Dr. Michael Guerriere reports

EXTENDICARE ANNOUNCES 2023 THIRD QUARTER RESULTS

Extendicare Inc. today released its results for the three and nine months ended Sept. 30, 2023. Results are presented in Canadian dollars unless otherwise noted.

Third quarter highlights

• Home health care volume growth continued, with Q3 average daily volume (ADV) of 27,378, an increase of 1.0 per cent from Q2 2023 and 9.3 per cent from Q3 2022.
• Long-term care (LTC) occupancy continued steady recovery, improving to 97.8 per cent, an increase of 60 bps (basis points) from Q2 2023 and 430 bps from Q3 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased $10.7-million to $20.8-million, reflecting growth in home health care ADV, rate increases, moderation in LTC costs, higher occupancy and growth in managed services, partially offset by higher administrative costs.
• The Revera transactions closed, adding 56 LTC homes and approximately 7,000 beds to the managed services portfolio, 25 of which were acquired through a 15-per-cent managed interest in a limited partnership joint venture with Axium LTC LP.
• The sale of four redevelopment projects into a limited partnership joint venture with Axium closed, with Extendicare retaining a 15-per-cent managed interest, establishing the joint venture to support the redevelopment of Extendicare's Class C homes.

Subsequent to Q3

• Extendicare commenced construction in October on a new 256-bed LTC home to replace a 240-bed Class C home in Ottawa. It is currently anticipated that the redevelopment project will be sold to Axium JV (joint venture).

"Closing our transactions with Axium and Revera marks a major milestone in our strategic transformation," said Dr. Michael Guerriere, president and chief executive officer. "The trend of positive sequential growth we are seeing across our operating segments confirms the compelling market opportunity emanating from the growing demand for seniors' care. The new construction project is the first of many being pursued, and demonstrates the organic growth potential of our pipeline of redevelopment opportunities and our commitment to move quickly to pursue them in partnership with Axium."

Completed strategic transactions with Revera and Axium

The company closed the previously announced Axium transaction on Sept. 13, 2023, selling four Class C redevelopment projects comprising an aggregate of 960 LTC beds currently under construction to Axium Extendicare LTC LP (Axium JV), a limited partnership joint venture with Axium, with Extendicare retaining a 15-per-cent managed interest. The aggregate purchase price, net of Extendicare's 15-per-cent retained interest, was $147.3-million, comprising cash proceeds of $59.0-million, the assumption of debt of $72.3-million ,and certain other liabilities and construction related holdbacks, net of taxes and certain closing costs. The net book value of the property and equipment related to the four projects was $135.8-million, resulting in a gain, net of taxes, certain closing costs and other costs of $8.7-million. The company will continue to undertake all development activities in respect of these joint venture homes and will provide managed services to operate the homes upon completion of construction.

Additionally, the company closed the previously announced Revera transactions on Aug. 1, 2023, which added 56 LTC homes and approximately 7,000 beds to the higher-margin managed services segment, 25 of which were acquired through a 15-per-cent managed interest in a limited partnership joint venture, Axium Extendicare LTC II LP. The total aggregate cash consideration paid was approximately $32.6-million, net of holdbacks, plus assumption of approximately $37.1-million in debt (Extendicare's share of joint venture debt).

Axium JV and Axium JV II are both limited partnership joint ventures between Axium, holding an 85-per-cent interest, and Extendicare, holding a 15-per-cent managed interest.

Seizing redevelopment opportunities in Ontario

Subsequent to the end of the quarter and under the enhanced capital funding subsidy that was in place until Aug. 31, 2023, Extendicare commenced construction on a new 256-bed LTC home in Ottawa. The estimated development costs for the project are $102.2-million.

Together with the four projects already under construction in Sudbury, Kingston, Stittsville and Peterborough, these five projects will replace 1,074 Class C LTC beds with 1,216 new beds. In addition to the company's remaining 15 projects to replace 2,211 Class C beds with 3,032 new beds across Ontario, the company has the option to purchase all future Revera LTC redevelopment projects undertaken in connection with Revera's 30 Class C LTC homes currently being managed by the company.

While the enhanced capital funding subsidy expired at the end of August, 2023, and further funding has not yet been announced, the company continues to advance the balance of its redevelopment portfolio to be ready to make use of any future enhancements to the government's capital funding program.

Improved performance across operating segments

ParaMed grew in Q3, overcoming the seasonal softness usually experienced in the summer months. ADV in the third quarter was 27,378, a 1-per-cent increase from Q2 2023 and up 9.3 per cent from Q3 2022. This marks the fourth quarter of sequential growth, demonstrating continued strong demand for the company's services. ParaMed NOI (net operating income) margin recovery continued in Q3 up 120 bps from Q2 2023 to 9.8 per cent, reflecting the operating leverage inherent in the company's scalable back-office and cloud-based platform.

The company's LTC operations continued to recover from pandemic-related impacts. Overall occupancy in the third quarter was up 60 bps to 97.8 per cent from Q2 2023, with improvements in preferred occupancy reflecting strong demand. Progress on recruiting care professionals enabled the company to reduce the use of agency labour in its homes. Accordingly, NOI margin improved to 8.7 per cent, up from 7.8 per cent in Q2 2023, excluding the impact of COVID-19 funding and related costs.

Managed services results benefited from the close of the Revera and Axium transactions in the quarter.

Q3 2023 financial highlights (all comparisons with Q3 2022)

• Revenue increased 4.4 per cent or $13.6-million to $322.5-million, driven primarily by LTC flow-through funding increases, higher LTC occupancy, growth in home health care ADV, rate increases and growth in managed services, partially offset by COVID-19 funding of $22.0-million recognized in Q3 2022.
• NOI increased 49.7 per cent or $11.7-million to $35.2-million, reflecting revenue growth, partially offset by higher operating costs across all segments.
• Adjusted EBITDA increased $10.7-million to $20.8-million, reflecting the improvements in NOI noted herein, partially offset by higher administrative costs of $900,000.
• In connection with the Revera and Axium transactions, the company recognized other income of $5.0-million in Q3 2023 compared with an expense of $3.6-million in Q3 2022; the favourable year-over-year change of $8.6-million related to a gain on sale of assets to Axium JV of $9.1-million, partially offset by a $500,000 increase in strategic transformation costs.
• Earnings from continuing operations increased $16.2-million to $11.8-million, driven by the after-tax impact of the improvement in adjusted EBITDA and other income, partially offset by higher depreciation and amortization.
• AFFO was $12.3-million (14 cents per basic share) compared with $2.1-million (two cents per basic share), reflecting the improvement in earnings, partially offset by higher maintenance capex.

Nine months 2023 financial highlights (all comparisons with nine months 2022)

• Revenue increased 4.8 per cent or $43.6-million to $954.8-million, driven primarily by LTC flow-through funding increases, higher prior-year LTC funding of $3.7-million, improved LTC occupancy, growth in home health care ADV of 7.7 per cent, rate increases and growth from managed services, partially offset by lower COVID-19 funding of $65.5-million.
• NOI improved 24.6 per cent or $21.4-million to $108.2-million; excluding the impact of a higher recovery of COVID-19 costs of $4.4-million and prior-year LTC funding of $3.7-million, net of workers compensation rebates of $3.9-million received in Q2 2022, NOI improved by $17.2-million, reflecting LTC funding increases and higher occupancy, growth in home health care ADV and rates, and growth from managed services, partially offset by higher operating costs across all segments.
• Adjusted EBITDA increased $18.2-million to $66.5-million, reflecting the improvements in NOI noted herein, partially offset by higher administrative costs of $3.2-million.
• Other (income) expense was near zero compared with an expense of $5.2-million in 2022; the favourable year-over-year change related to the gain on sale of assets to Axium JV of $9.1-million, partially offset by a $3.9-million increase in strategic transformation costs.
• Earnings from continuing operations increased $22.2-million to $25.4-million, driven by the after-tax impact of the improvement in adjusted EBITDA, lower net finance costs and the favourable change in other (income) expense of $5.2-million.
• AFFO of $42.2-million (49 cents per basic share) was up from $24.3-million (27 cents per basic share), reflecting the improvement in earnings and the impact of the normal course issuer bid (NCIB) activity in 2022, partially offset by higher maintenance capital expenditure (capex). Excluding the impact to AFFO of the net higher recovery of COVID-19 costs, prior-year LTC funding, and workers compensation rebates, AFFO per basic share increased 18 cents to 33 cents from 15 cents in the prior year.

Business updates

The attached table is a summary of Extendicare's revenue, NOI and NOI margins by business segment for the three and nine months ended Sept. 30, 2023, and 2022.

Long-term care

The average occupancy of the company's LTC homes has continued to recover, improving to 97.8 per cent in Q3 2023, up 430 bps from 93.5 per cent in Q3 2022 and up 60 bps from 97.2 per cent in Q2 2023.

NOI and NOI margin in Q3 2023 were $16.6-million and 8.7 per cent, respectively, up from $13.9-million and 7.2 per cent in Q3 2022, reflecting improved alignment of costs with funding and increased occupancy, partially offset by higher operating costs.

Home health care

Home health care ADV of 27,378 in Q3 2023 was up 9.3 per cent from Q3 2022 and 1.0 per cent from Q2 2023, overcoming the seasonal softness usually experienced in the summer months.

Revenue was $118.1-million in Q3 2023, up 9.6 per cent from Q3 2022, driven by growth in ADV and rate increases, partially offset by reduced COVID-19 funding of $3.3-million.

NOI and NOI margin were $11.6-million and 9.8 per cent respectively, in Q3 2023, up from $5.2-million and 4.8 per cent in Q3 2022. Excluding the impact of unfunded COVID-19 costs of $700,000 in Q3 2022, NOI improved by $5.7-million and NOI margin improved by 410 bps from 5.7 per cent in Q3 2022, reflecting higher volumes and rates, partially offset by higher wages and benefits.

Managed services

Following the closing of the Revera and Axium transactions and other changes to Extendicare Assist's client base, Extendicare Assist has management contracts with 73 homes comprising 9,962 beds at the end of Q3 2023, up from 50 homes and 5,959 beds at the end of Q3 2022, and provides a further 53 homes with consulting and other services. The number of third party beds served by SGP increased to approximately 128,900 at the end of Q3 2023, up 20.5 per cent from Q3 2022 and 11.6 per cent from Q2 2023.

Revenue increased by $3.9-million or 44.3 per cent to $12.7-million from Q3 2022, largely due to the addition of managed homes as a result of the Revera and Axium transactions and other new SGP clients, partially offset by Extendicare Assist clients that reduced their scope of services. NOI increased by $2.5-million to $7.0-million with an NOI margin of 55.2 per cent in the quarter compared with 50.9 per cent in Q3 2022.

Financial position

Extendicare is well positioned with strong liquidity of cash and cash equivalents on hand of $96.3-million and access to a further $75.8-million in undrawn demand credit facilities as at Sept. 30, 2023.

Normal course issuer bid

As at Nov. 8, 2023, the company had purchased for cancellation 1,398,033 common shares year to date, at a cost of $8.8-million, or $6.29 per share. Purchases include 770,533 common shares under the current NCIB that provides the company with flexibility to purchase for cancellation up to 7,273,707 common shares until June 29, 2024.

Since June, 2022, the company has purchased 6,409,213 common shares at a cost of $43.8-million. Decisions regarding the quantity and timing of purchases of common shares are based on market conditions, share price and the outlook for capital needs.

Select financial information

The attached table is a summary of the company's consolidated financial information for the three and nine months ended Sept. 30, 2023, and 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.

November dividend declared

The board of directors of Extendicare today declared a cash dividend of four cents per share for the month of November, 2023, which is payable on Dec. 15, 2023, to shareholders of record at the close of business on Nov. 30, 2023. This dividend is designated as an eligible dividend within the meaning of the Income Tax Act (Canada).

Conference call and webcast

On Nov. 10, 2023, at 11:30 a.m. ET, Extendicare will hold a conference call to discuss its 2023 third quarter results. The call will be webcast live and archived on-line on the company's website 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 Nov. 24, 2023. To access the rebroadcast dial 1-800-319-6413 followed by the pass code 0466 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. Extendicare is committed to delivering quality care throughout the health continuum to meet the needs of a growing senior population. Extendicare operates or provides managed services to a network of 126 long-term-care homes and retirement communities (53 owned/73 managed services), provides approximately 9.7 million hours of home health care services annually, and provides group purchasing services to third parties representing approximately 128,900 beds across Canada. Extendicare proudly employs approximately 22,000 qualified, highly trained and dedicated individuals who are passionate about providing high-quality care and services to help people live better.

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