ESAB Corp 10-Q for FY2023 Q1

ESAB Corp (ESAB)

10-Q 2023-05-02 For: 2023-03-31

Added on April 12, 2026

About this 10-Q

ESAB Corp filed this 10-Q on May 2, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $684M; up 5.6% from $647.91M a year earlier
Net income: $31.9M; down 42.5% from net income of $55.44M a year earlier
Diluted EPS: $0.52; down 44.1% from $0.93 a year earlier

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Delaware									87-0923837
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification Number)

909 Rose Avenue, 8th Floor
North Bethesda, Maryland									20852
(Address of principal executive offices)									(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ESAB	New York Stock Exchange


			Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			2
Consolidated and Combined Condensed Statements of Operations			2
Consolidated and Combined Condensed Statements of Comprehensive Income			3
Consolidated and Condensed Balance Sheets			4
Consolidated and Combined Condensed Statements of Equity			5
Consolidated and Combined Condensed Statements of Cash Flows			6
Notes to Consolidated and Combined Condensed Financial Statements			7
Note 1. Organization and Basis of Presentation			7
Note 2. Discontinued Operations			8
Note 3. Acquisitions			9
Note 4. Revenue			10
Note 5. Earnings Per Share from Continuing Operations			10
Note 6. Income Taxes			11
Note 7. Inventories, Net			11
Note 8. Accrued and Other Liabilities			11
Note 9. Debt			12
Note 10. Derivatives			14
Note 11. Financial Instruments and Fair Value Measurements			16
Note 12. Equity			18
Note 13. Commitments and Contingencies			20
Note 14. Segment Information			21
Note 15. Related Party Transactions			22
Note 16. Subsequent Events			23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			41

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. Mine Safety Disclosures			42
Item 5. Other Information			42
Item 6. Exhibits			43

SIGNATURES			44


	Three Months Ended
	March 31, 2023		April 1, 2022

Net sales	$	684,000	$	647,911
Cost of sales	436,611		423,580
Gross profit	247,389		224,331
Selling, general and administrative expense	147,282		135,413
Restructuring and other related charges	9,444		5,304
Operating income	90,663		83,614

Interest expense (income) and other, net	19,510		(556)
Income from continuing operations before income taxes	71,153		84,170
Income tax expense	37,024		25,746
Net income from continuing operations	34,129		58,424
Loss from discontinued operations, net of taxes	(913)		(2,021)
Net income	33,216		56,403
Less: Income attributable to noncontrolling interest, net of taxes	1,313		966
Net income attributable to ESAB Corporation	$	31,903	$	55,437
Earnings (loss) per share – basic
Income from continuing operations	$	0.54	$	0.96
Loss on discontinued operations	$	(0.02)	$	(0.03)
Net income per share	$	0.52	$	0.93
Earnings (loss) per share – diluted
Income from continuing operations	$	0.54	$	0.96
Loss on discontinued operations	$	(0.02)	$	(0.03)
Net income per share – diluted	$	0.52	$	0.93


	Three Months Ended
		March 31, 2023		April 1, 2022
Net income		$	33,216	$	56,403
Other comprehensive income (loss):
Foreign currency translation, net of tax expense of $45 and $338		42,084		(45,189)
Unrealized loss on derivatives designated and qualifying as cash flow hedges, net of tax benefit of $1,045		(3,581)		—
Defined benefit pension and other post-retirement plan activity, net of tax expense of $66 and $241		277		786


Other comprehensive income (loss)		38,780		(44,403)
Comprehensive income		71,996		12,000
Less: comprehensive income attributable to noncontrolling interest		1,814		458
Comprehensive income attributable to ESAB Corporation		$	70,182	$	11,542


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(301)			323-9099
(Registrant’s telephone number, including area code)


	March 31, 2023		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	82,064	$	72,024
Trade receivables, less allowance for credit losses of $24,587 and $23,471	404,128		374,329
Inventories, net	448,342		416,829
Prepaid expenses	55,833		56,637
Other current assets	70,330		68,851
Total current assets	1,060,697		988,670
Property, plant and equipment, net	283,808		284,226
Goodwill	1,564,317		1,529,767
Intangible assets, net	518,365		517,167
Lease assets - right of use	97,306		92,033
Other assets	324,652		342,152
Total assets	$	3,849,145	$	3,754,015

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	355,333	$	316,265
Accrued liabilities	275,089		285,310
Total current liabilities	630,422		601,575
Long-term debt	1,216,872		1,218,643
Other liabilities	543,560		545,339
Total liabilities	2,390,854		2,365,557
Equity:
Common stock - $0.001 par value - Authorized 600,000,000, 60,222,263 and 60,094,725 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	60		60
Additional paid-in capital	1,868,133		1,865,904
Retained earnings	188,101		159,231
Accumulated other comprehensive loss	(636,709)		(674,988)
Total ESAB Corporation equity	1,419,585		1,350,207
Noncontrolling interest	38,706		38,251
Total equity	1,458,291		1,388,458
Total liabilities and equity	$	3,849,145	$	3,754,015


	Common Stock			Additional Paid in Capital		Retained Earnings		Former Parent’s Investment		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount
Balance at December 31, 2022	60,094,725	$	60	$	1,865,904	$	159,231	$	—	$	(674,988)	$	38,251	$	1,388,458
Net income	—	—		—		31,903		—		—		1,313		33,216
Dividends declared ($0.05 per share)	—	—		—		(3,033)		—		—		—		(3,033)
Distributions to noncontrolling owners	—	—		—		—		—		—		(1,359)		(1,359)
Other comprehensive gain, net of tax benefit of $934	—	—		—		—		—		38,279		501		38,780
Common stock-based award activity	127,538	—		2,229		—		—		—		—		2,229
Balance at March 31, 2023	60,222,263	$	60	$	1,868,133	$	188,101	$	—	$	(636,709)	$	38,706	$	1,458,291


	Three Months Ended March 31, 2023
	Balance at Beginning of Period		Charged to Expense, net		Write-Offs and Deductions		Foreign Currency Translation		Balance at End of Period
	(In thousands)
Allowance for credit losses	$	23,471	$	1,591	$	(732)	$	257	$	24,587


	March 31, 2023				December 31, 2022
	Current		Noncurrent		Current		Noncurrent
	(In thousands)
Accrued taxes and deferred tax liabilities	$	46,817	$	170,033	$	49,615	$	161,500
Compensation and related benefits	70,310		57,112		74,794		57,438
Asbestos liability	29,002		215,780		30,108		230,581
Contract liability	28,322		—		25,899		—
Lease liability	22,808		77,938		18,664		76,163
Warranty liability	13,297		—		12,946		—
Third-party commissions	10,750		—		18,315		—
Restructuring liability	7,951		47		7,533		285
Other	45,832		22,650		47,436		19,372
	$	275,089	$	543,560	$	285,310	$	545,339


	Three Months Ended March 31, 2023
	Balance at Beginning of Period		Charges		Payments		Foreign Currency Translation		Balance at End of Period
	(In thousands)
Restructuring and other related charges:
Americas
Termination benefits(1)	$	(235)	$	453	$	(114)	$	(23)	$	81
Facility closure costs and other(2)	119		439		(483)		—		75
Subtotal	(116)		892		(597)		(23)		156
Non-cash charges(3)			27
Segment Total			919

EMEA & APAC
Termination benefits(1)	5,145		1,962		(1,315)		24		5,816
Facility closure costs and other(2)	2,789		1,489		(2,287)		35		2,026
Subtotal	7,934		3,451		(3,602)		59		7,842
Non-cash charges(3)			5,074
Segment Total			8,525

Total	$	7,818	4,343		$	(4,199)	$	36	$	7,998
Non-cash charges(3)			5,101
Total Provision			$	9,444


	March 31, 2023				December 31, 2022
Designated as hedging instruments:	Other Liabilities		Other Assets		Other Liabilities		Other Assets
	(In thousands)
Cross currency swap agreements	$	13,462	$	—	$	10,769	$	—
Interest rate swap agreements	—		9,716		—		14,342
Total	$	13,462	$	9,716	$	10,769	$	14,342


	March 31, 2023				December 31, 2022
Not designated as hedging instruments	Accrued Liabilities		Other Current Assets		Accrued Liabilities		Other Current Assets
	(In thousands)
Foreign currency contracts	$	96	$	1,754	$	2,166	$	3,682


FORM			10-Q


	Three Months Ended
	March 31, 2023		April 1, 2022

Cash flows from operating activities:
Net income	$	33,216	$	56,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other impairment charges	21,871		16,689

Stock-based compensation expense	2,994		1,728
Deferred income tax	2,290		3,509
Non-cash interest expense	299		—
Changes in operating assets and liabilities:
Trade receivables, net	(21,048)		(29,833)
Inventories, net	(21,611)		(41,925)
Accounts payable	28,480		11,975
Other operating assets and liabilities	(8,424)		(2,457)
Net cash provided by operating activities	38,067		16,089
Cash flows from investing activities:
Purchases of property, plant and equipment	(7,709)		(5,903)
Proceeds from sale of property, plant and equipment	681		2,746
Acquisition, net of cash received	(18,721)		—
Net cash used in investing activities	(25,749)		(3,157)
Cash flows from financing activities:

Proceeds from borrowings on revolving credit facility	187,000		—
Repayments of borrowings on revolving credit facility and other	(189,765)		(511)


Payment of deferred consideration	—		(1,500)
Payment of dividends	(3,033)		—
Distributions to noncontrolling interest holders	(1,249)		(941)
Transfers from Former Parent, net	—		2,847
Net cash (used in) financing activities	(7,047)		(105)
Effect of foreign exchange rates on Cash and cash equivalents	4,769		2,595
Increase (decrease) in Cash and cash equivalents	10,040		15,422
Cash and cash equivalents, beginning of period	72,024		41,209
Cash and cash equivalents, end of period	$	82,064	$	56,631


	March 31, 2023		December 31, 2022
	(In thousands)
Raw materials	$	165,710	$	153,099
Work in process	54,304		44,086
Finished goods	276,675		261,902
	496,689		459,087
LIFO reserve	(2,918)		(2,168)
Less: allowance for excess, slow-moving and obsolete inventory	(45,429)		(40,090)
	$	448,342	$	416,829


	Three Months Ended
	March 31, 2023		April 1, 2022
	(In thousands)
Warranty liability, beginning of period	$	12,946	$	14,954
Accrued warranty expense	1,393		1,558
Changes in estimates related to pre-existing warranties	672		836
Cost of warranty service work performed	(2,678)		(2,150)
Foreign exchange translation effect	964		56
Warranty liability, end of period	$	13,297	$	15,254


	March 31, 2023
	Level One		Level Two		Level Three		Total
	(In thousands)
Assets:
Cash equivalents	$	3,424	$	—	$	—	$	3,424
Foreign currency contracts - not designated as hedges	—		4,364		—		4,364
Interest rate swap agreements	—		9,716		—		9,716
Deferred compensation plans	—		2,962		—		2,962
	$	3,424	$	17,042	$	—	$	20,466

Liabilities:
Foreign currency contracts - not designated as hedges	$	—	$	2,706	$	—	$	2,706
Cross currency swap agreements	—		13,462		—		13,462
Deferred compensation plans	—		2,962		—		2,962
	$	—	$	19,130	$	—	$	19,130


	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension and Other Post-Retirement Benefit Cost		Foreign Currency Translation Adjustment		Net Investment Hedges		Cash Flow Hedges		Total
	(In thousands)
Balance at December 31, 2022	$	(63,847)	$	(613,907)	$	(8,336)	$	11,102	$	(674,988)
Other comprehensive income (loss) before reclassifications:
Net actuarial loss	(2)		—		—		—		(2)
Foreign currency translation adjustment	(108)		31,276		(2,086)		—		29,082
Gain on long-term intra-entity foreign currency transactions	—		12,501		—		—		12,501
Unrealized loss on cash flow hedges	—		—		—		(2,051)		(2,051)
Other comprehensive (loss) income before reclassifications	(110)		43,777		(2,086)		(2,051)		39,530
Amounts reclassified from Accumulated other comprehensive loss(1)(2)	279		—		—		(1,530)		(1,251)
Net current period Other comprehensive (loss) income	169		43,777		(2,086)		(3,581)		38,279
Balance at March 31, 2023	$	(63,678)	$	(570,130)	$	(10,422)	$	7,521	$	(636,709)


	Three months ended April, 1 2022
	Americas			EMEA & APAC			Total
	(Dollars in millions)(1)
Net income from continuing operations (GAAP)							$	58.4
Income tax expense							25.7
Interest expense (income) and other, net							(0.5)
Operating income (GAAP)	30.2			53.4			83.6

Adjusted to add (deduct):
Restructuring and other related charges(2)	3.6			1.7			5.3
Separation costs(3)(4)	2.3			1.3			3.6
Acquisition-amortization and other related charges(5)	4.1			3.6			7.7
Depreciation and other amortization	3.5			5.5			9.0
Other(6)	0.3			(0.2)			0.1
Adjusted EBITDA (non-GAAP)	$	44.0		$	65.3		$	109.3
Adjusted EBITDA attributable to Russia (non-GAAP)(7)	—			8.4			8.4
Core adjusted EBITDA (non-GAAP)	$	44.0		$	56.9		$	100.9
Adjusted EBITDA margin (non-GAAP)	16.2		%	17.4		%	16.9		%
Core adjusted EBITDA margin (non-GAAP)(8)	16.2		%	17.0		%	16.6		%


	Three Months Ended
	Net Sales		Change %
	(Dollars in millions)
For the three months ended April 1, 2022	$	647.9
Components of Change:
Existing businesses (organic sales growth)(1)	30.5		4.7	%
Acquisitions(2)	19.3		3.0	%
Foreign Currency translation(3)	(13.7)		(2.1)	%
Total sales growth	36.1		5.6	%
For the three months ended March 31, 2023	$	684.0


	Three Months Ended
	Core Sales(4)		Change %
	(Dollars in millions)
For the three months ended April 1, 2022	$	607.0
Components of Change:
Existing businesses (core organic sales growth)(1)	43.8		7.2	%
Acquisitions(2)	19.3		3.2	%
Foreign Currency translation(3)	(23.2)		(3.8)	%
Total core sales growth	39.9		6.6	%
For the three months ended March 31, 2023	$	646.9


Exhibit No.			Exhibit Description





















































31.0 1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.0 2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.0 1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.0 2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			Inline XBRL Taxonomy Extension Schema Document.

101.CAL			Inline XBRL Extension Calculation Linkbase Document.

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104			Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 is formatted in Inline XBRL (included as Exhibit 101).


1.			I have reviewed this quarterly report on Form 10-Q of ESAB Corporation;


2.			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.			The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


			(a)			Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			(b)			Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


			(c)			Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


			(d)			Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


			(a)			All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


			(b)			Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


/s/ Shyam P. Kambeyanda
Shyam P. Kambeyanda President and Chief Executive Officer (Principal Executive Officer)


/s/ Kevin Johnson
Kevin Johnson Chief Financial Officer (Principal Financial Officer)