Release Details

HOUSTON, Aug. 8, 2013 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the quarter ending June 30, 2013.

Mel Payne, Chief Executive Officer, stated, "Our second quarter performance continued our trend of record quarterly results, as we achieved strong revenue growth of 11.3% to a record $54.2 million, Adjusted Diluted Earnings Per Share growth of 66.7% to a record $0.25 per share, and Free Cash Flow growth of 38.5% to a record $11.8 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."

"Because of our expectation that the strong growth in our field operating and financial results during the first half of 2013 will continue into 2014, and in anticipation of a resumption of accretive acquisitions, we are raising our Rolling Four Quarter Adjusted Earnings Per Share Outlook by 2 cents per share to $1.18 - $1.20 and the Free Cash Flow outlook by $2 million to $32 - $34 million. Our second quarter and year to date comparative highlights are shown below."

Three Months Ending June 30, 2013

• Total Revenue up 11.3% to $54.2 million;
• Consolidated EBITDA up 11.0% to $13.5 million;
• Consolidated EBITDA Margin down 10 basis points to 25.0%;
• Adjusted Consolidated EBITDA up 16.5% to $14.7 million;
• Adjusted Consolidated EBITDA Margin up 130 basis points to 27.1%;
• GAAP Diluted EPS from Continuing Operations up 42.9% to $0.20 in 2013 from $0.14 in 2012;
• Adjusted Diluted Earnings Per Share up 66.7% to $0.25 from $0.15 in 2012;
• Free Cash Flow up 38.5% to $11.8 million in 2013 from $8.5 million in 2012.

Six Months Ending June 30, 2013

• Total Revenue up 12.3% to $111.6 million;
• Consolidated EBITDA up 13.0% to $29.3 million;
• Consolidated EBITDA Margin up 20 basis points to 26.3%;
• Adjusted Consolidated EBITDA up 11.4% to $31.2 million;
• Adjusted Consolidated EBITDA Margin down 20 basis points to 28.0%;
• GAAP Diluted EPS from Continuing Operations up 31.4% to $0.46 in 2013 from $0.35 in 2012;
• Adjusted Diluted Earnings Per Share up 33.3% to $0.56 from $0.42 in 2012;
• Free Cash Flow up 89.5% to $21.0 million in 2013 from $11.1 million in 2012.

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

"Our Total Field EBITDA increased $3.6 million or almost 20% in the quarter on a revenue increase of 11.3%, as our Total Field EBITDA Margin increased 280 basis points to a record 40.5% for a second quarter. However, given the recent major change in the industry landscape and a growing pipeline of quality acquisition candidates, we continued to aggressively invest in upgrading our organizational overhead structure and talent in anticipation of substantially higher acquisition growth over the next 18 months. As a consequence, our Total Overhead increased $2.3 million or 36.7% in the quarter, materially offsetting the $3.6 million of Field EBITDA growth."

"Our credit profile substantially improved in the first half of  2013, during which we made no acquisitions. Our senior debt to EBITDA ratio declined from 3.06 at the beginning of the year to 2.77 at June 30^th because our Adjusted Consolidated EBITDA increased $3.2 million, or 11.4%, to $31.2 million while our senior debt and lease obligations decreased $15.5 million, or 8.7%, to $163.3 million. The senior debt ratio decline below three times at June 30^th automatically triggered a 50 basis point rate reduction on all of our outstanding senior debt. Our Free Cash Flow that funded the first half deleveraging increased 89.5% to $21.0 million compared to 2012."

"Our rapidly improving credit profile, substantial borrowing capacity under our bank revolving credit facility on favorable terms, and the financial flexibility to execute a refinancing transaction of our convertible TIDES security on favorable terms, most likely during the second half, puts our Company in a strong position to be selectively opportunistic in the current environment as to acquisition candidates and capital structure needs and improvements," concluded Mr. Payne.

TOTAL FIELD OPERATIONS
For the Three Months Ending June 30, 2013

• Total Field Revenue increased 11.3% to $54.2 million;
• Total Field EBITDA increased 19.6% to $21.9 million; and
• Total Field EBITDA Margin increased 280 basis points to 40.5%.

FUNERAL FIELD OPERATIONS
For the Three Months Ending June 30, 2013

• Total Funeral Operating Revenue increased 9.4% to $38.1 million;
• Total Funeral Field EBITDA increased 14.3% to $13.8 million;
• Total Funeral Field EBITDA Margin increased 150 basis points to 36.3%;
• Same Store Funeral Revenue increased 1.7% with same store volume increasing 3.1%;
• Same Store Field EBITDA increased 9.2% to $11.3 million;
• Acquisition Funeral Revenue increased 46.6% with acquisition volume increasing 31.1%;
• Acquisition Funeral Field EBITDA increased 43.5% to $2.5 million;
• Average revenue per contract increased slightly from $5,379 in 2012 to $5,422 in 2013; and
• Cremation rate increased 240 basis points to 47.3%.

CEMETERY FIELD OPERATIONS
For the Three Months Ending June 30, 2013

• Total Cemetery Operating Revenue increased 9.2% to $10.9 million;
• Total Cemetery Field EBITDA increased 22.7% to $3.3 million;
• Total Cemetery Field EBITDA Margin increased 340 basis points to 30.4%;
• Cemetery pre-need property sale contracts increased 29.7% to 2,024; and
• Average Cemetery pre-need property sale per contract decreased 7.3% to $2,833.

FINANCIAL OPERATIONS
For the Three Months Ending June 30, 2013

• Total Financial Revenue increased 33.0% to $5.2 million;
• Total Financial EBITDA increased 35.4% to $4.8 million;
• Total Financial EBITDA Margin increased 160 basis points to 92.7%.
• Funeral Financial Revenue increased 49.7% to $2.7 million;
• Cemetery Financial Revenue increased 18.5% to $2.5 million;

FREE CASH FLOW

Carriage produced Free Cash Flow from operations in the first half of 2013 of $21.0 million compared to Free Cash Flow from operations of $11.1 million for the corresponding period in 2012. The sources and uses of cash for the first half of 2012 and 2013 consisted of the following (in millions):

ROLLING FOUR QUARTER OUTLOOK RAISED

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 June 30, 2014, and the performance of the trusts as well as our view of the financial markets. This outlook does not reflect dilution from conversion or the possible refinancing options the Company may pursue related to our existing convertible subordinated debentures.

ROLLING FOUR QUARTER OUTLOOK — Period Ending June 30, 2014

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 June 30, 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 expense as a result of the refinancing in September 2012 and the recent reduction in interest rate terms in conjunction with the third amendment to our credit facility, effective April 24, 2013.

We have not included in our Rolling Four Quarter Outlook a fully diluted EPS calculation using the 4.4 million shares that would be outstanding in the case where all $89.8 million of the TIDES security converts into common shares at $20.44 per share of Carriage common stock.  This security, which is callable by us, can be refinanced with a menu of capital structure options on terms consistent with the current equity and debt market environment in general and the outlook for Carriage in particular. 

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, August 9, 2013 at 9:30 a.m. CDT. To participate in the call, please dial 866-516-3867 (ID-11076879) and ask for the Carriage Services conference call.  A replay of the conference call will be available through August 14, 2013 and may be accessed by dialing 855-859-2056 (ID-11076879). 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

For the six months ended June 30, 2013, Carriage's discretionary trust funds gained 5.2% compared to a gain of 13.8% for the S&P 500 and a 1.5% gain for the Barclay's U.S. Corporate High Yield Index. The current yield on Carriage's discretionary fixed income portfolio is 8.6% 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.

 

 

The GAAP Diluted EPS and Adjusted Diluted EPS for the six months ended June 30, 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 as Consolidated EBITDA plus adjustments for special items and non-recurring expenses or credits.
• Free Cash Flow 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 expenses, litigation settlements, severance costs, discrete tax items and other non-recurring amounts.
• 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 divided by diluted shares outstanding after factoring in the effect of any 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" 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. 

Reconciliation of Net Income from continuing operations to Adjusted Net Income for the three and six months ended June 30, 2012 and 2013 (thousands):

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and six months ended June 30, 2012 and 2013 (in thousands):

  

Reconciliation of funeral and cemetery income before income taxes to Field EBITDA for the three and six months ended June 30, 2012 and 2013 (in thousands):

Reconciliation of cash provided by operating activities to Free Cash Flow from operations for the three and six months ended June 30, 2012 and 2013 (in thousands):

Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the three and six months ended June 30, 2012 and 2013:

Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the three and six months ended June 30, 2012 and 2013:

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the estimated rolling four quarters ended June 30, 2014 (in thousands):

Reconciliation of Net Income from continuing operations to Adjusted Net Income for the estimated rolling four quarters ended June 30, 2014 (in thousands):

Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the estimated rolling four quarters ending June 30, 2014:

Reconciliation of Cash Flow from Operations to Free Cash Flow for the estimated rolling four quarters ending June 30, 2014 (in 000's):

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.

SOURCE Carriage Services, Inc.