Cantel Medical Corp. (CMN)

CMN 
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Cantel Medical Corp. (CMN)

F1Q10 Earnings Call

December 9, 2009 11:00 am ET

Executives

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

Analysts

Dalton Chandler – Needham & Company

Jeffrey Cohen – C.K. Cooper & Co.

Mitra Ramgopal - Sidoti & Co.

Presentation

Operator

Welcome to the Cantel Medical Corp. first quarter earnings conference call. (Operator Instructions) It is now my pleasure to introduce our host, Andrew Krakauer, President and CEO of Cantel Medical Corp. Thank you. You may now begin.

Andrew Krakauer

Thank you and welcome to our first quarter fiscal year 2010 conference call. Before we start 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, with that said again 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 and Treasurer; Roy Malkin, President and CEO of our Minntech subsidiary; and Steve Anaya, VP and Controller of the company.

Cantel Medical reported another outstanding performance in the first quarter of fiscal year 2010. In fact the company has now reported eight sequential quarters of improved earnings results and this quarter set all time financial performance records for the company. We reported first quarter earnings of $0.37 per share compared to the prior year’s first quarter earnings of $0.20 per share. This represents an 85% increase in net income.

As we pointed out in our press release, while all of our reporting segments showed improved gross margin and operating profit in the quarter this remarkable performance was significantly impacted by unusually high demand for our face masks driven by the H1N1 outbreak. I would like to thank all of our loyal and hard working employees for their great efforts and achievements again this quarter. These results reaffirm our overall strategic business direction, the rising importance and awareness of infection prevention and control in general, the effectiveness of our managers and staff and support our continued optimism about the future of Cantel with or without atypical demand for any one particular product.

Before I turn it over to Craig to discuss some specific financial details, I will briefly review the major operating segments.

Our best performance for the quarter was in Healthcare Disposables, where on a 31% increase in sales, operating profit increased by 145% over the prior year’s first quarter. This success was primarily driven by increased sales of face masks, hand sanitizers and surface disinfection wipes as a result of the pandemic nature of the novel H1N1 virus. Our Crosstex subsidiary is one of the largest US based manufacturers of FDA cleared face masks and while a virus such as the novel H1N1 is tough to predict and its status can change very quickly, the CDC has recently indicated that the influenza activity has begun to decrease in the United States and as a result we anticipate that the previously elevated demand for face masks is now returning to normal levels for now.

However, we are working on a number of activities to grow this particular product area including our very active alternate channel program that offers solutions to businesses and public entities to be properly prepared for any pandemic outbreak which of course would include having an adequate supply of face masks. We are also working with federal and state officials as they plan for proper stockpiling of face masks although at this time they have not placed any orders.

Additionally during the quarter we launched our new antimicrobial coated face mask outside of the United States. Our BIOSAFE brand coated mask offers tangible advantages to users and while we are still waiting for specific guidelines for the FDA to allow for sales in the United States, we have received great interest in this new product in a number of international markets.

In an effort to isolate the impact of this H1N1 driven uptick for us we estimate revenue in our healthcare disposables segment grew organically between 3-5% in the quarter which is above the basically flat dental market growth rate and this success is attributable to our substantially increased investments in sales and marketing.

Our endoscopic processing business which has performed well for all of fiscal year 2009 started fiscal year 2010 with another great, strong performance. Sales grew by 19% in the quarter as shipments were higher in all categories including equipment, consumables such as disinfectant cleaners, as well as service parts and accessories. Growth in equipment sales was particularly positive in light of the lingering weakness in hospital equipment purchases generally.

Another positive note was our substantial success in all product categories in markets outside of the United States. I continue to be impressed with the achievements of our direct hospital sales and service force in the United States. In this fiscal year we are continuing to invest significantly in sales, marketing and service resources to continue growing the business. We are optimistic as we have started to see good customer acceptance of our new, state of the art Advantage Plus machines with a new single use peracetic acid-based chemistry. We are also excited about the prospects for our internationally launched, mid-range single use chemistry reprocessor, the DSD [Etch] which is now approved throughout the world except in the United States where we are waiting for feedback from the FDA on our initial submission.

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