Medical Facilities Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 5 speakers on the call.

Operator

Good morning, everyone. Welcome to Medical Facilities Corporation's 2024 Second Quarter Earnings Call. After management 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 with 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 materials, 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 2nd quarter results. The news release, financial statements and MD and A are available on our website and have been filed on SEDAR Plus. Please note that the income statement variances discussed by Dave and I this morning will exclude the results from the divested MSC Nueterra ASCs and non controllable non cash corporate level charges related to share based compensation plans.

Speaker 1

Overall, our hospitals continue to perform well in the quarter, benefiting from higher surgical and pain management case volumes as well as favorable case and payer mixes. These factors resulted in a 2.4% increase in facility service revenue and combined with statements at the corporate level, helped drive a 21% increase in income from operations and a 13.7% increased EBITDA. While on the topic of our hospitals, back in early June, we announced that our Black Hills facility will expand its services to include heart and vascular care with the opening of the Black Hills Heart and Vascular Institute. The institute will provide a comprehensive range of services from preventive care to interventional cardiac, vascular and vein procedures. To support the institute, Black Hills plans to build a state of the art cardiac catheterization lab for advanced cardiac and coronary procedures.

Speaker 1

The clinical lab will be situated next to Black Hills Surgical Hospital. MFC is excited to partner with Black Hills team to meet the increasing demand for quality heart and vascular care in Rapid City and its surrounding areas. In addition to our solid financial results for the quarter, we made further progress on paying down corporate debt and repurchasing shares under a normal course issuer bid. In the quarter, we reduced our corporate credit facility by a further $5,000,000 and returned another $3,900,000 to shareholders to the purchase of 421,800 common shares under the NCIB. Subsequent to quarter end, we received favorable news regarding the U.

Speaker 1

S. Small Business Administration review of $6,900,000 of the $12,000,000 in Paycheck Protection Program loans issued to certain facilities during the pandemic. The SBA completed its review of these particular loans and confirmed full forgiveness. As a result, we will record the $6,900,000 as government stimulus income in the 3rd quarter and reverse the corresponding liability previously recorded under government stimulus funds repayable. For the $5,100,000 in PPP loans that remain, we will continue to diligently pursue all reasonably available channels to reverse any remaining denials for the outstanding PPP loans.

Speaker 1

I would now like to turn the call over to David to review our financial results for the quarter. 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

2nd quarter facility service revenue grew 2.4 percent to $107,200,000 The increase of $2,500,000 was attributable to higher surgical and pain management case volumes as well as favorable case and payer mixes. Total surgical cases were up 2.8% as observation cases increased by 13.1% and outpatient cases were 6.1% higher, but inpatient cases were down 21.7%. Pain management cases were up 2.2%. Total operating expenses declined at 0.9 percent to $88,300,000 with reductions in drugs and supplies and G and A expenses mostly offset by the increase in salaries and benefits. Consolidated salaries and benefits increased 5.4 percent primarily due to higher clinical and non clinical salaries and wages as a result of annual merit increases, full time equivalent increases and market wage pressures.

Speaker 2

This was partly offset by the impact of the sale of Black Hills Surgical Hospital's Gillette Urgent Care Center during the quarter and cost saving initiatives at the corporate level. Consolidated drugs and supplies decreased 3.6% due to a case mix that reflected lower acuity cases and improved cost savings at certain facilities. Consolidated G and A expenses were down 4.8% due to lower equipment rentals and purchases, lower physician guarantees, cost savings at the corporate level and the sale of the July Urgent Care Clinic in April. And as Jason highlighted earlier, EBITDA increased 13.7 percent to $23,800,000 Looking quickly at our balance sheet, at the end of the quarter we had consolidated net working capital of $8,700,000 and cash and cash equivalents of $18,000,000 compared to net working capital of $19,800,000 and cash and cash equivalents of $24,100,000 at year end. The reductions in net working capital and cash and cash equivalents are the result of the continuing return of capital to shareholders through dividends and share purchases under the NCIB program as well as further reductions in corporate debt.

Speaker 2

Through the 1st 6 months of the year, we paid $3,000,000 in dividends, reduced the outstanding balance of our corporate credit facility by a total of $10,000,000 including $5,000,000 during the Q2 and returned $5,700,000 to shareholders through the purchase of 675,700 common shares under the NCIB. This concludes our prepared remarks. We'd now like to open up the call for questions. Operator?

Operator

Thank Your first question comes from Douglas Meem of RBC Capital Markets. Please go ahead. Your line is open.

Speaker 3

Good morning. Thank you for taking my questions. First question just has to do with 2 specific hospitals, I guess, Sioux Falls and Oklahoma. And Sioux Falls was exceptionally strong this quarter, up 9% overall in terms of revenues. And perhaps you can expand on the reason for that.

Speaker 3

And then maybe the same for Oklahoma, but the other way, considerably weaker than anticipated. I know that you talked about the combined impact in case and payer mix, but is that a move or a change that is what could be sustained going forward or would you expect a rebound just based on quarterly pacing?

Speaker 2

Yes. Hey, Doug. So with respect to Sioux Falls, as we mentioned, they had higher surgical case volume. The mix was good. They saw more higher acuity spine cases.

Speaker 2

And that's as well as ENT procedures. So overall that's what was driving that. They did have strong very strong quarter. On the OSH side, they saw a lot of it was case mix. So less on the inpatient, more on the outpatient side.

Speaker 2

However, I think that's more of a quarterly and we'll have to see how that goes.

Speaker 3

Okay. Then my other question is just it sounds like one of your much larger competitors is on the block. And I'm curious about how you think about your business. And if there were ever an opportunity for you to do the same thing or if the company were approached, is there any way that the minority shareholders here are required to buy into any potential sale of the company? Or is it completely up to current shareholders, management and the Board?

Speaker 1

Doug, Appreciate the question. I mean, look, if there was an opportunity for potential transaction, as you know, the Board has an obligation to consider that and we'll do so accordingly. And that's the decision that the Board and the current shareholders would have to make.

Speaker 3

And there's nothing that the docs could do to prevent that from happening?

Speaker 1

I mean, I think obviously, I mean, anyone who's going to be interested in our assets would want the doctor support. And that's the main revenue generator. So I think they would want to be alignment in any transaction that would happen.

Operator

And your next question comes from Doug Lowy of Leidy Financial. Please go ahead. Your line is open.

Speaker 4

Yes. Thanks, operator. And yes, congratulations for the quarter, gentlemen. Thanks for taking my call. Just kind of looking retrospectively back to your this morning on just what the breadth of services might be that you might offer within that new initiatives.

Speaker 4

It's pretty broad category. I mean, you specifically mentioned catheterization. I assume you might do ablations for heart arrhythmia. You mentioned vein procedures, which it's multiple varicose veins procedures that are currently FDA approved. So it was just 2 ideas that just kind of popped into my head.

Speaker 4

Why don't you just kind of define the breadth of services that you might provide within that institute and whether that platform is sort of successful in the 1st few quarters might be expandable to your other hospitals. And I'll leave it there. Thanks.

Speaker 1

Yes. Thanks. I mean, this right now is unique to Black Hills. If there's an opportunity for other areas, I mean we've stated that we're always going to be looking for ways to add service lines to our other facilities. But for now, let's focus on the Black Hills area.

Speaker 1

I think the range of services will continue to evolve over time as these doctors, the 3 physicians get in place and start to build out their practice, we can see this evolving. But for now, it's really what we've mentioned, the cardiac, the vascular and the vein procedures that's going to be the main focus. But we are as I said, we are building on a state of the art cath lab in our facility to accommodate a range of different services.

Speaker 4

Okay, fair enough. Thanks,

Operator

And there are no further questions at this time. I'd now like to turn the call back over to Mr. Redmond for closing comments.

Speaker 1

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

Operator

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

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Key Takeaways

  • Medical Facilities reported a 2.4% increase in Q2 facility service revenue, driving a 21% rise in income from operations and a 13.7% boost in EBITDA, supported by higher surgical and pain management volumes and favorable case and payer mixes.
  • The company announced the launch of the Black Hills Heart and Vascular Institute, featuring a state-of-the-art cardiac catheterization lab and offering a full spectrum of preventive, interventional cardiac, vascular and vein procedures.
  • In Q2, MFC reduced its corporate credit facility by $5.0 million and returned $3.9 million to shareholders via the repurchase of 421,800 common shares under its normal course issuer bid.
  • Following a U.S. SBA review, MFC secured full forgiveness on $6.9 million of PPP loans, which will be recorded as government stimulus income in Q3, and is pursuing relief on the remaining $5.1 million of loans.
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Earnings Conference Call
Medical Facilities Q2 2024
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