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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-07 · 108 added, 156 removed, 398 unchanged (40% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of Company’s management.

This MD&A is divided into five main sections:

This MD&A is divided into seven main sections:

• Basis of Presentation;

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The following MD&A should be read together with Part I, Item 1A.

“Risk Factors” and the accompanying Consolidated and Combined Financial Statements and Notes to Consolidated and Combined Financial Statements (“Notes”) included in Item 8.

“Risk Factors” and the accompanying Consolidated and Combined Financial Statements and Notes to Consolidated and Combined Financial Statements (the “Notes”) included in Item 8.

of this Form 10-K.

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Separation from Enovis

On April 4, 2022 (the “Distribution Date”), Colfax Corporation completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities as discussed in the “Separation from Enovis” section within Note 1 , “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-K through a tax-free, pro rata distribution (the “Distribution”) of 90% of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”).

On April 4, 2022 (the “Distribution Date”), Colfax Corporation completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities through the Distribution of 90% of the outstanding common stock of ESAB to Colfax stockholders as discussed in the “Separation from Enovis” section within Note 1 , “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-K.

To effect the Separation, each Colfax stockholder of record as of close of business on March 23, 2022 received one share of ESAB common stock for every three shares of Colfax common stock held on the record date.

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After the secondary offering, Enovis no longer owned any of our outstanding common stock.

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

In conjunction with the Separation on April 4, 2022, the Company entered into a credit agreement as amended and restated from time-to-time, (the “Credit Agreement”).

The Credit Agreement initially consisted of (i) a $750 million revolving credit facility (the “Revolving Facility”) with a maturity date of April 4, 2027, (ii) a Term A-1 loan with an initial aggregate principal amount of $400 million (the “Term Loan A-1 Facility”), with a maturity date of April 4, 2027;

and (iii) a $600 million 364-day senior term loan facility (the “Term Loan A-2 Facility”) with a maturity date of April 3, 2023.

The Company drew down $1.2 billion under the Credit Agreement and used these proceeds to make payments to Enovis of $1.2 billion, which were used as part of the consideration for the contribution of certain assets and liabilities to the Company by Enovis in connection with the Separation.

Refer to Note 15, “Debt” in the accompanying Notes contained elsewhere in this Form 10-K for additional information on the Credit Agreement.

In connection with the Separation, on April 4, 2022, ESAB and Enovis entered into the separation agreements that govern the Separation and the relationships between the parties going forward, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and license agreement for EBX.

Basis of Presentation

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The allocations were determined on a reasonable basis, however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently of Enovis during the applicable periods.

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

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

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

Related party allocations are discussed further in Note 21, “ Related Party Transactions” in the accompanying Notes contained elsewhere in this Form 10-K.

We also incur additional costs as a separate public company.

These additional costs are primarily for the following:

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

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

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

During the year ended December 31, 2022, these separate public company costs exceeded the costs that have been historically allocated to us.

During the years ended December 31, 2023 and 2022, the additional costs we incurred as a separate public company costs exceeded the costs that have been historically allocated to us.

During the three months ended April 1, 2022, the Former Parent allocated costs were $6.0 million, as included in the accompanying Notes contained elsewhere in this Form 10-K.

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

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

• The Consolidated and Combined Statement of Operations and Statement of Comprehensive Income for the year ended December 31, 2022 consist of our consolidated results for the nine months ended December 31, 2022 and the combined results of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section within Note 1, “Organization and Basis of Presentation” contained elsewhere in this Form 10-K for the three months ended April 1, 2022.

The Combined Statement of Operations and Statement of Comprehensive Income for the years ended December 31, 2021 and 2020 consist of the combined results of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Statement of Changes in Equity for the year December 31, 2022 consists of the consolidated activities of ESAB for the nine months ended December 31, 2022 and the combined activity of the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section above for the three months ended April 1, 2022.

The Combined Statements of Changes in Equity for the year ended December 31, 2021 and 2020 consist of the combined activity of the former Fabrication Technology business of Enovis.

• The Consolidated and Combined Statement of Cash Flows for the year ended December 31, 2022 consists of the consolidated activities of ESAB for the nine months ended December 31, 2022 and the combined activity of ESAB and the former Fabrication Technology business of Enovis and the certain entities discussed in the “Separation from Enovis” section above for the three months ended April 1, 2022.

The Combined Statement of Cash Flows for the years ended December 31, 2021 and 2020 consist of the combined activity of the former Fabrication Technology business of Enovis.

Following the Separation, the consolidated financial statements include ESAB and its wholly-owned subsidiaries and no longer include any allocations of expenses from Enovis.

• The Consolidated Balance Sheet as of December 31, 2023 and December 31, 2022 con sists of the consolidated balances of ESAB.

• The Consolidated Statement of Operations, Statement of Comprehensive Income (Loss), Statement of Changes in Equity and Statement of Cash Flows for the year ended December 31, 2023 consist of the consolidated results of ESAB.

• The Consolidated and Combined Statement of Operations, Statement of Comprehensive Income (Loss), Statement of Changes in Equity and Statement of Cash Flows for the year ended December 31, 2022 consist of the activities of ESAB for the nine months ended December 31, 2022 and the combined activity of the former Fabrication Technology business of Enovis for the three months ended April 1, 2022.

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

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

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

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

Former Parent’s investment, which included retained earnings, represented Enovis’s interest in our recorded net assets.

All significant transactions between us and the Former Parent prior to the Separation have been included in the accompanying Financial Statements.

Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Statements of Equity as “Transfers to Former Parent, net” and in the accompanying Consolidated and Combined Balance Sheets within “Former Parent’s investment”.

Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Statements of Equity as “Net Transfers from Former Parent, including Separation Adjustments” for the year December 31, 2022.

Included below are year-over-year co mparisons between 2023 and 2022.

For further information on year-over-year comparisons between 2021 and 2020 not covered in the results below, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Comp any’s Form 10 for the period which was filed with the SEC on March 17, 2022.

Please see Part I, Item 1.

For further information on year-over-year comparisons between 2022 and 2021 not covered in the results below, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Comp any’s Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 7, 2023.

See Part I, Item 1.

“Business” in our 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 solutions.

Our rich history of innovative products and workflow solutions and our business system (EBX) allows us to realize our purpose of Shaping the world we imagine.

We are a focused premier industrial compounder.

Our rich history of innovative products, workflow solutions and our business system EBX, enables 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.

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We believe that our business mix is well balanced between sales in emerging and developed markets and equipment and consumables.

We intend to continue to utilize our strong global presence and worldwide network of salespeople and distributors to capitalize on growth opportunities by selling regionally-developed and/or marketed products and solutions throughout our served markets.

We intend to continue to utilize our strong global presence and worldwide

network of salespeople and distributors to capitalize on growth opportunities by selling regionally-developed and/or marketed products and solutions throughout our served markets.

We believe that our geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures.

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Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future.

We face a number of challenges and opportunities, including the successful integration of acquired businesses, the application and expansion of our EBX tools to improve business performance, the ability to realize the expected benefits of the Separation and operate as an independent, public company, and the rationalization of assets and costs.

We expect strategic acquisitions to contribute to our growth.

We believe that the extensive experience of our leadership team in acquiring and effectively integrating acquisition targets should enable us to capitalize on future opportunities.

We believe the recent acquisitions of Ohio Medical, LLC, on October 14, 2022, and Swift Cut Automation Limited, on October 31, 2022, are aligned with this strategic direction.

Refer to Note 5, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-K for additional informatio n.

We believe the acquisitions of Ohio Medical, LLC (“Ohio Medical”) and Swift-Cut Automation Limited (“Swift-Cut Limited”) in 2022 as well as the acquisition of Therapy Equipment Limited in 2023 and [Sager S.A.

in 2024], are aligned with this strategic direction.

Refer to Note 5, “Acquisitions” and Note 22 “Subsequent Events” in the accompanying Notes contained elsewhere in this Form 10-K for additional information.

For additional information about these challenges and opportunities, refer to Part I, Item 1A.

“Risk Factors” in our Form 10-K

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2023 and 2022.

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The comparability of our operating results for the years ended December 31, 2023 and 2022 are affected by the following additional significant items:

The COVID-19 Pandemic

The Company continues to actively monitor the COVID-19 pandemic, and the impacts on our results and operations.

As reflected in the discussions that follow, the pandemic and actions taken in response to it have had a variety of impacts on our results of operations during 2021 and 2022, including sales levels, and together with other market dynamics has contributed to 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.

Risk Factors” section.

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.

While we continue to closely monitor the situation and evaluate options, we are meeting current contractual obligations while addressing applicable laws and regulations.

For the year ended December 31, 2022, Russia represented approximately 6% of our total revenue, and approximately $20 million in Net Income.

Russia also has approximately 5% of our total net assets excluding any goodwill allocation as of December 31, 2022.

In case of the disposition of the Russia business, a portion of good will would need to be allocated and disposed of in the relative fair value attributable to the Rus sia business.

Russia has a cumulative translation loss of approximately $90 million as of December 31, 2022, which could be realized upon a transition out.

We are closely monitoring the developments in Ukraine and Russia.

Changes in laws and regulations or other factors impacting our ability to fulfill contractual obligations could have an adverse effect on the results of operations.

The invasion of Ukraine by Russia and the sanctions and other actions taken by governments in response to the crisis have increased the level of economic and political uncertainty.

For additional information of the associated risks, refer to the Part I, Item 1A.

“Risk Factors” section.

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

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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.

On October 14, 2022, we completed the acquisition of Ohio Medical, LLC, a U.S.

based global leader in oxygen regulators and central gas systems, for $127 million.

In connection with this acquisition, we expect to realize an additional cash tax benefit with a net present value of approximately $15 million.

This acquisition expands our presence in industrial specialty gas applications and products and broadens our U.S.

On October 31, 2022, we completed the acquisition of Swift Cut Automation Limited for $22 million, net of cash received.

Swift-Cut is a provider of light industrial cutting systems and combined with ESAB provides a market-leading automated cutting portfolio.

These acquisitions have combined sales of approximately $60 million on an annual basis.

The COVID Pandemic

The COVID virus and actions taken in response to it have had a variety of impacts on our results of operations during 2022, including sales levels and other supply chain challenges.

For additional information on the risks of COVID to the Company’s operations, refer to the Part I, Item 1A.

“Risk Factors” section.

Global Operations

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During 2023 and 2022, 78% of our net sales were derived from operations outside of the United States.

During 2022 and 2021, 44% and 41% of our Net sales, respectively, were derived from the Americas and 56% and 59%, respectively, from EMEA & APAC.

During both 2023 and 2022, 44% of our net sales were derived from the Americas and 56% of our net sales were derived from EMEA &

Accordingly, we are affected by market demand, economic and political factors in countries throughout the world.

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For the year ended December 31, 2023 compared to 2022, fluctuation s in foreign currencies reduced N et sales by 1.7%, Gross profit by 2.1% and Selling, general and administrative expenses by 0.6%.

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

In addition, as Argentina is deemed to have a highly inflationary economy, the significant peso devaluation during December 2023 resulted in a loss of $26.2 million recorded in Interest expense and other, net, in our Consolidated Statement of Operations for the year ended December 31, 2023.

Refer to Note 2, “Summary of Significant Accounting Policies” in the accompanying Notes contained elsewhere in this Form 10-K for additional information.

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

Material Costs

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While we seek to take actions to manage this risk, future changes in component and raw material costs may adversely impact earnings.

In 2022, we have experienced increasing raw material costs due to inflation, which we have passed through to customers to maintain our profit, but has resulted in some margin compression.

These increased costs are expected to continue to remain at elevated levels for at least the near term.

In 2022, we experienced increasing raw material costs due to inflation, which we have passed through to customers to maintain our profit but has resulted in some margin compression.

Sales and Cost Mix

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Adjusted EBITDA is a non-GAAP performance measure that we include in this report because it is a key metric used by our management to assess our operating performance.

ESAB presents this non-GAAP financial measure including and excluding Russia due to economic and political volatility caused by th e Russia and Ukraine conflict, which results in enhanced investor interest in this information.

Core adjusted EBITDA is a non-GAAP measure that includes Russia for the three months ended April 1, 2022 and April 2, 2021, and due to the Russia Ukraine conflict tha t started at the end of the first quarter, excludes Russia for the nine months ended December 31, 2022 and December 31, 2021.

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.

ESAB presents this non-GAAP financial measure including and excluding Russia due to economic and political volatility caused by th e Russia and Ukraine conflict, which we believe results in enhanced investor interest in these alternate presentations.

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 margins, 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 nine months ended December 31, 2022 and December 31, 2021, 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, and which remove the impact of Russia for the years ended December 31, 2023 and 2022.

Adjusted EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin assist management in comparing our operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to unusual events or discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity and core business.

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

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with U.S.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable U.S.

GAAP financial measures.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.

Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin by segment for the years ended December 31, 2023 and 2022.

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Income tax expense 95.7

Interest expense (income) and other, net 38.0

Pension settlement gain (9.1)

Interest expense and other, net 85.1

Operating income (GAAP) $ 182.5 $ 221.7 $ 404.2

Operating income margin 12.1 % 13.2 % 12.7 %

Adjusted to add:

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6.5 17.6 24.1

Separation costs (3)(4)

Acquisition-amortization and other related charges (3)

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(1) Numbers may not sum due to rounding.

(2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses, and other costs in connection with the closure and optimization of facilities and product lines.

(3) Includes non-recurring charges and employee costs related to the planning and execution of the separation from Enovis within the Selling, general and administrative expense line within the Consolidated and Combined 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.

(2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expense, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines .

(3) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses.

(6) Adjusted EBITDA relating to Russia from April 2, 2022 to December 31, 2022, respectively.

(7) Net sales were $122.6 million relating to Russia from April 2, 2022 to December 31, 2022.

(4) Numbers calculated following the same definition as Adjusted EBITDA for total Company.

(5) Net sales were $153.8 million re lating to Russia for the year ended December 31, 2023.

Year Ended December 31, 2022

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Income tax expense 69.2

Interest expense (income) and other, net (1.7)

Interest expense and other, net 38.0

Pension settlement gain (9.1)

Operating income (GAAP) $ 136.2 $ 192.8 $ 329.1

Operating income margin 11.1 % 13.7 % 12.6 %

Adjusted to add (deduct):

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Depreciation and other amortization 13.4 21.5 34.9

2.1 (0.4) 1.7

Adjusted EBITDA (non-GAAP) $ 188.6 $ 248.2 $ 436.8

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16.7 % 16.9 % 16.8 %

(1) Numbers may not sum due to rounding.

(2) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expenses and other costs in connection with the closure and optimization of facilities and product lines.

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(5) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses.

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

(6) Adjusted EBITDA relating to Russia from April 3, 2021 to December 31, 2021,

(7) Net sales were $137.0 million relating to Russia from April 3, 2021 to December 31, 2021.

(6) Net sales were $163.6 million relati ng to Russia for the year ended December 31, 2022.

Total Company

Net sales increase d to $2,593.5 million in 2022 from $2,428.1 million in 2021.

Net sales increased for the year ended December 31, 2023 as compared with the year ended December 31, 2022 .

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

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

(2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

(2) Represents the incremental sales attributable to acquired businesses in comparison to the portion of the prior period during which we did not own the business.

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

Net sales from existing businesses increased $254.2 million during 2022 compared to 2021 primarily due to inflation-related customer pricing increases of $270.4 million and new product initiatives, respectively, partially offset by reduced sales volumes mainly due to the Russia and Ukraine conflict.

Net sales from existing businesses increased $161.6 million during 2023 compared to 2022 primarily due to inflation-related customer pricing increases of $94.3 million and increased sales volumes of $67.3 million.

The strengthening of the U.S.

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Sales excluding Russia

Sales excluding Russia (“Core Sales”) for ESAB increased for the year ended December 31, 2022 as compared with the year ended December 31, 2021.

Sales excluding Russia (“Core Sales”) for ESAB increased fo r the year ended December 31, 2023 as compared with the year ended December 31, 2022.

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

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For the year ended December 31, 2023

(1) Numbers may not sum due to rounding.

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

(2) Represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.

(3) Represents the incremental sales attributable to acquired businesses in comparison to the portion of the prior period during which we did not own the business.

(4) 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 from April 2, 2022 to December 31, 2022, and April 3, 2021 to December 31, 2021.

Core Sales from existing businesses for ESAB increased $290.5 million during the year ended December 31, 2022, compared to the year ended December 31, 2021 primarily due to inflation-related customer pricing increases of $259.2 million and new product initiatives during the year ended December 31, 2022.

The strengthening of the U.S.

(5) Numbers calculated following the same definition as total sales growth for total Company.

(6) Represents sales excluding Russia for the year ended December 31, 2023 and 2022, respectively .

Core Sales from existing businesses for ESAB increased $144.1 million during the year ended December 31, 2023, compared to the year ended December 31, 2022 primarily due to inflation-related customer pricing increases of $88.7 million and increased sales volumes of $55.4 million d uring the year ended December 31, 2023.

T he strengthening of the U.S.

dollar relative to other currencies caused a $17.0 million unfavorable currency translation impact during the year ended December 31, 2023 .

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$ 18.4 $ 28.4

(1) 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.

(1) Includes severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expense, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines.

(2) 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 Statements of Operations.

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

(3) Includes transaction expenses, amortization of intangibles, fair value charges on acquired inventories and integration expenses.

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

(6) Adjusted EBITDA relating to Russia from April 2, 2022 to December 31, 2022, and April 3, 2021 to December 31, 2021 respectively.

2022 Compared to 2021

Gross profit increased $47.5 million during 2022 in comparison to 2021, primarily attributable to benefit from price increases and new product initiatives partially offset by inflation-related costs increases, approximately $44 million of unfavorable foreign currency impacts and, to a lesser extent, reduced sales volume due to the Russia and Ukraine conflict.

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

Selling, general and administrative expense increased primarily due to inflation-related cost increases and increased costs related to being an independent public company, partially offset by currency fluctuations.

(4) Adjusted EBITDA relating to Russia for the year ended December 31, 2023 and 2022 respectively.

Gross profit increased $130.3 million during 2023 in comparison to 2022.

This increase was attributable to benefits from price increases, acquisitions and sales volumes, partially offset by inflation-related costs increases and approximately $22.5 million of unfavorable foreign currency impacts.

Gross profit margin expanded 250 basis points to 36.6% which was primarily due to the benefit from price increases and to a lesser extent sales volume, as well as restructuring initiatives, partially offset by inflation-related cost increases and unfavorable foreign currency impact.

Selling, general and administrative expense increased in comparison to 2022.

This increase was driven by incremental costs from acquisitions, growth initiatives and inflation, partially offset by savings from restructuring initiatives.

During the year ended December 31, 2022, the Company recognized a Pension settlement gain of $9.1 million related to a completed buy-out of a foreign defined benefit plan by a third party plus the merger of two Company pension plans resulting in one plan benefiting from the surplus assets in the other plan.

During the year ended December 31, 2021, the Company recognized a Pension settlement gain of $11.2 million when the trustees of a Company pension plan agreed to merge the plan with another Company pension plan and contribute the plan’s surplus assets.

The effective tax rate for 2022 and 2021 was 23.0% and 25.2%, respectively.

This difference is primarily due to the tax impact of items related to the Separation from Enovis.

In 2022, the effective tax rate was higher than the U.S.

federal statutory tax rate of 21.0% primarily due to withholding taxes on dividends and permanent differences relating to foreign subsidiaries, partially offset by Company earnings outside the United States that are taxed at different rates than the U.S.

federal statutory tax rate of 21.0%.

Net income from continuing operations decreased in 2022 compared to 2021, due to changes discussed above as well as the interest expense related to our new Term Facility and Revolving Facility offset by improved Gross profit.

The effective tax rate for 2023 and 2022 w as 30.0% and 23.0%, respectively.

This difference year-over-year and from the United States federal statutory rate of 21.0% is primarily due to changes in tax reserves, the impact of permanent differences relating to foreign subsidiaries and withholding taxes, net of the favorable impact from the change in valuation allowances.

The change in tax reserves in 2023 is largely the result of an adverse court ruling in an unrelated taxpayer’s tax case in a foreign jurisdiction.

Net income from continuing operations decreased in 2023 compared to 2022, due to changes discussed above as well as the increased interest expense related to our term loan facility and revolving credit facility which was in place for the full year in 2023.

Additionally, in December 2023, the Argentine peso significantly devalued due to changes in their foreign exchange policy introduced by Argentina’s government that largely contributed to the full year significant foreign exchange loss.

R efer to Note 2, “Summary of Significant Accounting Policies” in t he accompanying Notes contained elsewhere in this Form 10-K for additional information.

These drivers were offset by improved Gross profit.

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

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Depreciation and other amortization $ 14.8 $ 13.4

2022 Compared to 2021

Net sales in our Americas segment increased $124.1 million during 2022 compared to 2021.

Net sales from existing business increased $127.3 million primarily due to inflation-related pricing increases.

Gross profit increased primarily due to benefit from price increases partially offset by inflation-related cost increases, while gross profit margin decreased 240 basis points due to dilution effect caused by inflation-related pricing and cost increases.

Selling, general and administrative expense increased mainly due to inflation-related cost increases and costs related to becoming a separately traded public company.

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

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

Net sales in our Americas segment increased by $86.7 million during 2023 compared to 2022.

Net sales from existing business increased by $60.5 million primarily due to inflation-related pricing increases and acquisitions contributed $43.7 million.

These increases were partially offset by $17.5 million of unfavorable currency translation.

Gross profit and related margin increased primarily due to benefit from price increases and acquisitions partially offset by inflation-related cost increases and unfavorable foreign currency impacts.

Selling, general and administrative expense increased primarily due to growth initiatives, acquisitions and increased employee costs.

Adjusted EBITDA increased by $36.1 million to $224.7 million and margins expanded 180 basis points to 18.5% primarily because of the aforementioned factors.

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

Year Ended December 31,

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Adjusted EBITDA attributable to Russia (non-GAAP) $ 18.4 $ 28.4

2022 Compared to 2021

Net sales increased for our EMEA & APAC segment by $94.6 million during 2023 compared to 2022.

Net sales from existing business increased $126.9 million offset by $88.5 million in unfavorable currency translation.

The increase in Net sales from existing business was primarily due to inflation-related pricing increases and, to a lesser extent, new product initiatives partially offset by reduced sales volumes due to the Russia and Ukraine conflict.

Gross profit increased due primarily to benefit from price increases and restructuring benefits partially offset by inflation-related cost increases, and an unfavorable currency translation impact.

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

Selling, general and administrative expense increased over the same period primarily driven by inflation related costs.

Adjusted EBITDA remained relatively consistent compared to 2021 while related margins declined primarily due to higher Gross profit being mostly offset by increased Selling, general and administrative expenses and unfavorable currency translations.

Net sales from existing business increased by $101.1 million and acquisitions contributed $20.2 million.

These increases were partially offset by $26.7 million in unfavorable currency translation .

Gross profit and related margin increased primarily due to the benefit from increased sales volume, acquisitions and savings from restructuring initiatives.

Selling, general and administrative expense increased over the same period primarily d ue to inflation, increased employee costs and growth initiative spending.

Adjusted EBITDA increased by $28.2 million to $276.4 million compared to 2022 and margins expanded 80 basis points to 17.7% primarily because of the aforementioned factors.

Core adjusted EBITDA increased from $219.8 million to $258.0 million, and the related Core adjusted EBITDA margins expanded by 150 basis points from 16.9% to 18.4%.

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Prior to the completion of the Separation, we financed our working capital requirements through cash flows from operating activities and arrangements with our Former Parent.

We currently expect to finance our working capital requirements through cash flows from operating activities.

We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows, and debt service and required amortization of principal and, pending Board approval, payment of cash dividends.

In conjunction with the Separation on April 4, 2022, we drew down $1.2 billion under the Credit Agreement and used these proceeds to make payments to Enovis of $1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to us by Enovis in connection with the Separation.

In conjunction with the Separation on April 4, 2022, the Company entered into a credit agreement as amended and restated from time-to-time, (the “Credit Agreement”).

and (iii) a $600 million 364-day senior term loan facility (the “Term Loan A-2 Facility”) with a maturity date of April 3, 2023.

We drew down $1.2 billion under the Credit Agreement and used these proceeds to make payments to Enovis of $1.2 billion, which was used as part of the consideration for the contribution of certain assets and liabilities to us by Enovis in connection with the Separation.

We currently expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows and debt service and required amortization of principal and, pending Board approval, payment of cash dividends.

On June 28, 2022, we amended and restated the Credit Agreement by entering into Amendment No.

2 to Credit Agreement (“Credit Agreement Amendment”).

2 to Credit Agreement (the “Credit Agreement Amendment”).

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

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As of end of the year, we had the capacity for additional indebtedness of up to $718 million a vailable on the Revolving Facility.

Additionally, we have the ability to i ncur $77 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we currently have in place whi ch we have used from time to time in the past for short-term working capital needs.

Additionally, we have the ability to i ncur $78 million of indebtedness pursuant to certain uncommitted credit lines, consisting primarily of an uncommitted credit line that we currently have in place whi ch we have used from time to time in the past for short-term working capital needs.

Refer to Note 15, “Debt” in t he accompanying Notes contained elsewhere in this Form 10-K for more information related to the credit facilities.

We believe that we could raise additional funds in the form of debt or equity if it was determined to be appropriate for strategic acquisitions or other corporate purposes.

We believe that our sources of liquidity between debt and cash flows from operating activities are adequate to fund our operations for the next twelve months.

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 and thereafter.

As of December 31, 2023, we had $102.0 million of Cash and cash equivalents, an increase of $30.0 million from $72.0 million as of December 31, 2022.

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Proceeds from borrowings on revolving credit facility and other 574.2 805.9

Repayments of borrowings on term credit facility (12.5) —

Repayments of borrowings on revolving credit facility and other (763.2) (585.5)

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Payment of dividends (13.3) (6.1)

Distributions to noncontrolling interest holders (3.4) (3.7)

Distribution to noncontrolling interest holders (3.9) (3.4)

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

Transfers from (to) Former Parent, net 2.8 (218.5)

Transfers from Former Parent, net — 2.8

Net cash provided by (used in) financing activities (219.7) 7.6

Effect of foreign exchange rates on Cash and cash equivalents (18.6) (6.7)

Increase (decrease) in Cash and cash equivalents $ 30.8 $ (8.0)

Increase in Cash and cash equivalents $ 30.0 $ 30.8

(1) Numbers may not sum due to rounding.

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Changes in significant operating cash flow items are discussed below.

• Cash used in operating activities related to discontinued operations for the year ended December 31, 2022 was $23.1 million, which was mainly asbestos related.

In prior years, these payments were made by our Former Parent and not reflected in our cash flow statements.

• Separation payments of $19.0 million for the year ended December 31, 2022 related to one-time non-recurring professional fees and employee costs incurred in the planning and execution of the Separation from Enovis.

• Restructuring initiatives of $22.7 million for the year ended December 31, 2022 and $15.4 million for the year ended December 31, 2021, 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 cost in connection with the closure and optimization of facilities and product lines.

• Interest payments of $34.7 million for the year ended December 31, 2022 related to our Term Loans and Revolving Facility.

Prior to the completion of the Separation on April 4, 2022 we financed our working capital requirements through cash flows from operating activities and arrangements with our Former Parent.

Cash flows used in investing activities during 2022 includes $149.0 million of cash used for two acquisitions.

• Operating cash flow was positively impacted by increased operating income and improvements in working capital turns offset by higher interest payments for the year ended December 31, 2023, which were related to our Term Loans and Revolving Facility.

• Discontinued operations outflows for the years ended December 31, 2023 and 2022 were $15.2 million and $23.1 million, respectively, which were mainly asbestos related.

• Restructuring initiatives of $20.7 million for the year ended December 31, 2023 and $22.7 million for the year ended December 31, 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 during 2023 includes $18.7 million of cash used for our Therapy Equipment acquisition.

Refer to Note 5, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-K for additional information.

Cash flows used in financing activities in 2022, primarily relates to the receipt of proceeds from the issuance of our debt of $1.8 billion of which $1.2 billion was paid to our Former Parent in connection with the Separation.

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

The remaining change was primarily due to a $585.5 million repayment on the Revolving Facility.

Cash Flows used in financing activities for 2021 primarily relates to our activity with the Former Parent.

During the year ended December 31, 2022, we paid two cash dividends of $0.05 per share or $3.0 million and $3.0 million, to our stockholders of record as of July 1, 2022 and September 30, 2022, respectively.

Our Cash and cash equivalent s as of December 31, 2022 include $62.7 million held in jurisdictions outside the United States.

Cash repatriation of non-U.S.

cash into the United States may be subject to taxes, other local statutory restrictions, and minority owner distributions.

Cash outflows used in financing activities in 2023 was driven by net repayment of borrowings on the Revolving Facility of $189.0 million, net repayment of borrowings on the Term Loans of $12.5 million, distributions to non-controlling interest holders of $3.9 million and payment of four cash dividends totaling $13.3 million.

Our Cash and cash equivalent s as of December 31, 2023 include $90.2 million h eld 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.

Contractual Obligations

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The Company leases certain office spaces, warehouses, facilities, vehicles and equipment.

As of December 31, 2022, the Company had fixed lease payment obligat ions of $108.2 million , with $21.6 million payable within 12 months.

As of December 31, 2023, the Company had fixed lease payment obligat ions o f $111.4 million, with $25.8 million payable within 12 months.

Purchase Obligations

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The carrying amount of Goodwill of the Americas, EMEA & APAC and Gas Control Equipment reporting units as of December 31, 2023 we re $589.9 million, $879.9 million and $118.5 million, respectively.

For the year ended December 31, 2021 a quantitative annual impairment test of Goodwill was performed for the G as Control Equipment reporting unit, while qualitative assessments were performed for the remaining two reporting units.

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

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If we determine that it is more likely than not for the indefinite-lived intangible asset’s fair value to be greater than its carrying value, a calculation of the fair value is not performed.

In certain instances, the Company may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test.

If we determine that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value, a calculation is performed and compared to the carrying value of the asset.

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Under this approach, the Company determined its deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns.

The accompanying Combined Balance Sheets for the year ended December 31, 2021 did not contain current income tax payable or other long-term income tax payable liabilities, with the exception of certain unrecognized tax benefits for which ESAB could have reasonably be considered to be the primary obligor.

The accompanying Combined Balance Sheet for the year ended December 31, 2021 did not contain current income tax payable or other long-term income tax payable liabilities, with the exception of certain unrecognized tax benefits for which ESAB could have reasonably been considered to be the primary obligor.

The amounts are deemed settled with Enovis when they were due and therefore were included in Parent’s equity.

1 unchanged sentence

Deferred income tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred income tax assets and liabilities are reported in Other assets and Other liabilities in the Consolidated and Combined Balance Sheets, respectively.

Deferred income tax assets and liabilities are reported in Other assets and Other liabilities in the Consolidated Balance Sheets, respectively.

The effect on deferred income tax assets and liabilities of a change in tax rates is generally recognized in Income tax expense in the period that includes the enactment date.

Global Intangible Low-Taxed Income (“GILTI”) is accounted for as a current tax expense in the year the tax is incurred.

Global Intangible Low-Taxed Income is accounted for as a current tax expense in the year the tax is incurred.

Valuation allowances are recorded if it is more likely than not that some portion of the deferred income tax assets will not be realized.

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

Net liabilities for unrecognized income tax benefits, including accrued interest and penalties, were $20.2 million and $37.7 million as of December 31, 2022 and 2021, respectively, an d are included in Other liabilities or as a reduction to deferred tax assets in the accompanying Consolidated and Combined Balance Sheet.

Net liabilities for unrecognized income tax benefits, including accrued interest and penalties, were $30.9 million and $20.2 million as of December 31, 2023 and 2022, respectively, and are included in Other liabilities or as a reduction to deferred tax assets in the accompanying Consolidated Balance Sheet.

Revenue Recognition

19 unchanged sentences

Trade receivables are presented net of an allowance for credit losses.

We adopted ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments as of January 1, 2020.

The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

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Such components were acquired from third-party suppliers, and were not manufactured by any of our, or our Former Parent’s, subsidiaries nor were the subsidiaries, producers or direct suppliers of asbestos.

The manufactured products that are alleged to have contained or used asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S.

The manufactured products that are alleged to have contained or used asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the United States Navy.

The subsidiaries settle asbestos claims for amounts we consider reasonable given the facts and circumstances of each claim.

37 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-K

Item 7. Management’s Discussion and Analysis