What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-22 · 212 added, 199 removed, 412 unchanged (50% of the section changed)

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“Business” for a discussion of Enovis’s objectives and methodologies for delivering shareholder value.

Post-Separation, Enovis conducts its operations through two operating segments:

Enovis conducts its operations through two operating segments:

Prevention & Recovery (“P&R”) and Reconstructive (“Recon”).

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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 and Adjusted EBITDA as defined in the “Non-GAAP Measures” section.

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

Items Affecting Comparability of Reported Results

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The comparability of our operating results for the year ended December 31, 2024 to the comparable periods is affected by the following additional significant items:

The Separation

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

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

On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained shares, for $230.5 million in term loan outstanding under our Enovis Credit Agreement.

We recorded a gain of $102.7 million on the exchange of the shares representing the excess of fair value, less cost to sell, over our cost basis in the investment.

Once the Separation was completed in the second quarter of 2022, we began classifying the results from the fabrication technology business for the comparable periods presented as a discontinued operation in our financial statements.

Accordingly, the results of our fabrication technology businesses in our financial statements prior to its spin-off as a separate public company are excluded from continuing operations in the accompanying financials for the years ended December 31, 2022 and 2021.

Please see Part I.

“Risk Factors” in this Form 10-K for further discussion of the Company’s risks relating to the Separation.

Strategic Acquisitions

We complement our organic growth plans with strategic acquisitions and other investments.

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 years ended December 31, 2023 and 2022 presented in this filing represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

Acquisitions can significantly affect our reported results, and so we also report the Net sales on a Comparable Sales basis and present a Comparable Sales Growth rate to provide information on the operating performance of the business.

Comparable Sales and Comparable Sales Growth rate are defined in the “Non-GAAP Measures” section below.

On January 3, 2024, we acquired Lima, a privately held global orthopedic company focused on restoring motion through digital innovation and customized hardware for total fair value consideration of $865.6 million, net of acquired cash.

The fair value total consideration included 1,942,686 shares of Enovis common stock, as determined based upon a €100 million value divided by the thirty-day volume weighted average price of Enovis common stock as of the close of business on September 21, 2023 (the “Contingent Acquisition Shares”.

The Contingent Acquisition Shares were issuable in two equal tranches within six and twelve months of the acquisition date upon non-occurrence of certain future events, in each case subject to certain adjustments and conditions as provided for in the purchase agreement..

The first tranche of 971,343 Contingent Acquisition Shares was issued to the seller on July 16, 2024 and the second tranche of Contingent Acquisition Shares was issued on January 15, 2025.

This acquisition expands and complements our current product offerings internationally within our Recon segment.

In 2024, we also completed one asset acquisition in our Reconstructive segment and one business acquisition in our Prevention & Recovery segment for aggregate purchase consideration of $4.0 million.

During the year ended December 31, 2023, we completed one business combination and two asset acquisitions in Recon.

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In the third quarter of 2022, the Company acquired a controlling interest in Insight Medical Systems, the flagship product of which is the ARVIS surgical navigation system.

During the year ended December 31, 2021, the Company completed five acquisitions for aggregate net cash consideration of $201.6 million and aggregate equity consideration of $285.7 million.

In the first quarter of 2021, the Company acquired Trilliant Surgical, a national provider of foot and ankle orthopedic implants.

In the second quarter of 2021, the Company acquired MedShape, Inc., a provider of innovative surgical solutions for foot and ankle surgeons using its patented superelastic nickel titanium (NiTiNOL) and shape memory polymer technologies.

These two acquisitions were completed for total consideration, net of cash received, of $204.1 million.

The Trilliant and MedShape acquisitions, along with the 2020 acquisition of the Scandinavian Total Ankle Replacement System and Finger Joint Arthroplasty Portfolio, created our growth product portfolio in the foot and ankle surgical market.

In the third quarter of 2021, the Company acquired Mathys AG Bettlach (“Mathys”), a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine, for total acquisition equity consideration of $285.7 million of our common stock.

The Mathys acquisition expanded our reconstructive product portfolio with its complementary surgical solutions and broadened our reach internationally.

Global Operations

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

For the year ended December 31, 2023 compared to 2022, fluctuations in foreign currencies increased net sales by 0.4%, decreased gross profit by 0.3%, and increased operating expenses by 0.5%.

The unfavorable impact on gross profits is due to the Mexican peso strengthening and its effect on costs at one of our primary manufacturing facilities.

Although sales in P&R and Recon typically peak in the fourth quarter, these historical seasonality trends were disrupted by the commercial impacts caused by the COVID-19 pandemic.

For the year ended December 31, 2024 compared to 2023, fluctuations in foreign currencies increased Net sales by 0.1%, had an immaterial impact on Gross profit, and increased operating expenses by approximately 0.1%.

The Separation

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

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

On November 18, 2022, we completed an exchange with our lenders of 6,003,431 shares of common stock of ESAB, representing all of our retained shares, for $230.5 million in term loan outstanding under our previous credit agreement.

We recorded a gain of $102.7 million on the exchange of the shares representing the excess of fair value, less cost to sell, over our cost basis in the investment.

Please see Part I.

“Risk Factors” in this Form 10-K for further discussion of the Company’s risks relating to the Separation.

Sales in P&R and Recon typically peak in the fourth quarter.

General economic conditions may, however, impact future seasonal variations.

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Prices for raw materials, energy and commodities are also influenced by import duties and tariffs, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, geopolitical tensions, government trade practices and regulations and other factors.

Specifically, tariffs, such as the tariffs announced by the U.S.

government in February 2025, may increase the cost of and impair sourcing flexibility for raw materials, component parts and supplies, and further trade restrictions, retaliatory trade measures, or additional tariffs implemented could result in higher input costs to our products.

Sales and Cost Mix

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48 % 37 % 34 %

(1) The change in mix from the year ended December 31, 2021 to 2023 reflects the impact from acquisitions and double-digit growth in Recon.

With the acquisition of Lima in Recon on January 3, 2024, the sales mix is expected to further increase in Recon.

(1) The change in mix for the year ended December 31, 2024 from 2023 reflects the impact of the Lima acquisition in Recon, which was completed on January 3, 2024.

Non-GAAP Measures

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.

Comparable Sales

Adjusted EBITDA and Adjusted EBITDA margin, Comparable Sales, and Comparable Sales Growth rate, which are 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 excludes from Net income (loss) from continuing operations the effect of Income tax expense (benefit);

Other income, net;, non-operating (gain) loss on investments;

Other income, net;

non-operating (gain) loss on investments;

debt extinguishment charges;

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insurance settlement (gain) loss;

goodwill impairment charges;

and fair value charges on acquired inventory.

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Adjusted EBITDA assists our management in comparing 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.

Comparable Sales adjusts net sales for prior periods to include the sales of acquired businesses prior to our ownership from acquisitions that closed in the periods presented and to exclude the sales of certain non-core product lines that were divested or discontinued, as applicable, during the periods presented.

The acquired businesses include Lima, Novastep, and KICo, which are reflected in the Recon segment, and the excluded non-core product lines are comprised of the divested compression hosiery product line in the P&R segment and certain discontinued third-party OEM relationships in the Recon segment.

Comparable Sales Growth rate represents the change in Comparable Sales for the current period from Comparable Sales for the prior year period.

Comparable Sales and Comparable Sales Growth rate assist our management in evaluating operating performance over time because the impact of significant acquisitions and divestitures or discontinuance of certain non-core product lines subsequent to prior periods may obscure underlying business trends and make the evaluation of period-over-period performance difficult.

Comparable Sales and Comparable Sales Growth rate are presented for illustrative purposes only and do not and are not intended to comply with Article 11 of Regulation S-X promulgated by the SEC in respect of proforma financial information, and may differ, including materially, from proforma financial statements presented in accordance therewith.

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

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Net loss from continuing operations (GAAP) (1)

Income tax benefit (13.3)

Income tax expense 4.5

Other income, net (9.9)

Debt extinguishment charges 7.3

Interest expense, net 57.1

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MDR and other costs (3)

10.1 9.4 19.5

Strategic transaction costs (3)

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Amortization of acquired intangibles 92.3 73.2 165.5

Goodwill impairment charge 315.0 330.0 645.0

Inventory step-up — 51.7 51.7

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(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in P&R includes $2.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(2) Restructuring and other charges includes $17.9 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations related to the discontinuation of certain product lines in the P&R and Recon segments .

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

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Net loss from continuing operations (GAAP) (1)

Income tax expense 36.1

Income tax benefit (13.3)

Other income, net (25.7)

Gain on cost basis investment (8.8)

Gain on investment in ESAB Corporation (102.7)

Debt extinguishment charges 7.3

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Operating loss margin (2.3) % (6.5) % (3.8) %

Adjusted to add (deduct):

Adjusted to add:

Restructuring and other charges (2)(3)

13.5 6.4 20.0

MDR and other costs (3)

14.5 12.9 27.4

Strategic transaction costs (3)

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Amortization of acquired intangibles 93.6 40.0 133.5

Insurance settlement gain (3)

(24.4) (12.3) (36.7)

Inventory step-up — 0.1 0.1

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(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in P&R includes $1.7 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(2) Restructuring and other charges includes $2.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

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

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Net loss from continuing operations (GAAP) (1)

Income tax benefit (19.5)

Income tax expense 36.1

Other income, net (2.1)

Gain on cost basis investment (8.8)

Gain on investment in ESAB Corporation (102.7)

Debt extinguishment charges 20.4

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Operating loss margin (1.8) % (9.9) % (4.6) %

Adjusted to add:

Adjusted to add (deduct):

Restructuring and other charges (2)(3)

11.5 2.4 13.9

MDR and other costs (3)

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Amortization of acquired intangibles 80.1 46.2 126.3

Insurance settlement gain (3)

(24.4) (12.3) (36.7)

Inventory step-up — 12.8 12.8

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(1) Non-operating components of Net loss from continuing operations are not allocated to the segments.

(2) Restructuring and other charges in P&R includes $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(2) Restructuring and other charges includes $1.7 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.

(3) Certain 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 increased by $144.1 million or 9.2% to $1.7 billion for the year ended December 31, 2023 compared with the prior year period.

Net sales increased by $400.4 million or 23.5% to $2,107.6 million for the year ended December 31, 2024 compared with the prior year period.

The following table presents the components of changes in our consolidated Net sales for the years ended December 31, 2024 and 2023.

(Dollars in millions)

For the year ended December 31, 2021 $ 1,426.2

Components of Change:

Existing Businesses (1)

Acquisitions (2)

Foreign Currency Translation (3)

(36.0) (2.5) %

For the year ended December 31, 2022 $ 1,563.1

Components of Change:

Existing Businesses (1)

Acquisitions (2)

Foreign Currency Translation (3)

For the year ended December 31, 2023 $ 1,707.2

(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.

(2) Represents the incremental sales as a result of acquisitions closed subsequent to the beginning of the prior year period.

(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.

Year Ended December 31, Year Ended December 31,

2024 2023 Growth Rate 2024 2023 Growth Rate

GAAP Comparable Sales (1)

(In millions)

Prevention & Recovery:

Bracing & Support $ 469.3 $ 456.1 2.9 % $ 469.3 $ 456.1 2.9 %

Other P&R 270.7 269.8 0.3 % 268.0 260.2 3.0 %

International P&R 357.9 350.8 2.0 % 356.3 345.0 3.3 %

Total Prevention & Recovery 1,098.0 1,076.8 2.0 % 1,093.6 1,061.3 3.0 %

Reconstructive:

Reconstructive $ 505.6 $ 426.4 18.6 % $ 505.6 $ 479.9 5.4 %

International Reconstructive 504.0 204.0 147.1 % 503.6 450.0 11.9 %

Total Reconstructive 1,009.7 630.4 60.2 % 1,009.2 930.0 8.5 %

Total $ 2,107.6 $ 1,707.2 23.5 % $ 2,102.8 $ 1,991.3 5.6 %

(1) Comparable Sales adjusts net sales for prior periods to include the sales of acquired businesses prior to our ownership from acquisitions that closed in the periods presented and to exclude the sales of divested businesses and certain discontinued Recon products lines in conjunction with the Lima Acquisition.

The acquired businesses include Lima and Novastep, which are reflected in the Recon segment, and the excluded non-core product lines are comprised of a divested compression hosiery product line in the P&R segment and certain discontinued third-party OEM relationships in the Recon segment.

2024 Compared to 2023

Net sales increased during 2024 as compared to 2023 by $400.4 million, or 23.5%, primarily attributable to an increase in sales from the Lima Acquisition and to a lesser extent the Novastep acquisition and growth in existing businesses.

Recon sales increased by $379.3 million, or 60.2%, of which $338.1 million was attributable to the Lima and Novastep acquisitions.

Recon sales were negatively impacted by a $4.3 million decrease from the discontinuance of certain non-core product lines.

P&R sales increased by $21.2 million, or 2.0%, which was negatively impacted by a $11.1 million decrease from divesting a minor product line.

For the year ended December 31, 2024, U.S.

GAAP basis net sales were $2,107.6 million.

The Comparable Sales were $2,102.8 million for the same period.

The sales attributable to the non-core product lines, which were divested or discontinued, were $4.8 million.

For the year ended December 31, 2023, U.S.

GAAP basis net sales were $1,707.2 million.

The Comparable Sales were $1,991.3 million for the same period.

In 2023, Lima and Novastep would have contributed $308.0 million to Comparable Sales, offset by the impact of the divestiture and discontinuance of certain non-core product lines of $23.9 million.

Comparable Sales Growth for Recon was driven by approximately 8.2% increases in volume and market share gains and favorable foreign currency translation of 0.3%.

Comparable Sales Growth for P&R was driven by approximately 3.0% organic growth in volumes.

The weakening of the U.S.

Dollar relative to other currencies resulted in $2.8 million, or 0.1%, of favorable foreign currency translation impacts on total net sales for the year ended December 31, 2024 from the prior year.

Year Ended December 31, Year Ended December 31,

2023 2022 Growth Rate 2023 2022 Growth Rate

GAAP Comparable Sales (1)

(In millions)

Prevention & Recovery:

Bracing & Support $ 456.1 $ 437.3 4.3 % $ 456.1 $ 437.3 4.3 %

Other P&R 269.8 255.3 5.7 % 260.2 243.0 7.1 %

International P&R 350.8 335.0 4.7 % 345.0 328.7 4.9 %

Total Prevention & Recovery 1,076.8 1,027.6 4.8 % 1,061.3 1,009.0 5.2 %

Reconstructive:

Reconstructive $ 426.4 $ 370.2 15.2 % $ 479.9 $ 426.0 12.7 %

International Reconstructive 204.0 165.3 23.4 % 450.0 377.3 19.3 %

Total Reconstructive 630.4 535.5 17.7 % 930.0 803.2 15.8 %

Total $ 1,707.2 $ 1,563.1 9.2 % $ 1,991.3 $ 1,812.3 9.9 %

The acquired businesses include Lima, Novastep, and KiCo, which are reflected in the Recon segment, and the excluded non-core product lines are comprised of a divested compression hosiery product line in the P&R segment and certain discontinued third-party OEM relationships in the Recon segment.

2023 Compared to 2022

Net sales increased during 2023 as compared to 2022 primarily due to an increase in sales from existing businesses across both of our segments and to a lesser extent sales from acquired businesses in Recon and favorable foreign currency translation.

In Recon, existing business sales increased $76.7 million, or 14.3% due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance and new product launches.

In P&R, existing business sales increased $47.1 million, or 4.6% due to improved sales volumes and inflation-related pricing increases.

Recon sales increased by $94.9 million, or 17.7%, of which $76.7 million was due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance and new product launches.

P&R sales increased $49.2 million, or 4.8%, of which $47.1 million was due to improved sales volumes and inflation-related pricing increases.

Net sales from acquisitions increased during 2023 primarily due to the Novastep and 360 Med Care acquisitions in Recon that closed in 2023 and 2022, respectively.

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dollar relative to other currencies, most notably the Swiss Franc and Euro, caused a $6.1 million favorable currency translation impact.

2022 Compared to 2021

Net sales increased during 2022 as compared to 2021 primarily due to an increase in sales from existing businesses across both of our segments and sales from acquired businesses in Recon, partially offset by foreign currency headwinds primarily in P&R.

In Recon, existing business sales increased $47.1 million, or 11.8%, due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance, new product launches, and reduced COVID impacts.

In P&R, existing business sales increased $32.5 million, or 3.2%, due to improved sales volumes and inflation-related pricing increases.

Net sales from acquisitions increased during 2022 as compared to 2021 primarily due to the Mathys, Trilliant, and Medshape acquisitions in Recon that closed in 2021.

The strengthening of the U.S.

dollar relative to other currencies, most notably the Euro, caused a $36.0 million unfavorable currency translation impact.

Operating Results

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Net loss from continuing operations $ (827.4) $ (53.8) $ (38.2)

Net loss margin from continuing operations (GAAP) (3.2) % (2.4) % (7.2) %

Net loss from continuing operations margin (GAAP) (39.3) % (3.2) % (2.4) %

Adjusted EBITDA (non-GAAP) $ 376.5 $ 269.2 $ 236.1

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Strategic transaction costs $ 78.3 $ 38.3 $ 61.0

$ 38.3 $ 61.0 $ 23.4

Stock-based compensation $ 29.7 $ 32.1 $ 31.5

$ 32.1 $ 31.5 $ 25.7

Depreciation and other amortization $ 117.3 $ 83.6 $ 76.7

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Insurance settlement gain $ — $ — $ (36.7)

$ — $ (36.7) $ —

Goodwill impairment charge $ 645.0 $ — $ —

Inventory step-up $ 51.7 $ 0.1 $ 12.8

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Gross profit increased $190.0 million during 2024 in comparison to 2023 due to a $179.1 million increase in Recon and a $10.9 million increase in P&R.

The Gross profit increase was attributable to increased sales from the Lima Acquisition, offset by an increase of $51.6 million in inventory fair value step-up amortization charges.

Gross profit margin decreased by 200 basis points due to the aforementioned increase in inventory fair value step-up amortization charges.

Selling, general and administrative expense increased $197.1 million during 2024 in comparison to 2023, primarily due to increased commissions driven by higher sales volume and increased selling, general and administrative costs from the Lima Acquisition.

Research and development costs also increased compared to the prior year period, primarily due to the Lima Acquisition and increased spend within recently acquired businesses in our Recon segment, which is investing in surgical productivity solutions and computer-assisted surgery technologies.

The Goodwill impairment charge of $645.0 million was due to the sustained decrease in the Company’s publicly quoted share price and market capitalization.

Critical Accounting Policies for further discussion.

Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to the Lima Acquisition.

Interest expense, net increased $37.4 million during 2024 in comparison to 2023 due to an increase in debt to finance the Lima Acquisition.

Other income, net decreased primarily due to the loss in 2024 and the gain in 2023 on the foreign currency forward contract to manage the exposure to currency exchange rate risk related to the Euro-denominated purchase price of Lima, partially offset by the gain on fair value adjustments for the Lima Acquisition Contingent Shares liability.

The effective tax rate for Loss from continuing operations before income taxes during 2024 was (0.5)%, which differed from the 2024 U.S.

federal statutory tax rate of 21%, primarily due to a build in valuation allowance on interest limitation carryforwards and non-deductible goodwill impairment charges.

This was offset by tax credits for research and development, the non-taxable gain on shares related to the contingent acquisition liability and non-U.S.

income taxed at lower rates.

The effective tax rate for Loss from continuing operations before income taxes during 2023 was 19.8%, which differed from the 2023 U.S.

federal statutory tax rate of 21% mainly due to a build in valuation allowance on interest limitation carryforwards, non-deductible expenses and U.S.

taxation on international operations.

This was offset by a release of uncertain tax positions, tax credits for research and development and non-U.S.

income taxed at lower rates.

Net loss from continuing operations increased $773.6 million during 2024 in comparison to 2023, primarily due to a Goodwill impairment charge of $645.0 million, a $65.2 million increase in strategic transactions costs from Lima integration activities, a $37.4 million increase in interest expense, net, a $32.0 million increase in amortization of acquired intangibles, and an increase in depreciation and inventory step-up charges, partially offset by an increase in Gross Profit from the Lima Acquisition.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the Lima Acquisition.

2023 Compared to 2022

Gross profit increased $121.4 million during 2023 in comparison to 2022 due to an $82.1 million increase in Recon and a $39.3 million increase in P&R.

The Gross profit increase was attributable to increased sales in our existing businesses from volume and inflation-related pricing increases, improved operating cost leverage, and the benefit of a decrease of $12.7 million in inventory fair value step-up amortization charges, partially offset by unfavorable foreign currency translation and inflation in supply chain, logistics, and other costs.

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Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to business acquisitions.

Interest expense, net decreased $4.4 million during 2023 in comparison to 2022 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 extinguishment of the outstanding balance of the Enovis Term Loan, and interest savings from $7.3 million interest received on the Swiss Franc cross-currency swap agreements.

Other income, net increased primarily due to the gain on the foreign currency forward contract to manage the exposure to currency exchange rate risk related to the Euro-denominated purchase price of Lima.

The effective tax rate for Net loss from continuing operations during 2023 was 19.8%, which differed from the 2023 U.S.

Interest expense, net decreased by $4.4 million, primarily 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 extinguishment of the outstanding balance of our previous term loan in conjunction with the ESAB investment sale, and interest savings from $7.3 million interest received on the Swiss Franc cross-currency swap agreements.

The effective tax rate for Loss from continuing operations before income taxes during 2023 was 19.8%, which was different than the 2023 U.S.

federal statutory tax rate of 21% primarily due to a build in valuation allowance on interest limitation carryforwards, non-deductible expenses and U.S.

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income taxed at lower rates.

The effective tax rate for Net income from continuing operations during 2022 was (1,745.8)%, which differed from the 2022 U.S.

The effective tax rate for 2022 was (1,745.8)% on a loss from continuing operations before income taxes, which was lower than the 2022 U.S.

federal statutory tax rate of 21% mainly due to non-taxable unrealized gain on the investment in ESAB and gain on cost basis investment, offset by non-deductible costs related to the tax-free Separation.

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Adjusted EBITDA increased due to organic growth.

Adjusted EBITDA margin excluding the effects of recent acquisitions and foreign currency pressures increased by approximately 130 basis points.

EBITDA margin excluding the effects of recent acquisitions and foreign currency pressures increased by approximately 130 basis points.

Our recent acquisitions in Recon were dilutive to the net loss margin from continuing operations and to Adjusted EBITDA margin by approximately 20 basis points and are expected to be accretive to margins in future years.

2022 Compared to 2021

Gross profit increased $91.7 million during 2022 in comparison to 2021 due to an $89.5 million increase in Recon.

The Gross profit increase was attributable to contributions from recent business acquisitions and increased sales in our existing businesses, partially offset by inflation of supply chain, logistics, and other costs, unfavorable foreign currency translation effects, and higher inventory step-up charges of $2.0 million.

Gross profit margin increased due to segment performance, including pricing and other benefits, offset by inflation of supply chain, logistics, and other costs.

Selling, general and administrative expense increased $107.1 million primarily due to a $50.3 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses within Recon and a $37.6 million increase in strategic transaction costs, driven by Separation-related costs incurred in the first half of 2022.

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

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

On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained interest in ESAB, for $230.5 million of the $450.0 million in term loan outstanding under the Enovis Credit Agreement.

We recorded a gain of $102.7 million on the disposition of the investment representing the fair value in excess of cost basis.

During the year ended December 31, 2022, we recorded a net insurance settlement gain of $36.7 million which was related to the 2019 acquisition of DJO and which, along with the aforementioned gain on the disposition of the ESAB investment, significantly impacted our results.

Debt extinguishment charges of $20.4 million were recorded in the year ended December 31, 2022.

Charges of $20.1 million were recorded in the second quarter of 2022, comprised of $12.7 million in redemption premiums and $7.4 million in noncash write-offs of original issue discount and deferred financing fees in conjunction with the Separation.

Additionally, $0.3 million of noncash write-offs of deferred financing fees were recorded in conjunction with the aforementioned debt-for-equity exchange during the fourth quarter of 2022.

Debt extinguishment 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 by $5.0 million, primarily 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 2022 was (1,745.8)% on a loss from continuing operations before income taxes, which was different than the 2022 U.S.

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

tax on non-deductible costs and capital gains on current year transactions.

These were partially offset by the reduction of valuation allowances on U.S.

and German net operating losses, and interest limitation carryforwards.

The effective tax rate for 2021 was 16.0% on a loss from continuing operations before income taxes, which was lower than the 2021 U.S.

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

tax on international operations and certain non-deductible expenses.

These were offset by the net impact of reduction of valuation allowance on U.S.

federal net operating losses.

Net loss from continuing operations decreased primarily due to the gain on the ESAB common stock, as well as the insurance settlement gain and acquisition-related sales, offset by costs associated with the Separation and acquisition-related costs.

Net loss margin from continuing operations decreased by 480 basis points due to the aforementioned factors.

Adjusted EBITDA increased due to organic growth and lower operating expenses in existing businesses, partially offset by inflation of supply chain, logistics, and other costs.

Adjusted EBITDA margin excluding the effects of recent acquisitions and foreign currency pressures increased by approximately 150 basis points.

Our recent acquisitions were dilutive to the margin by approximately 70 basis points and are expected to be accretive to margins in future years.

Business Segments

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Research and development expense $ 35.7 $ 35.1 $ 33.5

Amortization of acquired intangibles $ 92.3 $ 93.6 $ 80.1

Restructuring and other charges $ 15.0 $ 10.9 $ 7.9

Goodwill impairment charge $ 315.0 $ — $ —

Operating loss (GAAP) $ (321.8) $ (24.7) $ (18.2)

Operating loss margin (2.3) % (1.8) % (1.5) %

Operating loss margin (GAAP) (29.3) % (2.3) % (1.8) %

Adjusted EBITDA (non-GAAP) $ 159.6 $ 152.5 $ 141.3

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2024 Compared to 2023

Net sales in P&R increased $49.2 million, or 4.8%, compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation.

Gross profit increased $39.3 million due to the improved sales, offset by the effect of unfavorable foreign currency and inflation of supply chain, logistics, and other costs.

Net sales in P&R increased $21.2 million, or 2.0%, compared with the prior year period, which was negatively impacted by a $11.1 million decrease from divesting a minor product line.

Comparable Sales Growth for P&R was driven by approximately 3.0% organic growth in volumes and partially offset by unfavorable foreign currency translation of 0.4%.

Gross profit increased $10.9 million and Gross profit margin remained flat despite a lower mix of higher margin products sales.

Selling, general and administrative expense decreased $10.5 million, primarily due to reduction of strategic transaction costs and EU MDR spending.

Operating loss increased due to a Goodwill impairment charge of $315.0 million and charges from divesting a minor product line, partially offset by a Selling, general and administrative expense decrease and higher gross profit.

Adjusted EBITDA and Adjusted EBITDA margin increased due to improved operating scale from lower overheads, partially offset by unfavorable foreign currency impacts in a primary manufacturing facility during the year ended December 31, 2024 compared to the prior year.

2023 Compared to 2022

Net sales in P&R increased $49.2 million, or 4.8% in the year ended December 31, 2023 compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation.

Gross profit increased $39.3 million due to the improved sales, offset by inflation of supply chain, logistics, and other costs and unfavorable foreign currency effects.

Gross profit margin increased 140 basis points due to improved sales mix and inflation-related customer pricing, partially offset by the effect of unfavorable foreign currency in a primary manufacturing facility.

Selling, general and administrative expense increased $3.8 million, which included an increase of $30.5 million, or 7%, primarily due to investment to support growth in the business, spending on MDR and other costs, largely offset by a reduction of in allocated Strategic transaction costs of $26.7 million which were higher in 2022 due to the Separation.

Selling, general and administrative expense increased $3.8 million which included an increase of $30.5 million, or 7%, primarily due to investment to support growth in the business, spending on MDR and other costs, largely offset by a reduction in allocated Strategic transaction costs of $26.7 million which were higher in 2022 due to the Separation.

Operating loss increased due to an insurance settlement gain recorded in the second quarter of 2022, an increase of $13.5 million in amortization of acquired intangibles, and the net increase in the aforementioned selling, general and administrative expenses, partially offset by the higher gross profit.

Adjusted EBITDA and Adjusted EBITDA margin increased due to improved sales mix, partially offset by unfavorable foreign currency impacts in a primary manufacturing facility during the year ended December 31, 2023 compared to the prior year.

2022 Compared to 2021

Net sales in P&R increased $1.6 million in the year ended December 31, 2022 compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation, mostly offset by $30.9 million of currency translation pressure.

Gross profit increased $2.1 million due to the improved sales, offset by inflation of supply chain, logistics, and other costs and unfavorable foreign currency effects.

Gross profit margin increased 10 basis points for the same reasons.

Selling, general and administrative expense increased primarily due to increased costs related to the Separation, offset by lower central costs.

Adjusted EBITDA and Adjusted EBITDA margin increased due to the reduction in central cost allocations, partially offset by inflation of supply chain, logistics, and other costs.

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

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Research and development expense $ 55.6 $ 40.3 $ 27.4

Amortization of acquired intangibles $ 73.2 $ 40.0 $ 46.2

Restructuring and other charges $ 12.3 $ 6.4 $ 9.4

Goodwill impairment charge $ 330.0 $ — $ —

Operating loss (GAAP) $ (454.0) $ (41.0) $ (52.9)

Operating loss margin (6.5) % (9.9) % (12.0) %

Operating loss margin (GAAP) (45.0) % (6.5) % (9.9) %

Adjusted EBITDA (non-GAAP) $ 216.9 $ 116.7 $ 94.7

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2024 Compared to 2023

Net sal es in creased in Recon by $94.9 million, or 17.7%, primarily due to higher sales volumes driven by broad market strength and market outperformance.

Gross profit increased in the year ended December 31, 2023 compared to the prior year, primarily due to increased sales in our existing businesses, improved operating cost leverage, and the benefit of a decrease of $12.7 million in inventory fair value step-up amortization charges, which also led to an increase in Gross profit margin.

Net sales increased in Recon by $379.3 million, or 60%, of which $338.1 million was attributable to the Lima and Novastep acquisitions.

Recon sales were negatively impacted by a $4.3 million decrease from the discontinuance of certain non-core product lines.

Comparable Sales Growth for Recon was driven by approximately 8.2% increase in volume and market share gains and favorable currency translation of 0.3%.

Gro ss profit increased $179.1 million in the year ended December 31, 2024 compared to the prior year period , primarily due to h igher net sales due to the Lima Acquisition, and improved operating leverage, offset by an increase of $51.6 million in inventory fair value step-up amortization charges.

The increase in inventory step-up charges led to a decrease in Gross profit margin.

Selling, general and administrative expense increased by $207.6 million over the same period primarily due to increased Strategic transactions costs associated with Lima integration activities, increased commissions driven by higher sales, a general and administrative expense increase due to the Lima Acquisition, and increases in existing business investments to support growth.

Research and development expense increased compared to the prior year period due to the Lima Acquisition and increased spending within other recently acquired businesses in our Recon segment, which are investing in surgical productivity solutions and computer-assisted surgery technologies.

Operating loss increased, primarily due to a Goodwill impairment charge of $330.0 million, a $48.9 million increase in strategic transaction costs including the deal costs for the Lima Acquisition and integration costs, and an increase in amortization of acquired intangibles and inventory fair value step-up amortization charges, offset by the aforementioned factors driving growth.

Adjusted EBITDA increased primarily due to increased gross profit from the Lima Acquisition and improved operating cost leverage.

2023 Compared to 2022

Net sales increased for Recon in the year ended December 31, 2023 compared with the prior year, by $94.9 million, or 17.7%, primarily due to higher sales volumes driven by broad market strength and market outperformance.

Gross profit increased in the year ended December 31, 2023 compared to the prior year, by $82.1 million, primarily due to increased sales in our existing businesses, improved operating cost leverage, and the benefit of a decrease of $12.7 million in inventory fair value step-up amortization charges, which also led to an increase in Gross profit margin.

Selling, general and administrative expense increased $53.6 million, including an increase of $43.1 million, or 15%, due to the growth in Recon from increased commissions driven by higher sales, investments to support growth, spending on MDR, and cost inflation, as well as a net increase in Strategic transactions costs of $3.9 million from an increase in deal and integration costs for the Lima and Novastep acquisitions offset by a decrease of Separation costs.

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The recent acquisitions of Novastep and 360 Med Care were dilutive to the margin by approximately 70 basis points but are expected to be accretive to margins in future years.

2022 Compared to 2021

Net sales increased for Recon in the year ended December 31, 2022 compared with the prior year, primarily due to acquisition-related sales growth of $93.3 million and existing business sales growth of $47.1 million.

Sales were negatively impacted in 2021, most notably the second half of the year, due to COVID-19 surges and a related deceleration in elective surgical procedure volumes.

Gross profit and gross profit margin increased primarily due to acquisition and existing business growth, partially offset by inflation of supply chain, logistics, and other costs.

Selling, general and administrative expense also increased primarily due to $50.3 million of costs from acquisitions, including integration costs for the newly-acquired businesses, as well as increased central costs, including costs associated with the Separation.

Adjusted EBITDA increased primarily due to growth in existing businesses, partially offset by inflation of supply chain, logistics, and other costs.

Without the impact of recent acquisition, Adjusted EBITDA margin increased 260 basis points compared to prior year.

Recent acquisitions were dilutive to the margin by approximately 300 basis points, but are expected to be accretive to margins in future years.

Liquidity and Capital Resources

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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 our Enovis Credit Agreement and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on our prior 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.

We used the distribution proceeds in conjunction with $450 million of borrowings on a term loan under our Credit Agreement and $52.3 million of cash on hand to repay $1.4 billion of outstanding debt and accrued interest on our prior 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 our outstanding €350.0 million principal 3.25% 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 in Note 13, “Debt” in the accompanying Notes to Consolidated Financial Statements for more detail on the new Enovis Credit Agreement.

See section Enovis Term Loan and Revolving Credit Facility in Note 13, “Debt” in the accompanying Notes to Consolidated Financial Statements for more detail on the new Credit Agreement.

In the second quarter of 2023, we 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.

On November 18, 2022, we divested the retained ESAB shares to a lender under the Enovis Credit Agreement in a tax-efficient exchange for extinguishing $230.5 million of our outstanding term loan under the Enovis Credit Agreement.

On November 18, 2022, we divested the retained ESAB shares to a lender under the Credit Agreement in a tax-efficient exchange for extinguishing $230.5 million of our outstanding term loan under the Credit Agreement.

Equity Capital

In connection with the Separation, we effected a one-for-three reverse stock split of all issued and outstanding shares of Enovis common stock.

As a result of the reverse stock split, all share and per share figures, as applicable, contained in the accompanying Consolidated Financial Statements and Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations have been retroactively restated as if the reverse stock split occurred at the beginning of the periods presented.

On March 19, 2021, we completed the underwritten public offering of 5.4 million shares of our common stock, as adjusted for the reverse stock 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 a certain portion of our senior notes.

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

On September 22, 2023, the Company agreed to issue 1.9 million shares of our common stock to the seller of Lima for acquisition consideration of €100 million based on the thirty-day volume weighted average price of the Company’s common stock as of the close of business on September 21, 2023.

These shares are expected to be issued within eighteen months following the closing of the Lima Acquisition, subject to certain adjustments and conditions as provided for in the Lima Acquisition purchase agreement.

In 2018, our Board of Directors authorized the repurchase of our common stock from time-to-time on the open market or in privately negotiated transactions.

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As of December 31, 2024, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million.

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

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

There is no term associated with the remaining repurchase authorization.

Enovis Term Loan and Revolving Credit Facility

On April 4, 2022, we entered into a new credit agreement (the “Enovis Credit Agreement”), consisting of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal amount of $450.0 million and an April 4, 2023 maturity date (the “Enovis Term Loan”).

On April 4, 2022, we entered into a new credit agreement (the “Credit Agreement”), consisting of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal amount of $450.0 million (the “2022 Term Loan”) which was fully extinguished during the first quarter of 2023.

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

subsidiaries of the Company guarantee the obligations under the Enovis Credit Agreement.

On November 18, 2022, the Company completed an exchange with a lender under the Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of the retained shares in ESAB following the Separation, for $230.5 million of the $450.0 million in Enovis Term Loan that was outstanding at that time under the Enovis Credit Agreement, net of cost to sell.

subsidiaries of the Company guarantee the obligations under the Credit Agreement.

The agreement was amended on October 23, 2023, in conjunction with the financing of the Lima Acquisition as further discussed below.

On November 18, 2022, the Company completed an exchange with a lender under the Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of the retained shares in ESAB following the Separation, for $230.5 million of the $450.0 million in Enovis Term Loan that was outstanding at that time under the Credit Agreement, net of cost to sell.

On March 1, 2023, the Company extinguished the remaining outstanding balance on the Enovis Term Loan with borrowings on the Revolver.

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 3.75:1.00 commencing with the fiscal quarter ending June 30, 2023, and a step-down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024, 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 Revolver.

As of December 31, 2023, the Company was in compliance with the covenants under the Enovis Credit Agreement.

On October 23, 2023 the Company entered into an amendment to the Enovis Credit Agreement (the “Amendment”).

The Amendment provided for a new term loan commitment in the aggregate amount of $400 million (the “Term Loan Facility”).

The Credit Agreement, as amended, 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

In addition, the Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum senior secured leverage ratio of not more than 3.50:1.00 for the fiscal quarter ending June 30, 2024 and thereafter, and (ii) a minimum interest coverage ratio of 3.00:1:00.

The Credit Agreement contains various events of default (including failure to comply with the covenants under the 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 Credit Agreement.

As of December 31, 2024, the Company was in compliance with the covenants under the Credit Agreement.

On October 23, 2023 the Company entered into an amendment to the Credit Agreement (the “Amendment”).

The Amendment provided for a new term loan commitment in the aggregate amount of $400 million.

The Term Loan Facility extended to the Company under the Amendment was funded on January 3, 2024, the date the Lima Acquisition was consummated.

The Term Loan Facility requires quarterly principal repayments at 1.25% of the initial aggregate principal amount and ultimately matures on April 4, 2027.

Pursuant to the Amendment, effective as of January 3, 2024, the date of consummation of the Lima Acquisition, (i) all facilities under the Enovis Credit Agreement (including the Term Loan Facility) became secured by certain personal property of the Company and certain of its subsidiaries, subject to limitations and exclusions;

(ii) the financial covenant under the Enovis Credit Agreement was be adjusted from total leverage ratio to senior secured leverage ratio and requires the senior secured leverage ratio to be no more than 3.75:1.00 with a step down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024;

The Term Loan Facility requires quarterly principal repayments, which is $5 million each quarter, and matures on April 4, 2027 (the “2024 Term Loan”).

Pursuant to the Amendment, effective as of January 3, 2024, the date of consummation of the Lima Acquisition, (i) all facilities under the Credit Agreement (including the Term Loan Facility) became secured by certain personal property of the Company and certain of its subsidiaries, subject to limitations and exclusions;

(ii) the financial covenant under the Credit Agreement was adjusted from total leverage ratio to senior secured leverage ratio and requires the senior secured leverage ratio to be no more than 3.75:1.00 with a step down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024;

(iii) certain changes to the negative covenants became effective (including restrictions on repayments of junior financing and amendments to junior financing documents);

and (iv) certain additional changes were implemented (including the removal of the guaranty fallaway provision).

As of December 31, 2023, the weighted-average interest rate of borrowings under the Enovis Credit Agreement was 6.58%, excluding accretion of original issue discount and deferred financing fees, and there was $880.0 million available on the Revolver.

Euro Senior Notes

In 2017, we issued senior unsecured notes with an aggregate principal amount of €350.0 million due in May 2025, with an interest rate of 3.25%.

The Euro Senior Notes were redeemed on April 7, 2022 at 100.813% of the principal amount after the completion of the Separation.

Tangible Equity Unit (“TEU”) Amortizing Notes

In 2019, we issued 5.75% TEU amortizing notes due in January 2022 at an initial principal amount of $15.6099 per note with equal quarterly cash installments of $1.4375 per note representing a payment of interest and partial payment of principal.

The Company paid $6.5 million and $25.0 million of principal on the TEU amortizing notes in the years ended December 31, 2022 and 2021, respectively.

The final installment payment was made on January 15, 2022.

Additionally, in the first quarter of

2022, all of the remaining related TEU prepaid stock purchase contracts were converted to shares of common stock.

See Note 14, “Equity” for further information.

2024 Notes and 2026 Notes

The Company had senior notes with a remaining 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 at 103.188% of the principal amount after the completion of the Separation.

On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all of its $600.0 million 6.0% senior notes due February 14, 2024 (the “2024 Notes”) and $100 million of the outstanding principal of its 2026 Notes for $724.4 million.

The 2024 Notes were redeemed at a redemption price of 103.000% of their principal amount and the 2026 Notes were redeemed at a redemption price of 106.375% of their principal amount, plus, in each case, accrued and unpaid interest through the date of redemption.

In the second quarter of 2021, a net loss on the early extinguishment of debt of $29.9 million was recorded and included $24.4 million of call premium on the retired debt.

As of December 31, 2024, the weighted-average interest rate of borrowings under the Credit Agreement was 6.22%, excluding accretion of original issue discount and deferred financing fees, and there was $397.0 million available on the Revolver.

Convertible Notes and Capped Calls

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

Total letters of credit of $11.5 million were outstanding as of December 31, 2023.

Total letters of credit and surety bonds of $36.5 million were outstanding as of December 31, 2024.

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

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Payments for acquisitions, net of cash received, and investments (769.9) (152.8) (73.7)

Payment for settlement of derivative (4.8) — —

Net cash used in investing activities (955.5) (242.5) (176.4)

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Proceeds from issuance of common stock, net 1.9 1.8 5.8

Payment of capped call transactions (62.0) — —

Payment of debt extinguishment costs — — (12.7)

Payment of capped call transactions — (62.0) —

Other financing (14.3) (29.2) — (10.4)

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Increase (decrease) in Cash and cash equivalents and restricted cash $ 3.3 $ 20.5 $ (695.1)

Cash (used in) provided by operating activities related to discontinued operations for the years ended December 31, 2023, 2022 and 2021 was $(2) million, $(27) million, and $224 million, respectively.

Cash used in operating activities of discontinued operations for the years ended December 31, 2024, 2023 and 2022 was $0.1 million, $2.0 million, and $27.0 million, respectively.

The 2023 activity includes maintenance and legal costs associated with the sale of a facility related to our discontinued operations.and the 2022 activity relates to fabrication technology business of ESAB Corporate prior to the Separation.

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, interest, income taxes and strategic transaction costs.

Changes in significant operating cash flow items are discussed below.

• Operating cash flows (used in) provided by continuing operations working capital was $(47.7) million, $(116.0) million, and $8.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The uses in 2023 and 2022 are primarily due to business growth and increases in inventory to insulate for supply chain volatility.

• Operating cash flows used in continuing operations working capital was $73.7 million, $47.7 million, and $116.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The working capital used in 2024 is primarily associated with international business growth in Recon following the Lima Acquisition.

The working capital uses in 2023 and 2022 are primarily due to business growth and increases in inventory to insulate for supply chain volatility.

• Cash paid for strategic transaction costs in our continuing operations were $78.3 million, $38.3 million and $61.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

These costs were related to the Separation, business development and integration costs of recent acquisitions.

These costs were primarily related to the acquisition and integration of Lima in 2024 and the Separation in 2022, as well as other business development initiatives and integration costs of recent acquisitions.

• Cash paid for interest was $51.8 million, $16.3 million and $37.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The decreases are primarily a result of the change in our capital structure due to the Separation.

At the time of the Separation, the Company’s total debt of $2.1 billion was repaid and replaced with a $450.0 million term loan that was further reduced by $230.5 million in November 2022 with the exchange of ESAB shares.

The increase in 2024 is primary due to the financing for the Lima Acquisition which closed on January 3, 2024.

The decrease in 2023 is primarily a result of the change in our capital structure due to the Separation.

At the time of the Separation, the Company’s total debt of $2.1 billion was repaid and replaced with a $450.0 million term loan that was reduced by $230.5 million in November 2023 in a partial extinguishment through an exchange of ESAB shares.

• During 2024, 2023, and 2022 cash payments of $21.2 million, $16.2 million and $18.5 million, respectively, were made related to our restructuring initiatives.

• Cash paid for MDR and other costs were $38.0 million, $27.4 million, and $16.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

• 2023 includes a favorable change in accrued compensation and benefits of approximately $20.0 million.

• 2021 includes a one-time cash inflow from a $36.0 million U.S.

federal tax refund received in the first quarter of 2021.

Cash flows used in investing activities for 2024, 2023 and 2022 include $769.9 million, $152.8 million, and $73.7 million, respectively, for acquisitions and investments.

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The $32.6 million proceeds from sale of property, plant and equipment in 2023 is from the sale of a facility related to our discontinued operations.

Cash flows provided by financing activities in 2023 include net debt borrowings of $217.2 million, partially offset by amounts paid for the capped call transactions of $62.0 million and debt issuance costs of $25.7 million.

Cash flows used in financing activities in 2022 includes $1.6 billion net repayment of borrowings, which included the outstanding debt on our prior credit facility, 2026 Notes and Euro Senior Notes, partially offset by borrowings on a term loan under our 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 in 2021 include $745.2 million in proceeds from the issuance of common stock, partially offset by net debt repayments of $126.0 million.

Cash flows provided by financing activities in 2024 include net debt borrowings of $859.2 million, partially offset by amounts paid for common stock repurchases of $4.8 million and amounts paid for deferred consideration of $8.8 million.

Cash flows used in financing activities in 2023 include net debt borrowings of $217.2 million, partially offset by amounts paid for the capped call transactions of $62.0 million and debt issuance costs of $25.7 million .

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

Our Cash and cash equivalents as of December 31, 2024 include $33.1 million held in jurisdictions outside the U.S.

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Contractual Obligations

As of December 31, 2023, the Company’s Revolver and senior unsecured convertible notes (the “2028 Notes”) had principal amounts outstanding of $20.0 million and $460.0 million, respectively.

As of December 31, 2024, our Revolver, Term Loan, and senior unsecured convertible notes (the “2028 Notes”) had principal amounts outstanding of $503.1 million, $377 million, and $449 million, respectively.

There are no required principal payments due on the Revolver within 12 months and it matures on April 4, 2027.

Our Term Loan requires quarterly principal repayments of $5 million and matures on April 4, 2027.

The 2028 Notes have an interest rate of 3.875%, payable semi annually in arrears on April 15 and October 15 of each year, beginning April 15, 2024, and will mature on October 15, 2028 unless earlier repurchased, redeemed, or converted.

Interest Payments on Debt

Based on December 31, 2023 outstanding balances we estimate future interest payments associated with the senior unsecured convertible notes and Revolver of $83.5 million and $4.9 million, respectively, with $18.1 million and $1.2 million payable within 12 months.

Variable interest payments are estimated using a static rate of 3.875% for the senior unsecured convertible notes and 5.68% for the Revolver, respectively.

Based on December 31, 2024 outstanding balances we estimate future interest payments associated with our Revolver, Term Loan, and senior unsecured convertible notes of $136.0 million, $51.3 million, and $59.5 million, respectively, with $31.6 million, $23.5 million.

and $18.1 million payable within 12 months.

Variable interest payments are estimated using a static rate of 6.22% for the Revolver, 6.22% for the Term Loan, and 3.875% for the senior unsecured convertible notes.

Operating Leases

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Purchase Obligations

As of December 31, 2023, the Company had other purchase obligations of $145.9 million, with $135.3 million payable within 12 months.

As of December 31, 2024, the Company had other purchase obligations of $130.6 million, all of which was payable within 12 months.

Purchase obligations herein exclude open purchase orders for goods or services that are provided on demand as the timing of which is not certain.

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In connection with our acquisition of Novastep during the year ended December 31, 2023, we recognized Goodwill of approximately $44 million and identifiable intangible assets of approximately $52 million.

In connection with our acquisitions of 360 Med Care and Insight during the year ended December 31, 2022, we recognized aggregate Goodwill of approximately $53 million and identifiable intangible assets of approximately $57 million.

In connection with our acquisition of Lima during the year ended December 31, 2024, we recognized Goodwill of approximately $320.4 million and identifiable intangible assets of approximately $363.0 million.

Refer to Notes 2, 5 and 9 to the Consolidated Financial Statements for a description of the Company’s policies relating to Goodwill and Intangible Assets.

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Significant estimates in the market approach model include identifying appropriate market multiples and assessing earnings before interest, income taxes, depreciation and amortization.

Due to overall market declines as a result of the COVID-19 pandemic, management decided to forgo the qualitative assessment and performed quantitative Goodwill impairment tests for the years ended December 31, 2022 and 2023, which resulted in no impairment.

Upon the Separation in April 2022, Goodwill was allocated on a relative fair value basis between the Company’s new reporting units Reconstructive and Prevention & Recovery.

For the year ended December 31, 2023, management performed a quantitative assessment of Goodwill for the Reconstructive and Prevention & Recovery reporting units, both of which indicated no impairment existed.

The carrying amount of Goodwill of the Prevention & Recovery and Reconstructive reporting units for the year ended December 31, 2023 was $1.1 billion and $1.0 billion, respectively.

We determined the fair value of the reporting units by equally weighting a discounted cash flow approach and market valuation approach, and the reporting unit’s fair value exceeded its carrying amount by approximately 4% and 8%, respectively.

For the year ended December 31, 2024, the Company identified an impairment indicator associated with a sustained decrease in the Company’s publicly quoted share price and market capitalization, relative to the carrying value of our reporting units.

Accordingly the Company performed a quantitative assessment of Goodwill as part of our annual goodwill impairment testing on the first day of the fourth quarter of 2024.

We determined the fair values of the reporting units by equally weighting a discounted cash flow approach and market valuation approach.

Determining the fair value of a reporting unit requires the application of judgment and involves the use of significant estimates and assumptions which can be affected by changes in business climate, economic conditions, the competitive environment and other factors.

We base these fair value estimates on assumptions our management believes to be reasonable but which are unpredictable and inherently uncertain.

Future changes in the judgment, assumptions and estimates could result in significantly different estimates of fair value in the future.

An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

For sensitivity analysis, we estimated the fair value of the Prevention & Recovery and Reconstructive reporting units if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 130 and 150 basis points, respectively.

A sustained decline in our end-markets and geographic markets could increase the risk of impairments in future years.

Based upon the results of the quantitative impairment test, the Company determined the carrying values of each of the Reconstructive and Prevention & Recovery reporting units exceeded their fair values as of the date of our annual impairment test.

In order to align each reporting unit’s fair value model with the Company’s overall market capitalization, the Company reduced long-term cash flow projections and reduced market multiples to the low end of acceptable ranges.

As a result, the Company recognized a non-cash goodwill impairment charge of $645 million ($330 million for the Reconstructive reporting unit and $315 million for the Prevention & Recovery reporting unit).

A further sustained decline in our share price and market capitalization, future cash flows, end-markets and/or geographic markets could result in additional impairment charges that could materially affect our financial statements in any given year.

Actual results could differ from our estimates and projections, which would also affect the assessment of impairment.

As of December 31, 2023, we have Goodwill of $2.1 billion that is subject to at least annual review for impairment.

As of December 31, 2024, after recognition of the $645 million impairment charge, we have Goodwill of $1.7 billion ($925 million for the Reconstructive reporting unit and $768 million for the Prevention and Recovery reporting unit) that is subject to at least annual review for impairment.

See Note 9 “Goodwill and Intangible Assets” in the accompanying Notes to Consolidated Financial Statements for further information.

For the years ended December 31, 2023 and 2022, the Company performed a quantitative assessment of Goodwill for each of the Reconstructive and Prevention & Recovery reporting units as part of our annual impairment testing on the first day of the fourth quarter, both of which indicated no impairment existed.

We account for income taxes under the asset and liability method, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.

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To the extent we prevail in matters for which liabilities for unrecognized tax benefits have been established or are required to pay amounts in excess of our liabilities for unrecognized tax benefits, our effective income tax rate in a given period could be materially affected.

We recognize interest and penalties related to unrecognized tax benefits in the Consolidated Statements of Operations as part of Income tax benefit.

We recognize interest and penalties related to unrecognized tax benefits in the Consolidated Statements of Operations as part of Income tax expense.

Net liabilities for unrecognized income tax benefits, including accrued interest and penalties, were $33.4 million as of December 31, 2024 and are included in Other liabilities or as a reduction to deferred tax assets in the accompanying Consolidated Balance Sheet.

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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-K

Item 7. Management’s Discussion and Analysis