Extendicare Inc. (OTCPK:EXETF) Q4 2021 Earnings Conference Call February 25, 2022 11:30 AM ET
Jillian Fountain – Vice President, Investor Relations
Michael Guerriere – President & Chief Executive Officer
David Bacon – Senior Vice President & Chief Financial Officer
Conference Call Participants
Scott Fromson – CIBC
Lorne Kalmar – TD Securities
Tal Woolley – National Bank Financial
Thank you for standing by. This is the conference operator. Welcome to the Extendicare Fourth Quarter and Year End Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Jillian Fountain, Vice President, Investor Relations. Please go ahead.
Thanks, operator, and good morning, everyone. Welcome to Extendicare’s fourth quarter 2021 results conference call. With me today are Extendicare’s President and CEO, Michael Guerriere; and Senior Vice President and CFO, David Bacon.
Our Q4 results were disseminated yesterday and are available on our website. The audio webcast of today’s call is also available on our website along with an accompanying slide presentation, which viewers may advance themselves. A replay of the call will be available later this afternoon until March 11th. The replay numbers and passcodes have been provided in our press release and an archived recording of this call will also be available on our website.
Before we get started, please be reminded that today’s call may include forward-looking statements. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We have identified such factors in our public filings with the securities regulators and suggest that you refer to those filings.
With that, I’ll turn the call over to Michael.
Thank you, Jillian, and good morning. Before we turn to our fourth quarter results, I will highlight our ongoing efforts to protect our team members and those we care for from the COVID-19 pandemic. With the emergence of the Omicron’s variant early in December, cases surged across the country, resulting in high community infection rates, which in turn triggered new outbreaks in our homes and communities. While this new variant is highly transmissible, severe illness is less frequent than with previous strains. Nevertheless, it can pose a serious risk to the most vulnerable members of our community, particularly long-term care residents. This highlights the need for continued vigilance and focus on our key prevention and control measures to minimise the spread of the virus.
From the first signs of Omicron in December, our team members responded quickly and work tirelessly to protect those in our care. In addition to heightened infection control measures, vaccines remained the most effective preventative measure, particularly against hospitalisation and severe illness. Vaccination of our residents and staff, including our booster programs has mitigated the number of serious outcomes despite more widespread community transmission than we experienced in previous waves to the pandemic.
That said, the high rate of infection has driven up absenteeism across our operations, as it has with other health care providers. More than 2,000 staff in our long-term care homes and retirement communities, and more than 1,500 staff in our home health care operations have tested positive since the beginning of December.
Fortunately, the vast majority of our staff who did test positive experienced only minor symptoms or none at all. This still resulted in high levels of absenteeism, which put pressure on staffing and drove our pandemic costs. The high incidence of caregivers on sick leave also had a transient impact on home health care volumes into January.
Fortunately, changes to public health guidelines have allowed staff to return to work faster than in previous waves.
Although intense, the Omicron wave peaked quickly in mid-January and has been declining ever since. New cases within our homes and home healthcare operations are dropping. And currently 16 of our 69 long term care homes and retirement communities are recovering from outbreaks.
Since the beginning of the pandemic, our unfunded pandemic costs total more than $32 million. Though new cases related to the Omicron variant are on the decline, we expect COVID-19 costs to remain elevated in Q1 before resuming the decline we began to see in Q2 and Q3 of last year. Following year end, the Government of Ontario announced additional COVID-19 prevention and containment funding of $277 million relating to the government fiscal year end March 31, 2022.
Details about how this additional funding will be allocated to individual homes is still pending, while we welcome this additional support, mismatch in the timing and quantum of funding for the costs associated with our COVID response will continue to cause volatility in our results, until we fully emerge from the pandemic.
Turning to slide four and the February 3 announcement of the sale of Esprit, we entered into an agreement to sell our retirement operation, which comprises 11 communities in Ontario and Saskatchewan to a joint venture between Siena Senior Living and SABRA healthcare read for an aggregate purchase price of $307 million. The sale is expected to close in the second quarter of 2022, subject to regulatory approvals.
We were pleased with the implied cap rate of 6% on the transaction, and the net proceeds from the sale will be approximately $115 million. These funds will provide the flexibility to allocate capital strategically, including priority investments in our people, technology, and our long term care redevelopment program. We are confident that the residents who call our communities home and the talented teams who work in them will be able to transition seamlessly to one of Canada’s leading retirement home providers. This is a priority for both Extendicare and Siena.
We extend our appreciation to the staff of Esprit communities, who have demonstrated a steadfast commitment to providing outstanding care throughout the pandemic. For Extendicare, the sale is aligned with our strategic repositioning to focus on growth in our long term care and home health care segments. We have the deep expertise and scale in those segments to drive growth, improve performance, and high quality care for seniors across Canada. The services we provide to other senior living operators through Extendicare Assist and SGP will continue to be a prominent part of our growth strategy.
Now, let’s turn to a few financial highlights on slide five. We continue to invest in the resources required to help protect our residents, clients and staff, and are grateful for the financial support we have received from provincial governments toward our COVID-19 related expenses. While our pandemic related spending has been in decline in the second half of the year. The resurgence of outbreaks in December resulted in increased spending at the end of the quarter and into 2022. Pandemic related spending increased to $31.6 million in the fourth quarter, up 500,000 from Q3.
Additional COVID-19 funding announced by the Government of Ontario after year end resulted in the recognition of 11.9 million of revenue in Q4 2021 related to unfunded costs, unfunded costs incurred in Q1 2021. This resulted in a $4.5 million net recovery of COVID costs in Q4 as compared to net unfunded COVID costs of $9.4 million in the year earlier quarter.
As you can see from the table, we experienced improvements across all our segments in key operating metrics in Q4. Occupancy levels in our long term care homes and retirement communities, improved 110 basis points and 210 basis points respectively in Q4, as compared to Q3.
Average daily volumes in our home healthcare segments continued to increase in the fourth quarter, up 1.8% from Q3 and our SGP customer base continued to increase in Q4, up 5.4% from Q3 and 18.1% year-over-year.
Moving on to Slide 6, we continued to advance our redevelopment strategy to replace our older Class C long-term care beds in Ontario. Following our participation in the October 2021 new call for applications, we now have a total of 21 redevelopment projects proposed or underway in Ontario. That would see extended care build more than 4,600 new long term care beds, replacing all of our 3285 existing seed beds in the province.
This month we were awarded new beds for three additional projects. As of today, we’ve been awarded beds for 10 of the 21 applications, including the three under construction, representing 1,952 new long term care beds.
We remain actively engaged with our industry partners and the government to identify enhancements to the capital funding program necessary to make projects in all parts of the province economically feasible.
In Q4, we began construction on a 256 bed long term care home in Stittsville, Ontario.
Along with our Sudbury and Kingston projects already under construction, these three homes will replace 624 Class seed beds, with 704 new beds, requiring a net investment of approximately $179 million. We have a further six projects in advanced stages of government and municipal approvals in Ontario, where we expect to start construction before the end of 2023.
Moving to Slide 7 in our long term care operations, our COVID-19 related costs declined by 0.6 million from Q3, less of a decline than we were expecting due to the impact of Omicron that started in December and carried into the new year. The pace of long term care occupancy recovery slowed due to the surge of Omicron cases in the latter half of the month. While we experienced a 110 basis point increase in occupancy in Q4 compared to Q3. We expected our occupancy levels will be temporarily impacted in Q1 22 as the COVID-19 outbreaks in our homes have impeded our ability to admit new residents.
Once the pandemic is behind us, we expect that the pace of occupancy recovery will resume. As previously announced occupancy protection in our long term care homes expired on January 31, 2022.As a result, we may experience some reduction in funding for a small number of our Ontario long term care homes that do not achieve the required 97% average occupancy for the balance of 2022.
As was announced last quarter, the initial phase of the government of Ontario’s long term care staffing plan began in the fourth quarter, taking us to three hours of direct care per resident day.
The increased funding is provided through the nursing program flow-through envelopes, which is allotted to permanently hire the additional workers we brought on during the pandemic.
The plan adds subsequent increments in April of each year to take us to four hours of direct care per resident day by April 2024.Note that we continue to work with the Saskatchewan Health Authority to plan the transition of the delivery of long term care services at our five long term care homes there. Accordingly, we started accounting for these homes as a discontinued operation. Progress has been slow, as the parties have had to focus on the Omicron surge, but work continues. David will have more details on the financial impact of this change in his remarks.
Turning to Slide 8. Q4 ParaMed volumes increased over the prior quarter by 1.8%, continuing to steady recovery in that segment. Compared to Q4 2020, our volumes were up 7.7%. The Omicron related surge of COVID 19 cases within our ParaMed staff that started in September and continued into 2022 will affect volumes in the first quarter. We anticipate a return to volume growth as the pandemic recedes.
Adjusted NOI margins were 8.8%, down from 9.7% in Q3, when COVID related costs and the retroactive impact of the billing rate adjustments are excluded. The decrease in NOI margin was expected given seasonal impacts and the onset of the Omicron wave. When we consider the full year NOI margins for 2021, we’re 9.3% as compared to 4.8% in the prior year, when adjusted for the impact of COVID, wage subsidy and one time charges in Q4. Reflecting the volume recovery rate increases in 2021, and improvements in back office efficiency.
Staffing shortages across the entire healthcare sector continue to be a challenge, in particular the ongoing shortage of nurses, which is further exacerbated by the duration and stress of the ongoing pandemic. We continue to invest in our staff recruitment and training programs to counter the significant staffing challenges facing the industry.
In 2021, our PSW college partnerships and in-house training programs graduated and hired more than 700 new caregivers. These programs successfully introduced new staff into our operations, and we are targeting an additional 600 staff from these programs in 2022.
With that, I’ll turn it over to our CFO, David Bacon to provide further insight into our consolidated and segmented financial results for the fourth quarter. David?
Thanks Michael. I’ll start by providing an overview of our consolidated results for the quarter followed by some financial highlights of our individual business segments and liquidity position.
Before I begin, I should note that as a result of the pending transition of our Saskatchewan long-term care homes to the SHA announced last quarter, we have classified our Saskatchewan LTC operations as discontinued and held-for-sale and as such, they are excluded from our results from continuing operations in our financial statements and MD&A and in our comments today.
As previously stated, the transition is not anticipated to have a material adverse impact on the business, results of operations, or financial condition of the company. The Saskatchewan LTC homes contributed negative AFFO of $1.4 million, or negative $0.02 per share in 2021. Further details on the results of the Saskatchewan operations can be found in Note 18 of our audited consolidated financial statements.
Turning to slide 10 and our consolidated results, as in prior quarters, we’ve included a detailed schedule of the impact of COVID-19 on our revenues, operating expenses, NOI, and adjusted EBITDA on slide 19 in the presentation.
We continue to receive funding support under various provincial programs and as Michael mentioned, we recognized an additional $11.9 million this quarter from the Government Ontario to cover a portion of the unfunded COVID costs in long-term care incurred in Q1 of 2021.
As a result, the net impact of our unfunded COVID costs on our consolidated adjusted EBITDA was $4.5 million for the quarter and the after-tax impact on AFFO was approximately $3.3 million.
As previously disclosed, we received $18.8 million in COVID-19 funding in 2021 related to pandemic costs incurred in 2020, reducing the amount of unfunded cost to $3.6 million of the adjusted EBITDA level for 2021.
However, as Michael mentioned, when you consider the cumulative activity over the past two years, we have incurred cumulative unfunded COVID costs of $32.3 million from continuing operations at the adjusted EBITDA level.
While we welcome the announcement of additional COVID prevention and containment funding for long-term care from the Government Ontario earlier this month, we are still experiencing volatility in our results due to the timing and quantum of our COVID costs and related funding and the ultimate recovery of our unfunded COVID costs is uncertain and may not cover all the costs we will ultimately incur throughout the pandemic.
Our consolidated revenue in the fourth quarter increased 9.3% or $27.1 million to 319.4 million from the fourth quarter of 2020. This increase was driven primarily by a 7.7% increase in home health care volumes and billing rate increases, increased COVID-related funding of $5.6 million, long-term care funding enhancements, and growth in retirement living operations, partly offset by lower contract services revenue.
NOI decreased by $13.8 million from $55.8 million in Q4 2021, due to the $40.4 million in Canada emergency wage subsidy received by ParaMed in Q4 2020. Excluding this impact, Q4 2021 consolidated NOI increased by $26.6 million to $42 million with a consolidated NOI margin of 13.1%, up from $15.4 million and a margin of 5.3% in Q4 2020.
NOI improvements were driven by volume growth and billing rate increases in home healthcare, a reduction in net COVID costs overall and growth in LTC and Retirement Living, partially offset by increased costs of resident care and lower NOI and our other operations.
Our consolidated adjusted EBITDA decreased $13.3 million from Q4 2020 to $27.7 million due to the factors impacting NOI just noted, including higher administrative costs, primarily attributable to higher IT costs and transaction related professional fees offset by lower COVID-related administrative costs.
Excluding the impact of the wage subsidy received by ParaMed in Q4 2020, our Q4 2021 consolidated adjusted EBITA increased by $27.1 million as compared to Q4 2020.
Turning to our individual business segments on Slide 11, our long-term care operations saw revenue increased by $12.8 million or 7.3% in Q4, driven by funding enhancements, including $8.4 million in Ontario flow through funding and increased COVID funding of $3.3 million.
NOI increased by $14.3 million from the same period last year to $23.5 million and represented 12.4% of revenue, largely due to a reduction in unfunded COVID costs of $13.9 million on a year-over-year basis, partially offset by higher labor and operating costs.
We are encouraged by the trend and occupancy levels we have seen over the past six months before the impacts of Omicron began to be felt in December and in Q4 our occupancy improved to 110 basis points from Q3 of 2021.
As Michael mentioned, occupancy protection in Ontario Long Term Care Homes expired on — in January, and we are will be required to achieve 97% occupancy over the balance of the 11 months of 2022 to receive full funding. The government has confirmed that ward style beds not in use will continue to receive full funding and these beds are to be excluded from the occupancy calculations.
In addition, for purposes of the occupancy calculations, the minimum occupancy for February and March of 2022 has been set at 90%, to help with home still impacted with lower occupancy levels. We may experience some reduction in funding for a small number of our Ontario LTC homes that do not achieve the required 97% average occupancy for the balance of 2022.
When you exclude the impacts of the third and fourth ward style beds we have taken out of service, our December 2021 occupancy for our Ontario LTC homes was 95.8%. The new Ontario Long Term Care staffing plan commenced in November and started to alleviate through enhancements to the nursing and program envelopes some COVID cost pressures by funding the staff we added during the pandemic. We estimate these funding enhancements will provide incremental flow through funding towards direct care hours of between 40 to 45 million in 2022.
Turning to our home healthcare segment, revenue grew $13.4 million or 13.9% in Q4 driven by a 7.7% increase in average daily volume for the quarter year-over-year. Billing rate increases, which included $3.5 million related to Q2 and Q3 of 2021 and increase COVID related funding of $2.3 million.
Excluding the wage subsidy received in Q4 ParaMed’s NOI grew by $12.6 million to $10.9 million, with an NOI margin of 9.9%. This improvement reflects growth in volumes, billing rate increases and the impact of one-time costs of $6.1 million that we incurred in Q4 of 2020, partially offset by an increase in the unfunded net COVID costs.
On a sequential basis, excluding the impact of net COVID costs and the retroactive rate increase recorded in Q4, the NOI margin was 8.8%, down from 9.7% in Q3. This decrease in NOI margins was largely due to an additional statutory holiday in Q4 as compared to Q3 and increased staff costs associated with the normal holiday period, further impacted by the impact of Omicron. When we consider the full year and NOI margins for 2021, adjusted for COVID costs of wage subsidy impacts, our margin was 9.3% as compared to 4.8% in the prior year.
Volumes increased 1.8% in Q4 on a sequential basis. However, we have experienced a decline in our volumes in January, as Michael mentioned, due to the significant disruption in our staffing capacity due to the level of Omicron cases amongst our ParaMed staff. We do expect this will weigh on our overall volumes in the first quarter, but are already seeing some improvement in our staffing capacity in February, as the level of all Omicron cases subsides.
Turning to our retirement operations on slide 13. Q4 revenue was up $1.2 million, driven by improvements in our lease-up and stabilized property. While NOI declined slightly at 100,000 to $3.2 million, representing 24.4% of revenue.
Throughout the pandemic, our stabilized occupancy has remained above 90% and was 90.7% for all of 2021. During Q4, it averaged 91.8%, up to 120 basis points from Q4 2020 and up 110 basis points from Q3.
In terms of the retirement portfolio, overall, average occupancy grew 320 basis points from Q4 2020 and 210 basis points sequentially from Q3 of this year, driven principally by improvements in our lease-up communities.
As we previously announced on Feb 3, we entered into an agreement to sell our retirement living operations to the Sienna-Sabra joint venture for $307.5 million. We are expected to close this before the end of 2022, subject to regulatory approvals, which are in process. As Michael mentioned, we’re pleased with the implied cap factor we realized on the sale and anticipate our net proceeds will be approximately $115 million.
The transaction was structured on a debt-free basis, with existing debt associated with a portfolio of approximately $172.4 million, as well as estimated debt prepayment costs of approximately $6.3 million being repaid at closing from the proceeds. The net book value of the property and equipment and intangibles related to our retirement living operations is approximately $222 million as at December 31, 2021.
The AFFO per share impact on our consolidated 2021 results from the retirement living operations is estimated to be approximately $0.08. We will be classifying our retirement living operations as discontinued and held for sale commencing in the first quarter of 2022.
Turning now to slide 14, and our other operations assist contract services and SGP group services segments. Q4 revenue declined 3.7%, largely due to lower contract services revenue, leading to a 200,000 decline in NOI to $4.3 million. Year-to-date our NOI margins were 58.1%, which is slightly higher than our segments historical margins prior to COVID and due largely to reduce travel and marketing costs — during the pandemic. The underlying demand for our services remain strong and SGP now supports over 93,000 third party residents, an increase of 18.1% from Q4 of 2020 and up 5.4% from Q3.
Finally, turning to our overall financial position. At the end of Q4, we remained well positioned with consolidated cash of $105 million and $73 million in undrawn credit facilities. In addition, we have closed construction financing facilities for our three long term care redevelopment projects in construction, and now have an aggregate of $154 million in available undrawn construction financing facilities available for these projects.
The net proceeds to be realized in the sale of our retirement living operations will provide added flexibility to allocate capital strategically and specifically to our long term care redevelopment program. We continue to work through Ministry of Municipal approvals towards commencing construction on an additional six long term care projects in Ontario by the end of 2023. Excluding the impact of the Retirement Living debt, which is being repaid in full on closing on the sale, our maturity profile is favorable, with only modest debt maturities coming due over the next three years.
With that, I’ll pass the call back to Michael for his closing remarks.
Thanks, David. Before we turn to your questions, I want to express my sincere gratitude for the outstanding effort and dedication of our team members in the face of a two year battle with the pandemic. We remain steadfast in our efforts to protect our team members and those we care for from the new challenges posed by the highly transmissible Omicron variant. Families play a critical role in supporting residents, and I thank them for their continued support.
While the Omicron wave appears to be on the lane, we will continue to remain vigilant to protect the health of our residents, patients, clients and team members. Extendicare is a leader in the provision of services for seniors. With the sale of Esprit Retirement Communities, we are repositioning to focus on growth in our long term care and home health care segments. There’s a pressing need to replace ageing infrastructure and expand long term care capacity, and to address the growing demand from seniors to stay independent, with the support of home health care services. We look forward to continuing to invest in our people, technology and new facilities to meet that growing demand. Thank you for your continued interest and support.
With that, we’d be happy to take any questions you might have. Operator?
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Scott Fromson with CIBC. Please go ahead.
Thank you. Sorry about that. So just getting off mute. Just wondering wage inflation. You’ve said that, there will be extra costs in the first quarter at least related to the pandemic, but what about overall wage inflation going on? Beyond that, how do you – how do you counter the effects of tight labor markets and general increase in costs?
Yeah, Scott, good question. As you know, a large portion of our workforce are unionized. We have probably over 140 collective agreements, many of which are negotiated and bargained across sort of sector groups. So a large part our – our costs are managed through that process, as through negotiations with the unions and centrally bargained across the chunks of the sector, particularly in the long term care side.
So we know that that has an ability – a natural kind of effect of trying to temper the increases and try and keep them aligned with inflation. We do – we are as you know, a large portion, most of our staffing costs are funded, certainly in the long term care size through the envelopes and the funding. So we are we do count on and have to count on, rate increases, funding increases, keeping pace with that. I think over the long term, we find that they do generally on the labor side, particularly in the long term care side, but you know, there can be some, some staggered for lumpiness to that, if you look at things over the long term, but it is a challenge. There are the staffing shortages are probably most acute on the nursing side.
I think it’s a sector wide challenge or to encourage people to come into the sector and part of part of the equation is wages. It’s not everything else, we need to attract people that, you know, believing in long term care and caring for seniors in the mission. So there’s an element of making, extended care, a destination for people that have that propensity and desire to help, but we do – the rates are part of it. But we are trying to keep pace with inflation working with our partners working with the unions, but we are counting on also the funding increases to keep pace and generally they do over long periods of time, but in shorter periods, it can – it can be a bit disruptive.
Thanks. And how are you thinking about inflation on construction costs?
Well, it’s definitely a concern. I think, as Mike mentioned in his comments, and we said before the current capital program was a welcome change, and it’s it has gotten construction started, as you can see many of us are building new buildings, the current program does not have inflation protection baked into it. So that is something, we talk about working with our industry partners in the sector and the government and the oil, TCA on continued refinements and enhancements to the plan. Inflation protection is definitely one of the things that is on the table. So, so it is a concern, but it is – it’s also something being actively talked about at that table. And, you know, we’re hoping that, you know, we won’t lose momentum here on the redevelopment agenda for all of us across the province, given the demand. But it is, it will be a concern. But there are multiple ways to address that. And we’re actively working to build some of that protection there.
Okay. And final question, would you consider an acquisition strategy in your long-term care?
So, Scott, I would say that, you know, our priorities that at the moment are really related to our organic growth agenda. You know, as I mentioned in my remarks, we’re making investments in on the people side in terms of training and bringing people on. We continue to invest in our technology, and of course, new long-term care homes. So that certainly are our priority. We see lots of growth opportunities there.
That said, I think there may be opportunities from an acquisition perspective, but I think we would favor our assist model that we would favor operating versus ownership. As, as we look at — as we look at opportunities, I wouldn’t rule out an ownership state necessarily, but you know, I think we’re looking more at growth on our — in our assist model. And we’ll be very disciplined about this. So, you know, we’ll look carefully at opportunities as they arise.
That’s great. Thanks, Mike and David. I’ll turn it over.
Our next question is from Lorne Kalmar with TD Securities. Please go ahead.
Thanks. Good afternoon, everyone.
Hello. Flipping over to pyramid side of things. It looks like — looking through all the noise that actually was a pretty decent quarter. Understanding there may be some volatility in Q1 2022. But what’s your outlook for the balance of 2022? And where do you think you guys can get margins to have that?
Well, maybe I’ll start and then ask David to chime in. I mean, we’re very optimistic about the growth opportunities in home care. And we were really catching a significant stride. Last year, and then, wave number five of the pandemic showed up.
I’m, frankly, really encouraged by how well the team weathered that storm. It was a brief storm, but really intense. And, you know, I expect, you know, expect the group to bounce back and get back on a, a growth trajectory.
I think it’s a little early to, to kind of predict, you know, how quickly that’ll happen, or whether there’s any lasting impacts of kind of the January, February, challenges that we had with absenteeism.
But right now, it sure looks like everybody’s coming back to work, which is very different from what we experienced in wave one, when we had, you know, a huge drop off in staff that just never came back. This time, we’re not seeing that. We’re seeing brief absences. And, you know, public health lets people come back to work within seven days.
So, we’ve supported those staff through their kind of isolation period and heist that we were growing last year. So that’s certainly our hope. But it’s a little early to, to kind of predict. David, do want to talk about margin question.
Yeah. I don’t think I have much to add to what Mike said. I mean, it is a little — we’re going to see potentially a bit of a softer Q1 given the Omicron impact. So the trends of the sequential growth may be tempered a bit in Q1, but we’re confident we’re already seeing that staffing capacity rebuilds. But I think our — we ended the year; we adjust out some of the impacts and the noise of COVID. And retro from — for the year, sorry, the COVID and it’s huge impact, we ended the year around 9.3% adjusted.
So, I think, that’s where we were. I don’t really want to predict how much more we can improve that. There’s still going to be some noise here in q1 with COVID. But from a growth perspective, we do think we’ll get back on track, where we look like last year after we get Q1 behind us and see where that leaves us in terms of an exit run rate for the rest of the year.
Okay. And I know that you guys are going to have the ERP system all up and running out, you guys have recognised some efficiencies on that front as well?
Yeah. It’s still leading to two additional efficiencies in that. We’ve got a lot of back office capacity now that can take on more volume without adding cost. So I think we’re going to continue to see a positive impact on margins from the growth, because we can hold our back office cost constant as we grow. So we’re going to continue to see benefits of that ERP investment as we continue to expand the service.
Okay. And then on the retroactive funding, have you guys gotten anything thus far in 2022?
Well, they’ve made that announcement of additional funding for the Ontario government year-end March 2022. But we don’t know how that’s going to be distributed. So there’s definitely going to be additional COVID cost recoveries relating back to what would be our Q2, Q3, Q4 last year, and then Q1 this year. But I’d be cautious about interpreting that statement, because we’re also going to have a jump in our COVID costs for Q1.
So the two might just offset each other and we don’t have any information about COVID funding from any province past April 1st. So still uncertainty on that front, I think, it’s going to continue to be a challenge to match costs and revenue until this pandemic is completely behind us.
I guess we’re all kind of getting used to that now unfortunately. Just last for me on the other ops, could you just maybe give a little more colour around the revenue decline? It just — it may just be my lack of understanding, but I just wondered if you guys provide a little more information there?
Yeah, I think a couple of things to offer up. If you think about that business on the contract management side of that business, a lot of our contracts are on a percentage revenue basis. So as the COVID funding received by our clients has its lumpiness as well, up and down. So as the COVID funding was declining through the latter part of the year, the management fees were coming down, and then there was a sizable catch up in the early part of 2021 related to 2020 as well.
So, a little bit of that decline is just off the percentage contracts. And then similarly, on the group purchasing side, huge uptick in spending on pandemic supplies sort of in 2020 through the early part of 2021. But then, again, as that levels off in 2021, when things were — before the Omicron wave, the level of spending went down just an absolute spend, but also price points started returning back to normal rate in terms of some of the key pandemic items that people were buying where the prices shot up. So, combination of those two things really driving — just driving things generally across the kind of year-over-year view.
Okay. That was actually very helpful. And then maybe just one last one on the assist side, do you think there’s any opportunity to, I mean, you kind of allude to it a bit, but to pick up some more management contracts over 2022 with maybe some COVID exhaustion a part of incumbent managers or owners?
Yes. I think there is an opportunity, I think, for the reasons that you just mentioned, Lauren, but also, because we’re seeing some increased complexity around regulations are likely, which makes it harder to kind of manage and operate in a smaller kind of format. So when I look at our 51 current homes that we provide services for, we’re helping a lot of them with navigating that. And we also get a significant amount of business just providing people with updated policy and procedure manuals.
So that’s a growing part of our services business as well. So, certainly, we’re seeing that opportunity as people want to tap into the scale that just comes with a shared service across a large number of homes.
Okay. That was all very, very helpful. Thank you very much.
[Operator Instructions] Our next question is from Tal Woolley with National Bank Financial. Please go ahead.
Hi. Good afternoon.
Just want to continue on with some question — questions about the other businesses. You’re kind of running in this $15 million to $16 million NOI range annually. I’m not sure, I’ve got a really good picture of like what the blue sky scenario is for these businesses? Like, is there a path to $20 million in an NOI, or is there a path of $25 billion in NOI? I really don’t know what the upper limit is, I could be looking at here. Can you give me some color around that?
Good question, Tal. I mean, I think it’s been a little bit hard for us to assess the potential market for those services, just because the whole industry has been in such disruption over the last two years. But that said, we think there’s a lot of room to grow this side of the business.
So just to give a couple of examples, I mean when you look at SGP, you can see how much we’ve been adding additional beds to their customer base. We’ve added salespeople in other provinces so we’ve got real coverage now across the country. So still a lot of growth left in that group not only from the perspective of additional clients, but also share of wallet. And we’re expanding those services which today are very much product related to add more services related activities, think about maintenance contracts and that sort of thing where there’s a lot of benefit from negotiating as a group.
But we also see other services I mentioned are manuals, but there’s other things like training, management services of various descriptions, back office services. The technology requirements of operating in the sector are getting more onerous. And of course, as you know, any kind of technology activity has a really strong scale dynamic to it. So, we see opportunities there as well.
So I would say that we see a lot of opportunity there to expand that business quite a bit. It’s matter of us sort of seeing when the dust clears, what the market receptiveness is to this going forward, but we’re very optimistic about it.
Okay. And then with pyramid, I think your prior peak NOI generator business probably in the mid-40s, I think on an adjusted basis this quarter I appreciate that there will be some variants coming up in Q1, but you are starting it looks like you’re getting close to kind of like if we annualize Q4 like you are kind of getting close to that range again.
Given the constraints on labor, what can we realistically expect to be the upside on that business? If you weren’t able to really expand the labor pool a lot, like could you sort of see yourself comfortably getting to kind of like that 50 million, NOY range, or is it something less than that or is it more? I’m just kind of curious to see what you think the possible with the labour constraints?
Well, I think a couple of things. I think that labour constraints are very different for nursing versus PSWs and other homecare workers. Which is why, we’ve created our own training programs to be able to expand our homecare workers workforce. I mean, as you can see, from our 2021 results, we’re able to expand our workforce to drive a double-digit growth rate, in our homecare services.
So, when we talk about the constraints, it’s a challenge for sure. But I don’t think it’s an insurmountable challenge. I do expect to be able to continue to grow that business overall. We haven’t talked about it for a while, but we get referrals from various government agencies for our homecare services. And those referrals across the industry are beat not being met at historically high rates right now.
So, less than 60% of the homecare referrals in Ontario are being met. And that represents a huge opportunity for growth that the industry has been challenged by. So I think, from our perspective, the competitive advantage that we’ve invested and creating is that ability to grow our own in terms of building up our team, and using that as the basis for expansion. So I think we’ve got a lot of opportunity to grow that business at a double-digit rate for the foreseeable future.
How much of the pyramid basis nurses versus PSWs?
Well, it varies in different parts of our business. So, we haven’t disclosed the mix of the two, but PSWs are quite a bit larger as a group than nurses.
Yeah. Okay. So if less than 50% of referrals are being met, like how many more bodies would you need today to match the demand that’s being offered to you?
Well, that depends on what happens with all of the other operators in the market as well.
So, I wouldn’t be presumptuous in thinking that we would fulfill all of that gap ourselves. But I would certainly — I’d certainly say that the gap across the province is probably the size of our entire business. But that’s a guess, I mean, don’t take that to the bank, but quite at the moment.
No. And the current workforce for ParaMed is that you guys employ right now is how many people?
On an FTE basis about 6,000, but there are full time and part time people in that number.
Okay. And then — in your programs — in your programs that you’re graduating, sorry, go ahead.
Sorry, Tal. It would be more heads than that, but that’s what it is on an FTE basis.
Okay. And then you’re graduating right now under programs about 600 people a year.
Yes. But we’re also recruiting. I mean, our recruiting is also very active. So, that the training program is a supplement to that.
Okay. Yeah. No, I was just trying to get a sense of what the impact that these programs have. Is it a one year program or is it a two-year program, like two-year program, I’m not 100% sure.
Our in-house training program is six months.
It’s quite short. It depends on if you’re talking about what kind of worker and what kind of work they do. Our nursing partnerships with colleges take the couple of years. So there’s variability in it.
Got it. Okay. That’s helpful. Thank you.
This concludes the question-and-answer session. I would like to turn the conference back over to Jillian Fountain for any closing remarks.
Thank you, operator. That concludes our call for today. This presentation is available on our website as are the call in numbers for an archived recording. Thank you, everyone, for joining us today, and have a good weekend. Please don’t hesitate to give us a call if you have any questions.
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