ESAB Corporation

Good morning and welcome to the ESOB first quarter 2023 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'd 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 at ESOB. You may begin your conference.

Thanks, operator. Welcome to ESOP's first quarter 2023 earnings call. This morning, I'm joined by our president and CEO, Shyam Kambianda, 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 Kambianda.

Thank you, Mark. Good morning, everyone. Thank you all for joining us today. The ESOP team has been busy. More importantly, we've been impactful and have made meaningful progress towards accomplishing our strategic goals. I'm very proud of our team's effort and focus. Our EBX business system continues to drive innovation, margin expansion, and higher cash flow. I've actually been out visiting several of our sites and recently had a chance to visit Gothenburg, Sweden, and Chennai, India to meet with our engineering teams. I was delighted to see our truly global innovation process at work and the new products we expect to launch in the coming quarters. In Q1, we published our first sustainability report where we highlighted our activities and governance practices. I'm pleased with our design efforts to make our products more sustainable and the continued positive community involvement of our associates globally. I'm looking forward to sharing more about our ESG initiatives during our investor day. Moving to slide three to talk specifically about the first quarter. We had another quarter of strong performance that exceeded expectations. Organic sales in the first quarter rose 7% driven by robust demand in our APAC Middle East and Europe regions and solid performance from the Americas. Adjusted EBITDA was up 12% and margins expanded 80 basis points to 17.4 as our EBX initiatives push margins up and improve working capital. We're pleased with the performance of our new acquisitions. The teams continue to make great strides in integrating and finding synergies for growth and margin expansion. In a few weeks, I'll visit our newest acquisitions, Therapy and Swiftcut, for their 100-day EBX review. At this meeting, we do a deep dive into the business to review progress on synergies and resolve any roadblocks. We're off to a good start this year, and I'm pleased that the positive momentum in our end markets has continued into the second quarter. As a result, we have raised our full year guidance. Kevin will share more on this later. Turning to slide four, we've been on a journey to reshape ESOP into a less cyclical, faster growing, better margin enterprise. And this slide shows our progress towards a higher mix of equipment sales that accelerates achieving this objective. Let me share how we have advanced this strategy. First, through open innovation. We've developed a complete line of light industrial equipment like Rogue, Rebel, Renegade, and have begun to introduce our new heavy duty line of products like the Warrior Edge, Fabricator, and Robust Feed. And as you know, we've always protected our R&D spend. Second, acquisitions into robotic torches, automated welding and cutting, and our digital solutions portfolio, which we call Indosuite. And last, we have strengthened our gas equipment portfolio with the 2018 acquisition of GCE. Victor Products and GCE established leadership gas equipment positions for ESOP in North America and Europe. In the last 12 months, we've expanded this business into more profitable end markets, with the additions of Ohio and therapy equipment. We're confident that this strategy is shifting ESAB into a higher profit mix, allowing us to sustainably expand our EBITDA margins to greater than 20%. Moving to slide five, our industry is facing a weather shortage, increased safety requirements, and the need to reduce total cost of ownership. At ESAB, we have a robust EBS stage gate process for product development, that includes significant time spent gathering the voice of our customers to understand their unmet needs. To solve these broader industry issues, ESOP designed our cobot solution with three important characteristics. One, open architecture. Two, digital workflow solution that we call Indosuite. And three, the ease of use where one can be trained on our cobot in a matter of hours. I'm encouraged by the funnel our teams have generated. is just the start, and I look forward to sharing more in the coming quarters. Turning to slide six, we continue to drive EBX and LEAN initiatives throughout our facilities. Our continuous improvement initiatives free up manufacturing floor space, which helps with future rooftop reductions and solves any issues we face within our business. In this specific example, we solved a past due problem and freed up manufacturing space to grow and help consolidate rooftops within ESAB. Through 5S value stream mapping, we were able to merge production cells to free up 2,500 square feet of manufacturing space and reduce past dues at this facility by 64%. Really pleased with our manufacturing teams and their engagement with lean principles, In fact, we now have a lean competition underway, which is recognizing hard work of our teams and delivering results to the business. Turning to slide seven and our financials. First quarter sales grew 7% organically. Our markets continue to perform as expected and remain resilient. APAC, Middle East, and Europe continue to show strength, while the Americas have performed in line with expectations. Acquisitions added another 300 basis points of growth. Strong price coupled with cost savings helped offset inflation and currency headwinds in the quarter. EBITDA expanded 80 basis points year-over-year to 17.4. Moving to slide eight, America's had a solid quarter and continues to perform in line with our expectations. Sales rose 5% organically as the team executes on price, and acquisitions added 500 basis points of growth. We've accelerated our product line rationalization initiative to drive margins and operational efficiency. As a result, adjusted EBITDA increased 12% and margins expanded 80 basis points to 17%. Turning to slide nine, another strong quarter for EMEA and APAC segments. First quarter sales increased 9% organically, reflecting five points of price and four points of volume. Acquisitions added 200 basis points of growth, And we continue to experience strong demand in two regions, APAC in the Middle East, with both regions continuing to benefit from strong investment in infrastructure, renewable energy, and oil and gas. As mentioned before, the European market continues to be resilient. Adjusted EBITDA improved by 13%, and margins expanded 80 basis points year-over-year to 17.8, reflecting strong execution by the team. With that, let me turn it over to Kevin for slide 10.