What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-09 · 174 added, 134 removed, 329 unchanged (48% of the section changed)

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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.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2022 (this “Form 10-Q”) and the Consolidated and Combined Financial Statements and related footnotes included in the Company’s Information Statement filed with the Company’s Registration Statement on Form 10-12B/A filed with the SEC on March 17, 2022 (the “Form 10”).

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 (this “Form 10-Q”) and the Consolidated and Combined Financial Statements and related footnotes included in the Company’s Information Statement filed with the Company’s Registration Statement on Form 10-12B/A filed with the SEC on March 17, 2022 (the “Form 10”).

You should review the discussion titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements.

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• 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;

• 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;

• risks related to the impact of the COVID-19 global pandemic, including the rise, prevalence and severity of variants of the virus, actions by governments, businesses and individuals in response to the situation, such as the scope and duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in

response, 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;

duration of the outbreak, the nature and effectiveness of government actions and restrictive measures implemented in response, 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, due to economic disruptions from the COVID-19 pandemic and various geopolitical events;

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Separation from Enovis

On April 4, 2022 (the “Distribution Date”), Colfax Corporation (“Colfax” or the “Former Parent”) completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities as discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying notes to Consolidated and Combined Condensed Financial Statements (“Notes”) contained elsewhere in this Form 10-Q.

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.

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Enovis is expected to divest the 10% retained shares in ESAB within 12 months after the Distribution Date.

In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into a separation and distribution agreement as well as various other related agreements that govern the Separation and the relationships between the parties going forward, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, and license agreement for ESAB Business Excellence System ("EBX").

In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into the Separation Agreement as well as various other related agreements that govern the Separation and the relationships between the parties going forward, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, and license agreement for ESAB Business Excellence System ("EBX").

In conjunction with the Separation on April 4, 2022, the Company entered into a credit agreement (the “Credit Agreement”).

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Certain factors could impact the nature and amount of these separate public company costs, including the finalization of our staffing and infrastructure needs.

Following the Separation, pursuant to agreements with Enovis, Enovis will continue to provide us with some of the services related to these functions on a transitional basis in exchange for agreed‑upon fees, and we incur other costs to replace the services and resources that are not provided by Enovis.

Following the Separation, pursuant to agreements with Enovis, Enovis continues to provide us with some of the services related to these functions on a transitional basis in exchange for agreed‑upon fees, and we incur other costs to replace the services and resources that are not provided by Enovis.

Costs associated with services provided by Enovis on a transitional basis are immaterial.

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These additional costs are primarily for the following:

• additional personnel costs, including salaries, benefits and potential bonuses and/or stock‑based compensation awards for staff additions to replace support provided by Colfax that is not covered by the transition services agreement;

• additional personnel costs, including salaries, benefits and potential bonuses and/or stock‑based compensation awards for staff additions to replace support provided by the Former Parent that is not covered by the transition services agreement;

• corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange listing fees.

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Following the Separation, the Consolidated and Combined Condensed Financial Statements include the accounts of ESAB and its wholly-owned subsidiaries and no longer include any allocations of expenses from Enovis.

• The Consolidated Balance Sheet as of July 1, 2022, consists of our consolidated balances, while the Combined Condensed Balance Sheet as of December 31, 2021, consists of the combined balances of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Operations and Statement of Comprehensive Income for the six months ended July 1, 2022 consists of our consolidated results for the three months ended July 1, 2022 and the combined results of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q, for the three months ended April 1, 2022.

The Combined Condensed Statement of Operations and Statement of Comprehensive Income for the six months ended July 2, 2021, consist of the combined results of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Changes in Equity for the six months ended July 1, 2022 consists of the consolidated activities of ESAB for the three months ended July 1, 2022 and our combined activity and the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained

elsewhere in this Form 10-Q, for the three months ended April 1, 2022.

The Combined Condensed Statements of Changes in Equity for the three and six months ended July 2, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Cash Flows for the six months ended July 1, 2022 consists of our consolidated activities for the three months ended July 1, 2022 and the combined activity of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1 for the three months ended April 1, 2022.

The Combined Condensed Statement of Cash Flows for the three and six months ended July 2, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

• The Consolidated Balance Sheet as of September 30, 2022, consists of our consolidated balances, while the Combined Condensed Balance Sheet as of December 31, 2021, consists of the combined balances of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Operations and Statement of Comprehensive Income for the nine months ended September 30, 2022 consist of our consolidated results for the six months ended September 30, 2022 and the combined results of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q, for the three months ended April 1, 2022.

The Combined Condensed Statement of Operations and Statement of Comprehensive Income for the nine months ended October 1, 2021, consist of the combined results of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Changes in Equity for the nine months ended September 30, 2022 consists of the consolidated activities of ESAB for the six months ended September 30, 2022 and our combined activity and the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation

from Enovis” section within Note 1, “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q, for the three months ended April 1, 2022.

The Combined Condensed Statements of Changes in Equity for the three and nine months ended October 1, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Condensed Statement of Cash Flows for the nine months ended September 30, 2022 consists of our consolidated activities for the six months ended September 30, 2022 and the combined activity of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1 for the three months ended April 1, 2022.

The Combined Condensed Statement of Cash Flows for the nine months ended October 1, 2021 consist of the combined activity of the former Fabrication Technology business of Enovis.

Our Consolidated and Combined Condensed Financial Statements may not be indicative of our results had we been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what our financial position, results of operations and cash flows may be in the future.

Prior to the Separation, we were dependent on Enovis for all of our working capital and financing requirements under Enovis’s centralized approach to cash management and financing of its operations.

With the exception of cash, cash equivalents and borrowings clearly associated with ESAB and related to the Separation, financing transactions relating to us during the period prior to the separation were accounted for through our Net Former Parent investment account.

With the exception of cash, cash equivalents and borrowings clearly associated with ESAB and related to the Separation, financing transactions relating to us during the period prior to the Separation were accounted for through our Former Parent’s investment account.

Accordingly, none of Enovis’s cash, cash equivalents or debt at the corporate level has been assigned to us in these financial statements.

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“Business” in our Form 10, for a discussion of ESAB’s objectives and methodologies for deliver ing stockholder va lue.

ESAB is a world leader in fabrication and specialty gas control technology, providing our partners with advanced equipment, consumables, specialty gas control, robotics, and digital solutions, which enable the everyday and extraordinary work that shapes our world.

ESAB is a world leader in fabrication and gas control technology, providing our partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions, which enable the everyday and extraordinary work that shapes our world.

The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

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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.

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.

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.

Our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures.

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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.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and six months ended July 1, 2022 and July 2, 2021.

The recent acquisition of Ohio Medical, LLC, on October 14, 2022, is aligned with this strategic direction.

Refer to Note 16, “Subsequent Events” 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 and nine months ended September 30, 2022 and October 1, 2021.

Results of Operations

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Items Affecting Comparability of Reported Results

The comparability of our operating results for the three and six months ended July 1, 2022 , and July 2, 2021 is affected by the following additional significant items:

The comparability of our operating results for the three and nine months ended September 30, 2022 , and October 1, 2021 is affected by the following additional significant items:

The COVID-19 Pandemic

In December 2019, a novel coronavirus disease was first reported in China.

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

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

In an effort to protect the health and safety of our employees, we have taken actions to adopt social distancing policies at our locations around the world, including working from home, reducing the number of people in our sites at any one time, and suspending or restricting employee travel.

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

While increased access to vaccinations has contributed to slowing the spread of COVID-19 in certain jurisdictions, allowing a return to more normal activity and operational levels during the first half of 2021, the emergence and subsequent spread of COVID-19 variants slowed the pace of recovery during the second half of 2021 through the first half of 2022.

While conditions related to the pandemic generally have improved in 2022 compared to 2021, conditions vary significantly by geography.

The Company continues to actively monitor the COVID-19 pandemic, including the rise, prevalence and severity of variants of the virus, the related government regulations, 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 2021 and 2022, including sales levels, and together with other market dynamics has contributed to inflation and widespread supply chain challenges, including labor, raw material, and component shortages.

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

We are taking actions in an effort to mitigate impacts to our supply chain;

however, we expect these pressures to continue.

We continue to monitor the evolving situation and guidance from international and U.S.

authorities, including national and local public health authorities, and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control that require us to further adjust our operations.

Given the continued dynamic nature of this situation, including the rise, prevalence and severity of variants of the virus, we cannot reasonably estimate the full impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

For additional information on the risks of COVID-19 to the Company’s operations, refer to the “Part I.

Risk Factors” section of the Company’s Form 10.

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 for additional information.

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.

Risk Factors” section of the Company’s Form 10 for additional information.

Foreign Currency Fluctuations

A significant portion of our Net sales, 77.4% and 77.6% for the three and six months ended July 1, 2022, respectively, are outside the United States, with the majority of those sales denominated in currencies other than the U.S.

A significant portion of our Net sales, 77.5% and 77.6% for the three and nine months ended September 30, 2022, respectively, are outside the United States, with the majority of those sales denominated in currencies other than the U.S.

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

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

For the three months ended July 1, 2022 compared to the three months ended July 2, 2021 , fluctuations in foreign currencies had an unfavorable impact on the change in Net sales of 3.7%, negatively affected Gross profit by 4.3% and favorably affected Selling, general and administrative expenses by 4.9%.

For the six months ended July 1, 2022 compared to the six months ended July 2, 2021 , fluctuations in foreign currencies had an unfavorable impact on the change in Net sales of 3.7%, negatively affected Gross profit by 4.2% and favorably affected Selling, general and administrative expenses by 4.4%.

For the three months ended September 30, 2022 compared to the three months ended October 1, 2021, fluctuations in foreign currencies had reduced Net sales by 4.9%, Gross profit by 5.3% and Selling, general and administrative expenses by 6.7%.

For the nine months ended September 30, 2022 compared to the nine months ended October 1, 2021, fluctuations in foreign currencies had reduced Net sales by 4.1%, Gross profit by 4.6% and Selling, general and administrative expenses by 5.2%.

Our European operations typically experience a slowdown during the July, August and December vacation seasons.

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Non-GAAP Measures

Adjusted EBITA and Adjusted EBITDA

Adjusted EBITA and Adjusted EBITDA are non-GAAP performance measures that we include in this report because they are key metrics used by our management to assess our operating performance.

Adjusted EBITA excludes from Net income from continuing operations the effect of Restructuring and other related charges, acquisition-related intangible asset amortization, pension settlement gain, separation costs, Income tax expense and Interest expense (income) and other, net.

ESAB presents some of these non-GAAP financial measures 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 includes Russia for the three months ended April 1, 2022, and April 2, 2021, and due to the Russia and Ukraine conflict that started at the end of the first quarter, excludes Russia for the three and six months ended September 30, 2022 and October 1, 2021.

Adjusted EBITA excludes from Net income from continuing operations the effect of Restructuring and other related charges, acquisition-related intangible asset amortization, pension settlement gains, separation costs, Income tax expense and Interest expense (income) and other, net.

Adjusted EBITDA further excludes depreciation and other amortization from the Adjusted EBITA calculation.

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Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, acquisition-related intangible asset amortization and separation costs from operating income for Adjusted EBITA and further exclude depreciation and other amortization for Adjusted EBITDA.

We also present Adjusted EBITDA excluding Russia and Adjusted EBITDA margin excluding Russia which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margins, respectively, further removing the impact of Russia.

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 and six months ended September 30, 2022 and October 1, 2021, respectively.

Adjusted EBITA and 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 discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity improvements.

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GAAP financial measures.

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

Three Months Ended Six Months Ended

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

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

(Dollars in millions) (1)

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Adjusted EBITDA attributable to Russia (non-GAAP) (6)

Adjusted EBITDA excluding Russia (non-GAAP) $ 105.0 $ 92.8 $ 205.9 $ 176.5

9.5 11.2 15.0 23.1

Core adjusted EBITDA (non-GAAP) $ 95.5 $ 91.3 $ 309.8 $ 278.3

Net income margin from continuing operations (GAAP) 8.8 % 10.1 % 8.8 % 11.0 %

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Adjusted EBITDA margin (non-GAAP) 16.9 % 16.9 % 16.8 % 16.7 %

Adjusted EBITDA margin excluding Russia (non-GAAP) (6)

Core adjusted EBITDA margin (non-GAAP) (7)

16.6 % 16.2 % 16.7 % 16.2 %

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(5) Includes amortization of acquired intangibles.

(6) Net sales relating to Russia included within the EMEA & APAC segment were $29.5 million and $70.4 million for the three and six months ended July 1, 2022, respectively, and $44.0 million and $80.6 million for the three and six months ended July, 2 2021, respectively.

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

Three Months Ended July 1, 2022

Six Months Ended July 1, 2022

(6) Represents EBITDA attributable to Russia for the three and six months ended September 30, 2022 and October 1, 2021, respectively.

(7) Net sales relating to Russia were $43.3 million and $72.7 million for the three and six months ended September 30, 2022, respectively, and $44.2 million and $88.2 million for the three and six months ended October 1, 2021, respectively.

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Americas EMEA & APAC Total Americas EMEA & APAC Total

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Adjusted EBITDA attributable to Russia (non-GAAP) (3)

Adjusted EBITDA excluding Russia (non-GAAP) $ 48.6 $ 56.4 $ 105.0 $ 92.6 $ 113.3 $ 205.9

— 9.5 9.5 — 15.0 15.0

Core adjusted EBITDA (non-GAAP) $ 46.4 $ 49.2 $ 95.5 $ 138.9 $ 170.8 $ 309.8

Adjusted EBITA margin (non-GAAP) 15.4 % 15.8 % 15.6 % 15.3 % 15.7 % 15.5 %

Adjusted EBITDA margin (non-GAAP) 16.5 % 17.3 % 16.9 % 16.4 % 17.1 % 16.8 %

Adjusted EBITDA margin excluding Russia (non-GAAP) 16.7 % 16.6 % 16.6 % 16.4 % 16.8 % 16.6 %

Core adjusted EBITDA margin (non-GAAP) (4)

16.5 % 16.6 % 16.6 % 16.4 % 16.9 % 16.7 %

(1) Numbers may not sum due to rounding.

(2) Relates to the adjustment for certain items included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations.

Three Months Ended July 2, 2021

Six Months Ended July 2, 2021

(3) Represents EBITDA attributable to Russia for t he three and six months ended September 30, 2022, respectively.

(4) Net sales relating to Russia included within the EMEA & APAC segment were $43.3 million and $72.7 million for the three and six months ended September 30, 2022, respectively.

Three Months Ended October 1, 2021

Nine Months Ended October 1, 2021

Americas EMEA & APAC Total Americas EMEA & APAC Total

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Adjusted EBITDA attributable to Russia (non-GAAP) (3)

Adjusted EBITDA excluding Russia (non-GAAP) $ 38.0 $ 54.8 $ 92.8 $ 71.2 $ 105.3 $ 176.5

— 11.2 11.2 — 23.1 23.1

Core adjusted EBITDA (non-GAAP) $ 42.6 $ 48.7 $ 91.3 $ 113.8 $ 164.5 $ 278.3

Adjusted EBITA margin (non-GAAP) 14.9 % 15.6 % 15.3 % 13.9 % 16.0 % 15.1 %

Adjusted EBITDA margin (non-GAAP) 16.4 % 17.3 % 16.9 % 15.4 % 17.6 % 16.7 %

Adjusted EBITDA margin excluding Russia (non-GAAP) 15.0 % 16.5 % 15.8 % 14.8 % 16.5 % 15.8 %

Core adjusted EBITDA margin (non- GAAP) (4)

16.4 % 16.1 % 16.2 % 15.4 % 16.9 % 16.2 %

(1) Numbers may not sum due to rounding.

(2) Relates to the adjustment for certain items included within the Interest expense (income) and other, net line within the Consolidated and Combined Condensed Statements of Operations.

(3) Represents EBITDA attributable to Russia for the three and six months ended October 1, 2021, respectively.

(4) Net sales relating to Russia included within the EMEA & APAC segment were $44.2 million and $88.2 million for the three and six months ended October 1, 2021 respectively.

Total Company

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

Net sales increased for the three and nine months ended September 30, 2022 as compared with the three and nine months ended October 1, 2021.

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

Three Months Ended Six Months Ended

Three Months Ended

Nine Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three and six months ended July 2, 2021

For the three and nine months ended October 1, 2021

$ 606.0 $ 1,803.9

Components of Change:

Existing businesses (1)

Existing businesses (organic sales growth) (1)

43.8 7.2 % 199.7 11.1 %

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(29.5) (4.9) % (74.2) (4.1) %

Total sales growth 14.3 2.3 % 125.5 7.0 %

For the three and nine months ended September 30, 2022

$ 620.3 $ 1,929.4

For the three and six months ended July 1, 2022

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

(2) 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 $43.8 million and $199.7 million during the three and nine months ended September 30, 2022 , respectively, compared to the prior year period primarily due to inflation-related customer pricing increases of approximately $57 million and $221 million , respectively, partially offset by reduced sales volumes mainly due to the Russia and Ukraine conflict.

The strengthening of the U.S.

Dollar relative to other currencies caused a $29.5 million and $74.2 million unfavorable currency translation impact during the three and nine months ended September 30, 2022, respectively.

Sales excluding Russia

Sales excluding Russia (“Core Sales”) for ESAB inc reased for the three and nine months ended September 30, 2022 as compared with the three and nine months ended October 1, 2021.

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

Three Months Ended

Nine Months Ended

Core Sales (3)

Change % Core Sales (3)

(Dollars in millions)

For the three and nine months ended October 1, 2021

$ 561.8 $ 1,715.7

Components of Change:

Existing businesses (organic core sales growth) (1)

54.0 9.6 % 230.0 13.4 %

Foreign Currency translation (2)

(38.8) (6.9) % (89.0) (5.2) %

Total core sales growth 15.2 2.7 % 141.0 8.2 %

For the three and nine months ended September 30, 2022

$ 577.0 $ 1,856.7

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

(2) 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 $54.7 million and $155.9 million during the three and six months ended July 1, 2022, respectively, compared to the prior year period primarily due to inflation-related customer pricing increases of approximately $82 million and $164 million, respectively, partially offset by reduced sales volumes due to the Russia and Ukraine conflict.

(3) Represents sales excluding Russia for the three and six months ended September 30, 2022 and October 1, 2021, respectively.

Core Sales from existing businesses for ESAB increased $54.0 million and $230.0 million during the three and nine months ended September 30, 2022, respectively, compared to the prior year period primarily due to inflation-related customer pricing increases of approximately $52 million and $210 million, during the three and nine months ended September 30, 2022, respectively.

The strengthening of the U.S.

dollar relative to other currencies caused a $23.3 million and $44.7 million unfavorable currency translation impact during the three and six months ended July 1, 2022, respectively.

Dollar relative to other currencies caused a $38.8 million and $89.0 million unfavorable currency translation impact during the three and nine months ended September 30, 2022, respectively.

Operating Results

The following table summarizes our results for the comparable periods.

Three Months Ended Six Months Ended

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

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

(Dollars in millions)

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Adjusted EBITDA margin (non-GAAP) 16.9 % 16.9 % 16.8 % 16.7 %

Core adjusted EBITDA (non-GAAP) $ 95.5 $ 91.3 $ 309.8 $ 278.3

Core adjusted EBITDA margin (non-GAAP) 16.6 % 16.2 % 16.7 % 16.2 %

Items excluded from Adjusted EBITA:

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Income tax expense $ 17.8 $ 17.4 $ 63.6 $ 47.0

Pension settlement gain $ (3.3) $ — $ (3.3) $ (11.2)

Items excluded from Adjusted EBITDA:

Depreciation and other amortization $ 8.3 $ 9.8 $ 26.2 $ 29.0

Items excluded from Core adjusted EBITDA:

Adjusted EBITDA attributable to Russia (non-GAAP) $ 9.5 $ 11.2 $ 15.0 $ 23.1

(1) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating

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(3) 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.

Second Quarter of 2022 Compared to Second Quarter of 2021

Gross profit increased $9.1 million in the second quarter of 2022 compared with the prior year period.

The increase in Gross profit was primarily attributable to benefit from price increases, new product initiatives, and favorable product mix partially offset by inflation-related cost increases, reduced sales volumes due to the Russia and Ukraine conflict and unfavorable currency translation.

Third Quarter of 2022 Compared to Third Quarter of 2021

Gross profit increased $2.3 million in the third quarter of 2022 compared with the prior year period.

The increase in Gross profit was primarily attributable to benefit from price increases, new product initiatives and benefits from restructuring initiatives to reduce costs, partially offset by inflation-related cost increases, reduced sales volumes due to the Russia and Ukraine conflict and unfavorable product mix and currency translation.

Gross profit margin declined primarily due to the dilution effect caused by customer inflation-related pricing and cost increases.

Selling, general and administrative expense increased $4.2 million in the second quarter of 2022 compared to the prior year period.

This increase is primarily driven by inflation-related cost increases, increased employee compensation costs, and $3.5 million of separation costs, partially offset by currency fluctuations.

The effective tax rate of 25.7% for the quarter ended July 1, 2022 differed from the effective tax rate of 16.7% for the same period ending July 2, 2021 due to the change in discrete tax liabilities, net of any benefits, in the comparable periods.

Additionally, our mix of foreign income was higher in jurisdictions that tax at lower rates than the U.S.

federal statutory rate in the second quarter of 2021.

Net income from continuing operations decreased $20.2 million in the second quarter of 2022 compared with the prior year period due to changes discussed above as well as the increase in interest expense related to our new Term Facility and Revolving Facility, higher income tax expenses and a pension settlement gain of $11.2 million recorded in the second quarter of 2021, offset by improved Gross profit.

Net income margin from continuing operations decreased primarily due to the items discussed above and a higher tax rate and interest expense versus the prior period.

Adjusted EBITA, Adjusted EBITDA, and related margins increased primarily due to improved sales, partially offset by inflation-related pricing and cost increases.

Excluding Russia Adjusted EBITDA increased from $92.8 million to $105.0 million, and the related adjusted EBITDA margins expanded 80 basis points from 15.8% to 16.6%.

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

Gross profit increased $33.6 million in the six months ended July 1, 2022 compared with the prior year period.

Selling, general and administrative expense decrease d $2.4 million in the third quarter of 2022 compared to the prior year period.

This decrease is primarily driven by favorable currency translation partially offset by increases in employee compensation and costs related to being an independent public company.

The effective tax rate of 24.7% fo r t he quarter ended September 30, 2022 differed from the effective tax rate of 22.1% for the same period ending October 1, 2021 due to differences in non-deductible expenses.

Net income from continuing operations decreased $7.1 million in the third quarter of 2022 compared with the prior year period primarily due to the interest expense related to our new Term Facility and Revolving Facility, partially offset by a pension settlement gain of $3.3 million.

Net income margin from continuing operations decreased primarily due to the items discussed above.

Adjusted EBITA, Adjusted EBITDA and Adjusted EBITA margin increased primarily due to improved sales and lower Selling, general and administrative expenses, partially offset by inflation-related pricing and cost increases.

Adjusted EBITDA margin remained largely consistent compared to the same period in 2021.

Core adjusted EBITDA increased from $91.3 million to $95.5 million, and the related adjusted EBITDA margins e xpanded 40 basis points from 16.2% to 16.6%.

Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021

Gross profit increased $35.9 million in the nine months ended September 30, 2022 compared with the prior year period.

The increase in Gross profit was primarily attributable to benefit from price increases, new product initiatives, and favorable product mix partially offset by inflation-related cost increases and, to a lesser extent, reduced sales volumes due to the Russia and Ukraine conflict.

Gross profit margin declined primarily due to dilution effect caused by customer inflation-related pricing and cost increases, which compressed the margin.

Selling, general and administrative expense increased $15.2 million in the six months ended July 1, 2022 compared to the prior year period.

This increase is primarily driven by inflation-related cost increases, $7.1 million of Separation-related costs, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations in the first quarter of 2022 and increased costs related to being an independent public company, partially offset by currency fluctuations.

The effective tax rate of 28.2% for the six months ended July 1, 2022 differed from the effective tax rate of 17.8% for the same period ending July 2, 2021 due to the change in discrete tax liabilities, net of any benefits, in the comparable periods.

Additionally, The Company's mix of foreign income was higher in jurisdictions that tax at lower rates than the U.S.

federal statutory rate in the second quarter of 2021.

Net income from continuing operations decreased $20.3 million in the six months ended July 1, 2022 compared with the prior year period due to changes discussed above as well as the increase in interest expense related to our new Term Facility and Revolving Facility, higher income tax and a pension settlement gain of $11.2 million recorded in second quarter of 2021 offset by improved Gross profit.

Selling, general and administrative expense increased $12.8 million in the nine months ended September 30, 2022 compared to the prior year period.

This increase is primarily driven by inflation-related cost increases, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations in the first quarter of 2022 and increased costs related to being an independent public company, partially offset by currency fluctuations.

The effective tax rate of 27.2% for the nine months ended September 30, 2022 differed from the effective tax rate of 19.2% for the same period ending October 1, 2021 due to the change in discrete tax liabilities, net of any benefits, in the comparable periods and differences in the amount of non-deductible expenses.

Net income from continuing operations decreased $27.5 million in the nine months ended September 30, 2022 compared with the prior year period due to changes discussed above as well as the interest expense related to our new Term Facility and Revolving Facility, higher income tax and a pension settlement gain recorded in the second quarter of 2021 offset by improved Gross profit.

Net income margin from continuing operations decreased primarily due to the items discussed above and a change in the tax rate versus the prior period.

Adjusted EBITA, Adjusted EBITDA, and related margins increased primarily due to improved sales, partially offset by inflation-related pricing and cost increases.

Adjusted EBITA, Adjusted EBITDA, Core adjusted EBITDA and related margins increased primarily due to improved sales, partially offset by inflation-related pricing and cost increases.

Business Segments

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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, construction, infrastructure, transportation, energy, renewable energy, and medical and life sciences.

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:

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The following table summarizes selected financial data for our Americas segment:

Three Months Ended Six Months Ended

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

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

(Dollars in millions)

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Depreciation and other amortization $ 3.2 $ 3.9 $ 10.1 $ 11.1

Second Quarter of 2022 Compared to Second Quarter of 2021

Net sales in our Americas segment increased $37.5 million in the second quarter of 2022 compared with the prior year period.

Third Quarter of 2022 Compared to Third Quarter of 2021

Net sales in our Americas segment increased $21.4 million in the third quarter of 2022 compared with the prior year peri od.

Net sales from existing business increased $27.1 million primarily due to inflation-related pricing increases.

Gross profit increased due to the benefit from price increases partially offset by inflation-related cost increases.

Gross profit margin increased 90 basis points for the same reasons.

Selling, general and administrative expense increased primarily due to increased travel expenses and increased costs related to the Separation.

Gross profit margin decreased 200 basis points due to dilution effect caused by inflation-related pricing and cost increases.

Selling, general and administrative expense decreased primarily due to a favorable currency translation impact.

Adjusted EBITA, Adjusted EBITDA, and related margins improved primarily as a result of the aforementioned factors.

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

Net sales in our Americas segment increased $83.6 million in the six months ended July 1, 2022 compared with the prior year period.

Net sales from existing business increased $85.8 million prim arily due to inflation-related pricing increases and, to a lesser extent, new product initiatives.

Gross profit increased primarily due to benefit from price increases partially offset by inflation-related cost increases, while gross profit margin decreased 20 basis points due to dilution effect caused by unfavorable product mix and inflation-related pricing and cost increases.

Selling, general and administrative expense increased due to increased travel expenses and increased costs related to the Separation.

Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021

Net sales in our Americas segment increased $104.9 million in the nine months ended September 30, 2022 compared with the prior year period.

Net sales from existing business increased $112.5 million primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives.

Gross profit increased primarily due to benefit from price increases partially offset by inflation-related cost increases, while gross profit margin decreased 90 basis points due to dilution effect caused by inflation-related pricing and cost increases.

Selling, general and administrative expense increased mainly due to inflation-related cost increases.

Adjusted EBITA, Adjusted EBITDA, and related margins improved primarily due to improved sales, partially offset by inflation-related pricing and cost increases.

The following table summarizes the selected financial data for our EMEA & APAC segment:

Three Months Ended Six Months Ended

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

Three Months Ended

Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

(Dollars in millions)

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Adjusted EBITDA margin (non-GAAP) 17.3 % 17.3 % 17.1 % 17.6 %

Core adjusted EBITDA (non-GAAP) $ 49.2 $ 48.7 $ 170.8 $ 164.5

Core adjusted EBITDA margin (non-GAAP) 16.6 % 16.1 % 16.9 % 16.9 %

Items excluded from Adjusted EBITA:

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Depreciation and other amortization $ 5.1 $ 5.8 $ 16.1 $ 17.8

Second Quarter of 2022 Compared to Second Quarter of 2021

Net sales decreased for our EMEA & APAC segment by $6.1 million in the second quarter of 2022 compared with the prior year period.

Items excluded from Core adjusted EBITDA

Adjusted EBITDA attributable to Russia (non-GAAP) $ 9.5 $ 11.2 $ 15.0 $ 23.1

Third Quarter of 2022 Compared to Third Quarter of 2021

Net sales decreased for our EMEA & APAC segment by $7.1 million in the third quarter of 2022 compared with the prior year peri od.

Net sales from existing business increased $16.7 million offset by $23.8 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, new product initiatives which were offset by a decrease in sales volumes due to the Russia and Ukraine conflict.

Gross profit decreased in the second quarter of 2022 compared with the prior year period due primarily to higher energy costs and other inflation-related cost increases, reduced sales volumes, and an unfavorable currency translation impact partially offset by benefit from price increases and a favorable product mix.

Gross profit margin decreased 100 basis points for the same reasons.

Gross profit increased in the third quarter of 2022 compared with the prior year period due primarily to price increases, partially offset by higher energy costs, other inflation-related cost increases, reduced sales volumes, and an unfavorable currency translation impact.

Gross profit margin improved compared to the prior period due to price increases partially offset by the dilution effect caused by inflation-related pricing and cost increases.

Selling, general and administrative expense remained largely consistent compared to the same period in 2021.

Adjusted EBITA, Adjusted EBITDA, and related margins declined due to lower Gross profit margin.

Excluding Russia Adjusted EBITDA increased from $54.8 million to $56.4 million and the related adjusted EBITDA margins expanded 10 basis points from 16.5% to 16.6%.

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

Net sales increased for our EMEA & APAC segment by $27.6 million in the six months ended July 1, 2022 compared with the prior year period.

Adjusted EBITA and Adjusted EBITDA also remained largely consistent compared to the same period in 2021.

Core adjusted EBITDA increased from $48.7 million to $49.2 million and the related Core adjusted EBITDA margins expanded 50 basis points from 16.1% to 16.6%.

Nine months ended September 30, 2022 Compared to Nine months ended October 1, 2021

Net sales increased for our EMEA & APAC segment by $20.5 million in the nine months ended September 30, 2022 compared with the prior year period.

Net sales from existing business increased $87.2 million offset by $66.7 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, new product initiatives partially offset by reduced sales volumes due to the Russia and Ukraine conflict.

Gross profit increased in the second quarter of 2022 compared with the prior year period due primarily to a favorable product mix and benefit from price increases, partially offset by inflation-related cost increases, reduced sales volumes and an unfavorable currency translation impact.

Gross profit margin decreased 40 basis points mainly due to dilution effect from inflation related pricing and cost increases.

Selling, general and administrative expense increased over the same period primarily driven by higher sales, an increase in Separation costs, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations and employee compensation costs.

Adjusted EBITA and Adjusted EBITDA remained consistent compared to the same period in 2021 while related margins declined primarily due to lower Gross profit margin.

Gross profit increased in the third quarter of 2022 compared with the prior year period due primarily to benefit from price increases and a favorable product mix, partially offset by inflation-related cost increases, reduced sales volumes and an unfavorable currency translation impact.

Gross profit margin remained largely consistent compared to the same period in 2021.

Selling, general and administrative expense increased over the same period primarily driven by inflation related costs, increased allowances on receivables of approximately $4.0 million relating to Russian and Ukrainian operations and higher employee compensation.

Adjusted EBITA and Adjusted EBITDA remained relatively consistent compared to the same period in 2021 while related margins declined primarily due to increased Selling, general and administrative expenses.

Core adjusted EBITDA increased from $164.5 million to $170.8 million and the related Core adjusted EBITDA margins remained largely consistent compared to the same period in 2021.

Liquidity and Capital Resources

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The Company’s total borrowing capacity under the Credit Agreement remains unchanged.

As of July 1, 2022, we are in compliance with the covenants under Credit Agreement.

As of July 1, 2022, the weighted average interest rate of borrowings under the Credit Agreement was 2.39%, excluding accretion of deferred financing fees and the impact from swap agreements entered into after the completion of the second quarter.

Refer to Note 15, “Subsequent Events” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to swap agreements.

As of end of the second quarter, we had the capacity for additional indebtedness, up to $565 million available on the Revolving Facility.

As of September 30, 2022, we are in compliance with the covenants under Credit Agreement.

As of September 30, 2022, the weighted average interest rate of borrowings under the Credit Agreement was 3.82% , 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 third quarter, we had the capacity for additional indebtedness with up to $615 million available on the Revolving Facility, subject to meeting financial covenants and other requirements.

Additionally, we have the ability to incur $50 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.

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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.

As of July 1, 2022, we had $53.5 million of Cash and cash equivalents, an increase of $12.3 million from the balance as of December 31, 2021 of $41.2 million.

As of September 30, 2022, we had $60.6 million of Cash and cash equivalents, an increase of $19.4 million from the balance as of December 31, 2021 of $41.2 million.

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

Six Months Ended

July 1, 2022 July 2, 2021

Nine Months Ended

September 30, 2022 October 1, 2021

(Dollars in Millions) (1)

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Proceeds from borrowings on term credit facility 1,000.0 —

Proceeds from borrowings on revolving credit facility 265.0 —

Repayments of borrowings on revolving credit facility and other (79.6) —

Payment of deferred financing fees (5.6) —

Proceeds from borrowings on revolving credit facility and other 495.9 0.2

Repayments of borrowings on revolving credit facility (360.0) —

Payment of deferred financing fees and other (4.9) —

Payments of deferred consideration (1.5) —

Payment of dividends (3.0) —

Distributions to noncontrolling interest holders (2.0) (2.6)

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Changes in significant operating cash flow items are discussed below.

• Cash used in operating activities related to discontinued operations for the six months ended July 1, 2022 was $13.7 million, which was mainly asbestos related.

• During the six months ended July 1, 2022, we paid $12.9 million and $7.5 million for Separation costs and interest related to our term loans and revolving credit facility, respectively.

• During the six months ended July 1, 2022 and July 2, 2021, cash payments of $12.8 million and $6.8 million, respectively, were made related to our restructuring initiatives.

• Additionally, during the six months ended July 1, 2022 cash provided by operating activities decreased compared to the same period in 2021 also due to a decrease in cash provided by changes in operating assets and liabilities resulting from investment in inventories and other working capital to primarily support growth and manage supply chain challenges as result of COVID-19.

Cash flows used in investing activities during the six months ended July 1, 2022 and July 2, 2021 includes $13.7 million and $10.8 million, respectively, of cash used for the Purchases of property, plant and equipment.

Cash flows used in financing activities decreased by $92.0 million during the six months ended July 1, 2022 and July 2, 2021 primarily due to the receipt of proceeds from the issuance of our debt of $1.3 billion, of which $1.2 billion was paid to our

Former Parent in connection with the Separation.

• Cash used in operating activities related to discontinued operations for the nine months ended September 30, 2022 was $19.3 million, which was mainly asbestos-related.

• During the nine months ended September 30, 2022, we paid $13.2 million and $19.9 million for Separation costs and interest related to our term loans and revolving credit facility, respectively.

• During the nine months ended September 30, 2022 and October 1, 2021, cash payments of $17.7 million and $10.2 million, respectively, were made related to our restructuring initiatives.

• Additionally, during the nine months ended September 30, 2022 cash provided by operating activities decreased compared to the same period in 2021 also due to a decrease in cash provided by changes in operating assets and liabilities resulting from investment in inventories and other working capital to primarily support growth and manage supply chain challenges as a result of COVID-19.

Cash flows used in investing activities during the nine months ended September 30, 2022 and October 1, 2021 includes $22.0 million and $18.9 million, respectively, of cash used for the Purchases of property, plant and equipment.

Cash flows used in financing activities decreased b y $103.0 million during the nine months ended September 30, 2022 and October 1, 2021 primarily due to the receipt of proceeds from the issuance of our debt of $1.5 billion, of which $1.2 billion was

paid to our Former Parent in connection with the Separation.

Transfers from (to) Former Parent, net also significantly decreased compared to the prior period.

The remaining change was primarily due to a $360.0 million repayment on the revolving credit facility.

Our Cash and cash equivalents as of July 1, 2022 includ e $47.7 million held in jurisdictions outside the U.S.

In July 2022, the Company paid a cash dividend of $0.05 per share, or $3.0 million, to stockholders of record as of July 1, 2022.

Our Cash and cash equivalents as of September 30, 2022 includ e $49.6 million held in jurisdictions outside the U.S.

Cash repatriation of non-U.S.

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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-Q

Item 2. Management’s Discussion and Analysis