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Medical Action Industries Inc. (MDCI)

F3Q09 Earnings Call

February 4, 2009 10:00 am ET

Executives

Richard G. Satin - Vice President - Operations, General Counsel, Corporate Secretary, Director

Paul D. Meringolo - Chief Executive Officer and President

Charles L. Kelly Jr. - Chief Financial Officer

Analysts

Matthew Dolan - Roth Capital Partners, LLC

Mitra Ramgopal - Sidoti & Co.

Presentation

Operator

Good morning, my name is Demetrius and I will be your conference operator today. At this time I would like to welcome everyone to the Medical Action Industries Third Quarter Earnings Results Conference Call. (Operator Instructions) Mr. Satin you may begin your conference.

Richard Satin

Good morning and thank you all for holding. With me on this call are Paul Meringolo, President and CEO and Chuck Kelly, Chief Financial Officer of Medical Action Industries. The primary purpose of this call is to discuss our results for the three and nine months ended December 31, 2008, which were released this morning.

As you know we must first touch all of the legal bases for noting that both our commentary and responses to your questions may include forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties discussed in detail in our report on Form 10-K, annual report to stockholders and our quarterly reports on Form 10-Q, all of which have been filed with the Securities and Exchange Commission. The company’s actual future results may vary.

It is now my pleasure to introduce Paul Meringolo.

Paul Meringolo

Good morning and thank you all for being here today. I am sure and assume that all of you had a chance to see the news release. Q3 results confirm that this is a transition year for us as we have managed through our challenges. We are at the tail end of this transition and pleased to be there.

On a positive note, we have seen some good progress on three challenges. We have seen, due to oil decreases, the lowering of resin costs, a lowering and stabilizing of cost of goods from China, as well as some of the progress we’re making in our plant in Tennessee. While we continue to make progress on each, improvements had very little impact on the Q3 numbers, but should have a positive contribution to future results.

With raw materials cost stabilizing we are essentially done with price increases to the market, and so we are going to really turn our immediate focus on selling more existing product to our existing customers, as well as continuing to drive cost out of the manufacturing process, as well as our expense model which we have always been focused on.

Let’s look briefly at the third quarter numbers. Net sales are about $72 million down 75% from the prior year period.

Net income was $157,000 or $0.01 per diluted share versus $3.6 million or $0.22 per diluted share in the prior year period.

Again three challenges were resin, China and Tennessee which had a total impact on the quarter of a little over $6 million.

The nine-month numbers, net sales reached a record $223 million, $214,000, up 2% for the same period last year. Net income $3,183,000.00 or $0.20 per diluted share versus $10,428,000.00 or $0.64 per diluted share for the same period last year. The three challenges between resin, China and Tennessee had a total impact of $17,321,000.00 on those numbers.

Let’s first talk about the sales results for the quarter:

As I have said in the past supply chain in this marketplace, especially with some back order issues and volatility in cost and price increases create a real inefficient model. We believe the year-over-year third quarter decline was in due in part to higher than normal customer buying in the third quarter of ’08. Again, they wanted to avoid anticipated price increases and our shift in business had an affect on year-over-year revenue comparisons.

Another contributor is the full impact of some loss of business due to us raising prices and/or walking away from some private label business that we discussed on last quarter’s conference call. We have also seen an effect from back order issue earlier in the year that has since been resolved. New orders have not reappeared from some of those customers. We have reduced our back orders significantly over the last six to nine months and I believe that’s had a negative impact on re-orders as well.

As I mentioned in the last call, we have seen and heard stories about hospitals facing financial issues and the softening and volume of certain medical procedures. I have been in a number of hospitals myself over the past two months and have heard and seen some discomfort, especially in the OR, on the reduction in the amount of cases that they’re seeing. I don’t know, I can’t say whether this had an impact on our Q3 sales or if they could have an impact on future sales. It could have been isolated, but I continue to hear that more so than not; so that is an unknown for us as we speak.

I should also add that we continue to see a lot of sales opportunities out there and are very focused on and committed to identifying them and closing them as well.

In this competitive environment we have sharpened focus on revenue growth. In the past month we have transformed the sales staff and are training all of them to sell all of our products to all of the appropriate customers in all geographic locations, so we restructured.

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