Q2 2025 Extendicare Inc Earnings Call
Thank you for standing by. This is the conference operator.
Welcome to the extendicare Inc, second quarter of 2025 analyst conference call.
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I would now like to turn the conference over to Jillian. Fountain, vice president investor relations. Please go ahead.
Thank you, operator. And good morning everyone. Welcome to Extended Care's 2025 second quarter. Results conference call
Joining me today are Extendicare's President and CEO, Michael Guerriere, and Executive Vice President and Chief Financial Officer, David Bacon.
Our Q2 results to a release yesterday and are available on our website. As is a live audio webcast of today's call along with an accompanying slide presentation.
Our narcotics recording will also be available on our website. Following the call today as well. Replay numbers and passcodes have been provided in our press release to access and archived recording by phone until midnight on August 22nd.
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, evolved known, and unknown risks, and uncertainties that may cause actual results to differ materially from those expressed or implied today.
We have identified identified such factors as well as details of non-gaap 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 Michael.
Thank you, Jillian, and good morning.
At extended care, we strive to be Canada's leader in the delivery of high-quality, long-term care, and Home Care Services.
Leveraging, our deep expertise to drive growth in a capital efficient manner.
The results released yesterday, exemplifies several pillars of our strategy at work.
Including strong organic growth driven by execution excellence.
Strategic M&A to build scale and expand service capabilities.
And discipline capital allocation grounded in a strong balance sheet, and our ability to recycle capital to advance long-term care redevelopment.
The results also underscore the growing demand for our services driven by demographic trends.
Adjusted EVA increased to $39.8 million, up 3% over the prior year.
Excluding the out of period items recorded last year. Adjusted Eva increased by 15.4% with home healthcare leading the way.
In Q2 average daily volumes were up 10.9% from the prior year and noi margin improved by 90 basis points to 13.5%.
The widening, margins reflect the operating leverage enabled by our highly, scalable back office.
In our long-term care segment Q2 noi margin improved by 30 basis points over the prior year after adjusting for the out of period items.
49,000 beds.
Driven by the strength of these results, afo increased to 29 cents, per share up 23.1% on a year-over-year basis. And our dividend payout ratio was 46% on a trailing 12-month basis.
Our growing cash flow and strong balance sheet, give us flexibility to pursue strategic growth opportunities.
In a fragmented seniors care market underpinned by demographic demand, we see good acquisition opportunities.
Our scalable back office helps make acquisitions accretive as we harvest the synergies that come from running higher volumes through our cloud-based technology platform.
We closed 2 transactions in the quarter that will begin to demonstrate the value creation potential of our strategy.
Turning to slide 4 on June 1st. We closed the previously announced acquisition of 9 Class C, long-term care homes and a parcel of land from Rivera.
for 41.9 million in cash, and the Assumption of certain liabilities of 27.4 million
This transaction adds 822, long-term care beds and 574 private pay retirement beds to the long-term care segment.
And is expected to add approximately $13 million in annualized NOI.
This is partially offset by the departure of 30 Rivera homes from our cyst managed Services segment.
9 of which were sold to us and the other 21 to a third party.
The net impact of the two transactions is expected to increase NOI by an estimated $6.8 million or $0.02 of AFFO per share.
More importantly, the acquisition adds 6, new projects and close to 1100, beds to our Redevelopment pipeline.
Bolstering the future, growth trajectory of the managed Services segment.
Our Q2 results included only one month of the acquisition, so the full benefit will first be apparent in our Q3 results.
On July 1st. We completed the previously announced acquisition of closing the gap.
For $75.1 million, we are welcoming more than 1,200 caregivers and adding an estimated 1.1 million service hours to our home health segment.
Based on closing the gaps 2024 performance. We expect the acquisition to add approximately 9.8 million in annualized. Noi to our home, health care segment or 6 cents of afo per share starting in Q3
Closing the Gap. Into our paramed operations. We expect operating efficiencies estimated at 1.1 million in the first year.
The acquisition also gives us access to other integrated care models.
Such as direct contracts with hospitals, that provide us with new ways to meet the needs of the Aging demographic. Further augmenting opportunities for organic growth.
We increased our senior secured credit facility by $100 million in the quarter.
Using 55 million to partially fund, the closing the Gap. Acquisition
The upsides in our credit facility allowed us to complete the two acquisitions and still maintain a very favorable liquidity position that provides us with significant flexibility to optimize capital allocation decisions to drive future growth.
Turning to slide 6, we continue to advance our Redevelopment agenda.
With six homes under construction, that will bring 1,408 new state-of-the-art beds into service, replacing 1,097 Class C beds.
The total development cost of close to $570 million is funded through our joint venture platform, with Extendicare retaining a 15% managed interest, thus preserving our balance sheet capacity.
In April, we completed the sale of 3, long-term care projects under construction. To the Axiom joint, venture for cash proceeds of 56.3 million.
And an after tax gain of 11.1 million.
Seek to redeploy these funds to progress the balance of our Redevelopment projects with minimal impact on our balance sheet.
With the addition of the 6 new projects from the Rivera acquisition, we now have 18 projects advancing through the planning and development stages in Ontario.
Last week, the Ontario government announced a 2025 long-term care home capital funding policy to support new builds in the province.
The new program provides greater funding flexibility. As it more effectively, addresses Regional variation and building costs.
And expands the range of costs eligible for funding support.
Notably, the new program is not time-limited, providing greater certainty that funding support for redevelopment will be available over a longer time horizon.
The new program also makes a meaningful effort to recognize the particular cost challenges inherent in building in the Greater Toronto Area.
Based on a preliminary assessment of our most advanced projects under the new program.
We are aiming to start construction on 1, new project this year and up to 3 new projects in 2026.
We remain committed to replacing the older homes in our portfolio and expanding long-term care capacity in Canada.
As recent projects have demonstrated pursuing to Redevelopment through the joint venture structure, enables our Redevelopment program to be essentially self-funding.
Proceeds from the sale of new projects into the joint venture and sales of vacated Class C buildings to third parties, Provide Capital that we can redeploy into the next wave of Redevelopment projects.
This joint venture model enables us to modernize care, improve quality, and expand capacity, all while protecting our balance sheet and delivering long-term value to shareholders.
I'll now turn the call over to our CFO David bacon to discuss our financial results in more detail.
Thanks Michael.
I'll start with a brief review of our consolidated results, followed by our individual business segments and our liquidity position.
Turning first to our Consolidated results. For the quarter.
Our prior year comparable results were impacted by out-of-period long-term care funding of $4.1 million.
The impact of out a period items is summarized in the appendix to the presentation, which is referenced on each of the financial results. Slides
Our Consolidated Q2 Revenue increased by 10% to 383.4 million.
Driven by the 1-month contribution from the 9LT home acquired from Rivera.
Long-term care funding increases and organic growth. In our home, care volumes, along with bill rate increases, are partially offset by the closure of Class C long-term care homes that were vacated following the opening of the newly redeveloped long-term care homes in the Axiom joint venture.
Excluding out of period items, Q2 NOI improved by $6.3 million, or 12.9%, to $55 million.
Reflecting the revenue growth, partially offset by higher operating costs across all segments.
Excluding the impact of out a period. Items are Q2 adjusted ibida, increased by 5.3 million, or 15.4%.
Reflecting the Improvement in noi partially offset by higher administrative costs.
Growth in AFFO continues to be strong, with Q2 AFFO of 29.3 cents per share, up 6.9% from the same period last year.
Supported by our stronger. After tax earnings include including lower net interest costs, partially offset by higher maintenance capex.
When adjusted for period items, our adjusted funds from operations (AFFO) per share improved by $0.055, or 23.1%, year-over-year.
To our individual segments, our home health care delivered, another quarter of strong performance and continued growth.
Revenue increased by $22.3 million, or 16.4% year-over-year.
By 10.9% growth in volumes and a 4% Ontario rate increase in Q4 of last year.
NOI improved by $4.3 million, or 21.5%, driven by revenue growth, partially offset by higher operating costs, including the impact of Easter falling in the second quarter of this year.
% this quarter, up 90 basis points compared to the prior year.
These Home Health Care, segment results, validate, our multi-year investment and recruiting retention and Technology.
And looking ahead, we expect the closing of the Gap acquisition to add approximately 1.1 million, annual service hours or 3109, average, daily volume.
Which provide us with additional scale and operating leverage as we integrate the businesses. As Mike mentioned, we are targeting approximately 1.1 million in synergies. After the first year, which will further Drive operating margin Improvement.
Turning to our long-term care segment, recall that last year's Q2 results were impacted by a period funding of $4.1 million.
Our Revenue increased by 17.1 million driven by approximately 10.2 million from the 1-month contribution from the 9lt homes acquired from Rivera.
Funding increases and the timing of envelope spending were partially offset by a loss of approximately $7.7 million in revenue from the closure of the two red plastic homes that were replaced by new homes in the JV.
Excluding out of period items. Noi increase by 2.5 million or 11.4% driven by the increases in revenue and approximately 1.3 million in noi contribution from the 9. LT homes acquired from Rivera.
partially offset by higher operating costs, including the impact of Easter falling in the second quarter of this year and the loss of approximately 900,000 in noi related to the closure of the redeveloped Class, C homes,
Course-by-margins increased 30 basis points over the prior year period to 11.6% in the quarter.
The shift of the Easter holiday impacted. LTC, margins on favorably on a year-over-year basis by approximately 40 basis points.
Finally, turning to our Managed Services segment. The decline in revenue in NOI this quarter reflects the loss of management fees resulting from the sale by Rivera of 30 homes, 9 of which were acquired by Extended Care and are now included in our LTC segment.
our managed Services Revenue, decreased 300,000 to 17.7 million and noi declined, 500,000 to 9.6 million
Despite the reduction in managed homes, earnings benefited from organic growth in our SGP, clients, and increased management fees from the newly opened homes in the Axiom JV.
Our noi margin of 54.3% for the quarter remains in line with our expectations for this segment between 50 and 55%.
Turning to our liquidity position. As Michael mentioned. In may, we upsize our senior secure credit Facility by 100 million to 375 million.
Which added 45 million to our revolver and 55 million to our delayed draw Term Loan.
At quarter end, we had 152 million available on the revolver.
In addition, we had $73 million of cash on hand at quarter-end, which excluded the restricted cash of $75.1 million held in trust for the acquisition closing. The gap closed on July 1st.
Subsequent to quarter end, we drew $55 million under the delayed draw Term Loan to partially fund the purchase of closing the Gap, leaving us in a very strong liquidity position after funding both acquisitions.
All of our credit metrics improved this quarter, and we have no debt maturities until the first quarter of 2027.
In short, we are well capitalized to pursue our growth agenda. Our disciplined approach to allocating capital will ensure we evaluate opportunities strategically and act when they align with our growth and shareholder value creation objectives.
With that, I'll pass it back to Mike for his closing remarks.
Thank you, David.
Our health system remains under pressure due to the demographic realities of an aging population, home care, and long-term care are essential components to address. The rapidly growing needs of seniors Nationwide.
The strong operating performance, demonstrated by all of our business segments, together with the stability of our balance sheet and rising demand for our services, positions Extendicare extremely well to pursue strategic opportunities while continuing to drive organic growth.
In closing, I sincerely thank every member of our team for their dedication and hard work.
Their commitment to delivering quality care is at the heart of our success and enables us to help people live better every day.
And with that, we're happy to take any questions that you might have.
And answer session.
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Coming from Jonathan kelra with TD. Security's, please go ahead.
Thanks, uh, good morning. Um, just on the, the Home Health Care. Um, you guys keep pushing the, the margins higher, um, where where do you think they can get to on an annualized basis?
Well, Jonathan, I think the, uh,
Uh performance of that segment. Uh, has really been driven by the technology.
Uh, that we've been putting in the back office, we're continuing to, uh, invest and improve that. Uh, and we're also going to see more scale from the acquisitions and continuing organic growth.
um,
I think it still has some room to, uh, to move.
Um, uh, at the same time uh always want to recognize the Q2 is our best quarter uh and that we see seasonal.
Uh, softness in the Q3 period and some seasonal impact on Q4 just because of the holiday season. Um, so, um,
uh, you know, I think that, that, you know, for the next couple of quarters, uh, uh, uh, you know, we won't see any major, uh, changes in the, in the, uh, in the margins, uh, in future years. There there might be some, uh, opportunity for, uh, uh, a little bit more growth in that, in that margin. But at this point, I think, uh, it's more of a volume story. Now, in terms of of, uh, just expanding our services and expanding access uh to to those services in the markets that we service.
okay, and you do you
I'm, I'm guessing you still see a fairly long Runway Inn, in terms of, uh,
In terms of volume growth.
Yeah, we do. Um, I mean we've always talked about demographic growth,
Uh, you know, as as, as being the, the primary driver, uh, which, you know, in the segments that the, uh, age segments that we Service, uh, you know, the the demographic Trends are 4 or 5% growth annually, uh, in that group. But we're also seeing, um, a significant contribution coming from the fact that long-term care services are not keeping Pace with with the demographic trends.
And so, uh, you know what we're seeing is that, uh, uh, governments are leaning on home care to pick up the slack. With increasing numbers of people on the long-term care waiting list, we're seeing quite significant demand for home care, uh, just coming from the need to take care of those people in their own homes.
So, uh, you know, we're now thinking that, uh,
Uh, you know, a sustained, uh, period of growth that's in excess of the demographic drivers is likely for home care.
Okay, that's, uh, that's good. And then just switching gears. Um, I think in your opening remarks, you referenced good acquisition opportunities. Um, what, like, are you seeing those across the board? What business lines do you think you'll be active in in the back half of this year, given how, uh, how busy you guys actually were in the first half?
Yeah, I look, I think there's uh, there's quite a bit of opportunity in home care. Um, uh, you know, the opportunity comes from a couple of things 1. Uh, the very fragmented Market uh 2 geographies where we're not uh currently providing a full uh scope of services. Uh but
Uh, we're, you know, we're seeing opportunities, uh, from just from the perspective of, uh, as I mentioned, the long-term care, uh, challenges and, and the need to, uh, make up, you know, make up the difference there. Um, so, uh, so there's quite quite a few opportunities in the market, uh, on on this front, um,
uh, you know, we're going to be, you know, we're going to be careful and in terms of
Uh, uh, you know, making sure that, uh, we're pursuing things that, you know, are accretive.
But also, uh, are, uh, a basis for, uh, further organic growth. Uh, we want to be, you know, quite disciplined in not just buying volume, but actually, uh, you know, looking for opportunities to, uh, expand our organic growth opportunities.
Okay, that’s uh, that’s helpful. I’ll turn it back. Thank you.
And our next question will come from Tanya Armstrong Whitworth with Canaccord Genuity. Please go ahead.
Hey, good morning, guys.
Um, a couple from me.
On the funding increase that you got for long-term care in Ontario, that's great news. When did it come into effect? July 1st?
Should we be modeling some out-of-period funding in Q3, given that the date when that kicked in?
Yeah, I think the Ontario increase was announced, but it is retroactive to April 1st.
So it got announced in the quarter and it and the rate increase, uh, starts on April 1st. So it is in the quarter already. Um, from an Ontario perspective, what what we may see and and hope to see in Q3 uh, we have yet to get our current year rate increases, uh, in the west. It's not unusual for them to be delayed in that and, you know, being a bit slow with that announcement. So we still are waiting for the Western long-term care. Uh, rate increases both in Manitoba and Alberta. So you may see some out of period in Q3 related to, to those rate increases because they typically are uh, retroactive to April 1st, as well.
Okay, perfect. Um, and then on—apologies if this was in your MD and I couldn't find it—but I think you guys had listed your Westin Villa for sale earlier this year. Could you provide an update on where that stands?
Yeah, we have that home on the market, um, we've had some interest expressed, so we're still tracking, hopefully to have that, uh, sold by the end of the year. Um, but there's nothing definitive yet to announce on that, but we're still targeting, uh, to have that sold by the end of the year.
and just
The new capital funding announced by the Ontario Ministry of Long-Term Care has recognized the cost challenges inherent in, obviously, the GTA. Could you maybe elaborate on that? What kind of benefits are those homes seeing?
Sure I I I think you know there's a number of new features in in the program. Um as we mentioned it came came out last week so we're still digesting it but I think principally the comment around GTA. Uh there's a there's a few things that we see in the new program 1. Is that the um the costs that are eligible for funding um not all the costs are sort of factored into the calculations of The Upfront Grant or CFS. Um, but we are seeing them expanding, the costs that are included. Uh,
In addition, uh, to effectively increase the amount per bed, uh, they're they're willing to fund up to. Um, so in the GTA category, um, you know, quite dramatic, um, increase in sort of what what I call the cap on on costs that works a little bit different than the old program. But but the spirit of it is, uh, they increase the caps on how much you can spend per bed in GTA and then I'd say the other element of the program now, is it relates more to a sliding scale based on your costs as opposed to being a fixed number? Regardless of of, you know, on the CFS portion regardless of of how much you've spent. So now as your costs go up,
Um, there's a kind of rateable calculation that gives you a bit more per bed towards those increased costs.
All of that. But on the surface, there are higher caps and a bit of a sliding scale concept. That will increase the grant money up front and can increase the CFS amount you get, as opposed to the old fixed sort of $55 per bed.
Okay, excellent. Um, I will get back in queue. Thank you, guys.
Once again, if you have a question, please press star, then 1.
Our next question will come from Rishika Batio with National Bank Financial. Please go ahead.
Hey guys, this is Juliana. Um,
Just a couple of questions. Uh, based on the CFP that was announced, have you noticed...
And you're kind of guiding towards increasing the projects. Um, as for one more in 2025 and three more in 2026, you know, what kind of change in the returns on those projects was? Or was it substantial, or was it a little, or just enough based on that new funding dynamic?
Yeah, Julian I know I I I think again it's early days but I I'd say our our initial reaction and working through it is that the returns aren't going to be materially different than what they were under the original CFS from 3 4 years ago or the top up that they introduced um a couple of years back with the 35. I think the the the program is
Being designed to recognize sort of the elevated costs, uh, environment that we're in, uh, from a construction point of view and, you know, dovetailing into kind of the operating funding program. So I still think we're going to see things modeling out.
Similar similar way uh, from a, you know, cash on cash, yield type perspective that we've talked about in the past and that sort of 7 and a half 8 percent range. I don't think they're going to be materially different. Um, I just think the intent of the program. Is it? It expands the the applicability of the program to a wider cross-section of projects
Right? And and you think you can come comfortably under underneath the kind of cost prescriptive, they've outlined
Yes.
Yeah.
Okay. And then just, uh, I guess switching to to home health care. What, what's like the biggest constraint for volume growth. Is it the the labor side, the ministry funding or or is there something else that could constrain the volume growth there?
Right now, I would say the...
The, uh, answer is a little bit different in different geographies.
So, um, you know, in a number of of regions, uh, where we operate, uh, we are meeting all of the, uh, referrals that we received from the various agencies that, that, that we work with. Uh, and so, in that case, uh, it's, it's demand. That's governing, the, the volume.
Uh, in some places, particularly, uh, rural settings, uh, Northern settings. Uh, we still have some Labor, uh, constraints. And in those situations we don't fulfill every referral that comes our way. Uh, but, uh, you know, it's more a story. Now, of of of us, you know, accurately tracking demand, I'd say, overall in the sector, what we're seeing is the, the, you know, the weight list for services have have really dropped off. So that we are, uh, you know, providing very timely service. But what we're also seeing is the intensity. So the number of hours that we deliver to any individual uh, person, uh, is increasing and that's probably driven by uh the growing long-term care weight list and the need to provide long-term care like service.
Services to people in their own homes.
So that's that's really what's what's uh, driving? A lot of the volume increase that we're seeing right now.
And that weight list, um, like year-over-year, how, how's the change on that or, or where has it trended over the past 5 years?
well, you know
The wait list for long-term care is about 48,000 people. It's a huge number. Um, the uh, rough, you know rule of thumb in Ontario is that the demographic drivers uh, add about 4,000 beds of demand per year.
Development program, which is replacing a lot of older beds, has not been meeting that.
That, uh, that full, uh, 4,000 number, never mind eating into the long waitlist.
So uh, you know, I think that I think that the opening of new beds is picking up in Ontario. So I think we met uh see the the weight list leveling off.
But I think it's unlikely that the weight list is is going to drop significantly. So I think the dependence on home care for that particular population is going to continue
All right, and then just lastly on the home healthcare margins. How much is the improvement related to this lower turnover in the segment versus, you know, scaling of the back office costs?
I'd say that majority of it is the is the scaling on the back office. I mean our our back office has been you know quite stable over the last couple of years even as we've added about 20% to the volume.
So that that's been the primary driver of of the, the margin increases. Um, we also had kind of a post-pandemic uh, rate catch up to, to align with with labor cost inflation. Uh, which, you know, which was also helpful, but that's, you know that's uh,
You know, more than a year ago now.
All right. Thank thanks, guys. I'll get back in the queue.
And this concludes our question-and-answer session. I'd like to turn the conference back over to Julian Fountain for any closing remarks.
Thank you, operator.
That concludes our call for today.
Along with a link to a replay of the call.
Thank you all for joining us and please don't hesitate to reach out if you have any questions.
Goodbye.
This brings today's conference call to a close. You may disconnect your lines. Thank you for participating, and have a pleasant day.