Extendicare Inc. (“Extendicare” or the “Company”) (TSX: EXE) today
reported results for the three and nine months ended September 30,
2021. Results are presented in Canadian dollars unless otherwise
noted.
Third Quarter Highlights
- Mandatory vaccination policy is in
place; all team members working in our long-term care (LTC) and
retirement homes are vaccinated
- High vaccination rates for residents
and staff supported by continued containment measures limited the
impact of the fourth wave of COVID-19
- LTC occupancy continues to recover,
up 360 bps from Q2 2021
- Home health care average daily
volumes up 11.4% vs. Q3 2020; in line with Q2 2021 due to seasonal
effects
- Broke ground on Extendicare’s new
256-bed LTC home in Stittsville, Ontario in October
“Thanks to the enthusiastic participation of our team members
and their dedication to the people we serve, all team members
currently working in our LTC and retirement homes are vaccinated,”
said President and Chief Executive Officer, Dr. Michael Guerriere.
“Most of our residents have received a third dose to further boost
their immunity to COVID-19. This effort, along with our ongoing
commitment to infection prevention measures, has kept fourth wave
outbreaks in our homes to a minimum.”
“Last month, we were delighted to start construction on a third
LTC redevelopment project in Stittsville, Ontario. With six more
projects in advanced stages of planning and a further 13
applications for new homes in Ontario, we look forward to working
with the provinces to address the pressing need to replace aging
infrastructure and expand LTC beds to meet the growing needs of
seniors in the future.”
Protecting Our Residents, Clients and
Caregivers
As of November 3, 2021, Extendicare has four homes recovering
from outbreaks with no active resident or staff cases of COVID-19
across our 69 LTC homes and retirement communities. The four LTC
homes currently in outbreak are in Alberta, where there continues
to be high levels of COVID-19 cases in the community.
In August, we announced that COVID-19 vaccination would become
mandatory for all of our LTC and retirement home staff across
Canada. Those not vaccinated after October 12, 2021 were placed on
unpaid leave. This was accomplished without any significant
staffing instability.
ParaMed team members continue to respond positively to our
vaccination program, as we make steady progress towards the goal of
full vaccination for our home health care team. We continue to
support our team members by offering educational resources,
reimbursement of expenses and paid time for vaccine appointments to
remove all barriers to vaccination. Vaccination against COVID-19 is
also a condition of employment for all newly hired employees across
ParaMed. The combination of vaccination, surveillance testing,
active symptom screening and the use of personal protective
equipment has proven very effective in keeping our clients
safe.
With the marked decrease in COVID-19 cases in Q3 2021,
Extendicare’s pandemic-related spending decreased to $32.4 million
from $42.8 million in Q2 2021. Pandemic-related costs in Q3 2021
were largely offset by provincial funding of $31.7 million,
including $5.1 million related to pandemic costs incurred in Q1
2021. Costs in Q3 2021 included $11.8 million in temporary pandemic
pay premiums for eligible front-line staff, offset by funding from
Ontario and Alberta. Since the beginning of the pandemic, unfunded
pandemic costs have resulted in a cumulative reduction of Adjusted
EBITDA(1) of $42.6 million. While COVID-19 costs are declining, we
will continue to incur elevated costs as we remain vigilant in our
on-going efforts to protect our residents, clients and staff until
the threat of the pandemic has abated. We anticipate further
retroactive recovery of unfunded COVID costs, but the amounts and
timing of any recoveries are uncertain and may not cover all such
costs.
Growing Demand for the Services Extendicare
Provides
Extendicare is making investments today to meet the current and
future demographic demand for seniors’ services. On October 29,
2021, Extendicare broke ground on a new 256-bed LTC home in
Stittsville, Ontario. This home joins our other two projects
already under construction in Kingston and Sudbury. Extendicare
looks forward to breaking ground on six additional building
projects over the next two years.
In October, the Government of Ontario issued a new call for
applications to build and redevelop LTC homes in support of its
previously announced $2.68 billion plan to deliver 30,000 net new
beds by 2028. Extendicare will resubmit its remaining 13 projects
for inclusion in this next allocation of beds. Furthermore, on
November 4, 2021, the Ontario government announced in its Fall
Economic Update an additional $3.7 billion in funding starting in
2024-25 towards the commitment to build 30,000 net new LTC beds by
2028 and approximately 28,000 upgraded LTC beds across the
province.
Extendicare continues to make steady progress in its ongoing
efforts to address the significant staffing challenges facing the
industry. Our PSW college partnerships and in-house HSW training
programs graduated and hired more than 470 new caregivers through
the first three quarters of 2021. Extendicare is also participating
in various new federal and provincial programs aimed at expanding
the seniors’ care workforce, with more than 460 students enrolled
in internships.
On October 6, 2021, the Government of Ontario announced the
first phase of funding for increased staffing levels as part of its
LTC staffing plan. Ontario plans to phase in increased care for LTC
residents, reaching four hours of care per resident day, by
2024-2025. Starting in November 2021, the government will provide
additional funding through the nursing and program flow-through
envelopes to support three hours of direct care per resident per
day. The additional staff hired to address the challenges of the
pandemic will be supported by this new funding, allowing them to
remain permanently to improve the quality of care our residents
receive.
Subsequent to September 30, 2021, we received notice that home
health care rates in Ontario have been increased by approximately
1.9%, retroactive to April 1, 2021. Likewise, home health care
rates in Alberta increased by 1%, effective April 1, 2021. The
retroactive impact of these rate increases will be recorded in Q4
2021. Based on our ADV and mix of home health care services
delivered in Q2 2021 and Q3 2021, we estimate the annualized impact
on revenue from these rate increases to be in the range of $6.0 to
$7.0 million.
Q3 2021 Financial Highlights (all comparisons
with Q3 2020)
- Revenue increased 4.5% or $13.3
million to $310.1 million; driven by an 11.4% increase in home
health care average daily volumes (ADV), increased COVID-19 funding
of $3.0 million, LTC funding enhancements, timing of flow-through
funding, and growth in retirement living operations, partially
offset by lower LTC preferred accommodation and other operations
revenue.
- Net operating income (NOI)(1)
decreased $44.4 million to $31.6 million; reflecting the Canada
Emergency Wage Subsidy (CEWS) payments to ParaMed of $50.8 million
received in Q3 2020, increased costs of resident care, lower LTC
preferred accommodation revenue and increased business development
costs and lower revenue in other operations, partially offset by a
reduction in net COVID-19 costs of $7.3 million and increased ADV
and back-office efficiencies in home health care operations.
- Adjusted EBITDA(1) decreased $44.5
million to $19.3 million; reflecting the decline in NOI noted above
and higher administrative costs related to information technology,
insurance and claims reserves, offset by a reduction in COVID-19
related administrative costs.
- Earnings from continuing operations
decreased $32.2 million to $2.4 million; driven by the after-tax
impact of the decline in EBITDA noted above, partially offset by
lower finance costs.
- AFFO(1) of $9.6 million ($0.11 per
basic share), was down $33.2 million; reflecting the decline in
earnings from continuing operations and higher maintenance
capex.
Nine Months 2021 Financial Highlights (all
comparisons with Nine Months 2020)
- Revenue increased 10.5% or $89.4
million to $940.0 million; driven by COVID-19 funding of $64.5
million, a 10.6% increase in home health care ADV, LTC funding
enhancements and growth in retirement living and other operations,
partially offset by timing of flow-through funding and lower LTC
preferred accommodation revenue.
- NOI declined $23.2 million to $103.1
million; reflecting a $33.4 million year-over-year decline in CEWS
payments received by ParaMed, increased costs of resident care and
lower LTC preferred accommodation, partially offset by increased
ADV and back-office efficiencies in home health care and a
reduction in net COVID-19 costs of $7.3 million.
- Adjusted EBITDA decreased $27.2
million to $64.9 million; reflecting the decline in NOI noted above
and higher administrative costs related to information technology,
professional fees, insurance and claims reserves.
- Earnings from continuing operations
declined $15.3 million to $11.7 million; primarily driven by the
after-tax impact of the decline in EBITDA noted above, partially
offset by lower finance costs and other expense.
- AFFO of $37.2 million ($0.41 per
basic share), decreased by $20.2 million; reflecting the decline in
earnings from continuing operations and higher maintenance
capex.
Business Updates
The following is a summary of the Company’s revenue, NOI and NOI
margins by business segment for the three and nine months ended
September 30, 2021 and 2020, respectively.
(unaudited) |
Three months ended September 30 |
|
Nine months ended September 30 |
(millions of dollars, |
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
unless
otherwise noted) |
Revenue |
NOI |
Margin |
|
Revenue |
NOI |
Margin |
|
Revenue |
NOI |
Margin |
|
Revenue |
NOI |
Margin |
Long-term care |
189.5 |
16.4 |
8.7 |
% |
|
184.7 |
13.0 |
7.0 |
% |
|
581.8 |
42.5 |
7.3 |
% |
|
523.4 |
42.5 |
8.1 |
% |
Retirement living |
12.1 |
3.0 |
24.8 |
% |
|
12.0 |
3.2 |
26.9 |
% |
|
36.6 |
10.1 |
27.8 |
% |
|
35.8 |
10.4 |
29.2 |
% |
Home health care |
102.0 |
8.7 |
8.5 |
% |
|
93.2 |
55.5 |
59.5 |
% |
|
300.8 |
38.7 |
12.9 |
% |
|
271.8 |
61.2 |
22.5 |
% |
Other |
6.6 |
3.5 |
53.4 |
% |
|
6.8 |
4.3 |
62.7 |
% |
|
20.8 |
11.8 |
56.6 |
% |
|
19.6 |
12.1 |
61.9 |
% |
|
310.1 |
31.6 |
10.2 |
% |
|
296.8 |
76.0 |
25.6 |
% |
|
940.0 |
103.1 |
11.0 |
% |
|
850.6 |
126.3 |
14.8 |
% |
Note: Totals may not sum due to rounding. |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Care
Lower rates of COVID-19 cases and an easing of restrictions
starting in the latter half of Q2 resulted in an increase in
admissions into our LTC homes. Average occupancy in our LTC homes
recovered 360 bps to 89.0% in Q3 2021 from 85.4% in Q2 2021, down
from 90.0% in Q3 2020. While seasonal factors may impact the pace
of new admissions in the coming winter months, we expect average
occupancy levels to continue to increase as long as rates of
COVID-19, and other transmissible diseases, in the community remain
low. Despite lower occupancy levels, our revenue base was largely
preserved through basic occupancy protection funding from the
Government of Ontario, which has been extended until January 31,
2022. Each of the western provinces where we operate have also
introduced additional funding to offset the impact of COVID-19,
some of which includes funding to address occupancy shortfalls.
NOI and NOI margin in Q3 2021 were $16.4 million and 8.7%,
respectively, an increase from $13.0 million and 7.0%,
respectively, in Q3 2020, due in part to a year-over-year reduction
in unfunded COVID-19 costs of $7.4 million, which included $5.1
million of COVID funding in Q3 2021 related to costs incurred in Q1
2021. Excluding the net impact of COVID-19 funding and expenses,
NOI declined by $4.0 million in Q3 2021 as compared to Q3 2020 due
to lower preferred accommodation revenue, and higher costs of
labour, utilities and insurance.
Ontario announced a 1.5% general funding increase across the
accommodations and flow-through envelopes for LTC providers
retroactive to April 1, 2021, which represents incremental annual
revenue of approximately $5.1 million.
On October 14, 2021, the Saskatchewan Health Authority (SHA) and
Extendicare jointly announced their intention to transition the
delivery of long-term care services operated at the Company’s five
Saskatchewan LTC homes to the SHA. Although terms of the transfer
are under negotiation, the transfer of the homes is not anticipated
to have a material impact on financial results. The Company is
working collaboratively with the SHA to undertake the transition
while remaining focused on the needs of residents, families and
staff.
Construction of our new Stittsville 256-bed LTC home is targeted
for completion in Q1 2024. Together with our Sudbury and Kingston
projects, these three homes will replace 624 Class C LTC beds with
704 new beds at an estimated net investment of $178.9 million.
Home Health Care
The ParaMed home health care segment saw improved financial
performance as growth in volumes and lower back-office costs led to
year-over-year improvements. ADV remained in-line with the last
quarter, as traditionally slower summer months were offset by a
resumption in volume growth in September. ParaMed Q3 2021 ADV was
25,345, an increase of 0.3% from Q2 2021 and 11.4% higher than Q3
2020.
In Q3 2021, ParaMed revenue was $102.0 million, up 9.4% from Q3
2020, driven by growth in ADV of 11.4% and increased COVID-19 and
pandemic pay funding of $0.1 million.
NOI and NOI margin were $8.7 million and 8.5%, respectively, in
Q3 2021, compared to $55.5 million and 59.5%, respectively, in Q3
2020. Excluding CEWS payments received by ParaMed in Q3 2020 of
$50.8 million, NOI improved by $4.0 million from $4.7 million in Q3
2020, reflecting higher ADV, lower workers compensation costs,
including a $0.4 million non-recurring rebate, and improved
back-office efficiencies, partially offset by an increase in
unfunded COVID-19 costs of $0.4 million.
Excluding the impact of CEWS, net COVID-19 related costs and Q4
2020 one-time charges, NOI margins continue to improve with Q3 2021
at 9.7%, compared to 7.9% in Q2 2021. Back-office efficiencies from
technology investments continue to drive NOI margin improvements.
Q3 2021 NOI margins also benefited from a non-recurring workers
compensation rebate and the impact of an additional operating day,
as compared to Q2 2021.
Retirement Living
Increased occupancy levels and care services in our retirement
operations came with higher labour and promotional costs, leading
to a slight year-over-year decline in financial performance. In Q3
2021, higher revenue of $0.1 million or 0.9% and lower estimated
net COVID-19 costs were exceeded by increased labour and
promotional costs, resulting in a decline in NOI of $0.2 million or
6.9% from Q3 2020.
Throughout the pandemic the average occupancy of our stabilized
communities has remained above 90%. The easing of restrictions
during the latter half of the second quarter contributed to an
increase in average occupancy of the total portfolio by 130 bps to
85.7% in Q3 2021 compared to Q2 2021, comprised of an increase of
520 bps in our lease-up communities, partially offset by a 40 bps
decrease in our stabilized communities.
Other Operations
Revenue declined to $6.6 million or 4.3% from Q3 2020, largely
due to lower group purchasing volumes associated with a decline in
demand for pandemic supplies. New investments in growth initiatives
increased operating costs in the quarter, reducing NOI by $0.8
million or 18.5% to $3.5 million, resulting in margins of 53.4% of
revenue. The number of third-party residents served by SGP
increased to approximately 88,400 at the end of Q3 2021, up 11.4%
from Q3 2020 and up 5.9% from Q2 2021.
Financial Position
Extendicare is well positioned with strong liquidity, which
included cash and cash equivalents on hand of $132.2 million and
access to a further $72.8 million in undrawn demand credit
facilities at September 30, 2021. In addition, the Company has
construction financing in the aggregate of $95.9 million available
for its Sudbury and Kingston LTC redevelopment projects and is in
the process of negotiating construction financing for the
Stittsville LTC project on similar terms.
Select Financial Information
The following is a summary of the Company’s consolidated
financial information for the three and nine months ended September
30, 2021 and 2020.
(unaudited) |
Three months endedSeptember 30 |
|
Nine months endedSeptember 30 |
(thousands of dollars unless otherwise noted) |
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Revenue |
310,130 |
|
296,786 |
|
|
939,960 |
|
850,551 |
|
Operating expenses |
278,569 |
|
220,810 |
|
|
836,884 |
|
724,258 |
|
NOI (1) |
31,561 |
|
75,976 |
|
|
103,076 |
|
126,293 |
|
NOI margin (1) |
10.2 |
% |
25.6 |
% |
|
11.0 |
% |
14.8 |
% |
Administrative costs |
12,220 |
|
12,182 |
|
|
38,195 |
|
34,201 |
|
Adjusted EBITDA (1) |
19,341 |
|
63,794 |
|
|
64,881 |
|
92,092 |
|
Adjusted EBITDA margin (1) |
6.2 |
% |
21.5 |
% |
|
6.9 |
% |
10.8 |
% |
Other
expense |
— |
|
— |
|
|
— |
|
2,780 |
|
Earnings from continuing operations |
2,401 |
|
34,644 |
|
|
11,684 |
|
26,992 |
|
per basic share ($) |
0.03 |
|
0.39 |
|
|
0.13 |
|
0.30 |
|
per diluted share ($) |
0.03 |
|
0.36 |
|
|
0.13 |
|
0.30 |
|
Earnings from discontinued operations, net of
tax |
3,642 |
|
(178 |
) |
|
3,642 |
|
9,721 |
|
Net earnings |
6,043 |
|
34,466 |
|
|
15,326 |
|
36,713 |
|
per basic share ($) |
0.07 |
|
0.38 |
|
|
0.17 |
|
0.41 |
|
per diluted share ($) |
0.07 |
|
0.36 |
|
|
0.17 |
|
0.41 |
|
AFFO (1) |
9,573 |
|
42,787 |
|
|
37,191 |
|
57,363 |
|
per basic share ($) |
0.11 |
|
0.48 |
|
|
0.41 |
|
0.64 |
|
per diluted share ($) |
0.11 |
|
0.44 |
|
|
0.40 |
|
0.61 |
|
Current income tax expense included in FFO |
1,696 |
|
14,118 |
|
|
6,614 |
|
14,343 |
|
FFO effective tax rate |
17.4 |
% |
25.9 |
% |
|
18.0 |
% |
22.3 |
% |
Maintenance capex |
3,833 |
|
2,381 |
|
|
8,612 |
|
6,293 |
|
Cash dividends declared per share |
0.12 |
|
0.12 |
|
|
0.36 |
|
0.36 |
|
Payout ratio (1) |
112 |
% |
25 |
% |
|
87 |
% |
56 |
% |
Weighted average number of shares (thousands) |
|
|
|
|
|
Basic |
90,009 |
|
89,864 |
|
|
89,973 |
|
89,778 |
|
Diluted |
100,786 |
|
100,223 |
|
|
100,735 |
|
100,145 |
|
(1) Non-GAAP Measures:
Extendicare assesses and measures operating results and financial
position based on performance measures referred to as “net
operating income”, “NOI”, “NOI margin”, “Adjusted EBITDA”,
“Adjusted EBITDA margin”, “AFFO”, “AFFO per share”, and “payout
ratio”. In addition, the Company assesses its return on investment
in development activities using the non-GAAP financial measure “NOI
Yield”. These measures are not recognized under GAAP and do not
have standardized meanings prescribed by GAAP. These non-GAAP
measures are presented in this document because either: (i)
management believes that they are a relevant measure of
Extendicare’s operating performance and ability to pay cash
dividends; or (ii) certain ongoing rights and obligations of
Extendicare may be calculated using these measures. Such non-GAAP
measures may differ from similar computations as reported by other
issuers and, accordingly, may not be comparable to similarly titled
measures as reported by such issuers. They are not intended to
replace earnings (loss) from continuing operations, net earnings
(loss), cash flow, or other measures of financial performance and
liquidity reported in accordance with GAAP. Detailed descriptions
of these terms can be found in Extendicare’s disclosure documents,
including its Management’s Discussion and Analysis, filed with the
securities regulatory authorities; these documents are available at
www.sedar.com and on Extendicare’s website at
www.extendicare.com. |
Extendicare’s disclosure documents, including its Management’s
Discussion and Analysis, may be found on SEDAR’s website at
www.sedar.com under the Company’s issuer profile and on the
Company’s website at www.extendicare.com under the
“Investors/Financial Reports” section.
November Dividend Declared
The Board of Directors of Extendicare today declared a cash
dividend of $0.04 per share for the month of November 2021, which
is payable on December 15, 2021, to shareholders of record at the
close of business on November 30, 2021. This dividend is designated
as an “eligible dividend” within the meaning of the Income Tax Act
(Canada).
Conference Call and Webcast
On November 5, 2021, at 11:30 a.m. (ET), Extendicare will hold a
conference call to discuss its 2021 third quarter results. The call
will be webcast live and archived online at www.extendicare.com
under the “Investors/Events & 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
November 19, 2021. To access the rebroadcast dial 1-800-319-6413
followed by the passcode 7872#.
About Extendicare
Extendicare is a leading provider of care and services for
seniors across Canada, operating under the Extendicare, Esprit
Lifestyle, ParaMed, Extendicare Assist, and SGP Purchasing Partner
Network brands. We are committed to delivering quality care
throughout the health continuum to meet the needs of a growing
seniors population. We operate or provide contract services to a
network of 120 long-term care homes and retirement communities (69
owned/51 contract services), provide approximately 9.0 million
hours of home health care services annually, and provide group
purchasing services to third parties representing approximately
88,400 senior residents across Canada. Extendicare proudly employs
more than 23,500 qualified, highly trained and dedicated
individuals who are passionate about providing high quality care
and services to help people live better.
Forward-looking Statements
This press release contains forward-looking statements
concerning anticipated future events, results, circumstances,
economic performance or expectations with respect to Extendicare
and its subsidiaries, including, without limitation, statements
regarding its business operations, business strategy, growth
strategy, results of operations and financial condition, including
anticipated timelines, costs and financial returns in respect of
development projects, and in particular statements in respect of
the impact of measures taken to mitigate the impact of COVID-19,
the availability of various government programs and financial
assistance announced in respect of COVID-19, the impact of COVID-19
on the Company’s operating costs, staffing, procurement, occupancy
levels and volumes in its home health care business, the impact on
the capital and credit markets and the Company’s ability to access
the credit markets as a result of COVID-19, increased litigation
and regulatory exposure and the outcome of any litigation and
regulatory proceedings. Forward-looking statements can often be
identified by the expressions “anticipate”, “believe”, “estimate”,
“expect”, “intend”, “objective”, “plan”, “project”, “will” or other
similar expressions or the negative thereof. These forward-looking
statements reflect the Company’s current expectations regarding
future results, performance or achievements and are based upon
information currently available to the Company and on assumptions
that the Company believes are reasonable. The Company assumes no
obligation to update or revise any forward-looking statement,
except as required by applicable securities laws. These statements
are not guarantees of future performance and involve known and
unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company to
differ materially from those expressed or implied in the
statements. In particular, risks and uncertainties related to the
effects of COVID-19 on the Company include the length, spread and
severity of the pandemic; the nature and extent of the measures
taken by all levels of governments and public health officials,
both short and long term, in response to COVID-19; domestic and
global credit and capital markets; the Company’s ability to access
capital on favourable terms or at all due to the potential for
reduced revenue and increased operating expenses as a result of
COVID-19; the availability of insurance on favourable terms;
litigation and/or regulatory proceedings against or involving the
Company, regardless of merit; the health and safety of the
Company’s employees and its residents and clients; and domestic and
global supply chains, particularly in respect of personal
protective equipment. Given the evolving circumstances surrounding
COVID-19, it is difficult to predict how significant the adverse
impact will be on the global and domestic economy and the business
operations and financial position of Extendicare. For further
information on the risks, uncertainties and assumptions that could
cause Extendicare’s actual results to differ from current
expectations, refer to “Risk Factors” in Extendicare’s Annual
Information Form and “Forward Looking-Statements” in Extendicare’s
Q3 2021 Management’s Discussion and Analysis filed by Extendicare
with the securities regulatory authorities, available at
www.sedar.com and on Extendicare’s website at www.extendicare.com.
Given these risks and uncertainties, readers are cautioned not to
place undue reliance on Extendicare’s forward-looking
statements.
Extendicare contact:David Bacon, Senior Vice
President and Chief Financial OfficerPhone: (905) 470-4000; Fax:
(905) 470-5588Email:
david.bacon@extendicare.comwww.extendicare.com
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