Extendicare Inc
TSX:EXE
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Extendicare Inc
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Good morning, ladies and gentlemen, and welcome to Extendicare Inc. First Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Ms. Jillian Fountain. Please go ahead, Ms. Fountain.
Thank you, Paul. Thank you, and good morning, everyone. Welcome to Extendicare's 2019 First Quarter Results Conference Call. With me today is Extendicare's President and CEO, Michael Guerriere; and Senior VP and CFO, David Bacon.Our 2019 first quarter results were disseminated yesterday and are available on our website along with the supplemental information package. 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 May 31. The replay numbers and passcodes have been provided in our press release. 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 regarding our future operations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. We've identified such factors in our public filings with the securities commission and suggest that you refer to those filings. As we discuss our performance, please bear in mind that all figures are in Canadian dollars unless otherwise noted.With that, I'll turn the call over to Michael.
Thank you, Jillian, and good morning, everyone. The work to return to Extendicare to profitable growth is underway and while there is still more to be done, I'm pleased with the progress we've made this quarter and I'm confident we are on the right path. Since my appointment as CEO, I've closely examined each of our 4 business lines and it's clear that there are compelling growth opportunities for our company, offering a comprehensive array of services across the continuum of seniors care.Extendicare has a strong foundation with over 85,000 seniors served every year, a solid financial base and lots of room to grow through investments in our people, technology and better operational performance.With the tailwind of an aging population and favorable policy trends, we have a significant opportunity to not only make a real difference in senior care, but also to drive revenue growth, bottom line results and value creation for our shareholders. As David will elaborate in a few minutes, our first quarter results saw growth in 3 of our 4 business segments, partially offset by lower volumes at ParaMed. Adjusted EBITDA was lower year-over-year, but this was largely due to one-off expenditures relating to our continuing investment in our ParaMed turnaround plan.If you turn to Slide 3, I'll talk more about the ParaMed transformation. As we've discussed in previous quarters, we are in the process of investing over $12 million to transform our ParaMed business, $1.7 million of which was invested in the first quarter, bringing our total spend on this project to date to $6.6 million. We're now well past the halfway mark in the implementation of our new cloud-based system to optimize scheduling and to automate work processes, an essential upgrade that will improve staff retention and increase the number of hours of care we can provide. We anticipate this investment will result in increasing client volumes and margin growth by the end of the year.In addition, we are building a new leadership team at ParaMed to oversee the execution of our investments in the improved work process and technology. Our new Vice President of Operations, Ali Mir, started on Monday. Ali is a former McKinsey consultant with experience at eHealth Ontario, where he was Vice President of Community eHealth Solutions. And he was also at Telus Health, where he managed the health outcomes, analytics and the family practice clinics portfolio. Ali is an expert in the intersection between technology and delivery of health services, a capability that will be pivotal in optimizing the performance of our home care operations. We're currently in the process of filling a second VP position to work with Ali at ParaMed. The new leadership will focus on completing our transformation plan, while the home care business is experiencing diminished profitability as we retool the operations. I have no doubt this plan will set up ParaMed for long-term growth and value creation.On Slide 4, our long-term care business continued to perform well in the first quarter. Net operating income and revenue were both up in Q1 compared with the same period in 2018. We are encouraged by the importance the Ontario government has put on long-term care, including a recent budget announcement of $1.75 billion in additional funding over the next 5 years for 15,000 new long-term care beds and the redevelopment of 15,000 existing beds. We are continuing to work with the industry association and the Ministry of Health to advance projects to redevelop our older centers and to initiate new campus of care opportunities.As we have previously announced, we completed the planning process for redevelopment for 2 of the 21 long-term care centers we have in the queue for redevelopment in Ontario. We were granted 158 new long-term care bed licenses in connection with the redevelopment of centers in Sault Ste. Marie, Sudbury and Peterborough, and these are still proceeding through the government's review process. Each project is being carefully appraised to ensure strong economic fundamentals before we proceed with construction.On Slide 5, you can see we increased NOI at our retirement living operations this quarter, primarily as a result of increased average occupancy in Q1 compared with the previous year. The 45-suite expansion of our Douglas Crossing community was completed last November and the 148-suite community is now 88% occupied. Our new 112-suite Bolton Mills community opened in Q1 and our 124-suite Barrie community is on schedule to open in Q4. Further expansion plans are underway at our Port Hope community, which we hope to break ground on later this year. And we'll continue to assess potential of future growth opportunities in retirement in a disciplined fashion.On Slide 6, our Assist contract management services and SGP group purchasing services are becoming increasingly important growth drivers for Extendicare. These services grew by 19% in 2018. While representing only 2% of our total revenue last year, they now account for 10% of our total net operating income. In the first quarter, we were very pleased to welcome Schlegel Villages to our SGP Purchasing Partner Network. They are an outstanding brand in the industry and we are delighted to have them as part of our partnership. They joined a growing roster of SGP clients, including Effective Pricing Solutions, Jarlette Health Services, Prima Care Living Solutions, Southbridge Care Homes, The Good Samaritan Society and Verve Senior Living, that along with the rest of our clients represent more than 57,000 residents across the country.On the next slide, 7, while our overall financial performance is not yet at its full potential, we are making progress. The foundation of our business is strong and our priority is building the capabilities we need to capitalize on the favorable market conditions that we are experiencing.Completion of the home care business transformation is central to returning the business to its full potential for growth and margin performance.In the meantime, we are benefiting from a strong, engaged and supportive board and a strengthened leadership team. Our new Chief Financial Officer, David Bacon, began in April and I'm delighted to introduce him to you now. David will provide more color on our financial results from the first quarter. David?
Thanks, Michael. Before I get started, I'd just like to say that I'm very happy to join the Extendicare team. And I'm excited by our prospects and I look forward to working with Michael and the team to capitalize on the market opportunity that lies ahead for us, and I unlock the inherent value in our platform.Just turning to our results. I'd like to first talk about our overall financial performance for the first quarter and then I'll get into some highlights of the individual business segments.Turning to Slide 9, revenue was up 1% to $274.3 million in the first quarter, driven primarily by LTC funding enhancements, expansion of the retirement living operations and growth in our Assist and SGP segment, partially offset by a decline in home health care volumes. Net operating income improved by 3.6% to 34 -- $30.4 million for the first quarter and represented 11.1% of revenue compared with 10.8% for Q1 of 2018.In addition to the factors driving the overall improvement of revenue noted above, NOI was favorably impacted by 1 less statutory holiday this quarter, partially offset by incremental ParaMed transformation cost at the NOI level of $300,000 incurred in the first quarter compared with Q1 of 2018. Adjusted EBITDA declined by $0.4 million to $19.6 million for the first quarter and represented 7.1% of revenue compared with 7.4% for Q1 2018. This decline reflects a $1.1 million improvement in net operating income, which was offset by higher administrative costs of $2.2 million before the reduction of $700,000 in lease costs due to the adoption of IFRS 16 for a net increase of $1.5 million. This net increase in administrative costs includes $800,000 of incremental ParaMed transformation costs, which we incurred in the first quarter as compared to Q1 of 2018.AFFO declined by 14% to $12.6 million or $0.142 per basic share for the first quarter compared to the prior year. The decrease was primarily a result of the decline in adjusted EBITDA. Also impacting the year-over-year comparison of AFFO is an increase in current income taxes of $900,000 for this quarter as compared with Q1 of 2018, which benefited from the utilization of tax loss carryforwards. For the 2019 year, we anticipate our effective tax rate on FFO will be in the range of 17% to 19%.Maintenance CapEx was $900,000 for the first quarter compared with $1.1 million for Q1 of 2018 and we are expecting to spend in the range of $10 million to $12 million this year as compared with $12.7 million for full fiscal year 2018. For the 3 months ended March 31, 2019, Extendicare declared dividends of $10.6 million from AFFO of $12.6 million, representing a payout ratio of approximately 84% compared with 72% for the same period last year. Excluding on an after-tax basis, the $1.7 million of the ParaMed transformation costs incurred this quarter, the payout ratio would have been approximately 76%.Turning to Slide 10 and our financial position. Long-term debt totaled $532.8 million as at March 31, 2019, representing an increase of $3.8 million from year-end due to the increase in lease obligations of $5.8 million that we were required to recognize on the adoption of IFRS 16.The company's consolidated cash and short-term investments on hand was $70.5 million as at March 31, 2019, representing an increase of $4.6 million from year-end. In May of 2019, the company repatriated USD 10 million of cash for general corporate use from its wholly-owned Captive and insurance subsidiary and we closed on a $16 million CMHC mortgage on our Lynde Creek Manor Retirement Living Community that had been acquired last year for cash. In addition, the company has $65 million available to draw under its ParaMed credit facility.Turning to Slide 11. This next slide gives you a sense of the breakdown of our revenue and NOI by operating segment. Long-term care continues to drive both metrics, but as Michael mentioned, Assist and SGP are contributing a notable portion of NOI relative to their size and continue to enjoy strong growth.Now I'll turn into a brief overview of our results by business segment, starting with ParaMed on Slide 12. Our NOI from our home health care operations was down 12.5% to $7.5 million for the first quarter compared with $8.6 million for Q1 of 2018. Our NOI margin was 7.4% for the quarter compared with 8.1% for the same period last year. The decline was primarily due to a 4.1% reduction in volumes, higher operating costs and the impact of an incremental $300,000 of ParaMed transformation costs incurred in Q1, offset by the impact 1 less statutory holiday this quarter compared with the first quarter of 2018. Our results this quarter were further impacted by the ongoing competition for PSWs and nurses in certain of our markets and adverse weather conditions experienced in the quarter.Costs related to the ParaMed transformation impacted total company EBITDA this quarter by approximately $1.7 million compared with $600,000 for Q1 of 2018 or an increase of $1.1 million when you include the $300 million impact at the ParaMed NOI level. We anticipate that the costs associated with the transformation during 2019 will total approximately $7 million, after which the implementation will be substantially complete. As previously announced, the company will be exiting the British Columbia home care market when its contracts expire in March of 2020. In connection with the expiration of the contracts, the company has recorded a charge of $1.4 million this quarter, primarily related to facilities-related costs. This charge is included in other expenses and does not impact our adjusted EBITDA, FFO or AFFO results. To help put into perspective the impact of the BC operations on our overall ParaMed operation, the BC operations contributed $11.6 million in revenue in the first quarter and a net operating loss of $300,000 compared with revenue of $11 million and a net operating loss of less than $100,000 in Q1 of 2018. Therefore, looking at our overall ParaMed margins for the first quarter if we were to exclude the results of BC, our NOI margins would have been 8.6% compared to 9.1% in Q1 of 2018.Turning to long-term care on Slide 13. Our revenues increased by 2.2% to $156.2 million and NOI was up 5.5% to $16.8 million compared with $15.9 million in the same period last year; with an NOI margin of 10.8% for Q1, up from 10.4% in the prior year, partly aided by 1 less statutory holiday this quarter compared to the first quarter of 2018.Turning to Slide 14. Our retirement living operations enjoyed revenue increases of 36.4% to $9.5 million and NOI increased 58% to $2.6 million for Q1 compared with $1.7 million for Q1 of 2018. The increase was driven primarily by an increase in our average occupancy to 89.6% in our first quarter of 2019 compared with 80.4% for the same period last year, an increase of 130 basis -- we had an increase of 130 basis points since Q4 of 2018. The occupancy of our stabilized communities was 94.7% as at March 31, 2019, compared with 95.7% as at December 31, 2018. In terms of the quarterly trend throughout the year, lower occupancy levels can be expected during the winter months as a result of higher attrition. The occupancy of our 4 lease-up communities was 64.1% as at March 31, 2019, a decline from 76.8% for the 3 lease-up communities on December 31, 2018. The reduction was driven by the opening of our 112-bed Bolton Mills retirement living community in the first quarter of 2019, which is now included in our lease-up calculations. Excluding the impact of Bolton, our lease-up occupancy as at March 31, 2019, is 82%.Looking at our final business segment on Slide 15, our Assist and SGP segment revenues grew up by 14.3% to $5.9 million compared with Q1 2018 and our NOI increased 11.7% to $3.4 million, due primarily to the growth in our client served, which included the addition of the Schlegel Villages customer to our SGP division that Michael mentioned earlier.With that, I'll now pass it back to Michael for his closing remarks.
Thanks, David. So just looking at Slide 16, as I've said, our financial results don't yet reflect the enhancements to our business we're working on, including the ParaMed transformation. I'm confident that we've identified the right people, processes and technologies to get us on the path to sustainable growth and delivering long-term value for our shareholders. It is clear that the opportunity is there for us. Canadians want the best possible care for themselves and their loved ones and Extendicare offers a unique breadth of services across the continuum of care. Thanks to the dedication of our team of 23,000 caring employees. We are helping thousands of Canadians to live better every day.With that, we'd be happy to take any questions that you may have. Operator?
[Operator Instructions] The first question is from Chris Couprie from CIBC.
Maybe I'll leave ParaMed for someone else. Maybe let's talk about the SGP business. If I'm kind of doing the math right, kind of roughly, I think that your market share is somewhere in the 10% range, maybe higher because I'm not sure if you guys are active in Quebec or not. How large you think this business could get? And then just in terms of the -- what's the sales cycle like in terms of -- for Schlegel, for example, how long did it take for you guys to onboard them on to your platform?
Thanks, Chris, and thank you for starting with this particular topic because we're very excited about the prospects. We think there is a lot of opportunity to grow this and we think that the growth trajectory could go on for some time. Our expansion focus just recently has been to move into more provinces and to deepen our penetration of existing markets. We're not operating in Quebec at the moment to any significant degree, so there is some opportunity there. We ramped up our sales resources late last year to exploit the opportunity that we're seeing and our national scale provides us greater market opportunities we think. We also have the opportunity to not only expand our customer base, but also to expand our SKUs on the SGP side and to look into adjacent markets. We actually have a number of hotels using our SGP service today. So there is some move into lateral markets that is possible. The other thing we're considering for the first time is the possibility of some tuck-in acquisitions. They would be small, but they would help the growth agenda. In terms of the sales cycle, it's fairly long. Usually, these things are taking 6 to 9 months, but we have very healthy pipeline in place now. So we are working on sales today that would come forward in future quarters and we're quite bullish about the way that that's developing. The other comment that I'd make is that if you look at the recent trend in customers that we've been signing, there has been a trend to move into bigger customers on the SGP side, in particular. So I think that is validating a couple of things. Validating the value of the service and that even some of the bigger players can benefit from the larger economies of scale that we're able to generate when we're buying for 57,000 beds, it's getting to be a pretty significant size. So this is an area to watch. It's an area that we'll continue to invest in.
And would you say that you are typically gaining share or are you growing the addressable market or growing the customers that are using this type of service?
Yes. I think we're mostly getting more clients that we're managing these functions themselves. It's not necessarily that we're winning them over from competition. So I'd say that we're growing the market. I think we're assisted by the fact that the regulatory burden on this sector is getting bigger. We're finding that there's much more attention being paid to quality, in particular. And that becomes hard to do if you're a solo operator or you're operating a small number of homes. So when we add the information systems, the standard operating procedures, all of our policy manuals, our ability to manage the accreditation process for our clients, it's a powerful offering and I think its value is validated by the very small customer churn that we've seen. Once people sign up, they rarely leave. And I think that's just a testament to the value proposition that's there.
And then just if we think about other Canada, the growth going forward, do you think it's going to be more from the SGP versus Extendicare Assist?
No. I think that they both tend to move in tandem. When we're signing on the Assist side, SGP tends to follow. So I think there's only 1 or 2 Assist clients that are not using SGP. But perhaps SGP could grow faster in terms of bringing on some big players that will continue to manage their own operations, but would like to benefit from the collective purchasing group. So probably there's a bigger market opportunity for SGP in terms of the size that it will get to ultimately.
The next question is from Jonathan Kelcher from TD Securities.
I guess I get the ParaMed questions here. Are you happy with where you're at on the transformation so far? And what's -- how are the Q1 results relative to internal expectations?
Yes. I think that we're very happy with how we're progressing. I think it's been a little bit slower than what we expected. We've augmented the team that's working on this project. That's why our costs are up a little bit from what we were talking about in the past. We're still feeling that we will complete the implementation of the new system this year. We are also very bullish about the new management that we brought in. I've talked about the Vice President level, but we have a host of new director level managers that are managing the various branches of our business that, I'm very optimistic about, looks like a fantastic team. So in my view, we're still on track. Q1, I think, is an indication that it was a little slower than we had hoped, but we're still confident about the ultimate success of the program. I mean the other thing that I would say, Jonathan, on this is that we're not trying to do something particularly new or innovative. We're using systems that are used across the majority of the industry. We're trying to do things that are done very well in other places. So this is a matter of just blocking and tackling and getting the change management done to get it installed. So we're very confident about the outcome we'll get.
Okay. When do you think you'll start to see volumes improve?
Yes. I think -- it's David here, Jonathan. I think we're looking to -- towards the end of the year to see both volume and margin improvements coming through. So I think it's a little later than what we talked about past quarter, but I think we're still on track to start to see some improvements by the end of the year on the volume side.
Okay. And do you think the volumes -- I think previously you talked about the volumes starting to improve before they -- before you start to get the benefit on the margin side. Is that still something you're thinking about? Or is it -- it's a volume improvement now sort of pushback and then all sort of comes at once either Q4 or Q1 maybe next year?
Yes, I still think there is going to be a little bit of a lag. You'll see volume first and then margin next. But how long -- I'm not sure that how long a gap that will be, but there still will be a bit of a stagger there, I expect.
Okay. And then just finally, I guess, is really 2 parts. The $7 million that you expect to invest in that this year, can you maybe give us a breakdown between where we'll see that between NOI and admin costs? And then just secondly, on the G&A, is this quarter a pretty good run rate? There was a fair amount of noise in it.
Yes, I think -- yes, a couple of points. So we'll start with the breakdown. So of the $7 million, about $2.4 million of that we expect to be of the NOI level and the balance will be coming through in the -- on the admin side. There is a little bit of noise for sure, this quarter, on the G&A in part because of the ParaMed transformation, but also just the IFRS impacts -- IFRS 16 impacts. But if you normalize for those 2 impacts this quarter, it would be around 3.2% for the quarter. And I still think that run rate of 3% to 3.2% as a guide for the 2019 and maybe into 2020 is probably a good range. I mean, longer term, we definitely want to look to start to bring that down, but I think in the short, medium term, that 3% to 3.2% is still a good guide.
Okay.
And just to add something, Jonathan, that's probably obvious, but just to make sure we stayed at when you're asking about the timing of the margin changes, don't forget that the change in the BC status will make a substantial change to the margin as David talked about.
Okay. But that shouldn't change the overall NOI too much though, right? So it wasn't contributing anything?
No. Yes, it will improve the NOI a little bit, yes.
Okay. Just on that, are there any other markets where you have little to no NOI that you might look to get out of?
Not at all. The BC situation had a very unusual set of circumstances, both in terms of contract terms and in terms of the structure of the collective agreement, which exposes to that margin situation. None of the other provinces share any of those characteristics and none of the other are anywhere close to a 0 margin situation.
The next question is from Matt Logan from RBC Capital Markets.
Michael, we need to take a step back and look at your ParaMed segment, how should we think about maybe a blue sky scenario over the next 2 or 3 years?
In terms of what to expect over that time?
Yes, can you guys see yourselves getting back to the 2017 high watermark for the business kind of over the near to medium term or is that kind of a longer-term objective for you?
Yes, I absolutely think in a 2- to 3-year time horizon that we'll be back to those historical levels in terms of margin percentages. We also see upside growth opportunities on this business in keeping with the underlying growth of the market, which is about 4% per year and that we would be able to be on pace with that or even improve that. So I see tremendous opportunities once we get the requisite systems and processes in place. The -- if I look at sort of both upside and downside challenges, I mean, on the downside challenges, we're always facing these labor market circumstances that are a little bit unpredictable, but we have some reason for optimism there in terms of what we've been seeing even within our own business over the last few months. And then the significant upside that comes with the move that's happening in Ontario to reorganize the system to pursue more integrated care opportunities. And it's a complex area, it's developing slowly at this point. But if we're looking at a 2- to 3-year time horizon, I think there will be some opportunities for some new business with expanded service offerings for us that we're thinking through now to take advantage of it. Because the hospitals are really having trouble managing the volumes that are coming their way, so they're looking for earlier and more efficient discharge of patients from hospitals and they need services out in the community to be able to catch them and take care of them, and that's why I think our upside potential is.
And the extended service offerings, would that be more complex care or maybe some color on that?
Yes. There is an opportunity for more specialized services. So when I say specialized, it would mean things like palliative care or mental health services that are going beyond the offerings that we have today. But the other thing is to be able to manage somebody's needs longitudinally over time. Our experience with our clients is very episodic. So we might take care of somebody for a short period of time when they leave the hospital. But then the next time they need services, we don't necessarily get the assignment. It may go to another service provider. So having a more long-term relationship with somebody and being able to adjust the services we provide to meet their needs will give us a greater opportunity to provide a more holistic experience for those people. If you talk to users of home care, one of the biggest complaints is that every time they see somebody, it's somebody different and they can't form a relationship with them. So that's the type of thing that, I mean, when I say innovative kinds of services.
That's great insight. And maybe just changing gears a little bit. In terms of your retirement segment, can you give us your thoughts on what you see for stabilized NOI from the portfolio? And maybe a time frame of how we should think about the lease-up of the homes?
Yes, I think -- it's David. Yes, I think in terms of sort of stabilized NOI of the current homes, if you exclude Barrie, I think we're in that $16.5 million range for those homes. So I think that's sort of where we're looking at on that front.
And in terms of timing for lease-up, that's kind of a 1- to 2-year process?
Yes, I think so. I mean, obviously, it's specific to each home in terms of where we're getting to. So I think that if you look out across the portfolio, that's kind of the time frame, '21, 2020 -- '21, '22 to have everything sort of where we're targeting for lease-up on the ones that are still in lease-up.
The next question is from Tal Woolley from National Bank Financial.
Just wanted to -- I'll go back to SGP for a second. Your comments on customer targeting trying to find larger customers was interesting to me. My understanding of sort of the genesis of the business was in helping a lot of the independents that operated around, to help them access services and goods more effectively. I'm just wondering if you bring on someone like Schlegel, it's a sizable operator in the province, we're seeing consolidation in the industry. If like Revera comes in and buys Schlegel, don't they want to capture that value that you're capturing for them right now on their own platform?
Well, that's always an issue even for the smaller operators. We see our customers being bought and sold from time-to-time. And I've been very -- and of course, every time that happens, the possibility exists that we'll lose that client, that they'll take it in-house, that they'll take them to a different provider. And I'm very happy to say that in the vast majority of cases, the service goes along with it and sometimes it becomes a sales opportunity for us to bring along the acquiring organization into the business. Because they get a sense of what the costs are of using our service and they can benchmark them to their own. So yes, it's a risk that, that type of thing would happen in that kind of an acquisition. But I think we're getting to a point where we're purchasing for a group that's much larger than Extendicare, as an example, and even the bigger players are realizing that given those volumes, we're better purchasing together and sharing those savings across the industry. As we all know, this is a pretty low-margin industry, so there's constant pressure to be looking for better pricing and lower costs. So this has had a lot of momentum.
Okay. And same-property NOI in the long-term care business, looks like you deferred from disclosing it this quarter. Any -- can you just provide me a reason why -- I guess, there was not a huge change in the same-property portfolio, but I would think just going forward with potential redevelopment there that's still maybe something useful for what the market know about?
It's Jillian. It's only the retirement segment that we've had same-store, non-same-store reporting. There hasn't been anything on long-term care.
Sorry, in the past though, you've disclosed same-property NOI?
It was the same though as the total. There wasn't any -- it was in the table with the retirement that shows the split, that it was only the retirement that had the same-store, non-same-store.
No, I'll just add. As we move forward on the long-term care and that becomes relevant again, we'll definitely provide that breakdown.
Yes. Okay. Appreciate it. And then, Michael, I guess, one of your questions about your job going forward this year in this multiline business, it's really tough to figure out where should the next incremental dollar capital go. You've had some additions to the Board recently too as well. Can you just talk to me about what are sort of the next steps at the Board level that you're taking? Is there going to be a broader review of the business? And is that something the market should be expecting to hear from you about?
Well, we're certainly looking forward to having our 2 new directors join our Board after the AGM. And we'll have the benefit of their expertise and industry experience in the table. So that will certainly bring different perspectives. It'll also be helpful to have the voice of our largest shareholder at the Board table. So we believe we've got a very clear opportunity ahead of us as a result of getting those collective minds focused on the business. I think at this point, our discussion with our new directors has been very open and collaborative and focused on creating long-term sustainable value for our shareholders. It hasn't resulted in any change in direction for the company and we have no plans for any immediate announcements of changes in direction. That said, we're always looking for to just use your expression, where's the best place to put our next dollar of investment and how we can optimize the performance of the firm. But at this point, I would only say that we'll do what the Board always does, which is review all of our assets on a regular basis and look for ways to enhance shareholder value.
The next question is from Yash Sankpal from Laurentian Bank.
Can you talk about the decline in home care volumes in the quarter and also the staff turnover issues that you're facing?
Sure. I think the volume drop in the quarter, it's a combination of factors as we've talked about. So I think from an internal perspective, our legacy systems and processes create challenges for us in terms of scheduling and staffing, which lead to retention turnover-type issues. And as Michael spoke about as well, we are focused on rebuilding the management and it's not just at the VP level as Michael mentioned, but in the field at the Director level. So in certain cases, where we have vacancies and things out there, obviously that can cause some issues from a referral acceptance as well. So a lot of those issues are going to be addressed with the new platform and all the new processes and training that go around there to make sure we're utilizing that platform and optimizing the features in there to help with those types of things. I think in the quarter as well, in certain areas, we still are experiencing some challenges on PSW shortages and nurses in certain areas. And there was -- and is a weather impact. I know sometimes it could be an overused explanation, but there were some fairly severe weather in this business where we have thousands of people running around to individual homes and people's homes to service them. It can -- it definitely does have an impact and can have an impact in terms of our productivity. So I think all of those, there's not one particular factor. I think they are all combine to in Q1 to push down the volumes.
And was there any drop in demand from -- for the services?
Not at all, Yash. The demand has been very strong. I made a comment earlier about some early indications with respect to human resources trends. We've been doing better now for some time in terms of recruiting and retention. So I'm very bullish on our ability to increase our fulfillment at the service requests that we're getting. But the volume drop was entirely on the delivery side, not on the demand side.
Got it. Got it. Also when you look at this transformation process, what are you worried about, like what could go wrong? You're investing $12 million in this process. What could go wrong? What keeps you up at the night -- up in the night?
I think the only real risk here that we have is the timing risk. I have no concerns about our ability to finish this and to get the results that we're expecting. We've benchmarked our performance, not only against other organizations, but also internally office to office within our own organization. So the desired margins and performance that we're looking for from the whole company, we are delivering today from some of the districts we have in-house. So my confidence level about our ability to get that level of performance uniformly across the business is very high. It's a matter of getting the right technology in place and getting the right leadership in place to deliver that and we're very active on both those fronts.
All right. And just one more question on your third-party management business. So how should we quantify this -- your new client, their impact of, like, how should we quantify the impact on your NOI or revenue?
So Schlegel is already in the Q1 results. They started fully into the partnership on the 1st of January. So you're seeing a full quarter with their impact there. That said, over time, we find that our clients use our services in an increasing way. So they may not be at steady state in the Q1 results. But we added other clients -- quite a few other clients in Q3 and Q4 that were coming up to steady state in Q1. So I think we'll see a -- an increasing impact of new clients, but we have other new clients. So we're not ready to announce that will be coming in future quarters. So I would suggest that at a high order, that looking at the number of beds and thinking about the revenue per bed that's coming from that service is probably your best bet kind of proxy for the impact. And as we announced, additions to those number of beds, it will give you a sense of what to expect in terms of the revenue and NOI.
The next question is from Doug Loe from Echelon Wealth Partners.
Just a couple of housekeeping items for me. In your press release, I mean, you specifically talked about the balance of investments satisfying your Captive versus self-insured liabilities and that gap continues to be wide and widening. And you released some cash post quarter end, which is encouraging. I just wondered if you had any update on the pace of which you thought that U.S. activities could trend to 0 here. I mean we can obviously kind of project the historic trends. But any additional color you'll be interested in providing there would be helpful. And then second of all, just sort of thinking about your retirement living business, vis-à-vis long-term care and nursing home. I mean it strikes me as though, I mean, your net operating income margin is obviously performing well and at company high levels and achieving some scale or I thought there might be a possibility for retirement living as a division to positively impact nursing homes and home care, either through providing some proportion of residents transitioning to long-term care or some proportion of residents benefiting from modest number of ParaMed hours. So just wondering how you might be thinking strategically and synergistically about how retirement living could positively impact other divisions within the firm? And I'll leave it there.
Yes. It's David. I just addressed the first question on Captive. So I mean, obviously, we're happy with the progress that we're seeing there. I mean it is unwinding itself, but as time goes by, that picture looks better and better. So as I mentioned and you noted, we took back $10 million of cash this month. We anticipate based on how the loss progression is looking at this point, that there will be a further USD 5 million by the end of the year. So -- and then it's hard to say the timing exactly in 2020, but obviously further repatriation coming in 2020. But we're hopeful for this year to have another USD 5 million coming by the end of the year.
On the other question -- sorry...
No, go ahead.
Okay. On the other question, just with respect to the retirement business and synergies with the other businesses, I don't see much linkage between retirement and long-term care from the perspective of one being a source of clients. The backlog for long-term care is so large that it really doesn't need us to provide any supply of potential residents. They are housed in hospitals across the country and on long waiting lists trying to get beds. The process for sourcing individuals to come into our long-term care homes is managed by government agencies across the country. So even if we had a client in retirement that we particularly wanted into one of our long-term care homes, we wouldn't be assured of being able to do that because it's the government gets back involved in managing those waiting lists and it would depend on whether a bed came up at the right time as to one of our retirement residents would end up in one of our long-term care facility. So there is very little linkage across those groups in terms of the movement of residents from one to the other. That said, we see a lot of potential synergies with Assist as the bridge and various services that we're providing. One of the services that we provide to a number of homes at the moment is from our home care business. We provide some augmented services that are provided in long term or in retirement settings. We haven't been really driving that to any significant degree because, of course, we're still having challenges meeting the demand for the home care services themselves. But we see this as a very significant growth opportunity and a place to expand the impact of Assist on our customer base. So it's another adjacency, if you like, that we're looking forward to exploring once we have our home care business in and of itself operating efficiently.
The next question is from Chris Couprie from CIBC.
Just one follow-up on the home care business. Just in terms of thinking about potential volume recovery in the business. If you look at a center that's already gone through the integration, what was the kind of peak to trough decline in volumes? And what has been the subsequent recovery off of that trough?
Yes. It varies a lot by geography. Some offices had very little impact from a volume perspective, where they didn't have much of a drop in the first place, and so didn't come back up. There wasn't much to recover because they were already delivering close to 100% of all of the referrals that they were receiving. Other offices that had more challenges and those challenges aren't just systems issues, it's usually a confluence of issues like recruiting, like the challenges of transporting people in rural areas where they're covering long distances. There were whole bunch of different factors that make it a little bit difficult. So we have seen some offices that were in decline, that are now growing at roughly 1% a month, which is certainly a positive development. None of them have closed the gap to getting to 100% of the services that they are being offered. So we still have room to grow in all of those situations. So the ones that are bit farther down the path that are showing a promising trend are the pretty significant growth rates that haven't recovered completely yet. They're still on that track.
In terms of the referrals that you -- that a center got versus now, has there been any change in the service request? In other words, is your closing ratio increasing or is -- have you had any impact on the actual, like, availability of ours offered to you because you haven't been able to make up for it in the past? How easy is it to regain the market share that you once had?
Yes. This is a worry for me, Chris, a theoretical worry for me that gives me urgency and wanting to address this as fast as possible. What we have seen so far is that the volumes that are being offered to us are going up, not going down. So that phenomenon is not happening, where we're losing the potential to regain the share that we've lost. So that's fortunate. I think that's driven by the underlying growth in the industry. But I'm worried about a different potential answer to your question coming down the line if we're not quick in recovering our volume. So I understand the basis of your question. But we have not seen any drop-off in the volumes that are being referred to us at the moment.
There are no further questions registered at this time. I would now like to turn the meeting back to Ms. Fountain.
Thank you, Paul. That concludes our call for today. This presentation is available on our website as are call-in numbers for an archived recording. Please don't hesitate to give us a call if you have any further questions. Thank you, again, and thanks for joining us. Goodbye.
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