Extendicare Inc.

Thank you for standing by. This is the conference operator. Welcome to Extendicare Inc. Second Quarter 2026 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 ask a question, 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 Gillian Fountain, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Extendicare's 2026 Second Quarter Results Conference Call. Joining me today are Extendicare's President and CEO, Michael Greer, and Executive Vice President, CFO, David Bacon. Our Q2 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 archived recording will also be available on our website following the call today. As well, replay numbers and passcodes have been provided in our press release for those wishing to access an archived recording by phone until midnight on August 21st. Before we get started, please be reminded that today's call may include forward-looking statements on non-GAAP and other financial measures. Such forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ maturely 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. Our second quarter results reflect the successful execution of our acquisition strategy over the last 18 months. On April 1st, we closed the $570 million acquisition of CBI, making Q2 the first period that CBI contributes to our results. The year-over-year increase in our EBITDA of 71.7% also reflects the acquisition of nine long-term care homes from Riviera that closed June 1, 2025, and Closing the Gap that closed July 1, 2025. All three acquisitions are exceeding the originally underwritten adjusted EBITDA that we reported at the time they were announced. reflecting our focus on acquiring platforms that contribute to our organic growth. Q2 also featured Extendicare's inaugural unsecured notes offering with the issuance of $450 million of unsecured notes supported by a BBB credit rating from DBRS. Together with a new $250 million unsecured senior credit facility, This new investment-grade capital structure gives us flexibility in making future capital allocation decisions, leaving our pro forma net debt to EBITDA at 2.5 times, well ahead of our original leverage outlook when we announced the largest acquisition in our history. We are on track to complete the integration of Closing the Gap this year, as we now focus our attention on integrating CBI. We achieved another strong quarter of organic growth in home health care, which, coupled with the acquisitions, contributed to 133% year-over-year growth in home health care volumes. Excluding CBI, our ADV increased 31.7% from the prior year, driven by the closing the gap acquisition and strong underlying growth of the market. As we've previously noted, the unexpectedly rapid organic growth we have experienced recently in the home healthcare segment has necessitated additional investments in technology and back office teams to support frontline home healthcare operations. These investments, along with the lack of a 2026 rate increase in Ontario, contributed to the 60 basis point reduction in home health care NOI margins from the prior year period. Despite the strong volume growth again this quarter, we continue to expect that the underlying market growth will moderate over time to a long run average of approximately 6% to 8% on an annualized basis, reflecting the 4% demographic growth trend and the expectation that the shortfall in the availability of long-term care beds will continue. Long-term care occupancy remains strong with announced funding enhancements and preferred occupancy rate increases contributing to NOI growth of $5.7 million and trailing 12-month NOI margins of 11.8%. Our managed services segment continues its record of strong performance. including 8.3% year-over-year growth in the SGP customer base and NOI margins at 57.6%. We continue to expect annualized margins of 50% to 55% for this segment. Driven by the strength of these results, our AFFO per share adjusted to remove the impact of stock-based compensation payments increased to $44.8 per share, an increase of 52.9% year-over-year. Stock-based compensation was unusually impactful this quarter due to the retirement of two long-tenured directors from our board. Our payout ratio on a trailing 12-month basis, excluding the impact of out-of-period items, was 37%. Turning to slide four, We see updated information on CBI home health as detailed in the business acquisition report we filed on May 12th. CBI is tracking ahead of initial expectations with Q2 26 revenue of $145.7 million and adjusted EBITDA of $18.5 million. CBI contributed ADV of $33,609 in the quarter. Approximating a run rate of 12 million hours of care annually, about 20% ahead of 2024 volumes, a very similar growth rate to what we experienced at Paramet in the same period. CBI is highly complementary to Paramet as it materially expands our presence in Western Canada and introduces business models that offer new avenues for organic growth. The added scale of the combined companies will enable further investments in technology and deliver significant synergies once the integration is complete. This is important to position us to provide reliable, high-quality services more efficiently to the thousands of people that rely on us for care every day. Turning to slide five, we continue to advance our Ontario long-term care redevelopment agenda through our joint venture with Axiom Infrastructure. At the end of May, we welcomed residents to Extendicare Beauclair, the new 320-bed home in Ottawa that we opened in the joint venture. We also completed the sale of the Sudbury project to Axiom Joint Venture for net cash proceeds of $18.1 million net of costs and our 15% retained managed interest. resulting in a $7.7 million gain after tax. We currently have six projects under construction, including Extendicare Forest Trail, a 256-bed home which is scheduled to open next month in Peterborough. Looking ahead, we remain on track to open four new homes in 2027, representing a further 832 beds. We continue to progress an additional 17 projects that are at varying stages of planning and development under the Ontario Long-Term Care Home Capital Development Program, including a 256-bed home in Ottawa, where we hope to break ground by the end of 2026. We are actively working with the government on necessary funding and other elements required to fully realize our development agenda. I'll now turn the call over to our CFO, David Bacon, to discuss our financial results in more detail.

Thanks, Michael. I'll start with an overview of our consolidated results, review our individual business segments and provide an update on the recent changes to our balance sheet. This quarter's results reflect the full quarter impact from all of our acquisitions. Our consolidated Q2 revenue increased by 59.4% to $611 million. driven by the full quarter contribution of the CBI acquisition, which drove 132.6% growth in our home health volumes, the impact of closing the gap acquisition on a year-over-year basis, and continued home health care organic growth. It was also bolstered by the acquisition of the nine LTC homes in June of 2025 and our long-term care funding enhancements. Our Q2 adjusted EBITDA was $68.3 million, an increase of $28.5 million or 71% over the prior year, reflecting our acquisitions and strong underlying organic growth, particularly in our home health segment. The CBI acquisition contributed adjusted EBITDA of $18.5 million. It's important to note this quarter that both our net earnings and our AFFO were negatively impacted by certain one-time items that we believe should be adjusted for when considering our results. Our Q2 net earnings of $30.9 million, down $1.1 million from the prior year, were impacted by pre-tax costs of $8.1 million in connection with establishing our senior unsecured credit structure and the early prepayment of certain long-term care home mortgages and loans. In addition, net earnings were further impacted by pre-tax costs of $8.7 million related to transaction and integration costs primarily related to the CBI acquisitions. Additionally, we reported $3.6 million lower pre-tax gains on the sale of assets to the joint venture on a year-over-year basis. Adjusting for these impacts and certain fair value impacts net of tax, our net earnings increased by $15.6 million to $36.4 million or $0.38 per basic share. Our Q2 AFFO improved by $11.7 million or 47% to $36.5 million However, this quarter's AFFO was impacted by the settlement of deferred share units held by two long-standing directors who retired in April, resulting in payroll cash withholding taxes of $8.7 million, or $6.4 million on an after-tax basis. When this is excluded, our Q2 AFFO increased by $18.1 million, or 73%, to $42.9 million, or AFFO per basic share of $44.8 cents and an increase of 52.9% from the prior year. Turning to our individual segments, our home health care continues to deliver strong performance driven by the acquisitions and continued organic growth. Our Q2 revenue increased by $201.7 million year-over-year, while NOI increased by $25.2 million or 117.8%. CBI contributed approximately $145.7 million in revenue and $19.5 million in NOI during the quarter. As Mike indicated, our NOI margins declined 60 basis points to 12.9%, largely due to the increased investment in back office to address recent and future growth and the absence of a 2026 rate increase in Ontario to offset labour cost inflation. Turning to our long-term care segment, revenue increased by $26.5 million, or 12.8%, driven primarily by the contribution of $18.8 million from the nine LTC homes acquired last June, net of the closure of the Carlingview Manor following the opening of the extended care Beauclair home in the joint venture in May. In addition, our LTC operations benefited from funding increases and improved preferred occupancy. Our NOI increased by $5.7 million, or 23.9%, driven by the increases in revenue and the net contribution of approximately $2.5 million in NOI from the nine LTC homes acquired. Q2 NOI margins increased 110 basis points over the prior year period to 12.7%. Our LTC-NOI margins are typically higher in the second and third quarters due to the timing of funding increases and spending under the envelope funding system and the timing of wage rate increases under our union agreements. For the trailing 12-month period ended June, our LTC-NOI margin, normalized for out-of-period items, was approximately 11.8%, which is more in line with our expectation that margins in LT will remain consistent with these levels in recent years. Turning to our managed services segment, the results were impacted by the loss of the Rivera management contracts during Q2 of last year, following Rivera's sale of 30 LTC homes, nine of which we acquired and are now included in our LTC segment. The number of management contract beds and extended care assists dropped 3.8% in Q2, as two third-party assist contracts were not renewed during the quarter. partially offset by the new 320-bed Beauclair home opening in the JV in May. As a result, our managed services revenue decreased by $0.6 million to $17.1 million. Despite this reduction, our NOI improved by $0.2 million to $9.9 million, primarily from 8.3% organic growth in SGP clients and our increased management fees from the newly opened home in the joint ventures. Turning to slide 11, we've significantly enhanced our balance sheet following the acquisition of CBI on April 1st. This quarter, we established our new unsecured credit structure, including our successful inaugural senior secured investment grade credit offering, where we issued $450 million senior unsecured notes priced at 4.345% on a five-year term maturing in April of 2031. Both the company and the notes received a BBB stable rating from Morningstar DVRS. In conjunction with the notes offering and the repayment of the senior secured delay draw term loan, we amended our senior secured facilities to establish a new $250 million unsecured credit facility. This new facility provides us with lower credit spreads than the previous secured facility and extended the maturity to a new three-year term ending in April of 2029. In addition, we completed a series of repayments on certain long-term care home-related mortgages and loans to address near-term maturities, floating rate interest, and higher cost debt. This reduces our borrowing costs, improves our maturity profile, and provides us with additional flexibility through lower mandatory payments associated with the mortgages and the term loan structures we retired. The result of these changes lowers our weighted average interest rate by 80 basis points to 4.4% and improves our weighted average term of maturity to 5.1 years. Lastly, turning to slide 12, with the full impact from acquisitions and our capital structure changes now reflected, we exit Q2 in a strong financial position with $208 million in overall liquidity. comprised of $93 million in cash on hand and $115 available on our unsecured revolving facility. Our pro forma debt to adjusted EBITDA is approximately 2.5 times a quarter end, reflecting the incremental debt in support of our recent acquisitions and the pro forma full year impact on adjusted EBITDA from CBI. This is well ahead of our original estimate of approximately 3.3 times post the CBI acquisition at the time we announced the transaction last year. We're very comfortable with leverage at this level and given our strong free cash flow profile and capital efficient redevelopment model, we have significant flexibility in considering future capital allocation decisions while maintaining our leverage commensurate with our new BBB stable rating. With that, I'll pass it back to Mike for his closing remarks.

Thank you, David. Our second quarter results reflect the strength of the platform we've built over the past number of years, including a home health care segment that has more than doubled in size. We continue to be very confident about the potential of our home care and long-term care platforms and our ability to expand access to care for the growing number of Canadians who depend on us. In the second half of 2026, We will be focused on disciplined execution. We will complete the integration of Closing the Gap, advance the integration of CBI, and continue to progress our redevelopment program. With five new homes opening in the next four quarters, all without losing sight of the quality imperative that is fundamental to the care we provide to thousands of people who rely on us every day. The demographic trends underpinning our business are relentless in driving demand for care. Our scale, technology platform, and the flexibility of our capital structure position us well to meet that demand. Canada's healthcare system is under significant strain, and our services allow us to ease pressure on hospital capacity by delivering care in the settings best suited to each person's needs at the most sustainable cost. We will keep building that capacity so more Canadians can access the care they need wherever they call home. My sincere thanks to our team members for their unwavering commitment to the residents, patients, and individuals we serve. And with that, we welcome any questions that you might have.

We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star and then 2. We will pause momentarily as callers join the queue. Our first question comes from Kyle McPhee with ACB Coremark. Please go ahead.

Hello, everyone. First one from me, just regarding your home health care margins, I understand the small move down first recent quarters as you go through a round of OpEx investments that support all the growth. Based on your investment needs that you would know, is there more transient margin pressure in your term or are you kind of back on and many others. And then also, is any of the off-packs investment you're making in anticipation of, you know, more home healthcare M&A that you're eyeing near and mid-term?

Yeah, thanks, Kyle. I'd say to address the last part of your question right away, you know, I think, you know, We have said, I think, in the last couple of quarters that we had been running quite hot on organic growth, as we all know. We had talked about the fact that that back office that supports the frontline operations, think of those as schedulers and coordinator supervisors, so not accountants and HR types, but the mid-office that supports the frontlines, a bit of a step function. from a cost perspective there. So we had grown quite significantly with that very rapid organic growth with largely an unchanged back office supporting that front line. So we have made investments. It's mostly people and the related technology costs that come with upsizing that back office. So we've been doing that over the last couple of quarters. I don't think it's not in anticipation of any future M&A. It's more to support where we're at from the recent growth and future growth. From a margin perspective, I think our view is unchanged. I think we've always felt that this margin, this business would run 50 to 100 basis points higher than where we were at when we first started talking about that. We were in the high 12s and we thought we could be into the up into the 13s. I think when that happened, part of it was a function of putting some additional investment in the back office, knowing how fast we were running on organic growth. And so I think there's not, what I'd say is we still believe that this is a higher margin business. The timing of when that 50 to 100 basis points will come in Thank you for joining us. The largest single cost for the business is labor, and we do feel that over time that always will even out from a rate increase perspective so that the businesses maintain an equilibrium with labor costs. So I think I wouldn't read too much into a 60 basis point decline year over year this one quarter. Our trailing 12 margins in the business are still above 13. and I think that we still, on a medium-term basis to longer-term basis, feel that there's margin expansion to come in this business, but I wouldn't get too focused on an individual quarter.

Yeah, got it. Is it fair to say the phase of the step-up in investment is done, though?

We've made quite a significant move on the head count. I'd say there's probably not another big step coming. I think it was happening ratably over the first half of this year, so maybe a little bit of normalizing that out. But I think, yes, for the most part, we've made a fairly large step up in the last six months in the size of the back office. So I don't expect that trend to continue.

And then just on your one-time costs, they were high in Q2, understandably, given you closed the CBI deal and that had costs associated with it. But one of the components of your one-time cost was integration, which I assume is reoccurring near term as you integrate CBI. You broke that out. It was $1.5 million of integration costs. Is that a good kind of run rate to expect over the next year or so as you integrate CBI, or will that step up or down?

No, I think, I mean, that might be, you know, I think we're looking at three to four million a year for the next couple of years. So the one and a half in the quarter, probably a tad high if you tried to annualize that. But, you know, it's not a bad, that'd be in that level of what we're looking at.

Okay, thank you. I'll pass it on.

And the next question comes from Jonathan Kelcher with TD Securities. Please go ahead.

Hi, thanks. Good morning. Just sticking on the home health care, what sort of rate increases do you typically get from the Ontario government? And are those like, has those been consistently annual and it's just delayed this year for whatever reason?

Jonathan, we tend to see, as David said, over the long term that it tracks labor cost inflation. So, you know, in our current environment, that's in the two, two and a half percent kind of range. The rate increases in home care in the different provinces don't happen like clockwork. It's not as... Thank you. Thank you. Yes, we've certainly seen one-time retroactive payments coming in the past. If you look into our past statements, you can see several examples of that.

Okay, and then just maybe a different way of asking about M&A in this space. You've now made these investments. to be able to grow or scale up. Ultimately, how much do the investments you just made let you scale?

Well, the technology platform that we've put in place gives us a lot of scalability. And that's the key element that really allows us to scale up. but to be candid, we modeled a few years ago when we were looking at this, we modeled on that 6% to 8% annual growth and we've exceeded that by a lot and hence the step function that David talked about that we needed to do. But we have been able to get quite significant growth annual productivity improvements in our back office because of the technology that we are continuing to introduce. AI is giving us a lot of flexibility now as well in terms of introducing increased tools for our staff to be able to become more efficient. So we see that efficiency trend continuing, but that's been able to absorb volume growth, you know, 10, even 15% annually in the past without increasing the headcount in the back office. But when we started getting into the high teens and even up, you know, up to 20%, that was just exceeding our ability to accommodate that based purely on efficiency gains. And so hence the step function headcount that we added. in the first couple of quarters of this year. But we expect that ability to continue to improve our back office productivity to extend into the future.

Okay, that's helpful. Thanks. I'll turn it back.

And the next question comes from Lauren Calmar with Desjardins. Please go ahead.

Thanks. Good afternoon, I guess now. Just back to the billing rate increases. Has there ever been an instance where you haven't gotten one at all during a year and then you have a big patch of the next year? Are you still expecting to see something either this quarter or next?

Yeah, Lauren, I think if you go back far enough, especially coming out of COVID, you would have seen examples both in LTC and home care where you know inflation ran quite hot emerging out of COVID and you there were years where we got you know a catch-up of in in home care 6.7 percent one year and then three you know four percent the next we got an 11 roughly increased to catch up so there's been quite a bit of volatility uh uh with that um but you know i think that you know it's Pre-COVID, LTC was quite regular, as Mike alluded to, like an inflationary increase every year around the same time. We're feeling like we're back to that in LTC over the last couple of years. Home care has always been a little bit more sporadic in terms of when they do the announcements, even a bit before COVID. Yes, there's conceivably a period of time where you'll have a gap where the increase doesn't come when you want it. But again, over time, we do feel that a long-term basis, it takes care of itself. It finds that equilibrium, whether it's through a bigger catch-up versus a regular. So you would see that pattern if you went back far enough.

Yeah, I was just trying to get at, like, have you ever had a year where they have given you, like, they just haven't announced an increase for home health and then done a big catch-up versus doing one that's, you know, maybe below where inflation actually came in and doing a catch-up? Just trying to get an idea from a modeling standpoint and I guess an outlook standpoint what to expect in terms of top line for the home health business.

Yeah, we have, it's a bit of a hard question to answer because they make the announcements at different times. So sometimes we've had announcements in November. Sometimes we've had announcements earlier in the year. So I guess I would say yes is the answer to the question, but then we've always seen a catch-up of some sort when that happens.

Got to love the government. Okay, and then... Flipping over to the LPC redevelopments, obviously have a big tranche that's expected to be completed by 2Q27, and you mentioned the Ottawa one you're working towards. Do you expect to announce more developments in the coming quarters to kind of keep that cadence in that five to seven project range or not?

Yeah, I think we're definitely advancing... Projects in the 17. As you mentioned, we're aiming to start another one by the end of this year. We're tracking, as we've said in the past, looking to start at least three a year on average. I'd expect more starts towards the back half of next year, just based on our current cadence on moving through the development cycle on a few more of the near-term projects. So we still have that target of trying to have three to four started per year.

Okay, perfect. Thank you so much.

And the next question comes from Tanya Armstrong with Canaccord Genuity. Please go ahead.

Hi, good morning, guys. A couple for you. So on... Now that it's closed and you've completed the investment grade refinancing, how should we think about your appetite for additional home health care acquisitions versus focusing on that integration over the next couple of years?

Well, at this point, the integration is front and center in our focus. And, you know, certainly for the rest of 2026 will be a key focal point. I think it's going to take us some time to integrate this and we want to make sure that we do that well. That said, our balance sheet gives us the flexibility to be opportunistic so we'll certainly evaluate things that may come to our attention but I would say that likelihood is that You know, further acquisition activity wouldn't be likely until later next year at the earliest. But never say never. I mean, I think if something fit really well with our strategy and came to our attention, we would consider it.

Okay, excellent. And now that you've had CDI under the umbrella for a full quarter, Can you just give us a little bit more detail, I guess, on where you are in the integration process, what's been completed, what are the next steps, and whether you're seeing opportunities for revenue or cost synergies beyond what you originally underwrote?

Yeah, I'd say it's still early days. We are at a quarter in. Most of our focus at the moment is on the CBI side of things is planning for, there are a couple of elements of that transaction where there's still some transitional services, a couple of our application platforms where we need to separate. So our focus is trying to move off of any transition support, which we think is targeted for The start of next year. Behind the scenes, there's a significant amount of work going on now going through analyzing and breaking down their business region by region, office by office, as we've talked about in the past and what we're doing with CTG. We don't do a big bang cutover. We move things in a very methodical way, piece by piece. So ahead of those integrations, you have to understand the nature of the workforce in those particular geographies, how the union versus non-union grids might stack up, harmonizing wages and benefits, etc., So a lot of planning for that. It is eight, nine times the size of CTG, and it's got some nuances with the SCS business and some other geographies that we need to work through. So the real focus now is all of the planning for that. The better you plan up front, and we've learned this through lots of examples. The more planning you do up front on the harmonization and the communications plans, the better the cutovers go, and the immediate focus will be on just weaning ourselves off the last couple of pieces of transitional services is the focus. Some of this team is doing double duty on CTG and CBI, but we are on track to finish the CTG work by the end of the year. and that same team gets freed up to then turn their minds to the very methodical process of cutting over the business sort of geography by geography, which will take us some time. And then the second part of your question, any different view of revenue or cost synergies I'd say at this point, there was never really a revenue synergy and many more.

Thank you.

And the next question comes from Juliana Thornhill with National Bank. Please go ahead.

Hey, guys. Good afternoon, everyone. I just wanted to go to the funding announcement that recently happened, the collectively $2.2 billion. I know you haven't received details on how that's being allocated, but in prior episodes, how was that? Like, with that being earmarked for operators, I'm just a bit surprised that there was no rate increase this year or thus far.

I think you're talking about the two $1.1 billion announcements that the Ontario government made for home care?

That's correct.

Yes. So those were predominantly directed at volume. And so that really is what's making these very rapid organic volume increases possible. And their decisions about rates are handled through a different process. We'll see what happens now in the fall economic statement, but the pace of growth continues to be quite fast. And so we're anticipating that they'll continue to be making these investments, but it's impossible to tell at what pace until the announcement comes out.

Right. And then is the industry growing at similar rates as yourselves right now, like that mid-teens or so area? Or are you anticipating that you're taking share from competitors?

No, I think the whole sector is increasing at this pace. I mean, one of the things that we observed in our management discussion was the fact that the The CBI volume growth pace and the Paramed volume growth pace have been very similar. Despite the fact they've had a little bit of a different kind of mix of services and a little bit of a different geographic distribution, remarkably similar growth patterns. So it does appear to be a sector-wide expansion as opposed to us gaining share from other operators.

I'm just kind of curious as to why you're thinking it reverts down to kind of 6% to 8%. Is that like a low base, do you think, relative if this ALC issue kind of persists and there's more funding? I know what the demographics are for, but I'm just kind of trying to determine where that range could trend if the issues persist as they are.

Well, I think the first thing to say about this is that we're using our best knowledge of the industry to guess at what may be ahead. It's really very difficult to project how this may go because a lot of the demand for services is hidden. It's not easy to Quantify it. But that said, I think it's unlikely that a service line in healthcare will outgrow kind of the expansion in demographics for an extended period of time. So that's why we're looking at it and saying, you know, the 4% growth in the demographic that we serve which is, you know, kind of an ironclad projection. And then the fact that long-term care bed additions are not going to keep pace at that kind of rate and means that, you know, that 6% to 8% is where we think that it's going to settle. So, you know, where's the rest of the growth coming from? Well, it must be coming from you know, unmet needs and the backlog that is based on the 50,000-person wait list for long-term care in the province and the ALC in acute care hospitals, which we have been seeing declining, you know, for the first time in my experience. So we do see some evidence that that Backlog, which is difficult to quantify, is dropping. So how long it'll take before it goes back down to the numbers that we're suggesting, we really can't say. Thank you, Mike.

And the next question comes from Tammy Burr with RBC. Please go ahead.

Thanks. Hi, everyone. I just wanted to come back to the investments in the back office and the technology side in Paramed. Were any of those perhaps costs unanticipated or maybe even just brought forward just to sort of get it all done as you focus on the integration CBI?

Yeah, I wouldn't say unanticipated. I think we, you know, I think... You know, we have this large group that we've talked about in the past that supports the frontline. It largely stayed the same size through 24-25 with multi, you know, high teen digit organic growth, which proved out sort of, you know, the technology and support. You know, we were able to absorb a lot of that growth. I think, as we've been saying the last couple of quarters, We need to bolster the size of that team and the resources there. I wouldn't say it was unexpected. I think we've been talking about needing to do that given the sustained level of organic growth. It scales with the size of our frontline teams and the level of activity and the referral activity scheduling activity so so it's mostly people supporting that that level of growth so I wasn't necessarily looking ahead to CBI CBI has their own folks in their back office as well and you know that's where some of the opportunities will come when we bring everybody together and you know longer term there's as we've spoken about in the past, there's definitely future opportunities when we're all on one platform to bring further technology into play and looking at AI, et cetera, for the functions that that back office does. So it's really just trying to get back to an equilibrium in that group so that we're servicing and supporting the front lines appropriately given Just the volume of activity that we're asking those frontline teams to take on.

Got it. And then just, not to keep beating on this, but the Ontario, the absence of the Ontario billing rate increases. Are there any discussions at the moment underway with, you know, by the industry, with the ministry in Ontario that would suggest that it's really just a matter of time?

So there are constant communications back and forth, in particular where the industry shares the labor costs, inflation, what we're seeing in the labor market, what we're seeing in terms of costs. So the government has complete information to make their decisions. But we generally do not get much forewarning about their thinking until the announcement comes out. So we don't really have any visibility to when a rate increase might come, but that's not unusual.

Okay. And then just on CVI, on the integration that you've been working on to date, have there been any surprises at all or any pain points that might maybe shift your view as to the anticipated accretion on this transaction?

Not at all, actually. If there's been any surprises, it's been on the quality of the team there. They've been an outstanding group. I'm very, very excited about just the level of energy as the two teams come together. We're seeing a lot of opportunities, and I think the groups are working well together. So as David said, we still are very confident about the synergies that we projected, and we quantified 7.4 million of synergies that we could readily see, but then we also speculated about further synergies farther out based on The common technology platform and some of the new capabilities that we are pursuing with our vendors. So we're very positive about the way that that's unfolding.

Okay. And then just on that point, in terms of that standpoint for me, can you just remind us what the sort of timeline was for that to get, I guess, to get realized?

Well, we don't feel that those will be fully realized until we complete the integration. And, you know, we said it was going to take 18 to 24 months to do the integration. We don't have any further refinement of that projection at this point. Got it. Thanks very much. I'll turn it back to Michael.

and the next question comes from Tal Woolley with CIBC. Please go ahead.

Hi, good morning. Just in early days, any hitches serving customers as you've integrated the businesses thus far?

No, I think the strategy that David described where we do it kind of region by region rather than a big bang allows us to mitigate any hiccups that may occur along the way. The closing the gap integration has been quite seamless from a customer perspective. So we're quite happy with the way that that's going. And that's allowed us to develop a really solid playbook for how to do this as we move to the CBI and many more segments. So that's been going quite well.

And no staff communication issues or anything like that? I guess what I'm trying to get at is that service to the customer and the labor team is functioning well, in your opinion.

Yes, we haven't seen any increase in quality issues or anything of that sort. From a staff perspective, our turnover has been dropping over the last few quarters. So retention is improved. So if we were seeing an exodus of staff from our acquisitions, that might be a concern. But in fact, we've been seeing the opposite trend. So there's every indication that this is coming together well.

Okay, and then just with respect to provincial funding, like I guess at this point, like as we're seeing demand surge for the product, like is the bigger worry right now, you know, to get the province to commit more of like a higher share of its operating budget to home health care or the rates?

So I would not describe it as a concern at all. I mean, there's a few fundamentals at work here. The first is to remember that we're the lowest cost provider of services to this particular demographic surge. So if the government made a decision not to fund the services that we're providing or not to expand those services, then all of that need would back up into hospitals, which are the most expensive place to provide those services. So I think we have a dynamic in the market that supports continued expansion of the services to meet that constant demographic need. As we've talked about, there can be shorter-term considerations that might interrupt the cadence of those rate increases or volume increases, but we believe that over time those long-run averages are going to prove out the two, you know, the two thesis points that our whole business model is built on, which is, you know, that six to 8% annual growth in volumes and rate increases that track labor costs. So we don't see any indication that that won't continue to be the dynamic that drives the market.

Okay, that's helpful. David, you're still carrying about $95 million, I think, on the balance sheet in cash. I think since Extendicare sold the retirement business, the cash balance on your balance sheet has been pretty elevated. Just wondering, is that the number you need to be carrying going forward?

No. The quick answer is no, I think. The short-term answer is we've just taken on CBI. We want to get a sense of how that factors into the needs and the timing of working cap swings, get used to some of the new cash flow patterns on the SCS business, which are a little different than what happens on home care and long-term care. So I do suspect you'll see... you know us carrying lower balances and and you know in the immediate term given the flexibility and we have now with the new structure we would we redirect some of that to the to the revolver pay down so um but no I don't I don't uh um I think that's just where we we ended up but I do think over the next quarter or so is and towards the year end you'll probably see that balance lower uh and you know an obvious place to direct that cash would be to just pay down the revolver draws in the meantime, which would, you know, deliver us a little bit further.

Perfect. And can you talk about just the FDF business? Can you just maybe give a little bit of a broader explanation of what that involves, how big a piece it is of the combined puzzle and how it might grow going forward?

Yeah, SCS was about 20% of the CVI operation. And the business model there is residential homes that are leased and housed typically three to five residents with long-term needs. and currently there's just under 100 of these leased homes in operation and the services are provided by the home care team. So at this point, the pace of growth in that group is is something that we're becoming more familiar with. So I don't have a number at this point to suggest, but given what we're seeing in long-term care and the long-term care waiting lists, we feel that a number of people on those waiting lists could be served by this different business model. and the volume that we're currently serving is predominantly western provinces. There's very little in Ontario and provinces east. And so we see potentially quite significant growth opportunities in that segment. But as to what those trend lines might look like, I think it's just too early for us to hazard a guess.

Yeah. Got it. And then I guess just lastly, like, you know, when we're talking about the stock with clients, like if I'm talking to a real estate client, we'll talk about FFO and FFO. If I'm talking to someone else, probably talking about EBITDA and EPS. Where ultimately would you like the market to sort of train its eye when, you know, we're looking at quarters and, you know, are you thinking longer term about how to sort of present your results to the market because obviously this has been a company in transition for the last several years.

Yeah, it's a great question, Tal. We spend a lot of time talking about it. We have been in transition, but I think we feel now we're past that. We have a view now of Our business model and strategy, which is an asset-light based focused on growing the services side and advancing redevelopment in a capital-light model. With the CBI deal now in there, we're two-thirds of our NOIs coming from services businesses, and we expect that to grow. Even if we do nothing else other than redevelop the 17 homes, that's going to push more into managed services on the services side. I think what you'll see, we are thinking about evolving our view and focus. I would say absolutely moving away from AFFO over time is something that we likely will do. There's a lot of We've seen that even this quarter with the DSU treatment. Whether FFO is the right cash flow measure or something that's less real estate looking, but quite frankly, at the FFO level, it's not dissimilar to other free cash flow measures where you could factor in EBITDA less. you know interest in capex needs etc. For us you know the capex is more maintenance related as the big growth capex so you know those those are more transient because we're doing the growth big growth capex through the JV off balance sheet. So I do think over time we're going to try and hopefully you know you know tell the story with a focus on EBITDA and a focus on A cash flow measure that doesn't have some of the volatility variability that comes into play is probably more of a focus for us going forward. But we're also, you know, we're in an in-between. So we've grown our analyst coverage over the last year, as everybody knows, and we've got some new folks that are covering us that aren't sort of coming from the REIT side, and we have, you know, folks like yourselves that are evolving their thinking about us together. I do think EBITDA and a cash flow measure that's not AFFO that eliminates some of that noise that I think is a problem and hopefully try and bring everybody to focus on Consensus numbers that are everybody looking at the same number. We do have a bit of variety out there, which I think sometimes causes some of the disconnect because people are focused on different things. But that's, I think, where we're going, Tal, and you'll start to see us give more prominence to those measures, certainly next year for sure, as we start thinking about some of that for 2017.

Okay, that's great. Thanks for the feedback, David. Cheers. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks.

Thank you, operator. That concludes our call for today. This presentation is available on our website, along with a link to a replay of the call. Thank you all for joining us, and please don't hesitate to reach out if you have any further questions. Goodbye.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.