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Medical Action Industries Inc. (NASDAQ:MDCI)

Q1 2015 Earnings Conference Call

August 11, 2014 10:00 AM ET

Executives

Brian Baker - Chief Financial Officer

Paul Meringolo - Chief Executive Officer

Paul Chapman - President and Chief Operating Officer

Operator

Good morning. My name is Bridget, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medical Action Industries’ First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

And now, I would like to turn the call over to Brian Baker, Chief Financial Officer. Mr. Baker, you may begin your conference.

Brian Baker

Thanks you, Bridget. Good morning and thank you for joining us to discuss our results for the first quarter of fiscal 2015, which were released this morning. With me today are Paul Meringolo, Chief Executive Officer; and Paul Chapman, President and Chief Operating Officer.

In the course of today’s discussion, reference maybe made to projections, anticipated events or other information, which is not purely historical. Please be aware that statements made during this call which are not purely historical maybe considered forward-looking statements.

We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties and other factors that could cause actual results to differ materially from those anticipated in such statements.

Many of these risks, events, uncertainties and other factors are discussed in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and other reports and filings with the Securities and Exchange Commission, which are available on our Web site. To the extent any forward-looking statements are made during this call, such statements are made only as of today’s date and we do not assume any obligation to update any such statements.

It's now my pleasure to turn the call over to Paul Meringolo.

Paul Meringolo

Thanks Brian. Good morning and thank you for joining us today. The three months quarter ended June 30. 2014 was eventful for the Company, to say the least. Our recent divestiture of the Patient Care business unit has significantly improved our balance sheet and we entered into a merger agreement with Owens & Minor Inc. whereby they will acquire all outstanding shares of the Company for $13.80 per share in cash. While the pending merger remains subject to stockholder approvals, I’m pleased to report that we have been notified that the Federal Trade Commission has granted early termination of the waiting period on to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

We expect the merger to close during the fourth quarter of calendar 2014. I would now like to turn back over to Brian to discuss our result for the fiscal first quarter of 2015.

Brian Baker

Thanks Paul. As reported on June 2, 2014 the Company completed the sale of its Patient Care business unit. The sale included our manufacturing, warehousing and distribution facilities in West Virginia and Tennessee, as well as the associated fixed assets and inventories.

The assets and liabilities associated with the divested business are presented as held for sale on our balance sheet as of March 31, 2014. The operational results for the divested business are reflected on the income from discontinued operations, net of income taxes line on our statement of operations for the periods presented within our earnings release.

Purposes of today’s discussion references to results reported on our statement of operations exclude amounts associated with the divested business. The net sales for the first quarter of fiscal 2015 were 71.9 million, which represents an increase of 0.4 million or less than 1% compared to the comparable prior year period.

The changes in net sales are primarily attributable to greater domestic market share associated with our custom procedure trays and minor procedure kits and trays product categories. These increases were partially offset by a lower domestic market share associated with our operating room products.

The gross profit for the first quarter of fiscal 2015 was 13.5 million or 18.7% of net sales, which is consistent with the gross profit of 13.4 million or 18.7% reported for the comparable prior year period.

Selling, general and administrative expenses incurred during the first quarter of fiscal 2015 were 12.7 million or 17.6% of net sales, which represents an increase of 1.1 million when compared to the comparable prior year period.

The increases in selling, general and administrative expenses are primarily attributable to investments in infrastructure and legal expenses associated with the Owens & Minor transaction.

The net loss for the first quarter of fiscal 2015 amounted to $11,000 or $0.0 per diluted share compared to net income of $90,000 or $0.01 per diluted share for the comparable prior year period.

The net loss reported for the first quarter of fiscal 2015 was negatively impacted by 0.3 million in legal fees associated with the merger agreement entered into with Owens & Minor. In addition the company used the portion of the proceeds from the divestiture of the Patient Care business unit to repay in its entirely the outstanding debt under the credit agreement. This repayment resulted in an accelerated deferred financing cost charge of 0.2 million.

From the liquidity stand point cash-and-cash equivalents at June 30, 2014 amounted to 30.9 million. The company believes that the anticipated future cash flow from operations coupled with cash on hand and available funds under the credit agreement will be sufficient to meet working capital requirements for the foreseeable future.

I will now turn the call back to Paul Meringolo for closing comments.

Paul Meringolo

Thanks Brian. To our team mates throughout United States and abroad, I'd like to thank you for your contributions to Medical Action. You continue to impress me with your ability to compete, innovate and achieve within this challenging healthcare environment. Your focus, energy, enthusiasm and dedication to Medical Actions is greatly appreciated by our customers and respected by our competitors. I’d like to thank you for participating on our call this morning.

At this time I would like to invite the security analyst to ask any clarifying questions. Bridget, please.

Question-and-Answer Session

Operator

(Operator Instructions) And there are no questions at this time.

Paul Meringolo

Great. Thank you again. Enjoy the rest of your summer. And we look forward to updating you on developments and transactions in the future. Thank you.

Operator

Thank you. This does conclude today’s conference call. You may now disconnect your lines.

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