Operator: Thank you. Our next questions come from the line of Bob Labick with CJS Securities. Please proceed with your questions.
Bob Labick: Good morning and congratulations on a great year and quarter.
Aaron Saak: Thanks, Bob.
Christina Cristiano: Thank you.
Bob Labick: Yes. I wanted to just follow-up on I guess your last comment there Aaron because you mentioned visibility in gaming. Could you just talk about — I feel like CPI has played out exactly as you’ve said to this point and obviously coming down off of higher backlogs from COVID supply chain disruptions and whatnot. So, maybe just talk about your relationships in gaming and in retail and the visibility that you have to the underlying demand and the inventory corrections and that gives you the confidence that we should see resumed growth in the back half of this year.
Aaron Saak: Sure Bob. In gaming, why don’t I, again, break these down, as you’ve asked the question market-by-market, because there are some important differences? Gaming, again, I’d say from a forecast perspective or an outlook, we believe this is appropriately risk-adjusted again, so that we can continue to do exactly what we say we’re going to do each quarter and through the course of 2024. I want to bring it back at least to the gaming market, which is an important part here of our thesis, which is, it’s very healthy. Casinos continue to be healthy and our OEM customers continue to be healthy. We see this as a market that’s growing even in 2024, anywhere between low-single-digit to mid-single-digit plus, highly dependent on the geography.
And of course, we service a global market. So, that gives us a lot of confidence that this underlying market is healthy, and we see that in both again, the casinos all the way through the OEMs. Now, we’ve also done a lot of channel checking, Bob, as you can imagine, and we are very confident we’re maintaining strong market share, both in our hardware, software and services offering. Just as a reminder, we had a major competitor that lacked certifications and was largely out of this market in 2022 and for a good part of 2023. They’re back in the market, but I think as a testament to our team at CPI, we gained market share through this period. And so, we have a very sticky customer base and a higher set of installations on the floors of these casinos.
So again, we feel confident in our market position. Now when it gets into the visibility to our customers’ inventory, we spent a lot of work here, both in December and January, reassessing as we exited the year and as customers have started the new year, on what their order forecasts are going to be. We sell the vast majority of our equipment through OEMs. And there’s only a few OEMs globally at scale. So, it’s a short list of customers that we have very close relationships with. And that allows us to get very deep into their inventory levels, customer-by-customer. And that’s where I’d say on average, we see six months of inventory above the normal holding that they would ascribe to. So again, I think we have a very good visibility into that, and knowing their order rates and their forecast for the year, how they’re going to draw down that inventory, that’s what gives us confidence that we’re going to see a return to order rates as we get into Q4 and exit the year back in a mid-single-digit growth dynamic in gaming.
So Bob, I’ll pause there on gaming and then I’m happy to talk Retail as well.
Bob Labick: Yes. Perfect.
Aaron Saak: Yes, let me go to that. I think Retail is a different market, but a dynamic where we’re seeing improvements as we exited last year and as we’re already starting off here in 2024. Again, I’d go back to the thesis on the underlying market, which we see is very healthy, driven by our customers needing increased automation and still battling issues with labor scarcity. And so, we don’t think those change in the next months or years ahead, and that gives a tailwind to this market. And when you put that in context right, 2023 had a few items that are not repeatable that we expect will play out in 2024. It starts with our OEM business, which was softer than we expected in 2023. But remember, some of these OEMs were going through their own transitions, very significant transitions in 2023, managing cost and inventory.
And we see improvement already in that OEM business as we start 2024 and it’s meeting our expectations. We also saw some pushout of projects in the second half and in discussions with customers, we believe and have confidence those are going to be coming back in 2024. So I think a different dynamic for us in the retail market in 2024 and already meeting our expectations as we start the year and that gives us confidence in this outlook.
Bob Labick: Okay. Super. Thank you. And then shifting gears and jumping over to currency. Just you gave us good color on how this year is going to play out. But maybe just in general, if you could talk about, because you kind of have this decade of visibility, how does the rollout of the catalyst series play out for you? What will the cycle there be like shutdown — when do revenues benefit from the enhanced security or whatever we think it’s going to be and shut down every year then boost in revenue. Has it become a little bit more cyclical as it comes out? How should we think about it?
Aaron Saak: Yeah. Thanks, Bob. I think we’re on the early stages here of this. As you said, it’s a decade-plus program, right? It’s going to take 10 years just to launch the new bills. But we’ve been already actively working on it, as you know with the BEP. So 2024 has this again very well planned set of shutdowns that we’ve been planning for with the BEP for well over a year. We’re in the middle of one now and we’ll institute the next one at the end of the fourth quarter again, just to allow both us and the BEP time to make their necessary upgrades and our upgrades, qualify the new product coming off of that papermaking equipment. And of course, in Q2 through 3Q, produce the product that they need to satisfy their demand. So that’s going as expected on track on target on budget.
What that means for 2024 as I alluded to earlier is, a headwind particularly in the first half of the year and that will moderate. And then again, we’ll have a shutdown likely in the latter part of Q4. We don’t really see the benefit then Bob of the new series, until we get into production, full production of that product. And that first one is the $10 that goes into public circulation sometime in 2026. So I think I would frame it and model it as we start to see assuming again, increased technology density on those bills and uplift in margins that starts to occur more in the 2026 time frame. Again, we can’t and we’re in no position now to announce any significant announcements on the design of the currency. That’s left to the US Department of Treasury to make those announcements and they’ll do that at the appropriate time.
But I think if you go back to that slide that I referenced earlier in the presentation, today only the US $100 bill has our leading micro-optics technology and we believe that’s an opportunity as each of these new bills gets introduced to increase generally all types of new technology on the US government notes. And so, I wouldn’t think that this is modeled then episodically, as I think the term you used, but more continuously as new bills get released, we naturally mix up the business starting in 2026 through 2034.
Operator: Thank you. Our next questions come from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.
Isaac Sellhausen: Hey, good morning. This is Isaac Sellhausen on for Ian. Thanks for taking our questions. The first is on CPI and the guidance. I’m not sure how detailed you can get. But maybe if you could just talk about CPI, core sales growth and what guidance assumes as far as volume and price mix? And then, maybe just a broader discussion on pricing in general and how you think about that through the year?
Christina Cristiano: Yeah. Well, I’ll just start at the end of your question in terms of pricing. Our teams do such a great job here Isaac. And we are continuing to more than offset costs with pricing. And that’s really just based on our great business system, Crane business system and the operating discipline that our teams have. So, really great job there and we expect that to continue. In terms of the CPI Verticals, just looking ahead in our guidance, we’re assuming mid-single-digit growth in all the verticals outside of gaming. So as Aaron said, the underlying markets are healthy. And we’re expecting to see continued strength. We have some tough comparisons in some of the markets, but overall feeling very confident. And gaming, as we said by Q4 should return to mid-single-digit growth once our major OEM customers primarily work through their inventory levels which we expect to start happening in Q2.
Isaac Sellhausen: Okay. Great. And then just as a follow-up on currency. Could you touch on the product authentication business and maybe trends you’re seeing within that market. You mentioned the M&A sales pipeline and have previously expressed interest in expanding within product authentication, so, maybe any higher-level comments on potential M&A targets? Thanks.
Aaron Saak: Yeah. Thanks, Isaac. I really appreciate that question. So we continue to be very optimistic and confident in the position we have in product authentication. We see that as a market in general, that’s growing at mid-single-digit plus. And it’s very global in its growth rate. And we think those core drivers of the need for more anti-counterfeiting protection whether that’s in Physical products or Digital products will continue for the foreseeable future. I think that’s as we’d say a pretty straightforward got to believe, in this market. In terms of our own business, again, we continue to win new accounts leading with our Micro-Optics Technology. But with that said, and to the question you raised, we really see M&A in this area as an accelerator of our strategy where we can leverage our very strong technology leadership in the Physical products with other capabilities that grow Crane NXT.
