Analyst Conference Summary

Cantel Medical

conference date: December 9, 2010 @ 8:00 AM Pacific Time
for quarter ending: October 31, 2010 (first quarter fiscal 2011)

Forward-looking statements

Overview: Solid quarter, but no boost from flu scare.

Basic data (GAAP):

Revenue was $72.0 million, up 3% sequentially from $69.8 million, and up 1% from $71.0 million year-earlier.

Net income was $5.0 million, up 9% sequentially from $4.6 million, but down 29% from $6.2 million year-earlier.

EPS (earnings per share) were $0.29, up 7% sequentially from $0.27, but down 22% from $0.37 year-earlier.


No guidance.

Conference Highlights:

The comparison with the year-earlier quarter was difficult because in 2009 there was a run on masks due to the H1N flu scare. That resulted in an extra $4 million in revenue and $0.10 per share in Q1 2009. Despite that, revenue was up 1% y/y to a new record.

Earnings were impacted by "substantial incremental investments in research and development, as well as in sales and marketing programs." [See also Cantel Medical Plans Expansion]

Endoscope Reprocessing revenues grew by 33% due to new product introductions and strong service and consumables sales.

Healthcare Disposables was strong despite lack of a flu scare. 6% y/y growth excluding the H1N bounce last year. Business is growing despite relatively flat dental market, and expanding into medical offices.

Water Purification and Filtration segment was boosted by the Gambro acquisition on October 6, so less than 1 month of revenues in the quarter ($0.9 million). 14% sales increase, but lower operating profits due to acquisition. Orders in dialysis market dropped in Q4, resulting in lower Q1 dialysis revenues, but orders picked up in Q1. Also there were significant water system equipment orders in Q1. Consumables grew by 20%. Gambro business (bought American business only, not Gambro itself) running at about $14 million per year. New facilities should be running in February.

Cash ended at $15.95 million. Debt was $33.0 million, net debt $17.0 million. Debt increased on $2.1 million in the last year despite acquisitions costing $23 million, because of strong cash flows. EBITDA was $11.5 million. $3.2 million cash flow from operations. $1.1 million capital expenditure.

Cost of sales was $43.8 million, leaving gross profit of $28.2 million. Expenses of $20.4 million included $9.6 million for selling, $9.1 million for general and administrative, and $1.6 million for R&D. Interest expense was $0.2 million. Taxes were $2.5 million.

Many of the sales and R&D initiatives will not result in significant sales this year, but will show results in future years.

Interest payment continue to decline as debt is repaid. Tax rate was down due to a change in geographic mix. U.S. effective rate was 36.7%, with other nations, notably Canada, lower. There was no R&D credit in 2010.

The acquisition program remains active.


Revenue by reporting segment? Water $20.6 million; Endoscope $19.7 million; healthcare disposables $17.3 million; dialysis $9.8 million; other $4.5 million.

New reprocessors? Not every sale of a new machine is an incremental sale, many replace old machine sales, but we are gaining overall.

Therapeutic filtration programs? We are working with several companies to develop new therapies using our filters. We now have 2 devices we are going to start selling in Asia, but so far sales are not meaningful. We'll talk more about it if sales ramp.

Any more Gambro non-recurring costs? There are purchase accounting and amortization costs. But no more true one-time costs.

Gambro progress? We are very happy about integration activities. We were taking orders and shipping on day one. Customers are happy, including the one main customer. We can now offer this whole category to additional customers in our larger customer base.

Mergers and acquisitions? We are working on 3 or 4 possibilities. One deal fell through. We are not looking in water purification until Gambro has been digested.

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Copyright 2010 William P. Meyers