Medical Facilities Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 4 speakers on the call.

Operator

Morning, everyone. Welcome to the Medical Facilities Corporation's 2023 Third Quarter Earnings Call. After management remarks, this call will include a question and answer session in which qualified equity analysts will be permitted to ask questions. Before turning the call over to management, listeners are reminded that today's call may contain forward looking statements within the meaning of the Safe Harbor provisions of Canadian Provincial Securities Laws. Forward looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements.

Operator

Certain material factors or assumptions are applied in making forward looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information, please consult the MD and A for this quarter, the Risk Factors section of the annual information form and Medical Facilities' other filings with Canadian Securities Regulators. Medical Facilities does not undertake to update any forward looking statements. Such statements speak only as the date made. I would now like to turn the meeting over to Mr.

Operator

Jason Redman, President and CEO of Medical Facilities. Please go ahead, Mr. Redmond.

Speaker 1

Thank you, operator. Good morning, and welcome to our Q3 earnings call. With me on the call is our Chief Financial Officer, David Watson. We reported our Q3 results earlier this morning. Our news release, financial statements and MD and A can be found on our website at medicalfacilitycorp.

Speaker 1

Ca and have also been filed on SEDAR Plus. We had a solid third quarter with growth in revenue and profitability. In terms of our strategic objectives, we completed the divestitures of the MSC Nueterra ASCs, continued to pay down our corporate debt and repurchase shares under a normal course issuer bid. We also further reduced corporate costs with the downsizing of our Nashville office. Looking at our top line, we had facility service revenue of $104,600,000 for the quarter.

Speaker 1

This represents an increase of 7.4% when excluding the divested MSC Nueterra ASCs. The improvement was largely due to case mix, but surgical case volumes, again excluding the MSC Nueterra ASCs were also up 1% for the quarter. Our income from operations increased 20.3 percent to $12,500,000 and EBITDA was up 13.7 percent to $17,700,000 As a percentage of revenue, income from operations improved to 12% versus 10.2% in Q3 of last year. EBITDA rose to 17% of revenue from 15.3% a year ago. The improvements for both were mostly due to cost savings initiatives at the corporate level.

Speaker 1

As I mentioned earlier, we completed the divestitures Our remaining ownership interest in the MFC Nueterra AFCs for aggregate proceeds of $3,500,000 These divestitures are part of our strategic plan to focus on our core operations, allowing us to better concentrate our resources on supporting our physician partners and continuing to provide the best patient experience in hospital care. On that note, I'd like to share that 3 of our surgical hospitals were included in the Healthgrades Top hospitals for joint replacement last month. The 2024 Health Grade Joint Replacement Excellence Award acknowledges hospitals that deliver superior patient outcomes Knee replacement and hip replacement. Arkansas Surgical Hospital was one of 3 hospitals in Arkansas to make the list, Our Black Hills Surgical Hospital and Sioux Falls Specialty Hospital were the only hospitals recognized in South Dakota. In addition to providing the highest quality of care, MSC remains focused on maintaining a strong and sustainable financial structure and creating long term value for our shareholders.

Speaker 1

During the quarter, we continued to reduce our corporate debt, repaying $3,000,000 on our credit facility And we repurchased 157,700 common shares under our NCIB. And in that note, I'll turn the call over to David to review our financial results in more detail. David?

Speaker 2

Thank you, Jason. Good morning, everyone. As usual, I'll start by reminding everyone that all dollar amounts that follow are in U. S. Dollars unless stated otherwise.

Speaker 2

As Jason mentioned earlier, we had facility service revenue of $104,600,000 which is an increase of 7.4 percent when excluding the divested MFC Nueterra ASCs. Much of this was due to case mix, The volumes also play a role as did Sioux Falls moving its anesthesia service and related billing in house earlier this year. Excluding the divested ASCs, overall surgical case volumes increased 1%. Observation cases increased significantly by 39.5%, while inpatient cases decreased by 9.2% and outpatient cases decreased by 3.4%. While our operating expenses increased by $300,000 to $92,000,000 As a percentage of revenue, they fell to 88% in the quarter from 89.8% a year ago.

Speaker 2

Consolidated salaries and benefits increased by $500,000 or 1.6 percent As we experienced higher clinical and non clinical salaries and wages due to annual salary adjustments, growth in full time equivalent staff and market wage pressures. Bringing anesthesia services and related billing in house at Sioux Falls also contributed to this increase. However, it's important to note that these increases were mostly offset by the impact of the MFC Nueterra divestitures and our ongoing cost saving initiatives at the corporate level. Consolidated drugs and supplies increased by $400,000 or 1.1 percent driven by changes in case mix, which included a higher proportion of orthopedic and spine cases along with increased surgical case volume. This was partially offset by the impact Sure.

Speaker 2

The MFC Nueterra ASCs. Consolidated general and administrative expenses were down $600,000 or 3.3%. The decrease in G and A expenses was a result of the divestiture of the MSC Notera ASCs and cost saving initiatives at the corporate level. Corporate costs related to share based compensation plans were also down, primarily due to the relative change in the corporation's share price compared to the same period last year. Jason already covered the increases in operating income and EBITDA, so I'll move on to distributions.

Speaker 2

In Q3, we generated cash available for distribution totaling CAD5.4 million up from CAD3.8 million in Q3 of last year. This increase in our lower share count compared to last year lowered our payout ratio to 36.9% for the quarter compared to 61.5 percent a year ago. Turning to our balance sheet. At the end of the quarter, we had consolidated net working capital of $13,100,000 And cash and cash equivalents of $27,000,000 For reference, at the end of December 2022, our net working capital stood at $32,500,000 We had cash and cash equivalents of $34,900,000 The decline in our cash and cash equivalents partly reflects our corporate level activities. During the 1st 9 months of 2023, we made repayments of $12,000,000 against our corporate credit facility, including a $3,000,000 repayment in the 3rd quarter.

Speaker 2

Additionally, we repurchased common shares under our normal course issuer bid For an aggregate consideration of $5,500,000 including 157,700 shares for $1,000,000 during the quarter. Inclusive of lease liabilities, our net debt to equity remains low at 0.93 times as compared to 0.94 at December 31, 2022. This concludes our prepared remarks. We'd now like to open up the call for questions. Operator?

Operator

Please be prepared to ask your question when prompted. On your telephone keypad now. Your first question comes from Sahil Dhingra with RBC. Your line is open.

Speaker 3

Hi, this is Sahil for Dagmeen. Thank you for taking the questions. My first question is On competition, are you seeing any increase in competition? Also the pain cases were down

Speaker 1

Yes. So just on the competitive environment, so you all thank you for the question. No major changes. I mean, we do see the competitive environment at Arkansas tightening up a bit. As you know, there's the new facility opened up in June, July of this year, but we haven't seen the impact of that this year.

Speaker 1

Actually our case counts at

Speaker 3

And sorry, on the paying cases that were down 15%. Is it just fluctuation like availability of the surgeons or is it something else?

Speaker 2

Yes. It's basically just availability of the The physicians. It's always difficult to know when exactly they're going to be taking time off.

Speaker 3

Yes. Okay. That is helpful. And then my second question is on the wage inflation and wage pressure. Is there any update there or are you still seeing elevated level of wage inflation?

Speaker 1

I think what you're seeing, Sahil, is definitely moderation compared to previous years. We're not seeing the employee signing bonuses anymore, retention payments that need to be paid. And we're also seeing more stability in employee turnover. So we're definitely seeing Turn to more normal conditions.

Speaker 3

Okay. And then in the MD and A, I was looking at the income from operations By each of the facility. So like the significant decline in some of them like Oklahoma And even some in Black Hills, so is it more a function of mix or is it inflation?

Speaker 2

It's a couple of things. For Oklahoma, it was primarily mix. For Black Hills, it was a bit of volume related.

Speaker 3

Okay. And is there any update on the capital deployment going forward? Like Would you prioritize debt repayments like you have been doing over the last two quarters or can we see an increase in dividend something?

Speaker 1

The Board hasn't made any decision with respect to changing the dividend As you know, it's still me. We're constantly looking for ways to optimize the return to shareholders. Dividends are 1, the NCIB is another, And we continue to be active under our NCIB program.

Speaker 3

Okay. Thank you. Those were all my questions.

Speaker 1

Thank you.

Operator

At this time, it appears there are no further questions. I'd like to turn the call back over to management for any closing remarks.

Speaker 1

Thank you, operator. I would like to thank everyone for taking the time this morning. We look forward to speaking with you again next quarter.

Operator

Thank you everyone for attending the call today. This does conclude the call. Have a wonderful rest of your day.

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Earnings Conference Call
Medical Facilities Q3 2023
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