ESAB (ESAB) 1 May 242024 Q1 Earnings call transcript

Thank you for standing by, and welcome to the ESAB Corporation's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Mark Barbalato, ESAB's President of Investor Relations, you may begin your conference.

Thanks, operator. Welcome to ESAB's First Quarter 2024 Earnings Call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Kevin Johnson. filings that and the including are forth our mind making we those in release. in forward-looking earnings are subject SEC keep some statements of are set Please today's in to risks, Actual results not obligation law. except intend or statements, we update forward-looking required assume these any to as differ, may and do by

release those the and our accompanying reconciliation the respect any to today, in presentation. non-GAAP With slide found related today's financial measures to call earnings be measures press mentioned during can information

like that, to With the our President to I'd turn call and Kambeyanda. over CEO, Shyam

Mark, Thank us joining good you, Thank and morning, you all everyone. for today.

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equipment Moving to of our direction XXX by goals. to and for as basis our another the XX.X%. Sales forward record Notably, a of $XXX double and and what a anticipate our for We were welding Slide year. was remainder [indiscernible] products growth automation basis growth. sustained of X. lines, XXX demand within million sequentially. the solid quarter, organic points the high improved delivered our EBITDA digits XXXX expanded cobot triple in year-over-year fueled quarter of our our digits automation automation, points first Adjusted sales step record product team

business control specialty result business well. transition, demand gas period also industrial secular grew energy of with and Our tailwinds with while in continues to as a on strong our gas associated side medical the execute the

strength the footprint. was of quarter the of our aspect standout Another global

to our agreement unmatched Our Sager the pivotal extend completion high and buoyed our to less to products like serve announcement geographic into markets acquisition to sustained portfolio better growth higher-margin today's and markets. customers The of and Middle continues allows our propel of cyclical by strength end and East. acquire the demand India our SUMIG us from to continues

to expansion. the of continues EBX and quality on kaizens see was within for number and focus the opportunities pleased avenues rise I fresh Our business. uncover to margin

ESAB to a well we premier Furthermore, bond to our strengthen compounder. as our industrial balance executed successfully positioning sheet, deliver offering,

would without our of work associates. global focus achievements these the been possible hard of None have and

dedication their So thank goals. to moment and to a let for them take our me commitment

discuss progress to X shifting the made Slide product we've in to our mix. Moving

mentioned ESAB filler how a XXXX, the part both product of have growth improve metal I And business. filler transformation basis our continuing past, in in today, positioned ESAB line in we equipment highlights primarily This of As for sales slide by were globally. we metal XXXX, the and as points. Since in it's and share ESAB's grown to has our equipment equipment. XXX total

Now, on Dot to continue [ recently, construction new to see XXX to battery-powered receive a and but popular is back ] a most equipment products. accolades, prestigious this This and to To that new as first more possible our of journey I'm [ the is favorable the accolades we our move our is equipment from acknowledge what top products can ] Award. Red Rustler bolt, mechanics continue the gradual European Rogue mix. we received add, equipment

differentiate to We value continue rollout in and of will excited proposition ] well to our are invest new [indiscernible] year, several and customers. products to suite about products add [ with game-changing our the ESAB to as of as extension the FlowCloud which [ ], continue value this offering

were allows to talk SUMIG margin the customers Sager financial and made in maintenance underscore both in result, service less acquisitions compounder portfolio discipline at end our product create light Both extends X value line acquisitions. automation our about improves accretive our a higher-margin multiples. strategic Moving equipment our better our helps higher-margin are line for And and cyclical product Slide Americas. our ESAB acquisitions stakeholders. goals. strategy us our end market. acquired market ensure our to attractive to the long-term and into as to and our higher-growth commitment these our to acquisitions extends These and and repair

Our targets our positioned objectives. to billion and flow, cash growth strong a prospective free and with With M&A to in we're $X balance long-term to our these on well sheet XXXX over opportunities pipeline goals. supports capitalize strengthen continues achieve

talk Turning financial our about quarter first X to to Slide performance.

points expanding to sales reached record EBITDA $XXX first basis year-over-year first quarterly $XXX of of with XXX adjusted a also mentioned, quarter record million As a reaching XX.X%. quarter million,

East. with end India the continue be Our Middle resilient to markets and strength in

into to markets. In cyclical ESAB addition, less move end we higher-margin continue

X. declined, conditions XXX in Volumes was South reflecting to points, by price result organic January. a In weather FX Americas, Moving Slide sales points. strong America. our headwinds performance basis negative of year-over-year basis adverse by XXX the grew driven as of in

Our basis XXX adjusted on points expansion translated EBX focus [ continued impressive margins. ] in an initiatives EBITDA into

Our new products equipment continue to partners. with excitement generate customers channel and end

focused are end and We to being are in growth gas, is the simplification oil by initiatives in markets. end exposure we're capital and less strength seeing actively softness defense. This increasing now renewables our and markets. goods offset on Product cyclical

which our of highlights performance to and APAC X, Moving EMEA region. the Slide

and total basis basis points, volume execution margins. driven points. by Middle XXX fantastic performance Middle including markets. adjusted by EBITDA in [indiscernible] Another great in expansion that XXX a price initiatives, reflected sales growing grew XXX Asia performance points strong the strong EBX net by East with basis Europe, and management significant region's the India contributed and East, The to

strategic ESAB operational excellence, focus, Our coupled for with and growth continued positions value creation.

On over to that insights on it progress note, for our let high Slide Kevin me hand X. on further

a turns. continue Thanks, to morning. to We had replace Since offering ending term another had quarter support fund less we at launched than our bond X.X spoke, received and ] sheet $XXX with loan Good the use to [ flow. quarter and to With of acquisition, BB+. Shyam. investments we attractive growth first AX, credit rating good million ahead balance drive and was net bond we last strong our leverage we of of this strong are Sager cash expectations. delever of X.XX% the to priced free next acquisitions. and very BaX We our accelerate cash which flow, We in was [indiscernible] interest the which an and positioned year. We

We EBX on on our support AI continue goals. flow to to delivering cash leverage ever-improving XXXX

Slide to Moving #XX.

better outlook. $XX guidance QX million acquisition, Total sales performance XXXX offset the by the which and X.X our has updating from margin approximately growth reflect are of We point been Sager strong to reflects FX.

price year-over-year our incrementals improving product our X.X% of continues commercialization growth volume. $XXX making [indiscernible] million business equipment million have X.X% EBX organic are margins, to the includes guidance our and EBITDA mix are single-digit our expect to adjusted of on million innovative XX%. to to $XXX continue and This in increased support we with improve and our investment to our portfolio. to we low We new $XX of

$X.XX $X.XX adjusted interest improved Our expense. $X.XX to guidance lower profitability expected a reflecting and to EPS increased

at Our conversion track remains cash on XX%. flow

during guidance include the not second around of does half close signed sales XXXX. EBITDA is had Our months last the to of percentage. recently SUMIG during to XX accretive SUMIG the which ESAB's adjusted is and million expected acquisition, $XX

wrap to on Shyam back to XX Slide me that, up. With let hand

you, Thank solid a we're to off start to summarize, XXXX. Kevin. To

off kicked cash our generate operating using to to we've and result, raised year. expense the strong flow. find bar a the continues raise improve opportunities As for EBX our EPS margins, guidance to AI improve EBITDA flow. and as cash we We've continue to new reduce adjusted projects

on acquisition become Our and execute sheet our balance industrial is our to robust, funnel strategy us strong, to a compounder. is premier allowing

We our all ball delivering becoming stakeholders. on are billion the of for EBITDA goals moving enterprise, our a value XX% the $X creating XXXX process, significant forward in

let's With for open operator, questions. that, the line

from line Mig of Baird. [Operator Instructions] the Your first question from comes Dobre

I'd allow going I'm I to what one of on comments like and guess follow-up to is this afraid around, if time usage start I'm your the with AI. it. you violate one question

curious doing what this I'm be as business, obviously, to really And what the tangible effects going and operationally. going thinking your is mentioned AI, and something when you I'm not you're So thinking of several I'm that but to times, internally forward? are

Yes. from Mig, to good always you. hear

things start it gist in me of But around how you technology what companies think keep are give Obviously, us to with that and by we're how few there we'd we doing ESAB answering. a sort AI. like ourselves let about a particular and let of particular. me to helps So like

One business. buckets. growth the is it in of of operating see and sort side We excellence on our commercial second X is the

result, whether that is it Day, planning production a planning, had significant help bit, as can be cost of of your Investor I've material quite Something with a over investors AI in significantly and other talked processes, the one-on-one to advantage assisted create fact amount time. about we period a that that think be be it discussions I've planning long around a on whether by several

that that's about. So I've spoken actually one

ones openly, working of actually better efficiencies that And of well sales about drive And the but we the side will are those haven't couple that there's can spoken things a on. help that commercial do we're on things we personnel. that our as

That's interesting. that providers? solutions using yourself? a or customized you've Is Or are this you third-party of developed set

not answer. Yes. the ourselves short it developing We're is

solutions using are on working ESAB, outside providers yes. We and for

publicly to performance evaluating The and past peers, really I've you're out how your relative your this was your might question outgrowth. to able thing this stood quarter that from of know to a growth. your the kind asked traded that fourth And you've I what that I me what's quarter peers. been be in this the driving of in believe I outgrow some this row see

So maybe I'm you a and if talk APAC? and curious EMEA differentiate between can and that bit about little Americas

Yes.

First the executed as of the of the about engaged we both all, team's with QX, momentum things the hard of happy in took rest world. our the Americas around had performance, in teams and I in we that policy thought talk QX, that some the very deployment.

equipment second piece a and that several but something customers primarily bought was equipment. has marketplace, company. about that which have back filler as we our not spoken And into were The Today, get is fundamentally we've well, over X years And ESAB filler portfolio. these is building out last today, we metal our metals been changed. there our XXXX, as consumables, the in our that

amount we so tremendous excitement. a And see of

it on their with couple continue want to distributor make on that they a more, equipment ESAB weeks our side us excitement fact, with their there's to tell that significant shelf members, get and around was I you is what ago, their put customers. it do hear products our can of our amount portfolio. easier And and I do business we In of to to a to

And so particular reassurance exciting that an us was front. on that for

want. we that is primarily the So that our and channel our that #X want partners a portfolio works have fact customers today that

customers, sales We're is our standardized plan what aspect as been exactly in to of of share and down drive line simplification in share wallet South America. second the We're and the has region determine little process happy Middle around seeing customers, what we're Europe and aspect execution. and been key extraordinary. seeing has on be the gain to The their identify ahead their to planning. review North that really recent to with how product how We done that how needs it North to were East, looking using had journey. a we're a that bit the they EBX on we've of America our American I'm at sales

you performed business how what of Understood. on the control all expectations has XXXX? your and your for And kind in are quarter gas can comment at

there begin of Yes. big secular part ESAB. an of business. as We is love know, to sort obviously our that that The to differentiate great that opportunity industrial trends exposed believe the you Medical We to but use portion our of business, of to is continued of and strong saw of year. come last to gas. all the gas. comparisons view, off out strong, some of strong industrial stay some regions more around gas demand reasonable in spec We

acquisitions to was we that that also We've So strong. business well. year. mid-single funnel continue a digits to again this business as in in expect somewhere Margin perform great got for that expansion

continue we business compound to XXXX. that to So expect on in

point. Last

control something we're your relative fair not say to just kind when this, business that that's to is... the It's gas is the control you. to peers, looking at variance Just to gas is performance unique of clarify

No, no. actually... We

[indiscernible]

right. That's strong actually side gas side. We both on FABTECH right. performance That's very saw ] and control the

gas So automation commentary, I that equipment, saw Mig, in FABTECH would and filler gas growth with the and is range. of the and growth stable. control on fundamentally that in in on gas of side we think med saw good metal say side single-digit with we spec mentioned really And in very we of gas our low it I strong strength the similar staying briefly kind quite on then sort saying industrial side,

otherwise, that I good feel first about weather, I'd the And performance about team's really bit in the the the we thing but a talked other quarter. mentioned,

the line next Nathan from comes of from Your question Jones Stifel.

the pricing what's X% just that's the you little bit X in and America the recent Just X was there, base Can start in driving question pricing the follow-ups. a outside strong and details in down on give questions on talk to coming disparity the it's my differences about in? start I'll wanted I X%. pricing. you plus pricing Americas the can with amongst any whether disparity that, on cost in us regions. Obviously,

for you Always that you. Thank hear Nathan, Yes. from question, good to

a So into around products and just pricing of aspects X pricing, being market. We've aspects. talked new around the value couple coming first, about

talked then we PLS-led one initiative Second, And about inflation our third pricing. the around based. was

our So a are And we're America, for focused on rest focused positive. price and then us structure teams net the in the happening and Europe, to our price of on cost of and what so we inflation-based pricing. in piece what's seeing we're by doing that, world, bit a North we are are to determine net -- be both PLS situation the to

as loved And result and activity rest our both of expanded is and our the Americas so the world our discipline around regions process what in that in we the the margins about both have. a that shows of and pricing robustness of teams of that

expect remainder the in if of to you rest it on comment nicely for expect the And for Could world? whether stay to the be ] negative should on it headline you the positive number then what we of the [ pricing Americas? from should year, continue

Kevin. Yes, let give that to me

Yes, Nathan.

we'll this So price we've is deal, our and our overall we're for we'll do. the business, that net in monitor able price see prices as low point, At but continue single-digit as expectation market to react Shyam that shown happens anything to we'll to mentioned. the

the in go EMEA Americas the the that region. be stronger unless APAC through price year in there as would will a price expectation be Our we and

from Your line Tami from of next comes question the Zakaria JPMorgan.

the reported what to some welding want far. a so peers quarter organic considering revenue with do quite good growth, have I see of

So congrats on that.

actually are to So the questions my related acquisitions.

you and new and about -- repair automation? years? these what's And markets growth light addressable total how talked about as you to the automation question the would you market first think few the light next And Can maintenance end incremental these and is, really size position in also for the penetrate MRO both So over acquisitions these TAM. you these algo markets?

Yes. Yes. Thank you, Tami.

really our both with of the the pleased they of as sort to continue very are execute and We business thrilled performance world. the the in Americas and teams for rest

on. the In acquisition, terms spot you're of

greater in very find South the acquisition MRO which stable, America be gives better think profile. and to Sager the we less I to market, cyclical us margin exposure

of So space as a result into increases that expanding into space, this. sort our that not you're the it's exposure of

stable any the to through cyclical MRO We expect cycle space be the less and market. very of

So that's on piece the Sager.

On gets handling And the that's as have where the about robotics, lighter side, is about and sort billion. we market, standardized characteristics. market our we categories of process of we SUMIG in the especially particular intention we love line growing the and with light a deck, acquisition, put those of presence margin And side being equipment segments, We'll $XX in the market that's large $XX material profile our Americas less it that love automation, business. nothing automation. us. the has of Day obviously, growth are beachheads think, U.S. better remember Strong talked you're you're what on part And focused the we solution, if SUMIG on set. the that spot the we that of intensive. in that capital to automation also that the on, you had think some great Investor aspect the it's cobots, that solution billion And By

So that's helpful.

what of of X expect in from And size And so accretion what businesses kind trying Sager EBITDA now? of making these can my I'm EPS follow-up can X? expect? Basically, is, understand kind sales SUMIG type accretion we and and year are sort you of you to what

Kevin. ahead, Go Yes.

Yes.

generated the for into Sager, it already. closed built built $XX for of we haven't hasn't revenue revenue. yet. It's of it the guidance this Tami, $XX million million last expecting So it XX around guidance because SUMIG into around the Obviously, we've months, year. we're

year. second news it good their in give update build first both these year. some both that to accretive the accretive of be we guidance terms close both of into EBITDA in in expect will is of We XXXX. half and this closes, it the what EPS Once for we'll are acquisitions The

[Operator Instructions]

thank dialing there to quarterly forward you in for talking we If no on call. more next are questions, and you the look today, to

Thank your for participation. This conference call. concludes today's you

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