Envista Holdings Corp (NVST) FY 2025 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
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 Annual Consolidated Financial Statements” included in this Annual Report on Form 10-K. This section of the Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussion of 2023 items and year-to-year comparisons between 2024 and 2023 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, 2024.
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 dental consumables, solutions, technologies, and services. With leading brand names, innovative technology and strong market positions, we are a leading worldwide provider of a wide range of solutions to support dental implants, orthodontic treatments, and diagnostic solutions, as well as general dental consumable products, 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 2025, 53% of our sales were derived from customers outside the U.S. As a global provider of dental consumable products, equipment and services, our operations are affected by worldwide, regional and industry-specific economic and political factors. Given the wide 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, trade restrictions and tariffs, 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.
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Key Trends and Conditions Affecting Our Results of Operations
General Economic Conditions
In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions, including sustained inflation, increases in interest rates, fluctuating foreign currency exchange rates, slower economic growth or recession, trade policies and regulations, customer channel inventory realignment 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.
Trade Policies and Regulations
Increasing protectionism and economic nationalism may lead to further changes in trade policies and regulations, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to certain markets. For example, trade tensions between the U.S. and China have led to increased tariffs and trade restrictions. The U.S. has significantly increased tariffs on products imported from China into the U.S. and implemented new tariffs on imports into the U.S. from other countries, particularly from Canada, Mexico, and the EU. In response to these tariffs, some foreign countries, including China, have instituted retaliatory tariffs, which impact our products, while other countries have threatened retaliatory tariffs on certain U.S. products. It is difficult to predict what further trade-related actions governments may take, which may include trade restrictions and additional or increased tariffs and export controls imposed on short notice. While we expect to largely offset the impact of the existing tariffs with mitigating actions including supply chain adjustments, pricing strategies, and cost management, we have already experienced an increase in cost due to higher tariffs. To the extent that we are unable to offset the tariffs or if the tariffs or our countermeasures negatively impact demand, our business, financial condition, results of operations or cash flows will continue to be adversely affected. Any future tariffs and trade restrictions may also adversely affect our business, financial condition, results of operations or cash flows.
Foreign Exchange Rates
Significant portions of our sales and costs are exposed to changes in foreign exchange rates. During the year ended December 31, 2025, our products were sold in more than 130 countries and 53% of our sales were to customers outside of the U.S. 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 positively impacted reported sales by 1.6% for the year ended December 31, 2025 compared to 2024, primarily due to the weakening U.S. dollar against most major currencies. Any future weakening of the U.S. dollar against major currencies would positively impact our sales and results of operations and any strengthening of the U.S. dollar against major currencies would adversely impact our sales and results of operations.
We also hold certain receivables and payables denominated in a currency other than the U.S. dollar. Movement in the related foreign currency rates in relation to the U.S. dollar may also impact our results of operations.
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 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.
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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, 2025 and 2024.
Israel-Hamas War and Related Conflict
We continue to monitor the evolving social, political, and economic environment in Israel and in the region for any impact to our operations. We 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 and related hostilities have not had a material impact on our business.
Assumptions Related to Aligner Treatment Plans
Our aligner business, included in the Specialty Products & Technologies segment, enters into revenue contracts that involve multiple performance obligations which include optional aligners at no additional charge. Our treatment plans are comprised of the following performance obligations: initial aligner shipment and the subsequent shipments of any optional refinement aligners. For such plans, we also consider usage rates, which is the number of times a customer is expected to order additional refinement aligners. This usage rate is the basis for estimating the amount of transaction price to allocate to future performance obligations.
We continually review and update the usage rate and other related assumptions. Future changes to usage rates and related assumptions may impact the pattern of revenue recognition for future treatment plans. The process of estimating the number of times a clear aligner customer is expected to order additional aligners after the initial aligner shipment requires judgment and evaluation of inputs, including historical usage data in order to predict future usage patterns.
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 a track record of product innovation, business development and commercialization.
We continue transforming our portfolio by investing in our Dental Implant Solutions 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.
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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.
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.”
Components of Sales and Costs and Expenses
Sales
Our sales are primarily derived from the sale of dental consumable products, 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—Our Business Segments.”
Costs and Expenses and Other
Cost of sales consists primarily of cost of materials, labor, facilities, restructuring costs, and other infrastructure used to manufacture our products, and shipping and handling costs attributable to delivering our products to our customers.
Selling, general and administrative (“SG&A”) expenses consist of, among other things, the costs of selling, marketing, advertising and administration (including business technology, facilities, legal, finance, human resources, business development and procurement), restructuring costs, and amortization expense for intangible assets that have been acquired through business combinations.
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.
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 and other investments, inducement charges related to convertible debt exchanges, and interest expense, net.
Business Performance
During the year ended December 31, 2025, our sales increased 8.3%, while core sales increased 6.5% as compared to the comparable period of 2024. The impact of foreign currency exchange rates increased sales in the year ended December 31, 2025, by 1.6% compared to the comparable period of 2024.
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.
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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.
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. 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.
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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 presentation, see Note 1 to our Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K.
| Years Ended December 31, | % Change | % Change | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | 2025/2024 | 2024/2023 | |||||||||||||
| Sales | $ | 2,719.5 | 100.0% | $ | 2,510.6 | 100.0% | $ | 2,566.5 | 100.0% | 8.3 | % | (2.2) | % | |||||
| Cost of sales | 1,232.8 | 45.3% | 1,137.9 | 45.3% | 1,126.0 | 43.9% | 8.3 | % | 1.1 | % | ||||||||
| Gross profit | 1,486.7 | 54.7% | 1,372.7 | 54.7% | 1,440.5 | 56.1% | 8.3 | % | (4.7) | % | ||||||||
| Operating costs: | ||||||||||||||||||
| SG&A expenses | 1,156.6 | 42.5% | 1,158.0 | 46.1% | 1,056.9 | 41.2% | (0.1) | % | 9.6 | % | ||||||||
| R&D expenses | 114.0 | 4.2% | 99.1 | 3.9% | 93.8 | 3.7% | 15.0 | % | 5.7 | % | ||||||||
| Goodwill and intangible asset impairment | — | —% | 1,153.8 | 46.0% | 258.3 | 10.1% | (100.0) | % | NM | |||||||||
| Operating profit (loss) | 216.1 | 7.9% | (1,038.2) | (41.4)% | 31.5 | 1.2% | (120.8) | % | NM | |||||||||
| Nonoperating (expense) income: | ||||||||||||||||||
| Other expense, net | (2.3) | (0.1)% | (0.1) | —% | (23.0) | (0.9)% | NM | (99.6) | % | |||||||||
| Interest expense, net | (36.6) | (1.3)% | (46.4) | (1.8)% | (63.4) | (2.5)% | (21.1) | % | (26.8) | % | ||||||||
| Income (loss) before income taxes | 177.2 | 6.5% | (1,084.7) | (43.2)% | (54.9) | (2.1)% | (116.3) | % | NM | |||||||||
| Income tax expense | 130.2 | 4.8% | 33.9 | 1.4% | 45.3 | 1.8% | 284.1 | % | (25.2) | % | ||||||||
| Net income (loss) | $ | 47.0 | 1.7% | $ | (1,118.6) | (44.6)% | $ | (100.2) | (3.9)% | (104.2) | % | NM | ||||||
| Effective tax rate | 73.5 | % | (3.1) | % | (82.5) | % | ||||||||||||
| NM - Non-meaningful percentage change related to year-to-year comparisons |
Business Segments
Sales by business segment were as follows ($ in millions):
| For the Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2023 | ||||||||
| Specialty Products & Technologies | $ | 1,752.8 | $ | 1,616.4 | $ | 1,642.4 | ||||
| Equipment & Consumables | 966.7 | 894.2 | 924.1 | |||||||
| Total | $ | 2,719.5 | $ | 2,510.6 | $ | 2,566.5 |
GAAP Reconciliation
Sales and Core Sales Growth
| 2025 vs. 2024 | 2024 vs. 2023 | ||||
|---|---|---|---|---|---|
| Total sales growth (GAAP) | 8.3 | % | (2.2) | % | |
| Less the impact of: | |||||
| Acquisitions | (0.2) | % | — | % | |
| Currency exchange rates | (1.6) | % | 0.7 | % | |
| Core sales growth (non-GAAP) | 6.5 | % | (1.5) | % |
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Sales and core sales growth for the year ended December 31, 2025 increased 8.3% and 6.5%, respectively, compared to the comparable period in 2024. The increase was primarily due to an increase in sales volume coupled with the timing of deferred revenue recognition related to our clear aligner treatment plans, which positively impacted sales by 4.5% on a period-over-period basis, while sales price increased by 2.0%.
Geographically, sales volumes were positively impacted by higher sales in North America and Europe.
COST OF SALES AND GROSS PROFIT MARGIN
| For the Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | |||||||
| Cost of sales | $ | 1,232.8 | $ | 1,137.9 | $ | 1,126.0 | ||||
| Gross profit margin | 54.7 | % | 54.7 | % | 56.1 | % |
The increase in cost of sales during the year ended December 31, 2025, as compared to the comparable period in 2024, was driven primarily by higher sales volume, higher costs due to the unfavorable impact of foreign currency exchange rates, and increased tariffs, partially offset by the absence of impairment related to certain long-lived assets from the comparable prior period.
Gross profit margin percentage was flat as compared to the comparable period in 2024 driven primarily by positive factors such as higher sales volume including the impact from the timing of deferred revenue recognition related to our clear aligner treatment plans, an increase in sales price, manufacturing productivity, and the absence of impairment related to certain long-lived assets from the comparable prior period, offset by unfavorable product mix and higher costs due to the unfavorable impact of foreign currency exchange rates and tariffs.
OPERATING EXPENSES
| For the Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | |||||||
| Selling, general and administrative expenses | $ | 1,156.6 | $ | 1,158.0 | $ | 1,056.9 | ||||
| Research and development expenses | $ | 114.0 | $ | 99.1 | $ | 93.8 | ||||
| Goodwill and intangible asset impairment | $ | — | $ | 1,153.8 | $ | 258.3 | ||||
| SG&A as a % of sales | 42.5 | % | 46.1 | % | 41.2 | % | ||||
| R&D as a % of sales | 4.2 | % | 3.9 | % | 3.7 | % |
The decrease in SG&A expenses as a percentage of sales for the year ended December 31, 2025, as compared to the comparable period of 2024, was driven primarily by higher sales, along with lower bad debt, amortization of intangible assets, legal settlement costs, and general and administrative costs, partially offset by our continuing investment in our long-term growth initiatives.
The increase in R&D expenses as a percentage of sales for the year ended December 31, 2025, as compared to the comparable period of 2024, was driven by increased investment in existing R&D projects and new product development initiatives.
There was no impairment of goodwill or intangible assets as a result of the Company’s annual test during 2025. Goodwill and intangible asset impairment for the year ended December 31, 2024 of $1,153.8 million consisted of a $960.5 million goodwill charge and a $193.3 million intangible asset charge. Approximately $707.8 million of the goodwill impairment charge related to our Specialty Products & Technologies segment and $252.7 million related to our Equipment & Consumables segment. The reduction in value was due to adverse macroeconomic factors as a result of weakened global demand, a sustained suppressed stock price, higher cost of capital, and increased raw material, supply chain and service costs, which contributed to reduced revenue forecasts, lower operating margins, and reduced expectations of future cash flows. The intangible asset impairment charges consisted of $101.1 million related to certain indefinite-lived trade names within the Specialty Products & Technologies segment, and $92.2 million consisted of certain finite-lived patents and technology and customer relationships within the Equipment & Consumables segment and were primarily due to a reduction in projected cash flows discussed above.
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INTEREST COSTS AND FINANCING
Interest costs were $36.6 million and $46.4 million for the years ended December 31, 2025 and 2024, respectively. The decrease in interest expense for the year ended December 31, 2025 as compared to the comparable period of 2024 was primarily due to lower debt balances and interest rates.
For a discussion of our outstanding indebtedness, refer to Note 14 to our Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K.
INCOME TAXES
| For the Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2025 | 2024 | 2023 | ||||||
| Effective tax rate | 73.5 | % | (3.1) | % | (82.5) | % |
Our effective tax rate for the year ended December 31, 2025 was 73.5% compared to (3.1)% in 2024. The change in the effective rate was primarily due to the impact of nondeductible impairment charges for goodwill and intangible assets in 2024 and a change in the indefinite reinvestment assertion related to the restructuring of a foreign subsidiary with certain intercompany loans in 2025. We anticipate the restructuring will have a beneficial tax impact going forward.
SPECIALTY PRODUCTS & TECHNOLOGIES
Our Specialty Products & Technologies segment primarily develops, manufactures and markets dental implant systems, including regenerative products, dental prosthetics and associated treatment software and technologies, as well as orthodontic bracket systems, aligners and lab products.
Specialty Products & Technologies Selected Financial Data
| For the Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | |||||||
| Sales | $ | 1,752.8 | $ | 1,616.4 | $ | 1,642.4 | ||||
| Operating profit | 191.2 | 89.9 | 232.1 | |||||||
| Operating profit as a % of sales | 10.9 | % | 5.6 | % | 14.1 | % |
GAAP Reconciliation
Sales and Core Sales Growth
| 2025 vs. 2024 | 2024 vs. 2023 | ||||
|---|---|---|---|---|---|
| Total sales growth (GAAP) | 8.4 | % | (1.6) | % | |
| Less the impact of: | |||||
| Acquisitions | (0.3) | % | — | % | |
| Currency exchange rates | (1.8) | % | 0.7 | % | |
| Core sales growth (non-GAAP) | 6.3 | % | (0.9) | % |
Sales
Sales and core sales growth for the year ended December 31, 2025 increased 8.4% and 6.3%, respectively, compared to the comparable period in 2024. The increase in sales volume coupled with the timing of deferred revenue recognition related to our clear aligner treatment plans positively impacted sales by 5.2% on a period-over-period basis, while sales price increased by 1.1%.
Geographically, sales for the year ended December 31, 2025 were positively impacted by higher sales from North America and Europe.
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Operating Profit
Operating profit margin was 10.9% for the year ended December 31, 2025, as compared to an operating profit margin of 5.6% for the comparable period of 2024. The increase in operating profit margin was primarily due to higher sales volume, including the timing of deferred revenue recognition related to our clear aligner treatment plans, higher sales price, lower bad debt expense, manufacturing productivity, and the absence of impairment of certain long-lived assets from the comparable prior period, partially offset by increased tariffs, higher costs due to the impact of unfavorable foreign exchange rates and our continuing investment in our long-term growth initiatives.
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 consumable products; restorative materials and instruments, rotary burs, impression materials, bonding agents and cements and infection prevention products.
Equipment & Consumables Selected Financial Data
| For the Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | |||||||
| Sales | $ | 966.7 | $ | 894.2 | $ | 924.1 | ||||
| Operating profit | 158.0 | 152.3 | 156.3 | |||||||
| Operating profit as a % of sales | 16.3 | % | 17.0 | % | 16.9 | % |
GAAP Reconciliation
Sales and Core Sales Growth
| 2025 vs. 2024 | 2024 vs. 2023 | ||||
|---|---|---|---|---|---|
| Total sales growth (GAAP) | 8.1 | % | (3.2) | % | |
| Less the impact of: | |||||
| Currency exchange rates | (1.2) | % | 0.6 | % | |
| Core sales growth (non-GAAP) | 6.9 | % | (2.6) | % |
Sales
Sales and core sales growth for the year ended December 31, 2025 increased 8.1% and 6.9%, respectively, compared to the comparable period in 2024, driven primarily by an increase in sales price of 3.8%, coupled with an increase in sales volume of 3.1% on a period-over-period basis.
Geographically, sales for the year ended December 31, 2025 increased primarily due to higher demand from North America and Europe.
Operating Profit
Operating profit margin was 16.3% for the year ended December 31, 2025, as compared to an operating profit margin of 17.0% for the comparable period of 2024, primarily due to the impact of unfavorable foreign exchange rates, unfavorable product mix, increased tariffs, partially offset by higher sales volume and sales price and a decrease in amortization of intangibles.
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.
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Following is an overview of our cash flows and liquidity:
Overview of Cash Flows and Liquidity
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | 2025 | 2024 | 2023 | |||||||
| Net cash provided by operating activities | $ | 275.7 | $ | 336.5 | $ | 275.7 | ||||
| Payments for additions to property, plant and equipment | $ | (45.3) | $ | (33.8) | $ | (58.2) | ||||
| Purchases of investments held in rabbi trust | (9.9) | (32.8) | — | |||||||
| Proceeds from sale of investments held in rabbi trust | 10.4 | 9.3 | — | |||||||
| Proceeds from sales of property, plant and equipment | 0.5 | 0.1 | 6.1 | |||||||
| Proceeds from sale of equity investment | — | 0.4 | 10.7 | |||||||
| All other investing activities | (6.8) | 2.2 | (21.0) | |||||||
| Net cash used in investing activities | $ | (51.1) | $ | (54.6) | $ | (62.4) | ||||
| Proceeds from stock option exercises | $ | 2.8 | $ | 2.4 | $ | 11.3 | ||||
| Cash paid for treasury stock | (166.6) | — | — | |||||||
| Tax withholding payment related to net settlement of equity awards | (6.2) | (5.3) | (7.9) | |||||||
| Proceeds from issuance of convertible notes due 2028 | — | — | 500.2 | |||||||
| Debt issuance costs related to issuance of convertible notes due 2028 | — | — | (13.8) | |||||||
| Principal paid related to exchange of convertible notes due 2025 | (116.3) | — | (401.2) | |||||||
| Proceeds from borrowing | — | — | 323.5 | |||||||
| Repayments of borrowing | — | (100.0) | (288.8) | |||||||
| Proceeds from revolving line of credit | 115.4 | — | — | |||||||
| Debt issuance costs related to other borrowings | — | — | (4.5) | |||||||
| All other financing activities | — | (0.8) | 0.1 | |||||||
| Net cash (used in) provided by financing activities | $ | (170.9) | $ | (103.7) | $ | 118.9 |
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, 2025, as compared to net cash provided by operating activities of $336.5 million in 2024. The decrease is primarily due to lower prior year incentive compensation payments, combined with the timing of cash collections, inventory payments, vendor payments and tax payments, partially offset by higher net income.
Investing Activities
Cash flows relating to investing activities consist primarily of cash used for the purchase of investments, 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 $51.1 million during the year ended December 31, 2025, as compared to net cash used in investing activities of $54.6 million for the comparable period in 2024. The decrease is primarily due to lower purchases of investments held in the rabbi trust, partially offset by higher net payments for purchases of property, plant and equipment and higher spend on certain investing activities.
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Financing Activities
Cash flow relating to financing activities consist primarily of cash flows associated with debt borrowings and the issuance of common stock.
Net cash used in financing activities was $170.9 million during the year ended December 31, 2025, compared to net cash used in financing activities of $103.7 million for the comparable period of 2024 and was primarily driven by stock repurchases and the repayment of the 2025 Convertible Notes which matured on June 1, 2025, partially offset by the borrowings under the Revolving Credit Facility and the repayment of $100.0 million of the 2028 Term Loan during 2024.
For a description of our outstanding debt as of December 31, 2025, refer to Note 14 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, 2025, we had $117.5 million in outstanding borrowings under our Revolving Credit Facility and we have the ability to incur an additional $632.5 million of indebtedness in direct borrowings under this facility. As of December 31, 2025, we were in compliance with all of our debt covenants.
Cash and Cash Requirements
As of December 31, 2025, $1,211.7 million of cash and cash equivalents were held on deposit with financial institutions. Of this amount, $374.4 million was held within the U.S. and $837.3 million was held outside of the U.S. 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, 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.”
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.
During the second quarter of 2025, we borrowed from our Revolving Credit Facility to pay in full the $116.3 million in principal amount outstanding on our 2025 Convertible Notes which matured on June 1, 2025.
In early 2025, we transferred approximately $320 million of international cash to the U.S. Although local laws may restrict the repatriation of certain cash held outside the U.S., most of our foreign cash is available for repatriation. Under current U.S. tax law, cash may generally be repatriated to the U.S. without additional U.S. tax; however, such repatriation may be subject to non-U.S. withholding or other taxes on distributions. Cash held by our non-U.S. subsidiaries that is designated for indefinite reinvestment is primarily used to finance foreign operations and investments, including acquisitions. The income tax effects, if any, applicable to such earnings, including basis differences in our foreign subsidiaries, are not readily determinable or are impracticable to estimate.
On February 5, 2025, our Board of Directors authorized a stock repurchase program, allowing us to purchase up to $250 million of our outstanding common stock through December 31, 2026. Stock repurchases made in connection with this program totaled approximately $165.9 million, or 9.2 million shares during the year ended December 31, 2025. Refer to Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report on Form 10-K for more details. The cash outflows associated with the Company’s stock repurchases are classified in financing activities in the accompanying Consolidated Statements of Cash Flows.
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As of February 6, 2026, we believe that we have sufficient sources of liquidity to satisfy our cash needs over the next 12 months and beyond, including our cash needs in the U.S.
Purchase Obligations
The Company’s purchase obligations primarily consist of agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction.
The following table sets forth, by period due or year of expected expiration, as applicable, a summary of purchase obligations as of December 31, 2025.
| Amount of Commitment Expiration per Period | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | Total | Less Than One Year | 1-3 Years | 4-5 Years | More Than 5 Years | |||||||||||||
| Purchase Obligations | $ | 179.9 | $ | 94.1 | $ | 70.1 | $ | 15.6 | $ | 0.1 |
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 14 - Debt and Credit Facilities” and “-Note 7 - 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, 2025.
| Amount of Commitment Expiration per Period | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ($ in millions) | Total | Less Than One Year | 1-3 Years | 4-5 Years | More Than 5 Years | |||||||||||||
| Guarantees and related instruments | $ | 15.5 | $ | 7.6 | $ | 7.2 | $ | 0.3 | $ | 0.4 |
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
For a description of our outstanding debt as of December 31, 2025, refer to Note 14 to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Legal Proceedings
Please refer to Note 13 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.”
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