StoneMor Partners ' CEO Discusses Q4, 2013 Results - Earnings Call Transcript

Mar.14.14 | About: StoneMor Partners (STON)

StoneMor Partners LP (NASDAQ:STON)

Q4 2013 Results Earnings Conference Call

March 14, 2014, 10:00 AM ET

Executives

John C. McNamara – Director of Investor Relations

Lawrence Miller – Chairman, President and CEO

Timothy K. Yost – CFO

Analysts

Suzanne Hannigan - Janney Montgomery Scott LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the StoneMor Partners LP 2013 Full Year Financial Results Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded Friday, March 14, 2014.

I would now like to turn the conference over to John McNamara, Director of Investor Relations. Please go ahead, sir.

John McNamara

Thanks, Paul. Good morning, everyone and thank you all for joining us to discuss our 2013 fourth quarter and full year financial results. With us on the call this morning are Larry Miller, President and Chief Executive Officer; and Tim Yost, Chief Financial Officer.

At this time I would like to remind everyone that statements made on today’s conference call as well as in our public filings, releases and websites, which are not historical facts, maybe considered forward-looking statements that involve risks and uncertainties and are subject to change at any time.

We caution investors that any forward-looking statements made by us are not guarantees of future performance and we disclaim any obligation to update such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

Furthermore, given the provisions of the SEC’s Regulation G, which limits our ability to provide non-GAAP financial information we are only going to discuss non-GAAP financial information, which is provided in the earnings releases and is therefore reconciled to comparable GAAP financial information. The full earnings release can be found on our website at www.stonemor.com.

And now I’ll turn the call over to Larry who will take it from here. Go ahead Larry.

Lawrence Miller

Thank you, John and good morning everyone and thanks for joining us for our Q4 earnings call. As you can see from our release we had a strong fourth quarter and are looking forward to a solid 2014. Tim will provide more details but I would like to point out a few things. We continue to grow the company through acquisitions and presently have almost $1.5 billion in assets. Especially important to note is how liquid our balance sheet is. We have approximately $750 million in our trust funds and over a $150 million in cash and accounts receivable.

Our combined cash, accounts receivable and merchandize trust exceeds our liability to deliver all of our products by over $450 million. So in other words if we went out today and had to buy all of the merchandize and services that we currently sold, there would be $450 million left over cash profit to be distributed to our shareholders to be used to pay all the debt or to continue growing the company.

We also have a net backlog of deferred earnings of almost $0.5 million. These two factors help to ensure continued success for StoneMor. Unfortunately GAAP is more about delivery than performance so I would encourage you to focus on the non-GAAP information provided in the release and further discussed in our 10-K under segment reporting so you can go back into the 10-K now and kind of tie in all of the numbers that you will see in the press release.

As we previously announced we entered into an exciting transaction with the Archdiocese of Philadelphia whose cemeteries currently intern about 7,000 individuals per year. While this has taken longer to close than anticipated we have recently received final regulatory approval and we look forward to closing this in the near future. We also are looking at a number of other acquisitions and should be able to make some announcements in very near future.

And before I turn it over to Tim I want to thank all of you for your continued support and look forward to talking to you again in 2014. Tim, take it over.

Timothy Yost

Thank you, Larry and good morning everyone. It really was a solid quarter. We had significant growth in every operating metric that we measured. Production-based revenues increased by 17.4% which led to an increase in adjusted operating profit of 73% and an increase in distributable free cash flow of 79%. These increases were attributable to growth in every revenue category but particularly in investment income from our trust and revenues related to our funeral home segment.

The funeral home increase was primarily related to the Seawinds locations that we acquired last February but we are pleased with the performance of all of our funeral home locations. Additionally all of our costs were in-line with our expectations and yielded really positive results. It was a nice all round performance from our all of our operating groups.

Helped by the strength of our fourth quarter we wound up having an excellent year as well. Similarly we experienced very real increases in all of our annual operating metrics. Production based revenues increased by 10.2% for the year, adjusted operating profits increased by 24.9% and distributable free cash flow increased by over 42% this year.

As Larry mentioned our backlog which is a measure of all of the things that we have sold and earned in our trust that are associated with direct selling expenses and cost of goods sold increased by $61.6 million or 14.6% during the year. Those of you who regularly follow the company understand this growth is the result of the profit deferral that we will not recognize until we have delivered the goods and services to our customers. This trend is indicative of our pre-need sales efforts exceeding the maturation of contracts that we have previously sold.

Our operating cash flows which including use of cash for the amount that we invested in our merchandise trust accounts increased by 10% during the year and all in all that’s a good number but if the cash flows into the trust investments were classified as investing cash flows rather than operating. The growth was 65% greater than 2012 results which is really noteworthy. We continue to see performance growth in all of our revenue categories and are really pleased with the results that we saw this year.

In February we accessed the public equity markets to raise funds for growth activities that we had previously financed with our bank lines. As we have stated since we went public in 2004 our roll-up strategy is to utilize our bank facility for growth in our asset base in the short term and then secure provenance financing for the long term. After the completion of our most recent equity offering we have approximately $63 million of remaining borrowing capacity on our working capital lines.

We are now in our 10th year of successfully executing this strategy. We are looking forward to a very active and exciting 2014. The deal that Larry discussed and we have announced in the past for the Archdiocese of Philadelphia should provide us with a really unique opportunity for strong growth. We look forward to serving the catholic community and operating in our own home town. Additionally our acquisition pipeline is robust and we believe it includes several other promising opportunities.

With that operator I would like to turn it over and we can take questions from the people who are on the call.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Suzanne Hannigan, please proceed. Ms. Hannigan, your line is open. You may proceed with your question.

Suzanne Hannigan - Janney Montgomery Scott LLC

Hi, can you hear me now?

Lawrence Miller

Yeah, good morning, Suzanne.

Suzanne Hannigan - Janney Montgomery Scott LLC

Good morning, how are you?

Lawrence Miller

Good, how are you?

Suzanne Hannigan - Janney Montgomery Scott LLC

Good, can you breakdown the backlog for us between deferred cemetery sales and investment income?

Timothy K. Yost

I can, not extraordinarily quickly but I can. The total backlog or the change in the backlog?

Suzanne Hannigan - Janney Montgomery Scott LLC

The change -- well both.

Timothy K. Yost

Change no, total potentially…

Suzanne Hannigan - Janney Montgomery Scott LLC

Okay.

Timothy K. Yost

And not know forever, not know with the materials that I have in front of me.

Suzanne Hannigan - Janney Montgomery Scott LLC

Okay.

Timothy K. Yost

I will do it the other way and what I will do is tell you what the components of -- we have deferred merchandize trust revenue of $88.7 million as a component of the backlog.

Suzanne Hannigan - Janney Montgomery Scott LLC

Okay.

Timothy K. Yost

Is that helpful?

Suzanne Hannigan - Janney Montgomery Scott LLC

Yes, thanks.

Lawrence Miller

Do you have anymore?

Suzanne Hannigan - Janney Montgomery Scott LLC

Well, since the line's open, just curious I think this came up on a prior call but just wanted to clarify again, the selling expense is up disproportionate to the level of sales and just wondered if there is a change in commission structure or what might be affecting that.

Lawrence Miller

No change in commission structure, Suzanne, the important thing to remember about our selling expenses it has a very large -- or it has a fixed component to it as well for all of the non-direct selling costs. So to the extent that our GAAP recognized revenues are not as strong the percent looks differently but if you look at the table that we provide showing the non-GAAP information you will see that our selling expenses as a percentage of revenue are right in line.

Suzanne Hannigan - Janney Montgomery Scott LLC

Okay, and on the at-need cemetery revenues that's an unusually large increase in the quarter, is that a reflection of weather, or…?

Lawrence Miller

No, I mean it's not a reflection of anything in particular other than the fact that we did more services, at-need services.

Suzanne Hannigan - Janney Montgomery Scott LLC

Okay, that's all I've got. Thank you.

Lawrence Miller

Thank you.

Operator

And it appears we are not showing any further questions at this time.

Lawrence Miller

Okay, well, thank you people for joining us today. Again we are off and running for 2014 and we will talk to you shortly about our Q1. Thanks everyone. Have a good day.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for participation and ask that you please disconnect your lines.

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