Crane Company

Greetings and welcome to the Crane Holdings Company fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jason Sullivan, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and good day, everyone. Welcome to our fourth quarter 2022 earnings release conference call. I'm Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, Rich Maui, our Senior Vice President and Chief Financial Officer, and Aaron Sake, who is President and Chief Executive Officer of the Future Post-Separation Crane NXT. We'll start off our call with a few prepared remarks, after which we'll respond to questions. Just a reminder that the comments we make on this call may include some forward-looking statements, We refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10-K, and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www.fraincode.com in the investor relations section. Now let me turn the call over to Max.

Thank you, Jason. Good morning, everyone. Thanks for joining the call today. Well, we had an exceptional end of 2022 with outstanding fourth quarter results. Fourth quarter adjusted EPS was $2.13, an increase of 63% compared to last year. We had broad-based, strong operational execution with core sales up 11%, and we drove adjusted operating margins up 660 basis points to a record 18.6% on a full-year basis. Adjusted EPS was a record $7.88 of 15% compared to last year, driven by 6.4% core sales growth and 220 basis points of margin expansion to a record full year adjusted operating margin of 17.7%. Adjusted free cash flow of 395 million was also very strong and above the high end of our last guidance range. As a reminder, last quarter we reaffirmed and tightened our adjusted EPS guidance range to $7.58 to $7.72 with a $7.65 midpoint. At that time, we said that we felt that the high end of guidance could only be achieved if we had supply chain improvement and an ability to turn specific shipments quickly. We actually saw that play out. in each of our businesses with a bit of unanticipated upside all aligning, with the biggest impact in the last few days of the quarter. While there are still broad-based and random supply chain constraints across our businesses, we did receive shipments from a number of suppliers that we honestly didn't expect, and our teams did an incredible job turning them into sales for our customers quickly. We also had some favorable tax items that contributed about four cents to EPS as well. Really just a perfect alignment of unexpected but good news very late in the quarter. And solid work by our teams. And my thanks to all of our associates for the year-end effort. To put this annual performance in perspective another way, remember that operationally, we maintained guidance all year despite numerous headwinds. Specifically, since 2022 guidance was originally issued last January, we lost $0.25 of contribution from crane supply, which was divested in May 2022. Foreign exchange was an increasing headwind throughout the year and was a 19 cent headwind relative to original guidance, most of it from rate moves during the third quarter. The supply chain environment in 22 was far more challenging than most anticipated a year ago. And there was substantial inflation spanning materials, freight, labor, energy, and other costs. Even with those headwinds, we held the midpoint of our guidance while absorbing and offsetting all of these items. And then on a four year basis delivered results substantially better, which again is a real Testament to the hard work and dedication of our teams around the world and the strength of the crane business system and our execution. These results should give you even further continued confidence in our execution and our ability to over deliver on our commitments as we turn to our outlook for 2023 and the upcoming strategic separation into two independent public companies. Rich will be providing guidance details for both companies post separation, reflecting exciting long-term growth opportunities for each. Specific to demand environment, our leading indicators are still very strong. Core year-over-year orders increased 15% in the quarter and 13% for the full year. Core backlog is up 28% compared to last year. While the present environment is still similar today to what we saw in the second half of 22, and we still see continued robust demand across our end markets, we remain guarded, watching carefully for signs of softening. Other than the RV market, where the softness is well known and understood, we are not seeing slowdown in our order rates yet. However, given broader macroeconomic trends, we are planning for slowing short cycle markets particularly those in the UK and Europe, which are most impacted by energy inflation. From a supply chain perspective, material and component availability remain most challenging but stable in our aerospace and electronics segment, with continued but slow improvement in the other segments. We do expect supply chain constraints to ease over the course of the year, but at a gradual and measured pace. From a cost and inflation perspective, As you can see from our continued margin strength, we've been appropriately assertive with pricing actions across all of our businesses and we continue to fully offset the impact of inflation on both the dollar and margin basis. While 2023 macroeconomic planning assumptions are muted, I couldn't be more excited about the growth opportunities that we have in front of us for both Crane Company and Crane NXT. In any type of demand and operating environment, We are positioned to drive above-market growth with our strategic initiatives. This is where we are most focused across the organization, driving growth and advancing technology that has positioned our businesses for the future. We will provide more detail in March, but just a few recent highlights include aerospace and electronics securing substantial new content on the Army's FLRAA helicopter platform, the Army's largest helicopter contract in 40 years, In addition, we have been selected to develop several products and systems for application on the next generation of long-range strike and fighter aircraft, including brake, brake control, thermal management, and fuel management equipment. This is a direct result of the strategy we shared with you in May 2021 targeting next-generation technology demonstrator programs. At Process Flow Technologies, we successfully launched the next-generation digital transducers driving value and award-winning key OEM technologies. accounts in the mobile hydraulic system sector, and now testing successfully with OEMs for hydrogen applications, with product sales set to grow four times in 2023, although from a small base today. We also are gaining traction with our new high-efficiency motors and non-clogged pump performance, with 50% sales growth for these products in municipal wastewater applications as customers realize significant energy and maintenance savings. We had new installations in more than 100 municipalities in 2022 with substantial growth expected again in 23. Just an incredible amount of activity across our businesses focused on growth. And we are making steady progress on the separation. We're on track for completion April 3rd of this year. We continue to have high conviction that this separation is going to create value as it increases our operating and financial flexibility to pursue growth opportunities. It lets us develop capital allocation strategies for both Crane Company and Crane NXT that are optimized for their individual business and financial profiles. The separation will make it far easier for each company to attract a shareholder base fully aligned with each business's strong and distinct value proposition. And we believe it will make M&A more viable at both companies. Simply, the separation will create two more closely aligned pure play companies, each better positioned to deliver long-term growth and sustainable value creation for all of its stakeholders. Significant milestones achieved during the fourth quarter included completion of the organizational design for each company, the announcement of Aaron Sake as CEO of Crane NXT, and you will hear from Aaron shortly this morning, public filing of the Form 10 registration statement, and completion of the capital structure design for both companies that Rich will review later. Key upcoming milestones to watch for, We expect the Form 10 registration statement to become effective in February pending SEC approval. We will announce further details of the board composition for both companies as well as the extended leadership team for Crane NXT between now and separation. We will be hosting separate Investor Day events for both Crane Company and Crane NXT on March 9th in New York City. And when-issued trading will commence in mid to late March. We feel very good about our progress to date and our ability to achieve our targeted timeline. On last quarter's call, I told you how extremely excited I was about Aaron's appointment as CEO of Crane NXT and how I was highly confident that he is the right leader to embrace the best of Crane's culture and the Crane business system while moving NXT strategically in new directions. After having had the opportunity to work with Aaron over the last two months, I'm even more confident and excited that he is absolutely the ideal leader for NXT in this next chapter. We've spent the last few weeks traveling together, visiting nearly all of NXT sites, and his excitement, passion, insights, and strategic observations are impressive. I had great fun introducing Aaron to his broader extended global team, and they're very excited about this new entity about to be formed and what the future holds. So with that, let me turn the call over to Aaron for some comments on his first two months at Crane before Rich provides additional financial commentary and guidance details.