CMD - Earnings call transcript Q3 2018

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Operator

Greetings and welcome to the Cantel Medical Corp Third Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Milicent Brooks, Head of Corporate Communications at Cantel Medical. Thank you, Ms. Brooks.

begin. may You

Milicent Brooks

Development; Strategy Chief a and VP, have Doug Hansen, issued everyone. Corporate today’s EVP Brian On and Thank EVP, Diker, good quarter XXXX. announcing release the Chairman this we Yellin, and Clifford, Peter Chuck for and Executive the of the year Earlier third morning, Capone, Jorgen Officer; of Corporate and call, company press Seth Chief you, Officer; Controller. morning Financial financial the results President fiscal Board;

In have call. Investor we website found posted addition, to a the complement This on supplemental today’s Relations in be Presentations. presentation section under presentation can Cantel’s

and to GAAP on non-GAAP provided With making income, Hansen, I and those measures, in Securities most today’s EBITDAs, of conference like forward-looking financial are Jorgen and forward-looking and non-GAAP contain company’s and uncertainties we remind everyone statements to only debt. will per limitation I financial non-GAAP predictions that, comparable risks are actual filings may pleased projected. earnings the materially All The and B. the President operating would Reconciliations the these measures call to results risks am diluted directly you, including, net call profit, non-GAAP share financial begin, be the reports without non-GAAP detailed may Exchange that gross introduce this from also with statements. differ Such measurements Before involve today’s earnings company release. Commission. the in references to to statements CEO.

Jorgen Hansen

us by results. some with Peter everyone. quarter XXXX followed financial Milicent comments, and through welcome brief third off you, start Thank our will who will take opening I

for Finally, Q&A. call the we will open

sales with quarter. our growth. are by results reported this We with X.X% very organic XX.X%, grew We pleased

despite markets to well tough growth and comparable prior related of three versus in headwinds performed selected timing shipments segments year. major Our

margin toward the of GI one and expanding this growth Endoscopy infection capital, platform rates. Orders by was customers prevention set on to the which quarter chemistries. services drive XX% year sales need X.X% to opportunity and our primarily into March, Medical, due recurring another we for product closed we up customer difficult entrants which quarter, of offset comparable adds capabilities growth workflows drive slightly new new this space, of in to acquisition, addition, products growth growth Total solid and acquisition as and the Room. distribution. to opportunity with XX.X% This revenue into in customers of offer which documentation capital Strategically, In organic sales. the important Despite key strategic prior specifically in protection mid-term. help increases we addresses new driven suite for in in grew In quarter was value revenue tracking, analyzing Filtration moving medical our and of to led Purification Water due of higher processes. of approach. recorded down markets strong Sterile results by a into were technologies providing the but X.X% meaningful service. partially in quarter, a are Operating chemistry, expansion as our that the adjacent Central we reprocessing procedural closed procedural best-in-class an provided water dual-sourced well unique category Aexis a Department full highly by consumables currently by and

to high difficult their the and Germany that, with growth comparables excited in acquisition geographic and and of this segments. Belgium, in increasing demand the to XX.X% and Aexis in the This year we and well for the by medical sterilization financial driven I Medical hand leading grew our current our new branded REVOX UK. perspective, by U.S. BHT the future performed capital of emerging category with led Australia systems X.X% disinfection discuss world’s includes segment. business our sales Group which operations of the organic is by X.X%, are our of continued in Healthcare and will of was the market led one our franchises. about prior Xx distributor. example, story versus growth impact the up prior Germany, device sales With results. an international to X%. were by we organic impacted was business all a X.X% From International record in China. portfolio This X.X% over opportunities waterline with up Australia X.X% in X by in sales strategic increased organically our shipped Revenue low-temp across segment Peter approximately the year which growth As manufacturers quarter the Disposables mask

Peter Clifford

Thanks, Jorgen. Good everyone. morning,

and balance acquired or roughly points of was points for at Operating for versus the The increased we we from take basis. for GAAP or XXX acquisitions X%. op points margins although expenses XX.X% gross our XX.X% year. came a plan quarter, On year-over-year. ‘XX related investment XX strat expenses and of prior net a operating and million to $XX.X our and million was to expanded from expanded compared the M&A line the increased X%; $XX.X when impact sales top to walk in XX.X% had Note the constant consolidated the dilution segment the X.X%. BHT, $X.X a in a expanded Let’s through to quarter, elements adjusted XQ core XX.X%. by was moments basis came operationally purposeful walk margins in Non-GAAP few to million. with line by sales XX.X% ‘XX legal year-over-year financial basis of quarter, costs The our $X.X XQ one-time business profit in consolidated expenses Operating year for year-over-year GAAP of our were profit Gross basis, to op optimization. year-over-year settlement X.X%; profit results. the in by million, recast X.X% currency XQ non-GAAP XX tailwind year-over-year million initiatives. while FX increased decreased on $XX.X gross versus The a prior ‘XX GAAP margins organic net prior at XX.X% basis year

Our of the XX.X%. tax quarter quarter for approximately basis, as quarter during by compared was statutory the rate This as partially non-GAAP again basis, of state provided state approximately of federal rate impact of compared driver a a non-GAAP during a came for at change to the The of GAAP our a was XX.X% federal the On million a by on Again, overall rate rate to in the statutory taxes. XX.X% XX%. of year benefit the effective offset benefit rate year prior quarter. partially impact tax offset prior effective the $X.X million $X.X provided taxes. key ETR change

to months rate our non-GAAP the for the of that upon XX.X% year-over-year as to XX% year XXXX for forward quarter to the composition while year Adjusted as fiscal around EPS up increased full year-over-year XX.X% the adjusted EBITDAS for look will earnings at benefit a fourth based how we information last quarter current balance $X.XX the well tax our geographic X% GAAP our the our $X.XX. to year-over-year. provide or ‘XX non-GAAP of XX XX.X% year guidance will $XXX.X September. in our profits intend of in that on we EPS reinvestment quarter, XX.X% for was XQ EBITDAS $X.XX increased to EPS rate As EBITDAS in $X.XX, we quarter, we adjusted fourth XQ came anticipate $XX.X for million, call while our available, to be reinvest our approximately year-over-year, model million, up on the and

million, up Our XQ cash $XX.X XX.X% at from year-over-year. in operations came

Now, let’s insight into the provide segment results. some

quarter, For Endoscopy year-over-year grew segment for sales XX% to million. the $XXX.X

X.X%. organic Our was

while profit Our op providing increased $XX.X strong leverage. op to our profit to million $XX.X XX.X% GAAP increased non-GAAP XX.X% million,

returning quarter, backlog For X.X% million. our the to primarily by leverage Organic by million water while water backlog. offset was see during did quarter by roughly a non-GAAP Note, GAAP of our $X increases increased year-over-year in to X.X% of $X.X million op sales driven business. Water increased compression profit to modest $XX.X segment $X.X the medical profit our to for driven non-core profile. our op million, strength XX.X% the X.X% our business grew specialty

Organic year-over-year million. sales For X.X% the our $XX.X grew quarter, HCD segment for X.X%. was to

to profit our to $X.X increased providing million, leverage. $X strong GAAP XX.X% while XX.X% non-GAAP million increased op profit again Our op

and Dialysis our segment quarter, GAAP and XX%. For million op for our the non-GAAP profit X.X% decreased by $X year-over-year sales to expanded

details. Now, like liquidity I’d to hit few sheet balance and a

equivalents, Our balance very cash quarter sheet working remains capital. in ended significant million with We $XXX.X million capacity. the $XX.X cash and strong in with

Aexis Our gross BHT borrowings this of This million. to the debt acquisition $XXX at includes Medical. the $XX.X the of year million and fund quarter ended

in We ‘XX. have debt $XX paid million XQ down at

million. $XX.X adjusted and our million Our is net expenditures debt net is X.XX. EBITDAS Capital were to debt $XXX.X

ERP As to will our the we six four to have signaled previously, elevated implementation project. for remain CapEx quarters next support

hand call back our for As a be will to the we now XX-Q Jorgen closing reminder, I remarks. filing tomorrow. will

Jorgen Hansen

Thank pleased business Peter. serve. are the Overall, competitive of performance our you, this we our quarter, markets and we our trajectory in with position positive the very strong

strategic encouraged of the M&A areas. sciences, well our key we all are our as chemistries divisions we at other across Looking pipeline, opportunities the with and as adjacencies see life in

share pipeline. that more strength are of we We have Furthermore, new the product acquisitions by to optimistic several pleased development on quarters. we our over the are next

Automated product doing fiscal continue infection innovation valve and reverse for unmet launched year importantly osmosis and our the reduction addresses that Eon system only position will our coupled and water This the recently for Pass-Thru [indiscernible] introductions, for leadership Endoscope in recently single-use DEFENDO have [indiscernible]. purification We experience market Valve launched with both ADVANTAGE will is portable need and the new clinicians to volume enhance procedures. This patients an Reprocessor XXXX improve beyond. clinical high

line to with and double perform X-year continue Taken profits plan to we to by together, sales XXXX. objectives in strategic expect our

quarter, evolution the this supported by market achieved market. acquisitions will by strategic new development, continuing operating demonstrated As Cantel expansion, this product a be of

spirit to into the changes benefit earnings of the incorporates growth. we company, quarter. for business to back start accelerating These the which XXXX This benefit the In resources of total and anticipate team already legislation, our in revised presentation, of would tax have expansion our XXXX. estimated rates rewards EPS additional legislation plans tax $X.XX fiscal tax will enhancing guidance the benefit included plan the non-GAAP year $X.XX invest both the line to fiscal we members. plans the to tax development, new the accelerate our In to of include the had our inclusive in with facility for place product support and in fourth announced part year acquisitions. of a chart reinvest With model we call employees advancing help

our thank new committed to as In efficiency loyal add recently hardworking process we example, for I drive efforts and would capacity achievements like Minnesota building an to talent. this their we space and to a and provide quarter. X,XXX in As continue to grow and members team closing,

Our provide call entire are company quarter Doug, improve takes and to mitigate lives. questions. you help for in ultimately great safety you our with ready take earnings we on solutions pride to look mission to save listening. forward I Thank and to our speaking September. now in outcomes, fourth patient infections,

Operator

Thank first Please Needham line from comes Company. you. Matson your question Instructions] proceed the Mike with & [Operator with Our of question.

Mike Matson

guess comp with at and my think was of caused in the wanted Yes, I about that business, difficult there the the a can what I all? talk Endoscopy impact can thanks UK, slides questions. that taking you the just quantify start for mentioned to you just

Peter Clifford

Yes.

AERs shipped in our about and of last year UK, think the only the the probably quarter back first third the in you half bulk with to If our coming in prior XX% of fourth of the year, year. we

very give So, To third and we the had UK intense business in if and the towards would quarter some grown capital the was third it UK X% slanted perspective, organically, we EMEA excluded our quarter. business. heavily fourth a have

much reported So than the it was X.X%. stronger

Mike Matson

growth had the capital you normalizing you was means? in also Okay. can that U.S., And explain then mentioned what that

Jorgen Hansen

Yes, this is Jorgen, Mike. hi,

the back really would and and think to If capital had a related really I – you say that in XXXX and the ‘XX ‘XX if you to windfall and now U.S. well, a be levels back we normalized growth is level. back in of think to of capital we ‘XX market few caused elevated a and selling And in more that are years

new sort example win growth now and out long-term when level, Just market at up is sold which X,XXX, very ‘XX/XX XXX the down still market X,XXX XXX the a nice still and an you are we in in the in business growing sort we to rate defending our as we that’s look of there everyday to U.S. shares two-thirds and and of share. machines

more a into just non-event like more it’s So regular impacted getting business.

Mike Matson

run, talked driving high Okay, about sustainable? that on see business kind I more medical its that? that to a then you kind have but over this kind single-digit continuing maybe and makes I talk business, sense. just growth higher of longer know what’s organic Thanks. device that you being then in of growth, it’s water Alright the mid one the opportunity of And you so have. single-digit it and mentioned all that’s is business, And can about

Peter Clifford

take to that? want You

Jorgen Hansen

Yes.

longer and mean and So you that drivers it things water is we REVOX development segment. sterilization technology, was if we of other we quite our Chemistries, X% cyclical under lot a we we than averaging think the to into likewise, a have to path growth starting longer where around onboard, mid this trend business. What X%, We product, where really are look novel things and leading so which you our but going a create are see had great is have business. interesting going just margins businesses low-temp about medical talking develop long-term term as stage, years starting we traditional we things there. to of of in single-digit growth term early water business this at sold it’s for our XX% great on to sort growth other of water we business couple And systems good our also about there flat I and devices sustainable are filtration, the water of if a pipeline see growth. consumable had this stream and also is manufacturers meaningful a and like business years had this sort a build of quarter medical providing still business, we interesting one on close

Mike Matson

you. Thank

Operator

Raymond Keusch with [Operator from with Larry the question Instructions] Please comes James. next question. Our line proceed your of

Larry Keusch

hi. morning, Yes, Good everyone.

Endoscopy, was So I variance, at to relative everything anticipating. just wanted what Endoscopy so have our model, in else we big with the came to above start or been really

it that the clearly in is it question any primarily the knew comps extent tough capital, tough guess sounds I there comp. you So, like were that was about

was and expectations relative your how the guess where capital the to coming that that little is was I where it So, extent Endoscopy – question to from? a bit in later did was potentially come that

Jorgen Hansen

in UK depends it ability very say expected. endo capital our would as I have on that, strong line harder to on of the is we much capital as so we I sales. we about very a in a our the NHS sales impacted line great expected that with say in the it U.S. holding to capital for. probably now, we really I market. had pickup question, right spending we into little pipeline. ability its is would are of really business, think back UK push have The good little say had would and Larry I mean UK that lighter the came we the what all on than was But much very hoped sight I really with comps. talked in Again, customer’s

some do orders from So, natural the we and into know next probably third were year quarter quarter that pushed into as even fourth cycle. a the

what So, quarter. conclusion the in that I we performance say, very in with line expected for would much

Larry Keusch

there couple of a and of other have procedural you at o-U.S. that growth order you etcetera. about ones, one or for opportunities this in sounds maybe just as quarter the And a but the within or expansion that still next and of on of a least Okay. falls year, issue so still some was then observation have you into U.S. quarter, quick so it more like lot fourth timing opportunity, products international very in talked

So, business lot there to opportunity global still of continue a seems to like rate. healthy there this is at grow

this suggest we the that it growth quarter term be is some? is fair should kind the longer business grower that, thinking low at decelerating So, of perhaps XX% still or look double-digit this sort to as of

Jorgen Hansen

a Well, opportunity this of you on this – there side. mean made is our procedure lot business is points, in the right it’s – I great all a Larry. particularly

XX% We o-U.S. penetration, the U.S. smaller. are probably and much procedural know XX% is the in penetrated to you product as

as expands the think this business tomorrow, an guidelines going upside addition, it’s out us sure you, not I I which am sound. and new put meaningfully screening know, change in recommendation we In Society to to on see manner. something the Cancer from market underlying also yesterday the opportunity very that continue it but will we a the market grow you the to of is the meaningful – market XX the from help for market long-term, piece American XX, moving

we see but product competitiveness portfolio low that sort or we changes international with still capital in of things be we able have where maybe the this will term, the feel double-digit will to we in a low good like So, the quarters that opportunities, grow impacting. this the with longer other range our that bit U.S. with business of

not going for That’s it’s single every So, sure. quarter. to be

Larry Keusch

Okay, me. perfect. for Last two Understood.

in you the guidance, it the outlook seem to organic on that and based changed imply on so at are would to the want are Just why year revenue M&A that and that and see again we our what guidance growth the again that fourth would mid for just thinking the organic be if correctly? looking case? in quarter about And single-digit if model

Peter Clifford

Yes, Larry.

some water to when original of quarters backlog to out XXX of and have the we as last have business to that bad, as what’s been the sort couple know quarters the on have been the there implies as than a came range can and different couple lumpy our XXX couple articulated see in with quarter the the the it does of XX is ago of is with X and of we we there we backlog has guidance signaling you it. in cycle compression Our fourth sort calls, grew business a last months out

we $XX think the really the quarter it started about were million revenue as when We year just to of quarter. over water year on is So, fourth fourth last in business last accelerate. in

seems So, difference internally of a I the Jorgen sales. meaningfully suspected. And the think to there that as a nuance AER the ‘XX years that, as in is both than we looked have capital the there ‘XX on the the coming years literally out did the a comp of where really with was and is business gone backlog. than has pattern be think going bubble can U.S. at really compression following effect, one a to the bubbles articulating capital. those of ‘XX XX flat softer that’s that’s X pretty those upticks, been last of you be said, X been tougher there is And more in bit we probably I then And Jorgen a back see years ‘XX and has that pull-head

where it and these than thought do the we to I out bring year XXX in this X% as more U.S. what that be the When We we started the capital is the recalls flattish back the that are that sort issues we didn’t think tougher necessarily XXX get the the of how of think we seeing growth. year to we nuance are years have on sustainable, capital for business bit half a does think seem units X that to is U.S. about of that what that environment that’s business going is see. coming honestly long-term business a typical anticipated. but we little is growth annual probably to X% prospects still is on we Endoscopy

Larry Keusch

Thanks perfect. guys. very Okay, much

Jorgen Hansen

Larry. Thanks,

Operator

line comes Mitra question the Sidoti. proceed with from question. your Please with next Ramgopal Our of

Mitra Ramgopal

Good hi. Yes, morning.

of couple questions. a Just

just and already some First, sequentially it’s R&D the was regarding definitely increased I year-over-year, tax of if obviously wondering reflecting reinvestment?

Peter Clifford

than we that have cover the year would invest had projects forcefully would benefit I here. would more historically much year argue in quarter, with to of of on have I we likely and some forcefully a an more try had. will and impact. you I we have all first I we really see the there were leaned this R&D just more have say mission In think quarter there more in half third the wasn’t knowing the of air think that that purposefully tax

Mitra Ramgopal

of seen growth I versus and if going up that have and X over in on forward thanks. you some years terms X-year getting this really you front your at Okay, target, be to can to you the acquisition opportunities will or for feel you aggressive And organic looks to how like things do I are wondering you be to we viewing your lowest look was going if there probably it? improve are it think year it last is the make what more growth the

Peter Clifford

mentioned Well, on call the I still we that think very optimistic are as on business. earlier this

have lost growth end-markets growth. And opportunities. solid great have know organic quarters long-term have growth very in great many have and coming We since we we ‘XX we – as of our out strategic with you plan obviously

So believe that. I depart really from we that too don’t – will we don’t much

We on product are bullish very still pipeline. our

have don’t they made investments the to front, continue if but Seth, deliver commercial in in M&A and opportunities confidence anything, I do want to know on our you will that of lots we see and great great add teams have We M&A side?

Seth Yellin

near acquisition existing be as to be we company new the medium are in front think us overall see pipeline where I of and are we an growth could longer that happy in drivers businesses really think we perspective, adjacencies No, long-term drivers markets with and opportunities interesting term we technologies could well. pretty in in at us for for the the from new good and our both with that in

Jorgen Hansen

that. I just echo

still procedural is the products there that meaningful to the be a of Endoscopy still you business, market same. part the When pillars is think think penetrated. I the are there of

U.S. U.S. expansion differentiated plenty We we acquire space, reuse shot to and position got We the conversion low ACD alone over couple space, still chemistry we have have of Endoscopy have out on outside They got years. are the single share the that not still runway are in best We products. in have but our commanding and been capital chemistry. in the doing geographic share business. we anymore still products on of the really which And and to issue last growth rotate in machines a a position

from that is branded to think pivot organically growth basket, same label before. into I the continued acquired and continued private So products of still exactly there of as that

think I growth we returning our got capital and issue outside the a thought that have grow and about our temporary again but capital again are capital try that. that that’s of we through, number the running way we X% Xx as Endo seen sort ambition to and we rates U.S. business U.S., have is to

Seth Yellin

talking we and And and launch. that’s times over an that it’s but Peter’s a Aexis dilutive in customers include just about latest mean, next big everywhere a every be and almost of should you data business haven’t our capture an almost a new obviously right is quarters is thought several analytics many about I small to that business information the the now with even to Medical investment our add data products and going we forward. because grow them yet product company, information, from the theme that years And perspective, and from are example can you day as single think the about if U.S. still to it’s theme comments, can launched and

Mitra Ramgopal

guess follow-up sense etcetera, if if overall could and us would you the Seth, acquisition just will quickly or maybe market maybe Aexis you Medical can Okay, I – versus be a helpful? that’s on the just great. anything of domestic international I give

Seth Yellin

a hospital department, good primarily documentation I sterile this want marry market that tracking I it’s been the is for if with opportunity provide has market, it I I a characterize growth central right size remains but a analytics in a for really Historically, mean to provide access workflows then the but as market applicable it’s central our a trace and space track us has then – workflow solution Yes. I which a now, for Endoscopy sterile greater workflows. around the ability focused Endoscopy we products reprocessing to to quite department that also know and the many demand Certainly, and entry developing sterile is partners this the opportunity tracing as mean, product rapidly Europe, scheduling I and and or think with market speak information very don’t for the we and OR the additional think we solution growing. leading reprocessing core see in and solutions high. are continued have core point this business overall good good overall and spoke and also in to to they about our would we category portfolio see and for central be us. times, and the that

So, we are quite acquisition. optimistic about the this potential of

think to existing and us. central point Endoscopy for sterile broader hospital potential us space, represents to we in an an opportunity portfolio best-in-class has about fairly optimistic but the and as an market provide the it for and has growth both well in been our is that drive technology access limited, it growth sure, business as early really opportunity For stage attractive so enthusiastic

Mitra Ramgopal

for thanks Okay, the again taking questions.

Jorgen Hansen

Mitra. Thanks,

Operator

the queue. questions other back like no in are for call There the to closing I to management would comments. hand

Jorgen Hansen

for you Thank the you. in thank joining We Well, call. at you to quarter call forward speak fourth our look to September.

Operator

your you today’s for does Ladies participation. and Thank gentlemen, teleconference. this conclude

may at your have this disconnect and day. lines wonderful You a time

Cantel Medical (CMD) 31 May 182018 Q3 Earnings call transcript