Crane NXT, Co.

Good day and thank you for standing by. Welcome to the Crane NXT fourth quarter and full year 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 11 on your telephone. you'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today, Matt Roach, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. I want to welcome you all to the fourth quarter and full year 2024 earnings call for Careen NXT. Before we begin, Let me remind you that the slides we will reference during this presentation can be accessed via the investor relations section of our website at craneNXT.com, and a replay of today's call will also be available on our website. Before we discuss our results, I encourage all participants to review the legal notice on slide two, 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 in and out form 10-K and subsequent filings pertaining to forward-looking statements. During the call, we will also be using non-GAAP numbers, which are reconciled to the comparable GAAP numbers in the tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneatnxt.com in the investor relations section. With me today are Aaron Saig, our President and Chief Executive Officer, and Cristina Cristiano, our Senior Vice President and Chief Financial Officer. On our call this morning, we'll discuss 2024 highlights, our financial and operational performance, and our 2025 financial guidance and outlook. After our prepared remarks, we'll open the call to analysts for questions. With that, I'll turn the call over to Aaron.

Thank you, Matt, and good morning. I appreciate everyone joining the call this morning to discuss our fourth quarter and full year 2024 results, as well as our outlook for 2025. I'd like to start by thanking our associates around the world for their hard work during Q4. We have an outstanding team, and I'm proud of what we accomplished together in 2024. Starting with our financial results, our Q4 and full-year performance was in line with our expectations. Sales growth was approximately 12% in the fourth quarter and approximately 7% for the full year. An adjusted EBITDA margin was approximately 27% in both periods. We continued to generate strong free cash flow with adjusted free cash flow conversion of approximately 109% in the fourth quarter and approximately 76% for the full year. Finally, we delivered adjusted EPS of $1.20 in the fourth quarter and $4.26 for the full year. We continue to execute our strategy in Q4, taking meaningful steps to position the company for long-term success and build on our position as a technology leader. Specifically in our currency business, we continue to win share with our leading security technology, and we ended 2024 winning a total of 13 new denominations specifying micro-optics. Additionally, our strong backlog gives us high confidence in our sales outlook for international currency in 2025. Also in Q4, we want our first contract selling micro-optics through the OPSEC channel. Through this agreement with a luxury perfume company, we'll provide labels containing micro-optic technology along with a digital authentication solution to increase customers' engagement with the brand. We'll also provide online brand protection services that allow this customer to remove counterfeit products from online marketplaces. This is a great first step in driving commercial synergies with our expanded product portfolio through the OPSEC acquisition and also increases our recurring revenue. We're also completing the final equipment upgrades to support the launch of the new U.S. banknotes that will enter production in 2026. We successfully completed the first cycle of upgrades on schedule in Q1 of 24 and began the second cycle, which is on track to be finished at the end of March. These investments are critical milestones to prepare for the new U.S. currency. And I continue to be excited by this decade-long growth opportunity and what it will provide Crane NXT. And in CPI, we opened our first service center, providing customers with a new cost-effective option for repairs, complementing our on-site field service offerings. As you know, we've also been very busy executing on our strategy to grow and diversify our portfolio. Last year, we completed the acquisitions of OPSEC and TrueTag Smart Packaging. The integration of both acquisitions is going as anticipated, and we're utilizing the crane business system to drive operating synergies. Additionally, we expect to close the acquisition of De La Rue Authentication Solutions in the second quarter of this year, expanding our customer base and product offerings across the product and brand authentication value chains. And we continue to have a very active and robust M&A funnel. Our strong balance sheet and free cash flow generation gives us ample capacity to continue to grow and diversify the portfolio in 2025. So as we exit in 2024, I believe we are in a very good position for long-term shareholder value creation. Thank you again to all the associates for their dedication in 2024 and focus on executing in 2025. With that, let me now turn the call over to Christina to review our fourth quarter and full year financial performance in detail, as well as outline our 2025 guidance. Christina?

Thank you, Aaron, and good morning, everyone. I would also like to express appreciation to our associates around the world for their hard work. Thank you for everything you do. Starting on slide four, we delivered fourth quarter results that were in line with our expectations. We generated sales of $399 million, an increase of approximately 12% year over year, with core sales growth, which excludes OPSEC, of nearly 3%, driven by international currency. Adjusted segment operating margin of approximately 27% reflects strong operating performance in the core businesses and is slightly lower than prior year due to segment mix. Adjusted free cash flow conversion was very strong at approximately 109%, driven by strength in CPI, and we achieved adjusted EPS of $1.20. Moving to slide five, for the full year, we increased sales by approximately 7% year-over-year to nearly 1.5 billion, with core sales growth of approximately 1%. Adjusted segment operating margin decreased approximately 130 basis points year-over-year, reflecting segment mix and dilution from OPSEC. Adjusted free cash flow conversion was 76%, and was impacted by the timing of certain international currency shipments, which were skewed toward the end of the year and shifted collection to Q1 2025. Finally, we delivered adjusted EPS of $4.26 in line with our expectations. Overall, our Q4 and full year results reflect continued operating discipline and resilience amid some challenging end market conditions. Moving to our segments and starting with CPI on slide six, Sales were flat compared with the fourth quarter of 2023, with mid single digit growth across most end markets offset by continued softness in gaming. We maintained adjusted operating margin of approximately 29%, reflecting disciplined productivity initiatives to offset the mixed headwinds from gaming. CPI ended the year with a backlog of 146 million, reflecting a return to more normalized levels versus 2023, which was impacted by a significant increase in gaming orders during COVID. Importantly, the backlog increased approximately 10 million from Q3, and the book-to-bill ratio was over one for the quarter. As shown on slide seven for the full year, CPI core sales decreased by approximately 1%, driven by softness in new gaming orders as customers worked through their inventories, and was partially offset by mid-single-digit growth in other end markets. Our teams did a great job operationally, maintaining adjusted operating margin at approximately 30% year over year, despite the lower volumes, by leveraging the crane business system to drive continuous improvement programs and executing disciplined pricing. Moving to security and authentication technologies on slide eight. In the fourth quarter, core sales were up over 7%, driven by international currency, where we continue to win with our leading and differentiated technology, Operating margin increased by 20 basis points over the prior year, driven by the leverage from increased volume, pricing discipline, and productivity programs, partially offset by the expected dilution from OPSEC. Turning to slide 9, we had excellent performance in the security and authentication technology segment for the year. We delivered full-year core sales growth of approximately 5%, driven by strength in international currency, which more than offset the impact of the production stoppages related to the ongoing upgrades we are making for the new U.S. banknotes, including the new $10 bill, which is scheduled to launch in 2026. Adjusted operating margin decreased by 260 basis points, driven by OPSEC dilution and unfavorable mix in the U.S. business. We are ending the year in a position of strength, with segment backlog of 248 million, giving us high confidence to deliver mid-single-digit sales growth in SAT in 2025. Moving to our balance sheet on slide 10, we ended the year with net leverage of approximately one and a half times. In the fourth quarter, we secured a term loan commitment, which, along with cash on hand, will be used to fund the acquisition of Delarue Authentication Solutions. This transaction is on track to close in the second quarter, and we estimate net leverage will be approximately 2.3 times after the close. We also repaid our existing term loan and expanded our revolving credit facility in anticipation of future M&A. We have an outstanding balance sheet with attractive fixed rates on long-term debt and significant liquidity. Our strong free cash flow generation allows us to continue to focus on investing in organic growth, executing M&A to grow and diversify the portfolio, and paying a competitive dividend. Given this strong position, yesterday we announced an increase to our annual dividend of 6%, continuing our commitment to a disciplined and balanced capital allocation strategy, and maintaining ample capacity to deploy capital towards strategic acquisitions that meet our financial criteria. Moving now to 2025 guidance on slide 11. And just a reminder that this guidance does not include the anticipated close of the De La Rue authentication transaction in Q2 or any impacts of potential new tariffs. We expect overall sales growth of 1 to 3 percent for the year, including FX headwinds of 1 to 2 points. This reflects CPI growth of low single digits. with gaming sales returning to growth in the third quarter, offset by headwinds in the retail end market. In SAT, we expect mid-single-digit growth in international currency, fueled by the strength of our backlog and strong sales funnel, and a full-year contribution from OPSEC, which is growing at mid-single digits on a pro forma basis. This growth will be partially offset by a decline of approximately 20% in U.S. government sales. As we discussed during our Q3 earnings call, based on the actions being taken by the Federal Reserve and Bureau of Engraving and Printing to prepare for the launch of the new U.S. currency series. Finally, we expect to deliver full-year adjusted EPS in the range of $4 to $4.30. We are guiding to segment margins of approximately 26 to 27 percent, reflecting continued discipline pricing and productivity through execution of the crane business system. largely offsetting the impacts from the decline in U.S. currency volumes. I want to point out that the phasing of revenue and operating profit in 2025 will not be linear. We expect lower revenue and margin performance in the first quarter than in the rest of the year and as compared to last year, driven by the ongoing shutdown of some of our U.S. papermaking equipment for upgrades related to the new banknote series. Q1 will also be impacted by continued softness in the CPI gaming end market and the diluted impact of OPSEC on our margins. Overall, we expect NXT sales to grow in the low single digits in Q1 2025 with an adjusted segment operating margin of approximately 20%. Continuing with full year guidance, corporate expenses are expected to be approximately $55 million and we expect non-operating expenses of approximately $43 million primarily consisting of interest expense. Finally, we expect adjusted free cash flow conversion to be between 90 and 110%, recognizing that while we generally expect conversion to be approximately 100%, the timing of international currency shipments can vary quarter by quarter. Now let me turn the call back to Erin to provide additional details on our 2025 outlook and further insights on the actions we are taking to diversify our portfolio.

Thanks, Christina. And moving to slide 12, I want to highlight some of the key drivers impacting our 25 outlook. Starting with CPI, we expect to grow in the low single digits for the year. Looking across our end markets, our vending business represents approximately 35 percent of CPI revenue, and we have a leading position in cold drink and snack equipment. We expect this business to grow at low single digits in 2025, following strong mid-single-digit growth in 24. Financial services represents approximately 25% of the CPI portfolio, where we continue to make investments to expand our market-leading service business and grow our recurring revenue. In 24, we opened a new service repair center to offer a faster, more cost-effective solution for our customers and expand our offerings outside of our traditional focus on Cummins Allison equipment. These investments are paying dividends and we expect to grow this business at mid-single digits in 2025. In gaming, the underlying market is healthy and we have a unique leadership position as a leading supplier of payment equipment to casinos globally. As discussed during our Q3 earnings call, we expect our customers to continue to work through their inventories and return to normal levels of new orders in Q2. This will result in continued declines in gaming revenue through the first half of 2025 with sales growth returning in the second half of the year. For the full year, we expect to see low single-digit growth with revenue weighted to the second half of the year based on this inventory burndown dynamic. Finally, in our retail end market, we continue to see softness in orders. We expect this trend to continue throughout 2025 as retailers consider solutions other than traditional self-checkout offerings from OEMs. We expect the decline in the OEM volume to be partially offset by increased growth in custom self-checkout solutions. Based on this, we expect to see high single-digit decline in retail sales year over year. In total, we expect CPI will grow at low single digits in 2025. Given this outlook, we have already taken actions to adjust our cost structure accordingly and will continue to deploy CVS to execute pricing and productivity actions throughout 2025. As a result, we expect CPI margins to improve in the range of 10 to 20 basis points year over year. Moving to our U.S. currency business, on slide 13, and as we've discussed for the past few quarters, We stopped production in one of our paper-making facilities in late Q4 2024 to complete the final equipment upgrades needed for the new series of U.S. banknotes. This upgrade is on track, but as expected, it will take longer than last year's upgrades and will extend through the end of Q1. Additionally, as we discussed in our last earnings call, the Federal Reserve's 2025 print order suggests the volume will be down approximately 18 percent year-over-year at the midpoint, and that the mix will be skewed toward lower-denomination banknotes. This lower demand is a result of actions being taken by the Federal Reserve and the BEP as they allocate capacity and resources to prepare for the launch of the redesigned currency. Given these two factors, we expect U.S. currency sales to be down approximately 20 percent in 2025. Looking ahead, we remain very confident in our position as the U.S. government's sole supplier of currency paper, a relationship we've held since 1879. We also remain very confident that the U.S. currency program will continue to be the benchmark for the world in incorporating advanced security features in new banknotes. As a reminder, today only the U.S. $100 bill contains our proprietary micro-optics technology. So we see a meaningful opportunity to increase the use of micro-optics in other banknotes. And we continue to be very excited by this U.S. currency new series and continuing our longstanding relationship with the BEP as a trusted partner. Moving to slide 14, I want to take a moment to bring together all of the actions we've taken in 2024 as it relates to executing our strategy. When we launched Crane NXT in April of 2023, we laid out a plan to grow and diversify the company, building on our legacy and technology capabilities of providing trusted technology solutions that secure, detect, and authenticate what matters most to our customers. In 2024, we took meaningful steps in executing this strategy. With the acquisitions of OPSEC and TrueTag smart packaging assets, along with the anticipated closing of the acquisition of De La Rue authentication solutions in Q2, we will have a leading position in the security and authentication market focused on protecting products. We continue to have a robust M&A funnel, and I fully expect additional announcements in 2025 that will further position NXT as a premier industrial technology company. Through our disciplined M&A process, we are intentionally building a more resilient and diversified company. And as you can see on slide 15, we've taken significant steps through our actions in 24 to reduce the exposure of the company to cash-centric end markets. By the end of Q2, and with the De La Rue authentication business in our portfolio, NXT will have moved from approximately 80% of the portfolio focused on cash-related products and services to approximately 65%. Additionally, through our acquisitions, we've increased the percentage of revenue coming from reoccurring and recurring contracts to approximately 50% as we exit Q2. These are just two of the very visible ways the execution of our strategy is making NXT a more resilient company aligned to secular tailwinds. I'm very confident we will continue to take meaningful actions to continue this evolution in 2025. Moving to our final slide, 24 was a significant year for Crane NXT. We continue to invest in our businesses while also executing on our strategy to grow and diversify the portfolio. Looking ahead to 25, I believe we have positioned the company for long-term success while navigating some transitory market headwinds. As discussed, we expect low single-digit sales growth in 25 with continued strong performance and technology leadership in the international currency and OPSEC businesses. We're on track to completing the final upgrades of our U.S. currency business in preparation for the launch of new banknote designs in 26. We will continue to leverage the Crane business system to drive productivity in our core businesses as well as in OPSEC. And our acquisitions are operating as expected, and we look forward to welcoming the De La Rue authentication team to the NXT family in Q2. And finally, we will continue to generate strong free cash flow, maintain low debt levels, and cultivate M&A to grow and diversify the portfolio. In closing, I'm confident that we have the right strategy and team to continue executing our priorities and drive meaningful long-term shareholder value creation. So thank you again for your time this morning, and I would also like to again thank all of our associates around the world for their commitment to our customers, our communities, and our stakeholders. And now, operator, we're ready to take our first question.

Thank you. And as a quick reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, please lend yourself to one question, one follow-up. Please sign by. We'll compile the Q&A roster. One moment for our first question. Our first question comes from Matt Somerville from DA Davidson. Your line is open.

Thanks. Morning. So with gaming, if I heard you right, the setup sounds extremely similar as we think about how you're articulating this playing out in 25 as to how you thought it would play out in 24. So what gives realizing market fundamentals are very strong in gaming. I realize that. But what gives you confidence that you will indeed see that sustained second half inflection and then have a follow up?

Yeah. Hey, thanks for that. Good morning, Matt. I'd start with with the comment you made. Again, we do think this in market is very healthy and we have a unique share position, a leadership position in this market, and that is unchanged. So, you know, really our message here, Matt, is in change from Q3, where we did see the burndown of the backlog of the inventory that is at our OEMs taking longer. They were going to lower inventory levels. Our lead times have improved. So, I don't think there's any change fundamentally from what we said in Q3. And we, with that, just as we said a few months ago, expect the inflection in the orders just to naturally occur in Q2. That's what our OEMs are telling us. And depending on the OEM, we see some green shoots, you know, month to month as they're working through particular products and SKUs. So, again, I think we have a high confidence that it's playing out just like we said last quarter. Unfortunately, it has taken longer due to those two dynamics. And again, we're encouraged by the health of the end market.

Thank you for that. And then as a follow-up, there's some moving pieces here in the first quarter, particularly on the crane currency side of the business. And I just want to level set the playing field. In order to get to a 20% segment OP margin, that That's to imply a material double-digit retrenchment in currency or organic in the quarter. And you help us triangulate on the magnitude of decline we should be expecting, how the margin performance in SAT or the segment overall, how we should be thinking about that. It'd be great if we can kind of get ahead of that with modeling. Thank you.

Yeah, maybe I'll start and I'll pass it over to Christina. But I think you're thinking about that at the right way, Matt. And I just reemphasize this shutdown, which we're in the middle of right now. It started in Q4. It's going to go all of Q1 for a large, you know, most important part of our U.S. currency business, which will lead to, you know, high double-digit declines for the U.S. government. side of our business and currency in Q1. So I think you're thinking about that in the right way, and that is very material to us. So maybe I'll hand it over to Christina to fill in the rest of the details on the segment.

Yeah, and so just speaking specifically to the segment operating profit, and that includes CPI and SAT, will be approximately 20% in Q1. And it'll be the lowest revenue quarter, and then we'll expect a phasing up, a step up in Q2 that'll level off in the second half. So you'll see the margins return to the high 20s percent for the rest of the year. In terms of the first quarter, you were right on, Matt, with regard to a high double-digit decline in the U.S. currency, which will be offset by positivity in international. Okay.

Thank you. Thank you. One moment for our next question. Our next question will come from the line of Mike Halloran from Baird. Your line is open.

Hey, morning, everyone. Good morning, Mike. So a couple related questions, I think, go hand in hand here. What is the expectation for leverage exiting the year? And can you just then talk to, once you get the De La Rue acquisition closed, what the pipeline of opportunity looks like and how willing you would be to go after something in that middle-sized or higher relative to the debt levels and then relative to, you know, bandwidth, internal bandwidth from a management team and integration perspective.

Yeah, thanks, Mike. I'll take that one. So, you know, we ended the year one and a half times net leverage with De La Rue. closing in Q2, we expect it to be about 2.3 times net leverage. And as we've said, really from the beginning of the company, we want to stay below three. We may flex up a little bit above that as long as we can get back below three within 12 months. So hopefully we're very consistent in that message and nothing has changed. That's how we think about using the balance sheet. In terms of just the priorities and the funnel, That again, very much unchanged and consistent from when we started the company. We're gonna continue to invest in the core business. You see that with the investments in the U.S. currency upgrades, which is just a fantastic tailwind for us long term. We're gonna continue to pay a competitive dividend. Yesterday we announced a 6% increase in the dividend year over year. And then execute discipline M&A and we'll continue with an approach very similar to the size, scale of deals like the OPSEX and the De La Rousse that we've announced, and probably a few little technology bolt-ons like the TrueTag smart asset group that we acquired in the later part of 24. The range still, $100 million to $500 million in revenue. We're going to make sure we can generate a double-digit ROIC by year five, and from a strategy perspective, they're near adjacencies. So The funnel is very healthy, Mike, and I'm encouraged by that, and that's where I have a high degree of confidence we're going to see more deal flow in 2025. As you know, timing of that is subject to a variety of conditions, but I'm confident we will see at least one or two more deals in 2025.

Thanks for that. And then on the SAT margins, maybe you could help with a couple of things here. Just talk through the dilution points versus, you know, I don't really care the starting point, whether it's 22, 23. I mean, how much of an impact has been the acquisitions been on the margins? But I think more importantly for the conversation today, could you talk to the mixed headwind on the margins and then what that reversal looks like? Is that what we should think about then reversing into 26, assuming mixed normalizes and some of the currency refreshes come forward?

Yeah, Mike, I'll start with that one. You know, just thinking about OPSEC in the SAT segment, it's been dilutive in 2024, about 250 basis points. And we expect that to be about the same in 2025. So just as a reminder, OPSEC comes into the portfolio at a lower margin, which was expected. And now we're actively implementing CBS in the business to drive those margins up. And we expect them to get to the low 20% over time. as a result of the synergies, which are both operational and commercial. And so, you know, when you think about 2025 specifically, it's a transition year. It's being impacted by unfavorable mix from two main drivers, which is the U.S. currency program that Aaron spoke about earlier and the OPSEC dilution. And so, those two factors are impacting our margin specifically in 2025. You know, I'll just say lastly, as we execute our M&A strategy, we'll continue to bring assets into the portfolio that are diluted to margin. And then similar to OPSEC, we'll implement CBS and bring them back up again. So you'll expect that pattern to continue.

Yeah, and I would just add, Mike, I think the way you framed it, that if you look at the preparations going on in 25 for the U.S. currency, once those are done and we start to launch the new currency, you should see And we fully expect to see then the margins of the total currency business to kind of go back to where they've been X, you know, the volume impact we're going to see here this year from the shutdowns. And in fact, be accretive as we move forward with the launch of the new currency that, again, we have high confidence that's going to have a higher technology component to it. Thank you. Appreciate it. Thanks, Mike. Thank you.

One moment for our next question. Our next question will come from the line of Bobby Brooks from Northland Capital Markets. Your line is open.

Hey, good morning, guys.

Morning. Good morning, Bobby.

Hey. So could you guys just discuss, I thought it was really exciting, the announcement on the micro-optics went through the OPSEC channel. I know in the prepared remarks, it gave a little bit more color, luxury perfume. putting it on the bottle, and doing some digital tracing as well. But I was just curious, was this through an existing customer that OPSEC already had, or was it kind of completely new? And just any color on the timeline and sales process of this would be great.

Yeah, hey, thanks for that, Bobby. You know, I'm just very encouraged by this first win. And it is a new customer for us. And I think it's a proof point in our strategy of bringing together OPSEC with our technology, selling micro optics through the OPSEC channel. You know, it's an excellent example of that. And it's more than just the label. As you said, it's adding in the online brand protection services and some of the digital authentication services that I mentioned in the prepared remarks. And, you know, the core of this is it's validating our belief with how customers are looking to us to buy a full suite of authentication solutions. That's our unique value proposition, combining the companies together. So sales process here takes many, many months, as you can tell, you know, from when we closed OPSEC. That's typical going forward. But again, the beauty is these are very sticky contracts with you know, effectively reoccurring nature to them, particularly in the services. And we expect more to come from what we see in the funnel. So, you know, I think this is one of more that we're going to see and very encouraged by this first win.

That's great. And then maybe just to dig a little bit more, like, what was, from your sense, what was the – what were maybe like the – two or three factors that really kind of drove this deal across the finish line. Obviously, you mentioned there that being able to provide a full suite of authentication, both digital, physical, and some customer engagement pieces was probably a piece of it too. But just any other factors you'd point to that you think, oh, this is what helped us win?

I think that's really it, Bobby. The business is built on technology leadership, and those moats are quite wide now. They're even wider when you add in the micro-optics technology to what OPSEC had. They're going to even get wider when we add in De La Rue and a whole new set of capabilities that they bring, particularly a new segment. So I think it is that simple. that there are very few places customers can go to to get this full suite of solutions at this level of technology. And we think this is, and know from this proof point, we're uniquely positioned in the market.

Got it. And just like a clarifying one here, is this for like one particular perfume or is it for their entire perfume catalog? Any kind of color on that?

Yeah, it's a start around a few different products. So there is the opportunity going forward for share of wallet expansion.

Got it. And then maybe I just wanted to get a better sense of like really how the online brand protection will work. I get that you can, you're going to be monitoring, you know, websites to see if there's faith, but Could you maybe just like walk me through like an example of how that would be? Like if there's a fake perfume being sold on eBay versus maybe just a broader fake Chinese website, like how would you actually, you've mentioned in the prepared remarks, like removing those fakes, how would you actually go about like removing those fakes? And so that's why I guess maybe just giving like an example would be pretty helpful.

Yeah, and I'll keep it at a fairly high level because every customer and use case is a little bit different. But effectively, our software in online brand protection is doing a lot of scraping of different websites around the world. It could be at the direction of the customer in certain examples to identify where we think there are counterfeit products being sold. Those will get validated mainly through the software. Those get escalated then, and it either comes to us, where we have a relationship with the marketplaces, as the case may be, or to the customer, then to take action to bring down the seller. And again, each marketplace, each website's a little different, as you can imagine, but effectively, that's how the process works. It's highly enabled by software and by our algorithms that are really AI-enabled. And I think as we go through the year, we're excited about the work the team's doing, and you'll hear more about that from us.

Thank you. One moment for our next question. Our next question will come from the line of Bob Lavek from CJS Securities. Your line is open.

Good morning. Thanks for taking our questions. Hey, good morning, Bob. Hey. So I wanted to kind of dig a little back into the retail end market for CPI. And back at the analyst day or, you know, kind of pre-spin day, there was a penetration story about retail self-checkout. And maybe just walk us through, you know, since then OEMs have been a little weaker, but custom has been stronger. Walk us through how the market has changed and how you view, you know, retail self-checkout going forward, the overall trends.

Hey, Bob, I think that's a very fair point, and I would agree that I think it has changed as we look back now almost two years. If I start at the end market and the need for self-checkout and, say, the need for automation in retail in general, I don't think that's changed, and we know labor scarcity is still there. I think what we have seen over the last 24 months is a real shift in the retailers exploring new and different options for self-checkout. They're well beyond the traditional form factor of, you know, a box replacing a clerk at the end of a lane to all kinds of different solutions. And so that's diverted some capital spend. I think there's also been a fear, right or wrong, around shrinkage related to self-checkout, which has slowed some CapEx investment. And also, there's been a reluctance on some retailers just due to the macro retail environment to deploy more CapEx. All of those have been some headwinds to the sale of traditional self-checkout, even though the overall need for automation hasn't changed. I think also with the OEMs, you see an increased focus on software and services and moving to some different business models that have very publicly taken place. So, you know, what's played out for us is really we saw the softness in the OEM order starting in the middle part of last year, and we talked about that in Q3. That's continued. But as you've said or mentioned, it's been offset by this custom self-checkout market growing, and that's really where the retailers are disaggregating their purchases between the furniture, the design of the checkout lanes, the payment terminal software and services. to really make it custom for what they're trying to do. So we see that dynamic continuing to play out. We see more experimentation on different self-checkout offerings. And so we've just taken, I think, a very prudent approach to the guidance that we see a weaker first half of the year continuing on this trajectory. There could be some improvement in the second half. But again, we want to be appropriately risk-adjusted here. keep monitoring where the OEMs are placing orders. And again, we fully believe that's going to lead to continued softness for the balance of 2025.

Okay, got it. Thank you. That's very helpful. And then kind of conversely, just back from two years ago as well, vending seems to have been or seems to be exceeding or outperforming the expectation setback, you know, at that same analyst day. And, you know, What are the key drivers there? Is it broader offerings? Is the level sustainably a little higher? How should we think about this market going forward, given the strength we've seen?

You know, Bob, thanks for that, too. And you're right. We had a very strong year in vending last year, as Christina mentioned. And we talked in Q3. It grew in 2024 in mid-single digits. We think the market's growing low single digits, just based on our analysis. And we expect to grow with the market this year at about low single digits. It's really almost an offset to your prior question on retail, where you still have this macro need for automation and convenience retail sales where labor is scarce, so that's naturally driving the vending market. You also have, in the case of vending, a controlled environment where it's very hard to have shrinkage actually occurring from the sales. That's That's benefiting us. And then in particular to our vending business, you've seen the rise of other products in the vending category. And for us, that includes coffee. And that's been a very strong business for us as we all probably see more automated coffee machines in airports and travel locations and hospitality that offers a high-quality coffee with an automated process. And so that's been a nice part of the business as well. I think all of those are working, and those are effectively tailwinds that I don't think are going to change for vending in a market that's just steadily growing.

Thank you. One moment for our next question. Our next question will come flying over. Damian Carras from UBS. Your line is open. Hi. Good morning, everyone.

Good morning.

Good morning, Damian.

Morning, Aaron. I wanted to ask you guys first about the security authentication. Last quarter, you had raised the guidance for the year to 5% to 7% core sales growth, and you ended up missing on that a little bit. So could you perhaps kind of talk to what happened, what you saw in the end of the year? You know, was that more on the U.S. currency side and the production shutdowns or the international side of the business? We appreciate any color you could share.

Yeah, I'll start with that one, Damian. You know, overall, Q4 was in line with our expectations. But currency, you're right, did come in a little lower than we expected in Q4. And it's really related to the timing of international shipments, which pushed out. And then also softness in the U.S., which was both volume and mix just related to what's happening with the new series. And so when we think about how this plays out in 2025, we're confident in international currency based on the orders we have on hand and our sales funnel, and we've appropriately risk adjusted our guidance for the U.S. headwinds. So we feel good about, you know, currency looking forward, SAT in total in 2025. Okay.

That's very helpful. Thanks. And I apologize if I missed this. an earlier discussion, but in your slide, it mentions that 2025 guidance does not have any, you know, tariff potential impacts in there. Could you just maybe speak to, you know, how you're thinking about the potential implications of, you know, China, Mexico, Canada tariffs and, you know, kind of relative exposure and what your playbook is on that?

Yeah, thanks, Damien. You're correct. In Christina's remarks, she said it didn't include any impact of tariffs. That is the guidance for 25. You know, the bottom line at this point is we don't really see any material impact on the horizon for us from the tariffs. Like all companies, we're very active in continuing to monitor the situation. And I would say we've already taken some proactive actions to add optionality into our supply chain, both from a sourcing and manufacturing perspective, really utilizing our global footprint and where we manufacture and procure products around the world. To go through in a little more precision the regions you talked about, for China in particular, we have very little commercial business in the country. We do secure, like most countries, like most multinationals, some subcomponents where we're always looking and aggressively looking to get some alternative supplies. And in most cases, we have line of sight to pass on a little bit of pricing if that's needed to offset the tariffs, but really not that material for us. No impact from Canada or the steel or aluminum tariffs that were in the news this week. And in Mexico, where we do have some production, we're just very optimistic here given what's occurred in the last few weeks with the progression of talks between the two administrations. At the same time, we've taken a lot of proactive actions that are already in place and can be put in place to mitigate any material impact to us. So again, I think we feel we're in a pretty good position here, Damien. And I just give my thanks to our team who's working on this around the clock.

Thank you. One moment for our next question. Our next question will come from the line of Ian Sofino from Oppenheimer. Your line is open.

Hey, good morning. This is Isaac Saaz and on for Ian. Thanks for taking the question. I just had one on the currency business. You've laid out the expectations for international growth this year. If you're able, if you could provide some color on where growth is coming from between new wins or additional content or any additional details on pricing volumes that would be helpful? Thanks.

Yeah, it continues to be a little bit of a combination of both, Isaac, of continued growth from core customers. Again, very sticky contracts that traditionally get renewed. And then some new wins that we are getting. I would kind of say it's, you know, of existing with some new wins coming in. That's very directional. And as Christina said earlier, we have high confidence in this international currency business based on new orders already in hand in Q1 on the funnel of contracts and discussions we're having with customers. So I think it will continue to be a point of strength for NXT as we exit 25.

Okay, great. Thank you very much.

Thank you. One moment for our next question. And as a reminder, that's star 1-1 for questions. Our next question will be a follow-up from the line of Matt Somerville from DA Davidson. Your line is open.

Thanks. Yeah, I just want to make sure I kind of have this right. Given the first quarter dynamic, What sort of earnings revenue and earnings weight should we be putting in first half, second half for you guys based on what sounds like a materially lower Q1 followed by a pretty level Q2, Q3, and Q4? If I'm re-understanding everything you said, just having that first half, second half, top, bottom line cadence would be helpful.

Mm-hmm. Yeah, sure, Matt. So when you think about the year, the phasing will be slightly more heavily weighted toward the second half in terms of revenues. So a little bit more than half in the second half of the year. In terms of operating profit, it'll be a little stronger than that. So shift more operating profit in the second half of the year. And that's really driven by the U.S. currency business and the production stoppage that's happening in Q1. So the phasing of OP should be more heavily weighted toward the second half.

Okay, and then with the 13 design wins you announced in 24, you kind of talk about this 10 to 15 sort of annual objective. Any sort of change we should be thinking about that? And Aaron, from time to time you've called out or at least at a high level talked about what could be some pretty chunky international opportunities. Any update on any of those?

Let me start with the first part, Matt. I think that's still, you know, that is the right range, 10 to 15. It's, you know, I think very reasonable. It's historically where we've operated and we did it this year. And again, the funnel in international currency in terms of what the team is working on remains very strong. And based on some wins and orders already in hand in Q1, we feel very good about 25 and You know, not only where the orders are, where the backlog is going to sit going forward, and the revenue guide that we already mentioned here today. In terms of really big, chunky wins, you know, this is a project's business. And, you know, orders can range from a few million to a few tens of million over the course of a year or two. And that's just the nature of this is central bank's order. We'll see all of the above. in the coming year. That's re-ups of orders and call-offs of RFPs that we've already won. And it could be new wins that are in excess of $10, $20 million at a time. I expect that to continue, Matt, because that's just the order pattern of central banks. And again, feel very confident where we're sitting with the orders in the funnel. Got it. Thank you.

Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Aaron Sake for any closing remarks.

All right. Thank you very much for the questions and your attention this morning. I'd like to end by just again thanking all of our NXT team members across the world for their strong efforts in 2024 and all we accomplished. It was a busy quarter in Q4 and a busy year. And I think it continues to show how we're investing in the business, executing our strategy for the long term. And I feel very confident, as I've said here today, on the path we've laid out for 2025. So again, thank you all for your questions today, and I look forward to our next call on our Q1 earnings. Thanks again. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.