SYS-CON MEDIA Authors: Doug Masi, Mat Mathews, PR.com Newswire, David Smith, Tim Crawford

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CARRIAGE SERVICES ANNOUNCES RECORD RESULTS FOR SECOND QUARTER 2014, RAISES ROLLING FOUR QUARTER OUTLOOK

HOUSTON, Aug. 5, 2014 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the quarter ended June 30, 2014.

Mel Payne, Chief Executive Officer, stated,  "Our second quarter performance continued our trend of outstanding results as we achieved strong revenue growth of 5% to a record $56.5 million, Adjusted Diluted Earnings Per Share growth of 28% to a second quarter record $0.32 per share, and Adjusted Free Cash Flow growth of 12.8% to a record $13.2 million.  This outstanding performance was driven by higher year over year revenue and Field EBITDA growth in our acquisition funeral and cemetery segments, substantially lower overhead, and materially reduced interest costs on our recent refinancings. Our record second quarter performance more than offset the relative weakness in the first quarter, resulting in record revenue of $112.2 million and record Adjusted Diluted Earnings Per Share of $0.63 for the six months ended June 30, 2014. With our earnings performance outlook improving in all major areas, we are substantially raising our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share to a range of $1.42 - $1.48.

Three Months Ended June 30, 2014

  • Total Revenue of $56.5 million, an increase of 5.0%;
  • Non-GAAP Adjusted Consolidated EBITDA of $16.3 million, an increase of 11.7%;
  • Non-GAAP Adjusted Consolidated EBITDA Margin up 180 basis points to 28.9%;
  • Non-GAAP Diluted Earnings Per Share of $0.32, an increase of 28.0%; and
  • Non-GAAP Adjusted Free Cash Flow of $13.2 million, an increase of 12.8%.               

Six Months Ended June 30, 2014

  • Total Revenue of $112.2 million, an increase of 1.1%;
  • Non-GAAP Adjusted Consolidated EBITDA of $31.4 million, an increase of 1.0%;
  • Non-GAAP Adjusted Consolidated EBITDA Margin remained flat at 28.0%;
  • Non-GAAP Diluted Earnings Per Share of $0.63, an increase of 12.5%; and
  • Non-GAAP Adjusted Free Cash Flow of $15.5 million, a decrease of 21.7%.           

"On May 15th, we announced that we closed the acquisition of six businesses in New Orleans and Alexandria, Virginia from Service Corporation International. We had a goal of being the first buyer in our industry to close on the large number of Service Corporation International divestitures resulting from their acquisition of Stewart Enterprises, and we achieved that goal through a team effort by a group of high performance 4E Leaders.

This high quality group of operating businesses includes the following:

  • Garden of Memories Funeral Home and Cemetery, Metairie, LA;
  • Schoen Funeral Home, New Orleans, LA;
  • Greenwood Funeral Home, New Orleans, LA;
  • Tharp-Sontheimer-Tharp Funeral Home, Metairie, LA;
  • Everly Community Funeral Care, Falls Church, VA; and
  • Everly-Wheatley Funeral Home, Alexandria, VA.

"The four businesses in New Orleans, Louisiana and two in Alexandria / Falls Church, Virginia (Fairfax County), provide Carriage strong franchises from which we can build a track record of success and reputation in these two large, demographically attractive strategic markets.

"With the successful completion of the new convertible subordinated debt and the amendments to the bank credit facilities, our cost of debt and total cost of capital has been materially reduced and was immediately accretive in the second quarter.  Our interest expense in the second quarter of 2014 decreased $1.0 million, or 27.1% compared to the second quarter of 2013.  Combined with our growing Free Cash Flow, we are well positioned to accelerate our earning power growth over the balance of 2014 and for the full year of 2015, as reflected by our record second quarter performance and raised Four Quarter Outlook. Moreover, our selective acquisition strategy will now be financed with a lower cost of capital at a time when our acquisition pipeline is growing larger with high quality candidates," concluded Mr. Payne.

TOTAL FIELD OPERATIONS

For the Three Months Ended June 30, 2013 compared to Three Months Ended June 30, 2014

  • Total Field Revenue increased 5.0% to $56.5 million;
  • Total Field EBITDA increased 2.1% to $22.4 million; and
  • Total Field EBITDA Margin decreased 110 basis points to 39.6%.

 

  • Total Funeral Operating Revenue increased 5.5% to $39.8 million;
  • Same Store Funeral Revenue decreased 1.5% with same store volume decreasing 1.1%;
  • Acquisition Funeral Revenue increased 31.2% with acquisition volume increasing 25.0%;
  • Total Funeral Field EBITDA Margin decreased 130 basis points to 35.2%;

 

  • Total Cemetery Operating Revenue increased 7.5% to $11.7 million;
  • Cemetery preneed property sale contracts increased 9.3% to 2,212;
  • Preneed property revenue recognized increased 6.7% and At-need revenue increased 9.7%;
  • Total Cemetery Field EBITDA Margin increased 120 basis points to 31.6%;

 

  • Total Financial Revenue decreased 4.0% to $5.0 million;
  • Funeral Financial Revenue decreased 12.2% to $2.4 million;
  • Cemetery Financial Revenue increased 4.9% to $2.6 million;
  • Total Financial EBITDA Margin increased 60 basis points to 93.3%.

 

For the Six Months Ended June 30, 2013 compared to Six Months Ended June 30, 2014

  • Total Field Revenue increased 1.1% to $112.2 million;
  • Total Field EBITDA decreased 1.8% to $45.2 million; and
  • Total Field EBITDA Margin decreased 120 basis points to 40.3%.

 

  • Total Funeral Operating Revenue increased 1.2% to $81.3 million;
  • Same Store Funeral Revenue decreased 4.2% with same store volume decreasing 3.7%;
  • Acquisition Funeral Revenue increased 20.7% with acquisition volume increasing 14.7%;
  • Total Funeral Field EBITDA Margin decreased 140 basis points to 36.7%;

 

  • Total Cemetery Operating Revenue increased 4.0% to $21.5 million;
  • Cemetery preneed property sale contracts increased 2.2% to 3,856;
  • Preneed property revenue recognized increased 1.2% and At-need revenue increased 9.0%;
  • Total Cemetery Field EBITDA Margin decreased 10 basis points to 30.4%;

 

  • Total Financial Revenue decreased 5.4% to $9.4 million;
  • Funeral Financial Revenue decreased 1.5% to $4.8 million;
  • Cemetery Financial Revenue decreased 9.3% to $4.5 million;
  • Total Financial EBITDA Margin increased 190 basis points to 93.5%.

ADJUSTED FREE CASH FLOW

Carriage produced Adjusted Free Cash Flow from operations in the first half of 2014 of $15.5 million compared to $19.8 million for the corresponding period in 2013. The sources and uses of cash for the six months ended June 30, 2013 and 2014 consisted of the following (in millions):  

 


June 30,


2013


2014

Cash flow provided by operations

$  22.8


$      13.3

Adjustment for tax benefit from Good to Great stock awards


4.8

Cash used for maintenance capital expenditures

(3.0)


(2.6)

Adjusted Free Cash Flow

$  19.8


$      15.5

Cash at beginning of period

1.7


1.4

Acquisitions and land for new construction

(6.0)


(54.9)

Proceeds from sale of businesses and other assets

2.7


0.2

Net (payments) borrowings on our revolving credit facility, term loan and long-term debt obligations

(15.4)


13.0

Proceeds from issuance of convertible subordinated notes


143.7

Payment of debt issuance costs related to the convertible subordinated notes


(4.7)

Redemption of convertible junior subordinated debentures


(89.7)

Payments for performance-based stock awards


(16.2)

Excess tax benefit of equity compensation, net of benefit from Good to Great stock awards

1.2


0.3

Payment of loan origination costs related to the credit facility

(0.6)


(0.8)

Cash used for growth capital expenditures

(1.5)


(7.1)

Dividends on common stock

(0.9)


(0.9)

Other investing and financing activities

0.5


0.9

Cash at end of period

$    1.5


$        0.7

 

ROLLING FOUR QUARTER OUTLOOK RAISED

The Rolling Four Quarter Outlook "(Outlook)" reflects management's opinion on the performance of our existing portfolio of businesses for the rolling four quarter period ending June 30, 2015, the performance of the trusts, and our view of the activity within the industry acquisition landscape. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe such precise rolling 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.  

 



Range
(in millions, except per share amounts)

Revenues


$237 - $242

Adjusted Consolidated EBITDA


$65 - $68

Adjusted Net Income


$26 - $28

Adjusted Diluted Earnings Per Share


$1.42 - $1.48

 

Factors affecting our analysis include, among others, number, size and timing of closing of acquisitions, 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, Strategic Acquisition Model, Withdrawable Trust Income and changes in Federal Reserve monetary policy.  Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income and Adjusted Earnings Per Share for the four quarter period ending June 30, 2015 are expected to improve relative to the same period in the previous period for the following reasons:

  • Increases in Acquired Funeral Revenue and Acquired Funeral Field EBITDA;
  • Increases in Acquired Cemetery Revenue and Acquired Cemetery Field EBITDA;
  • Modest increases in Same Store Funeral Revenue and Same Store Funeral Field EBITDA;
  • Increases in Same Store Cemetery Revenue and Same Store Cemetery Field EBITDA;
  • Increases in Financial Revenue and Financial EBITDA from trust funds; and
  • Reduced interest expense in conjunction with the fourth and fifth amendments to our bank credit facilities and the redemption of our $90 million 7% convertible junior subordinated debentures.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, August 6, 2014 at 9:30 a.m. CDT. To participate in the call, please dial 866-516-3867 (ID-73181607) and ask for the Carriage Services conference call.  A replay of the conference call will be available through August 8, 2014 and may be accessed by dialing 855-859-2056 (ID-73181607). The conference call will also be available at www.carriageservices.com. For any investor relations questions, please contact Bill Heiligbrodt at 713-332-8553.

TRUST FUND PERFORMANCE

For the six months ended June 30, 2014, Carriage's discretionary trust funds gained 10.0%. Over the same period in the discretionary portfolio, the fixed income return was 7.6%, beating the High Yield index of 5.5% while the equity return was 16.7%, beating the S&P 500 at 7.1%. The current yield on Carriage's discretionary fixed income portfolio, which comprises 70% of discretionary trust assets, is 7.9% and the estimated annual income for the discretionary portfolio is approximately $11.0 million.

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

80/20 index
Benchmark(2)









6 months ended 6/30/14


10.0 %

9.0 %


7.1 %

5.5 %

5.8 %

1 year ended 12/31/13


14.2 %

13.7 %


32.4 %

7.5 %

12.4 %

2 years ended 12/31/13


37.5 %

33.2 %


53.0 %

24.4 %

30.2 %

3 years ended 12/31/13


33.5 %

30.7 %


56.2 %

30.6 %

35.7 %

4 years ended 12/31/13


61.1 %

54.4 %


79.4 %

50.4 %

56.2 %

5 years ended 12/31/13


150.6 %

127.1 %


125.8 %

137.9 %

135.5 %









(1)

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

(2)

The 80/20 Benchmark is 80% weighted to the High Yield Index and 20% weighted to the S&P 500 Stock Index.  

 

Asset Allocation as of June 30, 2014
(in thousands)



Discretionary
Trust Funds



Total
Trust Funds

Asset Class


MV

%



MV

%

Cash


$       5,909

3 %



$   20,648

8 %

Equities


50,710

26 %



68,478

28 %

Fixed Income


139,016

70 %



154,289

63 %

Other/Insurance


2,656

1 %



2,904

1 %

Total Portfolios


$   198,291

100 %



$ 246,319

100 %

 

CARRIAGE SERVICES, INC.

OPERATING AND FINANCIAL TREND REPORT

FROM CONTINUING OPERATIONS (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)










Three Months Ended June 30,


Six Months Ended June 30,


2013

2014

% Change


2013

2014

% Change









Same Store Contracts








   Atneed Contracts

4,431

4,428

-0.1 %


9,440

9,223

-2.3 %

   Preneed Contracts

1,193

1,136

-4.8 %


2,585

2,353

-9.0 %

Total Same Store Funeral Contracts

5,624

5,564

-1.1 %


12,025

11,576

-3.7 %

Acquisition Contracts








   Atneed Contracts

1,377

1,712

24.3 %


2,934

3,371

14.9 %

   Preneed Contracts

249

321

28.9 %


550

625

13.6 %

Total Acquisition Funeral Contracts

1,626

2,033

25.0 %


3,484

3,996

14.7 %

Total Funeral Contracts

7,250

7,597

4.8 %


15,509

15,572

0.4 %









Funeral Operating Revenue








   Same Store Revenue

$     29,612

$     29,163

-1.5 %


$       63,103

$       60,469

-4.2 %

   Acquisition Revenue

8,121

10,657

31.2 %


17,267

20,836

20.7 %

Total Funeral Operating Revenue

$    37,733

$    39,820

5.5 %


$      80,370

$      81,305

1.2 %









Cemetery Operating Revenue








   Same Store Revenue

$     10,827

$     11,382

5.1 %


$       20,518

$       21,094

2.8 %

   Acquisition Revenue

74

334

351.4 %


143

389

172.0 %

Total Cemetery Operating Revenue

$    10,901

$    11,716

7.5 %


$      20,661

$      21,483

4.0 %









Financial Revenue








   Preneed Funeral Commission Income

$          481

$          563

17.0 %


$            989

$         1,127

14.0 %

   Preneed Funeral Trust Earnings

2,222

1,809

-18.6 %


3,936

3,725

-5.4 %

   Cemetery Trust Earnings

2,086

2,276

9.1 %


4,280

3,860

-9.8 %

   Preneed Cemetery Finance Charges

388

320

-17.5 %


698

657

-5.9 %

Total Financial Revenue

$      5,177

$      4,968

-4.0 %


$        9,903

$        9,369

-5.4 %

Total Revenue

$    53,811

$    56,504

5.0 %


$    110,934

$    112,157

1.1 %









Field EBITDA








   Same Store Funeral Field EBITDA

$     11,344

$     10,388

-8.4 %


$       24,999

$       22,471

-10.1 %

   Same Store Funeral Field EBITDA Margin

38.3 %

35.6 %

 -270 bp 


39.6 %

37.2 %

 -240 bp 

   Acquisition Funeral Field EBITDA

2,432

3,632

49.3 %


5,645

7,405

31.2 %

   Acquisition Funeral Field EBITDA Margin

29.9 %

34.1 %

 420 bp 


32.7 %

35.5 %

 280 bp 

Total Funeral Field EBITDA

$    13,776

$    14,020

1.8 %


$      30,644

$      29,876

-2.5 %

Total Funeral Field EBITDA Margin

36.5 %

35.2 %

 -130 bp 


38.1 %

36.7 %

 -140 bp 









   Same Store Cemetery Field EBITDA

$       3,329

$       3,568

7.2 %


$         6,349

$         6,408

0.9 %

   Same Store Cemetery Field EBITDA Margin

30.7 %

31.3 %

 60 bp 


30.9 %

30.4 %

 -50 bp 

   Acquisition Cemetery Field EBITDA

(19)

134

805.3 %


(46)

125

371.7 %

   Acquisition Cemetery Field EBITDA Margin

-25.7 %

40.1 %

 6,580 bp 


-32.2 %

32.1 %

 6,430 bp 

Total Cemetery Field EBITDA

$      3,310

$      3,702

11.8 %


$        6,303

$        6,533

3.6 %

Total Cemetery Field EBITDA Margin

30.4 %

31.6 %

 120 bp 


30.5 %

30.4 %

 -10 bp 









   Funeral Financial EBITDA

$       2,373

$       2,079

-12.4 %


$         4,188

$         4,305

2.8 %

   Cemetery Financial EBITDA

2,428

2,556

5.3 %


4,884

4,454

-8.8 %

Total Financial EBITDA

$      4,801

$      4,635

-3.5%


$        9,072

$        8,759

-3.5%

Total Financial EBITDA Margin

92.7 %

93.3 %

 60 bp 


91.6 %

93.5 %

 190 bp 









Total Field EBITDA

$    21,887

$    22,357

2.1 %


$      46,019

$      45,168

-1.8 %

Total Field EBITDA Margin

40.7 %

39.6 %

 -110 bp 


41.5 %

40.3 %

 -120 bp 

 

OPERATING AND FINANCIAL TREND REPORT

FROM CONTINUING OPERATIONS (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)










Three Months Ended June 30,


Six Months Ended June 30,


2013

2014

% Change


2013

2014

% Change









Overhead








   Total Variable Overhead

$       2,373

$       1,411

-40.5 %


$         4,402

$         5,274

19.8 %

   Total Regional Fixed Overhead

882

781

-11.5 %


1,848

1,567

-15.2 %

   Total Corporate Fixed Overhead

5,156

5,085

-1.4 %


10,556

10,659

1.0 %

Total Overhead

$      8,411

$      7,277

-13.5 %


$      16,806

$      17,500

4.1 %

Overhead as a percent of sales

15.6 %

12.9 %

 -270 bp 


15.1 %

15.6 %

 50 bp 









Consolidated EBITDA

$    13,476

$    15,080

11.9 %


$      29,213

$      27,668

-5.3 %

Consolidated EBITDA Margin

25.0 %

26.7 %

 170 bp 


26.3 %

24.7 %

 -160 bp 









Other Expenses and Interest








   Property Depreciation & Amortization

$       3,066

$       3,029

-1.2 %


$         5,881

$         5,785

-1.6 %

   Non Cash Stock Compensation

978

1,263

29.1 %


1,624

1,993

22.7 %

   Interest Expense

3,693

2,691

-27.1 %


7,121

5,536

-22.3 %

   Accretion on Convertible Subordinated Notes

694



865


   Loss on Early Extinguishment of Debt 

1,042



1,042


   Loss on Redemption of Convertible Junior Subordinated Notes



3,779


   Other, Net

(29)

(5)

-82.8 %


(862)

(373)

-56.7 %

Pretax Income

$      5,768

$      6,366

10.4 %


$      15,449

$        9,041

-41.5 %

Tax Provision

2,192

2,483



6,469

3,526


GAAP Net Income

$      3,576

$      3,883

8.6 %


$        8,980

$        5,515

-38.6 %









Special Items, Net of Tax








   Withdrawable Trust Income

$          141

$          366



$            469

$            515


   Acquisition and Divestiture Expenses

102

168



107

659


   Severance Costs

325

268



451

477


   Consulting Fees

168

6



168

165


   Other Incentive Compensation



660


   Accretion on Convertible Subordinated Notes

458



571


   Costs Related to Credit Facility

248

688



248

688


   Loss on Redemption of Convertible Junior Subordinated Notes



2,493


   Gain on Asset Purchase



(746)


   Other Special Items



(484)

503


   Tax Adjustment from Prior Period



598


Sum of Special Items, net of tax

$         984

$      1,954

98.6 %


$        1,557

$        5,985

284.4 %









Adjusted Net Income

$      4,560

$      5,837

28.0 %


$      10,537

$      11,500

9.1 %

Adjusted Net Profit Margin

8.5 %

10.3 %

 180 bp 


9.5 %

10.3 %

 80 bp 









Adjusted Basic Earnings Per Share

$         0.26

$         0.32

23.1 %


$           0.59

$           0.63

6.8 %

Adjusted Diluted Earnings Per Share

$         0.25

$         0.32

28.0 %


$           0.56

$           0.63

12.5 %









GAAP Basic Earnings Per Share

$         0.20

$         0.21

5.0 %


$           0.50

$           0.30

-40.0 %

GAAP Diluted Earnings Per Share

$         0.20

$         0.21

5.0 %


$           0.46

$           0.30

-34.8 %









Effective Tax Rate

38.0 %

39.0 %

 100 bp 


41.9 %

39.0 %

 -290 bp 

Reconciliation to Adjusted Consolidated EBITDA








Consolidated EBITDA

$    13,476

$    15,080

11.9 %


$      29,213

$      27,668

-5.3 %

   Withdrawable Trust Income

213

554



710

779


   Acquisition and Divestiture Expenses

155

255



163

999


   Severance Costs

493

406



684

723


   Consulting Fees

255

9



255

250


   Other Incentive Compensation



1,000


   Other Special Items



83


Adjusted Consolidated EBITDA

$    14,592

$    16,304

11.7 %


$      31,108

$      31,419

1.0 %

Adjusted Consolidated EBITDA Margin

27.1 %

28.9 %

 180 bp 


28.0 %

28.0 %

 0 bp 

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)




(unaudited)


December 31, 2013


June 30, 2014

ASSETS




Current assets:




   Cash and cash equivalents

$               1,377


$          731

   Accounts receivable, net

17,950


18,252

   Assets held for sale

3,544


1,354

   Inventories

5,300


5,345

   Prepaid expenses

4,421


3,345

   Other current assets

3,525


3,130

      Total current assets

36,117


32,157

Preneed cemetery trust investments

68,341


75,646

Preneed funeral trust investments

97,144


100,347

Preneed receivables, net

24,521


26,439

Receivables from preneed trusts

11,166


11,780

Property, plant and equipment, net

160,690


176,283

Cemetery property

72,911


75,459

Goodwill

221,087


253,573

Deferred charges and other non-current assets

12,280


18,657

Cemetery perpetual care trust investments

42,342


52,812

      Total assets

$           746,599


$    823,153





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




   Current portion of long-term debt and capital lease obligations

$             13,424


$        9,908

   Accounts payable

7,046


6,162

   Other liabilities

9,939


9,329

   Accrued liabilities

12,854


13,301

   Liabilities associated with assets held for sale

4,357


360

      Total current liabilities

47,620


39,060

Long-term debt, net of current portion

105,642


116,699

Revolving credit facility

36,900


42,400

Convertible junior subordinated debentures due in 2029 to an affiliate

89,770


Convertible subordinated notes due 2021


112,955

Obligations under capital leases, net of current portion

3,786


3,201

Deferred preneed cemetery revenue

55,479


57,394

Deferred preneed funeral revenue

30,588


30,597

Deferred tax liability

11,915


21,890

Other long-term liabilities

1,548


1,220

Deferred preneed cemetery receipts held in trust

68,341


75,646

Deferred preneed funeral receipts held in trust

97,144


100,347

Care trusts' corpus

41,893


52,304

      Total liabilities

590,626


653,713





Commitments and contingencies:








Stockholders' equity:




   Common stock, $.01 par value; 80,000,000 shares authorized; 22,183,000 and 22,427,000 shares issued at December 31, 2013 and June 30, 2014, respectively

222


224

   Additional paid-in capital

204,324


212,325

   Accumulated deficit

(33,306)


(27,842)

   Treasury stock, at cost; 3,922,000 shares at December 31, 2013 and June 30, 2014

(15,267)


(15,267)

      Total stockholders' equity

155,973


169,440

         Total liabilities and stockholders' equity

$           746,599


$    823,153

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share and per share data)










For the Three Months
Ended June 30,


For the Six Months
Ended June 30,


2013


2014


2013


2014









Revenues

$   53,811


$   56,504


$   110,934


$   112,157

Field costs and expenses

36,931


38,515


75,149


76,152

Gross profit

$   16,880


$   17,989


$     35,785


$     36,005

General and administrative expenses

7,448


7,201


14,077


16,877

Operating income

$     9,432


$   10,788


$     21,708


$     19,128

Interest expense, net

(3,664)


(2,686)


(6,259)


(5,531)

Accretion of discount on convertible subordinated notes


(694)



(865)

Loss on early extinguishment of debt and other costs


(1,042)



(1,042)

Loss on redemption of convertible junior subordinated debentures




(3,779)

Other income




1,130

Income from continuing operations before income taxes

$     5,768


$     6,366


$     15,449


$       9,041

Provision for income taxes

(2,192)


(2,483)


(6,469)


(3,526)

Net income from continuing operations

$     3,576


$     3,883


$       8,980


$       5,515

Net income (loss) from discontinued operations, net of tax

568


(637)


423


(51)

Net income

$     4,144


$     3,246


$       9,403


$       5,464

Preferred stock dividend



(4)


Net income available to common stockholders

$     4,144


$     3,246


$       9,399


$       5,464









Basic earnings (loss) per common share:








   Continuing operations

$      0.20


$      0.21


$        0.50


$        0.30

   Discontinued operations

0.03


(0.03)


0.02


Basic earnings per common share

$      0.23


$      0.18


$        0.52


$        0.30

Diluted earnings (loss) per common share:








   Continuing operations

$      0.20


$      0.21


$        0.46


$        0.30

   Discontinued operations

0.03


(0.04)


0.02


(0.01)

Diluted earnings per common share

$      0.23


$      0.17


$        0.48


$        0.29









Dividends declared per common share

$    0.025


$    0.025


$        0.05


$        0.05









Weighted average number of common and common equivalent shares outstanding:








Basic

17,830


18,123


17,744


18,054

Diluted

17,994


18,247


22,316


18,195

 


The GAAP Diluted EPS and Adjusted Diluted EPS for the six months ended June 30, 2013 includes 4.4 million shares that would be issued upon conversion of our convertible subordinated debentures (TIDES) as a result of the if-converted method prescribed by accounting standards.  

 

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)






For the Six Months
Ended June 30,


2013


2014

Cash flows from operating activities:




   Net income

$     9,403


$     5,464

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




   Gain on sale of businesses and purchase of other assets

(146)


(2,039)

   Impairment of goodwill

100


1,180

   Loss on early extinguishment of debt and other costs


1,042

   Depreciation and amortization

5,953


5,801

   Amortization of deferred financing costs

(36)


456

   Accretion of discount on convertible subordinated notes


865

   Provision for losses on accounts receivable

782


1,338

   Stock-based compensation expense

1,624


2,782

   Deferred income tax expense (benefit)

1,894


(1,884)

   Loss on redemption of convertible junior subordinated debentures


2,932

   Other

210


(8)

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




   Accounts and preneed receivables

(2,070)


(1,783)

   Inventories and other current assets

1,211


818

   Deferred charges and other

24


(174)

   Preneed funeral and cemetery trust investments

(1,363)


(10,057)

   Accounts payable

(160)


(871)

   Accrued and other liabilities

1,265


(2,117)

   Deferred preneed funeral and cemetery revenue

(9,755)


345

   Deferred preneed funeral and cemetery receipts held in trust

13,879


9,229

      Net cash provided by operating activities

22,815


13,319





Cash flows from investing activities:




   Acquisitions and land for new construction

(6,051)


(54,850)

   Net proceeds from the sale of businesses and other assets

2,736


200

   Capital expenditures

(4,468)


(9,693)

      Net cash used in investing activities

(7,783)


(64,343)





Cash flows from financing activities:




   Net (payments) borrowings on the revolving credit facility

(10,100)


5,500

   Net (payments) borrowings on the term loan

(5,000)


8,000

   Proceeds from the issuance of convertible subordinated notes


143,750

   Payment of debt issuance costs related to the convertible subordinated notes


(4,650)

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

(307)


(542)

   Redemption of convertible junior subordinated debentures


(89,748)

   Payments for performance-based stock awards


(16,150)

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

492


863

   Dividends on common stock

(906)


(917)

   Dividend on redeemable preferred stock

(4)


   Payment of loan origination costs related to the credit facility

(565)


(797)

   Excess tax benefit of equity compensation

1,178


5,069

      Net cash provided by (used in) financing activities

(15,212)


50,378





Net decrease in cash and cash equivalents

(180)


(646)

Cash and cash equivalents at beginning of period

1,698


1,377

Cash and cash equivalents at end of period

$     1,518


$        731

 

CARRIAGE SERVICES, INC.

CALCULATION OF EARNINGS PER SHARE

(in thousands, except share and per share data)










For the Three Months
Ended June 30,


For the Six Months
Ended June 30,


2013


2014


2013


2014









Numerator for basic earnings per share:








Numerator from continuing operations








   Income from continuing operations

$        3,576


$        3,883


$     8,980


$        5,515

      Less: Earnings allocated to unvested restricted stock

(72)


(76)


(209)


(115)

      Income attributable to continuing operations

$        3,504


$        3,807


$     8,771


$        5,400









Numerator from discontinued operations








   Income (loss) from discontinued operations

$          568


$         (637)


$       423


$           (51)

      Less: (Earnings) loss allocated to unvested restricted stock

(11)


13


(10)


1

      Income (loss) attributable to discontinued operations

$          557


$         (624)


$       413


$           (50)









Numerator for diluted earnings per share:








Adjustment for diluted earnings per share:








      Interest on convertible junior subordinated debentures, net of tax 

$            —


$            —


$     1,472


$            —


$            —


$            —


$     1,472


$            —









   Income attributable to continuing operations

$        3,504


$        3,807


$   10,243


$        5,400

   Income (loss) attributable to discontinued operations

$          557


$         (624)


$       413


$           (50)









Denominator








Denominator for basic earnings per common share - weighted average shares outstanding

17,830


18,123


17,744


18,054

Effect of dilutive securities:








      Stock options

164


124


180


141

      Convertible junior subordinated debentures



4,392


Denominator for diluted earnings per common share - weighted average shares outstanding

17,994


18,247


22,316


18,195









Basic earnings (loss) per common share:








      Continuing operations

$         0.20


$         0.21


$      0.50


$         0.30

      Discontinued operations

0.03


(0.03)


0.02


Basic earnings per common share

$         0.23


$         0.18


$      0.52


$         0.30









Diluted earnings (loss) per common share:








      Continuing operations

$         0.20


$         0.21


$      0.46


$         0.30

      Discontinued operations

0.03


(0.04)


0.02


(0.01)

Diluted earnings per common share

$         0.23


$         0.17


$      0.48


$         0.29

 

 

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 "Adjusted Net Income", "Adjusted Basic Earnings Per Share", "Adjusted Diluted Earnings Per Share", "Consolidated EBITDA", "Adjusted Consolidated EBITDA", "Adjusted Free Cash Flow", "Funeral, Cemetery and Financial EBITDA", "Total Field EBITDA" and  "Special Items" 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:

  • Adjusted Net Income is defined as net income from continuing operations plus adjustments for special items and other non-recurring expenses or credits. 
  • Consolidated EBITDA is defined as net income from continuing operations 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 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 less depreciation and amortization, regional and unallocated overhead expenses and net financial income.
  • Cemetery Field EBITDA is defined as Cemetery Gross Profit less depreciation and amortization, regional and unallocated overhead expenses and net financial income.
  • Financial EBITDA is defined as Financial Revenue less Financial Expenses.
  • Total Field EBITDA is defined as Gross Profit less depreciation and amortization, regional and unallocated overhead expenses. 
  • Special Items is defined as charges or credits that are deemed as Non-GAAP items such as withdrawable trust income, acquisition and divestiture expenses, litigation settlements, severance costs, loss on early retirement of debt and other costs, discrete tax items and other non-recurring amounts. Special items are taxed at the federal statutory rate of 34 percent for the three and six months ended June 30, 2013 and 2014.
  • 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.

 

Certain state regulations allow the withdrawal of financial income from preneed cemetery merchandise and services trust funds when realized in the trust.  Under current generally accepted accounting principles, trust income is only recognized in the Company's financial statements at a later time when the related merchandise and services sold on the preneed contract is delivered at the time of death.  Carriage has provided financial income from the trusts, termed "Withdrawable Trust Income" and reported on a Non-GAAP proforma basis within Special Items in the accompanying Operating and Financial Trend Report (a Non-GAAP Unaudited Income Statement), to reflect the current cash results. Management believes that the Withdrawable Trust Income provides useful information to investors because it presents income and cash flow when earned by the trusts.

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 from continuing operations to Adjusted Net Income for the three and six months ended June 30, 2013 and 2014 (thousands):






Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Net Income from continuing operations

$   3,576


$   3,883


$     8,980


$     5,515

Special items, net of tax








      Withdrawable Trust Income

141


366


469


515

      Acquisition and Divestiture Expenses

102


168


107


659

      Severance Costs

325


268


451


477

      Consulting Fees

168


6


168


165

      Other Incentive Compensation




660

      Accretion of Discount on Convertible Subordinated Notes


458



571

      Costs Related to the Credit Facility

248


688


248


688

      Loss on Redemption of Convertible Junior Subordinated Debentures




2,493

      Gain on Asset Purchase




(746)

      Other Special Items



(484)


503

      Tax Adjustment from Prior Period



598


        Total Special items affecting net income

$     984


$   1,954


$     1,557


$     5,985

Adjusted Net Income

$   4,560


$   5,837


$   10,537


$   11,500

 

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and six months ended June 30, 2013 and 2014 (in thousands):






Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Net income from continuing operations

$         3,576


$         3,883


$         8,980


$         5,515

Provision for income taxes

2,192


2,483


6,469


3,526

Pre-tax earnings from continuing operations

$         5,768


$         6,366


$       15,449


$         9,041

Interest expense

3,693


2,691


7,121


5,536

Accretion of discount on convertible subordinated notes


694



865

Loss on early extinguishment of debt and other costs


1,042



1,042

Loss on redemption of convertible junior subordinated debentures




3,779

Non-cash stock compensation

978


1,263


1,624


1,993

Depreciation & amortization

3,066


3,029


5,881


5,785

Other, net

(29)


(5)


(862)


(373)

Consolidated EBITDA 

$       13,476


$       15,080


$       29,213


$       27,668

Adjusted For:








   Withdrawable Trust Income

$            213


$            554


$            710


$            779

   Acquisition and Divestiture Expenses

155


255


163


999

   Severance Costs

493


406


684


723

   Consulting Fees

255


9


255


250

   Other Incentive Compensation




1,000

   Other Special Items



83


Adjusted Consolidated EBITDA 

$       14,592


$       16,304


$       31,108


$       31,419

Revenue

$       53,811


$       56,504


$     110,934


$     112,157









Adjusted Consolidated EBITDA Margin

27.1%


28.9%


28.0%


28.0%

 

 

 

Reconciliation of funeral and cemetery income before income taxes to Field EBITDA for the three and six months ended June 30, 2013 and 2014 (in thousands):





Funeral Field EBITDA

Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Gross Profit (GAAP)

$   12,773


$   13,214


$   27,604


$   27,735

Depreciation & amortization

1,612


1,683


3,214


3,297

Regional & unallocated costs

1,764


1,202


4,014


3,149

Net financial income

(2,373)


(2,079)


(4,188)


(4,305)

Funeral Field EBITDA

$   13,776


$   14,020


$   30,644


$   29,876

Funeral Field Operating Revenue

$   37,733


$   39,820


$   80,370


$   81,305

Funeral Field EBITDA Margin

36.5 %


35.2 %


38.1 %


36.7 %

















Cemetery Field EBITDA

Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Gross Profit (GAAP)

$     4,107


$     4,775


$     8,181


$     8,270

Depreciation & amortization

1,082


992


1,948


1,793

Regional & unallocated costs

549


491


1,058


924

Net financial income

(2,428)


(2,556)


(4,884)


(4,454)

Cemetery Field EBITDA

$     3,310


$     3,702


$     6,303


$     6,533

Cemetery Field Operating Revenue

$   10,901


$   11,716


$   20,661


$   21,483

Cemetery Field EBITDA Margin

30.4 %


31.6 %


30.5 %


30.4 %

















Total Field EBITDA

Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Funeral Field EBITDA

$   13,776


$   14,020


$   30,644


$   29,876

Cemetery Field EBITDA

3,310


3,702


6,303


6,533

Funeral Financial EBITDA

2,373


2,079


4,188


4,305

Cemetery Financial EBITDA

2,428


2,556


4,884


4,454

Total Field EBITDA

$   21,887


$   22,357


$   46,019


$   45,168

 

 

 

Reconciliation of cash provided by operating activities to Adjusted Free Cash Flow from operations for the three and six months ended June 30, 2013 and 2014 (in thousands):




Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

Cash flow provided by operations

$      12,902


$      14,937


$      22,815


$      13,319

Adjustment for tax benefit from Good to Great stock awards




4,802

Cash used for maintenance capital expenditures

(1,238)


(1,689)


(3,025)


(2,572)

Adjusted Free Cash Flow

$      11,664


$      13,248


$      19,790


$      15,549

















Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the three and six months ended June 30, 2013 and 2014:


Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

GAAP basic earnings per share from continuing operations

$         0.20


$         0.21


$         0.50


$         0.30

Special items affecting net income

0.06


0.11


0.09


0.33

Adjusted basic earnings per share 

$         0.26


$         0.32


$         0.59


$         0.63

















Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the three and six months ended June 30, 2013 and 2014:  


Three Months Ended


Six Months Ended


June 30,


June 30,


2013


2014


2013


2014

GAAP diluted earnings per share from continuing operations

$          0.20


$         0.21


$         0.46


$         0.30

Special items affecting net income

0.05


0.11


0.07


0.33

Dilution effect of convertible junior subordinated debentures



0.03


Adjusted diluted earnings per share

$         0.25


$        0.32


$         0.56


$         0.63


 

On page 5 of this press release, we present the Rolling Four Quarter Outlook ("Outlook") which reflects management's opinion on the performance of the portfolio of businesses, plus visible and likely acquisitions, for the rolling four quarter period ending June 30, 2015, and the performance of trusts during the corresponding period.  This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe such precise rolling estimates will be precisely wrong all the time.  The following three reconciliations are presented at the midpoint of the range in this Outlook.
 

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the estimated rolling four quarters ending June 30, 2015 (in thousands):



Rolling Four Quarter Outlook


June 30, 2015E

Net income from continuing operations



$   19,000



Provision for income taxes



12,300



Pre-tax earnings from continuing operations



$   31,300



Net interest expense, including loan cost amortization



14,200



Depreciation & amortization, including stock compensation



16,000



Consolidated EBITDA



$   61,500



Adjusted For:






Special items



5,000



Adjusted Consolidated EBITDA



$   66,500









Reconciliation of Net Income from continuing operations to Adjusted Net Income for the estimated rolling four quarters ending June 30, 2015 (in thousands):


Rolling Four Quarter Outlook


June 30, 2015E

Net income from continuing operations



$   19,000



Special items, net of tax



8,000



Adjusted Net Income



$   27,000









Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the estimated rolling four quarters ending June 30, 2015:


Rolling Four Quarter Outlook


June 30, 2015E

GAAP diluted earnings per share from continuing operations



$      1.04



Special items affecting net income



0.41



Adjusted diluted earnings per share 



$      1.45



 

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 statements regarding the consummation of the SCI acquisition, 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", "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:

  • the execution of our Standards Operating Model;
  • changes in the number of deaths in our markets;
  • changes in consumer preferences;
  • ability to find and retain skilled personnel;
  • the effects of competition;
  • 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;
  • death benefits related to preneed funeral contracts funded through life insurance contracts;
  • our ability to generate preneed sales;
  • 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 Annual Report on Form 10-K for the year ended December 31, 2013. 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.  

SOURCE Carriage Services, Inc.

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