Analyst Conference Call Summary

conference date: September 29, 2015 @ 8:00 AM Pacific Time
for quarter ending: July 31, 2015 (Q4, fourth quarter fiscal 2015)

Forward-looking statements

Overview: Continued strong y/y growth, record quarter, with earnings growing faster than revenue.

Basic data (GAAP):

Revenue was $151.3 million, up 7% sequentially from $141.5 million and up 15% from $131.4 million in the year-earlier quarter.

Net income was $13.3 million, up 7% sequentially from $12.4 million, and up 24% from $10.7 million year-earlier.

EPS (earnings per share) were $0.32, up 7% sequentially from $0.30, and up 23% from $0.26 year-earlier.

Guidance:

Does not give, but optimistic about revenue and earnings growth in fiscal 2016.

Conference Highlights:

Organic revenue growth was 10% y/y, with 5% growth due to acquisitions.

Non-GAAP net income was $16.1 million, up 10% sequentially from $14.7 million and up 19% from $13.5 million year-earlier. EPS was $0.39, up 11% sequentially from $0.35, and up 22% from $0.32 year-earlier. Non-GAAP numbers exclude $3.6 million in amortization of intangibles and an $0.4 million acquisition related benefit, and net tax effects.

For the full fiscal year 2015 Cantel reported $565 million in revenue, net income of $48 million, and GAAP EPS of $1.15. Non-GAAP EPS was $1.44. Adjusted EBITDAS $114 million.

Endoscopy segment (Medivators) revenue was a record $70.0 million, up 10% sequentially from $63.7 million, and up 27% y/y. Organic sales grew 17%, while the acquisitions added another 10% growth, mainly in the U. K. and Italy. Adjusted operating profit was up 27% y/y. Adding new and improved lines for 2016.

On September 14 acquired U. K. based Medical Innovations Group Holdings Ltd. They have customers at 80% of the British hospital market, plus a presence in France.

Water Purification and Filtration segment (Mar Cor) revenue was $44.1 million, down 2% sequentially from $45.0 million, and up 8% y/y. 5% growth was organic, with the additional 3% coming from the Pure Water Systems acquisition. Operating profit up 16% y/y. 80% of equipment sales are not from the heat-based new systems. Signed a national supply contract with the Veterans Administration.

Healthcare Disposables (Crosstex and SPS) sales were $27.6 million, up 11% sequentially from $24.8 million, and up 9% y/y. Organic sales growth was 5% y/y. Operating profit was up over 35% y/y. Sales led by dental water purification equipment and masks.

Dialysis segment sales increase 9% y/y due to a single large sale to one customer. Operating profit declined 3% y/y due to mix change.

Cash and equivalents balance ended at $31.7 million. $3.1 million capital expense. Debt $78.5 million. Net debt was $46.8 million.

EBITDAS was $30.5 million. Adjusted EBITDAS was $30.9 million.

Cost of sales was $782.5 million, leaving gross profit of $68.8 million. Operating expenses were $46.6 million consisting of: $21.8 million selling; $21.1 million general and administrative; research and development $3.7 million. Operating income $22.1 million. Interest expense $0.6 million. Income taxes $8.3 million.

Cantel made substantial investments in expanding its sales team, particularly in China and Europe, and in newly acquired businesses. Plans to add 40 to 50 new positions in the first half of fiscal 2016.

Cantel has a large unused credit facility that could be used to make more acquisitions. It is looking into expanding into new areas of infection control.

Q&A:

Organic growth opportunity going forward? Believes maintaining 10% organic growth would be a tremendous performance.

Record gross margin in quarter, color? It was driven by commercial mix, including the latest acquisitions. We would expect to continue to make progress with high-margin chemicals, but if we can sell more low-margin capital equipment, we'll take that too.

We will increase our R&D spend going forward. A lot of the new Sales and Marketing costs come from acquisitions. We plan to continue to invest in sales.

Medical Innovations $28 million revenue, growth rate? It has been a very fast growing business, largely in the U. K. They do some sales in the U.S. We will take their product out with our U.S. team. They are very innovative. SureStore equipment allows scopes to be stored longer, but in the U.S. we need to get FDA approval.

We continue to look at acquisitions on a global basis. In Asia we are mainly looking for organic growth.

Endoscopy AERs, growth areas? Single shot chemistry equipment is the growth area. We seldom sell reusable chemistry equipment into a hospital, but perhaps still into smaller clinics. Of course the installed base is still largely reusable. All new equipment sold in Europe is now single-shot.

FDA on endoscope cleaning policy? We have been working with the FDA, particularly after the UCLA incident. Our equipment is well-suited to even difficult cleaning situations. We have implemented information management systems that will recognize if a step has been skipped.

Tax rate changes as business increases outside the U.S.? We could see a lower effective tax rate, but expect 36% to 37% next year. We expect about $160 million in non-U.S. sales next year.

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