Good day, and thank you for standing by. Welcome to the Crane NXT Q1 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Roache, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I want to welcome you all to the first quarter 2025 earnings call for Crane NXT. Before we begin, let me remind you that the slides we will reference during the 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. 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. 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. 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 cranenxt.com in the Investor Relations section. With me today are Aaron Saak, our President and Chief Executive Officer; and Christina Cristiano, our Senior Vice President and Chief Financial Officer. On our call this morning, we'll discuss our first quarter highlights, the completion of the De La Rue Authentication Solutions acquisition, our financial and operational performance and our updated 2025 financial guidance. After our prepared remarks, we will open the call to analysts for questions. With that, I'll turn the call over to Aaron.

Thank you, Matt, and good morning. I appreciate everyone joining the call today to discuss our first quarter results. I'd like to start by thanking my fellow Crane NXT team members around the world for maintaining focus and being agile in the face of this dynamic trade environment. 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. As you can see on Slide 3, our first quarter performance was in line with our expectations, with sales growth of 5% and adjusted EPS of $0.54. Excluding OpSec, 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 updates to support the new U.S. bank note series. I'm happy to announce that the upgrades were successfully completed in full production has resumed. A great job by our team to accomplish this very significant milestone. In Q1, we continued to build momentum in our strategic growth areas, achieving record high backlog in Crane Currency with a book-to-bill ratio of 2.4. This is exceptional performance by our Currency team and reflects the differentiated value of our leading anticounterfeiting technology. And at CPI, we continue to invest in and grow our services business, where in Q1, we won a new multiyear contract with a major retailer to provide on-site equipment repair services in approximately 450 of its U.S. locations. Under this agreement, we'll provide service to all of the front-of-store retail checkout equipment, including self-checkout and attended checkout lanes. Our flexible service delivery model will further drive recurring revenue and positions us very well for…

Thank you, Aaron, 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 De La Rue Authentication team to Crane NXT. Starting on Slide 7, we delivered first quarter results that were in line with our expectations. Sales increased approximately 5% year-over-year, driven by OpSec and continued strong performance from International Currency. Core sales declined approximately 4%, reflecting the expected lower U.S. Currency sales related to the planned shutdown of key papermaking equipment in preparation for the new banknote series, and the expected softness in CPI's gaming end market. 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 OpSec, partially offset by productivity gains. 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 toward the end of the quarter. Based on our strong backlog and delivery schedule, we remain on track to achieve free cash flow conversion for the full year between 90% and 110%. Finally, we delivered adjusted EPS of $0.54. Moving to our segments and starting with CPI on Slide 8. 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 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. 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. CPI ended the quarter with a backlog…

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 to drive productivity. 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. Additionally, we completed the final upgrade in our U.S. papermaking facility that will support the new series of bank notes, with the new $10 bill on track to launch in 2026. Also, our CPI service business continues to build momentum, securing new contracts that drive growth in our recurring revenue base. Finally, we continue to take a disciplined approach to capital allocation. We closed the De La Rue Authentication transaction, and we're excited about the launch of Crane Authentication. We hit the ground running with integration activities and are very confident in the outlook for this market-leading technology portfolio. 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. 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 to all of our stakeholders. And with that, operator, we're now ready to take our first question.

[Operator Instructions] Our first question comes from Matt Summerville with D.A. Davidson.

Thanks. Good morning. Aaron, I wanted to talk about -- and Christina, CPI for a minute. Can you give a little bit more granularity in what you expect for the full year in terms of growth rates across the 4 major end markets served by CPI? And how much of the, I guess, this cascade could look like from a pushout standpoint? Are we talking -- it sounds like $20 million round numbers, but I'd like you to kind of verify that. And I'd be curious as to which verticals are most impacted by this deferral. And then I have a follow-up.

Yes. Thanks, Matt. And just off the bat, I think you have that sized correctly at the $20 million and most of that really in Q2, given what we see happening with the tariffs. But just to back up, our CPI overall performed as expected in Q1. And I would say that, that's true across really all the verticals from what we said last quarter. Going back to kind of your broad question, gaming for us performed right as expected. We continue to see that as a very healthy market and maintaining our position. And as we indicated last quarter, we see orders continuing to come and build as we exit Q2 and return to top line 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 as expected. There, we're facing this dynamic of OEM sales down. And I think that was confirmed this week with 2 major OEMs reporting sales down in double digits. We're seeing that. But we're seeing that offset with our custom self-checkout offerings, which are performing very well. So net-net, for the full year, still in line with expectations that we mentioned of high single-digit decline in retail. And when you get to financial services, mid-single-digit growth for the full year, performing as expected. And then lastly, vending, and it's really where we see this impact of tariffs. Overall, as Christina mentioned, it's really the Chinese tariffs that are impacting principally CPI, and that's the vast majority is vending. And so we've taken action to mitigate those with price increases. Those are already out to our customers. And we're expecting that to really hold back some demand, particularly in Q2 as they're in a wait-and-see mode. 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 would be the change for vending where we now expect that to be a low single-digit decliner for the full year. So net-net, first quarter kind of as expected. The big change in vending, the rest of the verticals, Matt, performing as expected.

Got it. And then moving over to the Crane Currency portion of SAT. Can you talk a little bit about how the U.S. performed relative to expectations in Q1? And then similarly, I mean, mathematically, you had 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 knowing there can be a little bit of lumpiness and variability from quarter-to-quarter, kind of again parsing between the divergent, at least for now, sides of the business between USG and International?

Yes, Matt, I'd say overall, Currency performed just as expected. In Q1, probably a little bit better in International. And you could see that with the orders. Certainly, that was a standout for us in Q1. Execution here in Currency has been fantastic, particularly with the upgrades on the U.S. We're back to full production. 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 put into the backlog and how we can optimize our production is where we just have very high confidence in raising that sales outlook for the balance of the year. So 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.

Our next question comes from Bob Labick with CJS Securities.

Good morning and congratulations. And thanks for taking our questions. So I wanted to start with authentication, the new Crane Authentication. Obviously, congrats on closing the De La Rue. This is -- the whole segment is new to you guys, new to us. So maybe you could kind of take a step back and talk about how the authentication market acts in kind of the unique time we're in with potential inflationary environment, could be a recession, U.S. isolationism? You touched on tariffs, but you may as well throw that in there, too. How is the business positioned in this kind of uncertain world? And what do you expect in terms of growth from it?

Well, thanks for that, Bob. Again, as you know, I couldn't be more excited by closing De La Rue and the launch of Crane Authentication as a unified business and brand. And I'd invite everyone to go check out the website and the upgrades that we've made as we've launched the new business. I'd back up for a second, Bob, just you mentioned economic uncertainty and tariffs. And I would say we've taken very deliberate steps. It really goes back many years, with our acquisitions to build resiliency into the portfolio. And that's no more evident now than in Crane Authentication, where 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 ID business, passports and National ID. So that really adds a nice foundation for the entire SAT 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 and shock absorbers into the portfolio for the economic conditions that we see. Now with that said, take the example in authentication around brands like the NFL, which are franchised brands, fantastic customers that Christina mentioned, a new multiyear deal that's both physical authentication and digital authentication that are services. So that adds a lot of resiliency, too, because those are ongoing recurring services that, in this case, the league bought for the next several years ahead. And there's more deals inside of authentication that look and feel like that, that are contractual, that are resilient to different economic spikes or declines in demand. So I think there's a natural resiliency built into the business just simply due to that portfolio.

Okay. Super. That's great. And then, I guess that kind of answers my follow-up already. But maybe I think in your prepared remarks, you said that, obviously, the balance sheet is still very strong. And the 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 expectations there? And what areas in authentication can you build versus buy?

Yes. I think that's directionally true, Bob, just maybe on the velocity of transactions occurring now. But our pipeline remains very healthy. Really no change in the last few quarters. Probably more things, to be honest, getting added in. And our focus here, regardless of the environment, is that we're, I think, being 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 3 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, so getting some cash back to the shareholders, which we increased this year, as you know; and then executing disciplined M&A like the De La Rues, like the OpSecs. And our funnel is composed of companies that fit that profile in that $100 million to $500 million range, things that matter for us. A few technology bolt-ons are in the funnel, like you saw with TruTag. But to your point, we have to make sure in any deal we announced and transact that we're generating returns on capital well above 10% over the next 5 years. That's unchanged. So that makes it -- with where the market is at right now, we have to be extra diligent and disciplined. But quite frankly, the funnel is healthy, and it's in adjacencies that expand off our technology leadership. Some of that's geographic. Some of that's in 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.

Our next question comes from Damian Karas with UBS.

Hey, good morning, everyone. Congratulations on closing the De La Rue deal. I know that's a big step for you guys.

It sure is. Thanks.

Yes. So maybe you can just talk a little bit more about that and what you think are the key priorities as you kind of focus on integrating the business and kind of planning for the future of authentication?

Well, I've separated into the market, Damian, and then what I would call as us doing what we do with CBS when we put these type of businesses in the portfolio. And in this case, uniquely put 2 businesses together and that really gets to the synergies. We like this neighborhood, so to speak, we're playing in authentication. It's growing, and we've just created the leading market position in the space of securing and protecting products. And I think that's a very enviable position with differentiated technology, 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. Then when you put these two businesses together, there's, as you can see, quite a bit of synergies across commercial SG&A opportunities in operations. And that's really where the CBS discipline comes in, 80/20, lean program and deployment in our factories. And that's where the synergies now will get accelerated by finally closing the transaction and moving forward. So I think it's, call it, two steps, two different vectors here, one commercial, one around executing the synergies. We feel very good. We've got a good team on the ground. They're meeting this week as we just closed last week, and we're off to the races on the integration.

That's great. And then I wanted to ask you a follow-up on CPI and how you're thinking about, I guess, kind of moving past the second quarter, how that business progresses through the year? Because correct me if I'm wrong, I think you said kind of like roughly $200 million or so in sales again in the second quarter. So I think the guidance kind of implies you would ramp up to more like a $230-ish million, $240-ish million sort of level per quarter in the back half. So could you just talk about like how you're thinking about it as you get past the second quarter here and your confidence in the guide?

Yes. Why don't I -- I'll start and maybe Christina will jump in here. I would say, again, broadly, Damian, with this 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 3 months ago. The rest of the portfolio, quite frankly, is performing as expected. And that's all of the verticals and some great wins in our services business. It's a strategic priority for us. In terms of the actual numbers, we said it will be approximately flat sequentially in Q2. So that's just slightly north of $200 million. And then I think it's a little less than what you said, probably numbers more in the high $220 million to $230 million range in the back half of the year.

Our next question comes from Mike Halloran with Baird.

Hey, good morning. Can you just talk a little bit about the backlog acceleration that you saw here? Obviously, some of it is tied to the international wins on the Currency side, probably the NFL piece. But 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 help us essentially with the rollout and how to think about that?

Yes. I'll take that one, Mike. And first, it's just another opportunity to congratulate our Currency team for excellent performance and 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 SAT. So in Q1, as you said, we had incredible backlog. It's primarily related to the International Currency business. And it was expected, and really driven by the timing of projects. If you remember, last quarter, we were a little bit lower in Q4, and that's because of a few significant deals that we closed in the first quarter. And we also had 5 micro-optic wins. So really just a lot of great milestones in the quarter that we're celebrating. We raised our sales guidance for SAT to 5% to 7% -- for Currency, excuse me, and we expect about 65% of that backlog to deliver in 2025 with the remainder through in '26. So this is another proof point, in summary, that we're winning in the market with our technology leadership and really excited for the rest of the year.

And then maybe back to the De La Rue addition and then Authentication segment creation. Can you just talk about what the go-to-market strategy looks like and what the consolidation looks between the 2? Meaning these have been different -- somewhat different channels, somewhat overlapping channels. How does that go-to-market approach change? What does the consolidation points happen internally? And then any of the kind of operational side, on what shifts on that go-to-market?

Yes. Yes, I would say, Mike, the natural synergies between these 2, I think, is probably very obvious to you and many others on the phone. And you can really think of it as 4 different business segments broadly. One is around government tax stamp revenue. That's where the De La Rue business is the biggest part of that business. And so any of that revenue -- or a product line that was coming from OpSec will get integrated into the core of the De La Rue business. We have the ID business now, passports and national IDs, that's brand new. There is no analogy to that in the OpSec business. So that will stand on its own, a direct sale to governments and think of government ID 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 OpSec was really strong. It was a smaller part of the De La Rue business. Those two will come together, and really OpSec Group has the lead in that front. And then finally, online brand protection, which was uniquely part of OpSec. So that stands on its own. So those are the really two main buckets of products and then some natural synergies in sales, SG&A across those 4 groups. So hopefully, that helps.

Our next question comes from Bobby Brooks with Northland Capital Markets.

Hey, good morning, guys. So kind of piggybacking on the last question, but a little bit different just on the go-to-market strategy. Obviously, authentication business is now a 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 value. So then what really are these discussions centered on with potential new customers?

Well, I think you're right on it, Bobby. We've got the leading position now by far. And the most important prestigious brands in the world, like the NFL, using us. So typically, the conversation is around -- just like our Currency business, it 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, as they want more of their articles protected with our physical authentication and then adding on the digital services as well. That's kind of a common reframe, right, across every brand, particularly when they have a physical product they're trying to protect. And our sales process is direct to those brands. So we go direct now as Crane Authentication with our account leads to those brands. Obviously, we use our reference customer base as probably one of the strongest calling cards you can have, given we're servicing all of the major, particularly, sports brands worldwide as well as some consumer brands. Some of those, obviously, we can disclose, some we can't. 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 the cycle. It takes 12 or so months to get someone in, as we've talked about. But once you get them in, it's typically a land-and-expand strategy around new offerings.

Got it. That's super helpful. And then just kind of piggybacking on that as well. As we think -- as you think about the authentication business over the next 18 months or so, is there -- do you guys see the potential of the authentication growth rate accelerating as it gains more momentum? Or maybe it's more so you land kind of a really large deal with a major high-volume brand? 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.

Yes, I'll start with that one and then maybe turn it over to Aaron for some other remarks. We're expecting mid-single-digit growth in the market. And now we're headed out as Crane Authentication under our 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 call right now.

Yes, I would just add to what Christina said, I think 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, you typically work on the account for -- to secure it, and then you get just a natural step-up as the brand brings products online. It's not quite a -- just a dramatic step-up. So they add more products in, it grows, it's a nice incremental increase in revenue and volume. It's also why it's very resilient because as that grows, you typically never go backwards. So it's just a nice, steady recurring -- reoccurring type of offering. So I would say steady, consistent, stable expansion of the products.

Our next question comes from Damian Karas with UBS.

Hey, guys. Just a few follow-up questions here. First one, I just wanted to see if you could give us an update on OpSec in terms of the synergies. I think you were expecting over time to kind of get like high single-digit millions or so of synergies. Where do you stand? Like how much of that benefit might not be reflected yet in your P&L today?

Yes. Thanks for that, Damian. Yes, OpSec's performing as expected. We continue to kind of execute our both commercial and internal synergy programs. What I would add now that we've closed De La Rue, that actually helps us accelerate some of those activities. So I would fully expect as we now go through into the back half of this year, that we'll start to see an acceleration of those synergies now that we're able to combine the 2 together. It helps us get at some of the opportunities, as you can imagine, a little bit simpler.

Okay. So it sounds like the lion's share of that is still kind of out there.

Yes. But very clear line of sight to that, Damian. And now it's -- we can unlock it with the combination of the two.

Yes. It makes sense. And then you mentioned kind of like mid-single-digit or better long-term target for authentication. Both OpSec and De La Rue obviously are inorganic contributors to current financials. But could you just maybe parse that out a little bit for those 2 pieces of the business, what you're expecting this year for kind of the underlying growth?

Yes. I'm sorry for -- I just want to make sure I hear it correctly, it's for OpSec and De La Rue, Damian, is your question there? Or -- .

Yes, just kind of like -- I think if I recall correctly, like I think you were expecting OpSec to kind of maybe grow mid-single digits this year, but just an update on those 2 pieces, like how much underlying growth looks like?

Yes. Thanks for the clarification. You're correct. We expect OpSec to grow at mid-single digits. We, again, performing as expected and that's what our outlook would be for the full year. And then combined, we just -- with 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.

I'm showing no further questions at this time. I would now like to turn it back to Aaron Saak for closing remarks.

Thank you very much. And thank you all for joining us and for your time this morning and your questions. As I mentioned earlier, I sincerely appreciate all the efforts from our Crane NXT 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 of the De La Rue 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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.