Carriage Services Announces Record Fourth Quarter and Full Year 2021 Results
- Full Year Performance Release Represents 2021 Shareholder Letter;
Carlos Quezada promoted to President and Chief Operating Officer;- Fourth Quarter Revenue of
$95 .9 million, GAAP Diluted EPS of$0.77 and Adjusted Diluted EPS of$0.78 ; - Full Year Revenue of
$375 .9 million, GAAP Diluted EPS of$1.81 and Adjusted Diluted EPS of$3.02 ; - Full Year Adjusted Free Cash Flow of
$75.7 million ; Net Operating Cash Flow of$84.2 million ; - Issues new Three Year Roughly Right Ranges Performance Scenario through 2024 with a likely Capital Allocation Scenario and Share Price Valuation Ranges for each year;
- Invested
$142 .5 million sinceMay 13, 2021 to repurchase 2.9 million shares (16.0% of outstanding at$49 .01 per share); - Board approved a new
$75 million authorization for Stock Repurchase Program; and - Increase of $5 per share in
Intrinsic Value Roughly Right Range to$70 to $80 per share.
Mel Payne, Chairman and CEO, stated, “Our funeral and cemetery portfolio revenue and earnings momentum continued through the fourth quarter of 2021 with record revenue of
After we raised our
As I have previously stated often externally and “at all times” internally, Carriage is defined by our unique Standards Operating Model and High Performance Culture Framework for operating and consolidating the highly fragmented funeral and cemetery industry. Our success as a consolidation platform is driven by a customized data-based language of High Performance Standards whose relevance and oversight for each funeral and cemetery business in our portfolio is provided by the “Best of the Best”
When executed to a high degree of “Standards Achievement” by most of our
In my 2016 Shareholder Letter titled 1991-2016: The Evolution of Our Learning Journey, it took forty-four pages for me to cover the first twenty-five years of Carriage and the evolution of the idea of a Funeral Standards Operating Model beginning in
The greatest strategic achievement of this past year was that I formally established on
Based on his amazing achievements and contributions that Carlos has made to Carriage since joining our Good To Great Journey on
After co-founding Carriage at 48 years young on
| 1775-1792 |
2020-2030 Carriage |
| Best of |
|
| Age of Wisdom | |
| Epoch of Belief | |
| Season of Light | |
| Spring of Hope | |
| Everything Before Us | |
| Center of Learning | High Performance CSV |
| Center of Commerce | CSV Good To Great Journey |
| British Empire Peak | CSV Premium High Valuation |
| CSV Built To Last Future | |
Carriage’s future is perfectly captured by the vivid descriptions of
The balance of this 2021 Shareholder Letter has been a collaboration between myself, Carlos, Steve and Ben as the four members of SVPG, putting TRUTH to my earlier assertion that I got the biggest promotion. Much of the content in certain specific and highly relevant areas and reporting sections covered in this letter has never been shown publicly in such transparent detail, particularly as trends over five full years including Pre-COVID years, which is intended along with “takeaway insights” by SVPG members to provide a greater understanding of our past, present and likely future performance.
But more profoundly important and rare in this Shareholder Letter is that we will also present total consolidated performance ranges of what our High Performance Transformation is expected to look like over the next three years under a likely Capital Allocation Scenario, and for the first time what our shares could potentially be worth each year with continued outstanding execution of our three core models. The Table of Contents for this Shareholder Letter is shown below sequentially in sections covered by each SVPG member:
| TABLE OF CONTENTS | |
| 1. Fourth Quarter and Full Year Comparative Performance Highlights; | 4-5 |
| 2. Two Major Strategic Achievements in 2021/Public Deathcare Sector 2022 Versus 1990’s; | 5-6 |
| 3. Three Year Roughly Right Ranges Performance Scenario with likely Capital Allocation Scenario; | 6-9 |
| 4. Good To Great II Update and Conceptual Value Creation Performance Alignment; | 10 |
| 5. Some Final Thoughts About Carriage and The Nature of |
11-12 |
| 6. Five Quarter Trend Report Ending |
12-14 |
| 7. Same Store Funeral Revenue Monthly Trends and Drivers Seven Months Ending |
15 |
| 8. Five Year Same Store Cemetery Detailed Trend Report and Summary Cemetery Acquisition Data; | 16-17 |
| 9. Operating Organization Structure/Talent and Conceptual Vision Update. | 18-21 |
| 10. Update on Strategic Acquisition Activity Growth Outlook; | 21 |
| 11. Five Year Same Store Funeral Performance/Incentive Compensation and Recognition Alignment Trends; | 21-26 |
| 12. Support Center Organization Structure/Talent and Conceptual Vision Update. | 26-27 |
| 13. Free Cash Flow and Leverage Update; | 28-29 |
| 14. Capital Allocation Priority Update; | 29-30 |
| 15. Trust Fund Performance/Impact on Financial Revenue and Earnings; | 30-33 |
| 16. Finance Organization Structure/Talent And Conceptual Vision Update; | 34 |
| 17. |
35 |
| 18. Final Thoughts About “Getting To The Other Side”; | 35 |
| 19. 2021 One Year Being The Best Pinnacle/Five Year Good To Great Winners. | 36-38 |
FOURTH QUARTER AND FULL YEAR COMPARATIVE PERFORMANCE HIGHLIGHTS
Fourth Quarter 2021 Comparative Performance Highlights
- Total Revenue(1) of
$95.9 million , an increase of$5.8 million or 6.5%;
- GAAP Funeral Operating Income of
$23.2 million , an increase of$3.7 million or 19.1%; - GAAP Funeral Operating Income Margin of 33.3%, an increase of 420 basis points;
- GAAP Cemetery Operating Income of
$9.9 million , an increase of$1.5 million or 17.5%; - GAAP Cemetery Operating Income Margin of 37.5%, an increase of 130 basis points;
- GAAP Net Income of
$13.3 million , an increase of$5.0 million or 59.6%; - GAAP Net Income Margin of 13.9%, an increase of 460 basis points;
- GAAP Diluted EPS of
$0.77 , an increase of$0.31 or 67.4%; - GAAP Net Cash Provided by Operating Activities of
$14.5 million , a decrease of 3.6%; and - GAAP Net Cash Provided by Operating Activities as a percentage of Total Revenue of 15.2%, a decrease of 160 basis points.
- Same Store Funeral Revenue of
$55.3 million , an increase of$2.7 million or 5.1%; - Acquisition Funeral Revenue of
$10.0 million , an increase of$0.6 million or 6.8%; - Same Store Cemetery Revenue of
$16.3 million , an increase of$1.5 million or 9.9%; - Acquisition Cemetery Revenue of
$6.3 million , an increase of$0.8 million or 14.6%; - Financial Revenue of
$6.2 million , an increase of$0.9 million or 17.1%;
- Total Field EBITDA of
$44.2 million , an increase of$2.9 million or 6.9%; - Total Field EBITDA Margin of 46.1%, an increase of 20 basis points;
- Adjusted Consolidated EBITDA of
$30.4 million , an increase of$2.1 million or 7.4%; - Adjusted Consolidated EBITDA Margin of 31.7%, an increase of 30 basis points;
- Adjusted Diluted EPS of
$0.78 , an increase of$0.21 or 36.8%; - Adjusted Free Cash Flow of
$10.3 million , a decrease of$1.6 million or 13.2%; and - Adjusted Free Cash Flow Margin of 10.7%, a decrease of 250 basis points.
Full Year 2021 Comparative Performance Highlights
- Total Revenue(1) of
$375.9 million , an increase of$46.4 million or 14.1%;
- GAAP Funeral Operating Income of
$88.6 million , an increase of$31.0 million or 53.7%; - GAAP Funeral Operating Income Margin of 32.8%, an increase of 970 basis points;
- GAAP Cemetery Operating Income of
$40.4 million , an increase of$13.5 million or 50.2%; - GAAP Cemetery Operating Income Margin of 38.1%, an increase of 470 basis points;
- GAAP Net Income of
$33.2 million , an increase of$17.1 million or 106.1%; - GAAP Net Income Margin of 8.8%, an increase of 390 basis points;
- GAAP Diluted EPS of
$1.81 , an increase of$0.92 or 103.4%; - GAAP Net Cash Provided by Operating Activities of
$84.2 million , an increase of 1.6%; and - GAAP Net Cash Provided by Operating Activities as a percentage of Total Revenue of 22.4%, a decrease of 280 basis points.
- Same Store Funeral Contracts of 41,307, an increase of 3,505 or 9.3%;
- Same Store Funeral Revenue of
$215.0 million , an increase of$23.3 million or 12.1%; - Same Store Funeral Field EBITDA of
$93.0 million , an increase of$13.2 million or 16.5%; - Same Store Funeral Field EBITDA Margin of 43.3%, an increase of 170 basis points;
- Acquisition Funeral Revenue of
$38.0 million , an increase of$2.6 million or 7.2%; - Acquisition Funeral Field EBITDA of
$16.0 million , an increase of$2.4 million or 17.5%; - Acquisition Funeral Field EBITDA Margin of 42.1%, an increase of 370 basis points;
- Same Store Cemetery Revenue of
$64.2 million , an increase of$12.4 million or 24.0%; - Same Store Cemetery Field EBITDA of
$27.0 million , an increase of$7.5 million or 38.5%; - Same Store Cemetery Field EBITDA Margin of 42.1%, an increase of 440 basis points;
- Acquisition Cemetery Revenue of
$27.8 million , an increase of$10.2 million or 58.3%; - Acquisition Cemetery Field EBITDA of
$15.5 million , an increase of$8.4 million or 117.8%; - Acquisition Cemetery Field EBITDA Margin of 55.8%, an increase of 1,530 basis points;
- Financial Revenue of
$22.9 million , an increase of$3.0 million or 15.2%; - Financial Field EBITDA of
$21.4 million , an increase of$2.8 million or 15.1%; - Financial Field EBITDA Margin of 93.2%, a decrease of 10 basis points;
- Total Field EBITDA of
$174.6 million , an increase of$32.7 million or 23.0%; - Total Field EBITDA Margin of 46.5%, an increase of 340 basis points;
- Adjusted Consolidated EBITDA of
$126.2 million , an increase of$21.9 million or 21.0%; - Adjusted Consolidated EBITDA Margin of 33.6%, an increase of 200 basis points;
- Adjusted Diluted EPS of
$3.02 , an increase of$1.16 or 62.4%; - Adjusted Free Cash Flow of
$75.7 million , an increase of$5.7 million or 8.2%; - Adjusted Free Cash Flow Margin of 20.1%, a decrease of 110 basis points;
- Adjusted Proforma Free Cash Flow of
$79.7 million , an increase of$9.7 million or 13.9%; - Adjusted Proforma Free Cash Flow Margin of 21.2%, the same as 2020; and
- Total Debt Outstanding to Adjusted Consolidated EBITDA Ratio of 4.5 times at 12/31/21, 4.38 times at
February 23, 2022 .
(1) Total Revenue is comprised of Same Store Funeral Revenue, Acquisition Funeral Revenue, Same Store Cemetery Revenue, Acquisition Cemetery Revenue, Divested Revenue, Ancillary Revenue and Financial Revenue. The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.
After navigating through the uncertainty, fear and extraordinary challenges of the first year of the COVID-19 Pandemic in 2020 to a record performance, our Operating and Field Support Teams together with our
TWO MAJOR STRATEGIC ACHIEVEMENTS/ PUBLIC DEATHCARE SECTOR 2022 VERSUS 1990’S
There were two major strategic achievements in 2021 that position Carriage for continued, even extraordinary success over the next seven years as a superior operating, consolidation and especially shareholder value creation platform in the highly fragmented funeral and cemetery industry. The first major strategic achievement was the formation of SVPG on
Carriage now has the Free Cash Flow sustainable earnings power, forecast to be about $82 million to $86 million in 2022, to self-finance a meaningful highly selective acquisition growth strategy without becoming over-leveraged, as we have proven since the beginning of 2020 that we can deleverage our balance sheet rapidly even in adverse environments.
I know of no other sector (can’t think of any but curious to know a sector and company name) where over the last twenty years the number of domestic public deathcare consolidation companies have shrunk from five to two (SCI and CSV), and both of us have materially shrunk our outstanding share count (SCI by over 50%, CSV by 41%) while growing steadily and sometimes in spurts financed mostly by Free Cash Flow (SCI consolidated
Both SCI and Carriage have become excellent Free Cash Flow operators and consolidators over the last twenty years at a time when all those revenue elements not under our control such as death rates, cremation/burial mix changes (cremation market share easier to take from competition), customer value perception of funeral ritual and of preplanning funeral and cemetery details, value perception of cremations with personalized services, etc., have switched from being secular revenue winds in our face and turned decidedly to revenue trends that are in our favor. Consequently, the outlook for long-term organic revenue growth for Carriage both in our funeral and cemetery portfolio has never been better or higher.
When
During the 1990’s, all five domestic deathcare consolidation companies needed (lots of) external bank debt and secondary equity offerings (No FCF For Nobody At No Time!) to execute an aggressive growth by acquisition consolidation mania that crashed in early 1999 (No Capital For Nobody At No Time!). Carriage now produces each year from Free Cash Flow the equivalent of an
After the milestone high performance achievements of the last three years, Carriage for the first time in our 30 year history is in a “Value Creation Sweetspot” with an accelerating offense from Free Cash Flow and a Capital Allocation Strategy that produces balanced and highly profitable revenue growth over a base of fewer common shares outstanding, which in turn should create higher compounded rates of growth in Intrinsic Value Per Share for many years into the future. Now that’s the definition of a CSV High Performance Value Creation Transformation!
THREE YEAR ROUGHLY RIGHT RANGES PERFORMANCE SCENARIO 2020 - 2022 COMPARED TO 2022 - 2024
After partially turning around performance trends in our funeral portfolio during 2019, we made four large strategic acquisitions at the end of 2019 and beginning of 2020, three of which were large funeral/cemetery combination businesses. In our year-end 2019 earnings release on
“Reflecting back on Carriage’s performance decline in 2018, the performance turnaround we have already achieved, and the performance milestones we will achieve over the next three years, our company will have executed what we believe in hindsight will be viewed as a complete Carriage Leadership, Portfolio High Performance, Balance Sheet, Earnings and Free Cash Flow Transformation as a Value Creation Platform.
Shown below is an expanded Milestone Three Year Roughly Right Scenario for 2020 to 2022 demonstrating the shareholder value creation opportunity.”
| INITIAL THREE YEAR ROUGHLY RIGHT RANGES SCENARIO DATED |
|||||
| Performance Outlook Scenario | Years Ending (Actual Performance in Parentheses) |
2022 |
|||
| 2019(A) | 2020(A) | 2021(A) | 2022 - |
2022 - |
|
| Total Revenue | |||||
| Total Field EBITDA | |||||
| Total Field EBITDA Margin | 40.0% | 40% - 41% (43.1%) | 41% - 42% (46.5%) | 42% - 43% | 46% - 47% |
| Adj. Consol. EBITDA | |||||
| Adj. Consol. EBITDA Margin | 27.9% | 29% - 30% (31.6%) | 30% - 31% (33.6%) | 31% - 32% | 33.5% - 34.5% |
| Adjusted Diluted EPS | |||||
| Shares Outstanding | 18.0 | 18.1 | 18.3 | - | 16.2 |
| Adjusted Free Cash Flow | |||||
| Total Debt Outstanding | |||||
| Total Debt to EBITDA Multiple | 7.0(2) | 5.0 - 5.2 (4.4) | 4.3 - 4.5 (4.5) | 3.8 - 4.0 | 4.1 - 4.4 |
(1)
(2) Does not include Proforma EBITDA for acquisitions.
The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.
Shown below is our new Three Year Roughly Right Ranges Performance Scenario dated
| FREE CASH FLOW CAPITAL ALLOCATION BY CATEGORY BY YEAR | |||
| Category Percentage Free Cash Flow (%) | 2022 | 2023 | 2024 |
| Growth Capex | 13% | 15% | 15% |
| • Funeral | 3% | 3% | 3% |
| • Cemetery | 10% | 12% | 12% |
| Acquisition | 38% | 76% | 76% |
| • Funeral | 23% | 46% | 46% |
| • Cemetery | 15% | 30% | 30% |
| Share Repurchase | 40% | - | - |
| Dividends | 9% | 9% | 9% |
| Debt Repayment | - | - | - |
| Total % Free Cash Flow | 100% | 100% | 100% |
Shown below are tables reflecting our new Three Year Roughly Right Ranges Performance Scenario as of
| THREE YEAR ROUGHLY RIGHT RANGES PERFORMANCE SCENARIO 2022 THROUGH 2024 |
|||||||
| Performance Outlook Ranges | Actual Performance | Three Year Scenario | |||||
| Yrs. Ending 12/31 (Millions) | 2019A | 2020A | 2021A | 2022 | 2023 | 2024 | CAGR |
| Total Revenue | 10.7% | ||||||
| Total Field EBITDA | 14.4% | ||||||
| Total Field EBITDA Margin | 40.0% | 43.1% | 46.5% | 46% - 47% | 46.5% - 47.5% | 47% - 48% | 3.5% |
| Adj. Consol. EBITDA | 15.5% | ||||||
| Adj. Consol. EBITDA Margin | 27.9% | 31.6% | 33.6% | 33.5% - 34.5% | 33.5% - 34.5% | 34% - 35% | 4.3% |
| Adjusted Diluted EPS | 28.9% | ||||||
| Diluted Shares Outstanding | 18.0 | 18.1 | 18.3 | 16.2 | 16.5 | 16.7 | (1.5%) |
| Adjusted Free Cash Flow | 20.1% | ||||||
| Adj. Free Cash Flow Margin | 14.2% | 21.2% | 20.1% | 21.0% - 22.0% | 21.0% - 22.0% | 21.0% - 22.0% | 8.7% |
| Total Debt Outstanding | 1.7% | ||||||
| Total Debt to EBITDA Ratio | 7.0(2) | 4.4 | 4.5 | 4.1 - 4.4 | 3.8 - 4.2 | 3.8 - 4.2 | (10.6%) |
(1)
(2) Does not include Proforma EBITDA for acquisitions.
The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.
| SHARE PRICE VALUATION METHODOLOGIES – POTENTIAL SHARE PRICE RANGES |
|||||||||||||||||
| 5 Year Enterprise Valuation Methodologies |
Potential Performance at Valuation Multiples |
Three Year Scenario | |||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | CAGR | ||||||||||||
| EV / EBITDA Multiple | 11 | 16.9% | |||||||||||||||
| EV / EBITDA Multiple | 12 | 16.4% | |||||||||||||||
| EV / EBITDA Multiple | 13 | 16.0% | |||||||||||||||
| EV / EBITDA Multiple | 14 | 15.7% | |||||||||||||||
| EV / EBITDA Multiple | 15 | 15.5% | |||||||||||||||
| 5 Year P/E Valuation Matrix | Potential Performance at Valuation Multiples |
Three Year Scenario | |||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | CAGR | ||||||||||||
| P/E Multiple | 15 | 24.7% | |||||||||||||||
| P/E Multiple | 20 | 24.7% | |||||||||||||||
| P/E Multiple | 25 | 24.7% | |||||||||||||||
| 5 Year FCF Valuation Matrix | Potential Performance at Valuation Multiples |
Three Year Scenario | |||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | CAGR | ||||||||||||
| Free Cash Flow Equity Yield | 8 | % | 11.4% | ||||||||||||||
| Free Cash Flow Equity Yield | 7 | % | 11.4% | ||||||||||||||
| Free Cash Flow Equity Yield | 6 | % | 11.4% | ||||||||||||||
| Free Cash Flow Equity Yield | 5 | % | 11.4% | ||||||||||||||
| Actual Share Price Range | Actual Share Price Range | Three Year Scenario | |||||||||||||||
| N/A | ? | ? | ? | ||||||||||||||
I am truly amazed at the wide spread of 52-week high and low common share prices each year for most public companies, which is often in a range of 20% - 40% and frequently much more each year, often when nothing material has changed fundamentally in the company’s performance or outlook. This phenomenon is apparent in the CSV share price potential ranges shown on the previous page for 2020 and 2021 using actual performance metrics and various degrees of valuation multiples each year. Our share price had wild swings in both 2020 (way, way down in the COVID market crash, then way up to above
Which is why in our
As the tables reflect, our share price potential upside over the next three years is huge with the possibility that we could double our current price by the end of 2024 as we continue to execute at a very high level of operating and financial performance, and
Of course we cannot predict what external factors might impact domestic and international equity and debt markets including valuation multiples given the continuing economic uncertainty relating to the COVID-19 Pandemic, rapidly rising inflation and interest rates, geopolitical minefields (
However, if
The last three years of Transformative High Performance at Carriage have been absolutely “PROOF OF CONCEPT” years for the counterintuitive ideas and concepts that we have been evolving since 2003 centered around “Radical Decentralization and Partnership” of how best to operate and consolidate a highly fragmented industry. We have a sense of pride and achievement that our company is positioned for future success like never before, anchored heavily by experience and learning from mistakes. But especially the wisdom that Being The Best and staying that way requires continuous improvement in the face of unrelenting change, together with necessary and frequent recalibration of High Performance Standards and Leadership on a Good To Great Journey that never ends.
GOOD TO GREAT II SHAREHOLDER VALUE CREATION INCENTIVE PLAN
I had no superior “future performance predictive powers” when we presented our first Three Year Roughly Right Ranges Performance Scenario on
So I began to play around with various “back of the envelope” compound share price returns over a full five years ending
Needless to say, the forty-eight Good To Great II participating leaders who have now already vested in the 30% CAGR Tier at
Such an “out of the box” long term shareholder value creation returns plan in perfect alignment with the many “meter moving” leaders of Carriage would not have been possible at any prior point in the company’s history. All the pieces of the value creation platform puzzle had not yet been put in place, especially the most challenging piece of getting the “First Who, Then What” Leadership Concept advanced to have all the right people in the right seats at the right time on the Good To Great Journey Bus. Yet very few equity investors noticed or took Good To Great II seriously at the time we announced this long-term alignment incentive program in our 2020 second quarter release dated
SOME FINAL THOUGHTS ABOUT CARRIAGE AND THE NATURE OF BEING A PUBLIC COMPANY
We have greatly appreciated the new and outstanding equity analyst coverage this past two years from top regional equity sell side firms as well as continued outstanding equity coverage from longtime supporters who have introduced our company and its bright future prospects to many new institutional investors. Our commitment to our equity analysts is to make them look smart if not timely brilliant, and to investors who became or will become long term share owners of our company to do our best as fiduciaries of your capital so that you never have any regrets.
While your equity investment in CSV might or might not have wide price swings in 2022 and future years, we are confident that the value of your investment will trend up substantially over time.
Warren closed out his “Some Thoughts About Investing” with this final thought, “It’s vital, however, that we recognize the perimeter of our ‘Circle of Competence’ and stay well inside of it. Even then we will make some mistakes both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.”
I sensed toward the end of last year after our record third quarter earnings release on
- Carriage had achieved #1 Ranking in Investor’s
Business Daily (“IBD”) Industry Group Sector of “Funeral Services and Related” with the highest possible Composite Rating of 99; - IBD Group Sector “Funeral Services and Related” had moved up to #6 out of 197 Industry Group Sectors based on the combined “price behavior” of those companies in our sector relative to the other 196 sectors;
- A personal zoom interview we had with an IBD journalist about our recent sector outperformance and the temporary or permanent impact of COVID on our industry after the “Funeral Services and Related” Group Sector had moved to #6 from #66 in only six weeks;
- Forbes “promoted” Carriage to 50th in their annual rating of the Top 100 Small Companies in America in 2021 from 97th in 2020 based on relative stock “price behavior” performance;
- Finally and most confirming that CSV had become a strong candidate for the winner of the “Cinderella Ball Price Behavior Beauty Contest,” I began to be sent articles touting Carriage as a top “anticipated price behavior” stock pick (Seeking Alpha, Zack’s Investment Research, Motley Fool, various magazine articles, investment newsletters, etc.), not from investment professionals but by Managing Partner Standards Council Members, other Carriage leaders, Board members and even my wonderful brother and his equally wonderful wife!!
The 2021 year-end spike in CSV “price behavior” was briefly exciting for those of us in Carriage, primarily because it represented recognition from those outside of Carriage that our noble work and unique high performance ideas and concepts for our industry had begun to have high equity value to investors as well. Yet we have no goal or desire to be a “fashion of the moment” momentum stock or company at any time now or in the future. We only have a passionate drive to get continually better so that we always fundamentally earn more than the price that others place on our ownership.
As a Being The Best High Performance Culture Team of Teams, we commit to all our shareholders, bond holders, investment analysts, banks, suppliers and Board Members, but especially to our leaders, employees, client families and communities that our funeral homes and cemeteries are honored to serve, to ignore and not be distracted by the irrational behavior and noise related to
FIVE QUARTER TREND REPORT ENDING
| FIVE QUARTER OPERATING AND FINANCIAL TREND REPORT HIGHLIGHTS | ||||||||||||||
| (000’s except for volume, averages & margins) | 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||
| Funeral Same Store Contracts | 10,396 | 11,303 | 9,259 | 10,848 | 10,716 | |||||||||
| Average Revenue Per Contract (1) | ||||||||||||||
| Funeral Same Store Burial Contracts | 3,914 | 4,202 | 3,304 | 3,705 | 3,808 | |||||||||
| Funeral Same Store Burial Rate | 37.6% | 37.2% | 35.7% | 34.2% | 35.5% | |||||||||
| Average Revenue Per Burial Contract | ||||||||||||||
| Funeral Same Store Cremation Contracts | 5,776 | 6,389 | 5,236 | 6,203 | 6,057 | |||||||||
| Funeral Same Store Cremation Rate | 55.6% | 56.5% | 56.6% | 57.2% | 56.5% | |||||||||
| Average Revenue Per Cremation Contract | ||||||||||||||
| Funeral Same Store Revenue | ||||||||||||||
| Funeral Same Store Field EBITDA | ||||||||||||||
| Funeral Same Store Field EBITDA Margin | 44.0% | 45.5% | 39.4% | 45.0% | 42.6% | |||||||||
| Funeral Acquisition Revenue | ||||||||||||||
| Funeral Acquisition Field EBITDA | ||||||||||||||
| Funeral Acquisition Field EBITDA Margin | 39.4% | 44.1% | 38.1% | 42.5% | 43.2% | |||||||||
| Cemetery Same Store Preneed Property Contracts Sold | 1,033 | 1,161 | 1,211 | 1,280 | 1,120 | |||||||||
| Cemetery Same Store Preneed Sales Revenue | ||||||||||||||
| Cemetery Same Store Revenue | ||||||||||||||
| Cemetery Same Store Field EBITDA | ||||||||||||||
| Cemetery Same Store Field EBITDA Margin | 43.9% | 39.0% | 46.8% | 39.6% | 42.6% | |||||||||
| Cemetery Acquisition Preneed Property Contracts Sold | 345 | 338 | 475 | 294 | 361 | |||||||||
| Cemetery Acquisition Preneed Sales Revenue | ||||||||||||||
| Cemetery Acquisition Revenue | ||||||||||||||
| Cemetery Acquisition Field EBITDA | ||||||||||||||
| Cemetery Acquisition Field EBITDA Margin | 45.9% | 58.8% | 57.9% | 55.8% | 49.7% | |||||||||
| Total Financial Revenue | ||||||||||||||
| Total Financial Field EBITDA | ||||||||||||||
| Total Financial Field EBITDA Margin | 93.6% | 93.0% | 93.6% | 92.7% | 93.7% | |||||||||
| Total Revenue | ||||||||||||||
| Total Field EBITDA | ||||||||||||||
| Total Field EBITDA Margin | 45.9% | 47.4% | 45.3% | 47.0% | 46.1% | |||||||||
| Adjusted Consolidated EBITDA | ||||||||||||||
| Adjusted Consolidated EBITDA Margin | 31.4% | 35.9% | 32.5% | 34.1% | 31.7% | |||||||||
| Adjusted Diluted EPS | ||||||||||||||
| Adjusted Free Cash Flow | ||||||||||||||
| Adjusted Free Cash Flow Margin | 13.2% | 28.1% | 13.9% | 27.3% | 10.7% | |||||||||
| GAAP Net Income (Loss) | ||||||||||||||
| GAAP Net Income (Loss) Margin | 9.3% | 13.4% | (7.0)% | 13.7% | 13.9% | |||||||||
| GAAP Diluted (Loss) EPS | ||||||||||||||
| (1) Excludes Preneed Funeral interest earnings reflected in Total Financial Revenue. | ||||||||||||||
The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.
As shown above, we have had consistent High Performance in each of the five revenue segments over the last five quarters with a five quarter average of
Our positive outlook is based on what we know is happening at Carriage. While other companies inside and outside our sector are concerned about the post-COVID effect (pull-forward), we cannot predict what the new normalized death rate will be post-COVID, as COVID could become endemic and there is too much noise and unreliable information for us to even try to predict precisely what the impact will be in the future. Instead, we think long-term and focus on what we can control and what we do best, pursuing our Being the Best Mission and Vision. Even under a pandemic environment with restriction mandates, social distance, remote work, overworked heroes and any other uncertainty or speculation about the future (no crystal ball at CSV), we will always strive to be the best we can be, a byproduct of which is that we say yes when other competitors say no. We say we can when others say we can’t.
The resiliency, creativity, innovation, and passion for service excellence of our amazing
| SAME STORE FUNERAL REVENUE MONTHLY TRENDS AND DRIVERS SEVEN MONTHS ENDING |
|||||||||||||||||||||||
| (000’s except for volume, averages) | 2021/2020 | 2022/2021 | |||||||||||||||||||||
| Same Store Funeral | JUL | AUG | SEP | OCT | NOV | DEC | JAN | ||||||||||||||||
| Contracts (volume) 2021 ( |
3,081 | 3,647 | 3,936 | 3,662 | 3,278 | 3,574 | 4,128 | ||||||||||||||||
| Contracts (volume) 2020 ( |
3,163 | 3,210 | 3,069 | 3,068 | 3,072 | 4,061 | 4,201 | ||||||||||||||||
| Volume Variance | (82 | ) | 437 | 867 | 594 | 206 | (487 | ) | (73 | ) | |||||||||||||
| Average Revenue Per Contract 2021 ( |
|||||||||||||||||||||||
| Average Revenue Per Contract 2020 ( |
|||||||||||||||||||||||
| Average Revenue Per Contract Variance | $367 | ($47 | ) | $96 | ($78 | ) | $155 | $205 | $119 | ||||||||||||||
| Operating Revenue 2021 ( |
|||||||||||||||||||||||
| Operating Revenue 2020 ( |
|||||||||||||||||||||||
| Operating Revenue Variance | $728 | $2,079 | $4,830 | $2,843 | $1,571 | ($1,744 | ) | $115 | |||||||||||||||
| Net Revenue Volume Variance | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Net Revenue Average Variance | ( |
) | ( |
) | |||||||||||||||||||
| Net Revenue Variance | $728 | $2,079 | $4,830 | $2,843 | $1,571 | ($1,744 | ) | $115 | |||||||||||||||
| (1) Excludes Preneed Funeral interest earnings reflected in Total Financial Revenue. | |||||||||||||||||||||||
We can observe that with the exception of a high comparable in December of 2020 at the spike of COVID-19, (which Steve will cover in more detail later in this release), our Same Store Funeral Trends in the table above, reflect that December of 2021 was the only month with a negative Operating Revenue Variance. The large negative Operating Revenue Variance related to volumes being down in December was partially offset by about 29% by a positive variance from our higher ARPC, netting the
Every month with that exception in this seven-month trend shows a positive Operating Revenue Variance with January of 2021 as our all-time high revenue month with
Our Average Revenue Per Contract (ARPC) is consistently ranging between
FIVE YEAR SAME-STORE CEMETERY DETAILED TREND REPORT AND SUMMARY CEMETERY ACQUISITION DATA
| FIVE YEAR CEMETERY SAME STORE TREND REPORT | ||||||||||||||||||
| (000's except for volume, averages & margins) | 2017 | 2018 | 2019 | 2020 | 2021 | 2018 / 2021 Variance $ |
2018 / 2021 Variance % |
|||||||||||
| Preneed Interments Sold | 6,159 | 6,360 | 7,096 | 7,104 | 8,330 | 1,970 | 31.0% | |||||||||||
| Preneed Total Sales Average | 16.6% | |||||||||||||||||
| Preneed Total Sales Production | 52.7% | |||||||||||||||||
| Preneed Recognized Revenue | 49.2% | |||||||||||||||||
| Preneed Margin ($) | 61.5% | |||||||||||||||||
| Preneed Margin (%) | 50.0% | 51.4% | 53.8% | 55.1% | 55.7% | N/A | 425 bp | |||||||||||
| Atneed and Preneed Matured Interments | 7,294 | 7,025 | 6,817 | 7,613 | 8,310 | 1,285 | 18.3% | |||||||||||
| Atneed Revenue | 33.8% | |||||||||||||||||
| Atneed Margin ($) | 32.7% | |||||||||||||||||
| Atneed Margin (%) | 79.3% | 78.5% | 78.2% | 78.9% | 77.9% | N/A | -64 bp | |||||||||||
| Total Operating Revenue | 42.8% | |||||||||||||||||
| Total Preneed/Atneed Margin ($) | 46.5% | |||||||||||||||||
| Total Preneed/Atneed Margin (%) | 62.6% | 62.6% | 63.2% | 64.5% | 64.3% | N/A | 164 bp | |||||||||||
| Total Controllable Costs of Revenue | 8.6% | |||||||||||||||||
| Total Controllable Costs of Revenue (%) | 33.7% | 34.3% | 31.8% | 29.9% | 26.1% | N/A | -820 bp | |||||||||||
| Total Non-controllable Costs | 14.2% | |||||||||||||||||
| Total Non-controllable Costs (%) | 4.2% | 4.5% | 4.3% | 3.8% | 3.6% | N/A | -89 bp | |||||||||||
| Total Operating Margin ($) | 106.9% | |||||||||||||||||
| Total Operating Margin (%) | 24.6% | 23.9% | 27.1% | 30.8% | 34.7% | N/A | 1,074 bp | |||||||||||
| Other (Addbacks, rent, and other items). | 54.8% | |||||||||||||||||
| Cemetery Field EBITDA | 95.2% | |||||||||||||||||
| Cemetery Field EBITDA Margin | 31.1% | 30.8% | 34.6% | 37.7% | 42.1% | N/A | 1,130 bp | |||||||||||
| Total Financial Revenue | 51.6% | |||||||||||||||||
| Total Operating and Financial Revenue | 43.9% | |||||||||||||||||
| Cemetery Field & Financial EBITDA | 81.2% | |||||||||||||||||
| Cemetery Field & Financial EBITDA Margin | 40.7% | 39.7% | 42.4% | 45.8% | 50.0% | N/A | 1,028 bp | |||||||||||
Optimization of Cemetery Same Store Portfolio
Our Same-Store Portfolio of both funeral homes and cemeteries have been owned, fully integrated into our Standards Operating Model, and operated for at least five full years compared to only one year for other multi-store companies in most industries. Because of the uniqueness of our Standards Operating Model for both funeral homes and cemeteries, it often takes several years after a business joins our portfolio for full integration and optimization of the performance to be achieved and sustained. It is also no coincidence why our Good To Great incentive trip is a five-year reward program earned based on consistency in Standards Achievement over the five years; Steve will also cover our rewards programs in more detail, including our Being The Best one year and Good To Great five year profit-sharing incentives.
While our entire company has been through a High Performance Transformation since
The even better Good To Great news is that since the initiation of our High Performance Sales Plan, which began in July of 2020 and continues to be executed in phases across our cemetery portfolio, our opportunity to optimize our Cemetery Same Store Portfolio remains under blue skies.
Preneed Recognized Revenue finished at
Our Cemetery Same Store Field EBITDA Margin of 42.1% in 2021 was an all-time record high and 1,130 basis points higher than the 30.8% in 2018, and now on par with our Funeral Field EBITDA Margins in the low 40% range. The growth of our cemetery trust funds due to our High Performance preneed sales, led to an additional
| CEMETERY ACQUISITION SUMMARY | ||||||||||||
| (000's except for margins) |
2019 |
2020 |
2021 |
2021/2020 | 2021/2020 | |||||||
| Variance $ | Variance % | |||||||||||
| Total Operating Net Revenue | 57.0% | |||||||||||
| Operating Margin (Excludes Rent) | 116.4% | |||||||||||
| Operating Margin (%) | 22.0% | 35.8% | 49.6% | NA | 1,355 bp | |||||||
| Other (Addbacks and other items) | 119.2% | |||||||||||
| Cemetery Field EBITDA | 117.8% | |||||||||||
| Cemetery Field EBITDA Margin | 24.7% | 40.5% | 55.8% | NA | 1,530 bp | |||||||
| Total Financial Revenue | 21.5% | |||||||||||
| Total Operating & Financial Revenue | 52.8% | |||||||||||
| Cemetery Field & Financial EBITDA Margin | 27.2% | 47.2% | 59.9% | NA | 1,268 bp | |||||||
Our three Cemetery Acquisitions continued their integration journey into our Standards Operating Model in 2021 with an acceleration of High Performance, as Acquisition Cemetery Revenue was
ORGANIZATION STRUCTURE/TALENT AND CONCEPTUAL VISION UPDATE
Our Good to Great High Performance Flywheel shown below is a fragment from our High Performance Culture Framework, included in our Value Creation Financial Dynamics. The High Performance Flywheel focuses on our three core Being The Best operator, Being The Best consolidator, and Being The Best value creator vision company that happens to be in the Deathcare industry.
The flywheel helps define who we are, what we do, and how we do it. The innovative ideas and sophisticated concepts are the foundation at Carriage and will never change; however, our Good To Great Journey that never ends and our Being The Best Vision demands that everyone at Carriage put their heart and mind to continuous improvement every day and in everything we do. With that thought in mind, we are very excited to share the following operations update:
An image accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/1917474b-ac1f-4490-abf2-497388715dde
CAREdge Forum Sales: On January 17–19, 2022, we had our first EVER
Sales and Marketing: Effective
In his new leadership role, Shane will expand the path for our Carriage High Performance Culture Bus within our sales organization by bringing more of the right people into the right seats at the right time. Carriage’s Good To Great Journey has blue skies on the horizon. With a supercharged
Carriage never had a formal marketing team as part of our Houston Support Center, for this reason and to lead our marketing strategy; on
Regional Portfolio of Business Changes: We have redistributed the funeral and cemetery operations in our East and Central Regions to balance the number and revenue size that each of our three
Carriage High Performance Culture and continuous evolution in the pursuit of Being The Best Vision could be described as a Darwinian meritocracy where only the “best of best” thrive and conquer. Consequently, we are now seeking the Right Who Carriage Senior Vice President and Regional Partner of our
Digital Transformation Five Year Plan: The highly traditional so-called deathcare industry remains prime for disruption, especially in innovation through new technology. We recognize that we will either get disrupted or become disruptive ourselves. We choose the latter. With this goal in mind, we are developing a ten year vision, a five-year strategy and a one year plan for the transformation and innovation of “deathcare” technology. Starting with the hire of our new Chief Information Officer, who will begin with Carriage in April of 2022. Our new CIO, whose name will be disclosed in
This innovative and digital transformation will include but not be limited to improved digital in situ experience, integration of celebrations of life through technology, a seamless chain of custody, fully integrating and accelerating successful execution of the back and front office systems, and first in class cyber security systems and policies. We are looking forward to accelerating the successful implementation of this five-year complete Digital Transformation plan, whose core mission is to deliver value creation for the families that we serve, our teams of field and
Standards Council Update: On
In
CAREdge Forum Operations: On
Not only will this be a fun, amazing, and unique event, but most importantly, it will challenge everyone in attendance in thinking and reimagining ways to completely transform our Service and Guest Experience (already one of our Funeral High Performance standards weighted at 10%) after our new and increased focus in service and attention to detail, which will lead to increased market share growth throughout our portfolio of businesses even further. Our
For these reasons, we are forming our first-ever
2022 Carriage Theme: Every year, Carriage has had a High Performance theme that aligns with the innovative ideas and sophisticated concepts of our company. Our 2020 Theme: Transformative High Performance, was the catalyst to the complete transformation of Carriage that began at the end of 2018. Mel elaborated on his excitement and enthusiasm for the future of Carriage by stating:
“Our company is positioned like never before in our history to have a breakout high performance in 2020 that will kick start another Five Year Good to Great II Journey timeframe during 2020-2024.”
Then came the 2021 Theme: “Accelerating High Performance Flywheel Effect!” which fueled the excitement rocket and inspired everyone to build the momentum and launch into a record High Performance year in the 30 years of Carriage history.
As shown on the Good to Great High Performance Flywheel in the link above, our Carriage Flywheel is now hitting on all cylinders, which has accelerated the Carriage
With this background as context and our “UNBREAKABLE UNION OF BELIEF” commitment to our Being
“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.”
Our 2022 Theme: High Performance Value Creation Culture is an open and standing invitation to all Carriage employees, vendors, partners, and contributors to CHOOSE GREATNESS and never settle for anything less, and reason why I continue to say; it is a great time to be at Carriage and the best is yet to come," concluded
UPDATE ON STRATEGIC ACQUISITION ACTIVITY GROWTH OUTLOOK
While we are focused on our growth through acquisition outlook, our approach to acquisitions will remain highly selective. We recognize the importance of avoiding doing “stupid stuff” such as the aggressive growth through high multiple acquisitions that defined the 1990’s in our industry, which Mel described earlier. We are disciplined in our review of a business, the market and demographics, growth prospects, and valuation. We will not grow simply for the sake of getting bigger, but will instead remain focused on identifying those candidates that fit our strategic criteria at a valuation that makes sense for both parties.
We have extended the offer to visit us in
As the second longest tenured company in the industry with a more than 30-year history, a strong capital structure, ability to self-finance growth from Free Cash Flow, a unique owner/operator business model, best in class incentive plans, and best in industry Support Center Teams, our future for growth has never been brighter. We are confident that an owner in need of a succession plan who takes the time to learn more about the Carriage story and where we are headed, and most importantly, to meet the people who make up the Carriage Team, will conclude that there is only one succession plan choice for the best remaining funeral home and cemetery owners.
FIVE YEAR SAME STORE FUNERAL PERFORMANCE/INCENTIVE COMPENSATION AND RECOGNITION ALIGNMENT TRENDS
In prior releases, we discussed at great length the transformation taking place within Carriage beginning in
The Discovery Process – Identifying a Lack of Correlation
One of the underlying drivers for this transformation was the awareness in 2018 that there was a lack of correlation between Funeral Standards Achievement and financial performance. Since approximately 72% of our total revenue is currently generated by our funeral homes, it is helpful to pause and look more closely at the five-year Same Store Funeral performance trends covering the period of 2017-2021. This timeframe captures the two years, 2017 and 2018, prior to the significant realignment efforts that were implemented at the end of 2018, as well as the three years, 2019, 2020 and 2021, during which the impact of these changes became continuously more material and evident. As Carlos described earlier, our Same Store Funeral portfolio includes all funeral homes that have been a part of Carriage for at least five years.
In order to fully appreciate the need for a realignment of “Funeral High Performance Standards” with “high and sustainable funeral operating and financial performance,” and then the impact of this realignment, it is important to first understand the key changes that were identified and implemented beginning
Carriage’s Funeral Standards Operating Model has always been the unique framework that provides the operational foundation for high performance. It is the vehicle that allows our
On the talent side, we recognized that we simply needed to get better, so our
As it related to the specific performance standards that make up the Funeral Standards Operating Model, we recognized in 2018 that there was no longer a clear correlation between Funeral Standards Achievement (the formula used to measure a Managing Partner’s success) and financial performance. As we have discussed before, a broad group of leaders gathered together in late 2018 to study the lack of correlation and, following the review of considerable data and extensive discussions, our
Significant Changes Lead to Significant Impacts
These changes incentivized our
The evolution of the Funeral Standards Operating Model continued in
The impact of this change is seen in the table below through the increase in the Average Revenue Per Contract from year end 2020 to year end 2021, despite the increase in cremation rate from 56.3% to 57.1% during that same time period. These numbers support a clear improvement in our focus on, and ability to serve, cremation opportunities and it is a focus that we are excited about continuing to build upon moving forward. The “Cremation Mix Trend and Revenue Average” is a “Glass Half Full” and along with market share, one of our greatest organic revenue growth opportunities in the future.
| FIVE YEAR SAME STORE FUNERAL TREND REPORT (in thousands except for contracts and average revenue per contract) |
|||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2019/2021 Variance |
||||||||||||
| Contracts | 32,730 | 32,728 | 33,468 | 37,802 | 41,307 | 23.4% | |||||||||||
| Average Revenue Per Contract | N/A | ||||||||||||||||
| Net Revenue(1) | 19.4% | ||||||||||||||||
| Field EBITDA(1) | 33.5% | ||||||||||||||||
| Field EBITDA Margin(1) | 41.4% | 40.0% | 40.3% | 43.7% | 45.1% | 480 bp | |||||||||||
| Preneed Maturity Ratio | 18.5% | 18.2% | 17.8% | 17.0% | 14.9% | N/A | |||||||||||
| Cremation Rate | 51.5% | 52.1% | 53.7% | 56.3% | 57.1% | N/A | |||||||||||
| (1) Includes Preneed Funeral interest earnings reflected in Total Financial Revenue | . | ||||||||||||||||
Solving the High Performance Alignment Equation
In addition to the changes related to our Funeral Standards Operating Model, we also took a fresh look at how our annual and five year incentive plans for our
At our
Our five year Good To Great (“GTG”) performance incentive award program was created in 2012 and focuses on a “Good to Great Five Year Class” of
So the initial level of eligibility for this incentive was changed from a minimum annual growth rate of 2% to an annual growth rate of at least 1%. This change was aimed at establishing an attainable and motivating long term revenue growth standard for the large majority of our
Explaining the evolution of the Funeral Standards Operating Model and revisiting our annual and five year performance incentives tells a large part of our realignment and transformative high performance story. However, the actual Funeral Standards Achievement and corresponding incentive payments to our
What stands out in the table below is the significantly improved Standards Achievement in 2020 and 2021 (the first two full years to include the new Compounded Net Revenue Standard as well as the updated Being The Best and Good To Great incentives) aligning with outstanding performance growth in Total Contracts, Net Revenue, Field EBITDA, and Field EBITDA Margin percentage. As a result, we rewarded our field leaders with twice as much in annual incentives for their 2021 performance versus 2019 performance, and Standards Achievement reached an all-time high with nearly 80% Funeral Standards achievement by our same store businesses in 2021 versus just under 63% Funeral Standards achievement by this group of businesses in 2019.
| PERFORMANCE ALIGNMENT Five Year Same Store Funeral, Standards Achievement and Incentive Compensation Trends (dollars in thousands) |
|||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||
| Net Revenue(1) | |||||||||||||||
| Field EBITDA(1) | |||||||||||||||
| Field EBITDA Margin(1) | 41.4% | 40.0% | 40.3% | 43.7% | 45.1% | ||||||||||
| Standards Achievement | 61.9% | 62.7% | 63.0% | 74.0% | 79.8% | ||||||||||
| Potential Pinnacle Winners | 106 | 106 | 106 | 106 | 106 | ||||||||||
| Pinnacle Winners | 33 | 34 | 35 | 32 | 53 | ||||||||||
| % of Pinnacle Winners | 31.1% | 32.1% | 33.0% | 30.2% | 50.0% | ||||||||||
| BTB Bonuses | |||||||||||||||
| BTB Bonuses as a % of Field EBITDA(1) | 3.5% | 4.4% | 4.5% | 5.7% | 6.7% | ||||||||||
| GTG Class - number of MP's | 5 | 5 | 9 | - | 44 | ||||||||||
| GTG Winners - number of MP's | 3 | 5 | 6 | N/A | 34 | ||||||||||
| % of GTG Winners | 60.0% | 100% | 66.7% | N/A | 77.3% | ||||||||||
| GTG Bonuses | $- | ||||||||||||||
| GTG Bonuses as a % of Field EBITDA(1) | 0.5 % | 1.2% | 1.8% | N/A | 4.0% | ||||||||||
| Total Field Incentives | |||||||||||||||
| Total Field Incentives as a % of Field EBITDA(1) | 4.1% | 5.6% | 6.3% | 5.7% | 10.7% | ||||||||||
| (1) Includes Preneed Funeral interest earnings reflected in Total Financial Revenue | |||||||||||||||
When combined with our five year Good To Great incentive, we more than doubled our total field incentive payments in 2021 from just over
As further confirmation of this performance alignment, we were thrilled to see a greater than 50% increase in the number of “Pinnacle” winners in 2021. Pinnacle is our exclusive group of
While our wonderful
The driver for all of these reviews and changes can be summed up in one word – alignment. There must always be a clear alignment between our performance and incentives. Now that we have the benefit of several years of data since the changes discussed above were introduced, we are able to see the development of the necessary connections. However, simply getting to this point of alignment is not enough. What we have learned along the way is that all leaders within Carriage must constantly focus on the numbers to ensure the correlation between performance and incentives remains strong, and if the numbers begin to tell a different story, we will be quick to diagnose the changing circumstances and identify updates to ensure continued alignment and evolution of our models and approach to optimize future performance within the dynamically changing markets in which we operate. As
The Carriage Market Share Growth Story
Some may look at the above data and information and speculate that the COVID-19 Pandemic beginning in 2020 is as important a driver for this performance/incentive alignment as are the changes to the Funeral Standards Operating Model and annual and five year incentive awards. Until recently, we simply did not have enough meaningful pandemic related data to help address that question. What we do know is that during the first year of the pandemic, nobody knew exactly how it would evolve or affect the world, let alone how it would impact different industries and specific businesses. As we approach two years of living with the various impacts caused by this pandemic, we now have the benefit of better data which allows us to identify certain trends.
While much of the COVID-19 related data involves some uncertainties, particularly as we learn more about its impact as time goes on, there is now enough data to give us a roughly right idea of some of its impact on our businesses. For example, in
When we look at total calls from 2019 (the last full year prior to the pandemic) to 2021 (the first full year when reported COVID-19 related deaths were captured on our contracts) among our same store funeral home portfolio, the data tells a clear story of market share growth. Among all of our funeral homes in the same store portfolio, we have seen growth in total number of calls of 20.9% from 2019 to 2021. Of that 20.9%, approximately 13.2% is related to reported COVID-19 related deaths, meaning 7.7% of the total growth is not related to COVID-19. Among our same store funeral portfolio of businesses, approximately 75% of those businesses show growth beyond COVID-19 of more than 10% when looking at 2019 calls versus 2021 calls. This strong growth beyond COVID-19 supports a market share growth story in line with the performance and incentive alignment discussed above. Moreover, when reviewing the
As we continued to analyze the data, we identified another strong trend which further supports Carriage’s market share growth story. “Preneed maturity” describes the process of when a preneed contract goes atneed and is served. When the preneed maturity rate goes down, that means we are serving more pure walk in atneed families than we are serving preneed families whose contracts go atneed. If the preneed maturity rate goes down and our total contract growth rate goes up, it is highly likely we are gaining market share. The table above shows the preneed maturity rate for our same store funeral group slowly declining for several years, including a significant decline of more than 2% in 2021 when compared to 2020, despite the total number of calls increasing by more than 3,500 during that same one year period. The combination of these trends strongly supports the growth in market share story that our
While we acknowledge COVID-19 related data is far from perfect, we do now have enough insight into reported deaths attributable to COVID-19 to make some roughly right inferences, particularly when that data is supported by other trends within our same store funeral portfolio. When we take a comprehensive look at the new addition of talent to field leadership, the revamped approach to incentive compensation placing an emphasis on margins, and the key updates to our Funeral Standards Operating Model focusing on Compounded Net Revenue, we believe the story over the past three years of Transformative Change can now also be told as a Carriage Market Share Growth Story.
SUPPORT CENTER ORGANIZATION STRUCTURE/TALENT AND CONCEPTUAL VISION UPDATE
Much like the rest of Carriage, our Support Center Teams have seen significant changes over the past three years aimed at strengthening leadership and building a positive high performance culture environment of collaboration. As a self-proclaimed “People First” company, we have looked for ways to make sure we are true to that focus.
First Who, Then What: Those who have followed Carriage over the past few years know that we have been aggressive in identifying and recruiting top talent. While we are excited about the leadership we have in place, we continue to work to identify areas where we can get even better. For example, Carlos mentioned our focus on leveraging technology and recruiting a Chief Information Officer to lead this effort. This is an area, much like sales when Carlos joined, that presents incredible opportunity and upside for our team that has yet to be realized.
Carlos also referenced
Within the teams that I have the privilege of leading, Human Resources, Legal, Risk Management and Business Development, we have incredible internal talent who are Energized, motivated, and doing much more than just offering top notch support to our businesses. These leaders are also identifying new opportunities to help drive our results forward and they broadly perform with a “owner’s mindset” similar to what we see from our
Right Who’s in the Right Seats: In addition to bringing in new talent to lead critical areas of our growth strategy, we have also focused on involving more talented individuals in key projects and brainstorming sessions, intended to build collaboration and provide a platform for new and innovative ideas to gain traction. This process has also led to asking several leaders to take on new responsibilities, sometimes outside of their background or comfort zone, in an effort to stretch development and drive new thinking. Within some teams, we have created unconventional leadership structures, and more broadly, we have worked to involve leaders from different teams in strategic areas with which they may not have previously been involved. The goal has been, and continues to be, to identify talent and position those individuals to contribute beyond their current responsibilities.
Two of the 4E's of Leadership – Energy & Energize!: As part of an effort to build a first class environment that will help us retain and attract the best talent in, and outside of, the industry to help support our colleagues in the field, we knew that getting the people part of the equation right was not enough. We also needed to make sure that these leaders had a work environment that matched their level of Energy. To that end, last year we were excited to welcome our Support Center Teams back to an office environment that is lighter, brighter, and filled with the leadership branding and Carriage history that we talk about so frequently.
Our High Performance Culture is on full display as you walk through the halls of our Houston Support Center. On our walls, you will see everything from quotes from
As Carlos described earlier, our Good To Great High Performance Flywheel was put in place to serve as an overview of our unique High Performance Culture. It was also intended to be a catalyst for discussion by leaders with leaders as to how they can work together to drive higher performance through the various eight components of the flywheel, ultimately leading to greater and sustained performance. We are confident that our Support Center Team of Teams is comprised of some of the best talent in the industry and our focus now is to make sure we continue to surround them with other top talent and provide them with an equally impressive environment for growth and achievement in which they can contribute to the continued acceleration of our Good To Great High Performance Flywheel moving forward,” concluded
ADJUSTED FREE CASH FLOW AND LEVERAGE RATIO
| Years Ended |
|||||||
| 2020 | 2021 | ||||||
| Net Cash Provided by Operating Activities | $ | 82,915 | $ | 84,246 | |||
| Cash used for Maintenance Capital Expenditures | (8,762 | ) | (13,315 | ) | |||
| Free Cash Flow | $ | 74,153 | $ | 70,931 | |||
| Plus: Incremental Special Items: | |||||||
| Federal Tax Refund | (7,012 | ) | — | ||||
| Severance and Separation Costs | 563 | 1,575 | |||||
| Litigation Reserve | 270 | — | |||||
| Disaster Recovery and Pandemic Costs | 1,627 | 2,157 | |||||
| Other Special Items | 362 | 1,020 | |||||
| Adjusted Free Cash Flow | $ | 69,963 | $ | 75,683 | |||
| Proforma for Full Year Impact of Bond Refinancing | — | 4,000 | |||||
| Proforma Adjusted Free Cash Flow | $ | 69,963 | $ | 79,683 | |||
| Revenue | $ | 329,448 | $ | 375,886 | |||
| Adjusted Free Cash Flow Margin | 21.2 | % | 20.1 | % | |||
| Proforma Adjusted Free Cash Flow Margin | 21.2 | % | 21.2 | % | |||
Net Cash Provided by Operating Activities increased
For 2022 our
Our Total Debt to Adjusted Consolidated EBITDA Leverage Ratio at year end was 4.5 times at
What is remarkable about our operating performance and capital allocation in 2021 is that we were able to refinance our capital structure that included a
CAPITAL ALLOCATION PRIORITY
With our record 2021 operating and financial performance combined with the successful senior note refinancing transaction in
- Strategic Acquisitions: We will have more opportunities to selectively allocate capital in 2022 and beyond to high quality acquisition candidates in large strategic growth markets where our conservatively expected return on invested capital can be approximately 15% in the early years post integration, then growing higher once fully optimized as part of our operating and support framework. The acquisition landscape continues to look highly favorable for Carriage, as owners of the best remaining independent funeral homes and cemeteries in America look for a succession planning solution, such as Carriage, that has the long-term track record and reputation as the consolidator of choice in the industry. We believe the industry is entering into a phase of increased consolidation as the COVID Pandemic has caused many high quality business owners to accelerate their timeline for succession planning decisions.
- Share Repurchases: We will continue to prioritize open market share repurchases when our stock trades at a discount of 10% or more compared to the lower end of the
$10 per shareRoughly Right Range of Intrinsic Value Per Share, which in our opinion is currently$70 to$80 per share. Therefore more capital will be allocated to our share repurchase program when our shares trade below$63 per share.
During the fourth quarter we repurchased 1,462,786 shares for$80.7 million with an average purchase price of$55.19 . With the share repurchases completed in the fourth quarter, our total shares repurchased for 2021 were 2,906,983 for a total cost of approximately$142.5 million that equaled an average purchase price of$49.01 . This significant investment in our own shares over the second half of 2021 is indicative of our confidence in the future of Carriage and the view that our shares remain significantly undervalued compared to the low end of the previousRoughly Right Range of Intrinsic Value of$65 -$75 per share and even more so when compared to the currentRoughly Right Range of$70 -$80 per share. The average purchase price for the shares repurchased in 2021 of$49.01 is a 34.7% discount to the mid-point of our updatedRoughly Right Range of Intrinsic Value.
The 2,906,983 shares repurchased in 2021 represents 16.0% of the shares outstanding prior to the start of our repurchase program which was primarily executed over the second half of the year. The impact to our reduced fully diluted GAAP share count will be apparent as we report the first quarter results of 2022, as we expect Basic Shares Outstanding to be approximately 15.3 million and Diluted Shares Outstanding to be approximately 16.5 million after accounting for dilution from 475,235 of “in the money” vested options and 730,480 shares related to the vesting of the third tier of our Good To Great II Long Term Shareholder Value Creation Plan. The 730,480 shares related to the vesting of Good To Great II are only payable to participants in the first part of 2025 and are conditional on employment at the end of 2024.
Since the Good To Great II Shareholder Value Creation Plan was approved onMay 16, 2020 , seven senior participants have left the company and received no value in vested shares upon their departure. These seven participants would have been eligible for 234,128 shares at the current vesting of tier three that would have been equal to approximately 33% of the current total of 730,480 shares for the remaining forty-eight participants.
We are pleased to announce the authorization by our Board of an additional$75 million to our share repurchase program, which along with previously approved and available amounts, brings our total availability to approximately$83.1 million , equal to approximately 10.0% of our current equity market capitalization. We will continue to balance our share repurchase program versus any near-term acquisition activity and our intention to maintain a moderate Total Debt to Adjusted Consolidated EBITDA ratio.
- Internal Growth Projects: The first priority for our internal growth capital expenditures in 2022 will be to accelerate the development of high-quality cemetery inventory that will deliver high rates of return on invested capital quickly after completion. Secondarily, we will prioritize our internal growth capital on targeted funeral home remodels and expansions to help enhance our service and guest experience to accelerate growth in local market share.
We allocated$24.9 million towards capital expenditures in 2021 split between$13.3 million of maintenance capital expenditures and$11.6 million of growth capital expenditures. The primary drivers of increased capital expenditures in 2021 compared to 2020 were cemetery property development, funeral home refresh and remodels, vehicle fleet upgrades and information technology investments. We currently expect capital expenditures in 2022 to be approximately$23 -$24 million allocated evenly between maintenance and growth capital expenditures.
- Debt Repayment: The execution of our share repurchase program in the fourth quarter caused our total debt position to increase
$67.8 million and our Total Debt to Adjusted Consolidated EBITDA leverage ratio to increase 0.5 times to 4.5 times at year end compared to the third quarter. While the 4.5 times is at the upper end of our previously announced leverage ratio target range, we believe the recurring and growing amount of Adjusted Free Cash Flow is highly resilient to sudden economic shocks (high free cash flow characteristics of this industry, but especially Carriage), and provides the necessary financial flexibility to opportunistically allocate capital in any environment while maintaining Total Debt to Adjusted Consolidated EBITDA Leverage Ratio in a range of 3.6 to 4.4 times. Our current Total Debt to Adjusted Consolidated EBITDA Leverage Ratio is 4.38 times as ofFebruary 23 rd. - Dividends: Our current annual dividend is equal to
$.45 per share (dividend yield of about 0.85%), totaling approximately$7.4 million annually equal to almost 9% of the$84 million mid-point of theRoughly Right Range of Adjusted Free Cash Flow for 2022. We will reevaluate our dividend policy annually and at other relevant points in time while maintaining a dividend policy that will approximate 10% of our Adjusted Free Cash Flow and a 1% dividend equity yield.
TRUST FUND INVESTMENT PERFORMANCE
| 2021 | Annualized 2009 - 2021 |
|||
| CSV Discretionary Portfolio | 19.3% | 14.3% | ||
| S&P 500 | 28.7% | 16.0% | ||
| DJIA | 20.9% | 14.4% | ||
| NASDAQ | 22.2% | 20.7% | ||
| HY Bond Index | 5.3% | 10.6% | ||
| 70/30 HY/S&P Bond | 12.3% | 12.6% |
Our discretionary preneed trust fund portfolio had another extraordinary year in 2021 with a total return of 19.3% versus 28.7% for the S&P 500 and 12.3% for our 70/30 HY Bond/S&P 500 benchmark. The total return of our discretionary trust portfolio for 2021 continued our long-term track record of highly successful investment management since we took over management of the preneed trust assets in
I began my tenure at Carriage on
Patience
"Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past."
-
I believe a significant part of our long-term success in managing our discretionary preneed trust portfolio has come from our ability to remain patient and wait to make major rotations within our portfolio during times of severe volatility and fear in the market. When I started at Carriage in the middle of our first major asset rotation during the height of the Credit Crisis and Great Recession, I certainly didn’t know much, but I knew enough to understand what Mel was doing and that the execution of his clearly defined written repositioning strategy was different and absolutely ran counter to every headline or talking head out there in the financial media. That is when I began to learn what Mel has taught us at Carriage:
“Great investment returns are produced by those fearless yet analytical souls who go where everyone else has fled and find a fundamental reason to stay.”
During late 2008 and early 2009, a significant concern in the market was the health of the world financial system and the long term viability of individual financial institutions brought on by the subprime mortgage crisis and exacerbated by the myriad of failing collateralized debt obligations held by banks and investors. The Troubled Asset Relief Program (TARP) was created to stabilize the
Once we studied the terms of the TARP Program (Mel’s credit background was at
Our investments in “Too Big To Fail” perpetual preferred securities during the depths of the 2008/2009 Credit Crisis and as late as
A particular example of this philosophy in action during this period (one of Mel’s favorites) was the purchase of
After the “Punitive Citigroup Cramdown” that resulted in a huge windfall gain for our trust portfolio, Mel wrote one of his witty “Metaphor Memo’s,” relating the government action to the famous fable about Brer Rabbit, Brer Fox and the Briar Patch: “Please
During each of the major “market meltdowns” over the last thirteen years, we always pick a humorous theme or two that fits the craziness and/or panic in various sections of the market at that time. These “market meltdowns” over the past thirteen years where we have taken advantage of extreme uncertainty and fear in markets to execute significant relative value rotations involving substantial capital deployments include; the downgrade of the
Circle of Competence
“What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
-
Since we began to direct the investment decisions within our discretionary preneed funeral and cemetery trust funds on
The results of our discretionary trust fund portfolio over the long term are a result of our ability to remain within our well-defined circle of competence, while remaining patient to make significant rotations in the trust fund portfolio when market fear and volatility are at their highest. One of the most remarkable aspects of our long-term investment management track record is our ability to trail the S&P 500 index on average by only 170 basis points annually while maintaining no less than a 50% weighting toward fixed income securities. Our investment strategy has been time tested through a series of periods with severe market turmoil and the consistency of our approach will continue to add value through recurring and growing Financial Revenue and EBITDA over the timeframe of our increased Three Year Roughly Right Ranges Performance Scenario 2022 -2024.
Portfolio Update/2021 Results
Execution of our strategy at the depths of the Coronavirus Market Crash has led to an increase in the recurring annual income in the portfolio by approximately
As a result of our successful repositioning strategy, we have constructed the discretionary preneed trust fund portfolio for a higher interest rate and inflation environment that is largely resilient to bouts of market volatility such as that experienced so far in 2022. Our discretionary trust fund portfolio year to date in 2022 has a return of approximately negative 1.8% compared to a negative return of 8.6% for the S&P 500 and negative return of 5.6% for our 70/30 HY Bond/S&P 500 benchmark.
A primary reason for our outperformance was an early shift in our portfolio at the end of 2019 (to raise cash for redeployment) away from a small concentration of high growth, big tech stocks toward higher dividend stocks during the COVID market crash, especially materials and economically sensitive stocks with pricing power to offset inflationary trends. The same shift by many professional money managers seemingly all at the same time has resulted in a YTD decline in NASDAQ of over 14%. The total yield on market value of our invested discretionary trust assets of
The successful long term management of our discretionary preneed trust funds has led to a significant increase and sustainability of Carriage’s reported Financial Revenue and Financial EBITDA. In 2021, Financial Revenue increased
We view the long-term nature of the underlying preneed funeral and cemetery contracts and the cemetery perpetual care assets as a competitive advantage in managing our preneed trust assets. We do not have to be concerned about funds flow risk from cash redemptions when markets are crashing and liquidity and price discovery have essentially disappeared. Nor do we have to mark to market securities that we own or purchase during severe market downturns, having confidence that unrealized losses even of a large magnitude (
The long-term nature of these liabilities allows us to manage the preneed trust fund portfolio with a long-term mindset versus having the pressure of short-term scoreboard watching with quarterly and annual return expectations. We will remain consistent in our approach to managing our preneed trust assets by staying within our circle of competence and being prudent and patient to wait for those rare opportunities to allocate capital at scale to position the trust fund portfolio for continued long term outperformance.
FINANCE ORGANIZATION STRUCTURE/TALENT AND CONCEPTUAL VISION UPDATE
At the beginning of 2021 we reorganized our Finance functions into one team under my leadership. Our goal as a Finance Leadership Team was to improve alignment across our teams (Accounting, Financial Reporting,
Trend Reports
Our Financial Reporting and Accounting Teams, under the leadership of
I remember fondly one of my first investor relations trip with Mel back in
Tax Rate
In the first quarter of 2021 our GAAP effective tax rate was an estimated 31%, a percentage that we deemed too high based on are anticipated pre-tax book income for 2021, the states and jurisdictions in which we operate in and other comparable publicly traded companies. Our Tax Team under the leadership of
As a result of these efforts our full year 2021 GAAP effective tax rate, excluding discrete tax benefits, was 27.8%, a full 320 basis points lower than where we started in the first quarter of the year. This significant decrease in our GAAP effective tax rate from continuing operations over the course of 2021 contributed an estimated
INCREASED ROUGHLY RIGHT RANGE OF INTRINSIC VALUE PER SHARE
Based on the continued strong operating and financial performance across Carriage and the execution of our share repurchase program in the fourth quarter, we are excited to again announce an increase in our opinion of the
We believe that a Free Cash Flow Equity Yield is the preferred valuation methodology when we calculate our opinion of our
We calculate the
We divide the equity market capitalization range of
FINAL THOUGHTS ABOUT “GETTING TO THE OTHER SIDE”
When I reflect on the past two years, I continue to return to our themes for each year and the action words we used: Transformative and Accelerating.
What I have experienced up close and personal, and what should be taken away by the reader of this Shareholder Letter, is that there has been a complete High Performance Transformation at Carriage and it is only Accelerating. This broad transformation has manifested itself in higher organic market share growth; significantly improved cemetery sales, operations and profitability; sustainably higher preneed trust fund income and Financial Revenue; improved Operating Leverage at our local funeral homes and cemeteries leading to higher Field EBITDA Margins; improved Overhead Platform Leverage with greater size and scale; greater Consolidated Platform Leverage with more opportunities for capital allocation at higher rates of return on invested capital; improved Capital Structure Leverage with a low-cost long-term balance sheet that provides greater financial flexibility at a lower cost of capital; and a significantly lower share count.
For any investor who has made it this far in this Shareholder Letter, and whose curiosity is piqued by our unique and differentiated High Performance Culture that we have described in this Shareholder Letter, I would encourage you to begin your journey of “Getting To The Other Side” by first studying our available materials on our investor relations website (Shareholder Letters and Quarterly Earnings Press Releases), then come visit us in
CARRIAGE 2021 PINNACLE OF SERVICE AWARD WINNERS – HIGH PERFORMANCE HEROES
I am delighted to announce that we had 68 businesses (55 funeral homes and 13 cemeteries) which earned Pinnacle Awards and Being The Best Standards Achievement Bonuses for the
The 68 Pinnacle Award winners included 54 businesses (49 funeral homes and 5 cemeteries) which averaged 70% Standards Achievement over the 3 year period 2019-2021 (20 of these businesses also achieved 100% in 2021 under the updated / rebooted Performance Standards), and 14 businesses (7 funeral homes and 7 cemeteries) which had 100% Standards Achievement in 2021.
As an important part of High Performance Culture tradition and language, and because we have a passionate conviction that RECOGNITION is the highest form of motivation, listed below are Carriage’s Being The Best Pinnacle of Service Award winners for 2021:
2021 “Being The Best” Pinnacle Of Service Award Winners
| * |
Harvey-Engelhardt/ |
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| Garden of |
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| Deegan Funeral Chapels | ||||
| Crespo & Jirrels | ||||
| * |
Bunkers and Woodlawn Cemeteries Bunkers Mortuaries |
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| Cloverdale Cemeteries | ||||
| Higgins Mortuary | ||||
| Heritage-Dilday Memorial Services | ||||
| *Qualified for 2 Businesses |
“Being The Best” Pinnacle Of Service Award & 100% of Standards Award
| * |
||||
| Evans-Brown Mortuaries & Crematory | ||||
| Fuller Funeral Home-Cremation Service | ||||
| Greer Mortuary | ||||
| *Qualified for 2 Businesses |
“Being The Best” Pinnacle 100% of Standards Award
| * |
Seaside Cemeteries |
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| * |
||||
| Bradshaw-Carter Memorial & Funeral Services | ||||
| * |
||||
| Sullivan Cemeteries | ||||
| *Qualified for 2 or More Businesses |
CARRIAGE 2021 GOOD TO GREAT AWARD WINNERS
Our five-year incentive award, called the Good To Great Award, is 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 since the start of our Good To Great Journey in 2017 by
| * |
Harvey-Engelhardt/ |
|||
| Evans-Brown Mortuaries & Crematory | ||||
| Deegan Funeral Chapels | ||||
| Heritage-Dilday Memorial Services | ||||
| *Qualified for 2 Businesses | ||||
CONFERENCE CALL AND INVESTOR RELATIONS CONTACT
| OPERATING AND FINANCIAL TREND REPORT | |||||||||||||||||
| (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS) | |||||||||||||||||
| Three Months Ended |
Years Ended |
||||||||||||||||
| 2020 | 2021 | % Change | 2020 | 2021 | % Change | ||||||||||||
| Same Store Contracts | |||||||||||||||||
| Atneed Contracts | 8,439 | 8,990 | 6.5% | 31,374 | 35,149 | 12.0% | |||||||||||
| Preneed Contracts | 1,762 | 1,524 | (13.5%) | 6,428 | 6,158 | (4.2%) | |||||||||||
| Total Same Store Funeral Contracts | 10,201 | 10,514 | 3.1% | 37,802 | 41,307 | 9.3% | |||||||||||
| Acquisition Contracts | |||||||||||||||||
| Atneed Contracts | 1,782 | 1,706 | (4.3%) | 6,646 | 6,691 | 0.7% | |||||||||||
| Preneed Contracts | 143 | 171 | 19.6% | 572 | 552 | (3.5%) | |||||||||||
| Total Acquisition Funeral Contracts | 1,925 | 1,877 | (2.5%) | 7,218 | 7,243 | 0.3% | |||||||||||
| Total Funeral Contracts | 12,126 | 12,391 | 2.2% | 45,020 | 48,550 | 7.8% | |||||||||||
| Funeral Operating Revenue | |||||||||||||||||
| Same Store Revenue | $ | 52,642 | $ | 55,311 | 5.1% | $ | 191,757 | $ | 215,039 | 12.1% | |||||||
| Acquisition Revenue | 9,348 | 9,981 | 6.8% | 35,461 | 38,031 | 7.2% | |||||||||||
| Total Funeral Operating Revenue | $ | 61,990 | $ | 65,292 | 5.3% | $ | 227,218 | $ | 253,070 | 11.4% | |||||||
| Cemetery Operating Revenue | |||||||||||||||||
| Same Store Revenue | $ | 14,815 | $ | 16,288 | 9.9% | $ | 51,767 | $ | 64,171 | 24.0% | |||||||
| Acquisition Revenue | 5,509 | 6,312 | 14.6% | 17,584 | 27,829 | 58.3% | |||||||||||
| Total Cemetery Operating Revenue | $ | 20,324 | $ | 22,600 | 11.2% | $ | 69,351 | $ | 92,000 | 32.7% | |||||||
| Total Financial Revenue | $ | 5,265 | $ | 6,167 | 17.1% | $ | 19,890 | $ | 22,917 | 15.2% | |||||||
| Ancillary Revenue | $ | 1,197 | $ | 1,046 | (12.6%) | $ | 4,661 | $ | 4,437 | (4.8%) | |||||||
| Total Divested/Planned Divested Revenue | $ | 1,312 | $ | 826 | (37.0%) | $ | 8,328 | $ | 3,462 | (58.4%) | |||||||
| Total Revenue | $ | 90,088 | $ | 95,931 | 6.5% | $ | 329,448 | $ | 375,886 | 14.1% | |||||||
| Field EBITDA | |||||||||||||||||
| Same Store Funeral Field EBITDA | $ | 23,172 | $ | 23,569 | 1.7% | $ | 79,850 | $ | 93,025 | 16.5% | |||||||
| Same Store Funeral Field EBITDA Margin | 44.0% | 42.6% | (140 bp) | 41.6% | 43.3% | 170 bp | |||||||||||
| Acquisition Funeral Field EBITDA | 3,684 | 4,315 | 17.1% | 13,628 | 16,017 | 17.5% | |||||||||||
| Acquisition Funeral Field EBITDA Margin | 39.4% | 43.2% | 380 bp | 38.4% | 42.1% | 370 bp | |||||||||||
| Total Funeral Field EBITDA | $ | 26,856 | $ | 27,884 | 3.8% | $ | 93,478 | $ | 109,042 | 16.6% | |||||||
| Total Funeral Field EBITDA Margin | 43.3% | 42.7% | (60 bp) | 41.1% | 43.1% | 200 bp | |||||||||||
| Same Store Cemetery Field EBITDA | $ | 6,499 | $ | 6,939 | 6.8% | $ | 19,501 | $ | 27,015 | 38.5% | |||||||
| Same Store Cemetery Field EBITDA Margin | 43.9% | 42.6% | (130 bp) | 37.7% | 42.1% | 440 bp | |||||||||||
| Acquisition Cemetery Field EBITDA | 2,531 | 3,140 | 24.1% | 7,128 | 15,526 | 117.8% | |||||||||||
| Acquisition Cemetery Field EBITDA Margin | 45.9% | 49.7% | 380 bp | 40.5% | 55.8% | 1,530 bp | |||||||||||
| Total Cemetery Field EBITDA | $ | 9,030 | $ | 10,079 | 11.6% | $ | 26,629 | $ | 42,541 | 59.8% | |||||||
| Total Cemetery Field EBITDA Margin | 44.4% | 44.6% | 20 bp | 38.4% | 46.2% | 780 bp | |||||||||||
| Total Financial Field EBITDA | $ | 4,926 | $ | 5,777 | 17.3% | $ | 18,559 | $ | 21,365 | 15.1% | |||||||
| Total Financial Field EBITDA Margin | 93.6% | 93.7% | 10 bp | 93.3% | 93.2% | (10 bp) | |||||||||||
| Ancillary EBITDA | $ | 278 | $ | 216 | (22.3%) | $ | 1,186 | $ | 1,006 | (15.2%) | |||||||
| Ancillary EBITDA Margin | 23.2% | 20.7% | (250 bp) | 25.4% | 22.7% | (270 bp) | |||||||||||
| Total Divested/Planned Divested EBITDA | $ | 228 | $ | 233 | 2.2% | $ | 2,090 | $ | 687 | (67.1%) | |||||||
| Total Divested/Planned Divested EBITDA Margin | 17.4% | 28.2% | 1,080 bp | 25.1% | 19.8% | (530 bp) | |||||||||||
| Total Field EBITDA | $ | 41,318 | $ | 44,189 | 6.9% | $ | 141,942 | $ | 174,641 | 23.0% | |||||||
| Total Field EBITDA Margin | 45.9% | 46.1% | 20 bp | 43.1% | 46.5% | 340 bp | |||||||||||
| OPERATING AND FINANCIAL TREND REPORT | |||||||||||||||||
| (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS) | |||||||||||||||||
| Three Months Ended |
Years Ended |
||||||||||||||||
| 2020 | 2021 | % Change | 2020 | 2021 | % Change | ||||||||||||
| Overhead | |||||||||||||||||
| Total Variable Overhead | $ | 6,740 | $ | 7,465 | 10.8% | $ | 16,190 | $ | 26,013 | 60.7% | |||||||
| Total Regional Fixed Overhead | 1,203 | 1,351 | 12.3% | 4,133 | 5,232 | 26.6% | |||||||||||
| Total Corporate Fixed Overhead | 5,220 | 6,144 | 17.7% | 20,191 | 23,037 | 14.1% | |||||||||||
| Total Overhead | $ | 13,163 | $ | 14,960 | 13.7% | $ | 40,514 | $ | 54,282 | 34.0% | |||||||
| Overhead as a percentage of Revenue | 14.6% | 15.6% | 100 bp | 12.3% | 14.4% | 210 bp | |||||||||||
| Consolidated EBITDA | $ | 28,155 | $ | 29,229 | 3.8% | $ | 101,428 | $ | 120,359 | 18.7% | |||||||
| Consolidated EBITDA Margin | 31.3% | 30.5% | (80 bp) | 30.8% | 32.0% | 120 bp | |||||||||||
| Other Expenses and Interest | |||||||||||||||||
| Depreciation & Amortization | $ | 5,109 | $ | 5,034 | $ | 19,389 | $ | 20,520 | |||||||||
| Non-Cash Stock Compensation | 897 | 1,681 | 3,370 | 5,513 | |||||||||||||
| Interest Expense | 7,728 | 5,307 | 32,515 | 25,445 | |||||||||||||
| Accretion of Discount on Convertible Sub. Notes | 16 | — | 216 | 20 | |||||||||||||
| Loss on Extinguishment of Debt | — | — | 6 | 23,807 | |||||||||||||
| Net (Gain) Loss on Divestitures | 1,832 | (1,035) | 6,749 | (856) | |||||||||||||
| Impairment of |
— | — | 14,693 | 500 | |||||||||||||
| Net Loss on Disposal of Fixed Assets | — | 324 | — | 1,022 | |||||||||||||
| Other, Net | (186) | (3) | (152) | 84 | |||||||||||||
| Pre-Tax Income | $ | 12,759 | $ | 17,921 | $ | 24,642 | $ | 44,304 | |||||||||
| Net Tax Expense | 4,394 | 4,574 | 8,552 | 11,145 | |||||||||||||
| GAAP Net Income | $ | 8,365 | $ | 13,347 | 59.6% | $ | 16,090 | $ | 33,159 | 106.1% | |||||||
| Special Items | |||||||||||||||||
| Acquisition Expenses | $ | (170) | $ | — | $ | (11) | $ | — | |||||||||
| Severance and Separation Costs | — | — | 563 | 1,575 | |||||||||||||
| Performance Awards Cancellation and Exchange | 108 | — | 288 | — | |||||||||||||
| Accretion of Discount on Convertible Sub. Notes | 16 | — | 216 | 20 | |||||||||||||
| Loss on Extinguishment of Debt | — | — | — | 23,807 | |||||||||||||
| Net (Gain) Loss on Divestitures and Other Costs | 1,947 | (1,035) | 6,864 | (856) | |||||||||||||
| 183 | — | 14,952 | 500 | ||||||||||||||
| Litigation Reserve | — | 1,050 | 270 | 1,050 | |||||||||||||
| Disaster Recovery and Pandemic Costs | 315 | 116 | 1,627 | 2,157 | |||||||||||||
| Other Special Items | — | — | 410 | 2,354 | |||||||||||||
| Tax Adjustment Related to Certain Discrete Items | 400 | — | 400 | — | |||||||||||||
| Sum of Special Items | $ | 2,799 | $ | 131 | $ | 25,579 | $ | 30,607 | |||||||||
| Tax Effect on Special Items | 743 | (116) | 7,986 | 8,503 | |||||||||||||
| Adjusted Net Income | $ | 10,421 | $ | 13,594 | 30.4% | $ | 33,683 | $ | 55,263 | 64.1% | |||||||
| Adjusted Net Income Margin | 11.6% | 14.2% | 260 bp | 10.2% | 14.7% | 450 bp | |||||||||||
| Adjusted Basic Earnings Per Share | $ | 0.58 | $ | 0.83 | 43.1% | $ | 1.88 | $ | 3.17 | 68.6% | |||||||
| Adjusted Diluted Earnings Per Share | $ | 0.57 | $ | 0.78 | 36.8% | $ | 1.86 | $ | 3.02 | 62.4% | |||||||
| GAAP Basic Earnings Per Share | $ | 0.47 | $ | 0.82 | 74.5% | $ | 0.90 | $ | 1.90 | 111.1% | |||||||
| GAAP Diluted Earnings Per Share | $ | 0.46 | $ | 0.77 | 67.4% | $ | 0.89 | $ | 1.81 | 103.4% | |||||||
| Weighted Average Basic Shares Outstanding | 17,927 | 16,233 | 17,872 | 17,409 | |||||||||||||
| Weighted Average Diluted Shares Outstanding | 18,147 | 17,400 | 18,077 | 18,266 | |||||||||||||
| Reconciliation of Consolidated EBITDA to | |||||||||||||||||
| Adjusted Consolidated EBITDA | |||||||||||||||||
| Consolidated EBITDA | $ | 28,155 | $ | 29,229 | 3.8% | $ | 101,428 | $ | 120,359 | 18.7% | |||||||
| Acquisition Expenses | (170) | — | (11) | — | |||||||||||||
| Severance and Separation Costs | — | — | 563 | 1,575 | |||||||||||||
| Litigation Reserve | — | 1,050 | 270 | 1,050 | |||||||||||||
| Disaster Recovery and Pandemic Costs | 315 | 116 | 1,627 | 2,157 | |||||||||||||
| Other Special Items | — | — | 373 | 1,020 | |||||||||||||
| Adjusted Consolidated EBITDA | $ | 28,300 | $ | 30,395 | 7.4% | $ | 104,250 | $ | 126,161 | 21.0% | |||||||
| Adjusted Consolidated EBITDA Margin | 31.4% | 31.7% | 30 bp | 31.6% | 33.6% | 200 bp | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
| 2020 | 2021 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 889 | $ | 1,148 | |||
| Accounts receivable, net | 25,103 | 25,314 | |||||
| Inventories | 7,259 | 7,346 | |||||
| Prepaid and other current assets | 2,076 | 6,404 | |||||
| Total current assets | 35,327 | 40,212 | |||||
| Preneed cemetery trust investments | 86,604 | 100,903 | |||||
| Preneed funeral trust investments | 101,235 | 113,658 | |||||
| Preneed cemetery receivables, net | 21,081 | 23,150 | |||||
| Receivables from funeral preneed trusts, net | 16,844 | 19,009 | |||||
| Property, plant and equipment, net | 269,051 | 269,367 | |||||
| Cemetery property, net | 101,134 | 100,701 | |||||
| 392,978 | 391,972 | ||||||
| Intangible and other non-current assets, net | 29,542 | 29,378 | |||||
| Operating lease right-of-use assets | 21,201 | 17,881 | |||||
| Cemetery perpetual care trust investments | 70,828 | 72,400 | |||||
| Total assets | $ | 1,145,825 | $ | 1,178,631 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Current portion of debt and lease obligations | $ | 3,432 | $ | 2,809 | |||
| Accounts payable | 11,259 | 14,205 | |||||
| Accrued and other liabilities | 31,138 | 43,773 | |||||
| Convertible subordinated notes due 2021 | 2,538 | — | |||||
| Total current liabilities | 48,367 | 60,787 | |||||
| Acquisition debt, net of current portion | 4,482 | 3,979 | |||||
| Credit facility | 46,064 | 153,857 | |||||
| Senior notes | 395,968 | 394,610 | |||||
| Obligations under finance leases, net of current portion | 5,531 | 5,157 | |||||
| Obligations under operating leases, net of current portion | 20,302 | 18,520 | |||||
| Deferred preneed cemetery revenue | 47,846 | 50,202 | |||||
| Deferred preneed funeral revenue | 27,992 | 30,584 | |||||
| Deferred tax liability | 46,477 | 45,784 | |||||
| Other long-term liabilities | 4,748 | 1,419 | |||||
| Deferred preneed cemetery receipts held in trust | 86,604 | 100,903 | |||||
| Deferred preneed funeral receipts held in trust | 101,235 | 113,658 | |||||
| Care trusts’ corpus | 69,707 | 71,156 | |||||
| Total liabilities | 905,323 | 1,050,616 | |||||
| Commitments and contingencies: | |||||||
| Stockholders’ equity: | |||||||
| Common stock | 260 | 263 | |||||
| Additional paid-in capital | 239,989 | 236,809 | |||||
| Retained earnings | 102,303 | 135,462 | |||||
| (102,050 | ) | (244,519 | ) | ||||
| Total stockholders’ equity | 240,502 | 128,015 | |||||
| Total liabilities and stockholders’ equity | $ | 1,145,825 | $ | 1,178,631 | |||
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| (unaudited) | |||||||||||||||
| Three Months Ended |
Years Ended |
||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||
| Revenue: | |||||||||||||||
| Service revenue | $ | 44,154 | $ | 46,486 | $ | 164,984 | $ | 180,572 | |||||||
| Property and merchandise revenue | 39,419 | 42,176 | 139,630 | 167,721 | |||||||||||
| Other revenue | 6,515 | 7,269 | 24,834 | 27,593 | |||||||||||
| 90,088 | 95,931 | 329,448 | 375,886 | ||||||||||||
| Field costs and expenses: | |||||||||||||||
| Cost of service | 20,010 | 21,322 | 79,634 | 82,395 | |||||||||||
| Cost of merchandise | 27,503 | 29,199 | 103,064 | 113,871 | |||||||||||
| Cemetery property amortization | 1,511 | 1,457 | 4,956 | 6,670 | |||||||||||
| Field depreciation expense | 3,236 | 3,177 | 13,006 | 12,609 | |||||||||||
| Regional and unallocated funeral and cemetery costs | 6,853 | 7,191 | 18,057 | 25,846 | |||||||||||
| Other expenses | 1,257 | 1,221 | 4,808 | 4,979 | |||||||||||
| 60,370 | 63,567 | 223,525 | 246,370 | ||||||||||||
| Gross profit | 29,718 | 32,364 | 105,923 | 129,516 | |||||||||||
| Corporate costs and expenses: | |||||||||||||||
| General, administrative and other | 7,207 | 9,450 | 25,827 | 33,949 | |||||||||||
| Home office depreciation and amortization | 362 | 400 | 1,427 | 1,241 | |||||||||||
| Net (gain) loss on divestitures, disposals and impairment charges | 1,832 | (711 | ) | 21,442 | 666 | ||||||||||
| Operating income | 20,317 | 23,225 | 57,227 | 93,660 | |||||||||||
| Interest expense | (7,728 | ) | (5,307 | ) | (32,515 | ) | (25,445 | ) | |||||||
| Accretion of discount on convertible subordinated notes | (16 | ) | — | (216 | ) | (20 | ) | ||||||||
| Loss on early extinguishment of debt | — | — | (6 | ) | (23,807 | ) | |||||||||
| Other, net | 186 | 3 | 152 | (84 | ) | ||||||||||
| Income before income taxes | 12,759 | 17,921 | 24,642 | 44,304 | |||||||||||
| Expense for income taxes | (3,971 | ) | (4,850 | ) | (7,985 | ) | (12,316 | ) | |||||||
| Tax adjustment related to discrete items | (423 | ) | 276 | (567 | ) | 1,171 | |||||||||
| Total expense for income taxes | (4,394 | ) | (4,574 | ) | (8,552 | ) | (11,145 | ) | |||||||
| Net income | $ | 8,365 | $ | 13,347 | $ | 16,090 | $ | 33,159 | |||||||
| Basic earnings per common share: | $ | 0.47 | $ | 0.82 | $ | 0.90 | $ | 1.90 | |||||||
| Diluted earnings per common share: | $ | 0.46 | $ | 0.77 | $ | 0.89 | $ | 1.81 | |||||||
| Dividends declared per common share: | $ | 0.1000 | $ | 0.1125 | $ | 0.3375 | $ | 0.4125 | |||||||
| Weighted average number of common and common equivalent shares outstanding: | |||||||||||||||
| Basic | 17,927 | 16,233 | 17,872 | 17,409 | |||||||||||
| Diluted | 18,147 | 17,400 | 18,077 | 18,266 | |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Years Ended |
|||||||
| 2020 | 2021 | ||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 16,090 | $ | 33,159 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 19,389 | 20,520 | |||||
| Provision for credit losses | 2,318 | 1,783 | |||||
| Stock-based compensation expense | 3,370 | 5,513 | |||||
| Deferred income tax expense (benefit) | 4,597 | (692 | ) | ||||
| Amortization of intangibles | 1,299 | 1,285 | |||||
| Amortization of debt issuance costs | 782 | 576 | |||||
| Amortization and accretion of debt | 523 | 439 | |||||
| Loss on extinguishment of debt | 6 | 23,807 | |||||
| Net loss on divestitures, disposals and impairment charges | 21,693 | 847 | |||||
| Gain on insurance reimbursements | (97 | ) | — | ||||
| Other | 19 | — | |||||
| Changes in operating assets and liabilities that provided (used) cash: | |||||||
| Accounts and preneed receivables | (4,279 | ) | (4,090 | ) | |||
| Inventories, prepaid and other current assets | 3,516 | (4,449 | ) | ||||
| Intangible and other non-current assets | (1,015 | ) | (1,181 | ) | |||
| Preneed funeral and cemetery trust investments | (5,043 | ) | (31,349 | ) | |||
| Accounts payable | 2,702 | 522 | |||||
| Accrued and other liabilities | 10,784 | 3,485 | |||||
| Deferred preneed funeral and cemetery revenue | 528 | 5,010 | |||||
| Deferred preneed funeral and cemetery receipts held in trust | 5,733 | 29,061 | |||||
| Net cash provided by operating activities | 82,915 | 84,246 | |||||
| Cash flows from investing activities: | |||||||
| Acquisition of businesses and real estate | (28,011 | ) | (3,285 | ) | |||
| Proceeds from divestitures and sale of other assets | 8,541 | 7,875 | |||||
| Proceeds from insurance reimbursements | 248 | 7,758 | |||||
| Capital expenditures | (15,198 | ) | (24,883 | ) | |||
| Net cash used in investing activities | (34,420 | ) | (12,535 | ) | |||
| Cash flows from financing activities: | |||||||
| Borrowings from the credit facility | 109,500 | 266,168 | |||||
| Payments against the credit facility | (146,100 | ) | (157,968 | ) | |||
| Payment to redeem the senior notes due 2026 | — | (400,000 | ) | ||||
| Payment of call premium for redemption of the senior notes due 2026 | — | (19,876 | ) | ||||
| Proceeds from the issuance of the senior notes due 2029 | — | 395,500 | |||||
| Payment of debt issuance costs related to the credit facility and senior notes | (78 | ) | (2,197 | ) | |||
| Conversion and maturity of the convertible subordinated notes due 2021 | (4,563 | ) | (3,980 | ) | |||
| Payments on acquisition debt and obligations under finance leases | (1,745 | ) | (1,331 | ) | |||
| Payments on contingent consideration recorded at acquisition date | (169 | ) | (461 | ) | |||
| Proceeds from the exercise of stock options and employee stock purchase plan | 1,229 | 2,644 | |||||
| Taxes paid on restricted stock vestings and exercise of stock options | (348 | ) | (2,647 | ) | |||
| Dividends paid on common stock | (6,048 | ) | (7,264 | ) | |||
| Purchase of treasury stock | — | (140,040 | ) | ||||
| Net cash used in financing activities | (48,322 | ) | (71,452 | ) | |||
| Net increase in cash and cash equivalents | 173 | 259 | |||||
| Cash and cash equivalents at beginning of year | 716 | 889 | |||||
| Cash and cash equivalents at end of year | $ | 889 | $ | 1,148 | |||
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.
Reconciliations of the Non-GAAP financial measures to GAAP measures are also provided in this press release.
The term “same store” refers to funeral homes and cemeteries acquired prior to
The Non-GAAP financial measures used in this press release and the definitions of them used by the Company for our internal management purposes in this press release are described below.
- 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. In 2020, Special Items are taxed at the federal statutory rate of 21.0%, except the Net (Gain) Loss on Divestitures and Other Costs and the
Net Impact of Impairment ofGoodwill and Other Intangibles, which are taxed at the operating tax rate for the period. In Q1 2021, Special Items are taxed at the federal statutory rate of 21.0%, except the Net (Gain) Loss on Divestitures and Other Costs, which are taxed at the operating tax rate. In Q2, Q3 and Q4 2021, all Special Items are taxed at the operating tax rate and include adjustments to reflect prior quarter Special Items at the operating tax rate on year-to-date basis. The Accretion of Discount on Convertible Subordinated Notes and the Tax Adjustment Related to Certain Discrete Items are not tax effected. - Adjusted Net Income is defined as net income after adjustments for Special Items that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.
- Adjusted Net Income Margin is defined as Adjusted Net Income as a percentage of total revenue.
- 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.
- Consolidated EBITDA Margin is defined as Consolidated EBITDA as a percentage of total revenue.
- Adjusted Consolidated EBITDA is defined as Consolidated EBITDA after adjustments for Special Items 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 total revenue.
- Adjusted Free Cash Flow is defined as net cash provided by operating activities, adjusted by Special Items as deemed necessary, less cash for maintenance capital expenditures.
- Adjusted Free Cash Flow Margin is defined as Adjusted Free Cash Flow as a percentage of total revenue.
- Funeral Field EBITDA is defined as funeral operating income, excluding depreciation and amortization, regional and unallocated costs, gain/loss on divestitures and fixed assets and impairment charges, Financial Field EBITDA, Ancillary EBITDA and Divested/Planned Divested EBITDA related to the Funeral Home segment.
- Funeral Field EBITDA Margin is defined as Funeral Field EBITDA as a percentage of total funeral operating revenue.
- Cemetery Field EBITDA is defined as cemetery operating income, excluding depreciation and amortization, regional and unallocated costs, gain/loss on divestitures and fixed assets and impairment charges, Financial Field EBITDA and Divested/Planned Divested EBITDA related to the Cemetery segment.
- Cemetery Field EBITDA Margin is defined as Cemetery Field EBITDA as a percentage of total cemetery operating revenue.
- Preneed Cemetery Property Sales is defined as cemetery property sold prior to death.
- Total Preneed Cemetery Sales Production is defined as all cemetery property, merchandise and services sold prior to death.
- Preneed Recognized Revenue is defined as preneed cemetery property, merchandise and services recognized as revenue.
- Funeral Financial Field EBITDA is defined as Funeral Financial Revenue (preneed funeral insurance commissions and preneed funeral trust and insurance) less the related expenses. Funeral Financial Revenue and the related expenses are presented within Other Revenue and Other Expenses, respectively, on the Consolidated Statement of Operations.
- Funeral Financial Field EBITDA Margin is defined as Funeral Financial Field EBITDA as a percentage of Funeral Financial Revenue.
- Cemetery Financial Field EBITDA is defined as Cemetery Financial Revenue (preneed cemetery trust earnings and preneed cemetery finance charges) less the related expenses. Cemetery Financial Revenue and the related expenses are presented within Other Revenue and Other Expenses, respectively, on the Consolidated Statement of Operations.
- Cemetery Financial Field EBITDA Margin is defined as Cemetery Financial Field EBITDA as a percentage of Cemetery Financial Revenue.
- Total Financial Revenue is the sum of Funeral Financial Revenue (preneed funeral insurance commissions and preneed funeral trust and insurance) and Cemetery Financial Revenue (preneed cemetery trust earnings and preneed cemetery finance charges).
- Total Financial Field EBITDA is the sum of Funeral Financial Field EBITDA and Cemetery Financial Field EBITDA.
- Total Financial Field EBITDA Margin is defined as Total Financial Field EBITDA as a percentage of Total Financial Revenue.
- Ancillary Revenue is defined as revenues from our ancillary businesses, which include a flower shop, pet cremation business and online cremation business. Ancillary Revenue and the related expenses are presented within Other Revenue and Other Expenses, respectively, on the Consolidated Statement of Operations.
- Ancillary EBITDA is defined as Ancillary Revenue, less expenses related to our ancillary businesses noted above.
- Ancillary EBITDA Margin is defined as Ancillary EBITDA as a percentage of Ancillary Revenue.
- Divested/Planned Divested Revenue is defined as revenues from certain funeral home and cemetery businesses that we have divested and intend to divest.
- Divested/Planned Divested EBITDA is defined as Divested/Planned Divested Revenue, less field level and financial expenses related to the divested/planned divested businesses noted above.
- Divested/Planned Divested EBITDA Margin is defined as Divested/Planned Divested EBITDA as a percentage of Divested/Planned Divested Revenue.
- Total Field EBITDA is the sum of Funeral Field EBITDA, Cemetery Field EBITDA, Total Financial Field EBITDA, Ancillary EBITDA and Divested/Planned Divested EBITDA.
- Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of total revenue.
- Adjusted Basic Earnings Per Share (EPS) is defined as GAAP basic earnings per share, adjusted for Special Items.
- Adjusted Diluted Earnings Per Share (EPS) is defined as GAAP diluted earnings per share, adjusted for Special Items.
- Total Debt Outstanding is defined as indebtedness under our bank credit facility, Senior Notes due 2029, acquisition debt and finance leases.
- Total Debt to EBITDA Multiple/Ratio is defined as Total Debt Outstanding to Adjusted Consolidated EBITDA.
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. Funeral and Cemetery Operating Income 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, iii) Regional and unallocated funeral and cemetery costs, and iv) Gain/loss on divestitures, disposals and impairment charges. 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 directly 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 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 Total 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, a 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 it excludes items that may not be indicative of our ongoing operating performance.
Limitations of the Usefulness of These Measures
Our Total 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, Cemetery Field EBITDA, Funeral Financial Field EBITDA, Cemetery Financial Field EBITDA, Ancillary EBITDA and Divested/Planned Divested EBITDA are not consolidated measures of profitability.
Funeral and Cemetery 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 to Funeral and Cemetery Operating Income, 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 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, all of which are reflected in the tables below.
Reconciliation of Net Income (Loss) to Adjusted Net Income (in thousands):
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | ||||||||||||||
| Net Income (Loss) | $ | 8,365 | $ | 12,933 | $ | (6,167 | ) | $ | 13,046 | $ | 13,347 | |||||||
| Special Items | ||||||||||||||||||
| Acquisition Expenses | (170 | ) | — | — | — | — | ||||||||||||
| Severance and Separation Costs | — | 1,575 | — | — | — | |||||||||||||
| Performance Awards Cancellation and Exchange | 108 | — | — | — | — | |||||||||||||
| Accretion of Discount on Convertible Subordinated Notes(1) | 16 | 20 | — | — | — | |||||||||||||
| Loss on Extinguishment of Debt | — | — | 23,807 | — | — | |||||||||||||
| Net (Gain) Loss on Divestitures and Other Costs | 1,947 | (308 | ) | 205 | 282 | (1,035 | ) | |||||||||||
| 183 | — | — | 500 | — | ||||||||||||||
| Litigation Reserve | — | — | — | — | 1,050 | |||||||||||||
| Disaster Recovery and Pandemic Costs | 315 | 894 | 145 | 1,002 | 116 | |||||||||||||
| Other Special Items | — | — | 1,334 | 1,020 | — | |||||||||||||
| Tax Adjustment Related to Certain Discrete Items(1) | 400 | — | — | — | — | |||||||||||||
| Sum of Special Items | $ | 2,799 | $ | 2,181 | $ | 25,491 | $ | 2,804 | $ | 131 | ||||||||
| Tax Effect on Special Items(2) | 743 | 424 | 7,457 | 738 | (116 | ) | ||||||||||||
| Adjusted Net Income | $ | 10,421 | $ | 14,690 | $ | 11,867 | $ | 15,112 | $ | 13,594 | ||||||||
| (1 | ) | The Accretion of Discount on Convertible Subordinated Notes and the Tax Adjustment Related to Certain Discrete Items are not tax effected. |
| (2 | ) | In 2020, Special Items are taxed at the federal statutory rate of 21.0%, except the Net (Gain) Loss on Divestitures and Other Costs and the |
Reconciliation of Net Income (Loss) to Consolidated EBITDA, Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA Margin:
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||||||
| Net Income (Loss) | $ | 8,365 | $ | 12,933 | $ | (6,167 | ) | $ | 13,046 | $ | 13,347 | ||||||||
| Total Expense (Benefit) for Income Taxes | 4,394 | 5,641 | (4,192 | ) | 5,122 | 4,574 | |||||||||||||
| Income (Loss) Before Income Taxes | $ | 12,759 | $ | 18,574 | $ | (10,359 | ) | $ | 18,168 | $ | 17,921 | ||||||||
| Interest Expense | 7,728 | 7,584 | 7,478 | 5,076 | 5,307 | ||||||||||||||
| Accretion of Discount on Convertible Subordinated Notes | 16 | 20 | — | — | — | ||||||||||||||
| Non-Cash Stock Compensation | 897 | 1,308 | 1,230 | 1,294 | 1,681 | ||||||||||||||
| Depreciation & Amortization | 5,109 | 4,942 | 5,594 | 4,950 | 5,034 | ||||||||||||||
| Loss on Extinguishment of Debt | — | — | 23,807 | — | — | ||||||||||||||
| Net (Gain) Loss on Divestitures | 1,832 | (308 | ) | 205 | 282 | (1,035 | ) | ||||||||||||
| Impairment of |
— | — | — | 500 | — | ||||||||||||||
| Loss on Disposal of Fixed Assets | — | — | 622 | 76 | 324 | ||||||||||||||
| Other, Net | (186 | ) | 68 | (2 | ) | 21 | (3 | ) | |||||||||||
| Consolidated EBITDA | $ | 28,155 | $ | 32,188 | $ | 28,575 | $ | 30,367 | $ | 29,229 | |||||||||
| Adjusted For: | |||||||||||||||||||
| Acquisition Expenses | (170 | ) | — | — | — | — | |||||||||||||
| Severance and Separation Costs | — | 1,575 | — | — | — | ||||||||||||||
| Litigation Reserve | — | — | — | — | 1,050 | ||||||||||||||
| Disaster Recovery and Pandemic Costs | 315 | 894 | 145 | 1,002 | 116 | ||||||||||||||
| Other Special Items | — | — | — | 1,020 | — | ||||||||||||||
| Adjusted Consolidated EBITDA | $ | 28,300 | $ | 34,657 | $ | 28,720 | $ | 32,389 | $ | 30,395 | |||||||||
| Total Revenue | $ | 90,088 | $ | 96,637 | $ | 88,277 | $ | 95,041 | $ | 95,931 | |||||||||
| Adjusted Consolidated EBITDA Margin | 31.4 | % | 35.9 | % | 32.5 | % | 34.1 | % | 31.7 | % | |||||||||
| Net Income (Loss) Margin | 9.3 | % | 13.4 | % | (7.0)% | 13.7 | % | 13.9 | % | ||||||||||
Components of Total Revenue (in thousands):
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | ||||||||||
| Same Store Funeral Revenue | $ | 52,642 | $ | 56,829 | $ | 47,397 | $ | 55,502 | $ | 55,311 | ||||
| Acquisition Funeral Revenue | 9,348 | 10,139 | 8,557 | 9,354 | 9,981 | |||||||||
| Same Store Cemetery Revenue | 14,815 | 14,635 | 16,906 | 16,342 | 16,288 | |||||||||
| Acquisition Cemetery Revenue | 5,509 | 6,980 | 8,175 | 6,362 | 6,312 | |||||||||
| Funeral Financial Revenue | 2,406 | 2,538 | 2,111 | 2,251 | 2,506 | |||||||||
| Cemetery Financial Revenue | 2,859 | 3,168 | 3,294 | 3,388 | 3,661 | |||||||||
| Ancillary Revenue | 1,197 | 1,207 | 1,088 | 1,096 | 1,046 | |||||||||
| Divested/Planned Divested Funeral Revenue | 1,248 | 1,061 | 679 | 694 | 740 | |||||||||
| Divested/Planned Divested Cemetery Revenue | 64 | 80 | 70 | 52 | 86 | |||||||||
| Total Revenue | $ | 90,088 | $ | 96,637 | $ | 88,277 | $ | 95,041 | $ | 95,931 | ||||
Reconciliation of Funeral and Cemetery Operating Income to Funeral and Cemetery Field EBITDA (in thousands) and Funeral and Cemetery Operating Income Margin:
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||||||
| Funeral Operating Income (GAAP) | $ | 19,467 | $ | 25,876 | $ | 16,604 | $ | 22,924 | $ | 23,187 | |||||||||
| Depreciation & Amortization | 2,862 | 2,769 | 2,766 | 2,761 | 2,766 | ||||||||||||||
| Regional & Unallocated Costs | 5,375 | 4,569 | 4,023 | 4,907 | 5,419 | ||||||||||||||
| Net (Gain) Loss on Divestitures, Disposals and Impairment Charges | 1,832 | (308 | ) | 791 | 763 | (810 | ) | ||||||||||||
| Less: | |||||||||||||||||||
| Funeral Financial Field EBITDA | (2,174 | ) | (2,261 | ) | (1,888 | ) | (1,960 | ) | (2,245 | ) | |||||||||
| Ancillary EBITDA | (278 | ) | (242 | ) | (274 | ) | (274 | ) | (216 | ) | |||||||||
| Divested/Planned Divested Funeral EBITDA | (228 | ) | (107 | ) | (95 | ) | (186 | ) | (217 | ) | |||||||||
| Funeral Field EBITDA | $ | 26,856 | $ | 30,296 | $ | 21,927 | $ | 28,935 | $ | 27,884 | |||||||||
| Funeral Revenue | $ | 66,841 | $ | 71,774 | $ | 59,832 | $ | 68,897 | $ | 69,584 | |||||||||
| Funeral Operating Income Margin | 29.1% | 36.1% | 27.8% | 33.3% | 33.3% | ||||||||||||||
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||||||
| Cemetery Operating Income (GAAP) | $ | 8,419 | $ | 9,493 | $ | 11,498 | $ | 9,471 | $ | 9,891 | |||||||||
| Depreciation & Amortization | 1,885 | 1,884 | 2,551 | 1,914 | 1,868 | ||||||||||||||
| Regional & Unallocated Costs | 1,478 | 1,504 | 1,747 | 1,905 | 1,772 | ||||||||||||||
| Net Loss on Divestitures, Disposals and Impairment Charges | — | — | 34 | 6 | 96 | ||||||||||||||
| Less: | |||||||||||||||||||
| Cemetery Financial Field EBITDA | (2,752 | ) | (3,044 | ) | (3,170 | ) | (3,265 | ) | (3,532 | ) | |||||||||
| Divested/Planned Divested Cemetery EBITDA | — | (31 | ) | (16 | ) | (19 | ) | (16 | ) | ||||||||||
| Cemetery Field EBITDA | $ | 9,030 | $ | 9,806 | $ | 12,644 | $ | 10,012 | $ | 10,079 | |||||||||
| Cemetery Revenue | $ | 23,247 | $ | 24,863 | $ | 28,445 | $ | 26,144 | $ | 26,347 | |||||||||
| Cemetery Operating Income Margin | 36.2% | 38.2% | 40.4% | 36.2% | 37.5% | ||||||||||||||
Components of Total Field EBITDA (in thousands):
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | ||||||||||
| Funeral Field EBITDA | $ | 26,856 | $ | 30,296 | $ | 21,927 | $ | 28,935 | $ | 27,884 | ||||
| Cemetery Field EBITDA | 9,030 | 9,806 | 12,644 | 10,012 | 10,079 | |||||||||
| Funeral Financial Field EBITDA | 2,174 | 2,261 | 1,888 | 1,960 | 2,245 | |||||||||
| Cemetery Financial Field EBITDA | 2,752 | 3,044 | 3,170 | 3,265 | 3,532 | |||||||||
| Ancillary EBITDA | 278 | 242 | 274 | 274 | 216 | |||||||||
| Divested/Planned Divested Funeral EBITDA | 228 | 107 | 95 | 186 | 217 | |||||||||
| Divested/Planned Divested Cemetery EBITDA | — | 31 | 16 | 19 | 16 | |||||||||
| Total Field EBITDA | $ | 41,318 | $ | 45,787 | $ | 40,014 | $ | 44,651 | $ | 44,189 | ||||
Reconciliation of GAAP Basic Earnings (Loss) Per Share to Adjusted Basic Earnings Per Share:
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||
| GAAP Basic Earnings (Loss) Per Share | $ | 0.47 | $ | 0.72 | $ | (0.34 | ) | $ | 0.74 | $ | 0.82 | ||||
| Special Items | 0.11 | 0.10 | 1.00 | 0.12 | 0.01 | ||||||||||
| Adjusted Basic Earnings Per Share | $ | 0.58 | $ | 0.82 | $ | 0.66 | $ | 0.86 | $ | 0.83 | |||||
Reconciliation of GAAP Diluted Earnings (Loss) Per Share to Adjusted Diluted Earnings Per Share:
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||
| GAAP Diluted Earnings (Loss) Per Share | $ | 0.46 | $ | 0.71 | $ | (0.33 | ) | $ | 0.71 | $ | 0.77 | ||||
| Special Items | 0.11 | 0.10 | 0.97 | 0.11 | 0.01 | ||||||||||
| Adjusted Diluted Earnings Per Share | $ | 0.57 | $ | 0.81 | $ | 0.64 | $ | 0.82 | $ | 0.78 | |||||
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow (in thousands) and Adjusted Free Cash Flow Margin:
| 4TH QTR 2020 | 1ST QTR 2021 | 2ND QTR 2021 | 3RD QTR 2021 | 4TH QTR 2021 | |||||||||||||||
| Net Cash Provided by Operating Activities | $ | 15,093 | $ | 26,811 | $ | 14,630 | $ | 28,258 | $ | 14,547 | |||||||||
| Cash Used for Maintenance Capital Expenditures | (3,368 | ) | (2,140 | ) | (2,462 | ) | (4,358 | ) | (4,355 | ) | |||||||||
| Free Cash Flow | $ | 11,725 | $ | 24,671 | $ | 12,168 | $ | 23,900 | $ | 10,192 | |||||||||
| Plus: Incremental Special Items: | |||||||||||||||||||
| Acquisition Expenses | (170 | ) | — | — | — | — | |||||||||||||
| Severance and Separation Costs | — | 1,575 | — | — | — | ||||||||||||||
| Litigation Reserve | — | — | — | — | — | ||||||||||||||
| Disaster Recovery and Pandemic Costs | 315 | 894 | 145 | 1,002 | 116 | ||||||||||||||
| Other Special Items | — | — | — | 1,020 | — | ||||||||||||||
| Adjusted Free Cash Flow | $ | 11,870 | $ | 27,140 | $ | 12,313 | $ | 25,922 | $ | 10,308 | |||||||||
| Total Revenue | $ | 90,088 | $ | 96,637 | $ | 88,277 | $ | 95,041 | $ | 95,931 | |||||||||
| Adjusted Free Cash Flow Margin | 13.2 | % | 28.1 | % | 13.9 | % | 27.3 | % | 10.7 | % | |||||||||
| Net Cash Provided by Operating Activities as a Percentage of Total Revenue | 16.8 | % | 27.7 | % | 16.6 | % | 29.7 | % | 15.2 | % | |||||||||
Components of Total Revenue (in thousands):
| 2017A | 2018A | 2019A | 2020A | 2021A | ||||||||||
| Same Store Funeral Revenue | $ | 181,066 | $ | 180,069 | $ | 179,900 | $ | 191,757 | $ | 215,039 | ||||
| Acquisition Funeral Revenue | 503 | 10,586 | 16,960 | 35,461 | 38,031 | |||||||||
| Same Store Cemetery Revenue | 43,014 | 44,918 | 49,258 | 51,767 | 64,171 | |||||||||
| Acquisition Cemetery Revenue | — | — | 295 | 17,584 | 27,829 | |||||||||
| Funeral Financial Revenue | 8,174 | 8,461 | 8,510 | 9,177 | 9,406 | |||||||||
| Cemetery Financial Revenue | 7,763 | 7,357 | 7,440 | 10,713 | 13,511 | |||||||||
| Ancillary Revenue | — | — | 748 | 4,661 | 4,437 | |||||||||
| Divested/Planned Divested Funeral Revenue | 11,143 | 11,609 | 10,750 | 8,082 | 3,174 | |||||||||
| Divested/Planned Divested Cemetery Revenue | 6,476 | 4,992 | 246 | 246 | 288 | |||||||||
| Total Revenue | $ | 258,139 | $ | 267,992 | $ | 274,107 | $ | 329,448 | $ | 375,886 | ||||
Reconciliation of Funeral Operating Income to Funeral Field EBITDA (in thousands) and Funeral Operating Income Margin:
| 2017A | 2018A | 2019A | 2020A | 2021A | |||||||||||||||
| Funeral Operating Income (GAAP) | $ | 61,562 | $ | 60,035 | $ | 58,756 | $ | 57,622 | $ | 88,591 | |||||||||
| Depreciation & Amortization | 9,785 | 10,726 | 11,128 | 11,586 | 11,062 | ||||||||||||||
| Regional & Unallocated Costs | 10,827 | 10,547 | 11,007 | 14,348 | 18,918 | ||||||||||||||
| Net (Gain) Loss on Divestitures, Disposals and Impairment Charges | (193 | ) | 846 | 4,846 | 21,442 | 436 | |||||||||||||
| Less: | |||||||||||||||||||
| Funeral Financial Field EBITDA | (7,247 | ) | (7,427 | ) | (7,491 | ) | (8,267 | ) | (8,354 | ) | |||||||||
| Ancillary EBITDA | — | — | (298 | ) | (1,186 | ) | (1,006 | ) | |||||||||||
| Divested/Planned Divested Funeral EBITDA | (3,318 | ) | (2,733 | ) | (2,257 | ) | (2,067 | ) | (605 | ) | |||||||||
| Funeral Field EBITDA | $ | 71,416 | $ | 71,994 | $ | 75,691 | $ | 93,478 | $ | 109,042 | |||||||||
| Funeral Revenue | $ | 200,886 | $ | 210,725 | $ | 216,868 | $ | 249,138 | $ | 270,087 | |||||||||
| Funeral Operating Income Margin | 30.6% | 28.5% | 27.1% | 23.1% | 32.8% | ||||||||||||||
Reconciliation of Cemetery Operating Income to Cemetery Field EBITDA (in thousands) and Cemetery Operating Income Margin:
| 2017A | 2018A | 2019A | 2020A | 2021A | |||||||||||||||
| Cemetery Operating Income (GAAP) | $ | 15,430 | $ | 14,717 | $ | 15,983 | $ | 26,859 | $ | 40,353 | |||||||||
| Depreciation & Amortization | 4,589 | 4,891 | 5,227 | 6,376 | 8,217 | ||||||||||||||
| Regional & Unallocated Costs | 2,512 | 2,202 | 2,820 | 3,709 | 6,928 | ||||||||||||||
| Net Loss on Divestitures, Disposals and Impairment Charges | — | 349 | — | — | 136 | ||||||||||||||
| Less: | |||||||||||||||||||
| Cemetery Financial Field EBITDA | (7,375 | ) | (6,840 | ) | (6,853 | ) | (10,292 | ) | (13,011 | ) | |||||||||
| Divested/Planned Divested Cemetery EBITDA | (1,784 | ) | (1,479 | ) | (76 | ) | (23 | ) | (82 | ) | |||||||||
| Cemetery Field EBITDA | $ | 13,372 | $ | 13,840 | $ | 17,101 | $ | 26,629 | $ | 42,541 | |||||||||
| Cemetery Revenue | $ | 57,253 | $ | 57,267 | $ | 57,239 | $ | 80,310 | $ | 105,799 | |||||||||
| Cemetery Operating Income Margin | 27.0% | 25.7% | 27.9% | 33.4% | 38.1% | ||||||||||||||
Components of Total Field EBITDA (in thousands):
| 2017A | 2018A | 2019A | 2020A | 2021A | ||||||||||
| Funeral Field EBITDA | $ | 71,416 | $ | 71,994 | $ | 75,691 | $ | 93,478 | $ | 109,042 | ||||
| Cemetery Field EBITDA | 13,372 | 13,840 | 17,101 | 26,629 | 42,541 | |||||||||
| Funeral Financial Field EBITDA | 7,247 | 7,427 | 7,491 | 8,267 | 8,354 | |||||||||
| Cemetery Financial Field EBITDA | 7,375 | 6,840 | 6,853 | 10,292 | 13,011 | |||||||||
| Ancillary EBITDA | — | — | 298 | 1,186 | 1,006 | |||||||||
| Divested/Planned Divested Funeral EBITDA | 3,318 | 2,733 | 2,257 | 2,067 | 605 | |||||||||
| Divested/Planned Cemetery Divested EBITDA | 1,784 | 1,479 | 76 | 23 | 82 | |||||||||
| Total Field EBITDA | $ | 104,512 | $ | 104,313 | $ | 109,767 | $ | 141,942 | $ | 174,641 | ||||
Reconciliation of Actual Results (years ended December 31, 2019, 2020 and 2021), Estimated year ended December 31, 2022, Estimated year ended December 31, 2023 and Estimated year ended December 31, 2024.
Earlier in this press release, we present the Three Year Roughly Right Ranges Performance Scenario 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. This Performance Scenario 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 reconciliations are presented within the ranges in this Performance Scenario.
Reconciliation of Net Income to Consolidated EBITDA, Total Field EBITDA (in thousands) and Total Field EBITDA Margin:
| 2019A | 2020A | 2021A | 2022E | 2023E | 2024E | ||||||||||||||||||
| Net Income | $ | 14,533 | $ | 16,090 | $ | 33,159 | $ | 57,500 | $ | 65,000 | $ | 74,000 | |||||||||||
| Total Tax Expense | 7,883 | 8,552 | 11,145 | 21,500 | 24,000 | 29,000 | |||||||||||||||||
| Pretax Income | $ | 22,416 | $ | 24,642 | $ | 44,304 | $ | 79,000 | $ | 89,000 | $ | 103,000 | |||||||||||
| Net Interest Expense, including Accretion of Discount on Convertible Subordinated Notes | 25,763 | 32,731 | 25,465 | 22,000 | 24,500 | 24,600 | |||||||||||||||||
| Depreciation & Amortization, Non-cash Stock Compensation and Other, Net | 19,188 | 22,607 | 26,117 | 28,000 | 29,000 | 31,000 | |||||||||||||||||
| Net Loss on Divestitures, Disposals and Impairment Charges | 4,846 | 21,442 | 666 | — | — | — | |||||||||||||||||
| Net Loss on Extinguishment of Debt | — | 6 | 23,807 | — | — | — | |||||||||||||||||
| Consolidated EBITDA | $ | 72,213 | $ | 101,428 | $ | 120,359 | $ | 129,000 | $ | 142,500 | $ | 158,600 | |||||||||||
| Overhead Expenses | 37,554 | 40,514 | 54,282 | 52,000 | 54,000 | 58,000 | |||||||||||||||||
| Total Field EBITDA | $ | 109,767 | $ | 141,942 | $ | 174,641 | $ | 181,000 | $ | 196,500 | $ | 216,600 | |||||||||||
| Total Revenue | $ | 274,107 | $ | 329,448 | $ | 375,886 | $ | 387,000 | $ | 414,000 | $ | 455,000 | |||||||||||
| Total Field EBITDA Margin | 40.0% | 43.1% | 46.5% | 46.8% | 47.5% | 47.6% | |||||||||||||||||
Reconciliation of Consolidated EBITDA to Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA Margin:
| 2019A | 2020A | 2021A | 2022E | 2023E | 2024E | ||||||||||||||||||
| Consolidated EBITDA | $ | 72,213 | $ | 101,428 | $ | 120,359 | $ | 129,000 | $ | 142,500 | $ | 158,600 | |||||||||||
| Special Items | 4,374 | 2,822 | 5,802 | — | — | — | |||||||||||||||||
| Adjusted Consolidated EBITDA | $ | 76,587 | $ | 104,250 | $ | 126,161 | $ | 129,000 | $ | 142,500 | $ | 158,600 | |||||||||||
| Total Revenue | $ | 274,107 | $ | 329,448 | $ | 375,886 | $ | 387,000 | $ | 414,000 | $ | 455,000 | |||||||||||
| Adjusted Consolidated EBITDA Margin | 27.9% | 31.6% | 33.6% | 33.3% | 34.4% | 34.9% | |||||||||||||||||
Reconciliation of Net Income to Adjusted Net Income (in thousands):
| 2019A | 2020A | 2021A | 2022E | 2023E | 2024E | ||||||||||||
| Net Income | $ | 14,533 | $ | 16,090 | $ | 33,159 | $ | 57,500 | $ | 65,000 | $ | 74,000 | |||||
| Special Items, Net of Tax | 7,999 | 17,593 | 22,104 | — | — | — | |||||||||||
| Adjusted Net Income | $ | 22,532 | $ | 33,683 | $ | 55,263 | $ | 57,500 | $ | 65,000 | $ | 74,000 | |||||
Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share:
| 2019A | 2020A | 2021A | 2022E | 2023E | 2024E | ||||||||||||
| GAAP Diluted Earnings Per Share | $ | 0.80 | $ | 0.89 | $ | 1.81 | $ | 3.55 | $ | 3.94 | $ | 4.43 | |||||
| Special Items | 0.45 | 0.97 | 1.21 | — | — | — | |||||||||||
| Adjusted Diluted Earnings Per Share | $ | 1.25 | $ | 1.86 | $ | 3.02 | $ | 3.55 | $ | 3.94 | $ | 4.43 | |||||
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow (in thousands) and Adjusted Free Cash Flow Margin:
| 2019A | 2020A | 2021A | 2022E | 2023E | 2024E | ||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 43,216 | $ | 82,915 | $ | 84,246 | $ | 96,000 | $ | 100,500 | $ | 110,000 | |||||||||||
| Cash Used for Maintenance Capital Expenditures | (8,795 | ) | (8,762 | ) | (13,315 | ) | (12,000 | ) | (12,500 | ) | (13,000 | ) | |||||||||||
| Special Items | 4,374 | (4,190 | ) | 4,752 | — | — | — | ||||||||||||||||
| Adjusted Free Cash Flow | $ | 38,795 | $ | 69,963 | $ | 75,683 | $ | 84,000 | $ | 88,000 | $ | 97,000 | |||||||||||
| Total Revenue | $ | 274,107 | $ | 329,448 | $ | 375,886 | $ | 387,000 | $ | 414,000 | $ | 455,000 | |||||||||||
| Adjusted Free Cash Flow Margin | 14.2% | 21.2% | 20.1% | 21.7% | 21.3% | 21.3% | |||||||||||||||||
| Net Cash Provided by Operating Activities as a Percentage of Total Revenue | 15.8% | 25.2% | 22.4% | 24.8% | 24.3% | 24.2% | |||||||||||||||||
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, revenue, asset sales, cash flow, capital allocation, debt levels, equity performance, market share growth, overhead, including field and corporate incentive compensation, or other financial items; any statements of the plans, strategies and objectives of management for future operations, or financing activities, including, but not limited, to capital allocation and organizational performance; any statements of the plans, timing and objectives of management for acquisition and divestiture activities; 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 revenue 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;
- the effects of our incentive and compensation plans and programs, including such effects on our Standards Operating Model and the Company’s operational and financial performance;
- our ability to execute our growth strategy;
- the execution of our Standards Operating, 4E Leadership and Standard Acquisition Models;
- the effects of competition;
- changes in the number of deaths in our markets;
- changes in consumer preferences and our ability to adapt to or meet those changes;
- our ability to generate preneed sales, including implementing our cemetery portfolio sales strategy and optimization plan;
- 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;
- our ability to meet the timing, objectives and expectations related to our capital allocation framework, including our forecasted rates of return, planned uses of free cash flow and future capital allocation, including share repurchases, potential strategic acquisitions, internal growth projects, dividend increases, or debt repayment plans;
- our ability to meet the projected financial and equity performance metrics to our updated three-year roughly right range and performance scenario, and intrinsic value per share range, if at all;
- 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;
- the potential impact of epidemics and pandemics, including the COVID-19 coronavirus, including new variants of COVID-19, such as the Delta and Omicron variants, on customer preferences and on our business;
- government, social, business and other actions that have been and will be taken in response to pandemics, including potential responses to new variants of COVID-19, such as the Delta and Omicron variants;
- effects and expense of litigation;
- consolidation of the funeral and cemetery industry;
- our ability to consummate the divestiture of low performing businesses as currently expected, if at all, including expected use of proceeds related thereto;
- our ability to identify and consummate strategic acquisitions, if at all, and successfully integrate acquired businesses with our existing businesses, including expected performance and financial improvements related thereto;
- economic, financial and stock market fluctuations,
- interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents,
- our failure to maintain effective control over financial reporting; 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 Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Reports on Form 10-Q, and other public filings and press releases, available at www.carriageservices.com.
Investors 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.
Good to Great High Performance Flywheel
Good to Great High Performance Flywheel
Source: Carriage Services, Inc.