset by declines in volume in Crop Protection. Volumes were impacted by strategic portfolio actions and the exit from Russia, which combined represent an approximate $240 million headwind in the quarter. In addition, we saw delayed customer purchases due to weather, higher interest rates, and supply availability, again, particularly in Latin America and North America. Despite the reduction in top line growth, improved product mix and ongoing productivity and cost actions translated to earnings growth of 2% and nearly 140 basis points of margin expansion. Now focusing on the half, organic sales grew 2%, with broad-based pricing gains. Global pricing was up 11% with strong execution in both Seed and Crop Protection. Seed volumes were down 5% versus the prior year, largely driven by the decision to exit Russia, with Crop Protection volumes down 16%, which includes a 5% headwind from strategic portfolio exits. The top line performance translated into operating EBITDA of nearly $3 billion for the half, an increase of 8%. Pricing, favorable product mix, and productivity more than offset higher input costs and volume and currency headwinds, driving more than 180 basis points of margin expansion. So let's go to Slide 8, where you can see how the performance of our Seed business offset the Crop Protection market headwinds in the first half for total company sales growth of 1% compared to the prior year. Seed net sales were up 8% in the first 6 months to more than $6.9 billion. Organic sales were up 9% on strong price execution as we continue the price for value strategy and also offset higher input costs. Global seed price was up 14% for the half, with pricing gains in every region, led by North America and EMEA. Seed volumes were down 5% versus the prior year. Gains in North America driven by increased corn acres more than offset fewer soybean acres. Volume declines in EMEA were driven by the exit from Russia and lower corn planted area, with Latin America and Asia Pacific volumes down due to delayed plantings and also seasonal timing shifts. Importantly, the exit from Russia represented a 3% headwind for the Seed segment. Crop Protection net sales were down 9% compared to the prior year, to more than $3.9 billion. Organic sales were down 9% for the half, with pricing gains more than offset by lower volume. Global Crop Protection pricing was up 7% for the half versus the prior year, reflecting pricing for the value of our differentiated technology as well as to offset higher raw materials globally and currency impacts in EMEA. Crop Protection volumes were down 16% for the first half, impacted by the shift in order patterns that Chuck referenced, as well as the roughly $240 million headwind from the strategic portfolio actions and exit from Russia. Currency headwinds on both Seed and Crop Protection were 3%, largely driven by European currencies. Finally, the Biologicals acquisitions added $135 million of revenue since we closed on the deals in early March, which is reflected in portfolio and other. Taking a step back, the performance in the first half showcases the strength and complementary nature of our diverse portfolio. So let's go to Slide 9 for a summary of the first half operating EBITDA. You can see the operating EBITDA increased approximately $220 million to just under $3 billion. Pricing and product mix, coupled with productivity and cost actions more than offset declines in volume and higher cost in currency headwinds. We took a significant step in the journey towards royalty neutrality with more than $150 million of combined benefit from increased royalty income and a decrease in royalty expense driven by the continued penetration of Enlist. The nearly $450 million of net cost headwind was related to seed commodity costs and unfavorable yield impact, as well as crop protection inflation. Crop Protection raw material costs were up about 5% versus the prior year as we sold through higher cost inventory. In total, market-driven cost headwinds and other costs were mitigated by the improvement in net royalty expense and $175 million of productivity savings. SG&A spend in the first half of the year was about flat versus the prior year. It reflects the inclusion of approximately $50 million in SG&A from the Biologicals acquisitions. So excluding the acquisitions, SG&A is down versus the prior year as we maintain disciplined spending and execution on cost actions. Investment in R&D was up roughly $80 million for the half, aligned with the targeted spend increases to support our leading position in ag technology. Portfolio and other gains in the half were driven by the Biologicals acquisitions which contributed $22 million of EBITDA. Currency was a $228 million headwind, again, driven primarily by European currencies. Turning now to Slide 10. I want to take you through the Crop Protection segment. We now expect net sales to be in the range of $17.9 billion to $18.2 billion or 3% growth at the midpoint, roughly $700 million lower than the previous guide. This is largely driven by North America and Latin America Crop Protection. And consistent with the prior guide, we expect approximately $450 million of net sales for the full year from the Biologicals acquisitions. Operating EBITDA is now expected to be in the range of $3.5 billion to $3.65 billion, 11% growth versus the prior year at the midpoint. The updated guidance is driven by lower top line growth, partially offset by improved product mix and greater-than-expected benefits from reduced net royalty expense as well as productivity and cost actions. Importantly, with the strength of Seed performance in the first half and Crop Protection's improved product mix, we now expect an operating EBITDA margin of 19.8% at the midpoint of guidance or more than 130 basis points of margin expansion over the prior year with growth in both Seed and Crop Protection. Operating EPS is expected to be in the range of $2.75 to $2.90 per share, an increase of 6% versus the prior year at the midpoint. The change in guidance reflects lower earnings, partially offset by a lower forecasted effective tax rate and also a lower share count. Now it's important to point out the allocation of earnings between the third and fourth quarters. Again, we expect order patterns to be more consistent with historical timing. This timing in Latin America sales, coupled with the seasonal patterns of the Biologicals acquisitions, is expected to result in nearly all of our second-half earnings to be delivered in the fourth quarter. Free cash flow is now forecasted to be in the range of $1 billion to $1.2 billion. We expect share repurchases to be approximately $500 million for the year, including $330 million that we completed in the first half. Of course, we recently announced a 7% increase in the dividend consistent with the dividend growth strategy. On Slide 11, I want to remind you, importantly, of the value creation framework we introduced at last year's Investor Day to accelerate our performance and deliver greater value to shareholders. The 2025 financial targets we presented included operating EBITDA of $4.4 billion or a 22% margin at the midpoint. This slide includes those 2025 financial performance targets and it also reflects today's guidance for 2023. Execution on our strategic decisions, including exiting low-margin commodity products while delivering a cumulative $250 million reduction in net royalty expense and disciplined cost actions, is driving margin expansion while also enabling increased R&D investment. While we're revising our 2023 revenue and EBITDA guidance, we're confident that we're on track to deliver the 2025 earnings targets. With that, let's go to Slide 12 and summarize the key takeaways. Again, we believe ag fundamentals remain positive and demand at the farm level is stable despite the significant Crop Protection market pullback that we're experiencing. We believe Corteva is well positioned relative to the market, despite the industry-wide destocking trends and some macro-level headwinds. Our revised full-year guidance is proof of the strength of our portfolio with continued sales and earnings growth in 2023. We believe this performance differentiates us from others in the industry. Finally, our expected 2023 performance supports our 2025 financial targets and provides us confidence that we're able to execute and grow. And with that, let me turn it over to Kim.

Thanks, Dave. Now let's move on to your questions. I would like to remind you that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

With the new '23 guidance and the reiteration of the '25 targets and obviously, the complexity of the crop chemical market right now, could you help bridge us through '24 to '25? In other words, what's changed about the algorithm or the growth by segment on the top line, it's still going to let you get into that zone? Or is it more likely that you're going to just be at the lower end of that '25 revenue target now and make up the EBITDA, maybe with more productivity? Or sort of what's changed today versus, I guess, a little less than a year ago in the algorithm between '23 and '25?

Vincent, let me share a few thoughts before handing it over to Dave for more specifics. We believe not much has changed. The channel and industry-wide destocking have indeed been a significant issue, occurring faster than anticipated. However, we see this situation as temporary and unsustainable. As we plan for 2024 and address your question about 2025, we believe we are still on the same trajectory we outlined back in September. Much of what we need to deliver is within our control. We are aiming to reshape our overall strategy and company portfolio. In 2024 and 2025, we will continue with many of the initiatives we've focused on over the past two years. For instance, we expect our new products in Crop Protection to keep growing. They have performed well so far in 2023 and we anticipate continued growth for the remainder of the year. By the end of this year, we will have completed about 80% of our product and country exits. We've mentioned already that our royalty expenses are lower than we anticipated. We originally projected a $100 million reduction, but we're now looking at around $150 million and are still on target for $250 million by 2025. Additionally, we expect to see lower costs impacting our P&L in both Seed and Crop Protection through 2024 and into 2025, though it’s still too early for specifics. We plan to continue investing in R&D at a target of 8% of revenue. Overall, we feel confident that we are on the same path. While the channel destocking issue is present now, we believe it will be resolved this year, though there may be some lingering effects into next year. The framework we've established remains one we are very confident in. Dave, do you have anything to add?

I have a few quick points, Vincent. First, as Chuck mentioned, we're experiencing strong performance in terms of margins and EBITDA, despite facing volume challenges in the Crop Protection business this year. This is largely due to our effective cost management and the improvements made through our portfolio refinements, along with advancements in our seed technology and enhanced differentiation in the Crop Protection sector. This formula is proving effective, and we're seeing quicker results in margin rates and EBITDA, even with the current volume headwind. We will provide updates as we move into 2024, and soon we will share our guidance for the upcoming year. Currently, as Chuck noted, the overall fundamentals look positive. We are addressing the industry-wide destocking issue and inventory corrections that have occurred this year, which will take some time to resolve. Nevertheless, our outlook remains optimistic as we anticipate continued improvements in cost performance and margin performance. I hope this information is helpful.

Chuck, can you discuss the timing of the destocking in May, June, and July, and what you are currently expecting or observing in August? Do you think we are nearing or have already passed the peak of the destocking?

David mentioned that the situation in the industry became clear quite quickly and shifted from thinking in terms of specific pockets to a more widespread issue. By the end of May, it was evident that the inventory challenges were more systemic. On-farm demand remains strong and has shown consistent low single-digit growth in organic revenue over the past few years. The industry has strong visibility on data related to inventory levels. However, since late May, there has been a significant pullback by the distribution channel due to excess inventory. They expect this issue to mostly resolve by the year's end, but there are concerns about some product lines and regions continuing into 2024. They are preparing for that and will collaborate with channel partners. Additionally, with rising capital costs and interest rates, there is a return to pre-2022 operations within the industry, particularly in North America and Latin America, where supply chains are adept at just-in-time delivery. This shift will impact seasonal trends, especially in Q3, which is why they have shared a forecast regarding earnings distribution between Q3 and Q4. Nonetheless, they remain optimistic about 2024, as demand for grains, oilseeds, and biofuels is at record levels and farmer margins remain healthy despite lower crop prices. They have not observed changes in purchasing habits from farmers. There is a possibility of some lingering destocking effects in early 2024.

Yes. Just to peel the onion a little bit more on the Crop Protection destocking. As you survey the world, do you think there's more excess at the distributor level or the end-user grower level or both? And I guess maybe a related question. Can you speak to the 3Q, 4Q earnings cadence? I think you made a comment that earnings would be mainly in the fourth quarter. Obviously, you have a lot of seasonal effects even in a normal year but just kind of wondering how the destock will affect that in terms of your current planning view.

Kevin, let me take the question on where the inventory is or our belief and then Dave, you can cover the Q3, Q4 split, please? Look, this is, I'd say, mostly an issue in the channel. So the distributor in the retail channel is where the surplus inventory is and where it needs to move to the farm. It depends on where you're talking around from on-farm storage but I would say, broadly speaking, there isn't a lot of on-farm storage in our major markets. If you look at the crop protection inventory levels, there would not be typically a lot of on-farm storage. We believe that this is clearly an inventory issue in the channel. Could there be some leftover or totes on the farm? Yes, absolutely. But I think if you step back and think about how did we get here? Right? I think what clearly happened is when the supply chain issues were front and center, I think the channel ordered more than they needed just to ensure reliability of supply. Farmers typically wouldn't take that product. We're pretty confident that we know where it is and it is moving out. I think there's been a lot of progress made in the last few months. We can see it in the data. So we're optimistic that this is heading in the right direction. Dave, do you want to talk about Q3 and Q4?

Certainly. To kick off the discussion on Q3 and Q4, let's briefly touch on the guidance for the second half of the year. The midpoint of our revenue guidance at $18.5 billion indicates a year-over-year revenue increase of $500 million. Notably, this includes our Biological acquisitions, which account for approximately $300 million of that increase. Regarding EBITDA, last year's projection for the second half was $466 million, while this year it stands at around $600 million, with the Biological acquisition contributing about $70 million. For the full year, we expect a $90 million contribution from Biologicals to EBITDA, broken down into $20 million for the first half and $70 million for the second half. This contextualizes the expected growth for the latter half of the year. In terms of Q3 and Q4, the focus is on the timing of contributions from Latin America and our acquisitions, particularly the Stoller acquisition, which will primarily impact the fourth quarter and especially Brazil. For our Seed business in Latin America, there is a standard distribution from Q3 to Q4, and we're recalibrating our Crop Protection business expectations based on our previous communications from May. We now have more clarity on this, reinforcing the importance of the fourth quarter. Historically, the distribution patterns are consistent with past years, particularly differing from 2021, with 2022 being an exception in Latin America's distribution.

Great. As we start considering 2024 along with some variables that you may have clearer visibility on, or that are directly within your control, could you touch on a few of those? Specifically regarding net royalty reductions, E3 penetration, how we are viewing costs related to presumably lower payments to certified growers, and the easing of CPC inputs. When we look beyond just price and volume, could you share some initial thoughts on how we should approach these factors with 2024 in mind?

Yes. Chris, so look, lots of time to talk about 2024. We haven't really started our detailed planning sessions yet. But the way we're thinking about it, just to give you sort of the directional thoughts. First, the ag setup looks pretty constructive as I've mentioned. We still think that we're going to have above-average historical pricing. Obviously, with the size of the crop in Brazil right now, we're going to have some rebalancing of stocks but still, I think, relative tight market conditions. We've got healthy farmers around the world. They just come off two record years. This year won't be a record but it's still going to be at least in the U.S., we think a top 5 year. So the setup is very constructive. When you place that sort of what's happening at Corteva, the bottom line is that we see another year of growth and of margin expansion, very consistent with the 2025 framework. The levers are the same levers we've talked about. We expect to see significant growth in our new crop protection products. As you recall, last year, we finalized the spinosad expansion. We're seeing incremental volume go into the market this year and we'll see growth in 2024 and 2025. I already mentioned royalty expenses, but we're probably trending a little ahead of plan to get to the overall $250 million by 2025. The thing that we need to unpack a little further is that obviously, with crop prices the way they are today in raw materials on the chemical side, we are going to start to see lower costs flow through the P&L. When we put all this together, the construct looks very similar to what we've laid out historically. We don't see any sort of major deviations from what we've communicated. It is early days, so I'll caution you that this is just our initial thinking. So far, what we would say is that the setup for 2024 looks quite constructive.

I'll just throw a couple of questions in together. Can you just tell us what you expect crop chem volume formats to be like in the second half of the year? I'm not sure if you're projecting growth year-over-year, just reiterate that. And then maybe for Dave, on free cash flow conversion, you dropped free cash flow a couple of hundred million dollars this year. I know you were hoping to find some way to increase conversion, maybe get to a 40% plus number over the next year or so. Can you give us an update on what's going on there and then how you might improve it over the next little while?

Sure. Let me provide the crop numbers. It's important to note that when we analyze our figures, we need to account for product exits and the strategic decisions we've made. On a reported basis, the crop business saw a volume decline of approximately 16% for the first half, but if we factor in the exits, the real impact is closer to a 10% decrease. This accounts for about 6 percentage points in the first half linked to those decisions. In the second half, we are looking at a reported volume change of about 4%. However, when adjusted for certain factors, including the store acquisition, the growth would actually be around 8%. This increase is primarily due to a significant shift of business in Latin America from the first half to the second half. Additionally, for Brazil, market research data indicates that from the first quarter to the second quarter, there has been a sequential improvement in overall inventory levels and strong sellout rates, meaning product is effectively reaching the market.

Yes. Just one comment before you talk about free cash flow. Joel, the way Dave has described that the way we think about the market is excluding glyphosate. So it's a very important call-out because we don't play in that market, it's such a large market and such a commodity that when Dave referenced our volumes against the market backdrop, you need to exclude glyphosate, just to call that out. So Dave, over to you on free cash flow.

Yes. So just very quickly, just to kind of go through a couple of the numbers and then go specifically to your question in terms of directionally, what do we see in terms of cash flow and cash flow conversion going forward. For the first half, as you pointed out, we've had higher use of cash on a year-over-year basis. That's really related to the phenomena of working capital, including payables and the payables have to do with more cash outflow in terms of growers comp on the seed side, which is all explainable by the size of the business, the growth of the business as well as commodity costs and our pricing actions. On the other side of the payables is trade payables, which is really attributable to what we're doing in terms of inventory management on the crop protection side of the business, where we're really pulling back, obviously, very understandably in terms of procurement there. For the full year, the $1 billion to $1.2 billion translates to, let's say, at the midpoint, $1.1 billion against our EBITDA translates to about a 30% cash conversion at $1.1 billion using our midpoint of our EBITDA guide for the full year. This figure is about a 50% conversion if you use the cash to operating earnings relationship, in other words, the numerator of our EPS calculation which is another way to calculate conversion. When you look at what's happening in the second half of the year, working capital is really becoming a source of cash and it's really attributable to the fact that we're growing but holding working capital levels basically on a year-over-year basis, holding constant and coming down, obviously, from our first half levels in terms of inventory but also increasing in terms of payables. When you look out to 2024 and 2025, again these sort of directional numbers, what we would be looking at for the 2 years, '24, '25, something in the neighborhood of 50% plus in terms of cash flow conversion, if you look at, again, a cash-to-EBITDA relationship that would translate to around 80% plus when you think of cash relative to operating earnings for those periods. That's dialed in. We think we have all the right disciplines, capabilities, et cetera. It's consistent with what we referenced earlier in terms of our confidence in our outlook in terms of our earnings targets for '24 and '25.

I wanted to focus in on the Seed side of things because that was obviously clearly impressive performance and congrats on E3 or Enlist E3 getting to the 55% mark. So you're clearly gaining share on the soybean side. Your corn growth, 20% was also pretty impressive. Can you talk about your overall feelings on market share gains? And what are some of the underlying factors behind that?

Frank, yes, I appreciate the comments on success Enlist and how the year turned out. So in terms of market share, maybe a few thoughts here. As we came through the year, we felt we could sense obviously, customer-level order activity and we knew that there was good momentum towards corn and felt like soy was definitely a little bit slower in terms of order and farmers' intentions had shifted a little bit. As we sit here right now, what I would say is very early to declare one way or another. At the time that the June 30 USDA report was included, I think there was still on the order of about 2-plus million acres of corn to be planted from farmers and something north of 6 million acres of soybeans still to be planted. This opens the door for there to be revisions. We know the USDA will revise those over time. Given where we're at right now at the call it, the 83-plus million acres on soy and 94-plus million acres on corn, we'd be looking at a slight share gain with obviously very strong value capture on corn but that's at the current level of area. In terms of soy, again, I would have felt a little bit more comfortable with our order position throughout the year. It is actually quite a bit stronger of a share gain at that 83-plus million acres. So we feel good about how the year turned out. Clearly, from a value capture standpoint, it was outstanding. From a volume standpoint, very satisfied at those levels. We're going to continue to look as the USDA revises over the coming months if there are material adjustments that are made that could impact the final share numbers. That kind of summarizes how we look at share right now. We're not going to declare victory at this point in time but we feel good about where we sit.

Reach our 2025 EBITDA guide. Do you assume positive pricing in Seed overall for 2024 and 2025?

Yes, the answer would be, yes.

Yes, Jeff, it's Chuck. So I think Dave hit it but we've communicated this before, right? The way we try to price for Seed is price for value. We have a big R&D machine. We're bringing out new hybrids every year. If you looked at some of our recent announcements, we've also brought out what we call our next-gen trade packages. I called out PowerCore actually in our prepared remarks but we also announced for Seed as well. We will certainly price for that. I'd also say that what it does is it opens up the door for us to out-license this new technology. Maybe, Tim, you can talk a little bit about some of the progress we've seen even with Enlist.

Yes, absolutely. The way we think about '24 and '25 is getting more back to that traditional pricing metric where it's about new products that we bring in. We're constantly bringing in new varieties and hybrids into our lineup that bring more value and that opens the door for us to price. As Chuck said, it's really exciting when you think about the out-licensing opportunity. Just four years ago, we really didn't participate from a licensing standpoint. As we sit here today, we've got four traits that we're able to license in the marketplace. So in Enlist E3, as we made the significant shift this year into our proprietary seed, this opens up the door for us not just to have the 100 trade licensees that are out there today but all of a sudden, we've got our own proprietary germplasm that is accessible. We are making nice gains into that licensing. We're making nice gains into Enlist E3 soybeans in our own Corteva germplasm. In Latin America, we've got Conkesta E3 soybeans. Again, we're a couple of years out from our proprietary germplasm being there but we've got the most successful breeding organization in Latin America that is introducing varieties into the marketplace there. Chuck talked about PowerCore Enlist Refuge Advance and what that means to us. All of a sudden, we have the opportunity to go out there and participate with our trade. On a smaller scale, we have products like canola which we got approval for, again, not on the same scale as those other opportunities. It allows us to leverage our investment in that technology and again, be able to go out there and generate good returns in that canola market. It is an exciting time from an out-licensing standpoint in addition to our ongoing business in the brands.

And just to add to what I said earlier, just as a reminder, most of the pricing, the seed pricing, will have taken place through 2023. That's just a reminder in terms of the relative significance of those forward years.

Yes, a couple more Seed questions. That 12% pricing that you're getting in Seed, what fraction of that is underlying like-for-like pricing versus the share gain or the mix shift because of growers shifting to higher-yielding genetics, and then the other bucket being the acreage shift from soy to corn. Can you split that 12% that way? And then the net royalty reduction of $150 million, that was ahead of the guide. Did you pull some from the $100 million target you had for 2024? Did you pull some of that forward in that Enlist maybe has penetrated faster than you thought? Lastly, I'd like to hear your view on the value to you if the Europeans do adopt their gene editing rule for seeds?

Okay, a lot there and I'll take a shot to start off, Steve, and good to hear from you today. When you look at the '23 pricing, North America, obviously, very strong seed pricing overall. In terms of how you think about it between corn and soy, it would have been driven more by corn than soy. The benefit we had in soy, I would say, is we upgraded a fair amount of our Enlist sales to our proprietary germplasm. So our A-series varieties give us more opportunity, higher performing products, so it opened the door for more pricing opportunities on that side. In terms of royalty neutrality, we're on track for our, call it, $250 million reduction between '22 and '25. The overperformance, if you want to think about it this year, was driven by a couple of things here. First thing on the Enlist side is that we kind of overdelivered on a couple of fronts, if you will, from a U.S. business standpoint. We ended up with a higher level of our business of our mix and Enlist versus Extend. So we're now at about 80%. That’s a little bit higher than what we had planned for. In addition, the adoption of our proprietary germplasm was higher, we're a little over 80% on that side in terms of what our proprietary germplasm is for Enlist. All those things have coupled to allow us to convert a little bit faster. We are going to be fully converted over here in the next few years. The fact that we overperformed this year, you can think of it as an acceleration into 2023. Lastly, we believe that gene editing is that next level of agricultural science, very powerful tools that has the potential to be more impactful on Seed development and crop development than BT was 25 years ago. We are very excited about our R&D program in this area.

I had a question about the growth trajectory from 2023 to 2025, moving from 3.6 to around 4.4 or 4.3 in the midpoint for 2025. It seems like a consistent growth trend, suggesting a 10% EBITDA growth in 2024. I understand there is uncertainty since you are still in the planning stage, but how should we approach this? Can you break it down into major categories for us? It would be helpful to understand if you could categorize it by restructuring program gains, royalty reduction, market growth, and pricing.

Arun, I would say this, first of all, again, it's early for us to comment on specifics for 2024, and that's going to be a very important component or installment for us. It will give us a lot more detail and color around the components that you're asking about. I think the way I think about it is going back to Investor Day, where we provided the bridge or the walk, if you will, from 2022 forward. The way to think about that, again, it's the same buckets. The royalty neutrality, we said greater than $250 million, lower net royalties driven by Enlist. We said that we were going to have product mix, we were going to get the benefit of that. That's going to be a margin lift for us not only on the seed business as Tim articulated but also in Crop Protection with greater than 60% of our Crop Protection revenue coming from differentiated products. SG&A savings that translate into $400 million of savings. So that's a fairly significant testimony to what we're doing on that front. Operational excellence and then more to come obviously from both businesses in terms of their costs. We’re still very much committed to our increased R&D investment, Chuck cited the target of the 8% of revenue for 2025. So those are the same building blocks that are there today, very much. I think what you're seeing in terms of our results for the first half and our guidance for 2023 reinforces that. A lot more color will come as we develop our '24 plan and communicate that guide to you later.

And I'd now like to turn the call back over to Ms. Booth for any closing remarks. Thank you. So that concludes today's call. We thank you for joining and for your interest in Corteva. We hope you have a safe and wonderful day.