StoneMor Partners LP (STON) reported its second-quarter results before the market opened on Monday. The cemetery and funeral home partnership delivered a very strong quarter as revenue hit a new record driven by acquisitions it made in 2014. With another acquisition recently in the books, and plenty of liquidity to pursue additional deals, StonMor remains well positioned to continue to deliver solid growth.
A look at the numbers
StoneMor reported revenue of $80.8 million, which is 13% ahead of last year's second quarter. But the more important number for the company is production-based revenues, which is a non-GAAP number that measures the actual value of contracts written and other income generated during the quarter. This topped $100 million for the first time, hitting $107 million for the quarter, which represented a 23% year-over-year increase.
Acquisitions drove the growth in production-based revenue as these assets are now fully integrated into the StoneMor business model. This enabled the company to grow its pre-need cemetery revenue by $5.6 million, or 14%, at-need cemetery revenue by $4.3 million, or 18.7%, and funeral home revenue by $2.7 million, or 20.4%. In addition to that, investment income from the company's trusts jumped $6 million, or 62.7%.
This strong revenue growth, especially, from higher pre-need sales, drove solid growth in distributable cash flow. For the quarter distributable cash flow was $19.2 million, which is well ahead of the $15.4 million it produced in the second quarter of last year. Further, the company produced more than enough cash flow to cover the $18.3 million in distributions it paid to investors resulting in a solid coverage ratio of 1.04 times.
A look at the outlook
StoneMor has a very unique and somewhat complex business model that does make it more difficult to understand the company. One reason for this is the fact that the company needs to defer a large portion of its revenue until services are actually rendered. As such, the company has a very large backlog that will eventually flow through the income statement. That backlog is now up to $587.5 million as it increased $20.2 million over the prior quarter. The added complexity aside, the backlog does provide additional visibility into the strength of the company's pre-need sales, which is a good barometer of future growth.
Further, another good barometer of future growth are recently completed acquisitions. Not only do these acquisitions come with their own backlog, but StoneMor is typically able to accelerate growth from acquisitions by integrating new funeral homes and cemeteries into its sales-driven business model. While the company hasn't been as active in 2015, it did recently announce a deal after the second quarter ended as it is acquiring one cemetery and four funeral homes for $6.6 million. Further, the company also recently raised around $60 million in additional equity capital, which it used to pay down its credit facility. That said, the funding also enhances it liquidity giving it the ability to make additional acquisitions as compelling opportunities arise.
Investor takeaway
Overall, StoneMor reported a very solid quarter as it is starting to see the benefits of acquisitions made last year. This is driving distributable cash flow growth, enabling the company to continue to grow its payout to investors. Further, with a solid backlog and another acquisition in the books the company has visible near-term growth to support its distribution.
