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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-01 · 164 added, 114 removed, 248 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of ESAB Corporation (“ESAB,” the “Company,” “we,” “our” and “us”) should be read in conjunction with the Consolidated and Condensed Financial Statements and related footnotes included in Part I.

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2024 (this “Form 10-Q”) and the Consolidated and Financial Statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “ 2023 Form 10-K ”).

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2024 (this “Form 10-Q”) and the Consolidated Financial Statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “ 2023 Form 10-K ”).

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

Our actual results could differ materially from those discussed in the forward looking statements.

Our actual results, outcomes or the timing of results or outcomes could differ materially from those discussed in the forward looking statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).

All statements contained in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC.

All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements regarding:

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

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”).

Statements that could be deemed to be forward-looking statements, include statements regarding:

the impact of the wars in Ukraine and the Middle East and the resulting escalating geopolitical tensions on our business;

projections of revenue, profit margins, expenses, tax provisions and tax rates, earnings or losses from operations, impact of foreign exchange rates, cash flows, pension and benefit obligations and funding requirements, synergies or other financial items;

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developments, performance or industry or market rankings relating to products or services;

future economic conditions or performance, including the impact of inflationary pressures;

future economic conditions or performance, including the impact of inflationary pressures, foreign exchange fluctuations and commodity prices;

the outcome of outstanding claims or legal proceedings, including asbestos-related liabilities and insurance coverage litigation;

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assumptions underlying any of the foregoing;

and any other statements that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements may be, but not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions.

These statements are based on assumptions and assessments made by our management as of the filing date of this Form 10-Q in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate.

These forward-looking statements are subject to a number of risks and uncertainties and actual results or outcomes could differ materially due to numerous factors, including but not limited to the following:

and any other statement that addresses activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

Forward-looking statements may be, but are not always, characterized by terminology such as “believe,” “anticipate,” “should,” “would,” “could,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” “targets,” “aims,” “seeks,” “sees,” and similar expressions.

These forward-looking statements are subject to a number of risks and uncertainties and actual results or outcomes, or the timing of results or outcomes, could differ materially due to numerous factors, including but not limited to the following:

• the wars in Ukraine and the Middle East, escalating geopolitical tensions and the related impact on energy supplies and prices;

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• significant movements in foreign currency exchange rates or inflation rates;

• the impact of natural or man-made disasters, adverse weather events or conditions, epidemics, pandemics and other global health events;

• the impact of natural or man-made disasters, adverse or extreme weather events or conditions, epidemics, pandemics and other global health events;

• our ability and the ability of our customers to access required capital at a reasonable cost;

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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 Item 1A.

“Risk Factors” in Part I in our 2023 Form 10-K.

“Risk Factors” in our 2023 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.

• other risks and factors set forth under “Risk Factors” in Part I.

in our 2023 Form 10-K.

“Risk Factors” in our 2023 Form 10-K for a further discussion regarding reasons that actual results and outcomes, and the timing of 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 this form 10-Q.

We do not assume any obligation to update or revise any forward-looking statement, whether because of new information, future events and developments or otherwise.

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

We believe that the recent acquisitions of Sager S.A.

on February 26, 2024 and Therapy Equipment Limited (“Therapy Equipment”) on January 11, 2023 are aligned with this strategic direction.

Refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three months ended March 29, 2024 and March 31, 2023.

We believe that the recent acquisitions of Linde Industries Private Limited on July 2, 2024, Sager S.A.

on February 26, 2024 and Therapy Equipment Limited (“Therapy Equipment”) on January 11, 2023 as well as the April 30, 2024 agreement to acquire SUMIG Soluções para Solda e Corte Ltda are aligned with this strategic direction.

Refer to Note 3, “Acquisitions” and Note 16, “Subsequent Events” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and six months ended June 28, 2024 and June 30, 2023.

Results of Operations

The following discussion of Results of Operations addresses the comparison of the periods presented.

The following discussion of our Results of Operations addresses the comparison of the periods presented.

Our management evaluates the operating results of each of its reportable segments based upon Net sales, Adjusted EBITDA and Core adjusted EBITDA as defined in the “Non-GAAP Measures” section.

Items Affecting Comparability of Reported Results

The comparability of our operating results for the three months ended March 29, 2024 and March 31, 2023 is affected by the following additional significant items:

The comparability of our operating results for the three and six months ended June 28, 2024 and June 30, 2023 is affected by the following significant factors:

Russia and Ukraine conflict

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Foreign Currency Fluctuations

A significant portion of our Net sales, 78%, for the three months ended March 29, 2024 are outside the United States, with the majority of those sales denominated in currencies other than the U.S.

A significant portion of our Net sales, 77% and 78% , for the three and six months ended June 28, 2024, respectively, are outside the United States, with the majority of those sales denominated in currencies other than the U.S.

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

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

For the three months ended March 29, 2024 compared to the three months ended March 31, 2023, fluctuations in foreign currencies reduced Net sal es by 1.7% and Gross profit by 1.7% and increased Selling, general and administrative expenses by 0.1%.

For the three months ended June 28, 2024 compared to the three months ended June 30, 2023, fluctuations in foreign currencies reduced Net sal es by 3.4% and Gross profit by 3.6% and Selling, general and administrative expenses by 1.4%.

For the six months ended June 28, 2024 compared to the six months ended June 30, 2023 , fluctuations in foreign currencies reduced Net sal es by 2.6% and Gross profit by 2.7% and Selling, general and administrative expenses by 0.7%.

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

Non-GAAP Measures

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

Adjusted EBITDA is a non-GAAP performance measure that we include in this Form 10-Q because it is a key metric used by our management to assess our operating performance.

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

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Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, acquisition-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, and which removes the impact of Russia for three months ended March 29, 2024 and March 31, 2023.

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 removes the impact of Russia for the three and six months ended June 28, 2024 and June 30, 2023.

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

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GAAP financial measures.

The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin by segment for the three months ended March 29, 2024 and March 31, 2023.

Three Months Ended March 29, 2024

Americas EMEA & APAC Total

Three Months Ended June 28, 2024 Six Months Ended June 28, 2024

Americas EMEA & APAC Total Americas EMEA & APAC Total

(Dollars in millions) (1)

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Restructuring and other related charges (2)

0.8 4.0 4.8 1.1 5.6 6.7

Acquisition-amortization and other related charges (3)

4.3 3.3 7.7 8.7 6.8 15.5

Depreciation and other amortization 3.7 5.5 9.1 7.2 10.7 17.9

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

— 6.9 6.9 — 12.9 12.9

Core adjusted EBITDA (non-GAAP) (1)

$ 64.7 $ 69.3 $ 134.0 $ 118.8 $ 138.3 $ 257.1

Adjusted EBITDA margin (non-GAAP) 20.9 % 19.2 % 19.9 % 19.6 % 19.1 % 19.3 %

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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, impairment of long-lived assets and other costs in connection with the closure and optimization of facilities and product lines.

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

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

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

(5) Net sales wer e $33.6 million relating to Russia for the three months ended March 29, 2024.

Three Months Ended March 31, 2023

Americas EMEA & APAC Total

(5) Net sales wer e $40.7 million and $74.4 million relating to Russia for the three and six months ended June 28, 2024, respectively .

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

Americas EMEA & APAC Total Americas EMEA & APAC Total

(Dollars in millions) (1)

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Restructuring and other related charges (2)

3.0 2.2 5.2 3.9 10.7 14.6

Acquisition-amortization and other related charges (3)

5.4 3.8 9.3 10.7 7.8 18.5

Depreciation and other amortization 3.8 5.2 9.0 7.1 10.5 17.6

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

— 5.6 5.6 — 10.9 10.9

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

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

(5) Net sales were $37.1 million relating to Russia for the three months ended March 31, 2023.

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

Total Company

Net sales increased for th e three months ended March 29, 2024 as compared with the three months ended March 31, 2023 .

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

Net sales decreased for th e three and six months ended June 28, 2024 as compared with the three and six months ended June 30, 2023 .

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

Three Months Ended

Net Sales Change %

Six Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three months ended March 31, 2023

For the three and six months ended June 30, 2023

$ 720.4 $ 1,404.4

Components of Change:

Existing businesses (organic sales growth) (1)

8.4 1.2 % 25.0 1.8 %

Acquisitions (2)

2.7 0.4 % 3.7 0.3 %

Foreign currency translation (3)

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Total sales growth (13.3) (1.8) % (7.6) (0.5) %

For the three months ended March 29, 2024

For the three and six months ended June 28, 2024

$ 707.1 $ 1,396.8

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

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

Net sales from existing businesses increased $16.6 million during the three months ended March 29, 2024, compared to the prior year period, due to an increase in sales volumes of $8.2 million and customer pricing increases of $8.4 million.

During th e three months ended March 29, 2024, net sales from acquisitions were attributable to Therapy Equipment and Sager S.A.

Th e strengthening of the U.S.

Dollar relative to other currencies caused a $11.9 million unfavorable currency translation impact dur ing the three months ended March 29, 2024.

Net sales from existing businesses increased $8.4 million during the three months ended June 28, 2024, compared to the prior year period, due to an increase in sales volumes and new product initiatives for a combined $6.9 million and customer pricing increases of $1.5 million.

During the three months ended June 28, 2024, the increase in net sales from acquisitions was attributable to Sager S.A.

The strengthening of the U.S.

Dollar relative to other currencies caused a $24.4 million unfavorable currency translation impact during the three months ended June 28, 2024.

Net sales from existing businesses increased $25.0 million during the six months ended June 28, 2024, compared to the prior year period, due to an increase in sales volumes of $16.7 million and customer pricing increases of $8.3 million.

During the six months ended June 28, 2024, the increase in net sales from acquisitions was attributable to Therapy Equipment and Sager S.A.

The strengthening of the U.S.

Dollar relative to other currencies caused a $36.3 million unfavorable currency translation impact during the six months ended June 28, 2024.

Sales excluding Russia

Sales excluding Russia (“Core Sales”) inc reased for the three months ended March 29, 2024 as compared with the three months ended March 31, 2023.

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

Sales excluding Russia (“Core Sales”) decreased for the three and six months ended June 28, 2024 as compared with the three and six months ended June 30, 2023.

The following table presents the components of changes in our Core Sales.

Three Months Ended

Six Months Ended

Core Sales (4)

Change % Core Sales (4)

(Dollars in millions)

For the three months ended March 31, 2023

For the three and six months ended June 30, 2023

$ 680.1 $ 1,326.9

Components of Change:

Existing businesses (core organic sales growth) (1)

3.9 0.6 % 16.9 1.3 %

Acquisitions (2)

2.7 0.4 % 3.7 0.3 %

Foreign currency translation (3)

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Total core sales growth (13.8) (2.0) % (4.5) (0.3) %

For the three months ended March 29, 2024

(1) Numbers may not sum due to rounding.

For the three and six months ended June 28, 2024

$ 666.3 $ 1,322.4

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

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

(5) Net sales relating to Russia were $33.6 million for the three months ended March 29, 2024, and $37.1 million for the three months ended March 31, 2023.

Core Sales from existing businesses for ESAB increased $13.0 million during the three months ended March 29, 2024, compared to the prior year period primarily due to customer pricing increases of $5.3 million and an increase in sales volume of $7.7 million du ring the three months ended March 29, 2024.

During the three months ended March 29, 2024, net sales from acquisitions were attributed to Therapy Equipment and Sager S.A.

The changes in foreign exchange rates caused a $4.8 million unfavorable currenc y translation impact during the three months ended March 29, 2024.

(4) Net sales relating to Russia were $40.7 million and $74.4 million for the three and six months ended June 28, 2024, respectively, and $40.3 million and $77.5 million for the three and six months ended June 30, 2023, respectively.

Core Sales from existing businesses increased $3.9 million during the three months ended June 28, 2024, compared to the prior year period primarily due to a $3.3 million increase in sales volume and customer pricing increases of $0.6 million during the three months ended June 28, 2024.

During the three months ended June 28, 2024, the increase in net sales from acquisitions was attributable to Sager S.A.

The changes in foreign exchange rates caused a $20.4 million unfavorable currency translation impact during the three months ended June 28, 2024.

Core Sales from existing businesses increased $16.9 million during the six months ended June 28, 2024, compared to the prior year period primarily due to an increase in sales volume of $12.6 million and customer pricing increases of $4.3 million during the six months ended June 28, 2024.

During the six months ended June 28, 2024, the increase in net sales from acquisitions was attributable to Therapy Equipment and Sager S.A.

The changes in foreign exchange rates caused a $25.1 million unfavorable currency translation impact during the six months ended June 28, 2024.

Operating Results

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Three Months Ended

March 29, 2024 March 31, 2023

Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

(Dollars in millions)

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Restructuring and other related charges (1)

$ 4.8 $ 5.2 $ 6.7 $ 14.6

Acquisition-amortization and other related charges (2)

7.7 9.3 15.5 18.5

Interest expense and other, net 15.9 18.8 33.0 38.3

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

$ 6.9 $ 5.6 $ 12.9 $ 10.9

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

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

First Quarter of 2024 Compared to First Quarter of 2023

Gross profit increased $7.6 million in the first quarter of 2024, which resulted in the gross profit margin expanding 80 basis points to 37.0% compared with the prior year period.

This increase was primarily attributable to benefits from price and product mix, partially offset by unfavorable currency translation.

Selling, general and administrative expense decreased $4.8 million in the first quarter of 2024, compared to the prior year period.

This decrease is primarily driven by savings from restructuring initiatives.

The effective tax rate of 22.7% for the quarter ended March 29, 2024 differed from the effective tax rate of 52.0% for the same period ending March 31, 2023 due to discrete tax adjustments in 2023 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 that do not recur in 2024.

Net income from continuing operations increased $28.8 million in the first quarter of 2024, compared with the prior year period primarily due to lower restructuring charges, interest expenses and other, net and tax expense partially off set by a pension settlement loss.

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

In the first quarter of 2024, Adjusted EBITDA increased $11.1 million and Adjusted EBITDA margin increased by 150 basis points compared to the same period in 2023 benefiting from higher Gross profit and lower Selling, general and administrative expense.

Core adjusted EBITDA increased from $112.7 million to $123.2 million, and Core adjusted EBITDA margins expanded 140 basis points from 17.4% to 18.8%.

Second Quarter of 2024 Compared to Second Quarter of 2023

Gross profit increased $6.4 million in the second quarter of 2024, which resulted in gross profit margin expanding 160 basis points to 38.2% compared with the prior year period.

This increase was primarily attributable to lower overall material costs and favorable product mix partially offset by unfavorable currency translation.

Selling, general and administrative expense decreased $3.9 million in the second quarter of 2024, compared to the prior year period.

This decrease was primarily driven by savings from restructuring initiatives and currency translation.

The effective tax rate of 17.3% for the quarter ended June 28, 2024 differed from the effective tax rate of 23.4% for the same period ended June 30, 2023 due to a favorable ruling in a tax case in a foreign jurisdiction in 2024.

Net income from continuing operations increased $16.7 million in the second quarter of 2024, compared with the prior year period primarily due to the aforementioned factors.

Net income margin from continuing operations increased by 250 basis points due to the aforementioned factors.

In the second quarter of 2024, Adjusted EBITDA increased $8.9 million and Adjusted EBITDA margin increased by 160 basis points compared to the same period in 2023 benefiting from higher Gross profit and lower Selling, general and administrative expense.

Core adjusted EBITDA increased $7.5 million, and Core adjusted EBITDA margins expanded by 150 basis points compared to the same period in 2023.

Six Months Ended June 28, 2024 Compared to Six Months Ended June 30, 2023

Gross profit increased $14.0 million in the six months ended June 28, 2024, which resulted in the gross profit margin expanding 120 basis points to 37.6% compared with the prior year period.

This increase was primarily attributable to benefits from price, lower overall material costs and favorable product mix, partially offset by unfavorable currency translation.

Selling, general and administrative expense decreased $8.8 million in the six months ended June 28, 2024, compared to the prior year period.

This decrease was primarily driven by savings from restructuring initiatives and currency translation.

The effective tax rate of 19.7% for the six months ended June 28, 2024 differed from the effective tax rate of 36.0% for the same period ending June 30, 2023 due to discrete tax adjustments in 2023 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 and a discrete tax adjustment in 2024 for a favorable final ruling in a tax case in a foreign jurisdiction.

Net income from continuing operations increased $45.4 million in the six months ended June 28, 2024, compared with the prior year period primarily due to lower restructuring charges, currency translation and tax expense partially offset by a pension settlement loss.

Net income margin from continuing operations increased by 330 basis points due to the aforementioned factors.

In the six months ended June 28, 2024, Adjusted EBITDA increased $20.0 million and Adjusted EBITDA margin increased by 150 basis points compared to the same period in 2023 benefiting from higher Gross profit and lower Selling, general and administrative expense.

In the six months ended June 28, 2024, Core adjusted EBITDA increased by $18.0 million, and Core adjusted EBITDA margins expanded by 150 basis points.

Business Segments

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Three Months Ended

March 29, 2024 March 31, 2023

Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

(Dollars in millions)

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Depreciation and other amortization $ 3.7 $ 3.8 $ 7.2 $ 7.1

First Quarter of 2024 Compared to First Quarter of 2023

Net sales in our Americas segment increased $4.4 million in the first quarter of 2024, compared with the prior year period.

Net sales from existing business increased $8.9 million partially offset by $5.3 million in unfavorable currency translation.

The increase in Net sales from existing business was mainly due to pricing increases partially offset by a decrease in sales volumes due to fewer trading days from adverse weather in January in North America and the timing of Easter holidays versus the prior year .

Second Quarter of 2024 Compared to Second Quarter of 2023

Net sales in our Americas segment decreased $0.5 million in the second quarter of 2024, compared with the prior year period.

Net sales from existing business increased $12.5 million, and was offset by $15.7 million in unfavorable currency translation.

The increase in Net sales from existing business was mainly due to pricing increases.

The acquisition of Sager S.A.

contributed to $2.7 million of the overall sales increase.

Gross profit increased $5.4 million due to price increases, partially offset by inflation-related cost increases and an unfavorable currency impact.

Gross profit margin expanded 120 basis points to 37.5%, due to price increases, partially offset by inflation.

Adj usted EBITDA increased $4.7 million to $54.1 million and margins expanded 130 basis points to 18.3% primarily because of the aforementioned factors.

Gross profit increased $7.8 million and Gross profit margin expanded by 260 basis points to 39.7% in the second quarter of 2024.

These increases were primarily due to price increases, lower material costs, ongoing product simplification and restructuring partially offset by an unfavorable currency impact.

Adjusted EBITDA increased $6.4 million to $64.7 million and margins expanded 210 basis points to 20.9% primarily due to the aforementioned factors.

Six Months Ended June 28, 2024 Compared to Six Months Ended June 30, 2023

Net sales in our Americas segment increased $4.0 million in the six months ended June 28, 2024 compared with the prior year period.

Net sales from existing business increased $21.4 million, and was partially offset by $21.0 million in unfavorable currency translation.

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

The Sager S.A.

acquisition contributed to $3.6 million of the overall sales increase.

Gross profit increased $13.0 million to $233.9 million due to price increases, benefits from a product line simplification initiative, and the Sager S.A.

acquisition, partially offset by an unfavorable currency impact.

Gross profit margin increased 190 basis points to 38.6% primarily due to price increases, benefits from a product line simplification initiative, and the accretive impact of the Sager S.A.

acquisition, partially offset by the impacts of inflation.

Selling, general and administrative expense remained relatively consistent year over year.

Adjusted EBITDA increased $11.1 million to $118.8 million and margins expanded 170 basis points to 19.6% primarily because of the aforementioned factors.

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

Three Months Ended

March 29, 2024 March 31, 2023

Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

(Dollars in millions)

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Adjusted EBITDA attributable to Russia (non-GAAP) $ 6.9 $ 5.6 $ 12.9 $ 10.9

First Quarter of 2024 Compared to First Quarter of 2023

Net sales increased for our EMEA & APAC segment by $1.3 million in the first quarter of 2024, compared with the prior year period.

Net sales from existing business increased $7.7 million offset by $6.6 million in unfavorable currency translation.

The increase in Net sales from existing business was primarily due to an increase in sales volumes.

Gross pr ofit increased $2.3 million in the first quarter of 2024 compared with the prior yea r period primarily due to an increase in sales volumes and improved product mix.

Gross profit margin expanded 50 basis points compared to the same period in 2023 due to the increase in sales as mentioned above.

Selling, general and administrative expense decreased compared to the same period in 2023 due to savings from restructuring initiatives.

Core adjusted EBITDA increased from $63.2 million to $69.1 million and the related Core adjusted EBITDA margins expande d 140 basis points from 17.8% to 19.2% primarily because of the aforementioned factors.

Second Quarter of 2024 Compared to Second Quarter of 2023

Net sales decreased for our EMEA & APAC segment by $12.9 million in the second quarter of 2024, compared with the prior year period.

This decrease was due to a $4.1 million decrease in Net sales from existing business and a $8.8 million unfavorable currency translation.

The decrease in Net sales from existing business was primarily due to a decrease in customer pricing and unfavorable currency exchange impact.

Gross profit decreased $1.4 million in the second quarter of 2024 compared with the prior year period primarily due to lower pricing and an unfavorable currency impact partially offset by lower overall material costs and improved product mix.

Gross profit margin expanded 80 basis points compared to the same period in 2023 primarily due to improved product mix and lower overall material costs.

Selling, general and administrative expense decreased compared to the same period in 2023 mainly due to savings from restructuring initiatives.

Core adjusted EBITDA increased to $69.3 million and the related Core adjusted EBITDA margins expanded 110 basis points to 19.5% primarily because of the aforementioned factors.

Six Months Ended June 28, 2024 Compared to Six Months Ended June 30, 2023

Net sales in our EMEA & APAC segment decreased $11.6 million in the six months ended June 28, 2024 compared with the prior year period.

Net sales from existing business increased $3.6 million, and was partially offset by $15.3 million in unfavorable currency translation.

The increase in Net sales from existing business was primarily due to an increase in sales volumes partially offset by decreases in customer pricing.

The Therapy Equipment acquisition contributed to $0.1 million of the overall sales increase.

Gross profit and Gross profit margin increased $0.9 million and 60 basis points, respectively, due to lower cost of materials and improved product mix partially offset by an unfavorable currency impact.

Selling, general and administrative expense decreased $8.8 million primarily due to lower employee costs, savings from restructuring initiatives and favorable currency translation.

Adjusted EBITDA increased to $151.3 million and margins expanded 140 basis points to 19.1% primarily because of the aforementioned factors.

Adjusted Core EBITDA increased to $138.5 million and margins expanded 120 basis points to 19.3% primarily because of the aforementioned factors.

Liquidity and Capital Resources

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

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

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

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

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

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

Also on June 28, 2022, we borrowed the entire $600 million under 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 March 29, 2024, we were in compliance with the covenants under the Credit Agreement.

As of March 29, 2024, the weighted average interest rate of borrowings under the Credit Agreement was 5.09%, excluding accretion of deferred financing fees.

Refer to Note 11, “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to swap agreements.

After the quarter ended March 29, 2024, on April 9, 2024, the Company completed a $700.0 million Senior Note Offering (the “Offering”).

The Offering has a contractual interest rate of 6.25% and expected maturity date of April 15, 2029.

The Company used the net proceeds from the Offering to repay $588.8 million of borrowings under its Term Loan A-3 Facility, representing all outstanding borrowings under the Term Loan A-3 Facility, and pay fees associated with the Offering.

The Company intends to use the remaining proceeds received to repay borrowings under its Revolving Facility and other general corporate purposes.

As of the end of the first quarter, we had the capacity for additional indebtedness of up to $738 million available on the Revolving Facility, subject to meeting financial covenants and other requirements.

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

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

As of June 28, 2024, we were in compliance with the covenants under the Credit Agreement and the Company’s weighted average interest rate of Debt was 5.13%, excluding accretion of deferred financing fees and net of interest rate hedge impacts.

As of the end of the second quarter, we had the capacity for additional indebtedness of up to $750 million available on the Revolving Facility, subject to meeting financial covenants and other requirements.

Additionally, we have the ability to incur $50.0 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we have used from time to time in the past for short-term working capital needs.

Refer to Note 10, “Debt” and Note 11, “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Facilities and derivative instruments.

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 and thereafter.

As of March 29, 2024, we had $76.5 million of Cash and cash equivalents, a decrease of $25.5 million from the balance of $102.0 million as of December 31, 2023.

As of June 28, 2024, we had $228.5 million of Cash and cash equivalents, an increase of $126.5 million from the balance of $102.0 million as of December 31, 2023.

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

Three Months Ended

March 29, 2024 March 31, 2023

Six Months Ended

June 28, 2024 June 30, 2023

(Dollars in millions) (1)

3 unchanged sentences

Acquisition, net of cash received (18.1) (18.2)

Other (1.5) —

Other investing (3.1) —

Net cash used in investing activities (36.9) (33.3)

Proceeds from borrowings on Senior Notes 700.0 —

Proceeds from borrowings on revolving credit facility and other 205.0 280.0

Repayments of borrowings on term credit facility (6.3) —

Repayments of borrowings on Term Loans (597.5) —

Repayments of borrowings on revolving credit facility and other (237.0) (340.5)

Payment of debt issuance costs and other (15.7) —

Payment of dividends (7.3) (6.1)

Distributions to noncontrolling interest holders (1.2) (1.3)

Net cash used in financing activities (33.9) (7.0)

Net cash provided by (used in) financing activities 46.3 (67.9)

Effect of foreign exchange rates on Cash and cash equivalents (10.4) 2.9

(Decrease) increase in Cash and cash equivalents $ (25.5) $ 10.0

Increase in Cash and cash equivalents $ 126.5 $ 2.4

(1) Numbers may not sum due to rounding.

1 unchanged sentence

Changes in significant operating cash flow items are discussed below.

• Operating cash flow was positively impacted by increased operating income f or the three months ended March 29, 2024, partly offset by higher working capital to support growth .

• Discontinued operations for the three months ended March 29, 2024 and March 31, 2023 included outflows of $3.7 million and $5.4 million, respectively, which were mainly asbestos-related.

• Restructuring initiative payments were $2.9 million for the three months ended March 29, 2024 and $4.2 million for the three months ended March 31, 2023, 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.

• Operating cash flow was positively impacted by increased operating income for the six months ended June 28, 2024, partially offset by higher working capital to support growth.

• Discontinued operations for the six months ended June 28, 2024 and June 30, 2023 included outflows of $8.5 million and $9.7 million, respectively, which were mainly asbestos-related.

• Restructuring initiative payments were $5.4 million for the six months ended June 28, 2024 and $10.2 million for the six months ended June 30, 2023, which included severance and other termination benefits, including outplacement services as well as the cost of relocating associates, relocating equipment and other costs in connection with the closure and optimization of facilities and product lines.

Cash flows used in investing activities include $18.1 million of cash used primarily for the acquisition of Sager S.A.

during the three months ended March 29, 2024.

Cash outflows used in financing activities of $33.9 million during the three months ended March 29, 2024 was primarily driven by net repayment of borrowings on the Revolving Facility of $20.0 million, repayment of $6.3 million on the term credit facility and cash dividends of $3.6 million.

Our Cash and cash equivalents as of March 29, 2024 include $69.5 million held in jurisdictions outside the United States.

during the six months ended June 28, 2024.

Cash inflows provided by financing activities of $46.3 million during the six months ended June 28, 2024 was primarily driven proceeds from borrowings on long-term debt of $905.0 million partially off-set by net repayment of borrowings on the long-term debt of $834.5 million, payment of debt issuance cost of $10.4 million and cash dividends of $7.3 million.

Our Cash and cash equivalents as of June 28, 2024 included $217.8 million held in jurisdictions outside the United States.

Cash repatriation of non-United States cash into the United States may be subject to withholding taxes, other local statutory restrictions and minority owner distributions.

Critical Accounting Policies

Critical Accounting Policies and Estimates

The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on our results of operations and financial position.

5 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