Good morning, everyone. Welcome to the Medical Facilities Corporation 2021 second quarter results conference 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 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 securities laws. Forward-looking statements involve risks and uncertainties. Undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements. Actual results may differ materially from those expressed or implied in such statements.
For additional 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, 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 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 call meeting over to Mr. Rob Horrar, President and CEO of Medical Facilities.
Thank you, Jennifer. Good morning, and welcome to our second quarter earnings call. Joining me today is David Watson, our Chief Financial Officer. Earlier this morning, we released our second quarter results. Our news release, financial statements, and MD&A may be accessed through our website at www.medicalfacilitiescorp.ca, and they've also been filed with SEDAR today. Our second quarter was highlighted by a continued strong recovery in case volumes on a sequential and year-over-year basis. Surgical case volumes were up at each of our facilities, with Sioux Falls Specialty Hospital, MFC, Nueterra ASCs, and the Black Hills Surgical Hospital experiencing the largest increases. Our facility service revenue was up 44.2% from the second quarter of last year.
In line with the higher surgical case volume across all facilities, we also saw an increase in operating expenses, partly offset by the impact of the sale of Two Rivers Surgical Center in September 2020. Our EBITDA for the quarter was down 3.7% from the second quarter of last year. As a reminder, we recognized just over $21 million in government stimulus income in the second quarter of last year versus $572,000 this past quarter. Importantly, compared to 2019 as a baseline, second quarter EBITDA, excluding government stimulus income, increased 12.7%. Looking ahead to the back half of the year, we remain cautiously optimistic in our outlook.
While we are pleased with the continued volume recovery in the second quarter and encouraged by the continued rollout of vaccines across the U.S., there is still a lot of uncertainty due to the Delta variant in many parts of the country. COVID-19 cases have been on the rise so far throughout the summer, and we continue to support the vaccination rollout at each of our facilities and in general. Regardless, all of our facilities are open. We have sufficient PPE on hand and continue to take all necessary precautions. We have a strong base from which to grow, both organically and by way of strategic acquisitions. On the topic of organic growth, the 4,500 sq ft expansion at Arkansas Surgical Hospital is moving forward as expected, remains on track for completion before the end of the year.
We also look to capitalize on the strong ASC market, whether through potential acquisitions or de novo opportunities like St. Luke's ASC, which we opened last year and continues to ramp up volumes. With that, I would like to now turn the call over to David to discuss our second quarter financial results.
Thanks, Rob. Good morning, everyone. I will discuss our financial performance for the quarter, then provide an update on our balance sheet and liquidity. First, I would like to remind everyone that all dollar amounts expressed in today's call are in US dollars, unless stated otherwise. Our facility service revenue for the second quarter was $97.6 million, which is up 44.2% from the $67.7 million in the second quarter of 2020. The increase was primarily due to higher case volume, as prior year volumes and case mix were impacted significantly by the pandemic. Overall surgical case volumes increased by 51.1%. Outpatient cases increased by 62.1%. Inpatient cases increased 15.6%.
Although second quarter surgical case volume from continuing operations increased significantly compared to 2020, it was still about 6% below the second quarter of 2019. Total revenue and other income was $98.1 million for the quarter, an increase of 10.5% from $88.8 million for the same period in 2020. As Rob mentioned, facilities received an additional $572,000 in government stimulus during the quarter, while they received just over $21 million in the second quarter of last year. Operating expenses for the quarter increased by 14% to $81.2 million to a more normalized level driven by the growth in case volume. As a percentage of total revenue and other income, operating expenses increased to 82.7% from 80.2% in the prior year, but compared favorably to 86.4% in the second quarter of 2019.
EBITDA for the quarter was $23.7 million, or 24.1% of revenue, compared to $24.6 million, or 27.7% a year earlier. Compared to 2019 as a baseline, second quarter 2021 EBITDA, excluding government stimulus income, increased 12.7% and the margin was 23.7%, compared to 21.8% in second quarter 2019. In the second quarter of this year, we generated cash available for distribution totaling CAD 7.5 million, resulting in a payout ratio of 29.2%. This is a slight increase from second quarter of last year due to the strengthening of the Canadian dollar relative to the U.S. dollar. Turning to our balance sheet. At quarter end, we had cash and cash equivalents of $61.5 million and consolidated net working capital of $48.1 million, compared to $45 million at year-end. Cash and cash equivalents included $20.8 million of Medicare advances after $2.3 million was recouped in the second quarter.
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 0.49. 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. For additional detail on our financial results, including specific results for each facility, please refer to our MD&A. With that, we would like to now open the line for questions. Operator?
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. For just a moment, to allow everyone an opportunity to signal for questions. We'll go first to Endri Leno with National.
Hey, good morning. Thanks for taking my questions. I was wondering if you guys can talk a little bit, you said the volumes are generally recovering or have recovered in Q2. I was wondering if you can talk a bit about how is it trending versus historical levels and what are you seeing so far in Q3?
Yeah. Hey, Endri. Thanks for the question. The volumes have continued to improve. We saw in the first quarter that it's certainly up significantly compared to 2020. Still a little bit below the same period in 2019, but that continued to improve in the second quarter. We were about 6% below second quarter 2019. We're cautiously optimistic. I think all things being equal, we'd expect that trend to continue. Obviously with the potential impact of the Delta variant, we're cautious on that.
Okay. No, for sure. As a follow-up there, does the caution come from a general sense of caution that cases are increasing, or are you seeing anything in terms of cancellations or postponement?
It's a general caution at this point.
Okay. Great. Thank you. The second question I have, you mentioned, or Rob Horrar, in the prepared remarks, and it was in your press release as well, into exploring growth opportunities in the second half of the year, be it de novo and acquisition. I was wondering if you can talk a little bit about what would kind of sway you one way or another, to a de novo or to an acquisition, and if you can talk, what kind of size are you considering? Would it be more of a sort of a tuck-in kind of situation, or would you even look for something of the size?
Well, in general, Endri, we've talked about our growth opportunities in the ASC side are significant, listed in terms of the looks that we're getting and our pipeline. Our pipeline is active. We continue to look at both de novo development opportunities as well as acquisitions. We see that market starting to pick up in terms of activity. Clearly, we've talked about that. We see a lot of activity right there. It takes a while, of course, to work through development opportunities and to diligence acquisitions. The size are generally what we've got about now in terms of the ASC portfolio, for that 2-4 OR size.
Okay. Great. That's good color. Thank you. My next question then, I have a follow-up, but I'll jump to the queue after. I was wondering if you can talk a bit about the CMS fee schedule for this year, any impact on the procedures or what impact would it have to Medical Facilities, if at all?
Yeah. I think the overall lift on the schedule is 2.3%. The expectation is that from our specifics, it should be in line with that.
Okay, great. The follow-up to that is that the reinstatement of the inpatient-only list had any impact on Medical Facilities at all, or any thoughts you might have on that?
I believe you're talking about the inpatient-only list. CMS, I think, has pulled back from that this year.
Yeah.
Just in general, I'll just say in general, our volumes continue to improve across the board. At this point, I would say that's not been the impact.
Okay. No changes there, right?
It should be more or less the same.
Not
Right.
Okay, great. Thanks. I'll jump in the queue. Thank you.
Thank you.
We'll go next to Doug Miehm with RBC Capital Markets.
Yeah. Thank you, and good morning. First question just has to do with the surgical case volume increases that you're seeing, and you noted, I read that large part of that 68% is coming from Medicare or growth. I think it was 38% from Blue Cross Blue Shield. Can you talk about why you're sort of over-indexed right now to Medicare growth? Just curious about that.
Yeah. Doug, I appreciate the question. This is Rob. What we've seen coming out of recovery is a large part to a large part of the deferred cases were Medicare, starting to see that come back as COVID and vaccinations roll out. We've seen a little more growth in that area, and of course, Blue Cross being in our commercial line was a part of that. That's really the reason behind it.
Okay. That makes perfect sense.
Right.
The other thing that I was wondering about is, do you think that the company and other surgical hospitals, just in general, are benefiting from what may be a perception that they're a safer place to have procedures done versus a community hospital where they could get exposure to COVID, et cetera? Do you still feel that it's simply a function of the quality of the care and those sorts of things that you can provide relative to a community hospital?
Doug, that's a very good question. I think primarily it's the quality of the outcomes and things like that win the day. Secondly, I'd tell you that I think that's primarily what wins the day here. Now, I would tell you we've benefited over the time from being a safe place, not treating COVID patients, that we have seen some volume pickups from that, and especially from physicians in the community that are not owners. We've talked about that in previous calls, and to some degree, there may be some benefit from that. For the large part, it's the reputation of each of the centers and the quality.
Yeah. Okay, good. Finally for me, just with respect to multiples and those sorts of things as you look at your acquisitions. Now de novo's one thing, but the acquisition multiples, are you seeing any price inflation in those? Whether they be a surgical hospital or I guess it'd be mostly ASCs in this case, but anything you've observed there through the period?
What we're seeing right now is fairly stable multiples. We haven't seen any expansion of that over the past year. It's been fairly stable on the multiple side.
Okay, great. That's it for me. Thanks very much.
Thank you.
Thanks.
We'll go next to Chelsea Stellick with iA Capital Markets.
Hello, good morning. I just have a couple questions. I guess I'm just curious on the outlook of government stimulus. I know that you mentioned potential stimulus from newer packages. I just want to get a sense of where you expect things to roll out for the remainder of the year.
Based on stimulus that's been received to date, Chelsea, we still have some deferred that we'll be recognizing in the third and fourth quarters.
Okay
it's not at the same level that we've seen in past quarters.
Okay. I guess this is my last question. I know that you mentioned there's just been a larger proportional increase in surgical cases at MSC and SFSH. Just more color on the larger increases there and if that's going to continue moving forward, the delta between certain facilities.
Well, we just called out, those were the best performers in terms of the volume for the quarter. I think overall we're pleased in general with that trend across the portfolio. As David Watson called out, Chelsea Stellick, we continue to close the gap to the 2019 levels.
Even within the third quarter, we saw almost a continued positive closure rate. Delta COVID aside, we're pretty optimistic of that continuing.
Okay. Yep, that's great. That's it for me. Thank you.
Good. Thank you.
Once again, if you'd like to ask a question, that's star one. We'll go next to Endri Leno with National Bank.
Hey, good morning. Thanks for the follow-up. Just one for me. Can you guys talk if you're seeing anything in terms of inflation, be it within your current staff or even labor pressures in the U.S. whether that has impacted hires or anything like that?
Yeah, good question, Endri. In competitive markets, we've always seen competitive labor market in each of our markets. We have seen increased pressure this year. Nothing that's impacted our ability to maintain staffing levels or operate.
Okay. Thank you. Is there any way, in terms of the increased pressure, actually, is it more in terms of recruiting or is it more in terms of compensation or keeping staff in-house?
Yeah, it's actually both, because they end up playing off on one another.
Okay. Is the impact quantifiable that you might want to call out or not really a quantifiable impact at this point?
No, not at this time.
Okay. Great. Thank you. That's it for me.
Okay.
At this time, there are no further questions. I will turn the call back to Mr. Rob Horrar.
Thank you, operator. In closing, we thank our physician partners, nurses, and all staff who deliver outstanding care to patients each and every day. As always, we look forward to reporting on our progress again next quarter. Thank you.
This does conclude today's conference. We thank you for your participation.