Q1 2024 Crane NXT Co Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Crane NXT Q1 2024 earnings conference call.
Good day, and thank you for standing by welcome to the Crane and X P Q1, 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one one.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rima Hyder, Vice President of Investor Relations.
Operator: On your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Rima Hyder Vice President of Investor Relations.
Rima Hyder: Thank you, operator, and good morning, everyone. I want to welcome all of you to the first quarter 2024 earnings call for Crane NXT. Before we begin, the slides we will reference during this presentation can be accessed via the Investor Relations section of our website, at craneNXT.com. A replay of today's call will also be available on our website. Before we discuss our results, I encourage all listeners to review the legal notice on slide 2, which explains the risk of forward-looking statements and the use of non-GAAP financial measures.
Rima Hyder: Thank you operator, and good morning, everyone I want to welcome all of you to the first quarter 2024 earnings call for Crane NXT before we begin the slides we will reference during this presentation can be accessed via the Investor Relations section of our website at Crane NXP Dot com a replay after.
Rima Hyder: Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Form 10-K and 10-Q filings pertaining to forward-looking statements. During the call, we will also be using non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentations, both of which are available on our website at craneNXT.com in the investor relations section. On our call this morning, we will discuss our financial results, the completion of the OPSEC acquisition, and the updated 2024 guidance.
Rima Hyder: Today's call will also be available on our website.
Rima Hyder: Before we discuss our results I encourage all listeners to review the legal notice on slide two which explains the risk of forward looking statements and the use of non-GAAP financial measures.
Rima Hyder: Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Form 10-K, and 10-Q filings pertaining to forward looking statements.
Rima Hyder: During the call. We will also be using non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at crane NXP Dot com in the Investor Relations section.
Rima Hyder: On our call. This morning, we will discuss our financial results. The completion of the <unk> acquisition and the updated 2020 for guidance.
Rima Hyder: This discussion with me today are S sake, our president and Chief Executive Officer, and Christina Cristiano, Our senior Vice President and Chief Financial Officer.
Rima Hyder: After our prepared remarks, we will open the call to analysts for questions.
Rima Hyder: The discussion with me today will be led by Aaron Saak, our President and Chief Executive Officer, and Christina Cristiano, our Senior Vice President and Chief Financial Officer. After our prepared remarks, we will open the call to analysts for questions. I will now turn the call over to Aaron.
Rima Hyder: Now I'll turn the call over to Aaron.
Aaron W. Saak: Thank you, Rima. And good morning. We appreciate everyone joining the call today to discuss our first quarter 2024 results and to learn more about the acquisition of OPSEC security, which we announced earlier this year. We are well on our way to become a premier industrial technology company here at Crane NXT. Thirteen months ago, when we launched the company, we had a clear strategy for growth through investing in our core businesses and diversifying our portfolio, maintaining our operational excellence, and increasing our trusted technology solutions to protect our customers' most important assets.
Aaron W. Saak: Thank you Rima and good morning, we appreciate everyone joining the call today to discuss our first quarter 2024 results and to learn more about the acquisition of <unk> security, which we announced earlier this week.
Aaron W. Saak: We are well on our way to become a premier industrial technology company here at Crane NXT.
Aaron W. Saak: 114 months ago, when we launched the company, we had a clear strategy for growth through investing in our core businesses and diversifying our portfolio, maintaining our operational excellence and increasing our trusted technology solutions to protect our customers' most important assets.
Aaron W. Saak: Completing the acquisition of OPSEC is a major milestone in our journey to becoming a company with $3 billion in sales. As our first M&A transaction, OPSEC aligns with our strategy of expanding our leadership in the growing and large authentication market. I'd like to give a special welcome to our OPSEC associates worldwide. We are thrilled that you're part of the Crane NXT family.
Aaron W. Saak: Completing the acquisition of <unk> is a major milestone in our journey to becoming a company with $3 billion in sales as our first M&A transaction <unk> aligns with our strategy of expanding our leadership in the growing and large authentication market.
Aaron W. Saak: I'd like to give a special welcome to our object associates worldwide. We are thrilled that you are part of the Crane and XD family.
Aaron W. Saak: As part of this acquisition, and with an eye towards serving our customers better, we're announcing a new alignment to our reportable segment. We're renaming our crane currency segment Security and Authentication Technologies, or SAT for short. We believe the new segment aligns better with our strategy of growing technology solutions that secure, detect, and authenticate our customers' most valuable assets, and I'll talk more about this in a few minutes. Moving to our results, our first quarter performance was in line with our expectations.
Aaron W. Saak: As part of this acquisition and with an eye towards serving our customers better we are announcing a new alignment to our reportable segments.
Aaron W. Saak: We're renaming our crane currency segment security and authentication technologies work.
Aaron W. Saak: For sure.
Aaron W. Saak: We believe the new segment aligns better with our strategy on growing technology solutions that secure detect and authenticate our customers most valuable assets and I'll talk more about this in a few minutes.
Aaron W. Saak: Moving to our results our first quarter performance was in line with our expectations.
Aaron W. Saak: With the acquisition of OPSEC closed, we're increasing our full-year sales guidance to a new range of mid-single-digit to high-single-digit growth of 5% to 8% and reaffirming our EPS guidance of $4.10 to $4.35. Both the currency and CPI businesses are on track to deliver their financial targets for 2020. I'm particularly excited about Crane Currency, continuing to win new orders with their technology leadership and gaining share in the international market. In the first quarter, we won five new micro optics denominations, bringing the total to 155 worldwide.
Aaron W. Saak: With the acquisition of <unk> closed, we're increasing our full year sales guidance to a new range of mid single digit to high single digit growth of 5% to 8% and reaffirming our EPS guidance of $4 10 to $4 35.
Aaron W. Saak: Both the currency and CPI businesses are on track to deliver their financial targets for 2024.
Aaron W. Saak: I am, particularly excited about crane currency continuing to win new orders with our technology leadership and gaining share in the international market.
Aaron W. Saak: In the first quarter, we won five new micro optics denomination, bringing the total to 155 globally.
Aaron W. Saak: And in the U.S. currency business, we're on track with our investments to upgrade our equipment in preparation for a decade-long U.S. banknote redesign program and its associated, Finally, we continue to have a strong balance sheet in place to further expand and diversify our portfolio, and OPSEC was the first step in this. Turning to slide four, as announced earlier this week, we have completed the acquisition of OPSEC Security, which significantly OpsTech is a global leader in brand protection and authentication solutions, with more than four decades of expertise in optical security technology development and online brand protection services. Offset goes to market with two strategic platforms, as shown on this slide.
Aaron W. Saak: And in the U S currency business, we're on track with our investments to upgrade our equipment in preparation for a decade long U S banknote redesign program and its associated growth.
Aaron W. Saak: Finally, we continue to have a strong balance sheet in place to further expand and diversify our portfolio and <unk> was the first step in this journey.
Aaron W. Saak: Through its authentication solutions platform, OPSEC provides technology that enables digital and physical authentication of products, including monitoring, tracking, and tracing of goods through supply chains as they're used by consumers. Through its online brand protection platform, OPSEC provides online monitoring for counterfeit goods, anti-piracy of content, and fraud protection. The company offers a full end-to-end solution to secure the physical and digital assets of the world's most recognized brands. This acquisition complements our growing business and physical product authentication by expanding our customer base and product offering and enables Crane NXT to deliver the entire product and brand authentication value. Additionally, OPSEC has an attractive financial profile. I'm surprised by the high percentage of digital and recurring revenue.
Aaron W. Saak: Turning to slide four as announced earlier. This week, we have completed the acquisition of <unk> security, which significantly increases our position in the growing authentication market.
Aaron W. Saak: <unk> is a global leader in brand protection and authentication solutions with more than four decades of expertise and optical security technology development and online brand protection services.
Aaron W. Saak: Offset goes to market with two strategic platforms as shown on this slide.
Aaron W. Saak: Through its authentication solutions platform offset provides technology, which enables digital and physical authentication of products, including monitoring tracking and tracing of goods through supply chains as they are used by consumers.
Aaron W. Saak: Through its online brand protection platform <unk> provides online monitoring for counterfeit goods anti piracy of content and fraud protection services.
Aaron W. Saak: The company offers a full Indian solution to secure the physical and digital assets of the world's most recognized brands.
Aaron W. Saak: This acquisition complements our growing business and physical product authentication by expanding our customer base and product offerings and enables crane NXT to deliver the entire product and brand authentication value chain.
Aaron W. Saak: Additionally, <unk> has an attractive financial profile comprised of a high percentage of digital and reoccurring and recurring revenue the.
Aaron W. Saak: The business has a stable and growing revenue base, generating mid-single-digit revenue growth year-over-year. Additionally, OPSEC's business boasts resilient, longstanding customer relationships with an average customer tenure of 20 years among its top customers. We expect that OPSEC will contribute approximately $80 million to $90 million in revenues to Crane NXT in 2024 at approximately 15% adjusted EBIT margin. OPSEC is a natural extension of our strategy to secure, detect, and authenticate our customers' most important assets, giving us a strong position in the growing $3 billion authentication market. One of the exciting capabilities OPSEC brings to NXT is the combination of digital and physical authentication solutions.
Aaron W. Saak: The business has a stable and growing revenue base generating mid single digit revenue growth year over year.
Aaron W. Saak: Additionally, optics business post resilient longstanding customer relationships with an average customer tenure of 20 years among your top customers.
Aaron W. Saak: We expect that <unk> will contribute approximately 80 million to 90 million in revenues to <unk> in 2024 at approximately 15% adjusted EBITDA margins.
Aaron W. Saak: <unk> is a natural extension of our strategy to secure detect and authenticate our customers' most important assets and giving us a strong position in the growing $3 billion authentication market.
Aaron W. Saak: One of the exciting capabilities optics brings NXT is the combination of digital and physical authentication solutions. We see this as a key differentiator for the company.
Aaron W. Saak: We see this as a key differentiator for the company. As shown in the first chart on the slide, approximately 60% of OPSEC's revenues include digital services enabled through proprietary software. The physical offerings include a variety of labels containing anti-counterfeiting technology, including advanced holograms.
Aaron W. Saak: As shown on the first chart on the slide approximately 60% of <unk> revenues include digital services enabled through proprietary software.
Aaron W. Saak: The physical offerings include a variety of labels containing anti counterfeiting technology, including advanced holograms.
Aaron W. Saak: OpSec also brings to NXT a scalable software platform that enables the traceability of products, manages the licensing of brand properties, and detects and enforces against online brand abuse and consonant. As shown in the middle pie chart, the majority of OPSEC sales come from customers with long-standing contracts. We refer to this as recurring revenue, and it represents approximately 65% of sales. The remainder of OPSEC's revenue is primarily recurring in nature, from contracts with durations of one or more years that have a very high renewal rate.
Aaron W. Saak: <unk> also brings to NXT, a scalable software platform that enables the traceability of products manages the licensing of brand properties and detects and enforces against online brand abuse and content infringement.
Aaron W. Saak: As shown in the Middle Pie chart. The majority of <unk> sales come from customers with long standing contracts, we refer to this as reoccurring revenue and it represents approximately 65% of sales.
Aaron W. Saak: The remainder of <unk> revenue is primarily recurring in nature from contracts with durations of one or more years that has a very high renewal rate.
Aaron W. Saak: Finally, as shown on the chart on the right side of the page, OPSEC has a diverse customer base, including companies in sports and media, consumer goods, technology, industrials, and pharmaceuticals, as well as government agencies and financial institutions.
Aaron W. Saak: Finally as shown on the chart on the right side of the page OPSEC has a diverse customer base, including companies in sports and media consumer goods technology, industrials and pharmaceuticals, as well as government agencies and financial institutions.
Aaron W. Saak: The combination of OPSEC's digital and physical offerings, high recurring and recurring revenue, and diverse set of global end markets further adds new capabilities and provides increased resiliency to Crane NXT. As I mentioned earlier, in connection with this acquisition, we're renaming our Crane Currency reportable segment to Security and Authentication Technologies, which will consist of Crane Currency, Business, and Optimal. Additionally, our existing product authentication business will be combined with OPS. This updated structure will enable us to better serve our customers with an expanded technology portfolio, while also driving further growth and business efficiency. The updated segment of presentation will be effective in the second quarter of 2024 and will have no effect on the first quarter's financial results.
Aaron W. Saak: The combination of <unk> digital and physical offerings high reoccurring and recurring revenue and diverse set of global end markets. Further adds new capabilities and provides increased resiliency to premium XD.
Aaron W. Saak: As I mentioned earlier in connection with this acquisition, we are renaming our crane currency reportable segment to security and authentication technologies, which will consist of the crane currency business and <unk>.
Aaron W. Saak: Additionally, our existing product authentication business will be combined with <unk>.
Aaron W. Saak: This updated structure will enable us to better serve our customers with an expanded technology portfolio, while also driving further growth and business efficiencies.
Aaron W. Saak: The updated segment presentation will be effective in the second quarter of 2024 and has no effect on the first quarter's financial results.
Aaron W. Saak: As part of this new structure, I'm also excited by the promotion of Sam Keys to the role of Senior Vice President of Crane NXT and leader of the new security and authentication technology segment. Sam has done a fantastic job leading Crane Currency for the past five years, and I look forward to working with him closely as he grows this sector. We believe this alignment of the company enables us to accelerate our strategy as we continue to expand and diversify our portfolio.
Aaron W. Saak: As part of this new structure I'm also excited by the promotion of Sam keys to the role of senior Vice President of Cranium, NXT and leader of the New security and authentication technologies segment same has done a fantastic job, leading crane currency for the past five years and I look forward to working with them closely as he grows this segment.
Aaron W. Saak: We believe this alignment of the company enables us to accelerate our strategy as we continue to expand and diversify our portfolio.
Aaron W. Saak: In summary, I'm pleased with how we started the year, especially with our first MNA transaction. I would like to thank our employees around the world for their efforts to deliver our first quarter results while also closing the OPSEC transaction. I'm now going to hand the call over to Christina to walk us through our first quarter financial performance as well as provide more details on our updated 2024.
Christina: In summary, I am pleased with how we started the year, especially with our first M&A transaction I.
Christina: I would like to thank our employees around the world for their efforts to deliver our first quarter results. While also closing the <unk> transaction I'm now going to hand, the call over to Kristina to walk us through our first quarter financial performance as well as provide more details on our updated 2020 for guidance.
Christina Cristiano: Thank you, Aaron. Good morning to everyone joining the call today. And I would also like to express appreciation to our global associates for their continued hard work and to welcome the OPSEC team to Crane NXT. Starting on slide five, our first quarter results were in line with our expectations. Core sales declined approximately 4% year over year, reflecting the expected lower sales at CPI and a challenging comparison to the first quarter of 2023. Adjusted segment operating margin of 27% was flat year over year, despite lower volumes, driven by strong productivity across both segments. Adjusted free cash flow was impacted by normal seasonality and the timing of working capital.
Christina: Thank you Aaron good morning to everyone joining the call today and I would also like to express appreciation to our global associates for their continued hard work and to welcome the <unk> <unk> to <unk>.
Christina Cristiano: We also have higher CAPEX related to our continued investments in the U.S. Banknote Redesign Program. Finally, Adjusted EPS of $0.85 is on track with our full-year guidance. Moving to our segments, CPI reported a decline in core sales of 7% in the first quarter, as expected.
Christina Cristiano: Starting on slide five our first quarter results were in line with our expectations core sales declined approximately 4% year over year, reflecting the expected lower sales at CPI and a challenging comparison to the first quarter of 2023.
Christina Cristiano: Adjusted segment operating margin of 27% was flat year over year, despite lower volumes driven by strong productivity across both segments.
Christina Cristiano: Adjusted free cash flow was impacted by normal seasonality and the timing of working capital.
Christina Cristiano: We also have higher capex related to our continued investments in the U S banknote redesign program.
Christina Cristiano: Finally, adjusted EPS of <unk> 85 cents is on track with our full year guidance.
Christina Cristiano: To our segments CPI reported a decline in core sales of 7% in the first quarter as expected.
Christina Cristiano: Adjusted segment operating margin decreased 110 basis points to 29% year over year, reflecting lower volumes and an unfavorable product mix due to lower sales in the gaming end market, offset by strong pricing execution and productivity initiatives. The gaming end market performance was as expected, and customers continued to draw down on inventory overstock, resulting in lower new orders. Backlog, which was elevated due to extended lead times, continues to come down, and we are on track to reach more normal levels by the end of the second quarter.
Christina Cristiano: <unk> segment operating margin decreased 110 basis points to 29% year over year, reflecting the lower volumes and an unfavorable product mix due to lower sales in the gaming end market offset by strong pricing execution and productivity initiatives.
Christina Cristiano: Gaming end market performance was as expected and customers continue to draw down on inventory overstock, resulting in lower new orders.
Christina Cristiano: Backlog, which was elevated due to extended lead times continues to come down and we are on track to reach more normal levels by the end of the second quarter.
Christina Cristiano: We are working closely with our customers to understand their demand and managing our inventories accordingly. Overall, the underlying gaming market continues to be healthy, and we are maintaining our strong share position with offerings in hardware, software, and services. Outside of gaming, our other end markets are growing as expected, and we expect the full-year revenue growth in the non-gaming verticals to be mid-single digit, in line with what we communicated last quarter. Moving to Crane Currency, core sales were slightly down due to lower U.S. volumes, as expected, which is related to some of our papermaking equipment being offline in the quarter, so we could make necessary upgrades for the upcoming U Adjusted segment operating margin improved 270 basis points year over year, reflecting favorable mix and increased productivity.
Christina Cristiano: We are working closely with our customers to understand their demand and managing our inventories accordingly.
Christina Cristiano: Overall, the underlying gaming market continues to be healthy and we are maintaining our strong share position with offerings in hardware software and services.
Christina Cristiano: Outside of gaming or other end markets are growing as expected and we expect the full year revenue growth in the non gaming verticals to be mid single digits in line with what we communicated last quarter.
Christina Cristiano: <unk> to crane currency core sales were slightly down due to the lower U S volumes as expected, which is related to some of our paper, making equipment being offline in the quarter. So we could make necessary upgrades for the upcoming U S banknote redesign program.
Christina Cristiano: Adjusted segment operating margin improved 270 basis points year over year, reflecting favorable mix and increased productivity.
Christina Cristiano: Overall, international sales continue to be strong, and we have high confidence in our full year projections based on the strength of our backlog, which is up 13% year over year. I'd like to take a moment to further discuss the investments we are making to upgrade our equipment to accommodate the new designs and technology for the new US Banknote Series that will commence in 2026. We are happy to partner with the Bureau of Engraving and Printing on this very important program.
Christina Cristiano: Overall international sales continued to be strong and we have high confidence in our full year projections based on the strength of our backlog, which is up 13% year over year.
Christina Cristiano: I'd like to take a moment to further discuss the investments we are making to upgrade our equipment to accommodate the new designs and technology for the New U S Bank note series that commences in 2026, we.
Christina Cristiano: We are happy to partner with the Bureau of engraving and printing on this very important program.
Christina Cristiano: The necessary upgrades require taking some of our equipment offline for a period of time, which has an impact on revenue phasing this year. The first upgrade cycle, which impacted our Q1 results, went very well, and we resumed production on schedule. We will have another upgrade cycle beginning in the fourth quarter of this year, which will continue into the first quarter of 2025. As a reminder, we recognize revenue as we produce currency paper for the U.S. government.
Christina Cristiano: The necessary upgrades require taking some of our equipment offline for a period of time, which has an impact on revenue phasing this year.
Christina Cristiano: The first upgrade cycle, which impacted our Q1 results went very well and we resumed production on schedule.
Christina Cristiano: We will have another upgrade cycle beginning in the fourth quarter of this year, which will continue into the first quarter of 2025.
Christina Cristiano: As a reminder, we recognize revenue as we produce currency paper for the U S government.
Christina Cristiano: We experienced lower revenue in Q1 related to the upgrade cycle and expect that to repeat in Q4. However, this will be partially offset by higher revenue mid-year as normal production resumes. Overall, we are very excited about the new series and are confident that the investments we are making will provide us with a multi-year growth opportunity. Moving on to our balance sheet, our net leverage ratio was approximately 1.2 times at the end of the first quarter.
Christina Cristiano: We experienced lower revenue in Q1 related to the upgrade cycle and expect that to repeat in Q4. This will be partially offset by higher revenue mid year as normal production resumes overall, we are very excited about the new series and are confident that the investments we are making will provide us with a multi year growth.
Christina Cristiano: City.
Christina Cristiano: Moving onto our balance sheet, our net leverage ratio was approximately one two times at the end of the first quarter.
Christina Cristiano: In May, we borrowed $210 million on our revolver to fund the OPSEC acquisition, along with cash on hand. As a result, our net leverage ratio post-close is approximately 1.8 tons, which provides us with ample capacity for further M&A. And with our strong free cash flow generation, we will continue to pay down debt throughout the year.
Christina Cristiano: In may we borrowed $210 million on our revolver to fund the <unk> acquisition, along with cash on hand.
Christina Cristiano: As a result, our net leverage ratio post close is approximately one eight times, which provides us with ample capacity for further M&A.
Christina Cristiano: And with our strong free cash flow generation, we will continue to pay down debt throughout the year.
Christina Cristiano: Turning to our 2024 guidance on slide 13, we are updating our guidance to reflect the impact of the OPSEC acquisition. We expect OPSEC to add approximately 80 to 90 million in revenues in 2024 with a 15% adjusted EBITDA margin. This translates to 5 to 8% overall sales growth for Crane NXT. There are no changes to the core sales guidance provided in February for the CPI and currency businesses.
Christina Cristiano: Turning to our 2024 guidance on slide 13, we are updating our guidance to reflect the impact of the <unk> acquisition.
Christina Cristiano: We expect <unk> to add approximately $80 million to $90 million in revenues in 2024 with a 15% adjusted EBITDA margin.
Christina Cristiano: This translates to 5% to 8% overall sales growth for <unk> NXT there.
Christina Cristiano: There are no changes to the core sales guidance provided in February for the CPI and currency businesses.
Christina Cristiano: We now expect our adjusted segment operating margin to be in the range of 26% to 28%, reflecting dilution related to OPSEC. Non-operating expenses will increase to $47 million as we incur approximately $10 million of additional interest related to borrowings for the OPSEC acquisition. Expected adjusted EPS for the full year will remain at $4.10 to $4.35 as operating income from OPSEC is offset by higher interest expense. We expect OPSEC to be accretive to our adjusted EPS in 2025. Now, let me turn the call back to Aaron for his closing remarks.
Christina Cristiano: We now expect our adjusted segment operating margin to be in the range of 26% to 28%, reflecting dilution related to <unk>.
Christina Cristiano: Non operating expenses will increase to $47 million as we incur approximately $10 million of additional interest related to borrowings for the <unk> acquisition.
Aaron: Expected adjusted EPS for the full year will remain at $4 10 to $4 35.
Christina Cristiano: As operating income from ops is offset by higher interest expense.
Aaron: We expect <unk> to be accretive to our adjusted EPS in 2025.
Christina Cristiano: Now, let me turn the call back to Aaron for closing remarks.
Aaron W. Saak: Thanks Christina. In conclusion, our first quarter results are a clear example of doing what we said we were going to do and in line with our expectations. Investing in our core business, driving productivity through CVS, and executing on M&A to diversify and expand the portfolio. Looking ahead, we are on track to execute our five-year strategic roadmap to significantly grow NXT. We continue to see strong results from our currency business, and CPI is on track to exit the year growing at mid-single digits.
Aaron W. Saak: Thanks, Christina in conclusion, our first quarter results are a clear example of doing what we said we were going to do and in line with our expectations.
Aaron W. Saak: Investing in our core business driving productivity through CBS and executing on M&A to diversify and expand the portfolio.
Aaron W. Saak: Looking ahead, we are on track to execute our five year strategic roadmap to significantly grow in <unk>.
Aaron W. Saak: We continue to see strong results from our currency business and CPI is on track to exit the year growing at mid single digits.
Aaron W. Saak: Given our strong balance sheet, we continue to cultivate our M&A pipeline to further expand and diversify our portfolio through disciplined and strategic M&A with a focus on differentiated technologies and services that secure, detect, and authenticate customers' most valuable assets. We have a very strong foundation in place, and with our unique and differentiated technology leadership, strong capital position, and ability to drive operational excellence through CBS, I'm confident we will deliver on our long-term objectives, drive profitable growth, and create sustainable long-term value for our shareholders.
Aaron W. Saak: Given our strong balance sheet, we continue to cultivate our M&A pipeline to further expand and diversify our portfolio through disciplined and strategic M&A with a focus on differentiated technologies and services that secure detect and authenticate our customers most valuable assets.
Aaron W. Saak: We have a very strong foundation in place and with our unique and differentiated technology leadership strong capital position and ability to drive operational excellence for CBS.
Aaron W. Saak: Confident we will deliver on our long term objectives drive profitable growth and create sustainable long term value for our shareholders. Thank.
Aaron W. Saak: Thank you again for your time this morning, and I would like to again thank all of our associates around the world for their dedication to NXT and welcome the OPSEC team to the NXT family. And now, operator, we're ready to take our first question.
Aaron W. Saak: Thank you again for your time this morning, and I would like to again, thank all of our associates around the world for their dedication to NXT and welcome the <unk> team to the NXT family.
Aaron W. Saak: And now operator, we're ready to take our first question.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Matt Summerville with D.A. Davidson. You may proceed.
Speaker Change: Thank you.
Operator: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our questions.
Operator: Our first question comes from Matt Summerville with D. A Davidson you May proceed.
Matt J. Summerville: Thanks, Good morning apologize for the background noise I'm traveling but.
Matt J. Summerville: But there's obviously some sort of moving parts with the businesses, right? This ongoing gaming inventory drawdown that is well-known at this point. And then you have the outages and sort of the goalposts around the year, with the mid-portion of the year seemingly being stronger in currency. So with all of those moving pieces, can you maybe help us think about the right way to think about the quarterly cadence for the business teams and, therefore, operating profit learning?
Matt J. Summerville: Theres obviously some.
Matt J. Summerville: For the moving parts of the business is great.
Matt J. Summerville: I mean inventory drawdown that it's well known.
Matt J. Summerville: And at this point and then you have the outages and sort of the goalpost around the year with the mid portion of the year seemingly being stronger in currency. So with all of those moving pieces can you maybe update.
Matt J. Summerville: What's the right way to kind of think about the quarterly cadence.
Matt J. Summerville: And therefore operating profit.
Aaron W. Saak: Sure, Matt. Good morning.
Speaker Change: Sure Matt Good morning, Thanks for the question good to hear from you.
Aaron W. Saak: Thanks for the question. It's good to hear from you. Well, I think you're right. I think you framed it up exactly how I would think about it. So inside of CPI, you know, again, that business performed just as we expected with continued burndown of the backlog in gaming. As we communicated last quarter, we have line of sight to our customers' inventory levels in gaming. And as expected, we saw those trends again with our expectations.
Matt: I think youre right I think you framed it up exactly how I would.
Aaron W. Saak: Think about it so.
Aaron W. Saak: Inside of CPI again that business performed just as we expected with <unk>.
Aaron W. Saak: Continued burn down of the backlog in gaming as we communicated last quarter, we have line of sight to our customers' inventory levels in gaming and as expected we.
Aaron W. Saak: So all those trends again with with our expectations. So.
Aaron W. Saak: So what we see for CPI is orders zooming in Q3, building again in Q4 with revenue, again, commensurate with what we talked about last quarter. And the other verticals are on track, Matt, doing as expected, exiting this year, you know, with CPI growing in mid-single digits, and revenue, again, kind of coming in where we thought. So I think CPI is exactly this burndown of gaming followed by consistent, strong performance from the rest of the verticals.
Aaron W. Saak: What we see for CPI as orders are zooming.
Aaron W. Saak: In Q3 building again in Q4 in revenue again commensurate with what we talked about last quarter and the other verticals are on track, Matt doing as expected exiting this year with CPI growing in mid single digits and revenue.
Aaron W. Saak: Again kind of coming in where we thought so I think CPI is exactly this.
Aaron W. Saak: Burn down of gaming followed by consistent strong performance from the rest of the verticals.
Aaron W. Saak: As Christina mentioned then on currency, it's really the story of the bookends, using your words, of the upgrades going on a little less linearity in that business than we've seen in the past and a stronger middle part of the year. And then the international business, though, continues to perform very strongly for us. And as we talked about in the prepared remarks, winning new applications with micro-optics in the backlog is up 13% year over year, so we feel very good about the international currency business.
Aaron W. Saak: As Kristina mentioned then on currency. It is really the story of the book ins using your words of the upgrades going on in first quarter and fourth quarter that will mean as Kristina mentioned.
Aaron W. Saak: A little less linearity in that business than what we've seen in the past.
Aaron W. Saak: A stronger middle part of the year.
Aaron W. Saak: The international business, though continues to perform very strongly for us and.
Aaron W. Saak: As we talked about in the prepared remarks, winning new applications with micro optics, and the backlog up 13% year over year. So we feel very good about the international currency business. So.
Aaron W. Saak: Again, in terms of putting that all together, again, this year just a little less linear than we've seen in past years. First half lower in CPI, building in the second half, and then currency strongest in the middle part of the year probably skewed a little bit into Q3. So with that, again, margins coming in very much in line with what we would have expected, where CPI, again, with what we're doing with CBS and continuously improving the business, is going to be roughly at the same margin rate, we believe, for the full year, as we saw in 2023.
Aaron W. Saak: Again in terms of putting that all together.
Aaron W. Saak: Again this year, just a little less linear than we've seen in past years.
Aaron W. Saak: First half lower than CPI building in the second half and then currency strongest in the middle part of the year, probably skewed a little bit into Q3, so with that again margins coming in.
Aaron W. Saak: Very much in line with what we would've expected ware.
Aaron W. Saak: CPI again, with what we're doing with Cvs and continuously improving the business going to be roughly at the same margin rate. We believe for the full year as we saw in 2023 and then when you think about currency with the investments, we're making particularly in this U S upgrade slightly less in terms of.
Aaron W. Saak: And then when you think about currency with the investments we're making, particularly in this U.S. upgrade, slightly less in terms of operating segment margins than we saw last year. So a lot of information there, Matt. I hope that gives you a little more color on what we're seeing.
Aaron W. Saak: <unk> segment margins than we saw last year. So a lot of information there Matt I hope that gives you a little more color of what we're seeing.
Aaron W. Saak: Yeah, thank you. And then, on the international side of the business, We mentioned five new denominational wins in the first quarter. That puts you on an annualized pace above what was already, to my recollection, a record number of new denominational wins in 2023. So maybe talk about how that international funnel is trending and relative to the organic projection you have for the crane currency business. How does the U.S. government look versus international around that kind of midpoint, if you will, for the whole year?
Matt: Yes. Thank you and then a finer point on the international side of the business you mentioned five new denomination ratings in the first quarter.
Aaron W. Saak: On an annualized basis above what was already from my recollection, a record number of new combination of wins in 2023, So maybe talk about how that international funnel is trending and relative to the organic projects and path forward the crane currency.
Aaron W. Saak: Yes.
Aaron W. Saak: How does the U S government look versus international around that kind of midpoint. If you will for the full year. Thank you.
Aaron W. Saak: Sure. Hey, well, I appreciate the question on international business, and you're right. We had a good, good set of wins in the first quarter, really led by technology. And that's the hallmark of this business. This is a technology-driven company, even more so with the acquisition of OPSEC that builds out and really starts our new platform in security and authentication technologies.
Aaron W. Saak: Thank you. Sure. Hey, well,
Aaron W. Saak: Sure Hey, well I appreciate the question on international and Youre right. We had a good good set of wins in the first quarter really led by technology and that's the hallmark of this business. This is a technology forward company, even more so with the acquisition of <unk> that builds out in really starts our new platform.
Aaron W. Saak: In security and authentication technologies.
Aaron W. Saak: You know, I think you know, as well as anyone, Matt, the wins in currency are a little bit more episodic. So I wouldn't quite extrapolate fully the first quarter to the full year. But I think the trajectory is right.
Aaron W. Saak: I think you know as well as anyone map b the wins and currency are a little bit more episodic. So I wouldn't quite extrapolate fully the first quarter to the full year, but I think the trajectory is right and you are right about that we continue to win and as we've said we expect on average 10 to 15, new denomination under management.
Aaron W. Saak: And you're right about that. We continue to win. And as we've said, we expect, on average, 10 to 15 new denominations under management every year. And we're on a pace to do that this year.
Aaron W. Saak: Again, you know, different timing for different wins, consistent with how this business has operated for a long time. You know, I think where we're at now, particularly as we get into the second quarter, and we look at our backlog, we're really looking now at customer delivery starting to get into 2025. As you know, deliveries run anywhere between a six to 12 to 18 month timeframe from a booking.
Aaron W. Saak: Every year, we're on a pace to do that this year again.
Aaron W. Saak: Different timing to different wins.
Aaron W. Saak: Consistent with how this business has operated for a long time.
Aaron W. Saak: I think where we're at now, particularly as we get into the second quarter and we look at our backlog, we're really looking now at customer deliveries starting to get into 2025.
Aaron W. Saak: As you know deliveries run anywhere between six to 12 to 18 month timeframe from from a booking and with a strong backlog. That's why we have confidence in 'twenty four and I think continued confidence as we go into 25 with the international business. So I think that just naturally starts to Korea.
Aaron W. Saak: And with a strong backlog, that's why we have confidence in 24. And I think we will have continued confidence as we go into 25 with the international business. So I think that just naturally starts to create a dynamic that's positive for us but starts to, you know, hone in on our confidence on 24, but more of an outlook on the strength of the business to 25. In terms of the US government, I just, again, would reiterate what Christina mentioned. This team in the company focused on our currency upgrades just did an excellent job in the last several months. It's just a fantastic example of CBS in action, executing a very large capital improvement program.
Aaron W. Saak: The dynamic that is positive for us, but it starts to.
Aaron W. Saak: Hone in on our confidence on 'twenty, four but more of an outlook on the strength of the business to 25%.
Aaron W. Saak: In terms of the U S government.
Aaron W. Saak: Again would reiterate what Christina mentioned this this team.
Aaron W. Saak: In the company.
Aaron W. Saak: Focused on our currency upgrades just did an excellent job in the last several months. It's just a fantastic example of CBS and action of executing in a very large capital improvement program and production is ongoing as expected now in Q2, and we're fast at work preparing for again a very.
Operator: And production is ongoing as expected now in Q2. And we're fast at work preparing for another very significant upgrade in Q4, as Christina mentioned again. So we feel we are on track as expected in the US currency program. This is going to be very positive, as you know, for our business in how we work with the BEP. And you know, we fully expect the Treasury Department will be making its announcements at the appropriate time on the new designs.
Operator: Three significant upgrade in Q4 as Kristina mentioned again.
Operator: So we feel we are on track as expected in the U S. Currency program. This is going to be very positive as you know for our business and how we work with the Bep and we fully expect the Treasury Department, we will be making their announcements at the appropriate time on the new designs and we're going to follow there.
Operator: And we're going to follow their lead, obviously, on that. But in terms of how we see the year outside of the bookends to your first question on production, mix is in line with prior year. That's what we've expected and how we've forecast the business and volume holding flat year over year. So again, pretty consistent, Matt, with what we said last quarter.
Operator: Lead obviously at that.
Operator: But in terms of how we see the year outside of the book Ins to your first question on production.
Operator: Mix is in line with prior year, that's what we've expected and how we forecast the business and volume.
Operator: Holding flat year over year, so again pretty consistent Matt with what we said last quarter.
Speaker Change: Thank you.
Robert James Labick: One moment for questions. Our next question comes from Bob Labick with CJS Securities; he may proceed.
Speaker Change: One moment for questions.
Robert James Labick: Our next question comes from Bob <unk> with CJS Securities You May proceed.
Robert James Labick: Good morning. Thanks for taking our questions and a great start to the year.
Robert James Labick: Good morning, Thanks for taking our questions and great start to the year.
Aaron W. Saak: Hey, thanks, Bob. Good to hear from you.
Robert James Labick: Hey, Thanks, Bob Good to hear you yes.
Robert James Labick: Yeah, you guys as well. So obviously, you know, OPSEC's, a lot of the big news, we knew about it, you closed it. It's great. It fits the strategy you've been articulating since, you know, pre-spin. Now that OPSEC's closed and part of the company. How, if at all, does this impact your acquisition strategy? Will you be looking for more software now, or more hardware, or to acquire customers to put on your platform? How does it fit, and how does it help you shape the next few acquisitions?
Speaker Change: Yes, you guys as well.
Robert James Labick: Obviously opex.
Aaron W. Saak: Yeah.
Robert James Labick: The Big news, we knew about it you close it it's great.
Aaron W. Saak: It fits the strategy you've been articulating since pre spin now that <unk> closed and part of the company.
Aaron W. Saak: How if at all does this impact your acquisition strategy will you be looking for more software now or more hardware or to acquire customers to put into your platform. How does it fit and how does it help U shaped.
Aaron W. Saak: <unk> the next few acquisitions.
Aaron W. Saak: Yeah, thanks, Bob. Well, and I appreciate the comment and I hope You know, everyone's seen this, that we laid out the strategy 12 months ago, now 13 months ago, since the launch of the company, and we're really executing it in a way of doing exactly what we said we were going to do around the thematic of secure, detect, authenticate in markets that are large, growing, and fragmented, and we think there's a lot of opportunity to grow our portfolio with businesses that have moats around them.
Speaker Change: Thanks, Bob and I appreciate the comment on I hope.
Aaron W. Saak: Everyone's seen this that we laid out the strategy 12 months ago, now 13 months ago since the launch of the company and we're really executing it in a way of doing exactly what we said we were going to do around the thematic of secure detect authenticate in markets that are large growing and fragment.
Aaron W. Saak: And we think there is a lot of opportunity.
Aaron W. Saak: Two.
Aaron W. Saak: <unk> grow our portfolio with with businesses that have moats around them and offset we think is a great example of that and it's part of why we announced the new segment structure and put currency together with <unk> because we fundamentally believe this is an area. We can continue to grow a $3 billion market growing at mid single digit.
Aaron W. Saak: And OPSEC, we think, is a great example of that. And it's part of why we announced the new segment structure and put currency together with OPSEC, because we fundamentally believe this is an area we can continue to grow. A $3 billion market, growing at mid-single digits, highly fragmented, and again, really unique technology and service companies out there, of which we are now a leading player.
Aaron W. Saak: It's highly fragmented and again.
Aaron W. Saak: Really unique technology and service companies out there of which we are now a leading player. So that feels very good to us to your question, where we can continue to do more now our first focus Bob as Im sure. Youll. Appreciate is to grow these businesses and that includes both currency Kristina walked through.
Aaron W. Saak: So that feels very good to us, in response to your question about where we can continue to do more. Now, our first focus, Bob, as I'm sure you'll appreciate, is to grow these businesses, and that includes both currencies. Christina walked through the investments we're making there, that's core to the growth strategy we have, and certainly to grow OPSEC. And we're really excited, even more so about that coming into the portfolio as we have closed. But we do see more opportunities.
Aaron W. Saak: Through the.
Aaron W. Saak: The investments, we're making there that's core to the growth growth strategy, we have and certainly to grow OPSEC and we're really excited even more so about that coming into the portfolio as we've closed.
Aaron W. Saak: But we do see more opportunities here.
Aaron W. Saak: And I think you can think about those as both the offerings themselves, which include differentiated niche technologies, and also enhanced digital capabilities, to your question. Both go together. I don't believe it's one or the other, but it's putting both together that forms a very sticky, differentiated solution with wide modes.
Aaron W. Saak: And I think you can think about those as both the offerings themselves which include differentiated niche technologies.
Aaron W. Saak: And also enhanced digital capabilities to your question. Both go together I don't believe it's one or the other but it's putting both together that forms a very sticky differentiated solution with wide moats.
Aaron W. Saak: And where we see this playing out even more in the future, and you can see that in the OPSEC business, is in tailoring the solutions to individual vertical markets, whether that's consumer, media, pharmaceuticals, and government businesses. That's where a lot of the fragmentation still sits inside the competitive set, and that's where we see more opportunities to pull together, again, additional assets inside the new segment. And, you know, we come out of this, Bob, with a fantastic position on our net debt and our leverage at 1.8.
Aaron W. Saak: And where do we see this playing out even more in the future and you could see that in the <unk> business are tailoring solutions to individual vertical markets, whether that's consumer media pharmaceuticals and government businesses.
Aaron W. Saak: That's where a lot of the fragmentation still sits inside the.
Aaron W. Saak: Competitive set and that's where we see more opportunities to pull together again additional assets inside the new segment.
Aaron W. Saak: And we come out of this Bob with.
Bob: Fantastic position and our net debt and our leverage at one eight that gives us ample capacity to go do more and so that's our focus.
Aaron W. Saak: That gives us ample capacity to do more, and so that's our focus. You know, we're in day three post the announcement of OPSEC, so our number one focus is integrating and welcoming our new OPSEC colleagues into the business and going out and talking to our customers to achieve the synergies we see, particularly on the commercial side. And with that said, as I alluded to in my comments just a few minutes ago, we have a strong funnel of opportunities. And with our leverage, we are going to continue a very disciplined M&A process and feel, again, very optimistic about where we're headed in the year ahead.
Aaron W. Saak: We're in daily three post the announcement of <unk>. So our number one focus is integrating and welcoming our new offset colleagues into the business and going out and talking to our customers to go achieve the synergies, we see particularly on the commercial side.
Aaron W. Saak: And with that said as I alluded to here in my comments, just a few minutes ago, we have a strong funnel of opportunities and with our leverage we are going to continue a very disciplined M&A process and fuel again very very optimistic on where we're headed in the year ahead.
Robert James Labick: Okay, great. And just follow up, you know, with that. And I'm sure the answer to this question... you know, a bit of both as well. In terms of growing the existing OPSEC, how would you, um... I'm sure it's a bit of both, but where's the weight going forward, and how should we think about it? Yeah, thanks, Bob. That's a good question. I am going to actually use your answer, because you're right.
Speaker Change: Okay, Great and just following up.
Robert James Labick: Does that answer and I'm sure. The answer to this question will be a bit of both as well, but in terms of growing the existing <unk>.
Robert James Labick: Business.
Robert James Labick: How would you.
Speaker Change: I think the growth will be weighted more towards new customers or new logo adds or more towards kind of expanding share of wallet for lack of a better term with your existing customers I'm sure it's bit of both but where is the weight.
Speaker Change: Forward and how should we think that's a good yes. Thanks, Bob Thats a good question I am I am going to actually use your answer because you're right. It is a bit of both and.
Aaron W. Saak: It is a bit of both, and I mean that sincerely. I think what we've been doing... I was going to say... Pleasantly affirmed, or not surprised, but encouraged by, the affirmation of our strategy with our customers and their response to this acquisition. Because it's very clear to customers that can see the benefits of bringing in our truly differentiated micro-optics technology along with that OPSEC channel and completing a wonderful portfolio of technology that includes the OPSEC physical technology and their holograms with our micro-optics on top of their software and services.
Aaron W. Saak: Mean that sincerely that.
Aaron W. Saak: I think what we've been I was going to say.
Aaron W. Saak: Pleasantly.
Aaron W. Saak: Affirmed are not surprised but encouraged by is the affirmation of our strategy with our customers and their response to this acquisition because it is very clear to the customers that can see the benefits of bringing in are truly differentiated micro optics technology along.
Aaron W. Saak: Into that <unk> channel and completing a wonderful portfolio of technology that includes the OPSEC physical technology in their hollow grams with our micro optics on top of their software and services. We've got a lot of positive response from the customer base on that so that's where.
Aaron W. Saak: We've got a lot of positive responses from customers based on that. So that's where I see the share of wallet expansion inside the customers, not necessarily all new logos, but folks who are willing to move up the technology stack with our new offerings and things we can now do for them that OPSEC can do for them that they didn't have access to in the past. And as we mentioned before, we see $3 million of commercial synergies by 2026 just from this expansion of our technology through the OPSEC channel.
Aaron W. Saak: I see the share of wallet expansion inside the customers not necessarily all new logos, but folks who are willing to move up the technology stack with our new offerings and things. We can now do for them that <unk> can do for them that they didn't have access to in the past and as we mentioned before we see $3 million.
Aaron W. Saak: Commercial synergies.
Aaron W. Saak: And so that feels very good, and we're very confident of delivering those synergies. And then, to your point, I think with the fact OPSEC now has a more complete set of solutions, there are opportunities for new logo expansions. And I think those are broad around all of the segments that we referred to earlier. That's the sports and media market, that's the consumer market, and pharmaceuticals as part of that, and government. So I think it is a bit of both. I wouldn't want to weigh it one way or the other.
Aaron W. Saak: By 'twenty six just off of this expansion.
Aaron W. Saak: All of our technology through the <unk> channel and so that feels very good and we're very confident on delivering those synergies and then to your point I think with the <unk> now has a more complete set of solutions. There are opportunities for new logo expansions and I think those are broad.
Aaron W. Saak: Around all of the segments that we referred to earlier Thats, the sports and media market. That's the consumer market and pharmaceutical is part of that and government. So I think it is a bit of both I wouldn't want to weighted one to the other but.
Aaron W. Saak: Again, we've built in $3 million of synergies as we mentioned last quarter just from expansion.
Aaron W. Saak: Of the share of wallet side of this business. So feel very good about that as we've gone through the final.
Aaron W. Saak: But again, we've built in $3 million of synergies, as we mentioned last quarter, just from the expansion of the share of wallet side of this business. So I feel very good about that as we've gone through the final weeks leading up to our close. And now that we've closed, we're out with a very detailed 100-day plan to our customers, and they're excited about it.
Aaron W. Saak: Weeks of leading up to our close and now that since we've closed.
Aaron W. Saak: <unk> with a very detailed 100 day plan going to our customers.
Aaron W. Saak: And they're excited about the combination.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Damian Karas with UBS. You may proceed.
Aaron W. Saak: One moment for questions.
Operator: Our next question comes from Damian Karas with UBS you May proceed.
Damian Karas: Hey, good morning, everyone. Good morning, Damian.
Damian Karas: Hey, good morning, everyone.
Damian Karas: Morning Damian.
Damian Karas: So you gave a little bit of color on the gaming market and kind of what's going on there. You talked about, sort of your expectation, mid-single-digit growth for the rest of CPI outside of gaming. I was wondering if you could just maybe share with us any additional color, kind of walking across those verticals, what you're seeing and kind of how each part of the business is progressing.
Damian Karas: So you gave a little bit of color on.
Damian Karas: The gaming market and kind of what's going on there.
Damian Karas: You talked about.
Damian Karas: Sort of your expectation of mid single digit growth for the rest of CPI outside of gaming I was wondering if you could just maybe share with us any additional color on kind of walking across those verticals.
Damian Karas: What youre seeing and kind of how it's how each part of the business is progressing.
Aaron W. Saak: Yeah, thanks Damian, I appreciate the question. I'll go back a little bit to what I said with Matt's first question, that we think the business has performed here just as expected and consistent with what we said last quarter. You know, when we think about gaming, again, the underlying market is very healthy. We see that growing at low single-digit to mid single-digits, depending on geography, and that's unchanged, and so that gives us a lot of confidence as we go through this year.
Speaker Change: Yes. Thanks, Damian I appreciate the question I'll go back to a little bit to what I said with Matt.
Aaron W. Saak: First question of we think the business has performed here just as expected and consistent with what we said last quarter.
Aaron W. Saak: When we think about gaming.
Aaron W. Saak: That underlying market is very healthy we see that growing at low single digit to mid single digits, depending on geography.
Aaron W. Saak: And thats unchanged and so that gives us a lot of confidence as we go through this year.
Aaron W. Saak: Also, through our own checks, we're maintaining our strong share in the market, and that's again based on the differentiated technology, so nothing has changed there from our perspective. And the order pattern we're seeing in gaming is playing out as expected as well.
Aaron W. Saak: Also through our own checks, we're maintaining our strong share in the market.
Aaron W. Saak: That's again based on the differentiated technology, so nothing changed there from our perspective and the order pattern. We're seeing in gaming is playing out as expected as well.
Aaron W. Saak: The backlog is Kristina showed for CPI was drawn down again as expected driven by gaming, we understand where customer inventories are sitting there is still a few months.
Aaron W. Saak: You know the backlog, as Christina showed for CPI, was drawn down again as expected driven by gaming. We understand where customer inventories are sitting. There's still a few months, as we indicated last quarter that they're going to be drawing down through Q2, and then we fully expect order rates to start to come back to the levels that we would normally see in the run rate of the business, and that's driven by casino floor upgrades and the normal replacement cycles driving that demand. And again, we don't see any changes to that.
Aaron W. Saak: As we indicated last quarter that theyre going to be drawing down through Q2, and then we fully expect order rates to start to come back to the levels.
Aaron W. Saak: That we would normally see in the run rate of the business and Thats driven by casino floor upgrades and the normal replacement cycles driving that demand and again, we don't see any changes to that.
Aaron W. Saak: So I'd say gaming is playing out just as we expected and in line for the rest of the year. To the rest of your question on the other parts of CPI, again, we're confident we're going to end this year growing mid-single digits for all the other verticals, as we discussed last quarter. You know, when you think about retail, I would just say I'm encouraged by what I see at the start of the year.
Aaron W. Saak: So I'd say gaming playing out just as we expected.
Aaron W. Saak: In line for the rest of the year.
Aaron W. Saak: The rest of your question on the other parts of CPI again, we're confident we're going to end this year growing at mid single digits for all the other verticals as we discussed last quarter. When you think about retail I would just say I am encouraged by what I see in the start of the year the underlying market, particularly for self checkout is healthy.
Aaron W. Saak: The underlying market, particularly for self-checkout, is healthy, and we're seeing major retailers moving ahead with their upgrades. And again, we think it's aligned to these secular trends of labor scarcity and increased automation that are unchanged. And so, you know, our retail segment's on track to grow mid-single digits this year in line with our expectations, and we see good performance for the year coming both from our OEM customers and from custom self-checkout applications as well.
Aaron W. Saak: We're seeing major retailers moving ahead with their upgrades and again, we think it's aligned to the secular trends of labor scarcity and increased automation that are unchanged and so our retail segment is on track to grow mid single digits. This year in line with our expert expectations and we see.
Aaron W. Saak: Performance for the year coming both from our OEM OEM excuse me customers and from customers self checkout applications as well.
Aaron W. Saak: And then finally, I'll just end by saying, you know, again, the rest of the vertical is growing as expected. And, you know, one area that we've seen just continued strength, particularly since the pandemic, is vending, which, you know, finished last year in strong fashion, growing at mid-single digits, and we expect that for the vending business this year. So again, kind of a nice, robust resiliency around the business, understanding, you know, the inventory normalization that I alluded to in gaming. So hopefully that helps.
Aaron W. Saak: And then finally I'll just end with again, the rest of the verticals growing as expected and one area that we've seen just continued strength.
Aaron W. Saak: Particularly since the pandemic is vending.
Aaron W. Saak: Finished last year in in strong fashion growing at mid single digits, and we expect that for the vending business. This year, so again kind of a nice robust resiliency around the business.
Aaron W. Saak: <unk>.
Aaron W. Saak: Understanding the inventory normalization that I alluded to in gaming, so hopefully that helps Damian yes.
Damian Karas: Yeah, no, very helpful, Aaron. Thank you.
Speaker Change: Yeah, no very helpful. Eric Thank you.
Damian Karas: This question might be a little bit more for Christina, but it looked like free cash flow may have been a little bit lighter in the quarter, and it seems like that's maybe on the working capital side and perhaps you're carrying a little bit more inventory. Could you just kind of clarify that and help us understand why, you know, what might be driving that? Is it related to the U.S. currency business shutdown or anything else? Or just how should we think about the kind of working capital and free cash flows as the year progresses? Yeah, thanks. I appreciate it.
Speaker Change: This question might be a little bit more for Christina it looked like free cash flow, maybe a little bit lighter in the quarter and seems like that's maybe on the working capital side and perhaps your.
Christina Cristiano: Carrying a little bit more inventory.
Damian Karas: Could you just kind of clarify that help us understand why.
Damian Karas: What might be driving that is it is it related to the U S currency business shutdown or anything else or just how should we think about kind of working capital and free cash flow.
Christina Cristiano: Yeah, thanks. I appreciate that question. You know, when you think about free cash flow, we're all just taking a step back. We have such tremendous and strong free cash flow generation, and that enables us to maintain our low leverage while we continue to invest in our organic growth and in strategic M&A. And as an example, last year, we were able to pay down 245 million of our term loan in less than one year.
Damian Karas: As the year progresses.
Speaker Change: Yes, Thanks, I appreciate that question.
Christina Cristiano: So that just shows the strength of our free cash flow. Now, to provide further context on Q1, we saw a lower free cash flow based on the timing of cash use for working capital specific to our currency business. And as you know, currency is a project-based business, which can be lumpy quarter over quarter. And that impacts the timing of orders and shipments, and that impacts working capital. We also had higher capex investments in the new series, which Aaron spoke about earlier, which is a tremendous opportunity for long-term growth in the business.
Christina Cristiano: When you think about free cash overall, just to take a step back we had such tremendous and strong free cash flow generation and that enabled us to maintain our low leverage while we continue to invest in our organic growth and strategic M&A and as an example last year, we were able to pay down $245 million of our term loan unless.
Christina Cristiano: In one year, so that just shows the strength of our free cash flow now to provide further context on Q1, we saw a lower free cash flow based on the timing of cash used for working capital specific to our currency business.
Christina Cristiano: So we're so excited to make those investments now. So when you think about the currency trends in Q1, that's really the timing. And when you overall, you know, look at the full year, we expect free cash flow to be on track at approximately 100% conversion. And I'll also just say in the quarter on the CPI side, we had very strong margins and free cash flow in the quarter. So this really was specific to currency and a little bit of seasonality as Q1 tends to be the lowest of the quarters.
Christina Cristiano: And as you know currency is a project based business, which can be lumpy over quarter over quarter and that impacts the timing of orders and shipments shipments and that impacts working capital. We also had higher capex investments in the new series, which Aaron spoke about earlier, which is a tremendous opportunity for long term growth in the business. So we're we're so excited to meet those <unk>.
Christina Cristiano: Estimates now.
Christina Cristiano: So when you think about the currency trends in Q1, that's really a timing and when you overall look at the full year, we expect free cash flow to be on track at approximately 100% conversion and I'll also just say in the quarter on the CPI side, we had very strong margins and free cash flow in the quarter. So this really was specific to.
Christina Cristiano: Currency and a little bit of seasonality as Q1 tends to be the lowest of the quarters.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Bobby Brooks with Northland Capital Markets. Okay, you may proceed.
Speaker Change: One moment for questions.
Operator: Our next question comes from Bobby Brooks with Northland Capital markets. You May proceed.
Robert Thornton Brooks: Hey, good morning, everyone. Thanks for taking the question. So when thinking about OPSEC and the associated spending, maybe over the next 12 month timeframe, are you guys seeing more opportunities, or maybe you're more excited for cost synergies via elimination of duplicate expenses or things of that nature? Or are you seeing more opportunities to invest in OPSEC to spur further growth?
Speaker Change: Hey, good morning, everyone.
Speaker Change: Thanks for taking the question.
Robert Thornton Brooks: So when thinking about <unk> and their associated spending maybe over the next 12 months timeframe are you guys seeing more opportunities or maybe are you more excited for cost synergies.
Robert Thornton Brooks: Elimination of duplicate expenses or things of that nature.
Robert Thornton Brooks: Or are you seeing more opportunities to invest in to invest into opex to spur further growth.
Aaron W. Saak: Hey, good morning, Bobby. Thanks. Thanks for the question. Well, again, I think it's a little bit of both, to be honest. Let me start with at least the way I think about it, where do we, through our due diligence and in our modeling, have line of sight to synergies in the business. And we've said that we were looking at about $8 million in synergies by 2026, $3 million coming from commercial synergies. And I talked about those earlier.
Speaker Change: Hey, good morning, Bobby Thanks, Thanks for the question well.
Aaron W. Saak: Again, I think it's a little bit of both.
Aaron W. Saak: Be honest.
Aaron W. Saak: Let me start with at least the way I'd think about it of where have we.
Aaron W. Saak: And through our due diligence and in our modeling have line of sight to synergies in the business and we've said.
Aaron W. Saak: That we were looking at about $8 million of synergies by 2026 3 million coming from commercial synergies and I talked about those earlier and that's really driving the sales of our micro optic technology through the <unk> channel.
Aaron W. Saak: The remaining five is from operational synergies think about that with supply chain. The scale that we bring to <unk> and really the rigor that will apply with our CBS operating discipline. So.
Aaron W. Saak: That $8 million as part of our thesis we feel very confident about that.
Aaron W. Saak: And we're getting to work on it again a day three with a very detailed integration plan that will include going out to our customers, which is happening immediately to drive the commercial synergies as well as going into the facilities and doing training and deploying our CBS operating principles again feel very confident on.
Aaron W. Saak: And that's really driving the sales of our micro optic technology through the OPSEC channel. The other remaining five are from operational synergies. Think about that with supply chain, the scale that we bring to OPSEC, and really the rigor that will apply with our CBS operating discipline. Now, to the point you've raised, are there additional investments in OPSEC? And are there more growth opportunities in the business? You know, I think that's where we're excited. We're, you know, we see this business growing and in the mid single digits plus. That's, that's what we've communicated before. And I feel again very confident with the outlook for the business, both near term and long term.
Aaron W. Saak: Cheating the synergies now to the point you raised about is there additional investment in <unk> and are there more growth opportunities in the business.
Aaron W. Saak: I think that's where we're excited.
Aaron W. Saak: We see this business growing at mid single digit plus.
Aaron W. Saak: That's what we've communicated before and I feel again very confident.
Aaron W. Saak: With the outlook for the business, both near term and long term and we're going to continue to make the investments in op sector quite frankly, the optic business was already making in building out not only their physical technology, but remember they have just.
Aaron W. Saak: Okay.
Aaron W. Saak: A good portion of that business is shown in the Pie chart on the slide that I went through that.
Aaron W. Saak: In digital.
Aaron W. Saak: Assets so.
Aaron W. Saak: Continued investment in <unk>.
Aaron W. Saak: That's in line with where they've been investing historically through their p/e ownership in.
Aaron W. Saak: And continuing to create wide moats, both physical technology and digital so I do think it's a little bit of both.
Aaron W. Saak: But the story of <unk> for US is about growth and it's about growth of our technology combined with theirs and.
Aaron W. Saak: And growth as the market is growing as well and it's opened up a much bigger Tam for us as part of <unk>.
Robert Thornton Brooks: Got it, appreciate that color. And then maybe going back to, you know, Christina, I know she talked about the free cast flow, and just kind of go back to that. Could you maybe just go through maybe a little bit more in depth and more color on just the confidence and visibility and maintaining that and you guys maintaining the 100%, you know, adjusted free cash flow conversion guide. Because that would, you know, kind of extrapolating that you guys would have to be more towards what you saw in the third quarter of 23 with 150%, you know, free adjusted free cash flow conversion rather than, you know, 110%, maybe that you saw in So it's just kind of looking more towards, you know, that confidence and visibility and where that kind of stems from.
Speaker Change: Got it I appreciate that color.
Robert Thornton Brooks: And then maybe going back to.
Robert Thornton Brooks: Kristina I know she talked about the free cash flow and just kind of go back to that could you maybe just go through just the comp.
Robert Thornton Brooks: Maybe a little bit more in depth and more color on just the confidence or visibility of maintaining that and you guys have been maintaining the 100% adjusted free cash flow conversion guide.
Robert Thornton Brooks: Because that would.
Robert Thornton Brooks: Kind of extrapolating that you guys.
Robert Thornton Brooks: Would have to be more towards what you saw in third quarter of 23 with a 150%.
Robert Thornton Brooks: Adjusted free cash flow conversion.
Robert Thornton Brooks: Other than the 110% maybe that you saw in the fourth quarter 'twenty three so just kind of looking more towards that as confidence and visibility in where that kind of stems from.
Christina Cristiano: Yeah, thanks, Bobby, for the follow-up question on that. You know, when you think about what happened in Q1, a little bit of seasonality there, Q1 tends to be the lowest quarter. And each quarter, gradually, we expect it to be higher. And that's consistent with the operations of the business in previous years. So that's, you know, it's quite normal to see that escalation happening throughout the year. Now, specific to this Q1, we had just some, you know, temporary things that were happening in the quarter, just related to the investments in the US new series and also just timing of shipments in Q1 related to international currency, and also on delivery for our US business.
Speaker Change: Yes, Thanks, Bobby for the follow up question on that when you. When you think about what happened in Q1, a little bit of seasonality. There Q1 tends to be the lowest quarter and each quarter gradually we expect to be higher and thats consistent with the operations of the business in prior years. So.
Christina Cristiano: It's quite normal to see that escalation happening throughout the year now specific to this Q1, we had just some.
Christina Cristiano: Temporary things that were happening in the quarter just related to the investments in the U S.
Christina Cristiano: So that's a little bit of timing. And as we look at our full year projections, we do expect to be on track for that, that full year, approximately 100%. Thank you, and as a reminder to ask questions
Christina Cristiano: New theories and also just timing of shipments in.
Christina Cristiano: In Q1 related to international currency and also on the delivery on our U S business. So those are a little bit of timing and as we look at our full year projections, we do expect to be on track for that that full year approximately a 100%.
Operator: Thank you, and as a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. One moment for questions. And our next question comes from Isaac Sellhausen with Oppenheimer. You may proceed.
Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced one moment for questions.
Isaac Arthur Sellhausen: And our next question comes from Isaac So housing with Oppenheimer. You May proceed.
Isaac Arthur Sellhausen: Hey, good morning. This is Isaac on behalf of Ian.
Isaac Arthur Sellhausen: Hey, good morning, this is as a country and thanks for taking my questions. Most have been answered already but it was very helpful to CD excuse me timeline for the equipment upgrades at currency.
Isaac Arthur Sellhausen: Could you maybe touch on the level of investment required there.
Isaac Arthur Sellhausen: Do you anticipate your facilities, maybe internationally to have similar upgrades or all those equipped to serve.
Isaac Arthur Sellhausen: International customers at the growth that business is seeing there.
Isaac Arthur Sellhausen: Thanks for taking all the questions. Most have been answered already, but it was very helpful to see the, excuse me, timeline for the equipment upgrades at Currency. Could you maybe touch on the level of investment required there? And do you anticipate your facilities maybe internationally to have similar upgrades? Or are all those equipped to serve, you know, international customers and the growth that business is seeing there?
Isaac Arthur Sellhausen: Yes, Im sorry can I just ask you to repeat the first half of your question I just didn't follow what you said.
Isaac Arthur Sellhausen: Yeah, I'm sorry, Isaac. Can I just ask you to repeat the first half of your question? I just didn't understand what you said.
Speaker Change: Yes, just on the currency investments in terms of the.
Isaac Arthur Sellhausen: Yeah, just on the currency investment in terms of the equipment upgrades, could you just touch on the level of investment required there? And do you anticipate other facilities having to be upgraded or any downtime, maybe internationally?
Isaac Arthur Sellhausen: Equipment upgrades could you just touch on the level of investment required there.
Isaac Arthur Sellhausen: And do you anticipate other facilities have to be upgraded or any downtime maybe internationally.
Aaron W. Saak: Yeah, thanks for that. And thanks for the clarification.
Speaker Change: Yeah, Thanks for that and thanks for the clarification. So I mean in terms of the Capex investments, we're making in the.
Aaron W. Saak: So I mean, in terms of the CapEx investment we're making in the US new series this year, which is again, such a tremendous program for long-term growth for the company that we're so excited about, we'll see CapEx be a little bit higher this year than we've historically expected. So generally, CapEx is around 2% of sales, and now it'll be a little bit closer to 3%. So, you know, still not very significant, but a change for us in the business specific to this problem, excuse me, this project, and that investment will pay off over the, you know, the decade-long cycle that the new series will bring us.
Aaron W. Saak: U S. New series this year, which again is such a tremendous program for long term growth for the company that we're so excited about <unk>.
Aaron W. Saak: See capex be a little bit higher this year than we've historically expected. So generally capex around 2% of sales and now it'll be a little bit closer to 3%. So.
Aaron W. Saak: Not very significant.
Aaron W. Saak: Change for us in the business specific to this problem excuse me this project and that investment will pay off over.
Aaron W. Saak: The decade long cycle that the new series will bring to us.
Aaron W. Saak: We are continuously doing maintenance, of course, all our facilities, right; our continuous improvement initiatives are ongoing. And so you'll see normal CapEx and every year again, approximately 2% of sales, there's not anything specific that's happening internationally, certainly nothing like the magnitude of what we're doing in the US series today that we're forecasting.
Aaron W. Saak: We are continuously doing maintenance across all our facilities right. Our continuous improvement initiatives are ongoing and so youll see normal capex and every year again, approximately 2% of sales there's not anything specific thats happening internationally, certainly nothing like the magnitude of what we're doing in the U S series today that we're.
Aaron W. Saak: Were forecasting.
Isaac Arthur Sellhausen: Okay, great. Thanks so much.
Speaker Change: Okay, great. Thanks, so much.
Operator: One moment for questions. Our next question comes from Matt Summerville with D.A. Davidson. You may proceed.
Speaker Change: Thank you.
Speaker Change: One moment for questions.
Operator: Our next question comes from Matt Summerville with D. A Davidson you May proceed.
Matt J. Summerville: Yeah, just a quick follow-up, you know, this migration that we expect down denomination with the US government redesign cycle. Are you starting to see a heightened level of down denomination migration with the other 50 central banks you deal with? And if not, when do you think you start to see that inflection? Does it coincidental with the US government cycle? Does it maybe happen?
Matt J. Summerville: Yes, just a quick follow up.
Matt J. Summerville: Gration, we expect down denomination with the U S.
Matt J. Summerville: Design cycle or are you starting to see a heightened level down.
Matt J. Summerville: Denomination migration with the other with the central bank to deal with.
Matt J. Summerville: If not when do you think you'd start to see that inflection does it gives it Quinn.
Matt J. Summerville: To the U S government cycle. It doesn't maybe happen obviously is an extended cycle right. It works into the next decade.
Matt J. Summerville: Obviously, it's an extended cycle, right? It works for the next decade? Is it more front-end loaded relative to the US government? I don't see how the same sort of playbook isn't wrong with the other major central banks in the world, given what they're trying to combat with these upgrades.
Matt J. Summerville: So I loaded relative to DSW.
Matt J. Summerville: The same sort of playbook.
Matt J. Summerville: With the other major central banks in the world given what they are trying to combat.
Speaker Change: And with these upwards. Thank you.
Aaron W. Saak: Yeah, hey, thanks for that question Matt. I think I think the way you're framing that it's exactly right. If I zoom up a little bit or go back to the history of the US program and let's say it's 2013, the introduction of micro optics to the US hundred dollar bill set off what we're seeing today is this very strong demand for increased anti-counterfeiting technology across the world. And that, obviously, as you know and allude to here, starts at the higher denominations, and it moves down the market, if you will, because fundamentally the concern about anti-counterfeiting is still unchanged regardless of the denomination, and some lower denominations have just as big an anti-counterfeiting risk.
Aaron W. Saak: Thank yeah. Hey, thanks. Thanks for
Aaron W. Saak: Yeah, Hey, thanks, Thanks for that question, Matt I think I think the way you're framing that's exactly right.
Speaker Change: Got you.
Aaron W. Saak: If I zoom up a little bit or go back to the history of the U S program and let's say, it's 2013 the introduced the introduction of micro optics to the U S $100 Bill.
Aaron W. Saak: And the US $20 bill and $50 bill are good examples of that. So we are seeing exactly the phenomena you outlined. And I think that's reinforced by your other question about the wins we're seeing in microoptics, which is consistently 10 to 15 denominations a year and, arguably, Q1 was a very strong start for us, to your question. So I think that is the phenomenon that's playing out. It's been playing out for several years, and I would say it's consistent.
Aaron W. Saak: Set off what we're seeing today is this very strong demand for increased Tanner anti counterfeiting technology across the world and that obviously as you as you know and alluded to here starts at the higher denomination and it moves down down.
Aaron W. Saak: Market, if you will because fundamentally the concern on anti counterfeiting is still unchanged regardless of the denomination and some lower denomination have just as big of anti counterfeiting risks.
Aaron W. Saak: U S $20 Bill and 50 dollar Bill are good examples of that so we are seeing exactly the phenomena you outlined and I think that that's reinforced.
Aaron W. Saak: By our other.
Aaron W. Saak: Your other question of the win the wins, we're seeing of micro optics, which is consistently 10% to 15 denomination of year and arguably Q1 was a very strong start for us to your question. So I think that is the phenomenon thats playing out.
Aaron W. Saak: It's been playing out for several years and I would say its a consistent philosophy central banks are adopting to increase more anti counterfeiting technology. Indeed every new bill redesign that's what's happening in the United States in a big way, which will bear.
Aaron W. Saak: Philosophy Central Banks are adopting to increase more anti-counterfeiting technology in every new bill redesign. That's what's happening in the United States in a big way, which will benefit us, and that's what's happening denomination by denomination in central banks around the world. Now just remember that these are typically slower processes, that central banks will not redesign bills very often; that's a very deliberate process. And so it takes a number of years to go through not only the full fleet of the denominations but also the redesign process.
Aaron W. Saak: <unk> us and Thats whats happening denomination by denomination.
Aaron W. Saak: In central banks around the World now just remember that these are typically slower processes that central banks will not redesigned bills very often that's very deliberate process.
Aaron W. Saak: And so it takes a number of years to go through not only the full fleet of the denomination, but also the redesign process. So I think that really plays to our advantages as more people adopt technology.
Aaron W. Saak: So I think that really plays to our advantage. As more people adopt technology, our technology specifically, they get accustomed to it and understand its advantages, you see this continual increase that's a virtuous cycle for us, that we, again, think has a lot of tailwinds for the currency business. And you see that, Matt, playing out in the
Aaron W. Saak: Our technology, specifically, they get accustomed to it and understand its advantages that you see this continual increase that's that's a virtuous cycle for us.
Aaron W. Saak: We again think has a lot of tailwind to the currency business and you've seen and you see it Matt playing out in the numbers.
Speaker Change: Thank you.
Operator: One moment for questions, and our last question comes from Bobby Brooks with Northland Capital Markets. He may proceed.
Aaron W. Saak: One moment for questions.
Operator: And our last question comes from Bobby Brooks with Northland Capital markets. You May proceed.
Robert Thornton Brooks: Hey, thanks for taking the follow-up question. So just going back to OPSEC and cross-selling micro-optics into OPSEC customers, you know, I'm just trying to frame it better for myself. Obviously, OPSEC has really good hologram technology, but am I right to assume that your guys' micro-optics technology is a notable step up in terms of the durability of the physical authentication piece? And then, let's say an OPSEC customer switched over all its physical authentication pieces to micro-optics. Would that drive a notable boost in revenues and expand margins? Just trying to help frame that opportunity.
Robert Thornton Brooks: Hi, Thanks for taking the follow up question. So just.
Robert Thornton Brooks: Going back to <unk> on the cross sell on cross selling micro optics and to offset customers I'm just trying to frame it better for myself. Obviously OPSEC has has really good hologram technology, but am I right to assume that you guys have micro optic technology is notable step up in terms of the.
Robert Thornton Brooks: Durability of.
Robert Thornton Brooks: The physical authentication piece, and then let's say an <unk> customer.
Robert Thornton Brooks: Customer switched over all this often physical authentication pieces to micro optics.
Robert Thornton Brooks: Would that drive a notable boosting revenues and expand margins just trying to help frame that opportunity.
Aaron W. Saak: Yeah, no, that's a really good question, Bobby. Thanks for that. I would view it a little differently, you know, at least how we're talking about it and many customers are viewing it as it's a portfolio of solutions that's dependent on what you're looking at, particularly for the aesthetics. There are different features and aesthetic properties that OPSEC's really terrific hologram technology can provide that micro-optics can't. They're both very durable, and I would not really argue one over the other.
Aaron W. Saak: Yes, no thats a really good question Bobby Thanks for that I would view it a little at least how we're talking about it and many customers are viewing it as it's a portfolio of solutions. That's dependent on what you are looking at particularly for the aesthetics there are different fees.
Aaron W. Saak: Features and aesthetic properties that Opex really terrific hologram technology can provide that micro optics Kent.
Aaron W. Saak: They're they're both very durable I would not really argue one over the other there is different form factors in certain grades of the products.
Aaron W. Saak: But from a true anti counterfeiting perspective of while we can provided with micro optics, it's truly.
Aaron W. Saak: There are different form factors and certain grades of the products, but from a true anti-counterfeiting perspective of what we can provide with micro-optics, it's truly, you know, at the high end of that type of feature set if that's your primary function. So most customers are going to weigh a variety of different features to make a decision. It's not just anti-counterfeiting. It could be the color fit format of the label that they're looking for.
Aaron W. Saak: At the high end of that type of feature set of of if that's your primary function. So most customers are going to weigh a very a variety of different features to make a decision. It's not just anti counterfeiting it could be the color fit format of the label that Theyre looking for so we think having this broad portfolio.
Aaron W. Saak: So we think having this broad portfolio is the right answer for the customer. It's not always a migration to micro-optics. It's probably a combination of both for most customers, depending on their product or depending on where they want to take their brand and their brand image. And I think that's what, in fact, no other competitor can offer in the market, and that's the moat in the differentiation that OPSEC will have going forward.
Aaron W. Saak: Folio is the right answer for the customer it's not always a migration to micro optics, it's probably a combination of both for most customers depending on their product or depending on where they want to take their brand and their brand image and I think that's what now very few in fact, no other competitor can offer in the market and.
Aaron W. Saak: That's the moat and the differentiation that <unk> will have going forward.
Aaron W. Saak: So again, it's a little bit of the best of both worlds in some ways. To answer your question on margins, you know, both the OPSEC physical margins are very robust, as is our micro-optics. On a net-net basis, it's, you know, more creative on the micro-optics, but, you know, both are very good, quite frankly.
Aaron W. Saak: So again, it's a little bit of the best of both worlds in some ways.
Aaron W. Saak: To answer your question on margins.
Aaron W. Saak: Both the <unk> physical margins are very robust as as is our micro optics on a net net basis.
Aaron W. Saak: More accretive on the micro optics, but.
Aaron W. Saak: Both are very good quite frankly.
Aaron W. Saak: Thank you. I would now like to turn the call back over to Aaron Saak for any closing remarks.
Aaron W. Saak: Thank you I would now like to turn the call back over to Aaron <unk> for any closing remarks.
Aaron W. Saak: All right, thank you very much, operator. And again, this quarter, I couldn't be more excited by our announcement that came out earlier this week, a major milestone in the history of Crane NXT as we completed the acquisition of OPSEC. And it's reflected in the questions here this morning about how important this is, this first acquisition.
Aaron W. Saak: Alright, Thank you very much operator, and again this quarter I couldnt be more excited by our announcement that came out earlier this week.
Aaron W. Saak: A major milestone in the history of Crane NXT as we completed the acquisition of <unk> and its reflected in the questions. Here. This morning of how important. This is this first acquisition.
Aaron W. Saak: Crane NXT and adding to our portfolio. I'd again like to thank all of our NXT associates around the world for their efforts in Q1, just an outstanding focus and dedication to the business, all while closing our first acquisition. And it's hard to believe that it was just 13 months ago that we launched the company. And our first full year, I think, has been very rewarding. Needless to say, as I look forward, I am excited by the journey ahead in 2024. So, thank you again to everyone who joined us today. Thank you for your questions, and I hope you all have a great rest of your week.
Aaron W. Saak: For Crane, NXT, and adding to our portfolio I'd again like to thank all of our NXT associates around the world for their efforts in Q1, just announced standing focus and dedication to the business all while closing our first acquisition.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: And it's hard to believe it was just 13 months ago that we launched the company and our first full year I think it's been very rewarding needless to say as I look forward I am excited by the journey ahead in 2024.
Operator: So thank you again to everyone who joined US today. Thank you for your questions and I Hope you all have a great rest of your week.
Operator: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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