Crane NXT (CXT) Q2 2026 earnings call transcript

I will now turn the conference over to your speaker today, Matt Roach, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Crane NXT's second quarter 2026 earnings conference call. Before we begin, I'd like to remind you that the presentation slides we will reference today are available in the investor relations section of our website at cranenxt. com. A replay of today's call will also be available on our website following the conclusion of our remarks. Before we discuss our results, I encourage all participants to review the legal notice on slide two regarding forward-looking statements, which are subject to risks, uncertainties, and other important factors that may cause actual results to differ materially. Additionally, please see the note on slide two on the use of non-GAAP financial measures. We also refer you to the cautionary language included in our earnings release, or form 10K, and subsequent SEC filings.

During today's call, we'll discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can be found in the tables accompanying our earnings release and slide presentation, both Both of which are available in the investor relations section of our website. Joining me today are Aaron Sake, our President and Chief Executive Officer, and Christina Cristiano, our Senior Vice President and Chief Financial Officer. During the call, we will review our second quarter highlights, discuss our financial and operational performance, and provide an update on our 2026 financial guidance. After our prepared remarks, we will open the call for questions.

With that, I will turn the call over to Aaron.

Thank you, Matt, and good morning to everyone joining us today to discuss our second quarter results. I'd like to begin by thanking our Crane NXT team members around the world for their strong operating performance throughout the court. The key message I want to reinforce today is that we are executing against our value creation priorities, delivering growth, building on our leadership positions, and driving operational excellence through organic margin expansion and strong free cash flow. And you can see that progress reflected in our second quarter results on slide three. Organic sales grew by approximately 3%, and total sales increased approximately 22% year over year, reflecting both continued strong performance in our SAT segment and the contribution from Antares Vision in our DTT segment.

And I'm very pleased with the progress we've made in Q2 with the integration of Antares. We're quickly implementing the Crane business system, including training and holding Kaizan events to improve productivity and drive growth. And we're off to a strong start in our first 100 days and remain confident in our ability to achieve our full year estimates. Importantly, given the strong first-half performance and confidence in our continued momentum, we're increasing our full-year adjusted EPS guidance to a range of $4.22 to $4.42.

So with that, let me now hand the call over to Christina to review our second quarter performance in more detail and our updated guidance. Christina?

Thank you, Erin, and good morning, everyone. I'd also like to express my appreciation to our associates around the world for their hard work in the second quarter. Turning to slide four, sales were $493 million, an increase of 22% year over year. Organic sales grew 3%, driven by continued strong performance in SAT. Adjusted EBITDA was $115 million, with adjusted EBITDA margin of approximately 23%, representing 150 basis points of organic margin expansion. For the full year, we continued to expect adjusted EBITDA margin of approximately 24%. We delivered adjusted EPS of $1.10, an increase of 13% year-over-year and ahead of our prior expectations.

Finally, adjusted free cash flow was $79 million, resulting in a conversion ratio of approximately 124%. We continue to expect full-year free cash flow conversion of 90% to 110%, supported by our robust backlog and operating discipline.

Moving to our segments and starting with security and authentication technologies on slide five, second quarter sales were $227 million, an increase of approximately 17% year over year, including one month of inorganic contribution from the De La Rue authentication acquisition, which closed in May 2025. Organic sales increased approximately 10%, driven by sustained demand in international currency. In the second quarter, we celebrated the 225th anniversary of Crane Currency, which was founded in 1801 and has been the sole source provider of secure currency paper to the U. S. federal government since 1879. We marked the occasion at a celebration in Dalton, Massachusetts, with the Director of the Bureau of Engraving and Printing, whose remarks highlighted our partnership on the development of the new U. S. currency, utilizing the next generation of micro-optic security technology.

This event also highlighted our more than 75-year relationship with the U. S. Government Publishing Office, with whom we partnered to make the U. S. passport paper. In Q2, we renewed our contract, extending our relationship for the U. S. passport for another 10 years. We are incredibly proud to serve as a trusted partner to the U. S. government on these important programs. Returning to our results, adjusted EBITDA was $59 million in the second quarter, with adjusted EBITDA margin of 26%, an increase of 30 basis points over the prior year.

On an organic basis, adjusted EBITDA margin increased approximately 200 basis points year over year, reflecting the positive impact of productivity programs in the currency business and the execution of synergies and authentication as planned.

Finally, SAT backlog of approximately $500 million reflects a new record high. This backlog provides meaningful visibility into customer demand and supports our confidence in the updated SAT sales outlook. We have a healthy pipeline of opportunities and are investing in future growth.

Turning to detection and traceability technologies on slide six, second quarter sales were $267 million, an increase of 26% year-over-year, reflecting a full quarter contribution from Ontari's vision. Despite softer hardware demand in CPI, DTT expanded organic EBITDA margin by approximately 240 basis points through pricing discipline and productivity actions. We expect to see further margin accretion in DTT as the year progresses and are on track to end the year with adjusted EBITDA margin of approximately 27%. Segment backlog was $257 million, including $125 million of Antares Vision backlog, which we expect to deliver over the next 12 months. As we integrate Ontaris, we are focused on converting this backlog, deploying CBS, and realizing the margin expansion opportunities that supported the strategic rationale for the transaction.

CPI backlog of approximately $132 million reflects sequential growth of approximately 10%, driven by order timing, with a book-to-bill ratio of approximately 1.1 times. Turning to our balance sheet on slide 7, we ended the second quarter with net leverage of approximately 2.7 times.

Looking ahead, we anticipate deploying free cash flow toward debt reduction and expect to end 2026 with net leverage of approximately 2.3 times. As we further strengthen our balance sheet we will continue to evaluate capital allocation through a disciplined framework focused on the highest return uses of cash and long shareholder value creation Moving now to slide eight we are updating our 2026 guidance to reflect increased SAT sales and an improvement in non expense For the full year, we continue to expect total sales growth of 15 to 17%. In SAT, we now expect high single-digit to low double-digit sales growth based on the strength of international currency backlog and continued strong demand.

In DTT, we continue to expect sales growth in the low 20% range, with Ontari's vision contributing approximately $200 to $210 million, and with the fourth quarter representing the largest contribution of the year, in line with their historic seasonality. In CPI, we expect sales to be slightly down for the full year, reflecting mid-single-digit growth in services, low single-digit growth in vending, and a mid-single-digit decline in hardware.

We are also updating our forecast for non-operating expense to approximately $80 million from $85 million, reflecting the favorable impact of expected debt paydown and lower borrowing costs. As a result of these updates, we are raising our full-year EPS guidance range to $4.22 to $4.42 per share.

Looking ahead to the third quarter, we expect low double-digit sales growth. In SAT, we expect sales to be flat to slightly down year over year, given the very strong comparison to Q3 2025. In DTT, we expect sales growth in the mid-20s percent range, with Antares Vision contributing approximately $55 to $60 million of sales, while CPI sales are expected to decline in the low single digits year over year.

Now I'll turn it back to Aaron to provide closing remarks.

Thank you, Christina. To wrap up, we delivered a solid second quarter and continue to execute against our key value creation priorities. of accelerating organic growth, building on our leadership positions, and driving operational excellence. Based on our continued momentum, I'm pleased that we're in a position to raise our full year adjusted EPS guidance. We're confident in our ability to deliver against the commitments we've laid out, strengthening the portfolio and converting our competitive advantages into sustainable growth, Margin expansion and strong free cash flow. So thank you again for your time this morning. And I'd also like to again thank our Crane NXT team members around the world for their commitment to our customers, our communities, and all of our stakeholders.

And with that operator, we'll take our first question.

Hey, good morning. A couple quick questions. How much capacity is being added either organically through your own footprint or through partners for security, The Crane NXT substrate and printing as it pertains to the currency business. And can you give a little bit more granularity as to what we should read through the fact that you're now booking out into 2028? And then I have a follow-up. Yeah, hey, thanks for that, Matt. And, you know, we just feel incredibly bullish about this currency business, both domestically and internationally, and you see that in the backlog, again, reaching another all-time high this quarter. Sure. We're adding capacity very quickly, both as you alluded to and we've mentioned in the past through some partnerships here this year, and that's going very well, as well as the buildout, particularly of our micro optics facilities, both here in the United States and in Europe.

And that's already going on and is going to continue for the next several years as we see the volume both coming into our backlog and what we see getting tendered that we feel we have a very high probability of winning. So that being said, we're in a place to sustain high mid-single-digit growth in the international currency business for the next few years. That will ultimately lead to doubling over the next several years the size particularly of our micro-optics capabilities. So I think that puts us in a very good position, both for obviously the rest of 26, but into 27, 28, and beyond. And that's what we're investing for.

And, you know, I think it's just worth noting that we had a strong first half of the year, and that gives us the confidence to raise our full year guidance. So, you know, in the third quarter, we'll see a low double-digit sales growth overall with a mid-20% EBITDA margin. Now, in SAT, we'll see a low single-digit decline, and that's largely driven by the comparative to 2025 in currency. As you know, we had a very strong end of the year last year. Authentication will perform as expected in Q3, which is a mid-single-digit revenue grower. In DTT, we'll see a mid-20% growth. Ontaris will contribute $55 to $60 million of sales. And then in CPI, we'll be down in the low single digits, which is continued softness in our hardware and markets.

I do just want to point out the phasing of the revenue in the back half of the year will be a little more skewed toward Q4, which is aligned with our normal seasonality. But so overall, if you look ahead to the full year, we're expecting a mid-teen sales growth with an adjusted EBITDA margin of about 24%, and that's 100 basis points of organic margin expansion year over year.

Morning, Trent.

Just good to see Antares moving higher right out of the gates. Just any color on the confidence there and what you saw to raise expectations into this year?

Yeah, hey, thanks for that, Trent. Bottom line is my confidence is very high in how we're executing Antares. It is 150 days in now, post the close of the acquisition. As I mentioned in the prepared remarks, we've really had a lot of good early success in implementing and driving CBS to get after our synergies. And that's going very well. And as you know, it opens up for us here at Crane NXT these new exciting markets in pharmaceutical, track and trace technology, and food and beverage, inspection and detection. More confident than ever, that's going to play out for us very well over the long term. So couldn't be more pleased with how the team is integrating into the company, how we're executing, and again, gives us really high confidence as we look at the second half of the year.

I know Book2Bill was kind of flattening out and you starting to see sequential backlog growth Just any help there would be helpful Yeah thanks for that Trent So you right you know a little bit softer in the top line of CPI and Q2 driven by vending and hardware and really in hardware that was in retail where we just seen a little slowness in some of our larger projects I think the key point here, and you mentioned a few of these that I want to reiterate, are one sequential build in the backlog, book to bill, well above one, and excellent execution by our team to drive organic margin expansion. Over 200 basis points of margin expansion in the quarter, I think that's really best-in-class execution when you look at where we're at on the top line, and over 100% free cash flow conversion.

So, you know, CPI for us in this portfolio is driving this great free cash flow and high margins, and we are continuing to invest in areas we see growth, like services, which continues to grow in mid-single digits. So, when you put that together, you know, we've adjusted the forecast. You saw that for the rest of the year and have high confidence in the outlook and, again, why we're overall raising guidance for the full year.

Thanks, Trent.

Good morning, Bob. Thanks for that.

And you've alluded to it, but can you maybe like elaborate a little bit more on some of the CBS actions taken in OPSEC and De La Rue to date and some of your intentions for Antares?

Absolutely, Bob, and I appreciate you mentioning that because sometimes it can get lost. What really matters with CBS, not as just saying that we have tools and resources, but it's got to drive outcomes, and that's got to drive quality, delivery, cost, and productivity in the P&L, and that's what you're seeing in the authentication business, where we had organic margin expansion in authentication over 300 basis points in the quarter, and that's CBS in action. And it's coming from how we're doing 80-20 on the product lines to reduce those at lower margins and move up to higher gross margins. We're seeing that come through. We're also seeing it in consolidation of the footprint of the business, and that's very tangible when you go to the business.

In fact, Christina and I were just there earlier this week to our facility in the United States, and I would say it's a transformation that's occurred in how we're running the business day to day. As you walk through those factories, the optimization that's occurred on the factory floor, and you see it in our CBS daily management boards and the Kaizen schedule that's being run. Case in point, in our facility here in the U. S. , we're going to run about one Kaizen a month for the next several months all around driving productivity, and that's what's driving the hundreds of basis of points margin improvement and authentication. The exact same thing is happening in Antares Vision.

And I was there two weeks ago, again, with Christina, and we tore the floor, and you already see the transformation occurring in the operation. And that's what gives us high confidence in the margin expansion we're going to see through the balance of 2026 and onwards through the implementation of Kaizans in that business. So feel very good about it. It's tangible. It's real. It's not hypothetical. And you see it in our outcomes.

Yeah, I'll take that one to start here, Bob, and just want to repeat what Aaron said, which is that we're on track and we're executing as planned, and the 80-20 initiatives that we're doing in the first half will drive margin expansion to the end of the year. So we expect to end the year as a mid-teens EBITDA margin for authentication, and we'll have MSD revenue growth in the back half of the year to support that. So I think for the full year in SAT, what's important here is you'll see at the segment level 100 basis points of margin expansion, which is driven by the synergies that we're realizing in authentication.

Good morning. With DTT, just wanted to unpack that a little bit. So the hardware and vending kind of continues to be a bit of a drag, and just wanted to kind of get your sense of comfort or the level of visibility you have to that inflecting back to positive growth. Is it something with the year-over-year comps? Just trying to get a better sense of that.

Yeah, I appreciate the question. So I think as you look at the back half of the year, and as Christina mentioned, in Q3 for CPI inside of the DTT segment, you'll see kind of a low single-digit decline in Q3 and then building and accelerating to a low single-digit growth in the Q4 period. So feel very good about that. That's why we made the adjustment. We see it in, you know, the fact we're seeing sequential backlog growth, book to bills are above one. We have the line of sight to some of the projects that typically take, you know, a quarter or two to deliver. So again, feel very confident there, and the team's executing really in a brilliant way with Driving the margin expansion, which gives us high confidence in great flow through into the EBITDA line and very strong free cash flow, which is the hallmark of this business.

So I think we feel very good about where we're going to go in the second half.

It's short, Bobby. Yeah, you know, CPI is a little bit more of a book and bill business. So backlogs in a normal level has been for the last few quarters. I think a key point is it's sequentially higher. So it's building coming out of Q2, and that feels good.

Yeah, thanks for that, Bobby. Let me start first kind of with what's easier in our control, and it goes back to Bob Labick's question around CBS. I think culturally, the work that's been done here to execute CBS and get at the operational synergies has gone as well as we could have ever expected and in parts the best I've seen. And that's really a testament to the culture of the team at Antares Vision of really embracing with open arms the culture of continuous improvement with CBS and seeing the opportunity we saw and why we got so excited about the acquisition over the last two years. That's gone very well, and we've inserted talent from Crane NXT into the business to get at those synergies and get at them early.

Again, going well. Now the second part of your question is a really good one because we are seeing opportunities both between our authentication business of using and importing technology from authentication in particularly to the pharmaceutical in markets that we knew was possible and we really working very diligently on that between both businesses as well as using some of the contacts we have in our currency business in emerging markets to foster access into governments as they are We do look at better ways to do the track and tracing of their pharmaceuticals in the markets where we also supply those governments currency. So those take longer to play out, but directionally they're correct, and that sales motion and product development motion is occurring, and those are dividends that are going to play out in 27 and beyond.

Thanks, Bobby.

Sure thing, Ian. Thanks for the question. So, you know, the way we run CPI and talk about it are in three components. There's our vending business, which is, call it a flat to low single-digit grower for the year. No real change in the outlook that we see long term for that over the course of the next two quarters in vending, but it's a little bit below the fleet average in terms of EBITDA margins. Then you have our hardware business, which is providing components into gaming, financial services, and retail. That's where, again, the slowness came this quarter, really in the retail segment from some of the custom projects, just taking a little bit longer. We have visibility into that backlog.

That's where we're seeing the sequential backlog growth and brings with it a very high margin, particularly on gaming, where we're by far the number one player in the world. in a very, you know, small market of competitors. So a fantastic franchise of high margin, high free cash flow from that business. And then finally, services. Services growing in mid-single digits. It's where we've made investments to expand outside of our servicing of our own components into third-party components. And that's going as expected. And we're doing upgrades in our software and ways we're driving efficiency in that market. And we'll see margin expansion. When you put that all together to your last point, we expect again to see continued margin expansion in CPI and then ultimately in DTT this year, both organically from the CPI business and then through some of the work that I alluded to in the other questions inside of Antares.

So, hence, you saw this quarter really strong, over 200 basis points of margin expansion in the quarter. We're going to continue to see healthy margin expansion as we exit this year in DTT.

So I'm going to go back to what we've been talking about now for the better part of a few years, and we really honed in on that at our investor day in February. We are building the market leader in authentication and traceability technologies in TAMs that are big and growing with market tailwinds, and we are positioned as the number one or number two provider of that technology into the in-markets. We're playing in. That's fundamentally the strategy, and we're building on those leadership positions we already had in the legacy businesses with now Crane Authentication and Antares Vision and double the TAM of the company. Now, as you go on that journey, as you would expect, we're always assessing what's in our portfolio and how to best optimize that to drive shareholder value creation, and you can be assured that's something very topical and something we're always thinking about.

Our focus today, and for the next few, certainly quarters, is making sure that we're executing well, that we're always assessing that portfolio to maximize value, and that we're cultivating and continuing to cultivate a very healthy list of M&A targets, which we have in place. Again, looking maybe more into 2027, most likely for a next type of transaction for us to extend on some of our verticals. So it's a very active conversation and one where we're focused, again, on execution here.

Thanks, Ian.

Yeah, I'll turn on that one, Zach. And just in terms of Q2 performance, another strong quarter in SAT with 10% organic sales growth and, as Aaron said earlier, approximately 200 basis points of organic margin expansion. And we expect the full year organic sales growth to be about 3% to 4% in this segment, with an EBITDA margin of about 25%. So, you know, the one thing to point out here, again, is the phasing in the back half, which is a little more skewed toward Q4, so just keep that in mind for the full year. But we continue to see strong demand, and most notably, we're on track to achieve the plan synergies that we outlined for authentication, and that's what's driving the margin improvement.

I don't know, Aaron, on Antares vision. Yeah, I'm happy to take that, Zach. And Antares, you know, again, really executing as expected, perhaps a little bit better there to your point on the margins. Just to correct maybe one point there, we expect this to be in the, you know, kind of the teens adjusted EBITDA for the year, and over the next several years, we're going to grow that into the low 20s. That was always the investment case, and that's how it's playing out for us as it relates to Antares. So I just wanted to make sure that that's how you're seeing adjusted EBITDA margins.

Yeah.

I would now like to turn it back to Andrew Saif for closing remarks. All right. Well, thank you very much, operator, and thank you for all the questions today. I'd like to end the call where I started with, again, thanking all of our Crane NXT team members around the world for the results they achieved in Q2. It was their hard work and dedication that made it possible and why I have high confidence in raising our guidance for the full year. I think Q2 was another important fruit point in delivering on our value creation priorities, and I look forward to giving you an update next quarter on our progress. So thank you again, and have a great day.