Park Lawn Corporation (PRRWF) CEO Brad Green on Q2 2020 Results - Earnings Call Transcript

Aug. 14, 2020 1:40 PM ETPark Lawn Corporation (PRRWF), PLC:CA
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Park Lawn Corporation (OTCPK:PRRWF) Q2 2020 Earnings Conference Call August 14, 2020 9:30 AM ET

Company Participants

Jennifer Hay - General Counsel

Brad Green - Chief Executive Officer

Joe Leeder - Chief Financial Officer

Conference Call Participants

George Doumet - Scotiabank

Paul Bilenki - TD Securities

Scott Fromson - CIBC

Maggie MacDougall - Stifel

Zachary Evershed - National Bank Financial

Edward Friedman - CWB McLean & Partners

Operator

Thank you for standing by and welcome to the Park Lawn Corporation Second Quarter 2020 results. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Jennifer Hay, General Counsel. Please go ahead.

Jennifer Hay

Thank you, Cheryl. Good morning everybody. We would like to thank you for joining us today. Today's call is being recorded and a replay will be available after the call. 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.

During the call, we will reference non-IFRS financial measures. Although, we believe these measures provide useful supplemental information about our financial performance they're not recognized measures and do not have standardized meanings under IFRS. Please see our public filings for additional information regarding our non-IFRS financial measures including for reconciliations to the nearest IFRS measures.

I will now hand the call over to Park Lawn's CEO, Brad Green to open our discussion today.

Brad Green

Thank you, Jennifer and good morning to everyone. In addition to Jennifer, on the call today, we have our CFO, Joe Leeder.

I'm going to begin with a brief discussion of our business highlights in the quarter. Joe will follow with a more detailed review of our financial results. I'll then attempt to explain the impact of the pandemic on the second quarter, as well as what we might expect the impact to be on our operations for the remainder of the year. After our prepared remarks, we'll of course open it up to take your questions.

We had an exceptional quarter especially considering the challenging environment. Revenue of $85 million, adjusted EBITDA of $19.5 million and comparable growth in revenue at our businesses of 7.3% is a direct result of the hard work dedication and commitment of our Park Lawn team. As I said in our press release, we've grown together as a team and an organization and we've laid a strong foundation and we intend to continue to build on it.

In addition to our strong operating performance in the quarter in early July, we also managed to strengthen our balance sheet by completing an $86.3 million senior unsecured debenture financing. After using the proceeds to pay down our credit facility, our leverage ratio was reduced to approximately 1.5 times. Including our cash on hand the financing gives us approximately $175 million in liquidity to pursue acquisitions which is precisely what we are now doing.

With that brief introduction, I'll now -- I'd like to turn the call over to Joe to review our financial results in more detail. Joe?

Joe Leeder

Thanks, Brad and good morning everyone. First, you'll find a detailed breakdown of our second quarter operating results in our financial statements and MD&A which are available on our website and on SEDAR. My comments this morning will focus on the second quarter operating results. We are pleased to report that our total revenue for the three-month period ended June 30, 2020 was $84.7 million compared with $58.6 million in the same three-month period in 2019.

This represents an increase of $26.1 million or 44.6% over the same period last year. And after adjusting for the impact of currency fluctuations, revenue growth from comparable business units in the second quarter was 7.3% over the second quarter of 2019, unadjusted for currency fluctuations that growth would have been 9.1%.

The increase in revenue from comparable business operations during the quarter was the result of both our cemetery and our funeral businesses in the United States. The company's businesses located in markets such as New Jersey, Colorado and Michigan, experienced an overall increase in at-need services associated with COVID-19 cases. Our people in those markets made an exceptional personal effort to keep up with the demands brought on by the pandemic. They made personal sacrifices and we thank them for their commitment to service our families at their time of need.

At the same time, our pre-need cemetery revenue was down in the quarter, as many regions faced the stay-at-home legislation that limited our ability to meet the families and close sales. However, we saw an improvement later in the quarter, as many jurisdictions relax the guidelines and our counselors were able to meet with families under restricted circumstances.

In Canada, the company's cemetery business was not impacted to the same extent by the pandemic and we were able to maintain our pre-need sales activity during the quarter. Comparable funeral revenue in the U.S. market also increased during the quarter as a result of COVID-related services. Although, the number of services was higher, the effect of social distancing brought on by the pandemic resulted in a smaller memorial services which limited ancillary selling opportunities and negatively impacted the average revenue per call.

In Canada, our funeral business was similarly impacted although the number of services did not offset the decline in average revenue per call and revenue was down approximately 2% quarter-over-quarter. Our gross profit increased by approximately $21.4 million in 2020 and our gross profit margin improved to 81% from 80.6% last year.

With respect to expenses, the company's currency adjusted operating expenses including general and administrative, advertising and selling and maintenance expenses for comparable business units for June 2020 increased by approximately $3.9 million compared to last year. Our general and admin expenses for comparable business units increased by approximately $3.5 million.

Our field level general and admin expenses accounted for $1.3 million of this increase over the second quarter of 2019 and the increase in expenses at the field level relates to significant increase in the number of cases in the quarter, as well as increased people to support the growth in certain businesses post acquisition, as well as aligning expenses, such as employee benefits and health insurance costs for employees in acquired businesses with the company's overall benefit plans.

Advertising and selling costs increased also by approximately $400,000 as a result of higher revenue in the quarter. The balance of the quarter-over-quarter increase in general and admin expenses at the corporate level relates principally to expansion of our corporate infrastructure growth -- corporate infrastructure over the course of 2019 to support the company's growth. And you will see in our interest expense this quarter was higher as we utilized our credit facility to fund the acquisition of new businesses over the past year.

With respect to our other income and expense items, on a net basis, we reported income for the quarter of $144,000, including the following items. We had an additional $240,000 in costs relating to the work of the special committee that were not captured at the end of Q1 of this year. We also had approximately $570,000 in restructuring costs in the quarter comprised primarily of severance-related expenses we incurred in early April in response to managing the pandemic risk.

And finally, in Q1, I mentioned that we had qualified in March for a recovery of certain wage expenses in Canada under the CEWS program. During the quarter, we received approximately $1 million in wage subsidies which we recorded as other income. I should say that at this time we don't expect to qualify for any future payments under the extended CEWS program.

Also in the United States, we participated in the CARES Act program established by the federal government, and to-date this has resulted in a deferral of certain payroll withholding taxes of approximately $1 million. These deferrals have no impact on our reported earnings as they are simply a cash deferral and will be repaid over two years commencing 2021.

Our effective income tax rate in this quarter was 32.9%, which is higher than our statutory tax rates in both Canada and the U.S., which are approximately 26%. And the higher effective tax rate is the result of certain permanent timing -- permanent differences, such as non-deductible share-based compensation expenses and certain tax-free dividends that we received in Canada out of our trust funds. We would expect that there would continue to be a difference in effective tax rates as long as these permanent differences exist.

So as a result of the above, I'm pleased to report that our quarterly earnings were up significantly over the same period in 2019. Our net earnings to PLC shareholders in the second quarter was $6.6 million, or $0.223 per share, compared to $1.6 million, or $0.049 per share last year. And our adjusted net earnings for our shareholders in the second quarter of this year was $8.8 million or $0.295 per share, compared with $5.7 million or $0.19 per share in the second quarter last year. This represents an increase of 55% in our adjusted earnings and our adjusted earnings per share.

Similarly our adjusted EBITDA for our shareholders in the current quarter was $19.5 million, or $0.654 per share compared with $13 million or $0.438 per share last year. Again, this represents an increase in adjusted EBITDA and adjusted EBITDA per share of 49% over the same period in 2019. That significant double-digit growth in per share earnings metrics from 2019 to 2020 reflects the impact of having all of our businesses included in our operating results for the full quarter and it reflects the fact that we have utilized the cash raised last year in our common share financing or using our credit facility to fund our growth. The combination of those factors has resulted in the significant year-over-year growth in per share earnings.

So let me now say a few words about our balance sheet. We ended the second quarter with borrowings of $215 million under our revolving credit facility. Cash on hand at the end of the quarter had increased to $34.3 million leaving us with net debt of $180.8 million. In addition to that debt, we had another $15.2 million in debt that includes notes payable to former business owners that we acquired. And these are held largely as security against non-compete agreements. We had a small mortgage loan and financing provided for -- to fund our insurance premiums, in the quarter. That totaled $15.2 million, altogether.

And as you know we have two covenant tests associated with our revolving credit facility. These two tests are leverage ratio, which compares total debt to trailing pro forma adjusted EBITDA and this must be less than four times. And we have an interest coverage test which compares interest expense to the same adjusted pro forma EBITDA and must be greater than three times.

We were in compliance with both of these tests at the end of the quarter, with our leverage ratio being 2.7 times -- 2.79 times and our interest coverage ratio 10.2 times. In late June, the market provided us with an opportunity to raise additional capital in the form of senior unsecured debentures. And in mid-July we closed a bought deal financing of $86.3 million, netting the company approximately $83 million.

After using this cash to pay down our credit facility, we reduced our leverage ratio to 1.5 times and increased our liquidity to approximately $175 million. While we were comfortable with our financial position going into the pandemic, we believe this debenture financing provides us with the financial flexibility to support our operations through the uncertainties ahead. And also gives us the dry powder to take advantage of any acquisition opportunities that may come our way, in the coming months.

Although, the senior unsecured debentures do not count towards our covenant calculations on our bank facility, we recognize that this is debt. However, the term of the debenture is 5.5 years. We have only a few small debt repayments in the foreseeable future. And so we are very comfortable with our ability to service our debt requirements.

Turning to our various trust funds, market volatility in March put pressure on, the market value of our perpetual care and merchandise trust fund balances. Our perpetual care trust had unrealized losses of approximately $19.6 million, representing a 9.2% decline from book value, at March 31st. And our pre-need merchandise services trust funds also had unrealized losses of $2.9 million, representing a 1.4% decline from book value, at that date.

At June 30th, the capital markets had improved substantially, such that our perpetual trust fund balances had a net unrealized gain of $2.4 million, representing a 1.1% gain from book value. And our pre-need merchandise and services trust funds, had an unrealized gain of $11.1 million or a 4.2% unrealized gain, over book value.

I would also point out, that our pre-need merchandise and services book of business is supported by approximately $375 million of insurance contracts that have predetermined payout value. And this helps limit our exposure to market volatility, within those trusts. So as you know, we have a pipeline of future, revenue that currently sits on our balance sheet in the form of deferred revenue, amounts in our pre-need merchandise trust funds and our pre-need insurance contracts.

And at June 30th, the backlog from this future revenue, currently sits at approximately $832 million, representing a significant source of future revenue for the company. And finally, you will recall, that back in March, as part of our COVID contingency planning we took precautionary steps to curtail some of our planned, expansion and maintenance capital expenditure programs, until we had a better visibility on the economic impact of this pandemic.

Since then, we announced that we were moving forward with certain of those planned expenditures, including the visitation center, at Westminster Cemetery. So during the second quarter of 2020, we spent approximately $2.8 million, on growth-related capital expenditure projects, such as that, new on-site funeral home in Toronto, a new on-site funeral home in Houston, and a new sales office at Eternal Sunset cemetery, in New Jersey to support our pre-need sales programs, at that site.

Also during the quarter, we spent an additional $1 million on expanding inventory at various cemetery properties, in the United States. And the cemetery expansion expenditures include amounts that would be spent on, mausoleum development and additional burial spaces, at those U.S. properties.

Our maintenance capital expenditures at existing properties in the quarter were -- those expenditures totaled $1.6 million. And on an annual basis, our capital maintenance expenditures are planned to be at or below, our annual depreciation expense. And we're tracking to below that.

I will now turn the call back to Brad, for some additional comments.

Brad Green

Thanks, Joe. When we last spoke in mid-May, which by the way seems like the far distant past during a pandemic, there was still some significant uncertainty as to the impact of COVID-19 in our company. Fortunately things are more, clear today. And even though some uncertainty remains, we feel like we're in a position to effectively address any challenges presented, by operating in this current COVID environment.

All of our businesses, including our support offices have remained open to serve our families. And now back to that conversation in May, I mentioned several factors that we believe could impact our business and those factors did in fact continue to tell the story of the rest of the quarter.

First, we saw a drop in cemetery pre-need sales. Then we saw a stabilization, and then we saw a very strong recovery, which we're still experiencing. Our sales staff's ability to adapt and leverage technology along with the pandemic being a trigger event to get the conversation on pre-need started led to the strong recovery in cemetery pre-need property sales. By strong recovery, I mean, that the pre-need sales almost fully recovered to be equal quarter-over-quarter by the end of June.

Second, we saw a decrease in the average funeral sale which remained a constant through the quarter mainly due to size of service restrictions imposed by regulatory mandates. Again, this decrease was mitigated by our team members' ability to adapt and leverage technology such as webcasting at funeral services.

As a side note, we had many families that chose to defer services for a later date and we're announcing those families followed through with scheduling those services. So, some of this revenue will be recouped in the next two quarters or so.

The third factor I mentioned in mid-May was that, we were seeing significant increase in our at-need volume in our New Jersey Colorado and Michigan businesses or so-called hotspots in the U.S. As the quarter progressed, however, there were other markets that saw an increase in at-need services that may or may not have been related to COVID-19.

This increase in volume occurred in both the funeral and cemetery side of our businesses. Interestingly, the cemetery at-need average actually increased to the point that, it basically offset the decrease in the average funeral sale. So to recap what this means, our average per event, remained effectively unchanged when combined, but we had a significant increase in volume, which translates to our strong quarterly results.

Now to the two questions that everyone has on their minds is this level of performance sustainable? And if not, what amount of this performance can be related to COVID? And my answer to that would be, it depends on the definition of performance. We can obviously operationally perform in this environment and we would expect to continue to execute at a high level.

Bluntly, we expect good results from our businesses, and we work hard on making that happen. However, it's obvious that, the pandemic had an impact on our volume. So some of what you're seeing in these numbers is the direct result of that hard work on integration, as well as increasing our market share in many of our businesses, but some of it is based on the sheer at-need volume in our funeral homes and cemeteries, due to COVID or COVID-related deaths.

So while I cannot quantify, how much of our exceptional performance was due to COVID, it's my personal opinion that we would have exceeded most expectations even in a COVID-free environment.

In closing, these results exist only because of the hard work, dedication and commitment of our employees. You've heard this from me before, but we expect that from them. It's what they do, and they do it better than all others. We remain focused on keeping each of these people safe by quickly adapting to and adopting appropriate health and safety requirements, as the landscape continues to change. It is obvious that by necessities our employees cannot work from home. To the contrary, many of them have worked tirelessly and at times heroically on the front lines during this pandemic. I am extremely proud to be a part of this team and this operating company.

I will now turn it over to the operator, and Joe and I will take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from George Doumet from Scotiabank. Please go ahead. Your line is open.

George Doumet

Yeah. Good morning, gentlemen and congrats on a solid quarter.

Brad Green

Good morning, George. Thank you.

George Doumet

Brad, you called out the pre-need cemetery revenues being flat, I guess, exiting the quarter. Can you maybe give us an update on where that's trending today I guess at some point in August? And is that enough to offset presumable maybe normalization of the at-need business?

Brad Green

So as I said through June, we saw an uptick in the pre-need cemetery sales and we've seen that continue, as we're going into this quarter. I think what you can point to on that is the fairly obvious triggering event of the pandemic. The hard part of selling pre-need cemetery sales is to get people to start talking about it and the fact that they need it. And since, we're facing the largest pandemic that's been – that anyone has ever seen in their lifetime, getting the conversation started on pre-need, gets a lot easier with a triggering event like this. So, we've seen it recover and I think it's going to continue to perform well, as long as we're dealing with a pandemic.

George Doumet

Okay. And can you comment on your – on the at-need business maybe? Is that coming off a little bit, or is that kind of maintaining pretty high levels so far?

Brad Green

Yeah. So when you have places like New Jersey and Michigan at the beginning of the pandemic, and in the Northeast, I mean, we all saw it, because we're all watching the television those were hot spots and there was a significant increase in at-need business there. As that started to normalize, and it did we saw other markets starting to see an increase.

Right now, it depends on what you're looking at across the company. But about half of our firms are showing an increase of about, I would say, larger than normal and about half or the same. And it's kind of following, where these COVID and COVID-related deaths are throughout the country. So it's still – we're still seeing at-need volumes responding to what's going on in COVID but it's not nearly what it was in the hot spot areas.

George Doumet

Okay. Understood. And last quarter there was some pressure on revenue per call. It seems like that's continuing. Is there anything we can do to address that, or is that just a question of restrictions easing and just more folks showing up to funerals?

Brad Green

Yeah. So, we're -- George, we're laser-focused on that, right? Because that's something that will impact what we do and how we perform. And as best we can tell that is related to -- directly related to the stay-at-home orders in places where it's been locked down. I'm not saying it's jumping back up. But in places like the Northeast where we saw a significant drop, the moment those restrictions started to ease, you started to see an increase in those at-need averages.

So you can't predict how this is going to ultimately impact the consumer, but people tend to get back to the norm. It's a very stable industry. And I would think that the size restrictions on the services, as they are continually relaxed, you're going to see a -- that at-need average return to normal. And we are -- like I said, we're laser-focused on that. So, we're going to do everything we can to make sure it pause-back as quick as we can.

George Doumet

Okay. Just one last one for me, Brad. On the current geographies, specifically where we operate today, are there any ones that you feel would be prime to add scale to either on the cemetery or on the funeral side?

Brad Green

You mean as far as acquisitions are concerned?

George Doumet

Yes.

Brad Green

Well, I would say -- I would look at anything that would add size or volume in any of the businesses where -- or any of the locations where we have a large footprint always makes sense. But Colorado, South Carolina, North Carolina, Mississippi to Sunbelt, I mean that's definitely places that we would like to continue to see growth, because of the averages and the mix between cremation and traditional funeral services. But we look at -- if we have a big footprint and someone wants to join our company, we'll look at that in any market.

George Doumet

Okay. Thanks for your answers. Good luck.

Brad Green

Thank you, sir.

Operator

Thank you. Our next question comes from Paul Bilenki from TD Securities. Your line is open.

Paul Bilenki

Good morning, and congrats on a very strong quarter here in a difficult environment.

Brad Green

Good morning, Paul. Thank you.

Joe Leeder

Thanks, Paul.

Paul Bilenki

So, yes, I guess just a follow-up on George's M&A questioning there. Are you primarily now engaging with targets from sort of the pre-COVID environment, where you put discussions on hold, or are you sort of seeing new opportunities arise as well coming out here?

Brad Green

So the answer to that question is both. I mean we obviously went back -- there were acquisition targets that we put -- that we specifically put on hold in March. And there were assurances made and we're backing those up. So you obviously go to those people. I've seen -- or we have seen an uptick from the brokers. They're bringing new businesses to us, and we're starting to get phone calls that we hadn't -- that were new businesses.

The frequency of phone calls to people that want to join our company are probably a lot higher than you would think, and we say no a lot. But, there were no phone calls coming in during the pandemic Paul, and now those are starting again. So the answer is we're back on the acquisition trail with the ones that we were looking at pre-pandemic. And as new ones come in the door, we're looking at those as well.

Paul Bilenki

Great. And we've heard one of your competitors say that the higher at-need business is actually helping drive a lot of pre-need sales as the death can lead to a family member making a pre-need purchase. To what extent have you seen this taking place or if it's an opportunity at all?

Brad Green

I would agree with that. And you're probably referring to what Tom Ryan said during the SCI phone call and I would agree with his assessment of that. When people are walking in to -- when they're -- when you have people that are coming into either our funeral home or a cemetery on an at-need basis, I mean they're obviously -- they're there, and it makes it a lot easier to talk about pre-need and you'll get pre-need sales out of that and that's what our people do. So, I agree with that assessment completely.

Paul Bilenki

And maybe one more for me. Now that you've resumed your organic growth projects, what is the current time line for the Westminster onsite?

Brad Green

I think we're looking at -- we slowed it down and now we're kind of speeding it up again. And I think it would be safe to say at the end of the first quarter 2021 on Westminster, but we would like to see that move a little quicker. But a little bit of that is based on our limitations in Canada as well. I mean you guys are just now getting back. You know that, as well as I do. So, I would say first quarter 2021.

Paul Bilenki

Okay. And then, reaching sort of optimal activity levels over about two years or so is that still the expectation?

Brad Green

That would be our expectation. We can bring up an acquisition a lot faster than we can a new build. So, I think two years is a fair assessment.

Paul Bilenki

Okay, great. I’ll turn it over there.

Brad Green

Thank you.

Paul Bilenki

You’re welcome.

Operator

Thank you. Our next question comes from Scott Fromson from CIBC. Your line is open.

Scott Fromson

Thank you, and good morning, folks. A few questions. Can you discuss these good results in the context of SCI's Q2? So they reported just under 2% cemetery revenue growth flat funeral home revenues on a 15%, call increase offset by 8% lower average ticket value. Is this a function of your better markets, both regional and micro market better services, better sales programs more wealthy clientele?

Brad Green

So yes, that's a tough question, right? But I would back up and say it this way. We're a lot smaller than SCI is. And I would not ever presume to say that we're doing something necessarily better than that management team is over there, because they're running a $7 billion company. So I can't really speak to what happens in their current environment or what happens in their company. We have a -- we're smaller. We're in more nimble markets I think. We have bluntly less things to worry about because we can -- we're more nimble and can pivot more quickly. So I really would just say that our results are different because we have a lot fewer businesses and I would say that the businesses that we do have are very strong. Most of them have come in through acquisitions. Most of them have been touched by this management team.

So it's hard to compare in my mind actual performance to performance between the two companies. It's a lot easier to compare what we all see. And I think Paul mentioned it in his earlier questions. When he makes a comment that Tom Ryan is seeing this happen between cemetery and funeral homes, I think we can compare that because we see a lot of the similar things. But how the actual performance I can't compare one to the other. They're two drastically different businesses in my mind.

Scott Fromson

So do you see COVID impacting the kind of owners that you're going to buy? And does it put you guys at more of an advantage to SCI?

Brad Green

So I'll answer that this way. I think that there are owners that -- and I'm starting to see this and this was a challenge to operate a death care company in a pandemic. This executive team and management team, I think they would all tell you that it's probably the hardest and longest they've worked ever in their careers because of what we had to deal with and the speed at which it came at us. And we have a big support structure here to do that, because bluntly we all have each other. If you're that single funeral home owner or own a couple of them that puts you on an island. I mean, sure you have people that you can rely on, but I can only imagine the difficulty of going through that. And so we're seeing some people already that were going to be -- that saw that they were going to look for an exit strategy in three to five years start thinking about that now. So that's -- that would be my answer to what we're seeing is whether or not owners will come forward.

As far as us having an advantage over SCI, we're going to constantly come into contact with them on large acquisitions. They're going to be successful on some and we're going to be successful on some. And I think that there are two different things that the owners can look at. And to dovetail back to your first question, we're different companies. We'll point that out and they'll have some owners that will want to join them and some owners that will want to join us. But we will have plenty of acquisitions to do as a company. The limitation will not be on good acquisitions to purchase. The limitation will be on in my mind the ability to operate them correctly because we're not going to grow, if we cannot operate them well. That's not what we do. And the second limitation would be access to capital and that doesn't appear to be a problem right now either. So I think we'll -- when we want to grow by acquisition, we'll grow by acquisition.

Scott Fromson

That's very helpful. And final question, you did much better on operating expenses than we were forecasting. So I have a question I guess in two parts. Are there regions that particularly contributed to lower expenses? And is this sustainable, or are there any lines on the income statement that you'd say were lower than that run rate?

Brad Green

So I would -- the operating expenses that you saw in the quarter were lower in some respect because going into this, we anticipated the worst and we prepared for it. So you saw us pull some of the expenses down and really get things tight. As the volume increased in areas or -- more than what we thought, we obviously had some areas that had actually an increase in operating expenses because of just the sheer volume that was coming through. We are integrating these companies as a result of doing the integration. You're going to see costs come down. I mean, hopefully -- I know we've mentioned that over the last three phone calls. And as we keep repeating things and they come to fruition, hopefully we'll continue to gain credibility with our investors. But we're seeing some of those costs come down because of what we said was going to happen. We put cost in Houston and we're integrating the businesses.

I think we've learned a lot through this pandemic and so some of the cost savings that we have seen and some of the things that we cut, we might realize we don't need anymore or didn't need at the level that we needed it in the past. So I think you're going to see our costs continue to go down for two reasons. One we're still integrating like we said and that's been done very successful; and two we learned enough to keep -- that we're going to keep the cost down. But we're not going to cut it so much so that we stress our employees. And we saw that in some areas. I mean, there was fatigue in dealing with COVID and so we went in and quickly shored that up and that increased cost. So to summarize, yes, I think you'll see the costs remain either low or continue trending down.

Scott Fromson

Well that’s a great answer. Thanks Brad. I'll leave it there.

Brad Green

Thank you, sir.

Operator

Thank you. Our next question comes from Maggie MacDougall from Stifel. Please go ahead. Your line is open.

Maggie MacDougall

Good morning.

Brad Green

Good morning, Maggie.

Maggie MacDougall

So just a housekeeping question perhaps for Joe. In your comments it sounded like the CEWS government subsidy was below the EBITDA line. Can you just confirm if that's the case?

Joe Leeder

Yes. That was in -- yes, below the line other income line on the financial statement so it's not part of the $19.5 million adjusted EBITDA we reported.

Maggie MacDougall

Okay. And then sort of pulling on the same thread that you just left off on. I'm wondering that considering the unusual circumstances that we remain in a pandemic and the status of integration, which you've just described Brad, if it's reasonable to expect progress on margin growth this year or if that's something that we should be thinking of more in 2021 and beyond as you march towards that 26% target.

Brad Green

So that target is again something that we're focused on for the obvious reason that it's one of our targets that we've got published out there. If you -- our margin was basically unchanged from last quarter to this quarter. And given everything that's going on, I think that that was actually -- I viewed it as a very good development.

The margin is an everyday focus by our operating team. And so the short answer to your question is, I would expect to continue to see margin improvement as we move towards that goal. It is one of the things that we're attempting to do.

Maggie MacDougall

And then on some of the comments you made in the MD&A and your comments on the call here where you discussed that some of your competitors had difficulties operating through COVID and that may have resulted in some market share gains to you, do you think that that is sort of something that you keep in terms of the market share gain, or is it a circumstance of once the competitor figures out how to operate the customer may end up going back?

Brad Green

So by competitors when we're talking about that I just want to be clear, we're not talking about the large publicly traded company. They were clearly operating and remained open during this period of time. What I'm referring to is kind of your small medium even large independent operators. We saw some people at the beginning close their doors. I mean, that's a very interesting approach to take.

So when I'm talking about market share, that's where that came from. As a general rule, if you get it, it's hard to lose it, because it's hard to get it back to begin with. It's hard to take market share in this industry.

Maggie MacDougall

Yeah.

Brad Green

But when you get it, it tends to come back and people remember that you had your doors open. So -- and I can think of the specific -- the specific markets where we saw that in businesses, we saw that market share growth and we would expect to keep that.

Maggie MacDougall

Okay. Okay. Very helpful. Thank you.

Brad Green

Thank you, Maggie.

Joe Leeder

Thanks, Maggie.

Operator

Thank you. Our next question comes from Zachary Evershed from National Bank Financial. Your line is open.

Zachary Evershed

Thank you. Good morning guys. Congrats on the quarter.

Brad Green

Good morning, Zach

Joe Leeder

Good morning, Zach

Zachary Evershed

I was hoping for some more color on the family contact tracking. Is it something that the company was already doing that delivered good results, because of the triggering effect, or is this a new source of leads that should boost organic growth going forward?

Brad Green

It was something that we already were doing through our CRM system. And now I will -- the honest answer to that is was it much more of a focus? Yes, we definitely started focusing on it more, but it was there to begin with. It will be part of our larger system that we've been building for 1.5 years now. So we'll be able to improve on that. And given the success that we had on tracking or the focus on tracking, I can assure you that Jay Dodds will continue that focus as we go forward.

So, yes, it was there. We executed I think better on it. And since the results were what they are, I would think that focus will remain one of ours going forward.

Zachary Evershed

That's great color. Thanks. And just to touch on the subject again based on the backlog you guys built during the more difficult times to operate. How long do you think you can continue leveraging that into Q3 and Q4?

Brad Green

Well, I don't know that I can answer that. That would be a guess act right, I mean, because I don't know how big it is, and I don't know when it's coming. It's kind of like a pull-forward question. I just -- I can't know that.

It certainly feels like that I would expect it to continue because it's there. People can talk about COVID and COVID-related deaths constantly. We see it. I mean it exists in the market. There is something happening in addition to COVID. And so one would expect in a current environment that that's going to continue for some time. But if I try to put a time on it, it's not something I could back up later if you said I said it and I don't like doing that. So I can't guess to that.

Zachary Evershed

That's great. Thanks. One more for me, a little bit more out there. In the U.K. the CMA just announced some provisional conclusions to its investigation of the funeral markets there. Some of the language included increased price disclosure, regulation and price controls. I think in North America we're pretty comfortable with the price disclosure piece, but I was wondering if you could give us your thoughts on the risk of greater regulation or price controls in North America?

Brad Green

We don't -- we're not concerned about that at all. Jay is President of the ICCFA which is one of the two large organizations in our industry and he's been an advocate for putting prices online and on the website for a while. I think that -- I mean we don't have any problem with that as an organization. And I don't see anything effect -- certainly when it comes to price controls, I don't think that would exist in our -- in the United States anyway and I don't think it would exist in Canada. I think Europe has a different problem and they're dealing with that now. So I don't see any concern on that. I haven't seen anybody else raise a concern on that. So I would say zero right now.

Zachary Evershed

Really appreciate. I will turn it over.

Operator

Our next question comes from Edward Friedman from CWB McLean & Partners. Please go ahead. Your line is open.

Edward Friedman

Hello. And thank you for taking my question. Congratulations on great results. Just I wonder if you can share your plans on how you view the path to see your returns like ROE or return on capital increase over time with -- including with the acquisition that you're planning to make in the near future?

Brad Green

Joe, I'll let you take that one.

Joe Leeder

Yes. Well I think you could see Edward in the current quarter as we used our credit facility and we put our cash to use, you can see the increase in our earnings per share and our return on capital. And I would say going forward as we continue to grow and we continue to use our balance sheet more effectively and not have sort of the large dilution that we had in prior fundraisings that we would be able to continue to improve our return on capital and grow our per share earnings. Not 50% in this quarter like we did this quarter, but we would continue to do that as we use our balance sheet effectively.

Edward Friedman

Okay. Thank you.

Joe Leeder

Okay.

Operator

Thank you. And our next question comes from George Doumet from Scotiabank. Your line is open.

George Doumet

Yes. Hi, guys. Just a quick follow-up for me. The 9.1% organic growth that we saw in the quarter is that homogeneous across the portfolio, or are there any properties that you guys want to call out that really kind of jumped at you in terms of performance?

Brad Green

I think -- no, I think it was pretty consistent. I mean there are some places that we've already mentioned that were a result of the COVID-related like real hotspots. And you wouldn't expect -- no I wouldn't point to anything in particular. I think it's across the company. And at the moment, I point something out someone else will have a better quarter. And the one I'd point out will slide back a little bit, but you need to look at it across the board and over time.

George Doumet

Okay. Thanks.

Operator

Thank you. And that concludes the questions in our queue at this time. I'll turn the call back to Brad Green for closing remarks.

End of Q&A

Brad Green

I really appreciate everyone joining the call this morning. As I said earlier, we believe the quarter to be exceptional. And I'll just say thank you one more time to our team members who go out all day, everyday and perform a job that a lot of people could not perform. So thanks again and I really appreciate everyone supporting our company and joining the call. Thank you.

Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.

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