Extendicare Announces 2020 Fourth Quarter and Year End Results

Extendicare Announces 2020 Fourth Quarter and Year End Results

Extendicare Announces 2020 Fourth Quarter and Year End Results

MARKHAM, Ontario, Feb. 25, 2021 (GLOBE NEWSWIRE) — Extendicare Inc. (“Extendicare” or the “Company”) (TSX: EXE) today reported results for the three and twelve months ended December 31, 2020. Results are presented in Canadian dollars unless otherwise noted.

“The COVID-19 pandemic continues to impact our country, communities and families. The immense toll of this virus on those in our care, and the courageous teams who care for them, has been relentless,” said President and Chief Executive Officer, Dr. Michael Guerriere. “The tragic effects of this pandemic will be with us for many years to come. We offer our heartfelt condolences to those who have lost a loved one during this pandemic.”

“Our primary focus continues to be on protecting our residents, clients and staff. My sincere thanks to our dedicated care teams for their selfless commitment to those in our care during the past year, and to the hospitals and health authorities who assisted those homes that were overwhelmed by the virus during the second wave of COVID-19. We are also grateful to provincial governments for their assistance in providing pandemic support. We are particularly appreciative of the commitments made by the Government of Ontario to build a stronger future for the long-term care (LTC) sector with its new capital program to meet the need for new homes, and its plan to increase hours of direct care for LTC residents into the future.”

“While hope has arrived by way of vaccinations for our residents and staff, and on-site antigen testing that provides immediate test results for staff and visitors, we will have to maintain our heightened vigilance to control the virus for some time yet. Nevertheless, the progress made in staffing, treatments, on-site testing and widespread vaccination of our residents and staff means we have dramatically reduced the risk to our vulnerable residents.”

Progress with Vaccinations and Antigen Testing Program

As case numbers of COVID-19 increased across Canada and in the communities that we serve during the fourth quarter, the rate of infections among our residents, clients and staff also increased. We have continued to put resident safety first with strict infection control protocols, increased testing and safety measures in place in all of our locations. As a result of higher case numbers and associated safety measures, COVID-19 costs incurred in Q4 2020 increased from previous quarters.

As of February 24, eight of our 69 LTC homes and retirement communities are in outbreak with active cases, with a total of only three residents who have an active infection. We continue to work closely with our Extendicare Assist clients to help them manage outbreaks in their homes.

Vaccinations play a vital role in minimizing the impact of COVID-19 and we are actively working to vaccinate residents and staff at our homes. As of February 24, approximately 91% of our LTC residents and 33% of our LTC staff have received the first dose of the vaccine, and approximately 65% of our LTC residents have received their second dose. In respect of our retirement communities, approximately 71% of our residents and 33% of our staff have received the first dose of the vaccine. Vaccination of our home health care staff started this week.

We are encouraging our staff to be vaccinated as soon as the vaccine is available and we are compensating them for time and travel expenses required to access the vaccine. Our staff have responded enthusiastically to the program. As increased supply is made available, we expect to see a significant increase in the number of staff vaccinated.

While vaccination is crucial to stopping the spread of COVID-19, we continue to commit increased resources to contain and mitigate the spread of the virus, including routine testing of staff in cooperation with local public health authorities, and increased staffing and PPE. To increase the speed and efficiency in identifying both symptomatic and asymptomatic cases of COVID-19 in our homes, we are introducing point-of-care testing across our operations. These tests give us results within 15 minutes and the ability to increase testing frequency where there is higher virus prevalence in the surrounding community. We will maintain our enhanced infection prevention measures to reduce transmission risk and to address the emergence of new variants of concern.

To combat the pandemic, in 2020 we have spent approximately $74.5 million in operating and administrative expenses, partially offset by $44.4 million from various provincial government pandemic programs, resulting in a reduction of our Adjusted EBITDA of approximately $30.1 million. We have dispensed a further estimated $43.9 million in pandemic pay, funded by programs announced by the Ontario and Alberta governments, to temporarily increase hourly wages for certain eligible front-line employees. In addition, as at December 31, 2020, we have $15.7 million in PPE inventory to ensure that we continue to have sufficient supply.

Subsequent to end of the fourth quarter of 2020, in January 2021, the Ontario Ministry of Long-Term Care announced an additional $398 million in funding for COVID costs, which includes funds to be used to compensate for COVID-19 costs incurred during 2020, as well as costs through to March 31, 2021. In January 2021, Extendicare received $6.6 million related to Q2 2020 and expects to receive additional funding related to Q3 and Q4 2020, the amount and timing of which is uncertain.

Our operations continue to be significantly affected by COVID-19, including lower occupancy levels in our LTC homes and retirement communities and costs in excess of funding levels. Home health care volumes continue to increase from a low during the spring of 2020, slowed somewhat as ongoing COVID-19 lockdown measures contribute to shortfalls in our workforce capacity. Government support provided to help protect our residents, clients and staff has been substantial and most appreciated. The amount and timing of these payments does not always align with the additional expenses incurred. As a result, we expect to see ongoing significant volatility in our operating and financial results until the effects of COVID-19 are behind us.

Continued Investment in People and Facilities

Extendicare is committed to making investments to address the shortage of health care workers that has challenged our industry for years and has been exacerbated more recently by the pandemic. Our in-house training programs and college partnerships announced in Q3 2020 continue to be successful in creating a new supply of skilled caregivers. Under a program launched last year, ParaMed is covering college tuition and providing paid on-the-job training, followed by offers of full-time employment to new entrants to the home health care sector. In 2020, we graduated approximately 300 new caregivers through the program, and we expect the capacity to increase to more than 600 students per year as we expand the program in 2021.

Given the age of many existing homes and the chronic shortage of LTC beds across the country, the need for continuing investment in building new facilities is critically important. We commenced construction on our first LTC redevelopment project in Sudbury in November 2020 and plan to start construction on a new home in Kingston this spring. We anticipate having six LTC redevelopment projects underway by the end of 2022, representing a total investment of more than $400 million. We have another 16 applications being reviewed by the Government of Ontario to replace the remainder of our aging facilities in that province and to add additional bed capacity.

Factors Impacting Comparability of Financial Results for 2020

For purposes of the Financial Highlights and Business Update sections, revenue, NOI and NOI margins exclude the year-over-year decline in revenue resulting from the expiration of ParaMed’s B.C. home health care contracts in Q1 2020, the incremental funding related to Bill-148 received by ParaMed in Q2 2019, and the increase in NOI from the Canada Emergency Wage Subsidy (CEWS) program received by ParaMed of $91.2 million ($40.4 million in Q4 2020, recorded as an offset to operating expenses of the home health care segment), as discussed under the Home Health Care business update below.

In addition, the recognition of pandemic-related costs and the timing of the recognition and receipt of related government funding and subsidies has resulted in volatility in our quarterly results which is expected to continue throughout the remainder of the pandemic.

Financial Highlights

Q4 2020 (all comparisons with Q4 2019)

  • Revenue up 10.9% or $30.1 million to $307.7 million; driven by COVID-19 funding of $32.0 million, LTC funding enhancements and growth in the retirement living and other operations segments, partially offset by a 5.4% decline in home health care average daily volumes (ADV), timing of LTC flow-through funding, and lower preferred accommodation revenue in the LTC operations.
  • Net operating income (NOI)(1) of $15.4 million, down 53.0% or $17.4 million; reflecting COVID-19 costs in excess of funding of $9.6 million, increased costs of resident care and lower preferred accommodation revenue in the LTC operations, and lower ADV and increased employee-related costs, including one-time costs, in the home health care operations, partially offset by growth in the retirement living and other operations segments.
  • Adjusted EBITDA(1) up $17.5 million to $41.0 million; reflecting the underlying decline in NOI noted above and increased administrative costs in part due to increased insurance costs and COVID-19 costs of $0.7 million, offset by $40.4 million of CEWS in the ParaMed home health care operations.
  • Earnings from continuing operations up $11.1 million to $15.6 million; primarily driven by CEWS, as noted above for ParaMed ($29.7 million net of tax), largely offset by estimated COVID-19 costs in excess of funding ($7.6 million net of tax), increased administrative costs, other expense of $2.5 million and the decline in NOI of the home health care and LTC operations.
  • AFFO(1) of $21.8 million ($0.24 per basic share), up $10.4 million; reflecting the increase in earnings from continuing operations (including the $22.1 million net of tax, or $0.25 per basic share, impact of CEWS and estimated costs of COVID-19 in excess of funding).
  • Earnings from discontinued operations includes earnings of $2.0 million in respect of former U.S. operations.

Year Ended 2020 (all comparisons with year ended 2019)

Excluding the factors impacting comparability noted above, results for the twelve months ended December 31, 2020 reflect growth in the retirement living and other operations segments, partially offset by COVID-19 costs in excess of funding, a 9.8% decline in ADV and increased operating costs in the home health care operations, higher costs of resident care in LTC operations and increased administrative costs.

  • Revenue up 7.1% or $76.2 million to $1,155.3 million, driven primarily by COVID-19 funding of $88.3 million.
  • NOI(1) of $90.9 million, down 30.9% or $40.7 million, driven primarily by net COVID-19 costs of $26.6 million.
  • Adjusted EBITDA(1) up $40.8 million to $133.1 million; reflecting the underlying decline in NOI and increased administrative costs, offset by CEWS.
  • Earnings from continuing operations up $27.8 million to $42.6 million; primarily driven by CEWS ($67.0 million net of tax), largely offset by estimated COVID-19 costs in excess of funding ($22.1 million net of tax), higher administrative costs, increased other expense of $2.9 million, and the decline in NOI of home health care and LTC operations.
  • AFFO(1) of $79.2 million ($0.88 per basic share), up $26.6 million; reflecting the increase in earnings from continuing operations (including the $44.9 million net of tax, or $0.50 per basic share, impact of CEWS and estimated costs of COVID-19 in excess of funding).
  • Earnings from discontinued operations down $2.2 million to $11.6 million; primarily reflecting releases of the Company’s captive’s reserves of $9.5 million compared to $11.6 million in the prior year.
  • Dividends declared of $43.0 million in 2020, representing approximately 54% of AFFO.

Business Updates

The following is a summary of the Company’s revenue, NOI and NOI margins by business segment for the three and twelve months ended December 31, 2020 and 2019.

(unaudited) Three months ended December 31   Twelve months ended December 31
(millions of dollars, unless otherwise noted) 2020     2019     2020   2019  
Long-term care 192.1     166.7     715.6   643.8  
Retirement living 12.0     11.4     47.8   41.3  
Home health care 96.4     93.4     365.2   370.1  
Other 7.2     6.2     26.8   23.9  
Total revenue 307.7     277.6     1,155.3   1,079.1  
NOI and NOI margin (1)                  
Long-term care 9.2   4.8 % 20.5 12.3 %   51.8 7.2 % 77.4 12.0 %
Retirement living 3.3   27.6 % 3.0 26.4 %   13.8 28.8 % 11.4 27.7 %
Home health care (1.7 ) -1.8 % 5.8 6.2 %   8.7 2.4 % 29.5 8.0 %
Other 4.6   63.2 % 3.4 55.7 %   16.7 62.2 % 13.3 55.5 %
Total NOI and NOI margin (1) 15.4   5.0 % 32.8 11.8 %   90.9 7.9 % 131.6 12.2 %
Note: Totals may not sum due to rounding.

Long-Term Care

COVID-19 continued to impact our LTC operations in Q4 2020 as admissions restrictions led to lower occupancy levels. Increased costs to protect our staff and residents resulted in lower NOI and NOI margin compared to the same period last year.

Average occupancy dropped to 87.7% in Q4 2020, down from 97.8% in Q4 2019 and 230 bps below Q3 2020, mainly driven by reduced admissions as a result of COVID-19. Despite lower occupancy levels, our revenue base was largely preserved through basic occupancy protection funding from the Government of Ontario, which was extended until March 31, 2021. While this stabilized funding is extremely important to helping us operate our homes during these challenging circumstances, it does not compensate for the loss of preferred accommodation premiums from private and semi-private room vacancies. Each of the western provinces in which we operate have introduced additional funding to offset the impact of COVID-19, some of which includes funding to address occupancy shortfalls.

NOI and NOI margin in Q4 2020 were $9.2 million and 4.8% respectively, down from $20.5 million and 12.3% respectively in Q4 2019. NOI and NOI margin decreased in the quarter largely as a result of the impact of COVID-19, resulting in increased costs of resident care and lower preferred accommodation revenue. Increased costs associated with COVID-19 and pandemic pay programs, estimated at $34.3 million, were $8.7 million in excess of COVID-19 related funding of $25.6 million. In addition, results for Q4 2019 included favourable labour accrual adjustments of $1.4 million.

Our long-term plan to replace aging infrastructure and add new capacity is advancing successfully, with construction of our Sudbury home beginning in Q4 2020. The Sudbury home will have 256 LTC beds and will replace our 234-bed Extendicare Falconbridge C-class bed home. Our total investment for this home is expected to be $62.3 million. In addition, we are in the final approval stages to proceed with a new 192 bed Kingston home in Q2 2021. We continue to pursue further development opportunities for our LTC operations and anticipate having an additional project under construction by the end of 2021.

Home Health Care

Our home health care operations continued to be impacted by COVID-19 in Q4 2020, with lower volumes and increased pandemic related costs partly offset by government funding.

In Q4 2020, revenue increased to $96.4 million, up 3.2% from Q4 2019, driven by COVID-19 and pandemic pay funding of $6.4 million, which was partially offset by lower ADV, down 5.4% compared to same quarter last year.

NOI in Q4 2020 was a loss of $1.7 million, down from positive NOI of $5.8 million in Q4 2019. The decline in NOI of $7.5 million includes one-time costs of $3.7 million associated with implementing a wage harmonization and enhancement program for non-unionized front-line workers and $2.4 million in investments in technology and training aids to support the new in-house and college partnership training programs and continued back-office efficiencies. Excluding these items, NOI declined by $1.4 million, largely attributable to lower volumes, increased workers compensation and benefits costs, and net costs of $0.8 million associated with COVID-19.

Our workforce and our operations are directly impacted by fluctuating COVID-19 caseloads and corresponding changes to lockdown measures. Since the peak impact in Q2 2020, we have seen a gradual recovery in our ADV levels. In Q3 2020, ADV levels increased 11.6% from Q2 2020 and in Q4 2020 the trend continued with a 5.2% increase from Q3 2020 ADV levels. The recovery of ADV during Q4 2020 was tempered by seasonal softness around the holiday period, and the implementation of further lockdown measures, particularly school closures, which negatively impact our workforce capacity. Our volumes continue to improve with ADV for the four weeks ended February 14, 2021, increasing by 1.6% over the Q4 2020 average. We are encouraged that referral levels have returned to pre-COVID levels; however, COVID-19 exacerbated shortfalls in our workforce capacity have slowed the recovery of our volumes. Our in-house training programs and college partnerships announced in Q3 2020 continue to be successful in adding a new supply of skilled caregivers. To date, approximately 300 new caregivers have graduated through these programs, and we expect to increase capacity to over 600 in 2021.

Although home health care volumes are recovering from their April lows, revenue continues to be lower on a year over year basis enabling ParaMed Inc. to qualify for additional payments under the CEWS program in 2020. ParaMed recognized $40.4 million under the CEWS program in Q4 2020, in respect of claims periods July 5, 2020 to December 19, 2020. The CEWS is recorded as an offset to operating expenses, positively impacting the NOI of the home health care segment for the three and twelve months ended December 31, 2020.

As the stream of graduates from our training programs increases and our existing staff continue to return to the workforce, we expect our workforce capacity to improve and drive future growth in ADV levels. While we cannot predict the ultimate impact nor the duration of the pandemic, we are focused on managing our operations through this challenge so we are well positioned to continue to provide high quality care and expand our operations when the pandemic recedes.

Retirement Living

Our retirement living operations continued to deliver solid financial results as contributions from non same-store operations and lease-up communities more than offset the negative impact of COVID-19 on occupancy and cost levels.

In Q4 2020, revenue increased to $12.0 million, up 6.1%, and NOI grew to $3.3 million, up 11.0%, from the same quarter last year, largely driven by the opening of The Barrieview in October 2019 and partially offset by the negative impact of COVID-19 on occupancy levels at our stabilized communities.

The reinstatement of restrictions on in-person tours in certain regions in Ontario during Q4 2020 resulted in a decline in stabilized occupancy of 240 bps from the end of Q3 2020 to 90.7% as at December 31, 2020. Subsequent to year end, stabilized occupancy improved by 50 bps to 91.2% as at January 31, 2021. While occupancy levels remain below prior year levels due to the impacts of COVID-19, the stabilized communities have on average remained above 90% throughout the pandemic. We expect to see ongoing volatility in occupancy levels as restrictions on in-person tours are imposed or removed.

Other Operations

Our other operations continued to perform well in Q4 2020 as revenue increased to $7.2 million, up 16.4% from the same quarter last year, largely driven by growth in our SGP Purchasing Partner Network (SGP). NOI also increased in the quarter, up 32.2% to $4.6 million, as our growing SGP client base and lower travel and business promotion costs offset increased staff costs. The number of third-party residents served by SGP increased to approximately 78,900 at the end of the year, up 21.9% from the end of 2019. The underlying demand for SGP’s services remains strong and at the end of January 2021, the number of residents served by SGP had grown to 79,900.

Financial Position

At the end of 2020, Extendicare had cash and cash equivalents on hand of $180.0 million and access to a further $71.3 million in undrawn demand credit facilities. During the first half of 2020, we improved our financial flexibility by extending and renewing existing mortgages on LTC homes and finalizing new mortgages on retirement communities. As a result of these changes, we are well positioned with strong liquidity and no scheduled debt maturities until Q1 2022.

Select Financial Information

The following is a summary of the Company’s consolidated financial information for the three and twelve months ended December 31, 2020 and 2019.

(unaudited) Three months ended
December 31 (2)

  Twelve months ended
December 31(2)
(thousands of dollars unless otherwise noted) 2020   2019     2020   2019  
Revenue 307,742   290,895     1,158,293   1,131,950  
Operating expenses 251,938   258,018     976,196   998,500  
NOI (1) 55,804   32,877     182,097   133,450  
NOI margin (1) 18.1 % 11.3 %   15.7 % 11.8 %
Administrative costs 14,758   9,350     48,959   41,151  
Adjusted EBITDA (1) 41,046   23,527     133,138   92,299  
Adjusted EBITDA margin (1) 13.3 % 8.1 %   11.5 % 8.2 %
Other expense 2,486       5,266   2,404  
Earnings from continuing operations 15,594   4,467     42,586   14,799  
per basic share ($) 0.17   0.05     0.47   0.17  
per diluted share ($) 0.17   0.05     0.47   0.17  
Earnings from discontinued operations, net of tax 1,882   5,621     11,603   13,831  
Net earnings 17,476   10,088     54,189   28,630  
per basic share ($) 0.19   0.11     0.60   0.32  
per diluted share ($) 0.19   0.11     0.60   0.32  
AFFO (1) 21,804   11,365     79,167   52,600  
per basic share ($) 0.24   0.13     0.88   0.59  
per diluted share ($) 0.23   0.12     0.83   0.57  
Current income tax expense included in FFO 7,280   1,075     21,623   8,552  
FFO effective tax rate 22.9 % 7.61 %   22.5 % 15.1 %
Maintenance capex 7,573   6,028     13,866   12,312  
Cash dividends declared per share 0.12   0.12     0.48   0.48  
Payout ratio (1) 49 % 94 %   54 % 81 %
Weighted average number of shares (thousands)                  
Basic 89,898   89,467     89,808   89,148  
Diluted 100,362   99,850     100,275   99,539  
(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 are not measures 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 the ability of Extendicare to make cash distributions; 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.
(2)   Comparative figures have been re-presented to reflect discontinued operations.

Extendicare’s financial reports, including its Management’s Discussion and Analysis are available on its website at www.extendicare.com under the “Investors/Financial Reports” section.

Conference Call and Webcast

On February 26, 2021, at 11:30 a.m. (ET), Extendicare will hold a conference call to discuss its 2020 fourth quarter and year end 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 March 12, 2021. To access the rebroadcast dial 1-800-319-6413 followed by the passcode 6044#.

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 121 long-term care homes and retirement communities (69 owned/52 contract services), provide approximately 8.4 million hours of home health care services annually, and provide group purchasing services to third parties representing approximately 79,900 senior residents across Canada. Our qualified and highly trained workforce of over 23,000 individuals is passionate about providing high quality services to help people live better.

Forward-looking Statements

This press release contains forward-looking statements concerning anticipated financial events, results, circumstances, economic performance or expectations with respect to Extendicare and its subsidiaries, including, without limitation, statements regarding its business operations, business strategy, 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 be identified because they generally contain the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “objective”, “plan”, “project”, “will” or other similar expressions or the negative thereof. Forward-looking statements reflect management’s beliefs and assumptions and are based on information currently available, and Extendicare 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 Extendicare to differ materially from those expressed or implied in the statements. Risks and uncertainties related to the effects of COVID-19 on Extendicare 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 Q4 2020 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 Officer
Phone: (905) 470-4000; Fax: (905) 470-4003
Email: david.bacon@extendicare.com