Good morning, everyone. Welcome to the Medical Facilities Corporation's 2023 Third Quarter Earnings Call. After management remarks, this call will include a question- and- answer session in which 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 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, and welcome to our third- quarter earnings call. With me on the call is our Chief Financial Officer, David Watson. We reported our Q3 results earlier this morning. A news release, financial statements, and MD&A can be found on our website at medicalfacilitiescorp.ca and have also been filed on SEDAR+ . We had a solid third quarter with growth in revenue and profitability. In terms of our strategic objectives, we completed the divestitures of the MFC NueHealth ASCs, continued to pay down our corporate debt, and repurchase shares under a normal course issuer bid. We also further reduced corporate costs with the downsizing of our national office. Looking at our top line, we had facility service revenue of $104.6 million for the quarter.
This represents an increase of 7.4% when excluding the divested MFC Nueterra ASCs . The improvement was largely due to case mix, but surgical case volumes, again excluding the MFC Nueterra ASCs , were also up 1% for the quarter. Our income from operations increased 20.3% to $12.5 million, and EBITDA was up 13.7% to $17.7 million. As a percentage of revenue, income from operations improved to 12% versus 10.2% in Q3 of last year. EBITDA rose to 17% of revenue from 15.3% a year ago. The improvements for both were mostly due to cost savings initiatives at the corporate level. As I mentioned earlier, we completed the divestitures of remaining ownership interest in the MFC Nueterra ASCs for aggregate proceeds of $3.5 million.
These divestitures were part of our strategic plan to focus on our core operations, allowing us to better concentrate our resources on supporting our physician partners and continuing to provide the best patient experience in hospital care. On that note, I'd like to share that three of our surgical hospitals were included in the Healthgrades top hospitals for joint replacement last month. The 2024 Healthgrades Joint Replacement Excellence Award acknowledges hospitals that deliver superior patient outcomes in knee replacement and hip replacement. Arkansas Surgical Hospital was one of three hospitals in Arkansas to make the list, while Black Hills Surgical Hospital and Sioux Falls Specialty Hospital were the only hospitals recognized in South Dakota. In addition to providing the highest quality of care, MFC remains focused on maintaining a strong and sustainable financial structure and creating long-term value for our shareholders.
During the quarter, we continued to reduce our corporate debt. We paid $3 million on our credit facility, and we repurchased 157,700 common shares under our NCIB. And on that note, I'll turn the call over to David to review our financial results in more detail. David?
Thank you, Jason. Good morning, everyone. As usual, I will start by reminding everyone that all dollar amounts that follow are in US dollars, unless stated otherwise. As Jason mentioned earlier, we had facility service revenue of $104.6 million, which is an increase of 7.4% when excluding the divested MFC Nueterra ASCs . Much of this was due to case mix, but volumes also played a role, as did Sioux Falls moving its anesthesia service and related billing in-house earlier this year. Excluding the divested ASCs, overall surgical case volumes increased 1%. Observation cases increased significantly by 39.5%, while inpatient cases decreased by 9.2% and outpatient cases decreased by 3.4%.
While our operating expenses increased by $0.3 million- $92 million, as a percentage of revenue, they fell to 88% in the quarter from 89.8% a year ago. Consolidated salaries and benefits increased by $0.5 million or 1.6%, as we experienced higher clinical and non-clinical salaries and wages due to annual salary adjustments, growth in full-time equivalent staff, and market wage pressures. Bringing anesthesia services and related billing in-house at Sioux Falls also contributed to this increase.
However, it's important to note that these increases were mostly offset by the impact of the MFC NueHealth divestitures and our ongoing cost-saving initiatives at the corporate level. Consolidated drugs and supplies increased by $0.4 million, or 1.1%, driven by changes in case mix, which included a higher proportion of orthopedic and spine cases, along with increased surgical case volume. This was partially offset by the impact of the divestiture of the MFC NueHealth ASCs. Consolidated general and administrative expenses were down $0.6 million, or 3.3%. The decrease in G&A expenses was a result of the divestiture of the MFC NueHealth ASCs and cost-saving initiatives at the corporate level. Corporate costs related to share-based compensation plans were also down, primarily due to the relative change in the corporation's share price compared to the same period last year.
Jason already covered the increases in operating income and EBITDA, so I'll move on to distributions. In Q3, we generated cash available for distribution to like CAD 5.4 million, up from CAD 3.8 million in Q3 of last year. This increase in our lower share count compared to last year lowered our payout ratio to 36.9% for the quarter, compared to 61.5% a year ago. Turning to our balance sheet, at the end of the quarter, we had consolidated net working capital of $13.1 million, and cash and cash equivalent to $27 million. For reference, at the end of December 2022, our net working capital stood at $32.5 million, and we had cash and cash equivalents of $34.9 million.
The decline in our cash and cash equivalents partly reflects our corporate-level activities. During the first nine months of 2023, we made repayments of $12 million against our corporate credit facility, including a $3 million repayment in the third quarter. Additionally, we repurchased common shares under our normal course issuer bid for an aggregate consideration of $5.5 million, including 157,700 shares for $1 million during the quarter. Inclusive of lease liabilities, our net debt to equity remains low at 0.93x as compared to 0.94 at December 31, 2022. This concludes our prepared remarks. We would now like to open up the call for questions. Operator?
If you would like to ask a question at this time, please press star, then the number one on your telephone keypad now. You will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star, then the number one on your telephone keypad now. Your first question comes from Sahil Dhingra with RBC. Your line is open.
Hi, this is Sahil Dhingra. Thank you for taking the questions. My first question is on competition. Are you seeing any increase in competition? Also, the pain cases were down year-over-year. Is there anything to read out there, or is it more a quarterly fluctuation?
Yeah. So just on the competitive environment, Sahil, thank you for the question. No major changes. I mean, we do see the competitive environment at Arkansas tightening up a bit. As you know, there's the new facility that opened up in June, July of this year. But we haven't seen the impact of that. This year, actually, our case counts at ASH are higher than they were previously. But it is something that we watch very carefully.
Sorry, on the pain cases that were down 15%, is it just fluctuation, like, availability of the surgeons, or is it something else?
Yeah. Sahil, it's basically just availability of the, of the physicians. It's always difficult to know when exactly they're going to be taking time off.
Yeah. Okay, that is helpful. And then my second question is on the wage inflation and wage pressures. Is there any update there, or are you still seeing elevated level of wage inflation?
I think what you're seeing, Sahil, is definitely moderation compared to previous years. We're not seeing the employee signing bonuses anymore, or retention payments that need to be paid. We're also seeing more stability in employee turnover. So we're definitely seeing a return to more normal conditions.
Okay. And then in the MD&A, I was looking at the income from operations by each of the facility. So, like, the significant decline in some of them, like, Oklahoma, and even some in Black Hills. So is it more a function of mix, or is it inflation?
It's a couple things. For Oklahoma, it was primarily mix. For Black Hills, it was a bit of volume- related.
Okay. And is there any update on the capital deployment going forward? Like, would you prioritize debt repayments like you have been doing over the last two quarters, or can we see an increase in dividend sometime?
No, the board hasn't made any decision with respect to changing the dividend. As you know, Sahil, I mean, we're constantly looking for ways to optimize a return to shareholders. Dividends are one, the NCIB is another, and we continue to be active under our NCIB program.
Okay. Thank you. Those were all my questions.
Thank you.
Once again, to ask a question at this time, please press star, then one on your telephone keypad now. At this time, it appears there are no further questions. I'd like to turn the call back over to management for any closing remarks.
Thank you, operator. I would like to thank everyone for taking the time this morning. We look forward to speaking with you again next quarter.
Thank you, everyone, for attending the call today. This does conclude the call. Have a wonderful rest of your day.