ESAB Corporation

Good morning and welcome to the Aesop fourth quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. Mark Barbalotto, Vice President of Investor Relations. you may begin your conference.

Thanks, operator. Welcome to ESAB's fourth quarter 2022 earnings call. This morning, I'm joined by our president and CEO, Sean Cambionda, and CFO, Kevin Johnson. Please keep in mind that some of the statements we are making are forward-looking and are subject to risks, including those set forth in our SEC filings and today's earnings release. Actual results may differ, and we do not assume any obligation or intend to update these forward-looking statements except as required by law. With respect to any non-GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our President and CEO, Shyam Kambyanda.

Thank you, Mark. Good morning, everyone, and thank you all for joining us today. 2022 was the beginning of a new era in ESAB's 118 year rich history. We had a strong finish to 2022 and are entering 2023 with positive momentum as we continue to shape ESOP for the future. Let me take a moment to highlight a few accomplishments. We successfully launched as an independent company. We are well positioned to compound value for our shareholders. We again demonstrated our innovation leadership by introducing several exciting new products like Renegade Bolt, battery-powered welder, and our new heavy industrial product, the Warrior Edge. We took our business system, EBX, up a notch. Our EBX process helped drive price and working capital improvements in a challenging environment. Our strengthened balance sheet and robust cash flow funded three acquisitions that moved our strategy forward. We continue our progress on ESG initiatives, and I'll share more on this later. Before I highlight the fourth quarter, let me take a moment to acknowledge the hard work and commitment of our associates. They embody our purpose and values and have been relentless in their focus on our customers and key stakeholders. Moving to slide three and our performance in the fourth quarter. As I said before, we had a strong finish to 2022. Organic sales increased 11%, Adjusted EBITDA rose 10% and margins expanded to 17.4% as our EBX initiative drove margin and working capital improvement. We made two acquisitions in the fourth quarter that further strengthened our enterprise, shaping ESOP towards higher growth, lower cyclicality, higher margins, and higher cash flow. Moving to slide four, we met all of our key financial metrics, reflecting strong execution despite the challenging operating environment. Full-year organic revenue grew 13%. All of our regions contributed to our growth. India and the Middle East were standout performers. We achieved $470 million of EBITDA, which was $7 million higher than the midpoint of our guidance. And we delivered $4.21 of EPS, which was $0.16 higher than the midpoint of our guidance. To appreciate the team's EBITDA performance, I would like to highlight that we absorbed approximately 10 million of unfavorable currency pressure, or roughly 12 cents a share compared to our original guidance. And on free cash flow, we generated 219 million of cash with a strong finish in the fourth quarter. The key takeaway on the slide is ESOP delivered on all of its commitments. And we're on a clear continuous improvement path towards our long-term strategic goals of 20% EBITDA and 100% free cash flow conversion. Moving to slide five, over the last six years, we worked hard to reshape our company. And with the recent acquisitions of SwiftCut and Therapy Gas Equipment, we continue our journey to compound value. Therapy Gas Equipment strengthened our gas control business by broadening our product offering and extending our geographic reach. Like our Ohio medical acquisition, therapy equipment is immediately accretive to our margins. SwiftCut is a leader in light industrial automated cutting and provides us with an opportunity to extend our process leadership as well as grow our aftermarket. Additionally, there's an opportunity to accelerate growth and expand margins by plugging in SwiftCut's innovative products and solutions into our global distribution network. Turning to slide six, let me share an example of EBX at work. We're all aware of the supply chain issues at the start of 2022. We felt this was a perfect situation to use our powerful EBX tools to drive improvement. We used product line simplification, AI forecasting, enhanced standard work, improved shop floor gamba, and glass boards to systematically optimize and improve our inventory levels. As the chart indicates, we were able to reduce inventory by 60 million over the course of the second half of 2022. In 2023, expect us to raise the bar and continue to reduce our inventory days. Moving to our fourth quarter financials on slide seven. As I mentioned before, fourth quarter sales grew 11% organically. Our markets remained resilient with particular strength in our emerging markets. Acquisitions added two points of growth and are performing as expected. Our integration and synergy plans are off to a good start. I recently had the opportunity to visit with our team at Ohio Medical for our 100-day integration plan review. This includes implementation of our strategic vision as a global leader in gas control equipment, as well as leveraging EBX across the business to drive growth, margins, and cash flow. It was evident that there was great energy in the room Ohio Medical has fit right in, and the team is excited about our future opportunities together. Similarly, I'll be visiting both SwiftCut and Therapy Equipment for their 100-day reviews in the second quarter. Continuing with the impact of EBX, we're pushing price to offset inflation, and our cadence of innovative new product introductions are driving excitement within our sales team and our customers. I'm encouraged by the strength of our sales funnels and the activities that will drive both an increased share of wallet as well as bring new customers to ESOP. Strong price and cost-saving execution help offset both inflation and currency headwinds in the quarter. As a result, EBITDA margins expanded 40 basis points year-over-year and 80 basis points sequentially. Moving to slide eight, Americas had a solid quarter and performed as expected. Sales rose 5% organically as the team executed on price. Volume in the Americas reflected a tough year-over-year comparison. We made strong progress on penetrating new channels, accelerating our product line rationalization, and improving our operational efficiency. Acquisitions added four points of growth. As a result, adjusted EBITDA increased 9%. Margins expanded by 20 basis points and 100 basis points on a sequential basis. Turning to slide nine. and our EMEA and APAC segments. They had a strong quarter again. Our fourth quarter sales rose 15% organically, reflecting eight points of price and seven points of volume. Acquisitions added another 100 basis points. We saw particular strength in India and the Middle East. In the quarter, both regions made significant progress on equipment, digital solutions, and automation sales. Adjusted EBITDA improved 10%. Margins expanded 60 basis points year over year, reflecting strong execution, and despite being impacted by a strong U.S. dollar. With that, let me turn it over to Kevin for slide 10.