Q2 2024 Summary
Published Jan 13, 2025, 5:34 PM UTC- Record backlog in the international currency business, with backlog up approximately 65% year-over-year , giving the company confidence to raise currency core sales growth guidance to 3% to 5%. This strong backlog provides high visibility into future shipments and supports confidence in full-year projections.
- Positive integration and performance of the OpSec acquisition, which is on track to achieve the full-year revenue target of $80 million to $100 million in 2024 , with clear line of sight to synergies of $8 million by 2026. The acquisition is expected to be accretive to earnings starting in 2025 , contributing to margin expansion and growth in the Security and Authentication Technologies segment.
- Recovery in the CPI segment, with inventories in the gaming vertical normalized and OEM customers resuming orders . Other verticals within CPI, such as vending and services, continue to perform well, growing at mid-single digits , contributing to overall growth and improved margins in the segment.
- Caution in CPI Segment with Unchanged Sales Guidance: Despite some positive indicators, Crane NXT did not tighten or raise sales guidance for the CPI segment, indicating a cautious outlook due to uncertainties. This includes potential softness in the gaming vertical and mixed trends in retail, where OEM channel softness may offset strength in custom retail projects.
- Pressure on Operating Margins Due to Unfavorable Product Mix and OpSec Acquisition: Adjusted segment operating margin for CPI contracted 110 basis points year-over-year to 30%, primarily due to unfavorable product mix resulting from lower gaming sales. Additionally, the Security and Authentication Technologies segment's operating margin was 23%, reflecting dilution from the OpSec acquisition. There is execution risk associated with achieving the anticipated margin expansion at OpSec.
- Limited Visibility into 2025 for Currency Business Amid Market Lumpiness: While Crane NXT has a record high backlog in its currency business for 2024, the company indicated that it is premature to discuss expectations for 2025, suggesting uncertainty beyond the current orders. The international currency market is characterized by lumpiness in tendering, which may lead to volatility in future revenues.
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OpSec Integration and Synergy Realization
Q: How is the OpSec integration progressing and its impact on earnings?
A: The OpSec integration is proceeding as planned, performing on track to deliver $80 to $100 million in revenue in 2024. We are confident in achieving $8 million in synergies by 2026. OpSec is expected to be accretive to earnings starting next year. -
CPI Performance and Market Share
Q: Can you discuss CPI's market share trends and order progression?
A: CPI performed as expected, with other verticals growing at mid-single digits. We have maintained strong market share in gaming and vending, despite some OEM slowdowns. Orders are normalizing, with CPI backlog at approximately $200 million. -
Currency Backlog and Outlook
Q: What's driving the currency backlog increase and 2025 visibility?
A: The currency backlog has grown significantly due to international tenders, some lasting 6 to 24 months. This gives us confidence to raise sales guidance to 3% to 5% growth. Equipment upgrades for the new U.S. series will start in Q4 and continue into early next year. -
M&A Strategy and Capacity
Q: How are you approaching future M&A, and do you have sufficient capacity?
A: We have a strong M&A funnel, focusing on security and authentication markets with a $3 billion TAM. With leverage at 1.8x, we have ample capacity for deals in the $100 million to $500 million revenue range without needing additional capital. -
Security and Authentication Backlog Growth
Q: What drove the sequential increase in the Security and Authentication backlog?
A: The backlog increased by over $100 million, primarily due to international currency orders. OpSec contributed approximately $30 million to the backlog. -
New Micro-Optic Denomination Wins
Q: Can you clarify the 11 new micro-optic denominations mentioned?
A: We have won 5 new denominations this year, putting us on track for our target of 10 to 15. The 11 new denominations going into production were previously won and are now being produced this quarter.