StoneMor Inc.

Greetings and welcome to the Stone Moor first quarter earnings release. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the 1, followed by the 4 in your telephone. If at any time during the conference you need to reach an operator, please press star 0. This call is being recorded Thursday, May 12, 2022. And now I'd like to turn the conference over to Keith Trost, Senior Vice President of Corporate Development. Please go ahead.

Thank you. Good afternoon, everyone, and thank you again for joining us on the Stonemaier, Inc. conference call to discuss our 2022 first quarter financial results. You should all have a copy of the press release we issued earlier today. If anyone does not have a copy, you can find the full release on our website at www.stonemaier.com. With us on the call this afternoon are Joe Redling, President and Chief Executive Officer and Jeffrey D. Giovanni, Senior Vice President and Chief Financial Officer. Before we begin, as usual, I would like to remind everyone that this conference call will include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 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 good faith beliefs and assumptions. 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. During the call, we will reference certain non-GAAP financial measures, such as EBITDA, field EBITDA, adjusted EBITDA, and unlevered free cash flow. A reconciliation of these measurements to the most directly comparable measures calculated in accordance with GAAP is provided in the press release and the investor presentation, which is also available on our website. With that, I'll now turn the call over to Joe Redling. We'll take it from here.

Joe Redling Thanks, Keith. Thank you, everyone, for joining us this afternoon for our 2022 first quarter earnings call. It's only been about 45 days since our last earnings call. But there are a few items I'd like to update you on before I turn the call over to Jeff for a deeper dive into our Q1 results. As we enter 2022, we knew that we were faced with tougher comps after our strong sales production and financial performance throughout 2021. We were confident that we would continue to drive pre-need production growth, even with an expectation that death rates, particularly those related to COVID, could have a negative impact on our at-need performance. During the first quarter, we achieved 4 percent year-over-year growth in our pre-need sales production. And this is against a first quarter of 2021 that was up 45 percent against the first quarter of 2020. We achieved this growth through a concentrated sales effort, including a focus on volume and pricing optimization. On the at-need side, our sales production was flat versus the first quarter of 2021, despite a 2% decline in all deaths, according to the CDC's preliminary data for the first quarter. Last year, during our first quarter call, we told you that the first quarter of 2021 in terms of sales production was the strongest first quarter in company history, and that March of 2021 was the largest sales production month in company history. I'm pleased to report that we can once again say we achieved record sales production levels again in the first quarter of 2022, having increased 2.5% compared to the first quarter of 2021. And March 2022, exceeding last year's performance and once again recording the largest sales production month in Stonewall's history. It was quite a high bar. but I'm proud of our sales and marketing team for once again surpassing these impressive milestones. As we look ahead to the remainder of 2022, we expect to see downward pressure on at-need sales production due to declining death rates, particularly those associated with COVID. According to the CDC's preliminary data during the first quarter, we saw an 18 percent decline in deaths involving COVID. However, This was partially offset by an increase in non-COVID-related deaths and death rates. Our expectation is that the COVID deaths will continue to subside and drive lower overall death rates throughout the remainder of the year. That said, we will continue to push pre-need sales production to offset that potential decline in that need production. Similarly, we are focused on continuing to optimize net pricing through targeted price increases and reduced discounting. to offset both potential declines in the at-need business, as well as rising supply chain costs. During the first quarter of 2022, we saw our top-line revenues increase by 3.4 percent, with 86 percent of our revenues driven by the cemetery segment. The growth was driven by a 3 percent increase in internment revenue, which is tied to sales production performance, as the corresponding revenue is generally recognized at the time of sale. Offsetting that growth was a 9 percent decline in merchandise revenues, primarily driven by declines in markers and base revenues. For both of these product segments, we've experienced significant supply chain disruptions and delays, resulting in a lower recognition of revenue. And these disruptions negatively impacted the recognition of revenue associated with both pre-need and at-need sales of merchandise. Although these disruptions negatively impacted the recognition of revenue during the quarter, they also contributed to an increase in deferred revenues, as this is more about the timing of revenue recognition and not any negative performance-related metrics. Lastly, we saw a 29 percent or $3.7 million increase in investment in other revenues. This includes a $1.3 million sale of excess cemetery property during the first quarter of 2022. The remaining increase relates to the recognition of income on our merchandise trust. From an expense standpoint, we saw a year-over-year increase of $9 million in the quarter driven largely by maintenance and related costs associated with our cemeteries. JEP will provide more color on our expenses. The net result of the moderate gain on revenue and the increased cost basis is an operating income that declined by $6.3 million compared to the first quarter of 2021. Despite that decrease, however, our adjusted EBITDA increased by $4.6 million, or 16% year-over-year. This increase was driven by an increase in deferred revenues attributable largely to the sales production growth previously mentioned. Additionally, this deferred revenue growth is driven by investment income earned during the quarter that is deferred to line up with the revenue recognition of the underlying contractual obligations. During our previous earnings call, we provided targets on both unlevered free cash flow and organic trust growth. As a reminder, we utilize these targets as they best represent the value created during the year through both our operations and the management of our trust. We targeted $40 million of unlevered free cash flow and $70 million of organic trust growth for 2022. Collectively, That's $110 million of value creation during the year. And we are on target with both metrics through the first quarter. Specifically, we generated $6.3 million of unlevered free cash flow during the first quarter of 2022. Although this is down from $11.5 million generated during the first quarter of 2021, the primary difference was related to the timing of our biweekly payroll run. with seven payroll runs in the first quarter of 2022, compared with six payroll runs in the first quarter of last year. This, combined with a similar impact on weekly check processing at quarter end, more than accounts for the year-over-year decrease. In fact, adjusting for this timing impact would have resulted in a year-over-year increase in unlevered free cash flow for the quarter. In terms of trust performance, we generated trust growth of $28.2 million during the first quarter, which included $10.3 million of trust additions from our first quarter acquisitions. Accordingly, we generated $17.9 million in organic trust growth during the first quarter. This growth was driven by a combination of the growth in pre-need sales production and strong investment income that's not eligible for distribution pursuant to the various state laws. With that, I'll now turn the call over to Jeff to provide additional detail on our first quarter financial performance.