ESAB Corporation

Good morning and welcome to the ESOB second quarter 2023 earnings release and 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 Barbellotto, Vice President of Investor Relations. You may begin your conference.

Thanks, operator. Welcome to ESAB's second 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, and thank you all for joining us today. I'm very proud of the ESOP team. Our first half results are a testament of our team's focus on executing our strategic vision. These efforts have yielded expected results and strengthened our conviction in our strategy. We're creating a narrowly diversified premier industrial that is less cyclical, focused on growth, expanding margins, and delivering impressive cash flow. One of the key drivers of our success has been harnessing the transformative power of EBX, which has propelled ESAB to new heights of efficiency and effectiveness. Our commitment to streamlining our product line has not only fueled growth, but also boosted profitability. In addition, our Kaizen activities at manufacturing sites continue to improve our productivity and create opportunities to consolidate our footprint. But that's not all. We're making significant progress on our ESG journey. Workplace safety is a top priority, and our team's efforts have yielded excellent results. We are equally dedicated to making a positive impact in our communities. Lastly, we've entered into partnerships to accelerate our commitment to green energy, and the possibilities ahead are truly exciting. Moving to slide three, to talk about the second quarter in particular. ESAB achieved record sales and margins, reflecting the dedication and hard work of our global teams. Total sales grew 8%, and organic sales in the second quarter rose an impressive 600 basis points, driven by robust demand and solid execution by both regions. I was happy to see our automation business grow above 20%, an indication of our innovative solutions. Adjusted EBITDA margins expanded 200 basis points to 18.6%. Our EBX initiatives have improved our operational efficiency, and cash flow generation. As a result of our positive momentum and strong performance, we're raising our full year 2023 guidance. Turning to slide four. Let me share a bit more on how we're shaping ESAB into a narrowly diversified premier industrial company. We have strategically built our gas control business into a global leader, complementing our fab tech business. With the recent acquisitions of Ohio and Therapy Equipment, our gas control business is now around 450 million in revenue, with gross margins greater than 40%. We are in our early innings. We see plenty of potential to grow this business and expand margins over the coming years. Second, we've been shaping our automation business into a less cyclical, faster-growing, process-focused, and higher-margin product line. As I've mentioned before, automation today is approximately 10% of ESOP's revenue. In the second quarter, we saw 23% growth in our automation business. Automation, along with our digital solutions and our cobot solutions, have been met with great enthusiasm at our customers. As a result, we anticipate double-digit growth in our automation business over the next few years as customers reshore and address the ongoing shortage of skilled welders. Today, gas control and automation contribute 26% of ESOP's total sales. This percentage will continue to increase in the years ahead. Moving to slide five and sharing a bit more on our automation strategy. We're focused on creating a differentiated automation business. Over the last few years, we've been on a journey collaborating with integrators, acquiring companies that give us an edge in programming and data management. As a result, allowing ESOP to provide our customers with a complete workflow process solution. Today, I'm pleased that these initiatives and acquisitions have started to yield dividends reflected in our strong growth we experienced in the second quarter. Talking specifically about our cobot solution, our customers love the fact that our solution is easy to use, reduces programming time. In fact, with our solution, one can use their smartphone or smart tablet to program the robotic arm. Additionally, ESAB has the capability to provide real-time analytics, providing customers with a unique value proposition. Our offering has been a game-changer for customers looking to simplify programming and boost their shop floor productivity. Our co-bought product line saw triple-digit percentage sales growth in the second quarter. There's more to come in the years ahead. Turning to slide six, in the second quarter, I had a chance to visit our Czech manufacturing sites. It is clear our teams in Bamberg and Sjöderborg have taken lean activities up a notch. The teams have done a fantastic job of connecting capital investment and lean activities to deliver a step function improvement in efficiency and productivity. What was more impressive was the list of ideas of additional improvements at our sites. Talking specifically about our Kaizens in the second quarter, we saw 51 Kaizens completed globally. The example on the right of the slide is our healthcare valve line in Shorterball. We automated our click washer production line using a cobot. This Kaizen delivered 30% improvement in throughput, a 40% reduction in lubricant usage, also an important ESG initiative for us, and most importantly, created a reliable, repeatable process ensuring quality to our customers while also enhancing safety of our associates. Moving to slide seven and briefly updating you on our ESG efforts. I'm particularly proud of our health and safety efforts. The second quarter's total recordable incident rate was a remarkable 0.33, surpassing industry benchmarks. Our commitment to giving back to our communities is steadfast. Recently, we collaborated with our customer, Northern Tools, to donate ESOP equipment to a trade school training the next generation of welders. And on my visit to our Hanover, Pennsylvania plant, I was able to drive by the local Little League baseball fields where the scoreboard is now sponsored by ESOP. These are small contributions, but they are creating a great sense of pride and belonging for our teams in the communities we live in. Lastly, our partnership with GRI Renewable Industries. This highlights our focus on green energy projects and deepens our commitment to shaping a better world together. Turning to slide eight and our financial performance. Sales for the quarter was $680 million, up 8% in total. Organic sales grew 600 basis points. Our end markets continue to perform as expected and remain resilient. Acquisitions added 300 basis points of growth and are performing better than expected. Adjusted EBITDA margins expanded 200 basis points and reached a record 18.6%. I would like to point out that we modestly benefited from 2 million of growth investment being pushed into the third quarter. All in all, a fantastic quarter for ESAB in which we delivered record sales and profit. Moving to slide nine, another solid quarter for America's region. They continue to perform in line with our expectations. Total sales grew 7% and organic sales was up 400 basis points. Acquisitions added another 500 basis points of growth. The region continues to drive our product line simplification strategy, excluding our PLS related activities volume grew low single digits. We continue our progress on changing the mix of our business. At the core of our success is our commitment to innovation. The team's relentless efforts have brought new products and solutions like the battery-powered wall and the Warrior Edge heavy industrial product for automation and robotics, creating additional growth opportunities. Turning to slide 10, another impressive quarter for our EMEA and APAC regions, with total sales growing 9%, organic sales up 700 basis points, and acquisitions adding 200 basis points of growth. We continue to see a resilient end market void by investment in renewable energy, agriculture, infrastructure, and oil and gas, liquefied natural gas in particular. I'm very proud of our team in Europe, Middle East, Africa, and Asia. They are using EBX and our product line simplification initiative to drive growth and expand margins. Our team in Europe has enhanced our product line simplification process and have identified a unique way to stratify target growth customers. Adjusted EBITDA in the region expanded 180 basis points to a record 18.4. On that high note, let me hand it over to Kevin to talk about slide 11.