Analyst Conference Call Summary

Cantel Medical

conference date: March 12, 2015 @ 8:00 AM Pacific Time
for quarter ending: January 31, 2015 (Q2, second quarter fiscal 2015)

Forward-looking statements

Overview: Good y/y revenue growth, GAAP EPS flat y/y, non-GAAP growth strong.

Basic data (GAAP):

Revenue was $135.4 million, down 1% sequentially from $136.8 million and up 14% from $119.0 million in the year-earlier quarter.

Net income was $11.1 million, flat sequentially from $$11.2 million, also flat from $11.1 million year-earlier.

EPS (earnings per share) were $0.27, flat sequentially from $0.27, and flat from $0.27


Does not give.

Conference Highlights:

Sales were solid, led by the largest segments, endoscopy and water purification. Healthcare disposables segment was flat. Organic sales growth was 6.5% y/y, with total sales growth of 14%. Operating profit would have been higher except for investments in expanding sales in the U.S., China and the U. K. for the endoscopy segment and healthcare disposables.

Believes launches of products (RapidADR & others) designed specifically for the European markets will continue to drive growth, although it also requires a higher rate of R&D expense. Launches will be in fiscal 2016.

Non-GAAP net income was $15.1 million or EPS $0.36, up 18% from $12.8 million or EPS $0.31 per share year-earlier. Non-GAAP numbers exclude $2.3 million in amortization of intangibles and $1.7 million acquisition related expense, net of tax effects. This is the first Q2 to report non-GAAP results; complete reconciliation is in the 10-Q. Will also file an 8-K disclosing non-GAAP numbers for prior Q3 and Q4.

Endoscopy segment (Medivators) revenue was $59 million, a record, and up 32% y/y. Organic sales were up 14%, with acquisitions in the U. K. and Italy providing the rest. But $1.8 million acquisition-related expense hurt GAAP net income. Continues to see growth in equipment placements, which drive sales of higher-margin consumables and services.

Healthcare Disposables (Crosstex and SPS) sales were $25.2 million, up 2% y/y, all of which was organic growth. There was pull forward to the prior quarter from a single large customer, due to a price increase, hurting the reported quarter. Acquired DentaPure Dental Waterline Disinfection System on February 23, 2015.

Water Purification and Filtration segment (Mar Cor) revenue was $42.4 million, up 4% y/y, of which 3% was organic growth. Acquired Pure Water Solutions on January 2. Heat-based systems continue to see good acceptance. Ended the quarter with a strong order backlog and margins improved.

Dialysis segment sales declined 4% y/y due to a large international order year-earlier.

Cash and equivalents balance ended at $24.1 million. Debt increased to $95.5 million to fund acquisitions. Could repay all debt using existing cash flow in under 2 years, so exposure to interest rate increases is low.

EBITDAS was $25.5 million. EBITDA was $24.1 million.

Cost of sales was $74.8 million, leaving gross profit of $60.6 million. Operating expenses were $42.3 million consisting of: $19.3 million selling; $19.8 million general and administrative; research and development $3.2 million. Operating income $18.3 million. Interest expense $0.6 million. Income taxes $6.6 million.

Acquisition charges (for past acquisitions) should have little impact on margins and non-GAAP numbers going forward.

Medical device tax runs about $1 million per quarter; still hoping to get it repealed. Income taxes in the quarter were slightly reduced by the R&D tax credit. International taxes on profits will be quite a bit lower than U.S. income taxes, which will lower the average tax rate going forward.


R&D investments? We are working on new chemistries; on 3 new endoscope reprocessors; on water purification systems; and new disposables. We are being careful with the growth in our R&D spend. We have some significant programs we are evaluating, but have not yet approved.

Gross margin goal is just slow and steady improvement. We are pushing higher-margin products like chemistry.

Exchange rate issues now that you have more business in Europe? FX was complex, but immaterial, a very slight loss in the quarter.

Q3 disposables, should that be more normal? We believe it will revert back to normal, including more selling days. Q2 was hurt be less selling days.

DentaPure acquisition? It, dental water purification, is a very attractive market with a high growth rate. We believe we can manufacture this equipment efficiently. We have not evaluated the international market yet.

European acquisitions? In addition to their prior sales, we should be able to sell our high-margin chemistries through them.

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Copyright 2015 William P. Meyers