Q1 2021 Stonemor Inc Earnings Call
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Greetings and welcome to the store more first quarter earnings release Conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time, if you would like to register you May press. The one followed by the four on your telephone if you require operator assistance. Please press star zero at.
As a reminder of this conference is being recorded today Thursday may 13th 2021. It does sound my pleasure to turn the conference over to keep trunk.
VP financial planning and analysis. Please go ahead Sir.
Thank you.
Good afternoon, everyone and thank you again for joining us on the stone more Inc conference call to discuss our 2021 first 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 Dunmore dotcom and.
Additionally, a copy of the presentation can also be found on our website.
With us on the call. This afternoon are Joe Redman, President and Chief Executive Officer, and Jeffrey D. Giovanni Senior Vice President and Chief Financial Officer.
Before we begin 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 at 1995 also.
All statements that address operating performance events or developments that we expect or anticipate to occur and the future are forward looking statements.
These forward looking statements are based on management's good faith beliefs and assumptions.
And 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.
Not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
In addition, and forward looking statements are subject to certain risks and uncertainties that could cause actual results events and developments to differ materially from our historical experience and our present expectations or projections.
These risks and uncertainties include but are not limited to those described and their reports, which we file with the SEC.
During the call, we will reference certain non-GAAP financial measures such as EBITDA adjusted EBITDA on Levered cash from operations and Unlevered free cash flow.
A reconciliation of these measurements to the most directly comparable measures calculated in accordance with GAAP is provided in the press release and presentation.
With that I'll now turn the call over to Joe Redman, who will take it from here.
Thank you Keith.
Thank you everyone for joining us this afternoon for our first quarter earnings call.
It's been just over seven weeks since we provided our last update on our results at the end of March.
On that call. We commented on the positive early results, we were seeing and the first quarter.
And that momentum only strengthened into March and through April.
We are very encouraged by the current trends and remain focused on maximizing performance across our portfolio.
And additional noteworthy accomplishments since our last call was the completion of a strategic refinancing.
Which we'll talk more about and a few minutes.
First from an operation standpoint, we have continued to see strong sales and production.
Q1, total cemetery sales production increased 45% versus prior year.
This was driven by both significant increases and our preneed and at need production levels.
We achieved record results and each month of the quarter with March performance, representing the largest single month and cemetery sales production and company history.
That's the best of any month ever recorded and not just comparing the month of March.
Preneed Cemetery sales production from March 2021.
Was up 98% over March of 2020.
Which contributed to an increase of 44% and cemetery preneed sales production and the first quarter of 2021 versus the first quarter of last year.
As a reminder.
When we talk about these numbers and we're doing so on a continuing operations basis.
And while we've announced.
Coming acquisition.
This growth is without the benefit of adding any new location.
It is 100% organic growth driven by our remarkable sales team.
Driven by the strong performance throughout the first quarter.
We had the largest single quarter and the largest preneed first quarter and company has.
After the strong first quarter performance our team continued their momentum right into April.
And year over year of growth of more than 40% on pre need cemetery sales production versus a year ago and.
And we're continuing to see high levels of that need activity.
In terms of of our financial results and Jeff will talk more fully on this we saw a significant growth and top line revenue.
Which grew by more than $13 million over the first quarter of 2020, representing a 24% year over year increase.
Our cemetery operations drove the majority of this increase but we're also seeing our funeral home operations drive revenue growth as well.
With our transformation process largely completed.
We're driving meaningful EBITDA improvement.
Beyond just increases associated with revenue gains.
Our adjusted EBITDA grew by more than $20 million to $28 million for the first quarter of 2021.
Versus $7 1 million for Q1 of 2020.
This adjusted EBITDA is reflective of the current health of our business activities as it gets credit for the growth and backlog driven by our sales infrastructure.
Jeff will provide additional details on this metric that we plan to incorporate into our reported results going forward.
Over the last few quarters, we've been discussing the value creation that our production operating and trust management activities dropped.
We provided full year 2021 guidance during our fourth quarter earnings call on the two drivers that we feel best exemplify the value that we're creating.
First in terms of Unlevered free cash flow, we provided of $40 million target for 2021.
Which represented 50% growth over 2020.
In the first quarter, we generated $11 $5 million and Unlevered free cash flow towards this full year target.
We also provided of $50 million target for organic growth and trust assets.
And that organic growth is driven by investment returns on new contributions from preneed sales.
Offset by distributions.
We actually drove growth and the trust assets of more than $30 million and Q1, driven by the strong sales production during the quarter and returns generated on.
And on the trust.
These results of truly powered the value creation that we've been targeting.
And we're currently trending ahead of the previous issue guidance on both Unlevered free cash flow and organic trust growth.
At the open I've mentioned are now completed refinancing.
Our previous refinancing back in June of 2019.
And in many ways the start of the stone more transformation store.
It provided the infusion and runway that we needed to successfully implement and complete our turnaround plan.
And now this refinance and truly allows us to close the book on the turnaround and begin a new chapter and the Sterling more store.
On Tuesday, we issued $400 million and senior secured notes and an 8.5% annual interest rate.
And used a substantial portion of the proceeds to fund the redemption of the notes that were issued in June of 2019.
Unlike with our previous refinancing there was no original issuance discount associated with this race.
At lower interest rate represents a significant savings versus the rate on our prior debt.
The new notes have no maintenance covenants.
And we will not mature until may of 2020 nine.
The new refinancing represented an important strategic milestone for the company.
It provides at provided approximately $30 million of new cash to our balance sheet.
Giving us $78 million of cash is at box 31, 2021 on a pro forma basis.
After adjusting for the sale of the new notes and the application of the proceeds thereof. Additionally.
Additionally.
The terms of the indenture governing the new notes allow us to enter into a super senior credit facility of up to $40 million, which if completed would further enhance our access to cash.
And that's approximately $120 million of potential liquidity.
Growth capital.
And cash.
And the new senior credit facility.
And this new level of financial flexibility will allow us to accelerate our organic growth opportunities.
Kris our ability to grow Inorganically inorganically through strategic acquisition should the right opportunities present themselves.
With the increased liquidity, we are taking a strategic approach to capital allocation will continue to be diligent in managing both of our capital and operating expenses while at.
Continuing to drive operating free cash flow.
We are certainly looking to improve our existing portfolio with targeted capital spend including strategic inventory growth opportunities.
And necessary repairs and maintenance and all of which will drive organic growth and revenue and margin.
Additionally.
We're targeting accretive and synergistic acquisitions above cemeteries and funeral homes and our existing markets.
And we're looking at infrastructure opportunities that will further our objectives of being a best in class operator.
Our transformation and cost savings initiatives set us on the right path and trajectory.
And the sales culture and production and have powered the engine.
The refinancing has substantially reduced potential structural limitations as we are now well positioned both operationally and financially and better serve our customers employees and shareholders.
With that I'll turn the call up for to Jeff, who will walk you through more detail on our financial performance and give more color on the debt refinancing.
Thank you Joe and thank you all for joining us today.
Although it's been a short seven weeks since we released our fourth quarter financials, we have accomplished a great deal with both the refinancing and the continued solid performance and sales and operations as we review our first quarter results.
Before we dive into the GAAP results. Please note and when we look at our performance for the quarter were presenting everything on a continuing operations basis.
And that is they exclude the financial performance of the divested West coast properties.
Joe introduce the adjusted EBITDA metric that will become a key measurement and we will be reporting on a go forward basis.
We utilize this calculation, which among other adjustments and the impact of deferred revenues to better approximate the financial results associated with our current production and operating levels.
We feel that this presentation is meaningful and provides an additional level of.
Two of current performance and is it matches the fifth facility and overhead costs with the current sales production levels that they support.
We generated $28 million of adjusted EBITDA. During the first quarter of 2021 compares to $7 1 million for the first quarter 2020.
Driven by strong preneed sales production of that Joe mentioned as a percentage of revenue our adjusted EBITDA increased to 15, 6% from four 2% in the first quarter 2020.
We saw a $24 million change and deferred revenue net of the change in deferred selling costs for the first quarter 2020 one.
Which compared with a five point of $3 million net change for the first quarter of 2020.
Deferred revenue growth was driven by a combination of preneed sales production and merchandise trust income both of which of deferred until the underlying merchandise and services or death of live at all.
Step by the recognition of revenue associated with the delivery of previously deferred revenues.
From a top of line of revenue standpoint, we drove total revenues from continuing operations of $78 $3 million and the first quarter 2021, representing a $13 $2 million or 20% increase compared to $65 1 million and recognized in the first quarter 2020.
This increase was driven largely by our cemetery segment, which represents 86% of our revenues and experienced a $12 2 million or 22% increase and revenue driven by the increase and death rates and strong pre need sales results.
The increase was noted across.
Each of our cemetery revenue components at terminus merchandise and services and investment income. The biggest increase was driven by and termite revenue, which grew 5.8 million and includes revenue recognized from both at need and preneed sales activity.
The funeral home segment, which represents the remaining 14% of part of revenues also grew by 10% of $1 million. This remains a significant opportunity. So more as we continue to evaluate and transform our funeral home portfolio similar to the strides we've already made on <unk>.
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As we talk about GAAP revenues I'd like to remind you that this is largely a function of the revenue recognition standards.
Particularly as it relates to our preneed sales production, which relies heavily on the timing of preneed journey at <unk>.
And servicing on preneed merchandise.
These non-GAAP sales production metrics that Joe referenced earlier.
Sure.
Sales production.
And that's directly reflected in our current GAAP revenue results.
From an expense standpoint, our cost of goods sold on cemetery revenues increased 19% at $1.8 million driven by the $12 2 million increase and cemetery revenue on.
On a percentage of cemetery revenue basis cost of goods sold decreased by 50 basis points to 16, 7% as we continue to drive savings through our previously discussed initiatives.
Cemetery increased by $1 2 million or 7% as barrier of activity increased and.
We also saw an increase of repairs and maintenance that did not meet the capitalization standards and real estate taxes, and other expenses, including COVID-19 PPE purchases.
Selling expense increased eight 2% or $2 2 million again, driven by increased and revenue recognition as a percentage of cemetery revenue generally expense decreased 80 basis points to 21, 2%.
This decrease is despite increased marketing and average and which we have cut back in March of last year and response to the uncertainty surrounding the COVID-19 and.
Yeah.
General and administrative expense increased 7% or seven or $700000 largely associated with increased and insurance premiums. We have also increased the bonus opportunities for field leaders, especially of general managers.
And revenue growth with the results of the planned evident in these results.
In total our cemetery segment operating profit more than doubled versus the first quarter of 2020, generating $11 6 million and the first quarter 2021, compared with $5 2 million.
From a funeral home perspective expenses grew at 10% nearing the 10% growth at funeral of a whole revenues and lastly, when we look at corporate overhead we saw about a million.
Versus the first quarter 2020.
This increase was driven by corporate bonus accrual that was booked for Q1 'twenty one based upon the strong results during the quarter. There was not a corresponding bonus accrual at Q1 'twenty given the uncertainty of COVID-19.
Joe talked about at full year guidance that we previously issued we performed well against those targets with $11 5 million of Unlevered free cash flow and $30 million of organic truck growth in the first quarter we.
We do not plan on issuing new we're updating the guidance during the year, but we are extremely confident that we will exceed the annual guidance numbers over the course of 2021.
In terms of the free cash flow of 11 5 million generate etcetera and of course first quarter is an improvement versus the 300000 utilized during the first quarter 2021, and 'twenty, representing 11 8 million dollar improvement year over year.
The first quarter 2021 includes a $1 8 million of capital expenditures spend and $8 6 million of cash interest paid.
For the first quarter again, we did not elect of Pik interest option on our old notes, which increased the cash interest component, but decrease the overall interest expense.
As we talked about our debt we are excited and thats of refinancing debt Joe already introduced earlier.
Earlier this week, we closed on a new eight year aim of half percent $400 million senior secured notes. This represents a 300 basis points improvement versus the Pik interest option on our prior notes and a hunger and at 25% of basis points improvement versus the cash interest on.
Option on those notes.
At current notes were issued at par and did not include any of original issue discount as a pre prior notes that in total our previous notes carried a fully loaded cost in the mid teens.
So the aim of half rates truly represents a sizeable savings for store mode.
Additionally, the indenture governing the new notes allows us at our option to redeem up to $40 million annually and principal amounts of the new notes and each of the first years at one of those three and as Joe mentioned includes a carve out for up to $40 million and a super senior secured.
Revolving credit facility.
And proceeds from sales of new notes, we utilized the funds of redemption of.
Of our existing notes, including.
And at approximately $18 $5 million prepayment premiums and the pay other fees and expenses associated with completing the transaction.
The remaining net proceeds of approximately $30 million represents cash that is available for general corporate purposes, including acquisitions.
The indenture governing the new notes does not have any maintenance covenants and provides significant flexibility push so more as we look ahead at our St strategic growth plan.
This transaction provides more than adequate powder to fund our strategic plans, while also derisking the company with the extended maturity date.
Joe discussed of $30 million of organic growth and our trust and.
Against the 50 million guidance previously issued the first quarter was a good indication of our ability to drive value with both strong production levels and Fantastic Trust returns and looking at the merchandize trust the value increased by approximately $23 million that growth was driven by <unk>.
$14 million and new contributions on preneed sales and $25 million and realized and unrealized gain net of cost.
These increases were offset by 15 million and cash distributions to operating cash flows.
As a reminder of the merchandise trust is funded from preneed sales activity in accordance with various rules and regulations of each state and which we operate.
Pending on the state investment income as EBIT distributed annually or retained until the underlying merchandise and services performed.
Principal balances released along with any retained investment income as and merchandise and services are performed.
Touch more search and trust value grew by $7 million as a reminder, the principal balance of the perpetual care Trust remains and the trust in perpetuity, while the income generated is utilized to defray the landscaping and maintenance cost of our cemeteries.
Growth was driven by $2 million, and new contributions plus $14 million and realized and unrealized gains net of costs. These increases were offset by distributions of $9 million into operating cash flows.
Collectively between the growth and trust and the Unlevered free cash flow, we created more than $40 million $41 million and value. During the first quarter of 2021. This is a testament to the hard work of every member of the so more keen on beyond excited at the future holds for us as we enter this.
New chapter of theirs.
No more story.
With that we will open the floor to questions.
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Press the one end of three.
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And our first question is from the line of David Beard with Jefferies. Please go ahead.
Hey, good afternoon, guys and great to hear the AR and the continued capture of preneed planning trends no you're not of opinion of targets, but could you maybe just give a sense of on the sustainability of the <unk> pre need selling through the rest of the year and.
And as in terms of where you initially contemplating some slow down later on the year and is there anything youre seeing sort of March and April that would kind of take you off any original cadence assumptions because we looked at model the rest of the year.
Sure. David This is Joe So we were actually have seen preneed actually strengthened.
We are expecting with.
With the programs we have in place to preneed kind of stay at these sustained levels I mean, obviously you know.
And our comps in March and April were pretty pretty easy because that's when we got hit with COVID-19 and everything kind of shut down over those periods.
That said like our March and this first quarter was actually up like 80% over March of 2019. So we feel we've really structurally changed on that.
Dynamics and preneed on marketing is really working well and our our sales culture is responding and and we think that's consistent.
And what we're expecting is to see a moderation and the absolute level.
They are still running pretty high and they stay sort of you know.
Hi through through the first quarter and into April we're expecting those by the second half of the year as at vaccine and become more and more prevalent and we expect our at need business will.
Were moderate somewhat but we expect the premium business continued to be strong.
Got it thanks, and then and I'm sorry, if I missed it earlier, but can you just give an update around cost initiatives, namely around the 50 million of originally contemplated.
What's been captured already how you think about the rest of 2021 as far as what's actually going to of captured this year and then maybe where you think youre going to be run rating on those cost saves as we look at the exit of 2020 one.
Yeah, I'll start and just strategically I think kind of the run rates, you're seeing now I mean, what youre seeing in terms of expense increases real year over year was due to volume right. We're seeing some.
Pretty significant increases in volume and we had some one time costs that hit us in Q1. So I do think kind of if you look at Q4, and Q1 and that's sort of our run rate on.
On the expense side, I think theres still some opportunities and the second half of the year to get some some pick up.
But a lot depends you know we have a lot of variable costs as we start moving that topline, but I'll, let Jeff and Keith at at their comments, but I would think we're when you look at Q4 and Q1, you're pretty close to our run rates.
Now this is Jeff I would really echoed at I would just look at the Q4 Q1 run rates.
And as Joe mentioned at the second half we have levers if we need to August of <unk>.
Got it thanks, so much.
Yeah.
Our next question is from the line of Jack Kelly with Brooklyn Group. Please go ahead.
And good afternoon.
Joe you would get.
Talked about the momentum and preneed.
And at 44% of first quarter.
Broad as debt.
You mean geographically, but you know if you have X number of price proper.
Properties is it kind of like the 80 20 rule.
And 80 20.
20% of them are generating that kind of gain or is it pretty broad across your all your properties.
On a percentage basis, Jack it's pretty broad I mean, we're seeing very consistent growth across the properties on a percentage basis. Obviously in terms of the contribution of dollars are bigger properties of generating more dollars for us but.
Actually been.
Really encouraging to see the consistency across all of the geographical areas were seeing really great results across the board we have at very competitive group now and.
And we're sharing a lot of the sales kpis on a weekly basis and there's a lot of activity among our sales people to be competitive and kind of get those number of those top top III slots. So it's very consistent across the board. Okay. And then just secondly, Jeff you discussed the.
Gross and the merchandize Trust.
It was at realized gains and et cetera.
But you seem to imply that you are managing the assets differently.
Are you being more aggressive with the investments are and what's what's kind of the underlying strategy now versus a year ago as at any different.
No. The strategy is relatively the same we have some fixed term securities mutual funds and then we had the big and the.
Pooled funds and strategies think at facility at the same I think whether they change that you're seeing through the numbers.
And the past the company.
<unk> invested heavily in the MLP sector. So there's been a lot of traction a lot of.
Value coming back and the MLP, So that's where you're really seeing now come through but the strategy has been relatively the same for the past year.
Thanks.
Yeah.
And Mr of Red Lake, we have no further questions at this time.
Great lesson as I always do and clothing I, just always like to conclude the call with a heartfelt. Thanks to our teams, particularly those that work directly with our families and serve our communities. They are truly the backbone of this organization and they have gone above and beyond during these challenging.
Times and they remain incredibly committed to our mission and I. Thank them for their continued hard work and dedication. So thank you all for joining us today and and.
And look forward to upgrading of updating you on our progress when we talk about our second quarter results.
<unk>.
And that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please disconnect your lines have a great day everyone.
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