StoneMor Partners LP (STON) Q2 2014 Results - Earnings Call Transcript

Aug. 8.14 | About: StoneMor Partners (STON)

StoneMor Partners LP (NYSE:STON)

Q2 2014 Earnings Conference Call

August 08, 2014 10:00 AM ET

Executives

John McNamara - Director of Investor Relations

Tim Yost - Chief Financial Officer

Analysts

Bilal Yehia - Raymond James

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the StoneMor Partner’s 2014 Second Quarter 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, the call is being recorded Friday, August 08, 2014.

I’d now like to turn the call over to John McNamara. Please proceed.

John McNamara

Thank you James. Good morning, everyone, and thank you all for joining us to discuss our 2014 second quarter financial results. With us on the call this morning are and Tim Yost, Chief Financial Officer. Before we begin, as usual we would like to remind you all to take note of the cautionary language regarding forward-looking statements contained in the press release. Any forward-looking statements made on this call are not guarantees of future performance. And we disclaim any obligation to update such factors or to announce publicly the results or revisions to any of 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 release, and is therefore reconciled to comparable GAAP information. The full earnings release can be found on our Web site at www.stonemor.com.

And with I’ll turn the call over to Tim Yost. Go ahead sir.

Tim Yost

Thank you John and good morning everyone. Larry Miller who is typically on the call with me isn’t available today, so I’ll be on my own. That being said it has been an incredibly busy quarter. We completed three significant transactions that will continue to shape the Company well into the future. First we received the $130 million commitment from our private investment fund to invest specifically in MLPs. Approximately $30 million of that commitment was used to purchase controlling interest in our general partner from the private equity fund would invest in us prior to going public.

The remaining portion of the general partner is now still owned by members of management and our founders. The next piece of the commitment came in the form of $55 million equity investment that we used to enter into the agreement with the archdiocese of Philadelphia. The initiation in conjunction with this transaction are similar to our public common units, however they allow us to pay our distribution in the form of public common units or cash at our discretion. This significant end of the archdiocese do not have a strong preneed sales program and the build out of that effort will require working capital in the form of trust deposits and growth and accounts receivable.

Having the flexibility to issue units into cash will help us to bridge that gap. The remaining balance of the commitment can be used for future acquisitions of this type or to fill other equity needs the Company may have. Having a strong financial partner with a demonstrated belief in the future growth of the Company is certainly something that we’re very excited about. Second as mentioned earlier and previously we’ll be operating the properties the archdiocese in Philadelphia during the latter half of the quarter. These properties which annually perform 7,000 interments per year will enable us to immediately have an impact in the Philadelphia market.

Combined with the fact that we will be instituting an active preneed sales program we’re very optimistic about our prospects. We began to build our sales force and we’re already seeing the fruits of our efforts. Third in order of completion and not significant, we closed on nine funeral homes and 12 cemeteries that were part of the SCI stored divestiture. These properties are well maintained and already have a significant preneed sales program.

We believe this will enable us to hit the ground running and we’ll not require the use of significant amounts of working capital to ramp up the operations. In our brief period of ownership we haven’t seen anything that would lead us to believe otherwise. Based on these transactions and a continuing strength of our existing businesses we’re able to increase the distribution this quarter and give guidance that we intend to continue to increase through 2015.

So it was a very busy and exciting quarter but we still had a business to run. Because these acquisitions closed fairly late in the quarter, they only had a minimal impact on our operating results. But our existing locations performed very well and the source of multi deposit trends that we’re seeing in our numbers.

If you recall our first quarter was negatively affected by the harsh winter weather. Fortunately the weather was great this quarter and we saw no living effects and we’re able to return to business as usual. We achieved significant growth in virtually all of our revenue categories which led to a 9.2% increase in production based revenues when compared to our results from the same quarter last year.

As I’m going to highlight the fact that the revenues from our Funeral Homes segments grew slightly better than 9%. As you know we grew the segment rather significantly in 2012 and early 2013 and the growth is indicative of our success. Analysis of our supplemental data which is included in our 10-Q will reveal that we not only increased our activity but we also increased the average value of the preneed and at-need contracts that we wrote during the quarter.

In fact the value of our average contract increased by 2.5% and we sold almost 28% more interment rates. We monitor interment rates closely as it’s a sign of growth and our ability to generate future business through the sales associated cemetery goods and services to our families.

Our revenue increase resulted in an increase in adjusted operating profits of 4.4%. As you know we focus a lot of our efforts on generating distributable free cash flow. Last year during the second quarter we received the cash legal settlement which enhanced our results. This item positively impacted distributable free cash flow by $11.9 million during the second quarter of 2013.

So in order to compare our operating results you have to exclude that amount from last year’s numbers. Based on that we generated 18.5% for distributable free cash flows this quarter than the corresponding quarter last year.

So in summary it was a very big quarter which generated not only really good current results but also help position the company for significant future growth. The addition of a strong equity sponsor who provided a new source of equity to both finance archdiocese Philadelphia transaction and acquisition capital to continue to grow our business helps to provide for future stability.

In addition the locations that we added through two significant acquisitions have helped us to fill out our existing markets and gain significant operating mass in our home city of Philadelphia. We were also pleased to be able to increase the distribution and provide guidance that we intend to continue to do so.

Operator I’d now like to turn it over for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). So there are no questions from the phone lines at this time.

Tim Yost

Well operator I want to thank everybody for joining us on the call today. We hope to continue to see this forward momentum and are once again pleased with our results.

It appears that we have a question or two. Operator.

Operator

First question is from the line of John Ransom. Please proceed.

Bilal Yehia - Raymond James

This is Bilal Yehia in for John. Sorry I was having trouble getting in there. I really like the 264 distribution exiting 2015. I was wondering what kind of toggles do you have on that number. What catalyst or possible hindrances could come up that would make that number go higher or lower?

Tim Yost

We’ve analyzed it quite significantly, we’ve looked at many, many financial models not only our based business but the locations that we’ve recently acquired and we feel comfortable with that number. The one great thing about our business is that it is phenomenally stable and long-term prospects are reasonably it is based on historic results. So we’ve provided that guidance to the comfort that we can accomplish it.

Bilal Yehia - Raymond James

And then I guess I just had a quick question on the SCI assets that you guys purchased. I know the archdiocese deal is a pretty handsome deal. But some of your peers are already seeing the benefits of a typical acquisition in the form of those SCI assets. Can you just speak a little bit more deeply on what you’re seeing from those and maybe potential upsides from there?

Tim Yost

Sure, the reality is that we didn’t acquire them until the first week of June, which is really late in the fiscal quarter for us. So as I mentioned on the call that didn’t have a very impact on our business. And to be quite honest I’d be a little bit resistant to speak as early on the process that we have. But that being said clearly we did a lot of due diligence around the properties, we toured them off, they’re all in fantastic shape. The employees are ready and eager to go. I haven’t seen enough of the results to be able to speak intelligently about it. But there is absolutely nothing that we’re seeing that would lead us to believe that our models are anything other than conservative actually.

Bilal Yehia - Raymond James

And then maybe one final one. Are there any potential other one-time items out there that could impact your balance sheet in the future and maybe that we hadn’t considered?

Tim Yost

Potential one-time impacts that could hit our balance sheet in the future. Nothing is coming to mind, we have no plan or regularity at this point.

Bilal Yehia - Raymond James

Maybe I should clarify, maybe seasonal impacts anything on the horizon that you think could stray you away from your historical norm.

Tim Yost

No, anybody follows this industry and our business in particular know the demographics are certainly on our side. There is very little that we see, obviously trends in cremation which we talked about over and over again. But changes in our industry are evolutionary rather than revolutionary. So we don’t see any big surprises out there.

Operator

(Operator Instructions). Our next question is from the line of [indiscernible]. Please proceed.

Unidentified Analyst

I am also on John Ransom’s team but Bilal seem to cover all of our questions. But I do appreciate taking the question.

Tim Yost

Anything else?

Unidentified Analyst

He covered all we had but he did a great job in my opinion.

Operator

There are no further questions from the phone lines at this time.

Tim Yost

Well thank you operator and again everybody for joining us on the call. It was a great quarter and something that we hope to continue into the future. Have a great day and continue to enjoy your summer. Thank you.

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. Thank you.

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StoneMor Partners (NYSE:STON): Q2 Net loss of $0.1M. Non-GAAP Revenue of $86.91M (+9.2% Y/Y) beats by $23.26M.