Crane NXT(US:CXT)2025-02-13 16:39Financial Data and Key Metrics Changes - Sales growth was approximately 12% in Q4 and approximately 7% for the full year [9] - Adjusted EBITDA margin was approximately 27% in both Q4 and the full year [10] - Adjusted EPS was $1.20 in Q4 and $4.26 for the full year [10][21] - Adjusted free cash flow conversion was approximately 109% in Q4 and approximately 76% for the full year [10][21] Business Line Data and Key Metrics Changes - CPI sales were flat compared to Q4 2023, with mid-single-digit growth across most end markets, offset by softness in gaming [22] - Security and authentication technologies saw core sales up over 7% in Q4, driven by international currency [25] - CPI core sales decreased by approximately 1% for the full year, driven by softness in new gaming orders [24] Market Data and Key Metrics Changes - CPI ended the year with a backlog of $146 million, reflecting a return to more normalized levels [23] - The security and authentication technology segment ended the year with a backlog of $248 million, indicating strong future sales confidence [26] Company Strategy and Development Direction - The company is focused on diversifying its portfolio and has made significant acquisitions, including OpSec and TruTag Smart Packaging [15][46] - The anticipated acquisition of De La Rue Authentication Solutions is expected to close in Q2 2025, expanding the customer base and product offerings [15][27] - The company aims to reduce exposure to cash-centric markets, moving from approximately 80% to 65% of the portfolio focused on cash-related products [48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth opportunities presented by the new US currency series, with production upgrades ongoing [42][50] - The company expects overall sales growth of 1% to 3% for 2025, with specific segments experiencing varied growth rates [30] - Management highlighted the importance of maintaining a strong balance sheet and free cash flow generation to support future growth and acquisitions [28][51] Other Important Information - The company announced a 6% increase in its annual dividend, reflecting a commitment to a balanced capital allocation strategy [29] - Adjusted free cash flow conversion is expected to be between 90% and 110% in 2025, influenced by the timing of international currency shipments [34] Q&A Session Summary Question: Gaming market dynamics and confidence in second-half recovery - Management reiterated confidence in the gaming market's health and expected order inflection in Q2, despite delays in inventory burn-down [56][58] Question: First-quarter dynamics and margin expectations - Management confirmed high double-digit declines in US government currency sales in Q1 due to production shutdowns, with expectations for margins to return to high twenties percent in subsequent quarters [62][64] Question: Expectations for leverage and acquisition pipeline - The company ended the year with 1.5 times net leverage, expecting it to rise to 2.3 times post-acquisition, while maintaining a healthy acquisition pipeline [70][75] Question: Impact of acquisitions on margins - OpSec has been dilutive to margins by about 250 basis points in 2024, with expectations for similar impacts in 2025, but management is implementing strategies to improve margins over time [78][80] Question: Retail end market trends - Management noted a shift in retailers exploring various self-checkout solutions, leading to softness in traditional OEM orders but growth in custom solutions [110][111] Question: Security authentication sales growth guidance - Management acknowledged lower-than-expected sales growth in Q4 due to timing and softness in the US market but expressed confidence in international currency growth moving forward [122][124] Question: Potential tariff impacts - Management does not foresee material impacts from tariffs, having taken proactive measures to mitigate risks in the supply chain [128][130] Question: Currency business growth sources - Growth in the currency business is expected to come from a mix of existing contracts and new wins, with a strong sales funnel supporting future performance [134][135]