Excellent. All right, good. I think we're good. The clock has started, so we will get going here. Thank you all for coming. Welcome to Crane NXT.
Thank you.
We have the CEO and CFO with us, and we're going to have a short, I think, prepared presentation because if you're anything like me, Crane NXT is new to you. I think it makes sense for us to set the lay of the land in terms of what you do, and then we'll dive into some Q&A.
Great. All right.
All right.
Well, thank you, Steve. Thank you for the introduction as well. It's wonderful to be here. My name's Aaron Saak. I'm the CEO of Crane NXT, and I'm joined by Christina Cristiano, our CFO, and we'll be certainly taking questions from Steve here in a few moments. As he alluded to, we thought it may make sense to start off with a few introductory comments and slides about the company for those who are new to our story, and even for those who've been with us since we went public about three years ago, to talk about the evolution that is today's Crane NXT. As the title slide here indicates, our focus of the company, everything we're doing, is around securing, detecting, and authenticating products for our customers, their most important assets. You'll see more of what that means here in a second.
I'll start with the normal customary disclaimers. This presentation is also available on our website as well, on the IR section of it. Let me first start with a little overview of the company, which is today, Crane NXT will be approaching $2 billion in sales. A hallmark of the company has been our adjusted EBITDA margins in the mid-20% range and very strong free cash flow. When you look at the company today, we've done quite a bit of diversification since we launched, with 35% of the business in printing, designing, and providing security features for currency, 25% in payment hardware, where we're validating, authenticating that currency, 15% in vending, and then we've expanded and diversified the company into brand authentication systems, inspection devices, and then the relevant services around those. Today, we have about 16,000 employees.
I think a hallmark of the company, and I would argue most of you, and I certainly haven't in my career, seen a company that has customers that have been with it for over 100 years. We do, and that includes many governments around the world, the most prominent being the U.S. And that's where we get a lot of our revenue, 50% here in North America. A highlight of the company, and one that continually helps us with our growth is our presence in emerging markets, which is now 25% of the revenue of the company. As Steve alluded to, while we're a new story, we're really entering the third phase of the evolution of the company. Phase one was leading up to the separation that formed Crane NXT from Crane Company, and that occurred back in April of 2023.
At that time, we were a $1.3 billion company with a TAM of about $7 billion that we were playing in. Since that time, we've purposely expanded the company around authentication, detection technologies, now growing the company up to, again, approaching $2 billion, almost doubling our TAM, all in these spaces, creating very wide moats in our technologies and our channels around authentication and traceability. What's driving us, where we're playing, is really centered on these three trends that we believe are durable, sustainable, and also where we have unique capabilities to take advantage of them. The first is the need for advanced counterfeiting technology. More things are getting counterfeited. In fact, today, most people believe about 2%-3% of all global commerce is counterfeit material, and that's coming from a variety of sources. That's obviously trillions of dollars of counterfeit.
What we're doing is fundamentally providing technology and services to help customers and governments protect against that. Secondly, supply chains are getting more digitized, and that really means track-and-tracing products through the point of manufacture, whether that's pharmaceuticals or food, or whether it's NFL or Major League Baseball apparel, all the way through the point of consumption to the consumer. That's a market that's growing. Then finally, emerging markets. For us, again, 25% of the portfolio and increasing as we position both organically and inorganically to take advantage of this trend. This is where we've grown the company in this TAM. We started at $7 billion with two operating companies called Crane Currency and CPI. We've made a series of acquisitions to form what we now call Crane Authentication, which takes us into the brand and further government identification space.
Most recently, earlier this year in April, we closed an acquisition of Antares Vision Group, which brings us into pharmaceuticals and food and beverage, all with the same core technologies of authenticating products, securing them, detecting that authentication, and then providing traceability through software. This is how we report today. We have two segments, Security and Authentication Technologies, or SAT for short, and Detection and Traceability Technologies. You can think of these two segments, and the way we think about them, is SAT provides the advanced science, the authentication or security technology, and DTT provides the equipment and services that actually authenticate those products, and some of the software that goes along with it. These are really the capabilities then, and how they fit together, from providing the secure technology, the track and trace software, the detection equipment.
What you see there is an example of a large piece of equipment that would be in a pharmaceutical line providing inspection and detection technology for different vials for a particular pharma product. The field service capabilities which commission that equipment and keep it up and running. Then I think a really unique capability that we have is the ability to sell across many parts of governments, from their equivalent of Department of the Treasuries to their FDAs to their Department of Homeland Security equivalents, where we talk about IDs. We have a real inherent capability of dealing with governments that's unique across the portfolio. Our legacy in the company has been built on a foundation of continuous improvement, and like many companies, we call that our business system or the Crane Business System.
Fundamentally centered for well over a decade in the same principles around Kaizen and Lean and 80/20 that the best-in-class industrials have nurtured. I am very proud to be coming from that type of pedigree and into a company that values it, and we continue to drive it. Over 140 Kaizens last year. We have what we call CBS tool champions. These are people trained in the tools to drive Lean and productivity across the enterprise, and you can see soon to be approaching 100,000 hours of training in the business system. This is our flywheel that we have put up here that shows how we use CBS to drive continuous improvement in the company. One of the hallmarks of the company is our free cash flow and our strong balance sheet. I wanted to spend a minute on how we think about capital allocation.
The first is to invest in organic growth to accelerate our top line, and we will be spending anywhere between 3%-5% of sales to grow the top line. A lot of that going in to expand our currency business, which has a backlog that is at an all-time high and a robust pipeline of opportunities that we see well into the future. Secondly is around M&A. We have done three sizable deals for us over our first three years. We will have about $1 billion of dry powder to deploy to continue to build on the franchise, and we will balance that as the case may be opportunistically with share repurchases, which are certainly possible for us as we de-lever the balance sheet. Then we pay a dividend that is approximately 15% of free cash flow.
I just wanted to share that as how we think about capital allocation in the business. Here is a summary of what we put out for the next several years. We see this business growing at a core growth of mid-single digits, revenue growing up to about $2.5 billion, while we keep net leverage below three, while still producing approximately 100% free cash flow at mid-20s EBITDA margins. I would suggest if you screen any industrial company that has those type of EBITDA margins, 100% free cash flow, and mid-single-digit growth, it puts us into some rarefied space in a mid-cap industrial company.
That is why I am very bullish, as you would hope I would be, on why you should invest in Crane NXT, because I do think we have hit an inflection point in the company through this portfolio transition that is well underway and only accelerating. We are into a TAM now that is double where we were two to three years ago, with unique wide moats around this business that are as strong and deep as I have ever seen. That is due to the differentiated technology. We truly are the technology leader, both with inherent intellectual property that is know-how, and with patents.
The operating metrics I think speak for themselves, with both EBITDA and free cash flow, and we have a long list of opportunities to go continue to build on the company through M&A, all keeping net leverage in a below three zone so that we're good stewards of the balance sheet. I think that it's an exciting time for us, Steve. I appreciate the opportunity. Hopefully that gives you a little indication of who we are and what we've done since we've gone public, and I'm happy to pause there, and maybe we'll go to some questions. Let me There you go.
Maybe I'll kick it off, Aaron. Maybe can we dive a little bit deeper into some of the T in SAT? What are the technologies that you use to sort of protect these various assets and what are the moats around them?
Yeah. Well, thanks for that, Steve. I'm going to use a prop if you don't mind.
Please. Yeah.
It is something I think folks will know, so I will start with U.S. currency.
Aaron will be giving these out after.
We both would have compliance issues if that was the case. The core technology that we have that has been our calling card is that blue strip you see down the $100 bill. We call that our micro-optics technology. It is the most counterfeit-resilient technology in the industry. It has never been counterfeited, and it was brought to the U.S. currency in 2013. That became the jump-off point to expanding this business to international currency, and here is a note from Ghana, one of our prime customers, where you can see our micro-optic technology on that banknote. Now this business is much larger even than our U.S. business. We expanded from that technology with some of the acquisitions, but also leveraging the technology to clients like the NFL. If you buy any piece of NFL apparel, you will see one of our material labels on the back.
That is our technology, and it is an equal combination of patents as well as know-how so that it cannot be copied. You will also see on it a serialization code, and that is what comes from our software. We are effectively the ERP behind the scenes, helping the companies track and trace the product and providing real-time data on where it is manufactured, all the way to where you buy your NFL products and what teams you buy, Steve. That is how we are using the technology across the portfolio. On the other side of it, we have our detection and inspection equipment that is reading. That is where we get to secure, detect, and authenticate as the full spectrum of the technology.
Whenever we talk about currency, I think the first reaction I get from people is, "Who uses currency?
Right.
That, I suppose, is the elephant in the room. Why don't we just-
Yeah
start with that, and then we'll work forward.
It is the biggest question we get out of the gate from most folks, and I appreciate it because I think we all probably fall into a demographic where your statement is correct. What I would argue here, and it's not an argument, it's an ask to go look at the facts.
Okay.
If you go look at the facts, what you find is currency in circulation has been growing by anywhere between 4%-6% over the last 40 years, and it's been the same for the last five. Which is hard for a lot of folks to believe because of our life experience, but it's true. If you look at even as recently as last week, where the U.S. government issued its new order for currency here in the United States for next year, volume is up significantly year-over-year. People and banks and the monetary system is still using currency, and that's most apparent particularly in emerging markets where we play, that's fueled by the growth of those economies that are still more cash-centric than we experience here today in North America.
The data is currency's growing, and I would argue the proof and why we're excited and investing in this business, Steve, is our backlog in this business is at an all-time high, and we are now taking orders out to over two years to simply fulfill the demand we see from central banks. The data is there to show this is a very resilient business fundamentally anchored on this technology.
I think you and I have talked a little bit offline about the penetration of these more advanced anti-counterfeiting technologies in currency is still quite low.
Quite low. For us, we have approximately 17% penetration. The math on that is there's about 1,000 denominations of currency in the world. Think 200 countries, about five denominations per country, roughly. We have about 170 that use our technology. Every year for the last almost decade, we've added somewhere between 10 and 15 to our portfolio. Last year, we added 20. We are on a pace to add at least 10- 15 again this year. We don't see that ending. It's why we are doubling the capacity over the next few years to produce our micro-optics technology just for the currency business, because we don't see it stopping for the foreseeable future. A lot of white space for us to grow.
Okay. If I am not mistaken, I think the U.S. Department of the Treasury has a schedule of updating and upgrading the currency over the next, what is it, six or seven years.
Yeah, it is almost 10.
Is it 10? Okay.
Actually, yeah, it is almost 10.
There's an annuity here.
That's right. It's a great annuity stream. Once you get designed into a currency, it's yours to lose, and you have it forever if you do a good job.
Okay. The other piece of this is, if I'm not mistaken, I think you're the only U.S. producer of this.
We are. We've had the contract for 150 years. We just, I'm happy to report, renewed it a few weeks ago. That's a wonderful win for us to renew the contract for the next several years ahead of us. We also produce the U.S. passport substrate. We've renewed that contract here in the last few months. There are very real impediments to any natural competitor in this market. We are, again, very, very happy with our position and the fact we've renewed our contract just in the last few weeks, that sets us up for the next decade.
Okay. We've done the currency, and we know what's driving that. What drives the detection part?
Well, the segment of Detection and Traceability Technologies is the other side of the coin, if you will. It's the reading of the anti-counterfeiting features for our currency business. It's also, with our recent acquisition this year of Antares Vision, bringing us into the pharma and food and beverage market, where we're able to provide security features, do quality control checks, and do traceability for drugs and food products from the moment they're made all the way to the store they're distributed at. So it's really more about hardware and services versus the other side of the portfolio, which is this core security technology.
If there's a new $20 bill, do I need a new machine to read that, or can you just reprogram it?
You will. When the new $20 bill comes out, there will be now a hardware upgrade cycle to both upgrade the hardware as well as the software that's required to read and authenticate those transactions.
Who buys that hardware generally?
It is different end markets. You can imagine for us, one of the most important is the gaming market, which we have a very significant market share of, as well as retail and financial services. Think of your cash-in-transit handling companies. The beauty of that market for us is it is very high margin compared to the rest of our business, is an oligopoly with really only one or two natural competitors that are very mature as well, and produces for us over 100% free cash flow, which helps us as we continue to deploy our capital into these other areas I mentioned.
I think the final piece you mentioned was some software content as well. How much of the business is software, and how does that recur for you?
Yeah. It is a combination. Some software gets sold with the physical assets, some get sold independently. Software is, call it roughly about 20% or so of the portfolio in terms of if you would disaggregate it.
Would we expect that to be significantly higher in five years?
It's going to continue to grow, and I think it'll be also where we're looking from deploying our capital in M&A, it's highly likely that continues to grow. If you look at the acquisitions we've done, they've had more of a balance of hardware and software. I think that's part of the moat of the business. You sell both the physical product with software, and that becomes very hard to displace from the competitor.
Okay. Let's switch maybe from currency to the non-currency part.
Sure
Pharma, et cetera. What kind of growth rates should we be expecting there, and what really drives that?
Yeah. To answer the first question, mid-single digits is what we would expect that business to grow at over the next several years. What's driving it is a combination of expansion of facilities, both in pharma and food and beverage. We will benefit as pharma onshoring occurs here in the U.S., as companies will be making increased investments to build out pharma lines. The second driver is regulation. Pharma is already regulated in the United States and Europe. It's not as regulated in other parts of the world. We have an advantage with our hardware and software to benefit as those regulations come into play, and it's just starting in food and beverage. There are regulations on the horizon here in the U.S. soon to require traceability of products back to the point of manufacture.
That, again, is a nice tailwind for the business. Going back to your question, mid-single digit growth with some opportunities to do better depending how regulations cave in.
Okay. Is it the same kind of micro-optic technology that you're using?
No, it's a different set of technologies, including this physical technology. It's everything from detection equipment that would do fluorescence or X-ray quality inspections and detection of any impurities in the product, all the way through coding, through the software that tracks that. It can use our micro-optic labels, and that's actually where we see a synergy in the portfolio.
Okay, great.
Yeah.
You mentioned the Antares Vision acquisition. Tell us about the integration process, and how that is going.
It is our third sizable acquisition for us. It is going very well. We are just a little over a quarter or so in. We have deployed our CBS toolkit, including both the tools and people into the business to drive what is really operational synergies. That is what we underwrote in the business case. They have fabulous technology, good go-to-market. What we are bringing in is the ability to improve the back end of that organization, and we are seeing it. We expect to raise adjusted EBITDA over the next five years from when we acquired the business this year, five years out and by about 1,000 basis points. We will move from the mid-teens to the low 20s over this time through this application of CBS, and we are on our way to doing it.
No surprises so far?
No, none so far, Steve.
Okay.
Nothing really anything materially unexpected, no.
Maybe bigger picture on the margin expansion. You've talked about getting from 20s into the mid-20s over the next-
Yeah
Two or three years with CBS. What are the real levers that get you there?
It's a combination of a few things, right? It's not one. There's not one silver bullet. It's rooftop optimization, plant optimization is always one. In the case of Antares, which is quite unique, it was a publicly traded company, so we automatically have gone in and taken out the public cost, which were material for that company. We've executed on that. Then third is once we've got the right rooftop and the G&A in place, it's now driving productivity in those plants with the application of 80/20 and Lean and the Kaizens that we would normally run in our existing businesses that they have not experienced before. That's a new part of what we're bringing to that business.
We've already done three Kaizens in the business over the last three months, getting after the biggest, what we would call bar in the Pareto in the problem-solving to drive productivity. We've got 12 months of Kaizens rolling in the business. That'll continue forever in the spirit of continuous improvement.
Okay. Maybe I'll take a second and see if anybody wants to chime in with a question.
Yes.
Go ahead.
I can repeat it. Oh, we have a microphone here, so.
Hi. I'm always curious on the people side of a business, and noticed that you've had some changeover in leadership, and wondering if you could talk a little bit about that. Yeah. Just share.
Yeah. I assume you are referring to a few weeks ago, we announced Jason Lund joining us as the head of our group of DTT companies. I am thrilled to have Jason join us. I actually worked with Jason back when we were parts of spin-outs of Danaher, where he spent most of his career, who knows our CBS process, and the culture that we have here at Crane NXT very well. He spent the last few years at Novanta, leading a group of companies in that portfolio. I just feel very excited to have a caliber of a Jason joining us in the executive management team for the company, running those businesses.
I think we have constantly built a team here over the course of the last three years that is bringing new talent into the business and helping us to be ready as we keep scaling the company. That was the reason Jason joined us.
Hi. In the SAT business away from currency, can you just talk about some of the opportunities and authentication products, some of your other customers-
Sure
you have added, the businesses you have added?
Yeah.
Thank you.
Tina, do you want to take it?
Can you just say the question one more time?
Yeah. Within the SAT business, away from currency, can you talk about some of the opportunities and the product shifts? You've added a bunch of customers, products, NFL, otherwise. I just want to understand the puts and takes, and if we hit a certain growth curve and it levels off or not.
Yeah, no. I guess I'll start where you ended, which is we see a sustainable mid-single-digit growth in the authentication businesses. Just as a reminder, we put together two businesses in a highly fragmented market, so now we've really got a great position of scale where we've consolidated the bigger part of the brand and government authentication in the marketplace. So it puts us in a great competitive place, and now we'll continue to offer the great products that they always offered in the past, which was largely based on this holographic technology, and then track and trace software to back that up. But we're also introducing cross-selling opportunities from the currency business with our micro-optics technology.
Now we've got a portfolio of good, better, best products that we can go out into their existing customers, as well as new customers that we can introduce from the governments that we work in today in the emerging markets. So a lot of opportunity there to drive commercial synergies post-acquisition and expand the offering.
Where would the micro-optics, where would that fit in more of like a retail environment, like I know it
Yeah
works like in currency well.
Yeah.
Where would it fit in?
Well, just think about the same products, but with a more advanced technology. For example, in the brand customers that are using labels today that have, today, holograms on them, we can offer micro-optics as a more advanced technology, perhaps to secure something that is more valuable. Or think about a government ID, like a national ID or a passport that today might have certain embedded technologies in it, but in the future could have micro-optics embedded in that. It is an upgrade of existing technology, and the great thing here is that we are already in these customers with our existing technology, and we can go to new customers for authentication, but not new to the currency business because we are dealing with 60 governments around the world, mostly in emerging markets, which is the area that is growing the most.
We feel like we are in a great position to expand there.
Great.
Yeah?
Aaron, you mentioned that your relationships with governments is a real differentiator for you guys. Can you expand on that and just what makes you such a strong partner for governments around the world?
Yeah. I'll start here with the U.S., and I appreciate the question. For those who know or work with governments, it's typically a long, arduous process. To work through it, you have to have some patience. I think the word that's most important there is trust, right? The folks at the government who could be long-term, folks in the agencies, or it could be short-term, depending on the politics of the moment, want to know they have a partner on the side they trust. There's nothing more powerful for me and our team to go to other governments around the world, quite frankly, and say, "We've been working with the United States for 150 years." That is unquestionable. It's factual. It's true.
Our relationship has never been better, and it serves as the calling card to welcome us into a lot of other governments who say, "This must be a trusted partner." That means a lot. It may sound less tangible, but that means we know how to work with the timeline, everything from the RFP or requisition process to how to navigate the different agencies. There's a lot of know-how by doing. I'll give you one example that I think is really apparent. Particularly, I'll use our Crane Currency business, then I'll transition to another one. Every other year, we host about 50 governments from around the world to come to our facilities to talk about the next breakthrough technologies in currency, and they talk to each other.
They work together on how they want this industry to form and what is the technology of the future going to look like, and we're the ones who bring it together. It's a powerful tool to help build this trust and credibility that spanned in this case, over 100 years. It's the same thing we're doing now with Antares Vision, using that same mindset, but applying it to track and tracing of pharmaceuticals in countries that are typically regulated at the government level. But it's the same process, and they know now they're dealing with a trusted partner that works with other agencies in their government. It's a powerful part of who we are that can't be well replicated by a competitor.
Anyone else? When I hear this, I feel like I don't understand why your TAM isn't multiples of what you're looking at, because it feels like there's counterfeiting in luxury goods, retail goods, aircraft parts, ID cards-
driver's licenses. The list seems very long, and maybe it's just a matter of trying to focus your efforts because you can't do everything all the time, but why am I wrong that it's not multiples of what you're thinking?
Well, directionally, Steve, I don't think you're wrong at all. I think we've defined the TAM for us as where we want to focus, not all of the possibilities of counterfeiting in the universe of commerce.
Right
So you're right. If we did that the term would be orders in magnitude bigger, not just multiples. But we've said, "Here's what we can do, here's what we can afford to do with the balance sheet." And I would take focus every day over disparate measures, and I think focus wins. So we've picked our lanes into markets that are growing, into areas where we can truly add differentiated technology, and if anything, there's upside to that.
Would you expect to have more lanes in five years than you do today?
I would.
Yeah.
I would. If we were here three years ago, we would've said we have one lane. Now, I would say we have three or four.
Okay.
My guess is in five years, we'll have a few more, but all around the focus is how we can leverage these technologies around authentication and traceability.
Fair enough. All right, so we have a little under two minutes left. I know you touched on capital deployment, but I think you're going to be down, have your debt paid down below your target by year-end. How should we think about M&A versus-
Yeah
your stock? The one thing you didn't point out, you're growing mid-single digit, strong 20%-plus EBITDA margin, 100% free cash flow, trading less than 10x EBITDA. That's rare.
Yes. I agree with you.
That seems like there's an opportunity there for-
I think so, and I think a lot of folks even in discussions here are new to the story. Are trying to understand who we are, and maybe have some preconceived notions about some of our businesses that we have to do a good job educating about. Fundamentally, we have to produce the numbers. That'll take care of itself. To get to your question on capital allocation, by the end of this year, we'll be into the low twos in terms of net leverage. We've said we always want to stay below three, so that starts to get us into a place where we could do additional M&A. In 2027, we'd have, call it, up to $1 billion of dry powder.
Where the stock trades today, I think it is only fair to say we will be looking at some balance of share buyback and M&A, not to keep us out of the M&A market, but to take advantage of what we believe an unbelievable value, given where we see the trajectory of the company at this point in time.
All right. Perfect note to end it on. Thank you so much. Very interesting.
Thanks, Steve.
Thank you, everybody, for your attention.
Thank you.
Thank you.