Cantel Medical Corp. (CMN)

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Cantel Medical Corp. (CMN)

F4Q08 Earnings Call

October 7, 2008 11:00 am ET


Andrew Krakauer – President

Charles Diker - Chairman

Craig Sheldon – Senior Vice President, Chief Financial Officer

Seth Segel - Senior Vice President Corporate Development and Strategy

Roy Malkin - President and CEO Minntech

Steve Anaya – Vice President and Corporate Controller


Michael Gaugler- Brean Murray, Carret & Company

Shawn McMahon – Kennedy Capital

Mitra Ramgopal - Sidoti & Company



Welcome to the Cantel Medical Corp’s fourth quarter 2008 conference call. (Operator Instructions) It is now my pleasure to introduce your host, Andy Krakauer, President of Cantel Medical Corp.

Andrew Krakauer

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 limitation the risks detailed in the filings and reports with the Securities and Exchange Commission. Such statements are only projections and actual results may differ materially from those projected.

With me today are Chuck Diker, Chairman of the Board; Craig Sheldon, Senior Vice President and Chief Financial Officer; Seth Segel, Senior Vice President Corporate Development and Strategy; Roy Malkin, President and CEO of our Minntech subsidiary and Steve Anaya, VP and Corporate Comptroller.

On Cantel’s third quarter call, about four months ago and my first as President of the company I stressed that I was very optimistic about the future of Cantel and its prospects to grow profitably. While results for our fourth quarter support my continued positive view of the company’s future, I am pleased to report that through the hard work of our loyal and dedicated employees and despite unprecedented cost increases affecting our businesses the company reported its best earnings in the past three years.

We reported fourth quarter earnings of $0.16 per share. This included $0.02 of costs related to the closure of our manufacturing operations in Holland as well as a $0.02 benefit related to a favorable adjustment from a recent reduction in tax rates. In a few minutes I’ll ask Craig to take us through some of the details of Cantel’s financial statements and taxes but first a brief overview of our fourth quarter results.

Our positive results come from good revenue growth excluding the dialysis segment where we experienced a decline of low margin dialysate concentrate shipments which we will talk about later, core growth was 10.5%. We have often discussed the benefit of Cantel’s broad range of infection prevention control businesses where weakness in one of the businesses during the quarter can be offset by strengths in others.

This quarter our favorable performance was secured by very strong earnings in our “all others” segment where sales increased by 9% but operating income increased by 74%. The two businesses included in this segment, namely specialty packaging and therapeutic filtration, are the company’s highest margin businesses.

In specialty packaging it was such a strong quarter with solid sales of our core packaging products. In therapeutic filtration there was a large sale of unique, hollow-fiber filters that is an integral part of a customer’s artificial kidney product which will soon be released in Asia. While the magnitude of this order may not be repeated every quarter this order was approximately $350,000. It is a good example of the many new applications for our unique fiber technology that we are co-developing with several biotech companies.

As you know we are heavily investing in sales, marketing and R&D in our endoscope reprocessing business and we are now starting to reap the benefits. In the fourth quarter we enjoyed a sales increase of 14% and this increase is due to gains in most product categories including equipment, U.S. service and disinfectants. Because of non-recurring costs related to the closure of our manufacturing operation in Holland and the cost to settle some remaining distribution issues in Europe, we recorded a small fourth quarter loss for the segment. Excluding these two items, operating income was $400,000 for the quarter versus a loss in the prior year. We expect to continue to see improvements in this business as we go through FY09.

Our direct U.S. hospital sales and service team continues to function well and is consistently increasing our direct share of Rapicide and other consumable sales. During the most recent Society of Gastroenterology Nurses and Associates (SGNA) conference, which is a key meeting for our endoscope reprocessing business we experienced a record number of leads and a very high level of interest in our new products. In addition, just prior to the conference the SGNA published Amended Professional Guidelines that now support the use of our Intercept branded cleaner and the incorporation of automated leak testing into the endoscope reprocessing process which bodes very well for our VeriScan leak detection system which was acquired in the Barometric acquisition about a year ago.

Our Medivators group clearly has the most comprehensive line of products available to the endoscope reprocessing marketplace. In addition, we are optimistic that our U.S. hospital sales and service infrastructure can be further leveraged by our existing and potential feeder businesses.

We also had our challenges in the quarter but they were not unexpected. Despite a sales increase of 6% in healthcare disposables we had a 12% decline in operating income in the segment. As in the third quarter margins were negatively affected by higher paper and plastic costs as well as distribution costs, all associated with higher oil prices. We also continue to make R&D investments and develop innovative new products.

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