Crane NXT, Co. (CXT) is a premier industrial technology company that has established itself as a leader in the burgeoning authentication and security technology market. With a strong focus on innovation and strategic acquisitions, Crane NXT has positioned itself at the forefront of providing trusted solutions to secure, detect, and authenticate its customers' most valuable assets.

Company Background and Evolution

Founded in 1848 as a manufacturer of steam-powered machinery, Crane NXT has undergone a remarkable transformation over the decades, evolving into a diversified technology-driven enterprise. In 2023, the company underwent a significant restructuring, separating its operations into two independent publicly-traded entities - Crane NXT and Crane Company SpinCo. This strategic move allowed Crane NXT to sharpen its focus on its core Payment and Merchandising Technologies business, which includes the Crane Payment Innovations (CPI) and Security and Authentication Technologies (SAT) segments.

Business Segments

Crane NXT operates through two reportable segments: Crane Payment Innovations (CPI) and Security and Authentication Technologies (SAT).

The CPI segment provides electronic equipment and associated software leveraging extensive and proprietary core capabilities with various detection and sensing technologies for applications including verification and authentication of payment transactions. This segment also offers advanced automation solutions, processing systems, field service solutions, and remote diagnostics and productivity software solutions. Key research and development and manufacturing facilities are located in the United States, the United Kingdom, Mexico, Japan, and Germany, with additional sales offices across the world.

The SAT segment offers advanced security solutions based on proprietary technology for securing physical products, including banknotes, consumer goods, and industrial products. This segment also provides brand protection and authentication solutions, serving various brands, as well as government agencies and financial institutions. Key research and development and manufacturing facilities are located in the United States, United Kingdom, Sweden and Malta.

Market Presence and Resilience

Crane NXT has a long history of serving governments and a wide range of consumer-related end markets including convenience merchandising, vending, retail, and gaming. The company has demonstrated resilience in overcoming challenges, such as successfully navigating the COVID-19 pandemic. As part of the separation process, Crane NXT employees and directors who previously participated in Crane Holdings' equity incentive plans had their outstanding stock-based compensation awards exchanged for similarly valued awards of either SpinCo, Crane NXT, or both. This allowed Crane NXT to establish its own equity compensation program to incentivize and retain key talent as an independent public company.

Strategic Acquisitions and Growth

In recent years, Crane NXT has demonstrated a strong commitment to growth through strategic acquisitions, further strengthening its position in the authentication and security technology market. In May 2024, the company acquired the OpSec Security business, a global leader in authentication and brand integrity solutions. This acquisition expanded Crane NXT's capabilities across the entire authentication value chain, creating a leading brand and product authentication platform.

Building on this momentum, Crane NXT announced in October 2024 the acquisition of De La Rue Authentication Solutions, a global leader in security and authentication technologies. This transaction aligns well with the company's strategy of expanding its leadership in the growing $3 billion authentication market. De La Rue Authentication Solutions provides digital and physical tax stamp technologies, identification security solutions, and brand protection products, further diversifying Crane NXT's portfolio and enhancing its ability to serve a wide range of customers.

Additionally, Crane NXT acquired the smart packaging assets of Tru Tag Technologies, enhancing the ability of brand owners and consumers to assure the authenticity of their products. This move further demonstrates the company's commitment to innovation and expanding its technological capabilities.

Financials

Crane NXT's financial performance has been solid, with the company reporting revenue of $1.39 billion and net income of $188.3 million in the fiscal year ended December 31, 2023. The company's adjusted EBITDA for the same period was $368.5 million, highlighting its ability to generate strong cash flows. Operating cash flow for 2023 was $276.3 million, with free cash flow of $245.2 million.

For the third quarter of 2024, Crane NXT reported revenue of $403.5 million, a 14.3% increase compared to the prior year period. Net income for the quarter was $47.1 million. The company generated operating cash flow of $150.9 million and free cash flow of $132.8 million. The increase in revenue was primarily driven by the OpSec acquisition and core sales growth of 4.7%, partially offset by unfavorable mix.

In the CPI segment, third quarter 2024 net sales were $224.9 million, a 1.5% increase compared to the prior year period. Payment Acceptance and Dispensing Products sales were $190.9 million, a 1.0% increase, while Services revenue was $34.0 million, a 4.6% increase. The segment's operating profit was $64.6 million, an 8.2% increase, driven by favorable pricing, lower material and other manufacturing costs, and productivity gains, partially offset by unfavorable mix.

For the SAT segment, third quarter 2024 net sales were $178.6 million, a 36.0% increase compared to the prior year period. Banknotes and Security Products sales were $145.4 million, an 11.8% increase, while Authentication Products and Solutions sales were $33.2 million. The increase in sales was primarily driven by the $32.3 million contribution from the OpSec acquisition, as well as higher core sales. The segment's operating profit was $29.3 million, a 10.7% decrease, reflecting unfavorable mix and the impact of the OpSec acquisition, partially offset by productivity gains.

Liquidity

As of September 30, 2024, Crane NXT had a cash balance of $227.2 million and a net debt position of $417.7 million, providing the company with ample financial flexibility to continue its growth strategy. The company's debt-to-equity ratio stands at 0.74, with a current ratio of 1.38 and a quick ratio of 1.01.

Crane NXT has a $500 million revolving credit facility and a $350 million term loan facility. As of September 30, 2024, the company had drawn $150 million on the revolving facility and had $95.4 million outstanding on the term loan.

Innovation and Technological Advancements

One of the key drivers of Crane NXT's success has been its focus on innovation and technological advancements. The company's investment in research and development has enabled it to develop cutting-edge solutions that cater to the evolving needs of its customers. The recent acquisitions of OpSec Security, De La Rue Authentication Solutions, and Tru Tag's Smart Packaging technology demonstrate Crane NXT's commitment to expanding its technological capabilities and strengthening its market position.

Future Outlook and Risks

Looking ahead, Crane NXT remains cautiously optimistic about its future prospects. The company has narrowed its full-year 2024 sales guidance range to 6% to 8% growth, based on a strong backlog in currency and performance of OpSec, offset by headwinds from the gaming end market in CPI. Adjusted EPS guidance for 2024 has been narrowed to $4.22 to $4.30, reflecting a mix headwind with growth in currency more than offset by continued softness in gaming.

Due to the timing of certain international currency shipments, Crane NXT has lowered its adjusted free cash flow conversion guidance for 2024 to approximately 70%. For the U.S. currency program, the company expects volume to decline double-digits in 2025, consistent with the Federal Reserve's anticipated orders. However, Crane NXT expects total revenue to be approximately flat in 2025, not including any contribution from the planned acquisition of De La Rue Authentication Solutions.

While the company's diversified business model positions it well to navigate challenges and capitalize on opportunities, it faces competition from both established players and emerging startups, as well as potential regulatory changes that could impact its operations. The anticipated decline in U.S. currency volumes in 2025 as the Federal Reserve normalizes inventory levels presents a near-term challenge, but the company remains confident in the long-term growth prospects of its U.S. currency business as the government redesigns the currency.

Conclusion

In conclusion, Crane NXT, Co. (CXT) has demonstrated its ability to adapt and evolve, transforming itself from a traditional manufacturer to a leading provider of innovative authentication and security technology solutions. With a focus on strategic acquisitions, technological advancements, and a diversified business model, Crane NXT is well-positioned to continue its growth trajectory and solidify its position as a key player in the rapidly expanding authentication and security technology market. The company's strong financial performance, robust liquidity position, and strategic initiatives provide a solid foundation for future growth and value creation for shareholders.