Medical Facilities Corporation (DR) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Shareholders of Medical Facilities Corporation. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you'll be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you'll begin to represent and warn to Computershare and Medical Facilities Corporation that you first obtain all required consents for the disclosure, recording, transfer and use of such personal information from all prepared persons before your disclosure. It is now my pleasure to turn today's meeting over to Michael Gisser, Chairman of the Board of Directors of Medical Facilities Corporation. The floor is yours.

Good morning. It is now 11:00 a.m. Eastern Time, and I ask that the Annual General Meeting of Shareholders come to order. Ladies and gentlemen, my name is Michael Gisser. As Chair, I would like to welcome you to the 2023 Annual General Meeting of Shareholders of Medical Facilities Corporation. Before we begin the formal portion of the meeting, let me introduce the other speakers. Mr. Jason Redman, the Company's Interim President and Chief Executive Officer; and Mr. David Watson, the Company's Chief Financial Officer. As this meeting is held virtually via live webcast, please note the following rules for the orderly conduct of the meeting. Questions in respect of a motion can be submitted by any registered shareholder or duly appointed proxy holder using the Q&A feature on the virtual interface. Questions will be addressed during the question period at the end of the meeting, provided that questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all business items. When you are asked to vote, you may do so using the Vote feature on the virtual interface. You will only have a certain amount of time to do so once the polls are open. I will act as Chair of the meeting and ask David Watson to act as Secretary of the meeting. Bernadette Villarica of Computershare Investor Services Inc. will act as scrutineer. In view of the need to attend to a number of formal matters, certain shareholders or their proxies have volunteered to move and second resolutions where required. While this procedure will facilitate the handling of the formal matters, any shareholder or proxy holder may ask questions. I would also like to remind you that only registered shareholders or duly appointed proxy holders that have logged into the meeting using their previously obtained control number or user name are entitled to vote or submit questions in this meeting in the designated field on the virtual interface. The last Annual and Special Meeting of Shareholders was held on June 1 -- June 21, 2022. Any shareholder who wishes to review the meeting -- the minutes of that meeting may contact us by using the Q&A feature on the virtual interface. I am also tabling a copy of the 2022 audited financial statements. These are publicly available, as are the proxy materials, and are posted on our website and SEDAR. Please note that upon completion of the meeting, the CEO and CFO will be making a presentation. Following their presentation, they will endeavor to address questions that you may have that are submitted using the Q&A feature on the virtual interface. Accordingly, during the formal portion of this meeting, I ask you to limit your submitted questions to the specific matters being considered. Shareholders have been provided with notice and proxy materials for this meeting in accordance with applicable laws, and these are publicly available and posted on our website and SEDAR. I have been advised by the scrutineer that prior to the meeting, proxies were received from the holders of 11,871,040 shares or approximately 46% of all shares entitled to be voted. As a result, we have a quorum for this meeting, and the meeting is properly constituted for the transaction of business. We will now proceed with the formal part of our agenda. Before we consider the business of the meeting, I would like to outline the voting procedures to be used at today's meeting. We will conduct each vote by way of the Vote feature on the virtual interface as well as those submitted by proxy. If you have voted your shares by proxy prior to the start of the meeting, your vote has been received by the scrutineer and there is no need to vote those shares during the meeting unless you wish to revoke or change your vote. Polls on the individual business items will be open for voting once the motions are put forth for the business items to be considered at the meeting. Registered shareholders who have not submitted a proxy and wish to vote their shares or who wish to change their vote may do so by clicking on the Poll button on the screen. Duly appointed and registered proxy holders may also vote using the same method. I will now present the 3 resolutions that will be considered at this meeting. The first item of business for which this meeting has been called is the election of 6 directors to hold office until the next Annual Meeting of Shareholders of the company or until their successors are duly elected and appointed. The management information circular states that there are 6 candidates proposed by management. The secretary will now read their names. David?

The names of the nominees are Yanick Blanchard, Erin Enright, Michael Gisser, Jason Redman, Reza Shahim, Adina Storch.

Thank you. Since no further nominations have been received in the required time period, I declare the nominations closed. Six persons have been nominated as directors, and there are 6 directors to be elected. Can I please have a motion for the election of directors?

Mr. Chair, I hereby move that each of the 6 persons whose names have been read to this meeting by the Secretary for election as a director of the company be elected to serve until the Annual Meeting of Shareholders to be held in 2024 or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office.

Mr. Chair, I second the motion.

Thank you. The next item of business for which this meeting has been called is to consider and, if thought appropriate, to approve a resolution appointing Grant Thornton LLP as auditors of the Company and authorize the Board of Directors to fix the remuneration of the auditors. In order to be approved, the resolution must be passed by a majority of the votes cast thereon. Can I please have a motion for the appointment of the auditors?

Mr. Chair, I hereby move that Grant Thornton LLP be appointed as auditors of the company at a remuneration to be fixed by the Board of Directors of the company.

Mr. Chair, I second the motion.

Thank you. Are there any questions regarding the 2 motions to be voted upon? I now invite Trevor Heisler of MBC Capital Markets Advisors to read any questions submitted.

Thank you, Michael. Well, I'll look at the Q&A feature and see if there's any questions on the board. There do not appear to be any questions at this time, Michael. Please go ahead.

Thank you, Trevor. The polls are now open to vote on the election of directors and the appointment of auditors. At this point, all registered shareholders and duly appointed proxy holders who have properly logged in with their control number or user name and wish to vote will be able to see on the screen all motions being brought forth at this meeting. Please register your votes by accessing the voting page and selecting the For or Withhold buttons next to the name of each proposed director and next to the resolution with respect to the appointment of Grant Thornton LLP as the company's auditors. We will provide registered shareholders and duly appointed proxy holders approximately 1 more minute to complete the electronic ballots. Once the electronic balloting closes, the voting page will disappear, and your votes will automatically be submitted. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls for each item to be voted upon to be closed. I have been advised by the scrutineer that all of the ballots and proxies deposited for the meeting have been counted and the 2 motions have passed. In respect of the election of directors, the Board of Directors of Medical Facilities Corporation has adopted what is commonly referred to as a majority voting policy. Under that policy, a director is required to tender his or her resignation if he or she receives more withhold votes than votes cast for his or her election. The scrutineer's report on the vote regarding the election of directors shows that each of the nominees would receive a greater number of votes for his or her election than would be withheld from his or her election, and none of the nominees would be required to tender their resignation under Medical Facilities Corporation's majority voting policy. Therefore, I declare that each of the 6 nominees whose name has been read by the secretary has been elected a director of the company to hold office until the close of the next Annual Meeting of Shareholders or until his or her successor is duly elected or he or she otherwise ceases to hold office. Congratulations. In respect of the appointment of auditors, the scrutineer's report on the vote regarding the appointment of the auditors shows that the resolution has passed. Therefore, I declare that Grant Thornton LLP has been appointed as the auditors of the company and that the Board of Directors is authorized to fix the remuneration of the auditors. As we have not received any requests for further business to come before the meeting, I declare the meeting terminated. I would now like to ask Jason Redman and David Watson, the company's CEO and CFO, to make a presentation and address your questions for them. Over to you, Jason and David.

Thank you, Michael, and good morning, everyone. I want to quickly go over the key highlights from last year and spend some time talking about the strength of our core assets. Then David will touch on our Q1 2023 results and provide an update on our balance sheet and liquidity. But first, I'd like to direct you to our disclaimer regarding forward-looking statements. Despite a challenging macroeconomic backdrop, our core business remained strong through 2022, and our facility service revenue increased 6.5% to $424.6 million, which was an all-time high for MFC. The increase was largely due to our surgical case volumes continuing to grow and nearing pre-pandemic levels. In fact, our surgical case volumes in 2022 were the highest they've been since before the pandemic. We continued to reinvest in our facilities in 2022, making further investments in surgical robotic systems at each of our 4 hospitals. We also returned significant capital to our shareholders. Last year, we returned approximately $38 million to shareholders through the repurchase of just under 4.9 million shares, which represented about 16% of our total shares in 2022. This included 3.1 million shares through our substantial issuer bid back in October at an aggregate purchase price of $25.5 million, with the remainder being through our ongoing NCIB program. We also paid dividends totaling $0.322 per common share, which was a 10.8% increase over 2021. MFC remains committed to providing the best care possible. This means investing in our hospitals to ensure they have advanced technology, equipment and facilities in addition to high-quality staff and top-tier physicians. This commitment is reflected in the high patient satisfaction ratings for our hospitals and numerous safety awards over the years. Earlier this year, Black Hills Surgical Hospital was named the #1 hospital in the U.S. for major orthopedic surgery by CareChex. The ranking is a result of Black Hills having the lowest incidence of patient mortality or complications and the highest levels of patient safety, service and surgical quality when compared to nearly 5,000 U.S. hospitals. Meanwhile, Sioux Falls Specialty Hospital ranked in the top 4% of hospitals in the U.S. for Orthopedics by the Women's Choice Award, which is relevant as women account for approximately 90% of family health care decisions. Black Hills and Sioux Falls also shared the title of leading hospital in South Dakota for joint replacements according to Healthgrades. In 2022, Arkansas Surgical Hospital received a prestigious Press Ganey Human Experience Guardian of Excellence award for the fourth year in a row and was recently ranked as the #1 hospital in Arkansas for joint replacements according to Healthgrades. Finally, Oklahoma Spine Hospital was named the #1 hospital in this market for 2023 and listed in the top 10% in the U.S. for major orthopedic surgery, spinal fusion and spinal surgery by CareChex. We believe the investments we continue to make in our hospitals will result in ongoing strong demand in each of their markets, while allowing our health care teams to provide the highest quality of care to our patients. With that, I'd like to turn the presentation over to David.

Thank you, Jason. Good morning, everyone. I would like to start by reminding everyone that all dollar amounts I will be discussing are in U.S. dollars, unless stated otherwise. Earlier this morning, we reported solid revenue and earnings numbers for the first quarter of 2023. Our facility service revenue increased by $8.5 million or 8.4% to $109.3 million, largely due to the combined positive impact of case and payer mix as well as higher combined surgical case volumes from our surgical hospitals and Sioux Falls moving its anesthesia service and related billing in-house in the quarter. Operating expenses were up 8.9% compared to Q1 of last year. In addition to higher salaries and benefits, the increase is mainly attributable to the impact of case mix and higher surgical case volumes on drugs and supplies at our specialty surgical hospitals as well as Sioux Falls bringing anesthesia services in-house. Our income from operations was $13.5 million and EBITDA was $19.1 million, representing increases of 4.9% and 6.3%, respectively, when excluding the $1.8 million in government stimulus income recorded in Q1 of last year. We generated cash available for distribution totaling CAD 5.6 million, representing an increase of 20.6% on a per common share basis and a payout ratio of 36.9% compared to 44.4% in Q1 of last year. The cash available for distribution on a per common share basis and our payout ratio reflect a significant reduction in our share count due to last year's substantial issuer bid and our ongoing normal course issuer bid program. Looking briefly at our key balance sheet metrics at the end of the quarter, we had $35.3 million in cash and equivalents and consolidated net working capital of $31.9 million, resulting in a current ratio of 1.4. Inclusive of lease liabilities, our net debt-to-equity ratio remains low at 0.9 compared to 0.94 at December 31, 2022. Our net debt-to-EBITDA ratio for the 12 months ended March 31, 2023, was 1.88, down slightly from a ratio of 1.94 at year-end. We have a strong financial position for reinvesting in our core assets and returning capital to our shareholders. And we remain focused on divesting non-core assets and pursuing additional overhead cost reductions. With that, we would like to address any questions you may have. I'll call upon Trevor Heisler to read any questions that may have been submitted to the Q&A feature of the webcast platform.

Thank you, David. Please wait a moment while I gather any questions submitted. There do not appear to be any questions at this time. Please go ahead, David.

Thank you for joining us today. We look forward to keeping you apprised of our progress throughout the balance of the year. That completes management's presentation. I return the meeting to you, Mr. Chair.

Thank you so much, Jason, and David. I ask that all registered shareholders and duly appointed proxy holders who would like to ask a question, use the Q&A feature on the virtual interface to do so. We will answer as many of your questions as time permits. Please limit your questions to topics relating to today's subject matter and keep your questions short and to the point. We will now give attendees a moment to type in their questions. For each question we answer, we will summarize the question and read out loud the name of the person who asked such question and if applicable, the entity such person represents. We would like to remind you that questions which were already answered or that are redundant or repetitive will not be addressed. We now invite Trevor Heisler of MBC Capital Markets Advisors to read any questions submitted.

Thank you, Michael. Please wait a moment, while I gather any questions submitted to the Q&A feature. There do not appear to be any questions at this time. Please go ahead, Michael.

In conclusion, I would like to thank all of you very much for attending. Thank you.

This concludes the meeting. You may now disconnect.