Carriage Services, Inc.
CARRIAGE SERVICES INC (Form: 8-K, Received: 02/15/2017 16:31:23)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 15, 2017
 
Carriage Services, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-11961
 
76-0423828
   (State or other jurisdiction
   of incorporation)
 
   (Commission
   File Number)
 
   (IRS Employer
   Identification No.)
3040 Post Oak Boulevard, Suite 300
Houston, Texas 77056
(Address, including zip code, of principal executive offices)

Registrant's telephone number, including area code:
(713) 332-8400
 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





ITEM 2.02    RESULTS OF OPERATIONS AND FINANCIAL CONDITION .

In the press release dated February 15, 2017, the Company announced and commented on its financial results for the year ended December 31, 2016. A copy of the press release issued by the Company is attached hereto as Exhibit 99.1 and incorporated by this reference. The information being furnished under Item 9.01 Financial Statements and Exhibits, including the press release attached hereto as Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section.

The Company’s press release dated February 15, 2017, contains non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with United States generally accepted accounting principles, or GAAP. Pursuant to the requirements of Regulation G, the Company has provided quantitative reconciliations within the press release of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
ITEM 9.01    FINANCIAL STATMENTS AND EXHIBITS .

(d)     Exhibits. The following are furnished as part of this Current Report on Form 8-K:
    
99.1 Press Release dated February 15, 2017





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Carriage Services, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
CARRIAGE SERVICES, INC.
 
 
 
 
Dated: February 15, 2017
By:
 
/s/ Viki K. Blinderman
 
 
 
Viki K. Blinderman
 
 
 
Senior Vice President, Principal Financial Officer, Chief Financial Officer and Secretary
 
 
 
 






INDEX TO EXHIBITS

Exhibit 
  
Description
 
 
99.1

  
Press Release dated February 15, 2017.



CSVLOGOA09.JPG
 
CARRIAGE SERVICES ANNOUNCES RECORD 2016 ANNUAL RESULTS
INCREASES ROLLING FOUR QUARTER OUTLOOK
HOUSTON – February 15, 2017 – Carriage Services, Inc. (NYSE: CSV) today announced record results for the year ending December 31, 2016, as highlighted below:
Mel Payne, Chief Executive Officer, stated, “Consistent with our annual Good To Great theme of ‘ Carriage Services 2016: We Choose To Be Great! ’, our 2016 performance was our eighth straight record annual performance with Total Revenue growth of 2.3% to $248.2 million, Adjusted Consolidated EBITDA growth of 3.6% to $73.7 million, Adjusted Diluted EPS growth of 9.5% to $1.62 and Adjusted Free Cash Flow growth of 7.8% to $47.0 million. Since we launched the Carriage Good To Great Journey at the end of 2011, our initial five year timeframe performance trends have been extraordinary and have produced a Total Shareholder Return of 417% including dividend s.
 
 
Base
   Year (1)
 
Carriage Good To Great Journey (1)
 
CAGR
 
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
$
182.3

 
$
198.2

 
$
213.1

 
$
226.1

 
$
242.5

 
$
248.2

 
6.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Consolidated EBITDA
 
$
48.6

 
$
52.6

 
$
56.0

 
$
61.7

 
$
71.1

 
$
73.7

 
8.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Consolidated EBITDA Margin
 
26.6
%
 
26.5
%
 
26.3
%
 
27.3
%
 
29.3
%
 
29.7
%
 
2.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Diluted Earnings Per Share
 
$
0.64

 
$
0.80

 
$
0.98

 
$ 1.24 (2)

 
$
1.48

 
$
1.62

 
20.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Free Cash Flow
 
$
29.1

 
$
22.9

 
$
36.2

 
$
38.6

 
$
43.7

 
$
47.0

 
10.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share Price at December 31
 
$
5.60

 
$
11.87

 
$
19.53

 
$
20.95

 
$
24.10

 
$
28.64

 
38.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Data shown for the years ended December 31 in millions except per share and percentage amounts
 
 
(2) Adjusted for one time tax benefit of 10 cents per share
 
 
In mid-November of 2011 after a major management reorganization on November 4, 2011, which we now refer to as our Good To Great Transition Date , we convened a large group of senior leaders and field operating and Houston support personnel to discuss whether the high performance ideas and concepts related to our Standards Operating Model had evolved over the prior eight years to a degree that could define Carriage as a “ Good Company ” if led and executed well by our operating leadership at all levels. In preparation for this strategic meeting on Carriage's Ten Year Vision , we all had to read the bestselling business book Good To Great by Jim Collins which was published in 2001.
There was a unanimous and exciting view at this meeting that we had indeed reached an early phase of “ Good Company and that our Managing Partners, Sales Managers and employees across our portfolio of businesses would be inspired to achieve higher levels of sustained operating and financial performance by the launching of a five year Good To Great Journey beginning in 2012 in combination with a new long term (five year) Good To Great value creation incentive program to complement our annual Being The Best Pinnacle Award. Accordingly, we established and then communicated companywide extraordinarily challenging goals over the five year timeframe beginning in 2012 and ending with 2016 consistent with the five year theme of taking Carriage from a Good company in 2012 to one considered Great by 2016 based on total equity market value growth and total shareholder returns over time.
Despite the dynamic and transformational changes in all areas of our company over the past five years, including the turnover, shrinkage and improved alignment of our senior leadership team and Board of Directors, a much lower

1


cost capital structure, and the huge growth in our earning power and equity market value, we nevertheless realized over the last two years that the Good To Great Journey should not cross some artificial finish line at the end of 2016. Instead, we concluded that such a special journey of learning among likeminded individuals in a quest for excellence should never end because there are still so many ways we can get better in every operational and support function area of our company. Our thinking now is that every time we might cross a high performance threshold of “goodness” and be approaching “great,” we will redefine what greatness means for our industry and company and simply continue our Good To Great Journey that never ends.
Our year to date and fourth quarter comparative highlights are shown below:
Year Ended December 31, 2016 compared to Year Ended December 31, 2015
Record Total Revenue of $248.2 million, an increase of 2.3%;
Net Income of $19.6 million, a decrease of 6.1%;
GAAP Diluted Earnings Per Share remained flat at $1.12;
Record Total Field EBITDA of $104.4 million, an increase of 2.8%;
Record Total Field EBITDA Margin up 20 basis points to 42.1%;
Record Adjusted Consolidated EBITDA of $73.7 million, an increase of 3.6%;
Record Adjusted Consolidated EBITDA Margin up 40 basis points to 29.7%;
Record Adjusted Diluted Earnings Per Share of $1.62, an increase of 9.5%; and
Record Adjusted Free Cash Flow of $47.0 million, an increase of 7.8%.
Three Months Ended December 31, 2016 compared to Three Months Ended December 31, 2015
Record Total Revenue of $62.9 million, an increase of 2.0%;
Net Income of $4.1 million, a decrease of 24.1%;
GAAP Diluted Earnings Per Share of $0.22, a decrease of 29.0%;
Total Field EBITDA remained flat at $27.2 million;
Total Field EBITDA Margin down 90 basis points to 43.2%;
Record Adjusted Consolidated EBITDA of $18.9 million, an increase of 5.9%;
Record Adjusted Consolidated EBITDA Margin up 110 basis points to 30.1%;
Adjusted Diluted Earnings Per Share of $0.36, a decrease of 7.7%; and
Record Adjusted Free Cash Flow of $12.9 million, an increase of 166.0%.
STANDARDS OPERATING MODEL/CONSOLIDATION PLATFORM CASH EARNING POWER
During the 2008/2009 financial and market crisis, we took control of our preneed trust fund management and initiated an investment repositioning strategy that was enormously successful and led to huge capital gains and much higher levels of recurring income, resulting in substantial overfunding of our trusts compared to regulatory and economic requirements. So in 2011 we made the decision to report Withdrawable Trust Income in our Non-GAAP Trend Reporting as it was not recognizable as GAAP because no death had occurred. After seeking and receiving feedback from institutional investors during 2015 about the complexity and confusion related to our Non-GAAP reporting, we ended beginning in 2016 the practice of reporting Withdrawable Trust Income as well as the adding back of other items to our Non-GAAP results so that our GAAP and Non-GAAP performance would converge as much as possible.
We believe the achievement of an Adjusted Consolidated EBITDA Margin of 29.7% in 2016 is a level that has never been reached in the history of deathcare consolidation by any mature, public company using current accounting methodology. This company and industry milestone confirms our conviction that Carriage has evolved into a superior consolidation, operating and value creation platform for the funeral and cemetery industry.

2


Yet it turns out that the reflection of Withdrawable Trust Income in our Non-GAAP performance beginning in 2011 also masked the remarkable degree of Carriage’s cash earning power transformation as shown below in our five year Good To Great performance trends without the inclusion of Withdrawable Trust Income.
 
 
For The Years Ended December 31,
 
CAGR
 
 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
%

 
 
(in millions except percentage amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Consolidated EBITDA (as reported)
 
$
48.6

 
$
52.6

 
$
56.0

 
$
61.7

 
$
71.1

 
$
73.7

 
8.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Withdrawable Trust Income (pre-tax)
 
$
(4.5
)
 
$
(1.9
)
 
$
(1.5
)
 
$
(1.8
)
 
$
(0.6
)
 
$

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proforma Adjusted Consolidated EBITDA
 
$
44.1

 
$
50.7

 
$
54.5

 
$
59.9

 
$
70.5

 
$
73.7

 
10.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proforma Adjusted Consolidated EBITDA Margin
 
24.2
%
 
25.6
%
 
25.6
%
 
26.5
%
 
29.1
%
 
29.7
%
 
4.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Free Cash Flow (as reported)
 
$
29.1

 
$
22.9

 
$
36.2

 
$
38.6

 
$
43.7

 
$
47.0

 
10.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Withdrawable Trust Income (actual cash withdrawn/after-tax)
 
$
(6.8
)
 
$
(0.9
)
 
$
(1.1
)
 
$
(0.4
)
 
$

 
$

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proforma Adjusted Free Cash Flow
 
$
22.3

 
$
22.0

 
$
35.1

 
$
38.2

 
$
43.7

 
$
47.0

 
16.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CSV Equity Market Value at Dec. 31
 
$
103.2

 
$
215.5

 
$
356.6

 
$
387.8

 
$
401.2

 
$
476.6

 
35.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proforma Adjusted Free Cash Flow Equity Yield
 
21.6
%
 
10.2
%
 
9.8
%
 
9.8
%
 
10.9
%
 
9.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over the first five year Good To Great timeframe we have demonstrated the ability to convert approximately 45% of incremental revenue into Proforma Adjusted Consolidated EBITDA (Revenue up $65.9 million equal to 36.1%, and Proforma Adjusted Consolidated EBITDA up $29.6 million equal to 67.1%) and other value creation metrics (Adjusted EPS and Free Cash Flow) because of a 550 basis point increase from 24.2% to 29.7% in our Proforma Adjusted Consolidated EBITDA Margin equal to a remarkable increase of 22.7%. So what does the five year cash earning power trend that culminated in 2016 with the milestone achievement of a Consolidation Platform EBITDA Margin of 29.7% mean for current and prospective long term shareholders of Carriage?
Key five year investment merit takeaways include the following:
Increased by almost 23% our debt leverage capacity on the same revenue base;
Increased by 111% our ability to self-finance from Free Cash Flow a more rapid pace of acquisitions;
Substantially increased returns on invested capital of both our existing Same Store and Acquisition Funeral and Cemetery Portfolios;
Increasing margin trends will materially benefit long term investment returns on future acquisitions that rank high using our Strategic Methodology whose criteria are predictive of future revenue growth; and
Substantially increased our financial flexibility to pursue additional opportunistic value creation capital allocation decisions.
Key Adjusted Free Cash Flow Equity Yield takeaways:
While our Equity Market Value increased 362% and Proforma Adjusted Consolidated EBITDA Margin improved by 550 basis points, Proforma Adjusted Free Cash Flow Equity Yield averaged 10.1% in a relatively flat range over the past five years;
Cash earning power Adjusted Consolidated EBITDA Margin of 29.7% is more than 300 basis points higher than our much larger benchmark competitor; and
Carriage’s superior and higher growth consolidation platform, as of year-end, produces FCF Equity Yield that is over 400 basis points higher than our much larger benchmark competitor, implying a substantial valuation discount.
Our ability to increase the cash earning power on each dollar of revenue is directly correlated to the improved execution of our three core models across our consolidation and operating platform by our 4E High Performance Leaders over the last five years. The company and industry milestone of our increasing cash earning power margin

3


is not due to any top-down corporate initiatives to cut costs, under investment in earning power maintenance capital expenditures at our local businesses, or our decision to eliminate a broadly aggressive preneed funeral selling program when we initiated the Standards Operating Model in 2004.
While it is generally accepted within our industry and much of the investment community as “a matter of faith” that an aggressive preneed funeral selling program has positive long term performance benefits, we have seen no specific business data evidence that aggressive preneed funeral selling programs in stand-alone funeral homes (as apposed to funeral and cemetery combination businesses or stand-alone cemeteries) grow funeral market share volumes, revenues and Field EBITDA Margins over the long term. We believe that the sustained high level of execution by our stand-alone funeral business Managing Partners and the increasing funeral field operational and financial performance that has been achieved over the past five years only further validates our business strategy.
A much more comprehensive understanding of the superior cash earning power of Carriage’s Consolidation and Operating Platform will best be achieved by a visit to our offices in Houston and/or to some of our wonderful operating businesses for personal engagement with our Managing Partners and employees. But in an attempt to make a breakthrough in investor understanding of Carriage using my 2015 shareholder letter and 2016 quarterly earnings releases, I wrote extensively for the first time this past year about the evolution since 2003 of our highly innovative Standards Operating Model (Second and Third Quarter Earnings Releases) and the conceptual research on “a coherent yet radically decentralized model” begun in the late 1990’s by Jeremy Hope, Robin Fraser and Peter Bunce in the United Kingdom whose work was published in the book Beyond Budgeting co-authored by Mr. Fraser and Mr. Hope in 2003 which is continued today by the Beyond Budgeting Round Table.
CARRIAGE GOOD TO GREAT JOURNEY BECOMES BUILT TO LAST COMPANY
During the last quarter of 2016 we reorganized our senior leadership team to capitalize on what we believe will be the greatest strategic opportunity for value creation in our industry over the next five and ten years. There has not been rapid consolidation of our still highly fragmented industry since the mania of the 1990’s except for SCI’s consolidation of primarily other large consolidators (Alderwoods, Stewart Enterprises, etc.) over the last ten years. Yet we sense that across the country the industry secular revenue challenges caused by people living longer and increasingly choosing cremations compared to traditional burials will lead to an acceleration of consolidation over the next ten years by owners needing a succession plan solution.
We believe that Carriage offers a unique consolidation and operating framework as a succession plan solution - one so different from any company during the past sixty years of consolidation in our industry that many high quality owners and top industry talent think its “Too Good To Be True!”
So at the end of 2016 we reorganized the Strategic and Corporate Development function to achieve highly focused execution of our Strategic Acquisition Model by promoting Shawn Phillips, one of our top operating leaders who is able to credibly explain our unique Standards Operating Model to “best in class” independent business owners across the country using our high performance culture operating language. Shawn joined Carriage ten years ago, has served as Regional Partner of both our Western and Central Regions, and is now leading and building a first class corporate development team and a pipeline of quality acquisition candidates that fit our higher future revenue profile strategic criteria and also align with our Mission and Vision of Being The Best and Five Guiding Principles . As industry consolidation accelerates over the next ten years, we are extraordinarily well positioned to affiliate with more than our fair share of the best remaining independents in the best markets across the country.
As we successfully execute our three core models over the next five to ten years, we fully expect that our share price and equity valuation will reflect our achievements over time as a superior value creation platform in our industry. Our Being The Best Mission and Vision is for “Mr. Market” to increasingly put a premium valuation on our “Compounder Company” shares so that we get recognized publicly by investors as a Built To Last Company .
So I am honored to announce that our next five year Good To Great Journey timeframe theme is Carriage Services 2017 - 2021: From Good To Great to Built To Last.
Lastly and importantly for our company leadership and employees, I am extremely proud to publicly announce our Good To Great annual theme for this year, “Carriage Services 2017: Owning the Future, Accelerating the Good To Great Journey!” , concluded Mr. Payne.

4


CARRIAGE “ROUGHLY RIGHT” SCENARIO 2017 - 2021
Shown below using 2016 full year performance as our new base year is our updated five year financial performance scenario from 2017 through 2021. This scenario is not intended to be a formal management estimate or forecast of future performance because of the large number of unpredictable variables involved in the prediction of just about anything in the future, including uncontrollable and/or unknowable external events. Rather, the intent and goal of this scenario is to reflect the midpoint of a “roughly right” range of future performance as we execute our Standards Operating, 4E Leadership and Strategic Acquisition Models. Consistent with our performance over the first five years of our Good To Great Journey , the 2017 - 2021 scenario clearly demonstrates the future value creation dynamics of the Carriage Operating and Consolidation Platform, i.e, the “trend has been our friend but the best is yet to come!”
 
 
Base .. Year (1)
 
CARRIAGE “ROUGHLY RIGHT” SCENARIO 2017 - 2021 (1)
 
CAGR
 
 
2016
 
2017
 
2018
 
2019
 
2020
 
2021
 
%
 
 
 
 
 
 
 
Total Revenue
 
$
248.2

 
$
272.4

 
$
291.0

 
$
311.1

 
$
332.2

 
$
356.5

 
7.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Consolidated EBITDA
 
$
73.7

 
$
83.0

 
$
89.7

 
$
97.1

 
$
105.2

 
$
113.7

 
9.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Consolidated EBITDA Margin
 
29.7
%
 
30.4
%
 
30.8
%
 
31.2
%
 
31.7
%
 
31.9
%
 
1.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Data shown for the years ended December 31 in millions except percentage amounts
 
 
The Carriage “Roughly Right” Financial Performance Scenario over the five year timeframe 2017 - 2021 shown above reflects a continuation of the high performance trends of our Good To Great Journey from 2012 - 2016. We believe these High and Sustainable Quantitative Performance Trends are driven by the Qualitative Elements of our company, i.e. the ideas and concepts of Carriage's High Performance Culture Framework highlighted in the next three sections of this release. The Qualitative Elements of Carriage are the “center of the universe” reasons we have evolved over the last thirteen years into a high performance culture company that “just happens to be in the funeral and cemetery business!”
CARRIAGE FRAMEWORK OF HIGH PERFORMANCE IDEAS AND CONCEPTS
Carriage’s High Performance Culture Framework is designed around a few simple high performance concepts related to our view that over the last fifty plus years the consolidation and operation of family owned funeral homes and cemeteries by public companies has been over managed for short term yet unsustainable maximum profit and under led for long term and sustainable market share and profitability growth. Our three core models, comprised of our Standards Operating, 4E Leadership, and Strategic Acquisition Models, are premised on the following passionate convictions about our company, business and industry:
High Performance Ideas and Concepts of Carriage are 100% aligned with our Mission of Being The Best and Five Guiding Principles , which are the Qualitative Elements that drive our High and Sustainable Quantitative Performance;
Words in the form of ideas, concepts, high performance standards, recognition, Mission, Vision and Guiding Principles matter greatly to people with exceptional talent, especially those who are part of high performance teams - so over time we have developed a unique Carriage High Performance Culture Language;
Nature of each of our businesses is high value personal service and sales delivered locally through highly motivated, skilled and culturally aligned leaders and employees fully involved in their communities;
Nature of each market in which we operate is highly competitive for market share with each market and Carriage business being unique as to its competitive opportunities and challenges that are not prone to centralized solutions or top down initiatives;
Weak leadership locally will make a healthy and/or dominant business weaker in competitive standing (market share) over time, whereas strong 4E Leadership and the “ Right Quality of Staff ” in a Carriage business will produce high and sustainable performance from a good business almost overnight, consistent with the high performance concept of First Who, Then What ;

5


A few simple high operating performance standards that do not change over time weighted heavily toward long term growth in funeral volumes and preneed cemetery property sales, which are the primary drivers of locally produced economic value creation through the financial dynamic of operating leverage, attracts the top entrepreneurial and competitive talent to Carriage businesses that do not need to be managed - just supported, recognized and rewarded like a partner; and
Nature of our industry is akin to “birds of a feather flock together”, as we have found that making Carriage highly selective on acquisitions and talent is attractive to the best remaining independent businesses and top entrepreneurial talent who want to join an elite club of “ Only The Best ” Carriage businesses and Managing Partners.
CARRIAGE GOOD TO GREAT HIGH PERFORMANCE HEROES
At the beginning of 2012 we created a new five year incentive award with the name Good To Great Award that was directly linked to our annual Being The Best Pinnacle Award which itself is linked to High Funeral Standards Achievement over a full year, i.e. our Good To Great Awards require high and sustained Being The Best Standards Achievement over a full five years. We have had many wonderful performances over the last five years by High Performance Hero Funeral and Cemetery Managing Partners and Sales Managers and their teams of winning employees, so I am more than honored on behalf of our Standards Council members, senior leadership team and Board of Directors to announce our first Good To Great Award winners for the five year timeframe that began in 2012 and ended at year-end 2016, as listed below:
Kristi Ah You                    
Franklin & Downs Funeral Home; Modesto, CA
James Bass                       
Twin Cities Cremation Services and Funeral Home; Niceville, FL; and
 
Emerald Coast Funeral Home/McLaughlin Mortuary; Fort Walton Beach, FL
Kyle Incardona                
Hillier Funeral Homes; Bryan, TX
Steve Mora                      
Conejo Mountain Funeral Home; Camarillo, CA
Ken Summers                  
P.L. Fry & Son Funeral Home; Manteca, CA
Robert Maclary               
Kent-Forest Lawn Funeral Home; Panama City, FL
Chad Woody                    
Watson-King Funeral Homes; Rockingham, NC
Brad Shemwell                
Latham Funeral Home; Elkton, KY
Michael Page                   
Allison Funeral Home; Liberty, TX
Patty Drake                      
Drake Whaley McCarty Funeral Home; Cynthiana, KY
Andy Shemwell              
Maddux-Fuqua-Hinton Funeral Homes; Hopkinsville, KY
Tim Hauck                        
Cape Coral Group; Cape Coral, FL
The above group of Good To Great Award winners along with spouses/significant others or a guest will be hosted by our senior leadership team and spouses on our first Good To Great Awards trip on Wednesday, March 1, 2017 to Sunday, March 5, 2017 to the world class and unique (built into the tree tops of a tropical rain forest next to the active Arenal Volcano) Nayara Springs Villas in Arenal Nayara, Costa Rica. Congratulations to all, as you deserve to be treated as the Kings and Queens of sustained high Being The Best Standards Achievement that you are! You have led us as high performance role models over the past five years and have truly set the Performance Standard for what the Carriage Good To Great Journey is all about.

6


CARRIAGE 2016 PINNACLE OF SERVICE AWARD WINNERS
As an important part of our High Performance Culture tradition and language, and because we have a passionate conviction that RECOGNITION is the highest form of motivation, listed below are 35 Carriage Being The Best Pinnacle Of Service Award winners for 2016:
James Terry
James J. Terry Funeral Home; Downingtown, PA
James Bass
McLaughlin Twin Cities Funeral Home; Niceville, FL; and
 
Emerald Coast/McLaughlin Mortuary; Ft. Walton Beach, FL
Bill Martinez
Stanfill Funeral Home; Miami, FL
Richard Munoz
Connolly & Taylor Funeral Directors; Martinez, CA
Benjamin Friberg
Heritage Funeral Home and Crematory; Ft. Oglethorpe, GA
Brad Shemwell
Latham Funeral Home; Elkton, KY
Joseph Waterwash
Baird-Case Jordan-Fannin Funeral Home & Cremation Service; Ft. Lauderdale, FL
Jason Higginbotham
Lakeland Funeral Home; Lakeland, FL
Jeff Moore
Sterling-White Funeral Home; Crosby, TX
Kristi AhYou
Franklin & Downs Funeral Homes; Modesto, CA
Kyle Incardona
Hillier Funeral Home; Bryan, TX
Jason Cox
Lane Funeral Home - South Crest Chapel; Rossville, GA
Michael Nicosia
Chapel of San Ramon Valley, Danville, CA; and
 
Ouimet Brothers Concord Funeral Directors; Concord, CA
Robert Maclary
Kent-Forest Lawn Funeral Home; Panama City, FL
Tim Hauck
Cape Coral Group; Cape Coral, FL
Andrew Cumby
Cumby Family Funeral Homes; High Point, NC
Chris Duhaime
Funk Funeral Home; Bristol, CT
Chris Chetsas
Cataudella Funeral Home; Methuen, MA
John Fitzpatrick
Donohue Cecere Funeral Directors; Westbury, NY
Chad Woody
Richmond County Memorial Park; Rockingham, NC
Ken Summers
P.L. Fry & Son Funeral Home; Manteca, CA
Matthew Simpson
Fry Memorial Chapel; Tracy, CA
Justin Luyben
Evans-Brown Mortuaries & Crematory; Sun City, CA
Curtis Ottinger
Heritage Funeral Home; Chattanooga, TN
Verdo Werre
McNary-Moore Funeral Service; Colusa, CA
Andy Shemwell
Maddux-Fuqua-Hinton Funeral Home; Hopkinsville, KY
Steve Mora
Conejo Mountain Memorial Park; Camarillo, CA; and
 
Conejo Mountain Funeral Home; Camarillo, CA
Patty Drake
Drake Whaley McCarty Funeral Home; Cynthiana, KY
Brian Binion
Steen Funeral Homes; Ashland, KY
Roger Allen
LaGrone-Blackburn-Shaw Funeral Directors; Amarillo, TX
Jeff Seaman
Dwayne R. Spence Funeral Home; Canal Winchester, OH
Ashley Vella
Deegan Funeral Chapels; Escalon, CA
Mike Conner
Conner-Westbury Funeral Home; Griffin, CA
Tim Miller
Fuller Funeral Home & Cremation Service (East); Naples, FL
Kim Borselli
Fuller Funeral Home & Cremation Service (Pine Ridge); Naples, FL
The above group of Pinnacle Of Service Award winners along with spouses/significant others or a guest will be hosted by our senior leadership team and spouses on a trip on Thursday, May 4, 2017 to Sunday, May 7, 2017 to Playa del Carmen, Mexico. Congratulations to all, as you deserve to be treated as the Kings and Queens of Being The Best Standards Achievement that you are! You have led us as high performance role models during 2016 and have truly set the Performance Standard for what the Carriage Good To Great Journey is all about.


7


TRUST FUND PERFORMANCE
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)
 
 
 
 
 
 
 
 
1 year ended 12/31/16
 
19.7%
18.3%
 
12.0%
17.6%
15.9%
2 years ended 12/31/16
 
16.0%
15.7%
 
13.5%
12.0%
12.4%
3 years ended 12/31/16
 
25.7%
24.8%
 
28.9%
14.8%
19.0%
4 years ended 12/31/16
 
43.6%
42.0%
 
70.6%
23.4%
37.6%
5 years ended 12/31/16
 
72.8%
66.3%
 
97.8%
42.6%
59.2%
 
 
 
 
 
 
 
 
(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 December 31, 2016
(in thousands)
 
 
 
 
Discretionary
Trust Funds
 
Total
Trust Funds
Asset Class
 
 
 
MV

%

 
MV

%

Cash
 
 
 
$
28,612

14
%
 
$
43,924

19
%
Equities
 
 
 
36,546

19
%
 
38,975

17
%
Fixed Income
 
 
 
127,813

65
%
 
138,952

62
%
Other/Insurance
 
 
 
3,317

2
%
 
3,510

2
%
Total Portfolios
 
 
 
$
196,288

100
%
 
$
225,361

100
%
The performance of our preneed trust fund portfolio in 2016 marked the successful completion of our portfolio repositioning strategy that we implemented at the beginning of the year. Our strategy of selecting individual securities for a long-term investment horizon was the primary driver of our performance for the year. Our long-term holdings in regional bank and insurance company TARP warrants and energy infrastructure companies significantly outperformed in 2016, particularly after the election.
Our trust fund portfolio repositioning strategy enabled us to accomplish our goals to improve the credit quality and liquidity of our fixed income portfolio, while increasing the amount of recurring current income in the portfolio. Recurring annual income increased by 15% or roughly $1.5 million in our discretionary trust fund portfolio in 2016. The majority of our repositioning strategy within our fixed income portfolio was executed in the first half of the year and proved to be successful with an average total return of 22% for new fixed income purchases during 2016.
2016 also marked the eighth full year that Carriage has directly managed our discretionary trust fund portfolio and the sixth year we outperformed our reported benchmark. The performance of our discretionary trust fund portfolio has exceeded our 70/30 High Yield/S&P 500 benchmark by 33% for the eight year period. Given our successful long term relative investment returns, we believe we have developed an investment process that will benefit Carriage into the future.

8


ADJUSTED FREE CASH FLOW
We produced Adjusted Free Cash Flow from operations for the three months and years ended December 31, 2016 of $12.9 million and $47.0 million, respectively, compared to Adjusted Free Cash Flow from operations of $4.9 million and $43.7 million for the corresponding periods in 2015. A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three months and years ended December 31, 2015 and 2016 is as follows (in thousands):
 
Three Months Ended
December 31,
 
Years Ended
December 31,
 
 
2015

 
2016

 
2015

 
2016

Cash flow provided by operations
$
6,916

 
$
15,177

 
$
49,904

 
$
49,457

Cash used for maintenance capital expenditures
(2,795
)
 
(2,239
)
 
(9,735
)
 
(7,402
)
Free Cash Flow
$
4,121

 
$
12,938

 
$
40,169

 
$
42,055

 
 
 
 
 
 
 
 
Plus: Incremental Special Items:
 
 
 
 
 
 
 
Acquisition and divestiture expenses
37

 

 
614

 
516

Severance costs
151

 

 
959

 
3,979

Consulting fees
555

 

 
1,913

 
496

Adjusted Free Cash Flow
$
4,864

 
$
12,938

 
$
43,655

 
$
47,046

ROLLING FOUR QUARTER OUTLOOK
The Rolling Four Quarter Outlook (“Outlook”) reflects management’s opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending December 31, 2017 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise 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. Similarly, we self-publish a Company and Investment Profile, available on our website, that includes a Five Year “Roughly Right Scenario” of our future performance which together with our Five Year Trend Report provides investors a ten year past and future profile of our financial value creation dynamics and condition, making it easier to judge whether our “trends will continue to be the friend” of long term investors.
ROLLING FOUR QUARTER OUTLOOK – Period Ending December 31, 2017
 
 
Range
(in millions, except per share amounts)
Revenues
 
$263 - $267
Adjusted Consolidated EBITDA
 
$79 - $83
Adjusted Net Income
 
$30 - $32
Adjusted Basic Earnings Per Share (1)
 
$1.84 - $1.88
Adjusted Diluted Earnings Per Share (1)
 
$1.73 - $1.77
Factors affecting our analysis include, among others, 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, market volatility and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income, Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share for the four quarter period ending December 31, 2017 are expected to improve relative to the trailing four quarter period ended December 31, 2016 due to increases in our existing Funeral Home and Cemetery portfolio and modest decreases in overhead as a percentage of revenue.
(1)
The Rolling Four Quarter Outlook on Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share does not include any changes to our fully diluted share count that could occur related to additional share repurchases or a stock price increase and EPS dilution calculations related to our convertible subordinated notes and outstanding and exercisable stock options.

9


CONFERENCE CALL AND INVESTOR RELATIONS CONTACT
Carriage Services has scheduled a conference call for tomorrow, February 16, 2017 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-64210285) and ask for the Carriage Services conference call. A replay of the conference call will be available through February 20, 2017 and may be accessed by dialing 855-859-2056 (ID-64210285). The conference call will also be available at www.carriageservices.com. For any investor relations questions, please contact Viki Blinderman at 713-332-8568 or Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com .


10



CARRIAGE SERVICES, INC.
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Years Ended December 31,
 
2015
2016
% Change
 
2015
2016
% Change
 
 
 
 
 
 
 
 
Same Store Contracts
 
 
 
 
 
 
 
Atneed Contracts
5,468

5,270

(3.6
%)
 
21,802

21,428

(1.7
%)
Preneed Contracts
1,309

1,288

(1.6
%)
 
5,346

5,208

(2.6
%)
Total Same Store Funeral Contracts
6,777

6,558

(3.2
%)
 
27,148

26,636

(1.9
%)
Acquisition Contracts
 
 
 
 
 
 
 
Atneed Contracts
1,180

1,549

31.3
%
 
4,497

5,555

23.5
%
Preneed Contracts
225

266

18.2
%
 
982

969

(1.3
%)
Total Acquisition Funeral Contracts
1,405

1,815

29.2
%
 
5,479

6,524

19.1
%
Total Funeral Contracts
8,182

8,373

2.3
%
 
32,627

33,160

1.6
%
 
 
 
 
 
 
 
 
Funeral Operating Revenue
 
 
 
 
 
 
 
Same Store Revenue
$
35,913

$
35,010

(2.5
%)
 
$
142,690

$
140,459

(1.6
%)
Acquisition Revenue
8,758

11,282

28.8
%
 
33,678

40,165

19.3
%
Total Funeral Operating Revenue
$
44,671

$
46,292

3.6
%
 
$
176,368

$
180,624

2.4
%
 
 
 
 
 
 
 
 
Cemetery Operating Revenue
 
 
 
 
 
 
 
Same Store Revenue
$
11,076

$
10,670

(3.7
%)
 
$
43,336

$
45,441

4.9
%
Acquisition Revenue
795

872

9.7
%
 
3,321

3,506

5.6
%
Total Cemetery Operating Revenue
$
11,871

$
11,542

(2.8
%)
 
$
46,657

$
48,947

4.9
%
 
 
 
 
 
 
 
 
Financial Revenue
 
 
 
 
 
 
 
Preneed Funeral Commission Income
$
413

$
291

(29.5
%)
 
$
1,484

$
1,429

(3.7
%)
Preneed Funeral Trust Earnings
2,007

1,866

(7.0
%)
 
7,966

7,348

(7.8
%)
Cemetery Trust Earnings
2,238

2,382

6.4
%
 
8,440

8,004

(5.2
%)
Preneed Cemetery Finance Charges
410

491

19.8
%
 
1,587

1,848

16.4
%
Total Financial Revenue
$
5,068

$
5,030

(0.7
%)
 
$
19,477

$
18,629

(4.4
%)
Total Revenue
$
61,610

$
62,864

2.0
%
 
$
242,502

$
248,200

2.3
%
 
 
 
 
 
 
 
 
Field EBITDA
 
 
 
 
 
 
 
Same Store Funeral Field EBITDA
$
14,497

$
14,296

(1.4
%)
 
$
54,620

$
54,706

0.2
%
Same Store Funeral Field EBITDA Margin
40.4
%
40.8
%
40 bp

 
38.3
%
38.9
%
60 bp

Acquisition Funeral Field EBITDA
3,743

4,534

21.1
%
 
13,693

16,536

20.8
%
Acquisition Funeral Field EBITDA Margin
42.7
%
40.2
%
(250 bp)

 
40.7
%
41.2
%
50 bp

Total Funeral Field EBITDA
$
18,240

$
18,830

3.2
%
 
$
68,313

$
71,242

4.3
%
Total Funeral Field EBITDA Margin
40.8
%
40.7
%
(10 bp)

 
38.7
%
39.4
%
70 bp

 
 
 
 
 
 
 
 
Same Store Cemetery Field EBITDA
$
3,892

$
3,283

(15.6
%)
 
$
14,045

$
14,499

3.2
%
Same Store Cemetery Field EBITDA Margin
35.1
%
30.8
%
(430 bp)

 
32.4
%
31.9
%
(50 bp)

Acquisition Cemetery Field EBITDA
285

310

8.8
%
 
1,088

1,168

7.4
%
Acquisition Cemetery Field EBITDA Margin
35.8
%
35.6
%
(20 bp)

 
32.8
%
33.3
%
50 bp

Total Cemetery Field EBITDA
$
4,177

$
3,593

(14.0
%)
 
$
15,133

$
15,667

3.5
%
Total Cemetery Field EBITDA Margin
35.2
%
31.1
%
(410 bp)

 
32.4
%
32.0
%
(40 bp)

 
 
 
 
 
 
 
 
Funeral Financial EBITDA
$
2,161

$
1,947

(9.9
%)
 
$
8,339

$
7,941

(4.8
%)
Cemetery Financial EBITDA
2,585

2,799

8.3
%
 
9,754

9,563

(2.0
%)
Total Financial EBITDA
$
4,746

$
4,746

%
 
$
18,093

$
17,504

(3.3
%)
Total Financial EBITDA Margin
93.6
%
94.4
%
80 bp

 
92.9
%
94.0
%
110 bp

 
 
 
 
 
 
 
 
Total Field EBITDA
$
27,163

$
27,169

%
 
$
101,539

$
104,413

2.8
%
Total Field EBITDA Margin
44.1
%
43.2
%
(90 bp)

 
41.9
%
42.1
%
20 bp

 
 
 
 
 
 
 
 

11



OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Years Ended December 31
 
2015
2016
% Change
 
2015
2016
% Change
 
 
 
 
 
 
 
 
Overhead
 
 
 
 
 
 
 
Total Variable Overhead
$
4,109

$
2,450

(40.4
%)
 
$
10,878

$
13,122

20.6
%
Total Regional Fixed Overhead
886

1,008

13.8
%
 
3,435

3,667

6.8
%
Total Corporate Fixed Overhead
5,081

4,991

(1.8
%)
 
20,354

19,109

(6.1
%)
Total Overhead
$
10,076

$
8,449

(16.1
%)
 
$
34,667

$
35,898

3.6
%
Overhead as a percentage of Revenue
16.4
%
13.4
%
(300 bp)

 
14.3
%
14.5
%
20 bp

 
 
 
 
 
 
 
 
Consolidated EBITDA
$
17,087

$
18,720

9.6
%
 
$
66,872

$
68,515

2.5
%
Consolidated EBITDA Margin
27.7
%
29.8
%
210 bp

 
27.6
%
27.6
%
0 bp

 
 
 
 
 
 
 
 
Other Expenses and Interest
 
 
 
 
 
 
 
Depreciation & Amortization
$
3,656

$
3,923

7.3
%
 
$
13,780

$
15,421

11.9
%
Non-Cash Stock Compensation
996

584

(41.4
%)
 
4,444

2,890

(35.0
%)
Interest Expense
2,888

3,016

4.4
%
 
10,559

11,738

11.2
%
Accretion of Discount on Convertible Subordinated Notes
900

1,008

12.0
%
 
3,454

3,870

12.0
%
Loss on Early Extinguishment of Debt


 
 

567

 
Other, Net
(9
)
1,808

 
 
45

1,788

 
Pre-Tax Income
$
8,656

$
8,381

(3.2
%)
 
$
34,590

$
32,241

(6.8
%)
Provision for Income Taxes
3,222

3,137

 
 
13,737

12,682

 
Tax Adjustment Related to Certain Discrete Items

1,117

 
 

(22
)
 
Net Tax Provision
3,222

4,254

 
 
13,737

12,660

 
GAAP Net Income
$
5,434

$
4,127

(24.1
%)
 
$
20,853

$
19,581

(6.1
%)
 
 
 
 
 
 
 
 
Special Items, Net of Tax except for **
 
 
 
 
 
 
 
Withdrawable Trust Income
$

           n/a
 
 
$
366

          n/a
 
Acquisition and Divestiture Expenses
24

120

 
 
405

456

 
Severance and Retirement Costs
100


 
 
633

2,587

 
Consulting Fees
367


 
 
1,265

323

 
Accretion of Discount on Convertible Subordinated Notes **
900

1,008

 
 
3,454

3,870

 
Loss on Early Extinguishment of Debt


 
 

369

 
Gain/Loss on Sale of Assets

1,350

 
 

1,152

 
Other Special Items
14


 
 
244


 
Tax Adjustment from Prior Period **


 
 
141


 
Sum of Special Items, Net of Tax
$
1,405

$
2,478

76.4
%
 
$
6,508

$
8,757

34.6
%
 
 
 
 
 
 
 
 
Adjusted Net Income
$
6,839

$
6,605

(3.4
%)
 
$
27,361

$
28,338

3.6
%
Adjusted Net Profit Margin
11.1
%
10.5
%
(60 bp)

 
11.3
%
11.4
%
10 bp

 
 
 
 
 
 
 
 
Adjusted Basic Earnings Per Share
$
0.40

$
0.40

%
 
$
1.52

$
1.71

12.5
%
Adjusted Diluted Earnings Per Share
$
0.39

$
0.36

(7.7
%)
 
$
1.48

$
1.62

9.5
%
 
 
 
 
 
 
 
 
GAAP Basic Earnings Per Share
$
0.32

$
0.25

(21.9
%)
 
$
1.16

$
1.18

1.7
%
GAAP Diluted Earnings Per Share
$
0.31

$
0.22

(29.0
%)
 
$
1.12

$
1.12

%
 
 
 
 
 
 
 
 
Weighted Average Basic Shares Outstanding
16,828

16,554

 
 
17,791

16,515

 
Weighted Average Diluted Shares Outstanding
17,499

18,370

 
 
18,313

17,460

 
 
 
 
 
 
 
 
 
Reconciliation to Adjusted Consolidated EBITDA
 
 
 
 
 
 
 
Consolidated EBITDA
$
17,087

$
18,720

9.6
%
 
$
66,872

$
68,515

2.5
%
Withdrawable Trust Income

           n/a
 
 
555

         n/a
 
Acquisition and Divestiture Expenses
37

185

 
 
614

701

 
Severance and Retirement Costs
151


 
 
959

3,979

 
Consulting Fees
555


 
 
1,913

496

 
Other Special Items
20


 
 
220


 
Adjusted Consolidated EBITDA
$
17,850

$
18,905

5.9
%
 
$
71,133

$
73,691

3.6
%
Adjusted Consolidated EBITDA Margin
29.0
%
30.1
%
110 bp

 
29.3
%
29.7
%
40 bp


12



 
 
 
 
CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
December 31,
 
2015
 
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
535

 
$
3,286

Accounts receivable, net
18,181

 
18,860

Inventories
5,654

 
6,147

Prepaid expenses
4,684

 
2,640

Other current assets
4,707

 
2,034

Total current assets
33,761

 
32,967

Preneed cemetery trust investments
63,291

 
69,696

Preneed funeral trust investments
85,553

 
89,240

Preneed receivables, net
27,998

 
30,383

Receivables from preneed trusts
13,544

 
14,218

Property, plant and equipment, net
214,874

 
235,113

Cemetery property, net
75,597

 
76,119

Goodwill
264,416

 
275,487

Intangible and other non-current assets
10,978

 
14,957

Cemetery perpetual care trust investments
43,127

 
46,889

Total assets
$
833,139

 
$
885,069

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and capital lease obligations
$
12,236

 
$
13,267

Accounts payable
7,917

 
10,198

Other liabilities
524

 
717

Accrued liabilities
16,541

 
20,091

Total current liabilities
37,218

 
44,273

Long-term debt, net of current portion
103,495

 
137,862

Revolving credit facility
91,514

 
66,542

Convertible subordinated notes due 2021
115,227

 
119,596

Obligations under capital leases, net of current portion
2,875

 
2,630

Deferred preneed cemetery revenue
56,721

 
54,631

Deferred preneed funeral revenue
31,748

 
33,198

Deferred tax liability
39,956

 
40,555

Other long-term liabilities
5,531

 
2,567

Deferred preneed cemetery receipts held in trust
63,291

 
69,696

Deferred preneed funeral receipts held in trust
85,553

 
89,240

Care trusts’ corpus
42,416

 
46,290

Total liabilities
675,545

 
707,080

Commitments and contingencies:
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $.01 par value; 80,000,000 shares authorized; 22,497,873 and 22,490,855 issued as of December 31, 2015 and 2016, respectively
225

 
225

Additional paid-in capital
214,250

 
215,064

Retained earnings
3,385

 
22,966

Treasury stock, at cost; 5,849,316 shares at December 31, 2015 and 2016, respectively
(60,266
)
 
(60,266
)
Total stockholders’ equity
157,594

 
177,989

Total liabilities and stockholders’ equity
$
833,139

 
$
885,069


13



CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
(unaudited)
 
 
 
 
 
Three Months Ended December 31,
 
Years Ended
 December 31,
 
2015
 
2016
 
2015
 
2016
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Funeral
$
47,091

 
$
48,449

 
$
185,818

 
$
189,401

Cemetery
14,519

 
14,415

 
56,684

 
58,799

 
61,610

 
62,864

 
242,502

 
248,200

Field costs and expenses:


 


 
 
 


Funeral
26,690

 
27,672

 
109,166

 
110,218

Cemetery
7,757

 
8,023

 
31,797

 
33,569

Depreciation and amortization
3,220

 
3,560

 
12,034

 
13,919

Regional and unallocated funeral and cemetery costs
4,252

 
2,297

 
11,997

 
10,844

 
41,919

 
41,552

 
164,994

 
168,550

Gross profit
19,691

 
21,312

 
77,508

 
79,650

 
 
 
 
 

 

Corporate costs and expenses:
 
 

 
 
 
 
General, administrative and other
6,820

 
6,736
 
27,114

 
27,944

Home office depreciation and amortization
436

 
363
 
1,746

 
1,502

 
7,256

 
7,099

 
28,860

 
29,446

Operating income
12,435

 
14,213

 
48,648

 
50,204

Interest expense
(2,888
)
 
(3,016
)
 
(10,559
)
 
(11,738
)
Accretion of discount on convertible subordinated notes
(900
)
 
(1,008
)
 
(3,454
)
 
(3,870
)
Loss on early extinguishment of debt

 

 

 
(567
)
Other, net
9

 
(1,808
)
 
(45
)
 
(1,788
)
Income before income taxes
8,656

 
8,381

 
34,590

 
32,241

Provision for income taxes
(3,222
)
 
(3,137
)
 
(13,737
)
 
(12,682
)
Income tax (expense) benefit related to certain discrete items

 
(1,117
)
 

 
22

Net provision for income taxes
(3,222
)
 
(4,254
)
 
(13,737
)
 
(12,660
)
Net income
$
5,434

 
$
4,127

 
$
20,853

 
$
19,581

 
 
 
 
 
 
 
 
Basic earnings per common share:
$
0.32

 
$
0.25

 
$
1.16

 
$
1.18

Diluted earnings per common share:
$
0.31

 
$
0.22

 
$
1.12

 
$
1.12

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.025

 
$
0.050

 
$
0.100

 
$
0.150

 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Basic
16,828

 
16,554

 
17,791

 
16,515

Diluted
17,499

 
18,370

 
18,313

 
17,460


         

14



CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Years Ended December 31,
 
 
2015
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
20,853

 
$
19,581

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
13,780

 
15,421

Provision for losses on accounts receivable
 
1,679

 
2,098

Stock-based compensation expense
 
4,444

 
3,229

Deferred income tax expense
 
3,035

 
4,855

Amortization of deferred financing costs
 
921

 
824

Accretion of discount on convertible subordinated notes
 
3,454

 
3,870

Loss on early extinguishment of debt
 

 
567

Net (gain) loss on sale of businesses and disposal of other assets
 
(49
)
 
2,077

Impairment of intangible assets
 

 
145

Changes in operating assets and liabilities that provided (required) cash:
 
 
 
 
Accounts and preneed receivables
 
(2,310
)
 
(5,162
)
Inventories and other current assets
 
2,582

 
1,995

Intangible and other non-current assets
 
150

 
(1,155
)
Preneed funeral and cemetery trust investments
 
25,543

 
(14,528
)
Accounts payable
 
1,445

 
2,112

Accrued and other liabilities
 
509

 
202

Deferred preneed funeral and cemetery revenue
 
329

 
(640
)
Deferred preneed funeral and cemetery receipts held in trust
 
(26,461
)
 
13,966

Net cash provided by operating activities
 
49,904

 
49,457

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Acquisitions and land for new construction
 
(9,725
)
 
(26,556
)
Purchase of land and buildings previously leased
 
(6,080
)
 
(6,258
)
Net proceeds from sale of businesses and other assets
 
65

 
4,385

Capital expenditures
 
(29,744
)
 
(16,846
)
Net cash used in investing activities
 
(45,484
)
 
(45,275
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Borrowings from the revolving credit facility
 
103,600

 
71,200

Payments against the revolving credit facility
 
(51,500
)
 
(96,100
)
Borrowings from the term loan
 
1,562

 
39,063

Payments against the term loan
 
(10,937
)
 
(11,250
)
Payments on long-term debt and obligations under capital leases
 
(1,014
)
 
(1,789
)
Proceeds from the exercise of stock options and employee stock purchase plan contributions
 
758

 
870

Dividends on common stock
 
(1,819
)
 
(2,492
)
Payment of loan origination costs
 
(13
)
 
(717
)
Purchase of treasury stock
 
(44,999
)
 

Excess tax benefit (deficiency) of equity compensation
 
64

 
(216
)
Net cash used in financing activities
 
(4,298
)
 
(1,431
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
122

 
2,751

Cash and cash equivalents at beginning of year
 
413

 
535

Cash and cash equivalents at end of year
 
$
535

 
$
3,286



15



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 “Special Items”, “Adjusted Net Income”, “Consolidated EBITDA”, “Adjusted Consolidated EBITDA”, “Adjusted Consolidated EBITDA Margin”, “Adjusted Free Cash Flow”, “Funeral, Cemetery and Financial EBITDA”, “Total Field EBITDA”, “Total Field EBITDA Margin”, “Adjusted Basic Earnings Per Share” and “Adjusted Diluted Earnings Per Share” in this press release.  These financial measurements are defined as 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:
Special Items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special Items are taxed at the federal statutory rate of 34 percent for the three months and year ended December 31, 2015 and 35 percent for the three months and year ended December 31, 2016, except for the accretion of the discount on Convertible Notes as this is a non-tax deductible item and the tax adjustment from prior period.
Adjusted Net Income is defined as net income plus adjustments for Special Items.
Consolidated EBITDA is defined as net income 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.
Adjusted Consolidated EBITDA Margin is defined as Adjusted Consolidated EBITDA as a percentage of revenue.
Adjusted Free Cash Flow is defined as net cash provided by operations, adjusted by cash-related Special Items, less cash for maintenance capital expenditures.
Funeral Field EBITDA is defined as Funeral Gross Profit, which is funeral revenue minus funeral field costs and expenses, less depreciation and amortization, regional and unallocated funeral overhead expenses and Funeral Financial EBITDA.
Cemetery Field EBITDA is defined as Cemetery Gross Profit, which is cemetery revenue minus cemetery field costs and expenses, less depreciation and amortization, regional and unallocated cemetery overhead expenses and Cemetery Financial EBITDA.
Funeral Financial EBITDA is defined as Funeral Financial Revenue less Funeral Financial Expenses.
Cemetery Financial EBITDA is defined as Cemetery Financial Revenue less Cemetery Financial Expenses.
Total Field EBITDA is defined as Gross Profit less depreciation and amortization, regional and unallocated overhead expenses.
Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of revenue.
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.

16



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 to Adjusted Net Income for the three months and years ended December 31, 2015 and 2016 (in thousands):
 
Three Months Ended
December 31,
 
Years Ended
December 31,
 
 
2015
 
2016
 
2015
 
2016
Net Income
$
5,434

 
$
4,127

 
$
20,853