Crane Company

Greetings. Welcome to Crane Company's third quarter 2023 earnings call. At this time, all participants are in 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 from your telephone keypad. Please note this conference is being recorded. At this time, we'll now turn the conference over to Jason Feldman, Vice President of Treasury and Investor Relations. Mr. Feldman, you may now begin.

Thank you, Operator, and good day, everyone. Welcome to our third quarter 2023 earnings release conference call. I'm Jason Feldman, Vice President of Treasury and Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, and Rich Maui, our Executive Vice President and Chief Financial Officer. We will start off our call with a few prepared remarks, after which we will 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.craneco.com in the investor relations section. Now let me turn the call over to Max.

Thank you, Jason, and good morning, everyone. Thanks for joining the call today. Well, we delivered another impressive quarter with results, again, outperforming expectations. We delivered core sales growth of 9% with a 42% increase in adjusted operating profit and adjusted EPS of $1.03 with strong performance across all of our businesses. Our performance year to date, along with our market outlook, gives us confidence to narrow our guidance range with a midpoint 17.5 cents higher than our prior guidance updated in July. Our revised adjusted EPS guidance range is $4.05 to $4.20. While the comparison to last year's EPS isn't meaningful, given the recent separation, on an operational basis, our revised full-year guidance reflects 7% core sales growth, driving a 24% increase in adjusted segment profit. Strong core growth along with very impressive execution on productivity and pricing initiatives will deliver more than 50% operating leverage with operating profit increasing more than three times the rate of core sales growth. Hey, I want to start off with an update on the M&A front. Since our separation announcement, we have described how we expect acquisitions to be a meaningful contributor to our growth story as we move forward. as we have an extremely strong balance sheet providing us significant acquisition capacity. We have a proven track record of successfully integrating acquisitions and over-delivering on synergies. We operate in markets with numerous potential small and mid-sized targets, as well as a smaller number of large potential acquisitions. In our current structure, we are entirely focused on our two global strategic growth platforms, Aerospace and Electronics, and Process Flow Technologies. All factors that set us up to be a consistent serial acquirer moving forward. Adding value above and beyond our organic growth investments and opportunities. And strengthening our business to further accelerate growth. Last quarter I mentioned three specific transactions we were actively working on. Each with enterprise values in the 75 to 200 million dollar range. Of those three transactions we closed on one acquisition a few weeks ago, I'll address shortly. A second in aerospace is still in progress. And while the outcome isn't yet certain, we are cautiously optimistic about our prospects. And on one pharmaceutical asset, we lost to another bidder. Unfortunate because it was a great asset, but a reminder about how we will remain fiscally disciplined and not chase assets when the pricing is inconsistent with our financial criteria. With that, I'm pleased to announce the successful acquisition of Bound Line Piping GmbH. This is a business we have respected and followed for many years and is a perfect fit with our existing business. Bound significantly increases our scale, installed base, geographic coverage, and breadth of product offerings in the specialized fluoropolymer lined pipe business where we already are one of the leaders today for highly erosive and corrosive flow handling. Approximately 40% of sales are in the chemical space, a little under 10% to pharmaceutical, about 7% for hydrogen applications, with the rest sold for a wide range of general industrial uses with a particular strength in high purity applications, including those used in high-tech manufacturing. All perfectly aligned with this segment's targeted higher growth and markets. The business adds about 55 million of sales to our process flow technologies business, with growth rates nicely above our segment average. Margins are currently slightly below the segment average, but together with expected synergies, should be margin accretive within a few years. The purchase price was approximately $91 million, which is about 10 times expected 2023 EBITDA. We expect this acquisition will hit 10.5% ROIC with approximately 15% EPS accretion excluding amortization by year three. A small acquisition, but it couldn't be a better fit. And we continue to work on our funnel where we expect additional opportunities to become actionable over the next several quarters. My personal thanks to Mr. Marcus Baum for entrusting Crane as the stewards of this outstanding second generation family business to our care and the outstanding Baum team now part of Crane. I'd like to share a few success stories in the quarter as well on core growth and share gains within aerospace and electronics. In the electric vertical takeoff and landing space, we secured contracts on two new platforms. One was a power conversion application using our DC to DC converters for a demonstrator program and another for proximity switches on the landing gear of another demonstrator. We continue to secure additional content on a number of six-gen fighter demonstrator programs, including solutions from our fluid, landing solutions, and sensing solutions, with additional proposals recently submitted and pending. We secured key winds in our thermal management business with coolant pumps for two classified programs. And activity remains robust, with proposals in process were submitted for additional content on a number of programs across a wide range of our solutions, from power conversion and thermal management to proximity switches and anti-skid brake control systems. At Process Flow Technologies, we had a number of notable developments as well. Over the last two quarters, I highlighted the progress we are making with our new hydrogen initiative, where we have qualified a new cryogenic valve for liquid hydrogen applications with a major OEM. to be followed by five additional new product lines over the next 12 months, all targeting a market that is growing at more than 15% annually. We have now secured orders for new applications with two OEM customers. And before year end, we expect to secure our first approval from at least one of the gas majors, which will position us to accelerate order intake as we enter 2024. In the chemical space, We just had our best quarter for orders to date for our FK Tri-X product line, with the value proposition of this recent product introduction resonating very well in certain markets, particularly for chloralkali. Elsewhere in the chemical space, while new project activity has slowed, we were very successful in the quarter, winning a few larger project orders, and we continue to see pockets of active projects, particularly those expanding chemical capacity in the United States, and product localization programs in China. In the wastewater space, earlier this month at the WEFTEC trade show, we proudly introduced the latest extension of our premium efficient motor platform used in our wastewater pumps called brand named Envy. Since it was introduced in 2021, the Envy motor platform has seen explosive growth. We're on track for 300% growth in 2023. This latest extension, which increased our horsepower range from 75 to 125 horsepower, will drive further growth in 2024, and we are actively working additional extension projects that will continue the momentum in 2025 and beyond. My thanks to our global teams for all the hard work and effort and success, both with our recent acquisition as well as on daily execution and our array of growth initiatives. Overall, to date, it's been a year of great performance across our business, and we are increasingly turning our focus and attention to 2024 and beyond. And we remain confident in our ability to execute on the strategy and vision we laid out at our March Investor Day event. A 4% to 6% long-term core sales growth rate from resilient and durable businesses that derive about 40% of strategic growth platform sales from the aftermarket, with substantial operating leverage on top of already solid margins today. That should lead to double digit average annual core profit growth with potential upside from capital deployment and with virtually no debt, the capital deployment opportunity is significant. And a five year vision to double revenues and get to a scale with 2 billion in sales at each of our strategic growth platforms with adjusted EBITDA margins above 20%, giving us the optionality for future strategic portfolio decisions. Now let me turn the call over to Rich for some more specifics on the quarter.