Executive Summary / Key Takeaways

• Crane NXT is executing a strategic transformation to reduce cash-centric exposure from 80% to approximately 60% through targeted acquisitions, creating a more durable business model aligned with secular tailwinds in security and authentication.
• The Security and Authentication Technologies segment is demonstrating powerful margin expansion, with Q3 2025 adjusted operating margins reaching 24% (up 250 basis points year-over-year) as integration of OpSec and De La Rue creates technology synergies and pricing power.
• Crane Payment Innovations maintains exceptional profitability (31% margins in Q3) despite volume headwinds, proving the segment's resilience through cost discipline and service revenue growth, though tariff-related demand softness in vending remains a near-term constraint.
• Strong free cash flow generation (115% conversion in Q3) and disciplined capital allocation support an active M&A pipeline while enabling debt reduction, with net leverage expected to end 2025 at approximately 2x.
• The investment thesis hinges on successful integration of recent acquisitions, realization of authentication margin targets (approaching 20% by 2026), and stabilization of CPI's vending business amid macroeconomic uncertainty and tariff impacts.

Setting the Scene: From Cash to Credentials

Crane NXT, Co. was incorporated in 2021 and launched as an independent public company on April 3, 2023, following its separation from Crane Holdings. This spin-off origin is crucial: it inherited a legacy business centered on cash handling and currency production, but management immediately articulated a strategy to diversify beyond these mature, cyclical end markets. The company operates through two distinct segments: Crane Payment Innovations (CPI), which provides electronic payment verification and automation solutions for vending, retail, and gaming; and Security and Authentication Technologies (SAT), which secures physical and digital assets for governments and brands through advanced anti-counterfeiting technologies.

The strategic imperative driving Crane NXT is clear: reduce dependence on cash-centric products that comprised approximately 80% of the portfolio at separation. Cash usage is declining in developed markets, while cashless payment systems face commoditization pressure. Simultaneously, counterfeiting is becoming more sophisticated, creating growing demand for advanced authentication solutions. This divergence in end-market trajectories explains why management has pursued an aggressive acquisition strategy, buying OpSec Security in May 2024, De La Rue Authentication Solutions in May 2025, and signing definitive agreements for Antares Vision in September 2025. These moves reposition Crane NXT toward higher-growth, higher-margin security applications where technology leadership creates defensible moats.

Industry structure favors specialized providers with deep technical expertise. The currency authentication market is dominated by a handful of companies with proprietary security features, while the payment solutions space fragments among hardware providers, software platforms, and integrated service companies. Crane NXT's unique position stems from its dual capability: it is the U.S. government's sole supplier of currency paper (a relationship dating to 1879), giving it unmatched credibility in security, while its CPI segment maintains technology leadership in payment verification. This combination creates cross-selling opportunities and technology transfer potential that pure-play competitors cannot replicate.

Technology, Products, and Strategic Differentiation

The core of Crane NXT's competitive advantage lies in its micro-optics technology, a proprietary security feature embedded in banknotes and now being extended to brand authentication applications. This technology provides visual effects that are nearly impossible to counterfeit, creating a tangible moat in an arms race against increasingly sophisticated counterfeiters. Central banks and brand owners will pay premium prices for security features that actually work, supporting margins that exceed 30% in the currency business. In 2024, Crane NXT achieved 13 new denominations specifying its micro-optics technology, and through Q3 2025 had secured 9 additional wins year-to-date, demonstrating continued market penetration.

The integration of OpSec Security and De La Rue Authentication Solutions into the newly formed Crane Authentication business represents more than a revenue combination—it creates a comprehensive platform spanning physical labels, digital track-and-trace software, and online brand protection services. Management is actively upgrading legacy De La Rue customers to micro-optics technology, which is expected to improve both margins and customer stickiness. This technology transfer converts one-time label sales into recurring revenue streams while increasing the technical switching costs for customers. The PROFOUND technology , which allows authentication via smartphone cameras, exemplifies this convergence of physical and digital security, creating a two-year contract model that increases recurring revenue visibility.

In CPI, the moat centers on proprietary detection and sensing technologies combined with a global field service network that provides remote diagnostics and predictive maintenance. This creates network effects: as more equipment connects to Crane's diagnostics platform, the system becomes smarter at predicting failures, reducing downtime for customers and locking them into the ecosystem. The service business, representing about 15% of CPI revenue, is growing annual recurring revenue at mid-single digits by expanding beyond traditional cash equipment into kiosk installation and maintenance. This diversification transforms CPI from a hardware seller into a solutions provider with stickier, higher-margin revenue.

Financial Performance & Segment Dynamics: Evidence of Strategy Working

Crane NXT's Q3 2025 results provide clear evidence that the transformation strategy is gaining traction. Total sales grew 10% year-over-year to $444.5 million, driven by a $28.3 million contribution from the De La Rue acquisition, $7.6 million in favorable foreign exchange, and $5.7 million in core growth from SAT, partially offset by CPI volume declines. Adjusted EPS of $1.28 and segment operating profit of $81.9 million (up 9.2%) demonstrate that margin expansion is offsetting top-line headwinds. The adjusted segment operating margin of 28% improved 50 basis points year-over-year, reflecting higher SAT volumes and improved currency mix.

The SAT segment's performance is particularly compelling. Sales surged 28% to $228.8 million, with core sales growing 9% even as the business laps the OpSec acquisition. The adjusted operating margin reached 24%, up 250 basis points year-over-year, driven by acquisition benefits and strong currency performance. This margin expansion results from pricing discipline, technology upgrades, and operational leverage as international currency volumes increase. The segment's backlog remains at near-record levels, with international currency showing approximately 20% organic growth year-over-year, providing visibility into 2026 performance.

CPI's results reveal a tale of two markets. Sales declined 4% to $216.3 million as high-single-digit declines in vending offset strong double-digit growth in gaming. The vending business faces headwinds from macroeconomic uncertainty and tariff-related price increases that caused customers to delay purchases. However, the segment's adjusted operating margin held steady at 31%, demonstrating exceptional cost discipline and productivity gains. This resilience shows CPI can maintain profitability even during demand downturns, providing stable cash flow to fund the SAT transformation. The service business's mid-single-digit ARR growth and new kiosk wins indicate successful diversification beyond traditional vending equipment.

Cash flow performance underscores the financial strength of the model. Free cash flow conversion reached 115% in Q3, putting the company on track for its full-year target of 90-110%. For the nine months ended September 30, 2025, cash from operations was $135.7 million, while investing activities used $422.7 million primarily for the De La Rue acquisition. Net leverage of 2.3x at quarter-end is expected to decline to approximately 2x by year-end, providing flexibility for additional M&A. This balance sheet strength enables Crane NXT to pursue its acquisition strategy without diluting shareholders or compromising financial stability.

Outlook, Management Guidance, and Execution Risk

Management's 2025 guidance reflects confidence in the transformation trajectory while acknowledging near-term headwinds. Full-year sales growth was increased to 9-11% from the prior 6-8% range, driven by SAT outperformance partially offset by reduced CPI expectations. Adjusted EPS guidance was narrowed to $4.00-4.10, while the segment operating margin target was updated to approximately 25% (from 25.5-26.5%) due to lower CPI volumes and additional costs to ramp international currency production. Management is prioritizing long-term market share and margin structure over short-term profit maximization.

The 2026 outlook reveals the strategic priorities more clearly. U.S. currency is expected to grow in the high single digits, driven by the Federal Reserve's 2026 print order favoring higher denomination banknotes with advanced security features. Production of the new $10 bill begins mid-2026, with design work underway for the $50 bill slated for 2028. This multi-year redesign cycle provides predictable revenue growth and opportunities to embed more micro-optics content per banknote, improving mix and margins. International currency is projected to deliver mid-single-digit growth supported by record backlog and production capacity investments.

The Crane Authentication business is targeting mid-single-digit core growth and margin expansion to the high teens in Q4 2025, approaching 20% by year-end 2026. This trajectory depends on successful customer upgrades from legacy De La Rue technology to micro-optics and cross-selling between the combined customer bases. The integration risk is real—DLR contributed $28.3 million in Q3 sales but generated a $3.1 million operating loss due to acquisition-related amortization and transaction costs. However, management's track record with OpSec integration and the clear synergy roadmap suggest these costs are temporary investments in future profitability.

CPI is expected to deliver flat to low single-digit growth in 2026, with service revenue growing mid-single digits while hardware sales remain pressured by tariffs and macro uncertainty. The segment's ability to maintain 29-30% margins while investing in service expansion demonstrates operational excellence, but sustained vending weakness could limit overall company growth. The gaming business's return to normal inventory levels and strong order growth provides a partial offset, but CPI's trajectory remains the primary risk to the consolidated outlook.

Risks and Asymmetries: What Could Break the Thesis

The most material risk to Crane NXT's investment case is the prolonged impact of tariffs and macroeconomic uncertainty on CPI's vending business. Management estimates the full-year unmitigated tariff impact at approximately $25 million (4% of cost of goods), primarily from Chinese components. While they expect to fully mitigate this through pricing and productivity, the Q3 experience shows that price increases cause customer pushback and order delays. If tariff relief does not materialize or if macro conditions worsen, CPI could face sustained volume declines that even 31% margins cannot fully offset, reducing cash flow available for SAT investment.

Integration execution presents a second key risk. The company has completed two major acquisitions in 18 months (OpSec and De La Rue) and announced a third (Antares Vision) before fully realizing synergies from the first two. The DLR acquisition contributed $45.8 million in nine-month sales but generated $9.4 million in operating losses due to acquisition costs. While management expects the authentication business to reach 20% margins by 2026, this assumes successful technology upgrades, customer retention, and cost synergies. Any missteps could delay margin expansion and reduce returns on the nearly $1 billion invested in these acquisitions.

Customer concentration in the currency business creates a third risk. As the sole supplier of U.S. currency paper, Crane NXT benefits from a stable relationship, but it also faces dependence on Federal Reserve print orders and budget decisions. The international currency business, while growing, remains concentrated with government customers who can delay redesign projects during fiscal constraints. The authentication business mitigates this somewhat through brand customers, but the overall SAT segment still derives significant revenue from government sources, creating potential volatility.

On the positive side, several asymmetries could accelerate value creation. The Antares Vision acquisition, expected to close in phases through H1 2026, expands Crane NXT into life sciences and food & beverage track-and-trace markets with strong secular tailwinds. If integration proceeds smoothly, this could diversify revenue faster than expected and provide new cross-selling opportunities for authentication technologies. Additionally, if the Federal Reserve's currency redesign cycle accelerates beyond the current $10 and $50 bill timelines, Crane NXT could see higher-than-expected demand for its advanced security features, boosting both revenue and margins in the U.S. currency business.

Valuation Context: Positioning, Not Prediction

At $58.10 per share, Crane NXT trades at a market capitalization of $3.34 billion and an enterprise value of $4.25 billion (2.69x trailing revenue). The company's P/E ratio of 21.68 and price-to-free-cash-flow ratio of 19.33 position it as a profitable industrial technology company rather than a high-growth software stock. This valuation reflects the market's view of Crane NXT as a transformed but still cyclical business, not fully crediting the authentication segment's margin expansion potential.

Comparing Crane NXT to direct competitors reveals its relative positioning. Cantaloupe (CTLP) trades at 2.47x EV/revenue with 10.91% operating margins and 34.4x price-to-free-cash-flow, reflecting its smaller scale and lower profitability. Nayax (NYAX) commands 4.84x EV/revenue but operates at just 7.52% margins with negative free cash flow, showing the market's preference for growth over profitability in payment solutions. NCR Voyix (VYX) trades at 0.91x EV/revenue with 8.48% margins, while Diebold Nixdorf (DBD) trades at 0.87x EV/revenue with 9.14% margins—both reflecting mature, low-growth businesses. Crane NXT's 20.67% operating margin and 2.69x revenue multiple position it as a premium player with superior profitability, justifying a higher valuation than traditional payment hardware peers.

The balance sheet strength further distinguishes Crane NXT. With net debt-to-EBITDA of 0.90 and expected year-end leverage of approximately 2x, the company maintains financial flexibility that competitors with higher leverage cannot match. This enables continued M&A execution without diluting shareholders or risking covenant violations. The 1.17% dividend yield, supported by a 25% payout ratio, demonstrates disciplined capital allocation that balances shareholder returns with growth investments.

Historical multiple ranges are difficult to establish given Crane NXT's brief independent trading history since April 2023. However, the company's current valuation appears reasonable for a business undergoing strategic transformation with clear margin expansion drivers. The key valuation driver will be the authentication segment's trajectory: if margins approach the targeted 20% level while maintaining mid-single-digit growth, the overall business could command a higher multiple as the mix shifts toward recurring, high-margin security revenue.

Conclusion: A Transformation in Progress

Crane NXT's investment case centers on a deliberate and well-executed strategic transformation from a cash-dependent business to a diversified security and authentication technology leader. The evidence from Q3 2025 supports this thesis: SAT segment margins expanded 250 basis points to 24%, core sales grew 9% organically, and the backlog reached near-record levels. Meanwhile, CPI demonstrated remarkable resilience, maintaining 31% margins despite volume headwinds and generating strong free cash flow to fund the transformation.

The critical variables that will determine success are the pace of authentication margin expansion and the stabilization of CPI's vending business. Management's guidance for authentication margins to approach 20% by 2026 is credible based on technology upgrade cycles and cross-selling opportunities, but requires flawless execution on integration. The tariff impact on CPI vending, while manageable through pricing, remains a drag on growth that could persist if macro uncertainty continues.

For investors, Crane NXT offers a unique combination of technology leadership, margin expansion potential, and disciplined capital allocation at a reasonable valuation. The company's sole supplier status for U.S. currency provides a stable foundation, while the authentication acquisitions open higher-growth, higher-margin opportunities. The story is not without risk—execution missteps or prolonged macro weakness could derail the transformation—but the strategic direction is clear and the financial capacity to execute is proven. The next 12-18 months will reveal whether Crane NXT can complete its evolution from a cash-handler to a credentials-authenticator, unlocking the higher valuation multiples that come with a more resilient, technology-driven business model.