Envista Holdings Corp (NVST) FY 2023 MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our business is designed to provide a reader of our financial statements with a narrative from the perspective of management. You should read the following discussion in conjunction with the sections entitled “Envista Holdings Corporation Audited Consolidated Financial Statements” included in this Annual Report on Form 10-K. This section of the Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussion of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is divided into six sections:

◦Overview

◦Results of Operations

◦Liquidity and Capital Resources

◦Qualitative and Quantitative Disclosures About Market Risk

◦Critical Accounting Estimates

◦New Accounting Standards

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, and diagnostic solutions, 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.

During 2023, 53% of our sales were derived from customers outside the United States. 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 emerging 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.

47

Key Trends and Conditions Affecting Our Results of Operations

Debt Financing Transactions

During the year ended December 31, 2023, we issued $500.2 million of 2028 Convertible Notes, entered into the Second Amended Credit Agreement, and executed exchanges with a limited number of holders of the 2025 Convertible Notes consisting of approximately $403.0 million in cash, which includes accrued interest, and approximately 8.4 million shares of our common stock (the “Notes Exchanges”). We recognized a non-cash inducement charge of $28.5 million in connection with the Notes Exchanges which was recorded within Other (expense) income in the Consolidated Statements of Operations.

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

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, also 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 (“VBP”) 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.

Industry Trends

We operate in the large and growing global dental products industry. We believe growth in the global dental industry will be driven by:

◦an aging population;

◦the current under penetration of dental procedures, especially in emerging markets;

◦improving access to complex procedures due to increasing technological innovation;

◦an increasing demand for cosmetic dentistry; and

◦the growth of DSOs, which are expected to drive increasing penetration of, and access to, dental care globally.

Product Development, New Product Launches and Commercial Investment

A key element of our targeted value creation strategy is to drive growth through portfolio development and product innovation. Our future growth and success depend on both our pipeline of new products and technologies, including new products and technologies that we may obtain through license or acquisition, and the expansion of the use of our existing products and technologies. We believe we are a leader in dental R&D, with $294.4 million of R&D expenditures since 2021 and a track record of product innovation, business development and commercialization.

We continue transforming our portfolio by investing in our Implant-Based Tooth Replacement and Orthodontic Solutions businesses and also making investments in emerging markets, critical to our growth strategy. The cost reduction initiatives we have taken and will continue to undertake in the future allow us to further invest in this growth strategy, which in turn we believe should improve our margins.

48

Our continued investment in Spark, our clear aligner system, has led to increased manufacturing capacity and continues to gain market adoption as orthodontists and their patients see the benefits of the clear, stain resistant and comfortable design. We believe that Spark will provide growth opportunities for our Orthodontic Solutions business over the next several years.

Foreign Exchange Rates

Significant portions of our sales and costs are exposed to changes in foreign exchange rates. During the year ended December 31, 2023, our products were sold in more than 130 countries and 53% of our sales were to customers outside of the United States. We seek to manage our foreign exchange risk, in part, through our operations, including managing same-currency sales in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As our operations use multiple foreign currencies, including the euro, British pound, Brazilian real, Australian dollar, Japanese yen, Canadian dollar and Chinese yuan, changes in those currencies relative to the U.S. dollar will impact our sales, cost of sales and expenses, and consequently, net income. Exchange rate fluctuations in emerging markets may also directly affect our customers’ ability to buy our products in these geographic markets.

On a year-over-year basis, currency exchange rates negatively impacted reported sales by 0.9% for the year ended December 31, 2023 compared to the comparable period of 2022, primarily due to the strengthening of the U.S. dollar against most major currencies. Any future strengthening of the U.S. dollar against major currencies would adversely impact our sales and results of operations and any weakening of the U.S. dollar against major currencies would positively impact our sales and results of operations.

Manufacturing and Supply

In order to sell our products, we must be able to reliably produce and ship our products in sufficient quantities. Many of our products involve complex manufacturing processes and are produced at one or a limited number of manufacturing sites.

Minor deviations in our manufacturing or logistical processes, unpredictability of a product’s regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites and shifting customer demand increase the potential for capacity imbalances. For a discussion of risks relating to our manufacturing process, refer to “Item 1A. Risk Factors—Risks Related to Our Business.”

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 years ended December 31, 2023 and 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 $13.0 million annually. We also maintain a production facility in Israel related to our Alpha-Bio Tech Implant brand. While we have experienced some volatility in the region, the Israel-Hamas War has not had a material impact on our business.

Components of Sales and Costs and Expenses

Sales

Our sales are primarily derived from the sale of dental consumables, equipment and services to third-party distributors and end-users. For additional information regarding our products, including descriptions of our products, refer to “Item 1. Business—Business Segments.”

49

Costs and Expenses and Other

Cost of sales consists primarily of cost of materials, facilities and other infrastructure used to manufacture our products and shipping and handling costs attributable to delivering our products to our customers. Also included in cost of sales are productivity improvement and restructuring expenses related to our manufacturing operations.

Selling, general and administrative (“SG&A”) expenses consist of, among other things, the costs of selling, marketing, promotion, advertising and administration (including business technology, facilities, legal, finance, human resources, business development and procurement) and amortization expense for intangible assets that have been acquired through business combinations. Also included in SG&A are productivity improvement and restructuring expenses related to our administrative operations.

R&D expenses consist of project costs specific to new product R&D and product lifecycle management, overhead costs associated with R&D operations, regulatory costs, product registrations and investments that support local market clinical trials for approved indications. We manage overall R&D based on our strategic opportunities and do not disaggregate our R&D expenses by the nature of the expense or by product as we do not use or maintain such information in managing our business.

Nonoperating income (expense) consists of the non-service cost components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses), net gains or losses on equity investments, inducement charges related to convertible debt exchanges, and interest expense, net.

Business Performance

During the year ended December 31, 2023, our sales decreased 0.1%, while core sales decreased 0.4% as compared to the comparable period of 2022. The impact of foreign currency exchange rates reduced sales in the year ended December 31, 2023, by 0.9% compared to the comparable period of 2022.

Acquisitions and Divestitures

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 year ended December 31, 2022, we completed two acquisitions.

On April 20, 2022, we completed our acquisition of Carestream Dental’s Intraoral Scanner Business for total consideration of approximately $580.3 million, subject to certain customary adjustments as provided in the 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.

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 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 the Company, Planmeca, and Planmeca Oy, as guarantor. However, the transfer of assets in Russia, China and Brazil was not executed and closed until 2022 (the “Deferred Local Closings”). 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.

50

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 Accounting Standards Codification (“ASC“) 205-20. The sale met the criteria to be accounted for as a discontinued operation. Accordingly, we have applied discontinued operations treatment for the Divestiture as required by ASC 205-20 and reclassified the financial results in our Consolidated Statements of Operations for the years ended December 31, 2022 and 2021. Our Consolidated Statements of Cash Flows include the financial results of the KaVo Treatment Unit and Instrument Business for the years ended December 31, 2022 and 2021. We also revised our discussion and presentation of operating and financial results to be reflective of our continuing operations as required by ASC 205-20. All segment information and descriptions exclude the KaVo Treatment Unit and Instrument Business.

With the sale of the KaVo Treatment Unit and Instrument Business and our two recent acquisitions, we continue to make significant progress toward our long-term goal of re-calibrating our product portfolio to higher growth and higher margin segments. The Divestiture and the acquisitions shifted our revenue mix from approximately 50% each for the Specialty Products & Technology and Equipment & Consumables segments to 64% for the Specialty Products & Technology segment and 36% for the Equipment & Consumables segment. The Specialty Products & Technology segment is a higher growth and higher margin business than the Equipment & Consumables segment. These transactions have allowed us to focus more on higher value and higher margin consumables, imaging, and digital workflow solutions.

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;

•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.

51

RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated statements of earnings should be read along with our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Unless otherwise indicated, all financial data in this Annual Report on Form 10-K refer to continuing operations only. For more information on the consolidated basis of preparation, see Note 1 to our Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K.

Business Segments

Sales by business segment were as follows ($ in millions):

52

GAAP Reconciliation

Sales and Core Sales Growth

Sales and core sales growth for the year ended December 31, 2023 decreased 0.1% and 0.4%, respectively, compared to the comparable period in 2022. An increase in sales volume positively impacted sales growth by 0.7% on a period-over-period basis, offset by a decrease in sales price of 1.1%. The decrease in sales is driven by lower demand from North America, partially offset by higher demand in Europe.

COST OF SALES AND GROSS PROFIT MARGIN

The increase in cost of sales during the year ended December 31, 2023, as compared to the comparable period in 2022, was primarily due to unfavorable product mix and higher costs due to the impact of foreign currency exchange rates, partially offset by 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.

The decrease in gross profit margin during the year ended December 31, 2023, as compared to the comparable period in 2022, was primarily due to unfavorable product mix, unfavorable sales price, and higher costs due to the impact of foreign currency exchange rates, 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

SG&A expenses as a percentage of sales for the year ended December 31, 2023, was consistent with the comparable period in 2022.

R&D expenses as a percentage of sales for the year ended December 31, 2023, was consistent with the comparable period in 2022.

53

Goodwill and intangible asset impairment for the year ended December 31, 2023 consisted of a $212.3 million goodwill charge and a $46.0 million intangible asset charge. Approximately $134.5 million of the goodwill impairment charge related to our Specialty Products & Technologies segment and $77.8 million related to our Equipment & Consumables segment. The reduction in value is primarily due to significant increases in discount rates utilized in valuing these reporting units, adverse macroeconomic factors such as higher cost of borrowing and inflationary pressures, geopolitical factors, and lower forecast of operating results which contributed to reduced expectation of future cash flows. The intangible asset impairment charge related to certain indefinite-lived trade names within the Specialty Products & Technologies segment. The reduction in the intangible value is primarily due to higher discount rates and reduction in projected cash flows as discussed above.

OTHER (EXPENSE) INCOME, NET

Other (expense) income, net for the year ended December 31, 2023 consists primarily of $29.0 million of inducement and other expenses associated with the Notes Exchanges, offset by $2.5 million of net periodic benefit costs and $3.6 million net gain on equity investments.

INTEREST COSTS AND FINANCING

Interest costs were $63.4 million and $38.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in interest expense for the year ended December 31, 2023 as compared to the comparable period of 2022 was primarily due to higher interest rates on our variable rate term borrowings and increased borrowing during the year ended December 31, 2023.

For a discussion of our outstanding indebtedness, refer to Note 16 to our Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K.

INCOME TAXES

Our effective tax rate for the year ended December 31, 2023 was (82.5)% compared to 16.2% in 2022. The change in the effective rate was primarily due to the impact of the nondeductible impairment of goodwill and nondeductible convertible debt inducement expense for U.S. income tax purposes, establishing a valuation allowance against certain U.S. non-deductible interest carryforwards, 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, implements 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. This legislation did not have a material impact on our Consolidated Financial Statements.

SPECIALTY PRODUCTS & TECHNOLOGIES

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

Specialty Products & Technologies Selected Financial Data

54

GAAP Reconciliation

Sales and Core Sales Growth

Sales

Sales and core sales growth for the year ended December 31, 2023 increased 2.7% and 2.9%%, respectively, compared to the comparable period in 2022. Sales growth increased by 4.3% due to higher volume on a period-over-period basis, partially offset by a decrease in sales price of 1.4% in part due to the VBP program. The increase in sales is primarily due to growth in Europe and China, partially offset by lower demand from North America.

Additionally, sales for the year ended December 31, 2023 were also positively impacted by the acquisition of Osteogenics.

Operating Profit

Operating profit margin was 14.1% for the year ended December 31, 2023, as compared to an operating profit margin of 16.8% for the comparable period of 2022. The decrease was primarily due to unfavorable product mix and a decrease in sales price, higher costs due to the impact of foreign currencies and investments in our long-term growth initiatives, 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

GAAP Reconciliation

Sales and Core Sales Growth

55

Sales

Sales and core sales growth for the year ended December 31, 2023 decreased 4.8% and 5.9%, respectively, compared to the comparable period in 2022. A decrease in sales volume negatively impacted sales growth by 5.3% on a period-over-period basis combined with a decrease in sales price of 0.6%. The decrease in sales is primarily due to lower demand from North America, Europe and China.

Sales for the year ended December 31, 2023, were positively impacted by the acquisition of our Intraoral Scanner Business.

Operating Profit

Operating profit margin was 16.9% for the year ended December 31, 2023, as compared to an operating profit margin of 17.8% for the comparable period of 2022. The decrease in operating profit margin was primarily due to lower sales, and unfavorable sales price, offset by period-over-period savings associated with productivity improvements and decreased amortization of intangible assets.

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.

56

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 years ended December 31, 2022 and 2021:

Overview of Cash Flows and Liquidity

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 cash flows.

Net cash provided by operating activities was $275.7 million during the year ended December 31, 2023, as compared to net cash provided by operating activities of $182.7 million in 2022, primarily due to lower transaction related costs along with lower incentive compensation payments during the year ended December 31, 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.

57

Net cash used in investing activities was $62.4 million during the year ended December 31, 2023, as compared to net cash used in investing activities of $657.3 million for the comparable period in 2022, the decrease is primarily due to the prior year period reflecting cash paid with respect to acquisitions, partially offset by the proceeds from the sale of the KaVo Treatment Unit and Instrument Business along with proceeds received from settlement of derivatives. Investing activities for the year ended December 31, 2023 consists of lower payments for property, plant and equipment compared to the year ended December 31, 2022 combined with the proceeds received related to the sale of an equity investment.

Financing Activities and Indebtedness

Net cash provided by financing activities was $118.9 million during the year ended December 31, 2023, compared to $12.5 million for the comparable period of 2022, primarily due to higher net borrowings during 2023 partially offset by lower proceeds from stock option exercises as compared to the prior year.

For a description of our outstanding debt as of December 31, 2023 including our Second Amended Credit Agreement and 2028 Convertible Notes, refer to Note 16 to our Consolidated Financial Statements in this Annual Report on Form 10-K.

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.

As of December 31, 2023, we had no borrowings outstanding under the revolving credit facility and we had the ability to incur an additional $750.0 million of indebtedness in direct borrowings under the revolving credit facility. As of December 31, 2023, we were in compliance with all of our debt covenants.

Cash and Cash Requirements

As of December 31, 2023, $940.0 million of cash and cash equivalents were held on deposit with financial institutions. Of this amount, $261.6 million was held within the United States and $678.4 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 and fund our restructuring activities as required and support other business needs. We generally intend to use available cash and internally generated funds 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.”

Generally, cash and cash equivalents held in these financial institutions may be withdrawn or redeemed at face value, and we therefore believe that 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 February 9, 2024, 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.

58

Purchase Obligations

The Company’s purchase obligations primarily consist of agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction.

The following table sets forth, by period due or year of expected expiration, as applicable, a summary of purchase obligations as of December 31, 2023.

For a description of our remaining contractual obligations, such as debt and leases see “Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 16 - Debt and Credit Facilities” and “-Note 8 - Leases.”

Off-Balance Sheet Arrangements

Guarantees and Related Instruments

The following table sets forth, by period due or year of expected expiration, as applicable, a summary of our off-balance sheet commitments as of December 31, 2023.

Guarantees consist primarily of outstanding standby letters of credit and bank guarantees. These guarantees have been provided in connection with certain arrangements with vendors, customers, financing counterparties and governmental entities to secure our obligations and/or performance requirements related to specific transactions.

Other Off-Balance Sheet Arrangements

In the normal course of business, we periodically enter into agreements that require us to indemnify customers, suppliers or other business partners for specific risks, such as claims for injury or property damage arising out of our products or services or claims alleging that our products or services infringe third-party intellectual property. We have not included any such indemnification provisions in the contractual obligations table above. Historically, we have not experienced significant losses on these types of indemnification obligations.

Debt Financing Transactions

Credit Agreement

On August 31, 2023, we entered into the Second Amended Credit Agreement, whereby we entered into the senior term loan facility due 2028 for $530.0 million and the senior euro term loan facility due 2028 for €350.0 million (collectively the “2028 Term Loans”). 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 (the “2024 Term Loan”) and the senior euro term loan facility due 2024 (the “2024 Euro Term Loan”). Additionally, we paid fees aggregating approximately $5.2 million in connection with the Second Amended Credit Agreement.

59

2028 Convertible Notes

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 15, 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 of approximately $403.0 million 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 December 31, 2023, refer to Note 16 to our Consolidated Financial Statements in this Annual Report on Form 10-K.

Legal Proceedings

Please refer to Note 15 to our Consolidated Financial Statements included in this Annual Report for information regarding legal proceedings and contingencies, and for a discussion of risks related to legal proceedings and contingencies, please refer to “Item 1A. Risk Factors—General Risks.”