Q4 2024 Crane NXT Co Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the Crane NXT fourth quarter and full year 2024 earnings call.
Speaker Change: 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 wait to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Matt Roach: To withdraw your question, please press star 1 1 again, please be advised that today's conference is being recorded I will not attend the conference over to your speaker today Matt Roach vice president of investor relations. Please go ahead
Thank you for watching!
Speaker Change: Thank you operator and good morning everyone. I want to welcome you all to the fourth quarter and full year 2024 earnings call for Careen NXT.
Matt Roach: Before we begin, let me remind you that the slides we will reference during this presentation can be accessed via the Investor Relations section of our website at craneNXT.com and a replay of today's call will also be available on our website.
Matt Roach: Before we discuss our results, I encourage all participants to review the legal notice on slide 2, which explains the risk of forward-looking statements and the use of non-GAAP financial measures.
Matt Roach: 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 crane.nxt.com in the Investor Relations section.
Matt Roach: With me today are Aaron Saak, our President and Chief Executive Officer, and Cristina Cristiano, our Senior Vice President and Chief Financial Officer.
Matt Roach: On our call this morning we'll discuss 2024 highlights, our financial and operational performance, and our 2025 financial guidance and outlook.
Matt Roach: After our prepared remarks we will open the call to analysts for questions. With that I'll turn the call over to Aaron.
Aaron Saak: Thank you, Matt, and good morning. I appreciate everyone joining the call this morning to discuss our fourth quarter and full year 2024 results, as well as our outlook for 2025.
Aaron Saak: I'd like to start by thanking our associates around the world for their hard work during Q4. We have an outstanding team and I'm proud of what we accomplished together in 2024.
Aaron Saak: Starting with our financial results, our Q4 and full year performance was in line with our expectations.
Aaron Saak: We continue to generate strong free cash flow with adjusted free cash flow conversion of approximately 109% in the fourth quarter and approximately 76% for the full year.
Aaron Saak: We continue to execute our strategy in Q4, taking meaningful steps to position the company for long-term success and build on our position as a technology leader.
Aaron Saak: Specifically in our currency business, we continue to win share with our leading security technology and we ended 2024 winning a total of 13 new denominations specifying micro optics.
Aaron Saak: Also in Q4, we won our first contract selling micro-optics through the OPSEC channel. Through this agreement with a luxury perfume company, we'll provide labels containing micro-optic technology along with a digital authentication solution to increase customers' engagement with the brand.
Aaron Saak: We will also provide online brand protection services that allow this customer to remove counterfeit products from online marketplaces.
Aaron Saak: This is a great first step in driving commercial synergies with our expanded product portfolio through the OPSEC acquisition and also increases our recurring revenue.
Aaron Saak: We're also completing the final equipment upgrades to support the launch of the new U.S. banknotes that will enter production in 2026. We successfully completed the first cycle of upgrades on schedule in Q1 of 24 and began the second cycle, which is on track to be finished at the end of March.
Aaron Saak: These investments are critical milestones to prepare for the new U.S. currency.
Aaron Saak: and I continue to be excited by this decade-long growth opportunity and what it will provide Crane NXT.
Aaron Saak: In CPI, we opened our first service center, providing customers with a new, cost-effective option for repairs, complementing our on-site field service offerings.
Aaron Saak: As you know, we've also been very busy executing on our strategy to grow and diversify our portfolio. Last year, we completed the acquisitions of OPSEC and TruTag Smart Packaging. The integration of both acquisitions is going as anticipated, and we're utilizing the Crane Business System to drive operating synergies.
Aaron Saak: Additionally, we expect to close the acquisition of De La Rue Authentication Solutions in the second quarter of this year.
Aaron Saak: expanding our customer base and product offerings across the product and brand authentication value chain.
Aaron Saak: And we continue to have a very active and robust M&A funnel. Our strong balance sheet and free cash flow generation gives us ample capacity to continue to grow and diversify the portfolio in 2025.
Aaron Saak: So as we exited 2024, I believe we are in a very good position for long-term shareholder value creation.
Aaron Saak: Thank you again to all the associates for their dedication in 24 and focus on executing in 2025. With that let me now turn the call over to Christina to review our fourth quarter and full year financial performance in detail as well as outline our 2025 guidance. Christina?
Christina: Thank you Aaron and good morning everyone. I would also like to express appreciation to our associates around the world for their hard work. Thank you for everything you do.
Christina: Starting on slide four, we delivered fourth quarter results that were in line with our expectations. We generated sales of $399 million, an increase of approximately 12% year-over-year, with core sales growth which excludes OPSEC of nearly 3% driven by international currency.
Christina: Adjusted segment operating margin of approximately 27% reflects strong operating performance in the core businesses and is slightly lower than prior year due to segment mix.
Christina: Adjusted free cash flow conversion was very strong at approximately 109% driven by strength in CPI, and we achieved adjusted EPS of $1.20.
Christina: Moving to slide 5, for the full year we increased sales by approximately 7% year over year to nearly one and a half billion with core sales growth of approximately 1%.
Christina: Adjusted segment operating margin decreased approximately 130 basis points year-over-year, reflecting segment mix and dilution from OPSEC.
Christina: Adjusted free cash flow conversion was 76% and was impacted by the timing of certain international currency shipments which were skewed toward the end of the year and shifted collection to Q1 2025.
Christina: Finally, we delivered Adjusted EPS of $4.26 in line with our expectations.
Christina: Overall, our Q4 and full-year results reflect continued operating discipline and resilience amid some challenging end market conditions.
Christina: Moving to our segments and starting with CPI on slide 6. Sales were flat compared with the fourth quarter of 2023 with mid single-digit growth across most and markets offset by continued softness in gaming.
Christina: We maintained adjusted operating margin of approximately 29%, reflecting disciplined productivity initiatives to offset the mixed headwinds from gaming.
Christina: Importantly, the backlog increased approximately 10 million from Q3 and the book-to-bill ratio was over 1 for the quarter.
Christina: As shown on slide 7, for the full year, CPI core sales decreased by approximately 1%, driven by softness in new gaming orders as customers worked through their inventories, and was partially offset by mid-single-digit growth in other end markets.
Christina: Our teams did a great job operationally, maintaining adjusted operating margin at approximately 30% year-over-year, despite the lower volumes, by leveraging the crane business system to drive continuous improvement programs and executing disciplined pricing.
Moving to security and authentication technologies on slide 8.
Christina: In the fourth quarter, core sales were up over 7%, driven by international currency, where we continue to win with our leading and differentiated technology.
Christina: Operating margin increased by 20 basis points over the prior year, driven by the leverage from increased volume, pricing discipline, and productivity programs, partially offset by the expected dilution from OPSEC.
Christina: Turning to slide nine, we had excellent performance in the security and authentication technology segment for the year. We delivered full year core sales growth of approximately 5%, driven by strength in international currency, which more than offset the impact of the production stoppages related to the ongoing upgrades we are making for the new US banknotes, including the new $10 bill, which is scheduled to launch in 2026.
Christina: Adjusted operating margin decreased by 260 basis points driven by OPSEC dilution and unfavorable mix in the U.S. business.
Christina: We are ending the year in a position of strength with segment backlog of $248 million, giving us high confidence to deliver mid-single-digit sales growth in SAT in 2025.
Christina: Moving to our balance sheet on slide 10, we ended the year with net leverage of approximately one and a half times.
Christina: In the fourth quarter, we secured a term loan commitment, which, along with cash on hand, will be used to fund the acquisition of Delarue Authentication Solutions. This transaction is on track to close in the second quarter, and we estimate net leverage will be approximately 2.3 times after the close.
Christina: We also repaid our existing term loan and expanded our revolving credit facility in anticipation of future M&A.
Christina: We have an outstanding balance sheet with attractive fixed rates on long-term debt and significant liquidity.
Christina: Our strong free cash flow generation allows us to continue to focus on investing in organic growth, executing M&A to grow and diversify the portfolio, and paying a competitive dividend.
Christina: Given this strong position, yesterday we announced an increase to our annual dividend of 6%, continuing our commitment to a disciplined and balanced capital allocation strategy, and maintaining ample capacity to deploy capital towards strategic acquisitions that meet our financial criteria.
Christina: Moving now to 2025 guidance on slide 11 and just a reminder that this guidance does not include the anticipated close of the De La Rue authentication transaction in Q2 or any impacts of potential new tariffs.
Christina: We expect overall sales growth of 1-3% for the year, including FX headwinds of 1-2 points.
Christina: This reflects CPI growth of low single digits, with gaming sales returning to growth in the third quarter, offset by headwinds in the retail end market.
Christina: In SAT, we expect mid-single-digit growth in international currency, fueled by the strength of our backlog and strong sales funnel, and a full-year contribution from OPSEC, which is growing at mid-single digits on a pro-forma basis.
Christina: This growth will be partially offset by a decline of approximately 20% in U.S. government sales, as we discussed during our Q3 earnings call, based on the actions being taken by the Federal Reserve and Bureau of Engraving and Printing to prepare for the launch of the new U.S. currency series.
Christina: Finally, we expect to deliver full year adjusted EPS in the range of $4.00 to $4.30.
Christina: We are guiding to segment margins of approximately 26 to 27 percent reflecting continued discipline pricing and productivity through execution of the crane business system, largely offsetting the impacts from the decline in US currency volumes.
Christina: I want to point out that the phasing of revenue and operating profit in 2025 will not be linear. We expect lower revenue and margin performance in the first quarter than in the rest of the year and as compared to last year, driven by the ongoing shutdown of some of our U.S. papermaking equipment for upgrades related to the new banknote series.
Christina: Q1 will also be impacted by continued softness in the CPI gaming end market and the diluted impact of OPSEC on our margins.
Christina: Overall, we expect NXT sales to grow in the low single digits in Q1 2025, with an adjusted segment operating margin of approximately 20%.
Christina: Continuing with full year guidance, corporate expenses are expected to be approximately $55 million and we expect non-operating expenses of approximately $43 million, primarily consisting of interest expense.
Christina: Finally, we expect adjusted free cash flow conversion to be between 90% and 110%, recognizing that while we generally expect conversion to be approximately 100%, the timing of international currency shipments can vary quarter by quarter.
Aaron Saak: Now let me turn the call back to Aaron to provide additional details on our 2025 Outlook and further insights on the actions we are taking to diversify our portfolio.
Aaron Saak: Thanks, Christina. And moving to slide 12, I want to highlight some of the key drivers impacting our 25 Outlook.
Aaron Saak: Starting with CPI, we expect to grow in the low single digits for the year.
Aaron Saak: Looking across our end markets, our vending business represents approximately 35% of CPI revenue and we have a leading position in cold drink and snack equipment.
Aaron Saak: We expect this business to grow at low single digits in 2025, following strong mid-single-digit growth in 2024.
Aaron Saak: Financial Services represents approximately 25% of the CPI portfolio where we continue to make investments to expand our market-leading service business and grow our recurring revenue.
Aaron Saak: In 2024, we opened a new service repair center to offer a faster, more cost-effective solution for our customers and expand our offerings outside of our traditional focus on Cummins Allison equipment.
Aaron Saak: These investments are paying dividends and we expect to grow this business at mid-single digits in 2025.
Aaron Saak: In gaming, the underlying market is healthy, and we have a unique leadership position as a leading supplier of payment equipment to casinos globally.
Aaron Saak: As discussed during our Q3 earnings call, we expect our customers to continue to work through their inventories and return to normal levels of new orders in Q2.
Aaron Saak: This will result in continued declines in gaming revenue through the first half of 2025, with sales growth returning in the second half of the year.
Aaron Saak: For the full year, we expect to see low single-digit growth, with revenue weighted to the second half of the year based on this inventory burndown dynamic.
Aaron Saak: We expect the decline in the OEM volume to be partially offset by increased growth in custom self-checkout solutions.
Aaron Saak: Based on this, we expect to see high single-digit decline in retail sales year over year.
Aaron Saak: In total, we expect CPI will grow at low single digits in 2025. Given this outlook, we have already taken actions to adjust our cost structure accordingly and will continue to deploy CVS to execute pricing and productivity actions throughout 2025.
Aaron Saak: As a result, we expect CPI margins to improve in the range of 10 to 20 basis points year over year.
Aaron Saak: Moving to our U.S. currency business, on slide 13, and as we've discussed for the past few quarters, we stopped production in one of our papermaking facilities in late Q4 2024 to complete the final equipment upgrades needed for the new series of U.S. banknotes.
Aaron Saak: This upgrade is on track, but as expected it will take longer than last year's upgrades and will extend through the end of Q1.
Aaron Saak: Additionally, as we discussed in our last earnings call, the Federal Reserve's 2025 print order suggests the volume will be down approximately 18% year-over-year at the midpoint and that the mix will be skewed toward lower denomination banknotes.
Aaron Saak: This lower demand is a result of actions being taken by the Federal Reserve and the BEP as they allocate capacity and resources to prepare for the launch of the redesigned currency.
Aaron Saak: Given these two factors, we expect U.S. currency sales to be down approximately 20% in 2025.
Aaron Saak: Looking ahead, we remain very confident in our position as the U.S. government's sole supplier of currency paper, a relationship we've held since 1879.
Aaron Saak: We also remain very confident that the U.S. currency program will continue to be the benchmark for the world in incorporating advanced security features in new banknotes.
Aaron Saak: As a reminder, today only the U.S. $100 bill contains our proprietary micro-optics technology. So we see a meaningful opportunity to increase the use of micro-optics in other banknotes.
Aaron Saak: and we continue to be very excited by this U.S. currency new series and continuing our long-standing relationship with the BEP as a trusted partner.
Aaron Saak: When we launched Crane NXT in April of 2023, we laid out a plan to grow and diversify the company, building on our legacy and technology capabilities of providing trusted technology solutions that secure, detect, and authenticate what matters most to our customers.
In 2024, we took meaningful steps in executing this strategy.
Aaron Saak: With the acquisitions of OPSEC and TrueTag smart packaging assets, along with the anticipated closing of the acquisition of De La Rue authentication solutions in Q2, we will have a leading position in the security and authentication market focused on protecting products.
Aaron Saak: We continue to have a robust M&A funnel, and I fully expect additional announcements in 2025 that will further position NXT as a premier industrial technology company.
Aaron Saak: Through our disciplined M&A process, we are intentionally building a more resilient and diversified company. And as you can see on slide 15, we've taken significant steps through our actions in 24 to reduce the exposure of the company to cash-centric end markets.
Aaron Saak: By the end of Q2, and with the De La Rue authentication business in our portfolio, NXT will have moved from approximately 80% of the portfolio focused on cash-related products and services to approximately 65%.
Aaron Saak: Additionally, through our acquisitions, we've increased the percentage of revenue coming from reoccurring and recurring contracts to approximately 50 percent as we exit Q2.
Aaron Saak: These are just two of the very visible ways the execution of our strategy is making NXT a more resilient company aligned to secular's tailwinds.
Aaron Saak: Moving to our final slide, 24 was a significant year for Crane NXT. We continue to invest in our businesses while also executing on our strategy to grow and diversify the portfolio.
Aaron Saak: Looking ahead to 25, I believe we have positioned the company for long-term success while navigating some transitory market headwinds.
Aaron Saak: As discussed, we expect low single-digit sales growth in 2025 with continued strong performance and technology leadership in the international currency and OPSEC businesses.
Aaron Saak: We're on track to completing the final upgrades of our U.S. currency business in preparation for the launch of new banknote designs in 2026.
Aaron Saak: We will continue to leverage the Crane business system to drive productivity in our core businesses, as well as in OPSEC. And our acquisitions are operating as expected, and we look forward to welcoming the De La Rue authentication team to the NXT family in Q2.
Aaron Saak: And finally, we will continue to generate strong free cash flow, maintain low debt levels, and cultivate M&A to grow and diversify the portfolio.
Aaron Saak: In closing, I'm confident that we have the right strategy and team to continue executing our priorities and drive meaningful long-term shareholder value creation.
Aaron Saak: So thank you again for your time this morning, and I would also like to again thank all of our associates around the world for their commitment to our customers, our communities, and our stakeholders.
And now, operator, we're ready to take our first question.
Aaron Saak: Thank you, and as a quick reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question.
Thank you for watching!
Speaker Change: Our first question comes to the line of Matt Somerville from D.A. Davidson. Your line is open.
Thanks.
Morning. So...
Speaker Change: With gaming, if I heard you right, the setup sounds extremely similar
Speaker Change: as we think about how you're articulating this playing out in 25 as to how you thought it would play out in 24.
Speaker Change: So, what gives, realizing market fundamentals are very strong in gaming, I realize that, but what gives you confidence that you will indeed see that sustained second half inflection and then have a follow-up?
Speaker Change: Yeah, hey, thanks for that. Good morning, Matt. I'd start with the comment you made. Again, we do think this in-market is very healthy and we have a unique share position, a leadership position, in this market and that is unchanged.
Speaker Change: So, you know, really, our message here, Matt, isn't changed from Q3, where we did see the burndown of the backlog of the inventory that is at our OEMs taking longer, they were going to lower inventory levels, our lead times have improved.
Speaker Change: So, I don't think there's any change fundamentally from what we said in Q3.
Speaker Change: And we, with that, just as we said a few months ago, expect the inflection in the orders just to naturally occur in Q2. That's what our OEMs are telling us. And depending on the OEM, we see some green shoots, you know.
Speaker Change: month-to-month as they're working through particular products and SKUs. So again, I think we have a high confidence that it's playing out just like we said last quarter. Unfortunately, it has taken longer due to those two dynamics. And again, we're encouraged by the health of the end market.
Speaker Change: Thank you for that. And then as a follow up, there's some moving pieces here in the first quarter, particularly on the crane currency side of the business, and I just want to level set the playing field in order to get to, you know, a 20% segment OP margin.
Speaker Change: That has to imply a material double-digit retrenchment in currency or organic in the quarter. And you help us triangulate on the magnitude of decline we should be expecting.
Speaker Change: How the margin performance in SAT or the segment overall, how we should be thinking about that. It'd be great if, you know, we can kind of get ahead of that with modeling. Thank you.
Speaker Change: Yeah, maybe I'll start and I'll pass it over to Christina, but I think you're thinking about that at the right way, Matt, and I just reemphasize this shutdown, which we're in the middle of right now. It started in Q4. It's going to go all of Q1.
Speaker Change: for a large, you know, most important part of our U.S. currency business, which will lead to
Speaker Change: you know, high double digit declines for the U.S. government side of our business and currency in Q1. So I think you're thinking about that in the right way, and that is very material to us. So maybe I'll hand it over to Christina to fill in the rest of the details on the segment.
Christina: Yeah, and so just just speaking specifically to the segment operating profit and that includes CPI and SAT will be approximately 20% in Q1 and It'll be the lowest revenue quarter and then we'll expect a phasing up a step up in Q2 that will level off in the second Half so you'll see the margins return to the high 20s percent for the rest of the year In terms of the first quarter you were right on Matt With regard to a high double-digit decline in the US currency
which will be offset by positivity in international.
Thank you for watching!
Okay, thank you.
Thank you. One moment for our next question.
Thank you. Bye bye.
Speaker Change: Our next question will come from the line of Mike Halloran from Baird. Your line is open.
Good morning, everyone. Good morning, Mike.
So, so...
Speaker Change: A couple related questions I think go hand-in-hand here. What is the expectation for leverage exiting the year? And can you just then talk to, once you get the De La Rue acquisition closed,
Speaker Change: what the pipeline of opportunity looks like and how willing you would be to go after something in that middle sized or higher relative to debt levels and then relative to you know bandwidth internal bandwidth from from a management team and integration perspective
Speaker Change: And as we've said, really from the beginning of the company, we want to stay below three. We may flex up a little bit above that as long as we can get back below three within 12 months. So hopefully we're, you know, very consistent in that message. Nothing has changed. That's how we think about using the balance sheet.
In terms of just the priorities and the funnel,
Speaker Change: That again, you know, very, very much unchanged and consistent from when we started the company, we're going to continue to invest in the core business.
Speaker Change: You see that with the investments in the U.S. currency upgrades, which is, you know, just a fantastic tailwind for us long-term.
Speaker Change: We're going to continue to pay a competitive dividend. Yesterday we announced a 6% increase in the dividend year over year. And then execute discipline M&A and we'll continue with an approach very similar.
Speaker Change: to the size scale of deals like the OPSEC's and the De La Rue's.
that we've announced.
Speaker Change: and probably a few little technology bolt-ons like the TrueTag smart asset group that we acquired in the later part of 2024. The range is still $100 to $500 million in revenue. We're going to make sure we can generate a double-digit ROIC by year five. From a strategy perspective, they're near adjacencies.
Speaker Change: So the funnel is very healthy Mike and I'm encouraged by that and that's where I have a high degree of confidence we're going to see you know more deal flow in 2025. As you know timing of that is subject to a variety of conditions but I'm confident we will see at least one or two more deals in 2025.
Speaker Change: Thanks for that. And then on the SAT margins, maybe you could help with a couple things here.
Speaker Change: acquisitions been on the margins but I think more importantly for the conversation today
Speaker Change: Could you talk to the mix headwind on the margins and then what that reversal looks like? Is that's what we should think about then reversing into 26 assuming mix normalizes and some of the currency refreshes come come forward
Speaker Change: Yeah, Mike, I'll start with that one. You know, just thinking about OPSEC in the SAT segment, it's been dilutive in 2024, about 250 basis points, and we expect that to be about the same in 2025. So just as a reminder, OPSEC comes into the portfolio at a lower margin, which was expected, and now we're actively implementing CDFs in the business to drive those margins up, and we expect them to get to the low 20s percent over time as a result of the synergies,
Speaker Change: both Operational and Commercial. And so, you know, when you think about 2025 specifically, it's a transition year. It's being impacted by unfavorable mix from two main drivers, which is the U.S. currency program that Aaron spoke about earlier, and the OPSEC dilution. And so those two factors are impacting our margin specifically in 2025.
Speaker Change: You know, I'll just say lastly, as we execute our M&A strategy, we'll continue to bring assets into the portfolio that are dilutive to margin. And then similar to OPSEC, we'll implement CBS and bring them back up again. So you'll expect that pattern to continue.
Speaker Change: Yeah, I would just add, Mike, I think the way you framed it, that if you look at the preparations going on in 2025 for the U.S. currency, once those are done and we start to launch the new currency, you should see, and we fully expect to see, then the margins of the total currency business to kind of go back
Speaker Change: to where they've been, X, you know, the volume impact we're going to see here this year from the shutdowns and in fact be accretive as we move forward with the launch of the new currency that, again, we have high confidence that's going to have a higher technology component to it.
Thank you. Appreciate it.
Thanks, Mike. Thank you.
One moment for next question.
Speaker Change: Our next question will come from Bobby Brooks from Northland Capital Markets. Your line is open.
Hey, good morning guys.
Good morning. Good morning, Bobby.
Speaker Change: Hey, so could you guys just discuss, it's really, I thought it was really exciting the announcement on the micro-optics went through the OPSEC channel. I know in the prepared remarks it gave a little bit more color, luxury perfume.
Speaker Change: putting it on the bottle and doing some digital tracing as well, but I was just curious
Speaker Change: Yeah, hey, thanks for that, Bobby. You know, I'm just very encouraged by this, this first win. And it is a new customer.
Speaker Change: for us. And I think it's a proof point in our strategy of bringing together OPSEC with our technology, selling micro-optics through the OPSEC channel. You know, it's an excellent example of that. And it's more than just the label. As you said, it's adding in the online brand protection services and some of the digital authentication services that I mentioned in the prepared remarks.
Speaker Change: And, you know, the core of this is it's validating our...
Believe
Speaker Change: with how customers are looking to us to buy a full suite of authentication solutions. That's our unique value proposition.
Speaker Change: combining the companies together. So sales process here takes many, many months, as you can tell, you know, from when we closed OPSEC, that's
Speaker Change: Typical going forward, but again, the beauty is these are very sticky contracts with, you know, effectively reoccurring nature to them, particularly in the services, and we expect more to come from what we see in the funnel. So, you know, I think this is one of more that we're going to see and very encouraged by this first win.
Speaker Change: That's great. And then maybe just to dig a little bit more, like, what was...
From your sense, what was the...
Speaker Change: What were maybe like the two or three factors that really kind of drove this deal across the finish line? Obviously, you mentioned there…
Speaker Change: that being able to provide a full suite of authentication, both digital, physical, and some customer engagement pieces was probably a piece of it too. But just any other factors you'd point to that you think, oh, this is what helped us win.
Speaker Change: I think that's really it, Bobby. You know, the business is built on technology leadership. And those moats are quite wide now they're even wider when you add in
Speaker Change: the MicroOptics technology to what OPSEC had, they're going to even get wider when we add in De La Rue and a whole new set of capabilities that they bring, particularly a new segment. So I think it is that simple, that there are very few places customers can go to to get this full suite of solutions at this level of technology. And we think this is, and know from this proof point, we're uniquely positioned in the market.
Speaker Change: Got it and then and just like a clarifying one here is this for like one particular perfume or is it for their entire perfume catalog any any kind of color on that?
Speaker Change: Yeah, it's a start around a few different products, so there is the opportunity going forward for share of wallet expansion.
Speaker Change: got it and then maybe I just wanted to get a better sense of like really how the online brand protection will work
Speaker Change: I get that you're going to be monitoring websites to see if there's fakes, but...
Speaker Change: could you maybe just like walk me through like a example of how that would be like if there's a fake perfume being sold on ebay versus maybe just a broader fake chinese website like how would you actually you've mentioned the prepared remarks like removing those fakes how
Speaker Change: How would you actually go about like removing those fakes and so that's why I guess the maybe just giving like an example would be pretty helpful
Speaker Change: Yeah, and I'll keep it at a fairly high level because every customer and use case is a little bit different, but effectively our software in online brand protection is doing a lot of scraping of different websites around the world.
certain examples.
Speaker Change: to identify where we think there are counterfeit products being sold.
Speaker Change: Those will get validated mainly through the software, those get escalated then and it either comes to us, where we have a relationship with the marketplaces.
Speaker Change: as the case may be, or to the customer, then to take action to bring down the seller.
Speaker Change: And again, each marketplace, each website's a little different, as you can imagine, but effectively that's how the process works. It's highly enabled by software and by our algorithms that are really AI enabled, and I think as we go through the year, we're excited about the work the team's doing, and you'll hear more about that from us.
Thank you. One moment for next question.
Thank you for watching!
Speaker Change: Our next question will come from Bob Lavick from CJS Securities. Your line is open.
Good morning, thanks for taking our questions.
Hey, good morning Bob!
Speaker Change: So I wanted to kind of dig a little back into the retail end market for CPI. And back at the analyst day or kind of pre-spin day, there was a penetration story about retail self-checkout. And maybe just walk us through, since then OEMs have been a little...
Speaker Change: Weaker, but custom has been stronger. Walk us through how the market has changed and how you view You know retail self self-checkout going forward the overall trends
Speaker Change: Hey, Bob, I think that's a very fair point, and I would agree that I think it has changed.
Speaker Change: as we look back now almost two years. If I start at the end market and the need for self-checkout and say the need for automation in retail in general, I don't think that's changed. And we know labor scarcity is still there. I think what we have seen over the last
24 months is a real shift.
Speaker Change: in the Retailers Exploring New and Different Options for Self-Checkout that are well beyond the traditional form factor of
Speaker Change: you know, a box replacing a clerk at the end of a lane, to all kinds of different...
different solutions.
Speaker Change: And so that's diverted some capital spend. I think there's also been a fear, right or wrong, around shrinkage related to self-checkout, which has slowed some CapEx investment. And also there's been, you know, a reluctance on some retailers, just due to the macro retail environment, to deploy more CapEx. All of those have been some headwinds.
Thank you.
Speaker Change: I think also with the OEMs, you see an increased focus on software and services.
and moving to some different business models.
that have very publicly taken place.
Speaker Change: So, you know, what's played out for us is really we saw the softness in the OEM order starting in the middle part of last year, and we talked about that in Q3. That's continued.
But, as you've said, it's been offset by...
Speaker Change: This custom self checkout market growing? And that's really where the retailers are disaggregating their purchases between the furniture, the design of the checkout lanes, the payment terminals, software and services.
Speaker Change: to really make it custom for what they're trying to do.
Speaker Change: keep monitoring where the OEMs are placing orders, and again, we fully believe that's going to lead to continued softness for the balance of 2025.
Speaker Change: Okay, got it. Thank you. That's very helpful. And then, kind of conversely, just back from two years ago as well, vending seems to have been, or seems to be, exceeding or outperforming the expectations set back, you know, at that same analyst day.
Speaker Change: You know, what are the key drivers there? Is it broader offerings? Is it, you know, is the level sustainably a little higher? How should we think about this market going forward given the strength we've seen?
Speaker Change: You know, Bob, thanks for that too. And you're right. We had a very strong year in vending last year. As Christina mentioned, and we talked in Q3, it grew in 2024 in mid-single digits. We think the market's growing low single digits, just based on our analysis, and we expect to grow with the market this year at about low single digits.
It's really almost an offset to this.
to your prior question on retail.
Speaker Change: where you still have this macro need for automation and convenience retail sales.
Speaker Change: Very hard to have shrinkage actually occurring from the sales. That's
That's benefiting us.
Speaker Change: And then in particular to our vending business, you've seen the rise of other products in the vending category. And for us, that includes coffee.
Speaker Change: And that's been a very strong business for us, as we all probably see more automated coffee machines in airports and travel locations and hospitality that offers a high-quality coffee with an automated process. And so that's been a nice.
Speaker Change: and the rest of the business as well. So, I think all those are working and those are effectively tailwinds that I don't think are going to change for vending in a market that's just steadily growing.
Thank you. One moment for the next question.
Thank you for watching!
Speaker Change: Our next question will come from Damian Karas from UBS. Your line is open.
Hi, good morning, everyone.
Good morning. Good morning, Damien.
Morning Aaron. I wanted to ask you guys first about
Security Authentication
Speaker Change: Last quarter you had raised the guidance for the year to five to seven percent core sales growth And you ended up missing on that a little bit. So could you perhaps
Speaker Change: kind of talk to what happened, what you saw in the end of the year. Was that more on the US currency side and the production shutdowns or the international side of the business? We appreciate any color you could share.
Speaker Change: and Mix, just related to what's happening with the new series.
Speaker Change: And so, when we think about how this plays out in 2025, we're confident in international currency based on the orders we have on hand in our sales funnel, and we've appropriately risk-adjusted our guidance for the U.S. headwinds. So, we feel good about, you know, currency looking forward, SAT in total in 2025.
Thank you for watching!
Okay, that's very helpful. Thanks.
And I apologize if I missed this.
Speaker Change: in earlier discussion, but in your slides, it mentions that 2025 guidance does not have any, you know, tariff potential impacts in there.
Speaker Change: Could you just maybe speak to, you know, how you're thinking about the potential implications of, you know, China, Mexico, Canada tariffs, and, you know, kind of relative exposure and what your playbook is on that.
Speaker Change: Yeah, thanks Damien. You're correct in Christina's remarks. She said it didn't include any impact of tariffs. That is the guidance for 2025. You know, the bottom line at this point is we don't really see any material impact on the horizon for us.
and manufacturing perspective, really utilizing our global footprint.
and where we manufacture and procure products around the world.
Speaker Change: To go through a little more precision, the regions you talked about, you know, for China in particular, we have very little commercial business in the country. We do secure like most
Speaker Change: like most multinationals, some subcomponents where we're always looking and aggressively looking to get some alternative supplies. And in most cases, we have a line of sight to pass on a little bit of pricing if.
Speaker Change: if that's needed to offset the tariffs, but really not that material for us.
Speaker Change: with the progression of talks between the two administrations. At the same time, we've taken a lot of proactive actions that are already in place and can be put in place to mitigate...
Speaker Change: Any material impact to us. So again, I think we're feeling we're in a pretty good position here Damien, and I just Give my thanks to our team who's working on this around the clock
Thank you. One moment for our next question.
Thank you for watching!
Speaker Change: Our next question will come from the line of Ian Sofino from Oppenheimer. Your line is open.
Speaker Change: Hey, good morning. This is Isaac Saas on for Ian. Thanks for taking the question.
Speaker Change: I just had one on the the currency business. You know, you've laid out the expectations for international growth this year. If you're able, if you could provide some color on where growth is coming from between, you know, new wins or additional content or any additional details on pricing volumes, that would be helpful. Thanks.
Speaker Change: Yeah, you know, it continues to be a little bit of a combination of both Isaac of
Speaker Change: continued growth from core customers, again, very sticky contracts that traditionally get renewed. And then some new wins that we are getting, I would kind of
say it's, you know...
Speaker Change: And as Christina said earlier, we have high confidence in this international currency business based on new orders already in hand in Q1 on the funnel of order of contracts and discussions we're having with customers.
Speaker Change: So I think it will continue to be a point of strength for NXT as we exit 25.
Okay, great. Thank you very much.
Thank you for watching!
Speaker Change: Thank you. One moment for our next question and as a reminder that's star 11 for questions.
Speaker Change: Our next question will be a follow-up from the line of Matt Somerville from DA Davidson. Your line is open.
Matt Somerville: Thanks yeah I just I want to make sure I kind of have this right given the first quarter dynamic.
Matt Somerville: What sort of earnings, revenue and earnings weight should we be putting in first half, second half?
Matt Somerville: for you guys, based on what sounds like a materially lower Q1 followed by a pretty level Q2, Q3, and Q4, if I'm re-understanding everything you said, just having that first half, second half, top, bottom line cadence would be helpful.
second half.
Okay and then with the 13 design wins
You announced in 24
Speaker Change: You kind of talk about this 10 to 15 sort of annual objective, any sort of change we should be thinking about that? And Aaron, from time to time you've called out, or at least
Speaker Change: at a high level talked about what could be some pretty chunky international opportunities. Any update on any of those?
Speaker Change: You know, I think very reasonable. It's historically where we've operated and we did it this year. And again, the funnel in international currency in terms of what the team is working on remains very strong. And based on some wins and orders already in hand in Q1, we feel very good about 25. And, you know, not only where the orders are, where the backlog is gonna sit going forward and the revenue.
guide that we've already mentioned here today.
Speaker Change: In terms of really big, chunky wins, you know, this is a project's business and, you know, orders can range from a few million to a few tens of millions.
Speaker Change: over the course of a year or two, and that's just the nature of this.
Central Bank's order will see
Speaker Change: all of the above in the coming year. That's re, you know, reops of orders and call offs of RFPs that we've already won. And it could be new wins that, you know, are in excess of 10 $20 million at a time. I expect that to continue Matt, because that's just the order pattern of central banks.
Speaker Change: and again feel very confident where we're sitting you know with with the orders in the funnel.
Got it, thank you.
Speaker Change: Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Aaron Saak for any closing remarks.
All right, thank you very much for
Speaker Change: The questions and your attention this morning. I'd like to end by just again thanking all of our NXT team members across the world
Speaker Change: for their strong efforts in 2024 and all we accomplished. It was a busy quarter in Q4 and a busy year.
Speaker Change: and I think it continues to show how we're investing in the business, executing our strategy for the long term. And I feel very confident, as I've said here today, on the path we've laid out for 2025.
Speaker Change: So again, thank you all for your questions today and I look forward to our next call on our Q1 earnings. Thanks again. Have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
Thank you for watching!