Analyst Conference Summary

Cantel Medical

conference date: October 13, 2010 @ 5:00 AM Pacific Time
for quarter ending: July 31, 2010 (fourth quarter fiscal 2010)

Forward-looking statements

Overview: Record sales and net income for full fiscal year. Solid quarter.

Basic data (GAAP):

Revenue was $69.8 million, up 5% sequentially from $66.6 million, and up 4.5% from $66.8 million year-earlier.

Net income was $4.6 million, up 7% sequentially from $4.3 million and up 7% from $4.3 million year-earlier.

EPS (earnings per share) were $0.27, up 8% sequentially from $0.25, and up 4% from $0.26 year-earlier.


Does not give guidance. Goal is to grow off base earnings of $1.05, excluding acquisitions.

Conference Highlights:

Sales growth in the quarter was strong for Endoscope Reprocessing, at 34% y/y, and water repurification, 16% y/y. Healthcare Disposables grew and gained market share, but were off the abnormally high levels of Q4 fiscal 2009 levels because of the H1N1 flu boost to face mask sales, which were not repeated this year, and which lasted into Q1 2010.

The focus on consumables and service revenue is growing, now representing 75% of sales. Dialysis segment, however declined, particularly on less low-margin dialystae concentrate sales. Other segments were able to increase prices, introduce new products, and improve costs. Margins improved due to good mix.

For fiscal 2011 R&D spending will be increased at least $2 million and Cantel plans to be aggressive about strategic acquisitions. Last week acquisition of Gambro's U.S. water business (but not of Gambro) was announced; it will be added to the Mar Cor Purification subsidiary. Rights acquired $3 million of inventory, will relocate manufacturing to U.S from Sweden. $14 million per year in sales before transaction. Their products are designed around heat disinfection for dialysis clinics, which will help address emerging industry trends, with great opportunity to expand sales. Growth in home dialysis treatment creates opportunity for disinfection systems, which the Gambro units are approved for.

Growth was accomplished in every geography, including Europe, Asia, and Canada. Endoscope reprocessor and chemicals approved and to be lauched in Australia.

Capital equipment area has been soft during recession, but beginning to see increased demand.

Cash balance ended at $22.6 million, with debt at $21.0 million. Cash from operating activities in the quarter was $11.6 million. But following Gambro transaction debt increased to $33.0 million.

EBITDAS for the fiscal year was $47.5 million. $11.2 million for q4.

Cost of sales was $42.1 million, leaving gross pofit of $27.7 million. Operating expenses of $20.2 million included $9.5 million for selling, $9.3 million for general and administration, and $1.4 million for research and development. Operating income was $7.5 million. Income expense $186 thousand. Income taxes $2.7 million.

New facemask line will be released this week. Masks are now recommended for source (sick person) control. Will support government programs designed to protect the public. Has added capacity to be ready for another emergency, but of course such infection events occur irregularly and unpredictably.

Sales costs increased particularly for incentive program for endoscope sales.


Gambro growth curve? Their business has been relatively stable over the past couple of years due to weak capital medical equipment market. "I think we can change that dynamic."

Dialysis concentrate sales trend? Sales are now down to $1 million a month, could lose more, but most of the reduction is in place.

Acquisition environment? Extremely robust, there is a great pipeline and good backing by banks.

Inventory? $34 million, up about $5 million for last year from stategic investments.

Revenue by segment for quarter: water sterilization $19.9 million; disposables $16.7 million; endoscopy $18.5 million; dialisys $9.8 million.

Revenue from planned R&D spending? Hopes to get some revenue this year, but it will take time to become significant. Bulk of benefits will start in 2012.

Do you have to hire more sales personnel? We have not reached law of diminishing returns in sales. This year the challenge was to take the expanded teams and leverage them. We could add a person here or there with continuing leverage in fiscal 2011.

We are excited about some new products that could be big winners, but timing is uncertain due to need for FDA approvals.

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Copyright 2010 William P. Meyers