Max Mitchell: Yes. It is higher than our original target. As we continue to build out both teams and this is pros 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 and 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.
Damian Karas: Makes sense. Thanks a lot. Best of luck.
Max Mitchell: Thanks, Damian.
Rich Maue: Thanks, Damian.
Operator: Thank you. Our next question is coming from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.
Kristine Liwag: Hey, good morning, guys.
Max Mitchell: Hi, Kristine.
Rich Maue: Hi, Kristine. Good morning.
Kristine Liwag: 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.
Rich Maue: I thought, I had to try to be there and I was trying to sneak a sip in here and there. I couldn’t get it done.
Kristine Liwag: 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?
Max Mitchell: Sure.
Rich Maue: Well, as usual an easy question from Kristine.
Max Mitchell: Yes.
Kristine Liwag: I could have saved it for the Investor Day, but I was hoping to get a little impatient and get one off here.
Aaron Saak: Yes. Hey, well, first of all, Kristine, thanks for those really nice remarks. I appreciate that quite a bit. And I think you know the answer as you’ve said we’re really focused on telling the story at Investor Day and that’s where we’re going to be spending a lot of time outlining it. So let me frame it at least how I’m looking at it now to give you some conceptual model to think about how I’m seeing the business to some of the questions you’re talking about on compression, but also long-term value to the shareholders. So, I think in any business and I think Crane has done a fantastic job putting together assets that are very strong core businesses. And Max has always talked about how we’re starting the separation from a position of strength.
I think you can see with the fourth quarter results and where we stand on our cash balances, that’s absolutely true in margin profile of the businesses. And my observation is we have very strong healthy businesses with leading market positions mid to, in some cases, high single-digit growth or more in some of those businesses and very healthy backlogs that we’re going to execute on going forward in €˜23 and beyond. And obviously, as Max alluded to and with Matt’s question, lumpiness in this currency business in the U.S. government, but a wonderful long-term franchise that’s very valuable to us. So strong core business. We want to continue to drive the operational excellence. I can tell you, as I said in my prepared remarks, Kristine, that this is an outstanding culture for CBS execution.
And I see that, and we’re going to continue to have opportunities and productivity that’s going to lead to free cash flow generation. And as Rich said, that’s going to be roughly 100% that we’re going to put to work, first on growth. So, I think there’s opportunities in our core business. We talked about product authentication. That’s going to be a theme for us. And I think we feel very confident about that we have defensible moats around that business important technology that’s leverageable and one we’re going to continue to grow, both in the core currency business, but in new adjacent markets. I think you can also look to automation to the retail market where we’re seeing growth in automation of workflows for a whole host of reasons, both in retail, and you can see that in gaming, financial services, et cetera, that’s really aligned to secular tailwinds that we want to align in NXT too.
And then you can take that further to near adjacencies in our service business, as I alluded to. And fundamentally, technologies that we probably haven’t talked a lot about that are quite interesting and what our capabilities are in sensing — in sensing and harsh environments that are — where we do cash collection and validation. So, we’re really taking a strong effort looking at this for me, my leadership team over the last several weeks and months since I’ve been a board, we’re working with McKinsey to help formulate that strategy, and that’s obviously what we’re going to be talking about on March 9. And also, what we’re going to target in terms of M&A and the discipline around M&A. And I would encourage to look at this history, as Max alluded to, a disciplined M&A deployment, that’s a hallmark of Crane.
It will continue to be the hallmark of Crane NXT to use our free cash flow to go into markets where we have defensible positions and generate a return to our shareholders and is not speculative, that is not where we will take NXT. And our strategy is coming together that I’m really excited to talk about in March. So let me address the second part of your question on shareholder value and return to shareholders. I think, number one, we start with a growth strategy that we’re confident about, excited about, and we want to go execute. That’s really job one for us. Certainly, as Rich alluded to, we’re going to pay a competitive dividend along that journey. And we want to see that strategy play out. Certainly, over the course of time, we will always be open and look at our and re-evaluate our strategy and a good management team and company does that.
But I think priority one is go execute on the growth agenda. And I think we feel very confident. I’m more excited here by the week as I visit our businesses that we have a lot of potential, both in the core and in near adjacencies. So perhaps a little longer answer, Kristine, but I hope you can tell my excitement and look forward to going in deeper in March.
Max Mitchell: Well said.
