Extendicare Inc. Earnings Call Highlights Growth and Challenges

Extendicare Inc. ((TSE:EXE)) has held its Q2 earnings call. Read on for the main highlights of the call.

Extendicare Inc. recently held its earnings call, revealing a generally positive sentiment despite some challenges. The company reported strong growth in key areas like Adjusted EBITDA and home health care volumes, alongside successful acquisitions. However, it faced hurdles with revenue losses from closed Class C homes and a decline in Managed Services revenue. Overall, the positive developments and strategic acquisitions suggest a robust position for future growth.

Strong Growth in Adjusted EBITDA and AFFO

The earnings call highlighted a significant increase in Adjusted EBITDA, which rose to $39.8 million, marking a 3% increase over the previous year. Excluding out-of-period items, Adjusted EBITDA saw a substantial 15.4% rise. Additionally, Adjusted Funds from Operations (AFFO) increased to $0.29 per share, up 23.1% year-over-year, demonstrating the company’s strong financial performance.

Successful Acquisitions and Expansion

Extendicare successfully completed the acquisition of nine Class C long-term care homes and a parcel of land from Revera for $41.9 million in cash. This acquisition added 822 long-term care beds and 574 private pay retirement beds to their portfolio, expected to contribute approximately $13 million in annualized Net Operating Income (NOI).

Home Health Care Segment Growth

The home health care segment showed impressive growth, with average daily volumes up 10.9% from the prior year. The NOI margin in this segment improved by 90 basis points, reaching 13.5%, reflecting increased efficiency and demand in the home health care market.

Increase in Revenue and NOI

Extendicare reported a 10% increase in consolidated Q2 revenue, reaching $383.4 million. Excluding out-of-period items, Q2 NOI improved by $6.3 million or 12.9%, totaling $55 million, indicating strong operational performance across its segments.

Managed Services Expansion

The company’s Managed Services segment expanded, with third-party and joint venture beds serviced by SGP growing by 5.9% from last year. Extendicare now services over 149,000 beds, showcasing its expanding footprint in the managed services market.

Loss from Closure of Class C LTC Homes

Despite the growth, Extendicare faced a loss of approximately $7.7 million in revenue due to the closure of two redeveloped Class C homes. This resulted in a corresponding loss of approximately $900,000 in NOI, highlighting some of the challenges faced during the quarter.

Managed Services Revenue Decline

Managed Services revenue saw a decline of $300,000 to $17.7 million, with NOI decreasing by $500,000 to $9.6 million. This was primarily due to the loss of management fees following Revera’s sale of 30 homes, impacting the segment’s profitability.

Higher Operating Costs Impact

Higher operating costs across all segments partially offset the revenue growth, affecting overall profitability. This highlights the ongoing challenge of managing expenses in a growing business environment.

Forward-Looking Guidance

Looking ahead, Extendicare provided optimistic guidance, with a 3% increase in Adjusted EBITDA to $39.8 million and a notable 15.4% rise when excluding out-of-period items. The home health care segment is expected to continue its upward trajectory with a 10.9% increase in average daily volumes and improved NOI margins. The company’s strategic acquisitions, including nine long-term care homes and a parcel of land, along with the acquisition of Closing the Gap, are anticipated to significantly boost annualized NOI. Extendicare also enhanced its redevelopment strategy with six new projects in Ontario and increased its senior secured credit facility by $100 million, ensuring substantial liquidity for future growth.

In conclusion, Extendicare’s earnings call reflected a positive outlook, driven by strong growth in Adjusted EBITDA and successful acquisitions. Despite challenges like revenue losses from closed homes and a decline in Managed Services revenue, the company’s strategic initiatives and expansion plans position it well for future growth. Investors can look forward to continued development in key segments and enhanced profitability in the coming quarters.