Press Release Details

 

Carriage Services is a leading consolidator and provider of deathcare services and merchandise in the United States, operating funeral homes and cemeteries nationwide.

Carriage Services Announces First Quarter 2019 Results and Reaffirms 2019 Rolling Four Quarter Outlook

May 1, 2019 at 4:30 PM EDT

HOUSTON, May 01, 2019 (GLOBE NEWSWIRE) -- Carriage Services, Inc. (NYSE: CSV) today announced results for the first quarter ended March 31, 2019, shown below:

Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

• Total Revenue of $69.1 million, a decrease of 5.9%;
• Net Income of $6.5 million, a decrease of 30.3%;
• GAAP Diluted Earnings Per Share of $0.36, a decrease of 30.8%;

• Total Field EBITDA of $28.3 million, a decrease of 9.3%;
• Total Field EBITDA Margin down 160 basis points to 41.0%;
• Adjusted Consolidated EBITDA of $20.8 million, a decrease of 7.1%;
• Adjusted Consolidated EBITDA Margin down 40 basis points to 30.2%;
• Adjusted Net Income of $6.9 million, a decrease of 34.8%;
• Adjusted Diluted Earnings Per Share of $0.38, a decrease of 35.6%; and
• Adjusted Free Cash Flow of $9.6 million, a decrease of 28.2%.

Mel Payne, Chief Executive Officer, stated, “We got off to a good start with our performance relative to our annual theme of CARRIAGE SERVICES 2019:  Back To The Future – A NEW BEGINNING – PART II!

While facing difficult comparisons because of the severe flu season and corresponding spike in the death rate during the first quarter of 2018, we have experienced broadly positive lift in both our funeral and cemetery portfolios from the recent operational leadership changes and reboot of our Standards Operating Model. Overhead and non-cash stock compensation costs have also declined as anticipated from the previously announced leadership changes, cancellation of performance awards and overall cost management. 

My recent 2018 Shareholder Letter provided the most transparent and comprehensive “under the public company covers” communications with our Field and Houston Support Center Leadership in the almost 28 year history of our company. While there is still much work to do on our High Performance and Value Creation Trends Restoration Program, we have moved into the execution phase focused on the unique challenges and opportunities of each business related to the specific competitive dynamics of each market.

Speaking on behalf of all our leadership as well as our Board of Directors, we have also moved from being optimistic about the future of Carriage because of the transformative changes since October 1, 2018 to being completely confident in our success in 2019 and thereafter. We are therefore reaffirming our Rolling Four Quarter Outlook for the period ending March 31, 2020,” concluded Mr. Payne.

HIGH PERFORMANCE HEROES

The following are High Performance Hero Managing Partners leading us during the first quarter on our Good To Great Journey that never ends:

David Keller Lane Funeral Home-Coulter Chapel; Chattanooga, TN
Ben Friberg Heritage Funeral Home and Crematory; Ft. Oglethorpe, GA
Joe Waterwash Baird-Case Jordan-Fannin Fnl Home & Cremation Center; Ft. Lauderdale, FL
Liz Coffelt Becker-Ritter Funeral Home; Brookfield, WI
Robert Green Schooler-Armstrong Funeral Home & Chapel; Amarillo, TX
Raymond Lucero Berardinelli Family Funeral Service; Santa Fe, NM
Ken Summers P.L. Fry & Son Funeral Home; Manteca, CA
Kristi AhYou Franklin & Downs Funeral Homes; Modesto, CA
Steve Mora Conejo Mountain Memorial Park; Camarillo, CA
   

TRUST FUND PERFORMANCE

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, preneed cemetery 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 3/31/19   11.0 % 10.0 %   13.6 % 7.3 % 9.2 %
1 year ended 12/31/18   (8.3 %) (7.4 %)   (4.2 %) (2.1 %) (2.7 %)
2 years ended 12/31/18   3.6 % 4.0 %   16.5 % 5.3 % 8.6 %
3 years ended 12/31/18   24.0 % 23.0 %   30.4 % 23.3 % 25.4 %
4 years ended 12/31/18   20.2 % 19.7 %   32.2 % 17.8 % 22.1 %
5 years ended 12/31/18   30.3 % 29.2 %   50.3 % 20.7 % 29.5 %
               
(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 March 31, 2019
(in thousands)
        Discretionary
Trust Funds
  Total
Trust Funds
Asset Class       MV   MV
Equities       $ 73,004 39 %   $ 75,575 34 %
Fixed Income       95,291 51 %   107,975 48 %
Cash       17,760 9 %   38,646 17 %
Other/Insurance       2,797 1 %   2,981 1 %
Total Portfolios       $ 188,852 100 %   $ 225,177 100 %

The first quarter return for our Discretionary Preneed Funeral and Cemetery Trusts was 11% and primarily tracked the performance of the overall market. We currently anticipate the portfolio to maintain an equal weighting between equity and fixed income securities throughout the rest of the year.

ADJUSTED FREE CASH FLOW

We produced Adjusted Free Cash Flow from operations for the three months ended March 31, 2019 of $9.6 million compared to Adjusted Free Cash Flow from operations of $13.4 million for the corresponding period in 2018. A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three months ended March 31, 2018 and 2019 is as follows (in thousands):

  For the Three Months
Ended March 31,
 
  2018 
    2019 
 
Cash flow provided by operations $ 14,883     $ 10,994  
Cash used for maintenance capital expenditures (1,446 )   (1,693 )
Free Cash Flow $ 13,437     $ 9,301  
       
Plus: Incremental Special Items:      
Severance and Retirement Costs     217  
Litigation Reserve     125  
Adjusted Free Cash Flow $ 13,437     $ 9,643  


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, 2020 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 Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time.

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 our cemetery Standards Operating Model. Adjusted Net Income and Adjusted Diluted Earnings Per Share have been adjusted for accretion on our convertible notes.

The 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 notes and outstanding and exercisable stock options.


    Range
(in millions, except per share amounts)
Revenues   $270 - $274
Consolidated EBITDA   $77 - $79
Adjusted Net Income   $24 - $26
Adjusted Diluted Earnings Per Share   $1.34 - $1.44
Free Cash Flow   $37 - $40


CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, May 2, 2019 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-8697549) and ask for the Carriage Services conference call. A replay of the conference call will be available through May 7, 2019 and may be accessed by dialing 855-859-2056 (ID-8697549). 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.


CARRIAGE SERVICES, INC.
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
   
  Three Months Ended March 31,
  2018
  2019
  % Change
       
Same Store Contracts      
Atneed Contracts 7,294   6,967   (4.5 %)
Preneed Contracts 1,708   1,523   (10.8 %)
Total Same Store Funeral Contracts 9,002   8,490   (5.7 %)
Acquisition Contracts      
Atneed Contracts 1,017   1,234   21.3 %
Preneed Contracts 93   157   68.8 %
Total Acquisition Funeral Contracts 1,110   1,391   25.3 %
Total Funeral Contracts 10,112   9,881   (2.3 )%
       
Funeral Operating Revenue      
Same Store Revenue $ 49,120   $ 45,502   (7.4 %)
Acquisition Revenue 7,162   8,440   17.8 %
Total Funeral Operating Revenue $ 56,282   $ 53,942   (4.2 %)
       
Cemetery Operating Revenue      
Same Store Revenue $ 11,251   $ 11,289   0.3 %
Acquisition Revenue     %
Total Cemetery Operating Revenue $ 11,251   $ 11,289   0.3 %
       
Financial Revenue      
Preneed Funeral Commission Income $ 260   $ 359   38.1 %
Preneed Funeral Trust Earnings 2,052   1,862   (9.3 %)
Cemetery Trust Earnings 1,552   1,251   (19.4 %)
Preneed Cemetery Finance Charges 379   378   (0.3 %)
Total Financial Revenue $ 4,243   $ 3,850   (9.3 %)
       
Total Divested Revenue $ 1,611   $    
       
Total Revenue $ 73,387   $ 69,081   (5.9 %)
       
Field EBITDA      
Same Store Funeral EBITDA $ 20,323   $ 17,968   (11.6 %)
Same Store Funeral EBITDA Margin 41.4 % 39.5 % (190 bp)  
Acquisition Funeral EBITDA 2,725   3,245   19.1 %
Acquisition Funeral EBITDA Margin 38.0 % 38.4 % 40 bp  
Total Funeral EBITDA $ 23,048   $ 21,213   (8.0 %)
Total Funeral EBITDA Margin 41.0 % 39.3 % (170 bp)  
       
Same Store Cemetery EBITDA $ 3,863   $ 3,661   (5.2 %)
Same Store Cemetery EBITDA Margin 34.3 % 32.4 % (190 bp)  
Acquisition Cemetery EBITDA     %
Acquisition Cemetery EBITDA Margin % % — bp  
Total Cemetery EBITDA $ 3,863   $ 3,661   (5.2 %)
Total Cemetery EBITDA Margin 34.3 % 32.4 % (190 bp)  
       
Funeral Financial EBITDA $ 2,047   $ 1,954   (4.5 %)
Cemetery Financial EBITDA 1,790   1,495   (16.5 %)
Total Financial EBITDA $ 3,837   $ 3,449   (10.1 %)
Total Financial EBITDA Margin 90.4 % 89.6 % (80 bp)  
       
Total Divested EBITDA $ 494   $    
Total Divested EBITDA Margin 30.7 % %  
       
Total Field EBITDA $ 31,242   $ 28,323   (9.3 %)
Total Field EBITDA Margin 42.6 % 41.0 % (160 bp)  
       
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
       
  Three Months Ended December 31,
  2018 2019 % Change
       
Overhead      
Total Variable Overhead $ 2,560   $ 1,938   (24.3 %)
Total Regional Fixed Overhead 1,077   1,001
  (7.1 %)
Total Corporate Fixed Overhead 5,162   4,877   (5.5 %)
Total Overhead $ 8,799   $ 7,816   (11.2 %)
Overhead as a percentage of Revenue 12.0 % 11.3 % (70 bp)  
       
Consolidated EBITDA $ 22,443   $ 20,507   (8.6 %)
Consolidated EBITDA Margin 30.6 % 29.7 % (90 bp)  
       
Other Expenses and Interest      
Depreciation & Amortization $ 4,216   $ 4,323   2.5 %
Non-Cash Stock Compensation 1,100   585   (46.8 %)
Interest Expense 3,735   6,328   69.4 %
Accretion of Discount on Convertible Subordinated Notes 1,160   57   (95.1 %)
Other, Net (2 ) 13    
Pre-Tax Income $ 12,234   $ 9,201   (24.8 %)
Provision for Income Taxes 3,365   2,577    
Tax Adjustment Related to Certain Discrete Items (487 ) 99    
Net Tax Provision 2,878   2,676    
GAAP Net Income $ 9,356   $ 6,525   (30.3 %)
       
Special Items, Net of Tax, except for **      
Severance and Retirement Costs $   $ 171    
Accretion of Discount on Convertible Subordinated Notes ** 1,160   57    
Litigation Reserve   99    
       
Adjusted Net Income $ 10,516   $ 6,852   (34.8 %)
Adjusted Net Profit Margin 14.3 % 9.9 % (440 bp)  
       
Adjusted Basic Earnings Per Share $ 0.65   $ 0.38   (41.5 %)
Adjusted Diluted Earnings Per Share $ 0.59   $ 0.38   (35.6 %)
       
GAAP Basic Earnings Per Share $ 0.58   $ 0.36   (37.9 %)
GAAP Diluted Earnings Per Share $ 0.52   $ 0.36   (30.8 %)
       
Weighted Average Basic Shares Outstanding 16,094   18,057    
Weighted Average Diluted Shares Outstanding 17,700   18,097    
       
Reconciliation to Adjusted Consolidated EBITDA      
Consolidated EBITDA $ 22,443   $ 20,507   (8.6 %)
Severance and Retirement Costs   217    
Litigation Reserve   125    
Adjusted Consolidated EBITDA $ 22,443   $ 20,849   (7.1 %)
Adjusted Consolidated EBITDA Margin 30.6 % 30.2 % (40 bp)  
       


CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

      (unaudited)
  December 31, 2018   March 31, 2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 644     $ 674  
Accounts receivable, net 18,897     17,732  
Inventories 6,751     6,815  
Prepaid and other current assets 3,011     2,063  
     Total current assets 29,303     27,284  
Preneed cemetery trust investments 62,432     67,742  
Preneed funeral trust investments 82,074     87,013  
Preneed receivables, net 18,441     18,610  
Receivables from preneed trusts 17,073     17,058  
Property, plant and equipment, net 260,838     259,594  
Cemetery property, net 74,958     75,156  
Goodwill 303,887     303,887  
Intangible and other non-current assets, net 24,425     24,311  
Operating lease right-of-use assets     15,887  
Cemetery perpetual care trust investments 44,071     47,970  
     Total assets $ 917,502     $ 944,512  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:      
Current portion of long-term debt $ 2,015     $ 2,083  
Current portion of finance lease obligations 312     299  
Current portion of operating lease obligations     2,653  
Accounts payable 9,987     7,093  
Accrued and other liabilities 22,644     21,352  
     Total current liabilities 34,958     33,480  
Long-term debt, net of current portion 6,925     6,470  
Credit facility 26,145     20,099  
Convertible subordinated notes due 2021 5,732     5,796  
Senior notes due 2026 319,108     319,261  
Obligations under finance leases, net of current portion 6,143     6,073  
Obligations under operating leases, net of current portion     13,990  
Deferred preneed cemetery revenue 45,997     46,151  
Deferred preneed funeral revenue 28,606     28,569  
Deferred tax liability 31,263     32,254  
Other long-term liabilities 3,133     1,771  
Deferred preneed cemetery receipts held in trust 62,432     67,742  
Deferred preneed funeral receipts held in trust 82,074     87,013  
Care trusts’ corpus 43,494     47,734  
     Total liabilities 696,010     716,403  
Commitments and contingencies:      
Stockholders’ equity:      
Common stock 257     258  
Additional paid-in capital 243,849     243,940  
Retained earnings 71,680     78,205  
Treasury stock (94,294 )   (94,294 )
     Total stockholders’ equity 221,492     228,109  
          Total liabilities and stockholders’ equity $ 917,502     $ 944,512  


CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

  (unaudited)
  Three Months Ended March 31,
  2018   2019
Revenues:      
Service revenue $ 38,685     $ 36,652  
Property and merchandise revenue 30,184     28,579  
Other revenue 4,518     3,850  
  73,387     69,081  
Field costs and expenses:      
Cost of service 18,617     18,097  
Cost of merchandise 23,123     22,261  
Cemetery property amortization 908     849  
Field depreciation expense 2,865     3,085  
Regional and unallocated funeral and cemetery costs  3,281     2,789  
Other expenses 405     400  
  49,199     47,481  
Gross profit 24,188     21,600  
Corporate costs and expenses:      
General, administrative and other 6,618     5,612  
Home office depreciation and amortization 443     389  
  7,061     6,001  
Operating income 17,127     15,599  
Interest expense (3,735 )   (6,328 )
Accretion of discount on convertible subordinated notes (1,160 )   (57 )
Other, net 2     (13 )
Income before income taxes 12,234     9,201  
Provision for income taxes (3,365 )   (2,577 )
Tax adjustment related to certain discrete items 487     (99 )
Total provision for income taxes (2,878 )   (2,676 )
Net income $ 9,356     $ 6,525  
       
Basic earnings per common share: $ 0.58     $ 0.36  
Diluted earnings per common share: $ 0.52     $ 0.36  
       
Dividends declared per common share $ 0.075     $ 0.075  
       
Weighted average number of common and common equivalent shares outstanding:      
Basic 16,094     18,057  
Diluted 17,700     18,097  

                               
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  (unaudited)
  Three Months Ended March 31,
  2018   2019
Cash flows from operating activities:      
Net income $ 9,356     $ 6,525  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 4,216     4,323  
Provision for losses on accounts receivable 459     366  
Stock-based compensation expense 1,100     585  
Deferred income tax expense 207     991  
Amortization of deferred financing costs 208     94  
Amortization of capitalized commissions on preneed contracts 149     138  
Accretion of discount on convertible subordinated notes 1,160     57  
Accretion of discount on senior notes     120  
Net loss on sale and disposal of other assets 19     167  
Changes in operating assets and liabilities that provided (used) cash:      
Accounts and preneed receivables (533 )   630  
Inventories, prepaid and other current assets 429     736  
Intangible and other non-current assets (85 )   (24 )
Preneed funeral and cemetery trust investments 3,886     (14,133 )
Accounts payable 727     (2,895 )
Accrued and other liabilities (3,009 )   (1,292 )
Deferred preneed funeral and cemetery revenue 1,346     117  
Deferred preneed funeral and cemetery receipts held in trust (4,752 )   14,489  
Net cash provided by operating activities 14,883     10,994  
       
Cash flows from investing activities:      
Net proceeds from the sale of business and other assets     100  
Capital expenditures (2,065 )   (3,543 )
Net cash used in investing activities (2,065 )   (3,443 )
       
Cash flows from financing activities:      
Payments against the term loan (3,750 )    
Borrowings from the credit facility 3,700     10,100  
Payments against the credit facility (11,500 )   (16,200 )
Payments on other long-term debt and obligations under finance leases (428 )   (471 )
Payments on contingent consideration recorded at acquisition date (138 )   (162 )
Proceeds from the exercise of stock options and employee stock purchase plan contributions 626     746  
Taxes paid on restricted stock vestings and exercises of non-qualified options (294 )   (174 )
Dividends on common stock (1,207 )   (1,360 )
Net cash used in financing activities (12,991 )   (7,521 )
       
Net increase (decrease) in cash and cash equivalents (173 )   30  
Cash and cash equivalents at beginning of year 952     644  
Cash and cash equivalents at end of year $ 779     $ 674  


NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial performance of the Company. Our non-GAAP reporting provides a transparent framework of our operating and financial performance that reflects the earning power of the Company as an operating and consolidation platform.

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 to compare our results to previous periods, to provide insight into the underlying long-term performance trends in our business and to provide the opportunity to differentiate ourselves as the best consolidation platform in the industry against the performance of other funeral and cemetery companies.

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”, “Divested Revenue”, “Divested EBITDA”, “Divested 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 typically taxed at the federal statutory rate, except for the accretion of the discount on Convertible Subordinated Notes, as this is a non-tax deductible item.
  • Adjusted Net Income is defined as net income plus adjustments for Special Items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.
  • 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 other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations. 
  • 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, excluding depreciation and amortization, regional and unallocated costs and Financial EBITDA related to the Funeral Home segment.
  • Cemetery Field EBITDA is defined as Cemetery Gross Profit, excluding depreciation and amortization, regional and unallocated costs and Cemetery Financial EBITDA related to the Cemetery segment.
  • 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, excluding field depreciation, cemetery property amortization and regional and unallocated funeral and cemetery costs. 
  • Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of revenue.
  • Divested Revenue is defined as revenues from three cemetery businesses that we ceased to operate on September 30, 2018, as a result of an expired management agreement.
  • Divested EBITDA is defined as Divested Revenue, less field level and financial expenses related to one funeral home business that was sold in 2017 and three cemetery businesses related to the expired management agreement noted above.
  • Divested EBITDA Margin is defined as Divested EBITDA as a percentage of Divested 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.

Funeral Field EBITDA and Cemetery Field EBITDA

Our operations are reported in two business segments: Funeral Home Operations and Cemetery Operations. Our Field level results highlight trends in volumes, Revenue, Field EBITDA (the individual business’ cash earning power / locally controllable business profit) and Field EBITDA Margin (the individual business’ controllable profit margin).

Funeral Field EBITDA and Cemetery Field EBITDA are defined above. Gross Profit is defined as Revenue less “Field costs and expenses” - a line item encompassing these areas of costs: i) Funeral and cemetery field costs, ii) Field depreciation and amortization expense, and iii) Regional and unallocated funeral and cemetery costs. Funeral and cemetery field costs include cost of service, funeral and cemetery merchandise costs, operating expenses, labor and other related expenses incurred at the business level.

Regional and unallocated funeral and cemetery costs presented in our GAAP statement consist primarily of salaries and benefits of our Regional leadership, incentive compensation opportunity to our Field employees and other related costs for field infrastructure. These costs, while necessary to operate our businesses as currently operated within our unique, decentralized platform, are not controllable operating expenses at the Field level as the composition, structure and function of these costs are determined by Executive leadership in the Houston Support Center. These costs are components of our overall overhead platform presented within Consolidated EBITDA and Adjusted Consolidated EBITDA. We do not openly or indirectly “push down” any of these expenses to the individual business’ field level margins.

We believe that our “Regional and unallocated funeral and cemetery costs” are necessary to support our decentralized, high performance culture operating framework, and as such, are included in Consolidated EBITDA and Adjusted Consolidated EBITDA, which more accurately reflects the cash earning power of the Company as an operating and consolidation platform.

Consolidated EBITDA and Adjusted Consolidated EBITDA

Consolidated EBITDA and Adjusted Consolidated EBITDA are defined above. Our Adjusted Consolidated EBITDA include adjustments for Special Items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

How These Measures Are Useful

When used in conjunction with GAAP financial measures, our Field EBITDA, Consolidated EBITDA and Adjusted Consolidated EBITDA are supplemental measures of operating performance that we believe are useful measures to facilitate comparisons to our historical consolidated and business level performance and operating results.

We believe our presentation of Adjusted Consolidated EBITDA, key metric used internally by our management, provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

Our Field EBITDA, Consolidated EBITDA and Adjusted Consolidated EBITDA are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Our presentation is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Funeral Field EBITDA and Cemetery Field EBITDA are not consolidated measures of profitability.

Field EBITDA excludes certain costs presented in our GAAP statement that we do not allocate to the individual business’ field level margins, as noted above. A reconciliation of Field EBITDA to Gross Profit, the most directly comparable GAAP measure, is set forth below.

Consolidated EBITDA excludes certain items that we believe do not directly reflect our core operations and may not be indicative of our normal business operations. A reconciliation of Consolidated EBITDA to Net Income, the most directly comparable GAAP measure, is set forth below.

Therefore, these measures may not provide a complete understanding of our performance and should be reviewed in conjunction with our GAAP financial measures.

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, 2018 and 2019 (in thousands):

  For the Three Months Ended March 31,
  2018   2019
Net Income $ 9,356     $ 6,525  
Special Items, Net of Tax, except for **      
Severance and Retirement Costs     171  
Accretion of Discount on Convertible Subordinated Notes ** 1,160     57  
Litigation Reserve     99  
Adjusted Net Income $ 10,516     $ 6,852  
       
 ** Special items are typically taxed at the federal statutory rate, except for the Accretion of the Discount on Convertible Subordinated Notes, as this is a non-tax deductible item.

Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three months ended March 31, 2018 and 2019 (in thousands):

  For the Three Months Ended
March 31,
  2018   2019
Net Income $ 9,356     $ 6,525  
Total Provision for Income Taxes 2,878     2,676  
Income Before Income Taxes 12,234     9,201  
Interest Expense 3,735     6,328  
Accretion of Discount on Convertible Subordinated Notes 1,160     57  
Non-Cash Stock Compensation 1,100     585  
Depreciation & Amortization 4,216     4,323  
Other, Net (2 )   13  
Consolidated EBITDA $ 22,443     $ 20,507  
Adjusted For:      
Severance and Retirement Costs     217  
Litigation Reserve     125  
Adjusted Consolidated EBITDA $ 22,443     $ 20,849  
       
Revenue $ 73,387     $ 69,081  
       
Adjusted Consolidated EBITDA Margin 30.6 %   30.2 %

Reconciliation of Funeral and Cemetery Gross Profit to Field EBITDA for the three months ended March 31, 2018 and 2019 (in thousands):

  For the Three Months Ended
March 31,
  2018   2019
Funeral Gross Profit (GAAP) $ 19,664     $ 18,076  
Depreciation & Amortization 2,564     2,771  
Regional & Unallocated Costs 2,864     2,320  
Funeral Financial EBITDA (2,047 )   (1,954 )
Funeral Divested EBITDA 3      
Funeral Field EBITDA $ 23,048     $ 21,213  


  For the Three Months Ended
March 31,
  2018   2019
Cemetery Gross Profit (GAAP) $ 4,524     $ 3,524  
Depreciation & Amortization 1,209     1,163  
Regional & Unallocated Costs 417     469  
Cemetery Financial EBITDA (1,790 )   (1,495 )
Cemetery Divested EBITDA (497 )    
Cemetery Field EBITDA $ 3,863     $ 3,661  

Components of Total Field EBITDA for the three months ended March 31, 2018 and 2019 (in thousands):

  For the Three Months Ended
March 31,
  2018   2019
Funeral Field EBITDA $ 23,048     $ 21,213  
Cemetery Field EBITDA 3,863     3,661  
Funeral Financial EBITDA 2,047     1,954  
Cemetery Financial EBITDA 1,790     1,495  
Funeral Divested EBITDA (3 )    
Cemetery Divested EBITDA 497      
Total Field EBITDA $ 31,242     $ 28,323  

Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three months ended March 31, 2018 and 2019:

  For the Three Months Ended
March 31,
  2018   2019
GAAP Basic Earnings Per Share $ 0.58     $ 0.36  
Special Items 0.07     0.02  
Adjusted Basic Earnings Per Share $ 0.65     $ 0.38  

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three months ended March 31, 2018 and 2019:

  For the Three Months Ended
March 31,
  2018   2019
GAAP Diluted Earnings Per Share $ 0.52     $ 0.36  
Special Items 0.07     0.02  
Adjusted Diluted Earnings Per Share $ 0.59     $ 0.38  

Supplemental Information:

Funeral homes and cemeteries purchased after December 31, 2014 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 2014 Acquired Portfolio that moved from Acquired to Same Store beginning January 1, 2019 (in thousands):

  Three Months Ended
March 31, 2018
  Twelve Months Ended
December 31, 2018
  Revenue   EBITDA   Revenue   EBITDA
2014 Acquired Portfolio $ 3,611     $ 1,565     $ 12,989     $ 5,254  

Reconciliation of Rolling Four Quarter Outlook:

Earlier in 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, 2020 unless we have a signed Letter of Intent with a 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 approximate midpoint of the range in this Outlook.

Reconciliation of Net Income to Consolidated EBITDA for the Rolling Four Quarters ending March 31, 2020 (in thousands):

  March 31, 2020E
Net Income $ 24,800  
Total Tax Provision 9,400  
Pretax Income 34,200  
Net Interest Expense, including Accretion of Discount on Convertible Notes 24,400  
Depreciation & Amortization, including Non-cash Stock Compensation 19,600  
Consolidated EBITDA $ 78,200  

Reconciliation of Net Income to Adjusted Net Income for the Rolling Four Quarters ending March 31, 2020 (in thousands):

  March 31, 2020E
Net Income $ 24,800  
Special Items 200  
Adjusted Net Income $ 25,000  

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the Rolling Four Quarters ending March 31, 2020:

  March 31, 2020E
GAAP Diluted Earnings Per Share $ 1.38  
Special Items 0.01  
Adjusted Diluted Earnings Per Share $ 1.39  

Reconciliation of Cash Flow Provided by Operations to Free Cash Flow for the Rolling Four Quarters ending March 31, 2020 (in thousands):

  March 31, 2020E
Cash flow Provided by Operations $ 48,500  
Cash used for Maintenance Capital Expenditures (10,000 )
Free Cash Flow $ 38,500  

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. All statements, other than statements of historical information, should be deemed to be forward-looking statements. 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 and market 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;
  • the timely and full payment of 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;
  • our level of indebtedness and the cash required to service our indebtedness;
  • changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;
  • effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;
  • consolidation of the funeral and cemetery industry; and
  • other factors and uncertainties inherent in the funeral and cemetery 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.

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Source: Carriage Services, Inc.