Crane Company

Welcome to the Crane Company first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So that others can hear your questions clearly, we ask that you please pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to Jason Feldman, Senior Vice President of Investor Relations, Treasury and Tax. Please go ahead.

Thank you, operator, and good day, everyone. Welcome to our first quarter 2024 earnings release conference call. On our call this morning, we have Max Mitchell, our Chairman, President, and Chief Executive Officer, and Rich Maui, our Executive Vice President and Chief Financial Officer. We'll 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 and 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. Good morning, everyone. Thanks for joining the call today. Yet another impressive quarter with results outperforming expectations. Adjusted EPS was $1.22, driven by 5% core sales growth. Along with strong leading indicators, core orders and backlog both up 11% compared to last year, we are off to a great start in 2024. Based on that strength, we are raising our full year guidance by 20 cents to a range of $4.75 to $5.05, which reflects 14% EPS growth at the midpoint. That's a high confidence guidance that we have direct line of sight to delivering, assuming somewhat muted industrial activity and continued but gradual improvement in the aerospace electronic supply chain. While this is our best thinking today, we believe there may be upside as the year progresses if those two assumptions prove conservative. If so, we are structured to meet any unexpected changes in upside demand. There's also potential upside to guidance from capital deployment if we are successful with further M&A in the quarters ahead. On that front, in addition to our strong first quarter results, I'm pleased to announce that we signed an agreement to acquire CryoWorks as a strategic bolt-on in our process flow technology segment. Founded in 2009 based in Jurupa Valley, California, CryoWorks is a leading supplier of vacuum-insulated pipe systems for hydrogen and cryogenic applications, which is highly synergistic with the ongoing organic development of our CryoFlow brand. CryoWorks has an annual sales of approximately $28 million with approximately $5 million of adjusted EBITDA. With a purchase price of $61 million before tax step-up benefits with a net present value of approximately $11 million, we expect that transaction to close at the end of this month. CryoWorks significantly and immediately expands our portfolio of cryogenic products and solutions. It will help us access a number of high-growth markets, including complex insulated piping for space launch applications, insulated piping and valves for cryogenic applications in a number of electronics, semiconductor, and manufacturing testing applications, as well as transportation and transfer solutions for cryogenic alternative fuels. Moreover, we will utilize this team's design expertise to accelerate development of our cryo-flow solutions targeting traditional cryogenic applications and new mobility and transportation applications. We expect this acquisition to exceed 10% ROIC with approximately 10% of EPS accretion, excluding intangible amortization by year five. Another acquisition that is an excellent fit, strengthening our existing business and fully aligned with our strategy. My personal thanks to Donna and Tim Mast and Tim Mast, Jr., for their help and assistance throughout the diligence process and entrusting their outstanding organization to Crane moving forward. And we look forward to working closely to further investing and driving growth with the entire CryoWorks team. Strong start to the year, both in terms of results and with two acquisitions in the first four months. With continued progress on our existing M&A funnel, we expect additional opportunities to become actionable over the next year, primarily smaller and mid-sized transactions. While we are working on a number of transactions at the moment, we see more opportunities at the end of 24 than we do in the next several months, given the expected timeline for known processes. Our annual Investor Day event is scheduled for May 14th at 8.30 a.m. in New York City, and we look forward to updating you on our progress, delivering on the strategy and vision we laid out at last year's Investor Day. Specifically, we remain firmly confident in a 4% to 6% long-term core sales growth rate from resilient and durable businesses with solid aftermarket, 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, no net debt, the capital deployment opportunity is significant. And without taking too much away from Investor Day, where both Alex and Jay will provide more insights on recent wins, I would like to call out a couple in the quarter, starting with aerospace electronics. I'm particularly excited that one of our key defense customers has secured an initial contract for a large AESA radar program. Given our positioning on that program, assuming it moves to full rate production as expected, we estimate that our lifetime sales for this new program will exceed $100 million. This also continues our winning streak in the space where our high-power converters have been selected for nearly every new ground-based AESA radar system developed in the last five years. To date, our awards in this application represent approximately $800 million in program lifetime sales in an area where historically, prior to several years ago, we had no position. In addition, we are also confident we will soon secure multiple unidirectional and bidirectional high-power conversion wins on leading military land vehicle demonstrators, with significant positions expected with all of the primes competing for major programs. We've talked previously about our product position for the XM-30 optionally manned fighting vehicle, and we're now seeing progress with the common tactical truck program as well. There's another market where we've not historically had contact, but given our technology investments, see a path and potential for roughly 700 million in program lifetime sales. In our modular power business, we just launched the first phase of our new family of DC to DC converters called XMOR. This new range of products has a wide input voltage range for high reliability aerospace and military grade applications, as well as radiation tolerant and radiation hardened versions for space applications. This product family is being created on a single development platform that can be configured to serve many different markets and end user applications and voltage ranges. The full XMOR launch will be complete by the end of this year and will be followed by the launch of both medium and low power products called XMRT in late 2025. Moving to process flow technologies, a few highlights from the quarter include the great progress we've made with our high efficiency motor platform in the U.S. municipal water business. As we continue to expand the range of our portfolio, we've had particular success with this motor platform, and most recently with the largest frame size in the 75 to 120 horsepower range used in wastewater treatment plants. Based on our success in the quarter, we are on track to doubling our sales from last year in this product segment. You may recall that last quarter I discussed a 5 million pharmaceutical order we won with a new customer due to advances with our EX diaphragm technology that supports a higher temperature range and longer product life than the entrenched incumbent provider was able to meet. Our value proposition continues to resonate with our customers and we want another significant pharmaceutical project for a next generation cancer drug where the production process requires temperature ranges where our products are differentiated and well suited. We also continue to gain traction with commercialization of many new key products that we've discussed over the last few years. One example is the success we've had with the FK Tri-X, a proprietary innovative triple offset valve with a breakthrough design that eliminates the traditional trade-off between flow rate and sealing capabilities. Since introduction, this valve has gained increasing acceptance, particularly in chloralkali, organics, olefin, and fertilizer applications. introduced just two years ago in 2022. We're on track for significant order growth this year with orders on track to exceed 20 million annually by 2026. Very proud of our team and globally as we continue to drive our strategic vision with excellent execution. Now let me turn the call over to one of the most dynamic and exciting CFOs in the industry with a passion for profitable growth and who puts the fine back into finance, Mr. Richard A. Maui. For more specifics on the quarter, and some more details on the guidance.