Cantel Medical Corp. (NYSE:CMD) Q4 2020 Earnings Conference Call - Final Transcript

Sep 17, 2020 • 08:30 am ET

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Cantel Medical Corp. (NYSE:CMD) Q4 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Shaun Blakeman

quarter, I discussed that approximately $45 million of our cost of goods sold is fixed. So relative to our pre-COVID margin levels, the Q4 margin degradation from pre-COVID is almost solely attributable to unabsorbed fixed costs accounting for approximately $9 million of margin.

Moving down to op profit. GAAP op profit decreased 51.2% year-over-year to $7.2 million. On a non-GAAP basis, op profit decreased 31% year-over-year to $26.5 million. Regarding tax rates, the GAAP effective tax rate for the quarter was a benefit of 65.1% as compared to the prior year at 26.8%. The tax benefit noted in the quarter was driven by our GAAP loss before taxes and additional federal income tax loss carrybacks allowable under the CARES Act.

Non-GAAP effective tax rate came in at 29.6% compared to the prior year rate of 25.6%. This increase was impacted by geographic mix and an increase in valuation allowances for certain income tax positions. As a result, GAAP earnings per share decreased 125.5% year-over-year to negative $0.05. While on a non-GAAP basis, earnings per share decreased 62.6% year-over-year to $0.24. Finally, adjusted EBITDAS came in at $37.9 million, down 19.6% year-over-year.

I will now move on to key cash flow and balance sheet items. Even with four to five months operating through the pandemic, cash flow has been a source of strength for Cantel. Cash flow from operations for the quarter came in at $44 million, an increase of 138.7% year-over-year, ending the year with $277.9 million in cash. Working capital increased 62% sequentially to $466 million, driven by the increase in the cash on hand.

Accounts receivables were relatively flat. Inventory declined approximately 10%, and accounts payable declined approximately 21%, all on a sequential basis. To put that in perspective for the year, we generated $26 million of positive cash flow from accounts receivables, $12 million from inventory management and $5 million of additional flow from the rest of the balance sheet; by far our best working capital management in the past five years.

We are very pleased that we were able to return operating cash flow to levels between 13% and 14% of sales, for the year, despite the volume challenges during COVID.

Capital expense was $7.6 million this quarter, an increase to keep key projects on-track in light of our better-than-expected cash flows and following a quarter where all but essential capital was suspended. In addition, Cantel is back at more historical capex spend levels, ending the year at $34 million of total spend versus $95 million in 2019.

To conclude the quarterly financials, our gross debt ended the quarter at $1.1 billion, while net debt was $835.5 million. Our net debt-to-adjusted-EBITDAS ratio was 4.73 times, which includes 10 months of Hu-Friedy results.

As a reminder, our credit facility amendment provides for a leverage ratio suspension period through October 2021 and requires us to maintain a minimum liquidity of $75 million. We are encouraged that our cash flow is positive even through our worst collections months, putting