Cantel Medical : December 2020- 1Q FY21 Earnings Presentation

1st Quarter FY21 Earnings Call

December 8th, 2020

NYSE:CM N

Forward Looking Statements

This press release contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 and other securities laws. For these statements, we claim the protection of the safe harbor for forward- looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the current beliefs and assumptions of management; they do not relate strictly to historical or current facts. Without limiting the foregoing, words or phrases such as "expect," "anticipate," "look to," "goal," "project," "intend," "plan," "believe," "seek," "may," "could," "aspire" and variations of such words and similar expressions generally identify forward-looking statements. In addition, any statements that refer to predictions or projections of our future financial performance, anticipated growth, strategic objectives, performance drivers and trends in our businesses, the impacts and recovery from the COVID pandemic, 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, including the impacts of the COVID-19 pandemic on our operations and financial results, general economic conditions, technological and market changes in the medical device industry, our ability to execute on our strategy, risks associated with operating our international business, including limited operating experience and market recognition in new international markets, changes in United States healthcare policy at both the state and federal level, product liability claims resulting from the use of products we sell and distribute, and risks related to our intellectual property and proprietary rights needed to maintain our competitive position. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, as further updated by our Quarterly Reports on Form 10-Q we will file hereafter. 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.

This presentation contains non-GAAP financial measures. For the calculations of these measures, reconciliations to the most comparable GAAP measures, and additional information, please see "GAAP to non-GAAP Disclosure" beginning on slide 10.

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Content

• Financial Results

• Non-GAAPDisclosures

3

1Q21 Highlights

($, millions)

Net Sales

+15.5% Overall Growth

-1.8% Organic

$297.0

$257.2

1Q211Q20

Earnings Per Share

+307.1% y/y

38.5% y/y

		$0.90
$0.57			$0.65
	$0.14
1Q21	1Q20	1Q21	1Q20
	GAAP EPS	Non-GAAP EPS

4

1Q21 Net Sales Walk

($, millions)

1Q21 Net Sales Walk

+16.5%+0.8%+15.5%

-1.8%

	$257.2			$297.0	*+14.7%

1Q20

Organic

M&A

FX Impact

1Q21

5	*Constant Currency

1Q21 Financial Results

($, millions)

+27.2%

+249.1%

GAAP

$147.4									+324.2%
49.6%	$115.9
			$50.4
	45.0%
				17.0%
										$24.5
						$14.4
									8.2%
						5.6%						$5.8

1Q21

1Q20

1Q21

1Q20

1Q21

1Q20

Gross Profit

Income from Operations

Net Income

+22.1%

Non-GAA

P

+52.0%

$148.7

+41.3%

50.1%

$121.8

47.3%

$64.5

$38.5

21.7%

$42.5

$27.2

13.0%

16.5%

10.6%

1Q21

1Q20

1Q21

1Q20

1Q21

1Q20

Gross Profit

Income from Operations

Net Income

6	*Items not listed above - 1Q20 GAAP Net Income Rate 2.2%

Segment Financials

Medical

	1Q21	Variance
Measure	(in $ Millions)	y/y	Organic %
Net Sales	$132.3	(0.8)%	(2.2)%
GAAP
Operating Income	$26.7	26.5%
Operating Income Margin	20.2%	440 Bps
Non-GAAP
Operating Income	$30.5	13.2%
Operating Income Margin	23.0%	280 Bps

1Q21 Highlights

• Recurring revenues increased ~2% driven by elective procedures and increased demand for infection prevention solutions and products
• Capital equipment orders remained strong with a doubling of the backlog
• Recurring revenue mix driving strong margin accretion

Dental

	1Q21	Variance
Measure	(in $ Millions)	y/y	Organic %
Net Sales	$111.0	65.1%	1.8%
GAAP
Operating Income	$25.3	405.7%
Operating Income Margin	22.8%	1,540 Bps
Non-GAAP
Operating Income	$34.0	111.8%
Operating Income Margin	30.6%	670 Bps

1Q21 Highlights

• Strong demand for infection prevention products, with PPE and chemistries driving return to organic growth
• Recurring revenue mix and accelerated Hu-Friedy synergies pushing margins north of 25% EBITDA target

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Segment Financials

Life Sciences

	1Q21	Variance
Measure	(in $ Millions)	y/y	Organic %
Net Sales	$45.6	-7.3%	-7.3%
GAAP
Operating Income	$8.1	13.2%
Operating Income Margin	17.7%	320 Bps
Non-GAAP
Operating Income	$8.8	6.1%
Operating Income Margin	19.3%	240 Bps

1Q21 Highlights

• Portable reverse osmosis placements softer than prior year due to extreme demand in the preceding six months
• Prior year restructuring and enhanced operating discipline driving profitability gains

Dialysis

	1Q21	Variance
Measure	(in $ Millions)	y/y	Organic %
Net Sales	$8.1	8.3%	8.3%
GAAP
Operating Income	$2.6	58.2%
Operating Income Margin	31.5%	990 Bps
Non-GAAP
Operating Income	$2.6	58.2%
Operating Income Margin	31.6%	1,000 Bps

1Q21 Highlights

• Dialysis market more resilient due to essential nature of treatment
• Annual price increase and volume driving margin gains

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Balance Sheet & Cash Flow

($, millions)
	Cash & Undrawn Revolver:		10/31/2020
	Cash & Cash Equivalents	$	258.0
	Undrawn Revolver	$	76.0
	Total	$	334.0
	Net Debt:
		10/31/2020
	Long-term Debt (excluding debt issuance costs)	$	870.4
	Convertible Debt (excluding discount and debt issuance costs)	$	168.0
	Cash & Cash Equivalents	$	258.0
	Net Debt	$	780.4
			10/31/2020
	LTM Adjusted EBITDAS	$	198.3
	Net Debt to Adjusted EBITDAS		3.9x
	Debt Repayment (last 3 months)	$	75.0
	Capital Expenditures (last 3 months)	$	5.5
	Working Capital	$	426.9

Debt Repayment ~ $125M in Fiscal 2021 through November

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GAAP to Non-GAAP Disclosure

Non-GAAP financial measures contained herein supplement information previously reported in filings on Form 10-Q and Form 10-K as well as in presentations by Company management to investors, analysts and others. The information below will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended.

Non-GAAP Financial Measures

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

(a) Organic Sales

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

(b) Non-GAAP Gross Profit Rate

We define non-GAAP gross profit rate, adjusted to exclude acquisition-related and business optimization and restructuring-related items as management deems these items to be irregular or non-operating in nature.

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GAAP to Non-GAAP Disclosure (continued)

(c) Non-GAAP Income from Operations, Non-GAAP Net Income and Non-GAAP Diluted EPS

We define non-GAAP income from operations, as income from operations adjusted to exclude (i) amortization of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges and (iv) other significant items management deems irregular or non-operating in nature.

We define non-GAAP net income and non-GAAP diluted EPS as net income and diluted EPS, respectively, adjusted to exclude

1. amortization of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges, (iv) non-cash interest, (v) certain significant and discrete tax matters and (vi) other significant items management deems irregular or non-operating in nature.

Amortization expense of purchased intangible assets:

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

Acquisition-related Items

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

1. acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with our acquisition program, including accounting charges relating to recording acquired inventory and deferred revenue at fair market value, can be significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since these acquisition-related items are irregular and often mask underlying operating performance, we exclude these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

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GAAP to Non-GAAP Disclosure (continued)

Restructuring-related and business optimization items

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

Excess tax benefits and expenses

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

Non-cash interest

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

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

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GAAP to Non-GAAP Disclosure (continued)

Other Adjustments

During the three months ended October 31, 2020, we completed the disposition of a service business in Canada, which resulted in a pre-tax gain of $249K through general and administrative expenses. Since we believe that this gain was not representative of our ordinary course past or future operations, we made an adjustment to our net income and diluted EPS to exclude this gain to arrive at our non-GAAP financial measures.

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GAAP to Non-GAAP Disclosure (continued)

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

		Medical	Life Sciences	Dental	Dialysis	Total
1Q 2020	Net sales	$133.4	$49.1	$67.2	$7.5	$257.2
Organic		-2.2%	-7.3%	1.8%	8.3%	-1.8%
M&A		-%	-%	63.3%	-%	16.5%
FX		1.4%	-%	-%	-%	0.8%
1Q 2021	Net Sales	$132.3	$45.6	$111.0	$8.1	$297.0
Total Growth	-0.8%	-7.3%	65.1%	8.3%	15.5%

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GAAP to Non-GAAP Disclosure (continued)

(b) The reconciliation of gross profit rate to non-GAAP gross profit rate were calculated as follows:

	Three Months Ended October 31,		Basis Point (bps)
(Unaudited)	2020	2019		Change
Gross profit rate, as reported	49.6%		45.0%		460
Acquisition-related items	-%	1.9%	(190)
Business optimization and	0.5%	0.4%	10
restructuring-related charges
Non-GAAP gross profit rate	50.1%		47.3%		280

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GAAP to Non-GAAP Disclosure (continued)

1. The reconciliation of consolidated income from operations to non-GAAP income from operations were calculated as follows:

(Amounts in thousands)			Three Months Ended October 31,			Percentage
(Unaudited)			2020	2019			Change
Income from operations, as reported		$	50,352		$	14,424		249.1 %
Intangible amortization			8,918			6,029	47.9 %
Acquisition-related items			540			16,577	(96.7)%
Business optimization and			4,981			5,428	(8.2)%
restructuring-related charges
Gain on dispostion of business			(249)			-		- %
Non-GAAP income from operations		$	64,542		$	42,458		52.0 %

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GAAP to Non-GAAP Disclosure (continued)

1. The reconciliation of our Medical segment's income from operations to non-GAAP income from operations were calculated as follows:

(Amounts in thousands)			Three Months Ended October 31,		Percentage
(Unaudited)			2020			2019		Change
Income from operations, as reported		$	26,716		$	21,119		26.5 %
Intangible amortization			2,075			2,043	1.6 %
Acquisition-related items			-			1,584	(100.0)%
Business optimization and			1,699			2,187	(22.3)%
restructuring-related charges
Non-GAAP income from operations		$	30,490		$	26,933		13.2 %

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GAAP to Non-GAAP Disclosure (continued)

1. The reconciliation of our Life Sciences segment's income from operations to non-GAAP income from operations were calculated as follows:

(Amounts in thousands)			Three Months Ended October 31,			Percentage
(Unaudited)			2020	2019			Change
Income from operations, as reported		$	8,075		$	7,135		13.2 %
Intangible amortization			614			608	1.0 %
Business optimization and			365			554	(34.1)%
restructuring-related charges
Gain on disposition of business			(249)			-		- %
Non-GAAP income from operations		$	8,805		$	8,297		6.1 %

18

GAAP to Non-GAAP Disclosure (continued)

1. The reconciliation of our Dental segment's income from operations to non-GAAP income from operations were calculated as follows:

(Amounts in thousands)			Three Months Ended October 31,		Percentage
(Unaudited)			2020			2019		Change
Income from operations, as reported	$	25,307	$	5,004	405.7 %
Intangible amortization			6,230			3,378	84.4 %
Acquisition-related items			390			5,650	(93.1)%
Business optimization and			2,073			2,018	2.7 %
restructuring-related charges
Non-GAAP income from operations		$	34,000		$	16,050		111.8 %

19

GAAP to Non-GAAP Disclosure (continued)

1. The reconciliation of our Dialysis segment's income from operations to non-GAAP income from operations were calculated as follows:

(Amounts in thousands)			Three Months Ended October 31,			Percentage
(Unaudited)			2020	2019			Change
Income from operations, as reported		$	2,566		$	1,622		58.2 %
No reconciling items			-			-		- %
Non-GAAP income from operations		$	2,569		$	1,622		58.2 %

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GAAP to Non-GAAP Disclosure (continued)

(d) The reconciliations of GAAP net income to non-GAAP net income were calculated as follows:

(Amounts in thousands)			Three Months Ended
		October 31,
(Unaudited)			2020			2019
Net income, as reported		$	24,464	$	5,767
Intangible amortization, net of tax			6,936			5,021
Acquisition-related items, net of tax			503			12,520
Business optimization and restructuring-related			3,775			3,352
charges, net of tax
Non-cash interest, net of tax			1,895			-
Gain on disposition of business, net of tax			(179)			-
Excess tax benefits and expenses			1,080			559
Non-GAAP net income		$	38,474		$	27,219

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GAAP to Non-GAAP Disclosure (continued)

1. The reconciliations of GAAP diluted EPS to non-GAAP diluted EPS were calculated as follows:

(Amounts in thousands)		Three Months Ended
	October 31,
(Unaudited)		2020			2019
Diluted EPS, as reported	$	0.57	$	0.14
Intangible amortization, net of tax		0.16			0.12
Acquisition-related items, net of tax		0.01			0.30
Business optimization and restructuring-related		0.09			0.08
charges, net of tax
Non-cash interest, net of tax		0.04			-
Gain on disposition of business, net of tax		-			-
Excess tax benefits and expenses		0.03			0.01
Non-GAAP Diluted EPS	$	0.90		$	0.65

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GAAP to Non-GAAP Disclosure (continued)

EBITDAS and Adjusted EBITDAS

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, has on the Company's net income. In particular, acquisitions have historically resulted in significant increases in amortization of intangible assets that reduce the Company's net income. Additionally, we regard EBITDAS as a useful measure of operating performance and cash flow before the effect of interest expense and is a complement to operating income, net income and other GAAP financial performance measures.

We define Adjusted EBITDAS as EBITDAS excluding the same non-GAAP adjustments to net income discussed previously in this document. We use Adjusted EBITDAS when evaluating the operating performance of the Company because we believe the exclusion of such adjustments, of which a significant portion are non-cash items, is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period.

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

Three Months Ended

	(Amounts in thousands)			October 31,
	(Unaudited)			2020			2019
	Net income, as reported	$	24,464	$	5,767
	Interest expense, net			16,293			5,719
	Income taxes			9,595			2,938
	Depreciation			8,409			6,338
	Amortization			8,918			6,029
	Loss on disposal of fixed assets			-			167
	Stock-based compensation expense			3,422			2,404
	EBITDAS			71,101			29,362
	Acquisition-related items			511			16,577
	Business optimization and restructuring-related charges*			4,894			5,367
	Gain on disposition of business			(249)			-
	Adjusted EBITDAS	$	76,257	$	51,306
23	*Excludes stock-based compensation expense.

GAAP to Non-GAAP Disclosure (continued)

Net Debt

We define net debt as long-term debt (bank debt excluding unamortized debt issuance costs) plus the convertible debt (excluding unamortized debt issuance costs and unamortized discount), less cash and cash equivalents. 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.

The reconciliations of debt to net debt were calculated as follows:

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

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