ESAB Corporation

Thank you for standing by and welcome to the ESOP second quarter 2025 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. I would now like to turn the call over to Mark Barbalato, Vice President of Investor Relations, you may begin.

Thanks, Operator. Welcome to ESOP's second quarter 2025 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 Kambianda.

Thank you, Mark, and good morning, everyone. Thank you for joining us today. Before we begin, I want to express my appreciation to our teams around the world for their unwavering commitment to our customers, to EBX, to the discipline execution of our long-term strategy. Despite operating in a challenging market environment, we delivered another quarter of strong results with record margins, a clear reflection of the resilience of our model and the dedication of our teams. During the quarter, I had the opportunity to go to Gemba and visit several of our recent acquisitions. I'm excited about the capabilities and competencies that these businesses bring to ESA. I also visited teams in Gothenburg and Shanghai. It's always energizing to meet with our teams in the field to listen, learn, and witness firsthand the passion and execution that drive our success. Amid this dynamic environment, our teams remain laser focused on the fundamentals. disciplined cost control, elevating the customer experience, and sharpening our go-to-market differentiation. These priorities are paying off, and it's clear that ESOP continues to stand out as a world-class franchise, positioned to benefit from long-term structural tailwinds, particularly across Asia and Europe. In EMEA and APAC, the performance this quarter was strong. This momentum is a direct result of our team's ability to execute the EBX growth playbook with precision, driving organic growth, and capturing broad-based share gains across our markets. Turning to the Americas, a few dynamics are worth calling out. Tariff-related uncertainty introduced unexpected volume headwinds, particularly impacting our local customers in Mexico. And we saw some automation orders delayed, with demand now expected to shift into the second half of the year. That said, the underlying health of the business remains strong. Our pipeline of opportunities is robust, and our teams are focused on delivering. Encouragingly, we began to see signs of improved market conditions in North America in July, an early but positive indicator as we move deeper into the second half. Despite the short-term headwinds, our teams delivered total sales growth of 2% and achieved record adjusted EBITDA margins of 20.4%. This performance speaks to the resiliency and strength of our operating model and the consistent focus execution by our teams, even under pressure. In parallel, we continue to make meaningful strides on our compounder journey. Since our last update, we have successfully completed two gas control acquisitions, Delta P and Active, and signed EWM, which accelerates our heavy industrial product roadmap and expands our equipment capabilities. Given our confidence in the strength of our equipment portfolio, the momentum in our gas control business, improving market conditions in North America, and the continued resilience in our high growth markets, all underpinned by EBX, we have raised our full year guidance. Moving to slide four. Before we go into detail about our performance and recent acquisitions, let me share another initiative that highlights our passion for our industry. At ESAB, we believe that investing in talent is a strategic priority to ensure the long-term success of our business and the future of the fabrication technology industry. The Flame Internship Program, originally launched in Brazil, represents a global initiative designed to give college students immersive hands-on experience working within industrial companies like ours. This initiative spans across every functional area from engineering, operations, to marketing, finance, supply chain, and now digital innovation. The program is energizing not only for our interns who gain vital exposure to real-world challenges and sharpen their skills, but also for our local teams who benefit from fresh perspectives and enthusiasm that these young professionals bring. It has become a catalyst for learning, collaboration, mentorship across our organization. Beyond its near-term impact, The flame internship program is an intentional investment in building robust talent pipeline for the fabrication technology sector by accelerating professional growth and fostering leadership potential for shaping the next generation of leaders for our industry. Turning to slide five to talk about the quarter and give you more color around our performance by geography. As this slide illustrates, ESOP continues to benefit significantly from our unmatched global footprint. Our balanced presence across Americas, EMEA, and APAC not only provides resilience in the face of regional volatility, but it also positions us to capitalize on growth opportunities wherever they may arise. Our business outside North America continues to build on its strength. Europe remains steady, and we're well positioned to benefit from EU stimulus measures already in motion. The Bavaria acquisition is off to a strong start, further strengthening our regional capabilities. In the Middle East, we delivered double-digit growth, a clear evidence of their diversification strategy and investment. India also remains a standout, growing at high single digits with our leadership position and strong local presence. We're confident in our capability to capture an outsized share of both public infrastructure investment and private sector growth over the next decade. In China and Southeast Asia, the business grew mid-single digits, supported by increased capital expenditure and ongoing LNG investments in China. Meanwhile, Australia and New Zealand delivered solid performance in the quarter, and we remain optimistic about the outlook for the rest of 2025. This sustained EMEA APAC performance is no coincidence. It is a product of our well-matched geographic footprint, a world-class team, a differentiated product portfolio, and disciplined and consistent execution. In both EMEA and APAC, our teams continue to exemplify the EBX playbook, driving strong organic growth and robust margin expansion. Shifting our focus to the Americas. As mentioned earlier, we face near-term headwinds primarily due to tariffs. This particularly impacted our local customers in Mexico, where we saw unexpected softness. Additionally, customer orders and automation were delayed into the second half of the year. Despite these challenges, our automation funnel continues to be robust and gives us confidence in the second half. As South America continued to perform well and our recent acquisitions, Sumic and Sager, are performing as expected. In summary, we're executing from a position of global strength. ESAB remains a globally balanced and agile franchise. one that is built to perform, adapt, and grow through all phases of the economic cycle. Moving to slide six to discuss how we're leveraging EBX and AI to accelerate our long-term growth. During the fourth quarter, we laid out a roadmap leveraging EBX and AI to reduce structural costs and accelerate growth. Today, I'm pleased to share that we're not only delivering on that plan, but exceeding it. We're taking this opportunity to go even further driving more costs out of the system while investing decisively in our future. These initiatives are not just reducing complexity, they're enhancing how we serve our customers. As a result, we've raised our full year productivity savings target to approximately 13 million, up from our original 10 million estimate. In parallel, our back office optimization work has gained momentum, and we now expect to deliver 17 million in savings reflecting stronger than anticipated execution. At the same time, we remain firmly committed to investing in the future. In 2025, we're deploying approximately 20 million in strategic growth investments, funding university research partnerships, expanding commercial excellence initiatives, and advancing our AI capabilities. Looking ahead, we plan to bring our EBX office and AI initiatives together, creating a more integrated engine for operational excellence and innovation. These capabilities are increasingly converging, enabling smarter, faster decision-making, and more adaptive systems. It's still early, but the progress is real, and we're confident this combined approach will have a lasting impact on both productivity and customer experience. Turning to slide seven to discuss how EWM strengthens our equipment and robotics portfolio. Earlier this year, we announced that we entered into an agreement to acquire EWM. EWM is a leading provider of premier arc welding and robotic technology solutions with a leadership position in the Germanic region. This business brings advanced technology, a highly respected global brand, and a strong team. Our businesses are highly complementary in terms of customer bases and channel partnership, making for a unique strategic fit. This 120 million euro revenue business is expected to be accretive in year one and expected to close in the fourth quarter. We could not be more excited to have EWM team join ESAB as EWM accelerates our global equipment growth strategy. Moving to slide eight to discuss how ESAB and EWM together create a premier workflow solution. Together, the combination of ESAB and EWM accelerates our product roadmap. EWM strengthens our heavy industrial portfolio with advanced welding technologies, while our innovative light industrial lineup fills key product gaps within EWM. It's a natural fit, one that creates a truly differentiated offering. Now, what makes this partnership even more exciting is EWM's REACT technology, a true breakthrough in the welding space. The holy grail of welding has always been the ability to deposit metal faster at a lower heat in order to reduce distortion, improve precision, and enhance overall productivity. With REACT technology, we're achieving exactly that. In some applications, we're seeing up to 100% faster weld speeds, twice the deposition rates, all while operating at 35% less heat input compared to traditional short arc welding processes. This doesn't just improve performance, it delivers real-world customer benefits, less fumes, zero splatter, and significantly improves safety and environmental conditions on the shop floor. With EWM in our portfolio, we have expanded our best-in-class workflow solution for advanced applications, including additive manufacturing and thin metal precision welding. especially for materials like aluminum and stainless steel. When paired with our proprietary consumables, torches, and industry digital overlay, we are delivering a fully customizable end-to-end ecosystem. And we see substantial global selling opportunities ahead. This is more than an acquisition. It's a strategic leap forward in how we serve industrial, automation, and advanced manufacturing customers around the world. Moving to slide nine to discuss our newly acquired medical and gas control businesses. During the second quarter, we acquired Delta P and closed on active in early July, which propels us further on our compounded journey. Let me first start with Delta P, a European-based medical gas system manufacturer. This business further strengthens our medical gas control position in Europe and is highly complementary with our existing business. This business generates annual sales of approximately $10 million and has gross margins greater than 40%. We see significant opportunities to accelerate growth as we insert Delta B products into our global distribution. I'm also excited about the addition of Active, an India-based business with local manufacturing. This business has annualized sales of approximately 5 million and gross margins north of 40%. We're excited with the opportunities this brings for global product expansion. Together, these acquisitions accelerate our medical gas equipment strategy, providing ESAB with complementary products and an entry into the fast-growing India market. Turning to slide 10 to discuss how Delta P and Active extend our medical gas portfolio. As you can see on the slide, these two acquisitions significantly expand our portfolio by providing advanced integrated solutions across the full spectrum of hospital gas systems. The product offerings from Delta P and Active cover critical components found throughout the healthcare facilities, including in mission-critical environments like the ICU, emergency room, surgical suites, and general wards. As shown on the slide, our solution now spans the entire supply and distribution chain, delivering, controlling, and monitoring medical gases safely and reliably throughout a hospital. Together, these acquisitions expand our total available market by 200 million and positions ESAB as a truly world-class provider of medical gas control products, one that is aligned with our compounder strategy and built for scalable, profitable growth. On that note, let me hand it over to Kevin.