Q2 2024 ESAB Corp Earnings Call

Amy: Thank you for standing by. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the ESAB Second Quarter 2024 Earnings Conference Call. Please note that all lines have been placed on mute to prevent any background noise.

Operator: At this time, I would like to welcome everyone to the ESAB Second Quarter 2024 Earnings Conference Call. Please note that 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 would like to ask a question during this time, please press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star and the number.

Amy: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press the star and the number 1.

Operator: It is now my pleasure to turn the call over to Mark Barbalato, Vice President of Investor Relations. Thanks, Operator. Welcome to ESAB's second 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 intent to update these forward-looking statements, except as required by law.

Mark Barbalato: It is now my pleasure to turn the call over to Mark Barbalato, Vice President of Investor Relations. Please go ahead.

Mark Barbalato: Thanks, Operator. Welcome to ESAB's second 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.

Speaker Change: Actual results may differ, and we do not assume any obligation or intent to update these forward-looking statements, except as required by law.

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.

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. Thank you, Mark, and good morning, everyone. Thank you all for joining us today.

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

Shyam Kambeyanda: Thank you, Mark, and good morning, everyone. Thank you all for joining us today. We delivered another strong quarter highlighted by positive organic revenue growth while improving our product mix towards equipment.

Shyam Kambeyanda: We delivered another strong quarter highlighted by positive organic revenue growth while improving our product mix towards equipment. We utilized our EBX toolkit to achieve record margins and cash flow. As a result, lowering our net leverage ratio to 1.7, and we closed on another acquisition. It is important to highlight that we executed well and delivered strong results, benefiting from our exposure to high growth markets, although this was moderated by softness in development. While I'm encouraged by our progress, we're far from satisfied.

Speaker Change: We utilized our EBX toolkit to achieve record margins and cash flow.

Speaker Change: As a result, lowering our net leverage ratio to 1.7 and we closed on another acquisition.

Speaker Change: It is important to highlight that we executed well and delivered strong results, benefiting from our high growth markets exposure that was moderated by softness in developed markets.

Shyam Kambeyanda: I'm confident that we'll continue to raise the bar, find new avenues for growth, expand our margins, and improve cash flow. Before diving into the numbers, just like last time, let me share the passion our team has for our mission of shaping the world we imagine. Maybe some of you read the Wall Street Journal article last quarter where Gen Z has been dubbed the tool belt generation.

Speaker Change: While I'm encouraged by our progress, we're far from satisfied. I'm confident that we'll continue to raise the bar, find new avenues for growth, expand our margins, and improve cash flow.

Speaker Change: Before diving into the numbers, just like last time, let me share the passion our team has towards our mission of shaping the world we imagine.

Speaker Change: Maybe some of you read the Wall Street Journal article last quarter, where Gen Z has been dubbed the tool belt generation.

Shyam Kambeyanda: On a more personal note, I've led ESAB for the last eight years, and I'm very proud of our team's time and resource contributions every day to train the next generation of welders. We see this as a way to engage and connect with the next generation. This year, we teamed up with the nonprofit organization, Welder Underground, and the Innovative Apprenticeship Program that trains the next generation of welders through large-scale public projects. Students here apply to the program to establish a non-profit focus on Youth Empowerment.

Speaker Change: Here on a more personal note, I've led ESAB for the last eight years, and I'm very proud of our team's time and resource contributions every day to train the next generation of welders.

Speaker Change: We see this as a way to engage and connect with the next generation.

Speaker Change: This year, we teamed up with the non-profit organization, Welder Underground.

Speaker Change: an innovative apprenticeship program that trains the next generation of welders through large-scale public projects.

Speaker Change: Students here apply to the program to establish non-profit focused on youth empowerment.

Shyam Kambeyanda: They receive a stipend during their apprenticeship and are prepared for the American Welding Society's certification upon completion. I've had a chance to meet the current apprentices who are upgrading their skills. They're part of creating Weld Underground's first public project, a metal structure celebrating hip-hop, which is currently being featured around New York City.

Speaker Change: They receive a stipend during their apprenticeship and are prepared for American Welding Society's certification upon completion.

Speaker Change: I've had a chance to meet the current apprentices who are upgrading their skills.

Speaker Change: They're part of creating Weld Underground's first public project, a metal structure celebrating hip-hop.

Shyam Kambeyanda: It has been truly heartwarming to see the impact of this initiative, and we're thrilled to be part of this collaboration as it provides unique and impactful pathways to employment in the trade. I will continue to share more stories that reflect our passion for the industry and reinforce our mission of shaping the world we imagine on an upcoming call. Moving to slide three to discuss the specifics of the quarter and our performance. As I mentioned earlier, our teams continue to execute well.

Speaker Change: which is currently being featured around New York City. It has been truly heartwarming to see the impact of this initiative and we're thrilled to be part of this collaboration as it provides unique and impactful pathways to employment in the trades.

Speaker Change: I will continue to share more stories that reflect our passion for the industry and reinforce our mission of shaping the world we imagine in upcoming calls.

Speaker Change: Moving to slide 3 to discuss the specifics of the quarter and our performance.

Shyam Kambeyanda: Over the past several years, we have been focused on designing and developing innovative products that provide our customers with comprehensive workflow solutions. We're leveraging our EBX processes, AI, and data analytic tools to improve service levels and on-time delivery, increasing customer retention, and driving greater efficiency across our enterprise. While we cannot control the economic backdrop, we're focused as a business, we know what we're good at, and we intend to improve on all aspects of our business that are in our control, talking about the second quarter in particular.

Speaker Change: As I mentioned earlier, our teams continue to execute well. Over the past several years, we have been focused on designing and developing innovative products that provide our customers with comprehensive workflow solutions.

Speaker Change: We're leveraging our EBX processes, AI, and data analytic tools to improve service levels and on-time delivery.

Speaker Change: increasing customer retention and driving greater efficiency across our enterprise.

Speaker Change: While we cannot control the economic backdrop, we're focused as a business. We know what we're good at, and we intend to improve on all aspects of our business that are in our control.

Shyam Kambeyanda: We achieved positive organic growth of 1%, reflecting continued strength in our high-growth markets, offset by moderating conditions and development. Notably, we experienced high single-digit growth in equipment and automation and double-digit growth year-to-date in COBOL. Adjusted EBITDA increased by 600 basis points, with adjusted EBITDA margins expanding by 150 basis points to a record 20.1%.

Speaker Change: Talking about the second quarter in particular, we achieved positive organic growth of 1%, reflecting continued strength in our high growth markets, offset by moderating conditions in developed markets.

Speaker Change: Notably, we experienced high single-digit growth in equipment and automation, and double-digit growth year-to-date in COBOTs.

Speaker Change: Adjusted EBITDA increased by 600 basis points with adjusted EBITDA margins expanding by 150 basis points to a record 20.1 percent.

Shyam Kambeyanda: This strong margin performance was driven by our team executing our strategy to drive a favorable make, with our best-in-class updated equipment portfolio and our focus on less cyclical automation and mission-critical gas control products. EBX, LEAN, and AI initiatives continue to improve cash flow generation, enabling our compounded journey and allowing us to strengthen our balance. We're excited about the recent acquisition of Lindy's welding business in Bangladesh, which I will discuss in more detail shortly. This acquisition builds on our recent acquisitions of Sager and Sumit.

Speaker Change: This strong margin performance was driven by our team executing our strategy to drive a favorable mix.

Speaker Change: with our best-in-class updated equipment portfolio and our focus on less cyclical automation and mission-critical gas control products.

Speaker Change: EBX, LEAN, and AI initiatives continue to improve cash flow generation, enabling our compounder journey, and allowing us to strengthen our balance sheet.

Speaker Change: We're excited about the recent acquisition of Lindy's Welding Business in Bangladesh, which I will discuss in more detail shortly. This acquisition builds on our recent acquisitions of Sager and Sumic.

Shyam Kambeyanda: Let me take this moment to thank our associates for their hard work, dedication, and commitment to delivering a long-term goal. Moving to slide four, in spite of the challenging end markets, as we look back at the first half of 2024, I'm proud of the progress we've made. It is a testament to our focus and our ability to, and I submit that our results this quarter reflect that. We've reduced the cyclicality of our business through product line simplification, new product introduction, and focused our teams on less cyclical ed markets.

Speaker Change: Let me take this moment to thank our associates for their hard work, dedication, and commitment towards delivering our long-term goals.

Speaker Change: Moving to slide four, in spite of the challenging end markets, as we look back at the first half of 2024, I'm proud of the progress we've made. It is a testament to our focus and our ability to execute, and I submit our results this quarter reflect that.

Speaker Change: We've reduced the cyclicality of our business through product line simplification, new product introductions, and focused our teams on less cyclical end markets.

Shyam Kambeyanda: I've had a chance to speak to our channel partners, and there continues to be significant positive feedback on our new equipment product. Over the past eight years, we've consistently demonstrated bifocal leadership, achieving both short-term and long-term goals.

Speaker Change: I've had a chance to speak to our channel partners and there continues to be significant positive feedback on our new equipment products.

Speaker Change: Over the past eight years, we've consistently demonstrated bifocal leadership, achieving both short-term and long-term goals.

Shyam Kambeyanda: We've protected our R&D investment and capital associated with growth initiatives. In the next slides, you'll see how our leadership in digital analytics solutions and monitoring is helping us grow. Our acquisition pipeline is strong, and with our demonstrated ability to generate strong cash flow, we believe we can continue to acquire less cyclical and margin-accretive businesses. Moving to slide five to highlight our digital strategy, we are continuously strengthening our industry digital solutions portfolio.

Speaker Change: We've protected our R&D investment and capital associated with growth initiatives. In upcoming slides, you'll see how our leadership in digital analytics, solutions, and monitoring is helping us grow faster.

Speaker Change: Our acquisition pipeline is strong and with our demonstrated ability to generate strong cashflow, we believe we can continue to acquire less cyclical and margin accretive businesses.

Speaker Change: Moving to slide five to highlight our digital strategy.

Speaker Change: We are continuously strengthening our industry digital solutions portfolio.

Shyam Kambeyanda: This quarter, we're launching our new FlowCloud product, which allows our customers to monitor gas consumption, set and track flow limits, and access upgraded analytics. Float Couts allows our customers to customize their digital gas monitoring needs while allowing us to provide a full workflow solution. Let me give you a bit more color.

Speaker Change: This quarter, we're launching our new FlowCloud product, which allows our customers to monitor gas consumption, set and track flow limits, access upgraded analytics.

Speaker Change: Float Couts allows our customers to customize the digital gas monitoring needs while allowing us to provide a full workflow solution.

Shyam Kambeyanda: A gas control business recently partnered with a gas manufacturer to help them secure a new OEM business. We partnered with the gas company to provide a fully integrated gas management and monitoring system to measure flow, pressure, consumption, and report on outages. This use case is expected to lead further partnerships with key gas manufacturers. Digital Solutions within Fabtech has also been gaining strength, with licenses up 50% year-over-year, creating over $25 million in pull-through sales for equipment and filament. In this suite, our digital solutions allow ESAB to differentiate itself.

Speaker Change: Let me give you a bit more color, a gas control business recently partnered with a gas manufacturer to help them secure a new OEM business.

Speaker Change: We partnered with the gas company to provide a fully integrated gas management and monitoring system to measure flow, pressure, consumption, and report on outages.

Speaker Change: This use case is expected to lead further partnerships with key gas manufacturers.

Speaker Change: Digital solutions within Fabtech has also been gaining strength.

Speaker Change: which licenses up 50% year-over-year, creating over $25 million in pull-through sales for equipment and filler metal.

Speaker Change: In this suite, our digital solutions allow ESAB to differentiate itself.

Shyam Kambeyanda: Over the last eight years, we've built a formidable R&D capability around the globe. We have revamped our equipment portfolio, strengthened our gas control business, and entered faster growing markets. So we're excited about our future, and as I've said before, we're just getting started. Moving to slide six to talk about the latest acquisition, our third one this year. We are particularly excited about the acquisition of Lindy's welding business in Bangladesh. This acquisition fills a geographic gap in Asia and cements our position as the leading Fabtech company in this fast-growing region. Bangladesh, with a population of approximately 170 million and a projected GDP growth in the high single digits over the next decade, offers ESAB significant growth opportunities.

Speaker Change: Over the last eight years, we've built a formidable R&D capability around the globe. We have revamped our equipment portfolio, strengthened our gas control business, and entered faster-growing markets, so we're excited about our future. And as I've said before, we're just getting started.

Speaker Change: Moving to slide six to talk about the latest acquisition, our third one this year.

Speaker Change: We are particularly excited about the acquisition of Lindy's Welding Business in Bangladesh.

Speaker Change: This acquisition fills a geographic gap in Asia and cements our position as the leading Fabtech company in this fast-growing region.

Speaker Change: Bangladesh with a population of approximately 170 million and a projected GDP growth in the high single digits over the next decade offers ESAB significant growth opportunities.

Shyam Kambeyanda: This edition builds on our leadership position in India and Southeast Asia. We expect to extract significant synergies by selling ESAB equipment into this attractive Bangladeshi market. Let me remind you, this is a $20 million business with accretive EBITDA margins and significant opportunities for additional growth. Turning to slide seven, let's discuss the performance in the quarter. As previously mentioned, organic sales grew 100 basis points driven by strong performance in equipment and automation businesses, which saw high single-digit growth.

Speaker Change: This edition builds on our leadership position in India and Southeast Asia.

Speaker Change: We expect to extract significant synergies by selling ESAB equipment into this attractive Bangladeshi market.

Speaker Change: Let me remind you, this is a $20 million business with accretive EBITDA margins with significant opportunities for additional growth.

Shyam Kambeyanda: Adjusted EBITDA expanded 150 basis points year over year to a record 20.1 driven by our EBX initiatives across the enterprise, and our AI initiatives are gaining traction for further efficiency. Moving to slide eight, it was great to see our Americas sales team execute on our growth strategies for gas control equipment and automation in the quarter. In the Americas, organic sales grew 400 basis points, driven by strong price performance of 3% and an additional 1% from volume.

Speaker Change: Turning to slide 7, let's discuss the performance in the quarter.

Speaker Change: As previously mentioned, organic sales grew 100 basis points, driven by strong performance in equipment and automation businesses, which saw high single digits growth.

Speaker Change: Adjusted EBITDA expanded 150 basis points year over year to a record 20.1, driven by our EBX initiatives across the enterprise.

Speaker Change: and our AI initiatives are gaining traction for further efficiency.

Speaker Change: Moving to slide 8, it was great to see our America's sales team execute on our growth strategies for gas control, equipment, and automation in the quarter.

Speaker Change: In the Americas, organic sales grew 400 basis points, driven by strong price performance of 3% and an additional 1% from volume.

Shyam Kambeyanda: I am pleased with our ability to gain, share, and improve our mix towards equipment. We also benefited from having less exposure to highly cyclical end markets. Our focus and price discipline drove 210 basis points of expansion and adjusted EBITDA margin, which reached a record 20.9%.

Speaker Change: I am pleased with our ability to gain share and improve our mix towards equipment.

Speaker Change: We also benefited from having less exposure to highly cyclical end markets.

Speaker Change: Our focus and price discipline drove 210 basis points of expansion and adjusted EBITDA margin, which reached a record 20.9%.

Shyam Kambeyanda: Moving to slide nine, which highlights the performance of our EMEA and APAC regions. Our teams in Europe, Asia, and the Middle East delivered a strong operating performance, volume increased by 100 basis points, while European filler metal demand soars. This was offset by sales execution of our equipment and automation workflow solution.

Speaker Change: Moving to slide 9, which highlights the performance of our EMEA and APAC regions, our teams in Europe , Asia, and the Middle East delivered a strong operating performance.

Speaker Change: Volume increased by 100 basis points, while European filler metal demand softened.

Speaker Change: This was offset by sales execution of our equipment and automation workflow solutions.

Shyam Kambeyanda: Let me mention again that we continue to see strength in high-growth markets. Our team's discipline in net pricing and operating efficiency enabled us to expand adjusted EBITDA margins by 110 basis points year over year to 19.5%. On that positive note, let me hand it to Kevin on slide 10.

Speaker Change: Let me mention again, we continue to see strength in high growth markets.

Speaker Change: Our team's discipline in net pricing and operating efficiency enabled us to expand adjusted EBITDA margins by 110 basis points year-over-year to 19.5%.

Speaker Change: On that positive note, let me hand it to Kevin on slide 10.

Kevin Johnson: Thanks Shyam and good morning everyone. We had another terrific quarter, and EBX continues to successfully drive improvements in cash flow, which was up 21% in the first half of 2024. We are using this improved cash flow to support our 2028 strategy. Firstly, we're investing to support our organic growth. Equipment Mix and making investments that are taking charge. Secondly, to fund bolt-on acquisitions that are fast-growing, margin-accretive, and delivering strong cash flow like Lindy Bangladesh. And thirdly, we increased our dividend in the second quarter by 33% to 8 cents per share.

Kevin: Thanks Shyam and good morning everyone. We had another terrific quarter. EBX continues to successfully drive improvements in cash flow which was up 21% in the first half of 2024.

Kevin: We are using this improved cash flow to support our 2028 strategy. Firstly, we're investing to support our organic growth.

Kevin: Improving our equipment mix and making investments that are taking share.

Kevin: Secondly, to fund

Kevin: bolt-on acquisitions that are fast-growing, margin-accretive, and delivering strong cash flow like Lindy Bangladesh. And thirdly, we increased our dividend in the second quarter by 33% to 8 cents per share.

Kevin Johnson: ESAB's balance sheet is in the strongest position since we spun out of Colfax, with net leverage today of only 1.7 turns. We are well positioned to drive even higher cash flow and continue to successfully execute our 2028 compounder strategy. Moving now to slide number 11.

Aesop: ESAB's balance sheet is in the strongest position since we spun out of Colfax, with net leverage today of only 1.7 turns.

Aesop: We are well positioned to drive even higher cash flow and continue to successfully execute our 2028 compounder strategy.

Kevin Johnson: We have updated our full year guidance to reflect changes on the top line, as Shyam discussed. Sales Guidance of Flat Organic Core Growth Reflects moderating developed markets and continued strength in our high growth market. We expect volume and price to be flat, with a point of additional FX headwind due to a stronger US dollar and half a point of M&A growth from the Lindy Bangladesh acquisition. Our team is focused on controlling the controllable, adjusted EBITDA margins at the midpoint of our guidance has increased by 50 basis points to 19.5%. This improvement is due to new EBX initiatives. Improved product mix and $5 million of additional benefits from restructuring projects. Adjusted EPS remains unchanged, benefiting from a lower interest expense, and cash flow conversion remains on track.

Speaker Change: Moving now to slide number 11. We have updated our full year guidance to reflect changes on the top line as Shyam discussed.

Shyam Kambeyanda: Sales guidance of flat organic core growth reflects moderating developed markets and continued strength in our high growth markets.

Shyam Kambeyanda: We expect volume and price to be flat.

Shyam Kambeyanda: A point of additional FX headwind due to a stronger US dollar and half a point of M&A growth from the Lindy Bangladesh acquisition.

Shyam Kambeyanda: Our team is focused on controlling the controllable.

Shyam Kambeyanda: Adjusted EBITDA margins at the mid-point of our guidance has increased by 50 basis points to 19.5%.

Shyam Kambeyanda: This improvement is due to new EBX initiatives.

Shyam Kambeyanda: Improved product mix and $5 million of additional benefits from restructuring projects.

Shyam Kambeyanda: Adjusted EPS remains unchanged.

Shyam Kambeyanda: benefiting from a lower interest expense and cash flow conversion remains on track.

Shyam Kambeyanda: With that, let me hand it back to Shyam on slide 12 to wrap up. Thank you, Kevin. To summarize, we continue to execute well in a challenging environment, as reflected in our strong second quarter operating performance. We continue to drive EBX across the business to deliver better margins and cash flow. Strengthening our balance sheet while adding AI to our toolkit. Today, ESAB is a less cyclical, higher margin, and stronger cash flow generating enterprise, allowing us to execute our compounder strategy.

Shyam Kambeyanda: With that, let me hand back to Shyam on slide 12 to wrap up.

Shyam Kambeyanda: Thank you, Kevin. To summarize, we continue to execute well in a challenging environment as reflected in our strong second quarter operating performance.

Shyam Kambeyanda: We continue to drive EBX across the business to deliver better margins and cash flow.

Speaker Change: Strengthening our balance sheet while adding AI to our toolkit.

Speaker Change: Today, ESAB is a less cyclical, higher margin, and stronger cash flow generating enterprise, allowing us to execute our compounder strategy.

Speaker Change: We are confidently moving towards our 2028 goals of $4 billion in revenue, 22 plus percent of EBITDA margin, and 100 percent free cash flow conversion.

Speaker Change: We have a focused business and a focused team with a lot of runway ahead of us.

Operator: We are confidently moving towards our 2028 goals of $4 billion in revenue, 22 plus percent EBITDA margin, and 100 percent free cash flow conversion. We have a focused business and a focused team with a lot of runway ahead of us. With that, Operator, let's open the line for questions. Thank you. The floor is now open for questions. As a reminder, please press the star and the number one on your keypad to raise your hand to join the queue. If you're called upon to ask a question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: With that, operator, let's open the line for questions.

Speaker Change: Thank you. The floor is now open for questions. As a reminder, please press star and the number one on your keypad to raise your hand to join the queue.

Speaker Change: If you're called upon to ask a question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: We do request for today's session that you please limit your questions to one and one follow-up, and then you may return to the queue if you have more questions. Again, press star 1 to enter the queue. Our first question comes from the line of Meg Dobre with Baird. Your line is now open. Thank you. Good morning, everyone.

Speaker Change: We do request for today's session that you please limit to one question, one follow-up, and then you may return to the queue if you have more questions. Again, press star 1 to enter the queue.

Speaker Change: Our first question comes from the line of Meg Dobre with Baird. Your line is now open.

Shyam Kambeyanda: Congratulations on a good quarter here. I guess my first question, Shyam. I'd love to hear more of your thoughts in terms of what kind of drove the adjustment in your growth guidance that you had to provide. Obviously, we know that the environment's gotten a little bit tougher, but from your perspective, are there some geographic call-outs or maybe some end markets that you'd be able to highlight for us that are progressing to be a little bit different than you saw three months ago? And as you look forward for the remainder of the year, what are some of the puts and, for Downside Risk, or at the same time, maybe some opposites to that? Yeah, good morning, Meg.

Mick Dober: Thank you. Good morning, everyone, and congrats on a good quarter here. I guess my first question, Shyam.

Mick Dober: I'd love to hear more of your thoughts in terms of what kind of drove the adjustment in your growth guidance that you had to provide. Obviously, we know that the environment's gotten a little bit tougher, but from your perspective,

Speaker Change: Are there some geographic callouts or maybe some end markets that you'd be able to highlight for us that are progressing to be a little bit different than you saw three months ago?

Speaker Change: And as you look forward for the remaining, for the remainder of the year, what are some of the puts and takes to your thinking, you know, where are you seeing maybe potential for downside risks or at the same time, maybe some offsets to that?

Shyam Kambeyanda: Thanks for the question. So I agree with you that posting volume positive growth, both in the Americas and the rest of the world, was an extraordinary performance for us and gives us great confidence about the team's capability to execute. You're right.

Meg: Yeah, good morning, Meg.

Speaker Change: Thanks for the question. So I agree with you, a really strong quarter from ESAB. We felt that posting volume positive growth both in the Americas and the rest of the world was was an extraordinary performance for us.

Speaker Change: gives us great confidence about the team's capability to execute.

Shyam Kambeyanda: We sort of did a couple of things this quarter. For one, we maintained our EPS guidance against the backdrop. We obviously improved our EBITDA percentage for the full year. And then, on the top line, what we found is that our developed markets moderated and slowed a little bit from the start that we had in Q1. And that's really what drove us to sort of think about the rest of the year and sort of guide ourselves to a point that we felt confident about at this point in time.

Speaker Change: You're right, we sort of did a couple of things this quarter. One, we maintained our EPS guidance against the backdrop. We obviously improved our EBITDA percentage for the full year. And then on the top line, what we found is our

Speaker Change: Developed markets moderated and slowed a little bit from the start that we had in Q1. And that's really what drove us to sort of think about the rest of the year.

Speaker Change: and sort of guide to a point that we felt confident about at this point in time.

Shyam Kambeyanda: Now, it's also important to state that we have July behind us, and it started off very similar to where we ended the second quarter. So it gives us confidence about the forecast and the fact that, yes, we did see some slowdown in the stuff that you've talked about, yellow goods to some extent, ag, and, you know, in particular, the auto industry in Europe a little bit. But then we've also seen energy stay up. We've seen defense stay up.

Speaker Change: Now, it's also important to state that we have got July behind us and it started off very similar to where we ended the second quarter, so it gives us confidence about the forecast and the fact that

Speaker Change: Yes, we did see some slowdown in the stuff that you've talked about, yellow goods to some extent, ag in particular, auto in Europe a little bit.

Speaker Change: But then we've also seen energy stay up, we've seen defense stay up. So all in all, it's a mixed bag that sort of points us to this flattish number that we're talking about.

Shyam Kambeyanda: So, all in all, it's a mixed bag that sort of points us to this flattish number that we're talking about. Sure. Thank you for the color.

Shyam Kambeyanda: Then I guess my follow-up. Your balance sheet is in increasingly good shape here. You know, you've done three deals here to date. I'm curious as to how the pipeline is evolving here and whether or not we should be starting to think about maybe larger deals, given that your balance sheet and cash flows seem to be able to support them. Yeah, I think our view on that topic is sort of solid and disciplined. You know, we've talked about creating a less cyclical, higher-margin business. And so that's probably the first set of lenses that we'll look at.

Speaker Change: Sure. Thank you for the call. Then I guess my follow-up...

Speaker Change: Your balance sheet is in increasingly good shape here.

Speaker Change: I'm curious as to how the pipeline is evolving here and whether or not we should be starting to think about maybe larger deals given that your balance sheet and cash flows seem to be able to support it. Thank you.

Speaker Change: Yeah, Meg, I think our view on that topic is sort of solid and disciplined, you know, we've talked about creating a less cyclical, higher margin business, and so that's probably the first set of lenses that we look at, and the second one is...

Shyam Kambeyanda: And the second one is we'd like the gross margins to be about 40 percent with great characteristics of cash flow. So we're not going to be coming off of those two sets of lenses that we want to look at acquisitions for. That being said, the acquisition funnel looks good. You know, obviously, closing on some of these deals takes two. But we do have some prospects out there that have a chance of getting done in the back half of this year.

Speaker Change: We'd like the gross margins to be about 40% with great characteristics of cash flow.

Speaker Change: So we're not going to be coming off of those two sets of lenses that we want to look at acquisitions for. That being said, the acquisition funnel looks good. You know, obviously, closing on some of these deals takes two.

Speaker Change: But we do have some prospects out there that have a chance of getting done in the back half of this year.

Shyam Kambeyanda: But nothing that sort of gets us past that number that we've always put out there where, you know, we've got a two in front of our leverage ratio, and we think we've got plenty of things out there along with our cash flow to do both. Great, thank you. Your next question comes from Nathan Jones with Stifle. Your line is now open. Good morning, everyone.

Speaker Change: but nothing that sort of gets us.

Speaker Change: past that number that we've always put out there where, you know, we've got a two in front of our leverage ratio. And we think we've got plenty of things out there along with our cash flow to do both.

Speaker Change: Great. Thank you.

Speaker Change: Your next question comes from Nathan Jones with Stifle. Your line is now open.

Shyam Kambeyanda: Hi there. Hi there. Hi there. Just a couple follow-ups on how the second quarter progressed and where you saw the weakness coming from, and I'm kind of interested in it a little bit more from a product perspective as well. Doc, did you say consumables start to wake up first?

Nathan Jones: Good morning, everyone.

Shyam Kambeyanda: It sounds like consumables were. Do we maintain stability, or do you think there's a risk that we continue to see some downtime? Yeah, I think I mentioned it in the script as well, Nathan. I think we talked about filamentals, especially the auto side of them in Europe, slowing down a bit, but then we did see a lot of strength when it came to our flux code wire and flux product lines associated with the wind side of things. So it was sort of, you know, there was a piece that moderated, and there were pieces that looked good.

Nathan Jones: Hi, Nathan.

Nathan Jones: Just a couple follow-ups on how the second quarter progressed and where you saw the weakness coming from. And I'm kind of interested in it a little bit more from a product perspective as well.

Speaker Change: Did you say consumables start to waken first? It sounds like consumables were

Speaker Change: [inaudible]

Speaker Change: We maintain stability or do you think there's a risk that we continue to see some downtrend here?

Speaker Change: Yeah, I think I mentioned it in the script as well, Nathan, you know, I think we talked about filamentals, especially the auto side of it in Europe , slowing a bit.

Speaker Change: But then we did see a lot of strength when it came to our flux code wire and flux product lines associated with the wind side of things.

Shyam Kambeyanda: So I think the interesting part about the market today is that it's not a downturn across the board. There are, yes, there's a bit of a downturn, but there are also positives in the marketplace that are offsetting it. So that's probably the first thing that I've noticed. And, you know, I've been in the industrial sector now for close to 30 years. So it surely feels that it's not sort of, you know, if I were to use the USC term student body left on everything. I think the issue for us here is that we don't see a balanced piece on it.

Speaker Change: You know, there was a piece that moderated and there was a piece that looked good. So I think the interesting part about the market today is that it's not a downturn across the board. There are, yes, there's a bit of downturn, but there's also positives in the marketplace that are offsetting it.

Speaker Change: So that's probably the first thing that I've noticed and you know, I've been in industrials now close to 30 years

Speaker Change: So, it surely feels that it's not sort of, you know, if I were to use the USC term student body left on everything, I think the issue for us here is that we see a balanced piece on it.

Shyam Kambeyanda: And then we saw our strategy around standard equipment and our equipment business pay dividends, right? We've always talked about the fact that six years ago, we were playing with one hand behind our backs with just a filament portfolio. And today we've got a full portfolio. We are able to sell our equipment to existing customers and gain share on that particular front. The exciting product line and equipment is driving interest out there, not just in developed markets but in developing markets. And that's been a great story for us.

Speaker Change: And then we saw our strategy around standard equipment and our equipment business pay dividends, right? We've always talked about

Speaker Change: The fact that six years ago we were playing with one hand behind our back with just a filamental portfolio and today we've got a full portfolio.

Speaker Change: We are able to sell through our equipment to existing customers, gain share on that particular front. The exciting product line and equipment is driving interest out there.

Speaker Change: Not just in the developed markets, but in the developing markets, and that's been a great story for us, and we think that continues. You know, as I had mentioned to you before, if we have the same share in equipment as we do in filametal, this is a very different business and a very different sales point for ESAB.

Shyam Kambeyanda: And we think that will continue. You know, as I had mentioned to you before, if we have the same share of equipment as we do of filament, this is a very different business and a very different sales point for each. You know, we've done a lot of work with our teams around sales transformation. We did a big exercise at the end of last year to kind of understand the capabilities of our sales teams to change incentive plans to train them around how to be able to get out there and sell our new equipment portfolio. And that is showing dividends.

Speaker Change: You know, we spent, if I just add a little bit behind that, you know, we've done a lot of work.

Speaker Change: with our teams around sales transformation.

Speaker Change: We did a big exercise at the end of last year to kind of understand the capabilities of our sales teams to change incentive plans to train them around how to be able to get out there and sell our new equipment portfolio and that's showing dividends.

Shyam Kambeyanda: I guess I'll ask for a follow-up on the acquisition. With 170 million people and high single-digit GDP growth, there should be a lot of opportunity in Bangladesh for ESAB. Can you talk about what you think your market share is there versus, you know, what it is in the rest of the world and what the opportunity is to not just grow with the market there but to really drive share gains for ESAB to build that business into something that's more material for ESAB?

Speaker Change: I guess I'll ask a follow-up on the acquisition.

Speaker Change: With 170 million people and high single-digit GDP growth, there should be a lot of opportunity in Bangladesh for ESAB.

Speaker Change: Can you talk about what you think your market share is there versus, you know, what it is in the rest of the world and what the opportunity is to not just grow with the market there, but to really drive share gains for ESAB to build that business into something that's more material for ESAB?

Shyam Kambeyanda: Yeah, you know. Well, first, I think it puts us in a leadership spot, and it puts us in a leadership spot, very similar to how we're positioned in India. We haven't talked about specific market share information, but we are very confident that the consumables business is number one by far.

Speaker Change: Yeah, you know.

Speaker Change: Well, first, I think it puts us in the lead spot, and it puts us in the lead spot very similar to how we're positioned in India.

Speaker Change: where we haven't talked about specific market share information but we are very confident that the consumables business is number one by far.

Shyam Kambeyanda: But then the aspect for us here is that a lot of equipment is sold in Bangladesh, and today, our view is that ESAB equipment has a great way of entering that dedicated channel and being able to sell both consumables and equipment. And so if you look at the opportunity for us, as I mentioned, even in my call, the growth opportunities are significant. The synergy opportunities of selling gas control equipment, along with the consumables for ESAB and upgrading to, you know, repair and maintenance and high alloy consumables are significant.

Speaker Change: But then the aspect for us here is that a lot of equipment is sold in Bangladesh and today our view is that ESAB equipment has a great way of entering that dedicated channel.

Speaker Change: and being able to sell both consumables and equipment. And so if you look at the opportunity for us, as I mentioned,

Speaker Change: Even in my call, the growth opportunities are significant. The synergy opportunities of selling through gas control equipment.

Speaker Change: along with the consumables for ESAB and upgrading.

Speaker Change: to you know the repair and maintenance and high alloy consumables is significant and so we're really excited about that opportunity and some of you may have known this but we were supplying what we call

Shyam Kambeyanda: And so we're really excited about that opportunity. And some of you may have known this, but we were supplying what we call some key ingredients to the filament business in Lindi, Bangladesh, to begin with. So we're well aware of that market, very familiar with it, and we obviously have a great team that is very close to Bangladesh out of Calcutta in India that speaks the language and is already mobilized. And they're off to a good start in July.

Speaker Change: Some key ingredients to the filamental business in Lindy Bangladesh to begin with, so we're well aware of that market, very familiar.

Speaker Change: And we obviously have a great team that is very close to Bangladesh, out of Calcutta in India, that speaks the language and is already mobilized. And they're off to a good start in July , so really, really excited about that business.

Shyam Kambeyanda: So really, really excited about that business. And then if I could just get one more in on pricing, flood over. 3 in America, down 3 in the rest of the world.

Speaker Change: And if I could just get one more in on pricing, flood over 3 in America is down 3 in the rest of the world.

Shyam Kambeyanda: Can you talk about the dynamics there in terms of net price, you know, versus inflation and what you're seeing? In terms of margin contribution, are you still margin positive on that even in the EMEA APAC segment with prices down three? That's right.

Speaker Change: Can you talk about the dynamics there in terms of net price versus inflation and what you're seeing in terms of margin contribution? Are you still margin positive on that even in the EMEA APAC segment with price down three?

Shyam Kambeyanda: The short answer is that net price metrics for ESAB is a significant and important metric. You know, for those of you that are familiar with our value drivers, that is one of the key eight value drivers for ESAB. And so we measure that on a monthly basis. The net price is positive in both regions. We have seen steel prices move differently in different geographies, and hence you see the pricing position being slightly different in the Americas versus the rest of the world.

Speaker Change: That's right. The short answer is that that net price metrics for ESAB is a significant and important metrics You know if those of you that are familiar

Speaker Change: with our value drivers. That is a key eight value drivers for ESAB, and so we measure that on a monthly basis. Net price is positive in both regions.

Speaker Change: We have seen steel prices move differently in the different geographies, and hence you see the pricing position being slightly different in the Americas versus the rest of the world.

Speaker Change: But yes, net price positive on both sides, contributing to the margin expansion, but also other aspects. You know, we continue to do our lean activities. We continue to shift mix. So I would submit that all three contributed to the margin expansion in both geographies.

Shyam Kambeyanda: But yes, net price positive on both sides, contributing to the margin expansion, but also other aspects. You know, we continue to do our lean activities. We continue to shift mix. So I would submit that all three contributed to the margin expansion in both geographies. Thank you. The next question comes from Tami Zakaria with JP Morgan. Your line is now open. Hi. Good morning.

Speaker Change: Thank you. The next question comes from Tami Zakaria with J.P. Morgan. Your line is now open.

Kevin Johnson: Great to see the Lindy acquisition and that slide on Bangladesh. Should be exciting. So, a couple of questions. The first one is about the Flatish Organic Growth Guide.

Tammy Zakaria: Hi, good morning. Great to see the Lindy acquisition and that slide on Bangladesh. Should be exciting.

Tammy Zakaria: So a couple of questions. The first one is the Flatish Organic Growth Guide. Can you help us frame how to think about

Kevin Johnson: Can you help us frame how to think about the third quarter and the fourth quarter? And within that Flatish Guide, price versus volume, where has expectation changed versus last quarter? Yes, Tami, as we said on today's call earlier, we're expecting flat volume and flat price for ESAB for the full year and also in the second half of the year. In terms of the segments in the Americas, we're expecting flat volumes and positive prices, very similar to what we saw in Q2, and in line with Shyam's comments about things expected to stay very similar to Q2 as we progress through the rest of the year In the main APAC, we do have negative prices, but as you can see with the margins moving forward nicely, we've got that in good control with our net price toolkit.

Speaker Change: The third quarter and the fourth quarter. And within that flattish guide, price versus volume, where has expectation changed versus last quarter?

Brian Bates: and Brian Bates.

Speaker Change: Yeah, so Tommy, we, you know, we, as we said on today's call earlier, we're expecting flat

Brian Bates: volume and price resub for the full year and also in the second.

Speaker Change: of the year. In terms of the segments,

Speaker Change: and the Americas. We're expecting flat volumes.

Speaker Change: and we're expecting positive.

Speaker Change: Price are very similar to what we saw in Q2 and in line with Shyam's comments about you know things expected to stay very similar to Q2 as we progress through the rest of the year.

Shyam Kambeyanda: In the main APAC, we do have negative price, but as you can see with the margins moving forward nicely, we've got that in good control with our net price toolkit.

Kevin Johnson: We're expecting flat volumes in May and April as we step through the rest of the year. Key for us is really just staying disciplined as we've shown, continuing to use our net price toolkit, and continuing to drive the growth aspects of EBX to make sure that we're gaining market share as we step through the second half. And in terms of sequentials, as you normally would expect in the third quarter, we stepped on because of the largely European summer holidays. And as we go into Q4, we will step up. Got it. Got it.

Shyam Kambeyanda: And we're expecting flat volumes in the main APAC as we step through.

Shyam Kambeyanda: the rest of the year.

Shyam Kambeyanda: Key for us is really just staying disciplined, as was shown, continuing to use our net price toolkit, continuing to drive the growth aspects of EDX to make sure that we're gaining market share.

Shyam Kambeyanda: As we step through the second half, and in terms of, you know, sequentials, you know, as you normally would expect in the third quarter, we step down because of largely European summer holidays. And as we go into Q4, we will step up.

Speaker Change: Got it. Got it. That's a very helpful color.

Shyam Kambeyanda: That's very helpful. And so the other question I have is: I think you announced the distribution agreement with INFRA in Mexico. I just wanted to get your thoughts on what the group might potentially see there, who are the leading players in the Mexican markets, any color there would be helpful. Yeah, I think I mentioned before that our team has a strong position in Mexico. Infra is actually one of the larger distributors of hard goods in the region. And we were able to build a relationship with them to pull through ESAB products, both filamentous and equipment. The relationship is actually just getting started.

Speaker Change: So the other question I have is, I think you announced the distribution agreement with INFRA in Mexico, just wanted to get your thoughts on what the growth potential you see there, who are the leading players in the Mexican market, any color there would be helpful.

Speaker Change: I think I've mentioned before that our team has a strong position in Mexico. Infra is actually one of the larger distributors of hard goods in the region.

Speaker Change: and we were able to build a relationship with them to pull through ESAB products, both filamental and equipment.

Shyam Kambeyanda: The potential for us is significant. We've not given out any numbers out there, but what we do have is the start of a relationship, an executive partnership in some ways to continue to drive in a positive direction in Mexico. We think Mexico benefits from reshoring.

Speaker Change: The relationship is actually just getting started. The potential for us is significant.

Speaker Change: We've not given out any numbers out there, but what we do have is a start of a relationship, an executive partnership.

Speaker Change: in some ways to continue to drive in a positive direction in Mexico. We think Mexico benefits from reshoring.

Shyam Kambeyanda: We think the infrastructure build out in Mexico also benefits ESAB and this relationship. And so we've got a lot of positive momentum, and it's been a good start. But it's early days, Tami, so maybe a better question sometime next year. Okay.

Speaker Change: We think the infrastructure build-out in Mexico also benefits ESAB and this relationship. And so we've got a lot of positive momentum, and it's been a good start. But it's early days, Tami, so maybe a better question sometime next year.

Tami: Got it. Thank you.

Shyam Kambeyanda: Thank you. Your next question comes from the line of David Raffo with Evercore. Your line is now open. Hi, thank you. I was curious about the channel inventory, can you give us an update around the globe on where the inventory is currently and how you're expecting that to end the year heading into 2025? Yeah, thanks, Dave. It's always good to hear from you. We actually did our check. In fact, we did a check as early as the end of the second quarter just to make sure that we were prepared to sort of answer that question in particular. The short answer is that there is no buildup of inventory in the channel.

Speaker Change: Your next question comes from the line of David Ratho with Evercore. Your line is now open.

Shyam Kambeyanda: And we were particularly interested in that for Europe, specifically in Germany and the Nordics. And so the answer back was actually a good, pleasant surprise that there was no inventory build-up that was preventing any growth prospects in those particular markets. And a similar answer for us in North America, that there isn't a significant channel inventory build-up. And so the good news there is that if there's any uptick in the market, we should see an immediate pull-through on that particular front.

David Ratho: Hi, thank you. I was curious, the channel inventory, can you give us an update around the globe on where the inventory is currently and how you're expecting that to end the year, heading into 2025?

Speaker Change: Yeah, thanks Dave. Always good to hear from you. We actually did our check. In fact,

Speaker Change: We did a check as early as the end of the second quarter just to make sure that we were prepared to sort of answer that question in particular. The short answer is that there is no buildup of inventory in the channel and we were particularly interested.

Speaker Change: in that for Europe , specifically in Germany and the Nordics.

Speaker Change: And so the answer back was actually a good pleasant surprise that there was no inventory build-up that was preventing any any growth prospects in those particular markets and a similar answer for us in North America that there isn't a significant

Speaker Change: Channel Inventory Buildup.

Speaker Change: And so the good news there is that if there's any uptick in the market, we should see an immediate pull through on that particular front. But that being said, you know, our teams are out there with our EBX proven methodology and growth bridges to drive share gain, to drive share of wallet.

Shyam Kambeyanda: But that being said, our teams are out there with our EVX proven methodology and growth bridges to drive share gain, to drive share of wallet, and to drive through our new equipment product line with the channel partners. All right, thank you. And maybe I missed it, I apologize, but the MEA APAC decline. I'm just curious about the Europe drag within that, right?

Speaker Change: and to drive through our new equipment product line with the channel partners.

Speaker Change: Thank you. And maybe I missed it, I apologize.

Speaker Change: The EMEA APAC declines. I'm just curious the the Europe drag within that, right? You mentioned the high growth markets, assuming India, Middle East, are still growing nicely. Can you update us on what Europe is doing specifically?

Shyam Kambeyanda: You mentioned the high-growth markets, assuming India and the Middle East are still growing nicely. Can you update us on what Europe is doing specifically? Yeah, you know, we haven't given that specific number out yet.

Shyam Kambeyanda: But the way to kind of do the math is that we saw double-digit growth in the markets in India and the Middle East and then you could say sort of single-digit declines out of Europe, which is the largest part of our business with filler metal being the one that sort of performed, on a relative basis, down the most, but I think the biggest piece for us in Europe really is around yellow goods and automotive, which took that part of the business but strengthened in And sorry, this is a clarification from an earlier comment about the second half of the year. I missed the aggregate. The organic sales decline for the second half of the year, the kind of one to one and a half percent, that's baked in.

Speaker Change: Yeah, you know, we haven't given that specific number out, but the way to kind of do the math is that we saw double-digit growth out of

Speaker Change: the markets in India and the Middle East. And then you could say sort of single digit declines out of Europe , which is the largest part of our business, with filametal being the one that sort of performed.

Speaker Change: you know on on on a relative basis you know down the most but I think the biggest piece for us in Europe really is around yellow goods and automotive that that took that part of the business down

Speaker Change: but strengthen in renewable energy and strengthen in defense.

Speaker Change: And sorry, this is a clarification from an earlier comment about the second half of the year. I missed the aggregate

Speaker Change: The organic sales decline for the second half of the year, the, you know, kind of one to one and a half percent That's baked in. Can you split that between AMEA, APAC, and Americas?

Kevin Johnson: Can you split that between AMEA, APAC, and Americas? Yeah, so we I mean, David, I think, as I said, we're expecting in Americas, volumes to Float on positive price, similar to what we saw in the second quarter, and in May in APOC, what we expect is a negative price similar to what you saw in the second quarter and then flat-ish volume as we step through the rest of the year. So fairly similar on both of the businesses in terms of volume outlook within that sort of negative one to positive one and price at sort of similar levels to what you saw in the second quarter. And your next question comes from Brian Blair with Oppenheimer. Your line is now open. Thank you. Good morning, everyone. Hi Brian.

Speaker Change: Yeah, so we, I mean, David, I think as I said, we're expecting in the Americas, the volumes to be...

Speaker Change: to be flat on a positive price, similar to what we saw in the second quarter. In the May and April , what we expect is a negative.

Speaker Change: price similar to what you saw in the second quarter and then flat-ish volume as we step through the rest of the year.

Speaker Change: So, fairly similar on both of the businesses in terms of volume outlook within that.

Speaker Change: sort of, you know, negative one to positive one and price at sort of similar levels to what you saw in the second quarter.

Speaker Change: And your next question comes from Brian Blair with Oppenheimer.

Speaker Change: Your line is now open.

Brian Blair: Thank you. Good morning, everyone.

Shyam Kambeyanda: Very solid execution in the quarter. Apologies if I missed some color here, but wondering if you'd offer a little more detail on the performance of your gas control business in the quarter and whether there are any notable call-outs, or differences in trend between, you know, industrial and specialty and medical. Yes, actually solid performance out of our gas control business benefiting from the energy transition and also HVAC. You know, and so we saw some really good performance on the industrial side in the Americas. We saw really good performance on the specialty gas side, which is benefiting from semiconductors. And then also to the same extent in Europe with some, you know, life sciences and medical applications.

Brian: Hi Brian .

Brian: Very solid execution in the quarter.

Speaker Change: Apologies if I missed some color here, but wondering if you'd offer a little more detail on the performance of your gas control business in the quarter and whether there are any notable call-outs or differences in trend between industrial and specialty and medical.

Speaker Change: Yeah, so actually solid performance out of our gas control business benefiting from the energy transition and also HVAC.

Speaker Change: You know, and so we saw we saw some really good performance on the industrial side in the Americas We saw really good performance on the specialty gas side, which is benefiting from semiconductors

Speaker Change: And then also to the same extent in Europe with some, you know, the life sciences and medical exposure. And then the second piece for us that I spent a little bit of time talking about is that we continue to improve our digital solutions.

Shyam Kambeyanda: And then the second piece for us that I spent a little bit of time talking about is that we continue to improve our digital solutions proposition in that space, trying to create really strong value propositions for our customers as a result of managing their gas flow in their facility. And that also benefits our business and the pull through. So all in all, a strong position for us in the gas control business, and we see that business building on its strength for the second half of the year. And somewhat of a follow-up to Nathan's question on Windy Bangladesh.

Speaker Change: a proposition in that space, trying to create really strong value propositions for our customers as a result of managing their gas flow in their facility. And that also benefited our business and the pull through. So all in all, strong position there.

Speaker Change: for us in the gas control business. And we see that business building on its strength for the second half of the year.

Speaker Change: And somewhat of a follow up to Nathan's question on Windy Bangladesh.

Shyam Kambeyanda: So I think you could elaborate a little more on synergies prospects and specifically what we should think about as near term versus longer term, given channel dynamics. And then, perhaps, I'll also offer a little detail on the Sager and Sumic integration and how those deals are performing. Yeah, so just to kind of calibrate the Sumic acquisition we announced, but it hasn't closed yet. We expect it to close sometime in the latter part of the fourth quarter. So, and Sager is doing well. We're off to a good start. In fact, we have a team out in South America this week visiting.

Speaker Change: I was hoping you could elaborate a little more on synergy prospects and specifically what we should think about as near-term versus longer-term.

Speaker Change: given channel dynamics, and then perhaps also offer a little detail on Sager and Sumic integration and how those deals are performing out of the gate.

Speaker Change: Yeah, just to kind of calibrate, the SUMIG acquisition we announced but it hasn't closed yet. We expect it to close sometime in the latter part of the fourth quarter.

Speaker Change: So Sager is doing well. We're off to actually a good start. In fact, we have a team out in South America this week visiting. I just had the hundred day review for that particular business.

Shyam Kambeyanda: I just had the hundred day review for that particular business. We were looking at a lot of synergies associated with footprint and sales team consolidation. We've actually executed on those. So we're off to a great start there. On the Lindy side, that was really the piece that I talked about, right?

Speaker Change: We were looking at a lot of synergies associated with footprint and sales team consolidation.

Speaker Change: We've actually executed on those, so we're off to a great start there. On the Lindy side, it was really the piece that I talked about, right? It sort of fills out the geography that we are very interested in, that we wanted to be in a leadership position. We are.

Shyam Kambeyanda: It sort of fills out the geography that we are very interested in and that we wanted to be in a leadership position. We are. And so we're very thrilled about that business, the channel, and you know, for Just to give you some history, where ESAB has had a strong position in the past is when we've picked up businesses that have had a historic record in the region. And so in this particular case, Lindy has been in Bangladesh for many decades and has established that business and the channel over those particular decades.

Speaker Change: and so we're very thrilled about that business the channel and and you know for

Speaker Change: Just to give you some history, where ESAB has had a strong position in the past is when we've picked up businesses that have had a historic

Speaker Change: record in the region. And so in this particular case, Lindy has been in Bangladesh for many decades.

Speaker Change: and have established that business and the channel over those particular decades.

Shyam Kambeyanda: And so this is something that we have done in Bangladesh or in India before, and we expect to repeat it in Bangladesh. Thus, pulling through our broad set of gas control and equipment products in a market that was only selling consumables. And so we see a significant amount of synergies coming through on the growth side, as well as operating synergies based on implementing EBX and lean initiatives at the manufacturer. And Brian, on SUMIG, we're still going through the process of closing that deal, and our current expectation is that we will close it at the end of the fourth quarter. Understood. Thank you again.

Speaker Change: And so this is something that we've done in Bangladesh or in India before, and we expect to rinse and repeat it in Bangladesh.

Speaker Change: So, pulling through our broad set of gas control and equipment products in a market that was only selling consumables. And so, we see a significant amount of synergies coming through on the growth side, as well as operating synergies based on implementing EBX and lean initiatives at the manufacturing plant.

Speaker Change: And Brian , on SUMIG, we're still going through the process of closing that deal and our current expectation is that we would close it at the end of the fourth quarter.

Brian: Understood. Thank you again.

Kevin Johnson: Thank you. And your next question comes from Chris Dankert with Loop Capital. Your line is now open. Good morning.

Speaker Change: Thank you. And your next question comes from Chris Dankert with Loop Capital. Your line is now open.

Shyam Kambeyanda: Thanks for taking the question. Um, maybe we could just start on the cost side a little bit, you know, it's encouraging to see that the higher implied operating margin for the year here. Could you provide a little bit more detail? I know you called out some restructuring actions in the deck. Any detail on what's going on there in the back half of the year? But why don't I start off, and then I'll hand it to Kevin?

Chris Dankirk: Morning, thanks for taking the questions. Maybe we could just start on the cost side a little bit, you know, encouraging to see the higher implied operating margin for the year here, I guess. Could you provide a little bit more detail? I know you called out some restructuring actions in the deck. Any detail on what's going on there in the back half of the year?

Shyam Kambeyanda: I think one of the things we've always talked about is that we start every year with a set of actions within our business, some of them associated with EBX, the lean activities that we do at the facility. We talked about our net pricing initiatives, and then we talked briefly about improving the efficiency of our businesses using AI and data analytics. And so the idea for us here is that we can be more efficient with a lot less SG&A as a result of some of these actions. And so what you see reading out in our performance this quarter is exactly the execution on those aspects. Kevin, did you want to go?

Chris Dankirk: Why don't I start it off and then I'll hand it to Kevin. I think one of the things we've always talked about is that we start every year with a set of actions within our business. Some of them associated with EBX, the lean activities that we do at the facility. We've talked about our net pricing initiatives.

Kevin: And then we've talked briefly about improving the efficiency of our businesses using AI and data analytics.

Kevin: and so the idea for us here is that we can be more efficient with a lot less SG&A as a result of some of these actions and so what you see reading out in our in our performance this quarter is exactly the the the execution on those aspects. Kevin did you want to?

Shyam Kambeyanda: Yeah, so Chris, there's sort of three buckets where we see good positive momentum, and we're ahead of where we expected when we started the year. The first area is an EBX.

Kevin: Yeah, so, Chris, there's sort of three buckets, you know, that we, where we see good positive momentum. And we're ahead of where we expected when we started the year. The first area is an EBX. We've got a...

Kevin Johnson: We've got a strong funnel, and we've been able to execute on a number of projects, which has had the benefit of improving margins. The Commercial Excellence Programme that Shyam talked about earlier is ahead of where we had expected. And we are seeing that mix improve significantly, which is also having a benefit on our margins. And then, on restructuring, we have baked in around $10 million of benefits this year from restructuring projects.

Speaker Change: strong funnel and we've been able to execute on a number of projects which has had the benefit of improving the margins. The commercial excellence program that Shyam

Shyam Kambeyanda: talked about earlier, is ahead of where we had expected. And we are seeing that mix improve significantly, which is also having a benefit on our margins. And then finally, on restructuring, we had baked in around $10 million.

Kevin Johnson: We've increased that by a further $5 million, and that's accelerating a few projects, but one larger project in particular, where we're looking at doing a factory consolidation. We believe that we can drive an additional $5 million of benefit before we finish this year. Yeah, and that was actually the follow-up I had here. I was curious about just the factory consolidation. Is it, as you framed it, an acceleration of previous plans, or have we expanded to additional locations at this point?

Shyam Kambeyanda: of benefits this year from restructuring projects with

Shyam Kambeyanda: increased that by a further $5 million and that's accelerating a few projects but one larger project in particular where we're looking at doing a factory consolidation. We believe that we can we can drive an additional $5 million of benefit before we finish this year.

Speaker Change: Yeah, and that was actually the follow-up I had here. I was curious on just the factory consolidation. Is it, as you framed it, an acceleration of previous plans or have we expanded to additional locations at this point?

Kevin Johnson: No, we have a long-term strategy in terms of our factory consolidations, and we accelerated one of those projects, which we were really only planning to start at the end of this year. We're now starting it now, which is driving that additional benefit.

Speaker Change: We have a long-term strategy in terms of our factory consolidations and we accelerated one of those projects which we were really only planning to start at the end of this year. We're now starting it now which is driving that additional benefit.

Kevin Johnson: Well, thanks so much for the call, guys, and best of luck in the back half here. Thank you.

Speaker Change: Got it. Well, thanks so much for the call, guys, and best of luck in the back half here.

Shyam Kambeyanda: And the next question comes from Meg Dobre with Baird. Again, your line is now open. Thank you for taking a follow-up here. Just a quick one for me.

Speaker Change: And the next question comes from Meg Dobre with Baird again. Your line is now open.

Meg Dobre: Thank you for taking a follow-up here. Just a quick one for me.

Shyam Kambeyanda: Looking at the equipment side of your portfolio, I'm wondering how progress is in North America, the U.S., maybe specifically as far as rolling out new products, you know, maybe the Renegade Bolt. I remember you talking about having some tailwinds as some of your channel partners are starting to stock this product. So, you know, a quick update there, and I'm wondering if this can still be a source of outgrowth in the back half of this year or maybe even into the fall.

Meg Dobre: Looking at the equipment side of your portfolio, I'm wondering how progress is in North America, U.S. maybe specifically.

Speaker Change: As far as rolling out new products, you know, maybe the Renegade Bolt.

Speaker Change: I remember you talking about

Speaker Change: having some tailwinds as some of your channel partners are starting to stock this product. So, you know, a quick update there. And I'm wondering if this can still be a source of outgrowth in the back half of this year or maybe even going into 2025.

Shyam Kambeyanda: Yeah, we are actually very pleased with how our teams have been performing with the new set of light industrial products that we've launched into the North American market. We haven't shared exact numbers on it, but what I can tell you is that we monitor it on a monthly basis, and we like what we see.

Speaker Change: Yeah, we are actually very pleased with how our teams have been performing with the new set of light industrial products that we've launched into the North American market. We haven't shared exact numbers on it, but what I can tell you is that we monitor it on a monthly basis and we like what we see.

Shyam Kambeyanda: The other aspect for us is that with the new HIP launches that are happening with WellCloud and our digital portfolio in InduSuite, we've actually seen conversions of some of the OEMs to yellow on their shop floor as a result of it. We've seen another customer come to us where we've introduced FlowCloud, WellCloud, and our new heavy industrial machinery, along with the adaptive welding technology that we had for wind, take hold. So all in all, there is a lot of excitement on the ESAB side around process-focused automation, and light industrial into the channel.

Speaker Change: The other aspect for us is that with the new HIP launches that are happening with WellCloud and our digital portfolio in InduSuite, we've actually seen conversions of some of the OEMs to yellow on their shop floor as a result of it.

Speaker Change: We've seen another customer come at us where we've introduced FlowCloud, WellCloud, and our new heavy industrial machinery along with the adaptive welding technology that we had.

Speaker Change: for wind

Speaker Change: take hold. So all in all, a lot of excitement on the ESAB side around process focused automation, light industrial into the channel. You know, I think, you know, we like our performance in the Americas.

Shyam Kambeyanda: You know, I think we like our performance in the Americas. Really proud of how that team has come together, the intensity that they've brought to their sales plans. What I can tell you, the growth bridges in North America look really good with clear targets, with clear customers, with clear plans for share of wallet, but a great amount of discipline that continues to drive margins forward.

Speaker Change: I'm really proud of how that team has come together, the intensity that they've brought to their sales plans.

Speaker Change: What I can tell you, the growth bridges in North America look really good, with clear targets, with clear customers, with clear plans for share of wallet, but a great amount of discipline that continues to drive margins forward.

Shyam Kambeyanda: All right. Thank you again. There are no further questions at this time. I'd like to turn the call back over to Mr. Barbalato. Please do so. Thank you for joining us and we look forward to speaking to you again next quarter. This concludes today's conference call. You may now disconnect.

Speaker Change: All right. Thank you again.

Speaker Change: There are no further questions at this time. I'd like to turn the call back over to Mr. Barbalato. Please go ahead.

Mr. Barbalato: Thank you for joining us and we look forward to speaking to you again next quarter.

Speaker Change: This concludes today's conference call. You may now disconnect.