Carriage Services, Inc.
Feb 25, 2015

Carriage Services Announces Record 2014 Annual Results Raises Rolling Four Quarter Outlook

HOUSTON, Feb. 25, 2015 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the year ending December 31, 2014.

Mel Payne, Chief Executive Officer, stated, "Our 2014 full year performance was an earning power milestone record with Adjusted Net Income of $24.8 million equal to Adjusted Diluted EPS of $1.34 and Adjusted Net Income Margin of 11.0% on record revenues of $226.1 million, made possible by an extraordinarily strong fourth quarter finish of Adjusted Diluted EPS of $0.38 on record revenues of $59.4 million.  Carriage as a consolidation and operating platform for funeral homes and cemeteries has reached an "earning power sweet spot" in maturity and size, as reflected by the leveraging of a 12.9% total revenue increase in the fourth quarter into much larger increases of 25.6% in Total Field EBITDA, 27.8% in Adjusted Consolidated EBITDA, and 52.0% in Adjusted Diluted EPS.

We fully expect this sustainable earning power trend from existing operations and the value creation leveraging dynamics to continue into 2015 and thereafter and to be supplemented by new, high quality acquisitions from our growing pipeline of top quality acquisition candidates in strategic markets. We are therefore raising our Rolling Four Quarter Outlook range on revenue to $244 - $248 million and Adjusted Diluted EPS to $1.55 - $1.59.

The 2014 year was the third year in our defined Five Year Carriage Good To Great Journey with an annual theme of Carriage Services 2014:  Being the Best - One Team, One Vision!  Highlights of the year were as follows:

  1. Dave DeCarlo joined Bill Heiligbrodt and me in March as a member of the Executive Team with the primary responsibility of growing the Company by selective, strategic acquisitions;
  2. Entered two large, new strategic markets, New Orleans and Washington, D.C., with the acquisition from SCI in May of five funeral homes and one combination business;
  3. Completed the refinancing in May of all the old high rate components of our balance sheet with low rate $325 million syndicated five year bank credit facilities and $143.75 million seven year convertible subordinated notes;
  4. Established a highly collaborative Operations and Strategic Growth Leadership Team (OSGLT) comprised of the Executive Team and twelve senior leaders representing field operations and Houston Support teams.  This group operates informally as owner leaders without titles, direct reports, etc., and addresses all important Carriage value creation matters consistent with One Team, One Vision;
  5. Updated and revised Strategic Acquisition Model criteria and methodologies to directly align with Standards Operating and 4E Leadership Models, and began building a new Strategic Development Team under Dave's leadership focused on building relationships with top quality acquisition candidates in large and medium strategic markets and areas.

Year Ended December 31, 2014

  • Total Revenue of $226.1 million, an increase of 6.1%;
  • Adjusted Consolidated EBITDA of $61.7 million, an increase of 10.1%;
  • Adjusted Consolidated EBITDA Margin up 100 basis points to 27.3%;
  • Adjusted Diluted Earnings Per Share of $1.34, an increase of 36.7%; and
  • Adjusted Free Cash Flow of $34.2 million, an increase of 2.8%.

Three Months Ended December 31, 2014

  • Total Revenue of $59.4 million, an increase of 12.9%;
  • Adjusted Consolidated EBITDA of $17.1 million, an increase of 27.8%;
  • Adjusted Consolidated EBITDA Margin up 330 basis points to 28.7%;
  • Adjusted Diluted Earnings Per Share of $0.38, an increase of 52.0%; and
  • Adjusted Free Cash Flow of $7.0 million, an increase of 4.0%

We begin the fourth year of our defined Five Year Carriage Good To Great Journey with a company that is materially better in all areas than one year ago.  While we understand that public investors must rely on our reported quantitative financial results covering a recent short period of time to judge our progress, the internal qualitative drivers of our increasing quantitative success are our Five Guiding Principles, three innovative operating, leadership and growth models,  High Performance Standards, relentless focus on  4E Leadership and Right Quality of Staff and the collaboration dynamic across all field operations and Houston Support teams.  Linked together, these ideas and concepts form our High Performance Culture Framework of value creation, which we believe will produce superior quantitative results over the next several years that will attract the best acquisition candidates and talent in our industry to join and contribute to the Carriage Good To Great Journey.

As we successfully execute our three models (Standards Operating, Strategic Acquisition and 4E Leadership) over this year and next to complete our Five Year Good to Great Journey, we fully expect to accelerate the earning power of our Carriage Consolidation and Operating Platform.  However, by the end of 2016 we will also have redefined our Carriage Good to Great Journey over a new five year timeframe with new goals, always keeping our Mission of Being The Best and Five Guiding Principles together with shareholder value creation uppermost in mind.  Lastly and importantly for our company leadership and employees, I am extremely proud to publicly announce our Good To Great annual theme for this year," concluded Mr. Payne.

"Carriage Services 2015: High Performance through Passion and Partnership!"

TOTAL FIELD OPERATIONS

For the Year Ended December 31, 2014 compared to Year Ended December 31, 2013

  • Total Field Revenue increased 6.1% to $226.1 million;
  • Total Field EBITDA increased 7.0% to $90.4 million;
  • Total Field EBITDA Margin increased 40 basis points to 40.0%;

  • Total Funeral Operating Revenue increased 6.8% to $164.3 million;
  • Same Store Funeral Revenue decreased 0.7% with same store volume decreasing 1.2%;
  • Acquisition Funeral Revenue increased 33.5% with acquisition volume increasing 26.9%;
  • Total Funeral Field EBITDA increased 9.0% to $60.5 million;
  • Total Funeral Field EBITDA Margin increased 80 basis points to 36.8%;

  • Total Cemetery Operating Revenue increased 5.9% to $42.9 million;
  • Cemetery preneed property sale contracts increased 5.5% to 7,408;
  • Preneed property revenue recognized increased 5.4% and At-need revenue increased 10.8%;
  • Total Cemetery Field EBITDA increased 4.1% to $12.2 million;
  • Total Cemetery Field EBITDA Margin decreased 40 basis points to 28.5%;

  • Total Financial Revenue increased 1.5% to $19.0 million;
  • Funeral Financial Revenue increased 2.7% to $9.5 million;
  • Cemetery Financial Revenue remained flat at $9.5 million;
  • Total Financial EBITDA increased 2.2% to $17.7 million;
  • Total Financial EBITDA Margin increased 70 basis points to 93.0%.

 ADJUSTED FREE CASH FLOW

Carriage produced Adjusted Free Cash Flow from operations for the year ended December 31, 2014 of $34.2 million compared to $33.2 million for the corresponding period in 2013. The sources and uses of cash for the year ended December 31, 2013 and 2014 consisted of the following (in millions):


Three Months Ended
December 31,


Twelve Months Ended
December 31,


2013


2014


2013


2014

















Cash flow provided by operations

$

8.6



$

8.9



$

39.8



$

36.6


Adjustment for tax benefit from Good to Great stock awards











4.8


Cash used for maintenance capital expenditures


(1.9)




(1.9)




(6.6)




(7.2)


Adjusted Free Cash Flow

$

6.7



$

7.0



$

33.2



$

34.2


Cash at beginning of period


0.9




3.0




1.7




1.4


Acquisitions and land for new construction


(13.7)




(1.0)




(19.7)




(57.9)


Net proceeds from sale of businesses and other assets


1.9




0.3




10.2




2.2


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


7.6




(4.3)




(19.0)




6.1


Proceeds from issuance of convertible subordinated notes











143.7


Payment of debt issuance costs related to the convertible subordinated notes











(4.7)


Payment of loan origination costs related to the credit facility








(0.6)




(0.8)


Redemption of convertible junior subordinated debentures











(89.7)


Payments for performance-based stock awards











(16.2)


Cash used for growth capital expenditures


(1.3)




(3.6)




(4.1)




(16.5)


Dividends on common stock


(0.5)




(0.5)




(1.8)




(1.8)


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


(0.4)




(0.6)




0.6




(0.8)


Other investing and financing activities


0.2




0.1




0.9




1.2


Cash at end of period

$

1.4



$

0.4



$

1.4



$

0.4


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 December 31, 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.

ROLLING FOUR QUARTER OUTLOOK - Period Ending December 31, 2015




Range

(in millions, except per share amounts)

Revenues

$244 - $248

Adjusted Consolidated EBITDA

$70 - $72

Adjusted Net Income

$28 - $30

Adjusted Diluted Earnings Per Share(1)

$1.55 - $1.59

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 Diluted Earnings Per Share for the four quarter period ending December 31, 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 $143.75 2.75% Convertible Notes, including the add-back to Adjusted Diluted EPS of non-tax deductible accretion on the Convertible Notes to reflect the Non-GAAP normalized earning power of the Company.

(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 a share price increase and EPS dilution calculations related to our new convertible notes, as explained more fully on page 6 in this press release.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, February 26, 2015 at 9:30 a.m. CT. To participate in the call, please dial 866-516-3867 (ID-67804537) and ask for the Carriage Services conference call.  A replay of the conference call will be available through March 2, 2015 and may be accessed by dialing 855-859-2056 (ID-67804537). 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 year ended December 31, 2014, Carriage's discretionary trust funds gained 8.3% compared to our 70/30 index benchmark of 5.8%. Over the same period in the discretionary portfolio, the fixed income return was 6.9%, beating the High Yield Index of 2.5% while the equity return was 7.6%, underperforming the S&P 500 at 13.7%. The current yield on Carriage's discretionary fixed income portfolio, which comprises 72% of discretionary trust assets, is 8.5% and the estimated annual income for the discretionary portfolio is approximately $10.8 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

70/30 index

Benchmark(2)

1 year ended 12/31/14


8.3

%

7.9

%


13.7

%

2.5

%

5.8

%

2 years ended 12/31/14


23.8

%

22.7

%


50.4

%

10.1

%

22.2

%

3 years ended 12/31/14


48.9

%

43.7

%


74.5

%

27.5

%

41.6

%

4 years ended 12/31/14


44.6

%

41.0

%


78.1

%

33.8

%

47.1

%

5 years ended 12/31/14


74.5

%

66.6

%


105.0

%

54.1

%

69.3

%



(1)

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

(2)

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





Asset Allocation as of December 31, 2014
(in thousands)




Discretionary
Trust Funds


Total
Trust Funds

Asset Class



MV


%


MV


%

Cash



$

13,628


7

%


$

29,366


12

%

Equities



36,232


19

%


54,035


23

%

Fixed Income



134,107


72

%


149,622


63

%

Other/Insurance



3,386


2

%


3,629


2

%

Total Portfolios



$

187,353


100

%


$

236,652


100

%
















CONVERTIBLE NOTES

On March 13, 2014, when our common stock closed at $17.03 per share, we executed a new seven year convertible subordinated debenture (new convertible notes) in the amount of $143.75 million with a coupon of 2.75% and 32.5% conversion premium equal to a conversion price of $22.56 per share.  We used a majority of the proceeds to refinance a traditional 7% coupon, $90 million convertible security due in 2029 (Tides convertible) with a conversion price of $20.44, which was adding 4.4 million shares to our reported fully diluted EPS calculation (24% dilution) when our stock price traded "in the money" above $20.44 even though none of these securities were ever converted into common stock.

In most traditional convertible securities issued prior to the last ten years (including in our refinanced Tides security issued in 1999), full dilution kicks in to the calculation of EPS once the stock price rises above the conversion price (in the money).  That will not be the case with our new convertible notes because of highly favorable anti-dilution features (net share settlement). The in the money option value can be settled in cash using any form of financing at our discretion, meaning that depending on the amount of net share settlement need at any time and the financing method selected by management, the actual number of new shares outstanding in the future may differ materially from the technical calculation of EPS pursuant to the share count mechanics of the new convertible notes.

While the mechanics of the in the money payment features on our new convertible notes are somewhat complex, the main points are that dilution is restricted to under 20% of outstanding shares as of the March 19, 2014 issue date (about 3.6 million shares).  The new convertible notes become eligible for conversion at $29.33 per share and reach the maximum potential 20% dilution at a price of $54 per share, as the New York Stock Exchange rules restrict the maximum dilution of an unregistered convertible to 20% for any listed member such as Carriage.

We had about 18 million fully diluted shares outstanding when the new convertible notes were issued in March 2014, so it is easy using the chart below to determine the EPS share count dilution calculation as our share price increases over time. For example, at a share price of $26, the threshold of 5% dilution is reached, so 5% of 18 million or 900,000 shares are added to the weighted average number of fully diluted shares for the period whose EPS performance is covered. Likewise, a share price of $32 triggers the 10% dilution threshold or 1.8 million added shares, a share price of $40 triggers the 15% dilution threshold or 2.7 million additional shares, and a $54 share price triggers the 20% dilution maximum threshold adding 3.6 million shares to our EPS calculation for the EPS period covered.

Convertible Bond Issue March 2014

 

 


CARRIAGE SERVICES, INC.

OPERATING AND FINANCIAL TREND REPORT

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
















Three Months Ended December 31,


Twelve Months Ended December 31,


2013


2014


% Change


2013


2014


% Change















Same Store Contracts














Atneed Contracts

4,400


4,578


4.0

%


18,149


18,133


-0.1

%

Preneed Contracts

1,188


1,193


0.4

%


4,908


4,641


-5.4

%

Total Same Store Funeral Contracts

5,588


5,771


3.3

%


23,057


22,774


-1.2

%

Acquisition Contracts














 Atneed Contracts

1,513


2,079


37.4

%


5,689


7,260


27.6

%

 Preneed Contracts

280


387


38.2

%


1,108


1,368


23.5

%

 Total Acquisition Funeral Contracts

1,793


2,466


37.5

%


6,797


8,628


26.9

%

Total Funeral Contracts

7,381


8,237


11.6

%


29,854


31,402


5.2

%















Funeral Operating Revenue














Same Store Revenue

$

29,563


$

30,619


3.6

%


$

120,191


$

119,322


-0.7

%

Acquisition Revenue

8,880


12,841


44.6

%


33,660


44,930


33.5

%

Total Funeral Operating Revenue

$

38,443


$

43,460


13.1

%


$

153,851


$

164,252


6.8

%















Cemetery Operating Revenue














Same Store Revenue

$

9,695


$

10,624


9.6

%


$

40,181


$

41,257


2.7

%

Acquisition Revenue

66


565


756.1

%


298


1,599


436.6

%

Total Cemetery Operating Revenue

$

9,761


$

11,189


14.6

%


$

40,479


$

42,856


5.9

%















Financial Revenue














Preneed Funeral Commission Income

$

418


$

400


-4.3

%


$

1,853


$

2,036


9.9

%

Preneed Funeral Trust Earnings

1,794


1,949


8.6

%


7,378


7,447


0.9

%

Cemetery Trust Earnings

1,875


2,051


9.4

%


8,095


8,123


0.3

%

Preneed Cemetery Finance Charges

348


370


6.3

%


1,418


1,410


-0.6

%

Total Financial Revenue

$

4,435


$

4,770


7.6

%


$

18,744


$

19,016


1.5

%

Total Revenue

$

52,639


$

59,419


12.9

%


$

213,074


$

226,124


6.1

%















Field EBITDA














Same Store Funeral Field EBITDA

$

10,004


$

12,050


20.5

%


$

44,973


$

44,756


-0.5

%

Same Store Funeral Field EBITDA Margin

33.8

%

39.4

%

   560 bp



37.4

%

37.5

%

     10 bp


Acquisition Funeral Field EBITDA

2,743


4,711


71.7

%


10,486


15,718


49.9

%

Acquisition Funeral Field EBITDA Margin

30.9

%

36.7

%

   580 bp



31.2

%

35.0

%

   380 bp


Total Funeral Field EBITDA

$

12,747


$

16,761


31.5

%


$

55,459


$

60,474


9.0

%

Total Funeral Field EBITDA Margin

33.2

%

38.6

%

  540 bp



36.0

%

36.8

%

    80 bp
















Same Store Cemetery Field EBITDA

$

2,684


$

3,290


22.6

%


$

11,757


$

11,845


0.7

%

Same Store Cemetery Field EBITDA Margin

27.7

%

31.0

%

330 bp



29.3

%

28.7

%

    -60 bp

Acquisition Cemetery Field EBITDA

(10)


112


1,220.0

%


(43)


351


916.3

%

Acquisition Cemetery Field EBITDA Margin

-15.2

%

19.8

%

3,500 bp



-14.4

%

22.0

%

3,640 bp


Total Cemetery Field EBITDA

$

2,674


$

3,402


27.2

%


$

11,714


$

12,196


4.1

%

Total Cemetery Field EBITDA Margin

27.4

%

30.4

%

  300 bp



28.9

%

28.5

%

   -40 bp















Funeral Financial EBITDA

$

1,958


$

2,041


4.2

%


$

7,966


$

8,348


4.8

%

Cemetery Financial EBITDA

2,179


2,358


8.2

%


9,338


9,341


%

Total Financial EBITDA

$

4,137


$

4,399


6.3

%


$

17,304


$

17,689


2.2

%

Total Financial EBITDA Margin

93.3

%

92.2

%

 -110 bp


92.3

%

93.0

%

    70 bp
















Total Field EBITDA

$

19,558


$

24,562


25.6

%


$

84,477


$

90,359


7.0

%

Total Field EBITDA Margin

37.2

%

41.3

%

  410 bp



39.6

%

40.0

%

    40 bp


 

 

OPERATING AND FINANCIAL TREND REPORT

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
















Three Months Ended December 31,


Twelve Months Ended December 31,


2013


2014


% Change


2013


2014


% Change















Overhead














Total Variable Overhead

$

1,944


$

2,425


24.7

%


$

8,845


$

10,764


21.7

%

Total Regional Fixed Overhead

538


758


40.9

%


3,346


3,136


-6.3

%

Total Corporate Fixed Overhead

4,819


4,902


1.7

%


20,829


20,227


-2.9

%

Total Overhead

$

7,301


$

8,085


10.7

%


$

33,020


$

34,127


3.4

%

Overhead as a percent of sales

13.9

%

13.6

%

-30 bp


15.5

%

15.1

%

-40 bp















Consolidated EBITDA

$

12,257


$

16,477


34.4

%


$

51,457


$

56,232


9.3

%

Consolidated EBITDA Margin

23.3

%

27.7

%

440 bp



24.1

%

24.9

%

 80 bp
















Other Expenses and Interest














Property Depreciation & Amortization

$

2,823


$

3,142


11.3

%


$

11,635


$

11,923


2.5

%

Non Cash Stock Compensation

617


920


49.1

%


2,916


3,832


31.4

%

Interest Expense

3,066


2,593


-15.4

%


13,437


10,308


-23.3

%

Accretion on Convertible Subordinated Notes


805






2,452




Loss on Early Extinguishment of Debt







1,042




Loss on Redemption of Convertible Junior Subordinated Debentures







3,779




Other, Net


571





(896)


195


-121.8

%

Pretax Income

$

5,751


$

8,446


46.9

%


$

24,365


$

22,701


-6.8

%

Net Tax Provision

1,519


3,079





9,245


7,255




GAAP Net Income

$

4,232


$

5,367


26.8

%


$

15,120


$

15,446


2.2

%















Special Items, Net of tax except for **














Withdrawable Trust Income

$

281


$

198





$

960


$

1,181




Acquisition and Divestiture Expenses

246


49





496


764




Severance Costs

105


101





965


697




Consulting Fees

90


41





368


277




Other Incentive Compensation







660




Accretion on Convertible Subordinated Notes **


805






2,452




Costs Related to Credit Facility






248


688




Loss on Redemption of Convertible Junior Subordinated Debentures







2,493




Loss (Gain) on Asset Purchase


379






(367)




Securities Transaction Expenses






160





Other Special Items






(484)


503




Tax Adjustment from Prior Period **

(338)






260





Sum of Special Items, Net of tax

$

384


$

1,573


309.6

%


$

2,973


$

9,348


214.4

%















Adjusted Net Income

$

4,616


$

6,940


50.3

%


$

18,093


$

24,794


37.0

%

Adjusted Net Profit Margin

8.8

%

11.7

%

290 bp



8.5

%

11.0

%

250 bp
















Adjusted Basic Earnings Per Share

$

0.25


$

0.38


52.0

%


$

1.00


$

1.35


35.0

%

Adjusted Diluted Earnings Per Share

$

0.25


$

0.38


52.0

%


$

0.98


$

1.34


36.7

%















GAAP Basic Earnings Per Share

$

0.23


$

0.29


26.1

%


$

0.83


$

0.84


1.2

%

GAAP Diluted Earnings Per Share

$

0.23


$

0.29


26.1

%


$

0.82


$

0.83


1.2

%















Effective Tax Rate

26.4

%

36.5

%




37.9

%

32.0

%



Reconciliation to Adjusted Consolidated EBITDA














Consolidated EBITDA

$

12,257


$

16,477


34.4

%


$

51,457


$

56,232


9.3

%

Withdrawable Trust Income

426


300





1,454


1,788




Acquisition and Divestiture Expenses

372


74





752


1,158




Severance Costs

158


153





1,462


1,056




Consulting Fees

136


62





557


419




Securities Transaction Expenses






242





Other Incentive Compensation







1,000




Other Special Items






83





Adjusted Consolidated EBITDA

$

13,349


$

17,066


27.8

%


$

56,007


$

61,653


10.1

%

Adjusted Consolidated EBITDA Margin

25.4

%

28.7

%

330 bp



26.3

%

27.3

%

100 bp


 

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)




December 31,


2013



2014


ASSETS






Current assets:






Cash and cash equivalents

$

1,377



$

413


Accounts receivable, net

17,950



19,264


Assets held for sale

3,544




Inventories

5,300



5,294


Prepaid expenses

4,421



4,590


Other current assets

3,525



7,144


Total current assets

36,117



36,705


Preneed cemetery trust investments

68,341



71,972


Preneed funeral trust investments

97,144



97,607


Preneed receivables, net

24,521



26,284


Receivables from preneed trusts

11,166



12,809


Property, plant and equipment, net

160,690



186,211


Cemetery property

72,911



75,564


Goodwill

221,087



257,442


Deferred charges and other non-current assets

12,280



14,264


Cemetery perpetual care trust investments

42,342



48,670


Total assets

$

746,599



$

827,528


LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






Current portion of long-term debt and capital lease obligations

$

13,424



$

9,838


Accounts payable

7,046



6,472


Other liabilities

9,939



1,437


Accrued liabilities

12,854



15,203


Liabilities associated with assets held for sale

4,357




Total current liabilities

47,620



32,950


Long-term debt, net of current portion

105,642



111,887


Revolving credit facility

36,900



40,500


Convertible junior subordinated debentures due in 2029 to an affiliate

89,770




Convertible subordinated notes due 2021



114,542


Obligations under capital leases, net of current portion

3,786



3,098


Deferred preneed cemetery revenue

55,479



56,875


Deferred preneed funeral revenue

30,588



31,265


Deferred tax liability

11,915



36,414


Other long-term liabilities

1,548



2,401


Deferred preneed cemetery receipts held in trust

68,341



71,972


Deferred preneed funeral receipts held in trust

97,144



97,607


Care trusts' corpus

41,893



48,142


Total liabilities

590,626



647,653


Commitments and contingencies:






Stockholders' equity:






Common stock, $.01 par value; 80,000,000 shares authorized; 22,183,000 and 22,434,000 issued as of December 31, 2013 and 2014, respectively

222



224


Additional paid-in capital

204,324



212,386


Accumulated deficit

(33,306)



(17,468)


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

(15,267)



(15,267)


Total stockholders' equity

155,973



179,875


Total liabilities and stockholders' equity

$

746,599



$

827,528


 

 

CARRIAGE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)










(unaudited)








For the Three Months
Ended December 31,


For the Twelve Months

 Ended December 31,


2013



2014



2013



2014














Revenues

$

52,639



$

59,419



$

213,074



$

226,124


Field costs and expenses

38,239



40,492



148,789



156,116


Gross profit

$

14,400



$

18,927



$

64,285



$

70,008


General and administrative expenses

5,583



6,512



27,379



30,293


Operating income

$

8,817



$

12,415



$

36,906



$

39,715


Interest expense, net

(3,066)



(2,593)



(12,622)



(10,308)


Accretion of discount on convertible subordinated notes



(805)





(2,452)


Loss on early extinguishment of debt and other costs







(1,042)


Loss on redemption of convertible junior subordinated debentures







(3,779)


Other, net



(571)



81



567


Income from continuing operations before income taxes

$

5,751



$

8,446



$

24,365



$

22,701


Net provision for income taxes

(1,519)



(3,079)



(9,245)



(7,255)


Net income from continuing operations

$

4,232



$

5,367



$

15,120



$

15,446


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

(233)



11



4,176



392


Net income

$

3,999



$

5,378



$

19,296



$

15,838


Preferred stock dividend





(4)




Net income available to common stockholders

$

3,999



$

5,378



$

19,292



$

15,838














Basic earnings per common share:












Continuing operations

$

0.23



$

0.29



$

0.83



$

0.84


Discontinued operations

(0.01)





0.23



0.02


Basic earnings per common share

$

0.22



$

0.29



$

1.06



$

0.86


Diluted earnings per common share:












Continuing operations

$

0.23



$

0.29



$

0.82



$

0.83


Discontinued operations

(0.01)





0.18



0.02


Diluted earnings per common share

$

0.22



$

0.29



$

1.00



$

0.85














Dividends declared per common share

$

0.025



$

0.025



$

0.100



$

0.100














Weighted average number of common and common equivalent shares outstanding:












Basic

17,920



18,170



17,826



18,108


Diluted

22,488



18,358



22,393



18,257




The GAAP Diluted EPS and Adjusted Diluted EPS for the three and twelve months ended December 31, 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.




On August 1, 2014, we received notification that the Internal Revenue Service completed its examination of our tax year ended December 31, 2011 citing no change. As a result, we have re-measured our tax liability for unrecognized tax benefits related to personal goodwill which resulted in a tax benefit recognized of $1.7 million and an increase to Deferred tax liability of $5.6 million.  The tax benefit reduced the effective tax rate for the year ended December 31, 2014. Additionally, we recognized a credit to interest expense of $0.6 million related to the settled portion of the uncertain tax position.

 

 

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)






For the Years Ended
December 31,



2013



2014


Cash flows from operating activities:







Net income


$

19,296



$

15,838


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







Depreciation and amortization


11,748



11,945


Gain on sale of businesses and purchase of assets


(6,091)



(2,150)


Impairment of goodwill


100



1,180


Loss on early extinguishment of debt and other costs




1,042


Amortization of deferred financing costs


362



908


Accretion of discount on convertible subordinated notes




2,452


Provision for losses on accounts receivable


2,005



2,877


Stock-based compensation expense


3,583



4,622


Deferred income tax expense


12,572



5,295


Loss on redemption of convertible junior subordinated debentures




2,932


Other


85




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







Accounts and preneed receivables


(3,329)



(4,146)


Inventories and other current assets


(337)



(2,590)


Deferred charges and other


(35)



(165)


Preneed funeral and cemetery trust investments


(1,415)



(203)


Accounts payable


1,142



(562)


Accrued and other liabilities


(3,294)



(1,529)


Deferred preneed funeral and cemetery revenue


1,187



303


Deferred preneed funeral and cemetery receipts held in trust


2,266



(1,484)


Net cash provided by operating activities


39,845



36,565









Cash flows from investing activities:







Acquisitions and land for new construction


(19,701)



(57,874)


Net proceeds from sale of businesses and other assets


10,184



2,192


Capital expenditures


(10,695)



(23,675)


Net cash used in investing activities


(20,212)



(79,357)









Cash flows from financing activities:







Net borrowings (payments) on the revolving credit facility


(7,800)



3,600


Net borrowings on the term loan




3,313


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 long-term debt and obligations under capital leases


(11,219)



(840)


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


894



1,228


Dividends on common stock


(1,817)



(1,840)


Dividends on redeemable preferred stock


(4)




Payment of loan origination costs


(621)



(825)


Excess tax benefit of equity compensation


613



3,990


Net cash provided by (used in) financing activities


(19,954)



41,828









Net decrease in cash and cash equivalents


(321)



(964)


Cash and cash equivalents at beginning of year


1,698



1,377


Cash and cash equivalents at end of year


$

1,377



$

413


 

 

CARRIAGE SERVICES, INC.

CALCULATION OF EARNINGS PER SHARE

(in thousands, except share and per share data)




Year Ended December 31,


2013



2014




Numerator for basic earnings per share:






Numerator from continuing operations






Income from continuing operations

$

15,120



$

15,446


Less: Earnings allocated to unvested restricted stock

(314)



(295)


Income attributable to continuing operations

$

14,806



$

15,151








Numerator from discontinued operations






Income from discontinued operations

$

4,176



$

392


Less: Earnings allocated to unvested restricted stock

(85)



(8)


Income attributable to discontinued operations

$

4,091



$

384








Numerator for diluted earnings per share:






Adjustment for diluted earnings per share:






Interest on convertible junior subordinated debentures, net of tax

3,454





$

3,454



$








Income attributable to continuing operations

$

18,260



$

15,151


Income attributable to discontinuing operations

$

4,091



$

384








Denominator






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

17,826



18,108


Effect of dilutive securities:






Stock options

175



149


Convertible junior subordinated debentures

4,392




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

22,393



18,257








Basic earnings per common share:






Continuing operations

$

0.83



$

0.84


Discontinued operations

0.23



0.02


Basic earnings per common share

$

1.06



$

0.86








Diluted earnings per common share:






Continuing operations

$

0.82



$

0.83


Discontinued operations

0.18



0.02


Diluted earnings per common share

$

1.00



$

0.85








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, 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 twelve months ended December 31, 2013 and 2014, except for the accretion of the discount on Convertible Notes as this is a non-tax deductible item and the tax adjustment from prior period.
  • 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 twelve months ended December 31, 2013 and 2014 (in thousands):






Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013



2014



2013



2014


Net Income from continuing operations

$

4,232



$

5,367



$

15,120



$

15,446


Special items, net of tax except for **












Withdrawable Trust Income

281



198



960



1,181


Acquisition and Divestiture Expenses

246



49



496



764


Severance Costs

105



101



965



697


Consulting Fees

90



41



368



277


Other Incentive Compensation







660


Securities Transaction Expenses





160




Accretion of Discount on Convertible Subordinated Notes **



805





2,452


Costs Related to the Credit Facility





248



688


Loss on Redemption of Convertible Junior Subordinated Debentures







2,493


Loss (gain) on Asset Purchase



379





(367)


Other Special Items





(484)



503


Tax Adjustment from Prior Period **

(338)





260




     Total Special items affecting net income

$

384



$

1,573



$

2,973



$

9,348


Adjusted Net Income

$

4,616



$

6,940



$

18,093



$

24,794


 

 

Reconciliation of Net Income from continuing operations to Consolidated EBITDA and Adjusted Consolidated EBITDA for the three and twelve months ended December 31, 2013 and 2014 (in thousands):






Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

Net income from continuing operations

$

4,232



$

5,367



$

15,120



$

15,446


Net provision for income taxes

1,519



3,079



9,245



7,255


Pre-tax earnings from continuing operations

$

5,751



$

8,446



$

24,365



$

22,701


Interest expense

3,066



2,593



13,437



10,308


Accretion of discount on convertible subordinated notes



805





2,452


Loss on early extinguishment of debt and other costs







1,042


Loss on redemption of convertible junior subordinated debentures







3,779


Non-cash stock compensation

617



920



2,916



3,832


Depreciation & amortization

2,823



3,142



11,635



11,923


Other, net



571



(896)



195


Consolidated EBITDA

$

12,257



$

16,477



$

51,457



$

56,232


Adjusted For:












Withdrawable Trust Income

$

426



$

300



$

1,454



$

1,788


Acquisition and Divestiture Expenses

372



74



752



1,158


Severance Costs

158



153



1,462



1,056


Consulting Fees

136



62



557



419


Other Incentive Compensation







1,000


Securities Transaction Expenses





242




Other Special Items





83




Adjusted Consolidated EBITDA

$

13,349



$

17,066



$

56,007



$

61,653


Revenue

$

52,639



$

59,419



$

213,074



$

226,124














Adjusted Consolidated EBITDA Margin

25.4

%


28.7

%


26.3

%


27.3

%


















 

 

Reconciliation of funeral and cemetery income before income taxes to Field EBITDA for the three and twelve months ended December 31, 2013 and 2014 (in thousands):





Funeral Field EBITDA

Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

Gross Profit (GAAP)

$

11,057



$

14,537



$

48,874



$

54,102


Depreciation & amortization

1,771



1,782



6,440



6,841


Regional & unallocated costs

1,877



2,483



8,111



7,879


Net financial income

(1,958)



(2,041)



(7,966)



(8,348)


Funeral Field EBITDA

$

12,747



$

16,761



$

55,459



$

60,474


Funeral Field Operating Revenue

$

38,443



$

43,460



$

153,851



$

164,252


Funeral Field EBITDA Margin

33.2

%


38.6

%


36.0

%


36.8

%









Cemetery Field EBITDA

Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

Gross Profit (GAAP)

$

3,343



$

4,390



$

15,411



$

15,906


Depreciation & amortization

1,166



1,019



3,739



3,704


Regional & unallocated costs

344



351



1,902



1,927


Net financial income

(2,179)



(2,358)



(9,338)



(9,341)


Cemetery Field EBITDA

$

2,674



$

3,402



$

11,714



$

12,196


Cemetery Field Operating Revenue

$

9,761



$

11,189



$

40,479



$

42,856


Cemetery Field EBITDA Margin

27.4

%


30.4

%


28.9

%


28.5

%









Total Field EBITDA

Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

Funeral Field EBITDA

$

12,747



$

16,761



$

55,459



$

60,474


Cemetery Field EBITDA

2,674



3,402



11,714



12,196


Funeral Financial EBITDA

1,958



2,041



7,966



8,348


Cemetery Financial EBITDA

2,179



2,358



9,338



9,341


Total Field EBITDA

$

19,558



$

24,562



$

84,477



$

90,359


 

Reconciliation of cash provided by operating activities to Adjusted Free Cash Flow from operations for the three and twelve months ended December 31, 2013 and 2014 (in thousands):






Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

Cash flow provided by operations

$

8,629



$

8,916



$

39,845



$

36,565


Adjustment for tax benefit from Good to Great stock awards







4,802


Cash used for maintenance capital expenditures

(1,888)



(1,904)



(6,615)



(7,211)


Adjusted Free Cash Flow

$

6,741



$

7,012



$

33,230



$

34,156


 

Reconciliation of GAAP basic earnings per share to Adjusted basic earnings per share for the three and twelve months ended December 31, 2013 and 2014:






Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

GAAP basic earnings per share from continuing operations

$

0.23



$

0.29



$

0.83



$

0.84


Special items affecting net income

0.02



0.09



0.17



0.51


Adjusted basic earnings per share

$

0.25



$

0.38



$

1.00



$

1.35


 

Reconciliation of GAAP diluted earnings per share to Adjusted diluted earnings per share for the three and twelve months ended December 31, 2013 and 2014:






Three Months Ended
December 31,


Twelve Months Ended
December 31,




2013


2014


2013


2014

GAAP diluted earnings per share from continuing operations

$

0.23



$

0.29



$

0.82



$

0.83


Special items affecting net income

0.02



0.09



0.13



0.51


Dilution effect of convertible junior subordinated debentures





0.03




Adjusted diluted earnings per share

$

0.25



$

0.38



$

0.98



$

1.34


 

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 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.

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