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Edited Transcript of STON earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 StoneMor Partners LP Earnings Call

LEVITTOWN Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of StoneMor Partners LP earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Garry P. Herdler

StoneMor Partners L.P. - Senior VP & CFO of StoneMor GP LLC

* John McNamara

StoneMor Partners L.P. - Director of IR of StoneMor GP LLC

* Joseph M. Redling

StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC

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Conference Call Participants

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* Richard Elkin

* Sean Sauler

* Stephen Paul Percoco

Lark Research, Inc. - President & Founder

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Presentation

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Operator [1]

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Greeting and welcome to the StoneMor Partners 2019 Second Quarter Financial Results Conference Call. (Operator Instructions).

I would now like to turn the conference over to John McNamara, Director of Investor Relations. Please go ahead.

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John McNamara, StoneMor Partners L.P. - Director of IR of StoneMor GP LLC [2]

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Thank you. Good afternoon, everyone, and thank you again for joining us on the StoneMor Partners conference call to discuss our 2019 second 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.stonemor.com. With us on the call this afternoon are Joe Redling, President and Chief Executive Officer; and Garry Herdler, Senior Vice President and Chief Financial Officer.

Before we begin, as usual I would like to remind everyone that this conference call contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address operating performance, events or developments that we expect or anticipate to occur in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management. Our 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. We do 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, 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 in the reports which we file with the SEC.

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

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [3]

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Thank you, John. Good afternoon, everyone. Thank you again for joining us to discuss our 2019 second quarter results. While this is not the first investor call that the new management team has conducted, the first one took place on June 29 in connection with the announcement of our balance sheet recapitalization. It is, however, the first quarterly results investor call StoneMor has conducted in quite some time and we are pleased to once again be providing regular quarterly updates on our progress.

As you know, we became a timely filer with the filing of our first quarter financials results back in May and tomorrow's filing of our 10-Q continues our expectations to be a timely filer going forward.

When we last spoke at the end of June, we announced a $447 million recapitalization of our balance sheet. This was a significant step in our strategic goal to deliver sustained profitability through 4 key areas; cash flow and liquidity, capital structure, balance sheet portfolio review and performance improvement through cost reductions and revenue enhancements.

With the recapitalization complete, we believe we now have sufficient liquidity to further implement our ongoing turnaround plan, an important step in delivering on the first of our strategic goals, improving liquidity.

In addition, we are continuing with the C-Corp conversion process and the planned launch of the rights offering on the timetables previously announced. The recapitalization addressed both our capital structure goal and improved our liquidity by providing a new debt capital structure with a 5-year maturity and an additional $57.5 million in cash raised from the issuance of convertible preferred units.

In the areas of balance sheet portfolio review and performance improvement through cost reductions and revenue enhancements, we have implemented a number of strategic initiatives, which we expect to deliver improved profitability over time.

Specific to the portfolio review, we view our substantial asset base as a strength, but we have prioritized our initial operational changes into the assets that could have the greatest financial impact in the shortest time.

The tiering of our properties that we concluded in Q4 of last year has enabled the team to focus on our highest producing locations, refocus our resources and rationalize costs. We are also actively analyzing various strategies regarding our asset base as it relates to potential divestitures.

We continue to examine our portfolio to determine our strategy for core and noncore assets, and evaluate the potential for realizing value through select divestitures. We have nothing to report at this time, but we are reviewing all options across all tiers, whether it be small individual property transactions or transactions that involve specific clusters or even an entire state.

We are weighing all options to determine the most appropriate diversification strategy going forward. We plan to provide additional updates on our progress later in the year. Performance improvements through cost reductions in revenue enhancement involves a multifaceted approach, which we are beginning to see early benefits in Q2. And we expect to see the full benefits of these efforts in 2020.

As we have previously disclosed, we targeted a minimum of $30 million of cost reductions across corporate G&A, sales and field operations. We've undergone 2 reductions in workforce this year, one at headquarters in February, and one more recently in field operations where we eliminated more than 300 positions.

The field reductions were the result of a comprehensive labor rationalization review on a property by property basis. Some of these savings are reflected in our second quarter corporate overhead numbers where we show approximately a 10% reduction in corporate overhead, excluding onetime and nonrecurring expenses, driven by double digit reductions in corporate payroll expenses and professional fees.

Garry will provide a further breakdown on cost reductions and plans going forward in a minute. As we've noted, our tier analysis has revealed that a significant percentage of our revenues and sales production come from our top tiered properties.

In fact, Tier 1 and Tier 2 properties account for 90% of our sales production. Throughout the second quarter, we prioritized our Tier 1 properties and we have seen signs of improvement at the property level and are encouraged by those results. We are now focusing our efforts and resources across both Tier 1 and Tier 2 properties.

These efforts included a review of sales staffing and aligning sales staffing with the size of the potential addressable market. We have prioritized hiring at these locations and since the end of March have filled over 200 sales positions with the majority being placed at our Tier 1 and Tier 2 properties.

In conjunction with this targeted hiring, in the first quarter of this year, we also launched new hiring and sales training modules to ensure a more effective onboarding process. We are encouraged by the field's response to these new programs and while it's still early in the process, we are seeing positive retention trends.

Now it takes time for the new salespeople to get up to speed and become productive, but I believe we have a better process in place and we are heading in the right direction.

Now let's take a look at the financial results for the quarter. Revenues were down about 4% year-over-year driven mostly by a decline in revenue from investment and other income. Excluding investment and other income, revenues are only down 1% and have now stabilized after a very difficult Q1.

In fact, revenues increased 10% or $7 million sequentially from Q1 to Q2 of 2019. Cemetery revenues excluding investment and other income was flat to prior year at $55 million, again a positive sign that we are stabilizing our core revenue base. Cemetery sales efficiency also improved year-over-year as selling expense as a percentage of operating revenue improved 300 basis points.

Operating expenses were down 6% in the period, driven by reductions in COGS selling expense and corporate overhead. Our increased operating loss in the quarter was impacted by several onetime items including costs related to the early extinguishment of debt, losses related to onetime asset impairment and nonrecurring corporate overhead. While if not for these onetime items, our operating loss in the second quarter and 6-month periods would have narrowed materially.

Moving to sales. We expected overall sales to be down a bit year-over-year from the impact of the corporate restructuring combined with still being in the ramp-up process on hiring. But we're encouraged by the 32% sequential Q1 to Q2 improvement in cemetery interment revenues.

In addition, the number of pre-need contracts written increased more than 19% from approximately 8,400 in Q1 to over 10,000 in Q2. Seasonally, the second quarter may be somewhat stronger than the first quarter, but these gains go beyond any seasonality factors.

Let me now turn the call over to Garry to provide more detail on the financial results.

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Garry P. Herdler, StoneMor Partners L.P. - Senior VP & CFO of StoneMor GP LLC [4]

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Thanks, Joe. Good afternoon, everyone. As you know, I joined StoneMor as Senior Vice President and CFO on April 15, 2019 to assist Joe and his senior team to execute his operational turnaround strategy. I want to thank my team for their strong effort in my first few months here, on their efforts on completing the diligence files and related work associated with the recapitalization, their supportive operations and also on our accounting team's second consecutive quarter of being a timely SEC filer. We will strive to continue to improve cadence and controls.

As Joe mentioned early in his comments, in mid-April, 2019 we outlined our turnaround strategy focused on 4 key goals; improving cash flow and liquidity, capital structure, balance sheet portfolio review and performance improvement through cost reductions and revenue enhancement. We will measure ourselves internally and externally on each of those goals going forward. We believe our fiscal 2019 second quarter results show some evidence that StoneMor's earlier Phase 1 improvement efforts are starting to take hold.

Notably, we implemented certain expense reductions in both the field and in corporate and we have evidence of some green shoots in sales production with sequential revenue growth in Q2 versus Q1 in 2019 notwithstanding continued year-over-year revenue declines. As we've discussed, addressing expenses is a key part of our strategy to ultimately deliver performance improvements.

Now let me move to a review of financial results. Consolidated GAAP revenue was $78.5 million for 2Q '19 compared to $81.6 million for 2Q '18 representing a decline of $3.1 million or 3.8% year-over-year. For year-to-date first half of 2019, revenue was $150 million versus $159.5 million in the prior-year period year-to-date, down $9.5 million year-over-year or down 6%.

There was a sequential GAAP revenue improvement of $7 million or 9.8% when comparing 2Q '19 versus 1Q '19 revenue. StoneMor delivered combined cemetery and funeral home segment income, less other gains and losses in 1Q '19 and 2Q '19 of 6.0% and 8.4% respectively.

We are pleased to see some modest 4-wall margin improvement in second quarter of 2019, particularly in the cemetery segment. We will measure and prioritize improving 4-wall profit margins on a location-by-location basis by applying traditional retail store level economics. This is a major focus for the Phase 2 operational performance improvement turnaround plan we have now developed. We will also benchmark internally and versus our peers. We will discuss these new initiatives further in today's call.

Now for a more detailed look at the second quarter segment performing starting with cemeteries. In the first half of 2019, StoneMor's cemetery revenues represented 82% of total revenue. Total cemetery segment GAAP revenue was $65.6 million for 2Q '19, compared to $66.6 million for 2Q '18 for a decline of $2.1 million or down 3% year-over-year.

In the first half of 2019, cemetery revenue was $123.5 million versus $129.9 million in the first half of 2018, down $6.4 million year-over-year or down 4.9%. There was a sequential GAAP revenue improvement of $7.7 million or 13.3% when compared to 2Q '19 versus the first quarter of '19.

Cemetery merchandise and services revenue remained relatively stable as the company continues to benefit from the servicing of its preneed backlog. Despite a contraction in new interment sales production year-over-year, interment revenue increased by 1.0% as compared to the prior-year period as the company benefit from new mausoleum and niche products.

Segmented investment and other revenue experienced a decline compared to the prior-year period as a result of a decline in investment income recognized from the merchandise trusts and perpetual care trusts, a decline in interest as a result of lower accounts receivable balance due to the prior-year period, primarily as a result of lower sales in certain accelerated receivable collections that occurred in 2018 and in early 2019, and a revenue last year from adjacent land sales.

Cemetery segment operating expenses were $58.9 million for 2Q '19 compared to $61.4 million for 2Q '18 representing a decline of $2.5 million or 4.1% year-over-year. The year-over-year improvements were primarily driven by a decrease in cost of goods sold and selling expense. The decrease in cost of goods sold was related to caskets, markers and lots.

Selling expense in second quarter of '19 was $15.5 million or $1.7 million lower than the prior-year period. And as a percentage of cemetery revenue, this improved over 300 basis points year-over-year, from 30.9% in second quarter of '18 to 27.8% in second quarter of '19. This improvement in rate was primarily driven by enhanced sales force productivity.

Cemetery expense increased from $21.0 million to $21.6 million in the comparable 3-month period. This increase was driven primarily by landscaping compared to the prior-year period. Regional cemetery G&A expense increased from $10.2 million to $11 million. This was driven by increased overhead related to the rollout of the GM organizational structure which occurred in late 2018.

Cemetery segmented income for the 3-month period improved to $4.8 million in second quarter of '19 from $4.1 million in the second quarter of '18. We delivered cemetery operating profit margins in second quarter of '19 and first quarter of '19 of 7.3% and 4.8% respectively.

Now we'll transition to funeral home results. Funeral home GAAP revenue was $12.9 million for second quarter of '19 compared to $13.9 million for the second quarter of '18, representing a decline of $1 million or 7.4% year-over-year. Funeral home COG unit volume remains stable for the second quarter of 2019 compared to the second quarter of '18. Total funeral home segment revenue declines were primarily driven by a decrease in average revenue per call. Additionally, the company experienced a decrease in revenue from insurance commissions.

Funeral home operating expenses were $10.5 million in 2Q '19 compared to $10.7 million in the prior-year period. The minimal change in the expense base is a result of the largely fixed expense nature of the funeral home business. Funeral home segment operating profits declined from $1.8 million -- to $1.8 million from $2.5 million in the prior year comparable period. We delivered funeral home operating profit margins in 1Q and 2Q '19 of 10.8% and 14.0% respectively. We will be spending more time in the coming months evaluating the funeral home business and portfolio for pricing and other performance improvements.

Corporate overhead expense was $13.1 million for the second quarter of 2019, compared to $15.2 million in the prior-year period, a reduction of 13.4%. Excluding nonrecurring expenses and noncash stock compensation expense, corporate overhead expense declined to $9.4 million in the second quarter compared to $10.3 million in the prior-year period as a result of cost reduction initiatives implemented primarily in 1Q '19. We remained focused on driving down our corporate overhead expense through the runoff of nonrecurring expenses and specific cost reduction initiatives. I will talk more about StoneMor's cost reduction efforts momentarily.

GAAP interest expense was $9.3 million for the 3 months ended June 30, 2019, an increase of $1.2 million and 15% from [$8.1 million] (corrected by company after the call) in the 3 months ended June 30, 2018. The change was due to an increased interest rate on our former credit facility, amounts borrowed in the period and the acceleration of amortization of deferred finance fees.

Net loss was further impacted by an $8.4 million loss on the early extinguishment of debt and a $3.4 million loss in the impairment of assets. In order to manage our liquidity profile as we accelerate and execute the Phase 2 cost reduction plans, it is our intent to elect the PIK toggle option at least for the next several quarters. As a result of this election, from a cash flow and liquidity perspective, our near-term cash interest expense -- payments will be roughly the same as under the former debt structure.

Cash used in operating activities for the first 6 months of 2019 was $31.6 million compared to cash provided in the prior-year period of $15.4 million. The reduction in cash from operating activities was primarily due to a decline in sales production, nonrecurring working capital initiatives in the prior-year period and certain other items.

The change was driven by a change in cash from accounts payable and accrued of $13.2 million. Upon the completion of the refinancing, the company made a significant pay down to catch up certain of its payables prior to the year -- the end of the second fiscal quarter and before the start of the third fiscal quarter.

In an attempt to better normalize payments starting in the third fiscal quarter, the company intends to increase its DPOs outstanding slightly in the balance of fiscal 2018. There were increases in cash interest of $4.1 million in the period, a $7.7 million impact of early accounts receivable balance payoffs in 1H 2018 and certain nonrecurring merchandise trust distributions of $5 million.

Last year, there was a $17 million impact from the contraction in sales production, nonrecurring expenses and other items. A significant contributor to this was the company's cash flow profile, was further dampened by pressure on sales as the sales production continued to decline in 2018 and 2019 relative to prior-year levels. Progress on preneed sales production is very important to increasing cash flow over time.

As of June 30, 2019, the company has $41.9 million of unrestricted cash and cash equivalents. The company also has $20.8 million of restricted cash, not included as liquidity cash by the company related to the cash collateralization of former letters of credit under the former credit facility and related credit card funding with a former lender.

We intend to demonstrate that we are good stewards of capital by executing Phase 2 of our turnaround plan well and accelerating these identified cost reductions wherever possible. Joe has identified $30 million in annualized cost reductions including the RIFs so far in 2019, which consist of -- on an annualized basis, over $20 million of this has been executed, nearly evenly split between corporate and field, 45% of which is attributable to headcount reductions and 30% associated with the roll-off of professional fees and other nonrecurring fees and expenses and expense reductions.

There has been another $9.5 million in 3 other identified reduction initiatives to complete in the coming quarters to hit this $30 million target. We have identified the detailed Phase 2 of cost reduction and operational performance improvement initiatives with a focus on procurement, sourcing, product hierarchy, field labor and other regional efficiencies, shared services and outsourcing. We're accelerating the execution of these higher priority cost reduction opportunities within Phase 2 as quickly as possible.

In summary, we've made solid progress in the areas of liquidity, extension of the debt capital structure and the identification and implementation of Phase 2 performance improvements. We intend to enhance StoneMor's public disclosures in the coming quarters with additional financial information on such things as more detail on SG&A for descriptions of nonrecurring costs, onetime items and anticipated cost savings and cost to achieve these savings. And additional information on production results, same store sales results and unit metrics.

With that, I'll turn it back to Joe for some concluding remarks.

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [5]

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Thank you, Garry. In the 12 months since I arrived, we have undertaken a comprehensive review of our asset base resulting in a tiered operating structure. We have decentralized operations with a focus on asset level accountability. We have implemented substantial cost reductions and will continue to do so as Garry just mentioned.

We have completed a major recapitalization of our balance sheet. We are continuing to focus on improving the sales force productivity and we're beginning to see some encouraging signs and we are developing a divestiture strategy to delever improved liquidity and better position the company for sustained profitability.

I'd like to take a moment to thank the StoneMor team for their continued dedication and hard work. Even though we are still early stage and have a lot to do going forward, we have made significant progress while navigating through some very difficult challenges. I remain confident in our leadership team, and appreciate and recognize all our associates in the field and their dedication to the families and communities we serve.

With that, we will now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). First question comes from the line of Richard Elkin at Oppenheimer.

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Richard Elkin, [2]

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Couple of things. What specifically is needed to get the sales growing again in the parts of the business where it isn't yet doing that?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [3]

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Yes, Richard. This is Joe. So the first step was getting staffing right-sized. So as I mentioned, we've added quite a bit of salespeople in both Tier 1 and Tier 2 properties. The data we have historically shows very clearly that new sales folks, new sales counsel will takes some time to ramp up and be productive. We typically see that in about 10 or 12 months.

So the reason we're ramping up now and really driving a better onboarding process to get them successful quicker is we want to be ready for 2020. I mentioned in my prepared remarks about the new sales process and training. We're trying to get the company back to family service, which is really kind of local prospecting for leads and that program has been put in place.

So I think it's really a matter of blocking and tackling at this point, is making sure we have the right sales leadership in the field. Making sure that new people we're hiring are becoming productive and moving through those cohort tenure bands, 90 days, 120 days, because they get more productive as they go. So I think it's just going to take some time for us to get the sales force more productive. We are seeing some early signs of improvement, but I think it's just going to take some time. I think we have the right programs and the right process and I think it's just going to -- it's just about time now to see the results.

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Richard Elkin, [4]

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Just in terms of your cash, what is your unused borrowing capacity because if you continue to utilize cash at the same rate as in the second quarter, it seems to me you'd only have about 4 months of cash left?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [5]

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Yes, I think we have, obviously the goal for us is to accelerate these cost cuts. Obviously our runway I think is longer than that. We have a lot of levers to pull within kind of cash management and Garry can talk a little bit about that. But it's critical for us to continue looking at cost reduction and also improve sales. But we have other levels in terms of CapEx and payables and things like that that we've managed really for the last year. So we feel we have enough flexibility to manage that cash number.

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Garry P. Herdler, StoneMor Partners L.P. - Senior VP & CFO of StoneMor GP LLC [6]

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I would just add that I think the runway is much longer than that. I don't think the -- we had a number of new investors come in. The debt as well as the $57.5 million of proceeds of new equity, I don't think any one of them would've thought that they would've done that if there was only a 4-month runway.

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Richard Elkin, [7]

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Okay. Just one other thing. Are you close to or does it look like you'll be getting any kind of research coverage anytime soon or...

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [8]

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Well, we were -- obviously we prioritize getting the recapitalization done and now we're focused on sort of turning the operations around. So I think as we get into the fall, I think Garry and I both will be reaching out on that front.

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Operator [9]

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Our next question comes from the line of Steve Percoco with Lark Research.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [10]

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You've set the target of $30 million for cost reduction. If I heard you right, you said you have achieved $20 million of that with 10 million to go, although you're looking for more. Is that correct?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [11]

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Yes, Steve, $10 million has been in the process of being executed. So other $10 million has been identified and in the process of executing. So that's the first, what we call Phase 1, which is the $30 million number. And then Phase 2, if you think about our -- what we've done so far, I would call the Phase 1 reductions pretty straightforward reductions. Obviously we've had workforce, cutbacks and risk to corporate. We've looked at every single line item across our spending categories, whether it be health benefits, travel, all of the normal things you'd look at if you are attacking cost quickly.

The second phase is really more about workflow and process when Garry mentioned all of those categories of procurement, outsourcing, things like that, we may need to spend a little money to get those cuts, but we feel there is a huge opportunity to get more integration in the field. I mean, the locations are still been operating as standalone location. So we feel you can improve workflow processes pretty significantly. That's a little harder to do. That takes a little bit more time and may take some investment, but that's the way we think about Phase 2.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [12]

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And you haven't put a number on Phase 2?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [13]

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We haven't publicly put a number on it.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [14]

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Okay. Can you give us an idea?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [15]

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Well, I think we're starting with the $30 million and we'll go up from there. And we'll give you updates as we get sort of locked in more on because, as I mentioned, these are operational process changes we'll be making. So they take time. So we will definitely be transparent. We know these cost cuts are critical. And we will be updating on these calls as we make progress on these fronts.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [16]

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But on the flip side of this too, you have added some expenses with your -- the regional management structure and the 200 sales hires, right. So while you've got the cost savings targets, you're probably going to add some expenses as well. So how should we think about the net of all of this?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [17]

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Yes, I guess, the way I would answer that is, yes, in terms of a G&A standpoint, we did add the GM structure to get this focused on local profitability at the property level. That was really lacking here in the company. So we did spend money to get that GM structure in place. We do think we have a lot more process improvement around there because we have a lot of manual workflow processes out in the field. So we think that is something that can be offset.

I think on the sales side, I feel the way we're increasing our sales staffing is in properties that have very high volumes. So the variable, the fixed costs of that individual are relatively low. They really make their income on commissions. So it's more of a variable investment. We just -- what costs us money is when you're having turnover at high levels and you're not getting productivity, which was the case when I joined the company and why we literally stopped hiring for a while because we were seeing a lot of inefficiencies in terms of that turnover level. So I feel pretty good about the sales part, but I think you're right, Steve, that on the second phase I think there will be some investments needed in some software and systems to get our operating policies and procedures up to speed. I mean, everything today is still pretty much manual. I don't know, Garry, if you want to add anything to that.

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Garry P. Herdler, StoneMor Partners L.P. - Senior VP & CFO of StoneMor GP LLC [18]

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Yes, I'd say -- Steve, I'd say starting with if you think of how Joe has talked about the tiers and he's prioritizing where he can get the most cash flow to start with. And then we talk about we're going to transfer into kind of a more traditional 4-wall location-based metrics analysis. And that would be the next phase.

And that would be then, traditional quartiles and things like that. And then benchmarking amongst cohorts, amongst our own groups and then against our peers. And then you would then get into the traditional funnel metrics conversion and operating costs by location and sort of those types of things.

So I think we've -- what we've done is we have a detailed plan associated with these and then you've got your company goals. We've got 3 strategic initiatives against those. And then we've got 4 work streams with a number of projects. So we've got a pretty detailed plan. And I think the way to think of this is, you'd see the 4-wall operating margins are pretty low right now. And we would expect to bring those up both through some quick wins that we think we can do in procurement and then others as we improve processes further.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [19]

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Okay. Just going back for a second to the sales force additions, you said that most of that is variable. Can you give us any idea, what percent of their cost would be or salary would be fixed? What percent would be variable? What could the salesperson hope to make during the course of the year?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [20]

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Well, it varies greatly. I mean, in the Tier 1 properties, I mean the way we look at -- the way we're staffing is we're staffing best. When I talk about addressable market, I'm talking about number of interments. So we're all over the board, right. We have a very diverse set of assets and we could be doing 1,000 interments at a location, we could be doing 70. So your opportunity to earn as a salesperson is when you have a large addressable market. There typically -- they have an hourly wage, which is a slight draw against commission.

So most of their income comes from commissions from preneed sales and at-need merchandise. So it's very --- it's pretty variable on that front. And we're trying to focus those resources. What we found as we did this property by property analysis, in many locations we were understaffed in the big properties where we had large interment volumes.

And it was just kind of a historical view of how those properties were managed. And on the other side, in smaller properties, we were overstaffed. So we've been trying to rationalize that over the last 6 months or so to get that right. And as we're seeing these improvements in the bigger properties, we're seeing some immediate gains.

So I think it tells us we're heading in the right direction.

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Stephen Paul Percoco, Lark Research, Inc. - President & Founder [21]

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Okay. And then, I guess, the final question for me is, you're making this effort obviously because you think you can boost sales. But how much of the challenge that you face is due to a secular decline in the business? For example, more people shifting towards cremations, lower costs forms and that. And I don't know if there's any way you can quantify that or give us a sense of what the opportunity is in light of what you see as the trends in the business.

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [22]

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Sure. Steve, I'll try. So, I guess, the simplistic answer is, a couple years ago we were doing much higher sales volumes. So I believe that there wasn't some major trend that happened in the last 3 years. Yes, cremation trends have increased, but some of our highest performing properties are in high cremation markets. When you look at our top salespeople, they are in California, they are in Florida, they are in the ALP. I mean, they are in places that have pretty large cremation trend.

I think we have a sales organization that was somewhat dysfunctional and I think we have to fix that first. So I don't think there's -- and again when I think about those things, I think about a macro issue would be if you started seeing a dramatic decline in interments and we've not seen that. We've been very stable on the number of interments. So -- and what we're trying to do is invigorate our salespeople by providing more cremation related products like cremation gardens, which we haven't been very aggressive on. We have about 20 projects right now in process to get our people excited in markets where it matters. So I think we can align the product in the go-to-market on cremation. I think we just have to have basic fixes to the sales culture and the sales organization.

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Operator [23]

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Next question comes from the line of Sean Sauler with Redwood Capital.

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Sean Sauler, [24]

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In the quarter there was the refinancing, I'm sure there's a bunch of fees, accounting fees, consultant fees that hopefully will be gone moving forward. I guess my question is, to what sort of extent can you tell us in Q2 were there fees that will not continue in Q3 and moving forward and in the like of consulting and onetime charges?

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [25]

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Sure, Sean. Thank you. Garry, you want to kind of walk through that because it's a relatively big number?

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Garry P. Herdler, StoneMor Partners L.P. - Senior VP & CFO of StoneMor GP LLC [26]

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We had the cost of the financing in terms of -- cost was about $17.4 million of which it will be booked as deferred finance fees in the cost of financing activities. We will have some disclosure in our 10-Q, which will describe the corporate overheads, but what you'll see we think is there is about in the 3 months ended June 30, we've got about $11.7 million of nonrecurring adjustments -- sorry, of net. So we've got about $2.4 million of other nonrecurring adjustments that would've been expensed, ignoring the amounts that would've been capitalized as deferred finance fees. So -- just so we're clear that that gets -- you've got professional fees and other amounts within that number. So I'm trying to just give you the bigger picture and that'll be in the queue.

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Operator [27]

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And there are no further questions at the present time. I'll turn the call back to yourselves. Thank you.

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Joseph M. Redling, StoneMor Partners L.P. - President, CEO & Director of StoneMor GP LLC [28]

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Thank you for joining us. If you have any follow up questions, feel free to call me at (215) 826-2945. Thank you. And have a good evening.

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Operator [29]

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And that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.