Analyst Conference Call Summary

conference date: June 9, 2015 @ 8:00 AM Pacific Time
for quarter ending: April 31, 2015 (Q3, third quarter fiscal 2015)

Forward-looking statements

Overview: Continued strong y/y growth, record quarter, with earnings growing somewhat faster than revenue.

Basic data (GAAP):

Revenue was $141.5 million, up 4% sequentially from $135.4 million and up 18% from $120.1 million in the year-earlier quarter.

Net income was $12.4 million, up 12% sequentially from $11.1 million, and 21% from $10.2 million year-earlier.

EPS (earnings per share) were $0.30, up 11% sequentially from $0.27, and 20% from $0.25 year-earlier.

Guidance:

Does not give. But expects an excellent full fiscal year.

Conference Highlights:

Organic sales growth was was about 10% y/y, while acquisitions added another 8% in growth. Endoscopy segment and Water Purification led the growth.

Non-GAAP net income was $14.7 million, down 3% sequentially from $15.1 million and up 20% from $12.3 million year-earlier. EPS was $0.35, down 3% sequentially from $0.36, and up 17% from $0.30 year-earlier. Non-GAAP numbers exclude $3.5 million in amortization of intangibles and an $ 2.3 million acquisition related benefit, a $2.2 million loss on sale of (specialty packing) business, a $1.3 million impairment, and net tax effects.

Endoscopy segment (Medivators) revenue was a record $63.7 million, up 8% sequentially from $59 million, and up 35% y/y. Organic sales grew 17%, while the acquisitions added another 18% growth, mainly in the U. K. and Italy. Operating profit was up 29% despite increased investments in sales. New products for the European market will be launched soon. Continues to add sales people.

Healthcare Disposables (Crosstex and SPS) sales were $24.8 million, down 2% sequentially from $25.2 million, and down 3% y/y. Believes there had been some overstocking by distributors, but also there were less sales visits to dental offices. Operating profit was down. Acquired DentaPure Dental Waterline Disinfection System on February 23 of the quarter. Believes will return to growth in future quarters.

Water Purification and Filtration segment (Mar Cor) revenue was $45.0 million, up 6% sequentially from $42.4 million, and up 17.5% y/y. 13.5% growth was organic, with the additional 4% coming from the Pure Water Systems acquisition. Capital shipments were strong. Gross margins continue to improve. Heat based water disinfection systems are seeing strong acceptance. Orders exceeded sales, so backlog is up.

Dialysis segment sales declined 5% y/y. But operating profit increased 7% y/y on better manufacturing efficiency.

Disposed of specialty packaging business, a $6 million business, which resulted in $4.5 million cash flow but a charge for loss on sale of business.

Cash and equivalents balance ended at $25.4 million, up sequentially from $24.1 million. $14.5 million cash flow from operations. $3.1 million capital expense. Debt $91.5 million. Net debt was $66.1 million. In the past nine months $47 million has been used to make acquisitions.

EBITDAS was $26.8 million. Adjusted EBITDAS was $27.9 million.

Cost of sales was $77.9 million, leaving gross profit of $63.6 million. Operating expenses were $42.3 million consisting of: $20.3 million selling; $18.5 million general and administrative; research and development $3.5 million. Operating income $21.3 million. Interest expense $0.6 million. Income taxes $6.1 million.

Cantel made substantial investments in expanding its sales team, particularly in China and Europe.

44.9% gross profit margin, up y/y, mainly due to increased sales.

Cantel has a large unused credit facility that could be used to make more acquisitions.

Q&A:

Percentage of total sales that were international? [glitch]

We had minimal FX effects.

[glitch]

We are making international investments and they mainly get charged to endoscopy, and most R&D expense is also endoscopy. The portfolio was are aiming at, and going direct to customers, should help continue to improve margins.

The Jet Prep adjustment helped operating costs. Details will be in the 10-Q.

Investment in Europe, how far along are you? We are now in 3 of the 4 major markets in Europe. China is big, but we are just getting started there. We will make new product launches that will help.

We do have competition, and they are also investing. Long term, we still have significant increases in investments to make.

We remain dedicated to our acquisition program, but the relative costs have risen in the last year, and we will only make acquisitions that make sense for us.

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