Extendicare Inc. (EXE) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Extendicare. Please note that today's meeting is being recorded. It is now my pleasure to turn the meeting over to Mr. Alan Torrie, Chairman. Mr. Torrie, the floor is yours.

Thank you very much, operator, and good morning, ladies and gentlemen, and welcome to the 2020 Annual Meeting of Shareholders of Extendicare. My name is Alan Torrie, and I am Extendicare's Chairman. Joining me today are Michael Guerriere, Extendicare's President and Chief Executive Officer; David Bacon, your Senior Vice President and Chief Financial Officer; and John Toffoletto, Senior Vice President, Chief Legal Officer and the Corporate Secretary. Before we get into the formal business session of the meeting, I wanted to share a few comments regarding COVID-19. First and foremost, our thoughts are with Extendicare's residents and clients, and frontline workers have seen and felt the impacts of COVID-19 deeper than most. Our thoughts are also with those who have lost family and friends, and my fellow directors, and I wish to express our sincere condolences. Extendicare's frontline workers continue to hold the line and perform exceptionally. They are backed by a management team that is leveraging years of experience and preparation as they respond to an unprecedented challenge. On behalf of my fellow directors, we thank everyone in the Extendicare family for all that they have continued to do. I don't need to tell you that these are difficult times, which makes our frontline workers unwavering dedication to our residents and their clients even more special. Again, thank you. While we all remain focused on managing through this challenge, your directors are keenly aware that the normal course activity of the Board must continue without interruption. Shareholders should rest assured that your Board remains focused on the strategic risks and opportunities in front of Extendicare, with the interest of the company and its many stakeholders top of mind. While today's priority must be on the epidemic and Extendicare doing all it can for its residents, clients and frontline workers, our Board and management, we will continue to think about what comes next. With that, we're about to commence the formal business portion of the meeting. But as a reminder, only registered shareholders and duly appointed proxy holders are able to vote or ask questions during the formal business of the meeting. Guests will be permitted to ask questions following the business of the meeting. [Operator Instructions] If your question relates to a specific motion, please start your question by identifying the motion so that we may address your question at the appropriate time of the meeting. We will save any questions that are not in respect of a particular motion for the general question-and-answer session following the formal business of the meeting. If a question is of -- is personal in nature, we will follow-up with you individually after the meeting. If shareholders or duly elected proxy holders have questions, we encourage you to submit them now. Voting on all matters for today's meeting will be conducted by electronic ballot through the virtual voting platform and can be completed at any time from now until the end of the formal business of the meeting. Copy share will open the polls. If you are a registered shareholder or duly appointed proxy holder, the polls should automatically appear on your screen. If they have not, please click the voting icon at the top of the webcast page. You have already voted in advance of the meeting and do not wish to change your vote, you do not need to vote again during the meeting. For those who have not yet voted, we encourage you to do so now. Finally, we would like to remind you that our remarks today, including answers to your questions may contain forward-looking information. By its nature, this information contains forecast assumptions and expectations about future outcomes which are subject to the risks and uncertainties discussed more fully in our public disclosure filings. With that, I will now call the meeting to order. The first item is the appointment of secretary and scrutineers. I will act as Chair of today's meeting, and I will ask John Toffoletto to act as secretary of the meeting. For the purposes of today's meeting, I appoint Computershare Trust Company through its representatives to act as scrutineers. We are constituted this morning as the Annual Meeting of the Shareholders of Extendicare Inc. Under the articles of the company, the common shares have attached to them a single vote per share. In order to facilitate the proceedings for today's meeting, we have asked Mr. Toffoletto and Mr. Bacon, each of whom are shareholders, to move and second the proposals related to the items of business identified in the notice of meeting. As previously noted, during the formal portion of the meeting, we will pause to address questions and comments submitted by shareholders and proxy holders that are specific to the motions being presented during the meeting. Any general questions will be dealt with during the general question-and-answer session following the formal business of the meeting. If you are a shareholder or a proxy holder with a question that you'd like to address during the meeting, I ask that you submit your question now. We will now proceed with the formal business of the meeting. A notice of the meeting scrutineers report quorum and constitution of this meeting. The secretary has provided me with a declaration confirming that the notice of this meeting was properly given to all shareholders entitled to receive notice and was accompanied by the Management Information Circular and form of proxy. Accordingly, with the consent of the meeting, the reading of the notice of the meeting will be dispensed with. The scrutineer's report on common share representation at the meeting has been received, and it shows that there are more than 25% of all outstanding voting shares present and therefore, a quorum is present. A final report will be prepared following the meeting. I declare the meeting regularly called and properly constituted for the transaction of business. And I direct the secretary to attach the declaration of mailing and scrutineers' final report to the minutes of this meeting. I'd like to now move to the annual financial statement and the auditor's report. The first item of business, which is a presentation of the consolidated financial statements of Extendicare for the year ended December 31, 2019, and the report of the auditors thereon. A copy of the 2019 annual report containing the financial statements and auditors report was mailed to each shareholder that requested a copy. No action is required to be taken by shareholders on these financial statements. So John, can you please advise if any questions concerning the financial statements were submitted.

Mr. Chair, no question specific to this item have been submitted.

Thank you, John. I'll now proceed with the next item of business, which is the appointment of auditors. As indicated in the management information circular, KPMG LLP are the present auditors of the company and the Board on advice of the Audit Committee recommends their appointment. Mr. Toffoletto, may I please have a motion?

Mr. Chairman, I move that KPMG LLP be appointed auditors of Extendicare until the next annual meeting of the company at such remuneration as shall be fixed by the Board.

Mr. Chairman, I second the motion.

Thank you, Mr. Bacon. Could you please advise of any questions specific to this motion have been submitted?

Mr. Chair, once again, no question specific to this notion have been submitted.

Thank you, John. I'll now proceed with the next item of business. Election of directors. 8 of our 9 directors are standing for reelection, and the number of directors to be elected today has been fixed at 9 by the Board. Margery Cunningham is retiring at this year's meeting, having served on the Board since August 2010. Margery brought valuable financial and industry experience to her role as a director and as Chair of the Audit Committee. On behalf of the Board and management, I'd like to express our sincere gratitude for Margery's invaluable contributions and dedication over the past 10 years. Margery, your insights and wise cancel will be greatly missed, and we wish you all the best in the future, and thank you. I'd also like to take this opportunity on behalf of the Board and management to bid welcome to a new Director nominee, Brent Houlden. We are delighted that Brent is standing for election as a director, as his extensive background as a business strategist and financial adviser makes him a strong addition to the Board. And Brent, we look forward to working with you. The nominees for election as directors, in addition to myself are Norma Beauchamp, Michael Guerriere, Sandra Hanington, Alan Hibben, Brent Houlden, Donna Kingelin, Samir Manji and Al Mawani. There having been no further nominations received in advance of today's meeting in accordance with Extendicare's advanced notice bylaw, I declare nominations to be closed. I will now proceed with the election of the 9 directors. Mr. Toffoletto, can I please have a motion to elect the 9 nominated individuals as the directors of Extendicare for the upcoming year?

Mr. Chairman, I move that each of the individuals so nominated be elected as the directors of Extendicare to hold office until the next annual meeting of the company or until their respective successors are elected or appointed.

Mr. Chairman, I second the motion.

Thank you. Can you advise if any questions specific to this motion were submitted?

Mr. Chair, no question specific to the motion have been submitted.

Thank you, John. I'll proceed now with the next item of business. The next item of business is an advisory resolution on the Board of Directors' approach to executive compensation, commonly known as Say on Pay. This is an advisory vote, the results of which are nonbinding. However, it gives shareholders an opportunity to provide important input into the company's executive compensation practices. The Board and in particular, the Human Resources Committee will consider the outcome of the advisory vote as part of its ongoing review of executive compensation and when considering future compensation, policies and decisions. Mr. Toffoletto, may I please have a motion?

Mr. Chairman, I move on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that shareholders accept the approach to executive compensation disclosed in the company's management information circular delivered in advance of this meeting.

Mr. Chairman, I second the motion.

Thank you. Can you please advise if any questions specific to the motion were submitted.

Mr. Chair, no questions have been submitted.

Thank you, John. There will be no further matters to vote on. I would ask that if you have not already done so, please cast your votes now. The polls will be closing in 15 seconds. Once the electronic balloting closes, the voting page will disappear and your votes will automatically be submitted. I'm going to wait a few seconds well that transpires, and John will inform me when the polls have been closed. [Voting]

Mr. Chair, the polls have closed, you may now proceed.

There'd be no further matters to vote upon. I ask you have not -- oh, sorry, got a catch-up here in my script. Thanks, John. Thank you, again, to all our shareholders who have voted in advance or during today's meeting. The polls are now closed, and we will now proceed with the announcing and voting results of the meeting. I have been advised by a scrutineer that the ballots and proxies deposited for the meeting have been voted in favor of the resolutions. As such, I declare each of the resolutions considered at today's meeting in respect of those matters carried. The exact number of votes cast in respect to each matter will be filed on SEDAR and by press release will also be made available on our website. Having completed all the business for which this Annual Meeting of Shareholders was called, I will now entertain a motion for termination of the meeting, following which I'll ask Michael Guerriere to provide his remarks and address any general questions submitted.

Mr. Chairman, I move that the meeting be terminated.

Mr. Chairman, I second that motion.

Thank you. I declare the motion carried in the Annual Meeting of the Shareholders of Extendicare terminated. On behalf of management and the Board, I'd like to thank you all for your strong show of support, interest and continued loyalty by attending today's meeting. As all matters of business have been addressed, that concludes the formal part of the meeting. It is now my privilege to ask Dr. Michael Guerriere to deliver his remarks and conduct the general question-and-answer session. [Operator Instructions]

Thank you, Alan. Good morning, and thank you for joining us today. We started planning for this meeting a few months ago. We never imagined we'd be in the situation we find ourselves now. The world has changed at a pace and scale nobody foresaw as we started the year. The fact that we are conducting this meeting virtually is unprecedented in our 52 years of operation. Hundreds of our support staff are working from home today, and our caregivers are on the front lines of the battle with COVID-19, fighting daily with an invisible threat to keep our residents and clients safe. While the majority of our homes have been able to keep the virus at bay, our community has experienced great loss over the past 3 months. Our sincere condolences are with all of the families and friends, both in our community and outside of it, who have lost a loved one to this aggressive virus. Our hearts go out to them in this exceptionally difficult time. Our residents, clients and frontline workers have borne the brunt of this pandemic, and we remain focused on doing everything possible to protect them, while also continuing to provide the high-quality care and support seniors expect from us. As conditions and government directives have evolved, we have adapted our operations to safeguard those in our care and to protect our 22,000 employees. We have implemented enhanced infection control and management protocols throughout our operations and adapted our procedures and staffing models to various government directives. We have limited all nonessential visitors to our homes, put in place a universal masking policy, increased use of personal protective equipment across the organization, implemented enhanced screening of all residents and staff within our long-term care homes and retirement communities as well as enhancing protocols in our Home health care operations. Never complacent, we are constantly looking at the data to learn everything we can about this virus to improve our infection control strategy. Our most important insight is that asymptomatic workers exposed to the virus in the community can bring the virus into a home unaware that they are harboring it. We discovered this after conducting universal testing of our homes in Ontario, where we tested every resident and every staff member over 20,000 tests. The testing identified 8 homes with COVID-19 positive staff with no residents affected. By isolating those staff, we were able to prevent the virus from infecting the residents. Working with the province, we are undertaking to test all of our staff on a regular basis to stop the virus before it gets in. This approach is already reaping benefits. We have had 21 outbreaks in our 69 owned homes, 19 in long-term care and 2 in retirement. Due to the hard work and dedication of our staff, 14 of those have been declared clear of the virus by public health, leaving 7 still in active outbreak. We are also working with our Extendicare Assist clients to help them manage any outbreaks in their homes. With our new testing strategy, we are hopeful that we will drive that number down even further in the coming weeks. We will continue to focus on the safety of our residents, clients and staff as our top priority until the threat of the virus has passed. We are incurring additional costs as we use more masks, gloves and gowns and incur greater staff absenteeism as they self-isolate when circumstances warrant. However, governments are making funding announcements in an effort to mitigate the increased costs incurred in managing the virus. On the revenue side, the impact has been felt most acutely in our ParaMed operations, where we have experienced a 22% decline in our average daily volumes since the middle of March, when social distancing became the norm and all nonurgent care services and elective procedures in acute care hospitals were suspended. At the same time, our back office and front line operating costs have increased as our home care offices coped with the upheaval that followed the pandemic declaration. Like everyone else, we don't have a clear picture of how long the impact of COVID-19 will last, but we do expect that once the risk has reduced and particularly as elective healthcare services resume, we will see home care volumes return to pre-pandemic levels. Our retirement living operations have experienced a decline in occupancy as access to our retirement communities has been restricted. Our long-term care segment also experienced modest declines in occupancy but the funding framework in Ontario protects income when occupancy is impacted by an outbreak, and we anticipate the same to be true in the other provinces in which we operate. Given the uncertainty created by COVID-19, we have taken steps to improve our liquidity during and following the quarter including securing additional mortgage financings and deferring nonessential capital expenditures. We continue to monitor the financial impact of COVID-19, including the welcome relief measures announced by various levels of government across Canada. We believe that these will reverse as we emerge from the pandemic. However, due to the uncertainty of its duration and magnitude as well as government's response to it, it is difficult to predict the extent of its impact on our operations and financial results and condition. Despite all the challenges presented by COVID-19, we remain optimistic about our future. The fundamentals of our business are sound. Extendicare's business is underpinned by government revenue and a strong balance sheet. To drive improved performance and profitability, we constantly monitor industry advancements and adapt our operations to take advantage of new technology, adding new systems to improve performance and drive organic growth. In 2019, we continue to invest in our future and positioned Extendicare for a long-term success. Our long-term care operations continued to deliver high-quality care for seniors. On the Home health front, we made significant progress in transforming our ParaMed Home Health operations through a $12 million investment in cloud-based software. While these costs put pressure on our 2019 Home health care margins, they set us up for the future by creating capacity for growth and put ParaMed at the forefront of the Home health care industry. Our retirement living business performed strongly in 2019 with brisk leased-up activity in our newly added and expanded communities. Since November of 2018, we've added 281 new suites with the expansion of Douglas Crossing and the opening of 2 new communities, Bolton Mills and the Barrieview. Our B2B services are also an important part of our growth strategy. In 2019, we continue to grow this high-margin segment of our business, most notably through a 27% increase in the number of beds served by our SGP Purchasing Partner Network. Looking forward, as COVID-19 recedes, we see growth opportunities across all segments of our business. The number of seniors age 75 or over in Canada is expected to grow at 4% per year, putting even more strain on our already stretched health care system. Expansion of Home health care and long-term care will be essential to avoid overwhelming the acute health care system with services that can be provided more effectively in the community setting. The critical shortage of long-term care beds and the pressing need for additional long-term care beds in Canada has not been changed by the virus. Indeed, the pandemic has highlighted the challenges of delivering care in old facilities and made their replacement all the more urgent. We believe that redevelopment will be a key component of the response to the pandemic. With our ParaMed transformation substantially complete, we expect to fully participate in the growing seniors market with increased volume of care hours and improving margins. As the health care industry evolves, we expect to see increased integration and collaboration between Home health care providers and doctors and hospitals. As the only Home health care provider with scale and a cloud-based technology platform, our ability to provide integrated care services has a strategic advantage that positions us well to respond quickly to market opportunities as or where they arise. Continued lease-up of our new retirement communities and the planned expansion in Port Hope, will contribute strongly to our overall performance. And our well-established processes and scale can provide valuable assistance to smaller service providers through our B2B offerings. While we are completely focused on addressing the COVID-19 challenge in the near term, we remain confident in our future. Once we emerge from this crisis, demographic tailwinds and the investments we've made in our business will provide a variety of future growth opportunities. As a leader in the industry, we will play an important part in improving the accessibility of seniors care services. Our focus on helping people live better will drive sustainable value creation for Extendicare's shareholders for years to come. I want to take this opportunity to thank our advisers, our business partners and the Board of Directors for their tireless efforts in support of Extendicare and its mission. In particular, I want to add my thanks to Margery Cunningham, who's retiring from our Board after 10 years of dedicated service to this company. We'll miss her insightful contributions at the Board table, and I wish her well. And I'm delighted to bid welcome to Brent Houlden, who is joining our Board today. I look forward to working with him, the Board and the rest of the management team to achieve the full potential of this company to make a difference in seniors lives across Canada. I will close by paying tribute to our 22,000 team members across the country who are going above and beyond during this difficult time to care for those who depend on us. Our staff have shown tremendous strength and compassion during this difficult time, often working long hours and covering shifts for coworkers. Their commitment is truly inspiring and makes a world of difference to those in our care and to the families that are unable to visit their loved ones. Their dedication and commitment towards Extendicare mission sets an example for all of us to do everything in our power to protect our neighbors, our families and our way of life. While it has been a difficult time for residents, clients, patients, team members and families, our mission remains steadfast on providing the care and support our community expects of us. Keeping everybody safe is our number one focus. With that, we'd be happy to take any questions that you may have.

We do have a question. What is the financial impact of COVID-19 for the quarter ended in March? And I believe Mr. Bacon will answer that question.

Yes. Thanks, John. As Michael said in his remarks, he outlined some of the impacts that we did feel in Q1, ranging from, obviously, the volume decrease that we experienced in our ParaMed Home Health Care operations, our occupancy and retirement had a slight decline in occupancy and long-term care, specifically related in the quarter to costs related to COVID, the real impact was felt later in the quarter. And the expense we incurred was about $700,000 of incremental expenses, of which $400,000 were covered with some of the early funding that we received in Ontario, and that would be where the expense side, cost side impacts were in the quarter.

We have a further question. Has Extendicare conducted an internal risk assessment for the business in the event of pandemics like SARS and COVID-19?. And how low staff to resident ratios would contribute to death and quality resident care? If not, why not, given the decade the corporation has had to prepare since the SARS Commission report was made public? And if yes, will you share the pandemic risk assessment report with shareholders?

Certainly, we've understood the risk that infectious agents present to our residents. And we've had protocols that have long been used successfully to protect our residents from those infectious agents. But it's clear now that we're dealing with a virus that's very different from viruses that we've dealt with in the past. And I think the remarks I made earlier about the testing strategy demonstrate that. We've always used screening mechanisms that look for people that have symptoms or people that are running a temperature as a way to screen out carriers of infectious agents into our homes. But the propensity for this particular virus to spread through asymptomatic carriers is something that we really haven't dealt with before. And something that we did not anticipate its ability to bypass our screening procedures. Now that we understand that and we understand the important role that testing plays in preventing that virus from coming into our homes, I think we understand much better how to prevent future infections and outbreaks from getting into our homes in the first place. So that's our priority now is to put that new preventive procedure in place across our entire operation, and we're very hopeful that, that is going to make a very significant difference. So I think the answer is, in summary, that all of our risk plans did not anticipate this kind of behavior from an infectious agent. And we're now reacting appropriately to that reality and making sure we're putting the safeguards in place to prevent further outbreaks.

We have a further question. Is there a risk that you cut the dividend in the near future? I believe Mr. Torrie will be addressing this.

Thank you, John, and thank you for the question. We believe that the dividend is really an important way of returning value to our shareholders. We have taken steps in recent weeks to bolster our liquidity and are currently maintaining our dividend at its current level. We are always, however, evaluating the best use of capital going forward. But currently, that's our position.

As we have no further questions, I'll turn it back to you, Michael. Michael?

Thanks, John. Sorry, I had my phone on mute. I apologize. So -- still getting used to the idea of a virtual AGM. But thanks, everyone, for taking the time to join us today. And I hope everybody stays safe, and does everything possible to restrict the communication of this virus in the community. There's -- a lot of us are depending on your hard work in that regard. Thank so much.

This concludes the meeting. You may now disconnect.