Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales increased by 5% year-over-year, reaching $371 million, driven by the acquisition of Offset.
- Crane Currency ended the quarter with a record high backlog, leading to an increase in full-year core sales growth guidance for currency to 3% to 5%.
- CPI reported year-over-year core sales growth for the first time in four quarters, with inventories in the gaming vertical normalizing.
- The company has a strong M&A pipeline with a net debt to EBITDA ratio of approximately 1.8 times, providing ample capacity for future acquisitions.
- The integration of Offset is progressing well, with positive customer responses and a clear path to achieving identified synergies.
Negative Points
- Adjusted segment operating margin was diluted due to the Offset acquisition and an unfavorable product mix year-over-year.
- Adjusted free cash flow was impacted by higher capital expenditures related to investments in the US banknote redesign program.
- The gaming vertical experienced a backlog burn-down, with expectations for continued softness in the OEM channel.
- Security and authentication technologies faced lower international volumes due to the timing of shipments.
- The company is undergoing equipment upgrades for US paper-making, which will continue into the first quarter of 2025, potentially impacting production schedules.
Q & A Highlights
Q: Can you discuss the significant increase in the currency backlog and its implications for 2025?
A: Aaron Saak, President & CEO: The backlog increase is encouraging and provides visibility for 2024, allowing us to raise our sales guidance to 3%-5%. The market hasn't fundamentally changed; it's more about timing and our strong positioning. Some tenders are multi-year, which will remain in the backlog for 6 to 24 months. It's premature to discuss 2025 specifics, but the current backlog gives us confidence for the second half of 2024.
Q: Can you provide more detail on CPI's performance, particularly in the retail sector, and how it aligns with OEMs' strategies?
A: Aaron Saak, President & CEO: CPI performed as expected, with gaming inventory normalizing. In retail, we saw growth due to labor scarcity driving automation. We operate through OEM channels and direct custom self-checkout solutions. While OEM channels have slowed, direct custom solutions have offset this, maintaining growth. Christina Cristiano, CFO, added that other verticals are growing mid-single digits, with services driving recurring revenue.
Q: How is the integration of the Offset acquisition progressing, and what synergies are expected?
A: Aaron Saak, President & CEO: The integration is on track, with positive customer responses. We're building a funnel of opportunities and expect $8 million in synergies by 2026. The Crane Business System is being implemented to drive productivity improvements, and we are confident in achieving our synergy targets.
Q: What are the market share trends in CPI, particularly in vending and gaming?
A: Aaron Saak, President & CEO: In gaming, we've maintained our market-leading position despite a competitor regaining certifications. In vending, we focus on vending machines and related services, maintaining robust market share. We see growth in coffee vending, especially in Europe, and continue to introduce new features.
Q: Can you elaborate on the M&A strategy and the financial capacity for future acquisitions?
A: Aaron Saak, President & CEO: The M&A environment is stable, and we have a strong funnel of opportunities. With a leverage ratio of 1.8 times, we have ample capacity for acquisitions in the $100 million to $500 million revenue range. We aim for disciplined M&A to drive shareholder returns, using free cash flow and leverage without resorting to equity or exotic financing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.