UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~10-Q~~

☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 31, ~~2019~~.2020.

☐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: 001-31337

Cantel Medical Corp.

(Exact name of registrant as specified in its charter)



Delaware						22-1760285
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification no.)

150 Clove Road

Little Falls

New Jersey

07424

(973)

890-7220

(Address of principal executive offices)

(Zip code)

(Registrant’s telephone number, including area code)

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



Common Stock	CMD	New York Stock Exchange
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)

Indicate by check mark whether 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 check mark 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 such files). Yes ☒ No ☐

Indicate by check mark 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.

Large accelerated filer

☒

Accelerated filer

☐

Smaller reporting company

☐

Non-accelerated filer

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to 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 ☒

Number of shares of common stock outstanding as of November 30, ~~2019: 42,576,934.~~2020: 42,244,649.

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

TABLE OF CONTENTS


			Page No.
			~~Page No.~~
	PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)	1
		Condensed Consolidated Balance Sheets ~~(unaudited)~~ (Unaudited)	1
		Condensed Consolidated Statements of Income ~~(unaudited)~~ (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income ~~(unaudited)~~ (Unaudited)	3
		Condensed Consolidated Statements of Changes in Stockholders’ Equity ~~(unaudited)~~(Unaudited)	4
		Condensed Consolidated Statements of Cash Flows ~~(unaudited)~~ (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements ~~(unaudited)~~ (Unaudited)	6
Item 2.		~~Management's~~Management ’s Discussion and Analysis of Financial Condition and Results of Operations	1920
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	2729
Item 4.		Controls and Procedures	2729
		PART II – OTHER INFORMATION
Item 1.		Legal Proceedings	2830
Item 1A.		Risk Factors	2830
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	2831
Item 3.		Defaults Upon Senior Securities	2931
Item 4.		Mine Safety Disclosures	2931
Item 5.		Other Information	2931
Item 6.		Exhibits	2931
Signatures			3031

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets ~~(Unaudited)~~

October 31, 2019 July 31, 2019
Assets

Cash and cash equivalents $ 49,285
$ 44,535
Accounts receivable, net of allowance for doubtful accounts of $2,818 and $2,322 174,931
146,910
Inventories, net 200,312
138,234
Prepaid expenses and other current assets 25,204
22,117
Total current assets 449,732
351,796

Property and equipment, net 227,940
185,242
Right-of-use assets, net 51,604
—
Intangible assets, net 506,877
141,513
Goodwill 655,395
378,109
Other assets 10,029
9,425
Deferred income taxes 4,469
4,281
Total assets $ 1,906,046
$ 1,070,366
Liabilities and stockholders’ equity

Accounts payable $ 40,386
$ 39,450
Compensation payable 35,727
32,762
Accrued expenses 41,113
38,545
Deferred revenue 26,980
27,840
Current portion of long-term debt 24,500
10,000
Income taxes payable 4,939
2,803
Current portion of lease liabilities 9,752
—
Total current liabilities 183,397
151,400

Long-term debt 875,755
220,851
Deferred income taxes 30,923
29,278
Contingent consideration 35,100
—
Long-term lease liabilities 43,150
—
Other long-term liabilities 5,530
7,300
Total liabilities 1,173,855
408,829
Commitments and contingencies (Note 12)

Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued —
—
Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 47,218,113 shares and outstanding 42,576,825 shares as of October 31, 2019; issued 46,362,902 shares and outstanding 41,771,228 shares as of July 31, 2019 4,722
4,636
Additional paid-in capital 268,032
204,795
Retained earnings 544,864
539,097
Accumulated other comprehensive loss (17,020 ) (22,197 )
Treasury Stock; 4,641,288 shares as of October 31, 2019; 4,591,674 shares as of July 31, 2019 (68,407 ) (64,794 )
Total stockholders’ equity 732,191
661,537
Total liabilities and stockholders’ equity $ 1,906,046
$ 1,070,366
(Unaudited)


	October 31, 2020		July 31, 2020
Assets
Cash and cash equivalents	$	258,021	$	277,871
Accounts receivable, net of allowance for doubtful accounts of $4,029 and $3,905	158,763		148,419
Inventories, net	163,880		167,960
Prepaid expenses and other current assets	19,429		18,443
Income taxes receivable	27,036		33,933
Total current assets	627,129		646,626

Property and equipment, net	223,510		225,222
Right-of-use assets, net	47,901		48,684
Intangible assets, net	471,337		480,032
Goodwill	660,421		660,172
Other long-term assets	6,467		6,231
Deferred income taxes	3,738		4,787
Total assets	$	2,040,503	$	2,071,754
Liabilities and stockholders’ equity
Accounts payable	$	46,891	$	42,008
Compensation payable	47,788		47,769
Accrued expenses	45,525		41,480
Deferred revenue	28,454		26,223
Current portion of long-term debt	14,750		7,375
Income taxes payable	6,759		4,373
Current portion of lease liabilities	10,044		10,268
Total current liabilities	200,211		179,496

Long-term debt	845,142		926,834
Convertible debt	126,617		124,835
Deferred income taxes	49,533		49,533
Long-term lease liabilities	40,296		40,679
Other long-term liabilities	20,323		20,778
Total liabilities	1,282,122		1,342,155
Commitments and contingencies (Note 12)

Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; NaN issued	0		0
Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 46,924,945 shares and outstanding 42,243,881 shares at October 31, 2020; issued 46,812,750 shares and outstanding 42,162,218 shares at July 31, 2020	4,693		4,681
Additional paid-in capital	276,450		273,040
Retained earnings	572,798		548,334
Accumulated other comprehensive loss	(25,249)		(27,599)
Treasury Stock; 4,681,064 shares at October 31, 2020; 4,650,532 shares at July 31, 2020	(70,311)		(68,857)
Total stockholders’ equity	758,381		729,599
Total liabilities and stockholders’ equity	$	2,040,503	$	2,071,754

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 1

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended October 31,
		2020		2019
Net sales
Product sales		$	263,570	$	225,678
Product service		33,459		31,568
Total net sales		297,029		257,246

Cost of sales
Product sales		129,655		120,586
Product service		20,008		20,791
Total cost of sales		149,663		141,377

Gross profit		147,366		115,869

Expenses:
Selling		40,063		38,411
General and administrative		49,378		55,287
Research and development		7,573		7,747
Total operating expenses		97,014		101,445

Income from operations		50,352		14,424

Interest expense, net		16,293		5,719


Income before income taxes		34,059		8,705

Income taxes		9,595		2,938

Net income		$	24,464	$	5,767

Earnings per common share:
Basic		$	0.58	$	0.14
Diluted		$	0.57	$	0.14

Dividends per common share		$	0	$	0

Three Months Ended October 31,
2019 2018
Net sales

Product sales $ 225,678
$ 195,760
Product service 31,568
29,829
Total net sales 257,246
225,589

Cost of sales

Product sales 120,586
99,310
Product service 20,791
21,030
Total cost of sales 141,377
120,340

Gross profit 115,869
105,249

Expenses:
Selling 38,411
33,958
General and administrative 55,287
36,535
Research and development 7,747
7,078
Total operating expenses 101,445
77,571

Income from operations 14,424
27,678

Interest expense, net 5,719
2,026

Income before income taxes 8,705
25,652

Income taxes 2,938
6,410

Net income $ 5,767
$ 19,242

Earnings per common share:

Basic $ 0.14
$ 0.46
Diluted $ 0.14
$ 0.46

Dividends per common share $ —
$ —

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 2

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended October 31,						Three Months Ended October 31,
	2019		2018					2020		2019
Net income	$	5,767	$	19,242		Net income		$	24,464	$	5,767

Other comprehensive income (loss):
Other comprehensive income:						Other comprehensive income:
Foreign currency translation	3,932		(5,223		)	Foreign currency translation		502		3,932
Interest rate swap, net of tax	1,245		—			Interest rate swap, net of tax		1,848		1,245
Total other comprehensive income (loss):	5,177		(5,223		)
Total other comprehensive income:						Total other comprehensive income:		2,350		5,177

Comprehensive income	$	10,944	$	14,019		Comprehensive income		$	26,814	$	10,944

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 3

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


																							Common Stock								Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Loss		Treasury stock, at cost		Total Stockholders’ Equity
																							Shares					Amount
Balance, July 31, 2020																					Balance, July 31, 2020		42,162,218					$	4,681				$	273,040			$	548,334	$	(27,599)	$	(68,857)	$	729,599
Repurchases of shares																					Repurchases of shares		(30,532)					—			—				—		—		(1,454)		(1,454)
Stock-based compensation																					Stock-based compensation		—					—			3,422				—		—		—		3,422

Equity vests/option exercises																					Equity vests/option exercises		112,195					12			(12)				—		—		—		—

Net income																					Net income		—					—			—				24,464		—		—		24,464

Other comprehensive income																					Other comprehensive income		—					—			—				—		2,350		—		2,350
Balance, October 31, 2020																					Balance, October 31, 2020		42,243,881					$	4,693		$	276,450			$	572,798	$	(25,249)	$	(70,311)	$	758,381

	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss				Treasury stock, at cost			Total Stockholders’ Equity
	Shares		Amount
Balance, July 31, 2019	41,771,228		$	4,636			$	204,795		$				539,097								$	(22,197	)	$	(64,794	)		$	661,537
Repurchases of shares	(49,614	)	—		—			—			—				(3,613		)	(3,613		)
Stock-based compensation	—		—		2,404			—			—				—			2,404
Issuance of shares	751,471		75		59,925			—			—				—			60,000
Equity vests/option exercises	104,686		11		908			—			—				—			919
Cancellations of restricted stock	(946	)	—		—			—			—				—			—
Net income	—		—		—			5,767			—				—			5,767
Other comprehensive income	—		—		—			—			5,177				—			5,177
Balance, October 31, 2019	42,576,825		$	4,722	$	268,032		$	544,864		$	(17,020	)		$	(68,407	)	$	732,191

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss
Treasury stock,
at cost
Total Stockholders’ Equity
Shares Amount
Balance, July 31, 2018 41,706,084
$ 4,624
$ 184,212
$ 491,540
$ (11,456 ) $ (60,053 ) $ 608,867
Repurchases of shares (37,802 ) —
—
—
—
(4,288 ) (4,288 )
Stock-based compensation —
—
2,576
—
—
—
2,576
Equity vests/option exercises 53,320
7
948
—
—
—
955
Cancellations of restricted stock (286 ) —
—
—
—
—
—
Net income —
—
—
19,242
—
—
19,242
Cumulative impact of ASC 606 adoption —
—
—
865
—
—
865
Other —
—
(634 ) —
—
—
(634 )
Other comprehensive loss —
—
—
—
(5,223 ) —
(5,223 )
Balance, October 31, 2018 41,721,316
$ 4,631
$ 187,102
$ 511,647
$ (16,679 ) $ (64,341 ) $ 622,360

See accompanying notes to Condensed Consolidated Financial Statements.


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury stock, at cost		Total Stockholders’ Equity
	Shares	Amount
Balance, July 31, 2019	41,771,228	$	4,636	$	204,795	$	539,097	$	(22,197)	$	(64,794)	$	661,537
Repurchases of shares	(49,614)	—		—		—		—		(3,613)		(3,613)
Stock-based compensation	—	—		2,404		—		—		—		2,404
Issuance of shares	751,471	75		59,925		—		—		—		60,000
Equity vests/option exercises	104,686	11		908		—		—		—		919
Cancellations of restricted stock	(946)	—		—		—		—		—		—

Net income	—	—		—		5,767		—		—		5,767

Other comprehensive income	—	—		—		—		5,177		—		5,177
Balance, October 31, 2019	42,576,825	$	4,722	$	268,032	$	544,864	$	(17,020)	$	(68,407)	$	732,191

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 4

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended October 31,
	2020		2019
Cash flows from operating activities
Net income	$	24,464	$	5,767
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	8,409		6,338
Amortization	8,918		6,029
Stock-based compensation expense	3,422		2,404
Deferred income taxes	441		1,454
Amortization of right-of-use assets	2,982		2,310
Non-cash interest expense	4,445		925
Inventory step-up amortization	0		4,772

Other non-cash items, net	8		(1,061)
Changes in assets and liabilities, net of effects of acquisitions/dispositions:
Accounts receivable	(10,302)		(348)
Inventories	4,214		(6,254)
Prepaid expenses and other assets	(1,206)		1,147
Accounts payable and other liabilities	10,221		(13,664)
Income taxes	9,284		1,450
Operating lease payments	(3,293)		(2,338)
Net cash provided by operating activities	62,007		8,931
Cash flows from investing activities
Capital expenditures	(5,495)		(10,390)
Proceeds from sale of businesses, net of cash retained	348		0
Acquisition of businesses, net of cash acquired	0		(658,932)
Net cash used in investing activities	(5,147)		(669,322)
Cash flows from financing activities
Proceeds from issuance of long term debt	0		400,000
Repayments of long-term debt	0		(2,375)
Borrowings under revolving credit facility	0		291,400
Repayments under revolving credit facility	(75,000)		(10,900)


Debt issuance costs	0		(9,234)
Finance lease payments	(103)		(127)

Purchases of treasury stock	(1,454)		(3,613)
Net cash (used in) provided by financing activities	(76,557)		665,151

Effect of exchange rate changes on cash and cash equivalents	(153)		(10)

(Decrease) increase in cash and cash equivalents	(19,850)		4,750
Cash and cash equivalents at beginning of period	277,871		44,535
Cash and cash equivalents at end of period	$	258,021	$	49,285

~~(Unaudited)~~

Three Months Ended October 31,
2019 2018
Cash flows from operating activities

Net income $ 5,767
$ 19,242
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 6,338
4,691
Amortization 6,029
6,041
Stock-based compensation expense 2,404
2,576
Amortization of right-of-use assets 2,722
—
Deferred income taxes 1,454
(674 )
Inventory step-up amortization 4,772
—
Other non-cash items, net (548 ) 1,236
Changes in assets and liabilities, net of effects of acquisitions/dispositions:

Accounts receivable (348 ) (4,087 )
Inventories (6,254 ) (3,359 )
Prepaid expenses and other assets 1,147
1,089
Accounts payable and other liabilities (13,664 ) 1,055
Income taxes 1,450
4,459
Operating lease liabilities (2,338 ) —
Net cash provided by operating activities 8,931
32,269

Cash flows from investing activities

Capital expenditures (10,390 ) (38,834 )
Acquisitions, net of cash acquired (658,932 ) (17,000 )
Net cash used in investing activities (669,322 ) (55,834 )

Cash flows from financing activities

Borrowings of long-term debt 400,000
—
Repayments of long-term debt (2,375 ) (2,500 )
Borrowings under revolving credit facility 291,400
—
Repayments under revolving credit facility (10,900 ) —
Debt issuance costs (9,234 ) —
Finance lease liabilities (127 ) —
Purchases of treasury stock (3,613 ) (4,288 )
Net cash provided by (used in) financing activities 665,151
(6,788 )

Effect of exchange rate changes on cash and cash equivalents (10 ) 286

Increase (decrease) in cash and cash equivalents 4,750
(30,067 )
Cash and cash equivalents at beginning of period 44,535
94,097
Cash and cash equivalents at end of period $ 49,285
$ 64,030

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 5

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Notes to Condensed Consolidated Financial Statements ~~(unaudited)~~(Unaudited).

1. Basis of Presentation

Throughout this document, references to “Cantel,” “us,” “we,” “our,” and the “Company” are references to Cantel Medical Corp. and its subsidiaries, except where the context makes it clear the reference is to Cantel itself and not its subsidiaries.

Cantel is a leading provider of infection prevention products and services in the healthcare market, specializing in the following reportable segments: Medical, Life Sciences, Dental and Dialysis. See Note 15, “Reportable Segments.” Most of our equipment, consumables and supplies are used to help prevent the occurrence or spread of infections.

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial reporting and the requirements of Form 10-Q and Rule ~~10.01~~10-01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by ~~generally accepted accounting principles~~GAAP for annual financial reporting and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report of Cantel Medical Corp. on Form 10-K for the fiscal year ended July 31, ~~2019~~2020 (the ~~“2019~~“2020 Annual Report on Form 10-K”) and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The unaudited interim financial statements reflect all adjustments (of a normal and recurring nature) which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The Condensed Consolidated Balance Sheet at July 31, ~~2019~~2020 was derived from the audited Consolidated Balance Sheet of Cantel at that date. Certain prior year amounts have been reclassified to conform to the current year presentation.

COVID-19

In March 2020, the World Health Organization categorized the novel Coronavirus disease 2019, or (COVID-19) as a pandemic. We are subject to risks and uncertainties as a result of the COVID-19 pandemic. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, continue to create significant negative economic impacts on a global basis. The extent of the impact of the COVID-19 pandemic on our business remains uncertain and difficult to predict, as the response to the pandemic continues to evolve.

During the second half of fiscal 2020, the COVID-19 pandemic negatively impacted net sales and the related operations of both our Medical and Dental segments as a result of the postponement of elective medical procedures and routine dental procedures. Towards the end of fiscal 2020, we experienced gradual improvements in these respective businesses as restrictions were lifted and limitations eased. In the first quarter of fiscal 2021, patient procedure volume trends have improved as demand for both medical and dental procedures have increase during this period.

While we currently expect to see improvement in the remainder of fiscal 2021, the effects of the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies. We believe it is likely to continue to experience unexpected impacts on our business due to the resurgence of the virus occurring in cities across the globe.

In preparing the Condensed Consolidated Financial Statements, management is required to make estimates and assumptions, including estimates and assumptions specific to any impact that the COVID-19 pandemic will have on our operations and cash flows. The estimates and assumptions used by management affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, and the reported amounts of net sales and expenses during the reporting periods. Changes to estimates related to the COVID-19 disruptions could result in other impacts, including but not limited to goodwill and long-lived asset impairment charges, inventory write downs and bad debt expense. Actual results could differ from these estimates and the differences could be material. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, our results of operations, financial position and cash flows could be adversely impacted.

Subsequent Events

We performed a review of events subsequent to October 31, ~~2019~~2020 through the date of issuance of the accompanying unaudited consolidated interim financial statements.

~~2. Accounting Pronouncements~~

~~Newly Adopted Accounting Standards~~

~~In February 2016, the FASB issued ASU 2016-02, “(Topic 842) Leases~~,” (“ASU 2016-02”). The new guidance requires the recording of assets and liabilities arising from leases on our condensed consolidated balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 31, 2018 (our fiscal year 2020), including interim periods within that reporting period. Early adoption is permitted as of the beginning of an interim or annual period. In July 2018, the FASB issued ASU 2018-10, ~~“Codification Improvements to Topic 842, Leases,”~~ ~~and ASU 2018-11,~~ ~~“Leases (Topic 842) Targeted Improvements,”~~ ~~in December 2018, the FASB issued ASU 2018-20,~~ ~~“Narrow-Scope Improvements for Lessors”~~ ~~andin March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements.”~~ These ASUs provide adjustments relating to ASU 2016-02 and improvements to comparative reporting requirements for initial adoption and for separating components of a contract for lessors. We adopted the collective standard “ASC 842” using the modified retrospective transition approach with optional transition relief, and recognized the cumulative effect of applying the new leasing standard to existing contracts on our condensed consolidated balance sheet on August 1, 2019. Therefore, results for reporting periods beginning after August 1, 2019 are presented under the new leasing standard; however, the comparative prior period amounts have not been restated and continue to be reported in accordance with historic accounting under ASC Topic 840. The most significant effects of adoption of the new leasing standard relate to the recognition of right-of-use assets of $35,842 and lease liabilities of $36,417 for operating leases, which we recorded on our condensed consolidated balance sheet on August 1, 2019. The new leasing standard did not impact our condensed consolidated statements of income or condensed consolidated statements of cash flows. See Note 6, “Leases” for a discussion of the impact to the condensed consolidated balance sheets and related disclosures.

~~In February 2018, the FASB issued ASU 2018-02,~~
~~“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”~~ (“ASU 2018-02”) to allow for the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act enacted in December 2017. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. Accordingly, we adopted ASU 2018-02 on August 1, 2019. The adoption of ASU 2018-02 did not have a material impact on our financial position, results of operations or cash flows.

(dollar amounts in thousands except share and per share data or as otherwise noted) 6

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

2. Accounting Pronouncements

~~Recently Issued~~Newly Adopted Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU 2020-04”) to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was subject to election as of March 20, 2020 and can be elected for both interim and annual periods through December 31, 2022. We adopted ASU 2020-04 on August 1, 2020. The adoption of ASU 2020-04 did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15,~~“Customer’s~~ “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”) to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021), including interim periods within that reporting period. We adopted ASU 2018-15 on August 1, 2020. The adoption of ASU 2018-15 isdid not ~~expected to~~ have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-13,~~“Disclosure~~ “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”) to modify the disclosure requirements on fair value measurements in ASC 820, ~~“Fair~~“Fair Value ~~Measurement”~~.Measurement.” ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021), including interim periods within that reporting period. We adopted ASU 2018-13 on August 1, 2020. The adoption of ASU 2018-13 isdid not ~~expected to~~ have a material impact on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, “(“(Topic 350) Simplifying the Test for Goodwill Impairment,,” (“ASU 2017-04”) to simplify the test for goodwill impairment. The revised guidance eliminates the existing Step 2 of the goodwill impairment test which required an entity to compute the implied fair value of its goodwill at the testing date in order to measure the amount of the impairment charge when the fair value of the reporting unit failed Step 1 of the goodwill impairment test. The guidance will be applied on a prospective basis on or after the effective date. ASU 2017-04 is effective for fiscal years beginning after December 31, 2019 (our fiscal year 2021) and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted ASU 2017-04 on August 1, 2020. The adoption of ASU 2017-04 isdid not ~~expected to~~ have a material impact on our financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, “~~Measurement~~“Measurement of Credit Losses on Financial Instruments,,” (“ASU 2016-13”) to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021). We adopted ASU 2016-13 on August 1, 2020. The adoption of ASU 2016-13 did not have a material impact on our financial position, results of operations or cash flows.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06, “(Subtopic 470-20): Debt—Debt with Conversion and Other Options” (“ASU 2020-06”) to address the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 (our fiscal year 2022), including interim periods within those fiscal years. We are currently evaluating the impact of ASU 2020-06 on our financial position, results of operations or cash flows. The impact on our diluted earnings per share could be material upon the adoption of ASU 2020-06.

In December 2019, the FASB issued ASU 2019-12, “(Topic 740) Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) to simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and

(dollar amounts in thousands except share and per share data or as otherwise noted) 7

Cantel Medical Corp. 2021 First Quarter Form 10-Q

amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 (our fiscal year 2022), including interim periods within that reporting period. The adoption of ASU 2019-12 is not expected to have a material impact on our financial position, results of operations or cash flows.

3. Acquisitions


3.	~~Acquisitions~~

~~Fiscal 2020~~

Hu-Friedy: On October 1, 2019, we purchased all of the issued and outstanding membership interests of Hu-Friedy Mfg. Co. LLC (“~~Hu-Friedy)~~Hu-Friedy”), for a total consideration (net of cash acquired), excluding acquisition-related costs, of ~~$718,933,~~$716,542, consisting of ~~$658,933~~$662,151 of cash and ~~$60,000~~$54,391 of common stock consideration (subject to adjustment), plus contingent consideration payable in ~~cash, ranging from 0~~cash. The additional contingent consideration payments are (i) subject to ~~a maximum of $50,000, which is payable upon~~ the achievement of certain commercial milestones through March 31, ~~2021.~~2021 ranging from 0 to a maximum of $50,000 and (ii) contingent upon changes in our stock price from the date of closing through a future date subject to a registration rights agreement. See Note 9, “Fair Value Measurements,” for further details regarding these contingent payments. Hu-Friedy is a leading global manufacturer of instruments and instrument reprocessing systems serving the dental industry and is included in our Dental segment.

~~Fiscal 2019~~

~~Omnia:~~ On February 1, 2019, we purchased all of the issued and outstanding stock of Omnia S.p.A. (“Omnia”), an Italian-based market leader in dental surgical consumables solutions, for total consideration (net of cash acquired), excluding acquisition-related costs, of $19,808, consisting of $16,598 of cash and $3,210 of stock consideration, plus additional earn-outs ranging from 0 to a maximum of $5,800, which is payable upon the achievement of certain performance-based financial targets. Omnia’s business consists of a wide-ranging portfolio of sutures, irrigation tubing and customized dental surgical procedure kits, with a focus on procedure room set-up and cross-contamination prevention, and is included in our Dental segment.

~~CES business:~~ On August 1, 2018, we acquired certain net assets of Stericycle Inc. related to its controlled environmental solutions business (“CES business”) for total cash consideration, excluding acquisition-related costs, of $17,047. The CES business is a leading provider of testing and certification, environmental monitoring and decontamination services for clean rooms and other controlled environments to ensure safety, regulatory compliance and quality control, and is included in our Life Sciences segment.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 7~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

The following table presents our purchase price ~~allocations~~allocation of our material ~~acquisitions:~~acquisition (which was accounted for as a business combination in accordance with ASC Topic 805 “Business Combinations”):

2020 2019
Purchase Price Allocation Hu-Friedy Omnia
CES Business⁽¹⁾
(Preliminary) (Preliminary) (Final)
Purchase Price:
Cash paid $ 658,933
$ 16,598
$ 17,047
Fair value of contingent consideration 35,100
—
—
Common stock issued 60,000
3,210
—
Total $ 754,033
$ 19,808
$ 17,047

Allocation:
Property and equipment 38,571
1,285
539
Intangible assets:
Customer relationships 226,000
10,206
8,100
Technology 32,000
1,257
—
Brand names 112,000
1,600
—
Goodwill 276,483
11,340
6,137
Deferred income taxes —
(2,346 ) —
Inventories 60,596
—
—
Other working capital 43,483
1,673
2,271
Contingent consideration (35,100 ) —
—
Long-term debt —
(5,207 ) —
Total $ 754,033
$ 19,808
$ 17,047


	2020
Purchase Price Allocation	Hu-Friedy(1)(2)
	(Final)
Purchase Price:
Cash paid	$	662,151
Fair value of contingent consideration	38,371
Common stock issued	54,391
Total	$	754,913

~~(1)~~Allocation:	~~The excess purchase price over net assets acquired was assigned to goodwill, all of which is deductible for~~
Property and equipment	38,613
Intangible assets:
Customer relationships	225,000
Technology	32,000
Brand names	112,000
Goodwill	276,744
Deferred income ~~tax purposes.~~taxes	(222)
Inventories	63,680
Other working capital	7,098
Total	$	754,913

(1)During the second quarter of fiscal 2020, we paid $25,000 to settle a portion of the contingent consideration, and during the third quarter of fiscal 2020, we paid $35,000 to repurchase a portion of the common stock issued, both of which were included in Acquisitions, net of cash acquired in the Condensed Consolidated Statement of Cash Flows. See Note 9, “Fair Value Measurements” for additional information.

(2)The excess purchase price over net assets acquired was assigned to goodwill, all of which is deductible for income tax purposes.

Unaudited Pro Forma Summary of Operations

The following pro forma summary of operations presents our operations as if the Hu-Friedy acquisition had occurred as of the beginning of fiscal 2019. In addition to including the results of operations of this acquisition, the pro forma information gives effect to amortization of the step-up in inventory, depreciation of the step-up in property and equipment, the interest on additional borrowings, the amortization of intangible assets and the issuance of shares of common stock. On an actual basis, the

(dollar amounts in thousands except share and per share data or as otherwise noted) 8

Cantel Medical Corp. 2021 First Quarter Form 10-Q

Hu-Friedy acquisition contributed $60,806 and $18,725 to our consolidated net sales for the three months ended October 31, ~~2019.~~2020 and 2019 respectively.


Pro Forma Summary of Operations	Three Months Ended October 31, 2019
Net sales	$	296,454
Net income	$	952
Earnings per common share:
Basic	$	0.02
Diluted	$	0.02

Three Months Ended October 31,
Pro Forma Summary of Operations 2019 2018
Net sales $ 296,454
$ 279,428
Net income $ 952
$ 19,619
Earnings per common share:
Basic $ 0.02
$ 0.46
Diluted $ 0.02
$ 0.46

The pro forma information presented above does not purport to be indicative of the results that actually would have been attained had the Hu-Friedy acquisition occurred as of the beginning of fiscal 2019.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 8~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

4. Stock-Based Compensation

2016 Equity Incentive Plan

At October 31, ~~2019, 452,221~~2020, 763,315 nonvested restricted stock awards were outstanding under the 2016 plan. NaN options were outstanding under the 2016 plan. At October 31, ~~2019, 511,487~~2020, 51,760 shares were collectively available for issuance pursuant to restricted stock and other stock awards, stock options and stock appreciation rights.

~~2006 Equity Incentive Plan~~

The 2006 Plan was terminated on January 7, 2016 in conjunction with the adoption of the 2016 Plan. At October 31, 2019, options to purchase 15,000 shares of common stock were outstanding under the 2006 Plan. No additional awards will be granted under this plan.

The following table shows the components of stock-based compensation expense recognized in the condensed consolidated statements of income:


	Three Months Ended October 31,
		2020		2019
Cost of sales		$	299	$	260
Operating expenses:
Selling		826		536
General and administrative		2,208		1,527
Research and development		89		81
Total operating expenses		3,123		2,144
Stock-based compensation expense		$	3,422	$	2,404

Three Months Ended October 31,
2019 2018
Cost of sales $ 260
$ 237
Operating expenses:

Selling 536
571
General and administrative 1,527
1,710
Research and development 81
58
Total operating expenses 2,144
2,339
Stock-based compensation expense $ 2,404
$ 2,576

At October 31, ~~2019,~~2020, total unrecognized stock-based compensation expense related to total nonvested stock options and restricted stock awards was ~~$29,900~~$36,996 with a remaining weighted average period of 21 months over which such expense is expected to be recognized.

We determined the fair value of our market-based restricted stock awards using a Monte Carlo simulation on the date of grant using the following assumptions:


	Three Months Ended October 31,
	2020		2019
Volatility of common stock	57.27	%	30.73	%
Average volatility of peer companies	45.37	%	36.28	%
Average correlation coefficient of peer companies	34.81	%	24.63	%
Risk-free interest rate	0.20	%	1.49	%

Three Months Ended October 31,
2019 2018
Volatility of common stock 30.73 % 27.54 %
Average volatility of peer companies 36.28 % 36.55 %
Average correlation coefficient of peer companies 24.63 % 27.18 %
Risk-free interest rate 1.49 % 2.93 %

~~A summary of nonvested stock award activity for the three months ended October 31, 2019 follows:~~

Number of
Time-based Awards
Number of Performance-based Awards Number of Market-based Awards
Number of
Total
Awards

Weighted Average
Fair Value
July 31, 2019 234,864
40,210
32,079
307,153
$ 88.99
Granted 204,206
—
47,967
252,173
$ 73.67
Vested⁽¹⁾
(86,937 ) (8,475 ) (3,462 ) (98,874 ) $ 90.74
Forfeited (8,016 ) (215 ) —
(8,231 ) $ 80.25
October 31, 2019 344,117
31,520
76,584
452,221
$ 80.14


~~(1)~~	~~The aggregate fair value of all nonvested stock awards which vested was approximately $8,971.~~

(dollar amounts in thousands except share and per share data or as otherwise noted) 9

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

A summary of nonvested stock award activity for the three months ended October 31, 2020 is as follows:


	Number of Time-based Awards	Number of Performance-based Awards	Number of Market-based Awards	Number of Total Awards	Weighted Average Fair Value
At July 31, 2020	318,702	29,174	63,839	411,715	$	76.29
Granted	388,605	(4,455)	86,915	471,065	$	46.80
Vested(1)	(103,819)	(3,037)	(6,383)	(113,239)	$	82.34
Forfeited	(5,255)	0	(971)	(6,226)	$	74.10
At October 31, 2020	598,233	21,682	143,400	763,315	$	57.53

(1)The aggregate fair value of all nonvested stock awards which vested was approximately $9,328.

A summary of stock option activity for the three months ended October 31, ~~2019~~2020 is as follows:


	Number of shares	Weighted Average Exercise Price
Outstanding at July 31, 2020	15,000	$	55.36
Expired	(15,000)	$	55.36
Outstanding at October 31, 2020	0	$	0

Number of shares Weighted Average Exercise Price Weighted Average Contractual Life Remaining (Years) Aggregate Intrinsic Value
Outstanding at July 31, 2019 40,000
$ 43.70

Exercised (25,000 ) $ 36.70

Outstanding at October 31, 2019 15,000
$ 55.36
0.95 $ 263
Exercisable at October 31, 2019 15,000
$ 55.36
0.95 $ 263

~~During the three months ended October 31, 2019, 25,000 options were exercised, with an aggregate fair value of approximately $1,067. At October 31, 2019, all outstanding options were vested.~~

Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the income tax benefit on stock-based compensation. For the three months ended October 31, 2020, income tax deductions of $1,698 were generated, of which $2,778 was recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax expense of $1,080 was recorded as an increase in income tax expense. For the three months ended October 31, 2019, income tax deductions of $2,022 were generated, of which $2,581 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax expense of $559 was recorded as an increase in income tax expense. For the three months ended October 31, 2018, income tax deductions of $3,059 were generated, of which $2,062 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $997 was recorded as a reduction into income tax expense.

5. Revenue Recognition

We adopted ASC 606, effective August 1, 2018, using the modified retrospective method applied to those contracts which were not completed as of August 1, 2018. Due to the cumulative impact of adopting ASC 606, we recorded a net increase of $865 to opening retained earnings, net of tax, as of August 1, 2018. The impact is primarily related to the timing of revenue recognition for the shipment of products in both our Medical and Life Sciences segments where risk of loss provisions are present (“synthetic FOB destination”). The new standard does not require us to defer revenue for these products and allows us to recognize revenue at the time of shipment. The cumulative adjustment to retained earnings also includes the impact of the change in timing of revenue recognition associated with software licensing arrangements in our Medical segment. Additionally, revenue related to software renewals was historically recognized on a ratable basis over the license period. Under ASC 606, the license is considered functional intellectual property, and is considered to be transferred to the customer at a point in time, specifically, at the start of each annual renewal period. As a result, revenue related to our annual software license renewals has been accelerated.

The following table gives information as to the net sales disaggregated by geography and product line:


	Three Months Ended October 31,
Net sales by geography		2020		2019
United States		$	215,087	$	190,084
Europe/Africa/Middle East		47,785		41,018
Asia/Pacific		19,931		17,065
Canada		11,499		7,833
Latin America/South America		2,727		1,246
Total		$	297,029	$	257,246
Net sales by product line
Capital equipment		$	48,640	$	58,748
Consumables		167,350		153,279
Product service		33,459		31,568
Instrument		45,430		13,520
All other(1)		2,150		131
Total		$	297,029	$	257,246

(1)

Three Months Ended October 31,
Net sales by geography 2019 2018
United States $ 190,084
$ 168,938
Europe/Africa/Middle East 41,018
32,014
Asia/Pacific 17,065
15,752
Canada 7,833
7,373
Latin America/South America 1,246
1,512
Total $ 257,246
$ 225,589
Net sales by product line
Capital equipment $ 58,748
$ 58,132
Consumables 153,279
136,821
Product service 31,568
29,829
Instrument sales 13,520
—
All other⁽¹⁾
131
807
Total $ 257,246
$ 225,589

~~_______________________________________________~~Primarily includes software licensing revenues.


~~(1)~~	~~Primarily includes software licensing revenues.~~

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 10~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

Remaining Performance Obligations

At October 31, ~~2019,~~2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately ~~$73,456,~~$81,556, primarily within the Medical segment. We expect to recognize revenue on approximately 70% of these remaining performance obligations over the remainder of fiscal ~~2020~~2021 and fiscal ~~2021.~~2022. These performance obligations primarily reflect the future product service revenues for multi-period service arrangements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 10

Cantel Medical Corp. 2021 First Quarter Form 10-Q

Contract Liabilities

~~Contract~~A summary of contract liabilities ~~primarily relate to payments received from customers in advance of performance under the contract.~~ activity follows:


	Three Months Ended October 31,
	2020		2019
Beginning balance	$	26,520	$	28,235
Revenue deferred in current year	18,300		2,007
Deferred revenue recognized	(15,590)		(2,982)
Foreign currency translation	33		104
Ending balance	29,263		27,364
Contract liabilities included in Other long-term liabilities	(809)		(384)
Deferred revenue	$	28,454	$	26,980

Our contract liabilities arise primarily in the Medical and Life Sciences segments when payment is received upfront for various multi-period extended service arrangements. We expect to recognize substantially all of this revenue over the next twelve months.

~~A summary of contract liabilities activity follows:~~

Three Months Ended October 31,
2019 2018
Beginning balance $ 28,235
$ 29,015
Revenue deferred in current year 2,007
14,524
Deferred revenue recognized (2,982 ) (13,547 )
Foreign currency translation 104
(163 )
Ending balance 27,364
29,829
Contract liabilities included in Other long-term liabilities (384 ) (549 )
Deferred revenue $ 26,980
$ 29,280

6. Leases

Adoption of “Leases (ASC 842)”

We adopted ASC 842, effective August 1, 2019, using the modified retrospective transition approach with optional transition relief, and recognized the cumulative effect of applying the new leasing standard to existing contracts on our condensed consolidated balance sheet on August 1, 2019. Results for reporting beginning after August 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and will continue to be reported in accordance with our historical accounting under ASC 840.

We elected a package of practical expedients that were consequently applied to all leases. We did not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases, nor whether previously capitalized initial direct costs would qualify for capitalization under the new standard. Upon transition, we did not elect to use hindsight with respect to lease renewals and purchase options when accounting for existing leases, as well as assessing the impairment of right-of-use assets. Therefore, lease terms largely remained unchanged. In addition, we elected the short-term lease recognition exemption and did not recognize a lease liability and right-of-use asset on our condensed consolidated balance sheet for all leases with terms of 12 months or less. We elected the practical expedient to combine lease and non-lease components in total gross rent for all of our leases which resulted in larger lease liabilities recorded on our condensed consolidated balance sheet.

Our lease portfolio consists primarily of real estate, equipment and vehicles. We have approximately 90 real estate leases with lease terms ranging from 1 year to 16 years, which include our corporate headquarters, regional headquarters, and other facilities for sales and administration, warehousing, manufacturing and training. Our equipment leases primarily consist of furniture, computers and other office equipment.

~~Right-of-use assets represent our right~~Supplemental balance sheet information related to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. At lease commencement, we record a liability for our lease obligation measured at the present value of future lease payments and a right-of-use asset equal to the lease liability adjusted for prepayments and lease incentives. We use our collateralized incremental borrowing rate to calculate the present value of lease liabilities as most of our leases do not provide an implicit rate that is readily determinable. We do not recognize a lease liability and right-of-use asset on our condensed consolidated balance sheet for any leases with an initial term of 12 months or less. Some real estate leases include one or more options to renew or terminate a lease. The exercise of a lease renewal or termination option is assessed at commencement of the lease and only reflected in the lease term if we are reasonably certain to exercise the option. We have lease agreements that contain both lease and non-lease components, such as common area maintenance fees, and we have made a policy election tofollows:


Lease Type	October 31, 2020			July 31, 2020
Assets:
Operating lease assets	$	43,679		$	44,267
Finance lease assets	4,222			4,417
Right-of-use assets, net	$	47,901		$	48,684
Liabilities:
Operating lease liabilities	$	9,602		$	9,852
Finance lease liabilities	442			416
Current portion of lease liabilities	10,044			10,268

Operating lease liabilities	36,263			36,515
Finance lease liabilities	4,033			4,164
Long-term lease liabilities	40,296			40,679
Total lease liabilities	$	50,340		$	50,947
Additional Lease Data
Weighted average remaining lease term:
Operating leases	6.04 years			6.11 years
Finance leases	5.61 years			5.86 years
Weighted average discount rate:
Operating leases	2.75		%	2.73		%
Finance leases	22.84		%	23.39		%

(dollar amounts in thousands except share and per share data or as otherwise noted) 11

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

~~combine both fixed lease and non-lease components in total gross rent for all of our leases. Operating lease expense is recognized on a straight-line basis over the respective lease term.~~

~~Supplemental balance sheet information related to our leases follows:~~

Lease Type October 31, 2019
Assets:
Operating lease assets $ 46,718
Finance lease assets 4,886
Right-of-use assets, net $ 51,604

Liabilities:
Operating lease liabilities $ 9,425
Finance lease liabilities 327
Current portion of lease liabilities 9,752

Operating lease liabilities 38,803
Finance lease liabilities 4,347
Long-term lease liabilities 43,150
Total lease liabilities $ 52,902

Weighted average remaining lease term:
Operating leases 6.64 years
Finance leases 6.52 years
Weighted average discount rate:
Operating leases 2.75 %
Finance leases 23.67 %

At October 31, ~~2019,~~2020, maturities of lease liabilities for the periods set forth below were as follows:


Fiscal year	Operating		Finance		Total
Remaining 2021	$	8,324	$	1,086	$	9,410
2022	9,410		1,432		10,842
2023	8,332		1,425		9,757
2024	7,037		1,434		8,471
2025	5,264		1,422		6,686
Thereafter	11,900		919		12,819
Total lease payments	50,267		7,718		57,985
Less: interest	(4,402)		(3,243)		(7,645)
Present value of lease liabilities	$	45,865	$	4,475	$	50,340

Fiscal year Operating Finance Total
Remaining 2020 $ 7,997
$ 1,064
$ 9,061
2021 9,436
1,425
10,861
2022 7,498
1,411
8,909
2023 6,664
1,399
8,063
2024 5,934
1,407
7,341
Thereafter 15,868
2,444
18,312
Total lease payments 53,397
9,150
62,547
Less: interest (5,169 ) (4,476 ) (9,645 )
Present value of lease liabilities $ 48,228
$ 4,674
$ 52,902

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 12~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

As previously disclosed in our 2019 Annual Report on Form 10-K and in accordance with our historical accounting under ASC 840, future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) for the periods set forth below were as follows:

Fiscal year Total
2020 $ 9,099
2021 7,671
2022 6,021
2023 5,659
2024 5,159
Thereafter 15,251
Total $ 48,860

Supplemental income statement information related to our leases follows:


		Three Months Ended October 31,
	2020	2019
Operating lease costs:
Amortization of right-of-use assets		$	2,786	$	2,239
Interest on lease obligations		312		412
Finance lease costs:
Amortization of right-of-use assets		196		71
Interest on lease obligations		255		90
Variable lease costs		895		846
Short-term lease costs		286		248
Net lease cost		$	4,730	$	3,906

Three Months Ended October 31, 2019
Operating lease costs $ 2,651
Finance lease costs:
Amortization of right-of-use assets 71
Interest on lease obligations 90
Variable lease costs 846
Short-term lease costs 248
Net lease cost $ 3,906

Supplemental cash flow information related to leases follows:


					Three Months Ended October 31,
	Three Months Ended October 31, 2019			2020	2019
Right-of-use assets obtained in exchange for lease liabilities:			Right-of-use assets obtained in exchange for lease liabilities:
Operating leases⁽¹⁾	$	14,153	Operating leases(1)		$	2,206	$	14,153
Finance leases⁽²⁾	$	4,798	Finance leases(2)		$	0	$	4,798

(1) ~~Primarily~~The three months ended October 31, 2019 primarily relates to new warehouse facility included in our Dental segment and operating leases acquired in the Hu-Friedy acquisition.

(2) ~~Includes~~The three months ended October 31, 2019 includes finance leases acquired in the Hu-Friedy acquisition.

7. Inventories, Net

A summary of inventories, net is as follows:


	October 31, 2020		July 31, 2020
Raw materials and parts	$	65,577	$	64,888
Work-in-process	7,661		6,745
Finished goods	110,809		114,606
Reserve for excess and obsolete inventory	(20,167)		(18,279)
Total inventories, net	$	163,880	$	167,960

October 31, 2019 July 31, 2019
Raw materials and parts $ 71,361
$ 69,498
Work-in-process 29,244
5,801
Finished goods 116,088
73,050
Reserve for excess and obsolete inventory (16,381 ) (10,115 )
Total Inventories, net $ 200,312
$ 138,234

(dollar amounts in thousands except share and per share data or as otherwise noted) 12

Cantel Medical Corp. 2021 First Quarter Form 10-Q

8. Derivatives

Foreign Currency

In order to hedge against the impact of fluctuations in the value of the Euro, British Pound, Canadian dollar, Australian dollar, Singapore dollar and Chinese Renminbi relative to the U.S. dollar on the conversion of such net assets into the functional currencies, we enter into short-term forward contracts to purchase ~~such foreign currencies,~~or sell Euros, British Pounds, Canadian dollars, Australian dollars, Singapore dollars and Chinese Renminbi, which contracts are one-month in duration. These

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 13~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

short-term contracts are designated as fair value hedge instruments. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets that are denominated and ultimately settled in currencies other than each entity’s functional currency. Gains and losses related to hedging contracts to buy foreign currencies forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. We do not currently hedge against the impact of fluctuations in the value of the Japanese Yen and Sri Lankan Rupee relative to the U.S. dollar because the overall foreign currency exposure relating to these currencies is not material.

There were 6 foreign currency forward contracts with an aggregate notional value of ~~$73,559~~$63,836 and ~~$78,264~~$81,677 at October 31, ~~2019~~2020 and July 31, ~~2019,~~2020, respectively, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. For the three months ended October 31, ~~2019~~2020 and ~~2018,~~2019, the settlements of our forward contracts resulted in immaterial amounts of currency conversion gains and losses on the hedged items in the aggregate.

Variable Rate Borrowings

In order to hedge against the impact of fluctuations in the interest rate associated with our variable rate borrowings, in fiscal 2019, we entered into 2 interest rate swaps with a combined notional value of $150,000, expiring on June 28, 2023. The swaps fixed interest rates at ~~2.45%~~2.265%. In March 2020, we terminated our existing interest rate swaps and entered into a new interest rate swap (the “March 2020 Swap”) with a notional value of $500,000, which fixed interest rates at 1.297% and was set to expire on September 6, 2024. As the original forecasted hedged transactions (interest payments on variable rate debt) are still probable to occur, the $8,534 net loss related to the terminated swaps reported in accumulated other comprehensive income on the termination date will be amortized to interest expense through June 28, 2023, the original maturity date of the swaps.

On May 13, 2020, in connection with the Second Amendment to our credit agreement, we terminated the March 2020 Swap and entered into a new interest rate swap (the “May 2020 Swap”) with a notional value of $500,000, which included a LIBOR floor of 1.00%, fixed interest rates at 2.08% and will expire on September 6, 2024. As the original forecasted hedged transactions related to the March 2020 Swap (interest payments on variable rate debt) are still probable to occur, the $19,980 net loss related to the terminated swaps reported in accumulated other comprehensive income on the termination date will be amortized to interest expense through September 6, 2024, the original maturity date of the swap. The new interest rate swap reflects the 1.00% LIBOR floor included in the Amended Credit Agreement, which allows for continued hedge accounting treatment. Changes in the fair value of the amended interest rate swap contract will continue to be recognized in other comprehensive income.

At October 31, ~~2019, we had a short-term asset of $1,119 recorded in prepaid expenses and other current assets, and a long-term asset of $3,812 recorded in other assets, which represent~~2020, the fair value of the interest rate ~~swaps. At July 31, 2019, we had a short-term asset of $486~~swap was $20,119, which included $5,465 recorded in ~~prepaid~~accrued expenses and ~~other current assets, and a long-term asset of $2,826~~$14,654 recorded in other ~~assets.~~long-term liabilities. As of July 31, 2020, the fair value of the interest rate swap was $21,156, which included $5,462 recorded in accrued expenses and $15,694 recorded in other long-term liabilities. The fair value of ~~these~~the interest rate ~~swaps~~swap is subject to movements in LIBOR and will fluctuate in future periods.

9. Fair Value Measurements

Fair Value Hierarchy

We apply the provisions of ASC 820, “Fair Value Measurements and ~~Disclosures,”~~Disclosures” (“ASC 820”), for our financial assets and liabilities that are re-measured and reported at fair value each reporting period and our nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Our financial assets that are re-measured at fair value on a recurring basis include money market funds that are classified as cash and cash equivalents in the ~~consolidated~~ condensed consolidated balance sheets. These money market funds are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets.

The fair value of the interest rate swaps, all of which qualify for cash flow hedge accounting, is recorded on our condensed consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive income. The changes in fair value are reclassified from accumulated other comprehensive income into earnings in the same period that the hedged items affect earnings. The valuation technique used to determine fair value is the income approach. Under this approach, we use projected future interest rates, which fall into Level 2 of the fair value hierarchy as

(dollar amounts in thousands except share and per share data or as otherwise noted) 13

Cantel Medical Corp. 2021 First Quarter Form 10-Q

defined by ASC 820, as provided by counterparties to the interest rate swap agreements and the fixed rates that we are obligated to pay under the agreements. See Note 8, “Derivatives” for additional information.

For the Hu-Friedy acquisition, additional purchase price payments ~~ranging from 0 to $50,000 are~~were (i) contingent upon the achievement of certain commercial milestones through March 31, ~~2021.~~2021, and (ii) contingent upon changes in our common stock price from the date of closing through a future date subject to a registration rights agreement. We estimated the aggregate fair value of ~~the two~~these contingent consideration arrangements to be ~~$35,100~~$38,371 at the date of acquisition, ~~and~~which was reported separately in our ~~condensed~~ consolidated balance sheet. ~~The initial value assigned to~~For the contingent consideration arrangements based upon the achievement of certain commercial milestones, the initial value assigned at the date of acquisition was determined on the basis of forecasted sales and gross profit percentage of Hu-Friedy products over the next twelve to eighteen months. ~~The fair value was determined by employing~~During the second quarter of fiscal 2020, we paid $25,000 to settle a ~~Monte Carlo simulation in a risk neutral framework, with~~portion of this contingent consideration arrangement related to net sales achieved for the ~~underlying simulated variable of~~twelve month period ended December 31, 2019. For the remaining contingent consideration arrangement related to net sales and ~~the related achievement of certain~~ gross margin percentages. The model also included assumptions on the market price of risk, which was calculated as the weighted average cost of capital less the long-term risk free-rate. We are required to reassessprofit percentage, we reduced the fair value from a liability of ~~contingent payments~~approximately $17,210 to $0 due to the impact of the COVID-19 pandemic on ~~a periodic basis. Although we believe our assumptions are reasonable, different assumptions or changes in the future may result in different estimated amounts.~~Hu-Friedy’s current and expected performance.

For the contingent consideration arrangement based upon changes in our common stock price through a future date, we were required to pay to the sellers of Hu-Friedy an amount in cash equal to $35,000 minus the aggregate net proceeds received by the seller in connection with a future equity issuance if the amount of such aggregate net proceeds was less than $35,000. The initial fair value assigned to this contingent consideration arrangement was determined based on the closing price of our common stock at the date that the acquisition closed (October 1, 2019) relative to the contracted stock price stipulated in the purchase agreement. On February 13, 2020, we entered into a stock repurchase agreement with Dental Holding LLC, the former owners of Hu-Friedy (the “Repurchase Agreement”). The Repurchase Agreement amended the Hu-Friedy purchase and sale agreement and the related registration rights agreement to provide that we repurchase a portion of the shares from the seller included in the equity consideration transferred at a price per share of $64.51 (the “Repurchase”), which equals the closing price of shares of our common stock traded on the New York Stock Exchange on February 12, 2020. The Repurchase of 438,359 common shares was completed on February 13, 2020, and the shares were thereafter canceled and retired. The Hu-Friedy purchase and sale agreement further required us to pay to the seller an amount in cash equal to $35,000 minus the aggregate net proceeds received by the seller from an equity issuance if the amount of such aggregate net proceeds was less than $35,000 (the “True-Up Obligation”). The Repurchase Agreement further amended the purchase and sale agreement to provide that in satisfaction of the True-Up Obligation, we make a payment to the sellers in an amount equal to $6,721 to settle the contingent obligation, which amount equals $35,000 minus the aggregate amount of $28,279 paid to Dental Holding as consideration for the Repurchase. These payments were made to Dental Holding on February 13, 2020.

For the fiscal 2018 Aexis Medical BVBA acquisition, additional purchase price payments ranging from 0 to $1,850 ~~are~~were contingent upon the achievement of certain purchase order targets through March 21, 2020. We estimated the original fair value of the contingent consideration using the weighted probabilities of the possible contingent payments. At the date of acquisition, we estimated the original fair value of the contingent consideration to be $1,292. In June 2020, we paid $1,691 to settle the contingent consideration.

We are required to reassess the fair value of contingent consideration payments on a periodic basis. The significant inputs used in these estimates include numerous possible scenarios for the payments based on the contractual terms of the contingent consideration, for which probabilities are assigned to each scenario. Given the short term nature of the financial instrument, the contingent consideration is not discounted to present value. Although we believe our assumptions are reasonable, different assumptions or changes in the future may result in different estimated amounts.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 14~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

The fair values of our financial instruments measured on a recurring basis were categorized as follows:


	October 31, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money markets	$	106	$	0	$	0	$	106
Total assets	$	106	$	0	$	0	$	106

Accrued expenses:
Interest rate swap	$	0	$	5,465	$	0	$	5,465
Contingent consideration	0		0		0		0
Other long-term liabilities:
Interest rate swap	0		14,654		0		14,654
Total liabilities	$	0	$	20,119	$	0	$	20,119

October 31, 2019
Level 1 Level 2 Level 3 Total
Cash and cash equivalents:

Money markets $ 104
$ —
$ —
$ 104
Prepaid and other current assets:
Interest rate swap —
1,119
—
1,119
Other Assets:
Interest rate swap —
3,812
—
3,812
Total assets $ 104
$ 4,931
$ —
$ 5,035

Accrued expenses:

Contingent consideration —
—
1,668
1,668
Other long-term liabilities:

Contingent consideration —
—
35,100
35,100
Total liabilities $ —
$ —
$ 36,768
$ 36,768

July 31, 2019
Level 1 Level 2 Level 3 Total
Cash and cash equivalents:

Money markets $ 104
$ —
$ —
$ 104
Prepaid expenses and other current assets:
Interest rate swap —
486
—
486
Other Assets:
Interest rate swap —
2,826
—
2,826
Total assets $ 104
$ 3,312
$ —
$ 3,416

Other long-term liabilities:

Contingent consideration —
—
1,411
1,411
Total liabilities $ —
$ —
$ 1,411
$ 1,411

~~A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:~~

Aexis Contingent Consideration Hu-Friedy Contingent Consideration Total
Balance, July 31, 2019 $ 1,411
$ —
$ 1,411
Fair value adjustments included in general and administrative expenses 257
—
257
Acquisitions and settlements, net —
35,100
35,100
Balance, October 31, 2019 $ 1,668
$ 35,100
$ 36,768

(dollar amounts in thousands except share and per share data or as otherwise noted) 14

Cantel Medical Corp. 2021 First Quarter Form 10-Q


	July 31, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money markets	$	106	$	0	$	0	$	106
Total assets	$	106	$	0	$	0	$	106

Accrued expenses:
Interest rate swap	$	0	$	5,462	$	0	$	5,462

Other long-term liabilities:
Interest rate swap	0		15,694		0		15,694
Total liabilities	$	0	$	21,156	$	0	$	21,156

Disclosure of Fair Value of Financial Instruments

At October 31, ~~2019~~2020 and July 31, ~~2019,~~2020, the carrying amounts for cash and cash equivalents (excluding money markets), accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. ~~At October 31, 2019 and July 31, 2019, the carrying value of our outstanding borrowings under our credit facility approximated~~

We estimate the fair value of ~~these obligations~~our convertible debt carried at face value less unamortized discount and issuance costs on a quarterly basis for disclosure purposes. The estimated fair value of our convertible debt is determined by Level 2 inputs and is based on observable market data including prices for similar instruments. At October 31, 2020 and July 31, 2020, the fair value of our convertible debt was $226,066 and $224,330, respectively.

10. Intangibles and Goodwill

Our intangible assets consist of the following:


	October 31, 2020						July 31, 2020
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible assets with finite lives:
Customer relationships	$	373,183	$	(86,328)	$	286,855	$	373,018	$	(79,386)	$	293,632
Technology	91,706		(32,288)		59,418		91,613		(30,552)		61,061
Brand names	8,738		(4,187)		4,551		8,721		(4,002)		4,719
Non-compete agreements	2,850		(1,866)		984		2,850		(1,818)		1,032
Patents and other registrations	2,696		(1,278)		1,418		2,637		(1,160)		1,477
	479,173		(125,947)		353,226		478,839		(116,918)		361,921
Trademarks, trade names and brand names	118,111		—		118,111		118,111		—		118,111
Total intangible assets	$	597,284	$	(125,947)	$	471,337	$	596,950	$	(116,918)	$	480,032

Amortization expense related to intangible assets was $8,918 and $6,029 for the three months ended October 31, 2020 and 2019, respectively. We expect to recognize an additional $26,434 of amortization expense related to intangible assets for the remainder of fiscal 2021, and thereafter $34,912, $33,641, $32,742, $29,985 and $28,260 of amortization expense for fiscal years 2022, 2023, 2024, 2025 and 2026, respectively.

Goodwill changed during the three months ended October 31, 2020 as ~~the respective borrowing rates reflect prevailing market interest rates.~~follows:


	Medical		Life Sciences		Dental		Dialysis		Total
Balance, July 31, 2020	$	185,922	$	64,394	$	401,723	$	8,133	$	660,172

Dispositions	0		(56)		0		0		(56)
Foreign currency translation	267		19		19		0		305
Balance, October 31, 2020	$	186,189	$	64,357	$	401,742	$	8,133	$	660,421

(dollar amounts in thousands except share and per share data or as otherwise noted) 15

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q


~~10.~~	~~Intangibles and Goodwill~~

~~Our intangible assets consist of the following:~~

October 31, 2019 July 31, 2019
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Intangible assets with finite lives:

Customer relationships $ 372,059
$ (58,109 ) $ 313,950
$ 146,204
$ (54,866 ) $ 91,338
Technology 92,439
(25,669 ) 66,770
60,032
(24,081 ) 35,951
Brand names 8,619
(3,458 ) 5,161
8,361
(3,256 ) 5,105
Non-compete agreements 2,850
(1,671 ) 1,179
2,880
(1,653 ) 1,227
Patents and other registrations 2,407
(701 ) 1,706
2,866
(1,252 ) 1,614
478,374
(89,608 ) 388,766
220,343
(85,108 ) 135,235
Trademarks and tradenames 118,111
—
118,111
6,278
—
6,278
Total intangible assets $ 596,485
$ (89,608 ) $ 506,877
$ 226,621
$ (85,108 ) $ 141,513

Amortization expense related to intangible assets was $6,029 and $6,041 for the three months ended October 31, 2019 and 2018, respectively. We expect to recognize an additional $26,117 of amortization expense related to intangible assets for the remainder of fiscal 2020, and thereafter $34,708, $34,336, $33,303, $32,435 and $29,205 of amortization expense for fiscal years 2021, 2022, 2023, 2024 and 2025, respectively.

~~Goodwill changed during the three months ended October 31, 2019 as follows:~~

Medical Life Sciences Dental Dialysis Total
Balance, July 31, 2019 $ 180,197
$ 64,481
$ 125,298
$ 8,133
$ 378,109
Acquisitions —
—
276,483
—
276,483
Foreign currency translation 1,652
39
(888 ) —
803
Balance, October 31, 2019 $ 181,849
$ 64,520
$ 400,893
$ 8,133
$ 655,395

11. Financing Arrangements

~~Our long-term~~Long-term debt ~~consists of the following:~~


	October 31, 2020		July 31, 2020
Revolving credit loans outstanding	$	324,000	$	399,000
Tranche A term loans outstanding	546,375		546,375
Unamortized debt issuance costs	(10,483)		(11,166)
Total long-term debt, net of unamortized debt issuance costs	859,892		934,209
Current portion of long-term debt	(14,750)		(7,375)
Long-term debt, net of unamortized debt issuance costs and excluding current portion	$	845,142	$	926,834

October 31, 2019 July 31, 2019
Revolving credit loans outstanding $ 323,500
$ 43,000
Tranche A term loans outstanding 587,625
190,000
Unamortized debt issuance costs (10,870 ) (2,149 )
Total long-term debt, net of unamortized debt issuance costs 900,255
230,851
Current portion of long-term debt (24,500 ) (10,000 )
Long-term debt, net of unamortized debt issuance costs and excluding current portion $ 875,755
$ 220,851

First Amendment to Credit Agreement

On September 6, 2019, we entered into a First Amendment (the ~~“Amendment”~~“First Amendment”), amending ~~the 2018~~our Fourth Amended and Restated Credit ~~Agreement, and as amended by the Amendment, the (“Amended Credit Agreement”) dated as of June 28, 2018.~~Agreement. The First Amendment added a $400,000 delayed draw term loan facility (the “Delayed Draw Facility”), in addition to the existing tranche A term loan and existing revolving credit facility. The Delayed Draw Facility and a portion of the revolving credit facility ~~was~~were used to finance a portion of the cash consideration for our acquisition of Hu-Friedy. The remaining proceeds were used to refinance certain existing indebtedness of Cantel and Hu-Friedy, and to pay the fees and expenses incurred in connection therewith, as well as for working capital, capital expenditures and other ~~lawful~~ corporate purposes. ~~Pursuant~~

Second Amendment to Credit Agreement

On May 11, 2020, we entered into a Second Amendment (the “Second Amendment”) further amending the Fourth Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”). The Second Amendment’s principal changes include (i) increasing the maximum consolidated leverage ratio covenant for the fiscal quarter ended April 30, 2020 from 4.25x to 5.25x, (ii) suspending such financial maintenance covenant until October 31, 2021, (iii) maintaining a minimum liquidity (as defined in the Amended Credit Agreement) of at least $50,000 during the fiscal quarter ended July 31, 2020 and $75,000 during each of the following fiscal quarters ending with the fiscal quarter ending July 31, 2021, (iv) requiring us to maintain minimum consolidated EBITDA (as defined in the Amended Credit Agreement) for each period of four fiscal quarters ending on the last day of the fiscal quarters ended July 31, 2020 through July 31, 2021 and (v) limiting our ability to pay dividends and repurchase shares of our common stock during the period the consolidated leverage ratio and consolidated interest coverage ratio are suspended.

The interest rates have been amended so that loans under the Amended Credit Agreement, ~~subject to~~until the ~~satisfaction~~third business day following the date on which a compliance certificate is delivered for the fiscal quarter ending October 31, 2021, bear interest at 2.00% above the base rate for base rate borrowings, or at 3.00% above LIBOR for LIBOR-based borrowings, and also provides for fees on the unused portion of ~~certain conditions precedent, including the consent of the lenders, the Company may from time to time increase its borrowing capacity under~~ the revolving credit facility ~~by, or incur incremental term loans in, an aggregate amount not to exceed the sum~~at a rate of (i) the greater of (x) $300,000 or (y) an amount equal to two times the our consolidated EBITDA, calculated on a pro forma basis, plus (ii) the aggregate principal amount of voluntary prepayments of the revolving loans and term loans.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 16~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

~~At October 31, 2019, we had $587,625 of term loan A~~0.50%. Thereafter, borrowings outstanding and $323,500 revolver borrowings under the Amended Credit Agreement. The tranche A term loans are subject to principal amortization, with $19,500 due and payable in fiscal 2020, $29,500 due and payable in each of fiscal 2021, 2022, 2023, and 2024, with the remaining $452,500 due and payable at maturity on September 6, 2024. During the three months ended October 31, 2019, we made principal payments of $2,375.

~~Borrowings under the Amended Credit Agreement~~ bear interest at rates ranging from 0.00% to ~~1.25%~~1.75% above ~~prime~~base rate for base rate borrowings, or at rates ranging from 1.00% to ~~2.25%~~2.75% above ~~the London Interbank Offered Rate (“LIBOR”),~~LIBOR for LIBOR-based borrowings, depending ~~upon~~on our ~~“Consolidated Leverage Ratio,”~~consolidated leverage ratio, which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. At October 31, 2019, the lender’s base rate was 4.75% and the LIBOR rate was 2.03%. The margins applicable to our outstanding borrowings were 1.25% above the lender’s base rate or 2.25% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at October 31, 2019. The Amended Credit Agreement also provides for fees on the unused portion of ~~our~~the revolving credit facility at rates ranging from 0.20% to ~~0.40%~~0.50%, depending ~~upon~~on our ~~Consolidated Leverage Ratio, which was 0.40% at~~consolidated leverage ratio. Interest rates have also been amended to include a 1.00% floor on all borrowings. As of October 31, ~~2019. At October 31, 2019,~~2020, the average interest rate on our outstanding borrowings was approximately ~~4.28%~~4.00%.

The Amended Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and its U.S.-based subsidiaries, (ii) a pledge by ~~each Loan Party~~Cantel and its U.S.-based subsidiaries that guarantees the obligations under the Amended Credit Agreement of all of the outstanding shares of its U.S.-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries. ~~We are~~As of October 31, 2020, we were in compliance with all financial covenants under the Amended Credit Agreement.

During the three months ended October 31, 2020, we were not required to make loan A principal payments. The tranche A term loan is subject to principal amortization, with $7,375 due and payable in the fourth quarter of fiscal 2021, $29,500 due and payable in each of fiscal 2022, 2023 and 2024, with the remaining $450,500 due and payable at maturity on September 6, 2024. During the three months ended October 31, 2019, we made principal payments of $2,375. During the three months ended

(dollar amounts in thousands except share and per share data or as otherwise noted) 16

Cantel Medical Corp. 2021 First Quarter Form 10-Q

October 31, 2020, we repaid $75,000 of the revolving credit facility under the Amended Credit Agreement. In November 2020, we repaid an additional $50,000 of borrowings under our revolving credit facility.

Convertible Debt


	October 31, 2020		July 31, 2020
Convertible debt principal amount	$	168,000	$	168,000
Unamortized original issue discount	(37,282)		(38,919)
Unamortized debt issuance costs	(4,101)		(4,246)
Total convertible debt, net of unamortized discount and debt issuance costs	$	126,617	$	124,835

On May 15, 2020, we issued $168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement, including pursuant to the grant to the initial purchasers of $140,000 aggregate principal amount of the Notes, an option to purchase up to an additional $28,000 aggregate principal amount of Notes. The private placement offering closed on May 15, 2020. The initial conversion price is $41.51 per share of common stock (based on an initial conversion rate of 24.0912 shares of common stock per $1,000 principal amount of Notes) and will be subject to adjustment if certain events occur. The net proceeds from this offering were approximately $162,977 (including net proceeds relating to the issuance of the additional Notes), after deducting the initial purchasers’ discount and before the cost of offering expenses. As required by the Amended Credit Agreement, we were required to apply at least 50% of the amount by which the net proceeds exceed $100,000, or $31,500, to the repayment of debt under our credit facilities in fiscal 2020.

Due to the cash conversion feature included in the Notes, the carrying value of the Notes was allocated between a liability and an equity component. Upon issuance, the liability component of the convertible debt was $123,346, net of a $40,289 discount and net of debt issuance costs of $4,365. The initial carrying value of the equity component recorded in additional paid-in-capital was $29,184, net of a $10,072 deferred tax liability, $1,377 of debt issuance costs and a $344 deferred tax asset. The $40,289 debt discount and $4,365 of debt issuance costs are amortized as non-cash interest expense over the contractual term of the convertible debt using the effective interest method, at a rate of 9.36%. Cash interest for the three months ended October 31, 2020 was $1,365.

COVID-19

As further described in Note 1 “Basis of Presentation,” the magnitude and depth of disruption to our business resulting from the COVID-19 pandemic continue to remain highly uncertain. However, based on our current estimates, we do not anticipate these disruptions will impact our ability to maintain compliance with our debt covenants through the end of fiscal 2021.

12. Commitments and Contingencies

~~Contingent Consideration and Assumed Contingent Liability~~

At October 31, 2019, $35,100 was recorded associated with the Hu-Friedy acquisition, which is for the estimated fair value of contingent consideration arrangements that are payable upon the achievement of certain commercial milestones through March 31, 2021. Additionally, $1,668 was recorded associated with the Aexis acquisition, which is for the estimated fair value of contingent consideration payable upon the achievement of certain purchase order targets through March 21, 2020. See Note 9, “Fair Value Measurements.”

Legal ~~Matters~~Proceedings

In the normal course of business, we are subject to pending and threatened legal actions. It is our policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount of anticipated exposure can be reasonably estimated. We do not believe that any of these pending claims or legal actions will have a material effect on our business, financial condition, results of operations or cash flows.

Restructuring Matters

In connection with our response to COVID-19, our ongoing efforts to streamline and consolidate our global operations and integrate the Hu-Friedy acquisition with our legacy Dental business, we have incurred approximately $5,592 and $5,428 of restructuring-related charges in each of the three months periods ended October 31, 2020, and 2019, respectively. The majority of these charges consisted of onetime benefit-related costs (severance, accelerated stock-based compensation costs and other benefit costs) associated with actions taken to reduce headcount. At October 31, 2020 and July 31, 2020, $8,468 and $7,887 was included in compensation payable on our condensed consolidated balance sheet. For the three months ended October 31, 2020, we made $5,011 of severance-related cash payments. The remaining unpaid severance at October 31, 2020, will be paid out ratably during the remainder of fiscal 2021 and into fiscal 2022 in accordance with our employee separation policy.

(dollar amounts in thousands except share and per share data or as otherwise noted) 17

Cantel Medical Corp. 2021 First Quarter Form 10-Q

13. Accumulated Other Comprehensive Loss

The components and changes in accumulated other comprehensive loss follow:


	Three Months Ended October 31,
		2020		2019
Beginning balance		$	(27,599)	$	(22,197)
Foreign currency translation		502		3,932
Interest rate swap, net of taxes(1)(2)		1,848		1,245
Ending balance		$	(25,249)	$	(17,020)

(1)Includes tax effect of $602 and $375 for the three months ended October 31, 2020 and 2019, respectively.

(2)For the three months ended October 31, 2020, we recognized $1,413 in interest expense, net relating to the non-cash amortization of the net loss on terminated swaps reported in accumulated other comprehensive loss.

14. Earnings Per Common Share

Basic ~~EPS~~earnings per common share (“EPS”) is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. As we expect to settle the principal amount of our outstanding convertible debt in cash and any excess in shares of our common stock, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted earnings per share, if applicable. The conversion spread will have a dilutive impact on diluted earnings per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $41.51 per share. Our convertible debt is further described in Note 11, “Financing Arrangements.”

We include participating securities (nonvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of nonvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 17~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

The following table sets forth the computation of basic and diluted EPS available to stockholders of common stock (excluding participating securities):


	Three Months Ended October 31,
		2020		2019
Numerator for basic and diluted earnings per share:
Net income		$	24,464	$	5,767
Less income allocated to participating securities		0		(2)
Net income available to common shareholders		$	24,464	$	5,765
Denominator for basic and diluted earnings per share, adjusted for participating securities:
Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock		42,184,486		42,022,383
Dilutive effect of stock awards using the treasury stock method and the average market price for the year		154,352		146,422
Dilutive effect of convertible debt outstanding		619,640		0
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock		42,958,478		42,168,805
Earnings per share attributable to common stock:
Basic earnings per share		$	0.58	$	0.14
Diluted earnings per share		$	0.57	$	0.14
Stock awards excluded because their inclusion would have been anti-dilutive		0		0

Three Months Ended October 31,
2019 2018
Numerator for basic and diluted earnings per share:

Net income $ 5,767
$ 19,242
Less income allocated to participating securities (2 ) (33 )
Net income available to common shareholders $ 5,765
$ 19,209
Denominator for basic and diluted earnings per share, adjusted for participating securities:

Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock 42,022,383
41,640,745
Dilutive effect of stock awards using the treasury stock method and the average market price for the year 146,422
65,028
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock 42,168,805
41,705,773
Earnings per share attributable to common stock:

Basic earnings per share $ 0.14
$ 0.46
Diluted earnings per share $ 0.14
$ 0.46
Stock options excluded because their inclusion would have been anti-dilutive —
—

(dollar amounts in thousands except share and per share data or as otherwise noted) 18

Cantel Medical Corp. 2021 First Quarter Form 10-Q

A reconciliation of weighted average number of shares and common stock equivalents attributable to common stock, as determined above, to our total weighted average number of shares and common stock equivalents, including participating securities, is set forth in the following table:


	Three Months Ended October 31,
		2020	2019
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock		42,958,478	42,168,805
Participating securities		0	16,857
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities		42,958,478	42,185,662

Three Months Ended October 31,
2019 2018
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock 42,168,805
41,705,773
Participating securities 16,857
69,452
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities 42,185,662
41,775,225

~~14. Accumulated Other Comprehensive Loss~~

~~The components and changes in accumulated other comprehensive loss follow:~~

Three Months Ended October 31,
2019 2018
Beginning balance $ (22,197 ) $ (11,456 )
Foreign currency translation 3,932
(5,223 )
Interest rate swap, net of taxes⁽¹⁾
1,245
—
Ending balance $ (17,020 ) $ (16,679 )


~~(1)~~	~~Includes tax effect of $375 for the three months ended October 31, 2019.~~

15. Reportable Segments

In accordance with ASC Topic 280, “Segment Reporting,” (“ASC 280”), we have determined our reportable business segments based upon an assessment of product types, organizational structure, customers and internally prepared financial statements. The primary factors used by us in analyzing segment performance are net sales and income from operations.

In the first quarter of fiscal 2020 and as a result of the Hu-Friedy acquisition, we moved the financial reporting and management of our industrial biological and chemical indicator business to our Dental segment from our Life Sciences segment. Prior year segment disclosures have been recast to conform to the current year presentation.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 18~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

Our reportable segments are as follows:

Medical: designs, develops, manufactures, sells and installs a comprehensive offering of products and services comprising a complete circle of infection prevention solutions. Our products include endoscope reprocessing and endoscopy procedure products.

Life Sciences: designs, develops, manufactures, sells, and installs water purification systems for medical, pharmaceutical and other bacteria controlled applications. We also provide filtration/separation and disinfectant technologies to the medical and life science markets through a worldwide distributor network. Two customers collectively accounted for approximately ~~45.7%~~48.3% and ~~43.9%~~45.7% of our Life Sciences segment net sales for the three months ended October 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Dental: designs, manufactures, sells, supplies and distributes a broad selection of ~~infection prevention healthcare products, the majority of which are single-use~~ products used by the global dental ~~practitioners. We are also~~profession comprising a ~~leading global manufacturer~~complete circle of protection. Our products include hand and powered dental instruments, infection control products, personal protective equipment (PPE) and ~~instrument reprocessing workflow systems serving~~water quality products for the dental ~~industry.~~suite. Three customers collectively accounted for approximately ~~43.5%~~41.2% and ~~50.2%~~43.5% of our Dental segment net sales for the three months ended October 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Dialysis: designs, develops, manufactures, sells and services reprocessing systems and sterilants for dialyzers (a device serving as an artificial kidney), as well as dialysate concentrates and supplies utilized for renal dialysis. Three customers accounted for approximately ~~46.1%~~50.8% and ~~41.4%~~46.1% of our Dialysis segment net sales for the three months ended October 31, ~~2019~~2020 and ~~2018,~~2019, respectively. These customers include one of the top two customers noted above under our Life Sciences segment.

~~None of our customers~~No customer accounted for 10% or more of our consolidated net sales for the three months ended October 31, ~~2019~~2020 and ~~2018.~~2019.

Information as to reportable segments is summarized ~~below:~~below


	Three Months Ended October 31,
Net sales		2020		2019
Medical		$	132,319	$	133,353
Life Sciences		45,568		49,141
Dental		111,006		67,243
Dialysis		8,136		7,509
Total net sales		$	297,029	$	257,246

Three Months Ended October 31,
Net sales 2019 2018
Medical $ 133,353
$ 127,552
Life Sciences 49,141
51,842
Dental 67,243
38,131
Dialysis 7,509
8,064
Total net sales $ 257,246
$ 225,589

Three Months Ended October 31,
Income from operations 2019 2018
Medical $ 21,119
$ 25,211
Life Sciences 7,135
5,572
Dental 5,004
6,684
Dialysis 1,622
1,384
34,880
38,851
General corporate expenses 20,456
11,173
Total income from operations $ 14,424
$ 27,678

(dollar amounts in thousands except share and per share data or as otherwise noted) 19

Cantel Medical Corp. 2021 First Quarter Form 10-Q


	Three Months Ended October 31,
Income from operations		2020		2019
Medical		$	26,716	$	21,119
Life Sciences		8,075		7,135
Dental		25,307		5,004
Dialysis		2,566		1,622
		62,664		34,880
General corporate expenses(1)		12,312		20,456
Total income from operations		$	50,352	$	14,424

(1)The three months ended October 31, 2019 includes acquisition-related charges incurred in connection with the Hu-Friedy acquisition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand Cantel. The MD&A is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes.

Overview

Cantel is a leading provider of infection prevention products and services in the healthcare market, specializing in the following reportable segments: Medical, Life Sciences, Dental and Dialysis. Most of our equipment, consumables and supplies are used to help prevent the occurrence or spread of infections.

COVID-19

The COVID-19 pandemic continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. The global pandemic has adversely impacted and is likely to further adversely impact our business and markets, including our workforce and operations and the operations of our customers, suppliers, and business partners. Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already created significant negative economic impacts on a global basis.

To date, we have been able to continue our operations with limited disruptions in supply and manufacturing. Although, it is difficult to predict the broad macroeconomic effects that the COVID-19 pandemic will have on industries or individual companies, we have assessed the possible effects and outcomes of the pandemic on, among other things, our supply chain, customers and distributors, discounts and rebates, employee base, product sustainability, research and development efforts, product pipeline and consumer demand. During the second half of fiscal 2020, we implemented several measures to reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These management cost reduction measures included salary reductions, employee furloughs, travel reductions and the deferral of certain operating and capital expenditures.

While we currently expect to see improvement in the remainder of fiscal 2021, the effects of the COVID-19 pandemic remains fluid and continues to evolve differently across various geographies. We believe it is likely to continue to experience unexpected impacts on our business based on some of the resurgence of the virus that is now occurring in cities across the globe. See “Results of Operations” for a more detailed discussion.

(dollar amounts in thousands except share and per share data or as otherwise noted) 1920

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

First Quarter 2020 Summary (on a comparative basis)

~~A summary of~~Key GAAP financial results for the three months ended October 31, ~~2019~~2020 were as follows:

• ~~compared with~~Net sales increased by 15.5% to $297,029 from $257,246,

•Net income increased by 324.2% to $24,464 from $5,767, and

•Diluted earnings per share increased by 307.1% to $0.57 from $0.14

Key Non-GAAP financial results for the three months ended October 31, ~~2018~~2020 were as follows:

• ~~follows:~~

~~Net sales increased by 14.0% to $257,246 from $225,589, with organic~~Organic net sales ~~growth of 4.8%~~

~~Net income~~ decreased by ~~70.0% to $5,767 from $19,242~~1.8%


•	~~Diluted earnings per share decreased by 70.3% to $0.14 from $0.46~~

Non-GAAP net income increased by ~~5.1%~~41.3% to ~~$27,219~~$38,474 from ~~$25,891~~$27,219,

•Non-GAAP diluted earnings per share increased by ~~4.8%~~38.5% to $0.90 from $0.65, and

•Adjusted EBITDAS increased by 48.6% to $76,257 from ~~$0.62~~$51,306

~~See~~ Please see a description of our Non-GAAP Financial Measures below.

~~Reportable Segment Changes~~

~~Acquisitions~~

On October 1, 2019, we purchased all of the issued and outstanding membership interests of Hu-Friedy Mfg. Co. LLC (“Hu-Friedy), for a total consideration (net of cash acquired), excluding acquisition-related costs, of $718,933, consisting of $658,933 of cash and $60,000 of stock consideration, plus contingent consideration, payable in cash, ranging from zero to a maximum of $50,000, which is payable upon the achievement of certain commercial milestones through March 31, 2021. Hu-Friedy is a leading global manufacturer of instruments and instrument reprocessing systems serving the dental industry, and is included in our Dental segment.

Results of Operations

The following tables give information as to the percentages of net sales represented by selected items reflected in our condensed consolidated statements of income.

Three Months Ended October 31, Percentage Change
Statement of Income Data: 2019 2018
Net sales $ 257,246
100.0 % $ 225,589
100.0 % 14.0 %
Cost of sales 141,377
55.0 % 120,340
53.3 % 17.5 %
Gross profit 115,869
45.0 % 105,249
46.7 % 10.1 %

Selling 38,411
14.9 % 33,958
15.1 % 13.1 %
General and administrative 55,287
21.5 % 36,535
16.2 % 51.3 %
Research and development 7,747
3.0 % 7,078
3.1 % 9.5 %
Total operating expenses 101,445
39.4 % 77,571
34.4 % 30.8 %

Operating income 14,424
5.6 % 27,678
12.3 % (47.9 )%

Interest expense, net 5,719
2.2 % 2,026
0.9 % 182.3 %
Other income, net —
— % —
— % — %
Income before income taxes 8,705
3.4 % 25,652
11.4 % (66.1 )%
Income taxes 2,938
1.2 % 6,410
2.9 % (54.2 )%
Net income $ 5,767
2.2 % $ 19,242
8.5 % (70.0 )%


	Three Months Ended October 31,								Percentage Change
Statement of Income Data:	2020				2019
Net sales	$	297,029	100.0	%	$	257,246	100.0	%	15.5	%
Cost of sales	149,663		50.4	%	141,377		55.0	%	5.9	%
Gross profit	147,366		49.6	%	115,869		45.0	%	27.2	%

Selling	40,063		13.5	%	38,411		14.9	%	4.3	%
General and administrative	49,378		16.6	%	55,287		21.5	%	(10.7)	%
Research and development	7,573		2.5	%	7,747		3.0	%	(2.2)	%
Total operating expenses	97,014		32.6	%	101,445		39.4	%	(4.4)	%

Income from operations	50,352		17.0	%	14,424		5.6	%	249.1	%

Interest expense, net	16,293		5.5	%	5,719		2.2	%	184.9	%

Income before income taxes	34,059		11.5	%	8,705		3.4	%	291.3	%
Income taxes	9,595		3.3	%	2,938		1.2	%	226.6	%
Net income	$	24,464	8.2	%	$	5,767	2.2	%	324.2	%

(dollar amounts in thousands except share and per share data or as otherwise noted) 2021

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

The following table gives information as to the net sales by reportable segment and geography, as well as the related percentage of such net sales to the total net ~~sales.~~sales, for each of our reportable segments.


	Three Months Ended October 31,
Net sales by segment		2020			2019
Medical			$	132,319	44.5	%	$	133,353	51.8	%
Life Sciences			45,568		15.3	%	49,141		19.1	%
Dental			111,006		37.4	%	67,243		26.1	%
Dialysis			8,136		2.8	%	7,509		3.0	%
Total net sales			$	297,029	100.0	%	$	257,246	100.0	%
Net sales by geography
United States			$	215,087	72.4	%	$	190,084	73.9	%
International			81,942		27.6	%	67,162		26.1	%
Total net sales			$	297,029	100.0	%	$	257,246	100.0	%

Three Months Ended October 31,
Net sales by segment 2019 2018
Medical $ 133,353
51.8 % $ 127,552
56.5 %
Life Sciences 49,141
19.1 % 51,842
23.0 %
Dental 67,243
26.1 % 38,131
16.9 %
Dialysis 7,509
3.0 % 8,064
3.6 %
Total net sales $ 257,246
100.0 % $ 225,589
100.0 %
Net sales by geography

United States $ 190,084
73.9 % $ 168,938
74.9 %
International 67,162
26.1 % 56,651
25.1 %
Total net sales $ 257,246
100.0 % $ 225,589
100.0 %

The following table gives information as to the amount of income from operations, as well as income from operations as a percentage of net sales, for each of our reportable segments.

Three Months Ended October 31,
Income from operations by segment 2019 2018
Medical $ 21,119
15.8 % $ 25,211
19.8 %
Life Sciences 7,135
14.5 % 5,572
10.7 %
Dental 5,004
7.4 % 6,684
17.5 %
Dialysis 1,622
21.6 % 1,384
17.2 %
Income from operations by segment 34,880
13.6 % 38,851
17.2 %
General corporate expenses 20,456
8.0 % 11,173
4.9 %
Income from operations $ 14,424
5.6 % $ 27,678
12.3 %


	Three Months Ended October 31,
Income from operations		2020			2019
Medical			$	26,716	20.2	%	$	21,119	15.8	%
Life Sciences			8,075		17.7	%	7,135		14.5	%
Dental			25,307		22.8	%	5,004		7.4	%
Dialysis			2,566		31.5	%	1,622		21.6	%
			62,664		21.1	%	34,880		13.6	%
General corporate expenses			12,312		4.1	%	20,456		8.0	%
Total income from operations			$	50,352	17.0	%	$	14,424	5.6	%

Net Sales

Total net sales increased by ~~$31,657~~$39,783 or ~~14.0%~~15.5%, to $297,029 for the three months ended October 31, 2020 from $257,246 for the three months ended October 31, 2019, ~~from $225,589~~which consisted of an increase of 16.5% in net sales due to acquisitions and an increase of 0.8% due to foreign currency translation, partially offset by a decrease of 1.8% in organic sales. International net sales increased by $14,780 or 22.0%, to $81,942 for the three months ended October 31, 2018, which consisted of an increase of 4.8% in organic sales, an increase of 9.9% in net sales due to acquisitions and a decrease of 0.7% due to foreign currency translation. International net sales increased by $10,511 or 18.6%, to2020 from $67,162 for the three months ended October 31, ~~2019 from $56,651 for the three months ended October 31, 2018.~~2019. The ~~18.6%~~22.0% increase in international net sales consisted of ~~10.2%~~10.1% increase in net sales due to acquisition and a 9.2% increase in organic sales ~~growth, a 11.1%~~and an increase ~~due to acquisitions (offset by dispositions), and a decrease~~ of 2.7% due to foreign currency ~~translation, resulting from the strengthening of the U.S. dollar.~~translation.

Medical. Net sales ~~increased~~decreased by ~~$5,801~~$1,034 or ~~4.5%~~0.8%, for the three months ended October 31, ~~2019~~2020 compared with the three months ended October 31, ~~2018,~~2019, which consisted of ~~5.7% organic sales growth and~~ a decrease of ~~1.2%~~2.2% in organic sales offset by an increase of 1.4% due to foreign currency translation. The ~~increase~~decrease in organic net sales was primarily driven by ~~increased~~the delayed timing of capital equipment sales ~~related~~due to ~~service~~the COVID-19 pandemic. Although U.S. endoscopy procedure volumes have declined compared to the prior year, procedural product sales have outperformed the underlying volume declines across all regions. While we expect to see improvement during the remainder of fiscal 2021 as surgical and ~~chemistries,~~elective procedure volumes return to pre-COVID levels, we could experience variable impacts on our Medical business if a resurgence of the virus emerges and ~~to a lesser extent, our procedure room products and consumables. The sales growth was driven by international sales increases, most notably in Canada, and our domestic service business.~~elective procedures were postponed again.

Life Sciences. Net sales decreased by ~~$2,701~~$3,573 or ~~5.2%~~7.3% for the three months ended October 31, ~~2019~~2020 compared with the three months ended October 31, ~~2018,~~2019, which consisted of a ~~4.0%~~7.3% decrease ~~due to divestitures, 1.1%~~in organic ~~sales decrease and a decrease of 0.1% due to foreign currency translation.~~sales. The decrease in net sales was primarily due ~~the divestiture of our high purity water business~~to lower demand for portable reverse osmosis units resulting from unprecedented demand shift in ~~Canada, which occurred~~prior fiscal year and delayed capital projects in the ~~second quarter of fiscal 2019, and the continued softness in demand for capital equipment, primarily in the medical~~hemodialysis water business. ~~We expect this softness in demand to begin to stabilize in~~As the ~~latter part~~majority of ~~fiscal 2020. For a more detailed discussion on the competitive threat to our hemodialysis water business, see Part I, Item 1A, Risk Factors, in our 2019 Annual Report on Form 10-K.~~

~~Dental.~~ Net sales increased by $29,112 or 76.3%, for the three months ended October 31, 2019 compared with the three months ended October 31, 2018, which consisted of a 64.3% increase due to acquisitions and a 12.0% organic sales increase. The Hu-Friedy and Omnia acquisitions contributed $18,725 and $5,777 of net sales, respectively. The inventory adjustments within

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 21~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

our distributor network in fiscal 2019, which negatively impacted our 2019 net sales, did not reoccur in 2020. As a result, our net sales have returned to normalized organic growth during the three months ended October 31, 2019.

~~Dialysis.~~Net sales decreased by $555 or 6.9%, for the three months ended October 31, 2019 compared with the three months ended October 31, 2018. The decrease was primarily due to the decrease in domestic sales as our customer base continues to shift to dry acid, further eroding our liquid concentrate business.

~~Gross Profit~~

Gross profit increased by $10,620 or 10.1%, to $115,869 for the three months ended October 31, 2019 from $105,249 for the three months ended October 31, 2018. Gross profit as a percentage of net sales for the three months ended October 31, 2019 and 2018 was 45.0% and 46.7%, respectively. The decrease in gross profit as a percentage of net sales was due to the amortization of the step up in inventory acquired in the Hu-Friedy acquisition, and to a lesser extent, increased labor costs resulting from livable wage increases taken in the latter part of fiscal 2019, partially offset by favorable mix associated with the Hu-Friedy products.

~~Operating Expenses~~

Operating expenses increased $23,874 or 30.8% to $101,445 for the three months ended October 31, 2019 from $77,571 for the three months ended October 31, 2018. Operating expenses as a percentage of net sales for the three months ended October 31, 2019 and 2018 was 39.4% and 34.4%, respectively.

Selling expenses increased by $4,453 or 13.1%, to $38,411 for the three months ended October 31, 2019 from $33,958 for the three months ended October 31, 2018. The increase was primarily due to our recent acquisitions. Selling expenses as a percentage of net sales were 14.9% and 15.1% for the three months ended October 31, 2019 and 2018, respectively.

General and administrative expenses increased by $18,752 or 51.3%, to $55,287 for the three months ended October 31, 2019 from $36,535 for the three months ended October 31, 2018. The increase was primarily due to our recent acquisitions, certain transaction and integration-related costs, restructuring-related costs, higher amortization expense and elevated depreciation expense related to our new ERP platform and our new Medical headquarters in Minnesota. General and administrative expenses as a percentage of net sales were 21.5% and 16.2% for the three months ended October 31, 2019 and 2018, respectively.

Research and development expenses (which include continuing engineering costs) increased by $669 or 9.5%, to $7,747 for the three months ended October 31, 2019 from $7,078 for the three months ended October 31, 2018. The increase was due primarily to research and development projects in our Life Sciences ~~segment. Research and development expenses as a percentage of net sales were 3.0% and 3.1% for~~business supports non-elective medical treatment, the ~~three months ended October 31, 2019 and 2018, respectively.~~

~~Income from Operations~~

~~Medical.~~ ~~Income from operations decreased by $4,092 or 16.2%, for the three months ended October 31, 2019 compared~~COVID-19 pandemic has not materially impacted this business, with the three months ended October 31, 2018. The decrease was primarily due to restructuring-related charges, elevated depreciation expense associated with our new ERP platform and our new headquarters facility in Minnesota, partially offset by the decrease in certain operating expenses, due toexception of the timing of ~~marketing-related spend~~portable reverse osmosis units and ~~to a lesser extent, lower sales commissions.~~delayed capital projects at our customers. If the pandemic continues, it could further impact capital equipment volume and future service revenues at our customers.

~~Life Sciences.~~ Income from operations increased by $1,563 or 28.1%, for the three months ended October 31, 2019 compared with the three months ended October 31, 2018. The increase was primarily due to a reduction of this segment’s overall expense base as a result of the divestiture of our high purity water business in Canada, partially offset by lower net sales.

~~Dental.~~
Income from operations decreased by $1,680 or 25.1%, for the three months ended October 31, 2019 compared with the three months ended October 31, 2018. The decrease was primarily due to certain acquisition and integration-related costs, inventory step-up amortization as a result of the Hu-Friedy acquisition, higher depreciation and amortization expense as a result of our recent acquisitions, partially offset by incremental income from operations related to these recent acquisitions.

~~Dialysis.~~ Income from operations increased by $238 or 17.2%, for the three months ended October 31, 2019 compared with the three months ended October 31, 2018. The increase was primarily due gross margin improvements resulting from cost saving initiatives, partially offset by the decrease in net sales.

(dollar amounts in thousands except share and per share data or as otherwise noted) 22

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Dental. Net sales increased by $43,763 or 65.1%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019, which consisted of a 63.3% increase due to acquisitions and 1.8% organic sales increase. The Hu-Friedy acquisition contributed $42,081 of incremental net sales in the quarter. Although we experienced an organic sales increase during the current period due to increased PPE sales, the COVID-19 pandemic has significantly impacted the Dental segment due to reduced dental procedures during the three months ended October 31, 2020. While we expect to see improvement during the remainder of fiscal 2021 as routine and elective dental procedure volumes return to pre-COVID levels, we could experience variable impacts on our Dental business if a resurgence of the virus emerges and such procedures were postponed again.

Dialysis.Net sales increased by $627 or 8.3%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019.

Gross Profit

Gross profit increased by $31,497 or 27.2%, to $147,366 for the three months ended October 31, 2020 from $115,869 for the three months ended October 31, 2019. Gross profit as a percentage of net sales for the three months ended October 31, 2020 and 2019 was 49.6% and 45.0%, respectively. The increase in gross profit for the three month period primarily related to certain actions taken by management to reduce variable costs in response to lower sales volume due to the COVID-19 pandemic, partially offset by the decreases in net sales in the Medical segment due to the COVID-19 pandemic and the related excess capacity costs and changes in product mix. The increase in gross profit as a percentage of net sales was driven by a lower cost base as a result of measures taken as a result of the COVID-19 pandemic and favorable leverage of our fixed manufacturing costs, primarily in our Medical and Dental segments.

Operating Expenses

Operating expenses decreased by $4,431 or 4.4% to $97,014 for the three months ended October 31, 2020 from $101,445 for the three months ended October 31, 2019, primarily resulting from a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic during fiscal 2020. This was partially offset by a full quarter of operating costs related to the Hu-Friedy acquisition. Operating expenses as a percentage of net sales for the three months ended October 31, 2020 and 2019 were 32.6% and 39.4%, respectively.

Selling expenses increased by $1,652 or 4.3%, to $40,063 for the three months ended October 31, 2020 from $38,411 for the three months ended October 31, 2019. The increase was primarily due to the acquired operations of Hu-Friedy for a full fiscal quarter in the current year. Selling expenses as a percentage of net sales were 13.5% and 14.9% for the three months ended October 31, 2020 and 2019, respectively.

General and administrative expenses decreased by $5,909 or 10.7%, to $49,378 for the three months ended October 31, 2020 from $55,287 for the three months ended October 31, 2019. The decrease for the three month period primarily relates to a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic during fiscal 2020. This was partially offset by restructuring-related costs, higher amortization expense and a full quarter of general and administrative expenses related to the Hu-Friedy acquisition. General and administrative expenses as a percentage of net sales were 16.6% and 21.5% for the three months ended October 31, 2020 and 2019, respectively.

Research and development expenses (which include continuing engineering costs) decreased by $174 or 2.2%, to $7,573 for the three months ended October 31, 2020 from $7,747 for the three months ended October 31, 2019. The decrease was primarily a result of a reduction in research and development expense in our Medical segment. Research and development expenses as a percentage of net sales were 2.5% and 3.0% for the three months ended October 31, 2020 and 2019, respectively.

Income from Operations

Medical. Income from operations increased by $5,597 or 26.5%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019. Although net sales declined slightly due to the impact of the COVID-19 pandemic noted above, income from operations improved due to the decrease in certain operating expenses resulting from management cost reduction measures taken in response to the COVID-19 pandemic and a shift towards higher margin products.

Life Sciences. Income from operations increased by $940 or 13.2%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019. Although net sales declined as noted above, income from operations

(dollar amounts in thousands except share and per share data or as otherwise noted) 23

Cantel Medical Corp. 2021 First Quarter Form 10-Q

improved due to the decrease in certain operating expenses resulting from management cost reduction measures taken in response to the COVID-19 pandemic and to a lesser extent, a shift towards higher margin products.

Dental. Income from operations increased by $20,303 or 405.7%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019. The increase was primarily due to inclusion of Hu-Friedy operations (which includes overall higher margin products) for a full quarter in the current fiscal year, cost synergies resulting from the Hu-Friedy integration and the reduction of certain acquisition and integration-related costs and inventory step-up amortization. The three month period was negatively impacted by the COVID-19 pandemic with reduced procedure volumes as noted above and a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic.

Dialysis. Income from operations increased by $944 or 58.2%, for the three months ended October 31, 2020 compared with the three months ended October 31, 2019.

General Corporate Expenses

General corporate expenses relate to unallocated corporate costs primarily related to executive management personnel as well as costs associated with certain facets of our acquisition and integration programs (including fair value adjustments to contingent consideration) and costs of being a publicly traded company. Such expenses ~~increased~~decreased by ~~$9,283~~$8,144 or ~~83.1%~~39.8%, for the three months ended October 31, ~~2019~~2020 from the three months ended October 31, ~~2018. The increase~~2019. This decrease was primarily ~~due to an increase in~~driven by acquisition-related and transaction charges incurred in connection with the Hu-Friedy ~~acquisition.~~acquisition in the prior year period and to a lesser extent, a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic.

Interest Expense, Net

Interest expense, net increased by ~~$3,693~~$10,574 or ~~182.3%~~184.9%, to $16,293 for the three months ended October 31, 2020 from $5,719 for the three months ended October 31, ~~2019 from $2,026 for the three months ended October 31, 2018. These~~2019. The increase resulted from an increase in the average outstanding ~~borrowings due to~~debt, which includes both ~~the~~our term loan and revolver borrowings made to support the funding of ~~our recent acquisitions,~~the Hu-Friedy acquisition and to increase our liquidity. In addition, interest expense has also increased as a ~~lesser extent, higher variable~~result of the May 2020 issuance of convertible debt, which was also done to increase our liquidity in response to the COVID-19 pandemic. Interest expense, net includes non-cash interest ~~rates.~~of $829 and $421 for the three months ended October 31, 2020 and 2019, respectively, related to the amortization of debt issuance costs. Non-cash interest of $1,637 related to the amortization of the discount on the convertible debt was also included in the three months ended October 31, 2020. Non-cash interest of $1,413 related to the amortization of the loss on terminated interest rate swaps was also included in the three months ended October 31, 2020. We expect interest expense to be elevated during fiscal 2021 as a result of a full year of interest expense associated with our convertible debt and the amortization of the loss on terminated interest rate swaps.

Income Taxes

The consolidated effective tax rate ~~increased~~decreased to 28.2% for the three months ended October 31, 2020 from 33.8% for the three months ended October 31, ~~2019 from 25.0% for the three months ended October 31, 2018.~~2019. The ~~increase~~decrease was primarily ~~the result of the excess tax charges related to share-based compensation,~~driven by less permanent taxable items affecting our rate and to a ~~lesser extent, the jurisdictional tax structure of the acquired Hu-Friedy international operations.~~favorable geographic income mix.

Non-GAAP Financial Measures

In evaluating our operating performance, we supplement the reporting of our financial information determined under generally accepted accounting principles in the United States (“GAAP”) with certain non-GAAP financial measures including (i) non-GAAP net income, (ii) non-GAAP earnings per diluted share (“EPS”), (iii) earnings before interest, taxes, depreciation, amortization, loss on disposal of fixed assets, and stock-based compensation expense (“EBITDAS”), (iv) adjusted EBITDAS, (v) net debt and (vi) organic sales. These non-GAAP financial measures are indicators of our performance that are not required by, or presented in accordance with, GAAP. They are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making. We believe that these non-GAAP measures provide meaningful information to assist investors, stockholders and other readers of our consolidated financial statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations. These non-GAAP financial measures are not intended to be, and should not be, considered separately from, or as an alternative to, the most directly comparable GAAP financial measures.

To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect comparability of operating results and the trend of earnings. These adjustments are irregular in timing, may not be indicative of

(dollar amounts in thousands except share and per share data or as otherwise noted) 24

Cantel Medical Corp. 2021 First Quarter Form 10-Q

our past and future performance and are therefore excluded to allow investors to better understand underlying operating trends. The following are examples of the types of adjustments that are excluded: (i) amortization of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges, (iv) certain significant and discrete tax matters and (v) other significant items management deems irregular or non-operating in nature.

Amortization expense of purchased intangible assets is a non-cash expense related to intangibles that were primarily the result of business acquisitions. Our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduce our net income. The removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital, which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth.

Acquisition-related items consist of (i) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions, (ii) due diligence, integration, legal fees and other transaction costs associated with our acquisition program and (iii) acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with our acquisition program, including accounting charges relating to recording acquired inventory and deferred revenue at fair market value, can be significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since these acquisition-related items are irregular and often mask underlying operating performance, we exclude these amounts for purposes of calculating

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 23~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

Restructuring-related and business optimization items consist of severance-related costs associated with work force reductions and other restructuring-related activities. Such costs include (i) salary continuation, (ii) bonus payments, (iii) outplacement services, (iv) medical-related premium costs and (v) accelerated stock-compensation costs. Since these restructuring-related and business optimization items often mask underlying operating performance, we exclude these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

Excess tax benefits and expenses resulting from stock compensation are recorded as an adjustment to income tax expense. The magnitude of the impact of excess tax benefits generated in the future, which may be favorable or unfavorable, are dependent upon our future grants of equity awards, our future share price on the date awards vest in relation to the fair value of awards on grant date and the exercise behavior of our stock award holders. Since these tax ~~benefits~~effects are largely unrelated to our results and unrepresentative of our normal effective tax rate, we excluded their impact on net income and diluted EPS to arrive at our non-GAAP financial measures.

We are required under GAAP to separately account for the liability (debt) and equity (conversion option) components of our convertible debt issued in May 2020. Accordingly, we are required to recognize non-cash interest expense that is associated with the debt discount component recorded in equity. Since the amortization of the debt discount is a non-cash expense, we excluded its impact on net income and diluted EPS to arrive at our non-GAAP financial measures as we believe that the exclusion of the non-cash interest expense provides investors an enhanced view of our operational performance related to cash flow and liquidity.

As a result of terminating our interest rate swaps during fiscal 2020, we recorded a loss in other comprehensive income which is required by GAAP to be amortized through interest expense through the original maturity date of the swaps. Since the amortization of the loss is a non-cash expense, we excluded its impact on net income and diluted EPS to arrive at our non-GAAP financial measures as we believe that the exclusion of the non-cash interest expense provides investors an enhanced view of our operational performance related to cash flow and liquidity.

Three Months Ended October 31, 2020

During the three months ended October 31, ~~2018,~~2020, we ~~recorded specific discrete tax items associated with our international operations~~completed the disposition of a service business in Canada, which resulted in a pre-tax gain of $249 through general and administrative expenses. Since we believe that ~~were unrelated to fiscal 2019. As these items were unrepresentative~~this gain was not representative of our ~~normal effective tax rate, we excluded their impact on net income and diluted EPS for fiscal 2019 to arrive at our non-GAAP financial measures.~~

During the three months ended October 31, 2018, we recorded an adjustment to a litigation matter in our consolidated financial statements. Since these costs are irregular and mask our underlying operating performance,ordinary course past or future operations, we made an adjustment to our net income and diluted EPS ~~for fiscal 2019~~ to exclude ~~such costs~~this gain to arrive at our non-GAAP financial measures.

~~Three Months Ended October 31, 2019~~

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges and (iv) excess tax expenses applicable to stock compensation, to arrive at our non-GAAP financial measures, non-GAAP net income and non-GAAP diluted EPS.

~~Three Months Ended October 31, 2018~~

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges, (iv) excess tax benefits applicable to stock compensation, (v) tax matters and (vi) litigation matters to arrive at our non-GAAP financial measures, non-GAAP net income and non-GAAP diluted EPS.

(dollar amounts in thousands except share and per share data or as otherwise noted) 2425

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

The reconciliations of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS were calculated as follows:


	Three Months Ended October 31,											Three Months Ended October 31,
	2019				2018							2020				2019
Net income/Diluted EPS, as reported	$	5,767	$	0.14	$	19,242		$	0.46		Net income/Diluted EPS, as reported	$	24,464	$	0.57	$	5,767	$	0.14
Intangible amortization, net of tax⁽¹⁾	5,021		0.12		4,626			0.11			Intangible amortization, net of tax(1)	6,936		0.16		5,021		0.12
Acquisition-related items, net of tax⁽²⁾	12,520		0.30		1,349			0.03			Acquisition-related items, net of tax(2)	503		0.01		12,520		0.30
Restructuring-related charges, net of tax⁽³⁾	3,352		0.08		641			0.02			Restructuring-related charges, net of tax(3)	3,775		0.09		3,352		0.08
Excess tax benefits⁽⁴⁾	559		0.01		(997		)	(0.02		)
Tax matters⁽⁴⁾	—		—		896			0.02
Litigation matters⁽¹⁾	—		—		134			—
Non-cash interest, net of tax(4)											Non-cash interest, net of tax(4)	1,895		0.04		—		—
Gain on disposition of business, net of tax(1)											Gain on disposition of business, net of tax(1)	(179)		—		—		—
Excess tax benefits(5)											Excess tax benefits(5)	1,080		0.03		559		0.01
Non-GAAP net income/Non-GAAP diluted EPS	$	27,219	$	0.65	$	25,891		$	0.62		Non-GAAP net income/Non-GAAP diluted EPS	$	38,474	$	0.90	$	27,219	$	0.65


~~(1)~~	(1)Amounts ~~were recorded in general and administrative expenses.~~

~~(2)~~

For the three months ended October 31, 2019, pre-tax acquisition-related items of $4,771 were recorded in cost of sales and $11,806 were recorded in general and administrative expenses. For the three months ended October 31, 2018~~, pre-tax acquisition-related items of $217 were recorded in net sales, $54 were recorded in cost of sales and $1,555~~ were recorded in general and administrative expenses.


~~(3)~~	For the three months ended October 31, 2019, pre-tax restructuring-related items of $1,157 were recorded in cost of sales, and $4,271 were recorded in general and administrative expenses. For the three months ended October 31, 2018, pre-tax restructuring-related items of $166 were recorded in cost of sales and $680 were recorded in general and administrative expenses.


~~(4)~~	~~Amounts were recorded in income taxes.~~

(2)For the three months ended October 31, 2020, pre-tax acquisition-related items of $540 were recorded in general and administrative expenses. For the three months ended October 31, 2019, pre-tax acquisition-related items of $4,771 were recorded in cost of sales and $11,806 were recorded in general and administrative expenses.

(3)For the three months ended October 31, 2020, pre-tax restructuring-related items of $1,299 were recorded in cost of sales and $3,682 were recorded in general and administrative expenses. For the three months ended October 31, 2019, pre-tax restructuring-related items of $1,157 were recorded in cost of sales and $4,271 were recorded in general and administrative expenses.

(4)Amounts were recorded in interest expense, net.

(5)Amounts were recorded in income taxes.

We believe EBITDAS is an important valuation measurement for management and investors given the increasing effect that non-cash charges, such as stock-based compensation, amortization related to acquisitions and depreciation of capital equipment have on net income. In particular, acquisitions have historically resulted in significant increases in amortization of purchased intangible assets that reduce net income. Additionally, we regard EBITDAS as a useful measure of operating performance and cash flow before the effect of interest expense and is a complement to operating income, net income and other GAAP financial performance measures. We define adjusted EBITDAS as EBITDAS excluding the same non-GAAP adjustments to net income discussed above. We use adjusted EBITDAS when evaluating operating performance because we believe the exclusion of such adjustments, of which a significant portion are non-cash items, is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period.

The reconciliations of net income to EBITDAS and adjusted EBITDAS were calculated as follows:


	Three Months Ended October 31,					Three Months Ended October 31,
	2019		2018				2020		2019
Net income, as reported	$	5,767	$	19,242	Net income, as reported		$	24,464	$	5,767
Interest expense, net	5,719		2,026		Interest expense, net		16,293		5,719
Income taxes	2,938		6,410		Income taxes		9,595		2,938
Depreciation	6,338		4,691		Depreciation		8,409		6,338
Amortization	6,029		6,041		Amortization		8,918		6,029
Loss on disposal of fixed assets	167		1,053		Loss on disposal of fixed assets		—		167
Stock-based compensation expense	2,404		2,576		Stock-based compensation expense		3,422		2,404
EBITDAS	29,362		42,039		EBITDAS		71,101		29,362
Acquisition-related items	16,577		1,827
Acquisition-related items(1)					Acquisition-related items(1)		511		16,577
Restructuring-related charges⁽¹⁾	5,367		742		Restructuring-related charges(1)		4,894		5,367
Litigation matters	—		163
Gain on disposition of business					Gain on disposition of business		(249)		—
Adjusted EBITDAS	$	51,306	$	44,771	Adjusted EBITDAS		$	76,257	$	51,306


~~(1)~~	~~Excludes stock-based compensation expense.~~

(1)Excludes stock-based compensation expense.

(dollar amounts in thousands except share and per share data or as otherwise noted) 2526

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

We define net debt as long-term debt (bank debt excluding unamortized debt issuance costs) plus the convertible debt (excluding unamortized debt issuance costs and unamortized discount), less cash and cash equivalents. Each of the components of net debt appears on our condensed consolidated balance ~~sheets.~~sheets and in our notes to the consolidated financial statements included in Part I, Item 1 of this report. We believe that the presentation of net debt provides useful information to investors because we review net debt as part of our management of our overall liquidity, financial flexibility, capital structure and leverage.


	October 31, 2020		July 31, 2020
Long-term bank debt (excluding debt issuance costs)	$	870,375	$	945,375
Convertible debt (excluding debt issuance costs and discount)	168,000		168,000
Less cash and cash equivalents	(258,021)		(277,871)
Net debt	$	780,354	$	835,504

October 31, 2019 July 31, 2019
Long-term debt (excluding debt issuance costs) $ 911,125
$ 233,000
Less cash and cash equivalents (49,285 ) (44,535 )
Net debt $ 861,840
$ 188,465

We define organic sales as net sales less (i) the impact of foreign currency translation, (ii) net sales related to acquired businesses during the first twelve months of ownership and (iii) ~~divestitures~~dispositions during the periods being compared. We believe that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior periods. We exclude the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. We exclude the effect of acquisitions and ~~divestitures~~dispositions because the nature, size, and number of acquisitions and ~~divestitures~~dispositions can vary dramatically from period to period and can obscure underlying business trends and make comparisons of financial performance difficult. ~~The~~

For the three months ended October 31, 2020, the reconciliation of net sales growth to organic sales growth for total net sales and net sales of our four reportable segments ~~were~~was calculated as follows:


	Net Sales		Medical Net Sales		Life Sciences Net Sales		Dental Net Sales		Dialysis Net Sales
Net sales growth	15.5	%	(0.8)	%	(7.3)	%	65.1	%	8.3	%
Impact due to foreign currency translation	(0.8)	%	(1.4)	%	—	%	—	%	0.0	%
Sales related to acquisitions/dispositions	(16.5)	%	—	%	—	%	(63.3)	%	—	%
Organic sales growth	(1.8)	%	(2.2)	%	(7.3)	%	1.8	%	8.3	%

Net Sales
Medical
Net Sales

Life Sciences
Net Sales

Dental
Net Sales

Dialysis
Net Sales
Net sales growth 14.0 % 4.5 % (5.2 )% 76.3 % (6.9 )%
Impact due to foreign currency translation 0.7 % 1.2 % 0.1 % — % 0.1 %
Sales related to acquisitions/divestitures (9.9 )% — % 4.0 % (64.3 )% — %
Organic sales growth 4.8 % 5.7 % (1.1 )% 12.0 % (6.8 )%

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions ~~dispositions~~of businesses and cash dividends. Cash provided by operating activities continues to be a primary source of funds. As necessary, we ~~supplement~~have supplemented our operating cash flow with borrowings from our revolving credit facility and other financing resources, such as convertible debt, to fund our acquisitions and related business activities.

Cash Flows

Net Cash Provided by Operating Activities. Net cash provided by operating activities ~~decreased~~increased by ~~$23,338~~$53,076 to $62,007 for the three months ended October 31, 2020 from $8,931 for the three months ended October 31, 2019, ~~from $32,269 for the three months ended October 31, 2018,~~ primarily due to a reduction in acquisition-related payments, the ~~decrease~~timing of federal income tax payments, lower cash bonus payments, and a reduction in ~~net income, cash payments associated with acquisition-related and transaction items during the period~~inventory levels as a result of ~~the Hu-Friedy acquisition, an increase in restructuring-related payments~~higher sales volumes and ~~an increase in~~better inventory ~~within our Dental and Medical segments. This was~~management, partially offset by ~~increased cash collections~~the timing of the collection of our outstanding accounts ~~receivable.~~receivables..

Net Cash Used in Investing Activities. Net cash used in investing activities ~~increased~~decreased by ~~$613,488~~$664,175 to $5,147 for the three months ended October 31, 2020 from $669,322 for the three months ended October 31, 2019, ~~from $55,834~~primarily due to the Hu-Friedy acquisition in the prior year, and a decrease in capital expenditures, as we have reduced spending associated with certain capital projects in response to the COVID-19 pandemic in order to maximize our liquidity and cash position. We continue to monitor our capital expenditure spending to ensure we maintain flexibility during the remainder of fiscal 2021.

Net Cash Used in Financing Activities.Net cash used in financing activities increased by $741,708 to $76,557 for the three months ended October 31, ~~2018, primarily due to the Hu-Friedy acquisition, partially offset by a decrease in capital expenditures.~~

~~Net Cash Provided by (used in) Financing Activities.Net~~2020 from $665,151 of cash provided ~~by financing activities increased by $671,939 to $665,151~~ for the three months ended October 31, 2019, ~~from $6,788~~primarily due to repayments of ~~cash used for~~borrowings of our revolving credit facility in the current year. During the three months ended October 31, ~~2018, primarily due to~~2019, we had borrowings ~~from the refinancing~~ of ~~our existing credit agreement~~approximately $678,125 to support the Hu-Friedy ~~acquisition, and the debt issuance costs associated with amending our credit agreement.~~acquisition.

~~Debt~~

At October 31, 2019, we had $587,625 of outstanding term loan borrowings and $323,500 of revolver borrowings under the First Amendment to our Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”).

For further information regarding the Amended Credit Agreement, including a description of affirmative and negative covenants, see Note 11 to our condensed consolidated financial statements in Part I, Item 1 of this report.

(dollar amounts in thousands except share and per share data or as otherwise noted) 2627

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

Second Amendment to Credit Agreement

At October 31, 2020, we had $546,375 of outstanding term loan borrowings and $324,000 of revolver borrowings under the First Amendment to our Fourth Amended and Restated Credit Agreement.

On May 11, 2020, we entered into a Second Amendment (the “Second Amendment”) further amending the Fourth Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”). The Second Amendment’s principal changes include (i) increasing the maximum consolidated leverage ratio covenant for the fiscal quarter ended April 30, 2020 to 5.25x, (ii) suspending such financial maintenance covenant until October 31, 2021, (iii) maintaining a minimum liquidity (as defined in the credit agreement) of at least $50,000 during the fiscal quarter ending July 31, 2020 and $75,000 during each of the following fiscal quarters ending with the fiscal quarter ending July 31, 2021, (iv) requiring us to maintain minimum consolidated EBITDA for each period of four fiscal quarters ending on the last day of the fiscal quarters ending July 31, 2020 through July 31, 2021 and (v) limiting our ability to pay dividends and repurchase shares of our common stock during the period the consolidated leverage ratio and consolidated interest coverage ratio are suspended.

The interest rates have been amended so that loans under the Amended Credit Agreement, until the third business day following the date on which a compliance certificate is delivered for the fiscal quarter ending October 31, 2021, bear interest at 2.00% above the base rate for base rate borrowings, or at 3.00% above LIBOR for LIBOR-based borrowings, and also provides for fees on the unused portion of the revolving credit facility at a rate of 0.50%. Thereafter, (i) borrowings bear interest at rates ranging from 0.00% to 1.75% above base rate for base rate borrowings, or at rates ranging from 1.00% to 2.75% above LIBOR for LIBOR-based borrowings, depending on our consolidated leverage ratio, which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. The Amended Credit Agreement also provides for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.50%, depending on our consolidated leverage ratio. Interest rates have also been amended to include a 1.00% floor on all borrowings.

The Amended Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and its U.S.-based subsidiaries, (ii) a pledge by Cantel and its U.S.-based subsidiaries that guarantees the obligations under the Credit agreement of all of the outstanding shares of its U.S.-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries.

Interest Rate Swaps

In order to hedge against the impact of fluctuations in the interest rate associated with our variable rate borrowings, ~~during~~in fiscal 2019, we entered into two interest rate swaps with a combined notional value of $150,000, expiring on June 28, 2023. The swaps fixed interest rates at ~~2.45%~~2.265%. During the third quarter of fiscal 2020, we terminated our existing interest rate swaps and entered into a new interest rate swap with a notional value of $500,000, which fixed interest rates at 1.297% and expires on September 6, 2024. Upon terminating the existing interest rate swap agreements, we determined that the interest payments hedged with the credit agreement are still probable to occur, therefore the loss that accumulated on the swaps prior to the termination of $8,534 will be amortized to interest expense through June 28, 2023, the original maturity dates of the swaps. Additionally, as the cost of unwinding the liability associated with the terminated swaps was included in our new swap rate, the new swap instrument has been bifurcated into a financing component and a derivative component on our condensed consolidated balance sheet.

On May 13, 2020, in connection with the Second Amendment to the 2018 Credit Agreement, we amended our $500,000 interest rate swap to modify the LIBOR floor from 0.00% to 1.00%. The amended terms of the interest rate swap reflect the 1.00% LIBOR floor included in the Amended Credit Agreement. The amendment results in continued hedge accounting treatment as the changes in fair value will be recorded in other comprehensive income. The fair value of ~~these~~the amended interest rate ~~swaps~~swap is subject to movements in LIBOR and will fluctuate in future periods.

Convertible Senior Notes Offering

On May 15, 2020, we issued $168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement, including pursuant to the grant to the initial purchasers of $140,000 aggregate principal amount of the Notes, an option to purchase up to an additional $28,000 aggregate principal amount of Notes. The private placement offering closed on May 15, 2020. The net proceeds from this offering were approximately $162,977 (including net proceeds relating to the issuance of the additional Notes), after deducting the initial purchasers’ discount and before the cost of offering expenses. The initial conversion price will be approximately $41.51 per share of common stock and will be subject to adjustment if certain events occur. We intend to use the net proceeds from this offering for general corporate purposes, which

(dollar amounts in thousands except share and per share data or as otherwise noted) 28

Cantel Medical Corp. 2021 First Quarter Form 10-Q

includes applying at least 50% of the amount by which the net proceeds exceed $100,000 to the repayment of debt under our credit facilities as required by the Second Amended Credit Agreement.

We expect our annual cash interest to increase by approximately $5,460 as a result of issuance of the Notes. In addition, diluted earnings per share may be negatively impacted by the Notes because of the dilutive nature of the potential conversion into shares of common stock.

Financing Needs

At October 31, ~~2019,~~2020, our ~~long-term~~total debt (excluding debt issuance ~~costs)~~costs and unamortized discount) of ~~$911,125,~~$1,038,375, net of our cash and cash equivalents of ~~$49,285,~~$258,021, was ~~$861,840.~~$780,354. Stockholders’ equity as of that date was ~~$732,191.~~

$758,381. Our operating segments generate significant cash from operations. At October 31, ~~2019,~~2020, we had a cash balance of ~~$49,285,~~$258,021, of which ~~$32,284~~$71,394 was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for working capital purposes as well as for current international growth initiatives. Accordingly, our foreign unremitted earnings are considered indefinitely reinvested and unavailable for repatriation.

We believe that our current cash position, including the proceeds we received as part of the Notes offering in May 2020, and our anticipated cash flows from operations ~~and~~in the ~~funds available under our Amended Credit Agreement~~upcoming quarters as we recover from the COVID-19 pandemic will be sufficient to satisfy our worldwide cash operating requirements for the foreseeable future based upon our existing operations, particularly given that we historically have not needed to borrow for working capital purposes. In November 2020, we repaid an additional $50,000 of borrowings under our revolving credit facility. At December 10, ~~2019,~~2020, approximately ~~$80,729~~$125,551 was available under our Amended Credit Agreement.

Critical Accounting Policies

There were no changes to our critical accounting policies from those disclosed in our ~~2019~~2020 Annual Report on Form

10-K.

~~Forward Looking~~Forward-looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and other securities laws. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the current beliefs and assumptions of management; they do not relate strictly to historical or current facts. Without limiting the foregoing, words or phrases such as “expect,” “anticipate,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “may,” ~~“could”~~“could,” “aspire,” and variations of such words and similar expressions generally identify forward-looking statements. In addition, any statements that refer to predictions or projections of our future financial performance, anticipated growth, strategic objectives, performance drivers and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, uncertainties, and assumptions that are difficult to ~~predict.~~predict, including the impacts of the COVID-19 pandemic on our operations and financial results, general economic conditions, technological and market changes in the medical device industry, our ability to execute on our strategy, risks associated with operating our international business, including limited operating experience and market recognition in new international markets, changes in United States healthcare policy at both the state and federal level, product liability claims resulting from the use of products we sell and distribute, and risks related to our intellectual property and proprietary rights needed to maintain our competitive position. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A of the ~~2019~~2020 Annual Report on Form 10-K, entitled Risk Factors. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information reported in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our ~~2019~~2020 Annual Report on Form 10-K.��

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to our

(dollar amounts in thousands except share and per share data or as otherwise noted) 29

Cantel Medical Corp. 2021 First Quarter Form 10-Q

management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 27~~

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that the design and operation of these disclosure controls and procedures were effective and designed to ensure that material information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is (i) recorded, processed, summarized and reported within the time periods specified by the SEC and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

~~We have evaluated our internal control over financial reporting and determined that no changes occurred during~~During the period covered by this ~~report~~Quarterly Report on Form 10-Q, no changes occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as described below.

On October 1, 2019, we acquired Hu-Friedy, as more fully described in Note 3 to the condensed consolidated financial statements. During the initial transition period following the ~~acquisitions,~~acquisition, we enhanced our internal control process to ensure that all financial information related to ~~these acquisitions~~this acquisition was properly reflected in our ~~condensed~~ consolidated financial statements. ~~We expect all aspects~~As of October 31, 2020, the integration of the ~~Hu-Friedy~~internal controls relating to the acquired business has been substantially completed, and the acquired business will be ~~fully integrated into~~included in our ~~existing overall~~evaluation of the effectiveness of our internal control ~~structure during~~over financial reporting for fiscal ~~2020.~~2021.

~~In 2017,~~Following the acquisition of Hu-Friedy, we also began the process of ~~implementing a global~~integrating our legacy U.S. Dental segment operations into the Hu-Friedy SAP operating and financial reporting ~~information technology~~ system, ~~SAP S4 Hana (“SAP”), as part of a multi-year plan~~which we expect to integrate and upgrade our systems and processes. The first phase of this implementation became operational in February 2019, at our Medical segment’s United States operations, our Medivators B.V. operations and at our corporate headquarters.complete during fiscal 2021. As the ~~phased implementation~~integration of SAP continues, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. We believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change, and we will continue to evaluate the operating effectiveness of related key controls during subsequent periods. While we expect SAP to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Environmental Matters

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believeswill exceed a specified threshold. Pursuant to recent SEC amendments to this item, we will be using a threshold of $1 million for such proceedings. Applying this threshold, there are no environmental matters to disclose for this period.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our ~~2019~~2020 Annual Report on Form ~~10‑K.~~10-K. The risk factors disclosed in Part I, Item 1A to our ~~2019~~2020 Annual Report on Form 10-K, in addition to the other information set forth in this report, could materially affect our business, financial condition, or results of ~~operations.~~operations or cash flows.

Cantel Medical Corp. 2021 First Quarter Form 10-Q

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

The following table represents information with respect to ~~purchases of~~ common stock purchases we made ~~by the Company~~ during the current quarter:


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the program
August 1 - August 31	572	$	50.50	—	—
September 1 - September 30	189	$	47.25	—	—
October 1 - October 31	29,771	$	47.57	—	—
Total	30,532	$	47.62	—	—

Period
Total number of
shares purchased

Average price
paid per share
Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the program
August 1 - August 31 840
$ 88.54
—
—
September 1 - September 30 16,824
$ 79.38
—
—
October 1 - October 31 31,950
$ 68.95
—
—
Total 49,614
$ 72.82
—
—

~~The Company does~~We do not currently have a repurchase program. All ~~of the~~ shares purchased during the current quarter represent shares surrendered to ~~the Company~~us to pay employee withholding taxes due upon the vesting of restricted stock.

~~Cantel Medical Corp. 2020 First Quarter Form 10-Q~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits



			31.1						Certification of Principal Executive Officer.

			31.2						Certification of Principal Financial Officer.

			32						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

			101						The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

			104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(dollar amounts in thousands except share and per share data or as otherwise noted) 2931

Cantel Medical Corp. ~~2020~~2021 First Quarter Form 10-Q

SIGNATURES

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.



	CANTEL MEDICAL CORP.

Date: December 10, ~~2019~~2020

	By:	/s/ George L. Fotiades
		George L. Fotiades
		~~President and~~ Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ Shaun M. Blakeman
		Shaun M. Blakeman
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)


	By:	/s/ Brian R. Capone
		Brian R. Capone
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

3032



	October 31, 2019			July 31, 2019
Assets
Cash and cash equivalents	$	49,285		$	44,535
Accounts receivable, net of allowance for doubtful accounts of $2,818 and $2,322	174,931			146,910
Inventories, net	200,312			138,234
Prepaid expenses and other current assets	25,204			22,117
Total current assets	449,732			351,796

Property and equipment, net	227,940			185,242
Right-of-use assets, net	51,604			—
Intangible assets, net	506,877			141,513
Goodwill	655,395			378,109
Other assets	10,029			9,425
Deferred income taxes	4,469			4,281
Total assets	$	1,906,046		$	1,070,366
Liabilities and stockholders’ equity
Accounts payable	$	40,386		$	39,450
Compensation payable	35,727			32,762
Accrued expenses	41,113			38,545
Deferred revenue	26,980			27,840
Current portion of long-term debt	24,500			10,000
Income taxes payable	4,939			2,803
Current portion of lease liabilities	9,752			—
Total current liabilities	183,397			151,400

Long-term debt	875,755			220,851
Deferred income taxes	30,923			29,278
Contingent consideration	35,100			—
Long-term lease liabilities	43,150			—
Other long-term liabilities	5,530			7,300
Total liabilities	1,173,855			408,829
Commitments and contingencies (Note 12)

Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued	—			—
Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 47,218,113 shares and outstanding 42,576,825 shares as of October 31, 2019; issued 46,362,902 shares and outstanding 41,771,228 shares as of July 31, 2019	4,722			4,636
Additional paid-in capital	268,032			204,795
Retained earnings	544,864			539,097
Accumulated other comprehensive loss	(17,020		)	(22,197		)
Treasury Stock; 4,641,288 shares as of October 31, 2019; 4,591,674 shares as of July 31, 2019	(68,407		)	(64,794		)
Total stockholders’ equity	732,191			661,537
Total liabilities and stockholders’ equity	$	1,906,046		$	1,070,366



	Number of shares		Weighted Average Exercise Price		Weighted Average Contractual Life Remaining (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2019	40,000		$	43.70
Exercised	(25,000	)	$	36.70
Outstanding at October 31, 2019	15,000		$	55.36	0.95	$	263
Exercisable at October 31, 2019	15,000		$	55.36	0.95	$	263



	Three Months Ended October 31, 2019
Operating lease costs	$	2,651
Finance lease costs:
Amortization of right-of-use assets	71
Interest on lease obligations	90
Variable lease costs	846
Short-term lease costs	248
Net lease cost	$	3,906



	Aexis Contingent Consideration		Hu-Friedy Contingent Consideration		Total
Balance, July 31, 2019	$	1,411	$	—	$	1,411
Fair value adjustments included in general and administrative expenses	257		—		257
Acquisitions and settlements, net	—		35,100		35,100
Balance, October 31, 2019	$	1,668	$	35,100	$	36,768



	Three Months Ended October 31,
Income from operations by segment	2019				2018
Medical	$	21,119	15.8	%	$	25,211	19.8	%
Life Sciences	7,135		14.5	%	5,572		10.7	%
Dental	5,004		7.4	%	6,684		17.5	%
Dialysis	1,622		21.6	%	1,384		17.2	%
Income from operations by segment	34,880		13.6	%	38,851		17.2	%
General corporate expenses	20,456		8.0	%	11,173		4.9	%
Income from operations	$	14,424	5.6	%	$	27,678	12.3	%



	October 31, 2019			July 31, 2019
Long-term debt (excluding debt issuance costs)	$	911,125		$	233,000
Less cash and cash equivalents	(49,285		)	(44,535		)
Net debt	$	861,840		$	188,465