Donald Schellpfeffer – CEO Michael Salter – CFO

Neil Maruoka – Canaccord Genuity Douglas Miehm – RBC Capital Markets

Good morning, ladies and gentlemen. Welcome to the Medical Facilities Corporation 2014 Third Quarter Results Conference Call. Before turning the call over to management, listeners are cautioned that today’s presentation and the responses to questions 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 about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter and 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. Listeners are also reminded that today’s call is being recorded for the benefit of individual shareholders, the media and other interested parties who may want to review this call at a later time. I would now like to turn the call over to Dr. Donald Schellpfeffer, Chief Executive Officer of Medical Facilities. Please go ahead, Dr. Schellpfeffer.

Thank you, operator, and good morning, ladies and gentlemen. Thank you for participating in today’s conference call. Joining me today is Michael Salter, Chief Financial Officer of Medical Facilities Corporation or MFC. Prior to market opened today, we released our 2014 third quarter financial results. Our news release, financial statements, and MD&A may be accessed through our corporate website at www.medicalfacilitiescorp.ca and were also filed on SEDAR today. For the third quarter, we reported revenue of $77 million, up from $73 million for the same period last year. The increase in revenue was a result of strong operating performances at Black Hills, Oklahoma Spine and Arkansas Surgical resulting from higher volumes of surgical cases and pain management procedures. Consolidated income from operations for the quarter was $21.3 million, up slightly 6% from $20.1 million recorded in the same period last year. The increase in cash available for distribution was attributable to strong operating performances by our centers and lower corporate expenses, which were partially offset by higher foreign currency adjustments from our hedging program and higher provisions for income taxes. As a result, we achieved favourable cash available for distribution with a payout ratio of 81.7%. As we’ve previously informed the market, our year-over-year revenue and income from operations can fluctuate from quarter-to-quarter and center-by-center. This is a result of shifts in case mix, payor mix, physician scheduling and case counts. Michael will now provide more detailed insight into our financial performance for the third quarter of 2014. And I will conclude with our views on how the larger economic environment is impacting the healthcare market and our business. We will then open up the call to any questions you may have. With that, let me turn the call over to Michael to discuss our financial results. Michael?

Thanks, Don, and good morning, ladies and gentlemen. Before I begin, please note that all dollar amounts expressed in today’s call are in U.S. dollars unless I state otherwise. For the third quarter we recorded revenue of $77 million, an increase from $73 million in the same quarter last year. Oklahoma and our Black Hills units both experienced strong results due to an increase in surgical cases that was partially offset by a less favourable payor mix. Additionally, Oklahoma saw a larger number of pain management procedures performed. Arkansas’ increases were due to higher volumes in surgical cases as well as adjustments to contractual allowances that were in their favor. Sioux Falls revenue was impacted downwards by an increase in contractual adjustments primarily due to changes in payor mix, however that was partially offset by a $0.9 million electronic health records incentive payment recorded during the quarter. Dakota Plains saw an increase in Medicare and Medicaid cases which led to a less than favourable payor mix despite an increase in surgical cases. Newport Coast also saw increases in both surgical cases and pain management procedures that were impacted by a less favourable payor mix. On a consolidated basis, we saw an overall increase in surgical cases and pain management procedures as well as increased revenue from complementary services, such as imaging, primary and urgent care. However these increases were offset by higher volumes of cases with lower reimbursement rates. Our consolidated income from operations for the third quarter of 2014 increased by 6% to $21.3 million from $20.1 million as compared to the same period one year ago. Income from operations experienced an increase as a result of the aforementioned higher case volumes and changes in case and payor mix. During the third quarter, we recorded net income of $25.7 million compared with $9.1 million for the same quarter last year, the increase being primarily attributable to strong operating performance and the positive impact of the change in values of our exchangeable interest liability and our convertible debentures. Cash available for distribution or CAFD, was CAD$10.8 million, an increase from the CAD$9.4 million generated in the third quarter of last year. Our declared distributions were $8.8 million, in line with the same period last year. The resulting payout ratio for this quarter was a very favourable 81.7% compared to 94.3% recorded for the same period a year earlier. As at September 30, 2014, MFC had outstanding foreign exchange forward contracts for future delivery of $47.4 million to be converted at a weighted average rate of CAD$1.046 per U.S. dollar through the end of December 2015. Cash, cash equivalents and short-term and long-term bank deposits were $47.2 million as at September 30, 2014. Let me now call on Don for his closing comments.

Thanks Mike. MFC’s outlook can be affected by many interrelated factors which include the economy, healthcare reforms and management strategies. The U.S. economic activity has experienced a modest improvement, with unemployment declining slightly although the number of Americans in upmarket remains somewhat depressed. The housing sector continued to remain slow but improvements were seeing in both household spending and business fixed investments. The S&P 500 experienced a modest gain of 0.6% [indiscernible] negative north by losing 1.2% at the end of the third quarter. The less than favourable performances by the markets were a result of September stock decline combined with weakness in the price of oil lower end [ph] commodities. The added worry that the US Federal Reserve will raise interest rates sooner than expected also then lowered the market. We will continue to monitor potential impacts from recently implemented tax increases, spending cuts and continued withdrawal of stimulus measures. We remain confident that we will benefit from the fact that over 97% of our revenues are generated in South Dakota, Oklahoma and Arkansas. These states consistently demonstrate unemployment rates that are below the national average, as well as above average economic growth. We believe that as the economic recovery and unemployment rate declines further we will see non-Medicare and non-Medicaid patient volumes grow, which will in turn have a positive impact on the results of the company’s operations. The recent mid-term election gave the Republicans control of both the Houses of Congress which produces some uncertainty as to the future of the Patient Protection and Affordability Care Act, it is now very difficult to assess its impacts upon the level of uncertainty for healthcare providers. We believe the implementation of Patient Protection and Affordability Care Act will cause healthcare industry to experience a number of challenges and opportunities. We anticipate that the increase in the number of patients will result in increased number of surgical cases and reduction in uncompensated care. Healthcare entities may also be offered reimbursement incentives rewarding those who meet quality of care and operational criteria. However, the ongoing pressure on reimbursement rates will remain a challenge for most healthcare providers. The combination of the increasing average age and life expectancy of the U.S. population, the overall population growth and increased proportion of the population with access to health insurance and advances in science and technology will continue to drive increased demand for services we provide at our centers. We will continue to access and identify accretive acquisition opportunities while remaining focused on driving operating performance across all our centers over the long-term. Management intends to continue capitalizing on our unique business model. One of our approaches to positively impact our performance going forward will be to support the physician recruitment efforts at our centers in order to drive increased utilization of our expanded facilities at our hospitals. We believe that increases in the number of physicians holding medical staff privileges and/or ownership interests in our centers is one of the best methods of positively impacting our results. The integration and development of revenue generating initiatives, such as our primary and urgent care operations at two of our hospitals will also expand our capabilities and service offerings. Management continues to focus on optimizing opportunities for revenue generation, while applying best practices and cost reduction strategies to achieve the company’s business objectives. The management team remains confident in the company’s operations, we’ll be able to continue to generate cash available for distribution that is more than adequate to satisfy our current annual dividends of CAD$1.25 per common share. We would now like to open the line-up for any questions that you may have. Operator?

[Operator Instructions] Your first question comes from the line of Neil Maruoka from Canaccord Genuity. Neil Maruoka – Canaccord Genuity: First question is on Oklahoma Spine, I see that the volumes have increased and revenues are doing quite well. But also the margins seem to be stabilizing after moving the network. Can you just provide a little bit of color there and what you’re seeing following that move from other network?

Yeah, Neil, I will start off and then Don can fill in the color. I think if you – as you are aware, if you look over the last few quarters in particular, the margins on Oklahoma which are provided to you in the MD&A, you will have noted some variability and volatility I think – and it is the best way to describe in those margins and certainly part of that has been due to them moving some of their payors into an in-network status from the out of network. I think as we’ve also commented in the past Oklahoma Spine just because of the very nature of the cases they do is somewhat subject to the regulation of the workers’ compensation market and keeping in mind that workers’ comp is highly political in terms of the regulation of the insurers in that field. So I think what you’ve seen here and we are quire delighted with it is – I think you used to the term margins stabilizing and sort of levelling out, of those margins that we think that, that’s a positive. Don, if you have anything else to add to that?

No, I agree with what Michael has said and [indiscernible] in network now and obviously the trade-off even though the reimbursement may be somewhat less, hopefully I think it’s sort of the increased volume which has offset the decrease in the personnel. Neil Maruoka – Canaccord Genuity: And second question is on Dakota Plains where you seem to be having a few challenges there, the revenues continue to decline and your margins are slipping there since various acquisitions of the orthopaedic practice. Can you provide a little more update there where you might be in terms of recruitment and then maybe an update on recruitment for your other facility?

Yes. Again, I’ll start off and then Don will fill in some words on it. I think if you look at Dakota Plains again in this most recent quarter, it’s still profitable and producing revenues. And I think what you did see in Aberdeen, which is the town the Dakota Plains is located, aside from the physician practice and their alignment with Avera is that town is highly competitive now with the addition of Sanford Group opened up a facility in town, I think, a year and half ago creating quite a competitive marketplace. And where we saw Dakota Plains had had a great year in 2013, it did stumble a bit into the first part of this year, but I think that came back a little bit in the third quarter. And Don, you want to add anything else to that?

Obviously we’re still very committed to working at the centers, [indiscernible] clinic is part of the hospital, which is in the hospital setting. So moving forward inside a few smaller number of physicians to start ownership that are involved if there is one or two that’s on holiday or had an issue with health-wise or whatever we’re going to see -- what difference – what we did see in the past year.

[Operator Instructions] Your next question comes from the line of Doug Miehm from RBC Capital Markets. Your line is open. Douglas Miehm – RBC Capital Markets: Just curious, with the economy improving and we know that there is always going to be continued reductions on the reimbursement side, but I’d say that by and large I think people might be a little bit more comfortable now. Would you say that as a result of that there is less concern among your prospective companies or surgical hospitals that you could look at acquiring making it more difficult or would you say that the landscape remains relatively unchanged at this point?

If you’re referring to principally physicians of specialty hospitals, Doug, I think you’d have to say that there haven’t been a lot of transactions that has not changed. I wouldn’t categorize as it would make it more difficult. I think as we’ve always said in the past these things take time to develop and I mean we’ve always got our unit [ph] ground, nothing to report it at this point in time. I think there will be -- transactions will take place over -- whether it involves us or others. You just don’t see a lot of activity at the moment, but certainly we’re always looking.

Doug, in addition to that, obviously like Michael says we’re always continuing to look forward and aggressively looking at that. But our criteria – it’s got to be accretive moving forward and they’ve got a cash flow so that we continue with the model that we currently have. Douglas Miehm – RBC Capital Markets: Yes. Absolutely. Maybe a few comments on—your urgent care business seems to be improving and if you’re moving forwards profitability in those businesses or if not, how long do you think we’re from there?

I think what you’re seeing in our results, Doug, on that —you’re right. We have been adding more revenue on the line. I think as we’ve always indicated we don’t view urgent care on a standalone basis as being a major profit center. I mean these are medical practices who are owing to handsome purposes. We’ve quite significant staffing costs involved with them and real thinking is the building of our brand -- in the patient stream and the patient loyalty, to our brand. I think we can report that we have seen progress on that side, but we’re seeing it unfold as we anticipate it when we develop the urgent care model at Black Hills and the primary care occupational health model at Sioux Falls. Douglas Miehm – RBC Capital Markets: Okay. Excellent. And then just to wrap up, with respect to reimbursement, are there any changes that you’re expecting in 2015 among your payors that we should watch out for or is it just going to be a continued slow move lower versus increased volume --?

I think we’re going to take all the risk factors obviously and I think you and the marketplace are well aware of is reimbursement pressures and all the things that’s there. I mean what’s coming into contract negotiations now given both of our payor contracts come up at the end of the calendar year. And I think it’s fair to say – and I will let Don give you the good news part of what we see at the moment is that not any really significant or major areas of heavy pressure coming upon us. Don?

I made -- have seen a slight increase of approximately 1% as far as surgery in our judgment [ph] area. So that’s some of the good news, but obviously as we all know there is continued downward pressure in most of these areas and we have to continue to negotiate as best as we can moving the ball forward in all these areas.

I think you’re listening on, Doug we should point out, which I think is an ancillary part to it and that is we do talk about payor mixes and we’ve had some shifts in this particular quarter. I think you have to keep in mind that over the word surgical hospitals all right – but three states we’re located in, only one of them has gone into Medicaid expansion and that is Arkansas. Even Arkansas—they handle Medicaid expansion a little bit different, I think, in the different model than what the federal government was hoping with Obama Care and the requirement to extend Medicaid. In South Dakota, Oklahoma, you have not seen that happen yet. And looking at our numbers we’ve seen a little bit of an uptick in Medicaid in the Arkansas, probably related to the fact that there has been Medicaid expansion there albeit as I said in a slightly different format, but that’s obviously one thing to keep an eye on as that unfolds.

[Operator Instructions]. There are no further questions at this time.

Thank you for participating on today’s call and for your continued interest in Medical Facilities Corporation. We look forward to reporting on our progress for the next quarter. Thank you, and ladies and gentlemen and have a great day. Thank you.

This concludes today’s conference call. You may now disconnect.