What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-08-02 · 128 added, 126 removed, 286 unchanged (47% of the section changed)

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

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

“Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 27, 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.

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plans, strategies and objectives of our management for future operations, including statements relating to potential acquisitions, compensation plans or purchase commitments;

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

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

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

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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 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 they believe to be appropriate.

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Our customer base is highly diversified in the industrial end markets.

Integral to our operations is EBX, our business management system.

Integral to our operations is EBX.

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

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We believe that we are well positioned to grow our businesses organically over the long term by enhancing our product offerings and expanding our customer base.

We believe 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 believe our business mix is well balanced between sales in high growth and developed markets, and equipment and consumables.

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

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

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

We believe that the recent acquisitions of Linde Industries Private Limited (“Linde Industries”) 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.

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 and nine months ended September 27, 2024 and September 29, 2023.

Results of Operations

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Items Affecting Comparability of Reported Results

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

The comparability of our operating results for the three and nine months ended September 27, 2024 and September 29, 2023 is affected by the following significant factors:

Russia and Ukraine conflict

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We complement our organic growth with acquisitions and other investments.

Acquisitions can significantly affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses.

Acquisitions can affect our reported results, and we report the change in our Net sales between periods both from existing and acquired businesses.

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 July 2, 2024, the Company completed the acquisition of Linde Industries, a leading welding company in Bangladesh.

On February 26, 2024, the Company completed the acquisition of Sager S.A., a welding repair and maintenance product and service leader in South America.

For additional information on this acquisition, refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q.

During the first quarter of 2023, we completed the acquisition of Therapy Equipment, a regional leader in oxygen regulators.

For additional information on this acquisition, refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q.

During the first quarter of 2023, the Company completed the acquisition of Therapy Equipment, a regional leader in oxygen regulators.

For additional information on these acquisitions, refer to Note 3, “Acquisitions” in the accompanying Notes contained elsewhere in this Form 10-Q.

Foreign Currency Fluctuations

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.

A significant portion of our Net sales, 79% and 78% , for the three and nine months ended September 27, 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 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%.

For the three months ended September 27, 2024 compared to the three months ended September 29, 2023, fluctuations in foreign currencies reduced Net sal es by 3.1% and Gross profit by 3.6% and Selling, general and administrative expenses by 1.6%.

For the nine months ended September 27, 2024 compared to the nine months ended September 29, 2023 , fluctuations in foreign currencies reduced Net sal es by 2.7% and Gross profit by 3.0% and Selling, general and administrative expenses by 1.0%.

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

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

Adjusted EBITDA excludes from Net income from continuing operations the effect of Income tax expense, Interest expense and other, net, Pension settlement (loss), Restructuring and other related charges, acquisition-amortization and other related charges and depreciation and other amortization.

Adjusted EBITDA excludes from Net income from continuing operations the effect of Income tax expense, Interest expense and other, net, Pension settlement loss, Restructuring and other

related charges, acquisition-amortization and other related charges and depreciation and other amortization.

We also present Adjusted EBITDA margin, which is subject to the same adjustments as Adjusted EBITDA.

Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, 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 the three and six months ended June 28, 2024 and June 30, 2023.

We also present Core adjusted EBITDA and Core adjusted EBITDA margin, which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margin, respectively, and which removes the impact of Russia for the three and nine months ended September 27, 2024 and September 29, 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.

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.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with the accounting principles generally accepted in the United States (“U.S.

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

GAAP financial measures.

The following tables set forth a reconciliation of Net income from continuing operations, the most directly comparable GAAP financial measure, to Adjusted EBITDA, Adjusted EBITDA margin, Core adjusted EBITDA and Core adjusted EBITDA margin by segment for the three and six months ended June 28, 2024 and June 30, 2023.

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

Three Months Ended September 27, 2024 Nine Months Ended September 27, 2024

Americas EMEA & APAC Total Americas EMEA & APAC Total

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Operating income (GAAP) (1)

$ 49.9 $ 56.1 $ 106.0 $ 151.8 $ 184.3 $ 336.0

Adjusted to add:

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Adjusted EBITDA (non-GAAP) (1)

$ 59.4 $ 68.1 $ 127.4 $ 178.2 $ 219.4 $ 397.5

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

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(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.

(3) Includes transaction expenses, amortization of acquired 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 $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

(5) Net sales wer e $37.7 million and $112.0 million relating to Russia for the three and nine months ended September 27, 2024, respectively .

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

Americas EMEA & APAC Total Americas EMEA & APAC Total

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

(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.

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

Total Company

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 .

Net sales decreased for th e three and nine months ended September 27, 2024, compared to the prior year period .

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

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

Net Sales Change % Net Sales Change %

(Dollars in millions)

For the three and six months ended June 30, 2023

For the three and nine months ended September 29, 2023

$ 681.0 $ 2,085.4

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Total sales growth (7.7) (1.1) % (15.4) (0.7) %

For the three and six months ended June 28, 2024

For the three and nine months ended September 27, 2024

$ 673.3 $ 2,070.0

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

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.

Net sales from existing businesses increased $6.6 million during the three months ended September 27, 2024, compared to the prior year period, due to customer pricing increases of $8.7 million that was partially offset by a $2.1 million decrease in sales volumes.

The increase in net sales from acquisitions was attributable to Sager S.A.

and Linde Industries.

The changes in foreign exchange rates caused a $20.9 million unfavorable currency translation impact.

Net sales from existing businesses increased $31.6 million during the nine months ended September 27, 2024, compared to the prior year period, due to an increase in sales volumes of $14.6 million and customer pricing increases of $17.0 million.

The increase in net sales from acquisitions was attributable to Therapy Equipment, Sager S.A.

and Linde Industries.

The changes in foreign exchange rates caused a $57.3 million unfavorable currency translation impact.

Sales excluding Russia

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.

Sales excluding Russia (“Core Sales”) decreased for the three and nine months ended September 27, 2024, compared to the prior year period.

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

Three Months Ended

Six Months Ended

Three Months Ended Nine Months Ended

Core Sales (5)

Change % Core Sales (4)

Core Sales (1)(5)

(Dollars in millions)

For the three and six months ended June 30, 2023

For the three and nine months ended September 29, 2023

$ 644.1 $ 1,971.0

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Total core sales growth (8.5) (1.3) % (13.1) (0.7) %

For the three and six months ended June 28, 2024

For the three and nine months ended September 27, 2024

$ 635.6 $ 1,958.0

(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.

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(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) 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.

(5) Net sales relating to Russia were $37.7 million and $112.0 million for the three and nine months ended September 27, 2024, respectively, and $36.9 million and $114.4 million for the three and nine months ended September 29, 2023, respectively.

Core Sales from existing businesses increased $8.0 million during the three months ended September 27, 2024 compared to the prior year period primarily due to customer pricing increases of $8.3 million partially offset by a $0.3 million decrease in sales volume.

The $6.6 million increase in net sales from acquisitions was attributable to Sager S.A.

and Linde Industries.

The changes in foreign exchange rates caused a $23.1 million unfavorable currency translation impact.

Core Sales from existing businesses increased $24.9 million during the nine months ended September 27, 2024 compared to the prior year period primarily due to an increase in sales volume of $12.4 million and customer pricing increases of $12.5 million.

The increase in net sales from acquisitions was attributable to Therapy Equipment, Sager S.A.

and Linde Industries.

The changes in foreign exchange rates caused a $48.3 million unfavorable currency translation impact.

Operating Results

The following table summarizes our results for the comparable periods.

Three Months Ended

Six Months Ended

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

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

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

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.

Third Quarter of 2024 Compared to Third Quarter of 2023

Gross profit increased $4.1 million in the third quarter of 2024, with gross profit margin expanding 100 basis points compared with the prior year period.

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

Selling, general and administrative expense remained relatively consistent in the third quarter of 2024 compared to the prior year period.

The effective tax rate of 20.3 % for the quarter ended September 27, 2024 differed from the effective tax rate of 24.6 % for the same period ended September 29, 2023 due to an agreement with a tax authority on the treatment of subsidy income in a foreign jurisdiction in 2024.

Net income from continuing operations increased $10.2 million in the third quarter of 2024 compared with the prior year period primarily due to the aforementioned factors as well as lower interest expense.

Net income margin from continuing operations increased by 170 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.

In the third quarter of 2024, Adjusted EBITDA increased $4.9 million and Adjusted EBITDA margin increased by 90 basis points compared to the same period in 2023 benefiting from higher Gross profit.

Core adjusted EBITDA increased $7.0 million, and Core adjusted EBITDA margin expanded by 130 basis points compared to the same period in 2023.

Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023

Gross profit increased $18.1 million in the nine months ended September 27, 2024, with gross profit margin expanding 110 basis points compared with the prior year period.

This increase was primarily attributable to benefits from customer pricing and lower material costs partially offset by unfavorable currency translation.

Selling, general and administrative expense decreased $8.3 million in the nine months ended September 27, 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.

The effective tax rate of 19.9 % for the nine months ended September 27, 2024 differed from the effective tax rate of 32.2% for the same period ending September 29, 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 discrete tax adjustments in 2024 for a favorable final ruling in a tax case in a foreign jurisdiction and an agreement with a taxing authority on the treatment of subsidy income in a foreign jurisdiction in 2024.

Net income from continuing operations increased $55.7 million in the nine months ended September 27, 2024 compared with the prior year period primarily due to the aforementioned factors as well as lower interest and income tax expenses.

Net income margin from continuing operations increased by 270 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.

In the nine months ended September 27, 2024, Adjusted EBITDA increased $24.9 million and Adjusted EBITDA margin increased by 130 basis points compared to the same period in 2023 benefiting from higher Gross profit and lower Selling, general and administrative expense.

In the nine months ended September 27, 2024, Core adjusted EBITDA increased by $25.2 million and Core adjusted EBITDA margin expanded by 140 basis points.

Business Segments

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

Three Months Ended

Six Months Ended

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

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

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Depreciation and other amortization $ 3.8 $ 3.9 $ 10.9 $ 11.1

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.

Third Quarter of 2024 Compared to Third Quarter of 2023

Net sales in our Americas segment decreased $17.0 million in the third quarter of 2024 compared with the prior year period.

Net sales from existing business increased $6.2 million primarily due to pricing increases, which was more than offset by $26.0 million in unfavorable currency translation.

The acquisition of Sager S.A.

contributed to $2.7 million of the overall sales increase.

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.

contributed a $2.8 million increase to Net sales from acquisitions.

Despite lower sales, Gross profit remained relatively consistent with the same period in the prior year due to customer pricing increases, lower material costs and EBX driven business improvements that also expanded Gross profit margin by 170 basis points.

Selling, general and administrative expense decreased by $5.3 million primarily due to savings from restructuring initiatives and currency translation.

Adjusted EBITDA increased $2.2 million and Adjusted EBITDA margin expanded 190 basis points primarily due to the aforementioned factors.

Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023

Net sales in our Americas segment decreased $13.0 million in the nine months ended September 27, 2024 compared with the prior year period.

Net sales from existing business increased $27.6 million, which was more than offset by $47.0 million in unfavorable currency translation.

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

The Sager S.A.

acquisition contributed to $6.4 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.

Gross profit increased $11.4 million and Gross profit margin increased 180 basis points due to price increases, benefits from EBX driven business improvements 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.

Selling, general and administrative expense decreased by $5.6 million primarily due to savings from restructuring initiatives and currency translation.

Adjusted EBITDA increased $13.3 million and Adjusted EBITDA margin expanded 170 basis points primarily because of the aforementioned factors.

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

Three Months Ended

Six Months Ended

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

Three Months Ended Nine Months Ended

September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

(Dollars in millions)

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Adjusted EBITDA attributable to Russia (non-GAAP) $ 2.6 $ 4.7 $ 15.5 $ 15.7

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.

Third Quarter of 2024 Compared to Third Quarter of 2023

Net sales increased for our EMEA & APAC segment by $9.3 million in the third quarter of 2024 compared with the prior year period.

This increase was primarily due to an increase in Net sales from existing business of $0.4 million, a $3.8 million increase related to the acquisition of Linde Industries and a $5.1 million favorable currency translation.

Gross profit increased $5.7 million in the third quarter of 2024 compared with the prior year period primarily due to improved product mix and lower material costs partially offset by lower pricing.

Gross profit margin expanded 70 basis points compared to the same period in 2023 primarily due to improved product mix, lower material costs and EBX driven business improvements.

Selling, general and administrative expense remained relatively consistent compared to the same period in 2023.

Adjusted EBITDA increased $2.8

million and Adjusted EBITDA margin expanded 30 basis points and Core adjusted EBITDA increased to $65.5 million and the related Core adjusted EBITDA margin expanded 100 basis points primarily because of the aforementioned factors.

Nine Months Ended September 27, 2024 Compared to Nine Months Ended September 29, 2023

Net sales in our EMEA & APAC segment decreased $2.4 million in the nine months ended September 27, 2024 compared with the prior year period.

Net sales from existing business increased $4.0 million, with the Therapy Equipment and Linde Industries acquisitions contributing an additional increase of $3.9 million.

These increases were offset by $10.3 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.

Gross profit and Gross profit margin increased $6.7 million and 70 basis points, respectively, due to EBX driven business improvements, lower material costs and improved product mix partially offset by an unfavorable currency impact.

Selling, general and administrative expense decreased $5.8 million primarily due to savings from restructuring initiatives.

Adjusted EBITDA increased $11.7 million and Adjusted EBITDA margin expanded 110 basis points and Core adjusted EBITDA increased to $203.9 million and Core adjusted EBITDA margin expanded 110 basis points 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 approval from the Board of Directors, payment of cash dividends.

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.

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, debt service and required amortization of principal, stock repurchase and, pending approval from the Board of Directors, payment of cash dividends.

As of September 27, 2024, we were in compliance with the covenants under the Credit Agreement and the Company’s weighted average interest rate of Debt was 5.01%, excluding accretion of deferred financing fees and net of interest rate hedge impacts.

As of the end of the third 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.

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

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.

Stock Repurchase Program

On August 13, 2024, the Board of Directors authorized and approved a stock repurchase program to repurchase up to five million shares of the Company’s Common stock, par value $0.001 per share, from time-to-time on the open market, in privately negotiated transactions or as may otherwise be determined by the Company’s management in its discretion.

No repurchases of the Company’s Common stock have been made through the nine months ended September 27, 2024.

The timing and amount of any shares repurchased will be determined by the Company’s management based on its evaluation of market conditions, applicable legal requirements and other factors.

There is no term associated with the remaining repurchase authorization.

As of September 27, 2024, we had $253.7 million of Cash and cash equivalents, an increase of $151.7 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:

Six Months Ended

June 28, 2024 June 30, 2023

Nine Months Ended

September 27, 2024 September 29, 2023

(Dollars in millions) (1)

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Proceeds from sale of property, plant and equipment 3.5 5.2

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

Acquisitions, net of cash received (86.5) (18.7)

Other investing (4.1) —

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Changes in significant operating cash flow items are discussed below.

• 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 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.

• Operating cash flow was positively impacted by increased operating income for the nine months ended September 27, 2024, partially offset by higher working capital to support growth.

• Discontinued operations for the nine months ended September 27, 2024 and September 29, 2023 included outflows of $12.1 million and $12.2 million, respectively, which were mainly asbestos-related.

• Restructuring initiative payments were $8.3 million and $15.4 million for the nine months ended September 27, 2024 and September 29, 2023, respectively.

These payments 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 $86.5 million of cash used for the acquisition of Sager S.A.

and Linde Industries during the nine months ended September 27, 2024.

Cash inflows provided by financing activities of $40.6 million during the nine months ended September 27, 2024 was primarily driven by proceeds from borrowings on long-term debt of $905.0 million partially offset by net repayment of borrowings on long-term debt of $834.1 million, payment of debt issuance costs of 10.4 million and cash dividends of $12.1 million.

The new Senior Notes borrowing in April 2024 provided liquidity beyond the amount needed to refinance extinguished debt.

Our Cash and cash equivalents as of September 27, 2024 included $231.9 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis