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Jul 31, 2018

Carriage Services Announces Second Quarter 2018 Record Results and Raises Rolling Four Quarter Outlook

HOUSTON, July 31, 2018 (GLOBE NEWSWIRE) -- Carriage Services, Inc. (NYSE:CSV) today announced results for the second quarter ended June 30, 2018.

Mel Payne, Chief Executive Officer, stated, “Our 2018 second quarter earnings performance of $0.15 GAAP Diluted EPS (down 37.5%) and $0.22 Adjusted Diluted EPS (down 26.7%) was the weakest since we launched Carriage’s Good To Great Journey that never ends at the beginning of 2012. The reasons were twofold, i.e. broadly lower volumes and average revenue due to a spike in cremation rates in both our Same Store and Acquisition Funeral Portfolios, and higher interest costs and an increase in outstanding common shares after our recent balance sheet recapitalization.

We view the disappointing second quarter as a temporary performance aberration related to challenging revenue and margin vagaries in our funeral portfolio which is not historically symptomatic of long term operating trends. Over the last eighteen months we have made substantial organizational changes within our operations leadership (Regional Partners and Directors of Support) designed to position the company for higher and sustainable operating and financial performance from both our funeral and cemetery portfolios over the next five years.

We have complete confidence that our operating leadership is effectively dealing with the revenue and margin challenges in our funeral portfolio and that we will experience broadly higher performance during the latter part of the second half of the year compared to our second quarter. In other words, we fully expect to head into next year with our operating trends again being our friend. We have also made great strides in our Cemetery Portfolio by employing and upgrading strong sales leadership in most of our larger parks which has led to improved operating and financial performance through the first half of the year, which is reflected in an increase of 5.7% in Cemetery Revenue and a 13% increase in Cemetery Field EBITDA. We expect the cemetery performance improvements to continue if not accelerate into next year.

Second quarter highlights are shown below:

Three Months Ended June 30, 2018 compared to Three Months Ended June 30, 2017

• Total Revenue remained flat at $63.8 million;
• Net Income of $2.7 million, a decrease of 37.7%;
• GAAP Diluted Earnings Per Share of $0.15, a decrease of 37.5%;

• Total Field EBITDA of $24.0 million, a decrease of 5.0%;
• Total Field EBITDA Margin down 200 basis points to 37.6%;
• Adjusted Consolidated EBITDA of $15.3 million, a decrease of 7.6%;
• Adjusted Consolidated EBITDA Margin down 200 basis points to 23.9%;
• Adjusted Net Income of $4.0 million, a decrease of 26.2%;
• Adjusted Diluted Earnings Per Share of $0.22, a decrease of 26.7%; and
• Free Cash Flow remained flat at $9.1 million.

Six Months Ended June 30, 2018 compared to Six Months Ended June 30, 2017

• Record Total Revenue of $137.2 million, an increase of 4.0%;
• Record Net Income of $12.1 million, an increase of 5.3%;
• Record GAAP Diluted Earnings Per Share of $0.67, an increase of 6.3%;

• Record Total Field EBITDA of $55.2 million, an increase of 0.8%;
• Total Field EBITDA Margin down 120 basis points to 40.3%;
• Record Adjusted Consolidated EBITDA of $37.7 million, an increase of 1.7%;
• Adjusted Consolidated EBITDA Margin down 60 basis points to 27.5%;
• Adjusted Net Income of $14.6 million, an increase of 7.1%;
• Adjusted Diluted Earnings Per Share of $0.81, an increase of 8.0%; and
• Free Cash Flow of $22.6 million, an increase of 45.2%.

ACQUISITIONS

On July 12th, we announced the completion of the acquisition of Covenant Funeral Homes in Fredericksburg and Stafford Virginia. Covenant Funeral Homes serve over 1,000 families annually in these two highly attractive strategic growth markets southwest of Washington, D.C. The Mullins Family, a highly regarded funeral service family with stellar reputation in Northern Virginia for over sixty years, constructed a “best in class” Covenant Funeral Home facility in Fredericksburg in 2001 and expanded their vision of Being The Best with a second Covenant facility in Stafford in 2008.

In addition, I am pleased to announce we executed three signed letters of intent in the second quarter and plan to close all three businesses within the next 90 days. These businesses will collectively add over 600 funerals to our portfolio and each have a strong competitive standing and market share growth opportunity in its respective market.

We are excited about having these top independent businesses join into our family of elite businesses. The continued effectiveness of our Corporate Development Team in building a larger pipeline of high quality acquisition candidates reaffirms our favorable relative assessment of Carriage's competitive positioning in the current industry landscape and confidence in our ability to execute our Strategic Acquisition Model at a high level over the course of the next several years.

BALANCE SHEET RECAPITALIZATION

The press release on June 5th and subsequent conference call on June 6th, provided an in-depth discussion of our balance sheet recapitalization involving $550 million of new financing. A summary of the executed transactions is shown below:

  1. Repurchased in privately negotiated transactions approximately 80% of our $143.75 million 2.75% subordinated convertible notes due May 2021 for approximately $150 million, funded by the issuance of 2.8 million common shares to repurchased convertible holders and $75 million of cash from interim bank financing under our prior credit facility with our previous large bank group.
  2. Issued $325 million of eight year 6⅝% unsecured senior notes that refinanced all outstanding bank debt (about $290 million including the $75 million interim financing for the convertible note repurchases) under our prior secured term loan and revolving credit bank facilities due March 2021.
  3. Put in place a new $150 million five year secured Bank Revolving Credit Facility (undrawn) on improved terms with a smaller bank group.

As a result of these transactions, we expensed approximately $936,000 (costs net of gain) during the second quarter related to a gain on early extinguishment of the subordinated convertible notes, transaction costs and write-offs of unamortized origination costs from our previous credit facility. The issuance of the 2.8 million common shares to repurchase our subordinated convertible notes was approximately 17% of our common shares outstanding at that time and these additional shares negatively impacted our 2018 Adjusted Diluted EPS compared to prior period.

We believe this series of transactions financially positions Carriage for unprecedented growth in Revenue, Earnings and Free Cash Flow over the next five to ten years as we execute our three core models.

I am excited by the progress we have made in our Cemetery Operations, Corporate Development activity, Capital Structure flexibility and Home Office Support teams through the first half of 2018. The progress we have shown in these important areas, coupled with improving Funeral Home operating performance through year end, will lead to a period of accelerated High Performance of our Good To Great Journey that never ends,” concluded Mr. Payne.

HIGH PERFORMANCE HEROES

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

Wayne Lovelace Lotz Funeral Home; Vinton, VA
Michele Wegner Buckler-Johnston/S.R. Avery Funeral Homes; Westerly, RI
Dan Simons Everly Community Funeral Care; Falls Church, VA
Cyndi Hoots Schmidt Funeral Homes; Katy, TX
Lois Keller-Nelson Cypress-Fairbanks Funeral Home; Houston, TX
Chris Cordell Moore Funeral Home; Moore, OK
Troy Knudson Austin Funeral Home & Columbia Mortuary; Whitefish, MT

TRUST FUND PERFORMANCE

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, preneed cemetery and cemetery perpetual care) at key dates.

Investment Performance
    Investment Performance(1)   Index Performance
    Discretionary Total Trust   S&P 500 Stock Index High Yield Index 70/30 index
Benchmark(2)
               
6 months ended 06/30/2018   (1.6%) (1.5%)   2.6% 0.2% 0.9%
1 year ended 12/31/17   13.1% 12.3%   21.8% 7.5% 11.8%
2 years ended 12/31/17   35.3% 32.9%   36.4% 25.9% 29.1%
3 years ended 12/31/17   31.2% 29.3%   38.3% 20.3% 25.7%
4 years ended 12/31/17   42.1% 39.5%   58.6% 23.2% 33.8%
5 years ended 12/31/17   62.4% 58.6%   102.3% 32.4% 53.4%
               
(1) Investment performance includes realized income and unrealized appreciation (depreciation).
(2) The 70/30 Benchmark is 70% weighted to the High Yield Index and 30% weighted to the S&P 500 Stock Index.


Asset Allocation as of June 30, 2018
(in thousands)
        Discretionary
Trust Funds
  Total
Trust Funds
Asset Class       MV %   MV %
Equities       $ 77,124 40%   $ 79,751 35%
Fixed Income       97,020 50%   108,852 47%
Cash       18,481 9%   40,148 17%
Other/Insurance       2,883 1%   3,067 1%
Total Portfolios       $ 195,508 100%   $ 231,818 100%

The total return for our Discretionary Preneed Funeral and Cemetery Trusts through the first six months was (1.6%). The performance of our trust fund portfolio for the quarter was led by the performance of our core equity portfolio, while the performance of our fixed income portfolio continued to track the High Yield benchmark.

FREE CASH FLOW

We produced Free Cash Flow from operations for the three and six months ended June 30, 2018 of $9.1 million and $22.6 million, respectively, compared to Free Cash Flow from operations of $9.2 million and $15.5 million for the corresponding periods in 2017. A reconciliation of Cash Flow Provided by Operations to Free Cash Flow for the three and six months ended June 30, 2017 and 2018 is as follows (in thousands):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Cash flow provided by operations $ 12,087     $ 11,398     $ 20,246     $ 26,281  
Cash used for maintenance capital expenditures (2,929 )   (2,268 )   (4,702 )   (3,714 )
Free Cash Flow $ 9,158     $ 9,130     $ 15,544     $ 22,567  

ROLLING FOUR QUARTER OUTLOOK

The Rolling Four Quarter Outlook (“Outlook”) reflects management’s opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending June 30, 2019 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. The Outlook below reflects the three businesses under letters of intent as noted above. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. Rather our intent and goal is to reflect a “Roughly Right Range” most of the time of future Rolling Four Quarter Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time. Similarly, we self-publish a Company and Investment Profile, available on our website, that includes a Five Year “Roughly Right Scenario” of our future performance which, together with our Five Year Trend Report, provides investors a ten year past and future profile of our financial value creation dynamics and condition, making it easier to judge whether our “trends will continue to be the friend” of long term investors.

ROLLING FOUR QUARTER OUTLOOK – Period Ending June 30, 2019

    Range
(in millions, except per share amounts)
Revenues   $283 - $287
Adjusted Consolidated EBITDA   $81 - $85
Adjusted Net Income   $27 - $29
Adjusted Basic Earnings Per Share(1)   $1.38 - $1.43
Adjusted Diluted Earnings Per Share(1)   $1.35 - $1.40

Factors affecting our analysis include, among others, funeral contract volumes, average revenue per funeral service, cemetery interment volumes, preneed cemetery sales, capital expenditures, execution of our funeral and cemetery Standards Operating Model, market volatility and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income, Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share for the four quarter period ending June 30, 2019 are expected to improve relative to the trailing four quarter period ended June 30, 2018 due to increases in our existing Funeral Home and Cemetery portfolio and modest decreases in overhead as a percentage of revenue.

(1) The Rolling Four Quarter Outlook on Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share does not include any changes to our fully diluted share count that could occur related to additional share repurchases or a stock price increase and EPS dilution calculations related to our convertible subordinated notes and outstanding and exercisable stock options.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, August 1, 2018 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-3053997) and ask for the Carriage Services conference call. A replay of the conference call will be available through August 6, 2018 and may be accessed by dialing 855-859-2056 (ID-3053997). The conference call will also be available at www.carriageservices.com. For any investor relations questions, please contact Viki Blinderman at 713-332-8568 or Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.

CARRIAGE SERVICES, INC.
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
               
  Three Months Ended June 30,   Six Months Ended June 30,
  2017 2018 % Change   2017 2018 % Change
               
Same Store Contracts              
Atneed Contracts 5,918   5,823   (1.6 %)   12,543   12,628   0.7 %
Preneed Contracts 1,422   1,359   (4.4 %)   2,946   2,984   1.3 %
Total Same Store Funeral Contracts 7,340   7,182   (2.2 %)   15,489   15,612   0.8 %
Acquisition Contracts              
Atneed Contracts 905   1,283   41.8 %   1,961   2,789   42.2 %
Preneed Contracts 159   188   18.2 %   363   364   0.3 %
Total Acquisition Funeral Contracts 1,064   1,471   38.3 %   2,324   3,153   35.7 %
Total Funeral Contracts 8,404   8,653   3.0 %   17,813   18,765   5.3 %
               
Funeral Operating Revenue              
Same Store Revenue $ 39,366   $ 37,484   (4.8 %)   $ 83,127   $ 82,993   (0.2 %)
Acquisition Revenue 7,082   8,835   24.8 %   15,220   19,608   28.8 %
Total Funeral Operating Revenue $ 46,448   $ 46,319   (0.3 %)   $ 98,347   $ 102,601   4.3 %
               
Cemetery Operating Revenue              
Same Store Revenue $ 11,935   $ 12,176   2.0 %   $ 22,774   $ 23,893   4.9 %
Acquisition Revenue 700   1,008   44.0 %   1,609   1,878   16.7 %
Total Cemetery Operating Revenue $ 12,635   $ 13,184   4.3 %   $ 24,383   $ 25,771   5.7 %
               
Financial Revenue              
Preneed Funeral Commission Income $ 333   $ 354   6.3 %   $ 636   $ 614   (3.5 %)
Preneed Funeral Trust Earnings 1,724   1,859   7.8 %   3,670   3,911   6.6 %
Cemetery Trust Earnings 2,028   1,635   (19.4 %)   3,744   3,394   (9.3 %)
Preneed Cemetery Finance Charges 450   496   10.2 %   932   943   1.2 %
Total Financial Revenue $ 4,535   $ 4,344   (4.2 %)   $ 8,982   $ 8,862   (1.3 %)
               
Total Divested Revenue $ 234   $       $ 297   $    
               
Total Revenue $ 63,852   $ 63,847   (0.01 %)   $ 132,009   $ 137,234   4.0 %
               
Field EBITDA              
Same Store Funeral Field EBITDA $ 14,742   $ 12,970   (12.0 %)   $ 32,976   $ 31,727   (3.8 %)
Same Store Funeral Field EBITDA Margin 37.4 % 34.6 % (280 bp)   39.7 % 38.2 % (150 bp)
Acquisition Funeral Field EBITDA 2,645   3,005   13.6 %   6,149   7,296   18.7 %
Acquisition Funeral Field EBITDA Margin 37.3 % 34.0 % (330 bp)   40.4 % 37.2 % (320 bp)
Total Funeral Field EBITDA $ 17,387   $ 15,975   (8.1 %)   $ 39,125   $ 39,023   (0.3 %)
Total Funeral Field EBITDA Margin 37.4 % 34.5 % (290 bp)   39.8 % 38.0 % (180 bp)
               
Same Store Cemetery Field EBITDA $ 3,343   $ 3,620   8.3 %   $ 6,638   $ 7,380   11.2 %
Same Store Cemetery Field EBITDA Margin 28.0 % 29.7 % 170 bp   29.1 % 30.9 % 180 bp
Acquisition Cemetery Field EBITDA 190   411   116.3 %   543   736   35.5 %
Acquisition Cemetery Field EBITDA Margin 27.1 % 40.8 % 1,370 bp   33.7 % 39.2 % 550 bp
Total Cemetery Field EBITDA $ 3,533   $ 4,031   14.1 %   $ 7,181   $ 8,116   13.0 %
Total Cemetery Field EBITDA Margin 28.0 % 30.6 % 260 bp   29.5 % 31.5 % 200 bp
               
Funeral Financial EBITDA $ 1,785   $ 1,978   10.8 %   $ 3,828   $ 4,025   5.1 %
Cemetery Financial EBITDA 2,418   2,012   (16.8 %)   4,505   4,077   (9.5 %)
Total Financial EBITDA $ 4,203   $ 3,990   (5.1 %)   $ 8,333   $ 8,102   (2.8 %)
Total Financial EBITDA Margin 92.7 % 91.9 % (80 bp)   92.8 % 91.4 % (140 bp)
               
Total Divested EBITDA $ 145   $       $ 146   $ (3 )  
Total Divested EBITDA Margin % %     % %  
               
Total Field EBITDA $ 25,268   $ 23,996   (5.0 %)   $ 54,785   $ 55,238   0.8 %
Total Field EBITDA Margin 39.6 % 37.6 % (200 bp)   41.5 % 40.3 % (120 bp)
               
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
               
  Three Months Ended June 30,   Six Months Ended June 30,
  2017 2018 % Change   2017 2018 % Change
               
Overhead              
Total Variable Overhead $ 2,542   $ 2,696   6.1 %   $ 4,708   $ 5,256   11.6 %
Total Regional Fixed Overhead 826   1,063   28.7 %   1,893   2,140   13.0 %
Total Corporate Fixed Overhead 5,381   4,979   (7.5 %)   11,113   10,141   (8.7 %)
Total Overhead $ 8,749   $ 8,738   (0.1 %)   $ 17,714   $ 17,537   (1.0 %)
Overhead as a percentage of Revenue 13.7 % 13.7 % 0 bp   13.4 % 12.8 % (60 bp)
               
Consolidated EBITDA $ 16,519   $ 15,258   (7.6 %)   $ 37,071   $ 37,701   1.7 %
Consolidated EBITDA Margin 25.9 % 23.9 % (200 bp)   28.1 % 27.5 % (60 bp)
               
Other Expenses and Interest              
Depreciation & Amortization $ 4,025   $ 4,368   8.5 %   $ 7,872   $ 8,584   9.0 %
Non-Cash Stock Compensation 773   909   17.6 %   1,609   2,009   24.9 %
Interest Expense 3,206   4,743   47.9 %   6,235   8,478   36.0 %
Accretion of Discount on Convertible Subordinated Notes 1,066   555   (47.9 %)   2,103   1,715   (18.4 %)
Net Loss on Early Extinguishment of Debt   936         936    
Other, Net         (3 ) (2 )  
Pre-Tax Income $ 7,449   $ 3,747   (49.7 %)   $ 19,255   $ 15,981   (17.0 %)
Provision for Income Taxes 2,980   1,030       7,702   4,395    
Tax Adjustment Related to Certain Discrete Items 59   (30 )     59   (517 )  
Total Provision for Income Taxes 3,039   1,000       7,761   3,878    
GAAP Net Income $ 4,410   $ 2,747   (37.7 %)   $ 11,494   $ 12,103   5.3 %
               
Special Items, Net of Tax, except for **
             
Accretion of Discount on Convertible Subordinated Notes ** $ 1,066   $ 555       $ 2,103   $ 1,715    
Net Loss on Early Extinguishment of Debt   740         740    
               
Adjusted Net Income $ 5,476   $ 4,042   (26.2 %)   $ 13,597   $ 14,558   7.1 %
Adjusted Net Profit Margin 8.6 % 6.3 % (230 bp)   10.3 % 10.6 % 30 bp
               
Adjusted Basic Earnings Per Share $ 0.33   $ 0.22   (33.3 %)   $ 0.82   $ 0.85   3.7 %
Adjusted Diluted Earnings Per Share $ 0.30   $ 0.22   (26.7 %)   $ 0.75   $ 0.81   8.0 %
               
GAAP Basic Earnings Per Share $ 0.26   $ 0.15   (42.3 %)   $ 0.69   $ 0.71   2.9 %
GAAP Diluted Earnings Per Share $ 0.24   $ 0.15   (37.5 %)   $ 0.63   $ 0.67   6.3 %
               
Weighted Average Basic Shares Outstanding 16,652   17,916       16,625   17,010    
Weighted Average Diluted Shares Outstanding 18,093   18,245       18,083   17,924    

There were no adjustments to Consolidated EBITDA for the three and six months ended June 30, 2017 and 2018.

 

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

      (unaudited)
  December 31, 2017   June 30, 2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 952     $ 40,531  
Accounts receivable, net 19,655     17,026  
Inventories 6,519     6,616  
Prepaid expenses 2,028     1,571  
Other current assets 986     2,460  
        Total current assets 30,140     68,204  
Preneed cemetery trust investments 73,853     70,278  
Preneed funeral trust investments 90,682     91,203  
Preneed receivables, net 31,644     21,327  
Receivables from preneed trusts 15,287     16,313  
Property, plant and equipment, net 247,294     244,579  
Cemetery property, net 76,331     75,599  
Goodwill 287,956     287,956  
Intangible and other non-current assets 18,117     21,552  
Cemetery perpetual care trust investments 50,229     48,600  
       Total assets $ 921,533     $ 945,611  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 17,251     $ 2,402  
Accounts payable 6,547     5,788  
Other liabilities 1,361     875  
Accrued liabilities 17,559     17,021  
       Total current liabilities 42,718     26,086  
Long-term debt, net of current portion 212,154     7,818  
Convertible subordinated notes due 2021 124,441     25,425  
Senior notes due 2026     318,807  
Obligations under capital leases, net of current portion 6,361     6,287  
Deferred preneed cemetery revenue 54,690     50,699  
Deferred preneed funeral revenue 34,585     27,740  
Deferred tax liability 31,159     30,293  
Other long-term liabilities 3,378     2,843  
Deferred preneed cemetery receipts held in trust 73,853     70,278  
Deferred preneed funeral receipts held in trust 90,682     91,203  
Care trusts’ corpus 49,856     48,154  
       Total liabilities 723,877     705,633  
Commitments and contingencies:      
Stockholders’ equity:      
Common stock 226     257  
Additional paid-in capital 216,158     244,215  
Retained earnings 57,904     72,138  
Treasury stock (76,632 )   (76,632 )
       Total stockholders’ equity 197,656     239,978  
             Total liabilities and stockholders’ equity $ 921,533     $ 945,611  

 

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

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
               
Revenues:              
Funeral $ 48,739     $ 48,532     $ 102,950     $ 107,126  
Cemetery 15,113     15,315     29,059     30,108  
  63,852     63,847     132,009     137,234  
Field costs and expenses:              
Funeral 29,422     30,579     59,851     64,081  
Cemetery 9,162     9,272     17,373     17,915  
Depreciation and amortization 3,647     3,904     7,118     7,677  
Regional and unallocated funeral and cemetery costs 2,954     3,267     5,908     6,548  
  45,185     47,022     90,250     96,221  
Gross profit 18,667     16,825     41,759     41,013  
               
Corporate costs and expenses:              
General, administrative and other 6,568     6,380     13,415     12,998  
Home office depreciation and amortization 378     464     754     907  
  6,946     6,844     14,169     13,905  
Operating income 11,721     9,981     27,590     27,108  
Interest expense (3,206 )   (4,743 )   (6,235 )   (8,478 )
Accretion of discount on convertible subordinated notes (1,066 )   (555 )   (2,103 )   (1,715 )
Net loss on early extinguishment of debt     (936 )       (936 )
Other, net         3     2  
Income before income taxes 7,449     3,747     19,255     15,981  
Provision for income taxes (2,980 )   (1,030 )   (7,702 )   (4,395 )
Tax adjustment related to certain discrete items (59 )   30     (59 )   517  
Net provision for income taxes (3,039 )   (1,000 )   (7,761 )   (3,878 )
Net income $ 4,410     $ 2,747     $ 11,494     $ 12,103  
               
Basic earnings per common share: $ 0.26     $ 0.15     $ 0.69     $ 0.71  
Diluted earnings per common share: $ 0.24     $ 0.15     $ 0.63     $ 0.67  
               
Dividends declared per common share $ 0.050     $ 0.075     $ 0.100     $ 0.150  
               
Weighted average number of common and common equivalent shares outstanding:              
Basic 16,652     17,916     16,625     17,010  
Diluted 18,093     18,245     18,083     17,924  

 

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

  Six Months Ended June 30,
  2017   2018
Cash flows from operating activities:      
Net income $ 11,494     $ 12,103  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 7,872     8,584  
Provision for losses on accounts receivable 1,112     883  
Stock-based compensation expense 1,609     2,009  
Deferred income tax expense 406     2,044  
Amortization of deferred financing costs 408     320  
Amortization of capitalized commissions on preneed contracts     293  
Accretion of discount on convertible subordinated notes 2,103     1,715  
Amortization of debt discount on senior notes     38  
Net loss on early extinguishment of debt     936  
Net loss on sale of businesses and disposal of other assets 311     45  
Changes in operating assets and liabilities that provided (required) cash:      
Accounts and preneed receivables (468 )   (779 )
Inventories and other current assets 2,804     (1,139 )
Intangible and other non-current assets 211     (102 )
Preneed funeral and cemetery trust investments (1,252 )   3,657  
Accounts payable (3,750 )   (758 )
Accrued and other liabilities (5,102 )   (819 )
Deferred preneed funeral and cemetery revenue 2,020     2,007  
Deferred preneed funeral and cemetery receipts held in trust 468     (4,756 )
Net cash provided by operating activities 20,246     26,281  
       
Cash flows from investing activities:      
Acquisition and land for new construction (625 )    
Capital expenditures (8,790 )   (5,080 )
Net cash used in investing activities (9,415 )   (5,080 )
       
Cash flows from financing activities:      
Payments against the term loan (5,625 )   (127,500 )
Borrowings from the revolving credit facility 36,800     96,000  
Payments against the revolving credit facility (42,400 )   (188,000 )
Payment of debt issuance costs related to long-term debt     (1,551 )
Redemption of the 2.75% convertible subordinated notes     (75,229 )
Payment of transaction costs related to the redemption of the 2.75% convertible subordinated notes     (845 )
Proceeds from the issuance of the 6.625% senior notes     320,125  
Payments of debt issuance costs related to the 6.625% senior notes     (1,367 )
Payments on other long-term debt and obligations under capital leases (723 )   (828 )
Payments on contingent consideration recorded at acquisition date (101 )   (138 )
Proceeds from the exercise of stock options and employee stock purchase plan contributions 544     846  
Taxes paid on restricted stock vestings and exercises of non-qualified options (509 )   (495 )
Dividends on common stock (1,668 )   (2,640 )
Net cash provided by (used in) financing activities (13,682 )   18,378  
       
Net increase (decrease) in cash and cash equivalents (2,851 )   39,579  
Cash and cash equivalents at beginning of period 3,286     952  
Cash and cash equivalents at end of period $ 435     $ 40,531  

NON-GAAP FINANCIAL MEASURES

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

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP. We believe the Non-GAAP results are useful to investors to compare our results to previous periods, to provide insight into the underlying long-term performance trends in our business and to provide the opportunity to differentiate ourselves as the best consolidation platform in the industry against the performance of other funeral and cemetery companies.

The Company’s GAAP financial statements accompany this release. Reconciliations of the Non-GAAP financial measures to GAAP measures are provided in this press release.

The Non-GAAP financial measures include “Special Items”, “Adjusted Net Income”, “Consolidated EBITDA”, “Adjusted Consolidated EBITDA”, “Adjusted Consolidated EBITDA Margin”, “Free Cash Flow”, “Funeral, Cemetery and Financial EBITDA”, “Total Field EBITDA”, “Total Field EBITDA Margin”, “Divested Revenue”, “Divested EBITDA”, “Divested EBITDA Margin”, “Adjusted Basic Earnings Per Share” and “Adjusted Diluted Earnings Per Share” in this press release. These financial measurements are defined as similar GAAP items adjusted for Special Items and are reconciled to GAAP in this press release. In addition, the Company’s presentation of these measures may not be comparable to similarly titled measures in other companies’ reports. The definitions used by the Company for our internal management purposes and in this press release are as follows:

  • Special Items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special Items are typically taxed at the federal statutory rate, except for the accretion of the discount on Convertible Subordinated Notes, as this is a non-tax deductible item.
  • Adjusted Net Income is defined as net income plus adjustments for Special Items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.
  • Consolidated EBITDA is defined as net income before income taxes, interest expenses, non-cash stock compensation, depreciation and amortization, and interest income and other, net. 
  • Adjusted Consolidated EBITDA is defined as Consolidated EBITDA plus adjustments for Special Items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations. 
  • Adjusted Consolidated EBITDA Margin is defined as Adjusted Consolidated EBITDA as a percentage of revenue.
  • Adjusted Free Cash Flow is defined as net cash provided by operations, adjusted by Special Items as deemed necessary, less cash for maintenance capital expenditures. 
  • Funeral Field EBITDA is defined as Funeral Gross Profit, excluding depreciation and amortization, regional and unallocated funeral costs and Financial EBITDA related to the Funeral Home segment.
  • Cemetery Field EBITDA is defined as Cemetery Gross Profit, excluding depreciation and amortization, regional and unallocated cemetery costs and Cemetery Financial EBITDA related to the Cemetery segment.
  • Funeral Financial EBITDA is defined as Funeral Financial Revenue less Funeral Financial Expenses.
  • Cemetery Financial EBITDA is defined as Cemetery Financial Revenue less Cemetery Financial Expenses.
  • Total Field EBITDA is defined as Gross Profit, excluding depreciation and amortization, regional and unallocated funeral and cemetery costs. 
  • Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of revenue.
  • Divested Revenue is defined as revenues from one business sold during 2017.
  • Divested EBITDA is defined as Divested Revenue, less field level and financial expenses related to the sold business noted above.
  • Divested EBITDA Margin is defined as Divested EBITDA as a percentage of Divested Revenue.
  • Adjusted Basic Earnings Per Share is defined as GAAP Basic Earnings Per Share, adjusted for Special Items. 
  • Adjusted Diluted Earnings Per Share is defined as GAAP Diluted Earnings Per Share, adjusted for Special Items.

Funeral Field EBITDA and Cemetery Field EBITDA

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

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

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

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

Consolidated EBITDA and Adjusted Consolidated EBITDA

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

How These Measures Are Useful

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

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

Limitations of the Usefulness of These Measures

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

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

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

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

Reconciliation of Non-GAAP Financial Measures:

This press release includes the use of certain financial measures that are not GAAP measures. The Non-GAAP financial measures are presented for additional information and are reconciled to their most comparable GAAP measures below.

Reconciliation of Net Income to Adjusted Net Income for the three and six months ended June 30, 2017 and 2018 (in thousands):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Net Income $ 4,410     $ 2,747     $ 11,494     $ 12,103  
Special Items, Net of Tax, except for **              
Accretion of Discount on Convertible Subordinated Notes ** 1,066     555     2,103     1,715  
Net Loss on Early Extinguishment of Debt     740         740  
Adjusted Net Income $ 5,476     $ 4,042     $ 13,597     $ 14,558  
                               
** Special items are typically taxed at the federal statutory rate, except for the Accretion of the Discount on Convertible Subordinated Notes, as this is a non-tax deductible item.

Reconciliation of Net Income to Consolidated EBITDA for the three and six months ended June 30, 2017 and 2018 (in thousands):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Net Income $ 4,410     $ 2,747     $ 11,494     $ 12,103  
Net Tax Provision 3,039     1,000     7,761     3,878  
Pre-Tax Income 7,449     3,747     19,255     15,981  
Interest Expense 3,206     4,743     6,235     8,478  
Accretion of Discount on Convertible Subordinated Notes 1,066     555     2,103     1,715  
Net Loss on Early Extinguishment of Debt     936         936  
Non-Cash Stock Compensation 773     909     1,609     2,009  
Depreciation & Amortization 4,025     4,368     7,872     8,584  
Other, Net         (3 )   (2 )
Consolidated EBITDA $ 16,519     $ 15,258     $ 37,071     $ 37,701  
               
Revenue $ 63,852     $ 63,847     $ 132,009     $ 137,234  
               
Consolidated EBITDA Margin 25.9 %   23.9 %   28.1 %   27.5 %

Reconciliation of Funeral and Cemetery Gross Profit to Field EBITDA for the three and six months ended June 30, 2017 and 2018 (in thousands):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Funeral Gross Profit (GAAP) $ 14,412     $ 12,654     $ 33,381     $ 32,318  
Depreciation & Amortization 2,529     2,640     4,898     5,204  
Regional & Unallocated Costs 2,376     2,659     4,820     5,523  
Funeral Financial EBITDA (1,785 )   (1,978 )   (3,828 )   (4,025 )
Divested EBITDA (145 )       (146 )   3  
Funeral Field EBITDA $ 17,387     $ 15,975     $ 39,125     $ 39,023  


  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Cemetery Gross Profit (GAAP) $ 4,255     $ 4,171     $ 8,378     $ 8,695  
Depreciation & Amortization 1,118     1,264     2,220     2,473  
Regional & Unallocated Costs 578     608     1,088     1,025  
Cemetery Financial EBITDA (2,418 )   (2,012 )   (4,505 )   (4,077 )
Cemetery Field EBITDA $ 3,533     $ 4,031     $ 7,181     $ 8,116  

Components of Total Field EBITDA for the three and six months ended June 30, 2017 and 2018 (in thousands):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
Funeral Field EBITDA $ 17,387     $ 15,975     $ 39,125     $ 39,023  
Cemetery Field EBITDA 3,533     4,031     7,181     8,116  
Funeral Financial EBITDA 1,785     1,978     3,828     4,025  
Cemetery Financial EBITDA 2,418     2,012     4,505     4,077  
Divested EBITDA 145         146     (3 )
Total Field EBITDA $ 25,268     $ 23,996     $ 54,785     $ 55,238  

Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three and six months ended June 30, 2017 and 2018:

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
GAAP Basic Earnings Per Share $ 0.26     $ 0.15     $ 0.69     $ 0.71  
Special Items 0.07     0.07     0.13     0.14  
Adjusted Basic Earnings Per Share $ 0.33     $ 0.22     $ 0.82     $ 0.85  

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three and six months ended June 30, 2017 and 2018:

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2018   2017   2018
GAAP Diluted Earnings Per Share $ 0.24     $ 0.15     $ 0.63     $ 0.67  
Special Items 0.06     0.07     0.12     0.14  
Adjusted Diluted Earnings Per Share $ 0.30     $ 0.22     $ 0.75     $ 0.81  

Reconciliation of Rolling Four Quarter Outlook:

Earlier in this press release, we present the Rolling Four Quarter Outlook (“Outlook”) which reflects management’s opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending June 30, 2019 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. The following four reconciliations are presented at the approximate midpoint of the range in this Outlook.

Reconciliation of Net Income to Consolidated EBITDA for the estimated Rolling Four Quarters ending June 30, 2019 (in thousands):

  June 30, 2019E
Net Income $ 26,000  
Total Tax Provision 7,150  
Pretax Income 33,150  
Net Interest Expense, including Accretion of Discount on Convertible Subordinated Notes 27,000  
Depreciation & Amortization, including Non-cash Stock Compensation 22,000  
Consolidated EBITDA $ 82,150  

Reconciliation of Net Income to Adjusted Net Income for the estimated Rolling Four Quarters ending June 30, 2019 (in thousands):

  June 30, 2019E
Net Income $ 26,000  
Special Items 1,700  
Adjusted Net Income $ 27,700  

Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the estimated Rolling Four Quarters ending June 30, 2019:

  June 30, 2019E
GAAP Basic Earnings Per Share $ 1.33  
Special Items 0.09  
Adjusted Basic Earnings Per Share $ 1.42  

Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the estimated Rolling Four Quarters ending June 30, 2019:

  June 30, 2019E
GAAP Diluted Earnings Per Share $ 1.30  
Special Items 0.09  
Adjusted Diluted Earnings Per Share $ 1.39  

Supplemental Information:

Funeral homes and cemeteries purchased after December 31, 2013 are referred to as “Acquired” in our Trend Report. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The presentation below highlights the impact of our 2013 Acquired Portfolio that moved from Acquired to Same Store beginning January 1, 2018 (in thousands):

  Three Months Ended June 30, 2017   Six Months Ended June 30, 2017
               
  Revenue   EBITDA   Revenue   EBITDA
2013 Acquired Portfolio $ 1,036     $ 438     $ 2,144     $ 948  

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical information, this Press Release contains certain statements and information that may constitute forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

  • our ability to find and retain skilled personnel;
  • our ability to execute our growth strategy;
  • the effects of competition;
  • the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
  • changes in the number of deaths in our markets;
  • changes in consumer preferences;
  • our ability to generate preneed sales;
  • the investment performance of our funeral and cemetery trust funds;
  • fluctuations in interest rates;
  • our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
  • 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;
  • recent changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;
  • effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;
  • consolidation of the deathcare industry; and
  • other factors and uncertainties inherent in the deathcare industry.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “Risk Factors” in our most recent Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. A copy of the Company’s Form 10-K, other Carriage Services information and news releases are available at www.carriageservices.com

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Source: Carriage Services, Inc.