Medical Facilities Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 5 speakers on the call.

Operator

Good morning, everyone. Welcome to Medical Facilities Corporation's 2024 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 safe harbor provisions of Canadian provincial securities laws. Forward looking statements involves 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. Redmond.

Speaker 1

Thank you, operator, and good morning, everyone. With me on the call is our Chief Financial Officer, David Watson. Earlier this morning, we reported our Q1 results. Our news release, financial statements and MD and A are available on our website and have been filed on SEDAR Plus. Also, please note that many of the income statement variances discussed by Dave and I this morning will exclude the results from the divested MFC Nueterra ASCs or MFCN for short.

Speaker 1

We had a solid start to the year. Our surgical hospitals performed well, driving higher revenues through increased surgical case volumes. Excluding NFCN, revenues climbed to $108,300,000 marking a solid 4.5% increase over the same period last year, while our surgical case volumes were up 4.3% in the quarter. Excluding MFCN, our income from operations and EBITDA were up 29.6% and 19% respectively during the quarter. The increases reflect the combination of higher facility service revenue, which exceeded the increase in operating expenses along with cost savings at the corporate level.

Speaker 1

We continue to pay down our corporate credit facility, reducing the balance by a further $5,000,000 in the quarter after reducing the balance by $20,000,000 in 2023. We also continue to buy back shares, returning an additional $1,800,000 to shareholders to the purchase of 253,900 common shares under our normal course issuer bid during the quarter. Lastly, in recognition of our continued solid cash flow performance, we were pleased to announce this morning an 11.8% increase to our quarterly dividend commencing with the 2nd quarter dividend. The dividend remains an important part of our commitment to maximizing total shareholder returns and with today's announcement, MSC will have increased its dividend by 28.6% over the past 2.5 years. I would now like to turn the call over to David to review our financial results in more detail.

Speaker 1

David?

Speaker 2

Thank you, Jason. Good morning, everyone. As usual, please note that all dollar amounts that follow are in U. S. Dollars.

Speaker 2

As Jason mentioned, excluding MFCN, our first quarter revenue increased 4.5% to $108,300,000 In addition to the higher surgical case volumes at our hospitals, the revenue increase was due to the combined impact of case and payer mix. Total surgical cases increased by 4.3%. Observation cases were up 12.7% and outpatient cases increased by 8.2%, but inpatient cases were down 17.8%. In terms of case mix, we had a higher proportion of spine cases higher acuity orthopedic procedures resulting in higher reimbursements per surgical case. Our operating expenses decreased 5.1% to $90,900,000 with a decrease attributable primarily to the MSCN divestitures.

Speaker 2

When excluding MSCN, our operating expenses were up slightly by 0.7%. Consolidated salaries and benefits were down 1.1% primarily due to the MSCN divestitures along with cost saving initiatives at the corporate level and lower benefit costs from decreased health plan utilization. This is largely offset by higher salaries due to annual merit increases, full time equivalent increases, market wage pressures and more employed physicians. Consolidated drugs and supplies decreased 5.9% mainly due to the impact of the MFCN divestitures. Consolidated G and A expenses were down 8% mainly due to the impact of the MFCN divestitures but also cost savings at the corporate level and a decrease in other various facility related expenses.

Speaker 2

Jason already covered the increase to our operating income and EBITDA, so I'll move on to our balance sheet. At the end of the quarter, we had consolidated net working capital of $7,800,000 and cash and cash equivalents of $25,700,000 compared to net working capital of $19,800,000 and cash and cash equivalents of $24,100,000 at year end. In addition to using cash to pay down corporate credit facility by $5,000,000 and to purchase $1,800,000 of shares under the NCIB, the decline in net working capital reflects a $7,600,000 increase in the obligation for purchase of common shares to $9,700,000 at the end of Q1, which reflects the maximum potential purchase we were only able to purchase 93,500 shares for total consideration of $700,000 under the automatic share purchase plan. This concludes our prepared remarks. We would now like to open up the call for questions.

Speaker 2

Operator?

Operator

Thank you. Our first question comes from the line of Sahil Dhingra from RBC Analyst. Please go ahead.

Speaker 3

Hi. This is Sahil for Dagmeen. Thank you for taking my questions and congrats on the good quarter. My first question is on the pain cases that were down 6% year over year. And I think on the last call, you alluded to that you were looking to replenish the physicians in that pain management cases.

Speaker 3

Can you provide us an update with what's going on?

Speaker 1

Sure. Hi, Sila. How are you doing? Thanks for the question. As you know, we don't discuss individual physician hires at the facilities, but it is a priority for us to address this both at our levels in each of the facilities.

Speaker 1

So it remains an ongoing item that we want to continue to addressing going forward.

Speaker 3

Okay. And my second question is related to the wage pressures that you commented on during the prepared remarks. Can you comment on the inflation dynamics currently? And are there any further cost savings initiatives at the corporate level or are we fully done with those?

Speaker 2

Sure. Hi, Sahil, it's David. Yes, with respect to the wage pressure, we continue to be in competitive markets for staff. As we mentioned in the prior quarter, some of the significant wage inflation, sign on bonus things like that have had certainly slowed down. But that said, we do continue to see pressure on wages, but it's certainly better than it has been.

Speaker 3

Okay. Okay. Thank you. And my last question is on the competitive dynamics in the marketplace. So we saw adding new hospital at Arkansas and previously a few in South Dakota, if you can update us on the competitive on the competition in those markets.

Speaker 3

And also like the Sioux Falls revenues were quite strong. Was it just the case mix Or are you also seeing higher volumes there? Thank you.

Speaker 1

Sure. I'll let me address the ASH question first. I let David address your Sioux Falls. So on the ASH side, we haven't seen the impact of the competitive environment. I mean that has always been a competitive area for us.

Speaker 1

But we continue to remain strong in that market. And we haven't seen any adverse impact of the university hospital that's been in place.

Speaker 2

And then with respect to your question about Sioux Falls, it's a couple of factors. Revenue growth came both from case mix with higher acuity orthopedic cases as well as increased volume.

Speaker 3

Okay. Sorry, my last question is on capital allocation going forward. It was nice to see your dividend increase this quarter. But how are you going to prioritize among for the debt repayment in CIB and dividend increase going forward?

Speaker 1

Yes. So as we've said previously, Seel, it's really a balance between those three components. We continue to be as active as we can in the NCIB. We want to continue to pay down our debt and then the Board thought it was appropriate at this point in time to increase the dividend. We believe it's sustainable.

Speaker 1

But it is a balance between the 3. And a lot of it depends on how active we can be under the NCIB program.

Speaker 3

Thank you for taking our questions.

Operator

Our next question comes from the line of Doug Lee. Please go

Speaker 4

ahead. Yes. Good morning, gentlemen. Congratulations on a strong Q1. Quick question for me just with regard to your strong case volumes and case mix in the quarter.

Speaker 4

I was just wondering, you're still within shouting distance of the pandemic era during which some of your procedural volumes would have been curtailed by pandemic logistics. Just wondering, is there have you been able to quantify how much backlog from deferred cases through the 2020 to 2023 period might actually impact the next several quarters across any of your facilities in South Dakota, Oklahoma, Arkansas?

Speaker 2

Yes. Hey, Doug. Good morning. I would say from a backlog perspective that backlogs work through at this stage.

Speaker 4

Fair enough. Thanks, Jud.

Speaker 1

Sure. Thank you.

Operator

There are no questions at this time. Please go ahead, Mr. Redmond.

Speaker 1

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

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