AGM 2020

May 14, 2020

Slides

Good afternoon, ladies and gentlemen. Welcome to the Medical Facilities Corporation Conference Call. Your first speaker today will be Jeffrey Lausanne. Jeffrey, the floor is yours. It is now 2PM Eastern Time and I ask that Annual General Meeting of Shareholders come to order. Ladies and gentlemen, my name is Geoffrey Lozon. As Chair, I would like to welcome you to the twenty twenty Annual General Meeting of Shareholders of Medical Facilities Corporation. As an introductory note on the recommendations of public health officials to practice social distancing and related regulations and public gatherings due to the COVID-nineteen pandemic, and to mitigate risks to the health and safety of our communities, shareholders, employees, and other stakeholders, we are hosting today's meeting virtually via live audio webcast. Before we begin the formal portion of the meeting, let me introduce the other speakers: Mr. Robert Harar, the company's President and Chief Executive Officer, and Mr. David Watson, the company's Chief Financial Officer. I will act as Chair of the meeting. I will ask David Watson to act as Secretary of the meeting, and Alicia Mohamed and Leanne Branston of Broadridge Financial Services to act as scrutineers. Due to 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 formal matters, any shareholder or proxy holder may ask questions by submitting a question through the Ask the Question functionality on the meeting web portal. We will endeavour to answer your questions during the meeting as time permits in the order they are received. The last Annual General Meeting of Shareholders was held on 05/09/2019. Any shareholder who wishes to review the minutes of that meeting should contact us using the Ask the Question functionality on the meeting web portal. I am also tabling a copy of the 2019 audited financial statements. These are publicly available, as are the proxy materials, and are posted on our website. They can be accessed through the meeting materials link on the web portal. Please note that upon completion of the meeting, the CEO and the CFO will be making a presentation. Following their presentation they will endeavour to answer questions that you may have that are submitted to an Ask the Question functionality on the web portal. During the formal portion of this meeting, I ask you to limit your submitted questions to those matters directly related to specific matters being considered. Shareholders have been provided with notice and proxy materials for this meeting in accordance with applicable laws. These are publicly available, posted on our website, and can be accessed through the meeting materials link on the web portal. I have been advised by the scrutineers that prior to the meeting, proxies were received from the holders of 9,998,474 shares, or approximately 32.14 percent 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. I will now present the two resolutions that will be considered at this meeting. We will conduct the vote on all resolutions put to this meeting by way of online ballot by clicking on the voting buttons on the web portal. The first item of business for which this meeting has been called is the election of seven directors to hold office until the next annual meeting of shareholders of the company, or until their successors are duly elected or appointed. The management information circular states that there are seven candidates proposed. The Secretary will now read their names. The names of the nominees are Marilyn Day Linton, Stephen Dinely, Aaron S. Enwright, Robert O. Harare, Dale Lohr, Jeffrey C. Lozon, Reza Shahim. Since no further nominations have been received in the required timelines, I declare the nominations closed. Seven persons have been nominated as directors and there are seven directors to be elected. The next item of business for which this meeting has been called is to consider, and if thought appropriate, to approve a resolution reappointing KPMG LLP as auditors of the company and authorizing the Board of Directors to fix the remuneration of the auditors. In order to be approved, this resolution must be passed by a majority of the votes cast thereon. Now that we have presented each of the resolutions to be considered at this meeting, can I please have a motion for the election of directors and the reappointment of the auditors? Mr. Chair, I hereby move that each of the seven persons whose names have been read to this meeting by the Secretary for election of Director of the company be elected to serve until the Annual Meeting of Shareholders to be held in 2021 or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office. Mr. Chair, I also hereby move that KPMG LLP be reappointed as auditors of the company at a remuneration to be fixed by the Board of Directors of the company. Mr. Chair, I second the motions. Thank you. Are there any questions regarding the motions to be voted upon? I now invite Trevor Heisler of National Public Relations to read any questions submitted. Thank you, Jeff. We will pause momentarily to collect questions. I do not see any questions submitted to the web portal. Please go ahead, Jeff. The meeting will now vote on the motions. As I stated earlier, each of the resolutions will be conducted by online ballot. The polls are now open. Any registered shareholder or proxy appointee who has not yet voted, or wishes to change their vote, may do so by clicking on the voting buttons on the web portal, and following the instructions there. Shareholders who voted upon signing into the web portal have sent in proxies or voted via telephones for intranet, and do not wish to change their vote do not need to take any further action. We will now take a brief pause for voting. Thank you, now that everyone has had the opportunity to vote, I declare the polls for the election of directors and the reappointment of the auditors to each be closed. 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 Scrutineers 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 have to tender their resignation under Medical Facilities Corporation majority voting policy. Therefore, I declare that each of the seven 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. The scrutineer's report on the vote regarding the reappointment of the auditor shows that the resolution has passed. Therefore I declare that KPMG LLP has been reappointed as the auditor 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 Robert Harar and David Watson, the company's CEO and CFO, to make a presentation and to answer your questions. Thank you, Jeff, and good afternoon. I appreciate everyone being able to join us online today. Our Chief Financial Officer, David Watson, I will now provide an overview of the past year, as well as an update on our outlook and plans for the future at MFC. But first, I would like to direct your attention to our disclaimer on forward looking statements as the following presentation should be viewed in context of this disclaimer. We could forward the slide, please. We can forward this yeah. We advance to number six, please. Forward looking statement. Next slide, please. Number six. So, well, numbers, there we go, number six. 2019 was a challenging year for MFC. Most significantly, we experienced ongoing issues at Unity. And to a lesser extent, we experienced issues at one of our larger MFC Nueterra ambulatory surgery centers. For the first nine months of the year, our payout ratio was in excess of 100%, leading us to make changes to our dividend policy. By September 2019, we began to see an improvement in results. We finished the year with a strong fourth quarter. We spent considerable time and effort executing on our strategic plan for Uniti. And although we completed our transaction in February, much of the work was done throughout 2019. As a result, Uniti and the underlying real estate were classified as assets held for sale in our year end balance sheet. David will cover the details of our financial performance later in the presentation, but at a high level, excluding Unity, revenue was up 1.9% to $398,100,000 resulting in income from operations of $44,500,000 Adjusted EBITDA was up 3.1% to $96,200,000 and surgical case volumes were up 2.1 for the year. Improving or realigning our portfolio was our primary focus for much of last year. Though not a material transaction, by the end of the year, we had sold our interest in Central Arkansas Surgical Center. This facility came to us as part of a platform acquisition and we acquired seven ASCs through our MFC Nueterra partnership in early twenty eighteen. However, this particular ASC was in a relatively small market with limited growth opportunities and no material financial contribution. We felt our resources would be better deployed in larger markets and new opportunities. As I mentioned a few moments ago, in February, we sold the majority of our interest in Uniti. For this transaction, we partnered with several local investors, including leading physicians affiliated with South Bend Orthopedics, the South Bend Clinic, and Allied Physicians of Michiana. We expect our new partnership and additional capital to improve facility utilization and financial performance of Unity. With our ownership interest decreasing to 31.7%, Unity is no longer consolidated in our financial results. Following these transactions, we will still have a diverse portfolio of high quality facilities. We have 11 facilities, including four surgical hospitals and seven ASCs in 10 different states. We also have six urgent care clinics that expand the hospital's outreach and brand in surrounding communities. We can advance the slide, please. Pause for the moment for the presentation to catch up. Sorry about that. I was on mute. The penny To the moment, we're having technical difficulties with the slides being moved forward. So we'll pause for a moment. There we go, we're back on track. As I mentioned earlier, last November, we reduced our dividend payout by 75% on an annualized basis and changed the frequency from monthly to quarterly. Additionally, at the end of twenty nineteen, we retired our 5.9% convertible debentures using a combination of cash on hand, dollars 16,000,000 from our credit facility. These two moves provide us with increased financial flexibility, allowing us to better pursue long term value maximizing opportunities. Combined with the Unity and Central Arkansas transactions, we have dramatically improved our financial position over the past six months. We'll just proceed with the presentation. Our success over the years has largely been due to our ongoing focus on three core elements to our business. People, industry leading, standard of care, and the quality of our facilities. The people that work in our facilities and their shared commitment to provide the best patient experience and hospital care are a major reason why our facilities continue to rank among the highest in industry surveys of patient satisfaction and quality scores. In the latest Hospital Consumer Assessment of Healthcare Providers and Systems, or HCAHPS as commonly known, survey results published at the January, our hospitals again scored well above the national average. Based on 10 important hospital quality topics, the results reveal that 89% of our patients would definitely recommend our hospitals, compared with the national average of 72%. Three of our hospitals received a rare five star rating. This is a strong foundation in which to build upon. I'll talk more about that later in the presentation, but for now, I'd like to turn the presentation over to our Chief Financial Officer, David Watson. Please go ahead, David. Thank you, Rob. Good afternoon, everyone. I'll take a few minutes to briefly walk through our annual financial results for 2019, as well as our first quarter results for 2020. All dollar amounts in this presentation are in US dollars, unless otherwise stated. Also, a quick reminder that our 2019 financial results include the impact of IFRS 16, a substantial change to lease accounting standards. MSC adopted IFRS 16 using the modified retrospective approach, and our financial results prior to 2019 were not restated. As a result, when comparing our 2019 EBITDA to periods prior to 01/01/2019, the impact of IFRS 16 should be considered. Importantly, since we began negotiations to sell the majority of our interest in Unity, as well as the underlying real estate prior to year end, they were classified as assets held for sale on our year end consolidated balance sheet. The following review of our year end financial results excludes the results of Unity. We'll keep moving. Our revenue from continuing operations was $398,100,000 for the year, which is up 1.9% or $7,300,000 compared to the year before. The decrease was attributable to several factors, including higher surgical case volume at most facilities, higher primary care, pain clinic, and imaging revenue, as well as contributions from the Gillette Urgent Care Clinic. Other factors included an extra month of contributions from the MFC Nuterra ASCs, which were acquired in February 2018, and positive variances in both case and payer mix. In The US healthcare system, there are many entities that pay for medical care. There is Medicare and Medicaid, which are government programs that pay for the care of senior citizens or those with limited income. There are also many private insurers, and in some cases, people pay for themselves. We continue to have a strong payer mix, with MSC having a greater proportion of higher reimbursing commercial plans compared to The US healthcare system as a whole. In 2019, about 51% of our revenue was from private insurers compared to 38% for The US healthcare system as a whole. Excluding the $22,000,000 non cash goodwill impairment charge for the MSC, Natera ASCs in the third quarter of last year, adjusted EBITDA for the year was $96,200,000 which was up 3.1% or $2,800,000 compared to the year before. As a percentage of revenue, adjusted EBITDA in 2019 improved to 24.2% compared to 23.9% in 2018. Earlier this morning, we released our first quarter twenty twenty financial results. We had a strong January and February, but our facilities and volumes were affected to varying degrees by the COVID-nineteen pandemic in the March. By the end of the quarter, we recorded revenue of $92,800,000 which was down 0.7% from the first quarter of twenty nineteen. Income from operations was down 14.1 to $11,000,000 and adjusted EBITDA was down 10.4% to $18,600,000 We generated cash available for distributions of 8,800,000.0 Canadian, resulting in a payout ratio of 24.6% for the quarter. At the end of the first quarter, we had cash and cash equivalents of $39,400,000 and about $65,200,000 available on our credit facility. Our current ratio improved to 1.8 times from 1.1 times at the end of first quarter last year. I would now like to turn the presentation back over to Rob to discuss our outlook and future growth opportunities. Rob. Thank you, David. Our near term outlook is uncertain due to the rapidly evolving COVID-nineteen pandemic. That being said, our facilities, physicians and staff play a vital role in the healthcare communities in which we operate. Each of our hospitals and ambulatory surgery centers are taking every precaution to help ensure they are able to continue caring for patients, while ensuring that our facilities remain safe places for physicians, staff, and patients. All facilities are adhering to recommendations, guidelines, and mandates from various professional, state, and local health authorities, continue to evaluate and adjust our policies and procedures as needed. While The US federal and state governments and local departments of health have recommended limiting non essential surgeries, the ultimate medical determination currently lies with the discretion of physician providers as subject matter experts in consultation with patients. Our facilities are screening patients and evaluating on a case by case basis, postponing procedures when necessary. Like many of our competitors, we started to see a sharp decline in surgical cases in the March and so far into the second quarter. The impact COVID-nineteen is having on our business continues to vary from one facility to another. However, when COVID-nineteen is eventually under control, we expect a surge in case volume due to pent up demand. This surge in cases may occur in the second half of the year, but the risk of a second wave is hard to predict at this time. Regardless of the pandemic, the overall population growth and aging demographics in The US are strong positive drivers of the demand for healthcare services. The seniors population is the fastest growing age group in The United States. There are now approximately 56,300,000 people aged 65 or over in The US, and this number is expected to increase by 30.4% to approximately 73,400,000 by the end of the decade. The growing senior population is expected to translate into greater patient volumes. Just as an example, the number of total knee hip replacements are on the rise. As we seek to capitalize on the growth in the 65 and over population, and the macro shift towards more outpatient procedures, we have multiple organic and inorganic growth opportunities ahead of us. When it comes to organic growth, we continue to expand the utilization of our existing facilities, including recruiting new physicians and capital investment in facility enhancements and new equipment. We continue to look for opportunities to diversify our revenue base, including adding ancillary services that we have done with our urgent care clinics opened in the past few years. With regards to growing our ASC platform, we will continue to leverage our MFC Nueterra partnership, including de novo opportunities, such as the new ASC we are opening in St. Luke's and potential accretive acquisitions. It's important to note that we are partnered with the local hospital and 14 physicians as owners for the ASC we are developing in Chesterfield, Missouri. St. Luke's Surgery Center of Chesterfield will initially offer five specialties, including orthopedics, gynecology, gastroenterology, plastic surgery, and general surgery. St. Luke's will be one of our larger ASCs and will have extended care rooms to support total knee and hip replacements. Construction commenced last November 2019. And while we are targeted to open in June, construction has been delayed slightly due to COVID-nineteen. We now expect construction completed by late June and expect to perform cases in the third quarter. We are committed to increasing our footprint in addition to de novo opportunities. We continue to have a strong pipeline of acquisition opportunities. We maintain strict acquisition criteria that includes high quality facilities with a track record of delivering optimum clinical outcomes for patients, appealing demographics, and further opportunities for operational enhancements. Our disciplined approach to acquisitions helps ensure that each acquisition we make has the highest possible chance success and generate long term value for shareholders. Before we move on to questions, I would like to express my gratitude to our entire team for their hard work and contribution. I would also like to thank all of our physician partners, nurses, facility leaders and staff, as well as all medical professionals for their dedication and their incredible efforts during this pandemic. And I would like to thank you, our shareholders, for your ongoing support. We will now open the virtual floor for questions. Thank you, Rob. We will pause momentarily to collect questions. If you have logged in as a shareholder or the duly appointed proxy holder and would like to submit a question, please type your question into the ask a question field and click submit. And I do not see any questions on the portal. Please go ahead, Rob. Thank you for joining us this afternoon. Hopefully, we will be able to do this in person next year. Thank you, stay safe, and be well. And now I will hand the call back to Jeff. Jeff? I'd like to thank you all for attending. Stay safe, stay calm, and the meeting is now concluded. Ladies and gentlemen, thank you for joining. You may now disconnect.