Dr. Michael Guerriere reports

EXTENDICARE ANNOUNCES 2023 FOURTH QUARTER AND YEAR END RESULTS

Extendicare Inc. today released its results for the three and 12 months ended Dec. 31, 2023. Results are presented in Canadian dollars unless otherwise noted.

Fourth quarter 2023 highlights

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased $19.5-million in Q4 to $28.7-million, driven by home health care volume growth and rate increases; growth in managed services, including full quarter impact of the Revera and Axium transactions; and funding increases and improved occupancy in long-term care (LTC).
• Home health care growth continued, with Q4 average daily volume (ADV) of 28,158, up 10.2 per cent from Q4 2022 and 2.8 per cent from the prior quarter.
• LTC occupancy returned to pre-pandemic levels, increasing 330 basis points (bps) to 97.8 per cent in Q4 compared with Q4 2022.
• Beds under management through Extendicare Assist grew 64.2 per cent to 9,783 from Q4 2022 driven by the Revera and Axium transactions. SGP third party and joint venture serviced beds grew 24.1 per cent to 136,164 over Q4 2022.
• The company commenced construction on two new LTC homes in the Ottawa region in Q4 in partnership with Axium. This brings new LTC homes under construction to six, representing a total of 1,536 new beds to replace 1,377 Class C beds, with three of these homes scheduled to open in 2024.
• The company entered into agreements to sell the land and buildings associated with the Sudbury and Kingston Class C homes, which are scheduled to close in 2024 when the corresponding redevelopment projects are opened. Aggregate proceeds are $9.1-million yielding estimated net proceeds after tax and closing costs of $8.5-million and a net gain of $7.7-million.

Subsequent to Q4

• The company entered into an agreement of purchase and sale to sell the company's 256-bed LTC home in Orleans, Ont., that started construction in Q4 to Axium JV (joint venture), subject to customary closing conditions, including receipt of regulatory approvals, with closing anticipated in Q2 2024.

"Our strong fourth quarter is the result of the strategic initiatives we have undertaken to reposition Extendicare for growth and value creation," said Dr. Michael Guerriere, president and chief executive officer. "This is the first quarter where we see the full financial impact of the Revera and Axium transactions. We also acquired a Revera redevelopment project through our joint venture with Axium, the first in a pipeline of up to 29 projects for which we have offer rights. We are also benefiting from cost management efforts and rate increases, as home care and LTC margins return closer to historical norms. This, coupled with the robust growth we delivered in the home care and managed services segments over the last five quarters, validates the compelling market opportunity emanating from the growing demand for seniors' care."

Strong execution across all operating segments

ParaMed reported its fifth sequential quarter of growth in Q4 with ADV of 28,158, a 2.8-per-cent increase from Q3 2023 and 10.2 per cent from Q4 2022. ParaMed's recovery in NOI (net operating income) margin continued in Q4, up 220 bps from the prior year to 8.8 per cent, when adjusted to exclude the impact of the retroactive funding in Q4 and the impact of unfunded COVID costs in Q4 2022. Q4 NOI margin was up approximately 20 bps from Q3 2023 when adjusted for the additional statutory holiday in Q4. Unadjusted ParaMed NOI margin was 12.6 per cent in Q4.

Extendicare's LTC occupancy rates have returned to prepandemic levels with overall occupancy at 97.8 per cent in Q4 consistent with Q3 2023. Occupancy improvements, cost moderation and funding rate increases led to NOI margin improving 310 bps to 8.5 per cent in Q4 compared with Q4 2022.

Managed services benefited from the Revera and Axium transactions closing in Q3 2023, with revenue and NOI almost double that of the prior-year period. The transactions added 56 homes and 6,990 beds to the company's Extendicare Assist and SGP group purchasing services divisions.

Progress on LTC redevelopment in Ontario

In November, 2023, Axium Extendicare LTC II LP (Axium JV II) acquired a new 320-bed LTC redevelopment project in Ottawa from Revera. Construction commenced in Q4 and the home is anticipated to open in Q2 2026. Revera is responsible for the development and construction of the new home, which replaces a 303-bed Revera Class C home nearby that Extendicare is currently managing. The company posted a $5.0-million letter of credit in support of its commitment to finance its 15-per-cent equity share into Axium JV II in connection with the acquisition.

Extendicare also commenced construction of a new 256-bed LTC home in Orleans, Ont., which is anticipated to open in Q2 2026 and will replace a 240-bed Extendicare Class C home nearby. In March, 2024, the company entered into an agreement of purchase and sale to sell the home to Axium JV, with Extendicare retaining a 15-per-cent managed interest. Closing of the transaction is anticipated in Q2 2024, subject to customary closing conditions, including receipt of regulatory approvals.

Together with the four projects already under construction, these six projects will replace 1,377 Class C LTC beds with 1,536 new beds in Ontario. 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 other 29 Class C LTC homes currently being managed by the company.

Extendicare continues to advance the balance of its redevelopment portfolio to be ready to participate in future capital funding programs. The company is hopeful it can begin up to four new construction projects in 2024, pending a funding announcement.

Q4 2023 financial highlights (all comparisons with Q4 2022)

• Revenue increased 12.8 per cent or $39.8-million to $350.2-million, driven primarily by LTC flow-through funding increases and improved occupancy; home health care ADV growth, rate increases and the impact of $5.4-million in retroactive funding; and growth in managed services; partially offset by prior period LTC funding of $2.2-million and COVID-19 funding of $15.3-million recognized in Q4 2022.
• NOI increased 97.3 per cent or $21.1-million to $42.8-million; excluding unfunded COVID-19 costs of $8.5-million and out-of-period LTC funding and other adjustments of $2.5-million in Q4 2022 and $5.4-million of out-of-period funding recognized in home health care in Q4 2023, NOI improved by $9.7-million, reflecting revenue growth partially offset by higher operating costs across all segments.
• Adjusted EBITDA increased $19.5-million to $28.7-million, reflecting the improvements in NOI noted herein, partially offset by higher administrative costs of $1.6-million.
• Other expense of $2.7-million was down $6.0-million, reflecting a decline in strategic transformation costs in connection with the Revera and Axium transactions and the impact of an impairment charge in Q4 2022.
• Earnings from continuing operations increased $16.3-million to $8.6-million, driven by the after-tax improvement in adjusted EBITDA and decline in other expense, partially offset by higher depreciation, amortization and net finance costs.
• AFFO was $19.1-million (23 cents per basic share) compared with $1.9-million (two cents per basic share in Q4 2022), reflecting the after-tax improvement in earnings and lower maintenance capex.

Year ended 2023 financial highlights (all comparisons with year ended 2022)

• Revenue increased 6.8 per cent or $83.4-million to $1,305.0-million, driven primarily by LTC flow-through funding increases, improved occupancy, growth in home health care volume of 8.4 per cent, rate increases and growth from managed services, partially offset by lower COVID-19 funding of $80.8-million.
• NOI improved 39.2 per cent or $42.5-million to $151.0-million; excluding the impact of a higher recovery of COVID-19 costs of $12.9-million, net of out-of-period LTC funding and other adjustments of $2.3-million, NOI improved by $31.9-million, reflecting revenue growth, partially offset by higher operating costs across all segments.
• Adjusted EBITDA increased 65.7 per cent or $37.7-million to $95.2-million, reflecting the improvements in NOI noted above, partially offset by higher administrative costs of $4.8-million.
• Other expense of $2.7-million was down $11.3-million; the favourable year-over-year change related to the gain on sale of assets to Axium JV of $9.1-million and impact of an impairment charge recognized in 2022, partially offset by an increase in strategic transformation costs.
• Earnings from continuing operations increased $38.5-million to $34.0-million, driven by the after-tax impact improvement in adjusted EBITDA, lower net finance costs and the decline in other expense.
• AFFO (adjusted funds from operations) of $61.2-million (72 cents per basic share) was up from $26.1-million (29 cents per basic share), reflecting the after-tax improvement in earnings and the impact of the normal course issuer bid (NCIB) activity. Excluding the impact to AFFO of the net higher recovery of COVID-19 costs, prior period LTC funding and workers compensation rebates, AFFO per basic share increased 33 cents to 56 cents from 23 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 12 months ended Dec. 31, 2023, and 2022.

Long-term care

The average occupancy of the company's LTC homes has recovered, improving to 97.8 per cent in Q4 2023, up 330 bps from 94.5 per cent in Q4 2022 and unchanged from 97.8 per cent in Q3 2023.

In 2023, preferred occupancy continued to recover yielding $1.1-million of additional revenue over 2022. While there is still a gap to prepandemic levels, the improvement demonstrates the importance of optionality within the company's service offering and strong demand.

NOI and NOI margin in Q4 2023 were $17.6-million and 8.5 per cent, respectively, up from $10.5-million and 5.4 per cent in Q4 2022, reflecting improved alignment of costs with funding, lower staffing agency use and increased occupancy.

Home health care

Home health care ADV of 28,158 in Q4 2023 was up 10.2 per cent from Q4 2022 and 2.8 per cent from Q3 2023.

Revenue was $127.2-million in Q4 2023, up 17.3 per cent from Q4 2022, driven by growth in ADV and rate increases, including $5.4-million of out-of-period funding, partially offset by reduced COVID-19 funding of $900,000.

NOI and NOI margin were $16.1-million and 12.6 per cent, respectively, in Q4 2023, up from $6.4-million and 5.9 per cent in Q4 2022. Excluding the impact of $5.4-million of out-of-period funding recognized in Q4 2023 and unfunded COVID-19 costs of $800,000 in Q4 2022, NOI improved by $3.5-million to $10.7-million with an NOI margin of 8.8 per cent from $7.1-million and 6.6 per cent in Q4 2022, respectively, reflecting higher volumes and rates, partially offset by higher wages and benefits.

Managed services

Following the closing of the Revera and Axium transactions, Extendicare Assist had management contracts with 72 homes comprising 9,783 beds at the end of Q4 2023, up from 50 homes and 5,959 beds at the end of Q4 2022. It also provides a further 50 homes with consulting and other services. The number of third party beds served by SGP increased to approximately 136,200 at the end of Q4 2023, up 24.1 per cent from Q4 2022 and 5.6 per cent from Q3 2023.

Revenue increased by $8.0-million or 92.5 per cent to $16.5-million from Q4 2022, largely due to the addition of managed homes as a result of the Revera and Axium transactions and new SGP clients, partially offset by Extendicare Assist clients that reduced their scope of services. NOI increased by $4.3-million to $9.1-million with an NOI margin of 55.1 per cent in the quarter compared with 56.0 per cent in Q4 2022.

Financial position

Extendicare has strong liquidity with cash and cash equivalents on hand of $75.2-million and access to a further $70.9-million in undrawn demand credit facilities as at Dec. 31, 2023. Furthermore, proceeds are expected to be realized in 2024 from the pending sales of the Orleans, Ont., 256-bed LTC redevelopment project to Axium JV and the Sudbury and Kingston Class C LTC land and buildings.

Normal course issuer bid

During 2023, the company purchased for cancellation 1,749,131 common shares, at a cost of $11.1-million, or $6.34 per share. Purchases included 1,121,631 common shares under the current NCIB, which allows for the purchase for cancellation of up to 7,273,707 common shares until June 29, 2024.

Since June, 2022, the company has purchased 6,760,311 common shares at a cost of $46.1-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 12 months ended Dec. 31, 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.

March dividend declared

The board of directors of Extendicare today declared a cash dividend of four cents per share for the month of March, 2024, which is payable on April 15, 2024, to shareholders of record at the close of business on March 29, 2024. This dividend is designated as an eligible dividend within the meaning of the Income Tax Act (Canada).

Conference call and webcast

On March 8, 2024, at 11:30 a.m. ET, Extendicare will hold a conference call to discuss its 2023 fourth quarter results. The call will be webcast live and archived on-line at Extendicare 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 March 22, 2024. To access the rebroadcast, dial 1-800-319-6413 followed by the pass code 0669 followed by the pound key.

The reconciliations for certain non-GAAP measures included in this press release are outlined as shown.

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

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 a network of 125 long-term care homes (53 owned/72 under management contracts), delivers 10 million hours of home health care services annually, and provides group purchasing services to third parties representing approximately 136,200 beds across Canada. Extendicare proudly employs approximately 22,000 qualified, highly trained and dedicated team members who are passionate about providing high-quality care and services to help people live better.

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