Crane NXT, Co. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains information about Crane NXT, Co., some of which includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements about our current con dition. Investors can identify forward-looking statements by the use of terms such as “believes,” “contemplates,” “expects,” “may,” “could,” “should,” “would,” or “anticipates,” other similar phrases, or the negatives of these terms. References herein to “Crane NXT,” “we,” “us” and “our” refer to Crane NXT, Co. and its subsidiaries, including when Crane NXT, Co. was named “Crane Holdings, Co.” unless the context implies otherwise. References herein to “Holdings” refer to Crane Holdings, Co. and its subsidiaries prior to the consummation of the Separation unless the context implies otherwise. On April 3, 2023, Holdings was separated (the “Separation”) into two independent, publicly-traded companies, Crane NXT, Co. and Crane Company (“SpinCo”) through a pro-rata distribution (the “Distribution”) of all the issued and outstanding common stock of SpinCo to the stockholders of Holdings. References to "core sales” exclude currency effects and, where applicable, the first-year impacts of acquisitions and divestitures. Amounts in the following discussion are presented in millions, except employee, share and per share data, or unless otherwise stated. We have based the forward-looking statements relating to our operations on our current expectations, estimates and projections about us and the markets we serve. We caution investors that these statements are not guarantees of future performance and involve risks and uncertainties. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. There are a number of other factors that could cause actual results or outcomes to differ materially from those expressed or implied in the forward-looking statements. Such factors also include, among others: the impact of tariffs and other trade measures; changes in global economic conditions (including inflationary pressures) and geopolitical risks, including macroeconomic fluctuations; demand for its products, which is variable and subject to factors beyond its control; risks associated with conducting a substantial portion of its business outside the U.S.; information systems and technology networks failures, breaches in data security, theft of personally identifiable and other information, and non-compliance with its contractual or other legal obligations regarding such information; being unable to identify or complete acquisitions, or to successfully integrate the businesses the Company acquires; fluctuation in the prices of, or disruption in its ability to source, components and raw materials, and delays in the distribution of its products; loss of personnel or being able to hire and retain additional personnel needed to sustain and grow its business as planned; being unable to successfully develop and introduce new products, which would limit its ability to grow and maintain its competitive position; governmental regulations and failure to comply with those regulations; the ability to protect its intellectual property; risks from litigation, claims and investigations, including those related to product liability and warranties, and employee, commercial, intellectual property and environmental matters; risks related to its ability to improve productivity, reduce costs and align manufacturing capacity with customer demand; significant competition in the Company's markets; additional tax expenses or exposures; adverse impacts from intangible asset impairment charges; inadequate or ineffective internal controls; and risks related to the Separation, including not obtaining the intended tax treatment of the Separation transaction, failure of Crane Company to perform under the various transaction agreements and actual or potential conflicts of interest with Crane Company; and other risks noted in reports that we file with the Securities and Exchange Commiss ion, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent reports and other documents filed with the Se curities and Exchange Commission. We do not undertake any obligation to update or revise any forward-looking statements to reflect any future events or circumstances. 22 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Transactions Credit Facilities We are party to a senior secured credit agreement (the “Credit Agreement”) entered into on March 17, 2023, which provides for a $500 million, five-year revolving credit facility (the “Revolving Facility”), funding under which became available in connection with the Separation. On December 9, 2024, we entered into an amendment to the Credit Agreement which increased the Revolving Facility by $200 million to an aggregate $700 million and provided a delayed draw term loan (the “Delayed Draw”) of £300 million to be used as part of the funding for the De La Rue Authentication Solutions acquisition discussed below. On March 17, 2023, we entered into a $350 million, 3-year term loan facility (the “Term Facility”), funding under which became available in connection with the Separation. On December 9, 2024, proceeds from the Revolving Facility were used to repay the outstanding Term Facility. In the three months ended March 31, 2025, we drew down $106.0 million and repaid $52.5 million on our Revolving Facility to fund working capital requirements. Acquisition On May 1, 2025, we acquired De La Rue plc’s authentication business, De La Rue Authentication Solutions (“DLR”) for a base purchase price of £300 million on a cash-free and debt-free basis, subject to customary adjustments reflecting DLR’s net working capital, cash, the assumption of certain debt-like items, and DLR's transaction expenses. We utilized our Delayed Draw to fund the acquisition. De La Rue Authentication Solutions is a leading global provider of digital and physical security and authentication technologies to governments and brands. De La Rue Authentication Solutions will be combined with OpSec within the Security and Authentication Technologies segment upon close. General Economic Outlook The U.S. recently announced significant changes to trade policies and tariffs. As of May 7, 2025, we expect to be able to largely offset the impact of tariffs on operating profit with pricing and productivity initiatives. The extent and duration of tariffs, including retaliatory tariffs, continue to evolve and the related market volatility and exchange rate fluctuations make it challenging to forecast the impact on our operations and results. The broader economic implications resulting from the market volatility may decrease customer demand and negatively impact revenue and profitability. See Item 1A, “Risk Factors” for more details. Basis of Presentation See Note 1, “Organization and Basis of Presentation” for more details on financial statement presentation basis. 23 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results from Operations – Three Month Periods Ended March 31, The following information should be read in conjunction with our Unaudited Condensed Consolidated financial statements and related notes. All comparisons below refer to the first quarter 2025 versus the first quarter 2024 , unless otherwise specified. Three Months Ended March 31, Favorable/(Unfavorable) Change (in millions) 2025 2024 $ % Net sales $ 330.3 $ 313.6 $ 16.7 5.3 % Cost of sales $ 190.1 $ 161.2 $ (28.9) (17.9) % as a percentage of sales 57.6 % 51.4 % Selling, general and administrative $ 102.9 $ 94.3 $ (8.6) (9.1) % as a percentage of sales 31.2 % 30.1 % Restructuring charges — 2.7 2.7 NM Operating profit $ 37.3 $ 55.4 $ (18.1) (32.7) % Operating margin 11.3 % 17.7 % Other income (expense): Interest income 0.2 0.6 (0.4) (66.7) % Interest expense (11.5) (9.9) (1.6) (16.2) % Miscellaneous income, net 2.1 0.6 1.5 250.0 % Total other expense, net (9.2) (8.7) (0.5) (5.7) % Income before income taxes 28.1 46.7 (18.6) (39.8) % Provision for income taxes 6.4 8.9 2.5 28.1 % Net income attributable to common shareholders $ 21.7 $ 37.8 $ (16.1) (42.6) % Sales increased by $16.7 million, or 5.3%, to $330.3 million in 2025. The change in sales included: • sales benefit from the OpSec acquisition of $33.4 million, or 10.6%, • core sales decline of $12.9 million, or 4.1%, driven primarily by the Currency business, and • unfavorable foreign currency translation of $3.8 million, or 1.2%. Cost of sales increased by $28.9 million, or 17.9%, to $190.1 million in 2025. The increase was driven primarily by the impact of the OpSec acquisition of $24.0 million, or 14.9%, under absorption of manufacturing overhead in the Currency business, and unfavorable mix, partially offset by the impact of lower volumes and productivity gains. Selling, general and administrative expenses increased by $8.6 million, or 9.1%, to $102.9 million in 2025. The increase was driven primarily by the impact of the OpSec acquisition of $13.2 million, or 14.0%, partially offset by the impact of cost saving actions in CPI. Operating profit decreased by $18.1 million, or 32.7%, to $37.3 million in 2025. The decrease was primarily driven by the SAT segment due to the impact of lower volumes, and the dilutive impact of the OpSec Security acquisition. Unfavorable mix was largely offset by productivity gains across both segments. Our effective tax rate for the three months ended March 31, 2025 was higher than the prior year’s comparable period primarily due to the mix of non-U.S. earnings. 24 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Segment Results of Operations - Three Month Periods Ended March 31, Crane Payment Innovations (“CPI”) Three Months Ended March 31, Favorable/(Unfavorable) Change (in millions) 2025 2024 $ % Net sales by product line: Payment Acceptance and Dispensing Products $ 169.9 $ 176.4 $ (6.5) (3.7) % Services 33.0 32.6 0.4 1.2 % Total net sales $ 202.9 $ 209.0 $ (6.1) (2.9) % Cost of sales $ 103.8 $ 104.8 $ 1.0 1.0 % as a percentage of sales 51.2 % 50.1 % Selling, general and administrative $ 49.4 $ 48.8 $ (0.6) (1.2) % as a percentage of sales 24.3 % 23.3 % Restructuring charges $ — $ 2.7 $ 2.7 NM Operating profit $ 49.7 $ 52.7 $ (3.0) (5.7) % Operating margin 24.5 % 25.2 % Sales decreased by $6.1 million, or 2.9%, to $202.9 million in 2025, driven by lower core sales. • Sales of Payment Acceptance and Dispensing Products decreased by $6.5 million, or 3.7%, to $169.9 million in 2025. The decrease was driven by core sales decline of $5.1 million, or 2.9%, as favorable pricing was more than offset by lower gaming volumes. Included in the sales decrease was unfavorable foreign currency translation of $1.4 million, or 0.8%, primarily reflecting the weakening of the Japanese yen against the U.S. dollar. • Service revenue increased by $0.4 million, or 1.2%, to $33.0 million in 2025, primarily driven by favorable pricing. Cost of sales decreased by $1.0 million, or 1.0%, to $103.8 million in 2025, as unfavorable mix was more than offset by the impact of lower sales volumes. Selling, general and administrative expense increased by $0.6 million, or 1.2%, to $49.4 million in 2025, as the impact of cost saving actions was more than offset by increased administrative costs. Operating profit decreased by $3.0 million, or 5.7%, to $49.7 million in 2025. The decrease primarily reflected unfavorable mix of $6.6 million, or 12.5%, partially offset by productivity gains of $3.7 million, or 7.0%. The impact of lower volumes were largely offset by cost saving actions. 25 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Security and Authentication Technologies (“SAT”) Three Months Ended March 31, Favorable/(Unfavorable) Change (in millions) 2025 2024 $ % Net sales by product line: Banknotes and Security Products $ 93.4 $ 103.4 $ (10.0) (9.7) % Authentication Products and Solutions 34.0 1.2 32.8 NM Total net sales $ 127.4 $ 104.6 $ 22.8 21.8 % Cost of sales $ 86.3 $ 56.4 $ (29.9) (53.0) % as a percentage of sales 67.7 % 53.9 % Selling, general and administrative $ 38.7 $ 28.0 $ (10.7) (38.2) % as a percentage of sales 30.4 % 26.8 % Operating profit $ 2.4 $ 20.2 $ (17.8) (88.1) % Operating margin 1.9 % 19.4 % Sales increased by $22.8 million, or 21.8%, to $127.4 million in 2025, primarily driven by the sales benefit from the OpSec acquisition of $33.4 million, or 31.9%, partially offset by core sales decline of $8.2 million, or 7.8%, and unfavorable foreign exchange of $2.4 million or 2.3%. • Banknote and security product sales decreased by $10.0 million, or 9.7%, to $93.4 million in 2025. The decrease was driven by core sales decline of $7.6 million, or 7.4%, as higher sales in international markets were more than offset by anticipated lower U.S. government sales related to the planned shutdown of certain papermaking equipment in preparation for the new U.S. banknote series. Included in the sales decrease was unfavorable foreign currency translation of $2.4 million, or 2.3%, primarily reflecting the weakening of the Swedish krona and euro against the U.S. dollar. • Authentication products and solutions sales increased to $34.0 million in 2025, primarily driven by the sales benefit from the OpSec acquisition. Cost of sales increased by $29.9 million, or 53.0%, to $86.3 million in 2025, primarily due to the impact of the OpSec acquisition of $24.0 million, or 42.6%, and under absorption of manufacturing overhead related to the planned equipment shutdown. Selling, general and administrative expense increased by $10.7 million, or 38.2%, to $38.7 million in 2025, primarily due to the impact of the OpSec acquisition of $13.2 million, or 47.1%. Operating profit decreased by $17.8 million, or 88.1%, to $2.4 million in 2025, reflecting the impact of lower volumes of $8.1 million, or 40.1%, under absorption of manufacturing overhead net of favorable pricing of $6.3 million, or 31.2%, the dilutive impact of the OpSec acquisition of $4.1 million, or 20.3%, and unfavorable mix of $2.1 million, or 10.4%, partially offset by productivity gains of $3.1 million, or 15.3%. 26 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Three Months Ended March 31, (in millions) 2025 2024 Net cash (used for) provided by: Operating activities $ (19.1) $ 9.5 Investing activities (13.6) (12.5) Financing activities 38.0 10.6 Effect of exchange rates on cash, cash equivalents and restricted cash 6.7 (7.9) Increase (decrease) in cash, cash equivalents and restricted cash $ 12.0 $ (0.3) Our operating philosophy is to deploy cash provided from operating activities, when appropriate, to provide value to stockholders by reinvesting in existing businesses, by making acquisitions that will strengthen and complement our portfolio; by divesting businesses that are no longer strategic or aligned with our portfolio and where such divestitures can generate capacity for strategic investments and initiatives that further optimize our portfolio; by paying dividends and repaying prepayable debt. At any given time, and from time to time, we may be evaluating one or more of these opportunities, although we cannot assure you if or when we will consummate any such transactions. Our current cash balance, together with cash we expect to generate from future operations along with borrowings available under the Credit Agreement, is expected to be sufficient to finance our short- and long-term capital requirements. In the three months ended March 31, 2025, we drew down $106.0 million and repaid $52.5 million on our Revolving Facility to fund working capital requirements. Operating Activities Cash used for operating activities was $19.1 million in the first three months of 2025, compared with cash provided by operating activities of $9.5 million during the same period last year. The increase in cash used for operating activities was primarily driven by lower net income and higher working capital requirements. Investing Activities Cash used for investing activities primarily consists of cash used for capital expenditures and acquisitions. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, and improving information systems. Cash used for investing activities was $13.6 million in the first three months of 2025, compared with $12.5 million in the comparable period last year. The increase in cash used for investing activities was primarily driven by higher cash used for capital expenditures to support the U.S. Currency redesign program and other capital projects. Financing Activities Cash provided by (used for) financing activities consists primarily of dividend payments to shareholders, repayments of indebtedness, and proceeds from our credit facilities. Cash provided by financing activities was $38.0 million during the first three months of 2025, compared with $10.6 million in the comparable period last year. The increase in cash provided by financing activities was primarily driven by higher net proceeds from the Revolving Facility to fund working capital requirements. Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to our Unaudited Condensed Consolidated Financial Statements. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the information called for by this item since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2024.