What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-22 · 93 added, 64 removed, 147 unchanged (52% of the section changed)

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Macroeconomic Events

Supply chain challenges continue to impact the global economy.

Our operating performance throughout 2023 has benefited from fewer supply chain disruptions enabling us to obtain key component parts, increase production and reduce backlog.

We continue to address and adapt to these temporary supply chain disruptions by employing local-for-local and region-for-region manufacturing and sourcing strategies, which allows us to contain costs and manufacture our products closer to our customers.

At the same time, our engineering teams are evaluating our platform design to increase our sourcing flexibility.

We are impacted by customer spend and global demand for our products.

We have been able to successfully manage volatility in demand through our broad and expanding product offerings.

The global nature of our operations subjects us to exposures resulting from both foreign currency exchange fluctuations in the normal course of business and geopolitical risks stemming from global conflicts.

While we do not have any direct operations or employees in areas experiencing conflict, our operating results have been and may continue to be negatively impacted by supply chain constraints and inflationary pressures stemming from these conflicts.

As described in Part I, Item 1A - Risk Factors, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers.

Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows.

We are actively monitoring the macroeconomic environment, especially the potential impact of global supply chain constraints on cost inflation, and the potential decreased demand for our products.

While global economic conditions continue to be uncertain, including the ability to attract and retain skilled labor, lingering and targeted supply chain disruptions, and evolving compliance regulations, we remain agile as we continue to manage evolving conditions.

We are confident in the long-term growth trends for all our products and services in the markets we serve.

Recent geopolitical and macroeconomic events have led to economic uncertainty and volatility globally.

Additionally, shifts in the U.S.

and international government policies and priorities such as changes in tariffs, trade barriers, and price and exchange controls could impact demand for our products and services, disrupt supply chain, and ultimately have an adverse effect on our business.

Our business is influenced by customer spending and global demand for our products.

We are closely monitoring challenging business conditions in APAC, especially in China, which continues to experience market saturation, leading to decreased demand for our mid-tier products and heightened pricing pressures in the region.

In Australia, there are signals of reduced demand as customers are delaying equipment orders or moving to rental units.

To address these pressures, we've implemented adaptive measures, such as streamlining operations and refining cost management strategies.

Amid the uncertainty of a slowing global economy, global inflation, and geopolitical challenges, we continue to remain focused on long-term resilience.

While we are unable to predict the full effect of these geopolitical and macroeconomic events and how they might evolve, we are committed to supporting our customers, maintaining operational stability, and navigating the volatile global landscape with a focus on sustainable growth.

See the "Risk Factors" section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the above conflicts and macroeconomic events on our business and financial results.

As w e look ahead to 2025, while we expect to face a significant backlog headwind in 2025, the underlying business continues to drive year-over-year order growth.

Given the robust reception to our recent product

introductions and a solid pipeline of upcoming products, combined with expanded go-to-market strategies and a disciplined pricing approach, we are well positioned to continue to execute our enterprise growth strategy effectively.

Historical Results

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Research and development expense 43.8 3.4 36.6 2.9

Gain on sale of assets — — (3.7) (0.3)

Operating income 114.3 8.9 138.6 11.1

Interest expense, net (9.1) (0.7) (13.5) (1.1)

Net foreign currency transaction gain (loss) 0.3 — (1.2) (0.1)

Other (expense) income, net (1.6) (0.1) 0.6 0.1

Net foreign currency transaction gain 0.1 — 0.3 —

Other expense, net (0.5) — (1.6) (0.1)

Income before income taxes 104.8 8.1 123.8 10.0

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Consolidated net sales in 2024 totaled $1,286.7 million, a 3.5% increase as compared to consolidated net sales of $1,243.6 million in 2023.

The components of the consolidated net sales change were as follows:

Twelve Months Ended December 31,

Organic growth 3.2%

Acquisitions 0.7%

Foreign currency (0.4)%

Total growth 3.5%

The 3.5% increase in consolidated net sales was driven by:

• Organic sales increase of approximately 13.6% primarily due to the impact of higher selling prices across all regions and volume increases;

• A net favorable impact from foreign currency exchange across all business units of approximately 0.3%.

Our strong organic sales increase was mainly supported by our ability to reduce backlog through the procurement of key component parts to facilitate increased production output.

• Organic sales growth of 3.2% attributed to price realization across all regions, favorable product and channel mix, and higher equipment sales in the Americas, partly offset by volume declines in the EMEA and APAC regions;

• Inorganic sales growth of 0.7% driven by the acquisition of TCS;

partly offset by

• A net unfavorable impact from foreign currency exchange of approximately 0.4%.

The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

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Total $ 1,286.7 3.5 $ 1,243.6 0.1

Net sales in the Americas were $840.3 million in 2023, an increase of 19.0% from 2022.

Organic sales grew 18.9%, driven equally by price realization and increased volume across all geographies.

Foreign currency exchange within the Americas favorably impacted net sales by approximately 0.1%.

Net sales in the Americas were $888.5 million in 2024, an increase of 5.7% from 2023 driven by:

• Organic sales growth of 6.3%, primarily due to price realization and volume increases in equipment and service, partly offset by volume declines in parts and consumables in North America;

• A net unfavorable impact from foreign currency exchange of approximately 0.6%.

Europe, Middle East and Africa ("EMEA")

EMEA net sales were $314.4 million in 2023, an increase of 4.2% from 2022.

Organic sales grew 2.6% in EMEA, driven by price realization in all product categories, partially offset by lower EMEA volumes that were impacted by weaker-than-expected market conditions.

Foreign currency exchange within EMEA favorably impacted net sales by approximately 1.6%.

EMEA net sales were $318.5 million in 2024, an increase of 1.3% from 2023 driven by:

• Inorganic sales growth of 2.6% driven by the acquisition of TCS;

• A net favorable impact from foreign currency exchange of approximately 0.3%;

partly offset by

• Organic sales decrease of 1.6%, primarily due to volume declines in both equipment sales and parts and consumables, partly offset by price realization in all categories.

EMEA volumes were impacted by weak economic conditions and a small contribution from backlog reduction.

Asia Pacific ("APAC")

APAC net sales were $88.9 million in 2023, an increase of 5.0% from 2022.

Organic sales grew 8.6% in APAC, driven by price realization in Australia and volume increases in Australia and China.

Foreign currency exchange within APAC unfavorably impacted net sales by approximately 3.6% in 2023.

APAC net sales were $79.7 million in 2024, a decrease of 10.3% from 2023 driven by:

• Organic sales decrease of 9.5%, primarily driven by volume declines partly offset by price realization in China and Australia;

• A net unfavorable impact from foreign currency exchange of approximately 0.8%.

Backlog is one of the many indicators of business conditions in the Company's markets.

Our order backlog was approximately $61.5 million at December 31, 2024, compared to $186.2 million at December 31, 2023.

The decrease in our order backlog is the result of the Company's ability to obtain key component parts and increase production levels.

Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

From 2020 to 2022, our backlog grew to unusually high levels due to supply chain constraints resulting from the COVID-19 pandemic.

This trend began to reverse in 2023 as supply chain conditions improved, allowing us to obtain key component parts and increase production levels.

As a result, our order backlog at December 31, 2024 reflects a return to normalized levels.

Gross profit margin of 42.7% was 30 basis points higher in 2024 compared to 2023.

The margin rate increase was the result of price realization and cost saving initiatives, which more than offset the multi-year impact of inflation.

The margin rate increase was the result of pricing and cost-out initiative efforts, which outpaced the impact of inflation in the year.

Strong margin rates are also supported by favorable product mix, including the reduction of industrial equipment backlog in the first half of 2024.

Operating Expenses

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As a percentage of net sales, S&A expense in 2024 increased 210 basis points to 30.5% from 28.4% in 2023.

The S&A expense increase was driven by higher variable costs linked to improved operating performance as well as strategic investments aimed at fostering future growth.

The S&A expense increase was primarily driven by Enterprise Resource Planning

("ERP") modernization costs, legal contingency costs related to an intellectual property dispute, restructuring-related charges associated with our global workforce realignment, and transaction and integration costs.

Research and Development Expense

Research and Development ("R&D") expense was $36.6 million, or 2.9% of net sales, in 2023, nearly flat as a percentage of net sales compared to 2022.

We conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products.

We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.

Research and Development ("R&D") expense was $43.8 million, or 3.4% of net sales, in 2024, with R&D as a percentage of sales increasing 50 basis points compared to 2023.

We continue to invest in developing innovative products and technologies at levels necessary to propel our technology, innovative leadership position and drive growth.

Total Other Expense, Net

Interest Expense, Net

Interest expense, net was $13.5 million in 2023, an increase of $6.4 million compared to 2022.

The increase was the result of rising interest rates on our variable interest rate debt, partially offset by lower debt levels.

Interest expense, net was $9.1 million in 2024, a decrease of $4.4 million compared to 2023.

The decrease was the result of lower weighted average outstanding borrowings.

The following table compares the weighted average outstanding borrowings, average interest rate, interest expense and interest income for the years ended December 31 (in millions, except percentages):

Weighted Average Outstanding Borrowings $ 211.8 $ 270.4

Average interest rate 6.42 % 6.27 %

Interest expense 13.6 17.0

Interest income (4.5) (3.5)

Interest expense, net $ 9.1 $ 13.5

Our debt portfolio as of December 31, 2024 was comprised of debt predominately in U.S.

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Foreign Currency Transaction Gain/Loss

Net foreign currency transaction gain was $0.3 million in 2023, compared to a $1.2 million loss in 2022.

The favorable impact was primarily due to weakening of the Chinese Renminbi relative to the U.S.

dollar on foreign U.S.

dollar denominated receivables during 2023, compared to strengthening of the U.S.

dollar relative to the Brazilian real on foreign denominated liabilities in 2022.

Net foreign currency transaction gain was $0.1 million in 2024, compared to a $0.3 million gain in 2023.

The favorable impact was primarily due to hedging gains on foreign denominated receivables.

The effective tax rate for 2024 was 20.1% compared to 11.6% in 2023.

The decrease in the effective tax rate was primarily driven by certain nonrecurring tax items.

The increase in the effective tax rate was primarily driven by the value of certain non-cash exceptional tax items.

Both the 2024 and 2023 tax rates include benefits related to a reduction to a deferred tax liability on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses.

These nonrecurring events had one-time impacts of (12.0%) in 2023 and (7.2%) in 2022.

We do not expect similar benefits in future years.

These non-cash events had impacts of (3.7%) in 2024 and (12.0%) in 2023.

Absent these benefits the effective tax rate for 2024 and 2023 would be 23.8% and 23.6%, respectively.

In December 2021, the Organization for Economic Cooperation and Development ("OECD"), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule").

The OECD has recommended that the Pillar Two rule become effective for fiscal years beginning on or after January 1, 2024.

To date, member states are in various stages of implementing the rules through local legislation, and the OECD continues to refine the technical guidance.

We are closely monitoring developments of the Pillar Two rule and are currently evaluating the potential effect in each of the countries we operate in.

Member states have begun implementing the rules through local legislation and the OECD continues to refine technical guidance.

We have considered the applicable developments under the Pillar Two rules and there is no material impact on the 2024 consolidated financial statements.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial.

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Our debt-to-capital ratio was 24.3% as of December 31, 2024, compared to 25.8% as of December 31, 2023.

As of December 31, 2024, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $449.3 million of unused borrowing capacity on our revolving facility.

On February 11, 2025, the Company's Board of Directors authorized a quarterly cash dividend of $0.295 per share payable on March 14, 2025, to shareholders of record at the close of business on February 28, 2025.

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Net cash provided by operating activities in 2024 was $89.7 million compared to net cash provided by operating activities of $188.4 million in 2023.

The increase in cash provided was the result of strong operating performance and managed reductions in working capital investments.

The decrease in cash provided was the result of consumption of working capital, mainly related to inventories, accounts receivable and bonus payouts, and spend on our ERP modernization project of $37.3 million.

Cash Flow from Investing Activities

Net cash used in investing activities in 2024 was $78.4 million compared to net cash used in investing activities of $23.2 million in 2023.

The decrease in cash outflows was primarily driven by reduced property, plant and equipment investments as the Company continues to deploy cash flow toward operational capital needs.

The increase in cash outflows was primarily driven by cash used for the investment in Brain Corp of $32.1 million and cash used, net of cash acquired, for the acquisition of TCS of $25.7 million.

Cash Flow from Financing Activities

Net cash used in financing activities in 2023 was $122.6 million compared to net cash provided by financing activities of $8.1 million in 2022.

The increase in cash used was primarily driven by repayments of borrowings and share repurchases.

Net cash used in financing activities in 2024 was $25.2 million compared to net cash used in financing activities of $122.6 million in 2023.

The decrease in cash outflows was primarily driven by proceeds from exercises of stock options decreased net repayments of borrowings, partly offset by dividend payments and share repurchases.

Stock Repurchase Program

On February 11, 2025, our board of directors authorized the repurchase of up to 2,000,000 shares of our common stock.

This increase was in addition to the remaining authorized shares under our prior common stock repurchase program that was authorized on October 31, 2016 (the "Program").

Share repurchases may be made on an opportunistic basis through open market transactions, privately negotiated transactions, or by other means in accordance with applicable federal securities laws.

We are not obligated to purchase any shares, and there is no set date that the program will expire.

Our board of directors, at its discretion, may increase or decrease the number of authorized shares or terminate the Program at any time.

During the year ended December 31, 2024, we repurchased 198,352 shares under the Program, with 623,061 shares of common stock remaining.

For more information related to our stock repurchases, see Note 14, Shareholders' Equity , of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

Cash Requirements

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Newly Issued Accounting Guidance

See Note 2 to the consolidated financial statements for information on new accounting pronouncements.

See Note 2 to the consolidated financial statements for information on newly adopted accounting pronouncements.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements:

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We do not expect the amendments in this update to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires an entity to disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently evaluating the impact of adoption on our financial disclosures.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740):

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We are currently evaluating the impact of adoption on our financial disclosures.

In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220) - Disaggregation of Income Statement Expenses , which requires disaggregation of certain income statement expense captions into specified categories to be disclosed within the notes to the financial statements, but does not change the expense captions on the consolidated income statement.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements.

We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.

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Goodwill – Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition.

We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its

carrying amount.

We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount.

We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

We have the option of first analyzing qualitative factors to determine whether it is more likely

than not that the fair value of any reporting unit is less than its carrying amount.

However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test.

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If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any.

To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach.

To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach and market approach.

The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates.

The market approach is based on assumptions related to earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples.

These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates.

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We perform our annual goodwill impairment analysis as of October 1 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

In 2023, we elected to perform the qualitative test on all reporting units.

Our test indicated that there is no goodwill impairment in any of our reporting units as of our annual assessment date.

In 2024, we elected to perform the quantitative test on the EMEA and APAC reporting units.

Our test indicated that the fair value was substantially in excess of its carrying value.

There was no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $185.6 million and $187.4 million at December 31, 2024 and 2023, respectively.

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• Ability to comply with global laws and regulations.

• Changes in foreign currency translation rates.

• Ability to adapt to price sensitivity.

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• Ability to effectively manage strategic plan or growth processes.

• Ability to successfully upgrade and evolve our information technology systems.

• Ability to implement our new ERP system.

• Ability to successfully protect our information technology systems from cybersecurity risks.

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• Ability to develop and commercialize new innovative products and services.

• Ability to execute our business transformation strategy.

We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown.

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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-K

Item 7. Management’s Discussion and Analysis