Analyst Conference Call Summary

conference date: June 8, 2011 @ 8:00 AM Pacific Time
for quarter ending: April 30, 2011 (third quarter fiscal 2011)

Forward-looking statements

Overview: Record revenues in quarter.

Basic data (GAAP):

Revenue was $82.6 million, up 2% sequentially from $81.0 million, and 24% from $66.6 million in the year-earlier quarter.

Net income was $5.0 million, down 12% sequentially from $5.7 million, but up 16% from $4.3 million year-earlier.

EPS (earnings per share) were $0.29, down 12% sequentially from $0.33, but up 16% from $0.25 year-earlier.

Guidance:

Does not give guidance.

Conference Highlights:

New products were the drivers of sales growth, along with acquisitions. Continues to look at new acquisition opportunities and develop new products. There can be pressures on earnings in the short run as Cantel continues to invest in sales and marketing. All three major business segments, Endoscopic Reprocessing, Water Purification and Filtration, and Healthcare Disposables saw significant increases in sales.

Success was driven by Endoscopic Reprocessing business as Cantel is now benefiting from prior R&D investments. Sales were 67% than year-earlier, operating profit doubled. Capital equipment, chemicals, and services, parts and accessories all showed good growth. Winning in both new competitions and in replacement opportunities. Veterans Administration has been a major sales win. Also FDA has mandated that a competing system, by Steris, by replaced. However, tail of revenue from disinfectants should be better with the new machines, Advantage Plus and DSD Edge, which led U.S. growth in the quarter. Canada sales were also strong. Endoscopic sales and support team has been expanded and has been very successful. But elevated rate of equipment sales will return to more normal levels in fiscal 2012.

Water Purification and Filtration segment margins had an operating income decline due partly to Gambro water filtration acquisition costs, notably moving production to the U.S., which has been complete. "Most one-time costs related to this are now behind us." Sales were 26% above year-earlier levels. Excluding $3.7 million sales from Gambro line, 6% y/y growth. New products higher value and higher margin products were launched in the quarter. Heated disinfection systems are now selling at higher prices and margins.

Healthcare disposables has 12% sales within a flat market. ConFirm acquisition responsible for 4% of that. Has been trying to increase prices to offset materials costs increases. Also expanded sales force for this segment, looking to future growth.

Dialysis segment sales were down 12% from the year-earlier quarter. Segment operating income was down just 6%.

Also had some expenses from ConFirm acquisition (just its sterilization monitoring business, made in January) in the quarter. $7.5 million was paid to acquire the ConFirm assets.

$16 million in cash and equivalents on balance sheet at end of quarter. Debt is $30.0 million. EBITDA was $11.7 million. On June 8 will make final $2.5 million payment on the term facility. Rolling 12 month EBITDA $47.3 million. $6.1 million cash flow from operations.

Tax costs benefited from Domestic Production Production and R&D tax credits, as well as international operations of about 10% of revenue.

Cost of sales was $51.3 million, leaving gross profit of $31.3 million. Operating expenses of $23.7 million included $11.5 million sales and marketing, $10.4 million general and administrative, and $1.7 million for R&D. Operating income was $7.6 million. Interest expense $0.2 million. Income taxes $2.4 million.

Q&A:

Revenue by segment? Water purification $23.3 million. Endoscope $27.3 million. Health disposables $18.2 million. Dialysis $9.3 million. Other $4.5 million.

Accounts receivable and inventories? Large accounts receivable, $44 million, was due to accelerated endoscopic equipment sales.

Gambrel acquisition expenses? Most just contributed to unusually low gross margins.

Gross margins in fiscal Q4? Manufacturing all Gambrel products this quarter, but are sourcing some parts from Europe. So there are still some startup costs, so margins should continue to improve all through the next year.

Acquisition costs are mostly behind us, but improvements can be made in the next few quarters.

Endoscope sales competition? We have the largest variety of options and levels of reprocessors. We believe we have more than 50% market share and gained share in the quarter. Central sterile and operating room gains were because we now have a sterilization processing claim that machines that do not package and seal the scopes no longer have.

Sales and marketing? We have committed to substantial new resources this year, with a lower level of expansion planned for 2012. This is to support new businesses.

Tax rates in 2012? Federal tax laws are constantly in flux, but does not believe can have as low a rate in 2012 as the current rate.

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