Park Lawn Corp
TSX:PLC
Earnings Call Analysis
Summary
Q3-2023
In the latest earnings call, the company faced a borrowing cost increase of over 300 basis points, affecting net earnings by approximately $0.07 per share. Despite a decline in mortality rates and potential pressure on discretionary spending, the company maintains strong growth potential with significant improvements expected in the near term. Over 60% of the businesses joined the company in the past five years; however, further low single-digit decreases in mortality during 2024 are forecasted. Revenue per service has seen a 6.7% uptick attributed to focus on client service and price adjustments, though this rate of increase is not expected to continue. The strategy around asset divestitures including potential M&A or leveraging proceeds is still under consideration, with a definitive plan anticipated by February next year.
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Greetings. Welcome to the Park Lawn Corporation Q3 2023 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Chief Strategy Officer and General Counsel, Jennifer Hay. You may begin.
Thank you, Kelly, and good morning. Thank you for joining us on today's 2023 Third Quarter Earnings Call. Before we begin our prepared commentary on the quarter, please note that you can find a detailed breakdown of our 2023 Third quarter results in our financial statements and MD&A, which are available on our website and on SEDAR. 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, which could cause actual results to differ materially.
Please see our public filings for more information regarding forward-looking statements. During the call today, 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 CEO, Brad Green, to open our discussion today.
Thank you, Jennifer, and good morning, everyone. In addition to Jennifer, with me on the call today is our CFO, Dan Millett. I would like to start this morning by providing an overview of our performance in the quarter, then Dan will provide some additional detail and color around that performance. And finally, I will wrap the call up with some closing remarks. Our third quarter results continued to display solid operational improvement, in what continues to be a challenging environment.
Those challenges included a decrease in the mortality rate in the United States of approximately 6%, according to the CDC. In addition, we continue to navigate a challenging macroeconomic environment with higher interest rates and significant volatility regarding future expectations of the economy and consumer behaviors. Despite this, we were successful in bettering our performance year-over-year.
For the 3-month period ended September 30, 2023, our revenue increased 8.2%. Our adjusted EBITDA increased 3.6% and our adjusted EBITDA margin increased 90 basis points, despite some extremely difficult comps. Our Funeral businesses performed very well with call volumes from comparable operations continuing to reflect better than the national mortality decreases published by the CDC.
Further, our average revenue per call increased approximately 6.7%, as we continue to focus on operational execution, while call volume normalizes. As I mentioned last quarter, we don't expect this type of growth to persist at this rate. However, this has been a focus for us as a company, as we move away from the impacts of the COVID environment and have entered into a period of high inflation. The overall operation of our Cemetery business also improved year-over-year.
While the decrease in mortality and the often discussed irregularity of large group sales, decreased Cemetery revenue year-over-year; our pre-need property sales increased 2.4% year-over-year, when excluding a canceled contract from a Cemetery project that operationally no longer fit within Park Lawn's long-term growth plan. While we do expect some headwinds from consumer pressures, our sales team is focused on regularly evaluating and implementing new programs and strategies to serve our customer gains in this new economic environment.
On the transactional front, this year has been another significant year for Park Lawn. We have announced over $120 million of transactions, acquiring 16 Funeral Homes and 2 cemeteries and recently announcing the divestiture of 72 cemeteries and 11 Funeral Homes in Michigan, Kentucky, North Carolina and South Carolina. The decision to divest these businesses was not an easy one, as the team's operating these businesses were not only aligned with our vision and mission, but they are also outstanding professionals in our industry. And I believe their professionalism, skill and operating acumen will be a benefit to Everstory.
These businesses, however, did not fit with Park Lawn's long-term growth strategy, and we believe the capital generated from this divestiture will ultimately be accretive to the company's earnings per share and cash flow.
With that, I'll turn the call over to Dan, who will provide some additional detail regarding our second quarter results.
Thank you, Brad, and good morning, everyone. My comments this morning will focus primarily on our operating results from the third quarter 2023, relative to Q3 2022. For the third quarter, we saw revenue increase approximately $6.6 million, as acquired operations continued to contribute to Park Lawn's positive growth. However, with mortality, again, decreasing year-over-year and significant large group sales occurring in Q3 2022, which were not as present in this quarter, revenue from our comparable operations was down 4%. Although revenue from comparable operations was down 4% year-over-year, with a continued focus on operations outside of the COVID environment, our field margins improved and increased 90 basis points.
Increases in average revenue per call and improved management of operating costs, such as labor, helped contribute to the margin growth. For the 3-month period ended September 30, 2023, our operating expenses, including our direct cost of sales, general and administrative advertising and selling and maintenance expenses, increased by approximately $4.9 million, over the same period in 2022.
While increases are primarily due to acquired operations, decreases year-over-year were due to various labor costs, including field level bonuses and benefits, management of repairs maintenance costs, as well as changes in structuring and reporting relationships. As Brad mentioned, our Funeral businesses performed well during the quarter. With our continued focus on providing our families with the highest level of service, the average revenue per call on Funeral contracts increased 6.7%, helping to offset inflationary pressures. This increase, along with continued cost management helped offset the decrease in mortality year-over-year.
On the Cemetery side, the irregularity of certain transactions as well as decreased that need revenue affected the adjusted EBITDA margins year-over-year. However, they are right in line with our expectations for these businesses. As mentioned, our earnings calls for the third and fourth quarter of last year in the back half of 2022, saw significant large group sales occur in the Northeast region. These businesses continue to have strong group and park sales. However, year-over-year for the quarter saw a decrease in group sales of approximately -- of almost 50%.
Additionally, during the quarter, we decided to cease continued development of a Cemetery project in the region, which we believe no longer fits within Park Lawn's long-term growth strategy. This resulted in the cancellation of an approximate $1 million group contract, impacting recognized revenue for the third quarter. When considering the impact of these transactions, pre-need property sales continued to see growth year-over-year, displaying the strength of our Cemetery operations and sales teams.
From a corporate perspective, we continue to make investments in our corporate infrastructure, not only to support our past growth but also our anticipated future growth. During the year, we made improvements to our processes, structure and technology, to create a more fully integrated platform. As we have communicated in the past, we expect to see an increase in corporate, general and administrative costs during the year. And during the quarter, we saw several projects were undertaken to improve the back office support of our operations.
We expect that over the next 4 quarters, before considering the impact of any dispositions, we should see these costs gradually decrease and believe in the long term, we should be able to operate at approximately 8% of revenue. However, this ratio may experience further volatility, as we address the aforementioned disposition of 83 businesses. At September 30, 2023, we had approximately $197 million outstanding on our credit facility, other debt of $16.7 million, finance leases of approximately $14 million and cash on hand of $27.6 million. Excluding our debentures, our net debt was approximately $200 million, as of September 30, 2023.
As at September 30, our leverage ratio was approximately 2.38x based on the terms of our credit facility and approximately 3.15x, including our outstanding debentures. Following the anticipated disposition of businesses in Michigan, Kentucky, North Carolina, South Carolina, we expect to utilize the cash proceeds from the transaction to reduce the outstanding balance on our credit facility, which as of September 30 would reduce our leverage ratio to approximately 2x, based on the terms of our credit facility and 2.8x, including our outstanding debentures.
Although there were many puts and takes in the quarter, net earnings for Q3 2023, decreased relative to Q3 2022. The net earnings for the third quarter were $3.3 million or $0.094 per share compared to $5.3 million or $0.153 per share in Q3 2022. Furthermore, adjusted net earnings for the third quarter decreased year-over-year and was approximately $5.4 million or $0.153 per share compared to $7.8 million or $0.224 per share in Q3 2022.
Net earnings and adjusted net earnings were impacted during the quarter, primarily by the increase in interest rates. Over the past year, our borrowing costs has increased over 300 basis points, affecting net earnings per share by approximately $0.04. Additionally, the cost of property increased in the quarter, as a result of certain items such as the delivery of Mausoleum in Kentucky, and additional depreciation related to finance leases entered into in conjunction with the Ward acquisition. Those 2 things have impacted earnings per share together by $0.03. And I will now turn the call back to Brad for closing comments.
Thanks, Dan. Although the near-term outlook suggests mortality will continue to decline year-over-year and consumers will face increasing pressures on their discretionary spending, we believe our current portfolio of businesses still provides tremendous growth potential.
To put things in perspective, excluding the 83 businesses that we expect to be divested by the end of the year, over 60% of our businesses have joined Park Lawn in the past 5 years, and during 2 of those years, we were operating in a global pandemic. We've always been [ topical ] operators of our businesses and given more time and the ability to focus on these high-growth potential businesses. We believe that significant improvements will be achieved in the near term.
Our operations team remains highly focused on operating our businesses within our benchmark operating model, which includes managing the businesses to the actual death rate. We believe 2023 has seen the most normal operating environment in the past 3 years, even though death rates are still declining year-over-year, and we expect to see some additional low single-digit decreases in mortality during 2024.
That being said, we still expect to see our adjusted EBITDA margin improve, as we focus on providing high-quality service to our client families, managing operating costs to our expectation of long-term mortality, streamlining our back office functions to provide better support and information to our operators and continuing integration efforts of our recent acquisitions to achieve our forecasted underwriting.
We have a very strong company, and we firmly believe that our share price does not reflect our future trajectory. We look forward to the opportunity to prove the current market valuation of our company to be wrong. That concludes our prepared remarks, and I will now turn it over to Kelly for any questions.
[Operator Instructions] Your first question is coming from Martin Landry with Stifel.
I would like to touch on the growth in your revenue per service. It's up 6.7%. I did ask the same question last time, Brad. So apologies, but it looks really nice. I assume there's a bit of inflation in there, so is it fair to say that, that inflation is going to carry for maybe a couple more quarters before we lap that? Just trying to understand a little bit what's driving that nice uptick.
Right. And I do remember, Martin, you asked the same question last quarter, and it was the first question. So we'll just keep it in line with that. Look, part of what -- in last quarter, I said don't expect to see this type of increase, consistently and here we are with it being even more this quarter.
But I think the answer remains the same. You obviously have us focusing on, what we should be focusing on, which is serving our client families consistently and better. And when we do that, we see an increase in our averages anyway because they are presented with all of the options. And when we do that and provide good service, you could see those averages go up. You're also certainly seeing price increases in there. We've been very transparent about looking at those on a monthly basis, on a rooftop basis to make sure that we're keeping up with inflationary costs.
And of course, the cremation rate can affect that, but that actually was a different direction this quarter. So I'll summarize that by saying, yes, we're seeing good increases. I hope it's because of our focus on the client families and obviously us paying attention to the prices, but I would not expect this to continue. I mean at some point, it would have to level off to a more normal average increase, which would obviously be lower than the 5% to 6% range.
Martin, I might add a little bit, we did talk about last year, adjusting prices, being focused on prices, and we saw a lot more of that impact happened in Q4 of last year. So just by relative comparatives, you're not going to see the same percentage increase quarter over -- year-over-year.
Okay. That's helpful. And maybe more of a higher level question on the industry. You are gaining share, as your call volumes is declining to a lesser extent than the mortality rate. And it does look like your publicly traded peers are in the same pattern, as well, gaining a bit of share. So wondering, who are the share owners in all this? And is it the sole operators that are maybe a little bit experiencing some of that lower volume? Just trying to understand a little bit the puts and takes here.
Yes. I can't really -- I can't speak to the other companies because I don't work there, but I believe one of them doesn't break out their same-store sales anymore. So it's hard to figure -- it's hard to actually look at that and compare that directly to ours.
But just talking about our company and how we look at it, I think during COVID, there was a fair number of single and double rooftop Funeral Homes out there that had a hard time keeping up with the traffic that was coming in and some of them actually refused to see client families or couldn't keep up or or maybe people got sick in their business and they had to close down for a week or 2. And I think if you had larger operations, it doesn't have to be the big consolidators, it could have just been someone with 3 or 4 locations in a market, they can move their families around from one location to another.
So I think if I were to -- and this is a guess, if I were to guess why the consolidators were able to probably keep market share. It was just having the businesses remain open, having the resources to move people around from one location to another and just being able to react more quickly. That would be my guess.
Okay. That makes sense. And then last question for me. It's on your asset divestitures. Just trying to understand a little bit how that translates into your strategy for next year. Does that -- are those proceeds will they accelerate the pace of M&A for you guys? Or, is the -- are the proceeds going to be more used towards reducing your financial leverage?
Yes, that's a good question. And I would just say, I can't really answer that right now because I'd like to remind everyone that [Mink] isn't closed. So those -- sorry, that's our internal way that we're referring to those properties. But those divestitures haven't happened yet.
So just yesterday, in our Board meeting, for example, Martin, we're sitting around talking about that exact subject matter. With the capital markets, the way they are, interest rates the way they are, acquisition opportunities, the way they are, what we're going to do going forward, assuming these businesses close, will be a significant point of conversation in December and January, and I look forward to telling you exactly, what we're going to do at year-end when we talk again in February.
Your next question is coming from George Doumet with Suksa Capital.
I just want to get a little more color on the delivery actions to cancel a large group contract in the pre-need sales side. Brad, can you talk a little bit about that?
Yes. So when we -- when Park Lawn purchased a group of businesses in New Jersey in 2018, there was a Cemetery project that was already there. It's a management agreement that existed. It's pretty significant project in terms of complexity. And those have been some of our best performing businesses that Park Lawn has purchased since 2018. So it's no reflection on that.
But when we started looking at this particular project and what was going to have to go into it, over time, the sales of the property just didn't justify the expense of continuing that development. So we knew what it was going to look like. We knew it was going to be painful to do it. But the long-term decision on capital would dictate, and I think everyone would agree, that we walk away from this particular project.
It's unfortunate because, even as I was reading some of the early reports last night, I think it appeared on the surface that somehow our pre-need sales faltered last quarter, and that's actually not true, with -- even with a significant decrease in the group sales, our traditional pre-need property sales made up that gap.
So without us intentionally terminating a contract and knowing this is going to happen, our pre-need property sales would have actually increased. But the decision needed to be made, and I think we consistently tell our investors that we make decisions based on the long term, and that decision was made a couple of months ago, and we knew we were going to have that cancellation this quarter.
That's helpful. And given your outlook on mortality for next year, just wondering about our ability to grow the business, I guess, from an organic growth standpoint.
Yes. So look, we know that we have the headwinds that are still going to -- well, we think we do. I think across the profession, everyone consistently believes that you're going to see that low to mid-single-digit decrease in mortality for 2024.
And I think at that point, everyone consistently agrees, that the effect of COVID will be muted. I still believe that we can grow organically at least on an adjusted EBITDA basis. But I think there are things that are going on with this organization, as we continue -- as we continue to improve our acquisitions, as we continue to focus on, we have a cremation strategy that we're really focusing on now, as we continue to rely on FaCTS more. I just don't see that it's going to be a problem, maybe more flat to mid- to low single-digit type growth in 2024. I'm not going to say we're going to blow it out of the water, but I don't see it being negative.
Okay. That's helpful. And just one last one, if I may. I know the divestiture hasn't closed, but given that we're able to sell those lower quality assets for a similar valuation that we're currently trading at, just wondering if it makes more strategic sense to perhaps deploy capital, more capital at least towards buybacks at this point versus M&A. I guess, given, you have the balance sheet to do it.
Look, that is an excellent question. And when our company is trading at a multiple, that is at or less what we just divested those assets for. It definitely begs the question of utilizing capital for additional buybacks. And as I said, that was a subject of discussion that the Board even yesterday, and it will continue to be a subject of discussion, but it's really premature, until we've actually closed those business and have that capital. But I agree with you. I think that's something that Park Lawn is going to look long and hard at and we'll execute accordingly.
Your next question is coming from Irene Nattel with RBC.
I just want to take a step back and look at sort of a couple -- of sort of what we've been talking about, the divestitures of the underperforming assets, the decision to walk away from this Cemetery project, it looks and feels to me, as though now we're coming out of COVID, and you guys have been there for longer, there's really a sharper focus on quality and returns of projects. So I guess my question is, a, is that infact the case? And b, how does that play into how we should think about the business and decisions that you make going forward?
That's exactly the case. I think I've said in the past, if people go back and you may be tired of hearing you say it this way, this management team really was put in charge of Park Lawn in March of 2020, which was on the front step of COVID.
And I think we did a really good job in a difficult environment, getting our arms around what was going on there. And 2023 is probably the first year, where we can really see how things are normalizing. The businesses that we're divesting, when we start saying low quality or not, those are good businesses. And there are good people working there, and they have -- we've taken those businesses as far as we think we probably can. And so they don't really fit how we could grow them in a public setting.
And so I think that they will be -- and we looked long and hard for the right buyer for those businesses. And so if you look at -- if you kind of -- if you were sitting in our -- I'm trying to figure out the way to say this the right way. If you're sitting in our executive room and we're talking about doing this. Your question actually had the answer in it. We're focused on making sure that we're buying the assets that the Signature Group would have bought, prior to us joining Park Lawn.
And those businesses are going to be higher growth potential, higher-margin businesses, things that we can really go in and improve, and that's what we're looking to do. And so when you see us looking, canceling projects that don't make sense on a capital basis and things of that nature, that's right. We're looking to make sure that we get to where we're extremely efficient and are operating, and then we can return more consistent numbers quarter-over-quarter.
So taking that sort of one step further, Brad, should we be expecting more of these types of announcements, maybe not at the same -- sort of at the smaller end, but -- how would you categorize sort of the network as it stands today?
I love that question because it gives me the opportunity to be a little arrogant, which we both know I like to do anyway. The -- we're strong, right? I mean this really takes us a long way. Right? We've been looking at these properties for [indiscernible]. It's been part of what's been going on with our margin pressure.
As I look at the company now, these 2 things that we've done, I'm not going to say that there's not 1 or 2 other things, that we can do as an organization and then would be completely done. But you've seen 2 big ones. I mean there could be 1 or 2 more that I would like to do, but whether or not we even do those is a question mark.
So I think right now, when we get into 2024, you're going to see a completely different organization that can operate -- Again, I think the larger Park Lawn, can operate a lot more like this management team was used to doing before joining Park Lawn. And there are any number of reasons for that. I mean the legal structure, the HR structure, FaCTS, sales now with our new Senior VP of Sales, our Senior VP of Box is strong. I mean all of those things are coming together, so we can actually do what we do for a living. So that was me getting excited. But yes, I think you're right on.
That's great. And pardon be for any of us to not to give you an opportunity to say what you want to say. Can we just turn for a second to M&A and what you're seeing out there now. And as the whole industry is now kind of able to take a breath after COVID, facing lower mortality rates. How would you -- how would you describe the M&A pipeline in terms of number of opportunities, quality of opportunities and expectations around valuation?
Yes. Another good question. Don't take our not doing acquisitions at the same pace, as people have seen in the past, as there are not being opportunities out there. I would just say that -- and that's why I said it in my prepared remarks this way, doing the divestitures was as much as not more work than doing acquisitions. And it's the same team that does both. So our acquisitions this year are on the lower side of where our -- the range that we normally talk about being in or what we've done in the past, and that's literally because we're doing the divestitures. It doesn't mean that there isn't opportunities out there.
Now having said that, what I'm seeing is the interest rates have certainly dampened, what I thought was an overly frothy response to some of the some of the acquisitions that were out there in 2021 and 2022. So some of those players that you saw being very aggressive back then, have all but gone quiet. So now it's back to what I would consider the normal situation. And that means for some of the higher end, whether they're brokered or nonbrokered, you see this -- you're going to start seeing the same people that were in there in 2018 and 2019, acting more rationally.
So yes, there's opportunity out there. I think that the sellers' expectations are probably behind a little bit on what the buyers are willing to pay. I mean, when you start looking at what the multiples of the publicly traded companies are trading at right now, it's kind of hard to pay people some of the multiples that they're looking for.
So yes, I mean, I think that the opportunities are still out there. I think we're going to have plenty of opportunities to make acquisitions, if that's where we continue to decide to deploy our capital. And I think we're going to have more opportunities to do it because we didn't over lever ourselves in 2021 and 2022, like a lot of people did. So we have a lot of capital, but we're being very selective now, on the acquisitions that we're going to go forward with. Because in my mind, they have to be immediately accretive, and we have to be able to bring them online faster in this type of capital environment with our investors expectations.
Your next question is coming from John Zamparo with CIBC.
I appreciate the thoughts on the mortality rate for next year. I wonder, when it comes to the headwinds of excess deaths pulled forward during the pandemic, how are you thinking about the duration of that? Because it sounds like you and the rest of the industry considers it to be a relevant factor for '24. Is there any reason to think that might exist after that?
Yes, I just think it's going to be de minimis, right? But I'm almost not the person to ask. I have -- if I got it right, 90% of the time, I would say, listen to what I have to say, I get comfort in, as we see it, as the death rate is normalizing and you start seeing seasonality come back into our profession on a quarterly basis. It kind of makes you think we're getting to the tail end of that.
I know that we share the same opinion that other people do in our profession about where this is going. So I would say, yes, I think 2024 is probably going to be the last year that we're talking about this and anything other than in a minimal form. But far be it for me to get to 2025 and you say, well, what happened? I'm going to say, well, I don't know. But it sure feels like 2024 is it.
Okay. That's helpful. On the quality of the network question, I wanted to follow up on that and granted your existing divestiture plan hasn't closed. But assuming it does close as planned, -- are you considering other divestitures? Would it just take an attractive offer to get you to consider doing more on that front? I'm wondering how you're thinking about that?
Yes. If there were divestitures, they would -- it would not be nearly on the scale of this. So -- and I'll tell you kind of the way I would look at it, I think it will make more sense to you. A lot of the businesses we buy and the reason why they join us is they're multigenerational businesses and their names are on the side. And they're from individuals that stay in their community and help us grow their businesses going forward. In order to get those businesses to join you, they're not only looking at me and whether or not I'm going to be here to fulfill the promises made to them. They're looking at who's behind me and the strength of this organization. It would not be easy nor but I think it would be smart, to take those businesses like that and divest them out of the company just because someone wants to pay more for them. Because often, someone wanted to pay more for them when they sold them that, so it would be fairly easy to do.
Those businesses aren't leaving our organization. These businesses were different types of businesses. They didn't share -- I'm not saying that the owners who sold them weren't very important and important to our profession that they were good people and are good people. I'm not saying anything about them. It's just a different type of business and not the type of businesses Park Lawn buys today.
So no, I would not expect any significant divestitures out of us. Now if there are 1 or 2 rooftops and some larger things we bought and that current owner didn't think we needed to keep them open or something like that, maybe. But the answer is, I think you're seeing divestitures for a specific reason, and this is a nuance.
Got it. Okay. Understood. And then one last one in for Dan. On the corporate G&A side, I may have missed it, but the 8% target, what's a reasonable time line to get there? I think previously, we talked about 12 to 18 months. Is that still the case? And is it a fairly linear improvement to that point? Or is it front-end or back-end weighted?
Yes. No, I think -- John, I think that's very much the case. I think starting this quarter, we should start to see some gradual improvement there. I think I've said in the past that, I thought Q3 was probably going to be the peak. But we're really focused on it, right? We're thinking about this company for the next 10 years and improving our infrastructure to support our operations with the impetus being we're focused on our field margins.
And we want to provide the best information and back-office support to let our operators operate the business to the best of their abilities and meet the goals set out by the operations team and the benchmark model. So that's what we've been focused on. And we're going to continue to focus on that and integrate FaCTS and automation into our processes and utilize it better within the company to create efficiencies. And I expect that to kind of make its way through the system over the next 12 to 15 months.
Your next question is coming from Zachary Evershed with National Bank Financial.
If we're looking at seasonality, are you seeing the usual uptick to the degree, that you're expecting thus far in Q4?
It's kind of hard to gauge that because you don't know what's happening with the COVID pull forward, right? So it's -- and it's especially hard to say that when you've only got a month under your belt. So I know we're going there. Do we see a seasonality uptick in the first month? Yes, but I'm not going to be able to tell you if that's going to look like it normally looks at the end of this quarter because you just can't know. Right now. It's just too hard to predict that, Zach. I'm sorry.
No problem. Second question, Will the impact from the divested businesses on consolidated EBITDA, will that impact be much different from the 350 basis points, you pointed out for the field EBITDA margins?
Yes. Zach, I'm not sure I completely understand what you're getting at with that question. But if you're asking how will -- other than just the kind of operational financial impact, that we've kind of articulated that these businesses will have, will there be a broader impact? My answer would be yes. And let me put it this way. We're divesting of 83 locations.
And we're -- for $70 million we'll take that cash and redeploy it in kind of, let's just say, similar metrics for now in, call it, 16 to 20 different locations, right? So that -- not having all those individual locations to manage will definitely have an impact on the corporate back office and the executive team going forward. Is that what you're getting at Zack?
Exactly, the proportional drop in the back office.
Yes. So look, back of the envelope calculations, I think I think that number you threw out there would have been an increase in our margins without me and a proportionate drop in the corporate expenses.
Now don't go expecting that day 1 because it's going to -- there are several several things that have to come out of the system to make that happen. And believe you me, we're focused on that. So yes, you're going to see an immediate increase in the margins.
And that number, you threw out there is about right, assuming that all the corporate costs flushed immediately with the with the divestiture. And I think the expectation would be there is that's going to take a minute. I think that's probably more what you're asking.
There are no additional questions in queue at this time. I would now like to turn the call back over to Brad Green for closing remarks.
I'd like to thank everyone for joining us today. We certainly have a long-term vision for this organization as an executive team. We're not going to be swayed by a misguided or in a rational market. We're a strong company. We will perform over the long term. For those investors that are going to stick it out with us, you guys are going to be rewarded. So thank you for that. Have a great rest of your weekend.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.