StoneMor Inc. (STON) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the StoneMor First Quarter Earnings release Conference call. . It is now my pleasure to turn the conference over to Keith Trost, VP, Financial Planning and Analysis. Please go ahead, sir.
Keith Trost: Thank you. Good afternoon, everyone, and thank you again for joining us in the StoneMor, 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 a full release on our website at www.stonemor.com. Additionally, a copy of the presentation can also be found on our website. With us on the call this afternoon are Joe Redling, President and Chief Executive Officer; and Jeffrey DiGiovanni, Senior Vice President and Chief Financial Officer.
Joseph Redling: Thank you, Keith, and thank you, everyone, for joining us this afternoon for our first quarter earnings call. It's been just over 7 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 in 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. An additional noteworthy accomplishment since our last call was the completion of a strategic refinancing, which we'll talk more about in a few minutes. First, from an operation standpoint, we have continued to see strong sales production. Q1 total cemetery sales production increased 45% versus prior year. This was driven by both significant increases in our pre-need and at-need production levels. We achieved record results in each month of the quarter with March performance representing the largest single month in cemetery sales production in company history. That's the best of any month ever recorded, not just comparing the month of March.
Jeffrey DiGiovanni: Thank you, Joe, and thank you all for joining us today. Although it's been a short 7 weeks since we released our fourth quarter financials, we have accomplished a great deal with both the refinancing and the continued solid performance in sales and operations as we review our first quarter results. Before we dive into the GAAP results, please note that when we look at our performance for the quarter, we are presenting everything on a continuing operations basis. That is, they exclude the financial performance of the divested West Coast properties. Joe introduced the adjusted EBITDA metric that will become a key measurement we will be reported on a go-forward basis. We utilize this calculation, which, among other adjustments, adds back 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 to our current performance as it matches the fixed 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 compared to $7.1 million for the first quarter of 2020, driven by strong pre-need sales production that Joe mentioned. As a percentage of revenue, our adjusted EBITDA increased to 15.6% from 4.2% in the first quarter of 2020. We saw a $20.4 million change in deferred revenue, net of the change in deferred selling costs for the first quarter of 2021, which compared with a $5.3 million net change for the first quarter of 2020. Deferred revenue growth is driven by a combination of pre-need sales production and merchandise trust income, both of which are deferred until the underlying merchandise and services are delivered, offset by the recognition of revenue associated with the delivery of previously deferred revenues. From a top line revenue standpoint, we drove total revenues from continued operations of $78.3 million in the first quarter of 2021, representing a $13.2 million or 20% increase compared to $65.1 million 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 in revenue, driven by the increase in death rates and strong pre-need sales results. While the increase was noted across each of our Cemetery revenue components, interment, merchandise services and investment income, the biggest increase was driven by interment revenue, which grew $5.8 million and includes revenue recognized from both at-need and pre-need sales activity.
Operator: . Our first question is from the line of David Beard with Jefferies.
David Beard: Great to hear the continued capture of pre-need planning trends. I know you're not updating the targets, but could you maybe just give a sense on the sustainability of the 1Q pre-need selling through the rest of the year? As in terms of were you initially contemplating some slowdown later in the year? And is there anything you're seeing through March and April that would kind of take you off any original cadence assumptions as we look to model the rest of the year?
Joseph Redling: Sure, David. This is Joe. So we actually have seen pre-need actually strengthen. We are expecting with the programs we have in place to pre-need kind of to stay at the sustained level. I mean, obviously, our comps in March and April were pretty easy because that's when we got hit with COVID 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 kind of the dynamics in pre-need. Our marketing is really working well, and our sales culture is responding. And we think that's consistent. What we're expecting is to see a moderation in the at-need levels. They're still running pretty high. They stayed sort of high through the first quarter and into April. We're expecting those by the second half of the year as vaccines become more and more prevalent. We expect our at-need business will moderate somewhat. But we expect the pre-need business to continue to be strong.
David Beard: Got it. And I'm sorry if I missed it earlier, but can you just give an update around cost initiatives, namely around the $50 million originally contemplated? What's been captured already? How do you think about the rest of 2021 as far as what's actually going to get captured this year? And then maybe where you think you're going to be run rating on those cost saves as we look at the exit of 2021?
Joseph Redling: Yes. I'll start and just strategically, I think kind of the run rates you're seeing now, I mean, what you're seeing in terms of expense increases really year-over-year is due to volumes, right? We're seeing some pretty significant increases in volume. And we've had some onetime costs that hit us in Q1. So I do think kind of if you look at Q4 and Q1, that's sort of our run rate on the expense side. I think there's still some opportunities in the second half of the year to get some pickup. But a lot depends, we have a lot of variable costs as we start moving that top line. But I'll let Jeff and Keith add their comments. But I would think we're -- when you look at Q4 and Q1, you're pretty close to our run rates.
Jeffrey DiGiovanni: Yes. This is Jeff. I would really echo that. I would just look at the Q4, Q1 run rates. And as Joe mentioned, in the second half, we have levers if we need to be always compose.
Operator: Our next question is from the line of .
Unidentified Analyst: Joe, you talked about the momentum in pre-need, that 44% of the first quarter. How broad is that? I don't mean geographically, but if you have x number of properties, is it kind of like the 80-20 rule? 80% -- 20% of them are generating that kind of gain? Or is it pretty broad across your -- all your properties?
Joseph Redling: 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, our bigger properties are generating more dollars for us, but actually been really encouraging to see the consistency across all the geographical areas. We're seeing really great results across the board. We have a very competitive group now, and we're sharing a lot of the sales KPIs on a weekly basis. And there's a lot of activity among our salespeople to be competitive in kind of get those numbers -- those top 3 slots. So it's very consistent across the board.
Unidentified Analyst: Okay. And then just secondly, Jeff, you discussed the growth in the merchandise trust with the realized gains, et cetera. But you seem to imply that you're managing the assets differently. Are you being more aggressive with the investments? Or what's kind of the underlying strategy now versus a year ago? Is it any different?
Jeffrey DiGiovanni: No. The strategy is relatively the same. We have some fixed-term securities, mutual funds and then we have the big in the pooled funds. The strategy has been consistently the same. I think whether the change that you're seeing through the numbers is in the past, the company invested heavily in the MLP sector. So there's been a lot of traction, a lot of value coming back in 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.
Operator: Mr. Redling, we have no further questions at this time.
Joseph Redling: Great. Listen, as I always do in closing, 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 look forward to upgrading you -- updating you on our progress when we talk about our second quarter results. Thank you.
Operator: 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.
