UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended ~~April 30,~~October 31, 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 ~~May 29,~~November 30, 2020: ~~42,154,298.~~42,244,649.

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

TABLE OF CONTENTS


		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)	65
	Notes to Condensed Consolidated Financial Statements ~~(unaudited)~~(Unaudited)	76
Item 2.	~~Management's~~Management ’s Discussion and Analysis of Financial Condition and Results of Operations	2520
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3929
Item 4.	Controls and Procedures	3929
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3930
Item 1A.	Risk Factors	4030
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4131
Item 3.	Defaults Upon Senior Securities	4131
Item 4.	Mine Safety Disclosures	4131
Item 5.	Other Information	4131
Item 6.	Exhibits	4131
Signatures		4231

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets ~~(Unaudited)~~

April 30, 2020 July 31, 2019
Assets
Cash and cash equivalents $ 115,766 $ 44,535
Accounts receivable, net of allowance for doubtful accounts of $3,077 and $2,322 147,558 146,910
Inventories, net 185,493 138,234
Prepaid expenses and other current assets 21,790 20,920
Income taxes receivable 15,422 1,197
Total current assets 486,029 351,796
Property and equipment, net 224,233 185,242
Right-of-use assets, net 50,005 —
Intangible assets, net 486,325 141,513
Goodwill 653,626 378,109
Other long-term assets 6,722 9,425
Deferred income taxes 5,432 4,281
Total assets $ 1,912,372 $ 1,070,366
Liabilities and stockholders’ equity
Accounts payable $ 52,986 $ 39,450
Compensation payable 32,520 32,762
Accrued expenses 37,564 38,545
Deferred revenue 26,884 27,840
Current portion of long-term debt 31,414 10,000
Income taxes payable 6,298 2,803
Current portion of lease liabilities 10,269 —
Total current liabilities 197,935 151,400
Long-term debt 944,011 220,851
Deferred income taxes 27,607 29,278
Long-term lease liabilities 41,701 —
Other long-term liabilities 12,649 7,300
Total liabilities 1,223,903 408,829
Commitments and contingencies (Note 12)
Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; NaN issued — —
Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 47,229,396 shares and outstanding 42,145,737 shares at April 30, 2020; issued 46,362,902 shares and outstanding 41,771,228 shares at July 31, 2019 4,679 4,636
Additional paid-in capital 240,625 204,795
Retained earnings 553,917 539,097
Accumulated other comprehensive loss (42,092) (22,197)
Treasury Stock; 4,645,300 shares at April 30, 2020; 4,591,674 shares at July 31, 2019 (68,660) (64,794)
Total stockholders’ equity 688,469 661,537
Total liabilities and stockholders’ equity $ 1,912,372 $ 1,070,366

~~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 Third Quarter Form 10-Q~~

~~Condensed Consolidated Statements of Income~~

(Unaudited)

Three Months Ended April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Net sales
Product sales $ 207,690 $ 197,478 $ 690,303 $ 587,251
Product service 29,243 31,074 92,374 91,428
Total net sales 236,933 228,552 782,677 678,679
Cost of sales
Product sales 116,488 99,867 381,965 299,595
Product service 19,462 21,808 61,616 62,283
Total cost of sales 135,950 121,675 443,581 361,878
Gross profit 100,983 106,877 339,096 316,801
Expenses:
Selling 38,057 36,077 121,208 103,233
General and administrative 32,133 48,634 149,471 122,527
Research and development 8,349 7,354 23,953 22,355
Total operating expenses 78,539 92,065 294,632 248,115
Income from operations 22,444 14,812 44,464 68,686
Interest expense, net 10,113 2,509 26,082 6,742
Other income, net — — — (1,313)
Income before income taxes 12,331 12,303 18,382 63,257
Income taxes (3,456) 4,128 (909) 17,040
Net income $ 15,787 $ 8,175 $ 19,291 $ 46,217
Earnings per common share:
Basic $ 0.37 $ 0.20 $ 0.46 $ 1.11
Diluted $ 0.37 $ 0.20 $ 0.46 $ 1.11
Dividends per common share $ — $ — $ 0.11 $ 0.10

~~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 Third Quarter Form 10-Q~~

~~Condensed Consolidated Statements of Comprehensive Income~~

~~(Unaudited)~~

Three Months Ended April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Net income $ 15,787 $ 8,175 $ 19,291 $ 46,217
Other comprehensive loss:
Foreign currency translation (6,053) (3,168) (2,261) (8,808)
Interest rate swap, net of tax (19,125) 609 (17,634) 609
Total other comprehensive loss: (25,178) (2,559) (19,895) (8,199)
Comprehensive (loss) income $ (9,391) $ 5,616 $ (604) $ 38,018

~~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 Third 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, 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
Repurchases of shares (1,218) — — — — (87) (87)
Stock-based compensation — — 3,412 — — — 3,412
Issuance of shares — — (5,608) — — — (5,608)
Equity vests/option exercises 3,900 — 1 — — — 1
Cancellations of restricted stock (232) — — — — — —
Dividends — — — (4,471) — — (4,471)
Net loss — — — (2,263) — — (2,263)
Other comprehensive income — — — — 106 — 106
Balance, January 31, 2020 42,579,275 $ 4,722 $ 265,837 $ 538,130 $ (16,914) $ (68,494) $ 723,281
Repurchases of shares (441,153) (44) (28,235) — — (166) (28,445)
Stock-based compensation — — 3,027 — — — 3,027
Equity vests/option exercises 7,615 1 (4) — — — (3)
Net income — — — 15,787 — — 15,787
Other comprehensive loss — — — — (25,178) — (25,178)
Balance, April 30, 2020 42,145,737 $ 4,679 $ 240,625 $ 553,917 $ (42,092) $ (68,660) $ 688,469

~~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 Third Quarter Form 10-Q~~

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
Repurchases of shares (880) — — — — (67) (67)
Stock-based compensation — — 3,587 — — — 3,587
Equity vests/option exercises 1,857 — — — — — —
Cancellations of restricted stock (1,107) — — — — — —
Dividends on common stock — — — (4,173) — — (4,173)
Net income — — — 18,800 — — 18,800
Other — — 1,513 — — — 1,513
Other comprehensive loss — — — — (417) — (417)
Balance, January 31, 2019 41,721,186 $ 4,631 $ 192,202 $ 526,274 $ (17,096) $ (64,408) $ 641,603
Issuance of shares 42,705 4 3,193 — — — 3,197
Repurchases of shares (3,712) — — — — (273) (273)
Stock-based compensation — — 5,722 — — — 5,722
Equity vests/option exercises 5,875 1 (1) — — — —
Cancellations of restricted stock (137) — — — — — —
Net income — — — 8,175 — — 8,175
Other comprehensive loss — — — — (2,559) — (2,559)
Balance, April 30, 2019 41,765,917 $ 4,636 $ 201,116 $ 534,449 $ (19,655) $ (64,681) $ 655,865


	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) 51

Cantel Medical Corp. ~~2020 Third~~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

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. 2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


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

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

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. 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	42,162,218	$	4,681	$	273,040	$	548,334	$	(27,599)	$	(68,857)	$	729,599
Repurchases of shares	(30,532)	—		—		—		—		(1,454)		(1,454)
Stock-based compensation	—	—		3,422		—		—		—		3,422

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


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

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

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. 2021 First Quarter Form 10-Q

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended April 30,							Three Months Ended October 31,
		2020		2019			2020		2019
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	19,291	$	46,217	Net income	$	24,464	$	5,767
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	22,105		15,455		Depreciation	8,409		6,338
Amortization	Amortization	23,952		15,508		Amortization	8,918		6,029
Stock-based compensation expense	Stock-based compensation expense	8,843		11,885		Stock-based compensation expense	3,422		2,404
Deferred income taxes						Deferred income taxes	441		1,454
Amortization of right-of-use assets	Amortization of right-of-use assets	9,162		—		Amortization of right-of-use assets	2,982		2,310
Deferred income taxes		(2,822)		(2,671)
Non-cash interest expense						Non-cash interest expense	4,445		925
Inventory step-up amortization	Inventory step-up amortization	16,700		—		Inventory step-up amortization	0		4,772
Fair value adjustments to contingent consideration		(6,423)		—

Other non-cash items, net	Other non-cash items, net	3,853		263		Other non-cash items, net	8		(1,061)
Changes in assets and liabilities, net of effects of acquisitions/dispositions:	Changes in assets and liabilities, net of effects of acquisitions/dispositions:					Changes in assets and liabilities, net of effects of acquisitions/dispositions:
Accounts receivable	Accounts receivable	26,990		(18,642)		Accounts receivable	(10,302)		(348)
Inventories	Inventories	(3,514)		(24,671)		Inventories	4,214		(6,254)
Prepaid expenses and other assets	Prepaid expenses and other assets	2,653		(4,929)		Prepaid expenses and other assets	(1,206)		1,147
Accounts payable and other liabilities	Accounts payable and other liabilities	(8,608)		13,608		Accounts payable and other liabilities	10,221		(13,664)
Income taxes	Income taxes	(11,883)		(3,537)		Income taxes	9,284		1,450
Operating lease liabilities		(7,456)		—
Operating lease payments						Operating lease payments	(3,293)		(2,338)
Net cash provided by operating activities	Net cash provided by operating activities	92,843		48,486		Net cash provided by operating activities	62,007		8,931
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(26,212)		(75,387)		Capital expenditures	(5,495)		(10,390)
Proceeds from sale of businesses		2,236		3,053
Acquisitions, net of cash acquired		(721,350)		(40,644)
Proceeds from sale of businesses, net of cash retained						Proceeds from sale of businesses, net of cash retained	348		0
Acquisition of businesses, net of cash acquired						Acquisition of businesses, net of cash acquired	0		(658,932)
Net cash used in investing activities	Net cash used in investing activities	(745,326)		(112,978)		Net cash used in investing activities	(5,147)		(669,322)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Borrowings of long-term debt		400,000		—
Proceeds from issuance of long term debt						Proceeds from issuance of long term debt	0		400,000
Repayments of long-term debt	Repayments of long-term debt	(12,125)		(12,707)		Repayments of long-term debt	0		(2,375)
Borrowings under revolving credit facility	Borrowings under revolving credit facility	388,900		50,000		Borrowings under revolving credit facility	0		291,400
Repayments under revolving credit facility	Repayments under revolving credit facility	(32,900)		(7,000)		Repayments under revolving credit facility	(75,000)		(10,900)
Dividends paid		(4,471)		(4,173)

Debt issuance costs	Debt issuance costs	(9,234)		—		Debt issuance costs	0		(9,234)
Finance lease liabilities		(304)		—
Finance lease payments						Finance lease payments	(103)		(127)

Purchases of treasury stock	Purchases of treasury stock	(3,865)		(4,628)		Purchases of treasury stock	(1,454)		(3,613)
Net cash provided by financing activities		726,001		21,492
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(76,557)		665,151

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(2,287)		251		Effect of exchange rate changes on cash and cash equivalents	(153)		(10)

Increase (decrease) in cash and cash equivalents		71,231		(42,749)
(Decrease) increase in cash and cash equivalents						(Decrease) increase in cash and cash equivalents	(19,850)		4,750
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	44,535		94,097		Cash and cash equivalents at beginning of period	277,871		44,535
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	115,766	$	51,348	Cash and cash equivalents at end of period	$	258,021	$	49,285

See accompanying notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 65

Cantel Medical Corp. ~~2020 Third~~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 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by 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 ~~unprecedented nature~~extent of the impact of the COVID-19 pandemic ~~has adversely impacted~~on our business remains uncertain and difficult to predict, as the ~~global economy. 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 ~~rapidly evolving reaction~~related operations of ~~governments, private sector participants~~both our Medical and Dental segments as a result of the ~~public~~postponement of elective medical procedures and routine dental procedures. Towards the end of fiscal 2020, we experienced gradual improvements in ~~an effort to contain~~these respective businesses as restrictions were lifted and limitations eased. In the ~~spread~~first quarter of ~~COVID-19 and address its impacts~~fiscal 2021, patient procedure volume trends have intensified and have had significant direct and indirect effects on businesses and commerce generally, including disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions, and significantly increasedimproved as demand for ~~certain goods~~both medical and ~~services, such as certain pandemic-related medical services and supplies, alongside decreased demand for others, such as elective surgery, retail, hospitality and travel.~~dental procedures have increase during this period.

~~The extent~~

While we currently expect to ~~which these events may impact our business, financial condition, results~~see improvement in the remainder of ~~operations and cash flows, will depend on future developments which are highly uncertain and many of which are outside our control. Such developments include~~fiscal 2021, the ~~ultimate geographic spread and duration of the pandemic, new information which may emerge concerning the severity~~effects of the COVID-19 ~~virus, the effectiveness~~pandemic remains fluid and ~~intensity of measures~~continues to ~~contain the COVID-19 virus and address its~~evolve differently across various geographies. We believe it is likely to continue to experience unexpected impacts ~~and the economic impact of the pandemic and the reactions to it. Such developments, among others, depending on their nature, duration and intensity, could have an adverse effect~~ on our business ~~financial condition, results of operations and cash flows.~~

~~To date, we have been able~~due 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 virus will have on industries or individual companies, we have assessed the possible effects and outcomes~~resurgence 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 and currently believe that our estimates are reasonable. We have implemented several measures to proactively reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These management cost reduction measures include salary reductions, employee furloughs and reductions to travel and expenses andvirus occurring in cities across the deferral of certain operating and capital expenditures. We continue to actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash.globe.

In preparing the ~~unaudited~~ Condensed Consolidated Financial Statements, management is required to make estimates and assumptions, including estimates and assumptions ~~regarding the nature, timing and extent of the impacts~~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 ~~unaudited~~ Condensed Consolidated Financial Statements, and the reported amounts of net sales and expenses during the reporting periods. ~~Additionally, changes~~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, ~~and~~ financial position and cash flows could be adversely impacted.

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

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

~~Financial Covenants~~Subsequent Events

The consolidated leverage ratio (as defined in our Amended Credit Agreement discussed in Note 11, “Financing Arrangements”) is tested at the end of each fiscal quarter and requires us to not exceed a maximum ratio of 4.25x. On May 11, 2020, we amended our credit agreement, which 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. Our consolidated leverage ratio as of April 30, 2020 was 4.82x. As of April 30, 2020, our total available liquidity was $116,495, which included $729 of undrawn availability under our revolving credit facility. We were in compliance with the amended financial covenants under the amended credit agreement as of April 30, 2020. We will not be paying a dividend on August 1, 2020.

Based on our current estimates regarding the magnitude and length of the disruptions to our business, we do not anticipate these disruptions will impact our ability to maintain compliance with our debt covenants for at least the next 12 months. However, the ultimate magnitude and length of time that the disruptions from COVID-19 will continue are highly uncertain.

~~Subsequent Events~~

We performed a review of events subsequent to ~~April 30,~~October 31, 2020 through the date of issuance of the accompanying unaudited consolidated interim financial statements. ~~See Note 16, “Subsequent Events.”~~

~~2. Accounting Pronouncements~~

~~Newly Adopted Accounting Standards~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 Accounting Standards Codification (“ASC”) 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. Additionally, the amortization of the right-of-use assets and the cash flow impact from lease liabilities are separately disclosed in the condensed consolidated statement of cash flows. The new leasing standard did not impact our condensed consolidated statements of income. 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) 86

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

~~Recently Issued~~2. Accounting Pronouncements

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 ~~plan to adopt~~adopted ASU 2020-04 on August 1, ~~2020 (our fiscal 2021).~~2020. The adoption of ASU 2020-04 isdid not ~~expected to~~ have a material impact on our financial position, results of operations or cash flows.

~~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 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.

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

~~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”), for total consideration (net of cash acquired), excluding acquisition-related costs, of $716,542, consisting of $662,151 of cash and $54,391 of common stock consideration (subject to adjustment), plus contingent consideration payable in cash. The additional contingent consideration payments are (i) subject to the achievement of certain commercial milestones through March 31, 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

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

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

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 $19,007, consisting of $15,797 of cash and $3,210 of common 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.

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⁽¹⁾
Omnia
CES Business⁽²⁾
(Preliminary) (Final) (Final)
Purchase Price:
Cash paid $ 662,151 $ 15,797 $ 17,047
Fair value of contingent consideration 38,371 — —
Common stock issued 54,391 3,210 —
Total $ 754,913 $ 19,007 $ 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 277,927 10,539 6,137
Deferred income taxes — (2,346) —
Inventories 60,596 — —
Other working capital 7,819 1,673 2,271
Long-term debt — (5,207) —
Total $ 754,913 $ 19,007 $ 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

Allocation:
Property and equipment	38,613
Intangible assets:
Customer relationships	225,000
Technology	32,000
Brand names	112,000
Goodwill	276,744
Deferred income 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.

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

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

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 ~~$35,444~~$60,806 and ~~$110,818~~$18,725 to our consolidated net sales for the three ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 2019 respectively.

Three Months Ended April 30, Nine Months Ended April 30,
Pro Forma Summary of Operations 2020 2019 2020 2019
Net sales $ 236,933 $ 278,423 $ 821,602 $ 836,228
Net income $ 15,787 $ 5,624 $ 14,273 $ 43,880
Earnings per common share:
Basic $ 0.37 $ 0.13 $ 0.34 $ 1.03
Diluted $ 0.37 $ 0.13 $ 0.34 $ 1.03


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

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.

4. Stock-Based Compensation

2016 Equity Incentive Plan

At ~~April 30,~~October 31, 2020, ~~414,835~~763,315 nonvested restricted stock awards were outstanding under the 2016 plan. NaN options were outstanding under the 2016 plan. At ~~April 30,~~October 31, 2020, ~~535,192~~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 April 30, 2020, 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 April 30,						Nine Months Ended April 30,					Three Months Ended October 31,
		2020		2019		2020		2019			2020		2019
Cost of sales	Cost of sales	$	328	$	245	$	978	$	769	Cost of sales	$	299	$	260
Operating expenses:	Operating expenses:									Operating expenses:
Selling	Selling	657		538		1,802		1,684		Selling	826		536
General and administrative	General and administrative	1,931		4,874		5,764		9,249		General and administrative	2,208		1,527
Research and development	Research and development	111		65		299		183		Research and development	89		81
Total operating expenses	Total operating expenses	2,699		5,477		7,865		11,116		Total operating expenses	3,123		2,144
Stock-based compensation expense	Stock-based compensation expense	$	3,027	$	5,722	$	8,843	$	11,885	Stock-based compensation expense	$	3,422	$	2,404

At ~~April 30,~~October 31, 2020, total unrecognized stock-based compensation expense related to total nonvested stock options and restricted stock awards was ~~$21,355~~$36,996 with a remaining weighted average period of 1521 months over which such expense is expected to be recognized.

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

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

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:


		Nine Months Ended April 30,							Three Months Ended October 31,
		2020		2019			2020		2019
Volatility of common stock	Volatility of common stock	30.73	%	27.54	%	Volatility of common stock	57.27	%	30.73	%
Average volatility of peer companies	Average volatility of peer companies	36.28	%	36.55	%	Average volatility of peer companies	45.37	%	36.28	%
Average correlation coefficient of peer companies	Average correlation coefficient of peer companies	24.63	%	27.18	%	Average correlation coefficient of peer companies	34.81	%	24.63	%
Risk-free interest rate	Risk-free interest rate	1.49	%	2.93	%	Risk-free interest rate	0.20	%	1.49	%

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

Cantel Medical Corp. 2021 First Quarter Form 10-Q

A summary of nonvested stock award activity for the ~~nine~~three months ended ~~April 30,~~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			Number of Time-based Awards	Number of Performance-based Awards	Number of Market-based Awards	Number of Total Awards	Weighted Average Fair Value
Nonvested stock awards at July 31, 2019		234,864	40,210	32,079	307,153	$	88.99
At July 31, 2020								At July 31, 2020	318,702	29,174	63,839	411,715	$	76.29
Granted	Granted	212,391	—	47,967	260,358	$	73.50	Granted	388,605	(4,455)	86,915	471,065	$	46.80
Vested⁽¹⁾	Vested⁽¹⁾	(100,184)	(8,909)	(3,462)	(112,555)	$	89.28	Vested(1)	(103,819)	(3,037)	(6,383)	(113,239)	$	82.34
Forfeited	Forfeited	(25,716)	(1,850)	(12,555)	(40,121)	$	82.89	Forfeited	(5,255)	0	(971)	(6,226)	$	74.10
Nonvested stock awards at April 30, 2020		321,355	29,451	64,029	414,835	$	79.69
At October 31, 2020								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 ~~$10,049.~~$9,328.

A summary of stock option activity for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 is as follows:

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 April 30, 2020 15,000 $ 55.36 0.45 $ —
Exercisable at 4/30/2020 (out of the money) 15,000 $ 55.36 0.45 $ —

~~During the nine months ended April 30, 2020, 25,000 options were exercised, with an aggregate fair value of approximately $1,067. At April 30, 2020, all outstanding options were vested.~~


	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

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 ~~nine~~three months ended ~~April 30,~~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 nine months ended April 30, 2019, income tax deductions of $2,465 were generated, of which $1,902 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $563 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.

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

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

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


		Three Months Ended April 30,						Nine Months Ended April 30,					Three Months Ended October 31,
Net sales by geography	Net sales by geography	2020		2019		2020		2019		Net sales by geography	2020		2019
United States	United States	$	176,688	$	163,367	$	574,370	$	497,469	United States	$	215,087	$	190,084
Europe/Africa/Middle East	Europe/Africa/Middle East	37,518		39,949		128,032		106,278		Europe/Africa/Middle East	47,785		41,018
Asia/Pacific	Asia/Pacific	14,766		15,140		54,097		46,476		Asia/Pacific	19,931		17,065
Canada	Canada	6,448		8,555		22,026		24,064		Canada	11,499		7,833
Latin America/South America	Latin America/South America	1,513		1,541		4,152		4,392		Latin America/South America	2,727		1,246
Total	Total	$	236,933	$	228,552	$	782,677	$	678,679	Total	$	297,029	$	257,246
Net sales by product line	Net sales by product line									Net sales by product line
Capital equipment	Capital equipment	$	50,589	$	51,351	$	169,061	$	166,870	Capital equipment	$	48,640	$	58,748
Consumables	Consumables	131,486		144,515		438,974		417,067		Consumables	167,350		153,279
Product service	Product service	29,243		31,074		92,374		91,428		Product service	33,459		31,568
Instrument sales		25,040		—		79,381		—
Instrument										Instrument	45,430		13,520
All other⁽¹⁾	All other⁽¹⁾	575		1,612		2,887		3,314		All other(1)	2,150		131
Total	Total	$	236,933	$	228,552	$	782,677	$	678,679	Total	$	297,029	$	257,246

(1)Primarily includes software licensing revenues.

Remaining Performance Obligations

At ~~April 30,~~October 31, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately ~~$75,948,~~$81,556, primarily within the Medical segment. We expect to recognize revenue on approximately ~~60%~~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:~~

Nine Months Ended April 30,
2020 2019
Beginning balance $ 28,235 $ 29,015
Revenue deferred in current year 41,733 48,589
Deferred revenue recognized (42,705) (49,710)
Foreign currency translation (70) (435)
Ending balance 27,193 27,459
Contract liabilities included in Other long-term liabilities (309) (824)
Deferred revenue $ 26,884 $ 26,635

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~~

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

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

~~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, such as common area maintenance fees, 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 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. Some real estate leases include 1 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. 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~~	~~April 30, 2020~~
~~Assets:~~
~~Operating lease assets~~	$	~~45,399~~
~~Finance lease assets~~	~~4,606~~
~~Right-of-use assets, net~~	$	~~50,005~~

~~Liabilities:~~
~~Operating lease liabilities~~	$	~~9,877~~
~~Finance lease liabilities~~	~~392~~
~~Current portion of lease liabilities~~	~~10,269~~

~~Operating lease liabilities~~	~~37,473~~
~~Finance lease liabilities~~	~~4,228~~
~~Long-term lease liabilities~~	~~41,701~~
~~Total lease liabilities~~	$	~~51,970~~

~~Weighted average remaining lease term:~~
~~Operating leases~~	~~6.27 years~~
~~Finance leases~~	~~6.02 years~~
~~Weighted average discount rate:~~
~~Operating leases~~	~~2.75~~		%
~~Finance leases~~	~~23.39~~		%


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) 1411

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

At ~~April 30,~~October 31, 2020, maturities of lease liabilities for the periods set forth below were as follows:


Fiscal year	Fiscal year	Operating		Finance		Total		Fiscal year	Operating		Finance		Total
Remaining 2020		$	2,863	$	360	$	3,223
2021		10,450		1,445		11,895
Remaining 2021								Remaining 2021	$	8,324	$	1,086	$	9,410
2022	2022	8,568		1,431		9,999		2022	9,410		1,432		10,842
2023	2023	7,547		1,425		8,972		2023	8,332		1,425		9,757
2024	2024	6,517		1,434		7,951		2024	7,037		1,434		8,471
2025								2025	5,264		1,422		6,686
Thereafter	Thereafter	16,136		2,476		18,612		Thereafter	11,900		919		12,819
Total lease payments	Total lease payments	52,081		8,571		60,652		Total lease payments	50,267		7,718		57,985
Less: interest	Less: interest	(4,731)		(3,951)		(8,682)		Less: interest	(4,402)		(3,243)		(7,645)
Present value of lease liabilities	Present value of lease liabilities	$	47,350	$	4,620	$	51,970	Present value of lease liabilities	$	45,865	$	4,475	$	50,340

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:

~~Nine Months Ended April 30, 2020~~

~~Operating lease costs~~

~~8,706~~

~~Finance lease costs:~~

~~Amortization of right-of-use assets~~

~~456~~

~~Interest on lease obligations~~

~~622~~

~~Variable lease costs~~

~~2,552~~

~~Short-term lease costs~~

~~873~~

~~Net lease cost~~

~~13,209~~


		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

Supplemental cash flow information related to leases follows:

~~Nine Months Ended April 30, 2020~~

~~Right-of-use assets obtained in exchange for lease liabilities:~~

~~Operating leases~~⁽¹⁾

~~19,200~~

~~Finance leases~~⁽²⁾

~~4,920~~


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

(dollar amounts in thousands except share and per share data or as otherwise noted) 1512

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

~~7. Inventories, Net~~

~~A summary of inventories, net is as follows:~~

April 30, 2020 July 31, 2019
Raw materials and parts $ 71,952 $ 69,498
Work-in-process 7,126 5,801
Finished goods 124,247 73,050
Reserve for excess and obsolete inventory (17,832) (10,115)
Total Inventories, net $ 185,493 $ 138,234

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~~one-month in duration. These 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 or 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 ~~$64,854~~$63,836 and ~~$78,264~~$81,677 at ~~April 30,~~October 31, 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 ~~and nine~~ months ended ~~April 30,~~October 31, 2020 and 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 2.265%. ~~During the third quarter of fiscal~~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 ~~expires~~was set to expire on September 6, 2024. ~~Upon terminating~~As the ~~existing interest~~original forecasted hedged transactions (interest payments on variable rate ~~swap agreements, we determined that the interest payments hedged with the credit agreement~~debt) are still probable to occur, ~~therefore~~ the $8,534 net loss ~~that~~related to the terminated swaps reported in accumulated other comprehensive income on the ~~swaps prior to the~~ termination ~~of $8,534~~date will be amortized to interest expense through June 28, 2023, the original maturity ~~dates~~date 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.

~~At April 30,~~On May 13, 2020, ~~$1,914 was recorded~~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 ~~current portion of long-term debt and $6,381 was recorded~~Amended Credit Agreement, which allows for continued hedge accounting treatment. Changes in ~~long-term debt, which represents~~ the fair value of the ~~financing component~~amended interest rate swap contract will continue to be recognized in other comprehensive income.

At October 31, 2020, the fair value of the interest rate ~~swap. At April 30, 2020, $3,483~~swap was $20,119, which included $5,465 recorded in accrued expenses and ~~$8,121 was~~$14,654 recorded in other long-term ~~liabilities, which represents~~liabilities. As of July 31, 2020, the fair value of the ~~derivative component~~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 the interest rate ~~swap. At July 31, 2019, $486 was recorded~~swap is subject to movements in ~~prepaid expenses~~LIBOR and ~~other current assets and $2,826 was recorded~~will fluctuate in ~~other assets. In connection with the amendment to our credit agreement, we amended the $500,000 interest rate swap on May 13, 2020. See Note 16, “Subsequent Events” for additional information.~~future periods.

9. Fair Value Measurements

Fair Value Hierarchy

We apply the provisions of ASC 820, “Fair Value Measurements and 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

~~(dollar amounts~~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 ~~thousands except share~~the condensed consolidated balance sheets. These money market funds are classified within Level 1 of the fair value hierarchy and ~~per share data or as otherwise noted) 16~~

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

~~Interest Rate Swaps~~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.

~~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 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.

For the Hu-Friedy acquisition, additional purchase price payments ~~are~~were (i) contingent upon the achievement of certain commercial milestones through March 31, 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 these contingent consideration arrangements to be $38,371 at the date of acquisition, ~~and~~which was reported separately in our ~~condensed~~ consolidated balance sheet. 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 a Monte Carlo simulation in a risk neutral framework with the underlying simulated variable of net sales and the related achievement of certain gross profit 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. During the second quarter of fiscal 2020, we paid $25,000 to settle a portion of this contingent consideration arrangement related to net sales achieved for the twelve month period ended December 31, 2019. For the remaining contingent consideration arrangement related to net sales and gross profit percentage, we reduced the fair value from a liability of approximately $17,210 to 0$0 due to the impact of the COVID-19 pandemic on 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 iswas 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 ~~$6,722~~$6,721 to settle the contingent obligation, which amount equals $35,000 minus the aggregate amount of ~~$28,278~~$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. ~~We are required~~In June 2020, we paid $1,691 to reassess the fair value of contingent payments on a periodic basis. The significant inputs used in these estimates include numerous possible scenarios for the payments based on the contractual terms ofsettle 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.~~consideration.

We are required to reassess the fair value of contingent consideration payments on a periodic basis. 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) 17~~

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

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

April 30, 2020
Level 1 Level 2 Level 3 Total
Cash and cash equivalents:
Money markets $ 107 $ — $ — $ 107
Total assets $ 107 $ — $ — $ 107

Current portion of long-term debt:
Financing component of interest rate swap — 1,914 — 1,914
Accrued expenses:
Contingent consideration — — 1,638 1,638
Interest rate swap — 3,483 — 3,483
Long-term debt:
Financing component of interest rate swap — 6,381 — 6,381
Other long-term liabilities:
Interest rate swap — 8,121 — 8,121
Total liabilities $ — $ 19,899 $ 1,638 $ 21,537

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 (Earnouts) Hu-Friedy Contingent Consideration (Stock Price) Total
Balance, July 31, 2019 $ 1,411 $ — $ — $ 1,411
Acquisitions — 35,100 3,272 38,372
Fair value adjustments included in general and administrative expenses 227 (10,100) 3,450 (6,423)
Settlements/payments — (25,000) (6,722) (31,722)
Balance, April 30, 2020 $ 1,638 $ — $ — $ 1,638


	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

(dollar amounts in thousands except share and per share data or as otherwise noted) 1814

Cantel Medical Corp. ~~2020 Third~~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 ~~April 30,~~October 31, 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.

We estimate the fair value of 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 ~~April 30,~~October 31, 2020 and July 31, ~~2019, the carrying value of our outstanding borrowings under our credit facility approximated~~2020, the fair value of ~~these obligations as the respective borrowing rates reflect prevailing market interest rates.~~our convertible debt was $226,066 and $224,330, respectively.

10. Intangibles and Goodwill

Our intangible assets consist of the following:


		April 30, 2020										July 31, 2019											October 31, 2020				July 31, 2020
		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible assets with finite lives:	Intangible assets with finite lives:													Intangible assets with finite lives:
Customer relationships	Customer relationships	$	370,370	$	(71,389)	$	298,981	$	146,204	$	(54,866)	$	91,338	Customer relationships	$	373,183	$	(86,328)	$	286,855	$	373,018	$	(79,386)	$	293,632
Technology	Technology	90,296		(28,408)		61,888		60,032		(24,081)		35,951		Technology	91,706		(32,288)		59,418		91,613		(30,552)		61,061
Brand names	Brand names	8,364		(3,800)		4,564		8,361		(3,256)		5,105		Brand names	8,738		(4,187)		4,551		8,721		(4,002)		4,719
Non-compete agreements	Non-compete agreements	2,850		(1,769)		1,081		2,880		(1,653)		1,227		Non-compete agreements	2,850		(1,866)		984		2,850		(1,818)		1,032
Patents and other registrations	Patents and other registrations	2,560		(1,027)		1,533		2,866		(1,252)		1,614		Patents and other registrations	2,696		(1,278)		1,418		2,637		(1,160)		1,477
		474,440		(106,393)		368,047		220,343		(85,108)		135,235			479,173		(125,947)		353,226		478,839		(116,918)		361,921
Trademarks and tradenames		118,278		—		118,278		6,278		—		6,278
Trademarks, trade names and brand names														Trademarks, trade names and brand names	118,111		—		118,111		118,111		—		118,111
Total intangible assets	Total intangible assets	$	592,718	$	(106,393)	$	486,325	$	226,621	$	(85,108)	$	141,513	Total intangible assets	$	597,284	$	(125,947)	$	471,337	$	596,950	$	(116,918)	$	480,032

Amortization expense related to intangible assets was ~~$23,952~~$8,918 and ~~$15,508~~$6,029 for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 and 2019, respectively. We expect to recognize an additional ~~$8,844~~$26,434 of amortization expense related to intangible assets for the remainder of fiscal ~~2020,~~2021, and thereafter ~~$34,965, $34,593, $33,560, $32,701~~$34,912, $33,641, $32,742, $29,985 and ~~$29,886~~$28,260 of amortization expense for fiscal years ~~2021,~~ 2022, 2023, 2024, 2025 and ~~2025,~~2026, respectively.

Goodwill changed during the ~~nine~~three months ended ~~April 30,~~October 31, 2020 as follows:

Medical Life Sciences Dental Dialysis Total
Balance, July 31, 2019 $ 180,197 $ 64,481 $ 125,298 $ 8,133 $ 378,109
Acquisitions — — 277,126 — 277,126
Foreign currency translation (1,061) (283) (265) — (1,609)
Balance, April 30, 2020 $ 179,136 $ 64,198 $ 402,159 $ 8,133 $ 653,626

~~Interim Goodwill and Indefinite-lived Intangible Assets Impairment Assessment~~

As discussed in Note 1, “Basis of Presentation,” the unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. As the global economic landscape changes, there is a wide range of possible outcomes regarding the nature and timing of events and reactions to the COVID-19 pandemic, each of which are highly dependent on variables that are currently difficult to predict. In response to the COVID-19 pandemic, we have taken actions to protect our employees, customers and other stakeholders and mitigate the negative impact of the COVID-19 pandemic on our operations and operating results. These and additional actions can increase the costs of doing business during the pandemic and in the periods that follow, including the costs of idling and reopening certain facilities in affected areas. Further, precautionary measures taken by customers, health care patients and consumers in response to the pandemic are expected to impact the timing and amount of sales during the COVID-19 pandemic.

During the pandemic, the public has been advised to: (i) remain at home, (ii) limit social interaction, (iii) close non-essential businesses and (iv) postpone certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended April 30, 2020, this has negatively impacted, most notably, the net sales and operating results of our Dental reporting unit as the offices of many dentists are closed and certain routine dental procedures are being deferred. Based on our assessment, we believe our sales and income from operations in this reporting unit were impacted by the pandemic during the third quarter.


	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) 1915

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

We historically perform our annual impairment review for goodwill and indefinite-lived intangible assets during the beginning of our fourth fiscal quarter (May 1st) of each fiscal year. We assess qualitative factors, such as each of our reporting unit’s financial performance, industry and market conditions, macroeconomic conditions and specific issues that can directly affect any of our respective reporting units to determine whether it is more likely than not that the fair value of such goodwill and indefinite-lived intangible assets is less than their respective carrying value. If warranted, we would perform a quantitative analysis comparing the current fair value of our goodwill and indefinite-lived intangible assets to their respective carrying value. Because of the COVID-19 pandemic, we determined that it is more likely than not that the carrying value of our Dental reporting unit goodwill and indefinite-lived intangible assets may be greater than their respective fair value, and therefore completed a quantitative analysis in the quarter ended April 30, 2020.11. Financing Arrangements

Long-term debt


	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

To determine the fair value of the Dental reporting unit, we used a discounted cash flow model with market-based support as its valuation technique. The discounted cash flow model used a ten-year forecasted cash flow plus a terminal value by capitalizing the last period’s cash flows using a perpetual growth rate. Our significant assumptions in the discounted cash flow model included, but were not limitedFirst Amendment to the discount rate, revenue growth rates, gross margin percentages, terminal growth rate, operating income before depreciation and amortization, and capital expenditures forecasts. We considered the current market conditions when determining these assumptions. The cash flow and sales forecasts considered the nature and timing of the expected sales declines, operating cost savings, as well as any incremental costs that we expect to incur due to the COVID-19 pandemic.

In conjunction with testing goodwill for impairment, we tested the indefinite-lived intangible assets related to the Hu-Friedy trade name within our Dental reporting unit for impairment. We performed this test using an income approach, more specifically the relief-from-royalty method. In the development of the forecasted cash flows, we applied significant judgment to determine key assumptions, including royalty rates and discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation.

Our analysis concluded that the fair value of goodwill and indefinite-lived intangible assets of our Dental reporting unit was not more likely than not to be less than their respective carrying value. The use of estimates and the development of assumptions result in uncertainties around forecasted revenues and cash flows. A change in any of these estimates and assumptions, as well as unfavorable changes in the ongoing COVID-19 pandemic, could produce a different fair value, which could have a negative impact and result in a future impairment charge that could materially impact our results of operations. Although we did not record an impairment charge during the three months ended April 30, 2020, we will monitor and assess the impact that the COVID-19 pandemic continues to have on our business and related operations during the remainder of fiscal 2020 for each of our reporting units.

~~11. Financing Arrangements~~

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

April 30, 2020 July 31, 2019
Revolving credit loans outstanding $ 399,000 $ 43,000
Tranche A term loans outstanding 577,875 190,000
Financing component of interest rate swap⁽¹⁾
8,295 —
Unamortized debt issuance costs (9,745) (2,149)
Total long-term debt, net of unamortized debt issuance costs 975,425 230,851
Current portion of long-term debt (31,414) (10,000)
Long-term debt, net of unamortized debt issuance costs and excluding current portion $ 944,011 $ 220,851

~~(1)See Note 8, “Derivatives” for additional information.~~Credit Agreement

On September 6, 2019, we entered into a First Amendment (the ~~“Amendment”~~“First Amendment”), amending our Fourth Amended and Restated Credit ~~Agreement (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 corporate purposes. Pursuant to the Amended Credit Agreement, subject to the satisfaction of certain conditions precedent, including the consent of the lenders, we may from time to time increase our borrowing capacity under the revolving credit facility by, or incur incremental term loans in, an aggregate

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 20~~

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

amount not to exceed the sum 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.

At April 30, 2020, we had $577,875 of term loan A borrowings outstanding and $399,000 of 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 nine months ended April 30, 2020, we made principal payments of $12,125.

Borrowings under the Amended Credit Agreement bear interest at rates ranging from 0.00% to 1.25% above prime rate for base rate borrowings, or at rates ranging from 1.00% to 2.25% above the LIBOR, depending upon our “Consolidated Leverage Ratio,” which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. At April 30, 2020, LIBOR was 0.40% and the margin applicable to our outstanding borrowings were 2.25% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at April 30, 2020. The Amended Credit Agreement also provides for fees on the unused portion of our facility at rates ranging from 0.20% to 0.40%, depending upon our Consolidated Leverage Ratio, which was 0.40% at April 30, 2020. At April 30, 2020, the interest rate on our outstanding borrowings was approximately 2.69%.

~~On May 11, 2020, we entered into a Second Amendment to the Fourth Amended and Restated Credit Agreement. See Note 16, “Subsequent Events” for additional information.~~

~~12. Commitments and Contingencies~~

~~Contingent Consideration Arrangements~~

At April 30, 2020, 0 was recorded associated with the Hu-Friedy acquisition, which is for the estimated fair value of contingent consideration payable upon the achievement of a targeted net sales and gross profit percentage for a twelve month period as defined in the purchase agreement. At April 30, 2020, $1,638 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” for additional information.

~~Legal Matters~~

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.

~~13. Earnings Per Common Share~~

Basic 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. 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) 21~~

~~Cantel Medical Corp. 2020 Third 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 April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Numerator for basic and diluted earnings per share:
Net income $ 15,787 $ 8,175 $ 19,291 $ 46,217
Less income allocated to participating securities — (5) (3) (51)
Net income available to common shareholders $ 15,787 $ 8,170 $ 19,288 $ 46,166
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 42,187,539 41,720,733 42,266,677 41,685,623
Dilutive effect of stock awards using the treasury stock method and the average market price for the year — 38,705 60,858 40,608
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock 42,187,539 41,759,438 42,327,535 41,726,231
Earnings per share attributable to common stock:
Basic earnings per share $ 0.37 $ 0.20 $ 0.46 $ 1.11
Diluted earnings per share $ 0.37 $ 0.20 $ 0.46 $ 1.11
Stock awards excluded because their inclusion would have been anti-dilutive 15,000 — — —

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 April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock 42,187,539 41,759,438 42,327,535 41,726,231
Participating securities 1,696 25,002 7,247 45,485
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities 42,189,235 41,784,440 42,334,782 41,771,716

~~14. Accumulated Other Comprehensive Loss~~

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

Three Months Ended April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Beginning balance $ (16,914) $ (17,096) $ (22,197) $ (11,456)
Foreign currency translation (6,053) (3,168) (2,261) (8,808)
Interest rate swap, net of taxes⁽¹⁾
(19,125) 609 (17,634) 609
Ending balance $ (42,092) $ (19,655) $ (42,092) $ (19,655)

~~(1)~~Includes tax effect of $6,098 and $5,576 for the three and nine months ended April 30, 2020, respectively. No tax effects were recorded for the three and nine months ended April 30, 2019, as the amounts were not material.

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

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

~~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.

~~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 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 43.3% and 40.9% of our Life Sciences segment net sales for the nine months ended April 30, 2020 and 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 dental practitioners. We are also a leading global manufacturer of instruments and instrument reprocessing workflow systems serving the dental industry. Three customers collectively accounted for approximately 42.3% and 45.7% of our Dental segment net sales for the nine months ended April 30, 2020 and 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 45.7% and 45.6% of our Dialysis segment net sales for the nine months ended April 30, 2020 and 2019, respectively. These customers include the top two customers noted above under our Life Sciences segment.

~~No customer accounted for 10% or more of our consolidated net sales for the nine months ended April 30, 2020 and 2019.~~

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

Three Months Ended April 30, Nine Months Ended April 30,
Net sales 2020 2019 2020 2019
Medical $ 101,222 $ 130,722 $ 365,534 $ 386,854
Life Sciences 48,189 44,975 147,452 147,333
Dental 79,170 45,131 247,457 120,548
Dialysis 8,352 7,724 22,234 23,944
Total net sales $ 236,933 $ 228,552 $ 782,677 $ 678,679

Three Months Ended April 30, Nine Months Ended April 30,
Income from operations 2020 2019 2020 2019
Medical $ 6,153 $ 24,302 $ 48,806 $ 75,038
Life Sciences 5,786 4,091 20,621 16,364
Dental 1,549 5,509 5,697 17,703
Dialysis 1,859 1,151 4,988 3,728
15,347 35,053 80,112 112,833
General corporate expenses⁽¹⁾
(7,097) 20,241 35,648 44,147
Total income from operations $ 22,444 $ 14,812 $ 44,464 $ 68,686

~~(1)Includes fair value adjustments for contingent consideration arrangements related to the Hu-Friedy acquisition.~~

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

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

~~16. Subsequent Events~~

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 ~~credit agreement)~~Amended Credit Agreement) of at least $50,000 during the fiscal quarter ~~ending~~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 ~~ending~~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. ~~We will not be paying a dividend on August 1, 2020.~~

Pursuant to the Amended Credit Agreement, subject to the satisfaction of certain conditions precedent, including the consent of the lenders, we may from time to time increase our borrowing capacity under the revolving credit facility by, or incur incremental term loans in, an aggregate amount not to exceed the sum of (i) the greater of (x) $300,000 or (y) an amount equal to two times 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, minus the aggregate principal amount of certain incremental secured indebtedness otherwise incurred.

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, 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. As of October 31, 2020, the average interest rate on our outstanding borrowings was approximately 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 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. As of ~~April 30,~~October 31, 2020, we ~~are~~were in compliance with all financial covenants under the Amended Credit Agreement.

~~Amendment~~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 ~~Interest Rate Swap~~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

~~On May 13,~~(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, ~~in connection with the Second Amendment,~~ we ~~amended our $500,000 interest rate swap to modify the LIBOR floor from 0.00% to 1.00%. The amended terms~~repaid $75,000 of the ~~interest rate swap reflect the 1.00% LIBOR floor included in~~revolving credit facility under the Amended Credit ~~Agreement which allows for continued hedge accounting treatment. Changes in the fair value~~Agreement. In November 2020, we repaid an additional $50,000 of the amended interest rate swap contract will continue to be recognized in other comprehensive income. The fair value of the amended interest rate swap on May 13, 2020 was a liability of approximately $21,920.borrowings under our revolving credit facility.

Convertible ~~Senior Notes Offering~~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. ~~The initial conversion price will be approximately $41.51 per share of common stock and will be subject~~As required by the Amended Credit Agreement, we were required to ~~adjustment if certain events occur. We intend to use the net proceeds from this offering for general corporate purposes, which includes applying~~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 ~~required by~~non-cash interest expense over the ~~Amended Credit Agreement.~~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

Legal Proceedings

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) 2417

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 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.

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

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

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


	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

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 ~~Notes will~~primary factors used by us in analyzing segment performance are net sales and income from operations.

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 ~~be redeemable, in whole or in part, for cash at our option at any time,~~provide filtration/separation and ~~from time to time, on or after May 17, 2023 in certain circumstances at a redemption price equal~~disinfectant technologies to the ~~principal amount~~medical and life science markets through a worldwide distributor network. Two customers collectively accounted for approximately 48.3% and 45.7% of our Life Sciences segment net sales for the three months ended October 31, 2020 and 2019, respectively.

Dental: designs, manufactures, sells, supplies and distributes a broad selection of products used by the global dental profession comprising a complete circle of protection. Our products include hand and powered dental instruments, infection control products, personal protective equipment (PPE) and water quality products for the dental suite. Three customers collectively accounted for approximately 41.2% and 43.5% of our Dental segment net sales for the three months ended October 31, 2020 and 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 50.8% and 46.1% of our Dialysis segment net sales for the three months ended October 31, 2020 and 2019, respectively. These customers include one of the ~~Notes~~top two customers noted above under our Life Sciences segment.

No customer accounted for 10% or more of our consolidated net sales for the three months ended October 31, 2020 and 2019.

Information as to ~~be redeemed, plus accrued~~reportable segments is summarized 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

(dollar amounts in thousands except share and ~~unpaid interest, if any, to, but excluding,~~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 redemption date. In addition, in certain limited circumstances, note holders may require us to repurchase their Notes for cash for a repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. The Notes indenture does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of its subsidiaries. The Notes indenture contains customary terms and covenants and events of default.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 ~~unprecedented nature~~COVID-19 pandemic continues to spread throughout the United States and other countries across the world, and the duration and severity of ~~the COVID-19~~its effects are currently unknown. The global pandemic has adversely impacted ~~the global economy. The COVID-19 pandemic~~ and ~~the rapidly evolving reaction of governments, private sector participants and the public in an effort~~is likely to contain the spread of COVID-19 and address its impacts have intensified and have had significant direct and indirect effects on businesses and commerce generally, including disruption to supply chains, employee base and transactional activity, facilities closures and production suspensions, and significantly increased demand for certain goods and services, such as certain pandemic-related medical services and supplies, alongside decreased demand for others, such as elective surgery, retail, hospitality and travel.

~~The extent to which these events may~~further adversely impact our business ~~financial condition, results of~~and markets, including our workforce and operations and ~~cash flows, will depend on future developments which are highly uncertain~~the operations of our customers, suppliers, and many of which are outside our control. Such developments include the ultimate geographic spread and duration of the pandemic, new information which may emerge concerning the severity of the COVID-19 virus, the effectiveness and intensity of measures to containbusiness partners. Considerable uncertainty still surrounds the COVID-19 virus and ~~address~~ its ~~impacts,~~potential effects, and the ~~economic~~extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of ~~the pandemic~~COVID-19, including shelter-in-place orders, social distancing measures, travel bans and ~~the reactions to it. Such developments, among others, depending~~restrictions, and business and government shutdowns, have already created significant negative economic impacts on ~~their nature, duration and intensity, could have an adverse effect on our business, financial condition, results of operations and cash flows.~~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 ~~virus~~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 and currently believe that our estimates are reasonable. We have~~demand. During the second half of fiscal 2020, we implemented several measures to ~~proactively~~ reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These management cost reduction measures ~~include~~included salary reductions, employee furloughs, ~~and~~travel reductions ~~to travel and expenses~~ and the deferral of certain operating and capital expenditures. ~~We continue to actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash.~~

~~The~~

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 ~~three and nine month periods ended April 30, 2020. Gross profit as a percentage~~remainder of ~~sales for those periods was negatively impacted by decreased net sales in both~~fiscal 2021, the ~~Medical and Dental segments but did benefit from certain actions taken by management to reduce variable costs in response to lower sales volume. Operating expenses as a percentage~~effects of ~~sales decreased due to cost savings initiatives and other measures taken by management to offset the loss of sales volume due to~~ the COVID-19 pandemic ~~for both~~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 ~~three and nine month periods ended April 30, 2020.~~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) 2520

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

~~Liquidity and Financial Covenant Update~~

The consolidated leverage ratio (as defined in the credit agreement) is tested at the end of each fiscal quarter and requires us to not exceed a maximum ratio of 4.25x. On May 11, 2020, we amended our existing credit agreement (see below), which 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. Our consolidated leverage ratio as of April 30, 2020 was 4.82x. As of April 30, 2020, our total available liquidity was $116,495, which included $729 of undrawn availability under our revolving credit facility. As of April 30, 2020, we were in compliance with the amended financial covenants under the amended credit agreement. We will not be paying a dividend on August 1, 2020.

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%. On May 13, 2020, we announced the pricing of $140,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement, and the related grant to the initial purchasers 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. See “Liquidity and Capital Resources” below for further information.

~~Third~~First Quarter 2020 Summary (on a comparative basis)

~~A summary of~~Key GAAP financial results for the three months ended ~~April 30,~~October 31, 2020 ~~compared with the three months ended April 30, 2019~~were as follows:

•Net sales increased by ~~3.7%~~15.5% to ~~$236,933~~$297,029 from ~~$228,552, with organic net sales decrease of 11.3%~~

•~~Income from operations increased by 51.5% to $22,444 from $14,812~~

•~~Non-GAAP income from operations decreased by 38.6% to $19,973 from $32,555~~$257,246,

•Net income increased by ~~93.1%~~324.2% to ~~$15,787~~$24,464 from ~~$8,175~~$5,767, and

•Diluted earnings per share increased by ~~85.0%~~307.1% to ~~$0.37~~$0.57 from ~~$0.20~~$0.14

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

•Organic net sales decreased by 1.8%

•Non-GAAP net income ~~decreased~~increased by ~~70.4%~~41.3% to ~~$6,793~~$38,474 from ~~$22,966~~$27,219,

•Non-GAAP diluted earnings per share ~~decreased~~increased by ~~70.9%~~38.5% to ~~$0.16~~$0.90 from ~~$0.55~~$0.65, and

•~~Cash flows from operating activities~~Adjusted EBITDAS increased by ~~91.5%~~48.6% to ~~$92,843~~$76,257 from ~~$48,486 (on year to date basis)~~$51,306

~~See~~ Please see a description of our Non-GAAP Financial Measures ~~and required reconciliations~~ 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 $716,542, consisting of $662,151 of cash and $54,391 of common stock consideration (subject to adjustment), plus contingent consideration payable in cash. The additional contingent consideration payments are (i) subject to the achievement of certain commercial milestones through March 31, 2021 ranging from zero to a maximum of $50,000 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. Hu-Friedy is a leading global manufacturer of instruments and instrument reprocessing systems serving the dental industry and is included in our Dental segment. During the second quarter of fiscal 2020, we paid $25,000 to settle a portion of the contingent consideration arrangements related to net sales achieved for the twelve month period ended December 31, 2019. On February 13, 2020, we made payments totaling $35,000 to (i) repurchase a portion of the shares from the seller which were included in the equity

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 26~~

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

consideration transferred at closing and (ii) settle a contingent consideration arrangement entered into at closing which was based on changes in our common stock price. For the remaining contingent consideration arrangement related to net sales and gross profit percentage, we reduced the fair value from a liability of approximately $17,210 to zero due to the impact of the COVID-19 pandemic on Hu-Friedy’s current and expected performance.

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 April 30, Percentage Change
Statement of Income Data: 2020 2019
Net sales $ 236,933 100.0 % $ 228,552 100.0 % 3.7 %
Cost of sales 135,950 57.4 % 121,675 53.2 % 11.7 %
Gross profit 100,983 42.6 % 106,877 46.8 % (5.5) %
Selling 38,057 16.1 % 36,077 15.8 % 5.5 %
General and administrative 32,133 13.6 % 48,634 21.3 % (33.9) %
Research and development 8,349 3.4 % 7,354 3.2 % 13.5 %
Total operating expenses 78,539 33.1 % 92,065 40.3 % (14.7) %
Income from operations 22,444 9.5 % 14,812 6.5 % 51.5 %
Interest expense, net 10,113 4.3 % 2,509 1.1 % 303.1 %
Income before income taxes 12,331 5.2 % 12,303 5.4 % 0.2 %
Income taxes (3,456) (1.5) % 4,128 1.8 % (183.7) %
Net income $ 15,787 6.7 % $ 8,175 3.6 % 93.1 %


		Nine Months Ended April 30,																Percentage Change			Three Months Ended October 31,					Percentage Change
Statement of Income Data:	Statement of Income Data:	2020						2019								Percentage Change				2020			2019		Percentage Change
Net sales	Net sales	$	782,677	100.0	%	$	678,679	100.0	%	15.3	%	Net sales	$	297,029	100.0				$	257,246	100.0	%	15.5	%
Cost of sales	Cost of sales	443,581		56.7	%	361,878		53.3	%	22.6	%	Cost of sales	149,663		50.4		%		141,377		55.0	%	5.9	%
Gross profit	Gross profit	339,096		43.3	%	316,801		46.7	%	7.0	%	Gross profit	147,366		49.6		%		115,869		45.0	%	27.2	%

Selling	Selling	121,208		15.5	%	103,233		15.2	%	17.4	%	Selling	40,063		13.5		%		38,411		14.9	%	4.3	%
General and administrative	General and administrative	149,471		19.1	%	122,527		18.1	%	22.0	%	General and administrative	49,378		16.6		%		55,287		21.5	%	(10.7)	%
Research and development	Research and development	23,953		3.0	%	22,355		3.3	%	7.1	%	Research and development	7,573		2.5		%		7,747		3.0	%	(2.2)	%
Total operating expenses	Total operating expenses	294,632		37.6	%	248,115		36.6	%	18.7	%	Total operating expenses	97,014		32.6		%		101,445		39.4	%	(4.4)	%

Income from operations	Income from operations	44,464		5.7	%	68,686		10.1	%	(35.3)	%	Income from operations	50,352		17.0		%		14,424		5.6	%	249.1	%

Interest expense, net	Interest expense, net	26,082		3.4	%	6,742		1.0	%	286.9	%	Interest expense, net	16,293		5.5		%		5,719		2.2	%	184.9	%
Other income, net		—		—	%	(1,313)		(0.2)	%	—	%

Income before income taxes	Income before income taxes	18,382		2.3	%	63,257		9.3	%	(70.9)	%	Income before income taxes	34,059		11.5		%		8,705		3.4	%	291.3	%
Income taxes	Income taxes	(909)		(0.2)	%	17,040		2.5	%	(105.3)	%	Income taxes	9,595		3.3		%		2,938		1.2	%	226.6	%
Net income	Net income	$	19,291	2.5	%	$	46,217	6.8	%	(58.3)	%	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) 2721

Cantel Medical Corp. ~~2020 Third~~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 April 30,															Nine Months Ended April 30,												Three Months Ended October 31,
Net sales by segment	Net sales by segment	2020						2019						2020						2019	Net sales by segment					2020					2019
Medical	Medical	$	101,222	42.7	%	$	130,722	57.2	%	$	365,534	46.7	%		$	386,854	57.0	%	Medical			$	132,319	44.5	%		$	133,353	51.8	%
Life Sciences	Life Sciences	48,189		20.3	%	44,975		19.7	%	147,452		18.8	%		147,333		21.7	%	Life Sciences			45,568		15.3	%		49,141		19.1	%
Dental	Dental	79,170		33.4	%	45,131		19.7	%	247,457		31.6	%		120,548		17.8	%	Dental			111,006		37.4	%		67,243		26.1	%
Dialysis	Dialysis	8,352		3.6	%	7,724		3.4	%	22,234		2.9	%		23,944		3.5	%	Dialysis			8,136		2.8	%		7,509		3.0	%
Total net sales	Total net sales	$	236,933	100.0	%	$	228,552	100.0	%	$	782,677	100.0	%		$	678,679	100.0	%	Total net sales			$	297,029	100.0	%		$	257,246	100.0	%
Net sales by geography	Net sales by geography																		Net sales by geography
United States	United States	$	176,688	74.6	%	$	163,367	71.5	%	$	574,370	73.4	%		$	497,469	73.3	%	United States			$	215,087	72.4	%		$	190,084	73.9	%
International	International	60,245		25.4	%	65,185		28.5	%	208,307		26.6	%		181,210		26.7	%	International			81,942		27.6	%		67,162		26.1	%
Total net sales	Total net sales	$	236,933	100.0	%	$	228,552	100.0	%	$	782,677	100.0	%		$	678,679	100.0	%	Total net sales			$	297,029	100.0	%		$	257,246	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 April 30,															Nine Months Ended April 30,												Three Months Ended October 31,
Income from operations	Income from operations	2020						2019						2020						2019	Income from operations					2020					2019
Medical	Medical	$	6,153	6.1	%	$	24,302	18.6	%	$	48,806	13.4	%		$	75,038	19.4	%	Medical			$	26,716	20.2	%		$	21,119	15.8	%
Life Sciences	Life Sciences	5,786		12.0	%	4,091		9.1	%	20,621		14.0	%		16,364		11.1	%	Life Sciences			8,075		17.7	%		7,135		14.5	%
Dental	Dental	1,549		2.0	%	5,509		12.2	%	5,697		2.3	%		17,703		14.7	%	Dental			25,307		22.8	%		5,004		7.4	%
Dialysis	Dialysis	1,859		22.3	%	1,151		14.9	%	4,988		22.4	%		3,728		15.6	%	Dialysis			2,566		31.5	%		1,622		21.6	%
		15,347		6.5	%	35,053		15.3	%	80,112		10.2	%		112,833		16.6	%				62,664		21.1	%		34,880		13.6	%
General corporate expenses	General corporate expenses	(7,097)		(3.0)	%	20,241		8.8	%	35,648		4.5	%		44,147		6.5	%	General corporate expenses			12,312		4.1	%		20,456		8.0	%
Total income from operations	Total income from operations	$	22,444	9.5	%	$	14,812	6.5	%	$	44,464	5.7	%		$	68,686	10.1	%	Total income from operations			$	50,352	17.0	%		$	14,424	5.6	%

Net Sales

Total net sales increased by ~~$8,381~~$39,783 or ~~3.7%~~15.5%, to ~~$236,933~~$297,029 for the three months ended ~~April 30,~~October 31, 2020 from ~~$228,552~~$257,246 for the three months ended ~~April 30,~~October 31, 2019, which consisted of an increase of 15.5% in net sales due to acquisitions, offset by a decrease of 11.3% in organic sales, and a decrease of 0.5% due to foreign currency translation. International net sales decreased by $4,940 or 7.6%, to $60,245 for the three months ended April 30, 2020 from $65,185 for the three months ended April 30, 2019. The 7.6% decrease in international net sales consisted of 10.2% decrease in organic sales and a decrease of 1.9% due to foreign currency translation, offset by a 4.5% increase due to acquisitions.

~~Total net sales increased by $103,998 or 15.3%, to $782,677 for the nine months ended April 30, 2020 from $678,679 for the nine months ended April 30, 2019, which consisted of an increase of 17.6%~~16.5% in net sales due to acquisitions and an increase of ~~0.5%~~0.8% due to foreign currency translation, partially offset by a decrease of 1.8% in organic sales. International net sales increased by ~~$27,097~~$14,780 or ~~15.0%~~22.0%, to ~~$208,307~~$81,942 for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 from ~~$181,210~~$67,162 for the ~~nine~~three months ended ~~April 30,~~October 31, 2019. The ~~15.0%~~22.0% increase in international net sales consisted of 10.1% increase in net sales due to acquisition and a 9.2% increase in organic sales and an increase of ~~14.9% due to acquisitions (offset by dispositions), partially offset by a decrease in organic sales of 1.8% and a decrease of 0.5%~~2.7% due to foreign currency ~~translation, as a result of the strengthening the U.S. dollar.~~translation.

Medical. Net sales decreased by ~~$29,500~~$1,034 or ~~22.6%~~0.8%, for the three months ended ~~April 30,~~October 31, 2020 compared with the three months ended ~~April 30,~~October 31, 2019, which consisted of a decrease of ~~21.7%~~2.2% in organic sales ~~and a decrease~~offset by an increase of 0.9% due to foreign currency translation. Net sales decreased by $21,320 or 5.5%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019, which consisted of a decrease of 4.7% in organic sales and a decrease of 0.8%1.4% due to foreign currency translation. The ~~decreases~~decrease in organic net sales ~~for both the three and nine month periods were~~was primarily driven by ~~decreased global~~the delayed timing of capital equipment sales ~~for all products lines~~ due to the COVID-19 pandemic. Although ~~certain international and domestic regions were impacted at different times~~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 ~~third quarter, the postponement~~remainder of certain surgical and elective medical procedures in order to prioritize/conserve available health care resources dramatically impacted our volume this quarter. These restrictions at hospitals and the closures of ambulatory surgery centers have significantly reduced sales of our procedural room products, chemistry and capital equipment, and to a somewhat lesser extent, service revenues were negatively impacted as

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

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

~~service technicians had limited access to certain customer locations as a result of the pandemic. We expect these trends to gradually improve~~fiscal 2021 as surgical and 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 elective procedures ~~resume, but cannot predict such trends beyond the end of our fiscal year.~~were postponed again.

Life Sciences. Net sales ~~increased~~decreased by ~~$3,214~~$3,573 or ~~7.1%~~7.3% for the three months ended ~~April 30,~~October 31, 2020 compared with the three months ended ~~April 30,~~October 31, 2019, which consisted of a 7.3% decrease in organic ~~sales increase, offset by a~~sales. The decrease of 0.2% due to foreign currency translation. Net sales increased by $119 or 0.1% for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019, which consisted of a 2.4% organic sales increase, offset by dispositions. The increase in net sales ~~for the three month period~~ was primarily ~~driven by increased volume of our~~due to lower demand for portable reverse osmosis units ~~(as~~resulting from unprecedented demand ~~for isolated dialysis treatment at hospitals has increased due to the COVID-19 pandemic). The slight increase~~shift in ~~sales for the nine month period was primarily driven by the increase in sales of portable reverse osmosis units~~prior fiscal year and delayed capital projects in the ~~third quarter and the stabilization of capital equipment sales in our~~ hemodialysis water ~~business, mostly offset by the disposition of our high purity water business in Canada, which occurred in the second quarter of fiscal 2019.~~business. As the majority of our Life Sciences business supports non-elective medical treatment, the COVID-19 pandemic has not materially impacted this ~~business.~~business, with the exception of the timing of portable reverse osmosis units and delayed capital projects at our customers. If the pandemic continues, ~~beyond the end of our fiscal year,~~ it could ~~potentially~~further impact capital equipment volume and future service ~~revenues.~~

~~Dental.~~ Net sales increased by $34,039 or 75.4%, for the three months ended April 30, 2020 compared with the three months ended April 30, 2019, which consisted of a 78.5% increase due to acquisitions offset by a 3.1% organic sales decrease. The Hu-Friedy acquisition contributed $35,444 of net sales in the quarter. Net sales increased by $126,909 or 105.3%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019, which consisted of a 101.8% increase due to acquisitions and a 3.5% organic sales increase. The Hu-Friedy acquisition contributed $110,818 of net sales for the nine month period. The COVID-19 pandemic has significantly impacted the Dental segment as a result of the postponement of all elective and routine dental procedures due to the closure of many dental offices in the United States resulting from federal, state and local government guidelines. We expect these trends to gradually improve as surgical and elective procedures resume, but cannot predict such trends beyond the end ofrevenues at our ~~fiscal year.~~customers.

~~Dialysis.~~Net sales increased by $628 or 8.1%, for the three months ended April 30, 2020 compared with the three months ended April 30, 2019. Net sales decreased by $1,710 or 7.1%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019.

~~Gross Profit~~

Gross profit decreased by $5,894 or 5.5%, to $100,983 for the three months ended April 30, 2020 from $106,877 for the three months ended April 30, 2019. Gross profit as a percentage of net sales for the three months ended April 30, 2020 and 2019 was 42.6% and 46.8%, respectively. Gross profit increased by $22,295 or 7.0%, to $339,096 for the nine months ended April 30, 2020 from $316,801 for the nine months ended April 30, 2019. Gross profit as a percentage of net sales for the nine months ended April 30, 2020 and 2019 was 43.3% and 46.7%, respectively. The decrease in gross profit for the three month period primarily relates to decreases in net sales in both the Medical and Dental segments due to the COVID-19 pandemic and the related excess capacity costs and changes in product mix, partially offset by certain actions taken by management to reduce variable costs in response to lower sales volume due to the COVID-19 pandemic. The increase in gross profit for the nine month period primarily relates to the operations associated with the Hu-Friedy acquisition, offset by the reduction in net sales in the third quarter due to the COVID-19 pandemic. The decreases in gross profit as a percentage of net sales for both the three and nine month periods were driven by the leverage constraints of our fixed manufacturing costs in relation to lower sales bases. The nine month period was also negatively impacted by the amortization of the step up in inventory associated with the Hu-Friedy acquisition.

~~Operating Expenses~~

Operating expenses decreased by $13,526 or 14.7% to $78,539 for the three months ended April 30, 2020 from $92,065 for the three months ended April 30, 2019, primarily resulting from cost savings initiatives and other measures taken by management to offset the loss of sales volume due to the COVID-19 pandemic and the reduction in the fair value of contingent consideration associated with the Hu-Friedy acquisition, partially offset by the acquired operations of Hu-Friedy. Operating expenses as a percentage of net sales for the three months ended April 30, 2020 and 2019 were 33.1% and 40.3%, respectively. Operating expenses increased $46,517 or 18.7% to $294,632 for the nine months ended April 30, 2020 from $248,115 for the nine months ended April 30, 2019, primarily due to the acquired operations of Hu-Friedy and Omnia, partially offset by actions taken by management to reduce costs to offset the loss of sales volume due to the COVID-19 pandemic. Operating expenses as a percentage of net sales for the nine months ended April 30, 2020 and 2019 were 37.6% and 36.6%, respectively.

(dollar amounts in thousands except share and per share data or as otherwise noted) 2922

Cantel Medical Corp. ~~2020 Third~~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 ~~$1,980~~$1,652 or ~~5.5%~~4.3%, to ~~$38,057~~$40,063 for the three months ended ~~April 30,~~October 31, 2020 from ~~$36,077~~$38,411 for the three months ended ~~April 30, 2019. Selling expenses increased by $17,975 or 17.4%, to $121,208 for the nine months ended April 30, 2020 from $103,233 for the nine months ended April 30,~~October 31, 2019. The ~~increases for both the three and nine month periods were~~increase was primarily due to the acquired operations of Hu-Friedy ~~partially offset by decreased commissions due to lower net sales volumes due to~~for a full fiscal quarter in the ~~COVID-19 pandemic.~~current year. Selling expenses as a percentage of net sales were ~~16.1%~~13.5% and ~~15.8%~~14.9% for the three months ended ~~April 30, 2020 and 2019, respectively. Selling expenses as a percentage of net sales were 15.5% and 15.2% for the nine months ended April 30,~~October 31, 2020 and 2019, respectively.

General and administrative expenses decreased by ~~$16,501~~$5,909 or ~~33.9%~~10.7%, to ~~$32,133~~$49,378 for the three months ended ~~April 30,~~October 31, 2020 from ~~$48,634~~$55,287 for the three months ended ~~April 30, 2019. General and administrative expenses increased by $26,944 or 22.0%, to $149,471 for the nine months ended April 30, 2020 from $122,527 for the nine months ended April 30,~~October 31, 2019. The decrease for the three month period primarily relates to ~~the~~a reduction in ~~the fair value of contingent consideration associated with the Hu-Friedy acquisition and the reduction in variable expenses~~our overall cost structure from ~~cost~~ actions taken by management in response to ~~lower sales volume due to~~ the COVID-19 ~~pandemic. The increase for the nine month period~~pandemic during fiscal 2020. This was ~~primarily due to Hu-Friedy and Omnia operations, certain transaction and integration-related costs (including fair value adjustments to contingent consideration arrangements),~~partially offset by restructuring-related costs, higher amortization expense and ~~elevated depreciation expense~~a full quarter of general and administrative expenses related to ~~our new ERP platform and our new Medical headquarters in Minnesota. These increases were partially offset by the reduction in the fair value of contingent consideration associated with~~ the Hu-Friedy ~~acquisition and the reduction in variable expenses from cost actions taken by management during the third quarter in response to lower sales volume due to the COVID-19 pandemic.~~acquisition. General and administrative expenses as a percentage of net sales were ~~13.6%~~16.6% and ~~21.3%~~21.5% for the three months ended ~~April 30, 2020 and 2019, respectively. General and administrative expenses as a percentage of net sales were 19.1% and 18.1% for the nine months ended April 30,~~October 31, 2020 and 2019, respectively.

Research and development expenses (which include continuing engineering costs) ~~increased~~decreased by ~~$995~~$174 or ~~13.5%~~2.2%, to ~~$8,349~~$7,573 for the three months ended ~~April 30,~~October 31, 2020 from ~~$7,354~~$7,747 for the three months ended ~~April 30, 2019. Research and development expenses increased by $1,598 or 7.1%, to $23,953 for the nine months ended April 30, 2020 from $22,355 for the nine months ended April 30,~~October 31, 2019. The ~~increases for both the three and nine month periods were~~decrease was primarily a result of ~~the acquired operations of Hu-Friedy and increased spending in our Life Sciences segment, partially offset by~~ a reduction in research and development expense in our Medical segment. Research and development expenses as a percentage of net sales were ~~3.4%~~2.5% and ~~3.2%~~3.0% for the three months ended ~~April 30, 2020 and 2019, respectively. Research and development expenses as a percentage of net sales were 3.0% and 3.3% for the nine months ended April 30,~~October 31, 2020 and 2019, respectively.

Income from Operations

Medical. Income from operations ~~decreased~~increased by ~~$18,149~~$5,597 or ~~74.7%~~26.5%, for the three months ended ~~April 30,~~October 31, 2020 compared with the three months ended ~~April 30,~~October 31, 2019. Income from operations decreased by $26,232 or 35.0%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019. The decreases for both the three and nine month periods were primarilyAlthough net sales declined slightly due to the impact of the COVID-19 pandemic ~~on net sales and gross profit~~ noted above, ~~restructuring-related charges, elevated depreciation expense associated with our new ERP platform and our new Medical headquarters in Minnesota, partially offset by~~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 ~~(including salary reductions, employee furloughs~~ and ~~reductions to travel and expenses) and to~~ a ~~lesser extent, lower sales commissions.~~shift towards higher margin products.

Life Sciences. Income from operations increased by ~~$1,695~~$940 or ~~41.4%~~13.2%, for the three months ended ~~April 30,~~October 31, 2020 compared with the three months ended ~~April 30,~~October 31, 2019. Income from operations increased by $4,257 or 26.0%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019. The increases for both the three and nine month periods were primarily due to a reduction of this segment’s overall expense base as a result of the disposition of our high purity water business in Canada, improved overall sales performance in fiscal 2020 and the third quarter increase in the sales of portable reverse osmosis portable units noted above.

~~Dental.~~ Income from operations decreased by $3,960 or 71.9%, for the three months ended April 30, 2020 compared with the three months ended April 30, 2019. Income from operations decreased by $12,006 or 67.8%, for the nine months ended April 30, 2020 compared with the nine months ended April 30, 2019. The decreases for both the three and nine month periods were primarily due to certain acquisition and integration-related costs, inventory step-up amortization, higher depreciation and amortization expense primarily as a result of the intangible assets associated with the Hu-Friedy acquisition. The three month period was negatively impacted by the COVID-19 pandemic asAlthough net sales ~~decreased by 75.4%~~declined as noted above. Management has taken certain cost reduction measures (including salary reductions, employee furloughs and reductions to travel and expenses) in response to the COVID-19 pandemic which have partially offset the impact of decreased net sales.

above, income from operations

(dollar amounts in thousands except share and per share data or as otherwise noted) 3023

Cantel Medical Corp. ~~2020 Third~~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 ~~$708~~$944 or ~~61.5%~~58.2%, for the three months ended ~~April 30,~~October 31, 2020 compared with the three months ended ~~April 30, 2019. Income from operations increased by $1,260 or 33.8%, for the nine months ended April 30, 2020 compared with the nine months ended April 30,~~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 decreased by ~~$27,338~~$8,144 or ~~135.1%~~39.8%, for the three months ended ~~April 30,~~October 31, 2020 from the three months ended ~~April 30,~~October 31, 2019. ~~These expenses decreased~~This decrease was primarily driven by $8,499 or 19.3%, for the nine months ended April 30, 2020 from the nine months ended April 30, 2019. The decreases for both the three and nine month period were primarily due the reduction in the fair value of contingent consideration associated with the Hu-Friedy acquisition and the reduction in variable expenses from cost actions taken by management (including salary reductions, employee furloughs and reductions to travel and expenses) in response to the COVID-19 pandemic. For the nine month period, these cost decreases were partially offset by an increase in 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 ~~$7,604~~$10,574 or ~~303.1%~~184.9%, to ~~$10,113~~$16,293 for the three months ended ~~April 30,~~October 31, 2020 from ~~$2,509~~$5,719 for the three months ended ~~April 30,~~October 31, 2019. Interest expense, net increased by $19,340 or 286.9%, to $26,082 for the nine months ended April 30, 2020 from $6,742 for the nine months ended April 30, 2019. These increases for both the three and nine month periodsThe increase resulted from an increase in the average outstanding debt, which includes both ~~the~~our term loan and revolver borrowings made to support the funding of the Hu-Friedy acquisition and to increase our liquidity. In addition, interest expense has also increased as a result of the May 2020 issuance of convertible debt, which was also done to increase our liquidity ~~partially offset by lower~~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 decreased to ~~a benefit of 28.0%~~28.2% for the three months ended ~~April 30,~~October 31, 2020 from ~~a provision of 33.6%~~33.8% for the three months ended ~~April 30,~~October 31, 2019. The ~~tax benefit~~decrease was primarily driven by less permanent taxable items affecting our rate and a provision under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allowed us to carry back taxable losses up to five years, including years when the federal statutory tax rate was 35%. This was partially offset by the tax effect of a fair value adjustment related to an earn out liability. The consolidated effective tax rate decreased to a 4.9% benefit for the nine months ended April 30, 2020 from a provision of 26.9% for the nine months ended April 30, 2019. The tax benefit was primarily driven by a provision under the CARES Act noted above. This was partially offset by the tax effect of a fair value adjustment related to an earnout liability, excess tax charges related to share-based compensation, 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.

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 31~~

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

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 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 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.

~~In April 2020, we recorded a discrete tax benefit related~~We are required under GAAP to ~~a provision under~~separately account for the recent federal CARES Act, which allowed us to carryback taxable losses up to five years. We also recorded a discrete tax benefit due to the reversal of a valuation allowance related to a previous acquisition. As these items were unrepresentativeliability (debt) and equity (conversion option) components of our ~~normal effective tax rate,~~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 ~~their~~its impact on net income and diluted EPS ~~for fiscal 2020~~ to arrive at our non-GAAP financial ~~measures.~~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.

~~In January~~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, 2020, we completed the disposition of a dental product line. This resulted in a pre-tax loss of $170 through general and administrative expenses for the nine months ended April 30, 2020. Since this loss was irregular, we made an adjustment to our net income and diluted EPS to exclude this loss to arrive at our non-GAAP financial measures.

During the nine months ended April 30, 2019, we recorded specific discrete tax items associated with our international operations that were unrelated to fiscal 2019. As these items were unrepresentative 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.

~~In November 2018, we completed the disposition of our high purity water~~service business in ~~Canada. This~~Canada, which resulted in a pre-tax gain of ~~$1,313~~$249 through ~~other income, net for the nine months ended April 30, 2019.~~general and administrative expenses. Since we believe that this gain was ~~irregular,~~not representative of our ordinary course past or future operations, we made an adjustment to our net income and diluted EPS to exclude this gain to arrive at our non-GAAP financial measures.

During the nine months ended April 30, 2019, we recorded an adjustment to a minor litigation matter in our consolidated financial statements. Since these costs are irregular and mask our underlying operating performance, we made an adjustment to our net income and diluted EPS for fiscal 2019 to exclude such costs to arrive at our non-GAAP financial measures.

(dollar amounts in thousands except share and per share data or as otherwise noted) 3225

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

~~Three Months Ended April 30, 2020~~

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, which includes a gain from the change in the fair value of contingent consideration associated with the Hu-Friedy acquisition, (iii) business optimization and restructuring-related charges and (iv) tax matters to arrive at non-GAAP net income and non-GAAP diluted EPS.

~~Three Months Ended April 30, 2019~~

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, (iii) other business optimization and restructuring-related charges, primarily related to organizational leadership changes (iv) an adjustment to the excess tax effects applicable to stock compensation and (v) tax matters to arrive at non-GAAP net income and non-GAAP diluted EPS.

~~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 April 30,
2020 2019
Net income/Diluted EPS, as reported $ 15,787 $ 0.37 $ 8,175 $ 0.20
Intangible amortization, net of tax⁽¹⁾
4,343 0.10 3,850 0.09
Acquisition-related items, net of tax⁽²⁾
(12,493) (0.29) 2,047 0.05
Restructuring-related charges, net of tax⁽³⁾
4,439 0.11 8,401 0.20
Excess tax effects⁽⁴⁾
— — 434 0.01
Tax matters⁽⁴⁾
(5,283) (0.13) 59 —
Non-GAAP net income/Non-GAAP diluted EPS $ 6,793 $ 0.16 $ 22,966 $ 0.55

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

~~(2)~~For the three months ended April 30, 2020, pre-tax acquisition-related items of $15,240 (benefit) were recorded in general and administrative expenses. For the three months ended April 30, 2019, pre-tax acquisition-related items of $47 were recorded in net sales, $394 were recorded in cost of sales and $2,400 were recorded in general and administrative expenses.

~~(3)~~For the three months ended April 30, 2020, pre-tax restructuring-related items of $2,022 were recorded in cost of sales and $1,797 were recorded in general and administrative expenses. For the three months ended April 30, 2019, pre-tax restructuring-related items of $272 were recorded in cost of sales and $9,840 were recorded in general and administrative expenses.

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

~~Nine Months Ended April 30, 2020~~

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, which includes a gain from the reduction of the fair value of contingent consideration associated with the Hu-Friedy acquisition, (iii) business optimization and restructuring-related charges, (vi) loss on disposition of product line (v) excess tax effects applicable to stock compensation and (vi) tax matters to arrive at non-GAAP net income and non-GAAP diluted EPS.

~~Nine Months Ended April 30, 2019~~

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

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 33~~

~~Cantel Medical Corp. 2020 Third~~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:


		Nine Months Ended April 30,															Three Months Ended October 31,
		2020						2019							2020				2019
Net income/Diluted EPS, as reported	Net income/Diluted EPS, as reported	$	19,291	$	0.46	$	46,217	$	1.11	Net income/Diluted EPS, as reported	$	24,464	$	0.57	$	5,767	$	0.14
Intangible amortization, net of tax⁽¹⁾	Intangible amortization, net of tax⁽¹⁾	17,331		0.41		11,928		0.29		Intangible amortization, net of tax(1)	6,936		0.16		5,021		0.12
Acquisition-related items, net of tax⁽²⁾	Acquisition-related items, net of tax⁽²⁾	18,105		0.42		4,236		0.10		Acquisition-related items, net of tax(2)	503		0.01		12,520		0.30
Restructuring-related charges, net of tax⁽³⁾	Restructuring-related charges, net of tax⁽³⁾	9,723		0.23		10,486		0.25		Restructuring-related charges, net of tax(3)	3,775		0.09		3,352		0.08
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⁽⁴⁾⁽¹⁾	Gain on disposition of business, net of tax⁽⁴⁾⁽¹⁾	—		—		(929)		(0.02)		Gain on disposition of business, net of tax⁽⁴⁾⁽¹⁾	(179)		—		—		—
Loss on disposition of product line, net of tax⁽¹⁾		130		—		—		—
Excess tax effects⁽⁵⁾		559		0.01		(563)		(0.01)
Tax matters⁽⁵⁾		(5,283)		(0.12)		959		0.02
Excess tax benefits(5)										Excess tax benefits(5)	1,080		0.03		559		0.01
Non-GAAP net income/Non-GAAP diluted EPS	Non-GAAP net income/Non-GAAP diluted EPS	$	59,856	$	1.41	$	72,468	$	1.74	Non-GAAP net income/Non-GAAP diluted EPS	$	38,474	$	0.90	$	27,219	$	0.65

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

(2)For the ~~nine~~three months ended ~~April 30,~~October 31, 2020, pre-tax acquisition-related items of ~~$16,700 were recorded in cost of sales and $8,780~~$540 were recorded in general and administrative expenses. For the ~~nine~~three months ended ~~April 30,~~October 31, 2019, pre-tax acquisition-related items of ~~$351 were recorded in net sales, $486~~$4,771 were recorded in cost of sales and ~~$4,960~~$11,806 were recorded in general and administrative expenses.

(3)For the ~~nine~~three months ended ~~April 30,~~October 31, 2020, pre-tax restructuring-related items of ~~$4,841~~$1,299 were recorded in cost of sales and ~~$8,630~~$3,682 were recorded in general and administrative expenses. For the ~~nine~~three months ended ~~April 30,~~October 31, 2019, pre-tax restructuring-related items of ~~$272~~$1,157 were recorded in cost of sales and ~~$12,533~~$4,271 were recorded in general and administrative expenses.

(4)Amounts were recorded in ~~other income,~~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,
		2020		2019
Net income, as reported		$	24,464	$	5,767
Interest expense, net		16,293		5,719
Income taxes		9,595		2,938
Depreciation		8,409		6,338
Amortization		8,918		6,029
Loss on disposal of fixed assets		—		167
Stock-based compensation expense		3,422		2,404
EBITDAS		71,101		29,362
Acquisition-related items(1)		511		16,577
Restructuring-related charges(1)		4,894		5,367
Gain on disposition of business		(249)		—
Adjusted EBITDAS		$	76,257	$	51,306

(1)Excludes stock-based compensation expense.

(dollar amounts in thousands except share and per share data or as otherwise noted) 3426

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

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

Three Months Ended April 30, Nine Months Ended April 30,
2020 2019 2020 2019
Net income, as reported $ 15,787 $ 8,175 $ 19,291 $ 46,217
Interest expense, net 10,113 2,509 26,082 6,742
Income taxes (3,456) 4,128 (909) 17,040
Depreciation 7,890 5,892 22,105 15,455
Amortization 8,949 4,956 23,952 15,508
Loss on disposal of fixed assets 1,231 529 1,297 1,368
Stock-based compensation expense 3,027 5,722 8,843 11,885
EBITDAS 43,541 31,911 100,661 114,215
Acquisition-related items⁽¹⁾
(15,595) 2,841 24,597 5,797
Restructuring-related charges⁽¹⁾
3,780 6,632 13,403 8,871
Gain on disposition of business — — — (1,313)
Loss on disposition of product line — — 170 —
Litigation matters — — — 163
Adjusted EBITDAS $ 31,726 $ 41,384 $ 138,831 $ 127,733

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

We define net debt as long-term ~~bank~~ debt ~~(excluding any financing component of our interest rate swap and~~(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 and in our notes to the ~~condensed~~ consolidated financial ~~statements.~~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.


		April 30, 2020		July 31, 2019			October 31, 2020		July 31, 2020
Long-term bank debt (excluding debt issuance costs and interest rate swap)		$	976,875	$	233,000
Long-term bank debt (excluding debt issuance costs)						Long-term bank debt (excluding debt issuance costs)	$	870,375	$	945,375
Convertible debt (excluding debt issuance costs and discount)						Convertible debt (excluding debt issuance costs and discount)	168,000		168,000
Less cash and cash equivalents	Less cash and cash equivalents	(115,766)		(44,535)		Less cash and cash equivalents	(258,021)		(277,871)
Net debt	Net debt	$	861,109	$	188,465	Net debt	$	780,354	$	835,504

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) 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 dispositions because the nature, size, and number of acquisitions and dispositions can vary dramatically from period to period and can obscure underlying business trends and make comparisons of financial performance difficult.

For the three months ended ~~April 30,~~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 3.7 % (22.6) % 7.1 % 75.4 % 8.1 %
Impact due to foreign currency translation 0.5 % 0.9 % 0.2 % — % 0.4 %
Sales related to acquisitions (15.5) % — % 0.0 % (78.5) % — %
Organic sales growth (11.3) % (21.7) % 7.3 % (3.1) % 8.5 %

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 35~~

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

~~For the nine months ended April 30, 2020, the reconciliation of net sales growth to organic sales growth for total net sales and net sales of our reportable segments were calculated as follows:~~


		Net Sales		Medical Net Sales		Life Sciences Net Sales		Dental Net Sales		Dialysis Net Sales			Net Sales		Medical Net Sales		Life Sciences Net Sales		Dental Net Sales		Dialysis Net Sales
Net sales growth	Net sales growth	15.3	%	(5.5)	%	0.1	%	105.3	%	(7.1)	%	Net sales growth	15.5	%	(0.8)	%	(7.3)	%	65.1	%	8.3	%
Impact due to foreign currency translation	Impact due to foreign currency translation	0.5	%	0.8	%	0.0	%	—	%	0.1	%	Impact due to foreign currency translation	(0.8)	%	(1.4)	%	—	%	—	%	0.0	%
Sales related to acquisitions/dispositions	Sales related to acquisitions/dispositions	(17.6)	%	—	%	2.3	%	(101.8)	%	—	%	Sales related to acquisitions/dispositions	(16.5)	%	—	%	—	%	(63.3)	%	—	%
Organic sales growth	Organic sales growth	(1.8)	%	(4.7)	%	2.4	%	3.5	%	(7.0)	%	Organic sales growth	(1.8)	%	(2.2)	%	(7.3)	%	1.8	%	8.3	%

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 ~~note issuances~~debt, to fund our acquisitions and related business activities.

Cash Flows

Net Cash Provided by Operating Activities. Net cash provided by operating activities increased by ~~$44,357~~$53,076 to ~~$92,843~~$62,007 for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 from ~~$48,486~~$8,931 for the ~~nine~~three months ended ~~April 30,~~October 31, 2019, primarily due to ~~increased cash collections of outstanding accounts receivable and the~~a reduction in ~~inventory levels (excluding acquired Hu-Friedy inventory),~~acquisition-related payments, the timing of ~~vendor~~federal income tax payments, lower cash bonus payments, and a reduction in ~~cash payments resulting from restructuring-related activities (organizational leadership changes made in fiscal 2019). This was~~inventory levels as a result of higher sales volumes and better inventory management, partially offset by ~~lower net income and cash payments associated with Hu-Friedy acquisition-related and transaction costs incurred during~~ the ~~period. Although we have put measures in place to maximize~~timing of the collection of our working capital, we are expecting net cash provided by operating activities to be negatively impacted by the lower sales volume that we experienced during the third quarter due to the COVID-19 pandemic and the expected loss of sales volume for the remainder of fiscal 2020.outstanding accounts receivables..

Net Cash Used in Investing Activities. Net cash used in investing activities ~~increased~~decreased by ~~$632,348~~$664,175 to ~~$745,326~~$5,147 for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 from ~~$112,978~~$669,322 for the ~~nine~~three months ended ~~April 30,~~October 31, 2019, primarily due to the Hu-Friedy acquisition ~~partially offset by~~in the prior year, and a decrease in capital expenditures, as ~~we completed our ERP implementation for the Medical segment’s U.S. operations and corporate headquarters during the latter half of fiscal 2019. During the third quarter of fiscal 2020,~~ 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 ~~expect the reduction in~~continue to monitor our capital expenditure spending to ~~continue for~~ensure we maintain flexibility during the remainder of fiscal ~~2020.~~2021.

Net Cash ~~Provided by~~Used in Financing Activities. Net cash ~~provided by~~used in financing activities increased by ~~$704,509~~$741,708 to ~~$726,001~~$76,557 for the ~~nine~~three months ended ~~April 30,~~October 31, 2020 from ~~$21,492~~$665,151 of cash ~~used~~provided for the ~~nine~~three months ended ~~April 30,~~October 31, 2019, primarily due to repayments of borrowings ~~made~~of our revolving credit facility in the current year. During the three months ended October 31, 2019, we had borrowings of approximately $678,125 to support the Hu-Friedy ~~acquisition, and the payment of debt issuance costs associated with amending our credit agreement.~~acquisition.

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

Cantel Medical Corp. 2021 First Quarter Form 10-Q

Second Amendment to Credit Agreement

At ~~April 30,~~October 31, 2020, we had ~~$577,875~~$546,375 of outstanding term loan borrowings and ~~$399,000~~$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. ~~We will not be paying a dividend on August 1, 2020.~~

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 36~~

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

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, 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 2.265%. 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 the amended interest rate swap is subject to movements in LIBOR and will fluctuate in future periods.

Convertible Senior Notes Offering

(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 ~~April 30,~~October 31, 2020, our ~~long-term~~total debt (excluding ~~any financing component of our interest rate swap~~debt issuance costs and unamortized ~~debt issuance costs)~~discount) of ~~$976,875,~~$1,038,375, net of our cash and cash equivalents of ~~$115,766,~~$258,021, was ~~$861,109.~~$780,354. Stockholders’ equity as of that date was ~~$688,469.~~

$758,381. Our operating segments generate significant cash from operations. At ~~April 30,~~October 31, 2020, we had a cash balance of ~~$115,766,~~$258,021, of which ~~$41,790~~$71,394 was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 37~~

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

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 in the 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 ~~June 9,~~December 10, 2020, approximately ~~$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.

The following discussion supplements our Critical Accounting Policy for Goodwill and Intangible Assets as it relates to the goodwill and indefinite-lived intangible assets impairment tests performed as of April 30, 2020. We review goodwill and indefinite-lived intangible assets for impairment annually on May 1st of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. As a result of the COVID-19 pandemic and the impact to our sales volume and related income from operations within our Dental reporting unit, our share price decline, as well as the general uncertainty and volatility in the economic environments in which we operate, we engaged a third-party valuation firm to perform quantitative interim goodwill and indefinite-lived intangible asset impairment tests as of April 30, 2020.

~~Goodwill.~~ In estimating the Dental reporting unit’s fair value, we performed an extensive valuation analysis, utilizing both income and market-based approaches. The determination of the fair value of the Dental reporting unit requires us to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions, utilizing Level 3 inputs, primarily include, but are not limited to, market multiples, control premiums, the discount rate, terminal growth rates, operating income before depreciation and amortization, and capital expenditures forecasts. As a result of this analysis, we have determined that the fair value of the Dental reporting unit was in excess of its carrying value as of April 30, 2020, by approximately $153,000, or 15.2%. From a sensitivity perspective, if the discount rate used for the Dental reporting unit had been hypothetically increased by 100 basis points at April 30, 2020, the Dental reporting unit’s fair value would approximate its carrying value. In addition, if our analysis in the future indicates additional unfavorable impacts related to the ongoing COVID-19 pandemic, an increase in discount rates, or a degradation in the overall markets served by our Dental reporting unit, it could result in an impairment of the carrying value of goodwill to its implied fair value. There can be no assurance that our future goodwill impairment testing will not result in a charge to earnings.

~~Indefinite-lived Intangible Assets.~~ We base our measurement of fair value of our Dental reporting unit’s indefinite-lived intangible assets, which primarily consist of the Hu-Friedy trade name and trademarks, using the relief-from-royalty method. This method assumes that the trade name and trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. As a result of this analysis, we have determined that the fair value of the indefinite-lived intangible assets were in excess of their respective carrying value as of April 30, 2020. From a sensitivity perspective, if the discount rate had been hypothetically increased by 100 basis points at April 30, 2020, the fair value of these indefinite-lived intangible assets would still exceed their respective carrying value. In addition, if our analysis in the future indicates additional unfavorable impacts related to the ongoing COVID-19 pandemic, an increase in discount rates, or a degradation in the use of the trade names and trademarks, it could result in an impairment of the carrying value of the indefinite-lived intangible assets to their implied fair value. There can be no assurance that our future indefinite-lived intangible asset impairment testing will not result in a charge to earnings.

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,” “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,

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 38~~

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

uncertainties, and assumptions that are difficult to 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, as well as our Quarterly Report on Form 10-Q under Part II, Item 1A, entitled Risk Factors, as further updated by our Current Report on Form 8-K dated May 12, 2020.~~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.

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 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.

During the period covered by this 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 acquisition, we enhanced our internal control process to ensure that all financial information related to 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.

39Environmental Matters

~~Cantel Medical Corp. 2020 Third Quarter Form 10-Q~~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, as further updated by our Current Report on Form 8-K dated May 12, 2020, except as noted below.~~10-K. The risk factors disclosed in Part I, Item 1A to our ~~2019~~2020 Annual Report on Form 10-K, ~~as further updated by our Current Report on Form 8-K dated May 12, 2020,~~ in addition to the other information set forth in this report, could materially affect our business, financial condition, ~~or results of operations.~~

The effects of the COVID-19 pandemic have significantly impacted global economic conditions and have affected our operations, supply chain, distribution, sales force, as well as the financial stability of hospitals and other customers, and could cause a reduction in all operative procedures, which could materially adversely affect our business, results of operations ~~financial condition, and stock price.~~ On March 11, 2020, the World Health Organization (“WHO”) characterized the Novel Coronavirus Disease 2019 (“COVID-19”) as a pandemic. On March 13, 2020, the President of the United States declared a national emergency in response to the COVID-19 pandemic. In an effort to control the spread of COVID-19, governments around the world, including in the U.S., have implemented measures including quarantines, “shelter in place” orders, “stay at home” orders, travel restrictions, business operation restrictions, school closures, and other similar types of measures. The impact of the pandemic, while still evolving, has caused significant economic and financial uncertainty in the U.S. and around the world, generating concerns the effects will lead to a global recession or depression. Governments around the world are attempting to mitigate the economic impact by passing fiscal stimulus measures to assist monetarily with the impacts of COVID-19. Furthermore, variance in actions by governments around the world, economic or otherwise, could result in disparate impact on businesses, including our business, and lead to impactful geopolitical instability.cash flows.

We are unable to assess with certainty the extent to which COVID-19 impacts our future results. Those impacts will depend on future developments that are highly unpredictable and uncertain, such as the severity of the pandemic and global actions in response thereto. Our existing insurance coverage will not provide protection for all of the COVID-19-related disruption that has or may arise during this time. Our management team is focused on mitigating adverse effects of the pandemic, thereby shifting their focus from other priorities. Should these conditions worsen, or endure for an extended period of time, we may face operational and other risks that we faced prior to the pandemic but are elevated due to the disruption of the pandemic. We continue to assess our business operations and the impact COVID-19 may have on our financial results, but there are no assurances that such analysis will enable us to avoid or precisely forecast the impact or consequences of COVID-19, including business downturns and/or a recession. A recession or depression could materially affect our business, including but not limited to our future access to capital, and negatively impact the value of our stock.

~~Our ability to manufacture products may be materially adversely impacted by the coronavirus.~~Similar to many other employers in the U.S., we are requiring many employees to work remotely. We have continued to operate certain manufacturing facilities to date in compliance with federal, state and local orders regarding COVID-19. The health of the Company’s workforce is our top concern. Accordingly, our management team may have to enact further precautionary measures to minimize any impact to our employees. Should our ability to manufacture as a result of COVID-19 be impacted it may not be possible for us to manufacture relevant products at required levels or at all. We may not be able to obtain necessary products or components from our suppliers and vendors due to the additional constraints. A reduction or interruption in any of our manufacturing processes could have a material adverse effect on our business, results of operations, financial condition and cash flows which include, without limitation, our liquidity or access to, or cost of, credit. We are unable to quantify the full extent of the impact nor is it able to predict the ultimate consequences. Moreover, continuation of manufacturing operations may be dependent upon adequate access to personal protective equipment (“PPE”). In the event that access to PPE is constrained, manufacturing operations maybe impacted.

Our sales have been materially adversely impacted by the coronavirus. In March 2020, the Centers for Medicare and Medicaid Services (“CMS”) recommended the postponement of elective procedures until further notice to preserve PPE. The American College of Surgeons (the “ACS”), following CMS, called for hospitals to “minimize, postpone or cancel” elective procedures until the COVID-19 outbreak slows down. On April 16, 2020, the President of the United States announced a plan that would allow elective surgeries to resume. On April 17, 2020, the ACS released a guide for health care facilities preparing to resume elective surgery once the COVID-19 disease was under control in their respective areas. The postponement from March of elective surgeries has negatively impacted the demand for and sales of our products. We have sales representatives and service technicians that require the ability to meet with health care providers in person to discuss our products and service our products. Moreover, continuation of sales maybe dependent upon adequate access to PPE in order to gain access to health care providers. In the event that access to PPE is constrained, sales may be impacted. The current “shelter in place” and social distancing mandates may negatively affect demand by limiting the ability of our sales force to maintain their contacts with health care personnel for an unknown period of time. Additionally, variance on a state-by-state basis of the resumption of elective surgeries may further impact our business. There is also a risk that our customers will not be able to purchase our

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 40~~30

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

products or pay for such products on a timely basis, or at all. As a result, we are uncertain as to whether our sales force, distributors, and customers will be able to increase or maintain current levels of sales or pricing, which could materially adversely impact our business.

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

The following table represents information with respect to common stock purchases we made 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
February 1 - February 29 438,953 $ 64.51 — —
March 1 - March 31 1,832 $ 60.88 — —
April 1 - April 30 368 $ 38.95 — —
Total 441,153 $ 64.48 — —


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	—	—

We do not currently have a repurchase program. ~~In February, we repurchased 438,359 of our common shares from the former Hu-Friedy owners in connection with the acquisition.~~ All ~~of the remaining~~ shares purchased during the current quarter represent shares surrendered to us to pay employee withholding taxes due upon the vesting of restricted stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

~~4.1~~

~~Indenture, dated as of May 15, 2020, between Cantel Medical Corp. and Wells Fargo Bank, National Association, as Trustee~~

~~10.1~~

~~Stock Repurchase Agreement, dated as of February 13, 2020, by and between Cantel Medical Corp. and Dental Holding, LLC.~~

~~10.2~~

Second Amendment, dated as of May 11, 2020, among the Company, its subsidiary obligors party thereto, Bank of America, N.A. as administrative agent, swing line lender and L/C issuer and the lenders party thereto

31.1

Certification of Principal Executive Officer.

31.2

Certification of Principal Financial Officer.

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) 4131

Cantel Medical Corp. ~~2020 Third~~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, 2020

~~Date: June 9, 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)

~~(dollar amounts in thousands except share and per share data or as otherwise noted) 42~~


	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 April 30, 2020	15,000	$	55.36	0.45	$	—
Exercisable at 4/30/2020 (out of the money)	15,000	$	55.36	0.45	$	—


	Aexis Contingent Consideration		Hu-Friedy Contingent Consideration (Earnouts)		Hu-Friedy Contingent Consideration (Stock Price)		Total
Balance, July 31, 2019	$	1,411	$	—	$	—	$	1,411
Acquisitions	—		35,100		3,272		38,372
Fair value adjustments included in general and administrative expenses	227		(10,100)		3,450		(6,423)
Settlements/payments	—		(25,000)		(6,722)		(31,722)
Balance, April 30, 2020	$	1,638	$	—	$	—	$	1,638