Analyst Conference Call Summary

conference date: June 6, 2013 @ 8:00 AM Pacific Time
for quarter ending: April 30, 2013 (Q3, third quarter fiscal 2013)

Forward-looking statements

Overview: Slight sequential decline in revenue, but y/y growth good.

Basic data (GAAP):

Revenue was $105.0 million, down 1% sequentially from $106.4 million but up 8% from $97.2 million in the year-earlier quarter.

Net income was $9.0 million, down 14% sequentially from $10.5 million but up 10% from $8.2 million year-earlier.

EPS (earnings per share) were $0.33, 13% sequentially from $0.38, but up 10% from $0.30 year-earlier.

Guidance:

No specific guidance, but sees continuing growth.

Conference Highlights:

CEO Andrew Krakauer said the results "confirm the continued success of our three prong approach to growth which includes investing in new product development, sales and marketing programs and acquisitions."

The Medical Device Tax had a $0.02 negative impact on earnings (first full quarter of impact). Substantial investment was made in sales and marketing initiatives.

Endoscopy segment revenue grew 3% y/y to $39.7 million, led by disposables, germicides, and services. Launching new product lines this year, and feedback has been good. But operating profit was down y/y due to increased costs.

Healthcare Disposables (Crosstex and SPS) sales grew 17% y/y to $22.7 million, despite distributors having pulled forward shipments in the prior quarter. SPS Medical acquisition performing well, contributing $4.7 million. Operating profits grew 13% y/y. Margins increased on SPS products and Confirm monitoring line of products.

Water Purification and Filtration segment (Mar Cor) had a 14% y/y increase in sales to $29.5 million. But operating profits only up slightly y/y due to acquisition costs and medical device tax. Newer, heat-based systems selling well and expanding base of dialysis clinics, resulting in a record backlog. $8 million was used to purchase the Siemens hemodialysis water business in U.S. and Canada, but customer contract transfers will not be completed until 2104. There was no Siemens revenue in the quarter.

Therapeutic Filtration (formerly Dialysis) segment sales were down 9% and operating income was down 10%. Now only 11.6% of total revenue, but working to grow it globally.

Cash and equivalents balance ended at $30.7 million, up sequentially from.$26.8 million. $15.4 million cash flow from operations. $1.5 million capital expenditure. Debt was reduced $6 million to $105 million. $8 million was used for the acquisition.

EBITDAS was $19.5 million, down sequentially from $22.3 million but up from $18.6 million year-earlier.

Cost of sales was $59.5 million, leaving gross profit of $45.5 million. Operating expenses were $31.3 million consisting of: $15.1 million selling; $13.8 million general and administrative; $2.4 million research and development. Interest expense $0.75 million. Income taxes $4.5 million.

Net interest payments are decreasing due to pay down of debt. On track to pay down $10 million in current quarter.

Believes can grow substantially in the next five years on a international basis. All major businesses are performing well and have good growth prospects.

Cantel Medical continues to look for acquisitions. Cantel has a proven record of generating profits by increasing sales of new acquisitions.

Q&A:

SPS vs. segment? Healthcare Disposables segment was down y/y excluding the new SPS revenue. Believes will be able to cross-sell products based on feedback so far.

Sales and marketing cost increases? There has been a steady increase, but we also had a high advertisement placement in the quarter, and preparation for the May trade show. We have identified a need for a larger marketing staff for international growth, particularly in endoscopy. Sales team is being enlarged, particularly internationally. The endoscopy new product launches are also requiring additions to the sales team. The growth in S&M will continue for at least a couple of quarters. If we want revenue growth we have to put the people on the ground.

Is there still room to increase margins? 43.3% overall gross margin, but each individual business is responsible to improve its own margins. But because margins differ substantially between segments, growth in one segment could increase or decrease overall margins. At this point it is getting difficult to move the needle, but we continue to look for improvements.

Difficult comps in endoscopy business capital equipment? We turned overall positive in the quarter, we are probably around the end of difficult capital sales comps.

Acquisitions are a high priority, and the focus is now global. Most businesses we look at are within our core segments, but we could add an infection prevention business outside our current segments.

Dentists are recognizing that they have to do things more carefully, including checking their sterilization equipment weekly. Our new masks have a proven ability to improve flu prevention, we need to see the government renew the strategic supply of face masks.

Endoscopy details? Procedural product growth was in double digits.

Our five year growth rate is 12%.

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