Good morning, everyone. Welcome to the Medical Facilities Corporation 2021 third quarter results conference call. After the 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 certain statements made today, in today's call, including responses to questions, 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 information about 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 in 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 one hour after the completion of the call. Details on how to access the webcast replay are available in the morning's news release announcing the company's financial results. I would now like to turn the meeting over to Rob Harrar, President and CEO of Medical Facilities. Please go ahead, Mr. Harrar.
Thank you, operator. Good morning and welcome to our third quarter earnings call. Joining me today is David Watson, our Chief Financial Officer. Earlier this morning, we released our third quarter results. Our news release, financial statements, and MD&A may be accessed through our website at www.medicalfacilitiescorp.ca and have been filed with SEDAR today. We were pleased with our continued solid financial results over the first nine months of 2021. Despite a surge in COVID-19 cases across the United States in the third quarter, our revenues were in line with Q3 of last year, when we experienced a strong rebound in surgical case volumes following the first wave of the pandemic. Our volumes this quarter were short of 2019 and were also impacted by the loosening of travel restrictions and the corresponding increase in provider vacations.
Regardless, for the first nine months of 2021, our facility service revenue is up 12.2%, income from operations is up 12.3%, and our EBITDA is up 7.3%. We've improved our financial flexibility during this time and have reduced our debt significantly over the past two years. As a result of this and our continued strong cash flow performance, we were pleased this morning to announce a 15% increase to our quarterly dividend commencing with the fourth quarter dividend. The dividend is an important part of our commitment to maximizing total shareholder return. Additionally, the board of directors has approved implementing a normal course issuer bid for up to 5% of the corporation's issued and outstanding common shares, subject to the approval of the TSX.
The fourth quarter is typically our busiest time of the year, and we remain cautiously optimistic about our outlook. We are monitoring volume recovery closely and are encouraged by the recent downward trend in new COVID cases across much of the United States. We also remain focused on our growth and continue to evaluate opportunities in our pipeline. With that, I would like to turn the call over to David to review our financial results for the quarter. David?
Thanks, Rob, and good morning, everyone. I'll discuss our financial performance for the quarter and provide an update on our balance sheet and liquidity. First, I'd like to remind everyone that all dollar amounts expressed in today's call are U.S. dollars unless stated otherwise. Facility service revenue for the quarter totaled $96.4 million, a slight increase compared to the third quarter of last year, which, as Rob mentioned, benefited from a strong recovery in cases after pandemic restrictions were lifted. Our case volumes were down 2% from the same quarter last year. Although inpatient cases declined 21%, outpatient cases were up 0.7%, and observation cases increased by 31.6%.
Our total revenue and other income for the quarter was $99 million, an increase of $0.2 million or 0.2% from $98.8 million for the same period in 2020. Government stimulus income was in line with the same period last year. Operating expenses for the quarter totaled $82.5 million, representing an increase of $1.2 million or 1.5% compared to the third quarter of last year. Consolidated salaries and benefits were higher as a result of annual increases as well as industry-wide labor market pressures. The most significant expense variance was higher share-based compensation costs, which increased by $1.4 million, driven by the strong appreciation in our share price.
As a percentage of total revenue and other income, operating expenses increased to 83.3% from 82.2% for the comparable period. EBITDA for the quarter was $23.3 million or 23.6% of revenue compared to $24.6 million or 24.8% of revenue in the third quarter of last year. During the quarter, we generated cash available for distribution totaling CAD 7.5 million, resulting in a payout ratio of 29.2% compared to 17.1% in the prior year. We approached the end of the year with a strong balance sheet, improved financial flexibility, and cash flow performance. As of September 30th, we had approximately $63 million in cash and equivalents. The outstanding balance on our corporate line of credit was $31 million at quarter end.
Inclusive of lease liabilities, our net debt to equity stands at 0.51. We continue to be very well-resourced to capitalize on potential growth opportunities, and our leverage remains significantly lower than our U.S. trading peers. Having weathered the most significant impact of the COVID pandemic, we believe we are well-positioned to increase the return on capital to our shareholders, as indicated by the 15% increase in our quarterly dividend announced this morning, as well as our intention to file for approval of a normal course issuer bid of up to 5% of the corporation's issued and outstanding common shares. 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'd now like to open the line for questions. Operator?
Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Just keep in mind, if you are using a speakerphone, please make sure your mute function is released to allow your signal to reach our equipment. Once again, for questions today, star one. We will pause to allow everyone an opportunity to signal. We will hear first from Endri Leno with National Bank of Canada.
Hey, good morning. Thank you for taking my questions. I'll start with the first one. Where are the cases, or where were they in Q3 versus the pre-pandemic?
Compared to pre-pandemic, surgical case volume is down for the quarter 6% compared to 2019.
Yeah.
Go ahead.
No, well, I was just going to ask, I mean, so that's 6% pre-pandemic, and then you're adding another 2% from last year, or does the 6% below also include that, the 2% decrease that you saw from last year?
I'm not sure I understand the question, Endri. We're down on a quarter-to-quarter basis. Third quarter of 2021 is down 2% compared to third quarter of 2020. Compared to 2019, we're down 6%.
Okay. No, that's great. That's good detail there.
Just a little.
Yeah. Go ahead.
I'm just gonna put a little color around that. We called out, you know, it was a strong kind of a third quarter last year as all the restrictions lifted and there was quite a bit of volume that was coming through, Endri. Additionally, you know, we've seen, you know, the Delta variant. This third quarter was an issue, and then we called out some providers. After a couple of pretty strong quarters, we had some providers that just took a break after the restrictions were lifted. That's just sort of some added flow there.
Okay. No, thank you. Would you say those are also the main reasons why you are not yet at pre-pandemic levels? Or is there any more deferred care, or are the surgeries being performed elsewhere?
No, I think this is clear. We know that there are deferred care. We see that a little bit and you see that in some of the payer mix changes. You know, typically, higher acuity cases are deferring through a difficult surge with the Delta variant. So there will be some additional cases for that. So, you know, we're not seeing any issues on outmigration for that.
Okay. We can, I mean, reasonably expect to return to pre-pandemic levels, assuming there are no more surges and things of that nature?
Yeah, assuming we don't have another COVID surge or another outbreak on that, we continue to, you know, continues to recover. As I said, it was just an unusual quarter after two strong quarters. We sort of, you know, took a pause there. Looking where we are right now, it looks, you know, pretty good going into the fourth quarter. We're fairly cautiously optimistic on the fourth quarter.
Okay. No, thank you. That had at least have been my next question. I mean, that's good color for Q4. I mean, are you able to share any more detail there? Like, would you be 95% below or closer to 100% pre-pandemic in Q4 so far? I don't know if you can share that.
No, we don't. We're not there yet, Endri. I think we've got a little bit of visibility, of course, on October, and it looks like, you know, typically the way our seasonality goes is that longer closer to the latter half of the quarter, it continues to pick up, with December historically being, you know, the most significant part of that. You know, right now we're seeing early indications that we're gonna be in line.
Okay. No, thank you. My next question is, it relates to the dividend increase. The question I have is that if you are not yet at pre-pandemic levels, but let's say we expect them sometime next year, but why increase the dividend at this point, and not wait until you get back to 2019 levels?
Yeah, Endri, that's a good question. You know, I think when you look at our balance sheet, our balance sheet just continues to strengthen. You know, debt level continues to go down. You know, we've got plenty of capacity in our line of credit and our cash position is very good. We just felt it was the right time. Given the strength of our balance sheet and our comfort with the outlook going forward, we didn't feel it was necessary to continue waiting.
Okay. No, that's good. As I try, I'm gonna tie that dividend increase and then you're seeing the improving balance sheet, which it has, and it's great. Are you seeing any changes in growth opportunities, either for M&A or perhaps expansions?
No changes. You know, we feel, again, we're our objective is a competitive and a sustainable dividend, and along with the ability to fund our growth projects. Our pipeline does remain very active, and you know, you look at a lot of opportunities, and you pass on a bit, you know, the de novos that we've called out before take time to develop and syndicate and develop the relationships to move forward. You know, we don't see any changes in the opportunities. If nothing else, we've seen an increase in that.
Okay. Are you able to provide any color, like, let's say, versus vis-à-vis last quarter, like Q2? I mean, have you advanced any more LOIs or have any talk, any discussions on new de novos moved forward and any color you can share there?
Yeah, we have quite a few discussions, Endri, and, you know, quite honestly, in the acquisition, especially in this business, you're partnering with physicians and in a lot of cases, healthcare systems. Some opportunities just take time to germinate and gain enough interest to move forward. Some, quite honestly, don't materialize. The activity around that is significant along with, you know, due diligence and things like that. You know, we walk away from a whole lot more than we actually get brought to ground. Again, it continues to develop, and our pipeline is still very active.
We will now move on to our next question from Chelsea Stehlik with iA Capital Markets.
Hi, thank you for taking my questions today. I think Endri asked most of them, but just in terms of the you know, outpatient cases, they seem to be in line with what was in the past. I'm just wanting additional color on why we saw, you know, the 21% decrease in inpatient cases.
Hey, Chelsea, it's David. You know, Rob touched on it with the, you know, part of it. I think is the spike in COVID cases and, you know, some of those higher acuity cases just holding back and, you know, deciding they're gonna defer that care temporarily. You know, in addition, you know, there is more of a trend to cases being done as outpatient cases. There's some of that also.
Is that something, like, we're probably gonna see next quarter, like, a continuation of outpatient cases growing and inpatient cases kind of being constrained?
You know, when you look at it on a year-to-date basis, it's less. You know, on a year-to-date basis, the inpatient case volume's down, you know, a little under 9%. Right now, it just seems to be a third quarter phenomenon. I don't anticipate that we'll see the same level that we saw in the third quarter.
Okay. All right, thank you. I guess just the last one, is it safe to say that, you know, that we see de novo ASC developments coming in before any large acquisitions in the next six months? That's sort of the overall.
Yeah. Chelsea, I'll just say again, we've got a lot of opportunities that we're looking at, and just really wouldn't put a timeframe on that right now.
Okay. Great. Thank you so much.
Okay. Thank you.
As a reminder, everyone, star one if you would like to ask a question. We do have a follow-up question from Endri Leno with National Bank of Canada.
Hey, thanks for the follow-up. Just one last one for me. If you guys can talk a bit about labor tightness, and how is it impacting you, if at all, especially nursing that we hear is pretty tight out there.
No, I think that's a good question, Endri, and it's certainly very topical right now across the labor market in general and specifically healthcare. You know, I'll just tell you that there are pressures on wage right now and retention, and we're not unique. Healthcare is not unique. It's not really necessarily even geographic. It's fairly widespread. And right now, I would tell you that we will see some near-term pressure on costs. We don't have any barriers right now, we don't expect any impact going into the fourth quarter, but we will probably see some little bit of headwind on some interim costs to make sure that, you know, we still maintain our staffing. But there's definitely that.
We also, Endri, I think for the most part, and our peers have called this out too, we expect that that will hopefully normalize into 2022. It's but it's a little bit of a headwind on the near term.
Okay. Thank you. That's it for me. Thanks.
Okay.
We'll now hear from Doug Loe with Leede Jones Gable.
Yeah. Good morning, gentlemen. Thanks for taking my question. Just kinda following on from Endri's question about labor market constraints. In your MD&A, you flagged that Sioux Falls experienced some softness in workers' compensation surgical cases, and strikes me as though that might be a trend that could also continue into 2022. I was just kind of wondering what sort of trends you might be seeing on softness in that category of procedure and whether or not that might not be necessarily specific to Sioux Falls going forward.
You know, Doug, right now I think it's a one quarter aberration. I'm not ready to say that's a you know an ongoing trend. I think we'll continue to monitor it carefully. Certainly had some impact in the quarter, but not something that we're anticipating is gonna be a ongoing issue.
Okay. No, good stuff. Thanks. That's it for me.
Very good. Thanks, sure.
Next question will come from Sahil Dhingra with RBC Capital Markets.
Hi, this is Sahil Dhingra for Douglas Miehm. I had one question. In terms of the government stimulus, it has increased quarter-over-quarter. Do you have any timeline or what would be the future run rate for this?
Yeah. The government stimulus was up a little under $200,000 on a quarter-over-quarter basis. We currently have about $1.5 million that's deferred on the balance sheet and will be recognized in future quarters. Beyond that, you know, pending some new stimulus program, we don't anticipate seeing, you know, ongoing stimulus.
Thank you.
Sure.
At this time, there is no additional questions. I will turn the call back over to Rob Harrar for closing remarks.
Thank you. In closing, we'd like to thank our physician partners, nurses, and all team members who deliver outstanding care to patients each and every day. As always, we look forward to reporting on our progress again next quarter.
With that, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation. You may now disconnect.