Antares Vision S.p.A. (2YK.F) Earnings Call Transcript & Summary

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

Thank you, operator, and good morning, everyone. Thank for joining us today to discuss Crane NXT's agreement to acquire Antares Vision. With me today are Aaron Saak, our President and Chief Executive Officer; and Christina Cristiano, our Senior Vice President and Chief Financial Officer. Following the prepared remarks, we will open the call to analysts for questions. The slides we will reference during today's call can be accessed via the Investor Relations section of our website at cranenxt.com and a replay of the call will also be available on our website. I encourage all listeners to review the legal notice on Slide 2, which explains the risks of forward-looking statements. Additionally, we refer you to the cautionary language at the bottom of the announcement press release issued this morning and also in our forms 10-K and 10-Q filings pertaining to forward-looking statements. With that, I'll turn the call over to Aaron.

Thank you, Matt, and good morning to everyone joining us. Earlier today, we announced a significant step forward in executing our strategy with an agreement to acquire Antares Vision, a global leader in inspection, detection and track and trace technologies. Antares Vision provides Crane NXT with a leading position in the $2 billion track and trace and inspection technologies market and expands our portfolio into the life sciences and food and beverage end markets, which are robust and have strong secular tailwinds. These tailwinds are driven by the continuous rise of counterfeiting and the need for greater quality assurance and compliance with government regulations. Now as shown on Slide 3, Antares Vision designs and manufactures advanced inspection and detection systems utilized by life science and food and beverage companies to ensure high quality and provide the ability to track and trace products throughout the supply chain. The company also offers field and remote service capabilities for new equipment commissioning and aftermarket services. And finally, Antares offers market-leading track and trace software to ensure the safety and authenticity of products. In total, these offerings are highly complementary to Crane NXT and further expand our customer base and technology portfolio. Additionally, Antares Vision has an attractive financial profile with revenue of approximately EUR 200 million in 2024 and adjusted EBITDA margin of approximately 15%. Now we expect Antares Vision to generate mid-single-digit revenue growth in 2026 and beyond. And finally, this acquisition will add approximately 1,200 employees to Crane NXT. Moving on to Slide 4 and as illustrated in the chart on the left, Antares operates in the attractive life sciences and food and beverage industries with approximately 60% of revenue coming from life sciences with the balance from food and beverage. Across these end markets, increasing government regulation is driving demand for greater product transparency, compliance and safety, all areas where Antares Vision solutions are utilized. As shown in the middle chart, Antares Vision has a global footprint with a strong presence across Europe and the Americas. And we're excited about the opportunity to leverage Crane NXT's commercial relationships and our global footprint to accelerate the company's growth, particularly in new and emerging markets. Finally, as shown in the chart on the right, you can see that Antares Vision's offerings complement Crane NXT's existing portfolio with approximately 60% of revenue generating from the sale of equipment, 20% from services and the remaining 20% from software. Turning to Slide 5. I want to highlight how the acquisition complements Crane NXT's existing capabilities. Antares Vision manufactures hardware systems very similar to the manufacturing operations we have today in our CPI segment. Additionally, Antares' customers are using authentication labeling technology produced within our SAT segment applied to their product packaging. Antares Vision also provides field and remote service for the installation and commissioning of new equipment, ongoing technical support and training and aftermarket maintenance services. And these offerings are very similar to the similar services we provide by CPI to our existing customers. Finally, Antares provides software sold with the equipment that helps enable product traceability. And this software model is similar to the embedded software sold within our CPI Equipment segment. Finally, Antares Vision offers stand-alone track and trace software, similar to our offerings within Crane authentication, where we use that software in the government solutions and brand authentication markets. So overall, we're very confident that we can further build upon these common capabilities across the NXT portfolio once the acquisition is complete, helping us to accelerate growth and improve margins. Now let me move on to Slide 6 to tell you a little bit more about the financial terms of the deal and our expected returns. We've agreed with the key shareholders of Antares Vision to purchase their shares at EUR 5 per share, representing an enterprise value of approximately EUR 445 million. Based on Antares' full year 2025 adjusted EBITDA guidance, this implies an EV/EBITDA multiple of approximately 12x. We have very high conviction in the opportunity to drive margin improvement through the application of the Crane Business System over the coming years. When accounting for these synergies, we expect an EV/EBITDA multiple of approximately 10x attributed to the transaction. Consistent with our M&A targets, we expect a double-digit ROIC by year 5 and the acquisition to be accretive to EPS in the first full year after closing. Finally, the deal will be financed using cash as well as existing and new credit facilities. At the close of the full transaction, we expect our net leverage to be approximately 2.9x. Given our strong balance sheet position and robust cash generation profile, we expect to have capacity to pay down debt and deploy further capital in the future. Now moving to Slide 7. I want to point out that this transaction is another example of our disciplined M&A process where we evaluate the market growth opportunity and alignment to our strategy, the specific position and differentiation of the target company. And finally, we ensure that we have a path to clear value creation. And Antares Vision meets all of these criteria. Specifically, it offers highly complementary technology solutions that secure, detect and authenticate products in end markets that we think are very durable and resilient in the long term. The company is a market leader with clear product and technology differentiation and squarely fits within our target revenue range of $100 million to $500 million and offers a strong and actionable path to value creation utilizing the Crane Business System. Turning to Slide 8. I want to walk through the transaction time line in a little more detail. As announced today, Crane NXT has entered into an agreement to acquire an approximate 30% stake in Antares Vision from its largest shareholders at a price of EUR 5 per share. And we expect to close on this first transaction sometime in Q4 of 2025. After the closing on this approximate 30% stake, we will launch a mandatory public tender offer to all remaining shareholders at the same price of EUR 5 per share. Crane NXT has secured voting agreements with the largest shareholders of Antares Vision, which will assure our ability to take the company private after the completion of the mandatory tender process. We expect to complete taking the company private in the first half of 2026. Given this time line, there will be no impact to the financial results of Crane NXT in 2025. Now before we move to questions, I want to take a moment to thank everyone, both at Antares Vision and Crane NXT, who have spent many hours working collaboratively to make today's announcement possible. I sincerely look forward to meeting and working with the entire Antares Vision team in the years ahead. Also, I want to reiterate how excited I am about today's announcement and what it means for the future of Crane NXT. Antares Vision is a global leader in inspection, detection and track and trace technology, servicing some of the world's largest life science and food and beverage companies. The company is an excellent fit with Crane NXT's growth strategy and further expands our portfolio of inspection and detection technologies into large, resilient and growing end markets aligned to secular tailwinds. Additionally, Antares's Vision allows us to deliver an even stronger and highly differentiated offering for our customers, solidifying our position as a leader providing trusted technology solutions that secure, detect and authenticate what matters most to our customers. Now as we move forward, we remain focused on executing our strategy to create value for our shareholders. We continue to invest in and grow our existing businesses. We're driving operational excellence to expand margins and continue our best-in-class free cash flow conversion. And as you can see with today's announcement, we are leveraging our strong balance sheet to further expand and diversify our portfolio through disciplined M&A. In summary, today's announcement is another proof point of doing what we said we were going to do, continuing to expand and diversify the company and executing on our growth strategy. And so with that, operator, we're now ready for our first question.

[Operator Instructions] Our first question comes from the line of Matt Summerville from D.A. Davidson.

A couple of questions. Can you talk about the relative penetration rates in the market today for hardware and software for these types of applications? And can you frame up the competitive environment a bit? You're identifying a $2 billion TAM. This business is roughly USD 250 million in sales. So help me understand the competition as well, please? And then I have a follow-up.

Sure, Matt. Thanks for the question. Well, you're correct. As we said, the TAM that we see we're expanding into is about $2 billion. That's a new TAM. So that's additive to Crane NXT. And it's divided about half and half between life sciences at $1 billion and food and beverage at $1 billion. And really, the driver for penetration of new equipment or software is just increasing quality standards or government regulations, particularly in life sciences, where governments are requiring better track and trace capabilities through the point of manufacturer to the pharmacy or the point of consumption with the consumer. So it's really a technology, regulatory and quality driver in life sciences. And what's interesting is you're seeing that come into food and beverage as well. And that's, again, based on quality standard improvements and different government regulations. So that's really the underlying driver of what's increasing penetration of more software, more share of wallet and more hardware in the market. Now when you talk about competitors, it is a fragmented market. That's one of the reasons we like it. There are regional companies that play and also a few bigger names, particularly in the software area. And actually, Antares Vision is one of the leaders with a fully integrated software and hardware offering. The rest are oftentimes some more niche software or hardware players, again, often with a regional footprint. So hopefully, that helps, Matt.

Yes. And then as a follow-up, can you talk about -- when you think about the mid-teens EBITDA margin profile of the company, talk about the relative profitability around that between hardware or equipment, software and services, where you see the most compelling commercial excellence opportunity therein. And then maybe just polish it off with your thoughts on whether or not pharmaceutical onshoring could be an incremental catalyst for this business.

Sure. I'll take the first question just is on the margin improvement. I would say this deal structure or the structure that we've announced is very similar in how we expect our authentication business to expand margins over time starting at mid-teens EBITDA margins. And here, we expect, just like in authentication, it to grow into the low 20s over the next several years. Primarily, the margin improvement is coming from productivity we see in the equipment business. That's where we think we can really add a lot of our CBS discipline and scale to the company as well as general productivity in the SG&A lines of the company as well. So that's our thesis, and that's where, obviously, once we take the company private, we'll be focused on the integration activities. To your second question on pharmaceutical onshoring, I think the beauty for us is Antares Vision has production capabilities in Europe as well as in the United States. And of course, we do as the legacy holdings of Crane NXT. So we have an ability to flex our supply chain and be able to meet demand in the jurisdictions where it's needed. So we see that as an opportunity in general for us.

Our next question comes from the line of Bob Labick from CJS Securities.

It's Pete Lukas for Bob. You guys covered a lot. Maybe if you could just give a couple of examples of the products that Antares sells and some of the major customers. And also in terms of revenue, how much is recurring versus reoccurring and any contractual revenue? And then finally, as a follow-up, in terms of the equipment, how -- what's the upgrade cycle there? How often is that done?

Sure. We'll try to take each one of those with a little detail. So in terms of the types of equipment end customers are using, I think you can see from the pictures in the prepared slides visually what some of that equipment looks like. I would also say the Antares website itself gives some excellent examples, both in life sciences and food and beverage. These are typically pieces of equipment that can range from $20,000 to $30,000 all the way up to over $1 million, particularly when it gets into the pharmaceutical application. So a wide range there. On both sets of equipment, services are attached for commissioning of the equipment, particularly the larger pharma equipment and then ongoing preventative maintenance agreements, again, particularly for the larger CapEx pieces of equipment. At this point in time, we're not going to disclose anything other than what the organization already is done in terms of customers. What I would say is of the 20 largest pharmaceutical companies in the world, most are customers of Antares Vision, the same for the 20 largest food and beverage companies of the world. So it's really focused on the big brands, their production facilities that are producing pharmaceuticals in the case of the life science vertical and drinks and liquid products in food and beverage. So a really nice blue chip customer base. And then in terms of the recurring reoccurring revenue, Christina, I'll pass it over to you maybe to talk about that and some of the other metrics.

Yes. So the recurring revenue is about 40% of their revenue, which relates both to the services offering that they have as well as the software offering that comes with that.

Our next question comes from the line of Damian Karas from UBS.

Congrats on the deal. So my first question is related to the synergy opportunities. I think if my math is correct, just thinking about the valuation multiple pre and post synergy, we're talking kind of like high single-digit millions. Could you just maybe elaborate a little bit on that and the time horizon over which you think you can realize those different buckets of the synergies?

Sure, Damian. I'll start and I'll pass it over to Christina. I think directionally, you're right. Actually, our target here is a little bit north of what you suggested, kind of low double-digit synergy targets. Most of those coming from productivity and operational improvements, a little bit in the cost structure. And similar to what we've done with OpSec and De La Rue, those will play out over the next 3 to 4 years to get fully implemented. And that's where we take it from the implied multiple now based on 2025 guidance that the company has provided of about 12x EV/EBITDA down to about 10 with those synergies. But Christina, feel free to add in more on any details of those.

No, I think you said it exactly right, run rate synergies in the low double digits expected after about 3 years of the closing. So in year 3 post close around 2029. And I would just say we have high conviction based on what we're seeing already in our authentication business that we'll be able to execute on those operating synergies.

Very helpful. Yes. One more question, if you don't mind. So it seems like a nice move here to kind of diversify a bit out of retail and to move into these food and beverage and life science markets. But I wanted to ask you kind of about the growth profile. On the slide, you kind of say mid-single digits. But I guess if I look at the filings for Antares, it hasn't grown sales that much since 2021. So why is that? What gives you confidence in the mid-single-digit outlook? And I also did see that in the first half of the year, though, Antares saw a nice really positive inflection in their orders. So what's been driving that change?

Yes. Thanks, Damian, for asking that. It is a little bit more when you look at their filings of a complex story. Let me start with the last few years. So there was an acquisition that occurred at Antares a few years ago that created a lot of headwind where they had to take some restructuring charges and some other events occurred. So that really complicated the financials for them, and you could see it in the performance, quite frankly, of the company. I think the management team has done an excellent job the last 1.5 years in driving productivity, improving the operational performance of the company. And that's what you see coming out now of, say, the last 1.5 years because the end markets are robust, their technology is outstanding. And again, there's demand for their products oftentimes reoccurring from the same customers who are just expanding their operations, these big global brands. And so to your last comment, that's what you're seeing in the order book. In the first half of the year, the order book is up significantly. Revenue is trending right on their guidance. And if you look at their guidance for the year, they're talking about high single-digit growth. And again, we're just quoting their guidance here, but there's a lot of optimism when you see what they've done with the cost structure. And as Christina and I just talked about, what we think we can do, bringing in CBS to improve it further, all with healthy end markets. So I would look backwards with some blips that occurred due mainly to some acquisitions. They're well past that now, and you can see the trajectory that they're on to the point you just mentioned, Damian.

Our next question comes from the line of Bobby Brooks from Northland Capital Markets.

It seems like there's a lot of blue-chip customers from both the pharma and food and bev side. And I was just curious to get a sense on, is it normal for -- in the industry, is it normal for these larger players to use kind of multiple providers for their inspection detection and track and trace technologies? Or is it often like they'll just go with one provider? I'm just trying to get a sense of kind of following up on the [ diversification ] side of things.

Yes, it's a good question, Bobby. Thanks for that. It's typical for a large company to use 1 or 2. They'll probably go with 2, to be quite honest, just to have some redundancy. But once they pick the certain equipment for a line or for a factory, they won't necessarily diversify after that, again, provided performance is there. So oftentimes, it's 2. Yet inside a factory, there may be one predominant supplier.

Got it. That's super helpful. And then could you maybe just remind us, I know you had -- how much exposure did you guys already have to the food and bev and life sciences prior to adding Antares to the mix?

Yes. The simple answer, Bobby, is very little and only in our Crane Authentication business where we supply labeling technology, as I know you're very familiar with, inside of consumer goods. We talked about cosmetics. Some of our new technologies going into food and beverage, but it's a very, very small sub-$10 million size of that business. Same for life sciences, where we're providing some labeling technology. In fact, the customers who are utilizing Crane Authentication labels are applying those, and it's Antares Vision equipment that's further serializing and aggregating the product through the production line. And that's really where we see this full now product offering coming together under Crane NXT, where customers are already using both technologies. So for us, effectively, Bobby, that whole $2 million -- or $2 billion TAM is new and a TAM expansion for Crane NXT, which is very exciting for us. It gives us a lot of runway to keep doing more in some very resilient end markets.

Our next question comes from the line of Michael Pesendorfer II from Baird.

Congrats on the announcement. Quick one for me. When we look at Antares' targets, they're talking to a low 20s EBITDA margin in 2027. So can you maybe give us a little bit of understanding how much they already have in the hopper in terms of internal improvement versus assumption for volume leverage and your confidence in being able to maybe accelerate that time line given the synergies in CBS implementation?

Yes. I think you're thinking about that the right way. Again, I would give them a lot of credit in the current management team that's come on to put a series of actions in place to improve EBITDA margins just in the last 12 months and a road map to get there to what they publicly disclosed. It's exactly why you said we see some additional opportunities to add in with our Crane Business System methodology. We see that when we walk the factories, look at the cost structure. We also see ways to accelerate or add on to their plan. So I think the focus we've had is to get into those low 20% EBITDA margins over the coming few years. Again, I'd just say we have very high confidence that we can execute to that, and that's what's driving the deal returns, on top of mid-single-digit top line growth.

Yes. No. And speaking of growth, maybe talk a little bit about how you're thinking about the growth opportunity from here. How much of that is going to be expanding wallet share within those top 20 blue-chip customers that you mentioned versus maybe getting incremental wins outside of those top 20?

Yes. The vast majority will be the continued, call it, wallet share expansion in existing customers as they upgrade equipment, replace equipment, add-on services and expand themselves into new geographies. That will be the vast majority. There are opportunities for new software wins, which is being driven effectively by governments as they add new regulations in for track and trace, particularly in the pharma space that is true new customers, new products over the coming years. So that will be a minority of the growth.

Our next question comes from the line of Bobby Brooks from Northland Capital Markets.

Just wanted to jump back on and that was super helpful context on my last question, and I think the guy from Baird kind of asked this. Follow-up a little bit, but just to expand on it more. If I kind of take your comments that usually there's only 1 or 2 providers in a plant and these customers don't necessarily really change after that plant is put up. But now -- but put that in contrast, now you sort of have a full suite of packaging tracking equipment and software. Do you think you might have an opportunity to win sort of brownfield opportunities since you kind of can be this full suite provider? Or would the expansion of your market share in that $2 billion TAM mostly be on greenfield opportunities?

Yes. That's a good question, Bobby. I think there's -- I hate to be too generic, but it's probably a combination of both here, quite frankly. And I think there's opportunities when you pull in the Crane Authentication offerings into the front end and create combined packages. There's no one in the industry today. And this is a real strength of Antares Vision that has the entire software through the complete hardware and software offering. That's unique to them. That helps them win. Now we add on additional capabilities in the front end. We haven't built those extra wins into the synergy targets of the deal, but I think that is upside kind of the nature of your question that would help us get past, call it, general market growth of mid-single digits. So certainly, that's what we're going to be out driving, Bobby, as you said, but it's probably been an equal business balance back of greenfield, brownfield sites.

Thank you. At this time, I would now like to turn the conference back over to Aaron Saak, CEO, for closing remarks.

All right. Thank you very much. Thanks, everybody, who joined today for their questions. It's an exciting announcement for us here at Crane NXT as again, we're executing our strategy, doing what we said we were going to do, to continue to grow the company and grow in near adjacent markets where we're leveraging best-in-class technology and positioning the company for a future where secure, detect and authenticate technologies are really at the core of everything we do now and into the future of Crane NXT. As I said in my prepared remarks, I'd like to end by again thanking everyone, both across Antares Vision and Crane NXT who helped get us to this day. I know both teams are very excited, and I welcome the chance to get out and meet and continue to visit with the Antares team as we go through the transaction. So again, thanks, everybody, for joining today. Appreciate the questions, and I hope you have a wonderful weekend.

This concludes today's conference call. Thank you for participating. You may now disconnect.