Analyst Conference Call Summary

Cantel Medical

conference date: September 29, 2014 @ 8:00 AM Pacific Time
for quarter ending: July 31, 2014 (Q4, fourth quarter fiscal 2014)

Forward-looking statements

Overview: Record quarter, but revenue grew faster than EPS.

Basic data (GAAP):

Revenue was $131.4 million, up 9% sequentially from $120.1 million and up 15% from $114.0 million in the year-earlier quarter.

Net income was $10.7 million, up 5% sequentially from $10.2 million, also up 5% from $10.2 million year-earlier.

EPS (earnings per share) were $0.26, up 4% sequentially from $0.25, and up 4% from $0.25


No specific guidance but growth rate of first half of 2015 will be in line with past growth rates, while Cantel will continue to invest in new products and reaching international markets.

Conference Highlights:

Record revenue in the quarter. Organic sales growth was 13% y/y. Positioned for growth in 2015 and beyond through acquisitions and internal investment.

Acquired PuriCore International Ltd for $26.9 million in cash on July 1. PuriCore is a leading provider of automated endoscope reprocessors in the United Kingdom. $28 million was borrowed to fund the acquisition.

Charges related to acquisitions and CFO retirement costs reduced earnings by $0.02 per share. Excluding those costs EPS was up 14% y/y.

Endoscopy segment (Medivators) revenue was $55.0 million, sequentially from $47.3 million, and up 23% y/y. 20% of growth was organic. $2 million was from a large order in eastern Europe. Equipment installed base grew nicely, which should drive future chemical sales. Endoscopy disposable product lines are being launched. Since the quarter ended has grown the sales force.

Healthcare Disposables (Crosstex and SPS) sales were $25.3 million, up sequentially from $24.7 million, up 6% y/y, all of which was organic growth. Operating profits in the segment were down due to increase materials costs and increased sales team. In September increased prices to offset increased costs. Working on product registrations in several nations including China.

Water Purification and Filtration segment (Mar Cor) revenue was $40.8 million, sequentially from $38.3 million and up 14% y/y, of which 11% was organic growth. Consumables and services showed strong growth in addition to equipment sales growth. Heat based systems saw good market acceptance and now represent about 75% of systems sales. The quarter ended with a record backlog. Also doing well with chemicals to disinfect pharmaceutical clean rooms. Therapeutic Filtration (formerly Dialysis) segment sales were higher sequentially, and are now managed by Mar Cor, and sales team has been strengthened.

Cash and equivalents balance ended at $31.8 million, sequentially from $24.5 million. Debt ended at $80.5 million; net debt of $48.7 million was up $9 million in the quarter. Cash flow from operations was $23.5 million. Cap ex $5.6 million.

EBITDAS was $24.1 million, up sequentially from $23.0 million and up from $21.6 million year-earlier. EBITDA was $22.7 million.

Cost of sales was $74.3 million, leaving gross profit of $57.0 million. Operating expenses were $39.5 million consisting of: $18.1 million selling; $17.9 million general and administrative; research and development $3.4 million. Interest expense $0.5 million. Income taxes $6.3 million.

Increase in sales and marketing y/y was mainly to support international expansion.

$62 million backlog at end of quarter, a record.

y/y increase in EPS was impacted by the medical device tax.

Cantel Medical aspires to double sales and profits during the five years 2014 to 2018, largely through international expansion. Currently investing in growth so EPS growth will catch up after 2015.

Believes tax rate may be reduced as international business grows faster than U.S. business.

Continued to pay off debt rapidly after the quarter ended.


Endoscopy sales reorganization? Completion of strategy to expand management from 6 to 8 territories. It is more a larger team than a reorganization. There were some changes in management over the last year.

Heat based capital equipment backlogs? Our manufacturing facility can handle it easily. Some came from the commercial/industrial side, which is done in Canada. We are happy to see the backlog grow. The orders usually come in well in advance of when the customers need the equipment.

16% of revenue was from outside the U.S. About 5% of that is Canada. So outside North America is 11%.

China and Asia developments? We launched Rapicide OPA into the China market a couple of weeks ago. We had a number of products approved recently and will continue to launch new products and build the sales team there. We are ready for a big year in China. But we need to do education on how to do infection management and control there, which is a lot of the current effort.

CFO search? We are seeing many highly qualified candidates. Believes the position will be filled before January.

Five year plan target for international sales is 30% of total revenue. Margins will vary by market, but should average to about the same as we see in the U.S.

Capital expenditures going forward? In the last fiscal year we have had higher cap ex than usual. We don't expect it to be higher in fiscal 2015.

Cantel still is looking for acquisitions, including larger ones, but they have to be the right companies at the right prices.

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Copyright 2014 William P. Meyers