Extendicare Inc.

Thank you for standing by. This is the conference operator. Welcome to the Extendicare fourth quarter and year end results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Gillian Fountain, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Extendicare's fourth quarter 2021 results conference call. With me today are Extendicare's President and CEO, Michael Greer, and Senior Vice President and CFO, David Bacon. Our Q4 results were disseminated yesterday and are available on our website. The audio webcast of today's call is also available on our website along with an accompanying slide presentation which viewers may advance themselves. A replay of the call will be available later this afternoon until March 11th. The replay numbers and pass codes have been provided in our press release and an archived recording of this call will also be available on our website. Before we get started, please be reminded that today's call may include forward-looking statements. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings. With that, I'll turn the call over to Michael.

Thank you, Jillian, and good morning. Before we turn to our fourth quarter results, I will highlight our ongoing efforts to protect our team members and those we care for from the COVID-19 pandemic. With the emergence of the Omicron variant early in December, cases surged across the country, resulting in high community infection rates, which in turn triggered new outbreaks in our homes and communities. While this new variant is highly transmissible, severe illness is less frequent than with previous strains. Nevertheless, it can pose a serious risk to the most vulnerable members of our community, particularly long-term care residents. This highlights the need for continued vigilance and focus on our key prevention and control measures to minimize the spread of the virus. From the first signs of Omicron in December, our team members responded quickly and worked tirelessly to protect those in our care. In addition to heightened infection control measures, vaccines remain the most effective preventative measure, particularly against hospitalization and severe illness. Vaccination of our residents and staff, including our booster programs, has mitigated the number of serious outcomes. despite more widespread community transmission than we experienced in previous waves of the pandemic. That said, the high rate of infection has driven up absenteeism across our operations, as it has with other health care providers. More than 2,000 staff in our long-term care homes and retirement communities and more than 1,500 staff in our home health care operations have tested positive since the beginning of December. Fortunately, the vast majority of our staff who did test positive experienced only minor symptoms or none at all. This still resulted in high levels of absenteeism, which put pressure on staffing and drove up pandemic costs. The high incidence of caregivers on sick leave also had a transient impact on home healthcare volumes into January. Fortunately, Changes to public health guidelines have allowed staff to return to work faster than in previous waves. Although intense, the Omicron wave peaked quickly in mid-January and has been declining ever since. New cases within our homes and home health care operations are dropping, and currently 16 of our 69 long-term care homes in retirement communities are recovering from outbreaks. Since the beginning of the pandemic, our unfunded pandemic costs total more than $32 million. Though new cases related to the Omicron variant are on the decline, we expect COVID-19 costs to remain elevated in Q1 before resuming the decline we began to see in Q2 and Q3 of last year. Following year end, the government of Ontario announced additional COVID-19 prevention and containment funding of $277 million relating to the government fiscal year end, March 31, 22. Details about how this additional funding will be allocated to individual homes is still pending. While we welcome this additional support, mismatching the timing and quantum of funding for the costs associated with our COVID response will continue to cause volatility in our results until we fully emerge from the pandemic. Turning to slide four and the February 3rd announcement of the sale of Esprit, we entered into an agreement to sell our retirement operation, which comprises 11 communities in Ontario and Saskatchewan, to a joint venture between Siena Senior Living and Sabra Healthcare REIT. for an aggregate purchase price of $307 million. The sale is expected to close in the second quarter of 2022, subject to regulatory approvals. We were pleased with the implied cap rate of 6% on the transaction, and the net proceeds from the sale will be approximately $115 million. These funds will provide the flexibility to allocate capital strategically including priority investments in our people, technology, and our long-term care redevelopment program. We are confident that the residents who call our communities home and the talented teams who work in them will be able to transition seamlessly to one of Canada's leading retirement home providers. This is a priority for both Extendicare and Ciena. We extend our appreciation to the staff of our esprit communities who have demonstrated a steadfast commitment to providing outstanding care throughout the pandemic. For extended care, the SAIL is aligned with our strategic repositioning to focus on growth in our long-term care and home health care segments. We have the deep expertise and scale in those segments to drive growth, improve performance, and high-quality care for seniors across Canada. The services we provide to other senior living operators through extended care assist and SGP will continue to be a prominent part of our growth strategy. Now let's turn to a few financial highlights on slide five. We continue to invest in the resources required to help protect our residents, clients and staff and are grateful for the financial support we have received from provincial governments toward our COVID-19 related expenses. While our pandemic related spending has been in decline in the second half of the year, the resurgence of outbreaks in December resulted in increased spending at the end of the quarter and into 2022. Pandemic related spending increased to 31.6 million in the fourth quarter, up 500,000 from Q3. Additional COVID-19 funding announced by the Government of Ontario after year-end resulted in the recognition of $11.9 million of revenue in Q4-21 related to unfunded costs incurred in Q1-21. This resulted in a $4.5 million net recovery of COVID costs in Q4, as compared to net unfunded COVID costs of $9.4 million in the year earlier quarter. As you can see from the table, we experienced improvements across all our segments in key operating metrics in Q4. Occupancy levels in our long-term care homes and retirement communities improved 110 basis points and 210 basis points respectively in Q4 as compared to Q3. Average daily volumes in our home healthcare segment continued to increase in the fourth quarter, up 1.8% from Q3, and our SGP customer base continued to increase in Q4, up 5.4% from Q3, and 18.1% year over year. Moving on to slide six. We continue to advance our redevelopment strategy to replace our older Class C long-term care beds in Ontario. Following our participation in the October 2021 new call for applications, we now have a total of 21 redevelopment projects proposed or underway in Ontario that would see Extendicare build more than 4,600 new long-term care beds, replacing all of our 3,285 existing seabeds in the province. This month, we were awarded new beds for three additional projects. As of today, we've been awarded beds for 10 of the 21 applications, including the three under construction, representing 1,952 new long-term care beds. We remain actively engaged with our industry partners and the government to identify enhancements to the capital funding program necessary to make projects in all parts of the province economically feasible. In Q4, we began construction on a 256-bed long-term care home in Stittsville, Ontario. Along with our Sudbury and Kingston projects already under construction, these three homes will replace 624 Class C beds with 704 new beds, requiring a net investment of approximately $179 million. We have a further six projects in advanced stages of government and municipal approvals in Ontario, where we expect to start construction before the end of 2023. Moving to slide seven in our long-term care operations, our COVID-19-related costs declined by $0.6 million from Q3, less of a decline than we were expecting due to the impact of Omicron that started in December and carried into the new year. The pace of long-term care occupancy recovery slowed due to the surge of Omicron cases in the latter half of the month. While we experienced a 110 basis point increase in occupancy in Q4 compared to Q3, we expect that our occupancy levels will be temporarily impacted in Q1-22 as the COVID-19 outbreaks in our homes have impeded our ability to admit new residents. Once the pandemic is behind us, we expect that the pace of occupancy recovery will resume. As previously announced, Occupancy protection in our long-term care homes expired on January 31, 2022. As a result, we may experience some reduction in funding for a small number of our Ontario long-term care homes that do not achieve the required 97% average occupancy for the balance of 2022. As was announced last quarter, the initial phase of the Government of Ontario's long-term care staffing plan began in the fourth quarter, taking us to three hours of direct care per resident day. The increased funding is provided through the nursing program flow-through envelopes, which has allowed us to permanently hire the additional workers we brought on during the pandemic. The plan adds subsequent increments in April of each year to take us to four hours of direct care per resident day by April 2024. Note that we continue to work with the Saskatchewan Health Authority to plan the transition of the delivery of long-term care services at our five long-term care homes there. Accordingly, we started accounting for these homes as a discontinued operation. Progress has been slow as the parties have had to focus on the Omicron surge. but work continues. David will have more details on the financial impact of this change in his remarks. Turning to slide eight, Q4 pyramid volumes increased over the prior quarter by 1.8%, continuing the steady recovery in that segment. Compared to Q4 2020, our volumes were up 7.7%. The Omicron-related surge of COVID-19 cases within our paramed staff that started in September and continued into 2022 will affect volumes in the first quarter. We anticipate a return to volume growth as the pandemic recedes. Adjusted NOI margins were 8.8%. Down from 9.7% in Q3, when COVID-related costs and the retroactive impact of the billing rate adjustments are excluded. The decrease in NOI margin was expected given seasonal impacts and the onset of the Omicron wave. When we consider the full year NOI margins for 2021, we're 9.3% as compared to 4.8% in the prior year when adjusted for the impacts of COVID, wage subsidy, and one-time charges in Q4, reflecting the volume recovery, rate increases in 21, and improvements in back-office efficiency. Staffing shortages across the entire healthcare sector continue to be a challenge, in particular the ongoing shortage of nurses, which is further exacerbated by the duration and stress of the ongoing pandemic. We continue to invest in our staff recruitment and training programs to counter the significant staffing challenges facing the industry. In 2021, our PSW college partnerships and in-house training programs graduated and hired more than 700 new caregivers. These programs successfully introduced new staff into our operations And we are targeting an additional 600 staff from these programs in 2022. With that, I'll turn it over to our CFO, David Bacon, to provide further insight into our consolidated and segmented financial results for the fourth quarter. David.