What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-10 · 307 added, 231 removed, 176 unchanged (75% of the section changed)

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The following discussion of the financial condition and results of operations of Enovis Corporation (“Enovis,” “the Company,” “we,” “our,” and “us”) should be read in conjunction with the Condensed Consolidated Financial Statements and related footnotes included in Part I.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2022 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in Part II.

“Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2022.

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developments, performance, industry or market rankings relating to products or services;

future economic conditions or performance;

future economic conditions or performance, including the impact of increasing inflationary pressures;

the outcome of outstanding claims or legal proceedings;

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• risks related to the Separation, including our ability to realize the anticipated benefits of the Separation;

the potential to incur significant liability if the separation and distribution of ESAB Corp is determined to be a taxable transaction;

potential indemnification liabilities to ESAB Corp pursuant to the separation and distribution agreement and related agreements entered into in connection with the Separation;

developments related to the impact of the COVID-19 pandemic on the Separation, and the financial and operating performance of each company following the Separation;

• volatility in the commodity markets and certain commodity prices due to economic disruptions from the COVID-19 pandemic and various geopolitical events;

• changes in the general economy, as well as the cyclical nature of the markets we serve;

the potential to incur significant liability if the separation and distribution of ESAB is determined to be a taxable transaction;

potential indemnification liabilities to ESAB pursuant to the separation and distribution agreement and related agreements entered into in connection with the Separation and the financial and operating performance of each company following the Separation;

• volatility in the commodity markets and certain commodity prices due to economic disruptions from the COVID-19 pandemic and various geopolitical events, including the ongoing conflict between Russia and Ukraine

• changes in the general economy, including as a result of inflationary pressures, a general economic slowdown or a recession, increased interest rates or changes in monetary policy, as well as the cyclical nature of the markets we serve;

• supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in raw material, part, component, freight and delivery costs;

• significant movements in foreign currency exchange rates;

• our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;

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• impairment in the value of intangible assets;

• significant movements in foreign currency exchange rates;

• new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals;

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• the competitive environment in our industry;

• changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 global pandemic;

• changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities;

• our ability to manage and grow our business and execution of our business and growth strategies;

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“Risk Factors” in Part I of our 2021 Form 10-K and Part II.

“Risk Factors” in this Form 10-Q.

The effects of the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus and actions by governments, businesses and individuals in response to the situation, may give rise or contribute to or amplify the risks associated with many of these factors.

“Risk Factors” in our Form 10-Q for the quarter ended April 1, 2022.

The effects of the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus and actions by governments, businesses and individuals in response to the situation, as well as inflationary pressures and the ongoing conflict between Russia and Ukraine, may give rise or contribute to or amplify the risks associated with many of these factors.

Any such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements.

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“Risk Factors” in our 2021 Form 10-K and Part II.

“Risk Factors” in this Form 10-Q for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate.

“Risk Factors” in our Form 10-Q for the quarter ended April 1, 2022 for a further discussion regarding some of the reasons that actual results may be materially different from those that we anticipate.

Please see Part I, Item 1.

“Business” in our 2021 Form 10-K for a discussion of the Company’s objectives and methodologies for delivering shareholder value.

Prior to the Separation on April 4, 2022, the Company conducted its operations through two operating segments:

Fabrication Technology and Medical Technology.

• Fabrication Technology - a leading global supplier of consumable products and equipment for use in the cutting, joining and automated welding, as well as gas control equipment, providing a wide range of products with innovative technologies to solve challenges in a wide range of industries.

• Medical Technology - a leader in orthopedic solutions, providing devices, software and services spanning the full continuum of patient care, from injury prevention to joint replacement to rehabilitation.

Certain amounts not allocated to the two reportable segments and intersegment eliminations are reported under the heading “Corporate and other.”

Prior to the Separation, we had a global footprint, with production facilities in Europe, North America, South America, Asia, Australia and Africa, serving a global customer base across multiple markets through a combination of direct sales and third-party distribution channels.

Prior to our Separation, our customer base was highly diversified in the medical and industrial end markets.

Enovis, after the Separation, now serves two primary end markets in medical devices, prevention & recovery products and reconstructive surgical products, and it generates approximately 68% of its revenues in the United States and the majority of the remaining balance in Europe.

In conjunction with the Separation, we rebranded our business management system as Enovis Growth Excellence (“EGX”).

EGX is integral to our operations and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates.

EGX leverages our culture of continuous improvement to rapidly uncover and execute growth opportunities.

We previously reported our operations through our Fabrication Technology and Medical Technology segments.

These businesses operated in distinct markets, with unique business opportunities and investment requirements.

Following the spin-off, the Company holds only the medical technology business reported through our Prevention and Recovery and Reconstructive segments.

On April 4, 2022, the Company changed its name from “Colfax Corporation” to “Enovis Corporation”, began operating its business as “Enovis” and, as of April 5, 2022, the Company’s common stock began trading under the new ticker symbol “ENOV.” See the Results of Operations section below for further information on the Separation.

As mentioned above, beginning in the second quarter of 2022, Enovis conducts its operations through two operating segments:

Prevention and Recovery and Reconstructive.

We have reflected this change in all historical periods presented.

• Prevention and Recovery - a leader in orthopedic solutions, providing devices, software and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease.

• Reconstructive - an innovation-driven leader offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger.

We have a global footprint, with production facilities in North America, Europe, North Africa and Asia.

We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels.

Our customer base is highly diversified in the medical market.

Integral to our operations is our business management system, Enovis Growth Excellence (EGX).

EGX is our culture and includes our values and behaviors, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, shareholders and associates.

We believe that our management team’s access to, and experience in, the application of the EGX methodology is one of our primary competitive strengths.

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The following discussion of Results of Operations addresses the comparison of the periods presented.

Our management evaluates the operating results of each of its reportable segments based upon Net sales, Segment operating income, which represents Operating income before Restructuring and other related charges and European Union Medical Devices Regulation (“MDR”) costs, and Adjusted EBITA as defined in the “Non-GAAP Measures” section.

Our management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA, as defined in the “Non-GAAP Measures” section.

Items Affecting Comparability of Reported Results

The comparability of our operating results for the three months ended April 1, 2022 to the comparable period in 2021 is affected by the following significant items:

The comparability of our operating results for the three and six months ended July 1, 2022 to the comparable period in 2021 is affected by the following significant items:

The Separation

On April 4, 2022 (the “Distribution Date”), we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders.

We retained 10% of the shares of ESAB Corp common stock immediately following the Separation.

We intend to divest the 10% retained shares in ESAB Corp in a tax-efficient exchange for outstanding debt no later than 12 months after the Distribution Date.

The Chairman of our board of directors and co-founder of Colfax, Mitchell P.

Rales, is also serving as Chairman of the board of directors of ESAB Corp.

Since the disposition occurred in the second quarter of 2022, we will classify our fabrication technology business as a discontinued operation in our financial statements beginning in the second quarter of 2022;

the results of our fabrication technology businesses are included in continuing operations in the accompanying financials for the three months ended April 1, 2022 and April 2, 2021.

On April 4, 2022 (the “Distribution Date”), we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to our stockholders.

We retained 10% of the shares of ESAB common stock immediately following the Separation.

We intend to divest the retained shares in ESAB in a tax-efficient exchange for outstanding debt no later than 12 months after the Distribution Date.

Since the disposition occurred in the second quarter of 2022, we began classifying our fabrication technology business as a discontinued operation in our financial statements beginning in the second quarter of 2022.

Accordingly, the results of our fabrication technology businesses are excluded from continuing operations in the accompanying financials for the three and six months ended July 1, 2022 and July 2, 2021.

We expect that the Separation will allow each company to:

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The Separation also provides each company with an appropriately valued acquisition currency that could be used for larger, transformational transactions.

Refer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.

Refer to the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.

The COVID-19 Pandemic

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported in China.

On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic.

The COVID-19 global pandemic resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for our products .

In an effort to contain COVID-19 or slow its spread, governments around the world enacted measures including periodically closing businesses not deemed “essential,” isolating residents to their homes, limiting access to healthcare, curtailing activities including sporting events, and practicing social distancing.

Increased access to vaccinations subsequently contributed to slowing the spread of COVID-19, resulting in some or all restrictions being lifted in a number of jurisdictions around the world, allowing a return to more normal activity and operational levels during the first half of 2021.

However, the emergence and subsequent spread of COVID-19 variants in the second half of 2021 led to the reinstatement of certain restrictions, which slowed the pace of recovery into the beginning of the first quarter of 2022.

As reflected in the discussions that follow, the pandemic and actions taken in response to it had a variety of impacts on our results of operations during 2021 and 2022, including sales levels, inflation and supply chain challenges.

The COVID-19 pandemic has cause economic disruptions since its emergence in 2020.

Despite increased access to vaccines, the emergence of variants and outbreaks have caused some volatility, including spikes in the second half of 2021 and second quarter of 2022, which slowed the pace of recovery in 2022.

As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 2021 and 2022, including sales levels, inflation and supply chain challenges.

There may be developments outside our control that require us to further adjust our operations.

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As a result, we continue to experience supply constraints in our businesses, which have led to cost inflation and logistics delays.

We are taking actions in an effort to mitigate impacts to our supply chain, however, we expect these pressures to continue.

We are taking actions in an effort to mitigate impacts to our supply chain, including purchasing and producing additional inventory to protect our ability to meet customer demand;

however, we expect these pressures to continue.

Please see Part I.

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Acquisitions can significantly affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses.

The change in Net sales due to acquisitions for the three months ended April 1, 2022 presented in this filing represents the incremental sales subsequent to the beginning of the prior year periods.

During 2021, we completed one acquisition in our Fabrication Technology segment and five acquisitions in our Medical Technology segment for net cash consideration of $206.5 million and equity consideration of $285.7 million.

The largest of these acquisitions were in our Medical Technology segment, including Trilliant Surgical, a national provider of foot and ankle orthopedic implants;

The change in

Net sales due to acquisitions for the six months ended July 1, 2022 presented in this filing represents the incremental sales subsequent to the beginning of the prior year periods.

During this period the Reconstructive segment completed one business combination for aggregate consideration of $27.1 million and the Prevention & Recovery segment completed three asset acquisitions for aggregate consideration of $18.2 million.

The acquired business, 360 Med Care, is an Australian medical device distributor that bundles certain computer assisted surgery and patient experience enhancement programs to add value to the device supply arrangements with surgeons, hospitals, and insurers.

During 2021, we completed five acquisitions in our Reconstructive segment for net cash consideration of $201.6 million and equity consideration of $285.7 million.

The largest of these acquisitions include Trilliant Surgical, a provider of foot and ankle orthopedic implants;

MedShape, Inc., a provider of innovative surgical solutions for foot and ankle surgeons;

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Foreign Currency Fluctuations

A significant portion of our Net sales, approximately 61% for both the three months ended April 1, 2022 and April 2, 2021, were derived from operations outside the U.S., with the majority of those sales denominated in currencies other than the U.S.

Because much of our manufacturing and employee costs are outside the U.S., a significant portion of our costs are also denominated in currencies other than the U.S.

Approximately 31% and 25% of our Net sales from continuing operations for the six months ended July 1, 2022 and July 2, 2021, respectively, were derived from sales denominated in currencies other than the U.S.

Our costs are also exposed to currencies other than the U.S.

Changes in foreign exchange rates can impact our results of operations and are quantified when significant.

For the three months ended April 1, 2022 compared to the three months ended April 2, 2021, fluctuations in foreign currencies had an unfavorable impact on the change in Net sales and Gross profit of approximately 3% and reduced Selling, general and administrative expenses by 2%.

The changes in foreign exchange rates since December 31, 2021 also decreased net assets by approximately 1% as of April 1, 2022.

European operations in our Fabrication Technology segment typically experience a slowdown during the July, August and December vacation seasons.

Sales in our Medical Technology segment typically peak in the fourth quarter.

However, the business impact caused by the COVID-19 pandemic has distorted the effects of historical seasonality patterns.

For the six months ended July 1, 2022 compared to the six months ended July 2, 2021, fluctuations in foreign currencies reduced Net sales and Gross profit by approximately 2% and reduced Selling, general and administrative expenses by 1%.

The changes in foreign exchange rates since December 31, 2021 also decreased net assets by approximately 1% as of July 1, 2022.

Our sales typically peak in the fourth quarter, however, the business impact caused by the COVID-19 pandemic has distorted the effects of historical seasonality patterns.

Non-GAAP Measures

Adjusted EBITA

Adjusted EBITA, a non-GAAP performance measure, is included in this report because it is a key metric used by our management to assess our operating performance.

Adjusted EBITA excludes from Net income from continuing operations the effect of restructuring and other related charges, MDR and related costs, acquisition-related intangible asset amortization and other non-cash charges, and strategic transaction costs, as well as income tax expense, pension settlement gain, debt extinguishment charges and interest expense, net.

We also present Adjusted EBITA margin, which is subject to the same adjustments as Adjusted EBITA.

Further, we present Adjusted EBITA (and Adjusted EBITA margin) on a segment basis, where we exclude the impact of restructuring and other related charges, MDR and related costs, acquisition-related intangible asset amortization and other non-cash charges, and strategic transaction costs from segment operating income.

Adjusted EBITA assists Enovis management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.

Enovis management also believes that presenting these measures allows investors to view its performance using the same measure that we use in evaluating our financial and business performance and trends.

Adjusted EBITDA

Adjusted EBITDA and Adjusted EBITDA margin, two non-GAAP performance measures, are included in this report because they are key metrics used by our management to assess our operating performance.

Adjusted EBITDA and Adjusted EBITDA margin exclude from Operating income (loss) the effect of restructuring and other related charges, MDR and related costs, strategic transaction costs, stock-based compensation, depreciation and other amortization charges, amortization of acquired intangibles, insurance settlement gains, and inventory step-up.

We also present Adjusted EBITDA and Adjusted EBITDA margin by operating segment, which are subject to the same adjustments.

Operating income (loss), adjusted EBITDA and adjusted EBITDA margins at the operating segment level also include allocations of certain central function expenses not directly attributable to either operating segment.

Adjusted EBITDA assists Enovis management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.

Enovis management also believes that presenting these measures allows investors to view its performance using the same measures that we use in evaluating our financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITA.

Three Months Ended

April 1, 2022 April 2, 2021

The following tables set forth a reconciliation of Operating income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA.

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

(Dollars in millions)

Net income from continuing operations (GAAP) $ 19.4 $ 27.7

Income tax expense 18.7 7.9

Interest expense, net 15.1 25.7

Operating income (loss) (GAAP) $ 5.6 $ (10.4) $ (25.1) $ (28.5)

Adjusted to add (deduct):

Restructuring and other related charges (1)

MDR and related costs (2)

2.6 2.0 5.5 3.0

MDR and other costs (2)

4.4 1.9 7.0 3.7

Strategic transaction costs (3)

Acquisition-related amortization and other non-cash charges (4)

Adjusted EBITA (non-GAAP) $ 129.0 $ 107.1

Net income margin from continuing operations (GAAP) 1.9 % 3.2 %

Adjusted EBITA margin (non-GAAP) 12.6 % 12.2 %

(1) Restructuring and other related charges includes $0.5 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three months ended April 1, 2022.

12.7 4.0 24.4 4.4

Stock-based compensation 7.8 6.8 14.5 12.7

Depreciation and other amortization 19.5 16.4 38.0 33.2

Amortization of acquired intangibles 31.8 29.5 62.6 57.0

Insurance settlement gain (4)

(33.0) — (33.0) —

Inventory step-up 4.9 0.4 10.0 2.3

Adjusted EBITDA (non-GAAP) $ 56.2 $ 50.6 $ 103.9 $ 87.9

Adjusted EBITDA margin (non-GAAP) 14.2 % 14.2 % 13.5 % 13.2 %

(1) Restructuring and other related charges includes $0.3 million and $0.8 million of expense classified as Cost of sales on our Condensed Consolidated Statements of Operations for the three and six months ended July 1, 2022, respectively.

(2) Primarily related to costs specific to compliance with medical device reporting regulations and other requirements of the European Union MDR.

These costs are classified as Selling, general and administrative expense on our Condensed Consolidated Statements of Operations.

(3) For the three months ended April 1, 2022, Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions.

For the three months ended April 2, 2021, Strategic transaction costs includes costs related to the Separation.

(4) Includes amortization of acquired intangibles and fair value charges on acquired inventory.

The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITA by segment for the three months ended April 1, 2022 and April 2, 2021, respectively.

Three Months Ended April 1, 2022

Fabrication Technology Medical Technology Corporate and other Total

(3) Strategic transaction costs includes costs related to the Separation and certain transaction and integration costs related to recent acquisitions.

(4) Insurance settlement gain related to the Company’s 2019 acquisition of DJO.

The following tables set forth a reconciliation of operating income (loss), the most directly comparable financial statement measure, to Adjusted EBITDA by segment for the three and six months ended July 1, 2022 and July 2, 2021, respectively.

Three Months Ended July 1, 2022 Six Months Ended July 1, 2022

Prevention and Recovery Reconstructive Total Prevention and Recovery Reconstructive Total

(Dollars in millions)

Operating income (loss) (GAAP) $ 13.4 $ (7.9) $ 5.6 $ (1.0) $ (24.1) $ (25.1)

Adjusted to add (deduct):

Restructuring and other related charges (1)

1.3 1.3 2.6 3.4 2.1 5.5

MDR and other costs (2)

Segment operating income (loss) (non-GAAP) 95.5 (0.1) (31.4) 64.0

3.0 1.5 4.4 4.7 2.4 7.0

Strategic transaction costs (2)

Acquisition-related amortization and other non-cash charges 7.7 35.9 — 43.6

Adjusted EBITA (non-GAAP) $ 106.9 $ 37.8 $ (15.7) $ 129.0

Segment operating income margin (non-GAAP) 14.7 % — % — % 6.3 %

Adjusted EBITA margin (non-GAAP) 16.5 % 10.1 % — % 12.6 %

Three Months Ended April 2, 2021

Fabrication Technology Medical Technology Corporate and other Total

8.5 4.2 12.7 16.1 8.3 24.4

Stock-based compensation (2)

5.2 2.6 7.8 9.6 4.9 14.5

Depreciation and other amortization 6.3 13.1 19.5 12.2 25.8 38.0

Amortization of acquired intangibles 19.5 12.3 31.8 38.6 24.1 62.6

Insurance settlement gain (2)

(22.1) (11.0) (33.0) (22.1) (11.0) (33.0)

Inventory step-up — 4.9 4.9 — 10.0 10.0

Adjusted EBITDA (non-GAAP) $ 35.1 $ 21.0 $ 56.2 $ 61.5 $ 42.4 $ 103.9

Adjusted EBITDA margin (non-GAAP) 13.3 % 16.0 % 14.2 % 12.1 % 16.2 % 13.5 %

(2) Amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.

Three Months Ended July 2, 2021 Six Months Ended July 2, 2021

Prevention and Recovery Reconstructive Total Prevention and Recovery Reconstructive Total

(Dollars in millions)

Operating income (loss) (GAAP) $ 79.2 $ (0.6) $ (17.4) $ 61.3

Operating loss (GAAP) $ (1.8) $ (8.5) $ (10.4) $ (13.5) $ (14.9) $ (28.5)

Adjusted to add (deduct):

Restructuring and other related charges 1.3 0.7 2.0 2.0 0.9 3.0

3.1 1.0 — 4.0

MDR and other costs (1)

Segment operating income (loss) (non-GAAP) 82.3 2.2 (17.4) 67.1

1.4 0.5 1.9 2.8 0.9 3.7

Strategic transaction costs (1)

Acquisition-related amortization and other non-cash charges 9.1 29.4 — 38.5

Adjusted EBITA (non-GAAP) $ 91.4 $ 31.6 $ (15.9) $ 107.1

Segment operating income margin (non-GAAP) 14.5 % 0.7 % — % 7.6 %

Adjusted EBITA margin (non-GAAP) 16.1 % 10.2 % — % 12.2 %

3.0 1.0 4.0 3.3 1.1 4.4

Stock-based compensation (1)

5.1 1.7 6.8 9.6 3.2 12.7

Depreciation and other amortization 6.1 10.2 16.4 12.2 21.0 33.2

Amortization of acquired intangibles 18.7 10.8 29.5 37.5 19.6 57.0

Inventory step-up (0.5) 0.9 0.4 0.7 1.6 2.3

Adjusted EBITDA (non-GAAP) $ 33.3 $ 17.4 $ 50.6 $ 54.6 $ 33.3 $ 87.9

Adjusted EBITDA margin (non-GAAP) 12.5 % 19.4 % 14.2 % 10.9 % 20.1 % 13.2 %

(1) Amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.

Total Company

Net sales for the three months ended April 1, 2022 increased from the three months ended April 2, 2021.

Net sales for the three and six months ended July 1, 2022 increased from the three and six months ended July 2, 2021.

The following table presents the components of changes in our consolidated Net sales.

Three Months Ended

Net Sales Change %

Three Months Ended Six Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three months ended April 2, 2021 $ 879.2

For the three and six months ended July 2, 2021 $ 356.1 $ 667.2

Components of Change:

Existing Businesses (1)

10.5 2.9 % 33.7 5.1 %

Acquisitions (2)

37.4 10.5 % 83.0 12.4 %

Foreign Currency Translation (3)

(8.8) (2.5) % (13.4) (2.0) %

For the three months ended April 1, 2022 $ 1,023.4

39.0 10.9 % 103.4 15.5 %

For the three and six months ended July 1, 2022 $ 395.1 $ 770.6

(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.

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(3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates.

The increase in Net sales during the first quarter ended April 1, 2022 compared to the prior year period was primarily attributable to acquisition-related sales, inflation-related pricing increases and organic volume increases.

Both current year and prior year periods sales volumes were negatively impacted by COVID-19.

Existing business sales in our Fabrication Technology segment increased $101.2 million in the three months ended April 1, 2022 primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives and improved sales volume.

During the three months ended April 1, 2022, existing business sales in our Medical Technology segment increased $23.3 million due to higher sales volumes compared to the prior year period.

Net sales from acquisitions for the three months ended April 1, 2022 are due to acquisitions in our Medical Technology segment that closed since the beginning of 2021.

The increase in Net sales during the three and six months ended July 1, 2022 compared to the prior year periods was primarily attributable to sales from acquired businesses and increases from our existing businesses.

Existing business sales in our Reconstructive segment increased $5.1 million and $13.8 million, during the three and six months ended July 1, 2022 respectively, due to higher surgical sales volumes compared to the prior year period despite some delays in elective surgeries in the second quarter of 2022 due to a rise in COVID-19 cases.

Existing business sales in our Prevention and Recovery segment increased $5.4 million and $19.9 million during the three and six months ended July 1, 2022, respectively, and included inflation-related pricing increases and improved sales volumes.

Net sales from acquisitions increased in the three and six months ended July 1, 2022 due to acquisitions in our Reconstructive segment that closed since the beginning of the prior year period in 2021.

The strengthening of the U.S.

dollar relative to other currencies, most notably the Euro, resulted in a $25.9 million unfavorable foreign currency translation impact.

dollar relative to other currencies resulted in $8.8 million and $13.4 million unfavorable foreign currency translation impacts during the three and six months ended July 1, 2022, respectively.

Operating Results

The following table summarizes our results of continuing operations for the comparable periods.

Three Months Ended

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

(Dollars in millions)

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Selling, general and administrative expense $ 225.5 $ 197.9 $ 444.7 $ 376.0

Operating income $ 53.1 $ 61.3

Operating income margin 5.2 % 7.0 %

Net income from continuing operations $ 19.4 $ 27.7

Net income margin from continuing operations 1.9 % 3.2 %

Adjusted EBITA (non-GAAP) $ 129.0 $ 107.1

Adjusted EBITA margin (non-GAAP) 12.6 % 12.2 %

Items excluded from Adjusted EBITA:

Research and development expense $ 15.7 $ 11.0 $ 30.5 $ 21.4

Operating income (loss) $ 5.6 $ (10.4) $ (25.1) $ (28.5)

Operating income (loss) margin 1.4 % (2.9) % (3.3) % (4.3) %

Net income (loss) from continuing operations $ 120.7 $ (42.1) $ 82.6 $ (74.0)

Net income (loss) margin from continuing operations (GAAP) 30.5 % (11.8) % 10.7 % (11.1) %

Adjusted EBITDA (non-GAAP) $ 56.2 $ 50.6 $ 103.9 $ 87.9

Adjusted EBITDA margin (non-GAAP) 14.2 % 14.2 % 13.5 % 13.2 %

Items excluded from Adjusted EBITDA:

Restructuring and other related charges (1)

MDR and related costs $ 2.6 $ 1.8

$ 2.6 $ 2.0 $ 5.5 $ 3.0

MDR and other costs $ 4.4 $ 1.9 $ 7.0 $ 3.7

Strategic transaction costs $ 12.7 $ 4.0 $ 24.4 $ 4.4

Acquisition-related amortization and other non-cash charges $ 43.6 $ 38.5

Stock-based compensation $ 7.8 $ 6.8 $ 14.5 $ 12.7

Depreciation and other amortization $ 19.5 $ 16.4 $ 38.0 $ 33.2

Amortization of acquired intangibles $ 31.8 $ 29.5 $ 62.6 $ 57.0

Insurance settlement gain $ (33.0) $ — $ (33.0) $ —

Inventory step-up $ 4.9 $ 0.4 $ 10.0 $ 2.3

Unrealized gain on investment in ESAB Corporation $ (135.5) $ — $ (135.5) $ —

Interest expense, net $ 4.5 $ 5.7 $ 11.6 $ 18.6

Income tax expense $ 18.7 $ 7.9

First Quarter of 2022 Compared to First Quarter of 2021

Gross profit increased in the first quarter of 2022 compared with the prior year period due to a $24.5 million increase in our Fabrication Technology segment and a $34.6 million increase in our Medical Technology segment.

The Gross profit increase was primarily attributable to business acquisition-related increases, favorable sales mix, and improved volumes.

Increased Gross profit in our Medical Technology segment was also due to acquisition growth primarily in Reconstructive product lines.

Improved Gross profit in both segments was partially offset by increased supply chain and logistic costs.

Gross profit margin was impacted by the same drivers as Gross profit, but decreased slightly due to inflation-related customer pricing and cost increases in our Fabrication Technology segment.

Selling, general and administrative expense increased $63.7 million in the first quarter of 2022 compared to the prior year period due to business acquisition-related increases of $26.7 million in our Medical Technology segment, a $20.0 million increase in strategic transaction costs driven by higher Separation-related costs, and, to a lesser extent, increases in compensation and travel costs.

Interest expense, net decreased in the first quarter of 2022 compared to the prior year period due to a reduction in debt balances, primarily as a result of the redemption of senior notes in the second quarter of 2021.

The effective tax rate for Net income from continuing operations during the first quarter of 2022 was 49.1%, which was higher than the 2022 U.S.

federal statutory tax rate of 21%, mainly due to withholding taxes, taxable foreign exchange gains, U.S.

taxation of international operations, other non-deductible expenses, and various items expensed discretely to the quarter.

The effective tax rate for the first quarter of 2021 was 22.2%, which was higher than the 2021 U.S.

federal statutory tax rate of 21% mainly due to withholding taxes, taxable foreign exchange gains and other non-deductible expenses partially offset by the benefit of U.S.

Net income from continuing operations decreased in the first quarter of 2022 compared with the prior year period primarily due to costs associated with the Separation, increased income tax expense and acquisition-related costs, partially offset by improved sales volumes.

Net income margin from continuing operations decreased by 130 basis points due to the aforementioned factors.

Adjusted EBITA increased due to the improved sales volumes, partially offset by higher supply chain and logistic costs.

Adjusted EBITA margin increased 40 basis points for the same reasons Adjusted EBITA increased, partially offset by inflation-related customer pricing and cost increases in our Fabrication Technology segment, as well as recent acquisitions in our Medical Technology segment which were dilutive to the margin, but are expected to be accretive in future years.

Debt extinguishment charges $ 20.1 $ 29.9 $ 20.1 $ 29.9

Income tax expense (benefit) $ (4.2) $ (3.8) $ (3.8) $ (3.0)

Second Quarter of 2022 Compared to Second Quarter of 2021

Gross profit increased in the second quarter of 2022 compared with the prior year period due to a $19.9 million increase in our Reconstructive segment, partially offset by a $4.7 million decrease in our Prevention and Recovery segment.

The Gross profit increase was primarily attributable to acquisitions and increased sales from existing businesses, partially offset by increased supply chain and logistic costs and $4.5 million of higher inventory step-up charges related to recent acquisitions.

Gross profit margin decreased slightly due to supply chain, logistics and other cost inflation that exceeded pricing and other benefits.

Selling, general and administrative expense increased $27.6 million in the second quarter of 2022 compared to the prior year period due to $17.4 million from acquired businesses and $8.7 million increase in strategic transaction costs driven by higher Separation-related costs.

Research and development costs also increased compared to the prior year period primarily due to recent acquisitions.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to acquisition-related increases.

During the second quarter of 2022, we recorded an insurance settlement gain of $33.0 million related to the 2019 acquisition of DJO.

Following the Separation, the Company retained 10% of the shares of ESAB common stock, which is recorded at fair value.

During the second quarter of 2022, we recorded a $135.5 million gain related to this investment.

Debt extinguishment charges of $20.1 million were recorded in the second quarter of 2022 due to debt redemptions in conjunction with the Separation and recapitalization, while charges of $29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes.

Interest expense, net decreased in the second quarter of 2022 due to a reduction in debt balances due to the Separation-related debt redemptions at the beginning of the second quarter of 2022.

The effective tax rate for Net income from continuing operations during the second quarter of 2022 was (3.6)%, which was lower than the 2022 U.S.

federal statutory tax rate of 21%, mainly due to non-taxable unrealized gains on the investment in ESAB offset by non-deductible costs related to the tax-free separation transaction.

The effective tax rate for the second quarter of 2021 was 8.2%, which was lower than the 2021 U.S.

federal statutory tax rate of 21% mainly due to U.S.

taxation on international operations and other non-deductible expenses.

Net income from continuing operations increased in the second quarter of 2022 compared with the prior year period primarily due to the gain on the retained ESAB common stock, as well as the insurance settlement gain and acquisition-related sales, offset by costs associated with the Separation, debt extinguishment charges and acquisition-related costs.

Net income margin from continuing operations increased due to the aforementioned factors.

Adjusted EBITDA increased primarily due to increased sales and lower operating expenses in existing businesses, partially offset by higher supply chain and logistic costs.

Adjusted EBITDA margin stayed even period-over-period, and positive impacts were partially offset by recent acquisitions in our Reconstructive segment which were dilutive to the margin by approximately 70 basis points and are expected to be accretive to margins in future years.

Six months ended July 1, 2022 Compared to Six months ended July 2, 2021

Gross profit increased in the six months ended July 1, 2022 compared with the prior year period due to a $49.6 million increase in our Reconstructive segment and a $0.2 million increase in our Prevention and Recovery segment.

The Gross profit increase was attributable to the benefit from business acquisitions and growth in our existing businesses, partially offset by higher inventory step-up charges of $7.7 million and increased supply chain and logistic costs.

Gross profit margin decreased slightly due to supply chain, logistics and other cost inflation that exceeded pricing and other benefits.

Selling, general and administrative expense increased $68.7 million in the six months ended July 1, 2022 compared to the prior year period due to $39.7 million of costs included in acquired businesses and a $20.0 million increase in strategic transaction costs driven by higher Separation-related costs.

Research and development costs also increased compared to the prior year period primarily due to increased spend within recently acquired businesses in our Reconstructive segment.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to business acquisition-related increases.

As discussed above, during the second quarter of 2022, we recorded an insurance settlement gain of $33.0 million and a $135.5 million gain on our retained investment in ESAB, which significantly impacted our results for the six months ended July 1, 2022.

Interest expense, net decreased in the six months ended July 1, 2022 compared to the prior year period due to a reduction in debt balances as a result of the Separation-related debt redemptions at the beginning of the second quarter of 2022.

The effective tax rate for Net income from continuing operations during the six months ended July 1, 2022 was (4.9)%, which was lower than the 2022 U.S.

federal statutory tax rate of 21%, mainly due to non-taxable unrealized gains on the investment in ESAB offset by non-deductible costs related to the tax-free separation transaction.

The effective tax rate for the six months ended July 2, 2021 was 3.9%, which was lower than the 2021 U.S.

federal statutory tax rate of 21% mainly due to U.S.

taxation on international operations and other non-deductible expenses.

Net income from continuing operations increased in the six months ended July 1, 2022 compared with the prior year period, primarily due to the gain on the retained ESAB common stock, as well as the insurance settlement gain and acquisition-related sales, offset by costs associated with the Separation, debt extinguishment charges and acquisition-related costs.

Net income margin from continuing operations increased by over 20 points due to the aforementioned factors.

Adjusted EBITDA increased due to organic growth and lower operating expenses in existing businesses, partially offset by higher supply chain and logistic costs.

Adjusted EBITDA margin increased 30 basis points for the same reasons;

excluding acquisitions, margins increased by 70 basis points.

Business Segments

As discussed above, we report results in two reportable segments:

Fabrication Technology and Medical Technology.

Fabrication Technology

Our fabrication technology business formulates, develops, manufactures and supplies consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment.

Our fabrication technology products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry.

ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields and tips.

ESAB’s fabrication technology equipment ranges from portable welding machines to large customized automated cutting and welding systems.

ESAB also offers a range of digital software and solutions to help its customers increase their productivity, remotely monitor their welding operations and digitize their documentation.

Products are sold into a wide range of end markets, including general industry, construction, infrastructure, transportation, energy, renewable energy, and medical & life sciences.

As part of the Separation described elsewhere in this report, on April 4, 2022, we spun-off our fabrication technology business.

Refer to Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information regarding the Separation.

The following table summarizes selected financial results for our Fabrication Technology segment:

Three Months Ended

April 1, 2022 April 2, 2021

Following the completion of the Separation, we revised our reporting structure and conduct our business through two operating segments, “Prevention and Recovery”, which consists of our orthopedic and rehabilitation business, and “Reconstructive”, which includes our surgical business.

Prevention and Recovery

We develop, manufacture, and distribute rigid bracing products, orthopedic soft goods, vascular systems and compression garments, and hot and cold therapy products, and offer robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management.

Our Prevention and Recovery products are marketed under several brand names, most notably DJO and Don-Joy, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries.

Many of our medical devices and related accessories are used by athletes and other patients for injury prevention and at-home physical therapy treatments.

We reach a diverse customer base through multiple distribution channels, including independent distributors, direct salespeople, and directly to patients.

The following table summarizes selected financial results for our Prevention and Recovery segment:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

(Dollars in millions)

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Gross profit margin 50.7 % 51.9 % 50.4 % 51.0 %

Selling, general and administrative expense $ 128.8 $ 117.5

Segment operating income (non-GAAP) $ 95.5 $ 82.3

Segment operating income margin (non-GAAP) 14.7 % 14.5 %

Adjusted EBITA (non-GAAP) $ 106.9 $ 91.4

Adjusted EBITA margin (non-GAAP) 16.5 % 16.1 %

Items excluded from Adjusted EBITA:

Selling, general and administrative expenses $ 124.0 $ 128.8 $ 243.4 $ 250.0

Research and development expense $ 8.8 $ 7.2 $ 17.1 $ 14.2

Operating income (loss) (GAAP) $ 13.4 $ (1.8) $ (1.0) $ (13.5)

Adjusted EBITDA (non-GAAP) $ 35.1 $ 33.3 $ 61.5 $ 54.6

Adjusted EBITDA margin (non-GAAP) 13.3 % 12.5 % 12.1 % 10.9 %

Items excluded from Adjusted EBITDA:

Restructuring and other related charges $ 1.3 $ 1.3 $ 3.4 $ 2.0

MDR and other costs $ 3.0 $ 1.4 $ 4.7 $ 2.8

Strategic transaction costs $ 8.5 $ 3.0 $ 16.1 $ 3.3

Acquisition-related amortization and other non-cash charges $ 7.7 $ 9.1

First Quarter of 2022 Compared to First Quarter of 2021

Net sales in our Fabrication Technology segment increased $79.8 million, or 14%, in the first quarter of 2022 compared with the prior year period driven primarily by inflation-related customer pricing impacts, as well as new product initiatives and improved sales volumes, partially offset by unfavorable foreign currency translation.

Gross profit increased $24.5 million due to the improved sales volumes, driven by new product initiatives, and favorable product mix.

Stock-based compensation $ 5.2 $ 5.1 $ 9.6 $ 9.6

Depreciation and other amortization $ 6.3 $ 6.1 $ 12.2 $ 12.2

Amortization of acquired intangibles $ 19.5 $ 18.7 $ 38.6 $ 37.5

Insurance settlement gain $ (22.1) $ — $ (22.1) $ —

Inventory step up $ — $ (0.5) $ — $ 0.7

Second Quarter of 2022 Compared to Second Quarter of 2021

Net sales in our Prevention and Recovery segment decreased $3.1 million, or 1%, in the second quarter of 2022 compared with the prior year period driven primarily by $8.5 million foreign currency translation headwinds and fewer selling days, partially offset by inflation-related pricing increases.

Gross profit decreased $4.7 million, and Gross profit margin decreased 120 basis points, due to inflation-driven supply chain and logistics cost increases, partially offset by pricing increases.

Selling, general and administrative expense decreased primarily due to decreased central cost allocations, partially offset by costs incurred related to the Separation.

Operating income (loss) improved due to an insurance settlement gain recorded in the second quarter of 2022 and lower Selling, general and administrative expenses, partially offset by increases in supply chain costs and strategic transaction costs related to the Separation.

Adjusted EBITDA and Adjusted EBITDA margin increased primarily due to the reduced Selling, general and administrative expenses compared to the prior period, partially offset by increased inflation and supply chain costs.

Six months ended July 1, 2022 Compared to Six months ended July 2, 2021

Net sales in our Prevention and Recovery segment increased $7.0 million, or 1%, in the six months ended July 1, 2022 compared with the prior year period driven primarily by organic growth in existing businesses which was aided by pricing increases to mitigate inflation, partially offset by unfavorable foreign currency translation of $12.9 million.

Gross profit increased $0.2 million due to the improved sales, offset by inflation-driven supply chain cost increases.

Gross profit margin decreased 60 basis points due to inflation-related customer pricing and cost increases, which compressed the margin.

Selling, general and administrative expense increased primarily due to increased costs related to the Separation, as well as increased allowances on receivables in certain regions and increased compensation costs.

Segment operating income and Segment operating income margin improved due to increased sales and favorable product mix, partially offset by increased Selling, general and

administrative expenses.

Adjusted EBITA and Adjusted EBITA margin increased for the same reasons, partially offset by inflation-related customer pricing and cost increases during the first quarter of 2022.

Medical Technology

We develop, manufacture and distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion.

Our products are used by orthopedic specialists, surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals.

Our products primarily include orthopedic braces, rehabilitation devices, footwear, surgical implants, and bone growth stimulators.

The following table summarizes the selected financial results for our Medical Technology segment:

Three Months Ended

April 1, 2022 April 2, 2021

Selling, general and administrative expense decreased primarily due to a decreased central cost allocation, partially offset by increased costs related to the Separation.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the reduction in central cost allocations, partially offset by increased inflation and supply chain costs during the six months ended July 1, 2022 compared to the prior year period.

Reconstructive

We develop, manufacture, and market a wide variety of knee, hip, shoulder, elbow, foot, ankle, and finger implant products that serve the orthopedic reconstructive joint implant market.

Our products are primarily used by surgeons for surgical procedures, including in hospitals and ambulatory surgery centers.

The following table summarizes the selected financial results for our Reconstructive segment:

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

(Dollars in millions)

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Gross profit margin 62.5 % 69.8 % 63.2 % 70.0 %

Selling, general and administrative expense $ 208.4 $ 170.9

Segment operating income (non-GAAP) $ (0.1) $ 2.2

Segment operating income margin (non-GAAP) — % 0.7 %

Adjusted EBITA (non-GAAP) $ 37.8 $ 31.6

Adjusted EBITA margin (non-GAAP) 10.1 % 10.2 %

Items excluded from Adjusted EBITA:

Selling, general and administrative expenses $ 88.7 $ 65.2 $ 176.8 $ 121.6

Research and development expense $ 6.9 $ 3.8 $ 13.5 $ 7.2

Operating loss (GAAP) $ (7.9) $ (8.5) $ (24.1) $ (14.9)

Adjusted EBITDA (non-GAAP) $ 21.0 $ 17.4 $ 42.4 $ 33.3

Adjusted EBITDA margin (non-GAAP) 16.0 % 19.5 % 16.2 % 20.1 %

Items excluded from Adjusted EBITDA:

Restructuring and other related charges $ 1.3 $ 0.7 $ 2.1 $ 0.9

MDR and related costs (2)

MDR and other costs $ 1.5 $ 0.5 $ 2.4 $ 0.9

Strategic transaction costs $ 4.2 $ 1.0 $ 8.3 $ 1.1

Acquisition-related amortization and other non-cash charges $ 35.9 $ 29.4

First Quarter of 2022 Compared to First Quarter of 2021

Net sales increased in our Medical Technology segment in the first quarter of 2022 compared with the prior year period primarily due to acquisition-related sales growth of $45.6 million in the current year period.

Sales from existing business increased $23.3 million primarily due to higher sales volumes in the current year period compared to the prior year period, both of which were impacted by COVID-19.

The benefit from acquisition-related sales and increased existing business sales was partially offset by unfavorable foreign currency translation.

Gross profit increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to acquisition-related growth and favorable product mix, partially offset by increased supply chain and logistic costs and acquisition-related inventory valuation step-up charges, which also led to a slight decrease in Gross profit margin.

Selling, general and administrative expense increased over the same period primarily due to costs associated with acquisitions, including integration costs for the newly-acquired businesses and increased commissions as a result of improved sales volumes.

Segment operating income and Segment operating income margin decreased primarily due to increased acquisition-related costs and costs related to the Separation, partially offset by improved sales volumes.

Adjusted EBITA increased primarily due to improved sales volumes in the current year, partially offset by increased supply chain and logistic costs and increased Selling, general and administrative costs, while adjusted EBITA margin decreased slightly primarily due to the dilutive impact of recent acquisitions.

Restructuring and other related charges increased by $2.0 million due to the implementation of new restructuring initiatives.

Stock-based compensation $ 2.6 $ 1.7 $ 4.9 $ 3.2

Depreciation and other amortization $ 13.1 $ 10.2 $ 25.8 $ 21.0

Amortization of acquired intangibles $ 12.3 $ 10.8 $ 24.1 $ 19.6

Insurance settlement gain $ (11.0) $ — $ (11.0) $ —

Inventory step up $ 4.9 $ 0.9 $ 10.0 $ 1.6

Second Quarter of 2022 Compared to Second Quarter of 2021

Net sales increased in our Reconstructive segment in the second quarter of 2022 compared with the prior year period primarily due to acquisition-related sales growth of $37.4 million and organic growth in existing businesses in the current year period, partially offset by fewer selling days in comparison to the prior year.

Gross profit increased due to acquisitions and existing business-related growth, partially offset by increased supply chain and logistic costs.

Gross profit margin decreased due to increased supply chain and logistics costs.

Selling, general and administrative expense increased over the same period primarily due to $17.4 million from acquired businesses including integration costs for the newly-acquired businesses and, to a lesser extent, costs associated with the Separation.

Adjusted EBITDA increased primarily due to existing business-related growth.

Recent acquisitions drove a reduction in the Adjusted EBITDA margin, as the recent acquisitions were dilutive to the margin by approximately 320 basis points and are expected to be accretive to margins in future years.

Six months ended July 1, 2022 Compared to Six months ended July 2, 2021

Net sales increased in our Reconstructive segment in the six months ended July 1, 2022 compared with the prior year period primarily due to acquisition-related sales growth of $83.0 million and organic growth in existing businesses of $13.8 million.

Gross profit increased in the six months ended July 1, 2022 compared to the six months ended July 2, 2021 primarily due to acquisition and existing business growth, partially offset by increased supply chain and logistic costs and acquisition-related inventory valuation step-up charges of $8.4 million, which also led to a decrease in Gross profit margin.

Selling, general and administrative expense increased over the same period primarily due to $39.7 million of costs from acquisitions including integration costs for the newly-acquired businesses, as well as increased central cost allocations and costs associated with the Separation.

Operating income decreased in the six months ended July 1, 2022 compared to the six months ended July 2, 2021 primarily due to the increases in Selling, general and administrative expenses from acquisitions.

Adjusted EBITDA increased primarily due to growth in existing businesses, partially offset by increased supply chain and logistic costs.

Recent acquisitions drove a reduction in the Adjusted EBITDA margin, as they were dilutive to the margin by approximately 250 basis points and are expected to be accretive to margins in future years.

Liquidity and Capital Resources

1 unchanged sentence

We expect that our primary ongoing requirements for cash after the Separation will be for working capital, funding of acquisitions, near-term Separation costs, capital expenditures, restructuring, and debt service and principal repayments.

We believe we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes.

On April 4, 2022, we completed the separation of our fabrication technology business through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB Corp to Enovis stockholders.

We retained 10% of the shares of ESAB Corp common stock immediately following the Separation.

We intend to divest the 10% retained shares in ESAB Corp in a tax-efficient exchange for our outstanding debt no later than 12 months after the Distribution date.

In connection with the Separation, ESAB Corp issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to us upon Separation.

We believe we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes.

ESAB Separation

As discussed in Note 1, “General”, the Company completed the separation of its fabrication technology business on April 4, 2022 through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to the Company’s stockholders.

We retained 10% of the shares of ESAB common stock immediately following the Separation.

We intend to divest the retained ESAB shares in a tax-efficient exchange for our outstanding debt no later than 12 months after the Separation date.

In connection with the Separation, ESAB issued $1.2 billion of new debt securities, the proceeds from which were used to fund a $1.2 billion cash distribution to us upon Separation.

We used the distribution proceeds in conjunction with $450 million of borrowings on a term loan under the new credit facility, and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on our existing credit facility, $302.8 million of outstanding debt and accrued interest on our senior notes due February 15, 2026 (“2026 Notes”), as well as a redemption premium at 103.188% of the principal amount of our 2026 Notes, and other fees and expenses due at closing.

Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of its outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount.

Refer to Note 15, “Subsequent Events” for further information including detail of ongoing financing arrangements.

Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of our outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount and accrued interest for $391.2 million.

See section Enovis Term Loan and Revolving Credit Facility for more detail on the new Enovis Credit Agreement.

In the second quarter of 2022, the Company recorded Debt extinguishment charges of $20.1 million, including $12.7 million of redemption premiums on the retired debt instruments and $7.4 million in noncash write-offs of original issue discount and deferred financing fees.

Equity Capital

On March 19, 2021, we completed the underwritten public offering of 5.4 million shares of our Common stock, as adjusted for the reverse split, resulting in net proceeds of $711.3 million , after deducting offering expenses and underwriters’ discount and commissions.

We used the proceeds to pay down certain of our senior notes, as discussed further below.

On March 19, 2021, we completed an underwritten public offering of 5.4 million shares of our Common stock, as adjusted for the reverse split, resulting in net proceeds of $711.3 million , after deducting offering expenses and underwriters’ discount and commissions.

We used the proceeds to pay down certain of our senior notes.

On July 28, 2021, the Company issued 2.2 million shares of Common stock, as adjusted for the reverse split, to the former shareholders of Mathys for acquisition consideration of $285.7 million.

1 unchanged sentence

No stock repurchases have been made under this plan since the third quarter of 2018.

As of April 1, 2022, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million.

As of July 1, 2022, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million.

The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.

1 unchanged sentence

Term Loan and Revolving Credit Facility

Our credit agreement (the “Credit Facility”), which was legally extinguished in conjunction with the Separation on April 4, 2022, consisted of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an initial aggregate principal amount of $825 million, each with a maturity date of December 6, 2024.

Our previous credit agreement dated December 17, 2018, as amended (the “Colfax Credit Facility”) consisted of a $975 million revolving credit facility (the “Revolver”) and a Term A-1 loan in an initial aggregate principal amount of $825 million, each with a maturity date of December 6, 2024.

The Revolver contained a $50 million swing line loan sub-facility.

Refer to Note 10, “Debt” and Note 15, “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information.

As of April 1, 2022, the Company was in compliance with the covenants under the Credit Facility.

As of April 1, 2022, the weighted-average interest rate of borrowings under the Credit Facility was 1.74%, excluding accretion of original issue discount and deferred financing fees, and there was $375 million available on the Revolver.

On April 4, 2022, the Company entered into a new credit agreement (the “Enovis Credit Agreement”) which replaces the Colfax Credit Facility and concurrently terminated all indebtedness of the Company outstanding thereunder being repaid on such date with proceeds of the Enovis Credit Agreement and other funds of the Company.

The Enovis Credit Agreement consists of a revolving credit facility that totals $900 million in commitments (the “Revolver”) and a term loan in an aggregate amount of $450 million (the “Enovis Term Loan”, and together with the Revolver, the “Enovis Credit Facility”).

The Revolver includes a $50 million swing line loan sub-facility.

The Revolver will be used to provide funds for the Company’s ongoing working capital requirements and for general corporate purposes.

As of July 1, 2022, there was $900 million available on the Revolver.

The Term Loan bears interest, at the election of the Company, at either the base rate (as defined in the Enovis Credit Agreement) or at the term SOFR rate plus an adjustment (as defined in the Enovis Credit Agreement), in each case, plus the applicable interest rate margin.

The Revolver bears interest, at the election of the Company, at either the base rate or, in the case of loans denominated in dollars, the term SOFR rate plus an adjustment or the daily simple SOFR plus an adjustment, in the case of loans denominated in euros, the adjusted EURIBOR rate and, in the case of loans denominated in sterling, SONIA plus an adjustment (as all such rates are defined in the Enovis Credit Agreement), in each case, plus the applicable interest rate margin.

Initially, the applicable interest rate margin will be 1.5% or, in the case of base rate loans, 0.5%, and in future quarters it may change based upon the Company’s total leverage ratio (ranging from 1.125% to 1.750% or in the case of the base rate margin, 0.125% to 0.750%).

Each swing line loan denominated in dollars bears interest at the base rate plus the

applicable interest rate margin.

subsidiaries of the Company have agreed to guarantee the obligations of the Company under the Enovis Credit

The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends.

In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 4.50:1.00, with a step-down to, on the date on which the Company and its subsidiaries have transferred any retained shares of ESAB common stock to one or more unaffiliated third parties, 4.00:1.00, commencing with the fiscal quarter ending June 30, 2023, 3.75:1.00 and commencing with the fiscal quarter ending June 30, 2024, 3.50:1.00, and (ii) a minimum interest coverage ratio of 3.00:1:00.

The Enovis Credit Agreement contains various events of default (including failure to comply with the covenants under the Enovis Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Enovis Term Loan and the Enovis Revolver.

Euro Senior Notes

Our senior unsecured notes with an aggregate principal amount of €350 million were due in May 2025 and had an interest rate of 3.25%.

The Euro Senior Notes were redeemed on April 7, 2022 after the completion of the Separation.

Upon the completion of the Separation, the Euro Senior Notes were redeemed on April 7, 2022 at a redemption premium of 100.813% of the principal amount.

TEU Amortizing Notes

On January 15, 2022, we made the final installment payment on our TEU amortizing notes, which had an initial principal amount of $15.6099 per unit and an interest rate of 6.50% per annum.

We paid $6.5 million and $6.1 million of principal on the TEU amortizing notes in the three months ended April 1, 2022 and April 2, 2021, respectively.

We had senior notes with an initial aggregate principal amount of $300 million, which were due on February 15, 2026 and had an interest rate of 6.375%.

The 2026 Notes were redeemed on April 7, 2022 after the completion of the Separation.

We paid $6.5 million and $12.3 million of principal on the TEU amortizing notes in the six months ended July 1, 2022 and July 2, 2021, respectively.

We had senior notes with an aggregate principal amount of $300 million, which were due on February 15, 2026 and had an interest rate of 6.375%.

Upon the completion of the Separation, the 2026 Notes were redeemed on April 7, 2022 at a redemption premium at 103.188% of the principal amount.

Other Indebtedness

In addition, we are party to various bilateral credit facilities with a borrowing capacity of $168.2 million.

As of April 1, 2022, there were no outstanding borrowings under these facilities.

Subsequent to the end of the first quarter of 2022, the bilateral credit facilities are no longer available to Enovis due to the completion of the Separation as they relate to ESAB Corp or expired.

We are also party to letter of credit facilities with an aggregate capacity of $211.9 million.

Total letters of credit of $40.2 million were outstanding as of April 1, 2022.

Substantially all of the letter of credit facilities relate to central banking entities and operations of ESAB Corp which was spun-off with the fabrication technology business on April 4, 2022.

In addition, we are party to bilateral credit facilities with a borrowing capacity of $30.0 million.

As of July 1, 2022, there were $0.9 million in outstanding borrowings under these facilities.

We are also party to a letter of credit facility with an aggregate capacity of $30.0 million.

Total letters of credit of $2.3 million were outstanding as of July 1, 2022.

We believe that our sources of liquidity are adequate to fund our operations for the next twelve months.

As of April 1, 2022, we had $661.5 million of Cash and cash equivalents, a decrease of $57.9 million from the balance as of December 31, 2021 of $719.4 million.

As of July 1, 2022, we had $95.6 million of Cash and cash equivalents, a decrease of $623.8 million from the balance as of December 31, 2021 of $719.4 million.

The Cash and cash equivalents as of December 31, 2021 include $39.1 million related to ESAB which was part of the Separation and are reported in Total current assets associated with discontinued operations in the Condensed Consolidated Balance Sheets.

The following table summarizes the change in Cash and cash equivalents during the periods indicated:

Three Months Ended

April 1, 2022 April 2, 2021

Six Months Ended

July 1, 2022 July 2, 2021

(Dollars in millions)

5 unchanged sentences

Repayments of borrowings, net (1,628.9) (627.7)

Distribution from ESAB Corporation, net 1,143.4 —

Proceeds from issuance of common stock, net 1.7 730.0

Payment of debt extinguishment costs (12.7) (24.4)

Deferred consideration payments and other (9.8) (6.2)

2 unchanged sentences

Increase (decrease) in Cash and cash equivalents $ (623.8) $ (38.8)

Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs, restructuring, and strategic transaction costs including Separation costs.

Cash flows from operating activities can fluctuate significantly from period-to-period due to changes in working capital and the timing of payments for items such as restructuring and strategic transaction costs such as Separation costs.

Changes in significant operating cash flow items are discussed below.

• During the three months ended April 1, 2022 and April 2, 2021, cash payments of $9.1 million and $4.7 million, respectively, were made related to our restructuring initiatives.

• During the three months ended April 1, 2022, cash payments of $7.9 million were made related to the Separation.

• Year-to-date 2022 results include $61.9 million of outflows from working capital business growth, which have caused certain increases in accounts receivable and inventory levels, offset by an increase in accounts payable.

Results in the comparable prior year period provided cash of $8.3 million due to an increase in accounts payable, offset by increases in accounts receivable and inventory levels due to COVID-19 recovery.

• Year-to-date 2022 cash used in operating activities of $39.3 million includes $107.5 million of outflows from working capital, primarily due to business growth and increases in inventory to insulate for supply chain volatility.

Results in the comparable prior year period include $47.6 million of outflows for working capital increases.

• Year-to-date 2022 cash used in operating activities also reflects $29.6 million of outflows for discontinued operations, which includes $41.2 million of net outflows related to the Separation.

Cash provided by operating activities related to discontinued operations for the six months ended July 2, 2021 was $122.6 million, which included no net outflows related to the Separation.

• During the six months ended July 1, 2022, cash payments of $53.8 million were made related to the Separation, of which $41.2 million is related to discontinued operations.

The comparable amounts for the 2021 period were immaterial.

• Year-to-date 2022 cash used in operating activities also include $27.0 million of outflows relating to the Company’s former capital structure before giving effect to the completion of the refinancing transactions in connection with the Separation.

The first six months of 2021 included $55.6 million of comparable outflows.

• Prior year net cash provided by operating activities included a one-time cash inflow from a $36.0 million U.S.

federal tax refund received in the first quarter of 2021.

• Cash used in operating activities related to discontinued operations for the three months ended April 1, 2022 was $5.8 million.

Cash used in operating activities related to discontinued operations for the three months ended April 2, 2021 was $7.3 million, primarily due to a settlement related to a disposed business.

Cash flows used in investing activities during the three months ended April 1, 2022 decreased due to lower acquisition and investment activity in the current year period.

Cash paid for acquisitions and investments in our Medical Technology segment was $13.8 million and $98.5 million during the three months ended April 1, 2022 and April 2, 2021, respectively.

During the three months ended April 2, 2021, we also had an acquisition outlay in our Fabrication Technology segment of $5.0 million.

Cash flows used in financing activities during the three months ended April 1, 2022 include $7.4 million repayment of borrowings.

Cash flows provided by financing activities for the three months ended April 2, 2021 included the $711.3 million net proceeds from the public offering of our Common stock on March 19, 2021.

• During the six months ended July 1, 2022 and July 2, 2021, cash payments of $5.2 million and $3.4 million, respectively, were made related to our restructuring initiatives within our continuing operations.

Cash flows used in investing activities during the six months ended July 1, 2022 of $80.2 million decreased compared with the $272.1 million in the prior year period due to lower outlays for acquisitions and investments.

The amounts included in Purchases of property, plant and equipment related to discontinued operations for the six-month periods ended July 1, 2022 and July 2, 2021 were $5.9 million and $10.9 million, respectively.

The amounts included in Proceeds from sale of property, plant and equipment related to discontinued operations for the six-month periods ended July 1, 2022 and July 2, 2021 were $2.7 million and $1.4 million, respectively.

The amount included in Acquisitions, net of cash received, and investments related to discontinued operations for the six-month period ended July 2, 2021 was $4.9 million.

Cash flows used in financing activities during the six months ended July 1, 2022 included $1.6 billion repayment of borrowings, which included the outstanding debt on our existing credit facility, 2026 Notes and Euro Senior Notes, partially offset by borrowings on a term loan under the new credit facility.

The repayments were primarily funded by a $1.2 billion cash distribution from ESAB to us upon Separation.

Cash flows provided by financing activities for the six months ended July 2, 2021 included the $711.3 million net proceeds from the public offering of our Common stock on March 19, 2021.

The net proceeds were used for the $600 million full redemption of our 2024 Notes and the $100 million partial redemption of our 2026 Notes in the second quarter of 2021.

Our Cash and cash equivalents as of April 1, 2022 include $59.9 million held in jurisdictions outside the U.S.

Cash repatriation of non-U.S.

cash into the U.S.

may be subject to taxes, other local statutory restrictions and minority owner distributions.

The majority of the cash and cash equivalents held in jurisdictions outside the U.S.

relate to central banking entities and operations of ESAB Corp which was spun-off with the Fabrication Technology business on April 4, 2022.

Critical Accounting Policies

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Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position.

There have been no other significant additions or changes to the methods, estimates and judgments included in “Item 7.

There have been no significant additions or changes to the methods, estimates and judgments included in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our 2021 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis