Medical Facilities Q3 2024 Earnings Report

Medical Facilities EPS Results

• Actual EPS: C$0.41
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: -C$0.01

Medical Facilities Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Medical Facilities Announcement Details

• Quarter: Q3 2024
• Date: 11/7/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, November 7, 2024
• Conference Call Time: 8:30AM ET

Medical Facilities (TSE:DR) Corp owns a diverse portfolio of surgical facilities in the United States. Through its wholly-owned subsidiaries, the company owns controlling interests in four specialty hospitals and six ambulatory surgery centers. The hospitals offer a range of non-emergency surgical, imaging, diagnostic and pain management procedures, and other ancillary services. Its key revenue source is from the facility service income. The corporation's operations are based in the United States.

Medical Facilities Q3 2024 Earnings Call Transcript

Key Takeaways

• Management recognized $11.4M in government stimulus income after the SBA confirmed full forgiveness of all outstanding PPP loans, reversing the related liability.
• Excluding government stimulus, income from operations rose 11.7% to $14.2M and EBITDA increased 8.3% to $19.1M, reflecting improved underlying performance.
• Facility service revenue increased slightly by $0.2M to $103.6M on a 3.1% rise in total surgical cases (observation +13%, outpatient +6.5%, inpatient –22.1%) and a 13.4% gain in pain management cases.
• The company returned capital through repurchasing 554,900 shares ($5.7M) in Q3 and 1.23M shares ($11.3M) year-to-date under its NCIB, paid $4.5M in dividends, and reduced corporate debt by $12M year-to-date.
• Arkansas Surgical Hospital earned a top-10 US ranking for low readmission rates by CMS, the only hospital in Arkansas to receive this distinction.

Presentation

[Operator]

Good morning, everyone. Welcome to Medical Facilities Corporation's 2024 Q3 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 risk and uncertainties, and undue reliance should not be placed on such statements. 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&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.

[Operator]

I would now like to turn the meeting over to Mr. Jason Redman, President and CEO of Medical Facilities. Please go ahead, Mr. Redman.

[Jason Redman, President and CEO at Medical Facilities Corporation]

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 Q3 results. Our news release, financial statements, and MD&A are available on our website and have been filed on SEDAR+. Please note that the income statement variance discussed by David and I this morning will exclude the results from the divested MFC Nueterra ASCs and non-controllable, non-cash corporate-level charges related to share-based compensation plans. We had a solid Q3 characterized by an increased number of surgical cases, a net decrease in operating expenses, and the return of additional capital to shareholders. But the big story for the quarter was that the U.S. Small Business Administration completed its post-payment loan reviews and confirmed full forgiveness on all outstanding PPP loans. As a result, we recognized government stimulus income of $11.4 million during the quarter.

[Jason Redman, President and CEO at Medical Facilities Corporation]

The corresponding liability on our government stimulus funds repayable was also reversed on the balance sheet. Thanks largely to the recognition of the government stimulus income, total revenue and other income for the quarter increased by $11.6 million, or 11.2%, to $115 million. Facilities service revenue was essentially flat at approximately $103.6 million in the quarter. Importantly, even when excluding the government stimulus income, our income from operations increased 11.7% to $14.2 million, and EBITDA was up 8.3% to $19.1 million. On the NCIB front, we repurchased 554,900 shares in the quarter and 1,230,600 shares over the first nine months of the year, thereby returning $5.7 million and $11.3 million to the shareholders in those respective periods.

[Jason Redman, President and CEO at Medical Facilities Corporation]

Additionally, we continued to reduce our corporate debt, lowering the balance on our credit facility by a further $2 million for the quarter, making it a $12 million decrease over the first nine months and resulting in an outstanding balance of only $4 million at quarter end. Before turning things over to David, I wanted to give a big shout-out to the team at Arkansas Surgical Hospital. During the quarter, ASH was ranked one of the top 10 hospitals in the U.S. for low readmission rates, as measured by the Hospital Readmission Reduction Program by CMS. ASH was the only hospital in Arkansas to make that list. I would now like to turn the call over to David to review our financial results for the quarter. David?

[David Watson, CFO at Medical Facilities Corporation]

Thank you, Jason, and good morning, everyone. As usual, please note that all dollar amounts that follow are in U.S. dollars. Q3 facility service revenue increased $215,000 to $103.6 million, as higher surgical and pain management case volumes were partly offset by the combined impact of case and payer mix. Total surgical cases rose by 3.1%, with observation cases up 13% and outpatient cases increasing by 6.5%, while inpatient cases declined by 22.1%. Pain management cases grew by 13.4%. Total operating expenses declined 1.1% to $90 million, with reductions in drugs and supplies largely offset by increases in salaries and benefits and G&A expenses. Consolidated salaries and benefits rose by 4.5% as a result of higher clinical and non-clinical salaries due to annual merit increases, full-time equivalent increases, market wage pressures, and higher physician salaries.

[David Watson, CFO at Medical Facilities Corporation]

This was partly offset by the impact of the sale of Black Hills Surgical Hospital's Gillette Urgent Care Center back in April. We saw a 7.2% decrease in consolidated drugs and supplies, largely due to the impact of lower acuity cases, in addition to improved cost savings at certain facilities. Consolidated G&A expenses were essentially flat year over year. As Jason mentioned earlier, income from operations was up 11.7% to $14.2 million in the quarter, and EBITDA increased by 8.3% to $19.1 million. Looking at our balance sheet, at the end of the quarter, we had consolidated net working capital of $11.4 million and cash and cash equivalents of $18.7 million, compared to net working capital of $19.8 million and cash and cash equivalents of $24.1 million at year-end.

[David Watson, CFO at Medical Facilities Corporation]

The decreases in net working capital and cash and cash equivalents are the result of the continuing return of capital to shareholders through dividends and NCIB share purchases, along with further reductions in corporate debt. In the first nine months of the year, we've paid $4.5 million in dividends, reduced our corporate credit facility's outstanding balance by $12 million, and returned $11.3 million to shareholders by repurchasing a little over 1.2 million common shares under the NCIB. This concludes our prepared remarks. We'd now like to open up the call for questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Once again, ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by number one on your touch-tone phone. We do not have any questions at this time. Presenters, please continue.

[Jason Redman, President and CEO at Medical Facilities Corporation]

Thank you, Operator, and thank you all for joining us this morning. We look forward to sharing more updates with you next quarter.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Jason Redman, President and CEO
• David Watson, CFO