Earnings call transcript Q4 2022

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Operator

Good morning and welcome to the ESAB's Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Thank you. Mark Barbalato, Vice President of Investor Relations, you may begin your conference.

Mark Barbalato

Thanks, operator. Welcome to ESAB's fourth quarter 2022 earnings call. by Johnson. and joined and Shyam I'm Kevin CFO, morning, our CEO, President Kambeyanda; This

today, in that to or keep and and are set Please we mind in today's mentioned respect forward-looking accompanying call forward-looking are intend as With statements press forth earnings non-GAAP except slide assume results related these and making earnings information we found do release. are those the may SEC not today's subject presentation. law. our statements, can to risks, to during Actual financial to measures those some update including filings of by differ required the any release obligation any be and the our reconciliation measures in

call Shyam and our the With over to Kambeyanda. that, CEO, I'd President to like turn

Shyam Kambeyanda

morning, joining had with Thank of beginning to for rich and continue entering finish new you the and everyone shape XXXX ESAB are today. you, was history. thank Mark. strong XXX-year us we ESAB's the momentum all as Good XXXX future. We era in a to a positive for XXXX

moment take to a few a me Let accomplishments. highlight

successfully independent as launched We company. an

products, leadership value introducing are our a Edge. Warrior positioned business demonstrated EBX, shareholders. several our welder system, innovation our VOLT, Renegade We up We notch. industrial well exciting again our for product, the battery-powered compound to new and like heavy by new We took

environment. helped process challenging EBX drive Our a capital price working in and improvements

forward. cash and balance strengthened X that our robust sheet funded Our acquisitions moved flow strategy

more this progress We later. ESG share on continue on initiatives I'll and our

the and hard focus relentless our and commitment quarter, on let purpose have their me been I a associates. our and fourth to our of take Before and stakeholders. customers highlight acknowledge values moment key work in They embody the

and X our fourth Slide to performance the quarter. in Moving

X capital to higher acquisitions finish margins initiative made working strong growth, sales lower cash margin drove As higher quarter fourth that higher and expanded and XX%, in our margins rose XXXX. further enterprise, a Organic said cyclicality, before, we towards improvement. as increased flow. ESAB XX.X% our adjusted strengthened had EBITDA to We XX% I the and EBX shaping

East our year of to We were execution standout Full the achieved growth. grew Moving than of X. of financial guidance. $X XX%, organic midpoint environment. And despite all Middle metrics, regions higher strong higher revenue midpoint the challenging India million performers. a key contributed we $X.XX to operating all met reflecting the of our our We and of our $X.XX which EBITDA Slide our $XXX delivered which guidance. million of was than EPS was

EBITDA or takeaway The conversion. a strategic flow XXX% commitments. we're is in strong clear, key long-term slide approximately To the of and on our $XXX guidance. And finish delivered of its quarter. free performance, $X.XX ESAB on to with million cash highlight appreciate unfavorable the team's on that flow, I roughly currency of million we pressure to this compared our absorbed continuous And fourth path share of on would EBITDA cash a cash like towards improvement XX% generated original free $XX we goals a all

Moving to X. Slide

our hard continue our our Medical industrial Ohio process is extending as acquisition, leader we X Equipment Gas to in Therapy value. Equipment our Therapy our as and provides broadening journey company. And compound recent years, us offering Swift-Cut Is cutting opportunity Gas to Therapy of product control worked and Swift-Cut the Over gas the automated grow to immediately margins. accretive last with we with Equipment, our by extend business aftermarket. our reshape to acquisitions leadership an our a geographic reach. Like well strengthened our light and

to expand our global products innovative Swift-Cut's solutions and by opportunity an margins distribution growth and in network. there's Additionally, into accelerate plugging

X. Slide to Turning

chain supply at drive improve improvement. EBX of of to optimize work, line boards our this the gemba our start of tools and at enhanced was EBX issues a improved AI and standard We to example an share product systematically use situation We me glass powerful perfect We're shop floor aware to the use Let felt XXXX. work. inventory simplification, levels. all forecasting,

chart the $XX our days. indicates, half of raise and to were course As expect XXXX. the over million able the inventory we the second bar reduce continue to inventory XXXX, to of In by reduce us

Moving Slide X. to fourth quarter financials on our

before, sales fourth grew quarter I organically. mentioned XX% As

X our emerging Our of markets as resilient with are particular remained added and growth points markets. in expected. strength Acquisitions performing

our our opportunity control plans and leveraging implementation the as at vision to integration and synergy integration our leader business for visit of Ohio equipment as margins flow. review. the I with team Medical global EBX gas across had includes strategic plan to recently as to XXX-day drive Our are in well cash off start. a a growth, good This

future Swift-Cut both XXX-day room, opportunities be was the I'll excited together. in Similarly, the there right It evident and visiting our innovative sales inflation that Medical of excitement of Equipment and reviews to within for team our great Ohio and new team is second customers. with energy was has impact and our cadence pushing offset in about the Therapy fit introductions their product quarter. Continuing price our we're in the driving EBX, are

customers quarter. cost-saving both activities wallet price our to the drive the the as new strength by in Strong funnels well currency I'm of inflation execution and as that bring increased offset sales headwinds an and ESAB. of will encouraged helped share and both

result, year-over-year expanded and XX XX basis As points points basis margins sequentially. a EBITDA

reflected line in of comparison. rationalization We solid accelerating improving and new X. price. Slide product our efficiency. as the as progress and added channels, Sales organically Acquisitions Moving operational Americas to executed our on had strong on Americas penetrating points year-over-year made quarter team tough X% rose performed a a X expected. Volume the growth.

basis X%, EBITDA basis adjusted points result, expanded XX on and a As basis. sequential XXX points by increased a margins

Slide strong X and quarter APAC segments, again. had Turning our EMEA they to and a

basis particular XXX X and points price strength In regions digital the another India year-over-year, dollar points points East. Our on and organically, solutions significant and both quarter, strong in being expanded [ph]. Middle U.S. of made of and execution EBITDA fourth by the saw Margins reflecting Acquisitions reflecting sales. XX% volume. strong added progress rose We quarter Adjusted impacted points. sales XX improved equipment, a X automation despite XX%. basis

it Kevin let me XX. for turn that, over Slide to With

Kevin Johnson

year Thanks, We ESAB of than good $XX during X.Xx, by proud than on Shyam our new last work and I'm and another we morning, cash free the higher ended time greater net prior the X.Xx flow, had acquisitions million year, has year inventory reduced our we strong with flow and conversion everyone. for with a expected leverage particularly further better quarter the which XXX%. completed free million of we the quarter. fourth team the ESAB than in funded a cash the $XX spoke. cash strong

forward As XXXX, generation. technology cash look we is new being to our that improve implemented further will

of on greater XXX% conversion of goal few confident than delivering in next long-term are years. cash our We the

Turning our to XXXX Slide We XX. provide guidance.

Our X guidance growth year full similar X% volume includes Total numbers expected to price. to X% is of business X% exclude XXXX. X rest to and X%, growth from the XXXX be Organic Russian the for to sales to with and points of our XXXX. sales seasonality

FX first of We headwind expect X.X% the to half due XXXX. U.S. dollar, and X.X% impacting acquisitions a a stronger from

we $XXX year-on-year drive our million million and mid-XXs includes EBITDA of million. expect for investment making We equipment incremental gas growth $XX are the in with adjusted This an products. guidance a to to control of $XXX

X% we around fixed increase our interest by rate at X% to and of cash [ph] the assuming we the debt last will year, of As we discussed successfully the a end QX. half are rate Fed

adjusted rate Our at the interest with be to guided to XX% is point XX tax $XX expected midpoint XXXX. basis to XXXX is expense $XX to million. versus XX% million improvement

few Overall, $X.XX adjusted XXXX to consistently adjusted the over next to tax years. $X. is EPS We rate expect lower our guidance

our a strong XXXX. XX%, we is flow appendix. more the guide Finally, assist slide generate detailed with included similar to modeling, seasonality to flow continue greater free To guidance we cash quarterly with have a in cash conversion as than

hand progress. discuss me Shyam on our back to let XX to that, Slide ESG With

Shyam Kambeyanda

Thank you, Kevin.

streams highlight established and same been are our performance X reduced work as some a of We've improved ESAB, aligned imagine. Every things and XX%, Let we in percentile is the diversity safety is the me amongst we've ESG. by big of the to with purpose world and our doing at we've shaping it. XXth exciting We've our that result, At energy, a proportion. performance reduced industrials. waste of our part the our by usage ESAB voice water is valued footprint

use in We sustainable design all meet designs. our business steel our making our and recycled our progress on of are over ecostandard part As products. packaging XX% new of for great products process, consumables

live in Lastly, the participating and growing we're ESAB of, the in. believes part communities we communities

several and volunteered a As globally funded shared associates have result, to initiatives ensure success. ESAB our has

for business better a ESAB associates make to our customers, ESG and communities. using are We our our

a of up. more our cash. Slide I'm growth, to environment. a year XX and EBX performance generate to team. delivered proud ESAB from and in There expand to challenging strong drive as come we Turning margins is wrap very of

have healthy our acquisitions We as funnel a journey. we of compounded continue bolt-on

on strong this a ESAB we'll our much and initiatives has start ESG progress field. have doing made year. to in solid We be had more the

to joining I've you past, again And questions. for us. best is in yet Thank our the please come. line for as said Operator, the open

Operator

[Operator JPMorgan. of Zakaria question the line from first Instructions] Your comes from Tami

Tami Zakaria

And that about So was seems the in quarter, the like my expand volume drove you that? seeing question a Americas what quarter-to-date? are bit? now you on it What is, little in first down Could X%.

Shyam Kambeyanda

you Tami, the thank question. for

the forward. actually We that expected new that some initiatives performance better a So which in Americas. We our going channels, great of the your question our first sales, customers around a is made to equipment margin quarter really progress existing share with We as did comparable perspective. aspect in about we issues. wallet we with the of performed have continue win driving creating from I had the year-over-year to was a answer spoke felt strong we

the in last from And Americas strategy. business remember QX year. playbook grew you rationalization which the of If really we're actually line my running last our XX% XX/XX is year, also product call around the

so to in the looking equipment, America the automation process better And in be I'm And long-term QX team less to we the business set what America growth. North forward year. sell the thrilled cyclical, we we're to start to work to the so business a good we're and a and better South profile and up positioning doing performs us, for more to off that how we're where a in the margin right for in find ourselves market. better is want about be, really

Tami Zakaria

more the recovery of next which below key see couple one still enhance expect us volumes And me. sort remind you some it. sort of Can pre-COVID end Got in years? you markets you from of and of levels your

Shyam Kambeyanda

the how the as business in encouraged I my we of markets business performed. how company emerging along -- Middle is public Yes. thrilled really by that performed. with in a the sort commentary is We and with which, really know, India doing well, were you East we're highlighted quite

every a is emerging to to that a of industry bit out So off in new as is as tailwind that with -- And in seeing of get the that of in we the market on space, mentioned we sales North accretive in recovery dollar weakness shoots have broad-based been same some Europe, emerging seeing space that of sort sort we to also a ag recover actually of above really continue us the before the But in activity market, us. of be pre-COVID finished QX. a and seeing I seen we've my are retail some front. that reading and nicely that we levels we're strong, we've sort COVID so general really where and started We're -- is auto America markets. particular giving QX of about and commentary we've bit the saw

really about in XXXX. drives so for that what And ESAB excited

Operator

Jones Your the of next comes Nathan question from line from Stifel.

Nathan Jones

pick up one those your on Shyam. to answer to of questions, like part just I'd of

impact use what is of there? talked of You to and for XX/XX color somewhat kind of ESAB. on could give rationalization us margins the I impact about to kind initiative the what's that Maybe could the years? product number sales new over What a a have the XX/XX. around that of going through have know could more you next bit few

Shyam Kambeyanda

Yes.

aspects. invest long-term the creates positioned of to sort we ended believe exactly are we call to our by that stating And that all of my stakeholders. for couple wanted a where So of in value be I things we

biggest bit portion what out a we been So your initiative, pruning Nathan, gain growth you the it's do finished And to know, XX/XX a to around an just as as to as significant you traction. as this facilities. takes shop creating amount want of floor want see team see is the It's year. you while the really where America was but of a thrilled and value customers that add do your time a North to able where you've about and to your that you your grow, within exercise. efficiency to where not yourself a business also exercise of exercise

So innings XXXX mid-innings say front. to we're in you be drive as what that we really and I to in go early expect XXXX. I'd we as value the is particular on into through that the significant get us

been goals exactly So the people with we're ESAB. done creating this we today, need a We've is go we know the we mix a percentage set We past. in gas as XX-plus to talked think the confident we of a have what XX/XX EBITDA here of next years. about, business that couple change we big to as that along it, of do. sit equipment We about the very talking to at few that and control through part

a there. have road We map to get

And it's so for taking about reaching from a there. XX and task it then of the up notch us,

Nathan Jones

you to going price about is on dilutive to Can talk a from dollar year where on question basis and price/cost margins. price/cost. the be assume probably ended follow-up My I Great. was cost you

the you as expect give And we outlook impact that. then on us forward 'XX here. So you could where if to go for the be price/cost for

Kevin Johnson

good of visibility around yes, and happening we've built talked on that we've a side. as about the we've what's before, got So management inflation very of some strong showing Nathan, the processes price

continued we've playbook to So XXXX. play during that

the exited we XXXX, As price/cost we year are neutral.

are stepped across As continuing we the inflation XXXX, into we see to world.

certain that continuing XXXX assumptions in in our to are are we that after price And inflation. be the cover neutral. pockets, inflation We to go will price guidance

Shyam Kambeyanda

Yes.

things inflation ourselves or is one that skills Nathan, years FX. the the proved last it, our to be to over I on execution whether it think, on of that front, X we've related

out stays solid DNA of so otherwise, business being know, some we've got our look as think And confident the up we that end And and horizon, set a to into EBX price/cost We've business bit -- you but that I strong up. really very within activities expect be in we of the how could showing process. the always neutral. as favorability

Nathan Jones

a And dollar Kevin, basis, when you talking you're correct? say price/cost on neutral,

Kevin Johnson

That's correct, yes.

Operator

the from Mig Dobre Your from Baird. next question comes of line

Mig Dobre

price on this want discussion. I to follow up

is costs many of One of the impact are company P&L. that corporate starting steel things that to we're consistently our lower hearing

of difference see So 'XX and I'm the your portion there's I positive, hold kind are guess of dynamic curious how ability of in with which steel consumable that gives second And if it able any you you way that [ph]? outlook? pricing framed in playing price that prices first half through to If environment half you the between your what to business? you retrench an and

Shyam Kambeyanda

Yes. Mig, you. hear great to from

stable. we steel so start part, some abate on for been there's prices. amount So in of inflation are, And have prices they saying, most seen but the by regions, bit and still volatility a let me steel some

a in to second your steel which to abated. to that this part price across again, not commodities it's is And was, past, our hold had have as to And what question of answer intention prices the retreat be year. on ability we've on the the globe. hey, So is, able the broad-based

is intention to way to the much can. continues we the obviously, that as as price of on far, hold market be And our to possibly rational. So on down

our talk the point hand around how in we've he sort second sort guidance over let Kevin second to of it the you we half. can for at the least the whether On half, planned pricing, to see and of me

Kevin Johnson

in the of in half you'll quarter year, first mean first the price I comps in higher expect the terms year-over-year. Yes. of

half year, will of of there The half we price be go to year. second some in less are the expecting for price the second but the

with respond the years think happens that no side, the few the thing last over to what we've we'll out I that proven is inflation matter on price.

have to more hold price way do more inflation we try go within And see on we'll do We the much processes inflation, today on as for down. we'll price. strong we we can [ph], to abate as if the If business. regardless extremely see

Shyam Kambeyanda

how of when to find our there's impacting other question associated associated specifically answer you it a it bigger out is that's the of of pieces consumer that is energy, And it then allows steel liked indirect always on we about to Mig the know business. with talked have in piece of your there, What continue in some talked inflation some it as of some material with us to see of some about and hold costs, I and that the that the you we've -- spite raw of you past. down. front, we're the to about on in talked that going neighborhood or I We price that

able market continue continue inflation-related to hold activity be so on see to in And price opportunity there's push to the and we the to into out there. case

Mig Dobre

get here follow then Middle has a how frankly, on about APAC than guessing. If and contributed maybe Understood. your India being was talked Okay. And we X% question what better maybe color little may those with progressed? this segment, volume strong, to was in and lot EMEA I on more you this Europe and number? Can -- a East what I a up regions

Shyam Kambeyanda

as is earlier, all playbook I actually quite our on of mentioned And simple. Yes. this

business. into around sales the process then We and have and years We it And last forward. bridges We we that we've drive of sales over couple what create regional really create of inculcate that as off a our plans. our DNA strong growth teams really our the really strong seen growth plan. plans territory within is move

strength seen We've ag. investment business, We've the in things also APAC in about we that and did in infrastructure. seen spoken Mig, India. and look in in oil we've investment So at then seen lot and EMEA see investment of same renewables. And we've past, LNG investment when The you in our a gas.

is confidence so general oil what the in benefiting investments. And so and relates gas not a massive especially Middle is a It's across capacity crude of Middle you're that sort infrastructure, for investment us processing geographies of the state driving investment. of and East steady in within Middle the investment improvement, been steady a gives the that region East that's the as of sort all And is ag It's call and oil. it more and been general LNG, upfront. seeing India lot fact on the I what rising, for it's especially slightly that there to industry East, LNG of

like X spaces. So we really those

Europe, resilient I being And my use for with into continues mentioned it just commentary back, in briefly the rebound. I and the It we're best business then earlier, auto be resilient that's probably seeing strong Europe. some auto a coming that market word to the renewables. could market focus

that set, other visit had about get proud our XX-XX ESAB we at X partnerships that's our to The really with that talked traction, consumable digital, and mix to the team creating chance to to I'm confidence piece creating giving closer us of providing and gained equipment we're the like solution about at customers, over workflow to a full is within change customers XX-XX. and next this years improve we'd X that solutions about past that today, continue where we've building we're a on couple a of week looking to to where we're

how and initial about And that importantly, our more engaged process. customers our with approached have we're the have pleased so us teams onset, in it how sales really sales

Mig Dobre

thinking inventory. for additional if frame your working you'll are free about way to me about hinted as for deploying maybe and You XXXX? Okay. the capital, at thinking kind one how down this you you're leverage is And cash if looking Kevin. flow, would at in all, How work one capital you room of you're And one, final XXXX? allow at

Kevin Johnson

believe presentation. parts When we believe DSI but So improve. think see the really We certain mentioned firstly, we good have the have have other business opportunity part today's inventory. Shyam we where to we parts at of opportunity we still I business we already [ph], a it we where on of are our of as look in do shape

as have further year, So this certainly, inventory to strides for our part reducing make our levels. of implant in we targeted further

to more part. on So that you'll see come

we're In terms deployment, capital be capital our in disciplined continue deployment. going of to to

that leverage that cash of out we We'll be we fund. XXXX. to we'll You've range the seen and manage immediately that on acquisitions generated. be funded will did Xx our that cash continue focused to bolt-on acquisitions require to the of and the deal in great a We free M&A accretive within Xx don't to flow smaller

Shyam Kambeyanda

about we importantly, of what to think Yes. inventory one, created and state Mig, optimal done think And that is each have each regions of more I for way today the the is that an our for is talked that inventory visual through management, and glide create manage our plans achieve level. just or to to And our strong facilities. optimal I EBX about process daily a achieve what back to strong board,

And put that our continue on are and weekly in in management strong terms since something our I, he so has on incredibly to cash our a processes has of very our on and CFO between that his that I'm confident as the position cash Kevin over EBX that daily done took well and in has Kevin front. deliver commitments to and process managed we Kevin place

Operator

Dankert next of Chris And line Loop comes your from the from question Capital.

Chris Dankert

here? organic detail of versus looking I Europe And international? how us at about here, maybe of XXXX you you're sales growth guidance guess looking give in kind any can 'XX in Americas just terms the specifically

Kevin Johnson

Yes.

yet, broken out haven't that We Chris.

QX. at as a But probably and mentioned of both we're be you out little able particular think the of we still it to least be performing best will I've in very now, Let to and of as quarter right to assume probably more soon, front. bit to both me exit. to the early off performing But at gate levels that as And get on we more regions sort that good second in start get a -- and it's give businesses about little year a we'll out. give earlier, at the color levels get consideration similar similar that general, best as

here the so first so to just And give more talking about you be you to color. quarter, X weeks, about able be in we'll out we'll

Chris Dankert

Understood.

Sounds similar then good here. on Gas margin forgive EBITDA for basis, do of me how I of here? those Swift kind versus circling there. each missed Is if sales an the those to kind but company and back And of Therapy And it then businesses? look average contribution

Kevin Johnson

Yes.

already, the of I sort of Therapy has mentioned haven't And get really and to accretive today businesses I with accretive game very in the individual finish gross a numbers plan pull that and the sort know being numbers where I'm total year, full X you out. we the we margins think sales we given confident Equipment accretive expect for are year. those could EBITDA impact Swift-Cut of we back out immediately. but it's But as $XX strong is million those the

Chris Dankert

range. the where comfortable it. forward? debt macro more leveraging more. I Xx comfortable deployment Kevin some that just I for highlighted could thoughts guess, as of if cash little [ph] macro, as change that Got bit you to and And Again, into a cloudier the in sneak Maybe uneven a we well. of leverage any you a feel in think headlines is range? about does going Or your one given heading being Xx more this

Shyam Kambeyanda

Yes.

that ESAB's Chris, one cash the thing, to its strong ability flow. generate proven free strong So

down when inventory over conversion step quick short period, we're we generally and that we to things turn. cycle We pretty generated cycle. As back during given XXX% our actually cash over COVID,

debt abilities, a go happening. gives us sheet of in of that point, at balance we of lot to of our confidence strength that type our through see any don't terms So this

Chris Dankert

Understood. you. Got

Shyam Kambeyanda

X.X think want highlight for Maybe acquisition range there stay of strategy us the the I great targets. we that nothing funnel X about stay and we to move the sort disciplined. within is pushes that those have us and that Yes. view to is that out we have, The thing that, to to that

and FABTECH so And leader very X we strengthen gas global business really within that that X.X to compounder, a future. control, of a in the create, can in our be stay create range well we're foreseeable strong confident

Chris Dankert

'XX Great. And then best here. in of luck

Shyam Kambeyanda

Thank you.

Kevin Johnson

Thank you.

Operator

And for there call questions Mr. some you turn final no to further remarks. I'd like Mark this closing over at the time. are to Barbalato, back

Mark Barbalato

Thank call. today to you for look and you joining to forward our next we on speaking us

Operator

for call. concludes you This today's your conference participation. Thank

You may now disconnect.

ESAB (ESAB) 7 Mar 232022 Q4 Earnings call transcript