Crane Company

Welcome to our second quarter 2025 earnings release conference call. I'm Alison Pliniak, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our Chairman, President, and Chief Executive Officer, Alex Alcala, Executive Vice President and Chief Operating Officer, and Rich Maui, our Executive Vice President and Chief Financial Officer, along with Jason Feldman, Senior Vice President, Treasury, Tax, and Investor Relations, who's on for Q&A. We will start off our call with a few prepared remarks from Max, Alex, and Rich, after which we will respond to questions. And just a reminder, the comments we make on this call will 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 non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slides presentation, both of which are available on our website at www.praneco.com in the investor relations section. Now, let me turn the call over to Max.

Thank you, Allison, and thanks, everyone, for joining the call today. I want to start by thanking my teams across the world for delivering yet another excellent quarter, outperforming expectations despite an uncertain macro backdrop and dynamic environment. Adjusted EPS was $1.49, driven by an impressive 6.5% core sales growth, reflecting strength across both aerospace and electronics and process flow technologies. Core orders were also solid. up nearly 20% in the quarter, driven primarily by the ongoing strength in our aerospace and electronics business. This entire leadership team has demonstrated consistently differentiated execution across cycles. And once again, this was reflected in our second quarter results. The cadence and discipline of the crane business system, our machine, if you will, along with our Performance-based culture enables us to make data-driven decisions quickly with flexibility to adapt as conditions change and with accountability. And the benefits of that approach are most noticeable in environments like we're operating in today. And given our consistent and unwavering investment in technology, customer requirements, and commercial excellence initiatives, both of our strategic platforms remain well-positioned to continue to deliver great results. Inorganically, we also announced in June the agreement to acquire the precision sensors and instrumentation businesses, or PSI, from Baker Hughes, executing on our strategy to add proprietary and differentiated technologies to our portfolio and to broaden our unique capabilities through acquisitions. Alex will provide more color on the acquisition in a moment, but I am incredibly excited about the people, technology, and the capabilities that these three iconic brands that make up PSI bring to Crane, and also about the capabilities that we will bring to PSI to enhance its long-term performance. Our balance sheet remains very strong, and we have both the financial and operational capacity for significant additional M&A. We continue to work on a robust pipeline of potential opportunities, And we are optimistic about our ability to deploy further capital on acquisitions over the next several quarters. Just a lot of very exciting activities and developments at Crane overall. As we look to the balance of the year, while the macro backdrop remains unpredictable, Our backlog, consistently strong execution, and our performance year-to-date gives us the confidence to raise our full-year adjusted earnings outlook to a range of $5.50 to $5.80, up from our prior view of $5.30 to $5.60. Now let me pass it over to our Chief Operating Officer, Mr. Alex Alcala, to provide some color on our pending acquisition of PSI, along with comments on the current environment.

Thanks, Max. Well, we're very excited about the technologies and capabilities that Druk, Panametrix, and Rotostrokes bring to Crane. All three brands are global leaders in highly sophisticated sensor-based technologies for mission-critical applications in harsh and hazardous environments. Extremely Crane-like businesses that are a perfect fit with our existing portfolio. Each brand contributes to a robust technology foundation along with a durable and resilient aftermarket presence, further strengthening the Crane portfolio. Combined with the strength of the Crane business system, these businesses will be accreted to our financial profile within the next few years. The drug brand, approximately $150 million in revenue, will be positioned within our L-space and electronic segment. The addition of drugs complementary product line meaningfully strengthens our pressure sensing capabilities across critical applications, including environmental control systems, hydraulics, and aircraft engine monitoring, with strong positions in both single aisle and wide-body aircraft platforms. Additionally, DRUC expands our presence into the ground-based test and calibration equipment for aerospace. further expanding our technological capabilities and market reach. As we're planning for the drug integration and to create the optimal structure for continued growth, both organically and inorganically, within the aerospace and electronics segment, I'm also excited to announce that Jay Higgs, who many of you know as the President of A&E, has been promoted to Senior Vice President of the Crane Aerospace and Electronic segment, reporting to me. Jay, who has been with Crane for 35 years, has been a driving force behind the success of our A&E business. I look forward to partnering with Jay in driving further record growth and operating performance at A&E. The new A&E segment structure now mirrors the organizational model used at PFT under Shangaza Dissent, which is also the role I held prior to our 2023 separation. This structure will give Jay greater capacity to focus on strategic initiatives in M&A for A&E going forward, and it'll give us greater flexibility to integrate complementary acquisitions into our current operations in A&E. as well as to continue pursuing acquisitions including near adjacencies that can be managed as independent business entities like Druk. We point to Jay will be the future president of Druk along with the head of M&A and strategy for the segment and the new president of our current aerospace business, replacing Jay, Mr. Joseph Mondinger. Joseph was previously the vice president and general manager of our largest A&E solution and has been with Crane for 13 years, a reflection of the bench of talent within Crane. The Panometrics business, which is about $150 million of revenue, adds advanced ultrasonic flow meters and precision moisture analyzers. Similar to drug, Panometrics will be a standalone entity although within our process flow technology segment, reporting to Shin Gaza to send. Panametric sensing solutions support critical process industries by enabling accurate measurement of liquids and gases across applications such as chemical production, LG transportation, cryogenic gas storage, and wastewater treatment facilities. It is complementary adjacency to our current portfolio that expands our capabilities into test and measurement. And finally, the addition of Rhoda Stokes, approximately $90 million of revenue, will double the size and capabilities of our existing crate nuclear business. With its industry-leading radiation sensing and detecting technologies, Rhoda Stokes enhances our offerings for nuclear plant operations and homeland security. It also positions us strongly to capitalize on the renewed global investment in nuclear energy. The Rota Stokes Fund will be integrated into our existing nuclear business under the leadership of our president, Chris Mitchell, who has been serving as the president of our nuclear business for the past six years. We anticipate the acquisition to close January 1st. and the integration planning is well underway and progressing smoothly, working with the existing Baker Hughes and Crane teams. In terms of further M&A, our funnel of intergrantic opportunities remains full, and we continue to look to accelerate EPS growth through additional capital deployments. The deals we are working on today include a number of opportunities in both aerospace and electronics, as well as process flow technologies, and they range in deal size from sub-$100 million to $1 billion. Now, some thoughts on the segments in the quarter, starting with aerospace and electronics. Aerospace and defense markets continue to see a very strong demand environment. On the commercial side of the business, activity remains healthy with Boeing continuing to ramp up production and aftermarket activity continuing at elevated levels. On the defense side, we continue to see solid procurement spending and a continued focus on reinforcing the broader defense industrial base given heightened global uncertainty today. Looking ahead to the balance of 2025, We now anticipate core sales growth for the year to be up high single digits to low double digits compared to our prior view for core growth to be up mid to high single digits. We expect that growth to leverage at 35% to 40% for the full year. Our guidance assumes continued strong sales. with the ramp-up at Boeing partially offset by decelerating year-over-year growth rates in commercial aftermarket that we have previously highlighted as the comparisons become more challenging and will naturally moderate over time. We also continue to pursue new opportunities and win new business across this segment that gives us confidence that we will continue to see above-market growth for the remainder of this decade. A few examples. First, we agreed to terms on a development contract for the XM30 demonstrator power converter in our defense power business. Second, activity around air defense systems remained very robust, with Crane having secured multiple orders in the quarter. Third, Crane was also selected to supply the Doors signal system on the COMAC C929 wide-body aircraft. Crane A&E sensing system solution will include nearly 100 proximity sensors, along with proximity sensor data concentrators and door indicators per ship set. In addition, our preparation for the F-16 brake control upgrade ramp-up remains on track. And last, we're also pleased to see a significant increase in funding for the LTAMs in the recent full year 26 defense budget. This is a large ground-based AESA radar program that we've spoken about many times and where we have significant content. This further increases our confidence in the long-term growth for our defense power business in 2027 and beyond. With a record backlog and pipeline of opportunities, aerospace and electronics is poised to well outperform its markets over the next decade. At Process Flow Technologies, while end markets have not inflected in any meaningful way since our April earnings call, we remain well positioned to outgrow across the cycles. As a reminder, we have systematically repositioned our portfolio around our core end markets where we have the strongest competitive position and the most differentiation, enabling sustainable market outlook. And we continue to win in this segment despite the volatile market backdrop. For example, our cryogenics business reached a record high backlog on orders driven by strong demand in space launch and other segments. We've secured key orders in space launch platforms for multiple customers for over $8 million in the quarter. We continue to see our cryogenic strontium engineering support and manufacturing capability as a differentiator in the market, and Crane maintains its leadership position as a supplier of vacuum insulated pipes for space launch platforms. In the chemical space, our teams continue to secure key projects in demanding applications such as chlorine and PVC due to our reliable Solmox line valves and our portfolio of line pipes from Asistaflex and Bond. Despite the overall reduction in capex announced by many of our chemical customers, this quarter we booked a $4 million project for an upgrade to a PVC plant as well as a $3 million project for the expansion of a plant in Texas. And with our new high temperature resistant diaphragm valves, our EX technology in pharma, we continue to take share securing a nearly $1 million win with a key pharmaceutical company. Tactically, we have proven our ability to react to any changes in demand quickly. and we will remain nimble, taking any necessary and appropriate price and cost measures required. However, our strategy is unchanged, and we will manage through any potential demand fluctuations without losing focus on our longer-term goals and objectives. Looking ahead to the second half of 2025, and given our line of sight today, we anticipate core growth to fall at the lower end of our low to middle single-digit core growth range, with volume leveraging at 30% to 35%. So both our businesses remain well-positioned to continue to deliver great results. Now let me turn the call over to our CFO, Mr. Rich Maui, for more specifics on the quarter.

Thank you, Alex, and good morning, everyone. Starting off with total company results, we drove 6.5% core sales growth in the quarter, driven primarily by the ongoing strength within aerospace and electronics. Adjusted operating profit increased 15%, driven by strong net price and productivity. In the quarter, core FX neutral backlog was up 18% compared to last year, driven by continued outsized strength at aerospace and electronics. and core FX neutral orders were up 19 percent compared to last year as well, also driven by aerospace and electronics, but also modest growth in process flow technologies. We are in a net cash position today, and after the PSI transaction, our leverage will be roughly one times net debt to EBITDA, still below our two to three times targeted range, leaving us well positioned for further M&A. With respect to tariffs, as a reminder, only about 7 to 8 percent of our cost of goods sold consist of materials and components that are directly imported into the United States. Another 3 to 4 percent of cost of goods sold are in our company sales into the United States, a portion of which is exempt from tariffs. Based on current tariff rates, we anticipate the gross cost increase to be roughly $30 million for the year, down from the $60 million we noted last quarter due to the reduction in the China-related tariffs relative to when we last spoke. But this is subject to change, of course, as we move forward. And as we said last quarter, we expect to offset the tariff impacts through price and productivity. A few more details on the segments in the quarter, starting with aerospace and electronics. Sales of $258 million increased 12 percent in the quarter, nearly all of that organic growth. And even with the continued high level of core sales growth, notably our record backlog of just over a billion increased even further, up 29% year-over-year and up 9% sequentially. Total aftermarket sales increased 18% with commercial aftermarket sales up 9% and military aftermarket up 37%. And OEM sales increased 9% in the quarter with both commercial and military up 9%. Adjusted segment margin of 26.3%, a record high for the segment, increased 250 basis points from 23.8% last year, primarily reflecting higher volumes, price net of inflation, favorable mix, and productivity. We continue to expect operating margin to be lower in the second half due to a less favorable mix between commercial OEM and the aftermarket. At Process Flow Technologies in Q2, we delivered sales of 319 million, up 7% driven by solid core sales growth of 3% in the quarter, along with a 3% benefit from the CryoWorks and Technifab acquisitions and a point of favorable foreign exchange. Compared to the prior year, core FX neutral backlog decreased 4%. However, core FX neutral orders were up 4%. On a sequential basis, core FX neutral orders were down 1 percent compared to the first quarter. Adjusted operating margin of 20.7 percent expanded 20 basis points. Importantly, core operating leverage was 35 percent at the high end of our 30 to 35 percent targeted range, driven by strong net price and productivity, inclusive of net tariff headwinds in the quarter. Below the segments, Adjusted corporate expense was about $25 million in the quarter, which is spot on what I guided last quarter. Similar to Q1 and as anticipated, it was higher than our normal quarterly average because of accounting rules that require accelerated amortization of stock compensation expense for associates that are retirement eligible. So as I noted last quarter, this year, stock compensation expense was much higher in the first half and will be lower in the second half. We still expect just above $80 million of corporate costs for the full year. I also wanted to address some questions we've received about the $14 million swing in net non-operating income compared to our previous guidance. The largest component of that difference was just a change in geography on how we treated the insurance recovery related to Hurricane Helene in September of last year. As we discussed in January, our guidance included about $9 million of business interruption insurance recovery, $4 million of which was recognized in the second quarter. Our original guidance assumed that recovery had two separate components of operating income. In our revised guidance issued today, we have moved that $9 million recovery to non-operating income, which we believe is a better presentation and more clearly illustrates the strength of our core operating performance in the quarter. This change does not impact segment income or EPS in any way compared to our original guidance. The remaining $5 million difference reflects earlier than expected payoff of our 2023 term loan and better investment income on our cash. For the full year, as Max noted, we are raising our outlook to a range of $5.50 to $5.80, and from an earnings cadence perspective, the second half will be weighted more towards Q3, consistent with typical seasonality. Outstanding quarter. Teams continue to be energized and motivated, and if not for some of the events outside our control, and keeping us penned in, we would really be flying high. Reminds me what Mark Wahlberg said as Detective Terry Hoyt in the thrilling crime drama, The Other Guys, when he screamed, you can't keep me cooped up in here. I'm a peacock. You've got to let me fly. And with that, operator, we are now ready to take our first question.

The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Thank you. Our first question is coming from Scott DeWitchell with Deutsche Bank. Please go ahead.

Hey, good morning, Rich. I'm still recovering from that one. That was pretty good.

Good morning.

So, Max, you grew the backlog at A&E by 29% year-over-year and 10% sequentially. Obviously, it's just a strong environment broadly that maybe you can go around the horn and talk about the areas of the A&E business, maybe even the specific programs that are driving this recent booking strength.

Yeah, hey, Scott, I'll take that. It's Rich. Look, I would start off by saying that it is fairly broad-based across both commercial and military, as well as broad-based across customers, right, so not one unique customer set. If I was to point out just a couple of areas where we saw some outsized strength, I would say air defense in particular was fairly strong with some Orders that were not actually for 2025, they were for 26 and 27 primarily. And I think you're familiar with some of those programs that are in air defense that we have. I would say another area was a longstanding program that we have, legacy program in the C4ISR space, communication platform where we have some power solutions also a pretty sizable order in the quarter, and that also is for 26 and 27 as we think about, you know, the backlog. And then if I was to pick another out on the CommOE side, you know, Alex highlighted in his prepared remarks the successes we had on the C929 program, but we also had some really nice order flow coming in for the C919 if I was to pick something out. for 2026 demand satisfaction and forward. So just really, I think to come back to it, it was broad-based, both military and commercial, but hopefully those are some examples that are helpful.

Yeah, that's helpful. Thank you, Rich. And then to get to your EBIT guide, I do have to have the A&E margins drop a lot in the second half, I think down to like a 30 percent incremental margin, which is below your own kind of longer-term framework. I guess what's going to drive that, particularly since I think you do make money on OE and you should have volume leverage on the higher sales overall in the second half?

Yeah, I would say very consistent with what I had mentioned in my prepared remarks last quarter, that the mixed shift between comma OE and aftermarket, you know, will clearly go in the direction where comma OE is increasing pretty significantly. You know, we had a very nice print on the CommOE side here in the quarter, but, you know, that's going to go up, call it 10%-ish when you look at Q3 and then sustaining at that level. And then with commercial aftermarket, similarly, that comp is going to be very difficult. If you look back to our Q4, it was the highest level of commercial aftermarket that we've ever shipped, and so we face that. Still good levels, I would say. We're not saying that it's going to decline, but a year-over-year basis, it'll be a challenging comp. You know, in the quarter here in Q2, as well as in Q1, we enjoyed some benefits from engineering programs that really fall through nicely. We don't see that opportunity in the second half. So those are some of the elements, I would say. So, yeah, at 30%, perhaps a little bit on the lower side, and perhaps, you know, exhibiting a little bit of caution on our side.

But I'd also reiterate, on a full-year basis, it's still 35% to 40%. and we feel comfortable with that construct going forward, in any given quarter there can always be a couple of items here or there, but that's the right way to look at the business in the medium and long term.

Right, okay, thank you. And then last question, sorry to be a pig, but is the GTF program a material part of your commercial aftermarket mix yet? And then can you give us, Rich, any sense for how quickly GTF aftermarket revenues have been growing in the last couple quarters?

Alex, do you want to take that one? Yeah. Hey, Scott. It's Alex. So I think the second part of your question, first, we're seeing pretty strong growth rates in the aftermarket and repair and overhaul for that program for the DTF. I think this year around 15% or so, and those rates accelerate. So next year we're expecting somewhere around 30% growth as we see how the projections and the flat hours come together. That said, it's still today a relatively small part of our aftermarket sales, to address the first part of your question. Less than 5% today of our commercial aftermarket sales. We're growing. So, an important platform for us. Matt Somerville.

Sounds good. Thank you.

Thanks, Scott.

Thank you. And our next question comes from Matt Somerville with DA Davidson. Please go ahead.

Good morning, Matt. Thanks. talk a little bit about the cadence you saw throughout the quarter in PFT orders and what you're seeing in July. And it's always appreciated if you can do a little bit of a deeper dive on the business in terms of end market and geographic trends and then have a follow-up. Thank you.

Yeah, Matt. This is Alex. So for PFT, the quarter played out pretty much as expected. We mentioned orders were up 4.7 percent year-over-year, sequentially up a little bit. So, I think, you know, starting at the high level, overall the market continues to be stable, somewhat sluggish. I think there's some areas of strength and other areas that are soft. I think I'll start with the softer side. As expected and as we anticipated coming out of Q1, no really surprise on the chemical market, We're seeing some softness, and we included that in our guidance. Projects pushing to the right. I think Europe in particular has been the softest, with other regions holding in there better. Customers have, as you know, lowered CapEx expenditures this year, but it's been relatively stable for us. And we continue to win some important projects, as you heard in my remarks. So I think chemical is soft but stable. Bright spots in the market for PST cryogenics is growing at double digits. Mentioned space launch, biopharma, these acquisitions that we've done over the last couple years are really growing very strongly. Water, wastewater segments also seeing that strength. So that's how we ended up with that result on orders. I think when we look at the second half, We expect something similar, stable, and we're still going to see some growth in PST on the low single-digit side on core growth cells for the year.

Got it. And then as a follow-up, if I think about 2025 and the 550 to 580, if I wanted to try and derive a cash EPS number, Rich, what would be your acquired intangibles amortization for this year? And are you thinking any differently about guiding towards cash EPS going forward?

Yeah, we're not going to make a final decision until we provide guidance, but that's something that we're seriously considering, as we've said previously.

It was a two-part question.

Sorry. If we were to look at our 25 guides. It's not a material. It's about $7 million.

Yeah, let us grab that for you.

We have it, but it's not. As you'd expect, we're modeling that stuff as we're thinking through the details. So we do have it. We'll make sure we share that.

Thanks. And then just I'll love in one final one quickly. Can you just give a little bit of insight into the more immediate term actionability in your M&A funnel? Which business segment that may be tilted more heavily towards?

Thanks. It's still balanced, Matt, across both. I would say that there's nothing active immediately. There's a number of things in queue. There's some things that we know are coming across immediately. expected to come up from markets, some others that we've been working long-term. As we've described in the past, we have a rich, robust funnel of opportunities, both what we track within conglomerates that make strategic decisions, private equity that's coming out, private companies that are family-run that we establish great relationships with over the long term. The funnel is very, very full on both PFT and A&E, balanced, What's in front of us is balanced. Nothing imminent within the next quarter, for sure. Hopefully that helps.

Understood.

Thank you.

Thank you. And our next question comes from Jordan Leone with Bank of America. Please go ahead.

Hi, Jordan. Hey, good morning. Good morning. So, on the big, beautiful bill in the R&D tax changes that have come through, how are you guys thinking about the impact there?

Yeah, well, we're still studying it, as you might imagine, looking at the R&D capitalization as well as accelerated depreciation for CapEx, so things that we're still modeling. We would expect a modest improvement in free cash flow this year and next year, but nothing overly significant. But it'll be a nice, modest improvement, I would say less than 5% of our total free cash flow.

Got it. Okay. And then on truck, could you guys just talk through a little bit on why you're confident in the value you guys are going to be able to add? What should it look like? And what does that do going forward?

Yeah. So, I mean, we love these businesses, Jordan. We love the technology, the robust aftermarket it has. We love the improvements that the team has driven, especially over the last few years with the recent management that they implemented. So at a high level, these businesses have all the fundamental characteristics to be really one of the best businesses in Crane as we execute our integration plan over the next five years and deliver that 10% RIC. So we have a bit of a different vision of how we will operate those businesses. uh versus baker and uh if you for those of you that attended our investor meeting in uh powell beach you heard a little bit about our playbook and driving the cbs machine i can tell you that we have very clear line of sight on how we're achieved that and potentially some upside and uh we'll we'll share more after closing and educate on a road up in our path to do that but Very confident and very excited that these businesses are going to be one of the best businesses in our portfolio.

Thank you so much.

Thanks, Jordan.

Thank you. And our next question is coming from Damian Karras with UBS. Please go ahead.

Hi, Damian. Hey, good morning, Max. Congratulations on a, you know, big, beautiful deal to accompany the big, beautiful bill out there. just a follow-up on psi um so i just want to make sure you're not really expecting any synergies per se but you're just planning on running the business a little bit differently to drive that uh financial profile uplift and alex i think you made a comment that it's going to make it easier going forward to integrate complementary acquisitions could you just elaborate on what you meant by that

Yeah, so I think first I'll address the second part of your question. So we reorganized to create a segment similar to what you've seen in the PSD side, which is the role I had before the split. You may recall we have five independent business units on PSD reporting to a senior vice president, in this case. So on the A&E side, with this change, Jay Higgs is now leader of the segment. And two presidents will report to him, the future president of Jock, and Jay's replacement, which is Mr. Joseph Mundinger, a long-tenured Crane leader. So this structure allows us to incorporate future standalone businesses under the A&E segment, right under Jay, under just how we operate PST. So from that regard, that's why we're prepared to do more, and it positions us to continue to execute on inorganic growth I think on the synergy side you know there are some synergies from the aspect of truck has a very strong content on aerospace it's not necessarily rod in the traditional aerospace model so with our skill sets and customer relationships and processes we're going to see some benefits and synergies on the aerospace side in particular and And then on the execution of the CBS machine, that's where we're going to see the majority of the gains with these businesses, just like we've done in the last few acquisitions.

But your summary is pretty spot on, David. In the traditional sense of synergies, it's less about the synergies. It's more about the focused investment, commercial excellence, execution in each of these businesses, and the focus that we're going to drive. And leveraging... broader synergies in terms of operating models, if that makes sense.

Yes, understood. Thanks for clarifying. And, Rich, you alluded to earlier on the price productivity strength that you saw in the second quarter. Could you maybe give us a little bit more color on kind of how the pricing actions you've taken have played out and how we should be thinking about pricing in the second half of the year here?

Yeah, I think I would say pricing has played out as we expected and thought we were going to execute back when we issued, you know, had our discussion at the end of the first quarter. You know, so we expect to fully offset that tariff incremental cost with price in the year. So, you know, a little bit of a headwind here in the quarter, but nothing really to shout out about our call out. We pretty much covered at all. But, yeah, consistent, I would say, from here through the balance of the year on price costs relative to tariffs. You know, from a margin point of view, when you look at, you know, our typical model is to ensure that we're holding our margin profile. So a little bit of a headwind there. That's included in our guide and included in those leverage rates here as we close out the year.

Okay, so just to clarify, you wouldn't expect the need to take any additional price because of some of the steel, copper, other raw material tariffs?

Great, thanks. Copper really was not material. Alex, if you had anything?

Yeah, I mean, we are taking additional price offset and additional supply chain tariffs in that regard. Copper is really less than $1 million of impact on our total tariff projections, so not really a significant headwind overall. It's all around PST primarily. Thanks again. Good luck, guys. Thanks, Damian.

Thanks, Damian.

Thank you. And our next question is coming from Nathan Jones with Stiefel. Please go ahead.

Good morning, everyone. I guess I'll push a little bit more on PSI, understanding that, you know, you're not even going to own it for five months yet. It looks like to get to 10% ROI by year five, there's going to need to be some pretty significant margin expansion across those businesses. I imagine these are, you know, non-call for Baker and probably a little bit, lack a little bit of attention, lack a little bit of investment. Maybe just any details you can give us on how you plan to get those margins up to kind of the place you need to be to generate that kind of ROIC?

Yeah, sure, Nathan. This is Alex. So, you know, I think if you, just to compare and contrast the PFT journey that you've been a part of or seen or witnessed from 2017 on, and more than 1,000 basis points of margin expansion and those fundamentals. I think what we see is a strong resilient aftermarket. We see technology that's incredibly sticky, hard to replace. We see many opportunities to adjust the model and be more efficient and reduce costs. So we're, you know, in those regards, has even more of the traits that we like than some of our traditional businesses where we've achieved very, very strong margin improvements. So very, very confident on that path to significantly improve the margins in the first few years, certainly hitting that five-year 10% RIC or beating. I would say that our model has upside to any of the additional growth that we'll drive is all upside, right? So we have a very clear line of sight to how to increase those margins, and then there's other opportunities that can drive upside. So level of confidence is extremely high.

Maybe you can comment on value-based pricing. I mean, I'm sure you're not going to do it in terms of contribution.

I think we'll be more comfortable commenting on, you know, the full PAP, once we're able to outline the full guidance, which we give you in January and after the transaction is closed. And so I think we'll wait on providing some additional specificity and details to that.

Fair enough. Can't blame you guys for trying. I guess I'll ask one on the A&E orders then. I guess I'll ask one on the A&E orders then. They can be lumpy, and you guys did talk about some of the larger orders in the quarter that stretch across 26 and 27. Do those phase in or are they single large orders that you would then ship in 26 and 27? And how should we think about the potential for sustainability of this kind of level of orders? Thanks.

Yeah. So these are, it's, they're in a phase in. There's not, it's not like we received a $20 million order and it's going to hit in the fourth quarter of next year. It's a phase in. Think of it as a blanket order, Nathan, on each of those opportunities that I mentioned.

Yeah, I mean, I think, you know, we ship to meet the demand of the customer from a build standpoint, right? So it's not all at once. We ramp up, level load, and continually ship. And then we expect, you know, orders to continue to come in and fill as we continue to grow.

Great. Thanks for taking my questions. Thanks, Nathan. Thanks.

Thank you. And our next question is coming from Jeff Sprague with Vertical Research Partners. Please go ahead.

Jeff Sprague Good morning, Jeff. Jeff Sprague Hey, thanks. Good morning all. Hope you're all doing well. Jeff Sprague Thank you. Jeff Sprague Just back on PSI, if I could. Just wondering, this deal itself, do you see it kind of further opening the aperture, you know, to go further in kind of these sensing the weighted end markets? And also, the nature of my question is when I look at panometrics in particular, right, I see, you know, the ABBs and Emersons in the near neighborhood. And just wondering your kind of, you know, degrees of freedom in that space in particular, or should we view this as more of kind of a, you know, rifle shot kind of targeted situation as it relates to, you know, those capabilities?

Thanks, Jeff. I would say that the aperture has always been open, as we've discussed in the past, around sensing and sensing technologies. We like the niche position that the Panametrix truck and Reuter Stokes holds, even against some of the more larger competitors. There's a wide range of additional sensing solutions that are attractive as we think about it. This is going to be one of a few spaces that we'll continue to look at for continuing ongoing portfolio transformation as we move forward. Would you add anything else, Alex?

Yeah. I mean, I think that this test and measurement space is something that we've always targeted, tried to build on. So, you know, we'll continue to work in this space and alter adjacencies both in A&E and PFT. To the other part of your question, Panametrics is positioned in this high end of the highest accuracy in these products. So in particular, flow, you know, distinct position versus those other competitors you mentioned, and also gas analyzers. So Panametric was really the pioneer of the ultrasonic flow technology, so they've maintained that top highest accuracy for those most critical applications. So they do quite well, and, you know, we're pretty confident they'll continue to grow.

Great. Understood. And then... Alex, I'm a little late, but I heard your comments about PFT and, you know, some of the projects slippage that's happening in some verticals. Would you characterize that as simply slippage at this point around kind of uncertainty around tariffs and the like? Are you starting to see projects get canceled? You know, I think of, you know, Europe chemical in particular being pretty rough, right? And tough news out of Dow Chemical last week. So that vertical market in particular.

No, I mean, we don't see this big trend of projects being canceled. It's really things shifting to the right as we expect it coming out of Q1. I think it varies in degrees from region to region. I think you've probably seen in Europe some of the plant closures that have occurred in the chemical space. It hasn't had a significant headwind for us. But I think, you know, some just pushing to the right, it's all based on customer demand, right? And customers waiting to see that inflection in demand of their product, which is driven by a few key factors in the economy like housing, durable goods, and so forth. So as customers start seeing some recovery in those markets, these projects started moving again. And that's what we've seen when we've been in these cycles. So things will impact back at some point.

We'll continue to watch carefully. I mean, you know, all the announcements coming out, but we still have not seen it worsen. So as we look in the back half, it feels more of the same.

And then, Max, on the OB3 or big, beautiful bill, whatever you want to call it, you know, I think as Rich said, you know, for 2025, we're probably just working through deductibility of CapEx and R&D and figuring out what, you know, what applies. But when you think about this bill going forward, do you see it actually impacting, you know, CapEx decisions, you know, leading to further investment in the U.S., I'm sure it's probably early that they haven't gotten any kind of demand signal from customers, but just interested in your opinion on that.

You know, I'll pull back. We're going to continue to study the big, beautiful bill, but we've always made the right business decision regardless. Our presence in the U.S. is very strong. A number of our sites that are growing significantly are all U.S. based. of our locations. Our historic weaknesses in some of the LCC countries is a strength right now for us overall. I don't see any unique decisions at this point in time specifically driven because of the bill. We always look at the right capital allocation decisions regardless. That is in the best interest of shareholder value long term. And if there's some benefits in addition because of some tax policy, we take advantage of that. But that's historically how we've operated.

Great. Understood. Thanks a lot. Appreciate it.

Thanks, Jeff.

Thank you. And our next question is coming from Justin Ages with CGS Securities. Please go ahead.

Morning, Justin. Hi. Morning, all. Question on the PSI acquisition, and maybe this is a bit early, but can you give a sense of the opportunity in nuclear? I know a lot of investors are keyed in on that, so I wanted to get your comments.

Yeah, Justin, thanks for the question. This is Alex. So, you know, RotorStroke has a very strong share position in the boiling water reactor installed nuclear facilities. So very... know mature position there over the years so the base business is really about replacement in those then secondly taking advantage of any of the new nuclear plant restarts I think would be the second growth opportunity that are happening and they're well positioned to take advantage of that and then third would be these small module reactors I think Rotostrux is positioned to be a leader in radiation sensing for small-module reactors. They actually have a formal partnership with one of the leading firms of small-module reactors. So in all three legs, I think they're very well positioned to take advantage of replacement, restarts, and new technologies that come in the nuclear space. How about security? And then separate than that, Max reminds me, you know, there's a whole space about radiation sensing, monitoring, and homeland security. Florida still has a position on that. So that will be a market that will be interesting to continue to explore and grow beyond nuclear power generation as well. Medical, homeland security are other segments for their technology.

Great. That's helpful. And then shifting to PFT, I know you have made some comments about the core segments that you're focused on. Is there any, you know, signs of brightness in those PFT subsegments that are not core, like any pockets of strength there that you're seeing?

Yeah, so outside of chemical, there's a lot of pockets of strength, right? So in the cryogenic space, As you may recall, we did a couple of acquisitions, CrowdWorks, Technosat, plus our organic investments. So we're very strongly positioned in the space launch platforms, which is growing. So that's driven by the increased demand of satellites. So this is a reference point. The number of launches that occurred in 2012, for SpaceX platform two. And then 10 years later in 2022, 60. This year, I think it's more than 160. So that's growing significantly in the cryogenic space as well as biopharma solutions. So very strong demand there. For our crane pumps and systems business in the wastewater, we're seeing high single digit growth demand municipalities look to become more efficient, attacking critical problems, cost of operation. Middle East, from a regional standpoint, Saudi Arabia, where we have a presence there in a facility, they continue to invest both in the process side and also just in the building services side with our building services business. water utilities, clean water as well with our Viking Johnson brand. So there's a lot of bright spots that make overall PST strong. And as you know, those portions of those markets have become a bigger part of the overall portfolio over the last seven years as we repositioned PST. So definitely a lot of good areas in growth.

I appreciate the thorough answer. Thank you for taking the question. Thanks, Justin.

Thank you. And our next question is coming from Tony Bancroft with DiBelli Funds. Please go ahead.

Good morning. Hey, Tim. Good morning. Well done on the quarter. I know you talked about this in your comments. But just any, you know, obviously a pretty big deal closed today with Baker, or not closed, excuse me, was announced today with Baker Hughes and Chart. And any potential for acceleration of the PSI closing or any changes with that? I know you said it's going to be expected in January, but just maybe any color with that since you're sort of connected there, I guess, in that sense.

Yeah, Tony, no, this is Rich. No change in timeline. We still feel like end of the year, you know, December 31st, January 1st is the way to think about the close and tracking nicely, as Alex said, from an integration perspective in our cadence, but still end of year. Okay, great. Thanks so much. Well done. Thanks, Tony. Thanks, Tony.

Thank you. This concludes the Q&A portion of today's call. I would now like to turn the floor over to Max Mitchell for closing remarks.

Thank you all for joining us today. Another solid quarter at Crane and we continue to strategically cook up some exciting opportunities for the future with the latest PSI acquisition and more to come. As the late great celebrity chef and Food Network star Anne Burrell said regarding the cooking process, taste as you go. When you taste the food throughout the cooking process, you can make adjustments as you go. Strategy deployment and execution is sampled often at Crane to ensure we're adding the right ingredients and delivering the best product for shareholder returns. The PSI acquisition adds a dash of spice to kick up performance for the long term. New savory dishes being added regularly. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Thank you. This concludes today's Korean Company second quarter 2025 earnings conference call. Please disconnect your line at this time and have a wonderful day.