Release Details

HOUSTON, May 7, 2013 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the quarter ending March 31, 2013.

Mel Payne, Chief Executive Officer, stated, "Our first quarter performance continued our trend of record quarterly results, as we achieved strong revenue growth of 13.2% to a record $58.1 million, Adjusted Basic Earnings Per Share growth of 21.4% to a record $0.34 per share, and Free Cash Flow growth of 314% to a record $9.1 million. This outstanding performance was driven by substantially higher year over year revenue and Field EBITDA growth in each of our four major profit segments and substantially lower interest costs on our recently refinanced senior debt.  Our first quarter comparative highlights are shown below."

Three Months Ending March 31, 2013

• Total Revenue up 13.2% to $58.1 million;
• Consolidated EBITDA up 14.5% to $16.0 million;
• Consolidated EBITDA Margin up 30 basis points to 27.6%;
• Adjusted Consolidated EBITDA up 7.2% to $16.8 million;
• Adjusted Consolidated EBITDA Margin down 160 basis points to 29.0%;
• Adjusted Basic Earnings Per Share up 21.4% to $0.34 from $0.28 in 2012;
• Adjusted Diluted Earnings Per Share up 18.5% to $0.32 from $0.27 in 2012;
• GAAP Basic EPS from Continuing Operations up 40.9% to $0.31 in 2013 from $0.22 in 2012;
• GAAP Diluted EPS from Continuing Operations up 22.7% to $0.27 in 2013 from $0.22 in 2012; and 
• Free Cash Flow up 314% to a record $9.1 million in 2013 from $2.2 million in 2012.         

"Primarily driven by our operating performance, working capital improvements and the lower cash costs of our bank credit facilities since our September 2012 senior notes refinancing, we produced a record Free Cash Flow of $9.1 million in the first quarter. Our cemetery portfolio performance was the best in years, a result of adding top quality cemetery sales support in each of our three regions, new Managing Partners and sales managers in most of our larger parks, and a revised Cemetery Standards Operating Model effective January 1, 2013.  We invested heavily not only in cemetery leadership and talent across our portfolio, but also in more high quality talent in our Houston support departments in order to position Carriage organizationally to effectively capitalize on the growth opportunities that we believe lie ahead as our industry continues to consolidate".

"We are excited and honored that on April 24, 2013, our bank group expanded our credit facility on better terms only a little more than six months after being put in place in September 2012, which will support our acquisition strategy and be modestly accretive to our earnings.  With the rapid rise of our stock price since the beginning of 2012, we are exploring alternatives to refinance or otherwise lessen the potential dilutive impact of our $90 million 7% Convertible Subordinated Debentures (TIDES) that are convertible into our common stock at $20.44 per share.  We believe there may be opportunity to refinance our TIDES and create a very low cost and flexible capital structure with enhanced earnings power.  We will monitor market conditions closely for such an opportunity while we continue to focus on high performance execution of our operating and growth models," concluded Mr. Payne.

TOTAL FIELD OPERATIONS
For the Three Months Ending March 31, 2013

• Total Field Revenue increased 13.2% to $58.1 million;
• Total Field EBITDA increased 15.4% to $24.4 million; and
• Total Field EBITDA Margin increased 80 basis points to 42.1%.

FUNERAL FIELD OPERATIONS
For the Three Months Ending March 31, 2013

• Total Funeral Operating Revenue increased 13.2% to $42.9 million;
• Same Store Funeral Revenue increased 5.3% with same store volume increasing 7.0%;
• Acquisition Funeral Revenue increased 52.5% with acquisition volume increasing 39.7%;
• Total Funeral Field EBITDA increased 10.5%  to $16.9 million;
• Total Funeral Field EBITDA Margin decreased 100 basis points to 39.4%;
• Average revenue per contract decreased slightly from $5,397 to $5,365 in 2012; and
• Cremation rate increased 10 basis points to 46.4%.

CEMETERY FIELD OPERATIONS
For the Three Months Ending March 31, 2013

• Total Cemetery Operating Revenue increased 8.6% to $10.2 million;
• Total Cemetery Field EBITDA increased 36.3% to $3.0 million;
• Total Cemetery Field EBITDA Margin increased 600 basis points to 29.7%;
• Cemetery pre-need property sale contracts increased 6.2% to 1,545; and
• Average Cemetery pre-need property sale per contract increased 12.2% to $2,659.

FINANCIAL OPERATIONS
For the Three Months Ending March 31, 2013

• Total Financial Revenue increased 23.6% to $5.0 million;
• Funeral Financial Revenue increased 5.1% to $2.2 million;
• Cemetery Financial Revenue increased 44.4% to $2.7 million;
• Total Financial EBITDA increased 22.8% to $4.5 million; and
• Total Financial EBITDA Margin decreased 50 basis points to 90.7%.

AMENDMENT TO CREDIT FACILITY
On April 24, 2013, we entered into a third amendment to the Credit Agreement (the "Third Amendment") which provides for an increase in the revolving credit commitments under the Credit Agreement from $105 million to $125 million and decreases in the interest rate margin. Under the Credit Agreement, outstanding borrowings bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon the Company's leverage ratio.  The Third Amendment decreases the applicable margin for the Company's outstanding borrowings (for both prime rate and LIBOR rate) by 50 basis points at each leverage ratio threshold.  The Third Amendment also provides additional financial flexibility to make capital structure moves with the ability to issue subordinated debentures or convertible subordinated debentures up to $100 million with the specific purpose of refinancing our existing convertible subordinated debentures on more favorable terms.    

FREE CASH FLOW
Carriage produced Free Cash Flow from continuing operations in the first quarter of 2013 of $9.1  million compared to Free Cash Flow from continuing operations of $2.2 million for the corresponding period in 2012. The sources and uses of cash for the first quarter of 2012 and 2013 consisted of the following (in millions):

 

DILUTION FROM CONVERTIBLE SUBORDINATED DEBENTURES
The first quarter of 2013 earnings per share results were affected by dilution from our Convertible Subordinated Debentures (TIDES).  The fully diluted weighted average shares outstanding for the three months ended March 31, 2013, and the corresponding calculations of GAAP fully diluted earnings per share and Adjusted fully diluted earnings per share, includes approximately 4.4 million shares that would be issued upon conversion of our convertible subordinated debentures as a result of the application of the if-converted method prescribed by Accounting Standards Codification 260-10-45.

Historically, the conversion of our convertible subordinated debentures was excluded from fully diluted earnings per share calculations because the inclusion of such converted shares would have resulted in an anti-dilutive impact. If the shares to be issued upon conversion of our convertible subordinated debentures were excluded from earnings per share calculations as in prior periods, the ranges of GAAP diluted earnings per share and Adjusted diluted earnings per share would approximate the ranges provided above for GAAP basic earnings per share and Adjusted basic earnings per share, respectively.  The Company is currently exploring various financing alternatives to lessen the potential dilutive impact from the TIDES.

ROLLING FOUR QUARTER OUTLOOK
The Rolling Four Quarter Outlook "(Outlook)" reflects management's opinion on the performance of the portfolio of businesses for the rolling four quarter period ending March 31, 2014, and the performance of the trusts as well as our view of the financial markets.  This outlook does not reflect possible refinancing options the Company may pursue related to our existing convertible subordinated debentures.                 

Factors affecting our analysis include, among others, acquisitions, 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, Adjusted Earnings Per Share and Free Cash Flow for the four quarter period ending March 31, 2014 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;
• Modest increases in Same Store Funeral Revenue  and Same Store Funeral Field EBITDA;
• Increases in Cemetery Revenue and Cemetery Field EBITDA;
• Increases in Financial Revenue and Financial EBITDA from trust funds; and
• Reduced interest expenses as result of the refinancing in September 2012 and the recent reduction in interest rate terms with the new amendment.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT
Carriage Services has scheduled a conference call for tomorrow, May 8, 2013 at 9:30 a.m. CDT.  To participate in the call, please dial 866-516-3867 (ID-56933340) and ask for the Carriage Services conference call.  A replay of the conference call will be available through May 15, 2013 and may be accessed by dialing 404-537-3406 (ID-56933340). The conference call will also be available at www.carriageservices.com.  For any investor relations questions, please contact Bill Heiligbrodt at 713-332-8553.

TRUST FUND PERFORMANCE
During the first quarter of 2013, Carriage's discretionary trust funds gained 4.3% compared to a gain of 10.6% for the S&P 500 and a 2.9% gain for the Barclay's U.S. Corporate High Yield Index.  The current yield on Carriage's discretionary fixed income portfolio is 8.4% and the estimated annual income for the entire discretionary portfolio is approximately $11.8 million. 

The high amount of recurring current income combined with the realized net income in our discretionary trust portfolio will continue to benefit Carriage through the increased value of preneed funeral and cemetery contracts at maturity.  Carriage will also benefit from the recurring income from our cemetery perpetual care accounts which are recognized as GAAP revenue and earnings in the current period. 

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.

 

 

 

 

 

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. 

Reconciliation of Net Income from continuing operations to Adjusted Net Income for the three months ended March 31, 2012 and 2013 (thousands):

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three months ended March 31, 2012 and 2013 (in thousands):

Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the three months ended March 31, 2012 and 2013:

 

Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the three months ended March 31, 2012 and 2013:

 

Selected Financial Data for the three months ended March 31, 2012 and 2013 (unaudited):

Reconciliation of funeral and cemetery income before income taxes to Field EBITDA for the three months ended March 31, 2012 and 2013 (in thousands):

 

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA for the estimated rolling four quarters ended March 31, 2014 (in thousands):

 

Reconciliation of Cash Flow from Operations to Free Cash Flow for the estimated rolling four quarters ending March 31, 2014 (in 000's):

 

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 at the end of the 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 and Cemetery Field EBITDA", "Total Field EBITDA", "Special Items",   "Adjusted Basic Earnings Per Share", and "Adjusted Diluted Earnings Per Share" in this press release.  These financial measurements are defined as similar GAAP items adjusted for Special Items and are reconciled to GAAP later 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 as Consolidated EBITDA plus adjustments for special items and non-recurring expenses or credits. 
• Free Cash Flow as net cash provided by continuing 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.
• 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 but are non-recurring such as withdrawable trust income, acquisition expenses, litigation settlements, prior period adjustments, discrete tax items and other non-recurring adjustments. 
• Adjusted Basic Earnings Per Share is defined as adjusted net income divided by basic shares outstanding. 
• Adjusted Diluted Earnings Per Share is defined as Adjusted Net Income after factoring in the effect of any restricted stock, stock options or the effect of any dilution from convertible debt.

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 (loss)" and reported on a Non-GAAP proforma basis within Special Items in the accompanying 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.

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; 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.

SOURCE Carriage Services, Inc.