Dr. Michael Guerriere reports

EXTENDICARE ANNOUNCES 2023 FIRST QUARTER RESULTS

Extendicare Inc. has released its results for the three months ended March 31, 2023. Results are presented in Canadian dollars unless otherwise noted.

First quarter highlights:

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased $10.8-million to $31.0-million, primarily due to a higher recovery of COVID-19 costs of $3.6-million, prior-period long-term care (LTC) financing of $3.7-million, and growth in home health care volumes and managed services.
• COVID-19 funding support will be phased out in Ontario and Manitoba following a Q1 2023 recovery of $13.1-million for unfunded COVID-19 costs incurred in 2022; the company expects lower volatility in its financial results as COVID-19 outbreaks recede and Ontario increases funding for direct care hours effective April 1, 2023.
• Home health care volume growth continued, with Q1 average daily volume (ADV) of 26,043, an increase of 2.0 per cent from Q4 2022 and 6.1 per cent from Q1 2022.
• Average LTC occupancy improved by 60 basis points to 95.1 per cent from Q4 2022 and 430 basis points from Q1 2022 as incidence of COVID-19 in LTC homes decline.

Subsequent to the quarter-end, the company received approval to construct a new 256-bed LTC home in Peterborough, Ont., to replace a 172-bed Class C home in the same city. Construction is expected to commence in Q2 2023 and to be completed in Q4 2025.

"In the first quarter, we saw improvement in our financial results in all our operating segments, supported by a decline in COVID-19 rates, continuing growth in home health care volumes and improvement in LTC occupancy levels," said president and chief executive officer Dr. Michael Guerriere. "With signs that the pandemic is transitioning to endemic status and continuing vigilance in regard to infection control, we have been gradually returning to the vibrant social interaction that is so important to the quality of life of residents in our homes.

"We continue to work with the Ontario and Manitoba governments to secure regulatory approval for our strategic partnerships with Axium and Revera. We are advancing our comprehensive integration plan with the expectation that the transaction will close by the end of the third quarter of 2023. This will mark a key milestone in the transformation of our organization and enhance our ability to meet the increasing care needs of an aging population," Mr. Guerriere added.

Continued commitment to redevelopment in Ontario

Construction of the new Peterborough 256-bed LTC home is expected to begin in Q2 2023. Together with the Sudbury, Kingston and Stittsville projects, these four homes will replace 834 Class C LTC beds with 960 new beds at an estimated net investment of $281.1-million. Extendicare is targeting to break ground on a further three projects in 2023, with tendered construction costs and receipt of applicable regulatory approvals largely determining if and when they will proceed.

Extendicare continues to advance the balance of its redevelopment portfolio to be well positioned to make use of future capital financing that may be made available beyond August, 2023.

End of pandemic funding marks transition to endemic status

The government of Ontario ended COVID-19 prevention and containment funding at the end of Q1 2023, coincident with the phasing out of a number of prevention and containment measures that are no longer required. At the same time, the previously announced increase in direct hours of care funding effective April 1, 2023, will help support any continuing costs that may continue as the pandemic transitions to endemic status. Provincial funding for COVID-19 prevention and containment measures also ended on March 31, 2023, in Manitoba and is scheduled to end on June 30, 2023, in Alberta.

The timing mismatch between the incurrence of COVID-19 costs and their reimbursement continued to drive volatility in the company's financial results this quarter. Extendicare recognized $13.1-million in provincial COVID-19 prevention and containment funding related to spending in 2022, resulting in a net recovery of COVID-19 costs of $12.1-million in the quarter. In comparison with Q4 2022, Extendicare's COVID-19 funding increased by $9.5-million to $24.8-million and its estimated COVID-19 expenses declined by $11.1-million to $12.7-million as the company experienced a decline in outbreaks throughout the quarter, resulting in a $20.6-million sequential increase in its consolidated net operating income (NOI).

Since the beginning of the pandemic, Extendicare has received funding to cover approximately 95 per cent of its COVID-19-related costs, leaving a cumulative unfunded pandemic impact on its adjusted EBITDA from continuing operations of $19.3-million. Extendicare does not anticipate any further material recovery of its unfunded COVID-19 costs. With pandemic impacts waning, it expects the significant volatility it has seen in its financial results to subside as it enters Q2 2023.

Strategic transactions with Revera and Axium

Extendicare continues to advance through the regulatory approval processes in Ontario and Manitoba and anticipates its previously announced transactions with Revera and Axium to close by the end of Q3 2023. This will mark a key milestone in Extendicare's strategic transformation to position itself as a leader in the delivery of high-quality LTC and home care services while leveraging a more capital-efficient platform for growth. While regulatory approvals are still pending, Extendicare is developing a comprehensive integration plan to support a smooth transition. Total aggregate consideration to be paid on closing of these transactions remains at approximately $70.0-million, subject to customary adjustments.

Q1 2023 financial highlights (all comparisons with Q1 2022):

• Revenue increased 6.2 per cent or $19.0-million to $324.7-million, driven primarily by LTC flow-through funding increases, timing of spend under the flow-through care envelopes, year-over-year impact of prior-period LTC funding of $3.7-million, higher LTC occupancy, home health care average daily volume (ADV) growth of 6.1 per cent and billing rate increases, and growth from managed services, partially offset by lower COVID-19 funding of $25.9-million.
• NOI improved $11.6-million to $44.6-million, supported by a higher recovery of COVID-19 costs of $3.5-million, the benefit of prior-period LTC funding of $3.7-million, LTC funding increases and higher occupancy, higher home health care ADV and rate increases, and growth from managed services, partially offset by higher operating costs across all segments.
• Adjusted EBITDA improved by $10.8-million to $31.0-million, reflecting the improvement in NOI noted above, partially offset by higher administrative costs of $800,000.
• Other expense of $3.6-million was up $3.0-million, reflecting higher year-over-year strategic transformation costs related to the Revera and Axium transactions.
• Earnings from continuing operations of $11.6-million increased $7.6-million, driven by the after-tax impact of the improvement in adjusted EBITDA, and lower depreciation, amortization and net finance costs, partially offset by the increase in other expense.
• Adjusted funds from operations (AFFO) of $20.8-million (24 cents per basic share) were up from $12.5-million (14 cents per basic share), reflecting the improvement in earnings and the impact of the normal course issuer bid (NCIB) activity in 2022. Excluding the impact to AFFO of the net higher recovery of COVID-19 costs and prior-period LTC funding in Q1 2023, AFFO per basic share was up three cents from prior year.

Business updates

The attached table is a summary of Extendicare's revenue, NOI and NOI margins by business segment for the three months ended March 31, 2023, and March 31, 2022.

Long-term care

The average occupancy of Extendicare's LTC homes has continued to recover, improving to 95.1 per cent in Q1 2023, up 430 basis points from Q1 2022 and 60 basis points from Q4 2022.

NOI and NOI margin in Q1 2023 were $33.8-million and 16.3 per cent, respectively, up from $26.6-million and 13.3 per cent in Q1 2022. Excluding a higher net COVID-19 recovery of $1.3-million, NOI increased by $5.9-million, which included the benefit of prior-period funding adjustments of $3.7-million, funding enhancements and increased occupancy, partially offset by higher operating costs.

Ontario implemented a 2.4-per-cent blended funding increase for LTC providers on April 1, 2023, including a 2.0-per-cent increase to the non-flow-through accommodation envelope, which lags the inflationary impact on the costs funded through this envelope. In addition, flow-through envelope funding for ward-style beds no longer in service is being phased out between April 1, 2023, and April 1, 2025; however, 100 per cent of the accommodation envelope funding will be preserved through the phaseout period. Extendicare's Ontario LTC homes closed 185 ward-style beds, of which 84 will be reopened as private and semi-private rooms when the three redevelopment projects currently under construction open between Q3 2023 and Q1 2024. The net impact of these funding changes represents incremental annual revenue of approximately $4.0-million, of which $2.2-million is accommodation envelope funding.

Home health care

Q1 2023 ADV was 26,043, up 2.0 per cent from Q4 2022 and 6.1 per cent from Q1 2022.

ParaMed revenue was $107.4-million in Q1 2023, up 8.9 per cent from Q1 2022, driven by growth in ADV, billing rate increases and $6.5-million in funding to support wage enhancements, partially offset by reduced COVID-19 funding of $6.9-million.

NOI and NOI margin were $6.4-million and 6.0 per cent, respectively, in Q1 2023, compared with $2.7-million and 2.7 per cent in Q1 2022. Excluding a reduction in unfunded COVID-19 costs of $2.2-million, NOI improved by $1.5-million, reflecting higher volume and rate increases, partially offset by higher wages and benefits, travel costs, and technology costs, including increased costs associated with recruitment, retention and training to address continuing staff capacity challenges.

Managed services

Revenue increased by $2.4-million or 33.4 per cent to $9.7-million from Q1 2022, largely due to timing and mix of Assist consulting services and growth in SGP clients, contributing to a $700,000 increase in NOI to $4.4-million. The number of third party beds served by SGP increased to approximately 111,800 at the end of Q1 2023, up 13.1 per cent from Q1 2022 and 1.9 per cent from Q4 2022.

Financial position

Extendicare is well positioned with strong liquidity, which includes cash and cash equivalents on hand of $105.4-million and access to a further $77.0-million in undrawn demand credit facilities as at March 31, 2023.

In addition, Extendicare has undrawn construction financing in the aggregate of $106.7-million available for its continuing Stittsville, Sudbury and Kingston LTC redevelopment projects.

Normal course issuer bid

In June, 2022, Extendicare launched an NCIB and as at May 3, 2023, had purchased for cancellation 5,531,980 common shares at a cost of $38.4-million, representing a weighted average price per share of $6.94. The company did not purchase any common shares during Q1 2023 and acquired 520,800 common shares at a cost of $3.4-million subsequent to March 31, 2023. The NCIB provides Extendicare with the flexibility to purchase up to 7,829,630 common shares for cancellation until June 29, 2023. Decisions regarding the quantity and timing of purchases of common shares are based on market conditions, share price and the outlook for capital needs, which includes the impact of the announced strategic transactions with Revera and Axium.

Select financial information

The attached table is a summary of the company's consolidated financial information for the three months ended March 31, 2023, and March 31, 2022.

Extendicare's disclosure documents, including its management's discussion and analysis (MD&A), may be found on SEDAR under the company's issuer profile and on the company's website under the investors/financial reports section.

May dividend declared

The board of directors of Extendicare today declared a cash dividend of four cents per share for the month of May, 2023, which is payable on June 15, 2023, to shareholders of record at the close of business on May 31, 2023. This dividend is designated as an eligible dividend within the meaning of the Income Tax Act (Canada).

Conference call and webcast

On May 5, 2023, at 11:30 a.m. ET, Extendicare will hold a conference call to discuss its 2023 first quarter results. The call will be webcast live and archived on-line under the investors/events and presentations section. Alternatively, the call-in number is 1-800-319-4610 or 416-915-3239. A replay of the call will be available approximately two hours after completion of the live call until midnight on May 19, 2023. To access the rebroadcast, dial 1-800-319-6413 followed by the passcode 0056 followed by the pound key.

About Extendicare Inc.

Extendicare is a leading provider of care and services for seniors across Canada, operating under the Extendicare, ParaMed, Extendicare Assist and SGP Purchasing Partner Network brands. The company is committed to delivering quality care throughout the health continuum to meet the needs of a growing seniors population. It operates or provides contract services to a network of 103 long-term care homes and retirement communities (53 owned/50 contract services), provides approximately 9.3 million hours of home health care services annually, and provides group purchasing services to third parties representing approximately 111,800 beds across Canada. Extendicare proudly employs approximately 18,000 qualified, highly trained and dedicated individuals who are passionate about providing high-quality care and services to help people live better.

The attached table provides a reconciliation of AFFO, which includes discontinued operations, to net cash from (used in) operating activities, which the company believes is the most comparable GAAP (generally accepted accounting principles) measure to AFFO.

The attached table provides a reconciliation of earnings from continuing operations before income taxes to adjusted EBITDA and net operating income, which excludes discontinued operations.

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