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Carriage Services Announces Third Quarter 2017 Results And Raises Rolling Four Quarter Outlook

HOUSTON, Oct. 25, 2017 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the third quarter ended September 30, 2017.

Mel Payne, Chief Executive Officer, stated, "The third quarter marked a challenging time for our company and many of the communities we serve as Hurricanes Harvey and Irma swept across southern Texas and Florida. What we witnessed over the past few months was the remarkable and inspiring CAN DO SPIRIT of the affected communities whose leadership at all levels including federal, state and local showed the country strength and resilience at its best under difficult circumstances. I want to especially express my heartfelt appreciation and gratitude to all the employees in our home office support center and operating businesses that were affected, some of whom suffered personal devastation in their homes, but all of whom demonstrated what Carriage's High Performance Culture is all about during the storms and historic floods by continuing to serve their client families and local communities.

Remarkably, our home office support teams and systems continued to remain online serving our businesses throughout the crisis, a qualitative testimonial to our Mission of Being The Best. I want to take this opportunity on behalf of our senior leadership and Board to publicly thank all of the members of the Carriage Family of businesses and the many friends of our Carriage Family who reached out with their thoughts, prayers, sympathies and offers of support.

Third quarter highlights are shown below:

Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016

  • Record Total Revenue of $61.1 million, an increase of 1.5%;
  • Net Income of $3.0 million, a decrease of 46.5%;
  • GAAP Diluted Earnings Per Share of $0.17, a decrease of 48.5%;

  • Total Field EBITDA of $23.0 million, a decrease of 5.9%;
  • Total Field EBITDA Margin down 300 basis points to 37.7%;
  • Adjusted Consolidated EBITDA of $14.1 million, a decrease of 17.4%;
  • Adjusted Consolidated EBITDA Margin down 540 basis points to 23.1%;
  • Adjusted Net Income of $4.4 million, a decrease of 41.1%; and
  • Adjusted Diluted Earnings Per Share of $0.25, a decrease of 41.9%.

Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016

  • Record Total Revenue of $193.1 million, an increase of 4.2%;
  • Net Income of $14.5 million, a decrease of 6.0%;
  • GAAP Diluted Earnings Per Share of $0.81, a decrease of 11.0%;

  • Record Total Field EBITDA of $77.8 million, an increase of .7%;
  • Total Field EBITDA Margin down 140 basis points to 40.3%;
  • Adjusted Consolidated EBITDA of $51.2 million, a decrease of 6.5%;
  • Adjusted Consolidated EBITDA Margin down 310 basis points to 26.5%;
  • Adjusted Net Income of $18.0 million, a decrease of 17.2%; and
  • Adjusted Diluted Earnings Per Share of $1.00, a decrease of 21.9%.

Our third quarter and year to date operating and financial results have been disappointing as year to date Adjusted Diluted Earnings Per Share declined 21.9% to $1.00, Adjusted Consolidated EBITDA declined 6.5% to $51.2 million and Adjusted Consolidated EBITDA Margin declined 310 basis points to 26.5% from the historically high company and industry milestone levels in 2016. The decline in our results can be attributed to weak cemetery preneed sales, lower Field EBITDA Margins of funeral home acquisitions made in 2016 not yet integrated under our Standards Operating Model, and a decrease in Non-GAAP add backs due to our simplified reporting that aligns more closely with GAAP. Additionally, a favorable tax benefit in 2016 and an increase in diluted share count in 2017 (varies by quarter based on average share price for each period) from our outstanding Convertible Notes negatively impacted our year to date Diluted EPS by $0.13 compared to last year.

Beginning with my 2015 shareholder letter, continuing with our four quarterly earnings press releases from 2016 and concluding with my 2016 shareholder letter, I provided a comprehensive amount of in-depth data that was supported by explanations of Carriage's High Performance Culture Framework whose effective execution drives long-term value creation. In particular, I described the operational discipline related to our innovative Standards Operating Model that since 2011 has successfully driven and sustained both short and long-term revenue growth at sustainable Field EBITDA Margins. Moreover, I explained the importance of leadership versus management (First Who!) in our decentralized organizational structure, the goal of which is to grow revenue from gradual increases over time in our same store funeral contracts and preneed cemetery property sales. My efforts to explain and educate for a deeper understanding of our company by shareholders will continue selectively when it seems necessary or appropriate including in this release.

We have been encouraged year to date by the 0.9% growth in Same Store Funeral contract volume and 1.9% growth in Same Store Funeral revenue as there is broad evidence across our portfolio of local market share gains driven by our Managing Partners and their teams. On a comparative basis, adjusting for two small divestitures we made last year and the decision to end an unprofitable contract providing removal services for a local coroner in a major metropolitan market, our year to date Same Store Funeral contract volume and revenue have both increased 3.1% versus 2016, an enviable achievement within the industry given current secular trends in death rates and cremations.

The Funeral Market Share Standard in a new year compares the rolling twelve month number of funerals performed to the past three full calendar year average number of funerals performed. Standard Achievement is simply serving more families in the current year than the average of the last three. We have learned from experience that market share growth (volume without distinction between burial and cremation) is the key to achieving high and sustainable operating and financial results over a long period of time. Therefore, the Market Share Standard is the largest weighting in our Standards Operating Model at 30% of 100%. We have learned from mistakes and material market share losses within our funeral home portfolio in the past that focusing too heavily on maximizing short term profitability more often than not leads inevitably to losses in market share that are extremely difficult to reverse (refer to Ten Truths Of A Service Business on page 17 of my 2016 Shareholder Letter).

Revenue in our Acquisition Funeral portfolio increased 42.9% to $24.7 million, Acquisition Funeral Field EBITDA grew 30.5% to $9.5 million and Acquisition Funeral Field EBITDA Margin declined by 360 basis points to 38.5%, reversing an upward margin trend in our Acquisition Funeral Portfolio since 2011. The decline in Acquisition Funeral Field EBITDA Margin was due to the slower than expected integration of some of our 2016 acquisitions and a seasonally weak quarter this year. The remaining funeral home businesses that were acquired between 2013-2015 have grown year to date revenue by 2% and EBITDA by 4% because of an increase in Field EBITDA Margin of 80 basis points to 43.2%, consistent with the positive impact of the financial dynamic of operating leverage in a high fixed cost funeral home business. We fully expect to see improved margin performance of our high quality recent funeral business acquisitions in 2018 and thereafter.

The almost $1 million quarter over quarter decline in cemetery revenue performance was a result of a continuation of weak operating trends from the first half of the year, a $300,000 decline in preneed property sales at our cemeteries in Corpus Christi, TX and Ft. Lauderdale, FL due to Hurricanes Harvey and Irma, and the absence this year of approximately $400,000 of large private estate sales we had in the third quarter of last year.

Throughout the past two quarters, our operating teams have focused on making the necessary changes in our sales leadership and examining the preneed property sales programs at our underperforming cemetery businesses to ensure sales and margin performance return to our previous standard. While future operating performance will be the true test of success of these changes, we have seen progress across our cemetery portfolio and believe we will have positive operating momentum in our cemetery portfolio as we move into 2018.

Capital Allocation

I am pleased to announce we executed four signed letters of intent in the third quarter and plan to close all four businesses within the next 90 days. None of these businesses were among the three letters of intent mentioned on our second quarter conference call. Three of these businesses will be in large new strategic markets for Carriage including a new state and all of these markets have other high quality acquisition candidates. The four businesses under letters of intent will collectively add over 3000 funerals to our portfolio and each has a strong competitive standing and market share growth opportunity in its respective market.

We are excited by the level of relationship building activity with the top remaining independent businesses by the Corporate Development Team as evidenced by the fact that the four letters of intent recently executed are the most we ever executed in a quarter. The continued effectiveness of our Corporate Development Team in building a larger pipeline of high quality acquisition candidates reaffirms our favorable relative assessment of Carriage's competitive positioning in the current industry landscape and confidence in our ability to execute our Strategic Acquisition Model at a high level over the course of the next several years.

We repurchased approximately 675,000 shares at an average purchase price of $24.28 in the third quarter and have now repurchased 2.6 million shares or approximately 14% of our shares outstanding since the end of the second quarter of 2015. Today our Board of Directors authorized an additional $15 million share repurchase program in addition to the $11 million still available under a previous authorization.

Additionally, our Board of Directors approved an increase of our annual dividend to $0.30 per share, an increase of 50% over our prior dividend, that will be payable on December 1st.

High Performance Heroes

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

Frank Forastiere

Forastiere Funeral Homes; Springfield, MA

Sue Keenan

Byron Keenan Funeral Home & Cremation; Springfield, MA

Ken Duffy

John E. Day Funeral Home; Red Bank, NJ

Todd Muller

Muller-Thompson Funeral Chapel & Cremation Services; Naples, FL

Rohaema Smith

Baird-Case Funeral Home & Cremation Service; Tamarac, FL

Randy Valentine*

Dieterle Memorial Home & Cremation Ceremonies; Montgomery, IL

Jeff Moore

Sterling-White Funeral Home; Crosby, TX

Andy Shemwell*

Maddux-Fuqua-Hinton Funeral Homes; Hopkinsville, KY

Joseph Newkirk*

Wilson & Kratzer Mortuaries; Richmond, CA

Alan Kerrick

Dakan Funeral Chapel; Caldwell, ID

Ken Summers

P.L. Fry & Son Funeral Home; Manteca, CA



* Notes High Performance Heroes from First or Second Quarter 2017.

Our country, the communities we serve and too many of our amazing employees have had to endure and persevere through tremendously difficult circumstances related to natural disasters and other tragedies this past quarter. We couldn't be more proud of the resiliency and grit that has been shown by our employee teams throughout this challenging period, and for that reason, I would like to acknowledge all our Carriage employees at the following businesses as Carriage's Super High Performance Heroes for the third quarter.

Baird-Case Funeral Home; Ft Lauderdale, FL

Oaklawn Memorial Gardens; Titusville, FL

Baird-Case Funeral Home; Tamarac, FL

Stanfill Funeral Home; Miami, FL

Conrad & Thompson Funeral Home; Kissimmee, FL

Sunset Memorial Gardens; Ft Lauderdale, FL

Evergreen Cemetery; Ft Lauderdale, FL

Allison Funeral Home; Liberty, TX

Fuller Funeral-Cremation Service; Naples, FL

Crespo & Jirrels; Baytown, TX

Harvey-Engelhardt Funeral & Cremation; Fort Meyer, FL

Cypress-Fairbanks Funeral Home; Houston, TX

Fuller Metz Cremation & Funeral Services; Cape Coral, FL

Bradshaw-Carter Memorial & Funeral Services; Houston, TX

Lakeland Funeral Home & Memorial Gardens; Lakeland, FL

Seaside Funeral Home & Memorial Park; Corpus Christi, TX

Lauderdale Memorial Park; Ft Lauderdale, FL

Rose Hill Memorial Park; Corpus Christi, TX

Muller-Thompson Funeral Chapel; Naples, FL

Schmidt Funeral Homes; Katy, TX

North Brevard Funeral Home; Titusville, FL

Bunkers Mortuaries; Las Vegas, NV

Ten Year Vision, Five Year Strategy, One Year Plan

Despite our disappointing performance thus far in 2017, there is nothing but optimism among our leadership at all levels of the company about the bright prospects for the future related to our Ten Year Vision and Five Year Strategy. We are only in the first year of the second five year timeframe of Carriage's Good To Great Journey that never ends, a year that brought challenges but also creative and dynamic change to our company that has seeded continuous improvement in areas that will be engines of growth and profitability over the next five years. Like night follows day, long-term value creation produced by effective execution of all elements of Carriage's High Performance Culture Framework will continue over time to benefit our shareholders," concluded Mr. Payne.

TRUST FUND PERFORMANCE

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

Investment Performance



Investment Performance(1)


Index Performance



Discretionary

Total Trust


S&P 500
Stock Index

High Yield
Index

70/30 index
Benchmark(2)









9 months ended 09/30/2017


8.6%

8.1%


14.2%

7.0%

9.2%

1 year ended 12/31/2016


19.7%

18.3%


12.0%

17.6%

15.9%

2 years ended 12/31/2016


16.0%

15.1%


13.5%

12.0%

12.4%

3 years ended 12/31/2016


25.7%

24.2%


28.9%

14.8%

19.0%

4 years ended 12/31/2016


43.6%

41.2%


70.6%

23.4%

37.6%

5 years ended 12/31/2016


72.8%

65.4%


97.8%

42.6%

59.2%









(1) Investment performance includes realized income and unrealized appreciation.

(2) The 70/30 Benchmark is 70% weighted to the High Yield Index and 30% weighted to the S&P 500 Stock Index.


Asset Allocation as of September 30, 2017 (in thousands)




Discretionary
Trust Funds


Total
Trust Funds

Asset Class



MV

%


MV

%

Cash



$

11,465

6%



$

27,191

12%


Equities



65,443

32%



67,873

29%


Fixed Income



120,535

60%



132,016

57%


Other/Insurance



3,226

2%



3,419

2%


Total Portfolios



$

200,669

100%



$

230,499

100%


For the nine months ended September 30, 2017, Carriage's discretionary trust funds returned 8.6% versus 9.2% for the 70/30 index benchmark. The performance of our preneed trust fund portfolio during the year has been in line with our expectations and has reflected no significant change in our overall portfolio strategy.

ADJUSTED FREE CASH FLOW

We produced Adjusted Free Cash Flow from operations for the three and nine months ended September 30, 2017 of $9.4 million and $24.9 million, respectively, compared to Adjusted Free Cash Flow from operations of $9.3 million and $34.7 million for the corresponding periods in 2016. The year over year decrease in Adjusted Free Cash Flow was due to weak operating performance, the reduction of Non-GAAP "cash items" and timing and amount of certain severance, incentive and federal tax payments during the first half of 2017.

A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three and nine months ended September 30, 2017 and 2016 is as follows (in thousands):


For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,



2016


2017


2016


2017

Cash Flow Provided by Operations

$

9,854



$

10,579



$

34,840



$

30,825


Cash Used for Maintenance Capital Expenditures

(1,790)



(1,620)



(5,163)



(6,322)


Free Cash Flow

$

8,064



$

8,959



$

29,677



$

24,503










Plus: Incremental Special Items:








Acquisition and Divestiture Expenses





516




Severance Costs

1,220





3,979




Consulting Fees





496




Natural Disaster Costs



398





398


Adjusted Free Cash Flow

$

9,284



$

9,357



$

34,668



$

24,901


ROLLING FOUR QUARTER OUTLOOK

The Rolling Four Quarter Outlook ("Outlook") reflects management's opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending September 30, 2018 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. Rather our intent and goal is to reflect a "roughly right range" most of the time of future Rolling Four Quarter Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time.

Similarly, we self-publish a Company and Investment Profile, available on our website, that includes a Five Year "Roughly Right Scenario" of our future performance which together with our Five Year Trend Report provides investors a ten year past and future profile of our financial value creation dynamics and condition, making it easier to judge whether our "trends will continue to be the friend" of long-term investors.

In light of current operating trends and acquisitions expected to close in the next 90 days, we are raising our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share by $0.08 to a range of $1.73 - $1.77 for the period ending September 30, 2018.

ROLLING FOUR QUARTER OUTLOOK – Period Ending September 30, 2018



Range
(in millions, except per share amounts)

Revenues


$273 - $277

Adjusted Consolidated EBITDA


$79 - $83

Adjusted Net Income


$30 - $32

Adjusted Basic Earnings Per Share


$1.85 - $1.89

Adjusted Diluted Earnings Per Share(1)


$1.73 - $1.77

Factors affecting our analysis include, among others, funeral contract volumes, average revenue per funeral service, cemetery interment volumes, preneed cemetery sales, capital expenditures, execution of our funeral and cemetery Standards Operating Model, market volatility and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income, Adjusted Basic Earnings Per Share and Adjusted Diluted Earnings Per Share for the four quarter period ending September 30, 2018 are expected to improve relative to the trailing four quarter period ended September 30, 2017 due to increases in our existing Funeral Home and Cemetery operating portfolio.

(1)

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

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, October 26, 2017 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-99303249) and ask for the Carriage Services conference call. A replay of the conference call will be available through October 30, 2017 and may be accessed by dialing 855-859-2056 (ID-99303249). The conference call will also be available at www.carriageservices.com.

For any investor relations questions, please contact Viki Blinderman at 713-332-8568 or Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.

CARRIAGE SERVICES, INC.


OPERATING AND FINANCIAL TREND REPORT


(in thousands, except per share amounts)












Three Months Ended September 30,


Nine Months Ended September 30,



2016

2017

% Change


2016

2017

% Change











Same Store Contracts









Atneed Contracts

5,720


5,718


—%



17,885


18,041


0.9%



Preneed Contracts

1,321


1,375


4.1%



4,204


4,255


1.2%



Total Same Store Funeral Contracts

7,041


7,093


0.7%



22,089


22,296


0.9%



Acquisition Contracts









Atneed Contracts

790


989


25.2%



2,279


3,193


40.1%



Preneed Contracts

153


167


9.2%



419


597


42.5%



Total Acquisition Funeral Contracts

943


1,156


22.6%



2,698


3,790


40.5%



Total Funeral Contracts

7,984


8,249


3.3%



24,787


26,086


5.2%












Funeral Operating Revenue









Same Store Revenue

$

37,094


$

38,032


2.5%



$

117,029


$

119,310


1.9%



Acquisition Revenue

5,996


7,363


22.8%



17,303


24,727


42.9%



Total Funeral Operating Revenue

$

43,090


$

45,395


5.3%



$

134,332


$

144,037


7.2%












Cemetery Operating Revenue









Same Store Revenue

$

11,467


$

10,748


(6.3%)



$

35,093


$

33,522


(4.5%)



Acquisition Revenue

978


761


(22.2%)



2,312


2,370


2.5%



Total Cemetery Operating Revenue

$

12,445


$

11,509


(7.5%)



$

37,405


$

35,892


(4.0%)












Financial Revenue









Preneed Funeral Commission Income

$

361


$

315


(12.7%)



$

1,138


$

951


(16.4%)



Preneed Funeral Trust Earnings

1,732


1,618


(6.6%)



5,482


5,290


(3.5%)



Cemetery Trust Earnings

2,025


1,768


(12.7%)



5,622


5,512


(2.0%)



Preneed Cemetery Finance Charges

487


449


(7.8%)



1,357


1,381


1.8%



Total Financial Revenue

$

4,605


$

4,150


(9.9%)



$

13,599


$

13,134


(3.4%)



Total Revenue

$

60,140


$

61,054


1.5%



$

185,336


$

193,063


4.2%












Field EBITDA









Same Store Funeral Field EBITDA

$

13,894


$

13,938


0.3%



$

45,119


$

46,111


2.2%



Same Store Funeral Field EBITDA Margin

37.5%


36.6%


(90 bp)



38.6%


38.6%


0 bp



Acquisition Funeral Field EBITDA

2,431


2,419


(0.5%)



7,293


9,515


30.5%



Acquisition Funeral Field EBITDA Margin

40.5%


32.9%


(760 bp)


42.1%


38.5%


(360 bp)


Total Funeral Field EBITDA

$

16,325


$

16,357


0.2%



$

52,412


$

55,626


6.1%



Total Funeral Field EBITDA Margin

37.9%


36.0%


(190 bp)


39.0%


38.6%


(40 bp)











Same Store Cemetery Field EBITDA

$

3,342


$

2,649


(20.7%)



$

11,283


$

9,287


(17.7%)



Same Store Cemetery Field EBITDA Margin

29.1%


24.6%


(450 bp)


32.2%


27.7%


(450 bp)


Acquisition Cemetery Field EBITDA

479


200


(58.2%)



791


743


(6.1%)



Acquisition Cemetery Field EBITDA Margin

49.0%


26.3%


(2,270 bp)


34.2%


31.4%


(280 bp)


Total Cemetery Field EBITDA

$

3,821


$

2,849


(25.4%)



$

12,074


$

10,030


(16.9%)



Total Cemetery Field EBITDA Margin

30.7%


24.8%


(590 bp)


32.3%


27.9%


(440 bp)











Funeral Financial EBITDA

$

1,876


$

1,705


(9.1%)



$

5,994


$

5,535


(7.7%)



Cemetery Financial EBITDA

2,441


2,107


(13.7%)



6,764


6,612


(2.2%)



Total Financial EBITDA

$

4,317


$

3,812


(11.7%)



$

12,758


$

12,147


(4.8%)



Total Financial EBITDA Margin

93.7%


91.9%


(180 bp)


93.8%


92.5%


(130 bp)











Total Field EBITDA

$

24,463


$

23,018


(5.9%)



$

77,244


$

77,803


0.7%



Total Field EBITDA Margin

40.7%


37.7%


(300 bp)


41.7%


40.3%


(140 bp)

















OPERATING AND FINANCIAL TREND REPORT


(in thousands, except per share amounts)












Three Months Ended September 30,


Nine Months Ended September 30,



2016

2017

% Change


2016

2017

% Change











Overhead









Total Variable Overhead

$

3,086


$

3,057


(0.9%)



$

10,672


$

7,765


(27.2%)



Total Regional Fixed Overhead

940


995


5.9%



2,659


2,888


8.6%



Total Corporate Fixed Overhead

4,545


5,234


15.2%



14,118


16,347


15.8%



Total Overhead

$

8,571


$

9,286


8.3%



$

27,449


$

27,000


(1.6%)



Overhead as a Percentage of Revenue

14.3%


15.2%


90 bp



14.8%


14.0%


(80 bp)












Consolidated EBITDA

$

15,892


$

13,732


(13.6%)



$

49,795


$

50,803


2.0%



Consolidated EBITDA Margin

26.4%


22.5%


(390 bp)



26.9%


26.3%


(60 bp)



Other Expenses and Interest









Depreciation & Amortization

$

3,807


$

4,002


5.1%



$

11,498


$

11,874


3.3%



Non-Cash Stock Compensation

342


785


129.5%



2,306


2,394


3.8%



Interest Expense

2,903


3,282


13.1%



8,722


9,517


9.1%



Accretion of Discount on Convertible Subordinated Notes

981


1,097


11.8%



2,862


3,200


11.8%



Loss on Early Extinguishment of Debt





567





Other, Net

285


6




(20)


3




Pretax Income

$

7,574


$

4,560


(39.8%)



$

23,860


$

23,815


(0.2%)



Provision for Income Taxes

3,030


1,824




9,545


9,526




Tax Adjustment Related to Certain Discrete Items

(1,139)


(302)




(1,139)


(243)




Total Tax Provision

$

1,891


$

1,522




$

8,406


$

9,283




GAAP Net Income

$

5,683


$

3,038


(46.5%)



$

15,454


$

14,532


(6.0%)












Special Items, Net of Tax except for **









Acquisition and Divestiture Expenses

$


$




$

336


$




Severance and Retirement Costs

793





2,587





Consulting Fees





323





Accretion of Discount on Convertible Subordinated Notes **

981


1,097




2,862


3,200




Loss on Early Extinguishment of Debt





369





Gain on Sale of Assets





(198)





Natural Disaster Costs


259





259




Sum of Special Items, Net of Tax

$

1,774


$

1,356


(23.6%)



$

6,279


$

3,459


(44.9%)












Adjusted Net Income

$

7,457


$

4,394


(41.1%)



$

21,733


$

17,991


(17.2%)



Adjusted Net Profit Margin

12.4%


7.2%


(520 bp)



11.7%


9.3%


(240 bp)












Adjusted Basic Earnings Per Share

$

0.45


$

0.26


(42.2%)



$

1.31


$

1.08


(17.6%)



Adjusted Diluted Earnings Per Share

$

0.43


$

0.25


(41.9%)



$

1.28


$

1.00


(21.9%)












GAAP Basic Earnings Per Share

$

0.34


$

0.18


(47.1%)



$

0.93


$

0.87


(6.5%)



GAAP Diluted Earnings Per Share

$

0.33


$

0.17


(48.5%)



$

0.91


$

0.81


(11.0%)












Weighted Average Basic Shares Outstanding

16,529


16,476




16,502


16,575




Weighted Average Diluted Shares Outstanding

17,101


17,598




16,862


17,887













Reconciliation to Adjusted Consolidated EBITDA









Consolidated EBITDA

$

15,892


$

13,732


(13.6%)



$

49,795


$

50,803


2.0%



Acquisition and Divestiture Expenses





516





Severance and Retirement Costs

1,220





3,979





Consulting Fees





496





Natural Disaster Costs


398





398




Adjusted Consolidated EBITDA

$

17,112


$

14,130


(17.4%)



$

54,786


$

51,201


(6.5%)



Adjusted Consolidated EBITDA Margin

28.5%


23.1%


(540 bp)



29.6%


26.5%


(310 bp)



CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)





(unaudited)


December 31, 2016


September 30, 2017

ASSETS




Current assets:




Cash and cash equivalents

$

3,286



$

759


Accounts receivable, net

18,860



18,821


Inventories

6,147



6,346


Prepaid expenses

2,640



1,355


Other current assets

2,034



764


Total current assets

32,967



28,045


Preneed cemetery trust investments

69,696



71,728


Preneed funeral trust investments

89,240



89,444


Preneed receivables, net

30,383



31,279


Receivables from preneed trusts

14,218



15,306


Property, plant and equipment, net

235,113



235,501


Cemetery property, net

76,119



76,961


Goodwill

275,487



275,487


Intangible and other non-current assets

14,957



14,616


Cemetery perpetual care trust investments

46,889



48,679


Total assets

$

885,069



$

887,046


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Current portion of long-term debt and capital lease obligations

$

13,267



$

16,323


Accounts payable

10,198



6,686


Other liabilities

717



1,811


Accrued liabilities

20,091



15,294


Total current liabilities

44,273



40,114


Long-term debt, net of current portion

137,862



125,442


Revolving credit facility

66,542



74,550


Convertible subordinated notes due 2021

119,596



123,182


Obligations under capital leases, net of current portion

2,630



2,492


Deferred preneed cemetery revenue

54,631



55,275


Deferred preneed funeral revenue

33,198



34,652


Deferred tax liability

42,810



44,025


Other long-term liabilities

2,567



2,723


Deferred preneed cemetery receipts held in trust

69,696



71,728


Deferred preneed funeral receipts held in trust

89,240



89,444


Care trusts' corpus

46,290



48,186


Total liabilities

709,335



711,813


Commitments and contingencies:




Stockholders' equity:




Common stock, $.01 par value; 80,000,000 shares authorized; 22,490,855 and 22,609,120 shares issued at December 31, 2016 and September 30, 2017, respectively

225



226


Additional paid-in capital

215,064



216,396


Retained earnings

20,711



35,243


Treasury stock, at cost; 5,849,316 and 6,523,370 shares at December 31, 2016 and September 30, 2017, respectively

(60,266)



(76,632)


Total stockholders' equity

175,734



175,233


Total liabilities and stockholders' equity

$

885,069



$

887,046


CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)



For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017









Revenues:








Funeral

$

45,183



$

47,329



$

140,952



$

150,279


Cemetery

14,957



13,725



44,384



42,784



60,140



61,054



185,336



193,063


Field costs and expenses:








Funeral

26,982



29,267



82,546



89,118


Cemetery

8,695



8,769



25,546



26,142


Depreciation and amortization

3,452



3,601



10,359



10,719


Regional and unallocated funeral and cemetery costs

2,783



3,937



8,547



9,845



41,912



45,574



126,998



135,824


Gross profit

18,228



15,480



58,338



57,239


Corporate costs and expenses:








General, administrative and other

6,130



6,134



21,208



19,549


Home office depreciation and amortization

355



401



1,139



1,155



6,485



6,535



22,347



20,704


Operating income

11,743



8,945



35,991



36,535


Interest expense

(2,903)



(3,282)



(8,722)



(9,517)


Accretion of discount on convertible subordinated notes

(981)



(1,097)



(2,862)



(3,200)


Loss on early extinguishment of debt





(567)




Other, net

(285)



(6)



20



(3)


Income before income taxes

7,574



4,560



23,860



23,815


Provision for income taxes

(3,030)



(1,824)



(9,545)



(9,526)


Tax adjustment related to certain discrete items

1,139



302



1,139



243


Total provision for income taxes

(1,891)



(1,522)



(8,406)



(9,283)


Net income

$

5,683



$

3,038



$

15,454



$

14,532










Basic earnings per common share:

$

0.34



$

0.18



$

0.93



$

0.87


Diluted earnings per common share:

$

0.33



$

0.17



$

0.91



$

0.81










Dividends declared per common share:

$

0.050



$

0.050



$

0.100



$

0.150










Weighted average number of common and common equivalent shares outstanding:








Basic

16,529



16,476



16,502



16,575


Diluted

17,101



17,598



16,962



17,887


CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)



For the Nine Months
Ended September 30,


2016


2017

Cash flows from operating activities:




Net income

$

15,454



$

14,532


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

11,498



11,874


Provision for losses on accounts receivable

1,522



1,737


Stock-based compensation expense

2,645



2,394


Deferred income tax expense

3,618



1,215


Amortization of deferred financing costs

622



614


Accretion of discount on convertible subordinated notes

2,862



3,200


Loss on early extinguishment of debt

567




Net loss on sale and disposal of other assets

186



341


Impairment of intangible assets

145








Changes in operating assets and liabilities that provided (required) cash:




Accounts and preneed receivables

(3,945)



(2,594)


Inventories and other current assets

682



2,356


Intangible and other non-current assets

386



340


Preneed funeral and cemetery trust investments

(4,828)



(5,114)


Accounts payable

(2,149)



(3,510)


Accrued and other liabilities

292



(2,790)


Deferred preneed funeral and cemetery revenue

742



2,098


Deferred preneed funeral and cemetery receipts held in trust

4,541



4,132


Net cash provided by operating activities

34,840



30,825






Cash flows from investing activities:




Acquisitions and land for new construction

(15,056)



(723)


Purchase of land and buildings previously leased

(6,258)




Net proceeds from the sale of other assets

955



405


Capital expenditures

(12,039)



(13,129)


Net cash used in investing activities

(32,398)



(13,447)






Cash flows from financing activities:




Borrowings from the revolving credit facility

45,500



75,100


Payments against the revolving credit facility

(74,800)



(67,300)


Borrowings from the term loan

39,063




Payments against the term loan

(8,438)



(8,438)


Payments on other long-term debt and obligations under capital leases

(987)



(1,084)


Payments on contingent consideration recorded at acquisition date



(101)


Proceeds from the exercise of stock options and employee stock purchase plan contributions

686



1,296


Taxes paid on restricted stock vestings and exercise of non-qualified options

(560)



(509)


Dividends paid on common stock

(1,662)



(2,503)


Purchase of treasury stock



(16,366)


Payment of loan origination costs related to the credit facility

(717)




Excess tax deficiency of equity compensation

(207)




Net cash used in financing activities

(2,122)



(19,905)






Net increase (decrease) in cash and cash equivalents

320



(2,527)


Cash and cash equivalents at beginning of period

535



3,286


Cash and cash equivalents at end of period

$

855



$

759






NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial performance of the Company. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP. We believe the Non-GAAP results are useful to investors because such results help investors compare our results to previous periods and provide insights into underlying trends in our business. The Company's GAAP financial statements accompany this release. Reconciliations of the Non-GAAP financial measures to GAAP measures are provided in this press release.

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

  • Special Items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special Items are taxed at the federal statutory rate of 35 percent for both the three and nine months ended September 30, 2016 and 2017, except for the accretion of the discount on the Convertible Notes as this is a non-tax deductible item.
  • Adjusted Net Income is defined as net income plus adjustments for Special Items and other non-recurring expenses or credits.
  • Consolidated EBITDA is defined as net income before income taxes, interest expenses, non-cash stock compensation, depreciation and amortization, and interest income and other, net.
  • Adjusted Consolidated EBITDA is defined as Consolidated EBITDA plus adjustments for Special Items and non-recurring expenses or credits.
  • Adjusted Consolidated EBITDA Margin is defined as Adjusted Consolidated EBITDA as a percentage of revenue.
  • Adjusted Free Cash Flow is defined as net cash provided by operations, adjusted by Special Items as deemed necessary, less cash for maintenance capital expenditures.
  • Funeral Field EBITDA is defined as Funeral Gross Profit, which is funeral revenue minus funeral field costs and expenses, less depreciation and amortization, regional and unallocated funeral costs and Funeral Financial EBITDA.
  • Cemetery Field EBITDA is defined as Cemetery Gross Profit, which is cemetery revenue minus cemetery field costs and expenses, less depreciation and amortization, regional and unallocated cemetery costs and Cemetery Financial EBITDA.
  • Funeral Financial EBITDA is defined as Funeral Financial Revenue less Funeral Financial Expenses.
  • Cemetery Financial EBITDA is defined as Cemetery Financial Revenue less Cemetery Financial Expenses.
  • Total Field EBITDA is defined as Gross Profit less depreciation and amortization, regional and unallocated funeral and cemetery costs.
  • Total Field EBITDA Margin is defined as Total Field EBITDA as a percentage of revenue.
  • Adjusted Basic Earnings Per Share is defined as GAAP Basic Earnings Per Share, adjusted for Special Items.
  • Adjusted Diluted Earnings Per Share is defined as GAAP Diluted Earnings Per Share, adjusted for Special Items.

Reconciliation of Non-GAAP Financial Measures:

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

Reconciliation of Net Income to Adjusted Net Income for the three and nine months ended September 30, 2016 and 2017 (in thousands):


For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

Net Income

$

5,683



$

3,038



$

15,454



$

14,532


Special Items, Net of Tax except for **










Acquisition and Divestiture Expenses





336




Severance and Retirement Costs

793





2,587




Consulting Fees





323




Accretion of Discount on Convertible Subordinated Notes **

981



1,097



2,862



3,200


Loss on Early Extinguishment of Debt





369




Gain on Sale of Assets





(198)




Natural Disaster Costs



259





259


Total Special Items affecting Net Income

$

1,774



$

1,356



$

6,279



$

3,459


Adjusted Net Income

$

7,457



$

4,394



$

21,733



$

17,991




















Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and nine months ended September 30, 2016 and 2017 (in thousands):


For the Three Months

Ended September 30,


For the Nine Months
Ended September 30,



2016


2017


2016


2017


Net Income

$

5,683



$

3,038



$

15,454



$

14,532



Total Tax Provision

1,891



1,522



8,406



9,283



Pretax Income

$

7,574



$

4,560



$

23,860



$

23,815



Interest Expense

2,903



3,282



8,722



9,517



Accretion of Discount on Convertible Subordinated Notes

981



1,097



2,862



3,200



Loss on Early Extinguishment of Debt





567





Non-Cash Stock Compensation

342



785



2,306



2,394



Depreciation & Amortization

3,807



4,002



11,498



11,874



Other, Net

285



6



(20)



3



Consolidated EBITDA

$

15,892



$

13,732



$

49,795



$

50,803



Adjusted For:









Acquisition and Divestiture Expenses





516





Severance and Retirement Costs

1,220





3,979





Consulting Fees





496





Natural Disaster Costs



398





398



Adjusted Consolidated EBITDA

$

17,112



$

14,130



$

54,786



$

51,201



Revenue

$

60,140



$

61,054



$

185,336



$

193,063



Adjusted Consolidated EBITDA Margin

28.5%



23.1%



29.6%



26.5%



Reconciliation of Funeral and Cemetery Gross Profit to Field EBITDA for the three and nine months ended September 30, 2016 and 2017 (in thousands):

Funeral Field EBITDA

For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

Gross Profit (GAAP)

$

13,786



$

12,570



$

45,142



$

45,951


Depreciation & Amortization

2,238



2,431



6,454



7,329


Regional & Unallocated Costs

2,177



3,061



6,810



7,881


Funeral Financial EBITDA

(1,876)



(1,705)



(5,994)



(5,535)


Funeral Field EBITDA

$

16,325



$

16,357



$

52,412



$

55,626



Cemetery Field EBITDA

For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

Gross Profit (GAAP)

$

4,442



$

2,910



$

13,196



$

11,288


Depreciation & Amortization

1,214



1,170



3,905



3,390


Regional & Unallocated Costs

606



876



1,737



1,964


Cemetery Financial EBITDA

(2,441)



(2,107)



(6,764)



(6,612)


Cemetery Field EBITDA

$

3,821



$

2,849



$

12,074



$

10,030



Total Field EBITDA

For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

Funeral Field EBITDA

$

16,325



$

16,357



$

52,412



$

55,626


Cemetery Field EBITDA

3,821



2,849



12,074



10,030


Funeral Financial EBITDA

1,876



1,705



5,994



5,535


Cemetery Financial EBITDA

2,441



2,107



6,764



6,612


Total Field EBITDA

$

24,463



$

23,018



$

77,244



$

77,803


Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three and nine months ended September 30, 2016 and 2017:


For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

GAAP Basic Earnings Per Share

$

0.34



$

0.18



$

0.93



$

0.87


Special Items Affecting Net Income

0.11



0.08



0.38



0.21


Adjusted Basic Earnings Per Share

$

0.45



$

0.26



$

1.31



$

1.08


Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three and nine months ended September 30, 2016 and 2017:


For the Three Months
Ended September 30,


For the Nine Months
Ended September 30,


2016


2017


2016


2017

GAAP Diluted Earnings Per Share

$

0.33



$

0.17



$

0.91



$

0.81


Special Items Affecting Net Income

0.10



0.08



0.37



0.19


Adjusted Diluted Earnings Per Share

$

0.43



$

0.25



$

1.28



$

1.00


On page five of this press release, we present the Rolling Four Quarter Outlook ("Outlook") which reflects management's opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending September 30, 2018 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. The following four reconciliations are presented at the midpoint of the range in this Outlook.

Reconciliation of Net Income to Consolidated EBITDA and Adjusted Consolidated EBITDA for the estimated Rolling Four Quarters ending September 30, 2018 (in thousands):


Rolling Four Quarter Outlook



September 30, 2018E


Net Income



$

25,700




Total Tax Provision



17,000




Pretax Income



$

42,700




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



17,800




Depreciation & Amortization, including Non-cash Stock Compensation



20,000




Consolidated EBITDA



$

80,500




Adjusted for Special Items






Adjusted Consolidated EBITDA



$

80,500




Reconciliation of Net Income to Adjusted Net Income for the estimated Rolling Four Quarters ending September 30, 2018 (in thousands):


Rolling Four Quarter Outlook



September 30, 2018E


Net Income



$

25,700




Special Items



4,800




Adjusted Net Income



$

30,500




Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the estimated Rolling Four Quarters ending September 30, 2018:


Rolling Four Quarter Outlook



September 30, 2018E


GAAP Basic Earnings Per Share



$

1.57




Special Items Affecting Net Income



0.30




Adjusted Basic Earnings Per Share



$

1.87




Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the estimated Rolling Four Quarters ending September 30, 2018:


Rolling Four Quarter Outlook



September 30, 2018E


GAAP Diluted Earnings Per Share



$

1.47




Special Items Affecting Net Income



0.28




Adjusted Diluted Earnings Per Share



$

1.75




Supplemental Information:

Funeral homes and cemeteries purchased after December 31, 2012 are referred to as "Acquired" in our Trend Report. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The presentation below highlights the impact of our 2012 Acquired Portfolio that moved from Acquired to Same Store beginning January 1, 2017 (in thousands):


For the Three Months
Ended September 30, 2016


For the Nine Months
Ended September 30, 2016










Revenue


EBITDA


Revenue


EBITDA

2012 Acquired Portfolio

$

3,740



$

1,492



$

11,583



$

4,711


























CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

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

  • our ability to find and retain skilled personnel;
  • our ability to execute our growth strategy;
  • the effects of competition;
  • the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
  • changes in the number of deaths in our markets;
  • changes in consumer preferences;
  • our ability to generate preneed sales;
  • the investment performance of our funeral and cemetery trust funds;
  • fluctuations in interest rates;
  • our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
  • the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
  • the financial condition of third-party insurance companies that fund our preneed funeral contracts;
  • increased or unanticipated costs, such as insurance or taxes;
  • effects of the application of applicable laws and regulations, including changes in such regulations or the interpretation thereof;
  • consolidation of the deathcare industry; and
  • other factors and uncertainties inherent in the deathcare industry.

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

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

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SOURCE Carriage Services, Inc.