ESAB Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of ESAB Corporation (“ESAB,” the “Company,” “we,” “our,” and “us”) should be read in conjunction with the Consolidated and Combined Condensed Financial Statements and related footnotes included in Part I. Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (this “Form 10-Q”) and the Consolidated and Combined Financial Statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). You should review the discussion titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements. Our actual results could differ materially from those discussed in the forward looking statements. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q is filed with the SEC. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements regarding: the anticipated benefits of the ESAB’s separation (“the Separation”) from Enovis Corporation, formerly known as Colfax Corporation (“Enovis,” “Colfax” or “the Former Parent”); the expected financial and operating performance of, and future opportunities for, the Company following the Separation; the tax treatment of the Separation; the impact of COVID-19, including the actions by governments, businesses and individuals in response to the situation, on the global and regional economies, financial markets, and overall demand for our products; projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items; plans, strategies and objectives of our management for future operations including statements relating to potential acquisitions, compensation plans or purchase commitments; developments, performance or industry or market rankings relating to products or services; future economic conditions or performance; the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Forward-looking statements may be, but not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions. These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties and actual results or outcomes could differ materially due to numerous factors, including but not limited to the following: • our ability to operate as a stand-alone public company; • our ability to achieve the intended benefits from the Separation; • the war in Ukraine and escalating geopolitical tensions as a result of Russia’s invasion of Ukraine and the related impact on energy supplies and prices; • changes in the general economy, 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 and our ability to increase our prices to account for increased costs; 24 • the impact of COVID-19, including actions taken in response, including supply chain disruptions, the impact on creditworthiness and financial viability of customers, and other impacts on our business and ability to execute business continuity plans; • volatility in the commodity markets and certain commodity prices, including oil and steel; • our ability to identify, finance, acquire and successfully integrate attractive acquisition targets; • our exposure to unanticipated liabilities resulting from acquisitions; • significant movements in foreign currency exchange rates or inflation rates; • our ability and the ability of our customers to access required capital at a reasonable cost; • our ability to accurately estimate the cost of or realize savings from our restructuring programs; • the amount of, a nd our ability to estimate our asbestos-related liabilities; • the solvency of our insurers and the likelihood of their payment for asbestos-related costs; • material disruptions at any of our manufacturing facilities; • noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and sanctions and embargoes; • risks associated with our international operations, including risks from trade protection measures and other changes in trade relations; • risks associated with the representation of our employees by trade unions and work councils; • our exposure to product liability claims; • potential costs and liabilities associated with environmental, health and safety laws and regulations; • failure to maintain, protect and defend our intellectual property rights; • our ability to attract and retain our employees including the loss of key members of our leadership team; • restrictions in our financing arrangements that may limit our flexibility in operating our business; • impairment in the value of intangible assets; • the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans; • 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; • service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure; • risks arising from changes in technology; • the competitive environment in our industries; • changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the COVID-19 pandemic and the Coronavirus Aid, Relief, and Economic Security Act; 25 • our ability to manage and grow our business and execution of our business and growth strategies; • the level of capital investment and expenditures by our customers in our strategic markets; • our financial performance; • difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisitions; and • other risks and factors set forth under “Risk Factors” in Item 1A. “Risk Factors in Part I of the 2022 Form 10-K. See Part I “Item 1.A. “Risk Factors” in our 2022 Form 10-K and “Part II -Item 1.A Risk Factors” in this Form 10-Q for a further discussion regarding reasons that actual results and outcomes may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether because of new information, future events and developments or otherwise. Basis of Presentation Separation from Enovis On April 4, 2022, Colfax Corporation completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities through a tax-free, pro rata distribution (the “Distribution”) of 90% of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”). To effect the Separation, each Colfax stockholder of record as of close of business on March 23, 2022 received one share of ESAB common stock for every three shares of Colfax common stock held on the record date. Upon completion of the Distribution, Colfax changed its name to Enovis Corporation and continued to hold 10% of the outstanding common stock of ESAB. In November 2022, Enovis sold a total of 6.0 million shares of the Company’s common stock as part of a secondary offering. After the secondary offering, Enovis no longer owned any of the Company’s outstanding common stock. The accompanying Consolidated and Combined Condensed Financial Statements present our historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We utilized allocations and carve-out methodologies through April 4,2022 to prepare our historical financial statements. The combined financial statements for the periods prior to the Separation herein may not be indicative of subsequent performance, and they may not include the actual expenses that would have been incurred by us and may not reflect our results of operations, financial position and cash flows had we been a separate standalone company during the historical periods presented. For additional information, refer to “Basis of Presentation” in Note 1- “Organization and Basis of Presentation” in the accompanying Consolidated and Combined Condensed Financial Statements. Overview Please see Part I, Item 1. “Business” in our 2022 Form 10-K, for a discussion of ESAB’s objectives and methodologies for deliver ing stockholder va lue. General We are a world leader in connected fabrication technology and gas control sol utions. Our rich history of innovative products and workflow solutions and our business management system, ESAB Business Excellence or EBX allows us to realize our purpose of “Shaping the World We Imagine”. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. We conduct our operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific. 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 industrial end markets. 26 Integral to our operations is EBX, our business management system. EBX is our culture and includes our values, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create superior value for our customers, stockholders and associates. We believe that our management team’s access to, and experience in, the application of the EBX methodology is one of our primary competitive strengths. Outlook We believe that we are well positioned to grow our businesses organically over the long term by enhancing our product offerings and expanding our customer base. We believe our business mix is well balanced between sales in emerging and developed markets, and equipment and consumables. We intend to continue to utilize our strong global presence and worldwide network of salespeople and distributors to capitalize on growth opportunities by selling regionally-developed and/or marketed products and solutions throughout our served markets. We believe our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures. Given this balance, management does not use indices other than general economic trends and business initiatives to predict the overall outlook for the Company. Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future. We expect strategic acquisitions to contribute to our growth. We believe that the extensive experience of our leadership team in acquiring and effectively integrating acquisition targets should enable us to capitalize on future opportunities. We believe that the recent acquisition of Therapy Equipment Limited, on January 11, 2023, is aligned with this strategic direction. Refer to Note 3 “Acquisition” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information. The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three months ended March 31, 2023 and April 1, 2022. 27 Results of Operations 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, Adjusted EBITDA and Core 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 March 31, 2023 , and April 1, 2022 is affected by the following additional significant items: The COVID-19 Pandemic The Company continues to actively monitor COVID-19, and the impacts on our results and operations. 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 2022, including sales levels, and together with other market dynamics has contributed to ongoing inflation and supply chain challenges, including labor, raw material, and component shortages. For additional information on the risks of COVID-19 to the Company’s operations, refer to the “Part I. Item 1A. Risk Factors” section of the 2022 Form 10-K. Russia and Ukraine conflict The invasion of Ukraine by Russia and the sanctions imposed in response to this crisis have increased the level of economic and political uncertainty. Refer to Note 1 “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q as well as “Part I. Item 1A. Risk Factors” section of the 2022 Form 10-K for additional information. Acquisitions We complement our organic growth with 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 periods presented in this filing represents the incremental sales as a result of acquisitions. During 2022, we completed the acquisitions of Ohio Medical, LLC, a global leader in central gas systems and Swift-Cut Automation Limited, a provider of light industrial cutting systems. For additional information on these acquisitions refer to our 2022 Form 10-K. During the three months ended March 31, 2023, we completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators. For additional information on this acquisition refer to Note 3 “Acquisition” in the accompanying Notes contained elsewhere in this Form 10-Q. Foreign Currency Fluctuations A significant portion of our Net sales, 78% for the three months ended March 31, 2023, are outside the United States, with the majority of those sales denominated in currencies other than the U.S. Dollar. Because much of our manufacturing and employee costs are outside the United States, a significant portion of our costs are also denominated in currencies other than the U.S. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant. For the three months ended March 31, 2023 compared to the three months ended April 1, 2022, fluctuations in foreign currencies had reduced Net sales by 2.1%, Gross profit by 2.0% and Selling, general and administrative expenses by 2.9%. Seasonality Our European operations typically experience a slowdown during the July, August and December vacation seasons. 28 Non-GAAP Measures Adjusted EBITDA is a non-GAAP performance measure that we include in this report because it is a key metric used by our management to assess our operating performance. ESAB presents this non-GAAP financial measure including and excluding Russia due to economic and political volatility caused by the Russia and Ukraine conflict, which results in enhanced investor interest in this information. Core adjusted EBITDA is a non-GAAP financial measure that excludes Russia for the three months ended March 31, 2023 and April 1, 2022, due to the Russia Ukraine conflict. Adjusted EBITDA excludes from Net income from continuing operations the effect of Income tax expense, Interest expense (income) and other, net, Pension settlement gains, Restructuring and other related charges, separation costs, acquisition-amortization and other related charges and depreciation and other amortization. We also present Adjusted EBITDA margin, which is subject to the same adjustments as Adjusted EBITDA. Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, separation costs, acquisition-amortization and other related charges and depreciation and other amortization from operating income. We also present Core adjusted EBITDA and Core adjusted EBITDA margins, which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margins, respectively, further removing the impact of Russia for the three months ended March 31, 2023 and April 1, 2022, respectively. Adjusted EBITDA and Core adjusted EBITDA, assist management in comparing our 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 unusual events or discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity and core business. 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. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable U.S. 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 EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin by segment for the three months ended March 31, 2023 and April 1, 2022. Three Months Ended March 31, 2023 Americas EMEA & APAC Total (Dollars in millions) (1) Net income from continuing operations (GAAP) $ 34.1 Income tax expense 37.0 Interest expense (income) and other, net 19.5 Operating income (GAAP) 39.9 50.8 90.7 Adjusted to add (deduct) Restructuring and other related charges (2) 0.9 8.5 9.4 Acquisition-amortization and other related charges (3) 5.3 4.0 9.3 Depreciation and other amortization 3.3 5.3 8.6 Adjusted EBITDA (non-GAAP) $ 49.4 $ 68.6 $ 118.0 Adjusted EBITDA attributable to Russia (non-GAAP) (4) — 5.3 5.3 Core adjusted EBITDA (non-GAAP) $ 49.4 $ 63.3 $ 112.7 Adjusted EBITDA margin (non-GAAP) 17.0 % 17.5 % 17.2 % Core adjusted EBITDA margin (non-GAAP) (5) 17.0 % 17.8 % 17.4 % 29 (1) Numbers may not sum due to rounding. (2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. (4) Adjusted EBITDA relating to Russia for the three months ended March 31, 2023. (5) Net sales were $37.1 million relating to Russia for the three months ended March 31, 2023. Three months ended April, 1 2022 Americas EMEA & APAC Total (Dollars in millions) (1) Net income from continuing operations (GAAP) $ 58.4 Income tax expense 25.7 Interest expense (income) and other, net (0.5) Operating income (GAAP) 30.2 53.4 83.6 Adjusted to add (deduct): Restructuring and other related charges (2) 3.6 1.7 5.3 Separation costs (3)(4) 2.3 1.3 3.6 Acquisition-amortization and other related charges (5) 4.1 3.6 7.7 Depreciation and other amortization 3.5 5.5 9.0 Other (6) 0.3 (0.2) 0.1 Adjusted EBITDA (non-GAAP) $ 44.0 $ 65.3 $ 109.3 Adjusted EBITDA attributable to Russia (non-GAAP) (7) — 8.4 8.4 Core adjusted EBITDA (non-GAAP) $ 44.0 $ 56.9 $ 100.9 Adjusted EBITDA margin (non-GAAP) 16.2 % 17.4 % 16.9 % Core adjusted EBITDA margin (non-GAAP) (8) 16.2 % 17.0 % 16.6 % (1) Numbers may not sum due to rounding. (2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines. (3) Includes non-recurring charges and employee costs related to the planning and execution of the Separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined Condensed Statements of Operations. (4) Amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment. (5) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. (6) Relates to the adjustment for certain items included withing the Interest expense (income) and other, net line within the Consolidated and Combined Statements of Operations. (7) Adjusted EBITDA relating to Russia for the three months ended April 1, 2022 (8) Net sales were $40.9 million relating to Russia for the three months ended April 1, 2022. 30 Total Company Sales Net sales increased for th e three months ended March 31, 2023 as compared with the three months ended April 1, 2022. The following table presents the components of changes in our consolidated and combined condensed Net sales. Three Months Ended Net Sales Change % (Dollars in millions) For the three months ended April 1, 2022 $ 647.9 Components of Change: Existing businesses (organic sales growth) (1) 30.5 4.7 % Acquisitions (2) 19.3 3.0 % Foreign Currency translation (3) (13.7) (2.1) % Total sales growth 36.1 5.6 % For the three months ended March 31, 2023 $ 684.0 (1) Excludes the impact of acquisitions and foreign exchange rate fluctuations, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business. (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. Net sales from existing businesses increased $30.5 million during the three months ended March 31, 2023 , compared to the prior year period primarily due to inflation-related customer pricing increases of $38.6 million and new product initiatives, partially offset by reduced sales volumes mainly due to the Russia and Ukraine conflict. During the three months ended March 31, 2023, net sales from acquisitions were primarily attributable to Ohio Medical and Swift-Cut Limited which closed in the fourth quarter of 2022. The strengthening of the U.S. Dollar relative to other currencies caused a $13.7 million unfavorable currency translation impact during the three months ended March 31, 2023. Sales excluding Russia Sales excluding Russia (“Core Sales”) inc reased for the three months ended March 31, 2023 as compared with the three months ended April 1, 2022. The following table presents the components of changes in our consolidated and combined condensed Net sales. Three Months Ended Core Sales (4) Change % (Dollars in millions) For the three months ended April 1, 2022 $ 607.0 Components of Change: Existing businesses (core organic sales growth) (1) 43.8 7.2 % Acquisitions (2) 19.3 3.2 % Foreign Currency translation (3) (23.2) (3.8) % Total core sales growth 39.9 6.6 % For the three months ended March 31, 2023 $ 646.9 (1) Excludes the impact of acquisitions and foreign exchange rate fluctuations, thus providing a measure of change due to organic growth factors such as price, product mix and volume. (2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business. (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. (4) Represents sales excluding Russia for the three months ended March 31, 2023 and April 1, 2022, respectively. 31 Core Sales from existing businesses for ESAB increased $43.8 million during the three months ended March 31, 2023. compared to the prior year period primarily due to inflation-related customer pricing increases of $39.0 million and new product initiatives during the three months ended March 31, 2023. During the three months ended March 31, 2023, net sales from acquisitions is primarily attributed to Ohio Medical and Swift-Cut Limited which closed in the fourth quarter of 2022. The strengthening of the U.S. Dollar relative to other currencies caused a $23.2 million unfavorable currency translation impact during the three months ended March 31, 2023. 32 Operating Results The following table summarizes our results for the comparable periods. Three Months Ended March 31, 2023 April 1, 2022 (Dollars in millions) Gross profit $ 247.4 $ 224.3 Gross profit margin 36.2 % 34.6 % Selling, general and administrative expense $ 147.3 $ 135.4 Net income from continuing operations $ 34.1 $ 58.4 Net income margin from continuing operations 5.0 % 9.0 % Adjusted EBITDA (non-GAAP) $ 118.0 $ 109.3 Adjusted EBITDA margin (non-GAAP) 17.2 % 16.9 % Core adjusted EBITDA (non-GAAP) $ 112.7 $ 100.9 Core adjusted EBITDA margin (non-GAAP) 17.4 % 16.6 % Items excluded from Adjusted EBITDA: Restructuring and other related charges (1) $ 9.4 $ 5.3 Acquisition-amortization and other related charges (2) $ 9.3 $ 7.7 Separation costs (3)(4) $ — $ 3.6 Interest expense (income) and other, net (5) $ 19.5 $ (0.5) Income tax expense $ 37.0 $ 25.7 Depreciation and other amortization $ 8.6 $ 9.0 Items excluded from Core adjusted EBITDA: Adjusted EBITDA attributable to Russia (non-GAAP) (6) $ 5.3 $ 8.4 (1) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination, impairment of long-lived assets and other costs in connection with the closure of and optimization of facilities and product lines. (2) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses. (3) Includes non-recurring charges and employee costs related to the planning and execution of the separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined Condensed Statements of Operations. (4) Amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment. (5) Mainly relates to the removal of interest expense and income included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statement of Operations. (6) Adjusted EBITDA relating to Russia for the three months ended March 31, 2023 and April 1, 2022. First Quarter of 2023 Compared to First Quarter of 2022 Gross profit increased $23.1 million in the first quarter of 2023 compared with the prior year period. This increase was primarily attributable to benefits from price, acquisitions and restructuring initiatives and other savings, partially offset by inflation-related cost increases, reduced sales volumes and unfavorable product mix and currency translation. Gross profit margin increased primarily due to the benefit from price increases, restructuring initiatives and acquisitions partially offset by inflation-related cost increases. Selling, general and administrative expense increased $11.9 million in the first quarter of 2023 compared to the prior year period. This increase is primarily driven by incremental costs from acquisitions, growth initiatives and costs related to being an independent public company, partially offset by a favorable currency translation impact. The effective tax rate of 52.0% for the quarter ended March 31, 2023 differed from the effective tax rate of 30.6% for the same period ending April 1, 2022 due to the increase in discrete tax adjustments for dividend withholding taxes and an increase in unrecognized tax benefits due to an adverse court ruling in a tax case in a foreign jurisdiction in the recent period. Net income from continuing operations decreased $24.3 million in the first quarter of 2023 compared with the prior year period primarily due to the interest expense related to our new Term Facility and Revolving Facility established in connection 33 with the Separation and a higher effective tax rate in the three months ended March 31, 2023, as mentioned above. Net income margin from continuing operations decreased primarily due to the items discussed above. In the first quarter of 2023, Adjusted EBITDA increased $8.7 million and Adjusted EBITDA margin increased by 30 basis points compared to the same period in 2022 benefiting from higher Gross profit partially offset by an increase in Selling, general and administrative expenses. Cor e adjusted EBITDA increased from $100.9 million to $112.7 million , and Core adjusted EBITDA margins e xpanded 80 basis points from 16.6% to 17.4%. 34 Business Segments We formulate, develop, manufacture, and supply consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment. Our 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 equipment ranges from portable welding machines to large customized automated cutting and welding systems. ESAB also offers a range of software and digital 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, infrastructure, renewable energy, medical and life sciences, transportation, construction and energy. We report results in two reportable segments: Americas and EMEA & APAC. Americas The following table summarizes selected financial data for our Americas segment: Three Months Ended March 31, 2023 April 1, 2022 (Dollars in millions) Net sales $ 291.6 $ 272.3 Gross profit $ 105.7 $ 89.2 Gross profit margin 36.3 % 32.8 % Selling, general and administrative expense $ 64.9 $ 55.4 Adjusted EBITDA (non-GAAP) $ 49.4 $ 44.0 Adjusted EBITDA margin (non-GAAP) 17.0 % 16.2 % Items excluded from Adjusted EBITDA: Restructuring and other related charges $ 0.9 $ 3.6 Acquisition- amortization and other related charges $ 5.3 $ 4.1 Separation costs $ — $ 2.3 Depreciation and other amortization $ 3.3 $ 3.5 First Quarter of 2023 Compared to First Quarter of 2022 Net sales in our Americas segment increased $19.3 million in the first quarter of 2023 compared with the prior year period. Net sales from existing business increased $12.2 million offset by $5.9 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to inflation-related pricing increases offset by a decrease in sales volumes. Acquisitions contributed to $13.0 million of the overall sales increase, Gross profit increased due to price increases and acquisitions, partially offset by inflation-related cost increases, a decrease in sales volumes and an unfavorable currency impact. Gross profit margin increased 350 basis points primarily due to price increase; and the accretive impact of the Ohio Medical acquisition is partially offset by inflation impact. Selling, general and administrative expense increased primarily due to employee costs and growth initiative spending. Adjusted EBITDA, and related margins improved primarily as a result of the aforementioned factors. 35 EMEA & APAC The following table summarizes the selected financial data for our EMEA & APAC segment: Three Months Ended March 31, 2023 April 1, 2022 (Dollars in millions) Net sales $ 392.4 $ 375.6 Gross profit $ 141.7 $ 135.1 Gross profit margin 36.1 % 36.0 % Selling, general and administrative expense $ 82.4 $ 80.0 Adjusted EBITDA (non-GAAP) $ 68.5 $ 65.3 Adjusted EBITDA margin (non-GAAP) 17.5 % 17.4 % Core adjusted EBITDA (non-GAAP) $ 63.2 $ 56.9 Core adjusted EBITDA margin (non-GAAP) 17.8 % 17.0 % Items excluded from Adjusted EBITDA: Restructuring and other related charges $ 8.5 $ 1.7 Acquisition- amortization and other related charges $ 4.0 $ 3.6 Separation costs $ — $ 1.3 Depreciation and other amortization $ 5.3 $ 5.5 Items excluded from Core adjusted EBITDA Adjusted EBITDA attributable to Russia (non-GAAP) $ 5.3 $ 8.4 First Quarter of 2023 Compared to First Quarter of 2022 Net sales increased for our EMEA & APAC segment by $16.8 million in the first quarter of 2023 compared with the prior year period. Net sales from existing business increased $18.3 million offset by $7.8 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to inflation-related pricing increases and to a lesser extent, sales of new products, partially offset by a decline in sales to Russia. Acquisitions contributed to $6.3 million of the overall sales increase. Gross profit increased in the first quarter of 2023 compared with the prior year period primarily due to price increases, partially offset by an unfavorable product mix, other inflation-related cost increases, and an unfavorable currency translation impact. Gross profit margin remained largely consistent compared to the same period in 2022. Selling, general and administrative expense increased slightly compared to the same period in 2022. Adjusted EBITDA increased compared to the same period in 2022. Core adjusted EBITDA increased from $56.9 million to $63.2 million and the related Core adjusted EBITDA margins expanded 80 basis points from 17.0% to 17.8%. 36 Liquidity and Capital Resources Overview Prior to the completion of the Separation, we financed our working capital requirements through cash flows from operating activities and arrangements with our Former Parent. We currently expect to finance our working capital requirements through cash flows from operating activities. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows, and debt service and required amortization of principal and, pending Board approval, payment of cash dividends. In conjunction with the Separation on April 4, 2022, we drew down $1.2 billion under the Credit Agreement and used these proceeds to make payments to Enovis of $1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to us by Enovis in connection with the Separation. On June 28, 2022, we amended and restated the Credit Agreement by entering into Amendment No. 2 to Credit Agreement (“Credit Agreement Amendment”). The Credit Agreement Amendment provides for a $600 million Term Loan A-3 Facility with a maturity date of April 3, 2025 to refinance our existing Term Loan A-2 Facility (the “Term Loan A-3 Facility” and together with the Term Loan A-1 Facility, the “Term Loans”). Also on June 28, 2022, we borrowed the entire $600 million under Term Loan A-3 Facility to fund the repayment of the Term Loan A-2 Facility. The Company’s total borrowing capacity under the Credit Agreement remained unchanged. As of March 31, 2023, we were in compliance with the covenants under Credit Agreement. As of March 31, 2023, the weighted average interest rate of borrowings under the Credit Agreement was 4.93%, excluding accretion of deferred financing fees. Refer to Note 10 “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to swap agreements. As of end of the first quarter, we had the capacity for additional indebtedness of up to $531 million available on the Revolving Facility, subject to meeting financial covenants and other requirements. Additionally, we have the ability to incur $77 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we currently have in place which we have used from time to time in the past for short-term working capital needs. Refer to Note 9 “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Credit Facilities. We believe that 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. We believe that our sources of liquidity between debt and cash flows from operating activities are adequate to fund our operations for the next twelve months. 37 Cash Flows As of March 31, 2023, we had $82.1 million of Cash and cash equivalents, an increase o f $10.0 million from the balance as of December 31, 2022 of $72.0 million. The following table summarizes the change in Cash and cash equivalents during periods indicated: Three Months Ended March 31, 2023 April 1, 2022 (Dollars in Millions) (1) Net cash provided by operating activities $ 38.1 $ 16.1 Purchases of property, plant and equipment (7.7) (5.9) Proceeds from sale of property, plant and equipment 0.7 2.7 Acquisition, net of cash received (18.7) — Net cash used in investing activities (25.7) (3.2) Proceeds from borrowings on revolving credit facility and other 187.0 — Repayments of borrowings on revolving credit facility (189.8) (0.5) Payments of deferred consideration — (1.5) Payment of dividends (3.0) — Distributions to noncontrolling interest holders (1.2) (0.9) Transfers from Former Parent, net — 2.8 Net cash used in financing activities (7.0) (0.1) Effect of foreign exchange rates on Cash and cash equivalents 4.8 2.6 Increase in Cash and cash equivalents $ 10.0 $ 15.4 (1) Numbers may not sum due to rounding. 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 and restructuring program funding. Changes in significant operating cash flow items are discussed below. • Cash provided by operating activities were positively impacted by improvement in working capital partially offset by interest payments of $19.1 million for the three months ended March 31, 2023 which were related to our Term Loans and Revolving Facility. • Cash used in operating activities related to discontinued operations for the three months ended March 31, 2023 and April 1, 2022 were $5.4 million and $4.6 million, respectively which was mainly asbestos-related. • Restructuring initiatives were $4.2 million for the three months ended March 31, 2023 and $6.7 million for the three months ended April 1, 2022, which includes severance and other termination benefits including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expense, and other costs in connection with the closure and optimization of facilities and product lines. Cash flows used in investing activities include $18.7 million of cash used for the acquisition of Therapy Equipment Limited during the three months ended March 31, 2023. Cash outflows used in financing activities of $7.0 million during the three months ended March 31, 2023 was driven by repayment of borrowings on the Revolving Facility of $2.0 million, distributions to non-controlling interest holders of $1.2 million. and the payment of a cash dividend of $0.05 per share, or $3.0 million, to stockholders of record as of December 30, 2022. Cash flows used in financing activities for the three months ended April 1, 2022 primarily relates to our activity with the Former Parent. 38 Our Cash and cash equivalents as of March 31, 2023 includ e $68.5 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. Critical Accounting Policies The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the 2022 Form 10-K.