Greetings and welcome to the Crane Holdings Company Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Jason Feldman, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and good day, everyone. Welcome to our fourth quarter 2022 earnings release conference call. I'm Jason Feldman, Vice President of Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer, and Rich Maue, our Senior Vice President and Chief Financial Officer, and Aaron Saak, who is President and Chief Executive Officer of the Future Post separation Crane NXT. We'll start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder that the comments we make on this call may include some forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our annual report 10-K and subsequent filings pertaining to forward-looking statements. Also, during the call, we'll be using some non-GAAP numbers which are reconciled with the comparable GAAP numbers and tables at the end of our press release and accompanying slide presentation, both of which are available on our website at www.craneco.com in the Investor Relations section. Now, let me turn the call over to Max.

Thank you, Jason. Good morning, everyone. Thanks for joining the call today. Well, we had an exceptional end of 2022 with outstanding fourth quarter results. Fourth quarter adjusted EPS was $2.13, an increase of 63%, compared to last year. We have broad-based strong operational execution with core sales up 11%, and we drove adjusted operating margins up 660 basis points to a record 18.6%. On a full-year basis, adjusted EPS was a record $7.88, up 15% compared to last year, driven by 6.4% core sales growth and 220 basis points of margin expansion to a record full-year adjusted operating margin of 17.7%. Adjusted free cash flow of $395 million was also very strong and above the high-end of our last guidance range. As a reminder, last quarter we reaffirmed and tightened our adjusted EPS guidance range to $7.58 to $7.72 with a $7.65 midpoint. At that time, we said that we felt that the high-end of guidance could only be achieved if we had supply chain improvement and an ability to turn specific shipments quickly. We actually saw that play out in each of our businesses with a bit of unanticipated upside all aligning, with the biggest impact in the last few days of the quarter. While there are still broad-based and random supply chain constraints across our businesses, we did receive shipments from a number of suppliers that we honestly didn't expect, and our teams did an incredible job turning them into sales for our customers quickly. We also had some favorable tax items that contributed about $0.04 to EPS as well. Really just a perfect alignment of unexpected, but good news very late in the quarter and solid work by our teams and my thanks to all of our associates for the year-end effort. To put this annual performance in perspective another way, remember that operationally, we maintained guidance to all year despite numerous headwinds. Specifically, since 2022 guidance was originally issued last January, we lost $0.25 of contribution from crane supply, which was divested in May 2022. Foreign exchange was an increasing headwind throughout the year and was a $0.19 headwind relative to original guidance, most of it from rate moves during the third quarter. The supply chain environment in ’22 was far more challenging than most anticipated a year ago, and there was substantial inflation, spanning materials, freight, labor, energy, and other costs. Even with those headwinds, we held the midpoint of our guidance while absorbing and offsetting all of these items. And then on a full-year basis, delivered results substantially better, which again is a real testament to the hard work and dedication of our teams around the world. And the strength of the crane business system and our execution. These results should give you even further continued confidence in our execution and our ability to over-deliver on our commitments as we turn to our outlook for 2023 and the upcoming strategic separation into two independent public companies. Rich will be providing guidance details for both companies post-separation reflecting exciting long-term growth opportunities for each. Specific to the demand environment, our leading indicators are still very strong. Core year-over-year orders increased 15% in the quarter and 13% for the full year. Core backlog is up 28%, compared to last year. While the present environment is still similar today to what we saw in the second half of ’22 and we still see continued robust demand across our end markets, we remain guarded, watching carefully for signs of softening. Other than the RV market where the softness is well-known and understood, we are not seeing slowdown in our order rates yet. However, given broader macroeconomic trends, we are planning for slowing short cycle markets, particularly those in the U.K. and Europe, which are most impacted by energy inflation. From a supply chain perspective, material and component availability remain most challenging, but stable in our Aerospace and Electronics segment with continued, but slow improvement in the other segments. We do expect supply chain constraints to ease over the course of the year, but at a gradual and measured pace. From a cost and inflation perspective, as you can see from our continued margin strength, we've been appropriately assertive with pricing actions across all of our businesses, and we continue to fully offset the impact of inflation on both a dollar and margin basis. While 2023 macroeconomic planning assumptions are muted, I couldn't be more excited about the growth opportunities that we have in front of us for both Crane Company and Crane NXT. In any type of demand and operating environment, we are positioned to drive above market growth with our strategic initiatives. This is where we are most focused across the organization, driving growth and advancing technology that has positioned our businesses for the future. We will provide more detail in March, but just a few recent highlights, including Aerospace and Electronics securing substantial new content on the Army's FLRAA Helicopter platform, the Army's largest Helicopter contract in 40 years. In addition, we have been selected to develop several products and systems for application on the next generation of long-range strike and fighter aircraft including brake control thermal management and fuel management equipment. This is the direct result of the strategy we shared with you in May 2021 targeting next generation technology demonstrator programs. At Process Flow technologies, we successfully launched the next generation digital transducers driving value and award-winning key OEM accounts in the mobile hydraulic system sector and now testing successfully with OEMs for hydrogen applications. With product sales set to grow four times in 2023, although from a small base today. We also are gaining traction with our new high-efficiency motors and non-clog pump performance with 50% sales growth for these products in municipal wastewater applications as customers realize significant energy and maintenance savings. We had new installations in more than 100 municipalities in 2022, with substantial growth expected again in 2023. Just an incredible amount of activity across our businesses focused on growth. And we are making steady progress on the separation. We're on track for completion April 3 of this year. We continue to have high conviction that this separation is going to create value as it increases our operating and financial flexibility to pursue growth opportunities. It lets us develop capital allocations for both Crane Company and Crane NXT that are optimized for their individual business and financial profiles. The separation will make it far easier for each company to attract a shareholder base fully aligned with each business's strong and distinct value proposition. And we believe it will make M&A more viable at both companies. Simply put, the separation will create two more closely aligned pure-play companies, each better positioned to deliver long-term growth and sustainable value creation for all of its stakeholders. Significant milestones achieved during the fourth quarter included completion of the organizational design for each company, the announcement of Aaron Saak as CEO of Crane NXT, and you'll hear from Aaron shortly this morning, public filing of the Form 10 registration statement and completion of the capital structure designed for both companies that Rich will review later. Key upcoming milestones to watch for: we expect the Form 10 registration statement to become effective in February pending SEC approval. We will announce further details of the board composition for both companies as well as the extended leadership team for Crane NXT between now and separation. We will be hosting separate Investor Day events for both Crane Company and Crane NXT on March 9 in New York City, and when-issued trading will commence in mid to late March. We feel very good about our progress to-date and our ability to achieve our targeted timeline. On last quarter's call, I told you how extremely excited I was about Aaron's appointment as CEO of Crane NXT, and how I was highly confident that he is the right leader to embrace the best of Crane's culture and the Crane business system while moving NXT strategically in new directions. After having the opportunity to work with Aaron over the last two months, I'm even more confident and excited that he is absolutely the ideal leader for NXT in this next chapter. We've spent the last few weeks traveling together, visiting nearly all of NXT's sites and his excitement, passion, insights, and strategic observations are impressive. I had great fun introducing Aaron to his broader extended global team and they're very excited about this new entity about to be formed and what the future holds. So, with that, let me turn the call over to Aaron for some comments on his first two months at Crane before Rich provides additional financial commentary and guidance details. Aaron?

Thank you, Max, and thanks for those kind comments. I am incredibly excited for the future of NXT and would like to thank the Crane Board for their trust in my leadership, and I know their expectations are high and I am confident with the outstanding team we have here at NXT that the future is very bright. As Max mentioned, I've had the opportunity in the past two months to travel to all of our major sites and meet with our NXT associates. Our team has been incredibly welcoming, and I appreciate their enthusiasm for our path forward. It's an outstanding team and one that I am honored and humbled to be part of. Now in terms of my background, I'm an Engineer by training, and I've spent my career with diverse well-known industrial technology companies. This background has given me a depth of experiences that I feel is uniquely positioned to help successfully lead NXT moving forward. In my most recent role, I had direct in-market overlap with NXT, so I'm really hitting the ground running and already working with the team to accelerate existing growth initiatives. I'm also passionate about innovation and delivering technology-based solutions to our customers. And we will continue to drive this focus at NXT, and I look forward to sharing more about our strategy at our upcoming Investor Day on March 9. As I mentioned, over the past few weeks, I've visited all of our major NXT sites with Max and the Senior Leaders of the NXT business. During these visits, I've been incredibly impressed with the disciplined cadence and execution of CBS. The focus on continuous improvement and operational excellence absolutely met and in many cases far exceeded my expectations. And it's exactly what I expected to see in joining Crane. I come from companies with a similar approach to driving continuous improvement, and I can ensure our investors that we will maintain this capability as a competitive advantage for NXT. Additionally, I'm impressed with the new products and technologies the teams are commercializing. For example, at Crane Payment Innovations, the focus on automation to improve customers' productivity is really outstanding. This includes the Paypod platform with sales on track to double this year, as well as real momentum across the gaming sector where we have an extensive suite of market-leading connectivity and service solutions. At Crane Currency, the team has made great progress with our product authentication business, which nearly doubled in sales in 2022 and is on track to double again in 2023. This business is built on our micro-optic technology platform, which continues to gain share in the banknote market, adding 12 new denominations last year and bringing our total specified denominations around the world to 170. So, Max, thanks again for the opportunity to introduce myself here today, and I look forward to spending time with investors in the coming months and during our Investor Day in March. And so, with that, let me pass the discussion on to Rich.

Thank you, Aaron, and good morning, everyone. I will begin with comments on our segments, comparing the fourth quarter of 2022 to 2021, excluding special items as outlined in our press release and slide presentation. In Aerospace and Electronics, fourth quarter sales grew by 15% year-over-year to $181 million, with segment margins increasing to 20.6%, up 750 basis points from 13.1% last year. This increase is due to effective leverage from higher volumes, improved pricing, and productivity, with pricing completely mitigating inflation's impact during the quarter. While we saw strong core sales growth, capacity constraints persist due to ongoing supply chain challenges faced by the Aerospace industry and demand still exceeding supply chains broadly. Core orders surged 45% compared to last year, and core backlog rose by 34%. Total aftermarket sales grew by 25%, with commercial aftermarket sales up 25% and military aftermarket sales up 23%. Original Equipment sales, or OE sales, climbed 11%, including a 15% increase in commercial OE and a 7% increase in military OE. At Process Flow Technologies, sales reached $252 million, a decline of 16%, primarily due to a 19% effect from the May divestiture of crane supply and a 5% hit from unfavorable foreign exchange. However, core growth for Process Flow Technologies remained robust at 8%, with adjusted operating margins of 16.1%, up 180 basis points from last year, largely driven by strong productivity and pricing that offset inflation. Compared to last year, core FX-neutral orders rose 11%, and core FX-neutral backlog increased 16%. Sequentially, compared to the third quarter, core FX-neutral backlog was up 1%, while core FX-neutral orders decreased by 3%, reflecting typical seasonal patterns. In Payment and Merchandising Technologies, quarterly sales of $338 million rose 8%, fueled by a 14% rise in core sales, despite a 6% negative impact from unfavorable foreign exchange. Operating margins improved 740 basis points to 25.9%, matching last quarter's record margins, driven by higher pricing, increased volumes, and impressive productivity. Forward-looking demand indicators also remain strong, with 10% core FX-neutral order growth and 35% core FX-neutral backlog growth. For the CPI business, supply chain issues persist, primarily due to certain electronic components, yet we observe a gradual improvement in availability and lead times. At Engineered Materials, sales increased 4% to $52 million, as anticipated. Operating profit margins rose by 50 basis points to 11.8%, stemming from higher pricing and productivity, partially offset by lower volumes. Growth was led by transportation and building products, though RV-related sales aligned with industry production rates saw a decline. Overall, on a company-wide basis, free cash flow was negative $210 million for the full year due to accounting rules categorizing the one-time contribution from the August divestiture of asbestos liabilities as an operating cash outflow, along with additional one-time costs associated with both that transaction and the separation. Excluding these items, full-year free cash flow of $395 million exceeded our guidance range's high end. Our balance sheet remains strong, ending the year with $658 million in cash and $1.24 billion in total debt, resulting in comfortable net debt of $585 million as we prepare capital structures for both companies post-separation. Now, regarding our 2023 guidance, we are on track for a separation occurring immediately after the first quarter on April 3 of this year. Following this, we will report the first quarter on a consolidated pre-separation basis, with subsequent quarters reported as two separate companies. For segment operating results, we will provide guidance on a full-year basis to facilitate reconciliation after each quarterly report. We will also provide pro forma guidance for corporate expenses, interest and non-operating expense, tax, and shares, assuming the separation occurred on January 1 and that the two companies operated separately for the entire year. I want to note two reporting changes we will implement at the time of separation. At Crane Company, we will continue to include service costs for pension and other benefit plans in our adjusted earnings, reflecting the real ongoing economic cost of providing pension benefits. However, starting in 2023, we will exclude non-operating benefit costs from our adjusted earnings to reduce volatility in earnings unrelated to our business operations. The second change at Crane NXT will exclude intangible amortization from our adjusted earnings and operating profit, as it significantly depends on the timing, size, and nature of acquisitions and is non-cash in nature. Now turning to our guidance for Crane Company, which has about $2 billion in sales and includes two growth platforms: Aerospace and Electronics and Process Flow Technologies, along with the smaller Engineered Materials business. We expect 3% to 5% core sales growth for 2023, resulting in an 8% segment profit growth, with businesses leveraging at about 35%. This guidance assumes a slowing economy with gradual supply chain improvement. Focusing on Aerospace and Electronics, we are guiding for 10% core sales growth and 35% operating leverage, with margins expected to be just under 20% for 2023. However, we anticipate around $50 million of unmet demand by year-end due to supply chain issues, the timing of delivery of which will depend on supply chain improvement. We expect long-term sales growth of 7% to 9% annually, plus the potential catch-up of sales in the next couple of years, with strong operating leverage. For Process Flow Technologies, we expect 4% core growth and a 2% detrimental foreign exchange impact, leading to total sales growth of 2%. Core growth is projected to leverage at 35%, driving nearly 10% improvement in segment profit, with margins expected to reach record levels over 17%. While we have a strong backlog and recent orders have been solid, our guidance assumes some slowing in short-cycle activity and decelerating order rates due to broader economic conditions. Long-term, we view this segment as a 3% to 5% core growth business. For the smaller Engineered Materials unit, we anticipate a sales decline of about 15% in 2023, driven by cuts in recreational vehicle OE production. We expect to maintain deleverage around 35%, resulting in margins of approximately 10.5%. Overall, we project core growth of about 4% and segment profit growth of 8%, with segment margins increasing to 17.4%. In Crane Company's non-operational guidance, corporate expenses are expected to be about $65 million in 2023. Our net non-operating expense, which includes interest expenses, is projected at $16 million, with a normal adjusted tax rate at about 23% and diluted shares of around 57.3 million. We do not provide a specific free cash flow estimate due to the complexities of first-quarter allocation, but we anticipate free cash flow conversion approaching 100% in 2023 and beyond. We expect adjusted EBITDA to be $321 million, yielding an EBITDA margin of 16.2%, and our adjusted EPS guidance for 2023 is between $3.40 and $3.70. As for Crane NXT, with about $1.4 billion in sales, we anticipate core sales growth of 2% to 4% and a slight decline in segment profit due to a temporary mix headwind. We expect solid core sales growth of around 5% at CPI, leveraging at 35% with margins of 29%, while Crane Currency expects flat core sales and a modest decline in margins to 24%. Our outlook remains strong, driven by a solid backlog and growth opportunities, especially in product authentication and banknote demand. For Crane NXT’s guidance, corporate expenses are projected to be around $50 million in 2023, with net non-operating expense estimated at approximately $47 million, an adjusted tax rate of about 20%, and diluted shares of around 57.3 million. Our expectation for Crane NXT's free cash conversion is approximately 100%. Total adjusted EBITDA for 2023 is projected at $364 million, representing a margin of 26.8%, with adjusted EPS in the range of $3.65 to $3.95. We will provide more details on our capital allocation policies during the March 9 Investor Day, maintaining a strategic focus on both organic growth and acquisitions. The key takeaway for Crane NXT is our commitment to leveraging technology and operational capabilities for substantial future growth. Overall, looking at both Crane Company and Crane NXT, we anticipate operational growth and a manageable decline, along with adjustments for corporate and interest costs that will lessen over time. Thank you for your attention, and we welcome your questions.

Thank you. We will now be conducting a question-and-answer session. Our first questions come from the line of Matt Summerville with D.A. Davidson. Please proceed with your questions.

Good morning, Matt.

Thanks. Good morning. Excuse me, a couple of questions. First, on Crane Currency. You talked about just a little bit, but flat core growth, the 17% operating profit decline. I guess I'm looking at it, $11 million in revenue, operating profit down $23 million. I mean the deleveraging effect there is just more substantial than I would have thought. And I guess I'm just trying to kind of handicap whether or not you're basically assuming sort of a doomsday scenario. And we've done quite a bit of work on that business and the trends there globally. And I guess so maybe a little bit more upbeat relative to this outlook. If you can maybe help that a little bit.

I'll take it, and then others can chime in as well, Matt. First of all, my compliments to you for your January 5 deep-dive Fed '23 print order; that is some incredible research. I would encourage investors to read the level of independent research that you did. It was absolutely impressive. Look, if you think about where we've been where we are, and of course, the trajectory that we have as we move forward, leading up to COVID, the Fed used to publish one number, and they absolutely took that number. Once we went into COVID, they moved into a range, and there was a lot of uncertainty. And we saw that play out in the mix and the mix change. The 100s were much higher than anyone anticipated as a store of value. And the Fed desired more notes than the BEP was even able to produce. Now we're moving into a range that's been somewhat lowered, but still a wide range. And Matt, even in the Fed's print order, this is all very positive news for us for the future, but it just paints a picture of a little bit of uncertainty in exactly how this is going to play out in ‘23. But when the Fed comes right out and says in their order verbatim that they're allocating BEP production capacity to essential products to support the U.S. currency program strategic priorities. Those priorities include producing a new banknote series with the signatures of the new Treasury and Secretary. So, they're absolutely trying to get to the new series, remediating deferred equipment maintenance, completing the equipment upgrades, making note production process improvements, installing and validating new equipment, and transitioning additional denominations to 50 subject-based sheets to improve efficiency and quality. Additionally, there was a shared Board and BEP support for allocating resources to achieve the planned security feature, that's us and banknote design milestones required to meet the Department of Treasuries announced 2026 issuance date. So, we got production in ‘25 for the Catalyst 10, which will require production of that note in ’25. So, I couldn't have been more pleased with the order the transparency of the Fed, the BEP. We have our planning assumptions. I can tell you that we have very high confidence in our plan. We certainly didn't want to go out with a number that had variability that we were concerned about achieving. If you feel that based on your modeling, things might come in a little stronger, that's your prerogative. I think that from a Crane standpoint, I hope that investors understand over our history, we've been incredibly transparent. We have significant credibility; we put numbers out there that we feel very confident we're going to achieve, and we work like heck to try to overdrive from there. So, I don't know if you guys would have anything.

I mean, Max, I think you nailed it. Look, when denominations shift within the U.S. government or even you compare the denominations between the U.S. government and international, it's all about the technology on the notes. And that creates this margin headwind, but it is all about the volumes that Max has highlighted, and the mix.

And the mix…

Yes. And so…

In this particular year, there has been a shift not only in the lower denomination transactions but also a need to return to proper destruction rates to maintain the quality of bills in circulation. Consequently, there is a heavier focus on one-dollar bills as a catch-up, while we naturally have a higher proportion of $100 bills and higher denominations due to their security features. This mix is becoming evident. It is what it is. With our careful and prudent planning, we believe this is the right guidance to provide.

Understood. Appreciate all that color, Max. Just as a follow-up, sticking with NXT. Could you give maybe a little bit more of a detailed overview into the demand trends you're seeing with CPI, the major end markets there, retail, gaming, transportation, etc., what a little bit more granular outlook might be around that mid-single-digit organic with the end markets? Thank you.

Aaron, you want to give that a go?

Sure, I will. Hey, thanks, Max, and thanks for the question, Matt. So, I think that's where we're very encouraged. As we go through each market and the ones you’ve listed, obviously are the key end markets for us. We'll start with gaming, as an example, we continue to see strength in that market, again, tending to a run rate of high single digits in terms of demand and a backlog that's growing, and that's not just for our core components hardware but also for the services and the aftermarket connectivity solutions we have in that market that helps us in terms of share of wallet. You take that to retail; we're continuing to see the underlying trend of automation. I'd say that's the, you know, one of the primary threads of that market. That's where I come from in my background and it's extensible here into the CPI business. So again, both on our components, as well as into more of our systems solutions. And as I mentioned in my prepared remarks, Matt, we see Paypod doubling this year, and that's our self-checkout solution again on the trends of automation. So again, I'd start to think about that as mid to high-single-digit growth. And then I think broadly, you've got to look at what was done here two years plus ago with Cummins-Allison and expanding into more of a system solution, but that recurring service that comes along. So we have a high attachment rate on that service that’s accretive margin above fleet average, and that's been very resilient and we continue, particularly with deploying our operational excellence programs in CBS into that business to drive margin expansion. And I can tell you from looking at those businesses over the last few weeks, my background years ago in running large sales service businesses, there's more margin expansion and more growth inside of that business as well. So very positive.

Great. Thank you, guys.

Thanks, Matt.

Thanks, Matt.

Thank you. Our next question comes from the line of Damian Karas with UBS. Please proceed with your questions.

Good morning, Damian.

Hey, good morning, everyone, and Aaron, congrats on your new role. Great to have you on the call.

Hey, thanks, Damian. I really appreciate that. Thank you.

Yes, absolutely, and I appreciate all your guys' details through details on the guidance and everything. I just wanted to ask you first about Aerospace and Electronics. You mentioned you see yourselves outgrowing the market, but the 10% guidance does seem kind of low compared to, I think, more mid-teens to 20% outlook we've seen from some of the other large aerospace suppliers. So, it would be helpful if you could maybe just perhaps reconcile that and elaborate a little bit on how we should be thinking about this $50 million of unmet demand.

Yes, Damian, this is Max. I'll start, and then Rich or Jason can chime in as well. Similar to our comments on currency, while the supply chain is stable, we still have extended lead times and are reacting to occasional unpredictable outages. Therefore, we don't see any significant improvement in that area. Outside of Crane, in regards to CPI and some electronic components, lead times are beginning to reduce, showing a gradual slow improvement. However, it's hard to predict when the Aerospace and Electronics supply chain will see significant enhancement. We don't expect this to occur in the first half of the year. As we assess the situation, we are being careful and prudent, ensuring we meet our targets and have the potential for upside if the supply chain improves. As we move into Q2 and Q3, some may be surprised by the impact of China reopening from COVID followed by the Chinese New Year. Currently, we haven't seen any effects on inventory since longer lead times are being fulfilled. A lag spike may occur, but overall, we believe China reopening is a positive for the latter half of the year, even as we factor in ongoing economic uncertainties, particularly regarding the Fed's potential missteps. Demand will remain robust, but we are being cautious about the supply chain. We have not witnessed marked improvements in A&E yet, but we expect gradual progress in the second half. That's the basis of our assumptions. If you think the supply chain will enhance at a faster pace, you can factor that into your models because if we receive the supply, we can deliver. It’s straightforward. We don’t see any major capacity constraints; even if we received everything tomorrow, immediate turnaround would be challenging, but we are not significantly constrained in terms of capacity. This is how I view our guidance. I’m not sure if you have anything to add.

The only thing I would add is that there's nothing unique about our supply chain constraints too, just to make sure that, that's very clear. It's not like we're seeing something very unique to Crane. This is our guidance assumptions based on when we think the supply chain will or will not improve. I think it's important.

And I think we're very close to the details. And again, I would hope that investors give us credit for the credibility and transparency that we have historically provided and continue to.

Understood. Appreciate your thoughts there. And then I wanted to ask you about corporate expense. I mean, it just seems a bit higher than what you had previously communicated. So, what's happening there? And what's your plan to drive that down?

Yes. It is higher than our original target. As we continue to build out both teams and this is pros and cons separation, it's going to be significant value creation in separating and focusing two new teams, but we have those dyssynergies with corporate costs. When we rolled up our initial estimates, we thought they were good targets; as we pulled what is going to be required to support both teams and the growth that we are absolutely focused on. This is how it shook out. Now we didn't want to cut just to hit the target. We want to staff up appropriately to support the continued transformation for both Crane and NXT. And we believe that we will absolutely grow into that expense line to lower as a percent of sales. That's the plan. That's how we're thinking about it.

Makes sense. Thanks a lot. Best of luck.

Thanks, Damian.

Thanks, Damian.

Thank you. Our next question is coming from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.

Hey, good morning, guys.

Hi, Kristine.

Hi, Kristine. Good morning.

Hey, thank you for all the comments, Max, Rich, and Aaron. I mean, Rich, I think you deserve a glass of water now. It's a lot to digest here.

I thought I needed to be there and I was trying to sneak in a sip here and there. I couldn't manage to do it.

Yes. So maybe first off, Aaron, congratulations on your role. And look, I think this is a hard question. I know you'll provide more details on the upcoming Investor Day, but wanted to get a 30,000-foot view from you. When you kind of look at the past decade as Crane Co. had acquired more payment businesses, we've seen multiple compression for the stock. Now with Crane NXT as a standalone, how do you think about getting the market to put in a higher multiple for the business? What's your strategy for that? And then also a follow-up question to that is, look, if the public market doesn't give a higher multiple to match the quality of businesses in NXT, how do you think about refocusing efforts to cash return to shareholders with a heavy emphasis on buybacks? I mean, ultimately, if the public market doesn't value NXT as it should, does it make sense to be private instead?

Sure.

Well, as usual, an easy question from Kristine.

Yes.

Thank you, Kristine, for your kind words. As you mentioned, our focus is on conveying our vision at Investor Day, where we will elaborate on it extensively. To provide some clarity on how I perceive the business concerning compression and long-term shareholder value, I believe that any business can thrive, and Crane has successfully compiled robust core assets. Max has emphasized that we're initiating the separation from a position of strength, which is evident in our fourth quarter results and cash balances. Our businesses are not only strong but hold leading market positions with growth rates in the mid to high single digits and substantial backlogs to fulfill in 2023 and beyond. While the currency business with the U.S. government may experience fluctuations, it remains a valuable long-term franchise. Our core business is strong, and we aim to maintain operational excellence. As I highlighted, we have an excellent culture for execution at CBS, which will lead to opportunities and productivity that generate free cash flow. As Rich mentioned, we plan to allocate roughly 100% of that cash to growth initiatives. We see opportunities within our core business, particularly in product authentication, which is a strong focus moving forward. We are confident in our defensible positions and will continue to expand, not only within the core currency business but into adjacent markets as well. Additionally, we observe growth in retail automation, aligned with secular trends in various sectors like gaming and financial services, which we want to incorporate into NXT. Furthermore, we are exploring technologies related to sensing in challenging environments linked to cash collection and validation. Over recent weeks and months, my leadership team and I have been strategizing with McKinsey, which we will present on March 9, along with our approach to M&A and its discipline. It's worth noting that Crane has a history of disciplined M&A, which will remain essential for Crane NXT, as we use our free cash flow to penetrate markets where we can maintain a competitive edge and deliver returns to shareholders without speculative ventures. I'm eager to share our evolving strategy in March. Addressing your question on shareholder value, our priority is to execute a growth strategy we are excited about, and we plan to maintain a competitive dividend along this path. While we will continuously reassess our strategy as good management teams do, our main focus is on executing the growth agenda. I feel increasingly optimistic about our potential in both core and adjacent areas. I hope this response conveys my enthusiasm, and I look forward to delving deeper in March.

Well said.

Great. Thanks, Aaron. I kind of regret not going to Malta, when I had a chance a few years ago, wish I did that.

Oh, it’s wonderful. It's very impressive. You would come away as excited as I am when you see that.

The facility definitely has some limitations.

Great. And maybe as switching gears, Max and Rich, following up on Process Flow Technologies, core FX-neutral orders were down 3% on the quarter. Can you provide more color on what you're seeing by end markets and how we should think about the outlook for the business, if, in fact, we do see a recession?

Yes. Well, look, for the quarter, I would say just generally speaking, we had a good quarter from an orders point of view across PFT. Right? When you look at project, we had some good project activity, a couple in Europe, a couple here in North America, China actually as well. So, there were some just nice projects that did flow through in the quarter. But one I would tell you that we were expecting, now whether that was expected to hit in December or January, some of them just happened to hit a little bit earlier, but overall, positive. On the MRO side, I would say that since probably around that October time frame and some of this is seasonally expected where you see that MRO demand tend to decline. We did see that. I would say so far as expected, both in North America and Europe. So absolutely, as we expected. Now the funnel of activities, I would say, is something that we're watching closely and to be cautious and careful about, and that's frankly, I would say nothing new and all aligned with the way we set up our plans for 2023. So however, we have this backdrop of this wonderful backlog as we enter into 2023. We are seeing this underlying softness just a little bit. And we feel like with the supply chain that's in front of us and being a little bit cautious and careful, while improving slowly, I think the way I would think about our 2023 guidance is prudent as well in terms of how we framed up during our prepared remarks.

You mentioned the 3% down that was actually sequential, so year-over-year, it's up 11. FX core neutral FX neutral. Well, it was down sequentially, still very stronger than I anticipated.

Yes. The sequential is typical at this point of the year, Kristine, so from Q3 to Q4, we generally do see that slight downtick. But on a year-over-year basis, up double digits.

Great. Thank you for that clarification. Appreciate it.

Sure, sure. Thanks, Kristine.

Thank you. Our next questions come from the line of Nathan Jones with Stifel. Please proceed with your questions.

Good morning, everyone.

Good morning, Nathan.

I'm going to re-ask Kristine's question because it was such a good one. If the market assigns the NXT business relatively low multiple, but it looks like it probably will when these businesses split up. How would it be possible for you to make a better return on capital by making inorganic investments rather than buying your own stock, given that this business is likely to throw off a ton of cash and an analysis of the present value of discounted cash flows should get at a much higher multiple? I don't understand why you wouldn't embark on an aggressive share repurchase campaign under those circumstances?

I’ll let Aaron share his thoughts in a moment. However, I believe we're likely to see the post-trading range align more closely with small to mid-industrial technology companies. This aligns with the unique technology and margin profile of our business, which, as we’ve discussed, deserves a higher value than what it currently receives. We hope investors will recognize this distinction. When a company focuses solely on stock buybacks, it suggests that there are no better avenues to create value for shareholders besides core growth and reinvesting cash back into repurchasing stock. I see several promising opportunities that could offer more substantial returns than just buying back shares, based on the economic outlook. Of course, this topic can be debated, but that’s not our intention as we move forward. Aaron, do you have any additional insights on value-generating strategies between full share buybacks and making inorganic investments?

Yes, that's correct, Max. When considering this business, Nathan, we haven't engaged in much mergers and acquisitions since 2019. As we evaluate our opportunities, we find a wealth of chances related to our core business that can help diversify it. We believe we can add significant value, and we will discuss this further at the Investor Day where we will outline our diversification strategies. This is our primary strategy, and we aim to invest in our core while also utilizing our extensive and varied M&A pipeline. We will continuously monitor how this strategy develops, but we are confident that we can deliver value to our shareholders and successfully implement our strategy in the coming years.

Thanks for the commentary. Max, you talked about 15% core or FX. Can you give us some more details on price versus cost in the makeup of that? And then what you're looking at for price versus cost in 2023?

Yes. So, Nathan, so on the price cost in the quarter you're referring to and the next year, right? Is that what you…

In the quarter and in the order rate, yes.

In the quarter, we experienced a notable shift in volume, which positively impacted several groups. Our pricing strategy proved beneficial, not only covering costs but also enhancing our margins due to the disciplined approach we implemented a couple of years ago. Overall, we achieved good momentum regarding price and cost, which positively contributed to our margin profile. Looking ahead to next year, we intend to maintain our pricing discipline and will carefully balance price with demand. Our expectations are that pricing will continue to counterbalance the costs of materials, labor, freight, and other expenses we face.

Should we mention the price carryover from 2022 into 2023 that is actually benefiting our earnings?

It depends on which business, but I would say on the margin, yes, but not as much as what we saw in 2022.

Okay. Thanks very much for taking my questions.

Thanks, Nathan.

Thanks. There are no further questions at this time. I would now like to hand the call back over to Max Mitchell for any closing comments.

Super, thank you. On track, exceeding expectations, strong close to 2022, well positioned for 2023 and beyond, another clear inflection point for value creation upon separation. As the late great Brazilian soccer star Pele said, "Success is no accident." It is hard work, perseverance, learning, studying, sacrifice, and most of all, love of what you are doing or learning to do. We love what we do at Crane, and our team's success is no accident. I want to welcome Aaron Saak again, and we both look forward to presenting our new entities' post-separation investor thesis to Investors on March 9 in New York City. Thank you all, and have a great day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.