Medical Facilities Corp
TSX:DR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.63
16.26
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, everyone. Welcome to the Medical Facilities Corporation 2021 First Quarter Results Conference Call. [Operator Instructions]Before turning the call over to management, listeners are reminded that certain statements made in today's call, including responses to questions, may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian Provincial Security Laws. Forward-looking statements involve risks 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 about the factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, 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.Please note that today's call is being broadcast live over the Internet, and the webcast will be available for replay, beginning approximately 1 hour following the completion of the call. Details of how to access the webcast replay are available in this morning's news release announcing the company's financial results.I would now like to turn the meeting over to Mr. Rob Horrar, President and CEO of Medical Facilities. Please go ahead, Mr. Horrar.
Thank you, Pasha. Good morning, and welcome to our first quarter earnings call. Joining me today is David Watson, our Chief Financial Officer. Earlier this morning, we released our first quarter results. Our news release, financial statements and MD&A may be accessed through our website at www.medicalfacilitiescorp.ca and have also been filed with SEDAR today.Overall, we were pleased with our results for the first quarter. Our total revenue and other income was up 5.8%, largely the result of an additional $4.1 million in government-released funds received by our facilities. We also benefited from favorable changes in payor and case mix. Perhaps the biggest takeaway for the quarter is that our volumes continue to normalize to pre-COVID levels.If we look at the first quarter of last year, our numbers in both January and February compared favorably to the same months in 2019. However, in the final half of March of last year, our business was impacted by the cessation of elective cases as the pandemic began to spread across the country. Fast forward to the first quarter of this year and COVID-19 continued to impact our volumes, particularly in January and February. However, by March, we saw a strong rebound, with volumes up more than 20% over January or February. Importantly, none of our facilities are experiencing restrictions with regards to types of cases. With vaccines continuing to roll out across the country, we are optimistic that our recovery will continue.We're also focused on growth including organic and inorganic opportunities. Near the end of the first quarter, we announced a 4,600 square foot expansion project underway at Arkansas Surgical Hospital. This follows the hiring of 5 new surgeons last year. The expansion will add 2 new operating rooms, bringing the total to 13 when completed, as well as 3 new recovery beds. Project is expected to be completed by the end of the year.We remain focused on executing our ambulatory surgery platform strategy, growing through a mix of de novo and acquisition opportunities. An increasing and aging population are among the key drivers of growth in the U.S. health care market and a disproportionate share of this growth has been in and is expected to continue to be in ambulatory settings. That same market is already a very attractive growth market prior to the pandemic.The pandemic seems to have accelerated the interest in ambulatory care. The space remains fragmented with many small operators. Therefore, we anticipate more consolidation and de novo growth opportunities. We have a strong balance sheet and are in a good position to evaluate the right growth opportunities as the pandemic subsides, hopefully in the back half of the year.With that, I will now turn the call over to David to discuss our first quarter financial results. David?
Thanks, Rob, and good morning, everyone. I will discuss our first quarter financial performance, then provide an update on our balance sheet and liquidity. But first, I would like to remind everyone that all dollar amounts expressed in today's call are in U.S. dollars, unless stated otherwise.Our facility service revenue for the first quarter was $94 million, which was up 1.3% from the $92.8 million in the first quarter of 2020. The increase was due mainly to favorable changes in case and payor mix. Overall same-store surgical case volumes were on par with first quarter of last year. While outpatient cases increased by 2.6% and observation cases by 15.4%, inpatient cases were down 15.1%. Total revenue and other income, which includes an additional $4.1 million in government stimulus, was $98.1 million for the quarter. We did not receive any government stimulus funding in first quarter of last year.Operating expenses for the quarter decreased 2.4% to $79.8 million. As a percentage of total revenue and other income, operating expenses decreased to 81.3% from 88.1% in the first quarter of last year. Adjusted EBITDA for the quarter was $25.1 million or 25.6% of revenue compared to $18.6 million or 20% in the first quarter of last year. In first quarter this year, we generated cash available for distribution, totaling CAD 7.9 million, resulting in a payout ratio of 27.6%.Our balance sheet remains strong. At quarter end, we had cash and cash equivalents of $58 million and consolidated net working capital of $42.7 million, compared to $45 million at year-end. The outstanding balance on our corporate credit line was $31 million. Inclusive of lease liabilities as per IFRS 16, our net debt to equity stands at 0.51x. We are well resourced to capitalize on potential growth opportunities and our leverage remains significantly lower than our U.S. trading peers.This concludes my financial review for the quarter. For additional detail on our financial results, including specific results for each facility, please refer to our MD&A.With that, we would now like to open the line for questions. Pasha?
[Operator Instructions] And our first question comes from the line of Endri Leno with National Bank.
First one for me, I just wanted to ask -- and I apologize if I missed it, but overall case volume for the quarter, how does it compare to your more normalized level, let's say, in 2019? And as a second part to this question, the 26% recovery you saw in March versus January and February, how is that trending into April?
Yes. So Endri, the case volume is still running below normalized. We were about 8.7% below first quarter 2019.
And then the second part of that, Endri, is the March volume strength, we see some strength continuing into April. So...
Okay. Great. And on that 8% that is below 2019, that I would assume also includes the weather event in Arkansas. Is there any way to normalize for those? Or is that tough to do?
It's tough -- part of this, we say January was really, again impacted by COVID. February was also COVID and weather, but in the middle part of the country there, and of course, Arkansas as well. So yes, it's hard to really normalize for all of that activity.
Okay. Okay. My second question is more on -- we've talked about these postponed cases and potentially a backlog building there, do you think there is still any sort of a backlog left? Or how do you see it recovering if it's still there? Or do you think these cases are sort of permanently postponed, let's say?
Well, it's very difficult to say. As we said last quarter and continue to say, we're among all of our peers as well, difficult to predict what that is. We did see some return of cases. Some of that was just earlier in the year. We believe that there will be some additional cases in demand that -- hard to tell what that will be, but the back half of the year, we're expecting to have some, the scope of which is hard to determine or predict. But we do expect some strengthening from that demand in deferred care.
Great. One more for me, and I'll jump in the queue in case there's some other questions. But perhaps more for David, but the NCI cash flow to the facility, so it's a little bit high in the quarter at $9.5 million. Does it contain any government support there as well? Or would the government support go solely to the corporation?
No, the government support is coming into the individual facilities.
Okay. So if we were to look at it, I mean, about 50-50 more or less would be kind of a good guideline of how much that goes to the corporation, how much to the facilities?
Well, stimulus funds come into the facilities to support the operations, to the extent the facilities are then making distributions. At some point, those distributions are made based on ownership percentages. So yes, I mean, roughly 50-50.
Your next question is from the line of Paul Stewardson with iA Capital Markets.
Congrats on the quarter. Just calling in for Chelsea. Just a couple of quick ones here. So in terms of the Black Hills and the Sioux Falls, there's some really nice revenue growth there with case mix and so forth. How much of that is sort of the government stimulus side of it? And how much of it is the case mix?
Yes. So of the $4.1 million government stimulus, Paul, it went primarily to those 2 facilities, with a little more than half of that going to Black Hills.
Okay. Perfect. That's helpful. And just in terms of the case mix there that you've been seeing, is this something that we can look at as sort of continuing to trend in the same direction? Or does this tend to be more of a -- this quarter is maybe taken on its own? And how do you see the trends there?
Yes. That's really hard to say. I don't think that's a trend, per se. I mean the impact, of course, the early part of the quarter sort of set up a stronger payor -- or case mix, rather. So you saw more of an urgent higher case mix acuity in that mix for March. The second thing, we also get all the benefit of payor mix to a little bit stronger on the commercial than on the Medicare. So both those sort of set up for a quarter, even without the stimulus, was on par to the prior -- a little bit exceeding the prior year. So I don't think that's necessarily a carryforward trend for the rest of the year on -- for the first quarter, but...
Your next question is from the line of Doug Miehm with RBC Capital Markets.
First question has to do with the potential loan forgiveness. I noted that in the MD&A, you've taken out the wording of reasonable assurance that the stimulus loans will be forgiven. Was that by design? Or was it just a change? Like what are the chances that you actually have to pay back those loans today versus last quarter?
Yes, Doug, it's David. I don't think the likelihood has changed from prior quarter. Where -- the facilities have submitted their applications and like most health care providers that have done that, are just waiting. But we don't see if there's any change in likelihood.
Okay. So there's no reason for taking that or changing that wording? Okay. That's good.
No.
Second thing, just has to do with about the opportunities around acquisitions, are they looking more like ASCs? Or is there still the potential for a specialty surgical hospital? Maybe you can tell us what the landscape looks like with respect to the acquisition front today?
I'll be happy to. I'll take that on. This is Rob. The most of the growth opportunity for us on the pipeline and coming -- especially coming out of COVID, is in the ASC space. It is extremely dynamic as we called out in the script, fractured. The pandemic highlighted that need to have a safe, separate place to do necessary cases outside the four walls of the acute care setting. So a lot of opportunity, not only in the existing ASC space, but we've mentioned over the year that we expect over the next, say 5 to 10 years, that this space for the ambulatory surgery centers is extremely dynamic set up for growth and will likely double over the next 10 years. So predominantly, Doug, it's going to be in the ASC space.
And no change to multiples or anything that you're seeing right now as we come out of the COVID situation? Anything you can comment in that regard?
A bit of slight uptick and just --- yes, a slight uptick in the existing multiple on the acquisition side, not appreciably. We like the de novo opportunities, where you're getting a higher return on investment. So we see a lot of that development will be in the de novo space, where you've got a better return. But we do see some opportunities in both acquisitions and the de novo.
Excellent. And then last question, just has to do with the dividend/distribution. Given your payout ratio right now, have you given any consideration to a moderate increase at some point?
Doug, we don't have plans at this point to raise the dividend. But coming out of COVID, we're going to continue to evaluate that best -- the best method to optimize our shareholder return.
[Operator Instructions] We do have a follow-up question from the line of Endri Leno with National Bank.
I was wondering if you guys can talk a little bit about the cost inflation and what you're seeing out there, be it in labor, be it in supplies? And the second part to that, any labor shortages, particularly on the medical staff side of things?
Endri, we saw some impact on pricing last year. It's a little early. This year, we haven't really seen any significant change on that front. And on the labor side, no, we are not experiencing any labor shortages.
Okay. Great. And one more -- or two more actually for me, but on the divestment of that TRSC from MFC Nueterra, I was wondering, is it possible to quantify what the contribution was in the previous quarter, so that we can have an apples-to-apples comparison with this year?
Give me a second. No, I don't have that at the moment, but we can follow up with you.
Okay. Great. And then one last one, the St. Luke's ASC, how is it trending in the first year? Or is that -- on this quarter, actually, if you compare it to the previous quarter, have you seen any uptick or any improvements there? Or any comment?
Yes. Our comment is that we -- it opened late due to COVID. Certainly, we're pleased to see it to get open and fully functioning and operational. In the first quarter, we saw a month-over-month sequential growth. So we're off to a good start there, and it's fully invested and the partnership is heavily engaged. And we're pleased with the trajectory right now.
[Operator Instructions] I do apologize, that was our final question. I would like to hand the call back over for closing remarks.
Thank you, Pasha, and thank you to everyone, for spending time with us today. We thank our physician partners, nurses and all staff, who deliver outstanding care to patients each day. As always, we look forward to reporting on our progress again next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. We ask that you now disconnect your lines.