Crane NXT Q2 2025 Earnings Report

Crane NXT EPS Results

• Actual EPS: $0.97
• Consensus EPS: $0.92
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: N/A

Crane NXT Revenue Results

• Actual Revenue: $404.40 million
• Expected Revenue: $382.79 million
• Beat/Miss: Beat by +$21.61 million
• YoY Revenue Growth: N/A

Crane NXT Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 10:00AM ET

Crane NXT (NYSE:CXT), Co. operates as an industrial technology company that provides technology solutions to secure, detect, and authenticate customers' important assets. The company operates through Crane Payment Innovations and Crane Currency segments. The Crane Payment Innovations segment offers electronic equipment and associated software, as well as advanced automation solutions, processing systems, field service solutions, remote diagnostics, and productivity software solutions. The Crane Currency segment provides advanced security solutions based on proprietary technology for securing physical products, including banknotes, consumer goods, and industrial products. Crane NXT, Co. was incorporated in 2021 and is based in Waltham, Massachusetts.

Crane NXT Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Our Q2 results were in line with expectations with 9% sales growth, $0.97 adjusted EPS, and 120% free cash flow conversion.
• Negative Sentiment: CPI core sales declined approximately 1% year-over-year and adjusted segment operating margin fell by about 350 basis points due to lower volume and dilution.
• Positive Sentiment: International currency backlog reached a record high of $400 million and U.S. currency production resumed on track for the 2026 redesign launch.
• Positive Sentiment: Launched innovative solutions including Fortress for real-time product authentication and the Jetscan Ultra high-speed currency scanner with advanced counterfeit detection.
• Positive Sentiment: Integration of De La Rue and OPSEC is accelerating synergies, positioning Crane Authentication to achieve roughly 20% operating profit margin by end of 2026.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the Crane NXT Second Quarter twenty twenty five Earnings Call. At this time, all participants are in listen only mode. After the speakers' presentation, we'll open up for questions. To ask a question during the session, you will need to press 11 on your telephone.

[Operator]

Please be advised that today's call is being recorded. I would now like to hand it over to your first speaker today, Matt Roche, Vice President of Investor Relations. Please go ahead.

[Matt Roache, VP, Investor Relations at Crane NXT]

Thank you, operator, and good morning, everyone. I want to welcome you all to the second quarter twenty twenty five earnings call for Crane 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 careennxt.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 and our Form 10 ks and subsequent filings pertaining to forward looking statements.

[Matt Roache, VP, Investor Relations at Crane NXT]

During the call, we'll also be using non GAAP financial measures, which are reconciled to the comparable GAAP measures in the tables at the end of our press release and accompanying slide presentation, both of which are available on our website in the Investor Relations section. With me today are Aaron Sake, 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 our second quarter highlights, our financial and operational performance and our 2025 financial guidance. After our prepared remarks, we'll open up the call to analysts for questions. With that, I'll turn the call over to Aaron.

[Aaron Saak, President, CEO & Director at Crane NXT]

Thank you, Matt, and good morning. I appreciate everyone joining today's call to review our second quarter results. I would like to start by recognizing our NXT team members around the world for their continued dedication and for delivering another quarter of strong execution. As shown in the highlights on slide three, our second quarter performance was in line with our expectations with sales growth of approximately 9% year over year and adjusted EPS of 97¢. We achieved a 120% free cash flow conversion in the quarter, reflecting continued operating discipline.

[Aaron Saak, President, CEO & Director at Crane NXT]

In q two, we continue to build momentum in our strategic growth areas. Our currency business delivered another standout quarter, again achieving a record high backlog. We also recently introduced new innovative products in our authentication and CPI businesses, which position us well for future growth. In authentication, we launched Fortress, an advanced proprietary security feature that can be applied to a product surface or label to authenticate the product in real time and to trace the origin of the product to the point of manufacturing. This product was introduced to a major customer and has a strong pipeline for additional applications.

[Aaron Saak, President, CEO & Director at Crane NXT]

And at CPI, we launched several next generation products that will enhance our leadership position using advanced imaging and detection technology. This includes the new Jetscan Ultra, a high speed currency scanner that provides counterfeit detection for the banking, gaming, and retail markets. Since the close of the De La Rue authentication acquisition on May 1, we have made significant progress integrating this business with OPSEC to form the new Crane authentication. I'll provide more detail about our actions in this area in a few moments. We continue to have a strong balance sheet with ample capacity for additional M and A.

[Aaron Saak, President, CEO & Director at Crane NXT]

Given the strength and activity in our M and A pipeline, I am confident we will have another transaction to announce within the next year. Finally, we continue to navigate tariff and macro uncertainties and are mitigating these impacts through a variety of pricing and supply chain actions. Given these initiatives, we remain confident in our outlook and are reaffirming our full year EPS guidance in the range of $4 to $4.30. Now turning to slide four, I wanna take a moment to review our strategy of building a leading industrial technology company focused on solutions that secure, detect, and authenticate. Ultimately, what we do here at Crane NXT is focused on providing confidence to our customers and their consumers that the products they buy and the way they buy them are authentic and secure.

[Aaron Saak, President, CEO & Director at Crane NXT]

Over the past quarter, we've integrated De La Rue authentication and OPSEC to form Crane authentication. With this business, we have created a leading position in the authentication market. And a key to our success is utilizing the Crane Business System or CBS to drive operational improvements in both our existing businesses and those we acquire. And so with this in mind, I'd like to move to slide five to discuss the actions we've taken over the last one hundred days since closing the De La Rue acquisition. As shown on the left side of this page, we now have a market leading portfolio focused in three areas.

[Aaron Saak, President, CEO & Director at Crane NXT]

First, brand authentication, where we sell advanced security technology for labels, track and trace software, and provide additional online services to the world's leading brands to protect them and their consumers from counterfeiting. Second, government solutions, where we work with governments to ensure collection of tax revenue and authentication of products. And finally, identification security, where we design and manufacture ID documents for governments incorporating new security features to prevent counterfeiting. Over the past one hundred days, we hit the ground running, deploying the Crane business system to integrate the business and achieve our planned synergies. These actions include utilizing the eighty twenty process to rationalize product offerings, consolidating our site footprint, leveraging scale to drive supply chain savings, integrating the organization to simplify and reduce the cost structure, and implementing improved pricing processes.

[Aaron Saak, President, CEO & Director at Crane NXT]

I would like to thank the entire Crane authentication team for their hard work during the past quarter. Thanks to their efforts, we are now anticipating accelerated realization of operating synergies, which will lead to operating profit margins of approximately 20% as we exit 2026, ahead of our original expectations. So with that, let me now hand the call over to Christina to review our second quarter performance in more detail.

[Christina Cristiano, SVP & CFO at Crane NXT]

Thank you, Aaron, and good morning, everyone. I would also like to start by saying thank you to our associates around the world. We appreciate your hard work. Starting on slide six, we delivered second quarter results that were in line with our expectations. Sales increased approximately 9% year over year, driven by acquisitions and strong performance in international currency.

[Christina Cristiano, SVP & CFO at Crane NXT]

Core sales declined approximately 1%, reflecting the anticipated lower volume in CPI. Adjusted segment operating profit margin of approximately 24% was down approximately three fifty basis points year over year, driven by the lower CPI volume and the expected impact of dilution from acquisitions. Free cash flow conversion was approximately 120% in the quarter, and we continue to expect the full year conversion to be in a range of approximately 90% to 110%. Finally, we delivered adjusted EPS of $0.97 Moving to our segments and starting with CPI on slide seven. Core sales were down approximately 7% year over year, outperforming our expectations driven by timing of shipments.

[Christina Cristiano, SVP & CFO at Crane NXT]

Adjusted operating margin decreased approximately 300 basis points year over year, reflecting the lower volume and unfavorable product mix, partially offset by productivity gains. We expect margin accretion in the second half of the year, driven by improved product mix from gaming sales growth, as well as productivity programs and disciplined cost management. These factors will result in CPI's full year operating margin to be between 2930%. CPI ended the quarter with a backlog of approximately 144,000,000. Most notably, gaming orders were up approximately 10% sequentially and up by approximately 30% year over year.

[Christina Cristiano, SVP & CFO at Crane NXT]

Our gaming OEM customers are at normal inventory levels, and we'd expect gaming to have a strong double digit growth in the third quarter. Turning to security and authentication technologies on slide eight. In the second quarter, sales grew approximately 32% year over year, including acquisitions. Core sales increased approximately 9% year over year, driven by higher international currency volume. As a reminder, our U.

[Christina Cristiano, SVP & CFO at Crane NXT]

S. Currency business resumed production in Q2 after successfully completing the technology upgrades that will support the new currency series, which we expect to begin release in 2026. This was a significant milestone, and we are very proud of the accomplishments of our team. As Erin noted, our international currency business continues to perform well, with a new record high backlog of approximately $400,000,000 in the second quarter. We continue to expect mid single digit growth for the full year despite the tough comparison to a strong 2024.

[Christina Cristiano, SVP & CFO at Crane NXT]

Finally, adjusted operating margin of approximately 21% reflects acquisition dilution as expected. Moving to our balance sheet on slide nine. Net leverage at the end of the second quarter was approximately 2.6 times, reflecting the term loan used to fund the De La Rue authentication acquisition. Importantly, our strong free cash flow generation will enable us to continue to invest in organic growth while also paying down debt. We expect to end the year with net leverage of approximately two times, which provides flexibility for additional m and a.

[Christina Cristiano, SVP & CFO at Crane NXT]

Moving now to slide 10, we are reaffirming our full year guidance. We continue to expect SAT sales growth to be between 1921%, including approximately 80 to 90,000,000 of De La Rue sales in 2025. We expect CPI full year sales growth to be between negative 2% and flat. Adjusted segment operating margin is anticipated to be in the range of 25.526.5%, reflecting dilution from De La Rue, offset by our continued strong focus on pricing and productivity. Finally, we are maintaining adjusted EPS in the range of $4 to $4.3 Now I'll turn it back to Aaron for his closing remarks.

[Aaron Saak, President, CEO & Director at Crane NXT]

Thanks, Christina. Moving to our final slide, I want to highlight a few key points. First, we continue to drive strong operational execution. Our Q2 performance was in line with expectations, and we're utilizing CBS to drive productivity initiatives throughout the company. This includes accelerating the realization of synergies with the integration of Crane Authentication and continuing to drive high free cash flow conversion.

[Aaron Saak, President, CEO & Director at Crane NXT]

Additionally, we continue to build momentum in our strategic growth areas led by our technology leadership. In q two, we achieved another record high backlog in our international currency business, providing confidence in our full year sales outlook and giving us strong momentum heading into 2026. Also, as Christina mentioned, The US currency redesign program continues to be on track for a 2026 launch. We are also launching new products across the portfolio, extending our technology leadership position. These include the new Fortress product and authentication and the Jetscan Ultra in CPI.

[Aaron Saak, President, CEO & Director at Crane NXT]

And finally, our m and a funnel is active, and our strong balance sheet gives us ample capacity to continue building our portfolio of differentiated technology solutions, delivering long term value for our shareholders. So thank you again for your time this morning, and I'd also like to thank our dedicated team around the world for their commitment to our customers, our communities, and all of our stakeholders. And with that, operator, we're ready to take our first question.

[Operator]

Thank you. Our first question will come from the line of Matt Summerville from D. A. Davidson. Your line is open.

[Matt Summerville, MD & Senior Research Analyst at D.A. Davidson]

Thanks. Couple of questions. First, you gave some really helpful color on orders in demand with respect to gaming. Can you go through sort of a similar analysis of the other main CPI verticals? And then maybe comment around how your level of conviction that you can see CPI returned to a sustained positive organic trajectory? And then I have a follow-up.

[Aaron Saak, President, CEO & Director at Crane NXT]

Sure. Hey, good morning, Matt, and thanks for the question. Well, for CPI, I'm very encouraged by where we're at now in gaming. We know this end market continues to remain healthy, the casino and gaming end market, and we feel very confident in our number one market position as well. And now we're in the position where the inventory, our inventory at our OEMs is normalized.

[Aaron Saak, President, CEO & Director at Crane NXT]

And we talked about that coming out of the last few quarters, we expected this pivot as we got to the second half of the year and we're seeing it. So, we have high confidence here based on the order book and the outlook that we're going to see strong double digit growth in the second half of the year in gaming, and that's playing out, just as we expected. So, you know, to go to the other verticals, I think in total, they're they're playing out largely as we expected and really as we talked about last quarter. So vending, as you know, we talked about headwinds really from the China tariffs slowing some orders. We discussed that in Q1 leading to some headwinds in sales that we see there for the back half of the year.

[Aaron Saak, President, CEO & Director at Crane NXT]

Retail, some positivity, particularly with custom self checkout, and I think it's a mixed bag a little bit among the OEMs. And and you could see that in some results early earlier this week. And then financial services, you know, playing out, in line with expectations. I think what's really encouraging here to CPI to get to your second part of your question about the long term outlook is, you know, this is a business always in a number one or number two market position, and technology differentiation and leadership is its key. And we're now in the process of launching new products, and we talked about that in some of the prepared remarks.

[Aaron Saak, President, CEO & Director at Crane NXT]

So I I feel very good about where we're at with CPI. You can see that the corner turned, and I think long term, we look at this as a low single digit growth business going into 2026.

[Matt Summerville, MD & Senior Research Analyst at D.A. Davidson]

Thanks for that. And then as a follow-up, can you maybe talk a little bit about how we should be thinking about the back half cadence in terms of revenue and earnings between Q3 and Q4, if there's anything you would want to call out there? And then you referenced on the slides and in your prepared remarks, Aaron, that you see offset well, I'll just call it the authentication related division inside of SAT generating a 20% OP margin. What would that equate to in terms of incremental EPS accretion in '26 versus 25 in the acquired businesses? Thank you.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yes. Thanks, Matt. Why don't I let Christina take the first one on the phasing in the back half of the year, and I'll take the authentication question.

[Christina Cristiano, SVP & CFO at Crane NXT]

Yes, great. And good morning. It's worth repeating that we expect full year sales growth of six to 8% in the SAT segment with segment segment operating margin of approximately 25.5% to 26.5%, which is unchanged from our previous guidance. So in terms of the phasing, we'll expect a slight step up in core revenue in Q3, driven by CPI and also a full quarter of DLR in our SAT results, so in our non organic results. And we'll also have higher segment operating profit, driven by the pricing and productivity actions that Aaron mentioned as well as cost reduction measures and continued operating discipline.

[Christina Cristiano, SVP & CFO at Crane NXT]

In terms of the phasing between Q3 and Q4, the phasing of both revenue and OP will be slightly more weighted to Q4. And so based on our outlook, again, we have confidence in the full year guidance range and the expected sales growth of 6% to eight percent.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yes. Thanks, Christina. I'd just add, again, think of revenue and OP, as Christina said, 1% to 2% kind of weighted to the back half, to the fourth quarter versus the third quarter. And to your question on authentication, Matt, I think the work here by the teams have been fantastic, deploying CBS very quickly. We're one hundred days basically into the acquisition of De La Rue and integrating that with OPSEC.

[Aaron Saak, President, CEO & Director at Crane NXT]

So I'm very encouraged by the speed of that execution. That's where we have line of sight based on the actions we've taken operationally to really exit '26 with an OP margin that's going to be approaching 20%. That's a very nice step up from where we're going to end this year, which will be in the low teens. And again, that's based on our business case and our execution of our synergy profile. So in terms of what that means for accretion in 2026, I think that's too early to say.

[Aaron Saak, President, CEO & Director at Crane NXT]

We'll make that part of the 2026 guidance, which we'll do in the first part of the year.

[Operator]

Thank you. One moment for our next question. Our next question will come from the line of Damian Karas from UBS. Your line is open.

[Damian Karas, Executive Director at UBS Group]

Hey, good morning, everyone.

[Aaron Saak, President, CEO & Director at Crane NXT]

Good morning. Good morning, Damian.

[Damian Karas, Executive Director at UBS Group]

I wanted to ask you about your SAT guidance, holding the sales, growth for the year, unchanged, despite a really nice solid second quarter. If I'm just accounting for the De La Rue deal and FX, it seems like you're implying kind of like a mid single digit year over year decline in the back half and a pretty notable step down from the second quarter. So could you just help us understand why maybe you're a little bit less optimistic on this in the second half of the year for SAT?

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah. Thanks, team. We'll have to go through kind of that the the sequential numbers you cited there. But, you know, I think the overall takeaway, you know, that that you started with is is right. We really have had excellent performance, particularly in the international currency business, both in new orders and a strong q two, which was really, some projects, as you know, very project focused business, when central banks want their shipment of their currency, and that came into q two.

[Aaron Saak, President, CEO & Director at Crane NXT]

So that's where we're not making a change to the full year. We're just seeing that movement into q two and out of part of the second half. So it's really a balance and that's really often driven by our customers and their timing and the request dates. That also, just for context, with the international shipments in Q2 being up, put some stress on the mix of the SAT margins. So for the full year, we still fully expect SAT margins for the segment to be in the range of around 21%.

[Aaron Saak, President, CEO & Director at Crane NXT]

But, you know, I I think overall, I'm very, very encouraged by this performance in currency overall, and particularly with The US program being on track. So the particulars of the phasing, think we can do the math on that, but but there's really no change to our outlook, just a little bit of timing.

[Damian Karas, Executive Director at UBS Group]

Okay. Got it. And then this is the first time I'm hearing about Fortress. Aaron was wondering if you could maybe just tell us a little bit more about that, this customer win and what specifically Fortress is. Yeah.

[Damian Karas, Executive Director at UBS Group]

What service Fortress is providing them? And I'd love to hear kind of like the other relevant applications you alluded to.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah. No, hey, I appreciate that. So Fortress came into the portfolio as, actually part of the De La Rue acquisition. And and it was part of why we're very excited, about the technology that they're bringing in. And it and at the same time, it was just recently launched.

[Aaron Saak, President, CEO & Director at Crane NXT]

So it so it is new into the market with this first customer. It is fundamentally a materials technology that's applied to the surface of either a label or the product that has a unique identifier that when you take a picture of it with a smartphone camera and use our proprietary app, you can identify the product all the way back to the point of origin of manufacturing or or when the when the marker was applied. So the beauty here, Damian, is it gets providence all the way back, to let's say to the manufacturing line, of the product in a very simple, easy to use way for either a consumer or in most cases, it it's the person buying the product, a a b to b type, you know, customer. So fundamentally, it's a core technology based on materials. It's simple to use, And you can see it as kind of part of this good, better, best, you know, technology portfolio we're providing. This would really be at the high end, of our of our authentication type application. So in terms of pipeline, given what it is, it can be applied to a whole host of end markets.

[Aaron Saak, President, CEO & Director at Crane NXT]

It can be applied to any label or any product service. So think food and beverage, think consumer goods, And we've just rolled it out to a very large customer in one of our emerging markets and pretty excited about the pipeline for it as well. Happy to show it to you one day too, Damian, when we meet you in person.

[Operator]

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

[Analyst]

Hey, good morning, everyone. You've got Pez on for Mike.

[Christina Cristiano, SVP & CFO at Crane NXT]

Hey, Pez.

[Analyst]

Just hoping you could help a little bit with the margin phasing in the back half. It feels like a pretty meaningful swing. Aaron, I know you mentioned the stress of the margin from the international shipments that came in 2Q, but can you help us a little bit maybe with the puts and takes specifically to the margins in the back half?

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah. Why don't I start and I'll pass it over to Christina. Maybe I'll take CPI because I think it's, you know, the two segments independently. In CPI, you know, we had a really nice quarter in top line sales. A lot of that came from vending, where we had customers that placed orders and we had a book and ship in the quarter getting ahead of our price increase for the tariffs.

[Aaron Saak, President, CEO & Director at Crane NXT]

Vending is at a lower margin profile than the rest of the business. So that created some compression, some stress on the margins. With what we see happening in gaming, and obviously that vending moving out of the, let's say, third quarter into the second, you're gonna see a natural accretion in margins along with the other pricing actions we've taken in productivity. So pretty high conviction there, Pez, in line of sight to our CPI margins on a full year basis to end the year between 2930%. So Christine, I'll pass it to you.

[Christina Cristiano, SVP & CFO at Crane NXT]

And just bridging the gap to SAT, so we expect SAT margins to be in the low 20s percent for the full year, as Aaron said. In terms of currency, continued strong performance driven by international. And the year was pretty evenly weighted. It'll be slightly more weighted towards the second half in terms of margin. As Aaron said, we had a little bit of unfavorable mix coming through in the quarter that will kind of resolve itself before the end of the year.

[Christina Cristiano, SVP & CFO at Crane NXT]

As you know, we're seeing dilution from the acquisitions about a few 100 basis points, which was expected. And now with the closing of the De La Rue transaction, as Aaron discussed earlier, we're accelerating the realization of operating synergies. And so that'll drive margin accretion in the second half in the authentication business. There's also some normal seasonality in OPSEC, where revenue and OP are typically just a little bit more weighted toward the second half. So considering all those factors, we have high confidence that we'll get to that OP margin target of 21% for the full year, with a step up in the second half driven mostly by the actions that we've already taken in Q2.

[Analyst]

Excellent. That's super helpful color. I appreciate that. Switching gears a little bit on the M and A front. Obviously, we continue to work through the PRAIN authentication and the integration of the assets, maybe talk a little bit about how some of the vectors of opportunity have changed, if at all, and maybe some technologies that are more interesting than they were two years ago.

[Analyst]

And then lastly, maybe just give us a little color on how you view the funnel. I know, Aaron, you said you feel confident about closing a deal in the next twelve months, but maybe more broadly talk about how you feel about the funnel.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah. Thanks, Ben. I'll start with the last part is I feel very optimistic, as I said, and confident that we're going to have another deal in the next year just based on the strength of the funnel, the activity we have going on, things we're we've looked at, and continue to to prosecute. So it's it's as healthy as it's ever been for us in the last two and a half years. So, that feels very good.

[Aaron Saak, President, CEO & Director at Crane NXT]

And as you saw in Christina's remarks, the balance sheet's in very good shape with our free cash flows. We have sufficient firepower to do exactly what we said we were going to do. I think the key here and maybe to the first part of your question is we wanna continue to apply the same framework. Right? This is a hallmark has gotta be disciplined M and A that's focused on a very clear framework that we put out that I think will serve us well.

[Aaron Saak, President, CEO & Director at Crane NXT]

So we don't want that to change. And that's around assessing the market, first of all, and looking at technology leadership positions. And to your point, with the new acquisitions that we now have with authentication, that opens up new near adjacencies to us around extending our brand authentication portfolio. You know, ID verification now is a is a one step adjacency we couldn't have said two years ago when we started the company. So I think there is, you know, a a broader adjacency step that's fueling our funnel.

[Aaron Saak, President, CEO & Director at Crane NXT]

And then we look at these companies, right? That's step two to make sure they have wide moats that have defensible IP, and we could be better or very good owners of those companies. And then third, the criteria is around value creation. We've got to find a path that we can always apply CBS and synergies to generate very good returns. So we're gonna continue to be prudent, opportunistic as we see targets emerge and keep on this very clear framework that we've established that I think is going to serve us well and be consistent in this approach.

[Operator]

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

[Bob Labick, President at CJS Securities]

Good morning. Thanks for taking our questions.

[Christina Cristiano, SVP & CFO at Crane NXT]

Hi, Bob.

[Bob Labick, President at CJS Securities]

Hey. I wanted to start with creating authentication. Now with De La Rue closed, you've very rapidly built this segment up to scale. And could you talk about the core drivers for this business going forward and maybe break it down between the physical security and tags and then the online security and brand management and digital sales as well? And what drives each of those, the physical and the kind of online digital sales for authentication?

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah. Well, hey, thanks, Bob. I agree with you here that I'm excited by the leadership position we've created and the scale. You know, really by integrating these two together and adding in again our core technology that came over from the currency business in micro optics. And it's been a very busy one hundred days since the close.

[Aaron Saak, President, CEO & Director at Crane NXT]

And, you know, I've had an opportunity in that time too to go around to most of the De La Rue major sites, visit the team, meet with customers, and it's it's really been fantastic. I think we've we've done a very good job in the launch of the new Crane authentication brand. To get a little more precise on your question, I would really think about the business as we showed on those slides in these three buckets. One's around brand authentication, which is a combination of physical track and trace software. That, you know, grows not only with the growth of the market of branded goods, which is, you know, depending on the brand, call it a mid single digit to high single digit grower, but also on the fact brands continue to ask for more authentication solutions.

[Aaron Saak, President, CEO & Director at Crane NXT]

So you have this ability to be a really strong single digit growth market in brand, or single mid single digit plus growth in the brand market. When you get to the government section, that we talked about, government solutions, that's really primarily tax stamps for governments. And there, it's it's really about, expansion to not only new products within the governments that we already sell to, but also new governments that wanna increase their tax revenues. So again, I think a very solid, consistent, mid single digit grower and a lot of synergies there commercially with our currency business because we're a trusted partner already to the central banks. And and you see that, you feel that playing out under the SAT segment and some of the work Sam Keys is doing.

[Aaron Saak, President, CEO & Director at Crane NXT]

And then finally, government ID, that's a new segment for us. Back back to one of the questions from Pez right before you. Now we have an ID portfolio that presents opportunities to add more sophisticated technology, upsell technology just like we do in the currency business. It provides more adjacencies for both organic and inorganic expansion. So again, I see that as a lot of nice tailwinds for the business.

[Aaron Saak, President, CEO & Director at Crane NXT]

So that that's how I'm thinking about it. We're thinking about it, Bob, in these three segments. And again, that's also where organic investment in M and A could play.

[Bob Labick, President at CJS Securities]

Okay. Great. Thanks. And then shifting gears a little to the twenty twenty six WICO, the yearly currency order outlook and timing. There's a lot of numbers out there.

[Bob Labick, President at CJS Securities]

There's the budget, then there's the currency order itself, which is going to be wide enough to drive a truck through. And then ultimately, the final order will come out at some point later, and we'll find out the real number. So my question is, can you just give us a sense for your expectations towards this? I guess, we'll learn the next thing, September, October, but give us a sense what you're working towards in calendar twenty six in terms of U. S. Volumes and how we should think about it.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah, thanks Bob. So first on the timing, think you're right. You know, it'll be something where September, October timeframe, we don't know precisely. We'll find that out when the Fed publishes it. In terms of the outlook, you know, what what we're thinking for our base case is volumes probably in the same range as we've been in, this year.

[Aaron Saak, President, CEO & Director at Crane NXT]

The key thing we wanna we wanna look at is mix. That's really the big driver for our business. And so that's what we're gonna have our eyes on is, you know, that mix between, call it, the $1 bill and the $100 bill in in the varieties, denominations in between. So again, we'll know in the next sixty, ninety days where that sits. Mix will be the key for us.

[Aaron Saak, President, CEO & Director at Crane NXT]

Maybe, Kristina, if you want to add just about The US currency redesign program, where that sits or any more color on that.

[Christina Cristiano, SVP & CFO at Crane NXT]

Yes. I mean, we're super excited about the launch, which we're expecting to start next year. And as you know, we resumed production in our U. S. Currency papermaking processes in the second quarter, which was very successful and a very significant milestone for our team.

[Christina Cristiano, SVP & CFO at Crane NXT]

So, I'll take the opportunity to say congrats to our currency team on a job well done. So, we're feeling really excited about the trajectory of currency.

[Operator]

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.

[Bobby Brooks, VP & Senior Equity Research Analyst at Northland Capital Markets]

Hey, good morning, Aaron and Christina. Now that you've had De La Rue under your ownership for about one hundred days now, and you're on your way to applying or already on your way of applying CBS, and even mentioned accelerating those actions. I was just curious to hear maybe some actions that you've already taken or plan to take to elevate the margins there, or maybe where you see the most opportunity for enhancements.

[Aaron Saak, President, CEO & Director at Crane NXT]

Yeah, thanks, Bobby. So yeah, it's a hundred days and we're not on our way to applying and we were ready to go on day one. And they're well in flight. As a reminder, when you looked at the entire two deals that form Crane authentication, we targeted about $16,000,000 combined in run rate synergies. We typically target that by year three to achieve those as we apply them.

[Aaron Saak, President, CEO & Director at Crane NXT]

And most of those, the vast majority are operational synergies. So to answer your question, those come out of simplification of the cost structure. So putting together sales, marketing, the management teams of the companies, you know, there's a natural cost structure, reduction from doing that. So that's has been executed to a large extent. There's also rooftop consolidation, and that's in has some has been executed, some is coming, and we've indicated, that to the teams and and respective, leaseholders.

[Aaron Saak, President, CEO & Director at Crane NXT]

And then also, you get into synergies around product rationalization. So this is trying to take the best that was Crane, the best that was OpSec and De La Rue and creating a portfolio that simplified and still has options for customers at different price points. So that also allows for some cost structure rationalization as well. So those are three examples, all of which are being done, all of which fall under, you know, our mantra of deploying CVS, Kaizens, different kinds of productivity initiatives, the application of eighty twenty to the product lines, all these tools in the tool kit are getting deployed, in in real time. And again, high confidence then because we've deployed and taken those actions that you're gonna continue to see the margin increasing in the authentication business steadily through the rest of '25 and into '26, exiting next year, you know, with a business that's, right at about 20% OP.

[Bobby Brooks, VP & Senior Equity Research Analyst at Northland Capital Markets]

Awesome. That's super helpful color. Thank you. And kind of jumping to the authentication. So there was a Wall Street Journal article out about a month ago that detailed the rising trend of super fake luxury handbags.

[Bobby Brooks, VP & Senior Equity Research Analyst at Northland Capital Markets]

And the stats that really stuck out to me was that LVMH spent about $11,000,000,000 on advertising last year, but that compared to only $45,000,000 in counter anti counterfeit, counterfeit efforts. So as it pertains to you guys with those stats in mind, my logic leads me to believe that one, that validates that product authentication is really in its infancy stage. And two, that there is a pretty sizable opportunity for SAT. Do you feel like my logic here is fair? And maybe just any additional comments you'd add or any detail you could disclose about how the team is pursuing the broader opportunity for product authentication in luxury goods.

[Aaron Saak, President, CEO & Director at Crane NXT]

Thanks, Bobby. I mean, I think that logic is incredibly sound. In fact, that's the entire strategic pillars that this business is standing on because we see the same thing. And exactly to your point, you see it reported about. I I believe the gap here that we always talk about is it takes these brands, maybe surprisingly, given the numbers like you just quoted, longer do adopt the technology and to implement it than maybe we would all like.

[Aaron Saak, President, CEO & Director at Crane NXT]

But we know the trajectory that this is headed on because counterfeiting is not getting better, and the sophistication of the counterfeiters is only increasing, and we occupy the high ground as the leading technology provider in this space. So that's, you know, put it into a, another one of our customers' analogies. That's where the ball's headed, where the puck is headed. We know it's going there. We just it it is it's we're waiting and driving it with those brands to bring up the issues you're seeing and actively working with those customers to adopt, you know, different features, whether that's embedded, whether that's co you know, call it covert, overt.

[Aaron Saak, President, CEO & Director at Crane NXT]

But you're exactly correct, Bobby. That's where this market's going.

[Operator]

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

[Isaac Sellhausen, Director - Equity Research at Oppenheimer & Co. Inc.]

Hey, good morning. This is Isaac Salazin on for Ian. Thanks for taking the question. Hey, morning, Isaac. Hey, good morning, everyone.

[Isaac Sellhausen, Director - Equity Research at Oppenheimer & Co. Inc.]

I just had one question on international currency. I know you're limited on what you can say on customers and activity, but maybe if you could help us understand what's driving growth on the international side in terms of mix and volume, if you're seeing higher denominations, and then just overall trends around uptake on micro optics. Thanks.

[Christina Cristiano, SVP & CFO at Crane NXT]

Yes. Great. Thanks, Isaac. So we have very high confidence in our full year sales guidance, particularly related to international currency. And some important data points, so it's just looking at our core backlog, which is up almost 20% year over year.

[Christina Cristiano, SVP & CFO at Crane NXT]

And we expect about 60% of that will deliver in 2025. And we expect our backlog to stay in a range of above approximately $300,000,000 for the rest of the year based on our strong orders funnel. So what's driving that? It's our differentiated technology. We believe we're the world's leading provider of technology, and we continue to win in the market.

[Christina Cristiano, SVP & CFO at Crane NXT]

This quarter, the growth in the backlog was primarily related to recurring revenue, as we call it, existing customers that continue to order from us because they trust us to provide the world's leading technology. But we have a pipeline to expect 10 to 15 microoptic wins with new customers for the full year, and we have high confidence that we're going to achieve that target. We're super excited about the trajectory, as I said earlier, and the pipeline is very rich for opportunities for the rest of the year.

[Isaac Sellhausen, Director - Equity Research at Oppenheimer & Co. Inc.]

Okay. Very helpful. Thank you.

[Operator]

Thank you. I'm not showing any further questions in the queue. I would now like to turn it back over to Aaron Sack for any closing remarks.

[Aaron Saak, President, CEO & Director at Crane NXT]

Alright. Thank you, operator. Well, I think you can see, from what we provided in the last, day that our q two was another strong quarter of execution and performance for the Cranion XT team. And I, again, would like to thank all of our associates around the world for their hard work and dedication to the company. I remain confident in our future as we continue to build and grow this company, the leader in technology that secures, detects, authenticate.

[Aaron Saak, President, CEO & Director at Crane NXT]

So thank you again for all the questions this morning. Thank you to everyone who joined us, and we hope you have a great day. And we'll see you next quarter.

[Operator]

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

Participants

Executives

• Matt Roache, VP, Investor Relations
• Aaron Saak, President, CEO & Director
• Christina Cristiano, SVP & CFO

Analysts

• Matt Summerville, MD & Senior Research Analyst at D.A. Davidson
• Damian Karas, Executive Director at UBS Group
• Analyst
• Bob Labick, President at CJS Securities
• Bobby Brooks, VP & Senior Equity Research Analyst at Northland Capital Markets
• Isaac Sellhausen, Director - Equity Research at Oppenheimer & Co. Inc.