Analyst Conference Call Summary

conference date: September 26, 2013 @ 8:00 AM Pacific Time
for quarter ending: July 30, 2013 (Q4, fourth quarter fiscal 2013)

Forward-looking statements

Overview: Record revenue, but not EPS.

Basic data (GAAP):

Revenue was $114.0 million, up 9% sequentially from $105.0 million and up 15% from 98.7 million in the year-earlier quarter.

Net income was $10.2 million, up 13% sequentially from $9.0 million, and up 5% from $9.7 million year-earlier.

EPS (earnings per share) were $0.25, up 14% sequentially from $0.22, but up 4% from $0.24 year-earlier. [corrected for 3 for 2 stock split]

Guidance:

No specific guidance for fiscal Q1 2014 (Cantel never has provided specific guidance).

Conference Highlights:

All three major segments had good growth. Organic sales were up 10% y/y, and total sales were up over 15%. Last year Q4 EPS had a $0.02 tax benefit, and the new medical device tax cost about $0.02, so the EPS comparison was difficult.

Realigning reporting segments changed, adding some formerly "other" revenue to Water Purification/Mar Cor segment.

Endoscopy segment revenue was a record $44.5 million, up 17% y/y. Accounting adjustment hurt operating profits in the segment. Saw increase in endoscope equipment, and disinfectants were up 18%. 24% increase in spare parts. New lines to be launched in FY 2014. Has an aggressive growth forecast for 2014.

Healthcare Disposables (Crosstex and SPS) sales were up 22% y/y. Op profit up 45% y/y. Better gross margins, good expense control.

Water Purification and Filtration segment (Mar Cor) revenue was $35.7 million, up 16% y/y. Operating income rose over 60% on cost reductions. Shifting to heat-based systems is helping margins. Orders exceeded shipments, so record backlog. Siemens dialysis customer adds are nearly complete.

Therapeutic Filtration (formerly Dialysis) segment sales declined 4% y/y. But operating profit up 25%. Asian increases helped offset U.S. declines.

Medical device tax was over $2.0 million, or about $0.02 per share.

43.1% gross margin, up, but would have been 43.9% without the new medical device tax.

Cash and equivalents balance ended at $34.1 million, up sequentially from $30.7 million. Debt ended at $95.0 million (includes $45 million for SDS and Siemens acquisitions). Paying down debt quickly out of cash flow. Cash flow from operations $17.0 million. Cap ex $2.7 million.

EBITDAS was $21.6 million, up sequentially from $19.5 million and up from $19.2 million year-earlier.

Cost of sales was $64.9 million, leaving gross profit of $49.1 million. Operating expenses were $33.0 million consisting of: $15.6 million selling; $15.0 million general and administrative; $2.4 million research and development. Interest expense $0.7 million. Income taxes $5.2 million.

CMN is now a large, accelerated filer for SEC purposes.

Cantel expects expanding sales and profits in fiscal year 2014, resulting from investments in sales and marketing, new product progress, and building on recent acquisitions. Cantel aspires to double sales and profits in the next 5 years. Recruiting for over 30 positions worldwide, about half in Asia.

Q&A:

International marketing initiatives, return on? Some of the people we put in place are in the field already, generating sales. The investments for 2014 are mainly international, and will take some time to pay in full. The two high pay sales executive planned adds will take some time to have an effect.

International share in 2013? Our international sales made a difference, the reason endoscopy showed growth, and helped dialysis on chemical sales. We expect international sales share to grow in 2014. Now has 35 or 36 people in Asia. Could grow to 30% of business over next 5 years.

Any one-time nature of Q4 endoscopy orders? We asked ourselves that. Our service and chemistry business will continue to grow, and procedural products. We had a really strong equipment sales in Q4, nice growth of Advantage Plus machine. Capital sales may fluctuate q to q. Believes the $44 million is not a one time thing, but can't predict it will be that high next quarter.

Headwinds? "There are plenty of headwinds, we are just managing them." There are competitive and pricing pressures as usual. The investments we are making put us more in control. Improved products and better distribution should help in competition. Our competitors are also projecting growth, and we can't all increase market share.

For acquisitions, we are increasingly looking at international opportunities, but we are looking at a number of opportunities.

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