What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-05-02 · 158 added, 97 removed, 302 unchanged (46% 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 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”).

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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.

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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;

the impact of the war in Ukraine and escalating geopolitical tensions;

impact of COVID-19, including supply chain disruptions;

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;

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• 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;

• 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;

• the impact of COVID-19, including supply chain disruptions;

• volatility in the commodity markets and certain commodity prices, including oil and steel;

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• 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;

• changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the Coronavirus Aid, Relief, and Economic Security Act;

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

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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.

The combined financial statements for the periods prior to the Separation herein are not indicative of subsequent performance, and they do not include the actual expenses that would have been incurred by us and do 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.

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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.

TM 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.

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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.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and six months ended June 30, 2023 and July 1, 2022.

Results of Operations

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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 comparability of our operating results for the three and six months ended June 30, 2023 , and July 1, 2022 is affected by the following additional significant items:

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.

As reflected in the discussions that follow, the virus and actions taken in response to it had a variety of impacts on our results of operations during 2022, including sales levels, and together with other market dynamics 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.

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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.

The invasion of Ukraine by Russia and the sanctions and other actions taken by governments 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.

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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.

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 automated 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.

During the six months ended June 30, 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.

A significant portion of our Net sales, 79%, for the three and six months ended June 30, 2023 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 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%.

For the three months ended June 30, 2023 compared to the three months ended July 1, 2022, fluctuations in foreign currencies reduced Net sales by 2.0%, Gross profit by 2.3% and Selling, general and administrative expenses by 2.1%.

For the six months ended June 30, 2023 compared to the six months ended July 1, 2022, fluctuations in foreign currencies reduced Net sales by 2.0%, Gross profit by 2.2% and Selling, general and administrative expenses by 2.1%.

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

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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.

Core adjusted EBITDA is a non-GAAP financial measure that excludes Russia for the three and six months ended June 30, 2023 and July 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 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.

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 June 30, 2023 and July 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.

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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 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

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Americas EMEA & APAC Total Americas EMEA & APAC Total

(Dollars in millions) (1)

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Income tax expense 21.0 58.0

Interest expense (income) and other, net 19.5

Interest expense and other, net 18.8 38.3

Operating income (GAAP) 46.1 62.6 108.6 86.0 113.3 199.3

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Restructuring and other related charges (2)

3.0 2.2 5.2 3.9 10.7 14.6

Acquisition-amortization and other related charges (3)

5.4 3.8 9.3 10.7 7.8 18.5

Depreciation and other amortization 3.8 5.2 9.0 7.1 10.5 17.6

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Adjusted EBITDA attributable to Russia (non-GAAP) (4)

— 5.6 5.6 — 10.9 10.9

Core adjusted EBITDA (non-GAAP) $ 58.3 $ 68.2 $ 126.5 $ 107.7 $ 131.4 $ 239.1

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(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

(4) Adjusted EBITDA relating to Russia for the three and six months ended June 30, 2023.

(5) Net sales wer e $40.3 million and $77.5 million relating to Russia for the three and six months ended June 30, 2023.

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

Americas EMEA & APAC Total Americas EMEA & APAC Total

(Dollars in millions) (1)

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Income tax expense 20.0 45.8

Interest expense (income) and other, net (0.5)

Interest expense and other, net 7.9 7.4

Operating income (GAAP) 35.8 50.0 85.9 66.0 103.5 169.5

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Restructuring and other related charges (2)

3.6 1.1 4.6 7.2 2.8 10.0

Separation costs (3)(4)

1.5 1.9 3.5 3.8 3.3 7.1

Acquisition-amortization and other related charges (5)

4.2 3.4 7.6 8.3 7.0 15.3

Depreciation and other amortization 3.4 5.5 8.9 6.9 11.0 17.9

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Adjusted EBITDA attributable to Russia (non-GAAP) (7)

— 5.5 5.5 — 13.9 13.9

Core adjusted EBITDA (non-GAAP) $ 48.6 $ 56.4 $ 105.0 $ 92.6 $ 113.3 $ 205.9

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(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.

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

(7) Adjusted EBITDA relating to Russia for the three and six months ended July 1, 2022

(8) Net sales were $29.5 million and $70.4 million relating to Russia for the three and six months ended July 1, 2022.

Total Company

Net sales increased for th e three months ended March 31, 2023 as compared with the three months ended April 1, 2022.

Net sales increased for th e three and six months ended June 30, 2023 as compared with the three and six months ended July 1, 2022.

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

Three Months Ended

Net Sales Change %

Six Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three months ended April 1, 2022

For the three and six months ended July 1, 2022

$ 661.2 $ 1,309.1

Components of Change:

Existing businesses (organic sales growth) (1)

53.1 8.0 % 83.6 6.4 %

Acquisitions (2)

19.0 2.9 % 38.3 2.9 %

Foreign Currency translation (3)

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Total sales growth 59.2 9.0 % 95.3 7.3 %

For the three months ended March 31, 2023

For the three and six months ended June 30, 2023

$ 720.4 $ 1,404.4

(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.

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

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.

Net sales from existing businesses increased $53.1 million during the three months ended June 30, 2023, compared to the prior year period due to increases in sales volumes of $34.0 million and inflation-related customer pricing increases of $19.1 million.

During the three months ended June 30, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment (which was acquired in the first quarter of 2023).

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.

Dollar relative to other currencies caused a $12.9 million unfavorable currency translation impact during the three months ended June 30, 2023.

Net sales from existing businesses increased $83.6 million during the six months ended June 30, 2023, compared to the prior year period due to increase in sales volumes of $25.9 million and inflation-related customer pricing increases of $57.8 million.

During the six months ended June 30, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment (which was acquired in the first quarter of 2023).

The strengthening of the U.S.

Dollar relative to other currencies caused a $26.6 million unfavorable currency translation impact during the six months ended June 30, 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.

Sales excluding Russia (“Core Sales”) inc reased for the three and six months ended June 30, 2023 as compared with the three and six months ended July 1, 2022 .

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

Three Months Ended

Six Months Ended

Core Sales (4)

Change % Core Sales (4)

(Dollars in millions)

For the three months ended April 1, 2022

For the three and six months ended July 1, 2022

$ 631.7 $ 1,238.7

Components of Change:

Existing businesses (core organic sales growth) (1)

37.0 5.9 % 80.9 6.5 %

Acquisitions (2)

19.1 3.0 % 38.3 3.1 %

Foreign Currency translation (3)

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Total core sales growth 48.4 7.7 % 88.2 7.1 %

For the three months ended March 31, 2023

For the three and six months ended June 30, 2023

$ 680.1 $ 1,326.9

(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.

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

(4) Represents sales excluding Russia for the three months ended March 31, 2023 and April 1, 2022, respectively.

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.

(4) Net sales relating to Russia were $40.3 million and $77.5 million for the three and six months ended June 30, 2023 and $29.5 million and $70.4 million for the three and six months ended July 1, 2022.

Core Sales from existing businesses for ESAB increased $37.0 million during the three months ended June 30, 2023 as compared to the prior year period primarily due to inflation-related customer pricing increases of $19.4 million and an increase in sales volume of $17.6 million during the three months ended June 30, 2023.

During the three months ended June 30, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and the Therapy Equipment acquisition (which was acquired in the first quarter of 2023).

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.

Dollar relative to other currencies caused a $7.7 million unfavorable currency translation impact during the three months ended June 30, 2023.

Core Sales from existing businesses for ESAB increased $80.9 million during the six months ended June 30, 2023 compared to the prior year period primarily due to inflation-related customer pricing increases of $58.4 million and an increase in sales volume of $22.5 million during the six months ended June 30, 2023.

During the six months ended June 30, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and the Therapy Equipment acquisition (which was acquired in the first quarter of 2023).

The strengthening of the U.S.

Dollar relative to other currencies caused a $31.0 million unfavorable currency translation impact during the six months ended June 30, 2023.

Operating Results

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Three Months Ended

March 31, 2023 April 1, 2022

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

(Dollars in millions)

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Restructuring and other related charges (1)

$ 5.2 $ 4.6 $ 14.6 $ 10.0

Acquisition-amortization and other related charges (2)

$ 9.3 $ 7.6 $ 18.5 $ 15.3

Separation costs (3)(4)

Interest expense (income) and other, net (5)

$ — $ 3.5 $ — $ 7.1

Interest expense and other, net (5)

$ 18.8 $ 7.9 $ 38.3 $ 7.4

Income tax expense $ 21.0 $ 20.0 $ 58.0 $ 45.8

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

$ 5.6 $ 5.5 $ 10.9 $ 13.9

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

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(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.

(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.

(5) Mainly relates to the removal of interest expense and income included within the Interest expense and other, net line within the Consolidated and Combined Condensed Statement of Operations.

(6) Adjusted EBITDA relating to Russia for the three and six months ended June 30, 2023 and July 1, 2022.

Second Quarter of 2023 Compared to Second Quarter of 2022

Gross profit increased $36.4 million in the second quarter of 2023 compared with the prior year period.

This increase was primarily attributable to benefits from sales volumes, acquisitions, and price, partially offset by inflation-related cost increases and unfavorable currency translatio n.

Gross profit margin expanded 220 basis points to 36.6% primarily due to the benefit from price increases, increase in sales volumes and restructuring initiatives partially offset by inflation-related cost increases.

Selling, general and administrative expense increased $13.2 million in the second quarter of 2023 compared to the prior year period.

This increase is primarily driven by incremental costs from acquisitions and employee costs, partially offset by a favorable currency translation impact.

The effective tax rate of 23.4% for the quarter ended June 30, 2023 differed from the effective tax rate of 25.7% for the same period ending July 1, 2022 due to the net impact of permanent differences relating to foreign subsidiaries.

Net income from continuing operations increased $10.9 million in the second quarter of 2023 compared with the prior year period primarily due to increase in gross profit and to a lesser extent a lower effective tax rate in the three months ended June 30, 2023, as mentioned above, partially offset by an increase in selling, general and administrative expenses and interest expense.

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

In the second quarter of 2023, Adjusted EBITDA increased $21.6 million and Adjusted EBITDA margin increased by 160 basis points compared to the same period in 2022 benefiting from high er a Gross profit partially offset by an increase in Selling, general and administrative expenses.

Core adjusted EBITDA increased from $105.0 million to $126.5 million, and Core adjusted EBITDA margins expanded 200 basis points from 16.6% to 18.6%.

Six months ended June 30, 2023 Compared to six months ended July 1, 2022

Gross profit increased $59.5 million in the six months ended June 30, 2023 compared with the prior year period.

This increase was primarily attributable to benefits from increased sales volumes, acquisitions, price, and restructuring initiatives and other savings, partially offset by inflation-related cost increases and unfavorable 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

with the Separation and a higher effective tax rate in the three months ended March 31, 2023, as mentioned above.

Selling, general and administrative expense increased $25.0 million in the six months ended June 30, 2023 compared to the prior year period.

This increase is primarily driven by incremental costs from acquisitions, employee costs, growth initiatives and costs related to being an independent public company, partially offset by a favorable currency translation impact.

The effective tax rate of 36.0% for the six months ended June 30, 2023 differed from the effective tax rate of 28.2% for the same period ending July 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 $13.3 million in the six months ended June 30, 2023 compared with the prior year period primarily due to the interest expense related to our Term Facility and Revolving Facility established during the second quarter of 2022 in connection with the Separation and a higher effective tax rate in the six months ended June 30, 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%.

In the six months ended June 30, 2023, Adjusted EBITDA increased $30.2 million and Adjusted EBITDA margin increased by 100 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.

Core adjusted EBITDA increased from $205.9 million to $239.1 million, and Core adjusted EBITDA margins expanded 140 basis points from 16.6% to 18.0%.

Business Segments

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Three Months Ended

March 31, 2023 April 1, 2022

Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

(Dollars in millions)

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Depreciation and other amortization $ 3.8 $ 3.4 $ 7.1 $ 6.9

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.

Second Quarter of 2023 Compared to Second Quarter of 2022

Net sales in our Americas segment increased $19.2 million in the second quarter of 2023 compared with the prior year period.

Net sales from existing business increased $11.9 million partially offset by $6.5 million in unfavorable currency translation.

The increase in Net sales from existing business was mainly due to inflation-related pricing increases partially offset by a decrease in sales volumes, which was primarily a result of a product line simplification initiative .

The Ohio Medical acq uisition contributed to $13.8 million of the overall sales increase.

Gross profit increased $15.3 million due to price increases, benefits from the product line simplification initiative, and the Ohio Medical acquisition, partially offset by inflation-related cost incre ases, a decrease in sales volumes and an unfavorable currency impact.

Gross profit margin expand ed 280 basis points to 37.1%, due to price increases, benefits from a product line simplification initiative, productivity improvements, and the accretive impact of the Ohio Medical acquisition, partially offset by inflation.

Selling, general and administrative expense increased primarily due to employee costs an d the Ohio Medical acquisition.

Adj usted EBITDA, increased $9.7 million to $58.3 million and margins expanded 210 basis points to 18.8% primarily because of the aforementioned factors.

Six months ended June 30, 2023 Compared to six months ended July 1, 2022

Net sales in our Americas segment increased $38.4 million in the six months ended June 30, 2023 compared with the prior year period.

Net sales from existing business increased $24.1 million partially offset by $12.5 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.

The Ohio Medical acquisition contributed to $26.8 million of the overall sales increase.

Gross profit increased $31.9 million to $220.9 million due to price increases, benefits from a product line simplification initiative, and the

Ohio Medical acquisition, pa rtially offset by inflation-related cost increases, a decrease in sales volumes and an unfavorable currency impact.

Gross profit margin increased 310 basis points to 36.7% primarily due to price increases, benefits from a product line simplification initiative, a nd the accretive impact of the Ohio Medical acquisition partially offset by inflation.

Selling, general and administrative expense increased primarily due to employee costs and growth initiative spen ding.

Adjusted EBITDA increased $15.1 million to $107.7 million and margins expanded 150 basis points to 17.9% primarily because of the aforementioned factors.

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

Three Months Ended

March 31, 2023 April 1, 2022

Three Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

(Dollars in millions)

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Adjusted EBITDA attributable to Russia (non-GAAP) $ 5.6 $ 5.5 $ 10.9 $ 13.9

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.

Second Quarter of 2023 Compared to Second Quarter of 2022

Net sales increased for our EMEA & APAC segment by $40.0 million in the second quarter of 2023 compared with the prior year period.

Net sales from existing business increased $41.2 million offset by $6.4 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%.

The increase in Net sales from existing business was primarily due to an increase in sales volumes and to a lesser extent sales of new products, partially offset by a decrease in price.

The Swift-Cut Limited and Therapy Equipment acquisitions contributed to $5.2 million of the overall sales increase.

Gross profit increased $21.1 million in the second quarter of 2023 compared with the prior year period primarily due to an increase in sales volumes, partially offset by an unfavorable product mix, and a decreased price.

Gross profit margin expanded 180 basis points compared to the same period in 2022 due to the increase in sales above, accretive impact of acquisitions, and benefits from initiatives to lower costs.

Selling, general and administrative expense increased compared to the same period in 2022 due to higher employee costs and spending to support growth initiatives.

Core adjusted EBITDA increased from $56.4 million to $68.2 million and the related Core adjusted EBITDA margins expanded 180 basis points from 16.6% to 18.4% primarily because of the aforementioned factors.

Six months ended June 30, 2023 Compared to six months ended July 1, 2022

Net sales increased for our EMEA & APAC segment by $56.9 million in the six months ended June 30, 2023 compared with the prior year period.

Net sales from existing business in creased $59.5 million offset by $14.1 million in unfavorable currency translation.

The increase in Net sales from existing business was primarily due to an increase in sales volumes and inflation-related pricing increases.

The Swift-Cut Limited and Therapy Equipment acquisitions contributed to $11.5 million of the overall sales increase.

Gross profit increased $27.7 million in the six months ended June 30, 2023 compared with the prior year period primarily due to price increases and increased sales volumes, partially offset by inflation-related cost increases, and an unfavorable currency translation impact.

Gross profit margin expanded 100 basis points compared to the same period in 2022, due to the increase in sales above and benefits from initiatives to lower costs.

Selling, general and administrative expense increased compared to the same period in 2022 due to acquisitions and inflation partially offset by cost saving initiatives.

C ore adjusted EBITDA increased from $113.3 million to $131.4 million and the related Core adjusted EBITDA margins expanded 130 basis points from 16.8% to 18.1%.

Liquidity and Capital Resources

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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.

As of June 30, 2023, we were in compliance with the covenants under the Credit Agreement.

As of June 30, 2023, the weighted average interest rate of borrowings under the Credit Agreement wa s 5.27%, excl uding 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.

As of end of the second quarter, we had the capacity for additional indebtedness of up to $589 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 capi tal 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 we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes.

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 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.

As of June 30, 2023, we had $74.4 million of Cash and cash equivalents, an increase o f $2.4 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

Six Months Ended

June 30, 2023 July 1, 2022

(Dollars in Millions) (1)

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Net cash used in investing activities (33.3) (10.3)

Proceeds from borrowings on term credit facility — 1,000.0

Proceeds from borrowings on revolving credit facility and other 280.0 265.0

Repayments of borrowings on revolving credit facility (189.8) (0.5)

Repayments of borrowings on revolving credit facility and other (340.5) (79.6)

Payment of deferred financing fees and other — (5.6)

Payments of deferred consideration — (1.5)

1 unchanged sentence

Distributions to noncontrolling interest holders (1.3) (0.9)

Consideration to Former Parent in connection with the Separation (1,200.0)

Transfers from Former Parent, net — 2.8

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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.

Our Cash and cash equivalents as of March 31, 2023 includ e $68.5 million held in jurisdictions outside the U.S.

• Operating cash flow was positively impacted by increased operating income and improvement in working capital turns offset by interest payments of $39.3 million for the six months ended June 30, 2023, which were related to our Term Loans and Revolving Facility.

• Discontinued operations for the six months ended June 30, 2023 and July 1, 2022 were outflows of $9.7 million and $13.7 million, respectively, which were mainly asbestos-related.

• Restructuring initiatives were $10.2 million for the six months ended June 30, 2023 and $12.8 million for the six months ended July 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 $18.2 million of cash used for the acquisition of Therapy Equipment Limited during the six months ended June 30, 2023.

Cash outflows used in financing activities of $67.9 million during the six months ended June 30, 2023 was driven by net repayment of borrowings on the Revolving Facility of $60.5 million, distributions to non-controlling interest holders of $1.3 million, and the payment of a cash dividend of $0.05 per share, or $6.1 million, to stockholders of record as of December 30, 2022 and March 31, 2023.

Our Cash and cash equivalents as of June 30, 2023 includ e $62.6 million held in jurisdictions outside the U.S.

Cash repatriation of non-U.S.

9 unchanged sentences

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