Carriage Services, Inc. (NYSE: CSV) Mel Payne, Chairman and
CEO, stated, “After our highly successful refinancing of $400
million 6.625% senior notes into a new issue of eight year $400
million 4.25% senior notes on May 13, 2021, we have continued to
execute our funeral and cemetery portfolio operations and sales
performance at an extraordinarily high level even as we have moved
into a more normalized post COVID-19 Pandemic Crisis death rate
environment during the second quarter. We are now positioned to
optimize long term shareholder value creation through continued
outstanding execution of our operating and strategic acquisition
models and savvy, disciplined and flexible capital allocation of
our recurring and increasing Free Cash Flow into high return
investments over the next eight years, while simultaneously
maintaining a moderate leverage profile of 4 times Debt to EBITDA
Ratio or less.
The balance of this 2021 second quarter earnings
release will be equivalent to the fourth extension of my 2020
Shareholder Letter (first was first quarter release on April 21,
second was my refinancing and intrinsic value commentary on May 13,
2021, third was announcement of three Executive Team Promotions on
June 2, 2021), i.e. a journey through “highly transparent” high
performance data sequentially shown on the following pages as
follows:
- Second Quarter and
First Half Comparative Performance Highlights;
- Five Quarter Trend Report Ending
June 30, 2021;
- Same Store Funeral Revenue Monthly
Trends and Drivers Six Months Ending June 2021;
- Second Quarter and First Half 2021
versus 2020 Overhead / Incentive Compensation Comparison;
- Rolling Four Quarter Outlook Ending
June 30, 2022 and Updated and Increased Two Year Scenario
2021/2022;
- Updated and Increased Intrinsic
Value Per Share Range and Capital Allocation Strategy and
Priorities;
- Free Cash Flow and Leverage Update;
and
- Second Quarter and First Half Trust
Performance/Impact on Reported Financial Segment.
SECOND QUARTER 2021 COMPARATIVE
PERFORMANCE HIGHLIGHTS
- Total Revenue of $88.3 million, an
increase of $10.8 million or 13.9%;
- Same Store Funeral Contracts of
9,061, an increase of 0.1%;
- Same Store Funeral Revenue of $47.3
million, an increase of $3.0 million or 6.7%;
- Same Store Cemetery Revenue of
$16.5 million, an increase of $5.0 million or 42.8%;
- Same Store Cemetery Field EBITDA of
$7.6 million, an increase of $3.9 million or 106.7%;
- Same Store Cemetery Field EBITDA
Margin of 45.9%, an increase of 1,420 basis points;
- Acquisition Cemetery Revenue of
$8.2 million, an increase of $4.1 million or 101.6%;
- Acquisition Cemetery Field EBITDA
of $4.7 million, an increase of $3.3 million or 230.1%;
- Acquisition Cemetery Field EBITDA
Margin 57.9%, an increase of 2,250 basis points;
- Total Field EBITDA of $40.0
million, an increase of $6.8 million or 20.4%;
- Total Field EBITDA Margin of 45.3%,
an increase of 240 basis points;
- Adjusted Consolidated EBITDA of
$28.7 million, an increase of $3.3 million or 12.9%;
- Adjusted Consolidated EBITDA Margin
of 32.5%, a decrease of 30 basis points;
- Adjusted Diluted EPS of $0.64, an
increase of $0.19 or 42.2%;
- Adjusted Proforma(1) Diluted EPS of
$0.70, an increase of $0.25 or 55.6%;
- Adjusted Free Cash Flow of $12.3
million, a decrease of $5.6 million or 31.1%;
- Adjusted Free Cash Flow Margin of
13.9%, a decrease of 920 basis points;
- Adjusted Proforma(1) Free Cash Flow
of $13.4 million, a decrease of $4.5 million or 25.1%;
- Adjusted Proforma(1) Free Cash Flow
Margin of 15.2%, a decrease of 790 basis points;
- GAAP Net Loss of $6.2 million, a
decrease of $12.6 million equal to 196.4%; and
- GAAP Diluted Loss Per Share of
$0.33, a decrease of $0.69 per share equal to 191.7%.
The increases in our record consolidated
performance metrics, i.e. Adjusted Consolidated EBITDA/Margin,
Adjusted and Proforma EPS, and Adjusted and Proforma Free Cash
Flow/Margin in the second quarter and first half of 2021 compared
to 2020 would have been even higher if not for the under accruals
of primarily field incentive compensation in the first and second
quarter of 2020 amidst the portfolio performance uncertainty of the
early phase of the COVID-19 Pandemic. Contrary to last year, we are
fully accrued this year, as field incentive compensation in the
second quarter of 2021 was $1.6 million or about 6 cents per
share higher than second quarter last year and $3.8 million or
about 15 cents per share higher in the first half of 2021
versus last year, which is more fully explained in our overhead
section on Pages 7 and 8 of this release.
FIRST HALF 2021 COMPARATIVE PERFORMANCE
HIGHLIGHTS
- Total Revenue of $184.9 million, an
increase of $29.9 million or 19.3%;
- Total Same Store Funeral Contracts
of 20,089, an increase of 1,975 or 10.9%;
- Same Store Funeral Revenue of
$104.0 million, an increase of $13.0 million or 14.3%;
- Same Store Funeral Field EBITDA of
$44.5 million, an increase of $7.7 million or 20.9%;
- Same Store Funeral Field EBITDA
Margin of 42.8%, an increase of 240 basis points;
- Same Store Cemetery Revenue of
$31.1 million, an increase of $8.6 million or 38.5%;
- Same Store Cemetery Field EBITDA of
$13.3 million, an increase of $6.4 million or 94.3%;
- Same Store Cemetery Field EBITDA
Margin of 42.7%, an increase of 1,220 basis points;
- Acquisition Cemetery Revenue of
$15.2 million, an increase of $8.3 million or 121.1%;
- Acquisition Cemetery Field EBITDA
of $8.8 million, an increase of $6.6 million or 290.8%;
- Acquisition Cemetery Field EBITDA
Margin of 58.3%, an increase of 2,530 basis points;
- Total Field EBITDA of $85.8
million, an increase of $22.5 million or 35.5%;
- Total Field EBITDA Margin of 46.4%,
an increase of 550 basis points;
- Adjusted Consolidated EBITDA of
$63.4 million, an increase of $15.1 million or 31.3%;
- Adjusted Consolidated EBITDA Margin
of 34.3%, an increase of 310 basis points;
- Adjusted Diluted EPS of $1.45, an
increase of $0.66 or 83.5%;
- Adjusted Proforma(1) Diluted EPS of
$1.60, an increase of $0.81 or 102.5%;
- Adjusted Free Cash Flow of $39.5
million, an increase of $9.0 million or 29.4%;
- Adjusted Free Cash Flow Margin of
21.3%, an increase of 160 basis points;
- Adjusted Proforma(1) Free Cash Flow
of $42.3 million, an increase of $11.8 million or 38.7%;
- Adjusted Proforma(1) Free Cash Flow
Margin of 22.9%, an increase of 320 basis points;
- Debt to EBITDA Ratio of 3.95
times(2);
- GAAP Net Income of $6.8 million, an
increase of $4.6 million equal to 207.5%; and
- GAAP Diluted EPS of $0.37, an
increase of $0.25 per share equal to 208.3%.
(1) Proforma lower interest impact of recent
refinancing effective as of January 1, 2021 (pre-tax lower interest
cost of $1.6 million for the second quarter 2021 and $4.0 million
for the first half 2021).(2) Rolling 12 Months Adjusted
Consolidated EBITDA of $119.3 million and Total Debt of
$471.4 million on June 30, 2021.FIVE QUARTER
TREND REPORTWe 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. Shown on the
next page are highlights from our Five Quarter Trend Report that
clearly reflect the accelerating transformative high performance
process that occurred at Carriage in the midst of the COVID-19
Pandemic from the second quarter of 2020 through the peak of the
Pandemic impact in the first quarter of 2021.
We estimate that at least 85% of the COVID-19
performance lift from spikes in the death rate was concentrated in
our Same Store and Acquisition Funeral Portfolio, initially
concentrated in our Eastern Region in the second quarter of 2020,
then spreading to the Central Region in the third quarter before
peaking in our Western Region in the fourth quarter of 2020 and
first quarter of 2021. The balance of our COVID-19 death rate
performance lift of about 15% was concentrated in our Cemetery
Portfolio Atneed Segment.
However, after Carlos Quezada joined Carriage on
June 26, 2020, the Five Quarter Trend Report also reflects that our
Same Store and Acquisition Cemetery Preneed Property Sales, Revenue
and Field EBITDA Dollars and Margins began to trend higher and
accelerate toward a historic peak in the second quarter of
2021.
FIVE QUARTER OPERATING AND FINANCIAL TREND REPORT
HIGHLIGHTS |
(000’s except for volume, averages &
margins) |
|
2ND QTR 2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR 2021 |
Funeral Same Store Contracts |
|
|
9,056 |
|
|
|
9,420 |
|
|
|
10,172 |
|
|
|
11,028 |
|
|
|
9,061 |
|
Average Revenue Per Contract
(1) |
|
$ |
4,891 |
|
|
$ |
5,069 |
|
|
$ |
5,158 |
|
|
$ |
5,140 |
|
|
$ |
5,218 |
|
Funeral Same Store Burial
Contracts |
|
|
3,273 |
|
|
|
3,370 |
|
|
|
3,777 |
|
|
|
4,038 |
|
|
|
3,189 |
|
Funeral Same Store Burial
Rate |
|
|
36.1 |
% |
|
|
35.8 |
% |
|
|
37.1 |
% |
|
|
36.6 |
% |
|
|
35.2 |
% |
Average Revenue Per Burial
Contract |
|
$ |
8,688 |
|
|
$ |
8,984 |
|
|
$ |
9,013 |
|
|
$ |
8,987 |
|
|
$ |
9,262 |
|
Funeral Same Store Cremation
Contracts |
|
|
5,199 |
|
|
|
5,382 |
|
|
|
5,697 |
|
|
|
6,285 |
|
|
|
5,160 |
|
Funeral Same Store Cremation
Rate |
|
|
57.4 |
% |
|
|
57.1 |
% |
|
|
56.0 |
% |
|
|
57.0 |
% |
|
|
56.9 |
% |
Average
Revenue Per Cremation Contract |
|
$ |
3,075 |
|
|
$ |
3,285 |
|
|
$ |
3,251 |
|
|
$ |
3,294 |
|
|
$ |
3,416 |
|
Funeral Same Store Revenue |
|
$ |
44,297 |
|
|
$ |
47,750 |
|
|
$ |
52,472 |
|
|
$ |
56,683 |
|
|
$ |
47,284 |
|
Funeral Same Store EBITDA |
|
$ |
18,726 |
|
|
$ |
19,906 |
|
|
$ |
23,115 |
|
|
$ |
25,812 |
|
|
$ |
18,659 |
|
Funeral
Same Store EBITDA Margin |
|
|
42.3 |
% |
|
|
41.7 |
% |
|
|
44.1 |
% |
|
|
45.5 |
% |
|
|
39.5 |
% |
Funeral Acquisition Revenue |
|
$ |
9,023 |
|
|
$ |
8,204 |
|
|
$ |
9,348 |
|
|
$ |
10,139 |
|
|
$ |
8,557 |
|
Funeral Acquisition
EBITDA |
|
$ |
3,754 |
|
|
$ |
2,941 |
|
|
$ |
3,683 |
|
|
$ |
4,467 |
|
|
$ |
3,261 |
|
Funeral
Acquisition EBITDA Margin |
|
|
41.6 |
% |
|
|
35.8 |
% |
|
|
39.4 |
% |
|
|
44.1 |
% |
|
|
38.1 |
% |
Cemetery Same Store Preneed Property Contracts Sold |
|
|
912 |
|
|
|
1,061 |
|
|
|
1,026 |
|
|
|
1,154 |
|
|
|
1,218 |
|
Cemetery Same Store Preneed
Sales Revenue |
|
$ |
8,272 |
|
|
$ |
8,293 |
|
|
$ |
9,214 |
|
|
$ |
9,288 |
|
|
$ |
11,441 |
|
Cemetery Same Store
Revenue |
|
$ |
11,565 |
|
|
$ |
14,321 |
|
|
$ |
14,739 |
|
|
$ |
14,567 |
|
|
$ |
16,516 |
|
Cemetery Same Store
EBITDA |
|
$ |
3,666 |
|
|
$ |
6,167 |
|
|
$ |
6,491 |
|
|
$ |
5,705 |
|
|
$ |
7,579 |
|
Cemetery Same Store EBITDA Margin |
|
|
31.7 |
% |
|
|
43.1 |
% |
|
|
44.0 |
% |
|
|
39.2 |
% |
|
|
45.9 |
% |
Cemetery Acquisition Preneed Property Contracts Sold |
|
|
295 |
|
|
|
304 |
|
|
|
345 |
|
|
|
338 |
|
|
|
475 |
|
Cemetery Acquisition Preneed
Sales Revenue |
|
$ |
3,079 |
|
|
$ |
4,073 |
|
|
$ |
5,394 |
|
|
$ |
5,089 |
|
|
$ |
6,839 |
|
Cemetery Acquisition
Revenue |
|
$ |
4,056 |
|
|
$ |
5,220 |
|
|
$ |
5,509 |
|
|
$ |
6,980 |
|
|
$ |
8,175 |
|
Cemetery Acquisition
EBITDA |
|
$ |
1,435 |
|
|
$ |
2,335 |
|
|
$ |
2,532 |
|
|
$ |
4,102 |
|
|
$ |
4,737 |
|
Cemetery Acquisition EBITDA Margin |
|
|
35.4 |
% |
|
|
44.7 |
% |
|
|
46.0 |
% |
|
|
58.8 |
% |
|
|
57.9 |
% |
Total Financial Revenue |
|
$ |
4,674 |
|
|
$ |
5,575 |
|
|
$ |
5,206 |
|
|
$ |
5,656 |
|
|
$ |
5,340 |
|
Total Financial EBITDA |
|
$ |
4,448 |
|
|
$ |
5,226 |
|
|
$ |
4,867 |
|
|
$ |
5,254 |
|
|
$ |
4,993 |
|
Total
Financial EBITDA Margin |
|
|
95.2 |
% |
|
|
93.7 |
% |
|
|
93.5 |
% |
|
|
92.9 |
% |
|
|
93.5 |
% |
Total Revenue |
|
$ |
77,477 |
|
|
$ |
84,393 |
|
|
$ |
90,088 |
|
|
$ |
96,637 |
|
|
$ |
88,277 |
|
Total Field EBITDA |
|
$ |
33,221 |
|
|
$ |
37,309 |
|
|
$ |
41,318 |
|
|
$ |
45,787 |
|
|
$ |
40,014 |
|
Total Field EBITDA Margin |
|
|
42.9 |
% |
|
|
44.2 |
% |
|
|
45.9 |
% |
|
|
47.4 |
% |
|
|
45.3 |
% |
Adjusted Consolidated
EBITDA |
|
$ |
25,444 |
|
|
$ |
27,666 |
|
|
$ |
28,300 |
|
|
$ |
34,657 |
|
|
$ |
28,720 |
|
Adjusted Consolidated EBITDA
Margin |
|
|
32.8 |
% |
|
|
32.8 |
% |
|
|
31.4 |
% |
|
|
35.9 |
% |
|
|
32.5 |
% |
Adjusted Diluted EPS |
|
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
0.57 |
|
|
$ |
0.81 |
|
|
$ |
0.64 |
|
Adjusted Free Cash Flow |
|
$ |
17,878 |
|
|
$ |
27,608 |
|
|
$ |
11,870 |
|
|
$ |
27,140 |
|
|
$ |
12,313 |
|
Adjusted Free Cash Flow Margin |
|
|
23.1 |
% |
|
|
32.7 |
% |
|
|
13.2 |
% |
|
|
28.1 |
% |
|
|
13.9 |
% |
(1) Excludes Preneed Funeral interest earnings reflected in
Total Financial Revenue.
The record performance in the second quarter of
2021 reflects a normalization of funeral volumes at broadly higher
funeral contract revenue averages, as second quarter Same Store
Funeral Contracts were flat year over year while Same Store Funeral
Revenue increased $3.0 million or 6.7% because our Average Revenue
Per Contract (ARPC) of $5,218 was also 6.7% higher than the ARPC of
$4,891 last year. The Same Store Funeral Burial ARPC for the second
quarter was up 6.6% to $9,262, which was higher than Burial ARPC
$9,209 for full year 2019, while the burial rate was down 90 basis
points to 35.2% compared to the second quarter 2020. Same Store
Funeral Cremation ARPC was up 11.1% for the quarter to $3,416,
which is comparable to the Cremation ARPC of $3,427 for full year
2019. Our Same Store Funeral Field EBITDA was flat in the second
quarter at $18.7 million, while our Same Store Funeral Field EBITDA
Margin declined 280 basis points, with the margin decline all
occurring in our Eastern Region because of 9.4% lower volumes,
partially offset by higher revenue averages in the Eastern Region
and completely offset by higher volumes and revenue averages in
both the Central and Western Regions.
This geographical funeral revenue and margin
divergence related to the COVID-19 death rate performance lift
tapering off in the second quarter this year is the exact opposite
of how COVID-19 impacted our funeral portfolio last year with huge
outbreaks first in the Northeast and New Orleans. Beginning in the
third quarter last year, the COVID-19 impact was concentrated
in our Central Region and continued spreading westward into the
fourth quarter, peaking in California in December 2020 and January
and February of this year prior to normalizing across all three
geographic regions during the second quarter.
But the major driver of our record second
quarter 2021 performance was significantly higher preneed property
sales across our Same Store and Acquisition Portfolio of cemeteries
driven by the high performance sales organization that Carlos
Quezada built over the past year, which I comprehensively covered
on pages 27 and 28 of my 2020 Shareholder Letter. It is difficult
for those of us who have been with Carriage for at least five or
even ten or more years to imagine just how quickly Carlos and his
team of A Players have turned our Same Store and Acquisition
Cemetery Portfolio into a broad and sustainable driver of
significantly higher Revenue, Field EBITDA and Field EBITDA
Margins. So I will share just a few high performance data points to
let you hopefully become as impressed, inspired and excited as all
of us Carriage long timers have increasingly become over the past
year:
Same Store Cemetery
Portfolio
-
Same Store Cemetery Revenue for one month had exceeded
$5 million only once in our history in April 2019, then
again after Carlos joined Carriage in June 2020, once again in
August 2020 followed very closely at $4.9 million in each of
the last three months of 2020;
-
Same Store Cemetery Field EBITDA Margin exceeded 40% only one month
in our history, also in April 2019 prior to Carlos joining in
June 2020, then again in five of the last six months of 2020,
averaging 44.5%;
-
Same Store Cemetery Revenue exceeded $5 million in each of last
four months ending June 2021, averaging $5.6 million;
and
-
Same Store Cemetery Field EBITDA Margin exceeded 40% for each of
last four months ending June 2021, averaging 45.4% and almost
achieved the 50% threshold in June 2021 at a record high of
49.9%.
Acquisition Cemetery
Portfolio
-
Acquisition Cemetery Revenue (all three acquired at the end of 2019
/ beginning of 2020 – integration was delayed due to the COVID-19
Pandemic – see pages 29-33 of my Shareholder Letter) exceeded
$1 million for the first time in March 2020, then achieved
$1.7 million in July 2020, reaching over $2.0 million for
the first time in October 2020, but averaging $1.8 million over the
last six months of 2020 compared to $1.1 million over the first six
months;
-
Acquisition Cemetery Field EBITDA Margin achieved over 40% for the
first time in April 2020, and again in July 2020 and November 2020,
achieved over 50% for the first time in August 2020 and again in
October 2020, averaging 44.5% over the last six months of
2020;
-
Acquisition Cemetery Revenue exceeded $2 million for the first five
months of 2021, averaging $2.3 million, and for the first time
exceeded $3 million in June 2021 at a record high of $3.6
million; and
-
Acquisition Cemetery Field EBITDA Margin for the first six months
of 2021 averaged 56.8%, achieving over 60% for the first time in
January, then again in February at a record high of 69.2%, and
ending the second quarter strong in May at 57.3% and June at
65.0%.
In summary, as opposed to the COVID-19
performance lift we got in our funeral portfolio, especially during
the last quarter of 2020 and the first quarter of 2021, our
cemetery portfolio sales, revenue and margin performance was
dampened by the mandated restrictions throughout the Pandemic. We
have emerged from the severe behavioral restrictions and mandates
related to the COVID-19 Pandemic a much better company in all four
Funeral and Cemetery Sectors as well as our Financial Sector, but
the exciting part well understood within Carriage’s leadership and
Board is that the high performance momentum in our cemetery
portfolio is not only sustainable, but as Carlos and his team
always say, “It’s A Great Time To Be At Carriage
and The Best Is Yet To Come!”
SAME STORE FUNERAL MONTHLY REVENUE TRENDS/DRIVERS SIX
MONTHS ENDING JUNE 2021 |
|
(000’s except for volume, averages) |
|
2021 versus 2020 |
|
Same Store Funeral |
|
JAN |
FEB |
MAR |
|
APR |
MAY |
JUN |
|
Contracts (volume)
2021 |
|
4,195 |
|
|
3,539 |
|
|
3,294 |
|
|
3,036 |
|
|
2,903 |
|
|
3,122 |
|
|
Contracts (volume) 2020 |
|
3,136 |
|
|
2,849 |
|
|
3,073 |
|
|
3,185 |
|
|
2,942 |
|
|
2,929 |
|
|
Volume Variance |
|
1,059 |
|
|
690 |
|
|
221 |
|
|
(149 |
) |
|
(39 |
) |
|
193 |
|
|
Average Revenue
Per Contract 2021(1) |
|
$ |
5,167 |
|
|
$ |
5,031 |
|
|
$ |
5,222 |
|
|
$ |
5,166 |
|
|
$ |
5,231 |
|
|
$ |
5,258 |
|
|
Average
Revenue Per Contract 2020(1) |
|
$ |
5,263 |
|
|
$ |
5,245 |
|
|
$ |
4,962 |
|
|
$ |
4,621 |
|
|
$ |
4,942 |
|
|
$ |
5,134 |
|
|
Average Revenue Per Contract Variance
(ARPC) |
|
$ |
(96 |
) |
|
$ |
(214 |
) |
|
$ |
260 |
|
|
$ |
545 |
|
|
$ |
289 |
|
|
$ |
124 |
|
|
Operating Revenue
2021(1) |
|
$ |
21,677 |
|
|
$ |
17,806 |
|
|
$ |
17,200 |
|
|
$ |
15,683 |
|
|
$ |
15,184 |
|
|
$ |
16,416 |
|
|
Operating Revenue 2020(1) |
|
$ |
16,506 |
|
|
$ |
14,942 |
|
|
$ |
15,249 |
|
|
$ |
14,719 |
|
|
$ |
14,539 |
|
|
$ |
15,038 |
|
|
Operating Revenue Variance |
|
$ |
5,171 |
|
|
$ |
2,864 |
|
|
$ |
1,951 |
|
|
$ |
964 |
|
|
$ |
645 |
|
|
$ |
1,378 |
|
|
Net Revenue Volume
Variance |
|
$ |
5,574 |
|
|
$ |
3,619 |
|
|
$ |
1,096 |
|
|
$ |
(689 |
) |
|
$ |
(193 |
) |
|
$ |
991 |
|
|
Net
Revenue Average Variance |
|
$ |
(403 |
) |
|
$ |
(755 |
) |
|
$ |
855 |
|
|
$ |
1,653 |
|
|
$ |
838 |
|
|
$ |
387 |
|
|
Net Revenue Variance |
|
$ |
5,171 |
|
|
$ |
2,864 |
|
|
$ |
1,951 |
|
|
$ |
964 |
|
|
$ |
645 |
|
|
$ |
1,378 |
|
|
(1) Excludes Preneed Funeral interest earnings reflected in
Total Financial Revenue. |
|
|
As the above Same Store Funeral Revenue Trend
Data makes clear, we have transitioned exceptionally well during
each month of the second quarter from the peak COVID-19
Pandemic Funeral Revenue and Field EBITDA/Margin volume lift during
December 2020 and January and February 2021, which was highly
concentrated in our large California Funeral Portfolio. Beginning
in March our Same Store Funeral positive contract volume variances
began rapidly tapering off year over year and had small negative
variances in April and May, yet recovered to a moderate positive
volume variance in June that added another $1 million to our
Same Store Funeral Revenue. After only moderate ARPC negative
variances in January and February (our Managing Partners adapted
quickly at the beginning of the Pandemic), the last four months of
the first half of 2021 ending June produced moderate ARPC positive
variances. Combined Volume and ARPC Revenue Variances produced a
Total Same Store Funeral Revenue comparative increase of almost $10
million in the first quarter of 2021 followed by a comparative
increase of almost $3 million in a more normalized death rate
environment during the second quarter of 2021.
Undoubtedly, we are learning to live with
COVID-19 in some variant form (Delta now) but likely adapting to
other variant forms in the future, and to manage our personal
affairs and businesses accordingly. There is also no doubt that a
significant majority of our funeral businesses in all three
geographic regions grew market share during the last fifteen months
because of the amazingly innovative “high emotional value” services
our entrepreneurial Managing Partners and their teams of employees
produced for client families as opposed to what could not be done
to serve these families that was communicated by government
mandates, the media and even our competitors in many markets when
these families needed help with their deceased loved ones the
most.
We have yet to have a negative year over year
Same Store Funeral Revenue comparative month in 2021, and in June
all three of our geographic regions were higher with the Western
Region leading the way. We will be highly challenged during the
second half of 2021 to maintain this achievement, especially in the
fourth quarter during the peak volume spike beginning in December
2020. We do not believe we will experience a material year over
year Total Revenue and Profit decline, as we have too many
increasingly high and sustainable performance drivers in our two
cemetery segments and financial segment, which when combined with
our low cost balance sheet, increasing Free Cash Flow and
disciplined yet flexible capital allocation, should continue to
drive an acceleration in Shareholder Value Creation for the second
half of 2021 and thereafter.
SECOND QUARTER / FIRST HALF 2021 VERSUS 2020 OVERHEAD /
INCENTIVE COMPENSATION COMPARISON
Our public Five Year, Five Quarter and internal
Monthly, Quarterly and Year-To-Date Trend Reports are broken into
five separate operating and financial segments that reflect
Revenue, Field EBITDA and Field EBITDA Margin “trends over time.”
Our High Performance Standards for defining success in both our
funeral and cemetery portfolios are designed and heavily weighted
around these revenue and margin “trend metrics” with EBITDA
(dollars) one of two primary determinants for our Being The
Best Annual Incentive Program, and the other being
compound annual revenue growth and margin range (more compound
annual revenue growth and higher margin range pays increasingly
more with no limit).
Our five field reporting segments do not conform
to GAAP or SEC segment requirements, as we do not allocate any
corporate overhead to our individual business units whose Managing
Partners are judged only by what they control locally, i.e. their
important share of one of the four operating segments in our Trend
Reports (Same Store and Acquisition Funeral, Same Store and
Acquisition Cemetery). The Total Field Revenue, EBITDA and EBITDA
Margin are therefore the consolidated performance of our individual
funeral home and cemetery businesses plus the financial revenue
that has been recognized primarily from our three preneed trusts
(funeral merchandise and service, cemetery merchandise and service,
cemetery perpetual care).
Our Overhead segment is shown below Total Field
EBITDA in our Trend Reports and is broken into three categories:
Total Regional Overhead that is mostly fixed with four cost
segments comprised of three Regional Partners and one National
Sales and Marketing Partner (Carlos Quezada recently promoted to
COO), plus seven Directors of Support-Operations and three
Directors of Support-Sales; Total Corporate Overhead that is mostly
fixed comprised of eight different departments in our Houston
Support Center; and Total Variable Overhead consisting of two major
categories, field and corporate incentive compensation accruals
(and payments after each calendar year), and various types of
non-recurring items (termination or severance costs, legal
settlements, and natural disaster costs such as floods, hurricanes,
Pandemic, etc.).
This past year of the COVID-19 Pandemic created a lot of
distortion at certain points in our Variable Overhead reporting as
shown below in the comparison of second quarter 2021 to second
quarter 2020 and first half of 2021 to first half 2020.
SECOND QUARTER AND FIRST HALF OVERHEAD COMPARISONS
(000'S) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
Overhead |
|
2020 |
|
|
2021 |
|
Variance $ |
Variance % |
|
|
2020 |
|
|
2021 |
|
Variance $ |
Variance % |
|
|
|
|
|
|
|
|
|
|
Total Variable |
$ |
3,737 |
|
$ |
4,545 |
|
$ |
808 |
|
21.6 |
% |
|
$ |
5,373 |
|
$ |
11,445 |
|
$ |
6,072 |
|
113.0 |
% |
Total Regional |
|
872 |
|
|
1,356 |
|
|
484 |
|
55.5 |
% |
|
|
1,910 |
|
|
2,555 |
|
|
645 |
|
33.8 |
% |
Total
Corporate |
|
4,933 |
|
|
5,538 |
|
|
605 |
|
12.3 |
% |
|
|
10,130 |
|
|
11,038 |
|
|
908 |
|
9.0 |
% |
Total Overhead |
$ |
9,542 |
|
$ |
11,439 |
|
$ |
1,897 |
|
19.9 |
% |
|
$ |
17,413 |
|
$ |
25,038 |
|
$ |
7,625 |
|
43.8 |
% |
% Total
Revenue |
|
12.3 |
% |
|
13.0 |
% |
70 bp |
|
5.7 |
% |
|
|
11.2 |
% |
|
13.5 |
% |
230 bp |
|
20.5 |
% |
Corporate Incentive
Compensation |
$ |
1,225 |
|
$ |
1,000 |
|
$ |
(225 |
) |
(18.4 |
%) |
|
$ |
1,225 |
|
$ |
2,100 |
|
$ |
875 |
|
71.4 |
% |
Field Incentive
Compensation |
|
1,475 |
|
|
3,073 |
|
|
1,598 |
|
108.3 |
% |
|
|
2,268 |
|
|
6,099 |
|
|
3,831 |
|
168.9 |
% |
Separation Expenses |
|
64 |
|
|
144 |
|
|
80 |
|
125.0 |
% |
|
|
548 |
|
|
1,732 |
|
|
1,184 |
|
216.1 |
% |
Pandemic Costs |
|
313 |
|
|
147 |
|
|
(166 |
) |
(53.0 |
%) |
|
|
416 |
|
|
1,001 |
|
|
585 |
|
140.6 |
% |
Acquis./Divest. Expenses |
|
46 |
|
|
42 |
|
|
(4 |
) |
(8.7 |
%) |
|
|
218 |
|
|
227 |
|
|
9 |
|
4.1 |
% |
Other
Variable |
|
614 |
|
|
139 |
|
|
(475 |
) |
(77.4 |
%) |
|
|
698 |
|
|
286 |
|
|
(412 |
) |
(59.0 |
%) |
Total Variable Overhead |
$ |
3,737 |
|
$ |
4,545 |
|
$ |
808 |
|
21.6 |
% |
|
$ |
5,373 |
|
$ |
11,445 |
|
$ |
6,072 |
|
113.0 |
% |
% Total
Revenue |
|
4.8 |
% |
|
5.1 |
% |
30 bp |
|
6.3 |
% |
|
|
3.5 |
% |
|
6.2 |
% |
270 bp |
|
77.1 |
% |
The initial shock of the COVID-19 Pandemic
in mid-March of 2020 caused us to plan for the worst (drew down
$20 million on our bank credit lines to build a cash cushion)
and control/reduce all costs until we could have more certainty
about the performance impact on our business and financial
flexibility. Our Executive and Senior Leadership Teams immediately
took salary reductions and we eliminated all corporate incentive
compensation. After adapting quickly beginning in mid-April 2020,
our performance trended higher month by month and accelerated
during the second half of last year.
Once the Total Revenue, Field EBITDA / EBITDA
Margin and Free Cash Flow / Free Cash Flow Margin Trends became our
friend in the second quarter of 2020, we began to rapidly
deleverage, eliminated the salary reductions and began to add
increasingly high amounts of corporate and field incentive
compensation to Total Variable Overhead starting in June 2020. Our
Total Variable Overhead increased from $1.6 million in first
quarter 2020 to $3.7 million in the second, $4.1 million in the
third and then $6.7 million in the fourth as December 2020 exploded
with broadly higher Revenue and EBITDA Margin performance across
our funeral portfolio, especially in California. The takeaway is
that after the initial under accrual of incentive compensation in
the first quarter of 2020 and April and May in the second quarter
of 2020, we began to accrue incentive compensation more
aggressively starting in June 2020 but were never able to catch up
to a more normalized monthly accrual policy because of our
accelerating transformative high performance in the second half of
last year.
We began accruing both corporate and field
incentive compensation aggressively in January of this year and
have continued to do so all during the first and second quarters,
creating significant variances in incentive compensation in 2021
versus 2020 but especially in Field Incentive Compensation for the
many High Performing Managing Partners of our funeral and cemetery
businesses and their teams of employees. Our field incentive
compensation increased $1.6 million (about 6 cents per share)
or 108.3% in the second quarter 2021 compared to 2020, and
$3.8 million (about 15 cents per share) or 168.9% in the
first half 2021 compared to 2020. Total Overhead Margin as a
percentage of Total Revenue should normalize over the Two Year
Scenario ending 2022 (before any new acquisitions) within a range
of 11% to 12% with Total Variable Overhead comprised of mostly
incentive compensation representing about one-third of Total
Overhead.
The really great news for our shareholders is
that even after paying the most generous one and five year
performance incentives to our High Performance Hero Managing
Partners in the sixty year history of deathcare consolidation, the
remaining share of the High Performance retained for Free Cash Flow
Capital Allocation and Shareholder Value Creation should drive
market beating compounded shareholder returns for the entire second
five year timeframe of Carriage’s Good To Great II
Journey ending in 2024. The Carriage High Performance
Culture Framework is a concept that I explained in section XI on
page 42 of my shareholder letter titled, “Observations
about 2020 and The Evolution of our Standards Operating
Model,” concluded Mr. Payne.
THE DATA DON’T LIE – A TALE TOLD WITH
HIGH PERFORMANCE DATA
Ben Brink, Executive Vice President and Chief
Financial Officer, stated, “Before I provide the updated and
increased Rolling Four Quarter Outlook, 2021/2022 Two Year Scenario
and CSV Intrinsic Value Per Share Range, I believe it is
informative and insightful to review the amazing high performance
transformation that Carriage has achieved over the last two and one
half years, especially in our cemetery portfolio, as shown in the
two tables below:
CARRIAGE HIGH PERFORMANCE TRANSFORMATION |
Income Category |
Millions except Per Share |
2018 – 12 Months 6/30/21 |
|
2018 |
2019 |
2020 |
12 Months Ending
6/30/2021(1) |
$ Change |
% Change |
Total Revenue |
$ |
268.0 |
|
$ |
274.1 |
|
$ |
329.4 |
|
$ |
359.4 |
|
$ |
91.4 |
|
34.1 |
% |
Total Field EBITDA |
$ |
104.3 |
|
$ |
109.8 |
|
$ |
141.9 |
|
$ |
164.4 |
|
$ |
60.1 |
|
57.6 |
% |
Total Field EBITDA Margin % |
|
38.9 |
% |
|
40.0 |
% |
|
43.1 |
% |
|
45.8 |
% |
690 bp |
|
17.7 |
% |
|
|
|
|
|
|
|
Adjusted Consolidated EBITDA |
$ |
70.2 |
|
$ |
76.6 |
|
$ |
104.3 |
|
$ |
119.3 |
|
$ |
49.1 |
|
69.9 |
% |
Adjusted Consolidated EBITDA Margin % |
|
26.2 |
% |
|
27.9 |
% |
|
31.6 |
% |
|
33.2 |
% |
700 bp |
|
26.7 |
% |
|
|
|
|
|
|
|
Adjusted FCF |
$ |
42.6 |
|
$ |
38.8 |
|
$ |
70.0 |
|
$ |
78.9 |
|
$ |
36.3 |
|
85.2 |
% |
Adjusted FCF Margin % |
|
15.9 |
% |
|
14.2 |
% |
|
21.2 |
% |
|
22.0 |
% |
610 bp |
|
38.4 |
% |
|
|
|
|
|
|
|
Adjusted Diluted EPS |
$ |
1.17 |
|
$ |
1.25 |
|
$ |
1.86 |
|
$ |
2.53 |
|
$ |
1.36 |
|
116.2 |
% |
Adjusted Diluted Proforma EPS(1) |
$ |
1.17 |
|
NA |
|
NA |
|
$2.89(1) |
|
$ |
1.72 |
|
147.0 |
% |
(1) Diluted EPS for the most recent 12 months
ending 06/30/2021 is adjusted for lower annual interest cost of
$9.5 million (pre-tax) from recent refinancing as if new $400
million 4.25% senior notes issued May 2021 was effective on June
30, 2020.
CEMETERY PORTFOLIO HIGH PERFORMANCE
TRANSFORMATION |
Data/Income Category |
Millions except Interments & Average |
2018 – 12 Months 6/30/21 |
|
2018 |
2019 |
2020 |
12 Months Ending 6/30/2021 |
$ Change |
% Change |
Number of Interments Sold – Preneed |
|
6,475 |
|
|
7,205 |
|
|
9,503 |
|
|
11,231 |
|
|
4,756 |
|
73.5 |
% |
Preneed Property Average |
$ |
3,551 |
|
$ |
3,653 |
|
$ |
4,033 |
|
$ |
4,370 |
|
$ |
819 |
|
23.1 |
% |
Net Preneed Property Revenue |
$ |
22,994 |
|
$ |
26,320 |
|
$ |
38,326 |
|
$ |
49,081 |
|
$ |
26,087 |
|
113.5 |
% |
Total Preneed M&S Revenue |
$ |
5,543 |
|
$ |
5,664 |
|
$ |
9,239 |
|
$ |
11,097 |
|
$ |
5,554 |
|
100.2 |
% |
Total Preneed Sales Revenue |
$ |
28,537 |
|
$ |
31,984 |
|
$ |
47,565 |
|
$ |
60,178 |
|
$ |
31,641 |
|
110.9 |
% |
|
|
|
|
|
|
|
Total Cemetery Revenue |
$ |
44,587 |
|
$ |
49,317 |
|
$ |
69,084 |
|
$ |
86,027 |
|
$ |
41,440 |
|
92.9 |
% |
Total Cemetery Field EBITDA |
$ |
13,831 |
|
$ |
17,165 |
|
$ |
26,626 |
|
$ |
39,648 |
|
$ |
25,817 |
|
186.7 |
% |
Total Cemetery Field EBITDA Margin |
|
31.0 |
% |
|
34.8 |
% |
|
38.5 |
% |
|
46.1 |
% |
1,510 bp |
|
48.7 |
% |
ACTUAL RESULTS, UPDATED TWO YEAR
SCENARIO AND ROLLING FOUR QUARTER OUTLOOK
The increases in performance shown in the
table below for our Rolling Four Quarter Outlook and updated
Roughly Right Scenario for 2021 and 2022 is indicative of the
momentum we continued to experience across our entire Company in
the second quarter, as well as the expectation that the following
five factors will be drivers of continued high performance
throughout the balance of 2021 and all of
2022:
- Increased Cemetery
Preneed Property Sales leading to higher Cemetery Revenue growth
rates at Record and Sustainable Cemetery Field EBITDA Margins;
- Continuation of
local market share gains across our funeral home portfolio;
- Growth in Average
Revenue per Funeral Contract, particularly Cremation
contracts;
- Incremental Growth
of Financial Revenue and Financial EBITDA; and
- Higher Returns on
Invested Capital from continued disciplined capital allocation
combined with a lower Cost of Capital due to the recent completion
of our senior note refinancing transaction.
Our updated Rolling Four Quarter Outlook and
Roughly Right Range Two Year Scenario is our best estimate of
our performance metrics over the next six quarters, and while
uncertainties remain around the impact of the COVID-19
Pandemic on near term funeral contract volume, we have confidence
in the known drivers of high performance to a degree that our
belief is that we will continue to under-promise and over-deliver
future performance, just as we have dramatically done since the
beginning of 2020.
The updated Rolling Four Quarter Outlook
(“RFQO”) and Roughly Right Range Scenario includes the full effect
of our senior note refinancing transaction that lowered our annual
interest costs by $9.5 million, which will add $0.36 of Adjusted
Diluted EPS on a proforma basis. We have also included in this
update a capital allocation scenario where 70% - 80% of our
Adjusted Free Cash Flow is allocated to share repurchases, which we
believe is the best capital allocation decision currently available
due to the large discount between the current market value and our
opinion of intrinsic value, which is specifically explained on the
next page in the sections on our updated and Increased Intrinsic
Value Roughly Right Range and Capital Allocation
Framework.
Performance Metric |
2019A |
2020A |
LTM |
2021 |
RFQO |
2022 |
3 Year Midpoint CAGR |
Total Revenue |
$274.1 |
$329.4 |
$359.4 |
$345 - $355 |
$350 - $360 |
$355 - $365 |
9.5% |
Total Field EBITDA |
$109.8 |
$141.9 |
$164.4 |
$157 - $162 |
$158 - $164 |
$161 - $167 |
14.3% |
Total Field EBITDA Margin |
40% |
43% |
45.8% |
45% - 46% |
45% - 46% |
45% - 46% |
4.4% |
Adjusted Consolidated EBITDA |
$76.6 |
$104.3 |
$119.3 |
$117 - $121 |
$118 - $122 |
$119 - $123 |
16.5% |
Adjusted Consolidated EBITDA Margin |
27.9% |
31.6% |
33.2% |
32.5% - 33.5% |
32.5% - 33.5% |
32.5% - 33.5% |
5.8% |
Adjusted Diluted EPS |
$1.25 |
$1.86 |
$2.49 |
$2.65 - $2.75 |
$2.85 - $2.95 |
$3.10 - $3.20 |
36.1% |
Diluted Shares Outstanding |
18.0 |
18.1 |
18.4 |
17.8 |
17.5 |
16.8 |
(2.3%) |
Adjusted Free Cash Flow |
$38.8 |
$70.0 |
$78.9 |
$72 - $75 |
$73 - $77 |
$75 - $79 |
25.7% |
Adjusted FCF Margin |
14.2% |
21.2% |
22.0% |
20% - 21% |
19.5% - 20.5% |
21% - 22% |
14.8% |
Total Debt Outstanding |
$534(1) |
$461.1 |
$471.4 |
$470 - $480 |
$470 - $480 |
$470 - $480 |
(4.0)% |
Total Debt to EBITDA Multiple |
7.0(2) |
4.4 |
3.9 |
3.8 - 4.0 |
3.8 – 4.0 |
3.8 - 4.0 |
N/A |
(1) January 3, 2020 acquisition of Oakmont Memorial Park &
Mortuary and peak debt.(2) Does not include proforma EBITDA for
acquisitions.
INCREASED ROUGHLY RIGHT RANGE OF
INTRINSIC VALUE PER SHARE
We believe that Carriage has evolved into a
superior Deathcare Industry Operating and Consolidation Shareholder
Value Creation Platform because of its superior Free Cash Flow per
dollar of revenue that can be allocated into intermediate to long
term high Return on Invested Capital (“ROIC”) investments to
optimize our intrinsic value over time. As Mel outlined in our
press release on May 13, 2021, we therefore believe the most
relevant methodology to use for determining our opinion of
Carriage’s intrinsic value is Free Cash Flow Equity Yield.
The ‘Roughly Right Range’ of Free Cash Flow
Equity Yield using a 1% range of discount rates of 6.4% to 7.4%
applied to our mid-point 2022 Adjusted Free Cash Flow estimate of
$77 million produces a total equity market value range of
$1,203 million (6.4%) to $1,041 million (7.4%), which when divided
by about 18 million shares currently outstanding equals a current
“Roughly Right Range” of Intrinsic Value per CSV share of $57.81 -
$66.84. Rounded down, our updated opinion for Carriage’s intrinsic
value per share is: $55 - $65.
Using the midpoint of the Free Cash Flow Range
for the RFQO of $75 million and about 18 million shares currently
outstanding, our current share price of $36.30 provides
shareholders a Free Cash Flow Equity Yield of about 11.5%, an
extraordinarily high yield in a historically low yield environment
that implies that our FCF is not sustainable into the future. In
our opinion, a current Free Cash Flow Equity Yield of 11.5%
compared to the midpoint 6.9% of our current cost of capital of
6.4% and former cost of capital pre-senior notes refinancing of
7.4% means our shares are currently priced at an approximately 65%
discount to the midpoint of our updated range of intrinsic value of
$60 per share.
CAPITAL ALLOCATION
FRAMEWORK
With the successful completion of our senior
note refinancing, we believe it is important to outline our updated
Capital Allocation decision making framework that we will use
moving forward. We strongly believe we have entered into a long
term shareholder value creation capital allocation ‘sweet spot’
where we will have more opportunities to invest our high and
recurring Free Cash Flow capital at higher rates of return. We have
established a minimum ROIC Policy of 15% for invested capital but
expect much higher intermediate to long term returns on a large
majority of our growth investments. We will allocate capital within
the following framework:
- Strategic
Acquisitions: We will prioritize acquisitions of the best remaining
independent funeral homes and cemetery businesses in large
strategic growth markets. Our four large and transformative
strategic acquisitions at the end of 2019 set a new and much higher
standard for the future growth criteria required to join our
portfolio of Being The Best businesses.
- Internal Growth
Projects: Our internal growth capital expenditures will be focused
on differentiated cemetery inventory development, targeted funeral
home remodels and selective construction of new funeral homes in
high growth markets to expand strong local brands of existing
Carriage businesses.
- Share Repurchases:
We will prioritize open market share repurchases when our stock
trades at a material discount of 10% or more compared to the bottom
of the share price range of our publicly stated opinion of
intrinsic value. Share repurchases will also be weighed versus near
term larger strategic acquisition opportunities and our Net Debt to
Adjusted Consolidated EBITDA Leverage Ratio Policy.
- Dividends: As we
have previously outlined, our policy will be for our annual
dividend to approximate 10% of Adjusted Free Cash Flow and a 1%
dividend equity yield on CSV shares.
- Debt Repayment: We
will maintain a moderate Net Debt to Adjusted Consolidated EBITDA
Leverage Ratio of 4 times or less, most likely meaning that our
total debt will remain relatively flat while Free Cash Flow is
allocated to higher ROIC growth opportunities to accelerate
intrinsic value per share.
We view the $19.9 million call premium payment
to former 6.625% senior note holders as the most significant
capital allocation decision of the second quarter, as it allowed us
to lower our annual cash interest cost by $9.5 million and thereby
lower our weighted average cost of capital by 100 basis points to
6.4%.
The senior note refinancing transaction combined
with our recurring and growing Free Cash Flow provides us
significantly more financial flexibility to pursue all of the
shareholder value creation capital allocation options within our
framework. During the second quarter we repurchased approximately
325,000 CSV shares (1.8% of outstanding shares) at an average
price per share of about $38 for approximately $12.3 million. The
updated and increased performance in our Rolling Four Quarter and
2021/2022 Outlooks on Page 10 reflects a reduction in our
outstanding shares of almost 2 million shares or 10.8% from about
18.5 million shares at March 31, 2021 to 16.5 million shares at
December 31, 2022 from share repurchases. Assuming our share price
achieves the $55 per share bottom of our intrinsic value range by
the end of 2022, the ROIC on the $12.3 million capital allocated to
repurchase 1.8% of our outstanding shares during the last six weeks
of the second quarter of 2021 would have been 44.7% in a little
over eighteen months, or an annualized return of about 30% that
will only increase over time.
Our strong conviction is that there is low
downside risk and high upside long term return certainty with
share repurchases after a two and one half year transformation of
our company that isn’t yet reflected in our share price. On July
26, 2021 our Board of Directors authorized another $25 million
for our share repurchase program, which brings our total Board
authorized share repurchase amount available to approximately $63.3
million. Given the continued strength and momentum in our operating
and financial performance and the current substantial share price
discount compared to our updated opinion of intrinsic value
“Roughly Right Range” of $55 to $65 per share, we intend to
prioritize a more rapid pace of open market share repurchases for
the foreseeable future while maintaining our 4 times leverage
policy.
ADJUSTED FREE CASH FLOW AND LEVERAGE
RATIO
|
|
Six Months Ended June 30 |
|
|
|
|
2020 |
|
|
|
2021 |
|
|
|
Cash Flow Provided by
Operating Activities |
|
$ |
31,001 |
|
|
$ |
41,441 |
|
|
|
Cash used for Maintenance
Capital Expenditures |
|
|
(2,898 |
) |
|
|
(4,602 |
) |
|
|
Free Cash Flow |
|
$ |
28,103 |
|
|
$ |
36,839 |
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Incremental Special
Items: |
|
|
|
|
|
|
|
|
Acquisition Expenses |
|
|
159 |
|
|
|
˗˗ |
|
|
Severance and Separation
Costs |
|
|
563 |
|
|
|
1,575 |
|
|
|
Litigation Reserve |
|
|
270 |
|
|
|
˗˗ |
|
|
Natural Disaster and Pandemic
Costs |
|
|
972 |
|
|
|
1,039 |
|
|
|
Other Special Items |
|
|
418 |
|
|
|
|
|
|
Adjusted Free Cash Flow |
|
$ |
30,485 |
|
|
$ |
39,453 |
|
|
|
Our Adjusted Free Cash Flow through the first
six months in 2021 increased 29.4% to $39.5 million and our
Adjusted Free Cash Flow Margin, which is the amount of Free Cash
Flow for every dollar of Revenue, increased 160 basis points to
21.3%. For the last twelve months our Adjusted Free Cash Flow
totaled $78.9 million and our Adjusted Free Cash Flow Margin
expanded to 22.0%. Our second quarter Adjusted Free Cash Flow was
approximately $5.6 million lower at $12.3 million compared to last
year due to higher cash taxes paid and higher maintenance capital
expenditures in the quarter.
Our Net Debt to Adjusted Consolidated EBITDA
Leverage Ratio increased slightly to 3.95 times compared to 3.8
times at the end of the first quarter, primarily due to the $19.9
million call premium payment we made in connection with our senior
note refinancing completed on May 13th. Post the completion of our
senior note refinancing transaction, we have greater financial
flexibility to allocate capital in order to accelerate shareholder
value creation, while maintaining a more moderate Net Debt to
Adjusted Consolidated EBITDA Leverage Ratio of 4 times or
below as a matter of policy.
TRUST FUND INVESTMENT
PERFORMANCE
|
|
|
YTD 2021 |
|
12 months EndedQ2 2021 |
|
Annualized 2009 - Q2 2021 |
CSV Discretionary Portfolio |
|
|
14.2 |
% |
|
39.6 |
% |
|
14.5 |
% |
S&P 500 |
|
|
15.2 |
% |
|
40.8 |
% |
|
15.6 |
% |
DJIA |
|
|
13.8 |
% |
|
36.3 |
% |
|
14.4 |
% |
NASDAQ |
|
|
12.9 |
% |
|
45.3 |
% |
|
20.8 |
% |
HY Bond Index |
|
|
3.6 |
% |
|
15.4 |
% |
|
10.9 |
% |
70/30
HY/S&P Bond |
|
|
7.1 |
% |
|
23.0 |
% |
|
12.6 |
% |
The strong performance of our discretionary
trust fund portfolio continued through the second quarter, as year
to date portfolio return was 14.2% versus 15.2% for the S&P 500
and 7.1% for our 70/30 HY Bond/S&P 500 benchmark. For the last
twelve months our total return for our discretionary trust
portfolio was 39.6% compared to 40.8% for the S&P 500 and 23.0%
for our 70/30 HY Bond/S&P 500 benchmark.
As a result of the successful completion of our
trust fund repositioning strategy at the depths of
the COVID-19 Market Crisis last year, we realized
approximately $25 million of capital gains and increased recurring
annual income by approximately $8 million to $17.4 million.
The increase in recurring annual income over the past twelve months
has primarily benefited the recognized Financial Revenue and
Financial EBITDA from our perpetual care trusts, while the $25
million realized in capital gains have primarily accrued to
outstanding preneed funeral and cemetery merchandise and service
trust contracts. The realized gains will have a positive
impact on current and future trends in reported Financial Revenue
and Financial EBITDA as a result of the recognized higher value of
maturing preneed funeral and cemetery contracts.
Financial Revenue increased 23.5% to $11 million
and Financial EBITDA increased 24.1% to $10.2 million for the first
six months of the year. We currently expect that the high amount of
recurring income earned through our cemetery perpetual care trusts
and higher recognized values on maturing preneed funeral and
cemetery contracts will continue to drive incrementally higher
annual amounts of reported Financial Revenue to approximately $23
million at Financial EBITDA Margins of 94.0% - 94.5% in 2021 and
2022,” concluded Mr. Brink.
CONFERENCE CALL AND INVESTOR RELATIONS
CONTACT
Carriage Services has scheduled a conference
call for tomorrow, July 28, 2021 at 9:30 a.m. Central time. To
participate in the call, please dial 866-516-3867 (conference
ID-1780007) and ask for the Carriage Services conference call. A
replay of the conference call will be available through August 2,
2021 and may be accessed by dialing 855-859-2056 (conference
ID-1780007). 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 June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2021 |
|
% Change |
|
2020 |
|
2021 |
|
% Change |
|
|
|
|
|
|
|
|
Same
Store Contracts |
|
|
|
|
|
|
|
Atneed Contracts |
7,534 |
|
7,702 |
|
2.2 |
% |
|
15,073 |
|
16,997 |
|
12.8 |
% |
Preneed Contracts |
1,522 |
|
1,359 |
|
(10.7 |
%) |
|
3,041 |
|
3,092 |
|
1.7 |
% |
Total Same
Store Funeral Contracts |
9,056 |
|
9,061 |
|
0.1 |
% |
|
18,114 |
|
20,089 |
|
10.9 |
% |
Acquisition Contracts |
|
|
|
|
|
|
|
Atneed Contracts |
1,788 |
|
1,505 |
|
(15.8 |
%) |
|
3,394 |
|
3,366 |
|
(0.8 |
%) |
Preneed Contracts |
153 |
|
120 |
|
(21.6 |
%) |
|
280 |
|
261 |
|
(6.8 |
%) |
Total
Acquisition Funeral Contracts |
1,941 |
|
1,625 |
|
(16.3 |
%) |
|
3,674 |
|
3,627 |
|
(1.3 |
%) |
Total Funeral Contracts |
10,997 |
|
10,686 |
|
(2.8 |
%) |
|
21,788 |
|
23,716 |
|
8.8 |
% |
|
|
|
|
|
|
|
|
Funeral Operating Revenue |
|
|
|
|
|
|
|
Same Store Revenue |
$ |
44,296 |
|
$ |
47,284 |
|
6.7 |
% |
|
$ |
90,992 |
|
$ |
103,967 |
|
14.3 |
% |
Acquisition Revenue |
9,023 |
|
8,557 |
|
(5.2 |
%) |
|
17,908 |
|
18,696 |
|
4.4 |
% |
Total Funeral Operating Revenue |
$ |
53,319 |
|
$ |
55,841 |
|
4.7 |
% |
|
$ |
108,900 |
|
$ |
122,663 |
|
12.6 |
% |
|
|
|
|
|
|
|
|
Cemetery Operating Revenue |
|
|
|
|
|
|
|
Same Store Revenue |
$ |
11,565 |
|
$ |
16,516 |
|
42.8 |
% |
|
$ |
22,439 |
|
$ |
31,083 |
|
38.5 |
% |
Acquisition Revenue |
4,056 |
|
8,175 |
|
101.6 |
% |
|
6,855 |
|
15,155 |
|
121.1 |
% |
Total Cemetery Operating Revenue |
$ |
15,621 |
|
$ |
24,691 |
|
58.1 |
% |
|
$ |
29,294 |
|
$ |
46,238 |
|
57.8 |
% |
|
|
|
|
|
|
|
|
Total Financial Revenue |
$ |
4,674 |
|
$ |
5,340 |
|
14.2 |
% |
|
$ |
8,903 |
|
$ |
10,996 |
|
23.5 |
% |
|
|
|
|
|
|
|
|
Ancillary Revenue |
$ |
1,117 |
|
$ |
1,088 |
|
(2.6 |
%) |
|
$ |
2,268 |
|
$ |
2,295 |
|
1.2 |
% |
|
|
|
|
|
|
|
|
Total Divested/Planned Divested Revenue |
$ |
2,746 |
|
$ |
1,317 |
|
(52.0 |
%) |
|
$ |
5,602 |
|
$ |
2,722 |
|
(51.4 |
%) |
|
|
|
|
|
|
|
|
Total Revenue |
$ |
77,477 |
|
$ |
88,277 |
|
13.9 |
% |
|
$ |
154,967 |
|
$ |
184,914 |
|
19.3 |
% |
|
|
|
|
|
|
|
|
Field EBITDA |
|
|
|
|
|
|
|
Same Store Funeral Field EBITDA |
$ |
18,725 |
|
$ |
18,659 |
|
(0.4 |
%) |
|
$ |
36,787 |
|
$ |
44,471 |
|
20.9 |
% |
Same Store Funeral Field EBITDA Margin |
42.3 |
% |
39.5 |
% |
(280 bp) |
|
40.4 |
% |
42.8 |
% |
240 bp |
Acquisition Funeral Field EBITDA |
3,755 |
|
3,261 |
|
(13.2 |
%) |
|
7,002 |
|
7,728 |
|
10.4 |
% |
Acquisition Funeral Field EBITDA Margin |
41.6 |
% |
38.1 |
% |
(350 bp) |
|
39.1 |
% |
41.3 |
% |
220 bp |
Total Funeral Field EBITDA |
$ |
22,480 |
|
$ |
21,920 |
|
(2.5 |
%) |
|
$ |
43,789 |
|
$ |
52,199 |
|
19.2 |
% |
Total Funeral Field EBITDA Margin |
42.2 |
% |
39.3 |
% |
(290 bp) |
|
40.2 |
% |
42.6 |
% |
240 bp |
|
|
|
|
|
|
|
|
Same Store Cemetery Field EBITDA |
$ |
3,666 |
|
$ |
7,579 |
|
106.7 |
% |
|
$ |
6,838 |
|
$ |
13,284 |
|
94.3 |
% |
Same Store Cemetery Field EBITDA Margin |
31.7 |
% |
45.9 |
% |
1,420 bp |
|
30.5 |
% |
42.7 |
% |
1,220 bp |
Acquisition Cemetery Field EBITDA |
1,435 |
|
4,737 |
|
230.1 |
% |
|
2,262 |
|
8,839 |
|
290.8 |
% |
Acquisition Cemetery Field EBITDA Margin |
35.4 |
% |
57.9 |
% |
2,250 bp |
|
33.0 |
% |
58.3 |
% |
2,530 bp |
Total Cemetery Field EBITDA |
$ |
5,101 |
|
$ |
12,316 |
|
141.4 |
% |
|
$ |
9,100 |
|
$ |
22,123 |
|
143.1 |
% |
Total Cemetery Field EBITDA Margin |
32.7 |
% |
49.9 |
% |
1,720
bp |
|
31.1 |
% |
47.8 |
% |
1,670
bp |
|
|
|
|
|
|
|
|
Total Financial EBITDA |
$ |
4,448 |
|
$ |
4,993 |
|
12.3 |
% |
|
$ |
8,260 |
|
$ |
10,248 |
|
24.1 |
% |
Total Financial EBITDA Margin |
95.2 |
% |
93.5 |
% |
(170
bp) |
|
92.8 |
% |
93.2 |
% |
40
bp |
|
|
|
|
|
|
|
|
Ancillary EBITDA |
$ |
321 |
|
$ |
274 |
|
(14.6 |
%) |
|
$ |
616 |
|
$ |
516 |
|
(16.2 |
%) |
Ancillary EBITDA Margin |
28.7 |
% |
25.2 |
% |
(350
bp) |
|
27.2 |
% |
22.5 |
% |
(470
bp) |
|
|
|
|
|
|
|
|
Total Divested/Planned Divested EBITDA |
$ |
871 |
|
$ |
511 |
|
(41.3 |
%) |
|
$ |
1,550 |
|
$ |
715 |
|
(53.9 |
%) |
Total Divested/Planned Divested EBITDA Margin |
31.7 |
% |
38.8 |
% |
710
bp |
|
27.7 |
% |
26.3 |
% |
(140
bp) |
|
|
|
|
|
|
|
|
Total Field EBITDA |
$ |
33,221 |
|
$ |
40,014 |
|
20.4 |
% |
|
$ |
63,315 |
|
$ |
85,801 |
|
35.5 |
% |
Total Field EBITDA Margin |
42.9 |
% |
45.3 |
% |
240
bp |
|
40.9 |
% |
46.4 |
% |
550
bp |
OPERATING
AND FINANCIAL TREND REPORT |
(IN
THOUSANDS - EXCEPT PER SHARE AMOUNTS) |
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2020 |
|
2021 |
|
% Change |
|
2020 |
|
2021 |
|
% Change |
|
|
|
|
|
|
|
|
Overhead |
|
|
|
|
|
|
|
Total Variable Overhead |
$ |
3,737 |
|
$ |
4,545 |
|
21.6 |
% |
|
$ |
5,373 |
|
$ |
11,445 |
|
113.0 |
% |
Total Regional Fixed Overhead |
872 |
|
1,356 |
|
55.5 |
% |
|
1,910 |
|
2,555 |
|
33.8 |
% |
Total Corporate Fixed Overhead |
4,933 |
|
5,538 |
|
12.3 |
% |
|
10,130 |
|
11,038 |
|
9.0 |
% |
Total Overhead |
$ |
9,542 |
|
$ |
11,439 |
|
19.9 |
% |
|
$ |
17,413 |
|
$ |
25,038 |
|
43.8 |
% |
Overhead as a percentage of Revenue |
12.3 |
% |
13.0 |
% |
70
bp |
|
11.2 |
% |
13.5 |
% |
230
bp |
|
|
|
|
|
|
|
|
Consolidated EBITDA |
$ |
23,679 |
|
$ |
28,575 |
|
20.7 |
% |
|
$ |
45,902 |
|
$ |
60,763 |
|
32.4 |
% |
Consolidated EBITDA Margin |
30.6 |
% |
32.4 |
% |
180 bp |
|
29.6 |
% |
32.9 |
% |
330 bp |
|
|
|
|
|
|
|
|
Other Expenses and Interest |
|
|
|
|
|
|
|
Depreciation & Amortization |
$ |
4,698 |
|
$ |
5,594 |
|
|
|
$ |
9,247 |
|
$ |
10,536 |
|
|
Non-Cash Stock Compensation |
715 |
|
1,230 |
|
|
|
1,546 |
|
2,538 |
|
|
Interest Expense |
8,352 |
|
7,478 |
|
|
|
16,780 |
|
15,062 |
|
|
Accretion of Discount on Convertible Subordinated Notes |
66 |
|
— |
|
|
|
131 |
|
20 |
|
|
Loss on Extinguishment of Debt |
— |
|
23,807 |
|
|
|
— |
|
23,807 |
|
|
Net (Gain) Loss on Divestitures |
— |
|
205 |
|
|
|
— |
|
(103 |
) |
|
Impairment of Goodwill and Other Intangibles |
— |
|
— |
|
|
|
14,693 |
|
— |
|
|
Net Loss on Disposal of Fixed Assets |
— |
|
622 |
|
|
|
— |
|
622 |
|
|
Other, Net |
2 |
|
(2 |
) |
|
|
6 |
|
66 |
|
|
Pre-Tax Income (Loss) |
$ |
9,846 |
|
$ |
(10,359 |
) |
|
|
$ |
3,499 |
|
$ |
8,215 |
|
|
Net
Tax Expense (Benefit) |
|
3,449 |
|
|
(4,192 |
) |
|
|
|
1,299 |
|
|
1,449 |
|
|
GAAP
Net Income (Loss) |
$ |
6,397 |
|
$ |
(6,167 |
) |
(196.4 |
%) |
|
$ |
2,200 |
|
$ |
6,766 |
|
207.5 |
% |
|
|
|
|
|
|
|
|
Special Items, Net of Tax, except for ** |
|
|
|
|
|
|
|
Acquisition Expenses |
$ |
36 |
|
$ |
— |
|
|
|
$ |
126 |
|
$ |
— |
|
|
Severance and Separation Costs |
217 |
|
(118 |
) |
|
|
445 |
|
1,126 |
|
|
Performance Awards Cancellation and Exchange |
56 |
|
— |
|
|
|
56 |
|
— |
|
|
Accretion of Discount on Convertible Subordinated Notes ** |
66 |
|
— |
|
|
|
131 |
|
20 |
|
|
Net (Gain) Loss on Divestitures and Other Costs |
— |
|
139 |
|
|
|
— |
|
(74 |
) |
|
Net Impact of Impairment of Goodwill and Other Intangibles |
51 |
|
— |
|
|
|
9,808 |
|
— |
|
|
Litigation Reserve |
154 |
|
— |
|
|
|
213 |
|
— |
|
|
Loss on Extinguishment of Debt |
— |
|
17,022 |
|
|
|
— |
|
17,022 |
|
|
Natural Disaster and Pandemic Costs |
657 |
|
37 |
|
|
|
768 |
|
743 |
|
|
Other Special Items |
371 |
|
954 |
|
|
|
371 |
|
954 |
|
|
Adjusted Net Income |
$ |
8,005 |
|
$ |
11,867 |
|
48.2 |
% |
|
$ |
14,118 |
|
$ |
26,557 |
|
88.1 |
% |
Adjusted Net Income Margin |
10.3 |
% |
13.4 |
% |
310 bp |
|
9.1 |
% |
14.4 |
% |
530 bp |
|
|
|
|
|
|
|
|
Adjusted
Basic Earnings Per Share |
$ |
0.45 |
|
$ |
0.66 |
|
46.7 |
% |
|
$ |
0.79 |
|
$ |
1.48 |
|
87.3 |
% |
Adjusted
Diluted Earnings Per Share |
$ |
0.45 |
|
$ |
0.64 |
|
42.2 |
% |
|
$ |
0.79 |
|
$ |
1.45 |
|
83.5 |
% |
|
|
|
|
|
|
|
|
GAAP Basic
Earnings (Loss) Per Share |
$ |
0.36 |
|
$ |
(0.34 |
) |
(194.4 |
%) |
|
$ |
0.12 |
|
$ |
0.38 |
|
216.7 |
% |
GAAP Diluted
Earnings (Loss) Per Share |
$ |
0.36 |
|
$ |
(0.33 |
) |
(191.7 |
%) |
|
$ |
0.12 |
|
$ |
0.37 |
|
208.3 |
% |
|
|
|
|
|
|
|
|
Weighted
Average Basic Shares Outstanding |
17,860 |
|
17,967 |
|
|
|
17,833 |
|
17,966 |
|
|
Weighted
Average Diluted Shares Outstanding |
17,889 |
|
18,511 |
|
|
|
17,862 |
|
18,364 |
|
|
|
|
|
|
|
|
|
|
Reconciliation to Adjusted Consolidated
EBITDA |
|
|
|
|
|
|
|
Consolidated EBITDA |
$ |
23,679 |
|
$ |
28,575 |
|
20.7 |
% |
|
$ |
45,902 |
|
$ |
60,763 |
|
32.4 |
% |
Acquisition Expenses |
45 |
|
— |
|
|
|
159 |
|
— |
|
|
Severance and Separation Costs |
275 |
|
— |
|
|
|
563 |
|
1,575 |
|
|
Litigation Reserve |
195 |
|
— |
|
|
|
270 |
|
— |
|
|
Natural Disaster and Pandemic Costs |
832 |
|
145 |
|
|
|
972 |
|
1,039 |
|
|
Other Special Items |
418 |
|
— |
|
|
|
418 |
|
— |
|
|
Adjusted Consolidated EBITDA |
$ |
25,444 |
|
$ |
28,720 |
|
12.9 |
% |
|
$ |
48,284 |
|
$ |
63,377 |
|
31.3 |
% |
Adjusted Consolidated EBITDA Margin |
32.8 |
% |
32.5 |
% |
(30 bp) |
|
31.2 |
% |
34.3 |
% |
310 bp |
CARRIAGE
SERVICES, INC. |
CONDENSED
CONSOLIDATED BALANCE SHEET |
(in
thousands) |
|
|
|
|
(unaudited) |
|
December 31, 2020 |
|
June 30, 2021 |
ASSETS |
|
|
|
Current
assets: |
|
|
|
Cash and cash equivalents |
$ |
889 |
|
|
$ |
1,493 |
|
Accounts receivable, net |
25,103 |
|
|
23,835 |
|
Inventories |
7,259 |
|
|
7,333 |
|
Prepaid and other current assets |
2,076 |
|
|
2,862 |
|
Total current assets |
35,327 |
|
|
35,523 |
|
Preneed
cemetery trust investments |
86,604 |
|
|
98,539 |
|
Preneed
funeral trust investments |
101,235 |
|
|
109,791 |
|
Preneed
cemetery receivables, net |
21,081 |
|
|
22,427 |
|
Receivables
from funeral preneed trusts, net |
16,844 |
|
|
17,758 |
|
Property,
plant and equipment, net |
269,051 |
|
|
267,431 |
|
Cemetery
property, net |
101,134 |
|
|
100,552 |
|
Goodwill |
392,978 |
|
|
391,972 |
|
Intangible
and other non-current assets, net |
29,542 |
|
|
29,464 |
|
Operating
lease right-of-use assets |
21,201 |
|
|
20,256 |
|
Cemetery
perpetual care trust investments |
70,828 |
|
|
75,290 |
|
Total assets |
$ |
1,145,825 |
|
|
$ |
1,169,003 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Current portion of debt and lease obligations |
$ |
3,432 |
|
|
$ |
3,172 |
|
Accounts payable |
11,259 |
|
|
11,650 |
|
Accrued and other liabilities |
31,138 |
|
|
33,671 |
|
Convertible subordinated notes due 2021 |
2,538 |
|
|
— |
|
Total current liabilities |
48,367 |
|
|
48,493 |
|
Acquisition
debt, net of current portion |
4,482 |
|
|
4,401 |
|
Credit
facility |
46,064 |
|
|
58,937 |
|
Senior
notes |
395,968 |
|
|
394,303 |
|
Obligations
under finance leases, net of current portion |
5,531 |
|
|
5,356 |
|
Obligations
under operating leases, net of current portion |
20,302 |
|
|
19,420 |
|
Deferred
preneed cemetery revenue |
47,846 |
|
|
48,672 |
|
Deferred
preneed funeral revenue |
27,992 |
|
|
29,143 |
|
Deferred tax
liability |
46,477 |
|
|
42,016 |
|
Other
long-term liabilities |
4,748 |
|
|
3,162 |
|
Deferred
preneed cemetery receipts held in trust |
86,604 |
|
|
98,539 |
|
Deferred
preneed funeral receipts held in trust |
101,235 |
|
|
109,791 |
|
Care trusts’
corpus |
69,707 |
|
|
73,899 |
|
Total liabilities |
905,323 |
|
|
936,132 |
|
Commitments
and contingencies |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock |
260 |
|
|
262 |
|
Additional paid-in capital |
239,989 |
|
|
237,891 |
|
Retained earnings |
102,303 |
|
|
109,069 |
|
Treasury stock |
(102,050 |
) |
|
(114,351 |
) |
Total stockholders’ equity |
|
240,502 |
|
|
|
232,871 |
|
Total liabilities and stockholders’ equity |
$ |
1,145,825 |
|
|
$ |
1,169,003 |
|
CARRIAGE
SERVICES, INC. |
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS |
(unaudited
and in thousands, except per share data) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
Service revenue |
$ |
38,880 |
|
|
$ |
40,119 |
|
|
$ |
79,612 |
|
|
$ |
87,876 |
|
Property and merchandise revenue |
32,642 |
|
|
41,606 |
|
|
63,913 |
|
|
83,502 |
|
Other revenue |
5,955 |
|
|
6,552 |
|
|
11,442 |
|
|
13,536 |
|
|
77,477 |
|
|
88,277 |
|
|
154,967 |
|
|
184,914 |
|
Field costs
and expenses: |
|
|
|
|
|
|
|
Cost of service |
18,622 |
|
|
19,583 |
|
|
39,679 |
|
|
40,550 |
|
Cost of merchandise |
24,612 |
|
|
27,520 |
|
|
49,675 |
|
|
56,040 |
|
Cemetery property amortization |
1,097 |
|
|
2,175 |
|
|
1,974 |
|
|
3,692 |
|
Field depreciation expense |
3,247 |
|
|
3,142 |
|
|
6,537 |
|
|
6,278 |
|
Regional and unallocated funeral and cemetery costs |
3,717 |
|
|
5,770 |
|
|
6,473 |
|
|
11,843 |
|
Other expenses |
1,022 |
|
|
1,160 |
|
|
2,298 |
|
|
2,523 |
|
|
52,317 |
|
|
59,350 |
|
|
106,636 |
|
|
120,926 |
|
Gross
profit |
25,160 |
|
|
28,927 |
|
|
48,331 |
|
|
63,988 |
|
|
|
|
|
|
|
|
|
Corporate
costs and expenses: |
|
|
|
|
|
|
|
General, administrative and other |
6,540 |
|
|
6,899 |
|
|
12,486 |
|
|
15,733 |
|
Home office depreciation and amortization |
354 |
|
|
277 |
|
|
736 |
|
|
566 |
|
Net loss on
divestitures, disposals and impairment charges |
— |
|
|
827 |
|
|
14,693 |
|
|
519 |
|
Operating
income |
18,266 |
|
|
20,924 |
|
|
20,416 |
|
|
47,170 |
|
|
|
|
|
|
|
|
|
Interest
expense |
(8,352 |
) |
|
(7,478 |
) |
|
(16,780 |
) |
|
(15,062 |
) |
Accretion of
discount on convertible subordinated notes |
(66 |
) |
|
— |
|
|
(131 |
) |
|
(20 |
) |
Loss on
extinguishment of debt |
— |
|
|
(23,807 |
) |
|
— |
|
|
(23,807 |
) |
Other,
net |
(2 |
) |
|
2 |
|
|
(6 |
) |
|
(66 |
) |
Income
(loss) before income taxes |
9,846 |
|
|
(10,359 |
) |
|
3,499 |
|
|
8,215 |
|
Benefit
(expense) for income taxes |
(3,299 |
) |
|
3,417 |
|
|
(1,163 |
) |
|
(2,341 |
) |
Tax
adjustment related to certain discrete items |
(150 |
) |
|
775 |
|
|
(136 |
) |
|
892 |
|
Total
benefit (expense) for income taxes |
(3,449 |
) |
|
4,192 |
|
|
(1,299 |
) |
|
(1,449 |
) |
Net income
(loss) |
$ |
6,397 |
|
|
$ |
(6,167 |
) |
|
$ |
2,200 |
|
|
$ |
6,766 |
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share: |
$ |
0.36 |
|
|
$ |
(0.34 |
) |
|
$ |
0.12 |
|
|
$ |
0.38 |
|
Diluted
earnings (loss) per common share: |
$ |
0.36 |
|
|
$ |
(0.33 |
) |
|
$ |
0.12 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
Dividends
declared per common share: |
$ |
0.075 |
|
|
$ |
0.100 |
|
|
$ |
0.150 |
|
|
$ |
0.200 |
|
|
|
|
|
|
|
|
|
Weighted
average number of common and common equivalent shares
outstanding: |
|
|
|
|
|
|
|
Basic |
17,860 |
|
|
17,967 |
|
|
17,833 |
|
|
17,966 |
|
Diluted |
17,889 |
|
|
18,511 |
|
|
17,862 |
|
|
18,364 |
|
CARRIAGE
SERVICES, INC. |
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(unaudited
and in thousands) |
|
|
Six Months Ended June 30, |
|
|
2020 |
|
|
|
2021 |
|
Cash flows
from operating activities: |
|
|
|
Net income |
$ |
2,200 |
|
|
$ |
6,766 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
9,247 |
|
|
10,536 |
|
Provision for credit losses |
1,507 |
|
|
849 |
|
Stock-based compensation expense |
1,546 |
|
|
2,537 |
|
Deferred income tax expense (benefit) |
4,867 |
|
|
(4,461 |
) |
Amortization of intangibles |
638 |
|
|
645 |
|
Amortization of debt issuance costs |
393 |
|
|
345 |
|
Amortization and accretion of debt |
282 |
|
|
201 |
|
Loss on extinguishment of debt |
— |
|
|
23,807 |
|
Net loss on divestitures, disposals and impairment charges |
14,789 |
|
|
700 |
|
Other |
19 |
|
|
— |
|
Changes in
operating assets and liabilities that provided (required)
cash: |
|
|
|
Accounts and preneed receivables |
2,231 |
|
|
(702 |
) |
Inventories, prepaid and other current assets |
(6,610 |
) |
|
(894 |
) |
Intangible and other non-current assets |
(503 |
) |
|
(592 |
) |
Preneed funeral and cemetery trust investments |
214 |
|
|
(18,473 |
) |
Accounts payable |
(516 |
) |
|
(471 |
) |
Accrued and other liabilities |
(411 |
) |
|
1,382 |
|
Deferred preneed funeral and cemetery revenue |
1,054 |
|
|
1,977 |
|
Deferred preneed funeral and cemetery receipts held in trust |
54 |
|
|
17,289 |
|
Net cash provided by operating activities |
31,001 |
|
|
41,441 |
|
|
|
|
|
Cash flows
from investing activities: |
|
|
|
Acquisition of businesses and real estate |
(28,011 |
) |
|
(2,935 |
) |
Proceeds from divestitures and sale of other assets |
78 |
|
|
3,622 |
|
Proceeds from insurance reimbursements |
— |
|
|
120 |
|
Capital expenditures |
(5,786 |
) |
|
(8,751 |
) |
Net cash used in investing activities |
(33,719 |
) |
|
(7,944 |
) |
|
|
|
|
Cash flows
from financing activities: |
|
|
|
Borrowings from the credit facility |
75,900 |
|
|
100,868 |
|
Payments against the credit facility |
(70,000 |
) |
|
(87,568 |
) |
Payment of call premium for the redemption of the senior notes due
2026 |
— |
|
|
(19,876 |
) |
Payment of debt issuance and transaction costs |
(66 |
) |
|
(6,430 |
) |
Conversions and maturity of the convertible subordinated notes due
2021 |
— |
|
|
(3,980 |
) |
Payments on acquisition debt and obligations under finance
leases |
(679 |
) |
|
(452 |
) |
Payments on contingent consideration recorded at acquisition
date |
(169 |
) |
|
(461 |
) |
Proceeds from the exercise of stock options and employee stock
purchase plan contributions |
624 |
|
|
1,495 |
|
Taxes paid on restricted stock vestings and exercises of stock
options |
(234 |
) |
|
(1,323 |
) |
Dividends paid on common stock |
(2,682 |
) |
|
(3,607 |
) |
Purchase of treasury stock |
— |
|
|
(11,559 |
) |
Net cash provided by (used in) financing activities |
2,694 |
|
|
(32,893 |
) |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
(24 |
) |
|
604 |
|
Cash and
cash equivalents at beginning of year |
716 |
|
|
889 |
|
Cash and
cash equivalents at end of year |
$ |
692 |
|
|
$ |
1,493 |
|
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 in the respective quarter. In 2021, Special
Items are taxed at the operating tax rate in the respective
quarter. 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 cash flow 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
impairment charges, Financial 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
impairment charges, Financial 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.
- Funeral Financial 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
Condensed Consolidated Statement of Operations.
- Funeral Financial EBITDA Margin is
defined as Funeral Financial EBITDA as a percentage of Funeral
Financial Revenue.
- Cemetery Financial 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 Condensed Consolidated Statement of Operations.
- Cemetery Financial EBITDA Margin is
defined as Cemetery Financial 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 EBITDA is the sum
of Funeral Financial EBITDA and Cemetery Financial EBITDA.
- Total Financial EBITDA Margin is
defined as Total Financial EBITDA as a percentage of Funeral
Financial Revenue and Cemetery 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 Condensed
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
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 EBITDA, Cemetery Financial 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):
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Net Income (Loss) |
$ |
6,397 |
|
|
$ |
5,525 |
|
|
$ |
8,365 |
|
|
$ |
12,933 |
|
|
$ |
(6,167 |
) |
Special
Items, Net of Tax(1)(2) |
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
36 |
|
|
— |
|
|
(135 |
) |
|
— |
|
|
— |
|
Severance and Separation Costs |
217 |
|
|
— |
|
|
— |
|
|
1,244 |
|
|
(118 |
) |
Performance Awards Cancellation and Exchange |
56 |
|
|
84 |
|
|
84 |
|
|
— |
|
|
— |
|
Accretion of Discount on Convertible Subordinated Notes(1) |
66 |
|
|
69 |
|
|
16 |
|
|
20 |
|
|
— |
|
Loss on Extinguishment of Debt |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
17,022 |
|
Net (Gain) Loss on Divestitures and Other Costs(2) |
— |
|
|
3,245 |
|
|
1,317 |
|
|
(213 |
) |
|
139 |
|
Net Impact of Impairment of Goodwill and Other Intangibles(2) |
51 |
|
|
— |
|
|
124 |
|
|
— |
|
|
— |
|
Litigation Reserve |
154 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Natural Disaster and Pandemic Costs |
657 |
|
|
268 |
|
|
250 |
|
|
706 |
|
|
37 |
|
Other Special Items |
371 |
|
|
(47 |
) |
|
— |
|
|
— |
|
|
954 |
|
Tax Adjustment Related to Certain Discrete Items (1) |
— |
|
|
— |
|
|
400 |
|
|
— |
|
|
— |
|
Adjusted Net
Income |
$ |
8,005 |
|
|
$ |
9,144 |
|
|
$ |
10,421 |
|
|
$ |
14,690 |
|
|
$ |
11,867 |
|
|
(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 in the respective quarter. In
2021, Special Items are taxed at the operating tax rate in the
respective quarter. |
Reconciliation of Net Income (Loss) to Consolidated
EBITDA, Adjusted Consolidated EBITDA (in thousands) and Adjusted
Consolidated EBITDA Margin:
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Net Income (Loss) |
$ |
6,397 |
|
|
$ |
5,525 |
|
|
$ |
8,365 |
|
|
$ |
12,933 |
|
|
$ |
(6,167 |
) |
Total
Expense (Benefit) for Income Taxes |
3,449 |
|
|
2,859 |
|
|
4,394 |
|
|
5,641 |
|
|
(4,192 |
) |
Income
(Loss) Before Income Taxes |
$ |
9,846 |
|
|
$ |
8,384 |
|
|
$ |
12,759 |
|
|
$ |
18,574 |
|
|
$ |
(10,359 |
) |
|
|
|
|
|
|
|
|
|
|
Interest
Expense |
8,352 |
|
|
8,007 |
|
|
7,728 |
|
|
7,584 |
|
|
7,478 |
|
Accretion of
Discount on Convertible Subordinated Notes |
66 |
|
|
69 |
|
|
16 |
|
|
20 |
|
|
— |
|
Non-Cash
Stock Compensation |
715 |
|
|
927 |
|
|
897 |
|
|
1,308 |
|
|
1,230 |
|
Depreciation
& Amortization |
4,698 |
|
|
5,033 |
|
|
5,109 |
|
|
4,942 |
|
|
5,594 |
|
Loss on
Extinguishment of Debt |
— |
|
|
6 |
|
|
— |
|
|
— |
|
|
23,807 |
|
Net (Gain)
Loss on Divestitures |
— |
|
|
4,917 |
|
|
1,832 |
|
|
(308 |
) |
|
205 |
|
Net Loss on
Disposal of Fixed Assets |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
622 |
|
Other,
Net |
2 |
|
|
28 |
|
|
(186 |
) |
|
68 |
|
|
(2 |
) |
Consolidated
EBITDA |
$ |
23,679 |
|
|
$ |
27,371 |
|
|
$ |
28,155 |
|
|
$ |
32,188 |
|
|
$ |
28,575 |
|
Adjusted
For: |
|
|
|
|
|
|
|
|
|
Acquisition Expenses |
45 |
|
|
— |
|
|
(170 |
) |
|
— |
|
|
— |
|
Severance and Separation Costs |
275 |
|
|
— |
|
|
— |
|
|
1,575 |
|
|
— |
|
Litigation Reserve |
195 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Natural Disaster and Pandemic Costs |
832 |
|
|
340 |
|
|
315 |
|
|
894 |
|
|
145 |
|
Other Special Items |
418 |
|
|
(45 |
) |
|
— |
|
|
— |
|
|
— |
|
Adjusted
Consolidated EBITDA |
$ |
25,444 |
|
|
$ |
27,666 |
|
|
$ |
28,300 |
|
|
$ |
34,657 |
|
|
$ |
28,720 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
77,477 |
|
|
$ |
84,393 |
|
|
$ |
90,088 |
|
|
$ |
96,637 |
|
|
$ |
88,277 |
|
Adjusted
Consolidated EBITDA Margin |
32.8 |
% |
|
|
32.8 |
% |
|
|
31.4 |
% |
|
|
35.9 |
% |
|
|
32.5 |
% |
Reconciliation of Funeral and Cemetery
Operating Income to Funeral and Cemetery Field EBITDA (in
thousands):
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Funeral Operating Income (GAAP) |
$ |
19,869 |
|
|
$ |
13,975 |
|
|
$ |
19,467 |
|
|
$ |
25,876 |
|
|
$ |
16,604 |
|
Depreciation
& Amortization |
2,895 |
|
|
2,885 |
|
|
2,862 |
|
|
2,769 |
|
|
2,766 |
|
Regional
& Unallocated Costs |
2,788 |
|
|
3,859 |
|
|
5,375 |
|
|
4,569 |
|
|
4,023 |
|
Net Loss on
Divestitures, Disposals and Impairment Charges |
— |
|
|
4,917 |
|
|
1,832 |
|
|
(308 |
) |
|
791 |
|
Less: |
|
|
|
|
|
|
|
|
|
Funeral Financial EBITDA |
(1,921 |
) |
|
(2,119 |
) |
|
(2,150 |
) |
|
(2,251 |
) |
|
(1,871 |
) |
Ancillary EBITDA |
(321 |
) |
|
(292 |
) |
|
(278 |
) |
|
(242 |
) |
|
(274 |
) |
Funeral Divested/Planned Divested EBITDA |
(830 |
) |
|
(378 |
) |
|
(310 |
) |
|
(134 |
) |
|
(119 |
) |
Funeral
Field EBITDA |
$ |
22,480 |
|
|
$ |
22,847 |
|
|
$ |
26,798 |
|
|
$ |
30,279 |
|
|
$ |
21,920 |
|
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Cemetery Operating Income (GAAP) |
$ |
5,291 |
|
|
$ |
8,982 |
|
|
$ |
8,419 |
|
|
$ |
9,493 |
|
|
$ |
11,498 |
|
Depreciation
& Amortization |
1,449 |
|
|
1,819 |
|
|
1,885 |
|
|
1,884 |
|
|
2,551 |
|
Regional
& Unallocated Costs |
929 |
|
|
872 |
|
|
1,478 |
|
|
1,504 |
|
|
1,747 |
|
Net Loss on
Divestitures, Disposals and Impairment Charges |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
34 |
|
Less: |
|
|
|
|
|
|
|
|
|
Cemetery Financial EBITDA |
(2,527 |
) |
|
(3,107 |
) |
|
(2,717 |
) |
|
(3,003 |
) |
|
(3,122 |
) |
Cemetery Divested/Planned Divested EBITDA |
(41 |
) |
|
(64 |
) |
|
(42 |
) |
|
(71 |
) |
|
(392 |
) |
Cemetery
Field EBITDA |
$ |
5,101 |
|
|
$ |
8,502 |
|
|
$ |
9,023 |
|
|
$ |
9,807 |
|
|
$ |
12,316 |
|
Components of Total Field EBITDA (in
thousands):
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Funeral Field EBITDA |
$ |
22,480 |
|
|
$ |
22,847 |
|
|
$ |
26,798 |
|
|
$ |
30,279 |
|
|
$ |
21,920 |
|
Cemetery
Field EBITDA |
5,101 |
|
|
8,502 |
|
|
9,023 |
|
|
9,807 |
|
|
12,316 |
|
Funeral
Financial EBITDA |
1,921 |
|
|
2,119 |
|
|
2,150 |
|
|
2,251 |
|
|
1,871 |
|
Cemetery
Financial EBITDA |
2,527 |
|
|
3,107 |
|
|
2,717 |
|
|
3,003 |
|
|
3,122 |
|
Ancillary
EBITDA |
321 |
|
|
292 |
|
|
278 |
|
|
242 |
|
|
274 |
|
Funeral
Divested/Planned Divested EBITDA |
830 |
|
|
378 |
|
|
310 |
|
|
134 |
|
|
119 |
|
Cemetery
Divested/Planned Divested EBITDA |
41 |
|
|
64 |
|
|
42 |
|
|
71 |
|
|
392 |
|
Total Field
EBITDA |
$ |
33,221 |
|
|
$ |
37,309 |
|
|
$ |
41,318 |
|
|
$ |
45,787 |
|
|
$ |
40,014 |
|
Reconciliation of GAAP Basic Earnings
(Loss) Per Share to Adjusted Basic Earnings Per Share:
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
GAAP Basic Earnings (Loss) Per Share |
$ |
0.36 |
|
|
$ |
0.31 |
|
|
$ |
0.47 |
|
|
$ |
0.72 |
|
|
$ |
(0.34 |
) |
Special
Items |
0.09 |
|
|
0.20 |
|
|
0.11 |
|
|
0.10 |
|
|
1.00 |
|
Adjusted
Basic Earnings Per Share |
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
0.58 |
|
|
$ |
0.82 |
|
|
$ |
0.66 |
|
Reconciliation of GAAP Diluted Earnings
(Loss) Per Share to Adjusted Diluted Earnings Per
Share:
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
GAAP Diluted Earnings (Loss) Per Share |
$ |
0.36 |
|
|
$ |
0.31 |
|
|
$ |
0.46 |
|
|
$ |
0.71 |
|
|
$ |
(0.33 |
) |
Special
Items |
0.09 |
|
|
0.20 |
|
|
0.11 |
|
|
0.10 |
|
|
0.97 |
|
Adjusted
Diluted Earnings Per Share |
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
0.57 |
|
|
$ |
0.81 |
|
|
$ |
0.64 |
|
Reconciliation of Cash flow provided by
operations to Adjusted Free Cash Flow (in thousands) and Adjusted
Free Cash Flow Margin:
|
2ND QTR
2020 |
|
3RD QTR
2020 |
|
4TH QTR
2020 |
|
1ST QTR
2021 |
|
2ND QTR
2021 |
Cash Flow Provided by Operating Activities |
$ |
17,455 |
|
|
$ |
36,821 |
|
|
$ |
15,093 |
|
|
$ |
26,811 |
|
|
$ |
14,630 |
|
Cash used
for Maintenance Capital Expenditures |
(1,342 |
) |
|
(2,496 |
) |
|
(3,368 |
) |
|
(2,140 |
) |
|
(2,462 |
) |
Free Cash
Flow |
$ |
16,113 |
|
|
$ |
34,325 |
|
|
$ |
11,725 |
|
|
$ |
24,671 |
|
|
$ |
12,168 |
|
|
|
|
|
|
|
|
|
|
|
Plus:
Incremental Special Items: |
|
|
|
|
|
|
|
|
|
Federal Tax
Refund |
— |
|
|
(7,012 |
) |
|
— |
|
|
— |
|
|
— |
|
Acquisition
Expenses |
45 |
|
|
— |
|
|
(170 |
) |
|
— |
|
|
— |
|
Severance
and Separation Costs |
275 |
|
|
— |
|
|
— |
|
|
1,575 |
|
|
— |
|
Litigation
Reserve |
195 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Natural
Disaster and Pandemic Costs |
832 |
|
|
340 |
|
|
315 |
|
|
894 |
|
|
145 |
|
Other
Special Items |
418 |
|
|
(45 |
) |
|
— |
|
|
— |
|
|
— |
|
Adjusted
Free Cash Flow |
$ |
17,878 |
|
|
$ |
27,608 |
|
|
$ |
11,870 |
|
|
$ |
27,140 |
|
|
$ |
12,313 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
77,477 |
|
|
$ |
84,393 |
|
|
$ |
90,088 |
|
|
$ |
96,637 |
|
|
$ |
88,277 |
|
Adjusted
Free Cash Flow Margin |
|
23.1 |
% |
|
|
32.7 |
% |
|
|
13.2 |
% |
|
|
28.1 |
% |
|
|
13.9 |
% |
Reconciliation of Cash flow provided by
operations to Adjusted Free Cash Flow (in thousands) and Adjusted
Free Cash Flow Margin:
|
Six Months Ended June 30, |
|
|
2020 |
|
|
|
2021 |
|
Cash Flow Provided by Operating Activities |
$ |
31,001 |
|
|
$ |
41,441 |
|
Cash used
for Maintenance Capital Expenditures |
(2,898 |
) |
|
(4,602 |
) |
Free Cash
Flow |
$ |
28,103 |
|
|
$ |
36,839 |
|
|
|
|
|
Plus:
Incremental Special Items: |
|
|
|
Acquisition
Expenses |
159 |
|
|
— |
|
Severance
and Separation Costs |
563 |
|
|
1,575 |
|
Litigation
Reserve |
270 |
|
|
— |
|
Natural
Disaster and Pandemic Costs |
972 |
|
|
1,039 |
|
Other
Special Items |
418 |
|
|
— |
|
Adjusted
Free Cash Flow |
$ |
30,485 |
|
|
$ |
39,453 |
|
|
|
|
|
Revenue |
$ |
154,967 |
|
|
$ |
184,914 |
|
Adjusted
Free Cash Flow Margin |
|
19.7 |
% |
|
|
21.3 |
% |
Reconciliation of Actual Results (year
ended December 31, 2018, 2019 and 2020), Last Twelve Months ended
June 30, 2021, Estimated year ended December 31, 2021, Rolling Four
Quarter Outlook ended June 30, 2022 and Estimated year ended
December 31, 2022.
Earlier in this press release, we present the
Two Year Performance Scenario and the Rolling Four Quarter Outlook
which reflects management’s opinion on the performance of the
portfolio of existing businesses, including performance of existing
trusts, and excludes size and timing of acquisitions unless we have
a signed Letter of Intent with a high likelihood of a closing
within 90 days. These are 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 provided in the
Performance Outlook Scenario and Rolling Four Quarter
Outlook.Reconciliation of Net Income to Consolidated
EBITDA, Total Field EBITDA (in thousands) and Total Field EBITDA
Margin:
|
2018A |
|
2019A |
|
2020A |
|
LTM |
|
2021E |
|
RFQO |
|
2022E |
Net Income |
$ |
11,645 |
|
|
$ |
14,533 |
|
|
$ |
16,090 |
|
|
$ |
20,656 |
|
|
$ |
29,000 |
|
|
$ |
51,000 |
|
|
$ |
53,000 |
|
Total Tax
Expense |
6,621 |
|
|
7,883 |
|
|
8,552 |
|
|
8,702 |
|
|
11,000 |
|
|
20,000 |
|
|
21,000 |
|
Pretax
Income |
$ |
18,266 |
|
|
$ |
22,416 |
|
|
$ |
24,642 |
|
|
$ |
29,358 |
|
|
$ |
40,000 |
|
|
$ |
71,000 |
|
|
$ |
74,000 |
|
Net Interest
Expense, including Accretion of Discount on Convertible
Subordinated Notes |
23,301 |
|
|
25,763 |
|
|
32,731 |
|
|
30,902 |
|
|
25,000 |
|
|
20,800 |
|
|
20,000 |
|
Depreciation
& Amortization, including Non-cash Stock Compensation and
Other, Net |
24,056 |
|
|
19,188 |
|
|
22,613 |
|
|
24,948 |
|
|
26,500 |
|
|
26,200 |
|
|
25,000 |
|
Net Loss on
Divestitures, Disposals, Impairment Charges and Extinguishment of
Debt |
1,697 |
|
|
4,846 |
|
|
21,442 |
|
|
31,081 |
|
|
25,000 |
|
|
— |
|
|
— |
|
Consolidated
EBITDA |
$ |
67,320 |
|
|
$ |
72,213 |
|
|
$ |
101,428 |
|
|
$ |
116,289 |
|
|
$ |
116,500 |
|
|
$ |
118,000 |
|
|
$ |
119,000 |
|
Overhead |
36,993 |
|
|
37,554 |
|
|
40,514 |
|
|
48,139 |
|
|
45,500 |
|
|
45,000 |
|
|
48,000 |
|
Total Field
EBITDA |
$ |
104,313 |
|
|
$ |
109,767 |
|
|
$ |
141,942 |
|
|
$ |
164,428 |
|
|
$ |
162,000 |
|
|
$ |
163,000 |
|
|
$ |
167,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
267,992 |
|
|
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
359,395 |
|
|
$ |
355,000 |
|
|
$ |
360,000 |
|
|
$ |
365,000 |
|
Total Field
EBITDA Margin |
38.9 |
% |
|
40.0 |
% |
|
43.1 |
% |
|
45.8 |
% |
|
45.6 |
% |
|
45.3 |
% |
|
45.8 |
% |
Reconciliation of Consolidated EBITDA to
Adjusted Consolidated EBITDA (in thousands) and Adjusted
Consolidated EBITDA Margin:
|
2018A |
|
2019A |
|
2020A |
|
LTM |
|
2021E |
|
RFQO |
|
2022E |
Consolidated EBITDA |
$ |
67,320 |
|
|
$ |
72,213 |
|
|
$ |
101,428 |
|
|
$ |
116,289 |
|
|
$ |
116,500 |
|
|
$ |
118,000 |
|
|
$ |
119,000 |
|
Special
Items |
2,872 |
|
|
4,374 |
|
|
2,822 |
|
|
3,054 |
|
|
2,600 |
|
|
— |
|
|
— |
|
Adjusted
Consolidated EBITDA |
$ |
70,192 |
|
|
$ |
76,587 |
|
|
$ |
104,250 |
|
|
$ |
119,343 |
|
|
$ |
119,100 |
|
|
$ |
118,000 |
|
|
$ |
119,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
267,992 |
|
|
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
359,395 |
|
|
$ |
355,000 |
|
|
$ |
360,000 |
|
|
$ |
365,000 |
|
Adjusted
Consolidated EBITDA Margin |
26.2 |
% |
|
27.9 |
% |
|
31.6 |
% |
|
33.2 |
% |
|
33.5 |
% |
|
32.8 |
% |
|
32.6 |
% |
Reconciliation of Net Income to Adjusted
Net Income (in thousands):
|
2018A |
|
2019A |
|
2020A |
|
LTM |
|
2021E |
|
RFQO |
|
2022E |
Net Income |
$ |
11,645 |
|
|
$ |
14,533 |
|
|
$ |
16,090 |
|
|
$ |
20,656 |
|
|
$ |
29,000 |
|
|
$ |
51,000 |
|
|
$ |
53,000 |
|
Special
Items |
9,921 |
|
|
7,999 |
|
|
17,593 |
|
|
25,466 |
|
|
20,000 |
|
|
— |
|
|
— |
|
Adjusted Net
Income |
$ |
21,566 |
|
|
$ |
22,532 |
|
|
$ |
33,683 |
|
|
$ |
46,122 |
|
|
$ |
49,000 |
|
|
$ |
51,000 |
|
|
$ |
53,000 |
|
Reconciliation of GAAP Diluted Earnings
Per Share to Adjusted Diluted Earnings Per Share:
|
2018A |
|
2019A |
|
2020A |
|
LTM |
|
2021E |
|
RFQO |
|
2022E |
GAAP Diluted Earnings Per Share |
$ |
0.63 |
|
|
$ |
0.80 |
|
|
$ |
0.89 |
|
|
$ |
1.15 |
|
|
$ |
1.63 |
|
|
$ |
2.91 |
|
|
$ |
3.16 |
|
Special
Items |
0.54 |
|
|
0.45 |
|
|
0.97 |
|
|
1.38 |
|
|
1.12 |
|
|
— |
|
|
— |
|
Adjusted
Diluted Earnings Per Share |
$ |
1.17 |
|
|
$ |
1.25 |
|
|
$ |
1.86 |
|
|
$ |
2.53 |
|
|
$ |
2.75 |
|
|
$ |
2.91 |
|
|
$ |
3.16 |
|
Reconciliation of Cash Flow Provided by
Operating Activities to Adjusted Free Cash Flow (in thousands) and
Adjusted Free Cash Flow Margin:
|
2018A |
|
2019A |
|
2020A |
|
LTM |
|
2021E |
|
RFQO |
|
2022E |
Cash Flow Provided by Operating Activities |
$ |
48,994 |
|
|
$ |
43,216 |
|
|
$ |
82,915 |
|
|
$ |
93,355 |
|
|
$ |
80,000 |
|
|
$ |
83,000 |
|
|
$ |
88,000 |
|
Cash used
for Maintenance Capital Expenditures |
(9,266 |
) |
|
(8,795 |
) |
|
(8,762 |
) |
|
(10,466 |
) |
|
(10,000 |
) |
|
(10,000 |
) |
|
(11,000 |
) |
Special
Items |
2,872 |
|
|
4,374 |
|
|
(4,190 |
) |
|
(3,958 |
) |
|
2,600 |
|
|
— |
|
|
— |
|
Adjusted
Free Cash Flow |
$ |
42,600 |
|
|
$ |
38,795 |
|
|
$ |
69,963 |
|
|
$ |
78,931 |
|
|
$ |
72,600 |
|
|
$ |
73,000 |
|
|
$ |
77,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
267,992 |
|
|
$ |
274,107 |
|
|
$ |
329,448 |
|
|
$ |
359,395 |
|
|
$ |
355,000 |
|
|
$ |
360,000 |
|
|
$ |
365,000 |
|
Adjusted
Free Cash Flow Margin |
|
15.9 |
% |
|
|
14.2 |
% |
|
|
21.2 |
% |
|
|
22.0 |
% |
|
|
20.5 |
% |
|
|
20.3 |
% |
|
|
21.1 |
% |
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,
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; 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;
- 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, internal growth projects, potential
strategic acquisitions, dividend increases, or debt repayment
plans;
- our ability to meet
the projected financial and equity performance metrics to our
updated rolling four quarter outlook, two-year 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, on customer preferences and on our business;
- effects 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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