OREANDA-NEWS. StoneMor Partners L.P. has reported operating and financial results for the second quarter 2016.

Second Quarter Summary

  • On a GAAP basis, the Partnership generated a net loss of $9.1 million for the second quarter 2016 compared with a net loss of $4.8 million for the prior year second quarter, an unfavorable change of $4.3 million.  The change in earnings is primarily attributable to reduced trust-related investment income of $4.3 million and a $0.8 million decrease in cemetery margin, partially offset by improvements of $0.7 million in both corporate overhead and funeral home margin.
  • Adjusted EBITDA, a non-GAAP measure, was $23.0 million for the second quarter 2016, a decrease of $3.6 million compared to $26.6 million for the prior year second quarter. The change in Adjusted EBITDA was primarily attributable to a $6.4 million decrease in non-GAAP trust-related investment income  primarily due to an almost $8.0 million decline in realized gains and a $0.4 million decrease in non-GAAP cemetery margin due principally to a decrease in at-need sales.  Partially offsetting these declines was a $2.0 million decrease in non-GAAP corporate overhead expenses resulting from lower labor costs and professional fees and a $1.0 million increase in non-GAAP funeral home margin arising from contributions from recent acquisitions and lower same store expenses.
  • Distributable cash flow, a non-GAAP measure, was $16.8 million for the second quarter 2016 compared with $19.6 million for the prior year second quarter, a decrease of $2.8 million.  The change in distributable cash flow was primarily attributable to a $3.6 million decrease in Adjusted EBITDA partially offset by a $0.8 million decrease in maintenance capital expenditures.
  • On August 4, 2016, the Partnership entered into a new, $210 million revolving credit facility, replacing its previously existing $180 million facility.  The new facility, which has a current maturity date of December 1, 2020, includes significant improvements to the previous facility, including an accordion feature which allows the facility to be increased up to $310 million and a reduction of interest rates on borrowings between 0.75% and 1.00% annually, among other items.
As previously announced, the Partnership declared a $0.66 distribution for the second quarter, our 47th consecutive quarterly distribution.  Management of the Partnership believes that demographic trends and improved operational execution will continue to support the maintenance of the current distribution.

Larry Miller, StoneMor’s President and CEO, commented, “While pre-need sales in our cemetery division rebounded strongly from the prior two quarters, they are not yet at levels we anticipated and were a significant driver of our shortfall to previously announced guidance for the period.

“We decided last year to focus our efforts on ensuring we have the highest quality salesforce possible and reducing salesforce turnover to better drive sales.  In order to achieve these goals and be well positioned for future growth, we made structural changes which resulted in the elimination of our underperforming sales professionals.  Because of our increased selectivity in filling these vacancies, headcount was slow to ramp, resulting in fewer salespeople engaging customers and pre-need sales falling below acceptable levels.  The corrective action we are taking to improve overall sales performance is taking longer than we expected to implement and yield results.  We expect to announce additional measures in the coming weeks and once our salesforce returns to its optimal size and strength, we expect pre-need sales to return to targeted growth levels.

“In addition, we initiated a program early this year designed to take advantage of the scale we have achieved through our growth acquisition program. Through both enhanced efficiency and leveraging of our position as an industry leader, we have reduced annual operating and overhead costs by $2.5 million year-to-date, with an additional $5.0 million of savings to be announced in the next few weeks.  These actions will help assure our ability to achieve our revised full year guidance of $100 million to $110 million of Adjusted EBITDA for 2016.”

Operating Highlights

Cemetery Operations

  • Cemetery contracts written for the second quarter 2016 were 28,365 compared to 26,031 in the first quarter 2016 and 30,227 in the prior year second quarter.
  • GAAP cemetery margin was $1.2 million for the second quarter 2016, a decrease of $0.8 million compared to the second quarter 2015.  GAAP cemetery margin percentage was approximately 2% for the second quarter 2016, compared with 4% in the prior year second quarter.  Non-GAAP cemetery margin(1) was $15.2 million for the second quarter 2016 compared with $15.6 million for the prior year second quarter, a decrease of $0.4 million due principally to lower at-need sales, partially offset by lower cemetery costs due to cost reduction initiatives.  Non-GAAP cemetery margin percentage was approximately 22% for the second quarter 2016, compared with 21% in the prior year second quarter.
  • GAAP cemetery margin (same store) was $1.0 million for the second quarter 2016, a decrease of $1.0 million compared with the second quarter 2015.  Non-GAAP cemetery margin(1) (same store) was $14.6 million, compared to $15.6 million for the second quarter 2015.

Funeral Home Operations

  • Funeral home calls for the second quarter 2016 were 4,219 compared with 3,778 in the prior year period.
  • GAAP funeral home margin was $2.0 million for the second quarter 2016, an increase of $0.7 million compared to the second quarter 2015.  GAAP funeral home margin percentage was approximately 14% for the second quarter 2016, compared with 10% in the prior year second quarter.  Non-GAAP funeral home margin was $4.1 million for the second quarter 2016 compared with $3.1 million for the prior year second quarter, an increase of $1.0 million due principally to contributions from recent acquisitions.  Non-GAAP funeral home margin percentage was approximately 23% for the second quarter 2016, compared with 19% in the prior year second quarter.
  • GAAP funeral home margin (same store) was $1.8 million for the second quarter 2016, an increase of $0.4 million compared with the second quarter 2015.  Non-GAAP funeral home margin (same store) was $3.5 million, compared to $3.2 million for the second quarter 2015.

Trust Investment Income

  • GAAP trust investment income was $4.8 million for the second quarter 2016, a decrease of $4.3 million compared to the second quarter 2015.  Non-GAAP trust investment income was $9.2 million for the second quarter 2016 compared with $15.6 million for the prior year second quarter.  The decline in non-GAAP investment trust income was largely the result of an almost $8.0 million decrease in realized gains between periods, partially offset by higher returns on invested funds.
  • Trust investment returns, including realized gains and losses and dividends (excluding realized gains on perpetual care trusts), net of fees, were 1.3% (5.1% annualized) for the second quarter 2016, compared with 1.9% (7.5% annualized) for the prior year second quarter.
Corporate Expenses, Liquidity and Capital Structure
  • Corporate overhead expenses for the second quarter 2016 were $9.7 million compared with $10.4 million for the prior year second quarter.  Corporate overhead expenses, excluding acquisition and related costs and non-cash stock compensation, for the second quarter 2016 were $7.8 million, a decrease of $2.0 million, or 20% from the $9.8 million for the prior year second quarter due to lower labor costs and professional fees due to cost reduction initiatives.
  • Interest expense was $5.7 million for the second quarter 2016 compared with $5.8 million for the prior year second quarter.  Cash interest expense, which excludes non-cash amortization of deferred finance costs and accretion of discounts, was $4.9 million for the second quarter 2016 compared with $5.0 million in the prior year second quarter.
  • As of June 30, 2016, the Partnership had $283.2 million of total debt, including $112.5 million outstanding under its revolving credit facility.  The Partnership had approximately $61.0 million available on its $180.0 million revolving credit facility existing at June 30, 2016, and $9.4 million of cash and cash equivalents as of the same date.  On August 4, 2016, the Partnership entered into a new, $210 million revolving credit facility, replacing its previously existing facility.
  • During the three months ended June 30, 2016, the Partnership issued 176,208 common units under the ATM Equity Program for net proceeds of $4.2 million.

Working Capital Requirements

  • In addition to cash paid for acquisitions, the Partnership’s principal working capital need is to fund contributions to its Merchandise trust and expansion capital expenditures.  These amounts are funded temporarily through borrowings under the Partnership’s revolving credit facility until they can be financed long-term through issuance of additional limited partner units or senior unsecured notes.  In particular, contributions to the Partnership’s Merchandise trust result from individual state requirements that cause it to contribute approximately 70% of the merchandise and service portion of its pre-need sales into the trust, which must remain in the trust until the time of delivery of the merchandise or service.  The table below reflects the amount of net cash received from the issuance of limited partner units compared to the net cash paid for acquisitions and net contributions to the Partnership’s Merchandise trust for the six months ended June 30, 2016 and the three years ended December 31, 2015 (in thousands):
  • The Partnership’s cash flows are unfavorably impacted by negative working capital movements associated with the net contributions to its Merchandise trusts and the growth in accounts receivable.  So while cash flow may appear diminished, it is because the Partnership’s balance sheet continues to grow in strength.  The Partnership has significant net assets, including its Merchandise Trust and Accounts Receivable, less the associated Merchandise Liabilities, which is net cash to its account when the merchandise or services are delivered to the customer.  The table below presents this data as of June 30, 2016 (in thousands):
  June 30, 2016
   
Accounts receivable, current and long term, net $    169,352  
Merchandise trusts, restricted, at fair value     494,596  
Total Accounts receivable and merchandise trust     663,948  
Less: Merchandise liability     (169,974 )
Total $      493,974  

About StoneMor Partners L.P.

StoneMor Partners L.P., headquartered in Trevose, Pennsylvania, is an owner and operator of cemeteries and funeral homes in the United States, with 307 cemeteries and 107 funeral homes in 28 states and Puerto Rico.