Medical Facilities Stock

Thank you. Good morning, everyone. Welcome to the Medical Facilities Corporation's 2026 Second Quarter Earnings Call. After management's remarks, this call will include a question-and-answer session when qualified equity analysts may ask questions. Before turning the call over, be 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. 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, except as required by law. Such statements may speak only as of the date made. I would now like to turn the meeting over to Mr. Jason Redman, CEO of Medical Facilities. Please go ahead, Mr. Redman.

Good morning, everyone, and thank you for joining us. On the call with me is our Chief Financial Officer, David Watson. Earlier this morning, we reported our second quarter results. Our news release, financial statements, and MD&A are available on our website and have been filed on SEDAR+. Before we begin, I will highlight that the income statement variances Dave and I will be discussing are for continuing operations, and the amounts exclude non-controllable, non-cash, corporate-level charges related to share-based compensation plans. As usual, all dollar amounts are in U.S. dollars, unless otherwise specified.

Starting with our operating performance for the quarter, facility service revenue grew by 7.8%, driven by a favorable case mix that was weighted more towards higher-value orthopedic and spine procedures. The higher revenue translated to a 9.4% increase in income from operations and a 7.1% increase in EBITDA compared to Q2 of last year.

On the capital allocation front, we demonstrated a strong and sustained commitment to returning capital to shareholders. During the quarter, we repurchased approximately 1.34 million common shares for $17.1 million under a Normal Course Issuer Bid, bringing total purchases in the first half of the year to approximately 1.66 million shares for $21 million. Subsequent to quarter end, we are pleased to report we have now fully utilized the purchase limit of approximately 1.81 million shares under the current NCIB. Commencing with the change in corporate strategy back in Q3 of 2022, the corporation has cumulatively returned approximately CAD 218 million to shareholders through a combination of NCIBs, substantial issuer bids, and dividends.

Lastly, we ended the quarter with a consolidated cash balance of $64.1 million, including $58 million at the corporate level. Our strong liquidity position provides flexibility for us to continue supporting our hospitals while evaluating opportunities to return capital to shareholders in the most efficient manner. With that, I will now turn the call over to David to review our financial results for the quarter.

David?

Thanks, Jason, and good morning, everyone. Our revenue for the quarter totaled $63.1 million, which was up 7.8% year over year. Most of the increase was attributable to the combined impact of payer and case mix. The case mix included more higher-value orthopedic and spine procedures. We also benefited to a smaller degree from payer rate increases. Our surgical case volume was 2.3% lower in the quarter. However, if you exclude low-margin dental cases, surgical volumes were essentially flat.

Although outpatient cases edged up 0.9% in the quarter, inpatient cases fell 12.5%, and observation cases were down 9.1%. Pain management cases were down 19.9%, with the decline again stemming from Arkansas Surgical Hospital, as we've noted on prior calls. Both hospitals have active recruitment campaigns to attract additional pain physicians to add volume. I'm pleased to mention that Arkansas Surgical Hospital has a new pain physician, as well as a new orthopedic surgeon joining at the start of September.

Looking at our expenses for the quarter, overall operating expenses increased $3.8 million, or 7.6%. Over half of the increase came from higher consolidated drugs and supplies, which were up 12.5%, and largely a reflection of our case mix. In addition, consolidated salaries and benefits increased 6.4% due to annual merit increases, elevated market-driven compensation for anesthesia and nurse practitioners, and higher health plan benefits utilization. G&A expenses were also up 3.8%, with the increase primarily due to higher costs for contracted anesthesia services, repairs and maintenance, billing fees, and marketing costs.

In terms of our profitability for the quarter, income from operations increased 9.4% to $9.6 million, and EBITDA was up 7.1% to $12.5 million. Turning to our balance sheet, consolidated net working capital was $65.2 million at the end of June, including $64.1 million in cash and cash equivalents. This compares to $54 million in net working capital and $43.4 million in cash and cash equivalents back at the end of December.

The change in consolidated net working capital was driven largely by the sale of Oklahoma Spine Hospital in Q1, which increased cash but was partly offset by a reduction in current assets and liabilities for the removal of Oklahoma Spine's held-for-sale balances. Finally, we continue to operate with no corporate-level bank debt, having fully paid off our corporate credit facility back in 2024. This concludes our prepared remarks. We would now like to open up the call for questions.

Operator?

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Thank you. We don't have any questions in the queue. I would now like to turn the call over to Mr. Jason Redman.

Thank you, Operator, and thank you to everyone joining us this morning. We appreciate your continued support and look forward to keeping you updated on our progress. Have a great day.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and welcome to the Annual Meeting of Shareholders of Medical Facilities Corporation. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer, and use of the same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and Medical Facilities Corporation that you first obtained all required consents for the disclosure, recording, transfer, and use of such personal information from all appropriate persons before your disclosure. It is now my pleasure to turn today's meeting over to Adina Storch, Chair of the Board of Directors of Medical Facilities Corporation. The floor is yours.

Good morning. It is now 11:00 a.m. Eastern Time, and I ask that the Annual General Meeting of Shareholders come to order. Ladies and gentlemen, my name is Adina Storch. As Chair, I would like to welcome you to the 2026 Annual General Meeting of Shareholders of Medical Facilities Corporation. As this meeting is held virtually via live webcast, please note the following rules for the orderly conduct of the meeting. Questions in respect of a motion or a procedural matter can be submitted by any registered shareholder or duly appointed proxy holder using the Q&A feature on the virtual interface as long as they have logged into the meeting using their control number or invite code. Any other questions will be addressed during the question period at the end of the meeting.

For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all business items. When you are asked to vote, you may do so using the vote feature on the virtual interface. You will only have a certain amount of time to do so once the polls are open. I will act as Chair of the meeting. I will ask David Watson to act as Secretary of the meeting and Bernadette Villarica of Computershare Investor Services, Inc. to act as scrutineer.

In view of 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 the formal matters, any shareholder or proxy holder may ask questions. I would also like to remind you that only registered shareholders or duly appointed proxy holders that have logged into the meeting using their control number or invite code are entitled to vote or submit questions in this meeting in the designated field on the virtual interface.

The last Annual General Meeting of Shareholders was held on May 8, 2025. Any shareholder who wishes to review the minutes of that meeting may contact us by using the Q&A feature on the virtual interface. I am also tabling a copy of the 2025 Audited Financial Statements. These are publicly available, as are the proxy materials, and are posted on our website and SEDAR+. Please note that upon completion of the meeting, Jason Redman, the company's President and Chief Executive Officer; and David Watson, the company's Chief Financial Officer, will endeavor to address questions you may have that are submitted using the Q&A feature on the virtual interface.

Accordingly, during the formal portion of this meeting, I ask you to limit your submitted questions to the specific matters being considered. Shareholders have been provided with notice and proxy materials for this meeting in accordance with applicable laws, and these are publicly available and are posted on our website and SEDAR+. I have been advised by the scrutineer that prior to the meeting, proxies were received from the holders of 9,950,736 shares or approximately 56.56% 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 meeting. Before we consider the business of the meeting, I would like to outline the voting procedures to be used at today's meeting. We will conduct each vote by way of the vote feature on the virtual interface as well as those submitted by proxy. If you have voted your shares by proxy prior to the start of the meeting, your vote has been received by the scrutineer, and there is no need to vote those shares during the meeting unless you wish to revoke or change your vote. Polls on the individual business items will be open for voting once the motions are put forth for the business items to be considered at the meeting. Registered shareholders who have not submitted a proxy and wish to vote their shares or who wish to change their vote may do so by clicking on the voting buttons on the screen. Duly appointed and registered proxy holders may also vote using the same method. I will now present the 2 resolutions that will be considered at this meeting.

The first item of business for which this meeting has been called is the election of 5 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 5 candidates proposed by management. The Secretary will now read their names.

The names of the nominees are Adina Storch, Peter Brimm, Michael Gisser, Jeremy Klaperman, Jason Redman.

Since no further nominations have been received in the required time period, I declare the nominations closed. Five persons have been nominated as Directors, and there are 5 Directors to be elected. May I please have a motion for the election of Directors?

Madam Chair, I hereby move that each of the 5 persons whose names have been read to this meeting by the Secretary for election as Directors of the company be elected to serve until the Annual Meeting of Shareholders to be held in 2027 or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office.

Madam Chair, I second the motion.

The next item of business for which this meeting has been called is to consider and, if thought appropriate, to approve a resolution reappointing Raymond Chabot Grant Thornton LLP as auditors of the company and authorize the Board of Directors to fix the remuneration of the auditors. In order to be approved, the resolution must be passed by a majority of the votes cast thereon. Can I please have a motion for the reappointment of the auditors?

Madam Chair, I hereby move that Raymond Chabot Grant Thornton LLP be reappointed as auditors of the company at a remuneration to be fixed by the Board of Directors of the company.

Madam Chair, I second the motion.

Thank you. Are there any questions regarding the 2 motions to be voted upon? I now invite Trevor Heisler of MBC Capital Markets Advisors to read any questions submitted.

Good morning, Madam Chair. Please wait a moment while I gather any questions submitted through the Q&A feature. And I see no questions submitted through the Q&A feature. Please go ahead.

The polls are now open to vote on the election of Directors and the reappointment of auditors. At this point, all registered shareholders and duly appointed proxy holders who have properly logged in with their control number or invite code and wish to vote will be able to see on the screen all motions being brought forth at this meeting. Please register your votes by accessing the voting page and selecting the for or withheld buttons next to the name of each proposed Director and next to the resolution with respect to the reappointment of Raymond Chabot Grant Thornton LLP as the company's auditors. We will provide registered shareholders and duly appointed proxy holders approximately 1 more minute to complete the electronic ballots. Once the electronic balloting closes, the voting page will disappear and your votes will automatically be submitted.

Now that everyone has had the opportunity to vote, I declare the polls for each item to be voted upon to be closed. I have been advised by the scrutineer that all of the ballots and proxies deposited for the meeting have been counted, and the 2 motions have passed. In respect of the election of directors, 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 has received 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 be required to tender their resignation under Medical Facilities Corporation's majority voting policy.

Therefore, I declare that each of the 5 nominees whose names 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.

In respect of the appointment of auditors, the scrutineer's report on the vote regarding the appointment of the auditor shows that the resolution has passed. Therefore, I declare that Raymond Chabot Grant Thornton LLP has been reappointed as the auditors of the company and that the Board of Directors is authorized to fix the remuneration of the auditors. As we have not received any request for further business to come before the meeting, I declare the formal portion of the meeting terminated, and we will now proceed to the general questions portion of the meeting.

I ask that any registered shareholders and duly appointed proxy holders who logged on using their control number or invite code and who would like to ask a question to use the Q&A feature on the virtual interface to do so. We will answer as many questions as time permits. Please limit your questions to topics relating to today's subject matter and keep your questions short and to the point. We will now give attendees a moment to type in their questions. For each question we answer, we will summarize the question and read out loud the name of the person who asked such question and if applicable, the entity such person represents. We would like to remind you that questions which were already answered or that are redundant or repetitive will not be answered. We now invite Trevor Heisler of MBC Capital Markets Advisors to read any questions submitted.

Please wait a moment while I gather any questions submitted through the Q&A feature. And I see no questions submitted through the Q&A feature.

In conclusion, I would like to thank all of you for attending.

This concludes the meeting. You may now disconnect.

Hello. Good morning, everyone. Welcome to Medical Facilities Corporation's 2026 [ First ] Quarter Earnings Call. [Operator Instructions] 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 law. 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 may differ in actual material 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, except as required by law. Such statements speak only as of the date made. And now I would like to turn the meeting over to Mr. Jason Redman, President and CEO of Medical Facilities. Please go ahead, sir.

Good morning, everyone, and thank you for joining us. On the call with me is our Chief Financial Officer, David Watson. Earlier this morning, we reported our first quarter results. Our news release, financial statements and MD&A are available on our website and have been filed on SEDAR+.

Before we begin, I'd like to point out that the income statement variances David and I will be discussing this morning relate only to continuing operations, and therefore, exclude Oklahoma Spine Hospital and the Surgery Center of Newport Coast. The variances also exclude noncontrollable noncash corporate level charges related to share-based compensation plans. As usual, all dollar amounts are in U.S. dollars, unless otherwise specified.

We had a positive and eventful start to the year. In the first quarter, we delivered double-digit percentage growth in facility service revenue, income from operations and EBITDA. Our top line increased 10.8% to $67.1 million, thanks to a favorable payer mix as well as higher volumes of orthopedic and spine procedures.

Our income from operations was up 17.6% to $12.8 million, and our EBITDA grew 13.8% to $15.7 million.

We also continued our multiyear track record of returning capital to shareholders. During the quarter, we repurchased 318,400 common shares through a normal course issuer bid, returning $3.8 million to shareholders. In addition, as previously disclosed, the most significant development this quarter occurred in January when we completed the sale of our 64% ownership interest in Oklahoma Spine Hospital for gross cash proceeds of approximately $46 million, subject to customary adjustments. This transaction was fully aligned with our strategic direction, has allowed us to maximize value for our shareholders and focus on our remaining core assets.

Our financial position at quarter end underscores the strength of our business. We closed the period with a very strong consolidated cash balance of $86.3 million, including $78.1 million at the corporate level. This gives us significant flexibility to continue investing in our hospitals and to further return capital to shareholders.

We're currently evaluating alternatives to returning capital, and we look forward to updating you once any decisions are made.

Speaking of our hospitals, during the quarter, Arkansas Surgical Hospital earned the 2025 Human Experience Guardian of Excellence Award for the sixth consecutive year, placing them in the top 5% of hospitals nationwide for exceptional patient experience. The hospital was also voted Best Doctor-owned Hospital by AY Magazine readers. That recognition will be featuring the Arkansas focused lifestyle publication's Best of the Best edition in June.

Additionally, last quarter, I mentioned that Sioux Falls Specialty Hospital had received the Blue Distinction Center Plus designation for knee and hip replacement by Wellmark Blue Cross and Blue Shield. Since then, they have also received the Blue Distinction Center Plus recognition for spine surgery. We're very proud of both hospitals and of our strong start to the year. We remain focused on executing our strategy, driving operational performance and delivering long-term value. I will now turn the call over to David to review our financial results in more detail. David?

Thanks, Jason, and good morning, everyone. As Jason mentioned earlier, we had facility service revenue of $67.1 million for the quarter, which was an increase of 10.8% from Q1 of last year. The growth came from the combined impact of case and payer mix, which included more orthopedic and spine procedures, although total surgical cases were down 0.6% in the quarter, this was due to a decline in low-margin dental procedures. Excluding dental, our surgical cases were up 1.3% in the quarter.

Outpatient cases were up 2.6%, but inpatient cases decreased by 2.7% and observation cases were down 8.9%. Pain management cases were down 21.6%, with the decrease again stemming from Arkansas Surgical Hospital as discussed in prior calls. The pain doctor that started at ASH last August continues to ramp up, and both hospitals have active recruitment campaigns to attract additional pain doctors.

Our operating expenses were up approximately $4.7 million or 9.3%. More than half of the increase came from consolidated drugs and supplies, which climbed 13.5%, mostly due to case mix and higher surgical volumes outside of dental. Also contributing to the increase were consolidated salaries and benefits, which rose 9.1%, reflecting annual merit increases and elevated market-driven compensation for anesthesia nurse practitioners.

Additionally, our G&A expenses were up 5.8%, primarily due to higher costs for contracted anesthesia services, physician guarantees and repairs and maintenance.

As Jason mentioned earlier, our profitability improved year-over-year, with income from operations increasing 17.6% to $12.8 million and EBITDA rising 13.8% to $15.7 million.

Looking at our balance sheet. At the end of March, we had consolidated net working capital of $67.1 million, with cash and cash equivalents of $86.3 million. This compares to net working capital of $54 million and cash and cash equivalents of $43.4 million at the end of December. The change in consolidated net working capital was driven largely by the sale of Oklahoma Spine Hospital, which removed Oklahoma Spine-related current assets and liabilities and boosted cash and cash equivalents from the sale proceeds.

Finally, we remain free of corporate level bank debt since paying off our corporate credit facility back in 2024.

This concludes our prepared remarks. We'd now like to open up the call for questions. Operator?

[Operator Instructions] There are no questions at this time. I will now turn the call back over to Jason for the closing remarks.

Thank you, operator, and thank you to everyone joining us this morning. We value your ongoing support and look forward to continuing to share updates on our progress. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for joining. You may now disconnect.

Good morning, everyone. Welcome to Medical Facilities Corporation's 2025 Fourth Quarter and Year-End Results Earnings Call. [Operator Instructions]

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 except as required by law. 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.

Good morning, everyone, and thank you for joining us. On the call with me is our Chief Financial Officer, David Watson. Earlier this morning, we reported our Q4 and year-end results. Our news release, financial statements and MD&A are available on our website and have been filed on SEDAR+.

Before we begin, I'd like to point out that the income statement variances David and I will be discussing this morning include the results from Oklahoma Spine Hospital and the Surgery Center of Newport Coast, but exclude government stimulus income, goodwill impairment and noncontrollable noncash corporate level charges related to share-based compensation plans. As usual, all dollar amounts are in U.S. dollars, unless otherwise specified.

We closed out 2025 with a strong fourth quarter, resulting in growth in facility service revenue, income from operations and adjusted EBITDA, both for the quarter and for the full year. For the year, our top line grew 3.2% to $342.2 million, including growth of 6.9% in the fourth quarter. Income from operations was up 6.1% to $58 million, including a 20.1% increase in Q4, while adjusted EBITDA increased 3.1% to $73.7 million with 12% growth in the quarter.

In addition to strong case volumes and favorable case and payer mixes, these results reflect disciplined execution and continued focus on operational efficiency. 2025 was also a year of meaningful shareholder returns. Following the sale of Black Hills Surgical Hospital in November of 2024, we completed a substantial issuer bid in March of 2025. That, combined with our ongoing normal course issuer bid, saw us return $61.8 million to shareholders through the repurchase of more than 5.1 million shares, reducing our share count by approximately 22% in the year.

At the end of the year, we completed the sale of the surgery center of Newport Coast, receiving $1.5 million in cash proceeds for our 51% ownership interest. In parallel, negotiations were well underway for the sale of Oklahoma Spine Hospital, which subsequently closed on January 30, 2026. We received $46 million in cash proceeds for our 64% ownership interest.

At year-end, we held a corporate cash balance of $34.2 million, which included $1.5 million in proceeds from the sale of the surgery center of Newport Coast. The subsequent sale of Oklahoma Spine Hospital added a further $46 million to our corporate cash balance.

In order to return capital to shareholders in the most tax-efficient manner, we continue to explore the repurchase of shares under our normal course issuer bid, making a substantial issuer bid and/or making a special distribution to shareholders.

Before turning the call over to David, I want to give a special shout-out to the team at Sioux Falls Specialty Hospital as the hospital was recently named a Blue Distinction Centers+ for knee and hip replacement by Wellmark Blue Cross and Blue Shield, recognizing its superior outcomes, strong patient safety performance and cost-efficient care.

With that, I'll turn the call over to David to review our financial results in more detail. David?

Thanks, Jason, and good morning, everyone. Looking at the quarter, facility service revenue came in at $97.3 million, representing 6.9% growth, driven by the combined impact of case and payer mix, a 2.6% increase in surgical case volumes. Outpatient cases were up 6.6%, with inpatient cases decreased by 10.8%, and observation cases were down 3.8%.

Pain management cases were down 13.5% in the quarter, mainly due to decreases at Arkansas Surgical Hospital, as discussed previously. Offsetting this, a new pain doctor started at ASH back in August 2025, and an active recruitment campaign is underway to attract additional pain doctors. Additionally, a new spine surgeon joined referral group's practice in September.

Moving on to operating expenses, which were up $2.8 million or 3.8% for the quarter. Consolidated salaries and benefits rose 2.7%, driven by annual merit increases, market wage pressures and higher benefit costs associated with increased health plan utilization. These impacts were partially offset by a reduction in salaried physicians and clinical staff.

Drugs and supplies were up 7.1%, mainly reflecting a case mix with more orthopedic cases along with higher surgical volume. Meanwhile, G&A expenses were up 3.5% due to higher costs for contracted services, physician guarantees and repairs and maintenance. Profitability strengthened in the quarter with income from operations increasing 20.1% to $20.9 million and adjusted EBITDA rising 12% to $24.4 million.

Turning to our balance sheet at the end of December and including Oklahoma Spine Hospital for comparison purposes, we had consolidated net working capital of $38.1 million, with cash and cash equivalents of about $43.4 million. This compares to net working capital of $76.4 million and cash and cash equivalents of $108.5 million at the end of 2024. The decrease in consolidated net working capital was primarily driven by the completion of the $42.3 million substantial issuer bid last March and subsequent share repurchases totaling $19.5 million under our NCIB. Finally, we remain free of corporate-level bank debt having fully repaid our corporate credit facility near the end of 2024.

This concludes our prepared remarks. We would now like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from Doug Miehm with RBC Capital Markets.

So just a couple of housekeeping items. Can we talk a little bit about Oklahoma Spine? And with respect to that process, were you approached by SSM? Or did you run a broader process?

Doug, it's Jason. Yes. So in terms of the process, I think it was -- there was not a broader process that was involved. It was a collaborative discussion amongst ourselves, SSM and our physician partners.

Okay. Perfect. And then, as you finalize the details of that sale, can you talk about the projected tax liability? It looked like it was around 10% for the smaller Newport situation. I'm just wondering if you're thinking about a similar situation here.

Yes. Doug, it's David. We haven't disclosed the net proceeds after tax yet because we're still in the process of finalizing it. Obviously, we're working with our tax advisers to optimize the taxes on the transaction. So we'll be disclosing that with first quarter results.

Okay. And then finally, just on site neutrality legislation or other Medicare policy changes, do you see that having any impact on the business or payer mix? And also, maybe you could comment on Sanford's new orthopedic hospital in terms of that similar dynamic around competition? And I'll leave it there.

Thanks, Doug. So we haven't seen an impact yet in terms of the site neutrality implications on our facilities. It's something that we are watching very, very closely though. And obviously, we'll try to -- we'll accommodate and adjust our strategies as we need to. Obviously, our focus is try to keep as much inpatient service as we can, but it's something that we continue to evaluate with our physician partners.

Your second question in terms of Sanford, we haven't seen an impact on the Sanford's operations on our Sioux Falls results. It's always been a very competitive market, and we continue to perform well. And I think that's a credit to the very capable team that we have in place there.

Yes. It seems to be the case.

[Operator Instructions] We have reached the end of the question-and-answer session. Let me turn the call over to Mr. Jason Redman, President and CEO of Medical Facilities for closing remarks. Please go ahead, sir.

Thank you, operator, and thanks to everyone that joined us this morning. We appreciate your continued support and look forward to keeping you updated on our progress. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, everyone. Welcome to Medical Facilities Corporation's 2025 Third Quarter Earnings Call.

[Operator Instructions]

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 factor 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 except as required by law. 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.

Good morning, everyone, and thank you for joining us today. On the call with me is our Chief Financial Officer, David Watson. This morning, we reported our third-quarter results. Our news release, financial statements, and MD&A are available on our website and have been filed on SEDAR+. Please note that the income statement variances discussed by Dave and I this morning are for continuing operations and exclude government stimulus amounts from last year. As usual, all dollar amounts are in U.S. dollars unless otherwise specified. We had a strong quarter with growth in income from operations and EBITDA driven by increased facility service revenue at each of our highly rated surgical facilities.

A big contributor in the quarter was Sioux Falls Specialty Hospital, where, as expected, surgical case volumes had a solid rebound following the planned relocation of a key referral group's clinic earlier in the year. While the clinic move had a temporary negative impact on volumes in the second quarter, the transition is now behind them. We were pleased to see that the clinic was back to business as usual by the third quarter.

On a consolidated basis, facility service revenue was up 7.5% in the quarter, benefiting from the favorable impacts of case and payer mix, higher payer rates, and increased surgical case volumes. Income from operations was up 28.4%, and EBITDA increased 17.7% in the quarter.

On the topic of our hospitals, I wanted to give a quick shout-out to the folks at Sioux Falls and Arkansas, both of which received five-star ratings in September for nurse communications based on CMS's Hospital Consumer Assessment of Healthcare Providers and Systems data.

Finally, on the capital allocation front, we returned $5.6 million to shareholders in the quarter through the repurchase of 514,200 common shares under our normal course issuer bid. For the first nine months of the year, share repurchases under both our normal course and substantial issuer bids totaled about 4.7 million shares, representing $56.8 million being returned to shareholders and a 20% reduction in our outstanding share count. Even after these significant returns, our corporate cash position at quarter-end remained strong at $34.5 million.

With that, I'll turn the call over to David to review our financial results in more detail. David?

Thank you, Jason. Good morning, everyone. Starting with the top line, we had facility service revenue of $82.6 million for the quarter, which is an increase of 7.5%. As Jason mentioned, the increase was mainly due to the combined impact of case and payer mix. In addition, payer rate increases resulted in higher reimbursements per surgical case, and our surgical case volumes were up 1.1% for the quarter. Outpatient cases were up 3.3%, but inpatient cases decreased by 5.3%, and observation cases were down 3.1%. Pain management cases were down 15.4% in the quarter, mainly due to decreases at Arkansas Surgical Hospital and Sioux Falls Specialty Hospital. Pain cases were down at ASH following the departure of a pain doctor in Q4 of last year.

As we said in our call last quarter, a new pain doctor started at ASH this August, and a new spine surgeon joined a referral group's practice in September. Pain cases at Sioux Falls were impacted by the departure of a pain physician in the second quarter. The hospital is actively recruiting for both a pain doctor and a spine surgeon.

Our operating expenses for the quarter were about $3.1 million higher than prior year, as increases to consolidated salaries and benefits and to drugs and supplies more than offset our lower G&A expenses. Consolidated salaries and benefits increased 6.2%, primarily reflecting annual merit adjustments, market wage pressures, and higher benefit costs related to increased health plan utilization.

This was partially offset by a reduction in salaried physicians and clinical staff, including one physician who transitioned from being an employee to joining a referring practice and becoming an owner in the hospital at the end of last year. Drugs and supplies rose by 10.5%, mainly reflecting a shift in case mix toward higher acuity procedures. This increase was partially offset by improved implant cost savings achieved at certain facilities. Higher surgical case volumes also contributed to the increase, while higher vendor rebates provided a modest offset.

Meanwhile, G&A expenses were down 4.9%, largely due to lower corporate-level costs for share-based compensation plans, in addition to savings realized in professional fees and contracted services. These reductions were partly offset by higher repairs and maintenance expenses, along with increased recruiting costs and physician guarantees.

Looking at our profitability for the quarter, and again, excluding the government stimulus income last year, income from operations increased 28.4% to $12.2 million, and EBITDA increased 17.7% to $16.1 million.

Turning to our balance sheet, at the end of September, we had consolidated net working capital of $43 million, with cash and cash equivalents of $46.8 million. This compares to net working capital of $76.4 million and cash and cash equivalents of $108.5 million at the end of 2024. The decrease in consolidated net working capital was primarily driven by the completion of the substantial issuer bid in March, which reduced cash and cash equivalents by $43.7 million. Other significant drivers were the $14.4 million tax payment in April related to the gain on sale of Black Hills Surgical Hospital, and $14.8 million used to repurchase shares under our normal course issuer bid.

We remained free of corporate-level bank debt, having fully repaid our corporate credit facility near the end of last year. As we announced last quarter, on August 6, we executed a new credit agreement with Canadian Imperial Bank of Commerce. The agreement is for a $40 million revolving credit facility with an option to increase the facility by up to $25 million, contingent upon meeting specified conditions. This concludes our prepared remarks.

We would now like to open the call up for questions. Operator?

[Operator Instructions]

Okay. It seems we have no questions at this time. [Operator Instructions] I believe we have no questions at this time.

Okay. I will now turn the call back to Mr. Redman then for closing remarks. Please go ahead.

Thanks to everyone joining us this morning. We appreciate your continued support and look forward to keeping you updated on our progress. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.