Crane NXT, Co. (CXT) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Crane NXT, Co. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Mr. Stroup, Chairman of the Board of Directors of Crane NXT, Co. Mr. Stroup, please go ahead.

Good morning. My name is John Stroup, and I am the Chairman of the Board of Directors of Crane NXT Company. On behalf of the Board of Directors, I welcome you to the 2023 Crane NXT Company Annual Meeting of Stockholders. Before we begin the meeting, I would like to announce my fellow board members, all of whom are in attendance today via telephone. We welcome Michael Dinkins, William Grogan, Cristen Kogl, Ellen McClain, Max Mitchell, Aaron Saak and James Tullis. I will now ask the meeting Secretary, Paul Igoe, to announce the company participants and other invited attendees.

Mr. Chairman, the company participants are Aaron Saak, President and CEO; Christina Cristiano, Senior Vice President and CFO; and Jason Feldman, Vice President, Investor Relations. Also in attendance are representatives from Deloitte & Touche LLP, the company's independent auditors; and Philip Meyer of Computershare acting as Inspector of Elections.

Thank you, Mr. Igoe. The meeting agenda, annual report and proxy statement, procedures and technical support information are available on the virtual meeting platform. This meeting will be conducted in accordance with the procedures outlined in these documents, and we encourage our stockholders to review them. Stockholders may submit questions in writing that relate to the proposals presented at this meeting at any time during this meeting by using the space provided under the Q&A tab on the virtual meeting platform. We will respond to appropriate questions at the end of this meeting. We will first conduct the formal business of the meeting, and then we will respond to any appropriate questions. After the close of the formal portion of this meeting, our CEO, Mr. Saak will review the company's performance in 2022 and outlook for 2023. Mr. Igoe will now give his report as the notice of meeting, the solicitation of proxies and the presence of a quorum.

The board of Directors established April 10, 2023, as the record date for voting at the Annual Meeting of Stockholders. As of that date, a total of 57,725,307 shares of the company's common stock were outstanding and entitled to vote. A list of the stockholders of record as of that date, certified by our transfer agent, Computershare, is available to stockholders on the virtual meeting platform and has been on file at the office of the company for the last 10 days, available for inspection by any stockholder during regular business hours. The notice of Annual Meeting of Stockholders and proxy materials were mailed or made available beginning on April 21, 2023, to stockholders of record as of the record date. An affidavit of mailing of the notice and other company proxy material executed by the transfer agent has been received by the Secretary. The Board of Directors has received from stockholders proxies for more than 50% of the outstanding shares entitled to vote. This constitutes a quorum sufficient to convene the 2023 Annual Meeting of Stockholders. The polls will remain open during the meeting today, June 5, 2023, for each of the matters to be voted upon by the stockholders in attendance at this meeting until announced closed by the Chairman at the conclusion of voting on all matters on the agenda. Computershare has been appointed as Inspector of Elections. Computershare is present today and reports that as specified in the company's proxy statement dated April 21, 2023, and as required by law, proxy representatives, Mr. Saak and Igoe have cast their ballot in accordance with the instructions on the proxy cards received. I will now recite the 4 proposals that are outlined in the proxy statement. Proposal 1, the stockholders have been asked to vote on each of the following 8 director nominees for Director, Michael Dinkins, William Grogan, Cristen Kogl, Ellen McClain, Max Mitchell, Aaron Saak, John Stroup and James Tullis. Proposal 2, the stockholders have been asked to ratify the selection by the Audit Committee of Deloitte & Touche LLP as independent auditors of the company for the current fiscal year. Proposal 3, the stockholders have been asked to vote on a proposal to approve by a nonbinding advisory vote, the compensation paid by the company to certain executive officers. Proposal 4. The stockholders have also been asked to vote on a proposal to approve, by a nonbinding advisory vote, the frequency with which the stockholders will approve the compensation paid by the company to certain executive officers.

Thank you, Mr. Igoe. As there were no other nominations for directors or proposals received in accordance with the company's bylaws, I declare the nominations closed. Any stockholder who has not voted or who wishes to change his or her vote, may do so now by clicking on the Vote tab on the virtual meeting platform and following the instructions provided. Stockholders who have submitted proxies or have previously voted via the Internet or by phone and do not wish to change their vote, do not need to take any further action. Your votes will be counted automatically. [Voting]

The Inspector of Elections is now ready with the preliminary voting report. The company will file an 8-K with final results within 4 business days following the annual meeting.

Thank you, Mr. Igoe. Each member of the slate of directors nominated by the Board of Directors has been elected by a vote of at least 45,174,054 shares voted in favor, representing at least 92.35% of the votes cast. The selection by the Audit Committee of Deloitte & Touche LLP as the company's independent auditors for the year 2023 has been ratified by a vote of at least 51,186,138 shares voted in favor, representing at least 98.66% of the votes cast. The proposal to approve, by a nonbinding advisory vote, the compensation paid by the company to certain executive officers has been approved by vote of at least 47,127,840 shares voted in favor, representing at least 96.47% of the votes cast. The proposal to adopt and approve, by a nonbinding advisory vote, the frequency with which the stockholders will approve the compensation paid by the company to certain executive officers has been approved for 1 year by a vote of at least 47,188, -- sorry, 47,988,608 shares voted in favor of 1 year representing at least 98.14% of the votes cast. This concludes my report.

Thank you, Computershare. Mr. Feldman, are there any questions submitted from stockholders?

No. No questions have been submitted.

There being no further business, I declare the annual meeting closed. I would now like to introduce Aaron Saak, President and CEO of Crane NXT, who will review the company's performance in 2022 and outlook for 2023.

Thank you, Mr. Stroup. We will be displaying the presentation that accompanies my remarks today, and I encourage those who are able to follow along with these slides. Before we begin, I would like to direct you to the forward-looking statement disclaimers in our 10-K, 10-Qs and other SEC filings. I will also be citing non-GAAP measures. Those measures and their associated reconciliations to reported results can be found in our March 9 Investor Day presentation and our first quarter earnings presentation, both available on our website. As this is the first annual meeting as the new post operation company, I'd like to focus on why we have such an exciting investment thesis at Crane NXT. As shown on this next slide, NXT is an industry leader, providing trusted technology solutions to secure, detect and authenticate what matters most to our customers. We have 2 industry-leading businesses Crane Currency, which provides proprietary technology to secure currency and other high-value physical products and Crane Payment Innovations, or CPI, which offers detection equipment and systems, aftermarket services and connectivity solutions focused on detecting and authenticating payment transactions. We finished 2022 with our strongest year in company history, with revenue of $1.3 billion, approximately 40% of which comes from reoccurring and recurring revenue, adjusted operating margins of 28% and adjusted free cash flow conversion of 116%. This is the financial profile you would expect of any premier industrial technology company. Our core business is resilient with mid-single-digit growth through multiple economic cycles. Additionally, we have very clearly demonstrated our ability to drive operational improvements through the deployment of the Crane business system over many years. This is truly a hallmark of the company and has resulted in best-in-class financial and very strong free cash flow conversion. And that financial profile was built on a number of core strengths and capabilities, including our technology leadership, demonstrated through launching new innovative products. Moving to the next slide. Another hallmark of our company is our disciplined operational execution built on the tools and resources of the Crane Business System, or CBS. It's with this focus on operational excellence that we developed our formula for shareholder value creation. It starts at the top of this image, built on a foundation of a very resilient core business growing at mid-single digits. We continue to deploy CBS to increase margins and improve productivity in the quarter. This generates our strong free cash flow conversion of approximately 100%. We put this free cash flow to work through our disciplined capital allocation strategy. This includes reinvestment into the core business, paying a competitive dividend and deploying M&A, targeting higher growth in resilient end markets. This cycle is continuous. And over time, it will position NXT as a strong compounder creating significant shareholder value. Transitioning to the next slide. Our balance sheet is very strong and positions us well to continue executing on our strategy and investing in our core business while pursuing acquisitions and return of cash to shareholders. As of April 4, our net debt to EBITDA is between 1.5 and 2x. This gives us approximately $1 billion of M&A capacity and substantial flexibility to deploy capital in a manner that best maximizes shareholder returns. And our low leverage is paired with a well-structured balance sheet with a mix of prepayable and very long-term debt and with no near-term maturities. And with our solid balance sheet and strong business, we've set a very clear set of goals for the business over the next 5 years, as shown on this next slide. Through a combination of organic growth and M&A, we plan to grow the business to $3 billion in revenue, growing at mid-single-digit plus. We'll maintain high 20% operating profit margins, along with free cash flow conversion of approximately 100%. Achieving these goals will lead to significant compounding value creation for our shareholders. To achieve this plan, we'll focus on 3 priorities: first, continuing to invest and grow our core business; second, focusing on operational excellence through CBS to expand margins in driving our free cash flow conversion; and third, executing our proven playbook on M&A to further expand and diversify the portfolio into new adjacencies. Through the combination of these actions, we plan to move from a mid-single digit to mid-single-digit plus growth portfolio. We plan to keep our leverage at less than 3x as we execute this strategy. In total, these clear measures of success position NXT, both now and in the future, to be a leading industrial technology company and create significant value for our shareholders. We are confident in our ability to deliver on our 5-year goals to grow and exceed the $3 billion in revenue by executing this strategy. As shown on the next slide, we are a leading provider of trusted technology solutions to secure, detect and authenticate our customers' most valuable assets. We have a durable, resilient business growing at mid-single digits with best-in-class margins and free cash flow conversion. We have a strong balance sheet with substantial capital available for acquisitions and a great track record of disciplined M&A, generating high returns. And finally, we are focused on expanding the business via M&A to adjacent higher-growth end markets. Our performance in Q1, which we reported last month, is an important step in this journey and it gives us continued confidence in achieving these objectives. This concludes my remarks on the performance of the company in 2022 and outlook for 2023. I will now return the meeting to the operator.

Thank you. This will conclude the meeting. You may now disconnect, and have a pleasant day.