Medical Facilities Corporation

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 risk and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied 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 form-looking statements. Such statements speak only as of the date made. I would now like to turn the meeting over to Mr. Jason Redman, President and CEO of Medical Facilities. Please go ahead, Mr. Redman.

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 first quarter results. Our news release, financial statements, and MD&A are available on our website and have been filed on CDAR+. Also, please note that many of the income statement variances discussed by David and I this morning will exclude the results from the divested MSC New Terra ASCs, or MFCN for short. We had a solid start to the year. Our surgical hospitals performed well. driving higher revenues through increased surgical case volumes. Excluding MFCN, revenues climbed to $108.3 million, 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 a combination of higher facility service revenue, which exceeded the increase in operating expenses, along with cost savings at the corporate level. We continued to pay down our corporate credit facility, reducing the balance by a further $5 million in the quarter, after reducing the balance by $20 million in 2023. We also continued to buy back shares, returning an additional $1.8 million 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 second 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 two and a half years. I would now like to turn the call over to David to review our financial results in more detail. David?

Thank you, Jason. Good morning, everyone. As usual, please note that all dollar amounts that follow are in U.S. dollars. As Jason mentioned, excluding MSCN, our first quarter revenue increased 4.5% to $108.3 million. In addition to the higher surgical case volumes in 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 and higher acuity orthopedic procedures, resulting in higher reimbursements per surgical case. Our operating expenses decreased 5.1% to $90.9 million, with a decrease attributable primarily to the MSCN divestitures. 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 MSCN divestitures. Consolidated G&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. Jason already covered the increase to our operating income in EBITDA, so I'll move on to our balance sheet. At the end of the quarter, we had consolidated net working capital of $7.8 million and cash and cash equivalents of $25.7 million, compared to net working capital of $19.8 million and cash-in-cash equivalents of $24.1 million a year end. In addition to using cash to pay down corporate credit facility by $5 million and to purchase $1.8 million of shares under the NCIB, the decline in net working capital reflects a $7.6 million increase in the obligation for purchase of common shares to $9.7 million at the end of Q1. which reflects the maximum potential purchase liability under the automatic share purchase plan in relation to the NCIB. However, subsequent to quarter end through to May 3rd, we were only able to purchase 93,500 shares for total consideration of $0.7 million under the automatic share purchase plan. This concludes our prepared remarks. We would now like to open up the call for questions. Operator?