Extendicare Inc.

Thank you for standing by. This is the conference operator. Welcome to the Extendicare, Inc. Second Quarter 2022 Analyst Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll 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, then 0. I would now like to turn the conference over to Jill Fontaine, Vice President, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to Extended Care's second quarter 2022 results conference call. With me today are Extended Care's President and CEO, Michael Greer, and Senior Vice President and CFO, David Bacon. Our Q2 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 August 26. The replay numbers and passcodes 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. I'll begin our presentation today by recognizing the unprecedented times we find ourselves in. In my 30 years in healthcare, I have never seen the system so strained. Record low unemployment in Canada is leading to labor shortages that are constraining growth and disrupting operations in many sectors of the economy. The situation in healthcare is particularly challenging, as hospitals, home care providers, and long-term care homes experience staffing shortages, with many examples of service reductions or temporary closures making headlines on a daily basis. Like others in the health sector, we are subject to these market realities, most notably in our home health care segment, where we can't find sufficient caregivers to meet the strong and growing demand for care. Home health competes with other service industries for workers, so in the context of record low unemployment, it is a credit to our team that we have been able to maintain our current volume of service. In addition to labor shortages, COVID-related absenteeism has been a significant challenge this year. Sick leave due to COVID peaked in Q1, then declined significantly in Q2. As we entered Q3, a seventh wave of the virus got underway. These recurrent COVID impacts are adding further pressure to an already constrained workforce. Inflation is also contributing to operating challenges, putting pressure on our operating margins and on construction costs, and thus impacting progress on our redevelopment programs. While rate increases and one-time funding are alleviating some of the associated cost and margin pressures, we expect our operations will continue to be impacted by rapidly changing market conditions. On page three of the presentation, we can see the impact of the pandemic in the quarter. This is the 10th consecutive quarter that has been impacted by COVID-19. although decreasing community transmission rates contributed to less impact on operations and costs and resulted in improvements over Q1 in our occupancy levels and home health care volumes. Outbreaks in our homes dropped to just one by the end of June, before community infections began to increase again as we exited the quarter. The emergence of the BA.5 subvariant in July has resulted in a resurgence of the virus in the community, leading to new outbreaks in our long-term care homes and rising levels of staff absenteeism in our home health segment once again. On a positive note, vaccinations and boosters continue to be effective at reducing the incidence of serious illness and hospitalization among our residents and have generally led to milder symptoms, in caregivers and those we employ. We remain vigilant and focused on key prevention and control measures to minimize the spread of the virus, including a renewed focus on the promotion of vaccine boosters, with the knowledge that even milder variants pose a serious risk to the most vulnerable members of our community. As at August 9th, 15 of our 58 long-term care homes were in outbreak. Since the beginning of the pandemic, we have received funding to cover 90% of our COVID-related costs, leaving the cumulative unfunded COVID costs from continuing operations at $22.4 million. Clearly, we are still operating in a pandemic environment, and until it ends, we will continue to experience volatility in our financial results. Turning to slide four, we completed the sale of our retirement living segment to the Ciena-Sabra Partnership for $307.5 million, resulting in realized net proceeds of $128 million, marking significant progress on our strategic transition to focus on growth in our long-term care and home healthcare segments. In regard to the Riviera and Axiom transactions that we announced in the first quarter, we have submitted all regulatory filings and are awaiting approval in Ontario and Manitoba. Total aggregate consideration to be paid on closing of these transactions remains approximately $70 million. customary adjustments, the consideration consisting of cash and debt assumed through our 15 percent ownership stake in the joint venture with Axiom. These agreements set us up to double the size of our assist management business and provide us with greater flexibility to pursue growth initiatives and our redevelopment program using a less capital-intensive business model. Together with the sale of the retirement business, these transactions create flexibility to allocate capital strategically. We are well positioned to make the necessary investments in people, technology, redevelopment, and acquisitions to drive growth in our long-term care and management services segments. These initiatives will complement the organic growth opportunities already present in our home healthcare segment. We also initiated a normal course issuer bid to provide us with additional flexibility to manage capital, acquiring approximately 985,000 shares for cancellation since its inception in June. Moving to slide five, We continue to advance our long-term care redevelopment program. We have vet allocations for 20 projects, three of which are under construction. Given the construction cost inflation and rising interest rates being experienced across the sector, enhancements to the government's capital funding program are needed before we can start construction on more homes. We are actively engaged with our industry partners and the Ontario government to obtain the enhancements needed to make these projects economically feasible. We are committed to our redevelopment strategy and believe that the demographic need for long-term care beds will motivate the changes required to unlock our pipeline of projects. In the meantime, we will advance planning and approvals for the other 17 projects expeditiously with the goal of having six more ready to break ground by the end of 2023. Now we'll turn to a few operational highlights on slide six. With lower rates of COVID-19 during the quarter, long-term care average occupancy increased by 160 basis points from Q1, and home health care average daily volumes improved 2.5 percent on a sequential basis. We also continued to see solid growth in our SGP customer base in Q2, up 3.4% from Q1 and 22.4% year over year. Pandemic-related spending dropped during the quarter to $22.1 million, down $20.1 million from Q1 as the number of COVID-19 outbreaks declined in the quarter. Our costs were largely funded, resulted in net unfunded costs of $600,000 in the quarter. Although the Ontario government announced an increase to flow-through funding for long-term care effective April 1st, there was no increase to the accommodation envelope to help offset the impact of inflation and the tight labour market. During the quarter, the Ontario government made the $3 per hour PSW wage enhancement permanent and is adjusting our funding in both our long-term care and home health care segments to make this much-needed change in caregiver compensation. In April, the Ontario government announced $1 billion in additional funding over the next three years to expand home care services. A portion of this funding was allocated to rate increases retroactive to April 1st, consisting of 3% for personal support services and 5% for nursing and allied health services. These increase helped to offset inflationary pressure on wages and benefits, higher overtime and travel costs, and increased recruiting activity in our home health care segments. This funding is an important investment by the government and will help us to drive the recovery needed in staffing across the sector to meet the growing demand for home healthcare. We look forward to future announcements on how the government intends to allocate the remainder of the new funding. With that, I'll turn it over to our CFO, David Bacon, to provide commentary on our consolidated and segmented financial results for the second quarter.