Cantel Medical (CMD) 8-K Results of Operations and Financial Condition

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)  March 23, 2015

CANTEL MEDICAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	001-31337	22-1760285
(State or other jurisdiction	(Commission	(IRS Identification
of incorporation)	File Number)	Number)

150 Clove Road, Little Falls, New Jersey	07424
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (973) 890-7220

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02   Results of Operations and Financial Condition.

The below information supplements information previously reported for the four quarters of our fiscal 2014 and the full fiscal 2014, which may be used in filings on Form 10-Q and Form 10-K as well as presentations by Company management to investors, analysts and others from time to time.

The information below will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended.

Non-GAAP Financial Measures

In evaluating our operating performance, we supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (“GAAP”) with certain internally derived non-GAAP financial measures, namely adjusted net income and adjusted diluted earnings per share (“EPS”). These non-GAAP financial measures are indicators of the Company’s performance that is not required by, or presented in accordance with, GAAP. They are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making. We believe that these non-GAAP measures provide meaningful information to assist investors, shareholders and other readers of our Condensed Consolidated Financial Statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations. These non-GAAP financial measures are not intended to be, and should not be, considered separately from, or as an alternative to, the most directly comparable GAAP financial measures.

We define adjusted net income and adjusted diluted EPS as net income and diluted EPS, respectively, adjusted to exclude amortization, acquisition related items, significant reorganization and restructuring charges, major tax events and other significant items management deems atypical or non-operating in nature.

Amortization expense is a non-cash expense related to intangibles that were primarily the result of business acquisitions. Our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduced the Company’s net income. The removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital, which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth.

Acquisition related items consist of (i) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions and (ii) due diligence, integration, legal fees and other transaction costs associated with specific acquisitions. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such

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amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with specific acquisitions can be significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since all of these acquisition related items are atypical and often mask underlying operating performance, we excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

For our first and second quarters of our fiscal 2014, we made adjustments to net income and diluted EPS to exclude amortization expense to arrive at our non-GAAP financial measures, adjusted net income and adjusted EPS. Significant acquisition related charges and other atypical costs were not incurred for our first and second quarters of fiscal 2014.

For our third and fourth quarters of our fiscal 2014, we made adjustments to net income and diluted EPS to exclude amortization expense and significant acquisition related items impacting current operating performance, including transaction and integration charges and ongoing fair value adjustments, for the purpose of determining our non-GAAP financial measures. For our fourth quarter of fiscal 2014, we also made an adjustment to exclude costs associated with the retirement of our Chief Financial Officer to arrive at our non-GAAP financial measures.

For the four quarters of our fiscal 2014 and the full fiscal 2014, the reconciliations of net income and diluted EPS with adjusted net income and adjusted diluted EPS were calculated as follows:

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										As Reported,
	As Reported,					Acquisition		Other		Non-GAAP
(Unaudited)	Three Months Ended		Intangible			Related		Atypical		Three Months Ended
(Amount in thousands, except EPS)	October 31, 2013		Amortization			Items		Items		October 31, 2013
Net Sales	$	118,272	$	—		$	—	$	—	$	118,272
Cost of Sales	66,773		—			—		—		66,773
Gross Profit	51,499		—			—		—		51,499
Expenses:
Selling	15,764		—			—		—		15,764
General and administrative	15,164		(2,626		)	—		—		12,538
Research and development	2,259		—			—		—		2,259
Total operating expenses	33,187		(2,626		)	—		—		30,561
Income before interest and income taxes	18,312		2,626			—		—		20,938
Interest expense, net	644		—			—		—		644
Income before income taxes	17,668		2,626			—		—		20,294
Income taxes	6,483		977			—		—		7,460
Net Income / Adjusted net income	$	11,185	$	1,649		$	—	$	—	$	12,834
Diluted EPS / Adjusted diluted EPS	$	0.27	$	0.04		$	—	$	—	$	0.31

										As Reported,
	As Reported,					Acquisition		Other		Non-GAAP
(Unaudited)	Three Months Ended		Intangible			Related		Atypical		Three Months Ended
(Amount in thousands, except EPS)	January 31, 2014		Amortization			Items		Items		January 31, 2014
Net Sales	$	119,042	$	—		$	—	$	—	$	119,042
Cost of Sales	66,707		—			—		—		66,707
Gross Profit	52,335		—			—		—		52,335
Expenses:
Selling	16,077		—			—		—		16,077
General and administrative	15,557		(2,619		)	—		—		12,938
Research and development	2,492		—			—		—		2,492
Total operating expenses	34,126		(2,619		)	—		—		31,507
Income before interest and income taxes	18,209		2,619			—		—		20,828
Interest expense, net	630		—			—		—		630
Income before income taxes	17,579		2,619			—		—		20,198
Income taxes	6,453		968			—		—		7,421
Net Income / Adjusted net income	$	11,126	$	1,651		$	—	$	—	$	12,777
Diluted EPS / Adjusted diluted EPS	$	0.27	$	0.04		$	—	$	—	$	0.31

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	As Reported,					Acquisition			Other		Non-GAAP
(Unaudited)	Three Months Ended		Intangible			Related			Atypical		Three Months Ended
(Amount in thousands, except EPS)	April 30, 2014		Amortization			Items			Items		April 30, 2014
Net Sales	$	120,058	$	—		$	—		$	—	$	120,058
Cost of Sales	67,640		—			—			—		67,640
Gross profit	52,418		—			—			—		52,418
Expenses:
Selling	16,532		—			—			—		16,532
General and administrative	16,428		(2,637		)	(456		)	—		13,335
Research and development	2,632		—			—			—		2,632
Total operating expenses	35,592		(2,637		)	(456		)	—		32,499
Income before interest and income taxes	16,826		2,637			456			—		19,919
Interest expense, net	535		—			—			—		535
Income before income taxes	16,291		2,637			456			—		19,384
Income taxes	6,042		977			50			—		7,069
Net income /Adjusted net income	$	10,249	$	1,660		$	406		$	—	$	12,315
Diluted EPS /Adjusted diluted EPS (1)	$	0.25	$	0.04		$	0.01		$	—	$	0.30

	As Reported,					Acquisition			Other			Non-GAAP
(Unaudited)	Three Months Ended		Intangible			Related			Atypical			Three Months Ended
(Amount in thousands, except EPS)	July 31, 2014		Amortization			Items			Items			July 31, 2014
Net Sales	$	131,377	$	—		$	—		$	—		$	131,377
Cost of Sales	74,330		—			—			—			74,330
Gross profit	57,047		—			—			—			57,047
Expenses:
Selling	18,146		—			—			—			18,146
General and administrative	17,890		(2,759		)	(694		)	(589		)	13,848
Research and development	3,430		—			—			—			3,430
Total operating expenses	39,466		(2,759		)	(694		)	(589		)	35,424
Income before interest and income taxes	17,581		2,759			694			589			21,623
Interest expense, net	508		—			—			—			508
Income before income taxes	17,073		2,759			694			589			21,115
Income taxes	6,368		993			78			218			7,657
Net income /Adjusted net income	$	10,705	$	1,766		$	616		$	371		$	13,458
Diluted EPS /Adjusted diluted EPS	$	0.26	$	0.04		$	0.01		$	0.01		$	0.32

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	As Reported,					Acquisition			Other			Non-GAAP
(Unaudited non-GAAP amounts)	Twelve months ended		Intangible			Related			Atypical			Twelve months ended
(Amount in thousands, except EPS)	July 31, 2014		Amortization			Items			Items			July 31, 2014
Net Sales	$	488,749	$	—		$	—		$	—		$	488,749
Cost of Sales	275,450		—			—			—			275,450
Gross profit	213,299		—			—			—			213,299
Expenses:
Selling	66,519		—			—			—			66,519
General and administrative	65,039		(10,641		)	(1,150		)	(589		)	52,659
Research and development	10,813		—			—			—			10,813
Total operating expenses	142,371		(10,641		)	(1,150		)	(589		)	129,991
Income before interest and income taxes	70,928		10,641			1,150			589			83,308
Interest expense, net	2,317		—			—			—			2,317
Income before income taxes	68,611		10,641			1,150			589			80,991
Income taxes	25,346		3,915			128			218			29,607
Net income /Adjusted net income	$	43,265	$	6,726		$	1,022		$	371		$	51,384
Diluted EPS /Adjusted diluted EPS (1)	$	1.04	$	0.16		$	0.02		$	0.01		$	1.24

(1)The summation of each diluted EPS does not equal the adjusted diluted EPS due to rounding.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CANTEL MEDICAL CORP.
	By:	/s/ Andrew A. Krakauer
		Andrew A. Krakauer
		Chief Executive Officer
Dated: March 23, 2015

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