Q2 2020 StoneMor Partners LP Earnings Call

Ladies and gentle pay somebody took office will begin when winter do we think you for your patience and I said your piece.

[music].

Hi.

Thanks, and will come pretty Stonemor Twoq you earnings release during the presentation, all participants will be no listen only mode. After which we'll conduct a question answer session.

We have a question they supposed to one publicly the floor on your telephone anytime during the presentation.

But anytime during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Thursday August 13th 20, Tony I would now like to turn the conference over to keep trust.

Well nice positive financial planning.

Hi.

Thank you good afternoon, everyone and thank you again for joining us on the Stonemor Inc. conference call to discuss our 2022nd quarter financial results.

You should all of a copy of the press release, we issued earlier today. If anyone does not have a copy you can find a full release on our website www dot stonemor dotcom. Additionally, a copy of the presentation can also be found on our website.

With us on the call this afternoon.

Joe Redling, President and Chief Executive Officer, and Jeffrey de Giovanni Senior Vice President and Chief Financial Officer.

Before we begin as usual I'd like to remind everyone that this conference call will include certain forward looking statements within the meaning of the private Securities Litigation Reform Act at 1995.

All statements that address operating performance events or developments that we expect or anticipate to occur in the future are forward looking statements.

These forward looking statements are based on management's good faith beliefs and assumptions.

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 Tuesday.

We do not undertake any obligation to publicly update or revise any forward looking statements whether as a result at new information future events or otherwise except as required by law.

In addition forward looking statements are subject to certain risks and uncertainties.

Could cause actual results events and developments to differ materially from our historical experience and our president expectations what projection.

These risks and uncertainties include but are not limited to those describing the reports, which we filed with the FCC [noise].

During the call, we will reference certain non-GAAP financial measures such as comparable location revenues adjusted operating income adjusted comparable location operating income EBITDA and adjusted EBITDA.

Reconciliation of these matters.

These measurements the most directly comparable measures calculated in accordance with gap is provided in the press release and presentation.

With that I'll now turn the call over to Joe Redling, we'll take it from here.

Thank you Keith.

Thank you again for joining us this afternoon for second quarter earnings call.

It's certainly been an eventful three months for both Stonemor and for our nation as a whole.

Hope that you and your families continue to remain safe and healthy.

As we all continue to navigate the pandemic.

Cobot 19 continues to be a driving force you know daily activities, so without corporate team.

But even more importantly for our location says they continue to serve on the front lines of this public health crisis.

Dedication of our onsite teams that work with our communities remains a source of great pride for all of that.

We have truly written to the occasion, we continue to set a very high bar, serving our families and our communities.

Well locations continue to work closely with local and state governments and authorities to ensure that our locations are meeting the standards of care for our guests.

Particularly in states have east restrictions on the number of visitors permitted the gathering.

We've ramped up our procurement efforts with regard to personal protective equipment, both for our employees and for our guests.

While we will always adhere to the required standard in the local community. We have also implemented a map requirement.

All indoor activity as well as outdoor activities were social distancing is not practical where possible.

Like most of the nation. After an initial decline in cases, we have once again seen a surgeon activity.

Well look in terms of the impact on piece count.

But also with our own employees and their families.

Continue to provide additional paid sick leave to our employees above the government mandates.

We've increased our cleaning efforts in all our location.

We are an essential business and we will remain open to serve our community.

We continue to make the safety of our employees and all visitors are number one priority.

Yeah, I'm very proud of our team and leadership for adapting early on in the pandemic.

With the rollout of video and telephonic appointments to better serve our customers.

Our teams quickly embrace new technology and protocol.

Although many of our markets have reopened to some extent.

And in person meetings have increased you continue to offer and utilize the virtual meeting with customers.

This is a trend that I expect we'll continue prominently in our business as it has proven to be a very effective channel to support our sales efforts.

Although we make quick decisions to respond to the Pan Dan.

We did experience initial decline in both pre need an athlete sales activity in late March and into April.

However, due to our action and responses, we have been successful and reversing the trend and are now seen significant comparable location sales production growth in both pre need and ATMI categories and our cemeteries.

As we talk about ourselves production, we're looking at non-GAAP measures that focuses on new pre need contract dollar volume.

Together with ATMI contracts dollar volume, where no preneed contracts exist.

On a comparable location basis, our cemetery sales production for the second quarter increased 6%.

Parents in the second quarter of 2019, despite declines in April driven by dependent.

I'm very encouraged to see our trends improve month after month as we continued to build sales momentum into the third quarter.

To illustrate this reversal April sales production experienced a decrease of 7% in April versus prior year.

Driven by the disruption caused by called the 19th.

Well made this year, we reverse that decline and increased 7% over may of 2019.

And in June we doubled back well like increasing total sales production, 15% over June 2019.

That momentum continues to build in July where we experienced a remarkable 38% increase in sales production compared to July 2019.

Total cell production for the last three recent months of May June July are very impressive.

It's consistent sequential monthly sales improvement.

Our July production represented the highest July on record and the total sales production for the full three month period is 19% ahead of the same three month period from 2019.

The highest three month total over the last five years.

That's quite an accomplishment and an amazing turnaround.

I'm very proud of our sales and marketing teams for their outstanding performance improving sales productivity has been a major focus and I truly believe we have established a new sales culture at Stonemor, that's focused on high performance in over achievement.

We have strong sales and marketing leadership and I'm confident that we will continue to deliver strong results from their efforts.

Again to be clear this is comparable location sales growth.

There is no benefit from any new acquisition in fact, we achieved this growth despite disruptions from divestiture activity.

This upward trajectory of ourselves is being driven by strong growth in our pre need sales production.

While we were down nearly 10% in premium sales in April.

Since April of last year.

We've seen steady growth over the major would you like period with high single digit growth in May and June, culminating with a 43% year over year growth in preneed sales production.

In July.

Interestingly our June 2019 premium sales production was bolstered by $1.5 million in bulk sale.

Excluding the bulk sales growth in June would have been 26% over 2019.

Certainly with the pandemic the process of completing such large bulk transaction somewhat limited as it requires a hands on customer experience, which we have purposefully limited.

As a pandemic dissipates, we will wrap up our pursuit of such transaction.

Represent a meaningful opportunity for us on the sales front.

Similarly, a death rates remain above historic norms.

Our ATMI production has outpaced most area mortality rate.

With a 17% growth in the second quarter and a 27% increase in July.

As with most in the industry.

Funeral home activity was not quite as rosy picture.

But as a reminder, it only represents approximately 15% of our total revenue.

On a comparable location basis.

Total funeral home revenues were effectively flat during the quarter.

Call volume increased 6% on a comparable basis, but we experienced the corresponding decrease in average value recall.

Looking ahead to the remainder of 2020.

I am strongly encouraged by the recent trend while I don't necessarily expect that seem to repeat incredible performance from July.

I have high hopes and expectations for the remainder of the year as we continue our goal of driving double digit sales growth.

I am similarly encouraged by the teams rapid response to the changing environment back in March.

And I'm confident that we are well position should a similar situation a rise again with another extended nationwide shutdown.

Jeff will do a much deeper dive on our financials, but I also want to provide some additional color regarding our ongoing transformation process.

And how we will translate strong sales production and to improve profitability.

Looking at our financial statements this quarter, we're starting to see the impact of our initiatives on our income statement.

As total expenses have declined more than $14 million or 17%.

For the three months ended June Thirtyth 2020, compared to the three months ended June Thirtyth 2019.

Much of those savings other results of the transformation initiatives that have been implemented by our team.

Specifically, our cemetery expense line item, which now includes our maintenance and landscaping agreement with Moon landscaping has seen a $3.7 billion decrease.

I'm not all of that savings is related directly to the moon agreements. Some of it is related to our divestiture activity.

And some of it is related to other cost savings, but we're now seeing that direct benefit on the PNM out of that transition, which is largely been well received.

Our corporate overhead is down $4.4 million in the quarter or 33% compared to the second quarter of 2019.

This is being driven by number of our trance formation and this initiative.

Including a corporate risk back in April.

Various programs to improve efficiency by doing more with less.

And overall commitment by our team to eliminate wasteful and unnecessary spend.

In addition, this year, we did not incur expenses nonrecurring expenditures associated with consulting and legal advice.

And as a reminder, for executive management team kept voluntary pay cuts during much of the second quarter as we adapted to the changing cobot environment.

Our board of directors as similarly, taking a reduction in their compensation during the third quarter.

$14 million in expense reduction is after the impact of several onetime expenditures incurred or crude.

During the second quarter, including those related to a ramp up in our personal protective equipment purchasing to the tune up a half a million dollars that did not take place last year.

We will continue to incur costs associated with P.P.E. on a go forward basis, but our execution on savings were more than offset.

Added costs.

Just recently, we launched coupons.

Our new procurement software.

It was a remarkable example of cross functional collaboration by our team.

As many of our systems and processes needed to be significantly re engineered to accommodate the launch.

Were expecting to see significant savings in our procurement process as we consolidate vendors and drive improved procurement and governance practices.

Those savings are not yet reflected in our PNM as it will take several months for those benefits to mature.

In terms of the bottom line.

We are reporting positive operating income for the second consecutive quarter.

Our adjusted EBITDA, which exclude certain gains and losses associated with the divestiture activity in California.

For the quarter ending June 30, 2020 was positive $2.2 million.

An improvement of $6.2 million compared to the negative 4 million EBITDA in the second quarter of 2019.

This improvement is even more impressive when you consider that are now divested locations.

Contributed approximately $1.6 million of operating income in the second quarter of 2019.

Lastly, I want to point out that we generated $6.4 million in cash flow from operations during the quarter.

While we got internally set a target to achieve positive cash flow by the end of the third quarter of this year.

Our sales initiatives during the quarter as we responded to the koby pandemic, coupled with the acceleration of key transformational initiatives enabled us to generate positive cash flow from operations ahead of schedule.

Going forward really we remain focused on continuing this momentum across sales expense management and profitability.

We still have more to accomplish what I'm very encouraged by our progress and results. So far this year as we navigate through these unprecedented times.

I'll now turn the call over to Jeff de Giovanni who will walk you through more detail on our financial performance during the second quarter.

Thank you Joe. Thank you all for joining US today. It has been a truly remarkable quarter as the company continues to adapt to the new environment brought on to covert pandemic like Joe I'm proud of what our entire still more team delivered in the second quarter.

With that type of pool for their tireless efforts in prioritizing the safety of our people and community and supporting the families. We sir.

I'm also very pleased to discuss our second quarter financial performance.

First before we dive into the GAAP results. Please note that the non-GAAP sales performance that Joe discussed it truly a measure of our current period sales production.

Primarily reflected in these get results as the sales production build a preneed backlog for future recognition.

Okay.

On slide four you would see snapshot of our second quarter GAAP financial results GAAP revenues are more heavily related to the timing.

Pre need turning that need any pretty contract those components will be recognized sometime in the future as merchandise has delivered in services are performed.

On a GAAP basis, we generated revenues of $70.7 million for the second quarter compared to $78.5 million for the prior year period.

In two key 20, we generated operating income 4.7 million compared to an operating loss of 10.2 million into second quarter 2019.

In order to provide additional clarity into these results along with comparisons to prior year I refer to certain resulting in a comparable location basis.

That is excluding the locations that we have divested between January 1st 20 linking.

In June Thirtyth 2020, we believe that this comparison provides a better picture of our current performance reconciliations of these adjusted measures to GAAP financials are included as an appendix to the presentation, which can be found on our website.

Having said that we generated 70.7 million in total revenues for the second quarter, which represents a $3.2 million for 4.3% decrease on a comparable location basis over the same quarterly period in 2019.

We look at the segment revenues in a few minutes I will provide additional color on the nature the de kind of revenue however, I do not.

I do want to know now that year over year decline was primarily driven by coven 19 pandemic impact on the Companys April's performance the revenue performance in Maine to rebound.

And was ahead of prior year, but was not enough to offset the April declined quite early signs.

Showing these positive trends are continuing into the third quarter moving ahead to slide five.

We have operating income of $4.7 million, which included the gain on divestitures of 7 million and other losses of 2.2 million.

Excluding the onetime gains and losses, we had an operating loss.

Of less than 200000.

And on a comparable location basis, we were actually breakeven. This represents an improvement over the second quarter 2019, well, we reported an operating loss of $6.8 million excluding other losses.

It also represents a sequential improvement over the first quarter 2020, when we reported an operating loss of 1.5 million excluding the gain on divestitures.

On the expense side, we made tremendous strides while reducing our overall calls with total expenses of 70.9 billion. During the second quarter 2020, representing a 14 million or 17% decline compared year.

Now turning to slide seven for a deeper dive into what throw those results looking specifically at our slogan Cemetery segment. We had revenues of 58.9 billion for the second quarter 2028 decrease of 2.7 million for 4% on a comparable location basis versus the second.

Quarter 20 Nike.

The difference is largely attributable to the revenues associated with large sales. These larger shows are highly typical.

Private a stage or bulk lot sales that require more personal hands on customer experience, which was not a focused during the early stages of coven 19 pandemic as we shifted our efforts to virtual telephonic meetings.

Typically we saw revenue associated with large sales decline of 1.7 million on a comparable location basis. During the second quarter. The remaining decrease of $1 million was driven largely by decreases and average revenue per case.

On a comparable location base.

Bases on term, it's performed actually increased by 100 me two variables year over year.

Specifically, our cemetery cost of goods as the percentage of total cemetery revenues decreased 16.5% the second quarter, 2019% to 16.2% for the second quarter 2020, but the launch of two but this quarter. We will continue to see savings generated on this line item.

Cemetery expense declined 3.79 in the period or 17.3% versus the same period in 2019, which is primarily related to maintenance and landscaping expense savings certainly much of the savings is being driven by our transitional maintenance and landscaping to news we've rolled out the program to most of others.

Patients, but still have some locations that will be transitioned over the coming months inefficient. We continue to drive savings in our cemetery selling expense.

Metairie selling expense declined 2.9 million.

With the expense as a percentage of total cemetery revenue decreasing 21.4% for the second quarter 2020, compared to 23.6% for the second quarter 2019.

These savings is reflected of reductions in our advertising expense as weve.

Moved to closely managed and targeted our digital lead spent additionally, during the second quarter. We continued our focus on optimizing our sales force productivity through the elimination of the lowest level performers driving base payroll savings, increasing total commission opportunities for top sell performers.

Lastly on the cemetery side.

We drove gene a savings of 1.2 million, but the elimination of certain administrative expense and tighter expense controls. This is another place where we expect to see additional savings generate with the launch of Cooper.

It is important to note that are QQ 20 spend also included.

That's a million dollars in TP purchases as we manage through the cobot pandemic and ensure that our locations had the necessary safety equipment profits for the cemetery segment were 7.4 million for the second quarter 2020, compared to 4.8 million for the second quarter 20 Nike.

He 56% improvement.

The growth in cemetery segment's profitability was driven by margin improvements and our continued cost reduction strategies and with execute inspite of the divestiture.

Locations that added 1.3 million to profits during the second quarter of 20 Nike.

We also know that we still have additional opportunities to continue driving the cemetery segment margins.

Oh funeral home segment revenues were 11.8 million for the second quarter 2028 decrease of 1.1 billion or 8% versus the second quarter, 2019th the decrease was driven by the divestitures shrunk funeral home locations as well as it declined and the average contract values as our call volume increased by two.

220 or 6.1%.

This decline in average contract value was driven by reduced service opportunities related to the cobot social distancing restrictions.

Funeral home expenses declined.

700000, or 6% offsetting much of the revenue loss, representing a slight uptick in expense as a percent of funeral revenues.

That's for the funeral home segment declined slightly from 1.8 million in the second quarter 219.

Q1 point $4 million in the second quarter 2020.

Certainly primarily decreases in average contract values, which did not sure let rate similar savings on our expenses.

And finally, we experienced a significant decline in corporate overhead over 4.4 million.

33% decrease over the second quarter 2019 included in savings was a decrease of 1.7 million related to professional consulting fees that were previously disclosed as onetime transaction costs included including those associated with our C Corp conversions.

Our ability to execute many of these transformation initiatives with their own team and relying less on third party professionals is a testament to the leadership and dedication from everyone. On that note. We're also doing more with less as we significantly reduced our payroll corporate both during the second quarter.

After 2019, but also during the second quarter 2020, when we execute an additional production of course in April the savings from the most recent refer only starting to materialize as they were offset by socially severance costs.

In addition, the district strides we made in our income statement. We made similar strides in terms of our cash flows and are pleased with the overall results I'd like to turn your attention to sites and for some key metrics.

Internally, we've been targeting positive cash flow performance sometime during the third quarter well. This year I'm pleased to report that the timely execution aren't <unk> transformation initiatives as well as adapting to the ever changing environment, we were able to generate cash flows from operations earlier than expected.

For the first for the six month and 600 2020, we generate a 1.29 and cash flow from operations, which includes 13 known at cash interest payments.

Able to execute this while also reducing our paypals balanced by 6.2 million specifically for the second quarter that equates to 6.4 million in cash flow from operation again, that's after a six and a half million dollar cash interest from it.

This was also generated without seeing an increase in our payables.

Or Paypal agents. So this is truly representative of operating cash generation.

Our cash flows from financing investing activities were impacted by our divestiture activities in California with sale proceeds offset by debt reductions. Additionally, we generated 17, nine and cash flow related comments outsell offset by a $3.5 million amendment to.

Over the last six months, we spent 3.8 million on capital expenditures with $1.7 million of that taking place in the second quarter, we slowed down the capex spend during the second quarter in response to covert pandemic, but we expect that capex to increase over the coming quarters as we reinvest in our properties.

As we look ahead with her but we expect an additional paydown with the closing of our remaining locations to California. During the third quarter at that point, we'll have exceeded that 55 million in debt reduction with the lower debt balance to the positive operating cash flows as we approach the end of third quarter Realty.

Are you waiting whether or not we continue to pick a portion of the interest on our notes.

As a reminder.

We have the auction until January 30, 2022 of paying seven enhance percent cash interest.

And 4% pick interest for paying a 9.875% cash interest, but no page.

After January 2022, we are obligated to pay cash interest of 9.875 until maturity.

Well the currently do not have any further divestiture activity to discuss we continue to work with Johnson consulting to identify additional opportunities that along with our strategic plan or reducing our geographic footprint. There has been considerable interest in our property to cost of country, but we are being highly selective in what we decide.

So.

In addition, as you may recall in late May we announced that our board of directors heavy he on an unsolicited proposal letter from extra capital management to acquire all the outstanding shares of common stock. It does not own per 67 cents per share in cash at that time.

Board of Directors established a special committee of the board comprised of three independent board members to value in response to proposal.

Special Committee Gates legal counsel and financial advisors to assist in their valuation.

On June 16th we announced that the original off it was rejected by the Special Committee on July 31st we announced that the special Committee have received a revised proposal from acts are in the amount of 80 cents per share the special Committee and it's been advised remain.

[noise] engaged on matters pertaining to the proposed transaction.

Finally on June July 29, we announced that the 2020 annual meeting of stockholders will be held on Thursday November fit to record date for stockholders entitled to notice and to vote at that annual meeting will be the close of business on Monday September 14th 2020 in summary, it's been a challenging quarter.

The financially we've made great progress on our initiatives the steady steady sales production, coupled with significant expense reductions and positive operating cash flow, where enthuse and remain encouraged about the prospects as we continue to focus on our execution and drive operational financial improvements.

In the business.

With that I would turn the call back over to Joe for his final call. Thank you.

Thank you Jeff.

I've known that we were headed down the right path with our transformation process, but it's great to see those plan materialize into the improvement that we realized during the quarter.

Now the onus is on our team to continue driving those improvements and initiatives and continuing.

On the positive track.

We still have much work to do.

We started off process of planning for 2021.

And we have a whole new series of initiatives that we're undertaking to and to continue driving EBITDA.

We will continue to more of the impact of Cobot 19, and are prepared to act when called upon to do so.

I continue to applauded encourage all of our employees. They are the backbone of the successes that I know our in store for Stonemor as we move forward.

With that I'd like to thank everyone for their time and open up the line for questions.

Thank you, ladies and gentlemen, if you would like to register for a question. Please press the one follow the floor on your telephone.

We'll hear Cetone pump technology request.

She has been answered you would like to drive registration. Please press. The one followed me that three once again, ladies and gentlemen, it is one floor to ask a question.

One moment please.

Our first question is from the line up.

Okay.

Oh. Please go ahead your line is open.

Hi, Joe a very good quarter.

Couple of questions.

Well how much in savings do you think.

Good.

Corridor from the Kufa software once it's fully.

Implementation has had you know the time whatever a two three months to sort of.

Get to a place where it can start affecting your your.

Your your cost of things you bye.

Sure. So so it's a little different culture project, a mainly because that hold procurement system will impact multiple expense lines from cost to goods to.

To materials to Gionee.

So we have the main thing for US right now is the focus on compliance because it's a Brad brand new software system, we're pretty happy with.

The compliance on what we're seeing so far are people in the field are actually embracing it.

Pretty aggressively we think that savings will be you know.

Sizeable we're not ready to size those yet, but we should start seeing those savings.

Probably start occurring.

And so kind of fourth quarter. So we'll have a better better view of that.

Once this gets more stabilized in terms of the usage.

Yes, I mean, you have a.

Any light range, where it could fall within anything like that.

We know it will be and seven figures, but it's too early for us to kind of put a number out there.

Okay. That's that's very helpful.

Just one other thing.

Is there any.

Further update on the ER the.

Potential buyout by your largest shareholder.

You know I think I think Jeff prominent on it you know I'll just for myself and you can talk.

Where were laser focused on operating the business and continuing to focus on these initiatives, particularly in this challenging environment. We're in now with the Cobiz 19th the board of directors granted the full authority to the special Committee.

Which is comprised as Jeff said three independent directors to evaluate the proposal at this point. The special Committee is continuing to discuss the proposal with with with acts arc and if and when there's an update we'll we'll make an announcement, but we have nothing to report it I'm as those discussions continue.

Okay, I mean, they only thing I would say is there.

It would be a shame after being a patient shareholder for all these years.

At this point to have the company boy because.

It looks like to me or performances market markedly improving every quarter, which means that the value of the company's and increasing every quarter. So I don't know this way to pass they don't want to the board of directors, but I think there's probably a lotta.

Longtime shareholders that would feel that way.

We will absolutely pass that on and we have passed on comments from shareholders directly to the timing.

Great. Thank you very much.

<unk>.

No further questions on the phone line.

[noise] alright. Thank you again for your time. This afternoon, we look forward to talking with you again for the third quarter update in the meantime is you have any questions that were not answered or discussed on today's call. Please feel free to reach out to our Investor Relations team at 215 to 644 Threeeight. Thank you.

Okay.

Thank you, ladies and gentlemen that does conclude todays call. We thank you for your participation I said you. Please disconnect your lines.

[music].