Analyst Conference Call Summary

conference date: March 7, 2013 @ 8:00 AM Pacific Time
for quarter ending: January 31, 2013 (Q2, second quarter fiscal 2013)

Forward-looking statements

Overview: Surprising rapid growth even for this well-managed company.

Basic data (GAAP):

Revenue was $106.4 million, up 6% sequentially from $99.7 million and up 9% from $97.3 million in the year-earlier quarter.

Net income was $10.5 million, up 9% sequentially from $9.6 million, and up 44% from $7.3 million year-earlier.

EPS (earnings per share) were $0.38, up 9% sequentially from $0.35 and up 41% from $0.27 year-earlier.

Guidance:

No specific guidance. Does see headwinds like medical device tax and the pull-forward at distributors at the end of 2012. Against background of growth these should be minor impacts going forward.

Conference Highlights:

Best quarter in company's history even if you eliminate some favorable one-time items. This results from the strategy of developing, acquiring, and selling higher margin products. Even excluding SPS acquisition first day of quarter sales were up 5%.

Endoscopy segment faced difficult prior-year comparisons. Capital equipment shipments declined, but overall sales were up 7% sequentially for the second best quarter ever, with disposable sales up. Service and spare parts increased 12%.

Healthcare Disposables (Crosstex and SPS) sales up 36%, largely from new SDS sales. 11% organic growth, but part of that was due to buying before a January 1 price increase. Operating profit was up 80% with higher gross margins.

Water Purification and Filtration segment (Mar Cor) record $29.5 million, for 15% organic growth. Shifting to heat-based disinfection systems, which are now a majority of sales. Also expanding base of dialysis clinics.

Therapeutic Filtration (formerly Dialysis) segment sales declined by 4%, but operating profit increased 7% on better margins. Now only 11% of overall revenue.

There were acquisition accounting and severance charges that increased EPS by about $0.02 and will not be repeated.

$322,000 medical device tax, which was just January. So about $1 million per quarter or $0.02 per share starting this quarter. In quarter received benefit from retroactive passing of R&D tax credit.

Expects to increase R&D expenses going forward.

Interest expense down to $775 thousand, lower y/y, as repaying loans from cash flow.

Effective tax rate expected to be 37% going forward.

$26.8 million cash and equivalents. Debt $107 million including $37 million for SPS acquisition. Paid down $10 million in quarter and plan to pay another $10 million in Q3.

$22.3 million EBITDAS up 20%. $1.4 million capital expenditures. Cash flow from operations $9.7 million.

Cost of sales was $61.2 million, leaving gross profit of $45.2 million. Operating expenses were $28.3 million consisting of: $13.7 million selling; $12.4 million general and administrative; $2.2 million research and development. Interest expense $0.8 million. Income taxes $5.6 million.

Cantel is now a large accelerated filer for SEC due to increase in market capitalization.

Still looking for acquisitions, and has an active pipeline.

Sees significant international growth in the next few years. Particularly sees an opportunity in China.

Q&A:

Margins going forward? We look at it by businesses. Each Cantel business is pushing for higher margin products. But some margins are lower than others, for instance large capital equipment, so if those sales are particularly successful in a quarter it can drag on margins.

Price increases? Mostly price increases to customers are because of higher input prices. Endoscopy and water purification are under long term contracts. We cannot pass on the medical device tax. We will pass on costs as we can when contracts renews.

We are looking at acquisitions across all our segments, both domestic and international. Also in all sizes from startups with no appreciable sales to relatively large companies.

RAPICIDE OPA/28? Expects to contribute, but takes time to ramp, more a 2014 story. We have a lot of existing chemicals that are on rapid growth ramps.

International expansion? We have great potential in Europe and Asia. We are putting together plans, but a significant impact would require more than a couple of years. We will start with key products in key markets. By five years out we should have a significant presence in foreign markets. We are looking at acquisitions in both Asia and Europe. We obviously need to execute on the opportunities.

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