What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-08-01 · 129 added, 132 removed, 328 unchanged (44% 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 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”).

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 29, 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 the war in Ukraine and escalating geopolitical tensions;

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

impact of COVID-19, including supply chain disruptions;

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• 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;

• changes in the general economy, including disruptions caused by geopolitical conflicts, as well as the cyclical nature of the markets we serve;

• supply chain constraints and backlogs, including risks affecting raw material, part and component availability, labor shortages and inefficiencies, freight and logistical challenges, and inflation in raw material, part, component, freight and delivery costs and our ability to increase our prices to account for increased costs;

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• difficulties and delays in integrating or fully realizing projected cost savings and benefits of our acquisitions; and

• other risks and factors set forth under “Risk Factors” in Item 1A.

“Risk Factors in Part I of the 2022 Form 10-K.

See Part I “Item 1.A.

“Risk Factors” in our 2022 Form 10-K and “Part II -Item 1.A Risk Factors” in this Form 10-Q for a further discussion regarding reasons that actual results and outcomes may differ materially from the results, developments and business decisions contemplated by our forward-looking statements.

• other risks and factors set forth under Part I.

“Risk Factors” in our 2022 Form 10-K.

“Risk Factors” in our 2022 Form 10-K and Part II.

Item 1.A “Risk Factors” in this Form 10-Q for a further discussion regarding reasons that actual results and outcomes may differ materially from the results, developments and business decisions contemplated by our forward-looking statements.

Forward-looking statements speak only as of the date of the report, document, press release, webcast, call materials or other communication in which they are made.

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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.

Please see Part I, Item 1.

For additional information, refer to “Basis of Presentation” in Note 1 “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q.

Please see Part I.

“Business” in our 2022 Form 10-K, for a discussion of ESAB’s objectives and methodologies for deliver ing stockholder va lue.

We are a world leader in connected fabrication technology and gas control sol utions.

Our rich history of innovative products and workflow solutions and our business management system, ESAB Business Excellence or EBX, allows us to realize our purpose of Shaping the World We Imagine .

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

We are a premier narrowly diversified global leader in connected fabrication technology and gas control sol utions.

Our rich history of innovative products and workflow solutions and our business management system, ESAB Business Excellence or EBX, allows us to realize our purpose of Shaping the World We Imagine 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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Integral to our operations is EBX, our business management system.

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

EBX is our culture and includes our values, a comprehensive set of tools, and repeatable, teachable processes that we use to drive continuous improvement and create

superior value for our customers, stockholders and associates.

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

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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 and six months ended June 30, 2023 and July 1, 2022.

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 29, 2023 and September 30, 2022.

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 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 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.

The comparability of our operating results for the three and nine months ended September 29, 2023 and September 30, 2022 is affected by the following additional significant items:

As reflected in the discussions that follow, the COVID-19 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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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 automated cutting systems.

During the fourth quarter of 2022, we completed the acquisitions of Ohio Medical, LLC (“Ohio Medical”), a global leader in central gas systems, and Swift-Cut Automation Limited (“Swift-Cut Limited”), a provider of light industrial automated cutting systems.

For additional information on these acquisitions, refer to our 2022 Form 10-K.

During the six months ended June 30, 2023, we completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators.

During the first quarter of 2023, we completed the acquisition of Therapy Equipment Limited (“Therapy Equipment”), 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, 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.

A significant portion of our Net sales, 79%, for the three and nine months ended September 29, 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 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%.

For the three months ended September 29, 2023 compared to the three months ended September 30, 2022, fluctuations in foreign currencies reduced Net sal es by 1.3% and Gross profit by 1.9% and increased Selling, general and administrative expenses by 1.2%.

For the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022, fluctuations in foreign currencies re duced N et sales by 1.8%, Gross profit by 2.1% and Selling, general and administrative expenses by 1.1%.

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 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.

Core adjusted EBITDA is a non-GAAP financial measure that excludes Russia from Adjusted EBITDA for the three and nine months ended September 29, 2023 and September 30, 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 gain, 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 and six months ended June 30, 2023 and July 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 nine months ended September 29, 2023 and September 30, 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 and six months ended June 30, 2023 and July 1, 2022.

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

Three Months Ended September 29, 2023 Nine Months Ended September 29, 2023

Americas EMEA & APAC Total Americas EMEA & APAC Total

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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 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

(4) Adjusted EBITDA relating to Russia for the three and nine months ended September 29, 2023.

(5) Net sales wer e $36.9 million and $114.4 million relating to Russia for the three and nine months ended September 29, 2023, 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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Interest expense and other, net 12.2 19.6

Pension settlement gain (3.3) (3.3)

Operating income (GAAP) 36.6 44.4 81.0 102.6 147.9 250.5

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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 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.

(6) Relates to the adjustment for certain items included within 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 nine months ended September 30, 2022.

(8) Net sales were $43.3 million and $113.7 million relating to Russia for the three and nine months ended September 30, 2022, respectively.

Total Company

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.

Net sales increased for th e three and nine months ended September 29, 2023 as compared with the three and nine months ended September 30, 2022 .

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

Three Months Ended

Six Months Ended

Nine Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three and six months ended July 1, 2022

For the three and nine months ended September 30, 2022

$ 620.3 $ 1,929.4

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Total sales growth 60.7 9.8 % 156.1 8.1 %

For the three and six months ended June 30, 2023

For the three and nine months ended September 29, 2023

$ 681.0 $ 2,085.4

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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 $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 $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.

Net sales from existing businesses increased $47.3 million during the three months ended September 29, 2023, compared to the prior year period, due to an increase in sales volumes of $30.1 million and customer pricing increases of $17.1 million.

During th e three months ended September 29, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment.

Th e strengthening of the U.S.

Dollar relative to other currencies caused a $7.9 million unfavorable currency translation impact dur ing the three months ended September 29, 2023.

Net sales from ex isting businesses increased $130.9 million during the nine months ended September 29, 2023, compared to the prior year period, due to an increase in sales volumes of $56.0 million and customer pricing increases of $74.9 million.

During the nine months ended September 29, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment.

Th e strengthening of the U.S.

Dollar relative to other currencies caused a $34.5 million unfavorable currency translation impact dur ing the nine months ended September 29, 2023.

Sales excluding Russia

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 .

Sales excluding Russia (“Core Sales”) inc reased for the three and nine months ended September 29, 2023 as compared with the three and nine months ended September 30, 2022.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Core Sales (4)

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(Dollars in millions)

For the three and six months ended July 1, 2022

For the three and nine months ended September 30, 2022

$ 577.0 $ 1,815.7

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Total core sales growth 67.1 11.6 % 155.3 8.6 %

For the three and six months ended June 30, 2023

For the three and nine months ended September 29, 2023

$ 644.1 $ 1,971.0

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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) 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 $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).

(4) Net sales relating to Russia were $36.9 million and $114.4 million for the three and nine months ended September 29, 2023, respectively, and $43.3 million and $113.7 million for the three and nine months ended September 30, 2022, respectively.

Core Sales from existing businesses for ESAB increased $38.0 million during the three months ended September 29, 2023, compared to the prior year period primarily due to customer pricing increases of $14.4 million and an increase in sales volume of $23.5 million du ring the three months ended September 29, 2023.

During the three months ended September 29, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and Therapy Equipment.

The changes in foreign exchange rates caused a $7.8 million favorable currenc y translation impact during the three months ended September 29, 2023.

Core Sales from existing businesses for ESA B increased $118.8 million during the nine months ended September 29, 2023, compared to the prior year period primarily due to customer pricing increases of $72.8 million and an increase in sales volume of $46.0 million during the nine months ended September 29, 2023.

During the nine months ended September 29, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and Therapy Equipment.

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.

Dollar relative to other currencies caused a $23.1 million unfavorable currency translation impact d uring the nine months ended September 29, 2023 .

Operating Results

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Three Months Ended

Six Months Ended

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

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(Dollars in millions)

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Interest expense and other, net $ 20.5 $ 12.2 $ 58.8 $ 19.6

$ 18.8 $ 7.9 $ 38.3 $ 7.4

Income tax expense $ 19.8 $ 17.8 $ 77.8 $ 63.6

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

Depreciation and other amortization $ 9.0 $ 8.3 $ 26.6 $ 26.2

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(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 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.

(5) Adjusted EBITDA relating to Russia for the three and nine months ended September 29, 2023 and September 30, 2022.

Third Quarter of 2023 Compared to Third Quarter of 2022

Gross profit increased $40.4 million in the third quarter of 2023, which resulted in the gross profit margin expanding 300 basis points to 36.7% 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 translation.

Selling, general and administrative expense increased $23.7 million in the third quarter of 2023, compared to the prior year period.

This increase is primarily driven by incremental costs from acquisitions, growth initiatives, higher employee costs, partially offset by savings from restructuring initiatives.

The effective tax rate of 24.6% for the quarter ended September 29, 2023 was in line with the effective tax rate of 24.7% for the same period ending September 30, 2022.

Net income from continuing operations increased $6.5 million in the third quarter of 2023, compared with the prior year period primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses and interest expense.

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

In the third quarter of 2023, Adjusted EBITDA increased $17.5 million and Adjusted EBITDA margin increased by 110 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 $95.5 million to $117.8 million, and Core adjusted EBITDA margins expanded 140 basis points from 16.9% to 18.3%.

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 $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 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.

Nine Months Ended September 29, 2023 Compared to Nine Months Ended September 30, 2022

Gross profit increased $99.9 million in the nine months ended September 29, 2023, which resulted in gross profit margin increasing compared with the prior year period.

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

Selling, general and administrative expense increased $48.8 million in the nine months ended September 29, 2023, compared to the prior year period.

The effective tax rate of 32.2% for the nine months ended September 29, 2023 differed from the effective tax rate of 27.2% for the same period ending September 30, 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.

Net income from continuing operations decreased $6.8 million in the nine months ended September 29, 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 nine months ended September 29, 2023, as mentioned above.

Net income margin from continuing operations decreased by 90 basis points primarily due to the items discussed above.

In the nine months ended September 29, 2023, Adjusted EBITDA increased $47.8 million and Adjusted EBITDA margin increased by 110 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 $301.4 million to $356.9 million, and Core adjusted EBITDA margins expanded 130 basis points from 16.8% to 18.1%.

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Three Months Ended

Six Months Ended

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

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(Dollars in millions)

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

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.

Third Quarter of 2023 Compared to Third Quarter of 2022

Net sales in our Americas segment increased $24.4 million in the third quarter of 2023, compared with the prior year period.

Net sales from existing business increased $11.3 million partially offset by $1.5 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 increase in Net sales from existing business was mainly due to 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 $14.6 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.

Gross profit increased $24.2 million due to price increases, benefits from the product line simplification initiative, and the Ohio Medical acquisition, partially offset by inflation-related cost increases, a decrease in sales volumes and an unfavorable currency impact.

Gross profit margin expanded 530 basis points to 37.9%, 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 growth initiatives, employee costs and the Ohio Medical acquisition .

Adj usted EBITDA increased $10.8 million to $57.2 million and margins expanded 220 basis points to 18.7% 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.

Nine Months Ended September 29, 2023 Compared to Nine Months Ended September 30, 2022

Net sales in our Americas segment increased $62.9 million in the nine months ended September 29, 2023, compared with the prior year period.

Net sales from existing business increased $35.4 million partially offset by $13.9 million in unfavorable currency translation.

The increase in Net sales from existing business was primarily due to inflation-related pricing increases offset by a decrease in sales volumes .

The increase in Net sales from existing business was primarily due to customer pricing increases offset by a slight decrease in sales volumes.

The Ohio Medical acquisition contributed to $41.5 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.

Gross profit increased $56.0 million to $336.9 million due to customer price increases, benefits from a product line simplification initiative, and the Ohio Medical acquisition, partially offset by inflation-related cost increases, a slight decrease

in sales volumes and an unfavorable currency impact.

Gross profit margin increased 390 basis points to 37.1% prim arily 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 spending, the Ohio Medical acquisition, and an unfavorable currency impact.

Adjusted EBITDA increased $26.0 million to $164.9 million an d margins expand ed 180 ba sis points to 18.2% primar ily because of the aforementioned factors.

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

Three Months Ended

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

Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

(Dollars in millions)

14 unchanged sentences

Adjusted EBITDA attributable to Russia (non-GAAP) $ 4.7 $ 9.5 $ 15.7 $ 23.4

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.

Third Quarter of 2023 Compared to Third Quarter of 2022

Net sales increased for our EMEA & APAC segment by $36.3 million in the third quarter of 2023, compared with the prior year period.

Net sales from existing business increased $36.0 million offset by $6.4 million in unfavorable currency translation.

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.

The increase in Net sales from existing business was primarily due to an increase in sales volumes and to a lesser extent, acquisitions and sales of new products.

The Swift-Cut Limited and Therapy Equipment acquisitions contributed $6.7 million of the overall sales increase.

Gross pr ofit increased $16.2 million in the third quarter of 2023 compared with the prior yea r period primarily due to an increase in sales volumes, acquisitions, and benefits from restructuring initiatives.

Gross profit margin expanded 90 basis points compared to the same period in 2022 due to the increase in sales as mentioned above, accretive impact of acquisitions, and benefits from restructuring initiatives.

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.

Core adjusted EBITDA increased from $49.2 million to $60.6 million and the related Core adjusted EBITDA margins expande d 130 basis points from 16.6% to 17.9% primarily because of the aforementioned factors.

Nine Months Ended September 29, 2023 Compared to Nine Months Ended September 30, 2022

Net sales increased for our EMEA & APAC segment by $93.1 million in the nine months ended September 29, 2023, compared with the prior year period.

Net sales from existing business increased $95.5 million offset by $20.6 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%.

The Swift-Cut Limited and Therapy Equipment acquisitions contributed $18.2 million of the overall sales increase.

Gross profit increased $43.8 million in the nine months ended September 29, 2023, compared with the prior year period primarily due to customer price increases and increased sales volumes, partially offset by

inflation-related cost increases.

Gross profit margin expande d 90 basis points compared to the same period in 2022, due to the increase in sales noted above and benefits from restructuring initiatives.

Selling, general and administrative exp ense increased compared to the same period in 2022 due to acquisitions and increased employee costs, partially offset by restructuring initiatives.

Core adjusted EBITDA increased from $162.5 million to $192.0 million and the related Core adjusted EBITDA margins expanded 140 basis points from 16.7% to 18.1%.

Liquidity and Capital Resources

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The Credit Agreement Amendment provides for a $600 million Term Loan A-3 Facility with a maturity date of April 3, 2025 to refinance our existing Term Loan A-2 Facility (the “Term Loan A-3 Facility” and together with the Term Loan A-1 Facility, the “Term Loans”).

Also on June 28, 2022, we borrowed the entire $600 million under Term Loan A-3 Facility to fund the repayment of the Term Loan A-2 Facility.

Also on June 28, 2022, we borrowed the entire $600 million under the Term Loan A-3 Facility to fund the repayment of the Term Loan A-2 Facility.

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

As of 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.

As of September 29, 2023, we were in compliance with the covenants under the Credit Agreement.

As of September 29, 2023, the weighted average interest rate of borrowings under the Credit Agreement was 5.22%, 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 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.

As of end of the third quarter, we had the capacity for additional indebtedness of up to $653 million available on the Revolving Facility, subject to meeting financial covenants and other requirements.

Additionally, we have the ability to incur $76 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.

Refer to Note 9 “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Facilities.

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 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.

As of September 29, 2023, we had $82.8 million of Cash and cash equivalents, an increase of $10.8 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:

Six Months Ended

June 30, 2023 July 1, 2022

Nine Months Ended

September 29, 2023 September 30, 2022

(Dollars in Millions) (1)

6 unchanged sentences

Proceeds from borrowings on revolving credit facility and other 454.7 495.9

Repayments of borrowings on term credit facility (6.3) —

Repayments of borrowings on revolving credit facility and other (578.6) (360.0)

11 unchanged sentences

Changes in significant operating cash flow items are discussed below.

• 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.

cash into the U.S.

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

• Operating cash flow was positively impacted by increased operating income and improvement in working capital turns offset by higher interest payments f or the nine months ended September 29, 2023, which were related to our Term Loans and Revolving Facil ity.

• Discontinued operations for the nine months ended September 29, 2023 and September 30, 2022 were outflows of $12.2 million and $19.3 million, respectively, which were mainly asbestos-related.

• Restructuring initiatives were $15.4 million for the nine months ended September 29, 2023 and $17.7 million for the nine months ended September 30, 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 primarily for the acquisition of Therapy Equipment Limited during the nine months ended September 29, 2023.

Cash outflows used in financing activities of $142.2 million during the nine months ended September 29, 2023 was driven by net repayment of borrowings on the Revolving Facility of $123.9 million, repayment of $6.3 million on the term credit

facility, distributions to non-controlling interest holders of $2.3 million and the payment of three cash dividends totaling $9.7 million.

Our Cash and cash equivalents as of September 29, 2023 includ e $73.4 million held in jurisdictions outside the United States Cash repatriation of non-United States cash into the United States may be subject to taxes, other local statutory restrictions and minority owner distributions.

Critical Accounting Policies

6 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