Crane Company (CR) Earnings Call Transcript & Summary

So good morning. Welcome to Crane's 2024 Investor Day event. I'm Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax. Before we begin, I'd like to direct you to the disclaimers regarding forward-looking statements that are included both in our 10-K and 10-Qs as well as in today's presentation materials, which are available on our website. And just a reminder that we'll be setting 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 provided today. A few brief comments on logistics. First, we expect the event to end around 11:30 a.m. Second, we'll have Q&A sessions after each of the business presentations with additional general Q&A at the end. And third, for those listening to the webcast, slides are available for download in the Investors section of our website. And to start this morning, our first presenter is Max Mitchell, Crane's Chairman, President and CEO.

Good morning, everyone, everyone online as well. Thanks for being here. I'm pleased to be presenting to you today following one of the most eventful and consequential years in Crane's recent 170-year history. Building on our legacy, but truly a new focused Crane that has continued to show an ability to deliver results and shareholder value at a higher level and an accelerating pace. The most important message I want to leave you with this morning is the consistency of our message. Our messages today are very similar and, in many cases, identical to what we presented in March of last year pre-separation, and we think that's a positive for investors' confidence. We're off to a great start in our first year following the separation, delivering on our commitments we made last year and, in most areas, outperforming relative to our expectations. To summarize our investment thesis, we are very well positioned. 2 attractive segment, 2 attractive strategic growth platforms, aerospace electronics and process flow technologies, both outstanding businesses that have been performing very well with strong results last year, and with deep and defensible technology differentiation we will describe to you again today. Throughout the morning, you will hear how we are driving accelerating growth across the portfolio. We're confident that we can deliver 4% to 6% annual average core growth over the course of this decade, and we have proven credibility of executing well through all types of operating environments, and we will continue to deliver 35% to 40% operating leverage that will drive core profit growth at twice the rate of core sales growth. And on top of that operating performance, we have an extremely strong balance sheet, which supports substantial upside from capital deployment. And our disciplined track record is proven in this regard. This is very close to the slide we used last year to illustrate that investment thesis. The only 2 differences are sales now $300 million higher, a combination of outperforming relative to expectations in both '23 and '24 on core sales growth as well as the contribution from the 3 last acquisitions we have completed over the last year. And margins are about 300 basis points higher than in last year's slide. Again, primarily driven by over-delivering relative to previous guidance a year ago and continued out-performance in 2024. A compelling thesis of mid-single-digit core sales growth driving double-digit core EPS growth with substantial upside from capital deployment. Hey, before moving on to our outlook and our path forward, I do want to take a few minutes to review the journey that we have taken over the last few years. Our performance and future expectations are a direct outcome of very intentional actions that we have taken to invest and position ourselves for growth over the long-term. Alex and Jay will discuss the past their businesses have taken over more than a decade, but I'm going to walk through the strategic actions that we have taken post-COVID to position Crane for the success we've seen over the last few years. For those of you newer to the Crane's story. We believe this is an important context to understand where we have come from. And for those who have known us for years, a useful reminder. We've worked for decades to strengthen Crane's businesses and capabilities, decades, and we made very intentional decisions throughout the COVID pandemic to continue our investments in all key growth initiatives. Then coming out of COVID, some of the first pivotal events in our path towards the '23 separation occurred. Specifically, we made 3 announcements in May of 2021. First, we announced an agreement to sell the Engineered Materials segment to streamline and better focus our portfolio and to put that excellent business into an ownership structure that would best enable it to pursue both organic and inorganic growth. Second, we changed the name of what was then our Fluid Handling segment to process flow technologies. While many on the outside saw this just as a name change, the Fluid Handling name was from a legacy era and no longer reflected who we were or where we were strategically focused. This new name better conveyed internally as well as externally, our key focus, strengths and core competencies, providing proprietary and highly engineered process flow technology, primarily for the chemical, petrochemical, pharmaceutical, water, wastewater and industrial automation markets. Third, we held our first segment specific Investor Day event focused solely on Aerospace & Electronics. It was at that event that we first began to articulate our long-term target sales CAGR of 7% to 9%. And to explain in more detail than we had in the past, how differentiated and how well positioned this business really was. Today, we keep hearing questions about whether our Aerospace & Electronics targets are too conservative. But 3 years ago, while we spent several hours outlining our expectations with substantial supporting detail, there was healthy skepticism about our long-term position, which we have since delivered on. Then nearly a year later, in March of 2022, we announced our intent to separate into 2 independent publicly traded companies. We actually made that announcement in the same room we are presenting in today. At that time, we believe that separating our industrial businesses from the Crane NXT businesses would enable deeper operational focus, increased operating and financial flexibility and critically an ability to attract shareholder basis aligned with each company's clear value proposition. If you take the time to listen to what we said 26 months ago, everything has played out exactly as we planned or better. And the incredibly complex separation transaction was completed on exactly the time line we provided. While internally, preparation for the separation took an enormous amount of effort at corporate, we continue to pursue additional strategic transactions intended to enhance the value creation from the separation. One of those was in April 2022, when we announced the divestiture of Crane Supply, our Canadian distribution business. That decision was further evidence of our commitment to reshaping and restructuring our portfolio to accelerate growth, and it further streamlined our process flow technologies business with a greater focus on manufacturing, highly engineered products, for our core markets. A few weeks later, in late May 2022, we did face a modest setback in our plans when we had to terminate the sale of our Engineered Materials business because of objectives -- objections from the Department of Justice over a minor overlap in a small segment of that business with the proposed buyer. We then put that transaction on hold given market conditions for that business, as well as the accounting complexity of beginning another sale process while we were focused on the separation transaction. And then in August 2022, we announced the transaction to fully and completely divest our legacy asbestos liabilities. This transaction was the culmination of 2 years of work, including significant legal entity restructuring and then the execution of a complex sale process. The outcome, however, was well worth of work, increasing annual free cash flow available for us to invest in our business, both organically and inorganically, giving us substantial flexibility to optimize the capital structures for both post-separation companies, and providing finality and certainty to investors regarding the elimination of our asbestos obligations. And then on April 3, last year, the separation was completed on schedule and exactly as planned. From the beginning of 2021 through the separation, the series of activities I just described, along with our operational performance drove significant outperformance with Crane stock price increasing nearly 5x the S&P 500 return for the same period and more than twice the S&P mid-cap Cap Goods Index. A long planning process, strategic execution, a lot of activity in those 2 years proceeding to separation, but all critically important to ensure that the separation was as value creative as possible. We hosted our 2023 Annual Investor Day in March, a few weeks before the separation was completed. This slide shows what we told you at that event. We said that the separation would create 2 pure-play companies, each better positioned to deliver long-term growth and value creation for all stakeholders that the separation will provide better operating and financial flexibility to pursue growth opportunities, both organic and inorganic, and that it would remove the portfolio balance considerations that limited acquisition activity on PFT and A&E that we would be able to optimize capital allocation strategies to each company's business strategies, market-specific dynamics and outlook. And most importantly, we believe that the respective financial profiles and end market exposures of these great businesses appeal to fundamentally different shareholder bases. And that after separation, each company would be better able to align their unique value proposition with their natural shareholder base, creating substantial value. By nearly any measure, everything has played out exactly as we told you. This chart shows that the stock price appreciation for investors who owned our stock from the start of these activities in the beginning of 2021 and then held both Crane and NXT through the end of last month was 159% in a little under 3.5 years. That's more than 4x the return on the S&P 500 over the same period and more than twice the return of the S&P mid-cap Cap Goods index. And that great result came from strong performance from both Crane Company and Crane NXT because we, the management team and the Board made sure that both companies were set up for success post separation. And I'm extremely proud of the value that has been created by both companies. But today, we're just focused on Crane Company, and our results have been impressive. In 2023, we delivered 7% core growth with adjusted operating profit up 28%, 4x the rate of core growth, driving 320 basis points of adjusted operating margin expansion. And based on our latest guidance provided last month, we are on track for another great year in 2024 with 4% to 6% core growth, driving 19% adjusted operating profit growth or about 3x core sales growth, with another 140 basis points of adjusted operating margin expansion. And now we have 3 acquisitions completed in the last 3 quarters. So if you just look at Crane Company in the post separation period, we're off to a great strong start since last May with first quarter results. The stock price reaction was not as positive as the results themselves, which we believe was a result of our new shareholders taking time to become familiar with how we communicate, committing only to what we have direct line of sight to delivering, careful not to overpromise and more focused on executing and letting the results speak for themselves. And after second post-separation quarter of results better than expected, and as the stock started to rerate coming closer to where our peers were trading, we started to pull ahead of our benchmark indices. But the real inflection point was following third quarter results, yet another quarter of outperformance, along with the announcement of the Baum acquisition in Process Flow Technologies. Based on our discussions with our shareholders, this is where more and more investors began to appreciate that we were delivering on all of our commitments, accelerating top line growth, strong operating leverage and consistent execution and an M&A strategy focused on strengthening our existing business, nothing too big, too quickly, but finding those solid singles and doubles, perfectly aligned with our existing business. And you can see the reaction from the third quarter report with the Baum acquisition through January. When we announced Vian as well, another deal that is perfectly aligned with who we are, and what we do. Then fourth quarter results, 4 quarters in a row, post separation of beating expectations, and then a few weeks ago, first quarter 2024 results, again, better than expected with a significant increase to guidance along with the Cryoworks acquisition announcement. And so on this slide, you can see the performance we have driven just for Crane Company since the date of our separation, significant outperformance relative to the indices driven by consistent execution and doing exactly what we promised. That history serves as a reminder of why you should be confident in our outlook. We have a consistent and stable management team, key members of the management team in place for more than a decade with stability and continuity, a track record of delivering on our commitments and a track record of pursuing actions that drive shareholder value for the right reasons. While a lot has stayed the same, we also want to highlight what's different about new Crane, now that we are a year past separation. So who are we today? Crane is a leading global provider of highly engineered products and solutions with differentiated technology, highly respected brands and leadership positions in its markets. We provide mission-critical products to applications with high cost of failure, which drives significant recurring sales and with about 40% of total revenue from the aftermarket. Many of these products are specified into highly regulated end markets, further driving long-term customer attachment. We are well positioned for accelerating organic growth in large and attractive end markets with favorable secular trends, continued investment in new products and solutions and commercial excellence. Building on the organic theme -- organic growth theme. We are confident in a blended 4% to 6% core sales growth CAGR across the cycle. Jay Higgs will share more about our Aerospace & Electronics platform. An incredible business with highly differentiated and unique technology, substantial sole-source content on virtually every major commercial and military aerospace platform. And we are executing on a technology road map that aligns the business with accelerating trends most notably electrification. We are confident in our previously disclosed long-term 7% to 9% CAGR. And today, we will discuss how we are entering a period of at least a few years with average core sales growth nicely above that range. Over the last few years, growth has been driven largely by commercial markets, recovering from COVID, and we were well positioned on all of the right platforms. Looking ahead, while the commercial markets remain very strong, we will drive above-market growth from the numerous defense programs we have already won and our strong position. Really a secular growth and investment story with substantial margin upside in addition to the top line growth. Alex Alcala will highlight our outstanding Process Flow Technology segment. which is an extremely strong position in its core target markets of chemical, pharmaceuticals, water, wastewater and industrial automation, and those key markets now comprise nearly 2/3 of the business. He will share more on our accelerating new product development, with focused exposure to those target markets and our confidence in a 3% to 5% growth profile through the cycle, and the substantial opportunity to further expand margins well beyond the record 19.9% we delivered last year. So why are we so confident in this growth outlook? Our exceptional results are driven by outstanding strategy development, focused deployment an ongoing refinement of multiyear technology road maps across the businesses, supporting long-term differentiated products and solutions that solve our customers' problems, and the value we bring not only drives market outgrowth, but margin expansion. What separates Crane even through periods of uncertainty or market downturn is that we have consistently invested in engineering and new product development always ensuring we are positioned stronger than our competitors. By way of example, while many companies were executing on cost reduction activities during COVID, in our Aerospace & Electronics business, we maintained a $100 million gross engineering investment profile throughout the pandemic, ensuring we maintain our focus on the long-term. Those continued investments have proven incredibly important, as evidenced by our numerous program wins over the last few years and which supports our 7% to 9% growth rate in that business moving forward. And the story is no different in Process Flow Technologies, where we've continued to invest for the future with new product introductions being released at record pace and with significantly higher margins. Alex will share again how our new product vitality metrics continue to improve year after year and where we'll be in the next 3 years. As you have heard over the last few years, and you will continue to hear today, this investment has led to a steady stream of new products. Those new products are driving share gain and just as important are accretive to margins. As our capabilities driving growth have expanded over the last several years, we're moving beyond traditional product line extension, new product development. Today, an increasing focus of our investment spending is on breakthrough innovation in new markets, moving our products and capabilities ahead by multiple step functions at once and delivering new technology solutions. And Alex and Jay will discuss a number of these breakthroughs later this morning. And over the last decade as our capabilities in these areas have improved our new projects and initiatives have become increasingly ambitious. Last year, we discussed how we're building the CRYOFLO (sic) [ Cryo Flow ] hydrogen business organically from the ground up. Alex will provide an update on that initiative as well as how we are accelerating those plans with the recent acquisition of CryoWorks. Just as important as our expanding product portfolio is our continued progress driving commercial excellence with rigorous analytics and a growing level of sophistication. The voice of the customer has always been a critical component of our Crane business system, but we continue to improve and refine how we listen to and service our customers. That includes a structured channel management process and our businesses that rely on distribution, key account management in our businesses with large enterprise customers, enhanced product management across the company. Over the last few years, we've also made significant progress driving a more strategic approach to pricing, not just to cover inflation, but to ensure that we're being fully compensated for the value that we deliver to our customers and to ensure that we are spending our resources on the right sets of customers and products. Beyond our organic growth prospects, we have a strong balance sheet with the capacity to deploy approximately $4 billion through 2028. Rich will discuss this opportunity in more depth, but significant upside to expected core EPS growth in the double-digit range. At Crane, we also believe that how we operate, it's just as important to driving results as who we are and what we do. That how starts with Crane's strong foundation based on our culture, which we believe is a critical driver of value creation, a distinctive high-performance culture grounded in ethics and integrity, combined with our approach and commitment to philanthropy, sustainability and quality all underpinned by the cadence and discipline of the Crane Business System. More than 100 years of philanthropy. Nearly $25 million donated to charitable organizations and financially burdened former associates last year collectively from the Crane charitable funds. And a commitment to volunteerism where our associates participated in nearly 1,000 events in 19 countries last year, benefiting more than 400 different organizations. A focus on sustainability where we continue to make progress towards our 2030 targets to reduce carbon emissions, electricity usage, water intensity and reduce solid waste. And continuing to reinforce the quality across the world and how we conduct ourselves and treat one another throughout the organization, a culture that fosters trust and mutual respect at all levels of the organization. Let me take a moment to emphasize again our very long-standing ethical culture summed up in the RT Crane resolution written almost 170 years ago, 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 towards employees and to put my whole mind on the business. These powerful words continue to guide us today, speaking to ethics and integrity and how we conduct ourselves and our business for all stakeholders with a passion for the business. a resolution we will continue to honor and carry on in the years ahead. And in addition to our commitment to philanthropy, sustainability and quality, we rely on the Crane Business System or CBS, to guide how we operate our businesses every day. Few outside Crane, really understand how CBS works or how critical it is to our results. And that's why I don't speak to it too much beyond a high level. We are not like other organizations in comparing so-called business systems. We are unique. We walk the talk. It is an entire leadership culture. We will let the results to speak -- continue to speak for themselves. But for those of you that take the time to come visit one of our facilities, get to know us better. We will try to show you the discipline with which we operate that we believe is truly best-in-class. A rigorous data-driven management cadence with an attention to detail that few even try to replicate. A constant continuous improvement focus and mindset with world-class processes to help our associates drive results. Highest integrity, commitment, first and foremost is safety and quality, consistent reinforcement that both safety and quality are nonnegotiable, and they come before we even start to think about delivery, cost targets, growth and an ownership and execution structure with customer-focused general managers with direct P&L responsibility to ensure accountability at all levels. Investors should appreciate that there is a disciplined management system that underpins it all, driven directly by my leadership from top down to bottoms up in every lateral direction. CBS is a clear differentiator. So I spoke to this incredible culture and core growth opportunities. Let's move to our proven outstanding track record of inorganic growth and value creation. Beyond core growth, we will treat both PFT and A&E equally for capital deployment because both platforms have similar potential for high-return acquisitions. You're going to hear more from Alex and Jay regarding the core markets where we play today, as well as near adjacent markets where we have the right to win, like hydrogen and Process Flow Technologies, thermal management for more electric solutions in aerospace electronics. Markets in these spaces remain fragmented with many targets in our funnels sourced from either private sector, private equity-owned and increasingly from larger organizations where attractive assets are coming to the market through their own portfolio activities. We've shown that we can get acquisitions done in these spaces at reasonable multiples and businesses closely aligned with our own. We expect future acquisitions to be larger, but still in the midsize range. And as always, we remain disciplined in our approach and ensure returns meet or exceed our 10% ROIC expectation by year 5. Leveraging our very strong balance sheet with $1 billion of M&A capacity today, growing to $4 billion by 2028. And I'm excited about the opportunities to drive substantial shareholder value upside in the years ahead. And we have a long-proven track record of success with portfolio moves and as a disciplined and effective acquirer that spans decades. Since 2013, this management team has deployed more than $2 billion on 9 acquisitions across Aerospace & Electronics, Process Flow as well as what is now Crane NXT. And this includes just 3 in the last year. Those acquisitions strengthened our businesses, making them more competitive in their core markets and creating new opportunities for adjacent organic and inorganic growth. And we have generated strong returns on acquisitions. Over the last 10 years, the cumulative ROIC by year 5 was approximately 12.5%, even with the impact of COVID on those acquisitions. The combination of our capital structure and our very strong balance sheet, together with our strong earnings and free cash flow growth profile supports a substantial amount of potential capital deployment. Through 2028, we believe we have the capacity to deploy as much as $4 billion. Of course, the timing of acquisitions is it predictable, and both actionability and market conditions can change quickly. However, given our robust pipeline, of potential opportunities, along with our solid organic growth profile, our internal goal would roughly double the size of our growth platforms over the next 5 years. That's our vision. So what going to be -- what we're going to be working towards with a focus on high-return acquisitions that create value for our shareholders and improve the size and strength of our strategic growth platforms that will give us strategic portfolio optionality for the future. Our teams are motivated and highly energized, and we look forward to delivering on this vision. Of course, we will pursue this vision with the same discipline we always have, strategic acquisitions that make us stronger, never bigger for the sake of size and always focused on shareholder returns. You can expect to hear the same consistent messages throughout the day, the same messages you heard last year. And likely, the same ones we will repeat next year. We have 2 very strong global strategic growth platforms. They operate in large, attractive and growing end markets. We're growing faster than those end markets and overall expect mid-single-digit average annual core sales growth. That growth, along with our consistent execution, will drive strong operating leverage and profit growth at twice the rate of sales growth. And we have additional upside from capital deployment, using that strength and flexibility of our balance sheet. New Crane, all the best of our incredible history in legacy relaunched from a position of strength with enhanced focus and drive and passion quite honestly, to overdeliver on our expectations. With that, let me introduce Rich Maue, Crane's CFO, who will walk you through a financial overview with a focus on capital allocation. Rich?

Thanks, Max. Good morning, everybody. What an incredible year for Crane Company investors in 2023 and already an outstanding start to 2024. The excitement and excellence absolutely continues, and I look forward to catching up with many of you at the conclusion of today's event. I'll get right into 2023 highlights this morning. And then hit our outlook and close out on our progress deploying capital post separation, and more importantly, how we're thinking about the future. We reported extremely strong 2023 results in January. Full year core sales growth of 7%, 28% growth in adjusted operating profit and -- sorry, 320 basis points of expansion in adjusted operating profit margins, and that strength was broad-based. Growth was led by Aerospace & Electronics with 18% core sales growth, a record for the segment, driving 180 basis points of margin expansion. Leading indicators were also strong with core backlog growth of 14% by year-end. And that Process Flow Technologies, we also had a fantastic year, core sales growth of 5% at the high end of our targeted range and an incredible 370 basis point adjusted operating margin expansion to a record 19.9%. Incredible performance, again, above expectations and our and our initial guidance set -- against our initial guidance set in January of last year. And we achieved those results despite continued high levels of inflation and persistent supply chain constraints and labor availability challenges. Our performance demonstrates our ability to deliver consistent, differentiated best-in-class execution, enabled by the cadence and discipline of the Crane Business System and our strong, unique culture that Max just described. The benefits of CBS and our culture are clearest during challenging times, constantly being close to our business and over managing the details. A maniacal focus on eliminating waste and variation, while at the same time enabling and driving innovation and growth. It's this concept of differentiated execution that drives results. driven by a disciplined cadence with extreme accountability, a level of accountability that is only possible in an environment that is data-driven and continuous improvement focused. Alex and Jay will share more as we move through the day, this morning. It's what sets us apart, and it's what should give investors added comfort, particularly in periods of uncertainty. This discipline is not new. Based on our guidance, we now expect our 2 strategic growth platforms to have doubled margins over the last 20 years. That improvement has moved at an accelerated pace, particularly over the last 5 years. Notably, the more recent margin growth has also been driven and accompanied by strong sales growth. And given our outlook and normal operating leverage, we see substantial runway for margins ahead of us. Turning our outlook to -- turning to our 2024 outlook. As I said, we expect another very strong year. It's unchanged from what we presented last month with our first quarter results. Strong sales growth of 10%, evenly split between core and contributions from our recent acquisitions. That 10% sales growth will drive 20% adjusted operating profit growth and 140 basis points of operating margin expansion, again, following 320 basis points of expansion last year. Overall, we expect 14% EPS growth and 22% growth in adjusted EBITDA with greater than 90% free cash conversion. Continued excellent progress driving another year of record results. Also a reminder here of what we shared last month, a snapshot of our expectations for 2024. Financial strength continues to improve with adjusted EBITDA margins now approaching 20%, and nearly $2.3 billion in sales. Limited CapEx requirements and corporate costs that should decline over time as a percentage of sales. Two primary strategic growth platforms contributing 95% of our operating profit, a great balance between short and long cycle and OE and aftermarket, a strong business mix that will drive both strong core sales and continued margin expansion this year and, in the years, ahead. Shifting to capital allocation, an area where I am now spending more of my time than ever before. As we move forward, I can assure investors, we will use a rigorous and analytical approach to optimize our capital deployment in a manner that maximizes returns to our shareholders. Starting on the left, our priorities always start with internal investments to drive organic growth. Simply, these investments typically have the highest financial returns and our processes for evaluating internal investments, whether capital or expense are just as rigorous as our processes for evaluating acquisitions and returns to shareholders. You will hear about many of these investments during Alex and Jay's presentations where we continue to invest aggressively in research and development new product development and commercial excellence to drive growth. While we are typically a CapEx-light business, generally between 2% to 2.5% of sales, those capital investments are heavily focused on supporting profitable growth. After internal investments, we pursue value-accretive acquisitions, both bolt-ons and near adjacencies. And we have also a commitment to return excess cash to our shareholders. After the separation for 2023, we set a dividend of $0.72 per share annually, which reflected a dividend payout ratio on the then expected net income of approximately 20%. In January of this year, we raised that dividend by 14% to an annual rate of $0.82 per share. Going forward, we expect to grow the dividend in line with earnings, and we believe that this level of dividend provides a stable and attractive return, while ensuring that we have flexibility to continue our internal investments and to pursue acquisitions. And we view share repurchases as opportunistic. We have a strong preference for acquisitions because we believe that's the method of deploying capital that can generate the highest returns. And our disciplined track record demonstrates that. However, we always weigh and evaluate all uses of cash against each other. As a reminder, in October of 2021, we announced the largest repurchase program in our history, specifically citing high valuations and limited near-term pipeline of potential transactions. Today, our view of the M&A environment is far more optimistic due to our funnel and market dynamics. But that history shows you how we think about alternative uses of our capital. Our capital structure today provides us significant flexibility. We have a little under $250 million of Term Loan A debt outstanding, which matures in 2026. Last year, we increased the size of our revolving credit facility to $800 million. And after funding the CryoWorks acquisition, we have approximately $660 million of remaining availability on the revolver today. Beyond that, we have significant additional access to debt in the capital markets. As of the end of April, pro forma for the CryoWorks acquisition using 2024 EBITDA guidance, we have a net debt-to-EBITDA ratio of approximately 0.4x. So a very strong and flexible balance sheet, which we will support -- which will support a capital allocation, strategy that we believe will create substantial value. We very comfortably have more than $1 billion in M&A capacity today with reasonable projections reaching as much as $4 billion by 2028. Looking more closely at our capital deployment potential. Again, we believe we have between $3 billion and $4 billion of capital available for acquisitions and/or repurchases through 2028, the lower end if more focused towards repurchases, but around $4 billion again for acquisitions where we get the benefit of the acquired EBITDA. And that's after paying that competitive dividend I described and making necessary and appropriate internal investments. This estimate is based on a long-term net debt-to-EBITDA target range of 2x to 3x, a level we are very comfortable operating within. The flexibility to go above that range for a short period following an acquisition as long as we have direct line of sight to returning into that range within 12 to 18 months. We have a very robust acquisition pipeline in both our strategic growth platforms. we continue to add to and refine our target list to ensure alignment with our business strategy. Our areas of focus are directly linked to these targeted growth areas. You will hear more about them these focus areas later from both Alex and Jay. We do expect deals to become actionable in the quarters and years ahead and would reiterate that we have completed $2 billion of successful acquisitions in the last decade. And again, with very strong returns. And our disciplined approach to acquisitions extends beyond financial discipline, we are just as rigorous strategically. We have a process for evaluating both bolt-ons and adjacencies focused on factors, including attractiveness, fit with our existing capabilities and profitability objectives and the longer-term view on which end markets have options for extendability, increasing the number of target opportunities. And our track record, again, speaks for itself. Historically, our acquisition synergy realization has been 1.5 to 2x our initial target and the level required for us to hit our required returns. First, any acquisition must meet our strategy requirements. And second, from a financial criteria perspective, our approach is simple and straightforward. We require a 10% return on invested capital by year 5. In summary, potential transactions must meet all strategic and financial criteria. Jay and Alex will discuss our recent transactions in more detail, but I'll share a few thoughts on how we view these acquisitions from a portfolio and financial point of view. Starting in October or with October of 2023, the acquisition of Baum, a perfect fit strategically for our PFT segment. At the highest level, Crane is the #1 player in the U.S. for the products in this business -- this business market, and Baum is #1 in Europe. Given how close this is Decor, we will hit our financial criteria of greater than 10% ROIC by year 3, not by year 5 and potentially faster. While hard to find a transaction that is more core than this, and while returns will be very attractive, we do wish it was bigger. In January, we acquired Vian, a very near adjacency in our A&E segment. Vian and expands our portfolio of lubrication and pump system components technology that Jay will describe in great detail, a great mix of platforms represented by the highest volume aircraft, excellent content on the 737MAX, the A320Neo, and the F-35. Highly confident in 10% ROIC by year 5 with multiple paths to get there faster as we continue to integrate. And earlier this month, we closed on the acquisition of CryoWorks, a near adjacency in an acquisition and accelerates our existing organic initiative to build out our hydrogen business that Alex will describe in detail. From a financial perspective, this is a solid margin, high-growth business, just running it will get us to 10% ROIC by year 5. So post separation, we have not taken our foot off the pedal. In fact, frankly, we are only accelerating from here. A powerful, strong culture with a cadence and focus on accelerated growth and earnings leverage. We have a compelling value creation story, and we are extremely excited about the future of our 2 attractive growth platforms in Aerospace & Electronics and Process Flow Technologies. Alex and Jay will convincingly share with you how we are accelerating growth across the business, 4% to 6% on a combined basis over the long-term, and higher in the medium term, driven by Aerospace & Electronics outperforming over the next 3 to 4 years relative to our 7% to 9% original growth target. Our execution is reflected in our results, record margins today and leveraging future growth at 35% to 40%. They will continue to expand. The Crane Business System is a clear differentiator and our very strong balance sheet, coupled with strong free cash flow positions us to supplement all of our organic initiatives with continued disciplined M&A that will drive further earnings growth and total shareholder value. I can promise you it will continue to be exciting as we continue on our objectives. Let me now ask Jason Feldman to come up and review our 1-year anniversary reflection post-separation.

Thanks, Rich. At our last 2 Investor Day events -- last 2 Investor Day events, we spoke about the valuation that we thought the Crane Company's separation based on the performance that Max evaluated, I guess we're pretty convincing. We're going to skip that this year. But beyond the target comps and peer groups, we also spent time explaining why we were so confident in that re-rating story and why we're convinced that our performance and results, we're going to continue to accelerate post separation. Slightly different format, but the content on this slide is exactly what we presented last year. As much as I do like to hear myself speak, I won't repeat everything, transcript and webcast are available. But as Max explained, we did pretty much exactly what we said. But diving in a little bit more detail about where we progress as expected, where we did better, where we have the opportunities, a lot did transpire pretty much exactly as we expected, even in areas where there was significant investor skepticism. Very focused on being clear about our commitments, and then delivering what we promised. And so far, we think we've done just that. A couple of key areas, though, to focus on here. Max and Rich touched on this a little bit. But starting with acquisitions, we're off to a strong start, just 13 months post-separation. Three deals completed across both Aerospace & Electronics and 2 different parts of Process Flow Technologies. All 3 were fairly small, but right down the middle, very close to our core. And with no question at all about the strategic logic and our ability to hit key financial metrics. We hope the future deals are larger. These small deals are just as much work as transactions a few times their size. But we hope that by starting small we gave our investors, particularly our newer shareholders confidence that we're being appropriately thoughtful in our approach to acquisitions, strengthening our business, not growing just for the sake of getting bigger. And we're very encouraged by our acquisition pipeline, numerous midsized potential opportunities likely actionable over the next 12 to 18 months. Organically, we've also begun to demonstrate how we're driving accelerating core growth. Internally, we know that the progress that we've made over the last several years with technology development, new products, commercial excellence initiatives and strategic repositioning of the portfolio. However, we know that there was quite a bit of skepticism externally given our historical growth rates. Alex and Jay will talk about details later this morning for our key businesses, but our results to date, including the leading indicators that you've seen such as orders and backlog demonstrate significant and sustainable improvement in our long-term core growth profile. A portion of that growth acceleration is from our continued structural shift to higher growth markets within PFT, our focus continues to be in chemical, pharmaceutical, water, wastewater, industrial automation and cryogenics. And these are the portions of the business getting our attention and investment, both organically and with acquisitions. And at Aerospace & Electronics continues to grow at a faster pace than our other businesses. It will continue to grow as a portion of our revenue and the size of the overall portfolio. And that commitment to accelerating growth, structurally shifting to higher growth markets, is underpinned by our consistent and unwavering investment in growth areas and initiatives. As growth has accelerated, you've also seen improvement in the margins with substantial upside ahead of us, driven both by operating leverage as well as the growth of margin accretive new products and looking ahead, margin opportunity from our acquisitions as well. Overall, if you go back and review what we told you last March, we've made progress in every area we said we would, basically just as we described. And so while that's a lot of progress and change, we're equally focused on ensuring that we continue to build on our strong foundation, the Crane Business System, our commitment to ethics and a relentless focus on shareholder value creation. The rigorous cadence and discipline of CBS and our strong and unique high-performance culture continue to define who we are at Crane, and we want to make sure that, that doesn't get lost. And we continue to focus on driving further improvement with significant progress in the last year, taking our businesses to performance levels they haven't achieved before, a product of everything we discussed last year, simplification, fewer more focused businesses, no more distraction from asbestos, the complexity of the separation transaction is behind us, meaning that Max, Alex and Rich are spending nearly all their time in the businesses and on M&A and strategy rather than focusing on these corporate large transactions. But it's also a result of the organization from end to end, now operating at a higher maturity level in operations, engineering, new product development and commercial excellence than we ever had before. We've always been good at Crane, a culture that embraces the concept that if you're not improving your backsliding and a non-stop receptive improvement, not always fun, but always a challenge, and that culture has, if anything, intensified over the last year. It's harder to appreciate from the outside, but this culture and approach is integral to our success historically and is going to be integral to our success moving forward. Tangibly, it's responsible for execution and margin performance. But the performance -- but it's also equally responsible for improving the growth profile and the rigor and discipline around capital deployment. While most things have played out according to plan, we did have a number of positive surprises over the last year, in particular, the growth rates at Aerospace & Electronics. In May of '21, we introduced a long-term guidance target of 7% to 9% long-term core sales CAGR at A&E. I think there are about 2 people in the room at the time who believed us. Today, all the questions we're getting about why we shouldn't do better than the 7% to 9%. There were, of course, a number of factors driving the changes. And while supply chain has been more of a challenge than we envisioned when we put that target out 3 years ago. Both market demand and pricing have contributed more than we expected when we originally established those targets. Jay will cover this in far more detail, but our win rate has also been higher than we modeled back in '21, and we see continued progress driving technology and innovation to create new opportunities. So this is an area where we feel extremely good both about the market demand into the foreseeable future as well as our ability to continue to outgrow the markets with continued share gains focused on electrification, thermal management and advanced sensing. As Jay explained, we're now positioned to outperform that 7% to 9% target for the next few years. At Process Flow Technologies, the pace of improvement in its margins has also been a nice positive surprise, probably shouldn't have been a surprise since Alex has been talking about a clear path to 20% margins at PFT for the last 5 or 6 years is usually right and sees what others don't. But I think a lot of us internal -- even internally, we're skeptical that we'd get there quite as quickly as we did. As it becomes clear internally, it's really, as Alex has described in Investor Day over the last few years. I'll cover in detail after the break, but what we're seeing is a combination of several factors. First is operating leverage on higher core sales; second, significant margin accretion from our new products gaining traction, driving much of our growth; and third, the continued structural shift to higher growth in higher-margin end markets. There's also another structural element, which was some facility repositioning that was delayed a little bit due to COVID, but that's now been completed. And after 2 decades of consistent progress, we now have a manufacturing footprint that's better aligned with our operating needs than we've ever had before. At PFT, we also did benefit from traction with commercial excellence and strategic pricing. We've always been good in those areas, but for much of our recent history, focus has been on operational improvement, then on new products and technology development coming out of COVID with inflation that we saw, we increased our focus on strategic pricing, initially very broad-based to offset inflation. And then over the last 2 years, increasingly strategic in our approach. That wasn't the only factor driving PFD margins. I just listed a bunch of others, but it certainly helped, and we continue to get more sophisticated in our pricing approach. But perhaps the biggest surprise to us was the speed and the magnitude of the increase in investor interest and the welcome reception we've gotten from a growing pool of current and potential investors. I don't think we're surprised at all about the outcome. We pursue the separation and other strategic portfolio actions that Max discussed because we firmly believe it will result in significant shareholder value. We didn't expect it, however, to occur quite as quickly as it did. We expect it to take a couple more years, frankly, than what we saw. And at Crane for any topic of function, even when we're performing at a higher level than ever before, we're also always focused on where we can get even better. And the belief that we're not improving by definition, we're backsliding. So we'll continue to drive improvement in every area I just discussed. But there are a few areas where I think we have the greatest potential to drive additional value. And the first of those is commercial excellence and strategic pricing. I just mentioned this is an area that was perhaps one of the biggest positive surprises, but it's also an area where we still see significant runway in operations for more than 2 decades into a journey of continuous improvement. We're never done, always getting better, but today, operationally, we're world-class. Happy to have you come visit any of our facilities compared to any of our competitors. For new product development technology road maps, we're very good after nearly a decade of focus. But while we've driven commercial excellence programs for years, it's really only been a significant focus over the last 5, 6, 7 years. And arguably, with strategic pricing, we're probably only about 2 years into a systematic and focused approach. And so while we've seen great progress to date to drive sustainable, continuous improvement in any area, takes many years of consistent focus. Off to a great start, but a long way to go with a lot of upside ahead in that area. Continued investment in innovation, another area where we've come a long way over the past decade. But as you listen to Jay and Alex later this morning, you'll hear about our progress to date, but also the big opportunities we have ahead of us. Where we are most successful, we're bringing together our manufacturing expertise and consistent quality and commercial expertise with proprietary differentiated technologies. And lastly, capital deployment. Again, just getting started with nearly $4 billion of capacity over the next several years. And so at the risk of being somewhat repetitive with what Max told you, looking ahead, the story remains very straightforward. It's just up to us to execute. We have 2 very highly attractive, enviable sought-after strategic growth platforms, Aerospace & Electronics and Process Flow Technologies. Mission-critical applications, proprietary differentiated products, innovative technology and resilience and durability from sole-sourced content specifications and significant aftermarket revenue. These businesses will deliver solid mid-single-digit core growth and with our consistent focus on consistent execution, strong operating leverage inherent in these businesses, we should drive operating profit at twice the rate of sales. And that will deliver double-digit EPS growth with additional upside from capital deployment, whether acquisitions where we have a great track record or returns to shareholders through repurchases, if the right deals aren't actionable at appropriate valuations. So thanks for your time and attention. At this point, we'll take a 15-minute break, after which you'll hear from those that matter most to our businesses and our customers. Our operational leadership, Alex Alcala and Executive Vice President at Crane; and Jay Higgs, President of Crane Aerospace & Electronics. So we'll see you in 15 minutes. [Break]

Good morning. Well, good morning, everyone. I'm Alex Alcala, Executive Vice President of Crane Company. I'm responsible for overseeing all the operating segments currently operating under the Crane umbrella. For the past 11 years, I've had the privilege of being part of the Crane family. And today, I couldn't be more excited to share with you the insights and updates about the remarkable transformational journey of our Process Flow Technologies business. It's been an incredible ride. And I'm eager to highlight the strides we made and the successes we've achieved so far. Today, I'll be focusing on 3 key themes essential for understanding both our current performance and future expectations. First, we have made significant progress transforming our portfolio to serve higher growth markets, and we are outgrowing these markets through new product development and commercial excellence initiatives. As a result, our underlying growth rates have increased significantly relative to historic levels. Second, our journey towards margin expansion and growth is ongoing. I'll dive into why we anticipate further margin expansion as well as identifying our most promising avenues for continued and sustained growth. Lastly, while our Process Flow Technologies business has a solid history of successful acquisitions, our momentum has increased post separation and we're poised to accelerate our inorganic growth further building upon our already strong track record, a consistent story and strategy. building on what I described last year, but with yet another year of demonstrated progress that included 370 basis points of adjusted margin improvement with 5% sales growth in 2023, along with 2 strategic acquisitions completed last fall. Let me begin with a brief overview of PFT. We pride ourselves on being a premier provider of Flow products designed to tackle our customers' most critical challenges across various applications. These products in high demand and constantly evolving offer us ample opportunities for continued market share growth. What you see in the middle of the slide is our $1.1 billion revenue split across 3 dimensions: by product, end market and region. Our offerings encompass engineered and differentiated Flow equipment products, incorporating proprietary technology to address the most demanding applications that our customers face. This not only allows us to deliver significant value, but also maintains our robust pricing power. With a rich history spanning many decades, we both a resilient aftermarket revenue stream constituting approximately 50% of our sales. At the bottom of the slide, you'll notice our key brands, each carrying a strong legacy of trust spanning over a century. As we continue to introduce innovative products, our importance to our customers growth, creating a virtuous cycle that steadily expands our total available market. Our portfolio has structurally changed, and we've now reached a new tier of financial performance. We're proud of the journey we've been on over many years driving innovation as well as commercial and operational excellence. That journey has led to record performance, driving growth and expanding margin at an average of 130 basis points since 2017. This resulted in record margins in 2023, and we expect to set a new record this year. As a result of that portfolio transformation, our business today is positioned to grow at 3% to 5% core sales through the cycle. More importantly, our transformation will continue to strengthen our underlying growth rates and expand our margins. As we look forward, having already achieved the midterm financial goals that we outlined last year, we've set our sights on new goals, achieving operating profit in the mid-20s in a midterm time line. This step function improvement in margin is sustainable, supporting by underlying changes in the structure of our business, from our improved manufacturing footprint, the growth of accretive new products, the evolution of our end market exposure over time and our continued progress on commercial excellence initiatives. Our transformation strategy has been to intentionally shift our portfolio to serve higher growth markets. We have made important progress over the past 6 years, and this slide tries to show that. On the left side, you see 2017 sales with the green bar showing our increased presence in the higher growth markets we serve. Blue markets are show our growth and yellow markets are declining. I will draw your attention to the top green portion where we've grown from 36% of sales in 2017 to 61% of sales in 2023. With that portion of the business growing at 10% CAGR, while improving margins at the same time. This is a result of strategically targeting and investing in these key growth markets. During this time, we've also divested a non-core business, Crane Supply, which reduced our nonresidential construction exposure. By doing this, we structurally change our future growth rates. This is the crux of our transformation strategy. We want to keep increasing our participation in these growth markets, and we're doing it with 3 main drivers: innovation, portfolio mix improving our margin and commercial and operational excellence. Let me walk you through each of those. Margin expansion is the most obvious result of our transformation. We have grown from 11% to almost 20% adjusted margins in the last 6 years. Our growth markets now contribute over 60% of sales. What's crucial to note is that this segment not only drives the strongest growth, but also boast a higher-than-average gross profit. The margin strength is a testament to our ability to offer the best solutions to our customers' toughest challenges, driven by our relentless pursuit of innovation, this differentiation drives pricing power. So as we grow these businesses at an enhanced pace, it mixes us up driving margin expansion for the whole PFT business. Our strategy is working, and we're seeing the results read through today. Our transformation journey has been significantly fueled by our success in gaining market share through innovative new product development. We've honed our focus on driving innovation across the 5 key markets highlighted on the left side of the slide. As depicted in the diagram in the center of the slide, our new product sales vitality today is robust for this type of business, now around 10% in 2024. This trend of year-over-year vitality growth is poised to continue sustained by our robust pipeline of recently launched products and a strong lineup of new offerings currently under development. This underscores our organization's proudness and innovation, the strength of our customer relationships and the overall resilience of our business. Moreover, our ability to consistently outpace market growth by roughly 2x underscores the effectiveness of our strategy and the value we bring to our customers. Additionally, these new product solutions not only drive growth, but also accretive to our portfolio margins. This represents yet another positive catalyst for margin expansion within our business. At Crane, our commitment to excellence is ingrained in every aspect of our culture. We thrive on pushing boundaries and challenging ourselves to reach new heights of achievement. Center to our success is the Crane Business System or CBS, a comprehensive business system that places the customer at the forefront of everything we do. It serves as the engine driving our growth and margin expansion, permeating through every facet of our business. On the left side of the slide, you see some of the CBS commercial excellence processes that are helping us to achieve strong growth and margin expansion. These processes start with understanding the market and the customer problem we are trying to solve, then segmenting the market and identifying the customer groups where our value proposition resonates the most. Once we match our solution to the right customer segment, our win rate increases as well as our pricing power, allowing us to drive accelerated growth and margin improvement. And we continue to become more sophisticated in our approach every day with significant improvements in how we segment markets, how we go to market and strategically price for value. At the same time, leveraging CBS tools have significantly expedited our product development cycle, reducing time to market as much as 2 to 4x. This rapid pace not only increases our product portfolio but also fuels further margin expansion. On the operational front, our relentless focus on waste elimination and productivity enhancement, both streamline processes and enhance customer satisfaction. While we are not perfect, our commitment to continuous improvement sets us apart. Our factories are constantly evolving and striving for excellence every day. This is all enabled by an incredible culture that we call Being Crane is built on our history, our legacy of philanthropy, our spirit of innovation, our focus on continuous improvement and our passion for talent development. Indeed, the Crane Business System is a competitive advantage. We've always been good, but we continue to get better. Our journey towards record profitability is not merely a testament to our fundamental CBS execution, but also the culmination of deliberate decisions made over the past several years. Let me outline the 5 key elements of our strategy. First, we strategically focused our efforts and investments on key growth markets, areas where we not only have the potential to excel, but also where market demand is driving. This strategic focus remains steadfast. Then nearly a decade ago, we made a pivotal decision to channel our resources into fostering innovation. These investments have yielded remarkable results, which we've witnessed unfolding in recent years. And this dedication to innovation will remain a cornerstone of our strategy moving forward. Additionally, we took decisive action to streamline our energy business extracting significant costs from our ongoing operations and enhancing efficiency. Moreover, we strategically divested Crane Supply, reducing our exposure to slow growing sectors such as nonresidential construction. Finally, we've always had a successful history of acquisition. Post-separation, PFT is now more focused than ever on accelerating inorganic growth. We've already completed 2 acquisitions since the separation with plans for more in the pipeline. We are proud of our accomplishments, but more importantly, today, PFT is positioned for further growth and margin expansion. As we look beyond 2024, our confidence in sustained growth is bolstered by our strategic alignment with robust megatrends. Specifically, the global push towards sustainability and the demographic shifts driving increased population and life expectancy. These megatrends are not fleeting, they represent fundamental shifts in societal priorities and dynamics. We foresee that both trends will catalyze a surge in demand for industries and products within our expertise. Our strategy remains focused on these 5 growth markets impacted by the mentioned megatrends, recognizing them as the bedrock of our future success. We are committed to continually increase their share within our portfolio, capitalizing on their long-term growth potential. Certainly, strong markets to play in for the long-term. PFT has 5 major initiatives to drive growth. On the left side, you'll see our focus areas and initiatives alongside the total available market and projected market growth rates. While projections vary, it's worth noting our track record of outperforming market growth. We anticipate continuing this trend at roughly double the market rate to our strategic investments. As we execute our strategy, our portfolio will strengthen driving growth in our targeted markets, indicated by the green portion on the graph. These markets post not only higher growth but also our strongest position with capabilities designs and technology that set us apart from our competitors. Our growth initiatives leverage our existing capabilities to further distance ourselves from the competition. In the upcoming slides, I'll describe our top growth initiatives in more detail. Hydrogen is a prime focus for PFT's growth strategy, and we're establishing a new business dedicated to its potential. We strongly believe in hydrogen's role in reducing carbon emissions driven by declining cost and emergence as a competitive low-carbon solution across various sectors. Applications like long distance transportation, regional trains and material handling and highlight hydrogen's expanding relevance. Additionally, industries such as power generation, steel production and industrial processes seek low carbon alternatives further boosting hydrogen's demand. Given these projections, we're not merely adding products. We're building an entirely new business. This entails a dedicated team, facility, P&L structure in an incentive system fostering an entrepreneurial environment. Importantly, our new products capitalize on existing capabilities and technologies, and we are accelerating that core growth with strategic acquisitions such as the recently announced CryoWorks transaction. Our product line includes cryogenic and high-pressure solutions like valves, specialty fittings, vacuum decorative pipe and custom pressure sensors. Addressing challenges like key transfer, particularly in storing and handling hydrogen showcases our innovative solutions. Let me provide more details on the hydrogen market dynamics. Investments in hydrogen production, storage and distribution are increasing at a rapid pace. The demand for hydrogen grows and new applications continue to emerge. Hydrogen is increasingly recognized as a versatile and clean energy carrier with immense potential to decarbonize various sectors of the economy. On the left side of the slide, you can see that traditionally, hydrogen has been utilized primarily in industrial processes and as feedstock for chemical production. Many of the hydrogen investments occurring today are targeting supply in these end markets, replacing hydrogen produced from fossil fuels with green hydrogen. As we think longer term, you can see on the right side of the slide, one significant driver of increased demand is the transportation sector. Hydrogen fuel cell vehicles offer a compelling alternative to traditional internal combustion engines, providing 0 emission transportation with longer range and shorter refueling times compared to battery electric vehicles. Additionally, hydrogen-powered buses, trucks and trains are gaining traction as viable solutions for reducing emissions in the transportation industry. Moreover, hydrogen is gaining momentum in the energy sector as a means of energy storage and grid balancing. As renewable energy sources like solar and wind become more prevalent, the intermittent nature of these sources necessitates effective energy storage solutions. Hydrogen can be produced through the electrolysis using Nexus renewable energy and stored for later use. Offering a means to address the challenges of [ interment ] and grid stability. In addition to transportation and energy, hydrogen is finding applications in sectors such as heating and industrial processes, industries like steel production, ammonia production and refining, which have historically relied on fossil fuels are exploring hydrogen as a cleaner alternative to reducing the carbon footprint. That said, for this demand to materialize, hydrogen costs must continue to decline, making it more competitive with conventional energy sources. Secondly, advancements in electrolyzer technology are crucial to enhance efficiency and scalability and hydrogen production. Lastly, the expansion of fueling infrastructure is essential to support widespread adoption across various sectors, ensuring accessibility and convenience for the end user. Based on the demand we see in the short-term, along with our recent acquisition, we are on track to achieve our target of generating $130 million in new revenue by 2030. Let's dive into our second growth area, Chemical Solutions. Our largest market valued at $1.8 billion, we're already a strong player in this sector with our leading valve and specialty pipe portfolio. We're poised for even greater success as we see numerous opportunities for substantial growth. The chemical industry is undergoing a remarkable transformation, driven by a collective pursuit of sustainable solutions to curb CO2 emissions and advanced decarbonization efforts globally. This transformative wave extends across various areas from innovative fuel cell membranes to the development of circular plastics and specialized materials crucial for clean energy solutions. These advancements not only fuel chemical investments, but also ramp up demand for our products, positioning us perfectly to capitalize on this momentum. So how do we differentiate ourselves through innovation? Picture a scenario, a pipeline carrying high-temperature, high-pressure liquid sulfur or chlorine gas, where any leak could prove catastrophic. Our envisioned materials laid in with abrasive sand or sludge capable of eroding valve internals at high flow and pressure. Our innovation shines through in these critical areas particularly in sealing technology, ensuring leak-free operation, optimizing torque for total cost of ownership and crafting materials capable of withstanding erosive and corrosive environments. Additionally, our solutions emphasize ease of maintenance for prolonged valve performance. Each innovation showcased on this slide addresses a unique challenge related to ceiling, torque, life cycle and maintainability. These innovations are exclusive to Crane, setting us apart from competitors in the industry. This space is not only growing but also represents a domain where we've already made significant strides. We anticipate our Chemical Solutions business to expand by approximately $80 million over the next 3 years. It's an exciting market for us ripe with opportunities for continued success. Let's shift our focus to the wastewater sector, our third key growth area. With a market size of $1.4 billion, this industry is where we're seeing rapid growth and continued success, despite facing formidable competition from larger players. Our secret a targeted approach that tackles the toughest challenges in the waste stream head on. Take pump tagging, for example, as illustrated on the left side of the slide. The increasing influx of solids into the waste stream has escalated instances of clogging, leading to significant operational costs for our customers. In response, we've dedicated ourselves to developing solutions that specifically address clogging issues, as highlighted in the center of the slide. Our competitive edge lies in the proprietary design of our impeller and cutting mechanism, tailored to drive in the most demanding environments. Furthermore, ongoing enhancements and efficiency size and longevity have enabled us to broaden our market reach, extending beyond wastewater collection systems, to encompass also wastewater treatment plants. We've already introduced a series of new products that are experiencing incredible growth at an impressive 50% CAGR year-over-year. Looking ahead, our wastewater business is poised for further rapid expansion with an estimated addition of approximately $40 million by 2026. This sector not only represents a lucrative opportunity for us, but also serves as a testament to the exceptional teamwork and unwavering commitment to driving customer satisfaction within our organization. As the fourth area of innovation driving growth, I want to turn to the pharma valve market. We are already the #2 player in winning, but we see further opportunity to grow by expanding our served market into new applications. One example is related to a trend in pharma for more potent and effective treatments for various diseases. Historically, large molecules such as monoclonal antibodies have been used to successful drugs to treat more challenging diseases. In recent years, however, the combination of a small and large molecule technology has emerged called Antibody Drug Conjugates, or ADCs. This is fueled by a deeper understanding of cancer biology and technological innovation, which drove the industry to develop new ways to manufacture drugs. These developments promise to overcome some of the historical limitations of therapies offering a more effective and targeted approach to treating these complex diseases. In parallel, there's a need to extend life of existing large molecule facilities to reduce total cost of ownership. Particularly in ADCs, customers need aseptic solutions that can withstand the wider temperature ranges of small molecules combined with high sterility requirements of more sensitive large molecules. In large molecules, customers seek to increase efficiency of the existing facilities. Cranes [ ChemPharma ] technology in higher alloys are capable of withstanding the wider temperature ranges between minus 60c and 200c and drive reduction of the overall total cost of ownership. The EX technology supplied by Crane can solve these issues. We have launched many new products to service this space. Pharma continues to be a focused market where we are growing at high single digits. I just cover some highlights of the key focus areas. We are already delivering strong results, and we are projecting this strength to continue, as you can see on the slide. Most importantly, as I've described throughout the presentation, our underlying growth rates have structurally improved. As a result of our strategy execution. We have momentum. This gives us confidence in our ability to keep driving growth and reach a new tier of margin performance. We expect to keep delivering 3% to 5% core growth with an operating leverage of 35% minimum on core sales. Beyond our organic strategy and now with the separation, we are committed to drive accelerated growth through inorganic acquisitions, and we have momentum. These inorganic actions will continue to strengthen our portfolio and generate upside to our growth projections. We are focused on both bolt-on, where we can build on current capabilities as well as near adjacencies, which can give us broader access into these markets. Our inorganic capital deployment starts with a strategic assessment of attractiveness and extendability. Then we ensure that any target can deliver a minimum of 10% ROIC by year 5. Our current market priorities are shown on the left part of the slide, where we are always evaluating and adjusting. In our assessment, we're focused on identifying attractive spaces, markets that align with our profitable growth ambitions but also spaces that are extendable or have a higher number of targets. Within each of our 5 focus areas, we then go to a level deeper, our approach is rigorous discipline and constantly generating new targets to assess and cultivate. We prioritize these targets based on attractive market dynamics, our ability to differentiate based on technology and innovation, strategic alignment with our core business and the potential for future extendability. Today, our acquisition target funnel is quite healthy. PFT is a key platform for organic as well as inorganic growth, and we are thrilled about our prospects for both. PFT's momentum and inorganic growth is evident through 2 recent acquisitions since the separation. These acquisitions have bolstered our presence in targeted growth markets, namely chemical high purity, and cryogenics hydrogen. On the left slide, we have CryoWorks. Our latest acquisition, which operates in rapidly expanding cryogenic markets, including electronics, alternative fuels and rocket launches. With its expertise in commercializing vacuum injected pipe, CryoWorks aligns perfectly with PFT's strategy to position our portfolio in high-growth markets. Furthermore, it enhances our footprint in the emerging hydrogen economy, a key focus area for PFT's growth trajectory. On the right side, we have the Baum acquisition completed in the fourth quarter of last year. Baum is a leader in Europe for teflon lined pipe serving the chemical and high-purity applications. This acquisition perfectly complements our Resistoflex brand, the leader in Americas in the same space. By expanding our exposure to higher-growth markets, Baum strongly supports PFTs strategy. These 2 acquisitions are incredible additions to the PFT portfolio, strengthening our position and expanding our capabilities in key growth areas. As I mentioned before, this is my 11th year with Crane, and I've never been more excited for the future of Crane and PFT. My team and I are ready to continue to drive organic and inorganic growth that will unlock further value for our shareholders. As you heard today, we're clearly winning and growing in our key focus areas. I want to leave you with 4 key takeaways. Our portfolio has structurally changed, and we have reached a new tier of financial performance. We are positioned to continue to deliver market outgrowth performance by driving innovation and commercial and operational excellence. We will continue to grow at 3% to 5% and deliver 35% leverage on core sales and have set our sights to achieve mid-20s operating margin in the midterm. In addition to organic growth success, we will deploy accelerated growth through inorganic acquisitions and drive better-than-expected ROIC targets to the relentless application of the Crane Business System. I hope you have seen why we're so excited about what's happening in our business and our future. I'm happy to take questions. Thank you very much for your time.

Alex, just noted, as you're going through your growth platforms, you didn't spend any time on industrial automation, but it looked like it was the biggest bubble on your M&A target chart. So maybe you could just expand a little bit on what your aspirations are there? It sounds like more smart instruments as opposed to kind of process automation per se. But maybe you could give us a little color on your thought process there.

Yes. It's an important target market for us. It's actually above is really the size of the market. So a lot of opportunity, big players. We're positioned as much of our portfolio in niche positions, namely 2, 1 on transducers that replace mechanical switches, and we customize mainly for OEMs and equipment manufacturers. So we're growing at about 13% CAGR in that space, and we continue to expand the markets that we serve. And then the second piece is around process control, mainly through valve controls that go on top of the valves to our Westlock platform. And we're really trying to drive efficiency solutions to reduce total cost for our customer, less consumption of energy and more accurate measurement.

And secondly, just -- if you think about kind of the nongreen pieces of that slide, have we reached some sort of equilibrium in those pieces where there's growth niches that are interesting, for example, in oil and gas, maybe there's a play to LNG from what you're doing in H2, et cetera. Maybe you could elaborate on just the state of play in those areas you're not focusing on as much currently.

Yes. If you think about the yellow portion that was declining. We don't expect that to decline much further. So that CAGR decline has stabilized. So what we're -- where we're competing today are these niches in LNG, tough applications, some power business as well. So exactly like you described. I think we're being profitable in those areas in very selective markets some petrochemical applications that cross over as well. So limited decline and some profitable growth in those spaces.

I'll ask one, I guess, first on strategic pricing. Margin improvement over the last few years has obviously been very impressive in this segment. Maybe you could just talk about how you've applied strategic pricing, what opportunities you think continue to exist there?

So we use various tools, right? I think I'll talk about this 2 of one. One is when we have an innovative product and that has increased, those are more differentiated and we're able to get higher margins and value price for the different -- the technology and solutions we bring. So that has continued to evolve. The second piece is how we segment customers. If you think about half of our business is aftermarket, huge complexity. And we've gotten better and better at segmenting our customer groups being through traditional segmentation as well as other tools that we have in CBS like 80/20. So once we find these segments that are less price sensitive or have difficult or barriers to change, we're able to be more assertive in our pricing and realized gains. I think Jason mentioned we're like in year 2 of this accelerated thinking probably another way to say it's like the third inning of -- in baseball terms.

And maybe I'll just follow-up on the 3% to 5% growth target range, rough math on the kind of growth opportunities in your target markets kind of already gets you to that 3% to 5% just from those discrete opportunities that you looked at. Is that basically -- you can get to 3% to 5% growth in your business if you assume there's no actual underlying market growth?

I think we'd be close to -- when we look at share gains a couple of points, price a couple of points, assuming new market activity, we can deliver this 3% to 5%. Hopefully, there's some tailwind on the market, but we're not counting much on the market to deliver these numbers.

When you apply 80/20 pricing. When you apply 80/20 pricing for the first time to a low volume SKU, what is the typical price realization you recognize on that, on average?

Yes. It's -- when we think about this segment, these lowest volume, high complexity segment in 80/20. It could be quite substantial. 30%, 40%, 50% of price increases in that segment, yet consider that, that piece of the volume is like 4% to 6%, right, of the total sales or revenue. So it's not a significant portion, but it's the most in elastic from a price standpoint.

And if you raise price 40% and you don't lose volume, is the next price increase also 40%? Or do you desell a lot of that?

Yes. I mean our goal sometimes is to exit some of these businesses because they drive above-average complexity and costs. So we're not able to really grow. It takes a lot of focus. So we continue down that path until we actually end up losing this business. So yes, the next round would be substantial until we shrink that space and can focus our resources on other areas of the business.

Okay. And then last question, Alex. I guess, can the hydrogen business succeed if the transportation application doesn't succeed, meaning, are the other opportunities within hydrogen sufficient to allow that business to hit your targets from a revenue perspective? If transportation doesn't pan out as it panned out last time here also.

Yes. Excellent question. So if you look at that graph on the right side that I showed, most of the investments that are happening in hydrogen today are to replace the fossil fuel-based hydrogen generation. So there are some significant projects underway. So the demand is there to the traditional side. So we think we'll get there through that change at least to 2030 to our $130 million revenue. And then from there on, if we see that exponential growth, then that's upside to our numbers. So moderate hydrogen investments replacing traditional more so than mobility from here to 2030.

The other aspect of that is I don't know what's going on here. The other aspect of that is cryogenics and hydrogen cryogenics. Cryogenics marketplace today, we believe that the market needs in growing cryogenic space and all liquefied gases is where we will also take share and win. So our projections are heavily influenced by the current marketplace with hydrogen as the upside as we continue to focus, and that plays out long-term. So we do have high confidence in our targets.

Alex. This is a Srikar Vinjamuri from UBS. So a question on value-added pricing. So you've seen a lot of benefits from it over the last few years, but you mentioned as you grow into wastewater, where there's a lot more competition. How do you see that sustain in the face of further competition and in future macro cycles.

Yes. Interesting that you asked. So our wastewater products are actually the most profitable products because we are focused on a very niche application. So where our competitors, which are excellent competitors struggle and fail on these clogging pumps, which is probably 10%, 15% of the market we excel at that. So where what you really capture value. So we've been able to maintain and grow while having really excellent margins because of that.

And, I guess, a follow-up question on Slide 42, where you're talking about extendability of the markets. Could you kind of maybe walk through that a little bit as to where the existing portfolio is where you see opportunities for extendability, wastewater is on the upper right corner. So I just wanted to get a sense of how you see the portfolio extend out there?

Yes. So if you think about wastewater today, we're mainly in pumps. So here, we're looking at the broader wastewater processing plant all the way from collection to treatment. So beyond pumps, different treatment equipments and technologies. We'd be interested in those applications as new adjacencies. So although on the pump side, it's somewhat limited, when you look at the broader wastewater space, there's no opportunities.

Alex? Have you identified any incremental divestiture opportunities? I know we've talked a lot about inorganic growth, but what about maybe portions of the portfolio, which are not a great fit with the current PFT business?

Leave this mic on if we can stand here -- so we can help answer questions as well. Not that Alex isn't fully capable. We always assess the portfolio. We will always continue to assess the portfolio. We love our businesses right now. We love the mix as we move forward. As we continue to do acquisitions as we move forward, will we continue to analyze our existing portfolio and make decisions, I hope so. Other questions for Alex. Any others Jeff, upfront, Jason?

Was there a tiny hint of something industrial in all these cooling you're doing, no one said data center or anything like that. But is there some kind of implication there where I saw kind of industrial cooling, thermal management and some of the discussion that's all tied to hydrogen and LNG and those sorts of markets?

Yes, not with data centers. So hydrogen and cryogenics, nitrogen applications are used in electronics, food processing, not so much in data centers. We do support the cooling HVAC platforms with but not through this initiative, to valves primarily, but it's a small position in that.

We've actually seen some upside projects in actually data center with some of the valves that Alex is talking about, but not necessarily on the overall cooling side, but it's been a strong market. Any other questions on the Process Flow Technologies segment. Outstanding. Alex, thank you. Perfect. Jay?

Okay, great. I'm going to start that over again. To begin my name is Jay Higgs. Again, it's a good morning. And again, I'm a President of Crane Aerospace & Electronics. I'm really pleased to be able to walk you through our business today. I've been with Crane for almost 35 years, really the veteran of this group. And I've been in the role as President going on 3 years now. And as I've stated before, my team has incredible pride in what we do every day, but I can tell you, we are in a completely different place than at any other time in the history of our business. Our core businesses are incredibly strong in delivering exceptional results. Our capabilities and recent technology development are uniquely aligned to market trends, along with current and future customer needs. And we are starting to look even further ahead to the next 10 years and beyond for the innovation that will enhance our capabilities and ensure we remain an indispensable business partner to both new and existing customers across aerospace, defense and space sectors. Today, I'm going to share with you both the current and expected future performance of the business. The progress we continue to make on our strategy and the status of exciting new programs that are nearing production which are a direct result of our past technology platform investments. I will also explain how we will use acquisitions to supplement our core market positions and how we continue to use the power of the Crane Business System to execute on new business we are capturing. There are 4 key messages I'm going to leave you with today. First, we are positioned for long-term sustainable above-market growth. We continue to demonstrate that in our financial results, and we'll do so for the foreseeable future. Second, we're a technology leader. And in many cases, we're widening that gap between what we can deliver and what the next best competitive alternative is. Over the long term, our capabilities in cutting-edge technology will be perfectly aligned with future growth trends, most notably ground vehicle electrification, carbon neutral aviation, and new space applications. Third, we are very confident in our long-term ability to deliver at or above 7% to 9% core sales growth CAGR. This is based on our strong presence on virtually all key commercial military -- commercial and military aircraft platforms and the aftermarket sales that come with that installed base. We also are nearing production on several, what we call, franchise type programs in our defense, power and land, control system businesses that will further accelerate our growth. As a result, we should see a low double-digit sales growth CAGR over the next few years as these franchise programs are in production. Last, we will leverage our sales growth at 35% to 40%. So you should expect operating profit growth at nearly twice the rate of sales growth moving forward. This is a top-level view of our business today. Five market-leading business solutions delivering $920 million in sales and approximately 22% adjusted operating profit margin this year. Most of our solutions hold the #1, #2 or #3 in their respective niche market segments. While each of these 5 solutions operate within the framework of Crane Aerospace & Electronics, each has a unique brand, a compelling value proposition and a growth strategy tailored to their unique markets and customers. We are presently made up of approximately 2,500 associates working out of 9 managing factoring sites in U.S., Europe and Asia. Our businesses represent a good balance between commercial and military sales with more than 1/4 of sales coming from the aftermarket, all sold into large, growing attractive end markets. Now as I mentioned, we are 9 manufacturing sites this year as compared to 8 last year with the recent acquisition of buying enterprises located in Auburn, California. Vian is the industry leader in the design and manufacturing of multistage lubrication pumps and related components for aerospace and defense applications and is a bolt-on to our existing fluid management business. They have a great mix of platform exposure with excellent content on the highest volume aircraft, including A320NEO, 737MAX and the F-35. Vian has a long history in fluid management and has established an outstanding reputation for providing complex, highly engineered flow control products for mission-critical engine and APU systems. Combining their technology with our capabilities, we can provide a solution for virtually any lubrication or cooling system need for rotating equipment on an aircraft. Our goal is to grow the Vian brand within the Fluid Management business as well as leverage Vian's extensive manufacturing capability to our other solution groups over time. Standing here today, I could not be more pleased with where we are in the integration process. It has been seamless. And I would say the opportunities for growth and leveraging Vian's machining competencies to other parts of our business is far exceeding even our initial expectations. Our solutions serve highly attractive end markets with strong fundamentals that value our unique technology and product offerings. On a normalized basis, Crane A&E's product position is roughly 60-40 split between commercial aerospace and defense markets with space exposure across both those markets. We are positioned with a broad portfolio of product a record level of backlog equal to almost 1 full year's worth of revenue and positions on long-running programs, all of which contribute to a resilient, sustainable business model. As we noted last year, nothing has changed in our assessment of the commercial aviation outlook. We expect commercial aviation capacity to grow strongly over the next 20 years with an anticipated 41,000 new aircraft entering service and 3.5% traffic growth rate over that time period. On the defense side, within the $825 billion 2024 DoD budget, almost $145 billion, a 4% increase over the last year was earmarked for research, development, test and evaluation. This is perfectly aligned with the investments we are making in new defense platforms. In the positions we have secured on multiple aircraft, rotorcraft, land vehicle and weapon systems platforms. And in space, we see 2 distinct markets largely defined by expected life admission cost both of which are positioned -- we are positioned to exploit. The traditional space market focuses on multiyear, high-value scientific and surveillance missions for which failure is not an option. These programs are willing to pay for the extensive reliability, testing and validation we are able to provide. In the new space market, entrepreneurs and commercial entities are building large constellation of satellites, for relatively low earth orbit applications. A&E is continuing to expand market share in this area as well with the rated versions of our traditional space product offerings and the development of commercial off-the-shelf products. Regardless of market, we expect to outpace the general race of growth in each of these markets given our strong position on platforms today as well as our new platform wins, some of which I will discuss shortly. Each of our brands have core capabilities are highly valued by our customers. Those capabilities include a wide range of power conversion devices with growing capability in ultra-high power for emerging ground vehicle applications and laser-based weapons. Sensing and control systems, which include condition and position sensing, pressure and flow measurement, with ever-increasing precision and long-range wireless communication that permits sensors to work without aircraft power and wiring. We also have extensive fluid and thermal management system capability, which provides high reliability with designs that reduce size and weight, while having capability for increasingly challenged pressure and temperature conditions. Brake consult systems with anti-skid capabilities based on our industry-leading dynamic modeling and simulation capability as well as our proprietary algorithms that are continuously refined to maximize efficiency. And last, our microwave signal processing, which provides high-frequency integrated microwave assemblies with industry-leading package size and ultra-low noise designs. Our capabilities continue to improve, centered around the same core competency we have built on for decades. These capabilities are, in many cases, unique, highly differentiated, and we are able to combine multiple capabilities into a single value-added solution. We continue to align the capabilities to serve both immediate and long-term customer needs through extensive voice of the customer, which sets our technology road map for at least 10 years forward. Not only that, but philosophically, we do not look to create one-of-a-kind solutions. Instead, we look to solve not a single customer challenge, but multiple challenges for many different customers and rather than platform solutions developed through technology building blocks that we can reuse over and over again to accommodate a large cross-section of customer needs, while minimizing specific nonrecurring engineering investments for any one customer. Some recent examples of this include our development of a standard systems architecture of what we refer to as SSA for antiskid brake control that we've leveraged to each of the competing NGAD or sixth-generation fighter demonstrators or our high-power conversion modules that we're able to stack together in a single chassis to create anywhere from 15 kilowatts to 120 kilowatts of power conversion in either uni-directional or bidirectional form for radars, land vehicles, all from a single modular platform. Each of our solutions has examples of the same product development strategy from thermal management systems to generators, hybrid electric powertrains and fuel cells to high-efficiency commercial power conversion for eVTOL to AAM to sub-120 watt power conversion products and integrated microwave assemblies traditional space and new space applications. And so it's against this backdrop of platform-based technology development, we find ourselves uniquely positioned. Driving sales growth through recent program wins, which have enabled key share gains on current in-production commercial and military programs as well as positioning us for step change gains in sales over the next several years on several high-value programs. All the while delivering strong sales growth and accelerating operating margin performance through the period. Presently, this means guiding to a low double-digit CAGR over the next several years in terms of sales growth and soon achieving mid-20% operating margin. Now let me share with you more details as to the specific programs and investments that will drive that growth. First, to understand the quality of our existing backlog, you can see our base commercial business is built around strong positions on high-volume platforms. We have substantial content on virtually every major commercial aircraft with particularly heavy level of content on single-aisle aircraft, which represents over 70% of aircraft produced on an annual basis. We also have a strong content position on virtually every other major aircraft platform from Boeing to Airbus to Embraer. We also have very high content on Comac C919, including the brake control system, the door sensing system, the flight control power conversion, and we look forward to seeing production of this aircraft ramp up over the next decade. Our position ensures that our commercial business will benefit as aircraft production continues to increase with each new plane generating revenue today and growing our installed base for a long tail of aftermarket activity over the next few decades. Our backlog is equally robust in the defense and space markets. The aircraft market here by volume is currently dominated by the F-35 Joint Strike Fighter. The F-35 utilizes a derivative of our proven landing gear and brake control system on each of the global fleet of 1,000 aircraft as well as various fluid management products. We also provide products to several legacy military programs, which experiencing a resurgence in recent years. Products like the power supplies we make for the multifunctional informational distribution system or MIDS, which is a secure communication platform for nearly everything that flies in the [ NATO ] Alliance. And a very strong position with integrated microwave assemblies and power conversion products on high-volume missile defense programs like SMII, PAC3 and Patriot, which are ramping up production to meet the needs of the global defense market. In the space market, we're extremely excited to provide power conversion on the SDA tranche 1 as well as both passive and active microwave assemblies for low earth orbit satellites and telecommunication. In short, like the commercial aircraft market, we have substantial content on virtually every major military platform and a growing presence on new space programs. And with this large installed base on key military and commercial platforms comes a growing aftermarket revenue stream. This is both spares and repairs would support high-use narrow-body and twin-aisle commercial platforms as well as the continued need to keep legacy military platforms in service longer through spares, repairs, modernization and upgrade. And as we've talked about in the past, we have 2 new opportunities or what we like to call franchise programs now just entering rate production over the next several years. And when I say franchise, I mean programs, which offer a step change opportunity in sales growth on the order of tens of millions of dollars per year with lifetime sales in the hundreds of millions of dollars. These are programs that we have communicated to you in the past and are now just nearing production. One such program is power conversion by AESA radar. Nearly every new radar system developed in the past 5 years is using our high-power converters. These are programs like the lower tier air and missile defense sensor or LTAMDS, TPY-4, Sentinel and SPY-7. We expect to achieve $60 million in bookings in just the first half of 2024 alone across several different platforms with sales for these programs reading through starting late this year and extending well into the next decade. We're also excited that Lockheed Martin has secured an initial contract of $276 million to manufacture the next generation of radars for the Air Force's Advanced range threat system known as ARTS-V3. We expect that ARTS-V3 will use Crane designed high-voltage, high-efficiency power converters, and this represents an opportunity for upwards of $100 million in lifetime program sales. This will have a multiplying effect on our Defense Power business. A business in total delivered a little over $43 million last year. Sales from AESA Radar Program specifically will grow from $10 million last year to an annual rate of 50 per year -- $50 million per year by 2028. The exact slope and timing of that increase will evolve as each individual program has its own dynamics, but we are confident in that $50 million rate by 2028. We then expect AESA Radar Program revenue to be sustainable at that rate into the foreseeable future with additional upside possible from potential new programs. All told, high-power conversion for our AESA radar platform represents an $800 million opportunity for us. And this is just one of the growth opportunities for our Defense Power business. Another key franchise program for us is the brake control modernization upgrade program for the F-16. We just recently completed a very successful manufacturing test readiness review with the United States Air Force and expect to start certification testing shortly. The F-16 brake control modernization upgrade program will generate approximately $30 million per year in revenue starting in mid-2026 and carrying through at that rate for at least 3 years with additional revenue from foreign military sales in later years. This program represents $150 million to $200 million of life of program sales depending on how many foreign militaries decided to pick up the program. And we're currently proposing new modernization upgrade programs for other U.S. Air Force platforms that can similarly benefit from an upgrade to our industry-leading antiskid brake control technology. Those proposals include 1 program that we're very well positioned on that is moving forward to funding next year. And we expect this program to be an opportunity in the $25 million range later in the decade. Another example of what we're building and what could follow the F-16 program. So what I've described so far is where we have been and how it will impact our immediate future in terms of revenue. It's the culmination of strategy execution that dates back really to mid last decade. When we changed our strategy from focusing our entire engineering effort on securing positions on the next new aircraft and developing one-of-a-kind products for specific customer needs to a new approach of strategic planning with an R&D focus on future technology readiness, scalable technology platforms and a building block approach to design and manufacturing. Looking forward, we have 2 primary strategies, both of which are enabled by our current mindset for technology development. The first is expanding within our core markets and our existing capabilities and technology. We are focused on capturing positions on next-generation aircraft, land vehicles, radars, satellites and weapon systems. Presently this is driven by technology road map items that are relatively mature and a technology readiness of 6 or beyond. And in a lot of cases, our products already being used on existing engines and/or airframe demonstrators and/or military demonstrator aircraft. Hybrid electric propulsion, next-generation air dominance and collaborative combat aircraft demonstrators and new space are also examples of the markets and applications we are currently targeting. The second strategy is to maximize our content in emerging markets. This is a mixture of existing and new technology road map items targeted to more aspirational platforms such as military, land vehicle electrification, a new arsenal of electronic warfare devices that are based on high-energy lasers, hydrogen fuel cells, long-range wireless sensing communication and power conversion for [ AAM ] and eVTOL. These strategies are clearly aligned to key market trends, including carbon neutral aviation including the next generation of commercial aircraft using either sustainable aviation fuel, hybrid electric propulsion or pure electric propulsion. Advanced military capabilities, which rely on more and more electrification and the continued commercialization of space and advanced air mobility platforms. We will meet the near-term customer needs with mature technologies like our current generation of hydraulic antiskid brake control for new military and commercial platforms, high-powered DC-DC power conversion for radars, high-efficiency DC power conversion for AAM, pumps and fuel transmits for next-generation engines and integrated microwave assemblies with high-frequency receive and transmit capability. More specifically, this includes a whole suite of products and systems from our landing, sensing and fluid businesses currently being demonstrated on the existing NGAD and CCA platforms. Life of program sales for these programs is expected to be in the $300 million range. We're also actively proposing and close to securing unidirectional and bidirectional high-power conversion products with leading military land vehicle suppliers for use on the upcoming more electric land vehicle demonstrators. This includes demo launch vehicles for the optionally manned fighting vehicle, otherwise known as XM30 and the common tactical truck. Our expected life of program sales for this market in the $800 million range. We have also completed several critical demonstrator programs with our vein-type lumen scavenge pumps on next-generation engines with major OEMs, including Rolls-Royce, Pratt & Whitney and General Electric. And we have developed the next generation of temperature-compensated fuel flow transmitters for these engines, which can provide even more accurate fuel flow measurement that can be used as an input to the engine fuel control system for more precise engine fuel burn. Further, we have seen keen interest in our highly ruggedized silicon on sapphire high-temperature, high-pressure transducers for these applications as well, given the higher temperature and pressure requirements likely to achieve the necessary efficiency gains required. In many cases, we're being told that our technology is ready for these applications. In other words, the technology is appropriately mature and no longer needs to be iterated, along with our customers the flexibility to fund other parts of the engine, which need to be matured to catch up. These demonstrator programs should directly lead the content on the next-generation aircraft platforms, both commercial and military when they are launched. Our life of program sales for this market are expected to be in the $500 million range. And in defense and space area, missile defense has come into sharper focus in recent years as well as the continued need for large constellations of low-earth orbit satellites. In both applications, we are ready with enabling technologies. In our modular power business, we have both high-power and low-power DC-DC power conversion devices as well as complementary filters for aerospace and military grade applications and versions that are radiation tolerant and radiation hardened for low-earth orbit satellites, deep space missions and manned space applications. These products can be figured to serve many different markets and end user applications. In addition, we're going to be launching several new product families over the next several years to provide even more power conversion types for our customers. Many targeted to new space applications. Our expected life of program sales through these product lines is in the $500 million range. In our microwave solution, we can provide a wide breadth of catalog and custom passive and active components and integrated microwave assemblies. In many cases, enabled by our proprietary multi-mix circuitry, which combines a unique design and highly specialized manufacturing processes to fabricate electronics and a form factor in density that's not available anywhere else in the market. This allows for much smaller microwave assemblies as compared to competitor designs as becoming especially desirable at the high frequencies desired for next-generation communication systems. Our expected life of program sales through this product family is a $250 million range. And when it comes to carbon neutral aviation, again, we can offer a whole suite of products and systems from pumps and fuel flow transmits already qualified on sustainable aviation fuel, the thermal management systems for propulsion motors, battery cooling and hydrogen fuel cells as well as high efficiency power conversion and brake control. As we look even further forward to late decade with even more electric aviation and new mid-market or next-generation narrow-body aircraft, we are working on the technology, which will enable these designs. Specific investments in this area include electric brake actuation, long-range wireless communication for advanced sensors, development of even higher efficiency power conversion and solid-state high-power switching devices and fluid and thermal management technologies for advanced propulsion, whether it be the continued development of geared turbofans, open rotor designs, pure electric or hybrid electric power plants. So all this sums up to high confidence in our long-term sustainable growth. The chart on this page summarizes the growth we expect to see, and it's the way we view our opportunities. Working from the bottom to the top of the chart. First, as we've discussed, we have an excellent base business with reliable products, unique technology, great customer relationships, and it provides a stable position as the market continues to grow. Each of our products provides critical functions with high switching costs, resulting in recurring relationships for the life of a program. As I discussed, we have substantial content on virtually every major commercial and military aerospace program, and it supports a large, high-margin annuity-like revenue stream that includes spares to replace our sole-source content as it wears out needs to be replaced, a consistent revenue stream for repair services based on flight hours and opportunities to grow with modernization and upgrade projects across the entire fleet. Second, we are capturing new business within our core as new aircraft are introduced. New defense systems are installed and occasionally if one of our competitors falters. This represents our second largest near-term growth opportunity and represents many of the new programs we've already discussed today. And finally, and most exciting growth driver is the breakthrough innovation that our R&D teams continue to drive. This innovation positions us to win as the military converts to more electric systems and vehicles as electric aircraft proliferates as our core customers pivot to technology of tomorrow. These are the critical investments we are making today for the future, but which requires significant long-term development. This investment matures in the second half of the decade and into the 2030s, but becomes the core of our future over the next 20 to 30 years. All in, we continue to forecast growth overall at 7% to 9% CAGR over the next decade in an industry growing at roughly 5% in the same period. Within that, we expect accelerated near-term growth based on strong market fundamentals in our base business and franchise programs described early coming online in 2025 and 2026. Of course, this forecast does not include potential for inorganic growth through acquisition, which continues to be accelerating focus for us. We see significant opportunity to strengthen our core businesses. For any potential acquisition, it starts with an assessment and analysis of strategic fit, followed by a clear understanding of attractiveness in terms of revenue impact, technology differentiation and future growth trends. We also want to understand extendibility where it's desirable to have many actionable targets to build on in the market space. And of course, overall, we need to ensure any target deal meets our return on invested capital hurdle. Our focus is presently on core markets of aerospace, defense and space. Primary areas of prioritization includes sensing, power, thermal management and electromechanical equipment. These are all areas for which we currently have significant technical competency and therefore, acquisitions in this space are completely complementary. However, we also opened the more opportunistic bolt-ons and adjacencies, which align to our strategy of having differentiated product technology that once designed in and certified for a customer system, has a prohibitive cost of replacement and a solid aftermarket revenue stream. We continue to track this and screen hundreds of targets, and we have a robust set of exciting opportunities we are exploring. We expect that acquisition will provide meaningful upside to the 7% to 9% organic growth we expect to achieve over the next decade. As you can see, I'm highly confident in being able to double the size of the business in the coming decade. And investors should take comfort in knowing that the foundation of this growth starts with a proven execution through our Crane business system. I've been at Crane for 35 years. We have transformed this business over these past 20 years into the asset it is today through CBS and those results speak for themselves. Based on a culture of continuous improvement, the Crane Business System will continue to drive growth alongside improvement in safety, quality, delivery and cost. By utilizing a data-driven approach, and highly visible metrics environment, we hold all team members from our business unit general managers, to our operations leadership and every contributor in between accountable to delivering results and driving improvement. As an example of CBS in action, last year in Crane Aerospace & Electronics, we held over 100 Kaizen events and trained 36 new Kaizen toll champions to lead future Kaizen events. The tool champion is a challenging accomplishment, recognizing significant dedication and continuously seeding our organization with continuous improvement leaders. 2023 represented the fourth year in a row that we broke our previous record for tool champion development. As an example, these efforts for all those team members drove a 16% year-over-year improvement in sales per associate in 2023. And CBS is holistic, driving results in the factory floor, in the engineering labs and in our back office function. It's a real differentiator for us. And as President of the business, I don't know any other way to operate. In fact, as an example, just 2 weeks ago, I took my entire leadership team to our Burbank site, a site that is going to be experiencing tremendous growth over the next several years is we're going to do our F-16 brake control introduction here in 2026, and we're getting ready for all that growth. So it took my entire leadership team along with skilled people from the entire business to that site just to work on capacity planning and driving the business in a way where we can absorb that capacity and the footprint that we have. And we had tremendous results in those events, reading through to really increasing capacity at the site, driving operational improvement with some fantastic events led by that team. And we're going to use that over the next several years to continue to growth at that site, make sure they're capacitized and ready to go when F-16 hits the ground 2026 as long as they are all their other growth opportunities. Just another example of the whole leadership team being involved, getting in there, working with that site to make a difference there and make sure we're ready for growth. And we do that at every single site, hundreds of Kaizen events over the last several years to really drive the growth and improve efficiency across the business. So in summary, Crane has an outstanding differentiated technology, aligned to market trends and customer needs now and well into the future. We see continued growth from selling similar technology with our core markets to new and emerging customers. We have a long history of success, and we'll continue to grow with new customers and new platforms as our industry evolves. Crane Aerospace & Electronics business development team is relentless, and we will continue to win in the market. Our R&D teams are hard at work developing the technology that we're required to win in the future. Our industry will see innovation as future commercial aircraft, engines and defense systems move forward. They evolve, and we also have the unique opportunity to see transformative growth with the proliferation of more electric aircraft and military ground vehicles. We will be ready with the desired systems, be it higher power conversion, more capable heat dissipation or advanced sensing. Finally, the entire Crane A&E team practices the Crane Business System every day to reduce our cost basis and drive reliable results. This combination of technology and execution positions us for a long-term 7% to 9% sales growth paired with substantial margin expansion as the volume continues to grow. All this leads to a clear path to sustainable long-term profitable growth. With that, I'll conclude here. Thank you all for paying attention here, and I look forward to questions.

Jordan Lyonnais, Bank of America. For commercial production with the MAX production being hampered, 787 getting cut, how does that change your long-term outlook on tech insertions, current production rates? And do we see upside on it with products being repositioned to the aftermarket?

Yes. That's a great question. for us, we have such a massive installed base even on the legacy platforms that when the commercial system kind of falters, I can't meet the rates they want. They're flying all the older aircraft longer, right? So for us, that trade-off is probably actually a good trade-off because we get a lot more aftermarket volume because of that. But we do know at some point, we do have to launch new aircraft here, whether it's later this decade or into 2030. And we are very well aligned with our engine customers and our airframe customers on the technologies they're going to need to launch those vehicles. They already know kind of electrical platform architectures are going to need, the type of engines you're going to need, you're going to have some sort of geared fan, maybe an open rotor. And we're just making sure that we have the technologies ready to go based on the VOC we've gathered from those customers. So that at any point they launch, we're ready with that technology to move forward. But in terms of like, chicken before the egg, what's going to happen first. I think we're just so well balanced in terms of portfolio that we almost don't care exactly what happens. We're positioned well on legacy and we're positioned well with new technology for new platforms to succeed in whatever environment we encounter.

[ Jeff ], has a question.

A couple unrelated ones. So just first on power conversion without making our explode with too much kind of geeky definitions. Maybe just a little bit of color on kind of the technological secret sauce here that's driving the win rate. What you're doing different, better kind of the core technology behind that?

Yes. Package size and weight. I mean we can convert for the amount of power that we can convert in the size and weight, I mean we just have a significant competitive advantage there. And we have a platform that we can build on where we can -- it's like slices, right? If you need 15 kilowatts, we got it. If you need 30, we double that. And we just stack it all on 1 chassis and give it to you. And it's that kind of like flexibility without a lot of engineering investment right now to make that happen, along with just that package size and weight advantage that we have based on our things I can't talk to you about, obviously, but our proprietary technology that allows us to do that.

And is there a normal aftermarket for this sort of stuff? Does it burn out in 5 years as it lasts the platform?

Well, the military stuff is pretty much going to be out there for a long time. I mean, this is high end, very you hardened stuff that you wouldn't expect a lot of aftermarket on. I think when we get beyond the defense power business with more of the commercial power piece or some of the other platforms we have, there's more of an aftermarket, but it's not a highly aftermarket-intensive business. It's not like rotating equipment is where every 5 years or so when we're seeing the product come back.

And then just unrelated, just on commercial OE pricing. It seems like maybe the paradigm is changing a little bit. As you said, maybe there's some new planes coming in 10 years, but the ability of the OEMs to kind of beat you down on price, so you're not on the next thing doesn't feel like it carries the same weight right now with all the issues in the supply chain. So I just wonder if you're actually able to extract a little bit more pricing on the OEM side today than maybe or historically?

I'd say we're able to get price for the value we provide to those suppliers. I think anytime you're more commoditized, it's going to be difficult to really get your price, right, because they have options. But in terms of the products we provide and the fact that we're single source, the fact that on the size, package size and the weight that we can provide it, it provides us an advantage that when the next contract comes up, they're not looking to resource those kind of products. I mean we get tons of [indiscernible] every single day. for competitor products, the major air framers or engine guys are looking to perhaps resource to drive cost. But those aren't really all that technologically differentiated. For us, we're really using the technology differentiation to describe that value proposition to our customers. Doesn't mean that negotiation is easy, but it's been easier, I think, in the past in terms of decisions that the OEs are making in terms of who they want as a supplier partner for their business moving forward. And it's just reliability and quality, too. These are things that perhaps the industry got away from maybe a little bit 5, 6 years ago. It's a heightened focus. When you're the guy that always delivers on time at the highest quality, you're not generating a lot of problems for your customer in terms of nose off escapes or in the field problems or service problems. They're starting to value that more and that's where we really excel.

Jay, is the F-16 brake contract still expected to ramp up in the second half of next year? Or is that pushing out the '26?

Not really push out. I mean we will start some initial production at the end of next year. We'll call like low rate production. We'll be at rate production about mid-2026 and that's perfectly on schedule to where we thought we'd be. And when I say rate production, that would mean that by 2027 start, we're looking at $30 million per year out of that business.

Okay. And then given the price realizations in this business, particularly in the aftermarket. Why weren't incremental margins better in '23? And then I assume MAX is pushing you to do better than 35% to 40%. So if they're below 35% in '23, at some point, do we do above 40% during the cycle?

Well, I mean, I think, look, we have an interesting mix of business right here. You could say it's just a commercial aftermarket business, which really not this like 25%. We do have defense contracts. There is fair and reasonable pricing associated with those. I think those are all playing to the mix and what kind of leverage can generate out of the business. I do think our fixed overhead base is in pretty good shape now compared -- like coming out of overhead, so we can now really leverage that as the sales increases. And I think as we've communicated, you'll be seeing -- you should expect a better leverage of the sales we're driving moving forward.

Okay. And then last question. Do you expect to see any material benefit from the accelerated overhauls on GTF in the next year or 2, not the project visits the heavy overhauls themselves?

That is a great question. We've seen a little bit, but not a lot. So the products we have on that engine have a pretty long life span, and they've not been traditionally pulling those off as been doing the other upgrades to the engine. So we've seen maybe a little bit of uptick, but it hasn't been a huge benefit for us relative to the higher induction rate that they're seeing because of other problems on the engine.

Yes, that's me. I'll ask a question on acquisitions. You've laid out the same criteria for both segments, 10% ROI by year 5. Do you look at any restrictions on that for being dilutive to the growth rate, being dilutive to the margin profiles? Are those off the table? Or can you look those kind of acquisitions and look to accelerate their growth, improve their margins?

Do you want me to take that one? Yes. For A&E, I mean I think that, yes, we're pretty flexible in terms. We see an opportunity for long-term sales growth where a technology we can bring in that we can literally leverage beyond that 5-year period. Yes. I mean we're going to get any and all ways to enable our longer-term vision for the business moving forward. I mean, certainly, we have some very specific targets we want to hit, and we've done very well doing that. We're very confident in the CBS business system to be able to take any business and really drive the margins with it. But I would say that we're not so like myopically focused just on the numbers. It's really the strategic fit, the long-term growth, especially as we look to further electrification, some of those things that we really like, that will be coming up mid-next decade.

And a follow-up on -- just on the sole-source part of the business. Obviously, you guys are sole-sourced a bunch of the stuff you do in aerospace. Can you comment on how much as a percentage of revenue is sole-sourced and how that enables some of the pricing initiatives that you've undertaken over the last few years?

It's very high content. I'd say or 85% is sole-source positions on the things that we make. And certainly, it does give us some leverage. But again, as I explained, I mean, we're 60-40 commercial to defense. I mean you have to -- we have to have fair and reasonable pricing in a lot of the business that we're in, and we do. I mean, that's the way we operate. But that's kind of the mix. That's the way we look at it.

Just a real quick one. Just R&D from here to kind of bridge out to your 10-year plan there. Is it equivalent to sales growth, anything changing and what you need to spend or just kind of the cadence? Any pig moving through the pipeline or...

I think we have a really good cadence. I think our spending cadence is, obviously, for this business, you guys follow us so we put a lot of money into R&D investment. We plan to continue that same level of investment. There's things that we really like in terms of containing the power conversion piece, the efficiency there, continue to have many different power platforms to support the vehicle electrification is a big focus for us. New engine technology. We're pretty excited about the pumps and transmitters we can do for those engines. Like I said, we're maybe even a little bit ahead of where the engine guys are. They're worrying about other parts of the engine right now because our technologies are pretty much going to be usable for those next-generation platforms. So probably don't need to spend as much there. The power piece, power switching, unidirectional, bidirectional conversion. The aircraft that mid next decade, are they going to be -- there's going to be pure electrics, there's going to be hybrid electric. You got a lot of products around there is really where we're making the investments right now to make sure we're ready for that.

Sorry for that visual. Any other questions for Jay?

All right. Thank you.

Jay, thank you. So we're going to open up all of our mics. So we're going to open up for any general questions. Rich, Jason, Alex, Jay. And then I'll have a few closing comments today. Is there any other general comments, questions, questions. I know you all have comments.

Maybe just come to the M&A, Max, and you made it a focus of Richard's commentary in particular, I think still kind of resistant concern that I would have maybe others as you've started to get deals done. Maybe they're below the radar screen, right, in terms of the bigger competitors you might bump into as you start to move up to scale, I just kind of wonder if you could address how you can target, how you can get things done, the level of price competition you expect to see? And just maybe some kind of view of the win rate or hit rate on that funnel that you're working on?

Yes, you bet. So a couple of comments on that, why I feel pretty bullish at this time. In any particular deal, do I feel like we're going to have a challenging time that will be competitive? Absolutely. I think we're going to be -- we have improved our deal math in terms of the synergies that we bring. This has continued to evolve and improve over many, many years. And I think we're quite -- we've gotten quite good at projecting the synergies that we're going to be able to deliver. Where we were always over-delivering to our synergies, we want to make sure we tee these up properly so that we can understand the value that we can offer strategically for a strategic asset and still see us meet our ROIC targets. So we're going to be competitive. I can assure you we're going to be competitive for a strategic asset that has synergies for us. If we don't have the synergies, we're going to be less competitive, it's going to be more difficult. I think private equity, we continue to see is less advantaged. So in this environment is good for us. The strategics, I would say depending it's so fragmented in the space and who might be interested in any one particular asset. Some of the strategics are not necessarily in the same position as we are right now. For various reasons, they may not be able to move quite as aggressively. So I think our competitive -- a number of competitors that are interested in deals that we've seen has been not as robust. So all these factors combined gives me high confidence that we're going to continue to see interesting deal flow. We're going to be competitive, where we -- where it's clearly strategic. And if someone wants to outbid us, we're going to have the discipline to walk away. We're not going to get into bidding wars. We're not going to just chase something for the sake of chasing it. There are so many interesting opportunities right now as we're thinking about it being aware of what's coming out in our pipeline, we have a rich, robust process. [ Scott Christmas ] in the back room right now. We just continue to drive our internal process, which has been the same for many, many years, but we were constrained historically, if you recall, if we go back with asbestos constraints, with our existing debt levels that have all cleared up right now. So it's just this wonderful culmination of process post separation, readiness, balance sheet strength, and that's what yielded the 3 that we've gotten over the goal line to date. I think we've got a really rich funnel cultivating everything from family-run businesses for many, many years. Each of these deals have been family-run businesses that -- I mean, it's impressive that we have a long history and relationship. I think Crane is appreciated for the fact of how we run those legacy businesses, family founders trust their legacies to us, it means something. I think that's been a differentiator for us. So we see ourselves winning there. We know of a number of assets that are coming out with both private equity as well as some of rumor mills of large conglomerates that are going to be doing their own portfolio analysis. So we're excited. We think it's -- we've got a lot of opportunities as we're moving forward. Nathan?

Maybe I'll ask one on the A&E organic growth targets. You took them up for the next few years. Is it just lack of visibility out past that dampens maybe further out than that, the law of large numbers or neither?

Jay, how would you answer that?

Yes. Well, I mean, it's just the uncertainty, right? I think we have really good line of sight with our backlog and with what we know about the market over the next 3 years. After that. I think at some point, I think we will temper back closer to a normal aerospace growth rate. And then it's just a matter of are the major OEMs going to be able to get the supply chain in a position to actually deliver them on aircraft that are going to be necessary at that period of time. I think that's the biggest question,. And you can see both Boeing and Airbus have come out recently, and they're struggling to get rate, right? And at some point, airplanes need to get retired. And so what is that going to look like 3, 5 years out? And how are we going to meet that entire market demand? And then what's the geopolitics of even traveling, right, which in Europe, especially is a factor as well. So that's why I think we feel really good in the next 3 years, and we're tempering it more back to that we believe we...

7% to 9% in that period.

We'll temper back to 4%.

What I would say is that Jay is speaking on the core business and with deploying inorganic growth leaves upside to that 7% to 9% as we're moving forward, even if we get back to that core 7% to 9%, which we're happy with as well.

Yes. I would just add 1 thing. I mean I would say our confidence level is much higher today than it was when we said it in '21. And with everything that Jay, I think, described, hopefully, you hear the same. I think that's why you're asking the question. I would say we've also just effectively increase the sustainability of that 7%, 9% by saying for the next decade again, right? And so that 7% to 9% confidence level is pretty done high.

I'll ask one follow-up. On the backlog, you talked about having like a year's worth of backlog. What's a typical level of backlog? How far out did the OEMs and the airlines, et cetera, typically order for those kinds of things, like how unusual is it to have a whole year in backlog? Or is that fairly normal?

It's not fairly normal. I think that certainly, our customers are smarter in terms of they understand the challenges with lead time in the supply chain. So they're certainly extending their time fence in terms of their ordering. But you typically don't have -- you're typically in that 6-month to 18-month worth of backlog. The commercial guys more to the lower end because you build your build off production forecast there, not so much of the backlog. But on the military platforms, I mean, you got -- sometimes you get a multiyear backlog on those. But yes, I think it's certainly stronger as a percentage of sales today than it was pre-COVID.

Max, I think you've been somewhat open in the past about the possibility of there being another spend in the future disposition, split of PFT and A&E. I guess what factors would you say gate that decision? And then at the current multiple, do you see that making sense at all?

Yes, it's a good question. So at the current multiple, I would say, no, this is all going to be about shareholder value and where we are positioned. Do shareholders value this combination of businesses as we move forward? Right now scale would limit any type of actionability right now. I think I'm very, very proud of what we've accomplished, where we are today. We've separated. We're going to double the size of this business again, and I've been open about saying it provides optionality, that optionality would be considering all options to drive shareholder value. If at some point, it made clear sense to look at separation again, it is something that the Board and myself would absolutely look at. We're not going to be maniacal here focused on just getting larger for the sake of larger. It's about driving the right decisions to drive shareholder value. I think we've shown that in the past. We will show it in the future. For the foreseeable future, I think we've got a clear path of staying very, very focused at growing both of these businesses, as we've described.

Got it. And then, Rich, I think TransDigm borrows at 7% and has levered 6 turns net debt-to-EBITDA, your net cash, I think you said 7% is your cost of debt on your revolver. I guess like why can't you get that down, the cost of debt down? And then also, I guess, second question would be, why is 3x net debt to EBITDA the right kind of high end of the threshold rather than...

Yes. I mean it's possible we get that cost down. What I would say on the capacity signed, the 3, we're using that. I would say it's clearly on the conservative side. So when you look at that $3 billion to $4 billion, $4 billion with M&A, using 3 is fairly conservative, right? There's a few assumptions we have in there that are fairly conservative. So to your point, it's not necessarily. Today, it's not something I think we're willing to do. It's just -- it's not the market -- we don't see that happening today. If we saw something...

There's enough opportunities with our current capacity. We are not going to go beyond that 3 is clearly in our range right now. This is something that we don't feel we need to concern investors about. We're going to continue to do what we say, say what we do. We're going to execute. We're going to drive those bolt-ons, continue to drive our capacity. As we move forward, deliver shareholder value. Pushing the boundaries into 6x is something we would never even think about considering. We'll leave that to the TransDigm in the world to continue to watch.

I just wanted to -- I was curious about the 9 manufacturing facilities. Is any set up for all this incremental demand coming up over the next decade without potentially a CapEx cycle, maybe 3, 4 years down the line? And -- or maybe M&A solves part of that where you're acquiring assets, which have maybe lower utilization?

So we are set up in the near term, but certainly to reach our growth potential beyond probably the next 3, 4 years, we are looking at some opportunities to expand existing footprint at our buildings. The beauty of the CBS culture we have, we're continuously refining what we do to create space on the shop floors. That's what we were doing in Burbank a couple of weeks ago. Great examples of that in Elyria. The Vian acquisition actually gives us about 35,000 square feet of brand new building of unused space, continue adding manufacturing capability. But certainly, probably within 3 to 4 years, in our defense power business, Fort Walton Beach, probably at the Elyria site relative to pumps and repair and overhaul. We are Looking at some brick-and-mortar investments at those facilities to support our growth.

This has been as expected and as planned actually for quite some time. So we're in a very comfortable pace and can meet all capacity needs as we're moving forward, even with some of this investment.

But probably not anything that would move us outside the 2% to 2.5% of sales CapEx range. I think that's right. We might hit the high end of that for a year or 2 to some of what Jay is talking about. But I don't think we're talking about a step function change in level of CapEx intensity relative to what we've done historically. Is that fair? Okay.

Do you think the Engineered Materials segment has changed in terms of the value that it had back when you had an agreement to sell it? And at what point do you think you'll look to sell it again? Or is it part of the portfolio today?

Yes. It's a great business with a great team, and we don't talk about it, but that team is doing some great things to drive share gain and continued new product innovation, well-run business. The RV market has been in a soft spot here. We've said openly that when it hits the trough and we see the inflection point, we'll probably look at alternatives again for that business. In terms of value, we had a strategic interest when we had a deal. Private equity would be at a lower level. So as I think about the value of the business, it depends on the strategic interest at the time when we put it on the market again. I think it will still have a very high value for strategic, less so for PE. We're going to do the deal at the right time. Our team knows that. We've discussed it openly. Nothing you would expect in 2024. No other questions? Outstanding. Well, thank you all very much. Great morning. Exciting story, 2 phenomenal businesses. Thank you all for attending and for listening today. I want to extend my thanks to Rich, Alex, Jay, Jason, representing the teams so well and sharing your perspectives on the business and knowledge of the business and passion for the business. I want to thank our 7,000 associates globally who are working so hard for our customers every day and for our shareholders and our communities as well as our incredible customers who put their trust in us every day. And of course, our suppliers who we work with closely as partners, particularly in times like these. You've now heard very consistent messages from us, not just throughout the morning, but over the last few years, strong global growth platforms, operating in large, attractive growing end markets, growing faster than those end markets, an overall solid mid-single-digit core sales growth with that execution, driving profit growth at twice the rate of sales with additional upside from capital deployment, consistent, consistent message. We've always been good. We just keep getting better. We have proven that over time and intend to demonstrate it in the quarters and years ahead, doing what we say, executing on growth and value creation. Thank you all very much for taking the time to listen this morning. We look forward to your questions in the future and meeting with many of you in the coming weeks. Thanks all. Have a great day. We really appreciate it.