HOUSTON, Feb. 23, 2022 (GLOBE NEWSWIRE) --
Carriage Services, Inc. (NYSE: CSV) today announced results for the
fourth quarter and year ended December 31, 2021.
- Full Year Performance Release
Represents 2021 Shareholder Letter;
- Carlos Quezada promoted to
President and Chief Operating Officer;
- Fourth Quarter Revenue of
$95.9 million, GAAP Diluted EPS of $0.77 and Adjusted Diluted
EPS of $0.78;
- Full Year Revenue of
$375.9 million, GAAP Diluted EPS of $1.81 and Adjusted Diluted
EPS of $3.02;
- Full Year Adjusted Free Cash Flow
of $75.7 million; Net Operating Cash Flow of $84.2 million;
- Issues new Three Year Roughly Right
Ranges Performance Scenario through 2024 with a likely Capital
Allocation Scenario and Share Price Valuation Ranges for each
year;
- Invested $142.5 million since
May 13, 2021 to repurchase 2.9 million shares (16.0% of
outstanding at $49.01 per share);
- Board approved a new $75 million
authorization for Stock Repurchase Program; and
- Increase of $5 per share in
Intrinsic Value Roughly Right Range to $70 to $80 per
share.
Mel Payne, Chairman and CEO, stated, “Our
funeral and cemetery portfolio revenue and earnings momentum
continued through the fourth quarter of 2021 with record revenue of
$95.9 million (up 6.5%) and record Adjusted Diluted EPS of $0.78
(up 36.8%) despite a tough comparison with our fourth quarter of
last year because of a spike in COVID-19 deaths, especially in
California beginning in December 2020 through January
2021. The other good news is that our GAAP Diluted EPS for
the fourth quarter of $0.77 was essentially equal to our Adjusted
Diluted EPS after the “noisy Non-GAAP addbacks” during the last
several years, which should continue to be the case in most
quarters in the future. Our full year revenue was a record
$375.9 million (up 14.1%) while Adjusted Diluted EPS increased
62.4% from $1.86 per share in 2020 to $3.02 per share in 2021
(GAAP Diluted EPS of $1.81, up 68.6%), which like night follows day
led to our share price more than doubling from $31.32 at year-end
2020 to $64.44 at year-end 2021. In other words, our 2021
performance during the continuing COVID-19 Pandemic was in perfect
alignment with our annual theme of:
CARRIAGE SERVICES 2021: ACCELERATING
HIGH PERFORMANCE FLYWHEEL EFFECT!
After we raised our Roughly Right Range of
Intrinsic Value by $10 per share to $65 to $75 per share in our
third quarter earnings release dated October 27, 2021, we continued
to aggressively buy our shares into the end of the year. Since our
senior notes refinancing on May 13, 2021, we have repurchased a
little over 2.9 million shares (16.0% of total outstanding) for
about $142.5 million or $49.01 per share, $26 per share or 34.7%
below the $75 per share midpoint of our increased Intrinsic Value
Per Share Roughly Right Range of $70 to $80 per share. So long as
Mr. Market Rodney Dangerfield continues to significantly undervalue
the ownership and future prospects of our company, we will continue
to prioritize share repurchases within the Capital Allocation
Framework of High Return On Invested Capital uses of our increasing
Free Cash Flow.
As I have previously stated often externally and
“at all times” internally, Carriage is defined by our unique
Standards Operating Model and High Performance Culture Framework
for operating and consolidating the highly fragmented funeral and
cemetery industry. Our success as a consolidation platform is
driven by a customized data-based language of High Performance
Standards whose relevance and oversight for each funeral and
cemetery business in our portfolio is provided by the “Best of the
Best” Managing Partners who currently serve on our eleven-member
Standards Council.
When executed to a high degree of “Standards
Achievement” by most of our Managing Partners most of the time, our
Funeral and Cemetery Standards deliver high and sustainable
operating and financial performance over both the short term (one
year) and long term (five years) while requiring continuous
improvement to drive market share growth, as we always update our
Rolling Four Quarter Performance Outlook each quarter and our Five
Year Roughly Right Ranges Performance Scenario at the beginning of
each year. Moreover, all our leaders in both our individual
businesses and field and Houston Support Center roles are 100%
aligned with one-year and five-year high performance financial and
recognition incentives that also align perfectly with superior long
term compounded returns for our shareholders.
In my 2016 Shareholder Letter titled
1991-2016: The Evolution of Our Learning Journey,
it took forty-four pages for me to cover the first twenty-five
years of Carriage and the evolution of the idea of a Funeral
Standards Operating Model beginning in August 2003. In my 2020
Shareholder Letter titled A Tale of High
Performance Transformation, it took fifty-one pages for me
to cover the amazing transformation of Carriage since I had to once
again step back into the role of Chief Operating Officer in
September 2018. This full year 2021 earnings release will also for
the first time represent our 2021 Shareholder Letter, covering the
remarkable High Performance Transformation in our
cemetery portfolio, funeral portfolio, realignment of short and
long term incentives with sustained high operating and financial
performance standards, as well as transformation and cultural
alignment of our Houston Support Center Departments and Teams from
2018 to 2021. I will begin by sharing the highlights of our 2021
year and record performance in all areas of our company.
The greatest strategic achievement of this past
year was that I formally established on June 2, 2021 a succession
plan format for the future Executive Leaders of Carriage when I am
no longer here, although I have no plans or health reasons to not
be here serving as Chairman and CEO over the next five to ten years
of optimum value creation. On June 2, 2021 (extensive press release
on their individual backgrounds and qualifications), I promoted
Carlos Quezada to Executive Vice President and Chief Operating
Officer, Steve Metzger to Executive Vice President and Chief
Administrative Officer, and Ben Brink to Executive Vice President
and Principal Financial Officer in addition to their other
responsibilities and roles, and to membership in our new Strategic
Vision and Principles Group (SVPG) chaired by me.
Based on his amazing achievements and
contributions that Carlos has made to Carriage since joining our
Good To Great Journey on June 26, 2020, I am very
honored to announce that he has also been promoted to President and
Chief Operating Officer effective today. I got the biggest
promotion with these succession plan moves, as I can now allocate
my time to its highest and best use, which I view as developing
Carlos, Steve and Ben to be the future Executive Leaders of
Carriage, as well as mentoring them on optimizing long term
shareholder value creation through wise, savvy, flexible and highly
disciplined Capital Allocation as covered so brilliantly in the
2012 book The Outsiders by Will
Thorndike.
After co-founding Carriage at 48 years young on
June 1, 1991, the company has finally evolved after more than
thirty years into a Being The Best
Mission/Vision Company in our industry. Yet only
now do I believe that as an equity investment “The Best Is
Yet To Come.” Accordingly, I will begin this 2021
Shareholder Letter with the analogy of Carriage on February 23,
2022 to that of London at the height of the British Empire in the
timeframe 1775-1792, as depicted by Charles Dickens in his famous
1859 novel of historical fiction “A Tale of Two
Cities,” whose vivid descriptions are shown below (as
compared to Paris and France in the timeframe).
1775-1792
London |
2020-2030
Carriage |
Best of Times |
Age of Wisdom |
Epoch of Belief |
Season of Light |
Spring of Hope |
Everything Before Us |
Center of Learning |
High Performance CSV |
Center of Commerce |
CSV Good To Great Journey |
British Empire Peak |
CSV Premium High Valuation |
|
CSV Built To Last Future |
Carriage’s future is perfectly captured by the vivid descriptions
of London, as our leaders are passionately committed to an
“Epoch of Belief in Themselves, Belief in Each
Other and Belief in the Power of People Through
Individual Initiative and Teamwork.” Which together has
created an “UNBREAKABLE UNION OF BELIEF”
throughout Carriage that after thirty years of innovative business
model and organizational development evolution, we have entered the
“Best of Times with Everything Before Us!”
The balance of this 2021 Shareholder Letter has
been a collaboration between myself, Carlos, Steve and Ben as the
four members of SVPG, putting TRUTH to my earlier
assertion that I got the biggest promotion. Much of the content in
certain specific and highly relevant areas and reporting sections
covered in this letter has never been shown publicly in such
transparent detail, particularly as trends over five full years
including Pre-COVID years, which is intended along with “takeaway
insights” by SVPG members to provide a greater understanding of our
past, present and likely future performance.
But more profoundly important and rare in this
Shareholder Letter is that we will also present total consolidated
performance ranges of what our High Performance
Transformation is expected to look like over the next
three years under a likely Capital Allocation Scenario, and for the
first time what our shares could potentially be worth each year
with continued outstanding execution of our three core models. The
Table of Contents for this Shareholder Letter is shown below
sequentially in sections covered by each SVPG member:
TABLE OF CONTENTS |
|
Mel Payne: |
Page Numbers |
1. Fourth Quarter and Full Year Comparative Performance
Highlights; |
4-5 |
2. Two Major Strategic
Achievements in 2021/Public Deathcare Sector 2022 Versus
1990’s; |
5-6 |
3. Three Year Roughly Right
Ranges Performance Scenario with likely Capital Allocation
Scenario; |
6-9 |
4. Good To Great II Update and
Conceptual Value Creation Performance Alignment; |
10 |
5. Some
Final Thoughts About Carriage and The Nature of Being A Public
Company. |
11-12 |
Carlos Quezada: |
Page Numbers |
6. Five Quarter Trend Report Ending December 31, 2021; |
12-14 |
7. Same Store Funeral Revenue
Monthly Trends and Drivers Seven Months Ending January 2022; |
15 |
8. Five Year Same Store
Cemetery Detailed Trend Report and Summary Cemetery Acquisition
Data; |
16-17 |
9.
Operating Organization Structure/Talent and Conceptual Vision
Update. |
18-21 |
Steve Metzger: |
Page Numbers |
10. Update on Strategic Acquisition Activity Growth Outlook; |
21 |
11. Five Year Same Store
Funeral Performance/Incentive Compensation and Recognition
Alignment Trends; |
21-26 |
12.
Support Center Organization Structure/Talent and Conceptual Vision
Update. |
26-27 |
Ben Brink: |
Page Numbers |
13. Free Cash Flow and Leverage Update; |
28-29 |
14. Capital Allocation
Priority Update; |
29-30 |
15. Trust Fund
Performance/Impact on Financial Revenue and Earnings; |
30-33 |
16. Finance Organization
Structure/Talent And Conceptual Vision Update; |
34 |
17. Updated and Increased
Intrinsic Value Per Share Range; |
35 |
18.
Final Thoughts About “Getting To The Other Side”; |
35 |
19.
2021 One Year Being The Best Pinnacle/Five Year
Good To Great Winners. |
36-38 |
FOURTH
QUARTER AND FULL YEAR COMPARATIVE PERFORMANCE
HIGHLIGHTS
Fourth Quarter 2021 Comparative
Performance Highlights
- Total Revenue(1) of $95.9 million, an increase of
$5.8 million or 6.5%;
- GAAP Funeral Operating Income of $23.2 million, an increase of
$3.7 million or 19.1%;
- GAAP Funeral Operating Income Margin of 33.3%, an increase of
420 basis points;
- GAAP Cemetery Operating Income of $9.9 million, an increase of
$1.5 million or 17.5%;
- GAAP Cemetery Operating Income Margin of 37.5%, an increase of
130 basis points;
- GAAP Net Income of $13.3 million, an increase of $5.0 million
or 59.6%;
- GAAP Net Income Margin of 13.9%, an increase of 460 basis
points;
- GAAP Diluted EPS of $0.77, an increase of $0.31 or 67.4%;
- GAAP Net Cash Provided by Operating Activities of $14.5
million, a decrease of 3.6%; and
- GAAP Net Cash Provided by Operating Activities as a percentage
of Total Revenue of 15.2%, a decrease of 160 basis points.
- Same Store Funeral Revenue of $55.3 million, an increase of
$2.7 million or 5.1%;
- Acquisition Funeral Revenue of $10.0 million, an increase of
$0.6 million or 6.8%;
- Same Store Cemetery Revenue of $16.3 million, an increase of
$1.5 million or 9.9%;
- Acquisition Cemetery Revenue of $6.3 million, an increase of
$0.8 million or 14.6%;
- Financial Revenue of $6.2 million, an increase of $0.9 million
or 17.1%;
- Total Field EBITDA of $44.2 million, an increase of $2.9
million or 6.9%;
- Total Field EBITDA Margin of 46.1%, an increase of 20 basis
points;
- Adjusted Consolidated EBITDA of $30.4 million, an increase of
$2.1 million or 7.4%;
- Adjusted Consolidated EBITDA Margin of 31.7%, an increase of 30
basis points;
- Adjusted Diluted EPS of $0.78, an increase of $0.21 or
36.8%;
- Adjusted Free Cash Flow of $10.3 million, a decrease of $1.6
million or 13.2%; and
- Adjusted Free Cash Flow Margin of 10.7%, a decrease of 250
basis points.
Full Year 2021 Comparative
Performance Highlights
- Total Revenue(1) of $375.9 million, an increase of
$46.4 million or 14.1%;
- GAAP Funeral Operating Income of $88.6 million, an increase of
$31.0 million or 53.7%;
- GAAP Funeral Operating Income Margin of 32.8%, an increase of
970 basis points;
- GAAP Cemetery Operating Income of $40.4 million, an increase of
$13.5 million or 50.2%;
- GAAP Cemetery Operating Income Margin of 38.1%, an increase of
470 basis points;
- GAAP Net Income of $33.2 million, an increase of $17.1 million
or 106.1%;
- GAAP Net Income Margin of 8.8%, an increase of 390 basis
points;
- GAAP Diluted EPS of $1.81, an increase of $0.92 or 103.4%;
- GAAP Net Cash Provided by Operating Activities of $84.2
million, an increase of 1.6%; and
- GAAP Net Cash Provided by Operating Activities as a percentage
of Total Revenue of 22.4%, a decrease of 280 basis points.
- Same Store Funeral Contracts of 41,307, an increase of 3,505 or
9.3%;
- Same Store Funeral Revenue of $215.0 million, an increase of
$23.3 million or 12.1%;
- Same Store Funeral Field EBITDA of $93.0 million, an increase
of $13.2 million or 16.5%;
- Same Store Funeral Field EBITDA Margin of 43.3%, an increase of
170 basis points;
- Acquisition Funeral Revenue of $38.0 million, an increase of
$2.6 million or 7.2%;
- Acquisition Funeral Field EBITDA of $16.0 million, an increase
of $2.4 million or 17.5%;
- Acquisition Funeral Field EBITDA Margin of 42.1%, an increase
of 370 basis points;
- Same Store Cemetery Revenue of $64.2 million, an increase of
$12.4 million or 24.0%;
- Same Store Cemetery Field EBITDA of $27.0 million, an increase
of $7.5 million or 38.5%;
- Same Store Cemetery Field EBITDA Margin of 42.1%, an increase
of 440 basis points;
- Acquisition Cemetery Revenue of $27.8 million, an increase of
$10.2 million or 58.3%;
- Acquisition Cemetery Field EBITDA of $15.5 million, an increase
of $8.4 million or 117.8%;
- Acquisition Cemetery Field EBITDA Margin of 55.8%, an increase
of 1,530 basis points;
- Financial Revenue of $22.9 million, an increase of $3.0 million
or 15.2%;
- Financial Field EBITDA of $21.4 million, an increase of $2.8
million or 15.1%;
- Financial Field EBITDA Margin of 93.2%, a decrease of 10 basis
points;
- Total Field EBITDA of $174.6 million, an increase of $32.7
million or 23.0%;
- Total Field EBITDA Margin of 46.5%, an increase of 340 basis
points;
- Adjusted Consolidated EBITDA of $126.2 million, an increase of
$21.9 million or 21.0%;
- Adjusted Consolidated EBITDA Margin of 33.6%, an increase of
200 basis points;
- Adjusted Diluted EPS of $3.02, an increase of $1.16 or
62.4%;
- Adjusted Free Cash Flow of $75.7 million, an increase of $5.7
million or 8.2%;
- Adjusted Free Cash Flow Margin of 20.1%, a decrease of 110
basis points;
- Adjusted Proforma Free Cash Flow of $79.7 million, an increase
of $9.7 million or 13.9%;
- Adjusted Proforma Free Cash Flow Margin of 21.2%, the same as
2020; and
- Total Debt Outstanding to Adjusted Consolidated EBITDA Ratio of
4.5 times at 12/31/21, 4.38 times at
February 23, 2022.
(1) Total
Revenue is comprised of Same Store Funeral Revenue, Acquisition
Funeral Revenue, Same Store Cemetery Revenue, Acquisition Cemetery
Revenue, Divested Revenue, Ancillary Revenue and Financial Revenue.
The most comparable GAAP measures to the Non-GAAP measures
presented in this table can be found in the Reconciliation of
Non-GAAP Financial Measures section of this press release.
After navigating through the uncertainty, fear
and extraordinary challenges of the first year of the COVID-19
Pandemic in 2020 to a record performance, our Operating and Field
Support Teams together with our Managing Partners, Sales Managers
and their Being The Best Employee Teams, supported
as always by our Houston Support Center Teams “come hell or high
water,” adapted and thrived through subsequent COVID Variants and
delivered a second record performance during 2021 in all five Field
Reporting Segments. Our revenue and profit momentum from our third
quarter of 2021 carried through the end of the year and actually
accelerated in December 2021 and into January 2022 against what we
expected would be almost impossibly high performance comparisons to
December 2020 and January 2021, which will be covered in
detail later in this release.
TWO MAJOR STRATEGIC ACHIEVEMENTS/
PUBLIC DEATHCARE SECTOR 2022 VERSUS 1990’S
There were two major strategic achievements in
2021 that position Carriage for continued, even extraordinary
success over the next seven years as a superior operating,
consolidation and especially shareholder value creation platform in
the highly fragmented funeral and cemetery industry. The first
major strategic achievement was the formation of SVPG on June 2,
2021 as my Founder’s Vision succession plan. The second major
strategic achievement was completion of a refinancing on
May 13, 2021 of $400 million of 6.625% eight-year
senior notes due 2026 with a new $400 million of 4.25% eight-year
senior notes due May 2029, which along with our amended and
restated $150 million five-year bank revolving credit facility
provides Carriage with a long term, low rate capital structure that
was the last piece of a complete transformation of Carriage into a
Free Cash Flow Machine.
Carriage now has the Free Cash Flow sustainable
earnings power, forecast to be about $82 million to
$86 million in 2022, to self-finance a meaningful highly
selective acquisition growth strategy without becoming
over-leveraged, as we have proven since the beginning of 2020 that
we can deleverage our balance sheet rapidly even in adverse
environments.
I know of no other sector (can’t think of any
but curious to know a sector and company name) where over the last
twenty years the number of domestic public deathcare consolidation
companies have shrunk from five to two (SCI and CSV), and both of
us have materially shrunk our outstanding share count (SCI by over
50%, CSV by 41%) while growing steadily and sometimes in spurts
financed mostly by Free Cash Flow (SCI consolidated Alderwoods in
2006, Keystone in 2010 and Stewart Enterprises in 2013; CSV made
four large strategic, transformative acquisitions at the end of
2019). Our credit profiles have substantially improved throughout
this timeframe and are second to none in the high yield category
(Junk label is a Joke!), as the last time an investor lost money on
deathcare debt because of a payment default was when Loewen Group
out of Canada filed for bankruptcy in June 1999.
Both SCI and Carriage have become excellent Free
Cash Flow operators and consolidators over the last twenty years at
a time when all those revenue elements not under our control such
as death rates, cremation/burial mix changes (cremation market
share easier to take from competition), customer value perception
of funeral ritual and of preplanning funeral and cemetery details,
value perception of cremations with personalized services, etc.,
have switched from being secular revenue winds in our face and
turned decidedly to revenue trends that are in our favor.
Consequently, the outlook for long-term organic revenue growth for
Carriage both in our funeral and cemetery portfolio has never been
better or higher.
When Stewart Enterprises was acquired by SCI for
$1.17 billion ($13.25 per share) plus assumption of debt in
2013, it had about 88 million fully diluted shares outstanding,
$526.9 million in Revenue and $115.5 million in Adjusted
Consolidated EBITDA equal to an Adjusted Consolidated EBITDA Margin
of 21.9%. After repurchasing approximately 2.9 million shares in
2021, Carriage currently has 16.5 million fully diluted GAAP
shares outstanding, Total Revenue of about $376 million in 2021,
Adjusted Consolidated EBITDA of $126.2 million (Adjusted
Consolidated EBITDA Margin of 33.6%), and Proforma Free Cash Flow
of $79.7 million. Our Proforma Free Cash Flow Margin of 21.2%
in 2021 was almost equal to the Adjusted Consolidated EBITDA Margin
of Stewart Enterprises when it sold to SCI in 2013. Now that’s the
definition of a CSV Free Cash Flow Machine!
During the 1990’s, all five domestic deathcare
consolidation companies needed (lots of) external bank debt and
secondary equity offerings (No FCF For Nobody At No Time!) to
execute an aggressive growth by acquisition consolidation mania
that crashed in early 1999 (No Capital For Nobody At No Time!).
Carriage now produces each year from Free Cash Flow the equivalent
of an $80 million plus secondary equity offering, the “Cash Capital
Proceeds” of which are allocated to optimize Intrinsic Value Per
Share. Whereas the last secondary common equity offering in our
domestic sector was by Stewart Enterprises in February 1999 when
they issued $219.1 million at about $16.75 per share
(13.6 million shares) to save the company from bankruptcy. In
other words, Stewart Enterprises issued almost as many shares in
one offering for desperation defense than we currently have
outstanding!
After the milestone high performance
achievements of the last three years, Carriage for the first time
in our 30 year history is in a “Value Creation
Sweetspot” with an accelerating offense from Free Cash
Flow and a Capital Allocation Strategy that produces balanced and
highly profitable revenue growth over a base of fewer common shares
outstanding, which in turn should create higher compounded rates of
growth in Intrinsic Value Per Share for many years into the future.
Now that’s the definition of a CSV High Performance Value
Creation Transformation!
THREE YEAR ROUGHLY RIGHT RANGES PERFORMANCE SCENARIO
2020 - 2022 COMPARED TO 2022 - 2024
After partially turning around performance
trends in our funeral portfolio during 2019, we made four large
strategic acquisitions at the end of 2019 and beginning of 2020,
three of which were large funeral/cemetery combination businesses.
In our year-end 2019 earnings release on February 19, 2020, I made
the following statements shown below:
“Reflecting back on Carriage’s performance
decline in 2018, the performance turnaround we have already
achieved, and the performance milestones we will achieve over the
next three years, our company will have executed what we
believe in hindsight will be viewed as a complete Carriage
Leadership, Portfolio High Performance, Balance Sheet, Earnings and
Free Cash Flow Transformation as a Value Creation Platform.
Shown below is an expanded Milestone Three Year
Roughly Right Scenario for 2020 to 2022 demonstrating the
shareholder value creation opportunity.”
INITIAL THREE YEAR ROUGHLY RIGHT RANGES SCENARIO DATED
FEBRUARY 19, 2020 (MILLIONS)
|
Performance Outlook Scenario |
Years Ending December 31
(Actual Performance in Parentheses) |
2022 Performance Range |
|
2019(A) |
2020(A) |
2021(A) |
2022 - 2/19/20 |
2022 - 2/23/22 |
Total Revenue |
$274.1 |
$315 - $319 ($329.4) |
$320 - $324 ($375.9) |
$328 - $332 |
$380 - $390 |
Total Field EBITDA |
$109.8 |
$127 - $131 ($141.9) |
$133 - $137 ($174.6) |
$139 - $144 |
$178 - $184 |
Total Field EBITDA Margin |
40.0% |
40% - 41% (43.1%) |
41% - 42% (46.5%) |
42% - 43% |
46% - 47% |
Adj. Consol. EBITDA |
$76.6 |
$92 - $96 ($104.3) |
$97 - $101 ($126.2) |
$102 - $106 |
$128 - $133 |
Adj. Consol. EBITDA Margin |
27.9% |
29% - 30% (31.6%) |
30% - 31% (33.6%) |
31% - 32% |
33.5% - 34.5% |
Adjusted Diluted EPS |
$1.25 |
$1.55 - $1.65 ($1.86) |
$1.92 - $2.10 ($3.02) |
$2.25 - $2.40 |
$3.55 - $3.65 |
Shares Outstanding |
18.0 |
18.1 |
18.3 |
- |
16.2 |
Adjusted Free Cash Flow |
$38.8 |
$42 - $45 ($70.0) |
$53 - $56 ($75.7) |
$60 - $63 |
$82 - $86 |
Total Debt Outstanding |
$534.0(1) |
$480 - $490 ($461.1) |
$440 - $450 ($565.4) |
$390 - $440 |
$560 - $570 |
Total Debt to EBITDA Multiple |
7.0(2) |
5.0 - 5.2 (4.4) |
4.3 - 4.5 (4.5) |
3.8 - 4.0 |
4.1 - 4.4 |
(1) January 3, 2020 acquisition of
Oakmont Memorial Park & Mortuary and peak debt.
(2) Does not include Proforma
EBITDA for acquisitions.
The most comparable GAAP measures to the
Non-GAAP measures presented in this table can be found in the
Reconciliation of Non-GAAP Financial Measures section of this press
release.
Shown below is our new Three Year Roughly Right
Ranges Performance Scenario dated February 23, 2022 (new
2022 shown in table above as comparison to old) with a likely
Capital Allocation Scenario together with potential Share Price
Ranges for each year using three different valuation methodologies.
Because our company is already performing at such a high level in
every “meter moving performance metric,” and we have already
repurchased over 16% of CSV ownership since May 13, 2021,
we have biased this likely Base Case Capital Allocation Strategy
toward selective acquisitions in the second half of 2022 and
thereafter in 2023 and 2024, as outlined below:
FREE CASH FLOW CAPITAL ALLOCATION BY CATEGORY BY
YEAR
|
Category Percentage Free Cash Flow (%) |
2022 |
2023 |
2024 |
Free Cash Flow Range (Millions) |
$82 - $86 |
$86 - $90 |
$94 - $100 |
Growth Capex
|
13% |
15% |
15% |
• Funeral |
3% |
3% |
3% |
• Cemetery |
10% |
12% |
12% |
Acquisition |
38% |
76% |
76% |
• Funeral |
23% |
46% |
46% |
• Cemetery |
15% |
30% |
30% |
Share Repurchase |
40% |
- |
- |
Dividends |
9% |
9% |
9% |
Debt Repayment |
- |
- |
- |
Total % Free Cash Flow |
100% |
100% |
100% |
Shown below are tables reflecting our new Three Year Roughly Right
Ranges Performance Scenario as of February 23, 2022, with
our likely Capital Allocation Scenario by year from the prior page
and share price ranges for each year using reasonable benchmark
valuation multiples for our industry.
THREE YEAR ROUGHLY RIGHT RANGES PERFORMANCE SCENARIO 2022
THROUGH 2024
|
|
Performance Outlook Ranges |
Actual Performance |
Three Year Scenario |
|
Yrs. Ending 12/31 (Millions) |
2019A |
2020A |
2021A |
2022 |
2023 |
2024 |
CAGR |
Total Revenue |
$274.1 |
$329.4 |
$375.9 |
$380 - $390 |
$410 - $420 |
$450 - $460 |
10.7% |
Total Field EBITDA |
$109.8 |
$141.9 |
$174.6 |
$178 - $184 |
$190 - $200 |
$210 - $220 |
14.4% |
Total Field EBITDA Margin |
40.0% |
43.1% |
46.5% |
46% - 47% |
46.5% - 47.5% |
47% - 48% |
3.5% |
Adj. Consol. EBITDA |
$76.6 |
$104.3 |
$126.2 |
$128 - $133 |
$140 - $145 |
$155 - $160 |
15.5% |
Adj. Consol. EBITDA Margin |
27.9% |
31.6% |
33.6% |
33.5% - 34.5% |
33.5% - 34.5% |
34% - 35% |
4.3% |
Adjusted Diluted EPS |
$1.25 |
$1.86 |
$3.02 |
$3.55 - $3.65 |
$3.90 - $4.00 |
$4.40 - $4.50 |
28.9% |
Diluted Shares Outstanding |
18.0 |
18.1 |
18.3 |
16.2 |
16.5 |
16.7 |
(1.5%) |
Adjusted Free Cash Flow |
$38.8 |
$70.0 |
$75.7 |
$82 - $86 |
$86 - $90 |
$94 - $100 |
20.1% |
Adj. Free Cash Flow Margin |
14.2% |
21.2% |
20.1% |
21.0% - 22.0% |
21.0% - 22.0% |
21.0% - 22.0% |
8.7% |
Total Debt Outstanding |
$534.0(1) |
$461.1 |
$565.4 |
$560 - $570 |
$560 - $580 |
$570 - $590 |
1.7% |
Total Debt to EBITDA Ratio |
7.0(2) |
4.4 |
4.5 |
4.1 - 4.4 |
3.8 - 4.2 |
3.8 - 4.2 |
(10.6%) |
(1) January 3, 2020 acquisition of Oakmont Memorial
Park & Mortuary and peak debt.
(2) Does not include Proforma EBITDA for
acquisitions.
The most comparable GAAP measures to the Non-GAAP measures
presented in this table can be found in the Reconciliation of
Non-GAAP Financial Measures section of this press release.The most
comparable GAAP measures to the Non-GAAP measures presented in this
table can be found in the Reconciliation of Non-GAAP Financial
Measures section of this press release.
SHARE PRICE VALUATION METHODOLOGIES – POTENTIAL SHARE PRICE
RANGES
|
|
5 Year Enterprise
Valuation Methodologies |
Potential Performance at
Valuation Multiples |
Three Year Scenario |
|
|
|
2020
|
2021 |
2022 |
2023 |
2024 |
CAGR |
EV / EBITDA Multiple |
11 |
$38.09 |
$44.65 |
$53.45 |
$61.92 |
$71.04 |
16.9% |
EV / EBITDA Multiple |
12 |
$43.88 |
$51.54 |
$61.46 |
$70.66 |
$80.54 |
16.4% |
EV / EBITDA Multiple |
13 |
$49.67 |
$58.43 |
$69.47 |
$79.40 |
$90.05 |
16.0% |
EV / EBITDA Multiple |
14 |
$55.47 |
$65.32 |
$77.48 |
$88.13 |
$99.55 |
15.7% |
EV / EBITDA Multiple |
15 |
$61.26 |
$72.20 |
$85.49 |
$96.87 |
$109.05 |
15.5% |
5 Year P/E Valuation Matrix |
Potential Performance at
Valuation Multiples |
Three Year Scenario |
|
|
|
2020
|
2021
|
2022 |
2023 |
2024 |
CAGR |
P/E Multiple |
15 |
|
$27.59 |
$45.12 |
$53.75 |
$59.10 |
$66.63 |
24.7% |
P/E Multiple |
20 |
|
$36.79 |
$60.17 |
$71.66 |
$78.81 |
$88.84 |
24.7% |
P/E Multiple |
25 |
|
$45.99 |
$75.21 |
$89.58 |
$98.51 |
$111.06 |
24.7% |
5 Year FCF Valuation Matrix |
Potential Performance at
Valuation Multiples |
Three Year Scenario |
|
|
|
2020
|
2021
|
2022 |
2023 |
2024 |
CAGR |
Free Cash Flow Equity Yield |
8 |
% |
$48.61 |
$51.41 |
$66.86
|
$67.29
|
$74.88 |
11.4% |
Free Cash Flow Equity Yield |
7 |
% |
$55.56 |
$58.75 |
$76.42 |
$76.91
|
$85.58 |
11.4% |
Free Cash Flow Equity Yield |
6 |
% |
$64.81 |
$68.55 |
$89.15
|
$89.72 |
$99.84 |
11.4% |
Free Cash Flow Equity Yield |
5 |
% |
$77.78 |
$82.26 |
$106.98 |
$107.67 |
$119.81 |
11.4% |
Actual Share Price Range |
Actual Share Price Range |
Three Year Scenario |
|
Carriage Services (CSV) |
N/A |
$13.80-$31.40 |
$30.97-$65.91 |
? |
? |
? |
|
I am truly amazed at the wide spread of 52-week high and low common
share prices each year for most public companies, which is often in
a range of 20% - 40% and frequently much more each year, often when
nothing material has changed fundamentally in the company’s
performance or outlook. This phenomenon is apparent in the CSV
share price potential ranges shown on the previous page for 2020
and 2021 using actual performance metrics and various degrees of
valuation multiples each year. Our share price had wild swings in
both 2020 (way, way down in the COVID market crash, then way up to
above $30 per share for the first time) and 2021 (up 105.7% mostly
in the last quarter). Yet our share price only got close to our
opinion of the Roughly Right Range of Intrinsic Value Per Share at
the time ($65 to $75) late in 2021 before declining over 20% to
under $50 per share in the highly volatile downward market since
the beginning of 2022.
Which is why in our May 13, 2021 press
release on our senior notes refinancing at a rate of 4.25%, I
referred to our bond pricing as Tom Brady Pricing whereas our
equity pricing was akin to Rodney Dangerfield Pricing, both then
and now. Our FCF Equity Yield was 10.8% then, is 9.8% now using
2021 Proforma Free Cash Flow of $79.7 million and 16.5 million
fully diluted shares, and will be about 10.4% at today’s share
price of $49 using the $84 million midpoint of the 2022 Roughly
Right Range of Free Cash Flow.
As the tables reflect, our share price potential
upside over the next three years is huge with the possibility that
we could double our current price by the end of 2024 as we continue
to execute at a very high level of operating and financial
performance, and Mr. Market begins to price our high performance
and future prospects into today’s share price through an expansion
of our (lowest in class) valuation multiples. As the saying goes,
“Beauty (and valuation multiples) are in the eyes of the
beholder!”
Of course we cannot predict what external
factors might impact domestic and international equity and debt
markets including valuation multiples given the continuing economic
uncertainty relating to the COVID-19 Pandemic, rapidly rising
inflation and interest rates, geopolitical minefields (Russia and
Ukraine, China and Taiwan, etc.) that seem to be popping up across
the world, new Black Swan Events (Don’t Look Up!), etc. But
speaking as a 10% owner of Carriage with my wife and two adult
children, CSV is looking downright “Gorgeous!”
However, if Mr. Market assigns a substantially
discounted price to our opinion of Intrinsic Value Per Share
relative to sector benchmark peers for external reasons that aren’t
linked to and therefore don’t materially impact the upward trend
and sustainability of the Roughly Right Ranges of Performance
Metrics in our Three Year Scenario through 2024, then we will
simply increase the amount of Capital Allocation for share
repurchases, knowing that Mr. Market Rodney Dangerfield is back on
the job offering us a deal to increase our ownership in CSV on the
cheap!
The last three years of Transformative
High Performance at Carriage have been absolutely
“PROOF OF CONCEPT” years for the counterintuitive
ideas and concepts that we have been evolving since 2003 centered
around “Radical Decentralization and Partnership” of how best to
operate and consolidate a highly fragmented industry. We have a
sense of pride and achievement that our company is positioned for
future success like never before, anchored heavily by experience
and learning from mistakes. But especially the wisdom that
Being The Best and staying that way requires
continuous improvement in the face of unrelenting change, together
with necessary and frequent recalibration of High Performance
Standards and Leadership on a Good To Great
Journey that never ends.
GOOD TO GREAT II SHAREHOLDER VALUE CREATION INCENTIVE
PLAN
I had no superior “future performance predictive
powers” when we presented our first Three Year Roughly Right Ranges
Performance Scenario on February 19, 2020. Yet I knew
when our shares plummeted to as low as $13.54 on
April 16, 2020 during the “bottom quickly fell out” COVID
market crash that “Freaked Out Mr. Market” had likely served
up an opportunity of a lifetime for all of our leaders who were
critical to executing our plan of transformation in 2020, 2021 and
2022, as well as thereafter.
So I began to play around with various “back of
the envelope” compound share price returns over a full five years
ending December 31, 2024, and settled on five different compound
annual growth rates (CAGR) using $14.38 as the base price, starting
with 20% and increasing in 5% increments to 40%. Our shares had
never reached $30 in our twenty-four year history as a public
company, so starting with a 20% CAGR for five years got our price
to $35.78, an easy “Minimum Standard” below which “Nobody Got
Nothing!” Whereas a 40% CAGR would get our share price to $77.34
and would mean we would have to get a lot better as a company
(especially me!) in all areas of the company over the five-year
timeframe and be consistent and disciplined at doing “smart stuff”
while avoiding like the plague (or COVID) doing “stupid stuff!”
Achieving the 40% CAGR Tier over the second five year timeframe,
after achieving a CSV share price CAGR of 38.6% ($5.60 to $28.64)
in the first five year Good To Great Journey
timeframe from 2012 through 2016, would totally align with the name
of the incentive program and be a more than acceptable
Being The Best / Good To Great Journey
Standard.
Needless to say, the forty-eight Good To
Great II participating leaders who have now already vested
in the 30% CAGR Tier at $53.39 after only two years (20%, 25% and
30% Tiers ALL vested during 2021!) are focused
like never before on doing only “Shareholder Value Creation Smart
Stuff” over the next three years, and at some point before year-end
2024 moving past the 40% Top Tier price of $77.34. Even better,
many if not most are wondering about how to retain as many of their
performance shares as possible upon receipt at the beginning of
2025 (taxes and other “Marshmallow Test” reasons!), and then riding
them as long-term owners to an even loftier Good To Great
Journey Valuation Destination in the years ahead.
Such an “out of the box” long term shareholder
value creation returns plan in perfect alignment with the many
“meter moving” leaders of Carriage would not have been possible at
any prior point in the company’s history. All the pieces of the
value creation platform puzzle had not yet been put in place,
especially the most challenging piece of getting the “First
Who, Then What” Leadership Concept advanced to have all
the right people in the right seats at the right time on the
Good To Great Journey Bus. Yet very few equity
investors noticed or took Good To Great II
seriously at the time we announced this long-term alignment
incentive program in our 2020 second quarter release dated July 28,
2020, or even thereafter until we began to use a five-year
schematic of Good To Great II as an early page in
our Investor Presentation.
SOME FINAL THOUGHTS ABOUT CARRIAGE AND THE NATURE OF
BEING A PUBLIC COMPANY
We have greatly appreciated the new and
outstanding equity analyst coverage this past two years from top
regional equity sell side firms as well as continued outstanding
equity coverage from longtime supporters who have introduced our
company and its bright future prospects to many new institutional
investors. Our commitment to our equity analysts is to make them
look smart if not timely brilliant, and to investors who became or
will become long term share owners of our company to do our best as
fiduciaries of your capital so that you never have any regrets.
While your equity investment in CSV might or
might not have wide price swings in 2022 and future years, we are
confident that the value of your investment will trend up
substantially over time. Mr. Market can occasionally have
irrational or contradictory traits during (sometimes prolonged)
bouts of time when the price of a company’s common shares becomes
“unmoored” from the reality of the company’s current fundamentals
and future prospects. I covered the famous allegory of Mr. Market
(and its application to Carriage), created and first introduced by
Benjamin Graham in his 1949 book, The Intelligent
Investor, in our May 13, 2021 press release on our
bond refinancing. I also referenced its most famous practitioner,
Warren Buffett, which reminds me of a line relevant to Carriage now
in one of Warren’s Shareholder Letters many years ago on “Some
Thoughts About Investing: Games are won by players who focus on the
playing field – not by those whose eyes are glued to the
scoreboard.”
Warren closed out his “Some Thoughts About
Investing” with this final thought, “It’s vital, however, that we
recognize the perimeter of our ‘Circle of Competence’ and stay well
inside of it. Even then we will make some mistakes both with stocks
and businesses. But they will not be the disasters that occur, for
example, when a long-rising market induces purchases that are based
on anticipated price behavior and a desire to be where the action
is.”
I sensed toward the end of last year after our
record third quarter earnings release on October 27th
(CSV closing price of $43.96 per share), after which our shares
spiked 46.6% into year-end to close at $64.44, that Carriage’s
common shares had become one place “where the anticipated price
behavior action is!” As a long time student of stock markets,
companies, the price/volume dynamics of many company specific stock
charts, etc., but especially of human nature and psychology-based
tendencies and behaviors specifically related to individual company
stocks and markets, I saw all the signs:
- Carriage had
achieved #1 Ranking in Investor’s Business Daily (“IBD”) Industry
Group Sector of “Funeral Services and Related” with the highest
possible Composite Rating of 99;
- IBD Group Sector
“Funeral Services and Related” had moved up to #6 out of 197
Industry Group Sectors based on the combined “price behavior” of
those companies in our sector relative to the other 196
sectors;
- A personal zoom
interview we had with an IBD journalist about our recent sector
outperformance and the temporary or permanent impact of COVID on
our industry after the “Funeral Services and Related” Group Sector
had moved to #6 from #66 in only six weeks;
- Forbes
“promoted” Carriage to 50th in their annual rating of
the Top 100 Small Companies in America in 2021 from 97th
in 2020 based on relative stock “price behavior” performance;
- Finally and most
confirming that CSV had become a strong candidate for the winner of
the “Cinderella Ball Price Behavior Beauty Contest,” I began to be
sent articles touting Carriage as a top “anticipated price
behavior” stock pick (Seeking Alpha, Zack’s Investment Research,
Motley Fool, various magazine articles, investment newsletters,
etc.), not from investment professionals but by Managing Partner
Standards Council Members, other Carriage leaders, Board members
and even my wonderful brother and his equally wonderful
wife!!
The 2021 year-end spike in CSV “price behavior”
was briefly exciting for those of us in Carriage, primarily because
it represented recognition from those outside of Carriage that our
noble work and unique high performance ideas and concepts for our
industry had begun to have high equity value to investors as well.
Yet we have no goal or desire to be a “fashion of the moment”
momentum stock or company at any time now or in the future. We only
have a passionate drive to get continually better so that we always
fundamentally earn more than the price that others place on our
ownership.
As a Being The Best
High Performance Culture Team of Teams, we commit
to all our shareholders, bond holders, investment analysts, banks,
suppliers and Board Members, but especially to our leaders,
employees, client families and communities that our funeral homes
and cemeteries are honored to serve, to ignore and not be
distracted by the irrational behavior and noise related to Mr.
Market whenever and for whatever reason(s) unrelated to Carriage,
including any impact on the “price behavior” of our shares! And to
always be laser focused on having the best players on all of our
teams prepared to make game winning plays on their respective
playing fields when it matters most to those experiencing the
profound challenges of losing a loved one on the journey of life
and death,” concluded Mr. Payne.
FIVE QUARTER TREND REPORT ENDING DECEMBER 31,
2021
Carlos Quezada, President and Chief Operating
Officer, stated, “We report our performance results publicly using
the same highly transparent Non-GAAP “Trend Reports” that we use
internally and which have been explained in previous shareholder
letters, including Five Year and Five Quarter Trend Reports that
reflect long and short term trends in our core operating, financial
and overhead sectors over time as shown on the following pages.
FIVE QUARTER OPERATING AND FINANCIAL TREND REPORT
HIGHLIGHTS |
(000’s except for volume, averages &
margins) |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
|
Funeral
Same Store Contracts |
|
10,396 |
|
11,303 |
|
9,259 |
|
10,848 |
|
10,716 |
|
Average Revenue
Per Contract (1) |
|
$5,226 |
|
$5,218 |
|
$5,294 |
|
$5,273 |
|
$5,346 |
|
Funeral Same Store
Burial Contracts |
|
3,914 |
|
4,202 |
|
3,304 |
|
3,705 |
|
3,808 |
|
Funeral Same Store
Burial Rate |
|
37.6% |
|
37.2% |
|
35.7% |
|
34.2% |
|
35.5% |
|
Average Revenue
Per Burial Contract |
|
$9,062 |
|
$9,053 |
|
$9,306 |
|
$9,489 |
|
$9,429 |
|
Funeral Same Store
Cremation Contracts |
|
5,776 |
|
6,389 |
|
5,236 |
|
6,203 |
|
6,057 |
|
Funeral Same Store
Cremation Rate |
|
55.6% |
|
56.5% |
|
56.6% |
|
57.2% |
|
56.5% |
|
Average
Revenue Per Cremation Contract |
|
$3,281 |
|
$3,325 |
|
$3,466 |
|
$3,482 |
|
$3,498 |
|
Funeral
Same Store Revenue |
|
$52,642 |
|
$56,829 |
|
$47,397 |
|
$55,502 |
|
$55,311 |
|
Funeral Same Store
Field EBITDA |
|
$23,172 |
|
$25,829 |
|
$18,666 |
|
$24,961 |
|
$23,569 |
|
Funeral
Same Store Field EBITDA Margin |
|
44.0% |
|
45.5% |
|
39.4% |
|
45.0% |
|
42.6% |
|
Funeral
Acquisition Revenue |
|
$9,348 |
|
$10,139 |
|
$8,557 |
|
$9,354 |
|
$9,981 |
|
Funeral
Acquisition Field EBITDA |
|
$3,684 |
|
$4,467 |
|
$3,261 |
|
$3,974 |
|
$4,315 |
|
Funeral
Acquisition Field EBITDA Margin |
|
39.4% |
|
44.1% |
|
38.1% |
|
42.5% |
|
43.2% |
|
Cemetery
Same Store Preneed Property Contracts Sold |
|
1,033 |
|
1,161 |
|
1,211 |
|
1,280 |
|
1,120 |
|
Cemetery Same
Store Preneed Sales Revenue |
|
$9,231 |
|
$9,718 |
|
$11,445 |
|
$11,366 |
|
$10,926 |
|
Cemetery Same
Store Revenue |
|
$14,815 |
|
$14,635 |
|
$16,906 |
|
$16,342 |
|
$16,288 |
|
Cemetery Same
Store Field EBITDA |
|
$6,499 |
|
$5,704 |
|
$7,907 |
|
$6,465 |
|
$6,939 |
|
Cemetery Same Store Field EBITDA Margin |
|
43.9% |
|
39.0% |
|
46.8% |
|
39.6% |
|
42.6% |
|
Cemetery
Acquisition Preneed Property Contracts Sold |
|
345 |
|
338 |
|
475 |
|
294 |
|
361 |
|
Cemetery
Acquisition Preneed Sales Revenue |
|
$5,394 |
|
$5,089 |
|
$6,839 |
|
$5,148 |
|
$5,045 |
|
Cemetery
Acquisition Revenue |
|
$5,509 |
|
$6,980 |
|
$8,175 |
|
$6,362 |
|
$6,312 |
|
Cemetery
Acquisition Field EBITDA |
|
$2,531 |
|
$4,102 |
|
$4,737 |
|
$3,547 |
|
$3,140 |
|
Cemetery Acquisition Field EBITDA Margin |
|
45.9% |
|
58.8% |
|
57.9% |
|
55.8% |
|
49.7% |
|
Total
Financial Revenue |
|
$5,265 |
|
$5,706 |
|
$5,405 |
|
$5,639 |
|
$6,167 |
|
Total Financial
Field EBITDA |
|
$4,926 |
|
$5,305 |
|
$5,058 |
|
$5,225 |
|
$5,777 |
|
Total
Financial Field EBITDA Margin |
|
93.6% |
|
93.0% |
|
93.6% |
|
92.7% |
|
93.7% |
|
Total
Revenue |
|
$90,088 |
|
$96,637 |
|
$88,277 |
|
$95,041 |
|
$95,931 |
|
Total Field
EBITDA |
|
$41,318 |
|
$45,787 |
|
$40,014 |
|
$44,651 |
|
$44,189 |
|
Total Field EBITDA
Margin |
|
45.9% |
|
47.4% |
|
45.3% |
|
47.0% |
|
46.1% |
|
Adjusted
Consolidated EBITDA |
|
$28,300 |
|
$34,657 |
|
$28,720 |
|
$32,389 |
|
$30,395 |
|
Adjusted
Consolidated EBITDA Margin |
|
31.4% |
|
35.9% |
|
32.5% |
|
34.1% |
|
31.7% |
|
Adjusted Diluted
EPS |
|
$0.57 |
|
$0.81 |
|
$0.64 |
|
$0.82 |
|
$0.78 |
|
Adjusted Free Cash
Flow |
|
$11,870 |
|
$27,140 |
|
$12,313 |
|
$25,922 |
|
$10,308 |
|
Adjusted Free Cash Flow Margin |
|
13.2% |
|
28.1% |
|
13.9% |
|
27.3% |
|
10.7% |
|
GAAP Net Income
(Loss) |
|
$8,365 |
|
$12,933 |
|
$(6,167) |
|
$13,046 |
|
$13,347 |
|
GAAP Net Income
(Loss) Margin |
|
9.3% |
|
13.4% |
|
(7.0)% |
|
13.7% |
|
13.9% |
|
GAAP
Diluted (Loss) EPS |
|
$0.46 |
|
$0.71 |
|
$(0.33) |
|
$0.71 |
|
$0.77 |
|
(1) Excludes Preneed Funeral interest earnings reflected
in Total Financial Revenue.
|
|
|
|
|
|
The most comparable GAAP measures to the Non-GAAP measures
presented in this table can be found in the Reconciliation of
Non-GAAP Financial Measures section of this press release.
As shown above, we have had consistent
High Performance in each of the five revenue
segments over the last five quarters with a five quarter average of
$93.2 million and the last two quarters of 2021 above $95 million.
Our all-time quarterly revenue high was the first quarter of 2021
at $96.6 million with January being the main driver for this result
due to a COVID-19 spike centered in our large California portfolio.
Our second quarter revenue of $88.3 million was the lowest revenue
quarter, but we were still able to produce a Field EBITDA Margin of
45.3%, also the lowest of the last five quarters. The consistency
in quarterly revenue from every segment also converted into
consistency in high Total Field EBITDA Margins ranging from 45.3%
to 47.4% over the five quarters. The high level of consistency in
Total Field EBITDA Margins is reflective of the cash earning power
in our five reporting segments that has emerged since the beginning
of our portfolio performance transformation in 2018, as previously,
the all-time high Field EBITDA Margin for a full year was 42.1% in
2016.
Our positive outlook is based on what we know is
happening at Carriage. While other companies inside and outside our
sector are concerned about the post-COVID effect (pull-forward), we
cannot predict what the new normalized death rate will be
post-COVID, as COVID could become endemic and there is too much
noise and unreliable information for us to even try to predict
precisely what the impact will be in the future. Instead, we think
long-term and focus on what we can control and what we do best,
pursuing our Being the Best Mission and Vision.
Even under a pandemic environment with restriction mandates, social
distance, remote work, overworked heroes and any other uncertainty
or speculation about the future (no crystal ball at CSV), we will
always strive to be the best we can be, a byproduct of which is
that we say yes when other competitors say no. We say we can when
others say we can’t.
The resiliency, creativity, innovation, and
passion for service excellence of our amazing Managing Partners and
their “best in class” teams of employees have built brand
loyalty and top of mind reputation in their respective
communities. Most importantly, our customers have responded by
making huge deposits in the Goodwill Value
Creation bank of our most critical asset: the
TRUST of the families we serve. Moreover, whenever
and whatever the normalized death rate percentage turns out to be,
our “Best of the Best” team of teams stand ready to capture the
biggest share of the local death rate across our portfolio of
businesses.
SAME STORE FUNERAL REVENUE MONTHLY TRENDS AND DRIVERS SEVEN
MONTHS ENDING JANUARY 2022 |
(000’s except for volume, averages) |
2021/2020 |
|
2022/2021 |
Same Store Funeral |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
|
JAN |
Contracts (volume)
2021 (January 2022) |
|
3,081 |
|
|
3,647 |
|
|
3,936 |
|
3,662 |
|
|
3,278 |
|
3,574 |
|
|
|
4,128 |
|
Contracts (volume)
2020 (January 2021) |
|
3,163 |
|
|
3,210 |
|
|
3,069 |
|
3,068 |
|
|
3,072 |
|
4,061 |
|
|
|
4,201 |
|
Volume Variance |
|
(82 |
) |
|
437 |
|
|
867 |
|
594 |
|
|
206 |
|
(487 |
) |
|
|
(73 |
) |
Average Revenue
Per Contract 2021 (January 2022)(1) |
$5,294 |
|
$5,101 |
|
$5,231 |
$5,190 |
|
$5,312 |
$5,287 |
|
|
$5,290 |
|
Average Revenue
Per Contract 2020 (January 2021)(1) |
$4,927 |
|
$5,148 |
|
$5,135 |
$5,268 |
|
$5,157 |
$5,082 |
|
|
$5,171 |
|
Average Revenue Per Contract Variance |
$367 |
|
($47 |
) |
$96 |
($78 |
) |
$155 |
$205 |
|
|
$119 |
|
Operating Revenue
2021 (January 2022)(1) |
$16,313 |
|
$18,603 |
|
$20,588 |
$19,005 |
|
$17,413 |
$18,894 |
|
|
$21,837 |
|
Operating Revenue
2020 (January 2021)(1) |
$15,585 |
|
$16,524 |
|
$15,758 |
$16,162 |
|
$15,842 |
$20,638 |
|
|
$21,722 |
|
Operating Revenue Variance |
$728 |
|
$2,079 |
|
$4,830 |
$2,843 |
|
$1,571 |
($1,744 |
) |
|
$115 |
|
Net Revenue Volume
Variance |
($404 |
) |
$2,249 |
|
$4,452 |
$3,129 |
|
$1,063 |
($2,475 |
) |
|
($377 |
) |
Net Revenue
Average Variance |
$1,132 |
|
($170 |
) |
$378 |
($286 |
) |
$508 |
$731 |
|
|
$492 |
|
Net Revenue Variance |
$728 |
|
$2,079 |
|
$4,830 |
$2,843 |
|
$1,571 |
($1,744 |
) |
|
$115 |
|
(1) Excludes Preneed Funeral interest earnings reflected
in Total Financial Revenue. |
|
|
|
|
We can observe that with the exception of a high
comparable in December of 2020 at the spike of COVID-19, (which
Steve will cover in more detail later in this release), our Same
Store Funeral Trends in the table above, reflect that December of
2021 was the only month with a negative Operating Revenue Variance.
The large negative Operating Revenue Variance related to volumes
being down in December was partially offset by about 29% by a
positive variance from our higher ARPC, netting the $1.7 million
negative Net Revenue Variance.
Every month with that exception in this
seven-month trend shows a positive Operating Revenue Variance with
January of 2021 as our all-time high revenue month with $21.7
million, now the second place to January of 2022 which ended at
$21.8 million, and higher by $115 thousand. Even more relevant is
that from the beginning of COVID in February 2020 and through
January of 2022, the only two additional months with a negative Net
Revenue Variance were March and April of 2020 at the beginning of
the harsh lockdowns and social gathering mandates, reflective of
the ability of our entrepreneurial Managing Partners and their
teams of employees to pivot and adapt to a new and unknown (at the
time) pandemic environment.
Our Average Revenue Per Contract (ARPC) is
consistently ranging between $5,101 and $5,294 with a positive
variance of $193 dollars between the highest and lowest over the
seven-month trend ending January of 2022, confirming that our
Managing Partners and their teams are offering all of the options
to all of the families all of the time.
FIVE YEAR SAME-STORE CEMETERY DETAILED TREND REPORT
AND SUMMARY CEMETERY ACQUISITION DATA
FIVE YEAR CEMETERY SAME STORE TREND REPORT |
(000's except for volume, averages &
margins) |
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
2018 / 2021
Variance $ |
2018 / 2021
Variance % |
Preneed Interments Sold |
|
6,159 |
|
|
6,360 |
|
|
7,096 |
|
|
7,104 |
|
|
8,330 |
|
|
1,970 |
31.0% |
Preneed Total Sales Average |
$4,237 |
|
$4,475 |
|
$4,472 |
|
$4,619 |
|
$5,217 |
|
$742 |
16.6% |
Preneed Total Sales Production |
$26,095 |
|
$28,459 |
|
$31,733 |
|
$32,815 |
|
$43,456 |
|
$14,997 |
52.7% |
Preneed Recognized Revenue |
$24,548 |
|
$26,227 |
|
$30,026 |
|
$31,376 |
|
$39,129 |
|
$12,902 |
49.2% |
Preneed Margin ($) |
$12,278 |
|
$13,483 |
|
$16,140 |
|
$17,300 |
|
$21,778 |
|
$8,295 |
61.5% |
Preneed Margin (%) |
|
50.0% |
|
|
51.4% |
|
|
53.8% |
|
|
55.1% |
|
|
55.7% |
|
N/A |
425 bp |
Atneed and Preneed Matured Interments |
|
7,294 |
|
|
7,025 |
|
|
6,817 |
|
|
7,613 |
|
|
8,310 |
|
|
1,285 |
18.3% |
Atneed Revenue |
$18,373 |
|
$18,595 |
|
$19,108 |
|
$20,360 |
|
$24,881 |
|
$6,286 |
33.8% |
Atneed Margin ($) |
$14,572 |
|
$14,598 |
|
$14,935 |
|
$16,055 |
|
$19,374 |
|
$4,776 |
32.7% |
Atneed Margin (%) |
|
79.3% |
|
|
78.5% |
|
|
78.2% |
|
|
78.9% |
|
|
77.9% |
|
N/A |
-64 bp |
Total Operating Revenue |
$42,921 |
|
$44,823 |
|
$49,134 |
|
$51,737 |
|
$64,010 |
|
$19,187 |
42.8% |
Total Preneed/Atneed Margin ($) |
$26,850 |
|
$28,081 |
|
$31,075 |
|
$33,354 |
|
$41,152 |
|
$13,071 |
46.5% |
Total Preneed/Atneed Margin (%) |
|
62.6% |
|
|
62.6% |
|
|
63.2% |
|
|
64.5% |
|
|
64.3% |
|
N/A |
164 bp |
Total Controllable Costs of Revenue |
$14,468 |
|
$15,365 |
|
$15,633 |
|
$15,449 |
|
$16,688 |
|
$1,323 |
8.6% |
Total Controllable Costs of Revenue (%) |
|
33.7% |
|
|
34.3% |
|
|
31.8% |
|
|
29.9% |
|
|
26.1% |
|
N/A |
-820 bp |
Total Non-controllable Costs |
$1,810 |
|
$1,996 |
|
$2,126 |
|
$1,958 |
|
$2,280 |
|
$284 |
14.2% |
Total Non-controllable Costs (%) |
|
4.2% |
|
|
4.5% |
|
|
4.3% |
|
|
3.8% |
|
|
3.6% |
|
N/A |
-89 bp |
Total Operating Margin ($) |
$10,572 |
|
$10,719 |
|
$13,316 |
|
$15,947 |
|
$22,184 |
|
$11,464 |
106.9% |
Total Operating Margin (%) |
|
24.6% |
|
|
23.9% |
|
|
27.1% |
|
|
30.8% |
|
|
34.7% |
|
N/A |
1,074 bp |
Other (Addbacks, rent, and other items). |
$2,796 |
|
$3,117 |
|
$3,712 |
|
$3,554 |
|
$4,831 |
|
$1,711 |
54.8% |
Cemetery Field EBITDA |
$13,372 |
|
$13,840 |
|
$17,028 |
|
$19,501 |
|
$27,015 |
|
$13,175 |
95.2% |
Cemetery Field EBITDA Margin |
|
31.1% |
|
|
30.8% |
|
|
34.6% |
|
|
37.7% |
|
|
42.1% |
|
N/A |
1,130 bp |
Total Financial Revenue |
$6,954 |
|
$6,556 |
|
$6,636 |
|
$7,782 |
|
$9,936 |
|
$3,380 |
51.6% |
Total Operating and Financial Revenue |
$49,875 |
|
$51,379 |
|
$55,770 |
|
$59,519 |
|
$73,946 |
|
$22,567 |
43.9% |
Cemetery Field & Financial EBITDA |
$20,326 |
|
$20,396 |
|
$23,664 |
|
$27,283 |
|
$36,951 |
|
$16,555 |
81.2% |
Cemetery Field & Financial EBITDA Margin |
|
40.7% |
|
|
39.7% |
|
|
42.4% |
|
|
45.8% |
|
|
50.0% |
|
N/A |
1,028 bp |
Optimization of Cemetery Same Store Portfolio
Our Same-Store Portfolio of both funeral homes
and cemeteries have been owned, fully integrated into our
Standards Operating Model, and operated for at
least five full years compared to only one year for other
multi-store companies in most industries. Because of the uniqueness
of our Standards Operating Model for both funeral homes and
cemeteries, it often takes several years after a business joins our
portfolio for full integration and optimization of the performance
to be achieved and sustained. It is also no coincidence why our
Good To Great incentive trip is a five-year reward
program earned based on consistency in Standards
Achievement over the five years; Steve will also cover our
rewards programs in more detail, including our Being The
Best one year and Good To Great five year
profit-sharing incentives.
While our entire company has been through a
High Performance Transformation
since September 2018, as detailed in our 2020 Shareholder Letter,
the most profound transformation has been in our cemetery
portfolio. In 2017 our cemetery portfolio was only 19.1% of total
company revenue. We had not successfully built a High
Performance Sales Organization that could broadly grow our
Same Store preneed property sales over the mostly fixed operating
costs throughout our diverse portfolio of 31 cemeteries (in size
and geography) to optimize the inherent operating leverage in each
business. However, our Total Operating Margin Cemetery Same Store
Trend Report (Financial Revenue broken out separately) show that
2021 is as much as 1,100 basis points higher than the 24.6% in
2017. This post-transformation resulted in our cemetery portfolio
delivering 26.7% of total company revenue in 2021.
The even better Good To Great
news is that since the initiation of our High Performance
Sales Plan, which began in July of 2020 and continues to
be executed in phases across our cemetery portfolio, our
opportunity to optimize our Cemetery Same Store Portfolio remains
under blue skies.
Preneed Recognized Revenue finished at $39.1
million for the full year of 2021, higher by $12.9 million or 49.2%
when compared to 2018 (the beginning of our transformation), while
our Atneed Revenue ended at $24.9 million and higher than 2018 by
$6.3 million or 33.8%. Our Total Controllable Cost of Revenue
decreased to 26.1% in 2021 from 34.3% in 2018, and Total
Non-controllable Costs decreased by 90 basis points from 4.5% in
2018 to 3.6% in 2021, reflective of the powerful operating leverage
that can be a huge FLYWHEEL EFFECT ACCELERATOR of
earnings when preneed property sales are growing over time at a
CAGR that can be sustained for five to ten years into the
future.
Our Cemetery Same Store Field EBITDA Margin of
42.1% in 2021 was an all-time record high and 1,130 basis points
higher than the 30.8% in 2018, and now on par with our Funeral
Field EBITDA Margins in the low 40% range. The growth of our
cemetery trust funds due to our High Performance
preneed sales, led to an additional $3.4 million or 51.6% when
compared to 2018. Our combined 2021 Cemetery Field & Financial
EBITDA finished at $36.9 million, higher by $16.6 million or 81.2%
than 2018. Our Cemetery Same Store Portfolio of businesses
have never looked as attractive as they look today, and the
transformation of our Cemetery portfolio to optimum sustainable
performance is not complete. In 2022 we will continue to implement
other phases of our plan to optimize our Same Store portfolio
performance by maximizing every opportunity with every
family, every time.
CEMETERY ACQUISITION SUMMARY |
(000's except for margins)
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
2021/2020 |
2021/2020 |
Variance $ |
Variance % |
Total Operating Net Revenue |
$295 |
|
$17,721 |
|
$27,825 |
|
$10,104 |
57.0% |
Operating Margin (Excludes Rent) |
$65 |
|
$6,343 |
|
$13,729 |
|
$7,386 |
116.4% |
Operating Margin (%) |
|
22.0% |
|
|
35.8% |
|
|
49.6% |
|
NA |
1,355 bp |
Other (Addbacks and other items) |
$9 |
|
$787 |
|
$1,725 |
|
$938 |
119.2% |
Cemetery Field EBITDA |
$73 |
|
$7,128 |
|
$15,526 |
|
$8,396 |
117.8% |
Cemetery Field EBITDA Margin |
|
24.7% |
|
|
40.5% |
|
|
55.8% |
|
NA |
1,530 bp |
Total Financial Revenue |
$10 |
|
$2,358 |
|
$2,865 |
|
$507 |
21.5% |
Total Operating & Financial Revenue |
$305 |
|
$20,079 |
|
$30,690 |
|
$10,611 |
52.8% |
Cemetery Field & Financial EBITDA Margin |
|
27.2% |
|
|
47.2% |
|
|
59.9% |
|
NA |
1,268 bp |
Our three Cemetery Acquisitions continued their integration journey
into our Standards Operating Model in 2021 with an
acceleration of High Performance, as Acquisition
Cemetery Revenue was $27.8 million, higher than 2020 by $10.2
million or 58.3%. Acquisition Cemetery Field EBITDA grew to $15.5
million, higher than 2020 by $8.4 million or 117.8%, boosted by
Acquisition Field EBITDA Margin of 55.8%, higher than 2020 by 1,530
basis points. Our Acquisition Cemetery portfolio future is very
bright at all three businesses, but exceedingly so at Fairfax
Memorial Park and Funeral Home since the arrival of Victor Holland
as the new Managing Partner. Victor will bring to Fairfax the
Right Who factor because of his
4E Leadership characteristics and
operational experience in high volume, high potential funeral homes
and cemeteries. Welcome to the Carriage Family, Victor.
ORGANIZATION STRUCTURE/TALENT AND
CONCEPTUAL VISION UPDATE
Our Good to Great High Performance
Flywheel shown below is a fragment from our High
Performance Culture Framework, included in our
Value Creation Financial Dynamics. The
High Performance Flywheel focuses on our three
core Being The Best operator, Being The
Best consolidator, and Being The Best
value creator vision company that happens to be in the Deathcare
industry.
The flywheel helps define who we are, what we
do, and how we do it. The innovative ideas and sophisticated
concepts are the foundation at Carriage and will never change;
however, our Good To Great Journey that never ends
and our Being The Best Vision demands that
everyone at Carriage put their heart and mind to continuous
improvement every day and in everything we do. With that thought in
mind, we are very excited to share the following operations
update:
An image accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/1917474b-ac1f-4490-abf2-497388715dde
CAREdge Forum Sales: On January
17–19, 2022, we had our first EVER CAREdge Forum
for our High Performance Cemetery Sales
Manager-Leaders and their Managing Partners at The Eliza Jane hotel
in New Orleans. Our CAREdge Forum is a two
full-day exposure to high energy, high expectations, and creative
and innovative ideas that lead to a journey of discovery of what is
possible in the world of preneed sales. It is also an opportunity
to meet fantastic talent from our cemetery portfolio across the
country and share thoughts and success ideas. Over these two days
of the meeting of the minds, the team learned about our recently
launched Microsoft Dynamics 365 CRM, which we call
SalesEdge. We believe that this fantastic tool
provides our sales teams with the edge they need to provide a
higher level of service excellence and customer experience to the
families that we serve while delivering High
Performance Sales for years to come. The
attendees to our CAREdge Forum also learned about
our high-end personalization and exclusive Private Memorials®
offerings, among other tools and sales skills that will enhance how
we engage with families moving forward.
Sales and Marketing: Effective
February 12, 2022, Shane Pudenz was promoted to Vice President of
Sales and Marketing; Shane, who joined Carriage as Director of
Sales Support on October 30, 2020, has collaborated and built
relationships of trust with many of our Managing Partners, Sales
managers, Sales counselors, and Houston Support teams. He has
contributed significantly to our sales success, especially in the
growth of cemetery preneed sales. His leadership style, strategic
approach, and experience have led to High Performance
Sales levels never experienced before in his portfolio of
businesses, including our most prominent business, Fairfax Memorial
Park and Funeral Home.
In his new leadership role, Shane will expand
the path for our Carriage High Performance Culture
Bus within our sales organization by bringing more of the
right people into the right seats at the right time. Carriage’s
Good To Great Journey has blue skies on the
horizon. With a supercharged High Performance Sales
Bus hitting on all cylinders, Shane will continue the
acceleration of our Cemetery Preneed Sales in both our Same Store
Cemetery and Acquisition Cemetery portfolio of businesses at even
faster speeds and in complete alignment with our Being The
Best Vision and Mission. We wish him incredible success in
his new leadership role.
Carriage never had a formal marketing team as
part of our Houston Support Center, for this reason and to lead our
marketing strategy; on January 3rd we recruited a new
Director of Marketing, Alfred White, who comes to Carriage with a
professional background in digital marketing transformation for
decentralized organizations. He will help us reshape and enhance
our digital marketing efforts and be the support for all Managing
Partners and their businesses as they position their brand, expand
market reach, grow our customer loyalty, expand social media
platform presence, gain market share and deliver higher operating
and financial performance than ever before. We welcome Alfred to
the Carriage Services family.
Regional Portfolio of Business
Changes: We have redistributed the funeral and cemetery
operations in our East and Central Regions to balance the number
and revenue size that each of our three Regional Partners supports.
This new distribution will help strengthen the partnership with all
our Managing Partners, optimize market share gains and thereby
solidify our operating leverage with higher and sustainable revenue
growth. Shawn Phillips, Senior Vice President and Regional Partner
of our Central Region, will now have one of the two Northeast
sub-regions where his vast experience will accelerate success in
Standards Achievement in his expanded
portfolio.
Carriage High Performance
Culture and continuous evolution in the pursuit of
Being The Best Vision could be described as a
Darwinian meritocracy where only the “best of best” thrive and
conquer. Consequently, we are now seeking the Right
Who Carriage Senior Vice President and Regional Partner of
our East Region who will take a leadership seat on the
Carriage High Performance Bus and bring this
portfolio of businesses to reach their full potential.
Digital Transformation Five Year
Plan: The highly traditional so-called deathcare industry
remains prime for disruption, especially in innovation through new
technology. We recognize that we will either get disrupted or
become disruptive ourselves. We choose the latter. With this goal
in mind, we are developing a ten year vision, a five-year strategy
and a one year plan for the transformation and innovation of
“deathcare” technology. Starting with the hire of our new Chief
Information Officer, who will begin with Carriage in April of 2022.
Our new CIO, whose name will be disclosed in mid-March 2022, will
be tasked with the holistic mission of creating a customer-centric
technology solution that elevates the service excellence journey
for all the families that we serve.
This innovative and digital transformation will
include but not be limited to improved digital in situ experience,
integration of celebrations of life through technology, a seamless
chain of custody, fully integrating and accelerating successful
execution of the back and front office systems, and first in class
cyber security systems and policies. We are looking forward to
accelerating the successful implementation of this five-year
complete Digital Transformation plan, whose core mission is to
deliver value creation for the families that we serve, our teams of
field and Houston support center employees, and our
shareholders.
Standards Council Update: On
January 27, 2022, we had our first Standards Council meeting since
the COVID-19 pandemic hit the world in February 2020. This
Standards Council meeting was very special, as Michael Kelly,
Managing Partner of Resthaven Funeral Home and Cemetery in Oklahoma
City, OK was voted in for membership on our Best of the Best
Standards Council. Michael began his career at Carriage Services in
2010 as a Managing Partner at North Brevard Funeral Home and
Oaklawn Memorial Park in Titusville, FL. A few years later, he
became a Director of Operations Support for the Central Region.
In June 2019, Michael found his perfect seat on
our High Performance Bus as Managing Partner of
Resthaven Funeral Home and Memory Gardens in Oklahoma City, OK.
With his time in these various roles, Michael brings a wide array
of knowledge and leadership in the funeral home and cemetery
operations and will have the opportunity to represent the Central
Region on the Standards Council. While Michael has only been at
Resthaven for two and one-half years, he has transformed his
business into one of Carriage’s top-performing businesses over this
period. We welcome Michael as the newest member of our Standards
Council.
CAREdge Forum Operations: On
March 14 through March 17 of 2022 in Houston, TX, we will have our
new version of the Annual Managing Partner Meeting, which will also
be called CAREdge Forum. For this new first
operations edition of the forum, our sole focus will be
Service and Guest Experience Transformation. All
of our Managing Partners, High Potential leaders, Operational and
Sales Houston Support Center Teams, and Special Guests will meet to
live, breathe, and think enhanced personalized service excellence
for the families we serve in ways we never had before.
Not only will this be a fun, amazing, and unique
event, but most importantly, it will challenge everyone in
attendance in thinking and reimagining ways to completely transform
our Service and Guest Experience (already one of
our Funeral High Performance standards weighted at
10%) after our new and increased focus in service and attention to
detail, which will lead to increased market share growth throughout
our portfolio of businesses even further. Our Standards Council
will reconvene after the CAREdge Forum to discuss
a revamped Service and Guest Experience Standard
and its relative weighting importance out of 100% Standard
Achievement.
Innovation and Creativity
Committee: The highly traditional deathcare industry has a
unique opportunity to transform how families say their last
goodbyes and experience funeral and cemetery services and products.
We have many Managing Partners with teams of highly talented
funeral professionals who through creativity and innovation provide
a personalized experience that enables the remaining family and
friends to remember and honor the life that lived while celebrating
that loved one’s life in the most meaningful ways. Many families
have expressed their gratitude to our devoted and caring employees
through written cards, emails, texts, and many other ways, thanking
them for creating these memorable “Life Stories” and honoring their
loved ones with care, dignity, and significance. We believe that
this noble purpose can be improved by integrating technology and
the adaptation of hospitality concepts into our service chain.
For these reasons, we are forming our first-ever
Innovation and Creativity Committee comprised of
our very best and most creative and innovative mastermind Managing
Partners, whose mission will be to craft a customer journey and
service chain that elevates our Service and Guest
Experience Standard with every family, every time. We look
forward to seeing the amazing innovative ideas and creative
concepts that this team will design as tools and make available to
all of our Managing Partners and the families they serve, creating
value to their communities, their employees and Carriage
shareholders.
2022 Carriage Theme: Every
year, Carriage has had a High Performance theme
that aligns with the innovative ideas and sophisticated concepts of
our company. Our 2020 Theme:
Transformative High Performance, was the catalyst
to the complete transformation of Carriage that began at the end of
2018. Mel elaborated on his excitement and enthusiasm for the
future of Carriage by stating:
“Our company is positioned like never before
in our history to have a breakout high performance in 2020 that
will kick start another Five Year Good to Great II Journey
timeframe during 2020-2024.”
Then came the 2021 Theme:
“Accelerating High Performance Flywheel Effect!”
which fueled the excitement rocket and inspired everyone to build
the momentum and launch into a record High
Performance year in the 30 years of Carriage history.
As shown on the Good to Great High
Performance Flywheel in the link above, our
Carriage Flywheel is now hitting on all cylinders,
which has accelerated the Carriage High Performance
Bus to the equivalent of the deathcare speed of light and
into the sustainable High Performance
Universe.
With this background as context and our
“UNBREAKABLE UNION OF BELIEF” commitment to our
Being The Best Mission and Vision, it is a natural
transition that our 2022 Theme is: High
Performance Value Creation Culture. Everyone at Carriage
has the opportunity to be a Value Creator in our High
Performance Culture Bus, and consistent with Jim Collins
quote from his Good to Great book:
“Greatness is not a function of circumstance.
Greatness, it turns out, is largely a matter of conscious
choice.”
Our 2022 Theme: High Performance Value
Creation Culture is an open and standing invitation to all
Carriage employees, vendors, partners, and contributors to
CHOOSE GREATNESS and never settle for anything
less, and reason why I continue to say; it is a great time to be at
Carriage and the best is yet to come," concluded Mr. Quezada.
UPDATE ON STRATEGIC ACQUISITION ACTIVITY GROWTH
OUTLOOK
Steve Metzger, Executive Vice President, Chief
Administrative Officer and General Counsel stated, “We continue to
be encouraged by the number of acquisition opportunities that have
been presented by brokers or, more frequently and preferably, by
owners themselves based on longstanding relationships. We remain in
advanced discussions with a number of top quality business owners
and we are also in the early stages of learning more about several
other businesses. While we do not currently have any transactions
to announce, we remain excited by the level of succession planning
activity and about the prospect of growth by acquisition in 2022
beginning no later than the third quarter, if not before.
While we are focused on our growth through
acquisition outlook, our approach to acquisitions will remain
highly selective. We recognize the importance of avoiding doing
“stupid stuff” such as the aggressive growth through high multiple
acquisitions that defined the 1990’s in our industry, which Mel
described earlier. We are disciplined in our review of a business,
the market and demographics, growth prospects, and valuation. We
will not grow simply for the sake of getting bigger, but will
instead remain focused on identifying those candidates that fit our
strategic criteria at a valuation that makes sense for both
parties.
We have extended the offer to visit us in
Houston to many acquisition candidates, and continue to invite
those interested in getting to know Carriage better to reach out to
not just an Executive Team member or Business Development
representative, but former owners, Managing Partners, Support
Center leaders, Standards Council Members and even Board members.
All of the individual members of these groups are available to
share their unique perspective of the Carriage story as we look for
new acquisition candidates to join our team and become our partner
within the larger family of partners who comprise our portfolio of
businesses. It is difficult to predict when the right business or
businesses will be ready for a succession planning option, but when
they are, we will be ready to share our story and present a
customized solution framework to join the Carriage Family.
As the second longest tenured company in the
industry with a more than 30-year history, a strong capital
structure, ability to self-finance growth from Free Cash Flow, a
unique owner/operator business model, best in class incentive
plans, and best in industry Support Center Teams, our future for
growth has never been brighter. We are confident that an owner in
need of a succession plan who takes the time to learn more about
the Carriage story and where we are headed, and most importantly,
to meet the people who make up the Carriage Team, will conclude
that there is only one succession plan choice for the best
remaining funeral home and cemetery owners.
FIVE YEAR SAME STORE FUNERAL
PERFORMANCE/INCENTIVE COMPENSATION AND RECOGNITION ALIGNMENT
TRENDS
In prior releases, we discussed at great length
the transformation taking place within Carriage beginning in
September 2018. It can at times be difficult to convey the
significance of that transformation to those who are not embedded
in the work and contributing to the evolution within the company
each day. With that said, we are now far enough along this journey
to have accumulated meaningful data to share in support of telling
this story to our shareholders.
The Discovery Process – Identifying a
Lack of Correlation
One of the underlying drivers for this
transformation was the awareness in 2018 that there was a lack of
correlation between Funeral Standards Achievement and financial
performance. Since approximately 72% of our total revenue is
currently generated by our funeral homes, it is helpful to pause
and look more closely at the five-year Same Store Funeral
performance trends covering the period of 2017-2021. This timeframe
captures the two years, 2017 and 2018, prior to the significant
realignment efforts that were implemented at the end of 2018, as
well as the three years, 2019, 2020 and 2021, during which the
impact of these changes became continuously more material and
evident. As Carlos described earlier, our Same Store Funeral
portfolio includes all funeral homes that have been a part of
Carriage for at least five years.
In order to fully appreciate the need for a
realignment of “Funeral High Performance Standards” with “high and
sustainable funeral operating and financial performance,” and then
the impact of this realignment, it is important to first understand
the key changes that were identified and implemented beginning
January 1, 2019. These Funeral High Performance Standards changes
have since been critical in creating the now incredibly strong
correlation between our Funeral Portfolio Standards Achievement,
Financial Performance and Incentive Compensation.
Carriage’s Funeral Standards Operating Model has
always been the unique framework that provides the operational
foundation for high performance. It is the vehicle that allows our
Managing Partners to lead their respective businesses as owners in
a customized manner that makes sense for their specific markets and
communities. However, the Funeral Standards Operating Model is only
as effective as the talent responsible for applying the model and
the specific standards/weightings that make up the model.
On the talent side, we recognized that we simply
needed to get better, so our Regional Partners and Talent
Acquisition Team went to work and have done a fantastic job of top
grading our field leadership since September 2018. As a result, we
have recruited and added 34 new Managing Partners to the Carriage
Team during that period, which represents just under 30% of all of
our Managing Partners. As Carlos mentioned, the Darwinian
meritocracy that drives High Performance at
Carriage is exciting, energizing and rewarding for top performers
and it does not support the subsidization of the performance of
those who may not be up to the challenge. In further support of
this approach, we have also significantly elevated the quality of
leadership talent within our eight Directors of Operational Support
for three regions by adding five new leaders to this group since
September 2018. We also built our current team of three Directors
of Sales Support during this same time period. So, on the talent
side, we have been focused and aggressively advancing the high
performance culture concept of “First Who, Then What” during the
past three and a half years.
As it related to the specific performance
standards that make up the Funeral Standards Operating Model, we
recognized in 2018 that there was no longer a clear correlation
between Funeral Standards Achievement (the formula used to measure
a Managing Partner’s success) and financial performance. As we have
discussed before, a broad group of leaders gathered together in
late 2018 to study the lack of correlation and, following the
review of considerable data and extensive discussions, our
Standards Council revamped the Funeral Standards Operating Model to
place a significant focus on Three Year Compounded Net Revenue as a
new and heavily weighted Performance Standard (up to 35% of 100%
Total) and removed the Funeral Average Revenue Per Contract
Standard. We also introduced a new Service and Guest Experience
Standard, which has incentivized and stimulated creative thinking
and discussions regarding how to best deliver a “Wow” experience to
all of our families and guests, and whose evolution in the years
ahead under Carlos’ leadership will undoubtedly be as
transformative to our funeral portfolio as it has been to our
cemetery portfolio.
Significant Changes Lead to
Significant Impacts
These changes incentivized our Managing Partners
to no longer focus primarily on high average revenue contracts, but
to instead work to secure every call and serve as many families as
possible, regardless of the revenue amount of the contract, while
always providing high value personal services to our families. The
contribution of these changes to performance can be seen in the
table below, as it outlines a consistent increase in total same
store funeral contracts each year since these changes to the
Funeral “Being The Best” Standards. We have
achieved an incredible increase of 8,579 contracts, or more than
26% additional same store funeral contracts at year end 2021 when
compared to year end 2018, the year before these Standards were
changed.
The evolution of the Funeral Standards Operating
Model continued in February 2020 when we added a Cremation Average
Revenue Standard but weighted it at only 5%. The rise in cremations
has been around for decades, and while cremation as a form of
disposition may cost less than a traditional burial, the
opportunity to provide first class service and educate our
cremation families on the many options available to celebrate and
memorialize their loved ones is just as significant as it is with a
burial. By introducing the Cremation Average Revenue Standard and,
more importantly, placing greater emphasis on the services and
memorialization options available to families who choose cremation,
our Managing Partners and their teams are now incentivized to place
greater focus on this opportunity with each cremation contract.
The impact of this change is seen in the table below through the
increase in the Average Revenue Per Contract from year end 2020 to
year end 2021, despite the increase in cremation rate from 56.3% to
57.1% during that same time period. These numbers support a clear
improvement in our focus on, and ability to serve, cremation
opportunities and it is a focus that we are excited about
continuing to build upon moving forward. The “Cremation Mix Trend
and Revenue Average” is a “Glass Half Full” and along with market
share, one of our greatest organic revenue growth opportunities in
the future.
FIVE YEAR SAME STORE FUNERAL TREND REPORT
(in thousands except for contracts and average revenue per
contract) |
|
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
2019/2021
Variance |
|
Contracts |
|
32,730 |
|
|
32,728 |
|
|
33,468 |
|
|
37,802 |
|
|
41,307 |
|
23.4% |
|
Average Revenue Per Contract |
$5,727 |
|
$5,703 |
|
$5,564 |
|
$5,258 |
|
$5,382 |
|
N/A |
|
Net Revenue(1) |
$187,436 |
|
$186,661 |
|
$186,205 |
|
$198,779 |
|
$222,315 |
|
19.4% |
|
Field EBITDA(1) |
$77,542 |
|
$74,604 |
|
$75,106 |
|
$86,876 |
|
$100,298 |
|
33.5% |
|
Field EBITDA Margin(1) |
|
41.4% |
|
|
40.0% |
|
|
40.3% |
|
|
43.7% |
|
|
45.1% |
|
480 bp |
|
|
|
|
|
|
|
|
|
Preneed Maturity Ratio |
|
18.5% |
|
|
18.2% |
|
|
17.8% |
|
|
17.0% |
|
|
14.9% |
|
N/A |
|
Cremation Rate |
|
51.5% |
|
|
52.1% |
|
|
53.7% |
|
|
56.3% |
|
|
57.1% |
|
N/A |
|
(1) Includes Preneed Funeral
interest earnings reflected in Total Financial Revenue |
. |
Solving the High Performance
Alignment Equation
In addition to the changes related to our
Funeral Standards Operating Model, we also took a fresh look at how
our annual and five year incentive plans for our Managing Partners
and their teams were impacting alignment with performance. After
too many of our Funeral Home Managing Partners during 2019 were “in
the money” with Standards Achievement above the 50% Minimum
Standard, yet did not achieve their Being The Best
(“BTB”) Field EBITDA Margin Range, Mel wrote his “famous” Tale of
Two Companies Theme Letter to all our field and Houston Support
Center Leadership on February 18, 2020. In it he made the
compelling analogy of our low performing funeral homes (low EBITDA
Margin) in Paris being subsidized by our high (revenue and EBITDA
Margin) performing funeral homes in London during the 1775-1792
timeframe of A Tale of Two Cities.
At our February 2020 Standards Council Meeting,
the ten Standards Council members decided that if a business did
not achieve its Field EBITDA Margin Range (funeral homes) or
Operating Margin Range (cemeteries), any annual Being The
Best incentive earned would be reduced by 50%. The table
below highlights the impact this change has had on our Funeral and
Cemetery Field EBITDA Margins as Field EBITDA Margin has increased
from 40.3% in 2019 to 45.1% in 2021, an increase of 480 basis
points in only two years during which this much higher level of
profitability was being applied to an increase of over $100 million
in Total Revenue.
Our five year Good To Great
(“GTG”) performance incentive award program was created in 2012 and
focuses on a “Good to Great Five Year Class” of Managing Partners
who are all eligible during the year in which they join Carriage.
Since 2012 was our inaugural class, it includes the Managing
Partners who were with Carriage at that time, and as a result, it
remains by far our largest class, as can be seen in the table
below. This award is paid half in cash and half in appreciated
Carriage stock. The equity component of this award is important and
consistent with our efforts to drive an ownership mindset
throughout our team, but particularly among our Managing Partners
who serve as owner/operators of their respective businesses. With
regard to this critical long term performance incentive, we
recognized that growing revenues at any five year compounded level
above zero should lead to higher rates of compounded growth in
Field EBITDA because of a gradual expansion of Field EBITDA Margins
due to the inherent nature of operating leverage.
So the initial level of eligibility for this
incentive was changed from a minimum annual growth rate of 2% to an
annual growth rate of at least 1%. This change was aimed at
establishing an attainable and motivating long term revenue growth
standard for the large majority of our Managing Partners to build
and sustain consistent revenue growth within a Standards Range of
Field EBITDA Margins (four point ranges).
Explaining the evolution of the Funeral
Standards Operating Model and revisiting our annual and five year
performance incentives tells a large part of our realignment and
transformative high performance story. However, the actual Funeral
Standards Achievement and corresponding incentive payments to our
Managing Partners and their High Performance Teams tells “the rest
of the story.”
What stands out in the table below is the
significantly improved Standards Achievement in 2020 and 2021 (the
first two full years to include the new Compounded Net Revenue
Standard as well as the updated Being The Best and
Good To Great incentives) aligning with
outstanding performance growth in Total Contracts, Net Revenue,
Field EBITDA, and Field EBITDA Margin percentage. As a result, we
rewarded our field leaders with twice as much in annual incentives
for their 2021 performance versus 2019 performance, and Standards
Achievement reached an all-time high with nearly 80% Funeral
Standards achievement by our same store businesses in 2021 versus
just under 63% Funeral Standards achievement by this group of
businesses in 2019.
PERFORMANCE ALIGNMENT
Five Year Same Store Funeral, Standards Achievement and
Incentive Compensation Trends
(dollars in thousands) |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
Net Revenue(1) |
$187,436 |
|
$186,661 |
|
$186,205 |
|
$198,779 |
|
$222,315 |
|
Field EBITDA(1) |
$77,542 |
|
$74,604 |
|
$75,106 |
|
$86,876 |
|
$100,298 |
|
Field EBITDA Margin(1) |
|
41.4% |
|
|
40.0% |
|
|
40.3% |
|
|
43.7% |
|
|
45.1% |
|
|
|
|
|
|
|
Standards Achievement |
|
61.9% |
|
|
62.7% |
|
|
63.0% |
|
|
74.0% |
|
|
79.8% |
|
Potential Pinnacle Winners |
|
106 |
|
|
106 |
|
|
106 |
|
|
106 |
|
|
106 |
|
Pinnacle Winners |
|
33 |
|
|
34 |
|
|
35 |
|
|
32 |
|
|
53 |
|
% of Pinnacle Winners |
|
31.1% |
|
|
32.1% |
|
|
33.0% |
|
|
30.2% |
|
|
50.0% |
|
BTB Bonuses |
$2,744 |
|
$3,251 |
|
$3,350 |
|
$4,977 |
|
$6,746 |
|
BTB Bonuses as a % of Field EBITDA(1) |
|
3.5% |
|
|
4.4% |
|
|
4.5% |
|
|
5.7% |
|
|
6.7% |
|
|
|
|
|
|
|
GTG Class - number of MP's |
|
5 |
|
|
5 |
|
|
9 |
|
|
- |
|
|
44 |
|
GTG Winners - number of MP's |
|
3 |
|
|
5 |
|
|
6 |
|
N/A |
|
34 |
|
% of GTG Winners |
|
60.0% |
|
|
100% |
|
|
66.7% |
|
N/A |
|
77.3% |
|
GTG Bonuses |
$418 |
|
$918 |
|
$1,373 |
|
$- |
|
$4,001 |
|
GTG Bonuses as a % of Field EBITDA(1) |
|
0.5 % |
|
|
1.2% |
|
|
1.8% |
|
N/A |
|
4.0% |
|
|
|
|
|
|
|
Total Field Incentives |
$3,162 |
|
$4,169 |
|
$4,723 |
|
$4,977 |
|
$10,747 |
|
Total Field Incentives as a % of Field EBITDA(1) |
|
4.1% |
|
|
5.6% |
|
|
6.3% |
|
|
5.7% |
|
|
10.7% |
|
(1) Includes Preneed Funeral interest
earnings reflected in Total Financial Revenue |
When combined with our five year Good To
Great incentive, we more than doubled our total field
incentive payments in 2021 from just over $4.7 million paid for
2019 performance to more than $10.7 million paid to our Funeral
Home Managing Partners for their incredible 2021 performance. These
Managing Partners helped deliver more than $75 million in Adjusted
EBITDA for 2019, but added $25 million to that number in 2021,
resulting in more than $100 million in Same Store Funeral Field
EBITDA in 2021.
As further confirmation of this performance
alignment, we were thrilled to see a greater than 50% increase in
the number of “Pinnacle” winners in 2021. Pinnacle is our exclusive
group of High Performance Managing Partners who have achieved an
average of at least 70% of Standards for the prior three years or
achieved 100% of Standards for the current year. We gather together
each year to celebrate this group of winners with a first class
trip for them and their significant others and we could not be more
excited to watch this elite club continue to increase its
membership.
While our wonderful Managing Partners and their
first class teams were generously rewarded for their outstanding
efforts, our Shareholders were also big winners in this High
Performance Alignment Equation as these revised Standards and an
updated approach to our annual and five year incentive awards
helped drive an additional $25 million in Adjusted Consolidated
EBITDA, just from our same store funeral performers, when we look
at last year’s performance versus 2019, the year before all of
these collective changes and updates were implemented. This is
exactly how a “pay for performance” approach should work as the
employees, shareholders, and the company all benefit.
The driver for all of these reviews and changes
can be summed up in one word – alignment. There must always be a
clear alignment between our performance and incentives. Now that we
have the benefit of several years of data since the changes
discussed above were introduced, we are able to see the development
of the necessary connections. However, simply getting to this point
of alignment is not enough. What we have learned along the way is
that all leaders within Carriage must constantly focus on the
numbers to ensure the correlation between performance and
incentives remains strong, and if the numbers begin to tell a
different story, we will be quick to diagnose the changing
circumstances and identify updates to ensure continued alignment
and evolution of our models and approach to optimize future
performance within the dynamically changing markets in which we
operate. As Jack Welch once said, always be prepared to “change,
before you have to.”
The Carriage Market Share Growth
Story
Some may look at the above data and information
and speculate that the COVID-19 Pandemic beginning in 2020 is as
important a driver for this performance/incentive alignment as are
the changes to the Funeral Standards Operating Model and annual and
five year incentive awards. Until recently, we simply did not have
enough meaningful pandemic related data to help address that
question. What we do know is that during the first year of the
pandemic, nobody knew exactly how it would evolve or affect the
world, let alone how it would impact different industries and
specific businesses. As we approach two years of living with the
various impacts caused by this pandemic, we now have the benefit of
better data which allows us to identify certain trends.
While much of the COVID-19 related data involves
some uncertainties, particularly as we learn more about its impact
as time goes on, there is now enough data to give us a roughly
right idea of some of its impact on our businesses. For example, in
December 2020 our businesses began to formally indicate whether a
death was related to COVID-19 when they entered contracts into our
contract management system. These indications have been supported
by death certificates listing the cause of death as being COVID-19
related. With that said, we also know that when a death certificate
indicates COVID-19 as the cause of death, there may have actually
been other non-COVID related circumstances that ultimately caused
the death.
When we look at total calls from 2019 (the last
full year prior to the pandemic) to 2021 (the first full year when
reported COVID-19 related deaths were captured on our contracts)
among our same store funeral home portfolio, the data tells a clear
story of market share growth. Among all of our funeral homes in the
same store portfolio, we have seen growth in total number of calls
of 20.9% from 2019 to 2021. Of that 20.9%, approximately 13.2% is
related to reported COVID-19 related deaths, meaning 7.7% of the
total growth is not related to COVID-19. Among our same store
funeral portfolio of businesses, approximately 75% of those
businesses show growth beyond COVID-19 of more than 10% when
looking at 2019 calls versus 2021 calls. This strong growth beyond
COVID-19 supports a market share growth story in line with the
performance and incentive alignment discussed above. Moreover, when
reviewing the Center for Disease Control and Prevention’s data of
COVID-19 related deaths, we note there were just over 37,000, or
25%, fewer COVID-19 related deaths in the United States in the
fourth quarter of 2021 as compared to the fourth quarter of 2020.
Despite that significant year over year decrease in COVID-19
related deaths in the United States, our Same Store Funeral
businesses saw an increase of more than 300 contracts during that
same time period. As Mel often says, “the data don’t lie!”
As we continued to analyze the data, we
identified another strong trend which further supports Carriage’s
market share growth story. “Preneed maturity” describes the process
of when a preneed contract goes atneed and is served. When the
preneed maturity rate goes down, that means we are serving more
pure walk in atneed families than we are serving preneed families
whose contracts go atneed. If the preneed maturity rate goes down
and our total contract growth rate goes up, it is highly likely we
are gaining market share. The table above shows the
preneed maturity rate for our same store funeral group slowly
declining for several years, including a significant decline of
more than 2% in 2021 when compared to 2020, despite the total
number of calls increasing by more than 3,500 during that same one
year period. The combination of these trends strongly supports the
growth in market share story that our Managing Partners and
Directors of Support have been sharing with us for the past two
years.
While we acknowledge COVID-19 related data is
far from perfect, we do now have enough insight into reported
deaths attributable to COVID-19 to make some roughly right
inferences, particularly when that data is supported by other
trends within our same store funeral portfolio. When we take a
comprehensive look at the new addition of talent to field
leadership, the revamped approach to incentive compensation placing
an emphasis on margins, and the key updates to our Funeral
Standards Operating Model focusing on Compounded Net Revenue, we
believe the story over the past three years of Transformative
Change can now also be told as a Carriage Market Share Growth
Story.
SUPPORT CENTER ORGANIZATION
STRUCTURE/TALENT AND CONCEPTUAL VISION UPDATE
Much like the rest of Carriage, our Support Center Teams have seen
significant changes over the past three years aimed at
strengthening leadership and building a positive high performance
culture environment of collaboration. As a self-proclaimed “People
First” company, we have looked for ways to make sure we are true to
that focus.
First Who, Then What: Those who
have followed Carriage over the past few years know that we have
been aggressive in identifying and recruiting top talent. While we
are excited about the leadership we have in place, we continue to
work to identify areas where we can get even better. For example,
Carlos mentioned our focus on leveraging technology and recruiting
a Chief Information Officer to lead this effort. This is an area,
much like sales when Carlos joined, that presents incredible
opportunity and upside for our team that has yet to be
realized.
Carlos also referenced Shane Pudenz leading our
Sales and Marketing team moving forward. It is important to note
that our focus on marketing, with Shane and Alfred’s leadership, is
new for Carriage. Again, as with sales and technology, a dedicated
focus on marketing offers us a new and exciting opportunity for
accelerated growth.
Within the teams that I have the privilege of
leading, Human Resources, Legal, Risk Management and Business
Development, we have incredible internal talent who are
Energized, motivated, and doing much more than
just offering top notch support to our businesses. These leaders
are also identifying new opportunities to help drive our results
forward and they broadly perform with a “owner’s mindset” similar
to what we see from our Managing Partners. It is an honor to work
with this type of talent and it is fun to see the level of pride
and excitement they have for Carriage and their fellow
teammates.
Right Who’s in the Right Seats:
In addition to bringing in new talent to lead critical areas of our
growth strategy, we have also focused on involving more talented
individuals in key projects and brainstorming sessions, intended to
build collaboration and provide a platform for new and innovative
ideas to gain traction. This process has also led to asking several
leaders to take on new responsibilities, sometimes outside of their
background or comfort zone, in an effort to stretch development and
drive new thinking. Within some teams, we have created
unconventional leadership structures, and more broadly, we have
worked to involve leaders from different teams in strategic areas
with which they may not have previously been involved. The goal has
been, and continues to be, to identify talent and position those
individuals to contribute beyond their current
responsibilities.
Two of the 4E's of Leadership – Energy
& Energize!: As part of an effort to build a first
class environment that will help us retain and attract the best
talent in, and outside of, the industry to help support our
colleagues in the field, we knew that getting the people part of
the equation right was not enough. We also needed to make sure that
these leaders had a work environment that matched their level of
Energy. To that end, last year we were excited to
welcome our Support Center Teams back to an office environment that
is lighter, brighter, and filled with the leadership branding and
Carriage history that we talk about so frequently.
Our High Performance Culture is
on full display as you walk through the halls of our Houston
Support Center. On our walls, you will see everything from quotes
from Jim Collins to the “Investor’s Business Daily 10 Secrets to
Success,” to the 4E’s of Leadership, to our Five Guiding
Principles, just to name a few. This personalization of our
leadership focus and investment in the people who support our
colleagues in the field every day has led to a noticeable
difference in energy and daily “buzz” as we go about our business.
In fact, a recent visitor said to me, “If I didn’t know I was at
Carriage, I would think this was an office for Google or Apple.” We
definitely took that comment as a compliment. But don’t take our
word for it, we invite anyone interested in learning more about
Carriage to come visit our Energized Support
Center and meet the talented people who make up the teams that
provide Carriage with a competitive Edge in the
area of comprehensive support.
As Carlos described earlier, our Good To
Great High Performance Flywheel was put in place to serve
as an overview of our unique High Performance
Culture. It was also intended to be a catalyst for
discussion by leaders with leaders as to how they can work together
to drive higher performance through the various eight components of
the flywheel, ultimately leading to greater and sustained
performance. We are confident that our Support Center Team of Teams
is comprised of some of the best talent in the industry and our
focus now is to make sure we continue to surround them with other
top talent and provide them with an equally impressive environment
for growth and achievement in which they can contribute to the
continued acceleration of our Good To Great High
Performance Flywheel moving forward,” concluded Mr.
Metzger.
ADJUSTED FREE CASH FLOW AND LEVERAGE
RATIO
|
Years Ended December 31, |
|
|
2020 |
|
|
|
2021 |
|
Net Cash Provided by Operating
Activities |
$ |
82,915 |
|
|
$ |
84,246 |
|
Cash used for Maintenance
Capital Expenditures |
|
(8,762 |
) |
|
|
(13,315 |
) |
Free Cash Flow |
$ |
74,153 |
|
|
$ |
70,931 |
|
Plus: Incremental Special
Items: |
|
|
|
Federal Tax Refund |
|
(7,012 |
) |
|
|
— |
|
Severance and Separation
Costs |
|
563 |
|
|
|
1,575 |
|
Litigation Reserve |
|
270 |
|
|
|
— |
|
Disaster Recovery and Pandemic
Costs |
|
1,627 |
|
|
|
2,157 |
|
Other Special Items |
|
362 |
|
|
|
1,020 |
|
Adjusted Free Cash Flow |
$ |
69,963 |
|
|
$ |
75,683 |
|
Proforma for Full Year Impact
of Bond Refinancing |
|
— |
|
|
|
4,000 |
|
Proforma Adjusted Free Cash
Flow |
$ |
69,963 |
|
|
$ |
79,683 |
|
|
|
|
|
|
|
|
|
Revenue |
$ |
329,448 |
|
|
$ |
375,886 |
|
|
|
|
|
Adjusted Free Cash Flow
Margin |
|
21.2 |
% |
|
|
20.1 |
% |
|
|
|
|
Proforma Adjusted Free Cash
Flow Margin |
|
21.2 |
% |
|
|
21.2 |
% |
Ben Brink, Executive Vice President and Chief
Financial Officer, stated, “For the full year 2021, our Adjusted
Free Cash Flow totaled $75.7 million and Adjusted Free Cash Flow
Margin was 20.1% compared to $70.0 million and 21.2% respectively
in 2020. However, adjusting for the full-year pre-tax impact of the
refinancing of our $400 million 4.25% senior note issue on May 13,
2021 would produce an additional $4 million of Adjusted Free Cash
Flow. Therefore, our Proforma Adjusted Free Cash Flow was $79.7
million and Proforma Adjusted Free Cash Flow Margin was 21.2%.
Net Cash Provided by Operating Activities
increased $1.3 million and Total Adjusted Free Cash Flow increased
$5.7 million year over year due to improved operating results while
Adjusted Free Cash Flow Margin decreased 110 basis points due to an
increase in maintenance capital expenditures of $4.6 million and
higher cash taxes paid in 2021 of $13.6 million. Proforma Adjusted
Free Cash Flow increased $9.7 million and Proforma Adjusted Free
Cash Flow Margin was flat compared to 2020. We continue to view the
Adjusted Free Cash Flow Margin as an important metric for investors
to track as it shows the amount of every dollar of revenue that is
available for Capital Allocation to optimize the long-term growth
of Intrinsic Value Per Share.
For 2022 our Roughly Right Range for Adjusted
Free Cash Flow is $82 - $86 million and 21% - 22% for our Adjusted
Free Cash Flow Margin. We expect Adjusted Free Cash Flow and
Adjusted Free Cash Flow Margin to increase this year due to the
continued high margin revenue momentum in our businesses and a full
year impact from lower interest costs from our senior note
refinancing completed in May 2021.
Our Total Debt to Adjusted Consolidated EBITDA
Leverage Ratio at year end was 4.5 times at December 31, 2021
compared to 4.0 times at the end of the third quarter and 4.4 times
at the end of 2020. The increase of 0.5 times of leverage compared
to the third quarter is entirely attributable to the increase in
our share repurchase program in the fourth quarter, as we
opportunistically repurchased our shares at a significant discount
of 34.7% compared to the $75 per share mid-point of our increased
opinion of the Roughly Right Range of Intrinsic Value Per
Share.
What is remarkable about our operating
performance and capital allocation in 2021 is that we were able to
refinance our capital structure that included a $19.9 million
prepayment penalty on $400 million of eight year 6.625% senior
notes to reduce interest costs by $9.5 million annually, invest
$11.6 million in high return internal growth projects and
repurchase 16.0% of our shares outstanding for approximately $142.5
million ($49.01 per share), while maintaining our leverage ratio
approximately flat compared to year end 2020. The transformation
that has occurred in 2021 demonstrates the amount of financial
flexibility Carriage has with our improved, low-cost capital
structure and our high amount of recurring and growing Adjusted
Free Cash Flow…aka A Free Cash Flow Machine! We
intend to allocate capital with return on invested capital
discipline and savviness as outlined below while being able to
maintain a Total Debt to Adjusted Consolidated EBITDA Leverage
Ratio within a range of 3.6 to 4.4 times (up to 4.5 times briefly
if value creation opportunity justifies) with a sustainable policy
of 4.0 times over the long term.
CAPITAL ALLOCATION
PRIORITY
With our record 2021 operating and financial
performance combined with the successful senior note refinancing
transaction in May 2021, we believe that Carriage has entered into
a long-term sweet spot for capital allocation and growth of
Intrinsic Value Per Share as our recurring and growing free cash
flow allows us to self-finance the majority of our capital
allocation opportunities. During the fourth quarter we continued to
strategically allocate capital, primarily towards the execution of
our share repurchase program. We believe that it remains important
to update investors quarterly on our current capital allocation
priorities as detailed below:
-
Strategic Acquisitions: We will have more
opportunities to selectively allocate capital in 2022 and beyond to
high quality acquisition candidates in large strategic growth
markets where our conservatively expected return on invested
capital can be approximately 15% in the early years post
integration, then growing higher once fully optimized as part of
our operating and support framework. The acquisition landscape
continues to look highly favorable for Carriage, as owners of the
best remaining independent funeral homes and cemeteries in America
look for a succession planning solution, such as Carriage, that has
the long-term track record and reputation as the consolidator of
choice in the industry. We believe the industry is entering into a
phase of increased consolidation as the COVID Pandemic has caused
many high quality business owners to accelerate their timeline for
succession planning decisions.
- Share
Repurchases: We will continue to prioritize open market
share repurchases when our stock trades at a discount of 10% or
more compared to the lower end of the $10 per share Roughly Right
Range of Intrinsic Value Per Share, which in our opinion is
currently $70 to $80 per share. Therefore more capital will be
allocated to our share repurchase program when our shares trade
below $63 per share.
During the fourth quarter we repurchased 1,462,786 shares for $80.7
million with an average purchase price of $55.19. With the share
repurchases completed in the fourth quarter, our total shares
repurchased for 2021 were 2,906,983 for a total cost of
approximately $142.5 million that equaled an average purchase price
of $49.01. This significant investment in our own shares over the
second half of 2021 is indicative of our confidence in the future
of Carriage and the view that our shares remain significantly
undervalued compared to the low end of the previous Roughly Right
Range of Intrinsic Value of $65 - $75 per share and even more so
when compared to the current Roughly Right Range of $70 - $80 per
share. The average purchase price for the shares repurchased in
2021 of $49.01 is a 34.7% discount to the mid-point of our updated
Roughly Right Range of Intrinsic Value.
The 2,906,983 shares repurchased in 2021 represents 16.0% of the
shares outstanding prior to the start of our repurchase program
which was primarily executed over the second half of the year. The
impact to our reduced fully diluted GAAP share count will be
apparent as we report the first quarter results of 2022, as we
expect Basic Shares Outstanding to be approximately 15.3 million
and Diluted Shares Outstanding to be approximately 16.5 million
after accounting for dilution from 475,235 of “in the money” vested
options and 730,480 shares related to the vesting of the third tier
of our Good To Great II Long Term Shareholder Value Creation Plan.
The 730,480 shares related to the vesting of Good To Great II are
only payable to participants in the first part of 2025 and are
conditional on employment at the end of 2024.
Since the Good To Great II Shareholder Value Creation Plan was
approved on May 16, 2020, seven senior participants have left the
company and received no value in vested shares upon their
departure. These seven participants would have been eligible for
234,128 shares at the current vesting of tier three that would have
been equal to approximately 33% of the current total of 730,480
shares for the remaining forty-eight participants.
We are pleased to announce the authorization by our Board of an
additional $75 million to our share repurchase program, which along
with previously approved and available amounts, brings our total
availability to approximately $83.1 million, equal to approximately
10.0% of our current equity market capitalization. We will continue
to balance our share repurchase program versus any near-term
acquisition activity and our intention to maintain a moderate Total
Debt to Adjusted Consolidated EBITDA ratio.
- Internal
Growth Projects: The first priority for our internal
growth capital expenditures in 2022 will be to accelerate the
development of high-quality cemetery inventory that will deliver
high rates of return on invested capital quickly after completion.
Secondarily, we will prioritize our internal growth capital on
targeted funeral home remodels and expansions to help enhance our
service and guest experience to accelerate growth in local market
share.
We allocated $24.9 million towards capital expenditures in 2021
split between $13.3 million of maintenance capital expenditures and
$11.6 million of growth capital expenditures. The primary drivers
of increased capital expenditures in 2021 compared to 2020 were
cemetery property development, funeral home refresh and remodels,
vehicle fleet upgrades and information technology investments. We
currently expect capital expenditures in 2022 to be approximately
$23 - $24 million allocated evenly between maintenance and growth
capital expenditures.
- Debt
Repayment: The execution of our share repurchase program
in the fourth quarter caused our total debt position to increase
$67.8 million and our Total Debt to Adjusted Consolidated EBITDA
leverage ratio to increase 0.5 times to 4.5 times at year end
compared to the third quarter. While the 4.5 times is at the upper
end of our previously announced leverage ratio target range, we
believe the recurring and growing amount of Adjusted Free Cash Flow
is highly resilient to sudden economic shocks (high free cash flow
characteristics of this industry, but especially Carriage), and
provides the necessary financial flexibility to opportunistically
allocate capital in any environment while maintaining Total Debt to
Adjusted Consolidated EBITDA Leverage Ratio in a range of 3.6 to
4.4 times. Our current Total Debt to Adjusted Consolidated EBITDA
Leverage Ratio is 4.38 times as of February 23rd.
-
Dividends: Our current annual dividend is equal to
$.45 per share (dividend yield of about 0.85%), totaling
approximately $7.4 million annually equal to almost 9% of the $84
million mid-point of the Roughly Right Range of Adjusted Free Cash
Flow for 2022. We will reevaluate our dividend policy annually and
at other relevant points in time while maintaining a dividend
policy that will approximate 10% of our Adjusted Free Cash Flow and
a 1% dividend equity yield.
TRUST FUND INVESTMENT PERFORMANCE
|
|
2021 |
|
Annualized
2009 - 2021 |
CSV Discretionary Portfolio |
|
19.3% |
|
14.3% |
S&P 500 |
|
28.7% |
|
16.0% |
DJIA |
|
20.9% |
|
14.4% |
NASDAQ |
|
22.2% |
|
20.7% |
HY Bond Index |
|
5.3% |
|
10.6% |
70/30
HY/S&P Bond |
|
12.3% |
|
12.6% |
Our discretionary preneed trust fund portfolio
had another extraordinary year in 2021 with a total return of 19.3%
versus 28.7% for the S&P 500 and 12.3% for our 70/30 HY
Bond/S&P 500 benchmark. The total return of our discretionary
trust portfolio for 2021 continued our long-term track record of
highly successful investment management since we took over
management of the preneed trust assets in October 2008 at the
beginning of the Credit Crisis and Great Recession. Over the past
thirteen years, since the beginning of 2009, our total return for
our discretionary preneed trust portfolio has been 14.3% compared
to 16.0% for the S&P 500 and 12.6% for our 70/30 HY
Bond/S&P 500 benchmark. We use a 70/30 HY Bond/S&P 500
Benchmark for consistency even though our allocation to fixed
income, primarily High Yield (no junk!), has varied between 50% to
80% over the last thirteen years.
I began my tenure at Carriage on January 22,
2009 in the middle of the Credit Crisis and Great Recession brought
on by the housing market collapse and an overleveraged global
banking system. What I didn’t know then was that I was about to
embark on a thirteen year learning journey that never ends
regarding investment management. In working closely with Mel and
studying other great investors, particularly Warren Buffet and
Charlie Munger, I have learned a number of important lessons in
regard to what makes a great long-term investor. I believe the most
important as it relates to our success and ongoing management of
our discretionary trust funds are the following: the ability to
remain patient and disciplined in your preparation, so that when
major market dislocations do arise, you have the fortitude and
ability to evaluate and make investment decisions that are within
your own defined circle of competence, which enables you to make
significant rotations when market fear and volatility are at their
highest.
Patience
"Experience tends to confirm a long-held notion that
being prepared, on a few occasions in a lifetime, to act promptly
in scale, in doing some simple and logical thing, will often
dramatically improve the financial results of that lifetime. A few
major opportunities, clearly recognizable as such, will usually
come to one who continuously searches and waits, with a curious
mind that loves diagnosis involving multiple variables. And then
all that is required is a willingness to bet heavily when the odds
are extremely favorable, using resources available as a result of
prudence and patience in the past."
-Charlie
Munger, Wesco Financial Annual Meeting 1996
I believe a significant part of our long-term
success in managing our discretionary preneed trust portfolio has
come from our ability to remain patient and wait to make major
rotations within our portfolio during times of severe volatility
and fear in the market. When I started at Carriage in the middle of
our first major asset rotation during the height of the Credit
Crisis and Great Recession, I certainly didn’t know much, but I
knew enough to understand what Mel was doing and that the execution
of his clearly defined written repositioning strategy was different
and absolutely ran counter to every headline or talking head out
there in the financial media. That is when I began to learn what
Mel has taught us at Carriage:
“Great
investment returns are produced by those fearless yet analytical
souls who go where everyone else has fled and find a fundamental
reason to stay.”
During late 2008 and early 2009, a significant
concern in the market was the health of the world financial system
and the long term viability of individual financial institutions
brought on by the subprime mortgage crisis and exacerbated by the
myriad of failing collateralized debt obligations held by banks and
investors. The Troubled Asset Relief Program (TARP) was created to
stabilize the U.S. financial system through purchases of distressed
assets from financial institutions, which eventually morphed into
direct capital injections by the government in the form of
preferred stock with 10 year detachable equity warrants.
Once we studied the terms of the TARP Program
(Mel’s credit background was at Prudential and Texas Commerce Bank,
now JPMorgan Chase), we determined that the risk of
‘nationalization’ of the banking system was essentially zero and
hysterically overblown in the financial media, as the clear goal of
the program was “To Restore Trust and Confidence in the Financial
System!” We quickly recognized that the newly issued preferred
stock by the 19 “Too Big To Fail” large banks and insurance
companies to the government would be ranked pari passu (equal) with
the perpetual preferred stocks of these banks that were already
outstanding. Based on this analysis we began to rapidly increase
our positions in the perpetual preferred stocks of large financial
institutions (Bank of America, Wells Fargo, Citigroup, PNC, Goldman
Sachs, SunTrust, Liberty Mutual, etc.) at prices significantly
below par (lowest was 15¢ on the dollar!) with the belief that
these financial institutions would recover sufficiently over time
in order to pay the full principal amount when due, with the
ability to earn a high amount of recurring interest income at
double digit yields (large double digit yields in numerous cases,
e.g. B of A 8%’s at 33¢ on the dollar) on cost while we waited.
Our investments in “Too Big To Fail” perpetual
preferred securities during the depths of the 2008/2009 Credit
Crisis and as late as May 5, 2010 (date of first “Stress Test” by
Fed on 19 ‘Too Big To Fail’ financial institutions, after which we
acquired several million of Wells Fargo 7.98% perpetual preferred
at 60¢ on the dollar after it passed the Stress
Test?!?) is an example of our ‘willingness to bet heavily when the
odds are extremely favorable’.
A particular example of this philosophy in
action during this period (one of Mel’s favorites) was the purchase
of $3.0 million 8.4% Citigroup perpetual preferred at an average
cost of $50 ($1.5 million investment) in late 2008/early 2009.
Citigroup was the only “Too Big To Fail” bank that subsequently had
to be ‘bailed out’ twice, so as part of its second bail-out the
Federal Reserve mandated a ‘punitive cram-down’ or forced exchange
of our series of perpetual preferred securities. Our $3.0 million
par amount of preferred securities were discounted only 5% from the
face amount ($150,000) with the balance of $2,850,000 converted
into common shares at the market price of $3.25 per share,
providing us 877,000 new common shares of Citigroup with an average
cost of $1.71. Based on our fundamental analysis of the 3 to 5 year
earnings and valuation outlook for Citigroup, we sold our entire
position in the fourth quarter of 2009 at an average price of $4.65
per share after the exchange for a total gain of $2.6 million or
approximately 180% in approximately 10 months.
After the “Punitive Citigroup Cramdown” that
resulted in a huge windfall gain for our trust portfolio, Mel wrote
one of his witty “Metaphor Memo’s,” relating the government action
to the famous fable about Brer Rabbit, Brer Fox and the Briar
Patch: “Please Mr. Fox, you can eat me (and do all those other
terrible things to me), but please don’t throw me back into that
briar patch!” The point of the fable was how to get recalcitrant
idiots to do what you want them to do! So Mel’s mantra became,
“Please Mr. Fed., I’m fine with whatever you want to do with me,
except please don’t punish our innocent trust funds by cramming
down our perpetual preferred stocks in Too Big To Fail financial
institutions! Please don’t do that because they wouldn’t be
perpetual anymore, and no one would ever trust them again!!”
During each of the major “market meltdowns” over
the last thirteen years, we always pick a humorous theme or two
that fits the craziness and/or panic in various sections of the
market at that time. These “market meltdowns” over the past
thirteen years where we have taken advantage of extreme uncertainty
and fear in markets to execute significant relative value rotations
involving substantial capital deployments include; the downgrade of
the U.S. credit rating by S&P in August 2011, when oil prices
collapsed in late 2015/early 2016, and most recently during the
depths of the Coronavirus Market Crisis in March 2020 and
thereafter (lots of favorite purchases). In each of these instances
we have positioned the discretionary preneed trust portfolio for
higher amounts of recurring income and long term realized capital
gains, which has led to sustainably higher recognized Financial
Revenue and EBITDA for Carriage.
Circle of
Competence
“What an
investor needs is the ability to correctly evaluate selected
businesses. Note that word “selected”: You don’t have to be an
expert on every company, or even many. You only have to be able to
evaluate companies within your circle of competence. The size of
that circle is not very important; knowing its boundaries, however,
is vital.”
-Warren Buffett,
Berkshire Hathaway Annual Letter to Shareholders,
1996
Since we began to direct the investment
decisions within our discretionary preneed funeral and cemetery
trust funds on October 14, 2008, our investment strategy has been
to run a balanced portfolio that prioritizes recurring income
through high yield fixed income and high dividend equity
securities, combined with a smaller concentration of equity
positions that we believe will appreciate substantially over the
next 3 to 5 years and produce large capital gains. We eschew
companies that have unsustainable high equity valuations, while
focusing our equity investments in companies that have sustainable
and growing free cash flow, have opportunities to invest that free
cash flow at higher rates of return on invested capital, and
therefore have the ability to grow their dividend over time. Our
fixed income investments must pass our own internal credit rating
based on our analysis (zero reliance on credit rating agency
reports) of the underlying company’s ability to pay their interest
and principal when due. Importantly, we invest in the equity of
companies where we can understand their business, industry and
future growth potential and are comfortable owning their shares
forever.
The results of our discretionary trust fund
portfolio over the long term are a result of our ability to remain
within our well-defined circle of competence, while remaining
patient to make significant rotations in the trust fund portfolio
when market fear and volatility are at their highest. One of the
most remarkable aspects of our long-term investment management
track record is our ability to trail the S&P 500 index on
average by only 170 basis points annually while maintaining no less
than a 50% weighting toward fixed income securities. Our investment
strategy has been time tested through a series of periods with
severe market turmoil and the consistency of our approach will
continue to add value through recurring and growing Financial
Revenue and EBITDA over the timeframe of our increased Three Year
Roughly Right Ranges Performance Scenario 2022 -2024.
Portfolio Update/2021
Results
Execution of our strategy at the depths of the
Coronavirus Market Crash has led to an increase in the recurring
annual income in the portfolio by approximately $8.2 million to
$17.6 million, the majority of which is realized and recognized
monthly through our cemetery perpetual care earnings. Additionally,
since our major capital deployment during the peak of the
Coronavirus Market Crisis and thereafter, we have recognized
approximately $31.1 million of realized long term capital gains in
the portfolio that have been allocated to the underlying preneed
funeral and cemetery contracts which have an average maturity of 12
to 15 years.
As a result of our successful repositioning
strategy, we have constructed the discretionary preneed trust fund
portfolio for a higher interest rate and inflation environment that
is largely resilient to bouts of market volatility such as that
experienced so far in 2022. Our discretionary trust fund portfolio
year to date in 2022 has a return of approximately negative 1.8%
compared to a negative return of 8.6% for the S&P 500 and
negative return of 5.6% for our 70/30 HY Bond/S&P 500
benchmark.
A primary reason for our outperformance was an
early shift in our portfolio at the end of 2019 (to raise cash for
redeployment) away from a small concentration of high growth,
big tech stocks toward higher dividend stocks during the COVID
market crash, especially materials and economically sensitive
stocks with pricing power to offset inflationary trends. The same
shift by many professional money managers seemingly all at the same
time has resulted in a YTD decline in NASDAQ of over 14%. The total
yield on market value of our invested discretionary trust assets of
$242 million (excluding cash) as of February 18, 2022 was 6.7%
(combined equity and fixed income portfolio) thereby providing a
large and resilient income cushion to sector rotation shifts and
volatility in the market. We also have 7% of total assets in cash
waiting for another meaningful opportunity to deploy capital at
high rates of return.
The successful long term management of our
discretionary preneed trust funds has led to a significant increase
and sustainability of Carriage’s reported Financial Revenue and
Financial EBITDA. In 2021, Financial Revenue increased $3.0 million
or 15.2% to $22.9 million and Financial EBITDA increased $2.8
million or 15.1% to $21.4 million compared to 2020. The primary
driver for increased Financial Revenue and EBITDA was increased
cemetery perpetual care income from a full year of recognizing
increased annual income from our trust fund portfolio repositioning
strategy. We expect Financial Revenue and EBITDA to have
incremental growth in future years due to the recurring nature of
interest and dividend income earned in the trust funds along with
higher recognized matured preneed contract values from capital
gains realized in the trusts and allocated to the underlying
preneed contracts. For 2022 our Roughly Right Range for Financial
Revenue is $23.5 - $24.0 million with a Financial EBITDA Margin
Range of 93.5% - 94.0%.
We view the long-term nature of the underlying
preneed funeral and cemetery contracts and the cemetery perpetual
care assets as a competitive advantage in managing our preneed
trust assets. We do not have to be concerned about funds flow risk
from cash redemptions when markets are crashing and liquidity and
price discovery have essentially disappeared. Nor do we have to
mark to market securities that we own or purchase during severe
market downturns, having confidence that unrealized losses even of
a large magnitude (March 23, 2020) would turn into large unrealized
gains upon an eventual market recovery, which has been the case in
each major market correction over the last thirteen years.
The long-term nature of these liabilities allows
us to manage the preneed trust fund portfolio with a long-term
mindset versus having the pressure of short-term scoreboard
watching with quarterly and annual return expectations. We will
remain consistent in our approach to managing our preneed trust
assets by staying within our circle of competence and being prudent
and patient to wait for those rare opportunities to allocate
capital at scale to position the trust fund portfolio for continued
long term outperformance.
FINANCE ORGANIZATION STRUCTURE/TALENT
AND CONCEPTUAL VISION UPDATE
At the beginning of 2021 we reorganized our
Finance functions into one team under my leadership. Our goal as a
Finance Leadership Team was to improve alignment across our teams
(Accounting, Financial Reporting, Treasury, Trust Investments,
Preneed, Audit and Tax) with our goals of a company to be The Best
Operator, Consolidator and Value Creator that just happens to be in
the funeral and cemetery industry. Two great examples of how our
Finance teams contributed to our success in 2021 were the continued
evolution of our Operating and Financial Trend Reports and the
significant improvement in our GAAP effective tax rate throughout
the year.
Trend Reports
Our Financial Reporting and Accounting Teams,
under the leadership of Adeola Olaniyan, are responsible for
compilation and accuracy of our innovative Operational and
Financial Trend Reports that are intended to provide investors with
a more transparent view of our results and what we view as the
sustainable earnings power of Carriage. Over the years the
evolutionary change that has occurred here at Carriage has led to
expenses related to severance, goodwill write-downs, gain or loss
on divestitures, large legal settlements and financing costs that
we have added back to GAAP earnings as Special Items since we do
not view these expenses as core to our operations. More recently in
2020 and 2021, costs related to the COVID-19 Pandemic have also
been included as Special Items since we don’t view them as
recurring expenses in the future. Our reported Non-GAAP Adjusted
Diluted Earnings Per Share and Adjusted Consolidated EBITDA without
the Special Items as presented in our Trend Reports represent the
true earnings power of Carriage.
I remember fondly one of my first investor
relations trip with Mel back in August 2015 when an astute investor
commented that Warren Buffett would not look favorably on the
number and the type of Non-GAAP Special Items we were adding back
at that time. Mel took his criticism as an arrow to his heart
vowing that someday we would emerge from his “Chief Mistake Maker”
phase as a high performing GAAP Company. That was a message well
received and a great lesson for yours truly! Since then, we have
worked to better define one-time, non-recurring expenses with the
goal over time for GAAP and Non-GAAP to more closely align. Over
this six-year time period the largest dollar amount of Non-GAAP
Special Items have been related to the debt extinguishment and
refinancing, gain or losses on divestitures and write downs of
Goodwill. With the complete transformation that has occurred within
our operating businesses, the completion of the senior note
refinancing transaction in May 2021 and the conclusion of our
divestiture program early this year we believe we will have less
one-time, non-recurring expenses and that GAAP EPS and Non-GAAP
Adjusted EPS will be more closely aligned in the future.
Tax Rate
In the first quarter of 2021 our GAAP effective
tax rate was an estimated 31%, a percentage that we deemed too high
based on are anticipated pre-tax book income for 2021, the states
and jurisdictions in which we operate in and other comparable
publicly traded companies. Our Tax Team under the leadership of
Katrina Blume went to work to identify structural opportunities to
lower our GAAP effective tax rate. In collaboration with our Legal,
Accounting and Information Technology Teams, our Tax Team led the
effort to simplify our state legal entity structure and improve
state tax provision planning that resulted in improved expense
apportionment, particularly in high tax jurisdictions.
As a result of these efforts our full year 2021
GAAP effective tax rate, excluding discrete tax benefits, was
27.8%, a full 320 basis points lower than where we started in the
first quarter of the year. This significant decrease in our
GAAP effective tax rate from continuing operations over the course
of 2021 contributed an estimated $.08 of earnings per share.
Importantly, the improvements implemented will continue to have
benefit to both our GAAP effective tax rate and cash taxes paid
going forward. We believe we have additional opportunities to
incrementally lower the GAAP effective tax rate in 2022 and are
hard at work to implement these changes in the first half of the
year. While we don’t expect us to reduce our GAAP effective
tax rate another 320 basis points in 2022, we do believe that we
can have a sustainable GAAP effective tax rate over the long term
of approximately 27.0% absent any significant changes to federal
corporate tax policy, which we believe is unlikely anytime
soon.
INCREASED ROUGHLY RIGHT RANGE OF
INTRINSIC VALUE PER SHARE
Based on the continued strong operating and
financial performance across Carriage and the execution of our
share repurchase program in the fourth quarter, we are excited to
again announce an increase in our opinion of the Roughly Right
Range of Intrinsic Value Per Share to $70 - $80 per share based on
the methodology outlined below. We believe it is important to
provide an updated Roughly Right Range of Intrinsic Value Per Share
as it allows investors to have insight into how we intend to make
capital allocation decisions in both the short and long term. The
mid-point of our Roughly Right Range of Intrinsic Value Per Share
of $75 is $5 per share or 7.1% higher than when we reported at the
end of the third quarter, and $20 per share or 36.4% from our
original Roughly Right Range of $50 to $60 per share that we
announced on May 13th in conjunction with closing of our
senior note refinancing.
We believe that a Free Cash Flow Equity Yield is
the preferred valuation methodology when we calculate our opinion
of our Roughly Right Range of Intrinsic Value Per Share given our
demonstrated ability to generate a high amount of sustainable and
growing Free Cash Flow. We also view a Free Cash Flow Equity Yield
Range of 6.4% - 7.4% as a reasonable range of Free Cash Flow
discount factors based on our current weighted average cost of
capital of 6.4%, which is a 100 basis point decrease from prior to
our senior note refinancing transaction, especially given our Free
Cash Flow generation capabilities and our ability to allocate that
cash capital into higher rates of return investments in the
future.
We calculate the Roughly Right Range of
Intrinsic Value Per Share using the mid-point of our 2022 Roughly
Right Range Performance Outlook for Adjusted Free Cash Flow of
$84.0 million. Dividing the $84.0 million of Adjusted Free Cash
Flow by the current Free Cash Flow Equity Yield Range of 6.4% -
7.4% equals an equity market capitalization range of $1,135.1
million to $1,312.5 million.
We divide the equity market capitalization range
of $1,135.1 million to $1,312.5 million by our fully Diluted Shares
of 16.5 million, which equals an Intrinsic Value Per Share Range of
$68.79 - $79.55. When rounded up equals our increased Roughly Right
Range of Intrinsic Value Per Share of $70 to $80 per share.
FINAL THOUGHTS ABOUT “GETTING TO THE
OTHER SIDE”
When I reflect on the past two years, I continue
to return to our themes for each year and the action words we used:
Transformative and
Accelerating.
Carriage Services 2020: Transformative
High Performance.
Carriage Services 2021:
Accelerating High Performance Flywheel Effect.
What I have experienced up close and personal,
and what should be taken away by the reader of this Shareholder
Letter, is that there has been a complete High
Performance Transformation at Carriage
and it is only Accelerating. This broad
transformation has manifested itself in higher organic market share
growth; significantly improved cemetery sales, operations and
profitability; sustainably higher preneed trust fund income and
Financial Revenue; improved Operating Leverage at our local funeral
homes and cemeteries leading to higher Field EBITDA Margins;
improved Overhead Platform Leverage with greater size and scale;
greater Consolidated Platform Leverage with more opportunities for
capital allocation at higher rates of return on invested capital;
improved Capital Structure Leverage with a low-cost long-term
balance sheet that provides greater financial flexibility at a
lower cost of capital; and a significantly lower share count.
For any investor who has made it this far in
this Shareholder Letter, and whose curiosity is piqued by our
unique and differentiated High Performance Culture
that we have described in this Shareholder Letter, I would
encourage you to begin your journey of “Getting To The
Other Side” by first studying our available materials on
our investor relations website (Shareholder Letters and Quarterly
Earnings Press Releases), then come visit us in Houston for a look
underneath the Carriage covers to truly understand the long-term
Value Creation Dynamics that are at work at
Carriage. What you will find is a company that has undergone a
radical Transformation which is producing
Accelerating High Performance led by an amazing
group of talented entrepreneurial leaders across Carriage who have
formed an Unbreakable Union Of Belief in our
Vision of Being The Best on a
Good To Great Journey that never ends. It is
because of this Accelerating High Performance
Transformation that all the leaders here at Carriage have
the confidence to say that the Best Is Yet To
Come!”, concluded Mr. Brink.
CARRIAGE 2021 PINNACLE OF SERVICE
AWARD WINNERS – HIGH PERFORMANCE HEROES
I am delighted to announce that we had 68
businesses (55 funeral homes and 13 cemeteries) which earned
Pinnacle Awards and Being The Best Standards
Achievement Bonuses for the Managing Partners and employees of each
business. This group of winners represented the Company’s
High Performance Culture as well as their
businesses contributing $183.6 million in revenue (48.8% of Total
of $375.9 million), $81.4 million in Field EBITDA (46.6%
of Company Total of $174.6 million) and an EBITDA Margin of 44.3%
(Total Company Field EBITDA Margin of 46.5%).
The 68 Pinnacle Award winners included 54
businesses (49 funeral homes and 5 cemeteries) which averaged 70%
Standards Achievement over the 3 year period 2019-2021 (20 of these
businesses also achieved 100% in 2021 under the updated / rebooted
Performance Standards), and 14 businesses (7 funeral homes and 7
cemeteries) which had 100% Standards Achievement in 2021.
As an important part of High Performance
Culture tradition and language, and because we have a
passionate conviction that RECOGNITION is the
highest form of motivation, listed below are Carriage’s
Being The Best Pinnacle of Service Award winners
for 2021:
2021 “Being The Best” Pinnacle Of Service
Award Winners
|
*Tim Hauck |
|
Lee County Cremation Services
Harvey-Engelhardt/Fuller Metz |
|
|
Benjamin
Friberg |
|
Heritage Funeral Home and
Crematory |
|
|
Ken Summers |
|
P.L. Fry & Sons |
|
|
Alan
Kerrick |
|
Dakan Funeral Chapel |
|
|
Loren
Forastiere |
|
Forastiere Group |
|
|
Cyndi Hoots |
|
Schmidt Funeral Homes |
|
|
Mike Conner |
|
Conner-Westbury Funeral Home |
|
|
John Appel |
|
Garden of Memories Funeral
Home |
|
|
Jenny Chen |
|
Grant Miller Chapel |
|
|
Ashley
Vella |
|
Deegan Funeral Chapels |
|
|
Carlos
Terrazas |
|
Rolling Hills and Pacific
Rim |
|
|
Kevin
Latham |
|
Maddux-Fuqua-Hinton Funeral
Homes |
|
|
Brent
Harrison |
|
Crespo & Jirrels |
|
|
Adam Mills |
|
Glacier Memorial Gardens |
|
|
*Larry
Davis |
|
Bunkers and Woodlawn
Cemeteries
Bunkers Mortuaries |
|
|
David
Salove |
|
Cloverdale Cemeteries |
|
|
Kim Mulkey |
|
Sterling Funeral Homes |
|
|
Anthony
Rodriguez
|
|
Higgins Mortuary |
|
|
Dorn
Rademacher |
|
Relyea Funeral Chapel |
|
|
Jeff Seaman |
|
Dwayne R. Spence Funeral
Homes |
|
|
Linda
Newsom |
|
Lawton-Ritter-Gray Funeral
Homes |
|
|
Johnny
Garcia |
|
Ceballos-Diaz Funeral Home |
|
|
John
Bresnahan |
|
Devanny-Condron Funeral Home |
|
|
Joseph
Waterwash |
|
Baird-Case Jordan-Fannin Funeral
Home & Cremation Center |
|
|
Andrew
Cumby |
|
Cumby Family Funeral Homes |
|
|
Troy
Knutson |
|
Austin Funeral Home &
Columbia Mortuary |
|
|
David
DeRubeis |
|
Cody-White Funeral Home |
|
|
Michael
Relyea |
|
Conrad & Thompson Funeral
Home |
|
|
Bob Thomas |
|
Malone Funeral Home |
|
|
David
Feeney |
|
Feeney Funeral Home |
|
|
Cesar
Gutierrez |
|
Heritage-Dilday Memorial
Services |
|
|
*Qualified for 2
Businesses |
|
|
|
“Being The Best” Pinnacle Of Service
Award & 100% of Standards Award
|
Jason Higginbotham |
|
Lakeland Funeral Home |
|
|
James Terry |
|
James J. Terry Funeral Home |
|
|
Steven Mora |
|
Conejo Mountain Funeral Home |
|
|
*James Bass |
|
Emerald Coast/McLaughlin
Mortuary
McLaughlin Twin Cities Funeral Home and Crematory |
|
|
Robert
Maclary |
|
Kent-Forest Lawn Funeral
Home |
|
|
Justin
Luyben |
|
Evans-Brown Mortuaries &
Crematory |
|
|
Courtney
Charvet |
|
North Brevard Funeral Home |
|
|
Brian
Binion |
|
Steen Funeral Homes |
|
|
Jason Cox |
|
Lane Funeral Home-South Crest
Chapel |
|
|
Trent
Nielsen |
|
Hennessey Valley Funeral Home
& Crematory |
|
|
Nicholas
Welzenbach |
|
Los Gatos Memorial Park |
|
|
Kristi Ah
You |
|
Franklin & Downs Funeral
Homes |
|
|
Matthew
Simpson |
|
Fry Memorial Chapel |
|
|
Kim
Borselli |
|
Fuller Funeral Home-Cremation
Service |
|
|
Christine
Amittone |
|
Greer Mortuary |
|
|
Andy
Shemwell |
|
Neal Tarpley-Parchman Funeral
Home |
|
|
Betty
Cundiff |
|
Lotz Funeral Home |
|
|
Curtis
Ottinger |
|
Heritage Funeral Home |
|
|
Chad Woody |
|
Richmond County Memorial
Park |
|
|
*Qualified for 2
Businesses |
|
|
|
“Being The Best” Pinnacle 100% of
Standards Award
|
*Buddy Ewing |
|
Seaside Funeral Homes
Rose Hill Memorial Park
Seaside Cemeteries |
|
|
*Michael
Kelly |
|
Resthaven Funeral Home
Resthaven Memory Gardens |
|
|
Tripp
Carter |
|
Bradshaw-Carter Memorial &
Funeral Services |
|
|
Geneva
Guillion-Chitty |
|
Darling-Fischer Garden
Chapel |
|
|
Rick
Garofola |
|
Bagnasco & Calcaterra Funeral
Homes |
|
|
Steven Mora |
|
Conejo Mountain Memorial
Park |
|
|
*David
Salove |
|
Cloverdale Funeral Home |
|
|
|
|
Hillcrest Memorial Gardens |
|
|
Brad
Shemwell |
|
Latham Funeral Home |
|
|
Courtney
Charvet |
|
Oaklawn Memorial Gardens &
Mausoleum |
|
|
Robert
Coleman |
|
Sullivan Cemeteries |
|
|
*Qualified for 2 or More
Businesses |
|
|
|
CARRIAGE 2021 GOOD TO GREAT AWARD
WINNERS
Our five-year incentive award, called the
Good To Great Award, is directly linked to our
annual Being The Best Pinnacle Award which itself
is linked to High Funeral Standards Achievement over a full year,
i.e. our Good To Great Awards require high and
sustained Being The Best Standards Achievement
over a full five years. We have had many wonderful
performances since the start of our Good To Great
Journey in 2017 by High Performance Hero Funeral and
Cemetery Managing Partners and Sales Managers and their teams of
winning employees, so I am more than honored to announce our fifth
group of Good To Great Award winners that
sustained a high level of Standards Achievement and Financial
Performance while compounding revenue at 6.5% for the five year
timeframe that began in 2017 and ended at year end 2021, as listed
below:
|
*Tim Hauck |
|
Lee County Cremation Services
Harvey-Engelhardt/Fuller Metz |
|
|
Dorn
Rademacher |
|
Relyea Funeral Chapel |
|
|
Kristi Ah
You |
|
Franklin & Downs Funeral
Homes |
|
|
Jim Pitts |
|
Buck Ashcraft San Benito Funeral
Home |
|
|
Justin
Luyben |
|
Evans-Brown Mortuaries &
Crematory |
|
|
Steven Mora |
|
Conejo Mountain Funeral Home |
|
|
Courtney
Charvet |
|
North Brevard Funeral Home |
|
|
Ken Summers |
|
P.L. Fry & Sons |
|
|
John
Bresnahan |
|
Devanny-Condron Funeral Home |
|
|
Ashley
Vella |
|
Deegan Funeral Chapels |
|
|
Kim Mulkey |
|
Sterling Funeral Homes |
|
|
Jason
Higginbotham |
|
Lakeland Funeral Home |
|
|
Jason Cox |
|
Lane Funeral Home-South Crest
Chapel |
|
|
Betty
Cundiff |
|
Lotz Funeral Home |
|
|
Robert
Maclary |
|
Kent-Forest Lawn Funeral
Home |
|
|
Brad
Shemwell |
|
Latham Funeral Home |
|
|
Chuck
Williamson |
|
Williamson & Sons Funeral
Home |
|
|
Michael
Relyea |
|
Conrad & Thompson Funeral
Home |
|
|
James Bass |
|
Emerald Coast/McLaughlin
Mortuary |
|
|
Michael
Bell |
|
Cremation Society of Idaho |
|
|
David
Williams |
|
Rader Funeral Home |
|
|
Joseph
Waterwash |
|
Baird-Case Jordan-Fannin Funeral
Home & Cremation Center |
|
|
Jeff Seaman |
|
Dwayne R. Spence Funeral
Homes |
|
|
Linda
Newsom |
|
Lawton-Ritter-Gray Funeral
Homes |
|
|
Chad Woody |
|
Watson-King Funeral Homes |
|
|
Bob Thomas |
|
Malone Funeral Home |
|
|
Cesar
Gutierrez |
|
Heritage-Dilday Memorial
Services |
|
|
Wayne
Lovelace |
|
Lotz Funeral Home - Vinton,
VA |
|
|
David
Feeney |
|
Feeney Funeral Home |
|
|
David
DeRubeis |
|
Cody-White Funeral Home |
|
|
Brian
Binion |
|
Steen Funeral Homes |
|
|
Joseph
Newkirk |
|
Civic Center Chapel |
|
|
Michele
Wegner |
|
Buckler-Johnston/Avery Funeral
Homes |
|
|
*Qualified for 2
Businesses |
|
|
|
|
|
|
|
|
CONFERENCE CALL AND INVESTOR RELATIONS
CONTACT
Carriage Services has scheduled a conference
call for tomorrow, February 24, 2022 at 9:30 a.m. Central time. To
participate in the call, please dial 866-516-3867 (conference
ID-9971727) and ask for the Carriage Services conference call. A
replay of the conference call will be available through March 1,
2022 and may be accessed by dialing 855-859-2056 (conference
ID-9971727). The conference call will also be available at
www.carriageservices.com. For any investor relations questions,
please contact Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.
CARRIAGE SERVICES, INC. |
OPERATING AND FINANCIAL TREND REPORT |
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS) |
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Years Ended December 31, |
|
|
2020 |
|
|
2021 |
|
% Change |
|
|
2020 |
|
|
2021 |
|
% Change |
|
|
|
|
|
|
|
|
Same Store Contracts |
|
|
|
|
|
|
|
Atneed Contracts |
|
8,439 |
|
|
8,990 |
|
6.5% |
|
|
|
31,374 |
|
|
35,149 |
|
12.0% |
|
Preneed Contracts |
|
1,762 |
|
|
1,524 |
|
(13.5%) |
|
|
|
6,428 |
|
|
6,158 |
|
(4.2%) |
|
Total Same Store Funeral Contracts |
|
10,201 |
|
|
10,514 |
|
3.1% |
|
|
|
37,802 |
|
|
41,307 |
|
9.3% |
|
Acquisition Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atneed Contracts |
|
1,782 |
|
|
1,706 |
|
(4.3%) |
|
|
|
6,646 |
|
|
6,691 |
|
0.7% |
|
Preneed Contracts |
|
143 |
|
|
171 |
|
19.6% |
|
|
|
572 |
|
|
552 |
|
(3.5%) |
|
Total Acquisition Funeral Contracts |
|
1,925 |
|
|
1,877 |
|
(2.5%) |
|
|
|
7,218 |
|
|
7,243 |
|
0.3% |
|
Total Funeral Contracts |
|
12,126 |
|
|
12,391 |
|
2.2% |
|
|
|
45,020 |
|
|
48,550 |
|
7.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Revenue |
$ |
52,642 |
|
$ |
55,311 |
|
5.1% |
|
|
$ |
191,757 |
|
$ |
215,039 |
|
12.1% |
|
Acquisition Revenue |
|
9,348 |
|
|
9,981 |
|
6.8% |
|
|
|
35,461 |
|
|
38,031 |
|
7.2% |
|
Total Funeral Operating Revenue |
$ |
61,990 |
|
$ |
65,292 |
|
5.3% |
|
|
$ |
227,218 |
|
$ |
253,070 |
|
11.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Revenue |
$ |
14,815 |
|
$ |
16,288 |
|
9.9% |
|
|
$ |
51,767 |
|
$ |
64,171 |
|
24.0% |
|
Acquisition Revenue |
|
5,509 |
|
|
6,312 |
|
14.6% |
|
|
|
17,584 |
|
|
27,829 |
|
58.3% |
|
Total Cemetery Operating Revenue |
$ |
20,324 |
|
$ |
22,600 |
|
11.2% |
|
|
$ |
69,351 |
|
$ |
92,000 |
|
32.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Revenue |
$ |
5,265 |
|
$ |
6,167 |
|
17.1% |
|
|
$ |
19,890 |
|
$ |
22,917 |
|
15.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ancillary Revenue |
$ |
1,197 |
|
$ |
1,046 |
|
(12.6%) |
|
|
$ |
4,661 |
|
$ |
4,437 |
|
(4.8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divested/Planned Divested Revenue |
$ |
1,312 |
|
$ |
826 |
|
(37.0%) |
|
|
$ |
8,328 |
|
$ |
3,462 |
|
(58.4%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
90,088 |
|
$ |
95,931 |
|
6.5% |
|
|
$ |
329,448 |
|
$ |
375,886 |
|
14.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Funeral Field EBITDA |
$ |
23,172 |
|
$ |
23,569 |
|
1.7% |
|
|
$ |
79,850 |
|
$ |
93,025 |
|
16.5% |
|
Same Store Funeral Field EBITDA Margin |
|
44.0% |
|
|
42.6% |
|
(140 bp) |
|
|
|
41.6% |
|
|
43.3% |
|
170 bp |
|
Acquisition Funeral Field EBITDA |
|
3,684 |
|
|
4,315 |
|
17.1% |
|
|
|
13,628 |
|
|
16,017 |
|
17.5% |
|
Acquisition Funeral Field EBITDA Margin |
|
39.4% |
|
|
43.2% |
|
380 bp |
|
|
|
38.4% |
|
|
42.1% |
|
370 bp |
|
Total Funeral Field EBITDA |
$ |
26,856 |
|
$ |
27,884 |
|
3.8% |
|
|
$ |
93,478 |
|
$ |
109,042 |
|
16.6% |
|
Total Funeral Field EBITDA Margin |
|
43.3% |
|
|
42.7% |
|
(60 bp) |
|
|
|
41.1% |
|
|
43.1% |
|
200 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store Cemetery Field EBITDA |
$ |
6,499 |
|
$ |
6,939 |
|
6.8% |
|
|
$ |
19,501 |
|
$ |
27,015 |
|
38.5% |
|
Same Store Cemetery Field EBITDA Margin |
|
43.9% |
|
|
42.6% |
|
(130 bp) |
|
|
|
37.7% |
|
|
42.1% |
|
440 bp |
|
Acquisition Cemetery Field EBITDA |
|
2,531 |
|
|
3,140 |
|
24.1% |
|
|
|
7,128 |
|
|
15,526 |
|
117.8% |
|
Acquisition Cemetery Field EBITDA Margin |
|
45.9% |
|
|
49.7% |
|
380 bp |
|
|
|
40.5% |
|
|
55.8% |
|
1,530 bp |
|
Total Cemetery Field EBITDA |
$ |
9,030 |
|
$ |
10,079 |
|
11.6% |
|
|
$ |
26,629 |
|
$ |
42,541 |
|
59.8% |
|
Total Cemetery Field EBITDA Margin |
|
44.4% |
|
|
44.6% |
|
20 bp |
|
|
|
38.4% |
|
|
46.2% |
|
780 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial Field EBITDA |
$ |
4,926 |
|
$ |
5,777 |
|
17.3% |
|
|
$ |
18,559 |
|
$ |
21,365 |
|
15.1% |
|
Total Financial Field EBITDA Margin |
|
93.6% |
|
|
93.7% |
|
10 bp |
|
|
|
93.3% |
|
|
93.2% |
|
(10 bp) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ancillary EBITDA |
$ |
278 |
|
$ |
216 |
|
(22.3%) |
|
|
$ |
1,186 |
|
$ |
1,006 |
|
(15.2%) |
|
Ancillary EBITDA Margin |
|
23.2% |
|
|
20.7% |
|
(250 bp) |
|
|
|
25.4% |
|
|
22.7% |
|
(270 bp) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Divested/Planned Divested EBITDA |
$ |
228 |
|
$ |
233 |
|
2.2% |
|
|
$ |
2,090 |
|
$ |
687 |
|
(67.1%) |
|
Total Divested/Planned Divested EBITDA Margin |
|
17.4% |
|
|
28.2% |
|
1,080 bp |
|
|
|
25.1% |
|
|
19.8% |
|
(530 bp) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Field EBITDA |
$ |
41,318 |
|
$ |
44,189 |
|
6.9% |
|
|
$ |
141,942 |
|
$ |
174,641 |
|
23.0% |
|
Total Field EBITDA Margin |
|
45.9% |
|
|
46.1% |
|
20 bp |
|
|
|
43.1% |
|
|
46.5% |
|
340 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING AND FINANCIAL TREND REPORT |
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS) |
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Years Ended December 31, |
|
|
2020 |
|
|
2021 |
|
% Change |
|
|
2020 |
|
|
2021 |
|
% Change |
|
|
|
|
|
|
|
|
Overhead |
|
|
|
|
|
|
|
Total Variable Overhead |
$ |
6,740 |
|
$ |
7,465 |
|
10.8% |
|
|
$ |
16,190 |
|
$ |
26,013 |
|
60.7% |
|
Total Regional Fixed Overhead |
|
1,203 |
|
|
1,351 |
|
12.3% |
|
|
|
4,133 |
|
|
5,232 |
|
26.6% |
|
Total Corporate Fixed Overhead |
|
5,220 |
|
|
6,144 |
|
17.7% |
|
|
|
20,191 |
|
|
23,037 |
|
14.1% |
|
Total Overhead |
$ |
13,163 |
|
$ |
14,960 |
|
13.7% |
|
|
$ |
40,514 |
|
$ |
54,282 |
|
34.0% |
|
Overhead as a percentage of Revenue |
|
14.6% |
|
|
15.6% |
|
100 bp |
|
|
|
12.3% |
|
|
14.4% |
|
210 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA |
$ |
28,155 |
|
$ |
29,229 |
|
3.8% |
|
|
$ |
101,428 |
|
$ |
120,359 |
|
18.7% |
|
Consolidated EBITDA Margin |
|
31.3% |
|
|
30.5% |
|
(80 bp) |
|
|
|
30.8% |
|
|
32.0% |
|
120 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses and Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization |
$ |
5,109 |
|
$ |
5,034 |
|
|
|
|
$ |
19,389 |
|
$ |
20,520 |
|
|
|
Non-Cash Stock Compensation |
|
897 |
|
|
1,681 |
|
|
|
|
|
3,370 |
|
|
5,513 |
|
|
|
Interest Expense |
|
7,728 |
|
|
5,307 |
|
|
|
|
|
32,515 |
|
|
25,445 |
|
|
|
Accretion of Discount on Convertible Sub. Notes |
|
16 |
|
|
— |
|
|
|
|
|
216 |
|
|
20 |
|
|
|
Loss on Extinguishment of Debt |
|
— |
|
|
— |
|
|
|
|
|
6 |
|
|
23,807 |
|
|
|
Net (Gain) Loss on Divestitures |
|
1,832 |
|
|
(1,035) |
|
|
|
|
|
6,749 |
|
|
(856) |
|
|
|
Impairment of Goodwill and Other Intangibles |
|
— |
|
|
— |
|
|
|
|
|
14,693 |
|
|
500 |
|
|
|
Net Loss on Disposal of Fixed Assets |
|
— |
|
|
324 |
|
|
|
|
|
— |
|
|
1,022 |
|
|
|
Other, Net |
|
(186) |
|
|
(3) |
|
|
|
|
|
(152) |
|
|
84 |
|
|
|
Pre-Tax Income |
$ |
12,759 |
|
$ |
17,921 |
|
|
|
|
$ |
24,642 |
|
$ |
44,304 |
|
|
|
Net Tax Expense |
|
4,394 |
|
|
4,574 |
|
|
|
|
|
8,552 |
|
|
11,145 |
|
|
|
GAAP Net Income |
$ |
8,365 |
|
$ |
13,347 |
|
59.6% |
|
|
$ |
16,090 |
|
$ |
33,159 |
|
106.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
$ |
(170) |
|
$ |
— |
|
|
|
|
$ |
(11) |
|
$ |
— |
|
|
|
Severance and Separation Costs |
|
— |
|
|
— |
|
|
|
|
|
563 |
|
|
1,575 |
|
|
|
Performance Awards Cancellation and Exchange |
|
108 |
|
|
— |
|
|
|
|
|
288 |
|
|
— |
|
|
|
Accretion of Discount on Convertible Sub. Notes |
|
16 |
|
|
— |
|
|
|
|
|
216 |
|
|
20 |
|
|
|
Loss on Extinguishment of Debt |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
23,807 |
|
|
|
Net (Gain) Loss on Divestitures and Other Costs |
|
1,947 |
|
|
(1,035) |
|
|
|
|
|
6,864 |
|
|
(856) |
|
|
|
Net Impact of Impairment of Goodwill and Other Intangibles |
|
183 |
|
|
— |
|
|
|
|
|
14,952 |
|
|
500 |
|
|
|
Litigation Reserve |
|
— |
|
|
1,050 |
|
|
|
|
|
270 |
|
|
1,050 |
|
|
|
Disaster Recovery and Pandemic Costs |
|
315 |
|
|
116 |
|
|
|
|
|
1,627 |
|
|
2,157 |
|
|
|
Other Special Items |
|
— |
|
|
— |
|
|
|
|
|
410 |
|
|
2,354 |
|
|
|
Tax Adjustment Related to Certain Discrete Items |
|
400 |
|
|
— |
|
|
|
|
|
400 |
|
|
— |
|
|
|
Sum of Special Items |
$ |
2,799 |
|
$ |
131 |
|
|
|
|
$ |
25,579 |
|
$ |
30,607 |
|
|
|
Tax Effect on Special Items |
|
743 |
|
|
(116) |
|
|
|
|
|
7,986 |
|
|
8,503 |
|
|
|
Adjusted Net Income |
$ |
10,421 |
|
$ |
13,594 |
|
30.4% |
|
|
$ |
33,683 |
|
$ |
55,263 |
|
64.1% |
|
Adjusted Net Income Margin |
|
11.6% |
|
|
14.2% |
|
260 bp |
|
|
|
10.2% |
|
|
14.7% |
|
450 bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Basic Earnings Per Share |
$ |
0.58 |
|
$ |
0.83 |
|
43.1% |
|
|
$ |
1.88 |
|
$ |
3.17 |
|
68.6% |
|
Adjusted Diluted Earnings Per Share |
$ |
0.57 |
|
$ |
0.78 |
|
36.8% |
|
|
$ |
1.86 |
|
$ |
3.02 |
|
62.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Basic Earnings Per Share |
$ |
0.47 |
|
$ |
0.82 |
|
74.5% |
|
|
$ |
0.90 |
|
$ |
1.90 |
|
111.1% |
|
GAAP Diluted Earnings Per Share |
$ |
0.46 |
|
$ |
0.77 |
|
67.4% |
|
|
$ |
0.89 |
|
$ |
1.81 |
|
103.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Basic Shares Outstanding |
|
17,927 |
|
|
16,233 |
|
|
|
|
|
17,872 |
|
|
17,409 |
|
|
|
Weighted Average Diluted Shares Outstanding |
|
18,147 |
|
|
17,400 |
|
|
|
|
|
18,077 |
|
|
18,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Consolidated EBITDA to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Consolidated EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA |
$ |
28,155 |
|
$ |
29,229 |
|
3.8% |
|
|
$ |
101,428 |
|
$ |
120,359 |
|
18.7% |
|
Acquisition Expenses |
|
(170) |
|
|
— |
|
|
|
|
|
(11) |
|
|
— |
|
|
|
Severance and Separation Costs |
|
— |
|
|
— |
|
|
|
|
|
563 |
|
|
1,575 |
|
|
|
Litigation Reserve |
|
— |
|
|
1,050 |
|
|
|
|
|
270 |
|
|
1,050 |
|
|
|
Disaster Recovery and Pandemic Costs |
|
315 |
|
|
116 |
|
|
|
|
|
1,627 |
|
|
2,157 |
|
|
|
Other Special Items |
|
— |
|
|
— |
|
|
|
|
|
373 |
|
|
1,020 |
|
|
|
Adjusted Consolidated EBITDA |
$ |
28,300 |
|
$ |
30,395 |
|
7.4% |
|
|
$ |
104,250 |
|
$ |
126,161 |
|
21.0% |
|
Adjusted Consolidated EBITDA Margin |
|
31.4% |
|
|
31.7% |
|
30 bp |
|
|
|
31.6% |
|
|
33.6% |
|
200 bp |
|
CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
|
December 31, |
|
|
2020 |
|
|
|
2021 |
|
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
889 |
|
|
$ |
1,148 |
|
Accounts receivable, net |
|
25,103 |
|
|
|
25,314 |
|
Inventories |
|
7,259 |
|
|
|
7,346 |
|
Prepaid and other current assets |
|
2,076 |
|
|
|
6,404 |
|
Total current assets |
|
35,327 |
|
|
|
40,212 |
|
Preneed cemetery trust investments |
|
86,604 |
|
|
|
100,903 |
|
Preneed funeral trust investments |
|
101,235 |
|
|
|
113,658 |
|
Preneed cemetery receivables, net |
|
21,081 |
|
|
|
23,150 |
|
Receivables from funeral preneed trusts, net |
|
16,844 |
|
|
|
19,009 |
|
Property, plant and equipment, net |
|
269,051 |
|
|
|
269,367 |
|
Cemetery property, net |
|
101,134 |
|
|
|
100,701 |
|
Goodwill |
|
392,978 |
|
|
|
391,972 |
|
Intangible and other non-current assets, net |
|
29,542 |
|
|
|
29,378 |
|
Operating lease right-of-use assets |
|
21,201 |
|
|
|
17,881 |
|
Cemetery perpetual care trust investments |
|
70,828 |
|
|
|
72,400 |
|
Total assets |
$ |
1,145,825 |
|
|
$ |
1,178,631 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current portion of debt and lease obligations |
$ |
3,432 |
|
|
$ |
2,809 |
|
Accounts payable |
|
11,259 |
|
|
|
14,205 |
|
Accrued and other liabilities |
|
31,138 |
|
|
|
43,773 |
|
Convertible subordinated notes due 2021 |
|
2,538 |
|
|
|
— |
|
Total current liabilities |
|
48,367 |
|
|
|
60,787 |
|
Acquisition debt, net of current portion |
|
4,482 |
|
|
|
3,979 |
|
Credit facility |
|
46,064 |
|
|
|
153,857 |
|
Senior notes |
|
395,968 |
|
|
|
394,610 |
|
Obligations under finance leases, net of current portion |
|
5,531 |
|
|
|
5,157 |
|
Obligations under operating leases, net of current portion |
|
20,302 |
|
|
|
18,520 |
|
Deferred preneed cemetery revenue |
|
47,846 |
|
|
|
50,202 |
|
Deferred preneed funeral revenue |
|
27,992 |
|
|
|
30,584 |
|
Deferred tax liability |
|
46,477 |
|
|
|
45,784 |
|
Other long-term liabilities |
|
4,748 |
|
|
|
1,419 |
|
Deferred preneed cemetery receipts held in trust |
|
86,604 |
|
|
|
100,903 |
|
Deferred preneed funeral receipts held in trust |
|
101,235 |
|
|
|
113,658 |
|
Care trusts’ corpus |
|
69,707 |
|
|
|
71,156 |
|
Total liabilities |
|
905,323 |
|
|
|
1,050,616 |
|
Commitments and contingencies: |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock |
|
260 |
|
|
|
263 |
|
Additional paid-in capital |
|
239,989 |
|
|
|
236,809 |
|
Retained earnings |
|
102,303 |
|
|
|
135,462 |
|
Treasury stock |
|
(102,050 |
) |
|
|
(244,519 |
) |
Total stockholders’ equity |
|
240,502 |
|
|
|
128,015 |
|
Total liabilities and stockholders’ equity |
$ |
1,145,825 |
|
|
$ |
1,178,631 |
|
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
(unaudited) |
|
|
|
|
|
Three Months Ended December 31, |
|
Years Ended December 31, |
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
Service revenue |
$ |
44,154 |
|
|
$ |
46,486 |
|
|
$ |
164,984 |
|
|
$ |
180,572 |
|
Property and merchandise revenue |
|
39,419 |
|
|
|
42,176 |
|
|
|
139,630 |
|
|
|
167,721 |
|
Other revenue |
|
6,515 |
|
|
|
7,269 |
|
|
|
24,834 |
|
|
|
27,593 |
|
|
|
90,088 |
|
|
|
95,931 |
|
|
|
329,448 |
|
|
|
375,886 |
|
Field costs and expenses: |
|
|
|
|
|
|
|
Cost of service |
|
20,010 |
|
|
|
21,322 |
|
|
|
79,634 |
|
|
|
82,395 |
|
Cost of merchandise |
|
27,503 |
|
|
|
29,199 |
|
|
|
103,064 |
|
|
|
113,871 |
|
Cemetery property amortization |
|
1,511 |
|
|
|
1,457 |
|
|
|
4,956 |
|
|
|
6,670 |
|
Field depreciation expense |
|
3,236 |
|
|
|
3,177 |
|
|
|
13,006 |
|
|
|
12,609 |
|
Regional and unallocated funeral and cemetery costs |
|
6,853 |
|
|
|
7,191 |
|
|
|
18,057 |
|
|
|
25,846 |
|
Other expenses |
|
1,257 |
|
|
|
1,221 |
|
|
|
4,808 |
|
|
|
4,979 |
|
|
|
60,370 |
|
|
|
63,567 |
|
|
|
223,525 |
|
|
|
246,370 |
|
Gross profit |
|
29,718 |
|
|
|
32,364 |
|
|
|
105,923 |
|
|
|
129,516 |
|
|
|
|
|
|
|
|
|
Corporate costs and expenses: |
|
|
|
|
|
|
|
General, administrative and other |
|
7,207 |
|
|
|
9,450 |
|
|
|
25,827 |
|
|
|
33,949 |
|
Home office depreciation and amortization |
|
362 |
|
|
|
400 |
|
|
|
1,427 |
|
|
|
1,241 |
|
Net (gain) loss on divestitures, disposals and impairment
charges |
|
1,832 |
|
|
|
(711 |
) |
|
|
21,442 |
|
|
|
666 |
|
Operating income |
|
20,317 |
|
|
|
23,225 |
|
|
|
57,227 |
|
|
|
93,660 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(7,728 |
) |
|
|
(5,307 |
) |
|
|
(32,515 |
) |
|
|
(25,445 |
) |
Accretion of discount on convertible subordinated notes |
|
(16 |
) |
|
|
— |
|
|
|
(216 |
) |
|
|
(20 |
) |
Loss on early extinguishment of debt |
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
(23,807 |
) |
Other, net |
|
186 |
|
|
|
3 |
|
|
|
152 |
|
|
|
(84 |
) |
Income before income taxes |
|
12,759 |
|
|
|
17,921 |
|
|
|
24,642 |
|
|
|
44,304 |
|
Expense for income taxes |
|
(3,971 |
) |
|
|
(4,850 |
) |
|
|
(7,985 |
) |
|
|
(12,316 |
) |
Tax adjustment related to discrete items |
|
(423 |
) |
|
|
276 |
|
|
|
(567 |
) |
|
|
1,171 |
|
Total expense for income taxes |
|
(4,394 |
) |
|
|
(4,574 |
) |
|
|
(8,552 |
) |
|
|
(11,145 |
) |
Net income |
$ |
8,365 |
|
|
$ |
13,347 |
|
|
$ |
16,090 |
|
|
$ |
33,159 |
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
$ |
0.47 |
|
|
$ |
0.82 |
|
|
$ |
0.90 |
|
|
$ |
1.90 |
|
Diluted earnings per common share: |
$ |
0.46 |
|
|
$ |
0.77 |
|
|
$ |
0.89 |
|
|
$ |
1.81 |
|
|
|
|
|
|
|
|
|
Dividends declared per common share: |
$ |
0.1000 |
|
|
$ |
0.1125 |
|
|
$ |
0.3375 |
|
|
$ |
0.4125 |
|
Weighted average number of common and common equivalent shares
outstanding: |
|
|
|
|
|
|
|
Basic |
|
17,927 |
|
|
|
16,233 |
|
|
|
17,872 |
|
|
|
17,409 |
|
Diluted |
|
18,147 |
|
|
|
17,400 |
|
|
|
18,077 |
|
|
|
18,266 |
|
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Years Ended December 31, |
|
|
2020 |
|
|
|
2021 |
|
Cash flows from operating activities: |
|
|
|
Net income |
$ |
16,090 |
|
|
$ |
33,159 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
|
19,389 |
|
|
|
20,520 |
|
Provision for credit losses |
|
2,318 |
|
|
|
1,783 |
|
Stock-based compensation expense |
|
3,370 |
|
|
|
5,513 |
|
Deferred income tax expense (benefit) |
|
4,597 |
|
|
|
(692 |
) |
Amortization of intangibles |
|
1,299 |
|
|
|
1,285 |
|
Amortization of debt issuance costs |
|
782 |
|
|
|
576 |
|
Amortization and accretion of debt |
|
523 |
|
|
|
439 |
|
Loss on extinguishment of debt |
|
6 |
|
|
|
23,807 |
|
Net loss on divestitures, disposals and impairment charges |
|
21,693 |
|
|
|
847 |
|
Gain on insurance reimbursements |
|
(97 |
) |
|
|
— |
|
Other |
|
19 |
|
|
|
— |
|
Changes in operating assets and liabilities that provided (used)
cash: |
|
|
|
Accounts and preneed receivables |
|
(4,279 |
) |
|
|
(4,090 |
) |
Inventories, prepaid and other current assets |
|
3,516 |
|
|
|
(4,449 |
) |
Intangible and other non-current assets |
|
(1,015 |
) |
|
|
(1,181 |
) |
Preneed funeral and cemetery trust investments |
|
(5,043 |
) |
|
|
(31,349 |
) |
Accounts payable |
|
2,702 |
|
|
|
522 |
|
Accrued and other liabilities |
|
10,784 |
|
|
|
3,485 |
|
Deferred preneed funeral and cemetery revenue |
|
528 |
|
|
|
5,010 |
|
Deferred preneed funeral and cemetery receipts held in trust |
|
5,733 |
|
|
|
29,061 |
|
Net cash provided by operating activities |
|
82,915 |
|
|
|
84,246 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
Acquisition of businesses and real estate |
|
(28,011 |
) |
|
|
(3,285 |
) |
Proceeds from divestitures and sale of other assets |
|
8,541 |
|
|
|
7,875 |
|
Proceeds from insurance reimbursements |
|
248 |
|
|
|
7,758 |
|
Capital expenditures |
|
(15,198 |
) |
|
|
(24,883 |
) |
Net cash used in investing activities |
|
(34,420 |
) |
|
|
(12,535 |
) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
Borrowings from the credit facility |
|
109,500 |
|
|
|
266,168 |
|
Payments against the credit facility |
|
(146,100 |
) |
|
|
(157,968 |
) |
Payment to redeem the senior notes due 2026 |
|
— |
|
|
|
(400,000 |
) |
Payment of call premium for redemption of the senior notes due
2026 |
|
— |
|
|
|
(19,876 |
) |
Proceeds from the issuance of the senior notes due 2029 |
|
— |
|
|
|
395,500 |
|
Payment of debt issuance costs related to the credit facility and
senior notes |
|
(78 |
) |
|
|
(2,197 |
) |
Conversion and maturity of the convertible subordinated notes due
2021 |
|
(4,563 |
) |
|
|
(3,980 |
) |
Payments on acquisition debt and obligations under finance
leases |
|
(1,745 |
) |
|
|
(1,331 |
) |
Payments on contingent consideration recorded at acquisition
date |
|
(169 |
) |
|
|
(461 |
) |
Proceeds from the exercise of stock options and employee stock
purchase plan |
|
1,229 |
|
|
|
2,644 |
|
Taxes paid on restricted stock vestings and exercise of stock
options |
|
(348 |
) |
|
|
(2,647 |
) |
Dividends paid on common stock |
|
(6,048 |
) |
|
|
(7,264 |
) |
Purchase of treasury stock |
|
— |
|
|
|
(140,040 |
) |
Net cash used in financing activities |
|
(48,322 |
) |
|
|
(71,452 |
) |
|
|
|
|
Net increase in cash and cash equivalents |
|
173 |
|
|
|
259 |
|
Cash and cash equivalents at beginning of year |
|
716 |
|
|
|
889 |
|
Cash and cash equivalents at end of year |
$ |
889 |
|
|
$ |
1,148 |
|
NON-GAAP FINANCIAL
MEASURES
This press release uses Non-GAAP financial
measures to present the financial performance of the Company. Our
non-GAAP reporting provides a transparent framework of our
operating and financial performance that reflects the earning power
of the Company as an operating and consolidation platform.
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 to compare our results
to previous periods, to provide insight into the underlying
long-term performance trends in our business and to provide the
opportunity to differentiate ourselves as the best consolidation
platform in the industry against the performance of other funeral
and cemetery companies.
Reconciliations of the Non-GAAP financial
measures to GAAP measures are also provided in this press
release.
The term “same store” refers to funeral homes
and cemeteries acquired prior to January 1, 2017 and owned and
operated for the entirety of each period being presented, excluding
certain funeral home and cemetery businesses that we intend to
divest. The term “acquired” or “acquisition” refers to funeral
homes and cemeteries purchased after December 31, 2016, excluding
any funeral home and cemetery businesses that we intend to
divest.
The Non-GAAP financial measures used in this
press release and the definitions of them used by the Company for
our internal management purposes in this press release are
described below.
- Special Items are defined as
charges or credits included in our GAAP financial statements that
can vary from period to period and are not reflective of costs
incurred in the ordinary course of our operations. In 2020, Special
Items are taxed at the federal statutory rate of 21.0%, except the
Net (Gain) Loss on Divestitures and Other Costs and the Net Impact
of Impairment of Goodwill and Other Intangibles, which are taxed at
the operating tax rate for the period. In Q1 2021, Special Items
are taxed at the federal statutory rate of 21.0%, except the Net
(Gain) Loss on Divestitures and Other Costs, which are taxed at the
operating tax rate. In Q2, Q3 and Q4 2021, all Special Items are
taxed at the operating tax rate and include adjustments to reflect
prior quarter Special Items at the operating tax rate on
year-to-date basis. The Accretion of Discount on Convertible
Subordinated Notes and the Tax Adjustment Related to Certain
Discrete Items are not tax effected.
- Adjusted Net Income is defined as
net income after adjustments for Special Items that we believe do
not directly reflect our core operations and may not be indicative
of our normal business operations.
- Adjusted Net Income Margin is
defined as Adjusted Net Income as a percentage of total
revenue.
- Consolidated EBITDA is defined as
net income before income taxes, interest expenses, non-cash stock
compensation, depreciation and amortization, and interest income
and other, net.
- Consolidated EBITDA Margin is
defined as Consolidated EBITDA as a percentage of total
revenue.
- Adjusted Consolidated EBITDA is
defined as Consolidated EBITDA after adjustments for Special Items
that we believe do not directly reflect our core operations and may
not be indicative of our normal business operations.
- Adjusted Consolidated EBITDA Margin
is defined as Adjusted Consolidated EBITDA as a percentage of total
revenue.
- Adjusted Free Cash Flow is defined
as net cash provided by operating activities, adjusted by Special
Items as deemed necessary, less cash for maintenance capital
expenditures.
- Adjusted Free Cash Flow Margin is
defined as Adjusted Free Cash Flow as a percentage of total
revenue.
- Funeral Field EBITDA is defined as
funeral operating income, excluding depreciation and amortization,
regional and unallocated costs, gain/loss on divestitures and fixed
assets and impairment charges, Financial Field EBITDA, Ancillary
EBITDA and Divested/Planned Divested EBITDA related to the Funeral
Home segment.
- Funeral Field EBITDA Margin is
defined as Funeral Field EBITDA as a percentage of total funeral
operating revenue.
- Cemetery Field EBITDA is defined as
cemetery operating income, excluding depreciation and amortization,
regional and unallocated costs, gain/loss on divestitures and fixed
assets and impairment charges, Financial Field EBITDA and
Divested/Planned Divested EBITDA related to the Cemetery
segment.
- Cemetery Field EBITDA Margin is
defined as Cemetery Field EBITDA as a percentage of total cemetery
operating revenue.
- Preneed Cemetery Property Sales is
defined as cemetery property sold prior to death.
- Total Preneed Cemetery Sales
Production is defined as all cemetery property, merchandise and
services sold prior to death.
- Preneed Recognized Revenue is
defined as preneed cemetery property, merchandise and services
recognized as revenue.
- Funeral Financial Field EBITDA is
defined as Funeral Financial Revenue (preneed funeral insurance
commissions and preneed funeral trust and insurance) less the
related expenses. Funeral Financial Revenue and the related
expenses are presented within Other Revenue and Other
Expenses, respectively, on the Consolidated Statement of
Operations.
- Funeral Financial Field EBITDA
Margin is defined as Funeral Financial Field EBITDA as a percentage
of Funeral Financial Revenue.
- Cemetery Financial Field EBITDA is
defined as Cemetery Financial Revenue (preneed cemetery trust
earnings and preneed cemetery finance charges) less the related
expenses. Cemetery Financial Revenue and the related expenses are
presented within Other Revenue and Other
Expenses, respectively, on the Consolidated Statement of
Operations.
- Cemetery Financial Field EBITDA
Margin is defined as Cemetery Financial Field EBITDA as a
percentage of Cemetery Financial Revenue.
- Total Financial Revenue is the sum
of Funeral Financial Revenue (preneed funeral insurance commissions
and preneed funeral trust and insurance) and Cemetery Financial
Revenue (preneed cemetery trust earnings and preneed cemetery
finance charges).
- Total Financial Field EBITDA is the
sum of Funeral Financial Field EBITDA and Cemetery Financial Field
EBITDA.
- Total Financial Field EBITDA Margin
is defined as Total Financial Field EBITDA as a percentage of Total
Financial Revenue.
- Ancillary Revenue is defined as
revenues from our ancillary businesses, which include a flower
shop, pet cremation business and online cremation business.
Ancillary Revenue and the related expenses are presented within
Other Revenue and Other Expenses, respectively,
on the Consolidated Statement of Operations.
- Ancillary EBITDA is defined as
Ancillary Revenue, less expenses related to our ancillary
businesses noted above.
- Ancillary EBITDA Margin is defined
as Ancillary EBITDA as a percentage of Ancillary Revenue.
- Divested/Planned Divested Revenue
is defined as revenues from certain funeral home and cemetery
businesses that we have divested and intend to divest.
- Divested/Planned Divested EBITDA is
defined as Divested/Planned Divested Revenue, less field level and
financial expenses related to the divested/planned divested
businesses noted above.
- Divested/Planned Divested EBITDA
Margin is defined as Divested/Planned Divested EBITDA as a
percentage of Divested/Planned Divested Revenue.
- Total Field EBITDA is the sum of
Funeral Field EBITDA, Cemetery Field EBITDA, Total Financial Field
EBITDA, Ancillary EBITDA and Divested/Planned Divested EBITDA.
- Total Field EBITDA Margin is
defined as Total Field EBITDA as a percentage of total
revenue.
- Adjusted Basic Earnings Per Share
(EPS) is defined as GAAP basic earnings per share, adjusted for
Special Items.
- Adjusted Diluted Earnings Per Share
(EPS) is defined as GAAP diluted earnings per share, adjusted for
Special Items.
- Total Debt Outstanding is defined
as indebtedness under our bank credit facility, Senior Notes due
2029, acquisition debt and finance leases.
- Total Debt to EBITDA Multiple/Ratio
is defined as Total Debt Outstanding to Adjusted Consolidated
EBITDA.
Funeral Field EBITDA and Cemetery
Field EBITDA
Our operations are reported in two business
segments: Funeral Home Operations and Cemetery Operations. Our
Field level results highlight trends in volumes, Revenue, Field
EBITDA (the individual business’ cash earning power/locally
controllable business profit) and Field EBITDA Margin (the
individual business’ controllable profit margin).
Funeral Field EBITDA and Cemetery Field EBITDA
are defined above. Funeral and Cemetery Operating Income is defined
as Revenue less “Field costs and expenses” — a line item
encompassing these areas of costs: i) Funeral and cemetery field
costs, ii) Field depreciation and amortization expense, iii)
Regional and unallocated funeral and cemetery costs, and iv)
Gain/loss on divestitures, disposals and impairment charges.
Funeral and cemetery field costs include cost of service, funeral
and cemetery merchandise costs, operating expenses, labor and other
related expenses incurred at the business level.
Regional and unallocated funeral and cemetery
costs presented in our GAAP statement consist primarily of salaries
and benefits of our Regional leadership, incentive compensation
opportunity to our Field employees and other related costs for
field infrastructure. These costs, while necessary to operate our
businesses as currently operated within our unique, decentralized
platform, are not controllable operating expenses at the Field
level as the composition, structure and function of these costs are
determined by executive leadership in the Houston Support Center.
These costs are components of our overall overhead platform
presented within Consolidated EBITDA and Adjusted Consolidated
EBITDA. We do not directly or indirectly “push down” any of these
expenses to the individual business’ field level margins.
We believe that our “Regional and unallocated
funeral and cemetery costs” are necessary to support our
decentralized, high performance culture operating framework, and as
such, are included in Consolidated EBITDA and Adjusted Consolidated
EBITDA, which more accurately reflects the cash earning power of
the Company as an operating and consolidation platform.
Consolidated EBITDA and Adjusted
Consolidated EBITDA
Consolidated EBITDA and Adjusted Consolidated
EBITDA are defined above. Our Adjusted Consolidated EBITDA include
adjustments for Special Items that we believe do not directly
reflect our core operations and may not be indicative of our normal
business operations.
How These Measures Are
Useful
When used in conjunction with GAAP financial
measures, our Total Field EBITDA, Consolidated EBITDA and Adjusted
Consolidated EBITDA are supplemental measures of operating
performance that we believe are useful measures to facilitate
comparisons to our historical consolidated and business level
performance and operating results.
We believe our presentation of Adjusted
Consolidated EBITDA, a key metric used internally by our
management, provides investors with a supplemental view of our
operating performance that facilitates analysis and comparisons of
our ongoing business operations because it excludes items that may
not be indicative of our ongoing operating performance.
Limitations of the Usefulness of These
Measures
Our Total Field EBITDA, Consolidated EBITDA and
Adjusted Consolidated EBITDA are not necessarily comparable to
similarly titled measures used by other companies due to different
methods of calculation. Our presentation is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with
GAAP. Funeral Field EBITDA, Cemetery Field EBITDA, Funeral
Financial Field EBITDA, Cemetery Financial Field EBITDA, Ancillary
EBITDA and Divested/Planned Divested EBITDA are not consolidated
measures of profitability.
Funeral and Cemetery Field EBITDA excludes
certain costs presented in our GAAP statement that we do not
allocate to the individual business’ field level margins, as noted
above. A reconciliation to Funeral and Cemetery Operating Income,
the most directly comparable GAAP measure, is set forth below.
Consolidated EBITDA excludes certain items that
we believe do not directly reflect our core operations and may not
be indicative of our normal business operations. A reconciliation
to Net Income, the most directly comparable GAAP measure, is set
forth below.
Therefore, these measures may not provide a
complete understanding of our performance and should be reviewed in
conjunction with our GAAP financial measures. Carriage Services
strongly encourages investors to review the Company's consolidated
financial statements and publicly filed reports in their entirety
and not rely on any single financial measure.
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, all of which are
reflected in the tables below.
Reconciliation of Net Income (Loss)
to Adjusted Net Income (in thousands):
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Net Income (Loss) |
$ |
8,365 |
|
|
$ |
12,933 |
|
|
$ |
(6,167 |
) |
|
$ |
13,046 |
|
$ |
13,347 |
|
Special Items |
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
|
(170 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Severance and Separation Costs |
|
— |
|
|
|
1,575 |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Performance Awards Cancellation and Exchange |
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Accretion of Discount on Convertible Subordinated
Notes(1) |
|
16 |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Loss on Extinguishment of Debt |
|
— |
|
|
|
— |
|
|
|
23,807 |
|
|
|
— |
|
|
— |
|
Net (Gain) Loss on Divestitures and Other Costs |
|
1,947 |
|
|
|
(308 |
) |
|
|
205 |
|
|
|
282 |
|
|
(1,035 |
) |
Net Impact of Impairment of Goodwill and Other Intangibles |
|
183 |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
— |
|
Litigation Reserve |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
1,050 |
|
Disaster Recovery and Pandemic Costs |
|
315 |
|
|
|
894 |
|
|
|
145 |
|
|
|
1,002 |
|
|
116 |
|
Other Special Items |
|
— |
|
|
|
— |
|
|
|
1,334 |
|
|
|
1,020 |
|
|
— |
|
Tax Adjustment Related to Certain Discrete Items(1) |
|
400 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Sum of Special Items |
$ |
2,799 |
|
|
$ |
2,181 |
|
|
$ |
25,491 |
|
|
$ |
2,804 |
|
$ |
131 |
|
Tax Effect on Special Items(2) |
|
743 |
|
|
|
424 |
|
|
|
7,457 |
|
|
|
738 |
|
|
(116 |
) |
Adjusted Net Income |
$ |
10,421 |
|
|
$ |
14,690 |
|
|
$ |
11,867 |
|
|
$ |
15,112 |
|
$ |
13,594 |
|
(1 |
) |
The Accretion of Discount on Convertible Subordinated Notes and the
Tax Adjustment Related to Certain Discrete Items are not tax
effected. |
(2 |
) |
In 2020, Special Items are taxed at the federal statutory rate of
21.0%, except the Net (Gain) Loss on Divestitures and Other Costs
and the Net Impact of Impairment of Goodwill and Other Intangibles,
which are taxed at the operating tax rate for the period. In Q1
2021, Special Items are taxed at the federal statutory rate of
21.0%, except the Net (Gain) Loss on Divestitures and Other Costs,
which are taxed at the operating tax rate. In Q2, Q3 and Q4 2021,
all Special Items are taxed at the operating tax rate and include
adjustments to reflect prior quarter Special Items at the operating
tax rate on year-to-date basis. |
Reconciliation of Net Income (Loss) to Consolidated EBITDA,
Adjusted Consolidated EBITDA (in thousands) and Adjusted
Consolidated EBITDA Margin:
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Net Income (Loss) |
$ |
8,365 |
|
|
$ |
12,933 |
|
|
$ |
(6,167 |
) |
|
$ |
13,046 |
|
|
$ |
13,347 |
|
Total Expense (Benefit) for Income Taxes |
|
4,394 |
|
|
|
5,641 |
|
|
|
(4,192 |
) |
|
|
5,122 |
|
|
|
4,574 |
|
Income (Loss) Before Income Taxes |
$ |
12,759 |
|
|
$ |
18,574 |
|
|
$ |
(10,359 |
) |
|
$ |
18,168 |
|
|
$ |
17,921 |
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
7,728 |
|
|
|
7,584 |
|
|
|
7,478 |
|
|
|
5,076 |
|
|
|
5,307 |
|
Accretion of Discount on Convertible Subordinated Notes |
|
16 |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-Cash Stock Compensation |
|
897 |
|
|
|
1,308 |
|
|
|
1,230 |
|
|
|
1,294 |
|
|
|
1,681 |
|
Depreciation & Amortization |
|
5,109 |
|
|
|
4,942 |
|
|
|
5,594 |
|
|
|
4,950 |
|
|
|
5,034 |
|
Loss on Extinguishment of Debt |
|
— |
|
|
|
— |
|
|
|
23,807 |
|
|
|
— |
|
|
|
— |
|
Net (Gain) Loss on Divestitures |
|
1,832 |
|
|
|
(308 |
) |
|
|
205 |
|
|
|
282 |
|
|
|
(1,035 |
) |
Impairment of Goodwill and Other Intangibles |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
|
— |
|
Loss on Disposal of Fixed Assets |
|
— |
|
|
|
— |
|
|
|
622 |
|
|
|
76 |
|
|
|
324 |
|
Other, Net |
|
(186 |
) |
|
|
68 |
|
|
|
(2 |
) |
|
|
21 |
|
|
|
(3 |
) |
Consolidated EBITDA |
$ |
28,155 |
|
|
$ |
32,188 |
|
|
$ |
28,575 |
|
|
$ |
30,367 |
|
|
$ |
29,229 |
|
Adjusted For: |
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
|
(170 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Severance and Separation Costs |
|
— |
|
|
|
1,575 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation Reserve |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,050 |
|
Disaster Recovery and Pandemic Costs |
|
315 |
|
|
|
894 |
|
|
|
145 |
|
|
|
1,002 |
|
|
|
116 |
|
Other Special Items |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,020 |
|
|
|
— |
|
Adjusted Consolidated EBITDA |
$ |
28,300 |
|
|
$ |
34,657 |
|
|
$ |
28,720 |
|
|
$ |
32,389 |
|
|
$ |
30,395 |
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
90,088 |
|
|
$ |
96,637 |
|
|
$ |
88,277 |
|
|
$ |
95,041 |
|
|
$ |
95,931 |
|
Adjusted Consolidated EBITDA Margin |
|
31.4 |
% |
|
|
35.9 |
% |
|
|
32.5 |
% |
|
|
34.1 |
% |
|
|
31.7 |
% |
Net Income (Loss) Margin |
|
9.3 |
% |
|
|
13.4 |
% |
|
(7.0)% |
|
|
13.7 |
% |
|
|
13.9 |
% |
Components of Total Revenue (in
thousands):
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Same Store Funeral Revenue |
$ |
52,642 |
|
$ |
56,829 |
|
$ |
47,397 |
|
$ |
55,502 |
|
$ |
55,311 |
Acquisition Funeral Revenue |
|
9,348 |
|
|
10,139 |
|
|
8,557 |
|
|
9,354 |
|
|
9,981 |
Same Store Cemetery Revenue |
|
14,815 |
|
|
14,635 |
|
|
16,906 |
|
|
16,342 |
|
|
16,288 |
Acquisition Cemetery Revenue |
|
5,509 |
|
|
6,980 |
|
|
8,175 |
|
|
6,362 |
|
|
6,312 |
Funeral Financial Revenue |
|
2,406 |
|
|
2,538 |
|
|
2,111 |
|
|
2,251 |
|
|
2,506 |
Cemetery Financial Revenue |
|
2,859 |
|
|
3,168 |
|
|
3,294 |
|
|
3,388 |
|
|
3,661 |
Ancillary Revenue |
|
1,197 |
|
|
1,207 |
|
|
1,088 |
|
|
1,096 |
|
|
1,046 |
Divested/Planned Divested Funeral Revenue |
|
1,248 |
|
|
1,061 |
|
|
679 |
|
|
694 |
|
|
740 |
Divested/Planned Divested Cemetery Revenue |
|
64 |
|
|
80 |
|
|
70 |
|
|
52 |
|
|
86 |
Total Revenue |
$ |
90,088 |
|
$ |
96,637 |
|
$ |
88,277 |
|
$ |
95,041 |
|
$ |
95,931 |
Reconciliation of Funeral and
Cemetery Operating Income to Funeral and Cemetery Field EBITDA (in
thousands) and Funeral and Cemetery Operating Income
Margin:
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Funeral Operating Income (GAAP) |
$ |
19,467 |
|
|
$ |
25,876 |
|
|
$ |
16,604 |
|
|
$ |
22,924 |
|
|
$ |
23,187 |
|
Depreciation & Amortization |
|
2,862 |
|
|
|
2,769 |
|
|
|
2,766 |
|
|
|
2,761 |
|
|
|
2,766 |
|
Regional & Unallocated Costs |
|
5,375 |
|
|
|
4,569 |
|
|
|
4,023 |
|
|
|
4,907 |
|
|
|
5,419 |
|
Net (Gain) Loss on Divestitures, Disposals and Impairment
Charges |
|
1,832 |
|
|
|
(308 |
) |
|
|
791 |
|
|
|
763 |
|
|
|
(810 |
) |
Less: |
|
|
|
|
|
|
|
|
|
Funeral Financial Field EBITDA |
|
(2,174 |
) |
|
|
(2,261 |
) |
|
|
(1,888 |
) |
|
|
(1,960 |
) |
|
|
(2,245 |
) |
Ancillary EBITDA |
|
(278 |
) |
|
|
(242 |
) |
|
|
(274 |
) |
|
|
(274 |
) |
|
|
(216 |
) |
Divested/Planned Divested Funeral EBITDA |
|
(228 |
) |
|
|
(107 |
) |
|
|
(95 |
) |
|
|
(186 |
) |
|
|
(217 |
) |
Funeral Field EBITDA |
$ |
26,856 |
|
|
$ |
30,296 |
|
|
$ |
21,927 |
|
|
$ |
28,935 |
|
|
$ |
27,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Revenue |
$ |
66,841 |
|
|
$ |
71,774 |
|
|
$ |
59,832 |
|
|
$ |
68,897 |
|
|
$ |
69,584 |
|
Funeral Operating Income Margin |
|
29.1% |
|
|
|
36.1% |
|
|
|
27.8% |
|
|
|
33.3% |
|
|
|
33.3% |
|
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Cemetery Operating Income (GAAP) |
$ |
8,419 |
|
|
$ |
9,493 |
|
|
$ |
11,498 |
|
|
$ |
9,471 |
|
|
$ |
9,891 |
|
Depreciation & Amortization |
|
1,885 |
|
|
|
1,884 |
|
|
|
2,551 |
|
|
|
1,914 |
|
|
|
1,868 |
|
Regional & Unallocated Costs |
|
1,478 |
|
|
|
1,504 |
|
|
|
1,747 |
|
|
|
1,905 |
|
|
|
1,772 |
|
Net Loss on Divestitures, Disposals and Impairment Charges |
|
— |
|
|
|
— |
|
|
|
34 |
|
|
|
6 |
|
|
|
96 |
|
Less: |
|
|
|
|
|
|
|
|
|
Cemetery Financial Field EBITDA |
|
(2,752 |
) |
|
|
(3,044 |
) |
|
|
(3,170 |
) |
|
|
(3,265 |
) |
|
|
(3,532 |
) |
Divested/Planned Divested Cemetery EBITDA |
|
— |
|
|
|
(31 |
) |
|
|
(16 |
) |
|
|
(19 |
) |
|
|
(16 |
) |
Cemetery Field EBITDA |
$ |
9,030 |
|
|
$ |
9,806 |
|
|
$ |
12,644 |
|
|
$ |
10,012 |
|
|
$ |
10,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Revenue |
$ |
23,247 |
|
|
$ |
24,863 |
|
|
$ |
28,445 |
|
|
$ |
26,144 |
|
|
$ |
26,347 |
|
Cemetery Operating Income Margin |
|
36.2% |
|
|
|
38.2% |
|
|
|
40.4% |
|
|
|
36.2% |
|
|
|
37.5% |
|
Components of Total Field EBITDA (in
thousands):
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Funeral Field EBITDA |
$ |
26,856 |
|
$ |
30,296 |
|
$ |
21,927 |
|
$ |
28,935 |
|
$ |
27,884 |
Cemetery Field EBITDA |
|
9,030 |
|
|
9,806 |
|
|
12,644 |
|
|
10,012 |
|
|
10,079 |
Funeral Financial Field EBITDA |
|
2,174 |
|
|
2,261 |
|
|
1,888 |
|
|
1,960 |
|
|
2,245 |
Cemetery Financial Field EBITDA |
|
2,752 |
|
|
3,044 |
|
|
3,170 |
|
|
3,265 |
|
|
3,532 |
Ancillary EBITDA |
|
278 |
|
|
242 |
|
|
274 |
|
|
274 |
|
|
216 |
Divested/Planned Divested Funeral EBITDA |
|
228 |
|
|
107 |
|
|
95 |
|
|
186 |
|
|
217 |
Divested/Planned Divested Cemetery EBITDA |
|
— |
|
|
31 |
|
|
16 |
|
|
19 |
|
|
16 |
Total Field EBITDA |
$ |
41,318 |
|
$ |
45,787 |
|
$ |
40,014 |
|
$ |
44,651 |
|
$ |
44,189 |
Reconciliation of GAAP Basic
Earnings (Loss) Per Share to Adjusted Basic Earnings Per
Share:
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
GAAP Basic Earnings (Loss) Per Share |
$ |
0.47 |
|
$ |
0.72 |
|
$ |
(0.34 |
) |
|
$ |
0.74 |
|
$ |
0.82 |
Special Items |
|
0.11 |
|
|
0.10 |
|
|
1.00 |
|
|
|
0.12 |
|
|
0.01 |
Adjusted Basic Earnings Per Share |
$ |
0.58 |
|
$ |
0.82 |
|
$ |
0.66 |
|
|
$ |
0.86 |
|
$ |
0.83 |
Reconciliation of GAAP Diluted
Earnings (Loss) Per Share to Adjusted Diluted Earnings Per
Share:
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
GAAP Diluted Earnings (Loss) Per Share |
$ |
0.46 |
|
$ |
0.71 |
|
$ |
(0.33 |
) |
|
$ |
0.71 |
|
$ |
0.77 |
Special Items |
|
0.11 |
|
|
0.10 |
|
|
0.97 |
|
|
|
0.11 |
|
|
0.01 |
Adjusted Diluted Earnings Per Share |
$ |
0.57 |
|
$ |
0.81 |
|
$ |
0.64 |
|
|
$ |
0.82 |
|
$ |
0.78 |
Reconciliation of Net Cash Provided
by Operating Activities to Adjusted Free Cash Flow (in thousands)
and Adjusted Free Cash Flow Margin:
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
|
3RD QTR
2021 |
|
4TH QTR
2021 |
Net Cash Provided by Operating Activities |
$ |
15,093 |
|
|
$ |
26,811 |
|
|
$ |
14,630 |
|
|
$ |
28,258 |
|
|
$ |
14,547 |
|
Cash Used for Maintenance Capital Expenditures |
|
(3,368 |
) |
|
|
(2,140 |
) |
|
|
(2,462 |
) |
|
|
(4,358 |
) |
|
|
(4,355 |
) |
Free Cash Flow |
$ |
11,725 |
|
|
$ |
24,671 |
|
|
$ |
12,168 |
|
|
$ |
23,900 |
|
|
$ |
10,192 |
|
|
|
|
|
|
|
|
|
|
|
Plus: Incremental Special Items: |
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
|
(170 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Severance and Separation Costs |
|
— |
|
|
|
1,575 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation Reserve |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Disaster Recovery and Pandemic Costs |
|
315 |
|
|
|
894 |
|
|
|
145 |
|
|
|
1,002 |
|
|
|
116 |
|
Other Special Items |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,020 |
|
|
|
— |
|
Adjusted Free Cash Flow |
$ |
11,870 |
|
|
$ |
27,140 |
|
|
$ |
12,313 |
|
|
$ |
25,922 |
|
|
$ |
10,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
90,088 |
|
|
$ |
96,637 |
|
|
$ |
88,277 |
|
|
$ |
95,041 |
|
|
$ |
95,931 |
|
Adjusted Free Cash Flow Margin |
|
13.2 |
% |
|
|
28.1 |
% |
|
|
13.9 |
% |
|
|
27.3 |
% |
|
|
10.7 |
% |
Net Cash Provided by Operating Activities as a Percentage of Total
Revenue |
|
16.8 |
% |
|
|
27.7 |
% |
|
|
16.6 |
% |
|
|
29.7 |
% |
|
|
15.2 |
% |
Components of Total Revenue (in
thousands):
|
2017A |
|
2018A |
|
2019A |
|
2020A |
|
2021A |
Same Store Funeral Revenue |
$ |
181,066 |
|
$ |
180,069 |
|
$ |
179,900 |
|
$ |
191,757 |
|
$ |
215,039 |
Acquisition Funeral Revenue |
|
503 |
|
|
10,586 |
|
|
16,960 |
|
|
35,461 |
|
|
38,031 |
Same Store Cemetery Revenue |
|
43,014 |
|
|
44,918 |
|
|
49,258 |
|
|
51,767 |
|
|
64,171 |
Acquisition Cemetery Revenue |
|
— |
|
|
— |
|
|
295 |
|
|
17,584 |
|
|
27,829 |
Funeral Financial Revenue |
|
8,174 |
|
|
8,461 |
|
|
8,510 |
|
|
9,177 |
|
|
9,406 |
Cemetery Financial Revenue |
|
7,763 |
|
|
7,357 |
|
|
7,440 |
|
|
10,713 |
|
|
13,511 |
Ancillary Revenue |
|
— |
|
|
— |
|
|
748 |
|
|
4,661 |
|
|
4,437 |
Divested/Planned Divested Funeral Revenue |
|
11,143 |
|
|
11,609 |
|
|
10,750 |
|
|
8,082 |
|
|
3,174 |
Divested/Planned Divested Cemetery Revenue |
|
6,476 |
|
|
4,992 |
|
|
246 |
|
|
246 |
|
|
288 |
Total Revenue |
$ |
258,139 |
|
$ |
267,992 |
|
$ |
274,107 |
|
$ |
329,448 |
|
$ |
375,886 |
Reconciliation of Funeral Operating
Income to Funeral Field EBITDA (in thousands) and Funeral Operating
Income Margin:
|
2017A |
|
2018A |
|
2019A |
|
2020A |
|
2021A |
Funeral Operating Income (GAAP) |
$ |
61,562 |
|
|
$ |
60,035 |
|
|
$ |
58,756 |
|
|
$ |
57,622 |
|
|
$ |
88,591 |
|
Depreciation & Amortization |
|
9,785 |
|
|
|
10,726 |
|
|
|
11,128 |
|
|
|
11,586 |
|
|
|
11,062 |
|
Regional & Unallocated Costs |
|
10,827 |
|
|
|
10,547 |
|
|
|
11,007 |
|
|
|
14,348 |
|
|
|
18,918 |
|
Net (Gain) Loss on Divestitures, Disposals and Impairment
Charges |
|
(193 |
) |
|
|
846 |
|
|
|
4,846 |
|
|
|
21,442 |
|
|
|
436 |
|
Less: |
|
|
|
|
|
|
|
|
|
Funeral Financial Field EBITDA |
|
(7,247 |
) |
|
|
(7,427 |
) |
|
|
(7,491 |
) |
|
|
(8,267 |
) |
|
|
(8,354 |
) |
Ancillary EBITDA |
|
— |
|
|
|
— |
|
|
|
(298 |
) |
|
|
(1,186 |
) |
|
|
(1,006 |
) |
Divested/Planned Divested Funeral EBITDA |
|
(3,318 |
) |
|
|
(2,733 |
) |
|
|
(2,257 |
) |
|
|
(2,067 |
) |
|
|
(605 |
) |
Funeral Field EBITDA |
$ |
71,416
|
|
|
$ |
71,994
|
|
|
$ |
75,691
|
|
|
$ |
93,478
|
|
|
$ |
109,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Revenue |
$ |
200,886 |
|
|
$ |
210,725 |
|
|
$ |
216,868 |
|
|
$ |
249,138 |
|
|
$ |
270,087 |
|
Funeral Operating Income Margin |
|
30.6% |
|
|
|
28.5% |
|
|
|
27.1% |
|
|
|
23.1% |
|
|
|
32.8% |
|
Reconciliation of Cemetery Operating
Income to Cemetery Field EBITDA (in thousands) and Cemetery
Operating Income Margin:
|
2017A |
|
2018A |
|
2019A |
|
2020A |
|
2021A |
Cemetery Operating Income (GAAP) |
$ |
15,430 |
|
|
$ |
14,717 |
|
|
$ |
15,983 |
|
|
$ |
26,859 |
|
|
$ |
40,353 |
|
Depreciation & Amortization |
|
4,589 |
|
|
|
4,891 |
|
|
|
5,227 |
|
|
|
6,376 |
|
|
|
8,217 |
|
Regional & Unallocated Costs |
|
2,512 |
|
|
|
2,202 |
|
|
|
2,820 |
|
|
|
3,709 |
|
|
|
6,928 |
|
Net Loss on Divestitures, Disposals and Impairment Charges |
|
— |
|
|
|
349 |
|
|
|
— |
|
|
|
— |
|
|
|
136 |
|
Less: |
|
|
|
|
|
|
|
|
|
Cemetery Financial Field EBITDA |
|
(7,375 |
) |
|
|
(6,840 |
) |
|
|
(6,853 |
) |
|
|
(10,292 |
) |
|
|
(13,011 |
) |
Divested/Planned Divested Cemetery EBITDA |
|
(1,784 |
) |
|
|
(1,479 |
) |
|
|
(76 |
) |
|
|
(23 |
) |
|
|
(82 |
) |
Cemetery Field EBITDA |
$ |
13,372 |
|
|
$ |
13,840 |
|
|
$ |
17,101 |
|
|
$ |
26,629 |
|
|
$ |
42,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Revenue |
$ |
57,253 |
|
|
$ |
57,267 |
|
|
$ |
57,239 |
|
|
$ |
80,310 |
|
|
$ |
105,799 |
|
Cemetery Operating Income Margin |
|
27.0% |
|
|
|
25.7% |
|
|
|
27.9% |
|
|
|
33.4% |
|
|
|
38.1% |
|
Components of Total Field EBITDA (in
thousands):
|
2017A |
|
2018A |
|
2019A |
|
2020A |
|
2021A |
Funeral Field EBITDA |
$ |
71,416 |
|
$ |
71,994 |
|
$ |
75,691 |
|
$ |
93,478 |
|
$ |
109,042 |
Cemetery Field EBITDA |
|
13,372 |
|
|
13,840 |
|
|
17,101 |
|
|
26,629 |
|
|
42,541 |
Funeral Financial Field EBITDA |
|
7,247 |
|
|
7,427 |
|
|
7,491 |
|
|
8,267 |
|
|
8,354 |
Cemetery Financial Field EBITDA |
|
7,375 |
|
|
6,840 |
|
|
6,853 |
|
|
10,292 |
|
|
13,011 |
Ancillary EBITDA |
|
— |
|
|
— |
|
|
298 |
|
|
1,186 |
|
|
1,006 |
Divested/Planned Divested Funeral EBITDA |
|
3,318 |
|
|
2,733 |
|
|
2,257 |
|
|
2,067 |
|
|
605 |
Divested/Planned Cemetery Divested EBITDA |
|
1,784 |
|
|
1,479 |
|
|
76 |
|
|
23 |
|
|
82 |
Total Field EBITDA |
$ |
104,512 |
|
$ |
104,313 |
|
$ |
109,767 |
|
$ |
141,942 |
|
$ |
174,641 |
Reconciliation of Actual Results
(years ended December 31, 2019, 2020 and 2021), Estimated year
ended December 31, 2022, Estimated year ended December 31, 2023 and
Estimated year ended December 31, 2024.
Earlier in this press release, we present the
Three Year Roughly Right Ranges Performance Scenario which reflects
management’s opinion on the performance of the portfolio of
existing businesses, including performance of existing trusts, and
excludes size and timing of acquisitions. This Performance Scenario
is not intended to be management estimates or forecasts of our
future performance, as we believe precise estimates will be
precisely wrong all the time. The following reconciliations are
presented within the ranges in this Performance Scenario.
Reconciliation of Net Income to
Consolidated EBITDA, Total Field EBITDA (in thousands) and Total
Field EBITDA Margin:
|
2019A |
|
2020A |
|
2021A |
|
2022E |
|
2023E |
|
2024E |
Net Income |
$ |
14,533 |
|
|
$ |
16,090 |
|
|
$ |
33,159 |
|
|
$ |
57,500 |
|
|
$ |
65,000 |
|
|
$ |
74,000 |
|
Total Tax Expense |
|
7,883 |
|
|
|
8,552 |
|
|
|
11,145 |
|
|
|
21,500 |
|
|
|
24,000 |
|
|
|
29,000 |
|
Pretax Income |
$ |
22,416 |
|
|
$ |
24,642 |
|
|
$ |
44,304 |
|
|
$ |
79,000 |
|
|
$ |
89,000 |
|
|
$ |
103,000 |
|
Net Interest Expense, including Accretion of Discount on
Convertible Subordinated Notes |
|
25,763 |
|
|
|
32,731 |
|
|
|
25,465 |
|
|
|
22,000 |
|
|
|
24,500 |
|
|
|
24,600 |
|
Depreciation & Amortization, Non-cash Stock Compensation and
Other, Net |
|
19,188 |
|
|
|
22,607 |
|
|
|
26,117 |
|
|
|
28,000 |
|
|
|
29,000 |
|
|
|
31,000 |
|
Net Loss on Divestitures, Disposals and Impairment Charges |
|
4,846 |
|
|
|
21,442 |
|
|
|
666 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net Loss on Extinguishment of Debt |
|
— |
|
|
|
6 |
|
|
|
23,807 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consolidated EBITDA |
$ |
72,213 |
|
|
$ |
101,428 |
|
|
$ |
120,359 |
|
|
$ |
129,000 |
|
|
$ |
142,500 |
|
|
$ |
158,600 |
|
Overhead Expenses |
|
37,554 |
|
|
|
40,514 |
|
|
|
54,282 |
|
|
|
52,000 |
|
|
|
54,000 |
|
|
|
58,000 |
|
Total Field EBITDA |
$ |
109,767 |
|
|
$ |
141,942 |
|
|
$ |
174,641 |
|
|
$ |
181,000 |
|
|
$ |
196,500 |
|
|
$ |
216,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
375,886 |
|
|
$ |
387,000 |
|
|
$ |
414,000 |
|
|
$ |
455,000 |
|
Total Field EBITDA Margin |
|
40.0% |
|
|
|
43.1% |
|
|
|
46.5% |
|
|
|
46.8% |
|
|
|
47.5% |
|
|
|
47.6% |
|
Reconciliation of Consolidated
EBITDA to Adjusted Consolidated EBITDA (in thousands) and Adjusted
Consolidated EBITDA Margin:
|
2019A |
|
2020A |
|
2021A |
|
2022E |
|
2023E |
|
2024E |
Consolidated EBITDA |
$ |
72,213 |
|
|
$ |
101,428 |
|
|
$ |
120,359 |
|
|
$ |
129,000 |
|
|
$ |
142,500 |
|
|
$ |
158,600 |
|
Special Items |
|
4,374 |
|
|
|
2,822 |
|
|
|
5,802 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted Consolidated EBITDA |
$ |
76,587 |
|
|
$ |
104,250 |
|
|
$ |
126,161 |
|
|
$ |
129,000 |
|
|
$ |
142,500 |
|
|
$ |
158,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
375,886 |
|
|
$ |
387,000 |
|
|
$ |
414,000 |
|
|
$ |
455,000 |
|
Adjusted Consolidated EBITDA Margin |
|
27.9% |
|
|
|
31.6% |
|
|
|
33.6% |
|
|
|
33.3% |
|
|
|
34.4% |
|
|
|
34.9% |
|
Reconciliation of Net Income to
Adjusted Net Income (in thousands):
|
2019A |
|
2020A |
|
2021A |
|
2022E |
|
2023E |
|
2024E |
Net Income |
$ |
14,533 |
|
$ |
16,090 |
|
$ |
33,159 |
|
$ |
57,500 |
|
$ |
65,000 |
|
$ |
74,000 |
Special Items, Net of Tax |
|
7,999 |
|
|
17,593 |
|
|
22,104 |
|
|
— |
|
|
— |
|
|
— |
Adjusted Net Income |
$ |
22,532 |
|
$ |
33,683 |
|
$ |
55,263 |
|
$ |
57,500 |
|
$ |
65,000 |
|
$ |
74,000 |
Reconciliation of GAAP Diluted
Earnings Per Share to Adjusted Diluted Earnings Per
Share:
|
2019A |
|
2020A |
|
2021A |
|
2022E |
|
2023E |
|
2024E |
GAAP Diluted Earnings Per Share |
$ |
0.80 |
|
$ |
0.89 |
|
$ |
1.81 |
|
$ |
3.55 |
|
$ |
3.94 |
|
$ |
4.43 |
Special Items |
|
0.45 |
|
|
0.97 |
|
|
1.21 |
|
|
— |
|
|
— |
|
|
— |
Adjusted Diluted Earnings Per Share |
$ |
1.25 |
|
$ |
1.86 |
|
$ |
3.02 |
|
$ |
3.55 |
|
$ |
3.94 |
|
$ |
4.43 |
Reconciliation of Net Cash Provided
by Operating Activities to Adjusted Free Cash Flow (in thousands)
and Adjusted Free Cash Flow Margin:
|
2019A |
|
2020A |
|
2021A |
|
2022E |
|
2023E |
|
2024E |
Net Cash Provided by Operating Activities |
$ |
43,216 |
|
|
$ |
82,915 |
|
|
$ |
84,246 |
|
|
$ |
96,000 |
|
|
$ |
100,500 |
|
|
$ |
110,000 |
|
Cash Used for Maintenance Capital Expenditures |
|
(8,795 |
) |
|
|
(8,762 |
) |
|
|
(13,315 |
) |
|
|
(12,000 |
) |
|
|
(12,500 |
) |
|
|
(13,000 |
) |
Special Items |
|
4,374 |
|
|
|
(4,190 |
) |
|
|
4,752 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted Free Cash Flow |
$ |
38,795 |
|
|
$ |
69,963 |
|
|
$ |
75,683 |
|
|
$ |
84,000 |
|
|
$ |
88,000 |
|
|
$ |
97,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
375,886 |
|
|
$ |
387,000 |
|
|
$ |
414,000 |
|
|
$ |
455,000 |
|
Adjusted Free Cash Flow Margin |
|
14.2% |
|
|
|
21.2% |
|
|
|
20.1% |
|
|
|
21.7% |
|
|
|
21.3% |
|
|
|
21.3% |
|
Net Cash Provided by Operating Activities as a Percentage of Total
Revenue |
|
15.8% |
|
|
|
25.2% |
|
|
|
22.4% |
|
|
|
24.8% |
|
|
|
24.3% |
|
|
|
24.2% |
|
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. All statements, other
than statements of historical information, should be deemed to be
forward-looking statements. These statements include, but are not
limited to, statements regarding any projections of earnings,
revenue, asset sales, cash flow, capital allocation, debt levels,
equity performance, market share growth, overhead, including field
and corporate incentive compensation, or other financial items; any
statements of the plans, strategies and objectives of management
for future operations, or financing activities, including, but not
limited, to capital allocation and organizational performance; any
statements of the plans, timing and objectives of management for
acquisition and divestiture activities; any statements regarding
future economic conditions or performance; any statements of
belief; and any statements of assumptions underlying any of the
foregoing and are based on our current expectations and beliefs
concerning future developments and their potential effect on us.
The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”,
“seek”, “project”, “forecast”, “foresee”, “should”, “would”,
“could”, “plan”, “anticipate” and other similar words or
expressions are intended to identify forward-looking statements,
which are generally not historical in nature. While management
believes that these forward-looking statements are reasonable as
and when made, there can be no assurance that future developments
affecting us will be those that we anticipate. All comments
concerning our expectations for future revenue and operating
results are based on our forecasts for our existing operations and
do not include the potential impact of any future acquisitions. Our
forward-looking statements involve significant risks and
uncertainties (some of which are beyond our control) and
assumptions that could cause actual results to differ materially
from our historical experience and our present expectations or
projections. Important factors that could cause actual results to
differ materially from those in the forward-looking statements
include, but are not limited to, those summarized below:
- our ability to find and retain skilled personnel;
- the effects of our incentive and compensation plans and
programs, including such effects on our Standards Operating Model
and the Company’s operational and financial performance;
- our ability to execute our growth strategy;
- the execution of our Standards Operating, 4E Leadership and
Standard Acquisition Models;
- the effects of competition;
- changes in the number of deaths in our markets;
- changes in consumer preferences and our ability to adapt to or
meet those changes;
- our ability to generate preneed sales, including implementing
our cemetery portfolio sales strategy and optimization plan;
- 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;
- our ability to meet the timing, objectives and expectations
related to our capital allocation framework, including our
forecasted rates of return, planned uses of free cash flow and
future capital allocation, including share repurchases, potential
strategic acquisitions, internal growth projects, dividend
increases, or debt repayment plans;
- our ability to meet the projected financial and equity
performance metrics to our updated three-year roughly right range
and performance scenario, and intrinsic value per share range, if
at all;
- the timely and full payment of death benefits related to
preneed funeral contracts funded through life insurance
contracts;
- the financial condition of third-party insurance companies that
fund our preneed funeral contracts;
- increased or unanticipated costs, such as insurance or
taxes;
- our level of indebtedness and the cash required to service our
indebtedness;
- changes in federal income tax laws and regulations and the
implementation and interpretation of these laws and regulations by
the Internal Revenue Service;
- effects of the application of other applicable laws and
regulations, including changes in such regulations or the
interpretation thereof;
- the potential impact of epidemics and pandemics, including the
COVID-19 coronavirus, including new variants of COVID-19, such as
the Delta and Omicron variants, on customer preferences and on our
business;
- government, social, business and other actions that have been
and will be taken in response to pandemics, including potential
responses to new variants of COVID-19, such as the Delta and
Omicron variants;
- effects and expense of litigation;
- consolidation of the funeral and cemetery industry;
- our ability to consummate the divestiture of low performing
businesses as currently expected, if at all, including expected use
of proceeds related thereto;
- our ability to identify and consummate strategic acquisitions,
if at all, and successfully integrate acquired businesses with our
existing businesses, including expected performance and financial
improvements related thereto;
- economic, financial and stock market fluctuations,
- interruptions or security lapses of our information technology,
including any cybersecurity or ransomware incidents,
- our failure to maintain effective control over financial
reporting; and
- other factors and uncertainties inherent in the funeral and
cemetery 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, 2020, our
Quarterly Reports on Form 10-Q, and other public filings and press
releases, available at www.carriageservices.com.
Investors 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.
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