CANTEL MEDICAL CORP.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand Cantel. The
MD&A is provided as a supplement to and should be read in conjunction with our
financial statements and the accompanying notes.
Overview
Cantel is a leading provider of infection prevention products and services in the healthcare market, specializing in the following reportable segments: Medical, Life Sciences, Dental and Dialysis. Most of our equipment, consumables and supplies are used to help prevent the occurrence or spread of infections. Merger Agreement with STERIS OnJanuary 12, 2021 , we entered into a definitive merger agreement with two wholly owned subsidiaries of STERIS, plc ("STERIS"), under which STERIS will acquire Cantel in a cash and stock transaction with an equity value of approximately$3.6 billion , based on the closing price of STERIS shares of$200.46 onJanuary 11, 2021 (the "STERIS and Cantel Merger"). OnApril 29, 2021 , the stockholders of Cantel approved the STERIS and Cantel Merger. All customary closing conditions and regulatory approvals have also been satisfied. The STERIS and Cantel Merger is expected to closeJune 2, 2021 . In connection with the STERIS and Cantel Merger, we have incurred, and will continue to incur, merger-related and integration-related preparation costs. A significant portion of those costs are contingent on the merger closing, such as investment banking fees, legal fees, and other employee related costs. We incurred$3,283,000 and$14,903,000 of such costs during the three and nine month periods endedApril 30, 2021 , which were recorded in general and administrative expense within the Condensed Consolidated Statements of Income. (dollar amounts in thousands except share and per share data or as otherwise noted) 22 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q
COVID-19
InMarch 2020 , theWorld Health Organization categorized the novel Coronavirus disease 2019, or COVID-19, as a pandemic. We continue to be subject to risks and uncertainties as a result of the COVID-19 pandemic and uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to contain and/or limit the impact of COVID-19, including vaccinations, social distancing measures, travel bans and restrictions, and business and government shutdowns, continue to have a global economic impact. To date, we have been able to continue our operations with limited disruptions in supply and manufacturing. Although, it is difficult to predict the broad macroeconomic effects that the COVID-19 pandemic will have on industries or individual companies, we have assessed the possible effects and outcomes of the pandemic on, among other things, our supply chain, customers and distributors, discounts and rebates, employee base, product sustainability, research and development efforts, product pipeline and consumer demand. During the second half of fiscal 2020, we implemented several measures to reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These management cost reduction measures included salary reductions, employee furloughs, travel reductions and the deferral of certain operating and capital expenditures. During the second half of fiscal 2020, the COVID-19 pandemic negatively impacted net sales and the related operations of both our Medical and Dental segments as a result of the postponement of elective medical procedures and routine dental procedures. As a result, we implemented several measures to reduce operating costs, conserve liquidity and navigate through this unprecedented situation. These management cost reduction measures included salary reductions, employee furloughs, travel reductions and the deferral of certain operating and capital expenditures. Towards the end of fiscal 2020, we experienced gradual improvements in these respective businesses as restrictions were lifted and limitations eased. Demand in our medical and dental businesses have continued to improve this quarter. While we expect to see improvement in the remainder of fiscal 2021, the effects of the COVID-19 pandemic remain fluid and continue to evolve differently across various geographies and still could have a negative impact on our businesses if a resurgence of the virus occurs around the world. See "Results of Operations" for a more detailed discussion. Third Quarter 2020 Summary (on a comparative basis) Key GAAP financial results for the three months endedApril 30, 2021 were as follows: •Net sales increased by 32.5% to$313,953 from$236,933 , •Net income increased to$21,118 from$15,787 and •Earnings per diluted share increased to$0.47 from$0.37 . Key Non-GAAP financial results for the three months endedApril 30, 2021 were as follows: •Non-GAAP net income increased by 465.2% to$38,394 from$6,793 , •Non-GAAP earnings per diluted share increased by 437.5% to$0.86 from$0.16 and •Adjusted EBITDAS increased by 140.5% to$76,299 from$31,726 .
Please see a description of our Non-GAAP Financial Measures below.
(dollar amounts in thousands except share and per share data or as otherwise noted) 23 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q
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,
Statement of Income Data: 2021 2020 Percentage Change
Net sales $ 313,953 100.0 % $ 236,933 100.0 % 32.5 %
Cost of sales 162,630 51.8 % 135,950 57.4 % 19.6 %
Gross profit 151,323 48.2 % 100,983 42.6 % 49.8 %
Selling 41,239 13.1 % 38,057 16.1 % 8.4 %
General and administrative 56,619 18.0 % 32,133 13.6 % 76.2 %
Research and development 7,941 2.6 % 8,349 3.4 % (4.9) %
Total operating expenses 105,799 33.7 % 78,539 33.1 % 34.7 %
Income from operations 45,524 14.5 % 22,444 9.5 % 102.8 %
Interest expense, net 14,845 4.7 % 10,113 4.2 % 46.8 %
Income before income taxes 30,679 9.8 % 12,331 5.2 % 148.8 %
Income taxes 9,561 3.1 % (3,456) (1.5) % NM
Net income $ 21,118 6.7 % $ 15,787 6.7 % 33.8 %
NM = Not meaningful
Nine Months Ended April 30,
Statement of Income Data: 2021 2020 Percentage Change
Net sales $ 905,020 100.0 % $ 782,677 100.0 % 15.6 %
Cost of sales 462,853 51.1 % 443,581 56.7 % 4.3 %
Gross profit 442,167 48.9 % 339,096 43.3 % 30.4 %
Selling 119,736 13.2 % 121,208 15.5 % (1.2) %
General and administrative 171,852 19.0 % 149,471 19.1 % 15.0 %
Research and development 23,074 2.6 % 23,953 3.0 % (3.7) %
Total operating expenses 314,662 34.8 % 294,632 37.6 % 6.8 %
Income from operations 127,505 14.1 % 44,464 5.7 % 186.8 %
Interest expense, net 46,629 5.2 % 26,082 3.4 % 78.8 %
Income before income taxes 80,876 8.9 % 18,382 2.3 % 340.0 %
Income taxes 23,226 2.5 % (909) (0.2) % NM
Net income $ 57,650 6.4 % $ 19,291 2.5 % 198.8 %
(dollar amounts in thousands except share and per share data or as otherwise
noted) 24
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Cantel Medical Corp. 2021 Third Quarter Form 10-Q
The following table gives information as to the net sales by reportable segment
and geography, as well as the related percentage of such net sales to the total
net sales, for each of our reportable segments.
Three Months Ended April 30, Nine Months Ended April 30,
Net sales by segment 2021 2020 2021 2020
Medical $ 148,824 47.4 % $ 101,222 42.7 % $ 414,897 45.8 % $ 365,534 46.7 %
Life Sciences 47,481 15.1 % 48,189 20.3 % 139,272 15.4 % 147,452 18.8 %
Dental 109,639 34.9 % 79,170 33.4 % 326,064 36.0 % 247,457 31.6 %
Dialysis 8,009 2.6 % 8,352 3.6 % 24,787 2.8 % 22,234 2.9 %
Total net sales $ 313,953 100.0 % $ 236,933 100.0 % $ 905,020 100.0 % $ 782,677 100.0 %
Net sales by geography
United States $ 214,110 68.2 % $ 176,688 74.6 % $ 634,891 70.2 % $ 574,370 73.4 %
International 99,843 31.8 % 60,245 25.4 % 270,129 29.8 % 208,307 26.6 %
Total net sales $ 313,953 100.0 % $ 236,933 100.0 % $ 905,020 100.0 % $ 782,677 100.0 %
The following table gives information as to the amount of income from operations, as well as income from operations as a percentage of net sales, for each of our reportable segments.
Three Months Ended April 30, Nine Months Ended April 30,
Income from operations 2021 2020 2021 2020
Medical $ 32,385 21.8 % $ 6,153 6.1 % $ 86,375 20.8 % $ 48,806 13.4 %
Life Sciences 7,784 16.4 % 5,786 12.0 % 24,893 17.9 % 20,621 14.0 %
Dental 18,645 17.0 % 1,549 2.0 % 60,291 18.5 % 5,697 2.3 %
Dialysis 1,502 18.8 % 1,859 22.3 % 6,186 25.0 % 4,988 22.4 %
60,316 19.2 % 15,347 6.5 % 177,745 19.6 % 80,112 10.2 %
General corporate expenses 14,792 4.7 % (7,097) (3.0) % 50,240 5.5 % 35,648 4.5 %
Total income from operations $ 45,524 14.5 % $ 22,444 9.5 % $ 127,505 14.1 % $ 44,464 5.7 %
Net Sales
Total net sales increased by $77,020 or 32.5%, to $313,953 for the three months
ended April 30, 2021 from $236,933 for the three months ended April 30, 2020 ,
which consisted of an increase of 29.8% in organic sales and an increase of 2.7%
due to favorable foreign currency translation. International net sales increased
by $39,598 or 65.7%, to $99,843 for the three months ended April 30, 2021 from
$60,245 for the three months ended April 30, 2020 . The 65.7% increase in
international net sales consisted of a 55.2% increase in organic sales and an
increase of 10.5% due to favorable foreign currency translation of our net sales
in Europe , the United Kingdom and Australia . Total net sales increased by
$122,343 or 15.6%, to $905,020 for the nine months ended April 30, 2021 from
$782,677 for the nine months ended April 30, 2020 , which consisted of 8.8%
increase in organic sales, a 5.4% increase in net sales due to acquisitions (net
of dispositions) and an increase of 1.4% due to foreign currency translation.
International net sales increased by $61,822 or 29.7%, to $270,129 for the nine
months ended April 30, 2021 from $208,307 for the nine months ended April 30,
2020 . The 29.7% increase in international net sales consisted of a 21.2%
increase in organic sales, an increase in net sales due to acquisitions of 3.2%
(offset by dispositions) and an increase of 5.3% due to favorable foreign
currency translation of our net sales in Europe , the United Kingdom and
Australia .
Medical. Net sales increased by $47,602 or 47.0%, for the three months ended
April 30, 2021 compared with the three months ended April 30, 2020 , which
consisted of a 41.1% increase in organic sales and an increase of 5.9% due to
foreign currency translation. Net sales increased by $49,363 or 13.5%, for the
nine months ended April 30, 2021 compared with the nine months ended April 30,
2020 , which consisted of an increase of 10.6% in organic sales and an increase
of 2.9% due to foreign currency translation. The increases in organic net sales
for the three and nine month periods were driven by the return of elective
procedure rates globally, commercial penetration in day-rate business sales, as
well as continued growth in capital equipment investment.
Life Sciences. Net sales decreased by $708 or 1.5% for the three months ended
April 30, 2021 compared with the three months ended April 30, 2020 , which
consisted of a 2.1% decrease in organic sales, slightly offset by an increase of
0.6% due to foreign currency translation. Net sales decreased by $8,180 or 5.5%
for the nine months ended April 30, 2021 compared with the nine months ended
April 30, 2020 , which consisted of a 5.8% decrease in organic sales, slightly
offset by an increase of
(dollar amounts in thousands except share and per share data or as otherwise
noted) 25
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Cantel Medical Corp. 2021 Third Quarter Form 10-Q
0.3% due to foreign currency translation. The decreases in net sales for the
three and nine month periods were primarily due to lower demand for central and
portable reverse osmosis units in our hemodialysis water business. As the
majority of our Life Sciences business supports non-elective medical treatment,
the COVID-19 pandemic has not materially impacted this business, with the
exception of the timing of portable reverse osmosis units and delayed capital
projects at our customers.
Dental. Net sales increased by $30,469 or 38.5%, for the three months ended
April 30, 2021 compared with the three months ended April 30, 2020 , which
consisted of a 38.5% organic sales increase. Net sales increased by $78,607 or
31.8%, for the nine months ended April 30, 2021 compared with the nine months
ended April 30, 2020 , which consisted of a 17.2% increase primarily due to the
Hu-Friedy acquisition and a 14.6% organic sales increase. The increases in
organic sales for the three and nine months periods were driven by continued
increase of dental office visits and procedures, increased personal protective
equipment (PPE) and disinfectant chemistries sales. In the second half of fiscal
2020, the COVID-19 pandemic had significantly impacted the Dental segment due to
reduced dental procedures and dentist office visits. However, dental procedure
volumes have improved and continue to stabilize in fiscal 2021. While we expect
to see continued improvement during the remainder of fiscal 2021 as routine and
elective dental procedure volumes return to pre-COVID-19 levels, we could
experience variable impacts on our Dental business if a resurgence of the virus
emerges and such procedures were postponed again.
Dialysis. Net sales decreased by $343 or 4.1%, for the three months ended
April 30, 2021 compared with the three months ended April 30, 2020 . Net sales
increased by $2,553 or 11.5%, for the nine months ended April 30, 2021 compared
with the nine months ended April 30, 2020 .
Gross Profit
Gross profit increased by$50,340 or 49.8%, to$151,323 for the three months endedApril 30, 2021 from$100,983 for the three months endedApril 30, 2020 . The increase in gross profit primarily relates to net sales increases in the Medical and Dental segments and certain actions taken by management to reduce variable costs due to the COVID-19 pandemic. Gross profit increased by$103,071 or 30.4%, to$442,167 for the nine months endedApril 30, 2021 from$339,096 for the nine months endedApril 30, 2020 . The increase in gross profit for the nine month period primarily relates to the contribution of the Hu-Friedy business, increases in net sales in the Medical segment and our legacy dental business, and the lower cost base as a result of certain actions taken by management to reduce variable costs in response to lower sales volume due to the COVID-19 pandemic in the prior year. Gross profit as a percentage of net sales for the three months endedApril 30, 2021 and 2020 was 48.2% and 42.6%, respectively. Gross profit as a percentage of net sales for the nine months endedApril 30, 2021 and 2020 was 48.9% and 43.3%, respectively. The increases in gross profit as a percentage of net sales for the three and nine month periods were driven by increases in net sales in the Medical and Dental segments, a lower cost base as a result of measures taken as a result of the COVID-19 pandemic in the prior year and favorable leverage of our fixed manufacturing costs, primarily in our Medical and Dental segments.
Operating Expenses
Operating expenses increased by$27,260 or 34.7% to$105,799 for the three months endedApril 30, 2021 from$78,539 for the three months endedApril 30, 2020 . Operating expenses increased by$20,030 or 6.8% to$314,662 for the nine months endedApril 30, 2021 from$294,632 for the nine months endedApril 30, 2020 . For the three and nine month periods, the increases were driven by the reduction in the fair value of contingent consideration associated with the Hu-Friedy acquisition recorded in the prior year periods, merger-related costs associated with the STERIS and Cantel Merger and higher incentive-based compensation costs incurred in the current year period, partially offset by lower acquisition-related and transaction items incurred in connection with the Hu-Friedy acquisition and to a lesser extent, a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic in the prior year. Operating expenses as a percentage of net sales for the three months endedApril 30, 2021 and 2020 were 33.7% and 33.1%, respectively. Operating expenses as a percentage of net sales for the nine months endedApril 30, 2021 and 2020 were 34.8% and 37.6%, respectively. Selling expenses increased by$3,182 or 8.4%, to$41,239 for the three months endedApril 30, 2021 from$38,057 for the three months endedApril 30, 2020 . The increase was primarily due to an increase in sales as noted above, partially offset by cost synergies from the Hu-Friedy acquisition. Selling expenses decreased by$1,472 or 1.2%, to$119,736 for the nine months endedApril 30, 2021 from$121,208 for the nine months endedApril 30, 2020 . The decrease was primarily due to reduced marketing spend and compensation expense in the Dental segment (which includes synergies from the Hu-Friedy acquisition), offset by increased sales volumes in the Medical and Dental segments. Selling expenses as a percentage of net sales were 13.1% and 16.1% for the three months endedApril 30, 2021 and 2020, respectively. Selling expenses as a percentage of net sales were 13.2% and 15.5% for the nine months endedApril 30, 2021 and 2020, respectively. (dollar amounts in thousands except share and per share data or as otherwise noted) 26 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q General and administrative expenses increased by$24,486 or 76.2%, to$56,619 for the three months endedApril 30, 2021 from$32,133 for the three months endedApril 30, 2020 . The increase primarily relates to merger-related costs associated with the STERIS and Cantel Merger and increased incentive-based compensation costs, offset by a reduction in acquisition-related costs incurred in the prior-year period associated with the Hu-Friedy acquisition. General and administrative expenses increased by$22,381 or 15.0%, to$171,852 for the nine months endedApril 30, 2021 from$149,471 for the nine months endedApril 30, 2020 . The increase relates to merger-related costs associated with the STERIS and Cantel Merger, higher incentive-based compensation costs, higher amortization expense and incremental expenses related to the Hu-Friedy business for a full nine month period as compared to the prior year period. This was partially offset by lower acquisition-related costs incurred in the prior-year period related to the Hu-Friedy acquisition. General and administrative expenses as a percentage of net sales were 18.0% and 13.6% for the three months endedApril 30, 2021 and 2020, respectively. General and administrative expenses as a percentage of net sales was 19.0% for each of the nine months endedApril 30, 2021 and 2020, respectively. Research and development expenses (which include continuing engineering costs) decreased by$408 or 4.9%, to$7,941 for the three months endedApril 30, 2021 from$8,349 for the three months endedApril 30, 2020 . Research and development expenses decreased by$879 or 3.7%, to$23,074 for the nine months endedApril 30, 2021 from$23,953 for the nine months endedApril 30, 2020 . The decreases in the three and nine month periods were primarily a result of a reduction in expenses in our Life Sciences segment, partially offset by increased research and development expenses in our Medical segment. Research and development expenses as a percentage of net sales were 2.6% and 3.4% for the three months endedApril 30, 2021 and 2020, respectively. Research and development expenses as a percentage of net sales were 2.6% and 3.0% for the nine months endedApril 30, 2021 and 2020, respectively.
Income from Operations
Medical. Income from operations increased by$26,232 or 426.3%, for the three months endedApril 30, 2021 compared with the three months endedApril 30, 2020 . Income from operations increased by$37,569 or 77.0%, for the nine months endedApril 30, 2021 compared with the nine months endedApril 30, 2020 . Net sales have increased for both the three and nine month periods which contributed to an increase of income from operations. In addition, the reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic in the prior year and a shift towards higher margin products and regions also contributed to this overall increase in both periods. Life Sciences. Income from operations increased by$1,998 or 34.5%, for the three months endedApril 30, 2021 compared with the three months endedApril 30, 2020 . Income from operations increased by$4,272 or 20.7%, for the nine months endedApril 30, 2021 compared with the nine months endedApril 30, 2020 . Although net sales declined as noted above, income from operations improved due to the decrease in certain operating expenses resulting from management cost reduction measures taken in response to the COVID-19 pandemic in the prior year and to a lesser extent, a shift towards higher margin products. Dental. Income from operations increased by$17,096 or 1,103.7%, for the three months endedApril 30, 2021 compared with the three months endedApril 30, 2020 . The increase is primarily driven by the increase in organic sales noted above and a reduction in integration and acquisition-related costs and inventory step-up amortization related to the Hu-Friedy acquisition in the prior year period. Income from operations increased by$54,594 or 958.3%, for the nine months endedApril 30, 2021 compared with the nine months endedApril 30, 2020 . The increase was primarily due to the increase in organic sales noted above, the inclusion of Hu-Friedy's operations for a full nine months in the current fiscal year, cost synergies resulting from the Hu-Friedy integration and the reduction of certain acquisition and integration-related costs and inventory step-up amortization in the prior year period. Dialysis. Income from operations decreased by$357 or 19.2%, for the three months endedApril 30, 2021 compared with the three months endedApril 30, 2020 . Income from operations increased by$1,198 or 24.0%, for the nine months endedApril 30, 2021 compared with the nine months endedApril 30, 2020 .
General Corporate Expenses
General corporate expenses relate to unallocated corporate costs primarily related to executive management personnel as well as costs associated with certain facets of our acquisition and integration programs (including fair value adjustments to contingent consideration) and costs of being a publicly traded company. General corporate expenses increased by$21,889 or 308.4%, for the three months endedApril 30, 2021 from the three months endedApril 30, 2020 . General corporate expenses increased by$14,592 or 40.9%, for the nine months endedApril 30, 2021 from the nine months endedApril 30, 2020 . These increases were driven by the reduction in the fair value of contingent consideration associated with the Hu-Friedy acquisition recorded in both prior year periods, merger-related costs associated with the STERIS and Cantel Merger and higher incentive- (dollar amounts in thousands except share and per share data or as otherwise noted) 27 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q based compensation costs incurred in the current year. This was partially offset by the lower acquisition-related and transaction items incurred in connection with the Hu-Friedy acquisition in the prior year and to a lesser extent, a reduction in our overall cost structure from actions taken by management in response to the COVID-19 pandemic in the prior year.
Interest Expense, Net
Interest expense, net increased by$4,732 or 46.8%, to$14,845 for the three months endedApril 30, 2021 from$10,113 for the three months endedApril 30, 2020 . Interest expense, net increased by$20,547 or 78.8%, to$46,629 for the nine months endedApril 30, 2021 from$26,082 for the nine months endedApril 30, 2020 . The increases in both the three and nine month periods resulted from an increase in the average outstanding debt, which includes both our term loan and our revolver borrowings to support the funding of the Hu-Friedy acquisition inOctober 2019 and the interest expense associated with the issuance of convertible debt inMay 2020 . Interest expense, net includes non-cash interest related to the amortization of debt issuance costs of$844 and$562 for the three months endedApril 30, 2021 and 2020, respectively, and$2,508 and$1,637 for the nine months endedApril 30, 2021 and 2020, respectively. Non-cash interest of$1,713 and$5,024 related to the amortization of the discount on the convertible debt was also included in the three and nine months endedApril 30, 2021 . Non-cash interest of$1,341 and$4,139 related to the amortization of the loss on terminated interest rate swaps was also included in the three and nine months endedApril 30, 2021 . We expect interest expense to be elevated during fiscal 2021 as a result of a full year of interest expense associated with our convertible debt and the amortization of the loss on terminated interest rate swaps. Including the$50,000 repayment made inMay 2021 , we have made a total of$225,000 of repayments towards our outstanding revolver borrowings. Such repayments will help offset any incremental interest expense for the remainder of fiscal 2021. InMay 2021 , we terminated the interest rate swap. We made a cash payment of$16,020,000 upon termination and recognized the corresponding loss in interest expense, net in the fourth quarter of fiscal 2021. Income Taxes The consolidated effective tax rate increased to 31.2% for the three months endedApril 30, 2021 from a benefit of 28.0% for the three months endedApril 30, 2020 . The consolidated effective tax rate increased to 28.7% for the nine months endedApril 30, 2021 from a benefit of 4.9% for the nine months endedApril 30, 2020 . The increases in both the three and nine month periods were primarily driven by positive income from operations in the current year periods and the recognition of tax benefits in the prior period resulting from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Non-GAAP Financial Measures In evaluating our operating performance, we supplement the reporting of our financial information determined under generally accepted accounting principles inthe United States ("GAAP") with certain non-GAAP financial measures including (i) non-GAAP net income, (ii) non-GAAP earnings per diluted share ("EPS"), (iii) earnings before interest, taxes, depreciation, amortization, loss on disposal of fixed assets, and stock-based compensation expense ("EBITDAS"), (iv) adjusted EBITDAS, (v) net debt and (vi) organic sales. These non-GAAP financial measures are indicators of our performance that are not required by, or presented in accordance with, GAAP. They are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making. We believe that these non-GAAP measures provide meaningful information to assist investors, stockholders and other readers of our consolidated financial statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations. These non-GAAP financial measures are not intended to be, and should not be, considered separately from, or as an alternative to, the most directly comparable GAAP financial measures. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect comparability of operating results and the trend of earnings. These adjustments are irregular in timing, may not be indicative of our past and future performance and are therefore excluded to allow investors to better understand underlying operating trends. The following are examples of the types of adjustments that are excluded: (i) amortization of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges, (iv) certain significant and discrete tax matters and (v) other significant items management deems irregular or non-operating in nature. Amortization expense of purchased intangible assets is a non-cash expense related to intangibles that were primarily the result of business acquisitions. Our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduce our net income. The removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital, which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth. (dollar amounts in thousands except share and per share data or as otherwise noted) 28 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q Acquisition-related items consist of (i) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions, (ii) due diligence, integration, legal fees and other transaction costs associated with our acquisition program and (iii) acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with our acquisition program, including accounting charges relating to recording acquired inventory and deferred revenue at fair market value, can be significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since these acquisition-related items are irregular and often mask underlying operating performance, we exclude these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance. Restructuring-related and business optimization items consist of severance-related costs associated with work force reductions and other restructuring-related activities. Such costs include (i) salary continuation, (ii) bonus payments, (iii) outplacement services, (iv) medical-related premium costs and (v) accelerated stock-compensation costs. Since these restructuring-related and business optimization items often mask underlying operating performance, we exclude these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance. Merger-related items consist primarily of transaction-related costs such as banking and legal fees associated with the STERIS and Cantel Merger which was announced inJanuary 2021 . Since these merger-related items are specific to this acquisition, we excluded these amounts for purposes of calculating our non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance. Excess tax benefits and expenses resulting from stock compensation are recorded as an adjustment to income tax expense. The magnitude of the impact of excess tax benefits generated in the future, which may be favorable or unfavorable, are dependent upon our future grants of equity awards, our future share price on the date awards vest in relation to the fair value of awards on grant date and the exercise behavior of our stock award holders. Since these tax effects are largely unrelated to our results and unrepresentative of our normal effective tax rate, we excluded their impact on net income and diluted EPS to arrive at our non-GAAP financial measures. We are required under GAAP to separately account for the liability (debt) and equity (conversion option) components of our convertible debt issued inMay 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 and recorded in interest expense through the original maturity date of the terminated swaps. Since the amortization of the loss is a non-cash expense, we excluded its impact on net income and diluted EPS to arrive at our non-GAAP financial measures as we believe that the exclusion of the non-cash interest expense provides investors an enhanced view of our operational performance related to cash flow and liquidity.
Three Months Ended
During the three months endedApril 30, 2021 , we incurred an additional charge associated with the disposition of a service business inCanada that was completed in the second quarter of fiscal 2021. This resulted in an additional pre-tax loss of$9 recorded in general and administrative expenses. Since we believe that this loss 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 loss to arrive at our non-GAAP financial measures. During the three months endedApril 30, 2021 , we recorded a discrete tax expense of$847 associated with ongoing tax audits. As this matter is discrete and not representative of our normal effective tax rate, we excluded the impact on net income and diluted EPS to arrive at our non-GAAP financial measures. (dollar amounts in thousands except share and per share data or as otherwise noted) 29 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q
Three Months Ended
During the three months endedApril 30, 2020 , we recorded a discrete tax benefit related to a provision under the recent federal CARES Act, which allowed us to carryback taxable losses up to five years. We also recorded a discrete tax benefit due to the reversal of a valuation allowance related to a previous acquisition. As these items were unrepresentative of our normal effective tax rate, we excluded their impact on net income and diluted EPS for fiscal 2020 to arrive at our non-GAAP financial measures.
The reconciliations of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS were calculated as follows:
Three Months Ended
2021 2020
Net income/Diluted EPS, as reported$ 21,118 $ 0.47 $ 15,787 $ 0.37 Intangible amortization, net of tax(1) 6,959 0.16 4,343 0.10 Acquisition-related items, net of tax(2) 2,875 0.06 (12,493) (0.29) Restructuring-related charges, net of tax(3) 1,674 0.04 4,439 0.11 Merger-related items, net of tax(1) 2,725 0.06 - - Non-cash interest, net of tax(4) 2,187 0.05 - - Net loss on dispositions, net of tax(1) 9 - - - Excess tax benefits(5) (9) - - - Tax matters(5) 856 0.02
(5,283) (0.13)
Non-GAAP net income/Non-GAAP diluted EPS
________________________________________________
(1)Amounts were recorded in general and administrative expenses. (2)For the three months endedApril 30, 2021 , pre-tax acquisition-related items of$46 were recorded in cost of sales and$4,012 were recorded in general and administrative expenses. For the three months endedApril 30, 2020 , pre-tax acquisition-related items of$15,240 (benefit) were recorded in general and administrative expenses. (3)For the three months endedApril 30, 2021 , pre-tax restructuring-related items of$1,613 were recorded in cost of sales and$968 were recorded in general and administrative expenses. For the three months endedApril 30, 2020 , pre-tax restructuring-related items of$2,022 were recorded in cost of sales and$1,797 were recorded in general and administrative expenses. (4)Amounts were recorded in interest expense, net. (5)Amounts were recorded in income taxes.
Nine Months Ended
During the nine months endedApril 30, 2021 , we completed the disposition of certain assets of our Aexis business and the disposition of a service business inCanada , which resulted in a pre-tax loss of$151 recorded in general and administrative expenses. Since we believe that this loss 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 loss to arrive at our non-GAAP financial measures. During the nine months endedApril 30, 2021 , we recorded a discrete tax expense of$847 associated with ongoing tax audits. As this matter is discrete and not representative of our normal effective tax rate, we excluded the impact on net income and diluted EPS to arrive at our non-GAAP financial measures.
Nine Months Ended
During the nine months endedApril 30, 2020 , we recorded a discrete tax benefit related to a provision under the recent federal CARES Act, which allowed us to carryback taxable losses up to five years. We also recorded a discrete tax benefit due to the reversal of a valuation allowance related to a previous acquisition. As these items are not representative of our normal effective tax rate, we excluded their impact on net income and diluted EPS for fiscal 2020 to arrive at our non-GAAP financial measures. During the nine months endedApril 30, 2020 , we completed the disposition of a dental product line. This resulted in a pre-tax loss of$170 recorded in general and administrative expenses. Since we believe that this loss was not representative of our ordinary course past or future operations, we made an adjustment to our net income and diluted EPS to exclude this gain to arrive at our non-GAAP financial measures. (dollar amounts in thousands except share and per share data or as otherwise noted) 30 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q
The reconciliations of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS were calculated as follows:
Nine Months Ended
2021 2020
Net income/Diluted EPS, as reported$ 57,650 $ 1.31 $ 19,291 $ 0.46 Intangible amortization, net of tax(1) 20,861 0.48 17,331 0.41 Acquisition-related items, net of tax(2) 5,193 0.12 18,105 0.42 Restructuring-related charges, net of tax(3) 8,090 0.18 9,723 0.23 Merger-related items, net of tax(1) 11,177 0.26 - - Non-cash interest, net of tax(4) 6,562 0.15 - - Net loss on dispositions, net of tax(1) 112 - 130 - Excess tax charges(5) 1,007 0.02 559 0.01 Tax matters(5) 856 0.02
(5,283) (0.12)
Non-GAAP net income/Non-GAAP diluted EPS
________________________________________________
(1)Amounts were recorded in general and administrative expenses. (2)For the nine months endedApril 30, 2021 , pre-tax acquisition-related items of$46 were recorded in cost of sales and$7,052 were recorded in general and administrative expenses. For the nine months endedApril 30, 2020 , pre-tax acquisition-related items of$16,700 were recorded in cost of sales and$8,780 were recorded in general and administrative expenses. (3)For the nine months endedApril 30, 2021 , pre-tax restructuring-related items of$3,641 were recorded in cost of sales and$7,447 were recorded in general and administrative expenses. For the nine months endedApril 30, 2020 , pre-tax restructuring-related items of$4,841 were recorded in cost of sales and$8,630 were recorded in general and administrative expenses. (4)Amounts were recorded in interest expense, net. (5)Amounts were recorded in income taxes. We believe EBITDAS is an important valuation measurement for management and investors given the increasing effect that non-cash charges, such as stock-based compensation, amortization related to acquisitions and depreciation of capital equipment have on net income. In particular, acquisitions have historically resulted in significant increases in amortization of purchased intangible assets that reduce net income. Additionally, we regard EBITDAS as a useful measure of operating performance and cash flow before the effect of interest expense and is a complement to operating income, net income and other GAAP financial performance measures. We define adjusted EBITDAS as EBITDAS excluding the same non-GAAP adjustments to net income discussed above. We use adjusted EBITDAS when evaluating operating performance because we believe the exclusion of such adjustments, of which a significant portion are non-cash items, is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period. (dollar amounts in thousands except share and per share data or as otherwise noted) 31 -------------------------------------------------------------------------------- Cantel Medical Corp. 2021 Third Quarter Form 10-Q The reconciliations of net income to EBITDAS and adjusted EBITDAS were calculated as follows: Three Months Ended April 30, Nine Months Ended April 30, 2021 2020 2021 2020 Net income, as reported$ 21,118 $ 15,787 $ 57,650 $ 19,291 Interest expense, net 14,845 10,113 46,629 26,082 Income taxes 9,561 (3,456) 23,226 (909) Depreciation 8,358 7,890 24,976 22,105 Amortization 8,930 8,949 26,798 23,952 (Gain) loss on disposal of fixed assets - 1,231 - 1,297 Stock-based compensation expense 3,798 3,027 12,286 8,843 EBITDAS 66,610 43,541 191,565 100,661 Acquisition-related items(1) 4,057 (15,595) 7,273 24,597 Restructuring-related charges(1) 2,340 3,780 9,690 13,403 Merger-related items 3,283 - 14,903 - Net loss on dispositions 9 - 151 170 Adjusted EBITDAS$ 76,299 $ 31,726 $ 223,582 $ 138,831
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(1)Excludes stock-based compensation expense.
We define net debt as long-term debt (bank debt excluding unamortized debt
issuance costs) plus the convertible debt (excluding unamortized debt issuance
costs and unamortized discount), less cash and cash equivalents. Each of the
components of net debt appears on our condensed consolidated balance sheets and
in our notes to the consolidated financial statements included in Part I, Item 1
of this report. We believe that the presentation of net debt provides useful
information to investors because we review net debt as part of our management of
our overall liquidity, financial flexibility, capital structure and leverage.
April 30, 2021 July 31, 2020
Long-term bank debt (excluding debt issuance costs) $ 770,375 $ 945,375
Convertible debt (excluding debt issuance costs and discount) 168,000 168,000
Less cash and cash equivalents (218,528) (277,871)
Net debt $ 719,847 $ 835,504
We define organic sales as net sales less (i) the impact of foreign currency
translation, (ii) net sales related to acquired businesses during the first
twelve months of ownership and (iii) dispositions during the periods being
compared. We believe that reporting organic sales provides useful information to
investors by helping identify underlying growth trends in our business and
facilitating easier comparisons of our revenue performance with prior periods.
We exclude the effect of foreign currency translation from organic sales because
foreign currency translation is not under management's control, is subject to
volatility and can obscure underlying business trends. We exclude the effect of
acquisitions and dispositions because the nature, size, and number of
acquisitions and dispositions can vary dramatically from period to period and
can obscure underlying business trends and make comparisons of financial
performance difficult.
For the three months ended
Medical Life Sciences Dental Dialysis
Net Sales Net Sales Net Sales Net Sales Net Sales
Net sales growth 32.5 % 47.0 % (1.5) % 38.5 % (4.1) %
Impact due to foreign currency
translation (2.7) % (5.9) % (0.6) % - % (0.4) %
Organic sales growth 29.8 % 41.1 % (2.1) % 38.5 % (4.5) %
(dollar amounts in thousands except share and per share data or as otherwise
noted) 32
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Cantel Medical Corp. 2021 Third Quarter Form 10-Q
For the nine months ended April 30, 2021 , the reconciliation of net sales growth
to organic sales growth for total net sales and net sales of our four reportable
segments was calculated as follows:
Medical Life Sciences Dental Dialysis
Net Sales Net Sales Net Sales Net Sales Net Sales
Net sales growth 15.6 % 13.5 % (5.5) % 31.8 % 11.5 %
Impact due to foreign currency translation (1.4) % (2.9) % (0.3) % - % (0.2) %
Sales related to acquisitions/dispositions (5.4) % - % - % (17.2) % - %
Organic sales growth 8.8 % 10.6 % (5.8) % 14.6 % 11.3 %
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions of businesses and cash dividends. Cash provided by operating activities continues to be a primary source of funds. As necessary, we have supplemented our operating cash flow with borrowings from our revolving credit facility and other financing resources, such as convertible debt, to fund our acquisitions and related business activities.
Cash Flows
Net Cash Provided by Operating Activities. Net cash provided by operating activities increased by$52,208 to$145,051 for the nine months endedApril 30, 2021 from$92,843 for the nine months endedApril 30, 2020 , due to a reduction in acquisition-related items and payments associated with the Hu-Friedy acquisition in the prior year period. This was partially offset by the timing of the collection of our outstanding accounts receivables, higher inventory purchases to meet increased demand and to build safety stock and the timing of payments associated with our annual global insurance program.Net Cash Used in Investing Activities. Net cash used in investing activities decreased by$718,308 to$27,018 for the nine months endedApril 30, 2021 from$745,326 for the nine months endedApril 30, 2020 , primarily due to the Hu-Friedy acquisition in the prior year.Net Cash Used in Financing Activities. Net cash used in financing activities increased by$903,980 to$177,979 for the nine months endedApril 30, 2021 from$726,001 of cash provided for the nine months endedApril 30, 2020 , primarily due to repayments of borrowings of our revolving credit facility in the current year. During the nine months endedApril 30, 2020 , we had borrowings of approximately$703,125 to support the Hu-Friedy acquisition.
Second Amendment to Credit Agreement
At
OnMay 11, 2020 , we entered into a Second Amendment (the "Second Amendment") further amending the Fourth Amended and Restated Credit Agreement (as amended, the "Amended Credit Agreement"). The Second Amendment's principal changes include (i) increasing the maximum consolidated leverage ratio covenant for the fiscal quarter endedApril 30, 2020 to 5.25x, (ii) suspending such financial maintenance covenant untilOctober 31, 2021 , (iii) maintaining a minimum liquidity (as defined in the credit agreement) of at least$50,000 during the fiscal quarter endingJuly 31, 2020 and$75,000 during each of the following fiscal quarters ending with the fiscal quarter endingJuly 31, 2021 , (iv) requiring us to maintain minimum consolidated EBITDA for each period of four fiscal quarters ending on the last day of the fiscal quarters endingJuly 31, 2020 throughJuly 31, 2021 and (v) limiting our ability to pay dividends and repurchase shares of our common stock during the period the consolidated leverage ratio and consolidated interest coverage ratio are suspended. The interest rates have been amended so that loans under the Amended Credit Agreement, until the third business day following the date on which a compliance certificate is delivered for the fiscal quarter endingOctober 31, 2021 , bear interest at 2.00% above the base rate for base rate borrowings, or at 3.00% above LIBOR for LIBOR-based borrowings, and also provides for fees on the unused portion of the revolving credit facility at a rate of 0.50%. Thereafter, (i) borrowings bear interest at rates ranging from 0.00% to 1.75% above base rate for base rate borrowings, or at rates ranging from 1.00% to 2.75% above LIBOR for LIBOR-based borrowings, depending on our consolidated leverage ratio, which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. The Amended Credit Agreement also provides for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.50%, depending on our consolidated leverage ratio. Interest rates have also been amended to include a 1.00% floor on all borrowings. (dollar amounts in thousands except share and per share data or as otherwise noted) 33 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q The Amended Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and itsU.S. -based subsidiaries, (ii) a pledge by Cantel and itsU.S. -based subsidiaries that guarantees the obligations under the Credit agreement of all of the outstanding shares of itsU.S. -based subsidiaries and 65% of the outstanding shares of certain of Cantel's foreign-based subsidiaries and (iii) a guaranty by Cantel's domestic subsidiaries.
Interest Rate Swaps
In order to hedge against the impact of fluctuations in the interest rate associated with our variable rate borrowings, in fiscal 2019, we entered into two interest rate swaps with a combined notional value of$150,000 , expiring onJune 28, 2023 . The swaps fixed interest rates at 2.265%. In March, 2020, we terminated our existing interest rate swaps and entered into a new interest rate swap (the "March 2020 Swap") with a notional value of$500,000 , which fixed interest rates at 1.297% and was set to expire onSeptember 6, 2024 . OnMay 13, 2020 , in connection with the Second Amendment to our credit agreement, we terminated theMarch 2020 Swap and entered into a new interest rate swap (the "May 2020 Swap") with a notional value of$500,000 , which included a LIBOR floor of 1.00%, fixed interest rates at 2.08% and will expire onSeptember 6, 2024 . In connection with our interest rate swap transactions, we designate our hedge relationships as cash flow hedges. At inception, we employed the hypothetical derivative method to assess hedge effectiveness. AtApril 30, 2021 , we performed a qualitative analysis of hedge effectiveness and will perform such qualitative analysis in future reporting periods. AtApril 30, 2021 ,$5,500 was recorded in accrued expenses and$9,921 was recorded in other long-term liabilities, which represents the fair value of the interest rate swap. As ofJuly 31, 2020 ,$5,462 was recorded in accrued expenses and$15,694 was recorded in other long-term liabilities, which represents the fair value of the interest rate swap. As these interest rate swaps were accounted for as cash flow hedges, the changes in fair value were recorded in accumulated other comprehensive loss. The fair value of these interest rate swaps is subject to movements in LIBOR and will fluctuate in future periods. As the original forecasted hedged transactions (interest payments on variable rate debt) are still probable to occur, the net loss related to the terminated swaps reported in accumulated other comprehensive income on the termination dates will be amortized to interest expense through the original maturity date of the original swaps. For the nine months endedApril 30, 2021 , we recognized$4,139 in interest expense, net relating to the non-cash amortization of the net loss on the terminated swaps reported in accumulated other comprehensive loss. InMay 2021 , we terminated the interest rate swap. We made a cash payment of$16,020,000 upon termination and recognized the corresponding loss in interest expense, net in the fourth quarter of fiscal 2021.
Convertible Senior Notes Offering
OnMay 15, 2020 , we issued$168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the "Notes") in a private placement, including pursuant to the grant to the initial purchasers of$140,000 aggregate principal amount of the Notes, an option to purchase up to an additional$28,000 aggregate principal amount of Notes. The private placement offering closed onMay 15, 2020 . The net proceeds from this offering were approximately$162,977 (including net proceeds relating to the issuance of the additional Notes), after deducting the initial purchasers' discount and before the cost of offering expenses. The initial conversion price will be approximately$41.51 per share of common stock and will be subject to adjustment if certain events occur. We intend to use the net proceeds from this offering for general corporate purposes, which includes applying at least 50% of the amount by which the net proceeds exceed$100,000 to the repayment of debt under our credit facilities as required by the Second Amended Credit Agreement. We expect our annual cash interest to increase by approximately$5,460 as a result of issuance of the Notes. In addition, diluted earnings per share may be negatively impacted by the Notes because of the dilutive nature of the potential conversion into shares of common stock.
Financing Needs
AtApril 30, 2021 , our total debt (excluding debt issuance costs and unamortized discount) of$938,375 , net of our cash and cash equivalents of$218,528 , was$719,847 . Stockholders' equity as of that date was$817,190 . Our operating segments generate significant cash from operations. AtApril 30, 2021 , we had a cash balance of$218,528 , of which$77,782 was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for working capital purposes as well as for current international growth initiatives. Accordingly, our foreign unremitted earnings are considered indefinitely reinvested and unavailable for repatriation. We believe that our current cash position, including the proceeds we received as part of the Notes offering inMay 2020 , and our anticipated cash flows from operations in the upcoming quarters as we recover from the COVID-19 pandemic will be sufficient to satisfy our worldwide cash operating requirements for the foreseeable future based upon our existing operations, particularly given that we historically have not needed to borrow for working capital purposes. In (dollar amounts in thousands except share and per share data or as otherwise noted) 34 --------------------------------------------------------------------------------Cantel Medical Corp. 2021 Third Quarter Form 10-Q
Critical Accounting Policies There were no changes to our critical accounting policies from those disclosed in our 2020 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 and other securities laws. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the current beliefs and assumptions of management; they do not relate strictly to historical or current facts. Without limiting the foregoing, words or phrases such as "expect," "anticipate," "goal," "project," "intend," "plan," "believe," "seek," "may," "could," "aspire," and variations of such words and similar expressions generally identify forward-looking statements. In addition, any statements that refer to predictions or projections of our future financial performance, anticipated growth, strategic objectives, performance drivers and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, 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 inUnited States healthcare policy at both the state and federal level, product liability claims resulting from the use of products we sell and distribute, and risks related to our intellectual property and proprietary rights needed to maintain our competitive position. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A of the 2020 Annual Report on Form 10-K, entitled Risk Factors. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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