Park Lawn Corp T.PLC

TD 2

[retiredcf]

Park Lawn Corp.

(PLC-T) C$24.32

First Look: Results In Line; M&A Offsets the Tough COVID-19 Comp

Event

• Q1/23 adj. EBITDA of $20.5mm was largely in line with TD/Cons at $20.1mm, reflecting roughly in line revenues and better-than-expected adjusted EBITDA margins of 23.7% (TD: 23.0%).

• CC: 9:30 a.m. ET (888-506-0062; code: 462890).

  Impact: NEUTRAL

  Q1/23 results were largely in line, with PLC doing a good job navigating the tough COVID-19 impacted comparison, offsetting weaker at-need demand with market share wins, modest pricing, and healthy pre-need sales (albeit down slightly given the prior year included delivery of a mausoleum). In our view, the in line result and stable outlook are better than feared and should drive a positive share price reaction today.

• Consolidated Q1/23 revenue increased 4.3% y/y to $86.7mm, reflecting recent acquisitions, partially offset by -5.6% organic sales (slightly below TD's -5.0% estimate). The negative organic sales reflect an 11.3% decline in funeral home call volumes, partially offset by a 1.5% increase in average revenue per call. The decline in call volumes reflects a normalizing death rate post COVID-19 with the CDC reporting U.S. deaths down ~14% y/y. Pre-need cemetery property sales declined slightly y/y reflecting a tough comparison (partially mitigated by bulk sales in the Northeast) while merchandise and services sales increased.

• Adjusted EBITDA margins of 23.7% increased ~73bps sequentially. Although margins may remain somewhat volatile q/q, we believe they have bottomed, with inflationary pressures easing and with management executing heightened expense controls and taking pricing action where necessary. PLC has now recovered ~310bps in margins since the Q2/22 low; however we believe achieving its 26% margin target is likely an H2/24 story.

• Balance sheet: Pro-forma leverage: ~2.1x (~2.8x including equity-settled debentures). Pro-forma liquidity: ~$144mm. FCF pre w/c: $10.3mm, above TD's $7.2mm estimate reflecting lower-than-anticipated capex.

• Outlook: Q1 marked the last of the challenging COVID-19 comps; we expect modest organic growth hereafter (0-3%) and management highlighted that its acquisition pipeline remains strong. In our view, 2023 will be somewhat of a transition year as PLC continues to invest in operations and corporate functions to build a scalable platform. Additionally, capex will be elevated to replenish cemetery inventory following the strong pandemic-driven pre-need sales.