ESAB 10Q 2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 29, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number - 001-41297

ESAB Corporation

(Exact name of registrant as specified in its charter)


Delaware									87-0923837
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification Number)

909 Rose Avenue, 8th Floor
North Bethesda, Maryland									20852
(Address of principal executive offices)									(Zip Code)


(301)			323-9099
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ESAB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of September 29, 2023, there were 60,271,072 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements			2
Consolidated and Combined Condensed Statements of Operations			2
Consolidated and Combined Condensed Statements of Comprehensive (Loss) Income			3
Consolidated and Condensed Balance Sheets			4
Consolidated and Combined Condensed Statements of Equity			5
Consolidated and Combined Condensed Statements of Cash Flows			7
Notes to Consolidated and Combined Condensed Financial Statements			8
Note 1. Organization and Basis of Presentation			8
Note 2. Discontinued Operations			9
Note 3. Acquisition			10
Note 4. Revenue			11
Note 5. Earnings Per Share from Continuing Operations			11
Note 6. Income Taxes			12
Note 7. Inventories, Net			12
Note 8. Accrued and Other Liabilities			12
Note 9. Debt			13
Note 10. Derivatives			15
Note 11. Financial Instruments and Fair Value Measurements			17
Note 12. Equity			19
Note 13. Commitments and Contingencies			21
Note 14. Segment Information			22
Note 15. Related Party Transactions			23
Note 16. Subsequent Events			24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			43

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Mine Safety Disclosures			44
Item 5. Other Information			44
Item 6. Exhibits			45

SIGNATURES			46

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS

Dollars in thousands, except per share amounts

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Net sales	$	680,996	$	620,265	$	2,085,418	$	1,929,353
Cost of sales	431,282		410,927		1,324,392		1,268,212
Gross profit	249,714		209,338		761,026		661,141
Selling, general and administrative expense	145,439		121,668		442,836		394,026
Restructuring and other related charges	3,129		6,676		17,742		16,629
Operating income	101,146		80,994		300,448		250,486
Pension settlement gain	—		(3,300)		—		(3,300)
Interest expense and other, net	20,502		12,165		58,831		19,516
Income from continuing operations before income taxes	80,644		72,129		241,617		234,270
Income tax expense	19,808		17,836		77,806		63,629
Net income from continuing operations	60,836		54,293		163,811		170,641
Loss from discontinued operations, net of taxes	(1,723)		(977)		(4,259)		(4,898)
Net income	59,113		53,316		159,552		165,743
Less: Income attributable to noncontrolling interest, net of taxes	1,543		962		4,506		2,703
Net income attributable to ESAB Corporation	$	57,570	$	52,354	$	155,046	$	163,040
Earnings (loss) per share – basic
Income from continuing operations	$	0.98	$	0.88	$	2.63	$	2.78
Loss on discontinued operations	$	(0.03)	$	(0.02)	$	(0.07)	$	(0.08)
Net income per share	$	0.95	$	0.86	$	2.56	$	2.70
Earnings (loss) per share – diluted
Income from continuing operations	$	0.97	$	0.88	$	2.61	$	2.77
Loss on discontinued operations	$	(0.03)	$	(0.02)	$	(0.07)	$	(0.08)
Net income per share – diluted	$	0.94	$	0.86	$	2.54	$	2.69

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Dollars in thousands

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net income	$	59,113	$	53,316	$	159,552	$	165,743
Other comprehensive (loss) income:
Foreign currency translation, net of tax expense of $2,984, $1,630, $2,546 and $2,328	(63,808)		(98,792)		(7,988)		(245,868)
Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges, net of tax (benefit) expense of $(13), $2,895, $553 and $2,894	(47)		9,960		1,903		9,960
Defined benefit pension and other post-retirement plan activity, net of tax expense of $52, $235, $183 and $710	240		766		1,404		2,322


Other comprehensive loss	(63,615)		(88,066)		(4,681)		(233,586)
Comprehensive (loss) income	(4,502)		(34,750)		154,871		(67,843)
Less: comprehensive income (loss) attributable to noncontrolling interest	853		(181)		4,377		(693)
Comprehensive (loss) income attributable to ESAB Corporation	$	(5,355)	$	(34,569)	$	150,494	$	(67,150)

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND CONDENSED BALANCE SHEETS

Dollars in thousands, except share and per share amounts

(Unaudited)


	September 29, 2023		December 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	82,833	$	72,024
Trade receivables, less allowance for credit losses of $25,664 and $23,471	388,483		374,329
Inventories, net	425,691		416,829
Prepaid expenses	62,765		56,637
Other current assets	69,967		68,851
Total current assets	1,029,739		988,670
Property, plant and equipment, net	276,295		284,226
Goodwill	1,554,004		1,529,767
Intangible assets, net	491,295		517,167
Lease assets - right of use	91,696		92,033
Other assets	313,014		342,152
Total assets	$	3,756,043	$	3,754,015

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	302,630	$	316,265
Accrued liabilities	307,727		285,310
Total current liabilities	610,357		601,575
Long-term debt	1,089,329		1,218,643
Other liabilities	515,261		545,339
Total liabilities	2,214,947		2,365,557
Equity:
Common stock - $0.001 par value - 600,000,000 shares authorized, 60,271,072 and 60,094,725 shares outstanding as of September 29, 2023 and December 31, 2022, respectively	60		60
Additional paid-in capital	1,876,335		1,865,904
Retained earnings	303,954		159,231
Accumulated other comprehensive loss	(679,540)		(674,988)
Total ESAB Corporation equity	1,500,809		1,350,207
Noncontrolling interest	40,287		38,251
Total equity	1,541,096		1,388,458
Total liabilities and equity	$	3,756,043	$	3,754,015

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EQUITY

Dollars in thousands, except share and per share amounts

(Unaudited)


	Common Stock			Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount
Balance at December 31, 2022	60,094,725	$	60	$	1,865,904	$	159,231	$	(674,988)	$	38,251	$	1,388,458
Net income	—	—		—		31,903		—		1,313		33,216
Dividends declared ($0.05 per share)	—	—		—		(3,033)		—		—		(3,033)
Distributions to noncontrolling owners	—	—		—		—		—		(1,359)		(1,359)
Other comprehensive gain, net of tax benefit of $934	—	—		—		—		38,279		501		38,780
Common stock-based award activity	127,538	—		2,229		—		—		—		2,229
Balance at March 31, 2023	60,222,263	$	60	$	1,868,133	$	188,101	$	(636,709)	$	38,706	$	1,458,291
Net income	—	—		—		65,573		—		1,650		67,223
Dividends declared ($0.06 per share)	—	—		—		(3,644)		—		—		(3,644)

Other comprehensive gain, net of tax expense of $1,193	—	—		—		—		20,094		60		20,154
Common stock-based award activity	37,106	—		4,701		—		—		—		4,701
Balance at June 30, 2023	60,259,369	$	60	$	1,872,834	$	250,030	$	(616,615)	$	40,416	$	1,546,725
Net income	—	—		—		57,570		—		1,543		59,113
Dividends declared ($0.06 per share)	—	—		—		(3,646)		—		—		(3,646)
Distributions to noncontrolling owners	—	—		—		—		—		(982)		(982)
Other comprehensive loss, net of tax expense of $3,023	—	—		—		—		(62,925)		(690)		(63,615)
Common stock-based award activity	11,703	—		3,501		—		—		—		3,501
Balance at September 29, 2023	60,271,072	$	60	$	1,876,335	$	303,954	$	(679,540)	$	40,287	$	1,541,096


	Common Stock			Additional Paid in Capital		Retained Earnings		Former Parent’s Investment		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount
Balance at December 31, 2021	—	$	—	$	—	$	—	$	2,921,623	$	(460,888)	$	40,993	$	2,501,728
Net income	—	—		—		—		55,437		—		966		56,403
Distributions to noncontrolling owners	—	—		—		—		—		—		(941)		(941)
Other comprehensive loss, net of tax expense of $579	—	—		—		—		—		(43,895)		(508)		(44,403)
Former Parent common stock-based award activity	—	—		—		—		1,728		—		—		1,728
Transfers to Former Parent, net	—	—		—		—		62,110		(59,263)		—		2,847
Balance at April 1, 2022	—	$	—	$	—	$	—	$	3,040,898	$	(564,046)	$	40,510	$	2,517,362
Net income	—	—		—		55,249		—		—		775		56,024
Dividends declared ($0.05 per share)	—	—		—		(3,025)		—		—		—		(3,025)
Other comprehensive loss, net of tax expense of $594	—	—		—		—		—		(99,373)		(1,745)		(101,118)
Net Transfers from Former Parent, including Separation Adjustments	—	—		—		—		8,533		—		—		8,533
Net consideration paid to Former Parent in connection with the Separation	—	—		—		—		(1,200,000)		—		—		(1,200,000)
Issuance of common stock in connection with the Separation and reclassification of Net Investment from Former Parent	60,034,311	60		1,849,371		—		(1,849,431)		—		—		—
Common stock-based award activity	9,232	—		3,627		—		—		—		—		3,627
Balance at July 1, 2022	60,043,543	$	60	$	1,852,998	$	52,224	$	—	$	(663,419)	$	39,540	$	1,281,403
Net income	—	—		—		52,354		—		—		962		53,316
Dividends declared ($0.05 per share)	—	—		—		(3,029)		—		—		—		(3,029)
Distributions to noncontrolling owners	—	—		—		—		—		—		(1,019)		(1,019)
Other comprehensive loss, net of tax expense of $4,760	—	—		—		—		—		(86,923)		(1,143)		(88,066)
Common stock-based award activity	33,016	—		4,920		—		—		—		—		4,920

Balance at September 30, 2022	60,076,559	$	60	$	1,857,918	$	101,549	$	—	$	(750,342)	$	38,340	$	1,247,525

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS

Dollars in thousands

(Unaudited)


	Nine Months Ended
	September 29, 2023		September 30, 2022

Cash flows from operating activities:
Net income	$	159,552	$	165,743
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other impairment charges	57,090		48,699

Stock-based compensation expense	11,150		9,532
Deferred income tax	756		(4,725)
Non-cash interest expense	896		1,673
Pension settlement gain	—		(3,300)
Changes in operating assets and liabilities:
Trade receivables, net	(15,170)		(7,361)
Inventories, net	(16,212)		(54,757)
Accounts payable	(17,746)		(10,916)
Other operating assets and liabilities	27,783		(21,673)
Net cash provided by operating activities	208,099		122,915
Cash flows from investing activities:
Purchases of property, plant and equipment	(28,865)		(21,996)
Proceeds from sale of property, plant and equipment	5,171		4,322
Acquisition, net of cash received	(18,665)		—
Net cash used in investing activities	(42,359)		(17,674)
Cash flows from financing activities:
Proceeds from borrowings on term credit facility	—		1,000,000
Proceeds from borrowings on revolving credit facility	454,671		495,881
Repayments of borrowings on term credit facility	(6,250)		—
Repayments of borrowings on revolving credit facility and other	(578,623)		(360,000)

Payment of deferred financing fees and other	—		(4,904)
Payment of deferred consideration	—		(1,500)
Payment of dividends	(9,702)		(3,025)
Consideration to Former Parent in connection with the Separation	—		(1,200,000)
Distributions to noncontrolling interest holders	(2,279)		(1,960)
Transfers from Former Parent, net	—		2,847
Net cash used in financing activities	(142,183)		(72,661)
Effect of foreign exchange rates on Cash and cash equivalents	(12,748)		(13,155)
Increase in Cash and cash equivalents	10,809		19,425
Cash and cash equivalents, beginning of period	72,024		41,209
Cash and cash equivalents, end of period	$	82,833	$	60,634

See Notes to Consolidated and Combined Condensed Financial Statements.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

Founded in 1904, ESAB Corporation (“ESAB” or the “Company”) is a premier narrowly diversified global leader in connected fabrication technology and gas control solutions. ESAB provides its partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions. The Company’s rich history of innovative products and workflow solutions and its business system ESAB Business Excellence (“EBX”) allows the Company to realize its purpose of Shaping the World We Imagine.TM The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. The Company conducts its operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific.

The Company’s fiscal year ends December 31. The Company’s third quarter ends on the last business day of the 13th week after the end of the prior quarter. As used herein, the third quarter results for 2023 and 2022 refer to the 13-week periods ended September 29, 2023 and September 30, 2022, respectively.

Separation from Enovis

On April 4, 2022, Colfax Corporation (“Colfax”, “Enovis” or the “Former Parent”) completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities, through a tax-free, pro rata distribution (the “Distribution”) of 90% of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”). To effect the Separation, each Colfax stockholder of record as of close of business on March 23, 2022 received one share of ESAB common stock for every three shares of Colfax common stock held on the record date. Upon completion of the Distribution, Colfax changed its name to Enovis Corporation and continued to hold 10% of the outstanding common stock of ESAB. In November 2022, Enovis sold a total of 6.0 million shares of the Company’s common stock as part of a secondary offering. After the secondary offering, Enovis no longer owned any of the Company’s outstanding common stock.

Russia and Ukraine Conflict

The invasion of Ukraine by Russia and the sanctions imposed in response have increased the level of economic and political uncertainty. While ESAB continues to closely monitor the situation and evaluate options, the Company is meeting current contractual obligations while addressing applicable laws and regulations. For the three and nine months ended September 29, 2023, Russia represented approximately 5% of the Company’s total revenue, and approximately $3 million and $10 million of its Net income, respectively. Russia also has approximately 4% of the Company’s total net assets excluding any goodwill allocation as of September 29, 2023. In case of the disposition of the Russia business, a portion of goodwill would need to be allocated and disposed of at the relative fair value attributable to the Russia business. Russia has a cumulative translation loss of approximately $125 million as of September 29, 2023, which could be realized upon a transition out. The Company is closely monitoring developments in Ukraine and Russia. Changes in laws and regulations or other factors impacting the Company’s ability to fulfill contractual obligations could have an adverse effect on the results of operations.

Basis of Presentation

Prior to the Separation on April 4, 2022, the historical financial statements were prepared on a combined basis and were derived from the consolidated financial statements of Enovis. For the periods subsequent to April 4, 2022, the financial statements are presented on a consolidated basis as the Company became a standalone public company as of that date.

Through the date of the Separation, all revenues and costs as well as assets and liabilities directly associated with ESAB have been included in the combined financial statements. Prior to the Separation, the combined condensed financial statements also included allocations of certain general, administrative, sales and marketing expenses from Enovis’s corporate office and from other Enovis businesses to the Company and allocations of related assets, liabilities, and the Former Parent’s investment, as applicable. The allocations were determined on a reasonable basis, however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Enovis during the applicable periods. The Company’s allocated expenses from the Former Parent were $6.0 million for the three months ended April 1, 2022.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Prior to the Separation, the Company was dependent on the Former Parent for all of its working capital and financing requirements under Enovis’s centralized approach to cash management and financing of its operations. With the exception of cash, cash equivalents and borrowings clearly associated with ESAB and related to the Separation, financing transactions relating to the Company during the period prior to the Separation were accounted for through the Former Parent’s investment account of the Company. Accordingly, none of Enovis’s cash, cash equivalents or debt at the corporate level has been assigned to the Company in these financial statements.

Former Parent’s Investment, which included retained earnings, represented Enovis’s interest in the recorded net assets of the Company. All significant transactions between the Company and the Former Parent prior to the Separation have been included in the accompanying Financial Statements. Transactions with the Former Parent are reflected in the accompanying Consolidated and Combined Condensed Statements of Equity as “Transfers to Former Parent, net.”

The Consolidated and Combined Condensed Financial Statements of ESAB for the three months ended April 1, 2022 are not indicative of the Company's results had it been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what the Company's financial position, results of operations and cash flows are in subsequent periods.

The Consolidated and Combined Condensed Financial Statements reflect, in the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations as of and for the periods indicated. Intercompany transactions and accounts are eliminated in consolidation.

The Company makes certain estimates and assumptions in preparing its Consolidated and Combined Condensed Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the Consolidated and Combined Condensed Financial Statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

In the normal course of business, the Company incurs research and development costs related to new product development, which are expensed as incurred and included in Selling, general and administrative expenses on the Company’s Consolidated and Combined Condensed Statements of Operations. Research and development costs were $9.0 million and $28.1 million during the three and nine months ended September 29, 2023, respectively, and $8.0 million and $27.1 million during the three and nine months ended September 30, 2022, respectively. These amounts do not include development and application engineering costs incurred in conjunction with fulfilling customer orders and executing customer projects, nor do they include costs related to securing third party product rights. The Company expects to continue making significant expenditures for research and development to maintain and improve its competitive positions.

The results of operations for the three and nine months ended September 29, 2023 are not necessarily indicative of the results of operations that may be achieved for the full year. In addition to the factors discussed elsewhere in this Form 10-Q, quarterly results are affected by seasonal variations in the Company’s businesses, and European operations typically experience a slowdown during the July, August and December holiday seasons.

These Consolidated and Combined Condensed Financial Statements included in this quarterly report have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) in conformity with GAAP, for the preparation of the Consolidated and Combined Condensed Financial Statements and are unaudited. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The accompanying interim Consolidated and Combined Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Consolidated and Combined Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), filed with the SEC on March 7, 2023.

2. Discontinued Operations

The Company holds certain asbestos-related contingencies and insurance coverages from divested businesses for which it does not have an interest in the ongoing operations. The entities that hold these assets and liabilities became subsidiaries of the Company in connection with the Separation.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The Company has classified asbestos-related activity included in its Consolidated and Combined Condensed Statements of Operations as part of Loss from discontinued operations, net of taxes.

Loss from discontinued operations, net of taxes consists of Selling, general and administrative expenses of $2.2 million and $5.2 million, and a tax benefit of $0.5 million and $1.0 million for the three and nine months ended September 29, 2023, respectively.

Loss from discontinued operations, net of tax consists of Selling, general and administrative expenses of $1.3 million and $6.2 million, and a tax benefit of $0.3 million and $1.3 million for the three and nine months ended September 30, 2022, respectively. See Note 13 “Commitments and Contingencies” for further information.

Cash used in operating activities related to discontinued operations for the three and nine months ended September 29, 2023 was $2.5 million and $12.2 million, respectively, and was $5.6 million and $19.3 million for the three and nine months ended September 30, 2022, respectively.

3. Acquisition

On January 11, 2023, the Company completed the acquisition of Therapy Equipment Limited, a regional leader in oxygen regulators, for $18.7 million, net of cash received.

4. Revenue

The Company provides advanced equipment, consumables, gas control equipment, robotics and digital solutions. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding. Substantially all revenue is recognized at a point in time. The Company disaggregates its revenue into the following product groups:


	Three Months Ended			Nine Months Ended
		September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
		(In thousands)
Equipment		$	209,037	$	168,633	$	635,305	$	547,555
Consumables		471,959		451,632		1,450,113		1,381,798
Total		$	680,996	$	620,265	$	2,085,418	$	1,929,353

The sales mix in the above table is relatively consistent across both reportable segments. The consumables product grouping generally has less production complexity and shorter production cycles than equipment products.

Given the nature of the business, the total amount of unsatisfied performance obligations with an original contract duration of greater than one year as of September 29, 2023 is immaterial. In some circumstances, customers are billed in advance of revenue recognition, resulting in contract liabilities. As of December 31, 2022 and December 31, 2021, total contract liabilities were $25.9 million and $22.3 million, respectively, and were included in Accrued liabilities on the Consolidated and Combined Condensed Balance Sheets. During the three and nine months ended September 29, 2023, revenue recognized that was included in the contract liability balance at the beginning of the year was $2.3 million and $16.7 million, respectively. During the three and nine months ended September 30, 2022, revenue recognized that was included in the contract liability balance at the beginning of the year was $4.6 million and $19.0 million, respectively. As of September 29, 2023 and September 30, 2022, total contract liabilities were $29.5 million and $22.5 million, respectively, and were included in Accrued liabilities on the Company’s Consolidated and Condensed Balance Sheets.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Allowance for Credit Losses

A summary of the activity in the Company’s allowance for credit losses included within Trade receivables in the Consolidated and Condensed Balance Sheets is as follows:


	Nine Months Ended September 29, 2023
	Balance at Beginning of Period		Charged to Expense, net		Write-Offs and Deductions		Foreign Currency Translation		Balance at End of Period
	(In thousands)
Allowance for credit losses	$	23,471	$	3,769	$	(1,455)	$	(121)	$	25,664

5. Earnings per Share from Continuing Operations

The Company has unvested share-based payment awards with a right to receive non-forfeitable dividends, which are considered participating securities. The Company allocates earnings to participating securities and computed earnings per share using the two-class method as follows:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
	(In thousands, except share and per share data)
Computation of earnings per share from continuing operations – basic:
Income from continuing operations attributable to ESAB Corporation(1)	$	59,293	$	53,331	$	159,305	$	167,938
Less: distributed and undistributed earnings allocated to nonvested shares	(425)		(407)		(1,162)		(1,152)

Income from continuing operations attributable to common stockholders	$	58,868	$	52,924	$	158,143	$	166,786
Weighted-average shares of Common stock outstanding – basic(3)	60,265,516		60,063,553		60,216,606		60,045,306
Income per share from continuing operations – basic	$	0.98	$	0.88	$	2.63	$	2.78

Computation of earnings per share from continuing operations – diluted:



Income from continuing operations attributable to common stockholders	$	58,868	$	52,924	$	158,143	$	166,786
Weighted-average shares of Common stock outstanding – basic(3)	60,265,516		60,063,553		60,216,606		60,045,306
Net effect of potentially dilutive securities(2)	465,197		99,668		376,153		82,378
Weighted-average shares of Common stock outstanding – dilution	60,730,713		60,163,221		60,592,759		60,127,684
Net income per share from continuing operations – diluted	$	0.97	$	0.88	$	2.61	$	2.77

(1) Net income from continuing operations attributable to ESAB Corporation for the respective periods is calculated using Net income from continuing operations, less Income attributable to noncontrolling interest, net of taxes, of $1.5 million and $4.5 million for the three and nine months ended September 29, 2023, respectively, and $1.0 million and $2.7 million for the three and nine months ended September 30, 2022, respectively.

(2) Potentially dilutive securities include stock options, performance-based restricted stock units, and non-performance-based restricted stock units.

(3) Prior to the Separation, the Company did not have any publicly-traded common stock or equivalents issued and outstanding. Accordingly, the net income per share for the three months ended April 1, 2022 is calculated based on the 60.0 million shares distributed on the Separation Date.

6. Income Taxes

During the three and nine months ended September 29, 2023, Income from continuing operations before income taxes was $80.6 million and $241.6 million, respectively, while Income tax expense was $19.8 million and $77.8 million, respectively.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The effective tax rate was 24.6% and 32.2% for the three and nine months ended September 29, 2023, respectively. The effective tax rates differed from the 2023 U.S. federal statutory rate of 21.0% primarily due to discrete tax expenses for dividend withholding taxes and an increase in the liability for uncertain tax positions as described below.

During the three and nine months ended September 30, 2022, Income from continuing operations before income taxes was $72.1 million and $234.3 million, respectively, while Income tax expense was $17.8 million and $63.6 million, respectively. The effective tax rate was 24.7% and 27.2% for the three and nine months ended September 30, 2022. The effective tax rates differed from the 2022 U.S. federal statutory rate of 21.0% primarily due to the impact of withholding taxes and non-deductible expenses.

During the nine months ended September 29, 2023, the Company changed its indefinite reinvestment assertion on certain undistributed earnings of the Company’s foreign subsidiaries, resulting in a total tax expense of $10.9 million, which was recorded in the three months ended March 31, 2023, on such earnings that have not been indefinitely reinvested.

The Company records a liability for certain unrecognized income tax benefits for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority (“uncertain tax positions”). During the nine months ended September 29, 2023, due to an adverse court ruling in a tax case in a foreign jurisdiction the Company increased the related liability for uncertain tax positions by $9.4 million partially offset by changes in other positions that occurred during the three months ended March 31, 2023.

7. Inventories, Net

Inventories, net consisted of the following:


	September 29, 2023		December 31, 2022
	(In thousands)
Raw materials	$	165,712	$	153,099
Work in process	46,744		44,086
Finished goods	263,823		261,902
	476,279		459,087
LIFO reserve	(5,168)		(2,168)
Less: allowance for excess, slow-moving and obsolete inventory	(45,420)		(40,090)
	$	425,691	$	416,829

At September 29, 2023 and December 31, 2022, 29.9% and 31.5% of total inventories, respectively, were valued using the LIFO method.

8. Accrued and Other Liabilities

Accrued and Other liabilities in the Consolidated and Condensed Balance Sheets consisted of the following:


	September 29, 2023				December 31, 2022
	Current		Noncurrent		Current		Noncurrent
	(In thousands)
Accrued taxes and deferred tax liabilities	$	51,467	$	171,983	$	49,615	$	161,500
Compensation and related benefits	90,480		54,307		74,794		57,438
Asbestos liability	31,016		194,575		30,108		230,581
Contract liability	29,488		—		25,899		—
Lease liability	20,271		74,700		18,664		76,163
Warranty liability	13,369		—		12,946		—
Third-party commissions	16,561		—		18,315		—
Restructuring liability	4,877		47		7,533		285
Other	50,198		19,649		47,436		19,372
	$	307,727	$	515,261	$	285,310	$	545,339

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Accrued Warranty Liability

A summary of the activity in the Company’s warranty liability included in Accrued liabilities in the Company’s Consolidated and Condensed Balance Sheets is as follows:


	Nine Months Ended
	September 29, 2023		September 30, 2022
	(In thousands)
Warranty liability, beginning of period	$	12,946	$	14,954
Accrued warranty expense	4,448		4,367
Changes in estimates related to pre-existing warranties	2,710		2,190
Cost of warranty service work performed	(7,891)		(6,815)
Acquisition-related liability	1,278		—
Foreign exchange translation effect	(122)		(975)
Warranty liability, end of period	$	13,369	$	13,721

Accrued Restructuring Liability

The Company’s restructuring programs include a series of actions to reduce the structural costs of the Company. A summary of the activity in the Company’s restructuring liability included in Accrued liabilities and Other liabilities in the Consolidated and Condensed Balance Sheets is as follows:


	Nine Months Ended September 29, 2023
	Balance at Beginning of Period		Charges		Payments		Foreign Currency Translation		Balance at End of Period
	(In thousands)
Restructuring and other related charges:
Termination benefits(1)	$	4,910	$	7,405	$	(8,122)	$	(97)	$	4,096
Facility closure costs and other(2)	2,908		4,986		(7,321)		255		828
Subtotal	$	7,818	12,391		$	(15,443)	$	158	$	4,924
Non-cash charges(3)			5,351
Total			$	17,742

(1) Includes severance and other termination benefits, including outplacement services.

(2) Includes 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.

(3) Includes impairment of long-lived assets in connection with the closure and optimization of facilities and product lines.

9. Debt

Long-term debt consisted of the following:


	September 29, 2023		December 31, 2022
	(In thousands)
Term loans	$	993,750	$	1,000,000
Revolving credit facilities	97,250		221,000
Total debt	1,091,000		1,221,000
Unamortized deferred financing fees	(1,671)		(2,357)
Long-term debt	$	1,089,329	$	1,218,643

Term Loans and Revolving Credit Facility

On April 4, 2022, the Company entered into a credit agreement (as amended and restated from time-to-time, the “Credit Agreement”) in connection with the Separation. The Credit Agreement initially consisted of the following facilities:

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

• A $750 million revolving credit facility (the “Revolving Facility”) with a maturity date of April 4, 2027;

•A Term A-1 loan with an initial aggregate principal amount of $400 million (the “Term Loan A-1 Facility”), with a maturity date of April 4, 2027; and,

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

The Revolving Facility contains a $300 million foreign currency sublimit and a $50 million swing line loan sub-facility.

On April 4, 2022, the Company drew down $1.2 billion available under the credit facilities consisting of (i) $200 million under the Revolving Facility, (ii) $400 million under the Term Loan A-1 Facility and (iii) $600 million under the Term Loan A-2 Facility. The Company 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 the Company by Enovis in connection with the Separation.

On June 28, 2022, the Company 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 facility (the “Term Loan A-3 Facility” and, together with the Term Loan A-1 Facility, the “Term Facilities”, and together with the Revolving Facility, the “Facilities”) with a maturity date of April 3, 2025 to refinance the Company’s existing Term Loan A-2 Facility. Also on June 28, 2022, the Company borrowed the entire $600 million under Term Loan A-3 Facility to fund the repayment of the Term Loan A-2 Facility. The Credit Agreement currently consists of the following facilities:

•A $750 million revolving credit facility (the “Revolving Facility”) with a maturity date of April 4, 2027;

•A Term A-1 loan with an aggregate principal amount of $400 million (the “Term Loan A-1 Facility”) with a maturity date of April 4, 2027; and,

• A Term Loan A-3 loan with an aggregate principal amount of $600 million (the “Term Loan A-3 Facility”) with a maturity date of April 3, 2025.

The draw-down and repayment related to these term facilities are presented net within the Consolidated and Combined Condensed Statements of Cash Flows.

The Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends. In addition, the Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 4.00:1.00, with step-downs to, commencing with the fiscal quarter ending June 30, 2023, 3.75:1.00, and commencing with the fiscal quarter ending June 30, 2024, 3.50:1.00, and (ii) a minimum interest coverage ratio of 3.00:1:00. The Credit Agreement contains various events of default (including failure to comply with the covenants under the Credit Agreement and related agreements) and upon an event of default the lenders may, subject to various customary cure rights, require the immediate payment of all amounts outstanding under the Term Facilities and the Revolving Facility. Certain U.S. subsidiaries of the Company have agreed to guarantee the obligations of the Company under the Credit Agreement.

Loans made under the Term Facilities will bear interest, at the election of the Company, at either the base rate (as defined in the Credit Agreement) or at the term Secured Overnight Financing Rate (“SOFR”) rate plus an adjustment (as defined in the Credit Agreement), in each case, plus the applicable interest rate margin. Loans made under the Revolving Facility will bear interest, at the election of the Company, at either the base rate or, (i) in the case of loans denominated in dollars, the term SOFR rate plus an adjustment or the daily simple SOFR plus an adjustment, (ii) in the case of loans denominated in euros, the adjusted Euro Interbank Offered Rate (“EURIBOR”) rate and, (iii) in the case of loans denominated in sterling, Sterling Overnight Index Average (“SONIA”) plus an adjustment (as all such rates are defined in the Credit Agreement Amendment), in each case, plus the applicable interest rate margin. The applicable interest rate margin changes based upon the Company’s total leverage ratio (consolidated total debt divided by EBITDA, according to the definitions in the credit agreement and ranging from 1.125% to 1.750% or in the case of the base rate margin, 0.125% to 0.750%). Each swing line loan denominated in dollars will bear interest at the base rate plus the applicable interest rate margin.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

To manage exposures to currency exchange rates and interest rates arising in Long-term debt, the Company entered into interest rate and cross currency swap agreements during the year ended December 31, 2022. Refer to Note 10 “Derivatives” for additional information.

As of September 29, 2023, the weighted-average interest rate of borrowings under the Credit Agreement was 5.22%, including the net impact from the interest rate and cross currency swaps and excluding accretion of deferred financing fees, and there was $653 million of borrowing capacity available under the Revolving Facility, subject to meeting financial covenants and other requirements.

Deferred Financing Fees

The Company had total deferred financing fees of $2.7 million included in its Consolidated Balance Sheet as of September 29, 2023, which will be charged to Interest expense and other, net, using the straight-line method. The costs associated with the Term Facilities will be amortized over the contractual term of the Term Facilities and the costs associated with the Revolving Facility will be amortized over the life of the Credit Agreement. Of the $2.7 million, $1.0 million of deferred financing fees relating to the Revolving Facility are included in Other assets and $1.7 million of deferred financing fees relating to the Term Facilities are recorded as a contra-liability within Long-term debt.

Other Indebtedness

In addition to the debt agreements discussed above, the Company also has the ability to incur approximately $76 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that the Company has used from time to time in the past for short-term working capital needs.

The Company is party to letter of credit facilities with an aggregate capacity of $110.3 million. Total letters of credit of $28.1 million were outstanding as of September 29, 2023.

10. Derivatives

The Company uses derivative instruments to manage exposures to currency exchange rates and interest rates arising in connection with Long-term debt and the normal course of business. The Company has established policies and procedures that govern the risk management of these exposures. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable.

The Company is subject to the credit risk of counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with an individual counterparty was considered significant as of September 29, 2023. The Company does not expect any counterparties to fail to meet their obligations. The Company records derivatives in the Consolidated and Condensed Balance Sheets at fair value.

Cash Flow Hedges

On July 14, 2022, the Company entered into two interest rate swap agreements to manage interest rate risk exposure. The aggregate notional amount of these contracts is $600 million and they mature in April 2025. These interest rate swap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate of 3.293%, plus a spread, thus reducing the impact of interest-rate changes on future interest expense. The applicable spread may vary between 1.125% to 1.750%, depending on the total leverage ratio of the Company. The spread was 1.250% as of September 29, 2023. These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

The above interest rate swap agreements are designated and qualify as a cash flow hedge and as such, the gain or loss on the derivative instrument due to the change in fair value is reported as a component of accumulated other comprehensive income (loss) (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings. The Company did not have any ineffectiveness related to cash flow hedges during the nine months ended September 29, 2023.

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The cash inflows and outflows associated with the Company’s interest rate swap agreements designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

The Company expects a gain of $9.9 million, net of tax, related to interest rate swap agreements to be reclassified from AOCI to earnings over the next 12 months as the hedged transactions are realized. The expected gain to be reclassified is based on current forward rates in active markets as of September 29, 2023.

The effects of designated cash flow hedges on the Company’s Consolidated and Combined Condensed Statements of Operations consisted of the following:


		Three Months Ended				Nine Months Ended
Derivative type	(Gain) loss recognized in the Consolidated and Combined Condensed Statements of Operations:	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
		(In thousands)
Interest rate swap agreements	Interest expense and other, net	$	(1,051)	$	1,045	$	(5,746)	$	1,045

Net Investment Hedges

On July 22, 2022, the Company entered into two cross-currency swap agreements to partially hedge its net investment in its Euro-denominated subsidiaries against adverse movements in exchange rates between the U.S. Dollar and the Euro. In addition, the cross-currency swap agreements include provisions to exchange fixed-rate payments in U.S. Dollar for fixed-rate payments in Euro and are designated and qualify as a net investment hedge. These contracts have a Euro aggregate notional amount of approximately €270 million and a U.S. Dollar aggregate notional amount of $275 million at September 29, 2023, and they mature in April 2025.

The changes in the spot rate of these instruments are recorded in AOCI in equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in AOCI. The Company uses the spot method of assessing hedge effectiveness and as such, the initial value of the hedge components excluded from the assessment of effectiveness is recognized in the Interest expense and other, net line item in the Consolidated and Combined Condensed Statement of Operations under a systematic and rational method over the life of the cross-currency swap agreements. Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change. The Company did not have any ineffectiveness related to net investment hedges during the nine months ended September 29, 2023.

The cash inflows and outflows associated with the excluded components of the Company’s cross-currency swap agreements designated as net investment hedges are classified in operating activities in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

The effects of the excluded components of designated net investment hedges on the Company’s Consolidated and

Combined Condensed Statements of Operations consisted of the following:


		Three Months Ended				Nine Months Ended
Derivative type	(Gain) recognized in the Consolidated and Combined Condensed Statements of Operations:	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
		(In thousands)
Cross currency swap agreements	Interest expense and other, net	$	(1,197)	$	(897)	$	(3,585)	$	(897)

ESAB CORPORATION

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The table below shows the fair value of the derivatives recognized in the Consolidated Balance Sheet:


	September 29, 2023				December 31, 2022
Designated as hedging instruments:	Other Liabilities		Other Assets		Other Liabilities		Other Assets
	(In thousands)
Cross currency swap agreements	$	9,645	$	—	$	10,769	$	—
Interest rate swap agreements	—		16,798		—		14,342
Total	$	9,645	$	16,798	$	10,769	$	14,342

Derivatives Not Designated as Hedging Instruments

The Company has certain foreign currency contracts that are not designated as hedges. As of September 29, 2023 and December 31, 2022, the Company had foreign currency contracts related to purchases and sales with notional values of $202.5 million and $260.0 million, respectively.

The table below shows the fair value of derivative instruments not designated in a hedging relationship recognized in the Consolidated Balance Sheet:


	September 29, 2023				December 31, 2022
Not designated as hedging instruments:	Accrued Liabilities		Other Current Assets		Accrued Liabilities		Other Current Assets
	(In thousands)
Foreign currency contracts	$	2,345	$	—	$	2,166	$	3,682

The amounts in the table above as of September 29, 2023 reflect the fair value of the Company’s foreign currency contracts on a net basis where allowable under master netting agreements. Had these amounts been recognized on a gross basis, the impact would have been a $0.6 million increase in Other current assets with a corresponding increase in Accrued liabilities.

The Company recognized the following in its Consolidated and Combined Condensed Financial Statements related to its derivative instruments not designated in a hedging relationship:


	Three Months Ended			Nine Months Ended
Foreign currency contracts		September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
		(In thousands)


Change in unrealized gains (losses)		$	(2,567)	$	279	$	(3,860)	$	469
Realized gain (loss)		(370)		(740)		896		(17,235)

The above gains or losses on foreign currency contracts are usually offset by foreign exchange exposure on cash and intercompany positions, all of which are recognized in Interest expense and other, net, in the Consolidated and Combined Condensed Statements of Operations.

11. Fair Value Measurements

The carrying values of financial instruments, including Trade receivables and Accounts payable, approximate their fair values due to their short-term maturities. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.

A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows:


	September 29, 2023
	Level One		Level Two		Level Three		Total
	(In thousands)
Assets:
Cash equivalents	$	2,301	$	—	$	—	$	2,301
Foreign currency contracts - not designated as hedges	—		612		—		612
Interest rate swap agreements	—		16,798		—		16,798
Deferred compensation plans	—		3,205		—		3,205
	$	2,301	$	20,615	$	—	$	22,916

Liabilities:
Foreign currency contracts - not designated as hedges	$	—	$	2,957	$	—	$	2,957
Cross currency swap agreements	—		9,645		—		9,645
Deferred compensation plans	—		3,205		—		3,205
	$	—	$	15,807	$	—	$	15,807


	December 31, 2022
	Level One		Level Two		Level Three		Total
	(In thousands)
Assets:
Cash equivalents	$	8,195	$	—	$	—	$	8,195
Foreign currency contracts - not designated as hedges	—		3,682		—		3,682
Interest rate swap agreements	—		14,342		—		14,342
Deferred compensation plans	—		2,501		—		2,501
	$	8,195	$	20,525	$	—	$	28,720

Liabilities:
Foreign currency contracts - not designated as hedges	$	—	$	2,166	$	—	$	2,166
Cross currency swap agreements	—		10,769		—		10,769
Deferred compensation plans	—		2,501		—		2,501
	$	—	$	15,436	$	—	$	15,436

The Company measures the fair value of foreign currency contracts, cross currency swap agreements and interest rate swap agreements using Level Two inputs based on observable spot and forward rates in active markets. Additionally, the fair value of derivatives designated in hedging relationships includes a credit valuation adjustment to appropriately incorporate nonperformance risk for the Company and the respective counterparty. For the nine months ended September 29, 2023, the impact of the credit valuation adjustment on the Company’s derivatives is immaterial. Refer to Note 10 “Derivatives” for additional information.

There were no transfers in or out of Level One, Two or Three during the nine months ended September 29, 2023.

12. Equity

Accumulated Other Comprehensive Loss

The following tables present the changes in the balances of each component of AOCI including reclassifications out of AOCI for the nine months ended September 29, 2023 and September 30, 2022. All amounts are net of tax and noncontrolling interest, if any.


	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension and Other Post-Retirement Benefit Cost		Foreign Currency Translation Adjustment		Net Investment Hedges		Cash Flow Hedges		Total
	(In thousands)
Balance at December 31, 2022	$	(63,847)	$	(613,907)	$	(8,336)	$	11,102	$	(674,988)
Other comprehensive income (loss) before reclassifications:
Net actuarial loss	(2)		—		—		—		(2)
Foreign currency translation adjustment	(108)		31,276		(2,086)		—		29,082
Gain on long-term intra-entity foreign currency transactions	—		12,501		—		—		12,501
Unrealized loss on cash flow hedges	—		—		—		(2,051)		(2,051)
Other comprehensive (loss) income before reclassifications	(110)		43,777		(2,086)		(2,051)		39,530
Amounts reclassified from Accumulated other comprehensive loss(1)(2)	279		—		—		(1,530)		(1,251)
Net current period Other comprehensive (loss) income	169		43,777		(2,086)		(3,581)		38,279
Balance at March 31, 2023	$	(63,678)	$	(570,130)	$	(10,422)	$	7,521	$	(636,709)
Other comprehensive income (loss) before reclassifications:
Net actuarial loss	(2)		—		—		—		(2)
Foreign currency translation adjustment	(49)		(6,381)		(3,036)		—		(9,466)
Gain on long-term intra-entity foreign currency transactions	—		23,142		—		—		23,142
Unrealized gain on cash flow hedges	—		—		—		7,640		7,640
Other comprehensive income (loss) before reclassifications	(51)		16,761		(3,036)		7,640		21,314
Amounts reclassified from Accumulated other comprehensive loss(1)(2)	889		—		—		(2,109)		(1,220)
Net current period Other comprehensive (loss) income	838		16,761		(3,036)		5,531		20,094
Balance at June 30, 2023	$	(62,840)	$	(553,369)	$	(13,458)	$	13,052	$	(616,615)
Other comprehensive income (loss) before reclassifications:
Net actuarial gain	4		—		—		—		4
Foreign currency translation adjustment	161		(79,233)		5,992		—		(73,080)
Gain on long-term intra-entity foreign currency transactions	—		9,962		—		—		9,962
Unrealized gain on cash flow hedges	—		—		—		767		767
Other comprehensive income (loss) before reclassifications	165		(69,271)		5,992		767		(62,347)
Amounts reclassified from Accumulated other comprehensive loss(1)(2)	236		—		—		(814)		(578)
Net current period Other comprehensive (loss) income	401		(69,271)		5,992		(47)		(62,925)
Balance at September 29, 2023	$	(62,439)	$	(622,640)	$	(7,466)	$	13,005	$	(679,540)

(1) The amounts on this line within the Net Unrecognized Pension And Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost.

(2) During the three and nine months ended September 29, 2023, the amount on this line within the Cash Flow Hedges column is a component of Interest expense and other, net. See Note 10 “Derivatives” for additional details.


	Accumulated Other Comprehensive Loss Components
	Net Unrecognized Pension and Other Post-Retirement Benefit Cost		Foreign Currency Translation Adjustment		Net Investment Hedges		Cash Flow Hedges		Total
	(In thousands)
Balance at December 31, 2021	$	(21,196)	$	(439,692)	$	—	$	—	$	(460,888)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment	490		(45,171)		—		—		(44,681)
Other comprehensive income (loss) before reclassifications	490		(45,171)		—		—		(44,681)
Amounts reclassified from Accumulated other comprehensive loss(1)	786		—		—		—		786
Amounts contributed by Former Parent(2)	(50,504)		(8,759)		—		—		(59,263)
Net current period Other comprehensive income (loss)	(49,228)		(53,930)		—		—		(103,158)
Balance at April 1, 2022	$	(70,424)	$	(493,622)	$	—	$	—	$	(564,046)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment	(1,354)		(98,789)		—		—		(100,143)
Other comprehensive income (loss) before reclassifications	(1,354)		(98,789)		—		—		(100,143)
Amounts reclassified from Accumulated other comprehensive loss(1)	770		—		—		—		770
Net current period Other comprehensive income (loss)	(584)		(98,789)		—		—		(99,373)
Balance at July 1, 2022	$	(71,008)	$	(592,411)	$	—	$	—	$	(663,419)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment	3,685		(108,755)		7,421		—		(97,649)
Unrealized gain on cash flow hedges	—		—		—		9,150		9,150
Other comprehensive income (loss) before reclassifications	3,685		(108,755)		7,421		9,150		(88,499)
Amounts reclassified from Accumulated other comprehensive loss(1)(3)	766		—		—		810		1,576
Net current period Other comprehensive income (loss)	4,451		(108,755)		7,421		9,960		(86,923)
Balance at September 30, 2022	$	(66,557)	$	(701,166)	$	7,421	$	9,960	$	(750,342)

(1) The amounts on this line within the Net Unrecognized Pension And Other Post-Retirement Benefit Cost column are included in the computation of net periodic benefit cost.

(2) Includes unrecognized pension and other post-retirement costs and accumulated currency translation adjustments of certain entities, which were part of the Corporate segment of the Former Parent and were transferred to ESAB Corporation in anticipation of the Separation.

(3) During the three and nine months ended September 30, 2022, the amount on this line within the Cash Flow Hedges column is a component of Interest expense and other, net. See Note 10 “Derivatives” for additional details.

13. Commitments and Contingencies

Asbestos Contingencies

Certain entities that became subsidiaries of ESAB Corporation in connection with the Separation are the legal obligor for certain asbestos obligations including long-term asbestos insurance assets, long-term asbestos insurance receivables, accrued asbestos liabilities, long-term asbestos liabilities, asbestos indemnity expenses, asbestos-related defense costs and asbestos insurance recoveries related to the asbestos obligations from the Former Parent’s other legacy industrial businesses. As a result, the Company holds certain asbestos-related contingencies and insurance coverages.

These subsidiaries are each one of many defendants in a large number of lawsuits that claim personal injury as a result of exposure to asbestos from products manufactured or used with components that are alleged to have contained asbestos. Such components were acquired from third-party suppliers, and were not manufactured by any of the Company’s, or Former Parent’s, subsidiaries, nor were the subsidiaries, producers or direct suppliers of asbestos. The manufactured products that are alleged to have contained or used asbestos generally were provided to meet the specifications of the subsidiaries’ customers, including the U.S. Navy. The subsidiaries settle asbestos claims for amounts the Company considers reasonable given the facts and circumstances of each claim. The annual average settlement payment per asbestos claimant has fluctuated during the past several years while the number of cases has steadily declined. The Company expects such fluctuations to continue in the future based upon, among other things, the number and type of claims settled in a particular period and the jurisdictions in which such claims arise. To date, the majority of settled claims have been dismissed for no payment.

The Company has classified asbestos-related activity in Loss from discontinued operations, net of taxes in the Consolidated and Combined Condensed Statements of Operations. This is consistent with the Former Parent’s classification on the basis that, pursuant to the purchase agreement from the Former Parent’s Fluid Handling business divestiture, the Former Parent retained its asbestos-related contingencies and insurance coverages. However, as the Former Parent did not retain an interest in the ongoing operations of the business subject to the contingencies, asbestos-related activity was classified as part of Loss from discontinued operations, net of taxes in the Condensed Consolidated Statements of Operations of the Former Parent.

The Company has projected each subsidiary’s future asbestos-related liability costs with regard to pending and future unasserted claims based upon the Nicholson methodology. The Nicholson methodology is a standard approach used by experts and has been accepted by numerous courts. Consistent with the Former Parent, it is ESAB’s policy to record a liability for asbestos-related liability costs for the longest period of time that ESAB management can reasonably estimate.

The Company believes that it can reasonably estimate the asbestos-related liability for pending and future claims that will be resolved in the next 15 years and has recorded that liability as its best estimate. While it is reasonably possible that the subsidiaries will incur costs after this period, the Company does not believe the reasonably possible loss or a range of reasonably possible losses is estimable at the current time. Accordingly, no accrual has been recorded for any costs that may be paid after the next 15 years. Defense costs associated with asbestos-related liabilities as well as costs incurred related to efforts to recover insurance from the subsidiaries’ insurers are expensed as incurred.

Each subsidiary has separate insurance coverage acquired prior to Company ownership. The Company estimates the insurance assets for each subsidiary based upon the applicable policy language, expected recoveries and allocation methodologies, and law pertaining to the affected subsidiary’s insurance policies.

Asbestos-related claims activity since December 31 is as follows:


	Nine Months Ended
	September 29, 2023	September 30, 2022
	(Number of claims)
Claims unresolved, beginning of period	14,106	14,559
Claims filed(1)	3,353	3,285
Claims resolved(2)	(4,095)	(3,677)
Claims unresolved, end of period	13,364	14,167

(1) Claims filed include all asbestos claims for which notification have been received or a file has been opened.

(2) Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants.

The Company’s Consolidated Balance Sheet included the following amounts related to asbestos-related litigation:


	September 29, 2023		December 31, 2022
	(In thousands)

Long-term asbestos insurance asset(1)	$	184,815	$	215,112
Long-term asbestos insurance receivable(1)	18,727		17,231
Accrued asbestos liability(2)	31,016		30,108
Long-term asbestos liability(3)	194,575		230,581

(1) Included in Other assets in the Consolidated Balance Sheet.

(2) Represents current accruals for probable and reasonably estimable asbestos-related liability costs that the Company believes the subsidiaries will pay, and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Consolidated Balance Sheet.

(3) Included in Other liabilities in the Consolidated Balance Sheet.

Management’s analyses are based on currently known facts and assumptions. Projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded that could materially affect the Company’s financial condition, results of operations or cash flow.

General Litigation

The Company is involved in various pending legal proceedings arising out of the ordinary course of the Company’s business. None of these legal proceedings is expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings, and the litigation and claims described in the preceding paragraphs, management of the Company believes that it will either prevail, has adequate insurance coverage or has established appropriate accruals to cover potential liabilities. Legal costs related to proceedings or claims are recorded when incurred. Other costs that management estimates may be paid related to the claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.

14. Segment Information

ESAB is a premier narrowly diversified global leader in connected fabrication technology and gas control solutions. ESAB provides its partners with advanced equipment, consumables, gas control equipment, robotics, and digital solutions. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

The Company conducts its operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific.

The Company’s management evaluates the operating results of each of its reportable segments based upon Net sales and Adjusted EBITDA, which represents Net income from continuing operations excluding the impact of Income tax expense, Interest expense and other, net, Pension settlement gain, Restructuring and other related charges, separation costs, acquisition - amortization and other related charges, and depreciation and other amortization.

The Company’s segment results were as follows:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
	(In thousands)
Net sales:
Americas	$	305,816	$	281,361	$	907,663	$	844,741
EMEA & APAC	375,180		338,904		1,177,755		1,084,612
	$	680,996	$	620,265	$	2,085,418	$	1,929,353
Adjusted EBITDA(1):
Americas	$	57,187	$	46,385	$	164,892	$	138,937
EMEA & APAC	65,338		58,649		207,696		185,871
	$	122,525	$	105,034	$	372,588	$	324,808

(1) The following is a reconciliation of Net income from continuing operations to Adjusted EBITDA.


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
	(In thousands)
Net income from continuing operations	$	60,836	$	54,293	$	163,811	$	170,641
Income tax expense	19,808		17,836		77,806		63,629
Interest expense and other, net(1)	20,502		12,165		58,831		19,516
Pension settlement gain	—		(3,300)		—		(3,300)
Restructuring and other related charges	3,129		6,676		17,742		16,629
Separation costs(2)	—		1,834		—		8,923
Acquisition - amortization and other related charges(3)	9,285		7,217		27,826		22,524
Depreciation and other amortization	8,965		8,313		26,572		26,178
Other(4)	—		—		—		68
Adjusted EBITDA	$	122,525	$	105,034	$	372,588	$	324,808

(1) Relates to removal of interest expense, net included within the Interest expense and other, net line within the Consolidated and Combined Condensed Statements of Operations.

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

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

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

15. Related Party Transactions

Related Party Agreements

On April 4, 2022, in connection with the Separation, the Company entered into several agreements with Enovis that govern the Separation and provide a framework for the relationship between the parties going forward. Such agreements are described in the Company’s 2022 Form 10-K.

Allocated Expenses

Prior to the Separation, the Company operated as part of the Former Parent and not as a stand-alone company. Accordingly, the Former Parent allocated certain shared costs to the Company that are reflected as expenses in these financial statements. These amounts included, but were not limited to, items such as general management and executive oversight,

compliance, human resources, procurement, and legal functions and financial management, including public company reporting, consolidated tax filings and tax planning. Management considered the allocation methodologies used by the Former Parent to be reasonable and to appropriately reflect the related expenses attributable to the Company for purposes of the three months ended April 1, 2022; however, the expenses reflected in these financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity.

In addition, the expenses reflected in the financial statements for the three months ended April 1, 2022 are not indicative of expenses the Company will incur in the future. Allocation methodologies utilized include the Company’s relative share of total Former Parent revenues and headcount.

The Company had no stock-based compensation plans prior to the Separation; however, certain employees of the Company participated in the Former Parent’s stock-based compensation plans, which provided for the grants of stock options and RSUs among other types of awards. The expense associated with the Company's employees who participated in the plans of the Former Parent was allocated to the Company in the accompanying Consolidated and Combined Condensed Statements of Operations through the date of Separation.

The Company’s allocated expenses from the Former Parent were $6.0 million for the three months ended April 1, 2022. Following the Separation, the Company independently incurs expenses as a stand-alone company and corporate expenses from Enovis were no longer allocated to the Company; therefore, no related amounts were reflected on the Company’s financial statements for the nine months ended September 29, 2023.

Net Parent Investment

All of the Company’s transactions with the Former Parent were considered to be financing transactions, which are presented as Transfers from Former Parent, net in the accompanying Consolidated and Combined Condensed Statements of Cash Flows.

16. Subsequent Events

The dividend of $3.6 million included in Accrued liabilities in the Consolidated Balance Sheet at September 29, 2023 was paid on October 13, 2023 to stockholders of record as of September 29, 2023.

Item 2. 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 Combined Condensed Financial Statements and related footnotes included in Part I. Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2023 (this “Form 10-Q”) and the Consolidated and Combined Financial Statements and related footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). You should review the discussion titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements. Our actual results 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”). 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 of 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 anticipated benefits of the ESAB’s separation (“the Separation”) from Enovis Corporation, formerly known as Colfax Corporation (“Enovis,” “Colfax” or “the Former Parent”); the expected financial and operating performance of, and future opportunities for, the Company following the Separation; the tax treatment of the Separation; the impact of the war in Ukraine and the resulting escalating geopolitical tensions; impact of COVID-19, including supply chain disruptions; 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; 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; future economic conditions or performance; the outcome of outstanding claims or legal proceedings including asbestos-related liabilities and insurance coverage litigation; potential gains and recoveries of costs; 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:

•our ability to operate as a stand-alone public company;

•our ability to achieve the intended benefits from the Separation;

•the war in Ukraine and escalating geopolitical tensions as a result of Russia’s invasion of Ukraine and the related impact on energy supplies and prices;

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

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

•the impact of COVID-19, including supply chain disruptions;

•volatility in the commodity markets and certain commodity prices, including oil and steel;

•our ability to identify, finance, acquire and successfully integrate attractive acquisition targets;

•our exposure to unanticipated liabilities resulting from acquisitions;

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

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

•our ability to accurately estimate the cost of or realize savings from our restructuring programs;

•the amount of, and our ability to estimate our asbestos-related liabilities;

•the solvency of our insurers and the likelihood of their payment for asbestos-related costs;

•material disruptions at any of our manufacturing facilities;

•noncompliance with various laws and regulations associated with our international operations, including anti-bribery laws, export control regulations and sanctions and embargoes;

•risks associated with our international operations, including risks from trade protection measures and other changes in trade relations;

•risks associated with the representation of our employees by trade unions and work councils;

•our exposure to product liability claims;

•potential costs and liabilities associated with environmental, health and safety laws and regulations;

•failure to maintain, protect and defend our intellectual property rights;

•our ability to attract and retain our employees including the loss of key members of our leadership team;

•restrictions in our financing arrangements that may limit our flexibility in operating our business;

•impairment in the value of intangible assets;

•the funding requirements or obligations of our defined benefit pension plans and other postretirement benefit plans;

•new regulations and customer preferences reflecting an increased focus on environmental, social and governance issues, including new regulations related to the use of conflict minerals;

•service interruptions, data corruption, cyber-based attacks or network security breaches affecting our information technology infrastructure;

•risks arising from changes in technology;

•the competitive environment in our industries;

•changes in our tax rates, realizability of deferred tax assets, or exposure to additional income tax liabilities, including the effects of the Coronavirus Aid, Relief, and Economic Security Act;

•our ability to manage and grow our business and execution of our business and growth strategies;

•the level of capital investment and expenditures by our customers in our strategic markets;

•our financial performance;

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

•other risks and factors set forth under Part I. Item 1.A. “Risk Factors” in our 2022 Form 10-K.

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

Basis of Presentation

Separation from Enovis

On April 4, 2022, Colfax Corporation completed the spin-off of Colfax’s Fabrication Technology business and certain other corporate entities through a tax-free, pro rata distribution (the “Distribution”) of 90% of the outstanding common stock of ESAB to Colfax stockholders (the “Separation”). To effect the Separation, each Colfax stockholder of record as of close of business on March 23, 2022 received one share of ESAB common stock for every three shares of Colfax common stock held on the record date. Upon completion of the Distribution, Colfax changed its name to Enovis Corporation and continued to hold 10% of the outstanding common stock of ESAB. In November 2022, Enovis sold a total of 6.0 million shares of the Company’s common stock as part of a secondary offering. After the secondary offering, Enovis no longer owned any of the Company’s outstanding common stock.

The accompanying Consolidated and Combined Condensed Financial Statements present our historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We utilized allocations and carve-out methodologies through April 4, 2022 to prepare our historical financial statements. The combined financial statements for the periods prior to the Separation herein are not indicative of subsequent performance, and they do not include the actual expenses that would have been incurred by us and do not reflect our results of operations, financial position and cash flows had we been a separate standalone company during the historical periods presented. For additional information, refer to “Basis of Presentation” in Note 1 “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q.

Overview

Please see Part I. Item 1. “Business” in our 2022 Form 10-K, for a discussion of ESAB’s objectives and methodologies for delivering stockholder value.

General

We are a premier narrowly diversified global leader in connected fabrication technology and gas control solutions. Our rich history of innovative products and workflow solutions and our business management system, ESAB Business Excellence or EBX, allows us to realize our purpose of Shaping the World We ImagineTM. The Company’s products are utilized to solve challenges in a wide range of industries, including cutting, joining and automated welding.

We conduct our operations through two reportable segments. These segments consist of the “Americas,” which includes operations in North America and South America, and “EMEA & APAC,” which includes Europe, Middle East, India, Africa and Asia Pacific. We serve a global customer base across multiple markets through a combination of direct sales and third-party distribution channels. Our customer base is highly diversified in the industrial end markets.

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

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

Outlook

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 geographic and end market diversity helps mitigate the effects from cyclical industrial market exposures. Given this balance, management does not use indices other than general economic trends and business initiatives to predict the overall outlook for the Company. Instead, our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and outlook for the future.

We 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 acquisition of Therapy Equipment Limited, on January 11, 2023, is aligned with this strategic direction. Refer to Note 3 “Acquisition” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the three and nine months ended September 29, 2023 and September 30, 2022.

Results of Operations

The following discussion of 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 and nine months ended September 29, 2023 and September 30, 2022 is affected by the following additional significant items:

COVID-19

As reflected in the discussions that follow, the COVID-19 virus and actions taken in response to it had a variety of impacts on our results of operations during 2022, including sales levels, and together with other market dynamics contributed to ongoing inflation and supply chain challenges, including labor, raw material, and component shortages.

For additional information on the risks of COVID-19 to the Company’s operations, refer to the Part I. Item 1.A. “Risk Factors” section of the 2022 Form 10-K.

Russia and Ukraine conflict

The invasion of Ukraine by Russia and the sanctions and other actions taken by governments in response to this crisis have increased the level of economic and political uncertainty. Refer to Note 1 “Organization and Basis of Presentation” in the accompanying Notes contained elsewhere in this Form 10-Q as well as Part I. Item 1.A. “Risk Factors” section of the 2022 Form 10-K for additional information.

Acquisitions

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. The change in Net sales due to acquisitions for the periods presented in this filing represents the incremental sales as a result of acquisitions.

During the fourth quarter of 2022, we completed the acquisitions of Ohio Medical, LLC (“Ohio Medical”), a global leader in central gas systems, and Swift-Cut Automation Limited (“Swift-Cut Limited”), a provider of light industrial automated cutting systems. For additional information on these acquisitions, refer to our 2022 Form 10-K.

During the first quarter of 2023, we completed the acquisition of Therapy Equipment Limited (“Therapy Equipment”), a regional leader in oxygen regulators. For additional information on this acquisition, refer to Note 3 “Acquisition” in the accompanying Notes contained elsewhere in this Form 10-Q.

Foreign Currency Fluctuations

A significant portion of our Net sales, 79%, for the three and nine months ended September 29, 2023 are outside the United States, with the majority of those sales denominated in currencies other than the U.S. Dollar. 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. Dollar. Changes in foreign exchange rates can impact our results of operations and are quantified when significant.

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

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

Seasonality

Our European operations typically experience a slowdown during the July, August and December 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. ESAB presents this non-GAAP financial measure including and excluding Russia due to economic and political volatility caused by the Russia and Ukraine conflict, which results in enhanced investor interest in this information. Core adjusted EBITDA is a non-GAAP financial measure that excludes Russia from Adjusted EBITDA for the three and nine months ended September 29, 2023 and September 30, 2022, due to the Russia Ukraine conflict. Adjusted EBITDA excludes from Net income from continuing operations the effect of Income tax expense, Interest expense and other, net, Pension settlement gain, Restructuring and other related charges, separation costs, acquisition-amortization and other related charges and depreciation and other amortization. We also present Adjusted EBITDA margin, which is subject to the same adjustments as Adjusted EBITDA. Further, we present these non-GAAP performance measures on a segment basis, where we exclude the impact of Restructuring and other related charges, separation costs, acquisition-amortization and other related charges and depreciation and other amortization from operating income. We also present Core adjusted EBITDA and Core adjusted EBITDA margins, which are subject to the same adjustments as Adjusted EBITDA and Adjusted EBITDA margins, respectively, further removing the impact of Russia for the three and nine months ended September 29, 2023 and September 30, 2022, respectively. Adjusted EBITDA and Core adjusted EBITDA assist management in comparing our operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to unusual events or discrete restructuring plans and other initiatives that are fundamentally different from our ongoing productivity and core business. 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. GAAP. 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 nine months ended September 29, 2023 and September 30, 2022.


	Three Months Ended September 29, 2023									Nine Months Ended September 29, 2023
	Americas			EMEA & APAC			Total			Americas			EMEA & APAC			Total
	(Dollars in millions)(1)
Net income from continuing operations (GAAP)							$	60.8								$	163.8
Income tax expense							19.8									77.8
Interest expense and other, net							20.5									58.8

Operating income (GAAP)	46.5			54.7			101.1			132.4			168.0			300.4

Adjusted to add (deduct)
Restructuring and other related charges(2)	1.6			1.6			3.1			5.4			12.3			17.7
Acquisition-amortization and other related charges(3)	5.2			4.0			9.3			16.0			11.9			27.8
Depreciation and other amortization	3.9			5.0			9.0			11.1			15.5			26.6
Adjusted EBITDA (non-GAAP)	$	57.2		$	65.3		$	122.5		$	164.9		$	207.7		$	372.6
Adjusted EBITDA attributable to Russia (non-GAAP)(4)	—			4.7			4.7			—			15.7			15.7
Core adjusted EBITDA (non-GAAP)	$	57.2		$	60.6		$	117.8		$	164.9		$	192.0		$	356.9
Adjusted EBITDA margin (non-GAAP)	18.7		%	17.4		%	18.0		%	18.2		%	17.6		%	17.9		%
Core adjusted EBITDA margin (non-GAAP)(5)	18.7		%	17.9		%	18.3		%	18.2		%	18.1		%	18.1		%

(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.

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

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

(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.


	Three Months Ended September 30, 2022									Nine Months Ended September 30, 2022
	Americas			EMEA & APAC			Total			Americas			EMEA & APAC			Total
	(Dollars in millions)(1)
Net income from continuing operations (GAAP)							$	54.3								$	170.6
Income tax expense							17.8									63.6
Interest expense and other, net							12.2									19.6
Pension settlement gain							(3.3)									(3.3)
Operating income (GAAP)	36.6			44.4			81.0			102.6			147.9			250.5
Adjusted to add (deduct):
Restructuring and other related charges(2)	1.9			4.8			6.7			9.1			7.6			16.6
Separation costs(3)(4)	0.8			1.0			1.8			4.6			4.3			8.9
Acquisition-amortization and other related charges(5)	4.0			3.3			7.2			12.3			10.2			22.5
Depreciation and other amortization	3.2			5.1			8.3			10.1			16.1			26.2
Other(6)	—			—			—			0.3			(0.2)			0.1
Adjusted EBITDA (non-GAAP)	$	46.4		$	58.6		$	105.0		$	138.9		$	185.9		$	324.8
Adjusted EBITDA attributable to Russia (non-GAAP)(7)	—			9.5			9.5			—			23.4			23.4
Core adjusted EBITDA (non-GAAP)	$	46.4		$	49.2		$	95.5		$	138.9		$	162.5		$	301.4
Adjusted EBITDA margin (non-GAAP)	16.5		%	17.3		%	16.9		%	16.4		%	17.1		%	16.8		%
Core adjusted EBITDA margin (non-GAAP)(8)	16.5		%	16.6		%	16.6		%	16.4		%	16.7		%	16.6		%

(1) Numbers may not sum due to rounding.

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

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

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

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

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

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

Total Company

Sales

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

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


	Three Months Ended				Nine Months Ended
	Net Sales		Change %		Net Sales		Change %
	(Dollars in millions)
For the three and nine months ended September 30, 2022	$	620.3			$	1,929.4
Components of Change:
Existing businesses (organic sales growth)(1)	47.3		7.6	%	130.9		6.8	%
Acquisitions(2)	21.3		3.4	%	59.7		3.1	%
Foreign currency translation(3)	(7.9)		(1.3)	%	(34.5)		(1.8)	%
Total sales growth	60.7		9.8	%	156.1		8.1	%
For the three and nine months ended September 29, 2023	$	681.0			$	2,085.4

(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.

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

(3) Represents the 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 $47.3 million during the three months ended September 29, 2023, compared to the prior year period, due to an increase in sales volumes of $30.1 million and customer pricing increases of $17.1 million. During the three months ended September 29, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment. The strengthening of the U.S. Dollar relative to other currencies caused a $7.9 million unfavorable currency translation impact during the three months ended September 29, 2023.

Net sales from existing businesses increased $130.9 million during the nine months ended September 29, 2023, compared to the prior year period, due to an increase in sales volumes of $56.0 million and customer pricing increases of $74.9 million. During the nine months ended September 29, 2023, net sales from acquisitions were attributable to Ohio Medical, Swift-Cut Limited and Therapy Equipment. The strengthening of the U.S. Dollar relative to other currencies caused a $34.5 million unfavorable currency translation impact during the nine months ended September 29, 2023.

Sales excluding Russia

Sales excluding Russia (“Core Sales”) increased for the three and nine months ended September 29, 2023 as compared with the three and nine months ended September 30, 2022. The following table presents the components of changes in our consolidated and combined condensed Net sales.


	Three Months Ended				Nine Months Ended
	Core Sales(4)		Change %		Core Sales(4)		Change %
	(Dollars in millions)
For the three and nine months ended September 30, 2022	$	577.0			$	1,815.7
Components of Change:
Existing businesses (core organic sales growth)(1)	38.0		6.6	%	118.8		6.5	%
Acquisitions(2)	21.3		3.7	%	59.7		3.3	%
Foreign currency translation(3)	7.8		1.3	%	(23.1)		(1.3)	%
Total core sales growth	67.1		11.6	%	155.3		8.6	%
For the three and nine months ended September 29, 2023	$	644.1			$	1,971.0

(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.

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

(3) Represents the 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 $36.9 million and $114.4 million for the three and nine months ended September 29, 2023, respectively, and $43.3 million and $113.7 million for the three and nine months ended September 30, 2022, respectively.

Core Sales from existing businesses for ESAB increased $38.0 million during the three months ended September 29, 2023, compared to the prior year period primarily due to customer pricing increases of $14.4 million and an increase in sales volume of $23.5 million during the three months ended September 29, 2023. During the three months ended September 29, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and Therapy Equipment. The changes in foreign exchange rates caused a $7.8 million favorable currency translation impact during the three months ended September 29, 2023.

Core Sales from existing businesses for ESAB increased $118.8 million during the nine months ended September 29, 2023, compared to the prior year period primarily due to customer pricing increases of $72.8 million and an increase in sales volume of $46.0 million during the nine months ended September 29, 2023. During the nine months ended September 29, 2023, net sales from acquisitions were attributed to Ohio Medical, Swift-Cut Limited and Therapy Equipment. The strengthening of the U.S. Dollar relative to other currencies caused a $23.1 million unfavorable currency translation impact during the nine months ended September 29, 2023.

Operating Results

The following table summarizes our results for the comparable periods.


	Three Months Ended						Nine Months Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
	(Dollars in millions)
Gross profit	$	249.7		$	209.3		$	761.0		$	661.1
Gross profit margin	36.7		%	33.7		%	36.5		%	34.3		%
Selling, general and administrative expense	$	145.4		$	121.7		$	442.8		$	394.0
Net income from continuing operations	$	60.8		$	54.3		$	163.8		$	170.6
Net income margin from continuing operations	8.9		%	8.8		%	7.9		%	8.8		%
Adjusted EBITDA (non-GAAP)	$	122.5		$	105.0		$	372.6		$	324.8
Adjusted EBITDA margin (non-GAAP)	18.0		%	16.9		%	17.9		%	16.8		%
Core adjusted EBITDA (non-GAAP)	$	117.8		$	95.5		$	356.9		$	301.4
Core adjusted EBITDA margin (non-GAAP)	18.3		%	16.9		%	18.1		%	16.8		%
Items excluded from Adjusted EBITDA:
Restructuring and other related charges(1)	$	3.1		$	6.7		$	17.7		$	16.6
Acquisition-amortization and other related charges(2)	$	9.3		$	7.2		$	27.8		$	22.5
Separation costs(3)(4)	$	—		$	1.8		$	—		$	8.9
Interest expense and other, net	$	20.5		$	12.2		$	58.8		$	19.6
Income tax expense	$	19.8		$	17.8		$	77.8		$	63.6
Pension settlement gain	$	—		$	(3.3)		$	—		$	(3.3)
Depreciation and other amortization	$	9.0		$	8.3		$	26.6		$	26.2
Items excluded from Core adjusted EBITDA:
Adjusted EBITDA attributable to Russia (non-GAAP)(5)	$	4.7		$	9.5		$	15.7		$	23.4

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

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

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

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

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

Third Quarter of 2023 Compared to Third Quarter of 2022

Gross profit increased $40.4 million in the third quarter of 2023, which resulted in the gross profit margin expanding 300 basis points to 36.7% compared with the prior year period. This increase was primarily attributable to benefits from sales volumes, acquisitions, and price, partially offset by inflation-related cost increases and unfavorable currency translation.

Selling, general and administrative expense increased $23.7 million in the third quarter of 2023, compared to the prior year period. This increase is primarily driven by incremental costs from acquisitions, growth initiatives, higher employee costs, partially offset by savings from restructuring initiatives.

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

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

In the third quarter of 2023, Adjusted EBITDA increased $17.5 million and Adjusted EBITDA margin increased by 110 basis points compared to the same period in 2022 benefiting from higher Gross profit partially offset by an increase in Selling, general and administrative expenses. Core adjusted EBITDA increased from $95.5 million to $117.8 million, and Core adjusted EBITDA margins expanded 140 basis points from 16.9% to 18.3%.

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

Gross profit increased $99.9 million in the nine months ended September 29, 2023, which resulted in gross profit margin increasing compared with the prior year period. This increase was primarily attributable to benefits from increased sales volumes, price increases, acquisitions, and restructuring initiatives, partially offset by inflation-related cost increases and unfavorable currency translation.

Selling, general and administrative expense increased $48.8 million in the nine months ended September 29, 2023, compared to the prior year period. This increase is primarily driven by incremental costs from acquisitions, employee costs, growth initiatives and costs related to being an independent public company, partially offset by a favorable currency translation impact and savings from restructuring initiatives.

The effective tax rate of 32.2% for the nine months ended September 29, 2023 differed from the effective tax rate of 27.2% for the same period ending September 30, 2022 due to the increase in discrete tax adjustments for dividend withholding taxes and an increase in unrecognized tax benefits due to an adverse court ruling in a tax case in a foreign jurisdiction.

Net income from continuing operations decreased $6.8 million in the nine months ended September 29, 2023, compared with the prior year period, primarily due to the interest expense related to our Term Facility and Revolving Facility established during the second quarter of 2022 in connection with the Separation and a higher effective tax rate in the nine months ended September 29, 2023, as mentioned above. Net income margin from continuing operations decreased by 90 basis points primarily due to the items discussed above.

In the nine months ended September 29, 2023, Adjusted EBITDA increased $47.8 million and Adjusted EBITDA margin increased by 110 basis points compared to the same period in 2022 benefiting from higher Gross profit partially offset by an increase in Selling, general and administrative expenses. Core adjusted EBITDA increased from $301.4 million to $356.9 million, and Core adjusted EBITDA margins expanded 130 basis points from 16.8% to 18.1%.

Business Segments

We formulate, develop, manufacture, and supply consumable products and equipment, including cutting, joining, and automated welding products, as well as gas control equipment. Our products are marketed under several brand names, most notably ESAB, providing a wide range of products with innovative technologies to solve challenges in virtually any industry. ESAB’s comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a wide range of specialty and other materials, and cutting consumables including electrodes, nozzles, shields, and tips. ESAB’s equipment ranges from portable welding machines to large customized automated cutting and welding systems. ESAB also offers a range of software and digital solutions to help its customers increase their productivity, remotely monitor their welding operations, and digitize their documentation. Products are sold into a wide range of end markets, including general industry, infrastructure, renewable energy, medical and life sciences, transportation, construction and energy.

We report results in two reportable segments: Americas and EMEA & APAC.

Americas

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


	Three Months Ended						Nine Months Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
	(Dollars in millions)
Net sales	$	305.8		$	281.4		$	907.7		$	844.7
Gross profit	$	116.0		$	91.8		$	336.9		$	280.9
Gross profit margin	37.9		%	32.6		%	37.1		%	33.2		%
Selling, general and administrative expense	$	68.0		$	53.4		$	199.0		$	169.3
Adjusted EBITDA (non-GAAP)	$	57.2		$	46.4		$	164.9		$	138.9
Adjusted EBITDA margin (non-GAAP)	18.7		%	16.5		%	18.2		%	16.4		%
Items excluded from Adjusted EBITDA:
Restructuring and other related charges	$	1.6		$	1.9		$	5.4		$	9.1
Acquisition- amortization and other related charges	$	5.2		$	4.0		$	16.0		$	12.3
Separation costs	$	—		$	0.8		$	—		$	4.6
Depreciation and other amortization	$	3.9		$	3.2		$	11.1		$	10.1

Third Quarter of 2023 Compared to Third Quarter of 2022

Net sales in our Americas segment increased $24.4 million in the third quarter of 2023, compared with the prior year period. Net sales from existing business increased $11.3 million partially offset by $1.5 million in unfavorable currency translation. The increase in Net sales from existing business was mainly due to pricing increases partially offset by a decrease in sales volumes, which was primarily a result of a product line simplification initiative. The Ohio Medical acquisition contributed to $14.6 million of the overall sales increase. Gross profit increased $24.2 million due to price increases, benefits from the product line simplification initiative, and the Ohio Medical acquisition, partially offset by inflation-related cost increases, a decrease in sales volumes and an unfavorable currency impact. Gross profit margin expanded 530 basis points to 37.9%, due to price increases, benefits from a product line simplification initiative, productivity improvements, and the accretive impact of the Ohio Medical acquisition, partially offset by inflation. Selling, general and administrative expense increased primarily due to growth initiatives, employee costs and the Ohio Medical acquisition. Adjusted EBITDA increased $10.8 million to $57.2 million and margins expanded 220 basis points to 18.7% primarily because of the aforementioned factors.

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

Net sales in our Americas segment increased $62.9 million in the nine months ended September 29, 2023, compared with the prior year period. Net sales from existing business increased $35.4 million partially offset by $13.9 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to customer pricing increases offset by a slight decrease in sales volumes. The Ohio Medical acquisition contributed to $41.5 million of the overall sales increase. Gross profit increased $56.0 million to $336.9 million due to customer price increases, benefits from a product line simplification initiative, and the Ohio Medical acquisition, partially offset by inflation-related cost increases, a slight decrease

in sales volumes and an unfavorable currency impact. Gross profit margin increased 390 basis points to 37.1% primarily due to price increases, benefits from a product line simplification initiative, and the accretive impact of the Ohio Medical acquisition partially offset by inflation. Selling, general and administrative expense increased primarily due to employee costs and growth initiative spending, the Ohio Medical acquisition, and an unfavorable currency impact. Adjusted EBITDA increased $26.0 million to $164.9 million and margins expanded 180 basis points to 18.2% primarily because of the aforementioned factors.

EMEA & APAC

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


	Three Months Ended						Nine Months Ended
	September 29, 2023			September 30, 2022			September 29, 2023			September 30, 2022
	(Dollars in millions)
Net sales	$	375.2		$	338.9		$	1,177.8		$	1,084.6
Gross profit	$	133.7		$	117.5		$	424.1		$	380.3
Gross profit margin	35.6		%	34.7		%	36.0		%	35.1		%
Selling, general and administrative expense	$	77.4		$	68.2		$	243.8		$	224.8
Adjusted EBITDA (non-GAAP)	$	65.3		$	58.6		$	207.7		$	185.9
Adjusted EBITDA margin (non-GAAP)	17.4		%	17.3		%	17.6		%	17.1		%
Core adjusted EBITDA (non-GAAP)	$	60.6		$	49.2		$	192.0		$	162.5
Core adjusted EBITDA margin (non-GAAP)	17.9		%	16.6		%	18.1		%	16.7		%
Items excluded from Adjusted EBITDA:
Restructuring and other related charges	$	1.6		$	4.8		$	12.3		$	7.6
Acquisition- amortization and other related charges	$	4.0		$	3.3		$	11.9		$	10.2
Separation costs	$	—		$	1.0		$	—		$	4.3
Depreciation and other amortization	$	5.0		$	5.1		$	15.5		$	16.1
Items excluded from Core adjusted EBITDA
Adjusted EBITDA attributable to Russia (non-GAAP)	$	4.7		$	9.5		$	15.7		$	23.4

Third Quarter of 2023 Compared to Third Quarter of 2022

Net sales increased for our EMEA & APAC segment by $36.3 million in the third quarter of 2023, compared with the prior year period. Net sales from existing business increased $36.0 million offset by $6.4 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to an increase in sales volumes and to a lesser extent, acquisitions and sales of new products. The Swift-Cut Limited and Therapy Equipment acquisitions contributed $6.7 million of the overall sales increase. Gross profit increased $16.2 million in the third quarter of 2023 compared with the prior year period primarily due to an increase in sales volumes, acquisitions, and benefits from restructuring initiatives. Gross profit margin expanded 90 basis points compared to the same period in 2022 due to the increase in sales as mentioned above, accretive impact of acquisitions, and benefits from restructuring initiatives. Selling, general and administrative expense increased compared to the same period in 2022 due to higher employee costs and spending to support growth initiatives. Core adjusted EBITDA increased from $49.2 million to $60.6 million and the related Core adjusted EBITDA margins expanded 130 basis points from 16.6% to 17.9% primarily because of the aforementioned factors.

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

Net sales increased for our EMEA & APAC segment by $93.1 million in the nine months ended September 29, 2023, compared with the prior year period. Net sales from existing business increased $95.5 million offset by $20.6 million in unfavorable currency translation. The increase in Net sales from existing business was primarily due to an increase in sales volumes and inflation-related pricing increases. The Swift-Cut Limited and Therapy Equipment acquisitions contributed $18.2 million of the overall sales increase. Gross profit increased $43.8 million in the nine months ended September 29, 2023, compared with the prior year period primarily due to customer price increases and increased sales volumes, partially offset by

inflation-related cost increases. Gross profit margin expanded 90 basis points compared to the same period in 2022, due to the increase in sales noted above and benefits from restructuring initiatives.

Selling, general and administrative expense increased compared to the same period in 2022 due to acquisitions and increased employee costs, partially offset by restructuring initiatives. Core adjusted EBITDA increased from $162.5 million to $192.0 million and the related Core adjusted EBITDA margins expanded 140 basis points from 16.7% to 18.1%.

Liquidity and Capital Resources

Overview

Prior to the completion of the Separation, we financed our working capital requirements through cash flows from operating activities and arrangements with our Former Parent. We currently expect to finance our working capital requirements through cash flows from operating activities. We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures and restructuring related cash outflows, asbestos-related cash outflows, and debt service and required amortization of principal and, pending Board approval, payment of cash dividends.

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

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 September 29, 2023, we were in compliance with the covenants under the Credit Agreement. As of September 29, 2023, the weighted average interest rate of borrowings under the Credit Agreement was 5.22%, excluding accretion of deferred financing fees. Refer to Note 10 “Derivatives” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to swap agreements.

As of end of the third quarter, we had the capacity for additional indebtedness of up to $653 million available on the Revolving Facility, subject to meeting financial covenants and other requirements. Additionally, we have the ability to incur $76 million of indebtedness pursuant to certain uncommitted credit lines, consisting of an uncommitted credit line that we currently have in place, which we have used from time to time in the past for short-term working capital needs. Refer to Note 9 “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for more information related to the Facilities. We believe that we could raise additional funds in the form of debt or equity if it were determined to be appropriate for strategic acquisitions or other corporate purposes. We believe that our sources of liquidity between debt and cash flows from operating activities are adequate to fund our operations for the next twelve months.

Cash Flows

As of September 29, 2023, we had $82.8 million of Cash and cash equivalents, an increase of $10.8 million from the balance as of December 31, 2022 of $72.0 million.

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


	Nine Months Ended
	September 29, 2023		September 30, 2022
	(Dollars in Millions)(1)
Net cash provided by operating activities	$	208.1	$	122.9
Purchases of property, plant and equipment	(28.9)		(22.0)
Proceeds from sale of property, plant and equipment	5.2		4.3
Acquisition, net of cash received	(18.7)		—
Net cash used in investing activities	(42.4)		(17.7)
Proceeds from borrowings on term credit facility	—		1,000.0
Proceeds from borrowings on revolving credit facility and other	454.7		495.9
Repayments of borrowings on term credit facility	(6.3)		—
Repayments of borrowings on revolving credit facility and other	(578.6)		(360.0)

Payment of deferred financing fees and other	—		(4.9)
Payments of deferred consideration	—		(1.5)
Payment of dividends	(9.7)		(3.0)
Distributions to noncontrolling interest holders	(2.3)		(2.0)
Consideration to Former Parent in connection with the Separation	—		(1,200.0)
Transfers from Former Parent, net	—		2.8
Net cash used in financing activities	(142.2)		(72.7)
Effect of foreign exchange rates on Cash and cash equivalents	(12.7)		(13.2)
Increase in Cash and cash equivalents	$	10.8	$	19.4

(1) Numbers may not sum due to rounding.

Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as pension funding, asbestos-related costs and restructuring program funding. Changes in significant operating cash flow items are discussed below.

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

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

•Restructuring initiatives were $15.4 million for the nine months ended September 29, 2023 and $17.7 million for the nine months ended September 30, 2022, which includes severance and other termination benefits including outplacement services as well as the cost of relocating associates, relocating equipment, lease termination expense, and other costs in connection with the closure and optimization of facilities and product lines.

Cash flows used in investing activities include $18.7 million of cash used primarily for the acquisition of Therapy Equipment Limited during the nine months ended September 29, 2023.

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

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

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

Critical Accounting Policies

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. We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates, and different assumptions or estimates about the future could have a material impact on our results of operations and financial position.

There have been no other significant additions or changes to the methods, estimates and judgments included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the 2022 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in foreign currency exchange rates and commodity prices that could impact our results of operations and financial condition. We address our exposure to these risks through our normal operating and financing activities. We do not enter into derivative contracts for trading purposes.

Interest Rate Risk

We entered into certain Term Loans and a Revolving Facility pursuant to the terms of the Credit Agreement. Please refer to Note 9 “Debt” in the accompanying Notes contained elsewhere in this Form 10-Q for additional information regarding our Facilities. We are exposed to interest rate risk on the variable-rate term loans under these Facilities. A hypothetical increase in interest rates of 1% during the nine months ended September 29, 2023 would have increased interest expense by approximately $3.7 million. To mitigate our interest risk, in July 2022, we entered into interest rate swaps to hedge approximately $600 million of our variable interest rate debt. See Note 10 “Derivatives” in our Notes contained elsewhere in this Form 10-Q for additional information.

Exchange Rate Risk

We have manufacturing sites throughout the world and sell our products globally. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. Dollar and against the currencies of other countries in which we manufacture and sell products and services. During the nine months ended September 29, 2023, approximately 79% of our sales were derived from operations outside the United States. We have significant manufacturing operations in European countries that are not part of the Eurozone. Sales are more highly weighted toward the Euro and U.S. Dollar. We also have significant contractual obligations in U.S. Dollars that are met with cash flows in other currencies as well as U.S. Dollars. To better match revenue and expense as well as cash needs from contractual liabilities, we regularly enter into currency swaps and forward contracts.

We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries. The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the AOCI component of Equity. A 10% depreciation in major currencies relative to the U.S. Dollar as of September 29, 2023 would result in a reduction in Equity of approximately $174 million. In 2022, we entered into two fixed-to-fixed cross-currency swaps, which will provide a hedge to a portion of our European net asset position. See Note 10 “Derivatives” in our Notes contained elsewhere in this Form 10-Q for additional information.

We also face exchange rate risk from intercompany transactions between affiliates. Although we use the U.S. Dollar as our functional currency for reporting purposes, we have manufacturing sites throughout the world, and a substantial portion of our costs are incurred and sales are generated in foreign currencies. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. Dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. Dollar. Similarly, tax costs may increase or decrease as local currencies strengthen or weaken against the U.S. Dollar.

Commodity Price Risk

We are exposed to changes in the prices of raw materials used in our production processes. To manage commodity price risk, we periodically enter into fixed price contracts directly with suppliers.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 29, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed in this report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this report on Form 10-Q.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Discussion of legal proceedings is incorporated by reference to Note 13 “Commitments and Contingencies,” in the Notes included in Part I. Item 1. “Financial Statements” of this Form 10-Q.

Item 1A. Risk Factors

In addition to the information set forth in this quarterly report on Form 10-Q, including in “Management Discussion and Analysis of Financial Condition and Results of Operations - Special Note Regarding Forward Looking Statements,” in Part I of this Form 10-Q, you should carefully consider the factors discussed in the “Risk Factors” section of the Company’s 2022 Form 10-K filed with the SEC on March 7, 2023. There were no material changes during the nine months ended September 29, 2023 to the risk factors reported in the “Risk Factors” section of the Company’s 2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On September 6, 2023, Mr. Shyam P. Kambeyanda, the President and Chief Executive Officer of the Company, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 33,800 shares of Company common stock between December 7, 2023 and January 30, 2024, subject to certain conditions, all of which shares are to be acquired upon exercise of employee stock options scheduled to expire on February 12, 2024.

Item 6. Exhibits


Exhibit No.			Exhibit Description





















































31.01			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.02			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			Inline XBRL Taxonomy Extension Schema Document.

101.CAL			Inline XBRL Extension Calculation Linkbase Document.

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104			Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 29, 2023 is formatted in Inline XBRL (included as Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Registrant: ESAB Corporation

By:

/s/ Shyam P. Kambeyanda

President and Chief Executive Officer

Shyam P. Kambeyanda

(Principal Executive Officer)

November 1, 2023

/s/ Kevin Johnson

Chief Financial Officer

Kevin Johnson

(Principal Financial Officer)

November 1, 2023

/s/ Renato Negro

Controller and Chief Accounting Officer

Renato Negro

(Principal Accounting Officer)

November 1, 2023

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ESAB (ESAB) 10-Q2023 Q3 Quarterly report

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