Extendicare Inc.

Thank you for standing by. This is the conference operator. Welcome to Extendicare, Inc.' 's fourth 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 zero. 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 2023 Fourth Quarter and Year-End Results Conference Call. With me today are Extended Care's President and CEO, Michael Greer, and our Senior Vice President and CFO, David Bacon. Q4 results were released yesterday and are available on our website. The live audio webcast of today's call is available on our website, along with an accompanying slide presentation, and an archived recording will also be available on the site following today's call. As well, weekly numbers and passcodes for this call have been provided in our press release to access an archived recording until March 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 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 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, Gillian, and good morning. I'll begin my remarks today with a few words about a significant milestone in the history of Extendicare. Last month, we celebrated 50 years of trading on the Toronto Stock Exchange by ringing the opening bell. It was a moment of great pride and an opportunity to reflect on our legacy and to look forward with optimism to the future. It was also a wonderful opportunity to recognize the achievements of our team and their commitment to our shared mission of helping people with better. Their commitment is exemplified in our fourth quarter results. They reflect the various strategic initiatives we've taken in recent years to transform extended care into a growth platform that addresses the care needs of the aging demographic. 2023 was truly a transformational year. In our results, you can see a number of significant trends. Robot growth in our home healthcare volumes with a double-digit increase over Q4 last year. Continued growth in our SGP client base. Another step in the recovery of the long-term care segment with occupancy returning to pre-pandemic levels. And significant progress in our redevelopment program. These developments, along with the full quarter impact of the Riviera acquisition, resulted in strong financial results across all of our operating segments. Long-term care occupancy returned to historical levels, coming in at 97.8%, 330 basis points higher than Q4 last year and above the threshold for full funding at the home level. We continue to show margin improvement in long-term care segment from a combination of occupancy recovery, lower use of agency staff, and moderating inflation. We believe there's further opportunity for margin improvement as the funding gap that opened up in recent years due to funding increases lagging inflation has been the subject of discussions with government and sector partners. We are hopeful that this will be addressed to some degree in the Ontario government budget to come later this month. On the home healthcare front, we see continuing strength. This segment continues to benefit from strong demand, delivering its fifth consecutive quarter of volume growth. Average daily volumes in Q4 increased by 2.8% from the prior quarter, and we're up 10.2% from the prior year. As service volumes continue to expand, we benefit from a scalable back office and improvements in our recruiting, training, and retention programs to increase capacity. This operating leverage combined with strong demand for our services and government rate increases drove another year-over-year increase in our operating margin. In the quarter, the Government of Ontario announced a further 6.7% rate increase for the home healthcare sector, retroactive to April 1, 2023, on top of the 3% announced earlier in the year. This new funding will enable compensation increases and investments in training and technology to expand the available workforce and support the delivery of home healthcare services. We are very grateful for this boost to the home care sector and will leverage this funding to drive further growth. We delivered nearly 10 million hours of home care in 2023, and we expect this figure to grow as home care is critical to ensure the sustainability of the healthcare system. We are positioned to outpace the 4% demographic growth in the short and medium term as we continue to expand to address the care backlog that opened up during the pandemic. Looking at our managed services segment, we reported Q4 revenue and net operating income almost double that of the prior year period. This was the first complete quarter where we see the impact of the Riviera and Axiom transactions, which added 7,000 beds to our assist and SGP operations. SGP also broadened its market reach organically, increasing third-party and joint venture bets served by another 5.6% from Q3, up 24.1% from the prior year. Turning to slide four, 2023 marked a significant milestone in Extendicare's repositioning. with the completion of our strategic transactions that started with the sale of our retirement operations in 2022 and culminated in the closing of the Revere and Axiom transactions in Q3 of 23. These transactions established a foundation that we will use to drive growth and value creation using a less capital intensive higher margin business model. We are focused on expanding managed services, building new long-term care homes in partnership with Axiom, and growing home healthcare services. Several elements of this strategy came into focus in the quarter. Q4 is the first time we see the full financial impact of the Rivera and Axiom transactions, adding approximately $3 million in incremental NOI to our managed services segments. Our joint ventures with Axiom underpin our redevelopment program, evidenced by the acquisition of a 320-bed long-term care redevelopment project in the Ottawa region through our Axiom JV, where we have a 15% managed interest. This was the first project we acquired under our right to purchase, either alone or with Axiom, any Revera redevelopment project that advances to construction. Subsequent to year-end, we entered into a purchase and sale agreement to sell our fifth redevelopment project into the Axiom JV, a 256-bed long-term care home currently under construction in the Ottawa area. The transaction is subject to customary closing conditions, including regulatory approval, and we expect it to close in the second quarter. We also entered into separate agreements to sell the land and buildings associated with the soon to be shuttered Sudbury and Kingston seabed homes for estimated aggregate net proceeds after tax and closing costs $8.5 million. These legacy homes are scheduled to cease operations when the corresponding redevelopment projects in the Axiom JV open later this year. The ability to sell the legacy seahome properties once they are replaced by joint venture redevelopment projects provides us with added liquidity and increased flexibility in considering our capital allocation priorities. Such transactions, along with the proceeds from the 2022 sale of our retirement operations, enabled us to return $46.1 million to shareholders under our NCIB since 2022 while still maintaining a strong liquidity position and improving our payout ratio. Our strong balance sheet, low debt ratios, increasing cash flows from operations, and partnership with Axiom give us lots of optionality as we seek to drive growth and shareholder returns. Moving to the next slide. we continue to advance our redevelopment program with two new homes commencing construction in the quarter, both of which benefited from the supplemental capital funding subsidy that expired in August 2023. As I mentioned earlier, our Axiom JV acquired its first project from Revera during the quarter. Revera is responsible for development and construction And Extendicare will manage the 320-bed home when it opens in Q2 26, replacing a nearby 303-bed home currently also managed by Extendicare. Additionally, in the quarter, we commenced construction on another 256-bed home in Ottawa, which will replace a 240-bed home nearby. This project is expected to be sold into the Axiom JV in the second quarter. Together with the four homes already under construction in Sudbury, Kingston, Stittsville, and Peterborough, these six projects will replace 1,377 Class C beds with 1,536 new beds. We are on track to open three of these homes in 2024, with our 256-bed Sudbury project being the first to open later this month. We continue to advance the balance of our redevelopment projects to be ready to participate in any future enhancements to the capital funding program in Ontario. We are hopeful funding will enable up to four new projects to begin construction in 2024. Construction costs, interest rates, and applicable regulatory approvals will be pivotal in determining whether and when our other projects might meet the financial conditions necessary to proceed. At this point, I will turn it over to David Bacon to discuss our results in more detail.