StoneMor Partners (STON) Q2 2012 Earnings Call August 7, 2012 11:00 AM ET Executives John McNamara – Director, IR Larry Miller – President and CEO Tim Yost – CFO Analysts Colin Stewart Robert Carlson Nick Jensen Chris Bailey Presentation Operator
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.Read the rest of this transcript for free on seekingalpha.com