ESAB Corporation Q1 FY2025 earnings call

• ESAB had a strong start to 2025, delivering a record first quarter adjusted EBITDA margin of 19.8% with 100 basis points of margin expansion on slightly positive organic growth.
• ESAB is locally responsive while leveraging global scale, with 80% of manufacturing located in region for region, aiding in managing global dynamics.
• Deployed capital well, invested in innovation with a refreshed equipment product line, and acquired 15 businesses to expand market and global presence.
• Focus on driving sales excellence, shifting portfolio towards equipment and gas control.
• Intensifying investments in innovation, partnering with universities, harnessing AI, and continuing acquisitions.
• Visited Europe and India, noting optimism and excitement, and highlighted initiatives to support next-gen fabricators like partnering with schools and establishing training institutes.

In Q1, both global welding equipment and gas control equipment businesses grew by mid-single-digits. The gas control business has grown from 10% to 18% of total revenue and is on track to reach 25% of revenue by 2028, with gross margins in the mid-40s.

• Raised revenue assumptions by approximately $30 million, mainly due to the Bavaria acquisition and FX improvement.
• Organic growth guidance remains 0% to 2%, with low to mid-single-digit organic growth expected in EMEA and APAC, offset by negative low to mid-single-digit organic growth in Americas.
• Adjusted EBITDA guidance increased to $520 million to $530 million reflecting the Bavaria acquisition.
• Interest expense guidance increased, with interest costs expected to increase in Q2 and decline throughout 2025.
• Cash flow guidance remains unchanged.

• Tariff exposure is a risk, though ESAB is positioned well with 80% of manufacturing in region for region to mitigate some impact.
• Market volatility and uncertainties related to economic conditions could affect performance.

Q: Hoping for more detail on growth or unmitigated headwinds from tariffs, volume vs price contribution in full year guide, and differences in bridge for Americas vs EMEA and APAC A: Shyam and Kevin discussed ESAB's strong positioning with local manufacturing, tariff exposure not as big, and how they plan to cover tariffs with price. EMEA and APAC largely unimpacted by tariffs, main impact in North America with $15M-$20M tariff impact, and they've made moves to offset.

Q: Detail on gas control equipment trends, growth in Q1, core growth rates for year, and tuck-ins closing by end of Q2 A: Shyam mentioned gas control business has momentum, acquisitions like Bavaria adding to growth, and two more tuck-in gas control deals expected to close by end of Q2, adding to medical side of gas control business.

Q: Thoughts on price vs volume within organic growth guidance, price actions (surcharges or normal increases), and pre-buying activity in Americas A: Shyam said no surcharges, general price increases; Kevin discussed EMEA and APAC having flattish price, North America having price moves. Shyam said no significant inventory buildup at channel in Americas.

Q: Color on organic growth in Americas, splitting price and volume, and margin progression A: Kevin discussed expected low to mid-single-digit negative core volume in Americas, with price moves to cover tariff impacts. Shyam mentioned EBX process and mix shift contributing to margins.

Q: Americas margins, driven by product mix vs EBX initiatives A: Shyam said net price, EBX initiatives, and mix shift towards gas control and equipment all contributed to margins, with growth investments also made.

Q: Performance in North America and other regions, lull in North America, and Europe's upside potential A: Shyam said North America had a lull due to wait-and-see mode, while Europe, India, Middle East, and China showed optimism and growth. Europe has upside potential with stimulus plans.

Q: Guidance, Bavaria's impact on revenue and EBITDA, and macro uncertainty A: Kevin discussed Bavaria adding ~$20M revenue, expected to be EPS neutral in year one but with margin expansion upside. Shyam highlighted positive aspects of Bavaria acquisition and expected synergies.