Analyst Conference Call Summary

Cantel Medical

conference date: December 6, 2012 @ 8:00 AM Pacific Time
for quarter ending: October 31, 2012 (Q1, first quarter fiscal 2013)

Forward-looking statements

Overview: Another record quarter.

Basic data (GAAP):

Revenue was $99.7 million, up 1% sequentially from $98.7 million and up 7% from $93.3 million in the year-earlier quarter.

Net income was $9.6 million, flat sequentially from $9.6 million, but up 54% from $6.2 million year-earlier.

EPS (earnings per share) were $0.35, flat sequentially from $0.35 but up 52% from $0.23 year-earlier.



Conference Highlights:

All three major segments contributed to record results. Gross margins improved to 43.9%, up by 3% y/y. SPS Medical Supply Corp. was acquired in November (after the close of the reporting quarter). This will bring sterilization assurance sales to over $30 million and help the Crosstex business in the healthcare disposables business. All the y/y growth this quarter was organic.

Revenue was hurt slightly by shipping delays due to Hurricane Sandy.

Endoscopy segment operating profits grew 33% y/y on just a 2% revenue increase y/y. Revenue from capital equipment was down y/y as expected, but offset by strong consumable sales. Medivators expected to deliver improved sales growth and margins. Tabletop endoscope reprocessor has been well received. Enlarged the sales team.

Healthcare Disposables operating profit grew 37%. Revenue was up 3% y/y, and was the segment hit by delays from Sandy. Believes these sales just shifted to Q2.

Water Purification and Filtration segment sales were especially strong at $29.1 million. Organic sales grew 16% and higher margin profits combined with operating efficiency drove profitability. Operating profit growth was 46% y/y. Benefitted from higher technology, higher margin products and some price increases, along with disciplined cost control. Heat based water purification now provides more revenue than conventional systems. Backlog grew 8% sequentially in the quarter.

Therapeutic Filtration (formerly Dialysis) segment revenue benefitted from opportunistic sales, but still declined by 11% y/y, but operating income dropped only 1%. Now represents only 12% of overall operating profits.

Previous investments in R&D and sales are now beginning to pay off with higher revenue but relatively flat operating expenses.

Cash ended at $27.9 million, down sequentially from $30.2 million. Debt was $80 million, down sequentially from $90.0 million. Borrowed another $37 million for the SPS acquisition in fiscal Q2 2012. Cash flow from operations was $9.4 million. Capital expenditures were $1.2 million.

EBITDAS for the quarter was $21.0 million.

Cost of sales was $56.0 million, leaving gross profit of $43.7 million. Operating expenses of $27.8 million consisted of: $13.4 million for selling; $12.0 million general and administrative; $2.3 million research and development. Interest expense was $0.6 million. Income tax $5.8 million (a 37.6% rate).

Expects effective tax rate for the fiscal 2013 year to be near 38%.

Weighted average diluted shares were 27.4 million. Now has about 1300 employees.

"All of our major businesses have great growth prospects." Continues to look at the pipeline of potential acquisitions.

Dividend rate increased to $0.11, which was announced on November 1.


Revenue by segment: $36.6 million endoscopy; $29.1 million water purification; $20.0 million healthcare disposables; $8.1 million dialysis; $5.8 million other.

Magnitude of of shipment delays? 2 days out of Long Island warehouse, about $600,000.

More margin improvements ahead? The growing product lines have higher margins than products they are replacing. The goal is to continue to improve margins slowly.

Crosstex getting beyond dental business using SPS sales team? We believe we will be able to offer a larger variety of products to some of the potential customers, but first we have to get SPS consolidated in.

Price increases? Some of our businesses have pricing power, and some do not. Costs, which are often petroleum based, also offer a lot of scenarios.

Acquisitions just locally? No, we are looking globally.

Medical device tax issue? It will take effect on January 1, 2013. Our estimate is the tax will run $4 million to $5 million per year. We are on a fiscal year, so it only impacts the last month of the fiscal quarter. There is still some question of what products are subject to the tax. We hope to have strategies that will offset some of the costs, including price increases in some businesses. Keep in mind that the tax is going to be relatively minor compared to our quarterly profits.

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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