Carriage Services, Inc.
Nov 3, 2011

Carriage Services Announces 2011 Third Quarter Results

HOUSTON, Nov. 3, 2011 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the three and nine months ended September 30, 2011, compared to the periods of 2010, as follows (amounts in millions, except per share amounts):




Three Months Ended

September 30,


Nine Months Ended

September 30,






2010


2011


2010


2011

Revenues


$  45.5


$  44.1


$  136.8


$   142.8

Net income attributable to common

    shareholders


$    0.9


$    0.8


$     5.9


$       6.7

Diluted earnings per share


$  0.05


$  0.04


$   0.33


$     0.36

Special items (pre-tax)


$    1.5


$    1.8


$     2.6


$       5.8

Non-GAAP net income attributable to

   common shareholders including

   special items


$   1.7


$    1.9


$    7.5


$    10.1

Non-GAAP diluted earnings per share

   including special items


$  0.10


$  0.10


$  0.42


$    0.55

Diluted weighted average shares

    outstanding


17.7


18.5


17.8


18.4

Free Cash Flow


$    0.4


$    7.2


$  11.5


$    19.9




MANAGEMENT REORGANIZATION

Mel Payne, Chief Executive Officer, stated, "Beginning early this year, I communicated that Carriage had a goal of 2011 being a "breakout performance" year in celebration of Carriage's 20th Anniversary from its founding in June 1991.  And while we will have our third straight year of record EPS achievement (much larger on a Non-GAAP basis), we have not executed anywhere close to the sustainable earning power potential of our portfolio of operating businesses."

"Two months ago Bill Heiligbrodt joined Carriage full time as Vice Chairman of the Board and Dave DeCarlo assumed the position of Lead Director, with the three of us comprising the Executive Committee of the Board.  With our company facing unprecedented opportunity but needing to take a "big step up" in 2012 performance, we are announcing the following executive management reorganization."

Mel Payne will head operations and long term vision and strategy

Near Term Goals:

  1. Lead an updating and roll out of Carriage's Standards Operating Model with a goal over the next five years of achieving same store revenue growth of 3% annually at sustainable Field EBITDA Margins as appropriate for each business.
  2. Lead a portfolio optimization process whereby businesses that cannot grow revenue over time at the standard portfolio growth rate will be sold and the proceeds allocated to our acquisition program for reinvestment in higher revenue growth and return businesses.
  3. Lead a complete revamping of Training and Development as a strategic function focused more heavily on recruiting and/or developing Managing Partners with 4E Leadership skills and local staff with motivations and skills to provide high value personal services and sales to our client families.

Bill Heiligbrodt will head growth and financing strategies, legal and investor relations

Near Term Goals:

  1. Lead the development and execution of a much more advanced Strategic Acquisition Model that will directly link to our Standards Operating Model to create a long term Value Creation Model within the Carriage portfolio of funeral and cemetery businesses.  
  2. Lead the investor relations effort to attract new long term shareholders by explaining the value of Carriage's Operating Model when properly executed and the compounding value creation dynamic of adding high quality acquisitions that can quickly be integrated successfully into the Standards Operating Model framework.
  3. Lead the revision of our external reporting to a consistent Non-GAAP valuation format that is transparently reconciled to GAAP in press releases and in our Company and Investment Profile.

THIRD QUARTER, YEAR TO DATE RESULTS

Mr. Payne added, "While our third quarter revenue declined by $1.4 million, our year to date revenue increased by $6 million or 4.4% to $142.8 million.  Our year to date same store funeral volumes and revenues were flat, as was the same store average revenue per funeral contract.  Revenue from funeral operations acquired during 2010 and 2011 increased funeral acquisition revenue by $1.6 million in the third quarter and $6.7 million in the first nine months of 2011.  Cemetery revenue declined by $1.6 million or 15.2% in the third quarter and $0.9 million or 2.9% for the nine months.  Financial revenue declined by $321,000 for the third quarter but increased by almost $200,000 year to date."

"Funeral Field EBITDA Margins increased substantially in the third quarter and nine months in both our same store and acquisition portfolios, resulting in an increase in Total Funeral Field EBITDA of $1.8 million or 21% in the third quarter and $4.3 million or 14% for the first nine months.  Total Cemetery Field EBITDA and Cemetery Field EBITDA Margins declined in the third quarter but increased by $400,000 and 210 basis points (to 25.1%) respectively for the nine months.  Financial EBITDA declined by $280,000 in the third quarter but increased slightly for the nine months.  Total Field EBITDA increased by $0.9 million for the third quarter primarily due to an increase of 300 basis points in Field EBITDA Margin, while Total Field EBITDA for the nine months increased $4.9 million or 10.3% due to higher funeral acquisition revenue and an increase of 190 basis points in the Total Field EBITDA Margin to 36.6%."

"Overhead increased substantially in the third quarter and nine months, in large part due to special items that are included in GAAP results that will now be specifically scheduled below our GAAP reported results and reconciled, along with Non-GAAP withdrawable trust income, with our Non-GAAP reported results.  Starting with this release, we will report Non-GAAP and GAAP results, but believe the recurring Non-GAAP performance to be more relevant for valuation purposes."

"Non-GAAP Consolidated EBITDA increased $100,000 for the quarter but increased $4.4 million or 12.6% for the nine months to $39.4 million from $35.0 million.  The Non-GAAP Consolidated EBITDA Margin increased 200 basis points in the 2011 nine month period to 27.6% from 25.6% in 2010.  Management views Non-GAAP Consolidated EBITDA as the approximate cash earning power of our portfolio of operating assets, which is available to service debt and tax obligations, to invest in maintenance of our existing portfolio and acquisition of new operating businesses, and to return capital to shareholders through dividends and share repurchases."

"Our Non-GAAP EPS performance of 10 cents in the third quarter was equal to last year.  However, the Non-GAAP EPS of 55 cents for the nine months was 13 cents or 31% higher than last year's same period, primarily as a result of much higher withdrawable trust income this year of $4.9 million compared to $2.9 million last year."

"Lastly, and most importantly, we produced Free Cash Flow of $19.9 million in the first nine months of 2011 compared to $11.5 in 2010, enabling us to self-finance the $10.3 million cash used for funeral acquisitions in 2011, repurchase $2.2 million of convertible subordinated debentures at a significant discount, invest $2.4 million in existing portfolio growth projects, and still build cash by $3 million during the first nine months to $4.3 million at September 30, 2011.  Because of our confidence in our ability to produce strong and growing Free Cash Flow, our Board earlier today approved a $5 million stock repurchase program and our regular quarterly cash dividend."

"Management strongly views the Non-GAAP Consolidated EBITDA, EPS and Free Cash Flow metrics as the more relevant metrics for valuation of the intrinsic market value of the Company's equity.  We will therefore be referring only to these metrics as we report our results in the future," concluded Mr. Payne.

NON- GAAP UNAUDITED INCOME STATEMENT

Period Ended September 30, 2011

($000's)








Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended


September 30, 2010

September 30, 2011

September 30, 2010

September 30, 2011






Same Store Contracts





Atneed Contracts

3,964

3,696

12,120

11,915

Preneed Contracts

890

941

2,896

3,118

Total Same Store Funeral Contracts

4,854

4,637

15,016

15,033

Acquisition Contracts





Atneed Contracts

1,233

1,470

3,084

4,529

Preneed Contracts

295

383

799

1,137

Total Acquisition Funeral Contracts

1,528

1,853

3,883

5,666

Total Funeral Contracts

6,382

6,490

18,899

20,699






Funeral Operating Revenue





Same Store Revenue

$ 25,478

$ 24,388

$ 80,113

$ 80,105

Acquisition Revenue

5,630

7,262

15,314

22,000

Total Funeral Operating Revenue

$ 31,108

$ 31,650

$ 95,427

$ 102,105






Cemetery Operating Revenue





Same Store Revenue

$ 9,030

$ 7,430

$ 25,702

$ 24,583

Acquisition Revenue

1,670

1,641

4,758

5,003

Total Cemetery Operating Revenue

$ 10,700

$ 9,071

$ 30,460

$ 29,586






Financial Revenue





Preneed Funeral Commission Income

$ 632

$ 513

$ 1,817

$ 1,400

Preneed Funeral Trust Earnings

1,553

1,526

4,574

4,856

Cemetery Trust Earnings

1,121

983

3,369

3,872

Preneed Cemetery Finance Charges

372

335

1,203

1,024

Total Financial Revenue

$ 3,678

$ 3,357

$ 10,963

$ 11,152

Total Revenue

$ 45,486

$ 44,078

$ 136,850

$ 142,843






Field EBITDA from Continuing Operations





Same Store Funeral Field EBITDA

$ 7,807

$ 8,254

$ 26,943

$ 28,437

Same Store Funeral Field EBITDA Margin

30.6%

33.8%

33.6%

35.5%











Acquisition Funeral Field EBITDA

847

2,221

3,599

6,396

Acquisition Funeral Field EBITDA Margin

15.0%

30.6%

23.5%

29.1%






Total Funeral Field EBITDA

$ 8,654

$ 10,475

$ 30,542

$ 34,833

Total Funeral Field EBITDA Margin

27.8%

33.1%

32.0%

34.1%






Same Store Cemetery Field EBITDA

$ 1,885

$ 1,190

$ 5,629

$ 5,819

Same Store Cemetery Field EBITDA Margin

20.9%

16.0%

21.9%

23.7%











Acquisition Cemetery Field EBITDA

486

530

1,369

1,605

Acquisition Cemetery Field EBITDA Margin

29.1%

32.3%

28.8%

32.1%






Total Cemetery Field EBITDA

$ 2,371

$ 1,720

$ 6,998

$ 7,424

Total Cemetery Field EBITDA Margin

22.2%

19.0%

23.0%

25.1%






Funeral Financial EBITDA

1,772

1,667

5,320

5,151

Cemetery Financial EBITDA

1,493

1,318

4,572

4,896

Total Financial EBITDA

$ 3,265

$ 2,985

$ 9,892

$ 10,047

Total Financial EBITDA Margin

88.8%

88.9%

90.2%

90.1%






Total Field EBITDA

$ 14,290

$ 15,180

$ 47,432

$ 52,304

Total Field EBITDA Margin

31.4%

34.4%

34.7%

36.6%






Overhead





Total Variable Overhead

$ 835

$ 2,167

$ 2,193

$ 4,870

Total Regional Fixed Overhead

1,021

974

2,578

2,970

Total Corporate Fixed Overhead

3,552

3,856

10,651

11,698

Total Overhead

$ 5,408

$ 6,997

$ 15,422

$ 19,538


11.9%

15.9%

11.3%

13.7%






Other Income

-

481

465

846

Consolidated EBITDA from Continuing Operations

$ 8,882

$ 8,664

$ 32,475

$ 33,612

Consolidated EBITDA Margin from Continuing Operations

19.5%

19.7%

23.7%

23.5%

GAAP diluted EPS

$ 0.05

$ 0.04

$ 0.33

$ 0.36






Special Items





Withdrawable trust income

$ 1,295

$ 1,300

$ 2,939

$ 4,882

Gain on Repurchase of Convertible Junior Subordinated Debenture

-

(481)

(316)

(846)

Securities Transactions Expenses

-

40

-

501

Loss on Early Extinguishment of Debt

-

201

-

201

Acquisition Expenses

192

728

581

971

Recovery of Legal fees

-

-

(650)

-

Termination Expenses

-

-

-

117

Sum of Special Items

$ 1,487

$ 1,788

$ 2,554

$ 5,826






Non-GAAP Consolidated EBITDA

$ 10,369

$ 10,452

$ 35,029

$ 39,438

Non-GAAP Consolidated EBITDA Margin

22.8%

23.7%

25.6%

27.6%






Property Depreciation & Amortization

$ 2,498

$ 2,290

$ 7,455

$ 7,209

Non Cash Stock Compensation

447

491

1,359

1,584

Interest Expense

4,570

4,551

13,691

13,594






Pretax Income

$ 2,854

$ 3,120

$ 12,524

$ 17,051






Income tax

1,156

1,264

5,072

6,906

Non-GAAP Net Income

$ 1,698

$ 1,856

$ 7,452

$ 10,145


3.7%

4.2%

5.4%

7.1%






Non-GAAP Diluted EPS from Continuing Operations

$ 0.10

$ 0.10

$ 0.42

$ 0.55



TRUST FUND PERFORMANCE

We executed a major asset reallocation starting in early August 2011 after the U.S. downgrade by S&P and the European sovereign debt crisis reemerged.  We reduced our discretionary equity portfolio cost basis by $26.1 million, realizing about $2.0 million in losses.  The proceeds were invested primarily into high yield fixed income and preferred stocks, which increased by 23% the recurring income on our discretionary portfolio from $7.9 million on August 5, 2011 to $9.7 million on November 2, 2011.

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.




Investment Performance




Investment Performance



Index Performance

Timeframe


Discretionary

Total Trust


DJIA

S&P 500

NASDAQ

50/50 index

Benchmark

5 years ended 12/31/10


64.7%

60.7%


24.4%

25.8%

39.6%

12.4%

3 years ended 12/31/10


47.7%

44.6%


1.7%

4.5%

20.3%

11.3%

1 year ended 12/31/10


21.2%

18.4%


16.7%

15.1%

16.9%

10.8%

9 months ended 9/30/11


-10.2%

-10.8%


-5.7%

-8.7%

-9.0%

-1.0%


(1)  Investment performance includes realized income and unrealized appreciation (depreciation).





CSV Trust Funds:  Portfolio Profile



9/30/2011


9/30/2011



Discretionary Trust Funds


Total Trust Funds

Asset Class


MV


%


MV


%

Equities


$    59,638


40%


$   71,967


35%

Fixed Income


$    87,781


59%


$ 111,944


58%

Cash


$      2,141


1%


$   14,916


7%

Total Portfolios


$  149,560


100%


$ 198,827


100%




FREE CASH FLOW

Carriage produced Free Cash Flow of $7.2 million for the three months ended September 30, 2011, an increase of $6.8 million compared to $0.4 for the corresponding period in 2010.  The increase in Free Cash Flow is primarily due to the $8.5 million cash withdrawal from its affiliated preneed cemetery trusts as previously disclosed.  The sources and uses of cash for the nine months ended September 30, 2010 and 2011 consisted of the following (in millions):



2010


2011

Cash flow provided by operations

$  16.5


$  25.3

Cash used for maintenance capital expenditures

(5.0)


(5.4)

Free Cash Flow

$  11.5


$  19.9

Cash at beginning of year

3.6


1.3

Borrowing (payments) against bank credit facility

5.0


(0.6)

Acquisitions

(16.8)


(10.3)

Cash used for dividends


(0.9)

Cash used for the repurchase of convertible junior

     subordinated debenture

(0.6)


(2.2)

Cash used for growth capital expenditures — funeral homes

(0.2)


(0.5)

Cash used for growth capital expenditures — cemeteries

(1.6)


(1.9)

Payment of loan origination fees


(0.3)

Other investing and financing activities, net

0.4


(0.2)

Cash at September 30th

$  1.3


$  4.3




At September 30, 2011, no amounts were outstanding on the bank credit facility.

Effective August 11, 2011, the Company entered into a new secured revolving credit facility with Wells Fargo Bank, N.A. which contains commitments for an aggregate of $60.0 million with an accordion provision for up to an additional $15.0 million. Prior to this transaction, the Company had a $40 million senior secured revolving credit facility that was scheduled to mature in November 2012.  The new credit facility matures in October 2014 and under certain conditions may be extended to October 2016.  During the third quarter of 2011, the Company recorded a charge of approximately $201,000 to write-off the remaining unamortized loan fees on the prior credit facility.

FOUR QUARTER OUTLOOK

The Four Quarter Outlook ranges for the rolling four quarter period ending September 30, 2012 are intended to approximate what the Company believes will be the sustainable earning power of its portfolio of operating businesses over the next four quarters as its three models are effectively executed.  Performance drivers include funeral contract volumes, cremation mix, cemetery preneed property sales, preneed maturities and deliveries, average revenue per service, financial revenue, overhead items, and the timing and integration of new acquisitions.  Other variables that affect earnings and Free Cash Flow include the outstanding amounts under our bank credit facility, our effective tax rate which is currently estimated to be approximately 40%, preneed trust fund income withdrawals, and the estimated number of diluted shares outstanding which is currently estimated to be approximately 18.4 million.  

The Four Quarter Outlook ending September 30, 2012 includes the Carmen and Roberson acquisition that closed in October, an acquisition that is expected to close in December and an acquisition that is expected to close in January 2012.

ROLLING FOUR QUARTER OUTLOOK — Period Ending September 30, 2012


    (amounts in millions, except per share amounts)





Range

Revenues

$208$212

Field EBITDA

$74.9$76.3

Field EBITDA Margin

36.0%

Total Overhead

$25.0$25.5



Consolidated EBITDA

$49.9$50.8

Consolidated EBITDA Margin

24.0%  



Interest

$18.2

Depreciation, Amortization and Stock Compensation

$12.2

Income Taxes

$7.9$8.3

Net Income

$11.6$12.1

Diluted Earnings Per Share

$0.63$0.66

Free Cash Flow

$20.5$21.5




Revenue, earnings and Consolidated Free Cash Flow for the four quarter period ending September 30, 2012 are expected to increase materially relative to the full calendar year ended December 31, 2010, in which Carriage earned $0.45 per diluted share, for the following reasons:

  • Increase in same store Funeral Revenue averages and same store Funeral Field EBITDA Margins;
  • Increase in acquired Funeral Revenue and acquired Funeral Field EBITDA from the 2010 and 2011 acquisitions;
  • Increase in Financial Revenue and Financial EBITDA from trust funds; and
  • Increase in Cemetery Revenue, Cemetery Field EBITDA and Cemetery Field EBITDA Margins.

Estimates involved in forecasting Free Cash Flow for the four quarter period ending September 30, 2012 include approximately $6.8 million in maintenance capital expenditures and approximately $4.8 million in cash taxes.  The estimates also include Company's new policy of withdrawing realized gains and income on a monthly basis from certain cemetery merchandise and services trust funds which are estimated to be $1.2 million for the rolling four quarter period.

CONFERENCE CALL

Carriage Services has scheduled a conference call for tomorrow, Friday, November 4, 2011 at 10:30 a.m. eastern time.  To participate in the call, please dial 800-860-2442 at least ten minutes before the conference call begins and ask for the Carriage Services conference call, or participants can listen live via the internet by logging into the Company's website at www.carriageservices.com.  A telephonic replay of the conference call will be available through November 11, 2011 and may be accessed by dialing 877-344-7529 and using passcode 445590.  An audio archive will also be available on the company's website at www.carriageservices.com shortly after the call and will be accessible for approximately 90 days.  For more information, please contact Terry Sanford, Executive Vice President and Chief Financial Officer, at terry.sanford@carriageservices.com or 713-332-8475.

Carriage Services is a leading provider of death care services and products.  Carriage operates 158 funeral homes in 25 states and 33 cemeteries in 12 states.

USE OF NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial earnings 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.  Reconciliations of the Non-GAAP financial measures to GAAP measures are provided at the end of the press release.

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 on a Non-GAAP proforma basis that are withdrawable at the time that the income is realized in the trusts instead of at the time of delivery to reflect the current cash results.

The Non-GAAP financial measures "Free Cash Flow" and "EBITDA" are also reflected in the press release.  Both Free Cash Flow and EBITDA are used by investors to value common stock.  The Company considers Free Cash Flow to be an important indicator of its ability to generate cash for acquisitions and other strategic investments.  The Company has included EBITDA in this press release because it is widely used by investors to compare the Company's financial performance with the performance of other death care companies. EBITDA does not give effect to the cash the Company must use to service its debt or pay its income taxes and thus does not reflect the funds actually available for capital expenditures.  In addition, the Company's presentation of EBITDA may not be comparable to similarly titled measures other companies report. 

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.  These statements are based on assumptions that the Company believes are reasonable; however, many important factors, as discussed under "Forward-Looking Statements" in the Company's Annual Report and Form 10-K for the year ended December 31, 2010, could cause the Company's results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company.  The Company assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by, or on behalf of, the Company.  A copy of the Company's Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.

— Financial Statements and Tables to Follow —



CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, expect share data)




December 31,


September 30,

ASSETS


2010


2011






Current assets:





  Cash and cash equivalents


$        1,279


$     4,264

  Accounts receivable, net of allowance for bad debts


15,587


13,393

  Inventories and other current assets


10,828


11,281

         Total current assets


27,694


28,938






Preneed cemetery and funeral trust investments


206,569


171,053

Preneed receivables, net of allowance for bad debts


24,099


24,224

Receivables from preneed funeral trusts


21,866


22,380

Property, plant and equipment, net of accumulated depreciation


128,472


131,493

Cemetery property


71,128


71,450

Goodwill


183,324


190,430

Deferred charges and other non-current assets


7,860


11,844

         Total assets


$    671,012


$  651,812






LIABILITIES AND STOCKHOLDER'S EQUITY





Current liabilities:





  Current portion of long-term debt and obligations under capital leases


$           563


$       574

  Accounts payable and accrued liabilities


24,596


28,365

         Total current liabilities


25,159


28,939






Senior long-term debt, net of current portion


132,416


131,471

Convertible junior subordinated debenture due in 2029 to an affiliated trust


92,858


89,770

Obligations under capital leases, net of current portion


4,289


4,187

Deferred preneed cemetery and funeral revenue


89,642


99,245

Deferred preneed cemetery and funeral receipts held in trust


160,834


133,120

Care trusts' corpus


45,941


37,927

         Total liabilities


551,139


524,659











Redeemable Preferred Stock


200


200






Stockholders' equity





Common Stock


213


216

Additional paid-in capital


200,987


201,020

Accumulated deficit


(70,951)


(64,283)

Treasury stock


(10,576)


(10,000)

  Total stockholders' equity


119,673


126,953

         Total liabilities and stockholders' equity


$    671,012


$  651,812









CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)



For the three months ended

September 30,


For the nine months ended

September 30,


2010


2011


2010


2011









Revenues

$    45,485


$    44,078


$    136,849


$    142,843

Field costs and expenses

35,426


33,433


101,240


103,529

Gross profit

10,059


10,645


35,609


39,314

General and administrative expenses

4,122


5,043


12,413


15,140

Operating income

5,937


5,602


23,196


24,174

Interest expense

(4,571)


(4,564)


(13,696)


(13,628)

Gain on repurchase of subordinated

   debenture


481


316


846

Loss on early extinguishment of debt


(201)



(201)

Other income

1


13


154


34

Income before income taxes

1,367


1,331


9,970


11,225

Provision for income taxes

(508)


(539)


(4,038)


(4,546)

Net income

859


792


5,932


6,679

Preferred stock dividend

4


5


11


12

Net income attributable to common

   stockholders

$       855


$        787


$      5,921


$       6,667

















Basic earnings per common share:

$      0.05


$      0.04


$       0.34


$        0.36

Diluted earnings per common share:

$      0.05


$      0.04


$       0.33


$        0.36









Weighted average number of common

   and common equivalent shares

   outstanding:








Basic

17,520


18,414


17,549


18,339

Diluted

17,726


18,461


17,775


18,381












CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands, except per share data)



For the nine months ended

September 30,


2010


2011





Cash flows from operating activities:




  Net income

$  5,932


$  6,679

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




       Depreciation and amortization

8,000


7,743

       Provision for losses on accounts receivable

2,813


2,360

       Stock-based compensation expense

1,396


1,558

       Gain on repurchase convertible junior subordinated debenture

(316)


(846)

       Deferred income taxes

500


(3,642)

       Loss on early extinguishment of debt


201

       Other

(149)


(37)

Changes in operating assets and liabilities that provided (required) cash:




       Accounts and preneed receivables

(2,252)


250

       Inventories and other current assets

2,015


(775)

       Deferred charges and other


(38)

       Preneed funeral and cemetery trust investments

(987)


3,465

       Accounts payable and accrued liabilities

(1,799)


3,460

       Deferred preneed funeral and cemetery revenue

316


8,708

       Deferred preneed funeral and cemetery receipts held in trust

1,080


(3,816)

       Net cash provided by operating activities

16,549


25,270

Cash flows from investing activities:




       Acquisitions

(16,792)


(10,300)

       Growth capital expenditures

(1,843)


(2,409)

       Maintenance capital expenditures

(5,049)


(5,365)

       Net proceeds from the sale of assets

400


       Net cash used in investing activities

(23,284)


(18,074)

Cash flows from financing activities:




       Net borrowings (payments) under credit facility

5,000


(600)

       Payments on senior long-term debt and obligations under capital leases

(346)


(436)

       Repurchase of convertible junior subordinated debenture

(576)


(2,241)

       Proceeds from the exercise of stock options and employee stock purchase plan

441


325

       Dividends on common stock


(920)

       Dividends on redeemable preferred stock

(11)


(12)

       Payment of loan origination fees


(333)

       Other financing expenses

(43)


6

       Net cash provided by (used in) financing activities

4,465


(4,211)





Net decrease in cash and cash equivalents

(2,270)


2,985

Cash and cash equivalents at beginning of period

3,616


1,279

Cash and cash equivalents at end of period

$  1,346


$  4,264









CARRIAGE SERVICES, INC.

Selected Financial Data






(unaudited)



December 31,


September 30,

Selected Balance Sheet Data:


2010


2011

Cash and short-term investments


$          1,279


$  4,264

Total Senior Debt (a)


$      137,268


$  136,232

Days sales in funeral accounts receivable


20.3


18.9

Senior Debt to Total Capitalization


39.2%


38.6%

Senior Debt to Consolidated EBITDA (rolling twelve months)


3.3x


3.1x

Senior Debt to Non-GAAP Consolidated EBITDA

    (rolling twelve months)


2.9x


2.6x






a)  -  Senior debt does not include the convertible junior subordinated debentures.




Reconciliation of Non-GAAP Financial Measures (unaudited):


   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.


Reconciliation of Net Income to Non-GAAP Net Income for the three and nine months ended

September 30, 2010 and 2011:





Three months ended

September 30,


Nine months ended

September 30,




2010


2011


2010


2011

Net Income

$       859


$       792


$    5,932


$      6,679

Special items, net of tax

839


1,064


1,520


3,466

Non-GAAP Net Income

$    1,698


$    1,856


$    7,452


$    10,145




Reconciliation of Non-GAAP Financial Measures (unaudited), Continued:


Reconciliation of Net Income to Non-GAAP Consolidated EBITDA for the three and nine

months ended September 30, 2010 and 2011 and the estimated rolling four quarters ended

September 30, 2012 (presented at approximately the midpoint of the range identified in the

release)(in 000's):





Three months ended

September 30,


Nine months ended

September 30,




2010


2011


2010


2011

Net income

$       859


$      792


$   5,932


$    6,679

Provision for income taxes

508


539


4,038


4,546

Pre-tax earnings

1,367


1,331


9,970


11,225

Interest expense, including loan

   cost amortization

4,570


4,551


13,696


13,594

Noncash stock compensation

447


491


1,359


1,584

Depreciation & amortization

2,498


2,290


7,450


7,209

Special items

1,487


1,788


2,554


5,826

Non-GAAP Consolidated EBITDA

$    10,369


$  10,452


$  35,029


$  39,438








Rolling

Four Quarter



Outlook



September 30,

2012 E

Net income


$      11,900

Provision for income taxes


8,100

Pre-tax earnings


20,000

Interest expense, including loan cost amortization


18,200

Depreciation & amortization, including stock compensation


12,200

Consolidated EBITDA


$      50,400

Revenue


$    210,000

Consolidated EBITDA Margin


24.0%




Reconciliation of Diluted EPS to Non-GAAP Diluted EPS for the three and nine months

ended September 30, 2010 and 2011:





Three months ended

September 30,


Nine months ended

September 30,




2010


2011


2010


2011

Diluted EPS

$    0.05


$    0.04


$    0.33


$    0.36

Effect of special items

0.05


0.06


0.09


0.19

Non-GAAP Diluted EPS

$    0.10


$    0.10


$    0.42


$    0.55




Reconciliation of Non-GAAP Financial Measures (unaudited), Continued:


Reconciliation of cash provided by operating activities to Free Cash Flow (in 000's):






Three months ended September 30,


2010


2011

Cash provided by operating activities

$    2,032


$    9,176

Less maintenance capital expenditures

(1,611)


(2,002)

Free Cash Flow

$       421


$    7,174




Reconciliation of cash provided by operating activities to Free Cash Flow (in 000's):





Nine months ended September 30,


2010


2011

Cash provided by operating activities

$    16,549


$    25,270

Less maintenance capital expenditures

(5,049)


(5,365)

Free Cash Flow

$     11,500


$    19,905




Reconciliation of Consolidated EBITDA to Free Cash Flow for the estimated rolling four

quarters ending September 30, 2012 (in 000's):







Rolling

Four Quarter



Outlook



September 30,

2012 E

Consolidated EBITDA


$    50,400

Interest paid


(17,800)

Cash Income taxes


(4,800)

Maintenance capital expenditures


(6,800)

Free Cash Flow


$    21,000




SOURCE Carriage Services, Inc.

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