STONEMOR INC. REPORTS FOURTH QUARTER FINANCIAL RESULTS; INCREASES CASH LIQUIDITY VIA $17 MILLION EQUITY CAPITAL COMMITMENT AND ADDS SIGNIFICANT CUSHION TO DEBT COVENANTS IN RESPONSE TO COVID-19

TREVOSE, PA – April 2, 2020 – StoneMor Inc. (NYSE: STON) (“StoneMor” or the “Company”), a leading owner and operator of cemeteries and funeral homes, today reported operating and financial results for the 2019 fourth quarter and year ended December 31, 2019 and provided an update on recent liquidity enhancement measures.  Investors are encouraged to read the Company's annual report on Form 10-K when it is filed with the Securities and Exchange Commission (the “SEC”).  That report, which StoneMor expects to file in the next few days, will contain additional detail, and will be able to be found at www.stonemor.com.

FOURTH QUARTER AND FULL YEAR FINANCIAL PERFORMANCE

  • Revenues for the three months ended December 31, 2019were $66.4 million compared to $83.4 millionin the prior year period. Revenues for the twelve months ended December 31, 2019 were $289.5 million compared to $316.1 million in the prior year.
  • Cemetery segment income for the three months ended December 31, 2019 was $0.6 million compared to $6.6 million in the prior year period, representing a decrease of $6.0 million.Cemetery segment income for the year ended December 31, 2019 was $12.4 million compared to $14.9 million in the prior year.
  • Funeral home segment income for the three months ended December 31, 2019 and 2018 was $1.5 million. Funeral home segment income for the year ended December 31, 2019 was $5.9 million compared to $6.9 million in the prior year.
  • Corporate overhead expense, excluding non-recurring expenses and non-cash stock compensation expense, increased to $10.6 million in the fourth quarter compared to $9.9 million in the prior year period. Corporate overhead expense, excluding non-recurring expenses and non-cash stock compensation expense, declined to $38.0 million for the full year period from $39.9 million in the prior year, as a result of corporate cost reduction initiatives.
  • Fourth quarter net loss was $52.4 million compared to $20.5 million in the prior year period.  Full year net loss was $151.9 million compared to $72.7 million in the prior year. The increased loss for the full year was driven primarily by the June 2019 recapitalization and the December 2019 C-Corp conversion, with increases in interest expense of $17.9 million related to the new debt financing, losses on the extinguishment of our old facility and increases in income tax expense of $30.0 million based on the change in tax status and a limitation on our ability to use our NOL carryovers following the recapitalization.  Additionally, we recorded a $24.9 million impairment of goodwill during 2019.

Joe Redling, StoneMor’s President and Chief Executive Officer said, “We are starting to see the impact of our company-wide cost reduction initiatives take hold and we expect to benefit much more significantly from these actions in future quarters. Phase II of our cost reduction efforts are well underway, as evidenced by today’s announcement regarding our partnership with Moon Landscaping that will reduce costs and improve efficiencies across our entire cemetery portfolio.  Additionally, we are in the process of launching a new procurement program that will improve internal controls and drive additional savings opportunities.  We continue to identify and implement additional savings opportunities and we expect to incur one-time expenses of approximately $5 million to achieve these savings in the form of investments in technology platforms, software and other operational costs. That said, we expect that we will exceed our target of over $30 million in annualized cost savings.”

“COVID-19 is creating personal and economic disruption globally. During this challenging time, the health and safety of our team members, our families and our guests remain our top priority. We implemented safe work practices and work from home policies consistent with CDC guidance to reduce the risks of exposure to the virus while supporting the families that we serve. Services and gatherings are being limited in compliance with local, state and federal guidelines, but we are working with our locations to ensure that they have video streaming capabilities for the benefit of friends and family that cannot physically attend a service.  We will also work with our families to ensure that additional services and memorials can be held after this pandemic has subsided.”

“Like every other business world-wide, we have been impacted by the COVID-19 pandemic.  As recently as early March, we were on-pace to deliver double-digit sales growth for the first quarter 2020, as compared to the first quarter 2019.  Over the last two weeks we have seen our Pre-Need sales activity decline as Americans practice social distancing. We have already taken steps to provide virtual meeting options using a variety of web-based tools to our entire salesforce and we are seeing encouraging early results. While we expect our Pre-Need sales business to be challenged during this period, we are doing everything possible to mitigate the disruption. Additionally, we expect this disruption will not have a material impact on our operating cash flow in 2020.  Our cemeteries and funeral homes remain open and fully available to serve our families.”

LIQUIDITY UPDATE
As of December 31, 2019, the Company had $56.8 millionof cash, including $21.9 millionof restricted cash, and $368.3 million of total debt.

StoneMor today announced it has entered into an amendment to the indenture with respect to its 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024. The amendment will provide StoneMor with additional cushion with regards to multiple covenants as it implements its reorganization plan and deals with the impact of the COVID-19 pandemic.  The following covenants were amended as part of the indenture amendment:

  • The Interest Coverage Ratio measurements at March 31, June 30 and September 30, 2020 have been eliminated and replaced with a Minimum Operating Cash Flow covenant measured on a trailing nine month basis of $(25.0 million) for the quarter ended March 31, 2020 and measured on a trailing twelve month basis of ($35.0 million) and ($35.0 million) for the quarters ended June 30, 2020 and September 30, 2020, respectively;
  • The required Interest Coverage Ratios at December 31, 2020, March 31, 2021 and June 30, 2021 were reduced to 0.00x, 0.75x and 1.10x, respectively, from 1.15x, 1.25x and 1.30x, respectively; and
  • The Asset Coverage tests at March 31, June 30, September 30 and December 31, 2020 were reduced to 1.40x from 1.60x.

The amendment requires StoneMor to raise equity capital of not less than $17 million on or before July 31, 2020, in part through the rights offering described below.  The amendment will be effective when StoneMor raises the initial $8.8 million of such equity capital and pays a $5 million consent fee to the noteholders, of which $3.5 million will be paid in cash and $1.5 million will be paid by increasing the principal amount of the Notes outstanding.

StoneMor also announced that it entered into a letter agreement with Axar Capital Management LP (“Axar”) pursuant to which Axar committed to (a) purchase shares of StoneMor Series A Preferred Stock with an aggregate purchase price of $8.8 million on April 3, 2020, (b) exercise its basic rights in the rights offering by tendering the shares of Series A Preferred Stock so purchased for shares of Common Stock and (c) purchasing any shares offered in the rights offering for which other stockholders do not exercise their rights, up to a maximum of an additional $8.2 million of such shares.  StoneMor is not paying Axar any commitment, backstop or other fees in connection with this agreement.

Under the terms of the indenture amendment and the Axar letter agreement, StoneMor agreed to undertake an offering to holders of its Common Stock of transferable rights to purchase their pro rata share of shares of Common Stock with an aggregate exercise price of at least $17 million at a price of $0.73 per share. The rights offering period, during which the rights will be transferable, will be no less than 20 calendar days and no more than 45 calendar days.  StoneMor will use its best efforts to complete the rights offering with an expiration date no later than July 24, 2020.

 “We are pleased to have the continued support of our largest stockholder and our lenders and appreciate the confidence they maintain in the Company’s future,” said Jeff DiGiovanni, StoneMor’s Senior Vice President and Chief Financial Officer. “This timely covenant action provides us with the flexibility we need to continue to invest in our operations and efficiency initiatives, while we prepare the Company to manage through the impacts that we’ll see from COVID-19 and the stock market fluctuations over the past month.  We have a strong cash position and with this added flexibility provided by our equity and debt partners, will be in a strong position for the remainder of 2020 and beyond.”

DIVESTITURE UPDATE
StoneMor has closed on one property in California and has signed definitive purchase agreements for its remaining properties in the state.  Collectively, these California asset sales will yield $82.3 million in purchase price, including $65.2 million in cash, subject to certain adjustments and credits, and $17.0 million of assumed land purchase obligations.

“The exit of California represents a significant milestone in our divestiture strategy and puts us on the path of re-focusing our geographic footprint in areas where we have the ability to create operational scale,” said Redling.  “We have achieved accretive multiples on these transactions, while significantly improving our debt position and improving our liquidity profile. We will continue to target divestitures that produce similar opportunities and expect to finalize additional transactions during the 2ndand 3rdquarters of 2020.”

Per the indenture governing the Senior Notes, StoneMor has used $31.3 million in net proceeds from prior asset sales to redeem a portion of the outstanding Senior Notes and will utilize an additional $23.7 million of net proceeds of the last two California asset sales and 80% of the net proceeds from these sales in excess of that amount to redeem additional outstanding Senior Notes.

CONFERENCE CALL INFORMATION
StoneMor will conduct a conference call to discuss this news release today, April 2, 2020 at 4:30 p.m. Eastern Time.  The conference call can be accessed by calling (877) 256-6190. No reservation number is necessary. StoneMor will also host a live webcast of this conference call.  Investors may access the live webcast via the Investors page of the StoneMor website www.stonemor.comunder Events & Presentations.

About StoneMor Inc.
StoneMor Inc., headquartered in Trevose, Pennsylvania, is an owner and operator of cemeteries and funeral homes in the United States, with 320 cemeteries and 90 funeral homes in 27 states and Puerto Rico.

StoneMor’s cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise. For additional information about StoneMor Inc. please visit StoneMor’s website, and the investors section, at http://www.stonemor.com.

Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release, including, but not limited to, information regarding the anticipated timing of the filing of the Company’s Form 10-K Annual Report and consummation of planned equity capital transactions and additional asset divestitures, as well as continued implementation of the Company’s performance and cost structure improvement efforts and the anticipated financial impact thereof, are forward-looking statements. Generally, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “expect,” “predict” and similar expressions identify these forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based on management’s current expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this press release. StoneMor’s major risks are related to uncertainties associated withcurrent business and economic disruptions resulting from the recent coronavirus pandemic, including the effect of government regulations issued in connection therewith, its ability to identify, and negotiate acceptable agreements with, purchasers of additional properties, uncertainties associated with the cash flow from pre-need  and at-need sales, trusts and financings, which may impact StoneMor’s ability to meet its financial projections and service its debt, as well as with StoneMor’s ability to maintain an effective system of internal control over financial reporting and disclosure controls and procedures.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in StoneMor’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and the other reports that StoneMor files with the Securities and Exchange Commission, from time to time. Except as required under applicable law, StoneMor assumes no obligation to update or revise any forward-looking statements made herein or any other forward-looking statements made by it, whether as a result of new information, future events or otherwise.

 

STONEMOR INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

  

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, excluding restricted cash

 

$

34,867

 

 

$

18,147

 

Restricted cash

 

 

21,900

 

 

 

 

Accounts receivable, net of allowance

 

 

55,794

 

 

 

57,928

 

Prepaid expenses

 

 

4,778

 

 

 

4,475

 

Assets held for sale

 

 

23,858

 

 

 

757

 

Other current assets

 

 

17,142

 

 

 

17,009

 

Total current assets

 

 

158,339

 

 

 

98,316

 

 

 

 

 

 

 

 

 

 

Long-term accounts receivable, net of allowance

 

 

75,549

 

 

 

87,148

 

Cemetery property

 

 

320,605

 

 

 

331,137

 

Property and equipment, net of accumulated depreciation

 

 

103,400

 

 

 

112,716

 

Merchandise trusts, restricted, at fair value

 

 

517,192

 

 

 

488,248

 

Perpetual care trusts, restricted, at fair value

 

 

343,619

 

 

 

330,562

 

Deferred selling and obtaining costs

 

 

114,944

 

 

 

113,644

 

Deferred tax assets

 

 

81

 

 

 

86

 

Goodwill

 

 

 

 

 

24,862

 

Intangible assets

 

 

56,246

 

 

 

61,421

 

Other assets

 

 

29,393

 

 

 

22,241

 

Total assets

 

$

1,719,368

 

 

$

1,670,381

 

 

 

 

 

 

 

 

 

 

Liabilities and Owners' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

55,134

 

 

$

59,035

 

Liabilities held for sale

 

 

20,668

 

 

 

 

Accrued interest

 

 

125

 

 

 

1,967

 

Current portion, long-term debt

 

 

374

 

 

 

798

 

Total current liabilities

 

 

76,301

 

 

 

61,800

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of deferred financing costs

 

 

367,963

 

 

 

320,248

 

Deferred revenues

 

 

949,375

 

 

 

919,606

 

Deferred tax liabilities

 

 

34,613

 

 

 

6,675

 

Perpetual care trust corpus

 

 

343,619

 

 

 

330,562

 

Other long-term liabilities

 

 

49,987

 

 

 

42,108

 

Total liabilities

 

 

1,821,858

 

 

 

1,680,999

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owners' equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share, 200,000 shares authorized, 94,447 shares issued and outstanding

 

 

944,474

 

 

 

 

 

Paid-in capital in excess of par value

 

 

(1,046,964)

 

 

 

 

Retained deficit

 

 

 

 

 

 

Members' equity

 

 

 

 

 

(10,618)

Total owners' equity

 

 

(102,490)

 

 

(10,618)

Total liabilities and owners' equity

 

$

1,719,368

 

 

$

1,670,381

 

  

STONEMOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)

  

 

Three Months Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemetery:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interments

 

$

14,881

 

 

$

18,772

 

 

$

67,425

 

 

$

76,902

 

Merchandise

 

 

12,606

 

 

 

23,646

 

 

 

64,476

 

 

 

75,412

 

Services

 

 

15,094

 

 

 

16,631

 

 

 

65,494

 

 

 

67,278

 

Investment and other

 

 

11,018

 

 

 

11,558

 

 

 

40,492

 

 

 

42,343

 

Funeral home:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise

 

 

5,854

 

 

 

6,120

 

 

 

23,774

 

 

 

25,652

 

Services

 

 

6,962

 

 

 

6,698

 

 

 

27,861

 

 

 

28,539

 

Total revenues

 

 

66,415

 

 

 

83,425

 

 

 

289,522

 

 

 

316,126

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

8,911

 

 

 

15,260

 

 

 

40,174

 

 

 

54,647

 

Cemetery expense

 

 

17,094

 

 

 

20,880

 

 

 

74,339

 

 

 

78,708

 

Selling expense

 

 

14,508

 

 

 

14,865

 

 

 

59,347

 

 

 

62,538

 

General and administrative expense

 

 

10,801

 

 

 

11,044

 

 

 

44,231

 

 

 

43,081

 

Corporate overhead

 

 

12,962

 

 

 

13,413

 

 

 

51,107

 

 

 

53,281

 

Depreciation and amortization

 

 

2,662

 

 

 

2,883

 

 

 

10,782

 

 

 

11,736

 

Funeral home expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise

 

 

1,786

 

 

 

1,652

 

 

 

7,013

 

 

 

6,579

 

Services

 

 

5,296

 

 

 

5,566

 

 

 

21,659

 

 

 

22,159

 

Other

 

 

3,605

 

 

 

3,472

 

 

 

14,643

 

 

 

15,787

 

Total costs and expenses

 

 

77,625

 

 

 

89,035

 

 

 

323,295

 

 

 

348,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other losses, net

 

 

(4,548)

 

 

(7,001)

 

 

(8,106)

 

 

(11,504)

Operating loss

 

 

(15,758)

 

 

(12,611)

 

 

(41,879)

 

 

(43,894)

Interest expense

 

 

(13,237)

 

 

(7,744)

 

 

(48,519)

 

 

(30,602)

Loss on debt extinguishment

 

 

 

 

 

 

 

 

(8,478)

 

 

 

Loss on goodwill impairment

 

 

 

 

 

 

 

 

(24,862)

 

 

 

Loss from operations before income taxes

 

 

(28,995)

 

 

(20,355)

 

 

(123,738)

 

 

(74,496)

Income tax (expense) benefit

 

 

(23,363)

 

 

(179)

 

 

(28,204)

 

 

1,797

 

Net loss

 

 

(52,358)

 

 

(20,534)

 

 

(151,942)

 

 

(72,699)

Net loss attributable to StoneMor Partners L.P. (predecessor)

 

 

(52,358)

 

 

(20,534)

 

 

(151,942)

 

 

(72,699)

Net loss attributable to StoneMor Inc.

 

$

 

 

$

 

 

$

 

 

$

 

Net loss per common share (basic)

 

$

(1.23)

 

$

(0.54)

 

$

(3.84)

 

$

(1.92)

Net loss per common share (diluted)

$

(1.23)

$

(0.54)

$

(3.83)

$

(1.92)

Weighted average number of common shares outstanding - basic

 

 

42,401

 

 

 

37,959

 

 

 

39,614

 

 

 

37,959

 

Weighted average number of common shares outstanding - diluted

 

 

42,401

 

 

 

37,959

 

 

 

39,677

 

 

 

37,959

 

 

STONEMOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  

 

Year Ended December 31,

 

 

 

2019

 

2018

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net loss

 

$(151,942)

 

$(72,699)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Cost of lots sold

 

7,027

 

7,808

 

Depreciation and amortization

 

10,782

 

11,736

 

Provision for bad debt

 

7,559

 

7,358

 

Non-cash compensation expense

 

3,623

 

2,523

 

Loss on debt extinguishment

 

8,478

 

 

Loss on goodwill impairment

 

24,862

 

 

Non-cash interest expense

 

18,095

 

5,985

 

Other losses, net

 

8,106

 

11,504

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable, net of allowance

 

(8,633)

 

4,498

 

Merchandise trust fund

 

(17,916)

 

4,295

 

Other assets

 

(56)

 

2,618

 

Deferred selling and obtaining costs

 

(3,598)

 

(4,819)

 

Deferred revenues

 

36,656

 

37,405

 

Deferred taxes, net

 

27,943

 

(2,591)

 

Payables and other liabilities

 

(8,972)

 

10,836

 

Net cash (used in) provided by operating activities

 

(37,986)

 

26,457

 

Cash Flows From Investing Activities:

 

 

 

 

 

Cash paid for capital expenditures

 

(6,418)

 

(12,172)

 

Cash paid for acquisitions

 

 

(1,667)

 

Proceeds from divestitures

 

6,255

 

 

Proceeds from asset sales

 

 

1,276

 

Net cash provided by (used in) investing activities

 

(163)

 

(12,563)

 

Cash Flows From Financing Activities:

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred units

 

12,500

 

 

Proceeds from issuance of redeemable convertible preferred units - related party

 

45,000

 

-

 

Proceeds from borrowings

 

406,087

 

29,880

 

Repayments of debt

 

(366,905)

 

(28,493)

 

Principal payment on finance leases

 

(1,464)

 

 

Cost of financing activities

 

(17,396)

 

(3,955)

 

Reduction to GP Holdings' merger consideration related to SEC settlement - related party

 

(250)

 

 

Units repurchased related to unit-based compensation

 

(803)

 

 

Net cash provided by (used in) financing activities

 

76,769

 

(2,568)

 

Net increase in cash, cash equivalents and restricted cash

 

38,620

 

11,326

 

Cash, cash equivalents and restricted cashBeginning of period

 

18,147

 

6,821

 

Cash, cash equivalents and restricted cashEnd of period

 

$56,767

 

$18,147

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the period for interest

 

$32,239

 

$25,606

 

Cash paid during the period for income taxes

 

1,419

 

1,725

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

Operating cash flows from operating leases

 

$3,638

 

$                      

 

Operating cash flows from finance leases

 

495

 

 

Financing cash flows from finance leases

 

1,464

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Acquisition of assets by financing

 

$2,277

 

$2,673

 

Classification of assets as held for sale

 

23,340

 

543

 

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