Cantel Medical Corp. (CMN)

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Cantel Medical Corp. (CMN)

F2Q09 Earnings Call

March 9, 2009 11:00 am ET


Andrew A. Krakauer – President

Charles M. Diker – Chairman of the Board

Craig A. Sheldon – Senior Vice President & Chief Financial Officer

Roy Malkin – President & Chief Executive Officer of Minntech

Steven C. Anaya – Vice President & Controller


Mitra Ramgopal - Sidoti & Co.

Mark Cooper - Wells Capital Management



Good morning and welcome to the Cantel Medical Corp.’s second quarter earnings conference call. (Operator Instructions) Please note this conference is being recorded.

Now I would like to turn the conference over to Andrew Krakauer, President of the company. Mr. Krakauer you may begin.

Andrew A. Krakauer

Thank you [Nikki] and welcome to our second quarter fiscal year 2009 conference call. Before we begin I would like to remind everyone that this conference call may contain forward-looking statements. All forward-looking statements involve risks and uncertainties including without limitations the risks detailed in the company’s filings and reports with the Securities and Exchange Commission. Such statements are only predictions and actual results may differ materially from those projected.

Okay. Well good morning to everyone. With me today on our call are Chuck Diker, Chairman of the Board; Craig Sheldon, Senior Vice President and Chief Financial Officer; Roy Malkin, President and CEO of our Minntech subsidiary; and Steve Anaya, VP and Controller of the company.

About three months ago on Cantel’s first quarter conference call I expressed my continued optimism about the future of Cantel and our prospects to grow profitably. Well, our second quarter of performance supports that optimism as the results were outstanding. In fact, it was one of our best quarters in many years. Before Craig and I address the details I just want to thank our loyal and dedicated employees for their impressive accomplishments in a difficult economy.

We reported second quarter earnings of $0.23 per share compared to the prior year’s second quarter earnings of $0.13 per share and an increase in net income of 75%. Very broadly our positive results were mostly due to improved gross margins and operating expense leverage, driven by our numerous profit improvement and sales and marketing initiatives. Most importantly this quarter with our success in expanding the sales mix of higher margin disposables including disinfectants, sterilants, parts and filters. We also made continued progress with programs to improve manufacturing costs as well as with our company wide efforts to tightly control operating expenses.

Again in this quarter Cantel benefited from having a broad portfolio of infection prevention and control products sold into diverse business segments. Our Endoscope Reprocessing, Dialysis and Therapeutic Filtration segments produced exceptional results while our other reporting segments performed reasonably well. There is no assurance that this across the board performance can be achieved every quarter, especially given the economic downturn. However, these results do demonstrate the fundamental strength of our businesses and the earnings potential of the company.

Now the best performance of the quarter was in Endoscope Reprocessing, which was also the star performer last quarter. In this quarter we enjoyed a sales increase of 11%, primarily due to gains in the United States which came mostly from sterilants, disinfectants, service and accessories. This growth was aided by higher selling prices and the continued improvement in our direct portion of U.S. sales and service. We are now seeing the payoff after years of investing heavily in sales, marketing and R&D in this business. Additionally, we are also benefiting from recent manufacturing cost reduction activities.

I am very impressed with the accomplishments of the Endoscope Reprocessing team and especially the success of our direct U.S. sales and service group. Overall the increase in sales of these higher end improving margin product lines, coupled with the cost reduction programs, drove operating margins to over 13% for the segment. Now we are seeing some slowdown in equipment sales of endoscope processors to hospitals worldwide and we expect this to continue in the near term. However we have a large installed base of equipment upon which we can offer consumables and service. And we should continue to experience reasonable growth in these areas, especially where we have our large direct sales and service force in the United States.

Now another positive note. Last week we received FDA 510(k) approval to market our state-of-the-art Advantage Plus Reprocessor and the new high level disinfectant, Rapicide PA. And with this clearance we are now free to sell this latest technology system with its environmentally friendly chemistry here in the United States as well as worldwide.

Our Dialysis business also had excellent performance in the second quarter. On a sales increase of about 4%, operating income was higher by 32%. In the reuse business sterilant sales were higher and demand for our Renatron equipment was strong.

Additionally we received some very large international orders for dialysate concentrate. The net result of these favorable sales and our Minntech team’s continuous skillful efforts to reduce the manufacturing and distribution costs in this business was to further improve operating margins.

In the Therapeutic Filtration business, which is part of the other reporting segment, we also had a great performance in the quarter. Sales were up 67% and profits tripled. Sales were higher in both hemoconcentrators and our pediatric filters. Now these sales are driven by our OEM partners and quarterly demand is somewhat cyclical. We are working to expand our current filter offerings and continue our efforts to uncover new applications for our unique hollow fiber membranes and we are collaborating with several companies in this development activity.

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