Thursday, December 5, 2013

Cantel Medical (CMN) record quarter

Cantel Medical (CMN) had a record quarter. Cantel specializes in infection control, which is a very cost-effective form of health care.

I own stock in Cantel Medical. For all my previous reports and articles on Cantel see Openicon Cantel Medical.

Here are my notes on today's analyst conference:

Basic data (GAAP):

Revenue was $118.3 million, up 4% sequentially from $114.0 million and up 19% from $99.7 million in the year-earlier quarter.

Net income was $11.2 million, up 10% sequentially from $10.2 million and up 17% from $9.6 million year-earlier.

EPS (earnings per share) were $0.27, up 8% sequentially from $0.25, and up 17% from $0.23 year-earlier.


No specific guidance (Cantel never has provided specific guidance). But noted the January quarter has fewer sales days than the October quarter.

Conference Highlights:

Cantel Medical delivered record sales and earnings. All three major business segments showed good performance. Organic sales growth was 10%. Cantel continues to benefit from its investments in development, sales and marketing programs.

The medical device tax impacted by almost $1 million; there was none year-earlier.

Realigning reporting segments were changed, adding some formerly "other" revenue to Water Purification/Mar Cor segment.

Endoscopy segment (Medivators) revenue was $43.6 million, down 2% sequentially from $44.5 million, and up 19% y/y. Launching new and improved lines for 2014 and adding to sales team. Recently acquired Jet Prep for its specialty colonoscopy catheter.

Healthcare Disposables (Crosstex and SPS) sales were $26.2 million, up 32% from year-earlier. Organic growth was 4%, the rest was from the SPS acquisition. 40% y/y increase in operating products with improved gross margins. Sterility assurance is a growth area, as are international sales.

Water Purification and Filtration segment (Mar Cor) revenue was $39.8 million, up 11% sequentially from $35.7 million, and up 20% y/y. Heat-based and portable systems see continued acceptance. Orders exceeded shipments, so backlog hit a record. Siemens customer transfers are going well.

Therapeutic Filtration (formerly Dialysis) segment sales were down 11% y/y. Now represents only 8% of operating profits, but still important to Cantel, with growth possible in international markets. Proposed U.S. 9% cut for dialysis treatments has been postponed to 2015.

43.5% gross margin, up sequentially from 43.1%.

Cash and equivalents balance ended at $28.5 million, down sequentially from $34.1 million. Debt ended at $82 million; net debt was reduced $13 million to $53.5 million. Cash flow from operations $10.8 million. Cap ex $2.2 million.

EBITDAS was $24.1 million, up sequentially from $21.6 million and up from $21.0 million year-earlier. EBITDA was $23.0 million. Stock based compensation was $1.1 million.

Cost of sales was $66.8 million, leaving gross profit of $51.5 million. Operating expenses were $33.2 million consisting of: $15.8 million selling; $15.2 million general and administrative; $2.3 million research and development. Interest expense $0.7 million. Income taxes $6.5 million.

36.7% effective income tax rate. R&D credit set to expire at end of year, but hopefully will be renewed.

$0.045 semi-annual dividend to be paid in January.

For 2014 plans substantial investments in the three major business segments. Adding international teams, notably in China and Singapore. Will continue to look for acquisitions.


Priorities for international markets? China received most of the investment in 2013; infection control is a top priority for the government there. Just hired first manager in Germany. Then the U. K., where we already have a present. Then Australia, where we already have a high market share. Many second-tier markets, like Latin America and Eastern Europe.

We are not likely to do acquisitions in China, but could in Europe to help enter established markets.

How much could you spend on acquisitions? We are in good shape. We have over $50 million available in the revolver, plus the opportunity to add an additional $50 million.

Expects 2015 to require investments equal to 2014, then operating leverage going forward after that.

We are not in markets that are growing at over 10%; we are growing faster than the underlying markets. Success depends on new products and on sales efforts. We would say 10% organic growth is a goal, not a prediction.

We would be willing to make an acquisition outside of our 3 core areas as long as it was within infection control.

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