Medical Facilities Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 5 speakers on the call.

Operator

Good morning, everyone. Welcome to Medical Facilities Corporation's 2023 First Quarter Earnings Call. After management's remarks, this call will include a question and answer session, whereby 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 of 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. Redman.

Speaker 1

Thank you, operator. Good morning, and welcome to our Q1 earnings call. On the call with me today is our Chief Financial Officer, David Watson. We reported our Q1 results earlier this morning. Our news release, financial statements and MD and A may be accessed through our website at medicalfacilitiescor.

Speaker 1

Ca and have also been filed with SEDAR. Our first quarter results reflect the continued strong operational performance of our best in class surgical hospitals. Overall surgical volumes from our specialty surgical hospitals were up in the quarter, contributing to an 8.4% increase in facility service revenue compared to Q1 of last year. This past quarter produced solid earnings with income from operations increasing 4.9% and EBITDA increased in 6.3% year over year when excluding government stimulus income in the prior period. It was also a good quarter from a cash flow perspective, with all our distributable cash flow metrics moving in a favorable direction.

Speaker 1

Of note, our cash available for distribution on a per common share basis and our payout ratio also reflect a significant reduction in our share count as a result of last year's substantial issuer bid and our ongoing normal course issuer bid program. As we mentioned in our news release this morning, 3 of our hospitals were recognized by Healthgrades during the quarter as leading hospitals for joint replacements in their respective states. Healthgrades evaluates hospital performances and objective quality measures, including clinical outcomes, patient safety and patient experience. To deliver the utmost quality of care to our patients, we rely on our teams of top tier physicians and nurses as well as the hard working staff to keep our facilities operating efficiently. This recognition from Healthgrades is a testament to their efforts.

Speaker 1

We believe the investments we continue to make in our facilities, staff and technology will result in sustained strong demand in each of our hospitals markets, while allowing our healthcare teams to provide the highest quality of care to our patients. Looking ahead to the balance of the year, we intend to maintain a disciplined approach to executing our corporate strategy, including focusing on our core assets, pursuing additional overhead cost reductions and evaluating and implementing strategies to return capital to our shareholders. With that, I would like to turn the call over to David to review our financial results. David?

Speaker 2

Thank you, Jason. Good morning, everyone. As usual, I will discuss our financial performance for the quarter and provide an update on our balance sheet and liquidity. But first, I would like to remind everyone that all dollar amounts are in U. S.

Speaker 2

Dollars unless stated otherwise. Our facility service revenue increased 8.4% to $109,300,000 compared to Q1 of 2022. The increase is largely due to a favorable combination of case and payer mix and higher overall surgical case volumes from our specialty surgical hospitals. Sioux Falls moved its anesthesia service and related billing in house during the quarter, which contributed approximately $700,000 to revenue. Operating expenses increased by $7,800,000 or 8.9 percent compared to Q1 of last year.

Speaker 2

Consolidated salaries and benefits increased by $3,600,000 or 12.1 percent. Clinical and non clinical salaries and wages were due or higher due to annual increases, full time equivalent increases, market wage pressures and benefit costs from higher health plan utilization. Sioux Falls moving its anesthesia service and related billing in house contributed $1,100,000 to the increase in salaries and benefits. Case mix and the higher surgical case volumes at your hospitals resulted in a $3,200,000 or 9.6% increase in drugs and supplies for the quarter. Consolidated G and A expenses were up slightly from increases in administrative and facility related expenses as well as costs pertaining to Sioux Falls' Accountable Care Organization, billing fees, physician guarantees and the lease related costs.

Speaker 2

When excluding the $1,800,000 in government stimulus income recorded in Q1 of last year, income from operations increased 4.9% to $13,500,000 and EBITDA grew 6.3 percent to $19,100,000 for Q1 of 2023. In the quarter, we generated cash available for distribution totaling CAD5.6 million representing an increase of 20.6 percent on a per common share basis and resulting in a payout ratio of 36.9% compared to 44.4% in Q1 of last year. During the quarter, we purchased 417,900 of our common shares for a total consideration of $2,500,000 In total, under our SIB last year and our ongoing NCIB, we have purchased approximately 17.2% of our total shares outstanding since the start of 2022. Turning to our balance sheet. At the end of the quarter, we had consolidated net working capital of 31 $9,000,000 including $35,300,000 of cash and equivalents.

Speaker 2

For comparison, at the end of 2022, we had working capital of $32,500,000 including cash and equivalents of $34,900,000 In addition, we had $36,000,000 outstanding on our for credit facility. Inclusive of lease liabilities, our net debt to equity remains low at 0.9 times as compared to 0.94 at December 31, 2022. This concludes our prepared remarks. At this time, we would like to turn it back over to the operator to open up the call for questions. Operator?

Speaker 2

Thank

Speaker 3

you.

Operator

One moment for your first question. Okay. And your first question comes from Andre Leno from National Bank. Please go ahead.

Speaker 3

Hey, good morning. Thanks for taking my questions. I'll start the first one, I have a question on labor. If you guys can talk a little bit on how you're seeing it? I mean, given all the pressures we had last year and some of the hospital operators, U.

Speaker 3

S.-based ones reporting improving a little bit. Like how are you seeing labor evolving in your hospitals?

Speaker 1

Thank you, Andrew. So we are starting to see the labor market stabilize. As David mentioned, we were impacted by the quarter. Salaries and benefits are still up, but we are starting to see some stability, less differential pay, less signing bonuses that are happening. So we're still focused obviously on retaining key staff in our facilities, but we are starting to see some of that pressure Yes,

Speaker 3

that's good to hear. Thanks, Jason. And then the other one, another thing that came up from industry updates On the quarter, it's so there's been some negotiations to have improved commercial procedural rates. Is there anything you guys can talk to that? I mean, did you have any progress there or any kind of color you can give us?

Speaker 2

Andrew, just to confirm, so you're asking, have there been any changes from a commercial payer perspective with respect to contract?

Speaker 1

Yes, most of the

Speaker 2

contracts yes, generally the contracts are multiyear contracts. So the opportunity to make changes to those is when those come up for renewal. There's certainly pressure from within the industry to get concessions from the payers, but at this time we haven't seen anything from that.

Speaker 3

Okay. Thank you. And last one for me and I'll jump in the queue, but There was a new surgical hospital that opened in Little Rock recently. I mean, it's been announced before it's been in construction. But Just over recently, I was wondering if you have any comments on whether there might be any impact to

Speaker 1

There may be some impact. We haven't seen anything in the quarter yet. It's something that we'll obviously monitor going forward, But nothing to date.

Speaker 3

Thank you.

Operator

Your next question comes from vahil thingra from RBC. Please go ahead.

Speaker 4

Hi, this is Sahil for Dagmeem. My first question is, can you comment on how much the surgical volumes increased year over year. And then also in your MD and A, you noted that Sioux Falls had The volumes declined in Sioux Falls, why are why, so could you please comment there? Thank you.

Speaker 2

Yes. Hi, Sajid, it's David. Yes. So with respect to surgical case volumes, Observation cases were up 57.5%. Compared to the Q1 last year, outpatient cases decreased by 5.6% and inpatient cases decreased by 9.9%.

Speaker 4

Okay, thanks. And then the second one I had was on Sioux Falls. You noted all the facilities saw increase in surgical volumes except Sioux Falls. Was there anything significant there or is it just normal?

Speaker 2

It's just normal. It's based on physician availability. Sometimes you get physicians who take vacation, maybe out for personal reasons, so normal fluctuations.

Speaker 1

There was nothing systemic. It was just like David mentioned, physician absence and a little bit of weather impact in the Q1.

Speaker 4

Okay. Thank you. Those are all my questions.

Speaker 3

Thank you.

Operator

There are no further actually, we have a follow-up question that just came in from Andre from National Bank. Please go ahead.

Speaker 3

Thanks for the follow-up. Just two quick ones. The first one, I just wanted to see whether the divestiture Sure, core assets remain as part of the strategy. And the second part, Jason, you mentioned focusing on returning capital to shareholders. Any like what kind of

Speaker 1

So, just on the first one. So, divesting non core assets Still remains a critical part of our strategy going forward. So we have not did it from that at all. In terms of returning capital shares, it's still a strong focus. As David mentioned, we've repurchased almost 418,000 shares in a quarter.

Speaker 1

Keeping that NCIB in place is something that we intend to do going forward. We're also looking at opportunities Subsequent quarters, no decisions are made yet, but the extent cash flow permits will also look at maybe potential debt repayments as well.

Speaker 3

Thank you.

Operator

There are no further questions at this time. I'll turn it back to Jason for closing remarks.

Speaker 1

Thank you, operator. I would like to thank everyone for joining our call this morning. We look forward to updating you again next quarter.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Earnings Conference Call
Medical Facilities Q1 2023
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