StoneMor Partners L.P.'s Earnings Boosted by Acquisitions

Despite what Hollywood and folklore would have us believe, cemeteries are relatively quiet and sleepy places. The same can be said for their business operations, which make them predictable sources of revenue.

Growth is hard to come by, though it's not like death is a dying business. But with most of us living longer, it leaves acquisitions as the only sources of real growth for cemetery operators. That scenario was clear when reviewing the third-quarter results of StoneMor Partners (STON), which reported before the opening bell on Monday morning.

StoneMor Partners results: The raw numbers

Data source: StoneMor Partners L.P.

What happened with StoneMor Partners this quarter? 
StoneMor Partners had a real quiet quarter:

• The 3.7% increase in cemetery contracts written was primarily driving by acquisitions over the past year, including its agreement with the Archdiocese of Philadelphia.
• The average revenue per written contract, however, was up 7% year over year to $2,802. This is largely due to a shift in revenue mix toward pre-need contracts, which went from 48% of revenue to 50%. Pre-need contracts also increased to a record $3,815 in revenue per written contract.
• Funeral home calls increased 6% year over year to 3,814 due to acquisitions. Meanwhile, funeral home margin jumped 44% to $5.5 million, which was primarily attributed to revenue from insurance contracts.
• Trust investment and interest income decreased 31% to $10.9 million largely due to the timing of realized gains while trust fund returns were 1.1%, or 4.2% annualized. This annualized rate is down from 6.4% in the year-ago quarter largely due to the timing of realized merchandise trust gains.
• Corporate expenses dropped 2% year over year due to lower professional fees.
• The combination of acquisition-driven growth, lower costs, and weaker investment gains combined to drive a 20.1% increase in adjusted EBITDA and a 13.1% boost to distributable available cash.

What management had to say 
CEO Larry Miller, commenting on the company's results, said:

This quarter's results reflect the continued strength of our core businesses, as we generated 20% growth in both cemetery and funeral home quarterly margin on a year over year basis. Not only are we executing on our acquisition strategy, whereby we've added 3 cemeteries and 5 funeral homes year over year, but our team continues to drive value by moderating costs and increasing revenue efficiency, as evidenced by our record revenue per written contract for pre-need sales. We expect to continue to enhance unitholder value through organic enhancement of our business as well as being acquisitive in coming periods, and believe we are well positioned to take advantage of opportunities as they arise.

Miller noted that the company's growth is initially driven by acquisitions, which upon integration are enhanced organically by focusing on maximizing the value creation of the acquired properties. One of the core drivers of this organic growth is pre-need sales, which are much higher than at-need contracts because there is a greater ability to up sell to customers given the lack of time constraints nor the more sensitive circumstances surrounding an at-need purchase.

Looking forward 
This past July, StoneMor initiated an equity offering, which brought in $67.9 million and was used to pay down some of the outstanding borrowings under its credit facility. After its most recent acquisitions, which totaled $14 million, the company has roughly $66.5 million in borrowing capacity on its credit facility and another $11.8 million in cash, which is ample liquidity to take advantage of acquisition opportunities as they arise. That said, the timing of future acquisitions could be lumpy, which is the price paid for acquisition-driven growth.