Carriage Services, Inc. (NYSE:CSV) (“Carriage Services” or the
“Company”) today announced the completion of its balance sheet
recapitalization and an update to its Rolling Four Quarter Outlook.
Mel Payne, Chief Executive Officer, stated, “We
have major long term 'turning point' good news to report for our
Company. Over the last five weeks we have executed a balance
sheet recapitalization involving $550 million of new financing
that our senior leadership team and Board of Directors believe
financially positions Carriage for unprecedented growth in Revenue,
Earnings and Free Cash Flow over the next five to ten years as we
execute our three core models on Carriage’s Good To Great
Journey that never ends. Starting during the week of
Monday, April 23rd and ending last Thursday, May 31st we
executed a series of transactions described below:
- Repurchased in privately negotiated transactions approximately
80% of our $143.75 million 2.75% subordinated convertible
notes due May 2021 for approximately $150 million
(29.5% market value premium over par), funded by issuance of
2.8 million common shares to repurchased convertible holders
at $26.79 per share (primarily to cover short positions) and
$75 million of cash from interim bank financing under our
prior credit facility with our previous large bank group.
- Issued $325 million of eight year 6⅝% unsecured senior
notes that refinanced all outstanding bank debt (about
$290 million including the $75 million interim financing for
the convertible note repurchases) under our prior secured term loan
and revolving credit bank facilities due March 2021.
- Put in place a new $150 million five year secured Bank
Revolving Credit Facility (undrawn) on improved terms with a
smaller bank group.
The above series of transactions to recapitalize
our balance sheet have been the result of a two year project during
which we sought and received substantial and much appreciated input
from existing and potential long term institutional equity
investors as well as several capital structure specialists and
investment bankers. We fine-tuned our capital structure
strategy for the future over the last six months and decided that
we should move now in an interest rate environment that is still
historically low but whose intermediate term outlook while
unknowable is more likely to be up than down.
Before I lay out what our new and strengthened
balance sheet and financial flexibility means for the future, let
me first provide the background and motivating reasons.
Four years ago we made an 'unforced error' by
refinancing a thirty year $90 million 7% coupon hybrid
convertible (at $20.44 per common share) which was issued in
1999 during the public deathcare capital markets crash with another
seven year $143.75 million 2.75% coupon convertible (at
$22.56 per common share) with no early call feature. The
new convertible combined with a secured syndicated Bank Term Loan
and Revolving Credit meant that our entire liability capital
structure matured in the first half of 2021 which over time began
to increasingly shrink our financial flexibility. Moreover
the converts made our diluted common share count calculations a
complex yo-yo target that correlated to fluctuations in our share
price from quarter to quarter, and even worse led to more than 3
million shares sold short (almost 20% of outstanding), essentially
restricting our share price to a range of $25 - $28 plus or minus
as the converts became concentrated primarily at hedge funds with
no interest in the fundamentals or future of our company.
We believe the balance sheet recapitalization
outlined above has financially positioned the Company for a period
of more rapid growth by selective high quality acquisitions during
what we expect will be a period of more rapid consolidation of the
remaining best independents in our industry compared to the last
ten to fifteen years. We are now well prepared
organizationally and financially for this more opportunistic
industry landscape with a hugely differentiating story that offers
a succession plan solution to business owners akin to them 'joining
in' as a strategic partner with other elite firms while also
becoming better as an operating business under the Carriage
framework of Being The Best Support Services from
our Houston Support Center. For this reason our pipeline of
high quality acquisition candidates has been growing as our
Strategic Growth Leadership Team has been actively out telling our
story.
To begin this new phase of our Good To
Great Journey, I am pleased to update our Rolling Four
Quarter Outlook that includes a Letter of Intent on a large, high
quality funeral business in a very attractive strategic market
consistent with the section on Page 19 of my
2017 Shareholder Letter titled 'U.S.
Demographic Trends of the Future'.
ROLLING FOUR QUARTER OUTLOOK – Period Ending March 31,
2019
|
|
Range(in millions, except per share
amounts) |
Revenues |
|
$281 -
$285 |
Consolidated
EBITDA |
|
$80 -
$84 |
GAAP Net
Income(1)(2) |
|
$26 -
$28 |
GAAP Basic
Earnings Per Share(1)(2) |
|
$1.36
- $1.41 |
GAAP Diluted
Earnings Per Share(1)(2)(3) |
|
$1.33
- $1.38 |
(1) The Rolling Four Quarter Outlook no longer
treats approximately $1.2 million of annual Accretion of Discount
on Convertible Subordinated Notes on the remaining 20% of the
convertible subordinated notes outstanding as an addback to GAAP
Net Income to calculate Adjusted Net Income. Our reporting
policy will now reflect such convertible accretion as an economic
cost of the security in determining GAAP earnings, i.e. there will
be no Non-GAAP treatment of this item.
(2) The Rolling Four Quarter Outlook does not
include one-time expenses and losses related to write-offs of
remaining unamortized financing costs from the refinancing and
replacement of our prior secured bank term loan and revolving
credit facilities and 80% of the convertible subordinated notes,
which will be reflected as Special Items in our second quarter
Trend Report.
(3) The Rolling Four Quarter Outlook on Adjusted
Diluted Earnings Per Share does not include any changes to our
share count that could occur related to stock price increases and
EPS dilution calculations related to our remaining convertible
subordinated notes and outstanding and exercisable stock
options.
Our near term annual earnings per share
performance metrics have been reduced to a range of $1.33 to $1.41
because of a 16% increase in actual common shares outstanding to
approximately 19.1 million as well as higher total annual cash
interest on our new senior notes of $21.5 million, about $2
million of annual non-cash loan amortization expense, and about $2
million of economic costs ($800,000 cash interest and $1.2 million
accretion) related to the remaining $28.75 million face amount of
the convertible notes. However, we expect to settle into a
long and consistent phase of material increases in all of our
performance metrics so that over time our shares trade at a premium
multiple compared to any industry benchmark as opposed to
discounted multiples in the past.
As articulated on Page 1 of my 2017 Shareholder
Letter, our goal is to grow revenue over the five year period
2018 - 2022 at a compound rate of 7 - 9%,
comprised of about 2% from existing operations and 5 - 7
% from acquisitions, thereby achieving a 'Roughly Right Range' of
revenue on an annualized basis of $380 million to $400 million by
the end of 2022. As we have shown since the beginning of
2012, mid to high single digit revenue growth both organically and
by selective acquisition can be highly leveraged to produce
gradually increasing Consolidated EBITDA Margins which then creates
higher rates of growth in Consolidated EBITDA, Free Cash Flow and
Earnings Per Share.
We expect a majority of our acquisition and
growth capital expenditures over the 2018 - 2022
timeframe to be funded from internally generated Free Cash Flow
that over time will enable the powerful leveraging dynamics of our
consolidation platform to compound the intrinsic value of CSV
shares represented by book value per share at low to mid teen rates
of growth. We also expect to simultaneously reduce our Total
Debt to Consolidated EBITDA leverage ratio to approximately
4 - 4.5 times biased toward 4 times as a matter of
policy.
Finally after 27 years we have achieved a 'grown
up, vanilla/chocolate' balance sheet that better supports a
Being The Best High Performance Culture Vision of
our company and which all of our leaders, employees, long term
shareholders and new bondholders so richly deserve. And as
Chairman of our Board and CEO, I can also happily report that we
have the most qualified, aligned and engaged Senior Leadership Team
and Board Members in the history of the company,” concluded Mr.
Payne.
About Carriage Services
Carriage Services is a leading provider of
deathcare services and merchandise in the United States. Carriage
operates 178 funeral homes in 29 states and 32 cemeteries in 11
states.
Certain statements made herein or elsewhere by,
or on behalf of, the Company that are not historical facts are
intended to be forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements include, but are not limited to, statements regarding
any projections of earnings, revenues, asset sales, cash flow, debt
levels or other financial items; any statements of the plans,
strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; any
statements of belief; and any statements of assumptions underlying
any of the foregoing and are based on the Company’s current
expectations and beliefs concerning future developments and their
potential effect on it. The words "may", "will", "estimate",
"intend", "believe", "expect", "seek", "project", "forecast",
"foresee", "should", "would", "could", "plan", "anticipate",
“target”, and other similar words or expressions are intended to
identify forward-looking statements, which are generally not
historical in nature. These statements are based on assumptions
that the Company believes are reasonable; however, many important
factors, as discussed under "Forward-Looking Statements and
Cautionary Statements" in the Company's Annual Report on Form 10-K
for the year ended December 31, 2017, could cause the Company's
results in the future to differ materially from the forward-looking
statements made herein and in any other documents or oral
presentations made by, or on behalf of, the Company. The Company
assumes no obligation to update or publicly release any revisions
to forward-looking statements made herein or any other
forward-looking statements made by, or on behalf of, the Company. A
copy of the Company's Annual Report on Form 10-K, and other
information about the Company and news releases, are available at
http://www.carriageservices.com.
Source: Carriage Services, Inc.
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