Extendicare Inc.

This is the conference operator. Welcome to Extendicare, Inc. Second Quarter 2023 Analyst 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, then 0. 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 Extendicare's second quarter 2023 results conference call. With me today are Extendicare's President and CEO, Michael Greer, and our Senior Vice President and CFO, David Bacon. Our key two 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 25th. The replay numbers and passcodes have been provided in our press release, and an archived recording of this call will also be made 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. Q2 put more distance between us and the pandemic. There was steady improvement in our operating metrics as we gradually returned to more normal operations. Revenue increased in each of our business segments, driven by funding enhancements and increased volumes in pyramid. As COVID outbreaks declined throughout the quarter, average occupancy in our long-term care homes improved 60 basis points from Q1 to 97.2%. up 470 basis points from the same quarter last year. This is approaching pre-pandemic levels. We continue to wind down the elevated staffing levels that were needed during the pandemic in our long-term care operations, as COVID-19 funding supports have been withdrawn and related operational requirements have been relaxed. Our cost structure remains elevated as we work to reduce the use of higher cost agency staff and adjust staffing levels to align with the new direct care models introduced by the provinces. These factors put pressure on our long-term care margins in the quarter. We are also experiencing inflationary pressures only partially offset by rate increases. We continue to work with the government and sector partners to address the gap in funding in an effort to return long-term care margins to historical levels. Our home health care segment continues to gain traction with its third consecutive quarter of volume growth, demonstrating strong demand for services and increased success in attracting and retaining care staff. Average daily volumes increased 4.1% from the previous quarter, up 7.7% from the same period last year. We expect strong demand for services to continue, supported by the underlying demographic trends. Concurrently, home care operating margins are recovering thanks to our scalable, technology-enabled back office and rate increases from the government. Note that we expect pre-pandemic seasonality in our service volumes to return. This typically includes a small drop in volumes in the third quarter. At summer vacations, temporarily reduced delivery capacity and certain client programs are suspended. Finally, in our managed services segment, we continue to experience strong growth in our SGP customer base this quarter, which increased 3.3% from Q1, up 12.9% from the prior year period. David will comment in a few minutes on how we have redefined the key performance indicators for our managed services segment and updated them to reflect significant changes in our customer base that occurred subsequent to quarter end. The revised definitions better reflect the range of services we provide to our clients as we increase our strategic focus on this segment. Subsequent to the end of the quarter, we received regulatory approval for our Revera and Axiom transactions. Together, these transactions mark a significant milestone in Extendicare's strategic repositioning to focus on growth in our long-term care and home healthcare segments using a less capital-intensive, higher-margin business model. The Revera transactions closed on August 1st, adding 56 long-term care homes and approximately 7,000 beds to our higher margin managed services portfolio. As well, we acquired Rivera's 15% interest in a joint venture partnership with Axiom that holds 25 of those homes. The aggregate consideration net of holdbacks totaled 69.7 million, in line with our prior announcements. The transaction brings together two of the most experienced seniors care teams in canada and leverages our combined scale and expertise to drive improved performance and advance the delivery of high quality care for canadian seniors as we move forward these transactions position us to be a driving force in building more and better homes to care for the needs of those seniors who can no longer live independently included in the revera transaction is the right to acquire, either alone or with Axiom, any seabed homes that are redeveloped by Rivera, giving us the ability to further scale the joint venture. An integration program to bring the two businesses together is now underway. It involves bringing the operation to the 56 homes and over 9,000 staff into alignment with the extended care network. We expect the full integration of the Rivera Homes will be complete by the end of 2024, with estimated strategic transformation costs of $14 to $16 million to be incurred over the next six quarters. The recurring fees earned from managing both the Rivera Homes and the homes held in the Axiom Joint Venture, together with the increased SGP revenues from serving an incremental 7,000 beds, will be reflected in our managed services revenue. Subsequent to quarter end, we also received government approvals to form a new joint venture with Axiom in respect of our own redevelopment projects, in which Axiom will own an 85% interest with extended care, retaining a 15% managed interest. We have amended the purchase and sale agreement with Axiom to include our 256-bed Peterborough long-term care home that commenced construction in May. We anticipate closing the Axiom transaction in the third quarter, subject to customary closing conditions, transferring the four redevelopment projects we currently have under construction into the joint venture. This partnership with Axiom provides us with the foundation for a more capital-efficient business model for the redevelopment of our own C-class homes. We will continue to undertake all development activities in respect of these homes and earn development fees from the joint venture for managing construction. While legacy seabed home revenue and NOI will be eliminated from our long-term care segment as the old seabed homes are replaced, we will provide managed services to the JV to operate the homes upon completion of construction. resulting in recurring management fees. We will also retain a 15% interest in the earnings of the homes within the JV and have options to monetize the decommissioned buildings after the C homes close. Our intention is to utilize the joint venture partnership to provide the capital needed to drive growth in our managed services segment through development projects and opportunistic acquisitions. Moving to slide five, during the second quarter, we broke ground on our new 256-bed home in Peterborough. This home will replace our existing 172-bed Class C home in that community and marks the fourth project currently under construction. Together with our projects in Sudbury, Kingston, and Stittsville, these four homes comprise 960 new long-term care beds, replacing 834 Class C bids. These four projects will be acquired, as I just mentioned, by the joint venture with Axiom when that transaction closes. We are targeting commencement of an additional project under the time-limited enhanced capital funding supplement, which we anticipate vending into the Axiom joint venture later this year. The current funding program set by the Ontario government will expire at the end of August, and while no extension has been announced, we continue to advance the balance of our redevelopment portfolio in anticipation of future funding programs. Standard construction costs and applicable regulatory approvals will be pivotal in determining whether and when our other projects might proceed. The need for more long-term care capacity in Ontario and across Canada is driven by demographic trends. We will continue to advance redevelopment of our remaining 16 projects in anticipation of capital funding that may be made available in the future. With that, I'll turn it over to our CFO David Bacon to discuss our first quarter results in more detail.