Earnings call transcript: Medical Facilities Q1 2025 results miss forecasts

Medical Facilities Corporation reported its first-quarter 2025 financial results, revealing earnings per share (EPS) of $0.17, which fell short of analysts’ expectations. Revenue for the quarter was $81.7 million, slightly below the forecasted $82.7 million. Despite these results, the company’s stock showed resilience, rising by 2.36% to $15.51 in after-hours trading. According to InvestingPro data, the company maintains a strong financial health score of 3.57 (rated as "GREAT"), suggesting robust operational efficiency and financial stability. InvestingPro analysis shows the company holds more cash than debt on its balance sheet, a positive indicator for long-term sustainability.

Key Takeaways

• EPS of $0.17 missed expectations.
• Revenue remained flat year-over-year at $81.7 million.
• Stock price increased by 2.36% post-earnings announcement.
• No significant product innovations were announced.
• Focus remains on operational efficiency and capital allocation strategies.

Company Performance

Medical Facilities Corporation’s performance in Q1 2025 reflected stability in its core operations, despite the revenue miss. The company managed to increase its EBITDA by 0.7% to $17.3 million, indicating effective cost management and operational efficiency. With an attractive EV/EBITDA ratio of 3.34x and a P/E ratio of 10.63x, the company appears reasonably valued compared to industry peers. Surgical cases rose by 2.2%, even with one less surgical day, demonstrating robust demand for its services.

Financial Highlights

• Revenue: $81.7 million, flat year-over-year.
• EBITDA: $17.3 million, a 0.7% increase.
• Consolidated cash balance: $65.7 million.
• No corporate-level bank debt.

Earnings vs. Forecast

Medical Facilities reported an EPS of $0.17, missing the market forecast. The revenue of $81.7 million was also below the expected $82.7 million, marking a slight shortfall. This represents a minor deviation from projections, which might not significantly impact long-term investor sentiment.

Market Reaction

Despite missing earnings expectations, Medical Facilities’ stock price rose by 2.36% to $15.51 in after-hours trading. This increase suggests that investors remain optimistic about the company’s future, possibly due to its strong cash position and lack of corporate-level debt. InvestingPro analysis indicates the stock is currently undervalued based on its Fair Value model, with additional upside potential. The company has maintained dividend payments for 22 consecutive years, demonstrating consistent shareholder returns. For deeper insights into Medical Facilities’ valuation and more exclusive ProTips, check out the comprehensive Pro Research Report available on InvestingPro.

Outlook & Guidance

Looking ahead, Medical Facilities is exploring various capital allocation strategies, including share repurchases and reinvestment in existing facilities. The company has also mentioned the possibility of issuing a special dividend if capital cannot be allocated effectively. With a strong free cash flow yield and management actively buying back shares, as highlighted by InvestingPro, the company demonstrates commitment to shareholder value. Revenue forecasts for upcoming quarters are set at $82.5 million for Q2 and $77.6 million for Q3 of 2025.

Executive Commentary

CEO Jason Redman emphasized the company’s strong financial position and operational stability. He stated, "Our financial position remains very strong," highlighting confidence in the company’s strategic direction. Redman also noted that a special dividend would be a last resort if capital allocation opportunities were limited.

Risks and Challenges

• Potential reimbursement risks could affect revenue streams.
• Ongoing monitoring of site neutrality legislation.
• Market competition in surgical hospital sectors.
• Fluctuations in surgical case volumes could impact financial performance.

Q&A

During the earnings call, analysts inquired about revenue fluctuations at the Oklahoma Surgical Hospital and the company’s capital allocation strategies. CEO Jason Redman addressed these concerns, reiterating the company’s focus on operational efficiency and strategic reinvestment in its facilities.

Full transcript - Medical Facilities Corporation (DR) Q1 2025:

Conference Operator: Good morning, everyone. Welcome to the Medical Facilities Corporation’s twenty twenty five 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 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.

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 and A for this quarter, risk factor 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 except as required by applicable law. Such statements speak only as of the date made. I would now like to turn the meeting over to mister Jason Redman, president and CEO of Medical Facilities.

Please go ahead, mister Redman.

Jason Redman, President and CEO, Medical Facilities Corporation: Thank you, operator, and good morning, everyone. Joining me on the call is our Chief Financial Officer, David Watson. As usual, please note that all dollar amounts that follow are in U. S. Dollars, unless otherwise specified.

Earlier this morning, we reported our first quarter results. Our news release, financial statements, and MD and A are available on our website and have been filed on SEDAR plus As you know, there has been a great amount of economic uncertainty these past few months, both in Canada and The U. S. Despite this uncertainty, we are proud to report that our first quarter performance was in line with the strong first quarter we had last year, which benefited from additional surgical day due to the leap year. In the first quarter of this year, we had facility service revenue of $81,700,000 which was essentially on par with the prior year, and EBITDA of 17,300,000 which represented an increase of 0.7%.

It’s also worth noting that even with one less surgical day, our surgical cases were up 2.2% in the quarter. In keeping with our strategic focus on returning capital to shareholders, it should be no surprise that the highlight of the quarter was a successful return of $42,300,000 of the proceeds from the sale of Black Hills Surgical Hospital to shareholders through our substantial issuer bid. Under the SIB, we purchased and canceled just under 3,400,000.0 common shares, which represented approximately 14.7% of the issued and outstanding common shares on a non diluted basis as of the close of business on 02/23/2025, which was the last full trading day prior to the date we announced the amended terms of the SIB. During the quarter, we also repurchased 182,600 common shares under a normal course issuer bid, returning an additional $2,000,000 to shareholders and further demonstrating our commitment to shareholder value. Our financial position remains very strong, with a consolidated cash balance of $65,700,000 at quarter end, providing MFC the stability and flexibility to navigate the evolving economic environment while continuing to drive operational excellence and simultaneously exploring options on how best to allocate the remaining capital from the sale of Black Hills Surgical Hospital.

Before passing the call to David, I want to give a shout out to Arkansas Surgical Hospital, which has ranked fifth in The U. S. In terms of lowest hospital readmission rates according to CMS. ASH was also recently named a finalist by Ay Magazine for Best Doctor Owned Hospital and Best Specialty Hospital in Arkansas. With that, I would now like to turn the call over to David to review our financial results for the quarter.

David?

David Watson, Chief Financial Officer, Medical Facilities Corporation: Thank you, Jason. Good morning, everyone. Please note that the income statement variances I will be discussing this morning are for continuing operations and therefore exclude Black Hills Surgical Hospital, which was treated as discontinued operations in the financial results for the quarter ended 03/31/2024. Our facility service revenue of $81,700,000 was on par with the first quarter of last year, despite the prior year’s first quarter including an extra day from the leap year. This was attributable to higher surgical case volumes, which were up two point two percent in the quarter.

Observation cases increased six point eight percent and outpatient cases increased four point eight percent, while inpatient cases were down seventeen percent and pain management cases were down 8.3% in the quarter. Total operating expenses were down slightly, declining 200,000.0 as higher consolidated salaries and benefits were more than offset by reductions to drugs and supplies and G and A expenses. Consolidated salaries and benefits were up 3.1%, mainly due to higher benefit costs from increased health plan utilization, along with annual merit raises and market driven wage growth for both clinical and nonclinical staff. These increases were partially offset by a reduction in physician salaries due primarily to a physician becoming a full owner in a facility. Drugs and supplies were down 1.7%, mainly due to one fewer operating day compared to the same period last year, as well as a case mix comprised of lower acuity procedures, cost saving measures at certain facilities, and increased vendor rebates.

These factors were partially offset by the higher surgical case volume in the quarter. Finally, G and A expenses were down 3.8%, mainly due to lower corporate level costs related to share based compensation plans. Additional savings came from lower rental expense and reduced spending on contracted services. These decreases were partially offset by higher repairs and maintenance expenses. Looking at our profitability for the quarter, income from operations was flat year over year at $13,000,000 while EBITDA was up 0.7% to $17,300,000 Turning to our balance sheet.

At the March, we had consolidated net working capital of $35,900,000 and cash and cash equivalents of $65,700,000 compared to net working capital of $76,400,000 and cash and cash equivalents of 108,500,000 at the end of twenty twenty four. The change in consolidated net working capital was mainly due to the completion of the substantial issuer bid during the quarter, resulting in a decrease in cash and cash equivalents. In addition to our strong cash position at quarter end, we have no corporate level bank debt after retiring the balance on our corporate credit facility near the end of twenty twenty four. This concludes our prepared remarks. We would now like to open the call up for questions.

Operator?

Conference Operator: Thank you. So ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the following process, please press the star followed by the two.

If you are using a speaker speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Sahil Dhingra, an analyst from RBC. Please go ahead.

Sahil Dhingra, Analyst, RBC: Hi. Good morning. This is Sahil for Doug Mead. Thank you so much for taking our questions. So my first question is when we’re looking at the facility revenue, so for OSH Oklahoma Surgical Hospital, we see the revenues were down while other hospitals were up.

So, could you please comment if there is any structural issue with OSH, or was it one time and normal quarterly fluctuations that we see?

David Watson, Chief Financial Officer, Medical Facilities Corporation: Yeah, hi, Sahil. Thanks for the question. Yeah, Oklahoma Spine during the first quarter we saw lower surgical case volume. Nothing unusual there. It was just timing during the quarter.

It was also impacted by case and payer mix. It was just a mix of cases during the period.

Sahil Dhingra, Analyst, RBC: Okay. Okay. So going forward, would expect growth in this segment, right?

David Watson, Chief Financial Officer, Medical Facilities Corporation: I would say I didn’t experience anything or we didn’t see anything unusual during the quarter. It was primarily timing. So I wouldn’t necessarily look to view that as a trend.

Sahil Dhingra, Analyst, RBC: Okay, great. That is helpful. And then my second question is related to the capital allocation. So, I think previously you had mentioned that the amount of funds received from the sale of Black Hills that is not distributed under the SID, it would be given as a special dividend to shareholders. What’s the latest thinking on the remaining amount?

Jason Redman, President and CEO, Medical Facilities Corporation: Thanks, Ail. So as we’ve said before, if the capital cannot be allocated, doing a special dividend is our last resort. My preference is to continue to remain active in the NCIB as much as possible and continue repurchase of shares and also look for opportunities to reinvest back in the business in an accretive manner for our shareholders. But if we can’t find alternate uses for the capital that’s a better use, then the board will definitely look at doing a special dividend.

Sahil Dhingra, Analyst, RBC: And as a follow-up, when you mentioned the reinvestment into the business, are you looking at an acquisition or the normal reinvestment in the existing facilities?

Jason Redman, President and CEO, Medical Facilities Corporation: Yeah, no acquisitions, Seal, just normal reinvestments back into the business. But we’re always looking for ways that we can enhance our operations, improve efficiency, invest in technologies, invest in our people and also attract and retain positions that we have. So if there’s ways that we can deploy that capital in those manners, then it’s something that we’ll that’s our first alternative for allocation of money.

Sahil Dhingra, Analyst, RBC: Okay. And I have two more questions. I’ll lump them together. One is, are you experiencing any change in competition at any of your facilities? And the other one I have is, I think last quarter we discussed a bit on this, but under the current administration, are you seeing risks related to site neutrality or any other proposals which might impact the reimbursement for different procedures under Medicaid or Medicaid?

And if you could comment there. Thank you.

Jason Redman, President and CEO, Medical Facilities Corporation: Sure. I’ll take one on the competitive environment. So right now, we’re not seeing any significant changes in the competitive environment. I think all the markets that we’ve operated in are typically being competitive. We haven’t seen any change in that nor have we seen any lost cases to our competition.

So our facilities continue to perform very well. They continue to be ranked very highly. And our folks have done a very good job at managing the base and maintaining their competitive environment. So we’re very comfortable with how they’ve executed. In terms of the impact of site neutrality, as you know, has been contemplated for a very long period of time.

Legislation has been discussed numerous times. We don’t have any further indication that site neutrality is coming. But it’s something that’s definitely on our radar. We watch very closely to see if it could be an impact. I think right now it’s too premature to assess it.

But I mean, depending on how significant it was, I mean, it could have an impact on the business for sure.

Sahil Dhingra, Analyst, RBC: Okay, okay, great. And you’re not seeing any further challenges on the reimbursement side?

Jason Redman, President and CEO, Medical Facilities Corporation: No, not right now. And to answer your question on the Medicaid, Medicaid represents a very small portion of our business. So even if there were changes to Medicaid reimbursement, we don’t expect a material impact on our business going forward.

Sahil Dhingra, Analyst, RBC: Okay, great. That is very helpful and thank you so much for taking the questions this morning.

Jason Redman, President and CEO, Medical Facilities Corporation: Thank you.

Conference Operator: Thank you. So there are no further questions at this time, so I will now turn the call over to Mr. Jason Redman. Please continue.

Jason Redman, President and CEO, Medical Facilities Corporation: Thank you, operator, and thank you all for joining us this morning. We appreciate your continued support and look forward to updating you on our progress throughout the year. Have a great day.

Conference Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

Jason Redman, President and CEO, Medical Facilities Corporation: Yeah.

Sahil Dhingra, Analyst, RBC: Thank you.

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