Carriage Services, Inc.
Oct 29, 2014

Carriage Services Announces Record Results For Third Quarter 2014, Raises Rolling Four Quarter Outlook

HOUSTON, Oct. 29, 2014 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the quarter ended September 30, 2014.

Mel Payne, Chief Executive Officer, stated, "Our third quarter performance was a record on most key performance metrics for what has historically been a seasonally low performance quarter. We achieved revenue growth of 10.2% to $54.5 million, Adjusted Consolidated EBITDA growth of 14.0% to $13.2 million, Adjusted Diluted Earnings Per Share growth of 93.8% to $0.31, and Adjusted Free Cash Flow growth of 69.9% to $11.6 million. The record earnings performance was primarily related to substantial contributions from our Funeral Acquisition and Financial Trust segments combined with large reductions of almost $1.0 million in regional and corporate fixed overhead and over $1.0 million in interest expense, primarily related to our recent convertible refinancing.

We believe that the earning power of Carriage will continue to trend higher in the fourth quarter and throughout 2015, which combined with a new, full pipeline of high quality acquisition candidates, supports raising our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share through September 30, 2015 to a range of $1.49 - $1.53. Our third quarter and year to date comparative highlights are shown below:

Three Months Ended September 30, 2014

  • Total Revenue of $54.5 million, an increase of 10.2%;
  • Adjusted Consolidated EBITDA of $13.2 million, an increase of 14.0%;
  • Adjusted Consolidated EBITDA Margin up 80 basis points to 24.1%;
  • Adjusted Diluted Earnings Per Share of $0.31, an increase of 93.8%; and
  • Adjusted Free Cash Flow of $11.6 million, an increase of 69.9%.     

Nine Months Ended September 30, 2014

  • Total Revenue of $166.7 million, an increase of 3.9%;
  • Adjusted Consolidated EBITDA of $44.6 million, an increase of 4.5%;
  • Adjusted Consolidated EBITDA Margin up 10 basis points to 26.7%
  • Adjusted Diluted Earnings Per Share of $0.94, an increase of 28.8%; and
  • Adjusted Free Cash Flow of $27.1 million, an increase of 2.0%.       

As we conclude the third year of our defined five year Good To Great Journey, we do so with a company that is materially better in almost all important areas than when we started the year. Consistent with the high performance concept of "First Who, Then What", we have made dynamic changes this year in all Houston support departments, as well as a focus on leadership and right quality of staff upgrading throughout all field operations and our corporate organization. Most importantly, we have refocused our strategic growth vision for the next ten years and updated and improved our methodologies for defining and then acquiring the highest quality independent family funeral and cemetery businesses in the most attractive strategic markets in the country.

As we successfully execute our three models (Standards Operating, Strategic Acquisition and 4E Leadership) over the balance of our five year Good to Great Journey, we fully expect to accelerate the earning power of our Carriage Consolidation and Operating Platform to within a "roughly right range" of $1.90 - $2.00 per share of annualized Adjusted Diluted Earnings Per Share by the end of 2016. However, by then we will also have redefined our never ending Carriage Good to Great Journey over a new five year timeframe with new goals, always keeping our Mission of Being The Best and Five Guiding Principles together with shareholder value creation uppermost in mind," concluded Mr. Payne.

TOTAL FIELD OPERATIONS

For the Three Months Ended September 30, 2013 compared to Three Months Ended September 30, 2014

  • Total Field Revenue increased 10.2% to $54.5 million;
  • Total Field EBITDA increased 9.2% to $20.6 million;
  • Total Field EBITDA Margin decreased 40 basis points to 37.8%;

 

  • Total Funeral Operating Revenue increased 12.7% to $39.5 million;
  • Same Store Funeral Revenue increased 2.6% with same store volume decreasing 0.3%;
  • Acquisition Funeral Revenue increased 49.8% with acquisition volume increasing 42.5%;
  • Total Funeral Field EBITDA Margin increased 60 basis points to 35.0%;

 

  • Total Cemetery Operating Revenue increased 1.3% to $10.2 million;
  • Cemetery preneed property sale contracts decreased 0.8% to 1,655;
  • Preneed property revenue recognized decreased 5.3% and At-need revenue increased 11.5%;
  • Total Cemetery Field EBITDA Margin decreased 500 basis points to 22.2%;

 

  • Total Financial Revenue increased 10.7% to $4.9 million;
  • Funeral Financial Revenue increased 9.0% to $2.3 million;
  • Cemetery Financial Revenue increased 12.2% to $2.6 million;
  • Total Financial EBITDA Margin remained flat at 92.9%.

For the Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2014

  • Total Field Revenue increased 3.9% to $166.7 million;
  • Total Field EBITDA increased 1.4% to $65.8 million;
  • Total Field EBITDA Margin decreased 100 basis points to 39.5%;

 

  • Total Funeral Operating Revenue increased 4.7% to $120.8 million;
  • Same Store Funeral Revenue decreased 2.1% with same store volume decreasing 2.7%;
  • Acquisition Funeral Revenue increased 29.5% with acquisition volume increasing 23.1%;
  • Total Funeral Field EBITDA Margin decreased 80 basis points to 36.2%;

 

  • Total Cemetery Operating Revenue increased 3.1% to $31.7 million;
  • Cemetery preneed property sale contracts increased 1.3% to 5,511;
  • Preneed property revenue recognized decreased 0.8% and At-need revenue increased 9.8%;
  • Total Cemetery Field EBITDA Margin decreased 160 basis points to 27.8%;

 

  • Total Financial Revenue decreased 0.4% to $14.2 million;
  • Funeral Financial Revenue increased 1.6% to $7.1 million;
  • Cemetery Financial Revenue decreased 2.4% to $7.1 million;
  • Total Financial EBITDA Margin increased 130 basis points to 93.3%.

ADJUSTED FREE CASH FLOW

Carriage produced Adjusted Free Cash Flow from operations in the three and nine months of 2014 of $11.6 million and $27.1 million, respectively, compared to $6.8 million and $26.6 million, respectively, for the corresponding periods in 2013. The sources and uses of cash for the three and nine months ended September 30, 2013 and 2014 consisted of the following (in millions):


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Cash flow provided by operations

$          8.4


$         14.3


$       31.2


$          27.6

Adjustment for tax benefit from Good to Great stock awards




4.8

Cash used for maintenance capital expenditures

(1.6)


(2.7)


(4.6)


(5.3)

Adjusted Free Cash Flow

$          6.8


$         11.6


$       26.6


$          27.1

Cash at beginning of period

1.5


0.7


1.7


1.4

Acquisitions and land for new construction


(2.0)


(6.0)


(56.9)

Net proceeds from sale of businesses and other assets

5.6


1.7


8.3


1.9

Net (payments) borrowings on our revolving credit facility, term loan and long-term debt obligations

(11.2)


(2.5)


(26.6)


10.4

Proceeds from issuance of convertible subordinated notes




143.7

Payment of debt issuance costs related to the convertible subordinated notes




(4.7)

Redemption of convertible junior subordinated debentures




(89.7)

Payments for performance-based stock awards




(16.2)

Cash used for growth capital expenditures

(1.3)


(5.7)


(2.8)


(12.9)

Dividends on common stock

(0.5)


(0.5)


(1.4)


(1.4)

Excess tax benefit of equity compensation, net of benefit from Good to Great stock awards


(0.5)


1.0


(0.2)

Payment of loan origination costs related to the credit facility



(0.6)


(0.8)

Other investing and financing activities

 


0.2


0.7


1.3

Cash at end of period

$          0.9


$           3.0


$         0.9


$            3.0

ROLLING FOUR QUARTER OUTLOOK RAISED

The Rolling Four Quarter Outlook ("Outlook") reflects management's opinion on the performance of our existing portfolio of businesses for the rolling four quarter period ending September 30, 2015, the performance of the trusts, and our view of the activity within the industry acquisition landscape. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe such precise rolling 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 Quarter Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time.

                  ROLLING FOUR QUARTER OUTLOOK - Period Ending September 30, 2015



Range
(in millions, except per share amounts)

Revenues


$248 - $252

Adjusted Consolidated EBITDA


$68 - $70

Adjusted Net Income


$27 - $29

Adjusted Diluted Earnings Per Share


$1.49 - $1.53

Factors affecting our analysis include, among others, number, size and timing of closing of 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, Withdrawable Trust Income and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income and Adjusted Diluted Earnings Per Share for the four quarter period ending September 30, 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 and fifth amendments to our bank credit facilities and the redemption of our $90 million, 7% convertible junior subordinated debentures.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, October 30, 2014 at 9:30 a.m. CDT. To participate in the call, please dial 866-516-3867 (ID-93863744) and ask for the Carriage Services conference call.  A replay of the conference call will be available through November 3, 2014 and may be accessed by dialing 855-859-2056 (ID-93863744). 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 nine months ended September 30, 2014, Carriage's discretionary trust funds gained 7.9%. Over the same period in the discretionary portfolio, the fixed income return was 6.0%, beating the High Yield index of 3.5% while the equity return was 11.3%, beating the S&P 500 at 8.3%. The current yield on Carriage's discretionary fixed income portfolio, which comprises 71% of discretionary trust assets, is 8.7% and the estimated annual income for the discretionary portfolio is approximately $10.7 million.

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(1)


Index Performance



Discretionary

Total Trust


S&P 500

Stock Index

High Yield

Index

70/30 index
Benchmark(2)









9 months ended 9/30/14


7.9 %

7.1 %


8.3 %

3.5 %

4.9 %

1 year ended 12/31/13


14.2 %

13.7 %


32.4 %

7.5 %

14.9 %

2 years ended 12/31/13


37.5 %

33.2 %


53.0 %

24.4 %

33.0 %

3 years ended 12/31/13


33.5 %

30.7 %


56.2 %

30.6 %

38.3 %

4 years ended 12/31/13


61.1 %

54.4 %


79.4 %

50.4 %

59.1 %

5 years ended 12/31/13


150.6 %

127.1 %


125.8 %

137.9 %

134.3 %









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

(2) The 70/30 Benchmark is 70% weighted to the High Yield Index and 30% weighted to the S&P 500 Stock Index.



Asset Allocation as of September 30, 2014
(in thousands)



Discretionary
Trust Funds



Total
Trust Funds

Asset Class


MV


%



MV


%

Cash


$       5,431

3 %



$   20,494

9 %

Equities


47,466

25 %



65,020

27 %

Fixed Income


135,004

71 %



150,412

63 %

Other/Insurance


3,449

1 %



3,690

1 %

Total Portfolios


$   191,350

100 %



$ 239,616

100 %

 

CARRIAGE SERVICES, INC.

OPERATING AND FINANCIAL TREND REPORT

FROM CONTINUING OPERATIONS (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)










Three Months Ended September 30,


Nine Months Ended September 30,


2013

2014

% Change


2013

2014

% Change









Same Store Contracts








  Atneed Contracts

4,309

4,332

0.5 %


13,749

13,555

-1.4 %

  Preneed Contracts

1,135

1,095

-3.5 %


3,720

3,448

-7.3 %

  Total Same Store Funeral Contracts

5,444

5,427

-0.3 %


17,469

17,003

-2.7 %

Acquisition Contracts








  Atneed Contracts

1,242

1,810

45.7 %


4,176

5,181

24.1 %

  Preneed Contracts

278

356

28.1 %


828

981

18.5 %

  Total Acquisition Funeral Contracts

1,520

2,166

42.5 %


5,004

6,162

23.1 %

Total Funeral Contracts

6,964

7,593

9.0 %


22,473

23,165

3.1 %









Funeral Operating Revenue








  Same Store Revenue

$      27,525

$     28,234

2.6 %


$       90,628

$       88,703

-2.1 %

  Acquisition Revenue

7,513

11,254

49.8 %


24,780

32,089

29.5 %

Total Funeral Operating Revenue

$    35,038

$    39,488

12.7 %


$    115,408

$    120,792

4.7 %









Cemetery Operating Revenue








  Same Store Revenue

$        9,968

$       9,539

-4.3 %


$       30,486

$       30,633

0.5 %

  Acquisition Revenue

89

645

624.7 %


232

1,034

345.7 %

Total Cemetery Operating Revenue

$    10,057

$    10,184

1.3 %


$      30,718

$      31,667

3.1 %









Financial Revenue








  Preneed Funeral Commission Income

$          446

$          509

14.1 %


$         1,435

$         1,636

14.0 %

  Preneed Funeral Trust Earnings

1,648

1,773

7.6 %


5,584

5,498

-1.5 %

  Cemetery Trust Earnings

1,940

2,212

14.0 %


6,220

6,072

-2.4 %

  Preneed Cemetery Finance Charges

372

383

3.0 %


1,070

1,040

-2.8 %

Total Financial Revenue

$      4,406

$      4,877

10.7 %


$      14,309

$      14,246

-0.4 %

Total Revenue

$    49,501

$    54,549

10.2 %


$    160,435

$    166,705

3.9 %









Field EBITDA








  Same Store Funeral Field EBITDA

$        9,970

$     10,235

2.7 %


$       34,969

$       32,706

-6.5 %

  Same Store Funeral Field EBITDA Margin

36.2 %

36.3 %

 10 bp 


38.6 %

36.9 %

 -170 bp 

  Acquisition Funeral Field EBITDA

2,098

3,603

71.7 %


7,743

11,007

42.2 %

  Acquisition Funeral Field EBITDA Margin

27.9 %

32.0 %

 410 bp 


31.2 %

34.3 %

 310 bp 

Total Funeral Field EBITDA

$    12,068

$    13,838

14.7 %


$      42,712

$      43,713

2.3 %

Total Funeral Field EBITDA Margin

34.4 %

35.0 %

 60 bp 


37.0 %

36.2 %

 -80 bp 









  Same Store Cemetery Field EBITDA

$        2,724

$       2,148

-21.1 %


$         9,073

$         8,555

-5.7 %

  Same Store Cemetery Field EBITDA Margin

27.3 %

22.5 %

 -480 bp 


29.8 %

27.9 %

 -190 bp 

  Acquisition Cemetery Field EBITDA

13

114

776.9 %


(33)

239

824.2 %

  Acquisition Cemetery Field EBITDA Margin

14.6 %

17.7 %

 310 bp 


-14.2 %

23.1 %

 3,730 bp 

Total Cemetery Field EBITDA

$      2,737

$      2,262

-17.4 %


$        9,040

$        8,794

-2.7 %

Total Cemetery Field EBITDA Margin

27.2 %

22.2 %

 -500 bp 


29.4 %

27.8 %

 -160 bp 









  Funeral Financial EBITDA

$        1,820

$       2,002

10.0 %


$         6,008

$         6,307

5.0 %

  Cemetery Financial EBITDA

2,275

2,529

11.2 %


7,159

6,983

-2.5 %

Total Financial EBITDA

$      4,095

$      4,531

10.6%


$      13,167

$      13,290

0.9%

Total Financial EBITDA Margin

92.9 %

92.9 %

 0 bp 


92.0 %

93.3 %

 130 bp 









Total Field EBITDA

$    18,900

$    20,631

9.2 %


$      64,919

$      65,797

1.4 %

Total Field EBITDA Margin

38.2 %

37.8 %

 -40 bp 


40.5 %

39.5 %

 -100 bp 

















OPERATING AND FINANCIAL TREND REPORT

FROM CONTINUING OPERATIONS (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)










Three Months Ended September 30,


Nine Months Ended September 30,


2013

2014

% Change


2013

2014

% Change









Overhead








Total Variable Overhead

$        2,499

$       3,065

22.6 %


$         6,901

$         8,339

20.8 %

Total Regional Fixed Overhead

960

811

-15.5 %


2,808

2,378

-15.3 %

Total Corporate Fixed Overhead

5,454

4,666

-14.4 %


16,010

15,325

-4.3 %

Total Overhead

$      8,913

$      8,542

-4.2 %


$      25,719

$      26,042

1.3 %

Overhead as a percent of sales

18.0 %

15.7 %

 -230 bp 


16.0 %

15.6 %

 -40 bp 









Consolidated EBITDA

$      9,987

$    12,089

21.0 %


$      39,200

$      39,755

1.4 %

Consolidated EBITDA Margin

20.2 %

22.2 %

 200 bp 


24.4 %

23.8 %

 -60 bp 









Other Expenses and Interest








Property Depreciation & Amortization

$        2,931

$       2,995

2.2 %


$         8,812

$         8,781

-0.4 %

Non Cash Stock Compensation

675

920

36.3 %


2,299

2,912

26.7 %

Interest Expense

3,250

2,180

-32.9 %


10,371

7,715

-25.6 %

Accretion on Convertible Subordinated Notes

782



1,647


Loss on Early Extinguishment of Debt 



1,042


Loss on Redemption of Convertible Junior Subordinated Notes



3,779


Other, Net

(34)

(3)

-91.2 %


(896)

(376)

-58.0 %

Pretax Income

$      3,165

$      5,215

64.8 %


$      18,614

$      14,255

-23.4 %

Net Tax Provision

1,257

650



7,726

4,175


GAAP Net Income

$      1,908

$      4,565

139.3 %


$      10,888

$      10,080

-7.4 %









Special Items, Net of Tax








Withdrawable Trust Income

$          210

$          468



$            679

$            983


Acquisition and Divestiture Expenses

143

56



250

715


Severance Costs

409

119



860

596


Consulting Fees

110

71



278

236


Other Incentive Compensation



660


Accretion on Convertible Subordinated Notes

516



1,087


Costs Related to Credit Facility



248

688


Loss on Redemption of Convertible Junior Subordinated Notes



2,493


Gain on Asset Purchase



(746)


Securities Transaction Expenses

160



160


Other Special Items



(484)

503


Tax Adjustment from Prior Period



598


Sum of Special Items, net of tax

$      1,032

$      1,230

19.2 %


$        2,589

$        7,215

178.7 %









Adjusted Net Income

$      2,940

$      5,795

97.1 %


$      13,477

$      17,295

28.3 %

Adjusted Net Profit Margin

5.9 %

10.6 %

 470 bp 


8.4 %

10.4 %

 200 bp 









Adjusted Basic Earnings Per Share

$         0.16

$         0.32

100.0 %


$           0.74

$           0.95

28.4 %

Adjusted Diluted Earnings Per Share

$         0.16

$         0.31

93.8 %


$           0.73

$           0.94

28.8 %









GAAP Basic Earnings Per Share

$         0.10

$         0.25

150.0 %


$           0.60

$           0.55

-8.3 %

GAAP Diluted Earnings Per Share

$         0.10

$         0.24

140.0 %


$           0.59

$           0.54

-8.5 %









Effective Tax Rate

39.7 %

12.5 %



41.5 %

29.3 %


Reconciliation to Adjusted Consolidated EBITDA








Consolidated EBITDA

$      9,987

$    12,089

21.0 %


$      39,200

$      39,755

1.4 %

Withdrawable Trust Income

318

709



1,028

1,488


Acquisition and Divestiture Expenses

217

85



380

1,084


Severance Costs

620

180



1,304

903


Consulting Fees

166

107



421

357


Securities Transaction Expenses

242



242


Other Incentive Compensation



1,000


Other Special Items



83


Adjusted Consolidated EBITDA

$    11,550

$    13,170

14.0 %


$      42,658

$      44,587

4.5 %

Adjusted Consolidated EBITDA Margin

23.3 %

24.1 %

 80 bp 


26.6 %

26.7 %

 10 bp 

 

CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands)




(unaudited)


December 31, 2013


September 30, 2014

ASSETS




Current assets:




Cash and cash equivalents

$               1,377


$               2,966

Accounts receivable, net

17,950


17,762

Assets held for sale

3,544


Inventories

5,300


5,460

Prepaid expenses

4,421


3,939

Other current assets

3,525


4,187

Total current assets

36,117


34,314

Preneed cemetery trust investments

68,341


73,072

Preneed funeral trust investments

97,144


98,525

Preneed receivables, net

24,521


26,053

Receivables from preneed trusts

11,166


12,252

Property, plant and equipment, net

160,690


183,782

Cemetery property

72,911


75,437

Goodwill

221,087


257,504

Deferred charges and other non-current assets

12,280


14,523

Cemetery perpetual care trust investments

42,342


50,234

Total assets

$           746,599


$            825,696





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Current portion of long-term debt and capital lease obligations

$             13,424


$               9,883

Accounts payable

7,046


7,831

Other liabilities

9,939


2,163

Accrued liabilities

12,854


15,037

Liabilities associated with assets held for sale

4,357


Total current liabilities

47,620


34,914

Long-term debt, net of current portion

105,642


114,311

Revolving credit facility

36,900


42,300

Convertible junior subordinated debentures due in 2029 to an affiliate

89,770


Convertible subordinated notes due 2021


113,737

Obligations under capital leases, net of current portion

3,786


3,151

Deferred preneed cemetery revenue

55,479


57,340

Deferred preneed funeral revenue

30,588


30,833

Deferred tax liability

11,915


31,369

Other long-term liabilities

1,548


1,490

Deferred preneed cemetery receipts held in trust

68,341


73,072

Deferred preneed funeral receipts held in trust

97,144


98,525

Care trusts' corpus

41,893


50,203

Total liabilities

590,626


651,245





Commitments and contingencies:








Stockholders' equity:




Common stock, $.01 par value; 80,000,000 shares authorized; 22,183,000 and 22,423,000 shares issued at December 31, 2013 and September 30, 2014, respectively

222


224

Additional paid-in capital

204,324


212,339

Accumulated deficit

(33,306)


(22,845)

Treasury stock, at cost; 3,922,000 shares at December 31, 2013 and September 30, 2014

(15,267)


(15,267)

Total stockholders' equity

155,973


174,451

Total liabilities and stockholders' equity

$           746,599


$            825,696

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share and per share data)










For the Three Months

Ended September 30,


For the Nine Months

Ended September 30,


2013


2014


2013


2014









Revenues

$   49,501


$   54,549


$   160,435


$   166,705

Field costs and expenses

35,401


39,472


110,550


115,624

Gross profit

$   14,100


$   15,077


$     49,885


$     51,081

General and administrative expenses

7,719


6,903


21,796


23,781

Operating income

$     6,381


$     8,174


$     28,089


$     27,300

Interest expense, net

(3,216)


(2,177)


(9,475)


(7,707)

Accretion of discount on convertible subordinated notes


(782)



(1,647)

Loss on early extinguishment of debt and other costs




(1,042)

Loss on redemption of convertible junior subordinated debentures




(3,779)

Other income




1,130

Income from continuing operations before income taxes

$     3,165


$     5,215


$     18,614


$     14,255

Net provision for income taxes

(1,257)


(650)


(7,726)


(4,175)

Net income from continuing operations

$     1,908


$     4,565


$     10,888


$     10,080

Net income from discontinued operations, net of tax

3,986


431


4,408


381

Net income

$     5,894


$     4,996


$     15,296


$     10,461

Preferred stock dividend



(4)


Net income available to common stockholders

$     5,894


$     4,996


$     15,292


$     10,461









Basic earnings per common share:








Continuing operations

$      0.10


$      0.25


$        0.60


$        0.55

Discontinued operations

0.22


0.02


0.24


0.02

Basic earnings per common share

$      0.32


$      0.27


$        0.84


$        0.57

Diluted earnings per common share:








Continuing operations

$      0.10


$      0.24


$        0.59


$        0.54

Discontinued operations

0.22


0.02


0.19


0.02

Diluted earnings per common share

$      0.32


$      0.26


$        0.78


$        0.56









Dividends declared per common share

$    0.025


$    0.025


$      0.075


$      0.075









Weighted average number of common and common equivalent
shares outstanding:








Basic

17,892


18,150


17,794


18,086

Diluted

18,057


18,276


22,361


18,223

The GAAP Diluted EPS and Adjusted Diluted EPS for the nine months ended September 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.

On August 1, 2014, we received notification that the Internal Revenue Service completed its examination of our tax year ended December 31, 2011 citing no change. As a result, we have re-measured our tax liability for unrecognized tax benefits related to personal goodwill which resulted in a tax benefit recognized of $1.7 million and an increase to Deferred tax liability of $5.6 million.  The tax benefit reduced the effective tax rate for the three and nine month periods ended September 30, 2014. Additionally, we recognized a credit to interest expense of $0.6 million related to the settled portion of the uncertain tax position.

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)






For the Nine Months

Ended September 30,


2013


2014

Cash flows from operating activities:




Net income

$   15,296


$   10,461

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




Gain on sale of businesses and purchase of other assets

(6,546)


(2,724)

Impairment of goodwill

100


1,180

Loss on early extinguishment of debt and other costs


1,042

Depreciation and amortization

8,910


8,801

Amortization of deferred financing costs

150


681

Accretion of discount on convertible subordinated notes


1,647

Provision for losses on accounts receivable

1,274


2,113

Stock-based compensation expense

2,952


3,702

Deferred income tax expense (benefit)

9,389


(140)

Loss on redemption of convertible junior subordinated debentures


2,932

Other

81


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




       Accounts and preneed receivables

(1,765)


(1,700)

       Inventories and other current assets

934


725

       Deferred charges and other

(19)


(196)

       Preneed funeral and cemetery trust investments

3,566


(3,228)

       Accounts payable

(1,543)


785

       Accrued and other liabilities

(452)


(1,362)

       Deferred preneed funeral and cemetery revenue

2,490


335

       Deferred preneed funeral and cemetery receipts held in trust

(3,601)


2,595

     Net cash provided by operating activities

31,216


27,649





Cash flows from investing activities:




      Acquisitions and land for new construction

(6,051)


(56,850)

      Net proceeds from the sale of businesses and other assets

8,321


1,927

      Capital expenditures

(7,425)


(18,158)

     Net cash used in investing activities

(5,155)


(73,081)





Cash flows from financing activities:




      Net (payments) borrowings on the revolving credit facility

(18,700)


5,400

      Net (payments) borrowings on the term loan

(7,500)


5,656

      Proceeds from the issuance of convertible subordinated notes


143,750

      Payment of debt issuance costs related to the convertible subordinated notes


(4,650)

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

(445)


(662)

      Redemption of convertible junior subordinated debentures


(89,748)

      Payments for performance-based stock awards


(16,150)

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

685


1,035

      Dividends on common stock

(1,362)


(1,379)

      Dividend on redeemable preferred stock

(4)


      Payment of loan origination costs related to the credit facility

(574)


(825)

      Excess tax benefit of equity compensation

1,023


4,594

    Net cash provided by (used in) financing activities

(26,877)


47,021





Net increase (decrease) in cash and cash equivalents

(816)


1,589

Cash and cash equivalents at beginning of period

1,698


1,377

Cash and cash equivalents at end of period

$        882


$     2,966

 

CARRIAGE SERVICES, INC.

CALCULATION OF EARNINGS PER SHARE

(in thousands, except share and per share data)










For the Three Months

Ended September 30,


For the Nine Months

Ended September 30,


2013


2014


2013


2014









Numerator for basic earnings per share:








Numerator from continuing operations








Income from continuing operations

$ 1,908


$ 4,565


$ 10,888


$ 10,080

Less: Earnings allocated to unvested restricted stock

(35)


(84)


(236)


(198)

Income attributable to continuing operations

$ 1,873


$ 4,481


$ 10,652


$   9,882









Numerator from discontinued operations








Income from discontinued operations

$ 3,986


$    431


$   4,408


$      381

Less: Earnings allocated to unvested restricted stock

(74)


(8)


(96)


(8)

Income attributable to discontinued operations

$ 3,912


$    423


$   4,312


$      373









Numerator for diluted earnings per share:








Adjustment for diluted earnings per share:








Interest on convertible junior subordinated debentures, net of tax

$      —


$      —


$   2,462


$        —


$      —


$      —


$   2,462


$        —









Income attributable to continuing operations

$ 1,873


$ 4,481


$ 13,114


$   9,882

Income attributable to discontinued operations

$ 3,912


$    423


$   4,312


$ 373









Denominator








Denominator for basic earnings per common share - weighted average shares outstanding

17,892


18,150


17,794


18,086

Effect of dilutive securities:








Stock options

165


126


175


137

Convertible junior subordinated debentures



4,392


Denominator for diluted earnings per common share - weighted average shares outstanding

18,057


18,276


22,361


18,223









Basic earnings per common share:








Continuing operations

$   0.10


$    0.25


$    0.60


$     0.55

Discontinued operations

0.22


0.02


0.24


0.02

Basic earnings per common share

$   0.32


$    0.27


$    0.84


$     0.57









Diluted earnings per common share:








Continuing operations

$ 0.10


$    0.24


$    0.59


$     0.54

Discontinued operations

0.22


0.02


0.19


0.02

Diluted earnings per common share

$ 0.32


$    0.26


$    0.78


$     0.56

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", "Adjusted 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.
  • Adjusted Free Cash Flow is defined as net cash provided by operations, adjusted by special items as deemed necessary, 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 deemed as Non-GAAP items 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. Special items are taxed at the federal statutory rate of 34 percent for the three and nine months ended September 30, 2013 and 2014.
  • 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 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 nine months ended September 30, 2013 and 2014 (thousands):


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Net Income from continuing operations

$   1,908


$   4,565


$   10,888


$   10,080

Special items, net of tax








Withdrawable Trust Income

210


468


679


983

Acquisition and Divestiture Expenses

143


56


250


715

Severance Costs

409


119


860


596

Consulting Fees

110


71


278


236

Other Incentive Compensation




660

Securities Transaction Expenses

160



160


Accretion of Discount on Convertible Subordinated Notes


516



1,087

Costs Related to the Credit Facility



248


688

Loss on Redemption of Convertible Junior Subordinated Debentures




2,493

Gain on Asset Purchase




(746)

Other Special Items



(484)


503

Tax Adjustment from Prior Period



598


     Total Special items affecting net income

$   1,032


$   1,230


$     2,589


$     7,215

Adjusted Net Income

$   2,940


$   5,795


$   13,477


$   17,295

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and nine months ended September 30, 2013 and 2014 (in thousands):


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Net income from continuing operations

$        1,908


$        4,565


$      10,888


$      10,080

Net provision for income taxes

1,257


650


7,726


4,175

Pre-tax earnings from continuing operations

$        3,165


$        5,215


$      18,614


$      14,255

Interest expense

3,250


2,180


10,371


7,715

Accretion of discount on convertible subordinated notes


782



1,647

Loss on early extinguishment of debt and other costs




1,042

Loss on redemption of convertible junior subordinated debentures




3,779

Non-cash stock compensation

675


920


2,299


2,912

Depreciation & amortization

2,931


2,995


8,812


8,781

Other, net

(34)


(3)


(896)


(376)

Consolidated EBITDA 

$        9,987


$      12,089


$      39,200


$      39,755

Adjusted For:








Withdrawable Trust Income

$          318


$          709


$        1,028


$        1,488

Acquisition and Divestiture Expenses

217


85


380


1,084

Severance Costs

620


180


1,304


903

Consulting Fees

166


107


421


357

Other Incentive Compensation




1,000

Securities Transaction Expenses

242



242


Other Special Items



83


Adjusted Consolidated EBITDA 

$      11,550


$      13,170


$      42,658


$      44,587

Revenue

$      49,501


$      54,549


$    160,435


$    166,705









Adjusted Consolidated EBITDA Margin

23.3%


24.1%


26.6%


26.7%

Reconciliation of funeral and cemetery income before income taxes to Field EBITDA for the three and nine months ended September 30, 2013 and 2014 (in thousands):

Funeral Field EBITDA

Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Gross Profit (GAAP)

$   10,213


$   11,830


$     37,817


$     39,565

Depreciation & amortization

1,455


1,762


4,669


5,059

Regional & unallocated costs

2,220


2,248


6,234


5,396

Net financial income

(1,820)


(2,002)


(6,008)


(6,307)

Funeral Field EBITDA

$   12,068


$   13,838


$     42,712


$     43,713

Funeral Field Operating Revenue

$   35,038


$   39,488


$   115,408


$   120,792

Funeral Field EBITDA Margin

34.4 %


35.0 %


37.0 %


36.2 %

















Cemetery Field EBITDA

Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Gross Profit (GAAP)

$     3,887


$     3,247


$     12,068


$     11,516

Depreciation & amortization

625


892


2,573


2,685

Regional & unallocated costs

500


652


1,558


1,576

Net financial income

(2,275)


(2,529)


(7,159)


(6,983)

Cemetery Field EBITDA

$     2,737


$     2,262


$       9,040


$       8,794

Cemetery Field Operating Revenue

$   10,057


$   10,184


$     30,718


$     31,667

Cemetery Field EBITDA Margin

27.2 %


22.2 %


29.4 %


27.8 %

















Total Field EBITDA

Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Funeral Field EBITDA

$   12,068


$   13,838


$     42,712


$     43,713

Cemetery Field EBITDA

2,737


2,262


9,040


8,794

Funeral Financial EBITDA

1,820


2,002


6,008


6,307

Cemetery Financial EBITDA

2,275


2,529


7,159


6,983

Total Field EBITDA

$   18,900


$   20,631


$     64,919


$     65,797

Reconciliation of cash provided by operating activities to Adjusted Free Cash Flow from operations for the three and nine months ended September 30, 2013 and 2014 (in thousands):


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

Cash flow provided by operations

$       8,401


$      14,330


$      31,216


$      27,649

Adjustment for tax benefit from Good to Great stock awards




4,802

Cash used for maintenance capital expenditures

(1,575)


(2,734)


(4,600)


(5,307)

Adjusted Free Cash Flow

$       6,826


$      11,596


$      26,616


$      27,144

Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the three and nine months ended September 30, 2013 and 2014:


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

GAAP basic earnings per share from continuing operations

$         0.10


$         0.25


$         0.60


$         0.55

Special items affecting net income

0.06


0.07


0.14


0.40

Adjusted basic earnings per share 

$         0.16


$         0.32


$         0.74


$         0.95

Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the three and nine months ended September 30, 2013 and 2014:


Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2014


2013


2014

GAAP diluted earnings per share from continuing operations

$      0.10


$      0.24


$         0.59


$         0.54

Special items affecting net income

0.06


0.07


0.12


0.40

Dilution effect of convertible junior subordinated debentures



0.02


Adjusted diluted earnings per share 

$      0.16


$      0.31


$         0.73


$         0.94

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 statements regarding the consummation of the SCI acquisition, 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, 2013. 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, 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.

SOURCE Carriage Services, Inc.

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