Q2 2024 Extendicare Inc Earnings Call

Operator: Thank you for standing by. This is the conference operator. Welcome to the Extendicare Inc. Second Quarter 2024 Analyst Conference Call. As a reminder, all participants are in listen-only mode.

Thank you for standing by this is the conference operator, welcome to extended care, Inc. Second quarter 'twenty 'twenty four analyst conference call.

Operator: The conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad.

Speaker Change: As a reminder, all participants are in listen only mode. The conference is being recorded.

Speaker Change: After the presentation, there will be an opportunity to ask questions.

Speaker Change: And the question queue Human Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator for pressing star that's L O.

Operator: Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Jillian Fountain, Vice President, Investor Relations. Please go ahead.

I would now like to turn the conference over to Julian Bott, Vice President Investor Relations. Please go ahead.

Jillian Fountain: Thank you, operator, and good morning, everyone. Welcome to Extendicare's 2024 second quarter results conference call. With me today are Extendicare's President and CEO Michael Guerriere and Senior Vice President and CFO David Bacon. Our Q2 results were released yesterday and are available on our website, as is a live audio webcast of today's call, along with an accompanying slide presentation. An archived recording will also be available on our website following the call. As well, replay numbers and passcodes have been provided in a press release to access an archived recording of the call until August 30th.

Julian Bott: Thank you operator, and good morning, everyone. Welcome to extend the cares 2024 second quarter results Conference call with me today are <unk>, President and CEO, Michael Greer, and senior Vice President and CFO David Bacon.

Speaker Change: Our teacher results were released yesterday and are available on our website as is a live audio webcast of today's call along with an accompanying slide presentation.

Speaker Change: An archived recording will also be available on our website following the call.

Speaker Change: As well, we play numbers and Passcodes have been provided in our press release.

Speaker Change: Access an archived recording of the call until August 30.

Jillian Fountain: Before we get started, please be reminded that today's call may include forward-looking statements and non-GAAP and other financial measures. Such forward-looking 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 as well as details of non-GAAP measures, sorry, as well as details of non-cap and other financial measures in our public filings with the securities regulators and suggest that you refer to those filings. With that, I'll turn the call over to my. Thank you, Jillian, and good morning.

Speaker Change: Before we get started please be reminded that today's call may include forward looking statements and non-GAAP and other financial measures.

Speaker Change: Forward looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or them.

Speaker Change: Probably implied today.

Speaker Change: We have identified such factors as well as details of non-GAAP measures.

Speaker Change: Great.

Speaker Change: Details of non-GAAP and other financial measures in our public filings with the securities regulators and suggest that you refer to those filings.

Speaker Change: With that I'll turn the call over to Michael.

Michael Greer: Thank you Jillian and good morning.

Michael Guerriere: Yesterday, we reported very strong second quarter results,highlighting the growth and earnings potential of all three of our operating segments. Each one contributed to significant growth in net operating income and margin. Our financial performance this quarter benefited from the confluence of four factors that contributed to the potential of our operating platform. The first is investments in technology to create a scalable back office to support volume growth and margin expansion. Second, our transformative shift to a less capital-intensive, higher-margin business model focused on managed services through our JV with Axiom.

Michael Greer: Yesterday, we reported very strong second quarter results.

Michael Greer: Highlighting the growth and earnings potential of all three of our operating segments.

Michael Greer: Each one contributed to significant growth in net operating income and margins.

Speaker Change: Our financial performance this quarter benefited from the confluence of four factors that contribute to the potential of our operating platform.

Speaker Change: First our investments in technology to create a scalable back office to support volume growth and margin expansion.

Speaker Change: Second our transformative shift to a less capital intensive higher margin business model focused on managed services through our JV with axiom.

Michael Guerriere: Third, the strong demand for our services as we emerge from the pandemic, reinforced by underlying demographic trends. And finally, government funding increases that address cumulative cost inflation to restore home care and long-term care to their historical margin profiles. Consequently, revenue and operating margins were up substantially across the board.

Speaker Change: Third is a strong demand for our services as we emerge from the pandemic reinforced by underlying demographic trends.

And finally government funding increases that address cumulative cost inflation to reduce restore home care and long term care to their historical margin profiles.

Speaker Change: Consequently revenue and operating margins were up substantially across the board.

Michael Guerriere: In long-term care, Q2 occupancy levels increased 60 basis points to 97.8 percent, marking the return to the historical levels required for full funding and underscoring the characteristic stability of this business. You can also see the impact of the catch-up long-term care rate increases in Ontario coming through. In home health care, our strong volume growth contributed to outpacing demographic trends, with average daily volumes increasing 10.8% from the prior year. Rate increases and a highly scalable back office supported a return to double-digit margins. Additionally, Easter landed in the first quarter in 2024, which reduced the cost of one paid holiday this quarter compared to Q2 last year.

Speaker Change: In long term care Q2 occupancy levels increased 60 basis points to 97, 8%, marking the return to the historical levels required for full funding and.

Speaker Change: Underscoring the characteristics stability of this business.

Speaker Change: You can also see the impact of the catch up long term care rate increases in Ontario coming through.

Speaker Change: In home health care, our strong volume growth contributed to outpace demographic trends with average daily volumes, increasing 10, 8% from the prior year.

Speaker Change: Rate increases and a highly scalable back office supported a return to double digit margins.

Speaker Change: Additionally, Easter landed in the first quarter in 2024, which reduced the cost of one paid holiday this quarter compared to Q2 last year.

Michael Guerriere: As our operations normalize following the pandemic, we are seeing the return of seasonal patterns. Historically, Q2 volumes tend to be strong, followed by seasonal softness in the summer months due to vacations and the closure of school-based home care programs. In our managed services segment, we also saw strong results, supported by the Revera and Axiom transactions which closed last year. Extendicare assist beds increased by 64% from the prior year period, and the number of third-party and joint venture beds served by SGP increased by 22.1%, driven by both organic growth and strategic transactions.

Speaker Change: As our operations normalize following the pandemic, we are seeing the return of seasonal patterns.

Speaker Change: Historically Q2 volumes tend to be strong followed by seasonal softness in the summer months from vacations and closure of school based home care programs.

Speaker Change: In our managed services segment. We also saw strong results supported by the Riviera and axiom transactions, which closed last year.

Extended care assist beds increased by 64% from the prior year period, and the number of third party and joint venture bed served by S. G. P increased by 22.1% driven.

Speaker Change: Driven by both organic growth and strategic transactions.

Michael Guerriere: As a result, both managed services revenue and NOI more than doubled in Q2 from the same period last year. NOI continues to be weighted toward our services segments, with managed services and home health care comprising 56% of consolidated NOI in the quarter.

Speaker Change: As a result, both managed services revenue and NOI more than doubled in Q2 from the same period last year.

Speaker Change: N O I continues to be weighted toward our services segments, which with managed services and home healthcare comprising 56% of consolidated NOI in the quarter.

Michael Guerriere: We expect the proportion of NOI coming from these segments to continue to increase as we execute on our strategy. Note also that 2024 rate increases for long-term care in the western provinces and home health care in Ontario have yet to be announced. These would be effective retroactively to April 1st, 2024, further offsetting cost inflation and enabling continued service expansion. Turning to slide four, each of our growth pillars contributes to improved results.

Speaker Change: We expect the proportion of NOI coming from these segments to continue to increase as we execute on our strategy.

Speaker Change: Note also that 'twenty 'twenty four rate increases for long term care in the western provinces and home health care in Ontario have yet to be announced.

Speaker Change: These would be effective retroactively to April 1st 'twenty 'twenty four further offsetting cost inflation and enabling continued service expansion.

Turning to slide for each of our growth pillars contributes to improved results.

Michael Guerriere: Our services segments are growing organically, adding significant cash flow with minimal capital needs. On the redevelopment front, we have five homes under construction, with three more being ready to start construction later this year. We also improved the balance sheet in Q2, adding $25.4 million in liquidity from the sale of our 256-bed Orleans project into the Axiom JV, as well as completing the sale of the legacy C-bed home in Sudbury, following the opening of the new 256-bed countryside home in the joint venture at the end of Q1.

Speaker Change: Our services segments are growing organically, adding significant cash flow with minimal capital needs.

Speaker Change: On the redevelopment front, we have five homes under construction with three more being ready to start construction later this year.

Speaker Change: We also improved the balance sheet in Q2, adding $25.4 million in liquidity from the sale of our 256 bed Orleans project into the axiom JV.

Speaker Change: As well as completing the sale of the legacy C bed home in Sudbury.

Following the opening of the new 256 bed countryside home in the joint venture at the end of Q1.

Michael Guerriere: Although our payout ratio in the quarter was 43%, our trailing 12-month payout ratio is 63% after removing one-time funding received over the past year. The adjusted trailing 12-month ratio is a better indication of the underlying cash generation potential of the business.

Speaker Change: Although our payout ratio in the quarter was 43%.

Speaker Change: Our trailing 12 month payout ratio is 63% after removing one time funding received over the past year.

Speaker Change: The adjusted trailing 12 month ratio is a better indication of the underlying cash generation potential of the business.

Michael Guerriere: Coupled with our strong liquidity and improved credit metrics, we are well positioned to execute on our growth agenda, including our redevelopment program in partnership with Axiom. Slide five provides more detail on our redevelopment progress. We are focused on opening our 192-bed Kingston home and 256-bed Stittsville home, both held in the JV. However, labor shortages experienced by the general contractors have delayed these openings into Q4.

Coupled with our strong liquidity and improved credit metrics, we are well positioned to execute on our growth agenda, including our redevelopment program in partnership with axiom.

Speaker Change: Slide five provides more detail on our redevelopment progress.

Speaker Change: We are focused on opening our 192 bed Kingston home and 256 bed Statesville home both held in the JV.

Speaker Change: Labor shortages experienced by the general contractors have delayed these openings into Q4.

Michael Guerriere: We anticipate the sale of the vacated Kingston seabed home will close shortly thereafter for an estimated proceeds of $3.8 million. Our partnership with Axiom allows us to recycle the capital generated from the sale of Legacy C-Class homes no longer in service to fund our 15% interest in new redevelopment projects that we pursue through the joint venture. During construction of the new homes in the JV, our managed services segment earns development fees, followed by management fees to operate the homes once they open.

Speaker Change: We anticipate the sale of the vacated Kingston C bed home will close shortly thereafter.

For estimated proceeds of $3 $8 million.

Our partnership with axiom allows us to recycle the capital generated from the sale of legacy C class homes no longer in service to fund our 15% interest in new redevelopment projects that we pursue through the joint venture.

During construction of the new homes and are in the JV, Our managed services segment earns development fees.

Speaker Change: Followed by management fees to operate the homes once they open.

Michael Guerriere: We currently have five homes under construction in Ontario in joint ventures with Axiom, totaling 1,280 new beds, which will replace 1,121 class C beds that will be decommissioned. In 2024, we're targeting to begin construction on three new projects comprised of 576 beds, replacing 382 C-beds. These projects are in advanced planning stages and will proceed provided they meet the requisite financial conditions, including confirmation of final construction costs, interest rates, and applicable regulatory approval.

Speaker Change: We currently have four five homes under construction in Ontario in the joint ventures with axiom totaling 1280, new beds, which will replace 1121 class C beds that will be decommissioned.

Speaker Change: Okay.

Speaker Change: In 'twenty 'twenty four we're targeting to begin construction on three new projects comprised of 576 beds, replacing 382 C beds.

Speaker Change: These projects are in advanced planning stages, and we will proceed provided they meet the requisite financial conditions, including confirmation of final construction costs interest rates and applicable regulatory approvals.

David Bacon: Work also continues to advance an additional 12 redevelopment projects that are in our planning pipeline for future years. At this point, I will turn it over to David Bacon to discuss our results in more detail. Thanks, Michael.

Speaker Change: Work also continues to advance an additional 12 redevelopment projects that are in our planning pipeline for future years.

Speaker Change: At this point I will turn it over to David Bacon to discuss our results in more detail.

Speaker Change: Yeah.

David Bacon: I'll start by reviewing our consolidated results for the quarter. Our Q2 results were impacted by favorable out-of-period items, and we have summarized these in the appendix to the presentation. Given these impacts, when I speak to the year-over-year variances, I'll include reference in some metrics to our results excluding the impact of these out-of-period items.

David Bacon: Thanks, Michael I'll start by reviewing our consolidated results for the quarter.

David Bacon: Our Q2 results were impacted by favorable out of period items and we have summarized these in the appendix to the presentation.

David Bacon: Given these impacts when I speak to the year over year variances all include referenced and some metrics to our results excluding the impact of these out of period items.

David Bacon: On a reported basis, our consolidated Q2 revenue increased by 13.3% to $348.5 million. This was driven primarily by LTC funding increases and improved occupancy levels, growth in home health care average daily volumes and billing rates, and growth in our managed services. Our Q2 NOI increased by $24.3 million with a margin of 15.2% compared to a margin of 9.3% in the prior year. Excluding out-of-period LTC funding of $4.1 million recognized in the quarter, NOI improved by $20.2 million, reflecting growth across all our segments, offset partially by higher operating costs. The reported adjusted EBITDA for Q2 increased by $23.8 million.

David Bacon: On a reported basis, our consolidated Q2 revenue increased by 13, 3% to $348 5 million. This was driven primarily by LTC funding increases and improved occupancy levels growth in home health care average daily volumes in billing rates and growth in our managed services.

Our Q2 NOI increased by $24 3 million with a margin of 15, 2% compared to a margin of nine 3% in the prior year.

Excluding out of period LTC funding of $4 1 million recognized in the quarter NOI improved by $22 million, reflecting growth across all our segments.

David Bacon: Offset partially by higher operating costs.

David Bacon: Our reported adjusted EBITDA for Q2 increased by $23 8 million.

David Bacon: Excluding the impact of out of period LTC funding adjusted EBITDA increased by $19 7 million, reflecting the improvement in adjusted NOI, partially offset by modestly higher administrative costs.

David Bacon: Our F O per basic share in Q2 was 27 cents compared with 11 cents in the same period last year.

Speaker Change: And on an adjusted basis <unk> increased year over year by 13 cents to <unk> 24 per share in Q2.

David Bacon: Excluding the impact of out-of-period LTC funding, adjusted EBITDA increased by $19.7 million, reflecting the improvement in adjusted NOI, partially offset by modestly higher administrative costs. Our AFFO for a basic share in Q2 was $0.27 compared with $0.11 in the same period last year, and on an adjusted basis, AFFO increased year over year by $0.13 to $0.24 per share in Q2. Turning to our individual segments, starting with long-term care, excluding the impact of out-of-period funding of $4.1 million recognized in the quarter and COVID funding received in Q2 of 2023, our revenue increased by $11.3 million, driven by funding increases and improved occupancy.

Speaker Change: Turning to our individual segments, starting with long term care.

Speaker Change: Excluding the impact of out of period funding of $4 1 million recognized in the quarter and Covid funding received in Q2 of 2023, our revenue increased by $11 3 million driven by funding increases and improved occupancy.

David Bacon: NOI, excluding the out-of-period funding recognized in the quarter, increased by $7.6 million, driven by increases in revenue as noted, partially offset by higher operating costs. The corresponding NOI margins increased to 11.3% in the quarter from 7.8% last year. Our long-term care results were strong this quarter, even without the benefit of the one-time funding. The 11.5% increase in Ontario other accommodation funding has largely restored our NOI, and together with the additional Ontario flow-through funding, has helped alleviate the cumulative impact of higher operating costs.

Speaker Change: NOI, excluding the out of period funding recognized in the quarter increased by $7 6 million driven by increases in revenue as noted partially offset by higher operating costs.

Speaker Change: A corresponding NOI margins increased to 11, 3% in the quarter from seven 8% last year.

Speaker Change: Our long term care results were strong this quarter, even without the benefit of the one time funding the 11.5% increase in Ontario other accommodation funding is.

Speaker Change: As largely restored our NOI and together with the additional Ontario flow through funding has helped alleviate the cumulative impact of higher operating costs.

David Bacon: We've also made considerable progress realigning our post-pandemic cost structure by reducing our dependency on agency staff. Our long-term care operations saw lower year-over-year utility and maintenance costs this quarter and benefited from the timing of the Easter holiday.

We've also made considerable progress realigning our post spend on my cost structure by reducing our dependency on agency stuff.

Speaker Change: Our long term care operations saw lower year over year utility and maintenance costs this corner quarter and benefited from the timing of the Easter holiday.

David Bacon: As a result, our year-to-day results provide a more indicative view of our NOI margins coming out of Q2. In addition, LTC funding increases for both Alberta and Manitoba for April 1st have yet to be announced. These pending funding increases and continued focus on operating cost efficiencies, primarily in our Western Canadian LTC operations, will provide further opportunities to improve our LTC segment NOI. Turning now to our home healthcare segment, revenue in the second quarter increased by $20 million, or 17.2%, driven by 10.8% year-over-year growth in our volumes, supported by billing rate increases.

Speaker Change: As a result, our year to date results provide a more indicative view of our NOI margins coming out of Q2.

Speaker Change: In addition, LTC funding increases for both Alberta, and Manitoba for April 1st have yet to be announced these pending funding increases and continued focus on operating cost efficiencies primarily in our western Canadian L. T. C operations will provide further opportunities to improve our L. T C segment NOI.

Speaker Change: Turning now to our home health care segment revenue in the second quarter increased by $20 million or 17, 2% driven by the 10, 8% year over year growth in our volumes supported by billing rate increases.

David Bacon: NOI increased by 7.1 million to 17.1 million with an NOI margin of 12.6 percent, an increase of 400 basis points over the same quarter last year. The strong growth in NOI was driven by higher volumes and rate increases, and, as Michael mentioned, benefited from the impact of one less statutory holiday due to the timing of Easter in 2024, which reduced holiday pay this quarter by approximately $1.4 million. Paramedic volume growth continues to outpace demographic trends.

Speaker Change: Oh I increased by $7 1 million to $17 1 million with an NOI margin of 12, 6% an increase of 400 basis points over the same quarter last year.

Speaker Change: The strong growth in NOI was driven by higher volumes and rate increases and as Michael mentioned that independent from the impact of one less statutory holiday due to the timing of Easter in 2024.

Speaker Change: Which reduced haul with all of the pay this quarter by approximately $1 4 million.

Speaker Change: Pyramid as volume growth continues to outpace outpace demographic trends in recent years, the pent up demand for services and improvements in our recruiting and retention programs have driven our volume recovery and lessen the seasonality that has historically characterized our homecare segment.

David Bacon: In recent years, the pent-up demand for services and improvements in our recruiting and retention programs have driven our volume recovery and lessened the seasonality that has historically characterized our home care segment, including effectively muting the seasonal softness typically experienced in the summer months. But as our capacity comes in line with demand, we do expect the historical seasonal patterns to return. Turning finally to our managed services segment, revenue in NOI more than doubled this quarter as the business continues to reflect the addition of managed homes and new SGP clients from last year's Rivera and Axiom transactions alongside organic growth in SGP.

Speaker Change: Including effectively meeting the seasonal softness typically experienced in the summer months, but as our capacity comes in line with demand. We do expect the historical season patterns to return.

Speaker Change: Turning finally to our managed services segment revenue and NOI more than doubled this quarter as the business continues to reflect the addition of managed homes and new SGP clients from last year's Rivera and axiom transactions alongside organic growth an S. G P.

David Bacon: Our revenue increased to $18 million and our NOI to $10.1 million. This quarter's NOI margin was 56.1%, an increase of 460 basis points over the same period last year. Our year-to-date NOI margin is 53.5%, which is in line with the expectations for this segment but between 50 and 55%. Finally, turning to our financial position, we ended the quarter with a strong liquidity position, with cash of $136.4 million and access to a further $72 million in our credit facilities. Our liquidity position was bolstered during the quarter with the cash proceeds of approximately $25.4 million from our redevelopment-related transaction.

Speaker Change: Our revenue increased to $18 million at our NOI to $10 1 million.

Speaker Change: This quarter's NOI margin was 56, 1% an increase of 460 basis points over the same period last year.

Speaker Change: Our year to date NOI margin is 53, 5%, which is in line with the expectations for this segment of between 50 and 55%.

Speaker Change: Finally, turning to our financial position, we ended the quarter with a strong liquidity position with cash of $136 4 million and access to a further $72 million and our credit facilities are.

Liquidity position was bolstered during the quarter with a cash proceeds of approximately 24 point $25 4 million from our redevelopment related transactions.

David Bacon: We are well positioned, thanks in part to our strong operating results in the quarter and our solid debt metrics and liquidity. The added flexibility from our strategic transactions has us well positioned as we continue to assess our options related to the convertible venture that matures in April of 2025, and we expect to be able to provide an update on this before the end of the year. On June 20.

Speaker Change: We are well positioned thanks in part to our strong operating results in the quarter and our solid debt metrics and liquidity be added flexibility.

Speaker Change: Ability from our strategic transactions have us well positioned as we continue to assess our options related to the convertible debenture that matures in April of 2025, and we expect to be able to provide an update on this before the end of the year.

Speaker Change: In June 'twenty.

Michael Guerriere: In June of this year, the company renewed its normal course issuer bid to purchase up to 7.1 million shares for cancellation beginning July 2nd, 2024, and it will be in place until July 1st, 2025. Decisions regarding the quantity and timing of purchases continue to be based on market conditions and our outlook for capital. With that, I'll pass the call back to Michael for his closing remarks. Thanks, David.

Speaker Change: In June of this year the company renewed its normal course issuer bid to purchase up to seven 1 million shares for cancellation beginning July <unk> 2024.

Speaker Change: And it will be in place until July one 2025.

Speaker Change: Decisions regarding the quantity and timing of purchases continue to be based on market conditions and our outlook for capital.

Speaker Change: With that I'll pass the call back to Michael for his closing remarks.

David Bacon: Thanks, David.

Michael Guerriere: Our second quarter results demonstrate the growth and earning potential of our business. We can deliver this given our strategic focus, strong financial foundation, and commitment to operational excellence. Our strong operating results show we can grow to meet the needs of seniors while driving shareholder value. Over the past several years, we have invested in our technology platform and formed a joint venture with an infrastructure partner to drive long-term care redevelopment. We invested in a formidable recruiting and training operation and built a sales team to sell our managed services across the country.

Our second quarter results demonstrate the growth and earning potential of our business.

Speaker Change: We can deliver this given our strategic focus strong financial foundation and commitment to operational excellence.

Speaker Change: Our strong operating results show, we can grow to meet the needs of seniors, while driving shareholder value.

Speaker Change: Over the past several years, we have invested in our technology platform.

Speaker Change: Formed a joint venture with an infrastructure partner to drive long term care redevelopment.

Speaker Change: Invested in a formidable recruiting and training operation and.

Speaker Change: And build the sales team to sell our managed services across the country.

Operator: These strategic pillars position us well in a growing, fragmented market underpinned by strong demographic trends. Our results are a testament to the continued efforts of the leadership team and the dedication of our valued team members. As always, I am deeply grateful for their ongoing commitment to our values and for the compassionate care they deliver each and every day. With that, we're very happy to take any questions that you might have. Thank you.

Speaker Change: These strategic pillars position us well in a growing fragmented market underpinned by strong demographic trends.

Speaker Change: Our results are a testament to the continued efforts of the leadership team and the dedication of our valued team members.

Speaker Change: As always I am deeply grateful for their ongoing commitment to our values and for the compassionate care they deliver each and every day.

Speaker Change: With that we're very happy to take any questions that you might have.

Operator: We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys.

Speaker Change: Thank you.

Speaker Change: Ill begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear talon acknowledging your request.

Speaker Change: Or anything on speakerphone, please pick up your handset before pressing any Keith did they do.

Operator: To withdraw your question, please press star, then two. The first question comes from Jonathan Kelcher with TD Cohen. Please go ahead. Thanks. Good morning. First question: I see you applied for some extensions for the class, for Class C, on some of the Class C properties.

Jay: Jay a question please press star two.

Michael Guerriere: Do you anticipate any issues in getting those? Is that fairly normal for us? Yeah, we don't we don't anticipate any issues there, Jonathan. We haven't received those license extensions yet, to our knowledge, nobody has received them in the sector, but we don't anticipate any issues there. Okay, and then on the Sudbury asset sale, who bought that, or what was the buyer profile for that property? Yeah, Jonathan, that was bought by a local investor, sort of philanthropists in the area.

Speaker Change: The first question comes from Jonathan Chang with TD Colin. Please go ahead.

Michael Guerriere: Our understanding is that they intend to repurpose the building for student housing in the Sudbury market. So the old building will stay and be refurbished and repurposed as student housing. That is what we understand the intent is. Okay, and then just switching to operations on the long-term care side, it looks like you're, You're back through COVID and all that stuff. What sort of margins do you think that business can run on, on a stabilized basis?

Speaker Change: Thanks, Good morning.

Speaker Change: First question just see you applied for some extensions for the class.

Jonathan Chang: For the class C. Some of the class C properties do you anticipate any issues in getting those without really normal course.

Speaker Change: Yeah, we don't we don't anticipate any issues there Jonathan we haven't received.

Speaker Change: Those license extensions yet to our knowledge nobody has in the in the sector, but we don't anticipate any issues there.

Speaker Change: Okay, and then on the the Sudbury assets.

Speaker Change: Dale.

Speaker Change: Who who bought out or what was the the buyer profile.

That property.

Speaker Change: Yeah.

Speaker Change: Yeah, Jonathan the AR that was bought by a local investor sort of sort.

Speaker Change: Philanthropist in the area our understanding is that they intend to repurpose the building for student housing and the and the submarine market. So the building will will the old building will stay and be refurbished and repurposed as a student housing is what we understand the intent is.

Speaker Change: Okay.

Speaker Change: And then just switching to <unk>.

Speaker Change: Operations on the long term care side it looks like your.

Speaker Change: You're back.

Speaker Change: With all that.

What.

Speaker Change: What sort of margins do you think that business can run on a stabilized basis.

Michael Guerriere: Yeah, Jonathan, on that, a couple of thoughts and you heard in our comments, and, you know, I think, I think a couple of things. The year-to-date results, I think, in that segment are the starting point to answer that question. So, our margins are running at 9.7%, sorry, 9.6% when you normalize year-to-date. I want to remind everybody of the effect that's built up over the last few years.

Speaker Change: Yeah, I think draw that on that a couple of thoughts.

Speaker Change: And you heard in our comments and you know I think I think a couple of things the year to date results and getting that segment are the starting point to answer that question. So our margins are running at nine 7%, sorry, nine 6%. When you normalize year to date are I want to remind everybody.

Operator: Thank you for standing by. This is the conference operator. Welcome to Extendicare Inc.

Buddy: Buddy that the effect that's built up over the last few years are now fully in effect with now having moved to four hours of care that additional incremental flow through revenue, probably probably equates to between 130 140 basis points impact to our margins from a percentage point.

Operator: 2nd quarter, 2024, Analyst Conference Call. As a reminder, all participants are in listen only mode. The conference is being recorded. After the presentation, there will be an opportunity 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 for pressing star, then zero.

Michael Guerriere: And now fully in effect, with us now having moved to 4 hours of care, that additional incremental flow through revenue probably probably equates to between 130, 140 basis points impact on our margins from a percentage point of view. So, I think, just keep that in mind, you know, our long-term, our free coven levels would run 11 and a half to 12%, but I think you have to think of those now more like, in the 10 and a half to 11% range. With the effect of that flow through.

Speaker Change: A view.

Speaker Change: So I think just keep that in mind, Oh, our long our pre COVID-19 levels, we would run 11.5% to 12%, but I think you have to think of those now are more like in the 10.5% to 11% range.

Jillian Fountain: I would now like to turn the conference over to Jillian Fountain, Vice-President Investid Relations. Please go ahead. Thank you, operator. Good morning, everyone.

David Bacon: So, I think, you know, we're at 9.6% to date; our absolute NOI year to date is about $37M. So, if you annualize that, we're sort of $74M, $75M, which is very close to where we were in 2019 on an absolute dollar basis. So, we still think we have room to improve in terms of, you know, there's still some work we're doing on Western Canada and LTC. We made some great strides in the last couple of quarters on that. We don't have our rate increases yet in the West for April 1st, but those should come shortly.

Speaker Change: With with the effect of that flow through.

Jillian Fountain: Welcome to Extendicare's 2024, 2nd quarter results conference call. With me today are Extendicare's President and CEO, Michael Guerriere, and Senior Vice President and CFL, David Bacon. Our two results were released yesterday and are available on our website. As is a live audio webcast of today's call, along with an accompanying slide presentation. An archive recording will also be available on our website following the call. As well, we play numbers and pass codes have been provided in a press release to access an archive recording of the call until August 30th.

Speaker Change: So I think we're at 96 to date are our absolute NOI year to date is about 37 million. So if you annualize that or sort of $74 75 million, which is very close to where we were in 2019 on an absolute dollar basis.

Speaker Change: So we still think we have room to improve our in terms of you know.

Speaker Change: There's still some work we're doing in Western Canada and L. T Z. We made some great strides in the last couple of quarters on that.

Speaker Change: We don't have our rate increases yet in the west for April 1st those those hopefully come with come shortly.

Jillian Fountain: Before we get started, please be reminded that today's call may include forward-looking statements and non-gab and other financial measures. Such forward-looking statements involve no one and unknown risks and uncertainties. We have identified such factors as well as details of non-gab measures as well as details of non-gab and other financial measures in our public filings with the securities regulators and suggest that you refer to those filings.

David Bacon: And so, those will help as well. So, I think you put all that into the blender, and you're looking at our margin should be returning back, I'd say, to the 10.5% to 11% range, which would just take us back to historical norms, and then hopefully, we fall back into a pattern where, you know, rate increases are keeping a better pace with inflation as we go ahead. So, we can get back to that steady reliability that we were used to before, where, you know, 2%, 2.5% a year growth in NOI, keeping pace with inflation.

Speaker Change: And so those those will help as well so I think I think you put all that into the blender and you're looking at our margins should be returning back I'd say to the to the <unk>, 10.5% to 11% range.

Speaker Change: Which would just would be take us back to historical norms, and then hopefully we fall back into a pattern where.

Speaker Change: You know rate increases are keeping a better pace with inflation as we go ahead. So we can get back to that steady reliability that we were used to before where.

Michael Guerriere: With that, I'll turn the call over to Michael. Thank you, Jillian, and good morning. Yesterday we reported very strong 2nd quarter results, highlighting the growth and earnings potential of all three of our operating segments. Each one contributed to significant growth in that operating income and margins. Our financial performance this quarter benefited from the confluence of four factors that contribute to the potential of our operating platform. First, our investments in technology to create a scalable back office to support volume growth and margin expansion.

Speaker Change: Now to two 5% a year growth in NOI, keeping pace with the with inflation.

Michael Guerriere: That's very helpful. And then on the home healthcare side, I think Michael, you talked a little bit about seasonality returning. You guys have done, I guess, year-to-date just over 3% growth in each of Q1 and Q2. How should we think about that for the back half of the year?

Speaker Change: Okay.

Speaker Change: Very helpful.

Speaker Change: And then on the home healthcare side.

Speaker Change: I think Michael you talked a little bit about the seasonality were referring to that you guys have done.

Michael Guerriere: Second, our transformative shift to a less capital intensive, higher margin business model focused on managed services through our JV with Axiom. Third, is a strong demand for our services as we emerge from the pandemic reinforced by underlying demographic trends. And finally, government funding increases that address cumulative cost inflation to restore home care and long-term care to their historical margin profiles. Consequently, revenue and operating margins were up substantially across the board. In long-term care, Q2 occupancy levels increased 60 basis points to 97.8%, marking the return to the historical levels required for full funding and underscoring the characteristics stability of this business.

Speaker Change: Year to date just over 3%.

Speaker Change: Growth in Q1, and Q2, what how should we think about that for the back half of the year.

Michael Guerriere: And secondly, do you think margins in that business segment will continue to edge up back to, maybe not historical levels, but cultural ones? Yeah, I think on the volume front, you know, we've been seeing for the last couple of years now, 10% year over year, 11% year over year growth. That's definitely higher than demographic trends, and that's because we're catching up to, you know, the care gap that opened up during the

Speaker Change: And secondly, do you think margins in.

Speaker Change: This segment continued to edge up back to maybe not at historical levels, but close to it.

Speaker Change: Yeah, I think on the on the volume front.

Speaker Change: You know we've been seeing for the last couple of years now.

Speaker Change: The 10% year over year, 11% year over year growth.

Speaker Change: That's definitely higher than demographic trends and that's because we're catching up to.

Speaker Change: You know the the care gap that opened up during the pandemic. So there's there's there's still a bit of a gap there and we're still.

Speaker Change: Working to close that.

Michael Guerriere: So there's still a bit of a gap there, and we're still working to close that. So, you know, I think we've still got a couple of quarters where our year-over-year growth is going to be in that same zone. But then we expect that that growth rate will ease off, approaching more of the just underlying demographic.

Speaker Change: So.

Speaker Change: I think we've still got a couple of quarters, where our year over year.

Speaker Change: Our growth is going to be in that same zone.

Speaker Change: But then we expect that that growth rate will ease off.

Michael Guerriere: You can also see the impact of the catch-up long-term care rate increases in Ontario coming through. In home health care, our strong volume growth contributed to outpace demographic trends, with average daily volumes increasing 10.8% from the prior year. Rate increases and a highly scalable back office supported a return to double-digit margins. Additionally, Easter landed in the first quarter in 2024, which reduced the cost of one paid holiday this quarter compared to Q2 last year.

Speaker Change: You know approaching more of the just underground underlying demographics. So.

Michael Guerriere: So, you know, call it 5%, 4%, 5%, something in that neighborhood. So we're not, we don't have absolute clarity as to when that'll happen, as to when our, you know, our growth pace will ease off. So, you know, we'll be watching for that. And, you know, at that point, we expect it to settle back as far as margins are concerned. You know, I think Q2 traditionally is our best quarter from a margin perspective, just because of volumes and costs and when rate increases kick in and that sort of thing.

Speaker Change: Call It a call at 5% four 5% something in that.

Speaker Change: In that neighborhood. So we're not we don't have absolute clarity as to when that will happen as to win win R. R.

Speaker Change: You know our growth pace will will ease off so you.

Speaker Change: We will be watching for that.

And you know at that point, we expect it to to just settle back as far as margins are concerned.

Speaker Change: You know I think Q2 traditionally is our best our best quarter from a margin perspective.

Michael Guerriere: As our operations normalize following the pandemic, we are seeing the return of seasonal patterns. Historically, Q2 volumes tend to be strong, followed by seasonal softness in the summer months from vacations and closure of school-based home care programs. In our managed services segment, we also saw strong results, supported by the increased by 64% from the prior year period, and the number of third-party and joint venture beds served by SGP increased by 22.1%, driven by both organic growth and the strategic transactions.

Speaker Change: Because of our volumes and costs in and when rate increases kick in and that sort of thing so.

Michael Guerriere: So, that said, I think that, you know, we're now squarely into double-digit margins in home care, and we'll stay there. I think David's comment about the year-to-date numbers being a better indication of our kind of underlying run rate in the sector is probably where I would suggest you look.

But that said I think that you know, we're now squarely into double digit margins in an in home care and will stay there I think David's comment about.

Speaker Change: The year to date numbers being a better indication of of of our kind of underlying run rate.

Speaker Change: In the sector is probably.

Speaker Change: You know, where you know where I would suggest you you you look and.

Michael Guerriere: And I do think that we still have room for gradual margin improvement going into future years. And, of course, we don't have the rate increase for the province of Ontario yet for 2024. So, we're expecting that, you know, at any time. So, that isn't factored into the results yet either.

David Bacon: And I do think that that we still have room product.

David Bacon: Gradual margin improvement going into into future years.

Michael Guerriere: As a result, both managed services revenue and NOI more than doubled in Q2 from the same period last year. NOI continues to be weighted toward our services segments, which with managed services and home health care comprising 56% of consolidated NOI in the quarter. We expect a proportion of NOI coming from these segments to continue to increase as we execute on our strategy. Note also that 2024 rate increases for long-term care in the Western provinces and home health care in Ontario have yet to be announced.

David Bacon: And of course, we don't have the rate increase for the province of Ontario, yet for 2024.

David Bacon: So we're expecting that.

David Bacon: You know any time, so so that isn't factored into the results yet either.

Michael Guerriere: Okay, do you think that rate increase will be a huge catch-up like LTC, or will it be more, are you expecting more inflation? No, I think it'll be more in line with our labor costs. It'll be more in line with there'll be more than CPI, but it'll be in line with our labor costs, I think.

Okay. Thank you guys.

David Bacon: The rate increase will be.

Speaker Change: Catch up like a L. P C or will it be more are you expecting more inflation type.

Speaker Change: No I think it'll be more in line with our labor costs it'll be more in line with the leave more than CPI, but it'll be in line with our labor costs I think.

David Bacon: So I think that this quarter is reflecting the catch-up. That really came in late in Q4, and we reported in Q1, so I think the catch-up is there now. Okay. That's helpful. Once again, if you have a question, please press star, then 1. The next question comes from Pammi Bir with RBC Capital Markets. Please go ahead.

Michael Guerriere: These would be effective retroactively to April 1, 2024, further offsetting cost inflation and enabling continued service expansion. Turning to slide 4, each of our growth pillars contributes to improved results. Our services segments are growing organically, adding significant cash flow with minimal capital needs. On the redevelopment front, we have five homes under construction with three more being ready to start construction later this year. We also improve the balance sheet in Q2, adding $25.4 million in liquidity from the sale of our 256-bed Orleans project into the Axiom JV, as well as completing the sale of the Legacy C-bed home in Sudbury, following the opening of the new 256-bed countryside home in the joint venture at the end of Q1.

Speaker Change: So I think that this quarter is reflecting the catch up.

Speaker Change: That that really came in you know in our it late in Q4, and we reported in Q1.

Speaker Change: So so I think I think the catch up is there now.

Speaker Change: Okay.

Speaker Change: That's helpful.

Speaker Change: Yeah.

Speaker Change: Once again, if you have a question. Please press Star then one the next question comes from Pamela <unk> with RBC capital markets. Please go ahead.

Pammi Bir: Thanks. Hi, everyone. I just wanted to clarify some of the commentary on long-term care. There was some one-time income in there, I guess, from Alberta and Manitoba, but was there any sort of timing difference in terms of the spending there in the Q2 figure? Yeah, I think, Pammi, in Q2, a couple of things.

Speaker Change: Thanks, everyone just wanted to clarify some of the commentary in long term care.

Speaker Change: Some one time income in there I guess from Alberta, and Manitoba, but was there any sort of timing difference in terms of the spending there and in the Q2 figure.

David Bacon: I mean, we called out the Stat holiday, which does have a bit of an impact between Q1 and Q2, looking sequentially as well as year-over-year. Yeah, we did make some good improvements on costs, reducing agency costs quite significantly in the quarter, year-over-year and sequentially. There is a bit of movement between Q1 and Q2 around the funding envelopes, mostly to do with the statutory holiday. So, the $900,000 impact that we call out is more of the OA type impact because, historically, the timing of statutory days as it relates to the flow-through envelopes is generally not seen. This is the first time since 2019 that Easter has changed.

Speaker Change: Yeah I think.

Speaker Change: Are they in in Q2, a couple of things I mean, we called out the stat holiday, which does have a bit of an impact between Q1 and Q2.

Michael Guerriere: Although our pay-out ratio in the quarter was 43%, our trailing 12-month pay-out ratio is 63%, after removing one-time funding received over the past year. The adjusted trailing 12-month ratio is a better indication of the underlying cash generation potential of the business. Coupled with our strong liquidity and improved credit metrics, we are well positioned to execute on our growth agenda, including our redevelopment program and partnership with Axiom. Slide five provides more detail on our redevelopment progress.

Speaker Change: Looking sequentially as well as year over year.

Speaker Change: Yeah, we did make some good improvements on on costs, reducing agency costs are quite significantly in the quarter year over year end and a sequentially. There is a bit of movement between Q1 and Q2.

Speaker Change: Around.

Speaker Change: The the funding envelope has mostly to do with the statutory holiday. So the 900 Grand impact that we called out as more of the think of that as the OE type impact is largely historically.

Speaker Change: The the timing of stock days as it relates to the flow through Oh envelopes is generally not seen this is the first time since 2019, where where Easter changed. So there is a little bit of movement, just a bit over $1 million between Q1 and Q2.

Michael Guerriere: We are focused on opening our 192 bed, Kingston home, and 256 beds, Stitsville home, both held in the JV. Labor shortages experienced by the general contractors have delayed these openings into Q4. We anticipate the sale of the vacated Kingston C-bed home will close shortly thereafter for estimated proceeds of $3.8 million. Our partnership with Axiom allows us to recycle the capital generated from the sale of legacy C-class homes no longer in service to fund our 15% interest in new redevelopment projects that we pursue through the joint venture.

David Bacon: So, there is a little bit of movement, just a bit over $1 million between Q1 and Q2 between the envelopes, just because the timing of Easter hitting in Q1 would have pushed a handful of homes potentially into an overspend position. But when you get into Q2 and the rate increases kick in for April, there's an ability to absorb some of that. So, there is a little bit of movement between Q1 and Q2 that hasn't happened for five years since Easter was last flipped between Q1 and Q2.

Speaker Change: Between the envelope just because the timing of Easter hitting in Q1 would've pushed a handful of homes potentially into an overspend position when you get into Q2 and the rate increases kick in for April there is an ability to absorb some of that so there is a little bit of movement between Q1 Q2 that hasnt happened.

Speaker Change: For five years since since Easter was last flipped between Q1 and Q2.

David Bacon: But a lot of our improvement is, you know, agency reduction and just general operations improvement in terms of other, you know, focused on non-wage costs as well around supplies and R&M and utilities. Some of that is timing, and some of that is just seasonality and utilities.

Speaker Change: But a lot of our improvement as you know agency reduction.

Speaker Change: And just general ops improvement in terms of other you know focused on non wage cost as well around.

Michael Guerriere: During construction of the new homes in the JV, our managed services segment earns development fees, followed by management fees to operate the homes once they open. We currently have five homes under construction in Ontario in the joint ventures with Axiom, totaling 1,280 new beds, which will replace 1,121 class C-beds that will be decommissioned. In 2024, we are targeting to begin construction on three new projects comprised of 576 beds, replacing 382 C-beds.

Speaker Change: Supplies and R&M and utilities some of that is timing and some of that is just seasonality and utilities.

David Bacon: That's helpful. I guess just maybe coming back to the agency commentary, how much were you able to reduce agency costs? Like, was there much change between the quarters, or was it just more on a year basis? That's where the biggest impact was noticed. Yeah, it's both actually.

Speaker Change: That's helpful. I guess, just maybe coming back to the agency commentary.

Speaker Change: How much were you able to reduce the agency costs like was there much change between.

Speaker Change: The quarters or is it or is it just more on a year over year basis, that's where the biggest impact was noticed.

David Bacon: I think we reduced our agency spend just about a million and a half dollars between Q1 and Q2 and closer to $3 million on a year-over-year basis. So it's been a very, it's been a big focus in the West, mostly in the West. I think in Ontario, we're in good shape on that. The West has had some holdouts in certain regions in the West where it's been tougher to displace the agency, but we've been putting a lot of recruitment programs in place to target those homes and those areas where the agencies have taken a bit of a stronghold during COVID.

Speaker Change: Yeah. It's it's both actually I think we we reduced our agency spend.

Just about a million and a half dollars between Q1, and Q2 and closer to $3 million on a year over year basis.

Michael Guerriere: These projects are in advanced planning stages, and will proceed provided they meet the requisite financial conditions, including confirmation of final construction costs, interest rates, and applicable regulatory approvals. Work also continues to advance an additional 12 redevelopment projects that are in our planning pipeline for future years.

Speaker Change: It's been a very it's been a big focus in the west mostly in the West I think in Ontario, where we're in good shape on that the west where it's been.

Speaker Change: But some holdouts in certain regions in the west where it's been tougher to displace the agency, but we've been putting a lot of recruiting.

Speaker Change: Our programs in place to target those those homes in those areas that are or where they were or the agencies have taken a bit of a stronghold during COVID-19.

David Bacon: At this point, I will turn it over to David Bacon to discuss our results in more detail. Thanks, Michael. I'll start by reviewing our consolidated results for the quarter. Our Q2 results were impacted by favorable out of period items and we have summarized these appendix to the presentation. Given these impacts, when I speak to the year-over-year variances, I'll include reference and sum metrics to our results, excluding the impact of these period items.

David Bacon: Okay, got it. And then just coming back to David, your comments on, I think you said, 74 to 75 million is sort of the annualized long-term care NOI is sort of the reason a reasonable starting point, and then maybe just coming back to some growth that you anticipate in the Western Canadian provinces as well. Yes, that number, if you take our first half of the year, Pammi normalized for the out-of-periods, we're running at about $37M of absolute NOI.

Speaker Change: Okay got it and then just coming back to David Your comments on I think you said did you say 74 to 75 million sort of as sort of the annualized long term care.

Speaker Change: NOI is sort of the reason a reasonable starting point and then maybe just coming back to some growth that you anticipate in the western Canadian provinces as well.

David Bacon: On a reported basis, our consolidated Q2 revenue increased by 13.3% to 348.5 million. This was driven primarily by LTC funding increases and approved occupancy levels, growth and home health care, average daily volumes, and billing rates, and growth in our managed service. Our Q2 NOI increased by 24.3 million with a margin of 15.2 percent compared to a margin of 9.3 percent in the prior year, excluding out of period LTC funding of 4.1 million recognized in the quarter, NOI improved by 20.2 million, reflecting growth across all our segments, offset partially by higher operating costs.

Speaker Change: Yeah, that's I mean that that.

Speaker Change: Number is if you ask me if you take our first half of the year pommy normalized for the for the sort of out of periods, we're running at about $37 million of absolute NOI.

Speaker Change: If you use that as a starting point for annualized Asian takes you to the 70 475, and that's where you know we're still waiting for our rate increases in Alberta, and Manitoba that should help.

David Bacon: If you use that as a starting point for annualization, it takes you to $74M, or $75M, and that's where we're still waiting for our rate increases in Alberta and Manitoba that should help contribute to growth from there, as well as there is still some focus. We still have some work that we're doing in the West on some of the cost side of things. There's still some progress we think we can make in the next couple of quarters in the West on spending mostly around the agency and some of the key markets. There's still some room to go there that would help add to the performance.

Speaker Change: <unk> contribute to the growth from there as well as you know there's there's still has some focus we still have oh.

Speaker Change: You know some work that we're doing in the western on some of the cost side of things. So there's still some progress we think we can make.

Speaker Change: Still in the next couple of quarters are in the west on on spending mostly around the agency and some of the key markets. So there's still some room to go there that would help us add to the performance.

David Bacon: Our reported adjusted EBITDA for Q2 increased by 23.8 million, excluding the impact of out of period LTC funding, adjusted EBITDA increased by 19.7 million, reflecting the improvement in adjusted NOI, partially offset by modestly higher administrative costs. Our AFFO for basic share in Q2 was 27 cents compared with 11 cents in the same period last year, and on an adjusted basis, AFFO increased year over year by 13 cents to 24 cents per share in Q2.

Operator: Thanks very much. I will turn it back. This concludes the question and answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks. Please go ahead.

Thanks, very much I will I'll turn it back.

Jillian Fountain: This concludes our question and answer session I would like to turn the conference back over to Jillian fountain for any closing remarks. Please go ahead.

Jillian Fountain: 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 everyone for joining us and please don't hesitate to contact Investor Relations if you have any questions. This brings to close today's conference call. You may disconnect your lines.

Jillian Fountain: Thank you operator that concludes our call for today and this presentation is available on our website as are the calling numbers for an archived recording.

Jillian Fountain: Thank you everyone for joining us and please don't hesitate to contact Investor Relations. If you have any questions.

David Bacon: Turning to our individual segments, starting the long-term care, excluding the impact of out of period funding of 4.1 million recognized in the quarter, and COVID funding received in Q2 of 2023 are revenue increased by 11.3 million driven by funding increases and improved occupancy. NOI, excluding the out of period funding recognized in the quarter, increased by 7.6 million, driven by increases in revenue is noted, partially offset by higher operating costs. The corresponding NOI margins increased to 11.3 percent in the quarter from 7.8 percent last year.

Speaker Change: This brings to close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.

Operator: Thank you for participating, and have a pleasant day. David Bacon, Jillian Fountain, Michael Guerriere, David Bacon, Michael Guerriere, David Bacon, [inaudible] The Ultimate Parody Site! David Bacon, Jillian Fountain, Michael Guerriere. David Bacon, Michael Guerriere, David Bacon, Michael Guerriere. [inaudible] David Bacon, Michael Guerriere, David Bacon, Michael Guerriere, David Bacon. BF-WATCH TV 2021

Speaker Change: Hum.

Speaker Change:

Speaker Change: [music].

David Bacon: Our long-term care results were strong this quarter, even without the benefit of the one-time funding. The 11.5 percent increase in Ontario, other accommodation funding has largely restored our NOI, and together with the additional Ontario flow-through funding, has helped alleviate the cumulative impact of higher operating costs. We've also made considerable progress re-aligning our post-pendemic cost structure by reducing our dependency on agency staff. Our long-term care operations saw lower year over year utility of maintenance cost this quarter and benefited from the timing of the Easter holiday.

Speaker Change: Yeah.

Speaker Change: Hum.

Speaker Change: Yeah.

David Bacon: As a result, our year-to-day results provide a more indicative view of our NOI margins coming out of Q2. In addition, LTC funding increases for both Alberta and Manitoba for April 1st have yet to be announced. These pending funding increases and continued focus on operating cost efficiencies, primarily on our Western Canadian LTC operations will provide further opportunities to improve our LTC segment, NOI. Turning now to our home health care segment, revenue in the second quarter increased by 20 million or 17.2 percent, driven by the 10.8 percent year-over-year growth in our volumes supported by billing rate increases.

Speaker Change: Yeah.

Speaker Change: Yeah.

David Bacon: NOI increased by 7.1 million to 17.1 million with an NOI margin of 12.6 percent. An increase of 400 basis points over the same quarter last year. The strong growth in NOI was driven by higher volumes and rate increases, and as Michael mentioned, that ended from the impact of one less statutory holiday due to the timing of Easter in 2024, which reduced holiday pay this quarter by approximately 1.4 million. Paramets and Volume Growth continues to outpace demographic trends.

David Bacon: In recent years, the pent-up demand for services and improvements in our recruiting and retention programs have driven our volume recovery, and less than the seasonality that has historically characterized our home care segment, including effectively muting the seasonal softness typically experienced in the summer months. But as our capacity comes in line with demand, we do expect the historical season patterns to return. Turning finally to our managed services segment, Revenue and NOI more than double this quarter as the business continues to reflect the addition of managed homes and new SGP clients from last year's Rivera and Axiom transactions alongside organic growth in SGP.

David Bacon: Our Revenue increased to 18 million and our NOI to 10.1 million. This quarter's NOI margin was 56.1%, an increase of 460 basis points over the same period last year. Our year-to-date NOI margin is 53.5%, which is in line with the expectations for this segment of between 50 and 55%. Finally, turning to our financial position, we ended the quarter with a strong liquidity position with cash of 136.4 million and access to a further 72 million in our credit facilities.

David Bacon: Our liquidity position was bolstered during the quarter with the cash proceeds of approximately 24.5, 25.4 million from our redevelopment related transactions. We are well positioned thanks in part to our strong operating results in the quarter and our solid debt metrics and liquidity. The added flexibility from our strategic transactions have us well positioned as we continue to assess our options related to the convertible the venture that matures in April of 2025. We expect to be able to provide an update on this before the end of the year.

David Bacon: In June of this year, the company renewed its normal course issue bid to purchase up to 7.1 million shares for cancellation, beginning July 2nd, 2024, and will be in place until July 1st of 2025. Decisions regarding the quantity and timing of purchases continue to be based on market conditions and our look for capital.

Michael Guerriere: With that, I'll pass the call back to Michael for his closing remarks. Thanks, David. Our second quarter results demonstrate the growth and earning potential of our business. We can deliver this given our strategic focus, strong financial foundation, and commitment to operational excellence. Our strong operating results show we can grow to meet the needs of seniors while driving shareholder value. Over the past several years, we have invested in our technology platform, formed a joint venture with an infrastructure partner to drive long-term care redevelopment, invested in a formidable recruiting and retraining operation, and built a sales team to sell our managed services across the country.

Michael Guerriere: These strategic pillars position as well in a growing, fragmented market underpinned by strong demographic trends. Our results are a testament to the continued efforts of the leadership team and the dedication of our valued team members. As always, I am deeply grateful for their ongoing commitment to our values and for the compassionate care they deliver each and every day.

Michael Guerriere: With that, we're very happy to take any questions that you might have. Thank you.

Operator: We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two.

Jonathan Kelcher: The first question comes from Jonathan Kelcher with TD Cohen. Please go ahead. Thanks. Good morning. First question, I see you applied for some extensions for the class, for the class C, some of the class C properties, do you anticipate any issues in getting those? Is that really normal, of course? Yeah, we don't anticipate any issues there, Jonathan. We haven't received those license extensions yet to our knowledge. Nobody has in the sector, but we don't anticipate any issues there.

Jonathan Kelcher: Okay. And then on the the Sudbury asset sale, who bought that or what was the buyer profile for that property? Yeah, Jonathan, that was bought by a local investor sort of philanthropist in the area. Our understanding is that they intend to repurpose the building for student housing in the Sudbury market. So the building will, the old building will stay and be refurbished and repurposed as student housing is what we understand the intent is. Okay.

Michael Guerriere: And then just switching to operations on the long-term care side, it looks like your back is free, COVID, no, that's tough. What sort of margins do you think that business can run on a stabilized basis? Yeah, I think Jonathan on that, a couple of thoughts. And you heard in our comments, and I think a couple of things. The year-to-date results, I think in that segment, are the starting point to answer that question.

Michael Guerriere: So our margins are running at 9.7%. I'm sorry, 9.6% when you normalize year-to-date. I want to remind everybody that the effect that's built up over the last few years and now fully in effect with now having moved to four hours of care. That additional incremental flow through revenue probably equates to between 130, 140 basis points impact to our margins from a percentage point of view. So I think just keep that in mind.

Michael Guerriere: You know, our long, our free COVID levels, we would run 11.5% to 12%, but I think you have to think of those now more like in the 10.5% to 11% range with the effect of that flow through. So I think, you know, we're at 9.6 to date, our absolute NOI year-to-date is about 37 million. So if you annualize that, we're sort of 74 or 75 million, which is very close to where we were in 2019 on an absolute dollar basis.

Michael Guerriere: So we still think we have room to improve in terms of, you know, there's still some work we're doing in Western Canada and LTC. We made some great strides in the last couple of quarters on that. We don't have our rate increases yet in the West for April 1st those those hopefully come come shortly. And so those those will help as well. So I think, I think you put all that into the blender and you're looking at our margin should be returning back.

Michael Guerriere: I'd say to the to the 10.5 to 11% range, which would just would be take us back to historical norms. And then hopefully we fall back into a pattern where, you know, rate increases are keeping better pace with inflation as we go ahead. So being a factor that steady reliability that that we were used to before were, you know, 2 to 1.5% of year growth in NOI keeping pace with with inflation.

Michael Guerriere: Okay, that's very helpful. And then on the home health care side, I think Michael, you talked a little bit about the seasonality, returning to that. And you guys have done, I guess, year to date, just over 3% growth in 221 and Q2. How should we think about that for the back half of the year? And secondly, do you think margins in that? Business segment continue to edge up back to maybe not historical levels, but close to it.

Michael Guerriere: Yeah, I think on the volume front, you know, we've been seeing for the last couple of years now, the 10% year over year, 11% year over year growth. That's definitely higher than demographic friends. And that's because we're catching up to, you know, the care gap that opened up during the pandemic. So there's, there's still a bit of a gap there, and we're still working to close that. So, you know, I think we've still got a couple of quarters where our year over year growth is going to be in that same zone.

Michael Guerriere: But then we expect that that growth rate will ease off, you know, approaching more of the just underlying demographic. So, you know, call it, call it 5%, 4%, 5% something in that, in that neighborhood. So we're not, we don't have absolute clarity as to when that'll happen, as to when when our, you know, our growth pace will ease off. So, you know, we'll be watching for that. And, you know, at that point, we expect it to settle back.

Michael Guerriere: As far as margins are concerned, you know, I think you two traditionally is our best, our best quarter from a margin perspective, just because of volumes and costs. And, and when rate increases again, and that sort of thing. So, that said, I think that, that, you know, we're now squarely into double digit margins in, in, in home care, and we'll stay there. I think David's comment about the year to date, numbers being a better indication of, of, of our kind of underlying run rate in the sector is probably, you know, where, you know, where I would suggest you, you, you look and, and I do think that, that we still have room for gradual margin improvement going into into future years.

Michael Guerriere: And of course, we don't have the rate increase for the province of Ontario yet for 2024. So, we're expecting that, you know, any time. So, so that is, in fact, it into the results yet either. Okay. Do you think that rate increase will be a huge catch up like LTC or will it be more, are you expecting more inflation tight? No, I think it'll be more in line with our labor costs.

Michael Guerriere: It'll be more in line with, there'll be more than CPI, but it'll be in line with our labor costs, I think. So, I think that this quarter is reflecting the catch up that really came in, you know, in late in Q4, and we reported in Q1. So, I think the catch up is there now.

Operator: Okay. Let's talk about this. Once again, if you have a question, please press star, then one.

Pammi Bir: The next question comes from Pammi Bir, with RBC Capital Markets, please go ahead. Thanks, everyone. Just wanted to clarify some of the commentary and long-term care. There was some one time income in there, I guess, from Alberta and Metatoll, but was there any sort of timing difference in terms of the spending there in the Q2 figure? Yeah, I think on the in Q2, a couple of things. I mean, we called out the stat holiday, which does have a bit of an impact between Q1 and Q2, you know, looking sequentially as well as your over year.

Pammi Bir: Yeah, we did make some good improvements on costs, reducing agency costs quite significantly in the quarter year over year and sequentially. There is a bit of movement between Q1 and Q2 around the funding envelopes mostly to do with the statutory holiday. So the 900 grand impact that we call out is more the think of that as the OA type impact is largely historically with the timing of stat days as it relates to the flow through envelopes is generally not seen.

Pammi Bir: This is the first time since 2019 where where Easter changed so there is a little bit of movement, just a bit over $1 million between Q1 and Q2 between the envelopes just because the timing of Easter hitting and Q1 would have pushed a handful of homes potentially into an overspend position. When you get into Q2 and the rate increases kick in for April, there's an ability to absorb some of that. So there is a little bit of movement between Q1, Q2 that hasn't happened for five years since Easter was last flipped between Q1 and Q2.

Pammi Bir: But a lot of our improvement is, you know, agency reduction and just general ops improvement in terms of other, you know, focused on non wage costs as well around supplies and RNM and utilities. Some of that is timing and some of that is just seasonality and utilities. Let's help. I guess just maybe coming back to the agency commentary. How much were you able to reduce the agency costs? Like was there much change between?

Pammi Bir: The quarters, or was it just more on a year of your basis? That's where the biggest impact was noticed. It's both actually. I think we reduced our agency spend just about a million and a half dollars between Q1 and Q2 and closer to 3 million on a year over your basis. So it's been a very, it's been a big focus in the West mostly in the West. I think in Ontario, we're in good shape on that.

Pammi Bir: The West where it's been found some holdouts in certain regions in the West where it's been tougher to displace the agency. But we've been putting a lot of recruiting programs in place to target those homes and those areas where the agencies have taken a bit of a stronghold during COVID. Okay, got it. And then just coming back to David your comments on, I think you said, did you say 74 to 75 million sort of the annualized long-term care NOIs sort of the reason a reasonable starting point.

Pammi Bir: And then maybe just coming back to some growth that you anticipated in the Western Canadian provinces as well. Yeah, that I mean that that number is if you and if you take our first half of the year, Tommy normalized for the sort of out of periods. We're running at about 37 million of absolute NOI. So if you use that as a starting point for annualization takes you to the 74 75 and that's where we're still waiting for our rate increases in Alberta, Manitoba.

Pammi Bir: That should help contribute to growth from there as well as there's still is some focus. We still have some work that we're doing in the West on some of the cost side of things. So there's still some progress we think we can make still in the next couple of quarters in the West on spending most around the agency and some of the key markets. So still some room to go there that would help add to the performance. Thanks very much. I will turn it back. This concludes the question and answer session.

Jillian Fountain: I would like to turn the conference back over to Julian fountain for any closing remarks. Please go ahead. Thank you operator.

Jillian Fountain: That concludes our call for today. This presentation is available on our website as are the column numbers for an archive recording. Thank you everyone for joining us and please don't hesitate to contact investor relations if you have any questions.

Operator: This brings to close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. David Bacon, Michael Guerriere, David Bacon, Michael Guerriere, David Bacon, Michael Guerriere, David Bacon.