Carriage Services, Inc.
CARRIAGE SERVICES INC (Form: 8-K, Received: 04/26/2017 16:29:22)


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): April 26, 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))


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






ITEM 2.02    RESULTS OF OPERATIONS AND FINANCIAL CONDITION .

In the press release dated April 26, 2017, Carriage Services, Inc. (“the Company”) announced and commented on its financial results for its quarter ended March 31, 2017. 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 April 26, 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 April 26, 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: April 26, 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 April 26, 2017.





CSVLOGOA10.JPG
 
CARRIAGE SERVICES ANNOUNCES RECORD FIRST QUARTER 2017 RESULTS AND
REAFFIRMS ROLLING FOUR QUARTER OUTLOOK
HOUSTON – April 26, 2017 – Carriage Services, Inc. (NYSE: CSV) today announced record results for the first quarter ended March 31, 2017.
Mel Payne, Chief Executive Officer, stated, “Our first quarter performance of 2017 was also the first quarter performance of our second five year timeframe of Carriage’s Good To Great Journey that never ends. A more relevant first quarter (century) for long term investors was the first 25 years of Carriage's history, which was covered in my recent shareholder letter titled, The Evolution Of Our Learning Journey .
Our Total Revenue in the first quarter increased 7.6% to a record $68.1 million, and while our Adjusted Consolidated EBITDA of $20.5 million and Adjusted Net Income of $8.1 million were also records, both of these earnings metrics grew only nominally over last year as we brought less of the revenue growth to the bottom line. Our diluted earnings metrics, i.e. GAAP EPS of $0.39 and Adjusted EPS of $0.45, were negatively impacted by a dilution factor of 8.6% related to the share count methodology for our convertible subordinated notes.
We view the first quarter performance as a “glass half full” because the few concentrated operational areas of relative weakness are opportunities to get better in the near term, as we are continuously addressing areas of leadership weakness so that they turn into Right Who sustained high performance strengths in the future.
First quarter highlights are shown below:
Three Months Ended March 31, 2017 compared to Three Months Ended March 31, 2016
Record Total Revenue of $68.1 million, an increase of 7.6%;
Record Net Income of $7.1 million, an increase of 55.0%;
Record GAAP Diluted Earnings Per Share of $0.39, an increase of 44.4%;
Record Total Field EBITDA of $29.5 million, an increase of 6.6%;
Total Field EBITDA Margin down 40 basis points to 43.3%;
Record Adjusted Consolidated EBITDA of $20.5 million, an increase of 3.3%;
Adjusted Consolidated EBITDA Margin down 120 basis points to 30.2%;
Record Adjusted Net Income of $8.1 million, an increase of 1.8%; and
Adjusted Diluted Earnings Per Share of $0.45, a decrease of 4.3%.
Our Total Overhead was about $1 million higher in the first quarter than originally anticipated, as we reorganized our corporate functions toward the end of last year and have since added substantial new leadership talent to critical functional areas to position us for better execution of our three core models over the next five years. In particular, we made substantial leadership investments in Operations, Strategic and Corporate Development and Information Technology, as well as incurred one-time expenses related to a tax strategy project and terminations.
The really good news about the first quarter of 2017 was that it was the first time in memory that our Consolidated EBITDA and Consolidated EBTIDA Margin of $20.5 million and 30.2%, respectively, was the same as our Adjusted Consolidated EBITDA and Adjusted Consolidated EBITDA Margin, meaning that we are free at last from confusing Non-GAAP noise. We are intensely focused on sustaining a high performance for the remainder of the year and thereafter consistent with our 2017 theme, “ Carriage Services 2017: Owning the Future, Accelerating the Good to Great Journey!


1



Listed below are High Performance Hero Managing Partners and Houston Support role models leading us during the first quarter on our Good To Great Journey ,” concluded Mr. Payne.
Bob Prindiville
Bright Funeral Home & Cremation Center; Wake Forest, NC
James Bass
Emerald Coast/McLaughlin Mortuaries; Ft. Walton Beach, FL
Wayne Lovelace
Lotz Funeral Home; Vinton, VA
Patrick Schoen
Jacob Schoen & Son Funeral Home; New Orleans, LA
Curtis Ottinger
Heritage Funeral Home; Chattanooga, TN
John Bresnahan
Devanny-Condron Funeral; Pittsfield, MA
Bryan Hardwick
Bryan & Hardwick Funeral Home; Zanesville, OH
Andy Shemwell
Maddux-Fuqua-Hinton Funeral Homes; Hopkinsville, KY
Ashley Vella
Deegan Funeral Chapels; Escalon, CA
Justin Luyben
Evans Brown Mortuaries; Sun City, CA
Joseph Newkirk
West Contra Costa Group; Richmond, CA
Cliff Pope
Havenbrook Funeral Home; Norman, OK
Nicholas Welzenbach
Los Gatos Memorial Park; San Jose, CA
Winnie Hurston
Houston Support - Executive Assistant to Mel Payne
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)
 
 
 
 
 
 
 
 
3 months ended 03/31/2017
 
3.1%
2.9%
 
6.1%
2.7%
3.7%
1 year ended 12/31/2016
 
19.7%
18.3%
 
12.0%
17.6%
15.9%
2 years ended 12/31/2016
 
16.0%
15.1%
 
13.5%
12.0%
12.4%
3 years ended 12/31/2016
 
25.7%
24.2%
 
28.9%
14.8%
19.0%
4 years ended 12/31/2016
 
43.6%
41.2%
 
70.6%
23.4%
37.6%
5 years ended 12/31/2016
 
72.8%
65.4%
 
97.8%
42.6%
59.2%
 
 
 
 
 
 
 
 
(1) Investment performance includes realized income and unrealized appreciation.
(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 March 31, 2017 (in thousands)
 
 
 
Discretionary
Trust Funds
 
Total
Trust Funds
Asset Class
 
 
MV

%

 
MV

%

Cash
 
 
$
23,706

12
%
 
$
38,976

17
%
Equities
 
 
47,308

24
%
 
49,895

22
%
Fixed Income
 
 
123,241

62
%
 
134,378

59
%
Other/Insurance
 
 
3,315

2
%
 
3,507

2
%
Total Portfolios
 
 
$
197,570

100
%
 
$
226,756

100
%
For the three months ended March 31, 2017, Carriage’s discretionary trust funds returned 3.1% versus 3.7% for the 70/30 index benchmark.
The performance of our preneed trust fund portfolio in the first quarter was in line with our expectations and reflected no change in our overall portfolio strategy.

2



ADJUSTED FREE CASH FLOW
We produced Adjusted Free Cash Flow from operations for the three months ended March 31, 2017 of $6.4 million compared to Adjusted Free Cash Flow from operations of $12.2 million for the corresponding period in 2016. The decrease in Adjusted Free Cash Flow during the first quarter of 2017 reflected less Non-GAAP noise, along with a final payment for the severance of a former executive and the first five-year payment for our Good To Great incentive compensation award.
A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three months ended March 31, 2017 and 2016 is as follows (in thousands):
 
For the Three Months Ended March 31,
 
 
2016

 
2017

Cash Flow Provided by Operations
$
10,233

 
$
8,159

Cash used for Maintenance Capital Expenditures
(1,618
)
 
(1,773
)
Free Cash Flow
$
8,615

 
$
6,386

 
 
 
 
Plus: Incremental Special Items:
 
 
 
Acquisition and Divestiture Expenses
516

 

Severance Costs
2,759

 

Consulting Fees
268

 

Adjusted Free Cash Flow
$
12,158

 
$
6,386

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 March 31, 2018 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.
We are reaffirming our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share range of $1.73 - $1.77 for the period ending March 31, 2018 .
ROLLING FOUR QUARTER OUTLOOK – Period Ending March 31, 2018
 
 
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
 
$1.84 - $1.88
Adjusted Diluted Earnings Per Share (1)
 
$1.73 - $1.77

3



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 March 31, 2018 are expected to improve relative to the trailing four quarter period ended March 31, 2017 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 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.
CONFERENCE CALL AND INVESTOR RELATIONS CONTACT
Carriage Services has scheduled a conference call for tomorrow, April 27, 2017 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-8035998) and ask for the Carriage Services conference call. A replay of the conference call will be available through May 1, 2017 and may be accessed by dialing 855-859-2056 (ID-8035998). 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 .


4



CARRIAGE SERVICES, INC.
OPERATING AND FINANCIAL TREND REPORT
(in thousands, except per share amounts)
 
 
 
 
 
Three Months Ended March 31,
 
2016
2017
% Change
 
 
 
 
Same Store Contracts
 
 
 
Atneed Contracts
6,298

6,498

3.2
%
Preneed Contracts
1,504

1,496

(0.5
%)
Total Same Store Funeral Contracts
7,802

7,994

2.5
%
Acquisition Contracts
 
 
 
Atneed Contracts
720

1,189

65.1
%
Preneed Contracts
139

232

66.9
%
Total Acquisition Funeral Contracts
859

1,421

65.4
%
Total Funeral Contracts
8,661

9,415

8.7
%
 
 
 
 
Funeral Operating Revenue
 
 
 
Same Store Revenue
$
41,352

$
42,717

3.3
%
Acquisition Revenue
5,562

9,245

66.2
%
Total Funeral Operating Revenue
$
46,914

$
51,962

10.8
%
 
 
 
 
Cemetery Operating Revenue
 
 
 
Same Store Revenue
$
11,132

$
10,839

(2.6
%)
Acquisition Revenue
709

909

28.2
%
Total Cemetery Operating Revenue
$
11,841

$
11,748

(0.8
%)
 
 
 
 
Financial Revenue
 
 
 
Preneed Funeral Commission Income
$
421

$
303

(28.0
%)
Preneed Funeral Trust Earnings
1,967

1,946

(1.1
%)
Cemetery Trust Earnings
1,766

1,716

(2.8
%)
Preneed Cemetery Finance Charges
422

482

14.2
%
Total Financial Revenue
$
4,576

$
4,447

(2.8
%)
Total Revenue
$
63,331

$
68,157

7.6
%
 
 
 
 
Field EBITDA
 
 
 
Same Store Funeral Field EBITDA
$
16,911

$
17,725

4.8
%
Same Store Funeral Field EBITDA Margin
40.9
%
41.5
%
60 bp

Acquisition Funeral Field EBITDA
2,413

4,014

66.3
%
Acquisition Funeral Field EBITDA Margin
43.4
%
43.4
%
0 bp

Total Funeral Field EBITDA
$
19,324

$
21,739

12.5
%
Total Funeral Field EBITDA Margin
41.2
%
41.8
%
60 bp

 
 
 
 
Same Store Cemetery Field EBITDA
$
3,843

$
3,295

(14.3
%)
Same Store Cemetery Field EBITDA Margin
34.5
%
30.4
%
(410 bp)

Acquisition Cemetery Field EBITDA
221

353

59.7
%
Acquisition Cemetery Field EBITDA Margin
31.2
%
38.8
%
760 bp

Total Cemetery Field EBITDA
$
4,064

$
3,648

(10.2
%)
Total Cemetery Field EBITDA Margin
34.3
%
31.1
%
(320 bp)

 
 
 
 
Funeral Financial EBITDA
$
2,197

$
2,043

(7.0
%)
Cemetery Financial EBITDA
2,103

2,087

(0.8
%)
Total Financial EBITDA
$
4,300

$
4,130

(4.0
%)
Total Financial EBITDA Margin
94.0
%
92.9
%
(110 bp)

 
 
 
 
Total Field EBITDA
$
27,688

$
29,517

6.6
%
Total Field EBITDA Margin
43.7
%
43.3
%
(40 bp)


5



 
 
 
 
OPERATING AND FINANCIAL TREND REPORT
(in thousands, except per share amounts)
 
 
 
 
 
Three Months Ended March 31,
 
2016
2017
% Change
 
 
 
 
Overhead
 
 
 
Total Variable Overhead
$
5,400

$
2,166

(59.9
%)
Total Regional Fixed Overhead
875

1,067

21.9
%
Total Corporate Fixed Overhead
5,063

5,732

13.2
%
Total Overhead
$
11,338

$
8,965

(20.9
%)
Overhead as a Percentage of Revenue
17.9
%
13.2
%
(470 bp)

 
 
 
 
Consolidated EBITDA
$
16,350

$
20,552

25.7
%
Consolidated EBITDA Margin
25.8
%
30.2
%
440 bp

 
 
 
 
Other Expenses and Interest
 
 
 
Depreciation & Amortization
$
3,734

$
3,847

3.0
%
Non-Cash Stock Compensation
958

836

(12.7
%)
Interest Expense
2,851

3,029

6.2
%
Accretion of Discount on Convertible Subordinated Notes
927

1,037

11.9
%
Loss on Early Extinguishment of Debt
567



Other, Net
(305
)
(3
)


Pretax Income
$
7,618

$
11,806

55.0
%
Net Tax Provision
3,047

4,722

 
GAAP Net Income
$
4,571

$
7,084

55.0
%
 
 
 
 
Special Items, Net of Tax except for **
 
 
 
Acquisition and Divestiture Expenses
$
336

$

 
Severance and Retirement Costs
1,794


 
Consulting Fees
175


 
Accretion of Discount on Convertible Subordinated Notes **
927

1,037

 
Loss on Early Extinguishment of Debt
369


 
Gain on Sale of Assets
(198
)

 
Sum of Special Items, Net of Tax
$
3,403

$
1,037


 
 
 
 
Adjusted Net Income
$
7,974

$
8,121

1.8
%
Adjusted Net Profit Margin
12.6
%
11.9
%
(70 bp)

 
 
 
 
Adjusted Basic Earnings Per Share
$
0.48

$
0.48

%
Adjusted Diluted Earnings Per Share
$
0.47

$
0.45

(4.3
%)
 
 
 
 
GAAP Basic Earnings Per Share
$
0.27

$
0.42

55.6
%
GAAP Diluted Earnings Per Share
$
0.27

$
0.39

44.4
%
 
 
 
 
Weighted Average Basic Shares Outstanding
16,459

16,597

 
Weighted Average Diluted Shares Outstanding
16,650

18,082

 
 
 
 
 
Reconciliation to Adjusted Consolidated EBITDA
 
 
 
Consolidated EBITDA
$
16,350

$
20,552

25.7
%
Acquisition and Divestiture Expenses
516


 
Severance and Retirement Costs
2,759


 
Consulting Fees
268


 
Adjusted Consolidated EBITDA
$
19,893

$
20,552

3.3
%
Adjusted Consolidated EBITDA Margin
31.4
%
30.2
%
(120 bp)


6



CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
 
 
 
 
 
 
(unaudited)
 
December 31, 2016
 
March 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,286

 
$
806

Accounts receivable, net
18,860

 
17,712

Inventories
6,147

 
6,313

Prepaid expenses
2,640

 
2,426

Other current assets
2,034

 
106

Total current assets
32,967

 
27,363

Preneed cemetery trust investments
69,696

 
69,975

Preneed funeral trust investments
89,240

 
89,104

Preneed receivables, net
30,383

 
30,839

Receivables from preneed trusts
14,218

 
14,652

Property, plant and equipment, net
235,113

 
234,416

Cemetery property, net
76,119

 
76,543

Goodwill
275,487

 
275,487

Intangible and other non-current assets
14,957

 
14,878

Cemetery perpetual care trust investments
46,889

 
47,716

Total assets
$
885,069

 
$
880,973

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and capital lease obligations
$
13,267

 
$
14,265

Accounts payable
10,198

 
7,419

Other liabilities
717

 
3,285

Accrued liabilities
20,091

 
11,394

Total current liabilities
44,273

 
36,363

Long-term debt, net of current portion
137,862

 
133,741

Revolving credit facility
66,542

 
64,011

Convertible subordinated notes due 2021
119,596

 
120,760

Obligations under capital leases, net of current portion
2,630

 
2,580

Deferred preneed cemetery revenue
54,631

 
55,156

Deferred preneed funeral revenue
33,198

 
33,981

Deferred tax liability
40,555

 
40,717

Other long-term liabilities
2,567

 
1,798

Deferred preneed cemetery receipts held in trust
69,696

 
69,975

Deferred preneed funeral receipts held in trust
89,240

 
89,104

Care trusts’ corpus
46,290

 
47,250

Total liabilities
707,080

 
695,436

Commitments and contingencies:
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $.01 par value; 80,000,000 shares authorized; 22,490,855 and 22,552,667 shares issued at December 31, 2016 and March 31, 2017, respectively

225

 
226

Additional paid-in capital
215,064

 
215,527

Retained earnings
22,966

 
30,050

Treasury stock, at cost; 5,849,316 shares at December 31, 2016 and March 31, 2017
(60,266
)
 
(60,266
)
Total stockholders’ equity
177,989

 
185,537

Total liabilities and stockholders’ equity
$
885,069

 
$
880,973


7



CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)

 
For the Three Months Ended March 31,
 
2016
 
2017
 
 
 
 
Revenues:
 
 
 
Funeral
$
49,302

 
$
54,211

Cemetery
14,029

 
13,946

 
63,331

 
68,157

Field costs and expenses:
 
 
 
Funeral
27,781

 
30,429

Cemetery
7,862

 
8,211

Depreciation and amortization
3,336

 
3,471

Regional and unallocated funeral and cemetery costs
3,049

 
2,954

 
42,028

 
45,065

Gross profit
21,303

 
23,092

Corporate costs and expenses:
 
 
 
General, administrative and other
9,247

 
6,847

Home office depreciation and amortization
398

 
376

 
9,645

 
7,223

Operating income
11,658

 
15,869

Interest expense
(2,851
)
 
(3,029
)
Accretion of discount on convertible subordinated notes
(927
)
 
(1,037
)
Loss on early extinguishment of debt
(567
)
 

Other, net
305

 
3

Income before income taxes
7,618

 
11,806

Provision for income taxes
(3,047
)
 
(4,722
)
Net income
$
4,571

 
$
7,084

 
 
 
 
Basic earnings per common share:
$
0.27

 
$
0.42

Diluted earnings per common share:
$
0.27

 
$
0.39

 
 
 
 
Dividends declared per common share:
$
0.025

 
$
0.050

 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
Basic
16,459

 
16,597

Diluted
16,650

 
18,082




         

8



CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
For the Three Months Ended March 31,
 
2016
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
4,571

 
$
7,084

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,734

 
3,847

Provision for losses on accounts receivable
523

 
389

Stock-based compensation expense
1,297

 
836

Deferred income tax expense
379

 
162

Amortization of deferred financing costs
221

 
203

Accretion of discount on convertible subordinated notes
927

 
1,037

Loss on early extinguishment of debt
567

 

Net (gain) loss on sale and disposal of other assets
(187
)
 
155

 
 
 
 
Changes in operating assets and liabilities that provided (required) cash:
 
 
 
Accounts and preneed receivables
(479
)
 
303

Inventories and other current assets
(727
)
 
1,976

Intangible and other non-current assets
230

 
80

Preneed funeral and cemetery trust investments
7,560

 
(1,404
)
Accounts payable
(1,755
)
 
(2,778
)
Accrued and other liabilities
344

 
(6,142
)
Deferred preneed funeral and cemetery revenue
(568
)
 
1,308

Deferred preneed funeral and cemetery receipts held in trust
(6,404
)
 
1,103

Net cash provided by operating activities
10,233

 
8,159

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisitions and land for new construction
(2,685
)
 

Net proceeds from the sale of other assets
555

 

Capital expenditures
(3,595
)
 
(3,730
)
Net cash used in investing activities
(5,725
)
 
(3,730
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings from the revolving credit facility
11,500

 
18,800

Payments against the revolving credit facility
(50,100
)
 
(21,400
)
Borrowings from the term loan
39,063

 

Payments against the term loan
(2,813
)
 
(2,813
)
Payments on other long-term debt and obligations under capital leases
(321
)
 
(368
)
Payments on contingent consideration recorded at acquisition date

 
(101
)
Proceeds from the exercise of stock options and employee stock purchase plan contributions
228

 
315

Taxes paid on restricted stock vestings and exercise of non-qualified options
(491
)
 
(509
)
Dividends paid on common stock
(415
)
 
(833
)
Payment of loan origination costs related to the credit facility
(717
)
 

Excess tax deficiency of equity compensation
(106
)
 

Net cash used in financing activities
(4,172
)
 
(6,909
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
336

 
(2,480
)
Cash and cash equivalents at beginning of period
535

 
3,286

Cash and cash equivalents at end of period
$
871

 
$
806

 
 
 
 


9



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 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:
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 35 percent for both the three months ended March 31, 2016 and 2017, except for the accretion of the discount on the Convertible Notes as this is a non-tax deductible item.
Adjusted Net Income is defined as net income plus adjustments for Special Items and other non-recurring expenses or credits.
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 and non-recurring expenses or credits.
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 Special Items as deemed necessary, 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 costs 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 costs 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 funeral and cemetery costs.
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.


10



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 ended March 31, 2016 and 2017 (in thousands):
 
For the Three Months Ended March 31,
 
 
2016
 
2017
Net Income
$
4,571

 
$
7,084

Special Items, Net of Tax except for **
 
 
 
Acquisition and Divestiture Expenses
336

 

Severance and Retirement Costs
1,794

 

Consulting Fees
175

 

Accretion of Discount on Convertible Subordinated Notes **
927

 
1,037

Loss on Early Extinguishment of Debt
369

 

Gain on Sale of Assets
(198
)
 

     Total Special Items affecting Net Income
$
3,403

 
$
1,037

Adjusted Net Income
$
7,974

 
$
8,121

Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three months ended March 31, 2016 and 2017 (in thousands):
 
For the Three Months Ended March 31,
 
 
2016

 
2017

Net Income
$
4,571

 
$
7,084

Net Tax Provision
3,047

 
4,722

Pretax Income
$
7,618

 
$
11,806

Interest Expense
2,851

 
3,029

Accretion of Discount on Convertible Subordinated Notes
927

 
1,037

Loss on Early Extinguishment of Debt
567

 

Non-Cash Stock Compensation
958

 
836

Depreciation & Amortization
3,734

 
3,847

Other, Net
(305
)
 
(3
)
Consolidated EBITDA
$
16,350

 
$
20,552

Adjusted For:
 
 
 
Acquisition and Divestiture Expenses
516

 

Severance and Retirement Costs
2,759

 

Consulting Fees
268

 

Adjusted Consolidated EBITDA
$
19,893

 
$
20,552

Revenue
$
63,331

 
$
68,157

 


 


Adjusted Consolidated EBITDA Margin
31.4
%
 
30.2
%

11



Reconciliation of Funeral and Cemetery Gross Profit to Field EBITDA for the three months ended March 31, 2016 and 2017 (in thousands):
Funeral Field EBITDA
For the Three Months Ended March 31,
 
 
2016

 
2017

Gross Profit (GAAP)
$
16,968

 
$
18,969

Depreciation & Amortization
2,078

 
2,369

Regional & Unallocated Costs
2,475

 
2,444

Funeral Financial EBITDA
(2,197
)
 
(2,043
)
Funeral Field EBITDA
$
19,324

 
$
21,739

Cemetery Field EBITDA
For the Three Months Ended March 31,
 
 
2016

 
2017

Gross Profit (GAAP)
$
4,335

 
$
4,123

Depreciation & Amortization
1,258

 
1,102

Regional & Unallocated Costs
574

 
510

Cemetery Financial EBITDA
(2,103
)
 
(2,087
)
Cemetery Field EBITDA
$
4,064

 
$
3,648

Total Field EBITDA
For the Three Months Ended March 31,
 
 
2016

 
2017

Funeral Field EBITDA
$
19,324

 
$
21,739

Cemetery Field EBITDA
4,064

 
3,648

Funeral Financial EBITDA
2,197

 
2,043

Cemetery Financial EBITDA
2,103

 
2,087

Total Field EBITDA
$
27,688

 
$
29,517

Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three months ended March 31, 2016 and 2017 :
 
For the Three Months Ended March 31,
 
 
2016

 
2017

GAAP Basic Earnings Per Share
$
0.27

 
$
0.42

Special Items Affecting Net Income
0.21

 
0.06

Adjusted Basic Earnings Per Share
$
0.48

 
$
0.48

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three months ended March 31, 2016 and 2017 :
 
For the Three Months Ended March 31,
 
 
2016

 
2017

GAAP Diluted Earnings Per Share
$
0.27

 
$
0.39

Special Items Affecting Net Income
0.20

 
0.06

Adjusted Diluted Earnings Per Share
$
0.47

 
$
0.45


12



On page three of this press release, we present the Rolling Four Quarter Outlook (“Outlook”) which 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 March 31, 2018 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.  The following four reconciliations are presented at the midpoint of the range in this Outlook.
Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the estimated Rolling Four Quarters ending March 31, 2018 (in thousands):
 
Rolling Four Quarter Outlook
 
 
March 31, 2018E
 
Net Income
 
 
$
26,800

 
 
Net Tax Provision
 
 
17,800

 
 
Pretax Income
 
 
$
44,600

 
 
Net Interest Expense, including Accretion of Discount on Convertible Subordinated Notes
 
 
16,500

 
 
Depreciation & Amortization, including Non-cash Stock Compensation
 
 
19,600

 
 
Consolidated EBITDA
 
 
$
80,700

 
 
Adjusted for Special Items
 
 

 
 
Adjusted Consolidated EBITDA
 
 
$
80,700

 
 
Reconciliation of Net Income to Adjusted Net Income for the estimated Rolling Four Quarters ending March 31, 2018 (in thousands):
 
Rolling Four Quarter Outlook
 
 
March 31, 2018E
 
Net Income
 
 
$
26,800

 
 
Special Items
 
 
4,300

 
 
Adjusted Net Income
 
 
$
31,100

 
 
Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the estimated Rolling Four Quarters ending March 31, 2018:
 
Rolling Four Quarter Outlook
 
 
March 31, 2018E
 
GAAP Basic Earnings Per Share
 
 
$
1.60

 
 
Special Items Affecting Net Income
 
 
0.26

 
 
Adjusted Basic Earnings Per Share
 
 
$
1.86

 
 
Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the estimated Rolling Four Quarters ending March 31, 2018:
 
Rolling Four Quarter Outlook
 
 
March 31, 2018E
 
GAAP Diluted Earnings Per Share
 
 
$
1.50

 
 
Special Items Affecting Net Income
 
 
0.25

 
 
Adjusted Diluted Earnings Per Share
 
 
$
1.75

 
 






13



Supplemental Information :
Funeral homes and cemeteries purchased after December 31, 2012 are referred to as “Acquired” in our Trend Report. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.
The presentation below highlights the impact of our 2012 Acquired Portfolio that moved from Acquired to Same Store beginning January 1, 2017 (in thousands):
 
For the Three Months Ended March 31, 2016
 
 
 
 
 
 
Revenue
 
EBITDA
2012 Acquired Portfolio
$
4,115

 
$
1,759

 
 
 



14



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, but are not limited to, statements regarding 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”, “seek”, “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:
our ability to find and retain skilled personnel;
our ability to execute our growth strategy;
the effects of competition;
the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
changes in the number of deaths in our markets;
changes in consumer preferences;
our ability to generate preneed sales;
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;
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 most recent Annual Report on Form 10-K. 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.


15