ESAB Corporation

Good morning and welcome to the ESOB third 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 Barbalotto, Vice President of Investor Relations. You may begin your conference.

Thanks, operator. Welcome to ESAB's third quarter 2023 earnings call. This morning, I'm joined by our president and CEO, Shyam Kambayanda, 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 Kambayanda.

Thank you, Mark. Good morning, everyone. Thank you all for joining us today. ESOP achieved record results for the third quarter. Our team delivered strong year-over-year organic growth, margin expansion, and free cash flow. Before getting into the slides, let me make a few comments. First, let me appreciate and thank our dedicated associates for their commitment and hard work. Their efforts are driving us closer to our long-term goals. Second, our markets continue to be resilient, benefiting from favorable macro trends. The third quarter also underscored the strength of our global franchise. Our European team, in particular, excelled in the quarter, identifying opportunities to sell our new products and gain market share. During this period, I also had the privilege to travel and meet with our teams in the Asia Pacific and Middle East regions. It's always inspiring to be with our regional teams, and I was reassured by the remarkable progress we've made in both regions. Our teams continue to execute our EBX playbook, which has resulted in organic growth, margin expansion, and cash flow improvements. Both regions added new customers to our equipment and automation portfolio. It is a testament to our exceptional ground game that is difficult to replicate, and their hard work and excellence are evident in our results. In September, we had two of our biggest industry events, Essen and Fabtech, where we unveiled ESAB's innovative equipment and automation solutions, generating tremendous interest amongst our end users and sparking excitement among our valued customers. Since 2016, in Fabtech, we have systematically revitalized our equipment portfolio by bridging product gaps and fortifying our distribution networks while simultaneously creating a global presence in global gas control products and solutions. Fourth, we continue to ramp up the use of EBX business system. During the third quarter, we completed several Kaizens, including our presence Kaizen at our Denton facility as part of our product line simplification initiative. For this Kaizen, our teams mapped out product families, created plans to eliminate low volume SKUs, and align customers with similar SKUs to enhance customer value while reducing complexity. We are already seeing the positive impact of this Kaizen that has allowed us to increase on-time shipments, improve customer satisfaction, and expand margins. Last, as a result of our record third quarter performance and a good start to Q4, we're raising our guidance for the year. Turning to slide three. we delivered outstanding third quarter results. Total sales grew 12%, with our organic sales growing an impressive 700 basis points. We continue to experience resilient end markets in both geographies, with EMEA and APAC leading the way. Our innovative new products continue to experience robust demand, and we're on track to achieve our goal of increasing our equipment mix to 35% of sales. Profits also reflect a strong quarter with adjusted EBITDA margins expanding by 170 basis points. Our EBX initiative, including product line simplification, continue to enhance our operational efficiency and cash flow generation. Moving to slide four. In the past, I've discussed how we're positioning ESAB for the future. ESAB has always had a leading consumables franchise. When I started in 2016, Equipment represented only 26% of our sales. Our strategy was to refresh our equipment portfolio, fill product gaps, and extend our leadership in gas control equipment while protecting our consumables franchise. I'm proud to say we have made great progress on our equipment offering and have successfully filled our product gaps. Last month, we showcased products like the Volt, the digitally enabled Warrior Edge, and our newly digitally connected cobot at Fabtech and Essentrade shows, generating significant interest and excitement. We are making substantial investments in marketing, advertising, and sales training to leverage our new product offering. These innovations are beginning to bear fruit, with equipment and automation sales seeing high single-digit growth, cobot sales increasing by triple digits compared to last year, And additionally, our Ohio acquisition has been successful in selling our GCE gas control products like Medivital Valves, further enhancing our position in the North American gas control market. All in all, strong progress as we continue to shape ESA into a premier narrowly diversified industrial company. Moving to slide five, our financial performance. Sales for the quarter reached a record $644 million, representing 12% total growth. Our end markets continue to perform better than expected, displaying resilience. Our acquisitions continue to outperform. EBITDA margins expanded by 170 basis points, reaching a record 18.3. Turning to slide six. The Americas regions performed as expected during the quarter. Total sales increased by 9%, Organic sales increased by 400 basis points year over year, and acquisitions added an additional 500 basis points of growth. Excluding our product line simplification initiative, volumes grew low single digits. Our new products and solutions for the distribution channel, automation, and robotics are expanding our growth opportunities. Our gas control business also continued to perform well. EBX and our new product launches played a significant role in driving a 220 basis points margin expansion in the quarter. Turning to slide seven, our EMEA and APAC segment posted an outstanding quarter, with total sales growing by 14%. Organic sales increased by 900 basis points year over year, and acquisitions added 200 basis points of growth. Europe continues to demonstrate resilience and the Middle East and India markets are showing notable strength. A strong showing at Essen drove sales volumes higher by $4 million in September. EBITDA margins in the region expanded by 130 basis points. The team is effectively utilizing EVX and a client simplification initiative to stimulate growth and expand margins. On that positive note, let me hand it over to Kevin for slide eight.