MDCI

Medical Action Industries Inc. (MDCI)

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Medical Action Industries Inc. (MDCI)

Q2 2010 Earnings Call

November 6, 2009 10:00 am ET

Executives

Paul D. Meringolo - Chairman of the Board, President, Chief Executive Officer

Charles L. Kelly Jr. - Chief Financial Officer

Analysts

Matthew Dolan - Roth Capital Partners, LLC

Mitra Ramgopal - Sidoti & Co.

Stephen Freedman

Gerry Heffernan - Lord Abbett and Company

Presentation

Operator

Good morning ladies and gentlemen my name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the Medical Action Industries Second Quarter 2010 Earnings Conference Call. (Operator Instructions). I will now turn today’s call over to Mt. Charles Kelly, Chief Financial Officer. Thank you. Sir, you may begin your conference.

Charles Kelly

Thank you, Stephanie. Good morning and thank you for holding. With me on this call are Paul Meringolo, CEO and President of Medical Action Industries. The primary purpose of this call is to discuss our results for the three and six months ended September 30, 2009, which were released this morning.

As you know we must first touch all of the legal bases by noting that 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 annual 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 results could differ materially from those projected or assumed in these forward-looking statements.

It is now my pleasure to introduce Paul Meringolo.

Paul Meringolo

Thanks Chuck, good morning and thank you for being here today. I assume that you have all had a chance to see our press release. We are pleased to report that net sales for the three months ended September 30, 2009 totaled $75,060,000, which is $1,236,000, or 1.7% above the same period last year when net sales were $73,824,000. Net income for the second quarter of fiscal 2010 was $3,987,000, or $0.25 per basic and diluted share, which is significantly higher than the $480,000, or $0.03 per basic and diluted share, reported for the second quarter last year.

Net sales for the six months ended September 30, 2009 amounted to $145,747,000, which is a decrease of $5,472,000 or 3.6% from the $151,219,000 in net sales reported during the comparable prior period. Net income for the six months ended September 30, 2009 amounted to $7,637,000 or $0.48 per basic and diluted share, which is $4,611,000 grater than the net income of $3,026,000 or $0.19 per basic and diluted share reported during the six months ended September 30, 2009.

Our strong second quarter results show that we are continuing to benefit from relative price stability of resin and our ability to make advanced purchases, stability in the cost of China stores products and stability of production activities in our Tennessee facility. We continue to work on improving the effectiveness of our sales and marketing teams to generate organic growth in an unsettled healthcare industry.

We have not seen any significant developments in the market during this past quarter. Conditions, as always, remain competitive acute care facilities are still under varying degrees of economic pressure. These conditions have existed for as long as we’ve been in business. We are cognizant of the impact these conditions may have on our operations; this is not uncharted territory for us. We will continue to monitor our markets and adjust our operations to meet the needs of our customers.

It is our intent to maintain our position as a high quality, low cost supplier in the market while adding value to our customers, which is an area where we will drive continued growth. Our ongoing focus on sales and marketing will be key in growing our market share organically.

With regard to our sales and marketing teams, as we discussed on earlier conference calls we have a new leadership team in both our sales and marketing departments. We are placing greater emphasis on growth and profitability and are placing higher levels of accountability on our sales and marketing teams.

We are evaluating our corporate account structure to ensure that we effectively leverage our deep relationships with CPOs and IVNs.

We believe that the Company is well positioned to offer our customers and healthcare partners added value by providing unique ways to manage their costs and obtain value from their supply chain in return for higher volume and longer term supply commitments.

We are looking at alternative ways to drive sales by expanding our sales coverage in a number of markets that we serve, as well as exploring the addition of the inside sales organization.

With regard to resin and China source products, we are pleased that the volatility in both these areas experienced during fiscal 2009 has settled down. We have seen the price of resin increase during the past six months and have begun to see some upward movement in the cost of products sourced from China. At present levels we can manage these price fluctuations and do not presently see them as a significant threat to our short-term results of operations.

As you are aware, we have a long-term supply agreement for a portion of our resin. This agreement expires in March 2010. We are presently in negotiations to extend this agreement, if we are able to agree to pricing that is advantageous to the Company. If successful, we would expect to be less vulnerable to further price volatility with respect to the resin market for the periods covered by such extension.

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