ESAB - NYSE

Good morning. My name is Christa and I'll be your conference operator today. At this time, I would like to welcome everyone to the ESAB Corporation Fourth Quarter 2023 Earnings Conference Call. 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 Instructions] Thank you. I will now turn the conference over to Mark Barbalato, Vice President of Investor Relations. Mark you may begin your conference.

Thanks operator. Welcome to ESAB's fourth quarter 2023 earnings call. This morning I'm joined by our President and CEO, Shyam Kambeyanda; 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 intend to update these forward-looking statements except as required by law. 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. With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda.

Thank you, Mark. Good morning everyone and thank you all for joining us this morning. ESAB has made excellent progress in 2023 and we finished the year and the fourth quarter on a high note. As always, let me take a moment to thank our dedicated associates for their hard work and commitment to our goals. Our 2023 performance demonstrates the power of EBX to drive growth, improve margins, and generate strong free cash flow. During Investor Day this past December, we announced our strategic vision to become a focused premier industrial compounder and setting our 2028 targets to become a $4 billion in sales, 22% in EBITDA margin enterprise, that generates 100% free cash flow conversion. The event also showcased our innovative products and solutions within our FABTECH and Gas Equipment businesses, allowing us to highlight the power of our portfolio and workflow solutions that are helping our customers solve their most challenging needs. Some of the other highlights from 2023 was the extraordinary progress we have made to enhance our equipment portfolio both in FABTECH and Gas Control. We completed our light industrial lineup and introduced the game-changing Renegade Bolt. Our battery-powered welder the first of its kind was a hit in the marketplace. An interesting news item for you on this product, it is now featured in the March Edition of Popular Mechanics as The Best Tool for the Trade. We also made significant progress on our heavy industrial line of products. With the launch of our new Warrior Edge. This product specifically addresses the robotics and automation market. The Warrior Edge, combined with our digital solutions, has created a competitive edge for ESAB as we focus on growing our equipment sales. In addition we developed and introduced the first AI algorithm-enabled fully autonomous adaptive welding solution with the renewable industry. And within our Gas Control business, the innovation machine continues to deliver. The Vitality Index in our Gas Control business is a strong 33%. The team has introduced new valves for Industrial, Specialty, and Medical Gas, focused on the North American and Middle Eastern markets. Additionally, our Gas Control team successfully integrated two bolt-on acquisitions positioning us for continued growth in the coming years. ESAB is also benefiting from macro tailwinds related to onshoring, infrastructure upgrades, energy transition, agricultural investments, and medical and lab infrastructure improvements. And that's not all, we have added to our EBX toolkit. We initiated a few targeted AI-driven activities focused on improving our operations and are encouraged by the initial results. As we enter 2024, we just wrapped up our leadership meeting and rallied our team around growth bolt-on acquisitions and taking EBX up another notch. We have a proven and simple formula at ESAB; use EBX to drive growth, expand margins, and improve our cash flow within our base business, add accretive bolt-on acquisitions, and then use EBX to make them stronger. As a result, we're shaping ESAB into a less cyclical, faster-growing and higher-margin enterprise. To talk specifically about the fourth quarter, let's turn to Slide 3. Another strong quarter and another step forward in the direction of our 2028 goals. As mentioned earlier, we delivered record fourth quarter results. Total sales grew by 600 basis points, adjusted EBITDA margins expanded to a record 19.4%, and our end markets continue to be resilient, with particular strength in India and the Middle East. We continue to be encouraged by the growth performance of our Cobot's and Gas Control business. Our Cobot business experienced close to triple-digit growth, in the quarter and our Gas Control business grew low double digits. All our regions continue to benefit from infrastructure investment and energy transition projects. General fabrication activity remained solid. This was partially offset by softness in retail. Our teams are making positive strides, towards a more profitable product mix. The impact of our EBX growth tools, and product line simplification is reflected in the adjusted EBITDA margins, improving 200 basis points and free cash flow improving by 39%, year-over-year. Moving to Slide 4, and reflecting on the full year and sharing a bit more on our financial metrics. Sales reached a record $2.62 billion and our core revenue rose by 800 basis points, with standout performances in India and the Middle East regions. Adjusted EBITDA, improved by 160 basis points to a record $483 million for the full year. And most importantly, we exceeded sales, adjusted EBITDA and EPS guidance, demonstrating our ability to consistently deliver on our commitments. Our full year free cash flow reached $305 million, with a record free cash flow performance in the fourth quarter. This again, underscores ESAB's commitment to financial discipline and continuous improvement. Moving to Slide 5, to discuss our fourth quarter performance in more detail. Quarterly sales hit a record $650 million. Adjusted EBITDA was a record $126 million, expanding 200 basis points year-over-year to reach an all-time high of 19.4%. As expected, we saw our Americas business return to positive volume, and our EMEA and Asia PAC business continue its positive momentum. In the quarter, we did benefit from FX favorability of about $2 million and about $1 million in promotional activities that shifted out to the first quarter in 2024. Turning to Slide 6, in the Americas, organic sales grew by 900 basis points, strong price performance of 800 basis points, volume adding 100 basis points of growth and acquisitions adding another 100 basis points. We did have a small FX headwind in the quarter. Our investments in new products and solutions especially, our light industrial line focused on distribution, along with our Cobots focused on automation and robotics, are fueling significant growth opportunities. I had a chance to interact with a few of our distributors in December, and their reaction to our product line was remarkable. Several complements on our Renegade Volt and our new Ruffian engine-driven welder. The distributors are thrilled, with the new ESAB products. Additionally, our Gas Control business continues to perform well in the region. Both FABTECH and Gas Control contributed to an overall, 200 basis points improvement in adjusted EBITDA margin. Turning to Slide 7. Our EMEA and APAC regions continue to perform as expected, with total sales growing by 400 basis points. Volume grew 200 basis points. Acquisitions contributed 100 basis points of growth. Our team in Europe, India and the Middle East, continue to execute well in the market. Our Gas Control team continues to win key projects, in lab and hospital expansion projects. The region has made great strides in selling our equipment line, and our fully autonomous adaptive welding solution. To add, the effective utilization of product line simplification and EBX, are driving the region's adjusted EBITDA margins up 200 basis points to a record 19.3, underscoring our ability to drive growth and expand margins. On that positive note, let me hand it over to Kevin for Slide 8.

Thanks, Shyam. We delivered another strong quarter of free cash flow, up 39% versus 2023 to a record $305 million. Key to our improved performance was a 0.3 turn improvement in working capital, as we continue to successfully deploy our EBX business system. This strong performance enabled us to delever better than expected and we ended the year with net leverage of less than 1.9 turns. In 2024, we continue to see opportunities to use EBX and leverage AI to drive even stronger cash flow to support our compounding journey. Turning to Slide 9. We provide our 2024 guidance. Total sales growth of 1.5% to 3.5%, which includes a point of FX headwind on organic growth of 2.5% to 4.5%. We have also provided our 2024 seasonality by quarter on the slide. We expect year-on-year incrementals to be in the low 30s with an adjusted EBITDA guidance of $495 million to $515 million. This guidance includes $10 million of restructuring benefits and $15 million of additional investments in our business to support the commercialization of our innovative new equipment portfolio. Interest expense is guided to $74 million to $77 million adjusted tax rate between 23% to 24% and offshore client [ph] around $62 million. Overall unadjusted EPS guidance of $4.65 to $4.85. Finally our cash flow conversion guide is greater than 95%, which includes two one-time capital investments of around $10 million, we're making to support future growth. To assist with modeling we have included a more detailed guidance slide in the appendix. With that let me hand back to Shyam on Slide 10 to wrap up.

Thank you, Kevin. In conclusion, our teams are focused on executing our strategy, propelling us closer to our goal of becoming a premier industrial compounder. We exit 2023 with momentum, as our innovative new products ignite enthusiasm within our customers and our sales team. We're putting a robust cash flow to good use reducing debt and adding strategic bolt-on acquisitions. Our M&A pipeline is the strongest it's ever been, positioning us favorably to augment organic growth. We're taking EBX up a notch with the presence kaizen event occurring every quarter. We're off to a good start in 2024 and our focus is on delivering the year as we have guided and positioning ESAB to realize our 2028 objectives. We're just getting started and as I said at Investor Day, it's a great time to be an investor in ESAB. This team is poised to continue to deliver significant value for our customers, associates and shareholders. With that operator let's open the lines for questions.

[Operator Instructions] Your first question comes from the line of Tami

Hi, good morning. Thank you so much and excellent margin performance in the quarter. So my first question is along that topic. The in-flight incremental EBITDA margin in your 2024 guide seems to be in the mid-30% and your 2028 target to get to the 22% EBITDA margin would imply – would require you to have an implied incremental of about call it high 20%, meaning it seems like you're running ahead of that target. So should we think about the target as pretty conservative and easy to get to? Or was it originally adopted assuming that incremental margin over time later towards the 2028 timeline slows down and it was always going to be front-end loaded? So any thoughts on the incremental margin, please?

So first good morning. Always good to hear from you, Tami. Well, first thank you. I think we did have a great quarter both on the growth side and on the margin side of the business, really proud of how the team has performed, thrilled that we finally saw us peak out the positive volume in North America and continue our momentum in the rest of the world. To answer your question, we did really like our margin performance in the fourth quarter and how we finished out the year. As you know, as you look out your window, there's many things that can come at you, headwinds or tailwinds as we look at 2028. What we've always said is that our team is very confident in delivering the margin growth targets that we've set within the business and then focusing on augmenting our organic growth with inorganic opportunities and acquisitions. I mentioned earlier, we've got a really strong funnel. So we feel that both in 2024 and the rest of the time, we really have a chance to accelerate the growth line within organic opportunities, but continue to keep the pace on how we see our margin expansion continue. So, bottom line, I think we're right where we need to be. And I think we're driving the ship forward with some momentum.

Got it. Great to hear. So my second question is, I just wanted to understand the full year outlook in terms of sales. It seems like the first half is expected to be modestly lower than the second half. And then the growth acceleration in the fourth quarter is much heavier than what's implied for the first quarter. So, what's really driving this expectation of like of a slower start? And then what gives you visibility that growth is going to accelerate in the back half?

Yes. I think I mentioned we're off to a good start to the first quarter. But I think we did have weather in the Scandinavian region of Europe and also North America that was a bit severe. We've also had the Chinese New Year falls squarely in February. Then we expect Easter to land completely in the first quarter of this year as well. So there's a bit of what I'd call headwind that is just related things outside the control of the business this year versus last year. And so, you're seeing some days adjusted plus holidays kind of kick into that first quarter number. And then the rest of the year kind of shapes out the way we see it today. Now, what it doesn't include is any acquisitions that we make in that period and that would obviously be positive upside to both growth and our intent obviously is to acquire businesses that are accretive to margin. So in both ways, we expect to sort of continue that positive momentum.

Wonderful. See you in a couple of weeks.

Thanks. Thanks, Tami.

Your next question comes from the line of Mig Dobre from Baird. Please go ahead.

Yes. Good morning. I also want to ask about margin and I can appreciate the discussion on incrementals that are baked into the guide for '24. But performance in Q4 was quite strong, right north of 19% and that's frankly above the high end of where you're guiding margins for 2024. So, I'm sort of wondering, kind of how we should think about seasonality here? Why for instance should we see a step down in margin relative to Q4? Anything to know about that?

Yes. First, we were also very happy with how both of our regions performed and really all across that Gas Control and across almost all regions which sort of gives us great confidence as how people are inculcating EBX into their daily standard work and how our teams are sort of working towards what is our ultimate goal that we've set up for 2028. I did mention we had a few good guys come at us in the fourth quarter. I mentioned a little bit of favorability of a couple of million with FX and about $1 million in sort of marketing and some other activities that pushed out to the quarter. And then Kevin briefly mentioned, we're going to continue to invest as we drive equipment sales across all geographies of about $15 million of additional investment. And so those are the factors that you should probably look at and then take a look at the guide as we go into next year. We absolutely believe that now as the flywheel is turning at ESAB, we can take some of that dollars and invest it back in the business with some of the activities that will fundamentally reshape us over the next three years, Mig.

Appreciate the color there. And I apologize, I don't know if I missed this, but when we're looking at your organic guidance to 2.5% to 4.5%, can you maybe put a finer point here on how we should -- how you're thinking about pricing versus volume? And do you foresee any differences between your two reported segments?

Yes, do you want to take, Kevin?

Yeah. So Mig, we're expecting positive volume through each quarter and low single-digit price. The price is pretty consistent year-over-year by each of the quarters, with volume positive in Q1, found improvement as we progress through the year. And obviously, Mig, as you've seen from us in the past, we're going to continue to be pretty vigilant on price. We are going to have console price all that in the first quarter. We'll continue to watch inflation and move as required. In terms of the segments, our expectation is that both -- we expect both segments to be positive on volumes with stronger price in the Americas segment versus EMEA and APAC.

Can I ask why stronger price in Americas? What's the factor driving that?

So we do have a portion of the business that's in South America. So there is an element of some additional price there. And our team continues coming out of the PLS activities that we did last year, continues in North America to maximize value, particularly on the new products, Mig, that we're bringing to the market, we see an opportunity to continue to drive price to a better place.

Excellent. Thank you.

Your next question comes from the line of David Raso from Evercore ISI. Please go ahead.

Hi. Thank you. Picking up on the price commentary, I thought the price in the fourth quarter was a pleasant surprise in the Americas. So can you give us a sense of is there any incremental price you took in January or is the price you expect in Americas in 2024 simply whatever you have as carryover? And then if you can -- add bit also on the negative pricing in international, just so we kind of square up at where is that coming from? Is that largely a down Europe, but maybe some positive price in Middle East and India.

Yeah. So thanks, David. Great -- good to hear your voice, as always. So a couple of things. We did lap in Q4 some America pricing. But that being said, as Kevin mentioned, we've gone out with some additional pricing in the first quarter in both of our regions. When we looked at Europe, we did see some -- we've talked about this before. We see steel prices moving very differently in different regions. And we did see some deflationary steel prices, especially in Europe that sort of allowed us to do something different in our pricing strategies in Europe for the fourth quarter, but we have done some additional pricing activities in the first quarter. But that being said, what we were really happy about in Europe was the expansion in margins about 200 basis points. And if you remember 1 thing that we have said is that ESAB is focused on a net price number. So when we see deflation and what we do with the marketplace, we want to be net positive on the price line as we move forward, and that was very evident in how we performed in the fourth quarter. I hope that answers the question.

That's fair. And not to drill down to the first quarter, but I heard positive price, positive volume I'm just making sure, I mean, obviously, the currency is negative one for the year. It must be more front-end loaded, but just trying to square that up. Basically, you're looking for positive price, positive volume, offset by volume for a flattish first quarter. Is that that the quarter?

Yeah. That's right. That's right. And I think the other piece that we -- the other piece we mentioned is that there's a bit of noise in the first quarter with weather, with where the holidays are landing. So you've got a days impact as well that comes at you for the first quarter, David.

Okay. And lastly, you referenced an M&A pipeline, I'm not sure the word you used robust or full or whatever it may be. But can you explain what you meant by that? And maybe give us some framework on how you're thinking about M&A this year?

Yeah. Very similar to our strategy in the past, bolt-on acquisitions, keeping our debt level in that 2% range, and driving businesses and acquiring businesses that are accretive, improve our geographic strategic positioning and filling out product line gaps. We've got a few that have a chance to get over the goal line. And so as a result, we're feeling quite good that none of our guidance does not include any acquisitions that could happen and that would be a pleasant upside to anything that we've guided to today.

And I guess, now its -- was also hinting at size a little bit. I mean is this Ohio Medical size or is this more therapy size? I'm just trying to get a sense of magnitude.

Yeah, what I'd say one in one kind of a scenario is that there's probably a couple in there size of therapy and a couple in there the size of Ohio.

Helpful. All right. Thank you so much.

Your next question comes from the line of Nathan Jones from Stifel. Please go ahead.

Good morning, everyone.

Hi, Nathan.

A couple of questions on some of the investments you're making in 2024. I mean, you mentioned $50 million of additional incremental investment to support growth and Kevin mentioned a couple of CapEx expenditures to support growth. Maybe you could just give us some more color on what those are? And how they will drive growth over the next few years?

Yes. So let me take the question on marketing and I'll hand it over to Kevin for the capital. So on the marketing side as you know we've launched several new products and our intent is to continue to create marketing structures and advertising for these particular products around the globe as we begin to see these products into the marketplace. The other aspect of it is incentive plans for our sales teams as they begin to sell a different mix and encouraging them to learn and be able to sort of competently sell the product line that we have. And last but not least we are looking at augmenting our marketing strategy a bit differently and nothing much to share now but I hope by the third quarter we can share with you how we'll begin to separate ourselves on that particular piece and really create something special for the long-term at ESAB. And so that's the dollars that we're talking about there. Kevin, do you want to give a bit of color on capital?

Yes. On the two capital investments there's sort of two main areas in that we're focused on. The first is we're putting some investment into the emerging markets. Obviously, what you're seeing is continued good growth from some of our markets. And what we're doing is we're building some additional infrastructure just to allow us to support the growth that we're seeing. And the second investment you probably heard us talk on the script around AI both Shyam and me. So we are putting some additional investment into AI and also into some other IT investments just to support the growth that we're expecting in ESAB over the next number of years.

Great. I guess the second one I might ask about PLS that you guys undertook in 2023. I know that was somewhat of a headwind to volume in the Americas. Can you just give us an update on where you stand with at least the first run through PLS whether or not that is any kind of headwind remaining in 2024 or whether that's behind us and how you think that's focusing the company on - on growth?

Yes. First we're really happy with how PLS is being executed by our teams. We continue to see opportunity to refine our product line our SKUs to serve our customers well. So that being said a big chunk of the PLS, yes, is behind us but we continue to expect to do PLS in some of our other regions a little more focused in Europe and a bit more focus in the Asia region as well around PLS for us. But that being said I think we are at a point now that we can look at a net positive growth number coming out of PLS where we've done some of the heavy lifts and now we're focused on growing as well as sort of refining our product line. But I could tell you that PLS for us now is standard work. We're looking at it with the growth lens as well. And so as a result our teams are focused on driving growth with some set of customers as well as making sure our product line continues to get refined.

Great. Thanks very much for taking my questions.

Your next question comes from the line of Chris Dankert from Loop Capital. Please go ahead.

Hey, good morning. Thanks for taking the question. I guess first off thinking about international and kind of what's baked into the guidance there. How are you thinking about just kind of the trends in Europe and probably China specifically? Are we kind of expecting to stabilize at this level? Or are we expecting kind of a continued slide in the first half and then stabilization rebound? Just maybe some comments on those two regions in particular would be helpful.

Yes. Yes, Chris I think I may not have mentioned this. We sort of view our businesses by daily sales rate and we also look at how things are performing across all of our regions. And what we've seen is that there is a stability in those rates. So nothing is sort of shifting downwards. That being said sort of year-over-year comparables are getting a little tighter. And so the way to think about it is that for a fact the Germanic region in Europe is seeing a lot of stress and has been seeing a lot of stress for a few quarters now. The rest of Europe seems to be holding okay and that's what we see and with a significant amount of obviously positive momentum in the Middle East and in India in particular. And the U.K. has also sort of seen a bit of stress but our position in the U.K. is quite strong and we continue to gain share. On China, we've sort of seen some investment come in from the government. And as a comment that I made earlier around energy transition that's happening and things especially as people are sort of creating storage spaces for LNG and other aspects that have sort of seen as sort of performed better than what we've sort of heard the commentary out in the marketplace around China. I'd also tell you if you're from -- if I'm repeating myself, I apologize. But we play in the top tier of the Chinese market. And as a result don't really feel the peaks and troughs that maybe the others are feeling in China. The space that we're in continues to be a space that China continues to invest in and we're benefiting from it.

That's really great color. Thank you. And then I guess to kind of follow up here. Any comment any update on some of the manufacturing consolidation and any kind of plans on that front for the year?

Yes. Kevin and I start the year with the set of projects that we have in our pocket. And depending on where the market goes, we accelerate or move them along on schedule. There are a few projects that we have planned. So, absolutely, we have about $10 million in our guidance for some of that and we may accelerate that if we see any issues in the market. But otherwise that's our intent.

Got it. Got more refining around the edges than anything particularly dramatic so at least--

Yes. Yes a lot of it depends also on acquisitions bolt-on acquisitions that we make that will then allow us to do some additional consolidation that's the way to think about it.

Makes sense. Well, thanks so much and best of luck on the year.

Thank you.

Your next question comes from the line of Rob Jamieson from UBS. Please go ahead.

Hey, good morning. Congrats on the results of today.

Thanks. Thanks Rob.

Yes. I just wanted to talk a little bit about the Gas Control business. I mean it was up low double-digits, I mean solid performance. Just wondering if you could talk a little bit more about what you saw in the end markets there? What was maybe a little bit better or maybe a little worse than you expected? But then also like a reminder on what the split might be between equipment and consumables? And then I have a follow-up on that after. Thank you.

Yes, so on the Gas Control business, we -- you're absolutely right, we did see low double-digit growth. Where we saw a significant amount of growth was on the energy transition piece of the business. So, energy markets whether it be oil and gas or anything associated with energy, we saw a nice uptick in our Gas Control business on that particular front. And then continued momentum on Specialty and Med Gases with sort of investments happening across in terms of upgrades. So, those were really the highlights there. Where we did see a bit of headwind was again in the market in Germany. Our Gas Control business in Europe actually has a significant amount of German exposure. And so that was a drag on that particular business. But the industrial spec and medical side everywhere else saw some nice growth. And obviously, we have some nice growth opportunities also set up for 2024.

That's helpful. And then how do you think about -- what's embedded in your guidance between maybe Gas Control and the core welding business?

Yes. We've not sort of split out the two to talk about them separately in our guide. But what I'd say is that we're obviously coming off some really hot numbers on the Gas Control side. So, I expect that to be a bit more muted in 2024. And then you can do the math to the averages as you look at our FABTECH business as well.

Sure. Perfect. And can I sneak one more in? Obviously this is always my favorite subject with you all to talk about the AI initiatives and what you're doing with EBX your free cash flow. And I know that's something where Kevin you started with implementing this on working capital and some of the initiatives there. Just curious kind of would you be able to share any more with us on what specifically you might be targeting from the EBX side to help kind of support growth but also improve margin?

Yes. A couple of aspects. And I think we mentioned it before as well. We think that our material planning and production planning side of the business has some opportunity where AI could be a significant asset. And that's where we've been focused both with our data mining tools that we've used in the past along with now AI. We are sort of looking at some other projects but nothing that's sort of baked enough to talk about. But we do expect to continue to lean in to these emerging technologies and trends that could fundamentally help reshape an enterprise. Kevin, did I miss something there?

No. I think you got it. I mean there's a lot of momentum happening at the moment Chris, and we're just making sure that we are poised to take advantage of it. The area that I'm probably more focused on is sort of back office support and how we can generate improved cash flow using AI technology. So, we've got several kind of projects that are starting to gear up, and it's going to be an exciting this year as we go on the learning curve, because there is an element of learning curve with AI, but I think the decision that we have made is we want to be in it at the start and we want to be a leader in this area.

Great. Thank you so much for taking my questions, and congrats again.

Your next question comes from the line of Mig Dobre from Baird. Please go ahead.

Thank you for taking my follow-up. I appreciate it. I have two of them. I guess the first one is on share gains. I'm wondering when you look at whatever industry data you might be using internally, is there a way to frame any progress that you might have made? I mean optically to me, it looks like your growth is better than your peers, which would imply some share gain. I'm wondering if my interpretation is indeed correct, and if there is something to be extrapolated here as we think about 2024?

Yes. There's no industry data per se out there, Mig that sort of clearly points to any of that. I think for us, it's been around execution the mix shift. I think one thing that we've obviously mentioned in the past is that ESAB has primarily been a consumables company. And in the last couple of years, we've really got our equipment line coming in. And then, even on the gas equipment side, I think we've done a really nice job getting our industrial products back in front of our customers and focusing on growth segments. So I think the best way for you to look at how ESAB thinks about it is that we're focused on end markets that are growing faster than others. We're focused on customers that have better growth opportunities than others, and we're focused on products that provide us with a better margin and then also solve some of our customers' biggest challenges. We think if we do all of those right, what you just mentioned about share gain just happens. So I think as a team, we're focused on the process. I think the results will begin to show themselves.

Okay. Understood. And my final question on automation. Maybe remind us here the size of this business in 2023. You talked about Cobot growing a lot. How you think about this business in 2024 and what might be embedded in the guidance? Thank you.

Yes. We're obviously quite excited about the progress that we've made in automation. For us, as you know, the business is about 10% of our business and growing quite nicely. We expect the growth to continue next year. We think there's sort of a double-digit opportunity of growth in the automation space for ESAB. So, it will be a larger share of our business. But as I mentioned before we're not looking for big chunks here. We're looking for process. We're looking for workflow that's a bit focused and less around material handling that sort of drives large volumes through ESAB. But I think the richness and the conversion on profit we really like. The other piece around Cobots, we are seeing momentum. We saw another quarter of really strong growth about close to 90% growth in that particular segment. At our leadership meeting, we had the automation team talk and present about the opportunities. What I can tell you, is that there's obviously excitement within our team and also on the customer base, but the volumes are still low, but the opportunity exists, and our solution set and the way our teams are going about selling it clearly has momentum.

Great. I will leave it there.

Thanks Mig

We have no further questions in our queue at this time. I will now turn the call back over to Mark Barbalato for closing remarks.

Thank you for joining us today and we look forward to talking to you next quarter.