Greetings and welcome to the Crane Company Fourth Quarter 2023 Earnings Call. Please be aware that this conference is being recorded. I will now pass it over to Jason Feldman, Vice President of Treasury and Investor Relations. Thank you. You may begin.

Thank you, operator, and good day, everyone. Welcome to our fourth quarter 2023 earnings release conference call. I'm Jason Feldman, Vice President of Treasury and Investor Relations. On our call this morning, we have Max Mitchell, our President and Chief Executive Officer; and Rich Maue, our Executive Vice President and Chief Financial Officer. We'll start off our call with a few prepared remarks, after which we will respond to questions. Just a reminder, 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 to 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, and good morning, everyone. Thanks for joining the call today. Well, we delivered another impressive quarter, with results again outperforming expectations with adjusted EPS of $0.90 in the fourth quarter, finishing a historic and very successful 2023. And after a truly outstanding year, we started off 2024 on a positive note with another acquisition announced January 3, this time in Aerospace & Electronics, founded in 1968 and based in Auburn, California. Vian is a global designer and manufacturer of multistage lubrication pumps and lubrication system components technology for critical aerospace and defense applications, with sole-sourced and proprietary content on the highest volume commercial and military aircraft platforms. Through August 2023, we estimate that Vian had trailing 12-month sales of approximately $33 million, and adjusted EBITDA of approximately $8 million with a solid order backlog. The purchase price was $103 million, which is approximately 13 times trailing EBITDA. Vian is highly complementary to the fluid solution in our Aerospace & Electronics segment, significantly expanding our portfolio of mission-critical aerospace flow control products. Vian has strong positions on the most attractive commercial and military aircraft platforms today with significant content on the F-35 and the 737 and A320 families of aircraft. Combined with our existing fluid and thermal management capabilities, Vian further strengthens our positioning for future content opportunities on auxiliary power units, gearboxes, and engines. We expect this acquisition to achieve 10% ROIC with approximately $0.20 of EPS accretion, excluding intangible amortization by year five. But as with most of our acquisitions, there are also several opportunities we see to deliver in excess of that return. In the case of Vian, that will include broadening their marketing efforts to additional customers where Crane has had long-term relationships for decades. We also see opportunities to leverage Vian's highly sophisticated machining capabilities to in-source components we currently acquire externally across the broader aerospace business. My personal thanks to Chris and Elizabeth Vian, and the rest of the Vian family, for trusting Crane as the stewards of this outstanding second-generation family business to our care, and the outstanding Vian team that is now part of Crane. We continue to progress on our existing M&A funnel, where we expect additional opportunities to become actionable over the next several quarters, primarily smaller and midsized transactions. Continuing to execute just as we committed to in terms of seeing accelerated M&A and our strategy as we move forward. Let me repeat a few highlights from our full year performance in 2023. Remember, we started the year with the April separation, which was completed on schedule, executed flawlessly and based on investor interest levels in our stock's performance, clearly a transaction that was well received by our shareholders. Overall, 7% core sales growth drove a 28% increase in adjusted operating profit from continuing operations, reflecting very strong operating leverage and disciplined pricing. At Aerospace & Electronics, we delivered 18% core sales growth. And even after that increase in sales, we closed the year with an all-time record backlog, reflecting how well positioned we are to drive continued growth through the rest of this decade and beyond. And at Process Flow Technologies, adjusted segment margins reached a record 19.9%, more than 350 basis points better than our prior year record. And a great new base for our margin growth from here as the business continues to structurally shift to higher growth and higher margin end markets and products. And we have made significant progress with capital deployment, demonstrating we can complete high return and attractive acquisitions in both Aerospace & Electronics as well as Process Flow Technologies, to strengthen our businesses and further accelerate growth. Building off that strong 2023 performance, we are introducing adjusted EPS guidance for 2024, in a range of $4.55 to $4.85, reflecting 10% EPS growth at the midpoint. That growth is driven by expectations of another strong year at Aerospace & Electronics, tempered by known, understood and previously communicated end market conditions at Process Flow Technologies, along with a slightly higher tax rate and interest expense. Remember that M&A accretion is also limited in year one for both transactions based on current interest rates. This is a high confidence guidance that we have direct line of sight to delivery. Our 2024 guidance assumes muted industrial activity with slowing in certain industrial markets and continued gradual improvement in the aerospace and electronics supply chain. While this is our best thinking today, we believe there may be upside as the year progresses if those two assumptions prove conservative, and we are structured to meet any unexpected changes in demand. There's also a potential upside to guidance from capital deployment. We are successful with M&A in the quarters ahead as we expect. As a reminder, we have an extremely strong unconstrained balance sheet, providing us significant acquisition capacity. We have a proven track record of successfully integrating acquisitions and over-delivering on synergies. We operate in markets with numerous potential small and midsized targets as well as a smaller number of large potential acquisitions. And in our current structure, we are entirely focused on our two global strategic growth platforms, Aerospace & Electronics and Process Flow Technologies. And reflecting our confidence in both our near-term and long-term outlooks, yesterday, we announced that we are raising our dividend by 14% to $0.82 per share annually. I'd like to also share a few success stories in the quarter as well on core growth and share gains within our segments. In Aerospace & Electronics, our fluid solution was awarded the fuel cell coolant pump for a hydrogen electric zero-emission powertrain. While the initial application is intended to be for smaller regional turboprop aircraft, our customer is also working on solutions for larger regional jets. This is another example of how our focus on next-generation technologies over the last decade has positioned us as one of the providers of choice for emerging applications. Two quarters ago, we discussed our selection to provide high-power, bidirectional power conversion for both demonstrator platforms for the M2 Bradley replacement vehicle. With those demonstrator programs secured, we are now seeing a substantial number of additional hybrid electric ground vehicle demonstrator opportunities. And we are currently pursuing five additional programs where we are optimistic about our prospects. We've also previously commented that we've been selected to provide content for a number of sixth-generation fighter demonstrators and collaborative combat aircraft programs. That activity is also accelerating. We now have six platforms either secured or in various stages of RFPs. Our antiskid brake control system was selected by Deutsche Aircraft for their D328eco regional turboprop platform, another promising zero-emission platform. And activity remains robust across our solutions with proposals in process or submitted for additional content on a number of other programs across a wide range of our solutions from power conversion and thermal management to proximity switches and antiskid brake control systems. At Process Flow Technologies, we also had a number of notable developments. In our Pharmaceutical business, we secured a $5 million order for a new oncology therapy facility, our first win with this particular customer in over a decade. We won this order due to advances with our EX diaphragm technology, that supports a higher temperature range and longer product life that the entrenched incumbent provider was unable to meet. It's a great sign as other pharmaceutical companies are continuing to develop processes with higher and higher temperatures. In our new hydrogen CRYOFLO business, where we've discussed for the last few quarters, we've delivered initial shipments of our Bellows sealed globe valves in the quarter to two large cryogenic equipment OEMs, further evidence that our strategy in this market is working. This business also began quoting on another newly launched product line in this space vacuum jacketed piping, and we expect our first orders for this product during the first quarter. In our Chemical business, we secured nearly $12 million in orders for a new significant project in China as large global chemical manufacturers continue to increase capacity in the region. We won a $4.5 million order for a new LNG facility in the United States. You may recall that we have talked about facility repositioning over the last few years, and this win is a direct result of our actions to position our engineered check valve business to become more competitive in the space with our new production capabilities in India. In our Water and Wastewater business, we had another excellent year driving mid-teens sales growth with strong momentum heading into 2024. During the fourth quarter, we also introduced an extension to our successful Razor Grinder pump platform focused on severe service explosion-proof applications, further expanding our addressable market. Overall, since we launched the Razor product line in 2020, we have nearly doubled the sales of our grinder pump business. My thanks to our global teams for all of their hard work and success both with our recent acquisitions as well as on daily execution and our array of growth initiatives. Overall, 2023 was a great year and we remain confident in our ability to execute on the strategy and vision we laid out at our March 2023 Investor Day event. Namely, a 4% to 6% long-term core sales growth rate from resilient and durable businesses that drive about 40% of strategic growth platform sales from the aftermarket, with substantial operating leverage on top of already solid margins today, that should lead to double-digit average annual core profit growth with potential upside from capital deployment. And with virtually no debt, the capital deployment opportunity is significant. And a 5-year vision to double revenues and get to a scale with $2 billion in sales in each of our strategic growth platforms, with adjusted EBITDA margins above 20%, giving us the opportunity for future strategic portfolio decisions. We certainly finished strong, delivering on that vision in 2023. We're off to a great start, looking forward to an equally exciting 2024. We will provide additional details on our 2024 and longer-term outlook at our next Investor Day event tentatively scheduled for May 14, 2024. Let me now turn the call over to Rich for more specifics on the quarter and some more details on our guidance. Rich?

Thank you, Max, and good morning, everyone. We had another strong quarter, achieving 5% core sales growth which led to a 14% increase in adjusted operating profit. For the full year, our core sales growth was 7%, resulting in a 28% increase in adjusted operating profit from continuing operations, highlighting our accelerating core growth and effective operating leverage with increased sales. We performed exceptionally well across all business segments, despite facing ongoing supply chain challenges that affect the larger aerospace and defense sector. I will now delve into segment details, comparing the fourth quarter of 2023 to 2022 while excluding special items, as detailed in our press release and slide presentation, and then I will discuss our outlook for 2024 for each segment and our overall performance. Starting with Aerospace & Electronics, market conditions remain robust, as evidenced by our growth rates for the quarter and the full year of 2023, as well as our backlog. In the commercial sector, aircraft retirements are very low due to high demand and limitations on deliveries, leading to an aging fleet that necessitates more aftermarket parts and services. Demand for new aircraft continues to outstrip the manufacturers' capacity. Global air traffic is also strong, essentially back to pre-COVID levels. On the defense front, we are witnessing solid procurement spending and an ongoing commitment to strengthening the defense industrial base amid heightened global uncertainties. We are positioned very well in both commercial and defense sectors, with many of our technologies experiencing significant interest and growth rates. Overall, we see a solid demand environment with no signs of a slowdown. This strong demand was reflected in our fourth quarter growth, with sales reaching $213 million—a 17% increase from last year. Despite this growth, our backlog of $701 million rose 14% year-over-year, and increased 3% sequentially. In the quarter, total aftermarket sales rose by 34%, with commercial aftermarket up 44% and military aftermarket up 11%. Original equipment sales also rose by 10%, with 14% growth in commercial and 6% in military. While demand remains strong, we continue to grapple with supply chain constraints, although there has been gradual improvement in the last few months. As mentioned last quarter, our challenges are not only about on-time deliveries from suppliers but encompass the broader supply infrastructure, including raw materials, components, and labor availability, as well as issues like employee turnover and experience levels. Specific shortages are continually shifting, yet overall, component availability has improved modestly. Consistent with our comments from last quarter, we have incurred some additional costs related to expediting shipments due to supply chain challenges and costs stemming from qualifying new suppliers and obtaining secondary sources where appropriate. Our adjusted segment margins of 20.2% saw a slight decrease from 20.6% last year, mainly due to higher engineering expenses and the supply chain-related costs mentioned earlier, although this was largely offset by the benefits of higher volumes and productivity. For the full year, core sales growth of 18% surpassed our earlier guidance of 16%, and our adjusted operating profit of $159 million exceeded our guidance of $157 million. Looking ahead to 2024, we anticipate sales growth of 14.5%, driven by 10% core sales growth and a 4.5% contribution from the Vian acquisition. This anticipated 10% core sales growth exceeds our long-term expected compounded annual growth rate of 7% to 9%, and reflects what we can confidently deliver based on the current state of the supply chain, assuming our current unmet demand in the range of $50 million to $60 million remains stable throughout the year. We expect our margins to rise by 140 basis points to 21.5%, indicating 35% leverage on core growth. While 35% is a solid figure, it is at the lower end of our targeted 35% to 40% range and is consistent with our previous remarks regarding supply chain inefficiencies and costs, which we believe will gradually improve. We are confident in the actions we are taking now, including proactive pricing strategies, boosting productivity, adjusting staffing in our factories to manage supply chain challenges, and investing in new technologies, as these initiatives position us well for strong leverage and further margin expansion in the years to come. The total leverage is slightly below 35% due to the Vian acquisition, as acquired sales only leverage at their operating profit margin level in the first year. From a timing perspective, we expect sales to increase sequentially throughout the year, with margins likely peaking in the second and third quarters due to the expected sales mix. At Process Flow Technologies, we are well-positioned to continue outpacing our markets, even as we observe signs of slowing demand, which we have communicated for the past few quarters. The slowdown is primarily seen in European chemical, non-residential construction, and general industrial markets, along with some project delays in North America. However, we achieved notable project wins this quarter. Overall, projects continue to outperform MRO activity, as end users focus on cost reduction and maintaining inventory levels. Historically, we typically witness a slowdown in activity a few quarters before other players in the broader process markets, but, as seen in previous cycles, we often recover a few quarters earlier. We continue to concentrate on elements we can control, namely gaining market share to surpass our end markets. Orders in the fourth quarter exceeded expectations, similar to the third quarter, triggered by key project wins and share gains rather than a fundamental shift in market conditions. We anticipate negative orders for the first few quarters of 2024 before expecting a positive turnaround, likely later this year. In the quarter, we reported sales of $272 million, up 8%, with core growth slightly down but more than compensated by a 6% acquisition benefit and a 2% advantage from favorable foreign exchange. Adjusted operating margins of 17% rose by 90 basis points from last year, mainly due to strong value pricing and productivity gains, albeit slightly offset by lower volumes and unfavorable mix. Year-over-year, our backlog in constant currency declined by 1%, while core orders in constant currency increased by 1%. Sequentially, compared to the third quarter, core orders decreased by 2% while backlog increased by 2%. The year-over-year backlog decline partially reflects the natural shortening of lead times as the supply chain continues to improve. For 2024, consistent with our previous comments, we expect core sales to remain roughly flat, with ongoing share gains and pricing mitigating a weaker market; the Baum acquisition should add approximately 4.5% to segment sales. We anticipate a slight increase in margins to about 20%, following a record year in 2023, with a minor dilution from the Baum acquisition offset by productivity and pricing advantages. This is an excellent outcome considering the challenging market conditions expected in 2024. For reference, margins were at 13.6% just before COVID in 2019. The significant increase in margins reflects structural changes within the business towards higher growth and margin markets, the positive impact of new product introductions, and disciplined pricing strategies that are assertive in light of inflation and product differentiation. In terms of timing, we expect 2024 to be more balanced than 2023. We predict first quarter sales will slightly exceed the fourth quarter exit rate, with margins in line with full year 2024 expectations overall, and expect the third quarter to be the strongest of the year. At Engineered Materials, sales of $49 million were down 7% from last year, as expected, while adjusted operating profit margins decreased by 250 basis points to 9.3% due to lower volumes. For the full year, core sales saw a decline of 13% due to the RV cycle, yet adjusted margins rose by 60 basis points to 14.8%, showcasing commendable performance despite the end market challenges faced last year. For 2024, we project sales and margins to stabilize compared to 2023 as the RV market normalizes, with a typical quarterly pattern expected, where the fourth quarter is seasonally the slowest. Now, addressing total company results, our adjusted free cash flow for the fourth quarter stood strong at $152 million. The full year free cash flow is somewhat difficult to gauge due to accounting related to the separation after the first quarter, yet I would characterize our performance as solid, despite slight understandable challenges related to supply chain inefficiencies affecting the entire industry. These challenges are primarily timing-related and are expected to reverse in the future. Our total debt at the end of the fourth quarter was $249 million, with $330 million available in cash. In early January, after the fourth quarter closed, we drew $100 million from our revolving credit facility to finance the Vian acquisition. We maintain substantial financial flexibility, with over $1 billion in capacity for mergers and acquisitions today, which could increase to approximately $4 billion by 2028. While this gives us more financial flexibility than we have had historically, our capital allocation strategy remains unchanged. We will continue to allocate our capital with the same rigorous financial and strategic discipline we have maintained, prioritizing internal investments for growth, followed by mergers and acquisitions and returns to shareholders. Now, concerning our 2024 guidance, as Max noted, our initial adjusted earnings per share guidance for 2024 falls between $4.55 and $4.85, which represents 10% growth at the midpoint. This guidance anticipates total core growth in the range of 3% to 5%, combined with a 4% benefit from acquisitions, and expects this growth to lead to an 11% increase in adjusted segment operating profit. Additional details about our guidance can be found in our press release and slide presentation on our website, with key assumptions including corporate expenses of $75 million, non-operating expenses—primarily net interest expense—of around $20 million, a tax rate of 23.5%, and diluted shares totaling $58 million. We also project free cash flow between $240 million and $265 million, indicating an over 90% conversion rate for free cash flow. As I reflect on my 16 years at Crane, this is the most positive I have felt; we have significant momentum across the board and I look forward to an exceptional 2024.

Thank you. Our first questions come from Damian Karas with UBS. Please proceed with your questions.

Hey good morning guys. Congrats on the quarter.

Thank you.

Thank you, Damian.

You bet. Maybe we could start on the A&E margins. You're capturing a little bit less incremental than we'd expect, just given the sales strength. Rich, maybe you can just kind of help us bridge that there? I know you mentioned you're getting some additional costs related to expedited shipping. Are you not presuming that some of those costs abate in 2024, and that some of these supply chain conditions actually get a little bit worse before they get better?

Yes. I think we do expect to see some of those headwinds abate as we move forward. It's a gradual improvement, I would say. In the quarter itself, margins, the leverage was a bit lower, but not too far off what we expected when we issued our revised guidance last quarter. So continuing to see those headwinds from a supply chain perspective. Look, overall, we leveraged at 31% on the full year, which is pretty impressive overall considering the environment we're in and those supply chain constraints. We're back to above 20% OP, and we are guiding to some pretty impressive leverage performance next year at 35%, and we have that confidence, Damian. So we see that path. And again, a little bit of improvement gradual as it relates to the supply chain constraints that we've seen in those costs that have impacted us here in the second half, or really throughout all of 2023.

Got it, thanks. And then maybe switching over to PFT. You've only seen orders down, really, one quarter, but the last few quarters actually are showing stability or modestly up organic order rates. So could you just help us to understand like the short cycle versus some of your comments on the long cycle, I'm presuming that the orders are still up on the project base. But maybe if you could just give us a sense for like how much the short-cycle volumes have, in fact, kind of come off the peak? And it sounds like going forward, you're thinking that maybe short cycle is kind of stable, longer cycles down the next couple of quarters, but then starts to improve. Is that how you're kind of thinking about it?

Yes. We noticed that Max outlined several projects we secured during the quarter. These projects have counterbalanced some of the underlying trends we've mentioned regarding weaker demand in the short-cycle MRO segment of our business. Most chemical companies we serve are currently focused on cost reduction, and we expect this to continue through the first nine months of 2024. As a result, we are observing declines in MRO, particularly in Europe, and to some extent in the U.S. However, the projects we have undertaken are providing significant benefits and are helping to offset the shortfall in underlying demand. Notable wins, such as the new LNG facility, projects in China, and a pharmaceutical project, are all strategic successes that are mitigating the impact of the fundamental demand shortfall as we progress through the first nine months of the year.

We are still seeing a consistent trend, Damian. As we mentioned last quarter, the decline hasn't been as steep as we anticipated at the beginning of 2023. We believe we will reach a trough and an inflection point by the third and fourth quarters of 2024. All the underlying data continues to support our forecast and guidance.

Okay. But any ballpark number on kind of how much the short-cycle volumes are down from the peak earlier last year?

I mean the short cycle piece, do we have the breakout of that off hand. It's probably going to be low double digits, probably in total, just on that portion. Something like that, Damian.

Okay, cool. Thanks a lot. Appreciate it guys. I’ll pass it along.

Thanks Damian.

Thank you.

Thank you. Our next questions come from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.

Good morning.

Rich, sorry if I missed this, but how does the aftermarket growth at A&E in the fourth quarter decomposed between commercial aftermarket and then defense aftermarket?

Yes. Commercial aftermarket was up about 44% and defense was up 11%.

Wow. Okay. And then, Rich, for the 10% core growth at A&E in 2024, can you say how that outlook bifurcates between commercial aero and defense, or any kind of split just between the different end markets there for 2024 and that 10%? Thanks.

Sure, Scott. We'll definitely provide a lot more detail at our Investor Day, but just to give you some maybe high-level numbers. Commercial OE is going to be up in the, call it, mid-teens area. Military will be maybe below single-digit to flattish, something like that, just given the momentum that we saw there all year. And then on the commercial aftermarket side, we're looking at low double-digit military will be in the double digit, I would say, firmly in the double-digit area, if that helps.

Okay. Yes. Regarding PFT, I appreciate the cautious approach on the margin outlook, but can you elaborate on why the margins are expected to only increase by 10 basis points in 2024? Alternatively, what scenario are you trying to protect against?

Yes. I mean remember, it's on flat organic growth. We've got an acquisition that initially is going to be slightly dilutive to margins longer term, it won't be. But next year, it will be. And the mix, right, if you think about the commentary in terms of what's been softest for us over the past couple of quarters and what we expect to be softest into 2024, it's chemical, right, which is a good margin business for us. So there's going to be likely unfavorable mix.

Yes, I would just add that we are also considering the pricing for next year. The teams are doing an excellent job continuing to implement price strategies that will help counteract the expected inflation. Together, these factors contribute to our flat margin performance, which we believe is a solid result given the volumes.

Right. Okay. And then last question, just, Rich, anything on cadence for PFT margins for the year? Thanks.

Yes, it will be fairly level-loaded through the year. There might be a little bit of strength in Q3. But right now, as we're looking at it, it's going to be fairly level-loaded maybe a little, little bit shy or lower in Q1.

Thank you. Our next questions come from the line of Justin Ages with CJS Securities. Please proceed with your questions.

Hey good morning. Thanks for taking the questions. First one, just on hydrogen. I know you mentioned some shipments that were going out. Can you just give us an update on when that's going to reach critical mass, when we can expect it to turn, inflect, basically?

That's a good question as we think about inflection. We're building this business from the ground up. We had considered an acquisition in the hydrogen space years ago, but it didn't work out. We have focused on the market, which is right in our sweet spot. We have the core capability in balance piping. On this journey, we're developing this business and are also looking at some M&A as we move forward. Currently, we see this as a significant opportunity by 2030, with some very large targets internally that we are transitioning toward. I hadn’t considered the critical mass inflection point, but I believe by 2025 we will have more insights to share during Investor Day, Justin.

Perfect. No, that's helpful. And then just on acquisitions, Baum has been nice to see, Vian has been nice to see. And I think you mentioned in the prepared remarks about focusing on midsize. Can you give us an update? Are you currently involved in any processes? Are you close? And are those in A&E or PFT?

I'd say there's a lot of activity in both, which is normal. So our funnel is full. There's a lot of activity. It bodes well for the first couple of quarters here potentially. We'll see. But very solid activity.

I appreciate the update. Thanks for taking the questions.

Thanks Justin.

Thank you. Our next questions come from the line of Mariana Perez Mora with Bank of America. Please proceed with your question.

Good morning, everyone.

Good morning.

So my question is on Aerospace & Electronics, and a follow-up to Scott's on the end markets. Could you please describe how much is like wide-body versus narrow-body in driving this like mid-teens growth for commercial OE? And as a follow-up to that, how are you thinking about this like phrase in the 737 MAX production?

Overall, our revenue profile is strong, with a great mix of content across major platforms, including both narrow-body and wide-body aircraft. While narrow-body aircraft are the main drivers in the industry, we also have considerable content related to wide-body aircraft. There is no particular element in our guidance or business that emphasizes the importance of one over the other. We are positioned well across most types and are closely monitoring the build rates.

On the 737, I would say that, first of all, it's not good news for the industry. I wouldn't add anything that we're not reading all publicly as this continues to be uncovered; difficult times here for Boeing, and we share the concern and look forward to assisting in any way we can as we move forward. As it relates to the freeze rates impact, I would say that our current guide has no risk, as the way we are thinking about this and have planned for the current environment. So from a Crane standpoint, I would just reiterate our guidance and have high confidence.

And is there any way you could share...

I...

You could share, sorry, go ahead.

No, I was going to say the one thing I'd add is just next year, we also do expect, given our specific mix in the market, a pretty big uplift in regional, which is contributing to that growth rate nicely as well.

And particularly on the MAX, could you please share like, I don’t know, shipset content or any metric for us to be able to measure how much of an impact that could have?

Yes. We don't provide shipset content. But what I'd say, and obviously, it depends on what's going on in the rest of the business and specific shipment rates for 737. The 737 universally, for 2023, next year 2024, and in most years, it's somewhere in the vicinity of 5% to 10% of sales on the OE side, probably a little bit below the middle of that range.

And last one from me is on M&A. Where are you seeing in terms of pricing? And how competitive are the deals that you're pursuing?

Yes. It's still a very competitive environment. We haven't seen too much easing in pricing. I would say no real big changes that we've seen over the last six months in that regard.

Great. Thanks so much.

Thank you.

Thank you. Our next questions come from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.

Good morning, Matt.

Thanks, good morning. Just a couple of follow-ups on A&E. When you look at the business in 2023, almost got back to a top line equivalent to where it was pre-COVID yet margins are still comfortably below. Can you help kind of bridge the A&E business circa 2019 to where it is in 2023? And do you have a longer-term line of sight to those pre-COVID level of profitability? And then I have a follow-up. Thank you.

Yes. We are confident in our ability to reach those margin levels again. When comparing this year to 2019, I can say that while there is significant demand, the volumes haven't fully returned yet. Much of our progress this year has involved pricing adjustments to counter inflation, which hasn't been as beneficial as what we've experienced in the Process Flow Technologies sector. Thus, we have a volume-price mix that affects our overall margin profile. Once the volumes return, we anticipate achieving leverage in the higher range of 35% to 40%, restoring our margins to those previous levels.

Can you discuss the timing for when you expect to see a significant ramp-up in your military business driven by programmatic developments? Specifically, during which part of the 2020s do you anticipate this will start for Crane?

Yes. 2025, without a doubt, yes. And then just ramping into 2026, we might see a little bit at the end of 2024, but it will be that sort of low rate initial production, but mainly 2025, 2026. Those are the AESA radars. Those are the F-16 brake control upgrade. I mean there's some pretty sizable wins that should start to ship in 2025.

Good morning everyone.

Good morning.

Maybe just following up on that question. Is there any quantitative measures you can give us on those 2025 and 2026 defense platforms, the ramp-ups and how big they might be and how much impact they might have to revenue?

We've previously discussed our commitment to defense power. We have a strong foundation of existing contracts that we are currently fulfilling, both commercially and in defense. We are securing new defense power contracts, particularly in areas like the ESA radar, LTAMS, TPY4, Sentinel, and F110, each valued around $10 million annually. Additionally, we've landed the F-16 deal, which is expected to yield $30 million over three years, with prospects for even more growth. Looking ahead to 2025 and 2026, we anticipate further opportunities in foreign military sales.

Maybe $100 million-plus from those kinds of platforms stepping up in 2025?

Not all on 2025, and that's probably a little on the high side.

So we'll work towards that goal.

I think the exciting aspect of those programs is their duration as well. These are multiyear initiatives, and the number you mentioned reflects the average size of each program. Some are even larger, starting around 2025 and extending beyond that. It's important to note that these programs do not replace anything we currently have, so they are all incremental. That’s what makes the programs exciting.

In one...

And then, of course, when you look on towards 2030, this is why we're so excited also about all the demonstrators that were on, winning that content. That's the picture we painted in the script as well.

Thanks for that one. At the Analyst Day last year, on PFT margins, you guys had targeted 380 basis points of margin expansion over the next few years. And I think, Max, you suddenly mentioned that you got 370 basis points of that in 2023. Can you talk about the major factors that led to you recognizing that margin improvement a lot earlier than planned? And then because I work on Wall Street, and it's what have you done for me lately, what the path is forward to improving those margins from here?

Okay.

Yes. The key elements will be our price cost discipline, which will undoubtedly play a significant role. We are focused on launching new products that offer higher margins compared to our previous offerings, especially in our faster-growing market segments. This will involve a combination of the strong margin profile of these new products along with the mix from those markets that support that margin. Additionally, as you may remember, we implemented a repositioning initiative a few years back, and we are now seeing the benefits of that as well. Looking ahead, we anticipate continued margin expansion linked to the high-growth markets we are targeting, driven by our new product development and maintained pricing discipline. To answer your question, those have historically been the main factors.

As we think about moving forward, Nathan, it's as opposed to just flat out margin improvement, it's accelerating growth. And that's where this team is focusing here and leveraging on that growth in that 35% range as we have historically, while we continue to deploy capital and grow inorganically as well. So that's going to be our key strategic focus as we move forward. The team is energized like never before. I mean the teams across Crane are having so much fun right now, not without some of the supply chain challenges and so forth, we've mentioned before. But just the excitement that we have post-separation, the new product development, where we're positioned, we're just having a lot of fun, and I'm so proud of our teams globally.

Thanks very much.

Super. Thank you. Wow, what a fantastic year in 2023, executing on our strategic separation and driving core execution on growth across Crane while delivering on shareholder value. Another great quarter and an exciting outlook for 2024. As I complete my 20th year with Crane and year 10 as CEO, I am incredibly proud of the portfolio transformation. Our entire team has driven over decades, higher growth, higher returns, and more predictable. And now that we are past the separation, we are energized in delivering continued acceleration of organic growth and further margin expansion, complemented by capital deployment on value-creating acquisitions. As the late, great Charlie Munger said, our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. We will continue to execute simply and logically as we move forward and as we continue to scale with our consistent focus on driving shareholder returns. Thank you all for your interest in Crane and your time and attention this morning. Have a great day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.