Q1 2024 ESAB Corp Earnings Call
Operator: Thank you for standing by, and welcome to the ESAB Corp.'s first quarter 2024 earthquake conference call. All lines have been placed on mute to prevent any background noise.
Thank you standing by and welcome to the East Coast.
First quarter 2024 earnings conference call all lines have been placed on mute to prevent any background noise.
Operator: 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 number one on your telephone key. If you would like to withdraw your question again, press star. Thank you, Mark Barbalato, Vice President of Investor Relations. You may begin your question.
After the Speakers' 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.
One on your telephone keypad.
If you would like to withdraw your question again.
Start.
Thank you Mark Barbara Lotto President of Investor Relations you may begin your.
Mark Barbalato: Thanks, operator. Welcome to ESAB's first quarter 2024 earnings call. This morning, I'm joined by our president and CEO, Shyam Kambeyanda, 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.
Speaker Change: Thanks, Operator, welcome to <unk> first quarter 2024 earnings call. This morning, I'm joined by our President and CEO, Sean Combi Yonder and CFO, Kevin Johnson.
Please keep in mind that some of the statements. We're making are forward looking and are subject to risks, including those set forth in our SEC filings and today's earnings release.
Speaker Change: Actual results may differ and we do not assume any obligation or intend to update these forward looking statements except as required by law.
Mark Barbalato: 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 Kambeyanda.
Speaker Change: 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.
Speaker Change: With that I'd like to turn the call over to our President and CEO Sean <unk>.
Shyam P. Kambeyanda: Thank you, Mark, and good morning, everyone. Thank you all for joining us today.
Sean: Thank you Mark and good morning, everyone.
Sean: Thank you all for joining us today.
Shyam P. Kambeyanda: We continue to make excellent progress towards our long-term goal of becoming a premier industrial compounder that is less cyclical with higher margins and delivers stronger cash. As you're aware, we exited 2023 with good momentum and have maintained it for the start of 2024. Throughout the quarter, our teams have continued to focus on their growth and margin expansion plans using EBX, and I'm very proud of the results we've achieved that have allowed us to raise our full year adjusted EBITDA and EPS guidance.
Sean: We continue to make excellent progress towards our long term goal of becoming a premier industrial compound here that is less cyclical as higher margins and deliver stronger cash flow.
Sean: As you are aware, we exited 2023 with good momentum and have maintained it for the start of 2024.
Sean: Throughout the quarter. Our teams have continued to focus on the growth and margin expansion plans using etfs and I'm very proud of the results. We have achieved that has allowed us to raise our full year adjusted EBITDA and EPS guidance.
Shyam P. Kambeyanda: Before diving into the numbers, allow me to share a story illustrating how we're actively shaping a better world and how the passion and commitment of our team are making a profound impact within ESAB and the communities we're part of. We've always believed in training the next generation of welders. In March, ESAB, as part of its Future Fabricators program, participated in the Agricultural Mechanics Competition in Houston, Texas, where over 1500 high school students from over 250 school districts took part.
Sean: Before diving into the numbers allow me to share a story illustrating how we're actively shaping a better world and how the passion and commitment of our team is making a profound impact within aesop and the communities we're part of.
Sean: We've always believed in training the next generation of welders.
Sean: In March Aesop as part of our future Fabricators program participated in the agriculture mechanics competition in Houston, Texas.
Sean: Over 1500 high school students from over 250 school districts depart.
Shyam P. Kambeyanda: Many students were fabricating solutions for their farms, while others were creating equipment to benefit their communities. Such events provide a fantastic opportunity to engage kids in engineering and problem solving, fostering their creativity.
Many students were fabricating solutions for their farm, while others were creating equipment to benefit our communities.
Sean: This program aligns perfectly with our vision statement shaping the world, we imagine such events provide a fantastic opportunity to engage kids and engineering and problem solving fostering they creativity.
Shyam P. Kambeyanda: ESAB donated over $500,000 worth of equipment and accessories and prizes to empower these young innovators to continue creating new solutions and becoming the next generation of leaders in our industry. In the future, I plan on sharing more stories about how ESAB is shaping the world we imagine.
Sean: Aesop donated over $500000 worth of equipment and accessories and prizes to empower these young innovators to continue creating new solutions and becoming the next generation of leaders in our industry.
Sean: In the future I plan on sharing more stories about how aesop is shaping the world we imagine.
Sean: Moving to slide three.
Shyam P. Kambeyanda: Another solid quarter, another step forward in the direction of our 2028 goal. Sales of 656 million were a first quarter record as our team delivered 200 basis points of organic sales growth. Adjusted EBITDA improved by 140 basis points to a record 18.8%.
Sean: Another solid quarter another step forward in the direction of our 2028 goals.
Sean: Sales of $656 million were a first quarter record as our team delivered 200 basis points of organic sales growth.
Sean: Adjusted EBITDA improved by 140 basis points to a record 18, 8%.
Shyam P. Kambeyanda: Notably, what fueled our growth was our equipment and automation product lines, and within automation, our welding cobot expanded triple digits year over year and high double digits sequentially. We anticipate sustained demand for our automation products for the remainder of the year. Our gas control business also grew in the period with strong demand on the industrial side as a result of secular tailwinds associated with the energy transition, while our specialty and medical gas business continues to execute well. Another standout aspect of the quarter was the strength of our global footprint.
Sean: Notably what fueled our growth was our equipment and automation product lines.
Sean: And within automation, our welding cobalt expanded triple digits year over year and high double digits sequentially.
Sean: We anticipate sustained demand for our automation products for the remainder of the year.
Sean: Our gas control business also grew in the period with strong demand on the industrial side as a result of secular tailwind associated with energy transition, while our specialty and medical gas business continues to execute well.
Sean: Another standout aspect of the quarter was the strength of our global footprint.
Shyam P. Kambeyanda: Our unmatched geographic strength continues to propel our growth, buoyed by sustained high demand from pivotal markets like India and the Middle East. The completion of the Sager acquisition and today's announcement of our agreement to acquire Sumic allow us to serve our customers better and continues to extend our portfolio to higher-margin products and into less cyclical end markets. Our focus on EBX continues to uncover fresh avenues and opportunities for margin expansion.
Sean: Our unmatched geographic strength continues to propel our growth buoyed by sustained high demand from pivotal markets like India and the middle East.
Sean: The completion of the CAGR acquisition and today's announcement of our agreement to acquire Sumit allows us to serve our customers better and continues to extend our portfolio to higher margin products and into less cyclical end markets.
Sean: <unk>, an AVX continues to uncover fresh avenues and opportunities for margin expansion.
Shyam P. Kambeyanda: I was pleased to see the quality and number of Kaizens rise within our business. Furthermore, to strengthen our balance sheet, we successfully executed our bond offer, positioning ESAB well to deliver as a premier industrial compounder. None of these achievements would have been possible without the focus and hard work of our global associates. So, let me take a moment to thank them for their dedication and commitment to our goal.
Sean: Pleased to see the quality and the number of guidance rise within our business.
Sean: Furthermore, the strengthened our balance sheet, we successfully executed our bond offering.
Sean: <unk> used up well to deliver as a premier industrial compounds.
Sean: None of these achievements would have been possible without the focus and hard work of our global associates. So let me take a moment to thank them for their dedication and commitment to our goals.
Shyam P. Kambeyanda: Moving to slide four to discuss the progress we've made in shifting our product mix. As I mentioned in the past, in 2016, we were primarily a filament business. And today, we have positioned ESAB for growth in both filamentation and equipment. This slide highlights the transformation of our equipment product line and how it's continuing to improve ESAB globally. Since 2016, our share in equipment as part of ESAB's total sales has grown by 500 basis points. But I'm the first to acknowledge that this is a gradual journey.
Sean: Moving to slide four to discuss the progress we've made in shifting our product mix.
As I mentioned in the past in 2016, we were primarily a filler metal business and.
Sean: And today, we have positioned <unk> for growth in both filler metals and equipment.
Sean: This slide highlights the transformation of our equipment product line and how it's continuing to improve aesop globally.
Sean: Since 2016, our share and equipment as part of Aesop's total sales has grown by 500 basis points.
Sean: Now I'm the first to acknowledge that this is a gradual journey.
Shyam P. Kambeyanda: But we can see what is possible as we continue to move to a more favorable mix. To add, our new equipment products continue to receive accolades. Most recently, our battery-powered Bolt, our Rustler, and Rogue equipment received the prestigious European Red Dot Award.
But we can see what is possible as we continue to move to a more favorable mix.
Sean: Two at our new equipment products continue to receive accolades. Most recently a battery powered volt, our rustler and Rogue equipment received a prestigious European Red Dot Award.
Shyam P. Kambeyanda: This is on the back of accolades from Popular Mechanics and Construction Equipment Top 100 new products. We continue to invest in new products and are excited about the rollout of several game-changing products this year, as well as the extension of our end-of-suite offering with FlowCloud, which will continue to differentiate ESAB and add value to our value proposition to customers. Moving to slide five to talk about our acquisition, Sager extends our product line and helps us service our customers better in the less cyclical, higher-margin repair and maintenance and mock.
Sean: This is on the back of accolades from popular mechanics, and construction equipment top 100, new products.
Sean: We continue to invest in new products and are excited about the rollout of several game changing product this year.
Sean: As well as the extension of our industry offering with flow cloud, which will continue to differentiate ESR and add value to our value proposition to customers.
Sean: Moving to slide five to talk about our acquisitions.
Sean: Seeger extends our product line and helps us service, our customers better and the less cyclical higher margin repair and maintenance and market.
Shyam P. Kambeyanda: Sumic extends our product line into higher growth light automation and markets and improves our higher margin equipment portfolio in the Americas. Both these acquisitions are margin accretive and were acquired at attractive multiples. These acquisitions underscore our commitment to our compounded strategy and our discipline to ensure acquisitions meet both our strategic and financial goals, and as a result, allow ESAB to create long-term value for our stakeholders. Our M&A pipeline continues to strengthen with over $7 billion in prospective targets and supports our long-term growth objectives.
Sean: <unk> extends our product line into higher growth light automation and market and improves our higher margin equipment portfolio in the Americas both.
Sean: Both of these acquisitions are margin accretive and were acquired at attractive multiples.
Sean: These acquisitions underscore our commitment to our compound our strategy and our discipline to ensure acquisitions made both our strategic and financial goals and as a result allows aesop to create long term value for all stakeholders.
Sean: Our M&A pipeline continues to strengthen with over $7 billion in prospective targets and supports our long term growth objectives with a strong balance sheet and free cash flow, we are well positioned to capitalize on these opportunities to achieve our 2028 goals.
Shyam P. Kambeyanda: With a strong balance sheet and free cash flow, we're well positioned to capitalize on these opportunities to achieve our 2028 goals. Turning to slide six, to talk about our first quarter financial performance. As mentioned, quarterly sales reached a first quarter record of 656 million, with Adasadivada also reaching a first quarter record of 123 million, expanding 140 basis points year over year to 18.8%.
Sean: Turning to slide six to talk about our first quarter financial performance.
Sean: As mentioned quarterly sales reached a first quarter record of 656 million with adjusted EBITDA also reaching a first quarter record of $123 million, expanding 140 basis points year over year to 18, 8%.
Shyam P. Kambeyanda: Our end markets continue to be resilient, with strength in India and the Middle East. In addition, we continue to move ESAB into less cyclical, higher margin end markets. Moving to slide seven, in the Americas, organic sales grew by 300 basis points, driven by strong price performance of 500 basis points; volumes declined, reflecting adverse weather conditions in January; FX was negative as a result of our year-over-year headwinds in South America.
Sean: Our end markets continued to be resilient with strength in India and the Middle East. In addition, we continued to move east up into less cyclical higher margin end markets.
Sean: Moving to slide seven in the Americas organic sales grew by 300 basis points driven by strong price performance of 500 basis points.
Sean: Volumes declined reflecting adverse weather conditions in January FX.
Sean: FX was negative as a result of our year over year headwinds in South America.
Shyam P. Kambeyanda: Our continued focus on EBX initiatives translated into an impressive 130 basis points of expansion and adjusted EBITDA margin. Our new equipment products continue to generate excitement with end customers and channel partners. We are seeing strength in oil and gas, renewables, and defense. This is being offset by softness in Capra Goods and Mark.
Sean: Our continued focus on <unk> initiatives translated into an impressive 130 basis points expansion in adjusted EBITDA margins.
Sean: Our new equipment products continued to generate excitement with end customers and channel partners.
Sean: We are seeing strength in oil and gas renewables and defense.
Sean: This is being offset by softness in the capital goods end markets.
Shyam P. Kambeyanda: Product simplification initiatives are now focused on growth, and we're actively increasing our exposure to less cyclical end markets. Moving to slide eight, which highlights the performance of our EMEA and APAC regions. Another fantastic performance by our team in Europe, Asia, and the Middle East, with total sales growing by 100 basis points, driven by strong volume that grew 500 basis points. The region's performance reflected great execution and strong demand in India and the Middle East market.
Sean: Product simplification initiatives are now focused on growth and we are actively increasing our exposure to less cyclical end markets moved.
Sean: Moving to slide eight which highlights the performance of our EMEA and APAC region.
Sean: Another fantastic performance by our team in Europe, Asia, and the Middle East with total sales growing by 100 basis points.
Sean: Given by strong volume that grew 500 basis points.
Sean: The region's performance reflected great execution, and strong demand in India, and the middle East markets.
Shyam P. Kambeyanda: EBX initiatives, including net price management, contributed to a significant 140 basis points expansion in adjusted EBITDA margin. Our strategic focus, coupled with operational excellence, positions ESAB for continued growth and value creation. On that high note, let me hand it over to Kevin for further insights on our progress on slide nine.
Sean: Ex initiatives, including net price management contributed to a significant 140 basis points expansion in adjusted EBITDA margins.
Our strategic focus coupled with operational excellence.
Sean: <unk> Aesop for continued growth and value creation.
Sean: On that high note, let me hand, it over to Kevin for further insights on our progress on slide nine.
Kevin J. Johnson: Thanks, Shyam. Good morning.
Thanks, Shawn good morning.
Kevin J. Johnson: We had another good quarter of free cash flow; we used this to fund the Sager acquisition, and we continued to de-lever, ending the quarter with net leverage of less than 1.8 turns. Since we last spoke, we launched a bond offering to replace our $600 million term loan, A3, which was maturing next year. We received our first credit ratings of BA1 and BB+.
Kevin J. Johnson: We had another good quarter of free cash flow, we use debt to fund the <unk> acquisition, and we continued to delever ending the quarter with net leverage of less than one point of view.
Kevin J. Johnson: Turns.
Kevin J. Johnson: Since we last spoke we launched a bond offering to replace our $600 million term.
Kevin J. Johnson: Term loan a III, which was maturing next year.
Kevin J. Johnson: We received our first credit breathing <unk> VA, one and double B plus we.
Kevin J. Johnson: We had very strong interest in the bond and priced it at an attractive 6.25 percent, which was ahead of expectations. With our strong balance sheet and cash flow, we are positioned to accelerate investments to drive growth and support acquisitions. We continue to leverage EBX and AI to support delivering ever-improving cash flow and our 2028 goals. Moving to slide number 10.
Kevin J. Johnson: Had very strong interest in the bond priced out of and an attractive 625%, which was ahead of expectations.
Kevin J. Johnson: With our strong balance sheet and cash flow, we are positioned to accelerate investments to drive growth and support acquisitions.
We continue to leverage gtx on AI to support delivering ever improving cash flow and <unk>.
Kevin J. Johnson: Our 2020.
Kevin J. Johnson: <unk>.
Kevin J. Johnson: Moving to slide number 10.
Kevin J. Johnson: We are updating our 2024 guidance to reflect the strong Q1 performance and better margin outlook. Total sales growth reflects approximately $10 million from the Cigar acquisition, which has been upset by half a point of FX. We continue to expect organic growth of 2.5% to 4.5% with low single-digit price and volume. EBX continues to improve its margins, and we have increased our adjusted EBITDA guidance to $500 million to $520 million, and our year-over-year incrementals are now around 40%.
Kevin J. Johnson: We're updating our 2024 guidance to reflect the strong Q1 performance and better margin outlook.
Kevin J. Johnson: Total sales growth reflects approximately $10 million from the <unk> acquisition, which is being offset by half a point of FX. We continue to expect organic growth of two five to four 5%.
Kevin J. Johnson: With low single digit price on volume.
Kevin J. Johnson: <unk> continues to improve our margins and we have increased our adjusted EBITDA guidance to $500 million to $520 million on a year over year Incrementals are now around 40%.
Kevin J. Johnson: This includes $15 million of investment we are making in our business to support our product mix improving and the commercialization of our innovative new equipment portfolio. Our adjusted EPS guidance increased $0.10 to $4.75 to $4.95, reflecting improved profitability and a lower expected interest expense. Our cash flow conversion remains on track at 95%. Our guidance does not include the recently signed Summit Acquisition, which is expected to close during the second half of 2024. SEMIC had sales of around $30 million during the last 12 months and is accretive to ESAB's adjusted EBITDA percentage. With that, let me hand over to Shyam on slide 11 to wrap up.
Kevin J. Johnson: This includes $15 million of investment we are making in our business to support our product mix improving on the commercialization of our innovative new equipment portfolio.
Kevin J. Johnson: Our adjusted EPS guidance increased to.
Kevin J. Johnson: Two $4 75 to $4 95, reflecting improved profitability and a lower expected interest expense.
Kevin J. Johnson: Our cash flow conversion remains on track at 95%.
Kevin J. Johnson: Our guidance does not include the recently signed stomach acquisition, which is expected to close during the second half of 2024.
Kevin J. Johnson: <unk> had sales of around $30 million during the last 12 months and is accretive to <unk> adjusted.
Kevin J. Johnson: Adjusted EBITDA percentage.
Speaker Change: With that let me hand back to <unk> on slide 11 to wrap up.
Shyam P. Kambeyanda: Thank you, Kevin. To summarize, we're off to a solid start in 2024. As a result, we've raised our adjusted EBITDA and EPS guidance for the year. EBX continues to raise the bar as we continue to find new opportunities to improve margins and generate strong cash flow. We've kicked off projects using AI to reduce operating expenses and improve our cash flow. Our acquisition funnel is robust, and our balance sheet is strong, allowing us to execute on our strategy to become a premier industrial compounder.
Speaker Change: Thank you Kevin to summarize we're off to a solid start to 2024 as a result, we've raised our adjusted EBITDA and EPS guidance for the year.
Speaker Change: <unk> continues to raise the bar as we can do to find new opportunities to improve margins and generate strong cash flow we.
Speaker Change: We've kicked off projects using AI to reduce operating expense and improve our cash flow.
Speaker Change: Our acquisition funnel is robust and our balance sheet is strong, allowing us to execute on our strategy to become a premier industrial compound.
Shyam P. Kambeyanda: We are moving the ball forward on our 2028 goals of becoming a $4 billion enterprise delivering 22% EBITDA and, in the process, creating significant value for all our stakeholders. With that, Operator, let's open the line for questions.
Speaker Change: We are moving the ball forward on our 2028 goals of becoming a $4 billion enterprise delivering 22% EBITDA.
Speaker Change: And the process, creating significant value for all our stakeholders.
Speaker Change: With that operator, let's open the line for questions.
Operator: At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up. Your first question comes from a line from Big Dobre from... Bear, your line is open.
Speaker Change: At this time I would like to remind you.
To ask a question press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up your first question comes from the line of Big Dobra from Baird. Your line is open.
Mircea Dobre: Good morning. Thank you for taking a question, and I'm afraid I'm going to violate the one question and one follow-up rule this time around, if you'll allow it. I guess what I'd like to start with your comments on the usage of AI. So you mentioned this several times, and when I'm thinking of your business, I'm not really thinking AI, but obviously, you're doing something internally, operationally, and I'm curious as to what that is and what the tangible effects are going to be.
Mircea Dobre: Good morning, Thank you for taking our question and I'm afraid I'm going to violate the one question and one follow up this time around if you'll allow it.
I guess what I'd.
Mircea Dobre: I'd like to start is with your comments on usage of AI. So you mentioned this several times.
Mircea Dobre: What im thinking of your business I'm, not really thinking AI, but obviously your youre doing something internally operationally.
Mircea Dobre: I am curious as to as to what that is and what the tangible effects are going to be going forward.
Shyam P. Kambeyanda: Yeah, good morning, Meg. It's always good to hear from you. So, let me start by saying, obviously, there are a few things we'd like to keep to ourselves around what we're doing with AI. But let me sort of give you a gist of how we think about that particular technology and how it helps companies like us and ESAB, in particular. We see it in sort of two buckets.
Speaker Change: Yes, good morning, Meg always good to hear from you. So let me start by answering obviously there are a few things we'd like to keep to ourselves around what we're doing with AI, but let me sort of give you a just of how we think about.
Speaker Change: That particular technology and how it helps companies like us in Asia in particular, we.
Speaker Change: We see it in sort of.
Two buckets, one is commercial growth in the second side is on the operating excellence side of our business.
Shyam P. Kambeyanda: One is commercial growth, and the second side is the operating excellence side of our business. Something that I've talked about quite a bit, whether it be on Investor Day or in several one-on-one discussions that I've had with other investors, is around the fact that we think material planning and production planning can be significantly assisted by AI to help your planning processes and, as a result, create a significant amount of cost advantages over a long period of time.
Speaker Change: Something that I've talked about quite a bit whether it'd be on investor day, whether it be in several 101 discussions that I've had with other investors is around the fact that we think material planning production planning can be significantly assisted.
Speaker Change: By AI.
Speaker Change: To help you all planning processes and as a result create a significant amount of of cost advantage over a long period of time. So that's one that I've actually spoken about and there is a couple of things that we can actually do as well on the commercial side that will help drive better efficiencies of our sales personnel and those are the one.
Shyam P. Kambeyanda: So that's one that I've actually spoken about. And there are a couple of things that we can actually do as well on the commercial side that will help drive better efficiencies in our sales personnel. And those are the ones that we haven't spoken about openly, but things that we're working on.
Speaker Change: Is that we haven't spoken about openly but things that we're working on.
Shyam P. Kambeyanda: That's interesting. Is this a set of solutions that you've developed or customized yourself, or are you using third-party providers?
Speaker Change: That's interesting is this a.
Speaker Change: Set of solutions that you've developed are customized yourself or are you using third party providers.
Shyam P. Kambeyanda: Yeah, you know, we're not developing it ourselves is the short answer. We are using providers outside and working on solutions for ESAB, yes.
Speaker Change: Yes.
We're not developing it ourselves is the short answer we are using provider.
Speaker Change: Providers outside and working on solutions for Aesop, Yes.
Mircea Dobre: Okay. You know, the thing that really stood out to me this quarter was your growth. And I know that I've asked this question in the past, relative to your peers, how you are evaluating your performance, and what's kind of driving some of this outgrowth. I believe this might be the fourth quarter in a row that you've been able to outgrow what I see from your publicly traded peers. So I'm curious if you can talk a little bit about that and maybe differentiate between America and EMEA and APAC.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: The thing that really stood out to me. This quarter was your your growth and I know that I've I've asked this question in the past.
Speaker Change: Relative to your peers, how you are evaluating your performance and what's kind of driving some of this outgrowth I believe this might be the fourth quarter in a row that <unk> been able to outgrow what what I see from your publicly traded peers. So I'm curious if you can talk a little bit about that and maybe differentiate between Americas and EMEA and APAC.
Shyam P. Kambeyanda: Yeah, you know, first of all, very happy with the team's performance, both in the Americas and the rest of the world. I thought our team took the momentum that we had in Q4, engaged hard in Q1, and executed on some of the things that we talk about around policy deployment. The second piece is something that we've spoken about as well, which is that back in 2016, ESAB was primarily a filler metals company.
Speaker Change: Yes.
Speaker Change: First of all very happy with the team's performance both in the Americas and the rest of the world I thought our teams.
Speaker Change: The momentum that we had in Q4 engaged hard in Q1 executed as some of the things that we talk about are on policy deployment. The second piece is something that we've spoken about as well which is back in 2016 Aesop was primarily a filler metals company and we have been over these last seven years building out our equipment.
Shyam P. Kambeyanda: And we've been, over these last seven years, building out our equipment portfolio. And today, as we get into the marketplace, there were several customers that bought our filler metal and our consumables, but not our equipment. Today, that has fundamentally changed.
Speaker Change: Folio and.
Speaker Change: And today as we get into the marketplace. There were several customers that bought our.
Speaker Change: Our filler metal in our consumables, but not our equipment today that has fundamentally changed.
Shyam P. Kambeyanda: And so we see a tremendous amount of excitement. In fact, a couple of weeks ago, I was with our distributor members, and I can tell you that there's a significant amount of excitement on their side around our equipment portfolio. And what we hear is that they want us to do more, make it easier to do business with ESAB, to continue to put our products on their shelves and get them to their customers.
Speaker Change: And so we see a tremendous amount of excitement in fact, a couple of weeks ago I was with our distributor members and I can tell you that there is a significant amount of excitement on their side around our equipment portfolio and what we hear is that they want us to do more make it easier to do business with Aesop to continue to put our products on their shelf and get it to their customers and so that was.
Shyam P. Kambeyanda: And so that was an exciting reassurance for us on that particular front. So, primarily, number one is the fact that we have a portfolio today that works, that our customers want, and that our channel partners want. The second aspect of it has been execution.
Speaker Change: An exciting reassurance for us on that particular front. So primarily number one is the fact that we have a portfolio today that works that our customers want and that our channel partners won the second aspect of it has been down to execution I am really happy as to how we've standardized our AVX process around sales planning.
Shyam P. Kambeyanda: I'm really happy as to how we've standardized our EBX process around sales planning. We had a recent review with the North American region on their sales plan and how they were looking at their customers. The aspect of how we're using our product line simplification to identify key customers, determine what the share of wallet is, and what exactly needs to be done to drive share gain has been extraordinary. We're seeing that in North America. We're seeing that in South America and Europe and the Middle East. We're a little bit ahead on that journey.
Speaker Change: We had a recent review with the North American region on their sales plan and how they were looking at their customers. The aspect of how we are using our product line simplification to identify key customers determine what the share of wallet is and what exactly needs to be done to drive share gain has been extraordinary we're seeing that in North America.
Speaker Change: We're seeing that in South America, and Europe, and the Middle East, where a little bit ahead on that journey.
Mircea Dobre: And can you comment at all on how your gas control business has performed in the quarter and kind of what your expectations are for 2024?
Speaker Change: Understood and can you comment at all on how your gas control.
Speaker Change: Businesses.
Speaker Change: <unk> performed in a quarter and kind of what your expectations are for 2024.
Shyam P. Kambeyanda: Yeah, you know. We obviously love that part of the business. We believe that that is an opportunity sort of beginning to begin to differentiate ESAB. A big portion of that business, as you know, is exposed to great secular trends, in our view, the use of industrial gas. We saw some strong demand come out of all of our regions around industrial gas. Medical and spec gas continue to stay strong, but more reasonable off of some strong comparisons to last year.
Speaker Change: Yes.
Speaker Change: We obviously.
Speaker Change: We love that part of the business, we believe that that is an opportunity sort of beginning.
Speaker Change: To begin to differentiate aesop.
Speaker Change: A big portion of that business as you know.
Speaker Change: As exposed to great secular trends in our view the use of industrial gas.
Speaker Change: We saw some strong demand come out of all of our regions around industrial gas medical and spec gas continued to stay strong, but more reasonable off of some some strong comparisons to last year.
Shyam P. Kambeyanda: So we expect that business again to continue to perform somewhere in the mid single digits this year. Margin expansion in that business was also strong. We've got a great funnel for acquisitions as well. So we continue to expect to compound on that business in 2020.
So we expect that business again to continue to perform somewhere in that mid single digits. This year margin expansion in that business was also strong we've got a great funnel for acquisitions as well. So we continue to expect the compound on that business in 2024.
Mircea Dobre: Last point, just to clarify, and we're looking at your performance. Gas control is something that's kind of, It's fair to say that Variant. No, no, we actually. That's right, that's right.
Speaker Change: Last point just to clarify that when we're looking at your performance relative to peers.
Speaker Change: Gas control is something that is kind of unique to you. It's fair to say that that variance is not just the gas control businesses.
Speaker Change: No no we actually well that's right that's right. We actually saw very strong performance both on the fab Tech side and gas control side. So I would sum fundamentally saying I think we mentioned it briefly.
Shyam P. Kambeyanda: We actually saw very strong performance both on the Fabtech side and the gas control side. So you know, I would fundamentally say, and I think we mentioned it briefly in our commentary, Meg, that we saw really good growth in equipment, and we saw strong growth in automation on the Fabtech side, with filamental kind of staying quite stable. And then on the gas control side, very similar strength on the industrial side of gas with med gas and spec gas saying sort of in that lower single digit. And, you know, the other thing that I'd mentioned. We talked about it.
Speaker Change: In our commentary make is that we saw.
Speaker Change: Really good growth in equipment, and we saw strong growth in automation on the fab tech side with filler metal kind of staying quite stable.
Speaker Change: And then on the gas control side very similar strength on the industrial side of gas with med gas inspect gas, saying sort of.
Speaker Change: And that lower single digit range.
Speaker Change: Excellent. Thank you so much.
Shyam P. Kambeyanda: And, you know, the other thing that I'd mentioned, we talked a bit about the weather, but otherwise, we really felt good about the team's performance in the first quarter.
Speaker Change: The other thing that I'd mentioned, we talked a bit about the weather, but otherwise really feel good about the team's performance.
Speaker Change: In the first quarter.
Speaker Change: I appreciate it.
Speaker Change: Thanks, Mike.
Operator: Your next question comes from the line of Nathan Jones from Stiefel. Your line is open.
Speaker Change: Our next question comes from the line of Nathan Jones from Stifel. Your line is open.
Nathan Hardie Jones: I'll start with my one question and seven follow-ups. I wanted to start with some questions on pricing. Obviously, strong pricing in America, plus 5%, and the outside Americas was down 3%. Can you talk a little bit about the disparity in the pricing there, what's driving that, whether it's, you know, just differences in the cost base that's coming in, just any details you can give us on the disparity in pricing amongst the regions.
Nathan Hardie Jones: I'll stop my one question and seven follow ups.
Nathan Hardie Jones: I wanted to start off with some questions with some questions on pricing.
Obviously strong pricing in America, plus 5% and the <unk>.
Nathan Hardie Jones: Outside of Americas was down 3% can you.
Nathan Hardie Jones: Talk a little bit about the disparity in the pricing there what's driving that whether it's.
Nathan Hardie Jones: Differences in the cost base, that's coming in.
Speaker Change: Just any details you can give us on the disparity in pricing amongst the regions.
Shyam P. Kambeyanda: Yeah, thank you for that question, Nathan. It's always good to hear from you.
Speaker Change: Yes. Thank you for that question Nathan always good to hear from you.
Shyam P. Kambeyanda: So, a couple of aspects, you know; we talked about three aspects around pricing. First, around just value pricing and new products coming into the market. Second, we talked about our PLS-led initiative around pricing. And then the third one was inflation-based.
Speaker Change: So a couple of aspects you know we've talked about three aspects around pricing versus being around just value pricing and new products coming into the market.
Speaker Change: Second we talked about are our pls led initiatives.
Speaker Change: Around pricing and then the third one was inflation base. So.
Shyam P. Kambeyanda: The piece for us in North America, we're seeing a bit of both PLS and inflation-based pricing. And then in Europe, we are, or the rest of the world, we're focused on net price. And so because of that, you know, our teams are focused on what's happening to our cost structure and what we are doing to determine a net price situation to be positive. And so what we loved about both of our regions is that margins expanded in both the Americas and in the rest of the world as a result of that activity, which shows the robustness of our process around pricing and discipline that our teams have.
Speaker Change: The piece for Us in North America, we're seeing a bit of both pls and inflation based pricing.
Speaker Change: And then in Europe, where are the rest of the world we're focused on net price and.
Speaker Change: So by that.
Speaker Change: Teams are focused on what's happening to our cost structure and what are we doing to determine a net price situation to be positive and so what we loved about both of our regions is that margins expanded.
In both the Americas and in the rest of the World as a result of that activity and shows the robustness of our process around pricing and discipline that our teams have.
Nathan Hardie Jones: Could you then comment on what we should expect from pricing for the remainder of the year, whether it should stay nicely positive in America, and whether you expect it to continue to be on that headline number negative for the rest of the world?
Speaker Change: Could you then.
Speaker Change: Dan can comment on what we should expect from pricing for the remainder of the year, whether it should stay nicely positive in the Americas and if you expect it to continue to be on that headline number negative for for the rest of the world.
Shyam P. Kambeyanda: Yeah, let me give that to Kevin, Nathan, go ahead.
Now, let me give that to Kevin.
Kevin J. Johnson: Yeah Nathan, so we'll continue to monitor price using our net price tool as Shyam mentioned. At this point, our expectation is that we'll see a low single-digit price for the overall business, but we'll react to anything that happens in the market as we've shown we're able to do. Our expectation would be that there will be a stronger price in the Americas as we go through the year and less price
Kevin J. Johnson: Yes, So we'll continue to monitor.
Kevin J. Johnson: This season, our net price.
Kevin J. Johnson: <unk> mentioned.
Kevin J. Johnson: At this point our expectation is that we will see low single digit price for the overall.
Kevin J. Johnson: But we will react to anything that happens in the market as we've shown we're able we're able to D. R.
Kevin J. Johnson: Our expectation would be that there will be a stronger price in the Americas as we go through the year unless price in the EMEA and APAC region.
Nathan Hardie Jones: Great, thanks for taking my question and my follow up.
Speaker Change: Great. Thanks for taking my question and one follow up.
Shyam P. Kambeyanda: All right, thanks.
Speaker Change: Okay. Thanks Nathan.
Speaker Change: Yes.
Operator: Your next question comes from the line of Tami Zakaria from J.P. Morgan. Your line is open.
Speaker Change: Your next question comes from the line of Tami Zakaria from Jpmorgan. Your line is open.
Tami Zakaria: Hi, good morning. Thank you so much. And I do want to say quite a good quarter with organic revenue growth considering what some of the welding peers have reported so far. So congrats on that. So my questions are actually related to the acquisitions. So the first question is, you talked about incremental TAM; can you size the total addressable market for maintenance and repair and also light automation and how these new acquisitions would position you to penetrate these end markets, and what's really the growth rate of these, both MRO and light automation, as you think about these markets over the next few years?
Tami Zakaria: Hi, good morning, and thank you so much and I do want to think quite a good quarter with organic revenue growth.
Tami Zakaria: Considering the welding tirasemtiv pretzel far so congrats on that.
My questions are actually related to the acquisitions.
Tami Zakaria: And so the first question is.
Tami Zakaria: You talked about incremental Tam can you size, the total addressable market for maintenance and repair and also light automation and how these new acquisitions would position you to penetrate in these end markets and what's really the growth outlook.
Both.
Tami Zakaria: <unk> and light automation.
And as you think about these markets over the next few years.
Shyam P. Kambeyanda: Yeah, thank you, Tami. Yeah, we are very pleased with the business performance and really thrilled for our teams as they sort of continue to perform in both the Americas and the rest of the world. In terms of the acquisition, you're spot on. I think the Sager acquisition in South America gives us greater exposure to the MRO market, which we find to be very stable, less cyclical, and with a better margin profile. So it's not that you're sort of expanding into space.
Speaker Change: Yes. Thank you Tammy Yeah, we are very pleased with the business performance and really thrilled.
Speaker Change: For our teams as they sort of continue to execute in both the Americas and the rest of the world.
Speaker Change: And in terms of the acquisition us Youre spot on I think the CAGR acquisition in South America gives us greater exposure to the MRO market, which we find to be very stable less cyclical and better margin profile.
Speaker Change: So its not that youre sort of expanding.
Shyam P. Kambeyanda: Our exposure to that space increases as a result of this. We expect the MRO space to be very stable and less cyclical through any cycle of the market. So that's the piece on Sager. On the swimming acquisition, you're spot on.
Speaker Change: Into this space our exposure into that space increases as a result of this we expect the MRO space to be very stable and less cyclical through any cycle of the market. So that's the piece on Sega on assuming acquisition Youre spot on we love the aspect that it's light automation.
Shyam P. Kambeyanda: We love the aspect that it's light automation. By light automation, we put it in the categories of cobots, standardized robotics, nothing that sort of has large material handling as part of the solution set. And we think, if you remember our investor day deck, we talked about that market for equipment and automation being about $12 billion and growing to $17 billion. And our intention is that those are the segments, especially on the lighter side, where you're focused on the process solution.
Speaker Change: That automation, we put it in the categories of Cobalts standardize robotics, nothing that sort of has large material handling as part of <unk>.
Speaker Change: Part of the the.
Speaker Change: The solution set and.
Speaker Change: And we think.
Speaker Change: If you remember our Investor day that we had talked about that market equipment and automation being about $12 billion in growing to 17.
Speaker Change: And our intention is that those are the segments, especially on the lighter side, where youre focused on the process solution.
Shyam P. Kambeyanda: We think that that's a great growth market, less capital-intensive, will have better market characteristics, and obviously, we love the margin profile of that particular side of the business. And that's what Sumit gets us, a strong presence in the Americas, with some beachheads also in the US.
Speaker Change: We think that that's.
Speaker Change: That's a great growth market less capital intensive.
Speaker Change: We'll have better better market characteristics, and obviously, we love the margin profile of that particular side of the business and Thats, what Sumit gets us strong presence in the Americas.
Speaker Change: With some beachheads also in the U S.
Tami Zakaria: Got it. Okay, so that's helpful. And so my follow-up question is, can you sort of size what type of sales and EPS accretion you expect from SEGA and Filming in year one? Basically, I'm trying to understand what kind of EBITDA these two businesses are making now and what kind of accretion we can expect.
Speaker Change: Got it okay. So that's helpful and for my follow up Ed.
Speaker Change: Can you sort of size, what type of sales and EPS accretion.
Speaker Change: <unk> from Sig.
Speaker Change: So Meg.
Speaker Change: In year, one basically I'm trying to understand what kind of EBITDA.
Speaker Change: The two businesses, making now and what kind of accretion we can fix.
Speaker Change: Spec.
Kevin J. Johnson: Yeah, go ahead, Kevin. Yeah, so Tami Zagar, we've built that into the guidance already. It's around $10 million of revenue we're expecting for this year. For the last 12 months, it generated around $30 million of revenue. Obviously, we haven't built it into the guidance because it hasn't closed yet. We expect it to close in the second half of 2024. Once it closes, we'll give some updates in terms of what we build into the guidance for this year. The good news is that both of these acquisitions are both EBITDA accretive, and both will be EPS accretive in their first year.
Speaker Change: Yeah go ahead, Kevin yes, so.
Kevin J. Johnson: Tommy Seeger, we've built into the guidance already it's around $10 million.
Kevin J. Johnson: Revenue, we're expecting for this year.
Kevin J. Johnson: <unk>.
Kevin J. Johnson: For the last 12 months that generated around $30 million with revenue.
Speaker Change: Obviously, we haven't built it into the guidance because it hasnt closed yet we expect it to close in the second half of 2020 for once it closes we'll give some update in terms of what we what we built into the.
Speaker Change: Guidance for this year.
Speaker Change: News is that both of these acquisitions are both EBITDA accretive on both will be EPS accretive in their first year.
Tami Zakaria: You got it. Okay. Thank you. Again, if you would like to ask a question, press star, then number one on your telephone keypad. We'll pause for just a moment.
Speaker Change: Got it okay. Thank you.
Operator: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Alright.
Operator: If there are no more questions, thank you for dialing in today, and we look forward to talking to you on the next quarterly call.
Speaker Change: If there are no more questions.
Speaker Change: Thank you for dialing in today, and we look forward to talking to you on the next quarterly call.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
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