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, 2018.~~January 31, 2019.

☐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		(I.R.S. employer
incorporation or organization)		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)

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, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by 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 ☐	Non-accelerated filer ☐	Smaller reporting company ☐	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 ~~June 1, 2018: 41,709,335.~~February 28, 2019: 41,721,300.

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

TABLE OF CONTENTS



		Page No.
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Income (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	45
	Notes to Condensed Consolidated Financial Statements (unaudited)	56
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2930
Item 4.	Controls and Procedures	2930
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	3031
Item 4.	Mine Safety Disclosures	3031
Item 5.	Other Information	3031
Item 6.	Exhibits	3031
Signatures		3132

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

(Unaudited)


	April 30,			July 31,
	2018			2017			January 31, 2019			July 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	51,916		$	36,584		$	71,031		$	94,097
Accounts receivable, net of allowance for doubtful accounts of $1,505 and $1,808	114,146			110,656
Accounts receivable, net of allowance for doubtful accounts of $1,498 and $1,149							127,093			118,642
Inventories, net	113,109			98,724			115,886			107,592
Prepaid expenses and other current assets	17,097			11,407			21,801			17,912
Income taxes receivable	4,184			—
Total current assets	300,452			257,371			335,811			338,243

Property and equipment, net	100,759			88,338			164,836			111,417
Intangible assets, net	145,552			124,512			141,548			137,361
Goodwill	366,804			311,445			371,015			368,027
Other assets	8,404			4,707			5,140			5,749
Deferred income taxes							3,683			2,911
Total assets	$	921,971		$	786,373		$	1,022,033		$	963,708

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	36,628		$	27,469		$	35,138		$	34,258
Compensation payable	28,586			27,468			21,681			30,595
Accrued expenses	27,930			23,393			28,132			28,525
Deferred revenue	30,183			25,282			27,136			28,614
Current portion of long-term debt							10,000			10,000
Income taxes payable	—			3,167			561			2,791
Total current liabilities	123,327			106,779			122,648			134,783

Long-term debt	169,000			126,000			227,577			187,302
Deferred income taxes	23,097			24,714			25,301			27,624
Other long-term liabilities	5,241			4,948			4,904			5,132
Total liabilities	320,665			262,441			380,430			354,841
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)

Stockholders’ equity:
Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued	$	—		$	—		$	—		$	—
Common Stock, par value $0.10 per share. Authorized 75,000,000 shares; issued 46,239,890 shares and outstanding 41,709,335 shares as of April 30, 2018; issued 46,194,370 shares and outstanding 41,728,934 shares as of July 31, 2017	4,046			4,619
Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 46,307,808 shares and outstanding 41,721,186 shares as of January 31, 2019; issued 46,243,582 shares and outstanding 41,706,084 shares as of July 31, 2018							4,631			4,624
Additional paid-in capital	183,551			174,602			192,202			184,212
Retained earnings	478,197			407,590			526,274			491,540
Accumulated other comprehensive loss	(5,292		)	(9,900		)	(17,096		)	(11,456		)
Treasury Stock, at cost; 4,530,555 shares as of April 30, 2018; 4,465,440 shares as of July 31, 2017	(59,196		)	(52,979		)
Treasury Stock, at cost; 4,586,622 shares as of January 31, 2019; 4,537,498 shares as of July 31, 2018							(64,408		)	(60,053		)
Total stockholders’ equity	601,306			523,932			641,603			608,867
Total liabilities and stockholders' equity	$	921,971		$	786,373
Total liabilities and stockholders’ equity							$	1,022,033		$	963,708

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. ~~2018 Third~~2019 Second Quarter Form 10-Q

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended April 30,				Nine Months Ended April 30,					Three Months Ended January 31,						Six Months Ended January 31,
	2018		2017		2018			2017		2019			2018			2019			2018
Net sales
Product sales	$	189,861	$	170,073	$	564,310		$	500,878	$	194,013		$	186,484		$	389,773		$	374,449
Product service	27,407		22,040		78,758			63,777		30,525			26,550			60,354			51,351
Total net sales	217,268		192,113		643,068			564,655		224,538			213,034			450,127			425,800

Cost of sales
Product sales	93,762		84,681		283,005			250,052		100,418			94,144			199,728			189,243
Product service	18,832		15,984		53,495			45,171		19,445			17,655			40,475			34,663
Total cost of sales	112,594		100,665		336,500			295,223		119,863			111,799			240,203			223,906

Gross profit	104,674		91,448		306,568			269,432		104,675			101,235			209,924			201,894

Expenses:
Selling	33,252		30,509		95,774			85,312		33,198			30,922			67,156			62,522
General and administrative	37,784		29,204		102,068			87,672		37,358			32,188			73,893			64,284
Research and development	6,571		4,291		17,543			13,328		7,923			5,643			15,001			10,972
Total operating expenses	77,607		64,004		215,385			186,312		78,479			68,753			156,050			137,778

Income from operations	27,067		27,444		91,183			83,120		26,196			32,482			53,874			64,116

Interest expense, net	1,498		1,084		3,822			3,303		2,207			1,135			4,233			2,324
Other income	—		—		(1,138		)	—
Other income, net										(1,313		)	—			(1,313		)	(1,138		)

Income before income taxes	25,569		26,360		88,499			79,817		25,302			31,347			50,954			62,930

Income taxes	6,833		8,849		14,346			25,436		6,502			(1,141		)	12,912			7,513

Net income	$	18,736	$	17,511	$	74,153		$	54,381	$	18,800		$	32,488		$	38,042		$	55,417

Earnings per common share:
Basic	$	0.45	$	0.42	$	1.78		$	1.30	$	0.45		$	0.78		$	0.91		$	1.33
Diluted	$	0.45	$	0.42	$	1.77		$	1.30	$	0.45		$	0.78		$	0.91		$	1.33

Dividends declared per common share	$	—	$	—	$	0.09		$	0.07
Dividends per common share										$	0.10		$	0.09		$	0.10		$	0.09

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. ~~2018 Third~~2019 Second Quarter Form 10-Q

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended April 30,					Nine Months Ended April 30,					Three Months Ended January 31,					Six Months Ended January 31,
	2018			2017		2018		2017			2019			2018		2019			2018
Net income	$	18,736		$	17,511	$	74,153	$	54,381		$	18,800		$	32,488	$	38,042		$	55,417

Other comprehensive (loss) income:
Other comprehensive loss (income):
Foreign currency translation	(6,538		)	1,384		4,608		(2,549		)	(417		)	12,379		(5,640		)	11,146
Total other comprehensive (loss) income	(6,538		)	1,384		4,608		(2,549		)
Total other comprehensive loss (income)											(417		)	12,379		(5,640		)	11,146

Comprehensive income	$	12,198		$	18,895	$	78,761	$	51,832		$	18,383		$	44,867	$	32,402		$	66,563

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. ~~2018 Third~~2019 Second Quarter Form 10-Q

Condensed Consolidated Statements of ~~Cash Flows~~Changes in Stockholders’ Equity

(Unaudited)

Nine Months Ended April 30,
2018 2017
Cash flows from operating activities

Net income $ 74,153
$ 54,381
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 12,816
10,922
Amortization 12,892
11,930
Stock-based compensation expense 7,033
6,983
Deferred income taxes (7,499 ) (97 )
Other non-cash items, net 586
519
Changes in assets and liabilities, net of effects of business acquisitions:

Accounts receivable 892
(13,108 )
Inventories (9,791 ) (2,334 )
Prepaid expenses and other assets (7,256 ) (2,924 )
Accounts payable and other liabilities 13,859
9,220
Income taxes (7,682 ) (2,108 )
Net cash provided by operating activities 90,003
73,384

Cash flows from investing activities

Capital expenditures (23,772 ) (20,765 )
Proceeds from disposal of fixed assets —
43
Acquisition of businesses, net of cash acquired (84,595 ) (69,998 )
Other, net —
344
Net cash used in investing activities (108,367 ) (90,376 )

Cash flows from financing activities

Borrowings under revolving credit facility 82,300
74,000
Repayments under revolving credit facility (39,300 ) (45,000 )
Dividends paid (3,546 ) (2,921 )
Purchases of treasury stock (6,216 ) (6,387 )
Net cash provided by financing activities 33,238
19,692

Effect of exchange rate changes on cash and cash equivalents 458
(194 )

Increase in cash and cash equivalents 15,332
2,506
Cash and cash equivalents at beginning of period 36,584
28,367
Cash and cash equivalents at end of period $ 51,916
$ 30,873

~~See accompanying notes to Condensed Consolidated Financial Statements.~~



	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury stock, at cost			Total Stockholders’ Equity
	Number of Shares Outstanding
	Number of Shares Outstanding		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 vestings/option exercises	53,320		7		948			—			—			—			955
Cancellations of restricted stock	(286	)	—		—			—			—			—			—
Dividends on common stock	—		—		—			—			—			—			—
Net income	—		—		—			19,242			—			—			19,242
Cumulative impact of 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 vestings/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



	Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury stock, at cost			Total Stockholders’ Equity
	Number of Shares Outstanding
	Number of Shares Outstanding		Amount
Balance, July 31, 2017	41,728,934		$	4,619		$	174,602		$	407,590		$	(9,900	)	$	(52,979	)	$	523,932
Repurchases of shares	(52,008	)	—			—			—			—			(5,822		)	(5,822		)
Stock-based compensation	—		—			1,851			—			—			—			1,851
Equity vestings/option exercises	42,168		5			874			—			—			—			879
Cancellations of restricted stock	(1,315	)	—			—			—			—			—			—
Dividends on common stock	—		—			—			—			—			—			—
Net income	—		—			—			22,929			—			—			22,929
Other	88,100		10			32			—			—			—			42
Other comprehensive loss	—		—			—			—			(1,233		)	—			(1,233		)
Balance, October 31, 2017	41,805,879		$	4,634		$	177,359		$	430,519		$	(11,133	)	$	(58,801	)	$	542,578
Repurchases of shares	(1,272	)	—			—			—			—			(131		)	(131		)
Stock-based compensation	—		—			2,739			—			—			—			2,739
Equity vestings/option exercises	—		—			—			—			—			—			—
Cancellations of restricted stock	(1,604	)	—			—			—			—			—			—
Dividends on common stock	—		—			—			(3,545		)	—			—			(3,545		)
Net income	—		—			—			32,488			—			—			32,488
Other	(88,100	)	(10		)	(15		)	—			—			—			(25		)
Other comprehensive loss	—		—			—			—			12,379			—			12,379
Balance, January 31, 2018	41,714,903		$	4,624		$	180,083		$	459,462		$	1,246		$	(58,932	)	$	586,483

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended January 31,
	2019			2018
Cash flows from operating activities
Net income	$	38,042		$	55,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	9,563			8,190
Amortization	10,552			8,412
Stock-based compensation expense	6,163			4,590
Deferred income taxes	(3,096		)	(6,453		)
Other non-cash items, net	(154		)	299
Changes in assets and liabilities, net of effects of acquisitions/dispositions:
Accounts receivable	(6,909		)	1,145
Inventories	(9,517		)	(8,073		)
Prepaid expenses and other assets	(2,980		)	(2,139		)
Accounts payable and other liabilities	(10,105		)	557
Income taxes	(2,365		)	(7,274		)
Net cash provided by operating activities	29,194			54,671

Cash flows from investing activities
Capital expenditures	(62,062		)	(13,476		)
Proceeds from sale of business	3,053			—
Acquisitions, net of cash acquired	(24,047		)	(64,287		)
Net cash used in investing activities	(83,056		)	(77,763		)

Cash flows from financing activities
Repayments of long-term debt	(5,000		)	—
Borrowings under revolving credit facility	45,000			61,300
Repayments under revolving credit facility	—			(27,300		)
Dividends paid	(4,173		)	(3,545		)
Purchases of treasury stock	(4,355		)	(5,952		)
Net cash provided by financing activities	31,472			24,503

Effect of exchange rate changes on cash and cash equivalents	(676		)	1,982

(Decrease) increase in cash and cash equivalents	(23,066		)	3,393
Cash and cash equivalents at beginning of period	94,097			36,584
Cash and cash equivalents at end of period	$	71,031		$	39,977

See accompanying notes to Condensed Consolidated Financial Statements.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

Notes to Condensed Consolidated Financial Statements (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.

During the first quarter of fiscal 2019, we changed the names of our reportable segments to better align with our key customers and the markets we serve. This decision resulted in a change from a financial reporting perspective as the industrial biological and chemical indicator business has moved from the Dental segment to the Life Sciences segment. Prior year segment disclosures have been recast to conform to the current year presentation. See Note 15, “Reportable Segments.”

Cantel is a leading provider of infection prevention products and services in the healthcare market, specializing in the following reportable segments: ~~Endoscopy, Water Purification~~Medical, Life Sciences, Dental and ~~Filtration, Healthcare Disposables and~~ Dialysis. ~~See Note 14, “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 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 generally accepted accounting principles 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, ~~2017~~2018 (the ~~“2017~~“2018 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, ~~2017~~2018 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.

Subsequent Events

We performed a review of events subsequent to ~~April 30, 2018~~January 31, 2019 through the date of issuance of the accompanying unaudited consolidated interim financial statements.

2. Accounting Pronouncements

Newly Adopted Accounting Standards

In ~~September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805)”~~ (“ASU 2015-16”). The new guidance requires an acquirer in a business combination to recognize a measurement-period adjustment during the period in which it determines the amount, and eliminates the requirement for an acquirer to account for measurement-period adjustments retrospectively. The acquirer must also disclose the amounts and reasons for adjustments to the provisional amounts. ASU 2015-16 is effective for fiscal years beginning after December 15, 2016 (our fiscal year 2018), including interim periods within that reporting period. Accordingly, we adopted ASU 2015-06 on August 1, 2017. The adoption of ASU 2015-06 did not have a material impact on our financial position and results of operations.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~“Inventory (Topic 330) Simplifying the Measurement of Inventory,”~~ (“ASU 2015-11”). The new guidance requires companies using the first-in, first-out and average costs methods to measure inventory using the lower of cost and net realizable value, where net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016 (our fiscal year 2018), including interim periods within that reporting period. Accordingly, we adopted ASU 2015-11 on August 1, 2017. The adoption of ASU 2015-11 did not have a material impact on our financial position and results of operations.

~~In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805)”~~ (“ASU 2017-01”) to clarify the definition of a business. The revised guidance creates a more robust framework to use in determining whether a set of assets and activities is a business. The guidance will be applied on a prospective basis on or after the effective date. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. We early adopted ASU-2017-01 on August 1, 2017. The adoption of ASU 2017-01 did not have a material impact on our financial position and results of operations.

~~Recently Issued Accounting Standards~~

~~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

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. The adoption of ASU 2018-02 is not expected to have a significant impact on our financial position and results of operations.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~“Targeted Improvements to Accounting for Hedging Activities”~~ (“ASU 2017-12”) to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. We are currently in the process of evaluating the impact of ASU 2017-12 on our financial position and results of operations.

In May 2017, the FASB issued ASU 2017-09, ““(Topic 718) Scope of Modification ~~Accounting”~~Accounting,” (“ASU 2017-09”) to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ~~Topic~~ASC 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. ~~We are currently in the process of evaluating the impact~~Accordingly, we adopted ASU 2017-09 on August 1, 2018. The adoption of ASU 2017-09 did not have a material impact on our financial position, ~~and~~ results of ~~operations.~~operations and cash flows.

In ~~January 2017,~~August 2016, the FASB issued ASU ~~2017-04,~~2016-15, “~~Intangibles - Goodwill~~(Topic 230) Classification of Certain Cash Receipts and ~~Other”~~Cash Payments,” (“ASU ~~2017-04”~~2016-15”). This guidance makes eight targeted changes to ~~simplify~~how cash receipts and cash payments are presented and classified in the ~~test for goodwill impairment. The revised guidance eliminates the existing Step 2~~statement 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. Under the revised guidance, an entity would recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to the reporting unit. The guidance will be applied on a prospective basis on or after the effective date.cash flows. ASU ~~2017-04~~2016-15 is effective for fiscal years beginning after December 15, ~~2019~~2017 (our fiscal year ~~2021) and early adoption is permitted for interim or annual goodwill impairment tests performed~~2019). Accordingly, we adopted ASU 2016-15 on ~~testing dates after January~~August 1, ~~2017.~~2018. The adoption of ASU ~~2017-04 is~~2016-15 did not ~~expected to~~ have a ~~significant~~material impact on our financial position, ~~and~~ results of ~~operations.~~

~~In February 2016, FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new guidance requires the recording of assets~~operations and liabilities arising from leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The new guidance is expected to provide transparency of information and comparability among organizations. ASU 2016-02 is effective for fiscal years beginning after December 15, 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. We are currently in the process of evaluating the impact of ASU 2016-02 on our financial position and results of operations.cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”), which ~~will supersede~~supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition” (“ASC 605”). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606),”(“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2016-12”), which provided narrow scope improvements and practical expedients relating to ASU 2014-09. ~~In preparation for our adoption of ASU 2014-09 and ASU 2016-12~~We adopted the collective standard (“ASC 606”) on August 1, 2018, we have obtained representative samples of contracts and other forms of agreements with our customers in the United States and in our international locations and continue to evaluate the provisions contained therein in light2018. See Note 5, “Revenue Recognition” for a discussion of the ~~five-step model specified by the new guidance. We continue to evaluate the~~ impact ~~of the new standard on certain common practices currently employed by us~~ and by other health care manufacturers and service providers, such as multiple-element arrangements, deferred revenues, warranties, rebates and other pricing allowances. We anticipate adopting the standard using the modified retrospective method. There may be differences in timing of revenue recognition under the new standard compared to recognition under ASC 605.required disclosures.


3.	~~Acquisitions~~

~~Fiscal 2018~~

~~Aexis Medical~~

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15,“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. The adoption of ASU 2018-15 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 2018-13,“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 Value 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. The adoption of ASU 2018-13 is not expected to have a material impact on our financial position, results of operations or cash flows.

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 ~~healthcare professionals.~~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. The adoption of ASU 2018-02 is not expected to have a material impact on our financial position, results of operations or cash flows.

In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”) to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. The adoption of ASU 2017-12 is 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. The adoption of ASU 2017-04 is not expected to have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, “(Topic 842) Leases,” (“ASU 2016-02”). The new guidance requires the recording of assets and liabilities arising from leases on the 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,” and in December 2018, the FASB issued ASU 2018-20, “Narrow-Scope Improvements for Lessors.” These ASUs provide narrow 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 are currently in the process of evaluating the impact of the collective standard (“ASC 842”) on our financial position, results of operations and cash flows.


3.	Acquisitions

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 ~~was $22,158,~~(net of cash acquired), excluding acquisition-related costs, of $27,190, consisting of $23,971 of cash and $3,219 of stock consideration, plus contingent consideration ranging from zero 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. Omnia will be included in our Dental segment.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

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.

Fiscal 2018

Aexis: On March 21, 2018, we purchased all of the issued and outstanding stock of Aexis Medical BVBA (“Aexis”) for total consideration, excluding acquisition-related costs, of $21,600, consisting of $20,308 ~~up-front~~of cash consideration (net of cash acquired), plus contingent consideration ranging from zero to a maximum of $1,850, which is payable upon the achievement of certain purchase order targets through March 21, 2020. Aexis ~~Medical~~specializes in advanced software solutions focused on the tracking and monitoring of instrument reprocessing for hospitals and healthcare professionals, and is included in our ~~Endoscopy~~Medical segment.

BHT ~~Group~~

Group: On August 23, 2017, we purchased all of the issued and outstanding stock of BHT Hygienetechnik Holding GmbH (“BHT Group”), a leader in the German market in automated endoscope reprocessing and related equipment and services for total consideration (net of cash acquired), excluding acquisition related costs, of ~~$60,787. The~~$60,216. BHT Group consists of a portfolio of high-quality automatic endoscope reprocessors, advanced endoscope storage and drying cabinets (products globally distributed by our Company prior to the acquisition under an agreement with BHT Group), washer-disinfectors for central sterile applications, associated technical service and parts as well as flexible endoscope repair services. BHT Group is included in our ~~Endoscopy~~Medical segment.

Purchase price allocations for Aexis Medical and BHT Group were based on preliminary valuations. Our estimates and assumptions are subject to change within the measurement period. We anticipate completing the purchase price allocation of the BHT Group during the fourth quarter of fiscal 2018.

~~Fiscal 2017~~

~~CR Kennedy~~

On April 1, 2017, we purchased certain endoscopy-related net assets of CR Kennedy & Company Pty Ltd. (“CR Kennedy”) related to its distribution and sale of our Medivators endoscopy products in Australia for total consideration, excluding acquisition related costs, of $11,999. The CR Kennedy business includes a full sales and service organization and our Medivators-branded automated endoscope reprocessors, chemistries, endoscopy procedure products and other consumables in Australia, and is included in our Endoscopy segment.

~~Vantage Endoscopy Inc.’s Medivators~~^® ~~Endoscopy Business~~

~~On September 26, 2016, we acquired certain net assets of Vantage Endoscopy Inc. (“Vantage”) related to its distribution and sale~~The following table presents our purchase price allocations of our Medivators endoscopy products in Canada for total consideration, excluding acquisition-related costs, of $4,044. Vantage was our exclusive distributor of Medivators capital equipment (e.g., automated endoscope reprocessors) and related consumables and accessories in Canada, and is included in our Endoscopy segment.

~~Accutron, Inc.~~

On August 1, 2016, we acquired all of the issued and outstanding stock of Accutron Inc. (“Accutron”), a Phoenix-based company, for total consideration, excluding acquisition-related costs, of $53,049. The Accutron business designs, manufactures and sells nitrous oxide conscious sedation equipment and single use nasal masks for use in dental procedures, and is included in our Healthcare Disposables segment.

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

material acquisitions:


	2018						2017						2019		2018
Purchase Price Allocation	Aexis Medical ⁽¹⁾			BHT Group⁽¹⁾			CR Kennedy		Vantage⁽¹⁾		Accutron⁽¹⁾		CES Business⁽¹⁾		Aexis⁽¹⁾			BHT Group⁽¹⁾
	(Preliminary)			(Preliminary)			(Final)		(Final)		(Final)		(Preliminary)		(Preliminary)			(Final)
Purchase Price:
Cash paid (net of cash acquired)	$	20,308		$	60,787		$	11,999	$	4,044	$	53,049
Cash paid													$	17,047	$	20,308		$	60,216
Fair value of contingent consideration	1,292			—			—		—		—		—		1,292			—
Total	$	21,600		$	60,787		$	11,999	$	4,044	$	53,049	$	17,047	$	21,600		$	60,216

Allocation:
Property and equipment	130			835			—		433		1,676		539		130			835
Amortizable intangible assets:
Customer relationships	—			12,500			4,200		992		12,800		8,100		1,800			12,500
Technology	11,099			6,200			—		—		10,000		—		4,600			6,200
Brand names	—			—			—		—		2,000
Goodwill	12,425			41,357			5,894		2,299		21,989		6,137		17,092			40,934
Deferred income taxes	—			(5,881		)	—		—		112		—		(1,639		)	(5,881		)
Other working capital, net	(762		)	5,776			1,905		320		4,472
Other working capital													2,271		909			5,628
Contingent consideration	(1,292		)	—			—		—		—		—		(1,292		)	—
Total	$	21,600		$	60,787		$	11,999	$	4,044	$	53,049	$	17,047	$	21,600		$	60,216


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

Unaudited Pro Forma Summary of Operations

The acquisitions above, both individually and in the aggregate, were not material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

4. Stock-Based Compensation

2016 Equity Incentive Plan

At ~~April 30, 2018, 191,708~~January 31, 2019, 275,400 nonvested restricted stock awards were outstanding under the 2016 plan. No options were outstanding under the 2016 plan. At ~~April 30, 2018, 972,312~~January 31, 2019, 815,698 shares ~~are~~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, 2018,~~January 31, 2019, options to purchase ~~70,000~~40,000 shares of common stock ~~were outstanding, and 38,295 nonvested restricted stock awards~~ were outstanding under the 2006 Plan. No additional awards will be granted under this plan.

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

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 January 31,				Six Months Ended January 31,
	2018		2017		2018		2017		2019		2018		2019		2018
Cost of sales	$	167	$	83	$	463	$	285	$	287	$	181	$	524	$	296
Operating expenses:
Selling	559		313		1,188		1,252		575		264		1,146		629
General and administrative	1,641		1,520		5,231		5,358		2,665		2,257		4,375		3,590
Research and development	76		29		151		88		60		37		118		75
Total operating expenses	2,276		1,862		6,570		6,698		3,300		2,558		5,639		4,294
Stock-based compensation before income taxes	$	2,443	$	1,945	$	7,033	$	6,983
Stock-based compensation expense									$	3,587	$	2,739	$	6,163	$	4,590

At ~~April 30, 2018,~~January 31, 2019, total unrecognized stock-based compensation expense ~~before income taxes,~~ related to total nonvested stock options and restricted stock awards was ~~$14,420~~$19,881 with a remaining weighted average period of 2019 months over which such expense is expected to be recognized.

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


					Six Months Ended January 31,
	2018		2017		2019		2018
Volatility of common stock	26.60	%	27.75	%	27.54	%	26.60	%
Average volatility of peer companies	33.72	%	32.98	%	36.55	%	33.72	%
Average correlation coefficient of peer companies	32.26	%	35.35	%	27.18	%	32.26	%
Risk-free interest rate	1.62	%	0.96	%	2.93	%	1.62	%

A summary of nonvested stock award activity for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 follows:


	Number of Time-based Awards		Number of Performance-based Awards		Number of Market-based Awards		Number of Total Awards		Weighted Average Fair Value		Number of Time-based Awards		Number of Performance-based Awards		Number of Market-based Awards	Number of Total Awards		Weighted Average Fair Value
July 31, 2017	196,818		16,235		9,245		222,298		$	66.28
July 31, 2018											168,320		26,076		17,710	212,106		$	88.87
Granted	94,130		18,647		10,465		123,242		$	101.73	122,478		27,231		16,765	166,474		$	91.63
Vested⁽¹⁾	(99,009	)	(6,162	)	—		(105,171	)	$	58.98	(85,308	)	(10,284	)	—	(95,592	)	$	76.71
Forfeited	(6,623	)	(1,743	)	(2,000	)	(10,366	)	$	91.09	(6,865	)	(723	)	—	(7,588	)	$	89.13
April 30, 2018	185,316		26,977		17,710		230,003		$	87.55
January 31, 2019											198,625		42,300		34,475	275,400		$	94.99


(1)	The aggregate fair value of all nonvested stock awards which vested was approximately ~~$6,203.~~$7,335.

~~A summary of stock option activity for the nine months ended April 30, 2018 follows:~~

Number of shares Weighted Average Exercise Price Weighted Average Contractual Life Remaining (Years) Aggregate Intrinsic Value
Outstanding at July 31, 2017 122,500
$ 29.36

Granted —
—

Exercised (52,500 ) 17.04

Outstanding at April 30, 2018 70,000
$ 38.60
1.20 $ 5,143
Exercisable at April 30, 2018 65,000
$ 37.31
1.11 $ 4,859

During the nine months ended April 30, 2018, 5,000 options vested, with an aggregate fair value of approximately $132. During the nine months ended April 30, 2018, 52,500 options were exercised, with an aggregate fair value of approximately $4,049. As of April 30, 2018, all of the outstanding options had vested or were expected to vest in future periods. No options were granted during the nine months ended April 30, 2018.

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

A summary of stock option activity for the six months ended January 31, 2019 follows:



	Number of shares		Weighted Average Exercise Price		Weighted Average Contractual Life Remaining (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2018	70,000		$	38.60
Exercised	(30,000	)	$	31.81
Outstanding at January 31, 2019	40,000		$	43.70	1.07	$	1,509
Exercisable at January 31, 2019	40,000		$	43.70	1.07	$	1,509

During the six months ended January 31, 2019, 5,000 options vested, with an aggregate fair value of approximately $277. During the six months ended January 31, 2019, 30,000 options were exercised, with an aggregate fair value of approximately $1,787. At January 31, 2019, all outstanding options were vested.

Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the income tax benefit on stock-based ~~compensation described above.~~compensation. For the ~~nine~~six months ended ~~April 30,~~January 31, 2019, income tax deductions of $3,059 were generated, of which $2,062 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $997 was recorded as a reduction in income tax expense. For the six months ended January 31, 2018, income tax deductions of $3,406 were generated, of which $1,394 were ~~previously~~ recorded as a reduction toin income ~~taxes~~tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $2,012 ~~(which includes the state income tax benefit)~~ was recorded as a reduction ~~to income taxes. For the nine months ended April 30, 2017,~~in income tax deductions of $5,520 were generated, of which $3,329 were previously recorded as a reduction to income taxes over the equity awards’ vesting period and the remaining excess tax benefit of $2,191 was recorded as a reduction to income taxes.expense.

5. Revenue Recognition

Adoption of “Revenue from Contracts with Customers (ASC 606)”

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. Results for reporting beginning after August 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and will continue to be reported in accordance with our historic accounting under ASC 605.

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.

Revenue Recognition

A portion of our medical, life sciences and dialysis sales include multiple performance obligations, whereby revenue is allocated to the equipment, installation and consumable components based upon their relative standalone selling prices, which includes comparable historical transactions of similar equipment, installation and consumables sold as stand-alone components. Revenue on capital equipment and consumables is recognized when control of the equipment or consumable transfers to the customer, which is generally driven by the underlying shipping terms of the transaction. Revenue on the installation component is recognized when the installation is complete. The most significant judgments related to these arrangements include identifying the various performance obligations of these arrangements and determining the relative standalone selling price of each performance obligation.

With respect to certain of our customers, rebates are provided. Such rebates, which consist primarily of volume rebates, are provided for as a reduction of sales at the time of revenue recognition. Such allowances are determined based on estimated projections of sales volume for the entire rebate periods. If it becomes known that sales volume to customers will deviate from original projections, the rebate provisions originally established would be adjusted accordingly. We also offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price. We use information available at the time and our historical experience with each customer to estimate the rebate amount by applying the expected value method.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

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



	Three Months Ended January 31,				Six Months Ended January 31,
Net sales by geography	2019		2018		2019		2018⁽¹⁾
United States	$	165,164	$	157,708	$	334,102	$	318,648
Europe/Africa/Middle East	34,319		32,498		66,333		60,553
Asia/Pacific	15,568		12,987		31,320		26,849
Canada	8,138		8,318		15,509		16,796
Latin America/South America	1,349		1,523		2,863		2,954
Total	$	224,538	$	213,034	$	450,127	$	425,800
Net sales by product line
Capital equipment	$	57,387	$	59,071	$	115,519	$	118,240
Consumables	135,731		127,413		272,552		255,807
Product service	30,525		26,550		60,354		51,351
All other⁽²⁾	895		—		1,702		402
Total	$	224,538	$	213,034	$	450,127	$	425,800


(1)	As noted above, prior year amounts have not been adjusted under the modified retrospective method.


(2)	Primarily includes software licensing revenues.

Remaining Performance Obligations

At January 31, 2019, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $67,281, primarily within the Medical segment. We expect to recognize revenue on approximately 65% of these remaining performance obligations over the remainder of fiscal 2019 and fiscal 2020. These performance obligations primarily reflect the future product service revenues for multi-period service arrangements.

Contract Liabilities

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. 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 for the six months ended January 31, 2019 follows:



	Contract Liabilities
Balance, August 1, 2018	$	29,015
Revenue deferred in current year	31,525
Deferred revenue recognized	(32,444		)
Foreign currency translation	(443		)
Balance, January 31, 2019	27,653
Contract liabilities included in Other long-term liabilities	(517		)
Deferred revenue	$	27,136

Practical Expedients and Policy Elections

As part of the cost to obtain a contract, we may pay incremental commissions to sales employees upon entering into a sales contract. Under ASC 606, we have elected to expense these costs as incurred when the period of benefit is less than one year. For certain multi-period contracts, we capitalize these amounts as contract costs, and amortize them based on the contract duration to which the assets relate, which ranges from two to five years. The amounts at January 31, 2019, were not material. For certain international contracts with distributors, we recognize a receivable at the point in time in which we have an unconditional right to payment. Most customers are required to pay a portion of the transaction price in advance and the remaining balance within 30 days of

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

receiving the related products. Accordingly, we have elected to use the practical expedient which allows us to ignore the possible existence of a significant financing component within these contracts.

As a policy, for shipping and handling costs incurred after the customer has obtained control of a good, we will continue to treat these costs as a fulfillment cost rather than as an additional promised service. Additionally, in certain U.S. states, we are required to collect sales taxes from our customers, and in certain international jurisdictions, we are required to collect value added taxes. The tax collected is recorded as a liability until remitted to the taxing authority.

6. Inventories, Net

A summary of inventories is as follows:


	April 30, 2018			July 31, 2017			January 31, 2019			July 31, 2018
Raw materials and parts	$	49,365		$	45,831		$	57,812		$	49,054
Work-in-process	15,498			13,484			11,573			13,189
Finished goods	56,297			48,262			55,738			53,948
Reserve for excess and obsolete inventory	(8,051		)	(8,853		)	(9,237		)	(8,599		)
Total	$	113,109		$	98,724		$	115,886		$	107,592

6.7. Derivatives

In order to hedge against the impact of fluctuations in the value of the Euro, British Pound, Canadian dollar, Australian dollar and Singapore dollar 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 Euros, British Pounds, Canadian dollars, Australian dollars and Singapore dollars, which contracts are 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 Euros, British Pounds, Canadian dollars, Australian dollars and Singapore dollars 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 Chinese Renminbi and Sri Lankan Rupee relative to the U.S. dollar because the overall foreign currency exposure relating to these currencies is ~~currently~~ not ~~deemed significant.~~material.

There were ~~eight~~seven foreign currency forward contracts with an aggregate notional value of ~~$29,897~~$62,904 and ~~$24,762~~$30,159 at ~~April 30, 2018~~January 31, 2019 and July 31, ~~2017,~~2018, respectively, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. For the ~~three and nine~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017,~~ the settlements of our forward contracts resulted in immaterial amounts of currency conversion gains and losses on the hedged items in the aggregate.

7.8. 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. ~~ASC 820 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:~~

~~Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.~~

~~Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.~~

~~Level 3: Unobservable inputs for the asset or liability.~~

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

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

Our financial assets that are re-measured at fair value on a recurring basis include money market funds that are classified as cash and cash equivalents in the consolidated 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 Aexis ~~Medical~~ acquisition, additional purchase price payments ranging from zero to $1,850 are 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. ~~As of~~At the date of acquisition, we estimated the original fair value of the contingent consideration to be $1,292. We are required 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 of the contingent consideration, for which probabilities are assigned to each scenario. Given the short term nature of the

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

financial instrument, the contingent consideration ~~will~~is not be discounted to present value. Although we believe our assumptions are reasonable, different assumptions or changes in the future may result in different estimated amounts.

In connection with the Jet Prep Ltd. ("(“Jet ~~Prep"~~Prep”) acquisition in fiscal 2014, we assumed a contingent obligation payable to the Israeli Government based on future sales. This fair value measurement was based on significant inputs not observed in the market and thus represent Level 3 measurements. In November 2017, the Israeli Government formally notified us that they would forgive any future amounts payable due to our decision to exit the Jet Prep business. During the first quarter of fiscal 2018, we reduced the fair value of this obligation to ~~$0.~~zero. See Note ~~10, "Commitments~~11, “Commitments and Contingencies."”

The fair values of ~~the Company’s~~our financial instruments measured on a recurring basis were categorized as follows:

April 30, 2018
Level 1 Level 2 Level 3 Total
Assets:

Cash and cash equivalents:

Money markets $ 103
$ —
$ —
$ 103
Total assets $ 103
$ —
$ —
$ 103
Liabilities:

Long-term debt⁽¹⁾
—
169,000
—
169,000
Other long-term liabilities:

Contingent consideration —
—
1,262
1,262
Total other long-term liabilities: —
—
1,262
1,262
Total liabilities $ —
$ 169,000
$ 1,262
$ 170,262

~~(1) Fair value estimated using Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.~~

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

July 31, 2017
Level 1 Level 2 Level 3 Total
Assets:

Cash and cash equivalents:

Money markets $ 102
$ —
$ —
$ 102
Total assets $ 102
$ —
$ —
$ 102
Liabilities:

Accrued expenses:

Assumed contingent obligation —
—
12
12
Total accrued expenses —
—
12
12
Long-term debt⁽¹⁾
—
126,000
—
126,000
Other long-term liabilities:

Assumed contingent obligation —
—
1,126
1,126
Total other long-term liabilities: —
—
1,126
1,126
Total liabilities $ —
$ 126,000
$ 1,138
$ 127,138


~~(1)~~	~~Fair value estimated using Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.~~

~~The following table summarizes the Level 3 activity of our financial instruments:~~



	January 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	104	$	—	$	—	$	104
Total assets	$	104	$	—	$	—	$	104
Liabilities:
Other long-term liabilities:
Contingent consideration	—		—		1,352		1,352
Total liabilities	$	—	$	—	$	1,352	$	1,352

Three Months Ended April 30, Nine Months Ended April 30,
2018 2017 2018 2017
Beginning balance $ —
$ 1,138
$ 1,138
$ 1,138
Original fair value of contingent consideration⁽¹⁾
1,292
—
1,292
—
Foreign currency translation (30 ) —
(30 ) —
Net settlements⁽²⁾
—
—
(1,138 ) —
Ending Balance $ 1,262
$ 1,138
$ 1,262
$ 1,138



	July 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	104	$	—	$	—	$	104
Total assets	$	104	$	—	$	—	$	104
Liabilities:
Other long-term liabilities:
Contingent obligation	—		—		1,298		1,298
Total liabilities	$	—	$	—	$	1,298	$	1,298


~~(1)~~	~~For the three and nine months ended April 30, 2018, the amounts represent the contingent consideration associated with the Aexis Medical acquisition.~~


~~(2)~~	~~For the nine months ended April 30, 2018, the amount represents the resolution of the Jet Prep obligation.~~

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
Balance, July 31, 2018	$	1,298
Net activity	54
Balance, January 31, 2019	$	1,352

Disclosure of Fair Value of Financial Instruments

~~As of April 30, 2018~~At January 31, 2019 and July 31, ~~2017,~~2018, the carrying amounts for cash and cash equivalents (excluding money markets), accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. At January 31, 2019 and July 31, 2018, the carrying value of our outstanding borrowings under our credit facility approximated the fair value of these obligations as the respective borrowings rates reflect prevailing market interest rates.

(dollar amounts in thousands except share and per share data or as otherwise noted) 1213

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q


8.9.	Intangibles and Goodwill

~~The Company’s~~Our intangible assets consist of the following:


	April 30, 2018							July 31, 2017							January 31, 2019							July 31, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets with finite lives:
Customer relationships(1)	$	133,133	$	(43,145	)	$	89,988	$	119,576	$	(34,773	)	$	84,803	$	135,330	$	(46,153	)	$	89,177	$	133,347	$	(45,618	)	$	87,729
Technology⁽¹⁾	59,080		(18,663		)	40,417		39,064		(15,260		)	23,804		58,728		(20,144		)	38,584		54,585		(19,836		)	34,749
Brand names(1)	8,230		(3,719		)	4,511		8,188		(3,225		)	4,963		6,919		(2,944		)	3,975		8,141		(3,857		)	4,284
Non-compete agreements(1)	3,060		(1,571		)	1,489		3,092		(1,428		)	1,664		2,880		(1,555		)	1,325		3,060		(1,628		)	1,432
Patents and other registrations	2,767		(1,144		)	1,623		2,783		(1,053		)	1,730		2,987		(1,195		)	1,792		2,826		(1,179		)	1,647
	206,270		(68,242		)	138,028		172,703		(55,739		)	116,964		206,844		(71,991		)	134,853		201,959		(72,118		)	129,841
Trademarks and tradenames	7,524		—			7,524		7,548		—			7,548		6,695		—			6,695		7,520		—			7,520
Total intangible assets	$	213,794	$	(68,242	)	$	145,552	$	180,251	$	(55,739	)	$	124,512	$	213,539	$	(71,991	)	$	141,548	$	209,479	$	(72,118	)	$	137,361

(1)

~~The gross and accumulated amortization amounts previously reported as~~During the six months ended January 31, 2019, we wrote off $10,319 of ~~July 31, 2017 have been revised to exclude the $3,730~~ fully amortized ~~technology related~~ intangible ~~asset and associated accumulated amortization related to the Jet Prep business. This did not result in any change to the net technology related intangible asset as of July 31, 2017.~~assets.

Amortization expense related to intangible assets was ~~$4,480~~$10,552 and ~~$3,964~~$8,412 for the ~~three~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017, respectively, and $12,892 and $11,930 for the nine months ended April 30, 2018 and 2017,~~ respectively. We expect to recognize an additional ~~$5,253~~$9,611 of amortization expense related to intangible assets for the remainder of fiscal ~~2018,~~2019, and thereafter ~~$18,008, $16,315, $16,313, $15,969~~$17,384, $17,077, $16,695, $15,665 and ~~$15,586~~$14,786 of amortization expense for fiscal years ~~2019,~~ 2020, 2021, 2022, 2023 and ~~2023,~~2024, respectively.

Goodwill changed during the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 as follows:


	Endoscopy		Water Purification and Filtration			Healthcare Disposables		Dialysis		Total Goodwill		Medical			Life Sciences			Dental		Dialysis		Total Goodwill
Balance, July 31, 2017	$	129,945	$	59,088		$	114,279	$	8,133	$	311,445
Balance, July 31, 2018												$	186,690		$	58,925		$	114,279	$	8,133	$	368,027
Acquisitions	53,782		—			—		—		53,782		—			6,137			—		—		6,137
Divestitures												—			(495		)	—		—		(495		)
Foreign currency translation	1,717		(140		)	—		—		1,577		(2,562		)	(92		)	—		—		(2,654		)
Balance, April 30, 2018	$	185,444	$	58,948		$	114,279	$	8,133	$	366,804
Balance, January 31, 2019												$	184,128		$	64,475		$	114,279	$	8,133	$	371,015

9.10. Financing Arrangements

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



	January 31, 2019			July 31, 2018
Revolving credit loans outstanding	$	45,000		$	—
Tranche A term loan outstanding	195,000			200,000
Unamortized debt issuance costs	(2,423		)	(2,698		)
Total long-term debt, net of unamortized debt issuance costs	237,577			197,302
Current portion of long-term debt	(10,000		)	(10,000		)
Long-term debt, net of unamortized debt issuance costs and excluding current portion	$	227,577		$	187,302

On June 28, 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The 2018 Agreement refinances our credit facility under ~~our~~the Third Amended and Restated Credit Agreement (the ~~“2014~~“Existing Credit Agreement”) dated March 4, 2014, to include a $200,000 tranche A term loan and a $400,000 revolving credit facility. 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 or tranche A term loan by an aggregate amount not to exceed $300,000. The 2018 Credit Agreement expires on June 28, 2023. Additionally, subject to certain restrictions and conditions (i) any of our domestic or foreign subsidiaries may become borrowers and (ii) borrowings may occur in multi-currencies.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

At January 31, 2019, we had $195,000 of term loan A borrowings outstanding and $45,000 revolver borrowings under the 2018 Credit Agreement. The tranche A term loan is subject to principal amortization, with $10,000 due and payable in each of fiscal 2019, 2020, 2021 and 2022, with the remaining $160,000 due and payable at maturity on June 28, 2023. During the six months ended January 31, 2019, we made principal payments of $5,000.

Borrowings under the 2018 Credit Agreement bear interest at rates ranging from ~~0.25%~~0.00% to ~~1.25%~~1.00% above ~~the lender’s~~prime rate for base rate borrowings, or at rates ranging from ~~1.25%~~1.00% to ~~2.25%~~2.00% above the London Interbank Offered Rate (“LIBOR”), depending upon ~~the Company’s~~our “Consolidated Leverage Ratio,” which is defined as the consolidated ratio of total funded debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the ~~2014~~2018 Credit Agreement (“Consolidated EBITDA”). At ~~April 30, 2018,~~January 31, 2019, the lender’s base rate was ~~5.00%~~5.75% and the LIBOR ~~rates ranged from 1.89% to 1.90%~~rate was 3.77%. The margins applicable to our outstanding borrowings were 0.25% above the lender’s base rate or 1.25% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at ~~April 30, 2018.~~January 31, 2019. The ~~2014~~2018 Credit Agreement also provides for fees on the unused portion of our facility at rates ranging from 0.20% to ~~0.40%~~0.35%, depending upon our Consolidated Leverage Ratio, which was 0.20% at ~~April 30, 2018.~~January 31, 2019. At January 31, 2019, the interest rate on our outstanding borrowings was approximately 3.75%.

The ~~2014~~2018 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 of all of the outstanding shares of its U.S.-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries. We are in compliance with all financial ~~and other~~ covenants under the ~~2014~~2018 Credit Agreement.

As of April 30, 2018 and July 31, 2017, we had $169,000 and $126,000, respectively, of outstanding borrowings under the 2014 Credit Agreement. Debt issuance costs associated with our credit facilities are capitalized and amortized to interest expense over

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

the term of the credit facilities. As of April 30, 2018 and July 31, 2017, such debt issuance costs, net of related amortization, were included in other assets, and amounted to $334 and $580, respectively.

~~10.~~11. Commitments and Contingencies

Contingent Consideration and Assumed Contingent Liability

At January 31, 2019, $1,352 was recorded related to 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. During fiscal 2017, we decided to exit the Jet Prep business that was acquired in fiscal 2014. At the time of the acquisition, we assumed a contingent obligation payable to the Israeli Government based on future sales. In November 2017, the Israeli Government formally notified us that they would forgive any future amounts payable due to our decision to exit the Jet Prep business. As a result of this formal notification, we reduced the $1,138 contingent obligation to $0zero during the first quarter of fiscal 2018, resulting in a benefit through other income for the ~~nine~~six months ended ~~April 30,~~January 31, 2018.

Legal Matters

In May 2017, Cantel Medical (UK) Limited and Cantel (UK) Limited filed a lawsuit in the UK High Court of Justice against ARC Medical Design Limited (“ARC”) seeking a judgment of invalidity on two of ARC’s patents and additionally/alternatively a declaration of non-infringement of our AmplifEYE^TM ~~Endoscopic device. ARC filed counterclaims alleging that the AmplifEYE~~^TM ~~device infringed the two patents as well as registered community design marks and unregistered design rights that ARC had in its Endocuff~~^TM ~~and Endocuff Vision~~^TM devices. In February 2018, the trial judge entered a judgment in favor of ARC, and we decided not to appeal the decision. We entered into a settlement agreement with ARC in March 2018 under which we agreed not to make, use, sell or offer to sell the AmplifEYE^TMdevice in the European Union until ARC’s rights expire, and reimbursed ARC for a portion of their legal costs. During the third quarter of fiscal 2018, we recorded $2,608 of litigation costs within selling, general and administrative expenses associated with this matter.

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.

~~11.~~12. 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) 1415

Cantel Medical Corp. ~~2018 Third~~2019 Second 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						Nine Months Ended
	April 30,						April 30,						Three Months Ended January 31,						Six Months Ended January 31,
	2018			2017			2018			2017			2019			2018			2019			2018
Numerator for basic and diluted earnings per share:
Net income	$	18,736		$	17,511		$	74,153		$	54,381		$	18,800		$	32,488		$	38,042		$	55,417
Less income allocated to participating securities	(59		)	(98		)	(281		)	(335		)	(16		)	(107		)	(49		)	(225		)
Net income available to common shareholders	$	18,677		$	17,413		$	73,872		$	54,046		$	18,784		$	32,381		$	37,993		$	55,192
Denominator for basic and diluted earnings per share, as adjusted for participating securities:
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	41,580,387			41,489,587			41,559,312			41,459,067			41,667,955			41,578,483			41,660,095			41,549,570
Dilutive effect of stock awards using the treasury stock method and the average market price for the year	69,134			75,431			63,642			74,420			18,088			55,561			41,558			60,897
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,649,521			41,565,018			41,622,954			41,533,487			41,686,043			41,634,044			41,701,653			41,610,467
Earnings per share attributable to common stock:
Basic earnings per share	$	0.45		$	0.42		$	1.78		$	1.30		$	0.45		$	0.78		$	0.91		$	1.33
Diluted earnings per share	$	0.45		$	0.42		$	1.77		$	1.30		$	0.45		$	0.78		$	0.91		$	1.33
Stock options excluded from weighted average dilutive common shares because their inclusion would have been anti-dilutive	—			—			—			—			—			—			—			—

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


	Three Months Ended		Nine Months Ended
	April 30,		April 30,		Three Months Ended January 31,		Six Months Ended January 31,
	2018	2017	2018	2017	2019	2018	2019	2018
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,649,521	41,565,018	41,622,954	41,533,487	41,686,043	41,634,044	41,701,653	41,610,467
Participating securities	133,954	233,501	159,932	259,050	33,400	138,508	55,436	172,205
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,783,475	41,798,519	41,782,886	41,792,537	41,719,443	41,772,552	41,757,089	41,782,672

12.13. Income Taxes

On December 22, 2017, the U.S. government enacted wide-ranging tax legislation, the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act significantly ~~revises~~revised U.S. tax law by, among other provisions, (a) lowering the applicable U.S. federal statutory income tax rate from 35% to 21%, (b) creating a partial territorial tax system that includes imposing a mandatory one-time transition tax on previously deferred foreign earnings, (c) creating provisions regarding the (1) Global Intangible Low Tax Income (“GILTI”), (2) the Foreign Derived Intangible Income (“FDII”) deduction, and (3) the Base Erosion Anti-Abuse Tax (“BEAT”), and (d) eliminating or reducing certain income tax deductions, such as interest expense, executive compensation expenses and certain employee expenses.

ASC 740, “Income Taxes,” requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the 2017 Tax Act’s provisions, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows companies to record the tax effects of the 2017 Tax Act on a provisional basis ~~based on a reasonable estimate~~ and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year from enactment. As a result, we provided a provisional estimate of the effect of the Tax Act for the fiscal year ended July 31, 2018, and recorded a net benefit of $8,657 due to the impact on our deferred taxes

(dollar amounts in thousands except share and per share data or as otherwise noted) 1516

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

on the basis of the actual fiscal 2018 results of operations. The measurement period provided by SAB 118 concluded during the second quarter of fiscal 2019, and no material adjustments were made to the provisional estimates recorded.

As part of U.S. tax reform, the 2017 Tax Act imposed a one-time transition tax on certain accumulated positive foreign earnings (net of foreign deficits) across all non-U.S. subsidiaries, as computed under U.S. tax principles. As of December 31, 2017, our non-U.S. subsidiaries were in a net foreign deficit position in the aggregate, and therefore no accrual for the transition tax was made.

Section 15 of the Internal Revenue Code (the “Code”) governs rate changes and was not amended by the 2017 Tax Act. Section 15 requires a blended tax rate for fiscal-year taxpayers for their fiscal year that includes the effective date of the rate change, which was January 1, 2018. As a result of the 2017 Tax Act, we revised our estimated annual effective rate to reflect the change in the U.S. federal statutory rate by computing a tentative tax under both rates, and then prorating the tentative tax based on the number of days with and without the rate change to arrive at a blended tax rate of 26.9%, as required by the ~~code.~~Code. This blended rate was applied for fiscal 2018 (beginning with the second quarter) and the new U.S. federal statutory rate of 21% ~~will apply~~applies to fiscal 2019 and beyond.

~~During the second quarter ended January 31, 2018, we recorded a net benefit of $8,398 to the income tax provision as a provisional estimate of the net accounting impact of~~As noted above, the 2017 Tax Act ~~in accordance with SAB 118. The net benefit is comprised of~~also establishes new tax laws that will affect the ~~following: (i) expense of $294~~fiscal year ending July 31, 2019, which include the GILTI provision, the FDII deduction, a new minimum tax related to ~~the mandatory transition tax for deemed repatriation of deferred~~payments to foreign ~~income~~subsidiaries and ~~(ii) a benefit of $8,692 related to a revaluation of our deferred tax assets~~affiliates known as BEAT and ~~liabilities. During the third quarter ended April 30, 2018, we reduced the mandatory transition tax by $294.~~

Given the significant complexity of the 2017 Tax Act, anticipated guidance from the U.S. Treasury concerning implementation of the 2017 Tax Act, and the potential for additional guidance from the SEC or the FASB related to the 2017 Tax Act, the provisional estimates we recorded may require adjustment during the measurement period.certain employee expense deductions. The provisional estimates were based on our understanding of the 2017 Tax Act and other information available at the time of the estimates, including assumptions and expectations about future events, such as projected financial performance, and are subject to further refinement as additional information becomes available, ~~(including our actual full fiscal 2018 results of operations, as well as~~including potential new or interpretative guidance issued by the SEC, the FASB, or the Internal Revenue Service) and as we continue our analysis. We continue to analyze the changes to certain income tax deductions, assess calculations of earnings and profits in certain foreign subsidiaries, including whether those earnings are held in cash or other assets, and gather additional data to compute the full impact of the 2017 Tax Act on our deferred and current tax assets and liabilities. Furthermore, such analysis includes but is not limited to provisions regarding the GILTI and certain employee expense deductions, as well as the state tax impact of the 2017 Tax Act. During the third quarter ended April 30, 2018, we reduced the mandatory transition tax by $294. We are currently in the process of further analyzing its structure and estimated future results and, as a result, are not yet able to reasonably estimate the effect of these provisions of the 2017 Tax Act.IRS.

A reconciliation of the consolidated effective income tax rate ~~from the three and nine months ended April 30, 2017 to the three and nine months ended April 30, 2018~~ is as follows:

Consolidated Effective
Income Tax Rate
Three Months Ended Nine Months Ended
April 30, 2017 33.6 % 31.9 %
Difference attributable to:
Deferred tax revaluation (0.4 )% (7.0 )%
U.S. federal statutory rate decrease⁽¹⁾
(8.1 )% (8.1 )%
Foreign operations (1.3 )% (0.3 )%
State taxes 3.5 % 1.5 %
Excess tax benefit — % (2.3 )%
Other (0.6 )% 0.5 %
April 30, 2018 26.7 % 16.2 %


~~(1)~~	~~The Company revised its estimated annual rate to reflect a blended U.S. federal statutory rate of 26.9% as compared to 35.0%.~~



	Three Months Ended		Six Months Ended
Effective Rate, January 31, 2018	(3.6	)%	11.9	%
Deferred tax revaluation	27.5	%	13.7	%
U.S. federal statutory rate decrease	(5.8	)%	(5.8	)%
Prior quarter true-up due to U.S. federal statutory rate decrease	8.2	%	—	%
Foreign operations	(1.8	)%	1.6	%
State taxes	0.1	%	0.5	%
Excess tax benefit	(0.9	)%	1.2	%
Other	2.0	%	2.2	%
Effective Rate, January 31, 2019	25.7	%	25.3	%

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

~~13.~~14. Accumulated Other Comprehensive ~~(Loss) Income~~Loss

The components and changes in accumulated other comprehensive ~~(loss) income~~loss were as follows:


	Three Months Ended April 30,						Nine Months Ended April 30,						Three Months Ended January 31,						Six Months Ended January 31,
	2018			2017			2018			2017			2019			2018			2019			2018
Beginning balance	$	1,246		$	(15,728	)	$	(9,900	)	$	(11,795	)	$	(16,679	)	$	(11,133	)	$	(11,456	)	$	(9,900	)
Other comprehensive (loss) income for foreign currency translation	(6,538		)	1,384			4,608			(2,549		)
Other comprehensive (income) loss due to foreign currency translation													(417		)	12,379			(5,640		)	11,146
Ending balance	$	(5,292	)	$	(14,344	)	$	(5,292	)	$	(14,344	)	$	(17,096	)	$	1,246		$	(17,096	)	$	1,246

~~14.~~15. Reportable Segments

In accordance with ~~FASB~~ 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 ~~operating income.~~income from operations.

~~The Company’s~~

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

During the first quarter of fiscal 2019, we changed the names of our reportable segments to better align with our key customers and the markets we serve. As a result of this change, our industrial biological and chemical indicator business has moved from the Dental segment to the Life Sciences segment. Prior year segment disclosures have been recast to conform to the current year presentation.

Our reportable segments are as follows:

~~Endoscopy:~~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.

~~Water Purification and Filtration:~~Life Sciences: designs, develops, manufactures, sells, and installs water purification systems for medical, pharmaceutical and other bacteria controlled applications. We also provide filtration/separation and disinfectant technologies to the medical and life science markets through a worldwide distributor network. Two customers collectively accounted for approximately ~~50.1%~~42.5% and ~~50.7%~~51.3% of our ~~Water Purification and Filtration~~Life Sciences segment net sales for the ~~nine~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017,~~ respectively.

~~Healthcare Disposables:~~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. Three customers collectively accounted for approximately ~~47.7%~~47.9% and ~~50.4%~~48.3% of our ~~Healthcare Disposables~~Dental segment net sales for the ~~nine~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017,~~ 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. Two customers accounted for approximately ~~39.0%~~20.6% and ~~38.8%~~38.7% of our Dialysis segment net sales for the ~~nine~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017,~~ respectively. These customers are the same two customers noted above under our Life Sciences segment.

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

Three Months Ended April 30, Nine Months Ended April 30,
2018 2017 2018 2017
Net sales:

Endoscopy $ 118,396
$ 100,349
$ 347,446
$ 288,544
Water Purification and Filtration 52,330
47,940
156,828
145,233
Healthcare Disposables 38,522
36,177
114,898
108,256
Dialysis 8,020
7,647
23,896
22,622
Total $ 217,268
$ 192,113
$ 643,068
$ 564,655

None of our customers accounted for 10% or more of our consolidated net sales for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 and ~~2017.~~2018.

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

to reportable segments is summarized below:

Three Months Ended April 30, Nine Months Ended April 30,
2018 2017 2018 2017
Segment operating income:

Endoscopy $ 20,515
$ 18,514
$ 64,662
$ 54,853
Water Purification and Filtration 8,454
7,842
26,753
25,167
Healthcare Disposables 7,588
6,392
23,481
20,857
Dialysis 1,778
2,315
5,795
6,275
38,335
35,063
120,691
107,152
General corporate expenses⁽¹⁾
11,268
7,619
29,508
24,032
Operating income $ 27,067
$ 27,444
$ 91,183
$ 83,120



	Three Months Ended January 31,				Six Months Ended January 31,
Net sales	2019		2018		2019		2018
Medical	$	128,580	$	116,665	$	256,132	$	229,050
Life Sciences	51,869		52,337		105,214		107,107
Dental	35,933		36,090		72,561		73,767
Dialysis	8,156		7,942		16,220		15,876
Total net sales	$	224,538	$	213,034	$	450,127	$	425,800

~~_______________________________________________~~


~~(1)~~	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 program and being a publicly traded company.



	Three Months Ended January 31,				Six Months Ended January 31,
Income from operations	2019		2018		2019		2018
Medical	$	25,525	$	24,463	$	50,736	$	44,147
Life Sciences	7,323		8,583		13,654		18,958
Dental	4,888		6,558		10,813		15,233
Dialysis	1,193		1,918		2,577		4,017
	38,929		41,522		77,780		82,355
General corporate expenses	12,733		9,040		23,906		18,239
Total income from operations	$	26,196	$	32,482	$	53,874	$	64,116

Item 2. ~~Management's~~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 Medical Corp. (“Cantel”).~~Cantel. The MD&A is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

Overview

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

~~Third~~

Second Quarter ~~2018 Highlights~~2019 Summary

~~Some~~A summary of ~~our key~~ financial results for the three months ended ~~April 30, 2018~~January 31, 2019 compared with the three months ended ~~April 30, 2017~~January 31, 2018 ~~were as~~ follows:

Net sales increased by ~~13.1%~~5.4% to ~~$217,268~~$224,538 from ~~$192,113,~~$213,034, with organic net sales growth of ~~7.6%~~5.3%

Net income ~~increased~~decreased by ~~7.0%~~42.1% to ~~$18,736~~$18,800 from ~~$17,511~~$32,488

Non-GAAP net income ~~increased~~decreased by ~~16.6%~~20.5% to ~~$24,929~~$23,611 from ~~$21,377~~$29,713

Diluted EPS ~~increased~~decreased by ~~7.0%~~42.1% to $0.45 from ~~$0.42~~$0.78

Non-GAAP diluted EPS ~~increased~~decreased by ~~16.6%~~20.0% to ~~$0.60~~$0.57 from ~~$0.51~~$0.71

Adjusted EBITDAS ~~increased~~decreased by ~~12.3%~~7.7% to ~~$43,569~~$42,398 from ~~$38,813~~$45,934

See Non-GAAP Financial Measures below.

Reportable Segment Name Changes

Acquisitions

On February 1, 2019, we purchased all of the issued and outstanding stock of Omnia, an Italian-based market leader in dental surgical consumables solutions, for total consideration (net of cash acquired), excluding acquisition-related costs, of $27,190, consisting of $23,971 of cash and $3,219 of stock consideration, plus contingent consideration ranging from zero 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. Omnia will be included in our Dental segment.

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.

U.S. Tax Reform

The 2017 Tax Act, among other provisions, lowered the applicable U.S. federal statutory income tax rate from 35% to 21% and implemented the imposition of a one-time transition tax on previously deferred foreign earnings. ASC 740 requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted, including the revaluation of deferred income tax assets and liabilities. During the ~~second quarter~~three months ended January 31, 2018, we recorded a one-time net benefit of $8,398 to the income tax provision as a provisional estimate of the net accounting impact of the 2017 Tax Act in accordance with SAB 118. ~~The net benefit is comprised of~~Our non-GAAP effective tax rate decreased to approximately 21% in the following: (i) expense of $294 related to the mandatory transition tax for deemed repatriation of deferred foreign income and (ii) a benefit of $8,692 related to a revaluation of our deferred tax assets and liabilities. During the third quarter ended April 30, 2018, we reduced the mandatory transition tax by $294.quarter. See Non-GAAP Financial Measures below.

(dollar amounts in thousands except share and per share data or as otherwise noted) 1819

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

~~Legal Matter~~

In May 2017, Cantel Medical (UK) Limited and Cantel (UK) Limited filed a lawsuit in the UK High Court of Justice against ARC Medical Design Limited (“ARC”) seeking a judgment of invalidity on two of ARC’s patents and additionally/alternatively a declaration of non-infringement of our AmplifEYE^TM ~~Endoscopic device. ARC filed counterclaims alleging that the AmplifEYE~~^TM ~~device infringed the two patents as well as registered community design marks and unregistered design rights that ARC had in its Endocuff~~^TM ~~and Endocuff Vision~~^TM devices. In February 2018, the trial judge entered a judgment in favor of ARC, and we decided not to appeal the decision. We entered into a settlement agreement with ARC in March 2018 under which we agreed not to make, use, sell or offer to sell the AmplifEYE^TM device in the European Union until ARC’s rights expire, and reimbursed ARC for a portion of their legal costs. During the third quarter of fiscal 2018, we recorded $2,608 of litigation costs associated with this matter.

~~Acquisitions~~

On March 21, 2018, we purchased all of the issued and outstanding stock of Aexis Medical BVBA ("Aexis Medical"). Aexis Medical specializes in advanced software solutions focused on the tracking and monitoring of instrument reprocessing for hospitals and healthcare professionals. The total consideration was $22,158, consisting of $20,308 up-front consideration net of cash acquired, plus contingent consideration ranging from zero to a maximum of $1,850, which is payable upon the achievement of certain purchase order targets through March 21, 2020. Aexis Medical is included in our Endoscopy segment.

On August 23, 2017, we purchased all of the issued and outstanding stock of BHT Group, a leader in the German market in automated endoscope reprocessing and related equipment and services for total consideration (net of cash acquired), excluding acquisition related costs, of $60,787. The BHT Group consists of a portfolio of high-quality automatic endoscope reprocessors, advanced endoscope storage and drying cabinets (products globally distributed by our Company prior to the acquisition under an agreement with BHT Group), washer-disinfectors for central sterile applications, associated technical service and parts as well as flexible endoscope repair services. BHT Group is included in our Endoscopy segment.

Results of Operations

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


	Three Months Ended April 30,								Percentage Change		Three Months Ended January 31,											Percentage Change
Statement of Income Data:	2018				2017				Percentage Change		2019						2018					Percentage Change
Net sales	$	217,268	100.0	%	$	192,113	100.0	%	13.1	%	$	224,538		100.0	%		$	213,034		100.0	%	5.4	%
Cost of sales	112,594		51.8	%	100,665		52.4	%	11.9	%	119,863			53.4	%		111,799			52.5	%	7.2	%
Gross profit	104,674		48.2	%	91,448		47.6	%	14.5	%	104,675			46.6	%	��	101,235			47.5	%	3.4	%

Selling	33,252		15.3	%	30,509		15.9	%	9.0	%	33,198			14.8	%		30,922			14.5	%	7.4	%
General and administrative	37,784		17.4	%	29,204		15.2	%	29.4	%	37,358			16.6	%		32,188			15.1	%	16.1	%
Research and development	6,571		3.0	%	4,291		2.2	%	53.1	%	7,923			3.5	%		5,643			2.7	%	40.4	%
Total operating expenses											78,479			34.9	%		68,753			32.3	%	14.1	%
	77,607		35.7	%	64,004		33.3	%	21.3	%

Operating income	27,067		12.5	%	27,444		14.3	%	(1.4	)%
Income from operations											26,196			11.7	%		32,482			15.2	%	(19.4	)%

Interest expense, net	1,498		0.7	%	1,084		0.6	%	38.2	%	2,207			1.0	%		1,135			0.5	%	94.4	%
Other income, net											(1,313		)	(0.6	)%		—			—	%	—	%
Income before income taxes	25,569		11.8	%	26,360		13.7	%	(3.0	)%	25,302			11.3	%		31,347			14.7	%	(19.3	)%
Income taxes	6,833		3.2	%	8,849		4.6	%	(22.8	)%	6,502			2.9	%		(1,141		)	(0.6	)%	(669.9	)%
Net income	$	18,736	8.6	%	$	17,511	9.1	%	7.0	%	$	18,800		8.4	%		$	32,488		15.3	%	(42.1	)%



	Six Months Ended January 31,										Percentage Change
Statement of Income Data:	2019					2018					Percentage Change
Net sales	$	450,127		100.0	%	$	425,800		100.0	%	5.7	%
Cost of sales	240,203			53.4	%	223,906			52.6	%	7.3	%
Gross profit	209,924			46.6	%	201,894			47.4	%	4.0	%

Selling	67,156			14.9	%	62,522			14.7	%	7.4	%
General and administrative	73,893			16.4	%	64,284			15.1	%	14.9	%
Research and development	15,001			3.3	%	10,972			2.5	%	36.7	%
Total operating expenses	156,050			34.6	%	137,778			32.3	%	13.3	%

Operating income	53,874			12.0	%	64,116			15.1	%	(16.0	)%

Interest expense, net	4,233			0.9	%	2,324			0.5	%	82.1	%
Other income, net	(1,313		)	(0.2	)%	(1,138		)	(0.2	)%	—	%
Income before income taxes	50,954			11.3	%	62,930			14.8	%	(19.0	)%
Income taxes	12,912			2.8	%	7,513			1.8	%	71.9	%
Net income	$	38,042		8.5	%	$	55,417		13.0	%	(31.4	)%

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

Nine Months Ended April 30, Percentage Change
Statement of Income Data: 2018 2017
Net sales $ 643,068
100.0 % $ 564,655
100.0 % 13.9 %
Cost of sales 336,500
52.3 % 295,223
52.3 % 14.0 %
Gross profit 306,568
47.7 % 269,432
47.7 % 13.8 %

Selling 95,774
14.9 % 85,312
15.1 % 12.3 %
General and administrative 102,068
15.9 % 87,672
15.5 % 16.4 %
Research and development 17,543
2.7 % 13,328
2.4 % 31.6 %
215,385
33.5 % 186,312
33.0 % 15.6 %

Operating income 91,183
14.2 % 83,120
14.7 % 9.7 %

Interest expense, net 3,822
0.6 % 3,303
0.6 % 15.7 %
Other income (1,138 ) (0.2 )% —
— % — %
Income before income taxes 88,499
13.8 % 79,817
14.1 % 10.9 %
Income taxes 14,346
2.3 % 25,436
4.5 % (43.6 )%
Net income $ 74,153
11.5 % $ 54,381
9.6 % 36.4 %

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.


	Three Months Ended April 30,								Nine Months Ended April 30,								Three Months Ended January 31,								Six Months Ended January 31,
Net Sales by Segment	2018				2017				2018				2017
Endoscopy	$	118,396	54.5	%	$	100,349	52.2	%	$	347,446	54.0	%	$	288,544	51.1	%
Water Purification and Filtration	52,330		24.1	%	47,940		25.0	%	156,828		24.4	%	145,233		25.7	%
Healthcare Disposables	38,522		17.7	%	36,177		18.8	%	114,898		17.9	%	108,256		19.2	%
Net sales by segment																	2019				2018				2019				2018
Medical																	$	128,580	57.3	%	$	116,665	54.8	%	$	256,132	56.9	%	$	229,050	53.8	%
Life Sciences																	51,869		23.1	%	52,337		24.6	%	105,214		23.4	%	107,107		25.2	%
Dental																	35,933		16.0	%	36,090		16.9	%	72,561		16.1	%	73,767		17.3	%
Dialysis	8,020		3.7	%	7,647		4.0	%	23,896		3.7	%	22,622		4.0	%	8,156		3.6	%	7,942		3.7	%	16,220		3.6	%	15,876		3.7	%
Total net sales	$	217,268	100.0	%	$	192,113	100.0	%	$	643,068	100.0	%	$	564,655	100.0	%	$	224,538	100.0	%	$	213,034	100.0	%	$	450,127	100.0	%	$	425,800	100.0	%
Net Sales by Geography
Net sales by geography
United States	$	159,375	73.4	%	$	146,032	76.0	%	$	478,024	74.3	%	$	442,658	78.4	%	$	165,164	73.6	%	$	157,708	74.0	%	$	334,102	74.2	%	$	318,648	74.8	%
International	57,893		26.6	%	46,081		24.0	%	165,044		25.7	%	121,997		21.6	%	59,374		26.4	%	55,326		26.0	%	116,025		25.8	%	107,152		25.2	%
Total net sales	$	217,268	100.0	%	$	192,113	100.0	%	$	643,068	100.0	%	$	564,655	100.0	%	$	224,538	100.0	%	$	213,034	100.0	%	$	450,127	100.0	%	$	425,800	100.0	%

The following table gives information as to the amount of ~~operating~~ income from operations, as well as ~~operating~~ 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,
Operating Income by Segment 2018 2017 2018 2017
Endoscopy $ 20,515
17.3 % $ 18,514
18.4 % $ 64,662
18.6 % $ 54,853
19.0 %
Water Purification and Filtration 8,454
16.2 % 7,842
16.4 % 26,753
17.1 % 25,167
17.3 %
Healthcare Disposables 7,588
19.7 % 6,392
17.7 % 23,481
20.4 % 20,857
19.3 %
Dialysis 1,778
22.2 % 2,315
30.3 % 5,795
24.3 % 6,275
27.7 %
Operating income by segment 38,335
17.6 % 35,063
18.3 % 120,691
18.8 % 107,152
19.0 %
General corporate expenses 11,268
5.1 % 7,619
4.0 % 29,508
4.6 % 24,032
4.3 %
Income from operations $ 27,067
12.5 % $ 27,444
14.3 % $ 91,183
14.2 % $ 83,120
14.7 %



	Three Months Ended January 31,								Six Months Ended January 31,
Income from operations by segment	2019				2018				2019				2018
Medical	$	25,525	19.9	%	$	24,463	21.0	%	$	50,736	19.8	%	$	44,147	19.3	%
Life Sciences	7,323		14.1	%	8,583		16.4	%	13,654		13.0	%	18,958		17.7	%
Dental	4,888		13.6	%	6,558		18.2	%	10,813		14.9	%	15,233		20.7	%
Dialysis	1,193		14.6	%	1,918		24.2	%	2,577		15.9	%	4,017		25.3	%
Income from operations by segment	38,929		17.3	%	41,522		19.5	%	77,780		17.3	%	82,355		19.3	%
General corporate expenses	12,733		5.6	%	9,040		4.3	%	23,906		5.3	%	18,239		4.2	%
Income from operations	$	26,196	11.7	%	$	32,482	15.2	%	$	53,874	12.0	%	$	64,116	15.1	%

Net Sales

Total net sales increased by ~~$25,155~~$11,504 or ~~13.1%~~5.4%, to ~~$217,268~~$224,538 for the three months ended ~~April 30, 2018~~January 31, 2019 from ~~$192,113~~$213,034 for the three months ended ~~April 30, 2017. The 13.1% increase in net sales for the three months ended April 30,~~January 31, 2018, ~~includes~~which consisted of an

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

increase of ~~7.6%~~5.3% in organic sales, an increase of ~~4.0%~~1.1% in net sales due to acquisitions and an increase of 1.5% due to foreign currency translation. International net sales increased by $11,812 or 25.6%, to $57,893 for the three months ended April 30, 2018 from $46,081 for the three months ended April 30, 2017. The 25.6% increase international net sales consists of a ~~15.7% increase due to acquisitions, 3.6% organic sales growth and an increase of 6.4% due to foreign currency translation.~~

Total net sales increased by $78,413 or 13.9%, to $643,068 for the nine months ended April 30, 2018 from $564,655 for the nine months ended April 30, 2017. The 13.9% increase in net sales for the nine months ended April 30, 2018 includes an increase of 8.8% in organic sales, an increase of 4.1% in net sales due to acquisitions and an increasedecrease of 1.0% due to foreign currency translation. International net sales increased by ~~$43,047~~$4,048 or ~~35.3%~~7.3%, to ~~$165,044~~$59,374 for the ~~nine~~three months ended ~~April 30, 2018~~January 31, 2019 from ~~$121,997~~$55,326 for the ~~nine~~three months ended ~~April 30, 2017.~~January 31, 2018. The ~~35.3%~~7.3% increase in international net sales ~~consists~~consisted of 11.3% organic sales growth, a ~~18.7%~~0.1% decrease due to dispositions, and a decrease of 3.9% due to foreign currency translation.

Total net sales increased by $24,327 or 5.7%, to $450,127 for the six months ended January 31, 2019 from $425,800 for the six months ended January 31, 2018, which consisted of an increase of 4.8% in organic sales, an increase of 1.7% in net sales due to acquisitions and a decrease of 0.8% due to foreign currency translation. International net sales increased by $8,873 or 8.3%, to $116,025 for the six months ended January 31, 2019 from $107,152 for the six months ended January 31, 2018. The 8.3% increase in international net sales consisted of 9.8% organic sales growth, a 1.7% increase due to acquisitions ~~11.9% organic sales growth~~(offset by dispositions), and ~~an increase~~a decrease of ~~4.7%~~3.2% due to foreign currency translation.

~~Endoscopy.~~Medical. Net sales ~~of endoscopy products and services~~ increased by ~~$18,047~~$11,915 or ~~18.0%~~10.2%, for the three months ended ~~April 30, 2018~~January 31, 2019 compared with the three months ended ~~April 30, 2017,~~January 31, 2018, which consisted of ~~8.1%~~11.3% organic sales growth, a ~~7.2%~~0.6% increase due to acquisitions and ~~an increase~~a decrease of ~~2.7%~~1.7% due to foreign currency translation. Net sales increased by ~~$58,902~~$27,082 or ~~20.4%~~11.8%, for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 compared with the ~~nine~~six months ended ~~April 30, 2017,~~January 31, 2018, which consisted of ~~10.8%~~12.0% organic sales growth, a ~~7.9%~~1.2% increase due to acquisitions and ~~an increase~~a decrease of ~~1.7%~~1.4% due to foreign currency translation. The increases in organic net sales for the three ~~month~~ and ~~nine~~six month periods were primarily ~~due to volume increases~~driven by increased sales of consumables, specifically procedure room products, in both the United States and internationally, ~~for endoscopy procedure products, including storage cabinets~~ and ~~mobile medical carts, disinfectants and service due~~ to ~~the increased installed base of our endoscope reprocessing equipment.~~a lesser extent, recurring revenue growth in all other product lines.

~~Water Purification and Filtration.~~Life Sciences. Net sales ~~of water purification and filtration products and services increased~~decreased by ~~$4,390~~$468 or ~~9.2%,~~0.9% for the three months ended ~~April 30, 2018~~January 31, 2019 compared with the three months ended ~~April 30, 2017,~~January 31, 2018, which consisted of 3.4% organic sales decrease and ~~by $11,595 or 8.0% for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases were primarily~~a decrease of 0.3% due to ~~increased demand for our water purification equipment and increased sales of our chemistries products. Foreign~~foreign currency translation, ~~increased net sales by 0.3% and 0.4%, for the three month and nine month periods ended April 30, 2018, respectively.~~

~~Healthcare Disposables.~~ Net sales of healthcare disposables products increased by $2,345 or 6.5%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $6,642 or 6.1%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases in net sales were primarily driven by our higher margin products such as sterility assurance and waterline disinfection products, as well as our branded products, and to a lesser extent by acquisition-related growth.

~~Dialysis.~~Net sales of dialysis products and services increased by $373 or 4.9%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $1,274 or 5.6%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases were primarily due to the increase in sales volume for our domestic concentrate.

~~Gross Profit~~

Gross profit increased by $13,226 or 14.5%, to $104,674 for the three months ended April 30, 2018 from $91,448 for the three months ended April 30, 2017, and by $37,136 or 13.8%, to $306,568 for the nine months ended April 30, 2018 from $269,432 for the nine months ended April 30, 2017. Gross profit as a percentage of net sales for the three months ended April 30, 2018 and 2017 was 48.2% and 47.6%, respectively, and for the nine months ended April 30, 2018 and 2017 remained flat at 47.7%. Excluding the impact of acquisition-related and restructuring-related items, gross profit as a percentage of net sales for the three months ended April 30, 2018 and 2017 was 48.2% and 47.8%, respectively, and for the nine months ended April 30, 2018 and 2017 was 48.0% and 47.8%, respectively.

~~The increases in gross profit as a percentages of net sales for the three and nine months ended April 30, 2018 were primarily due to increased productivity and operational efficiencies,~~ partially offset by the reclassification of certain salary and benefit related costs that had previously been recorded in operating expenses into costs of goods sold. The reclassification negatively impacted gross profit as a ~~percentage of net~~2.8% increase due to acquisitions. Net sales decreased by ~~approximately 0.7% in each of the three month and nine month periods ended April 30, 2017.~~

~~Operating Expenses~~

~~Operating expenses as a percentage of net sales~~$1,893 or 1.8% for the ~~three~~six months ended April 30, 2018 and 2017 was 35.7% and 33.3%, respectively, and for the nine months ended April 30, 2018 and 2017 was 33.5% and 33.0%, respectively. As stated above, there was a reclassification of certain salary and benefit related costs that had previously been recorded in operating expenses into

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

January 31, 2019 compared with the six months ended January 31, 2018, which consisted of 5.2% organic sales decrease and a decrease of 0.3% due to foreign currency translation, partially offset by a 3.7% increase due to acquisitions. The decreases in sales for the three and six month periods were primarily due to continued softness in demand for capital equipment, primarily in the medical water business, partially offset by acquisition-related growth. We expect this continued softness in demand to continue in the upcoming quarters as orders for our hemodialysis water business were down this quarter, as a result of a key customer moving toward a dual source approach and a cyclical downturn in this channel. For a more detailed discussion on the competitive threat to our hemodialysis water business, see Part I, Item 1A, Risk Factors, in our 2018 Annual Report on Form 10-K.

Dental. Net sales remained relatively flat as they decreased by $157 or 0.4%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018. Net sales decreased by $1,206 or 1.6%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The decrease for the six month period was primarily driven by a decrease in sales to our distributor network due to inventory adjustments within our channel at the start of this fiscal year, partially offset by acquisition-related growth.

Dialysis.Net sales increased by $214 or 2.7%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018, Net sales increased by $344 or 2.2%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The increases in sales for the three and six month periods were primarily due to the increase in sales volume for our domestic concentrate.

Gross Profit

Gross profit increased by $3,440 or 3.4%, to $104,675 for the three months ended January 31, 2019 from $101,235 for the three months ended January 31, 2018. Gross profit as a percentage of net sales for the three months ended January 31, 2019 and 2018 was 46.6% and 47.5%, respectively. Gross profit increased by $8,030 or 4.0%, to $209,924 for the six months ended January 31, 2019 from $201,894 for the six months ended January 31, 2018. Gross profit as a percentage of net sales for the six months ended January 31, 2019 and 2018 was 46.6% and 47.4%, respectively. The decreases in gross profit as a percentage of net sales for the three and six month periods ended January 31, 2019 were due to increased labor costs resulting from livable wage increases, and the reclassification of ~~good sold,~~certain compensation and benefit-related costs that had previously been recorded in operating expenses into cost of sales. The reclassification of certain compensation and benefit-related costs negatively impacted gross profit as a percentage of net sales by approximately 0.4% for the three and six month periods ended January 31, 2019. Excluding the impact of acquisition-related and restructuring-related items, gross profit as a percentage of net sales for the three months ended January 31, 2019 and 2018, was 46.6% and 47.8%, respectively, and for the six months ended January 31, 2019 and 2018, was 46.7% and 48.1%, respectively.

Operating Expenses

Operating expenses as a percentage of net sales for the three months ended January 31, 2019 and 2018 was 34.9% and 32.3%, respectively. Operating expenses as a percentage of net sales for the six months ended January 31, 2019 and 2018 was 34.6% and 32.3%, respectively. As stated above, there was a reclassification of certain compensation and benefit-related costs that had previously been recorded in operating expenses into cost of sales, which positively impacted operating expenses as a percentage of net sales by approximately ~~0.7% in each of~~0.4% for the three ~~month~~ and ~~nine~~six month periods ended ~~April 30, 2017.~~January 31, 2019.

Selling expenses increased by ~~$2,743~~$2,276 or ~~9.0%~~7.4%, to ~~$33,252~~$33,198 for the three months ended ~~April 30, 2018~~January 31, 2019 from ~~$30,509~~$30,922 for the three months ended ~~April 30, 2017, and by $10,462 or 12.3%, to $95,774 for the nine months ended April 30, 2018 from $85,312 for the nine months ended April 30, 2017.~~January 31, 2018. Selling expenses increased by $4,634 or 7.4%, to $67,156 for the six months ended January 31, 2019 from $62,522 for the six months ended January 31, 2018. The increase was primarily due to higher sales incentive compensation-related costs primarily in our Endoscopy segment, additional sales and marketing initiatives to expand into new markets (including international markets) and the inclusion of selling and marketing expenses of our recent ~~acquisitions.~~acquisitions, and to a lesser extent higher compensation-related costs. Selling expenses as a percentage of net sales were ~~15.3%~~14.8% and ~~15.9%~~14.5% for the three months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017, respectively, and~~respectively. Selling expenses as a percentage of net sales were 14.9% and ~~15.1%~~14.7% for the ~~nine~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017,~~ respectively.

General and administrative expenses increased by ~~$8,580~~$5,170 or ~~29.4%~~16.1%, to ~~$37,784~~$37,358 for the three months ended ~~April 30, 2018~~January 31, 2019 from ~~$29,204~~$32,188 for the three months ended ~~April 30, 2017, and by $14,396 or 16.4%, to $102,068 for the nine months ended April 30, 2018 from $87,672 for the nine months ended April 30, 2017.~~January 31, 2018. General and administrative expenses increased by $9,609 or 14.9%, to $73,893 for the six months ended January 31, 2019 from $64,284 for the six months ended January 31, 2018. The increases were primarily due to ~~incremental~~an increase in ERP implementation costs, acquisition-related items (such as transaction and integration-related costs), higher amortization expense as a result of our recent acquisitions and the addition of internal and external resources ~~to address~~which support various growth initiatives and compliance requirements and higher acquisition-related items such as transaction and integration costs. General and administrative expenses were also negatively impacted by the third quarter 2018 settlement of a patent infringement matter. These cost increases were partially offset by a decrease in costs associated with the retirement of our former Chief Executive Officer.requirements. General and administrative expenses as a percentage of net sales were ~~17.4%~~16.6% and ~~15.2%~~15.1% for the three months ended ~~April 30,~~January 31, 2019 and 2018, respectively. General and ~~2017, respectively, and 15.9% and 15.5% for the nine months ended April 30, 2018 and 2017, respectively.~~

Research and development expenses (which include continuing engineering costs) increased by $2,280 or 53.1%, to $6,571 for the three months ended April 30, 2018 from $4,291 for the three months ended April 30, 2017, and by $4,215 or 31.6%, to $17,543 for the nine months ended April 30, 2018 from $13,328 for the nine months ended April 30, 2017. The increases were primarily due to additional product development initiatives primarily in our Endoscopy segment. Research and developmentadministrative expenses as a percentage of net sales were ~~3.0%~~16.4% and ~~2.2%~~15.1% for the ~~three~~six months ended ~~April 30,~~January 31, 2019 and 2018, ~~and 2017, respectively, and 2.7% and 2.4% for the nine months ended April 30, 2018 and 2017,~~ respectively.

~~Operating Income~~

~~Endoscopy.~~ The Endoscopy segment’s operating income increased by $2,001 or 10.8%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $9,809 or 17.9%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases were primarily due to increased sales volume in the United States and internationally for our endoscopy products and services, as further explained above. This was partially offset by increases in acquisition-related and restructuring-related costs, litigation matters, sales commission expense, and other compensation-related costs due to increased headcount. The settlement of a patent infringement matter affected operating income as a percentage of sales by approximately 200 basis points for the three months ended April 30, 2018.

~~Water Purification and Filtration.~~ The Water Purification and Filtration segment’s operating income increased by $612 or 7.8%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $1,586 or 6.3%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases were primarily due to due to higher sales, partially offset by compensation-related costs, research and development costs and higher sales commission expenses.

~~Healthcare Disposables.~~ The Healthcare Disposables segment’s operating income increased by $1,196 or 18.7%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $2,624 or 12.6%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The increases were due to higher sales (primarily acquisition-related) and improved gross margins resulting from increased productivity and favorable mix, mostly offset by inventory adjustments, increased compensation-related costs and increased research and development.

~~Dialysis.~~ The Dialysis segment’s operating income decreased by $537 or 23.2%, for the three months ended April 30, 2018 compared with the three months ended April 30, 2017, and by $480 or 7.6%, for the nine months ended April 30, 2018 compared with the nine months ended April 30, 2017. The decreases were primarily due to the shift to lower margin products, partially offset by higher net sales.

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

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

Research and development expenses (which include continuing engineering costs) increased by $2,280 or 40.4%, to $7,923 for the three months ended January 31, 2019 from $5,643 for the three months ended January 31, 2018. Research and development expenses increased by $4,029 or 36.7%, to $15,001 for the six months ended January 31, 2019 from $10,972 for the six months ended January 31, 2018. The increase was primarily due to additional product development initiatives primarily in our Medical segment and to a lesser extent in our Life Sciences segment. Research and development expenses as a percentage of net sales were 3.5% and 2.7% for the three months ended January 31, 2019 and 2018, respectively. Research and development expenses as a percentage of net sales were 3.3% and 2.5% for the six months ended January 31, 2019 and 2018, respectively.

Income from Operations

Medical. Income from operations increased by $1,062 or 4.3%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018. Income from operations increased by $6,589 or 14.9%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The increases in the three and six month periods were primarily due to increased sales volume in the United States and internationally for consumables, as further explained above. This was partially offset by increases in acquisition-related costs and inflationary pressures on gross profit. Income from operations was unfavorably impacted during the three months ended January 31, 2019 by elevated ERP implementation costs associated with a second quarter go-live date.

Life Sciences. Income from operations decreased by $1,260 or 14.7%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018. Income from operations decreased by $5,304 or 28.0%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The decreases in the three and six month periods were primarily due to lower net sales, restructuring-related costs (including the accelerated amortization of certain intangible assets) and an increase in research and development costs. We expect this continued softness in demand to continue in the upcoming quarters as orders for our hemodialysis water business were down this quarter, as a result of a key customer moving toward a dual source approach and a cyclical downturn in this channel.

Dental. Income from operations decreased by $1,670 or 25.5%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018. Income from operations decreased by $4,420 or 29.0%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The decreases in the three and six month periods were primarily due to lower net sales and reduced gross profit (resulting from decreased productivity and inflationary pressures) and increased selling and marketing expenses.

Dialysis. Income from operations decreased by $725 or 37.8%, for the three months ended January 31, 2019 compared with the three months ended January 31, 2018. Income from operations decreased by $1,440 or 35.8%, for the six months ended January 31, 2019 compared with the six months ended January 31, 2018. The decreases in the three and six month periods were primarily due to the shift to lower margin products, partially offset by higher net sales.

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 ~~program~~and integration programs and being a publicly traded company. Such expenses increased by ~~$3,649~~$3,693 or ~~47.9%~~40.9%, for the three months ended ~~April 30, 2018~~January 31, 2019 from the three months ended ~~April 30, 2017, and~~January 31, 2018. Such expenses increased by ~~$5,476~~$5,667 or ~~22.8%~~31.1%, for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from the ~~nine~~six months ended ~~April 30, 2017. These~~January 31, 2018. The increases in the three and six month periods were primarily due to acquisition-related charges, ERP implementation costs and the addition of internal and external resources ~~to address~~which support various growth initiatives and compliance ~~requirements and restructuring-related charges, partially offset by a decrease in costs associated with the retirement of our former Chief Executive Officer.~~requirements.

Interest Expense, Net

Interest expense, net increased by ~~$414~~$1,072 or ~~38.2%~~94.4%, to ~~$1,498~~$2,207 for the three months ended ~~April 30, 2018~~January 31, 2019 from ~~$1,084~~$1,135 for the three months ended ~~April 30, 2017, and~~January 31, 2018. Interest expense, net increased by ~~$519~~$1,909 or ~~15.7%~~82.1%, to ~~$3,822~~$4,233 for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from ~~$3,303~~$2,324 for the ~~nine~~six months ended ~~April 30, 2017. These~~January 31, 2018. This increases in the three and six month periods resulted from an increase in the average outstanding borrowings due to both the term loan and revolver borrowings to support the funding of ~~acquisitions.~~acquisitions, and to a lesser extent, higher variable interest rates.

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

Other Income, Net

Other income, net of $1,313 for the three months ended January 31, 2019 represents the gain on sale of our high purity water business in Canada. Other income, net of $1,138 for the ~~nine~~six months ended ~~April 30,~~January 31, 2018 represents the favorable resolution of the contingent liability associated with the Jet Prep acquisition.

Income Taxes

The consolidated effective tax rate ~~decreased~~increased by ~~6.9%~~29.3% to ~~26.7%~~25.7% for the three months ended ~~April 30, 2018~~January 31, 2019 from ~~33.6%~~a 3.6% benefit for the three months ended ~~April 30, 2017, and decreased~~January 31, 2018. The consolidated effective tax rate increased by ~~15.7%~~13.4% to ~~16.2%~~25.3% for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from ~~31.9%~~11.9% for the ~~nine~~six months ended ~~April 30, 2017.~~January 31, 2018. The ~~decreases for both~~increases in the three and six month periods were primarily attributed to the recording of the discrete net tax benefits associated with the estimated impact of ~~the revaluation of~~ our U.S. net deferred tax ~~liabilities~~items as a result of the 2017 Tax Act ~~and~~during the ~~revaluation~~second quarter of ~~the prior reported excess tax benefits as a result of the change in the U.S. federal statutory rate applicable to stock compensation.~~

As a result of the 2017 Tax Act, we revised our estimated annual effective rate to reflect the change in the U.S. federal statutory rate by computing a tentative tax under both rates, and then prorating the tentative tax based on the number of days with and without the rate change to arrive at a blended tax rate of 26.9%. This blended rate was applied for fiscal ~~2018 and the new U.S. federal statutory rate of 21% will apply to fiscal 2019 and beyond.~~ 2018.

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 ~~the Company's~~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 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;~~assets, (ii) acquisition-related ~~items;~~items, (iii) business optimization and restructuring-related ~~charges;~~charges, (iv) ~~net~~certain significant and discrete tax ~~benefits associated with the estimated impact of the revaluation of our U.S. net deferred tax liabilities as a result of U.S. tax reform;~~matters and (v) ~~excess tax benefits applicable to stock compensation and (vi)~~ 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) 23~~

~~Cantel Medical Corp. 2018 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 ~~the Company’s~~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 ~~acquisition~~ 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.

Excess tax benefits resulting from stock compensation are recorded as a reduction of income tax expense. The magnitude of the impact of excess tax benefits generated in the future, which may be favorable or unfavorable, are dependent upon our future grants of equity awards, our future share price on the date awards vest in relation to the fair value of awards on grant date and the exercise behavior of our stock award holders. Since these tax benefits are largely unrelated to our results and unrepresentative of

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

our normal effective tax rate, we excluded their impact on net income and diluted EPS to arrive at our non-GAAP financial measures.

During the six months ended January 31, 2019, we recorded specific discrete tax items associated with our international operations that were unrelated to fiscal 2019. As these items are 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.

The 2017 Tax Act significantly revised U.S. tax law by, among other provisions, (a) lowering the applicable U.S. federal statutory income tax rate from 35% to 21%, (b) creating a partial territorial tax system that includes imposing a mandatory one-time transition tax on previously deferred foreign earnings, (c) creating provisions regarding the (1) Global Intangible Low Tax Income, (2) the Foreign Derived Intangible Income deduction, and (3) the Base Erosion Anti-Abuse Tax and (d) eliminating or reducing certain income tax deductions, such as interest expense, executive compensation expenses and certain employee expenses. During the ~~second quarter~~three months ended January 31, 2018, we recorded a one-time net benefit as a provisional estimate of the net accounting impact of the 2017 Tax Act in accordance with SAB 118. ~~The net benefit is comprised of~~Since the following: (i) an unfavorable impact related to the mandatory transition tax for deemed repatriation of deferred foreign income and (ii) a favorable benefit related to a revaluation of the Company’s deferred tax assets and liabilities. During the third quarter ended April 30, 2018, we recorded an adjustment to the mandatory transition tax. Since these net favorable tax ~~benefits are~~benefit is largely unrelated to our results and unrepresentative of our normal effective tax rate, we excluded ~~their~~its impact on net income and diluted EPS to arrive at our non-GAAP financial measures.

~~Excess tax benefits resulting from stock compensation are recorded as a reduction of income tax expense. The magnitude of~~In November 2018, we completed 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 behaviordisposition of our ~~stock award holders. Since these tax benefits are largely unrelated to our results and unrepresentative~~high purity water business in Canada. This resulted in a pre-tax gain of ~~our normal effective tax rate, we excluded their impact on~~$1,313 through other income, net ~~income and diluted EPS to arrive at our non-GAAP financial measures. For~~for the three months ended January 31, 2018 and as a result of the 2017 Tax Act, we revised our estimated annual effective rate to reflect the change in the U.S. federal statutory rate applicable to stock compensation. The reduction in the federal rate applicable to the gains and corollary deferred tax asset resulted in a decrease in the excess tax benefit reported for the three months ended October 31, 2017.

During the third quarter of fiscal 2018, we settled a patent infringement matter and also recorded an adjustment to another litigation matter in our consolidated financial statements. In fiscal 2016, we announced the retirement plans of our former Chief Executive Officer and recorded the majority of the costs associated with his retirement in our consolidated financial statements.2019. Since ~~these costs are~~this gain was irregular, ~~and mask our underlying operating performance,~~ we made an adjustment to our net income and diluted EPS to exclude ~~such costs~~this gain to arrive at our non-GAAP financial measures.

In November 2017, the Israeli Government notified us that they would forgive any future amounts due under a contingent obligation payable from a previous acquisition. As a result of this formal notification, we reduced the $1,138 contingent obligation payable to zero during the three months ended October 31, 2017, resulting in a gain through other income. Since this gain was irregular, we made an adjustment to our net income and diluted EPS to exclude this gain to arrive at our non-GAAP financial measures.

Three Months Ended ~~April 30, 2018~~January 31, 2019

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, (iii) other business optimization and restructuring-related charges, (iv) ~~litigation matters~~gain on disposition of business and (v) ~~the reduction of a repatriation~~ tax ~~related to the 2017 Tax Act~~matters to arrive at our non-GAAP financial measures, non-GAAP net income and non-GAAP diluted EPS.

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

Three Months Ended ~~April 30, 2017~~January 31, 2018

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, ~~and~~ (iii) other business optimization and restructuring-related charges, (iv) excess tax benefits applicable to stock compensation and (v) the net tax benefit associated with the estimated impact of the revaluation of our U.S. net deferred tax liabilities as a result of the 2017 Tax Act to arrive at our non-GAAP financial measures, non-GAAP net income and non-GAAP diluted EPS.

(dollar amounts in thousands except share and per share data or as otherwise noted) 25

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

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

Three Months Ended April 30,
2018 2017
Net income/Diluted EPS, as reported $ 18,736
$ 0.45
$ 17,511
$ 0.42
Intangible amortization, net of tax⁽¹⁾
3,468
0.08
2,852
0.07
Acquisition-related items, net of tax⁽²⁾
651
0.02
465
0.01
Restructuring-related charges, net of tax⁽³⁾
991
0.02
549
0.01
Litigation matters⁽¹⁾
1,637
0.04
—
—
Tax legislative changes⁽⁴⁾
(554 ) (0.01 ) —
—
Non-GAAP net income/Non-GAAP diluted EPS $ 24,929
$ 0.60
$ 21,377
$ 0.51



	Three Months Ended January 31,
	2019						2018
Net income/Diluted EPS, as reported	$	18,800		$	0.45		$	32,488		$	0.78
Intangible amortization, net of tax⁽¹⁾	3,452			0.09			3,507			0.08
Acquisition-related items, net of tax⁽²⁾	840			0.02			575			0.01
Restructuring-related charges, net of tax⁽³⁾	1,444			0.03			1,267			0.03
Gain on disposition of business, net of tax⁽⁴⁾	(929		)	(0.02		)	—			—
Excess tax benefit⁽⁵⁾	—			—			274			0.01
Tax matters⁽⁵⁾	4			—			(8,398		)	(0.20		)
Non-GAAP net income/Non-GAAP diluted EPS	$	23,611		$	0.57		$	29,713		$	0.71


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

(2)

For the three months ended ~~April 30, 2018,~~January 31, 2019, pre-tax acquisition-related items of ~~$953~~$87 were recorded in net sales, $38 were recorded in cost of sales and $1,005 were recorded in general and administrative expenses. For the three months ended ~~April 30, 2017,~~January 31, 2018, pre-tax acquisition-related items of ~~$330 were recorded in cost of sales and $390~~$540 were recorded in general and administrative expenses.

(3)

For the three months ended ~~April 30,~~January 31, 2019, pre-tax restructuring-related items of $2,013 were recorded in general and administrative expenses and $1,313 of expenses were recorded in other income. For the three months ended January 31, 2018, pre-tax restructuring-related items of ~~$17~~$642 were recorded in cost of sales and ~~$1,466 were recorded in general and administrative expenses. For the three months ended April 30, 2017, pre-tax restructuring-related items of $879~~$748 were recorded in general and administrative expenses.


(4)	Amounts were recorded in other income, net.


(5)	Amounts were recorded in income taxes.

~~Nine~~Six Months Ended ~~April 30,~~January 31, 2019

Six Months Ended January 31, 2018

We made adjustments to net income and diluted EPS to exclude (i) amortization expense of purchased intangible assets, (ii) acquisition-related items, (iii) other business optimization and restructuring-related charges, (iv) excess tax benefits applicable to stock compensation, (v) the net tax ~~benefits~~benefit associated with the estimated impact of the revaluation of our U.S. net deferred tax liabilities as a result of the 2017 Tax Act ~~(vi) litigation matters~~ and ~~(vii)~~(vi) the resolution of the contingent liability associated with ~~a previous~~the Jet Prep acquisition to arrive at our non-GAAP financial measures, non-GAAP net income and non-GAAP diluted EPS.

~~Nine Months Ended April 30, 2017~~

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

Cantel Medical Corp. ~~2018 Third~~2019 Second 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,												Six Months Ended January 31,
	2018						2017						2019						2018
Net income/Diluted EPS, as reported	$	74,153		$	1.77		$	54,381		$	1.30		$	38,042		$	0.91		$	55,417		$	1.33
Intangible amortization, net of tax⁽¹⁾	9,844			0.24			8,438			0.20			8,078			0.20			6,376			0.15
Acquisition-related items, net of tax⁽²⁾	2,307			0.06			1,233			0.03			2,189			0.05			1,656			0.04
Restructuring-related charges, net of tax⁽³⁾	2,844			0.07			1,191			0.03			2,085			0.05			1,853			0.05
Excess tax benefit⁽⁴⁾	(2,012		)	(0.05		)	(2,241		)	(0.05		)
Tax legislative changes⁽⁴⁾	(8,952		)	(0.22		)	—			—
Gain on disposition of business, net of tax⁽⁴⁾													(929		)	(0.02		)	—			—
Excess tax benefit⁽⁵⁾													(997		)	(0.02		)	(2,012		)	(0.05		)
Tax matters⁽⁵⁾													900			0.02			(8,398		)	(0.20		)
Litigation matters⁽¹⁾	1,637			0.04			—			—			134			—			—			—
Resolution of contingent liability⁽⁵⁾	(1,138		)	(0.03		)	—			—
CEO retirement costs, net of tax⁽¹⁾	—			—			1,249			0.03
Resolution of contingent liability⁽⁴⁾													—			—			(1,138		)	(0.03		)
Non-GAAP net income/Non-GAAP diluted EPS	$	78,683		$	1.88		$	64,251		$	1.54		$	49,502		$	1.19		$	53,754		$	1.29


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

(2)

For the ~~nine~~six months ended ~~April 30,~~January 31, 2019, pre-tax acquisition-related items of $304 were recorded in net sales, $92 were recorded in cost of sales and $2,560 were recorded in general and administrative expenses. For the six months ended January 31, 2018, pre-tax acquisition-related items of $893 were recorded in cost of sales and ~~$2,409 were recorded in general and administrative expenses. For the nine months ended April 30, 2017, pre-tax acquisition-related items of $500 were recorded in cost of sales and $1,295~~$1,456 were recorded in general and administrative expenses.

(3)

For the ~~nine~~six months ended ~~April 30,~~January 31, 2019, pre-tax restructuring-related items of $166 were recorded in cost of sales, $2,693 were recorded in general and administrative expenses and $1,313 of expenses were recorded in other income. For the six months ended January 31, 2018, pre-tax restructuring-related items of ~~$1,164~~$1,147 were recorded in cost of sales and ~~$2,656 were recorded in general and administrative expenses. For the nine months ended April 30, 2017, pre-tax restructuring-related items of $1,735~~$1,191 were recorded in general and administrative expenses.


(4)	Amounts were recorded in other income, ~~taxes.~~net.


(5)	Amounts were recorded in ~~other income.~~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 from operations, net income and other GAAP financial performance measures.

We define adjusted EBITDAS as EBITDAS excluding the same non-GAAP adjustments to net income discussed ~~previously in this document.~~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.

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

Cantel Medical Corp. ~~2018 Third~~2019 Second 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,					Three Months Ended January 31,						Six Months Ended January 31,
	2018		2017		2018			2017		2019			2018			2019			2018
Net income, as reported	$	18,736	$	17,511	$	74,153		$	54,381	$	18,800		$	32,488		$	38,042		$	55,417
Interest expense, net	1,498		1,084		3,822			3,303		2,207			1,135			4,233			2,324
Income taxes	6,833		8,849		14,346			25,436		6,502			(1,141		)	12,912			7,513
Depreciation	4,626		3,774		12,816			10,922		4,872			4,154			9,563			8,190
Amortization	4,480		3,964		12,892			11,930		4,511			4,364			10,552			8,412
Loss on disposal of fixed assets	187		87		521			489		606			265			839			334
Stock-based compensation expense	2,443		1,945		7,033			6,983		3,587			2,739			6,163			4,590
EBITDAS	38,803		37,214		125,583			113,444		41,085			44,004			82,304			86,780
Acquisition-related items	953		720		3,302			1,795		1,129			540			2,956			2,349
Restructuring-related charges⁽¹⁾	1,468		879		3,721			1,735		1,497			1,390			2,239			2,338
Gain on disposition of business										(1,313		)	—			(1,313		)	—
Litigation matters	2,345		—		2,345			—		—			—			163			—
Resolution of contingent liability	—		—		(1,138		)	—		—			—			—			(1,138		)
CEO retirement costs⁽²⁾	—		—		—			1,413
Adjusted EBITDAS	$	43,569	$	38,813	$	133,813		$	118,387	$	42,398		$	45,934		$	86,349		$	90,329


(1)	Excludes stock-based compensation expense.


~~(2)~~	For comparative purposes, we have revised the amounts associated with CEO retirement costs for the nine months ended April 30, 2017 to exclude stock-based compensation expense which was reported in "Stock-based compensation expense" above.

We define net debt as long-term debt less cash and cash equivalents. Each of the components of net debt appears on our consolidated balance sheets. 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, 2018			July 31, 2017			January 31, 2019			July 31, 2018
Long-term debt	$	169,000		$	126,000
Long-term debt (excluding debt issuance costs)							$	240,000		$	200,000
Less cash and cash equivalents	(51,916		)	(36,584		)	(71,031		)	(94,097		)
Net debt	$	117,084		$	89,416		$	168,969		$	105,903

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

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, ~~of businesses~~dispositions and cash dividends. Cash provided by operating activities continues to be a primary source of funds. As necessary, we supplement operating cash flow with borrowings from our revolving credit facility to fund our acquisitions and related business activities.

Cash Flows

Net Cash Provided by Operating Activities. Net cash provided by operating activities ~~increased~~decreased by ~~$16,619~~$25,477 or ~~22.6%~~46.6%, to ~~$90,003~~$29,194 for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from ~~$73,384~~$54,671 for the ~~nine~~six months ended ~~April 30, 2017,~~January 31, 2018, primarily due to the decrease in net income, the timing of accounts payable and decreased cash collections of outstanding accounts receivable, partially

(dollar amounts in thousands except share and per share data or as otherwise noted) 2728

Cantel Medical Corp. ~~2018 Third~~2019 Second Quarter Form 10-Q

~~increase in net income, increased cash collections associated with outstanding accounts receivables and the timing of accounts payable, partially~~ offset by ~~the timing of~~a reduction in income tax ~~payments, the increase in inventories to support product demand~~payments. The timing and ~~timing~~preparation of our ~~annual insurance premium payments.~~enterprise resource planning ERP go-live this quarter contributed to this decrease during the six month period.

Net Cash Used in Investing Activities. Net cash used in investing activities increased by ~~$17,991~~$5,293 or ~~19.9%~~6.8%, to ~~$108,367~~$83,056 for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from ~~$90,376~~$77,763 for the ~~nine~~six months ended ~~April 30, 2017,~~January 31, 2018, primarily due to anthe increase in capital expenditures (primarily related to the purchase of a new facility and our ERP project), partially offset by a decrease in cash paid for acquisitions and tothe proceeds from the sale of a ~~lesser extent, an increase in capital expenditures.~~business.

Net Cash Provided by Financing Activities. Net cash provided by financing activities increased by ~~$13,546~~$6,969 or ~~68.8%~~28.4%, to ~~$33,238~~$31,472 for the ~~nine~~six months ended ~~April 30, 2018~~January 31, 2019 from ~~$19,692~~$24,503 for the ~~nine~~six months ended ~~April 30, 2017,~~January 31, 2018, primarily due to a net increase in ~~revolver~~ borrowings to ~~fund acquisitions.~~

~~Dividends~~

~~On November 1, 2017, our Board of Directors approved a 21%~~support acquisition-related activity, partially offset by an increase in ~~the semi-annual cash~~ dividend to approximately $0.09 per share of outstanding common stock, which was paid on January 31, 2018 to shareholders of record at the close of business on January 17, 2018. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.payments.

Debt

~~On April 30, 2018,~~At January 31, 2019, we had ~~$169,000~~$195,000 of outstanding term loan borrowings and $45,000 of revolver borrowings under our ~~Third~~Fourth Amended and Restated Credit Agreement (the ~~“2014~~“2018 Credit Agreement”).

For further information regarding the ~~2014~~2018 Credit Agreement, including a description of affirmative and negative covenants, see Note 910 to our condensed consolidated financial statements in Part I, Item 1 of this report.

Financing Needs

~~On April 30, 2018,~~At January 31, 2019, our long-term debt (excluding debt issuance costs) of ~~$169,000,~~$240,000, net of our cash and cash equivalents of ~~$51,916,~~$71,031, was ~~$117,084. Stockholders'~~$168,969. Stockholders’ equity as of that date was ~~$601,306.~~$641,603.

Our operating segments generate significant cash from operations. At ~~April 30, 2018,~~January 31, 2019, we had a cash balance of ~~$51,916,~~$71,031, of which ~~$27,358~~$48,074 was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for working capital purposes as well as for current international growth initiatives. Accordingly, our foreign unremitted earnings are considered indefinitely reinvested and unavailable for repatriation.

We believe that our current cash position, anticipated cash flows from operations and the funds available under our ~~2014~~2018 Credit Agreement 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. At ~~June~~March 1, ~~2018,~~2019, approximately ~~$86,000~~$354,729 was available under our ~~2014~~2018 Credit Agreement.

Critical Accounting Policies

There were no changes to our critical accounting policies from those disclosed in our ~~2017~~2018 Annual Report on Form 10-K.

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. 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,~~” “will continue,~~” “project,” “intend,” “plan,” “believe,” “seek,” “may,” “could” 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 and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made.

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

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

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 ~~2017~~2018 Annual Report on Form 10-K, entitled Risk Factors. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

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 ~~2017~~2018 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 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 ~~report~~Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that the design and operation of these disclosure controls and procedures were effective and designed to ensure that material information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is (i) recorded, processed, summarized and reported within the time periods specified by the SEC and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

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

On ~~August 23, 2017, we acquired BHT Group, and on~~ March 21, 2018, we acquired Aexis, ~~Medical,~~and on August 1, 2018, we acquired the CES business, as more fully described in Note 3 to the condensed consolidated financial statements. During the initial transition period following the acquisitions, we enhanced our internal control process to ensure that all financial information related to these acquisitions was properly reflected in our condensed consolidated financial statements. We expect all aspects of the ~~BHT Group~~Aexis business ~~will be fully integrated into our existing overall internal control structure by the end of fiscal 2018. We expect all aspects of the Aexis Medical~~and CES business will be fully integrated into our existing overall internal control structure during fiscal 2019.

~~Cantel Medical Corp. 2018 Third Quarter Form 10-Q~~

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our ~~2017~~2018 Annual Report on Form 10‑K. The risk factors disclosed in Part I, Item 1A to our ~~2017~~2018 Annual Report on Form 10-K, in addition to the other information set forth in this report, could materially affect our business, financial condition, or results of operations.

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

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

Period
Total number of
shares purchased

Average price
paid per share
Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the program
February 1 - February 28 529
$ 112.62
—
—
March 1 - March 31 1,211
$ 112.63
—
—
April 1 - April 30 596
$ 113.98
—
—
Total 2,336
$ 112.97
—
—



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
November 1 - November 30	43	$	83.70	—	—
December 1 - December 31	51	$	84.05	—	—
January 1 - January 31	786	$	74.29	—	—
Total	880	$	75.32	—	—

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

Cantel Medical Corp. 2019 Second Quarter Form 10-Q

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits



	31.1		Certification of Principal Executive Officer.

	31.2		Certification of Principal Financial Officer.

	32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section ~~1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~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 ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise noted) 3031

Cantel Medical Corp. ~~2018 Third~~2019 Second 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: ~~June~~March 1, ~~2018~~2019

	By:	/s/ Jorgen B. Hansen
		Jorgen B. Hansen,
		President and Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ Peter G. Clifford
		Peter G. Clifford,
		Executive 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)

3132



	Consolidated Effective Income Tax Rate
	Three Months Ended		Nine Months Ended
April 30, 2017	33.6	%	31.9	%
Difference attributable to:
Deferred tax revaluation	(0.4	)%	(7.0	)%
U.S. federal statutory rate decrease⁽¹⁾	(8.1	)%	(8.1	)%
Foreign operations	(1.3	)%	(0.3	)%
State taxes	3.5	%	1.5	%
Excess tax benefit	—	%	(2.3	)%
Other	(0.6	)%	0.5	%
April 30, 2018	26.7	%	16.2	%



	Three Months Ended April 30,								Nine Months Ended April 30,
Operating Income by Segment	2018				2017				2018				2017
Endoscopy	$	20,515	17.3	%	$	18,514	18.4	%	$	64,662	18.6	%	$	54,853	19.0	%
Water Purification and Filtration	8,454		16.2	%	7,842		16.4	%	26,753		17.1	%	25,167		17.3	%
Healthcare Disposables	7,588		19.7	%	6,392		17.7	%	23,481		20.4	%	20,857		19.3	%
Dialysis	1,778		22.2	%	2,315		30.3	%	5,795		24.3	%	6,275		27.7	%
Operating income by segment	38,335		17.6	%	35,063		18.3	%	120,691		18.8	%	107,152		19.0	%
General corporate expenses	11,268		5.1	%	7,619		4.0	%	29,508		4.6	%	24,032		4.3	%
Income from operations	$	27,067	12.5	%	$	27,444	14.3	%	$	91,183	14.2	%	$	83,120	14.7	%