# Envista Holdings Corp: Form 10-Q for the period ended Sep 29, 2023

- Company: [Envista Holdings Corp](/companies/nvst.md) (CIK 1757073)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 16:24 ET
- Period: 2023-09-29
- Accession: 0001757073-23-000071
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1757073/000175707323000071/nvst-20230929.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1757073/000175707323000071/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-29 | $631.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-29 | $1.92bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-29 | $268.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-29 | $816.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-29 | $363.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-29 | $1.10bn | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-29 | $22.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-29 | $73.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-29 | $257.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-29 | $796.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-29 | $83.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-29 | $234.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-29 | $15.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-29 | $49.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-29 | $14.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-29 | $42.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-29 | $21.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-29 | $117.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-29 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-29 | $0.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-29 | $0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-29 | $0.71 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-29 | 175,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-29 | 176,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-29 | $173.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-29 | $50.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-29 | $824.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-29 | $1.64bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-29 | $6.68bn | us-gaap:Assets |
| Current liabilities | at 2023-09-29 | $746.8m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-29 | $1.38bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-29 | $115.1m | us-gaap:DebtCurrent |
| Short-term borrowings | at 2023-09-29 | $115.1m | us-gaap:ShortTermBorrowings |

## Management's discussion and analysis

As filed, 50,435 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with other information, including our Condensed Consolidated Financial Statements and related notes included in Part I, Item 1, Financial Information, of this Quarterly Report on Form 10-Q, our consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 10-K”), and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Envista Holdings Corporation and its consolidated subsidiaries.*

*Certain statements included or incorporated by reference in this Quarterly Report are “forward-looking statements” within the meaning of the U.S. federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations; projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof, divestitures, spin-offs, split-offs or other distributions, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; future regulatory approvals and the timing thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Envista intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to, the following: the conditions in the U.S. and global economy, the impact of inflation and increasing interest rates, international economic, political, legal, compliance and business factors, the markets served by us and the financial markets, the impact of the COVID-19 pandemic, the impact of our debt obligations on our operations and liquidity, developments and uncertainties in trade policies and regulations, contractions or growth rates and cyclicality of markets we serve, risks relating to product manufacturing, commodity costs and surcharges, our ability to adjust purchases and manufacturing capacity to reflect market conditions, reliance on sole or limited sources of supply, disruptions relating to war, terrorism, climate change, widespread protests and civil unrest, man-made and natural disasters, public health issues and other events, security breaches or other disruptions of our information technology systems or violations of data privacy laws, fluctuations in inventory of our distributors and customers, loss of a key distributor, our relationships with and the performance of our channel partners, competition, our ability to develop and successfully market new products and services, our ability to attract, develop and retain our key personnel, the potential for improper conduct by our employees, agents or business partners, our compliance with applicable laws and regulations (including regulations relating to medical devices and the health care industry), the results of our clinical trials and perceptions thereof, penalties associated with any off-label marketing of our products, modifications to our products that require new marketing clearances or authorizations, our ability to effectively address cost reductions and other changes in the health care industry, our ability to successfully identify and consummate appropriate acquisitions and strategic investments, our ability to integrate the businesses we acquire and achieve the anticipated benefits of such acquisitions, contingent liabilities relating to acquisitions, investments and divestitures, our ability to adequately protect our intellectual property, the impact of our restructuring activities on our ability to grow, risks relating to currency exchange rates, changes in tax laws applicable to multinational companies, litigation and other contingent liabilities including intellectual property and environmental, health and safety matters, risks relating to product, service or software defects, the impact of regulation on demand for our products and services, and labor matters, and other risks and uncertainties set forth under “Item 1A. Risk Factors” in the 2022 10-K and this Quarterly Report on Form 10-Q.*

*Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Forward-looking statements contained herein speak only as of the date of this Quarterly Report. Except to the extent required by applicable law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.*

### BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements present our historical financial position, results of operations, changes in stockholders’ equity and cash flows in accordance with GAAP.

### Sale of the KaVo Treatment Unit and Instrument Business

On December 31, 2021, we sold substantially all of the KaVo Treatment Unit and Instrument Business (the “Divestiture”) to planmeca Verwaltungs Gmbh, Germany (“Planmeca”), pursuant to the master sale and purchase agreement (the “Purchase Agreement”) among us, Planmeca, and Planmeca Oy, as guarantor. However, the transfer of assets in certain countries was not executed and closed until 2022 (“Deferred Local Closing”). As of December 31, 2022, all Deferred Local Closings were completed and we received total net cash consideration of $386.4 million in accordance with the terms of the Purchase Agreement.

The Divestiture was part of our strategy to structurally improve our long-term margins and represented a strategic shift with a major effect on our operations and financial results as described in ASC 205-20. The sale met the criteria to be accounted for as a discontinued operation and therefore, we applied discontinued operations treatment for the Divestiture as required by ASC 205-20. In accordance with ASC 205-20, we have reported the financial results of the Divestiture as discontinued operations in our Condensed Consolidated Statements of Operations and have excluded the KaVo Treatment Unit and Instrument Business from all segment information and descriptions for the three and nine months ended September 30, 2022. Our Condensed Consolidated Statements of Cash Flows include the financial results of the KaVo Treatment Unit and Instrument Business for the nine months ended September 30, 2022. As all Deferred Local Closings were completed as of December 31, 2022, there are no discontinued operations reported for the three and nine months ended September 29, 2023.

### OVERVIEW

### General

We provide products that are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone, as well as to improve the aesthetics of the human smile. We help our customers deliver the best possible patient care through industry-leading solutions, technologies, and services. With leading brand names, innovative technology and significant market positions, we are a leading worldwide provider of a broad range of solutions to support implant-based tooth replacements, orthodontic treatments, digital imaging and diagnostics, as well as general dental consumables, equipment and services, and are dedicated to driving technological innovations that help dental professionals improve clinical outcomes and enhance productivity. Our research and development, manufacturing, sales, distribution, service and administrative facilities are located in more than 30 countries across North America, Asia, Europe, the Middle East and Latin America.

We operate in two business segments: Specialty Products & Technologies and Equipment & Consumables. Our Specialty Products & Technologies segment develops, manufactures and markets products primarily related to dental implant systems, including regenerative solutions, dental prosthetics and associated treatment software and technologies, as well as orthodontic bracket systems, aligners and lab products. Our Equipment & Consumables segment develops, manufactures and markets products primarily related to dental equipment and supplies used in dental offices, including digital imaging systems, software and other visualization/magnification systems; endodontic systems and related consumables; and restorative materials and instruments, rotary burs, impression materials, bonding agents and cements and infection prevention products.

For the three and nine months ended September 29, 2023, sales derived from customers outside of the United States were 51.1% and 52.1%, respectively, compared to the three and nine months ended September 30, 2022, of 49.7% and 50.8%, respectively. As a global provider of dental consumables, equipment and services, our operations are affected by worldwide, regional and industry-specific economic and political factors. Given the broad range of dental products, software and services provided and geographies served, we do not use any indices other than general economic trends to predict our overall outlook. Our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and the outlook for the future.

As a result of our geographic and product line diversity, we face a variety of opportunities and challenges, including rapid technological development in most of our served markets, the expansion and evolution of opportunities in emerging markets, trends and costs associated with a global labor force, consolidation of our competitors and increasing regulation. We operate in a highly competitive business environment in most markets, and our long-term growth and profitability will depend in particular on our ability to expand our business in emerging geographies and market segments, identify, consummate and integrate appropriate acquisitions, develop innovative and differentiated new products and services, expand and improve the effectiveness of our sales force, continue to reduce costs and improve operating efficiency and quality and effectively address the demands of an increasingly regulated global environment. We are making significant investments to address the rapid pace of technological change in our served markets and to globalize our manufacturing, research and development and customer-facing resources (particularly in emerging markets and our dental implant business) in order to be responsive to our customers throughout the world and improve the efficiency of our operations.

### Key Trends and Conditions Affecting Our Results of Operations

There have been no material changes to the key trends and conditions affecting our results of operations that were disclosed in our 2022 10-K, except as follows:

### Debt Financing Transactions

During the quarter ended September 29, 2023, we issued $500.2 of 2028 Convertible Notes, entered into the Second Amended Credit Agreement, and executed Notes Exchanges with a limited number of holders of the 2025 Convertible Notes consisting of approximately $403.0 in cash, which includes accrued interest, and approximately 8.4 million shares of our common stock. We recognized a non-cash inducement charge of $28.5 million in connection with the Notes Exchanges which was recorded within Other Expense in the Condensed Consolidated Statements of Operations.

See “Liquidity and Capital Resources ─ Debt Financing Transactions” in this Quarterly Report on Form 10-Q for further discussion.

### Foreign Currency Exchange Rates

On a period-over-period basis, currency exchange rates negatively impacted reported sales by 0.8% and 1.2% for the three and nine months ended September 29, 2023, respectively, compared to the comparable periods of 2022, primarily due to the strength of the U.S. dollar against most major currencies. Any future strengthening of the U.S. dollar against major currencies would negatively impact our sales and results of operations for the remainder of the year, and any weakening of the U.S. dollar against major currencies would positively impact our sales and results of operations for the remainder of the year.

### General Economic Conditions

In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions, including rising inflation, increasing interest rates, fluctuating foreign currency exchange rates, slowing economic growth, and continuing supply chain disruptions. Dental costs are largely out-of-pocket for the consumer and thus utilization rates can vary significantly depending on economic growth. While many of our products are considered necessary by patients regardless of the economic environment, certain products and services that support discretionary dental procedures may be more susceptible to changes in economic conditions.

### Pricing Controls

Certain countries, as well as some private payors, control the price of health care products, directly or indirectly, through reimbursement, payment, pricing or coverage limitations, tying reimbursement to outcomes or (in the case of governmental entities) compulsory licensing. For example, China has implemented volume-based procurement policies, a series of centralized reforms instituted in China on both a national and regional basis that has resulted in significant price cuts for medical and dental consumables.

### Russia-Ukraine Conflict

Russia’s invasion of Ukraine and the global response to this invasion, including sanctions imposed by the U.S. and other countries, could have an adverse impact on our business, including our ability to market and sell products in the affected regions, potentially heightening our risk of cyber security attacks, impacting our ability to enforce our intellectual property rights in Russia, creating disruptions in the global supply chain, and potentially having an adverse impact on the global economy, financial markets, energy markets, currency rates and otherwise. While we are experiencing volatility in sales from this region, Russia’s invasion of Ukraine did not have a material impact on our overall financial position or results of operations as of and for the three and nine months ended September 29, 2023 and September 30, 2022.

### Israel-Hamas War

In response to the attacks in Israel and the subsequent hostilities, we continue to monitor the social, political, and economic environment in Israel and in the region for any impact to our operations. Revenue generated from Israel is approximately $15 million annually. We also maintain a production facility in Israel related to our Alpha-Bio Tech Implant brand. While we anticipate some volatility in the region, the Israel-Hamas War has not had a material impact on our business.

### COVID-19

The extent of the impact of the COVID-19 pandemic on our business remains uncertain and difficult to predict because of the dynamic and evolving nature of the situation. The global impact of the outbreak continues to adversely affect many industries, and different geographies continue to reflect the effects of public health restrictions in various ways. The economic recovery following the impact of the COVID-19 pandemic is only partially underway and has been gradual, uneven and characterized by meaningful dispersion across sectors and regions with uncertainty regarding its ultimate length and trajectory. During the three and nine months ended September 29, 2023, notwithstanding improvement in many markets in which we operate due to a return to more normalized business operations, certain markets continued to be adversely impacted by COVID-19.

For additional information on certain risks to our business, please refer to the “Item 1A. Risk Factors” section of our 2022 10-K.

### Acquisitions

Our growth strategy contemplates future acquisitions and we continually evaluate potential acquisitions that either strategically fit with our existing portfolio or expand our portfolio into new and attractive business areas. Our operations and results can be affected by the rate and extent to which appropriate acquisition opportunities are available, acquired businesses are effectively integrated and anticipated synergies or cost savings are achieved. During the fiscal year 2022, we completed two acquisitions.

On July 5, 2022, we acquired all of the equity of Osteogenics for total consideration of approximately $128.2 million, subject to certain customary adjustments as provided in the Equity Purchase Agreement dated May 17, 2022. Osteogenics develops innovative regenerative solutions for periodontists, oral and maxillofacial surgeons, and clinicians involved in implant dentistry throughout the world, and is part of our Specialty Products & Technologies segment.

On April 20, 2022, we completed our acquisition of Carestream Dental’s Intraoral Scanner Business for total consideration of approximately $580.3 million and subject to certain customary adjustments as provided in the IOS Purchase Agreement. The Intraoral Scanner Business manufactures, markets, sells, commercializes, distributes, services, trains, supports, and maintains operations of intraoral scanners and software, and is part of our Equipment & Consumables segment. We purchased the Intraoral Scanner Business through the acquisition of certain assets and the assumption of certain liabilities as well as the acquisition of all of the equity of certain subsidiaries of Carestream Dental.

### Envista Business Systems

Throughout this discussion, references to sales volume refer to the impact of both price and unit sales and references to productivity improvements generally refer to improved cost-efficiencies resulting from the ongoing application of Envista Business Systems (“EBS”). We believe our deep-rooted commitment to EBS helps drive our market leadership and differentiates us in the dental products industry. EBS encompasses not only lean tools and processes, but also methods for driving growth, innovation and leadership. Within the EBS framework, we pursue a number of ongoing strategic initiatives relating to streamlining business operations, portfolio simplification, reduction of costs, redeployment of resources, customer insight generation, product development and commercialization, efficient sourcing, and improvement in manufacturing and back-office support, all with a focus on continually improving quality, delivery, cost, growth and innovation.

### Non-GAAP Measures

In order to establish period-to-period comparability, we include the non-GAAP measure of core sales in this report. References to the non-GAAP measure of core sales (also referred to as core revenues or sales/revenues from existing businesses) refer to sales calculated according to GAAP, but excluding:

- sales from acquired businesses for one year from the acquisition date;
- sales from discontinued products; and
- the impact of currency translation.

We exclude sales from acquired businesses in order to provide accurate year over year comparisons. Sales from discontinued products includes major brands or major products that we have made the decision to discontinue as part of a portfolio restructuring. Discontinued brands or products consist of those which we (1) are no longer manufacturing, (2) are no longer investing in the research or development of, and (3) expect to discontinue all significant sales of within one year from the decision date to discontinue. The portion of sales attributable to discontinued brands or products is calculated as the net decline of the applicable discontinued brand or product from period-to-period. We exclude sales from discontinued products because discontinued products do not have a continuing contribution to operations and management believes that excluding such items provides investors with a means of evaluating our on-going operations and facilitates comparisons to our peers.

The portion of sales attributable to currency translation is calculated as the difference between:

- the period-to-period change in sales; and
- the period-to-period change in sales after applying current period foreign exchange rates to the prior year period.

Core sales growth should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies. We believe that reporting the non-GAAP financial measure of core sales growth provides useful information to investors by helping identify underlying growth trends in our on-going business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers. We also use core sales growth to measure our operating and financial performance. We exclude the effect of currency translation from core sales because currency translation is not under our control, is subject to volatility and can obscure underlying business trends.

### RESULTS OF OPERATIONS

All comparisons, variances, increases or decreases discussed below are for the three and nine months ended September 29, 2023, compared to the three and nine months ended September 30, 2022.

*($ in millions)*

|  | Three Months Ended September 29, 2023 |  | September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Sales | $631.3 | 100.0% | $631.1 | 100.0% | —% |
| Cost of sales | 268.0 | 42.5% | 266.4 | 42.2% | 0.6% |
| Gross profit | 363.3 | 57.5% | 364.7 | 57.8% | (0.4)% |
| Operating costs: |  |  |  |  |  |
| Selling, general and administrative (“SG&A”) expenses | 257.7 | 40.8% | 264.2 | 41.9% | (2.5)% |
| Research and development (“R&D”) expenses | 22.3 | 3.5% | 26.0 | 4.1% | (14.2)% |
| Operating profit | 83.3 | 13.2% | 74.5 | 11.8% | 11.8% |
| Nonoperating income (expense): |  |  |  |  |  |
| Other (expense) income | (32.1) | (5.1)% | 0.3 | —% | NM |
| Interest expense, net | (15.4) | (2.4)% | (11.6) | (1.8)% | 32.8% |
| Income before income taxes | 35.8 | 5.7% | 63.2 | 10.0% | (43.4)% |
| Income tax expense | 14.3 | 2.3% | 13.6 | 2.2% | 5.1% |
| Income from continuing operations | 21.5 | 3.4% | 49.6 | 7.9% | (56.7)% |
| Loss from discontinued operations, net of tax | — | —% | (2.0) | (0.3)% | (100.0)% |
| Net income | $21.5 | 3.4% | $47.6 | 7.5% | (54.8)% |
| Effective tax rate from continuing operations | 39.9% |  | 21.5% |  |  |

*($ in millions)*

|  | Nine Months Ended September 29, 2023 |  | September 30, 2022 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Sales | $1,920.9 | 100.0% | $1,908.3 | 100.0% | 0.7% |
| Cost of sales | 816.3 | 42.5% | 799.7 | 41.9% | 2.1% |
| Gross profit | 1,104.6 | 57.5% | 1,108.6 | 58.1% | (0.4)% |
| Operating costs: |  |  |  |  |  |
| SG&A expenses | 796.7 | 41.5% | 801.9 | 42.0% | (0.6)% |
| R&D expenses | 73.6 | 3.8% | 75.5 | 4.0% | (2.5)% |
| Operating profit | 234.3 | 12.2% | 231.2 | 12.1% | 1.3% |
| Nonoperating income (expense): |  |  |  |  |  |
| Other (expense) income | (24.7) | (1.3)% | 0.9 | —% | NM |
| Interest expense, net | (49.5) | (2.6)% | (23.9) | (1.3)% | 107.1% |
| Income before income taxes | 160.1 | 8.3% | 208.2 | 10.9% | (23.1)% |
| Income tax expense | 42.9 | 2.2% | 43.7 | 2.3% | (1.8)% |
| Income from continuing operations | 117.2 | 6.1% | 164.5 | 8.6% | (28.8)% |
| Income from discontinued operations, net of tax | — | —% | 5.1 | 0.3% | (100.0)% |
| Net income | $117.2 | 6.1% | $169.6 | 8.9% | (30.9)% |
| Effective tax rate from continuing operations | 26.8% |  | 21.0% |  |  |

Non-meaningful percentage change related to year-to-year comparisons are designated as NM.

### GAAP Reconciliation

### Sales and Core Sales Growth

|  | % Change Three Month Period Ended September 29, 2023 vs. Comparable 2022 Period | % Change Nine Month Period Ended September 29, 2023 vs. Comparable 2022 Period |
| --- | ---: | ---: |
| Total sales growth (GAAP) | —% | 0.7% |
| Plus the impact of: |  |  |
| Acquisition | —% | (1.7)% |
| Currency exchange rates | 0.8% | 1.2% |
| Core sales growth (non-GAAP) | 0.8% | 0.2% |

Sales growth for the three months ended September 29, 2023 remained flat while core sales growth increased by 0.8% for the comparable period in 2022. An increase in sales volume positively impacted sales growth by 3.7% on a period-over-period basis, partially offset by a decrease in sales price of 2.9%. Sales increased due to growth in Europe, partially offset by a decrease in North America.

Sales and core sales growth for the nine months ended September 29, 2023 increased by 0.7% and 0.2%, respectively, compared to the comparable period in 2022. An increase in sales volume positively impacted sales growth by 1.2% on a period-over-period basis, offset by a decrease in sales price of 1.0%. The increase in sales is primarily due to growth from Europe, partially offset by lower demand from North America, and China.

### COST OF SALES AND GROSS PROFIT MARGIN

*($ in millions)*

|  | Three Months Ended September 29, 2023 | September 30, 2022 | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cost of sales | $268.0 | $266.4 | $816.3 | $799.7 |
| Gross profit margin | 57.5% | 57.8% | 57.5% | 58.1% |

Cost of sales for the three and nine months ended September 29, 2023 increased as compared to the comparable periods in 2022 primarily due to increased sales and unfavorable product mix, partially offset by the absence of the amortization of the fair value adjustments related to acquired inventory as part of our acquisitions.

Gross profit margin percentages during the three and nine months ended September 29, 2023 decreased compared to the comparable periods in 2022. For the three months ended September 29, 2023, the slight decrease was primarily due to unfavorable sales price and product mix, partially offset by an increase in volume, the absence of the amortization of the fair value adjustments related to acquired inventory as part of our acquisitions, and by period-over-period savings associated with productivity improvements. For the nine months ended September 29, 2023, the decrease was primarily due to unfavorable product mix, unfavorable sales price and higher costs due to inflation, partially offset by an increase in volume, the absence of the amortization of the fair value adjustments related to acquired inventory as part of our acquisitions, and by period-over-period savings associated with productivity improvements.

### OPERATING EXPENSES

*($ in millions)*

|  | Three Months Ended September 29, 2023 | September 30, 2022 | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $257.7 | $264.2 | $796.7 | $801.9 |
| Research and development expenses | $22.3 | $26.0 | $73.6 | $75.5 |
| SG&A as a % of sales | 40.8% | 41.9% | 41.5% | 42.0% |
| R&D as a % of sales | 3.5% | 4.1% | 3.8% | 4.0% |

35

SG&A expenses as a percentage of sales for the three and nine months ended September 29, 2023 decreased as compared to the comparable periods of 2022 primarily due to lower sales and marketing expenses and lower acquisition related costs.

R&D expenses as a percentage of sales for the three and nine months ended September 29, 2023, were consistent with the comparable periods in 2022.

### OTHER (EXPENSE) INCOME, NET

Other (expense) income, net for the three months ended September 29, 2023 primarily consists of $29.0 million of inducement and other expenses associated with the Notes Exchanges and a loss on equity investments of $3.3 million. Other expense, net for the nine months ended September 29, 2023 consists primarily of $29.0 million of inducement and other expenses associated with the Notes Exchanges, offset by a $3.6 million net gain on equity investments.

### INTEREST COSTS AND FINANCING

Interest costs were $15.4 million and $11.6 million for the three months ended September 29, 2023 and September 30, 2022, respectively, and $49.5 million and $23.9 million for the nine months ended September 29, 2023 and September 30, 2022, respectively. The increase in interest costs for the three and nine months ended September 29, 2023 as compared to the comparable periods of 2022 was due primarily to higher interest rates on our variable rate term borrowings and increased borrowing during the quarter ended September 29, 2023.

### INCOME TAXES

|  | Three Months Ended September 29, 2023 | September 30, 2022 | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Effective tax rate from continuing operations | 39.9% | 21.5% | 26.8% | 21.0% |

Our effective tax rate from continuing operations of 39.9% and 26.8% for the three and nine months ended September 29, 2023, respectively, differed from the comparable periods in 2022 primarily due to the nondeductible nature of the convertible debt inducement expense for U.S. tax purposes, our geographical mix of earnings, and a decrease in certain discrete tax benefits.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. Based on our current analysis of the provisions, this legislation did not have a material impact on our Condensed Consolidated Financial Statements as of or for the three and nine months ended September 29, 2023.

### RESULTS OF OPERATIONS - BUSINESS SEGMENTS

### Specialty Products & Technologies

Our Specialty Products & Technologies segment primarily develops, manufactures and markets dental implant systems, including regenerative solutions, dental prosthetics and associated treatment software and technologies, as well as orthodontic bracket systems, aligners and lab products.

### Specialty Products & Technologies Selected Financial Data

*($ in millions)*

|  | Three Months Ended September 29, 2023 | September 30, 2022 | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $399.5 | $395.4 | $1,226.5 | $1,200.2 |
| Operating profit | $61.4 | $62.3 | $188.2 | $206.6 |
| Operating profit as a % of sales | 15.4% | 15.8% | 15.3% | 17.2% |

36

### Sales and Core Sales Growth

|  | % Change Three Month Period Ended September 29, 2023 vs. Comparable 2022 Period | % Change Nine Month Period Ended September 29, 2023 vs. Comparable 2022 Period |
| --- | ---: | ---: |
| Total sales growth (GAAP) | 1.0% | 2.2% |
| Plus the impact of: |  |  |
| Acquisitions | —% | (1.4)% |
| Currency exchange rates | 1.2% | 1.5% |
| Core sales growth (non-GAAP) | 2.2% | 2.3% |

#### Sales

Sales and core sales growth for the three months ended September 29, 2023 increased 1.0% and 2.2%, respectively, compared to the comparable period in 2022. Sales increased by 4.7% due to higher volume on a period-over-period basis, offset by a decrease in sales price of 2.5%. The increase in sales is primarily due to growth from Europe and China, partially offset by lower demand in North America and Russia.

Sales and core sales growth for the nine months ended September 29, 2023 increased 2.2% and 2.3%, respectively, compared to the comparable period in 2022. Sales increased by 3.5% due to higher volume on a period-over-period basis, offset by a decrease in sales price of 1.2%. The increase in sales is primarily due to growth in Europe, partially offset by lower demand from North America, Russia and China.

Additionally, sales for the nine months ended September 29, 2023 were also positively impacted by the acquisition of Osteogenics.

#### Operating Profit

Operating profit margin was 15.4% for the three months ended September 29, 2023, as compared to an operating profit margin of 15.8% for the comparable period of 2022. For the three months ended September 29, 2023, the decrease was primarily due to unfavorable product mix and unfavorable sales price, partially offset by an increase in sales volume and by period-over-period savings associated with productivity improvements.

Operating profit margin was 15.3% for the nine months ended September 29, 2023, as compared to an operating profit margin of 17.2% for the comparable period of 2022. For the nine months ended September 29, 2023, the decrease was primarily due to unfavorable product mix, unfavorable sales price, investments in our long-term growth initiatives and the impact of inflation, partially offset by an increase in sales volume and by period-over-period savings associated with productivity improvements.

### EQUIPMENT & CONSUMABLES

Our Equipment & Consumables segment primarily develops, manufactures and markets dental equipment and supplies used in dental offices, including digital imaging systems, software and other visualization/magnification systems; endodontic systems and related consumables; restorative materials and instruments, rotary burs, impression materials, bonding agents and cements and infection prevention products.

### Equipment & Consumables Selected Financial Data

*($ in millions)*

|  | Three Months Ended September 29, 2023 | September 30, 2022 | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $231.8 | $235.7 | $694.4 | $708.1 |
| Operating profit | $43.9 | 44.7 | $124.8 | $120.4 |
| Operating profit as a % of sales | 18.9% | 19.0% | 18.0% | 17.0% |

37

### Sales and Core Sales Growth

|  | % Change Three Month Period Ended September 29, 2023 vs. Comparable 2022 Period | % Change Nine Month Period Ended September 29, 2023 vs. Comparable 2022 Period |
| --- | ---: | ---: |
| Total sales growth (GAAP) | (1.7)% | (1.9)% |
| Plus the impact of: |  |  |
| Acquisition | —% | (2.0)% |
| Currency exchange rates | 0.1% | 0.4% |
| Core sales growth (non-GAAP) | (1.6)% | (3.5)% |

#### Sales

Sales and core sales growth for the three months ended September 29, 2023 decreased 1.7%, and 1.6%, respectively, compared to the comparable period in 2022. Sales growth increased by 2.1% due to higher volume on a period-over-period basis, offset by a decrease in sales price of 3.7%. The decrease in sales is primarily due to lower demand from North America and China.

Sales and core sales growth for the nine months ended September 29, 2023 decreased 1.9% and 3.5%, respectively, compared to the comparable period in 2022. A decrease in sales volume negatively impacted sales growth by 2.7% on a period-over-period basis combined with a decrease in sales price of 0.8%. The decrease in sales is primarily due to lower demand from North America, Europe and China.

Sales for the nine months ended September 29, 2023 were positively impacted by the acquisition of our Intraoral Scanner Business.

#### Operating Profit

Operating profit margin was 18.9% for the three months ended September 29, 2023, as compared to an operating profit margin of 19.0% for the comparable period of 2022. The slight decrease in operating profit margin for the three months ended September 29, 2023 was primarily due to unfavorable sales price, offset by favorable product mix and decreased amortization of intangible assets.

Operating profit margin was 18.0% for the nine months ended September 29, 2023, as compared to an operating profit margin of 17.0% for the comparable period of 2022. The increase in operating profit margin for the nine months ended September 29, 2023 was primarily due to period-over-period savings associated with productivity improvements and decreased amortization of intangible assets, offset by lower sales volume, unfavorable sales price and the impact of higher costs due to inflation.

### LIQUIDITY AND CAPITAL RESOURCES

We assess our liquidity in terms of our ability to generate cash to fund our operating and investing activities. We continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity are sufficient to allow us to manage our capital structure on a short-term and long-term basis and continue investing in existing businesses and consummating strategic acquisitions.

Following is an overview of our cash flows and liquidity, which includes the cash flows of the KaVo Treatment Unit and Instrument Business for the nine months ended September 30, 2022.

### Overview of Cash Flows and Liquidity

|  | Nine Months Ended September 29, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $173.7 | $72.4 |
| Payments for additions to property, plant and equipment | $(50.0) | $(58.8) |
| Proceeds from sales of property, plant and equipment | — | 1.6 |
| Proceeds from sale of equity investment | 10.7 | — |
| Acquisitions, net of cash acquired | — | (696.2) |
| Proceeds from sale of KaVo treatment unit and instrument business | — | 59.8 |
| Proceeds from the settlement of derivative financial instruments | 1.1 | 55.9 |
| All other investing activities, net | (11.6) | (18.5) |
| Net cash used in investing activities | $(49.8) | $(656.2) |
| Proceeds from issuance of convertible notes due 2028 | 500.2 | — |
| Debt issuance costs related to issuance of convertible notes due 2028 | (13.5) | — |
| Principal paid related to exchange of convertible notes due 2025 | (401.2) | — |
| Proceeds from borrowings | 323.5 | 0.3 |
| Repayment of borrowings | (288.8) | (0.5) |
| Debt issuance costs related to other borrowings | (4.5) | — |
| Proceeds from revolving line of credit | — | 124.0 |
| Repayment of revolving line of credit | — | (54.0) |
| Proceeds from stock option exercises | 7.5 | $19.9 |
| Tax withholding payment related to net settlement of equity awards | (7.8) | (8.9) |
| All other financing activities | 0.2 | — |
| Net cash provided by financing activities | $115.6 | $80.8 |

#### Operating Activities

Cash flows from operating activities can fluctuate significantly from period-to-period due to working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impacting reported cash flows.

Net cash provided by operating activities was $173.7 million during the nine months ended September 29, 2023, as compared to net cash provided by operating activities of $72.4 million for the comparable period of 2022, primarily due to lower overall net cash payments during the nine months ended September 29, 2023.

#### Investing Activities

Cash flows relating to investing activities consist primarily of cash used for capital expenditures and acquisitions. Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information technology systems.

Net cash used in investing activities was $49.8 million for the nine months ended September 29, 2023, as compared to net cash used in investing activities of $656.2 million for the comparable period in 2022, primarily due to the prior year period reflecting cash paid with respect to acquisitions, partially offset by the earnout from the sale of the KaVo Treatment Unit and Instruments Business along with proceeds received from settlement of derivatives, offset by the proceeds received related to the sale of an equity investment.

#### Financing Activities and Indebtedness

Cash flows relating to financing activities consist primarily of cash flows associated with debt borrowings and the issuance of common stock.

Net cash provided by finance activities was $115.6 million for the nine months ended September 29, 2023 compared to net cash provided by financing activities of $80.8 million for the comparable period of 2022 is primarily due to higher net borrowings during 2023 partially offset by lower proceeds from stock options as compared to prior year.

For a description of our outstanding debt as of September 29, 2023, refer to Note 13 to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

We intend to satisfy any short-term liquidity needs that are not met through operating cash flow and available cash primarily through our revolving credit facility.

### Cash and Cash Requirements

As of September 29, 2023, we held $824.2 million of cash and cash equivalents that were held on deposit with financial institutions. Of this amount, $246.8 million was held within the United States and $577.4 million was held outside of the United States. We will continue to have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our restructuring activities as required and support other business needs. We generally intend to use available cash, internally generated funds and our revolving credit facility to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions, we may need to enter into new credit facilities or access the capital markets. We may also access the capital markets from time to time to take advantage of favorable interest rate environments or other market conditions. However, there is no guarantee that we will be able to obtain alternative sources of financing on commercially reasonable terms or at all. See “Item 1A. Risk Factors—Risks Related to Our Business” in our 2022 10-K and “Part II, Other information, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.

Generally, cash and cash equivalents held in these financial institutions may be withdrawn or redeemed at face value, and therefore minimal credit risk exists with respect to them. Nonetheless, deposits with these financial institutions exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions, to the extent such deposits are even insured in such foreign jurisdictions. While we monitor on a systematic basis the cash and cash equivalent balances in the operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit our funds fails or is subject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss of principal or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our cash and cash equivalents will not be affected if the financial institutions where we hold our cash and cash equivalents fail.

While repatriation of some cash held outside the United States may be restricted by local laws, most of our foreign cash could be repatriated to the United States. Following enactment of the Tax Cut and Jobs Act of 2017 (“TCJA”) and the associated transition tax, in general, repatriation of cash to the United States can be completed with no incremental U.S. tax; however, repatriation of cash could subject us to non-U.S. jurisdictional taxes on distributions. The cash that our non-U.S. subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes, if any, applicable to such earnings including basis differences in our foreign subsidiaries are not readily determinable.

As of September 29, 2023, we believe that we have sufficient sources of liquidity to satisfy our cash needs over the next 12 months and beyond, including our cash needs in the United States.

There were no material changes to our contractual obligations during the three and nine months ended September 29, 2023.

### Off-Balance Sheet Arrangements

There were no material changes to the Company’s off-balance sheet arrangements described in the 2022 10-K that would have a material impact on the Company’s Condensed Consolidated Financial Statements.

### Debt Financing Transactions

#### Credit Facilities

On August 31, 2023, we entered into the Second Amended Credit Agreement, whereby we entered into the 2028 Term Loan for $530.0 million and the 2028 Euro Term Loan for €350.0 million. The Second Amended Credit Agreement also includes a revolving credit facility with an aggregate available borrowing capacity of $750.0 million. The New Senior Credit Facilities mature on August 31, 2028, and are subject to an earlier maturity date of 91 days prior to the maturity date of the 2028 Convertible Notes, if more than $250.0 million of such notes are outstanding at that time.

The proceeds from the Second Amended Credit Agreement were used to repay outstanding indebtedness for the senior Term Loan facility due 2024 and the senior euro Term Loan facility due 2024. Additionally, we paid fees aggregating approximately $5.2 million in connection with the Second Amended Credit Agreement.

#### Convertible Senior Notes due 2028

On August 10, 2023, we issued the 2028 Convertible Notes due on August 15, 2028, unless earlier repurchased, redeemed or converted. The aggregate principal amount, which includes the initial purchasers’ exercise in full of their option to purchase an additional $65.2 million principal amount of the 2028 Convertible Notes, was $500.2 million. The net proceeds from the issuance, after deducting purchasers’ discounts and estimated offering expenses, were $485.9 million. We used a portion of the net proceeds to partially exchange the 2025 Convertible Notes. The 2028 Convertible Notes will accrue interest at a rate of 1.75% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 14, 2024. The 2028 Convertible Notes have an initial conversion rate of 21.5942 shares of our common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $46.31 per share of our common stock and is subject to adjustment upon the occurrence of specified events. The 2028 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture governing the 2028 Convertible Notes).

#### Notes Exchanges

Concurrently with the offering of the 2028 Convertible Notes, in separate, privately negotiated transactions, we entered into exchange agreements with a limited number of holders of the 2025 Convertible Notes to exchange $401.2 million principal amount of the 2025 Convertible Notes for aggregate consideration, which consisted of approximately $403.0 in cash, including accrued interest, and approximately 8.4 million shares of our common stock. We may engage in additional exchanges, or we may repurchase or induce conversions, of the remaining 2025 Convertible Notes.

#### Capped Call Transactions

In connection with the offering of the 2025 Convertible Notes, we entered into the Capped Calls with certain counterparties. The Capped Calls have an initial strike price of approximately $21.01 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2025 Convertible Notes. The Capped Calls have initial cap prices of $23.79 per share, subject to certain adjustments. The Capped Calls are generally intended to reduce or offset the potential dilution from shares of common stock issued upon any conversion with such reduction or offset, as the case may be, subject to a cap based on the cap price. The cost of $20.7 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital.

Simultaneously with the Notes Exchanges, we also completed a partial unwind of the Capped Calls resulting in a repurchase of 1.0 million shares of our common stock. The Capped Calls will mitigate dilution for the conversion of the remaining 2025 Convertible Notes up to our common stock price of $23.79. If the remaining 2025 Convertible Notes are converted at a price higher than $23.79 per share, the Capped Calls will no longer mitigate dilution from the conversion of the 2025 Convertible Notes.

For a description of our outstanding debt as of September 29, 2023, refer to Note 13 to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

### CRITICAL ACCOUNTING ESTIMATES

There were no material changes to our critical accounting estimates described in the 2022 10-K that have had a material impact on our Condensed Consolidated Financial Statements.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. If actual results are not consistent with management’s estimates and assumptions used for valuation allowances, contingencies, potential impairments, revenue recognition and income taxes, the related account balances may be overstated or understated and a charge or credit to net income may be required.

## Market risk

As filed, 356 characters.

Quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosures About Market Risk,” in our 2022 10-K. There were no material changes to this information reported in our 2022 10-K during the quarter ended September 29, 2023.

## Controls and procedures

As filed, 968 characters.

#### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer, and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer, and Principal Financial Officer, have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 25,374 characters.

You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 10-K, which could materially affect our business, financial position, or future results of operations. The risks described in our 2022 10-K, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. The risk factors set forth below update, and should be read together with, the risk factors described in our 2022 10-K.

### Risks Related to Our Indebtedness

***We have outstanding indebtedness of approximately $1.5 billion, and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations.***

As of September 29, 2023, we had outstanding indebtedness of approximately $1.5 billion, including approximately $0.9 billion under our Second Amended Credit Agreement, $500.2 million under our 2028 Convertible Notes, $116.3 million under our 2025 Convertible Notes (together with the 2028 Convertible Notes, the “Notes”), and had an additional $750 million of borrowing capacity under the revolving credit facility pursuant to the Second Amended Credit Agreement, with the ability to request further increases to the revolving credit facility up to $525 million.

Please refer to Note 13 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. This debt could have important, adverse consequences to us and our security holders, including:

- increasing our vulnerability to adverse economic and industry conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
- limiting our flexibility to plan for, or react to, changes in our businesses and industry;
- diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Notes; and
- placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, and our cash needs may increase in the future. The Second Amended Credit Agreement contains restrictive covenants that limit our ability to engage in activities that may be in our long-term interest, including for example EBITDA-based leverage and interest coverage ratios. If we breach any of these restrictions and cannot obtain a waiver from the lenders on favorable terms, subject to applicable cure periods, the outstanding indebtedness (and any other indebtedness with cross-default provisions) could be declared immediately due and payable, which would adversely affect our liquidity and financial statements.

The risks described above will increase with the amount of indebtedness we incur, and in the future we may incur significant indebtedness in addition to the indebtedness described above.

***We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful and may adversely affect our ability to pay dividends (if we pay dividends in the future).***

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy (if we pay dividends in the future), seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that may govern our indebtedness in the future may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including certain international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition and results of operations and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock if we pay dividends in the future.

***We may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.***

Holders of the Notes may require us to repurchase their Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion. Our failure to repurchase the Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indentures governing the 2028 Convertible Notes and the 2025 Convertible Notes between us and Wilmington Trust, National Association, as trustee, dated as of August 10, 2023 and May 21, 2020, respectively. A default under the 2028 Convertible Notes Indenture, the 2025 Convertible Notes Indenture (together, the “Indentures”), or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.

***The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.***

In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. We made an irrevocable election to satisfy the principal amounts of Notes outstanding upon conversion with cash. If one or more holders elect to convert their Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. As of September 29, 2023, none of the conditions allowing the Note holders to convert the 2028 Convertible Notes was satisfied. As a result, as of September 29, 2023, the 2028 Convertible Notes are classified as a non-current liability. As of September 29, 2023, one of the conditions allowing the Note holders to convert the 2025 Convertible Notes was satisfied. As a result, as of September 29, 2023, the 2025 Convertible Notes are classified as a current liability. The conversion conditions are tested quarterly.

***The existing capped call transactions we entered into in connection with the 2025 Notes may affect the value of the Notes and our common stock.***

In connection with the sale of the 2025 Convertible Notes, we entered into capped call transactions (the “Capped Calls”) with the initial purchasers of the 2025 Convertible Notes, their respective affiliates and other financial institutions (the “option counterparties”). The Capped Calls are expected generally to reduce the potential dilution upon any conversion of the 2025 Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2025 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.

In connection with establishing their hedges of the Capped Calls, the option counterparties or their affiliates entered into various derivative transactions with respect to our common stock. These parties may modify their hedge positions in the future by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible 2025 Notes (and are likely to do so during any observation period related to a conversion of the Convertible 2025 Notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes.

### We are subject to counterparty risk with respect to the Capped Calls.

The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Calls. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

***Our variable rate indebtedness exposes us to interest rate volatility, which could cause our debt service obligations to increase significantly.***

Borrowings under certain of our facilities, including our Second Amended Credit Agreement, are made at variable rates of interest and expose us to interest rate volatility. Interest rates increased during 2022 and 2023. If interest rates continue to increase, our debt service obligations on certain of our variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. In addition, we reference the Secured Overnight Financing Rate ("SOFR") as the primary benchmark rate for our variable rate indebtedness, in lieu of the London Interbank Offered Rate ("LIBOR"). SOFR is a relatively new reference rate and with a limited history, and changes in SOFR have, on occasion, been more volatile than changes in other benchmark or market rates. As a result, the amount of interest we may pay on our variable rate indebtedness is difficult to predict.

### Risks Related to Ownership of Our Stock

***The price of our common stock may continue to be volatile, which could lead to securities litigation brought against us or cause investors to lose the value of their investment.***

We have a limited trading history and there may be wide fluctuations in the market value of our common stock as a result of many factors. From our IPO through September 29, 2023, the sales price of our common stock as reported by the NYSE has ranged from a low sales price of $10.08 on March 19, 2020 to a high sales price of $52.03 on March 29, 2022. Factors that may cause the market price of our common stock to fluctuate, some of which may be beyond our control, include:

- our quarterly or annual earnings, or those of other companies in our industry;
- actual or anticipated fluctuations in our operating results;
- changes in earnings estimated by securities analysts or our ability to meet those estimates;
- the operating and stock price performance of other comparable companies;
- changes to the regulatory and legal environment in which we operate;
- macroeconomic conditions and the economic impact of the COVID-19 pandemic, inflation and rising interest rates

and global conflicts, including the Russia-Ukraine war and the Israel-Hamas war;

- unusual events such as significant acquisitions by us and our competitors, divestitures, litigation, regulatory actions

and other factors, including factors unrelated to our operating performance;

- overall market fluctuations and domestic and worldwide economic conditions; and
- other factors described in these “Risk Factors” and elsewhere in our 2022 10-K and in this Quarterly Report.

Stock markets in general have experienced volatility recently that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, periods of volatility in the overall market and the market price of a company’s securities have often been followed by securities litigation brought against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. In addition, as a result of this volatility, investors may not be able to sell their common stock at or above the purchase price.

***Certain provisions in our second amended and restated certificate of incorporation, our third amended and restated bylaws, the Indentures governing the Notes, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.***

Our second amended and restated certificate of incorporation and third amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt an unsolicited takeover not approved by our board of directors. These provisions include, among others:

- the inability of our stockholders to call a special meeting;
- the inability of our stockholders to act by written consent;
- rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
- the right of our board of directors to issue preferred stock without stockholder approval;
- the division of our board of directors into three classes of directors, with each class serving a staggered three-year

term, subject to a phased-in declassification whereby Class III directors were elected to a one-year term at the 2022 annual meeting, Class I directors were elected to a one-year term at the 2023 annual meeting and Class II directors will be elected to a one-year term at the 2024 annual meeting such that effective as of the 2024 annual meeting, our board of directors will be fully declassified, and until the full declassification of the Board as of the date of the 2024 annual meeting, this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;

- prior to our board of directors being fully declassified, stockholders may only remove directors with cause; and
- the ability of our directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of

our board of directors) on our board of directors.

Additionally, certain provisions in the Notes and the Indentures governing the Notes could make a third party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then holders of the Notes will have the right to require us to repurchase their Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the Notes and the Indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that holders of our securities may view as favorable.

In addition, because we have not chosen to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is in the best interests of us and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

***Our second amended and restated certificate of incorporation designates the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us and our directors, officers, employees and stockholders.***

Our second amended and restated certificate of incorporation provides that unless our board of directors otherwise determines, the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or stockholders to us or our stockholders, any action asserting a claim arising pursuant to any provision of the DGCL or our second amended and restated certificate of incorporation or third amended and restated bylaws, or any action asserting a claim governed by the internal affairs doctrine. This provision would not apply to claims brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended or any other claim for which the federal courts have exclusive jurisdiction.

In addition, our third amended and restated bylaws provide that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, unless we consent in writing to the selection of an alternative forum.

These exclusive forum provisions may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors, officers, employees and stockholders.

***Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the prices of our common stock.***

The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock to satisfy any Notes conversion value in excess of the principal amount. If we elect to settle the value in excess of the principal amount in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

***The issuance or sale of shares of our common stock, or rights to acquire shares of our common stock, could depress the trading price of our common stock and the Notes.***

We may conduct future offerings of our common stock, preferred stock or other securities that are convertible into or exercisable for our common stock to finance our operations or fund acquisitions, or for other purposes. In addition, we have reserved 20,656,197 shares of common stock for the exercise of stock options or vesting of restricted stock units. The Indentures for the Notes do not restrict our ability to issue additional equity securities in the future. If we issue additional shares of our common stock or rights to acquire shares of our common stock, if any of our existing stockholders sells a substantial amount of our common stock, or if the market perceives that such issuances or sales may occur, then the trading price of our common stock, and, accordingly, the Notes may significantly decline. In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders, including holders of Notes who have received shares of our common stock upon conversion of their Notes.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0001757073-23-000071. Last ingested by Listed: Nov 11, 2026, 03:37 ET. No prices; not investment advice.