Q4 2022 Extendicare Inc Earnings Call
Yeah.
Thank you for standing by this is the conference operator.
Welcome to the extended care, Inc. First quarter, 'twenty, 'twenty, two and analyst conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an effort to do you need to ask questions to join the question queue. You May Press Star then one on your telephone keypad.
Should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Julie Ann Thompson, Vice President and Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone and welcome to extended Care's fourth quarter and year end 2022 results conference call.
With me today are extended care's, President and CEO , Michael Greer, and our senior Vice President and CFO David Bacon.
Our Q4 results were disseminated yesterday and are available on our website. The audio webcast of today's call is also available on our website along with an accompanying slide presentation, which viewers made that's itself.
A replay of the call will be available later this afternoon until March 17th.
The replay numbers and pass codes have been provided in our press release and an archived recording of the call is also available on our website.
Before we get started please be reminded that the date of today's call may include forward looking statements such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.
We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings.
That I will turn the call over to Michael.
Thank you Jillian and good morning.
We begin our presentation today with an update on the impact of COVID-19 on our operations.
During the quarter COVID-19 continued its endemic presence in our community.
Rising outbreaks and staff absenteeism across the sector.
Over 80% of our own long term care homes experienced a COVID-19 outbreak in Q4.
Fortunately high rates of vaccination have dramatically reduced the incidence of severe illness. So the virus has a much milder impact on our resident population than earlier in the pandemic.
Despite the persistence of outbreaks in our homes.
Occupancy continues its gradual recovery.
However, outbreaks aren't keeping costs elevated as we continued to invest the resources required to help protect our residents clients and staff.
To date, we have received funding to cover approximately 90% of our COVID-19 related costs, leaving.
Leaving accumulative unfunded totally cost frame continuing operations at 31 $4 million.
In December the Ontario government announced further prevention and containment funding of $180 million to assist with COVID-19 costs through to March 2023.
Alberta has announced its pandemic funding will end in June .
Manitoba has indicated funding will continue at least until the end of March.
While we are grateful for the government support to date, we expect to continue to experience volatility in our financial and operating results until pandemic impacts recede.
We anticipate that some portion of the $15.5 billion in cumulative unfunded COVID-19 costs, we have incurred in long term care will be recovered in 2023, but we can't be sure of the quantum or the timing.
In home Health care, our operations returned to growth in Q4 as staff Absenteeism East.
Limited availability of caregivers continues to constrain our ability to meet the strong demand for services.
We are working to alleviate this issue with a continuing focus on large scale recruiting and enhanced retention programs supplemented by our ongoing college partnerships and in house training programs.
[laughter] pandemic related costs across the business are dropping as the pandemic recedes.
We anticipate that lower costs will result in stronger margins in 2023.
Turning to strategic transactions on slide four we made significant progress last year toward completing our strategic transformation.
Managing the challenges caused by the pandemic.
During the year, we created a strategic partnership with axiom, and Riviera, which once approved will drive significant capital efficient long term growth.
We also refocused our operations with the sale of our retirement living segment, and our Saskatchewan long term care homes.
The funds from these asset sales are being directed toward advancing our redevelopment program and returning value to shareholders through our share buyback program.
Collectively these transactions support our strategic agenda to focus on long term care and home health care.
Leveraging our deep expertise and scale to drive growth using a less capital intensive business model.
Work continues to prepare for the completion of the Revere and axiom transactions.
Regulatory approvals in Ontario, and Manitoba are in progress and in the meantime, we continue to work with Revere and axiom on a comprehensive integration plan to ensure a smooth and efficient transition following approval.
We have incurred approximately $9 million year to date in strategic transformation costs related to these activities.
The aggregate consideration to be paid on closing these transactions remains an estimated $70 million.
Following the completion of the sale of our retirement living segment, we initiated a normal course issuer bid.
Purchasing approximately 5 million common shares for cancellation and returning $35 million in capital to shareholders in 2022.
Moving to slide five our redevelopment program has gained momentum with enhanced funding from the Ontario government.
In November the government introduced a time limited capital funding supplement of $35 per bed per day to.
To help counter significant inflationary pressures and rising interest costs that had otherwise prevented new long term care homes from starting construction.
This enhanced program is available to eligible applicants who receive construction approval by August 2023.
We are working toward a goal to break ground on up to four new projects. This year.
As a reminder, our Ontario redevelopment program consists of 20 projects, representing 4248, new and replacement long term care beds.
Three projects are currently under construction and are projected to open between the third quarter of 2023, and the first quarter of 'twenty four.
We continue to advance the balance of our projects to ensure their construction ready in anticipation of funding that may be available in future years.
We are working collaboratively with our industry partners and the Ontario government to make all of our projects economically feasible as we still have not overcome the economic barriers faced by projects in the greater Toronto area, and then small rural markets.
Now, let's turn to a few operational highlights.
On slide six.
Despite the ongoing impact of the pandemic in the form of persistent outbreaks in our homes long term care average occupancy improved 100 basis points in the quarter or Q3.
As I mentioned earlier, we continue to face ongoing staffing shortages and inflationary pressures that impact our operating costs.
These factors together with occupancy claw backs and funding increases that lag inflation have negatively impacted our financial performance.
In our home health care segment, we experienced a 2% sequential increase in our average daily volumes in the fourth quarter due in part to a decline in staff absenteeism.
We are encouraged by the return to growth since the pandemic recedes, and our recruiting and enhanced retention programs help us to meet continued strong demand for our services.
We were delighted to announce that pyramid retained its status as a nationally accredited service provider, having been awarded exemplary standing by accreditation, Canada, the highest level in the organization can receive.
This award is a reflection of our dedicated team members are high quality programs and our commitment to service excellence.
It is also a testament to the exceptional care, our home health staff provided to our patients and clients each and every day.
Especially in this challenging environment.
And our managed services segment, we continued to see strong growth in our S. GP customer base, which increased two 6% from Q3 and 17, 7% from the prior year.
With that I'll turn it over to our CFO , David Bacon, who will comment on our consolidated and segmented financial results for the fourth quarter.
Thanks, Michael.
I'll start by providing an overview of our consolidated results for the quarter, followed by some financial highlights of our business segments and our liquidity position.
This quarter, we reported $3 9 million in costs related to the strategic transformation of the company in connection with the <unk> and axiom transactions, bringing the total cost to date to $9 million.
Reported these costs as a separate line item in other expense, which is excluded from <unk> in EBITDA and we will continue to attract them as such on a go forward basis.
As a reminder, our retirement living communities that were disposed of in May and the Saskatchewan long term care operations sold in October have been classified as discontinued in our financial results.
Turning to slide eight and our consolidated results on a year over year basis Q4, consolidated revenue increased one 4% to $310 4 million.
This increase was driven primarily by long term care flow through funding enhancements and prior period long term care funding.
Home health care rate increases and growth from managed services.
This was partially offset by lower Covid funding support of $20 8 million the impact of home health care, a retroactive rate increases received in 2021.
And a 1% decline in home health care average daily volumes.
Our Q4, NOI decreased $17 1 million to $21 7 billion with an NOI margin of 7%.
Third to 12, 7% in the prior year, driven primarily by a net increase in unfunded COVID-19 costs of $13 5 million.
Higher operating crossed across our segments and 1% lower home health care average daily volume.
We continue to receive Covid funding support under various provincial programs. However, the mismatches between the timing of funding and cost continues to drive volatility in our financial results.
Unfunded COVID-19 costs impacted our consolidated NOI by $8 $5 million this quarter.
We continue to believe that additional COVID-19 funding will be provided in Ontario in the first half of 2023, but the timing and quantum of any additional prevention and containment funding.
All results and ongoing volatility in our results.
Q4, adjusted EBITDA decreased $15 3 million to $9 2 million, reflecting the decline in NOI, partially offset by lower administrative costs of $1 7 million.
<unk> per share was <unk> <unk> in Q4 down from 18 cents in the prior year, reflecting the decline in earnings driven by the 11 cent impact of the swing in net unfunded COVID-19 costs as compared to the prior year and the loss of approximately <unk> <unk> per share for margins.
Suppose retirement living segment.
Our full year 2022 payout ratio was 162%, which was elevated in part by the loss of retirement segment in <unk> per share of approximately seven.
Which will be largely replaced by the combination of our estimated <unk> per share contribution of five cents from the pending Rivera and axiom transactions and the full year impact of our 2022 and CIB activity.
Turning to our individual business segments first to long term care, we saw revenue increase by 2% in Q4, driven by funding enhancements and timing of flow through spending and prior period funding.
This was partially offset by lower COVID-19 funding of $13 million.
NOI decreased by $13 million in Q4 to $10 5 million and represented NOI margins of five 4%.
Excluding a reduction in COVID-19 recoveries of $13 8 million.
NOI increased by 800000, which included the benefit of $2 5 million in prior period funding adjustments and workers compensation rebates received in the quarter, partially offset by higher operating costs.
Government funding increases have been lagging inflationary impacts on our operating costs over the past three years and 2022, we did not receive an increase in our other accommodation envelope in Ontario contributing to growing pressures on NOI margins and our L. T C segment.
Our Q4 NOI margins adjusted to exclude the impact of Covid and the out of period funding were eight 9% compared to 10, 8% in the prior year.
In addition to the inflationary pressures margin percentages are down approximately 100 basis points from the impact of the increase in Ontario direct care, our flow through funding and the permanent P. S. W $3 hour rate increase in Ontario.
Occupancy occupancy in our long term care homes continues to recover despite the persistent level of outbreaks.
After the removal of box occupancy protection and Ontario earlier this year, our average adjusted occupancy was 96, 9% with six Ontario homes falling short of the required occupancy level of 97%, which lowered our NOI by approximately 700000 for the full year 2022.
Turning to our home health care segment.
New was down one 2% in Q4, driven by a reduced COVID-19 funding of $7 8 million.
Excluding this reduced COVID-19 funding revenue increased $6 5 million or six 4% driven by billing rate increases and additional funding to support the permanent wage increase for P. S. W's.
This was partially offset by a one time billing rate increase of $3 5 million received in Q4 of 2021 and the 1% year over year decline in our average daily volumes.
<unk> NOI decreased by $4 5 million to $6 4 million with an NOI margin of five 9% compared to a nine 9% margin in the prior year.
The decline in NOI reflects higher wages and benefits travel and technology clause, including costs associated with the elevated levels of recruitment retention and training to address our staffing capacity challenges.
On a sequential basis, our average daily volumes increased 2% and excluding the impact of the net COVID-19 costs, our NOI margins improved 90 basis points in Q4.
Turning now to slide 11, we continue to see strong growth in our managed services segment, which is comprised of our extended care assist and SGP group purchasing divisions.
S. G. P. Now supports over 109003rd party beds as of the end of Q4 up 17, 7% from a year ago and up two 6% sequentially.
Q4 revenue increased by 24% to $8 6 million.
Largely due to the timing and mix of assist services and growth in our SGP clients served which resulted in a 500000 increase in NOI compared to the prior year.
Finally, turning to our financial position, we are well positioned with strong liquidity, including cash and cash equivalents of $167 million and access to a further 77 million in undrawn credit facilities at year end.
In addition, we have undrawn construction financing available of 123 million to fund the balance of the construction costs for our ongoing redevelopment projects.
Our maturity profile remains strong with only modest debt maturities coming due over the next two years.
Our liquidity position provides us with the flexibility to allocate capital strategically.
In respect of our long term care redevelopment program, depending Roberto transaction or other potential acquisitions and capital structure initiatives.
As Michael mentioned, we acquired approximately $5 million or five 6% of our outstanding common shares through the issuer bid we initiated in June of 2022.
Average cost of $6 99.
The issuer bid provides us with the ability to purchase up to seven 8 million shares through to the end of Q2 of 2023.
Decisions regarding further purchases will continue to be based on market conditions share price and our outlook for our capital needs.
With that I'll pass the call back to Michael for his closing remarks.
Thanks, David.
While we continue to be impacted by COVID-19, we're cautiously optimistic about mounting evidence that the pandemic is transitioning to endemic status.
While we anticipate continued pandemic driven volatility in our performance its impacts appear likely to wane in the coming months.
We made significant progress in executing our strategic transformation last year.
Once approved the axiom and Rivera transactions will position us to focus on our core operational strengths.
Leveraging our scale and expertise using a less capital intensive business model to drive growth in our managed services segment.
We're encouraged by the enhancements to the capital funding program in Ontario, and our potential to continue to advance our redevelopment agenda.
Combined with a return to growth in our home health care segment, we believe we will create sustainable value for our shareholders in the coming years.
We remain focused on providing high quality care for our residents patients and clients as we advance our strategy to be a leading growth oriented seniors care provider.
And finally, thank you to all of the caregivers across our organization and to the teams who support them.
For their unwavering dedication to our mission of helping people live better.
With that operator, we'll be happy to take any questions that may come up.
Exactly.
Well now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
You hear tone and knowledge in your request.
He using a speakerphone please pick up your handset before pressing any keeps.
Jay a question. Please press Star then two.
We will pause for a moment callers join the queue.
The first question comes from Jonathan Cachet from T D Cohen.
Please go ahead.
Thanks, Good morning.
Our next question just on the.
Long term care at Oi and in your outlook I guess, the bigger driver for 2023 is going to do.
And how much government funding.
You guys get when they announced what are what are your expectations for that.
Yeah, Jonathan I think.
So there is a budget coming in Ontario.
At the end of March.
So obviously, we're waiting for that I mean, we do feel that based on all of our dialogue with the government. We do expect to see rate increases both in the in the care envelope and in the OE.
Similarly, theres budgets.
Coming in the west as well.
I think that Theres been a lot of work done to help.
Help the governments understand the inflationary pressures that we have been under.
And that while they're putting a lot of money into care as an example in Ontario with the four hours of care agenda in the $3 for the PFS w's they.
They have been short on the on the other side of the equation on the other accommodation side. So so we do expect some rate increase very hard to predict I don't we don't we're not going to try and guess.
What I'd say is historically pre COVID-19.
Generally they would keep pace with inflation I think theres, a long steady period of time, where the increases would be one and a half to two 5% a year, depending on the inflation environment and generally kept pace.
Obviously, we have a bit of a gap here I'm not sure whether they're going to make any of that up or not or just get back to what the sort of the historical trend lines. So, but we are optimistic that we won't see another zero percentage increase here.
So I mean that's.
From a from a rate increase that's what we're seeing I think the other important thing is we do expect some more funding on Covid to fund some of our gap that.
We've had to date they've been they've been pretty good funding us, but albeit delayed which has caused the volatility.
And we also do have in Ontario context, we do have the next step up.
In hours of care to $3 seven hours, starting in April and that.
I think it will help as.
As we all unwind some of the pandemic costs and Youll see that kind of feather into our normal flow through nursing envelope that are going to have a step up come in April so all of those things combined we feel like there's.
There will be improvements in margins and long term care opportunity for that but the quantum exactly will depend a lot on timing of of the COVID-19 and what the ultimate rate increase decision is in the budget at the end of the month.
Okay. That's.
That's helpful and then on the home health care side of the business you guys did 2% growth in Q4, which was.
Which was good.
But without I guess, if you don't see any major changes in staffing and I know you guys are trying to address that.
How much higher can you can you really drive the home health care average daily volumes.
So I.
I think probably the.
The experience that we had.
Recovering from some of the early waves.
The of the pandemic in 2021 probably gives you a reasonable Ah <unk>.
Our model in terms of quarter over quarter.
Improvement in volume and performance that.
That we can achieve.
Of course, we can be sure of what's going to happen. This pandemic has had lots of surprises.
<unk> with it so it makes it very difficult to to do anticipate but I think we're back on.
Our growth trajectory.
And.
We are seeing are that the impact of the pandemic receding, we're seeing the impact of an absenteeism receding, we're seeing more ability to attract and retraining and.
Regained staff.
So.
So I think where we're back on an on a growth path that.
<unk> mimics the quarter over quarter kind of performance that we were able to achieve in 2021.
Okay. So if so.
I guess another way of asking that is.
You're sort of 25000 plus hours right now like is it are you guys running at basically full efficiency with your your current stock or is there or is there room to grow that or.
Will future is like if you want to take this to 30000 hours.
That would obviously require a lot more stock.
That's the way to think yeah, I think it's.
Yeah, I think I think growth is going to be mostly driven by by additional staff.
There may be some additional gains in utilization of existing staff that are possible, but but I think that would be limited I think but I think the the vast majority of future growth will come from additional staff.
Okay.
Helpful. Thanks, I'll turn it back.
Once again.
Do you have a question. Please press Star then one on your telephone keypad.
And next question comes from Tal Woolley from National Bank Financial. Please go ahead.
Hi, good afternoon.
Hi.
For the new LTC sites coming online later this year can you talk a little bit about the transition play out like how that works.
Is there a site nearby that gets decommissioned how how does that sort of work and what should we think of like the financial impact of that.
As we move forward.
Yes, I think.
All three projects they are greenfield sites. So so we are moving into a brand new building on a on a new location.
So that's that's the first the first thing so we're not trying to you know the <unk> quite straightforward right. We're closing an old building moving the residents and then closing an old building.
Generally.
So that leaves us bandwidth decommissioning the old sites.
And.
In selling selling the land and those projects off.
So.
So that's the first thing on the old site on the new projects.
That were that were we're bringing online all the homes are.
Newer homes with 60% preferred occupancy.
I'm, sorry preferred beds, so compared to some of the homes that they're taking out.
They will have a higher proportion of preferred and there is also incremental beds as well.
In those in those projects so the new the three new projects or 704 beds.
Those projects address.
84 of our three and four bed wards.
Issues on those homes. So we get those 84 beds back in service as well as some new new beds as well so.
More beds higher proportion of preferred some of the seabed <unk> three and four bed wards come back in to into operation. So.
There will be a step up I mean, where we're at now I mean, our first home will open sometime in Q3.
So that.
For the current year, we're probably only going to have about one quarter.
Results operations of one of the new homes for 2023, so there's not going to be very it won't be very impactful for 'twenty three.
Okay.
I understand that from a timing perspective, but I guess like what I'm, what I'm trying to get an answer to is just like what is the NOI coming offline from the existing assets.
Why coming online from the new assets.
Well the NOI coming online is about $8 $4 million, that's disclosed in our in our materials. So.
And then we have the annual CFS on those new projects as well.
So I don't on a on a.
Step up I'd have to get back to you tell on sort of NOI offline, but you could take an average of our NOI per bed.
Don't actually disclose what the old home NOI is at the moment, so but you could look at our NOI per bed on our kind of overall average basis, but there is a step up in the NOI given the higher proportion of preferred and the.
That's in the new homes.
Yes, the other thing I'd remind other thing I'd remind you up too is that.
With the pending axiom transaction.
Those projects will be sold into the joint venture sometime this year.
Therefore.
Largely the opening of those homes will take place sort of in the joint venture and.
So largely are.
What happens for us on those projects as they become managed homes with a management fee stream.
And and data are.
Our proportionate share of the JV earnings so there will be.
We got closer to the homes opening we got closer to clarity on the timing of the joint venture.
There will be there'll be a lot more kind of information that we can talk about in terms of what that kind of pro forma effect looks like.
On the business, but.
At the moment.
Yeah, we don't have we need to get that deal closed and then.
We will talk more both as we got closer to closing the axiom deal.
Okay.
And.
I guess look the other thing I'm thinking two of these transactions like the Rivera the axiom deals.
Start to close.
I think the point really we were like we're gonna be either like a lot of your.
A lot of your.
More a high proportion of your income is going to be coming from.
You know sort of traditional kind of like service revenue.
As opposed to it being attached to real estate ownership operation Slash development, and so I would assume from a tax perspective, one of the things we sort of need to think about is that.
This will probably be a look youre probably a higher.
Or.
Higher tax rate on your income as we move through this.
Yes.
Yeah.
Yes in the sense that you know.
As you said management fees and revenue streams without necessarily the.
Yes.
Selter from from interest and depreciation et cetera off the capital.
So that is true I would just say.
That will be a very gradual transition.
No.
As we do our look to do that with our current portfolio.
Yes, we have.
We have 56 homes 17 redevelopment projects in Ontario, We do think it will take a number of years as we move move that transition as we redevelop those homes and move them into a JV structure. So it will be a gradual.
It'll be a gradual shift and once we get a bit more.
For clarity in the future.
That is a that has an impact potentially as we go forward, but it will be very gradual.
Okay. That's perfect. Thanks for your help I appreciate it.
This concludes the question and answer session I would like to turn the conference back over to Jillian fountain for any closing remarks.
Thank you operator that concludes our call for today. This presentation is available on our website as are the call in numbers for an archived recording.
Thank you for joining us please don't hesitate to give us a call if you have any questions.
This concludes today's conference call you may disconnect your lines. Thank you for participating.
Okay.
[music].
Okay.
Yes.
Yes.
[music].
Yeah.
[music].
Yeah.
[music].
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yes.
[music].
Yeah.
Yeah.
Yes.
Yes.
Yeah.
Yeah.
Yeah.
[music].
Yes.
Okay.
Yeah.
Yes.
Yeah.
Yeah.
Yes.
Okay.