Q1 2025 Crane NXT Co Earnings Call
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Welcome to the Crane and X T Q1, 'twenty 25 earnings call at this time, all participants are in a listen only mode.
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Speaker Change: I would now like to hand, the conference over to your first speaker today, Matt Roche Vice President of Investor Relations. Please go ahead.
Matt Roche: Thank you operator, and good morning, everyone.
Matt Roche: I welcome you all to the first quarter 2025 earnings call for Crane NXP.
Matt Roche: Before we begin let me.
Matt Roche: We remind you that the slides we will reference during the presentation can be accessed via the Investor Relations section of our website at Crane NXP Dot com.
Matt Roche: And a replay of today's call will also be available on our website.
Matt Roche: Before we discuss our results I encourage all participants to review the legal notice on slide two which explains the risk of forward looking statements and the use of non-GAAP financial measures.
Matt Roche: Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Form 10-K, and subsequent filings pertaining to forward looking statements.
Matt Roche: During the call. We will also be using non-GAAP financial measures, which are reconciled to the comparable GAAP measures in the tables at the end of our press release and accompanying slide presentation, both of which are available on our website at <unk> Dot com in the Investor Relations section.
Speaker Change: With me today are Aaron stake, our President and Chief Executive Officer, and Christina Cristiana, Our senior Vice President and Chief Financial Officer.
Speaker Change: On our call. This morning, we will discuss our first quarter highlights the completion of the delivery authentication solutions acquisition, our financial and operational performance and our updated 2025 financial guidance.
Speaker Change: After our prepared remarks, we will open the call to analysts for questions with that I'll turn the call over to Aaron.
Aaron Stake: Thank you, Matt and good morning, I appreciate everyone joining the call today to discuss our first quarter results.
Aaron Stake: Like to start by thanking my fellow cranium <unk> team members around the world for maintaining focus and being agile in the face of this dynamic trade environment.
Aaron Stake: We continue to prioritize serving our customers driving continuous improvement through the crane business system and diversifying our portfolio through disciplined M&A, all while living our core values and we demonstrated all of these elements in Q1 and I'm very proud of the team's performance.
Aaron Stake: As you can see on slide three our first quarter performance was in line with our expectations with sales growth of 5% and adjusted EPS of <unk> 54.
Aaron Stake: Excluding <unk> core sales declined 4% as expected, reflecting lower volumes in our U S currency business driven by the planned shutdown of key manufacturing equipment for upgrades to support the new U S Bank debt series.
Aaron Stake: I'm happy to announce that the upgrades were successfully completed and full production has resumed a great job by our team to accomplish this very significant milestone.
Aaron Stake: In Q1, we continued to build momentum in our strategic growth areas, achieving a record high backlog and crane currency with a book to bill ratio of two point for.
Aaron Stake: This is exceptional performance by our currency team and reflects the differentiated value of our leading anti counterfeiting technology.
Aaron Stake: And as CPI, we continue to invest in and grow our services business, where in Q1, we won a new multi year contract with a major retailer to provide onsite equipment repair services and approximately 450 of its U S locations under.
Aaron Stake: Under this agreement we will provide service to all of the front of store retail checkout equipment, including self checkout and attendant checkout lanes are flexible service delivery model will further drive recurring revenue and positions us very well for future growth.
Aaron Stake: We're also making meaningful progress in expanding our market leading positions in anti counterfeiting technologies for governments and brands last week, we announced we completed the acquisition of dealer rewards application solutions and I would again like to extend a very special welcome to our new team members from dealer route we're excited to have you.
Aaron Stake: Joining the cranial XP family.
Aaron Stake: The <unk> integration is on track and last week, we announced that <unk> and Taylor reward allocation will be combined to form crane authentication. The combination of the businesses will provide a unified set of products and services to our customers and help accelerate synergies.
Aaron Stake: Finally, our teams are working diligently to mitigate the impact of tariffs through strategic pricing actions and supply chain initiatives.
Aaron Stake: Given these actions and with our current line of sight to demand we are reaffirming our full year adjusted EPS guidance and Kristina will speak more about tariffs later in the call.
Aaron Stake: Moving to slide four I'd like to provide a brief overview of dealer re authentication solutions. This acquisition complements the optic business and further expands our security and authentication technology capabilities de La Roux authentication goes to market with three strategic platforms as shown on this slide.
Aaron Stake: <unk> revenue solutions provides a digital and physical tax stamp technologies that <unk> unique identifiers to products, enabling the full treats ability of goods through the supply chain and allowing governments to collect tax revenues.
Aaron Stake: Identification security solutions provide solutions to secure the government issued identity documents of individuals', including polycarbonate passport pages with embedded security features.
Aaron Stake: Finally brand protection products provides serialized highly secure physical aprils combined with software to track and trace products through the supply chain and provide critical consumer insights to brand owners through data analytics.
Aaron Stake: <unk> Daily <unk> authentication solutions has an attractive financial profile comprised of a stable and growing revenue base generating mid single digit revenue growth.
Aaron Stake: We expect that <unk> will contribute approximately $80 million to $90 million in revenue in 2025 with an adjusted EBITDA margin of approximately 20%.
Aaron Stake: As I mentioned last week, we announced the combination of op second dealer room to form the new Crane authentication business as shown on slide five Crane authentication has a geographically diverse global footprint with majority of sales coming from long standing customers.
Aaron Stake: Great authentication also serves a diverse set of end markets, including governments consumer products sports and media financial services and industrials, providing a highly resilient revenue stream to cranial XD.
Aaron Stake: And over the past few years, we've made significant progress executing on our strategy to diversify the company through disciplined M&A.
Aaron Stake: With the acquisition of OPSEC true tax smart packaging and daily <unk> allocation, we now have a leading position with crane authentication in the security and authentication market focused on protecting products that matter most to our customers.
Aaron Stake: With the continued strength in crane currency and the addition of the new Crane authentication business. The Cts segment will have sales of approximately $735 million in 2025.
Aaron Stake: Our M&A funnel remains robust and I fully expect we will execute additional transactions within the next year that will continue to expand our market leading positions and add further resiliency to our portfolio.
Aaron Stake: So with that let me now hand, the call over to Kristina to review, our first quarter performance in more detail and our updated guidance Kristina.
Kristina: Thank you Erin and good morning, everyone I'd like to start by expressing my appreciation to our associates around the world for their hard work and to welcome the daily syndication team to <unk>.
Kristina: Starting on slide seven we delivered first quarter results that were in line with our expectations sales increased approximately 5% year over year, driven by <unk> and continued strong performance from international currency.
Kristina: Core sales declined approximately 4%, reflecting the expected lower U S currency sales related to the planned shutdown of key paper, making equipment in preparation for the New Bank notes series and the expected softness in Cpi's gaming end market.
Kristina: Adjusted segment operating profit margin of approximately 19% was driven by the impact of lower volumes and unfavorable mix in U S currency and dilution from <unk>, partially offset by productivity gains.
Kristina: Free cash flow was impacted by the planned lower volumes and the timing of collections in both CPI and international currency driven by shipments which were skewed towards the end of the quarter.
Kristina: And our strong backlog and delivery schedule, we remain on track to achieve free cash flow conversion for the full year between 90% and 110%.
Kristina: Finally, we delivered adjusted EPS of <unk> 54.
Kristina: Moving to our segments and starting with CPI on slide eight core sales declined by approximately 2% driven by the expected lower volumes in gaming and in the vending end market, where we faced a tough comparison versus the prior year we.
Kristina: We saw growth in the financial services and retail end markets, reflecting a slight pull forward of demand late in the quarter to get ahead of tariffs.
Kristina: Adjusted operating margin decreased 190 basis points year over year, reflecting the lower volumes and unfavorable product mix due to gaming, partially offset by productivity gains.
Kristina: CPI ended the quarter with a backlog of $147 million and our book to Bill ratio of approximately one.
Kristina: Moving to security and authentication technologies on slide nine in the first quarter sales were up 22% compared with the prior year, including upset which is performing as expected.
Kristina: Core sales were down approximately 8% as expected driven by lower U S currency volumes related to the planned shutdown of key paper, making equipment in support of the new banknotes series.
Kristina: As Aaron noted earlier the equipment upgrades were completed successfully and we resumed normal production in April.
Kristina: Adjusted operating margin of approximately 7% reflects the impact of lower U S volumes, which led to the under absorption of manufacturing overhead.
Kristina: We also had deletion from <unk> of approximately 300 basis points in the quarter.
Kristina: Our international currency business continues to have strong performance with a record high backlog of approximately $370 million and five new micro optic wins in the quarter, putting us well on track for our full year target of 10% to 15, new denomination and giving us high confidence in achieving our sales target for this year.
Kristina: In the first quarter, we had several highlights in our <unk> segment at <unk>, we renewed our contract with the National Football League to provide physical product or indication on merchandise for the next five years.
Kristina: <unk> also provides anti piracy and online brand protection services to the NFL and we are excited to continue our long standing partnership with the league.
Kristina: We also completed our second sale of micro optics technology known as profound to a consumer goods company in the <unk> channel. This two year contract includes physical authentication and a digital track and trace solution, which increases our recurring revenue.
Kristina: Moving to our balance sheet on slide 10, we ended the first quarter with net leverage of one seven times and we estimate net leverage will be approximately two three times at the end of the second quarter, reflecting a new term loan to fund the daily rule authentication transaction, our low leverage and strong liquidity provides us with ample capacity.
Need to deploy capital for M&A.
Kristina: Turning to slide 11, I would like to provide an overview of the tariff impact and our mitigation strategy.
Kristina: Just on the tariffs announced to date, we've sized the full year unmitigated impact to operating profit at approximately $25 million or approximately 4% of our cost of goods, which we expect to fully mitigate with pricing and other cost reduction and productivity measures give.
Kristina: Given our global manufacturing footprint, we have an in region for region supply chain strategy, which significantly minimizes the impact of tariffs and provides future resiliency.
Kristina: Taking a closer look at the impact by region. The largest impact is from the tariffs on China estimated at approximately $20 million. This primarily relates to CPI components, which we source from China. Our remaining exposure is approximately 5 million coming from the tariffs related to Europe and the rest of the world.
Kristina: To mitigate the direct impact of tariffs, we have implemented price increases and are optimizing our supply chain strategy. Additionally, we continue to execute productivity programs across the company utilizing the crane business system.
Kristina: Our teams have shown tremendous agility and I'm proud of the work we're doing to navigate this environment.
Kristina: Given these actions we do not expect the direct impact of current tariffs to have a material effect on our 2025 results.
Kristina: That said, we expect some pushout of buying decisions to impact CPI in the second quarter and potentially longer if the China tariffs remain in place at the current levels.
Kristina: For.
Kristina: The downside demand risk is more moderate given our diverse set of government customers and strong backlog.
Kristina: Moving now to slide 12, we are updating our guidance to reflect the increased sales growth outlook is.
Kristina: Based on our record high currency backlog and the addition of daily rule of syndication.
Kristina: We now expect sales growth to be between 19% and 21%.
Kristina: This reflects 5% to 7% growth in <unk>.
Kristina: Excluding dealer room versus our initial guidance of 3% to 5% growth and it includes approximately $80 million to $90 million of daily syndication sales in 2025.
Kristina: In CPI given the macroeconomic uncertainty we are revising our full year sales guidance from a range of zero to 2% to a range of negative two to flat, reflecting a push out of demand for equipment, which we expect to read through in the second quarter, resulting in CPI sales of approximately flat on a sequential basis from Q1.
Kristina: One to Q2.
Kristina: We now expect our full year adjusted segment operating margin to be in the range of 25, five and 26, 5%, reflecting dilution from daily room, and our continued strong focus on price execution, and productivity, which will mitigate the impact of tariffs and lower volumes in CPI.
Kristina: Non operating expenses are now expected to be approximately $54 million as we will incur approximately $10 million of additional interest expense related to the borrowings for the <unk> acquisition.
Kristina: Considering these factors in total we are maintaining our full year EPS guidance range of $4 to $4 30.
Eric: Now I will turn it back to Eric for his closing remarks.
Eric: Thanks, Christina moving to our final slide we remain agile and resilient through the current economic environment, maintaining our full year EPS guidance range. We are proactively addressing the direct impact of tariffs through diligent management of our sourcing and manufacturing footprint pricing actions and utilizing CBS drive productivity.
Eric: <unk>.
Eric: We're also building momentum in key strategic growth areas, we achieved a record high backlog in our international currency business, which gives us confidence in our full year sales outlook and positions us very well for 2026.
Eric: Additionally, we completed the final upgrades in our U S paper, making facility that will support the new series of bank notes with the new $10 Bill on track to launch in 2026.
Eric: Also our CPI service business continues to build momentum securing new contracts that drive growth in our recurring revenue base.
Eric: Finally, we continue to take a disciplined approach to capital allocation.
Eric: We closed the day will reward indication transaction and we're excited about the launch of create authentication.
Eric: We hit the ground running with integration activities and are very confident in the outlook for this market leading technology portfolio.
Eric: Our M&A funnel is active and our strong balance sheet gives us ample capacity to continue building our portfolio of differentiated technology solutions, delivering long term value creation for our shareholders.
Eric: Thank you again for your time this morning, and I'd like to again, thank our dedicated team around the world for their commitment to our customers to our communities and all of our stakeholders.
Speaker Change: And with that operator, we're now ready to take our first question.
Speaker Change: Thank you at this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Matt Summerville with D. A Davidson your line is now open.
Matt Summerville: Thanks, Good morning.
Speaker Change: Good morning, Matt.
Speaker Change: Aaron I wanted to talk about and Christina CPI for a minute can you give a little bit more granularity and what you expect for the full year in terms of growth rates across the four major end markets served by CPI.
How much of the I guess, just cascade could look like from a pushout standpoint.
Speaker Change: Are we talking it sounds like $20 million round numbers.
Speaker Change: Kind of verify that.
Speaker Change: I'd be curious as to which verticals are most impacted by this deferral and then a follow up.
Speaker Change: Yeah, Thanks, Matt and just off the bat I think you have that sized correctly at the 'twenty and most of that really in Q2.
Speaker Change: Given what we see happening with the tariffs, but just to back up for CPI overall performed as expected in Q1, and I would say thats true across really all of the verticals from what we said last quarter.
Speaker Change: Yes.
Speaker Change: Going back to kind of do your broad question.
Speaker Change: Gaming for us performed right as expected.
Speaker Change: We continue to see that as a very healthy market and maintaining our position.
Speaker Change: And as we indicated last quarter see orders continuing to come and build as we exit Q2 and return to topline growth as we get to the second half of the year. So still looking at low single digit growth in gaming for the full year retail performed again really asics as expected.
Speaker Change: There were facing this dynamic of OEM sales down and I think that was confirmed this week with two major Oems recording reporting sales down in double digits. We're seeing that we're seeing that offset with our custom self checkout offerings, which are performing very well. So net net for the full year still.
Speaker Change: In line with expectations that we mentioned of high single digit decline in retail and when you get to a financial services mid single digit growth for the full year.
Speaker Change: Performing as expected and then lastly, vending and it's really where we see this impact of tariffs.
Speaker Change: Overall as Kristina mentioned, it's really the Chinese tariffs that are that are impacting principally CPI and thats.
Speaker Change: The vast majority is vending.
Speaker Change: So we've taken action.
Speaker Change: To mitigate those with price increases those are already out to our customers.
Speaker Change: And we're expecting that to really hold back some demand, particularly in Q2.
Speaker Change: As they were in a wait and see mode.
Speaker Change: Ultimately at some point you have to order your repair parts and enact pricing through the rest of the vending supply chain and in discussions with our customers. That's what we expect to happen. So really that that would be the change for vending, where we now expect that to be a low single digit decliner for the full year.
Matt: So net net first quarter kind of as expected the big change in vending the rest of the verticals, Matt performing as expected.
Speaker Change: Got it. Thank you for that color and then moving over to the crane currency portion of that.
Can you talk a little bit about how the U S performed relative to expectations in Q1, and then similarly, I mean mathematically you have to have some pretty phenomenal growth internationally. So touch on that but maybe more importantly is how kind of the currency business plays out for the rest of the year just.
Speaker Change: Knowing there can be a little bit of lumpiness and variability from quarter to quarter kind of again are seeing between the divergent at least for now sides of the business between USG and international.
Speaker Change: Yes, Matt I would say overall currency performed just as expected in Q1, probably a little bit better in international and you can see that with the orders certainly that was astounded standout for us in Q1.
Speaker Change: Execution here and currency has been fantastic, particularly with the upgrades on the U S. We're back to full production and I would say bep volumes are playing out right in line with our expectations and we expect that for the rest of the year International currency just based on what we've put into the backlog and how we can optimize our production as well.
Speaker Change: We just have very high confidence in raising that sales outlook for the balance of the year. So.
Speaker Change: I would say U S expected to play out similar to what we guided early and international slightly better again, just continuing to build momentum based on micro optic wins.
Speaker Change: Thanks, Darren ill get back in queue.
Matt: Thanks, Matt.
Speaker Change: Thank you. Our next question comes from Bob <unk> with CJS Securities. Your line is now open.
Speaker Change: Good morning, Congratulations and thanks for taking my questions.
Speaker Change: Good morning, Bob.
Speaker Change: So I wanted to start with authentication in Ukraine authentication, obviously, congrats on closing the Taylor rule.
Speaker Change: This is <unk>.
Speaker Change: The whole.
Speaker Change: Segments, New to you guys do to us. So maybe you could kind of take a step back and talk about how the authentication market acts in kind of a unique time, where and with potential inflationary environment could be recession U S. Isolationism, you touched on tariffs, but you may as well throw that in there too.
Speaker Change: Business positioned in this kind of uncertain world and what do you expect in terms of growth from it.
Speaker Change: Well, thanks for that Bob again, as you know it couldnt be more excited by closing dealer Ru and the launch of Crane authentication as a unified business and brand and I invite everyone to go check out the website and the upgrades that we've made as we've launched the new business.
Speaker Change: <unk>.
Speaker Change: I backup for a second Bob just you mentioned economic uncertainty and tariffs and I would say we've taken very deliberate steps really goes back many years with our acquisitions to build resiliency into the portfolio.
Speaker Change: And that's no more evident now than in Crane authentication, where.
Speaker Change: <unk> about 40% of that business is government contracts that are very resilient through economic conditions and in fact, that's now with authentication our tax stamp business and our I'd business passports national I'd, So that really adds a nice foundation for the entire.
Speaker Change: <unk> segment, particularly when you add on currency that tends to perform very well in recessionary environments, particularly with inflation. So we think we've built in some natural insurance in shock absorbers into the portfolio for the economic conditions that we see now with that said.
Speaker Change: Take the example in authentication around brands like the NFL, which our franchise brands fantastic customers that Kristina mentioned, a new multi year deal thats, both physical authentication and digital authentication that our services. So that adds a lot of resiliency to because those are ongoing recurring services that in this.
Speaker Change: Case, the leak bought for the next several years ahead.
Speaker Change: And there is more deals inside of authentication that look and feel like that that are contractual that are resilient to different economic spikes or.
Speaker Change: Declines in demand. So I think there is a natural resiliency built into the business just simply due to that portfolio.
Speaker Change: Okay Super that's great and then I guess kind of answers my.
Speaker Change: Follow up already but maybe I think in your prepared remarks, you said that obviously the balance sheet is still very strong in the <unk>.
Speaker Change: Pipeline for M&A, a lot of the companies we cover in different industries M&A has slowed down because of the uncertainty, but how does your pipeline look what are your.
Speaker Change: Your expectations, there and what areas not fabrication.
Can you build versus buy.
Speaker Change: Yes.
Speaker Change: That's directionally true Bob just maybe on the velocity of transactions.
Speaker Change: <unk> now, but our pipeline remains very healthy really no change in the last few quarters, probably more things to be honest getting getting added in and our focus here regardless of the environment is that we're in.
Speaker Change: I think been very consistent that with M&A and I would say capital allocation overall, our fundamental goal is we're going to drive long term shareholder value creation around these three pillars of investing in the core like you just saw with the U S government investments that have gone very well for us paying a competitive dividend.
Speaker Change: So getting some cash back to the shareholders, which we increased this year as you know and then executing disciplined M&A like the <unk> like the Opex and our funnel is composed of companies that fit that profile and that $100 million to $500 million range things that matter for us a few technology bolt ons.
Speaker Change: In the funnel like you saw with true tag.
But to your point, we have to make sure in any deal we announced in transact that we're generating.
Speaker Change: Turns on capital well above 10% over the next five years, that's unchanged so that makes it a lot.
Speaker Change: With where the market's at right now we have to be extra diligent and disciplined but quite frankly, the funnel is healthy and it's in adjacencies.
Speaker Change: That expand off our technology leadership some of that's geographic some of Thats, a new markets. Some of that's with process capabilities. But these are all vectors that are inside the M&A funnel and I'm confident Bob we're going to see additional deal flow over the next year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Damian Caris with UBS. Your line is now open.
Damian Caris: Hey, good morning, everyone.
Damian Caris: Good morning, Damian how are you doing I'm doing well thanks, Aaron congratulations on closing the <unk> deal I know thats.
Damian Caris: A big.
Step for you guys.
Speaker Change: Curious thanks, Yeah. So maybe you could just talk a little bit more about that and what you know.
Damian Caris: You think are the key priorities as you kind of focus on it.
Speaker Change: Integrating the business.
Speaker Change: And kind of planning for the future of authentication.
Damian Caris: Well I'd separate it into the market Damian and then what I would call as us doing what we do with CBS. When we when we put these type of businesses in the portfolio and in this case uniquely put two businesses together and that really gets to the synergies. We like this neighborhood so to speak we're playing in.
Speaker Change: Authentication.
Speaker Change: It's growing and we've just created the leading market position in the space of <unk>.
Speaker Change: Securing and protecting products.
Speaker Change: I think thats, a very enviable position with differentiated technology.
Speaker Change: Including our micro optics, that's now in the portfolio. So it's about ensuring we're winning customers renewing those customers like the NFL and gaining share of wallet with new services that we're adding on that only we can do now with the technology portfolio. We have so that's the commercial focus than when you put these two businesses.
Speaker Change: Together.
Speaker Change: As you can see quite a bit of synergies across commercial SG&A opportunities and in operations and that's really where the Cvs discipline. It comes in 80, 20 lean program and deployment in our factories and Thats, where the synergies now will get accelerated by finally closing the.
Speaker Change: Action and moving forward, so I think its a call it a two.
Speaker Change: Two steps to two different vectors here, one commercial one around executing the synergies and we feel very good we've got a good team on the ground. There meeting this week as we just closed last week and we're off to the races on the integration.
Speaker Change: That's great.
Speaker Change: And then I wanted to ask you a follow up on <unk>.
Speaker Change: Hi.
Speaker Change: And and how Youre thinking about I guess kind of moving past the second quarter.
Speaker Change: How that business progresses through the year, because correct me if I'm wrong I think you said kind of like.
Speaker Change: Roughly $200 million or so.
Speaker Change: In sales again in the second quarter, So I think the guidance kind of.
Speaker Change: Implies you would ramp up to more like 230 to 40 ish sort of.
Speaker Change: Level per.
Speaker Change: Per quarter in the back half so.
Speaker Change: Could you just talk about like how you are thinking.
Speaker Change: Yes, as you get past the second quarter here and your and your confidence in the guide.
Speaker Change: Yes.
Christina Cristiana: I'll start maybe Christina will jump in here.
Christina Cristiana: I'd say again broadly Damien with the exception of vending and the tariff implication, which is driven by China and tariff at a scale I don't think anyone would have anticipated even three months ago. The rest the rest of the portfolio quite frankly is performing as expected.
Christina Cristiana: That's all of the verticals and some great wins in our services business. So it's a strategic priority for us.
Christina Cristiana: In terms of the actual numbers.
Christina Cristiana: It will be approximately flat sequentially in Q2, so thats just slightly north of $200 million and then I think it's a little a little less than what you said probably numbers more in the.
Speaker Change: Hi, $2 <unk> to $2 30 range in the back half of the year.
Speaker Change: Okay, that's really helpful I'll pass it along thanks.
Damian Caris: Thanks Damian.
Speaker Change: Thank you. Our next question comes from Mike Halloran with Baird. Your line is now open.
Mike Halloran: Hey, good morning.
Speaker Change: Good morning, Good morning, Mike.
Speaker Change: Can we just talk a little bit about the backlog acceleration that you saw here.
Speaker Change: Some of it's tied to international wins in the currency side, probably the NFL piece, but.
Speaker Change: Any detail beyond that and then secondarily, maybe just talk about how you expect that backlog to cadence through this year, probably some into next year and just.
Speaker Change: Essentially with the rollout.
Speaker Change: How to think about that.
Mike Halloran: Yes, I'll take that one Mike and first is just another opportunity to congratulate our currency team for excellent performance in driving this record high backlog, we're really proud of the work that's been done there and this gives us high confidence in our full year sales guide for <unk>.
Mike Halloran: So in Q1 as you said, we had incredible backlog primarily related to the international currency business and it was expected and really driven by the timing of of projects. If you remember last quarter, we were a little bit lower in Q4, and thats because of a few significant deals that we closed in the first quarter.
Mike Halloran: And we also had five microptic wins, so really just a lot of great milestones in the quarter that were celebrating.
Mike Halloran: Raised our sales guidance for <unk> two.
Mike Halloran: Two 5% to 7% for currency excuse me and we expect about 65% of that backlog to deliver in 2025 with the remainder through in 2006. So.
Mike Halloran: This is another proof point in summary that we are winning in the market with our technology leadership and really excited for the rest of the year.
Mike Halloran: And then maybe back to the dealer.
Mike Halloran: In addition, an authentication.
Mike Halloran: Segment creation.
Mike Halloran: Could you just talk about what the go to market strategy looks like and what the consolidation looks between the two meaning.
Mike Halloran: It had been different somewhat different channels, some somewhat overlapping channels. How does that go to market approach change where does the consolidation points happened internally and then any of the kind.
Mike Halloran: Kind of operational side on the on what shifts that go to market.
Speaker Change: Yeah Yeah.
Mike Knapp: Would say Mike Knapp.
Mike Knapp: Natural synergies between these two I think it's probably very obvious to you and many others on the phone and you can really think of it as four different business segments broadly one is around government tax stamp revenue.
Mike Knapp: That's where the <unk> business is.
Mike Knapp: The biggest part of that business and so any of that revenue that or product line that was coming from <unk>, we will get integrated in to the core of the <unk> business. We have the I'd business now passports National Ids Thats brand, New there was no analogy to that in the <unk> business, So that will stand on its own.
Mike Knapp: Direct sale to government.
Mike Knapp: Government agencies around the World and then you have brand protection and I would divide that into two areas. One is the physical brand protection, that's where <unk> was really strong it was a smaller part of the <unk> business. Those two will come together and really the optic group has the lead in that front.
Mike Knapp: And then finally online brand protection, which was uniquely part of Opex. So that stands on its own. So those are the really four main buckets of products and then some natural synergies in sales SG&A across those those four groups. So hopefully that helps.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone and wait planning to be announced we ask you to please limit to one question and one follow up our next question comes from Bobby Brooks with Northland capital.
Speaker Change: Your line is now open.
Bobby Brooks: Hey, good morning, guys.
Bobby Brooks: Good morning, Bobby.
Bobby Brooks: So kind of piggybacking on the last question, but a little bit different just on the go to market strategy.
Bobby Brooks: Obviously, all fabrication businesses pretty sizable scale and it even has its own branding now. So I was just curious if you could discuss the go to market strategy on winning more business I think broadly brands want to protect themselves. So I feel like it's not about pitching them on your values. So then what really are these.
Bobby Brooks: <unk> centered on with potential new customers.
Bobby Brooks: Well I think youre right.
Speaker Change: Right right on it Bobby we've got the leading position now by far and.
Speaker Change: The most important prestigious brands in the world like the NFL using us. So typically the conversation is around just like our currency business starts with technology leadership, and the kind of products and services, we're offering and if you take a contract like the NFL, it's about share of wallet expansion.
Speaker Change: And as they want more of their articles protected with our physical authentication and then adding on the digital.
Speaker Change: Services as well that's kind of a common refrain right across every band brand, particularly when they have a physical product. They are trying to protect and our sales processes are direct to those brands. So we go direct now it's crane authentication with our account leads to those brands, obviously, we use our reference.
Speaker Change: <unk> base is probably one of the strongest calling cards you can have given we're servicing all of the major particularly.
Speaker Change: Particularly sports brands.
Speaker Change: Worldwide.
Speaker Change: As well as some consumer brands.
Speaker Change: Those obviously, we can disclose some we cant but that really sets a really good foundation to show what these other brands are doing as second tier brands and other people start to adopt more authentication. So that's that's the cycle. It takes 12 or so months to get someone in as we've talked about once you get them in its.
Speaker Change: <unk>, a land and expand strategy around new offerings.
Speaker Change: Got it that's super helpful and then.
Just kind of.
Speaker Change: Piggybacking on that as well.
Speaker Change: As we think as you think about the fabrication business over the next 18 months or so is there a <unk> do you guys see the potential authentication growth rate accelerating as it gains more momentum or maybe or maybe its more so you've landed.
Speaker Change: Kind of a really large deal with a major high volume brands, just trying to get a sense of how you think what you think the growth potential is here because I think it's really big but trying to get a sense of what your thought is.
Speaker Change: Yeah, I'll start that one and then maybe turn it over to Ara for some other remarks, we're expecting mid single digit growth in the market.
Speaker Change: We are headed out as clean authentication under a new platform and we've got a lot to do but we feel very confident that we can achieve that growth level I think there's not anything further than that that we would call right now, yes, I would just add to what Christina said I think we will.
Speaker Change: We're very excited about it we think expectations are set appropriately at mid single digit growth and also I would say Bobby just on the sales process.
Speaker Change: Typically work on the account for two to secure it and then you get just a natural step up.
Speaker Change: As the brand brings products online it's not quite.
Speaker Change: <unk>.
Speaker Change: A.
Speaker Change: Just a dramatic step up so they add more products and it grows it's a nice incremental increase in revenue and volume. It's also why it's very resilient.
Speaker Change: As that grows you typically never go backwards.
Speaker Change: So it's just a nice steady recurring reoccurring type of offering so I would say steady consistent stable.
Speaker Change: Expansion of the products.
Speaker Change: Thank you.
Our next question comes from Damian Karas with UBS. Your line is now open.
Damian Karas: Hey, guys just a few follow up questions here.
Damian Karas: First of all I just wanted to see if you could give us an update on on Opex in terms of the synergies.
Damian Karas: I think you were expecting over time to kind of get like.
Damian Karas: High single digit millions or so of.
Damian Karas: Of synergies.
Damian Karas: Where do you stand like how much of that benefit might not be reflected yet in your P&L.
Damian Karas: Hey.
Damian: Yeah. Thanks, Thanks for that Damian <unk> performing as expected we continue to kind of.
Damian: Execute or both commercial and internal synergy programs.
Damian: What I would add now that we've closed dealer ru that actually helps us accelerate some of those activities. So.
Damian: I would fully expect.
We now go through into the back half of this year that will start to see an acceleration of those synergies now that we're able to combine the two together and helps us get at some of the opportunities as you can imagine a little bit simpler.
Speaker Change: Okay. So it sounds like the lion's share of that is still kind of out there.
Speaker Change: Yes, but very clear line of sight to that Damien and now we can unlock it with the combination of the two.
Speaker Change: Yes that makes sense.
Speaker Change: And then you mentioned kind of like mid single digit or better long term target for authentication.
Speaker Change: Both op secondarily, where obviously our inorganic contributors to current financials, but could you just maybe parse out a little bit.
Speaker Change: Those two pieces of the business. What you are expecting this year for kind of the underlying growth.
Speaker Change: Yeah, I'm, sorry, I, just want to make sure I hear it correctly, it's for upset and David Roux Damian as your question. There just kind of like I think I think if I if I.
Speaker Change: Recall correctly like I think you were expecting opex to kind of maybe grow mid single digits. This year, but just an update on those two pieces out like how much no thats five growth looks like.
Speaker Change: Yes. Thanks for the clarification you are correct we expect.
Speaker Change: <unk> to grow in mid single digits.
Speaker Change: <unk>.
Speaker Change: Again, performing as expected and that's what our outlook would be for the full year and then combined we just.
Speaker Change: Our leading position, we're going to grow hopefully a little bit better with our technology than market, but that's where we would say this is a consistent mid single digit grower now under the umbrella of Crane authentication.
Speaker Change: Okay, great. Thanks for your time.
Damian Caris: Thanks Damian.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Aaron <unk> for closing remarks.
Speaker Change: Thank you very much and thank you all for joining us and for your time this morning and your questions.
Speaker Change: As I mentioned earlier I sincerely appreciate all the efforts from our cranium <unk> team over the course of Q1, it's been fantastic for me personally to be part of this team navigating the economic environment. While also driving forward, our key growth and strategic priorities and that includes the close.
Speaker Change: <unk> of the <unk> transaction. So we're just doing what we said we were going to do and I look forward to continuing this conversation in a few months with our Q2 results. So with that thank you again and have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].