Extendicare Inc.

Thank you for standing by. This is the conference operator. Welcome to Extendicare Inc. Second Quarter 2024 Analyst Conference Call. As a reminder, all participants are in listen-only mode. 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 for 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 Extended Care's 2024 Second Quarter Results Conference Call. With me today are Extended Care's President and CEO, Michael Greer, and Senior Vice President and CFO, David Bacon. Our T2 results were released yesterday and are available on our website. as is a live audio webcast of today's call, along with an accompanying slide presentation. An archive recording will also be available on our website following the call. As well, replay numbers and passcodes have been provided in a press release to access an archive recording of the call until August 30th. 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 measures, sorry, 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. Yesterday, we reported very strong second quarter results, highlighting the growth and earnings potential of all three of our operating segments. Each one contributed to significant growth in net operating income and margins. Our financial performance this quarter benefited from the confluence of four factors, that contribute to the potential of our operating platform. First, our investments in technology to create a scalable back office to support volume growth and margin expansion. Second, our transformative shift to a less capital intensive, higher margin business model focused on managed services through our JV with Axiom. Third is a strong demand for our services as we emerge from the pandemic, reinforced by underlying demographic trends. And finally, government funding increases that address cumulative cost inflation to restore home care and long-term care to their historical margin profiles. Consequently, revenue and operating margins were up substantially across the board. In long-term care, Q2 occupancy levels increased 60 basis points to 97.8%, marking the return to the historical levels required for full funding and underscoring the characteristic stability of this business. You can also see the impact of the catch-up long-term care rate increases in Ontario coming through. In home health care, our strong volume growth contributed to outpace demographic trends, with average daily volumes increasing 10.8% from the prior year. Rate increases and a highly scalable back office supported a return to double digit margins. Additionally, Easter landed in the first quarter in 2024, which reduced the cost of one paid holiday this quarter compared to Q2 last year. As our operations normalize following the pandemic, we are seeing the return of seasonal patterns. Historically, Q2 volumes tend to be strong, followed by seasonal softness in the summer months from vacations and closure of school-based home care programs. In our managed services segment, we also saw strong results, supported by the Riviera and Axiom transactions which closed last year. Extended care assist beds increased by 64% from the prior year period, and the number of third party and joint venture beds served by SGP increased by 22.1%, driven by both organic growth and the strategic transactions. As a result, both managed services revenue and NOI more than doubled in Q2 from the same period last year. NOI continues to be weighted toward our services segments, with managed services and home healthcare comprising 56% of consolidated NOI in the quarter. We expect the proportion of NOI coming from these segments to continue to increase as we execute on our strategy. Note also that 2024 rate increases for long-term care in the western provinces and home healthcare in Ontario have yet to be announced. These would be effective retroactively to April 1st, 2024, further offsetting cost inflation and enabling continued service expansion. Turning to slide four, each of our growth pillars contributes to improved results. Our services segments are growing organically, adding significant cash flow with minimal capital needs. On the redevelopment front, we have five homes under construction, with three more being ready to start construction later this year. We also improved the balance sheet in Q2, adding $25.4 million in liquidity from the sale of our 256-bed Orleans project into the Axiom JV, as well as completing the sale of the legacy C-bed home in Sudbury. following the opening of the new 256-bed countryside home in the joint venture at the end of Q1. Although our payout ratio in the quarter was 43%, our trailing 12-month payout ratio is 63% after removing one-time funding received over the past year. The adjusted trailing 12-month ratio is a better indication of the underlying cash generation potential of the business. Coupled with our strong liquidity and improved credit metrics, we are well positioned to execute on our growth agenda, including our redevelopment program in partnership with Axiom. Slide five provides more detail on our redevelopment progress. We are focused on opening our 192-bed Kingston home, and 256-bed Stittsville home, both held in the JV. Labor shortages experienced by the general contractors have delayed these openings into Q4. We anticipate the sale of the vacated Kingston C-bed home will close shortly thereafter for estimated proceeds of $3.8 million. Our partnership with Axiom allows us to recycle the capital generated from the sale of legacy C-class homes no longer in service to fund our 15% interest in new redevelopment projects that we pursue through the joint venture. During construction of the new homes in the JV, our managed services segment earns development fees, followed by management fees to operate the homes once they open. We currently have five homes under construction in Ontario in the joint ventures with Axiom, totaling 1,280 new beds, which will replace 1,121 Class C beds that will be decommissioned. In 2024, we're targeting to begin construction on three new projects comprised of 576 beds, replacing 382 C beds. These projects are in advanced planning stages and will proceed provided they meet the requisite financial conditions, including confirmation of final construction costs, interest rates, and applicable regulatory approvals. Work also continues to advance an additional 12 redevelopment projects that are in our planning pipeline for future years. At this point, I will turn it over to David Bacon to discuss our results in more detail.