Medical Facilities Corporation
Annual Report 2018

Plain-text annual report

Better Positioned for Growth2018 ANNUAL REPORTLarge, growing and fragmented market for outpatient servicesHighly-rated, high-quality facilitiesScalable platform for growth – organically and through acquisitionsLong-term track record of stable returns to shareholdersExperienced, entrepreneurial management teamInvestment HighlightsOur blueprint for growth includes diversifying our service offering and our revenue base.We are pleased to provide our 2018 Annual ReportThis past year saw the signi!cant expansion of our facilities portfolio, continued practice of sound !scal fundamentals, and solidi!cation of a strong platform for future growth.A key highlight of the MFC story in 2018 was the establishment of our joint venture with NueHealth, LLC. This new venture – known as MFC Nueterra – expanded our footprint and resulted in operational e"ciencies.Our solid !nancial performance and continued high patient satisfaction ratings demonstrate that our expansion has not come at the expense of basic operating principles, including prudent !scal management and exceptional customer service.As a result of our progress in 2018, we are better positioned for growth – evolving alongside emerging market trends, while continuing to deliver industry-leading facilities and the highest quality of care for our patients.Large, growing and fragmented market for outpatient servicesHighly-rated, high-quality facilitiesScalable platform for growth – organically and through acquisitionsLong-term track record of stable returns to shareholdersExperienced, entrepreneurial management teamInvestment HighlightsHigher same facility surgical case volumes and the addition of the MFC Nueterra ASCs resulted in record revenue in 2018. Revenue(millions)Adjusted EBITDA* (millions)Surgical case volumeCash available for distribution* (CAD millions)Income from operations (millions)Payout ratio**Non-IFRS Financial Measures. Refer to Medical Facilities' 2018 Management's Discussion and Analysis.01FinancialHighlights$431.602Growingour FootprintAs a result of MFC Nueterra’s acquisition of seven ambulatory surgical centers in the !rst quarter of 2018, our facilities count has grown from six to 13, and MFC now has a presence in 11 states versus !ve prior to the acquisition.Total FacilitiesStatesProcedure RoomsASCsOperating RoomsUrgent Care ClinicsGrowth in 2018 Prior to 2018 Specialty Surgical Hospital Ambulatory Surgical CenterArkansas Surgical HospitalNorth Little Rock, ArkansasUnity Medical and Surgical HospitalMishawaka, IndianaOklahoma Spine HospitalOklahoma City, OklahomaBlack Hills Surgical HospitalRapid City, South DakotaSioux Falls Specialty HospitalSioux Falls, South DakotaCentral Arkansas Surgical CenterRussellville, ArkansasNewport Center SurgicalNewport Beach, CaliforniaBrookside Surgery Center Battle Creek, MichiganCity Place Surgery CenterCreve Coeur, MissouriMiracle Hills Surgery CenterOmaha, NebraskaEastwind Surgical Westerville, OhioTwo Rivers Surgery CenterEugene, OregonRiverview Ambulatory Surgical Center Kingston, PennsylvaniaOur Expanded Reach03MFCNueterraIn February 2018, we founded MFC Nueterra – our joint venture with NueHealth, LLC – and acquired seven ambulatory surgical centers (“ASCs”) specializing in outpatient surgical procedures. This $46.5 million acquisition delivered meaningful growth for our organization – expanding our footprint, growing our revenue base, and creating value for patients.For our overall business, this partnership has resulted in both diversi!cation and an increase in our overall revenue base. Following the closing of the transaction in February 2018, these seven ASCs added 13,384 outpatients cases to our total case volume and $34.1 million in total revenue.The seven aquired ASCs benefit from NueHealth's corporate procurement program.City Place Surgery CenterCreve Coeur, MissouriRiverview AmbulatorySurgical Center Kingston, PennsylvaniaEastwind SurgicalWesterville, OhioTwo Rivers Surgery CenterEugene, OregonBrookside Surgery Center Battle Creek, MichiganCentral Arkansas Surgical CenterRussellville, ArkansasMiracle Hills Surgery CenterOmaha, NebraskaWith NueHealth providing the day-to-day management and operational support to the acquired facilities, they also bene!t from the larger corporate procurement program of NueHealth, which leverages their 50-plus facilities under management to achieve savings. Importantly, this new platform has MFC well positioned to realize further synergies from any future acquisitions.The seven ASCs acquired through the partnership added 25 operating and procedure rooms to our portfolio and provide medical procedures that do not require overnight hospital admission, including orthopedic surgery, neurosurgery and pain management. These facilities include:04FutureGrowthGrowth Drivers and StrategyMedical Facilities Corporation is strategically positioned to capitalize on the expected growth in the United States healthcare market. In addition to leveraging our existing strengths in standard of care, highly-rated facilities, and our partnerships with NueHealth and physician investors, we are well resourced to execute our growth strategy, which includes both organic growth initiatives and accretive acquisitions.Organically, we look to expand the capacity of our existing facilities, including recruiting new physicians and adding operating and procedure rooms. Opportunities also exist to continue to diversify our revenue base through the addition of ancillary services, as we have done by opening two new urgent care clinics in 2018.The number of ASCs in the U.S. is expected to double in the next 10 years.2015Source: Census.gov46.853.154.663.5Today2020202571.52030U.S. population aged 65+ (millions) On the acquisition side, we look to increase and diversify our revenue base by buying physician-aligned ambulatory surgery centers and surgical hospitals. In addition to bolstering our pipeline of target facilities, our MFC Nueterra partnership aligns us well for the expected growth in the U.S. ambulatory surgery center market. This market is expected to bene!t from a shift to more surgeries being done on an outpatient basis, aided by technological advancements; the typically lower outpatient surgery costs in ASCs compared to other settings; and an aging population. 05Letter toShareholdersDear Shareholders, 2018 was a year of transformation for Medical Facilities Corporation. We signi!cantly expanded our geographic footprint, more than doubled our facilities count, and diversi!ed our service o"ering and revenue base through a mix of well-planned organic and acquisitive growth. Importantly, with our recent growth and our disciplined management serving as a blueprint, MFC is better positioned for additional growth in 2019 and beyond.In early 2018, we announced the acquisition of seven ambulatory surgical centers (“ASCs”) from Meridian Surgical Partners (“MFC Nueterra ASCs”) through our partnership with NueHealth. These ASCs are located throughout the United States, increasing our geographic diversity, reinforcing our focus on orthopedic surgery, neurosurgery and pain management, while increasing our investment in the outpatient services space. We have a controlling interest in these ASCs, andlike our other facilities, we are partnered with local physicians.Robert O. HorrarPresident and Chief Executive O#cerIn terms of organic growth, our facilities focused on adding access points and expanding their services. Following the opening of the urgent care center in Sioux Falls in 2017, two new urgent care centers were opened in 2018: Sherwood, Arkansas in January, and Gillette, Wyoming (a secondary market for Black Hills Surgical Hospital in Rapid City) in December. The strategy behind these urgent care centers is to expand our existing facilities’ outreach in the surrounding communities. We are happy with the progress of our new urgent care centers to date as they continue to develop and grow. Always a key to our success is the high quality of our facilities, which combine the best patient experience and care. Our continued high patient satisfaction ratings demonstrate that our expansion has not come at the expense of basic operating principles, including prudent !scal management and exceptional customer service.Record revenue and surgical case volume The acquired ASCs and the continued, successful execution of our strategy resulted in record high revenue for the year. Our revenue of $431.6 million in 2018 represented an increase of $46.3 million, or growth of 12% over the prior year. While the largest contributor to the growth was the additional contributions from the MFC Nueterra ASCs, our same facility revenue and surgical case volumes were also up year-over-year. Our revenue of $431.6 million in 2018 represented an increase of $46.3 million, or growth of 12% over the prior year.”“Better positioned for 2019 and beyond While we have a lot to be proud of, we know there is more to be done. Our management team has the experience, drive and discipline to lead us through what we anticipate being an exciting chapter for MFC. In the United States, the number of people age 65 and over is expected to increase from 53 million today to 71 million by 2030. As this segment of the population grows and people live longer, we expect there to be a higher need for orthopedic procedures. We are well positioned to capitalize on the projected growth in the 65 and over demographic and expected growth in ASCs, with the latter expected to double over the next ten years. We have a strong base from which to grow. We will continue to focus on enhancing and adding services at our existing facilities, including the recruitment of new physicians and the addition of ancillary services, such as urgent care clinics, to further diversify our service o!ering. We will also look to increase our national presence and further diversify our revenue base through strategic acquisitions of physician-aligned ASCs and surgical hospitals, and while our pipeline of acquisition opportunities remains strong, the ASC acquisition market in particular is characterized by a highly competitive buyer landscape, as ASC management companies are under pressure to grow through acquisitions in order to meet their investor expectations. As we continue to build scale, we will focus additional time and attention toward helping facility partners improve e"ciencies with value add services like group purchasing and the sharing of best practices. The MFC Nueterra ASCs are included in NueHealth’s corporate procurement program, which leverages their 50-plus facilities under management to achieve cost savings. We expect to achieve further synergies from any future ASCs we may acquire or develop with this new platform. “ In the United States, the number of people age 65 and over is expected to increase from 53 million today to 71 million by 2030.” In closing, I would like to thank our Board of Directors for their ongoing counsel and guidance, our management team for their contributions, along with our physicians, nurses, other medical professionals, and all of our employees for helping us deliver the utmost quality of care to our patients. Our high-quality surgical facilities and industry-leading standard of care remain a competitive advantage. Last but not least, I would like to thank you, our shareholders, for your continued support. I look forward to keeping you apprised of our progress throughout 2019. Sincerely, Robert O. Horrar President and Chief Executive Officer 

Continue reading text version or see original annual report in PDF format above