© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Park Lawn Corporation's First Quarter 2020 Results Conference's Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Hay, General Counsel. Please go ahead, ma'am.
Thank you, Jacqueline. Good morning, everybody, and thank you for joining us on today's call. Today's call is being recorded, and a replay will be available after the call is completed. 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 are 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 Interim CEO and President, Brad Green, to open our discussion today.
Thanks, Jennifer, and good morning, everyone. In addition to Jennifer, with me on the call is our Chief Financial Officer, Joe Leeder. I'm going to begin the discussion today by going over our Q1 business highlights. Joe will follow that up with a more detailed review of the financial results and outlook. And I'll then switch our conversation over to our response to the COVID-19 virus and its anticipated effect on the second quarter. After our prepared remarks, we'll, of course, take your questions. As you guys saw from the press release yesterday, we had a solid first quarter, especially considering the challenges that started to emerge the last couple of weeks in March due to the virus. Revenue of $74 million, adjusted EBITDA of $17.1 million and an adjusted EBITDA margin of 23.3% were a direct result of our intense focus on our operations and continued integration of our businesses. We continue this operational focus into Q2, along with some temporary financial measures to make sure that the company emerges from this global pandemic well positioned for the continued growth that they're used to. While it feels like a long time away -- a long time ago, it cannot be forgotten that we've added a significant business on January 31 to our portfolio of companies when Family Legacy and Harpeth Hills joined the company. Both of those businesses are located in the Greater Nashville market and have a long history of shared management. These acquisitions added 4 on-site operations or combos as they're known in the U.S., sub stand-alone funeral homes and 2 stand-alone cemeteries. Since they joined Park Lawn, their community is dealt not only with a pandemic, but as many of you probably remember, there were some deadly tornadoes about a week or 2 before the shelter in place started for everyone else. Despite this, their strong leadership at these businesses with the continued support of the former owner, Bill Gregory, has kept our integration efforts in line with our expectations. I'd now like to turn the call over to Joe to review our first quarter financial results in more detail. Joe?
Thanks, Brad, and good morning, everyone. You'll find a detailed breakdown of our first quarter operating results in our financial statements and MDA, which are available on our website and on SEDAR. As Brad said, our total revenue for the 3-month period ended March 31, 2020, was $74 million, compared with $50.2 million in the same quarter in 2019. And this represents an increase of $23.4 million or 47.5% over the same period in 2019. After adjusting for the impact of foreign exchange, revenue growth from comparable business units in Q1 2020 was 3.2% over the same period last year. This revenue growth in the quarter was primarily attributable to our cemetery operations in the U.S. We experienced strong pre-need property sales across several regions, along with some large bulk sales in the New Jersey market. Some of our cemetery properties in markets that were impacted more significantly from COVID, such as properties in New Jersey and in the Detroit area, our year-over-year pre-need sales were negatively impacted. And in the Canadian market, we were again impacted by COVID in the month of March and ended the quarter marginally down in cemetery revenue year-over-year. Our revenue from comparable funeral homes quarter-over-quarter was up in the U.S., but a little lower in Canada. In both markets, the trend was similar, and that call volumes were up, but at a slightly lower average revenue per call. We attribute the lower revenue per call to smaller gatherings due to social distancing from March forward -- from March 1 forward. Our gross profit increased approximately $20 million, and our gross profit margin increased slightly from 80% to 82% from 81.4%. Our overall operating expenses for Q1 increased to approximately $52.8 million from $34.6 million last year. This overall increase of $19 million is again primarily related to the inclusion of our acquired businesses. If we look specifically at general admin, maintenance and selling expenses from comparable business operations and adjusted for foreign currency, there was a net increase in these expenses of approximately $2.8 million in the current quarter compared to last year. Our field level, general and admin expenses contributed about $600,000 of this increase. These expenses relate to increased people to support our growth initiatives in local markets as well as costs relating to the integration of payroll benefits, health benefit plans as we integrate the businesses and rationalize our payroll and benefit plans across the country. The balance of the year-over-year increase is approximately $2.2 million relates to the expansion of our corporate infrastructure to support the company's growth. And these investments in our corporate infrastructure were made throughout 2019. You may recall that last quarter, we mentioned that this investment in our corporate infrastructure in 2019 was having a short-term drag on profit margins as we invested ahead of adding new businesses and taking costs out of the field. With our enhanced corporate infrastructure, we were able to absorb the acquisition of our new Tennessee businesses without additional corporate expenses, and this, along with better performance from previous acquisitions, contributed towards the improvement in our adjusted EBITDA profit margin to 23.3% this quarter versus 19.5% in the fourth quarter of 2019, and we were pleased to see this margin improvement materialize this quarter. Interest expense in the quarter was higher as we used our credit facility to acquire new businesses. We also had increased amortization expense for intangible assets and higher noncash compensation expense relating to the issuance of the awards under our employee incentive plans during the year. Our acquisition growth has been a significant contributor to our overall growth in our business. In 2019, we spent approximately $180 million to acquire 6 businesses, including a segment of Journey Group, Horan, Baue and Cress. And then again, in the first quarter of 2020, we spent roughly 1/3 of that amount to acquire Family Legacy and Harpeth Hills businesses in Tennessee. Within the industry, all of these are considered to be marquee businesses, and most are considered to be material acquisitions to Park Lawn. This has resulted in an additional $3.5 million of acquisition integration costs in the first quarter and these acquisition integration expenses include amounts we spent for legal, financial, tax, due diligence, post-closing audit work and valuation work, independent valuation work to support our purchase price allocations and regulatory reports and compliance where appropriate and necessary. Our net expense during the quarter relates to additional expenses incurred in connection with the establishment of a special committee of the Board, which was formed to assess leadership, governance and succession planning matters. And these matters are fully explained in our financial statements and in the MD&A and amounted to approximately $3 million. You'll notice that our effective tax rate for the quarter was higher at 44.1%, this is because of an increase in the quarter of certain permanent timing differences, such as share-based compensation expenses. These are not reflective of what we would expect going forward. We would expect that we would revert back to our sort of more historical effective tax rates, which are largely in line with Canadian and U.S. statutory rates of approximately 26%. So as a result of the above, our net earnings attributable to our PLC shareholders was $734,000 or $0.025 per share in Q1 of 2020, compared to $3.4 million or $0.14 per share in 2019. And as you know, we report 2 non-IFRS earnings measures in our financial statements and MD&A. The purpose of these non-IFRS measures is to adjust for the after-tax impact of certain nonoperating and nonrecurring or noncash-related expenses. And so after making adjustments for these items, our net earnings attributable to PLC shareholders this year -- this quarter was $7.6 million or $0.26 per share, compared to $5.3 million or $0.23 per share last year. This represents an increase of 43% in adjusted earnings and 13% in our adjusted per share earnings. Our adjusted EBITDA for PLC shareholders in the current quarter was $17.1 million or $0.58 per share, compared to $11.7 million or $0.50 per share last year. Again, this represents a 46% increase in our adjusted EBITDA and a 16% increase in the adjusted EBITDA per share for the same period in 2019. And a few words about our balance sheet. We ended the first quarter with approximately $217 million outstanding under our revolving credit facility, compared with $174 million at December 31, 2019. The increase in the facility was principally related to the acquisition of Family Legacy during the quarter. Cash on hand at the end of the quarter increased to $27.9 million resulting in net debt of $189 million after adjusting for this cash. In addition, we had another $11.3 million in other debt that is primarily includes notes payable to former owners of businesses we've acquired that are held largely as security against noncompete agreements and a small amount of a mortgage loan. We have 2 covenant tests associated with our revolving credit facility. These 2 tests our leverage ratio, which compares our total debt to trailing pro forma adjusted EBITDA, and it must be less than 3.5:1. An interest coverage test, which compares the interest expense to this same adjusted pro forma EBITDA and must be greater than 3:1x, excuse me. We are in compliance with both of these tests at the end of the quarter with our leverage ratio being 2.8x and our interest coverage at 10.7x. And as we announced yesterday, in late March, we requested that our lending syndicate make a couple of temporary changes to the terms of our credit facility, namely, an expansion of our leverage ratio from 3.5x to 4.4x to 4x for a period of 12 months to March 31, 2021, and reducing over the following 6 months back to 3.5x by September 30, 2021. We also requested a $25 million increase in our committed credit facility for a 1-year period. These changes were requested on the abundance of caution and will provide the company with greater flexibility and increased liquidity as we move through uncertain economic times in the coming months. We are pleased that our lenders were supportive and approved our requests on May 8, and we thank them for their support as we grow our business. Also, a pipeline of future revenue currently sits on our balance sheet in the form of deferred revenue, cash in our pre-need trust and pre-need insurance contracts. And this backlog of future revenue currently sits at $833 million, representing a significant source of future revenue for the company. During the first quarter of 2020, we spent approximately $4.6 million on our growth-orientated capital expenditure projects includes $2.6 million on a new funeral -- on-site funeral home in Toronto and in Houston as well as a $2 million on expansion of cemetery inventory at various properties in the U.S. The cemetery expansion expenditures include amounts spent on additional mausoleum product and additional burial spaces throughout the U.S. Our maintenance capital expenditures for Q1 were approximately $1.2 million, which is well below our depreciation expense during the quarter, and we try and keep our maintenance capital expenditures below that amount. And as part of our COVID contingency planning, we took steps to curtail some of our planned expansion and maintenance capital expenditure programs in the coming months. Some of these expenditures are being deferred or in other cases, the programs are being slowed until we have a better visibility on the economic impact to our business. We think this is a prudent way to manage these capital expenditure programs. With respect to various trust funds, market volatility in March put pressure on the market value of our perpetual care and merchandise trust balances. Our perpetual care trust funds had unrealized losses of approximately $19.6 million, representing a 9.2% decline from book value as at March 31. And with respect to our pre-need merchandise and service trust funds, we had unrealized losses of $2.9 million, representing a decline of approximately 1.4% from book value at March 31. This overall decline in market value within the merchandise trust funds is somewhat muted because of the higher cash and cash equivalents GIC investments included in that portfolio. And then as I previously had noted, our pre-need book of business is supported by about $388 million of insurance contracts that have predetermined payout values. And so this also helps us limit exposure to our market volatility within these trusts. I will now turn the call back to Brad for some closing remarks.
Thank you, Joe. While the challenges resulted from the COVID-19 pandemic are certainly unique, our employees and by the extension of that our businesses are adjusting to the new normal. As you know, all of our businesses have remained open to serve our families. The same applies to our support office here in Houston. We were fortunate in Houston that given that our business is essential, we could keep this office open. Out of an abundance of caution, we ask most of our support office employees to work from home for several weeks. However, all of our executive leadership team continue to work from the office so that we could jointly navigate the ever-changing environment with our field operators. That's basically a fancy way of saying we could sit in a war room and be on the same video conference call with the folks out in the field. To our leadership team, it seemed disingenuous to expect our employees to work not only in funeral homes and cemeteries but also in hospitals, hospices and nursing homes, while we wish them well from our homes. Said another way, I can guarantee you that the strong, successful independent owners that we often talk about, either because we compete against them, we want to acquire them or we like to operate like them. Those owners did not work from home during the high of the crisis. Fortunately, we've been able to bring back our full team as of Monday, May 4. So it's business as usual for the support office, aside from mask, social distancing, constant cleaning, the things we've all become accustomed to. This is how we show support for our employees in the field. None of us can predict the severity or the duration of the impact of COVID-19, but we do recognize it's going to have a financial impact in the coming weeks and months. Having said that, the impact has been less significant than we anticipated, at least as of today. What we're seeing, a few things. There is definitely a decrease in the cemetery pre-need property sales. We saw a drop then a stabilization and now we're seeing a slight recovery. Our sales staff has adapted by the continued use of technology to communicate and interact with the customer, and our backlog of appointments continues to grow nicely. There has been a decrease in the average funeral sales size -- their sale due to size restriction imposed by regulatory mandates. That effectively means less people at funerals. This has been counteracted in part by our incredible employees using creative methods to help families mourn, such as webcasting, drive-up funeral services, neighborhood processions, things of that nature. We also have many families that are choosing to schedule services for a later date once the restrictions are lifted, which are, of course, being tracked and logged for execution. We did see a significant increase in our at-need volume in New Jersey, Colorado and the Michigan businesses for the obvious reasons that those were hotspots here in the United States. What our employees did nothing short of an incredible job keeping up with this volume during the peak of the crisis is truly impressive work. Those are some of the things we're seeing based on the COVID-19 virus. And now a couple of comments on our employees. They definitely have received well-deserved recognition from both inside and outside of PLC for their unwavering commitment to their job and the families we serve. And they deserve every bit of those comments and more. But as I said in the press release, I absolutely expected it from them. This is what they do all day, every day. Pandemics, tornadoes, superstorms, flood, hurricanes, they go to work. They did not become essential during this pandemic. They were essential before the pandemic, and they'll be essential when the pandemic subsides. This is one of the core values we have, the third one, respect for the profession. With that being said, I do not have the words to express the amount of gratitude that I have for the employees and what they've done during this time. It is truly impressive. In closing, although part of our strategy is to grow through acquisitions, our shareholders can rest assured that PLC is an operating company, not a consulting company. That means something during challenging times such as a pandemic. Our operation leaders work in the businesses just like everyone else and rely on decades of experience. Said another way, we run funeral homes and cemeteries. We don't sit around in the conference room, re-reading old management [ treaty fees ] coming up with empty initiatives and cash raises. Although we cannot predict what is to come, the PLC team will continue to operate our businesses as if we personally own each and every one of them. And with that, I'll turn it over to the operator, and then I'll -- Joe and I will be happy to take your questions.
[Operator Instructions] Your first question comes from George Doumet from Scotiabank.
To apply for the CEWS subsidy program, I believe revenue needs to be down 30%. Is that kind of general order of magnitude of what you expect maybe for Q2?
George, it's Joe. And the decline is not 30% in the first period. And so I believe it was 20% and you look at across the board, the comparison to the prior March. Those are the tests. And so we met that test in the first measuring period by measure. And automatically, if you meet it in the first measuring period, you will meet it in the second period as well. So we'll get the first [ too much ]. I think the percentage decline increases to the 30% in the third month, George.
Okay. That's helpful. On the -- you guys called out the lower funeral revenue per call, obviously, because of social distancing. Can you give us a sense of what the magnitude was? And did it get worse? How much worse, I guess, did it get in Q2?
So it's similar to what happened with the pre-need sales. We saw a dip at the beginning, and then it stabilized fairly quickly. I would attribute that to people calmed down, and our employees were able to deal with it in a different manner. Basically, you saw a dip the first couple of weeks and then a stabilization, just like we did in the pre-need sales.
Okay. And just you guys did note some integration issues last quarter. Seems that some of that's behind. Can you just maybe give us an update in terms of where that sits today?
Yes. So as we said, I think several times, both in the earnings call and several calls thereafter. Those large businesses that we bought in the middle of the year last year, we expected to take 6 to 12 months to integrate them properly. And we're coming up on the 12-month period here this summer. And we suggested everyone that it was going along fine and that there was nothing to be concerned about. And I think you see that in the Q1 numbers. The integrations are going along fine, and there's nothing to worry about. So that's why you saw that pop up in the margin.
Okay. One last one, if I may, just for Joe. What do you expect CapEx to be for the year?
Yes. That is something, George, that we're monitoring very closely. And it is almost by request by -- request by request during the year. But our maintenance capital expenditures would typically be around -- would typically be around $9 million. And we would have on our growth capital expenditures. I think we're looking at another $10 million or so there as we see today. But we would just monitor that as we move through the period, and we have the flexibility to slow those expenditures down. We don't plan on canceling permanently anything, we would just slow things down, defer expenses as we move through the next 6 to 9 months.
Your next question comes from Scott Fromson from CIBC.
Just a couple of questions on M&A. Realizing that you've pulled back on the reins, just wondering if there's any view on competitors' M&A activity levels of both public and private players?
So I'm aware of one business that came on the market for a lack of a better way to put it that was a broker deal right at the beginning of the crisis. So I don't remember the exact time, Scott, but let's call it late March, early April. And this would have been a business that we would have been very interested in as well as our main competitors. My understanding as of a couple of weeks ago that the marketing of that business has been halted because I think everyone else kind of did what we did, and that's hunkered down a little bit to see how this situation was going to play out. If things continue as we are seeing them through the second quarter, we will -- we're definitely looking very strongly at picking up our acquisition activity as we had always intended to in the third and fourth quarter of this year because, if you remember, we had no intention of closing anything in the first and second quarter of this year, anyway, as we focused on the integration of our businesses. So to answer your question, I haven't seen -- seen or heard of any acquisition activity, but we plan on -- if things continue down the path that they're on right now, I would expect us to be back in that market as we intended in the third and fourth quarter of this year.
Recognizing that it's still early, do you see any of the acquisition multiples changing or different levels of capital seeking deals?
I haven't -- nothing's happened for me to be able to say that. So no, I haven't seen anything. I don't expect it to change. There were good businesses going into the pandemic and most strong independent operators that we're interested in joining Park Lawn will be able to run their businesses through the pandemic and then our competitor out there, really, the one being SCI, they will be very active in this market as well. Those are smart guys, and they know how to run their business. So we can expect to bump into them on the same acquisition. So I haven't seen anything, Scott, but I wouldn't expect there to be much change if we come out of this year. I mean, if we have a year of this, then that's a different answer, right?
Yes. Do you see a change in the split between cemetery and funeral home? Obviously, recognizing that SCI is trying to bulk up on cemetery.
Yes. I haven't seen that. I think we normally see each other on the same businesses and whether they're funeral home cemeteries or combos. They go after premier businesses as well. So -- but I don't see a distinction between funeral homes and cemeteries.
That's helpful. And I like your catchphrase, free commentary.
Your next question comes from Johann Rodrigues from Raymond James.
[Audio Gap] at the beginning. But do you have a sense as to what comparable business revenue would be for funeral homes versus cemeteries?
Johann, I think you cut out for the first part of your question. Do you mind -- or at least you did on my end. Do you mind repeating that? I'm sorry.
Yes. No worries. What would comparable business revenue have been like if it was 3.2% for the overall portfolio, what was the split funeral homes versus cemeteries?
Yes, Johann, the split was higher in the -- higher in the cemetery business. So we would -- we expect that the cemetery business typically would grow in the sort of 4% to 5% range. I would say historically and over the longer-term and then the funeral business, kind of 1% to 2%, it would have been in -- consistent with...
Okay. Perfect. And then I'm just trying to get a sense of the EBITDA run rate. And Brad, we talked about it, Q4 being a bit softer-than-expected just because of the drag of integration. And then the commentary was that in Q1, pre-need sales were very strong, particularly in the U.S. So is Q1 representative of the run rate or should we kind of be blending Q4 and Q1 to get the run rate? Or is the run rate better than Q1, given that you only have partial revenue from family and the other businesses you got?
So -- yes, I understand. I would definitely say that Q1 is more of what we expect out of this company than Q4. If you ask me to look forward, based on the openings, as it looks like it's going today and by openings, I mean, the market, the overall economy in both countries, you can't expect that in quarter 2 or quarter 3. But I would expect quarter 4 to be a lot more like Q1 than it did the last Q4, which is answering your question. Q1 would hopefully be the new normal.
Okay. Okay. And just to clarify, Joe, you commented at the beginning about businesses or revenues being down 20% in the first period, would that be April through kind of to -- I mean first half of May, you're saying revenues were down 20% year-over-year, quarter-over-quarter?
Well, yes, it's a calculation that the program from the government has put out, Johann. So it's really not a quarter. It's specifically comparing the month of March to the month of March last year. And so if you had a...
It's just March. Okay.
Yes. Yes. So that's -- we sort of qualified there because the last half of March was impacted by COVID. We had this relatively good start to the year. So it's not easy to just make that comparison of like, oh, it's down 20%. So just take the quarter and the year. So -- and the good thing is because we qualified in March, we're qualified for the next measuring period, and then we'll see what happens in the third measuring period and any period after that.
What would it have looked like for April?
Pardon me?
What would it have looked like for April? Like how much would you expected, the decline, if you'd measured April versus April last year?
We haven't done that yet, Johann. So -- because we qualified in March, we just -- we're automatically in April. So we would have had to do that over the coming weeks to measure that.
Okay. And then the last question, Brad, just on picking up on your comments about acquisitions. You said if things continue to go the way you'd expect, you'd expect some pick up in M&A in the back half of the year. What is that a comment on if things going the way -- continuing the way? Is that softness in possible targets? Or is that strength internally that gives you the ability to maybe use some of the cash reserves?
That's strength in our current operations to be able to go back to focusing on our acquisitions. I think it's smart to plan for the worst and hope for the best. And when we started this in late -- well, we actually started planning for this in early March. But when things started looking the way they were looking towards the end of March and the first week of April, you could -- you've seen and we've discussed some of the measures that we took to plan for the worst, and that hasn't happened. So if the business continues to operate the way it is in the first 6 weeks of this quarter, then I will be strongly suggesting to our Board of Directors to let us get back on the acquisition trail.
Your next question comes from Zachary Evershed from National Bank Finance.
Will the bulk cemetery property sales continue into Q2? Or was that more of a one-timer?
So we expect there's a particular cemetery that's in New Jersey. And the expectation as we budget is for bulk sales in that cemetery throughout the year. So you can't say our business, unfortunately, and we preach this over and over, you can't look at it from quarter-to-quarter because you're right, you can have a bulk sales come in the first and second quarter and nothing in the third and the fourth. But we plan for that over in our budget over a year. So yes, you can expect bulk sales to continue out of that cemetery. But I can't tell you which quarter they're going to fall into.
And then thinking about the corporate infrastructure and the redundant cost in the field, how much of those costs will be rationalized speaking in dollars or margin basis points in Q2 and beyond?
So I can't put a dollar figure on that for you, and Joe may be able to. Last conference call, I found my talking about the Houston infrastructure versus the infrastructure that was in Toronto. And at the end of the day, it's all corporate or support office infrastructure. So you'll hear us referring to that more now. I mean, we're one team, not 2 different offices. So I will tell you that both in the first quarter and already in the second quarter, we're starting to rationalize some of those costs. And by that, I mean, because of the people that we added in Houston, there are people that are coming out of the organization and other places are being signed to other roles. And that definitely had a positive impact on our expenses, and I expect that to continue throughout the year. But it's measured and it's planned, and it was -- as we discussed, we had to build some of the infrastructure in order for us to fold some of it out of both the field and in other places as we centralize our accounting, IT, HR, legal functions like that. So yes, we had -- we saw some of that in Q1. We're going to see some of that again in Q2. And I would expect throughout the year. I don't have a dollar figure on that, though, because that's not something I track. It's not what's motivating it. But Joe may be able to put some numbers around that. I'm not sure.
I would look, Zach, at our profit margin to 23% and so on, and we've returned to that level. And that's a level that -- in a steady-state non-COVID environment that we would expect to achieve that and then gradually improve that towards our 2022 target, which is more in the mid- 25%, 26% profit margins. But we're pleased with the 23%. And the fourth quarter over the first quarter, those increases in expenses did not take place. This is a year-over-year thing. So I just look at it in terms of the margin, the EBITDA profit margin, and we're sort of on track there where we would look to be in the sort of 23% to 24% profit margins.
That's helpful. And then looking at the net loss position in the trust, can you walk us through the likely net impact on the business as a whole? And when that might be felt?
Well, yes. So it won't be felt in the care and maintenance trust because we -- it's a long-term investment. We're not allowed to touch the capital, as you know. And so that drop in market value won't be -- won't flow through to Park Lawn. Although I would say we're down -- that we were down 9% in March, and the markets have come back. And so we've seen this before. It's a long-term proposition with our trust funds. And so we're down 9% 1 day, we could be down only 4% or 5% a few weeks later sort of thing, but we won't see that market value translate to us out of the care and maintenance fund. And out of the pre-need merchandise fund, it would come to us over a longer period of time. But once again, we don't think the decline in the market value would -- is going to be a longer-term thing. Once again, we've seen the capital markets come back. And also, as I pointed out, we had such a -- we have such a large position in the cash, cash equivalents and GICs but that we're somewhat muted to the impact there.
That's great color. We've seen a number of companies cut their -- cut or suspend their dividend. And I know in the maintenance fund, you guys rely on income more than capital gains for sure. So is that a concern that you have? Or is that nonmaterial?
Well, I haven't say that we -- when we were looking at that and doing our contingency planning, we expected that there would be something that would come of it. And of course, there will be. But at the same time, what we use that money to offset some of our operating expenses at the cemetery properties, it doesn't totally eliminate or cover all of the expenses. So we will -- we have some flexibility there in terms of our maintenance expenses at the cemetery properties to protect us from declines in distributions. And also, we have ability at a corporate level as well, and we can -- we are making adjustments there and taking costs out to offset that. So there will be deterioration in the distributions, but we'll also be able to cover a significant portion of that with managing expenses as well then.
Got you. Then just one last one for me. How are specifically your pre volumes in May so far comparing to last year?
In May, do you have any color on -- for the May pre-need sales, Brad?
Yes, I got that. So it's basically like what we saw in April, except for it's bouncing back, right? So with what happened in the hotspots and then just the general market, we saw the pre-need sales drop, but our at-need sales increased that they basically inverted. And that's beginning to go back to what we would normally see a norm with the at-needs dropping, especially in those markets that got hit. I mean, not like dropping to the floor, but beginning to go back to norms. And you see the pre-need cemetery sales being able -- slowly getting back to its norm. So they're kind of inverting again. So it's May -- it's like April, but a little bit in reverse. That make sense?
Perfect. Absolutely.
Operator, just before the next call, if I could, I just had a note slip to me that, that -- the decline in the March to March revenues for the government testing is 15% in March and not the 20% that I had quoted. So I just want to make that clarification to everybody.
[Operator Instructions] Your next question comes from Edward Friedman from McLean & Partners.
I have 2 questions. One is, since your industry is more of work on statistics. I was just wondering what led to a revenue decline of 15% in March? Because technically, the industry shouldn't decline that much. So I was wondering what led to the decline and I'll ask a follow-up.
Edward, it was the combination of the funeral home, the average revenue per call impacting our revenue from March to March. And March of last year being stronger than March of the current year. So it's not -- it's -- you have to look at each month individually to do this particular test. So it was a combination of the funeral side, the lower average call volume. And then in the month of March, on the cemetery side, lower pre-need sales than the previous year.
Okay. And about the acquisition, since you recently amended your leverage ratios by your lenders, considering the decline in revenue and potentially the pre-need, maybe in the future because of the recession. Is it prudent? Isn't it -- wouldn't it be more prudent to halt the acquisition trail for, I don't know, maybe for the rest of the year, especially considering that you did increase the leverage due to financial risks and not due to further acquisition?
So we increased the leverage. I would probably unprofessionally refer to it as that was an insurance policy more than a need. And so that I didn't -- maybe I came across too strong on the acquisitions. What I was trying to convey is if things continue the way that they're doing in the second quarter, and I think that we'll be -- we'll have the opportunity if we choose to continue with the acquisitions, whether that be out of free cash flow or going back to the capital markets in one form or another.I was just merely conveying that as I'm sitting here right now, there's no reason to say that we will not be active in the acquisition market in the third and fourth quarter. To the contrary, I would hope that we are active. But to your question, if it -- if towards the end of this quarter, to use your word, if it becomes not prudent or it looks like it's smarter, we have to remain the acquisition market because of the reasons that you -- we'll tell you that, and we'll stay out of it. But right now, it certainly looks to me like that's a possibility.
There are no further questions. I'll turn the call back over to the presenters.
Thank you, guys, for joining the call this morning. We appreciate your continued support, and we look forward to talking to you at the next quarterly earnings call. Thank you very much.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.