Executive Summary / Key Takeaways

• Crane NXT is strategically transforming into a more resilient industrial technology company by diversifying its portfolio beyond traditional cash-centric markets through disciplined M&A, notably in the growing authentication space.
• The recent completion of the De La Rue Authentication Solutions acquisition, combined with OpSec Security and TruTag technology, establishes Crane Authentication as a leading player in securing products for governments and brands, significantly increasing recurring revenue streams.
• The core Crane Currency business remains a foundational strength, particularly the long-term opportunity presented by the U.S. banknote redesign program commencing in 2026 and robust international demand evidenced by a record backlog and micro-optic wins.
• Near-term headwinds persist in the CPI segment due to softness in gaming and retail end markets and potential tariff impacts, alongside a planned volume decline in U.S. Currency in 2025 related to new series preparation.
• Despite these challenges, management reaffirmed its full-year 2025 adjusted EPS guidance, supported by expected growth in SAT (fueled by acquisitions and international currency strength), productivity gains from the Crane Business System, and disciplined capital allocation including a recent dividend increase and ample M&A capacity.

Setting the Stage: A Strategic Evolution

Crane NXT, Co. ($CXT) emerged as an independent, publicly-traded entity on April 3, 2023, following a spin-off from Crane Holdings (CR). The company is positioned as a provider of trusted technology solutions designed to secure, detect, and authenticate valuable assets. Its operations are structured across two primary segments: Crane Payment Innovations (CPI), focusing on payment and automation technologies, and Security and Authentication Technologies (SAT), initially centered on the legacy Crane Currency business.

The company inherited a deep-rooted relationship with the U.S. government, serving as the sole supplier of U.S. currency paper since 1879. This historical foundation is complemented by proprietary micro-optics technology, a key differentiator currently featured on the U.S. $100 bill and increasingly adopted in international banknotes. Crane NXT operates within an industry landscape characterized by the persistent need for security and efficiency in transactions and product authenticity, driven by macro trends like increasing global commerce, rising counterfeiting threats, and the demand for automation.

Recognizing the evolving market dynamics, particularly the gradual shift away from purely cash-based transactions in some areas, Crane NXT embarked on a deliberate strategy to grow and diversify its portfolio. This strategy centers on leveraging its core technological expertise while expanding into adjacent, high-growth markets, primarily through disciplined mergers and acquisitions. The aim is to build a more resilient business, less reliant on traditional cash-centric end markets and with a greater proportion of recurring revenue.

Technological Moats and Innovation Drivers

At the heart of Crane NXT's competitive advantage lies its differentiated technology. In the currency segment, the proprietary micro-optics technology provides advanced anti-counterfeiting features that are difficult and costly to replicate. This technology is a key factor in securing international banknote wins, with 13 new denominations specifying micro-optics in 2024 and five more secured in the first quarter of 2025. The tangible benefit is enhanced security for central banks and a competitive moat for Crane NXT in the high-security currency market.

The strategic pivot into authentication technologies significantly broadens this technological foundation. The acquisition of OpSec Security brought expertise in brand protection, digital content protection, and authentication solutions. The subsequent acquisition of TruTag's Smart Packaging technology added a patented transparent coating for product authentication, scannable by smartphones, which integrates synergistically with OpSec's serialization and track-and-trace software. The recently completed acquisition of De La Rue Authentication Solutions further enhances this portfolio, adding digital and physical authentication technologies for government IDs (like polycarbonate passport pages with embedded features) and tax stamps, alongside brand protection capabilities.

Combined into the new Crane Authentication business, these technologies offer a comprehensive suite of solutions for securing products across diverse end markets. Management highlights that this integrated offering provides a unique value proposition, stating there are "very few places customers can go to get this full suite of solutions at this level of technology." While specific quantifiable performance metrics for the combined Authentication technologies are still emerging post-integration, the strategic intent is clear: to offer superior, layered security solutions that drive customer loyalty and recurring revenue through software and service components. The TruTag acquisition, though small in revenue, is expected to deliver a high double-digit return on invested capital by year three, illustrating the potential for high returns on targeted technology bolt-ons.

Segment Performance and Strategic Momentum

Crane NXT's financial performance in the first quarter of 2025 reflects the ongoing strategic transformation and prevailing market dynamics. Total net sales increased by 5.3% year-over-year to $330.3 million, primarily driven by the inorganic contribution from the OpSec acquisition, which added $33.4 million in revenue. However, core sales declined by 4.1%, mainly due to anticipated lower volumes in the U.S. Currency business.

The Security and Authentication Technologies (SAT) segment saw sales increase by 21.8% to $127.4 million in Q1 2025, benefiting significantly from the OpSec acquisition. Core SAT sales, however, declined by 8%, primarily attributable to lower U.S. Currency volumes. This decline was a planned consequence of shutting down key papermaking equipment for upgrades necessary for the new U.S. banknote series. Management reported that these upgrades were successfully completed in Q1 2025, and full production has resumed. Despite the near-term U.S. headwind, the International Currency business demonstrated exceptional strength, achieving a record high backlog of approximately $370 million and a book-to-bill ratio of 2.4 in Q1. This performance provides high confidence in the segment's future and positions it well for 2026. The OpSec business performed as expected, contributing to sales and securing notable contract renewals and new technology adoptions, such as the second sale of PROFOUND (micro-optics) in the OpSec channel, which increases recurring revenue.

The Crane Payment Innovations (CPI) segment experienced a 2.9% decline in core sales in Q1 2025, with total sales reaching $202.9 million. This was primarily driven by lower volumes in the gaming and vending end markets. While the gaming market is considered healthy, order rates have been impacted by OEM customers working through inventories and adjusting to lower inventory levels. The retail market is also seeing softness in traditional OEM channels as retailers explore alternative self-checkout solutions, although this is partially offset by growth in custom solutions. The vending business, while resilient overall, is facing some near-term demand pushouts related to potential tariff impacts. Despite volume and mix challenges, CPI's adjusted operating margin in Q1 2025 decreased by 190 basis points year-over-year, reflecting the impact of lower volumes and unfavorable gaming mix, partially mitigated by productivity gains and cost-saving actions. The CPI services business continues to grow, securing a new multiyear contract with a major retailer, adding to recurring revenue.

Consolidated operating profit decreased significantly in Q1 2025, falling 32.7% to $37.3 million. This was largely driven by the SAT segment's lower U.S. volumes and the dilutive impact of the OpSec acquisition on margins (approximately 300 basis points in Q1). Unfavorable mix across the portfolio was partially offset by productivity gains achieved through the Crane Business System (CBS). Net income attributable to common shareholders was $21.7 million, or $0.38 per diluted share, down from $37.8 million, or $0.66 per diluted share, in the prior-year quarter.

Financial Health and Capital Allocation

Crane NXT maintains a solid financial position, providing flexibility for strategic initiatives. As of March 31, 2025, cash and cash equivalents stood at $173.8 million. The company's net leverage ratio was 1.7x at the end of Q1 2025. This is expected to increase to approximately 2.3x by the end of Q2 2025 following the funding of the De La Rue Authentication acquisition, which was completed on May 1, 2025, using a Delayed Draw term loan. Management views this leverage level as manageable and indicative of ample capacity for further M&A.

Cash flow from operations in Q1 2025 was a use of $19.1 million, compared to a source of $9.5 million in Q1 2024. This shift was primarily driven by lower net income and higher working capital requirements. Investing activities used $13.6 million, mainly for capital expenditures supporting the U.S. Currency redesign program and other projects. Financing activities provided $38.0 million, primarily reflecting net proceeds from the revolving credit facility used to fund working capital. Despite the Q1 cash flow use, management reaffirmed its full-year 2025 adjusted free cash flow conversion guidance of 90% to 110%, acknowledging that quarterly timing of international currency shipments can cause variability.

The company's capital allocation strategy is centered on driving long-term shareholder value through three pillars: investing in the core business (as seen with the U.S. Currency upgrades), paying a competitive dividend (recently increased by 6% in Q4 2024), and executing disciplined M&A. The robust M&A funnel, coupled with the company's balance sheet strength, supports the stated goal of continuing to pursue one to two acquisitions per year in the $100 million to $500 million revenue range that expand its technology leadership and market positions.

Competitive Positioning and Market Dynamics

Crane NXT operates in competitive markets where its technological differentiation and strategic positioning are key. In payment systems (CPI), the company competes with players like NCR Atleos (NATL) and Diebold Nixdorf (DBD). While these competitors have significant scale and installed bases, particularly in traditional ATM and retail automation hardware, Crane NXT differentiates itself through its proprietary software, advanced detection technologies, and growing services business. CXT's solutions offer benefits like faster processing speeds and lower operating costs per unit through remote diagnostics, contributing to higher profitability margins compared to some rivals (e.g., TTM EBITDA margin of 23.09% vs. NATL's 12% and DBD's 8%). However, competitors like DBD may offer lower upfront costs, and the retail market is seeing shifts away from traditional OEM models, requiring CXT to adapt its go-to-market strategy towards custom solutions.

In the security and authentication space (SAT), the landscape includes diverse players ranging from currency paper manufacturers to brand protection specialists and digital security providers. With the formation of Crane Authentication, the company aims to consolidate a leading position by offering a unique, integrated suite of physical and digital authentication solutions across government and brand markets. This comprehensive offering, leveraging micro-optics, smart packaging, RFID, and software platforms, provides a competitive moat against more specialized competitors. The company's strong relationships with governments, particularly the long-standing U.S. partnership and international central bank wins, provide a stable base. While competitors like Zebra Technologies (ZBRA) excel in broader enterprise asset intelligence and Honeywell International (HON) offers diversified industrial technology, Crane NXT is carving out a specialized niche in high-security authentication, aiming for higher margins and recurring revenue streams. The company's recurring revenue from services and contracts is expected to reach approximately 50% of total revenue by the end of Q2 2025, providing a more resilient revenue base compared to businesses heavily reliant on transactional hardware sales.

The competitive environment is dynamic, with indirect threats from fintech firms and AI players potentially offering alternative solutions. Crane NXT's strategy to integrate software and services, coupled with its focus on differentiated technology, is a direct response to these evolving competitive forces, aiming to maintain its relevance and capture value in high-growth areas.

Outlook and Risks

Crane NXT's updated guidance for 2025 reflects a portfolio in transition, balancing strong growth drivers with near-term headwinds. The company now expects total net sales growth of 6% to 8% for the full year, an increase from prior guidance. This is primarily driven by a significantly raised outlook for the SAT segment, which is now expected to grow between 19% and 21%. This SAT growth includes a 5% to 7% increase excluding the De La Rue acquisition (up from 3% to 5% previously), fueled by the robust International Currency backlog, and the expected contribution of $80 million to $90 million in revenue from De La Rue Authentication Solutions.

Conversely, the CPI segment's full-year sales guidance has been revised downwards to a range of negative 2% to flat, reflecting the anticipated pushout of equipment demand, particularly in Q2, related to macroeconomic uncertainty and potential tariff impacts. CPI sales are expected to be approximately flat sequentially from Q1 to Q2 before a potential return to growth in the second half, driven by a projected recovery in gaming orders. Retail is expected to see a high single-digit decline, while vending is forecast for low single-digit growth and financial services for mid-single-digit growth.

Full-year adjusted segment operating margin is expected to be between 25.5% and 26.5%. This range incorporates the dilutive impact of the Authentication acquisitions (OpSec diluted SAT margin by ~300 bps in Q1, DLR expected ~20% EBITDA margin) and the unfavorable mix from the lower-margin U.S. Currency volume decline, offset by continued price execution and productivity gains across both segments. Nonoperating expenses are projected at approximately $54 million, including increased interest expense from the De La Rue acquisition financing. Despite these moving parts, management reaffirmed its full-year adjusted EPS guidance range of $4.00 to $4.30, signaling confidence in the overall earnings power of the portfolio.

Key risks to this outlook include the potential for tariff impacts to extend beyond current mitigation strategies, further delays in CPI end market recovery (particularly gaming and retail), and the successful integration and synergy realization from the recent Authentication acquisitions. The planned significant decline in U.S. Currency volume in 2025, while temporary and related to the long-term new series opportunity, represents a material headwind for the SAT segment's profitability in the near term due to under absorption of manufacturing overhead. Macroeconomic uncertainty and geopolitical risks also remain factors that could influence demand and operational costs.

Conclusion

Crane NXT is executing a deliberate and transformative strategy to evolve into a more diversified and resilient industrial technology leader. The company's core strengths in secure currency technology, highlighted by the significant long-term U.S. banknote program and robust international demand, provide a stable foundation. The strategic pivot into the growing authentication market through key acquisitions is rapidly building a leading position with differentiated technology and increasing exposure to resilient government and brand end markets with growing recurring revenue streams.

While facing near-term headwinds in certain CPI end markets and a planned volume decline in U.S. Currency related to new series preparation, the company's operational discipline, demonstrated by productivity gains and cost management, supports profitability. The reaffirmed full-year EPS guidance, despite these challenges, underscores management's confidence in the portfolio's underlying strength and the expected contributions from strategic initiatives and acquisitions. Investors should monitor the successful integration of the Authentication businesses, the trajectory of CPI end market recovery, and further progress on the U.S. Currency new series as key indicators of Crane NXT's ability to deliver on its vision of long-term growth and value creation.