Business Context and Reporting Period
This unaudited Form 10-Q is filed by Colfax Corporation, not Enovis Corporation, for the three months ended April 2, 2021, compared with April 3, 2020. Colfax operated through Fabrication Technology (ESAB) and Medical Technology (DJO) segments. Management announced a planned separation of these businesses into two independent public companies, targeted for the first quarter of 2022.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $879.2 million | $816.4 million | +7.7% |
| Gross profit / margin | $371.1 million / 42.2% | $348.2 million / 42.7% | Margin down 50 bps |
| Operating income / margin | $61.3 million / 7.0% | $46.8 million / 5.7% | Margin up 130 bps |
| Net income from continuing operations | $27.7 million | $8.9 million | +212% |
| Net income attributable to Colfax | $19.1 million | $4.5 million | +326% |
| Diluted EPS from continuing operations | $0.19 | $0.06 | +$0.13 |
| Adjusted EBITA | $107.1 million | $95.5 million | +12.1% |
| Adjusted EBITA margin | 12.2% | 11.7% | Up 50 bps |
| Net cash provided by operating activities | $84.4 million | $56.2 million | +$28.2 million |
Segment Performance
- Fabrication Technology: Sales increased to $568.1 million from $525.5 million. Segment operating income rose to $82.3 million from $69.0 million, and Adjusted EBITA margin improved to 16.1% from 14.8%. Gross margin declined 70 basis points, primarily from inflation-related pricing and cost increases.
- Medical Technology: Sales increased to $311.1 million from $290.8 million, primarily from acquisitions and favorable currency. Segment operating income declined to $2.2 million from $3.8 million, while Adjusted EBITA increased to $31.6 million from $30.7 million. Higher acquisition and integration expenses pressured margins.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $763.7 million at April 2, 2021, compared with $97.1 million at December 31, 2020. The increase primarily reflected the March equity offering.
- Total debt was $2.21 billion at April 2, 2021, compared with $2.23 billion at year-end. Current debt increased to $727.4 million from $27.1 million, principally because maturities and repayment requirements were classified as current.
- The $975 million revolving credit facility was fully available, and the company reported compliance with its debt covenants. The weighted-average interest rate on Credit Facility borrowings was 1.86%.
- Investing cash outflows were $128.0 million, including $103.5 million for acquisitions and investments and $24.5 million for capital expenditures.
- Financing cash inflows were $707.7 million, including approximately $711.3 million of net proceeds from the issuance of 16.1 million common shares at $46.00 per share.
Material Changes Versus the Prior Comparable Period
- Sales growth reflected recovery from COVID-19-related weakness late in the first quarter of 2020, existing-business growth of $34.3 million, acquisition contributions of $14.4 million and favorable foreign currency translation of $14.2 million.
- Gross margin declined despite higher gross profit, while operating margin and Adjusted EBITA margin improved due to higher sales, cost actions and completed restructuring programs.
- Income tax expense fell to $7.9 million from $13.2 million, and the effective tax rate declined to 22.2% from 59.8%.
- Loss from discontinued operations increased to $7.5 million from $3.4 million, including asbestos-related costs and charges related to the divested air and gas handling business.
- Other comprehensive loss improved substantially to $39.7 million from $160.9 million, although foreign currency translation still produced a significant loss.
Outlook, Commentary, Risks and Unusual Items
- Management stated that sales volumes generally normalized during the quarter as vaccine access broadened and restrictions eased, but COVID-19 impacts remained uncertain, including potential medical procedure delays, supply-chain disruption and customer credit risk.
- The planned separation is subject to financing, regulatory and tax requirements, final board approval and other conditions. There is no assurance it will occur on the targeted timeline or at all, or that it will be tax-free or achieve its expected benefits.
- On April 24, 2021, after the quarter-end, Colfax redeemed all $600 million of its 2024 Notes and $100 million of its 2026 Notes for aggregate consideration of $724.4 million. A second-quarter loss on early extinguishment of approximately $29.9 million was expected.
- On April 23, 2021, the company acquired MedShape for $125 million in cash, subject to adjustments.
- Asbestos-related exposures remained material: accrued asbestos liabilities totaled approximately $291.1 million, offset by insurance assets and receivables totaling approximately $257.7 million. Actual liabilities and recoveries could differ materially from recorded amounts.
- Other risks include foreign currency volatility, commodity inflation, acquisition integration, leverage and covenant restrictions, product liability, regulatory compliance, cybersecurity, intellectual property, pension obligations and impairment of goodwill or intangible assets.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Colfax Corporation, whereas the request identifies Enovis Corporation.
- Track execution, financing, tax treatment and regulatory approvals for the proposed separation.
- Assess the effect of inflation and supply-chain pressures on Fabrication Technology gross margins.
- Evaluate Medical Technology acquisition integration costs and the segment’s low reported operating margin.
- Reconcile post-quarter-end debt redemptions, the expected $29.9 million extinguishment loss and the MedShape acquisition in subsequent filings.
- Monitor asbestos claims, insurance recoverability and related cash outflows.