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Edited Transcript of PLC.TO earnings conference call or presentation 13-Nov-19 2:30pm GMT

Q3 2019 Park Lawn Corp Earnings Call

TORONTO Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Park Lawn Corp earnings conference call or presentation Wednesday, November 13, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Clark

Park Lawn Corporation - Chairman of the Board & CEO

* James Joseph Leeder

Park Lawn Corporation - CFO & Director

* Suzanne Cowan

Park Lawn Corporation - VP of Business Development & Corporate Affairs

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Conference Call Participants

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* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* Johann Rodrigues

Raymond James Ltd., Research Division - Equity Research Analyst

* Johann Rodrigues

Raymond James & Associates, Inc., Research Division - Research Analyst

* Maggie Anne MacDougall

Cormark Securities Inc., Research Division - Director of of Institutional Equity Research

* Paul Bilenki

TD Securities Equity Research - Associate

* Raveel Afzaal

Canaccord Genuity Corp., Research Division - Analyst

* Stephen C.A. Harris

GMP Securities L.P., Research Division - Head of Research

* Zachary Evershed

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Park Lawn Corporation third quarter results. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to Suzanne Cowan. Please go ahead.

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Suzanne Cowan, Park Lawn Corporation - VP of Business Development & Corporate Affairs [2]

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Thank you, Cheryl. Good morning, everyone and thanks for joining us today. My name is Suzanne Cowan, and I'm the Vice President, Business Development and Corporate Affairs, at Park Lawn. With me on the call are Andrew Clark, our Chairman and CEO and Joe Leeder, our CFO. Please be aware that certain information discussed today is forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially.

Please see our public filings for more information regarding forward-looking statements. Also during this call, we will be referring to non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meaning under IFRS.

Please also see our public filings for additional information regarding our non-IFRS financial measures, including for reconciliation to the nearest IFRS measures. I'd now like to turn the call over to Andrew Clark who will provide an overview of our business highlights from Q3 2019. Following Andrew's comments, Joe will provide more detailed review of our financial results and outlook. After that, we will be taking questions. Over to you, Andrew.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [3]

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Thank you, Suzanne, and good morning, everyone. Our results for the quarter ended September 30, 2019, reflect the continued successful execution of our business plan. During Q3, we completed the acquisition of all of the outstanding equity of Horan & McConaty Funeral Services, Inc.

Horan operates 2 cemeteries and 11 funeral homes including 2 on-site cemetery-funeral combinations in Denver and Aurora, Colorado. The acquisition was funded with the proceeds from the company's Q2 equity financing and the company's credit facility.

Subsequent to the quarter, the company signed a definitive agreement to acquire the assets of 2 U.S. businesses, Journey Group Texas One and Journey Group Texas Two LLC, collectively the Journey Group, for approximately USD 9.3 million. The Journey Group adds 5 cemeteries, 5 funeral homes including 2 cemetery-funeral home combination properties or on-sites to PLC's portfolio in the state of Texas.

The transaction is expected to close in the fourth quarter of 2019. From the period January 1, 2017, to September 30, 2019, the company added 69 cemetery properties, 78 funeral homes including 15 combination on-site cemetery-funeral locations and 16 crematoria to its portfolio. We have expanded and diversified our geographic footprint to include the states of Colorado, Illinois, Kansas, Kentucky, Mississippi, Missouri, New Jersey, New Mexico, New York, North and South Carolina, Texas, Wisconsin and the province of British Columbia. The company has also added to our existing operations in the Canadian provinces of Ontario, Manitoba and Saskatchewan.

I would like to turn the call over to now to Joe to review our third quarter financial results in more detail as well as our outlook. Joe, over to you.

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [4]

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Thanks, Andrew, and good morning, everyone. You'll find a detailed breakdown of our 2019 third quarter operating results in our financial statements and MD&A, which are available on our website and on SEDAR. And my comments this morning focus on the 3-month results for the third quarter of 2019.

Our total revenue for the quarter was $66.6 million, an increase of 54% compared with $43.2 million in 2018. If I compare revenue from comparable business units, over the past year, our revenue grew organically by 3.7%.

This revenue increased -- increase from comparable business operations was primarily related to the cemetery operations in the U.S. including increased revenue from pre-need sales production, expansion of cemetery inventory including the opening of new development projects and new cemetery property and higher revenue from pre-need and care and maintenance trust fund. If you recall, we had grown our revenue in Q3 2018 by 5%, so this was a good result coming off a strong comparable quarter.

We also saw continued improvement in our gross margin this quarter, improving by 140 basis points to 81.2% this year.

The increase in gross profit margin is due to a combination of gross profit margin improvement from our comparable business units due to increased selling prices in certain location and higher interest and other income and acquisition of higher-margin businesses in 2019.

Our overall operating expenses for the first quarter increased to approximately $47.3 million from $28.8 million last year as a result of the inclusion of the acquired businesses.

And looking specifically at general and maintenance and selling expenses from comparable business operations, there was a net increase in these operating expenses of $1.6 million this year over the same quarter last year.

The general and admin expenses accounted for most of this increase as additional expenses were incurred to support the company's growth and long-term growth initiatives, including expansion of our U.S. head office, increased personnel, listing regulatory fees, legal accounting and so on. This increase was offset by a marginal decrease in our advertising and selling expenses from comparable operations, which were largely in line with our expectations.

During the previous quarter, I mentioned that we had an increase of $3.5 million in intangible assets related to a noncompete agreement with a former owner who is no longer with -- involved with the business. This intangible asset is being amortized over a 3-year period. Our operating expenses increased this quarter by $738,000 compared to 2018 to account for this noncash amortization expense. Also, our interest expense in 2019 is higher this quarter by $838,000 as a result of the increase in our outstanding bank debt, which was used to fund several acquisitions this year.

Our share-based incentive compensation expense, another noncash expense, associated with the issuance of awards under our employee incentive plan was $1.1 million this year compared to $100,000 last year. The increased results from the issuance of performance stock options approved at our Annual General Meeting earlier this year. The details of our equity incentive plan and the grants made during the year are detailed in our year-end financial statements and our management information circular.

This quarter, we also incurred $4.4 million in acquisition integration costs associated with our M&A activity. We have discussed in the past, these costs need to be expensed as incurred rather than capitalized and amortized in future periods. Our effective income tax rate for the current quarter was 29.9%. This is slightly higher than our Canadian and U.S. statutory rates of approximately 26% because of the increase in certain expenses that are not deductible for tax purposes, such as the share-based compensation expense. As a result, going forward, we would expect our effective tax rate to be modestly above the statutory rate for that reason. So as a result of the above, our net earnings to our shareholders was $1.6 million in this quarter compared to $3.3 million in 2018. And that represents earnings per share fully diluted of $0.05 this year compared to $0.14 in 2018.

As you know, we have -- we report 2 non-IFRS earnings measures in our financial statements and MD&A. The purpose of the non-IFRS measure is to adjust for an after-tax impact of the nonoperating, or nonrecurring, noncash expenses. In the current quarter, these include acquisition integration expenses and share-based compensation expense. So after making adjustments for these items, our adjusted net earnings to our shareholders was $6.6 million compared to $4.6 million in 2018, an increase of 43.5%. And on a fully diluted per share basis, which is how we like to look at our growth, our adjusted net earnings was $0.221 per share this year compared to $0.197 per share last year, and that's a 12.2% increase year-over-year.

Our adjusted EBITDA to our shareholders for Q3 2019 was $15.1 million compared to $9.3 million last year, and that's an increase of 62.5%. And fully diluted per share basis, adjusted EBITDA was $0.507 per share this year compared to $0.40 per share last year, and that's an increase of 26.8% quarter-over-quarter. As I mentioned at the end of Q2 this year, we had a significant capital available to deploy on future growth initiatives and the double-digit growth in our adjusted earnings and EBITDA this quarter reflects the deployment of some of that capital in the quarter.

We ended the third quarter with $102 million of net outstanding debt under our revolving credit facility so this continues to leave us with capital available to fund future growth initiatives, which, once deployed, should provide the opportunity for continued growth in per-share earnings going forward.

Our adjusted EBITDA profit margin in the current quarter increased by 100 basis points to 22.9% compared to 21.9% last year. We have seen improvement in EBITDA profit margins in recent quarters as a result of the acquisition of higher-margin businesses and overall improvement in our margins from comparable business units. And that is a trend we continue -- we expect will continue as we integrate the acquired businesses and execute our growth strategy in the years to come.

And just a few words about our balance sheet. We ended the quarter with net consolidated bank and other debt of approximately $113 million. This is comprised of $102 million of net bank debt and $11 million in notes and vendor take-back financing related to prior acquisitions. On a pro forma basis, this would continue to leave us well below our communicated comfort range of up to 2.5x debt-to-EBITDA leverage ratio, and as I have previously mentioned, gives us the capacity to fund continued growth initiatives.

Our pipeline of future revenue currently sits on our balance sheet in the form of deferred revenue, cash and pre-need trusts and pre-need insurance contracts. This backlog of future revenue currently sits at approximately $670 million, representing a significant source of future revenue for the company.

And during the Q3 earnings call last year, we indicated we were targeting approximately $25 million in organic growth spending over the 18 to 24 months and $40 million over the 3 to 4-year period. This capital was to be deployed on organic growth initiatives such as cemetery expansion, on-site and stand-alone funeral homes, visitation centers and new mausoleum construction.

During the third quarter, we spent approximately $2.4 million on these shorter-term targets. And as indicated in our MD&A, we recently commenced the construction of on-site funeral and visitation centers in Houston and Toronto. Our maintenance capital expenditures for Q3 were $225,000 and that keeps us well on track for our intended goal to spend in line with our annual depreciation expense, which runs about $7.7 million.

And finally, you will note that we have restated our comparative balance sheet at December 31, 2018, to adjust for the impact of finalizing our purchase price accounting for Signature and Citadel transactions this year. And the details of this adjustment are set out in note 6 of the financial statements. These acquisitions were made in 2018 and we decided to make this disclosure after finalizing the purchase price accounting in this quarter rather than wait till the end of the year to make that restatement. So I will now turn the call over to Andrew for some closing remarks.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [5]

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Thank you, Joe. Park Lawn had a steady quarter this quarter, driven by organic growth in our cemetery operations, predominantly in the U.S. and margin expansion, which was in line with our longer-term goal. We remain focused on integrating the U.S. platform as well as continuing to look for both organic and acquisition opportunities throughout North America. I'd like to thank all of our employees for their outsized efforts this quarter and for -- to our shareholders for their continued support as we build this business.

Joe and I are ready to open the line now for questions. Cheryl, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from George Doumet from Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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First one on the organic growth. It was a good show in the quarter, but we're up against a tough comp from Q4 last year. So just wondering if you're seeing any strength may be in some of our recent investments, possibly Westminster, or any you can point to, to may be offset that.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [3]

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Yes. I think we've got 2 mausoleums that will be opening in the portfolio that we would expect that will -- they were expected to open earlier this year. Due to some timing issues around some construction, they'll open -- they should open in the fourth quarter, and that would give us -- that would be the most tangible sort of organic bump, George, that you would see in this quarter -- the quarter we're currently in, sorry.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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Got it. And maybe staying on the topic of organic growth. I think, in the past you've kind of called out for mid- single digit pricing at our cemetery properties. I'm just wondering is that homogenous across all our portfolio? Or is that just an average number with certain areas outperforming and underperforming that number? Just any color you can give there.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [5]

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It's certainly not homogeneous. It would be an average across the portfolio. I would say there is some larger, more densely populated urban markets that can sustain better price increases than that and others, obviously, less so. So that gets us to an average, and again, as you know, sort of these things can vary quite widely based on available inventory and depths in the market, that type of thing. So -- but generally speaking, it's not homogeneous, it's an average.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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Okay. Just one last one if I may on just -- can you provide a little bit of just high-level commentary on the announced Texas acquisitions? I believe you have a small presence there already. Is that a geography you guys envision, I guess, a much bigger footprint over time?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [7]

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Yes. I mean, look, it's in our backyard from our Huston headquarters. These operations were attractively priced. And so they were -- and we had a great opportunity with some well-known players to -- like team staff to our U.S. leadership team and our operating leadership team to go in and run those properties for us. So it was just a confluence of events that made it an attractive opportunity. But absolutely, I mean, Taxes is a market that we, as an organization, know play well and would be drawn to continuing to invest in.

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Operator [8]

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Our next question comes from Paul Bilenki from TD Securities.

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Paul Bilenki, TD Securities Equity Research - Associate [9]

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So I would like to start just on Canada. You've had sales down in Canada 18% year-over-year against a very strong comparable. I guess first of all, could you remind us why Q3 2018 was so strong? And then was there anything sort of unusual this quarter that sort of magnified the impact year-over-year?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [10]

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Well, the death rate was the biggest factor on the Canadian side in this year. I mean, if you look at our Canadian operations, the at-need business, the funeral side of the business was down sort of basically across the board. In terms of -- that was driven largely by our Canadian cemetery businesses in Toronto, which suffered. We've got a tough competitive market right now in Toronto. We are, as you know, in the midst of constructing an on-site visitation center at Westminster. All of our competitors have visitation centers in the market. So -- and in an at-need family situation, we don't have an offering at this moment that is as competitive as all of our others. So in terms of the comparable over last year, I'm going to let Joe handle that one.

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [11]

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Yes, Paul, I don't have the exact details, but my recollection is that we had opened some projects that we were constructing. And I believe that it was principally in the New Jersey markets from, as I said, construction projects, and when they open is when we then recognize the revenue because we're able to deliver the product at that point.

So it does tend to be lumpy like that, just as Andrew explained, we believe we have a couple of projects in the fourth quarter of this year in the U.S. that will also deliver some outsized growth as we close those projects and recognize the revenue. So that's -- I believe that, that's my recollection of the work.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [12]

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That certainly is a comparable, yes. On the Canadian side, I will stress that it is driven -- the 18% down year-over-year is driven by the -- principally, the at-need business and principally at the Westminster location in Toronto.

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Paul Bilenki, TD Securities Equity Research - Associate [13]

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Okay. That's great color. And then just on that visitation center, what is your expectation for the timeline for that? And what's sort of -- once it's open, what sort of a ramp-up should we expect there?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [14]

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It should be opened by -- we're planning currently by Q1 of 2021 through all of the construction cycle. That's I think, I hope a relatively conservative estimate. It will take 18 to 24 months to ramp up that property. We will get some conversions of existing pre-need lot sales into at-need funerals fairly quickly but to get it to scale where it's cash flow positive will take, as I said, at least 18 to 24 months, it could take as long as 3 years. But we will be -- what it will allow us to do is to continue or to rebuild a bit of our at-need business in that specific location.

It's a substantial enough piece of our business still that a stumble or softness at Westminster can have an impact on the overall Canadian business.

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Paul Bilenki, TD Securities Equity Research - Associate [15]

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Okay. And if I may ask one more. Service Corp., on their conference call cited softness in pre-need sales production within its Asian customer base, including in Vancouver. So have you guys seen any slowing of demand in your markets that cater to that customer base, be it D.C. or New Jersey or others?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [16]

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No.

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Operator [17]

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Our next question comes from Maggie MacDougall from Cormark.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [18]

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I wanted to touch on the integration and acquisition costs in the quarter and so far this year, $4.4 million in Q3 and $9.6 million year-to-date. Can you break that out between integration and acquisition in terms of what the spend is? And then give us some idea what might be left to spend on the U.S. integration or common business platform, whatever -- however you want to refer to it this year? And if there's anything left to spend next year?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [19]

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Yes. So on the second question, first, I mean we are -- our expectation is that we are pretty close to fully ramped up from a cost perspective in terms of our platform in the U.S. to absorb current and potentially future acquisitions. That, of course -- I'll caveat that with there being any sort of substantial acquisitions that we may need to modestly resource up for a little bit further. But I would say, for the most part on those, the cost ramp, it would be -- would be in the ascending of that cost ramp, the last piece of it I think would be primarily on the finance integration and also on the information technology piece. In terms of the split out, Joe, do you have it?

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [20]

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It would be largely acquisition-related expenses. I would say that, that would probably be of the $4.3 million, we would be looking at in excess of $3.5 million on strictly acquisition costs and other $800,000 on integration-related expenses.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [21]

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Okay. And then curious, it's now been about 9 months since you've had a new manager in your Michigan market. Maybe not quite 9 months but it's been a decent chunk of time, and so wondering how your experience has gone there? And basically, just for an update on that portfolio.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [22]

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Portfolio is doing very well. This should be an opportunity to commend Mat Forastiere on -- and the team on the work he's done there. It's been -- in this quarter, it was one of the better performing -- Michigan was one of the better performing businesses in the overall portfolio. It had significant organic revenue growth. So we're really happy with where things are at the moment relative to where our expectations were. Does not mean that we're -- we think we're "out of the woods" if you will, or that there's not further work to do in that market. But Mat and his team have done -- in addition, with the support of the group in Houston have done excellent work on getting that business to where it is right now. So we're quite happy with where things are in Michigan.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [23]

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Are you able to let us know where you're trending with regards to margin there? Because, I believe, it was a significant piece of your 2022 margin growth goals.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [24]

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We'll get -- we don't break that out specifically, the MMG margin, but it is improving.

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Maggie Anne MacDougall, Cormark Securities Inc., Research Division - Director of of Institutional Equity Research [25]

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Okay. And then final question just on the M&A landscape and competitive landscape, if you could provide us an update with some -- those 2 things -- on those 2 things, it would be really great.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [26]

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Sure. So the M&A -- the pipeline and -- we're continually surprised by the amount of opportunities that come up in our pipeline and are presented to us. And I think you'll see that -- to your first question, you'll see a bit of the effort in exploring those M&A opportunities and the acquisition costs. So -- but we are continually and regularly surprised by just the sheer volume of deals that are out there.

We don't, obviously, do deep dives on all of them but we screen all of them and do a considerable amount of work on many of them.

So the M&A pipeline, I would say, remains robust from our standpoint. In terms of a broader market, I'm not sure whether there's significantly -- I wouldn't say there's a whole lot of change in terms of the number of players that are out there, I think some of the names and faces have changed and in terms of who is active in the market. But generally speaking, it is a fairly competitive market, certainly for scale assets and assets of quality. So we have seen all of our -- well, most of our public peers show their face at a number of these opportunities. And we expect that to continue to happen if not to increase. And then the privately-owned, whether it's family office or pension fund backed or what have you, private equity backed, those folks continue to show up a deal. So we're trying to be, not to say, we weren't being selective beforehand, but we're trying to be very focused on deals that we believe are attractive and well-suited and well-fit to our portfolio. But it's busy on both fronts right now in terms of competition for assets and in terms of assets available.

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Operator [27]

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Our next question comes from Johann Rodrigues from Raymond James.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [28]

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First off, would you be able to tell us what the actual dollar amount for comparable business revenue was in the quarter?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [29]

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Yes. Just 1 second, Johann, so we can get that for you. Let us come back to you on that. We don't have that on fingertips, it's not a number we -- if it's in real terms, we keep on our finger tips.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [30]

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Okay. And then maybe, what was the contribution from the Horan business in Q3?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [31]

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Relatively modest. I mean, it is a funeral-heavy business. And so typically, this quarter is a softer quarter for the funeral side. So -- and because we only -- if we only closed early in January, it would've been relatively modest, relative to the overall -- sorry, January and July.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [32]

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July. Yes. Okay. Okay. And then where would you expect G&A to be in Q4 and then also for 2020, maybe on a percentage basis?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [33]

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We expect it to decline on a percentage basis.

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [34]

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On a percentage basis, it should be in line with the Q3. We've got the -- absent any additional acquisitions, Johann, but it should be comparable...

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [35]

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Kind of 38%, roughly?

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [36]

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Yes. Should be pretty comparable. Yes.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [37]

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Okay. And then maybe just lastly, the 2 U.S. mausoleums that are opening, is that Kentucky and North Carolina?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [38]

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Kentucky and Texas, yes.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [39]

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Kentucky and Texas. And then how big are those? How many...

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [40]

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Yes, in terms of spaces?

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [41]

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Yes. How many spaces?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [42]

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I can't tell you off the top of my head in terms of spaces. They're not substantial. They are not 3,500 indoor mausoleums...

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James Joseph Leeder, Park Lawn Corporation - CFO & Director [43]

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No, but the one in Houston, Johann, would be significant in terms of the quarter for us.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [44]

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I'll turn it back. If you can just get back me on the comparable business number...

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [45]

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Yes, we absolutely will. Yes.

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Operator [46]

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Our next question comes from Stephen Harris, GMP Securities.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [47]

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Just wanted to follow up on this Journey acquisition. They are an industry consolidator like you, only smaller, but did you buy the whole company? Or did you buy some of their properties?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [48]

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No, we bought some of their properties. They also have assets in California and Alabama, and we did not buy those.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [49]

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Okay. And what was the thought process about them selling? Was this sort of timing of a fund situation? Or was there some other motivation?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [50]

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I believe there was some other motivation but I don't want to -- I don't have enough information to comment on what was going on with them internally.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [51]

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Okay. And I don't believe it was fully disclosed which markets they were -- those properties were in, in Texas?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [52]

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San Antonio, Waco, Austin.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [53]

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Okay. All right. That's great. And just turning back to your comments about the acquisition pipeline, with the various players involved, I mean, I think, you tended to see them and have seen them for a while, but would you say, in terms of pricing for acquisitions, that it's about the same? Or is it higher? Is it lower than it's been in the last couple of years?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [54]

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It depends on the scale. The larger acquisitions are -- they're -- prices aren't coming down. Let's put it that way. I mean there's lots of capital out there, relatively low cost capital and we're seeing some numbers that are surprising us in terms of some of the larger deals. So -- but on smaller deals like Ziegenhein which we closed earlier this year, on the Journey opportunity, we're still seeing quite attractive multiples.

So that causes, it sort of relates back, Steve, to my earlier comment about us sort of thinking about being more selective in terms of the larger scale ones where we really believe they suit and fit within our portfolio. It's where we're certainly conscious of the prices that are being paid out there.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [55]

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So if you were to think about 2020, you've done a number of sizable acquisitions over the last 24 months, if you were to think about 2020, should we be thinking about maybe a greater number of smaller transactions to get to a similar M&A level in terms of dollars spent? Or do you think that your activity would be down in 2020 versus '19 in terms of...

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [56]

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Our expectation is that it will be modestly down in 2020. I mean 2019, 2018 were fairly substantial years for us. So I think not to say that we are going to go pens down by any stretch of the imagination, but I think we need to sort of continue to focus on working the integration piece and if there are large deals that are out there and we can be opportunistic about them, we'll do them. But certainly, based on what's in the pipeline right now, there might be a mid-sized 1 or 2 out there and a series of smaller ones.

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Stephen C.A. Harris, GMP Securities L.P., Research Division - Head of Research [57]

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Okay. And just to come back to this question about pricing, for most of the industry, the valuations -- share price valuations and the cost of capital hasn't really changed a whole lot. Is it more of the private players and private equity money that's pushing up prices? Or do you think some of the public guys are rethinking their parameters?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [58]

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Again, I don't want to speak to how they're thinking. I mean, we've certainly seen a number of previously active investors in the space sort of cool their jets a little bit, and we've seen folks who are new come in and raise money and -- or have substantial family office-level balance sheets behind them that could do a lot of deals at relatively low cost. So that -- our sense is that it's predominantly driven by the latter, rather than the former, but that is anecdotal, if nothing else.

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Operator [59]

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(Operator Instructions) Our next question comes from Zachary Evershed from National Bank Financial.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [60]

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So just on the topic of that larger scale M&A, you mentioned a couple of targets floating around, how do you those compare to your existing regional platforms. Would those be establishing new beachheads or strengthening existing strongholds?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [61]

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I don't think I should answer that question, Zach. That would be a disclosure that we would not want to make at this point in time.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [62]

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Understood. And then in the context of margin expansion, maybe you could speak to where you're realizing good gains and where you're running into a little bit more trouble as you ramp up your margins?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [63]

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Are you thinking in terms of geography or are you thinking by business unit? How do you mean in terms of where we're running into headwinds?

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [64]

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By initiative and business unit, let's say.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [65]

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What's certainly more challenging, as you can tell from the organic growth numbers on the funeral side to enhance margin and some greater headwinds on the revenue side. So certainly from a margin expansion standpoint, it feels -- with the exception of the Toronto cemeteries, feels as though the cemetery side of the business is easier to get margin lift. But we don't necessarily think of it that segmented because I think a lot of the margin expansion that is coming, is coming from rationalization. A -- well, a, it's coming from acquiring better margin businesses; and 2, it's also coming from rationalization of costs into predominantly the Houston location. And so that, in and of itself, is kind of agnostic as to the business units. So I appreciate that's a bit of a non-answer but it's the truth.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [66]

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Drilling down a little bit on the rationalization of cost. Last quarter, we were kind of at peak personnel costs with the hiring in advance rationalization in the field. How is that progressing?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [67]

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Again, to our earlier comment, I think we would expect, over the next few quarters, for that percentage of G&A cost to decline as a percentage of revenue. So probably be fairly static in Q4 and then start to decline as we can really start to move cost out over the coming quarters.

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Operator [68]

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And the next question comes from Raveel Afzaal with Canaccord.

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Raveel Afzaal, Canaccord Genuity Corp., Research Division - Analyst [69]

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Just 1 question from my end. Are you guys also looking at international markets for growth opportunities? Are there any specific countries that are better suited or have more attractive death care service markets? Or the opportunities are so significant within North America that you intend to stay here for the foreseeable future?

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [70]

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You answered your own question with the second half. The opportunities are great enough here that there is no need for us to, at this stage, look anywhere else beyond North America.

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Raveel Afzaal, Canaccord Genuity Corp., Research Division - Analyst [71]

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But just I mean -- just drilling a bit deeper, what type of valuation multiples are you finding within North America versus elsewhere? And may be there are some opportunistic buys just based on the valuation multiples? Or if you could just help me think through this.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [72]

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Well, we haven't really looked elsewhere. So I can't really comment on what it would look outside of North America. Our focus is entirely on North America right now, and will remain that way until further notice.

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Operator [73]

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And that concludes the questions at this time. I'll now turn the call back over to Andrew Clark for final comments.

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Andrew Clark, Park Lawn Corporation - Chairman of the Board & CEO [74]

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Thank you, everybody, for your time today and for your continued interest in Park Lawn. And we look forward to speaking to you again at the year-end results, if not sooner. So thank you.

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Operator [75]

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Thank you very much for joining us today. Ladies and gentlemen, this concludes our call. You may now disconnect.