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Stewart Enterprises (NASDAQ:STEI)

Q1 2013 Earnings Call

March 12, 2013 11:00 am ET

Executives

Martin R. de Laurèal - Senior Vice President of Corporate Development & Investor Relations

Thomas M. Kitchen - Chief Executive Officer, President, Director and Member of Investment Committee

Lewis J. Derbes - Chief Financial Officer, Senior Vice President and Treasurer

Thomas J. Hirsch - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Assistant Secretary

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

James Clement - Sidoti & Company, LLC

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Clint D. Fendley - Davenport & Company, LLC, Research Division

Dick Innes - JC Clark Ltd.

Operator

Good day, everyone, and welcome to Stewart Enterprises Conference Call for the First Quarter of Fiscal Year 2013. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the conference call over to Martin de Laurèal, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Martin R. de Laurèal

Thank you, John, and good morning, everyone. On behalf of Stewart Enterprises, I would like to welcome you. By now, you should have already received a copy of the press release. If not, please visit Stewart's website at www.stei.com.

On today's call, management will provide an overview of the first quarter of fiscal year 2013, and then we'll open the call up for your questions.

The information contained on this call is current only at the time of the call. Statements made by the company that are not historical facts are forward looking statements. The company assumes no obligation to update any statements, including forward-looking statements made during the call. Examples of forward-looking statements include: projections of revenue or earnings, growth rates, free cash flow, debt levels, tax benefits or other financial items; statements regarding plans and objectives of the company or its management; statements regarding industry trends, competitive trends or their effect on future performance; and assumptions underlying the forward-looking statements regarding the company or its business.

The company's actual results could differ materially from any forward-looking statements due to several important factors, which are described in the company's Form 10-K for the year ended October 31, 2012.

The company uses adjusted earnings, adjusted EPS, adjusted EBITDA, net debt, free cash flow, cash flow per share as financial measures. These financial measures are not in accordance with accounting principles generally accepted in the United States of America, or GAAP, and are intended to supplement rather than replace or supersede any information presented in accordance with GAAP. A reconciliation to the most directly comparable GAAP financial measures can be found on the company's website, again, at www.stei.com under Investor Information. A reconciliation of non-GAAP financial measures can also be found on the company's press release dated March 11, 2013.

That said, I'd like to introduce management of Stewart Enterprises. On the call today, we have Tom Kitchen, President and Chief Executive Officer; and Lew Derbes, our Chief Financial Officer.

At this time, I'd like to turn the call over to Tom. Please go ahead.

Thomas M. Kitchen

Thank you, Martin. Good morning, and thank you for joining us on the call today. As usual, I'll offer a few opening comments, and then I'll turn the call over to Lew, who will cover the financial performance in more detail before we open up for some Q&A.

Let me begin by noting that it's an exaggeration to say fiscal year 2013 is off to a superb start. The significant increases in revenue and profitability continuing the positive momentum we generated during fiscal year 2012. For the first quarter of 2013, we reported an 80% increase in earnings per share to $0.18 and generated $15.5 million in net earnings. I'm pleased to note, this is the highest quarterly net earnings in earnings per share in more than 10 years. Overall, total revenue improved 9%, which led to a 27% improvement in gross profit and a 340 basis point expansion in gross profit margin compared to the same period of last year. We believe these strong results demonstrate the power of leverage in our business and the importance of continuing to effectively manage our costs.

Our Funeral business turned in stellar performances, an 8.5% improvement in funeral revenue and a 14% improvement in funeral gross profit, highlighted by more than 8% increase in same-store funeral services. We're also proud of the strong performance of our Cemetery segment, which generated a 9% increase in cemetery revenue, a 63% improvement in cemetery gross profit and a 620 basis point improvement in cemetery gross profit margin. We consider the results to be significant in that both of our segments performed equally well at a very high level of achievement.

In addition, I'm very pleased with the strong performance of our investment portfolio, with double-digit average annual total returns over the last 3 years. Since the end of the first quarter of last year, our trust portfolio has improved by more than $53 million. This improvement is significant as it will enhance revenue and profitability in future periods.

These results don't happen by accident. The result of focused efforts of the company's dedicated employees, our management team, that provides the right leadership and direction in accomplishing the company's goals and objectives. I'm fortunate to have this team and are very grateful to each member for their contributions. We believe the inevitable demographics of our industry, combined with our proven business model, and experienced management team, provide the foundation for our future's success.

By continuing to execute our strategic plan and maintain our focus on employees and customers, we are well positioned to deliver consistent, stable, sustainable results over the long term.

With that summary, I'm going to turn the call over to Lew.

Lewis J. Derbes

Thanks, Tom. I'd like to provide some further insight on a few key areas. First, I'll discuss the company's operating performance in a little more detail. Second, I will give you some information on the performance of our trust portfolio. Third, provide an update on taxes and then finally, discuss cash flow.

And for our operating performance during the first quarter, we improved net earnings from continuing operations by 76% and earnings per share by 80% compared to the same period of last year. In addition, during the first quarter of this year, we produced $136 million in consolidated revenue and $32 million in gross profit. We are particularly pleased with the balance we achieved between our Funeral and Cemetery segments this quarter.

During the first quarter of 2013, we generated more than $78 million of funeral revenue, representing an 8.5% improvement over the same period of last year. We attribute the strong Funeral performance to a more than 8% increase in same-store funeral services performance. Our overall depth in our market increased during the first quarter of 2013. Our increase in funeral services is particularly strong when compared to industry-wide data. This is now the third consecutive quarter of increased same-store funeral services and we believe that we continue to increase our market share.

By focusing on volume, we were also able to increase both our average revenue per traditional funeral and per cremation service by more than 1%. Our strategy of remaining focused on a balance between calls and average revenue has proven successful. It has enabled us to leverage the high fixed cost nature of our business, resulting in increased profitability, expanded profit margins and enhanced cash flow from incremental calls.

For the Cemetery segment, we generated a 9% increase in cemetery revenue, a 63% improvement in cemetery gross profit and a 620 basis point expansion in our cemetery gross profit margin. These results were obtained by recognizing $4 million more in revenue for cemetery property sales as result of subsequent collections, as well as a nearly $2 million increase in merchandise delivered and services performed.

In addition, the successful portfolio performance helped us recognize an additional $1.4 million in revenue related to trust activities when compared to the same period of last year. We also recognize $1.3 million more in revenue due to the significant progress on cemetery construction projects. These improvements were partially offset by a decline in cemetery property sales during the first quarter. Actually, both cemetery property sales and pre-need funeral sales decreased quarter-over-quarter.

These declines are attributable to several factors. We completed the integration of our operations and sales teams. In addition, we tightened our sales terms during the quarter for cemetery property sales. We knew these changes would create challenges, particularly during our first quarter in light of declining consumer confidence, increases in payroll taxes and economic uncertainty. Fortunately, we have isolated the decline in pre-need production to 6 funeral homes and 10 cemeteries and remain committed to the changes we have implemented. We firmly believe the current organization provides the foundation to improve customer service and enhance our sales production in the future.

Finally, our adjusted EBITDA increased 24% to $32.5 million for the first quarter of 2013, representing a 24% adjusted EBITDA margin. In addition, our adjusted EBITDA for the trailing 12 months is now $116 million, which is the highest EBITDA in more than 5 years.

In regards to our trust portfolio, we are pleased with the 4.5% and 4% total return in our pre-need and perpetual care trust, respectively, during the first quarter of our 2013 and the more than 10% total average annual returns in both our pre-need and perpetual care trust over the last 3 years. The fair market value of our portfolio increased more than $53 million to $882 million over the last 12 months. This bodes well for future revenue recognition associated with the undelivered pre-need contracts in our backlog. This positive performance is the result of the steps we have taken to continue to diversify our portfolio. We continuously evaluate our investment strategies and maintain an asset allocation that provides consistent returns with sufficient diversification.

Moving on to taxes. As a result of the positive performance of our trust portfolio, we benefited this quarter from a $2.7 million reduction in the valuation allowance for capital losses. This reduction essentially eliminates this valuation allowance.

A couple of years ago, we began our tax planning strategies and we believe it was possible to produce significant tax benefits. As a result of this effort, the total tax benefit, including a combination of refunds and reductions of federal income tax payments will be in excess of $100 million by the end of 2014. As a result of the approved method changes, for fiscal years 2013 and 2014, we expect our total cash tax payments to be approximately $5 million to $10 million more than the nominal amounts that we paid in 2012.

And finally, as it relates to cash flow, during the first quarter of 2013, we generated $11.9 million in operating cash flow and $6.8 million in free cash flow, further demonstrating our ability to generate consistent, positive cash flow. I want to highlight that generating nearly $12 million in operating cash flow during the first quarter is significant for us, as the first quarter has historically been light compared to the subsequent quarters during the fiscal year. The normal first quarter pressure is due primarily to the timing of certain annual payments such as insurance and property taxes that are historically made during our first quarter.

We deployed our cash by paying $3.4 million in dividends, repurchasing nearly $2 million of our common stock and spending $1.5 million to develop new cremation memorialization options in our cemeteries. After this deployment of cash, we finished the first quarter with $84 million of liquidity and no amount borrowed on our $150 million credit facility.

And finally, our leverage coverage ratio, as measured on a net of cash basis, has improved to 2.1x as of January 31, 2013. This further attests to the strong financial condition of the company.

John, that concludes our prepared remarks. We're now ready to take some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Rigg from Susquehanna.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Just to come back on your comments about sort of tightening the pre-need sales process at the 6 funeral homes and 10 cemeteries, can you possibly flesh that out a little bit that? And I guess more importantly, give us a sense for if you thought first quarter would be the worst quarter, what should we expect in terms of change moving throughout the year?

Thomas M. Kitchen

Chris, we know that there were a number of factors that impacted the pre-need sales during our first quarter. Some external items, I believe, Lew mentioned them, but during our first quarter, there were some decline in consumer confidence and then as well as the increase in the payroll taxes effective January 1, we believe both of those adversely impacted sales. We also recognize that tightening our sales terms had a potentially adverse impact, but we also recognize that we believe it's going to lead to an improved quality of our pre-need sales. Our reorganization is going well. It's the final step. And it's just an adjustment period that we believe we're going through before we gain sufficient interaction and start to increase our sales going forward. Not in a position at this point in time to quantify what going forward is going to be. As you well know, we don't give the guidance but nevertheless, that long term, we're confident that the model we have that the experienced management team will provide for sustainable, continuous increase in our sales. We also are encouraged, although we don't like to see any declines, the fact that it was localized to 10 cemeteries, we think that was a good sign because it gives us an opportunity to get our arms around those 10 operations in order for us to correct what's wrong and to move forward.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Okay. And then just on -- obviously, the same-store volumes are very strong. Strongest I can remember, and you guys believe you're outperforming the industry generally, but anything to sort of highlight it? Do you think the flu had an impact? Or just some sense or rather the order of magnitude that you think you're sort of outperforming the industry as a whole would be helpful.

Thomas M. Kitchen

Yes, we look at it. We know that there are a number of factors that contributed to the same-store call increase. And when you look at peers or other industry metrics that we tend to look at, whether it's CDC, generally, the industry experienced somewhere in the low- to mid-single digit increase for the same period of time. In our case, we were north of -- or more than 8.5% or more than 8% same-store increases. What we saw was an across-the-board increase. Every region of the company, we have 10 regions, every region experienced an increase. Some were actually in the double-digit increase. We had some as high as 12% to 13% increases. We also know that first quarter last year had probably a soft comp, and then you've mentioned about the flu increase. But when we strip away and look at of fundamentals, we believe that the operations that we have with the great management team, the great properties that have heritage, the emphasis on the balance between calls and average price, the emphasis that we place on the community involvement, getting involved with ministers and hospice groups and so forth, we think that all of those factors equally contributed to the increase, which helped us produce what we consider to be an increase that is at the top end of the industry.

Operator

Our next question comes from Jamie Clement from Sidoti & Company.

James Clement - Sidoti & Company, LLC

Two questions, if I may. One on operations and the other on capital allocation. I know these things are difficult to quantify, but in terms of the margin improvement, and I would specifically maybe highlight the funeral operations, can you give a rough percentage in your estimation on how much of that was a result of the leverage that you see in the model with the increase in volume versus some of the actions you took and that were announced last year in terms of reorganization and headcount reduction and that sort of thing?

Lewis J. Derbes

Jamie, this is Lew. I'll take an attempt. But we haven't tried and quantify the components. I mean, we had mentioned last year when we made the announcement of that the reduction in force would be $5 million on an annual basis and then the changes we made in the sales organization would also are expected to generate $5 million, for $10 million in total. The reduction in force we announced last April, so you kind of got a half-year benefit last year and that was kind of split between the 2 components. But suffice it to say that the changes that we made and the results that we're achieving were in line with the expectations that we had communicated previously. We've talked about this before and that's why our focus is more on -- it's balance between calls and averages, but calls is the most important component for us. And when you get that incremental call, the incremental cost associated with it is predominantly, if it's a traditional call, the casket, you already have the funeral director, you already have the facilities, you already have the Hearst and the limos, you're already paying the utilities, already covered the depreciation, et cetera. So those incremental calls help to expand the margin significantly. So when we see increases like 8.4% in same-store calls, it drives significant margin expansion for us.

James Clement - Sidoti & Company, LLC

Okay, that is helpful. And then just onto capital allocation, obviously, with your leverage ratio being at the lowest point that I think we've seen it in a long, long, long time, the board spots on acquisitions versus share repurchases versus perhaps another dividend increase, can you -- I know that's obviously something the board considers every quarter. We know that the preference is to reinvest in the business for growth, but absent a lot of acquisitions pending, is there a preference in terms of a dividend increase or future repurchases?

Thomas M. Kitchen

Jamie, we want to deploy the company's capital in a way that maximizes the returns for our shareholders. We believe that acquisition still represent probably one, or if not, the most attractive use of the company's capital because it helps the company grow and we believe that, that's important for our shareholders. The fact that we did not do any acquisitions during this first quarter doesn't mean that we're not committed to that, what it does mean is that we are committed to being disciplined about finding businesses that look more like the types of businesses that we operate, larger businesses, preferably combos. And also in markets where we currently have a presence where we can leverage our existing operations and the management oversight. So we currently have a pipeline of opportunities that we're looking at. In fact, we have 5 active potential opportunities for us that we're going to be focusing our efforts on over the next couple of months. With regard to other uses for the company's liquidity, I mean we have been committed to both the dividend program. We have increased the dividend on initially $0.10 up to the present $0.16 a share, it's an increase of some 60% over the last few years. Our board is committed to that and is also committed to periodical evaluating that with an eye toward increasing the dividend subject to the company's ability to generate cash to sustain the increase in the dividend. And then finally, I think as evidenced by the fact that over the last couple of years, we have been very active in repurchasing the company's shares. We probably have averaged somewhere around $27 million, $28 million of share repurchases for each of the last 2 fiscal years. And while we did approximately a couple of million dollars in the first quarter, again, it just doesn't mean that we're not committed to it. Just from period-to-period or quarter-to-quarter, there could see some variations in that level of repurchase. And we expect over the course of 2013, given market conditions that are similar to what we saw in '11 and '12, that we would be at the approximately the same level of share repurchase that we experienced in that '11 and '12 period that we anticipate for 2013.

James Clement - Sidoti & Company, LLC

Tom, that's very helpful, because really, what I was sort of getting to is I noticed that you didn't buy back as much during the first quarter as you have over the last 2 years and I just wanted to make sure that didn't in any way signal a change in capital allocation policy. It sounds like it has not.

Thomas M. Kitchen

It has not.

Operator

The next question comes from Robert Willoughby from Bank of America Merrill Lynch.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Tom or Lew, maybe to the earlier question, just on the growth rate in the quarter and the profit margin enhancement that you did benefit from. I guess -- my guess would be, looking forward, you're not advocating that 8% type of revenue growth rate to continue and that had some benefits that did happen in the quarter. But my sense is you do still expect some type of strong experience. Is there reason to believe that maybe on a more moderate revenue growth rate over the next few quarters here, would there be meaningful upside to a first quarter margin experience or should we temper some of the margin expectations there in the absence of an 8% kind of revenue number?

Thomas M. Kitchen

Yes, Bob, let me try and answer it like this. We do believe that 8.5% of same-store calls is -- that just hasn't been done in the industry before. I'm very proud of that accomplishment. But going forward, I would temper the expectations and to ratchet that down. This is the third consecutive quarter of same-store increases for us. So we're very, very proud of that, and we believe that the company's model would provide for a continuation of same-store call growth, but not at the 8.5%. And we would think that in the probably low-single digit to mid-single digit is entirely possible for the company. Now we completed February and compared to last year, we are tracking positively and very favorably to last year. We did see maybe a tail off a little bit in February, but nevertheless, it's still positive to the prior year for us.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

And the margin leverage on kind of single digit, mid- to low-single digit revenue growth, is it still meaningful?

Lewis J. Derbes

We think we can have meaningful margin expansion if we continue to grow the top line in both segments. We said if we can get low-single digit growth in the top line, we can get double digit growth in the bottom line, and that's what our expectation would be. We are going to have some tailwind in that margin expansion coming from the reduction in force that was announced last year that we only got a half-year benefit for. So we think if we can grow that top line by low- to mid-single digits, that you should see double digit expansion on the bottom line.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

And that would, to me, Lew, imply that maybe a first quarter margin experience is something you can then carryforward. It was pronounced improvement year-over-year. You're okay with sequential trends from there?

Lewis J. Derbes

I mean, I think that we can continue to expand our margins from -- definitely from the levels we achieved in '12. Obviously, if you don't get 8.5% growth in calls, it's going to be tempered a little but we think we can still expand it.

Operator

The next question comes from Clint Fendley from Davenport.

Clint D. Fendley - Davenport & Company, LLC, Research Division

First question, I wondered, it's a bit unusual I guess to see the cremation rate decline. Any color on that?

Thomas M. Kitchen

No, actually, we are a little bit surprised, too, about the fact that it dropped down to about 42%. We do not think that, that is some inflection point and that you'll see a downward trend. What we, pretty like others in the industry, think that you'll continue to see an upward trend over a longer period of time. They'll probably be roughly 1% to 1.2% a year. I think this was just an anomaly that happened. In our growth in calls, we had a significant number of at-need, walk-in type of business, and we had the pre-need to turn at-need and sometimes the pre-need to turn at-need is going to be a little bit more heavily weighted toward a traditional as opposed to cremation.

Clint D. Fendley - Davenport & Company, LLC, Research Division

You guys have had some really nice progress on your average revenue per service for the cremation. You don't think this is anyway maybe tied to that where you perhaps hit a ceiling on the pricing that you'll be able to get on the cremation side?

Lewis J. Derbes

No, we don't, but Clint, I think I mentioned this in my prepared comments, I know it's in the release, but I guess I want to take the opportunity now to reemphasize it. We talk about a balance between calls and averages, but we're still increasing our average revenue, both were up a little over 1%, whether it's traditional or cremation, we actually had a little bit more of an increase in cremation than traditional. So we do not see that being pressure. We're going through some training for our federal directors to make sure that they hit the key points that we want to emphasize through the arrangement process with an eye towards showing them the value of having a service with their cremation. And then they were also in the training to make sure that they get a tour and see what we have to offer in the new memorialization options in our cemetery. So we have a focus on cemetery. We do not think that we're plateauing out. We think we have an opportunity to serve that customer. It's up to us to prove to them the value that we can demonstrate in that side and we can do that with the facilities that we offer the services we provide in the funeral side, and then with the new gardens which we continue to invest in, we spent another $1.5 million in the first quarter on the cemetery side. We're seeing positive traction continue.

Clint D. Fendley - Davenport & Company, LLC, Research Division

Do any of the 10 cemeteries where you've had the pre-need challenges feature your updated cremation gardens?

Lewis J. Derbes

I think a handful may. I mean our pressure, as Tom mentioned, I don't think that the economic uncertainty was going to play a factor between whether it was traditional or cremation. It was causing an impact on buying pre-need, okay? And some of the structure and term changes that we had as it relates to pre-need caused us some pressure. So it didn't necessarily discriminate between traditional or cremation. Of the 10, a couple of them may have had some options, but it's not anything that was isolated to one or the other.

Clint D. Fendley - Davenport & Company, LLC, Research Division

It's really more a structural issue rather than a product offering?

Thomas J. Hirsch

Well, I hate to describe it as a structural issue when we can isolate it to 6 funeral homes and 10 cemeteries. I think there are some specific issues related in those facilities that it gives us an opportunity to focus on and make sure that we can correct it and improve it in the future.

Clint D. Fendley - Davenport & Company, LLC, Research Division

Okay. And last question, I just wondered on the 5 active M&A opportunities that you guys mentioned, I mean, how many of those ultimately do you think we should expect you to close on this year?

Thomas M. Kitchen

Well, I mentioned earlier that we've got 5 currently in the pipeline that we're taking a hard look at. We would like to see all 5 of those develop over the next 3 to 6 months. It's just very hard to forecast that with any degree of certainty but nevertheless, we, in modeling our internal projections, we try to model approximately 3 to 5 acquisitions a year for us to gain some growth revenues, as well as some improvement in our margins as well.

Operator

The next question comes from Richard Innes from JC Clark.

Dick Innes - JC Clark Ltd.

Two questions. A little more understanding about the volume in Q1 and how much that's going to negatively impact the balance of the year? Obviously, you benefited from a very robust flu season and some of those services, I assume, are simply advancing from the balance of the year. Could you comment on that?

Thomas M. Kitchen

Well, Dick, it's hard to quantify that. But let me just go back to the comment that I made I believe to Bob Willoughby, which is the trends in February are continuing positive to the prior year, quite meaningful amount. So we've got a little ways to go in the current quarter, but our expectation is, is that we should see same-store call growth at least for this quarter. And if you were kind of thinking that we might have borrowed or at least some -- there were some acceleration of calls into the first quarter, I think the likelihood is they would have come from the second quarter, and we're not seeing that at the present time. What we're seeing is a continuation of the trend toward an increase in same-store call but maybe at a little bit lower level than the first quarter.

Dick Innes - JC Clark Ltd.

That's very encouraging. The second question is, with respect to the change in sales terms that you referred to as having a negative impact on pre-need sales, is that related to the amount of down payment?

Thomas M. Kitchen

Yes. And I'm sorry, go ahead and finish.

Dick Innes - JC Clark Ltd.

And do you think this will have a negative ongoing impact?

Thomas M. Kitchen

Well, first of all, it does relate to the down payment, we increased that to a minimum of about 10%. We believe our increase in the down payment is going to improve the quality of the sales for us. I would have to mention that a fair amount of our sales are 100% paid, people pay for it. And certainly, the ones are at-need property sales, we require 100% paid at time the family is going to use the property. So while we finance sales probably more than 50%. If you look at our property sales, probably we get down payments on the average of about 50% to 60%. But nevertheless, we have increased the minimum down payment to the 10% to enable us to recognize the revenue, as well as we believe that it will improve the company's quality of the sales and ultimately the bad debt. We also certainly have looked at the interest rates and have looked at the interest rates and have actually ticked up the interest rates because we think -- though it was time for us to do something like that as well. How is it going to affect us going forward? At this point in time, we're working hard to address those operations, those 10 cemeteries that experienced a decline, and we'll see. We can't really give that kind of specific guidance going forward, Dick, but nevertheless, we're optimistic that model, with the management team, the new alignment, the integration between the sales and operation is going to provide us dividends in the future going forward with regard to preneed sales.

Operator

The next question comes from Jamie Clement from Sidoti & Company.

James Clement - Sidoti & Company, LLC

Just a quick follow-up on Dick's question as to whether sales could have been pulled forward. I mean if you look at the government data and your peers' data from this time last year, I mean is it a lot more likely that you benefited arguably from some pent-up demand that perhaps didn't materialized last year?

Thomas M. Kitchen

We tend not to think of it as pent-up demand.

James Clement - Sidoti & Company, LLC

I know you don't. And I'm sorry that I'm chuckling, it's serious, but you know what I'm saying, right?

Thomas M. Kitchen

I understand. And Jamie, I think you need to take a longer-term view, but when you look at what we've done over the last 3 quarters, we've increased same-store calls anywhere from the low-single digits to now the 8.5% almost in the first quarter. And what we see tracking is, in this quarter, is continuation of the increased trend, maybe not at the same as 8.5%. So our belief is that combined with the facilities that we have, the outstanding group of employees and the management team, the new alignment that we see with regard to the integration of our sales and operations, that we believe that we'll be able to maximize the company's potential with regard to taking advantage of any trends that might be out there. If the number of deaths continue to increase at a higher level, we're going to participate and we'll capture some market share as a result of that. And ultimately, the demographics, what I mentioned in my comment, during my comments, the demographics of the country are shaping up that I believe that this industry and our company in particular will probably realize some benefit as a result of the population aging.

James Clement - Sidoti & Company, LLC

The final kind of follow-up question here again about pre-need property sales and tightening your down payment standards and that kind of thing, I have never noticed at any point in time over the last decade that there's ever been a bad debt problem at Stewart Enterprises or any question whatsoever about the standards of your pre-need sales program. So as you looked internally at this, was there -- were there other factors that investors perhaps don't consider, like, for example, sales force commissions, compensation, that kind of thing, that would have caused you to increase the minimum of down payment threshold because as I said, we've never seen you hurt by having standards that are lower than perhaps they are today?

Lewis J. Derbes

Jamie, the decision to increase, it didn't have any impact on compensation or the commission structures. In fact, the structure has always been biased towards getting the largest amount of down payment possible from a counselor's perspective. That really did not have an impact. When you look at it overall, our bad debt has not presented a problem and is at a relatively favorable rate in terms of overall experience. Now as we strip that back and looked at individual facilities, there are some facilities that were more impacted by the 10% requirement, and some of those are in the 10 facilities that we're talking about and we're looking at those closely. Those are the same facilities where maybe on a composite basis, we did not have a problem with bad debt but there were some isolated in those levels that we thought if we get a higher quality sales, we don't want to be in a business of taking paper, writing a contract and then finding out that it doesn't turn out to be a valid contract. And all of our internal studies indicated that there was a pretty bright line associated where if you got more than 10% paid-in because of the refundability of a lot of the contracts, that contract was going to stick. And so that was really our focus. And we did get the added benefit if we get 10% down, it's going to be recognized as revenue today, but that's not the driver. The driver was making sure that we're using our counselors effectively and the contracts that we are writing and signing are contracts that will stick and be quality and good contracts for us in the future.

James Clement - Sidoti & Company, LLC

Okay. Again, and I just want to make sure that I prefaced this last question by saying like we've never seen a problem before in any of this.

Thomas M. Kitchen

And Jamie, that's absolutely true. There's never been any sort of hint of any issue with regard to bad debt at Stewart.

James Clement - Sidoti & Company, LLC

So this is really analytics in looking at a property-by-property basis on the part of senior management is what it sounds like.

Thomas M. Kitchen

That's correct.

Operator

You have no further questions at this time. I will now turn it back to Tom Kitchen for closing remarks.

Thomas M. Kitchen

Thank you, and thank you for joining us today. In summary, with our strong first quarter results, and with fully implemented changes in the organizational structure, we're very optimistic about the future and remain committed to our strategic plan. We continue to emphasize the need to provide exceptional customer service while investing in our people, facilities and technology to help grow our base business and effectively control our expenses and to see growth through opportunistic acquisitions. Throughout the remainder of the fiscal year, we will continue to use our cash wisely where we can get the highest and best long-term results for our shareholders. We're off to a superb start this fiscal year and look forward to further success and believe our actions are moving the company in the right direction. I'd like to thank you all of you for joining us today and we appreciate your interest and continued support in Stewart Enterprises. Thank you.

Operator

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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Source: Stewart Enterprises Management Discusses Q1 2013 Results - Earnings Call Transcript

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