Crane Company (CR) Earnings Call Transcript & Summary

Good afternoon. I'm Jason Feldman, Vice President of Investor Relations at Crane Co. Welcome to our Aerospace & Electronic's Investor Conference. But before we begin, I would like to direct you to the disclaimers regarding forward-looking statements that are posted both in our 10-K and 10-Qs as well as in today's presentation materials, which are available on our website. And just for reminder that we'll be citing non-GAAP measures throughout the day. Those measures and their associated reconciliations to reported results can be found in our non-GAAP reconciliations in the appendix of the materials that we've provided today. We wish we could have hosted this event in person at any one of our outstanding aerospace facilities. However, due to COVID, we restricted to a virtual format this year. Because of the virtual format, we'll try to keep things tight, and we do not expect to go beyond 2 hours. We're going to start with some updates from corporate. First, Max Mitchell, our CEO; and then Rich Maue, our CFO. They will give you an update on current events and also tie today's content directly to the themes we discussed at our February Investor Day event. A strong market recovery has already begun. We are well positioned to outgrow markets given years of consistent focus on investments in technology. We also have substantial M&A opportunities and we are building on a strong foundation, including CBS, to drive consistent execution and a differentiated culture focused on ethics and integrity. After Max and Rich, you will hear from Steve Zimmerman, President of Crane Aerospace and Electronics, and 4 of his executives with a focus on how years of investment are driving above-market growth today and why we think that growth will accelerate further. This is an incredible team, managing a great business, and we're glad to have the opportunity to share the details of our growth strategy with all of you today. We will have a single Q&A session after the last of the presentations about 90 minutes from now. And now it's my pleasure to introduce Max Mitchell.

Thank you, Jason, and welcome, everyone. Let me start by addressing our recent press release. We signed a definitive agreement to sell our Engineered Materials business. Engineered Materials is an outstanding business with more than 500 dedicated and highly capable Crane associates. This business was a roll-up we completed over the last 35 years through a long series of acquisitions and facility realignments. Just one of the many examples that illustrates how effectively we acquire and build businesses here at Crane. But while Engineered Materials is an excellent business, over time as part of our ongoing portfolio assessment process, we reassessed its strategic fit and feel this business is better served with new ownership. I want to thank the entire team for their unwavering support, understanding and professionalism throughout this process. This business is being acquired by Grupo Verzatec, also a well-respected enterprise. And I'm confident that the Engineered Materials team will receive support and focus to be better able to pursue both organic and inorganic growth with this new owner. In addition, we also announced that we are changing the name of our Fluid Handling segment to Process Flow Technologies. The Fluid Handling name is from a legacy era and no longer reflects who we are today nor where we are strategically focused moving forward. Crane Process Flow Technologies better conveys the key strengths and core competencies of our business, providing highly engineered Process Flow solutions with proprietary technology, and differentiated designs. Our market focus is on the chemical, petrochemical, pharmaceutical, water, wastewater and general industrial markets, which include many of the harshest and most hazardous environments, and our products are used in applications with extremely high costs of failure. Both our organic and inorganic growth efforts remain concentrated in these areas, and we continue to evaluate the composition of the businesses within this segment in conjunction with our focus on the process portion of the fluid markets. Before we dive into Aerospace & Electronics specifically, I would like to start by reinforcing the key message from our recent February annual Investor Day. Inflection. I told you all that Crane was at an inflection point for accelerating growth after years of organic investments. And that we would also create value through acquisitions and continued portfolio management. You saw evidence of that inflection in our first quarter results earlier this month, which were outstanding, solidly beating both internal and external expectations for earnings. We revised our outlook concurrent with those results to reflect our expectation of further acceleration of organic growth. Our confidence in that momentum is so high that we are maintaining our current earnings outlook even with the divestiture of Engineered Materials, which was expected to contribute approximately $0.44 of adjusted EPS this year. Again, even with this divestiture, we are holding our most recent guidance of $5.65 to $5.85. Effectively, a $0.44 raise on a like-for-like basis. And what you heard with our quarterly earnings results, the recent announcement on Engineered materials and what you will hear throughout today's event is all fully aligned with the 4 key themes we discussed at our annual February investor event. First, we expect a strong market recovery as we emerge from this pandemic across all of our businesses. In some markets, this will be a return to normal. In other markets, the post pandemic growth outlook is even better than it was before the pandemic, given our alignment with evolving secular trends. Second, we have consistently invested in organic growth. And we are seeing those results accelerate. We have built upon our outstanding historical positions in key markets, pushing investments in new technologies and platforms across a wide range of time horizons to drive long-term value creation. While we continue to invest for the future, we are seeing results of our years of investment today. At Process Flow Technologies, we are seeing above-market growth driven by new product development, like our triple offset valve, localization of support in the Middle East and China and commercial excellence initiatives, which improve the customer experience. Payment & Merchandising Technologies, we are winning with our advances in currency security technologies and offering new solutions to meet our customers' evolving needs for automating transactions. And today, you will hear about the technology investments we have made across our Aerospace & Electronics business. We continue to expand our addressable market through breakthrough innovation, new technologies, and new products and solutions. Third, we have growing opportunities for inorganic growth. We have discussed how we refined our M&A valuation process to better reflect our proven historic ability to over-deliver targeted synergies. Even with that refined process, we are over-delivering on both of our most recent acquisitions: Cummins Allison and I&S. As previously discussed, our focus for inorganic growth today is in the Aerospace & Electronics and Process Flow Technologies segments. In both of those segments, we see substantial opportunities for both bolt-on transactions as well as adjacencies. Opportunities for adjacencies will be grounded in our strongest core competencies. And particularly, in areas where we are able to leverage our best-in-class technologies to new industries and sectors. Steve will discuss this in more detail during his presentation. And as we look to acquire and build on our strengths, we will continue our process of portfolio simplification, ensuring that we have the right portfolio to maximize value for shareholders and other stakeholders. And lastly, at Crane, we believe our culture is a differentiator for us and is a critical element of the strong foundation we have built upon at Crane. "I'm resolved to conduct my business in the strictest honesty and fairness; to avoid all deception and trickery; to deal fairly with both customers and competitors; to be liberal and just toward employees; and to put my whole mind upon the business." These powerful words written 165 years ago, continue to guide us today, speaking to ethics and integrity in how we conduct ourselves and our business for all stakeholders with a passion for the business. But our culture extends well beyond just the RT Crane resolution, ethics and integrity. R. T. Crane himself was a Philanthropist, a supporter of his community and a family man. In that spirit, we have fostered a culture at Crane, which embraces these values, honesty and fairness, philanthropy, sustainability, in an environment which embraces the quality and respect for all on a global basis. The right behaviors and support for all stakeholders, a culture focused on the right values, and on all stakeholders, paired with the world-class Crane business system with the power of its disciplined cadence and execution is firmly embedded at Crane as our core values. While also pushing and investing in breakthrough technology and innovation to solve our customers' most difficult problems. As I discussed in February, it's been a fun journey, and we have a lot of exciting opportunities ahead of us. In addition to these consistent 4 themes across all of Crane, today, we will show you how Aerospace & Electronics is extremely well positioned for a sustained period of high growth with an extremely attractive margin profile, from several independent P&Ls to a unified segment with careful pruning along the way to simplify and focus the business. This has always been a great business. But it has been continually transformed over the last decade, driving excellence in critical technologies that are essential to our customers. In Aerospace & Electronics, just like all of our businesses at Crane, we have continued to improve the alignment of our R&D efforts with the secular trends in the industry. And our technology and product development road maps have positioned us well ahead of our competition. This transition is dramatically expanding our addressable market and creating numerous exciting opportunities for substantial additional growth, both in our core markets as well as in adjacencies. And these exciting new opportunities are supported by an extremely strong portfolio of content on existing programs that provide stable recurring revenue today. Our current positioning, paired with our ongoing investments, give us confidence that we should be able to achieve a sales compound average growth rate of 7% to 9% from 2021 through 2030 with sustained growth well beyond that period. Before we turn it over to our President of Crane Aerospace & Electronics, Steve Zimmerman, let me ask our SVP and CFO, Rich Maue, to provide a financial update.

Thanks, Max. Yes, I can't wait to hear from our A&E team today on our outlook, but just a couple of quick updates I would like to cover. What a start to 2021? A very strong financial performance in the first quarter, followed by our recent announcement regarding the sale of Engineered Materials. Like Max said, Engineered Materials is an excellent business that's incredibly well run. But considering where we want to put our capital to work at Crane, a business that's better positioned strategically with Grupo Verzatec, an excellent new owner, and we continue on our simplification journey and now with more capacity to invest and grow in the strategic focus areas of the Crane portfolio. A lot of exciting things happening at Crane as we continue to recover from the pandemic, both core and inorganic, and we look forward to continuing to share more as we move forward. Momentum. Recapping where we've been already this year, at our Annual Investor Day in February, we raised the midpoint of our EPS guidance by $0.10 to $5.10, reflecting modestly stronger demand we were seeing across most businesses through the first 2 months of the year. Fast forward 2 months, with our first quarter results, we increased the midpoint of our EPS guidance by another $0.65 reflecting the strength we saw in the quarter, strengthening of leading indicators and orders, and in particular, how well our teams executed on growth initiatives while also maintaining our strong cadence on cost and productivity. And free cash flow was also notably strong, enabling us to raise our guidance on this very important metric as well. Now having announced the sale of Engineered Materials and with another month behind us, we are not changing our previously revised guidance intending to deliver inside our previously communicated range, even without the $0.44 of full year earnings we expected from Engineered Materials when we started the year. Said in another way, this means we are effectively raising guidance today operationally by another $0.44. I am confident we will deliver. With the sale of Engineered Materials, we have substantially more capital to deploy. That said, our capital deployment priorities have not changed. We will remain disciplined and take a long-term view in our decisions. We prioritize internal investments because they have the strongest risk-adjusted returns. This is where we will spend most of the time today, showcasing all the exciting initiatives, our engineering-led organization is driving at Crane Aerospace & Electronics. Then it's acquisitions to enhance growth. Again, our focus will be on deploying capital to our Aerospace & Electronics and Process Flow Technologies businesses, and we will be seeking to acquire in both our core and adjacent markets. And as I just stated, we have always been and will continue to be disciplined buyers. Demonstrating that discipline, as a reminder, last year, during COVID, we successfully integrated 2 acquisitions and delivered $0.23 of accretion versus our initial estimate of $0.15. All that accretion driven by incremental synergy realization. By the end of last year, we had roughly doubled the margins at Crane Currency compared to pre-acquisition levels, even after the significant intangible amortization that comes with purchase accounting. In 2021, we are tracking to substantially exceed the $1 of EPS accretion from Crane Currency that we committed to at the time of the acquisition, delivering on what we say. As we mentioned last February, related to our deal math, we have historically over-delivered on cost synergies. We have used that empirical data to better forecast synergies for potential acquisitions. And we are using that new forecasting methodology in our NPV calculations. This allows us to be a little more competitive on value while maintaining our strict discipline, another reason we are more bullish on future inorganic opportunities. And we balance acquisition opportunities with the desire to provide an adequate return of capital to shareholders. Our M&A capacity is growing very quickly. Just last month, we fully repaid the 364-day term loan that we secured as an insurance policy when the pandemic began. Together with our strong earnings growth to date and our outlook, as well as the proceeds received from the sale of Engineered Materials, we have ample capacity to secure meaningful M&A opportunities today and project our acquisition capacity to exceed $1 billion by year-end. We continue to execute really well every day. We delivered a record quarterly adjusted operating margin of 16.2% despite the fact that most of our end markets are still depressed compared to pre-COVID levels. Results to date are ahead of what we expected, with all cost and productivity efforts reading through and complemented by the revenue momentum that enabled us to leverage above our plan. Excellent results across the board, and these results enable us to invest further for growth. We are seeing signs of strong growth returning in our markets. Core sales up 6% at Process Flow Technologies in the first quarter. Not just the shorter-cycle portion, but early signals of project activity building as well and supplemented by numerous new product development programs and other organic growth initiatives across the business. Our Payment & Merchandising Technologies segment grew core sales by 8% last quarter, and it was led by an outstanding performance at Crane Currency, which continues to win new business across its international markets, while continuing to deliver to the U.S. government in line with current demand levels. We are also seeing momentum building at Crane Payment Innovations, while sales were still down year-over-year, first quarter sales increased materially on a sequential basis from the fourth quarter of last year with solid order momentum supporting our views of more good things to come. And in our longer and later cycle businesses at Aerospace & Electronics, revenues were modestly better-than-expected but still muted because of the magnitude of the impact the pandemic continues to have on the commercial aerospace end markets. That said, our teams executed really well, delivering a 16% operating profit margin, a substantial 600 basis point sequential improvement. Disciplined execution and with broader signals that airline travel is continuing to accelerate, I look forward to what we will deliver not only this year but in the next few years. And you will hear all about the above-market growth we expect to see in this business in just a few minutes. And that execution goes beyond the P&L to free cash flow generation where we are converting earnings to free cash flow at a much higher rate today than we have historically. As I explained in February, our free cash conversion has averaged approximately 100% over the last 5 years, giving us substantial flexibility for further investments internally and for acquisitions. Together, our capabilities, markets and financial flexibility create a compelling story. While we have always been intensely focused on maximizing sustainable returns for our shareholders and all stakeholders for that matter, we believe that we are at an inflection point and the results from years of organic investments, acquisitions and repositioning our portfolio are gaining traction at an accelerating pace. We are confident we can deliver above-market organic growth paired with strong operating leverage as markets recover. We also expect acquisitions in Process Flow Technologies, and Aerospace & Electronics will contribute meaningfully and they will be focused in areas that improve our underlying organic growth profile. Together, we believe this is a formula for long-term total shareholder return growth rates well above the average of our peers. Now let me turn it over to Steve Zimmerman, President of Aerospace and Electronics, who will discuss the role of his business in achieving Crane's overall objectives.

Good morning. I'm Steve Zimmerman, President of Crane Aerospace & Electronics. As we discussed in our Crane Company Investors Day back in February, we have so much to share with you that this year, we scheduled this dedicated Aerospace & Electronics investor event to better cover the numerous exciting growth opportunities we're pursuing. The remainder of today's event will be focused on our growth strategy and initiatives that will drive a 7% to 9% organic sales CAGR from 2021 through 2030, with margins in our long-term targeted range of 21% to 24%. Across the presentations, you'll hear how our business is aligned with the 4 key themes Max introduced at our February annual Investors conference. Specifically, we expect a strong recovery in our end markets with both secular and cyclical drivers, and we are well positioned to benefit from this recovery with content on virtually every major commercial and military platform. Commercial Aviation is already rebounding from the impact of COVID and should return to strong long-term growth driven by numerous factors, including a rapidly growing global population who can afford air travel. And defense budgets remain strong. Our business is focused on some of the most resilient and highest growth areas of defense spending, including C4ISR and all of the major defense aircraft platforms. We are seeing accelerating growth from consistent and continued investment in technology. Our growth investments over the last decade have not wavered, and we're seeing the benefit of those investments today. These investments also continue to expand our addressable markets and align our business with accelerating secular trends, most notably electrification. And we're delivering on truly breakthrough innovations that are critical enablers to our customers' growth strategies and that are transforming the growth trajectory of our business. We have a growing opportunity for inorganic growth. Our business was built on acquisitions, and we have opportunities for additional bolt-ons as well as adjacencies grounded in our strong core competencies, such as power conversion; fluid and thermal management; pressure and flow measurement; and sensing. And like all of Crane, we're built on a strong foundation, ethics and integrity, sustainability and disciplined cadence and execution necessary to deliver sophisticated and complex solutions on time with consistency and quality levels that are competitive advantage in our industry. So with those 4 themes in mind, I will provide an overview of our business, followed by some details on our microwave and landing businesses before I turn it over to 4 of our leaders to discuss our technology and growth initiatives and our strong operational capabilities. There will be an opportunity to ask questions at the conclusion of the presentations. So let's take a closer look at Crane's Aerospace & Electronics. Crane Aerospace & Electronics was assembled through multiple acquisitions over several decades. In most cases, we invented the fundamental technologies that are now the industry standard, and we're known for our performance, reliability and innovation. Given that history, our customers rely on us to solve their most challenging problems with innovative solutions. For example, large commercial aircraft antiskid brake systems that have always been hydraulic based on a system that we invented and introduced more than 70 years ago. For the 787, however, Boeing needed a different architecture and lower weight, so they turned to us to design and build the first electric antiskid brake system for commercial aircraft. When geared turbofan engines were introduced, they required lubrication at higher pressure temperature and flow rates and the engine OEMs turned to Crane to develop this solution. A long track record of delivering innovative, differentiated solutions for our customers that no one else can provide, typically focused on specific technologies where there are a few competitors and where the solutions are mission critical. And after years of operating independently as 5 separate business solutions, today, Crane A&E has been transformed into an integrated operating company, sharing technology, expertise and resources across all of our solutions and serving our customers as a unified company. Because of our strength, in this market historically, we have a large high-margin annuity-like revenue stream derived from our incredibly solid foundation with content on virtually every major commercial and military platform launched over the last several decades. That includes strong presence on older, out of production commercial aircraft such as the Boeing Classic 737, 57 and the Airbus A340, 2 military aircrafts like the C-130, B-52 and F-18. That means every day, we're selling spares to replace our sole source content as it wears out, it needs to be replaced. A consistent revenue stream from repair services based on flight hours. And opportunities for growth with modernization and upgrade projects across the entire fleets. You may recall that we upgraded the brake control systems on the Air Force's entire C-130 fleet in 2011 and 2012 when they transitioned from steel to carbon fiber brakes, a large project at aftermarket margins. That was followed by a similar upgrade on the B-52 fleet. And we see similar activity on the commercial side of our business, such as upgrading to our SmartStem Tire Pressure system across numerous models of business jets, regional jets and large commercial aircraft. These are just a few examples, and we're in pursuit of many more. We have an even stronger position on the current generation of in production aircraft, driving revenue today and creating an aftermarket stream for the years ahead. Crane has a proven track record of capturing increasing content on both derivative and brand-new models because of the strength of our technical capabilities. Historically, our engineering teams developed new products and technology with a customer specification driven focus with an emphasis on application-specific opportunities. Over the last 20 years, there's been an unprecedented level of OEM specification driven platform development programs. We have substantially more content on the 737 MAX than on the prior generation of the 737 NGs. And we have nearly doubled the content on the A320neo than we had on the prior generation of A320s. We have strong content positions on virtually every other major aircraft platform from Boeing, Airbus and Embraer. And we have solid content on the COMAC C919, including the brake control system, the door sensing system and the flight control power conversion. While still in the certification process, we're looking forward to the first production deliveries and entry into service in 2022. And our position today ensures that our commercial business will benefit as aircraft production rebounds from the pandemic. With each new plane generating revenue today and growing our installed base for a long tail of aftermarket activity over the next few decades. And we are similarly positioned on the military side of the business across all the major known programs such as the F-35 as well as less known and often classified defense applications. Aerospace is a very long cycle industry with platforms that can last for decades with a moderately conservative view of air traffic and aircraft production rates the content and position we have already won should support a 5% to 7% CAGR over the next 10 years. This is our high confidence baseline. We have direct line of sight to this level of growth, and it's really only dependent on normal market activity and our continued operational execution. The rest of today's presentation is about how we're driving for growth above that 5% to 7% in this decade and how we're investing to ensure that our high-growth is sustainable well beyond that 2030 horizon. In addition to the operational discipline of CBS, there is one key driver of our success to date that also gives us confidence in our strong growth outlook, our differentiated technology and engineering capabilities. This business has always been at the forefront of technology and innovation within our solutions. But this strength has become even more important as the pace of change has accelerated. The strength of our engineering team is unparalleled, and our capabilities are differentiated in a number of critical ways. We have decades of experience with our core technologies. In many cases, far more than any of our competitors as we were the first to commercialize many of our solutions. We work closely with our extensive customer base and see how our solutions are used by all of the OEMs as well as the Tier 1 suppliers. That broad view gives us a perspective that captive or in-house suppliers don't have. We have large engineering teams focused around core capabilities that understand the technology. They work closely with our production teams throughout the development process to ensure that the solutions have the right technology and are also designed for manufacturability. In addition to our depth of knowledge within each of our solution, we have extensive experience integrating multiple technologies together. For example, we provide both the microwave components as well as their required power supplies together for various radar programs. Later today, you'll hear about how electrification is creating a need for integration of power, sensing and thermal management systems. Or in a typical landing system, we combine the wheel speed transducers or sensors with sophisticated control algorithms as well as hydraulic or electric actuation systems. The way we bring these solutions to market is also evolved over time. Historically, like all of the Tier 1 and Tier 2 suppliers, we focused on application-specific opportunities with a customer specification driven focus. We were extraordinarily good at it, as evidenced by our strong positions on nearly every in production aircraft model. This was a custom design-build business. Today at Crane, we've moved to a technology readiness focus, investing in technology and capabilities before it's needed by our customers. And we're developing that readiness early enough that we can influence future specifications and work with our customers to understand and serve their needs while helping them develop their next generation solutions. You'll hear about this from the other presenters today. Where we are developing the technology today, which will be the critical enablers for the more electric vehicles and aircraft, more advanced radar systems and other C4ISR systems and satellite constellations and space exploration. This work on technology readiness is aligned with our customer future needs, the secular trends in the industry and the core competencies we've developed over the decades. Those core competencies include power conversion with growing capabilities and higher power conversion for new emerging applications that require defense grade reliability and quality and sophisticated magnetics design, delivering higher power and lighter, smaller, more efficient packages and adding bidirectional power conversion capabilities. Sensing capabilities, condition and position sensing, pressure and flow measurement. With increasing precision and with wireless capabilities to permit sensors to work independently from aircraft wiring. Fluid and thermal management, providing the highest reliability in flow rate with a design that reduces size and weight in increasingly challenging pressure and temperature conditions. Landing system based upon our unique dynamic modeling capability, and microwave systems for high-frequency signal processing and low noise designs. Our capabilities continue to improve, but they are centered around the same core competencies we've been building upon for decades. Our technology readiness approach is positioning us for accelerating growth as the industry continues to evolve from more electric and hybrid military ground vehicles to electric propulsion aircraft, electric urban air mobility vehicles, advanced radar and guidance systems and new satellite networks, there's a massive amount of change that's already occurring today. Some traditional industry participants will see their position erode as their legacy technology is no longer needed. Others like Crane, are well positioned to not just adapt to the new environment, but to thrive and benefit. Our core competencies are still needed in each of the key emerging growth areas across Aerospace & Defense markets, and most of them are growing in importance every day. And our solutions and our customer needs are not just about incremental iterative improvements, but they are requiring true breakthrough innovations with substantial step function changes in technology and performance. You will hear about some of these opportunities in the next few presentations, but this isn't just about a hypothetical futuristic vision. We're engaging with customers and partners on these projects today. Substantial funded engineering to support some of our work in these areas, working prototypes and numerous wins on pilot programs and demonstrators, both for Commercial and for Defense customers. These opportunities that will add 2% to 4% to our sales CAGR this decade, taking us to 7% to 9%. As we move beyond our older specification-driven approach to a technology readiness model, we're also increasingly exploring adjacent opportunities focused on the same core competencies, taking a hard look at our core capabilities, what we're best at and identifying additional markets where these technologies would be valued. In some cases, that may be an organic exercise, finding new customers in new industries for our existing technologies. This may require additional sales and marketing resources and likely some degree of product modification and redesign, but focusing on areas where our existing technologies will give us a clear competitive advantage in these new markets. In other cases, gaining traction in these adjacencies may require acquisitions, giving us access to new customers and possibly extensions of our existing technology and capabilities. There are a lot of exciting opportunities we're exploring. We're also continuing to explore bolt-on acquisitions, but we expect most of the inorganic activity at Aerospace & Electronics to be adjacencies moving forward, substantially expanding our opportunity set and aperture, but always with discipline. Discipline on valuation and discipline in our focus on areas where our existing core competencies will provide us with competitive advantage. We expect that acquisitions will provide meaningful upside to the 7% to 9% organic growth we expect over the next decade. I'm going to briefly cover our landing and microwave businesses before turning over the presentation to some of our solution leaders. We have the leading aircraft landing system solution in the world. This business invented aircraft anti-skid braking with the first system produced in 1947 for the Boeing B-47. Every Boeing aircraft manufactured since has had our anti-skid brake system, which today incorporates sophisticated sensing technology, complex control systems based on our proprietary algorithms and mechanical or electric actuation systems and it's not just Boeing. We have content on the Airbus A400M, the C919 and numerous regional and business jet models. And many military aircraft, including the B1, B2, B-52, F-15, F-35, the list goes on. Just a few of the exciting opportunities we're pursuing. Include an extremely large modernization and upgrade program for one of the highest volume fighter aircraft in service today with the USA fleet of more than 2,000 aircraft and the longer-term international opportunity that's also very large. Developing a 0-wheel speed transducer, a breakthrough technology that's critical for many unmanned military aircraft, or UAVs, it's being first put into service on the MQ-25, and developing brake energy management technologies that will be a significant extension of life for aircraft brakes. And we're making further advances in our runway condition monitoring, so our anti-skid systems can calculate and transmit the actual runway conditions so the next airplane landing on the same field can take advantage of these conditions and improve breaking performance. Our microwave solutions are used primarily in Defense applications and provide advanced RF and microwave assemblies. We have expertise with integrated microwave assemblies or IMOs, and we have proprietary technology in this business called Multi-Mix. It's a process for fusing multilayer integrated circuits and micro multifunction modules into self-contained modules with substantially reduced size and weight. This solution has a great position on dozens of platforms from missile guidance systems to aircraft radar systems. And increasingly, we're involved in large ground-based radar projects like the Space Fence program we delivered on a few years ago. This business continues to grow. And today, we have more than 20 programs in development compared to an average of 5 at a time over the last 10 years. In this business, we have a number of strategic initiatives, including constant innovation towards higher density, higher frequency assemblies to support the newer AESA radar systems and expanding our Multi-Mix capabilities to support large low earth orbit communication satellite constellations, where we see a sizable opportunity and a unique fit for our proprietary multi mix solution. We hope to have a new win in this area to announce shortly. Really exciting opportunities across both landing and microwave. Let me now turn it over to Trey Endt, who will discuss our Power business in more detail.

Thanks, Steve. Welcome, everyone, to sunny Fort Walton Beach, Florida. My name is Trey Endt. I'm the Vice President and General Manager of the Defense Power business at Crane, Aerospace and electronics. Our Keltec, ELDEC and Interpoint brands carry a long legacy of providing a full spectrum of power solutions for aerospace, defense and space applications. The growing demand for hybrid and all-electric systems from all-electric vehicle drivetrains to carbon neutral passenger flight is driving higher power, more efficient power conversion needs that Crane Aerospace & Electronics is uniquely positioned to offer. Crane Aerospace & Electronics supports our customers with custom power solutions ranging from low energy consuming, hybrid conversion for space applications to mid-range critical power conditioning for aircraft flight controls across large transport, regional and business jet aircraft to high-power conversion for ground-based radar systems and other emerging military and industrial applications. We are one of the major players in a moderately fragmented power space, and we have a solid growth outlook. You may notice that our expected CAGR through 2030, a solid 6% is a little lower than some of our other businesses. For context, given the commercial defense mix, remember that our 2021 sales are well above the pre-COVID levels and we are not growing from a depressed base like the more commercial focused businesses. Historically, Crane Aerospace & Electronics has enjoyed a strong market position with a mix of customers, including all of the major Tier 1 suppliers and OEMS. The strength of our position is the result of our reputation for high-quality, extremely reliable power density products with an industry-leading size, weight and power used in mission-critical applications. As commercial aviation adopts to hybrid and all-electric propulsion systems for carbon neutrality and lower operational costs, the increase in voltage levels generated from the energy source demands higher voltage and power conversion capability to drive both traditional and higher power loads such as avionics and actuation systems. Recognizing several years ago that this shift would start to be realized within a decade, Crane Aerospace and Electronics, accelerated investment in research and development activities, to expand and enhance power conversion capabilities. These investments have already resulted in a number of wins, including a wide input range DC-to-DC converter that has been delivered to Eviation for their Alice 9C, all-electric passenger aircraft. This technology is also a core element of our collaboration with BAE systems to jointly develop high voltage, high-power electric systems for the emerging advanced air mobility market. Specific to the Defense power business, we have historically held a strong position in providing higher voltage power supplies for use in airborne, ground and shipboard applications of traveling wave tubes used in mechanically scanned radars. Over the last decade, electronically scan radars or AESA, gained traction due to better tracking speed and the reliability of the radar sensor system. However, AESA systems require substantially more power and as a result, more advanced cooling systems. These trends were identified years ago through our annual strategy development process, and we developed long-term technology and product development road maps that we have executed against successfully for years. Specifically, we have improved our power output to 30 kilowatts per line replaceable unit, improved power density, reducing the weight required for each given power range, improved efficiency. Reducing heat and cooling needs as power levels increase, and our products are increasingly modular and scalable, providing the building box for further improvements. With those building blocks, we have packaged and integrated our converter technology into line replaceable units, or LRUs, with twice the value and price point per kilowatt. We then move to combining LRUs into full custom power systems for ground-based radar applications, which command approximately 3x the value per kilowatt. Our work with Crane Aerospace's fluid technology business has also been a significant competitive advantage. And you will hear more about this from Jay Higgs later today. We are able to provide best-in-class high-power components with increasingly integrated advanced cooling systems as thermal management becomes far more critical at high-power ranges. We have also been very successful in driving substantial incremental improvements in our products. And with these advances, we have already more than doubled our addressable market. This is a higher growth part of the market with a 2020 to 2030 expected market CAGR in the high single-digit range. Already today, our AESA business is nearly 4x the size of our mechanically scanned radar business, and it is growing rapidly. We are extremely excited about our growth opportunities, but this just isn't a potential, distant opportunity. While deliveries will take a few years to ramp up to full-rate production, we have already secured several major long-term platform wins in this space, ensuring a strong growth trajectory for more than a decade. These wins include Raytheon's high-profile LTAMDS program, Lockheed Martin's Sentinel radar program and other major franchise advanced radar programs that we can't disclose at this time. This is a large market. There are hundreds of ground-based radar systems produced each year with an installed base in the thousands. In the long cycle defense business, our strategy process looks out 15-plus years, and we continue to refine our technology and product development road maps as our markets evolve. In addition to planning for short to medium-term incremental product improvements, we are always looking ahead to the next truly breakthrough innovation that is aligned with the industry's secular trends. In this space, there are clearly trends towards a more electric world that will have new and more challenging requirements for power management. For example, the United States department of Defense, is reimagining how it consumes energy. Globally, the Department of Defense is one of the largest consumers of energy, and the Air Force is the largest user of fuel energy in the U.S. government. The way energy is currently generated, stored, transmitted and used, is critically important. And the system in place today is dependent on a complex logistics chain. From a technology perspective, the focus is moving to even higher power ranges, coupled with the addition of bidirectional power conversion products for the aerospace and defense markets. Including combat and tactical vehicle electrification, high-energy laser systems and advanced missile defense radars. The largest of these opportunities is likely to be the hybridization of military and heavy industrial vehicles, driven by the needs to improve fuel economy, reduce maintenance, simplify logistics to support those vehicles and reduce the carbon footprint. We will continue to increase the power ranges of our products to support the needs of our customers and the industry. And while there is a lot of development to do, this is a continuation of the incremental improvements we have made for years. The real breakthrough in this space will be developing bidirectional power conversion capabilities at extremely high-power levels, with very high reliability for military standards and at a necessary size and weight. Let me take a minute to explain why bidirectional power conversion is so critical for more electric and hybrid electric vehicles. There are many types of traditional power conversion products that can convert power from one voltage to another, convert from direct current to alternating current or vice versa, and condition or smooth power in many different ways. Traditional power conversion products, however, work in one direction, permitting flow from a power source to where the power is needed. Bidirectional power conversion, as the name implies, allows power to flow both directions. The same system might convert power from 600 volts to 24 volts when traveling in one direction or from 24 volts back to 600 volts when the flow is reversed. This substantially increases the flexibility of the possible electrical architectures that are feasible. And this capability will be required at extremely high-power levels as the enabler for military applications. For example, bidirectional power conversion improves efficiency by permitting battery recharging through regenerative activities like braking. Bidirectional power conversion helps balance loads as power can be shared back and forth between low power and high-power systems within a vehicle. Bidirectional power conversion allows for energy to flow from a vehicle to external systems like microgrids or weapon systems, while also allowing the vehicle to be charged from that external connection. Basically, with bidirectional power conversion, an electric or hybrid vehicle can be autonomous. It can serve as an electrical power source for another application or it can function as a battery or an electric storage device. All electric military vehicle applications will require high-power bidirectional conversion. As the market evolves, the addressable market will increase dramatically. Ground vehicles, tactical, combat, et cetera, are moving to hybrid and more electric. And there will be thousands produced each year with an eventual field base in the tens of thousands. Just some of the military platforms, we think will have opportunities are the family of multi-tactical vehicles, joint light tactical vehicle, heavy expanded mobility tactical truck, the next-generation combat vehicle and the optional manned fighting vehicle. Each system has significant power needs, which we will be able to address. Paired with some of the advances you will hear about later, where we can also play in this market with motor drives, and controllers, pumps and cooling systems. We are uniquely positioned to win in this market because of our industry-leading technology based on our higher ad investments, and experience in the military market domain. Our technology is differentiated because we offer higher density and power solutions than our competitors. We are ahead of our competition because of our long-term investment in this technology and our focus on this evolving market. Other potential applications of this technology include microgrids, implementing innovative smart microgrids offers the DoD, an excellent solution to many energy challenges it faces. Whether using a generator battery or renewable resources, microgrids offer a higher level of resilience, given they don't rely on outside fuels. Other advantages to tactical microgrids includes providing redundancy, decentralized generation and distribution, lower fuel consumption and the ability to redistribute available energy and providing connections for many energy generating resources available in the tactical environment. As military ground vehicles become all or hybrid electric, the vehicles themselves become a source of power generation for remote bases or supporting equipment. Think about the potential applications in a remote potentially hostile environment with each vehicle, radar system and weapon system being a modular component of a larger system that can be mixed and matched as needed. Each component, able to generate power, store it, transfer it elsewhere, at times connected to the larger grid, but also able to operate autonomously. With more than 60 years of experience in power conversion, Crane Aerospace & Electronics offers a total solution for advanced high-power microgrid deployment and a full line of designs that include off-the-shelf and custom power solutions for the commercial aerospace, defense and space markets. Crane Aerospace & Electronics has developed and continues to develop power supply products that are interactive in all electrical distribution systems. As trusted industry leaders in Power & Advanced Packaging Solutions, our products meet the requirements from mission-critical applications while delivering the efficiency and the reliability that our customers demand. While in an evolving market, we estimate that our addressable market for bidirectional high-power conversion could be in excess of $100 million by 2030. And it will not be fully mature market at that point, so we have decades of high-growth ahead of us. We continue to invest heavily in research and development, and that is guided by our rigorous and structured strategy development process. Through that process, we identified a need for a high-power lab to support our long-term growth requirements. And this new lab opened late last year in Fort Walton Beach, Florida. The lab is capable of testing systems requiring 1 megawatt of power, and it incorporates the latest in safety, power and environmental test capabilities to support our customers' high-power conversion needs. For a frame of reference, 1 megawatt powers about 800 homes or the complete operating load of a Boeing 787 aircraft. We believe the power conversion market has significant growth potential, and our unique set of skills and capabilities will allow us to develop a clear market-leading position. We expect to be able to expand our defense power addressable market from $400 million today to more than double that size by 2030 with accelerating growth beyond 2030 and trends towards electrification strengthening further. Thank you, and we will now move to Hilary King, who will discuss our sensing capabilities.

Thanks, Trey, and welcome, everyone, to Lynnwood, Washington. My name is Hilary King, and I'm the Vice President and General Manager of Crane A&E's Sensing and Power Systems Solution. The Sensing & Power systems solution has a rich heritage of providing high accuracy, proximity and pressure sensing systems for commercial and military aircraft since 1964. Our sensors, switches and electronics are highly accurate and ruggedized for installation and operation in harsh environments. These products enable performance of critical systems, providing real-time data at the source for performance control and health monitoring. Today, we have a very strong position in our niche sensing market with more than 1/3 of a $300 million served market for our current sensing solutions. Investments we are making today position us to expand our addressable market substantially and to gain exposure to the much larger $3 billion aviation sensing market. We are well positioned to benefit from the market recovery as production rates increase and as the need for spares and repairs grows with increased traffic demand. Based on our current market outlook and the content we have already won, our sales should grow at a 7% CAGR through 2030. Our growth initiatives to expand our addressable market and drive breakthrough innovation should add approximately 3 points to that growth rate for a total 10% CAGR through 2030. We have a long-standing reputation for innovation and highly engineered products designed to operate in harsh environments with mission-critical applications. The strength of our position in the market is evident from the breadth of our customer base with original equipment and retrofit products on virtually every major aircraft platform from large transport aircraft to regional and business jets to military aircraft. Today, our Sensing products can be found as line-fit on nearly every major commercial aircraft type from the A320neo and 737 MAX and on premier military platforms such as the JSF and V-22. Many of our systems have also been certified for retrofit on numerous business and regional jet models. Applications of our proximity sensing products include detecting discrete positions, for example, open or closed, retracted or deployed. Our active sensors are capable of detecting specific measurements of gap for critical systems such as landing gear, cargo and passenger doors and leading-edge devices such as control services and thrust reversers. Our pressure sensing products can be found as mission-critical components in engine electronics to detect multistage pressure. Pressure sensors can also be installed in aircraft tires to provide either wired or wireless tire pressure and temperature data to an onboard cockpit system or to a ground maintenance handheld device. In addition to detecting and transmitting data, we offer complex control system hardware and software, which controls the position of landing gear, passenger and cargo doors, control surfaces and nose wheel steering. At Crane, we set ourselves apart from our peer companies by driving continuous improvement with the application of our robust CBS tools. This mindset lends itself well to seeking new and improved ways of designing and manufacturing products for cost reduction. It also provides a structured methodology of strategic deployment resulting in an expansion of our sensing portfolio to create more value for our customers. We have recently launched several new and expanded products, many of which are entering production this year. These include a rapidly configurable switch or RCS, developed with a modular library concept, which allows for quick and easy customization and certification compared to a traditional standard product. New enhancements to our pressure sensors, which extend our range of addressable engine and fluid applications. Additions to our SmartStem line of Tire Pressure Sensing Solutions that add temperature compensation to support hot check or pressure and shorter aircraft turn times at the gate. These new products expand our addressable market by more than $100 million in the next decade. Early adopters include the Viking CL-415 water bomber with a ruggedized version of our proximity sensor for the harsh environment of the bomb bay door. Eviation Alice, all-electric subregional, the first application of our rapidly configurable switch, now starting test at the new Iron Bird facility in Washington. Airbus ZEROe initiative, evaluating Crane A&E high accuracy pressure sensor to replace internal fuel tank probes and eliminate fuel tank wiring. A commercial demonstrator project with a unique application of our SmartStem Wireless Tire Pressure system, driving continued aircraft weight reduction for fuel and emission savings while demonstrating new wireless data applications for commercial aircraft. Just as Trey described the electrification in military applications, commercial aircraft electrification is also a significant trend. Driven by the desire to reduce or eliminate dependence on fossil fuels in favor of alternate means of propulsion to reduce the carbon footprint of aviation. As hybrid and all-electric propulsion technology for commercial flight matures, the demand for the higher power, higher voltage power conversion continues to increase for aircraft as well as ground-based applications. But electrification also facilitates new and more efficient aircraft subsystems. And it's driving the rapid escalation of electric air vehicles that can offer low operational cost for short range, point-to-point urban and intercity travel. We recognized opportunities to drive lower cost sensing systems which would support a growing demand for sensing data as novel aircraft systems began to proliferate. For example, use of rotor position for flight control creates critical needs for physician, rotation and displacement information, only accessible external to the vehicle, anticipating a need for lightweight systems, we have invested heavily in adapting technologies in daily use in commercial electronics to aviation applications. Sensing systems have to be able to support these new types of aircraft. And the critical breakthrough innovation is to develop sensors that have both long-range wireless data transmission capabilities and also a wireless in the sense that they can operate independently from aircraft power. These advances are critical. Elimination of wiring significantly reduces the cost and weight of the installed system. Further, the ability to transmit data wirelessly over several meters, combined with our proven ability to develop products that withstand harsh environments outside the pressure vessel allows sensors to be installed in extreme locations. Installation is far simpler and wireless sensing systems can be easily retrofitted onto existing aircraft. We have also applied these technology breakthroughs to our electronic control systems developing compact, lightweight, wireless data concentrators to aggregate sensor data and provide critical system parameters and health to onboard or off-board systems. We have made substantial advances with these new technologies, and we will be starting flight tests and demonstrations in mid-2021. We believe this is well ahead of our potential competition. There are numerous challenges associated with wireless sensing and data transmission on aircraft. These are components of mission-critical systems that are exposed to harsh environments, operating in extreme temperatures and surviving lightning strike, high vibration and shock. We have unique experience in this space that positions us for success in a few ways, including our extensive background in both sensing and the power systems needed to support those sensors. We believe the demand for critical systems data will drive a significant proliferation of sensors, and our technology and capability discriminators will allow us to develop a clear market-leading position. We estimate the aviation wireless sensing market to be about $50 million today, more than doubling by 2030 with even more dramatic growth after 2035 as the demand for urban air mobility proliferates. It is our expectation that our game-changing applications will enable Crane to capture at least 40% of that market, resulting in cumulative sales growth of $60 million by 2030, with a resulting sales CAGR of 21%. And we think the importance of this capability will increase substantially beyond 2030. Crane's sensing and power systems will grow significantly above market expectations over the next decade. This includes forward and retrofit opportunities for current and planned sensing components and systems by leveraging our industry-leading proximity and pressure sensing physicians, combined with our expertise in modular design, rugged packaging, wireless connectivity and battery life management, we will create unique, scalable products for both our existing Tier 1 aerospace and defense base as well as start-ups looking for advanced Sensing & Control developed with a legacy of aerospace qualification and certification. Thank you so much. And now let me send it over to Jay Higgs.

Good afternoon. My name is Jay Higgs. I'm the Vice President and General Manager of the Fluid Management Solution at Crane Aerospace & Electronics Space in Elyria, Ohio. The Fluid Management Solution with the Crane Aerospace & Electronics provides products, which handle fluid and aircraft engine and airframe systems, and we've been developing application-critical fluid components since 1904. This includes lubrication pumps, fuel pumps, water pumps, cooling pumps and fuel flow transmitters. Within our $300 million directly addressable market, we have a #1 or #2 market position in each of the types of products we design and manufacture. Based on our strong portfolio of products and our installed base, we expect to grow at a current market space at a rate of over 10% per year through the end of the decade, reflecting both market growth and share gains from an expansion of our served market. Almost every commercial or military aircraft that flies today is using a Crane Fluid Management product. Our OEM customers include engine manufacturers like General Electric Aviation, Rolls-Royce and Pratt & Whitney as well as major airframers like Boeing, Airbus, Lockheed Martin and Northrop Grumman. These customers rely on us to provide innovative, highly reliable products, which are critical to mission success, can perform in harsh engine and airframe operating environments and can do so for 15,000 to 40,000 hours without need for repair or replacement. Like you've heard throughout this afternoon's presentations, we have a strong legacy installed base. We are winning new programs and platforms today, and we are making significant progress driving breakthrough innovation to support our customers' future needs. With our strong legacy position, Crane Fluid Management sets itself apart from our competition in several important ways. First, our differentiating technology. Our current pump and fuel flow measurement products have design features and manufacturing processes that cannot be replicated by other suppliers. One example is Crane's proprietary vane technology, which is used primarily in our Lube & Scavenge pumps. This technology offers significant advantages as compared to gear or gerotor-based pumps, dramatically reducing product size and weight, while at the same time, providing significantly more efficient hydraulic and mechanical operation. These features are increasingly important for lubrication pumps operating at the extremely high oil fill rates required by newer geared turbofan applications like Pratt & Whitney PurePower family and the Rolls-Royce UltraFan. For context, these geared turbofan designs require up to 75 gallons per minute of lubrication, approximately 3x more than a traditional design. Our pumps also provide the necessary high-altitude air oil pumping capability demanded by modern-day commercial and military engine applications. Another example of our technology differentiation is our fuel flow transmitter product which provides a level of fuel flow measurement accuracy equivalent to a highly sophisticated lab instrument, while at the same time, delivering this capability in an aircraft engine operating environment where temperatures range from minus 65 degrees Fahrenheit to 400 degrees Fahrenheit with pressures up to 3,000 PSI. This is the standard in our industry for mass fuel flow measurement on today's aircraft, and we have nearly 90% market share for new installations. Every major aircraft engine developed in the last 10 years is using our fuel flow measurement device to provide mass fuel flow indication. But it's not just our differentiating product capabilities that set us apart from our competition. We are a highly vertically integrated manufacturer, whereas most of our competitors have an assembly and test model with limited, if ain't, true manufacturing capability in-house, we are quite the opposite. We pride ourselves on in-house control of our many proprietary manufacturing and test processes. Our manufacturing capabilities are aligned to provide speed and agility, creating products in record times with short development lead times, high levels of customization and optimization and quick turn of customer design changes. This capability provides a unique opportunity to our customers, allowing them to optimize design requirements throughout the course of the development without impact to the overall schedule and provides a highly optimized product and production launch. These high value, highly differentiated products have led to expanded market share in recent years and have positioned us to be successful on next-generation engine and aircraft platforms. As an example, given our strong incumbent position with all leading engine OEMs, we are participating in several Tier 1 engine demonstrated programs, including the Rolls-Royce UltraFan as well as programs with GE Aviation and Pratt & Whitney. For these applications, we have developed lightweight, high-performance lube & Scavenge pump solutions with unique capabilities corresponding to the specific and nuanced mission requirements of each platform. Further, we are leveraging our industry-leading fuel flow measurement capability to enhance the accuracy of the next-generation of aircraft engine fuel control, participating with several leading Tier 1 customers on demonstrated for future commercial military aircraft. And last, we were recently selected by Airbus to participate in their Wing of Tomorrow program. We are currently developing a high-voltage smart pump to be used in a future aircraft fuel system. Together, these initiatives will position us to grow share in our addressable market by at least $130 million in the next decade, resulting in a 10% compound annual growth rate through the period. You heard about electrification trends and our solutions from Trey and Hilary. More electric solutions produce quite a bit of heat, which needs to be dissipated and managed. As we look beyond our current core products for sales growth, one key market trend that stands out is the need for advanced thermal management in more electric aircraft, more electric vehicles, power generation, hybrid and pure electric propulsion. These applications require breakthrough innovations, not just incremental iterative improvements to existing solutions. Specifically, these more electric applications have far more intense cooling needs than in the past, particularly given the move to higher power. Within the thermal management space, our target market is liquid cooling pumps and systems. As a reference point for understanding, you can cool about 1 to 1.5 watts per square inch with air, less than half of that with a conductive heat sink. But with liquid, you can cool up to 100 watts per square inch or better. While liquid cooling is more complex than other more traditional forms of passive cooling, the power densities are rapidly reaching the point where the only practical way to remove heat is through the use of liquid cooling. We expect the growth rate of liquid cooling systems to be at least in the high single digits through the end of the decade. Liquid cooling pumps and systems is a natural extension of Crane's substantial expertise in pumps, systems, sensing, motor and motor control. We're investing heavily in the technology building box to be successful in this space, including the development of smart pumps with embedded sensors, health monitoring, brushless DC motors in a range of 28 volt to 270 volt, up to 700 volt, digital and analog motor control, along with reservoirs, valves and advanced heat exchangers to complete a liquid cooling system. These products, combined with our existing vertical integration and advanced manufacturing capabilities provide a speed and agility advantage our competitors can't match. And while there are lots of players in the thermal management space, none has the broad expertise in both Pumps & Systems components as well as motors and motor control, which can deliver a completely integrated solution optimized for each specific application. One key technical highlight worth discussing in detail, Crane's approached the motors and motor control portion of the liquid cooling pumps. In the more electric aircraft world, to be a great pump supplier, you must have motor-driven pump products that can adapt to a wide range of power sources and voltage levels. While in the past, it may have been sufficient to provide simple 400 ACR or low-voltage DC motor drilling pumps, today's systems and the ones coming later in the decade and beyond will require a high degree of operational flexibility within the multiple different electrical system architectures being deployed. While this will certainly include low voltage DC in a range from traditional 28 volt, up to newer 482 volt architectures, it will also require expanded capability on the high end, well beyond 270 volts to 540, 600 and even 700-volt systems. This is where Crane's Power Conversion expertise, previously mentioned by Trey, and our Sensing Control expertise, previously mentioned by Hilary, is being leveraged as we seek to create motor controlled products to fit any power range in any application. More specifically, Crane is developing a complete family of motors and motor controls within a modular concept, addressing the various power ranges, voltage levels and form factors that will be required for pump products throughout the next decade. The modular approach of this motor control platform will print easy transition to other pump types and systems as well supporting other rotating equipment applications as we mature. In terms of how we will attack the market, our initial focus is on liquid cooling for aerospace, power and propulsion systems, generator cooling, pure electric, hybrid electric and fuel cells for aircraft. A step after that will be product adjacencies for ground-based radar, defense land vehicles and other applications where Trey's business is most actively engaged. In all applications, we'll be able to provide both highly customized cooling solutions to sophisticated Tier 1 aerospace and defense suppliers as well as off-the-shelf configurable solutions for new industry entrants who have less developed Aerospace & Defense pedigree, but who are still looking for certifiable cooling solutions to enable their disruptive technologies. An example of the type of disruptive applications we are targeting with our liquid cooling equipment include pure electric and hybrid electric propulsion systems in commercial and general aviation transportation, unmanned air vehicles, or UAVs, and urban air mobility solutions, or UAMs. We are currently supporting several customers in this space with products for their power generation and propulsion demonstrator programs. We believe the liquid cooling system market has significant growth potential as one of the most critical enablers of more electric world. Importantly, our unique set of skills and capabilities position us to maintain our clear market-leading position. We estimate the thermal management market for aerospace, space and defense to be about $1.1 billion today, growing to $1.8 billion by 2030, with even more dramatic growth after that, with the percentage of liquid cooling systems in the thermal management space growing from just below 20% share today to over 30% share in that time. It's our expectation that with the investment and innovation we are driving today, we'll be able to secure at least 30% of that market, resulting in cumulative sales growth of $300 million by 2030, with the resulting sales compound annual growth rate of over 15%. In conclusion, Crane Fluid Management is uniquely positioned to drive significant above-market sales growth over the next decade. This includes double the rate of market growth in our currently addressable markets and significant share gain capture within the thermal management space. We will do this by leveraging our industry-leading pump and transmitter products, combined with our expertise in power conversion, motors, motor control and sensing to create unique, highly scalable products for both our existing Tier 1 aerospace and defense space as well as our start-ups looking for advanced liquid cooling solutions with the built-in pedigree to meet stringent aerospace and defense certification requirements.

Thanks, Trey, Hilary and Jay. An impressive array of opportunities. I hope you have a better appreciation of why we're so excited about our opportunities, a business with strong legacy installed base, expanding our core addressable market every day. And driving breakthrough innovation to achieve even higher growth rates over time, confident in our ability to achieve 7% to 9% sales CAGR from 2020 to 2030 with many of our growth areas accelerating thereafter. New products, technology and innovation are all critical to achieve our growth objectives. But those goals would be unattainable if they weren't paired with Crane's culture, a passion for driving our business and driving for success every day, a passion for the customer, a reputation for providing our customers with distinctive and value-added products and a passion for driving continuous improvement in both process and results, supported by the structure and discipline of the Crane business system. And as we have discussed in the past, throughout Crane, CBS is far more than lean manufacturing. It's a holistic business system and a key differentiator for us. CBS drive financial discipline, strategic discipline and execution discipline, which together help us consistently deliver profitable growth. And of course, the benefits of CBS extend well beyond technology and product development. Today, CBS is critical to managing 2,200 associates across our manufacturing sites. But while this is our footprint today, we have spent years optimizing our manufacturing footprint. 10 years ago, we had 12 facilities. And we reduced that by 1/3, while supporting higher sales volumes through CBS-driven efficiencies. And we reduced the number of facilities. We increased our capacity, and we're confident that we can support our expected future growth through 2030 without the need for brick-and-mortar. As we consolidated our facilities through CBS deployment, we have also materially improved the efficiency of each site. Let me turn it over to Tony Velotta, our Vice President of Operations, to discuss 2 of our more recent facility moves and how CBS was critical to our success.

Thank you, Steve. In previous conferences, you have seen examples of how the Crane business system drives financial results. Today, in addition to how we leverage CBS to drive results on a daily basis, I am going to highlight how we executed seamlessly on 2 incredibly complex facility moves. In one, we consolidated 2 major manufacturing facilities, absorbing our Redmond, Washington facility into our site in Lynnwood. This was made possible after years of Kaizen and other continuous improvement events that freed up space and eliminated waste across both facilities. The second facility move was the transfer of our Kaohsiung, Taiwan operations to a new state-of-the-art upgraded facility. In 1996, Crane acquired Interpoint, which is now our modular power business with facilities in Redmond, Washington and Kaohsiung, Taiwan. Modular power's primary products are DC to DC power converters and EMI filters for commercial and military aircraft, missiles and launches and space applications in a variety of grades, including radiation hardened space class, high reliability off-the-shelf or cots and mill standard specifications. Moving both the Redmond and Kaohsiung facilities was particularly complex because we needed to retain our highly trained and skilled workforce from each facility, moving modular power production required recertification for certain classes of products, particularly most standard. And each facility had equipment and processes which were carefully calibrated and could be disrupted by a move. And finally, both facilities were located in challenging real estate markets. First, let me explain the Redmond move. After years of deploying CBS and freeing up thousands of square feet of both manufacturing and office space, we decided to consolidate our Redmond facility into our Lynnwood site, which is Aerospace & Electronics' largest manufacturing facility in its headquarters, a 200,000 square foot facility. The 2 facilities were only 15 miles apart. So we expected to retain our associates. Moving into Lynnwood also facilitated a modernization of Lynnwood's manufacturing and office spaces, reduced overhead to improve profitability and improved collaboration by co-locating teams. The Redmond move first required creation of 20,000 square feet of space in Lynnwood. We started with the redesign of Lynnwood manufacturing cells, moving to a modular structure, which created the ability for rapid reconfiguration as needs evolved and is part of the ongoing continuous improvement process. Then we outsource Lynnwood's sheet metal factory, a low value-added activity to make space for a new state-of-the-art clean room for Redmond's operations. The next step was to move our fuel flow testing process to a new building in the creation of a new modular power lab. Outside of the factory floor, we also upgraded 60,000 square feet of office to a modern open office environment to support collaboration and communication. The move required close collaboration between quality, operations, engineering and facilities to relocate equipment, validate processes and then recertifying operations. In total, we moved more than 350 pieces of equipment requiring 50 truckloads. Now let me show you the move in Kaohsiung. In Kaohsiung, as we approach the end of a lease, we decided that we needed a larger facility to support growth with modern features and capabilities that we did not have in our existing facility. Given the lack of suitable facilities in the city, we decided to lease a new facility built to our specifications, about 1.5 mile away from our former site. In Kaohsiung, we moved into this new 64,000 square foot facility, completed the move in 5 days from the beginning of the packing process to the delivery of the last shipment of office and production equipment and involved over 74 truckloads. We had front-end processes up and running within a week of the start of the move. And full production resumed 2 weeks after the move began. While each of these moves had its own unique challenges, we used the same planning and execution process straight from our CBS toolbox, in drawing on experience with other facility moves across Crane. That process included a structured analysis of requirements and all potential alternatives, an extensive risk mitigation plan that in these cases involve months of inventory buffer to ensure no customer disruptions and carefully documented processes to ensure consistency in manufacturing operations in the new location. These projects also had dedicated full-time program directors and engineering support and a rigorous cadence and schedule of reviews was established involving all levels of management that were actively involved in ongoing problem solving. And the results speak for themselves. Within 2 months of each move, our facilities had received certification in AS9100, completed required qualification tests and received approval from the DLA to begin shipping compliant products from the new locations. Given the success of our planning and risk mitigation process, we had no customer delivery disruptions and 0 quality escapes. In Washington, we realized annualized cost savings of $3 million. And the old Redmond facility was sold for $20 million, which more than covered the costs of the move. These are just 2 examples that show the value of the CBS approach and how a detailed planning process, followed by a rigorous cadence of frequent reviews is critical to our success. But beyond major projects, such as facility moves, CBS also provides the foundational principles to achieve our strategic objectives and to fuel incremental improvements each day. From our strategy deployment process informed by the voice of the customer, we cascade initiatives that flow throughout our business and into our factories. We use a structured yet nimble approach with operations at every site aligned with core CBS principles, but with the flexibility and autonomy to support the needs of each specific solution. We also construct CBS roadmaps at each facility, a long-term holistic plan that drives core initiatives and focused improvement activities within each site, and we then established a schedule of Kaizen's and other events to drive actions cross-functionally throughout the organization in pursuit of breakthrough improvement. Progress against that long-term plan is evaluated and measured. Each site drives a cadence of monthly operating reviews of key business level metrics of our performance compared to plan. This rigor drives a collaborative discussion in understanding fundamental needs and celebration of successes relative to our commitments. Further, these metrics are cascaded into more specific deliverables in our flash reviews. Conducted at the site level engaging cross-functional leadership at each location and their supporting staffs. Finally, daily key performance indicators or KPIs are observed during gemba at the point of impact in the cells, in the office, in the field where the work is done. This cycle fuel's a collaborative process of continuous improvement that drives incremental gains each and every day. Often, our greatest achievements are seen in the small daily wins we achieved by practicing our core CBS values. Boundaryless is the way I would describe our passion for continuous improvement. Throughout each function in our organization, we emphasize the importance in understanding the score if we're winning every day. In conclusion, CBS provides our framework in approaching business excellence across all functions within the organization from executing major onetime projects like facility consolidations to daily execution supporting our customers. Those outside of Crane sometimes think of CBS is primarily operational in nature. However, at Crane, we foster an environment that enables creativity and ingenuity of all associates across each functional area to improve our daily work. Engage every associate and to drive innovation and growth to create value for our customers and shareholders. Back to you, Steve.

Thank you, Tony. In summary, Crane Aerospace & Electronics provides our customers with unique capabilities and industry-leading products and technology. We have rich positions on long-running programs and a consistent track record of winning new business. And every year, through a systematic cadence of strategy deployment, Crane Aerospace & Electronics has continued to invest and drive our technology and product portfolio forward. We are expanding our core addressable market every day and driving breakthrough innovation to achieve even higher growth rates over time. We see growth opportunities, not only in our traditional markets, but also in areas outside of our core Aerospace & Defense domains. We see significant opportunities to pursue adjacencies grounded in our technical core competencies, both organically and inorganically. We're confident in our path forward and are secure in delivering 7% to 9% CAGR through 2030. Thank you for spending time with us today. We look forward to your questions.

We will take our first question today from Matt Summerville with D.A. Davidson.

A couple of things. First, RD&E as a percent of sales for the A&E segment. Can you remind us what that looks like? And how that's going to grow relative to the sales CAGR? And I'd be curious as well how much of your RD&E spend today is really geared towards products focused on electrification?

So Matt, this is Rich. So today, we're roughly at that, I think, 7% to 8% range. A good majority of that moving -- if I look forward now from that 7% to 8%, as we grow, we're going to be a little bit efficient. We're not going to incrementally necessarily add to a -- that -- the absolute dollar amount today on a gross basis before we get any recoveries from customers. That's roughly, on a gross basis, about $100 million, which we did not stop all throughout the pandemic last year. So we maintained those investments all through last year. Looking forward, as revenues grow, I would not expect to keep all of that same spend. So maybe it's a couple of points or so, maybe 2.5 percentage points of that we hold.

And then my follow-up question is in regards to how much of that budget today is dedicated towards electrification? And how would that portion scale looking out over the next few years?

Yes. So I'd rather not, Matt, give you the specifics on that. I'd be giving you probably a wrong number. I have a rough guess, but I'd rather not give that to you today.

Got it. And then maybe just I'll throw one more in there then. Maybe can you comment on the M&A environment as it pertains specifically to A&E? Maybe talk about the actionability you see in the funnel? And what kind of multiple environment we should be expecting when we see deals here?

Yes. So what I would say is it's definitely picking up the activity in the Aerospace & Electronics and Defense space. We are seeing incremental activity certainly today versus, call it, even 3 or 4 months ago. So we are seeing activity pick up. We're optimistic that we'll see -- we'll be successful here over the next 12 months or so or whatever that might be. We have some pretty good confidence in terms of multiples. They are also relatively frothy here. But as we've indicated, we're going to be quite disciplined in our approach as we always have been, and make sure that we're not overpaying. What I would emphasize to you, Matt, is our success over the last several years in terms of driving synergies that enable us to -- have enabled us to see some good returns and to be able to leverage that, as I've indicated in my prepared remarks, to make sure that we are incrementally successful in terms of opportunities that we're going to face in the coming months.

We will take our next question from Tony Bancroft with Gabelli Funds.

Just regarding the fluid and thermal management business. Jay did a great job talking about that. But could you maybe discuss a little more about what's so unique about your products that they can't be easily replicated by sort of by your competition?

Steve, do you want to take that?

Yes, thanks for the question, Tony. Across all of our solutions, one of the things that makes us not easily duplicated is fundamentally 2 things. One, we do have formal intellectual property, but it's also the in-depth type of our design technology and manufacturing and construction techniques that are really trade secrets. And I guess, maybe what I'll do is I'll ask Jay Higgs to -- because you asked specifically about fluids to expand on that a little bit.

Yes, sure. Thanks for the question, Tony. So yes, as Steve said, we're very unique in the type of technologies that we bring to market for our current core products. So whereas like in the lubrication space, there's lots of people doing, I would call more generic gerotor or gear type products. We have a very, very specialized vane type product that's been perfected over a number of years, not just in terms of its design. But in terms of its materials of construction, it's heat treatments. The way parts get processed, the way they get machined to very high tolerances. And it provides us an advantage in terms of being able to make products which are much smaller, much lighter weight than the competition, but outperform actually well above what the expectations are. And then when you can take those kinds of pumping products and combine them with some of the clear advantages we have in power conversion, whether it be micro power conversion, like we do in modular power all the way up through what Trey is doing and some very large power conversion. And the combined Hilary's control piece to that. Now you're talking about electric motor-driven products that really we think are going to have a significant advantage there because they're so well versed in each of those components and how we tie them together to create a product that really no one else within their entire business has all those pieces of capability to make the single product out of.

That's great. Maybe -- so on the motor side, it seems like there are a lot of control -- motor control makers. What about -- what is -- what makes this -- your business sort of special in that capability and the capabilities in that area?

Yes, again, uniquely, I mean, certainly, we have expertise on the airframe itself in terms of the power conversion. So we understand the way the power is going to come to the motor controller. And then again, we've had the fortune or unfortunate, if you will, of being kind of someone who asked to buy motors and motor controls from others in the past. And we decided to take the path that we could do it better. We have expertise in this way of bringing the power. And especially as power's now or is going to be across multiple different types of architectures, like I said, all the way from like 28 volt up to 700 volt. And we really feel like we have an advantage there in taking the power conversion front side of that, with the power supply expertise we have, combined with the control expertise that Hilary's team can bring to what we're doing to create that one integrated controller that can function across multiple different electrical architectures. And then we're going to do that in a way where it's very modular, so that we're not reinventing the wheel with every single application. And then -- and that's going to be very important in our market space where the Tier 1s, they know exactly what they're doing, but a lot of the startups don't. And they need to have solutions that they can like pull off the shelf. And it can be very flexible even during their development to be -- to modify quickly to meet their needs, and we think that we're going to do very well with that.

Got it. That makes sense. And then maybe for Rich and/or Max or anyone else wants to jump in, maybe be more specific about what you're talking about with adjacencies that you intend to pursue both organically and inorganically?

Well, I think, as it relates to Aerospace & Electronics, Steve can chime in as well. But if you look at those core competencies, let's just take power conversion. So the list of core competencies power conversion. There's a list of opportunities, both in private equity as well as this gets to the M&A question a bit, too, what do we see? There's a lot of opportunities that are shaking loose from some of the strategics that have looked at their portfolios that have been consolidated over many years, and what may not be strategic for them, they are separating with, and it's providing opportunities that we're looking at. We also see some opportunities, both private as well as private equity in the power conversion space as well as others related to thermal management, RF frequency management sensing, so forth. So that's what we're looking at. The adjacencies tend to be in end markets, though, that are still highly demanding. We're not talking about highly commoditized product. We're not talking about automotive products. We're not talking -- we're -- it's going to be areas that require highly regulated environments where the cost of failure is very high. And you tend to see some of that in some niche applications in the medical space, a little bit, for example, with Myriad products that require power conversion. So that gives you just a hint at some of what we've been looking at. I don't know, Steve, if you'd add anything to that.

I would just expand on that, Max, a little bit, is that, yes, it's really -- when you look at aerospace itself, which is a very highly regulated environment. It requires a super high reliability of products that can fail in very difficult and challenging environments. And typically has a relatively -- the mix of volume in terms of production. It's a high mix environment. And that's what we were finally tuned, and we can really do that well. And as Max said, you can look at adjacent industries. For instance, in Medtech and see a lot of parallels. And so we're really excited about it.

Yes, that makes sense. Max, you sort of began, talked about the inflection point. In February and then again today, what's changed or what is so different? Maybe it could be specific about what gives you the confidence that your growth is going to be something that's sustainable going forward?

Yes, oversimplifying is, we've always been good. We've continued our excellence in commercial execution, driving all aspects, a good solid decade of strategic execution on breakthrough initiatives around new technology. That customer's desire to solve their most difficult problems. So whether it's process flow technologies, we've shown numerous examples in previous -- in February as well of the Myriad products that we're launching and having success with to the breakthrough thread and technology that we have on the currency side to Payment & Merchandising Technologies, winning in gaming on a consolidated connected environment. And it's just been incredibly exciting all in. This steady, relentless pursuit of a breakthrough technology, and that's what you heard today from the team, just an incredible series of holistic vision on where we're going, where the end markets are going to be positioned in the future and investing in the R&D now to position us. And this has been a solid decade, and so you're seeing that read through. We're on the demonstrators. We're on the pilot projects. So we've got this solid base, core base delivering revenue today that's growing as well as well positioned for the future. So that's the story across all of the strategic segments.

That makes sense. And, maybe back to Steve or you, Max, or Rich. As all these growth initiatives do gain traction, seems like that's going to be happening and you see higher growth in these new products that look pretty interesting. What implications do they have for your margin profile? Or how should we look at in general, broad strokes?

Yes. No, I think broad stroke is more of the same is what I would say, Tony. So pre-pandemic, we were at 24% OP, right, before -- I think it was 2019, 24 and change percent OP, building on Matt's question before on continued investments. We're going to continue to invest. But I think as we're continuing to gain scale with the growth on a percent basis, we'll probably see a little bit of improvement there. So that will just continue to read through to the bottom line. So I would say that our overall long-term margin targets are just -- they're not changed with respect to the segment and feel pretty good about what we're going to be able to deliver. These are all capabilities that we're talking about today. If you think about everything that you heard, it was all very high-value technology, right? This is not us being ready here for a commodity product launch, right? So this is going to command a nice margin profile for the business as we look out.

Yes. And maybe lastly, Steve, could you size sort of the -- you were talking about the military modernization upgrade program. When do you expect that this -- that delivery to start? And how confident are you about securing that contract?

So yes, that's a really exciting opportunity. We're currently in a competition to support a major upgrade for the F-16 program as a matter of fact. And our confidence is pretty high. We're the world-leading brake control technology, combined with our, really our long heritage of supporting the Air Force across a number of programs. So it's an exciting opportunity, and we expect it to provide in the neighborhood of $150 million in sales, right? Now there would be a development program, which would last 2 to 3 years. And then subsequent to that, probably 5 to 7 years, that would be the retrofit program ourselves. And it really -- it builds upon our successful wins on similar retrofit programs that we've already done on the same type of retrofit program on the C-130, which we executed, and the B-52. So it demonstrates the value of our technology and really the strong annuity-like revenue streams that the business enjoys.

Yes. And could that translate, I mean, obviously, it's a...

Tony, I think we're going to need to...

Sure. I'm so sorry.

But you can get back in queue, if you have some more questions, I think it'd be -- thanks, Tony.

And we will move next to Kristine Liwag with Morgan Stanley.

When you guys look at the capacity for acquisitions, you've got $1 billion this year and $2.5 billion by 2023. I mean, Max and Rich, it doesn't seem like a bolt-on acquisition in aerospace or even in your former Fluid Handling segment would need all that capacity. So what's your appetite for a larger type aerospace acquisition?

I think we're looking at all -- we continue -- we have been. So there's nothing -- there's no new change here. Kristine, we continue to look at all options, large and small. So I think the appetite is there, if the opportunity exists. That's the simple answer.

Yes, I think that's right. And the only thing, as we do look forward, this increased emphasis in the adjacent spaces will, I think, offer us a little bit more in the way of opportunities versus historically. So I think the combination of those 2 things, I think, are going to present quite a number of opportunities for us.

And when you guys talk about that opportunity set for the adjacent pieces, should we think about the business that you're targeting to be similar to the business as you have today in terms of where you are in the supply chain, meaning Tier 1 or Tier 3? Or do we expect you to move up one way or another in that vertical for the aerospace supply chain?

So what I would say, Kristine, is more along the same lines in terms of being a component -- largely a component provider. There could be a variance of that, whether it's some subassembly type product offerings, but mainly components is what I would say in terms of what we're going to be looking for.

Great. And lastly for me, and I'll jump back into the queue. When you look at the breakthrough technologies that you guys highlighted, how much of that do you think you can capture from internal R&D versus to bolt-on acquisitions?

Well, all of it. Everything we highlighted today would be through internal that we've invested in. And nothing here includes the acquisitive opportunities that we're going to be chasing. So our core growth is we feel pretty solid about.

I would say that our funnel of opportunities, we're obviously always looking at things that would help supplement if they're -- if they make sense. But nothing that you heard today had to do with anything on the come for an acquisition.

And we will move now to Nathan Jones with Stifel.

I could just do a couple of higher level questions. I'm having looked back at organic growth over about the last decade, excluding 2020 because that's obviously a bit of a weird year. You guys have grown organically in A&E about 4% over the 10 years ending 2019. You're now looking at a revenue growth rate, organic revenue growth rate, it's going to be double that. Maybe you can just breakdown into the larger buckets. What's driving the outgrowth relative to the previous decade over the next decade, given the 2010 to 2020 was a pretty good decade for commercial aerospace production and post the sequester was a pretty good decade for military spending growth as well?

Yes...

So -- Steve, let me take a shot and then if -- yes, and then you could add that would be great. So just looking historically, I think I would sort of -- stepping back, Nathan, we went through, what I would say is a pretty unprecedented level of investments over the last several years, right, on program-specific opportunities that you're all familiar with, all the narrow-body and other opportunities that we've chased and won over the years. And so -- and yes, over the last few years, what I would say is even I think in 2019, we were as high as, I want to say, it was a little over 6% core growth, pre-pandemic. So we started to see, I think, a lot of the momentum building through those years of investments with some of these narrow-body launches then picking up. As we -- through that same period of time, I would say, maybe in the last 7 years, in particular, we focused quite a bit of our investment, not only on those program-specific opportunities, but these more focused investments on electrification or increased electrification that we're pointing to today in terms of what our growth profile is going to look like in the future. So while we might have been at that 4% to feel that -- and now looking at that and comparing to the 7% to 9%, we feel really confident is what I would say. If you break that 7% to 9% down, 5% to 7% of that being really the core that we've already, frankly, have won. And then coming off of the 2020 base, feel extremely confident on. And so then it's really about this incremental 2% in terms of what we're going to gain from our technology leadership position and these years of investments as electrification picks up. So that would be the broad strokes, I would say. Steve, did you want to -- can you -- anything you want to elaborate on there?

Yes. I would just add one thing, in addition to what you said, Rich, about complementing our purpose-built new business pursuit and product development, where we moved to increase that by really developing basic technologies and product architectures in advance of customer needs. I'd say another very powerful driver that's happened over the last half a dozen years at least, is historically, the company's really operated as separate business solutions. And we're really transformed into a single integrated company. So now we're sharing technology, expertise and resources across all of A&E. And this has resulted really in our ability to secure ever larger content on programs. In fact, you probably caught today where Jay talks about thermal management systems. And then in our electric power part of the business where we're pulling in the controllers as well. And for instance, on our radar systems, now we not only provide the beam formers, right, but also the high-voltage power converters, and these are from separate solutions of our business. So the integration of our company really helps leverage and buttress this confidence in the growth we expect over the coming decade.

Just one other thing I would add, Nathan, is you mentioned defense if you look back over the last, I don't know, 18 months or so, we announced some pretty exciting defense wins that are incremental to it's not programs that we need to replace. These are new incremental programs that we're winning because of these investments, and they were sizable program wins, right, in excess of $100 million, right? And so that's incremental to what we historically would have seen during the period that you mentioned, and those were highlighted by Trey today. You still there, Nathan? Operator, are we still on?

I can hear you, Max.

Okay.

Yes. We are still connected here. It looks like Nathan has rejoined the queue. One moment, please.

I'll go back through the replay and listen to the answers as I got cut off and got back in.

Wow, it was a great answer.

My follow-up was going to be another -- a pretty high-level one on the margins. Steve just talked about 21% to 24% margins out about 10 years. If I look back, historically, at your contribution margins over the last 9 years, they've been in the upper 30s. If I build your revenue growth rate even of the depressed 2020 levels. It gets me into the upper 20s kind of margin level, can you talk about what are the offsets to that leverage that you might get on that revenue growth, whether there's higher R&D investments ahead, whether or not we're just being relatively conservative on that kind of outlook as we go forward long term.

Yes. I think it's a good question. It's probably a little bit of conservatism and being a little bit cautious about going that far. To the extent that we see opportunities to continue to invest to grow, we'll take those as well. And it's kind of hard to take full credit for what that math would suggest, which I don't disagree with, Nathan.

[Operator Instructions] We'll go next to Cliff Ransom with Ransom Research.

I -- it's wonderful seeing the game plan gel like this. It's been almost preordained, but it's really coming through over the vengeance. So thank you. With respect to Nathan's, always good questions on operating margins, you've got such opportunities to spend the money for future growth. That I hope you don't show too big on operating margin. But let me ask a different question. I think, I knew this before, but I really struck today that I should take extra confidence in your prognostications on some of these programs because these are relatively small programs. You're talking $100 million, $150 million, 30% of $1 billion, that kind of thing. So that your competition is not going to be able to meet your manufacturing rigor and operating rigor. I guess my question is, should I feel comfortable about this because of the kind of unusual way you've gone about building your business?

Steve, do you want to take it?

Well, I'd say that you mentioned the size of the programs that we go after. I mean, clearly, we have a product portfolio and a technology suite, right? Focused on areas where we are clearly either #1, or if not #1, close to #2. So our ability to go after these programs, win them and beat the competition and then having the process rigor, right, through our CBS to drive both the technical performance and the financial performance, it's really the sweet spot for us. That's the size of programs that we're good at, and that's what we really call home base, and we expect to continue to do that.

Steve, let me ask you a quick question. So if Max doesn't get mad at me because I ask it all the time. When I look at your very nice balloon, describing the Crane Business System. I'm looking for where employees fit on that balloon diagram. To me everything starts with the engaged employee. I know that's a bias of my own, but I'm struck that there's no kind of -- where do they get lumped into your various parts of that balloon?

Well, Cliff, I would -- my first answer to you is, hey, our employees are core to our whole business. And at the beginning of the presentation, when Max cited the R.T. Crane resolution, I mean, clearly, to be liberal and just towards employees, this is something that we take extremely seriously across the business. It's not only the responsibility of management. In fact, it's encouraged employee to employee. So it's in various companies I've worked at, it's really a breathtaking and solid difference that Crane drives is really the treatment of employees and the mutual respect. It's a great place to work and develop a career. So that's what I would offer.

I'm sorry. If I could jump in just real quick. So Cliff, this is Tony Velotta. So thank you for asking the question. I think Steve articulated it well. But you almost see it twice on that presentation right? We tend to -- when we present this to our associates where we talk about the voice of the customer taking us to the sun, and the sun is represented about, obviously, the customer, shareholders and then, of course, ourselves as associates. And then when we look at the balloon and we examine the fabric of the balloon is supporting really all of us, the team that drives it principally, safety, quality, delivering costs as we build out our road maps, and we look to align with the strategy that you've heard from the solution leaders today. So that's pretty much how we talk about it.

And we'll take a follow-up question from Kristine Liwag with Morgan Stanley.

So this question is for Steve and Trey on electrification. Can you guys give us an idea of where we are in the electrification journey? Are we on the third inning, the sixth inning of this? And then also, as we see more electrification, does that increase your need for semiconductors?

Well, okay. So I'll start off and then ask Trey to expand on it. In terms of where we are in the journey, of course, when you look at globally, the idea of more electric, this has been around for some time. And I think all of us can see that it's even starting to dramatically impact our personal lives, the cars that we're going to be driving are rapidly moving there. With respect to aerospace, it's lagging the general move to electrification. I'd say that we're probably in closing out the third or fourth inning right here and with a lot of potential in front of us. And it really -- what's so exciting about it is it really plays into Crane's strength in our core businesses, not only -- we make power conversion products across the wide range of power levels from 5 watts to, as Trey mentioned, to a kilowatt, right -- excuse me, a megawatt. So we find our core competency is right in the heart of where, not only aerospace is moving, but the whole globe in terms of more electric. So we see pretty wonderful opportunities there. Trey, could I ask you to expand upon?

Sure. Thanks, Steve. And I would say I'd to align with Steve on -- I think I'd be closer to the third inning than the fourth. But in terms of -- it's still pretty early. And then in terms of the demand for semiconductors, that would clearly be going up. And we talked about the increasing power levels and increasing thermal management. I think that technology, as it evolves, is going to be really important to our success. And that demand for semiconductors is clearly going to go up for us.

Great. And right now, there's discussions of shortages of chips. So how do you guys think about managing your supply chain, especially if this is the direction where the industry is moving.

So I guess I'll -- Kristine I'll answer and then maybe Tony will expand. We do see some areas of tight supplies, but I'll tell you one of the traditional strength of Crane is our proactive and really diligent management of both our -- not only our internal manufacturing capacity, but that of our extended supply chain partners. So Tony has got both a tactical supply chain team, which is really all over the near -- managing the near-term needs of the business as well as a strategic supply chain team that's not only creating relationships with our long-term suppliers, but working very closely with the front-end to take a look at long-range forecast of product needs and making sure that we have the rate readiness and partnerships necessary to support the business. So it's really one of the fundamental strengths of our business. Tony?

I think you said it pretty well, Steve. I think our process around anticipating where we're going to have some difficulties. I think we certainly got out in front of several things when the pandemic first hit out in the Far East, and when we talked about how do we anticipate, what's going on with the markets in Malaysia and India and China. And I think that process that we've used we were able to kind of identify a semiconductors may be a problem in the short term, right, but not necessarily long term. And then when we talk about the differentiation of our vertical integration and some of the unique designs that we had and we take a look at the landscape and we recognize that some of the semiconductors that we may not have buffered against going into some of the situation that we've had, has less of an impact to us. So we feel pretty good that we're going to manage through this. We think we'll come out of this pretty well, actually. And by the time some of the projects that Trey and the team have spoke of will be upfront of semiconductor demand.

There are no more questions at this time. I will now turn the call back over to Max Mitchell.

Well, super, outstanding. Thank you so much. Thanks, everyone. Just an incredible day. I continue to be so proud and impressed with the technology, the journey we've been on the opportunities. I really want to send my thanks to Steve, Trey, Hilary, Jay, Tony for representing your extended teams, our teams across A&E and then Crane so well today and sharing our update is really outstanding. I appreciate Rich, Jason for coordinating the event, really well done. I'm incredibly proud of our team's accomplishments. And I hope today gives you a better appreciation for the outstanding position we have now and moving forward, inflection at Crane, inflection in Aerospace & Electronics, over a decade of pursuing excellence in critical technologies that are sensitive to our customers, alignment of R&D efforts with secular trends in the industry, clear proof of that today. Technology and product development roadmaps that have positioned us ahead of our competition. We feel strongly on that. While an extremely strong portfolio of content on existing programs, providing stable recurring revenue today, resulting in our expectation of a 7% to 9% CAGR this decade. In addition, we announced continued efforts to shape our portfolio with the divestiture of Engineered Materials, while still holding guidance inflection, excitement, value creation. We look forward to speaking with you all again when we report our second quarter results in a few months. Thank you again for your time and interest in Crane today, and have a great day. Thanks, everyone.