Cantel Medical Management Discusses Q3 2013 Results - Earnings Call Transcript

Jun. 6.13 | About: Cantel Medical (CMN)

Cantel Medical (NYSE:CMN)

Q3 2013 Earnings Call

June 06, 2013 11:00 am ET

Executives

Andrew A. Krakauer - Chief Executive Officer, President, Director and Member of the Office of Chairman

Craig A. Sheldon - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Seth Yellin - Senior Vice President of Corporate Development

Analysts

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

L. Mitra Ramgopal - Sidoti & Company, LLC

John Sciarra

Operator

Greetings, and welcome to the Cantel Medical Corp.'s Third Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Krakauer, President. Please go ahead.

Andrew A. Krakauer

All right. Well, thank you, Stacy, and welcome to our third quarter fiscal year 2013 conference call. Before we start, I'd 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 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 on our call today are Chuck Diker, Chairman of the Board; Jorgen Hansen, Executive Vice President and Chief Executive Officer; Craig Sheldon, Senior Vice President, Chief Financial Officer and Treasurer; and Seth Yellin, Senior Vice President, Corporate Development.

Cantel Medical reported solid performance in the third quarter of fiscal year 2013. We reported third quarter earnings of $0.33 per share compared to prior year's third quarter earnings of $0.30 per share. The Medical Device Tax, implemented in January of 2013, impacted all 3 months of this quarter, reducing our earnings per share by $0.02. Excluding the impact of this tax, our EPS would have been $0.35, in line with our performance for the first 2 quarters of this year already. So we view these third quarter results as positive performance given the substantial incremental investments made in the quarter in sales and marketing in each of our 3 largest business units to accelerate future business growth.

This quarter's performance continues to illustrate our focus on our 3-pronged approach to growth, which includes investments in sales and marketing, development of new products and our continued success in identifying, acquiring and effectively integrating acquisitions. I will highlight these activities as I briefly review the performance of our major operating segments in the third quarter.

The Healthcare Disposables business, which operates under the Crosstex and now, following the November 2012 acquisition, SPS Medical brands, had excellent performance in the quarter. Sales grew by 17%, driven by sales of SPS products, which greatly added to our sterility assurance offering and allowed this segment to offset the impact of our distributors pulling forward shipments in the previous quarter, as we talked about 3 months ago. Operating profits grew at somewhat lower rate than sales at 13%, primarily because of incremental sales and marketing investments and the effect of the Medical Device Tax. We are very pleased with the integration of SPS, and the business has performed to our high expectations. We are excited about the opportunities to leverage our combined SPS-Crosstex product lines outside the dental market into the physician office and hospital markets.

We saw a nice improvement in gross margins in this segment, partially driven by sales of newly acquired SPS sterility assurance products, which carry higher-than-average gross margins both on a corporate and segment basis, as well as success growing some of our higher-margin products, including face masks and our ConFirm Monitoring line of sterility assurance products, which is a business we acquired just over 2 years ago.

There was increased market focus on sterility assurance following an unfortunate situation that occurred in an Oklahoma dental office, where over 7,000 patients faced possible infection due to improper equipment sterilization and monitoring. With both SPS and ConFirm as part of Cantel, we are the clear leaders in sterility assurance in the dental market, and we have been actively helping many concerned customers and dentist's offices across the country, offering free consultations as well as products and services that can provide their practices with the highest level of sterility assurance. As we go forward, I remain optimistic about the growth of our Healthcare Disposables business with the help of our increasing presence, again, in the sterility assurance market, from new opportunities in hospital and alternate care markets, as well as growth in international markets.

Our Water Purification and Filtration segment, which operates as Mar Cor Purification, also had good third quarter results. This business has performed well for the past 2 years and continues to grow at above market rates. This quarter, our Water Purification division reported sales of $29.5 million, basically equal to last quarter's record performance, which represents organic growth of almost 14%. Operating profits were only slightly higher than last year, primarily due to incremental investments in sales and marketing transaction costs for the acquisition of the Siemens dialysis water business that we announced on March 25 as well as the implementation of the Medical Device Tax. During the third quarter, we continue to see products mix shift to our heat-based disinfection central and portable water purification systems, which provide great benefit to our customers and its patients. Sales of these more advanced machines, which sell at higher average selling prices, now exceed sales of our conventional equipment, and this shift is expected to continue. Over 65% of our central reverse osmosis water purification system orders this quarter were for our heat-based CWP central system. We expect this rate of adoption to grow to 80% next fiscal year. We continue to expand our base of new dialysis clinics, which provide future demand for our consumables and service.

In this quarter, water purification equipment orders greatly exceeded the very strong shipments, leading to a significant increase in our record backlog, which bodes very well for continued growth in the next few quarters. We expect this strong demand to continue as customers increasingly become aware of the benefits of our heat-based systems for both new clinic bills as well as replacements. I haven't talked to you for a while about the benefits of these heated systems, but these systems provide an automated daily loop disinfection, which provides improved patient safety, reduced provider costs and the ability for these dialysis clinics to comply with the new ISO water standards that are coming down.

Adding to our optimism about the future of our Water Purification and Filtration business is the acquisition announced on March 25 of the dialysis water business of Siemens in the United States. This transaction will bring Mar Cor Purification -- in Canada, sorry, in Canada. This transaction will bring Mar Cor Purification hundreds of new customers and an approximately $9 million business, which is expected to have a more significant impact in fiscal year 2014 when we complete the transfer of customer contracts. Overall, we are very confident that we can maintain our strong momentum in this business in the fourth quarter, as well as beyond 2014 and beyond.

In the Endoscopy business, despite the expected decline in capital equipment shipments, total sales grew by 3% due to strength in consumables such as disinfectants and cleaners, parts and service, as well as our procedural product lines. This quarter's sales of $39.7 million were the second highest ever for the segment. Operating profit, excluding acquisition accounting factors, declined by 3.6%, partially driven by incremental investments in sales and marketing, again, the effect of the Medical Device Tax and some unfavorable pricing.

We remain very optimistic that the Medivators Endoscopy business will deliver improved sales growth and increased operating profits in fiscal year 2014 and beyond. We have a large and growing install base of endoscopy processing equipment to drive our disinfectant sales, much of which is our higher-margin proprietary chemistry, Rapicide PA. This quarter, our disinfectant and cleaners category grew by 17%. This growing install base of machines also provides great opportunities to expand our service and spare parts business, which grew 12% this quarter.

On the product development front, we have launched or are now in the process of launching several new endoscopy product lines, which we expect will begin to generate positive sales momentum starting in the fourth quarter and contributing more substantially in fiscal year 2014 and beyond. We remain highly confident in the strength and the capability of our Medivators Endoscopy United States direct sales and service team and their ability to effectively launch and grow our greatly expanding product offering. Only Medivators and its full circle of infection prevention control can provide a comprehensive infection prevention solution to gastrointestinal, GI, endoscopy customers. The worldwide market potential for our endoscopy business is several billion dollars.

Further adding to our confidence in our Endoscopy segment, in mid-May, we attended our 2 most important trade shows in the United States. Our new and improved products were received with great interest and excitement, and many hundreds of leads were taken. And I will report on the progress of these new products starting in fiscal year '14.

In the Dialysis segment, as expected, sales declined by 9%, primarily due to reductions in dialyzer reuse business. Operating income decreased by 10%, basically just reflecting the lower shipments. Operating margin in this segment was a strong 24.8%. We work very hard to continue to take care of our customers while seeking to grow this business globally; however, it has become a much smaller part of our overall company, representing only 11.6% of our combined segment operating profit in the third quarter of this year. That concludes our 4 major segments. I'll now turn it over to Craig Sheldon, our CFO, to go over some financial details.

Craig A. Sheldon

Okay. Thank you, Andy, and good morning, everyone. I'd like to, again, turn our attention now to the earnings release, which was distributed earlier this morning. And as usual, start by going through the income statement.

As Andy indicated, sales increased 8% in the third quarter versus last year's third quarter up to $105 million. And for the 9 months, sales were up by 8.1% to a record $311 million. The top line growth was driven principally by the Water Purification and Healthcare Disposables segments, and that included $4.7 million in sales contributed by our SPS acquisition.

Just quickly, I wanted to review the impact of the 3 big acquisitions that we've done in the last couple of years. So Byrne Medical, which as you will recall was acquired on August 1, 2011, in our Endoscopy segment, is reflected in the operating results for the full comparable periods in both years. So in the future, I won't keep mentioning that. Byrne is now part of our business, and there will be no comparative issues going forward.

The SPS acquisition was acquired on November 1, 2012, which was the first day of our second fiscal quarter. Therefore, this acquisition is reflected in the fiscal 2013 third quarter, for the 9 months this year subsequent to the acquisition date, and is not reflected in either of the comparable periods from last year.

And finally, the Siemens Water acquisition, which as we mentioned was closed in March, has not yet satisfied accounting requirements for control because a majority of the customers have not yet been assigned to our water business. Therefore, this will be considered a fourth quarter acquisition for purchase accounting purposes. In any event, we had no sales from Siemens in our third quarter. No sales will commence during the fourth quarter.

The gross profit for the third quarter was 43.3%, down from 43.8% in last year's third quarter. For the 9 months, GP percentage was 43.2% compared to 42.2% in last year's 9 months. Again, I'd like to emphasize the impact of the Medical Device Tax, which in gross dollars was $854,000 in the first quarter on our cost of sales line -- excuse me, in our third quarter. This was the first full quarter that was impacted by the Medical Device Tax. So without the impact of this tax, our gross margin in the third quarter would have been 44.1% or 0.8 percentage points higher. So this actually would have then shown an increase in GP percentage for the third quarter, and this all translates into $0.02 per share in earnings, as I believe Andy mentioned earlier.

So aside from the impact of the Medical Device Tax, our GP percentage increase was due primarily to favorable sales mix in each of our 3 major operating segments.

Moving down to operating expenses, gross operating expenses increased by $2.4 million in the third quarter compared to last year's quarter, attributable principally to adding the SPS infrastructure, continued investments in our sales teams and acquisition-related accounting items. For the 9 months, gross operating costs increased by $3.6 million. So really, overall, when you look at operating expenses, and we really focus on core operating expenses, we're moving all the impacts of acquisitions, which would be the new infrastructure from SPS, costs related to closing deals and completing due diligence and fair value adjustments on the Byrne acquisition liabilities. When you pull all of those out, the increase was principally due to the increases in investments in our sales and marketing initiatives, which Andy has talked at length about. And these initiatives have really been stepped up in the third quarter as part of our overall strategic growth plan. So despite the fact that these investments have been increasing throughout the year, we are nonetheless extremely careful in evaluating where such investments are made. So overall, we feel very good about where we're positioned on the operating expense line.

With respect to operating income overall, reporting a $449,000 increase, which is 3% versus last year's third quarter. But once again, when you factor in the impact of the Medical Device Tax, if that was removed, operating income would have been up by 9%. For the 9 months, operating earnings are up 25% where again, it would have been 28% without the Medical Device excise tax.

Net interest expense decreased substantially this year, which is reflective of debt repayments. Total interest expense in the third quarter is only $749,000, which is extremely low, particularly when you consider the borrowings over the past few years on acquisitions, including $37 million that we borrowed at the beginning of the second quarter for the SPS transaction and another $8 million we borrowed in March to close the Siemens acquisition. We continue to repay borrowings quickly with strong cash flow and very low interest rates.

On the income tax line, our overall effective rate for the third quarter was 33.3%, and for the year, 34% -- 35.4%, which we recognize is unusually low, particularly in the third quarter. And the low rate in the third quarter was due to the simultaneous conclusion of 2 routine federal-level tax examinations, one in the United States and another one in The Netherlands. The combined impact of these 2 tax examinations was favorable to the company, principally due to the resolution of various transfer pricing issues. So those are now behind us.

For the 9 months, we benefited from the retroactive reinstatement of the Research and Experimentation Credit on January 1, 2013, as we had reported last quarter. As I've indicated numerous times in the past, the overall effective tax rate is very difficult to predict, and it's directly impacted by geographic mix as well as the timing and extent of new tax legislation. Having said that, since roughly 96% of our pretax income is generated in the United States, assuming no legislative changes or tax rate changes or changes in tax credits, it would be reasonable to expect that our effective tax rate in the future quarters would be relatively close to our U.S. effective tax rate, which generally is in the range of 36.5%, upwards to 37%.

Moving on to the balance sheet, it remains very strong. We had $30.7 million in cash and cash equivalents at April 30 and a current ratio of 2.6:1. Our funded debt at April 30 was $105 million, and this includes the $45 million borrowed this year for the SPS Medical and Siemens acquisitions. Meanwhile, we continue to pay down the significant levels of debt. We paid down another $10 million in the third quarter, so we've actually done $10 million in each of our first 3 quarters, and we're easily on track to repay a similar amount in the fourth quarter.

Our net debt position at April 30 is $74.3 million, which is $6 million lower than at the end of the second quarter. And this is quite impressive when you consider that we funded $8 million in the third quarter for the Siemens acquisition. Our gross debt to equity is 0.34 at the end of April, and our gross debt to rolling 12-month EBITDAS is 1.28. Overall, our EBITDAS was $19.5 million in the third quarter, which is 5.3% higher than last year's third quarter, and our rolling 12-month EBITDAS is $82 million. We have strong cash flow provided by operations of $15.4 million in the third quarter and capital expenditures in the third quarter of only $1.5 million. We continue to pay down significant amounts of debt every quarter and to demonstrate very strong cash-generation capabilities. Finally, to alert everyone, we will be filing our 10-Q on its normal schedule, which is next Monday.

So lastly, before I turn the call back over to Andy, I just wanted to remind everyone that effective with our July 31, 2013 Form 10-K, we will now become a large accelerated filer for SEC reporting purposes because we exceeded $700 million in public float. Previously, we were an accelerated filer. As a consequence, our Form 10-K will be due within 60 days of year end instead of, previously, 75 days. Therefore, our next 10-K filing is due on September 30, and we'll likely release earnings sometime within the week prior to the 10-K filing date.

So at this point, I'd like to turn the call back over to Andy, who will finish up with some closing remarks. Andy?

Andrew A. Krakauer

All right. Thanks, Craig. Well, this quarter exemplifies why we are so optimistic about the future of Cantel. We showed good sales growth of 8% and leveraged the sales increase to 10% in earnings per share growth. If it wasn't for the Medical Device Tax, which we still believe is bad tax policy and hope someday will go away, EPS would have grown almost 17%. We continue to demonstrate the consistent growth following our three-pronged approach of investing in new products' development, sales and marketing activities and our proven acquisition program. We also grow operating profits by focusing on improving gross margins and accelerating the growth of the businesses we acquire and then driving overall operating leverage as a result of increased volumes or careful expense management, as Craig mentioned.

More importantly, all of our major businesses have great growth prospects. And now, with the addition of SPS Medical and the Siemens dialysis water business, we have added important contributors to growth, which in the case of SPS have already proven to be accretive in its first 6 months as part of Cantel. The worldwide market potential for our products continue to grow and has never been greater. In fact, the company is now in the middle of a strategic planning process with aspirations to double sales and profits in the next 5 years. Now these are goals and not predictions.

Our detailed market analyses, though, have shown us that we now compete in total addressable markets in excess of $5 billion, with great opportunities for growth in all of our major businesses. This is why we believe that Cantel has never been better positioned for meaningful, sustainable growth over the medium- and long-term horizon. We are focusing on sales and marketing investments to promote newly launched products, to substantially grow international sales and to increase penetration in our existing markets. We are also investing in the future new products: disposables, chemistries and equipment, which we believe have large potential upsides 2 to 3 years from now. So expect to see us continue to invest in these categories, especially in the next few quarters as these investments are building the foundation to enable Cantel to achieve our medium- and long-term growth objectives. Nevertheless, we expect to grow annual earnings despite these investments.

With regard to the Medical Device Tax, which, depending on our sales revenue, could be 8% to 11% -- $0.11 of earnings per share annually, this disappointing tax, again, is here for now. When compared with our current earnings capabilities and growth plans, we consider this still a minor headwind. We will not change our course or our focus to deliver good medium-term growth by following our three-pronged approach. And as I had mentioned, all of our major businesses are performing well with great growth prospects.

In Healthcare Disposables, we see great opportunities to grow given our leadership position in the dental market. And with the help of our growing sterilization accessories business, which is now the segment's largest category, by expanding into the hospital and alternative care markets -- by leveraging to those markets, we see great opportunities. Additionally, we see great future growth in international markets for both the core Crosstex products, as well as the newly acquired SPS product portfolio.

Another category for growth is our recently launched disinfectant OPA/28, Cantel's third reprocessing chemistry and the first that could be used in the large market for manual soaking of instruments for disinfection. The sales effort on this product line is being led by our Crosstex-SPS hospital and alternative channel teams, while still being supported by our much larger Medivators sales team.

In our Water business, the market adoption of our higher-technology platform products continues. The core dialysis center capital equipment business is strong. Backlogs are at record levels, and our higher-margin filters and sterilant business, what we call our BioScience Products businesses, continues to grow consistently. And this does not even include the potential benefits of further acquisitions and the potential accelerated replacement market in many of the 6,000 dialysis clinics in the United States, the vast majority of which continue to use legacy technology.

Additionally, we have just put our small $10 million but very profitable Therapeutic Filtration business, which is reported in the Other segment, under the management of our Mar Cor Purification team, which, again, currently manages our BioScience Products Filtration portfolio. Our goal is to develop and then invest in a long-term growth strategy for our total Filtration business through this realignment, and we'll see how that works as we work through our strategic plan.

In our Endoscopy business, we have just finished our second-best quarter ever. We have a number of new products that have not yet begun to contribute to our sales line and appear to be well received by our customers. We have aggressive forecast for growth as we move into fiscal year '14 and beyond. This is another business segment where we see upsides in the medium term for international growth and synergistic acquisitions. We also continue our success in identifying, executing and integrating acquisitions. This is a core competency of Cantel that has brought us top-notch entrepreneurial management, new and higher-margin products and additional growth in sales and profits from our proven strategy to invest and then accelerate the growth of the companies we acquire. The continued search and identification into -- of synergistic markets and potential acquisition targets is a key role of our senior management team. So we expect to have an excellent fourth quarter in fiscal year 2013 and good growth beyond. We have strong momentum. We have leading positions in a multi -- 45-plus-billion-dollar infection prevention and control marketplace with the great opportunities for us to expand in new products and in worldwide markets. We are committed to profitably growing the company while serving our customers and benefiting our shareholders. And again, our entire organization takes great pride in our mission to provide products, services and guidance to mitigate infection risks, improve safety and patient outcomes and ultimately save lives. And as always, I thank our 1,500 loyal and hardworking employees for their great efforts and achievements in this quarter.

So thank you for listening. We look forward to speaking to you again at our fourth quarter and year end fiscal year 2013 conference call, I guess now in September, not October. Now it will be in September. And with that, Stacy, we will take some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Tom Guanderson with Piper Jaffray.

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

So just to check my numbers here, I think, Craig, you said $4.7 million was the incremental amount in the revenues for SPS. What was the total for the group, all-in?

Craig A. Sheldon

Yes, the $4.7 million is the correct number. I'm sorry, were you referring to as the group?

Andrew A. Krakauer

Are you asking for Healthcare Disposables or for the total?

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

Healthcare Disposables.

Craig A. Sheldon

Healthcare had $22 million -- $22.7 million in revenue for the quarter.

Andrew A. Krakauer

Let me just answer the question that you're already asking. The total business grew by $3.3 million, and so the base business was down by roughly what we had forecasted was the pull-ahead from the prior month of about $1 million.

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

Got it. And is it too soon to start to see any cross-selling? In other words, can you sell other of the Cantel products or the disposable products into some of the SPS new accounts, acute care, for instance?

Andrew A. Krakauer

Well, I mean, let's just say that we have already had meetings with Crosstex SPS and those large distributors in both physician office and hospital markets and have been pleased to say that we think that there are, in fact, synergies, that we now have a more important portfolio. I think that we will try to attract some of these distributors to our unique masks like our SecureFit mask. And I think in general, it supports the strength of even the SPS brand with these customers that were a more important factor. So I think the answer is it's early days, but we think that, that will, in fact, be a benefit from the combination.

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

Got it. And then my final question here is the -- can -- Andy, can you talk a little bit more about the sales and marketing investments? The SG&A line was -- or actually the selling line was higher than what we then anticipated by just a little bit. And you talked about it in the call here that the things are starting to step up a little bit. Can you break that out? Is -- are you getting more people, more places, more industry meetings? Give us a little more color, if you can.

Andrew A. Krakauer

Yes to all of those. But first of all, there's a steady increase, but there's also some quarterly effects. So for example, this happens to be a very large advertisement placement quarter for Healthcare Disposables, a couple a hundred thousand higher than, say, than the quarter before. These were planned. We're also looking to step up -- we also had our -- well we had some investments getting ready for our largest show of the year, which was really in May. But let me talk about people. We have identified some significant needs for substantial investments in marketing, not just sales, in additional professional marketing staff particularly to help prepare the company for international growth to make sure that we have the products that are required and -- working with the sales teams internationally. So we have invested in marketing people, particularly in Endoscopy. We have added, as we've been mentioning, and continue to add to our international sales organization, and we'll also be putting marketing on the ground as well internationally. Those investments are being made. In some cases, it's just the full -- it's that the effect of investments that we made at the end of the second quarter. We're also looking for substantial growth in the Endoscopy business with the launching of -- I don't know, we have 3 or 4 or 5 major potential new products all being launched, and it's causing us to have to add some significant incremental resources into our sales teams to push for those sales that we are aggressively, believe me, aggressively forecasting for fiscal year '14. So in those cases, it literally is bodies, sales bodies. So it's really -- it's a combination of things. There's approaching the customers with marketing programs. There's a number of sales people, a number of marketing people. And again, we're trying to find the right balance, and we add them when we know that we need to, but this is a trend that I would say, with what we're looking to do next year in endoscopy and international and as well as potentially in putting some resources behind filtration, et cetera, expect to continue to see that growth, I guess, at least for another couple of quarters. So it's really -- I have to say though, we have more than doubled our sales and marketing expense over -- to the last 3 or 4 years. And it's just a fact: if you want this growth, you have to put the people on the ground.

Operator

Our next question comes from Mitra Ramgopal with Sidoti & Company.

L. Mitra Ramgopal - Sidoti & Company, LLC

Just a few questions. First, if I look at the gross margin, again, you exclude the Medical Device Tax, it's an all-time high. And we have seen tremendous improvement in margins over the past couple of years. I'm just wondering, as you -- with all the opportunities you have and the investments you're making, et cetera, how much more room you think we should be looking for in terms of margin expansion?

Andrew A. Krakauer

Well, that's an interesting question that we've talked about over the time. I think, again, the way I look at it is not the corporate gross margin, which would have been 44.1% and ended up being 43.3%. I look at it as that each individual business needs to continue to find ways to improve their gross margins. So if, for example, in the quarter, if the lower-margin equipment in the Water Purification business accelerates faster than the rest of the business, that might actually drive down the corporate margin, but it's still improving the margins and it'll still be improving margins in absolute dollars. But I think the bottom line is we have a focus on, in general, higher-margin disposables, chemistries, procedural products. Volumes are higher. That should help us in overhead absorption in businesses like the Water business. The sterility assurance products are, in general, higher than our margins in those segments and in the corporate averages. So I think it's getting a lot harder to move the needle. I would be disappointed if we cannot continue to grow, but I still think it's slow. And it could be variable based on which product lines take off, so it will be mix oriented. But what we -- what I can tell you is we are looking to improve our margins for all products in all segments, but the mix could change how it gets reported as a total.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay, that's very helpful. And is it fair to say the difficult comps in the Endoscopy business is pretty much behind you now?

Andrew A. Krakauer

Is it fair to say that?

L. Mitra Ramgopal - Sidoti & Company, LLC

Or you still have another quarter to -- as you look at capital equipment and...

Andrew A. Krakauer

I think we did turn, overall, positive in Endoscopy, and I see that continuing. I can't tell you that I know for a fact what the normalized rate of endoscopy processing equipment is going to be. I think we're probably around there now. So I think the answer is, I think so.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And again, I know acquisitions are a big part of the strategy, and it's difficult to be specific now, but if you could just give us an update in terms of the pipeline. And given your recent successes with Byrne Medical, et cetera, and SPS, are there anymore Byrnes out there, for example, or is that asking too much?

Andrew A. Krakauer

We'll let Seth Yellin address that.

Seth Yellin

Hi, Mitra. I think we continue to have a pretty robust pipeline in looking at acquisitions across all our segments, and our focus remains on expanding our presence in our Infection Prevention and Control markets. I think the goal would be to be able to find strategic acquisitions such as Byrne on a regular basis, but they are far and few between to find really special assets like that, that are highly complementary to your existing portfolio. We continue to look for those assets, and we're hopeful that a few might show up. And I think we are at various points in conversations with a few targets. But I think that those are highly variable in terms of when those come through and your success in being able to acquire those businesses. But at the same time, we have a large number of other targets that are out there that are large-to-small transactions similar to what we announced in March with the Siemens deal that we think we can continue to do. So we look broadly, and we have a pretty active pipeline. And we're hopeful that in the quarters ahead, we're going to be able to close some meaningful transactions here.

Andrew A. Krakauer

It clearly is a high priority.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And again, the focus is domestic and within the 3 core segments you have?

Seth Yellin

I'm sorry, could you repeat the question?

L. Mitra Ramgopal - Sidoti & Company, LLC

The focus is pretty much domestic and will be still be among the 3 core segments you have?

Seth Yellin

I would say that the focus is international -- is globally. I mean, we're looking at businesses both in the U.S. and outside the United States, and we have a pretty balanced approach, I think, globally to the types of businesses we're looking at. With regard to where they fall, the majority of the businesses probably fall within our core segments, the majority of the businesses we're looking at. But I think we continue to evaluate opportunities in other infection prevention control categories that are complementary to our existing portfolio but may not necessarily fall within Endoscopy, Water Purification and Filtration or Healthcare Disposables. So it's difficult to say exactly where they are, but we're looking really across the board.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And then a final question, Andy, I know a few years ago when you had the initial SARS outbreak, you benefited in terms of face masks, et cetera. Given the recent developments in Europe and, again, you'd mentioned Oklahoma, for example, how are you looking at sort of these kind of events maybe long term in terms of your opportunities here?

Andrew A. Krakauer

Well, okay. The one in Oklahoma, I think it's just unfortunate for patients, but it's a nice reminder of the importance of sterility assurance. So I think that's -- that, unlike a flu, which is sort of an event that you get a boost in sales and it drops, this one is a reminder that we need to do sterility assurance properly in dentist's office. And dentists are supposed to check their machines at least once a week, and we know that they don't all do that. And we have marketing focus to, in fact, remind dentists because we are -- we sell those products, both SPS brand and ConFirm brand, where they have to mail in their test strips that they -- their spore strips that they have tested. So we know when they are not doing it weekly. I think this is just a reminder, and it will only boost, I think, the long-term benefit of the sterility assurance business in the dental market. It's not a one-time thing. This will be a permanent change, I think, in the recognition at dentist's offices that they have to do things more carefully. In terms of the opportunities for things like flu that we hear about, we have what I consider still an opportunistic approach, which is we have developed better masks like the SecureFit mask, which fits all size and shape faces, which, while it benefits our everyday customers, would truly benefit in the case of flu epidemic. We have published studies that show the best way to prevent a respiratory-type flu would be source control, that people put on these very comfortable $0.10 mask and would have thousands of times better effect in stopping the spread of flu. You just have to get the government to get behind it. And we continue to publish studies. And, in fact, our SecureFit mask is even better than that. We've even gone beyond that. We are now developing other masks with different technologies that are extremely light and comfortable yet effective, and we are showing it to the government agencies. Now we're working to perfect those masks that we think would still be there and most effective in times of pandemic and those sort of things. So it's a low-level program with, I think, very big upsides and very beneficial from an infection control point of view, and we'll keep working on that, how to get the government to want to -- or to resupply the -- now, the nonexistent supply of masks, the strategic supply of masks, face masks, which I found remarkable that have we have not done. Although, our government is not the most efficient operation. I think we know that. All I can tell you is that we're going to keep, at a respectively low but important level, continuing to show our research on how face masks are not commodity products, they can be sophisticated filtration devices and can really be beneficial in flu situations. So I consider that just an upside. That is, we're not counting on it for growth, but we'll be prepared, as 1 of the only 2 U.S. mask manufacturers of face masks in the United States, we'll be prepared for the opportunity when it comes. Have a long answer, I'm sorry.

Operator

Our next question comes from John Sciarra with Lazard Asset Management.

John Sciarra

Andy, I was just -- I was hoping for some color in regards to the Endoscopy segment. And I know on the top line, it grew 3%. What was the contribution from Byrne or, I guess, the procedural space?

Andrew A. Krakauer

Well, we don't want to give that much detailed information, but I can tell you that the growth in the procedural products were in double digits. But other than that, I think it's a little too competitive to get further than that, but they were, in fact, in double digits.

John Sciarra

Okay. And then would it be reasonable to assume that for your 3 core segments, Endoscopy, Water Purification and Filtration and your Healthcare Disposables, could grow in '14 on a top line between 15% to 20%? Would that be reasonable?

Andrew A. Krakauer

Well, I don't think we've ever given out that guidance. We have a 5-year -- almost 10-year historical growth rate, overall, of 12% and...

John Sciarra

It just seems like you guys have a lot of drivers, growth drivers behind those segments and they've been performing well. And would it be at least reasonable to assume they should be able to keep at the same or the current rates that they've been growing at?

Andrew A. Krakauer

All I can tell you is that we have internal goals and we're optimistic to try to maintain our growth rates, but I'm not making a prediction. We just don't give that guidance. But I think you are recognizing the opportunities that we do.

Operator

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Craig A. Sheldon

All right, great. Thanks, Stacy. All right, so listen. Thanks, everybody, for listening. We look forward to talking about the full year results in the fourth quarter in late September. Thanks.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Cantel Medical (CMN): Q1 EPS of $0.33 in-line. Revenue of $105M beats by $0.08M. (PR)