Q3 2019 Earnings Call
Greetings. Please stand by your call will begin momentarily once again, please standby your call we'll be getting momentarily. We thank you for your patience enough that you. Please remain on the line.
[noise] greetings and welcome to the still more partners 2019 third quarter earnings conference call. During the presentation. All participants will be in listen only mode. Afterwards, we will conduct a question and answer session.
If you have a question. Please press the one followed by the four on your telephone, but anytime during the call lead to reach an operator. Please press star Zero as a reminder, this call is being recorded Thursday November 7th 2019, I would now like to turn the call over to Mr., Michael Postcard, Vice President Treasury and Investor Relations. Please go ahead Sir.
Thank you.
Good afternoon, everyone and thank you again for joining us on the still more partners conference call to discuss our 2019 third quarter financial results.
You should all have a copy of the press release, we issued earlier today if anyone does not have a copy you can find the full release on our website at www dot stem or dotcom.
What's on the call. This afternoon, our Joe Redling, President and Chief Executive Officer, and Jeff did you get Bonnie Senior Vice President and Chief Financial Officer.
Well, we began as usual I would like to remind everyone that this conference call will include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
All statements that address operating performance events or developments that we expect to participate to occur in the future are forward looking statements. These forward looking statements are based on management's good faith beliefs and assumptions our management believes that these forward looking statements are reasonable.
However, you should not place undue reliance on any such forward looking statements because such statements speak only as of today's date.
We do not undertake any obligation to publicly update or revise any forward looking statements, whether as a result, new information future events or otherwise except as required by law.
In addition forward looking statements are subject to certain risks and uncertainties that could cause actual results events and developments to differ materially from a historical experience and our present expectations are projection.
These risks and uncertainties include but are not Oh, not limited to those described in the reports, which we filed with the FCC with that I'll now turn the call over to Joe Redling go take from here.
Thank you Mike or good afternoon. Thank.
Thank you for joining us to discuss our 2019 third quarter results.
Since joining stonemor 16 months ago, we have successfully navigated through several major transitions and milestones.
When I joined I set an agenda that listed.
Five major priorities.
First was to improve financial reporting it become a timely filer.
It was accomplished in Q1 of this year and our 10-Q <unk> third quarter will also be filed on time.
Second we had an immediate need to recapitalized our balance sheet.
And at the end of Q2, 2019, we announced a 447 million dollar recapitalization.
Which was a significant step.
Our overall strategic plan.
In addition to the debt and equity restructuring.
We continue to be on track with our conversion to a C Corps.
Which we expect to complete by the end this year.
Next well the comprehensive review.
Of our cost structure with a laser focus on reducing cost.
Today, we have identified cost reductions exceeding $30 million.
We have addressed many key areas across corporate.
DNA sales and field operations.
We have also implemented a second phase of this effort to drive additional efficiencies through the organization that we expect will deliver additional savings in the areas up procurement.
Field operations and corporate overhead.
Jeff will provide additional detail on these efforts momentarily.
We have focused on or an organizational themes of de layering and consolidation.
With a goal of improving communication accountability and execution.
Last month, I announced we were eliminating the chief operating officer role.
And the divisional presidents would now be reporting directly to me.
Eliminating that management layer has already begun to show benefits as I work more closely with our divisional leaders to clarify priorities.
Improve support and enhance decision making.
Simply having everyone on the same page with clear communication and shared goals will make for a more efficient management process and.
Reduce costs.
I also recently announced the promotion of GFT Giovanni to CFO .
Jeff was our Chief accounting officer, and was instrumental in improving our financial reporting process.
We will not be replacing the chief accounting officer role, which again enables us to consolidate roles and improved efficiency.
I want to officially thank Jeff for his hard work and congratulate him on his recent promotion to Chief Financial Officer.
Jeff has an impressive background in public accounting and has already begun to make valuable contributions to the team.
I'd also like to recognize Mike postcard who's on the call with us today.
Our new Vice President of Treasury and Investor Relations.
This change consolidated our treasury and IR functions under one leader.
Mike as men with Stonemor for two years than has been and we'll continue to be.
A valued member of the team.
Another key priority was to evaluate our asset base and determine the most effective strategy to divest assets.
This is a critical and transformational component of our overall turnaround plan.
As we recently announced we had engaged Johnson consulting group to represent Stonemor throughout this process.
I have been encouraged by our progress.
And the overall market interest.
Well I have nothing definitive to report today I will say that our current indenture agreement allows for asset divestitures of up to $155 million.
And requires the first 55 million up net proceeds.
And 80% of the next $200 million of net proceeds to be used to pay down debt.
Subject to further due diligence, we expect closings of these transactions.
To occur beginning in the first quarter of 2020.
This effort will result in multiple benefits first we can deleverage our balance sheet.
By reducing our debt.
Second we will generate additional liquidity from the sale of these assets and third we will reduce our geographical footprint.
And improve our operating efficiency.
We expect these potential divestitures to be accretive to cash flow.
As we are seeing a high level of interest.
Among multiple buyers at attractive multiples.
My fifth major priority was improving sales performance.
I've been encouraged by the improvements we are beginning to see across our regions.
We had strong sequential improvement.
From Q1 to Q2 this year.
And continues to stabilize sales in the third quarter.
Throughout the third quarter, we saw a monthly improvements, which culminated with an 8% year over year increase for the month of September .
Several of our regions showed true strength with a highlight in our north Eastern Division.
With an increase of 13% in the quarter.
Over prior year.
This is an important sign as our north Eastern Division accounts for over 40% of our total sales production.
Driving this improvement is the continued focus on supporting our top tier properties.
With additional staffing combined with new training and Onboarding programs.
In fact on a national basis.
Our new hires that have been with us for six months or less have had significant improvement in their overall productivity.
To be more specific.
Year to date, 29% of our Salesforce falls within the six month or less cohort.
Per person sales production in this group has increased 50% versus last year.
And encouraging indicator that our focus on improving Onboarding and training has been effective.
We still have much to do on having steady predictable growth across all regions, but these results indicate we are making good progress.
Now, let's take a look at the financial results for the quarter.
Revenues were flat compared to the prior year period, as we were able to benefit from the stabilization of our pre need sales production and the servicing of our deferred revenue backlog.
Total cost and expenses were down 4% compared to the prior year period, driven by reductions in Cogs cemetery expense and corporate overhead.
Our increased operating loss in the quarter was negatively impacted by a $24.9 million noncash impairment of goodwill as well as nonrecurring expenses in both corporate and the field.
Were not for these onetime items, our operating loss in the third quarter would have now would have narrowed materially.
Our strategic initiatives of sales force productivity improvement and cost reductions increased segment operating profit to $5.3 million for the quarter compared to $3.1 million in the prior year period.
Representing an increase of $2.2 million.
We will continue to focus on further improvements to four wall profitability going forward.
Let me now turn the call over to Jeff to provide more detail on the financial results.
Thank you Joe Good afternoon, everyone before I get into the financial details for the quarter.
I want to provide some additional context and spending a few minutes elaborating on the recent initiatives that Joe mentioned.
We're pleased with the progress on our divestiture program for selective assets. We have completed the first around overview, but potential buyers and are encouraged by the level of interest that we've received from these parties.
We continue to work with Johnson consulting group and potential buyers through the due diligence process and expect to have final offers in the upcoming weeks executing this divestiture program will delever, our balance sheet generate additional liquidity and optimize our geographical footprint for operating.
Efficiency.
Aren't venture permits asset sales up $255 million under current terms of the indenture still more received zero percent on the first 55 million of net proceeds and 20% on the next $100 million and proceeds with the remainder of being utilized to pay down the notes.
The reduced debt load blood immediately reduce our cash and noncash interest expense the company intends to reinvest it's portion other proceeds into capital and other projects to further improve our locations and operational capabilities.
Throughout the process our goals were to identify the properties that will generate significant multiples on EBITDA.
While strategically retaining high quality assets.
In an improved operating footprint.
A smaller portfolios assets.
Will allow outlets to better focus on strategically improving sales and operational efficiency at our retained locations.
Well no agreements of sale have yet been executed, we're making progress on our goals and expect that these divestitures will start to close in the first quarter of 2020.
In addition, Tonight divestiture program, reducing our cost base Rightsizing, our organization and optimizing our infrastructure remains a critical component to the future success is still maher.
As part of the restructuring plan announced in June of this year, we've executed over 18 million in annualized cost savings with the majority of these savings being generated from cemetery operations in corporate overhead.
Second phase of cost reduction is already underway and further focuses on procurement supply chain and field operations.
I'd like to talk about procurement for a moment today, we have a decentralized supply chain with added purchase order system. As an example manually processed over 11000 invoices each month with minimal technology infrastructure to support our administrative process upgrading Africa.
Chairman and supply chain functions.
Lengthening strategic supply chain partnerships and introducing stated the our technologies presents a material opportunity for the company.
To realize economies of scale labor efficiencies and is executed against step.
On the pathway to operational transformation.
Accordingly, we signed an agreement with Cooper, leading cloud technology business spend management platform.
Today, 85% of our vendors already transact on the Cooper platform.
This presents a tremendous opportunity to digitize the vast majority of our manual invoices upon implementation.
Reducing administrative expense and providing real time cost management of major spend categories.
We have engaged KPMG to facilitate this implementation.
Our target completion date for this implementation is the second quarter of 2020 were targeting annualized savings ranging from three to 5 million directly related to utilization of this platform.
To maximize the benefit of this platform, we're creating a procurement team to work with our direct and indirect vendors to enhance strategic partnerships and policies.
As Joe mentioned, another key area performance improvement is sales.
Earlier this year, we focused on our top 50 properties that were experiencing significant shortfalls compared to prior years.
His group of locations have previously experienced a year over year deficit of close to 50%. Our efforts have improved the performance at these locations, which collectively delivered a 4% year over year increase in September completely reversing the underperformance that we saw in.
The first quarter.
Key drivers of this improvement for Rightsizing staff.
Improved sales protect productivity and new training and Onboarding programs as evidenced by that 50% increase in new higher productivity.
Finally, we made significant strides on corporate overhead.
Having generate annual savings totaling $5.2 million, we are aggressively delayering the organization as evidenced with the elimination of the Chief operating officer, and Chief Accounting Officer positions.
The first half to 2019, our corporate.
Headcount decreased 20%, resulting in $3.3 million, an annualized cost savings we have implemented other actions that have reduced our recurring corporate overhead spend by 1.9 million on an annualized basis.
Offsetting these corporate cost reduction efforts is the continued impact of high nonrecurring expenses associated with the rights offering the upcoming C Corp conversion and outside consultants.
Our expectation is that these onetime expenses will not continue as we enter into 2020.
We will desk, we would discuss these onetime expenses and a few minutes.
Our rights offering concluded in late October with this subscription of over 3 million units and the associated retirement of preferred units on a one for one basis. The purpose of the rights offering was to provide all unitholders and equal opportunity to participate and our June equity recapitalization.
And liquidity perspective, we continue to diligently manage our cash position as evidenced by the $1.6 million increase in unrestricted cash in the quarter, increasing cash was driven primarily by working capital management, we will continue to prove the liquidity profile other business through the contemplate.
Divestitures, increasing profitability both through revenue enhancements.
Cost reduction initiatives and effective management of working capital.
Lastly, before jumping into the quarterly financial results, we announced that our unit holder meeting is scheduled to take place on December Twentyth with regards to depending Seacorp conversion, which is on track to close by year end.
We are excited about transforming the company through all these initiatives and the progress that we've made to date with that let's take a look at our quarter performance.
Our gross conditional sales were flat in third quarter 2019, when compared to the third quarter of 2018. This is a positive development given that we started the year with a first quarter that was down 19% and a second quarter that was down 10% over the same periods in the prior here.
From a GAAP standpoint.
Third quarter 2019, our total combined revenues were flat year over year with $73.2 million recognized in both the third quarter is up 2019 in 2018.
Third quarter 2019, we had an operating loss.
$6.6 million, which is a 2.7 $9 improvement over the third quarter 2018.
We lost $9.3 million for the nine months ended September 32019, we had an operating loss of $26.1 million, which is a $5.2 million improvement over the nine months ended September 32018.
The improvements in operating loss were driven by improved gross margins and better cost management related to the initiatives that we previously discussed during the third quarter 2019, we incurred a 24.9 million dollar noncash goodwill impairment charge that negatively impacted our net loss the goodwill impairment.
Charge was primarily driven by the decline in our market cap.
Our cemetery segment represents 80% of total revenues for the three months ended September Thirtyth 2019.
Total cemetery GAAP revenues was $60.8 million for the third quarter 2019, representing a 1.1% decrease compared to the third quarter 2018.
The decline was primarily driven by less revenue recognized from pre construction projects.
Cemetery segment income for the third quarter, 2019 was $4.2 million compared to $2.1 million third quarter 2018, the 6.9% operating margin realized in at third quarter 2019 represented an increase over to 3.4% operating margin realized.
In the third quarter of 2018.
The improvement in operating margin is driven primarily by improved gross margins as well as cost rationalization and reductions in field operations that were completed in July of this year.
Our funeral home segment, which represent 17% of our total revenues for the third quarter 2019.
Was 12.4 million for that period. This represents a 5.3% increase over to third quarter 2018.
Call unit volume was stable for the third quarter compared to third quarter 2018, while the average revenue per call increased.
Operating profits for the funeral home segment were flat year over year with a $1.1 million segment operating profit third quarter 2019, compared to 1 million in the third quarter 2018.
Corporate overhead expenses, which include both recurring and nonrecurring costs decreased 10% compared with a third quarter 2018.
We are seeing the benefits from our previously implemented cost saving initiatives, although those benefits have been partially offset by certain onetime expenditures related to recapitalization rights offering and seacorp conversion.
We have also experienced a 12% decline in corporate overhead from the second quarter 2019 further Everett evidencing the success of our initiatives and efforts to date.
Excluding non recurring charges, our corporate overhead expense declined to $9.4 million in a third quarter compared to 9.7 million for the third quarter 2018.
We are beginning to see the signs of our progress and prudent expense management and cost savings initiatives. The nonrecurring charges in the third quarter of 2018, 2019 point $2.2 million. This summarizes the key financial information for the third quarter 2019 as always additional detail.
Sales and information can be found in our quarterly report on Form 10-Q .
Theres much work ahead of us for the remainder 2019 and in 2020, we continue to see seek ways to improve our cash flow profile and liquidity, including revenue enhancements.
Cost savings and working capital initiatives. Thank you and I'll now turn it back to Joe.
Thank you Jeff.
The actions we've taken over the last year up position the company well to continue our turnaround plan.
We've navigated through some challenging times and have achieved many critical milestones.
As we approach 2020, stonemor will be better position for growth.
We will continue to execute execute across our key priorities.
We will complete our conversion to a C corp by yearend.
Finalize divestitures in Q1 to optimize our footprint the leverage and increased liquidity.
Continue to drive integration and synergies to reduce additional costs through our phase two operational improvement plan.
And continue to drive sales productivity improvements to return to sales growth in 2020.
As always I'd like to take a moment to thank the stonemor team for their continued dedication and hard work.
Even though we still up much to do I am proud of the accomplishments in progress we have made to date.
I remain confident our leadership team and appreciate and recognize all our associates in the field for their commitment and dedication to the families and communities we serve.
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