Crane NXT, Co.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Crane NXT Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The lines will be open for your questions following the presentation. Please note that this conference is being recorded. I would now like to hand the call over to Reema Heider, Vice President of Investor Relations, to begin the presentation. Reema, you may begin.

Thank you, Operator, and good morning, everyone. I am Reema Heider, Vice President of Investor Relations, and I want to welcome all of you to the Fourth Quarter 2023 Earnings Calls Crane NXT. Before we begin, the slides we will reference during this presentation can be accessed via the Investor Relations section of our website at cranenxt.com. A replay of today's call will also be available on our website. Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2, which explains the risk of forward-looking statements and the use of non-GAAP financial measures. Additionally, we refer you to the cautionary language at the bottom of our earnings release and in our Forms 10-K and 10-Q filings pertaining to forward-looking statements. During the call, we will also be using some non-GAAP numbers, which are reconciled to be 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 cranenxt.com in the Investor Relations section. On our call this morning, we will discuss 2023 highlights, our financial results and 2024 guidance, as well as our goals and strategy for this year. For this discussion with me today are Erin Sake, our President and Chief Executive Officer, and Cristina Cristiano, our Senior Vice President and Chief Financial Officer. After our prepared remarks, we will open the call to panelists for questions. Now let me turn the call over to Erin.

Thank you, Reema, and good morning. We appreciate everyone joining the call to discuss our fourth quarter and full year 2023 results, as well as our outlook for 2024. You know, 2023 marked the start of Crane NXT's journey as a premier industrial technology company, and I wanted to take a moment to reflect on that year and thank all of our associates around the world who made 2023 so successful. One of our shared values is people matter, and I couldn't be more proud and grateful to be part of this outstanding team. In April, we successfully launched the company, built out our new corporate leadership team, and continued our disciplined approach to operating our core business. We also established our five-year vision to grow the company to 3 billion, building from our strong position as a trusted partner, providing technology solutions that secure, detect, and authenticate what matters most to our customers. As we announced yesterday, we've delivered strong operational performance, growing revenues organically by 4% with adjusted segment operating profit of 28% and delivering adjusted EPS above our guidance. A hallmark of our company is our strong free cash flow. We ended the year with adjusted free cash flow conversion of over 100%, allowing us to further pay down our debt and giving us confidence as we move forward with an increase to our dividend by 14% for 2024. And finally, we developed a strong M&A pipeline, and we are on track for our first acquisition in 2024. I'm very proud of our accomplishments during our first year as Korean NXT and believe we have set up the company for long-term success. Moving to our full-year 23 financial results, we executed very well to close out this year, delivering results at or ahead of our guidance on all key metrics. We had revenue of 1.4 billion with core sales growth of 4% in line with our guidance and improved segment operating profit margin by 30 basis points over 22 and above our guidance. Adjusted EVDA was 388 million, which was also above our guidance, and adjusted EPS of 416 exceeded the high end of our outlook. Adjusted free cash flow conversion for the full year was 111%. Our very strong cash conversion enabled us to pay down 245 million of debt in 23, lowering our net leverage ratio to 1.1 times. We will continue to focus on this disciplined execution in 2024, utilizing the power of the crane business system. And as you saw in our earnings release yesterday, we're starting the year with core sales growth guidance of negative 1 to plus 2% over 23 and adjusted EPS of $4.10 to $4.35, which we believe is an appropriately risk adjusted guidance given the dynamics in our businesses. With that, I'm now going to hand the call over to Christina to walk us through in more details our Q4 and full year 23 financial performance, as well as provide more details on our guidance. Christina?

Thank you, Aaron. What a great close to this extraordinary year where we celebrated the launch of Crane NXT. Our significant accomplishments in this short period of time are a testament to the hard work and dedication of our global associates, and I would like to thank and congratulate everyone. Starting on slide five, we had a strong fourth quarter with core sales growth of approximately 4%, adjusted segment operating margin of 27%, and adjusted EPS of 99 cents. As Aaron mentioned, adjusted free cash flow conversion was over 100% in line with our demonstrating our consistent focus on operational excellence. For the full year, we also had over 4% core sales growth, 28% adjusted segment operating margin, which is an expansion of 30 basis points year over year, and adjusted EPS of $4.16, which beat the top end of our guidance. Overall, we are pleased with the results for Q4 and 2023, which were underpinned by continued disciplined operating execution by both segments. Moving to our segments, CPI reported a decline in core sales of 7% in the fourth quarter, as expected, and adjusted segment operating margin decreased 260 basis points to 29% year over year, reflecting lower volumes and an unfavorable product mix offset by strong pricing execution. As we discussed last quarter, this decline was driven by softness in new orders, primarily in our gaming end market, where customers continue to draw down on their inventory overstock and in our retail end market, where projects have been delayed. While our backlog has come down significantly since the beginning of the year, we are still at approximately one and a half times what we would consider normal. We are working with our customers to assess the timing of their demand, while also managing our inventory levels very closely. For the full year, CPI core sales grew at 2% in line with our expectations, and we delivered adjusted margin expansion of 190 basis points, driven by continued disciplined pricing, which more than offset inflation. Moving to crane currency, the quarter was well ahead of our expectations, with core sales growth of 29%, driven by strength in the international currency business. Adjusted segment operating margin improved 230 basis points year over year, reflecting favorable mix. Backlog was up 26% from the prior year, as we continue to see new orders in our international business. This includes a significant multi-year bank note order, secured in the fourth quarter, which will contribute to elevated backlog levels through 2026. For the full year, crane currency had exceptional performance, with 8% core sales growth. Adjusted segment operating margin of 26% declined 240 basis points year over year, reflecting unfavorable mix in the U.S. business, where production was more heavily skewed toward lower denomination bank notes. Moving on to our balance sheet, our adjusted free cash flow was $65 million in the quarter. Given this strong free cash flow, we repaid another $70 million of our term loan during the fourth quarter, reducing our net leverage ratio to approximately 1.1 times. In total, in 2023, we paid down $245 million of our $350 million term loan. We now have over $1 billion of M&A capacity and substantial flexibility to deploy capital toward acquisition opportunities that meet our strategic and financial criteria. Additionally, we announced an increase to our annual dividend of 14% based on our strong cash flow, continuing our commitment to deliver value to our shareholders. Moving to 2024 guidance, we expect to deliver full year adjusted EPS in the range of $4.10 to $4.35, with core sales growth between minus 1% to plus 2%. The midpoint of this range assumes that gaming orders return to growth in the fourth quarter for CPI and that in crane currency, we stay on track to return to normal operations after the planned shutdown of our paper making equipment for upgrades related to the new U.S. bank note series. Given these dynamics, I want to point out that the phasing of revenue in 2024 will be more heavily weighted toward the second half of the year versus our historical performance. We see opportunity for upside to our guidance based on the potential acceleration of projects in CPI's retail end market, order flow resuming earlier than expected in the gaming market, and additional wins in the international currency market. We are guiding to segment margins in the range of 27% to 29%, reflecting continued disciplined pricing and driving productivity through the crane business system. Corporate expenses are expected to be approximately $53 million, an increase from 2023, reflecting a full year run rate of costs for employees that were hired last year. Additionally, we expect non-operating expenses of approximately $37 million, reflecting lower interest expense due to the pay down of debt. Similar to 2023, we expect to convert our adjusted free cash flow at approximately 100%. Let me now hand it back to Erin for additional details on key drivers impacting our outlook within each segment.

Thanks, Christina. Moving on to slide 13, I want to highlight some of the dynamics we see playing out in 2024. At Crane Currency, we delivered an outstanding performance in 2023 with 8% core sales growth and increased our international market share driven by further adoption of our micro optics technology. Now, as a reminder, the international business is half of Crane Currency's revenue. In this business, we added 17 new denominations designed using our micro optics technology in 2023 to bring our total to 150. This is a 14% growth rate from 2018 when we acquired the business through 2023. Also, we now provide our technology to 48 countries, an increase of approximately 12% year over year. The launch of Rapid Vision, the world's first multicolor micro optics technology, has generated significant interest from our international customers and will provide growth opportunities in the years to come as new denominations are currently being designed that specify this technology. And so we ended 2023 with a backlog growth of approximately 26%. And this positions us very well for 2024. Now, the other half of revenue from Crane Currency comes from the U.S. government, a very important and long-standing customer. And I want to remind everyone about the work we're doing to prepare for the new U.S. currency program and the impact it will have on the currency business in 2024 and beyond. As previously discussed, this is a tremendous long-term tailwind to the business as the U.S. redesigned spank notes, starting with the $10 note expected to be released to the public in 2026. And this will be followed by a new note every two years culminating with the new $100 bill in 2034. This program remains on track and we continue to be very optimistic about our position with the U.S. government as their sole supplier of currency paper, a relationship we've held since 1879. Additionally, we are very optimistic that the U.S. government will continue to be a leader in technology and bank notes, incorporating additional security features in their new designs. Today, only the U.S. $100 bill contains our micro-optics technology, so we see opportunities for additional technology to be incorporated in these new bank notes going forward. As part of this program and in very close coordination with the U.S. Bureau of Engraving and Printing, we stopped production in one of our paper-making facilities in late Q4, 2023, for approximately four months to complete necessary equipment upgrades to accommodate the new currency technology. As a reminder, we recognize revenue for this business when we produce the paper for the U.S. government. So given the shutdown and our revenue recognition policy, we expect currency sales to be flat year over year in the first half of 2024 and then gradually increasing throughout the year as we produce products in advance of the next scheduled shutdown to begin in late Q4 of 24. Overall, we're very excited to continue to be a trusted partner with the U.S. government for this very important program and look forward to the future growth it will bring in currency, both with new technology for paper and the opportunities for increased use of micro-optics. Now moving to slide 15, in 2024 we expect CPI to grow mid-single digits, excluding the gaming vertical. We see strength in our vending business growing in mid-single digits coming off COVID lows. We also see momentum in the financial services vertical, particularly with our field service business where we continue to expand our offerings and grow recurring revenue. And in our customers coming out of 2023. As Christina mentioned, we're still seeing slower new orders in gaming as our customers are working down heightened levels of inventory due to the pandemic. We've been in very close communication with these customers and now forecast their inventory positions will return to pre-pandemic levels by the end of Q3. This will result in gaming orders returning to growth in Q4. The underlying gaming market is healthy and we continue to maintain our strong leadership position in hardware, software, and services. Based on the underlying drivers of CPI's end markets, including labor scarcity and the need for increased automation, we continue to believe that our business is well positioned to deliver -single-digit growth in the long term as we navigate through the transitory headwinds in gaming. As we look ahead, we're on track to execute our five-year roadmap to significantly grow Crane NXT and diversify the portfolio. This includes our continued reinvestment in our core businesses, execution of the Crane business system to drive productivity, simplification, and cash conversion, along with disciplined M&A. And in terms of M&A, we believe that the strength of our pipeline and the strategic fit of the targets will enable us to execute on a transaction in 2024 as planned. We are actively cultivating companies with a focus on differentiated technologies and services that secure, detect, and authenticate our customers' most valuable assets. These markets are aligned to secular tailwinds that will drive long-term, durable growth above -single-digits and enable us to achieve a ROIC of greater than 10% by year five, utilizing CBS to drive value. Certainly more to come in this area, and I look forward to providing an update at the appropriate time. Moving on to our final page, 2023 was the start of our journey as Crane NXT. We launched the company, delivered on our financial commitments, and established a long-term strategy for growth that we believe will drive significant value creation for our shareholders. In 2024, it will be the year we accelerate this strategy, building off the technology leadership in our currency business and investing for the new U.S. Banknote series, returning to -single-digit growth and CPI as we work through inventory normalization with our gaming customers, and continuing to drive strong free cash flow conversion, allowing us to increase our dividend while also providing ample liquidity to execute our first M&A transaction. Taken together, I'm confident in our ability to achieve our long-term objectives, drive profitable growth, and create substantial value for our stakeholders. So thank you again for your time this morning, and we're ready to take our first question.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your question. Our first questions come from the line of Matt Somerville with DA Davidson. Please proceed with your questions.

Thanks, morning. With respect to the comments you made regarding kind of the first half, second half waiting, CPI totally makes sense, very intuitive, given the gaming dynamic. Walk through in a little bit more detail that currency dynamic, the shutdown impact, and at the end of the day, trying to understand how much of revenue and earnings is likely to be weighted first half, second half, and how we should kind of think about that cadence, and then have a follow-up. Thank you.

Sure. Hey, good morning, Matt. Good to hear your voice. So just centering in on currency. So again, the shutdown in the first half is material for us in the U.S. government business, just again to how we recognize revenue. As I mentioned in the prepared remarks, we recognize that revenue at the time of production. So a shutdown, a part of our papermaking operation obviously impacts that. So when you think about currency overall then for the year, and to your point on phasing, that's obviously creating a headwind for us in the first half, where we expect currency to be roughly flat, and then back, you know, to growth in the second half, which when we take that in total, as our guidance suggests, we're in the range of that low single digits for the full year.

And then maybe a finer point on for CXT overall, how much of the revenue and earnings weight is front half versus back half for you guys? Yeah,

I think a simple guide here, it's going to be roughly 40-60. Matt, that's going to be both top line and bottom

line. Okay. And then maybe, I was wondering if you could maybe elaborate a little bit on what sounds like a pretty sizable, if it's going to carry the backlog, multi-year win you notched in crane currency internationally, as well as maybe talk a little bit about the number of denominations that may be in a design phase with respect to rapid vision. Thank you.

Great. Well, I'll start, and then maybe Aaron can jump in at the end. So, you know, we can't give any specifics on any one customer or amounts there, but there was a multi-year order in Q4 that'll have a meaningful impact on the revenue over the next three years. And we're really excited about that. The team continues to do great in winning new contracts internationally, so really great job there. And as Aaron said earlier, 17 wins in a year, which really just reflects our leading technology, our ability to deliver what our customers need and our commitment to quality. So just really great all around there. Just in terms of the denominations, you know, so 150 in the portfolio right now, and it's been accelerating over the last few years. So just again, really strong story for the currency business.

Yeah, you know, I think it's positive on many fronts, Matt. You know, it's been broad-based. That's, to Christina's point, 14, you know, new denominations. So while we did win a materially significant order in the fourth quarter, that's where you see the backlog growing up to 26% as we exited the year, we've had a lot of wins through the course of the year, and that's where currency in the international business really exceeded our expectations, particularly as we exited the year. You know, I think rapid vision is just an outstanding story for us. It talks to our technology leadership, the continued evolution of this portfolio. And when we think about new currencies getting designed with the technology, just a reminder that I know, you know, and many others, that it takes several months to years to go through the design process for new currencies. So that started for us at, added slightly before the launch of the product. We have a few central banks evaluating that technology and looking to potentially design it in to their next currency. And obviously we have to wait and let them announce that at the appropriate time. But again, that design to launch period is months to, you know, years depending on a particular central bank. Appreciate the color. I'll get back to Keith, thanks.

Thanks, Matt.

Thank you. Our next questions come from the line of Damian Karras with UBS. Please proceed with your questions.

Hey, good morning, everyone.

Morning,

Damian.

How are you?

I'm doing well, thank you. I have a follow-up question on currency. You talked about nice momentum in international and potential upside to your guidance. Could you tell us what is the kind of like -over-year growth that you have based into your guidance for the international currency business?

Yeah, I'll take that one. So it's -single-digit growth for international. And really just based on the high visibility we have into our pipeline. So we feel very confident about delivering on that this year. Now remember, this is a project-based business and the timing of our shipments impacts our revenue recognition. So that could vary. But overall, based on our pipeline, we feel confident in mid-single digits.

Okay, that's really helpful. Thank you. And then just looking at the overall company guidance, flat to up slightly sales is your expectation for the year. Margin guide, kind of at the midpoint, maybe down modestly versus where you were in 2023. Is there a way you could maybe just give us a bridge, a way to think about these various headwinds and tailwinds, thinking about the productivity, price, and then the mixed impact, anything else?

Yeah, sure, Damian. Let me take a few moments on that and Christina can add in as well. Again, I think as I said in my remarks a few minutes ago, we believe the full-year guidance is appropriately risk-adjusted and we're very confident with that. And I think the way you asked the question is appropriate. You've got to break down the analysis into some of the constituent parts. So when I think of the currency business, as Christina just mentioned, we're looking at -single-digit growth there. Again, the margin rate of that business, a little bit less. So that creates a natural mix, headwind inside of currency, alluding to the question you've raised. So you can think of it as just as international is growing at mid-single digits, there's a mixdown effect naturally in currency, where the US government, given the shutdown and what we see in terms of their volume forecast, we're assuming that we have flat volumes and similar mix that we had last year in terms of the denominations. So that's really the story in currency. Again, long-term on the US government as we exit 24 and get to the launch of 26, a fantastic story for the business. Now in CPI, as I mentioned, we expect all parts of the Portfolio X gaming in aggregate to be growing in mid-single digits. Now again, gaming with that said is typically a higher margin part of our portfolio. So we do have a mix headwind there, and that's what's really driving the margin question that you alluded to and the range we've set in the guidance. But again, we see gaming with the visibility we have into our customers with a lot of confidence that the natural inventory burndown is going to complete the cycle in Q3, orders return back, and we exit at mid-single digit growth in gaming, which should give us some improvements as we look ahead into 25. So that's really the mix. I would just reiterate to the question Matt asked that because of these phenomena with the US government and gaming in 2024, the phasing of our revenue will be a little bit different than we normally see in the company. And again, I think that 40-60 is a good high-level guide. So hopefully that helps, Damian.

It does. Thank you very much for all that color, Aaron. I will pass it along.

Thank you.

Thank you. Our next questions come from the line of Bob Labick with CJS Securities. Please proceed with your questions.

Good morning and congratulations on a great year and quarter. Thanks, Bob. Thank you. Yeah, I wanted to just follow up on, I guess, your last comment there, Aaron, because you mentioned visibility in gaming. Could you just talk about, I feel like CPI has played out exactly as you've said to this point, and obviously coming down off of higher backlogs from COVID supply chain disruptions and whatnot. So maybe just talk about your relationships in gaming and in retail and the visibility that you have to the underlying demand and the inventory corrections, and that gives you the confidence that we should see resumed growth in the back half of this year.

Sure, Bob. In gaming, why don't I again break these down as you've asked the question market by market, because there are some important differences. Gaming, again, I'd say from a forecast perspective or an outlook, we believe this is appropriately risk-adjusted, again, so that we can continue to do exactly what we say we're going to do each quarter and through the course of 24. I want to bring it back at least to the gaming market, which is an important part here of our thesis, which is it's very healthy. Casinos continue to be healthy, and our OEM customers continue to be healthy. We see this as a market that's growing even in 24, anywhere between low single digit to mid single digit plus, highly dependent on the geography, and of course we service a global market. So that gives us a lot of confidence that this underlying market is healthy, and we see that in both, again, the casinos all the way through the OEMs. Now, we've also done a lot of channel checking, Bob, as you can imagine, and we are very confident we're maintaining strong market share, both in our hardware, software, and services offering. Just as a reminder, we had a major competitor that lacked certifications and was largely out of this market in 22 and for a good part of 23. They're back in the market, but I think as a testament to our team at CPI, we gained market share through this period, and so we have a very sticky customer base and a higher set of installations on the floors of these casinos. So again, we feel confident in our market position. Now, when it gets into the visibility to our customers' inventory, we spend a lot of work here, both in December, in January, reassessing as we exited the year and as customers have started the new year on what their order forecasts are going to be. We sell the vast majority of our equipment through OEMs, and there's only a few OEMs globally at scale, so it's a short list of customers that we have very close relationships with, and that allows us to get very deep into their inventory levels, customer by customer, and that's where I'd say on average we see six months of inventory above the normal holding that they would ascribe to. So again, I think we have a very good visibility into that, and knowing their order rates and their forecast for the year, how they're going to draw down that inventory, that's what gives us confidence that we're going to see a return to order rates as we get into Q4 and exit their year back in a -single-digit growth dynamic in gaming. So Bob, I'll pause there on gaming, and then I'm happy to talk retail as well. Yeah, perfect.

Great. Yeah, let me go to

that. I think retail is a different market, but a dynamic where we're seeing improvements as we exited last year and as we're already starting off here in 2024. Again, I'd go back to the thesis on the underlying market, which we see is very healthy, driven by our customers needing increased automation and still battling issues with labor scarcity. And so we don't think those change in the next months or years ahead, and that gives a tailwind to this market. And when you put that in context, 23 had a few items that are not repeatable that we expect will play out in 24. It starts with our OEM business, which was softer than we expected in 23. But remember, some of these OEMs were going through their own transitions, very significant transitions in 23, managing cost and inventory. And we see improvement already in that OEM business as we start 24, and it's meeting our expectations. We also saw some push-out of projects in the second half of 23. And in discussions with our customers, we believe and have confidence those are going to be coming back in 24. So I think a different dynamic for us in the retail market in 24 and already meeting our expectations as we start the year, and that gives us confidence in this outlook.

Okay, super. Thank you. And then shifting gears and jumping over to currency, just you gave us a good color on how this year is going to play out, but maybe just in general, if you could talk about, because you kind of have this decade of visibility, how does the rollout of the catalyst series play out for you? What will the cycle be? Will there be like, you know, shut down? When do revenues benefit from, you know, the enhanced security or whatever, you know, we think it's going to be? And, you know, shutdown every year, then boost in revenue? Has it become a little bit more cyclical as it comes out? How should we think about it?

Yeah, thanks, Bob. I think we're on the, you know, early stages here of this. As you said, it's a decade plus program, right? It's going to take 10 years just to launch the new bills, but we've been already actively working on it, as you know, with the BEP. So 24 has this, again, very well planned set of shutdowns that we've been planning for with the BEP for well over a year. We're in the middle of one now, and we'll institute the next one at the end of the quarter, again, just to allow both us and the BEP time to make their necessary upgrades and our upgrades, qualify the new product coming off of that paper making equipment, and of course, in Q2 through 3Q, produce the product that they need to satisfy their demand. So that's going as expected on track on target on budget. What that means for 24, as I alluded to earlier, is, you know, a headwind, particularly in the first half of the year, and that'll moderate, and then again, we'll have a shutdown likely in the latter part of Q4. We don't really see the benefit then, Bob, of the new series until we get into production, full production of that product, and that first one is the $10 that goes into public circulation sometime in 2026. So I think, you know, I would frame it and model it as we start to see, assuming, again, increased technology density on those bills and uplift in margins, that starts to occur more in the 26 timeframe. Again, we can't, and we're in no position now to announce any significant announcements on the design of the currency that's left to the U.S. Department of Treasury to make those announcements, and they'll do that at the appropriate time. But I think if you go back to that slide that I referenced earlier in the presentation, today only the U.S. $100 bill has our leading micro-optics technology, and we believe that's an opportunity as each of these new bills gets introduced to increase generally all types of new technology on the U.S. government notes. And so I wouldn't think that this is modeled then episodically, I think the term you used, but more continuously as new bills get released, we naturally mix up the business starting in 26 through 34.

Thank you. Our next questions come from the line of Ian Safino with Oppenheimer. Please proceed with your questions.

Hey, good morning. This is Isaac Salsin on for Ian. Thanks for taking our questions. The first is on CPI and the guidance. I'm not sure how detailed you can get, but maybe if you could just talk about CPI, core sales growth, and what guidance assumes as far as volume and price mix, and then maybe just a broader discussion on pricing in general, and how you think about that through the year.

Yeah, well, I'll just start at the end of your question in terms of pricing. Our teams do such a great job here, Isaac, and we're continuing to more than offset costs with pricing, and that's really just based on our great business system, cream business system, and the operating discipline that our teams have. So really great job there, and we expect that to continue. In terms of the CPI guidance, we're assuming -single-digit growth in all the verticals outside of gaming. So as Aaron said, the underlying markets are healthy, and we're expecting to see continued strength. We have some tough comparisons in some of the markets, but overall feeling very confident. And gaming, as we said, by Q4 should return to -single-digit growth once our major OEM customers primarily work through their inventory levels, which we expect to start happening in Q2.

Okay, great. And then just as a follow-up on currency, could you touch on the product authentication business and maybe trends you're seeing within that market? You mentioned the M&A sales pipeline and have previously expressed interest in expanding within product authentication. So maybe any higher-level comments on potential M&A targets? Thanks.

Yeah, thanks, Isaac. I really appreciate that question. So we continue to be very optimistic and confident in the position we have in product authentication. We see that as a market in general that's growing at -single-digit plus, and it's very global in its growth rate. And we think those core drivers of the need for more anti-counterfeiting protection, whether that's in physical products or digital products, will continue for the foreseeable future. I think that's, as we'd say, a pretty straightforward -to-believe in this market. In terms of our own business, again, we continue to win new accounts, you know, leading with our micro-optics technology. But with that said, and to the question you raised, we really see M&A in this area as an accelerator of our strategy, where we can leverage our very strong technology leadership in the physical products with other capabilities that grow crane NXT. So as I mentioned in my prepared remarks, our pipeline has grown significantly over the last year. It's matured also in terms of where we're at in that cultivation status. And we feel very confident and on track as we exit 23 that we will be in a position to announce our first acquisition in 2024. As I've said many times, that first acquisition is more important than any. We want to make sure it's on strategy, focused on secure, detect, and authenticate. We want to make sure we're good owners of the business and we can add value, particularly through the deployment of the AWS. And we want to generate a strong return. And nothing has changed there from what I've said over the last several quarters. That's a double-digit ROIC by year five and making sure we're maintaining our leverage below three or if above three, we're able to draw that down very, very quickly based on our strong free cash flow. So again, feel on track and very confident we're in good position as we head into 24. Okay, very helpful.

Thanks so much.

Thank you,

Isaac. Thank you. Thank you. Our next questions come from the line of Damian Karras with UBS. Please proceed with your questions. Damian, could you check if you're muted, please?

Oh, yeah, I'm sorry. I was muted. Thanks, guys. I've got a few follow-up questions. First, I just want to make sure I heard correctly. Did you say that you are expecting the currency business to be kind of flat in the first half of the year and then you get some pick-up in the back half or did I mishear you there?

No, that's directionally correct, Damian. That's, you know, I'd say -single-digit growth as Christine alluded to in the international business, but then the headwind in the first half due to the shutdown from the U.S. government.

Okay. All right. So then I guess I'm just trying to piece together kind of like that 40-60 first half, second half, which would, I guess, more or less suggest like 15 to 20 percent declines year over year in the first half and then you kind of get this step back in the second half. If I'm interpreting correctly, then so then it seems like kind of like the de-stocking and CPI is expected to be significantly worse kind of at the outset of the year and then really snaps back in the back half?

I think you have that right. Exactly, Damian. You know, we're going to hit tougher comps year over year in the first half on CPI where Damian was still at a very elevated level in the first half of last year. So your logic there is correct.

Okay. Appreciate you clarifying that. And then sorry if I, if you guys alluded to this earlier, but I was just curious thinking about these, you know, the denomination redesign cycle here in the U.S. When do you think you might have a better sense whether the $10 redesign will involve micro-optics?

I would answer that, that, you know, we feel very confident in our long-standing relationship with the BEP, but as I said before, we're not going to be in any position to comment on the new redesign until after the Treasury has announced that redesign. And I would expect that come, you know, sometime in late 25. Again, that's more their timeline than ours on the announcement, but I think you can appreciate we can't comment on that until it's actually announced by the U.S. government.

Thank you. Our final questions will come from the line of Matt Somerville with D.A. Davidson. Please proceed with your questions.

Yeah, you sort of answered it with respect to the prior questions, but I want to just put a finer point on it. I mean, CPI Organic is going to be down based on what you said very substantially in the first half of the year. How should we think about margins in that context? How bad will this business de-lever? And are you doing anything in the near term to adjust the cost structure in that business? I just want to make sure I'm not taking this, you know, getting over my skis in my assumptions. Yeah. But CPI is going to kind of get hammered, if lack of a better word there.

Well, I think look at the balance of it too, Matt. I think, you know, directionally, we're going to have a tough comp and these headwinds on orders in gaming. That's roughly 25% of the portfolio, offset by the other 75% that's, you know, still growing at roughly mid-single digits. So, you know, that's the balance of the math. Now, I would tell you the first half of CPI, when you put that and balance it together, probably isn't quite as dire as you alluded to. And then, of course, the second half, we come out back on track with this mid-single digits for the second half of the year. I think you can rest assured, and I think it's true to our culture and how we've operated the business, that we're obviously taking actions. And we've already taken some of those actions to fortify the margins of the business. So that, of course, we maintain, you know, a good, healthy cost discipline. And we invest as we grow and we've adjusted some of the cost structure of CPI to reflect these headwinds. So, you know, certainly, I wouldn't think it's quite as drastic as maybe you're thinking.

Okay, great. Thanks, Aaron. That's it for me.

Thanks, Matt.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Aaron Sake for closing remarks.

All right. Thank you, operator. Well, it's hard to believe, but we are just 50 days away from the first anniversary of the launch of Crane XT. It's a year that has flown by and been filled with enormous accomplishments by our team. And so I want to, again, thank all the NXT team members from across the world for their hard work in 2023 to make the launch of Crane NXT so successful. And I am extremely confident that 2024 will be an equally exciting year for the company as we start our second year as a public company. So thank you again to everyone who joined us today for your questions. And I hope you all have a great rest of your week.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.