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Park Lawn Corp
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Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Park Lawn Corporation second quarter results conference call. [Operator Instructions] Thank you. Andrew Clark, Chairman and CEO, you may begin your conference.
Thank you, Tiffany. Good morning, everyone, and thank you for joining us today. With me on the call today is Joe Leeder, our CFO. 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 initial public filings for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS financial measures. I'll begin with an overview of our business highlights for the second quarter of 2018. Joe will follow with a more detailed review of our financial results and outlook. After our prepared remarks, we will take your questions. Our 2018 second quarter results reflected the continued successful execution of our business plan. During the second 3 months of 2018, we acquired Signature Funeral and Cemetery Investments LLC, financed by an approximately $190 million bought deal offering. We also entered into a definitive agreement to acquire Citadel Management LLC, which is expected to close before the end of the third quarter. The acquisition of Signature expands PLC's operations into 4 new states: Kansas, Missouri, New Mexico and Mississippi, and expands its footprint in the Texas market. The Signature acquisition adds 9 cemeteries, 21 funeral homes, including 7 located on cemetery sites and 5 crematoria to PLC's portfolio. During the quarter, we also acquired Opatovsky Funeral Homes, further expanding the company's presence in the Ontario market. This business is a strategic fit for the existing portfolio of assets in Ontario. In addition to our Q2 acquisitions, we acquired Hansons Arbor Funeral Chapels and Crematorium in BC early in Q3 of this year, which adds to our cluster of operations in our Okanagan Valley. Subsequently, we amended our existing syndicated financing arrangement led by National Bank and including the Bank of Montréal and TD Bank. The amendments of the financing arrangement increases PLC's borrowing capacity by $25 million to $150 million. Overall, our revenue numbers for the quarter were strong -- for Q2 were strong and in line with management expectations. We did see some softness with at-need sales, however. This seems to be consistent across our peer group according to publicly available information. The at-need softness was partially offset by stronger pre-need sales in our U.S. business, particularly CMS Mid-Atlantic and Saber. Cemetery revenue from U.S. markets also improved, resulting in overall growth from comparable properties of 7% in U.S. dollars compared to 2017. The company's revenue increased year-over-year by 100% to $40,349,000 in the second quarter of 2018 as compared to $20,138,000 in the second quarter of 2017. After adjusting for the impact of foreign exchange, revenue growth from the company's comparable businesses was 5.2% in the second quarter of 2018 as compared to the second quarter of 2017. As part of the integration efforts already underway, the company is introducing best-in-class sales initiatives across the organization to improve pre-need sales. We are particularly focused to this point on Midwest Memorial Group in Michigan. The first 6 months have seen positive results with respect to pre-need sales, and we continue to have strong market share in the at-need business in Michigan. Unfortunately, our cost containment initiatives, which were initially successful in the first 12 months of our ownership of MMG, have stalled. This has impacted our bottom line results in the market. We are in the process of making changes to the -- at the senior leadership level at MMG that will take effect in the very near future. We are optimistic these changes will allow us to capitalize on the high-quality portfolio that MMG holds. I'd now like to turn the call over to Joe to review our Q2 financial results in more detail as well as our outlook. Joe?
Thanks, Andrew, and good morning, everyone. You'll find a detailed breakdown of our second quarter financial results in our financial statements and MD&A, which are available on our website and on SEDAR. My comments below focus on the 3 months results for the second quarter 2018. And as Andrew mentioned, our total revenue for the 3-month period, June 30, 2018, was approximately $40 million, increase of 100% over the same period last year. After adjusting for the impact of foreign exchange, the revenue growth from the company's comparable businesses was 5.2% in Q2 compared to Q2 of 2017. And before adjusting for the currency change, the growth was a very healthy 7% year-over-year. Andrew has given a fair bit of detail on the revenue numbers, and so I'll just go straight to the profit margins. Our gross profit margin for the period ended June 30 was 79% compared to 78% for the same period in 2017. The inclusion of Saber and CMS for a full 3 months and Signature for 1 month in our 2018 results was a contributing factor to this overall improvement in our gross margin. Our aggregate operating expenses for 2018 increased to approximately $27.6 million, a $14 million increase from 2017. Again, this increase is because of the inclusion of Saber, Signature and CMS and the other funeral home acquisitions. Looking specifically at our G&A maintenance and selling expenses from comparable business operations, there was an increase in operating expenses of approximately $350,000 in the quarter. That increase was largely attributable to higher cost to support our growth initiatives, including a public company cost such as legal, audit, listing fees, Investor Relations and so on. Selling, maintenance, advertising expenses from comparable business units were largely in line with prior periods, although we have mentioned before that these costs can be seasonal in nature and can vary from period to period. Our share-based compensation expense represents noncash expense associated with our RSU and DSU programs, and this increase in 2018 is directly related to the issuance of additional units year-over-year. Our interest expense was higher this year by $460,000. The increase in interest expense relates directly to the utilization of our credit facility to fund some of the recent acquisitions as well as increased amortization of our deferred financing cost, which we incurred to establish the facility. Our bank debt at the end of this quarter was $45 million compared to only $4 million at that point last year. During the current quarter, we also saw $5.2 million in acquisition and integration costs compared with $941,000 last year. These expenses are directly related to the increased M&A activity in 2018, including, as I mentioned, Signature, CMS, Citadel and a number of smaller funeral home acquisitions. I had mentioned in the Q1 call that we would continue to see increased acquisition and integration costs moving forward through 2018 as we executed on our acquisition strategy, and that is what happened. As the pace of acquisition slowed in Q3, we will see a decrease in these expenses in that period. On the income tax line, we saw a recovery of tax expense relating to our pretax loss in the quarter. However, as we've communicated in prior quarters, we would expect that our effective tax rate moving forward in 2018 would be in the range of 20% to 23% of our pretax income. So as a result of the above, the company incurred a net loss attributable to our shareholders of $318,000 for Q2 2018 compared to net earnings of $1.4 million in the same period last year. That represents a diluted loss per common share of $0.02 in 2018 compared to earnings of $0.07 per share last year. And we also report 2 non-IFRS measures in our financial statements and MD&A. And the purpose of the non-IFRS measures is to adjust for the after-tax impact of certain nonoperating or nonrecurring, noncash-related expenses. And in the quarter, these included acquisition integration expenses and share-based compensation expenses. After making adjustments with these amounts, our adjusted net earnings attributable to our PLC shareholders for the second quarter of 2018 was $3.7 million compared to $1.8 million in 2017. That is an increase of 105%. On a per share basis, 2018 net earnings -- adjusted net earnings was $0.18 per share compared to $0.16 last year. That's a 12.5% increase year-over-year. The other IFRS -- non-IFRS measure is adjusted EBITDA. The adjusted EBITDA attributable to PLC shareholders for the second quarter was $8.3 million compared to $3.7 million last year, a year-over-year increase of 124%. On a per share basis, 2018 adjusted EBITDA was $0.41 per share compared to $0.33 last year, and that is a 24% increase year-over-year. In calculating these per share amounts, our weighted average common shares outstanding in 2018 increased to 20.3 million compared to 17.9 million in 2017. The increase occurred as a result of our -- the company's prospectus financings in June 2017 and May 2018. The double-digit year-over-year growth in per share adjusted earnings and adjusted EBITDA reflects the impact of putting this additional capital we raised last year and in 2018 to work now. Our adjusted EBITDA profit margin for the current quarter was 21.1% compared to 19.5% last year. And we have seen improvement in the EBITDA profit margins in recent quarters as a result of our -- the acquisition of higher margin businesses, spreading our corporate expenses across a broader earnings base and just general improvement in margins from comparable businesses. That is a trend we expect to continue over the coming quarters and years. Now just a few words about our balance sheet. We ended the current quarter with approximately $45 million in debt compared to $4 million in debt in last year. This level of debt, combined with our $150 million credit facility, provides the company with significant capital to fund acquisition and organic growth opportunities going forward. Cash on hand this year was $9 million compared to $12.7 million last year, and our net working capital was approximately $25.7 million this year, and that was similar to last year. In terms of our capital spending programs going forward, we have targeted $25 million in organic growth spending over the next 18 to 24 months and $40 million over the next 3 to 4 years. This capital will be deployed on growth initiatives, such as cemetery expansion, on-site and standalone funeral homes and visitation centers and new mausoleum construction. And we hope to be able to announce the commencement of certain of these projects in the coming months. We expect to keep our maintenance capital expenditures in line with or below our annual depreciation expense. And in closing, I'd just like to remind you of our recent change in one of our accounting policies. So effective January 1, we implemented IFRS 15 dealing with revenue recognition on long-term contracts. For Park Lawn, the major impact of this IFRS policy change was to capitalize sales commissions associated with pre-need sales contracts, where the associated revenue from the contracts has also been deferred to future reporting periods. This is explained in further detail in Note 2F of our financial statements. The impact of the policy change on our operating results to date has not been significant. I will now turn the call over to Andrew for some closing remarks.
Thank you, Joe. Along with our Q2 financial release, we have also released a new growth target for the business. Between 2013 and 2018 year-to-date, Park Lawn has experienced robust growth both organically and through acquisition. We believe the deathcare sector continues to exhibit highly attractive growth characteristics. As part of our growth plan, we have set an aspirational growth target of achieving pro forma adjusted EBITDA of $100 million by the end of 2022. Achieving this long-term target is based on the following key assumptions: one, that acquisitions will contribute approximately $35 million of incremental pro forma adjusted EBITDA by the end of 2022; two, that margin expansion, through synergies and operational improvements, will contribute approximately $7 million to $8 million of incremental pro forma adjusted EBITDA by the end of 2022; three, organic growth through price increases, introduction of new products and services, investment in mausoleums, on-site funeral homes and other growth capital projects will contribute approximately $10 million to $12 million of incremental pro forma adjusted EBITDA by the end of 2022; four, organic growth capital, as Joe alluded to, of approximately $40 million is deployed between 2019 and 2022; and five, that our target leverage ratio remains in the range of approximately 2x debt to pro forma adjusted EBITDA throughout the period. Looking ahead, we remain optimistic about our pipeline of opportunities, both organic and acquisitive in nature. We believe we are well positioned to continue creating value for shareholders in the rest of -- in the remainder of 2018 and beyond. Joe and I are now ready to open the line for questions. So Tiffany, please go ahead.
[Operator Instructions] Your first question comes from the line of Leon Aghazarian with National Bank Financial.
So first of all, congratulations on a nice quarter. The -- so one question for me would be just on some of the changes you are mentioning at MMG. Can you speak to us a little bit about what went on there and what prompted the change? And where do you stand there in terms of some of your -- some of the business there?
Well, I can't comment specifically on the change right now, Leon, because it's in process or there are changes in particular are in process. But what -- principally what's prompted the changes were a sort of ongoing sort of cost structuring issues, and we can go into an extensive line-by-line conversation. But ultimately, we have a strong revenue base there. We've seen some positive momentum on the pre-need sales side, but we still have some structural issues around the cost of the business that we feel that we and the leadership team there needs to do a better job of containing. So I'd rather leave it at that for this point in time, but it's largely around the cost structure of the business.
Okay, appreciate that. You did report pretty nice organic number here of 5.2% despite the fact that there was some at-need softness in Canada. What would you attribute that to? And what have you seen there in terms of at-need softness in Canada?
Yes, it's just been -- we've seen it in a few markets, and it's just really -- as we've described, our business, while predictable, it's not necessarily linear in nature. And -- so this is really just a function of the death rate. We don't believe we're losing market share. We believe that it's just been some cyclical softness in the death rate. We have periods where it's higher and periods where it's lower. And certainly, all indications would suggest across a number of markets, not only in Canada, but also in the U.S., that there's some softness now in the death rate and therefore, the at-need business is going to feel that.
Is that in a particular geography within Canada or just broadly?
No, it's in Canada and the U.S. It's -- I would say, generally speaking, we felt it most in our Toronto market, but that's largely because it's the largest base of operations. We've also seen some at-need softness in Michigan and we've -- which is sort of highlighted some of the cost structure parts of our conversation there. But we saw it in the Dallas market as well. So our pre-need numbers have been strong, but -- and there's no sort of geographic focus that we can pinpoint. It's -- they have pockets where it's stronger and pockets where it's weaker, and I suppose that's one of the benefits of a diversified business.
Okay, that's great. In your key assumptions for your EBITDA growth target, you did outline $35 million of incremental EBITDA from acquisitions. Do you see this coming from a steady stream of smaller tuck-ins or maybe lumpier in form of additional large platform ones like we did see with Signature for example?
I would think that our preference -- well, first of all, let me say these things are very difficult to control. We, I think, have demonstrated that we're not prepared to be opportunistic if an opportunity of scale comes up, but I think our preference, given other things being equal, would be to have a series of smaller M&A take place over the period rather than more chunky large scale in nature, more through bolt-ons than through big swings into new market. That would be our preference, but of course, it would be very difficult to predict these things.
And one final one for me would just be on the assumption for the $40 million in organic growth capital deployed between '19 and '22. Can you maybe -- can you help us maybe understand like, is that going to be, for example, in the first part of that time frame? And as such, see the benefits later on? Or is it going to be more, I guess, kind of steady throughout the next couple of years? Like, what is that breakdown, if you can give that to us for the next few years?
Well, I think we would expect over the next 12 to 18 months that $25 million of that $40 million will be deployed over the next 12 to 18 months. The contribution from that capital being deployed will be longer tail as some of that relates to on-site funeral homes. For example, it will take a while for those to get up and running to full capacity. So I wouldn't expect an immediate pop from that. It will be longer tail in nature, but the capital will be out the door. Our expectation is the majority of it, $25 million of the $40 million, within the next 18 months.
Your next question comes from the line of Maggie MacDougall with Cormark.
So I was wondering if you could give us a little bit of insight into the way that you went through compiling your new 5-year plan. Just with regards to how you look at your opportunity set. I suppose I'm trying to get a sense as to how much of this is, as you said in the press release, operational? And what portion do you feel very secure about?
Well, obviously, the M&A part is the hardest part to put a pin in. We do know that of a number of opportunities out there, our pipeline is -- it's filling in. There are -- to the previous question from Leon, most of those would be sort of bolt-on in nature, and I wouldn't want to be predictive around the timing as the most of them would relate to individual sellers' sort of personal financial goals as it relates to timing. But I think that the pipeline is filling in largely with smaller bolt-on type of acquisitions. That said, there are a number of potentially larger ones that are theoretically out there, and we know from our past experience that doing these deals creates more opportunity to do more of these deals. So with our profile in the U.S. now being a bit more prominent and with the expertise that came predominantly through the Signature acquisition with Brad and Jay and their profile in the industry there, we expect that the number of opportunities that we're not currently aware of will continue to fill that pipeline. So the margin expansion, the organic growth part of it, that's obviously a bit more sort of predictable from our standpoint. So we feel, in terms of constructing those assumptions, the organic and the margin expansion were certainly the more easier ones to construct. From a margin expansion perspective, we're simply trying to bring margins in line with the public company peers in the industry. So that -- and quite frankly, would bring margins at all of our businesses in line to where most of our businesses are. In terms of the organic, obviously, there's a bit of assumption baked into those on a project-by-project basis, but we have -- we and our operating units have a significant track record of executing on these projects. And so we feel pretty comfortable there. The M&A is obviously the one that has the most amount of sort of leeway in that depending on timing and multiples and that type of thing.
Sure, sure. Okay. And then I was hoping, Joe, that you could maybe just walk us all through the adjustments that you guys have to EBITDA and EPS, just to understand a little bit better?
Sure, yes. Okay. So let me just focus on the current, then the 3 months, then in arriving at -- you're talking, Maggie, about the adjusted net earnings and adjusted EBITDA?
That's right, yes.
So in the quarter, there's 3 adjustments and then the tax impacts. So acquisition integration costs of $5.2 million. Those have always been presented as an adjustment to our -- to get at adjusted EBITDA and adjusted earnings. The other item -- one of the other items, is our share-based compensation. So that's the amortization of the cost of our restricted share unit program. So those are expensed over a vesting period, noncash in nature. And so those expenses are another adjustment. There's a very small adjustment, which is to the fair value of contingent earnout payments. And so the requirement is that the earnout payments be stated at fair value. And as you get closer to the earnout payment date, there's naturally going to be an adjustment to -- for the present value of that amount, and that's what the $37,000 is. We haven't adjusted the principal portion of it, just the present value of it as we move closer to the payout date. In the back half of the year, we'll be evaluating the likelihood of making those payments. And then we'll have either an upward or downward adjustment to that amount as it is by the end of the year. And then the final adjustment because we're talking about net earnings is to tax effect, those adjustments, those that are deductible for tax purposes. And in the current quarter, the tax impact of that was $1.4 million, and that relates to the deductibility of the acquisition and integration costs as the other 2 items are not a tax-deductible amount. So those are in the current quarter in terms of adjusted EBITDA and adjusted net earnings per share, those are the adjustments and the sort of calculations to arrive at them.
Okay, great. I'm wondering, going forward, what sort of costs you expect to incur this year and maybe early next year around the integration you've got going on in the U.S?
I think -- yes, when we announced the Signature acquisition, we announced -- at the time, we expected about 3 quarters of $1 million in specific costs related to that acquisition. So...
Okay, so that hasn't changed?
That hasn't changed, no.
Your next question comes from the line of Stephen Harris of GMP Securities.
So just wanted to ask a couple of questions here and follow-up on this integration question. I mean, it strikes me as being critically important that you put the platform together, you have the reporting systems, the sales processes, the operational standards, all of that sort of harmonized across the platform. How long do you think that takes? Where are you in the process? Can you give us a bit of an update over what you see are the easy issues? And maybe what you see as challenges in making all that happen? And when do you expect to get to a point where you can say, the platform's ready, we're ready to go out and make more acquisitions and integrate them?
Well, so first of all, it's a good question. I think you're right is that the integration portion of this is critical. I think that there is some low-hanging fruit on the integration side, particularly around the infrastructure in the various business units and really building the hub of the business in the Houston market like we have done for the Canadian business in Toronto. So I think that is sort of the easier part is constructing the hub, getting the roles defined that are going to sit in Houston versus the roles defined that will sit in the field, and you've touched on a lot of those, Steve, around technology and accounting and administrative HR-level functions. And so those are underway. I would say, they're comfortably underway. I'd say they'd be more underway in terms of design and execution. But I think the execution on all of those parts will follow over the next sort of 12 to 18 months. And it will be, I think, a bit incremental in nature. I don't think there's going to be a big swath that -- or big swings that come through in terms of those integration elements of it. And particularly, those surrounding the integration of the technology platform, for example, we would expect those to be longer tail type of projects more towards the 18-month end of it than on the shorter end, which clearly, we can deal with rationalization of other costs, direct costs more and more quickly. That said, the follow-on piece of that is on the acquisition side. Certainly, because of our current pipeline and our probably bias over the shorter term, again, not wanting to limit our ability to be opportunistic, but our bias over the shorter term towards doing more bolt-on acquisitions to existing markets, those tend to get -- be, a, more easy to integrate; and b, more of the integration takes place at the field level than does at the corporate level. So I don't think it's going to prevent us doing sort of smaller, relatively more sort of bolt-on to existing market acquisitions. That program, well, we're not sort of, like, aggressively chasing it right now. It should get rolling in a more meaningful way in the back end of 2018 and into the early part of 2019.
Okay. And if you're building a hub in Houston to manage the U.S. business, do you see some of the key people from CMS and Saber relocating down there? Or how is that going to work?
So the hub would be particularly on what I would call back-of-house back-office administrative function side. It's critical in our business, as you know, to have, a, business leadership; and b, the outward-facing front-of-house client family-facing functions sales leadership in field and in market, given that our industry and our business is really comprised of a series of smaller markets. So we wouldn't anticipate that any of that -- the sort of P&L leadership, if you will, at the business unit level, division level would take place in Houston. That will all be in the field and in market. It would be more sort of administrative back office, IT, HR, finance, that type of thing build, that hub in Houston, to allow us to continue to operate in what is a more decentralized model than our peers.
Perfect. And if -- I got one more. Your business has always had some element of seasonality with typically the Q3 being a little weaker than the winter months. With all these acquisitions, some of them are geographically in different locations where you traditionally have been. What overall impact should we be thinking of in terms of seasonality of the business going forward?
I wouldn't think of any sort of significant change from a seasonality perspective. I think our peer group, SCI, Carriage and so on, would have similar seasonality level issues to ours. And so I wouldn't anticipate any materially different seasonality or seasonal adjustments than we have now.
[Operator Instructions] Your next question comes from the line of Brian Pow with Acumen.
I've got a number of questions. First of all, just on looking at the capital projects, have you got a return threshold you could share with us, what you're thinking you can get back on the investments?
Yes, our general target on those would be -- the capital projects is at 20% unlevered IRR over -- depending on the nature of the project over a 5- to 8-year period. That's the internal target that we will greenlight on, 20%-or-greater.
Okay. And then just a sort of an update again, M&A multiples, sort of what you're seeing there on some of these tuck-ins? And maybe what your prepared to go to on some larger ones now?
I'll -- we haven't seen any material uptick in multiples on the tuck-ins. There is -- if one were to look through the history of M&A in this industry, there is a high correlation between the size of EBITDA acquired and the multiple paid. So I would say that we're still expecting to see multiples in the Canadian context within the previously commented on range of 4x to 6x for funeral home acquisitions, might be sort of 5x to 8x in the U.S. Again, those are sort of general parameters rather than specific ones. And as -- I think we've discussed before this, cemetery multiples can be not as straightforward as a simple EBITDA multiple. So you end up coming out through a holdup in different ways of looking and value, whether it's through a DCF type of analysis, an IRR type of analysis or as we've talked about a multiple, EBITDA cash flow multiple. So they can vary -- that -- their range on strict cemetery assets can vary more widely than on funeral home assets. But we haven't seen any sort of material shift in multiples in any of the things that we've been looking at over the last little while. I think on the second point, I'd be very reluctant to say sort of what we would go to. I think that -- I think our bias towards tuck-ins would suggest that we'd rather continue to stay in the lower end of the multiple range. If that's not too much of a copout to your question.
No, no, that's fine. That a good insight. And historically, your preference on acquisitions, to some extent, has been cemeteries. Is it fair to say that, when you look at your acquisition goals, that's part of that number? Or what do you think the mix would look like in terms of what you might acquire?
Again, we're looking to acquire great assets at fair prices. And I would think given some of the -- while we have historically had a bias towards cemeteries, I think that we would -- we're modestly more open-minded on that now given the bench strength of the management team in the U.S. And -- so I would think it would be more balanced in the mix of cemeteries and funeral homes going forward, provided that, again, there's a highly defensible sort of stable longer-term business plan supporting the funeral homes, also the cemeteries. But ultimately, if we can acquire high-quality assets at fair prices in markets that we deem attractive, I would expect to see the balance sort of equal out more so.
Okay. And then just trying to understand a bit more about the sort of at-need softness that you're seeing. When you look at the sort of the range of services you offer, cremation, burials, funerals, all that kind of stuff, is it sort of equally impacted all those services? Or how should we think of at-need weakness that you're talking to?
Yes, I think it's a good question. I think -- because we've seen at-need softness, it's more market-specific rather than it is product specific. And one way that we look at it is, it's not just sort of at-needs in terms of walking in the door, if you will. It's the conversion of those pre-need contracts to at-need contracts. So people have already made a commitment and made a decision to go in one direction. And those pre-needs to at-needs just aren't converting. So that is -- that's what makes the whole situation from our standpoint, less worrisome than a lack of sort of simple walk-ins, which might signal, as I think you're trying to get at a sort of paradigm shift more in a certain market towards cremation or a loss of market share. But when we look at it, yes, those walk-ins are down, but what is most striking about it from our perspective, is the pre-need to at-need conversion is also down. And so that doesn't suggest anything other than a timing issue, quite frankly.
Okay. No, that's great insight. And then finally, you mentioned -- just in statements that there was an impact to the bottom line from MMG. Can you quantify how much of an impact that might have had in Q2 in your numbers?
We don't break that out specifically, but I'm looking at Joe here.
Yes. Just in the quarter -- or is that question for the year-to-date, Brian, or in the quarter?
Yes, I'm just -- I mean, again, I'm just trying to understand if it's something you've been working on where -- just trying to get a sense of if that hadn't happened, potentially what the number might have looked like in the quarter?
I would say, in terms of Canadian dollars, Brian, we probably could've had another $400,000 to $500,000 if we had -- if the business had performed the way we had hoped when we -- like 6 months ago.
Okay. I'm sorry, and that's a quarterly number or a 6-month number, excuse me?
Well, it just -- it was in that quarter, but it certainly enough the number for the year is kind of similar as well.
Your next question comes from the line of Johann Rodrigues with Raymond James.
First off, just wanted to get your pulse on the acquisition market and kind of how much you're seeing out there, maybe even the number of portfolios and the number of kind of bolt-ons that come across your desk at any given point in time?
Yes. Rather than talk about specific numbers, I would say that now more so than ever, there's -- we're passing on more than we would actually look at. I think our -- excuse me, there are a number of opportunities that come up that either -- that are much smaller in nature, but would represent sort of relatively small assets in markets that we're not in. So we can't get sort of the operating leverage out of them that we might under a bolt-on. And one of the benefits of scale, obviously, is that we have more markets to do bolt-ons with. So in terms of a sheer number, if this was just a growth for the sake of growth opportunity, then the numbers would be very, very large in terms of the deal flow. But we're trying to be quite selective in terms of the ones that we feel make the most sense. So to answer the big -- what I suspect is the bigger question is, there's no shortage of opportunities that are out there. It's just we're trying to be selective about them when they pop up.
Okay. Okay, helpful. In the part about your target for 2022, some of the organic growth was based on mausoleums. I was just wondering where you see those kind of being?
Like geographically?
Yes, where like -- where is the next kind of venues for, I guess, enhancements on excess land?
So we're underway on mausoleum work in the Houston market and in the Louisville market. We are in the process of starting to think. We're about halfway through a typical sale cycle of the mausoleum in the Toronto market. So that's about the time, maybe a year-or-so now that we're -- from now, that we'll be in full planning for the next large scale mausoleum project in the Toronto market. So those would be the ones that we're thinking of in principle. A lot of the U.S. opportunities, from a mausoleum perspective, we would look at those, because we're able to presell in the U.S. where we're not able -- or in many markets in the U.S. where we're not able to in Canada, and we're -- so we're able to take customer deposits, and ultimately, use the customer funds for the buildout, we wouldn't necessarily look at those as uses of our own capital, but there are a number of those opportunities out there as well.
Okay. That's very helpful commentary. And then last one, since I suspect everybody on this call either has done or is about to do a bunch of math over -- for the next 5 years, I was wondering if Joe could maybe start us off with what the pro forma EBITDA run rate is with the full year Citadel and then -- sorry, with Citadel and the full year Signature?
For 2000...
Pro forma, yes.
Pro forma, we're looking over to 2019, and that number is, without being very specific on it, is in the sort of high-CAD 40 million range, Canadian dollar adjusted EBITDA.
[Operator Instructions] Your next question comes from the line of Scott Fromson with CIBC.
Most of my questions have been asked, so I'll ask a very basic one. Are you seeing any change in terms of the challenge of the traditional death care practices? And do you have any new initiatives in process or planned?
Are you thinking more -- are you thinking cremation rate, Scott? Are you thinking more cremation rate? Or are you thinking is that more sort of general in terms of moving towards celebrations of life and that type of thing? Or are you...
Yes, exactly. Celebrations of life, green funerals, discount funerals, et cetera.
The discount segment, or the sort of lower cost segment, if you will, in certain markets, higher cremation markets has been growing quite quickly. The memorial service -- post-cremation memorial service is also gaining in popularity versus the traditional funeral. The benefit, I suppose, in some respects of our industry is that none of these move on sort of hockey-stick level growth trajectories, and you're able to see things. These trends are sort of known and established. It's really just a question of which markets are either at the most risk or has the most opportunity, and sometimes that's the same market, to be impacted by these trends. But I would -- to answer the question simply, there's not a whole lot of -- there's been nothing new, if you will, that we've seen. Just more sort of acceleration in relatively modest ways and in certain markets of developments that were already taking place that we have just -- we've already highlighted.
Your next question comes in the light of Raveel Afzaal with Canaccord.
Just a few housekeeping questions. Joe, when you mentioned that the impact from weakness in the cemetery business at-need business was close to $400,000 or $500,000, you were speaking about revenues? Or were you speaking about on the EBITDA number?
Yes, that would be on the EBITDA, the closer to the CAD 400,000 number, the EBITDA number -- adjusted EBITDA number.
Just in Michigan, right, Raveel?
Yes. I was asking overall for the business. I was asking on a consolidated basis for Q2 '18, the impact of at-need weakness.
So yes, that's a different question. It's a different question, yes.
That's a tough thing to quantify, Raveel, that the impact of the at-need. I don't have that particular number.
No problem. But just -- despite that, it's very helpful.
Yes. It impacts the profit margins, the EBITDA profit margins, and so on.
Got it. Another housekeeping question. How should we think about gross margins now? In Q2 '18, you did see some high portion coming from higher margin funeral business, but then you also have these high-margin acquisitions that you guys have completed. So should we think about the 79% that you have right now as the run rate going forward? Or should we -- if you can just speak to that?
Yes. I would say that, that number, we'd be happy with that number, Raveel, as a -- our run rate gross margin number. We've said before that we see improvement in the EBITDA profit margins, they're currently in the low-20s, and over the next few years, we would like to move that higher by 400 basis points-or-so-on. And so those come out of operating efficiencies and the synergies, that type of thing, not at the gross margin level.
Great. And then how much integration cost are you guys passing in for Q3 '18? I know it's going to be directionally down, but if you could quantify that for us?
In terms of integration cost, we don't necessarily fit -- we think of them more in sort of a 12- to 18-month sort of window. So we would -- the timing can be challenging to predict depending on when the buildout of certain infrastructure projects, IT, that type of thing, when severance costs are paid and so on. So the timing can be difficult to predict, Raveel, quite frankly, but we're looking at sort of 3 quarters of $1 million over the next 12 months. But I wouldn't want to put a pin in a specific quarter.
That's great. And finally, revenue growth, we invested 5.2% organically. Is there a way to speak about that organic growth also on an adjusted EBITDA basis? Or just too much noise to get to that number?
It can be challenging to get to that number, given we have to make a series of assumptions around the cost -- the overhead costs related to new acquisitions and that type of thing. So it's a harder number to -- not only to get to, but it's a harder number for us to control, I would say, from organic growth, from on an adjusted EBITDA basis, it's harder for us to get to on a quarter-by-quarter basis. Would that be a fair...
Yes. And I'll just go back to the longer-term sort of target of mid-20s, we're 21 now, and wanted to move that up to the mid-20s as an overall target.
There are no further questions in queue at this time. I will now turn the conference back over to our presenters.
Thank you, Tiffany, very much, and thank you, everyone, for joining us on the call today. We appreciate your support, and we look forward very much to speaking with you all again soon.
This concludes today's conference call. You may now disconnect.