Analyst Conference Call Summary

conference date: June 5, 2014 @ 8:00 AM Pacific Time
for quarter ending: April 30, 2014 (Q3, third quarter fiscal 2014)

Forward-looking statements

Overview: Record revenue, 14% EPS growth.

Basic data (GAAP):

Revenue was $120.1 million, up 1% sequentially from $119.0 million and up 14% from $105.0 million in the year-earlier quarter.

Net income was $10.2 million, down 8% sequentially from $11.1 million, but up 13% from $9.0 million year-earlier.

EPS (earnings per share) were $0.25, down 8% sequentially from $0.27, but up 14% from $0.22 year-earlier.

Guidance:

No specific guidance (Cantel never has provided specific guidance). But expects fiscal 2015 profits to show good growth over fiscal 2014.

Conference Highlights:

Announced would acquire PuriCore International Ltd for $26.9 million in cash. PuriCore is a leading provider of automated endoscope reprocessors in the United Kingdom. Expects this to close this month.

There was $0.01 of acquisition related charges in the quarter.

Organic revenue growth rate was 12% y/y; 2% of growth was from acquisitions. International sales grew 20% year to date.

Endoscopy segment (Medivators) revenue $47.3 million, a record and up 19% y/y. Did have some acquisition-related charges. Large installed base of equipment continued to grow, driving sales of high-margin chemistry products, services, and spare parts. Disposable endoscopic sales are growing rapidly. Adding employees to support future growth, particularly internationally.

Healthcare Disposables (Crosstex and SPS) sales were $24.7 million, up 12.5% y/y. Operating profit up 7% due to higher material costs and increased investment in sales & marketing, including internationally. Restructuring to drive growth in the U.S. dental market. Rapicide OPA 28 introduction is exceeding expectations.

Water Purification and Filtration segment (Mar Cor) revenue $38.3 million up 16% y/y led Cantel's sales growth. Operating profit grew faster than sales on higher gross margins. Newer and higher-value platforms continue to grow. Sales were also strong in April, and there was a record backlog at the end of the quarter. Siemens Water acquisition is now fully integrated, added to gross margin, but will no longer be called out separately.

Therapeutic Filtration (formerly Dialysis) segment sales are now managed by Mar Cor. Pursuing new applications. 9% down, operating profit down 24%. Now only 7% of overall operating profit. Still important to Cantel, and aiming for international growth.

43.7% gross margin, down sequentially from 44.5%, but up from 43.2% year-earlier. Impacted by medical device tax, which is running at $0.9 million per quarter.

Cash and equivalents balance ended at $24.5 million, up sequentially from $19.7 million due to cash use for acquisitions. Debt ended at $64.5 million; net debt of $40 million was reduced $10 million in the quarter. Cash flow from operations $19.2 million. Cap ex $3.5 million. Added borrowing capacity in the quarter to support expansion plans.

EBITDAS was $23 million, down sequentially from $24.4 million but up from $19.5 million year-earlier. EBITDA was $21.6 million.

Cost of sales was $67.6 million, leaving gross profit of $52.4 million. Operating expenses were $35.6 million consisting of: $16.5 million selling; $16.4 million general and administrative; $2.6 $ million. Interest expense $0.5 million. Income taxes $6 million.

For 2014 plans substantial investments in the three major business segments. Adding international teams, notably in China, Germany and Singapore. Will continue to look for acquisitions. Will continue to invest in new products in all major categories.

Cantel Medical aspires to double sales and profits during the next five years, largely through international expansion.

Q&A:

PuriCore acquisition revenue trend down? They have had some problems, and revenue decline, which is due to the timing of their new products. Believes Cantel can drive growth and is already taking orders for the new product. Number differences may be due to exchange rates used.

How are sales in the UK today? We don't have any direct sales in the UK today, though we do work through distributors. We will be able to sell all of our lines over time. We are already looking at adding people to launch this product.

Tax rate, international benefit? We do have a high U.S. tax rate. The U. K. rate is in the low 20s and we will get some NOLs (benefits from prior losses) too. We are doing an extensive revenue of doing business in Europe and Asia, and taxes is one of the issues.

Our internal goal is to grow at 10% organic growth or greater. To double sales in five years we also need to grow through acquisitions.

China will be a key market focus in 2015. We are trying to get several new product lines registered in China.

There are also acquisition opportunities in the U.S. The national vs. international mix will be balanced.

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