StoneMor Companions L.P. (STON) This fall 2021 Earnings Name Transcript

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StoneMor Companions L.P. ( STON -7.32% )
This fall 2021 Earnings Name
Mar 30, 2022, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Greetings, and welcome to the StoneMor fourth quarter and full 12 months earnings launch convention name. [Operator instructions] As a reminder, this convention is being recorded in the present day, Wednesday, March 30, 2022. I’d now like to show the convention over to Keith Trost, VP of monetary planning and evaluation. Please go forward.

Keith Trost — Vice President, Monetary Planning and Evaluation

Thanks. Good afternoon, everybody, and thanks for becoming a member of us on the StoneMor Inc., convention name to debate our 2021 fourth quarter and full 12 months monetary outcomes. It is best to all have a replica of the press launch we issued earlier in the present day. If anybody doesn’t have a replica, you could find the total launch on our web site at www.stonmor.com.

With us on the decision this night are Joe Redling, president and chief govt officer; and Jeffrey DiGiovanni, senior vice chairman and chief monetary officer. Earlier than we start, as typical, I want to remind everybody that this convention name will embrace sure forward-looking statements throughout the which means of the Personal Securities Litigation Reform Act of 1995. All statements that tackle working efficiency, occasions or developments that we anticipate or anticipate to happen sooner or later are forward-looking statements. These forward-looking statements are primarily based on administration’s good religion, beliefs, and assumptions.

Our administration believes that these forward-looking statements are cheap. Nevertheless, you shouldn’t place any undue reliance on such forward-looking statements as a result of such statements converse solely as of in the present day’s date. We don’t undertake any obligation to publicly replace or revise any forward-looking statements, whether or not on account of new info, future occasions or in any other case, besides as required by legislation. As well as, forward-looking statements are topic to sure dangers and uncertainties that might trigger precise outcomes, occasions, and developments to vary materially from our historic expertise and our current expectations or projections.

These dangers and uncertainties embrace, however usually are not restricted to, these described within the stories, which we filed with the SEC. In the course of the name, we are going to reference sure non-GAAP monetary measures equivalent to EBITDA, discipline EBITDA, adjusted EBITDA, and unlevered free money circulation. A reconciliation of those measurements to probably the most straight comparable measures calculated in accordance with GAAP is supplied within the press launch and the investor presentation,  which can also be accessible on our web site. With that, I am going to now flip the decision over to Joe Redling, who will take it from right here.

Joe Redling — President and Chief Govt Officer

Thanks, Keith, and thanks, everybody for becoming a member of us this afternoon for our 2021 fourth quarter and full 12 months earnings name. 2021 has been a very exceptional 12 months for our staff. We have continued to execute on the initiatives that supported our transformation plan. The calendar 12 months has additionally introduced distinctive challenges, and I am pleased with the work that our staff has accomplished to beat these challenges and really flip them into energy.

One of many key tenets of our transformation technique was a serious deal with enhancing gross sales efficiency. Even previous to the beginning of the COVID-19 pandemic, we had began to see the inexperienced shoots of success. As we reported identical retailer gross sales progress within the first quarter of 2020, which was a important milestone for the corporate’s efficiency. The adjustments that we made with our gross sales staff, together with establishing a brand new gross sales management construction, implementing new coaching and compensation applications, and new instruments to help lead technology and buyer relationship administration created a brand new gross sales tradition that was able to embrace the problem.

And so they did simply that. The total 12 months of 2020, we beat our prior 12 months gross sales manufacturing efficiency by greater than 15%, and the fourth quarter of 2020 delivered progress of twenty-two%, versus the fourth quarter of 2019. That stage of progress set a excessive bar for 2021, as our expectation for this 12 months was to proceed to construct on the momentum and drive double digit gross sales manufacturing progress once more in 2021. I am excited to share that our staff beat these targets and achieved over 90% progress in gross sales manufacturing for the total 12 months of 2021, versus the total 12 months of 2020.

That stage of manufacturing was constant all through the whole 12 months, and the fourth quarter continued the pattern. Even after the 22% progress within the fourth quarter of 2020, we additionally skilled one other 10% year-over-year progress within the fourth quarter of 2021. A portion of this progress has been attributed to the elevated demise charges that we have skilled all through the nation. However even with that enhance at-need exercise, the staff was capable of develop our pre-need gross sales manufacturing by greater than 14% for the total 12 months of 2021.

Extraordinarily pleased with the hassle and work that our staff has accomplished to attain these enhancements. We set a excessive bar and we delivered. And as we stay up for 2022, we nonetheless have excessive expectations and proceed to stay centered on worthwhile progress. After all, we now have harder comparisons coming off file performances in 2021, mixed with an anticipated decline in athlete circumstances related to the normalization of the COVID-19 affect.

That stated, we intend to mitigate that with quite a lot of ways, together with new stock choices, notably concentrating on cremation memorialization, and a mix of enhance in pricing, decreases in reductions, and a continued deal with driving pre-need gross sales manufacturing progress. With the primary quarter almost full, we’re already seeing encouraging indicators that 2022 is on track with gross sales manufacturing coming in forward of expectations. I am inspired by the robust gross sales outcomes we have now seen thus far this 12 months. And keep in mind, Q1 of 2021 was a file gross sales manufacturing quarter, and represents a really difficult year-over-year comp.

However we’re trending proper on [Inaudible]. A second key tenet of our transformation technique was fixing our price construction, as a way to construct a corporation that’s sustainable for the long-term. We consider that we have accomplished precisely that with lots of the initiatives that we mentioned beforehand on this name. We are actually centered on reinvesting again into our individuals in our enterprise so as — to drive improved manufacturing and outcomes.

Jeff will dive into a few of these investments and value drivers which have impacted our enterprise this 12 months. Nevertheless, I do wish to deal with a kind of now. We beforehand mentioned the outsourcing relationship for all of our upkeep and landscaping providers. It was a program that we had been enthusiastic about, each for the operational and monetary profit that it presents.

This system’s preliminary launch was successful, and we noticed quick advantages to the method via standardization, shared providers, and a major discount in our general price. Sadly, it grew to become clear over the time period that whereas the basics of this system had been sound, our companions was not. Ultimately experiencing challenges in scaling and sustaining the enterprise to our contracted requirements, and in managing general liquidity, which ultimately culminated in that accomplice submitting chapter. On account of these points, we have now now taken again all places and related staff.

With the final of these places being taken again in January of this 12 months. With the intention to be sure that our places had been appropriately serviced and had continued service via this era, StoneMor made funds on to distributors and staff that resulted in extra prices to StoneMor throughout 2021. With that being stated, with these providers now again underneath StoneMor’s direct administration, we anticipate to retain the operational successes that had been discovered from the method, whereas retaining the extra environment friendly decrease price foundation. The final tenet of the transformation technique that I needed to spotlight in the present day was fixing our steadiness sheet.

We began that course of with the divestiture program, via which we exited the West Coast and refocused our footprint on a extra regionally centered operation within the japanese half of the US. It definitely created operational efficiencies and allowed us to higher deal with our efficiency, but it surely additionally served to cut back our debt ranges by greater than $66 million. That debt discount, coupled with our improved working efficiency, put us ready to refinance our debt, which we did in April of 2021. That refinancing supplied us with a brand new infusion of capital whereas decreasing our rate of interest, and eliminating cumbersome upkeep covenants on our prior debt facility.

It additionally gives for extra alternatives to lift new debt and capital to help our long-term progress initiatives. And that basically leads us to the subsequent step in our transformation. Accelerating our progress via acquisitions. I am excited to announce the completion of three separate acquisitions in the course of the first quarter of 2022.

Prior to those acquisitions, StoneMor had not accomplished any acquisitions since 2016. We wanted to be sure that we had been in a powerful monetary and operational place to efficiently purchase and combine new properties. I am assured that our transformation has now reached that time and we are actually well-positioned to be an environment friendly acquirer. These three latest acquisitions embrace 4 new cemeteries and three new funeral properties positioned in Virginia, Florida, and West Virginia for a complete buy worth of $18 million.

This has been a strategic course of centered on figuring out prime quality operations at accretive multiples that leverage synergies with our present places. We proceed to hunt out extra alternatives that match the identical standards. All through 2021, we have been reporting on two key metrics and our progress towards the steering that was beforehand supplied. Collectively, these two metrics measure the worth creation by way of working money generated and belief appreciation.

We focused a collective $90 million in worth creation primarily based on these two metrics. And we have now exceeded that concentrate on by almost $43 million in 2021, with a complete of $133 million of whole worth creation. Individually, the primary of these two metrics was belief progress. Now we have supplied steering of a $50 million progress goal for 2021.

We have exceeded that concentrate on with $93.3 million of progress. This efficiency — and in extra of our steering has been pushed by a number of components. First, the efficiency of our belief have exceeded our expectations, and has led to a compounding impact that contributed to the expansion. Secondly, we benefited from sure one-time origination charges and refinancing premiums earned.

And moreover, the robust pre-need gross sales efficiency has led to contributions into each the perpetual care belief, and merchandise belief that was above our preliminary expectations. The second metric was $40 million of unlevered free money circulation for the 12 months. We ended the 12 months at $93 — $39.3 million, simply lacking the total 12 months steering as a result of accelerating funding spend within the fourth quarter. In the course of the fourth quarter, we generated unlevered free money circulation of $3.3 million as we strategically reinvested into our properties and services and as beforehand mentioned, supported the transition of our upkeep providers.

This was additionally evidenced with will increase in capital expenditure spent. Particularly, we had $6.4 million of capital expenditures in the course of the fourth quarter, in contrast with $5.7 million whole for the primary three quarters of 2021. In the course of the fourth quarter, we additionally noticed a rise in repairs and upkeep spend however didn’t meet the capitalization requirements. As we stay up for 2022, these two metrics will likely be proceed to be indicators that we handle and watch as they signify the expansion of the enterprise that being created in the course of the 12 months.

We are actually concentrating on $70 million throughout asset progress for 2022, adjusting for the one time earnings throughout 2021, and using a extra conservative return estimate, which might lead to progress that’s lower than 2021 efficiency. For our unlevered free money circulation, we’re concentrating on the identical $40 million quantity for 2022 that was focused final 12 months. We’re persevering with to reinvest in our properties and our infrastructure with a capital expenditure plan that exceeds our 2021 spend stage, which is all accounted for inside our present 12 months targets. With that, I’ll now flip the decision over to Jeff to debate the financials. 

Jeffrey DiGiovanni — Senior Vice President, Chief Monetary and Accounting Officer

Thanks, Joe, and thanks all for becoming a member of us in the present day. Earlier than we speak in regards to the cap outcomes, I wish to remind you that we’re presenting these numbers on a seamless operations foundation. That’s, they exclude the monetary efficiency of properties divested in 2020 and 2021. And as Joe talked about, we have now not too long ago accomplished a number of acquisitions.

Nevertheless, these had been accomplished in the course of the first quarter 2022, and accordingly, they haven’t — they don’t have any affect on the 2021 or 2020 monetary outcomes. So these GAAP outcomes are really consultant of identical retailer gross sales foundation. From a prime line income standpoint, we drove whole revenues from persevering with operations of $79.3 million within the fourth quarter of 2021, which represented a $4.3 million, or 5.8% enhance in comparison with the $74.9 million acknowledged within the fourth quarter 2020. And as I discussed, this progress was generated with none profit from acquisitions.

For the total 12 months 2021, our whole revenues from persevering with operations was $322.8 million, which represented a $43.3 million or 15.5% enhance over 2020. The rise in revenues was largely pushed by the cemetery phase, which represented 86% of our 2021 income, and skilled a $4.8 million or 7.5% enhance in revenues — for the quarter in comparison with the fourth quarter of 2020, and a $41.1 million or 17.3% enhance in revenues for the total 12 months 2021, in comparison with the total 12 months 2020. Particularly, in the course of the fourth quarter, the year-over-year progress in cemetery revenues was largely attributable to impairment income, which elevated by $4 million in comparison with the fourth quarter of 2020, and was straight impacted by the gross sales manufacturing progress that Joe already talked about. The funeral residence phase, which represented the remaining 14% of our 2021 income, additionally grew revenues by 5.4%, or $2.2 million for the total 12 months 2020 in comparison with the total 12 months 2020.

We proceed to see great alternative to develop our funeral residence phase, each by specializing in evaluating and reworking our present belongings, just like the work that we have already accomplished within the cemetery phase, and thru strategic acquisitions. As we discuss our GAAP revenues, I like once more to remind you the applying of GAAP income recognition requirements doesn’t replicate the total affect of our pre-need gross sales discount, and as a substitute, depends closely on the timing of pre-need turning at-need, and servicing on pre-need merchandise. The gross sales discount metrics that Joe mentioned earlier, are a measure of our present interval gross sales exercise and isn’t straight associated to the present GAAP income outcomes. From an expense standpoint, our price of products on cemetery revenues elevated $5.3 million, or 44.8% for the quarter ended December 31, 2020, pushed by an general enhance in gross sales quantity.

For the total 12 months 2020, our price of products offered on cemetery revenues elevated $11.6 million, or 29%. In the course of the fourth quarter 2021, we recorded a $1.9 million impairment cost on cemetery caskets held in stock that we decided didn’t have an financial worth. Excluding the one time impairment cost on a share of cemetery income foundation, price of products offered was 17.9% for 2021, in contrast with 16.9% for 2020. We’re beginning to see the affect of provide chain points, each in our potential to ship merchandise and by way of rising prices.

We have accomplished a superb job mitigating the affect of those margin pressures via focused worth will increase, and powerful vendor administration. Cemetery expense, which incorporates prices related to landscaping, repairs and upkeep, actual property taxes and different prices elevated by $2.6 million, or 14.5% for the quarter ended December 31, 2021. For the total 12 months ended 2020, we skilled a $7.8 million, or 11.4% enhance in comparison with the total 12 months of 2020. The rise was partially attributable to repairs and upkeep prices that didn’t meet capitalization requirements, as a part of our strategic efforts to enhance the standard of our places.

Extra, will increase within the line objects associated to the transition of landscaping and upkeep providers, that from our third celebration supplier as Joe beforehand mentioned. Cemetery promoting bills elevated $3.2 million, or 26.3% for the quarter ended December 31, 2020, pushed by the rise in revenues. For the total 12 months 2021, we skilled a $9.3 million, or 18.7% progress in cemetery promoting expense. As a share of cemetery revenues, cemetery promoting expense for the 12 months ended December 31, 2020, stays successfully flat at 21%, in comparison with 20.9% for the comparable interval in 2020.

Traditionally, from 2016 to 2019, our cemetery promoting expense ran between 23.8% and 25.3%. We maintained this decrease fee regardless of a rise of $2.4 million strategic goal promoting spend utilized to drive income and gross sales progress manufacturing. Cemetery common and administrative expense elevated $1.3 million, or 14.4% for the quarter ended December 31, 2021. For the total 12 months 2021, we skilled a $4.0 million, or 10.7% enhance in comparison with the total 12 months 2020.

This enhance was partially pushed by elevated insurance coverage premiums, and enhance in bank card processing charges that’s tied again to the gross sales will increase that Joe talked about. Moreover, we have now elevated the bonus alternatives for our discipline leaders, particularly, our common managers and division administration groups, to drive each EBITDA and gross sales discount with the outcomes of that plan clearly evident within the outcomes. These price will increase had been offset by decreases in prices related to buying PPE provides in the course of the onset of COVID-19 pandemic in 2020. In whole, the cemetery phase produced working earnings of $43.8 million, or 15.7% as a share of cemetery income for the 12 months ended December 31, 2021, in contrast with $35.0 million or 14.7% for the 12 months ended December 31, 2020.

As Joe had talked about, that is really a testomony to the onerous work put collectively by our gross sales and operations groups, which have pushed to extend gross sales manufacturing whereas driving a extra environment friendly group. In our funeral residence phase, our bills grew 13.6% for the quarter, ended December 31, 2021, versus the comparable interval in 2020. For the total 12 months interval, our funeral residence bills grew 10.8% year-over-year, in contrast with 5.4% progress in — funeral residence revenues for a similar durations. And company overhead, we noticed a 21.4%, or $1.9 million enhance for the fourth quarter 2021, versus the fourth quarter 2020.

For the total 12 months 2021, we noticed 11% or $4 million enhance in comparison with the total 12 months 2020. As a share of whole revenues, company overhead for the total 12 months of 2021 was 12.4%, in comparison with 12.9% for the 12 months ended December 31, 2020. Now we have made nice strides over time, notably in comparison with full 12 months 2019, when company overhead was 17.7% of whole revenues. Joe talked in regards to the full 12 months steering for each unlevered free money circulation and natural belief progress.

As Joe talked about, the $39.3 million of unlevered free money circulation for the 12 months ended December 31, 2020, missed the $40 million goal by roughly $700,000. This efficiency represented a greater than $15 million enhance over our efficiency over the comparable interval in 2020. I wish to present some extra particulars on this efficiency. The calculation of unlevered free money circulation included $48.7 million of money curiosity funds.

These money curiosity funds included the $18.1 million cost of paid-in-kind curiosity on all notes that was paid along with a refinancing, in addition to the $17 million in curiosity funds made in the course of the fourth quarter underneath our present notes. The calculation additionally contains $12 million of money paid for capital expense — expenditures, which included $6.3 million in the course of the fourth quarter 2021, alone. This elevated spend was a strategic choice to jump-start the reinvestment in our cemetery and funeral residence properties, regardless of the affect it might need had on hitting our goal. It was the precise factor to do to speed up the reinvestment in our services.

For the total 12 months, that represented a $5.6 million enhance in capital expenditures in comparison with 2021 — 2020. We anticipate an identical reinvestment of capital into our places within the $12 million to $15 million vary yearly. Nevertheless, we stay versatile to both enhance or lower that concentrate on primarily based upon exterior market components in addition to our personal inner wants and alternatives. By the 12 months ended December 31, 2021, we have now elevated the worth of our belief by $93.3 million, which included $23.4 million of progress in the course of the fourth quarter.

This progress has been pushed by each via new gross sales discount efforts, and by enhancing funding returns on our belief belongings. The most important driver of progress was in our Merchandise Belief Property, which grew $66.4 million for the 12 months ended December 31, 2021. The expansion was pushed by $63.1 million contributions on pre-need gross sales, and $75.4 million of realized and realized good points internet of charges offset by $72.1 million in distributions that had been included in our working money circulation. Moreover, the Perpetual Care Belief grew $26.9 million for the 12 months ended December 31, 2021.

As Joe talked about, these two important metrics actually do show the worth created by the staff over the 12 months. I additionally wish to word that these two metrics are linked notably with the best way the Merchandise Belief operates, with each contributions to the belief the earnings retained within the belief now flowing into an working money throughout this 12 months. The monetary transformation over the past three years has been really exceptional. Our steadiness sheet is wholesome and we’re driving robust discipline and adjusted EBITDA efficiency.

Throughout 2021, we generated $63.3 million of discipline EBIDTA. This represents a 17%, or $9.2 million enchancment over 2020. We outlined discipline EBIDTA as whole revenues, much less cemetery and funeral residence expense. The second metric we glance — we like to have a look at is adjusted EBITDA.

We mentioned this metric a couple of occasions prior to now, however as a refresher, this metric adjusts our efficiency for adjustments in deferred revenues, in addition to different changes for non-cash objects equivalent to inventory primarily based compensation and value the lot offered. We make the most of this metric because it gives a baseline efficiency metric primarily based extra on our present gross sales manufacturing ranges. We generated adjusted EBITDA of $105.2 million for the 12 months ended December 31, 2021, this represents a 40.5% enhance or $13.3 million in contrast with the 12 months ended December 31, 2020. Along with the money on our steadiness sheet, we even have the flexibility so as to add extra senior secured debt to help our strategic progress plans.

This administration staff and the entire StoneMor staff has already delivered, and I am excited as we take the subsequent steps in our strategic progress plan. Lastly, I wish to thank every of StoneMor members — staff members for his or her robust execution in the course of the quarter and continued dedication to serving to us remodel the corporate we aspire to be sooner or later. With that, we are going to open the ground to questions.

Questions & Solutions:

Operator

[Operator instructions] The primary query is from the road of David Beard with Jefferies. Please proceed together with your query.

David Beard — Jefferies — Analyst

Hey, all people. Are you able to simply give a fast replace on the place issues stand so far as the strategic assessment that was introduced late in 2021? Possibly, how that is advanced and what sort of issues stay on the desk with that?

Joe Redling — President and Chief Govt Officer

Yeah. Thanks for the query, David. I feel we acknowledged after we initially introduced the receipt of that letter final September, that we actually weren’t committing to offering any updates on that matter until, we had a authorized obligation to take action. I do not actually have any additional feedback so as to add on that matter or updates presently, however I’d counsel we’re submitting our 10-Okay tomorrow.

I’d counsel you type of assessment these stories that we’ll be submitting tomorrow within the 10-Okay for any particular details about that exact letter. 

David Beard — Jefferies — Analyst

OK. Obtained it. After which if I can ask on the — I see the footnote right here round EBITDA being impacted by the one time $15 million realized belief loss adjustment. I assume, any colour you can provide round what that’s and perhaps — perhaps it’s going to be extra clear within the 10-Okay, however simply how that is working via — is that working via a price line merchandise on the earnings assertion — the place perhaps that exhibits up on the earnings assertion right here and EBITDA?

Jeffrey DiGiovanni — Senior Vice President, Chief Monetary and Accounting Officer

Positive. Yeah. That is Jeff. In order that $15 million internet adjustment was from 2018 and 2019 the place we took impairments on sure MLP investments.

In order that had already [Inaudible] again unrealized. That element is the money settlement of these transactions. There was a rebound within the MLP market, and we decided–  the belief determined to de-risk that and the online affect was $15 million in a — in money.

David Beard — Jefferies — Analyst

OK. So this isn’t a brand new funding write-down, that is — Yeah —

Jeffrey DiGiovanni — Senior Vice President, Chief Monetary and Accounting Officer

[Inaudible] occurred again 2018, 2019. Now it is simply realized.

David Beard — Jefferies — Analyst

Improbable. Thanks very a lot.

Operator

There aren’t any additional questions presently.

Keith Trost — Vice President, Monetary Planning and Evaluation

Thanks once more on your time this afternoon. We look ahead to speaking with you once more for the primary quarter replace in just some months. Within the meantime, in case you have any questions that weren’t answered or mentioned in in the present day’s name, please attain out to Investor Relations at 215-826-4438. Thanks.

Operator

[Operator signoff]

Length: 31 minutes

Name individuals:

Keith Trost — Vice President, Monetary Planning and Evaluation

Joe Redling — President and Chief Govt Officer

Jeffrey DiGiovanni — Senior Vice President, Chief Monetary and Accounting Officer

David Beard — Jefferies — Analyst

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