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StoneMor Partners L.P. Reports Second Quarter Financial Results

TREVOSE, Pa., Aug. 08, 2019 (GLOBE NEWSWIRE) -- StoneMor Partners L.P. (STON) (“StoneMor” or the “Partnership”), a leading owner and operator of cemeteries and funeral homes, today reported operating and financial results for the 2019 second quarter and six-month period ended June 30, 2019.  Investors are encouraged to read the Partnership's quarterly report on Form 10-Q when it is filed with the Securities and Exchange Commission (the “SEC”).  That report, which StoneMor expects to file on August 9, 2019, will contain additional detail, and will be able to be found at www.stonemor.com.

  • Revenues for the three months ended June 30, 2019 were $78.5 million compared to $81.6 million in the prior year period.  Six-month revenues were $150.0 million compared to $159.5 million in the prior year period.  

  • Second quarter net loss was $34.4 million compared to $17.0 million in the prior year period.  Six months net loss was $56.9 million compared to $34.9 million in the prior year period.  The reported net loss for the second quarter included a charge of $8.5 million for loss on extinguishment of debt in connection with the Partnership's recently completed equity and debt recapitalization, and income tax expense of $6.4 million due to section 382 limitations on pre-2018 net operating loss carryforward assets resulting from those transactions, which reduced the amount of deferred tax liabilities that were offset by these assets.    

  • Cemetery segment operating profit for the second quarter was $4.8 million compared to $4.1 million for the prior year period.  Six-month segment operating profit was $7.6 million compared to $6.3 million in the prior year period. 

  • Funeral segment operating profit was $1.8 million for the second quarter compared to $2.5 million in the prior year period.  Six-month segment operating profit was $3.3 million compared to $4.5 million in the prior year period. 

  • Corporate overhead expense was $13.1 million for the second quarter compared to $15.2 million in the prior year period. 

  • Cash used in operating activities for the first six months of 2019 was $31.6 million compared to cash provided by operations in the prior year period of $15.4 million.  The reduction in cash from operating activities was primarily due to a decline in sales production, non-recurring working capital initiatives in the prior year period, a decline in accounts payable and accrued expenses, increased debt service costs and increased costs associated with consulting and professional fees arising from the potential C-Corporation conversion, debt refinancing, various employee severance obligations and other ongoing initiatives.

  • Merchandise trust value at June 30, 2019 was $519.4 million compared to $488.2 million at December 31, 2018. 

  • Deferred revenue at June 30, 2019 was $944.1 million compared to $914.3 million at December 31, 2018. 

  • As of June 30, 2019, the Partnership had $41.9 million of unrestricted cash and cash equivalents, $20.1 million of restricted cash related to the cash collateralization of letters of credit with proceeds from the recapitalization, and $358.2 million of total debt.

  • On June 27, 2019, the Partnership completed a $447.5 million recapitalization transaction, consisting of a private placement of $62.5 million of convertible preferred securities and a concurrent private placement consisting of $385.0 million of Senior Secured Notes due 2024. 

Joe Redling, StoneMor’s President and Chief Executive Officer said, “Our second quarter results reflect continued pressure on pre-need production as our sales force adjusts to initiatives we launched in the first quarter of 2019.  We believe we have identified the primary drivers of our sales productivity and pre-need sales issues.  While our initiatives are in the early stages, we remain focused on improving our sales process and training, and optimizing staffing levels across our asset base.

“We are also beginning to see early signs of improvement in sales production with a strong sequential rebound of net interment rights sold and pre-need contracts written from the first quarter of 2019 to the current quarter.  At the same time, we saw a reduction in corporate overhead net of non-recurring expenses on a year-over-year basis.  As we have previously disclosed, we’ve targeted a minimum of $30 million of cost reductions across corporate, G&A, sales and field operations.  After a careful review of labor efficiencies across our properties, at the beginning of July 2019, we implemented a reduction of approximately 6% of our field workforce as part of these cost reduction initiatives. 

“The June 27, 2019 announcement of the closing of our $447.5 million recapitalization not only represented a major step in providing us with a meaningful liquidity improvement to execute our turnaround strategy, but also demonstrated both the strong underlying value of our asset base as well as investor confidence in our management team’s ability to execute our turnaround plan, including the next phase of our performance improvement plans.”  

Garry Herdler, Senior Vice President and Chief Financial Officer added, “In mid-April 2019, we outlined our turnaround strategy focused on four key goals: cash flow and liquidity, capital structure, balance sheet/portfolio review, and performance improvement through cost reductions and revenue enhancement.  Our results reflect the efforts of our initial 100-day plan, which included significant progress on improving liquidity and capital structure.  We believe we have identified additional expense reduction opportunities in the next phase of this operational turnaround strategy.

“We continue to work towards process improvements to better align our cost structure with our revenues and performance improvement efforts.  These efforts and the contemplated C-Corporation conversion are important steps to revitalizing our business and positioning us for future success.  Since joining the team and gaining a better understanding of StoneMor’s business, I am more confident in the execution plans we are developing for the next phase of our turnaround plan to address our near-in challenges and opportunities, with the commitment to set a clear strategic roadmap for the future.”

Updated Unit Count

As of June 30, 2019, the Partnership had 39.53 million units outstanding.  As part of the debt and equity recapitalization, the Partnership issued 52.08 million of Series A Preferred units which are convertible to common units on a 1:1 basis (subject to anti-dilution adjustments) no later than upon the completion of the previously announced C-Corporation conversion.  The outstanding unit count at June 30, 2019, pro forma for the recapitalization transactions, was 91.62 million units. 

In connection with the C-Corporation conversion, and as previously disclosed, StoneMor anticipates issuing an additional 2.95 million common units.  Pro forma outstanding unit count as of June 30, 2019, after giving effect to the matters noted above and the C-Corporation conversion is expected to be approximately 94.57 million units.

Conference Call Information

StoneMor will conduct a conference call to discuss this news release today, August 8, 2019 at 4:30 p.m. ET.   The conference call can be accessed by calling (800) 926-7385.  No reservation number is necessary.  StoneMor will also host a live webcast of this conference call.  Investors may access the live webcast via the Investors page of the StoneMor website www.stonemor.com under Events & Presentations.

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 321 cemeteries and 90 funeral homes in 27 states and Puerto Rico.

StoneMor is the only publicly traded death care company structured as a partnership. StoneMor’s cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise. For additional information about StoneMor Partners L.P., please visit StoneMor’s website, and the investors section, at http://www.stonemor.com

   
CONTACT: John McNamara
  Director - Investor Relations
  StoneMor Partners L.P.
  (215) 826-2945

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release, including, but not limited to, the expected timing of filing the Quarterly Report on Form 10-Q for the Quarter Ending June 30, 2019 and the related investor call together with the implementation and achievement of operational and reporting improvements, are forward-looking statements. Generally, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “expect,” “predict,” “focus,” “review,” “cash flow,” “confident,” “filed timely,” and similar expressions identify these forward-looking statements.  These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based on management’s current expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this press release. StoneMor’s major risks are related to our substantial secured and unsecured indebtedness, our ability to refinance our secured indebtedness in the near term, uncertainties associated with the cash flow from pre-need and at-need sales, trusts and financings, which may impact StoneMor’s ability to meet its financial projections, service its debt and resume paying distributions, as well as with StoneMor’s ability to maintain an effective system of internal control over financial reporting and disclosure controls and procedures.

StoneMor’s additional risks and uncertainties include, but are not limited to: StoneMor’s ability to successfully implement its strategic plan relating to achieving operating improvements, including driving asset-level accountability and profitability, improving sales productivity and effectiveness, reducing operating expenses and improving financial reporting efficiencies; the effect of economic downturns; the impact of StoneMor’s significant leverage on its operating plans; the decline in the fair value of certain equity and debt securities held in StoneMor’s trusts; StoneMor’s ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; increased use of cremation; changes in the death rate; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; StoneMor’s ability to successfully compete in the cemetery and funeral home industry; litigation or legal proceedings that could expose StoneMor to significant liabilities and damage StoneMor’s reputation, including but not limited to litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; the effects of cyber security attacks due to StoneMor’s significant reliance on information technology; uncertainties relating to the financial condition of third-party insurance companies that fund StoneMor’s pre-need funeral contracts; and various other uncertainties associated with the death care industry and StoneMor’s operations in particular.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in StoneMor’s Annual Report on Form 10-K for the Year Ended December 31, 2018 and the other reports that StoneMor files with the Securities and Exchange Commission, from time to time. Except as required under applicable law, StoneMor assumes no obligation to update or revise any forward-looking statements made herein or any other forward-looking statements made by it, whether as a result of new information, future events or otherwise.


STONEMOR PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)

    June 30,     December 31,  
    2019     2018  
Assets                
Current assets:                
Cash and cash equivalents, excluding restricted cash   $ 41,859     $ 18,147  
Restricted cash     20,095        
Accounts receivable, net of allowance     59,550       57,928  
Prepaid expenses     8,942       4,475  
Other current assets     17,231       17,766  
Total current assets     147,677       98,316  
                 
Long-term accounts receivable, net of allowance     83,775       87,148  
Cemetery property     329,760       330,841  
Property and equipment, net of accumulated depreciation     110,655       112,716  
Merchandise trusts, restricted, at fair value     519,382       488,248  
Perpetual care trusts, restricted, at fair value     343,308       330,562  
Deferred selling and obtaining costs     112,916       112,660  
Deferred tax assets     67       86  
Goodwill     24,862       24,862  
Intangible assets     56,877       61,421  
Other assets     33,536       22,241  
Total assets   $ 1,762,815     $ 1,669,101  
                 
Liabilities, Redeemable Convertible Preferred Units and Partners’ Deficit                
Current liabilities:                
Accounts payable and accrued liabilities   $ 55,063     $ 59,035  
Accrued interest     312       1,967  
Current portion, long-term debt     591       798  
Total current liabilities     55,966       61,800  
                 
Long-term debt, net of deferred financing costs     357,575       320,248  
Deferred revenues     944,142       914,286  
Deferred tax liabilities     12,883       6,675  
Perpetual care trust corpus     343,308       330,562  
Other long-term liabilities     52,385       42,108  
Total liabilities     1,766,259       1,675,679  
Commitments and contingencies                
                 
Redeemable convertible preferred units:                
Series A     57,500        
Total redeemable convertible preferred units     57,500        
Partners’ deficit :                
General partner interest     (4,597 )     (4,008 )
Common limited partners’ interest     (56,347 )     (2,570 )
Total partners’ deficit     (60,944 )     (6,578 )
Total liabilities, redeemable convertible preferred units and partners’ deficit   $ 1,762,815     $ 1,669,101  

See Notes to the Unaudited Condensed Consolidated Financial Statements to be included in the Partnership’s Form 10-Q
Report for the Quarter Ended June 30, 2019 (the “Second Quarter 10-Q”).


STONEMOR PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per unit data)

    Three Months Ended June 30,
  Six Months Ended June 30, 
    2019
  2018
  2019
  2018 
Revenues:                                
Cemetery:                                
Interments   $ 20,995     $ 20,789     $ 36,939     $ 40,414  
Merchandise     17,315       17,116       33,856       33,743  
Services     17,365       17,737       33,332       34,228  
Investment and other     9,953       12,038       19,411       21,538  
Funeral home:                                
Merchandise     6,073       6,522       12,348       13,951  
Services     6,794       7,369       14,078       15,642  
Total revenues     78,495       81,571       149,964       159,516  
Costs and Expenses:                                
Cost of goods sold     10,843       13,086       20,586       26,521  
Cemetery expense     21,636       21,007       38,883       38,421  
Selling expense     15,497       17,166       30,230       33,422  
General and administrative expense     10,958       10,163       22,397       21,121  
Corporate overhead     13,137       15,165       26,550       26,992  
Depreciation and amortization     2,716       3,071       5,473       6,116  
Funeral home expenses:                                
Merchandise     1,014       1,108       3,331       3,586  
Services     5,459       5,582       11,012       11,100  
Other     3,994       3,961       7,624       9,001  
Total costs and expenses     85,254       90,309       166,086       176,280  
                                 
Other losses     (3,429 )           (3,429 )     (5,205 )
Operating loss     (10,188 )     (8,738 )     (19,551 )     (21,969 )
Interest expense     (9,346 )     (8,107 )     (22,517 )     (15,220 )
Loss on debt extinguishment     (8,478 )           (8,478 )      
Loss from operations before income taxes     (28,012 )     (16,845 )     (50,546 )     (37,189 )
Income tax benefit (expense)     (6,386 )     (172 )     (6,386 )     2,249  
Net loss   $ (34,398 )   $ (17,017 )   $ (56,932 )   $ (34,940 )
Accretion of redeemable convertible preferred units                        
Net loss attributable to common unit holders   $ (34,398 )   $ (17,017 )   $ (56,932 )   $ (34,940 )
General partner’s interest   $ (357 )   $ (177 )   $ (592 )   $ (364 )
Limited partners’ interest   $ (34,041 )   $ (16,840 )   $ (56,340 )   $ (34,576 )
Net loss per limited partner unit (basic and diluted)   $ (1.44 )   $ (0.44 )   $ (1.44 )   $ (0.91 )
Weighted average number of limited partners’ units outstanding
  (basic and diluted)
    39,329       37,958       39,115       37,958  

See Notes to the Unaudited Condensed Consolidated Financial Statements to be included in the Second Quarter 10-Q

STONEMOR PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

    Six Months Ended June 30,
    2019
  2018
 
Cash Flows From Operating Activities:                  
Net loss   $ (56,932 )   $ (34,940 )  
Adjustments to reconcile net loss to net cash provided by operating
  activities:
                 
Cost of lots sold     3,718       3,489    
Depreciation and amortization     5,473       6,116    
Provision for bad debt     4,219
      1,644    
Non-cash compensation expense     2,566       1,913    
Loss on debt extinguishment     8,478          
Non-cash interest expense     6,684       3,215    
Other losses, net     3,433       5,205    
Changes in assets and liabilities:                  
Accounts receivable, net of allowance     (8,611 )     1,195    
Merchandise trust fund     (9,482 )     (4,181 )  
Other assets     (4,522 )     (1,395 )  
Deferred selling and obtaining costs     (1,165 )     (4,184 )  
Deferred revenues     15,126       33,599    
Deferred taxes, net     6,227       (2,649 )  
Payables and other liabilities     (6,784 )     6,377    
Net cash (used in) provided by operating activities     (31,572 )     15,404    
Cash Flows From Investing Activities:                  
Cash paid for capital expenditures     (4,838 )     (7,626 )  
Cash paid for acquisitions           (833 )  
Proceeds from divestitures     1,250          
Net cash used in investing activities     (3,588 )     (8,459 )  
Cash Flows From Financing Activities:                  
Proceeds from issuance of redeemable convertible preferred units, net     57,500          
Proceeds from borrowings     406,087       16,880    
Repayments of debt     (366,470 )     (12,896 )  
Principal payment on finance leases     (713 )        
Cost of financing activities     (17,437 )     (2,771 )  
Net cash provided by financing activities     78,967       1,213    
Net increase in cash, cash equivalents and restricted cash     43,807       8,158    
Cash, cash equivalents and restricted cash—Beginning of period     18,147       6,821    
Cash, cash equivalents and restricted cash—End of period   $ 61,954     $ 14,979    
Supplemental disclosure of cash flow information:                  
Cash paid during the period for interest   $ 16,981     $ 12,865    
Cash paid during the period for income taxes     1,402       709    
Cash paid for amounts included in the measurement of lease liabilities:                  
Operating cash flows from operating leases   $ 1,858     $    
Operating cash flows from finance leases     238          
Financing cash flows from finance leases     713          
Non-cash investing and financing activities:                  
Acquisition of assets by financing   $ 1,731     $ 688    
Classification of assets as held for sale           543    

See Notes to the Unaudited Condensed Consolidated Financial Statements to be included in the Second Quarter 10-Q

SUPPLEMENTAL OPERATING DATA

  Three Months Ended June 30,   Six Months Ended June 30,
  2019   2018   2019   2018
Interments performed 13,543   14,102   26,538
  28,674
Interment rights sold (1)              
Lots 7,196   8,941   11,681   15,477
Mausoleum crypts (including pre-construction) 342   301   557   847
Niches 552   430   890   859
Net interment rights sold (1) 8,090   9,672   13,128   17,183
               
Number of pre-need cemetery contracts written 10,066   11,547   18,500   21,709
Number of at-need cemetery contracts written 14,623   15,276   27,872   30,003
Number of cemetery contracts written 24,689   26,823   46,372   51,712

______________________________

  1. Net of cancellations. Sales of double-depth burial lots are counted as two sales