Good morning, everyone. Welcome to Medical Facilities Corporation's 2022 third 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&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. I would now like to turn the meeting over to Mr. Jason Redman, President and CEO of Medical Facilities. Please go ahead, Mr. Redman.
Thank you, operator. Good morning, everyone, and welcome to our third quarter earnings call. Joining me today is our Chief Financial Officer, David Watson. We reported our third quarter results earlier this morning. Our news release, financial statements, MD&A may be accessed through our website at medicalfacilitiescorp.ca and have also been filed with SEDAR. During the quarter, our surgical case volumes were up 3% as they continued to recover towards pre-pandemic levels. The higher volumes contributed to a 6% increase in facility service revenue for the quarter. Our facilities did not receive any additional government stimulus income in the quarter, whereas they received $2.7 million in Q3 of last year. While we were pleased to see the continued strengthening of case volumes, inflationary pressures also continued to impact our operating expenses.
Like others in our industry, we remain focused on attracting and retaining talent, and we're subject to market wage pressures, including those resulting from the overall shortage of nurses. Those pressures and planned annual salary increases led to a $2.4 million rise in clinical and non-clinical wages for the quarter. Our case mix and higher surgical case volume contributed to a 12.9% increase in the cost of drugs and supplies for the quarter. We also had a 30.5% increase in our general administrative expenses. The combined impact of higher operating expenses and a decrease in government stimulus income exceeded the increase in facility service revenue. Regardless, our balance sheet remains strong, and with our strong cash flow, we are well-positioned to drive financial performance and unlock additional shareholder value.
During the quarter, we purchased 426,800 shares for just under CAD 4.1 million under a Normal Course Issuer Bid. Since the start of last December, through our NCIB and the recently completed Substantial Issuer Bid, we purchased approximately 4.8 million shares at a cost of approximately CAD 50 million. In other news, I'm pleased to share with you that three of our hospitals, Arkansas Surgical Hospital, Black Hills Surgical Hospital, and Sioux Falls Specialty Hospital, recently received Specialty Excellence Awards from Healthgrades. These awards recognize hospitals that deliver superior quality care and superior patient outcomes. Healthgrades is a leading online database platform in the U.S. dedicated to helping people make more confident healthcare choices, whether choosing the right doctor, hospital, or treatment.
These are just the latest accolades for our award-winning facilities, which have a long track record of placing high in surveys and studies of patient satisfaction. With that, I'd like to turn the call over to David to review our financial results for the quarter. David?
Thank you, Jason. Good morning, everyone. I would like to start by reminding everyone that all dollar amounts I'm about to discuss are in U.S. dollars unless stated otherwise. Total revenue and other income for the quarter increased 3.2% to $102.2 million as facility service revenue increased by $5.8 million, 6% primarily on higher surgical case volumes. Facility service revenue also benefited from changes in case and payer mix and from Arkansas moving its anesthesia service and related billing in-house in the current year. However, total revenue and other income for the quarter did not include any government stimulus income, whereas the same quarter of last year included government stimulus income of $2.7 million. As Jason said earlier, total surgical cases were up 3% compared to Q3 of last year.
Our outpatient cases increased 3.5%, and observation cases increased by close to 32%. Inpatient cases were down 12.4% for the quarter. Looking at the expense side, operating expenses for the quarter were up by $9.3 million or 11.2% to $91.7 million. As a percentage of total revenue and other income, operating expenses increased to 89.8% from 83.3% in Q3 of last year. Consolidated salaries and benefits increased by $2.4 million or 8%, mostly due to increases in both clinical and non-clinical wages and salaries as a result of annual increases in market due to the industry-wide shortage of nurses and other staff.
Consolidated drugs and supplies costs increased by $4 million or 12.9%, largely attributable to case mix, volume, and pricing, as well as a gain of $2 million recorded in the prior year on the exchange of implant inventory as part of a new vendor agreement at Black Hills. Our general and administrative expenses were up by $4.5 million or 30.5%. $1.4 million of the increase was attributable to the impact of Arkansas Surgical Hospital moving its anesthesia service and related billing in-house in the current year. Another $0.8 million was related to the reclassification of Sioux Falls Specialty Hospital's Accountable Care Organization cost to G&A expenses. We also had increases in administrative and facility-related expenses, billing and contracted services, and various other G&A costs.
Our income from operations for the quarter was $10.4 million, which was down $6.1 million or 37% from the same quarter of last year. The difference includes the $2.7 million in government stimulus income in Q3 of last year and the $2 million gain on inventory. EBITDA for the quarter was $15.6 million or 15.3% of revenue and other income, down from $23.3 million or 23.6% of revenue and other income in Q3 of last year. The loan receivable from Unity Medical and Surgical Hospital was fully written off this quarter with a further $9.4 million impairment loss on top of the $4 million earlier in the year. In addition, we wrote off $300,000 of other receivables from Unity that were reflected in G&A expenses.
In the third quarter, we generated Cash Available for Distribution totaling CAD 3.8 million, resulting in a payout ratio of 61.5%. At the end of September, we had consolidated net working capital of $56.1 million, including $44.3 million of cash and equivalents. This compares to working capital of $67.4 million, including cash and equivalents of $61 million at the end of 2021. Total cash includes about $900,000 in Medicare advances, which will be recouped by year-end. During the quarter, we also extended the maturity of our existing corporate credit facility by two years to August 31st, 2025, while amending the limit down to $75 million from the previous $150 million.
At the end of the quarter, we had $21 million outstanding on our corporate credit facility. Inclusive of lease liabilities, our net debt to equity stands at $0.52, which remains well below that of our U.S.-listed peers. This concludes our prepared remarks. At this time, we'd like to turn it back over to the operator to open up the call for questions. Operator?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. Our first question will come from Endri Leno with National Bank.
Hey, good morning. Thanks for taking my questions. The first one, it's more for Jason. If you can share with us a little bit, I mean, since you started, like, your kind of vision for Medical Facilities, and to the extent that you can share, obviously, what steps can you take to drive financial performance?
Thank you, Endri. Appreciate the question. At this point, I mean, there's not much more that I can add apart from the press release that we had issued roughly mid-September. I mean, obviously, our focus is gonna be on looking at the non-core assets of the business that we have, looking at all possible ways to maximize shareholder value, and looking at the overall cost structure of the business and making sure that the costs are in line with the business going forward. At this point, I'm focused on making sure that we look at every opportunity to maximize shareholder value and return capital to the shareholders.
Okay. Fair enough. In terms of divesting the non-core assets, I mean, is there any insight you can share us on how does the market look for them out there, or which ones those non-core assets could be? Is it only the ASCs, or could it involve any of the hospitals or anything like that?
No. There's obviously we can't speak to any specific transaction. We're going through as a team, reviewing all the assets that we have and looking where it makes sense to if it's a non-core asset. I mean, I can't speak to any certain facility, obviously. You know, if there's opportunities out there to realize value in these assets, we'll look at them. You know, and if a transaction makes sense, then we'll pursue it.
Yeah. Okay. Makes sense. Next question is, it's a bit more kind of operational in nature. If you can share us any insights in terms of how are you seeing case volumes in Q4. I mean, it's a seasonally strong one anyways, but how are you seeing them trend? More importantly, expenses, have they stabilized in Q4, or are they increasing, decreasing? Any color there? Thank you.
Yeah. Hey, Endri, it's David. You know, as you said, Q4 is typically the strongest quarter. You know, we don't see any reason for that to be different this year. With respect to expenses, you know, we like most in our industry, continue to experience the impact of inflationary pressure, you know, whether it's wages and benefits or supplies costs. You know, we'll continue to be subject to the same inflation that everyone else is.
The last one for me. Have the CMS rates, the final ones, been published yet? If you can share how you expect them for 2023.
They published the outpatient rates. I think the across-the-board increase is roughly 3.8%. I haven't seen the inpatient rate impact yet.
Okay. Okay. Thank you. That's it for me.
Next, we will hear from Paul Stewardson with iA Capital Markets.
Good morning, gentlemen. Thanks for taking our question. Just calling in for Chelsea. First question, just in terms of the you know, new vision as well. Can you talk about kind of what your targets might be in terms of where you could take the dividend, where you could take leverage ratio and what you know what you're comfortable with, especially on the leverage side?
I mean, in terms of dividend, we haven't made any decision with respect to increasing dividend yet. I mean, it's something obviously that we're looking at all different ways of returning capital. I mean, we've used the NCIB in the past. We've used the SIB, and to the extent that there's additional free cash flow in the business, then we'll look at opportunities for returning that cash flow. Nothing specific right now to announce.
Okay. Just on the leverage side, do you have any targets now that you've returned some of the capital, how can we look at leverage going forward?
Yeah. Hey, Paul. You know, our leverage continues to be, you know, very manageable. You know, I think the expectation is we wanna, you know, keep it manageable. I would say that's somewhere, you know, below three times.
Okay. Thanks. That's all for us.
Yep. Thank you, Paul.
Once again, for those on the phone, it is star one, if you'd like to ask a question. We will now go to Sahil Dhingra with RBC.
Hi. Good morning. This is Sahil for Doug Miehm, and thank you for taking the questions. My first question is, was there any one-time cost that impacted adjusted EBITDA in this quarter? The second one is on the inflationary pressures. Are you still seeing those pressures? Because I recall at the last call, you said that you expect a moderation going into the second half of the year. If you could please elaborate on that a bit. Thank you.
Yeah. Paul, Sahil, no, there were no, you know, one-time costs that we'd call out in the quarter other than the, you know, impairment charge on Unity, which ran through finance costs or the $300,000 that ran through G&A. With respect to, you know, inflationary pressure, you know, we continue to manage that as best as possible. We're having to remain competitive in our markets on a salaries and wages perspective to retain our staff, which we've done. Our facilities have done a very good job of. You know, we've got a group purchasing organization that we work with on, you know, purchasing other supplies. We continue to make every effort to control those costs, but we'll continue to be subject to, you know, the inflationary pressure.
Sahil, does that answer your question?
Yes, it does. I have one follow-up. Are you seeing more cost pressures on the nurse side or is it on the doctor side?
Well, as you may recall, we don't typically employ physicians. We're partnered with them. Most of our labor costs are on the, you know, the nursing, other clinical staff and non-clinical staff.
Okay. Thank you. That is really helpful.
Sure. Thank you.
With no further questions in the queue, I'd like to turn the call back over to Mr. Redman for any additional or closing remarks.