StoneMor Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

StoneMor Partners (STON)

Q2 2012 Earnings Call

August 7, 2012 11:00 AM ET


John McNamara – Director, IR

Larry Miller – President and CEO

Tim Yost – CFO


Colin Stewart

Robert Carlson

Nick Jensen

Chris Bailey



Welcome to the StoneMor Second Quarter’s Earnings Call. (Operator Instructions). I would now like to turn the conference over to John McNamara, Director of Investor Relations. Please go ahead, sir.

John McNamara

Good morning. Thank you for joining us today. Before we begin please take note that statements made in this conference call and in our public filings, releases in our websites which are not historical facts, maybe forward-looking statements that involve risks and uncertainties and are subject to change at any time. We caution investors at any forward-looking statements made by us are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce to publically the results of any revisions to any of the forward-looking statements to reflect future events or developments. Furthermore, given the provisions of the SECs Regulation G which as you know 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, leases and is therefore reconciled to comparable GAAP financial information.

The full earnings release can be found on our website at and I would now like to turn the call over to Larry Miller. Go ahead Larry.

Larry Miller

Thanks John and thank you for joining us for our second quarter earnings call. Normally at this time I kind of take you through the highlights of the quarter and you can see that we had a real solid quarter but given the kind of recent activity in our stock. We thought it might be better if I try to take behind the scenes a little bit and expand on some of our public information kind of help you better understand the company and see the company through our eyes because obviously we are very happy with the quarter and then when I am finished Tim, our CFO will take you through some of the actual details for the quarter. So one of the topics you want to talk about is operations and as we also remind you we report our production based revenues because it's representative of the current sales and operating performance of the company. And because it's certain revenue recognition policies which cemeteries must follow.

During the periods of growth significant portions of our GAAP revenues are deferred and if you look at our balance sheet you will see that number is almost $400 million, that’s future earnings that will commence at a company.

But many of the current operating expenses are charged to our P&L, so what happens is you get a skewed view of the realized earnings during the period. For us here we manage the company on the production base methodology and we can see the profits, the trends and make sure that company is doing everything it's supposed to be doing.

But unfortunately it kind of into it, just think about it we are making acquisitions, we are growing these new sales but a substantial portion of those sales are deferred. They go on to balance sheet but many of the cost associated with those acquisitions go on the P&L and that I think is one of the more confusing things about the company.

If we start growing the company which from a business perspective is not that’s for all of our stakeholders but if we did start growing the company what you would see is we would start to realize those revenues and earnings that are buried in the no pun intended in the deferred revenue and we will not be charging in the cost associated with those revenues because we had previously charged them in when we made the initial acquisitions.

So that point in time what you would see is a substantial build in GAAP earnings and that number would come much closer to what we call the accrual or the production based earnings. To help clarify that I would encourage you to review the M&D in our public documents because I think you will see that this will help better explain the relationship between the production base and the GAAP based revenue recognition. And further more when MLP and obviously cash is something that’s very critical if we stop making acquisitions, our analysis indicates that our operating cash would continue to grow well into the future. As a matter of fact it's projected to cover our dividend distribution beginning in 2014 and that’s operating cash that I know many of you like to look at, we give you a lot more information when we do adjusted operating and distributable cash but just looking with that acquisition and if you think about it, it makes sense because what would happen at that point is we would be withdrawing more cash out of the trust funds than what we were putting in, new money going in and we would also be collecting in more receivables than what we were adding because we were not doing any of the acquisitions.

It would be good from an optic perspective but the company would have stopped growing and that’s not something that’s consistent with our business model. Just to our balance sheet and liquidity, we have a very strong balance sheet and as we provided in a recent press release our cash is held in our merchandise trust and our accounts receivable, all of which ultimate flows to the company, a 100% of that merchandise trust fund belongs to the company and obviously so do the accounts receivable.

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