ESAB Q2 2024 Earnings Call Transcript

There are 10 speakers on the call.

Operator

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. After the speakers' remarks, there will be a question and answer session.

Operator

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

Speaker 1

Thanks, operator. Welcome to ESAB's Q2 2024 Earnings Call. This morning, I'm joined by our President and CEO, Shyam Kamayanda 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.

Speaker 1

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 2

With that, I'd like to

Speaker 3

turn the call over to our President and CEO, Shyam Kamyanda. 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. We utilized our EBX toolkit to achieve record margins and cash flow.

Speaker 3

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 high growth markets exposure that was moderated by softness in developed markets. 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. 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 3

Maybe some of you read the Wall Street Journal article last quarter where Gen Z has been dubbed the tool belt generation. Here on a more personal note, I've led ESAB for the last 8 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 non profit organization Welder Underground, an innovative apprenticeship program that trains the next generation of welders through large scale public projects. Students here apply to the program to establish non profit focused on youth empowerment.

Speaker 3

They receive a stipend during their apprenticeship and are prepared for 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 Welded Underground's 1st public project, a metal structure celebrating hip hop, 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. 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 3

Moving to Slide 3 to discuss the specifics of the quarter and our performance. As I mentioned earlier, our teams continue to execute well. Over the past several years, we've 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.

Speaker 3

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 Q2 in particular, we achieved positive organic growth of 1%, reflecting continued strength in our high growth markets, offset by moderating conditions in developed markets. Notably, we experienced high single digit growth in equipment and automation and double digit growth year to date in cobots. Adjusted EBITDA increased by 600 basis points with adjusted EBITDA margins expanding by 150 basis points to a record 20.1%. This strong margin performance was driven by our team executing our strategy to drive a favorable mix with our best in class updated equipment portfolio and our focus on less cyclical automation and mission critical gas control products.

Speaker 3

EBX, lean and AI initiatives continue to improve cash flow generation, enabling our compounder journey and allowing us to strengthen our balance sheet. We're excited about the recent acquisition of Linde's Welding business in Bangladesh, which I will discuss in more detail shortly. This acquisition builds on our recent acquisitions of Sager and Tsumeb. Let me take this moment to thank our associates for their hard work, dedication and commitment towards delivering our long term goals. Moving to Slide 4, in spite of the challenging end markets, as we look back at the first half of twenty twenty four, I'm proud of the progress we've made.

Speaker 3

It is a testament to our focus and our ability to execute and I submit our results this quarter reflect that. We've reduced the cyclicality of our business through product line simplification, new product introductions and focused our teams on less cyclical end markets. I've had a chance to speak to our channel partners and there continues to be significant positive feedback on our new equipment products. Over the past 8 years, we've consistently demonstrated bifocal leadership, achieving both short term and long term goals. We have protected our R and D investment and capital associated with growth initiatives.

Speaker 3

In upcoming slides, you'll see how our leadership in digital analytics solutions and monitoring is helping us grow faster. 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 5 to highlight our digital strategy. We are continuously strengthening our industry digital solutions portfolio. 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 3

Flow Calts 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. Our 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.

Speaker 3

Digital solutions within Fabtech has also been gaining strength, which licenses up 50% year over year, creating over $25,000,000 in pull through sales for equipment and filler metal. In the Suite, our digital solutions allows ESAB to differentiate itself. Over the last 8 years, we've built a formidable R and 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.

Speaker 3

And as I've said before, we're just getting started. Moving to Slide 6 to talk about the latest acquisition, our third one this year. We are particularly excited about the acquisition of Linde's Welding business in Bangladesh. This acquisition fills the geographic gap in Asia and cements our position as the leading FabTech company in this fast growing region. Bangladesh with a population of approximately 170,000,000 and a projected GDP growth in the high single digits over the next decade offers ESAB significant growth opportunities.

Speaker 3

This addition builds on our leadership position in India and Southeast Asia. We expect to extract significant synergies by selling e fab equipment into this attractive Bangladeshi market. Let me remind you, this is a $20,000,000 business with accretive EBITDA margins with significant opportunities for additional growth. Turning to Slide 7, 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 digits growth.

Speaker 3

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 8. 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. I am pleased with our ability to gain share and improve our mix towards equipment.

Speaker 3

We also benefited from having less exposure to highly cyclical end markets. Our focus and price discipline drove 2 10 basis points of expansion and adjusted EBITDA margin, which reached a record 20.9%. Moving to Slide 9, which highlights our 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 softened.

Speaker 3

This was offset by sales execution of our equipment and automation workflow solutions. Let me mention again, 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 4

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 2024. We are using this improved cash flow to support our 20 28 strategy. Firstly, we're investing to support our organic growth, improving our equipment mix and making investments that are taking share.

Speaker 4

Secondly, to fund hold on acquisitions that are fast growing, margin accretive and delivering strong cash flow like Linde, Bangladesh. And thirdly, we increased our dividend in the 2nd quarter by 33% to $0.08 per share. ESOP'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 20 28th compounder strategy. Moving now to Slide number 11.

Speaker 4

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 markets. We expect volume and price to be flat, a point of additional FX headwind due to a stronger U. S. Dollar and 0.5 point of M and A growth from the Linde Bangladesh acquisition, our team is focused on controlling the controllable.

Speaker 4

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 $5,000,000 of additional benefits from restructuring projects. Adjusted EPS remains unchanged, benefiting from a lower interest expense and cash flow conversion remains on track. With that, let me hand back to Shyam

Speaker 3

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 Q2 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.

Speaker 3

We are confidently moving towards our 2028 goals of $4,000,000,000 in revenue, 22 plus percent of EBITDA margin and 100% 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.

Operator

Thank you. The floor is now open for questions. When asking your question. We do request for today's session that you please limit to 1 question, 1 follow-up Our first question comes from the line of Mig Dobre with Baird. Your line is now open.

Speaker 5

Thank you. Good morning, everyone, and congrats on a good quarter here. I guess my first question, Sean, 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 has gotten a little bit tougher. But from your perspective, are there some geographic callouts or maybe some end markets that you'd be able to highlight for us that are progressing maybe a little bit different than you thought 3 months ago?

Speaker 5

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? Where are you seeing maybe potential for downside risk or at the same time maybe some offsets to that?

Speaker 3

Yes. Good morning, Mig. 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 an extraordinary performance for us, gives us great confidence about the team's capability to execute.

Speaker 3

You're right, we sort of did a couple of things this quarter. 1, 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 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 to a point that we felt confident about at this point in time.

Speaker 3

It's also important to state that we have got July behind us and it started off very similar to where we ended the Q2. 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 in particular auto in Europe a little bit. 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.

Speaker 5

Sure. Thank you for the color. And then I guess my follow-up, your balance sheet is in increasingly good shape here and you've done 3 deals year 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 to be able to support it? Thank you.

Speaker 3

Yes, Megha. I think our view on that topic is sort of solid and disciplined. 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 we'd like the gross margins to be above 40% with great characteristics of cash flow.

Speaker 3

So we're not going to be coming off of those 2 sets of lenses that we want to look at acquisitions for. That being said, the acquisition funnel looks good. Obviously, closing on some of these deals takes 2. But we do have some prospects out there that have a chance of getting done in the back half of this year. But nothing that sort of gets us past that number that we've always put out there where we've got a 2 in front of our leverage ratio.

Speaker 3

And we think we've got plenty of things out there along with our cash flow to do both.

Speaker 5

Great. Thank you.

Operator

Your next question comes from Nathan Jones with Stifel. Your line is now open.

Speaker 6

Good morning, everyone.

Speaker 4

Hi, Nathan.

Speaker 6

Just a couple of 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. But did you see consumables start to weaken first? It sounds like consumables were weaker than the equipment side of it was. So just how you saw that progress?

Speaker 6

And then you talked about stabilization into July. Do you expect the rest of the year to kind of stay stable with where it is now like we've taken a step down and we maintain stability? Or do you think there's risk that we continue to see some downtrend here?

Speaker 3

Yes. I think I mentioned this in the script as well, Nathan. I think we talked about filler metals, especially the auto side of it in Europe slowing 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 there was a piece that moderated and there were piece that looked good.

Speaker 3

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. So that's probably the first thing that I've noticed and I've been in industrials now close to 30 years. So it surely feels that it's not sort of 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.

Speaker 3

And then we saw our strategy around standard equipment and our equipment business pay dividends, right. We've always talked about the fact that 6 years ago we were playing with one hand behind our back with just a Filamental portfolio and today we've got a full portfolio. 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, not just in the developed markets, but in the developing markets. And that's been a great story for us.

Speaker 3

And we think that continues. As I had mentioned to you before, if we have the same share in equipment as we do in filler metal, this is a very different business and a very different sales point for ESUB. We spent if I just add a little bit behind that, 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's showing dividends.

Speaker 3

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

Speaker 6

With 170,000,000 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 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 gain through ESAT to build that business into something that's more material for ESAB?

Speaker 3

Yes. 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, We haven't talked about specific market share information, but we are very confident that the consumables business is number 1 by far. 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.

Speaker 3

The synergy opportunities of selling through gas control equipment along with the consumables for ESAB and upgrading to 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 some key ingredients to the Filamentals business in Linde, Bangladesh to begin with. So we're well aware of that market, very familiar. And we obviously have a great team that is very close to Bangladesh out of Calcutta in India that speaks the language and can and is already mobilized and they're off to a good start in July.

Speaker 3

So really excited about that business.

Speaker 6

And then if I could just get one more in on pricing, flat over 3 in Americas, down 3 in the rest of the world. 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 3?

Speaker 3

That's right. The short answer is that net price metrics for ESAB is a significant and important metrics. If those of you that are familiar 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 3

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. But yes, net price positive on both sides contributing to the margin expansion, but also other aspects. 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.

Operator

Thank you. The next question comes from Tami Zakaria with JPMorgan. Your line is now open.

Speaker 7

Hi, good morning. Great to see the Linde acquisition and that slide on Bangladesh, should be exciting. So a couple of questions. The first one is the flattish organic growth guide. Can you help us frame how to think about the Q3 and the Q4?

Speaker 7

And within that flattish guide, price versus volume, where has expectations changed versus last quarter?

Speaker 4

Yes. So Tommy, as we said on today's call earlier, we're expecting flat volume and price reset 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 we're expecting positive price, very similar to what we saw in Q2 and in line with Sean's comments about things expected to stay very similar to Q2 as we progress through the rest of the year. In EMEA pack, 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.

Speaker 4

And we're expecting flat volumes in the E and A pack as we step through the rest of the year. Key for us is really just staying disciplined and as with Sean continuing to use our net price toolkit, 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 Q3, we stepped down because of largely the European summer holidays. And as we go into Q4, we will step up.

Speaker 7

Got it. Got it. That's very helpful color. So the other question I have is, I think you announced the distribution agreement with Intra in Mexico. Just wanted to get your thoughts on what the group potentially see there?

Speaker 7

Who are the leading players in the Mexican market? Any color there would be helpful.

Speaker 3

Yes. I think I'd mentioned before that our team has a strong position in Mexico. In for is actually one of the larger distributor of hard goods in the region And we were able to build a relationship with them to pull through ESAB products, both filler metal and equipment. The relationship is actually just getting started. The potential for us is significant.

Speaker 3

We've not given out any numbers out there. But what we do have is a 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. 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.

Speaker 3

But it's early days, Tammy. So maybe a better question sometime next year.

Speaker 7

Got it. Thank you.

Operator

Your next question comes from the line of David Raso with Evercore. Your line is now open.

Speaker 8

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 'twenty five?

Speaker 3

Yes. Thanks, Dave. Always good to hear from you. We actually did our check. In fact, we did a check as early as the end of Q2 just to make sure that we were prepared to sort of answer that question in particular.

Speaker 3

The short answer is that there is no buildup of inventory in the channel and we were particularly interested in that for Europe, specifically in Germany and the Nordics. And so the answer back was actually a good better surprise that there was no inventory buildup 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 buildup. 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, our teams are out there with our EBX 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.

Speaker 8

All right. Thank you. And maybe I missed it, I apologize. But the EMEA APAC declines, I'm just curious the Europe drag within that, right? You mentioned the high growth markets, assuming India, Middle East are still growing nicely.

Speaker 8

Can you update us on what Europe is doing specifically?

Speaker 3

Yes. 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 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 Filamentals 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 that took that part of the business down. But strength in renewable energy and strength in defense.

Speaker 8

And sorry, just 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, kind of 1% to 1.5% that's baked in. Can you split that between EMEA, APAC and Americas?

Speaker 4

Yes. So I mean, David, I think as I said, we're expecting in the Americas the volumes to be flat and positive price similar to what we saw in the Q2. In the May and APAC, what we expect is a negative price similar to what you saw in the second quarter and then flattish 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 Q2.

Operator

And your next question comes from Brian Blair with Oppenheimer. Your line is now open.

Speaker 9

Thank you. Good morning, everyone. Hi,

Speaker 5

Brian.

Speaker 9

Very solid execution in the quarter. Apologies if I missed some color here, but wondering if you could offer a little more detail on the performance of your gas control business in the quarter and whether there are any notable call outs and or differences in trend between industrial and specialty and medical?

Speaker 3

Yes. So actually solid performance out of our gas control business benefiting from the energy transition and also HVAC. 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 the life sciences and medical exposure.

Speaker 3

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 benefited our business and the pull through. So all in all, strong position there for us in the gas control business and we see that business building on its strength for the second half of the year.

Speaker 9

And somewhat of a follow-up to Nathan's question on Linde Bangladesh. 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 given channel dynamics. And then perhaps also offer a little detail on Sager and Tsumeb integration and how those deals are performing out of the gate?

Speaker 3

Yes. So just to kind of calibrate, the Tsumeb acquisition we announced, but it hasn't closed yet. We expect it to close sometime in the latter part of Q4. So and Sager is doing well. We're off to actually a good start.

Speaker 3

In fact, we have a team out in South America this week visiting. I just had the 100 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.

Speaker 3

On the Linde 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. And so we're very thrilled about that business. The channel and 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, Linde has been in Bangladesh for many decades and have established that business in the channel over those particular decades.

Speaker 3

And so this is something that we have done in Bangladesh or in India before and we expect to rinse and repeat it in Bangladesh. 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 4

And Brian on Samig, 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 Q4.

Speaker 9

Understood. Thank you again.

Operator

Thank you. And your next question comes from Chris Dankirk with Loop Capital. Your line is now open.

Speaker 2

Hey, morning. Thanks for taking the questions. Maybe we could just start on the cost side a little bit. Encouraging to see the higher implied operating margin for the year here, I guess. Could you provide a little bit more detail?

Speaker 2

I know you called out some restructuring actions in the deck, just any detail on what's going on there in the back half of the year?

Speaker 3

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. And then we've 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 and A as a result of some of these actions.

Speaker 3

And so what you see reading out in our performance this quarter is exactly the execution on those aspects. Kevin, did you want to?

Speaker 4

Yes. So Chris, there's sort of 3 buckets that we what we see good positive momentum. And we're ahead of where we expected when we started the year. The first area is in EBX. 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 the margins.

Speaker 4

The commercial excellence program 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. Then finally on restructuring, we had baked in around $10,000,000 of benefits this year from restructuring projects. We've increased that by further $5,000,000 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 $5,000,000 of benefit before we finish this year.

Speaker 2

Got it. And that was actually the follow-up I had here. I was curious on just the factory consolidation. Is it like as you framed it an acceleration of previous plans or we expanded to additional locations at this point?

Speaker 4

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 at now, which is driving that additional benefit.

Speaker 2

Got it. Well, thanks a lot for the color guys and best of luck in the back half here.

Speaker 3

Thank you. Thanks, Chris.

Operator

And the next question comes from Mig Dobre with Baird again. Your line is now open.

Speaker 5

Thank you for taking a follow-up here. Just a quick one for me. Looking at the equipment side of your portfolio, I'm wondering how progress is in North America, U. S. Maybe specifically as far as rolling out new products, maybe the Renegade Volt.

Speaker 5

I remember you talking about having some tailwinds as some of your channel partners are starting to stock this product. So 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?

Speaker 3

Yes, 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, Mig. 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. The other aspect for us is that with the new HIP launches that are happening with Well Cloud and our digital portfolio in EndoSuite, 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 at 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, a lot of excitement on the ESAB side around process focused automation, light industrial into the channel.

Speaker 3

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.

Operator

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

Speaker 1

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

Operator

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

Earnings Conference Call
ESAB Q2 2024
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