Extendicare Inc. (“Extendicare” or the “Company”) (TSX: EXE) today
reported results for the three months ended March 31, 2022. Results
are presented in Canadian dollars unless otherwise noted.
First Quarter Highlights
- High community transmission of the
Omicron variant resulted in increased outbreaks and high
absenteeism across the organization. Consequently, home health care
average daily volumes (“ADV”) were 4.8% lower than Q4 2021 and our
long-term care (“LTC”) average occupancy dropped by 120 bps.
- The sale of the Esprit retirement
living portfolio is scheduled to close on or about May 16, 2022,
for estimated net proceeds of approximately $125.0 million.
- Process to seek regulatory approvals
for Revera and Axium transactions is underway in Manitoba and
Ontario. If approved, Extendicare will assume operational
responsibility for Revera’s 56 long-term care homes, acquire a 15%
managed interest in the 24 homes that will be owned in partnership
with Axium; enter into a joint venture with Axium in respect of
certain Extendicare redevelopment projects.
- The Province of Ontario announced an
additional 2,624 new and redeveloped beds for 12 of our LTC
redevelopment projects in 2022, bringing the total new and
redeveloped beds awarded to Extendicare to 4,248 for 20 LTC
redevelopment projects, including the three LTC projects currently
under construction.
“The marked increase in COVID-19 cases since the beginning of
the year driven by the highly contagious Omicron variant, was a
setback to the positive recovery in occupancy and home health care
volumes we had experienced in the latter part of 2021,” said
President and Chief Executive Officer, Dr. Michael Guerriere.
“Thanks to vaccinations, the impact of the virus was much milder
than in previous waves. Nevertheless, high numbers of staff
absences because of illness or isolation requirements drove higher
sick pay, overtime and temporary replacement costs in the quarter.
Demand for our services remains high and when the pandemic
subsides, we expect our recovery to resume.”
“With the pending sale of the retirement portfolio, the ongoing
work to obtain regulatory approval for our
Revera and Axium transactions and the new bed allocations
from the Government of Ontario, our strategic transition to focus
on growth in long-term care and home health care is gathering
momentum. We are dedicated to advancing the delivery of
high-quality care and services across our LTC homes and home care
districts,” added Guerriere.
Protecting Our Residents, Clients and
Caregivers
The highly transmissible Omicron variant began to emerge in
December and drove a significant increase in COVID-19 infections in
Q1 2022. Vaccinations and boosters have helped to mitigate the
incidence of serious illness and hospitalization among our
residents and staff. Despite milder symptoms, we experienced a high
level of staff absenteeism during Q1, creating staffing challenges
and increased labour costs.
As of May 11, 2022, 27 of our 69 LTC homes and retirement
communities are in outbreak.
We continue to remain vigilant and focus on key prevention and
control measures to minimize the spread of the virus, understanding
that even milder variants can still pose a serious risk to the most
vulnerable members of our community.
Repositioning Extendicare to Focus on Growth in
Long-term Care and Home Health Care
The need for home care services is growing. The Ontario
government recognizes the critical role home health care plays in
the continuum of care, as evidenced by its recent announcement to
invest $1 billion more over the next three years to expand home
care services in the province.
In response to the increasing demand, Extendicare is refocusing
its business on providing high quality home health care and
long-term care. In the first quarter we announced the entering into
agreements for the sale of our Esprit retirement living portfolio
and for the acquisition of a 15% managed interest in 24 Revera LTC
homes, management of an additional 32 Revera LTC homes and a
redevelopment joint venture with Axium. This strategy allows us to
grow while providing the flexibility to allocate capital for
strategic initiatives, including acquisitions. Operating and
building new long-term care homes is a key pillar of our growth
agenda, and these new relationships allow us to achieve that
objective, while substantially reducing the amount of capital we
must invest to redevelop our Class C portfolio.
Based on the anticipated revenue of the 56 managed LTC homes and
the Company’s incremental costs in respect of such management, the
Revera Transactions would have generated for 2022 approximately
$17.0 million in incremental annual revenue in our Other Operations
segment and, excluding integration costs, NOI and AFFO of
approximately $7.6 million and $4.3 million ($0.042 AFFO per basic
share), respectively. In additional, an estimated $1.0 million in
AFFO ($0.01 AFFO per basic share) would have been received in 2022
through distributions in respect of our 15% interest in the 26 LTC
homes to be jointly owned with Axium. Total aggregate consideration
to be paid on closing of these transactions is approximately $70.0
million, subject to customary adjustments.
Closing of the previously announced sale of our Esprit
retirement communities in Ontario and Saskatchewan to Sienna-Sabra
LP for an aggregate purchase price of $307.5 million is scheduled
to close on or about May 16, 2022. All regulatory approvals have
been obtained and closing is subject only to customary closing
conditions.. The estimated net proceeds, net of debt repayments,
taxes, certain closing adjustments and transactions costs, is
approximately $125.0 million, subject to customary post-closing
working capital adjustments. The Company classified its retirement
living segment as discontinued in Q1 2022. These operations
contributed $1.3 million to AFFO(1) in Q1 2022 and $7.1 million
($0.08 AFFO per basic share) for the year ended December 31,
2021.
Commitment to Long-term Care Redevelopment
We continue to advance our redevelopment strategy to replace our
older Class C LTC beds in Ontario. We have been awarded 4,248 new
or replacement beds across 20 redevelopment projects, which would
replace all of our 3,285 existing Class C beds, including three
projects currently under construction that will replace a total of
624 Class C LTC beds with 704 new beds, requiring a net investment
of $178.9 million. Our new homes are being constructed exclusively
with single patient rooms to maximize privacy, safety and resident
comfort.
We are actively engaged with our industry partners and the
government to identify and implement necessary enhancements to the
government’s capital development funding program to make these
projects economically feasible given the construction cost
inflation being experienced by all operators. We continue to work
through Ontario Ministry of Long-Term Care (“MLTC”) and municipal
approval processes and are targeting to have six more projects
ready for construction before the end of 2023.
COVID-19 Financial Impacts
The resurgence of COVID-19 outbreaks within our homes
necessitated increased pandemic-related spending in Q1 2022.
We recognized $13.3 million in prevention and containment
funding in Q1 2022 that related to spending in 2021, resulting in
net recovery of COVID costs from continuing operations in Q1 2022
of $8.5 million, compared to net unfunded COVID costs of $0.2
million in Q1 2021.
Since the beginning of the pandemic, we have received funding to
cover a large portion of our pandemic-related costs. Exclusive of
government funding for pandemic pay programs, $196.0 million (90%)
of our $217.8 million in costs incurred to the end of Q1 2022 have
been funded, leaving cumulative unfunded pandemic costs in our
Adjusted EBITDA(1) from continuing operations of $21.8 million. We
will continue to incur elevated costs in our ongoing efforts to
protect our residents, clients and staff until the threat of the
pandemic has abated.
Subsequent to Q1 2022, the MLTC announced additional COVID-19
prevention and containment funding of $278.0 million for April 1,
2022 through to March 31, 2023. The Alberta and Manitoba
governments have indicated their intention to continue to provide
funding support on a retroactive basis for COVID-19 costs incurred
through to March 31, 2022. While we are encouraged by these
announcements, we expect ongoing volatility in our operating and
financial results until the effects of COVID-19 are behind us.
In Ontario, occupancy targets were reinstated on February 1,
2022, requiring LTC homes to achieve an average occupancy of 97%,
adjusted to exclude the third and fourth beds in ward rooms, in
order to maintain full funding. The adjusted average occupancy of
our Ontario LTC homes for the two months ended March 31, 2022, was
94.9%, down from 95.8% in December 2021.
Q1 2022 Financial Highlights (all comparisons
with Q1 2021(2))
- Revenue increased 3.7% or $10.8
million to $305.7 million, driven by LTC funding enhancements,
including $2.9 million in retroactive LTC funding, and home health
care billing rate increases, partially offset by lower COVID-19
funding of $3.9 million and the impact of timing of flow-through
funding.
- Net operating income (“NOI”)(1)
decreased $3.3 million to $33.0 million; excluding the Canada
Emergency Wage Subsidy (“CEWS”) of $9.7 million received by ParaMed
in Q1 2021, NOI would have increased by $6.4 million, driven by
higher net COVID-19 recoveries of $7.9 million and retroactive LTC
funding of $2.9 million, partially offset by higher operating costs
and the impact of the loss of occupancy protection for Ontario LTC
homes on February 1st.
- Adjusted EBITDA(1) decreased $4.2
million to $19.6 million, reflecting the decline in NOI noted above
and increased administrative costs related to transaction-related
professional fees of $0.6 million and increased information
technology costs, partially offset by lower COVID-19 related costs
of $0.8 million.
- Earnings from continuing operations
decreased $3.5 million to $4.0 million, driven by the after-tax
impact of the decline in Adjusted EBITDA noted above.
- AFFO(1) of $12.0 million ($0.13 per
basic share) was down $7.5 million, reflecting the decline in
earnings and higher maintenance capex.
Business Updates
The following is a summary of the Company’s revenue, NOI(1) and
NOI margins(1) by business segment for the three months ended March
31, 2022 and 2021.
|
Three months ended March 31 |
(unaudited) |
2022 |
|
2021(2) |
(millions of dollars unless otherwise noted) |
Revenue |
NOI |
Margin |
|
Revenue |
NOI |
Margin |
Long-term care |
199.8 |
26.6 |
13.3% |
|
189.8 |
15.8 |
8.3% |
Home health care |
98.6 |
2.7 |
2.7% |
|
97.7 |
16.0 |
16.3% |
Other
Operations |
7.3 |
3.7 |
51.0% |
|
7.4 |
4.6 |
61.7% |
|
305.7 |
33.0 |
10.8% |
|
294.9 |
36.3 |
12.3% |
Note: Totals may not sum due to rounding. |
|
|
|
|
Long-Term Care
The surge in COVID-19 related outbreaks across our LTC homes
halted the occupancy recovery and contributed to a sequential
decline in average occupancy by 120 bps to 88.6% in Q1 2022, down
from 89.8% in Q4 2021. Average occupancy increased by 520 bps from
the same prior year period.
NOI and NOI margin in Q1 2022 were $26.6 million and 13.3%,
respectively, up from $15.8 million and 8.3% in Q1 2021, due to
higher net COVID-19 recoveries of $9.9 million and funding
enhancements (including retroactive funding in Manitoba of $2.9
million), partially offset by higher costs of labour and utilities,
and the impact of the loss of occupancy protection for the Ontario
LTC homes on February 1st.
Home Health Care
Referral activity remains above pre-COVID-19 levels as strong
demand for our services continues. However, service delivery has
been impacted by the reduction in workforce capacity experienced in
Q1 2022 and Q2 2022 caused by absenteeism related to the Omicron
variant. As many as 900 staff in late January 2022 were on paid
sick leave due to COVID. As a result, our Q1 2022 ADV of 24,552 was
down 4.8% from Q4 2021, up modestly from Q1 2021 ADV by 0.8%.
In Q1 2021, ParaMed revenue was $98.6 million, up 1.0% from Q1
2021, driven by billing rate increases and an increase in ADV of
0.8%, partially offset by reduced COVID-19 and pandemic pay funding
of $1.2 million.
NOI and NOI margin were $2.7 million and 2.7%, respectively, in
Q1 2022, compared to $6.3 million and 6.4% in Q1 2021, excluding
CEWS payments received by ParaMed in Q1 2021 of $9.7 million. The
$3.6 million decline in NOI was largely due to an increase in
unfunded COVID-19 costs of $2.0 million and higher costs to address
staffing capacity challenges, resulting in higher wages and
benefits, recruitment, travel and training costs, and higher
information technology costs.
Other Operations
Revenue declined by 2.1% to $7.3 million from Q1 2021, largely
due to lower management services revenue. NOI declined by $0.9
million or 19.0% to $3.7 million, due to increased staff and
information technology costs in support of growth initiatives. The
number of third-party residents served by SGP increased to
approximately 98,800 at the end of Q1 2022, up 21.9% from Q1 2021
and 6.0% from Q4 2021.
Financial Position
Extendicare is well positioned with strong liquidity, which
included cash and cash equivalents on hand of $118.4 million and
access to a further $72.8 million in undrawn demand credit
facilities as at March 31, 2022. Estimated net proceeds from the
sale of the Esprit retirement operations of $125.0 million will
further increase our cash and cash equivalents subsequent to March
31, 2022.
In addition, the Company has undrawn construction financing in
the aggregate of $150.6 million available for its ongoing
Stittsville, Sudbury and Kingston LTC redevelopment projects.
Select Financial Information
The following is a summary of the Company’s consolidated
financial information for the three months ended March 31, 2022 and
2021.
(unaudited) |
Three months ended March 31 |
(thousands of dollars unless otherwise noted) |
2022 |
|
2021(2) |
Revenue |
305,710 |
|
294,861 |
|
Operating expenses |
272,734 |
|
258,542 |
|
NOI(1) |
32,976 |
|
36,319 |
|
NOI margin(1) |
10.8 |
% |
12.3 |
% |
Administrative costs |
13,413 |
|
12,541 |
|
Adjusted EBITDA(1) |
19,563 |
|
23,778 |
|
Adjusted EBITDA margin(1) |
6.4 |
% |
8.1 |
% |
Earnings from continuing operations |
4,045 |
|
7,512 |
|
per basic and diluted share($) |
0.04 |
|
0.08 |
|
Earnings from discontinued operations, net of
tax |
75 |
|
811 |
|
Net earnings |
4,120 |
|
8,323 |
|
per basic and diluted share($) |
0.04 |
|
0.09 |
|
AFFO(1) |
12,048 |
|
19,545 |
|
per basic share($) |
0.13 |
|
0.22 |
|
per diluted share($) |
0.13 |
|
0.21 |
|
Maintenance capex |
1,412 |
|
1,033 |
|
Cash dividends declared per share |
0.12 |
|
0.12 |
|
Payout ratio(1) |
89 |
% |
55 |
% |
Weighted average number of shares(thousands) |
|
|
Basic |
90,075 |
|
89,929 |
|
Diluted |
101,190 |
|
100,520 |
|
Extendicare’s disclosure documents, including its Management’s
Discussion and Analysis (“MD&A”), may be found on SEDAR’s
website at www.sedar.com under the Company’s issuer profile and on
the Company’s website at www.extendicare.com under the
“Investors/Financial Reports” section.
May Dividend Declared
The Board of Directors of Extendicare today declared a cash
dividend of $0.04 per share for the month of May 2022, which is
payable on June 15, 2022, to shareholders of record at the close of
business on May 31, 2022. This dividend is designated as an
“eligible dividend” within the meaning of the Income Tax Act
(Canada).
Conference Call and Webcast
On May 13, 2022, at 11:30 a.m. (ET), Extendicare will hold a
conference call to discuss its 2022 first quarter results. The call
will be webcast live and archived online at www.extendicare.com
under the “Investors/Events & Presentations” section.
Alternatively, the call-in number is 1-800-319-4610 or
416-915-3239. A replay of the call will be available approximately
two hours after completion of the live call until midnight on May
27, 2022. To access the rebroadcast dial 1-800-319-6413 followed by
the passcode 8865#.
About Extendicare
Extendicare is a leading provider of care and services for
seniors across Canada, operating under the Extendicare, Esprit
Lifestyle, ParaMed, Extendicare Assist, and SGP Purchasing Partner
Network brands. We are committed to delivering quality care
throughout the health continuum to meet the needs of a growing
seniors population. We operate or provide contract services to a
network of 119 long-term care homes and retirement communities (69
owned/50 contract services), provide approximately 9.2 million
hours of home health care services annually, and provide group
purchasing services to third parties representing approximately
98,800 senior residents across Canada. Extendicare proudly employs
approximately 20,000 qualified, highly trained and dedicated
individuals who are passionate about providing high quality care
and services to help people live better.
Non-GAAP Measures
Certain measures used in this press release, such as “net
operating income”, “NOI”, “NOI margin”, “Adjusted EBITDA”,
“Adjusted EBITDA margin”, “AFFO”, and “payout ratio”, including any
related per share amounts, are not measures recognized under GAAP
and do not have standardized meanings prescribed by GAAP. These
measures may differ from similar computations as reported by other
issuers and, accordingly, may not be comparable to similarly titled
measures as reported by such issuers. These measures are not
intended to replace earnings (loss) from continuing operations, net
earnings (loss), cash flow, or other measures of financial
performance and liquidity reported in accordance with GAAP. Such
items are presented in this document because management believes
that they are a relevant measure of Extendicare’s operating
performance and ability to pay cash dividends.
Management uses these measures to exclude the impact of certain
items, because it believes doing so provides investors a more
effective analysis of underlying operating and financial
performance and improves comparability of underlying financial
performance between periods. The exclusion of certain items does
not imply that they are non-recurring or not useful to
investors.
Detailed descriptions of these measures can be found in
Extendicare’s Q1 2022 MD&A (refer to “Non-GAAP Measures”),
which is available on SEDAR’s website at www.sedar.com and on
Extendicare’s website at www.extendicare.com.
The reconciliations for certain non-GAAP measures included in
this press release are outlined as follows:
The following table provides a reconciliation of “earnings from
continuing operations before income taxes” to Adjusted EBITDA and
“net operating income”, which excludes discontinued operations.
(unaudited) |
Three months ended March 31 |
(thousands of dollars) |
2022 |
|
2021(2) |
Earnings from continuing
operations before income taxes |
6,264 |
|
10,650 |
|
Add: |
|
|
|
|
Depreciation and
amortization |
8,251 |
|
7,726 |
|
Net finance costs |
5,048 |
|
5,402 |
|
Adjusted EBITDA |
19,563 |
|
23,778 |
|
Administrative costs |
13,413 |
|
12,541 |
|
Net operating income |
32,976 |
|
36,319 |
|
The following table provides a reconciliation of AFFO, which
includes discontinued operations, to “net cash from (used in)
operating activities”, which the Company believes is the most
comparable GAAP measure to AFFO.
(unaudited) |
Three months ended March 31 |
(thousands of dollars) |
2022 |
|
2021 |
|
Net cash from (used in) operating activities |
50,224 |
|
(13,147 |
) |
Add
(Deduct): |
|
|
Net change in operating assets
and liabilities, including interest, and taxes |
(37,222 |
) |
32,931 |
|
Depreciation for office
leases |
(657 |
) |
(727 |
) |
Depreciation for FFEC
(maintenance capex) |
(1,862 |
) |
(1,965 |
) |
Additional maintenance capex |
450 |
|
932 |
|
Principal portion of government
capital funding |
1,115 |
|
1,521 |
|
AFFO |
12,048 |
|
19,545 |
|
Forward-looking Statements
This press release contains forward-looking statements
concerning anticipated future events, results, circumstances,
economic performance or expectations with respect to Extendicare
and its subsidiaries, including, without limitation, statements
regarding its business operations, business strategy, growth
strategy, results of operations and financial condition, including
anticipated timelines, costs and financial returns in respect of
development projects, statements relating to the agreements entered
into with Revera Inc. and its affiliates (“Revera”) and Axium
Infrastructure Inc. and its affiliates (“Axium”) in respect of the
ownership, operation and redevelopment of LTC homes in Ontario and
Manitoba; statements relating to the Retirement Living Sale;
statements relating to the Saskatchewan LTC Home Transition; and in
particular statements in respect of the impact of measures taken to
mitigate the impact of COVID-19, the availability of various
government programs and financial assistance announced in respect
of COVID-19, the impact of COVID-19 on the Company’s operating
costs, staffing, procurement, occupancy levels and volumes in its
home health care business, the impact on the capital and credit
markets and the Company’s ability to access the credit markets as a
result of COVID-19, increased litigation and regulatory exposure
and the outcome of any litigation and regulatory proceedings.
Forward-looking statements can often be identified by the
expressions “anticipate”, “believe”, “estimate”, “expect”,
“intend”, “objective”, “plan”, “project”, “will” or other similar
expressions or the negative thereof. These forward-looking
statements reflect the Company’s current expectations regarding
future results, performance or achievements and are based upon
information currently available to the Company and on assumptions
that the Company believes are reasonable. The Company assumes no
obligation to update or revise any forward-looking statement,
except as required by applicable securities laws. These statements
are not guarantees of future performance and involve known and
unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company to
differ materially from those expressed or implied in the
statements. In particular, risks and uncertainties related to the
effects of COVID-19 on the Company include the length, spread and
severity of the pandemic; the nature and extent of the measures
taken by all levels of governments and public health officials,
both short and long term, in response to COVID-19; domestic and
global credit and capital markets; the Company’s ability to access
capital on favourable terms or at all due to the potential for
reduced revenue and increased operating expenses as a result of
COVID-19; the availability of insurance on favourable terms;
litigation and/or regulatory proceedings against or involving the
Company, regardless of merit; the health and safety of the
Company’s employees and its residents and clients; and domestic and
global supply chains, particularly in respect of personal
protective equipment. Given the evolving circumstances surrounding
COVID-19, it is difficult to predict how significant the adverse
impact will be on the global and domestic economy and the business
operations and financial position of Extendicare. For further
information on the risks, uncertainties and assumptions that could
cause Extendicare’s actual results to differ from current
expectations, refer to “Risk and Uncertainties” and “Forward
Looking-Statements” in Extendicare’s Q1 2022 MD&A filed by
Extendicare with the securities regulatory authorities, available
at www.sedar.com and on Extendicare’s website at
www.extendicare.com. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on Extendicare’s
forward-looking statements.
Extendicare contact:David Bacon, Senior Vice
President and Chief Financial OfficerPhone: (905) 470-4000; Fax:
(905) 470-5588Email:
david.bacon@extendicare.comwww.extendicare.com
Endnotes |
(1) |
|
See the “Non-GAAP Measures” section of this press release and the
Company’s Q1 2022 MD&A, which includes the reconciliation of
such non-GAAP measures to the most directly comparable GAAP
measures. |
(2) |
|
In connection with the February
3, 2022 announcement that the Company has agreed to sell its Esprit
retirement living portfolio, the Company classified its retirement
living segment as discontinued in Q1 2022 and re-presented its
comparative consolidated financial statements, including the
comparative financial information. For additional details refer to
the “Discontinued Operations” section in the Company’s Q1 2022
MD&A and Note 14 of the unaudited interim condensed
consolidated financial statements for the three months ended March
31, 2022. |
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