Mettler-Toledo 10-Q 2023-03-31

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023, OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ________________

Commission File Number: 1-13595

Mettler Toledo International Inc

_______________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)

1900 Polaris Parkway

Columbus, OH 43240

and

Im Langacher, P.O. Box MT-100

CH 8606 Greifensee, Switzerland

1-614-438-4511 and +41-44-944-22-11

________________________________________________________________________________

(Registrant's telephone number, including area code)

not applicable

______________________________________________________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer. ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

The Registrant had 22,020,230 shares of Common Stock outstanding at March 31, 2023.

METTLER-TOLEDO INTERNATIONAL INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

PART I. FINANCIAL INFORMATION

METTLER-TOLEDO INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three months ended March 31, 2023 and 2022

(In thousands, except share data)

(unaudited)

The accompanying notes are an integral part of these interim consolidated financial statements.

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METTLER-TOLEDO INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS

As of March 31, 2023 and December 31, 2022

(In thousands, except share data)

(unaudited)

The accompanying notes are an integral part of these interim consolidated financial statements.

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METTLER-TOLEDO INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three months ended March 31, 2023 and 2022

(In thousands, except share data)

(unaudited)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements included herein.

General

Our interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.

Changes in local currencies exclude the effect of currency exchange rate fluctuations. Local currency amounts are determined by translating current and previous year consolidated financial information at an index utilizing historical currency exchange rates. We believe local currency information provides a helpful assessment of business performance and a useful measure of results between periods. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We present non-GAAP financial measures in reporting our financial results to provide investors with an additional analytical tool to evaluate our operating results.

We also include in the discussion below disclosures of immaterial qualitative factors that are not quantified. Although the impact of such factors is not considered material, we believe these disclosures can be useful in evaluating our operating results.

Results of Operations – Consolidated

The following tables set forth items from our interim consolidated statements of operations and comprehensive income for the three month periods ended March 31, 2023 and 2022 (amounts in thousands).

Net sales

Net sales were $928.7 million for the three months ended March 31, 2023, compared to $897.8 million for the corresponding period in 2022. This represents an increase in U.S. dollars of 3%. Excluding the effect of currency exchange rate fluctuations, or in local currencies, net sales increased 7% for the three months ended March 31, 2023. We experienced broad-based growth in most businesses and regions. We continue to benefit from the execution of our global sales and marketing programs, our innovative product portfolio, and investments in our field organization, particularly surrounding digital tools and techniques. However, there is uncertainty in the economic

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environment and our end markets, including the risk of recession in many countries, and market conditions may change quickly. The ongoing developments related to Ukraine and inflation also present several risks to our business as further described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. These topics could adversely impact our financial results and could have a greater impact on our operating results in future periods.

Net sales by geographic destination for the three months ended March 31, 2023 in U.S. dollars increased 5% in the Americas and 2% in both Europe and in Asia/Rest of World. In local currencies, our net sales by geographic destination increased 6% in both the Americas and in Europe, and 10% in Asia/Rest of World, with 9% growth in China, for the three months ended March 31, 2023 compared to the corresponding period in 2022. A discussion of sales by operating segment is included below.

As described in Note 18 to our consolidated financial statements for the year ended December 31, 2022, our net sales comprise product sales of precision instruments and related services. Service revenues are primarily derived from repair and other services, including regulatory compliance qualification, calibration, certification, preventative maintenance and spare parts.

Net sales of products increased 1% in U.S. dollars and 5% in local currency for the three months ended March 31, 2023 compared to the prior period. Service revenue (including spare parts) increased 11% in U.S. dollars and 15% in local currency during the three months ended March 31, 2023 compared to the corresponding period in 2022.

Net sales of our laboratory products and services, which represented approximately 56% of our total net sales for the three months ended March 31, 2023, increased 1% in U.S. dollars and 5% in local currencies during the three months ended March 31, 2023. The local currency increase in net sales of our laboratory-related products includes strong growth in most product categories offset in part by a significant decline in pipette products primarily related to customer inventory reductions.

Net sales of our industrial products and services, which represented approximately 38% of our total net sales for the three months ended March 31, 2023, increased 3% in U.S. dollars and 7% in local currencies during the three months ended March 31, 2023. The local currency increase in net sales of our industrial-related products for the three months ended March 31, 2023 includes strong growth in core industrial and product inspection.

Net sales in our food retailing products and services, which represented approximately 6% of our total net sales for the three months ended March 31, 2023, increased 32% in U.S. dollars and 36% in local currencies during the three months ended March 31, 2023. The increase in food retailing includes very strong project activity in the Americas and Europe.

Gross profit

Gross profit as a percentage of net sales was 58.9% for the three months ended March 31, 2023 compared to 57.9% for the corresponding period in 2022.

Gross profit as a percentage of net sales for products was 60.1% and 59.1% for the three month periods ended March 31, 2023 and 2022.

Gross profit as a percentage of net sales for services (including spare parts) was 54.7% for the three months ended March 31, 2023 compared to 53.4% for the corresponding period in 2022.

The increase in gross profit as a percentage of net sales for the three months ended March 31, 2023 primarily reflects favorable price realization, partially offset by higher costs, business mix and unfavorable foreign currency.

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Research and development and selling, general and administrative expenses

Research and development expenses as a percentage of net sales was 4.9% for the three months ended March 31, 2023 compared to 4.8% in the corresponding period during 2022, respectively. Research and development expenses increased 6% in U.S. dollars and 9% in local currencies, during the three months ended March 31, 2023 compared to the corresponding period in 2022 due to increased project activity.

Selling, general and administrative expenses as a percentage of net sales were 25.3% for the three months ended March 31, 2023 compared to 26.2% in the corresponding period during 2022, respectively. Selling, general and administrative expenses was flat in U.S. dollars and increased 2% in local currencies, during the three months ended March 31, 2023 compared to the corresponding period in 2022. The local currency increase includes investments in sales and marketing initiatives offset in part by lower incentive compensation and cost savings.

Amortization, interest expense, restructuring charges, other charges (income), net and taxes

Amortization expense was $17.8 million for the three months ended March 31, 2023 and $16.6 million for the corresponding period in 2022.

Interest expense was $18.2 million for the three months ended March 31, 2023 and $11.3 million for the corresponding period in 2022. The increase in interest expense is related to higher variable interest rates, as well as additional borrowings.

Restructuring charges were $4.3 million and $4.0 million for the three months ended March 31, 2023 and 2022, respectively. Restructuring expenses are primarily comprised of employee-related costs.

Other charges (income), net includes non-service pension costs (benefits), net (gains) losses from foreign currency transactions and hedging activities, interest income and other items. Non-service pension benefits for the three months ended March 31, 2023 and 2022 were $1.8 million and $4.3 million, respectively. Other charges (income), net also included $0.5 million of acquisition costs for the three months ended March 31, 2022.

Our reported tax rate was 16.9% and 18.3% during the three months ended March 31, 2023 and 2022, respectively. The provision for taxes is based upon using our projected annual effective tax rate of 18.5% and 19.0% before non-recurring discrete tax items for the three months ended March 31, 2023 and 2022, respectively. The difference between our projected annual effective tax rate and the reported tax rate is related to the timing of excess tax benefits associated with stock option exercises.

Results of Operations – by Operating Segment

The following is a discussion of the financial results of our operating segments. We currently have five reportable segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations, and Other. A more detailed description of these segments is outlined in Note 18 to our consolidated financial statements for the year ended December 31, 2022.

U.S. Operations (amounts in thousands)

Total net sales and net sales to external customers increased 1% and 4%, respectively for the three months ended March 31, 2023 compared with the corresponding period in 2022. The increase in total net sales and net sales to external customers for the three months ended March 31, 2023

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includes strong growth in most product categories, especially food retailing, partially offset by a significant decline in pipette products.

Segment profit increased $6.6 million for the three months ended March 31, 2023 compared to the corresponding period in 2022. Segment profit during the three months ended March 31, 2023 includes benefits from our margin expansion and cost savings initiatives, offset in part by unfavorable business mix.

Swiss Operations (amounts in thousands)

1. Represents U.S. dollar growth.

Total net sales increased 5% in both U.S. dollars in local currency for the three months ended March 31, 2023 compared to the corresponding period in 2022. Net sales to external customers increased 7% in both U.S. dollars and in local currency during the three months ended March 31, 2023 compared to the corresponding period in 2022. The increase in local currency net sales to external customers for the three month period ended March 31, 2023 includes particularly strong growth in food retailing and excellent results in industrial, offset in part by a decline in laboratory products, especially pipette products.

Segment profit increased $5.1 million for the three month period ended March 31, 2023 compared to the corresponding period in 2022. Segment profit during the three months ended March 31, 2023 includes benefits from our margin expansion initiatives, offset in part by unfavorable business mix and foreign currency translation.

Western European Operations (amounts in thousands)

1. Represents U.S. dollar growth.

Total net sales increased 1% in U.S. dollars and increased 7% in local currencies during the three months ended March 31, 2023 compared to the corresponding period in 2022. Net sales to external customers increased 3% in U.S. dollars and increased 9% in local currencies during the three months ended March 31, 2023 compared to the corresponding period in 2022. Local currency net sales to external customers for the three months ended March 31, 2023 includes strong growth in most product categories, especially in food retailing, process analytics, and core-industrial, offset in part by a significant decline in pipette products.

Segment profit increased $5.7 million for the three month period ended March 31, 2023 compared to the corresponding period in 2022. Segment profit increased during the three months ended March 31, 2023 primarily due to benefits from our margin expansion and cost savings initiatives, offset in part by unfavorable business mix and foreign currency translation.

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Chinese Operations (amounts in thousands)

1. Represents U.S. dollar growth.

Total net sales decreased 6% in U.S. dollars and increased 1% in local currency for the three months ended March 31, 2023 compared to the corresponding period in 2022. Net sales to external customers by origin increased 2% in U.S. dollars and 9% in local currency for the three months ended March 31, 2023 compared to the corresponding period in 2022. The increase in local currency net sales to external customers during the three months ended March 31, 2023 reflects very strong growth in laboratory products, with modest growth in industrial products. However, uncertainties exist and market conditions may change quickly. We also will continue to face difficult prior period comparisons in 2023 relating to our strong prior years performance.

Segment profit decreased $3.7 million for the three month period ended March 31, 2023 compared to the corresponding period in 2022. The decrease in segment profit for the three month period ended March 31, 2023 primarily relates to unfavorable currency and lower inter-segment sales, offset in part by increased sales to external customers and benefits from our margin expansion initiatives.

Other (amounts in thousands)

1. Represents U.S. dollar growth.

Total net sales and net sales to external customers both increased 4% in U.S. dollars and 9% in local currencies during the three month period ended March 31, 2023 compared to the corresponding period in 2022. The increase in net sales to external customers includes solid growth in most product categories.

Segment profit increased $3.8 million for the three months ended March 31, 2023 compared to the corresponding period in 2022. The increase in segment profit is primarily related to our margin expansion initiatives and increased sales volume, offset in part by unfavorable foreign currency translation.

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes available borrowings under our Credit Agreement, the ability to obtain appropriate financing and our cash and cash equivalent balances. Currently, our liquidity needs are primarily driven by working capital requirements, capital expenditures, share repurchases and acquisitions. Global market conditions can be uncertain, and our ability to generate cash flows could be reduced by a deterioration in global markets.

We currently believe that cash flows from operating activities, together with liquidity available under our Credit Agreement, local working capital facilities, and cash balances, will be sufficient to fund currently anticipated working capital needs and spending requirements for at least the foreseeable future.

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Cash provided by operating activities totaled $153.3 million during the three months ended March 31, 2023, compared to $90.8 million in the corresponding period in 2022. The increase for the three months ended March 31, 2022 compared to the prior year is primarily related to working capital, especially inventory, and lower cash incentive payments of $20 million.

Capital expenditures are made primarily for investments in information systems and technology, machinery, equipment and the purchase and expansion of facilities. Our capital expenditures totaled $23.2 million for the three months ended March 31, 2023 compared to $19.2 million in the corresponding period in 2022.

In September 2021, we entered into an agreement with the U.S. Department of Defense to increase domestic production capacity of pipette tips and enhance manufacturing automation and logistics. As of March 31, 2023, we have obtained $29.7 million of the $35.8 million of total funding to be received through 2023, which will offset future capital expenditures. During the three months ended March 31, 2023 and 2022, we incurred approximately $3.3 million and $1.7 million, respectively, of capital expenditures relating to this funding agreement.

We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness.

Cash flows used in financing activities are primarily comprised of share repurchases. In accordance with our share repurchase program, we spent $250.0 million and $275.0 million on the repurchase of 166,628 shares and 190,593 shares, during the three months ended March 31, 2023 and 2022, respectively.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on net share repurchases that occur after December 31, 2022 with payments expected to commence in 2024, and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. We expect the financial impact of the IRA to be immaterial to our financial statements.

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Senior Notes and Credit Facility Agreement

Our debt consisted of the following at March 31, 2023:

As of March 31, 2023, approximately $595.1 million of additional borrowings was available under our Credit Agreement, and we maintained $89.1 million of cash and cash equivalents.

Changes in exchange rates between the currencies in which we generate cash flows and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates. Further, we do not have any downgrade triggers relating to ratings from rating agencies that would accelerate the maturity dates of our debt. We were in compliance with our debt covenants as of March 31, 2023.

In December 2022, we entered into an agreement to issue and sell $150 million 10-year Senior Notes in a private placement. We issued $150 million with a fixed interest rate of 5.45% (5.45% Senior Notes) in March 2023. The 5.45% Senior Notes are senior unsecured obligations of the Company. The 5.45% Senior Notes mature on March 1, 2033. The terms of the 5.45% Senior Notes are consistent with the previous Senior Notes as described in the Company's Annual Report Form 10-K. We used the proceeds from the sale of the 5.45% Senior Notes to refinance existing indebtedness and for other general corporate purposes.

In December 2021, we entered into an agreement to issue and sell $300 million 15-year Senior Notes in a private placement. We issued $150 million with a fixed interest rate of 2.81% (2.81% Senior Notes) in March 2022, which will mature in March 2037, and $150 million with a fixed interest rate of 2.91% (2.91% Senior Notes) in September 2022, which will mature in September 2037. We used the proceeds from the sale of the notes to refinance existing indebtedness and for other general corporate purposes.

Other Local Arrangements

In 2018, two of the Company's non-U.S. pension plans issued loans totaling $39.6 million (Swiss franc 38 million) to a wholly owned subsidiary of the Company. The loans have the same

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terms and conditions which include an interest rate of SARON plus 87.5 basis points. The loans were renewed for one year in April 2023.

Share Repurchase Program

We have $3.2 billion of remaining availability for our share repurchase program as of March 31, 2023. The share repurchases are expected to be funded from cash generated from operating activities, borrowings, and cash balances. Repurchases will be made through open market transactions, and the amount and timing of purchases will depend on business and market conditions, the stock price, trading restrictions, the level of acquisition activity, and other factors.

We have purchased 31.2 million common shares since the inception of the program in 2004 through March 31, 2023. During the three months ended March 31, 2023 and 2022, we spent $250.0 million and $275.0 million on the repurchase of 166,628 shares and 190,593 shares at an average price per share of $1,511.78 and $1,442.84, respectively. We reissued 47,849 shares and 27,795 shares held in treasury for the exercise of stock options and restricted stock units during the three months ended March 31, 2023 and 2022, respectively. In addition, we incurred $1.9 million of excise tax during the three months ended March 31, 2023 related to the Inflation Reduction Act which is reflected as a reduction in shareholders' equity in our consolidated financial statements.

Effect of Currency on Results of Operations

Our earnings are affected by changing exchange rates. We are most sensitive to changes in the exchange rates between the Swiss franc, euro, Chinese renminbi, and U.S. dollar. We have more Swiss franc expenses than we do Swiss franc sales because we develop and manufacture products in Switzerland that we sell globally, and have a number of corporate functions located in Switzerland. When the Swiss franc strengthens against our other trading currencies, particularly the U.S. dollar and euro, our earnings decrease. We also have significantly more sales in the euro than we do expenses. When the euro weakens against the U.S. dollar and Swiss franc, our earnings also decrease. We estimate a 1% strengthening of the Swiss franc against the euro would reduce our earnings before tax by approximately $1.9 million to $2.1 million annually.

We also conduct business in many geographies throughout the world, including Asia Pacific, the United Kingdom, Eastern Europe, Latin America, and Canada. Fluctuations in these currency exchange rates against the U.S. dollar can also affect our operating results. The most significant of these currency exposures is the Chinese renminbi. The impact on our earnings before tax of the Chinese renminbi weakening 1% against the U.S. dollar is a reduction of approximately $3.8 million to $4.3 million annually.

In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar, the Swiss franc, and euro. Based on our outstanding debt at March 31, 2023, we estimate that a 5% weakening of the U.S. dollar against the currencies in which our debt is denominated would result in an increase of approximately $35.2 million in the reported U.S. dollar value of our debt.

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Forward-Looking Statements Disclaimer

You should not rely on forward-looking statements to predict our actual results. Our actual results or performance may be materially different than reflected in forward-looking statements because of various risks and uncertainties, including statements about expected revenue growth, inflation and ongoing developments related to Ukraine. You can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” or “continue.”

We make forward-looking statements about future events or our future financial performance, including earnings and sales growth, earnings per share, strategic plans and contingency plans, growth opportunities or economic downturns, our ability to respond to changes in market conditions, planned research and development efforts and product introductions, adequacy of facilities, access to and the costs of raw materials, shipping and supplier costs, gross margins, customer demand, our competitive position, pricing, capital expenditures, cash flow, tax-related matters, the impact of foreign currencies, compliance with laws, effects of acquisitions, and the impact of inflation and ongoing developments related to Ukraine on our business.

Our forward-looking statements may not be accurate or complete, and we do not intend to update or revise them in light of actual results. New risks also periodically arise. Please consider the risks and factors that could cause our results to differ materially from what is described in our forward-looking statements, including inflation, and the ongoing developments related to Ukraine. See in particular “Factors Affecting Our Future Operating Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 and other reports filed with the SEC from time to time.

As of March 31, 2023, there was no material change in the information provided under Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

Recently, our sales and marketing organization in France went live on our Blue Ocean program. As a result of the implementation, certain internal controls have changed. Management has taken steps to ensure appropriate controls were designed and operating as part of the implementation process. This initiative is not in response to any identified deficiency or weakness in our internal control over financial reporting.

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PART II. OTHER INFORMATION

**Item 1.**Legal Proceedings. None

For the three months ended March 31, 2023 there were no material changes from risk factors disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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

Issuer Purchases of Equity Securities

The Company has $3.2 billion of remaining availability for its share repurchase program as of March 31, 2023. We have purchased 31.2 million shares since the inception of the program through March 31, 2023.

During the three months ended March 31, 2023 and 2022, we spent $250.0 million and $275.0 million on the repurchase of 166,628 and 190,593 shares at an average price per share of $1,511.78 and $1,442.84, respectively. We reissued 47,849 shares and 27,795 shares held in treasury for the exercise of stock options and restricted stock units for the three months ended March 31, 2023 and 2022, respectively. In addition, we incurred $1.9 million of excise tax during the three months ended March 31, 2023 related to the Inflation Reduction Act which is reflected as a reduction in shareholders' equity in the our consolidated financial statements.

Item 3. Defaults Upon Senior Securities. None

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EXHIBIT INDEX

_______________________

• Filed herewith

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SIGNATURE

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

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