ESAB Corporation — FY 2022 Form 10-K
Business context and reporting period. ESAB designs and sells fabrication technology, welding and cutting consumables and equipment, gas-control products, and digital solutions. This filing covers the fiscal year ended December 31, 2022. ESAB completed its spin-off from Enovis on April 4, 2022 and became a separately traded public company. Because 2022 combines pre-separation carve-out results and post-separation consolidated results, while 2021 is based on Enovis carve-out financial statements, the year-over-year comparison has limitations.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net sales | $2,593.5 million | $2,428.1 million |
| Gross profit / margin | $885.5 million / 34.1% | $838.0 million / 34.5% |
| Operating income | $329.1 million | $306.2 million |
| Net income from continuing operations | $231.1 million | $238.7 million |
| Net income attributable to ESAB | $223.7 million | $235.1 million |
| Adjusted EBITDA (non-GAAP) | $436.8 million; 16.8% margin | $404.2 million; 16.6% margin |
| Core adjusted EBITDA (non-GAAP; excludes Russia for specified periods) | $416.8 million; 16.9% margin | $376.2 million; 16.4% margin |
| Net cash from operating activities | $214.4 million | $250.7 million |
| Capital expenditures | $40.2 million | $35.6 million |
- Reported sales rose 6.8%. Organic growth at existing businesses was 10.5%, acquisitions contributed 0.6%, and foreign exchange reduced sales by 4.2%. Management attributed organic growth chiefly to $270.4 million of inflation-related customer price increases and new products.
- Gross profit increased, but gross margin declined 40 basis points as inflation-related costs and pricing compressed margins. Currency translation reduced gross profit by approximately $44 million.
- Continuing-operations net income fell despite higher operating income, primarily reflecting new interest expense after the separation. The effective tax rate was 23.0%, compared with 25.2% in 2021.
- At year-end, cash and cash equivalents were $72.0 million. Long-term debt was $1,218.6 million, representing $1,221.0 million of principal less deferred financing fees. ESAB reported $529 million of available revolving capacity and access to $77 million under uncommitted credit lines; it said liquidity was adequate for the next 12 months. The weighted-average borrowing rate was 4.54%.
- Operating cash flow decreased year over year. Investing cash outflow was $184.4 million, including $149.0 million for acquisitions. The company paid $6.1 million of dividends during 2022.
Material changes and business developments
- Americas sales increased to $1,128.3 million from $1,004.2 million; segment Adjusted EBITDA increased to $188.6 million from $159.6 million. Segment gross margin declined from 34.1% to 31.7%.
- EMEA & APAC sales increased to $1,465.2 million from $1,423.9 million, despite $88.5 million of unfavorable currency translation. Adjusted EBITDA was $248.2 million versus $244.6 million; Core adjusted EBITDA increased to $228.2 million from $216.6 million.
- ESAB acquired Ohio Medical for $127 million and Swift-Cut Automation for $22 million, net of cash received. Together, the acquisitions were expected to contribute approximately $60 million in annual sales. A further acquisition, Therapy Equipment, closed in January 2023 for approximately $16 million.
- The company incurred $23.1 million in restructuring charges and $15.5 million in separation costs. It recorded a $9.1 million pension settlement gain and a $3.1 million after-tax loss from discontinued operations, primarily asbestos-related activity.
Outlook, risks and contingencies
- Management expressed confidence in long-term organic growth through product development, expansion into served markets, acquisitions, and continued use of its ESAB Business Excellence system. The filing does not provide a clear numeric revenue or earnings forecast for 2023.
- Management reported elevated raw-material costs and supply-chain challenges, and said cost inflation was passed through to customers but contributed to margin compression. It expected input costs to remain elevated in the near term. Other key exposures include industrial cyclicality, foreign-exchange movements, interest rates, and international operations.
- Russia represented approximately 6% of 2022 revenue, about $20 million of net income, and 5% of year-end net assets. The company reported an approximately $90 million cumulative translation loss that could be realized if it exits the business. It said sanctions had not materially affected its ability to serve existing customers as of the filing date.
- Asbestos liabilities totaled $260.7 million at year-end, alongside $232.3 million of related insurance assets and receivables. Estimates cover claims expected to be resolved over 15 years; future claims, settlement costs, insurance recoveries, and insurer solvency create material estimation uncertainty. Asbestos liability estimation was the auditor’s critical audit matter.
- Debt covenants include a maximum leverage ratio that tightens over time and a minimum interest-coverage ratio of 3.00:1.00. ESAB reported covenant compliance at year-end. The company also disclosed $104.8 million in unconditional supplier purchase obligations, most expected to be paid by December 2023.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor did not opine on internal-control effectiveness; the filing states that management’s internal-control assessment and auditor attestation were not required during the company’s transition period as a newly public issuer.
Key facts for investors to verify
- Assess the comparability of 2022 and 2021 results given the April 2022 separation, carve-out accounting, and newly incurred public-company costs.
- Track whether pricing continues to offset inflation and foreign-exchange headwinds without further gross-margin erosion.
- Review debt reduction, interest costs, covenant headroom, and cash generation against acquisition spending, dividends, and other obligations.
- Evaluate Russia exposure and potential effects of sanctions, an exit, or realization of the cumulative translation loss.
- Monitor asbestos claim trends and the collectability and adequacy of related insurance recoveries.
- Confirm acquisition integration and performance, and watch for the approximately $11 million withholding-tax charge expected in 2023 from foreign-earnings repatriation plans.