Greetings. Welcome to Crane Co. First Quarter 2022 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jason Feldman, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator and good day everyone. Welcome to our first quarter 2022 earnings release conference call. I'm Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, and Rich Maue, our Senior Vice President and Chief Financial Officer. We will start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder that the comments we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report 10-K and subsequent filings pertaining to forward-looking statements. Also during the call, we'll be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers and tables at the end of our press release and in the accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section. Now let me turn the call over to Max.

Thank you, Jason, and good morning everyone. Thanks for joining the call today. Another strong quarter with solid results across the board. First quarter adjusted EPS from continuing operations was $1.81, up 15% from last year. We delivered core sales growth of 5% with a number of strong leading indicators reflected in core order growth of 12% and core backlog growth of 16% compared to last year. Further evidence of our ability to drive profitable growth, despite persistent inflationary pressures, ongoing supply and logistics issues and continued COVID disruptions globally. Overall, the environment is similar to date to what we saw and described on our last earnings call, generally not improving and not significantly worsening. While issues tend to change and evolve from various disruptions that continue to occur on a regular basis, it's a stable environment of ongoing challenges that are almost predictably unpredictable, if you will. As we watch global events and our operating environment carefully at this point, we still believe that we planned appropriately and that our current guidance is consistent with the demand conditions and supply chain constraints, we are seeing today and we expect a similar set of conditions to persist throughout the year. Building on the strength of our operating results, we also had some other notable developments we announced on March 30 at our Annual Investor Day event, which is available for streaming at craneco.com for those who've missed it. Specifically, we announced that we are pursuing a plan to separation of our business into two independent publicly traded companies. We believe that separation will unlock significant shareholder value and better position both companies for accelerating growth moving forward. The separation work streams are well underway and we are making significant progress. Given that this is a clean separation along segment lines,…

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I think we're feeling. I got to take a breath. Overall, we have a very exciting story with continued appreciation in the market and we believe that all of our actions confirm our unwavering commitment to driving shareholder value. While we work towards the separation over the next year, you can expect us to operate the business as we always have, but with an even more pronounced focused on driving growth. We will continue to deliver differentiated and consistent, excellent execution. We are investing and driving growth more effectively than ever before. We remain fiscally disciplined and have a rigorous process for all capital allocation decisions, and all of these efforts are supported and enabled by the cadence and discipline of the Crane Business System, an exciting set of opportunities for these businesses, both before and after the separation. At this point, I'll turn it over to Rich for some additional financial commentary.

Thank you, Max. And good morning everyone. Even in these challenging times, we continue to drive profitable growth. And my thanks to our leadership teams and associates globally for their consistent focus on driving sustainable value creation for all our stakeholders. Moving to segment comments, that will compare the first quarter of 2022 to 2021 on a continuing operations basis, excluding special items as outlined in our press release and slide presentation. At Aerospace & Electronics, sales of $157 million increased 2% compared to last year. Segment margins improved 100 basis points to 17.9%. In the quarter, total aftermarket sales continued to strengthen, increasing 12% compared to last year. Commercial aftermarket sales grew 47% year-over-year, driven by both replenishment spares, initial provisioning and repair and overhaul. Defense aftermarket sales declined 27% based on program timing and some temporary shipping delays. Commercial OE sales increased 7% compared to the prior year, driven by higher build rates and shipments, particularly for the 737 MAX. Defense OE sales declined 9% due to program timing and some transient material availability constraints. As we discussed last month at our Investor Day event, we are very excited about the outlook for this business and continue to have confidence in a 7% to 9% sales CAGR over the next decade. Our confidence in this outlook is based on our differentiated technology, a continued post-COVID commercial aerospace recovery and the numerous major multi-year programs, particularly on the defense side of the business that we have already won. For this year, specifically, demand is very strong and can support sales, well above our current guidance. In the first quarter, we had solid performance that improved progressively with an extremely strong month of March. However, material availability is creating uncertainty and unpredictability about the timing and cadence of sales and…

[Operator Instructions] Our first question is from Damian Karas with UBS. Please proceed.

Good morning, Damian.

Hi, good morning everyone.

Morning.

And Max be careful those goosebumps are contagious.

I hope so.

You've got them too.

Oh, yes. Got them. Just here and you talk about them. Jokes aside. So I wanted to ask you about the Crane Supply sale here. So, Rich, I think you said that effectively you raised the guidance by a quarter. So just curious kind of what you guys plan is? How long do you think - thinking about next year, how long it's going to maybe take you to kind of offset some of that EPS, which you're setting? And are you expecting any dis-synergies related to this divestiture?

So, no. We don't expect any dis-synergies. So I'll start there from a divestiture at all. Frankly, it's a fairly clean divestiture and with very little in the way of anything really from a dis-synergy perspective. As we think about next year and implications to our earnings and replacing, what I would point to is the fact that we're actually doing better pre-divestiture than we thought as we were moving through the balance of this year. So - hence our ability to hold guidance in the current period, so as we move forward and we look at the growth opportunities that we have across all of PFT, when thinking about the NPD initiatives that Alex spoke about during our Investor Day and all that we're doing with respect to channels and so forth, we feel pretty good about a higher growth profile, frankly, for the overall segment, right? So this is a business that historically has been slightly lower than GDP growth profile and that's not our expectation for the remainder of the PFT business.

It's also, Damian, we continue to work actively on inorganic opportunities to potentially offset with the proceeds and we're also looking at a number of organic opportunities where we might be able to redeploy some more capital and accelerate growth further as well.

Okay, great. And then regarding the separation. I appreciate the comments in the press release about the Engineered Materials status. But what would you say is the chance that you can't remedy these DOJ issues? And should the deal ultimately not get approved, now, what's your plan? And how should we think about the implications for the separation?

Yes. So right now, I think we have high confidence that it's going to go through. It's going to take some time. We're working with Versa Tech. They have a lead on this and we feel we build a strong case together. We feel high probability that we will seek appropriate remedies. It's very, very minor overlap that we feel strongly will get the eventual approval. So I'm not even really that worried about it, so don't think any countermeasures are necessary at this time. Damian, I feel pretty good.

Our next question is from Matt Summerville with D.A. Davidson. Please proceed.

Thanks. Couple of questions and morning. First maybe with CPI. Can you talk about what the recurring revenue and operating profit run rate is today versus prior peak? And then can you take a few seconds just to maybe size up the EV charging infrastructure opportunity you guys are looking at?

Yes. On the recurring revenue, I'd have to look at that a little bit more carefully, but it's going to be a little bit challenging because on the CPI side, a good chunk of the recurring revenue is Cummins Allison, which we didn't own at the time of the prior peak 2019. But that didn't really actually tail off because of COVID, almost at all. And some of the other elements I may have to get back to you on that. I don't - we don't have that information handy, but on EV charging...

Do we sized up the market at Investor Day.

I got to get that number of Matt. But I can tell you that we just - I just looked at our weekly report this morning and we have an order in Europe with an OEM, which I won't disclose, but we're making progress already in the space. I owe you that on the size, again, I can't recall if we highlighted that on Investor Day.

No problem. I can always check back in. And then as my follow-up question, can you talk about where you're at with obviously it's favorable given we have a margin numbers, you guys are putting up, but where are you at price versus cost? How much price are you taking in '22 and maybe how did that compare versus '21? Thank you.

Yes. Well, what I would say, Matt, is in the quarter, we think of it as low to mid-single digits depending on the business. So we were - it's variable across the different groups we have, whether it's Payment, Process Flow Technologies or A&E, but very solid progress across the board. We were price cost accretive in the quarter as well. So I would expect that to continue as we move through the balance of the year and see that sort of mid-single digit price achievement through the balance of the year, but again it's going to be mixed across the business, some a little bit stronger than that, some just a little bit less than that. But without a doubt, more than covering not just material inflation, our teams are very, very focused on ensuring we're covering what we need to elsewhere in the business, whether it's manufacturing costs, maintenance, you name it, labor costs, highly focused with a strong cadence to ensure that we continue to get price.

And Jason just highlighted, Matt, that EV charging sites, we called out Investor Day was $200 million, expected to go to $200 million.

Our next question is from Nathan Jones with Stifel. Please proceed.

Nathan, good morning.

Morning, everyone.

Nice job on your - I enjoyed reading this.

Thanks. Thanks. I just wanted to follow-up on the guidance with $0.25 coming out guidance maintained, the core revenue growth guidance is the same as it was a quarter ago. So I assume this is coming from better margins. Can you talk about where those margins are improving? Where you think that margins for the year are going to be better than where you thought they were going to be three months ago?

Yes. I'll let Rich comment on the margins in a second, but also remember I mean there was a two point range on core growth and when I say is that the bias, it's certainly, towards the upper end of that now after the divestiture. So it is coming a little bit from both sides.

Yes. And on margins, actually we would - look, we're not prepared to necessarily pick them up, but I would not be surprised if we see stronger margin. Well, we're going to see stronger margin profile, I would say, in Currency, PFC, as well as Aerospace. We're going to see a little bit of upside in each of those as we move for the balance of the year.

And then follow-up question, you've got core growth 4% to 6%. And Rich, you're just saying that mid-single digit price, which accounts for pretty much all of the core growth. Can you talk about where volumes are expected to be up, where volumes are expected to be down and the pathway that CPI is one of the ones where it may be still down and the pathway for that volume to improve as we move forward in the businesses that remain challenged.

Sure. So you're right. So volumes for - on a net basis were close to flat in the quarter. So price is certainly a driver in the quarter for us, but it is mixed across the business, when you look. Just remember that in the first quarter last year, our Currency business had an exceptional, I think it was a record performance from a sales perspective. So there is a significant headwind that we experienced here in the quarter that was netted out in that flat number. Talk - you can think of it as high teens volume decline in currency year-over-year. So a lot of that being offset by strength that we did in fact see in our payment business, the legacy CPI business, mid-single-digit type growth that we saw there, as well as in our Process Flow Technologies business. So Process Flow grew at about 10% core growth in the quarter and roughly half of that was - well, I think is split between both price and volume. So nice overall growth in two of our largest businesses. We continue to expect to see now going forward, to your point, further momentum in our Crane Payment Innovations business, CPI. We expect further momentum as well as in our PFT business, in particular, as we move through the balance of the year. And then also at Aerospace & Electronics, in particular, as we move into the later portion of the year, mostly in the fourth quarter. So that's where it's going to come from as we move forward.

[Operator Instructions] Our next question is from Kristine Liwag with Morgan Stanley. Please proceed.

Good morning, Kristine.

This is Justin on for Kristine. Good morning.

Hey, Justin. How are you?

Hello, Justin.

Good. Thanks. Just a question on the supply chain. Can you maybe characterize further the disruptions, you're still seeing across the business? And then specifically what if any exposure do you have to Russian titanium? Thanks.

Yes. Very little on the Russian titanium. So let's just leave it at that. On supply chain in general, Justin, I mean it's - on the electrical components, whether it's actives, passives, resistors, I mean, you name it. It's just continues to be tight and you've got to work all those issues very, very hard. It continues to be spotty. The lead times continue to extend, our teams are working at. So, on any given day, there's just a lot of ongoing disruption. I don't see it getting significantly better. We don't see it getting significantly worse. So in CPI, A&E, it tends to be more of electrical components. In other segments we are so diversified. I mean we're in resins. You see it and everywhere from resins to adhesives to every commodity. I really think the supply chain is in many cases down to the raw material level, like you were just hitting it from a titanium standpoint. A year ago, there was a series of disruptions that we're all living through. Now it's become a continuous state with very little buffer in the supply chain and surprises the second and third level tier that you can expect as well. Raw material, I mean, who would have thought Neon in the Ukraine was a major producer for chip production and all these things that we're learning. So from disruption in Ukraine to China lockdowns, logistics challenges to continue even though we read about some of the ships off the port becoming fewer, this is going to be worsen again a bit in a few months. I think because of the China lockdowns. On the Process Flow Technology side, it tends to be around castings, and it's not so much casting availability. We're seeing some improvement in our supply chain catching up, but it's logistics and the lead time still which is quite excessive, so trying to plan around that. So again more of the same and with the global environment that is taking place right now from Ukraine, China locked down, inflationary pressures, global dislocations, it's just - our planning and expectation is this continues through the balance of the year. Hope that helps.

And that will conclude our question and answer session. I would like to turn the conference back over to Max Mitchell for closing comments.

Thank you, operator. Another quarter with solid performance further steps on our path of continued transformation, portfolio shaping, divestitures of non-strategic assets and continued investment in higher growth target markets. And now with the planned separation to position our businesses for further acceleration of growth. It's an exciting path forward, and I look forward to sharing updates with you over the next several quarters. As the late great Sydney 48 one set, the journey has been incredible from its beginning, very fitting for us today and our journey is not over. We're just getting started and I'm incredibly excited about our opportunities to drive continued shareholder value in the quarters and years ahead. Thank you for your interest in Crane and have a great day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.