Medical Facilities Corporation Reports 2009 Third Quarter Financial Results

TORONTO, Nov. 12 /CNW/ - Medical Facilities Corporation ("Medical Facilities" or "the Corporation") (TSX: DR.UN), today reported its financial results for the three and nine-month periods ended September 30, 2009. All amounts are expressed in U.S. dollars unless indicated otherwise.

    
    Q3 2009 Highlights
    ------------------
    -   Facility service revenue increased 1.3% to $49.0 million from
        $48.4 million in Q3 2008
    -   Cash available for distribution(1) after realized gains or losses on
        foreign currency hedges totalled Cdn$8.5 million (Cdn$9.3 million in
        Q3 2008) and declared distributions totalled Cdn$7.8 million
        (Cdn$8.0 million in Q3 2008), representing a payout ratio of 91.7%
        for the quarter (86.2% in Q3 2008)
    -   89.9% payout ratio based on cash available for distribution(1) from
        operations before realized losses on foreign currency hedges (90.2%
        in Q3 2008)
    -   Completed $1.5 million expansion project at Dakota Plains Surgical
        Center ("DPSC"), which increased overnight stay rooms from eight to
        15
    -   Converted existing space into two additional overnight stay rooms at
        Oklahoma Spine Hospital ("OSH")
    

"We continued to experience consolidated revenue growth this quarter and a payout ratio in our target range," said Dr. Donald Schellpfeffer, CEO of Medical Facilities. "Our overall results were impacted by an unfavorable change in payor mix at all our Centers, with a higher proportion of Medicare and Medicaid cases which have lower reimbursement rates. Although we do not expect the level of Medicare and Medicaid cases experienced in this quarter to continue in the immediate future, we can expect a slow and steady increase in these kinds of cases due to the aging U.S. population."

"This is also the first full quarter of contributions from our expansion at Sioux Falls Surgical Hospital. Although we have already realized positive gains from the expansion we have yet to experience the full benefit of the project, which will occur once the increased operational costs associated with the construction activity cease," added Dr. Donald Schellpfeffer. "During the quarter, we also completed our facility expansions at our Dakota Plains and Oklahoma Spine hospitals. We expect to see positive impact of these expansions in the coming months."

    
    Financial Results
    -----------------
    

Three months ended September 30, 2009

For the three months ended September 30, 2009, Medical Facilities generated cash available for distribution(1) ("CAFD") of Cdn$8.5 million or Cdn$0.300 per income participating security ("IPS") unit, and declared distributions (comprised of interest on subordinated notes and dividends on common shares) of Cdn$7.8 million or Cdn$0.275 per IPS unit, representing a payout ratio of 91.7% for the quarter.

Facility service revenue ("revenue") for the third quarter of 2009 increased 1.3% to $49.0 million compared to revenue of $48.4 million in the third quarter of 2008. Gains in revenue from higher case volumes at two of Medical Facilities' specialty surgical hospitals and a generally favourable case mix of higher revenue generating cases, were offset by an increased proportion of lower paying Medicare/Medicaid cases at all facilities and lower revenue from the Black Hills Surgical Hospital ("BHSH") facility.

Consolidated expenses, including salaries and benefits, drugs and supplies and general and administrative costs ("consolidated expenses") for the third quarter of 2009 totalled $31.6 million or 64.5% of revenue, compared to consolidated expenses of $29.2 million or 60.3% of revenue in the third quarter a year ago. Accordingly, consolidated operating income, before depreciation and amortization, interest expense, loss on foreign currency translation and minority interest, ("consolidated operating income") in the third quarter of 2009 was $17.4 million or 35.5% of revenue, compared to operating income of $19.2 million or 39.7% of revenue in the third quarter a year ago.

Unfavorable shifts in payor mix resulted in the key expense categories of 'salaries and wages' and 'drugs and supplies' increasing as a percentage of revenue, thereby contributing to the decrease in consolidated operating income margin. Also impacting the consolidated operating income margin for the third quarter of 2009 were additional staffing costs related to the facility expansion and a year over year increase in bad debts at Sioux Falls Surgical Hospital ("SFSH") and the continuing weakness in operating results from the California ASCs.

Consolidated net income for the third quarter of 2009 totalled $2.3 million or $0.078 per IPS unit (basic and fully diluted), compared to a consolidated net income of $4.2 million or $0.158 per IPS unit (basic) and $0.136 per IPS unit (fully diluted) in the third quarter of 2008.

Nine months ended September 30, 2009

For the nine months ended September 30, 2009, Medical Facilities generated CAFD of Cdn$27.2 million or Cdn$0.959 per IPS unit, and declared distributions of Cdn$23.4 million or Cdn$0.825 per IPS unit, representing a payout ratio of 86.0% for the nine months ended September 30, 2009.

Revenue for the nine-month period ended September 30, 2009 increased 3.7% to $149.4 million from revenue of $144.1 million in the same period a year ago. Increased revenue was primarily attributable to a more favourable case mix and year over year increase in case volumes at SFSH and OSH, as well as a more favourable case mix at DPSC, which resulted in a higher average net revenue per case. This increase in revenue was partially offset by a slightly lower case volume and lower average net revenue per case at BHSH, an increase in the percentage of Medicare and Medicaid volume at all Medical Facilities' Centers and lower case volumes and revenue at the California ASCs.

Consolidated expenses for the nine months ended September 30, 2009 totalled $93.9 million or 62.9% of revenue, compared to consolidated expenses of $87.0 million or 60.4% of revenue in the nine months ended September 30, 2008. Accordingly, consolidated operating income for the nine months ended September 30, 2009 was $55.4 million or 37.1% of revenue, compared to consolidated operating income of $57.1 million or 39.6% of revenue for the same period in 2008.

Consolidated operating expenses and operating income margins as a percentage of revenues were impacted by the aforementioned shifts in payor and case mixes and the weak operating results from the California ASCs, as well as additional staffing at SFSH during its facility expansion, increases in employee medical insurance costs, and corporate office costs.

Consolidated net loss for the nine-month period ended September 30, 2009 totalled $0.6 million or $0.018 per IPS unit (basic and fully diluted), compared to consolidated net income of $6.8 million or $0.261 per IPS unit (basic and fully diluted) in the same period a year ago.

As at September 30, 2009, the Corporation had consolidated net working capital of $48.0 million, including cash and cash equivalents of $28.8 million, and patient accounts receivable of $32.7 million, compared to net working capital of $52.4 million, including cash and cash equivalents of $25.7 million and patient accounts receivable of $38.5 million as at December 31, 2008.

    
    Normal Course Issuer Bid
    ------------------------
    

On April 25, 2009, Medical Facilities commenced a normal course issuer bid for up to 1,420,049 of its IPS units. Combined with Medical Facilities' prior normal course issuer bids for IPS units, from April 25, 2008 through to November 11, 2009, the Corporation has purchased and cancelled 770,100 of its IPS units at an average price of C$8.70, for a total cash consideration of Cdn$5.7 million.

As at September 30, 2009, the Corporation had 28,328,575 IPS units outstanding.

    
    Intangibles and Goodwill Impairment
    -----------------------------------
    

Barranca Surgery Center, LLC ("Barranca") has continued to experience significant operating and organizational problems in 2009. A formal independent valuation was undertaken by Barranca in September 2009 which indicated a significant reduction in the value of this Center. Consequently, the Corporation performed the impairment test for Barranca's intangibles and goodwill as of September 30, 2009. As a result, management of the Corporation has recorded a non-cash charge of $4.7 million as at September 30, 2009.

Medical Facilities' complete 2009 third quarter financial statements and management's discussion & analysis will be issued and filed on SEDAR on Thursday, November 12, 2009 and will be available the same day via Medical Facilities' website at www.medicalfacilitiescorp.ca.

    
    Notice of Conference Call and Webcast
    -------------------------------------
    

Management of Medical Facilities will host a conference call today, Thursday, November 12, 2009 at 10:00 am (ET) to discuss its 2009 third quarter financial results. You can join the call by dialling 416-644-3418 or 1-800-814-4859. A live audio webcast of the call will also be available at www.medicalfacilitiescorp.ca. Webcast attendees are welcome to listen to the conference in real-time or on-demand at their convenience. A taped replay of the conference call will be available until Thursday, November 19, 2009 by calling 416-640-1917 or 1-877-289-8525, reference number 4174532 followed by the number sign.

To view Medical Facilities Q3 2009 financial statements and notes, please click here:

http://files.newswire.ca/736/MFC-Q3-09-FS-NOTES.pdf

    
    About Medical Facilities
    ------------------------
    

Medical Facilities owns controlling interests in four specialty surgical hospitals, located in South Dakota and Oklahoma, as well as two ambulatory surgery centers in California. The specialty hospitals perform scheduled surgical, imaging and diagnostic procedures and derive their revenue from the fees charged for the use of their facilities. The ambulatory surgery centers specialize in outpatient surgical procedures, with patient stays of less than 24 hours. Medical Facilities is structured so that a majority of its free cash flow from operations is distributed to holders of its IPS units, of which a portion is interest on subordinated debt and a portion is dividend. For more information, please visit www.medicalfacilitiescorp.ca.

    
    Caution concerning forward-looking statements
    ---------------------------------------------
    

Statements made in this news release, other than those concerning historical financial information, may be forward-looking and therefore subject to various risks and uncertainties. Some forward-looking statements may be identified by words like "may", "will", "anticipate", "estimate", "expect", "intend", or "continue" or the negative thereof or similar variations. 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. Factors that could cause results to vary include those identified in Medical Facilities' filings with Canadian securities regulatory authorities such as legislative or regulatory developments, intensifying competition, technological change and general economic conditions. All forward-looking statements presented herein should be considered in conjunction with such filings. Medical Facilities does not undertake to update any forward-looking statements; such statements speak only as of the date made.

    
    ------------------------------------
    (1) Cash available for distribution is a non-GAAP measure and is not
        intended to be representative of cash flow or results of operations
        determined in accordance with GAAP. Accordingly, Medical Facilities
        provides a reconciliation of cash available for distributions to
        reported cash flow from operations in the Corporation's MD&A.
        Investors are cautioned that cash available for distribution, as
        calculated by Medical Facilities, is unlikely to be comparable to
        similar measures used by other issuers.
    

SOURCE Medical Facilities Corporation

For further information: For further information: Michael Salter, Chief Financial Officer, Medical Facilities Corporation, (416) 848-7980 or 1-877-402-7162, investors@medicalfc.com; Adriana Braczek or Bruce Wigle, Investor Relations, Equicom Group, (416) 815-0700 or 1-800-385-5451 ext. 240 or 228, abraczek@equicomgroup.com or bwigle@equicomgroup.com


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