ESAB Stock

Hello, everyone. Thank you for joining us, and welcome to the ESAB Corporation Third Quarter 2026 Earnings Release and Conference Call. [Operator Instructions]

I will now hand the conference over to Mark Barbalato, Vice President of Investor Relations. Mark, please go ahead.

Thanks, operator. Welcome to ESAB's Third Quarter 2026 Earnings Call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Brent Jones.

Please keep in mind that some of the statements we are making today are forward-looking and are subject to risks, including those set forth in today's SEC filings and 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, the accompanying reconciliation information can be found in our earnings press release and today's slide presentation, which is available on our website.

With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda.

Thank you, Mark, and good morning, everyone. Thank you for joining us today. Before I turn to the quarter, I want to thank our teams around the world. In a dynamic environment, we moved our strategy forward with focus and determination, and the results we're reporting today reflect their efforts.

I spent a significant part of the quarter at Gemba, visiting our sites in Mexico and our teams in Brazil, Europe and India. There is no substitute for seeing the work firsthand, walking the floor, meeting our commercial and manufacturing teams and hearing directly from our customers. I came away convinced that we are focused on the right initiatives and that our strategy is working.

In India, our team is delivering strong sales growth, and our gas control team is executing the DeltaP and Aktiv business plans ahead of expectations. The opportunity for growth here is even bigger than we first thought. The energy and optimism across ESAB is palpable, and there is clarity and conviction of what this enterprise can achieve when strategy and execution come together.

With that, let me move to Slide 3 and walk you through our third quarter results. Total sales for the quarter were $787 million, up 14% year-over-year, with core organic growth of 2.3%. Adjusted EBITDA grew 17% to $156 million, and our adjusted EBITDA margin improved 40 basis points year-over-year to 19.8%.

Freight and electronic component costs rose again, and we responded with targeted price increases that kept us price/cost neutral. At the same time, EBXai is delivering sequential improvement in our key metrics across the enterprise.

Both regions delivered positive organic growth in the quarter. EMEA and APAC performed better than expected despite the conflict in the Middle East. In the Americas, we faced unexpected headwinds in South America. First, from the earthquake in Colombia in early August and then Brazil's presidential elections, which slowed economic activity in September. Our teams have responded quickly and decisively as conditions changed. We're creating new work streams for growth and using EBXai to strengthen our market position and gain share while accelerating our cost-out initiatives.

Eddyfi integration is ahead of plan. EWM continues to impress customers in geographies where it had no prior presence.

Moving to Slide 4. This slide captures the new ESAB in one picture, an unrivaled category-defining fabrication workflow with Eddyfi completing the picture. ESAB leads at every step of the process. Our cutting system, torches and consumables prepare the metal. Our power sources, feeders and filler metal join it, and EWM has strengthened this core with premium welding technology.

Gas control is an integral part of every weld. Our regulators, flow control devices deliver the shielding gas that protects the weld pool. That same expertise in precise high-purity gas control opens new vectors of growth in specialty and medical gas. Our robotic and automated cells let customers scale with consistency and InduSuite turns weld data into insight. Eddyfi completes the workflow, inspecting and monitoring our customers' assets in the field.

Each step builds on the next and the economics are powerful. It is a razor-razor blade model. Every installed power source and automated cell drives recurring pull-through of filler metal, flux, gas control equipment, wear parts and now inspection sensors and probes. The result is superior quality, higher productivity, lower cost of total ownership and protection of the asset for its entire life.

FABTECH last month was a defining moment for ESAB. For the first time, we showcased the full power of the enterprise we have built over the last 15 months, and customers saw the new ESAB as one cohesive team. The response was overwhelmingly positive. Our AI-enabled weld solution was the highlight of the show. Together with EWM and Eddyfi, it brought the strength of our workflow to life.

The breadth of our offering came through powerfully. EWM stole the show. Added to ESAB's industry-leading portfolio, EWM creates a formidable combination. In conversation with large U.S. customers, once they saw EWM in action, the verdict was consistent. Its performance is unmatched, and they told us exactly why. EWM combines a highly responsive power source with precisely tuned software and deep application expertise, all working together with the torch and wire to deliver an arc that is stable, easy to control and with very low spatter.

We believe EWM will be a powerful new growth engine for ESAB. EWM is already making inroads with customers in North America, and our teams are now qualifying it with key accounts, so it's specified into their operations.

Our workflow strategy is resonating beyond fabrication. A week before FABTECH, I attended the American Society for Nondestructive Testing, ASNT's Industry Conference in Columbus, Ohio. I was pleasantly surprised to hear the keynote speaker connect welding and inspection and monitoring, describing a significant overlap between the 2 fields. The speaker suggested that training welders in inspection could raise the competency, expand career opportunities and build stronger workforce in both industries.

Hearing back from the inspection communities reinforced what we already believe, welding and inspection belong together, and ESAB is best positioned to capitalize on it. With Eddyfi, we now inspect and monitor our customers' most valuable assets, opening new growth vectors in composites and asset monitoring. ESAB's workflow is unrivaled and every deeper customer engagement is uncovering new opportunities for additional growth.

Turning to Slide 5. We're on our way to unlocking the full potential of ESAB and Eddyfi together. Eddyfi serves high-growth applications in attractive end markets with aerospace, defense, oil and gas and nuclear representing approximately 60% of its sales. It is a strategic addition that accelerates ESAB's organic growth trajectory.

Here's what that looks like in practice. In energy, tower and foundation sections are joined with submerged arc welding using our proprietary ICE technology and Eddyfi inspects it. In space, critical structures and propulsion systems depend on precision TIG welding. Our orbital TIG system welds them, GCE and Victor provide the gas control and Eddyfi inspects the result. In nuclear, reactor piping, steam generator tubing require MIG and TIG welds built to the highest standards. EWM provides the welding, GCE, the gas control and Eddyfi inspects and monitors those welds for the life of the plant.

Just to give you a bit more on nuclear, Eddyfi is the market leader in nuclear inspection with more than $80 million in sales growing double digits. A nuclear plant is welded once and inspected and repaired for 60 to 80 years, and we are there at every phase. These are large, fast-growing markets, and ESAB today is uniquely positioned to win in them. This potential is showing up in our cross-selling funnel, which stands at approximately $465 million.

Our focus now is on conversion. Our teams are refining a disciplined approach to go to market together with strategic customers where inspection and fabrication combined add meaningful value.

On the right side of the slide, you see the funnel by end market and the leads run both ways. Eddyfi relationships in nuclear and aerospace are pulling through ESAB products, ESAB's relationship in energy are pulling through Eddyfi. And in infrastructure and rail, we're calling on customers together. It is early, but we are opening new paths to organic growth, and that is exactly why we brought Eddyfi into ESAB.

Turning to Slide 6, showcasing our commitment to continuous improvement. Quarter after quarter, in 2026, we have improved our execution. Through conflict in the Middle East, inflation in freight, raw materials and electronic components and more recent headwinds in South America, this team has risen to every challenge, and we've improved the business each quarter.

Core revenue has grown from $714 million in the first quarter to $787 million in this quarter. After a soft start to the year, organic growth has now been positive for 2 consecutive quarters. Our adjusted gross margin has expanded sequentially in each quarter of 2026, from 38% in the first quarter to 40.2% in the third quarter, an improvement of 220 basis points. As we reshape our portfolio and our mix, adjusted EBITDA margin has improved 80 basis points since the first quarter to 19.8% and cash flow from operations continues to improve. We expect the fourth quarter to be even stronger with improved organic growth, margins and cash flow, setting us up to enter 2027 with strong momentum.

On that positive note, let me hand it over to Brent to walk you through the numbers.

Thank you, Shyam, and good morning, everyone. Turning to Slide 7, which summarizes our performance by geography. All major regions grew organically, except South America and the Middle East. In our Americas segment, organic sales were up low single digits. We had high single-digit growth in the U.S. and Canada, a continuation of the strong growth we saw in Q2. The rest of the region was down high single digits, impacted by the earthquake in Colombia and the Brazilian elections, while Mexico was flat sequentially.

Our EMEA and APAC segment grew low single digits. Europe returned to growth with low single digits and APAC had another strong quarter with double-digit growth. While the Middle East and Africa were down high single digits, they were up modestly on a sequential basis as we continue to execute well against the challenging backdrop. Said differently, our major regions with growth are growing at nearly 5% in the aggregate. The known headwinds we are navigating are dampening growth by approximately 250 basis points.

By product, equipment and automation were up high single digits, consumables were flattish and gas control equipment was up mid-single digits organically. Strength in equipment and automation matters because every installed power source and automated cell drives recurring pull-through of our consumables. Taken together, these results demonstrate the consistency and resilience of our business model.

Let's turn to Slide 8 to review our results in greater detail. We delivered $787 million in total core sales, a 14% increase over the third quarter of 2025. Core organic growth was 2.3% with price contributing 2.5% and volume roughly flat. Acquisitions contributed 11 points and foreign currency added 1 point. Core adjusted gross profit was $316 million, or 40.2% of sales, up 260 basis points year-over-year. Adjusted EBITDA was $156 million, up 17%. Adjusted EBITDA margin was 19.8%, up 40 basis points year-over-year.

Acquisitions and EBXai productivity helped drive the expansion. We were price/cost neutral in the quarter and EBXai productivity helped fund our continued investments in equipment growth.

Core adjusted net income was $83 million, compared with $80 million last year, and core adjusted EPS was $1.30 per share compared with $1.32 per share last year. It is important to note that our third quarter results include the first full quarterly impact of our Eddyfi acquisition financing.

Turning to our Americas segment on Slide 9. The Americas delivered a solid quarter with organic growth and margin expansion. Total sales grew 15% to $337 million with organic growth of about 1%. We had almost 3 points of price, partially offset by approximately 2 points of volume decline. Acquisitions contributed 12 points and FX added 3 points. The U.S. and Canada were again the highlights, up high single digits organically, continuing the momentum we saw in Q2. North American equipment was up low double digits, which again shows the progress we are making on one of our key growth priorities. This performance offset unexpected softness in South America. We expect improved performance in South America in the fourth quarter.

Finally, North America Gas Control was up double digits. Adjusted EBITDA for the segment increased 17% to $67 million and margin expanded 30 basis points to 19.9%. Acquisitions and EBXai productivity helped drive the expansion. We again saw modest margin headwinds from our continued commercial investments to drive equipment growth.

Moving to Slide 10. EMEA and APAC again demonstrated their resiliency, delivering strong performance in a challenging environment. Segment sales grew 14% to $449 million with organic growth of 3.4%, driven by approximately 2 points of price and 1 point of volume. Acquisitions contributed 11 points and foreign exchange translation was a 50 basis point headwind. Europe returned to growth, up low single digits and APAC had another strong quarter, up double digits. The Middle East was flat sequentially. Gas control equipment was up mid-single digits.

Adjusted EBITDA was $89 million, up 17% and margin expanded 50 basis points year-over-year to 19.8%. We continue to face headwinds from logistics and commodity costs and lower volumes in the Middle East. Like the Americas, acquisitions and EBXai productivity helped drive margins.

Turning to Slide 11. Cash generation remains one of our top priorities. Adjusted free cash flow in the quarter was $60 million, compared with $86 million last year. The decline reflects our acquisition financing with cash interest of $38 million versus $8 million last year. Cash interest was elevated due to the timing of semiannual bond interest payments.

Before interest, cash from operations grew 23% to $111 million from $90 million last year. Excluding the capital structure impacts, operational cash generation continues to increase. On a GAAP basis, free cash flow conversion was 135% of net income. We also made a deliberate decision to carry additional inventory to support our customers in the Middle East and equipment sales in North and South America, negatively impacting conversion. Adjusted net leverage fell sequentially to 3.4x through adjusted EBITDA growth and net debt reduction.

We remain focused on cash generation and deleveraging, and we expect net leverage to be in the low 3s to end 2026 and in the mid-2s by the end of 2027. Our capital structure is approximately 70% fixed at very attractive rates, so we do not have significant exposure to increasing interest rates. Our next debt maturity is not until 2029.

Moving to Slide 12 and our updated full year 2026 outlook. We are narrowing our total core sales expectation to $3.055 billion to $3.06 billion, representing 2% organic growth at the high end. Acquisitions should contribute approximately 9.5 points and FX is expected to add approximately 2 points. We now expect adjusted EBITDA of $603 million to $607 million. This reflects the impact of continued inflationary effects, which are driving price/cost neutrality and higher freight costs to ensure product and component availability.

We continue to protect our targeted investments in equipment growth. We are also accelerating strategic AI investments that are critical to delivering growth and productivity in 2027 and beyond. Adjusted EPS is now expected to be $5.28 to $5.33 per share, and we expect adjusted free cash flow conversion of approximately 80%.

I will now turn the call back to Shyam for concluding remarks.

Thank you, Brent. And turning to Slide 13. 2026 has been a transformational year. We returned to organic growth in a dynamic global environment and expanded margins sequentially every quarter. We are leaning in with EBXai to drive growth, eliminate structural costs and reinvest in commercial initiatives, all while offsetting persistent inflation. We have the right strategy. We're executing it with discipline, focus and urgency. The fourth quarter is off to a good start, and we expect it to be our strongest quarter of the year for core growth, margin and cash flow.

Our priorities are clear: drive organic growth, expand margins and generate cash to deleverage the balance sheet. We have reshaped ESAB into a faster-growing, higher-margin enterprise. Our teams are ready. EBXai is a real differentiator. We are building momentum to close '26 and enter 2027.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from Nathan Jones with Stifel.

I guess I'll start on this $465 million funnel of what -- I mean, what are revenue synergies effectively. Can you talk about, like, of that $465 million, how much you expect to actually realize and over what time frame you might expect to realize that?

Well, first of all, we're thrilled with how Eddyfi performed in the quarter. We saw Eddyfi's growth rate be sort of double digits in the quarter, great margins. Something that I mentioned earlier, Nathan, was at FABTECH and also when I was at the ASNT conference, real energy around the fact that we had combined the businesses where fabrication technology now matched inspection and welding. So real excitement around that front.

And on the $465 million, obviously, we have some models internally that we're sort of working through. But what we're thrilled about is our teams going out there and finding the opportunities. What I can tell you is there are about 10 to 15 opportunities out there at the late stage where we have provided samples and gone out and met with the customers, specifically with the intent of converting the inspection and welding side to Eddyfi or converting a fabrication technology business that's on the shop floor today to yellow.

And so we'll see how that kind of performs. My thoughts to you are, I'd love to come back and answer that question in our Q1 or Q4 earnings call. We think we would have made some good progress on that front.

Okay. So too early to say, is kind of the answer?

Too early to sort of define an exact conversion rate. But what I can tell you is that on each one of these, the level of engagement and the fact that these customers have started to buy samples and start to test the product on their shop floor is very exciting.

And as we sort of speak today, my thoughts are that, that funnel should continue to expand as we get into Q1. But I think the conversion is the biggest piece. And I think for that, it's too early to sort of speak what that number is. But looking at -- I'll give you sort of an example. At ASNT, we met with a specific customer, Brent and I, and the entire conversation was supposed to be a 20-minute introduction where this gentleman then went into how he would like to see yellow on his shop floor because today, he has Eddyfi testing all of his rail cars. And so it was an exciting opportunity, something that we are looking forward to sort of engaging with. The teams are already in there. So these opportunities are real and meaningful for both ESAB and Eddyfi.

Yes. Obviously, it's a pretty big number there. So we're certainly interested to get some more color on that as you get more color on it, I guess. I guess the second one on -- you mentioned 4Q off to a good start. Maybe just any commentary you can give us on orders in October and how that's shaping out and kind of the confidence that gives you in further growth in 2027? And I'll pass it on.

Yes. Thanks, Nathan. Yes, we are off to a solid start in October. We sort of had orders grow mid-single digits, and then we also had our sales come in very close to that number as well. So I think the piece for us in the quarter is, as I mentioned to you in Q3, the South America elections caused sort of some business activity to slow in South America. And then we had some freight expenses come our way that was a bit unexpected that we think carries into Q4. But all in all, I think the business did phenomenally well. Sequentially, we moved price by another 50 basis points year-over-year. Sequentially, we were up 100 basis points. We've gone out for more price in the fourth quarter. So we expect all of it to move in the right direction along with cash.

Your next question comes from Tami Zakaria with JPMorgan.

I wanted to follow up on that revenue funnel question from Nathan. So just stepping back, who are your competitors for these customers that you've identified? Because these customers are probably getting welding consumables and equipment from somebody already. So what's the differentiation that would incentivize some of these customers to switch to you? Don't your competitors already provide maybe some of the inspection solutions? And so basically, what gets them to go over the bridge and switch to you and gives you confidence that this funnel is realizable over the next medium term?

Yes. Tami, good to hear from you. We missed you at FABTECH for sure. So at FABTECH, what was very clear as we brought customers through our booth was the need for a one-stop shop across the value chain and that workflow solution where they now can rely on one solution provider.

I'll give you an example. More recently, we won a space contract, and we were able to pull through some TIG welding certification. Very similarly, I think I mentioned earlier to Nathan on a customer that we met with at the ASNT conference that said he would love to have one -- one provider of the entire workflow on his shop floor that then allows him to have reliable data connectivity across the welding into inspection and monitoring.

And so with every customer that we have met with, including in the nuclear space and defense, that workflow solution combined in a one-stop shop is resonating very well. And for the amount of activity and samples that we have sent out here in the third quarter, we're energized by it. And I think I mentioned earlier in my conversation, I attended the first American Society for Nondestructive Testing, and I was surprised at the amount of conversations around fabrication and welding and the compliments about how we were the first to sort of look at the combination of fabrication and inspection and monitoring, which it seemed like others had not looked into. And so there was a genuine excitement at the ASNT conference.

And then at FABTECH, the energy level at our booth was the best that I've seen in the 10 years that I've been here. Our booth was packed for the 3 days that we were there. The engagement with each visitor was incredible. I'll give you another example. There is a piece here that's working in our favor. The EWM acquisition created another sense of excitement. So the view for us today is, depending on the weld that the customer is doing and what they want to test afterwards, the workflow that we provide, not just with ESAB equipment, but now with EWM is creating a clear differentiator.

One customer actually told me that they had never welded with a machine as good as EWM and the stability of the arc that they felt when they welded with that machine. And they wanted to buy -- they actually bought a system at FABTECH to put on their shop floor. Now this is a large U.S. OEM with thousands of machines on their shop floor. So the combination of ESAB, EWM and Eddyfi is what's making the difference out there. And I believe that today, as ESAB has been connecting the dots, the customers are beginning to see it, which is reflected in our funnel. But as I said to Nathan, and I'll say to you, it's early, and we've got to convert. So let's get through the fourth quarter and sometime in Q1 or Q2, we'll sort of talk about the conversion rates we're seeing.

Understood. That's very helpful. And then you're targeting mid-2 leverage ratio by 2027. Can you remind us, do you expect to do any debt paydown between now and then? Or is it entirely through EBITDA growth?

Tami, the -- it's Brent. The assumptions there currently are that we're going to deploy excess cash flow to debt reduction, either in the form of the higher cash balance or paying down debt as we have a very flexible amount of prepayable debt. So there obviously is an EBITDA growth deleveraging aspect of that. So it's going both directions, but we're absolutely focused on debt paydown in terms of affecting the numerator.

Yes. I think as we look at 2027, our focus will be organic growth, expanding our margins, deleveraging the business with the cash that we have and then obviously, improvement in EBITDA helps that number as well.

Your next question comes from Neal Burk with UBS.

I wanted to ask about incremental margins in the quarter. Despite the step back in volume, incremental margins were still pretty good, I think, 23% year-over-year. Can you just talk about what drove that? I mean I'm sure Eddyfi helped, but wondering what's price cost and anything else that had an impact. And I mean is there any reason that, that should -- that kind of margin performance should get any worse in 4Q? Or can you kind of continue that trend?

No. As I was mentioning, Q4, we expect it to be our best quarter. We expect our growth to be close to mid-single digits. We expect our margins to expand in the quarter, and we expect to deliver better cash. That's -- I mentioned earlier in my comments that it's a reflection of our team, our focus. Sequentially, we went out for a percent of price. It's just that all this year, as all of you have seen, we've been -- we've seen inflationary costs continue to sort of follow us through every quarter. We had an assumption in Q3 and then it escalated again into Q4. We're going out with additional price in Q4 to offset that.

But at some point in time, we think that, that settles in, giving ESAB a really nice tailwind on margin expansion. But on -- to your comment on incremental rates, we think that, that is a good number to assume. Obviously, the team is working hard to be better than that.

And yes, we saw some automation products being displayed at FABTECH, which was interesting. Can you remind us the kind of automation as a percent of ESAB sales now with Eddyfi? And, like, what's the sort of opportunity over time for automation? And does Eddyfi sort of open up new automation opportunities and test for ESAB?

Yes. In fact, what I would say on that particular front is all the samples that we are providing actually has an automated solution for inspection and monitoring. In fact, in some of the energy customers that we visited, they have been most excited to hear about Eddyfi's solution around automated inspection and monitoring. So think about it as I lay down a sub arc weld and very quickly after that, there is an automated process to check that weld and off it goes into the field.

And so the short answer is the potential for automation growth, the way we define it, which is slightly different, where we are focused on process. We're focused on ensuring that we're the process experts with our customers. We see significant high single-digit growth within that segment. Now, as a percent of sales, we've talked about it being double digits for ESAB and automation. We see that business actually growing nicely. And the important part for us is that we see that as a stable business and not cyclical because of our focus on process and not on all of the material handling.

Your next question comes from Bryan Blair with Oppenheimer.

I wanted to follow up on Nathan's second question in terms of trends and outlook, understanding that you haven't provided 2027 guidance. But if we were to focus across your major geographies and end markets, maybe offer a high-level perspective on where your team is confident in sustained or accelerating growth next year, where you expect year-over-year recovery and where clear watch items remain going into '27?

Yes, Bryan, let me start by first saying I'm very proud of our team and their agility in addressing anything that comes our way. The last couple of years, we've had many things come at us. In '25, we had the tariffs. In '26, we had the Middle East conflict. And then now these inflationary items and a little bit of a downshift in South America that we're already seeing correcting itself in Q4. The short answer, I think, there is that the team is capable of addressing and working in any market environment and delivering a continuous improvement mentality around growth, margins and cash. And I think the way that this year has progressed has reflected that.

Brent gave you the numbers. Excluding the sort of items that we think were extraordinary in the quarter, our core growth was actually around 5%. And so the thoughts for us here is that we are obviously building momentum in our sales process. I have to tell you that we have actually upgraded some of the talent within our team. We've improved the training of our existing team. And I can tell you the focus around sales excellence, the focus around funnel generation, funnel conversion, the focus around value selling and an algorithm towards growth is the strongest it's ever been at ESAB. And so I think I've always felt good about the team that we have. But at this point in time, I believe we have the best team taking us into 2027. And so we walk into that year with some confidence.

Understood. Appreciate the color. And then Shyam, you touched on in your prepared remarks, the unique value proposition of EWM and some of the feedback from customers. To date, what has the introduction of EWM meant to equipment growth in North America? Is there anything you can quantify on that front? And then more importantly, how significant or needle moving should EWM be to North American growth and mix looking forward?

Well, here, taking aside North America, EWM was up high single digits in the quarter. So we talked about strong growth last quarter and continuing. So I'd say that's a real success story, and I'll have Shyam talk about what it means in the portfolio.

Yes. We saw equipment up sort of low double digits globally, which also is a reflection of the products that we have developed, right? The Edge Warrior (sic) [ Warrior Edge ] has been doing extraordinarily well. On the EWM side, and that's where a lot of our investments are coming in, in OpEx. You'll see us actually setting up center of excellences showcasing EWM. We are actually putting together an additive manufacturing center of excellence here in North America to showcase the EWM product.

I think I mentioned to you the one person that I was commenting about at FABTECH told me that the React technology that EWM has truly laps anything else that's out there in the marketplace. And our customers are eager to place that product on their shop floor.

The second avenue for growth is on the TIG welding side. The power source that EWM has, in my view, is the best in the industry around TIG welding. And we see the semiconductor space as a clear avenue for growth there. And then the last piece is large customers, even distributors, if you walk FABTECH with us or if you sort of observed FABTECH, for the first time, you saw EWM equipment in booths that were not ESAB. And that is a big win for us.

I can tell you from 10 years ago when I visited FABTECH and what our equipment lineup was, now to walk around FABTECH and actually see ESAB equipment in other people's booths placed in a prime location showcasing robotics and automation was extraordinary and a real energizer for all of our teams. We actually picked up a significant amount of leads for EWM at FABTECH.

So the short answer is we're expecting strong results out of EWM and a lot of pull-through from geographies that they were not participating in. Our strategy there today is to go out and get specified at as many OEMs and customers in the geographies that EWM is not in, which is where we're spending some of our OpEx dollars. And our view is that all of that will pay dividend sometime in 2027 and beyond.

This concludes today's question-and-answer session. I will now turn the call back to Mark Barbalato for closing remarks.

Thank you, operator. Thank you for joining us today. We look forward to speaking to you all next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the ESAB Corporation Second Quarter 2020 earnings release and conference call. [Operator Instructions]

I will now hand the conference over to Mark Barbalato, Vice President of Investor Relations. Marc, please go ahead.

Thanks, operator. Welcome to ESAB's Second Quarter 2026 Earnings Call. This morning, I'm joined by our President and CEO, Sam Cammianda; and CFO, Brent Jones. Please keep in mind that some of the statements we are making today are forward-looking and are subject to risks including those set forth in today's SEC filings and 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 can be found in our earnings press release and today's slide presentation, which is available on our website. .

With that, I'd like to turn the call over to our President and CEO, Sean Cambianda.

Thank you, Mark, and good morning, everyone. Thank you for joining us today. Let me start by welcoming our DFI teammates to ESAB. I was in Quebec for day 1, and the positive energy was palpable. The teams are working extremely well together, building plans for growth and innovation, DFI adds talented leaders to our organization. To add, Brent has been with us now for 90 days and he has done a great job jumping right in and raising the bar for ESAB. In addition, we've scored a real win, bringing RJ to ESOP as an Executive Vice President.

RJ brings over 30 years of experience with Danaher, Varaldo and GE Healthcare. At each of those companies, she built process-driven organizations at scale and delivered outstanding results. She's also an expert practitioner of our business system. I believe the combination of Brent, RJ, EBX AI and our current leadership team is exactly what ESAB needs to drive organic growth margin expansion and strong cash flow generation.

We've been busy in the first half. Our teams have kept their heads down focused on executing their plans and controlling the controllable and it shows. Turning to Slide 3 to discuss our second quarter highlights in particular. ESAB delivered a strong second quarter, headlined by record total core sales and adjusted EBITDA and a return to organic growth in both segments. Demand in North America and Asia remain robust. Europe continues to be resilient and the Middle East performed in line with expectations in a tough environment.

These results reflect the strength of our team and the power of our global enterprise showcasing the value of our unrivaled workflow solution that addresses our customers' most complex issues. Total sales for the quarter were $766 million, up 13% year-over-year, with core organic growth of 2.5%. Driven by double-digit growth in automation and equipment. Adjusted EBITDA grew 8% to $150 million. Margins reflected transitory price cost neutrality driven by increased logistic costs and commodity costs, which we expect to correct over the next few quarters with price and cost-out activities.

Our teams did a fantastic job thoughtfully navigating this transitionary inflation, all while protecting our investments in equipment growth initiatives. We closed the acquisition of DFI ahead of schedule, a defining step that positions ESAB for faster organic growth and higher margins. Brent will walk you through the financial details and our updated outlook, which now incorporates FI. The ESAB you see today is a transformed enterprise with equipment now representing over 50% of our revenue and powering our ability to accelerate organic growth.

Before we move on, I want to thank our teammates around the world for their passion and commitment to our shared vision. Together, we're raising the bar of performance at ESAB. Moving to Slide 4. Showcasing define. I want to take a moment to remind everyone why this asset is so important. EdF powers the next phase of ESAB's workflow and is a global leader in inspection and monitoring technologies for mission-critical applications with clear leadership in electromagnetic testing, ultrasonic testing and automated inspection. It serves attractive end markets with strong secular tailwinds across aerospace and defense, nuclear, infrastructure and oil and gas.

These tailwinds are driven by aging infrastructure, rising inspection requirements growing power generation demand and industry-wide skilled labor shortage. Let me bring this to life for all of you. In early July, we hosted several customers at Edify, where we showcased the power of our combined workflow solution across various end markets. This was the first time our teams from DFI EWM, GCE and ESAB worked together to demonstrate the full power of our enterprise. The event showcased our unrivaled workflow solutions, and our customers walked away with a clear understanding of the connection between ESAB and Edi and the value it creates for their operations.

That excitement is already converting into an active funnel of commercial opportunities, and our teams are energized to capture them. Just this week, I visited DFI site in State College, Pennsylvania, and got a first-hand view of this talented team, their ability to partner with large aerospace customers to quickly build prototypes to solve the toughest problems, it reinforced what I believed all along. We've picked up a team that is maniacally focused on the customer, capable of innovating at the speed of our customers' problems and carries an entrepreneurial spirit that will serve ESAB well over the long term.

For our shareholders, this translates directly into a stronger ESAB, faster organic growth, higher margins reduced cyclicality, a more predictable and resilient earnings profile that compounds value over time. Financially, DFI is a premier asset. The business delivered high single-digit growth gross margins of approximately 65% and EBITDA margins of roughly 30%. RFI also brings meaningful North American exposure that pairs naturally with ESAB's global footprint creating immediate geographic expansion opportunities for big companies.

Turning to Slide 5. By combining ESAB and EDF, we have created an unrivaled end-to-end workflow solution that supports our customers from initial preparation and joining all the way through real-time asset management. Data-driven insights and full traceability. Our teams are focused, and our growth funnels have never been stronger, and we're very optimistic about the opportunities that lie ahead. Together, we're uniquely positioned to accelerate the industry shift towards connected and digital workflow solutions.

Moving to Slide 6. This is ESAB's transformation in 1 picture. Over the past decade, we have deliberately shifted our mix towards faster-growing, higher-margin portfolio of equipment and gas control products, which has become the foundation of our complete end-to-end workflow solution. From our leadership in gas control to our advanced equipment portfolio, every step we have taken, including our recent acquisitions has been accretive to our growth and gross margin profile and has significantly strengthened our offering and geographic reach.

The execution of our strategy has moved our equipment mix from 38% to 50% plus on a 2026 pro forma basis. At that same period, we have improved our gross margins by approximately 500 basis points.

Turning to Slide 7. This slide is the proof point of our capital allocation strategy. Over the last 18 months, we've deliberately deployed capital into high-quality assets that have fundamentally reshaped ESOP. Every 1 of these acquisitions is delivering. We have already discussed the merits of DFI. Active and Delta P strengthened our gas control leadership with unique products in fast-growing geographies. EWM establishes ESAB as the technology leader in equipment, bringing coal metal transfer technology, which we call ReACT along with additive manufacturing capabilities.

And Bavaria extends our proprietary filler metal product line while deepening our presence in Germany. Each asset improves our growth profile, enhances our margin and extends our workflow solution exactly what we set out to do. The results validate our playbook and the runway ahead is long. We have reinvigorated eBx AI, sharpening our focus and driving out cost. ESAB is on a new trajectory. On that positive note, let me hand it over to Brent to walk you through the financial details.

Thank you, Sean, and good morning, everyone. It is a pleasure to be on the call today. I have been spending my first few months diving into the business and getting to know the team. Based upon everything I've seen, I believe we have a strong foundation in place to drive long-term shareholder value. .

Let's turn to Slide 8 to review our financial summary. As Sam noted, we delivered $766 million in total sales, a 13% increase over the second quarter of 2025. We delivered 2.5% organic sales growth, reflecting double-digit growth in automation and equipment as well as an 8% contribution from acquisitions. Adjusted EBITDA was $150 million, up 8% year-over-year at 19.5% adjusted EBITDA margin. We experienced a 90 basis point year-over-year margin decline because of transitory price cost neutrality and deliberate targeted commercial investments to accelerate growth in our equipment product line.

We view these investments as essential to driving future growth and margin expansion as equipment becomes a larger slice of the pie.

Moving to Slide 9. Excluding the impact of 1 month of edify and the related financing transactions, core adjusted EPS was $1.41. Given the number of moving pieces related to this transaction, we have provided a simple walk. As you may recall, we prefunded a large portion of the debt financing with an exceptionally well-timed bond offering in March where we raised $1 billion in a very attractive cost of capital. This financing is even more attractive in retrospect, given current market volatility and interest rate trends.

The total debt financing impacted EPS by $0.13 in the quarter, of which $0.03 was attributable to the prefunding. Our committed equity financing consisting of common shares and mandatorily convertible preferred stock, which helped fortify our balance sheet led to a $0.03 headwind. We are extremely excited to have DFI as part of the ESAB team. The teams are already working together exceptionally well, and we are making targeted commercial investments to accelerate our long-term growth and margin expansion.

Turning to our Americas segment on Slide 10. The Americas delivered a strong Q2. Total sales grew 12% to $316 million with 5% organic growth. North America had double-digit organic growth on the back of particularly strong performance in equipment, 1 of our key growth priorities. Gas equipment and automation rose double digits Finally, Mexico continues to stabilize, and we are working to mitigate expected headwinds in South America.

Moving to Slide 11. Our EMEA and APAC segment sales grew 14% to $450 million, representing 1% organic growth. We were able to drive organic growth despite the meaningful geopolitical headwinds in the Middle East, which impacted volumes. Margins in the segment were pressured by these disruptions as well as continued equipment growth investments. However, better-than-expected performance in Europe helped partially offset these headwinds. We continue to be excited about what EWM is doing for our business both in Europe and globally, and the EWM integration and associated margin expansion plans remain solidly on track.

Turning to Slide 12. Regarding cash generation, our first half adjusted free cash flow was in line with the first half of 2025 despite the meaningful increase in interest expense. Our cash flow was impacted by costs associated with restructuring and acquisition integration activities that are enabling future growth and margin expansion and a strategic decision to carry higher equipment inventory levels to serve our customers. We are focused on leveraging eBx AI structurally to improve our working capital turns and we expect strong second half cash generation.

In terms of capital allocation, we continue to focus on investing in organic growth, debt reduction and accretive tuck-in and bolt-on acquisitions.

Moving to Slide 13 to update our full year 2026 outlook. With EdF now closed, we are raising our full year 2026 outlook. We expect total core sales of approximately $3 billion to $3.1 billion. This assumes organic growth of 2% to 4%. Acquisitions are now expected to contribute approximately 9 points of growth and foreign currency remains unchanged. We have increased adjusted EBITDA to $615 million to $625 million, which includes 7 months of Atif. We have assumed about $15 million of drag from transitory price cost neutrality driven by logistics costs and commodity inflation while protecting investment in equipment growth initiatives.

The adjusted EPS range of $5.40 to $5.50 reflects these changes as well as the contribution and funding of the Enfa acquisition. Our free cash flow conversion should be approximately 90%. We have the right strategy and are executing it with discipline and focus and are on track to deliver another year of strong results. Thank you for your time, and I will now turn it back to Sean.

Thank you, Brent. To summarize, we delivered a record second quarter with positive organic growth in both segments, and we closed defy ahead of schedule. We're building momentum in our business. We transformed ESAB. We're continuing to reduce rooftop and optimize our manufacturing footprint. We are simplifying eBx AI so that every team member is fully engaged with our tools. Our teams are driving 4 powerful funnels of funnels of new customers, a funnel for synergy sales, a funnel for cost out and a funnel for Kaizen. We have renewed focus on Gemba, starting with me.

Our priorities are clear: driving organic growth, margin expansion and deleveraging the balance sheet. We have reshaped ESAB into a faster-growing, higher-margin enterprise. True to our values, we will keep helping each other win, valuing every voice as we deliver long-term shareholder value.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from Bryan Blair with Openheimer.

I was hoping you could offer a little more color on how orders progressed through Q2 and into Q3 and how your team is thinking about organic growth in the back half, both in terms of Q3, Q4 cadence and segment contribution?

Yes. Thanks for that question, Brian. Obviously, we were very happy with how things progress for us from Q1 to Q2. We've seen that trend continue into Q3. as you've always known, we felt at the back half of the year, we had a lot of initiatives in play. We felt that sequentially our growth profile and our performance improves and you've seen that from Q1 to Q2, our performance improved both from a margin perspective and a performance perspective on sales. We expect to continue that core growth trend into Q3 and Q4.

The other piece that I would add there, Brent, is that we have, as I mentioned before, there were a couple of things that we were very comfortable with. One was EWM and the initiatives that we're working on for equipment in the second half of the year. And then we also had some really nice automation, standard automation orders that ship in the second half of the year, giving us confidence about the organic growth guide that we've given.

Okay. Understood. And you mentioned that the Middle East performed in line with expectations given the well-known circumstances at hand. The level set what was the Q2 revenue and profit headwinds for Middle East operations, how are you thinking about the back half? And then looking forward, is there any way that you can quantify or dimensionalize the prospective catalysts from rebuild efforts and incremental investment in energy infrastructure?

Yes. A couple of things there, Brian. First, obviously, -- very proud of our team in the Middle East. I think I may have mentioned it to you before, our teams are actually in the office and working our sales teams are out there, finding new accounts, continuing to deliver protecting our customer, protecting our share and, in some cases, gaining share in the region. As we mentioned before, the region is about 7% to 8% of SAP's business and it was down double digits. So really in that 10%, 11% range.

The margins are good for us in the region. So we haven't given out any guidance on that particular piece, but you can make an assumption there. But we did see logistics costs sort of triple in the region as a result of the conflict, which we think are transitory, depending on what happens today and tomorrow, things could sort of really shift very favorably in our direction. From a rebuild perspective, we've said this before. Most of the assets that will need rework and rebuild, have ESAB product specked in.

And so when those rebuild activities come in, we expect to get a larger share of it. We -- as you are aware, prior to the conflict that region was growing high double digits for us, closer to 20%, we would expect that for a period of time as they rebuild and reconstruct that the numbers would be equivalent to that or maybe slightly better.

Your next question comes from Tami Zakaria with JPMorgan.

Question on your organic growth outlook. I think it remains unchanged. You spoke about some price cost neutrality impacts that you expect to cover in the next few quarters. Has your pricing outlook changed versus the last time we spoke? And in lieu of that, does that mean your volume outlook is now weaker? And so on the net, your organic growth expectation remains the same?

Yes. I think the way to think about it is there's just a little bit of uncertainty out there, Tammy. So the view for us is sequentially, our pricing does get slightly better. And then things have to sort of improve for us globally, Middle East being 1 of them. And I think the view for us is that we feel confident about where we are and where we have guided. The view for us is that pricing gets slightly better. We're sort of flat to slightly better on organic volume as we go through the second half of the year.

Understood. And then the second question, would you be able to parse out the components of the $0.35 EPS guidance reduction at the midpoint how much of that is Edifisales, EBITDA, higher interest expense, how much from price cost impacts. If you could bucket those, that would be helpful?

Yes, certainly. It's Brent. Good to speak with you. So when you look at that at the midpoint, most of the dilution associated with Adif we absorbed in Q2. Now Edifias the year progresses, we'll be will improve sequentially each quarter and then it will be kind of just modestly dilutive in Q4, but you'll see most of that. So that's kind of 40% or more of the impact. So that's both the contribution of the business, net of the interest expense and the share and preferred stock issuance, then the balance of it is the comment on the trimming the EBITDA there, and that's probably about 60% of it. .

Well, it's really the investments in growth that we're doing and then the price cost neutrality. Yes. So the way to think about that also, Tammy, is that we think that will be slightly dilutive to neutral in Q4 and then confidently positive as we get into '27 with Edify.

Your next question comes from Nathan Jones with Stifel.

Good morning, everyone. I need I'm going to start with a couple of high-level questions on Edify. Obviously, 65% gross margins and 30% EBITDA margins are very good, but that does imply 35% SG&A. So I wanted to talk about that a little bit. Is that something that's a result of a different commercial model that requires more SG&A to support it? -- built for a higher revenue base? Or is it something that you think you can outright shrink or grow into? And what's kind of a normalized optimized level of SG&A that EDF should run at?

A couple of things that we're beginning to observe. One, it's an extremely innovative culture. The way that the business grows is that they're able to developed solutions in a short period of time. I just mentioned the comment about State College, Pennsylvania, where a customer comes in, discusses an issue and within a week -- the team has developed the probes needed and provide the solution for the customer. And these are for some large aerospace customers. So there's fundamentally a way that this business works that requires a level of engagement, especially from the R&D and the development team that creates both growth and innovative products.

Now the level of what is the optimal level, we're working through our plans. We're just getting past our 60-day plan. We -- as you know, Brent, we have a EBX process of a 100-day plan that we'll be sitting with the team. But we do expect, as the business grows, we don't need to increase OpEx as much. So there will be some natural leverage there. And then there's obviously things that we do, whether it be the shared service center or other things where -- and supply chain where the team can leverage the base ESAB business continuing to improve that category.

So -- when we went in, as you remember, we had talked about a $20 million synergy between us and them. We feel that, that is real and there may be more in it. But we're going to gradually do it. Our focus will be to capture growth rather than focus on the cost outside initially. But rest assured, we'll be doing both.

That leads to my second question, which was going to be the opportunities for revenue synergies and growth from EDF and ESAB together. Maybe you can talk a little bit more about where you see those opportunities and what kind of revenue synergies you might target in 2027, 2028? I know those take a little bit longer to materialize. .

Yes. Well, first is we talked about the session that we had with the combined teams at Edify. And I have to tell you I talked about it about day 1, but even that session that we had in the parking lot of defy in Quebec City was amazing. It was phenomenal to see our teams gas control, our traditional FabTech team sit with the EDF team and work out the workflow solutions. And we looked at segments when it came to nuclear, oil and gas, wind pipelines and fundamentally, the team sat in and looked at synergies across all of those customers.

And what I can tell you is that the funnel at edify is close to about $450 million. Now we got to convert on that funnel. The view for us on that particular front is that it's going to take a bit of time. We've introduced the concept to our customers. We're seeing great feedback. We're seeing the Department of Defense engaged very differently with us as a result of both the additive manufacturing technology that we picked up with EWM and now if -- so the opportunities exist. We expect to get a few orders and those then become the base case for us to continue to drive organic growth across several other segments for both ESAB and Edi.

Your next question comes from Mick Dover with Baird.

I just kind of want to follow up on this discussion with Nathan here. Just conceptually, if I'm a customer and I'm buying products, testing products from FI, what would be the benefit to me from buying ESAB equipment or ESAB consumables in conjunction with the testing equipment that I'm giving from EdF. How do you go to market and you package these things together? .

Yes. We actually spent a significant amount of time discussing exactly that with the teams up in Quebec City. The short piece is full traceability to when the material was joined together. And so fundamentally, you look at -- we actually showcased 1 nuclear example for some of our customers where you're basically disposing off nuclear waste or product that comes off of a nuclear plant and sealing it in a container. What you need for that particular aspect is, first, a full workflow analysis of what went into sealing that container. And then after that, what you need is to ensure that there's no deterioration in that container over a period of time. That was 1 of the simplest examples that I can give you.

The second aspect was in pipeline. Where you join some pipes, you put them out into the field and then you monitor degradation of that particular aspect of the product line. And what we noticed with the customers is that's exactly what they want to know is that what was the original product looking like when it was placed where it was? And how has it moved over time? And that combination today only ESOP can provide.

We did something similar on rail, where as you may know, in India today, we actually supply product for all the rail repair and 1 of the big aspects is visual inspection of the rails to sort of monitor where the wear has occurred on the railway tracks. And today, what you can do with ESAB and 5 product is actually monitor where the war is occurring, apply where ESOP file metal and equipment need to go in and monitor it over a period of time for better serviceability to our customers.

I can give you another example of associated win, but you get it the view for us is and that applies in spades when it comes to the defense sector. And it's been actually quite exciting for us in the initial days the response from our customers, the way that we're thinking about combining the data capturing, the data monitoring, ability between both of the companies and combining those workflows.

So excited, early days. We've got a few early bites that have got us sort of really focused on developing that, which is why with the earlier comment that we made is that we want to continue to invest in the front end to make sure that we capture all of this for 2027 and beyond.

That's very interesting. My follow-up, a clarification here on the adjusted EBITDA increase. Can you tell us exactly what the contribution from EDF is in your updated guidance? .

So Mig, the -- when you look at the increase there, the contribution is primarily Atif, netted by the other investments that Shamnoted when we had the previous answer.

Right. But the numbers are what. I mean you increased it by $35 million. So out of...

We increased yes, we increased it by $35 million we said we had $15 million of price cost headwinds and investments. So it's approaching $50 million the DFI contribution.

Your next question comes from Neal Burk with UBS.

Sam, I just wanted to go back to your comment earlier on -- you said sequentially pricing getting a bit better to offset the cost inflation. But you also said flat to slightly better on organic volumes in the second half. Can you just clarify, is that comment relative to previous volume expectations? Or like, I guess, another way how you...

Yes, just sequentially, Neil. We're looking at this now sequentially and as to where we are in the current environment. So what this assumes our guide assumes is that the Middle East stays where it is. We get a little bit more price. We continue to invest in our business on equipment growth and the strategies that we have to grow our equipment business along with sort of pulling did through a little bit. And then obviously, we've got some really nice commercial opportunities that could -- that we had planned on in the second half of the year related to automation as well.

Okay. No, that's helpful. And then a lot of strength in equipment and automation. I mean, we've seen that from some other peers this earnings season. But can you just maybe elaborate a bit on how or what end markets are driving that growth in equipment? And also any update on how consumables is trending. .

I'm sorry, what was the last part?

Consumables?

Consoles continue to be steady. There are pockets of weakness, obviously, specifically in the Middle East. But overall, it continues to trend positively, although not as positive as equipment. So what I'd basically say there is that sort of in the low single digits is what we see global consumables doing with equipment and gas control doing quite well along with automation. To sort of specifically talk about...

Can you repeat the first part of your question? .

Yes. Just kind of give us a sense of like how broad by end market was to strengthen in equipment and automation.

Yes. Just talking about the end market pieces. What we found was general fabrication is where we found significant uptick in our portfolio. We also saw some uptick in defense, which we've always said has been a tailwind for us. And so those were really the 2 things that stood out. Our Distribution segment did really well across the globe on both equipment and to some extent, standard automation.

The next question comes from Chris Dankert with D.A. Davidson. .

Hope to dig in a little bit on Europe. I think you called out some improvement in defense spending. Again, is that strictly Germany, maybe any kind of quantification in terms of uptick? Any sort of update in terms of what we're seeing in Europe more broadly? .

For Europe, we obviously have a phenomenal presence and a great position of strength in general, Chris. What we are seeing is Eastern Europe, Scandinavia and Germany sort of making some moves, especially in the segment that you mentioned earlier in defense. We're also seeing some investments come in, in those particular markets for energy that's helping us out as well. And then the second piece here is that we play from a position of strength. So our teams continue to gain market share, both in consumables and in equipment.

We do get some data publicly in the space that sort of validates that piece for us.

Got it. And I guess, forgive me if I missed it, but did you quantify kind of what the sequential pricing improvement is expected to be into the back half of the year here?

We have not quantified that, but it's modest sort of moving. I think we had 2% this quarter sort of moving up into the 3 and then sort of exiting at a better rate in Q4.

This concludes the question-and-answer session. I will now turn the call back to Mark Barbalato for closing remarks.

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

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by, and welcome to the ESAB Corporation First Quarter 2026 Earnings Release and Conference Call. [Operator Instructions]

Thank you. I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. Mark, you may begin.

Thanks, operator. Welcome to ESAB's first quarter 2026 earnings call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Brent Jones. 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, and good morning, everyone. Thank you for joining us today. Turning to Slide 3 to discuss our first quarter highlights. We're pleased to report a strong start to the year headlined by record first quarter sales. Total core sales grew 10% year-over-year, a result that reflects both the effectiveness of our compounder strategy and the resilience of our diversified global footprint. Despite a more challenging environment, which included higher costs as a result of the conflict in Iran, we generated sales of $715 million and adjusted EBITDA of $136 million, an increase of 6% year-over-year. We delivered this performance while continuing to invest in the long-term drivers for the business. I am especially encouraged with the performance of our acquisitions. EWM and Aktiv both grew double digits year-over-year, and our sales synergy funnel across the portfolio improved meaningfully, reinforcing our confidence in the strategic value these businesses bring to ESAB and their potential to drive organic growth in the years to come.

Looking ahead, we are accelerating our compounder journey through the previously announced acquisition of Eddyfi, which we expect to close midyear. This transaction strengthens our portfolio and extends our runway into profitable growth. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance, we are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. Moving to Slide 4. Before we turn to the quarter, I want to put the past 1.5 years into context. Throughout 2025 and into the start of '26, we have deliberately been reshaping ESAB, sharpening the portfolio and building new capabilities across the company.

The ESAB you see today is meaningfully stronger. Our capital allocation strategy is the clearest place to see it. We have continued to build a premier industrial compounder by adding strength across every layer of the value chain. We have strengthened our position in gas control with DeltaP and Aktiv. We've created a best-in-class equipment portfolio with EWM and filled out every gap in our equipment product lineup. We added to our leadership position in proprietary filler metal with Bavaria and Eddyfi, which is expected to close midyear, extends our workflow solution into inspection and monitoring. Complementing these acquisitions, we now have more than 40 AI projects actively underway contributing both to near-term productivity and long-term growth.

The new acquisitions coupled with AI initiatives will drive growth, reduce cyclicality, expand our gross margin profile making ESAB more durable through the cycle than it has ever been. Turning to Slide 5. This slide brings the story to life. Over the past decade, we have reshaped ESAB into a faster-growing, higher-margin enterprise and the shift is now plainly evident in both our mix and our margins. Three levers have driven the work. First, sustained R&D investment to refresh our product portfolio and fuel growth; second, EBXai, our operating system for productivity and operational excellence, third, a disciplined M&A program that has added growth and margin. Let's start with our mix. In 2016, equipment represented roughly 38% of our sales, a fully refreshed product portfolio and an optimized manufacturing footprint and 18 successful acquisitions have changed that picture.

With the recent additions of EWM and Bavaria in Fabrication Technology and DeltaP and Aktiv in gas control equipment now accounts for roughly 44% of revenue. Upon closing Eddyfi midyear, that mix will rise to approximately 52%. The margin trajectory tells the same story. Our gross margin has moved from approximately 35% in 2016 to nearly 38% today. Eddyfi accelerates the next step. As I've shared with you before, our equipment product carries gross margins closer to 45%. And Eddyfi, as we shared before, is close to 65%. Together, these dynamics will push our consolidated gross margins to greater than 40% for 2027 and beyond.

Moving to Slide 6. Momentum is building globally across our welding equipment portfolio, and 2 launches are leading the way, the Ruffian 270 engine-powered welder and the Aristo Edge. The Ruffian fills a critical gap in our offering and stands out as the most productive operator-friendly unit in its class. It is the only welder in its category to deliver full power simultaneously. 270 amps of welding output and 11,000 watts of generator power at the same time at a 100% duty cycle, an independent generator arc ensures that running power tools never causes a spike or drop in the welding arc. The Aristo Edge sets a new performance benchmark on both the advanced manual and robotic sides. Its ultrafast arc control manages the arc 10 to 20x faster than traditional equipment, clearing short circuits instantly and preventing defects and the advanced waveforms reduce spatter by up to 85%, producing a stable puddle that virtually eliminates post-weld cleanup.

With 500 amps at a 60% duty cycle, the plug-and-play compatibility with all major robot and cobot brands, it is built for continuous industrial scale production. Customer response has been strong. We have secured preferred status with the yellow goods OEM on the Aristo Edge, and we're gaining channel share with the Ruffian. Together, these 2 product families add roughly $250 million to our servable market. Turning to Slide 7. When we acquired EWM, additive manufacturing was one of the capabilities we were most excited about. It is an advanced 3D metal printing process that uses electric arc as the heat source and metal wire as the feedstock to build large high-strength components layer by layer. And EWM is a clear leader in this space. EWM's React technology is now opening doors for the broader ESAB portfolio. We are gaining real traction with a major U.S. distributor and with defense OEMs.

We have secured orders with integrators, engineering and construction firms and 2 German OEMs manufacturing in the U.S. today. In parallel, our teams are building a healthy cross-sell funnel, bringing ESAB filler metal to EWM customers and EWM equipment to ESAB customers. There is still work ahead, but Q1 was an encouraging start. The next product, Tetrix 350, adds a second growth lane, it is the best-in-class power source for TIG applications, including precision welding requirements needed for semiconductor wafer manufacturing and it pairs naturally with our AMI product where order activity continues to rise. Together, these 2 products give ESAB access to an additional $900 million of servable market across additive manufacturing and TIG and orbital TIG welding.

They have our sales teams energized by the new workflow solutions we can now deliver to our most discerning customers. Moving to Slide 8. Let me reiterate what I shared when we announced the Eddyfi acquisition. This transaction extends ESAB workflow solutions into faster-growing, higher-margin inspection and monitoring space, a bit more detail on the asset itself, Eddyfi is a clear market leader in electromagnetic testing, ultrasonic testing and automated inspection. It serves mission-critical end markets with attractive secular tailwinds across aerospace, defense, nuclear and energy infrastructure. The business also brings meaningful North American exposure that pairs naturally with ESAB's global footprint, opening immediate geographic expansion opportunities for both companies.

Financially, Eddyfi is a premier asset, high single-digit growth, gross margin is about 65%, and EBITDA margins around 30%. Strategically, the deal accelerates our shift towards equipment, strengthens our ability to deliver differentiated workflow solutions, expand margins, reduce cyclicality and ultimately improves the predictability and resilience of our earnings profile. Although the transaction is expected to close midyear, we're already in motion. Our integration team is in place sharpening the combined workflow solutions value proposition and beginning to share Eddyfi's capability with ESAB customers. Turning to Slide 9. What I love about this industry is that we enable extraordinary engineering every day. A few moments capture that better than what is happening right now with NASA's Artemis program. For the first time in more than 50 years, humanity returned to the moon and ESAB technology helped make that possible.

A decade ago, we would not have been at the table. Today, we are a key contributor and that is a source of enormous pride across our company. You can see one example on this slide. Our friction-stir welding technology delivers the exact combination of strength, precision, reliability and weight optimization that the most demanding aerospace environments require. ESAB's technology enables aluminum alloy structures to be extraordinarily strong and remarkably light. Boeing's selection of our technology for the Space Launch System, fuel tank reinforces the thesis behind our portfolio, differentiated innovation applied to mission-critical manufacturing in the world's most demanding end markets. This is what we mean when we talk about being the fabrication technology provider of choice, and it is what gets our teams out of bed every morning.

Before I go into more detail about the quarter, I'd like to take this opportunity to thank Kevin Johnson for his contributions to ESAB and wish him well in his new role. At the same time, I'm very excited to welcome Brent Jones to the ESAB family. Brent brings diverse and highly valuable expertise as we move into the next phase of our compounder journey. With that, let me hand it over to Brent to say a few words.

Thank you, Shyam, and good morning, everyone. I want to start by thanking Shyam and the entire ESAB team for the warm welcome. I'm thrilled to be joining ESAB and look forward to working closely with the team as we continue to advance ESAB's compounder journey. ESAB has a strong foundation a compelling strategy and a tremendous opportunity ahead, and I'm excited to be part of it. Let me hand it back to Shyam to go through the financials.

Thanks, Brent. Moving to Slide 10. Turning to the quarter. We're pleased with how the business has performed overall. Strong execution by our global teams drove record first quarter total sales growth of 10% year-over-year, a clear demonstration of the power of our compounder strategy. Adjusted EBITDA was $136 million, up 6% year-over-year with an adjusted EBITDA margin of 19%. Margins in the quarter reflected an expected 40 basis points impact from EWM and an additional 30 basis points of headwind from the conflict in Iran. Important to note, EWM is already contributing strong growth this quarter. As I've shared before, EWM is accretive to gross margins but dilutive to EBITDA margins for the first 3 quarters in 2026.

Our cost out and sales synergy efforts are running ahead of schedule, and we expect EWM to be EBITDA accretive as we exit the year. Turning to Slide 11 and talking about the Americas. The Americas delivered a steady first quarter. Total sales were $288 million, up 3% year-over-year and adjusted EBITDA was $56 million, also up 3% year-over-year, with margins flat at 19.4%. Within the segment, North America, excluding Mexico, grew mid-single digits and Mexico held stable. We're also seeing meaningful interest in EWM across the U.S., which is encouraging as we broaden the commercial reach of that business. At the same time, we're reshaping our manufacturing footprint and accelerating our EBXai initiatives, which are designed to strengthen competitiveness and expand margins. Moving to Slide 12 to talk about EMEA and APAC. We continue to gain share from competition across EMEA and APAC, a clear demonstration of our global footprint.

Sales increased 16% to $426 million and adjusted EBITDA rose 9% to $80 million. Margins declined 130 basis points with 50 basis points of that reflecting the conflict in Iran and the additional 70 basis points coming from EWM. Europe and India performed in line with expectations, and the Middle East saw limited disruption. EWM and Aktiv both grew double digits with strong sales funnel momentum building across all 4 acquisitions. EWM integration is progressing ahead of schedule, and we're already seeing early benefits from the combination with ESAB. Moving to Slide 13. We continue to gain share in the Middle East, and that success starts with our local presence in the region.

The resilience we have shown this quarter reflects both the local footprint and the way our teams have responded to changing conditions. The Middle East represents roughly 7% of our sales. And despite the conflict, the region saw limited disruption. Our teams reacted quickly to the disruption by rerouting inventory through ports of Jeddah and Salalah in Oman and implementing surcharges to offset higher costs. It is a clear example of the agility and discipline that define our operating model. Long-term fundamentals remain attractive. We've made investments on the ground, most notably in Saudi Arabia and that footprint positions us better than any of our peers to win with customers and support the rebuild once conditions stabilize.

Turning to Slide 14. Our balance sheet and cash flow remain important enablers of our compounder journey, and we've made meaningful progress on both fronts. Adjusted free cash flow was $40 million and cash conversion improved to 49% up from 40% in the prior year quarter. The improvements reflect strong working capital management and continued EBXai-driven process gains in order-to-cash. We expect strong full year cash generation. We're also focused on deleveraging. We ended the first quarter at net leverage of 1.9. That figure will step up temporarily once the Eddyfi acquisition closes where we expect to be back below 3 by year-end.

Moving to Slide 15. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance. We are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. On a core basis, our outlook assumes total sales growth of 6% to 9%, which consists of organic growth of 2% to 4%, 400 basis points from M&A and FX contributing approximately 1%. Our adjusted EBITDA range remains $575 million to $595 million, and our adjusted EPS range remains $5.70 to $5.90. Turning to Slide 16. In summary, our recent initiatives have fundamentally reshaped ESAB, accelerating our transformation into a premier industrial compounder. The 4 acquisitions we made last year, EWM, Bavaria, DeltaP and Aktiv and Eddyfi now to start 2026, have moved the company decisively towards higher growth, higher-margin, lower-cyclicality and a more predictable earnings profile.

We have meaningfully increased our exposure to defense, nuclear and the fast-growing additive manufacturing space while positioning ourselves opportunistically to benefit from rising semiconductor capital spending. We are thrilled with these acquisitions and the way they have shaped our portfolio, strengthening our ability to compound value and generate stronger cash flow over the long term. Operationally, we're winning in the market, our acquisitions are performing. EBXai continues to power productivity across the company. The second quarter is tracking to plan with stable sales and orders, supporting our decision to reiterate full year guidance. Taken together, these actions position ESAB to compound long-term shareholder value at an accelerating pace.

Our teams are energized, our strategy is working. The path ahead for ESAB is full of opportunity and our finest moments are still in front of us. With that, operator, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Nathan Jones with Stifel.

Again, at a fairly high level, volume in the first quarter was minus 3 and I would have thought that price should be fading from the plus 2 that we had in the first quarter, maybe not with all the renewed inflation. It does imply an inflection on volume to get to the 2% to 4% organic growth for the full year. So can you maybe talk about where you see the inflection in volumes as we go through the year from that negative 3 to something that's positive.

Yes. I think, Nathan, we obviously were going against the comparable last year, if you remember, with the pull ahead with tariffs. So comparably, we knew Q1 would be just a bit softer as a result of the pull ahead that happened last year when the tariffs went into play. So we sort of landed in Q1 even a little stronger than what we thought based on when the conflict started. So very pleased with the top line number and how the teams performed. And as you go through the year, a couple of things happen. One, obviously, we go in with some additional price into Q2. Second, in the back half of the year, as you know, some of the acquisitions that today show up, the acquisitions that show up today on a different line become organic as we go into the third and the fourth quarter driving up organic sales as we finish out the year. So the thoughtful way to look at it is down slightly neutral, a little bit more positive in Q3.

And then when the acquisitions become part of the base, you really see that organic driver kick in. Clearly, for us, the teams have done, in my view, a phenomenal job navigating through the first quarter even though the war came upon us as we finished out February, the team sort of really rallied, figured things out quickly in terms of supply chain, handled the quarter strong and we finished well, and we set us up nicely for Q2 and beyond.

I guess I'll ask my follow-up about the Middle East. We have heard from companies about lack of side access and things like that, that are impeding, I guess, work being done in the Middle East, can you talk about the impact that's having on your business? We were only at it for 1 month out of the quarter in the first quarter. Should we expect a little bit more impact than I think you called out 50 basis points of margin in EMEA and APAC. Does that get a little bit worse in the second quarter? Or maybe talk about the mitigation activities that you've deployed to help offset that?

Yes. So the way to think about it, at least in the first quarter was when it came upon us, I think we drove to get supplies into the Middle East so that we had the right inventory in place for the business. And so think of it as some additional costs that came at us in Q1 that we thoughtfully engaged with to make sure that the business was in a good spot. We've gone out for price as the month went on. And so think about that margin gap actually reducing. That being said, we are going out for price to match costs so we don't have any additional price there. So we expect to be price cost neutral. So it's an improving scenario. And as the year goes along, we'll continue to work the price piece to continue our journey forward like we've done in the past. So that's the way to think about it. So a little additional hit in Q1, getting better as we get into Q2 with the additional price that we've gone out with and then getting slightly positive as we finish out the year in the third and fourth quarter.

Your next question comes from the line of Tami Zakaria with JPMorgan.

Good morning. Thank you so much. I heard you talk about acquisitions growing double-digit percent. Did those acquisitions have unusually easy compares? Or that's a good gauge for the rest of the year. And within that double-digit percent, how much was price versus volume?

All right. So let me start with the first piece. The 2 businesses that I highlighted were EWM and Aktiv. The short answer is, year-over-year, it wasn't about easy comparables. It was the actions that the team were taking, engaging with new customers, getting new orders especially in Europe, the Middle East and some extent also in North America for the EWM business. And so we feel really good one about the acquisition, two, about the funnel that we've created that's now creating momentum in the equipment business. There was some price in it, but most of it was volume, which is what's exciting for us as we go through the year.

So I hope that sort of answers that question. The other piece that I think I want to reiterate as we look at the second half of the year as well, we have some automation orders that we booked several of them that stack up quite nicely adding to that organic growth number that we expect to see in the second half of the year in Q3 and Q4. So additional price, additional orders in automation, these businesses that we've acquired that are really matching the strategic fit that we saw are today outperforming our plan, creating additional tailwind for volume as we finish out the year.

That is excellent color. And regarding the 30 basis points headwind you saw in the quarter to EBITDA from the Iran conflict. Do you expect a similar 30 bps headwind in 2Q or that steps down?

I think the way to think about it is, we'll obviously see, but let's start with the positive. The war could settle in a week and maybe we're talking about something different. But on the side, if the war were to continue, we would see 2 additional months of volume that would then get offset by some additional price that we've gone in. So the way to think about it is that it's not going to get worse, could get slightly better as the quarter goes on.

Your next question comes from the line of Mig Dobre with Baird.

Thank you, and good morning, everyone. I want to talk a little bit about the Americas segment. And I guess the moving pieces here, I'm trying to think through them. You had the negative one organic in the quarter, but you kind of call out here that excluding Mexico, North America is up mid-single digits. Mexico, it's stable. Obviously, something else acted as a drag here. Can you comment at all on that?

Yes. We were actually very pleased with our U.S. and Canadian businesses for the quarter, Mig. We felt that both on price and on what I would call created volume, we were very happy with how the business performed. And I would also say that in April, we did better than how we finished out in Q1. So really happy about how that business is performing. The traction that we're getting with customers and the channel. I was actually out with some of the distributors. Our team had an EDAC, our distributor meeting out in Albuquerque. That went really well. I've done some gemba with the North American team down in Texas and also down in Mexico. And we feel really good about the traction, the funnel, the growth bridges that the teams have that are now driving results in U.S. and Canada. When it comes to Mexico, as you remember, this was the last quarter in those comparables that we spoke about and so what I meant by stable is that the business continues to be at the levels that it was in Q4.

As I visited with the team last week, there are shoots of improvement as we go through the year. So optimistic about how the year sort of shapes up, also with Mexico kind of lapping itself in Q2. To give you some additional color on the volume, obviously, the rest is South America where they also had some tariff-related volume bump last year that sort of goes away and neutralizes now and puts us in a better spot for Q2.

I see. And given the way the comparisons are looking here from a volume standpoint for the rest of the year, I mean, we started with negative 4, but then your comps are getting easier. At what point in time do you -- so I guess 2 questions. At what point in time do you see volume inflection here? When can we expect some growth? And how do you think about the full year from a volume perspective? So what's embedded in the 2026 guide for America's volume specifically?

Well, America's volume, we expect to be -- so let me just sort of thoughtfully walk you through that. When you look at U.S. and Canada, we feel that we're going to be volume positive. And when it comes to Mexico as well, we think as the year goes on, we're going to be volume positive, slightly positive on volume also in Mexico. South America, in my view, will stay slightly volume positive. They were a bit volume negative in the first quarter just on the back of year-over-year comparables with the tariff year. They also go positive.

So the way to think about the year as it plays out is you saw Q1 be slightly negative. You'll see Q2 be neutral, Q3 getting positive. And then Q4, in my view, will be nicely positive because some of the acquisitions that today are not considered part of our base, become part of our base. In addition to that, obviously, we're really excited about the Eddyfi acquisition that will close here in midyear. That then allows us additional opportunities for growth for our base business and to be able to pull to Eddyfi with our customers.

Yes. And Mig, the other thing I'd say to you is that in the second half of the year, I made the comment earlier, we've got additional price going in, in Q2. We've also got additional automation orders that we have booked for the third and the fourth quarter. So as you look at it, one, obviously, you're lapping a tariff quarter in Q1, you're getting to a spot where Mexico becomes -- laps itself in Q2. You've got additional price Q3, you've got these automation orders plus additional price. In Q4, you've got these businesses that today drove double-digit growth in Q1, becoming part of the base in Q4. And so as you sort of look at it, my thoughts here are very realistic and maybe slightly conservative is how you think about the volume numbers as you finish out the year.

Your next question comes from the line of Neal Burk with UBS.

I just wanted to go back to the Middle East question. Just to clarify, this 50 basis point drag that was on segment EBITDA margin. Was there any impact on volumes and is there any sense that more broadly, higher commodity prices are in any sense, weighing on overall demand?

Yes. The short answer is we did not see it, and we have not seen it yet. But we have seen cost impact, specifically some like tungsten, we've seen nickel move a little bit. We've seen steel move a little bit. So yes, the war has created a little bit more cost in some of the steel and components that we buy. The other piece that we've really seen is around freight. Freight costs have gone up and partially, that's likely because of fuel costs. And so those are the 2 aspects. We're moving price to the market to sort of overcome and offset all of it. We expect price/cost to be neutral for at least the second quarter, and then we'll continue to sort of work to be price/cost positive as the year plays on.

Okay. And then just another question on margins. I think incremental margin in the quarter was about 12% for the total company and the guide seems to embed something around 20%. So can you just kind of walk through the progression through the rest of the year of how incremental margins should improve?

Yes. I think the first one, obviously, is we expect better price from Q1 to Q2. So that's assumption number one. Things came at us a bit fast in March. We went out with some price. We didn't get all of it in Q1. We get price in Q2. The second piece is that we are seeing good momentum in the North American market. And those margins for us are also accretive. We see really nice activity in Europe. One of the things that we have not talked about is how well Europe performed for us to offset some of the issues that we had in the Middle East. So those are basically the 2 aspects of it.

And then we continue to make improvements in the acquisitions. We talked about EWM being ahead of schedule. In terms of its integration plan and the plans that we had to continue to improve EBITDA percentage in that business. So Q1 will be sort of the -- in terms of EBITDA, the lowest quarter for EWM. And every quarter, sequentially, the EBITDA percentage for EWM improves becoming accretive in Q4.

[Operator Instructions] Your next question comes from Steve Volkmann with Jefferies.

Shyam, you mentioned Europe's strength a couple of times. Can you just delve into that a little bit and sort of share versus kind of what you're seeing from an end market perspective? I think you might have mentioned some stimulus benefits over there in past calls or something? Just an update on what's happening there?

Yes. There's a couple of pieces playing in our favor. One, obviously, we have a phenomenal footprint and now with the 2 acquisitions that we've made in the Germanic region, we really have a position of strength in Europe. We are local. We are able to supply and serve our customers locally, giving us a significant advantage in the region. In the moments of conflict and the moments of uncertainty, what we find is customers begin to realize that they can rely on ESAB. The second thing that's driving it to some extent is the defense spending that's happening in Europe, we're seeing quite a bit of orders associated with that come to us. We're also seeing a lot of momentum on the equipment side, especially with EWM that's benefiting our business.

And there's a couple of actions underway in Europe that could also benefit us. One is this carbon tax piece that is expected to land in 2027. That's giving us a little bit of an advantage and then there are some additional tariffs and quotas that the European Union is expected to put in midyear that would advantage local companies in Europe. So those are the aspects that are giving us a benefit, really pleased with how our European business did. Obviously, if the Middle East conflict resolves, there's some additional significant tailwind for us in Europe and Asia Pac.

Okay. Great. And I think you may have almost segued to my follow-up, which is I know it's early days, but has your team been able to think about what type of sort of rebuilding and upgrades might be required in the Middle East and how that -- you might participate in that?

Yes. We actually have -- we met with our leader in the Middle East this week to look through what the opportunities will be once peace finds its way into that conflict. We feel that with the damage that has occurred in the conflict and the repair that would be needed, ESAB could have a position to take advantage of that rebuild because most of our filler metal is specced into most of the damaged sites. As a result, we find ourselves in a position of advantage.

And that concludes our question-and-answer session. I would now like to turn the conference back over to Mark Barbalato for closing comments.

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

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by, and welcome to the ESAB Corporation to acquire Eddyfi Technologies, Creating an Unrivaled Provider of Complete Workflow Solutions Conference Call. [Operator Instructions]

I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. You may begin.

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, and good morning, everyone. Thank you for joining us today. Today marks a significant moment for ESAB. I want to begin with our purpose of shaping the world we imagine. This acquisition reinforces the purpose and reflects our commitment to our values as we continue to shape ESAB for the future, driving faster growth, higher margins and stronger, more durable value creation for all our stakeholders.

Before turning to the slides, let me provide some context on how we arrived here. For the past 2.5 years, we have been working deliberately in this space. Through our EBX process, we value map the entire end-to-end workflow of our customers, looking at where customers create value, where complexity resides and where returns on capital are structurally more attractive. What became very clear through that work is that inspection and monitoring represents one of the most compelling extensions of our current workflow. It is technology-led, mission-critical, supported by strong secular tailwinds and characterized by high single-digit growth, attractive margins and lower cyclicality. We also concluded that if we execute the right acquisition, this space would provide ESAB with a long runway to deploy capital at very attractive returns.

But to do that, we first needed to establish a credible entry point, a true beachhead into inspection and monitoring. That brings us today and to Eddyfi. We are excited to announce that we have signed a definitive agreement to acquire Eddyfi, an exceptional company defined by technology leadership, a growth mindset, deep customer intimacy and a strong entrepreneurial culture. These attributes align closely with ESAB's own culture. At ESAB, we believe long-term success is built by investing in people, empowering teams and fostering a winning culture. We are confident this shared philosophy will enable the Eddyfi team to thrive and accelerate their growth within ESAB. Together, we are uniquely positioned to reshape workflow solutions for our customers while positioning ESAB for a faster growth, higher margins and lower cyclicality.

Moving to Slide 4. There are several compelling reasons why we are excited to welcome Eddyfi to the ESAB family. First, with Eddyfi, ESAB becomes a clear unrivaled provider of a fully integrated workflow solution spanning fabrication, inspection and monitoring. Second, this acquisition positions ESAB as the partner of choice for our most important global customers, customers for whom quality, productivity and asset integrity are mission-critical. Third, Eddyfi expands ESAB's total addressable market by approximately $5 billion and strengthens our M&A pipeline, supporting sustained higher growth and higher margins over time.

Turning to Slide 5. Let me briefly highlight Eddyfi's profile and financial characteristics. Eddyfi is a market leader in electromagnetic testing, ultrasonic testing and automated inspection with clear leadership across these categories. The company serves mission-critical end markets with attractive secular tailwinds, including aerospace, defense, nuclear and energy infrastructure. Eddyfi also brings increased North American exposure while benefiting from ESAB's global footprint, creating immediate geographic expansion opportunities. Their solutions address powerful structural trends, aging infrastructure, rising inspection requirements, growing power generation demand and skilled labor shortages through automation and advanced inspection technologies. Financially, Eddyfi is a premier asset. The business delivers high single-digit growth, gross margins above 65% and EBITDA margins of approximately 30%.

For ESAB, this acquisition accelerates our shift towards equipment, enhances our ability to deliver differentiated workflow solutions, expands margins, reduces cyclicality and ultimately improves the predictability and resilience of our earnings profile.

Turning to Slide 6. Since becoming a publicly traded company, our ambition has been clear: to build a premier industrial compounder capable of consistently outpacing the markets across cycles. Eddyfi directly advances this objective. As you know, ESAB is a global leader in filler metals, welding equipment, gas control and in-process monitoring through InduSuite. Eddyfi, including its magnified digital platform, adds post-weld inspection, structural integrity and life cycle monitoring capabilities across both metal and composite structures.

Together, we're uniquely positioned to serve critical markets while accelerating the industry shift towards connected digital workflow solutions that integrate inspection, traceability and life cycle monitoring into a seamless process.

Moving to Slide 7. Since 2016, we have consistently expanded ESAB's total addressable market. Eddyfi is a meaningful step forward in that journey. By combining Eddyfi's inspection and monitoring capabilities with ESAB's global scale, we extend these solutions into new regions and customer segments. As shown on the slide, Eddyfi increases our total addressable market by approximately $5 billion, bringing ESAB's TAM to roughly $45 billion. Importantly, it establishes a foundation in inspection and monitoring, creating additional long-term compounding opportunities.

Turning to Slide 8. Through our diligence process, we've identified $20 million in run rate synergies. Leveraging EBXai, we see opportunities across sourcing, shared services, digital workflow integration, geographic expansion and operational efficiencies. As with prior acquisitions, synergies will build over time.

Turning to Slide 9. Over the past several years, we have deliberately shifted our portfolio to higher-margin product lines, particularly equipment and gas control. Eddyfi meaningfully accelerates that journey. We have previously outlined our goal of achieving a 60-40 ratio of consumables to equipment, and this acquisition moves us decisively towards that target. On a pro forma basis, we expect 2025 ESAB revenue of approximately $3 billion with EBITDA margins of around 21%, just 100 basis points below our 2028 target of 22%. In fact, we now expect to reach approximately 22% EBITDA margins by 2027.

With that, I'll hand it over to Kevin to walk you through the financial details of this acquisition.

Thanks, Shyam, and good morning. Turning to Slide 10 for the transaction summary for Eddyfi. The acquisition is projected to bring in about $270 million in 2026 revenue with an EBITDA margin over 30%. The purchase price is $1.45 billion, cash-free and debt-free. The deal values Eddyfi at 14.5x 2026 earnings, factoring in $20 million of annual run rate savings. Funding will come from a combination of cash on hand, debt and $318 million in privately placed securities made up of $175 million of a mandatory convertible preferred and $143 million of common equity. This acquisition will greatly enhance ESAB's growth and profitability while creating new opportunities for additional acquisitions that can further improve the ESAB business and accelerate our journey to a premier industrial compounder. At closing, net leverage is expected to be in the low 3x dropping below 3x by year-end, well within our targeted range of 2 to 3x net leverage.

Turning now to Slide #11. We provide our preliminary results for the fourth quarter of 2025. The ESAB team sustained a robust performance during the fourth quarter, achieving total core growth of approximately 8.5%. Organic growth experienced a decline of 1.8% attributable to a softer December as we experienced unexpected softness in Europe and South America as customers ceased operations for the holidays a week earlier than anticipated. High-growth markets, particularly the Middle East and India, continued to demonstrate strength. I'm proud of the performance of the ESAB team, which used EBX to boost EBITDA and widen margins, achieving around 9% growth at the midpoint and approximately 50 basis point margin increase, excluding EWM. The EWM integration is progressing well with promising opportunities for long-term equipment growth and market share gains.

Moving to Slide #12 and our full year 2025 highlights. We are proud of our strong reputation for following through on our commitments. Since our spin-off, we have aimed to set realistic goals and surpass them. Although 2025 brought challenges, our team managed to increase both revenue and EBITDA throughout the year. I'm happy to report that we ended the year, again, well above our original guidance.

Moving to Slide #13 and ESAB's 2026 outlook. Please note, our guidance excludes the impact from the Eddyfi acquisition, which will be incorporated following its expected closure in the middle of the year. We anticipate organic growth in the range of 2% to 4%, driven by positive pricing and volume. Additionally, we expect approximately a 4-point benefit from M&A and an FX tailwind of 0% to 1%. To address seasonality, the quarterly breakdown is outlined on the slide.

Organic growth is projected to be flat in the first quarter with improvement forecasted sequentially quarters 2 through 4, attributable to more favorable comparisons and progress in growth initiatives. Our adjusted EBITDA is projected to range between $575 million and $595 million, representing a margin expansion of approximately 40 basis points at the midpoint, excluding EWM. We aim to deliver savings of roughly $25 million during the year through productivity enhancements, back-office efficiencies and restructuring initiatives, which will be partially offset by $15 million allocated to growth investments. Interest expense is expected to fall within the $80 million to $85 million range with an anticipated adjusted tax rate of 20% to 21%. Cash flow conversion is projected at approximately 90% as we maintain a disciplined focus on robust cash generation while investing in EBXai initiatives, including some large onetime restructuring activities to enhance our manufacturing competitiveness.

We are confident in our operating plan and optimistic about delivering another successful year in 2026. The momentum will be further enhanced upon closing the Eddyfi acquisition.

With that, I will return the discussion to Shyam.

Thank you, Kevin. Turning to Slide 14 to summarize. Today is a defining day for ESAB. Eddyfi strengthens our technology leadership and positions us as the unrivaled provider of end-to-end workflow solutions. Eddyfi expands our presence in higher growth, higher-margin markets and enhances the quality and durability of our portfolio. In addition, inspection and monitoring is an attractive space to deploy additional capital at attractive returns. Equally important, the strong cultural alignment between our organizations gives us confidence in our ability to integrate effectively and move with speed. We expect this acquisition to be EPS accretive in 2027.

Let me end by thanking our teams and our partners who worked on this acquisition and welcome the Eddyfi team to ESAB. Together, we're well positioned to unlock extraordinary long-term value. With that, operator, we're now ready to take questions.

[Operator Instructions] Your first question today comes from the line of Bryan Blair from Oppenheimer.

Deal checks a lot of boxes. It's certainly a little more transformational in nature than what we had anticipated, but certainly like the profile, the fit seems pretty clean. You mentioned a few times that Eddyfi will serve as a true beachhead to pursue growth and scale in inspection and monitoring. I guess to level set on that and think about competitive landscape, how should we think about the major competitors in the market, who you're likely to bump up against more frequently? And then how much fragmentation is there beyond the "big guys?"

Yes. First, what I'd tell you is that this is something that we've been working on for over 2.5 years, Bryan. And one of the things that we pride ourselves in is our process and how we identify opportunities and how we connect the dots -- what became very clear to us as we were going through this process was that the connection between our traditional fabrication technology business and inspection and monitoring was very clear. The customer base, the people that are involved in the purchasing of it and the interactions that we have with the general marketplace. And the additional cherry on the top was the fact that this was a very attractive space in terms of margin, in terms of growth and the aspect that it was lower cyclicality.

To answer the second part of your question around what are the opportunities to compound, as I mentioned to you, it's about a $5 billion market. Apart from a few larger competitors, the space is actually quite fragmented. Think of this as an acquisition that creates a platform within ESAB upon which we can bring, acquire and integrate any other acquisition in the space with much more velocity and much higher and much more attractive return on investment metrics for ESAB.

In terms of the competitive landscape, yes, there are a couple of people, but it depends on the space that you're working on and the characteristics within that space. So let me just mention a few. You look at on one side, probably liquid penetrants and visual inspection and on the other side, the electromagnetic testing and ultrasonic testing. And in each of those categories, there are actually different competitors that provide you either a product that you may need or a geographic expansion opportunity or possible access to customers. We've got a very robust list of targets off of this. We think we continue to build out and strengthen our workflow. What we're most excited about are the growth and the margin characteristics in this business and thrilled about what we can do as we begin to deploy capital in this space.

And as you know, Bryan, we now have 3 places to deploy capital. And what I'd like to also add is that this is an extension, not an adjacency, right? This is a space that we now know well. It's a customer base that we know well. It's a customer base that we interact with. So this acquisition, in many ways, is us walking along the path of creating additional value for our customers as well our shareholders.

Understood. That all makes sense. Helpful color. And to quickly touch on the preliminary 2026 core outlook you provided, are you anticipating a meaningful difference in the organic growth path of Americas versus EMEA and APAC within the 2% to 4% consolidated?

No, Bryan, we're expecting similar growth, similar price, similar volume in both the segments.

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

So the 55% recurring sales. Can we talk about that a little bit? From what I can tell from the website and so on, this company seems to be selling products rather than services. But correct me if I'm wrong about that. Is there a service component to all of this? Is that what's in recurring sales? And what -- how does demand play out in the space? Is there a replacement component to it where some of these products need to be replaced every so many years? Or how -- what exactly is kind of like the fundamental demand driver?

Yes. So first, obviously, a general trend when you look at the energy infrastructure that's going up, the demand in aerospace and defense. So there's an underlying demand that's sort of driving growth within this business. When we look at the characteristics, so let me sort of break that down for you. There is positive pricing in this business of about 200 basis points. We think that the underlying markets are about 200 to 300 basis points. And the technology leadership allowing this business to actually gain share in the market is the rest of the number to getting us to the high single digits number that we talk about in terms of growth.

The second point that you made to me, there is a service component, yes. But think of all of these equipment that go out there for inspection and monitoring having probes and sensors out in the marketplace. And most of these probes and sensors in many applications are single use and as a result, create a really strong recurring revenue stream for the business. And as a result, you have about a 55% reoccurring. And then you've got the general marketplace doing very well, especially in aerospace, defense, in the nuclear segment, in the energy segment and general infrastructure build as things happen both in North America and in Europe.

Okay. As far as the matter in which you're financing the transaction, can you give us maybe a little more detail on the convert and also on the common equity as well, maybe like the -- how do you think about the number of shares issued and so on?

Yes. So Mig, let me take that question. So on the mandatory, it's $175 million. It's a 6.5% dividend with a 15% premium on it. So in terms of shares, you'd be looking at a maximum of around about 1.45 million shares, a minimum about 1.26 million shares on conversion, which would be in 3 years. On the common equity, it's $143 million, and you'd be looking at the shares of around about 1.25 million shares associated with that.

And we love the combination, Mig, obviously, because it sort of gets us out into the low 3s in terms of leverage. And we believe, as Kevin mentioned in his script, very quickly by the end of the year, we're down below 3 in terms of leverage. So we think that the ability for us to go out and do this was extraordinary, obviously, and a vote of confidence in what we're doing and how we're changing the profile of ESAB and puts us in a great position from a balance sheet perspective by the end of the year.

All right. If you'll allow one final one. If I heard you correctly, in your guidance, you're anticipating flat organic growth in Q1. Can you talk about that a little bit more? My -- looking at my model, the comp in Q1 was relatively easy, maybe not as easy as Q2. How do you think about Americas versus EMEA and APAC organic? And what gives you confidence that we have enough acceleration for the rest of the year to get to your guidance?

Yes. I'll start it off and then Kevin can take the rest of it. The first piece for us is that last year, if you remember, Q1, we had an anticipation pull ahead based on what was going to go on in the U.S. with tariffs. And so as a result, in general, we feel that Q1 from a comparative perspective is probably the toughest on a year-over-year basis. And then from the second quarter on, the comparables become quite favorable to ESAB. And Mig, you know this, our view at the start of the year is to go in with what we believe gives us the best chance to execute and deliver. You saw our numbers from this year as well from our original guide to where we ended. It's no different for 2026. We're going in with several activities, both around growth and margin expansion. And we believe that we're well positioned to have a strong year in 2026. And I'll let Kevin talk about the quarters.

Yes. So Mig, as you picked up, it's flat organic growth in the first quarter for the business. In terms of the 2 segments, we're expecting relatively similar year-over-year numbers in both the segments in the first quarter. And in both segments, we will see improvement as we step through from Q2 to Q4, partly due to the fact that we do have easier comps, particularly in the Americas segment related to what happened last year.

Your next question comes from the line of Tami Zakaria from JPMorgan.

I wanted to clarify, I think I heard you say the deal is accretive in 2027. Should we expect dilution in the sub year 2026 versus the EPS guide of $5.70 to $5.90, should it close midyear?

Yes, Tami, obviously, the closing, we're a bit at the mercy of some of the regulatory bodies. But our expectation at this point would be we would close at the midyear. And you're correct, we would expect some dilution in 2026, but we're modestly accretive as we move into 2027.

I think what we see here, Tami, would be, obviously, margin would be very accretive, both on the gross margin side and the EBITDA percentage side, but then dilutive on the EPS line.

Understood. That's helpful color. And thanks for all the comments on the recurring revenues. Just to build on that, I think I saw the Eddyfi has robotics and software revenues. Could you comment on the mix of that? And could you comment on the growth profile if the robotics or software piece is sizable enough at this point?

Yes. I don't think we've -- we'll sort of come out and give more detail as we go forward. The software business, obviously, is a fast-growing piece within Eddyfi. But from a scale perspective, it's embedded within the technology and not called out separately as we go about it. But I'll take a look at it, Tami, and get back to you. On the robotics side, there is clear activity. In fact, at several of our visits to the site, we did see some significant activity around robotics. They also play very similar to us in tight spaces, especially around defense. And as a result, need robotics to allow for these probes to enter tight areas. And then obviously, automation and the ability to capture data is a significant piece. But we don't break out automation per se on that particular front, but they are integrated into the development of the new products and the new innovation pipeline that exists within Eddyfi for the next couple of years.

Understood. That's very helpful. If I can add one more. Could you comment on the mix of the key end markets? I saw you mentioned nuclear, aerospace, defense. Is there a way to quantify what mix is some of the larger end markets for Eddyfi right now?

Yes. I think the -- let me sort of walk you through a couple, right? I think we did give you, I think, on Slide 5, a piece that talks about the nuclear space -- so let me just pull that up and make sure that I have the piece in front of me. So if you look at Slide 5, Tami, it sort of talks about nuclear being at 30%. Infrastructure, this is civil infrastructure, whether it be bridges, roads, dams being about 24% energy infrastructure, this would be oil and gas, liquid natural gas as well -- liquefied natural gas as well and then 12% with aerospace and defense, which is the fastest-growing aspect of this business, and then the rest fall into the other categories across the industrial landscape.

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

Just maybe on some of the potential to expand the Eddyfi business here. You talked about being able to leverage ESAB's global footprint with them being a bit more overweight in North America. This would seem like completely different products, completely different manufacturing. Can you maybe just talk a bit about how that works and how you would go about generating some of those revenue synergies using ESAB's footprint, ESAB's customer list, et cetera?

Yes. So we did a tremendous amount of VOC on this front, Nathan. And what we determined was that every customer that buys fabrication technology products also spends money on inspection and monitoring. The more critical the application, the larger the spend on inspection and monitoring along with the fabrication technology spend. And in some cases, the percentage was 30% to 40% of the fabrication technology spend. So think of this as if they were to buy $1 million worth of fabrication technology equipment, they were then spending about 30% of that on inspection and lifetime monitoring of that particular asset.

And so the view for us is that there is an entitlement piece associated with the fact that all of our customers are doing some of this and the most critical customers are using technologies that Eddyfi has a significant amount of strength. We've -- as we did some of the work at some of our customers, Eddyfi is not the primary provider of product. But we strongly believe that with the position that we have with these customers, we can begin to make that shift to Eddyfi.

The one thing that is in Eddyfi's favor is that they are by far the best technology in the marketplace. In terms of ease of use, they are the best. In terms of speed and accuracy, they are the best in the categories that they play in. And so as a result, as we've done some of the initial work and got feedback from some of our big customers, there is an interest to be able to get everything from one provider, but more importantly, a need to kind of work through the entire workflow to provide integrity for the entire value chain.

So I guess that's less about like leveraging your actual physical footprint. It's leveraging customer relationships to grow the business.

That's right, Nathan.

Okay. And then I guess as a follow-up question -- go ahead.

No, I'm going after you.

I was going to say a follow-up question, talking about 3-ish turns of leverage at the end of the year, which means you're going to really have to prioritize the areas that you use capital for M&A. You had laid out the 2 buckets before, and now you obviously have the third bucket here for M&A. Can you talk about the priority and how you'll think about allocating capital to M&A going forward here given the increased leverage and the less optionality that you have on the balance sheet?

Yes. I'd actually state it slightly differently. We don't see this as an additional leg in our business. We see this as an extension of the fabrication technology business into more attractive returns and sort of really creating a workflow that continues to move ESAB up on the value chain. And so when it comes to capital allocation, we see ourselves, obviously, with this particular space, we think there are some opportunities to create some really attractive returns. And we'll focus obviously on gas control and fab tech as well. But as we get into 2026 and a part of 2027, obviously, our focus is going to be to deleverage. And we've talked about it. We come out in the low 3s and quickly get down into the 2s. So we'll have plenty of balance sheet capacity for the kind of stuff that we want to get done.

Yes, Nathan, I think the important piece here for us is that it's an incredible opportunity. We felt that as we went through this particular process that we found an opportunity and a way to connect the dots that we felt no one in our space was looking at. It was sort of sitting out there in the open a really attractive space within the fabrication technology realm, but a very different characteristic in terms of margin and growth. And so we are thrilled that we were able to connect the dots first, but more importantly, able to execute on this particular transaction. We believe Eddyfi is the best asset in this particular space, and it now allows us to continue to compound in this space with really attractive returns for our shareholders.

And your next question comes from the line of Tom Hayes from ROTH Capital Partners.

Congrats on the deal. Shyam, maybe just one question on the inspection and monitoring market itself. I was just wondering, maybe you could provide a little bit of details on -- is it -- is the industry kind of a regional function? I know that Eddyfi has a fairly broad sales by region. But I was just wondering, in general, is it a fairly regional business? And then just kind of on the competitive nature of it, is it a regulatory -- a fragmented market? Or there are some other large players besides Eddyfi?

Yes. There are some larger players, but none of them sort of drive above the threshold of taking any particular -- as we did the [indiscernible], whether you look at by geography or by product category that sort of rise collectively to a number that's larger than 25%. So that, I think, is the incredible part about this business. So plenty of fragmentation, plenty of opportunity for us to go after other assets in the space as we see fit.

When you talk about the geography, what we loved about this business was its largest exposure was to the North American market. We wanted to increase our exposure in the North American market. And then obviously, they do have exposure in Europe where they can build on our strength. They have smaller exposures to South America, the Middle East and India, where we have great positions of strength and expect to take them along. And this business also has some great strength in Japan and Korea that we expect to leverage.

And that concludes our question-and-answer session. I will now turn the call back over to Mark Barbalato for closing remarks.

Thank you for joining us, and we look forward to talking to you soon.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to the ESAB Third Quarter 2025 Earnings Conference Call. [Operator Instructions].

I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. You may begin.

Thanks, operator. Welcome to ESAB's Third Quarter 2025 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 today's 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, and good morning, everyone. ESAB delivered another solid quarter and returned to positive organic growth. We executed EBX for discipline in a dynamic environment, closed the acquisition of EWM earlier than anticipated, advancing our shift into equipment and furthering our compounded journey. As a result, we're raising our full year guidance.

Let me take a moment to thank all of our associates as all of this would not have been accomplished without their passion and commitment to achieving our shared vision for ESAB.

During the third quarter, sales rose 8% to $687 million, more importantly, organic sales increased 2% year-over-year, reflecting solid sequential improvement in the Americas and continued strength in EMEA and APAC, driven by our high-growth markets. Adjusted EBITDA increased 7% to $133 million, reflecting strong execution on margin, some additional tariff impact in the Americas as well as continued investment in sales and AI initiatives. All accelerating our mix into equipment and gas control.

The recently closed EWM acquisition brings high-level talent, unmatched technology and highly accretive gross margins to ESAB. Our transition team are using our proven EBX integration process, and we're collaborating on growth, cross-selling opportunities as well as margin expansion initiatives. That said, there's more work to be done on our compounded journey, but I'm pleased to say that our pipeline is rich, and I'm confident in our ability to execute on our strategy and deliver long-term shareholder value.

Turning to Slide 4. Let me give you a few examples of our team living our purpose and values of shaping the world we imagine. First, let me talk about our Remake This Town initiative, that just launched in Chicago with Doorways 2 Destiny, a citywide installation of 16 steel doors each stands over 10 feet tall and weighs roughly 3,000 pounds, and doubles as a job connector through the my Chicago and my future apps, linking youth to apprenticeships to internships and jobs in real time. In partnership with Bill Chicago and Chicago YMCA, the doors appeared at YMCAs, schools, galleries and community centers [indiscernible] underground led installations and local artists transform the doors into public art. Youth engaged through welding demos, hands-on stations, collaborative art making and resource pop-ups.

The mobile welding studio bus turned the streets into open-air classrooms and local welders joined following an online call to action. This door directly addresses well the shortage, we convert curiosity into careers through paid internship pathways, industry certifications, mentorship from experienced craftsman and craftswomen, young people meet employers start with summer opportunities and progress into long, well-paid careers in skilled trades. We're expanding the pipeline globally with partners such as Vilnius Tech, Riga Tech and Burnley College, where students learn on ESAB equipment and on credentials that travel. ESAB is committed to building strong skills, strong wages and strong communities. This is a fantastic initiative. I'm really proud of our teams, their creativity and engagement.

Transitioning back to our numbers and turning to Slide 5. In the Americas, total sales increased and organic growth was positive year-over-year, with a clear sequential improvement from Q2 as expected. The U.S. delivered mid-single-digit growth and equipment and automation grew mid-single digits across the region. This momentum is notable given that Q3 is typically our seasonal trough due to summer shutdowns. Mexico remained stable, and South America performed in line with expectations.

Moving to Slide 6 to discuss EMEA and APAC. Our unparalleled global footprint continues to show its strength. EMEA and APAC delivered volume growth of 4%, supported by strong execution in high-growth markets and high single-digit growth in equipment and automation. We're seeing renewed investment in activity in Europe and we expect developing market GDP over the next 5 years to outpace developed markets by roughly 2x. ESAB is well positioned to capture that differential.

Turning to Slide 7. As mentioned before, we completed the acquisition of EWM, a premier provider of advanced arc welding and robotic solutions. EWM adds React technology that I've mentioned before, and innovation that can deliver 100% faster well speeds and 2x the deposition rates and roughly 35% lower heat input versus traditional short or processes. Customers see higher productivity, lower fume and improved quality. The impact is visible on the shop floor. EWM React is changing workflows. Combined with ESAB consumables, torches and our Endosuitedigital overlay, we deliver an end-to-end ecosystem that is hard to match.

The teams are executing our EBX playbook for integration and advancing EBX driven margin initiatives that we expect to see positive impact from in 2026.

On that positive note, let me hand it to Kevin, who will take you through the financial details.

Thanks, Shyam, and good morning. Let's turn to Slide #8 to discuss our financial performance. We are pleased to have completed the EWM acquisition ahead of schedule, which contributed approximately 2 points of growth and roughly $1 million in adjusted EBITDA within our Q3 results. Our ESAB and EWM teams have begun the integration process as part of our commitment to strengthening our collective equipment and automation portfolios, enabling us to provide our customers with an unparalleled solution.

Turning to our results. We experienced a return to organic growth as expected, with a 2% increase in organic sales. We continue to benefit from robust market demand in our high-growth markets within EMEA and APAC and delivered mid-single-digit growth in our U.S. business, while our other regions performed as expected. Total sales increased by 800 basis points year-over-year, supported by organic growth, contributions from acquisitions, including EWM and favorable currency movements. The adjusted EBITDA margin was reduced by 20 basis points due to the impact of EWM, while our [ ES ] business delivered expected profitability supported by EBX and our strong global execution.

Turning to Slide #9 to discuss our Americas segment. Organic sales in the Americas rose mainly from strong U.S. equipment and automation growth as well as price discipline. Acquisitions added 300 basis points, offsetting FX. Adjusted EBITDA margin was 19.6%, which included ongoing investment for long-term growth and a drag driven by price/cost dynamics related to tariffs. We have launched several EBX cost and restructuring initiatives in Q4 and expect strong margin improvement in 2026 as volumes improve.

Moving to Slide #10 to discuss our performance in EMEA and APAC. Sales grew 14% year-over-year to $395 million, driven by growth in Asia, India and the Middle East as well as our recent acquisitions, including EWM. Organic sales were up 3%, with volume increasing 4%. Adjusted EBITDA margin expanded to 19.3%, rising 40 basis points year-over-year. Excluding EWM, it would have been 19.7%, an 80 basis point gain. Our global teams continued to execute strongly with optimism for further strong growth in 2026.

Moving to Slide #11 to discuss our cash flow. Free cash flow conversion exceeded 100% this quarter, driven by a strong team performance. We successfully expanded and extended our credit facilities early in Q4, increasing ESAB's long-term financial flexibility. We aim to use our seasonally strong Q4 cash flow to reduce net leverage to 1 to 2x and position ESAB for accelerated M&A activity in 2026.

Turning to Slide #12 to discuss our 2025 guidance. Based on our year-to-date performance and the successful completion of the EWM acquisition, we have raised our full year guidance. We expect total sales of $2.71 billion to $2.73 billion, reflecting around 1 point of organic growth, a modest FX improvement on the EWM acquisition. Adjusted EBITDA is $535 million to $540 million, including approximately $3 million from EWM. We will be investing in EWM over the next year to drive synergies for our white paper, and we expect a better than 10% ROIC within 3 years. Adjusted EPS has been tightened to between $5.20 and $5.30 reflecting improved profit offset by increased interest expense due to EWM. Additionally, free cash flow has been changed to around 95% because of EWM.

ESAB continues to accelerate investments to drive both organic growth and M&A as we focus on delivering long-term shareholder value. With that, let me hand back to Shyam on Slide 13 to wrap up.

Thank you, Kevin. Our path is consistent and proven. Our global footprint is an advantage, about 80% of our manufacturing is in region for region, which reduces tariff impact, shortened lead times and support share gains. EBX discipline [indiscernible] AI into EBX to raise the bar. We're shifting our mix towards equipment and gas control, building a higher margin, less cyclical enterprise aimed at 22-plus EBITDA margins by 2028 or sooner. We've have closed 4 acquisitions this year [indiscernible] healthy and discipline. Our third quarter performance shows resilience and strength of our enterprise. We returned to organic growth, closed EWM early, raised our guidance and have had a solid start to Q4. We're accelerating EBX, integrating EWM and using strong cash flow and a flexible balance sheet to advance our compounded journey. ESAB is built to perform, adapt and win.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Bryan Blair from Oppenheimer.

Sequential improvement in Americas, this is obviously good to see. There was obviously some consternation last quarter regarding deferred automation shipments and then sell in Mexico. To what extent did your team catch up on that $15 million or so in combined revenue during Q3? And are there any lingering risks or concerns on either front?

Bryan, the way to think about it is there was a bit of catch-up, but not much. Really, it was good execution from our teams, a lot more focus on some commercial excellence within the teams. Mexico stabilized. We continue to sort of drive some of our sales initiatives, and we talked about equipment and automation doing well. We did catch up to a little bit of that automation pushout, but not all of it. We think that sort of kind of feeds in into Q4 and a little bit into Q1.

So all in all, we felt really good about the print that we had in the Americas. Overall, as you know, South America performed as expected. Mexico performed as expected. We obviously had some momentum in the U.S. market. And so feeling really good about the team, our execution plans and our start to Q4.

I appreciate the color. The strategic fit of EWM seems quite powerful. It's nice that your team can begin integration a little earlier than anticipated. That's in mind. How should we think about the year 1 deal model. I suspect cross-selling will be a solid lever at least over time. We know gross profit is very strong. It does seem like there's some relatively heavy handed work to be done on SG&A structure. I'm just curious how we should think about those moving parts through the first year and perhaps the first couple of years?

Yes. I'll let Kevin talk about the modeling piece. But let me just talk about EWM as a business. Really strong gross margins, better than 45%. So really thrilled about the gross margin percentage within the business. Really excited about the reception we received at Essent plus some customers globally. In almost every geographic region, our sales teams are now pulling on the product line, which is excellent to see. The third thing that I would say to you is a lesson that we have learned over time is that we have to invest in the front end early to drive some of the growth pieces, and that's what we're doing. And you heard in our commentary, we're talking about growth initiatives and growth incentives that we're going to put in place to drive equipment sales and accelerate that mix. I'll let Kevin talk about the modeling piece.

Yes, Bryan, as I mentioned on the call, our expectation this year for EWM is around $3 million of profit. And obviously, again, as I mentioned, we are making some investments in that business, and we'll continue to make those investments over the next 12 months as we drive the business to its 10% ROIC target by year 3. But what I can say, we've been under [indiscernible] for about a month, and we're actually seeing some tremendous opportunities, both on the top line and also synergies right across the business, both not only in SG&A, but also within gross profit.

So I think when we come to give our guidance in the first quarter, I think we'll be in a better position to build all of those in to our model and provide those to you in Q1 next year.

But a really exciting addition to us, Bryan. I think an appropriate time as well. I think a good inflection point in Europe. So really excited about what that business brings to us, not just in Europe but globally.

Your next question comes from the line of Tami Zakaria from JPMorgan.

Great results. Question on the Americas segment. EBITDA margin moved down about 100 basis points. Was this according to your expectation. If so, what's driving it? And is there any tariff headwind to call out there?

Yes. The short answer is we did expect some of it. The couple of contributors were the first thing that we mentioned in the earlier piece is that we are investing in some sales and growth initiatives in the region that we believe will benefit us as we go into 2026. And then the second part of it is that we did see some tariff-based impact come at us late in the quarter that we will offset by making sure that we appropriately move the manufacturing to the regions, which happens in late Q1 or possibly early Q1 for us. So very confident about setting up the business in the Americas for margin expansion into 2026. And feeling good about the restructuring initiatives also that we have started that will accelerate that margin journey for us in the Americas.

Understood. That's very helpful. And one question on M&A. I think you did [ Bavaria ] and then EWM, both seem to be Europe-based. Are you consciously expanding footprint, particularly in Europe because you see more growth in the region? Or you remain agnostic and you don't mind spending in the Americas or Asia?

Yes, we're agnostic. I think what we're looking for are the best assets at the best financial principles that we have for the business. Both these businesses actually give us extensions into other geographic regions. Bavaria has the ability to supply into the North American market, the Middle East and Asia. EWM actually had made some nice inroads into North America. We're finding some additional opportunities in the Middle East and Asia for the EWM product line. And so these 2 businesses obviously strengthen our footprint in Europe, but create opportunities and avenues for growth in North America, in particular, and also in the other geographic regions.

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

If we can go back to the margin discussion in Americas, I think I heard Kevin or maybe it was you, Shyam, saying that 2026, we should be seeing much, much stronger margins in this segment. I realize you're not providing detailed '26 guidance, but it would be helpful for us to understand why margins get better in '26? What's sort of within your control and maybe some of the restructuring that you're doing as opposed to just kind of a broader call on end market reacceleration?

Yes. I think they were sort of twofold. We are not calling out the specific restructuring activities, Mig, as you can imagine. But we are -- some of the projects are already underway, and we expect that to complete sometime in early first quarter. The second aspect, obviously, is that we get to better comparables as we move into 2026. And the third aspect for us is as we sort of shift some of the supply chains to where they need to be appropriately, we feel we get another boost. So sort of 3 things happening. Pricing that will occur as we start the year, the tariff-based movements that we're making to sort of ensure our manufacturing is in the right spot, and then the restructuring that we're doing that all of it, which we feel will sort of come to fruition somewhere in that early first quarter, giving us really solid momentum for margin expansion in 2026.

And we've always said this, Mig. We're very comfortable getting to that 22% plus EBITDA number by 2028. And you've seen in our historical pieces, we sort of have a couple of years where we're settling in and sort of creating momentum and then the following year, we sort of accelerate and build out, this would be no different than that.

Okay. Understood. Maybe in your EMEA and APAC segment, others pointed out, you are increasing your exposure to Europe, maybe with some of the deals that you have done. But as we're looking at 2025, right, it does seem that there's quite a bit of bifurcation between what you've experienced in Middle East and India versus what's been going on in Europe. So I guess it would be helpful maybe delineating the European region versus some of the other ones in this segment. And as a general framework for 2026, how do you think about Europe relative to these other regions? I mean can we count on actual volume acceleration in '26 if Europe picks up? Or are there some other factors that we need to keep in mind here?

Yes, really detailed question, Mig. So let me sort of address all of it. So the first piece is we continue to see strong orders and strength in our high-growth markets. In fact, the entire team was here last week and we got to interact with 2 of the regional presidents, especially from the Middle East and Asia and really strong momentum, and we expect that momentum to stay.

The second piece of your question around Europe, we've actually done really well in Europe. And we get some data that's based off the European Welding Association. And I can tell you our numbers are significantly better than what we think is happening in that industry, which sort of points towards significant share gain in the European market by our teams. And it's on the back of equipment and automation, we talked about high single-digit growth in equipment. And that's really where something that I've spoken to you about in the past, where we're winning over customers in Europe and the rest of the world with our equipment product line, which we believe eventually makes its way to the markets that we're most focused on, which is in the Americas. So we continue to have that particular momentum.

The third part of your question, we are seeing orders and momentum increase in Europe based on defense, based on some infrastructure movements and energy investments in Europe. We expect that to accelerate as we go into 2026. So the overall picture for us in 2026 is, we still feel very good about this flywheel where Asia, Middle East continues its momentum forward and Europe gives an additional [ boy ] to that already strong marketplace that we have, giving us possibly some really good tailwind. Now we'll finish out the quarter and give you guidance as we get into 2026. But as we sit here, we feel that we're very well positioned to sort of take capitalize and win on that acceleration.

No, that's super helpful. And if I may squeeze 1 last one. When we're talking about EWM, can you talk a little bit about their legacy distribution and how that compares to your footprint? And how easy or maybe not easy, is it to take that product and be able to just kind of put it through your global distribution network?

Yes. So I'll start with the conversation in Europe. Very rarely do I get an applause when I'm in a town hall very early in my commentary. And when we announced the EWM acquisition with our team in Europe, I can't tell you the excitement that existed in the team. The second part of it on distribution, it actually is very complementary. And as a result, we are actually seeing opportunities for us to move our products, especially consumables and torches into their distribution channel and sort of pick up sales for ESAB on that particular front.

And in terms of reception of their product lines, when we looked at the acquisition, the product lines were very complementary as well. We had a really strong light industrial line. They complemented the gaps that we had on the heavy industrial line. And as a result, when you look at our lineup today, Mig, it's incredible. And I'll also tell you, there is a U.S. customer that's been after us since FabTech to kind of figure out how we can get that line into North America. And so really excited about the avenues it's opened up and the opportunities that we have in front of us. It's going to come down to execution like anything else, Mig, but that challenge will take on as a team.

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

I'll start with asking for a bit more color on your comment that you're off to a pretty good start in 4Q. If you could just expand on that and talk about what you're seeing to date in the fourth quarter?

Yes. I think, Nathan, the way we look at our fourth quarter is we finished at about a 2% core growth rate in the third quarter. We're expecting that to be a little better in Q4 and October started off on that run rate. And that's really what I'm talking about is that our core growth improves from where we were in Q3, and we feel good about that as we sit here today.

All in all, I think as you look at ESAB and you sort of project out, comparables get better. Our teams are focused on execution. I talked about the investments that we're making. One of the things that I do want to stress with the entire community that's on the call, we've always said to all of you that we are an [ AND ] business. We want to go out and do the productivity things for ESAB, but we also want to go ahead and invest in our business in terms of growth in our initiatives, and we're doing both of that. And we feel that, that returns the best -- that's the best return for our shareholders over the long term, and we're committed to that. And we're taking the opportunity here as we finish out 2025 to invest in the business, and take some productivity and cost out, we feel that, that sets us up well for '26.

I guess a follow-up on price/cost in Americas, obviously, is that where the tariff impact is. You talked about getting some costs later in the quarter. Did you get to price cost neutral on a dollar basis in the third quarter? Is there any color you can give us on what the drag was to margins in the third quarter and then your expectations for the fourth quarter on price cost? And I'll leave it there.

Yes. It was a slight drag in the quarter on price/cost. Really, it came about towards the end when copper tariffs came in. And there were some products that we sort of build in the U.S. and ship out to other regions where we actually have manufacturing capacity. Nathan, so what we are going to be doing is moving that manufacturing capacity to the region that the products are sold in and take away that drag that we saw in the third quarter. In addition to that, we talked about doing some additional restructuring, which is actually already underway that we expect to finish out in the early part of Q1, creating that really nice tailwind on margin expansion for '26.

And just to clarify, drag on margins or drag on dollars?

It was a bid on dollars. So that's really causing the drag as well. So price cost slightly off of neutral.

Your next question comes from the line of Neil Burke from UBS.

Good to see solid growth in equipment and automation. Can you just talk about what you're seeing in consumables?

Yes. The way to think about our consumables business, we continue to do well. It's just that we sort of saw our new products, our new product introductions. We've introduced actually an engine-driven welder. Our edge product line continues to do really well. We've introduced a fabricator line and some new LIPs in other geographies that have sort of really caught the attention in the marketplace. And we've been focused for a while to get our channel to pick up and customers to pick up our equipment, and we're seeing success. In fact, I would submit that in some of the regions, we're really out there taking some significant share from the competition.

On the consumables side, we're steady. And we feel that we're still doing better than market on the consumables side, but slightly lower sort of growth performance in that particular front. But we're excited about what's coming at us for 2026 and how Q4 has started. So nothing there that causes us any sense of alarm or concern, but really excited about the entire portfolio now coming to work. And I mentioned that briefly, we're really working on workflow solutions, and I won't mention this, I won't mention the customer, in particular, but we actually went into a large U.S. customer and provided a full workflow solution that had our equipment porches, filler metal and our digital solution set. And for the first time, we're certified for that customer globally. And so we're picking up a few orders on that particular front.

And so really driving the full workflow solution set, which I think is going to benefit both our consumable business and our Equipment business going forward.

And just a follow-up. My math is right on last quarter on this Mexico and automation headwind. I thought the headwind implied about like a 20% decline in revenues in those businesses in the Americas. And this quarter, it seems like it's -- it's more like maybe a mid-single-digit decline. I guess, is that math like roughly correct? And I guess, like going forward, I mean it looks like you're going to exit this year growing at around 3% to 4% in aggregate. So I mean, absent anything dramatically changing kind of the absence of the negative in those 2 businesses in Mexico and automation.

Is that like a good starting point for next year? Like any kind of like major puts and takes on the growth rate exiting the year and entering 2026?

I mean, Mexico, as Shyam mentioned, been pretty stable on what we saw in the second quarter. But yes, we are [indiscernible] in terms of volumes, and that's really the countermeasure to the fact that the U.S. grew in that mid-single-digit territory, which was a nice fine spike to what we saw in the second quarter.

I think what you'll see as we said in the 2026 is that our comps against Mexico will get significantly easier if that's what you're getting at. So we would expect that there will be some tailwinds on volumes as we step into 2026, particularly from Q2 onwards when the tariffs impacted us.

We can sort of talk offline, Neil, on some of the numbers. It does look a little off, but we can discuss those numbers on our separate call.

And that concludes our question-and-answer session. 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 speaking to you next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.