Q2 2024 Crane NXT Co Earnings Call

August 8, 2024

Operator: Good day, and thank you for standing by. Welcome to the Crane NXT second quarter 2024 earnings call. 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, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Christina Cristiano. Chief Financial Officer, please go ahead.

Good day and thank you for standing by. Welcome to the Crane NXT second quarter 2024 earnings call.

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 a session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.

To withdraw your questions, please press star 1 1 again. Please be advised that today's conference is being recorded. I want to hand the conference over to your speaker today, Christina Cristiano, Chief Financial Officer. Please go ahead.

Christina Cristiano: Thank you, operator, and good morning everyone. I want to welcome you all to the second 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.

Thank you, operator, and good morning, everyone. I want to welcome you all to the second 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.

Christina Cristiano: Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Forms 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 the tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneNXT.com in the Investor Relations section With me today is Aaron Saak, our President and Chief Executive Officer.

Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Forms 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 the tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneNXT.com in the Investor Relations section.

Christina Cristiano: On our call this morning, we will discuss our financial results, provide an update on the OPSEC acquisition, and update our 2024 guidance. After our prepared remarks, we will open the call to analysts for questions. Now, I will turn the call over to Aaron.

With me today is Aaron Saak, our President and Chief Executive Officer. On our call this morning, we will discuss our financial results, provide an update on the OPSEC acquisition, and update our 2024 guidance.

After our prepared remarks, we will open the call to analysts for questions. Now let me turn the call over to Aaron.

Aaron Saak: Thank you, Christina, and good morning. We appreciate everyone joining the call today to discuss our second quarter 2024 results. Before we begin, I'd like to take this opportunity to thank our NXT associates around the world for their efforts to deliver solid performance. Second quarter performance was in line with our expectations. Sales increased 5% over the prior year, reaching $371 million, driven by the acquisition of Obsidian.

Thank you Christina and good morning. We appreciate everyone joining the call today to discuss our second quarter 2024 results. Before we begin I'd like to take this opportunity to thank our NXT associates around the world for their efforts to deliver solid performance this quarter.

Aaron Saak: Sales increased 5% over the prior year, reaching $371 million, driven by the acquisition of OPS. I'm very pleased with the operational performance of OPSEC and the progress we're making with integrating the business into NXT. We've hit the ground running to generate a funnel of new opportunities with our market-leading portfolio of online and physical authentication technologies and started implementing the continuous improvement fundamentals of the Crane Business System. We continue to be very excited about OPSEC and what it means for Crane NXT in executing our strategy of providing trusted technology solutions that secure, detect, and authenticate our customers' most valuable assets.

Aaron Saak: Our second quarter performance was in line with our expectations.

Aaron Saak: Sales increased 5% over the prior year, reaching $371 million, driven by the acquisition of OPSEC.

Aaron Saak: I'm very pleased with the operational performance of OPSEC and the progress we're making with integrating the business into NXT. Over the past three months, we've been meeting with many of our customers, and the response to the acquisition has been very positive. We have a clear line of sight to achieving the commercial and operational synergies that we identified when we announced the acquisition.

Aaron Saak: I'm very pleased with the operational performance of OPSEC and the progress we're making with integrating the business into NXT.

Aaron Saak: Over the past three months, we've been meeting with many of our customers and the response to the acquisition has been very positive.

Aaron Saak: We have clear line of sight to achieving the commercial and operational synergies that we identified when we announced the acquisition.

Aaron Saak: We've hit the ground running to generate a funnel of new opportunities with our market-leading portfolio of online and physical authentication technologies and started implementing the continuous improvement fundamentals of the Crane Business System. We continue to be very excited about OPSEC and what it means for Crane NXT in executing our strategy of providing trusted technology solutions that secure, detect, and authenticate our customers' most valuable assets. In Q2, Crane Currency continued to win new orders, ending the quarter with a record high backlog. We also expanded our share with existing customers by issuing 11 new denominations with micro-optics technology.

Aaron Saak: we've hp the ground running to generate a funnel of new opportunities with our market leading portfolio of online and physical authentication technologies and started implementing the continuous improvement fundamentals of the crane business system

Aaron Saak: We continue to be very excited about OPSEC and what it means for Crane NXT in executing our strategy of providing trusted technology solutions that secure, detect, and authenticate our customers' most valuable assets.

Aaron Saak: In Q2, Crane Currency continued to win new orders, ending the quarter with a record high backlog. We also expanded share with existing customers by issuing 11 new denominations with micro-optics technology. Inventories in the gaming vertical have normalized, and the other verticals within CPI continue to perform as expected, growing in single digits.

Aaron Saak: In Q2, Crane Currency continue to win new orders, ending the quarter with a record-high backlog.

Aaron Saak: We also expanded share with existing customers by issuing 11 new denominations with micro-optics technology.

Aaron Saak: Given the strong backlog and visibility into the timing of shipments, we're raising our full-year core sales growth for currency to 3-5%. Additionally, CPI had year-over-year core sales growth for the first time in four quarters. Inventories in the gaming vertical have normalized, and the other verticals within CPI continue to perform as expected, growing in single digits.

Aaron Saak: Given the strong backlog and visibility into timing of shipments, we're raising our full-year core sales growth for currency to 3-5%.

Aaron Saak: Additionally, CPI had year-over-year core sales growth for the first time in four quarters.

Aaron Saak: Inventories in the gaming vertical have normalized, and the other verticals within CPI continue to perform as expected, growing amid single digits.

Aaron Saak: Finally, we continue to have a very active MNA pipeline. We ended the quarter with a net debt to EBITDA ratio of approximately 1.8 times, positioning us well to further expand and diversify our portfolio with ample M&A capacity. In summary, our year-to-date performance and outlook give us confidence to narrow our adjusted EPS guidance to $4.20 to $4.35. Moving to slide four, in connection with the acquisition of OPSEC, we updated our reportable segments to better align our strategy of expanding our portfolio of market-leading technologies that secure, detect, and authenticate. The security and authentication technology segment consists of the OPSEC and Crane Currency businesses.

Aaron Saak: Finally, we continue to have a very active M&A pipeline.

Aaron Saak: We ended the quarter with net debt to EBITDA ratio of approximately 1.8 times, positioning us well to further expand and diversify our portfolio with ample M&A capacity.

Aaron Saak: In summary, our year-to-date performance and outlook give us confidence to narrow our adjusted EPS guidance to $4.20 to $4.35.

Aaron Saak: Moving to slide four, in connection with the acquisition of OPSEC, we updated our reportable segments to better align our strategy of expanding our portfolio of market-leading technologies that secure, detect, and authenticate. This includes vending, where our strong performance reflects new wins with existing customers and productivity initiatives that are improving margins. As mentioned in the announcement of Michael joining, Kurt Gallo will be retiring in early 2025 after 16 years with the company.

Aaron Saak: The security and authentication technology segment consists of the OPSEC and Crane Currency businesses.

Aaron Saak: In the CPI segment, we're seeing continued strength and many new customers in the market. This includes vending, where our strong performance reflects new wins with existing customers and productivity initiatives that are improving margins. Additionally, in our services business, we continue to expand our offerings and acquire new customers, with several new wins in the quarter, driving growth in recurring revenue.

Aaron Saak: In the CPI segment, we're seeing continued strength and many in markets. This includes vending, where our strong performance reflects new wins with existing customers, and productivity initiatives that are improving margins.

Aaron Saak: Additionally, in our services business, we continue to expand our offerings and acquire new customers with several new wins in the quarter, driving growth in recurring revenue.

Michael Mahan: I'm also excited that Michael Mahan joined us this quarter as the new president of CPI. In this role, he is responsible for driving the CPI growth strategy, accelerating innovation, and leveraging the Crane business system to drive continuous improvement in operational excellence. Michael is quickly acclimating to Crane NXT, visiting customers, and traveling to our CPI sites around the world to meet our associates. I'm happy to have him on our team. As mentioned in the announcement of Michael joining, Kurt Gallo will be retiring in early 2025 after 16 years with the company.

Speaker Change: i'm also excited that michael mainha joined us this quarter as the new president of cpi in this rowle michael is responsible for driving the cpi gross strategy accelerating innovation and leveraging the crane business system to drive continuous improvement in operational excellence

Aaron Saak: Michael is quickly acclimating to Crane NXT, visiting customers and traveling to our CPI sites around the world to meet our associates.

Michael: I'm happy to have them on our team.

Speaker Change: As mentioned in the announcement of Michael joining, Kurt Gallo will be retiring in early 2025 after 16 years with the company. I'd like to personally thank Kurt for his service and leadership over these many years.

Aaron Saak: I'd like to personally thank Kurt for his service and leadership over these many years. Overall, I'm incredibly excited about the future of Crane NXT, the portfolio we're building, and the leadership team we're putting in place. We are well on track to deliver our financial targets this year.

Michael Mahan: I'd like to personally thank Kurt for his service and leadership over these many years. Overall, I'm incredibly excited about the future of Crane NXT, the portfolio we're building, and the leadership team we're putting in place. We are well on track to deliver our financial targets this year. We're operating from a position of strength as we continue to execute our strategy to further expand and diversify our portfolio and drive shareholder value. I'm now going to hand the call over to Christina to walk us through our second quarter financial performance as well as provide more details on our updated 2024 guidelines.

Aaron Saak: Overall, I'm incredibly excited about the future of Crane NXT, the portfolio we're building, and the leadership team we're putting in place.

Aaron Saak: we are well on track to deliver our financial targets this year

Aaron Saak: We're operating from a position of strength as we continue to execute our strategy to further expand and diversify our portfolio and drive shareholder value.

Christina: I'm now going to hand the call over to Christina to walk us through our second quarter financial performance, as well as provide more details on our updated 2024 guidance.

Christina Cristiano: Thank you, Aaron. And good morning again.

Speaker Change: Thank you Aaron and good morning again. I would also like to express appreciation to our Global Associates for their strong execution this quarter.

Aaron Saak: Starting on slide five, as Aaron mentioned, our second quarter results were in line with our expectations. Sales grew approximately 5%, reflecting the acquisition of OPSEC security and core sales growth of approximately 1% year over year, driven by growth at CPI. However, adjusted free cash flow was impacted by higher capex related to our continued investments in the U.S. banknote redesign program, as we discussed last quarter.

Christina Cristiano: I would also like to express appreciation to our Global Associates for their strong execution this quarter. Starting on slide five, as Aaron mentioned, our second quarter results were in line with our expectations. Sales grew approximately 5%, reflecting the acquisition of OPSEC security and core sales growth of approximately 1% year over year, driven by growth at CPI. Adjusted segment operating margin of 27% reflects dilution from the OPSEC acquisition and an unfavorable product mix year over year. Adjusted free cash flow was impacted by higher capex related to our continued investments in the U.S. banknote redesign program, as we discussed last quarter.

Aaron Saak: Starting on slide 5, as Aaron mentioned, our second quarter results were in line with our expectations. Sales grew approximately 5% reflecting the acquisition of OPSEC security and core sales growth of approximately 1% year over year driven by growth at CPI.

Aaron Saak: Adjusted segment operating margin of 27% reflects dilution from the OPSEC acquisition and an unfavorable product mix year over year.

Aaron Saak: Adjusted free cash flow was impacted by higher capex related to our continued investments in the U.S. banknote redesign program as we discussed last quarter.

Christina Cristiano: Finally, adjusted EPS of $1.06 puts us on track with our full-year guidance. Moving to our segments, CPI reported core sales growth of 1% in the second quarter, reflecting mid-single-digit growth across all end markets outside of gaming. Adjusted segment operating margin contracted 110 basis points year over year to 30%, reflecting an unfavorable product mix due to lower gaming sales, partially offset by strong pricing execution and productivity initiatives.

Aaron Saak: Finally, adjusted EPS of $1.06 puts us on track with our full year guidance.

Aaron Saak: moving to our segments cpi reported core sales growth of one percent in the second quarter reflecting mid-single-digit growth across all end markets outside of deeming

Aaron Saak: Adjusted segment operating margin contracted 110 basis points year over year to 30% reflecting unfavorable product mix due to lower gaming sales partially offset by strong pricing execution and productivity initiatives.

Aaron Saak: Looking across our markets, gaming performed as expected in the quarter, with customers continuing to draw down on inventory overstock. The gaming backlog has now returned to normal levels, and we are encouraged by the new orders we are seeing from our OEM customers, which we expect to continue for the rest of the year. Outside of gaming, our other end markets are growing as anticipated, and we continue to expect full-year revenue growth in the non-gaming verticals to be in the mid-single digits. Moving to security and authentication technologies on slide 7.

Christina Cristiano: Looking across our markets, gaming performed as expected in the quarter, with customers continuing to draw down on inventory overstock. Gaming Backlog has now returned to normal levels, and we are encouraged by the new orders we are seeing from our OEM customers, which we expect to continue for the rest of the year. Outside of gaming, our other end markets are growing as anticipated, and we continue to expect full-year revenue growth in the non-gaming verticals to be in the mid-single digits.

Aaron Saak: Looking across our markets, gaming performed as expected in the quarter, with customers continuing to draw down on inventory over stock. Gaming backlog has now returned to normal levels, and we are encouraged by the new orders we are seeing from our OEM customers, which we expect to continue for the rest of the year.

Aaron Saak: Outside of gaming, our other end markets are growing as anticipated, and we continue to expect full-year revenue growth in the non-gaming verticals to be in the mid-single digits.

Christina Cristiano: Based on our backlog and the timing of new gaming orders, we expect CPI revenue for the remainder of the year to be slightly more weighted toward the fourth quarter. Moving to security and authentication technologies on slide 7, sales grew 16% reflecting the OPSEC acquisition, with core sales up slightly as higher U.S. sales offset lower international volumes which were impacted by the timing of shipments. Adjusted segment operating margin was 23% in the quarter, reflecting dilution from the OPSEC acquisition and an unfavorable mix in currency related to the production of more lower-denomination U.S. notes in preparation for the next equipment upgrade cycle.

Aaron Saak: Based on our backlog and the timing of new gaming orders, we expect CPI revenue for the remainder of the year to be slightly more weighted toward the fourth quarter.

Aaron Saak: Sales grew 16%, reflecting the OPSEC acquisition, with core sales up slightly as higher U.S. sales offset lower international volumes which were impacted by the timing of shipments. As a reminder, this year we took some of our U.S. paper-making equipment offline during the first quarter for upgrades to accommodate the new designs and technology for the U.S. Banknote Series that commences in 2026. The first upgrade cycle went very well, and we resumed production on schedule.

Aaron Saak: Moving to security and authentication technologies on slide seven, sales grew 16% reflecting the OPSEC acquisition with core sales up slightly as higher US sales offset lower international volumes which were impacted by the timing of shipments.

Aaron Saak: Adjusted segment operating margin was 23% in the quarter reflecting dilution from the OPSEC acquisition and unfavorable mix in currency related to production of more lower denomination US notes in preparation for the next equipment upgrade cycle.

Christina Cristiano: As a reminder, this year we took some of our U.S. paper-making equipment offline during the first quarter for upgrades to accommodate the new designs and technology for the U.S. Banknote Series that commences in 2026. The first upgrade cycle 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.

Aaron Saak: As a reminder, this year we took some of our U.S. papermaking equipment offline during the first quarter for upgrades to accommodate the new designs and technology for the U.S. Banknote Series that commences in 2026.

Aaron Saak: We will have another upgrade cycle beginning in the fourth quarter of this year, which will continue into the first quarter of 2025. In addition, given our strong currency backlog, we now expect currency core sales growth of 3 to 5 percent.

Aaron Saak: The first upgrade cycle 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.

Christina Cristiano: OPSEC's performance in the quarter was as expected, and we are on track to achieve the full year targets we communicated last quarter. As we look ahead to 2025 and beyond, we continue to see significant opportunities for margin expansion at OPSEC using our proven Crane business system to drive productivity improvement in supply chain and manufacturing processes. Overall, we have very high confidence in our full year projections for security and authentication technologies.

Aaron Saak: OPSEC's performance in the quarter was as expected, and we are on track to achieve the full year targets we communicated last quarter.

Aaron Saak: As we look ahead to 2025 and beyond, we continue to see significant opportunities for margin expansion at OPSEC using our proven Crane business system to drive productivity improvement in supply chain and manufacturing processes.

Aaron Saak: Overall, we have very high confidence in our full-year projections for security and authentication technologies.

Christina Cristiano: Our international currency backlog is up approximately 65% year over year, and we now expect currency core sales growth of 3-5%, up from our prior range of 2-3%. Looking ahead, we have high visibility into the timing of our shipments and expect segment revenue to be slightly higher in the fourth quarter versus the third quarter. Moving to our balance sheet on slide 8, our net leverage ratio was approximately 1.8 times at the end of the second quarter, reflecting additional borrowings on our revolver to fund the OPSEC acquisition.

Aaron Saak: Our international currency backlog is up approximately 65% year-over-year, and we now expect currency core sales growth of 3-5%, up from our prior range of 2-3%.

Aaron Saak: Looking ahead we have high visibility into the timing of our shipments and expect segment revenue to be slightly higher in the fourth quarter versus the third quarter.

Aaron Saak: Moving to our balance sheet on slide 8, our net leverage ratio was approximately 1.8 times at the end of the second quarter, reflecting additional borrowings on our revolver to fund the OPSEC acquisition.

Christina Cristiano: Our substantial free cash flow generation allows us to continue to focus on investing in organic growth and paying down debt while maintaining flexibility to deploy capital for future strategic M&A. Turning to our 2024 guidance on slide nine. Based on our performance in the quarter and confidence in our outlook, we are narrowing our adjusted EPS guidance to a range of $4.20 to $4.35. In addition, given our strong currency backlog, we now expect currency core sales growth of 3 to 5 percent. The rest of our guidance remains unchanged. Now, let me turn the call back to Aaron for closing remarks.

Aaron Saak: our substantial free cash flow generation allows us to continue to focus on investing in organic growth and paying down debt while maintaining flexibility to deploy capital for future strategic ma

Speaker Change: Turning to our 2024 guidance on slide 9, based on our performance in the quarter and confidence in our outlook, we are narrowing our adjusted EPS guidance to a range of $4.20 to $4.35.

Aaron Saak: in addition given our strong currency backlog we now expect currency core sales growth of three to five percent

Aaron Saak: The rest of our guidance remains unchanged.

Aaron Saak: Thanks, Christina. In conclusion, throughout the second quarter, we continued executing our strategy and delivered another strong quarter in line with our expectations. Based on our performance, we raised the midpoint of our full-year adjusted EPS guidance, and we're confident in our outlook. Our strategic priorities remain unchanged, and we believe they will create long-term shareholder value. We're investing in our core businesses, driving productivity through CVS, and building a strong M&A pipeline to diversify and expand the portfolio.

Aaron Saak: now let me turn the call back to aaron for closing remarks

Aaron Saak: Thanks Christina. In conclusion, throughout the second quarter we continued executing our strategy and delivered another strong quarter in line with our expectations.

Aaron Saak: Based on our performance, we raised the midpoint of our full-year adjusted EPS guidance and we're confident in our outlook. Our strategic priorities remain unchanged and we believe they will create long-term shareholder value.

Aaron Saak: Our strategic priorities remain unchanged, and we believe they will create long-term shareholder value. With this focus, I'm confident we'll achieve our vision of growing Crane NXT to $3 billion in revenue over the next five years.

Speaker Change: we're investing in our core businesses driving productivity to recevs and building a strong immina pipeline to diversify and expand the portfolio with this focus onunconfident will achieve our vision of growing cranein x t to three billion and revenue over the next five years

Aaron Saak: With this focus, I'm confident we'll achieve our vision of growing Crane NXT to $3 billion in revenue over the next five years. So with that, I'd like to thank you for your time this morning, and I'd also again like to thank our associates around the world for their commitment to delivering value to our customers and all of our state partners. With that, operator, we're ready to take our first question. Thank you.

Aaron Saak: So with that, I'd like to thank you for your time this morning, and I'd also again like to thank our associates around the world for their commitment to delivering value to our customers and all of our stakeholders.

Operator: Thank you, and as a reminder, to ask a question, you need to 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.

Speaker Change: With that, operator, we're ready to take our first question.

Speaker Change: Thank you. And as a reminder, to ask a question, you will need to 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 stand by while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Matt Summerville from DA Davidson. Your line is open.

Speaker Change: One moment for our first question.

Aaron Saak: Our first question will come from the line of Matt Summerville from DA Davidson. Your line is open.

Matt Summerville: Thanks. Good morning. Maybe first, we should talk about the currency side of the business. I mean, the thing that probably stuck out the most to me was that the backlog there took a major step function up in the quarter well beyond last year's record level. Can you maybe talk a little bit, Aaron and Christina, about the drivers there? How much of that is the market versus market share versus timing of new denominational introductions? And what does this mean in terms of an early read on visibility to $25 million?

Unnamed Speaker: Maybe first, let's talk about the currency side of the business. I mean, the thing that probably stuck out the most to me was that the backlog there took a major step function up in the quarter well beyond last year's record level. Can you maybe talk a little bit, Aaron and Christina, as to the drivers there? How much of that is the market versus market share versus timing of new denominational introductions? And what does this mean in terms of an early read on visibility to $25 million?

Speaker Change: Thanks, morning.

Unnamed Speaker: maybe maybe first let's talk about currency side of the business having nothing that probably stck out the most to me was that

Unnamed Speaker: The backlog there took a major step function up in the quarter well beyond last year's record level.

Unnamed Speaker: Let's talk a little bit, Aaron and Christina, as to the drivers there. How much of that is the market versus market share versus timing of new denominational introductions? And what does this mean in terms of an early read on visibility to 25 in that business?

Aaron Saak: Yeah, well, thanks for the question, Matt. Good morning.

Aaron Saak: Well, I think you're right. We're really encouraged here by the backlog in currency. And the line of sight, it really gives us here in 24. You know, that's very helpful for us in terms of timing and understanding the cadence of the second half. That's what gave us confidence to raise the sales guidance up three to 5%. To answer your question about the market, I don't think there's a real fundamental change in the market. You know, it's lumpy in terms of tendering.

Speaker Change: Yeah, well, thanks for the question, Matt. Good morning.

Speaker Change: Well, I think you're right. We're really encouraged here by the backlog in currency. And the line of sight, it really gives us here in 24. You know, that's very helpful for us in terms of timing and understanding the cadence of the second half. That's what gave us confidence to raise the sales guidance up 3 to 5 percent.

Aaron Saak: And we feel very confident in our positioning with market-leading technology. So I think this is just a continuation of our strength in the market. And as you know, as well, Matt, some of these tenders come in, and they're for multiple years. And that's what you also see reflected in the backlog. So while we have very good visibility in the backlog, some of those tenders are going to stay for, you know, 6 to 24 months in our backlog as we move to production.

Aaron Saak: To answer your question on the market, I don't think there's a real fundamental change in the market. You know it's lumpy in terms of tindering, and we feel very confident in our positioning with the market-leading technology. So I think this is just a continuation of our strength in the market.

Speaker Change: And as you know as well, Matt, some of these tenders come in and they're for multiple years.

Speaker Change: And that's what you also see reflected in the backlog.

Speaker Change: While we have very good visibility in the backlog, some of those tenders are going to stay for 6 to 24 months.

Aaron Saak: So again, a lot of confidence for the second half of the year, a lot of visibility into it, and that's what led to our raising of the sales guidance. I think it's probably premature to talk about 25 at this point in time.

Speaker Change: in our backlog as we move to production. So, again, a lot of competence for the second half of the year, a lot of visibility to it, and that's what's led to our raise of the sales guidance.

Aaron Saak: I think it's probably premature to talk about 25 years at this point.

Aaron Saak: I think it's probably premature to talk about 25 at this point in time.

Unnamed Speaker: Then maybe go over to CTI for a moment. You didn't tighten the guidance range there. I'm curious as to maybe a little more detail on what you're seeing in the four main verticals, and I want you to definitely touch on retail. You know, the performance in that business, up mid-single digits during the period and kind of that outlook for the year sort of goes against, at least directionally, where some of the major OEMs are talking about their business, noting one of which is sort of shifting their manufacturing strategy. So any perspective you may have on how that impacts or not CXT would be helpful.

Damian Karas: Then maybe go over to CTI for a moment. You didn't tighten the guidance range there. I'm curious as to maybe a little more detail on what you're seeing in the four main verticals, and I want you to definitely touch on retail. You know, the performance in that business, up mid-single digits during the period and kind of that outlook for the year, sort of goes against, at least directionally, where some of the major OEMs are talking about their business, noting one of which is sort of shifting their manufacturing strategy. So any perspective you may have on how that impacts or not CXT would be helpful.

Unnamed Speaker: and maybe

Unnamed Speaker: go over to CTI for a moment. You didn't tighten the guidance range there. Maybe curious as to.

Unnamed Speaker: maybe a little more detail on what you're seeing.

Unnamed Speaker: in the four main verticals, and I want you to definitely touch on retail.

Unnamed Speaker: you know, the performance in that business up mid single digits during the period and kind of that outlook for the year sort of goes against, at least directionally, where some of the major OEMs are talking about their business.

Speaker Change: noting one of which is sort of shifting their manufacturing strategy. So any perspective you may have on how that impacts or not CXT, that would be helpful. Thank you.

Aaron Saak: Thank you.

Speaker Change: Yeah, sure. Sure, Matt. Well, again, CPI, as Christina mentioned, performed just as expected in Q2 from our perspective.

Aaron Saak: Yeah, sure, Matt. Well, again, CPI, as Christina mentioned, performed just as expected in Q2 from our perspective. Gaming continued the burndown of the backlog, and again, we have a very good line of sight to our inventory positions at our various customers. Let me take a moment just to talk about retail, and then I'll hand it over to Christina to talk about the other end markets. You know, for us in retail, we actually saw growth through the first half of the year, and we believe very strongly the long-term macro trends in retail are still in place, which is driven by labor scarcity and the drive for retailers to implement more automation for their own efficiency and productivity. So we think that's unchanged.

Speaker Change: Gaming continued the burndown of the backlog and again we have very good line of sight to our inventory positions at our various customers.

Aaron Saak: Let me take a moment just to talk about retail and then I'll hand it over to Christina to talk about the other end markets.

Speaker Change: You know, for us, retail, we actually saw growth through the first half of the year.

Speaker Change: And we believe very strongly the long-term macro trends in retail are still in place, which is driven by labor scarcity and the drive for retailers to implement more automation for their own efficiency and productivity. So we think that's unchanged.

Aaron Saak: Now, just a reminder, as I know you know, Matt, but to others, we really go to market and retail through two channels. That includes the OEM channel, some of the names, like NCR, that I believe you're alluding to, given their announcements, and also directly with retailers into custom self-checkout. So, in terms of the OEM channel, we saw a slowdown in the first part of 2024, and we expect some softness there to continue.

Speaker Change: now just a reminder as i know you know map but but to others we really go to market in retail through two channels

Speaker Change: That includes the OEM channel, some of the names like an NCR that I believe you're alluding to, given their announcements, and also direct with retailers into custom self-checkout.

Speaker Change: So, in terms of the OEM channel, we have seen a slowdown.

Aaron Saak: For us, that's really been offset, though, as retailers are looking more at their own customization and configuring the systems differently and doing it themselves. And we've seen continued investment on the custom scope side of the market as they're moving away from standardized form factors. So when you put those two in balance, again, we've seen growth in the first half of the year. We think the long-term trends are in place, but we do see a different channel mix that's playing out in the markets, and that's globally. So maybe with that, Christina, I'll hand it to you to talk about the other verticals. Yeah. Thanks. Thanks, Aaron.

Speaker Change: in the first part of 2024, and we expect some softness there.

Speaker Change: to continue

Speaker Change: For us, that's really been offset, though, as retailers are looking more at their own customization and configuring the systems differently and doing it themselves.

Speaker Change: And we've seen continued investment on the custom scope side of the market as they're moving away from standardized form factors.

Aaron Saak: So when you put those two in balance, again, we've seen growth in the first half of the year. We think the long-term trends are in place, but we do see a different channel mix that's playing out in the markets, and that's globally.

Aaron Saak: So when you put those two in balance again, we've seen growth in the first half of the year We think the long-term trends are in place, but we do see a different channel mix that's playing out in the markets And that's globally

Christina Cristiano: So maybe with that, Christina, I'll hand it to you to talk about the other verticals. Yeah. Thanks. Thanks, Aaron. And as Aaron said, I'm a big fan of NXT. I love NXT. I love wrestling. All of it. I love wrestling. All of it. I love wrestling. All of it. I love wrestling. All of it. I love wrestling,

Christina Cristiano: And as Aaron said earlier, you know, outside of gaming, we saw the other verticals growing at mid-single digits, and we expect that to continue. There's been particular strength in gaming, excuse me, in vending, which has performed consistently well since COVID. And I'll also just highlight our services business, which continues to perform well, driving recurring revenue and a very high attach rate. Now, in gaming, we're encouraged by the orders we saw in Q2 from some of our OEMs, not a significant change to what we were expecting, but a slightly higher Q2, and that's more of a phasing impact than an impact on the full year.

Christina Cristiano: Yeah, thanks. Thanks, Aaron.

Christine: So maybe with that, Christine, I'll hand it to you to talk about the other verticals. Yeah, thanks. Thanks, Aaron. And as Aaron said earlier, you know, outside of gaming, we saw the other verticals growing at mid-single digits, and we expect that to continue. There's been particular strength in gaming, excuse me, in vending, which has performed consistently well since COVID.

Speaker Change: and although just highlightate our services business which continues to perform well driving recurring revenue and a very high taat tat

Christina Cristiano: Now, in gaming, we're encouraged by the orders we saw in Q2 from some of our OEMs. Not a significant change to what we were expecting, but a slightly higher Q2, and that's more of a phasing impact than an impact on the full year.

Christina Cristiano: But overall, we expect CPI to be in the same range that we previously communicated. So while we're encouraged by what we saw in Q2, we've left the overall sales guidance unchanged for CPI, and we believe that's prudent and appropriately risk-adjusted.

Christina Cristiano: Thank you. One moment for our next question. Our next question will come from Bob Labick from CJS Securities. Your line is open.

Speaker Change: greatright thank you guys

Operator: Thank you. One moment for our next question. Our next question will come from Bob Labick from CJS Securities. Your line is open.

Operator: Thank you. One moment for our next question.

Robert Labick: Good morning, thanks for taking our questions. Good morning, Bob. So you alluded to this a little, maybe we could dig in a little more on the OPSEC integration process. Give us a sense of where you stand in integration, any surprises you've seen, good or bad, maybe some color on customer reactions, and then the opportunities for synergies, both cost and revenue synergies, looking ahead.

Speaker Change: Our next question will come from Bob Labick from CJS Securities. Your line is open.

Bob Labick: Good morning. Thanks for taking our questions.

Bob: Good morning, Bob.

Bob Labick: So you alluded to this a little, maybe we could dig in a little more on the OPSEC integration process. Give us a sense of, you know, where you stand in integration, any surprises you've seen, good or bad, maybe some color on customer reactions, and then the opportunities for synergies, both cost and

Aaron Saak: Yeah, thanks, Bob. As I said in my prepared remarks, you know, we're very encouraged by the acquisition, and it's performing, and the integration is going as planned. You know, we're on track to that $80 million range for revenue in 2024, and I just reiterate the strong, positive response we've had from our customers. Now we're in that phase, call it 100 days post-acquisition, to really meeting with customers, building out the funnel of opportunities for both new wins and share of wallet expansion with micro-optics.

Aaron Saak: Yeah, thanks, Bob. As I said in my prepared remarks, you know, we're very encouraged by the acquisition, and it's performing, and the integration is going as planned. You know, we're on track to that $80 to $1 million range for revenue in 2024, and I just reiterate the strong, positive response we've had from our customers. Now we're in that phase, call it 100 days post-acquisition, to really meeting with customers, building out the funnel of opportunities for both new wins and share of wallet expansion with micro-optics.

Speaker Change: and Revenue Synergy's looking ahead.

Aaron Saak: yes thanks bob as i said in my prepared to remarks we're very encouraged with the acquisition and it's

Aaron Saak: Performing and the integration is going as planned, you know, we're on track.

Aaron Saak: to that 80 to million dollar range for revenue in 2024.

Aaron Saak: And I just reiterate the strong positive response we've had from our customers.

Aaron Saak: You know, now we're in that phase, call it a hundred days in post-acquisition to really meeting with customers, building out the funnel of opportunities.

Aaron Saak: And, you know, just a reminder that that sales cycle is anywhere from 9 to 18 months as customers have to go in and update their designs and then go through a launch and qualification process. So I would say it's going just as planned with a lot of healthy excitement, and I think there will be more to come as we announce some wins in the quarters ahead. On the operational side, again, CBS is such a core part of our disciplined operating process.

Aaron Saak: for both new wins but also share of wallet expansion with MicroOptics.

Aaron Saak: And, you know, just a reminder that that sales cycle is, you know, anywhere from 9-18 months as customers have to go in and update.

Aaron Saak: their designs and then go through a launch and qualification process so i would say it's going justice planned with a lot of healthy excitement and i think more to come as we announce in the quarters ahead some wins and on the

Aaron Saak: We are heavily involved in OPSEC, deploying resources and training, and starting to implement many of the actions that we had line of sight to as part of our investment thesis. So again, I feel very confident in the line of sight to the eight million synergies we promised by 2026 and confident we're going to get there, Bob.

Bob: Operational side, again, CBS is such a core part of our disciplined operating process.

Aaron Saak: we are heavily involved in offset deploying resources in training and starting to implement many of the actions that we had line of sight two as part of our investment theiesis so again feel very confident inthe line of site to the million of synergies we promised by twenty twenty six

Unnamed Speaker: Okay, super. I appreciate that color.

Aaron Saak: Okay, super. I appreciate that color.

Unnamed Speaker: and confident we're going to get there, Bob.

Unnamed Speaker: And then kind of sticking with OPSEC and your M&A comments earlier, obviously, they're in a bunch of end markets, sports media, consumer, industrial, financial services, etc. But there are others, pharma, food and beverage, and many more in authentication. And so are those other markets organic extensions, or is that part of the M&A focus? How should we think about future M&A as it relates to what you already have with OPSEC? And how does it all fit?

Aaron Saak: And then kind of sticking with OPSEC and your M&A comments earlier, obviously, they're in a bunch of end markets, sports media, consumer, industrial, financial services, etc. But there are others, pharma, food and beverage, and many more in authentication. And so are those other markets organic extensions, or is that part of the M&A focus? How should we think about future M&A as it relates to what you already have with OPSEC? And how does it all fit?

Speaker Change: okay super appreciate that color and then and it's sticking with up second your ma comments earlier obviouslythey' in a bunch of end market sports media consumer industrial financial services etca but there s others pharma food and beverage and many more you authentication and so are those

Unnamed Speaker: Other markets organic extensions, or is that part of the M&A focus? How should we think about the future M&A as it relates to what you already have with OPSEC? And how it all fit

Aaron Saak: Yeah, Bob. Hey, I think you're thinking about this exactly the right way. It's how we're thinking about it. You know, our immediate focus here, just to reiterate, is to successfully integrate and operate OPSEC. That is the focus of the team. But with that said, we have a very strong funnel of M&A opportunities. We're continuing to cultivate. I feel very, very confident that with the leverage sitting at 1.8 as we exited this quarter, that gives us ample capacity.

Unnamed Speaker: Yeah, Bob. Hey, I think you're thinking about this exactly the right way. It's how we're thinking about it. You know, our immediate focus here, just to reiterate, is to successfully integrate and operate OPSEC.

Speaker Change: That is the focus of the team. But with that said, we have a very strong funnel of M&A opportunities, we're continuing to cultivate. I feel

Speaker Change: very, very confident with the leverage sitting at 1.8 as we exited this quarter that gives us ample capacity. And we want to continue a really disciplined process around that M&A.

Aaron Saak: And we want to continue a really disciplined process around that M&A, and I think your comments on our focus are, again, about how we're thinking about it. We see this as a large $3 billion TAM in this security and authentication space. It's fragmented, with positive growth dynamics of mid-single digit to mid-single digit plus. And we see these opportunities for both bolt-ons of new technology into the core, as well as enhancing our exposure to different vertical markets, just a few of which you named, whether that's consumer, pharma, or governments.

Speaker Change: and i think your comments on our focus is again how we're thinking about it we see this as a large three billion dollars tam all in this security and authentication

Speaker Change: Space, it's fragmented with positive growth dynamics of mid-single digit to mid-single digit plus.

Speaker Change: And we see these opportunities for both bolt-ons of new technology into the core, as well as enhancing our exposure to different vertical markets, just a few of which you named, whether that's consumer, pharma, or governments.

Aaron Saak: So that's exactly where part of our M&A funnel is focused, and we feel, again, confident. We're in a very good position to take action, again, doing what we said we were going to do with one to two acquisitions a year.

Speaker Change: So that's exactly where part of our M&A funnel is focused, and we feel, again, confident we're in a very good position to take action, again, doing what we said we were going to do with one to two acquisitions a year.

Aaron Saak: All right. Thanks, Bob.

Operator: Thank you. One moment for our next question. Our next question will come from Damian Karas from UBS. Your line is open.

Speaker Change: Super. All right. Thanks so much. Thanks, Bob.

Operator: Our next question will come from the line of Damian Karas from UBS. Your line is open.

Speaker Change: Thank you. One moment for our next question.

Operator: Our next question will come from Damien Carras from UBS. Your line is open.

Damian Karas: Hey, good morning, everyone.

Damian Karas: It's nice to hear you've been outperforming some of the market trends, especially in CPI. I was wondering if you could maybe give us a sense of the progression of orders for the CPI segment through the second quarter and into July, and maybe if you could perhaps kind of quantify what the order run rate, you know, on a dollar basis, has looked like. I guess if I'm just kind of looking at the backlog and the sales numbers for the second quarter, I'm coming up with something like maybe in the low $200 million. Does that sound about right?

Damian Karas: hey good morning everyone

Speaker Change: Morning Green!

Damian Karas: It's nice to hear you've been outperforming some of the market trends, especially in CPI.

Damian Karas: I was wondering if you could maybe give us a sense of the progression of orders for the CPI segment through the second quarter and into July. And maybe if you could perhaps kind of quantify what the order run rate on a dollar basis has looked like. I guess I'm just kind of looking at the backlog and the sales numbers for the second quarter.

Damian Karas: I was wondering if you could maybe give us a sense of...

Speaker Change: The progression of orders for the CPI segment, you know, through the second quarter and into July .

Damian Karas: and maybe if you could perhaps kind of quantify what the order run rate, you know, on a dollar basis has looked like. I guess if I'm just kind of looking at the backlog and the sales numbers in the second quarter, and

Aaron Saak: I think you're thinking about it in the right geography there, Damian. You know, again, if I think about gaming, the entire backlog of CPIs, Christina mentioned, has gotten back to where we would say they are close to normal levels, right? There's always going to be some fluctuations quarter to quarter, but we're in the zone of where we think it's normalized. And in gaming, some of the OEMs have returned to ordering. Again, that feels exactly in line with what we expected, given the visibility into the backlog, or, excuse me, into their inventory levels.

Speaker Change: I'm coming to something like maybe in the low 200 millions, does that sound about right?

Aaron Saak: i think you were taken about it in the right geography there dam ian again if i think about gaming the entire backlog

Aaron Saak: Of CPI, as Christina mentioned, has gotten back to where we would say are close to normal levels, right, there's always going to be some fluctuations quarter to quarter, but we're in the zone of where we think it's normalized and in gaming. Some of the OEMs have returned to ordering again that

Aaron Saak: That feels exactly in line with what we expected, given the visibility into the backlog, or excuse me, into their inventory levels. And now we have this line of sight to the rest of the year, to your question, that we see continuing to progress with orders slightly skewed again to Q4.

Aaron Saak: And now we have this line of sight to the rest of the year, to your question, that we see continuing to progress with orders slightly skewed again to Q4. So I think the way you're thinking about that is directionally correct.

Aaron Saak: So, I think the way you're thinking about that is directionally correct.

Damian Karas: Okay, that's helpful. And then in the currency business... I'm presuming for the US, kind of the high watermarks, the third quarter, and then it's some of the international project activity that's going to drive kind of like the sequential improvement in the fourth quarter. And then I just wanted to ask on that, so that equipment upgrade that's going to kind of happen for Q and then into early next year, is that, you know, is that going to be kind of like the last equipment upgrade and Just want to make sure we're kind of thinking about that the right way.

Damian Karas: Okay, that's helpful.

Speaker Change: And then in the currency business,

Speaker Change: I'm presuming

Speaker Change: For the US, kind of the high watermarks, the third quarter. And then it's some of the international project activity that's gonna drive kind of like the sequential improvement in the fourth quarter.

Speaker Change: kind of, you know, sort of a pickup in the new design, the new denomination later next year for the U.S. business. Just want to make sure we're kind of thinking about that the right way.

Aaron Saak: Yeah, why don't I take the first part, and I'll hand it over to Christina for the second part of your question. So, as we just think about the phasing of revenue for currency in the second half of the year, again, the build of this backlog has given us a lot of confidence and line of sight to the shipment schedule, and that's why we have the confidence to raise the sales forecast. I think when you think about the phasing, it's going to be slightly higher in Q4 than in Q3, just in terms of revenue. And again, that's just what we see in terms of customer request shipments. So again, pretty high level of confidence on that. As it relates to the US upgrade cycle and kind of the phasing as we go forward, Christina, I'll let you comment. Yeah, just.

Speaker Change: Yeah, why don't I take the first part and I'll hand it over to Christina for the second part of your question. So, as we just think about the phasing of revenue for currency in the second half of the year, again, the build of this backlog has given us a lot of confidence and line of sight to the shipment schedule.

Aaron Saak: And that's why we have the confidence to raise the sales forecast. I think when you think about the phasing, it's gonna be slightly higher in Q4 than in Q3 just in terms of revenue. And again, that's just what we see in terms of customer request ship dates.

Aaron Saak: So again, pretty high level of confidence on that. As it relates to the US upgrade cycle and kind of the phasing as we go forward, Christina, I'll let you comment. Yeah, just.

Aaron Saak: So, again, pretty high level of confidence on that. As it relates to the U.S. upgrade cycle and kind of the phasing as we go forward, Christina, I'll let you comment.

Christina Cristiano: Yeah, just to answer the specific question. So this cycle that will start in Q4 and continue into Q1 of next year is the last one, and it supports the entire new series. And we're on track with that program to kick off as planned. And that was aligned with our guidance and our target expectations for the full year. So no change coming from that; that production stoppage is already factored in.

Christina Cristiano: Yeah, just to answer the specific question, so this cycle that will start in Q4 and continue into Q1 of next year is the last one and it supports the entire new series.

Speaker Change: and we're on track with that that program to kick off as planned and that was aligned with our our guidance and our target expectations for the full year so no change coming from that that product production stop and authality factored in

Aaron Saak: I just add Damian on 2025 and beyond and the new series design announcements. As we've always said, we have to allow the BEP and the Treasury to make those announcements. Obviously, we feel very, very good about our relationship with them, but they'll be making those announcements, likely in 25, on the actual phasing and design of the new currency.

Christina Cristiano: I've just had Damian on the

Speaker Change: 2025 and beyond in the new series design announcements, as we've always said, we have to allow the BEP and the Treasury to make those announcements.

Christina Cristiano: Obviously, we feel very, very good about our relationship with them, but they'll be making those announcements likely in 2025 on the actual phasing and design of the new currency.

Damian Karas: Terrific. This is really helpful. Thanks. I'll pass it along. Thanks, Damian.

Damian Karas: Terrific. This is really helpful. Thanks. I'll pass it along.

Operator: Thank you. One moment for our next question. Our next question comes from Bobby Brooks from Northland Capital Markets. Your line is open.

Bobby Brooks: thanks steamiian

Speaker Change: thank you when i'm moving for the next question

Speaker Change: Our next question comes from Bobby Brooks from Northland Capital Markets. Your line is open.

Robert Brooks: Good morning, guys. Thank you for taking my call. Morning session.

Bobby Brooks: Hey, you guys gave a little bit of color on, you know, market share, on the market share trends that you've seen in CPI, and those, you know, your kind of leadership position in both, you know, specifically vending, has continued to stay strong. But I'm just kind of curious if we could double-click on that and just, you know, get a little bit more granular. Obviously, there are some normalizations within gaming given, you know, a competitor regaining a key certification, so maybe that shows, like, a market share shift in there, but that's more so of a normalization.

Robert Brooks: Hey, you guys gave a little bit of color on, you know, market share, on the market share trends that you've seen in CPI, and those, you know, your kind of leadership position in both, you know, specifically vending, has continued to stay strong. But I'm just kind of curious if we could double-click on that and just, you know, get a little bit more granular. Obviously, there are some normalizations within gaming given, you know, a competitor regaining a key certification.

Speaker Change: Good morning guys, thank you for taking my call.

Bobby Brooks: Hey, you know my first question you guys gave a little bit of color on you know market share

Bobby Brooks: on the market share trends that you've seen in CPI and those, you know, your kind of leadership position in both.

Bobby Brooks: you know specifically vending

Bobby Brooks: have continued to stay strong. But I'm just kind of curious if we could double click on that and just get a little bit more granular. Obviously, there is some normalizations within gaming, given a competitor regaining a key certification. So maybe that shows like market share.

Robert Brooks: So maybe that shows, like, market share shifts in there, but that's more so of a normalization. But I'm just kind of curious about, you know, that and maybe breaking it down by segment within CPI, and maybe the best way is just to help compare and contrast those, you know, market share trends that you've seen within CPI now versus what you were seeing maybe a year ago.

Bobby Brooks: But I'm just kind of curious about that and maybe breaking it down by segment within CPI, and maybe the best way is just to help compare and contrast those, you know, market share trends that you've seen within CPI now versus what you were seeing maybe a year ago.

Bobby Brooks: shift in there, but that's a more so of a normalization. But I'm just kind of curious about, you know, that and just kind of maybe breaking it down by segment within CPI. And maybe the best way is just to help compare and compare and contrast.

Bobby Brooks: Those you know market share trends that you've seen within the CPI now versus what you're you were seeing maybe a year ago

Aaron Saak: Well, hey, thanks for that question, Bobby. I think it does make sense. We'll go kind of vertical by vertical for you. So in gaming, you know, maybe I'll go back more than a year. We had a really fantastic position in the market that was enhanced over the past few years as one of our competitors struggled. And we believe we've maintained that share and continue to be the provider of choice.

Aaron Saak: Yeah.

Aaron Saak: Well, hey, thanks for that question, Bobby. I think it does make sense. We'll go kind of vertical by vertical for you. So in gaming, maybe I'll go back more than a year. We had a really fantastic position in the market that was enhanced.

Aaron Saak: Over the past few years as one of our competitors struggled and we believe we've maintained that share and continue to be the provider of choice. So again with high visibility into the major OEMs that buy our products and casinos that specify those products we feel very good.

Aaron Saak: So, again, with high visibility into the major OEMs that buy our products and casinos that specify those products, we feel very good. So I wouldn't say there's necessarily been a share shift that's occurred other than we've maintained and continue to be the market leader in the gaming vertical with a good line of sight to how we think those orders are going to play out for the rest of the year. You know, if I go to vending again, we define that market from our perspective as vending machines, not convenience retail broadly; we don't include micro markets as an example in our TAM. We're really talking about vending machines and that form factor, and the payment and telemetry and remote services that come along with that type of piece of equipment.

Aaron Saak: So, I wouldn't say there's necessarily a share shift that's occurred other than we've maintained and continue to be the market leader in the gaming vertical with good line of sight to how we think those orders are going to play out for the rest of the year.

Aaron Saak: if i go to vending again we we define that market from our perspective as a vending machine

Aaron Saak: So inside that market, again, we see it growing coming back off these COVID lows. Again, we've always had a very robust share in that market, and we believe we've maintained that and continue to introduce new features, both in cold vending and in dry good vending, but also in coffee, where we have a very strong offering, particularly in Europe that we see growing and implemented more here in the United States. So, you know, from how we define this market and where we play and how we expect to win, we feel very good. So maybe I'll pause there, Christina, if you want to take the other verticals. Yes,

Christina Cristiano: not convenience retail broadly we don't include micromarkets as an example in our tam we're really talking about vining machines in that form factor and the payments

Christina Cristiano: and to limary and remote services that come along with with that type of piece of equipment

Aaron Saak: so inside that market again we see a growing coming back off these covid lows again we've always had a very robust share in that market we believe we've maintained that and continu to introduce new features both

Christina Cristiano: in cold vending, in dry good vending, but also in coffee.

Aaron Saak: where we have a very strong offering, particularly in Europe, that we see growing and implemented more here in the United States. So, you know, from how we define this market and where we play and how we expect to win, we feel very good. So maybe I'll pause there, Christina, if you want to take the other verticals.

Christina Cristiano: Yeah, sure. Well, I mean, you spoke a little bit about retail earlier, and so I don't know that we need to dive too much more deeply into that, but I'll say, you know, we're off to a good start this year. The first half of the year as compared to last year is doing very well, and that's largely related to custom retail projects that we're working directly with either integrators or directly with our third-party customers.

Christina Cristiano: Yeah, sure. Well, I mean, you spoke a little bit about retail earlier, and so I don't know that we need to dive too much more deeply into that, but I'll say, you know, we're off to a good start this year. The first half of the year, as compared to last year, is doing very well, and that's largely related to custom retail projects that we're working directly with either integrators or directly with our third-party customers.

Christina Cristiano: And so projects that were delayed last year are now coming through, and that's off to a good start, again, for the full year. We expect mid-single-digit growth there. And just, you know, overall, our services business, which supports several of the verticals, has been very strong, had some solid new wins in the quarter, and we expect that to continue growing at mid-single-digits as well.

Christina Cristiano: And so, projects that were delayed last year, we're now seeing coming through. And that's off to a good start, again, for the full year, expecting mid-single-digit growth there. And just, you know, overall, our services business, which supports several of the verticals, has been very strong, had some solid new wins in the quarter, and we expect that to continue growing at mid-single digits as well.

Robert Brooks: Got it. Thank you guys. That's a terrific color.

Robert Brooks: And then just, I kind of want to follow back on Matt's question earlier, and just more so looking at it from a sequential view. So a hundred, you know, you guys had a hundred plus million dollar sequential increase in the security and authentication backlog. Could you just maybe flesh out how much of that was acquired backlog from OPSEC? And then what was the international currency mix for that? I know you talked about it being at a record high.

Christina Cristiano: Got it. Thank you guys. That's terrific color and then just I kind of want to follow back up on Matt's question earlier and just More so looking at it from a sequential view. So a hundred, you know, you guys had a hundred plus million dollar sequential increase

Speaker Change: and the Security and Authentication Backlog.

Speaker Change: Could you just maybe flesh out how much of that was acquired backlog from OPSEC and then

Christina Cristiano: What was the international currency mix for that? I know you talked about it being at a record high.

Robert Brooks: And then maybe just any, if that sequential step up in backlog, was there any benefit from new business from OPSEC that you guys have won since taking ownership or any interesting, you know, product or authentication ones, you know, mixed into that?

Christina Cristiano: And then maybe just any, if that sequential step up in backlog, was there any benefit from new business from OPSEC that you guys have won since taking ownership or any?

Speaker Change: Any interesting, you know, product or authentication ones, you know, mixed into that.

Christina Cristiano: Yeah, I'll take that one, Bobby. And, you know, first, I'll just say, great execution by our currency team, where we continue to win in the international currency market. And that's what's led us to increase our sales guidance for currency for the full year. In terms of the breakdown of the backlog, the majority of it is related to current international currencies. And, you know, it's part of our disclosures to your COPSEC of approximately 30 million of the backlog at the end of the quarter.

Christina Cristiano: Yeah, I'll take that one, Bobby. And, you know, first, I'll just say, great execution by our currency team, you know, where we continue to win in the international currency market. And that's what's led us to increase our sales guidance for currency for the full year. In terms of the breakdown of the of the backlog, the majority of it is related to current international currency. And, you know, it's part of our disclosure. So you see OPSEC is approximately 30 million of the backlog.

Christina Cristiano: This quarter, as Aaron said earlier, we had several new multi-year orders, which will begin shipping this year. But that inflation is really the primary driver of the inflation of the backlog over last year. And that'll stay in the backlog now, you know, through 25 and some going into 2026.

Christina Cristiano: So your COPSEC is approximately $30 million of the backlog at the end of the quarter. This quarter, as Aaron said earlier, we had several new multi-year orders, which will begin shipping this year. But that inflation is really the primary driver of the inflation of the backlog over last year. And that'll stay in the backlog now, you know, through 25 and some going into 2026. So, you know, overall, again, the strength in our backlog gives us high confidence in the full year target.

Christina Cristiano: at the end of the quarter.

Christina Cristiano: This quarter, as Aaron said earlier, we had several new multi-year orders, which will begin shipping this year, but that's really the primary driver of the inflation of the backlog over last year, and that'll stay in the backlog now through 2025 and some going into 2026.

Speaker Change: so overall again the streng in our backlog ves us p confidence in the full year targets

Robert Brooks: Got it. And then there was just one clarifying question. So I know you guys talk about winning 10 to 15 new international denominations a year. In the prepared remarks, I think Aaron mentioned you've issued 11 new micro-optic denominations this year. So I just want to clarify, is that 11 number, is that new international denomination wins, or is that something different? And if it's something different, how many international denomination wins have you gotten thus far this year? Yeah, thanks, Bobby. But let me clarify that.

Speaker Change: got it and then just one clarifying question so I know you guys talk you guys talk about

Speaker Change: Winning 10 to 15 new international denominations a year in the prepared remarks, I think

Speaker Change: Aaron mentioned you've issued 11 new micro-optic denominations this year, so I just wanted to clarify.

Speaker Change: Is that 11 number, is that new international denomination wins, or is that something different? And if it's something different, how many international denomination wins have you gotten thus far this year?

Aaron Saak: Well, I would say overall, we remain very encouraged by both the wins year to date and also the funnel that we have in progress for micro-optics being considered in the design of new currencies. So, year to date, through the first half, we've had five new denominations won. That puts us, I think, very well on track for our target of 10 to 15, not only given the five we've won but what we see in the funnel.

Speaker Change: Yeah, thanks Bobby. Let me let me clarify that well I would say overall we remain very encouraged by both the wins year-to-date And also the funnel that we have in progress for micro optics being considered in the design of new currencies

Christina Cristiano: So, you know, year-to-date through the first half, we've had five new denominations won. That puts us, I think, very well on track for our target of 10 to 15, not only given the five we've won but what we see in the funnel. The 11 new denominations that went into production were previously won, but now they're actually going into production this quarter. So just to provide a little more nuance on that definition.

Christina Cristiano: So, you know, year-to-date, through the first half, we've had five new denominations.

Christina Cristiano: One you know that puts us I think very well on track for our target of 10 to 15 Not only given the five we've won, but what we see in the funnel

Aaron Saak: The 11 new denominations that went into production were previously won, but now they're actually going into production this quarter. So just to provide a little more nuance on that definition. Perfect, really appreciate it guys, and congratulations on a great quarter. I'll return to the queue. Thanks, Bobby.

Christina Cristiano: The 11 new denominations that went into production were previously one, but now they're actually going into production in this quarter. So just to provide a little more nuance on that definition.

Christina Cristiano: Perfect. Really appreciate it, guys, and congratulations on the great quarter. I'll return back to the queue. Thanks, Bobby.

Christina Cristiano: Thanks, Bobby.

Operator: Thank you. One moment for our next question, and our next question will come from the line of Ian Zaffino from Oppenheimer. Your line is open.

Speaker Change: Thank you. One moment for our next question.

Ian Zaffino: Hey, good morning. This is Isaac Sellhausen on behalf of Ian.

Speaker Change: And our next question will come from Ian Zaffino from Oppenheimer. Your line is open.

Isaac Sellhausen: Thanks for taking all the questions. I think most have been answered at this point, but just to follow up on OPSEC. I think you've previously noted OPSEC to be a creative contributor to earnings next year. If you're able to, maybe you could just provide further details on the timing of that, sort of the cadence of profitability and margins between the core currency business and OPSEC heading into next year. Thanks.

Christina Cristiano: Hey, good morning. This is Isaac Sellhausen on for Ian. Thanks for taking all the questions

Speaker Change: I think most have been answered at this point, but just to follow up on OPSEC, I think you've previously noted OPSEC to be accretive to earnings next year.

Speaker Change: If you're able to, maybe you could just provide some further details on the timing of that and sort of the cadence of profitability and margins between the core currency business and OPSEC heading into next year. Thanks.

Unnamed Speaker: Sure, so I I think

Aaron Saak: Sure, so I think Isaac, as you reiterated, we did say it would be a creative starting point, you know, next year. Obviously, I don't want to start to talk about 2025 guidance at this point in time. So I will defer that.

Aaron Saak: But But I think the key message here for us is that we've been encouraged already in the first 100 days by how the business is performing and the integration is going. You know, part of our investment thesis, or a big part of that thesis, is that we will walk up the adjusted EBITDA margins from that mid-teens level to the 20s over the next few years. And that's driven both by the growth of the business and the synergies that we see.

Speaker Change: sure so i think

Unnamed Speaker: Isaac, as you reiterated, we did say it would be creative starting, you know, next year. Obviously, I don't want to...

Speaker Change: start to talk about 2025 guidance at this point in time, so I will defer for that. But I think the key message here for us is that we've been encouraged already in the first 100 days of how the business is performing and the integration going. Part of our investment thesis, or a big part of that thesis, is that we will walk up

Aaron Saak: And again, our confidence in the line of sight to those synergies is very high. And that's going to drive the creative EPS impact. And we will start to see that in 25. But I just ask, you know, we'll cover that as we do 2025 guidance.

Speaker Change: the adjusted EBITDA margins from that mid-teens level to the 20s over the next few years. And that's driven both by the growth of the business, but the synergy.

Speaker Change: And again, our confidence in the line of sight for those synergies is very high, and that's going to drive the accretive EPS impact. And we will start to see that in 2025, but I just ask, you know, we'll cover that as we do 2025 guidance.

Unnamed Speaker: Okay, understood. And then as a follow-up on M&A, could you just comment on the environment and what you're seeing in sort of the core or adjacent markets that you're targeting, you know, to reach that long-term target? And then, as far as liquidity is concerned, do you feel that you have enough, you know, firepower to get a good-sized deal done, or would anything large be funded by additional capital? Thanks.

Isaac Sellhausen: Okay, understood. And then as a follow-up on M&A, could you just comment on the environment and what you're seeing in sort of the core or adjacent markets that you're targeting, you know, to reach that long-term target? And then, as far as liquidity is concerned, do you feel that you have enough, you know, firepower to get a good-sized deal done, or would anything large be funded by additional capital? Thanks.

Unnamed Speaker: Okay, understood. And then as a follow up on M&A, could you just comment on the environment and what you're seeing in sort of the core or adjacent markets that you're targeting, you know, to reach that long term target? And then as far as liquidity, do you feel that you have enough?

Unnamed Speaker: Fire Pirate to get a good-sized deal done, or would anything large be funded by additional capital?

Aaron Saak: Yeah, well, just in terms of the market, I would say it's largely unchanged from the last few quarters. From our perspective, we have a healthy funnel; we continue to pursue and cultivate it. And again, I feel very confident we will be on track to do the one to two acquisitions every calendar year. As we said, at the time we launched the company, all in those same Thanks for watching, starts with the market, reviewing the company, and making sure we can get the right valuation in a double-digit roiq. That, simply put, is how we're going about it. I think liquidity feels good to me, 1.8 times.

Aaron Saak: Yeah, well, just in terms of the market, I would say it's largely unchanged from the last few quarters. From our perspective, we have a healthy funnel; we continue to pursue and cultivate it. And again, I feel very confident we will be on track to do the one to two acquisitions every calendar year. As we said at the time we launched the company, all in the same start with the market, reviewing the company, and making sure we can get the right valuation at a double-digit ROIC. Simply put, that's how we're going about it. I think liquidity feels good to me.

Aaron Saak: Yeah.

Aaron Saak: well just in terms of the market i would say it's largely unchanged from the last few quarters from our perspective we have a healthy funnel we continue to prosecute and cultiv it

Aaron Saak: and again i feel very confident we will be on track to do the one to two acquisitions every calendar year as we said at the time we launched the company all all in those same

Speaker Change: themes with a very disciplined approach that i think is the key in the hallmark to our ma like we executed with offsetct like we've executed in the past which

Speaker Change: starts with the market reviewing the company and making sure we can get the right valuation in a double-digit royke that simply put s that's how we're going about it

Aaron Saak: 1.8 times, again, we're looking at deals in that hundred, to call it $500 million in revenue. We think we have ample firepower for those deals, and we want to be a compounder. So we want to keep this up on a pragmatic and continuous basis. And so that's what I would anticipate you'll be seeing from us, a continuation of the M&A flow. In deals, we can get our hands around, drive rigor, drive the CBS discipline, and generate return for shareholders. And so I would not see doing anything other than paying for that through our own free cash flow and leverage, no equity or any other more exotic.

Speaker Change: I think liquidity feels good to me, 1.8 times.

Aaron Saak: Again, we're looking at deals in that hundred, to call it $500 million range of revenue. We think we have ample firepower for those deals and we want to be a compounder. So we want to keep this up on a pragmatic and continuous basis.

Aaron Saak: And so that's what I would envision you'll be seeing from us is a continuation of M&A flow. In deals we can get our hands around, drive rigor, drive the CBS discipline, and generate the return for our shareholders.

Aaron Saak: and so I would not see doing anything other than paying that through our own free cash flow and leverage, no equity or any other more exotic means.

Unnamed Speaker: Okay, great. That's very helpful. Thank you so much.

Isaac Sellhausen: Okay, great. That's very helpful. Thank you so much.

Operator: Thank you. I'm not showing any more questions in the queue. I would now like to turn it back to Aaron Saak for any closing remarks.

Speaker Change: Okay, great. That's very helpful. Thank you so much.

Operator: Thank you. I'm not showing any more questions in the queue. I would now like to turn it back to Aaron Saak for any closing remarks.

Aaron Saak: All right, thank you very much, Operator. Well, Q2 was another solid performance for Crane NXT, and it gave us confidence to narrow our adjusted EPS guidance for the full year. And I'd especially like to thank all of our associates for their hard work, their dedication, and their focus on serving our customers. It was evident in Q2 that it starts with us.

Aaron Saak: All right, thank you very much, operator. Well, Q2 was another solid performance for Crane NXT, and it gave us confidence to lower our adjusted EPS guidance for the full year. And I'd especially like to thank all of our associates for their hard work, their dedication, and their focus on serving our customers. It was evident in Q2 that it starts with us. Also, I'd like to thank everyone who joined the call today and for their questions; we very much appreciate them. So I hope you all have a great rest of your week and thank you for your time this morning.

Aaron Saak: All right, thank you very much, Operator.

Aaron Saak: Well, Q2 was another solid performance for Crane NXT and it gave us confidence to narrow our adjusted EPS guidance for the full year.

Aaron Saak: and I especially like to thank all of our associates for their hard work, their dedication, and their focus on serving our customers. It was evident in Q2 that it starts with our people.

Aaron Saak: Also, I'd like to thank everyone who joined the call today and for your questions. We very much appreciate them. So I hope you all have a great rest of your week and thank you for your time this morning.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Aaron Saak: Again, we're looking at deals and that $100 million, to call it $500 million, range of revenue. We think we have ample firepower for those deals, and we want to be a compounder, so we want to keep this up on a pragmatic and continuous basis. And so that's what I would imagine you'll be seeing from us as a continuation of M&A flow, in deals we can get our hands around, drive rigor, drive the CBS discipline, and generate a return for shareholders. And so I would not see doing anything other than paying for that through our own free cash flow and leverage, no equity or any other more exotic.

Q2 2024 Crane NXT Co Earnings Call

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