We’ve said before that 2017 was an unusual year for StoneMor Partners, LP in that they had some key executives leave or retire and, probably partly because of that and an accounting review, they delayed their reporting to the Security and Exchange Commission.  They have been working hard and on January 26, 2018, the company released its 3rd Quarter report – which gets the company up to date, as of the end of their 3rd quarter end of September 30, 2017.  Their 4th Quarter report is scheduled to be released on schedule on March 1, 2018.  You can access the company’s press release about the 3rd quarter report here.

Here is what Paul Grady, StoneMor’s President and CEO said in the report, “We are pleased that we are now current with the SEC and spending 2017 focused on efforts to complete our accounting review, make the related restatement, and bring our filings current. . . .In 2017, we also needed to address the issues that adversely impacted revenues and cash flow and ultimately resulted in the Board’s decision to not pay a distribution for the second and third quarters of 2017, and we focused on improving operations across the organization and continuing with efforts to grow the salesforce.  While there is still work to do across the organization and with the salesforce, encouragingly, we are seeing signs of stabilization.”

Here are some highlights of the 3rd Quarter report:

• Quarterly revenues were $84.0 million which is an increase of $3.3 million over the same period of a year ago
• Year to date revenues were at $252.9 million — an increase of $15.0 million over the same period of a year ago.
• Net loss for the quarter was $9.6 million and year to date the loss is at $29.7 million which is an increase of $5.2 million more than the loss for year to date 2016
• Both segments, Cemetery and Funeral, revenues increased for the quarter and year to date
• Pre-Need cemetery contracts decreased almost 20% for the quarter.  Management states that this is because of a promotion ran in the 3rd quarter of 2016 that was not repeated
• For the year, At-Need cemetery contracts are flat compared to the previous year.
• Funeral home calls, for the year have also been flat, with the 9-month year to date number at 12,244.  In our mathematics that would project out to a yearly call volume of about 16,325.

Funeral Director Daily take:  The funeral industry does better when everybody does well and it is good to see StoneMor climb out of some of the holes they have dug for themselves, in our opinion, in the last several years.  It is good to see their revenues stand firm — that is probably a testament to the historical legacies of their properties.  In our opinion, it takes a lot to erode good brands — although over time they can be eroded.

An interesting note to us is that if you take the number of funeral calls they publish divided by the number of funeral homes (97) they represent to own, you come out at 168 annual calls per firm.  It will be interesting to see if that number moves down over the course of the next several quarters which would indicate brands being eroded.  It is a non-scientific number derived at by the information available, but is an indication of brand loyalty nonetheless.

Another interesting note that shows the challenge StoneMor is up against is that they state that they have $307.7 million in total debt.  They state that they are at a leverage ratio of about 4.46 and their maximum allowable under their Credit Agreement is 4.5.  That does not leave much ability to raise cash – especially in what is expected to be an interest rate rising environment.

Finally, we will point out that in the press release, Robert Hellman, Jr., Chairman of the Board of Directors states that StoneMor would like to lower their debt ratio to 3.75.  He commented, “Getting to there from our current position may require a few more quarters in which we preserve our operating cash and manage our leverage by not making distributions.  We believe the long-term benefits of the added liquidity outweigh the benefits of paying a reduced distribution today.”

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