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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 30, 2009
Carriage Services, Inc.
(Exact name of registrant as specified in is charter)
| Delaware | 1-11961 | 76-0423828 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
3040 Post Oak Boulevard, Suite 300
Houston, Texas 77056
(Address, including zip code, of principal executive offices)
Houston, Texas 77056
(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code:
(713) 332-8400
(713) 332-8400
| o | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. Regulation FD Disclosure.
On March 30, 2009, the Company issued a press release announcing its Company and Investment
Profile dated March 2009. In addition, Terry E. Sanford, Chief Financial Officer and Jay D. Dodds,
Chief Operating Officer, are making a presentation to investors in Los Angeles, San Francisco and
Portland during the week of March 30, 2009. A copy of the press release and the profile issued by
the Company are attached hereto as Exhibits 99.1 and 99.2, respectively. A copy of the
presentation, which will be presented at these meetings, is attached hereto as Exhibit 99.3. The
Company and Investment Profile and the presentation are available on the Company’s website
www.carriageservices.com.
The press release, the Company and Investment Profile, the presentation and information in
this report are being furnished in accordance with Regulation FD and not “filed” with the
Securities and Exchange Commission. Accordingly, the information in this report is not incorporated
by reference into any registration statement filed by the Company under the Securities Act of 1933,
as amended, and will not be so incorporated by reference into any future registration statement
unless specifically identified as being incorporated by reference.
The Company and Investment Profile and the presentation contain non-GAAP financial measures.
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance,
financial position, or cash flows that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure calculated and presented in accordance
with United States generally accepted accounting principles, or GAAP. Pursuant to the requirements
of Regulation G, the Company provides quantitative reconciliations as well as qualitative
information within the Company and Investment Profile, the presentation and on the Company’s
website www.carriageservices.com.
Item 8.01. Other Events.
On March 30, 2009, the Company issued a press release announcing its Company and Investment
Profile dated March 2009. In addition, Terry E. Sanford, Chief Financial Officer and Jay D. Dodds,
Chief Operating Officer, are making a presentation to investors in Los Angeles, San Francisco and
Portland during the week of March 30, 2009. A copy of the press release and the profile issued by
the Company are attached hereto as Exhibits 99.1 and 99.2, respectively. A copy of the
presentation, which will be presented at these meetings, is attached hereto as Exhibit 99.3.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are furnished as part of this current report on Form 8-K:
| 99.1 | Press Release dated March 30, 2009 | ||
| 99.2 | Company and Investment Profile dated March 2009 | ||
| 99.3 | Investor Presentation, April 2009 |
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Carriage Services, Inc.
has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CARRIAGE SERVICES, INC. |
||||
| Date: March 30, 2009 | By: | /s/ Terry E. Sanford | ||
| Terry E. Sanford | ||||
| Senior Vice President and Chief Financial Officer | ||||
-3-
INDEX TO EXHIBITS
| Exhibit | Description | |
99.1
|
Press Release dated March 30, 2009 | |
99.2
|
Company and Investment Profile dated March 2009 | |
99.3
|
Investor Presentation, April 2009 |
-4-
Exhibit 99.1
|
Press Release |
| Contacts: | Terry Sanford, SVP & CFO | |||
| Carriage Services, Inc. | ||||
FOR IMMEDIATE RELEASE
|
713-332-8400 | |||
| Ken Dennard / Kip Rupp | ||||
| DRG&E / 713-529-6600 |
CARRIAGE SERVICES UPDATES
COMPANY & INVESTMENT PROFILE
COMPANY & INVESTMENT PROFILE
MARCH 30, 2009 – HOUSTON – Carriage Services, Inc. (NYSE: CSV) today announced that it has updated
its “Company & Investment Profile”, which can be found on Carriage’s website at
http://www.carriageservices.com.
Carriage’s updated Company & Investment Profile includes updated discussions of Carriage’s
business, operating and growth strategies, historical financial information, financial outlook and
more.
The Company & Investment Profile is being published and updated by Carriage in continuation of
its stated goal to provide more disclosure and transparency to the investment community regarding
Carriage’s operations, goals, industry dynamics and conditions. It is Carriage’s intent to continue
to be proactive in communicating with investors. Investors and interested parties are encouraged to
visit the website, http://www.carriageservices.com to read or download the Company and
Investment Profile.
Carriage Services is a leading provider of death care services and products. Carriage
operates 136 funeral homes in 25 states and 32 cemeteries in 11 states.
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. These statements are based on assumptions that the company believes are reasonable;
however, many important factors, as discussed under “Forward- Looking Statements and Cautionary
Statements” in the company’s Annual Report and Form 10-K for the year ended December 31, 2008,
could cause the company’s results in the future to differ materially from the forward-looking
statements made herein and in any other documents or oral presentations made by, or on behalf of,
the company. A copy of the company’s Form 10-K, and other Carriage Services information and news
releases, are available at http://www.carriageservices.com.
# # #
Exhibit 99.2
| Company & Investment Profile | March 2009 |
| Carriage Services, Inc. | 3040 Post Oak Boulevard • Suite 300 • Houston, TX 77056 | |
| (NYSE: CSV) | Phone: 713-332-8400 • Fax: 713-332-8401 | |
Simply Put ... Becoming the Best
www.CarriageServices.com
KEY POINTS
Carriage is uniquely positioned because of our strategy as defined by three models:
| • | Standards Operating Model — focuses on market share, people and operating and financial metrics that drive long-term operating and financial performance for our individual funeral homes and cemeteries. | |
| • | 4E Leadership Model — defines the characteristics necessary for our local leaders to effectively execute the Standards Operating Model. | |
| • | Strategic Acquisition Model — defines the selective acquisition strategy using six Strategic Ranking Criteria to assess candidates and to differentiate pricing. |
We believe that effective execution of our models produces superior shareholder returns as we
benefit from an up cycle in deathcare industry consolidation. Superior investment returns will be
driven by:
| • | Operating Leverage — modest increases in same store revenues and Field EBITDA Margins will result in higher growth rates in same store Field EBITDA | |
| • | Organizational Overhead Leverage — regional and corporate organizations have fixed cost structures that will not increase proportionate to revenue growth. | |
| • | Capital Structure Leverage — common stock buyback program, low share count and leveraged capital structure that includes fixed and low rate mezzanine and senior debt. | |
| • | Consolidation Platform Leverage — acquired Field EBITDA will substantially fall to Consolidated EBITDA and be accretive to EPS. | |
| • | Free Cash Flow will provide a significant source of capital to finance our selective growth strategy. |
Carriage Services is a leading provider of death care services and products in the United States.
Carriage operates 136 funeral homes in 25 states and 32 cemeteries in 11 states. Carriage provides
a complete range of funeral and cremation services and sells a wide variety of related products and
merchandise.
Stock Price (March 26, 2009) |
$ | 1.55 |
| Stock Data | ||||
| Fiscal Year-End: | December | |||
| Symbol / Exchange: | CSV / NYSE | |||
52 - Week Trading Range: |
$ | 1.10-$9.25 | ||
Common Shares Outstanding (In Mill.): |
17.8 | |||
Market Capitalization (In Mill.): |
$ | 27.59 | ||
Total Enterprise Value (In Mill.): |
$ | 254.07 | ||
Avg. Daily Volume (3 Mos.): |
59,148 | |||
Float (In Mill.): |
16.4 | |||
Insider Ownership: |
12.3 | % | ||
Institutional Ownership: |
53.0 | % | ||
| Financial Data (Amounts in Millions) | ||||
| 12/31/2008 | ||||
Cash & Investments: |
$ | 5.0 | ||
Total Assets: |
$ | 560.3 | ||
Total Senior Debt: |
$ | 137.7 | ||
Total Subordinated Debt: |
$ | 93.8 | ||
Total Debt: |
$ | 231.5 | ||
Stockholders’ Equity: |
$ | 103.5 | ||
| Trailing Twelve Months Ending 12/31/08 | ||||
Revenue from Cont. Ops: |
$ | 176.9 | ||
Field EBITDA from Cont. Ops: |
$ | 59.3 | ||
Consolidated EBITDA from Cont. Ops., Excluding Special Charges: |
$ | 39.2 | ||
Diluted EPS from Cont. Ops.: |
$ | 0.09 | ||
Diluted EPS from Cont. Ops., Excluding Special Charges: |
$ | 0.26 | ||
Free Cash Flow: |
$ | 13.5 | ||
| Four Qtr. | ||||
| Company Financial Outlook | Period Ending | |||
| 12/31/2009 | ||||
Revenue from Cont. Ops: |
$ | 177.0 - $183.0 | ||
Field EBITDA from Cont. Ops: |
$ | 59.5 - $62.0 | ||
Consolidated EBITDA from Cont. Ops.: |
$ | 39.0 - $41.0 | ||
Diluted EPS from Cont. Ops.: |
$ | 0.36- $0.40 | ||
Free Cash Flow: |
$ | 13.0- $15.0 | ||
| Valuation Data (Using Outlook Midpoint) | ||||
Price / Yr. 12/31/09(E) EPS: |
4.1X | |||
Enterprise Value / 12/31/09(E) Consolidated EBITDA: |
6.5X | |||
Equity Market Cap / 12/31/09(E) Free Cash Flow: |
2.0X |
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 1 |
| Company & Investment Profile | March 2009 |
Table of Contents
(Noteworthy new or updated information in this edition versus the previous edition in bold)
| SECTION | PAGE | |||||
| • | Key Points |
1 | ||||
| • | Investment Considerations |
3 | ||||
| • | Long-Term Outlook — Through 2013 |
4 | ||||
| • | Potential Shareholder Return Analysis |
5 | ||||
| • | Financial Outlook |
5 | ||||
| • | Recent Results |
7 | ||||
| • | Trend Reporting |
9 | ||||
| • | Income Statement from Continuing Operations — Annual Trend |
10 | ||||
| • | Income Statement from Continuing Operations — Quarterly Trend |
11 | ||||
| • | Company Strategy |
12 | ||||
| • | Revenue & Cash Flow Forecast |
15 | ||||
| • | Capital Structure Facilitates Growth |
16 | ||||
| • | Executive Team |
16 | ||||
| • | Forward Looking & Cautionary Statements |
18 | ||||
| • | Disclosure of Non-GAAP Performance Measures |
18 |
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 2 |
| Company & Investment Profile | March 2009 |
This document is being published by Carriage Services in continuation of the Company’s
stated goal to provide more disclosure and transparency to the investment community regarding
Carriage’s operations, strategies and industry conditions. It is Carriage’s intent to take
responsibility for and a proactive role in communicating with the investment community and in
providing greater operating and financial transparency.
MISSION STATEMENT: We are committed to being the most professional, ethical, and highest quality
funeral and cemetery service organization in our industry.
GUIDING PRINCIPLES: Honesty, integrity and quality in all that we do. Hard work, pride of
accomplishment and shared success through employee ownership. Belief in the power of people through
individual initiative and teamwork. Outstanding service and profitability go hand-in-hand. Growth
of the Company is driven by decentralization and partnership.
INVESTMENT CONSIDERATIONS
Carriage Services is a leading provider of deathcare services and products in the United States.
Carriage Services’ common stock trades on the New York Stock Exchange under the symbol CSV. We
operate 136 funeral homes in 25 states and 32 cemeteries in 11 states. Our business can be
characterized as one of relative stability, reflected by predictable revenue and cash flow, with
incremental growth opportunities via selective acquisitions.
We are uniquely positioned to attract the best talent and the best independent businesses to our
company because we can differentiate our strategy within the deathcare industry, as defined by the
following three models:
Standards Operating Model
| § | Focuses on market share, people and financial metrics that drive long term operating and financial performance. | ||
| § | Designed and weighted to grow market share, volumes and average revenue per contract modestly over time. | ||
| § | Designed to achieve sustainable Field EBITDA Margins over time. | ||
| § | Designed to reward Managing Partners with 4E Leadership skills who achieve a high level of standards. |
4E Leadership Model
| § | Standards Operating Model requires strong leadership to grow an entrepreneurial, high value, personal service community business at sustainable Field EBITDA Margins. | ||
| § | 4E Leaders have a winning, competitive spirit and want to make a difference not only in their business but in Carriage’s performance and reputation within the deathcare industry. | ||
| § | 4E Leaders are motivated by achievement of our Being the Best Standards and recognition, such as League Table rankings and regional competition, and by our Being The Best Managing Partner Incentive Bonus Program. |
Strategic Acquisition Model
| § | Assess acquisition candidates using six Strategic Ranking Criteria and to differentiate pricing. | ||
| § | Acquire and build concentrated groups of A, B and C businesses in 10 to 15 strategic markets and sell non-strategic B and C businesses over time. | ||
| § | Increase the sustainable revenue growth and earning power profile of the Carriage deathcare portfolio over time. |
Effective execution of these three Carriage Models is intended to produce superior shareholder
returns. The superior investment returns will be driven by a combination of unique and simultaneous
financial dynamics as follows:
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 3 |
| Company & Investment Profile | March 2009 |
Operating Leverage
| § | Ours is a relatively fixed cost business; therefore, modest growth in same store revenues and modest increases in Field EBITDA Margins over time produce a higher growth rate in same store Field EBITDA. | ||
| § | Effective execution of our Standards Operating Model and higher death rates caused by the aging of the “baby boom” generation will increase same store volumes and revenues in the intermediate and long term and compound the positive effect of Operating Leverage. |
Organizational Overhead Leverage
| § | Regional and corporate organizations are aligned with the Standards Operating Model and cost structures are relatively fixed. | ||
| § | Variable overhead, primarily incentive compensation related to all three organizational levels (Field, Regional, and Corporate) will increase relative to the achievement of performance standards. |
Capital Structure Leverage
| § | Leveraged capital structure that includes mezzanine (TIDES) and senior debt (high yield) similar to an LBO structure. | ||
| § | Subordinated convertible preferreds (7% due 2029) and Senior notes (77/8% due 2015) have long term principal maturity dates and fixed low interest rates, producing a low cost of capital. | ||
| § | Annual interest of approximately $18 million is fixed and easily covered by Consolidated EBITDA, resulting in substantial Consolidated Free Cash Flow that will be used to make selective acquisitions and repurchase company securities. | ||
| § | Low share count and share repurchase program produce significant changes in earnings per share. |
Consolidation Platform Leverage
| § | Acquired Field EBITDA will substantially fall to Consolidated EBITDA and Consolidated Free Cash Flow and will be accretive to EPS as well. | ||
| § | Consolidated Free Cash Flow after fixed interest and maintenance capital expenditures will grow at a faster rate than revenues, a financial benefit whose momentum will directly accrue to common shareholders. | ||
| § | The Company’s $35 million credit facility was undrawn at year end 2008 and can be used for acquisitions. |
Superior long term shareholder returns will be driven by improvements in operating performance, a
low share count and Consolidated Free Cash Flow that has financed our selective acquisition
strategy to date. This should produce high single digit revenue growth that will be leveraged into
increasing and sustainable Consolidated EBITDA Margins and double digit rates of growth in
Consolidated EBITDA and diluted EPS. There is also the possibility of Enterprise Value and EPS
multiple expansion as higher death rates based on the aging of the “baby boom” generation becomes
more visible. Our long-term financial outlook is as follows:
Long Term Outlook – Through 2013 (Base Year 2008)
Revenue growth of 6-7% annually, including acquisitions
Consolidated EBITDA growth of 9-11% annually, including acquisitions
Consolidated EBITDA Margin range of 22-26%
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 4 |
| Company & Investment Profile | March 2009 |
The following is a hypothetical example of potential shareholder returns that we believe is
reasonable based on our Long Term Outlook.
For example purposes. Data is not supported by actual detailed operational or strategic plans.
| 5 Yr. | ||||||||||||||||||||||||||||
| EPS Forecast & Valuation | Annualized | |||||||||||||||||||||||||||
| EPS: | 2008(1) | 2009 | 2010 | 2011 | 2012 | 2013 | Return | |||||||||||||||||||||
Base Case — Continuing Operations |
$ | 0.26 | $ | 0.36 | $ | 0.47 | $ | 0.60 | $ | 0.74 | $ | 0.89 | ||||||||||||||||
EPS Multiple |
6.0x | 10.0x | 11.0x | 12.0x | 13.0x | 14.0x | ||||||||||||||||||||||
Implied Stock Price |
$ | 1.56 | $ | 3.60 | $ | 5.17 | $ | 7.20 | $ | 9.62 | $ | 12.46 | 51.5 | % | ||||||||||||||
| 5 Yr. | ||||||||||||||||||||||||||||
| Enterprise Value(EV)/EBITDA Forecast & Valuation | Annualized | |||||||||||||||||||||||||||
| 2008(1) | 2009 | 2010 | 2011 | 2012 | 2013 | Return | ||||||||||||||||||||||
Revenue |
$ | 176.9 | $ | 182.5 | $ | 193.8 | $ | 207.6 | $ | 221.8 | $ | 236.4 | ||||||||||||||||
EBITDA |
39.2 | 40.1 | 44.0 | 49.2 | 54.7 | 60.2 | ||||||||||||||||||||||
EBITDA as % of Revenue |
22.2 | % | 22.0 | % | 22.7 | % | 23.7 | % | 24.7 | % | 25.5 | % | ||||||||||||||||
EV/EBITDA Multiple |
6.9x | 7.5x | 7.7x | 7.9x | 8.1x | 8.3x | ||||||||||||||||||||||
Net Senior Debt |
132.7 | 142.9 | 152.8 | 159.2 | 161.8 | 160.4 | ||||||||||||||||||||||
Convertible Preferred |
93.8 | 83.8 | 83.8 | 83.8 | 83.8 | 83.8 | ||||||||||||||||||||||
Common Equity Mkt. Value |
42.1 | 74.1 | 102.2 | 145.7 | 197.5 | 255.5 | ||||||||||||||||||||||
Enterprise Value |
$ | 268.5 | $ | 300.8 | $ | 338.8 | $ | 388.7 | $ | 443.1 | $ | 499.7 | ||||||||||||||||
Implied Stock Price |
$ | 2.17 | $ | 4.28 | $ | 6.08 | $ | 8.47 | $ | 11.22 | $ | 14.19 | 45.6 | % | ||||||||||||||
Diluted Shares Outstanding |
19.4 | 17.3 | 16.8 | 17.2 | 17.6 | 18.0 | ||||||||||||||||||||||
| (1) | Excluding special charges |
FINANCIAL OUTLOOK
To better understand how improved execution of the Standards Operating Model and Strategic
Acquisition Model will drive future operating results, we provide a rolling twelve month outlook
after each quarter that reflects the trending progress we are making toward achieving the
sustainable earning power of our portfolio of operating assets. We believe that a rolling forecast
updated for acquisitions and dispositions will result in a more timely and accurate near term
Outlook that is not constrained by a fixed and arbitrary “finish line” at the end of each calendar
year.
The table on the following page depicts our current Outlook for the four quarter period ending
December 31, 2009. Our Short Term Rolling Four Quarter Outlook ranges are intended to approximate
what we believe will be the sustainable earning power of our portfolio of deathcare assets over
time as our three models are effectively executed. We have learned that it is better to be
“roughly right” than “precisely wrong” when forecasting our future results because of the
uncertainties in estimating key drivers of short term and long term performance, including volumes,
preneed sales,
preneed maturities and deliveries, average revenue per service and sale, Field EBITDA Margins,
acquisition timing and performance and trust fund earnings, just to name a few.
In our Rolling Four Quarter Outlook ending December 31, 2009, we expect to use Free Cash Flow (cash
flow from operations less maintenance capital expenditures) to repurchase shares of our common
stock and to invest in internal projects that will result in revenue and earnings growth and that
provide a ROIC in excess of our cost of capital. We have also assumed $2.2 million in additional
revenues from acquisitions in the second half of 2009. We are in the market evaluating candidates
and will follow our policy of updating our Outlook when the closing of a transaction is certain.
We do expect to invest over the near term in internal growth projects, such as cemetery inventory.
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 5 |
| Company & Investment Profile | March 2009 |
The primary near term drivers of our financial results will be performance from businesses acquired
during 2007 and improved execution of out Standards Operating Model in our same store portfolio.
The primary drivers of our long term growth in revenues, margins and earnings will be acquisitions
and modest growth in our same store revenues at sustainable margins.
Rolling Four Quarter Outlook — Period Ending December 31, 2009
(Amounts in Millions, Except Per Share Amounts)
| Range | Midpoint as | |||||||||||
| Range | Midpoint | % of Revenue | ||||||||||
Revenues |
$ | 177.0 - $183.0 | $ | 180.0 | 100.0 | % | ||||||
Field EBITDA |
$ | 59.5 - $62.0 | $ | 60.7 | 33.7 | % | ||||||
Field EBITDA Margin |
33.0% - 34.0 | % | 33.7 | % | 33.7 | % | ||||||
Total Overhead |
$ | 22.0 - $23.0 | $ | 22.5 | 12.5 | % | ||||||
Consolidated EBITDA |
$ | 39.0 - $41.0 | $ | 40.0 | 22.2 | % | ||||||
Consolidated EBITDA Margin |
21.5% - 22.5 | % | 22.2 | % | 22.2 | % | ||||||
Interest |
$ | 18.0 | $ | 18.0 | 10.0 | % | ||||||
Depreciation & Amortization |
$ | 11.5 | $ | 11.5 | 6.4 | % | ||||||
Cash Taxes |
$ | 1.0 | $ | 1.0 | 0.6 | % | ||||||
Net Earnings from Cont. Operations |
$ | 6.0 - $7.0 | $ | 6.5 | 3.6 | % | ||||||
Diluted Earnings Per Share |
$ | 0.36 - $0.40 | $ | 0.38 | — | |||||||
Free Cash Flow |
$ | 13.0 - $15.0 | $ | 14.0 | 7.8 | % | ||||||
Consolidated EBITDA in 2009 is expected to increase from 2008 for the following reasons:
| § | Lower special charges due primarily to elimination of most litigation. | |
| § | Increase in Funeral Field EBITDA with better execution of the Standards Operating Model; | |
| § | Increase in Same Store Cemetery EBITDA with higher preneed sales and less bad debt expense; | |
| § | Higher cemetery financial revenue; and | |
| § | Tighter management of overhead expenses. |
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 6 |
| Company & Investment Profile | March 2009 |
RECENT RESULTS
Fourth Quarter & Full Year 2008 Highlights
Adjusted diluted earnings per share in the fourth quarter of 2008, which excludes a one-time charge
for a litigation settlement and an increase in our effective tax rate for 2008, both of which were
recorded in the fourth quarter, were $0.04 per diluted share. Adjusted Consolidated EBITDA Margin
was 20.2% in the four quarter of 2008 compared to 24.9% in the fourth quarter of 2007 and 22.1% for
the year 2008 compared to 24.8% for the year 2007. The declines in EBITDA were largely due to weak
results in our cemetery segment. We have implemented plans to lower our costs company-wide and
improve the leadership and increase the quantity and quality of the sales staff at several of our
larger cemeteries to drive good quality sales and profit margins.
This past year and especially the last quarter were challenging to say the least, but we finished
with a strong December primarily because of our funeral operations. We have positioned our company
for improved performance in 2009 on the strength of our funeral operations and the repositioning of
our trust fund portfolio during the fourth quarter and early 2009. We do not expect to repeat the
large amount of special charges that impacted our 2008 performance, and notwithstanding the
extraordinarily difficult economic environment, we expect modestly improved cemetery performance in
2009. All in all, we believe we are in position to not only survive this unusual period, but to
thrive and exploit any opportunities that come our way
Funeral Operations
Fourth quarter Same Store Funeral Operations Revenue increased 1.2% as the average revenue per
contract increased 4.1% while the number of contracts declined 2.9%. Revenue from the Acquisition
portfolio increased $0.8 million primarily because of a full quarter of revenue from two large
businesses acquired in the fourth quarter of 2007. The overall cremation rate for the fourth
quarter of 2008 was 39.2%, which represents a slight decline from the third quarter. A recent
initiative to increase the average revenue per cremation contract largely by converting direct
cremations to cremations with services is gaining traction and helping not only our cremation
average, but customer satisfaction levels with our cremation families. As a result of this
initiative, which includes new training and presentation options for client families, the average
revenue per cremation contract increased 3.4% from the third quarter to the fourth quarter of 2008
and the proportion of cremations with services increased in each of our three regions.
Same Store Funeral Field EBITDA declined by $0.4 million, equal to 3.3%, compared to the fourth
quarter of 2007, while the related EBITDA Margin declined to 38% from 40%, primarily the result of
higher labor costs. Our funeral Acquisitions portfolio contributed an additional $0.2 million of
Field EBITDA compared to the prior year quarter.
For the full year, Same Store Funeral Revenue increased $2.4 million, equal to 2.1%, to $115.7
million. Total Same Store Funeral contract volume increased 0.7% and the atneed contract volume
increased 3.1% compared to 2007. Growing market share is the highest weighted performance standard
in our Standards Operating Model and serves as an incentive motivator for the local managing
partners to grow their contract volumes. This was the first year we have grown Same Store Funeral
Contracts since rolling out the Standards Operating Model in 2004 and is an indication that this
model combined with strong, operating leadership with 4E Leadership skills is proving effective at
growing local market share. Same Store Funeral Field EBITDA decreased $0.6 million, equal to 1.4%,
from $43.2 million for the year 2007 to $42.6 million for the year 2008 primarily as a result of
higher labor costs. Our Acquisition portfolio provided an additional $8.0 million in revenue and
$2.1 million in Field EBITDA in 2008 compared to 2007.
Cemetery Operations
Same Store Cemetery Operations Revenue increased $0.4 million, equal to 4.8%, to $8.1 million in
the fourth quarter. However, because Cemetery Same Store Financial Revenue from trust funds
declined by $0.8 million, Total Cemetery Same Store Revenue declined almost $0.5 million, equal to
5.1% quarter over quarter. The decline in Same Store Cemetery Financial Revenue was due to financial market conditions and repositioning of the trust
fund portfolio in the fourth quarter. In the fourth quarter, the Company recognized losses on a
substantial number of investments within its
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 7 |
| Company & Investment Profile | March 2009 |
cemetery trust fund portfolio in order to reinvest the
proceeds in high quality, income oriented securities that are and will continue to yield much
higher earnings and cash flow for the intermediate and long-term.
Same Store Cemetery Field EBITDA declined by $1.3 million for the fourth quarter, in part because
of the $0.8 million decline in financial revenue, as previously discussed. Additionally, because
of the weakening economy we increased our bad debt reserves on our portfolio of cemetery preneed
receivables.
For the full year, Cemetery Same Store Operations Revenue declined by $1.6 million to $32.7 million
and Cemetery Same Store Field EBITDA declined by $4.4 million. A large portion of the
underperformance occurred at Rolling Hills Memorial Park where a new sales manager has been busy
rebuilding a sales organization that can execute our product sales program more effectively. Our
Acquisition Cemetery portfolio provided an incremental $2.1 million in revenues and $0.9 million in
Field EBITDA in 2008 compared to 2007.
In order to increase revenues from preneed property sales, Carriage began an initiative in the
third quarter of 2008 to increase both the quantity and quality of the cemetery sales counselors at
our major parks. Management believes that this hiring initiative was approximately 80% complete at
year end and continued hiring emphasis should achieve appropriate staffing by the end of the first
quarter of 2009. General economic weakness continued in some of the Company’s key markets and is
having a negative impact on revenues, particularly preneed property sales.
Litigation
Carriage has reached a tentative settlement in a class action matter alleging violations of state
and federal wage and hour laws. As a result of the settlement, there was a $3.5 million charge,
including related legal fees, in the fourth quarter of 2008.
Overhead
Total Overhead, excluding special charges, increased to $5.8 million in the fourth quarter of 2008
from $5.4 million in the fourth quarter of 2007. For the full year, Total Overhead increased $0.2
million, equal to 1.0%, to $20.1 million, but declined as a percent of total revenue by 50 basis
points to 11.4%. The year over year increases in overhead were primarily related to upgrading of
regional operating leadership during the last two years. In order to effectively manage our
largest cost during the current economic crisis, the Company froze the salaries and wages of all
employees during December 2008.
Income Taxes
During the fourth quarter Carriage revised its effective tax rate for the year 2008 from
approximately 39.5% to 48.8%. This change in estimate was due to the lower taxable income compared
to that estimated earlier in the year. The lower taxable income was due primarily to the
litigation charge previously discussed. A portion ($0.5 million) of the income tax expense
recorded in the fourth quarter represents the additional amount that would have been recorded
during the first three quarters of 2008 had the revised rate been used.
Share Repurchase Program
During June 2008, the Board of Directors approved the repurchase of $5.0 million of the Company’s
common stock. During October 2008 Carriage completed the $5.0 million repurchase program for which
it acquired a total of 1,347,469 shares of common stock and an average cost per share of $3.71.
During November 2008 the Board of Directors approved an additional $5.0 million share repurchase
plan. Through February 2009, Carriage had repurchased a total of 635,990 shares of common stock at
an average cost per share of $1.99 under the new plan.
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 8 |
| Company & Investment Profile | March 2009 |
Cash Flow
Carriage produced Free Cash Flow (defined as cash flow from continuing operations less maintenance
capital expenditures) of $5.6 million during the fourth quarter of 2008 compared to $8.0 million
for the corresponding 2007 period. The sources and uses of cash for 2008 consisted of the
following (in millions):
Cash flow from continuing operations |
$ | 19.5 | ||
Cash used for maintenance capital expenditures |
(6.0 | ) | ||
Free Cash Flow for 2008 |
13.5 | |||
Cash and liquid investments at beginning of year |
3.4 | |||
Cash flow from discontinued operations |
0.2 | |||
Proceeds from sales of businesses |
1.0 | |||
Cash used for growth capital expenditures – funeral homes |
(3.5 | ) | ||
Cash used for growth capital expenditures – cemeteries |
(3.4 | ) | ||
Financing activities |
(6.2 | ) | ||
Cash at December 31, 2008 |
$ | 5.0 | ||
Board of Directors
Two new members joined our board on February 25, 2009, when Joe R. Davis and Gary L. Forbes
resigned their board positions in order to focus their time and energy on other matters during the
current environment. The Board of Directors appointed Richard W. Scott as a Class I director of
the Company and Chairman of the Corporate Governance Committee and L. William Heiligbrodt as a
Class II director of the Company and Chairman of the Compensation Committee, effective as of
February 25, 2009.
Mr. Scott is a seasoned financial services executive with over thirty years of capital markets
experience. He is currently Vice President and Chief Investment Officer of Loews Corporation and
formerly Chief Investment Officer, Insurance Portfolio Management, with AIG Investments.
Mr. Heiligbrodt is a private investor and managing partner in a family business, and also serves on
the Board of Directors of BJ Services. He served in various management positions with Service
Corporation International (“SCI”) beginning in February 1990, including President and Chief
Operating Officer until February 1999. Prior to joining SCI, Mr. Heiligbrodt served as Vice
Chairman and Chief Executive Officer of Wedge Group, Inc. for five years, which he joined in 1983
after a long career in banking with Texas Commerce Bank including as President and Chief Credit
Officer.
TREND REPORTING
Management monitors consolidated same store and acquisition field operating and financial results
both on a multi-year and most recent rolling four quarters basis to reflect long term trends, and
by quarter for the most recent five quarters to reflect short term trends and seasonality. Just as
we report internally for each of our businesses under the Standards Operating Model, these field
level results highlight trends in volumes, revenues, Field EBITDA (controllable profit) and Field
EBITDA Margin (controllable profit margin). Trend reporting allows us to focus on the key
operational and financial drivers relevant to the longer term performance and valuation of our
portfolio of deathcare businesses. The following two pages present our consolidated Annual and
Quarterly Trend Reports.
We will maintain separate reporting for our same store continuing operations (adjusted for
dispositions as they occur) and our acquisition portfolio to show how the execution of both our
Standards Operating Model and our Strategic Acquisition Model will change the sustainable revenue
and earning power profile of Carriage Services over time.
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 9 |
| Company & Investment Profile | March 2009 |
UNAUDITED INCOME STATEMENT FROM CONTINUING OPERATIONS
Annual Trend
For the Five Years Ended December, 2008
($000’s)
Annual Trend
For the Five Years Ended December, 2008
($000’s)
| Pro forma | Actual | Actual | Actual | Actual | ||||||||||||||||
| Year | Year | Year | Year | Year | ||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
CONTINUING OPERATIONS |
||||||||||||||||||||
Same Store Contracts |
||||||||||||||||||||
Atneed Contracts |
17,212 | 17,163 | 16,712 | 16,367 | 16,881 | |||||||||||||||
Preneed Contracts |
4,376 | 4,405 | 4,560 | 4,395 | 4,019 | |||||||||||||||
Total Same Store Funeral Contracts |
21,588 | 21,568 | 21,272 | 20,762 | 20,900 | |||||||||||||||
Acquisition Contracts |
||||||||||||||||||||
Atneed Contracts |
— | 53 | 194 | 1,439 | 2,858 | |||||||||||||||
Preneed Contracts |
— | 29 | 95 | 643 | 903 | |||||||||||||||
Total Acquisition Funeral Contracts |
— | 82 | 289 | 2,082 | 3,761 | |||||||||||||||
New Store Openings |
— | — | 104 | 522 | 870 | |||||||||||||||
Total Funeral Contracts |
21,588 | 21,650 | 21,665 | 23,366 | 25,531 | |||||||||||||||
Same Store Revenue |
||||||||||||||||||||
Funeral Operations Revenue |
$ | 105,221 | $ | 107,139 | $ | 109,592 | $ | 111,092 | $ | 113,034 | ||||||||||
Preneed Commission and Other Revenue |
1,319 | 2,295 | 2,267 | 2,198 | 2,670 | |||||||||||||||
Total Funeral Same Store Revenue |
106,540 | 109,434 | 111,859 | 113,290 | 115,704 | |||||||||||||||
Cemetery Operations Revenue |
33,203 | 33,940 | 32,107 | 34,299 | 32,726 | |||||||||||||||
Cemetery Financial Revenue |
2,912 | 3,615 | 4,052 | 4,526 | 3,723 | |||||||||||||||
Total Same Store Cemetery Revenue |
36,115 | 37,555 | 36,159 | 38,825 | 36,449 | |||||||||||||||
Total Same Store Revenue |
142,655 | 146,989 | 148,018 | 152,115 | 152,153 | |||||||||||||||
Acquisition Revenue |
||||||||||||||||||||
Funeral Operations Revenue |
— | 303 | 1,339 | 10,549 | 18,542 | |||||||||||||||
Cemetery Operations Revenue |
— | — | — | 3,875 | 5,971 | |||||||||||||||
Cemetery Financial Revenue |
— | — | — | 317 | 262 | |||||||||||||||
Total Acquisition Revenue |
— | 303 | 1,339 | 14,741 | 24,775 | |||||||||||||||
Total Revenue from Continuing Operations |
$ | 142,655 | $ | 147,292 | $ | 149,357 | $ | 166,856 | $ | 176,928 | ||||||||||
Field EBITDA from Continuing Operations |
||||||||||||||||||||
Same Store Funeral Field EBITDA |
$ | 37,061 | $ | 41,223 | $ | 41,147 | $ | 43,183 | $ | 42,587 | ||||||||||
Same Store Funeral Field EBITDA Margin |
34.8 | % | 37.7 | % | 36.8 | % | 38.1 | % | 36.8 | % | ||||||||||
Same Store Cemetery Field EBITDA |
11,458 | 11,480 | 11,243 | 13,405 | 8,966 | |||||||||||||||
Same Store Cemetery Field EBITDA Margin |
31.7 | % | 30.6 | % | 31.1 | % | 34.5 | % | 24.6 | % | ||||||||||
Total Same Store Field EBITDA |
48,519 | 52,703 | 52,390 | 56,588 | 51,553 | |||||||||||||||
Total Same Store Field EBITDA Margin |
34.0 | % | 35.9 | % | 35.4 | % | 37.2 | % | 33.9 | % | ||||||||||
Acquisition Funeral Field EBITDA |
— | 1 | 200 | 3,617 | 5,736 | |||||||||||||||
Acquisition Funeral Field EBITDA Margin |
— | 0.3 | % | 14.9 | % | 34.3 | % | 30.9 | % | |||||||||||
Acquisition Cemetery Field EBITDA |
— | — | — | 1,053 | 1,994 | |||||||||||||||
Acquisition Cemetery Field EBITDA Margin |
— | — | — | 25.1 | % | 32.0 | % | |||||||||||||
Total Acquisition Field EBITDA |
— | 1 | 200 | 4,670 | 7,730 | |||||||||||||||
Total Acquisition Field EBITDA Margin |
— | 0.3 | % | 14.9 | % | 31.7 | % | 31.2 | % | |||||||||||
Total Field EBITDA from Continuing Operations |
48,519 | 52,704 | 52,590 | 61,258 | 59,283 | |||||||||||||||
Total Field EBITDA Margin from Continuing Operations |
34.0 | % | 35.8 | % | 35.2 | % | 36.7 | % | 33.5 | % | ||||||||||
Overhead |
||||||||||||||||||||
Total Variable Overhead |
1,301 | 1,111 | 1,280 | 3,406 | 3,403 | |||||||||||||||
Total Regional Fixed Overhead |
2,892 | 3,247 | 2,953 | 3,122 | 3,413 | |||||||||||||||
Total Corporate Fixed Overhead |
11,410 | 12,107 | 13,379 | 13,408 | 13,311 | |||||||||||||||
Total Overhead |
15,603 | 16,465 | 17,612 | 19,936 | 20,127 | |||||||||||||||
| 10.9 | % | 11.2 | % | 11.8 | % | 11.9 | % | 11.4 | % | |||||||||||
Adjusted Consolidated EBITDA from Continuing Operations |
$ | 32,916 | $ | 36,239 | $ | 34,978 | $ | 41,322 | $ | 39,156 | ||||||||||
Adjusted Consolidated EBITDA Margin from Continuing Operations |
23.1 | % | 24.6 | % | 23.4 | % | 24.8 | % | 22.1 | % | ||||||||||
Special Charges |
||||||||||||||||||||
Litigation Settlement |
— | — | — | — | 3,300 | |||||||||||||||
Litigation Related Legal Costs |
— | — | 71 | 861 | 1,638 | |||||||||||||||
Termination Expenses |
297 | 265 | 264 | — | 977 | |||||||||||||||
Other Special Charges |
(410 | ) | 8,881 | 1,460 | 739 | 246 | ||||||||||||||
Sum of Special Charges |
(113 | ) | 9,146 | 1,795 | 1,600 | 6,161 | ||||||||||||||
Consolidated EBITDA from Continuing Operations |
$ | 33,029 | $ | 27,093 | $ | 33,183 | $ | 39,722 | $ | 32,995 | ||||||||||
| 23.2 | % | 18.4 | % | 22.2 | % | 23.8 | % | 18.6 | % | |||||||||||
Property Depreciation & Amortization |
9,208 | 9,784 | 9,770 | 9,488 | 10,368 | |||||||||||||||
Restricted Stock Amortization |
307 | 584 | 472 | 723 | 996 | |||||||||||||||
Interest, Net |
16,908 | 18,664 | 17,099 | 17,193 | 18,102 | |||||||||||||||
Pretax Income |
$ | 6,606 | $ | (1,939 | ) | $ | 5,842 | $ | 12,318 | $ | 3,529 | |||||||||
Benefit for Income Taxes due to Valuation Adjustment |
(810 | ) | — | — | — | — | ||||||||||||||
Income Tax |
2,549 | (640 | ) | 2,239 | 4,960 | 1,725 | ||||||||||||||
Net income from Continuing Operations |
$ | 4,867 | $ | (1,299 | ) | $ | 3,603 | $ | 7,358 | $ | 1,804 | |||||||||
| 3.4 | % | -0.9 | % | 2.4 | % | 4.4 | % | 1.0 | % | |||||||||||
Diluted EPS-from continuing operations |
$ | 0.27 | $ | (0.07 | ) | $ | 0.19 | $ | 0.38 | $ | 0.09 | |||||||||
Net Income (Loss) from Discontinued Operations |
$ | (1,087 | ) | $ | 2,186 | $ | (5,019 | ) | $ | 921 | $ | (1,546 | ) | |||||||
Diluted EPS-from discontinued operations |
$ | (0.06 | ) | $ | 0.12 | $ | (0.27 | ) | $ | 0.05 | $ | (0.08 | ) | |||||||
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 10 |
| Company & Investment Profile | March 2009 |
UNAUDITED INCOME STATEMENT FROM CONTINUING OPERATIONS
Quarter Trend
For the Five Quarters Ended December 31, 2008
($ 000’s)
Quarter Trend
For the Five Quarters Ended December 31, 2008
($ 000’s)
| Actual | Actual | Actual | Actual | Actual | ||||||||||||||||
| Qtr 4 | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 | ||||||||||||||||
| 2007 | 2008 | 2008 | 2008 | 2008 | ||||||||||||||||
CONTINUING OPERATIONS |
||||||||||||||||||||
Same Store Contracts |
||||||||||||||||||||
Atneed Contracts |
4,211 | 4,640 | 4,103 | 3,994 | 4,144 | |||||||||||||||
Preneed Contracts |
1,047 | 1,150 | 983 | 922 | 964 | |||||||||||||||
Total Same Store Funeral Contracts |
5,258 | 5,790 | 5,086 | 4,916 | 5,108 | |||||||||||||||
Acquisition Contracts |
||||||||||||||||||||
Atneed Contracts |
561 | 800 | 723 | 671 | 664 | |||||||||||||||
Preneed Contracts |
237 | 240 | 229 | 187 | 247 | |||||||||||||||
Total Acquisition Funeral Contracts |
798 | 1,040 | 952 | 858 | 911 | |||||||||||||||
New Store Openings |
144 | 210 | 232 | 190 | 238 | |||||||||||||||
Total Funeral Contracts |
6,200 | 7,040 | 6,270 | 5,964 | 6,257 | |||||||||||||||
Same Store Revenue |
||||||||||||||||||||
Funeral Operations Revenue |
$ | 28,024 | $ | 31,304 | $ | 26,724 | $ | 26,657 | $ | 28,349 | ||||||||||
Preneed Commission and Other Revenue |
444 | 752 | 675 | 626 | 617 | |||||||||||||||
Total Funeral Same Store Revenue |
28,468 | 32,056 | 27,399 | 27,283 | 28,966 | |||||||||||||||
Cemetery Operations Revenue |
7,764 | 7,507 | 8,176 | 8,903 | 8,138 | |||||||||||||||
Cemetery Financial Revenue |
1,543 | 1,004 | 1,004 | 1,020 | 695 | |||||||||||||||
Total Cemetery Same Store Revenue |
9,307 | 8,511 | 9,180 | 9,923 | 8,833 | |||||||||||||||
Total Same Store Revenue |
37,775 | 40,567 | 36,579 | 37,206 | 37,799 | |||||||||||||||
Acquisition Revenue |
||||||||||||||||||||
Funeral Operations Revenue |
3,745 | 4,961 | 4,752 | 4,313 | 4,516 | |||||||||||||||
Cemetery Operations Revenue |
1,296 | 1,534 | 1,367 | 1,623 | 1,447 | |||||||||||||||
Cemetery Financial Revenue |
161 | 81 | 39 | 70 | 72 | |||||||||||||||
Total Acquisition Revenue |
5,202 | 6,576 | 6,158 | 6,006 | 6,035 | |||||||||||||||
Total Revenue from Continuing Operations |
$ | 42,977 | $ | 47,143 | $ | 42,737 | $ | 43,212 | $ | 43,834 | ||||||||||
Field EBITDA from Continuing Operations |
||||||||||||||||||||
Same Store Funeral Field EBITDA |
$ | 11,382 | $ | 13,680 | $ | 9,099 | $ | 8,807 | $ | 11,001 | ||||||||||
Same Store Funeral Field EBITDA Margin |
40.0 | % | 42.7 | % | 33.2 | % | 32.3 | % | 38.0 | % | ||||||||||
Same Store Cemetery Field EBITDA |
3,133 | 2,259 | 2,321 | 2,600 | 1,786 | |||||||||||||||
Same Store Cemetery Field EBITDA Margin |
33.7 | % | 26.5 | % | 25.3 | % | 26.2 | % | 20.2 | % | ||||||||||
Total Same Store Field EBITDA |
14,515 | 15,939 | 11,420 | 11,407 | 12,787 | |||||||||||||||
Total Same Store Field EBITDA Margin |
38.4 | % | 39.3 | % | 31.2 | % | 30.7 | % | 33.8 | % | ||||||||||
Acquisition Funeral Field EBITDA |
1,173 | 1,746 | 1,347 | 1,260 | 1,383 | |||||||||||||||
Acquisition Funeral Field EBITDA Margin |
31.3 | % | 35.2 | % | 28.3 | % | 29.2 | % | 30.6 | % | ||||||||||
Acquisition Cemetery Field EBITDA |
452 | 589 | 402 | 542 | 461 | |||||||||||||||
Acquisition Cemetery Field EBITDA Margin |
31.0 | % | 36.5 | % | 28.6 | % | 32.0 | % | 30.3 | % | ||||||||||
Total Acquisition Field EBITDA |
1,625 | 2,335 | 1,749 | 1,802 | 1,844 | |||||||||||||||
Total Acquisition Field EBITDA Margin |
31.2 | % | 35.5 | % | 28.4 | % | 30.0 | % | 30.6 | % | ||||||||||
Total Field EBITDA from Continuing Operations |
16,140 | 18,274 | 13,169 | 13,209 | 14,631 | |||||||||||||||
Total Field EBITDA Margin from Continuing Operations |
37.6 | % | 38.8 | % | 30.8 | % | 30.6 | % | 33.4 | % | ||||||||||
Overhead |
||||||||||||||||||||
Total Variable Overhead |
1,408 | 1,068 | 338 | 549 | 1,449 | |||||||||||||||
Total Regional Fixed Overhead |
731 | 833 | 833 | 831 | 916 | |||||||||||||||
Total Corporate Fixed Overhead |
3,287 | 2,970 | 3,465 | 3,463 | 3,413 | |||||||||||||||
Total Overhead |
5,426 | 4,871 | 4,636 | 4,843 | 5,778 | |||||||||||||||
| 12.6 | % | 10.3 | % | 10.8 | % | 11.2 | % | 13.2 | % | |||||||||||
Adjusted Consolidated EBITDA from Continuing Operations |
$ | 10,714 | $ | 13,403 | $ | 8,533 | $ | 8,366 | $ | 8,853 | ||||||||||
Adjusted Consolidated EBITDA Margin from Continuing Operations |
24.9 | % | 28.4 | % | 20.0 | % | 19.4 | % | 20.2 | % | ||||||||||
Special Charges |
||||||||||||||||||||
Litigation Settlement |
— | — | — | — | 3,300 | |||||||||||||||
Litigation Related Legal Costs |
337 | 665 | 258 | 474 | 241 | |||||||||||||||
Termination Expenses |
— | 47 | 653 | 269 | — | |||||||||||||||
Other Special Charges |
165 | 40 | 153 | 61 | — | |||||||||||||||
Sum of Special Charges |
502 | 752 | 1,064 | 804 | 3,541 | |||||||||||||||
Consolidated EBITDA from Continuing Operations |
$ | 10,212 | $ | 12,651 | $ | 7,469 | $ | 7,562 | $ | 5,312 | ||||||||||
| 23.8 | % | 26.8 | % | 17.5 | % | 17.5 | % | 12.1 | % | |||||||||||
Property Depreciation & Amortization |
2,336 | 2,529 | 2,545 | 2,670 | 2,624 | |||||||||||||||
Restricted Stock Amortization |
222 | 214 | 347 | 188 | 246 | |||||||||||||||
Interest, Net |
4,474 | 4,529 | 4,505 | 4,444 | 4,624 | |||||||||||||||
Pretax Income |
$ | 3,180 | $ | 5,379 | $ | 72 | $ | 260 | $ | (2,182 | ) | |||||||||
Income Tax |
1,352 | 2,125 | 28 | 103 | (531 | ) | ||||||||||||||
Net Income from Continuing Operations |
$ | 1,828 | $ | 3,254 | $ | 44 | $ | 157 | $ | (1,651 | ) | |||||||||
| 4.3 | % | 6.9 | % | 0.1 | % | 0.4 | % | (3.8 | )% | |||||||||||
Diluted EPS-from continuing operations |
$ | 0.09 | $ | 0.17 | $ | — | $ | 0.01 | $ | (0.09 | ) | |||||||||
Net Income (Loss) from Discontinued Operations |
$ | 383 | $ | 35 | $ | (1,426 | ) | $ | — | $ | (156 | ) | ||||||||
Diluted EPS-from discontinued operations |
$ | 0.02 | $ | — | $ | (0.07 | ) | $ | — | $ | (0.01 | ) | ||||||||
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 11 |
| Company & Investment Profile | March 2009 |
COMPANY STRATEGY
Carriage Services is a leading provider of professional funeral and cemetery services and products
in the United States. We operate two types of businesses: funeral homes which account for
approximately 75 percent of total revenue, and cemeteries which account for approximately 25
percent of total revenue. We operate 136 funeral homes in 25 states and 32 cemeteries in 11
states, primarily serving suburban markets, and we believe our market position is first or second
in most of these markets.
Our Standards Operating Model, which was rolled out in 2004 and measures the sustainable revenue
growth and earning power of our portfolio of deathcare businesses, led to the development of a
Strategic Portfolio Optimization Model during 2006 that guides our acquisition and disposition
strategy. Both models, when executed effectively, drive longer term increases in revenue, earnings
and free cash flow.
Founded in 1991;
initial public
offering in 1996
|
Acquisitions curtailed; improved or disposed of under performing businesses | Transformed organizational structure & operational leadership |
Position Carriage for improved performance in 2009 |
|||
Aggressive |
Developed Strategic | |||||
growth, spending
|
Fresh Start –financial | Portfolio Optimization | Company-wide focus on | |||
over $400 million
|
restructuring; reduced | Model | reducing costs and | |||
at peak of market
|
debt by $94mm | expenses | ||||
to acquire
|
Improved execution of | |||||
businesses
|
Organizational | Standards Model | Increase cremation | |||
| restructuring & | averages through | |||||
| upgrading leadership | Utilized cash flow and | training & packaging | ||||
| cash on hand for selected | ||||||
| Changed from budget & | acquisitions | Complete hiring process | ||||
| control model to “Being | of more cemetery | |||||
| the Best” standards | Repositioned trust fund | preneed sales people | ||||
| operating model | portfolios for changing | |||||
| economy & markets | Utilize cash flow and | |||||
| Refinanced Senior Debt | cash on hand to | |||||
| Implemented common | repurchase capital & for | |||||
| Reposition Company for | stock share repurchase | growth capex | ||||
| growth using free cash | program in 2008 | |||||
| flow | ||||||
| Recruited new sales | ||||||
| leadership for cemeteries |
Key elements of our company strategy include the following:
Standards Operating Model
The “Being the Best” standards enable us to focus on market share, people and operating metrics
that drive long-term operating and financial performance. To date, the Standards Operating Model
has driven significant changes in our organization, leadership and operating practices. Most
importantly, the Standards Operating Model allows us to determine the sustainable revenue growth
and earning power of our portfolio of deathcare businesses. The funeral and cemetery standards are
designed to drive longer-term performance by growing market share and creating new heritage and
producing consistent, modest revenue growth and a sustainable, increasing level of earnings and
cash flow. The standards are not designed to produce maximum short-term earnings because Carriage
does not believe such performance is sustainable without ultimately stressing the business, which
often leads to declining market share, revenues and earnings.
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 12 |
| Company & Investment Profile | March 2009 |
Key Elements of Being the Best
Our Standards Operating Model for the funeral segment is based upon lessons learned from our best
businesses and best operators. We analyzed the long-term performance of our best businesses
(approximately 20% by number) and developed operating and financial standards, taking into
consideration size and cremation mix, organized around three primary areas – market share, people
and operating and financial metrics. We introduced a more decentralized, entrepreneurial and local
operating model and aligned the incentive compensation structure with the new standards. These
standards and incentives challenge and reward our Managing Partners who thrive on growing their
local business and being accountable for results.
| • | Balanced Operating Model –We believe a decentralized structure works best in the deathcare industry. The Standards Operating Model focuses on key drivers of a successful funeral business, organized around three primary areas – market share, people and operating and financial metrics. Successful execution is highly dependent on strong local leadership, intelligent risk taking, entrepreneurial drive and corporate support aligned with the key drivers. |
| • | Incentives Aligned with Standards – Empowering Managing Partners to do the right things in their operations and local communities, and providing appropriate support with operating and financial practices, will enable long-term growth and sustainable profitability. Each Managing Partner participates in a variable bonus plan whereby they earn a percentage of their business’ earnings based upon the actual standards achieved. Each Managing Partner has the opportunity to share in the earnings of the business as long as the performance exceeds our minimum standards. |
| • | The Right Local Leadership — Successful execution of our operating model is highly dependent on strong local leadership as defined by our 4E Leadership Model, intelligent risk taking and entrepreneurial empowerment. Over time, a Managing Partner’s performance is judged according to achievement of the “Being the Best” Standards for that business. |
Cemetery Standards
In January 2007, we streamlined our cemetery standards in favor of a simpler model consisting of
fewer quantitative and qualitative measures. This simpler standards model is designed to focus
cemetery Managing Partners and Sales Managers on fundamental key drivers necessary to operate and
grow their business.
Quantitative Measures - We developed preneed property sales and operating margin range forecasts
for each cemetery business taking into account varying sizes, markets and the historical
performance of each business. These are the two quantitative standards on which each Managing
Partner and Sales Manager are judged. Cemetery Operating Margin percent is a true definition of
sustained earnings power of the business, meaning that property, merchandise and services must be
sold in sufficient quantity and at adequate margins, operating costs must be managed tightly,
marker and monument orders and installations made accurately and timely, and the quality of sales
must be high enough and the collections process effective enough to prevent excessive cancellations
and large bad debt issues that impact profitability.
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 13 |
| Company & Investment Profile | March 2009 |
Qualitative Standards – The qualitative standards are focused on evaluating the quality of
leadership using the 4E Leadership Model that Carriage adopted in 2006. Each Managing Partner and
Sales Manager is also judged on the quality of staff and on their ability to continuously upgrade
staff.
The weightings for each standard were designed to create a partnership between the Managing Partner
and the Sales Manager. The Sales Manager and sales team must achieve the preneed property dollar
forecast in order for the business to achieve the Cemetery Operating Margin, and the Managing
Partner must manage the operating costs and run a first class operation in support of more property
sales and new heritage. And both the Managing Partner and Sales Manager must work constantly and
effectively on their respective people or neither will be able to achieve their respective
standards.
4E Leadership Model
The Standards Operating Model requires strong leadership to grow an entrepreneurial, high value,
personal service and sales business at sustainable Field EBITDA Margins. Our 4E Leadership Model
is based upon principles established by Jack Welch during his tenure at General Electric and is
based upon 4E qualities essential to succeed in a high performance culture: Energy to get the job
done; the ability to Energize others; the Edge necessary to make difficult decisions; and the
ability to Execute and produce results. To achieve a high level of standards in a business year
after year, we must have “A players” in charge who have the 4E leadership skills to grow the
business by hiring, training and developing highly motivated and productive teams that produce
results.
Our Managing Partners participate in a variable bonus plan in which they earn a percentage of their
business’ earnings based upon the actual standards achieved. We believe our Managing Partners have
the opportunity to be compensated at close to the same level as if they owned the business. We
currently employ the strongest group of operational leaders in the Company’s history and the bonus
plan fosters a growing reputation that “A players” can thrive and be rewarded and recognized in our
performance based culture.
Strategic Acquisition Model
While we consistently generated industry leading Consolidated EBITDA Margins over the past few
years, we believe a primary driver of higher margins in the future will be the execution of our
Strategic Acquisition Model using six strategic ranking criteria to assess acquisition and
divestiture candidates. As we execute this strategy over the next five years, we will acquire
larger, higher margin strategic businesses and sell smaller, lower margin non-strategic businesses.
We believe we can do so without incremental investment in our consolidation platform
infrastructure or additional fixed regional and corporate overhead. Consequently, the sustained
earning power of our portfolio as defined by our Consolidated EBITDA Margin should incrementally
increase over time as we execute the model.
We have learned that the long term growth or decline of a local, branded deathcare business is
reflected by six criteria that correlate strongly with 5 – 10 year performance in volumes (market
share), revenues and sustainable Field EBITDA Margins. We use these criteria to rank the strategic
position of each of our existing businesses and acquisition candidates according to:
1. Size of Business
2. Size of Market
3. Competitive Standing
4. Demographics
5. Strength of Brand
6. Barriers to Entry
2. Size of Market
3. Competitive Standing
4. Demographics
5. Strength of Brand
6. Barriers to Entry
These criteria are weighted to determine an overall ranking for each business. Generally we can
separate our existing portfolio into two groups: A, B and C ranked businesses located in strategic
markets and B and C ranked businesses
located in non-strategic markets. Our analysis showed that over the five year period 2001-2005, we
achieved substantial revenue and Field EBITDA growth from our A, B and strong C businesses in
strategic markets because modest volume
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 14 |
| Company & Investment Profile | March 2009 |
growth combined with modest average revenue increases produced higher sustainable Field EBITDA
Margins. These businesses take maximum advantage of the operating leverage of higher revenues over
a large fixed cost business structure. On the other hand, most of this five year growth in revenue
and earnings from our A, B and C businesses in strategic markets was lost by declines in our
portfolio of B and C businesses in non-strategic markets.
As a result, we have established five year goals to transform and significantly improve the
sustainable revenue and earning power profile of our portfolio by acquiring concentrated groups of
primarily higher ranked businesses in 10 to 15 demographically attractive markets and to exit
smaller markets where we have no competitive advantage or growth opportunity. Execution of this
Strategic Portfolio Optimization Model was initiated during 2006 with the sale of our two
non-strategic Indiana businesses and the acquisitions during 2007 of seven businesses, including
three large A ranked combination businesses in Corpus Christi, Texas, Camarillo, California and
Boise, Idaho. The Camarillo acquisition established a platform business in the southern California
market around which we plan to buy and/or build a group of high quality deathcare operations
similar to our concentration in the northern California markets around San Francisco and San Jose
and now in the greater Boise market.
The following is our revenue and cash flow forecast:
Revenue & Cash Flow Forecast
Amounts In Millions
Amounts In Millions
| Annualized Revenue Estimates | ||||||||||||||||||||
| 2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||
Existing Revenue |
$ | 180.3 | $ | 183.8 | $ | 187.3 | $ | 190.9 | $ | 194.6 | ||||||||||
2009 Acquired Revenue |
$ | 2.2 | $ | 2.2 | $ | 2.3 | $ | 2.3 | $ | 2.4 | ||||||||||
2010 Acquired Revenue |
7.8 | 7.9 | 8.1 | 8.2 | ||||||||||||||||
2011 Acquired Revenue |
10.1 | 10.3 | 10.5 | |||||||||||||||||
2012 Acquired Revenue |
10.2 | 10.4 | ||||||||||||||||||
2013 Acquired Revenue |
10.3 | |||||||||||||||||||
| $ | 182.5 | $ | 193.8 | $ | 207.6 | $ | 221.8 | $ | 236.4 | |||||||||||
EBITDA Margin |
22.0 | % | 22.7 | % | 23.7 | % | 24.8 | % | 25.6 | % | ||||||||||
EBITDA |
$ | 40.1 | $ | 44.0 | $ | 49.3 | $ | 54.9 | $ | 60.5 | ||||||||||
Free Cash Flow |
$ | 12.8 | $ | 13.2 | $ | 16.6 | $ | 20.4 | $ | 24.4 | ||||||||||
Beginning Cash / (Borrowings) |
$ | 5.0 | $ | (5.7 | ) | $ | (16.1 | ) | $ | (23.0 | ) | $ | (26.1 | ) | ||||||
Stock Repurchases |
4.0 | — | — | — | — | |||||||||||||||
Debt Repurchase & Reduction |
5.7 | 0.5 | 0.5 | 0.5 | 0.5 | |||||||||||||||
Growth Cap-ex |
2.0 | 3.0 | 3.0 | 3.0 | 3.0 | |||||||||||||||
Litigation Settlement |
3.3 | — | — | — | — | |||||||||||||||
Acquisition Cost |
8.5 | 20.0 | 20.0 | 20.0 | 20.0 | |||||||||||||||
Ending Cash / (Borrowings) |
$ | (5.7 | ) | $ | (16.1 | ) | $ | (23.0 | ) | $ | (26.1 | ) | $ | (25.2 | ) | |||||
Net Senior Debt/EBITDA |
3.5 | 3.5 | 3.2 | 2.9 | 2.6 | |||||||||||||||
Organizational Structure
Historically, we operated our portfolio through two divisions, funeral and cemetery, because conventional
wisdom in our industry generally separated the dominant service culture of the funeral business from the
dominant sales culture of the cemetery business. However, we now find that our Standards Operating Model
promotes cooperation between our funeral homes and cemeteries in a local market. During 2006, we combined
our funeral and cemetery businesses to bring our
| NYSE: CSV | Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 15 |
| Company & Investment Profile | March 2009 |
“deathcare operations” together under common leadership and a common mission of “Being the
Best” as defined by our Standards Operating Model. We also simplified and aligned our Cemetery
Standards with our Funeral Standards.
This new organizational structure is very flat with only one layer of leadership/management between
our COO and our Managing Partners in charge of each business. We believe strongly that our
deathcare operating model, which focuses on growth of each business through strong local leadership
and entrepreneurial principles, is a competitive advantage compared to other industry
consolidators. Our lean yet supportive organizational structure is designed to help our Managing
Partners respond quickly to local market changes and opportunities and thereby achieve a high level
of their Standards.
CAPITAL STRUCTURE FACILITATES GROWTH
There are four primary components in our capital structure: (1) $130 million of senior notes that
have a 2015 maturity, (2) a $35 million revolving credit facility that was undrawn at year end 2008
and matures in April 2010, (3) $93.75 million in outstanding convertible junior subordinated
debentures which have the ability to defer payments of interest and have a 2029 maturity (TIDES),
and (4) common stock. We are currently reviewing options to increase in size and extend the
maturity of our bank revolving credit facility to accommodate acquisition and other opportunities
to increase shareholder value.
Our highly leveraged capital structure includes relatively low fixed rate mezzanine and senior debt
similar to an LBO structure. In addition, our senior notes and TIDES require no principle
reductions until maturity. Consequently, we will use our cash and consolidated free cash flow to
repurchase common stock, to selectively acquire funeral home and cemetery businesses and to fund
internal growth projects such as cemetery inventory development. We are the only company in our
sector that has a relatively low number of outstanding common shares such that selective
acquisitions can have a meaningful positive impact on operating and financial results.
EXECUTIVE TEAM
Our management team, headed by founder Mel Payne, is characterized by a dynamic culture that reacts
quickly and proactively to address changing market conditions and emerging trends. This culture
has been critical to recent successful efforts and will provide an important advantage as the
deathcare industry evolves. We are committed to operating an efficient corporate organization and
strengthening corporate and local business leadership. Our Being the Best operating model will
ensure this commitment at all levels of the organization. In 2006, the funeral and cemetery
divisions were reorganized into three Regions, each headed by a Regional Partner. This change
engenders more cooperation and synergy between our funeral and cemetery operations and supports the
goal of market-share and volume growth in our most significant markets. The three Regional
Partners report to Jay Dodds in his role of Chief Operating Officer. The following are bios for the
executive team.
Melvin C. Payne, a management founder of Carriage, has been Chairman of the Board and Chief
Executive Officer since December 1996. From the beginning of 2006 to September 2008, Mr. Payne
assumed the additional role of Chief Operating Officer. Prior to December 1996, he had been the
Chief Executive Officer and a director of Carriage since its inception in 1991. Mr. Payne resumed
the additional position of President in December 2000.
Terry E. Sanford is the Senior Vice President and Chief Financial Officer. Having joined Carriage
in 1997 as the Financial Controller, Mr. Sanford was promoted in 2000 to Vice President and
Corporate Controller, in 2006 to Chief Accounting Officer and Treasurer and in September 2008 to
his current position. Mr. Sanford’s work history prior to joining Carriage included senior
financial positions in manufacturing, financial services and consumer products companies and in
public accounting. He is a CPA and possesses a BBA in Accounting and an MBA in Finance.
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 16 |
| Company & Investment Profile | March 2009 |
Jay Dodds is the Senior Vice President and Chief Operating Officer. Mr. Dodds has been in senior
operations leadership for Carriage since October 2000, most recently as Regional Managing Partner
for the Central Region and Regional Vice President of Operations. Mr. Dodds joined Carriage in
1994 as an operations Vice President. He has over 25 years of professional funeral home, cemetery
and crematory operations experience. Prior to joining Carriage, he was affiliated with
Stewart Enterprises for 13 years serving in numerous operating positions. Mr. Dodds is a licensed
Funeral Director and holds a Bachelors of Business Administration degree from the University of
Texas Arlington. Mr. Dodds is a member of the National Funeral Directors Association, The Cremation
Associations of North America and the International Funeral, Cemetery and Cremation Association.
J. Bradley Green is the Senior Vice President, General Counsel and Secretary. Additionally, Mr.
Green assumed the responsibility for the Company’s Corporate Development activities at the
beginning of 2009. He joined Carriage in October 2006. Prior to joining Carriage, Mr. Green was an
attorney, focusing his practice on employment and commercial litigation. From 1998 to 2002, Mr.
Green held legal and human resource positions, including General Counsel, at a Fortune 1000 company
that had operations in 42 countries. Prior to that, Mr. Green was an attorney at a national law
firm, focusing on the field of labor and employment law.
George “Skip” Klug has been Senior Vice President and Chief Information Officer since May 2002. He
joined Carriage in July 2001 to align the technology functions with the company’s business plan.
Before joining Carriage, Mr. Klug served from 1997 to 2000 as Vice President of Information
Technology at Allright Corporation, an owner operator of parking facilities both national and
international. Prior to Allright, Mr. Klug served as Vice President of Information Technology for
various retail companies including Oshmans, Sportstown, and Zaks. He also has a background in
operations and accounting and has been in management positions for 30 years.
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 17 |
| Company & Investment Profile | March 2009 |
FORWARD LOOKING STATEMENTS
In addition to historical information, this Company & Investment Profile contains forward-looking
statements within the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such statements typically are identified by terms expressing our future expectations or
projections of revenues, earnings, earnings per share, cash flow, market share, capital
expenditures, effects of operating and acquisition initiatives, gross profit margin, debt levels,
interest costs, tax benefits and other financial items. All forward-looking statements, although
made in good faith, are based on assumptions about future events and are therefore inherently
uncertain, and actual results may differ materially from those expected or projected.
Forward-looking statements speak only as of the date of this report, and we undertake no obligation
to update or revise such statements to reflect new circumstances or unanticipated events as they
occur. Readers should carefully review the Cautionary Statements described in this and other
documents we file from time to time with the Securities and Exchange Commission, including Annual
Reports on Form 10-K and Current Reports on Form 8-K filed by Carriage in the future.
CAUTIONARY 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 with 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. These statements are based on assumptions that the Company believes are reasonable;
however, many important factors, as discussed under “Cautionary Note,” “Risk Factors” and
“Forward-Looking Statements” in the Company’s Form 10-K for the year ended December 31, 2008, could
cause the Company’s results in the future to differ materially from the forward-looking statements
made herein and in any other documents or oral presentations made by, or on behalf of, the Company.
The Company assumes no obligation to update or publicly release any revisions to forward-looking
statements made herein or any other forward-looking statements made by, or on behalf of, the
Company. A copy of the Company’s Form 10-K, and other Carriage Services information and news
releases, are available at www.carriageservices.com.
DISCLOSURE OF NON-GAAP PERFORMANCE MEASURES
We report our financial results in accordance with generally accepted accounting principles
(“GAAP”). However, management believes the presentation of non-GAAP financial measures provides
useful information to management and investors regarding various financial and business trends
relating to the Company’s financial condition and results of operations, and that when GAAP
financial measures are viewed in conjunction with the non-GAAP financial measures, investors are
provided with a more meaningful understanding of the Company’s ongoing operating performance. In
addition, these non-GAAP financial measures are among the primary indicators management uses as a
basis for evaluating performance, allocating resources, and planning and forecasting future
periods. To the extent this document contains historical and certain forward-looking non-GAAP
financial measures, we have also provided corresponding GAAP financial measures for comparative
purposes.
Continuing operations refers to the businesses that are owned and not held for sale as of the most
recent reported results for all periods and will differ from the results for the period as
previously reported. Businesses sold, disposed or held for sale are reported in discontinued
operations for all periods presented.
We refer to the term “EBITDA” and “free cash flow” in various places of our financial discussion.
EBITDA is defined by us as net income from continuing operations before interest expense and other
financing costs, income tax expense, and depreciation and amortization expense. Free cash flow is
defined by us as cash provided by continuing operations less maintenance capital expenditures.
EBITDA and free cash flow are not measures of operating performance under generally accepted
accounting principles, or GAAP, and should not be considered in isolation nor construed as an
alternative to operating profit, net income (loss) or cash flows from operating, investing or
financing activities, each as determined in accordance with GAAP. You should also not consider
EBITDA or free cash flow as measures of liquidity. Moreover, since EBITDA and free cash flow are
not measures determined in accordance with GAAP and thus are susceptible to varying interpretations
and calculations, EBITDA and free cash flow are as presented, may not be comparable to similarly
titled measures presented by other companies.
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 18 |
| Company & Investment Profile | March 2009 |
Reconciliation of Non-GAAP Financial Measures
Reconciliation of Net Income from continuing operations to EBITDA from continuing operations (in
000s):
| Twelve Months | ||||
| Ended | ||||
| 12/31/2009E | ||||
Net income from continuing operations |
$ | 6,300 | ||
Provision for income taxes |
4,300 | |||
Pre-tax earnings from continuing operations |
10,600 | |||
Net interest expense, including loan cost amortization |
18,000 | |||
Depreciation & amortization |
11,500 | |||
Consolidated EBITDA from continuing operations |
$ | 40,100 | ||
Revenue from continuing operations |
$ | 182,500 | ||
Consolidated EBITDA margin from continuing operations |
22.0 | % | ||
Reconciliation of estimated EBITDA from continuing operations to free cash flow for the twelve
months ending December 31, 2009 (in 000’s):
Consolidated EBITDA from continuing operations* |
$ | 40,100 | ||
Interest paid |
17,900 | |||
Cash taxes |
1,200 | |||
Maintenance capital expenditures |
7,000 | |||
Free cash flow |
$ | 14,000 | ||
| * | See reconciliation in table above |
Reconciliation of cash provided by operating activities from continuing operations to free cash
flow (in 000’s):
| Three Months | Three Months | Twelve Months | Twelve Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 12/31/2007 | 12/31/2008 | 12/31/2007 | 12/31/2008 | |||||||||||||
Cash provided by operating activities from
continuing operations |
$ | 9,960 | $ | 7,441 | $ | 19,277 | $ | 19,497 | ||||||||
Less maintenance capital expenditures from
continuing operations |
(1,930 | ) | (1,794 | ) | (7,833 | ) | (5,984 | ) | ||||||||
Positive free cash flow from continuing operations |
$ | 8,030 | $ | 5,647 | $ | 11,444 | $ | 13,513 | ||||||||
Reconciliation of diluted earnings per share to adjusted diluted earnings per share for the fourth
quarter of 2008 (in 000’s):
| As | Litigation | Tax Rate | ||||||||||||||
| Reported | Charges | Change | Adjusted | |||||||||||||
Pre-tax income (loss) from continuing operations |
$ | (2,182 | ) | $ | 3,541 | $ | — | $ | 1,359 | |||||||
Income tax (expense) benefit |
531 | (1,728 | ) | 532 | (665 | ) | ||||||||||
Net income (loss) |
$ | (1,651 | ) | $ | 1,813 | $ | 532 | $ | 694 | |||||||
Diluted earnings (loss) per share |
$ | (0.09 | ) | $ | 0.10 | $ | 0.03 | $ | 0.04 | |||||||
NYSE: CSV
|
Forward-looking statements contained herein are subject to certain risks and uncertainties as further described at the end of this Company & Investment Profile. Please refer to the Appendix on page 18 that discusses and reconciles non-GAAP financial measures to GAAP financial measures. |
| Carriage Services | ©2009 Carriage Services, Inc. All rights reserved. | Page 19 |
Exhibit 99.3
| Carriage Services (NYSE: CSV) Investor Presentation April 2009 |
| Forward-Looking Statements The statements in this presentation that are not historical facts are forward-looking statements made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. For further information on these risks and uncertainties, see the Company's Securities and Exchange Commission filings, including our 2008 annual Report on Form 10-K. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events or otherwise. |
| Guiding Principles Honesty, Integrity and Quality in all that we do Hard work, pride of accomplishment and shared success through employee ownership Belief in the power of people though individual initiative and teamwork Outstanding service and profitability go hand-in-hand Growth of the Company is driven by decentralization and partnership We are committed to being the most professional, ethical and highest quality funeral and cemetery service organization in our industry. To achieve our mission, we are committed to the following principles: |
| Market Presence Operations in 25 states Focus on 10 - 15 Strategic Markets 136 Funeral Homes 32 Cemeteries (includes 11 Combos) Market leader (#1 or #2) in over 70% of locations = Funeral Home = Cemetery = Combination |
| Stock Valuation Metrics Price/2009(E) EPS = 4.1X Enterprise Value/2009(E) Consolidated EBITDA = 6.5X Equity Market Cap./2009(E) Free Cash Flow = 2.0X |
| Key Investment Considerations Standards Operating Model 4E Leadership Model Strategic Portfolio Optimization Model Carriage is uniquely positioned as a result of our three operating models: Execution of our models could produce superior stakeholder returns: Operating Leverage Organizational Overhead Leverage Capital Structure Leverage Consolidation Platform Leverage Carriage generates enough cash to finance its operations, repurchase shares and grow its business Carriage does NOT have any outstanding debt that needs to be refinanced in the near term The long term, low cost nature of our capital structure coupled with our cash flow generation gives us ample liquidity and financial flexibility |
| Company Strategy |
| Strategic Models Standards Operating Model Focuses on market share, people and operating metrics that drive long term operating and financial performance Designed and weighted to grow market share, volumes and average revenue modestly over time Designed to achieve sustainable Field EBITDA Margins over time 4E Leadership Model (Edge, Execution, Energy and Energize) Standards Operating Model requires strong leadership to grow an entrepreneurial, high value, personal service community business at sustainable Field EBITDA Margins 4E Leaders have a winning, competitive spirit and want to make a difference not only in their business but in Carriage's performance and reputation within the deathcare industry 4E Leaders are motivated by recognition, such as League Table rankings and regional competition, and by our Being The Best Incentive Bonus Program Carriage is uniquely positioned as a result of our three operating models: |
| Strategic Models Strategic Acquisition Model Assess acquisition candidates using six Strategic Ranking Criteria and use to differentiate pricing. Size of business Size of market Competitive standing Demographics Strength of brand Barriers of entry Build concentrated groups of A, B and C businesses in 10 to 15 strategic markets and sell non-strategic B and C businesses over time. Increase the sustainable revenue growth and earning power profile of the Carriage deathcare portfolio over time |
| Acquisition Growth Strategy Consolidation landscape Inventory of potential sellers with succession issues is building Attractive opportunities on the near-term horizon Current credit crisis has lowered valuation metrics Best operators are sensitive to operating style and reputation of buyer Carriage Services - excellent reputation as an operations company Smaller size and Standards Operating Model give Carriage a competitive advantage |
| Revenue & Cash Flow Forecast |
| Positioned to Produce Superior Shareholder Returns |
| Returns Driven by Four Levers Superior investment returns will be driven by a combination of unique and simultaneous financial dynamics: Operating Leverage Positioned to grow revenues four ways: Pricing Market share gains Demographics Death rate (longer-term) Modest growth in same store revenues and modest increases in Field EBITDA Margins over time will produce a higher growth rate in same store Field EBITDA Organizational Overhead Leverage Regional and corporate organizations are aligned with the Standards Operating Model and cost structures are relatively fixed and will not increase proportionate to growth in revenues Variable overhead (primarily incentive compensation) will increase relative to achievement of standards |
| Returns Driven by Four Levers Capital Structure Leverage Small number of common shares outstanding Share repurchase programs Leveraged capital structure includes mezzanine (TIDES) and senior debt (high yield) layers similar to an LBO structure Convertible Subordinated Preferreds (7% fixed, due 2029), distributions are deferrable-$93.75 million. High yield Senior Notes (7^% fixed, due 2015) rated B1/B-, currently yielding over 12% - $130 million Annual interest of approx. $18 million is fixed and easily covered by Consolidated EBITDA, yielding substantial Consolidated Free Cash Flow that can be used to make selective acquisitions Consolidation Platform Leverage Acquired revenues and Field Level EBITDA will substantially fall to Consolidated EBITDA and Pre-Tax Free Cash Flow and be accretive to EPS Free Cash Flow will grow at a faster rate than revenues - a financial benefit that will directly accrue to common shareholders Acquisition strategy will be funded by Consolidated Free Cash Flow, disposition proceeds and revolving credit facility without a need to issue dilutive new shares |
| Near Term Operational Focus Reduction of costs and expenses Wage freeze has been implemented Stronger management of underperforming operations Higher revenue realization on cremation contracts Company wide implementation of cremation service program Developing a cremation merchandising system Cremation performance measured against a standard and impacts incentive compensation Improved cemetery performance Improved management and sales leadership Increase the number of sales counselors to offset declining success rate in current economic environment |
| Economic Impact on Business Focused on managing and improving the aspects of our business that we can control Carriage generates enough cash to finance its operations, repurchase shares and grow its business Deathcare business is recession resistant, not recession proof Cemetery preneed business has been negatively impacted Cemetery operations are a sales organization; consumer sentiment and discretionary income levels impact demand Funeral business generally solid Repositioning the preneed trust portfolio in 4Q08/1Q09 created opportunities to invest in high quality, higher yielding securities At June 30, 2008, trust funds generated $3.8 mm in annual income At March 20, 2009, trust funds generated $6.7 mm in annual income |
| Expecting Improved Profitability (1) Financial data for 2008 is from continuing operations (2) Excludes the effect of approx. $6.2 million in special charges. Including these special charges, EBITDA for 2008 was $33.0 million, Consolidated EBITDA Margin was 18.6% and GAAP EPS was $0.09 Expected improvement in 2009 financial results to be driven by: Lower special charges due primarily to elimination of most litigation; Increase in Funeral Field EBITDA with better execution of the Standards Operating Model; Increase in Same Store Cemetery EBITDA with higher preneed sales and less bad debt expense; Higher cemetery financial revenue; and Tighter management of overhead expenses. |
| Long Term Outlook - Through 2013* Acquisition planned for 2009 Revenue growth of 6-7% annually, including acquisitions Consolidated EBITDA growth of 9-11% annually, including acquisitions Consolidated EBITDA Margin range of 22-26% Delever the Company through increasing cash flow and earnings * Base year is 2008 |
| Summary "Being the Best" high performance culture and innovative models applied to a traditional industry Performance over time has less to do with industry dynamics and more to do with culture and execution of the models Industry landscape provides quality acquisition candidates A highly selective acquisition program produces substantial financial impact over time Carriage Consolidation platform is highly attractive to top independents and top operating talent Single digit increases in revenue leveraged into double digit and sustainable growth in Consolidated EBITDA and diluted earnings per share Balance sheet and growth in Free Cash Flow provides financial flexibility |
| Disclosure of Non-GAAP Performance Measures We report our financial results in accordance with generally accepted accounting principles ("GAAP"). However, management believes the presentation of non-GAAP financial measures provides useful information to management and investors regarding various financial and business trends relating to the Company's financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with the non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company's ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating performance, allocating resources, and planning and forecasting future periods. To the extent this discussion contains historical and certain forward-looking non-GAAP financial measures, we have also provided corresponding GAAP financial measures for comparative purposes. Continuing operations refers to the businesses that are owned and not held for sale as of the most recent reported results for all periods and will differ from the results for the period as previously reported. Businesses sold, disposed or held for sale are reported in discontinued operations for all periods presented. We refer to the term "EBITDA" and "free cash flow" in various places of our financial discussion. EBITDA is defined by us as net income from continuing operations before interest expense and other financing costs, income tax expense, and depreciation and amortization expense. Free cash flow is defined by us as cash provided by continuing operations less maintenance capital expenditures. EBITDA and free cash flow are not measures of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. You should also not consider EBITDA or free cash flow as measures of liquidity. Moreover, since EBITDA and free cash flow are not measures determined in accordance with GAAP and thus are susceptible to varying interpretations and calculations, EBITDA and free cash flow are as presented, may not be comparable to similarly titled measures presented by other companies. |
| Disclosure of Non-GAAP Performance Measures Reconciliation of Net Income from continuing operations to EBITDA from continuing operations (in 000s): Reconciliation of estimated EBITDA from continuing operations to free cash flow for the twelve months ending December 31, 2009 (in 000’s): * See reconciliation in table above |
| Disclosure of Non-GAAP Performance Measures Reconciliation of cash provided by operating activities from continuing operations to free cash flow (in 000’s): |