ESAB Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter earnings report. ESAB makes welding, cutting, gas-control, automation and digital products; it reports the Americas and EMEA & APAC segments. Comparisons with 2022 require caution: 2022 includes pre-Separation carved-out results for part of the year, whereas 2023 reflects ESAB as a standalone company.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $2,774.8 million | $2,593.5 million |
| Gross profit / margin | $1,015.8 million / 36.6% | $885.5 million / 34.1% |
| Operating income | $404.2 million | $329.1 million |
| Continuing-operations net income | $223.4 million | $231.1 million |
| Net income attributable to ESAB | $205.3 million | $223.7 million |
| Diluted EPS, continuing operations | $3.56 | $3.74 |
| Adjusted EBITDA (non-GAAP) | $501.1 million / 18.1% margin | $436.8 million / 16.8% margin |
| Core adjusted EBITDA (excluding Russia, non-GAAP) | $482.7 million / 18.4% margin | $408.4 million / 16.8% margin |
- Sales increased 7.0%: organic growth contributed $161.6 million (6.2%), acquisitions $63.9 million (2.5%), while currency translation reduced sales by $44.2 million (1.7%). Organic growth reflected $94.3 million of pricing and $67.3 million of volume.
- Operating cash flow was $330.5 million, versus $214.4 million. Capital spending was $48.2 million; cash used in investing activities was $62.2 million. Cash and equivalents ended the year at $102.0 million, up from $72.0 million.
- Year-end debt was $1,019.5 million gross ($987.5 million term loans and $32.0 million revolver borrowings); reported long-term debt, net of financing fees, was $1,018.1 million. The weighted-average borrowing rate was 5.223%. Revolver availability was $718 million; management reported covenant compliance and sufficient liquidity for the next 12 months and thereafter.
- Current assets were $997.7 million and current liabilities $620.1 million. Lease payment obligations totaled $111.4 million; supplier purchase obligations were $131.8 million, most due within 12 months.
- Americas sales were $1,215.0 million and adjusted EBITDA $224.7 million (18.5% margin). EMEA & APAC sales were $1,559.8 million and adjusted EBITDA $276.4 million (17.7% margin).
Material changes versus FY2022
- Gross margin expanded 250 basis points, mainly on pricing, volume and restructuring benefits, partly offset by inflation-related costs and unfavorable currency effects. Adjusted EBITDA rose, but continuing-operations net income fell about 3% as interest expense and taxes increased and Argentina currency losses weighed on results.
- Effective tax rate rose to 30.0% from 23.0%. ESAB cites changes in tax reserves, foreign subsidiary permanent differences and withholding taxes, partly offset by valuation-allowance benefits; the tax-reserve increase was largely linked to an adverse foreign court ruling in an unrelated taxpayer’s case.
- Operating cash flow improved, with management citing higher operating income and better working-capital turns, partly offset by higher interest payments. Cash used for discontinued operations, mainly asbestos-related, was $15.2 million, versus $23.1 million.
- 2023 sales mix was 69% consumables and 31% equipment, compared with 71% and 29%, respectively, in 2022.
Outlook, risks and unusual items
- Outlook: Management describes long-term organic growth opportunities from product development, broader customer reach and emerging markets, and expects acquisitions to contribute to growth. The filing provides no specific numerical revenue, earnings or cash-flow guidance.
- Acquisitions: ESAB acquired Therapy Equipment Limited in January 2023 for approximately $19 million net of cash received. After year-end, it acquired Sager S.A. for approximately $18.5 million cash in February 2024.
- Russia and geopolitics: Russia represented approximately 6% of 2023 revenue ($153.8 million), $12 million of net income and 4% of net assets. A transition out of Russia could realize approximately $115 million of cumulative currency translation losses. The company also flags risks from the Ukraine and Middle East conflicts, sanctions, energy and input costs, and supply disruption.
- Argentina: December 2023 peso devaluation contributed to a $26.2 million loss in interest expense and other, net. Highly inflationary accounting also recorded an $11.5 million cost-of-sales loss and a $6.7 million SG&A gain. Management says the Argentine subsidiary remained profitable after pricing and operational actions.
- Asbestos: Year-end recorded asbestos liabilities were $267.7 million, including $32.9 million current; related insurance assets and receivables were $239.4 million in total. The estimate covers claims management believes can be reasonably projected over 15 years; later costs are not accrued. Actual claims, settlements, insurer solvency and recoveries could differ materially. The auditor identified this liability estimate as a critical audit matter.
- Other exposures: Key risks include industrial cyclicality, international and foreign-exchange exposure, raw-material costs, acquisition integration, debt and refinancing, pensions, cybersecurity, regulatory compliance, and separation-related indemnities and tax obligations. Goodwill and indefinite-lived trade names were tested with no impairment recorded.
- Debt maturity: The Term Loan A-3 facility matures April 2025; the debt schedule lists $592.5 million of principal payments in 2025. The company has hedged $600 million of floating-rate debt through April 2025.
- Dividends: ESAB paid $0.23 per share during 2023 and declared a $0.06-per-share quarterly dividend in February 2024. Future dividends remain at the Board’s discretion and subject to financial needs and debt restrictions.
Investor verification priorities
- Review the 2025 term-loan maturity and refinancing plans, borrowing costs, covenant headroom and the sustainability of cash generation and dividends.
- Assess asbestos liability assumptions and the timing, availability and collectability of insurance recoveries; the estimate is a significant audit judgment.
- Track Russia exposure and any strategic or regulatory changes that could affect operations, cash flows or realization of the $115 million translation loss.
- Separate underlying operating progress from price, volume, acquisition, foreign-exchange, restructuring and non-GAAP adjustments; compare periods with the 2022 carve-out caveat in mind.
- Monitor Argentina’s currency and inflation impacts, the elevated tax rate and tax-reserve uncertainty, and integration and returns from recent acquisitions.
Audit and controls: Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective disclosure controls and internal controls as of December 31, 2023.