Analyst Conference Call Summary

Cantel Medical

conference date: October 11, 2012 @ 8:00 AM Pacific Time
for quarter ending: July 31, 2012 (Q4, fourth quarter fiscal 2012)

Forward-looking statements

Overview: Record revenue and earnings, plus a $0.04 tax benefit.

Basic data (GAAP):

Revenue was $98.7 million, up 2% sequentially from $97.2 million and up 15% from $86.0 million year-earlier.

Net income was $9.6 million, up 17% sequentially from $8.2 million and up 104% from $4.7 million year-earlier.

EPS (earnings per share) were $0.35, up 17% sequentially from $0.30 and up 94% from $0.18 year-earlier.


Does not provide. But said expects to surpass $400 million in sales in fiscal 2013.

Conference Highlights:

Sales and earnings hit a record. All three segments had good performance, with payoffs from new products and acquisitions as well as improved margin performance. Believes is positioned for continued growth.

EPS includes $0.04 from a tax benefit related to closing the Japan subsidiary. There were acquisition related items as well. Adjusted EPS was $0.30.

Increased R&D and sales and marketing spend during the year and anticipate higher revenue in the future from these investments.

Endoscopy segment sales increased 35% for the quarter and 50% for the full year, helped by acquisition of Byrne Medical, and 25% growth of Byrne products during the year. In process of launching new Medivators products. On September 27 received FDA clearance for a new disinfectant, Rapicide OPA-28. Equipment sales did decline y/y as anticipated because of unusual sales opportunities year-earlier. Disinfectant & consumable sales are ramping strongly. Believes equipment sales have now normalized, but comparisons will be difficult in the coming quarters. Increased production capacity, and sees worldwide growth opportunity.

Healthcare Disposables operating profit increased 26% for the quarter and 30% for the year on margin improvements and sales increases of 1% and 9%. Product mix was favorable, and some input costs decreased. ERP system upgraded in quarter. Expanding outside of dental into medical, veterinary, and also outside U.S.

Water Purification and Filtration segment sales were up 9% for the quarter and 12% for the year. Gambro acquisition completed, focus was on margin improvements, allowing operating profit growth over 40% in the quarter and 50% for the year. Heat-based system sales exceeded chemical-based sales for the first time. Backlog is up 30% y/y. Consumable business now provides about 18% of revenue.

Dialysis segment revenue declined, but remains important to the company. Now only 11% of profits.

Cash ended at $30.2 million. Debt was $90.0 million. Net debt was reduced by $15 million in the quarter to $59.8 million. In fiscal 2012 debt was reduced by $44 million. Cash flow from operations $17.7 million. Cap ex $1.6 million.

EBITDAS was $19.2 million, up 74% for the year.

Cost of sales was $55.9 million, leaving $42.8 million gross profit. Operating expenses of $28.4 million included $14.7 million for selling, $11.0 million general and administrative, and $2.6 million for research and development. Operating income was $14.4 million. Interest expense was $0.8 million. Income taxes were $4.0 million.

29.2% effective tax rate. Medivators closed its Japan office in July, resulting in a credit.

Operating costs from acquisitions will not repeat in the future.

Cash flow allows the company to continue to make investments in its future, including acquisitions. Low-interest rates help make deals attractive.

Expects to surpass $400 million in sales in fiscal 2013. Has plans to reach $1 billion in sales.


Revenue by segment? Endoscopy $38.2 million; Water Purification $27.5 million; Healthcare disposables $19.5 million; Dialysis $8.7 million; other $5.0 million.

Backlog? Most of the backlog is in water purification segment due to nature of the business, which had 30% y/y increase.

$1 billion revenue target? No time frame yet. It would take both organic growth and acquisitions.

Medical device tax? It squarely hits our company, and there will be some disclosure on our 10-K to be filed Monday. It is complex, but it would have been $4 to $5 million if it had been in effect in fiscal 2012. We would hope to pass some of the tax cost on to customers.

G&A expense spike? That was related to Byrne, were more significant in Q4, were non-cash and will be laid out in great detail in the 8-K filing. For the quarter effect was probably $1.7 million in fair-value adjustments, but there were some offsets too, so net $0.9 million.

Goals? We are confident, some products are already launching and we are hiring.

We are working on acquisitions that are $10 million and up that will add to our company in strategic areas. We are adding resources to evaluate good opportunities. These are mostly private companies.

International? We put some resources in place, if we see sales we will evaluate committing more.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2012 William P. Meyers