Extendicare Q3 2026 Earnings Call Transcript
Extendicare (TSX:EXE) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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View the webcast at https://www.gowebcasting.com/events/extendicare-inc/2026/11/06/third-quarter-2026-results/play
Summary
Extendicare Inc. reported a 41% increase in adjusted EBITDA to $71.7 million, surpassing consensus expectations with net earnings per diluted share up 26% year-over-year.
The company successfully reduced its unsecured revolving credit facility by $53.7 million, enhancing its net debt to EBITDA ratio to 2.3 times.
Home healthcare saw substantial growth with a 111.5% increase in volumes, and the company expects annualized market growth to moderate to 6-8% due to demographic trends.
Extendicare progressed in its Long-Term Care Redevelopment Program, opening a new 256-bed facility and advancing multiple projects, while also managing construction and interest rate challenges.
Management highlighted ongoing integration efforts of recent acquisitions, emphasizing synergies and a strategic focus on further home healthcare acquisitions and capital allocation flexibility.
Full Transcript
OPERATOR
Thank you for standing by. This is the conference operator. Welcome to Extendicare Inc. third quarter 2026 analyst conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero.
I would now like to turn the conference over to Gillian Fountain, Vice President, Investor Relations. Please go ahead.
Gillian Fountain (Vice President, Investor Relations)
Thank you, operator, and good morning, everyone. Welcome to Extendicare’s 2026 third quarter results conference call. Joining me today are Extendicare’s President and CEO, Michael Guerriere, and Executive Vice President and CFO, David Bacon. Our Q3 results were released yesterday and are available on our website, as is a live audio webcast of today’s call along with an accompanying slide presentation. An archived recording will also be available on our website following the call today as well.
Replay numbers and passcodes have been provided in our press release for those wishing to access an archived recording by phone until midnight on November 20th. Before we get started, please be reminded that today’s call may include forward-looking statements and non-GAAP and other financial measures. Such forward-looking 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 as well as details of non-GAAP and other financial measures 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.
Michael Guerriere (President and Chief Executive Officer)
Thank you, Gillian, and good morning. Our third quarter results reflect the continued execution of our strategy, with acquisitions and organic growth delivering adjusted EBITDA of $71.7 million, up 41% from the prior year and ahead of consensus. Net earnings of 35.4 cents per diluted share were up 26% over the prior-year period. Our strong financial and operating results enabled us to pay down $53.7 million on our unsecured revolving credit facility this quarter, improving our pro forma net debt to EBITDA to 2.3 times.
We ended the quarter with $246 million in available liquidity, providing us with significant flexibility as we consider our options to allocate capital. Home healthcare delivered another strong quarter of organic growth. Combined with the acquisitions, volumes increased 111.5% year over year excluding CBI. ADV increased 18.8% from the prior year, driven by strong underlying growth of the market. NOI margins in our home health segment were 13.1% in Q3 after removing out-of-period revenue, up 20 basis points from Q2. As we noted last quarter, we invested in technology and back-office teams earlier this year to support the rapid growth in home care services.
These investments and the absence of a 2026 rate increase in Ontario contributed to a 50 basis point reduction in home healthcare NOI margins from the prior year. We continue to expect that underlying market growth will moderate over time to approximately 6% to 8% on an annualized basis, reflecting the 4% demographic growth trend and the unmet care needs driven by a shortfall in long-term care beds that is anticipated to persist for the foreseeable future.
We also expect that over time funding increases will substantially keep pace with inflation, supporting NOI margins. Long-term care occupancy remains strong, and NOI margins were 11.8% for the quarter, adjusted to remove out-of-period funding. This quarter, we received retroactive rate increases in Alberta in both long-term care and home health, consistent with historical patterns that have seen funding increases keep pace with wage rate increases, ultimately supporting NOI margins. Our managed services segment continues its record of strong performance, including 9.4% year-over-year growth in the SGP customer base and NOI margins of 55.6%.
We continue to expect annualized margins of 50% to 55% for this segment. Driven by the strength of these results, our diluted FFO per share excluding out-of-period items increased to 43 cents per share, up 35% year over year, driving our payout ratio down to 34% on a trailing 12-month basis. Turning to slide 4, our home health acquisitions continue to outperform our original underwriting. CBI delivered another strong quarter, contributing $153.3 million in revenue and $20.3 million in NOI. In the first six months after close, CBI is tracking approximately 23% on adjusted EBITDA and 25% ahead on volumes relative to our original underwriting. We are on track to substantially complete the integration of Closing the Gap this year and to complete the finance and enterprise IT systems integration for CBI by 1-1-27.
This establishes the requisite foundation for integration of frontline CBI care teams through 2027 using a phased approach similar to that used for CTG. We continue to expect annualized synergies to total approximately $7.4 million by the time CBI is fully integrated in 2028. Turning to slide 5, we continue to advance our Ontario Long-Term Care Redevelopment Program through our joint venture with Axium Infrastructure. At the end of September, we welcomed residents to Extendicare Forest Trail, the new 256-bed home in Peterborough that opened in the joint venture. Subsequent to the quarter, we completed the sale of the vacated Peterborough Class C home for cash proceeds of $7 million, once again demonstrating the capital recycling advantages of our redevelopment partnership with Axium.
We currently have five projects under construction, with plans to open four of these new homes in 2027, bringing a further 832 beds online in the JV. We also continue to advance 17 additional projects at varying stages of planning and development under the Ontario Long-Term Care Home Capital Development Program. With our next construction start targeted for spring 2027, we are working to commence construction on additional new projects later next year should conditions be favorable.
We remain actively engaged with the government on necessary funding and other elements required to fully realize our redevelopment agenda and are closely monitoring construction costs and interest rates as we navigate a period of heightened economic uncertainty. I’ll now turn to our CFO, Dave Bacon, to discuss our financial results in more detail.
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Thanks, Michael. Before I review our consolidated and segment results for the quarter, I want to highlight that this quarter we introduced a new non-GAAP measure, Adjusted Net Earnings, and the related adjusted earnings per share. Details of this reconciliation are included in the appendix to our Q3 results presentation and in our MD&A. This new measure is intended to present our net earnings and earnings per share on an adjusted basis to remove the impacts of items that are by their nature non-recurring and difficult to predict, which can create volatility in our quarterly results.
Gains and losses from our legacy Class C home dispositions, gains on the sale of LTC redevelopment projects into the Axium joint ventures, and acquisition integration costs are just a few examples of recent items that have impacted our quarterly results that make it challenging to develop a consensus view of our performance on a net earnings and earnings per share basis. In addition, we will also adjust for the amortization of acquired intangibles in this adjustment to report adjusted net earnings results that are more closely aligned with the cash flows of the company.
We believe this new measure provides additional insight into the underlying performance of the business and enhances comparability between reporting periods. Turning now to the consolidated results, our Q3 results were impacted by a $1.4 million reduction in net out-of-period retroactive funding on a year-over-year basis, which is more fully outlined in the appendix and MD&A. Excluding these out-of-period impacts, our consolidated Q3 revenue increased by 43.3% to $625.3 million, driven by the contribution of the CBI acquisition, which combined with organic growth in ParaMed drove 111.5% growth in home health volumes, and by long-term care funding increases, which were partially offset by the closure of two Class C long-term care homes following the opening of the newly developed homes in the joint venture.
Our Q3 adjusted EBITDA excluding out-of-period items was $69.2 million, an increase of $22.3 million, or 47.7%, over the prior year, reflecting the CBI acquisition, which contributed $19.6 million, and strong underlying organic growth in our home health segment. Net earnings were $34.2 million, up $10.1 million, or 40.8%, from the prior year. Adjusted net earnings were $39.6 million, up $11.4 million, or 40.4%, from the prior year, and on a diluted per share basis were $0.41, up $0.08 from the prior year.
Our diluted FFO and AFFO per share were both approximately $0.45 this quarter, with FFO growing nearly 26% year over year and AFFO increasing approximately 30%. The out-of-period items impact both AFFO and FFO per share by approximately two cents. Turning to our individual segments, home healthcare continues to deliver strong performance driven by the acquisition and our continued organic growth. We did receive a retroactive rate increase of 3% in Alberta for home health, resulting in an out-of-period revenue and NOI impact of approximately $500,000 recognized this quarter. Excluding this out-of-period funding, our Q3 revenue increased by $186.3 million year over year, while NOI increased by $23.6 million, or 92.8%.
Turning to our Long-Term Care segment, the Q3 results were impacted by out-of-period funding of $2 million from a retroactive rate increase in Alberta for long-term care. In the prior quarter, we recognized $3.9 million in out-of-period funding. Excluding these out-of-period amounts, revenue increased by $1.7 million and NOI increased by $200,000, driven primarily by funding increases and improved occupancy, net of the closure of the Carlingview Manor and Extendicare Peterborough Class C homes, which were replaced by new homes in the JV.
NOI margins excluding out-of-period items were 11.8% for the quarter, unchanged from the prior year and in line with the trailing twelve months ended September 30, 2026. Turning to our managed services segment, at the end of Q3, management contract beds and Extendicare Assist were modestly higher than the prior year reflecting the opening of the two new homes in the joint venture in May and September of this year, partially offset by the expiry of two third-party contracts earlier this year in Q2. Together with 9.4% organic growth in SGP clients, our revenue increased by $1 million to $16.6 million, while NOI improved by $300,000 to $9.2 million.
Turning to slide 11, we exited Q3 in a strong financial position with $246 million in liquidity, comprised of $75 million cash on hand and $171 million available on our unsecured revolving facility. Our pro forma debt to adjusted EBITDA ratio improved from Q2 to approximately 2.3 times, benefiting from the improved financial results and the $53.7 million reduction in our borrowings on our unsecured facilities. Our strong liquidity position, low payout ratio and conservative leverage profile create significant flexibility as we consider a range of capital allocation options including further acquisitions, dividend policy and, where appropriate, share buybacks. With that, I’ll pass it back to Mike for his closing remarks.
Michael Guerriere (President and Chief Executive Officer)
Thank you, David. The strength of our platform was confirmed with another quarter of strong financial and operating performance. Our acquisitions have outperformed and we continue to deliver strong organic growth in our home health care segment at a pace that exceeds our long-term expectations. We continue to be very confident about the potential of our home care and long-term care platforms and our ability to expand access to care for the growing number of Canadians who depend on us.
As we enter the final quarter of 2026, we will maintain resolute focus on integrating CBI and executing our long-term care redevelopment program. We will be disciplined as we consider capital allocation options that build shareholder value. Our prudent approach to managing our balance sheet provides us with significant flexibility in this regard while also managing the risk inherent in a more volatile economic climate. We believe firmly in the opportunity ahead of us.
Short-term movements in the share price or variability in the alignment of funding and wage increases do not take away from the relentless demographic trend underpinning our business that will drive demand growth for years to come, both in home health care and long-term care. Of course, our first priority is always the quality imperative that is fundamental to the care we provide to thousands of people who rely on us every day. Our scale, technology platform, and the flexibility of our capital structure position us to continue to build home health and long-term care capacity so more Canadians can access the care they need, wherever they call home. My sincere thanks to our team members for their daily commitment to providing high-quality care and services for the residents, patients, and individuals we serve.
So with that, we welcome any questions that you might have.
OPERATOR
We will now begin the question-and-answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question comes from Kyle McPhee with ATB Capital Markets. Please go ahead.
Kyle McPhee (Analyst)
Hello everyone. Great quarter. The moving pieces all seem strong and pretty straightforward. So I just have one high-level question this quarter about what to do with all your excess capital you’re generating. I know you generally addressed it in your prepared remarks, but I’m specifically interested in whether or not you may shift to doing some of your remaining Class C redevelopment in-house versus using the JV playbook and keep all the cash flow in your long-term care segment.
Or is there still really, you know, ample opportunities to use your excess capital for things that are better return on capital versus your own Class C redevelopment? You know, things like more home health care M&A, or maybe even buybacks at this current valuation?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, no, Kyle, thanks for the question. Yeah, I think, you know, a few things I’d say on that. We do have flexibility as we pointed out in the prepared remarks. We think we’re in a very strong position from that perspective. As we have said, we do think there is a significant opportunity in home care, in particular on the roll-up there and continued M&A, just given the fragmentation in that market. So we’ll continue to pursue those opportunities.
You know, we have in the last two years increased the dividend, so we’d be looking at that again early in the first quarter with our year-end results. And that’s an expectation I think we’ve created and will follow through on. So, you know, the questions you asked about, you know, would we do C-bed redevelopment on our own balance sheet, I think, you know, our first intent would be to always drive it through the joint venture and drive the managed service revenue in that and keep that capital-light perspective, capital-light model going. I would not—I’d say that it’s not that we would never not do another project on our own balance sheet, but, you know, initially at the moment I think, you know, we’ve got a good pipeline going and, you know, certainly pushed through a lot of projects in partnership with Axium that have gone well.
So I’d say that’s our first priority, to do development that way. But I wouldn’t say it’s an impossibility that we would consider it on our balance sheet. And your last part on issuer bid and shares, I’d just say, you know, we’ve been active in the past when we felt the share price didn’t reflect sort of the prospects of the business. And, you know, we wouldn’t be afraid to do that again if we thought that there was a disconnect to the fundamentals with the share price.
Kyle McPhee (Analyst)
Okay, so it sounds like, you know, more home health care M&A is still, you know, among the priorities here for your capital. Would you consider doing more before you’re fully done the CBI integration? You know, especially given your Closing the Gap integration is done pretty soon and you likely have more capacity to integrate another target at that point?
Michael Guerriere (President and Chief Executive Officer)
We might consider that. We might consider an earlier acquisition, but we would want to be down the path in terms of the CBI integration. I mean, we’ve got a pretty good integration playbook. I was very happy with the Closing the Gap integration. There were no service interruptions. There was no increase in staff turnover. The whole thing went extremely smoothly, and we’ll be using the same playbook for CBI. But do want to acknowledge that CBI is eight times bigger.
And so, you know, just want to be very careful that we’re, you know, well down the path and we can see the end of that integration before we start taking on something else.
Kyle McPhee (Analyst)
Understood. Okay. That’s it for me. Thanks for the answers.
OPERATOR
The next question comes from Lauren Kalmar. Please go ahead.
Lauren Kalmar (Analyst)
Thanks. Good morning, everyone. Just wanted to talk a little bit more about the organic growth outlook for home health. And I know you said it can’t go on like this forever, and I appreciate, you know, there’s not a crystal ball, but could you maybe give us a rough idea of sort of how long you think this can carry on for? Is it another year? Is it two years? Just maybe to give us a bit better perspective on how we should be looking at this business over the next couple of years.
Michael Guerriere (President and Chief Executive Officer)
Well, Lauren, I have to caveat my answer by saying I’ve been wrong so many times in the past about this that I’m really not gaining confidence in my ability to predict. You know, we talked about the 6% to 8% range that we continue to talk about, which is really, you know, what the demographics are suggesting. And, you know, the LTC bed growth is not keeping pace. So, you know, the waiting list in Ontario, for instance, has been creeping up over the last while.
So, you know, it shows that that demand backlog is still there, but it is very hard to quantify. We really don’t have good metrics, you know, around the sector to be able to tell us what, you know, what to expect, how long to expect this. And, you know, part of it is because the growth that we’re seeing is not just growth in the number of people we’re serving, it’s also growth in the number of hours that we’re providing to those individuals. So we’re seeing a higher-acuity group of patients, presumably the people that we would otherwise have been managing in a long-term care setting.
So you’ve got both a volume element, you know, in terms of the number of people that we’re treating, but also a volume element in terms of the intensity of the needs of those individuals. And we really don’t have a good crystal ball for being able to, you know, see when that’ll slow down. And of course, there’s no magic to the 6% to 8% either. That’s our conjecture. And, you know, perhaps that’s an underestimate.
Lauren Kalmar (Analyst)
Okay, I guess maybe—I guess you may allude to it. What do you think really needs to happen within the system for volumes to kind of normalize? Like, is it the LTC—you know, the shortage of LTC beds abating? Like, what do you think really needs to happen?
Michael Guerriere (President and Chief Executive Officer)
Well, I think the best barometer of what’s happening in the healthcare system is the emergency departments in the hospitals because they’re the entry point to acute care, which gives you a sense of whether people are able to exit acute care. There’s a lot of people that are in beds in hospitals that belong in other parts of the system, but there’s no place for them to go, particularly long-term care beds. And over the summer period there were a lot of new reports that the usual lightening of load in emergency departments and hospitals in the summer didn’t happen this year.
So, you know, we do have some anecdotal evidence that, you know, the acute care part of the system is still under stress. So I think that’s probably the best place to look. It’s that whole hallway medicine issue in emergency departments that is the best measure of stress on the system.
Lauren Kalmar (Analyst)
Okay, that’s very helpful, thank you. And then maybe just switching over back to acquisitions. As you’re evaluating targets, what are the criteria you’re looking at in acquiring? Is it geographies? Is it, you know, maybe services that you don’t offer that could enhance the ParaMed service offering? How do you sort of weight those and what are you looking for?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, Lauren, on the home care side, a few kind of key things that we follow. So one is, you know, I think we’ve said and demonstrated, I think with the deals we’ve done—the two deals we’ve done to date—we’re looking to buy growth platforms when we’re looking to buy. So we don’t—we’re not just trying to pile volume into the same districts. You know, we’re looking for platforms where we can bring our—we’re not there today—we can bring our back office and technology and scale to it.
So we are looking for, you know, in the case of CBI and CTG, you saw us buy new geographic markets. You know, it gave us a presence in the West with CBI and Nova Scotia with CTG, and with CBI it gave us a new market vertical with the specialized commercial, you know, community service business. So that group home business, it’s new to us. That gave us another new kind of market way to come to market. So we’re looking for areas where we don’t service. If you, you know, you’ll recall, our business is really three kind of service levels. There’s the PSW—personal support work—there’s nursing, and then there’s the therapies or allied parts of the business. So we’ll look for markets where perhaps we have a strong PSW presence, but we don’t do any nursing. And we’ll look for a regional player that has a good concentration in nursing and we didn’t—fill it that, you know, in, say, in the Ontario context.
You know, other markets, other geographies are of interest. We are in Nova Scotia, but there’s the Maritimes. We now have a strong presence in Alberta. We have a toehold back in Manitoba and B.C. to think about. So it’s really geography or service-line augmentation, I’d call it, as opposed to just chasing volume in sort of a district or a region where we’re already quite strong or have quite a lot of depth in a particular service type.
Lauren Kalmar (Analyst)
Okay. And there’s a lot of options out there for you.
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, it’s still very fragmented—we’ve spoken about that in the past. You know, probably not another deal the size of CBI, but there are regional players that would look a lot like a Closing the Gap size. And there’s dozens and dozens of small players that have a niche that might fit nicely with us. And, you know, notwithstanding, you know, Mike’s earlier comments about, you know, when will we next look at something, you know, CBI and integration is key, but, you know, it takes a long time to get to a point where you’re going to execute on a deal.
And we do have a pipeline and we’ll always be opportunistic as well in looking at what may come to market versus us seeking something out that we think would fit well.
OPERATOR
And the next question comes from Jonathan Kelcher with TD Cowen. Please go ahead.
Jonathan Kelcher (Analyst)
Thanks. Good morning. Just want to go back to the organic growth in home health care. Is staffing still really the sticking point? For example, if you could grow your staffing levels by 20%, the demand would just be there for it.
Michael Guerriere (President and Chief Executive Officer)
No, I would say that the staffing constraint really passed two or three years ago. So for the most part, we are accepting all the referrals that are coming to us from government and able to fulfill them. The exception to that is in certain rural and remote parts of the provinces that we serve where we still have constraints on staffing in the north and in areas of the provinces where it’s not an urban environment. So our client population is very widely dispersed.
But those constraints are really not very material from a volume perspective. Those are also areas of our business where the volumes tend to be quite low. So overall, I would say no, there’s not a constraint from a health human resources perspective. It’s a matter of the volume of referrals that are coming our way.
Jonathan Kelcher (Analyst)
So in other words, the referrals and I guess just more hours per patient are really what’s driving 18% year over year organic growth.
Michael Guerriere (President and Chief Executive Officer)
Yeah. And our understanding of this, John, is that growth is the whole market growing. So we’re not taking market share from others. This is an expansion of the overall home care sector.
Jonathan Kelcher (Analyst)
Okay, that’s helpful. And then just secondly, on the LTC redevelopments, in your prepared remarks, you made some mention of just higher interest rates and construction costs. Have they increased enough that any of the projects you’re looking at are no longer really feasible?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, Jonathan, I’d say it’s just, we’re watching it. There’s a lot of moving parts over the last few months with the tariff and counter-tariff. Now with the election results, I’m not sure what happens there. We were definitely starting to hear about the impact of those counter-tariffs increasing our structural steel and our kitchen equipment and HVAC equipment for new homes. There are different views out there on the rate-increase environment. So I’d just say that we’re watching it. There’s a lot of uncertainty right now. We’ll see how the election thing in the States may change the perspective. And I think the truth is we’re advancing all of these projects. We’re committed to doing the pipeline. It may just happen at a different cadence if perhaps some of these factors we’re watching had an impact. But the reality is until you tender a project, you do not have your final answer. You need to get to tender stage.
So we are committed to driving all of our projects through to what we call shovel-ready and tender. I think we’ve said this in the past. The project that we started in Sudbury last year, we had on the books for a few years and we waited till the tender results and the costs aligned where it made sense to proceed. So we’re just watching it. I think the sector’s watching it and it’s hard for us all to know how the evolution of interest-rate environment and the cost side could look over the next six to eight months. There’s a lot of uncertainty there.
So we’re just watching it.
Jonathan Kelcher (Analyst)
Okay, thanks. I’ll turn it back.
OPERATOR
And the next question comes from Tom Callahan with BMO Capital Markets. Please go ahead.
Tom Callahan (Analyst)
Hi guys. Thanks. Maybe on the home health side, just kind of curious for your thoughts and perspectives. There’s been a bit in the press over the last couple weeks in terms of the federal government and provincial governments with respect to certain health care funding and transfers. So just interested in any of your thoughts in terms of implications for the home health business at a broad kind of over medium-term basis on that piece?
Michael Guerriere (President and Chief Executive Officer)
Sure, happy to address that. First, it’s important to understand that Extendicare contracts are all with the provinces. So none of our funding comes from the federal government, nor are any of our contracts with the provinces contingent on federal funding. Federal health transfers to the provinces are a regular feature of the federal-provincial political dynamic and obviously receive wide attention because they’re the largest transfer of funds between the levels of government.
So, in theory the magnitude of the transfers could affect the fiscal capacity of a provincial government to invest in health care. But the practical reality is that demand for service is really driven by demographics. We remain the lowest-cost option for meeting the needs of the aging population, so that keeps us front and center in terms of dealing with that demographic challenge. I think any attempt to constrain the growth of community services would cause unmet demand to back up into hospitals, like I was talking about earlier.
And that’s the highest cost and least politically palatable option for dealing with the aging population. So all that said, I don’t think that the federal-provincial negotiations around transfers are really in any way an indicator of the demand curve for Extendicare.
Tom Callahan (Analyst)
Okay, thanks. Appreciate that. Maybe a bit of a housekeeping one on home health, but David, nice to see the margins improve there on a sequential basis and you kind of obviously talked about some of the reasons in Q2. How best to think about that cadence of recovery into ’27 on the margin front today?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, I think as we’ve said on margins, there’s a little bit of… In Q2, I think we did talk about that we had put some extra costs and investment in the back office because of the significant demand. And as we indicated, there’s a bit of a step function that happens in that back office. So we’ve put some costs back and resources in there and it played out as expected. We had good sequential growth in the quarter. And you can see that when the growth comes, there’s some margin.
So I think going forward, we do believe this is a 13% margin business that has an opportunity to grow over time by 50 to another 100 basis points. I think we’ve said that a number of times. Obviously the trajectory of that will be driven by the volume discussion we just had and trying to understand, crystal ball, the volume growth over the medium-long term. The rate increases keeping pace with wage inflation is key. But we firmly believe and demonstrated another example this quarter: Alberta gave us the rate increases, albeit later in the year, but they come.
So the timing and quantum of rate increases can affect the patterns. But again, over the medium to long term, we believe this is a 13% margin business that has opportunities to grow both through organic growth and volumes. And there are the synergies coming when CBI is fully integrated. We’ve talked about those would be more reflective in ’28 than in ’27. That’s more of when we get the full integration done, and all of that is the current picture. And we do expect to be active on the M&A front in home care in the future, which would augment that. So we still firmly believe that’s the outlook. As we go into ’27, that 50 to 100 is not a 2027 thing. That’s more over the next couple years as we get the integration done.
And certainly in the Ontario context, we expect rate increases in the future. So that will help as well.
Tom Callahan (Analyst)
Perfect. Thanks guys. I’ll turn it back. Appreciate it.
OPERATOR
And the next question comes from Gilano Thornhill with National Bank. Please go ahead.
Gilano Thornhill (Analyst)
Hey guys. Good morning everyone. I just wanted to stick with that question on the seasonality. I’m just wondering, that still does exist in your CBI markets, right? Like Alberta and Nova Scotia, kind of what you saw historically.
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, I’d say the seasonality impact in CBI is much less pronounced than, say, the ParaMed CTG business. Most of the programs in the summer that are affected are in the nursing and allied service lines, which are much more prevalent in ParaMed and CTG versus CBI. So they’re a bit more pronounced on the ParaMed side. Of course, as the integration happens and we won’t be breaking out CBI anymore, that’ll get a bit muted in the impact as well. But it is much more of a nursing allied program that is more impactful on the ParaMed side.
Gilano Thornhill (Analyst)
Okay. And just on that, I know the last prior flu season was pretty tough. Historically would you say that was more of a one-time event? When we’re looking at the volume growth that you saw related to the hospital stress, I’m just wondering how much of a driver was the flu season on home care demand to relieve those hospital settings?
Michael Guerriere (President and Chief Executive Officer)
Yeah, the flu is a double-edged sword for home care. On the one hand, it can drive demand, as you pointed out, because it puts stress on hospitals, and so hospitals and various health care agencies are much more resolute in their efforts to get people out of hospital. On the other hand, flu also affects our workforce. So we have more sick time and absenteeism, which is a drag on volumes. So we kind of see it both ways. I don’t really look at influenza as being a major impactor on volumes one way or the other.
Gilano Thornhill (Analyst)
Okay, thanks. And then just my last question: would you say your customer, the government, are they satisfied with the pace of growth in the sector? Or if they were able to do more, would that be an option? Because I know, as you mentioned, your referrals and acceptance rates are quite high. So it seems like there could be capacity to do more. I’m just wondering, if that were the case, do you think they would be able to do that?
Michael Guerriere (President and Chief Executive Officer)
Well, I wish I knew the answer to that question precisely. What I would say is that we’ve experienced really positive reactions when we bring forward innovative ways or approaches for treating groups that otherwise or in the past we wouldn’t have been able to manage in the community. I think that’s why we were so excited about specialized community services in CBI, because it’s just a different way of dealing with a population that is difficult to manage in the community.
CBI had developed that service line over a number of years and had quite a large following from various governments on that service. So I think governments and hospitals are looking for innovation, and are looking for more close integration of our services. What that means is we’re communicating effectively with hospitals and doctors and they’re communicating effectively with us so that we’re better coordinated. That takes advantage of some of our technology platforms. So I do think there’s continued opportunities for adding capabilities, service capabilities. But that said, as I mentioned earlier, we are accepting the vast majority of referrals that come our way.
So I think the government is happy with our responsiveness to the demand that they’re sending our way.
Gilano Thornhill (Analyst)
All right, thanks Mike, that’ll be all.
OPERATOR
And the next question comes from Pami Burr with RBC Capital Markets. Please go ahead.
Pami Burr (Analyst)
Thanks. I just want to clarify the comments around seasonality in the margins for ParaMed. So, just looking back, typically we would see, I guess, a Q4 improvement in margins, although I think there has been some volatility with maybe prior-period funding. But is that how we would still think about that at this point? Like a pickup in Q4 and then a drop in Q1?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
I’d say a drop in Q1 is quite common and we’ve talked about that in the past because you’ve got, you know, we’re just a bit over half unionized in ParaMed. So the non-unionized staff tend to get their wage increases on January 1st every year, but rate increases then don’t come until April. You also have the phenomenon of things like, you know, employee wage benefits like CPP and EI kind of restart the clock. So there’s always a dip in Q1. I would say it’s uneven in Q4; it’s a function of the weather, it’s a function of where the holidays fall. If, you know, Christmas or Christmas Eve or New Year’s fall on a weekday, it can have a bit more of an impact on volume because you’re displacing what otherwise would have been a full workday. Whereas if those holidays fall on weekends, those tend to be lower daily volumes.
So we have—if you went back and looked at every pattern over the last decade, I think sometimes Q4 can be a little bit better than Q3 because the seasonal summer dip comes back and then depending on where the holidays fall, you know, weather has an impact, snowstorms, et cetera. So Q4 is a little hard from a trending perspective. So, you know, it’s not always going to be in line up or down from Q3. But definitely from Q4 to Q1, I’d say Q1 goes down from Q4 and Q3 goes down from Q2 pretty reliably.
Q4 is a little bit tougher.
Pami Burr (Analyst)
Okay. All right, that’s helpful. In terms of going back to the comments around the investments that were made in ParaMed, were there any additional costs incurred in Q3? And at this point, are you any change to the outlook in terms of what you may need to spend?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, no, I think nothing substantive sort of in Q3. Most of the activity around the back office was Q1 and into, you know, later into Q1 into Q2. So at the moment, I think, you know, we’re focused more now on getting CBI integrated, which will then give us the opportunities to pursue the synergies that we’ve flagged. So that’s kind of the next order of focus.
Pami Burr (Analyst)
Okay. And I guess has there been any update or any dialogue at all with the Ontario government for a bill rate increase?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
We’re always in dialogue, sharing information, you know, particularly what the status is in terms of wage rate inflation. So, you know, we stay in close touch with the government on that so that they’re aware of the cost structure and we do that through industry associations. So it’s a, you know, it’s a sector-wide activity. But we don’t have insight into, you know, the rate increase plans until they’re announced.
Pami Burr (Analyst)
Okay. All right. And then maybe, Michael, for you, just going back to your earlier comments about patients in hospitals and alternative care settings, are you seeing any changes, maybe in the last couple of months, that might suggest that the backlog, if you want to call it, is declining or it’s still been pretty elevated.
Michael Guerriere (President and Chief Executive Officer)
Yeah, I would say it’s quite elevated. I mean, what we look at is, you know, typically the number of two statistics really from acute hospitals: the number of people that are ready to leave hospital but don’t have an appropriate place to go. So in government parlance, they call that ALC, alternative level of care. And so they, you know, periodically publish those statistics. But then there’s also the number of people that are admitted to hospital who do not have a bed.
And, you know, in quite a number of places in the province, in Ottawa, in Sudbury, in Mississauga, these hospitals typically have tens of patients that are admitted in hallways and, in bureaucratic speak, in unconventional locations in the hospitals that are waiting for a bed. And those numbers are quite high. So there really isn’t much indication at the moment that that pressure is coming off.
Pami Burr (Analyst)
Right. Okay, maybe last one. David, just on the new disclosure for the adjusted net earnings, are you at some point going to stop or discontinue the FFO and AFFO reporting?
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Yeah, I think our thoughts there, like the long-term roadmap is going to be a focus on adjusted EBITDA, adjusted EPS, and a cash flow from operations measurement. As I think I mentioned in Q2 to some of you in our individual conversations, there is a new accounting pronouncement coming for next year called IFRS 18. It’s going to cause everybody to represent their income statements in a slightly different way and have some new subtotals and some changes on the cash flow statement presentation.
So our thinking is you will see us introduce a cash flow measure in Q1 of next year that’s driven off of this new IFRS 18. And I expect you’ll see us continue FFO and AFFO in parallel for a period of time until people get used to and get comfortable that the new cash flow measure—it’s probably going to look and feel a lot like FFO. That’ll probably be the closest proxy for it. So over time, as people get comfortable with the core three new measures—EBITDA, adjusted earnings per share, and a cash flow from operations—eventually those will be our three prime objectives.
But we will do it in kind of a transitionary fashion so people can get used to what the new cash flow measure looks like relative to the, sort of, you know, the traditional REIT metrics.
Pami Burr (Analyst)
Got it. No, that’s great to hear. All right, I will, I’ll turn it back.
OPERATOR
And the next question comes from Tanya Armstrong with Canaccord Genuity. Please go ahead.
Tanya Armstrong (Analyst)
Hi guys. Most of my questions have been asked already, but maybe just commenting on the property redevelopment. I noticed that Orleans slipped to Q4 and costs rose about $4 million. And then I think the St. Catharines and London each also moved back by a quarter. The MD&A also mentions something called, like, adjusted commissioning schedules for the first time. I’m just wondering why these delays are happening. Is the issue construction, staffing of the new homes, or ministry licensing timeline?
And those cost overruns, if they do increase, do they fall on the JV’s equity? Do they reduce the capital funding grant? Any more color on those items would be helpful.
David Bacon CPA, CA, ICD.D (Chief Financial Officer | Executive Vice President)
Sure. So on the timing issue, I’d say that outside of Orleans, the other changes in timing—I know we report by quarter, not by month—but I would say some of these changes are really measured in weeks. And it’s just orchestrating us, the city inspectors, TSSA, the ministry inspection timing. So part of this is we’re trying to get four opened in a fairly condensed time. So that puts pressure on a bunch of us and the ministry. So I’d say the timing tweaks to things like St. Catharines, London are really measured quite modestly in weeks. And it’s just because of the way we report quarterly, you notice the costs don’t change on those projects. We’re still well within contingencies. So there really is a little bit of coordination that goes on and there’s a lot of different things, you know, different streams you need to bring forward. So as you get closer to the end, it’s really just refining the timing on what otherwise are two- to three-year timing on projects.
Orleans is different. Orleans, we have experienced some delays with the contractor on that project and just, you know, working through the finishing stages of the project. So that is a legitimate delay. I wouldn’t say it’s labor as much as just working through with the contractor. The interesting thing on that project, while the costs have gone up as a result of that delay, it’s actually in a strange circumstance there: the costs are now back closer to the original cost.
There was some change in HST legislation and change in the municipal regulations around development charges that actually that project was the beneficiary of. So we thought we had some savings coming on that project going back to the original pro forma because of some changes on the development charges and HST. So while the costs appear to be going up, they’re actually sort of spending what we were hoping could have been an opportunistic savings on that project.
So we’re back to the original kind of cost outlook there. And so tying in with leverage, et cetera. So there is no sort of impact there. It’s just unfortunate sort of foregone opportunity where we could have come in under budget on that project. And then your last question is, what happens if there were an overrun over and above the original pro forma contingency? And, you know, these projects are all in the JV. We are equity partners with Axium, so we bear the risk of overruns 85/15. So there’s no disproportionate sort of impact to us or obligation on us. We are sharing in the risk of construction with our partner in our pro rata share. So if there was an overrun over and beyond original cost contingencies and some equity had to be topped up, our share of that would be 15%.
Tanya Armstrong (Analyst)
Okay, perfect. That’s very helpful. And then on home health care volumes, maybe excluding CBI, we did see volumes grow about, I think it was 3% sequentially in Q3, but I saw that the MD&A language kind of, it moderated a little bit. So we went from “should demand growth moderate” to “as demand growth moderates,” which is, I guess, just a little bit more indicative of your expectations for the business. Have you seen kind of a slowdown in that growth?
And is it coming from anything in particular—referrals from Ontario Health at Home or new bundled care models, your ability to staff the volume, et cetera?
Michael Guerriere (President and Chief Executive Officer)
Yeah, we haven’t seen any changes in referral volumes. We don’t have any new constraints on volumes based on availability of health human resources. So, you know, at this point, you know, we’ve experienced that kind of 18.8% year over year and, you know, we’ll see what happens going forward, but nothing’s happened that gives me, you know, kind of any more visibility to what might constitute a slowdown at this point. And I think that wording change is just happenstance.
I don’t think it was intended to signal anything.
Tanya Armstrong (Analyst)
Just making sure. Perfect. Thank you, Michael. That’s all for me. I’ll leave it there.
OPERATOR
And the next question comes from Tal Wooley with CIBC Capital Markets. Please go ahead.
Tal Wooley (Analyst)
Hey, good morning, Michael. I was just wondering, you know, you’ve seen two step-ups, you know, significant step-ups from the Ontario government for home health care. Do you have an idea of, like, what’s the scorecard they’re using to measure the effectiveness?
Michael Guerriere (President and Chief Executive Officer)
Well, I think that ALC metric in hospitals is a key metric. You know, they also measure the quality measures and customer satisfaction measures as well that they use. But I think the ALC number is critical. Remember that the referrals here come from hospitals and from doctor’s offices. So, you know, the demand is coming from health system operators themselves. And so, you know, the government is also monitoring whether we are meeting that demand by accepting the referrals in a reasonable amount of time.
Coming out of the pandemic, there were actually long waiting lists for home care, but we’ve cleared those now across the province. So we are keeping up with the demand that’s coming out of the hospitals and doctors’ offices.
Tal Wooley (Analyst)
Okay, that’s great. Thanks very much.
OPERATOR
This concludes our question and answer session. I would like to turn the conference back over to Gillian Fountain for any closing remarks.
Gillian Fountain (Vice President, Investor Relations)
Thank you, operator. That concludes our call for today. This presentation is available on our website along with a link to a replay of the call. Thank you all for joining us and please don’t hesitate to reach out if you have any further questions.
OPERATOR
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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