Release Details

HOUSTON, March 5, 2014 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the year ending December 31, 2013 along with major near term events that will significantly impact Carriage's intermediate term Outlook.

Melvin C. Payne, Chief Executive Officer, stated, "On January 8, 2014, we issued a press release announcing the termination of Carriage's Good To Great Stock Award Program with an early cash-out and gave notice that the industry acquisition landscape was becoming more attractive and visible.  Moreover, we also stated that we would likely soon look at the optimum capital structure strategy required to finance an accelerating growth strategy over the next five years.  I am now extremely proud to announce the following major milestone events for our company."

I.    Another year of record financial performance in 2013, consistent with our annual Good To Great theme of Carriage Services 2013 - Raising the Standard - ALL IN!

• Total Revenue of $214.0 million, an increase of 7.3%;
• Non-GAAP Adjusted Consolidated EBITDA of $56.1 million, an increase of 5.8%;
• Non-GAAP Basic Earnings Per Share of $1.00, an increase of 23.5%; and
• Non-GAAP Free Cash Flow of $33.2 million, an increase of 60.0%.

II.    Agreement to acquire six businesses from SCI

• Enter two new large strategic markets, New Orleans and Washington, D.C.;
• Four businesses in New Orleans and two in Alexandria, VA; and
• Subject to FTC approval, such approval and closing expected early in the second quarter.

III.    Financing Strategy and Execution Timeframe

• Plan developed with Bank of America, agent for our Bank Group, to expand our existing Revolving Credit Facility and extend our Bank Term Loan simultaneously with closing of SCI divestitures; and
• Plan developed to refinance the TIDES Convertible Security with a new Convertible Issue in conjunction with refinancing of Bank Revolving Credit and Term Loan Facilities.

IV.    Increased Revenue Growth and Earning Power Outlook for 2014 and 2015

• Strong pipeline of quality independent acquisition candidates, creating visibility of an acceleration of revenue and earnings over the next two full years;
• Full year 2014 Outlook range of $231 - $235 million Revenue and Adjusted Basic EPS of $1.18 - $1.22;
• Full year 2015 Outlook range of $254 - $262 million Revenue and Adjusted Basic EPS of $1.42 - $1.48;
• Full Year Outlooks are not "precisely wrong management estimates," but rather "roughly right performance ranges" that will be updated with Rolling Four Quarter Outlooks as we move through these two years.

V.    Dave DeCarlo joins Bill Heiligbrodt and Mel Payne as Executive Officer Leadership Team

• Bill, Dave and Mel will comprise new Operations and Strategic Growth Executive Committee;
• Bill heads Treasury and Finance, Accounting and Reporting, Legal, Investor Relations; and
• Dave heads Strategic and Corporate Development, Supply and Project Development, Operations Support including IT and HR, with a special focus on challenges and opportunities.

"On November 4, 2011, twenty years after Carriage was founded, we finalized a major Board and Executive Management reorganization, which we refer to internally as our Good To Great Transition Date, then launched a five year Good To Great Journey to take Carriage from a "Good" deathcare and consolidation company in 2012 to one considered "Great" by the end of 2016, using equity market valuation as a benchmark.  We assigned 2012 the theme of Carriage Services 2012 - A NEW BEGINNING!, and challenged and empowered our entire field and home office support teams "to own" the five year Good To Great Journey with broadly higher and sustainable operating and financial performance.  We assigned 2013 the theme of Carriage Services 2013 - Raising the Standard - ALL IN!

The results after two full years of this five year Good To Great Journey have been remarkable, as reflected in the Total Shareholder Return graph below comparing the five full years (since January 1, 2009) and YTD 2014 Total Shareholder Returns of Carriage (up 949.5%), SCI (up 317.5%) and the Russell 3000 Index (up 138.9%).  Moreover, approximately 80% of Carriage's Total Shareholder Return over the last five plus years has been realized since we launched our Good To Great Journey on January 1, 2012, as our stock price has increased 265% from $5.60 per share on December 31, 2011 to $20.43 per share on February 28, 2014.

*Total Return includes stock price appreciation and dividend reinvestment

While we have well executed our Standards Operating Model, Strategic Acquisition Model and 4E Leadership Model over the last two years, we believe that we are now well positioned to accelerate the high and sustainable earnings power of Carriage as an operating and consolidation platform in the still highly fragmented funeral and cemetery industry.  While it took 22 years from its founding for Carriage to achieve $1.02 per share in Non-GAAP Adjusted EPS in 2013 ($1.00 Basic plus $0.02 from divested operations), we are poised to expand our earnings power as defined by Non-GAAP Adjusted EPS by over 40% over the 2014 and 2015 Full Year Outlook Periods, as shown below:

The above tables reference certain Non-GAAP financial measurements that are defined and reconciled at the end of this press release.

SCI has pioneered the consolidation of the highly fragmented funeral and cemetery industry over the last fifty years, and has been especially opportunistic over the last eight years with the acquisition of Alderwoods in 2006 (second largest consolidator at the time) and Stewart Enterprises in late 2013 (second largest at the time), leaving only SCI and Carriage as remaining long term, well established and capitalized consolidators with a similar portfolio revenue profile of funeral and cemetery businesses.  We are extraordinarily well positioned to benefit as a highly differentiated family succession planning solution over the next five to ten years, as we have developed an innovative high performance culture operating and consolidation framework that is uniquely attractive to the remaining large, quality independents in 15-20 large, demographically strong strategic markets.

Bill and I are therefore thrilled to have Dave DeCarlo joining our Executive Officer Leadership Team to head the Strategic Development function in order to focus on and realize the full potential of the current industry acquisition landscape. I speak for Dave, Bill and I on behalf of our Senior Leadership Team and Board of Directors when I say that we believe that Carriage is entering a "sweet spot" period of rapidly accelerating earnings power, Free Cash Flow and shareholder value creation as we leverage Carriage's high performance Standards Operating Model, Consolidation and Overhead Platform, and low share count with selective high quality acquisitions vetted by our proprietary Strategic Acquisition Model.  Our Good To Great Journey should continue to produce exceptional shareholder returns in future years and hard earned and well deserved recognition for our company and its Being The Best field operating and home office support leaders and employees.

Lastly and importantly for our company leadership and employees, I am extremely proud to publicly announce our Good To Great annual theme for this year, "Carriage Services 2014 : Being The Best - One Team, One Vision!," concluded Mr. Payne.

FIELD OPERATIONS

Year Ended December 31, 2013 compared to Year Ended December 31, 2012

• Total Field Revenue increased 7.3% to $214.0 million;
• Total Field EBITDA increased 7.0% to $84.6 million;
• Total Field EBITDA Margin decreased 20 basis points to 39.5%;

• Total Funeral Operating Revenue increased 7.2% to $154.7 million;
• Same Store Funeral Revenue increased 0.2% with same store volume increasing 1.6%;
• Acquisition Funeral Revenue increased 39.1% with acquisition volume increasing 28.9%;
• Total Funeral Field EBITDA Margin decreased 150 basis points to 35.9%;

• Total Cemetery Operating Revenue increased 5.7% to $40.5 million;
• Cemetery pre-need property sale contracts increased 11.7% to 7,020;
• Preneed property revenue recognized increased 10.8% and At-need revenue increased 6.5%;
• Total Cemetery Field EBITDA Margin increased 320 basis points to 28.9%;

• Total Financial Revenue increased 12.1% to $18.8 million;
• Funeral Financial Revenue increased 21.3% to $9.3 million;
• Cemetery Financial Revenue increased 4.4% to $9.5 million;
• Total Financial EBITDA Margin increased 100 basis points to 92.3%.

FREE CASH FLOW

We produced Free Cash Flow from operations for the year 2013 of $33.2 million compared to Free Cash Flow from operations of $20.8 million for the corresponding period in 2012. The sources and uses of cash for the year 2012 and 2013 consisted of the following (in millions):

ROLLING FOUR QUARTER OUTLOOK RAISED AND INCREASED TO TWO FULL YEARS

The Rolling Four Quarter Outlooks ("Outlooks") reflects management's opinion on the performance of the portfolio of businesses, plus visible and likely acquisitions, for the rolling four quarter periods ending December 31, 2014, and December 31, 2015, and the performance of trusts during the corresponding periods. These Outlooks do not reflect dilution from conversion related to our existing convertible subordinated debentures, as we intend to refinance this security in the near term based on market conditions.

These yearly Outlooks are not intended to be management estimates or forecasts of our future performance, as we believe such precise quarterly and annual estimates will be precisely wrong all the time.  Rather, our intent and goal is to reflect a "roughly right range" most of the time of future "Rolling Four Quarters Outlook" performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time.

ROLLING FOUR QUARTER OUTLOOK - Periods Ending December 31, 2014 and December 31, 2015

Factors affecting our analysis include, among others, number and size of acquisitions, and timing of closing, funeral contract volumes, average revenue per funeral service, cemetery interment volumes, preneed cemetery sales, capital expenditures, execution of our funeral and cemetery Standards Operating Model, Strategic Acquisition Model and Withdrawable Trust Income. Revenues, Consolidated EBITDA, Adjusted Consolidated EBITDA, Net Income, Adjusted Net Income, GAAP Earnings Per Share and Adjusted Earnings Per Share for the four quarter periods ending December 31, 2014 and 2015 are expected to improve relative to the same period in the previous period for the following reasons:

• Increases in Acquired Funeral Revenue and Acquired Funeral Field EBITDA;
• Increases in Acquired Cemetery Revenue and Acquired Cemetery Field EBITDA;
• Modest increases in Same Store Funeral Revenue and Same Store Funeral Field EBITDA;
• Increases in Same Store Cemetery Revenue and Same Store Cemetery Field EBITDA;
• Increases in Financial Revenue and Financial EBITDA from trust funds; and
• Reduced interest expense in conjunction with the fourth amendment to our bank credit facilities and the refinancing of our $90 million 7% convertible subordinated debentures.

We have not included in our Rolling Four Quarter Outlook a potentially fully diluted EPS calculation using the 4.4 million underlying shares of the TIDES security due to our intent to refinance this security in the near term. Our 2014 Rolling Four Quarter Outlook includes a reduction in cash taxes of approximately $7.25 million due to favorable adjustments from approved accounting method changes. This benefit will not occur in 2015.   The 2015 Rolling Four Quarter Outlook cash flow will be approximately the same as 2014 without the tax benefit.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, March 6, 2014 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-77317838) and ask for the Carriage Services conference call.  A replay of the conference call will be available through March 10, 2014 and may be accessed by dialing 855-859-2056 (ID-77317838). The conference call will also be available at www.carriageservices.com.

TRUST FUND PERFORMANCE

During 2013, Carriage's discretionary trust funds gained 14.2%. The current yield on Carriage's discretionary fixed income portfolio, which comprises 75% of discretionary trust assets, is 8.7% and the estimated annual income for the discretionary portfolio is approximately $11.3 million.

The total discretionary portfolio performance of 14.2% exceeded the 80/20 index benchmark performance of 12.4% in 2013 due to each of the fixed income and equity components of Carriage's  discretionary portfolio outperforming their respective benchmarks (S&P 500 & High Yield Index).  The discretionary portfolio equity and high yield performance in 2013 of 45% and 8.2%, respectively, exceeded  the 32.4% for the S&P 500 and a 7.5% gain for the High Yield Index.   

The 2013 performance of Carriage's discretionary trust portfolio continued to benefit Carriage through higher income earned from preneed funeral and cemetery contracts that have been serviced and through increased income from the cemetery perpetual care trusts. These benefits are evident in the increase in recognized financial revenue in our Trend Reports.  Given the recurring nature of the income generated by the fixed income portfolio, we expect the performance of the discretionary trust portfolio to benefit Carriage for the foreseeable future.

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, cemetery merchandise and services and cemetery perpetual care) at key dates.

 

 

The GAAP Diluted EPS for the year ended December 31, 2013 includes 4.4 million shares that would be issued upon conversion of our convertible subordinated debentures (TIDES) as a result of the if-converted method prescribed by accounting standards.

 

 

NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial performance of the Company.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP.  We believe the non-GAAP results are useful to investors because such results help investors compare our results to previous periods and provide insights into underlying trends in our business. The Company's GAAP financial statements accompany this release.  Reconciliations of the Non-GAAP financial measures to GAAP measures are provided in this press release.

The Non-GAAP financial measures include "Adjusted Net Income", "Adjusted Basic Earnings Per Share", "Adjusted Diluted Earnings Per Share", "Consolidated EBITDA", "Adjusted Consolidated EBITDA", "Free Cash Flow", "Funeral, Cemetery and Financial EBITDA", "Total Field EBITDA" and  "Special Items" in this press release.  These financial measurements are defined as similar GAAP items adjusted for Special Items and are reconciled to GAAP in this press release.  In addition, the Company's presentation of these measures may not be comparable to similarly titled measures in other companies' reports. The definitions used by the Company for our internal management purposes and in this press release are as follows:

• Adjusted Net Income is defined as net income from continuing operations plus adjustments for special items and other non-recurring expenses or credits. 
• Consolidated EBITDA is defined as net income from continuing operations before income taxes, interest expenses, non-cash stock compensation, depreciation and amortization, and interest income and other, net. 
• Adjusted Consolidated EBITDA is defined as Consolidated EBITDA plus adjustments for special items and non-recurring expenses or credits. 
• Free Cash Flow is defined as net cash provided by operations less cash for maintenance capital expenditures. 
• Funeral Field EBITDA is defined as Funeral Gross Profit less depreciation and amortization, regional and unallocated overhead expenses and net financial income.
• Cemetery Field EBITDA is defined as Cemetery Gross Profit less depreciation and amortization, regional and unallocated overhead expenses and net financial income.
• Financial EBITDA is defined as Financial Revenue less Financial expenses.
• Total Field EBITDA is defined as Gross Profit less depreciation and amortization, regional and unallocated overhead expenses. 
• Special Items is defined as charges or credits that are non-GAAP yet can be non-recurring such as withdrawable trust income, acquisition and divestiture expenses, litigation settlements, severance costs, loss on early retirement of debt and other costs, discrete tax items and other non-recurring amounts. 
• Adjusted Basic Earnings Per Share is defined as GAAP Basic Earnings Per Share, adjusted for special items. 
• Adjusted Diluted Earnings Per Share is defined as GAAP Diluted Earnings Per Share, adjusted for special items.

Certain state regulations allow the withdrawal of financial income from preneed cemetery merchandise and services trust funds when realized in the trust.  Under current generally accepted accounting principles, trust income is only recognized in the Company's financial statements at a later time when the related merchandise and services sold on the preneed contract is delivered at the time of death.  Carriage has provided financial income from the trusts, termed "Withdrawable Trust Income" and reported on a Non-GAAP proforma basis within Special Items in the accompanying Operating and Financial Metrics Trend Report (a Non-GAAP Unaudited Income Statement), to reflect the current cash results. Management believes that the Withdrawable Trust Income provides useful information to investors because it presents income and cash flow when earned by the trusts.

Reconciliation of Non-GAAP Financial Measures:

This press release includes the use of certain financial measures that are not GAAP measures.  The Non-GAAP financial measures are presented for additional information and are reconciled to their most comparable GAAP measures below.

 

 

 

 

 

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In addition to historical information, this Press Release contains certain statements and information that may constitute forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. The words "may", "will", "estimate", "intend", "believe", "expect", "project", "forecast", "foresee", "should", "would", "could", "plan", "anticipate" and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

• the execution of our Standards Operating Model;
• changes in the number of deaths in our markets;
• changes in consumer preferences;
• ability to find and retain skilled personnel;
• the effects of competition;
• the investment performance of our funeral and cemetery trust funds;
• fluctuations in interest rates;
• our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
• death benefits related to preneed funeral contracts funded through life insurance contracts;
• our ability to generate preneed sales;
• the financial condition of third-party insurance companies that fund our preneed funeral contracts;
• increased or unanticipated costs, such as insurance or taxes;
• effects of the application of applicable laws and regulations, including changes in such regulations or the interpretation thereof;
• consolidation of the deathcare industry; and
• other factors and uncertainties inherent in the deathcare industry.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. A copy of the Company's Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.

This press release includes the use of certain financial measures that are not GAAP measures.  The Non-GAAP financial measures are presented for additional information and are reconciled to their most comparable GAAP measures in the tables presented above.

 

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SOURCE Carriage Services, Inc.