Carriage Services Announces Record First Quarter Results

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Carriage Services, Inc.
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HOUSTON, April 21, 2021 (GLOBE NEWSWIRE) -- Carriage Services, Inc. (NYSE: CSV) today announced results for the first quarter ended March 31, 2021. Mel Payne, Chairman and CEO, stated, “We had a record first quarter performance in four of five operating and financial reporting segments to start 2021, as Total Revenue increased $19.1 million or 24.7% to $96.6 million, Field EBITDA increased $15.7 million or 52.1% to $45.8 million, Adjusted Consolidated EBITDA increased $11.8 million or 51.7% to $34.7 million, Adjusted Free Cash Flow increased $14.5 million or 115.3% to $27.1 million, and Adjusted Diluted EPS increased $0.46 or 131.4% to $0.81 compared to $0.35 in 2020. Our Field Margins in all five segments continued to be extraordinarily high compared to 2020, reflected by a Total Field EBITDA Margin of 47.4%, up 860 basis points, Adjusted Consolidated EBITDA Margin of 35.9%, up 640 basis points, and Adjusted Free Cash Flow Margin of 28.1%, up 1,180 basis points.

Our credit profile continued to rapidly improve as reflected by a reduction in our Total Debt to EBITDA Ratio from 4.4 times at December 31, 2020 (Total Debt of $461.1 million / EBITDA of $104.3 million) to 3.8 times (Total Debt of $439.4 million / Rolling Four Quarter EBITDA of $116.1 million). We have achieved a reduction in our Total Debt to EBITDA Leverage Ratio of 2.2 times in only 15 months (from 6.0 times at January 3, 2020 to 3.8 times at March 31, 2021), a truly remarkable achievement whose story was fully told and explained in my recent 50 page 2020 Shareholder Letter with the cover theme, “A TALE OF HIGH PERFORMANCE TRANSFORMATION.”

The balance of this 2021 first quarter earnings release will be equivalent to an extension of my 2020 Shareholder Letter, i.e. a journey through “highly transparent” high performance data sequentially shown on the following pages as follows:

  • First Quarter 2021 Comparative Performance Highlights;

  • Five Quarter Trend Report ending March 31, 2021;

  • Same Store Funeral Revenue Monthly Trends and Drivers Six Months Ending March 2021;

  • First Quarter 2021 versus 2020 Variable Overhead/Incentive Compensation Comparison; and

  • Rolling Four Quarter Outlook ending March 31, 2022 and Updated and Increased Two Year Scenario 2021/2022.

FIRST QUARTER 2021 COMPARATIVE PERFORMANCE HIGHLIGHTS

  • Total Revenue of $96.6 million compared to $77.5 million, an increase of 24.7%;

  • Total Field EBITDA of $45.8 million compared to $30.1 million, an increase of 52.1%;

  • Total Field EBITDA Margin of 47.4% compared to 38.8%, an increase of 860 basis points;

  • Adjusted Consolidated EBITDA of $34.7 million compared to $22.8 million, an increase of 51.7%;

  • Adjusted Consolidated EBITDA Margin of 35.9% compared to 29.5%, an increase of 640 basis points;

  • Adjusted Diluted EPS of $0.81 compared to $0.35, an increase of 131.4%;

  • Adjusted Free Cash Flow of $27.1 million compared to $12.6 million, an increase of 115.3%;

  • Adjusted Free Cash Flow Margin of 28.1% compared to 16.3%, an increase of 1,180 basis points;

  • Total Debt reduction during the first quarter of $21.7 million (4.7%) to $439.4 million;

  • Net Income of $12.9 million, an increase of $17.1 million equal to 408.1%; and

  • GAAP Diluted EPS of $0.71, an increase of $.94 per share equal to 408.7%.

FIVE QUARTER TREND REPORT

We report our performance results publicly using the same highly transparent Non-GAAP “Trend Reports” that we use internally and which have been explained in previous shareholder letters, including Five Year and Five Quarter Trend Reports that reflect long and short term trends in our core operating, financial and overhead sectors over time. Shown below are highlights from our Five Quarter Trend Report that clearly reflect the accelerating transformative performance process that has occurred at Carriage over the last 15 months.

FIVE QUARTER OPERATING AND FINANCIAL TREND REPORT HIGHLIGHTS

(000’s except for volume, averages & margins)

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Funeral Same Store Contracts

9,058

9,056

9,420

10,172

11,028

Average Revenue Per Contract (1)

$

5,155

$

4,891

$

5,069

$

5,158

$

5,140

Funeral Same Store Burial Contracts

3,339

3,273

3,370

3,777

4,038

Funeral Same Store Burial Rate

36.9

%

36.1

%

35.8

%

37.1

%

36.6

%

Average Revenue Per Burial Contract

$

9,069

$

8,688

$

8,984

$

9,013

$

8,987

Funeral Same Store Cremation Contracts

4,985

5,199

5,382

5,697

6,285

Funeral Same Store Cremation Rate

55.0

%

57.4

%

57.1

%

56.0

%

57.0

%

Average Revenue Per Cremation Contract

$

3,299

$

3,075

$

3,285

$

3,251

$

3,294

Funeral Same Store Revenue

$

46,696

$

44,297

$

47,750

$

52,472

$

56,683

Funeral Same Store EBITDA

$

18,062

$

18,726

$

19,906

$

23,115

$

25,812

Funeral Same Store EBITDA Margin

38.7

%

42.3

%

41.7

%

44.1

%

45.5

%

Funeral Acquisition Revenue

$

8,885

$

9,023

$

8,204

$

9,348

$

10,139

Funeral Acquisition EBITDA

$

3,247

$

3,754

$

2,941

$

3,683

$

4,467

Funeral Acquisition EBITDA Margin

36.5

%

41.6

%

35.8

%

39.4

%

44.1

%

Cemetery Same Store Preneed Property Contracts Sold

817

931

1,073

1,039

1,167

Cemetery Same Store Preneed Sales Revenue

$

6,967

$

8,286

$

8,319

$

9,230

$

9,302

Cemetery Same Store Revenue

$

10,907

$

11,611

$

14,393

$

14,784

$

14,621

Cemetery Same Store EBITDA

$

3,167

$

3,656

$

6,175

$

6,471

$

5,711

Cemetery Same Store EBITDA Margin

29.0

%

31.5

%

42.9

%

43.8

%

39.1

%

Cemetery Acquired Preneed Property Contracts Sold

175

295

304

345

338

Cemetery Acquired Preneed Sales Revenue

$

2,137

$

3,079

$

4,073

$

5,394

$

5,089

Cemetery Acquisition Revenue

$

2,799

$

4,055

$

5,220

$

5,509

$

6,980

Cemetery Acquisition EBITDA

$

827

$

1,434

$

2,335

$

2,532

$

4,102

Cemetery Acquisition EBITDA Margin

29.5

%

35.4

%

44.7

%

46.0

%

58.8

%

Total Financial Revenue

$

4,237

$

4,682

$

5,591

$

5,226

$

5,682

Total Financial EBITDA

$

3,820

$

4,456

$

5,242

$

4,887

$

5,281

Total Financial EBITDA Margin

90.2

%

95.2

%

93.8

%

93.5

%

92.9

%

Total Revenue

$

77,490

$

77,477

$

84,393

$

90,088

$

96,637

Total Field EBITDA

$

30,094

$

33,221

$

37,309

$

41,318

$

45,787

Total Field EBITDA Margin

38.8

%

42.9

%

44.2

%

45.9

%

47.4

%

Adjusted Consolidated EBITDA

$

22,840

$

25,444

$

27,666

$

28,300

$

34,657

Adjusted Consolidated EBITDA Margin

29.5

%

32.8

%

32.8

%

31.4

%

35.9

%

Adjusted Diluted EPS

$

0.35

$

0.45

$

0.51

$

0.57

$

0.81

Adjusted Free Cash Flow

$

12,607

$

17,878

$

27,608

$

11,870

$

27,140

Adjusted Free Cash Flow Margin

16.3

%

23.1

%

32.7

%

13.2

%

28.1

%

(1) Excludes Preneed Funeral interest earnings reflected in Total Financial Revenue.

Since we included comparative YTD February 2021 performance highlights along with commentary in my recent Shareholder Letter, the primary takeaway from the Five Quarter Trend Report other than the spectacular record Same Store Funeral performance in the first quarter (monthly trends covered below in the next section of this release) is the continuing broad preneed property sales momentum in our cemetery portfolio. As our cemetery atneed performance is highly correlated with our funeral volumes and revenues and might subside along with funeral volumes in a more normalized death rate environment, our preneed property sales momentum should build throughout the balance of the year to a sustainable level much higher than ever before, particularly within our Cemetery Acquisition Portfolio, which I comprehensively covered on pages 29-33 of my Shareholder Letter.

SAME STORE FUNERAL MONTHLY REVENUE TRENDS/DRIVERS SIX MONTHS ENDING MARCH 2021

(000’s except for volume, averages)

2020 versus 2019

2021 versus 2020

Same Store Funeral

OCT

NOV

DEC

JAN

FEB

MAR

APR EST.

Contracts (volume) 2020/2021

3,061

3,060

4,051

4,195

3,539

3,294

3,050

Contracts (volume) 2019/2020

2,865

2,734

2,991

3,136

2,849

3,073

3,185

Volume Variance

196

326

1,060

1,059

690

221

(135

)

Average Revenue Per Contract 2020/2021(1)

$

5,268

$

5,156

$

5,077

$

5,167

$

5,031

$

5,222

$

5,250

Average Revenue Per Contract 2019/2020(1)

$

5,330

$

5,179

$

5,369

$

5,263

$

5,245

$

4,962

$

4,621

Average Revenue Per Contract Variance

$

(62

)

$

(23

)

$

(292

)

$

(96

)

$

(214

)

$

260

$

629

Operating Revenue 2020/2021(1)

$

16,126

$

15,778

$

20,568

$

21,677

$

17,806

$

17,200

$

16,012

Operating Revenue 2019/2020(1)

$

15,272

$

14,161

$

16,059

$

16,506

$

14,942

$

15,249

$

14,719

Operating Revenue Variance

$

854

$

1,617

$

4,509

$

5,171

$

2,864

$

1,951

$

1,293

Net Revenue Volume Variance

$

1,045

$

1,688

$

5,691

$

5,574

$

3,619

$

1,096

$

(624

)

Net Revenue Average Variance

$

(191

)

$

(71

)

$

(1,182

)

$

(403

)

$

(755

)

$

855

$

1,917

Net Revenue Variance

$

854

$

1,617

$

4,509

$

5,171

$

2,864

$

1,951

$

1,293

(1) Excludes Preneed Funeral interest earnings reflected in Total Financial Revenue.

As the above table shows, the primary driver of our huge increase in Same Store Funeral Revenue (and Field EBITDA Dollars and Margins) in the fourth quarter of 2020 and first quarter of 2021 was the peak spike in COVID deaths in December, January and February, offset somewhat by lower revenue averages. Some of the volume increase during this period and all during this past year of the pandemic has been market share gains throughout our funeral portfolio, as covered in my Shareholder Letter.

As shown above for March and forecast April 2021 Same Store Funeral Revenue, we are now experiencing a more normal pre-COVID level of funeral volumes yet continuing to have higher revenues year over year because of much higher revenue averages compared to the peak lows in the initial phase of the Coronavirus Pandemic shock in March/April 2020. We should experience a net increase in same store revenues for April as our forecast for the last two weeks of April reflects a continuing rapid increase in both our burial and cremation revenue averages that are more than compensating for the normalization of volumes.

FIRST QUARTER 2021 VERSUS 2020 VARIABLE 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 (mostly fixed with four segments comprised of three Regional Partners and one National Sales and Marketing Partner, plus seven Directors of Support-Operations and three Directors of Support-Sales); Total Corporate Overhead (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, natural disaster costs (floods, hurricanes, Pandemic, etc.).

As covered in my Shareholder Letter, we have had a series of significant nonrecurring items related to the two and a half year process of High Performance Transformation since September 12, 2018. After we complete the planned refinancing of our balance sheet, our 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 Variable Overhead comprised of mostly incentive compensation representing about one-third of Total Overhead.

This past year of COVID-19 Pandemic created a lot of distortion at certain points in our Variable Overhead reporting as shown below in the comparison of first quarter 2021 to first quarter 2020.

FIRST QUARTER COMPARISON (000's)

OVERHEAD

2020

2021

Variance $

Variance %

Total Variable

$

1,636

$

6,900

$

5,264

321.8

%

Total Regional

1,038

1,199

161

15.5

%

Total Corporate

5,197

5,500

303

5.8

%

Total Overhead

$

7,871

$

13,599

$

5,728

72.8

%

% Total Revenue

10.2

%

14.1

%

390 bp

38.2

%

Corporate Incentive Compensation

$

$

1,100

$

1,100

N/A

Field Incentive Compensation

794

3,026

2,232

281.1

%

Separation Expenses

484

1,588

1,104

228.1

%

Pandemic Costs

103

854

751

729.1

%

Acquisition/Divestiture Expenses

171

185

14

8.2

%

Other Variable

84

147

63

75.0

%

Total Variable Overhead

$

1,636

$

6,900

$

5,264

321.8

%

% Total Revenue

2.1

%

7.1

%

500 bp

238.1

%

As shown in the table of the first quarter 2020 to 2021 overhead comparisons, the initial shock of the Coronavirus pandemic in mid-March of 2020 caused us to plan for the worst and control/reduce all costs until we could have more certainty about the 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, our performance trended higher month by month and accelerated during the second half of the year.

Once the Field Revenue, EBITDA and EBITDA Margin Trends became our friend in the second quarter of 2020, we eliminated the salary reductions and began to add increasingly high amounts of corporate and field incentive compensation to Variable Overhead starting in June. Our 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 exploded with broadly higher Revenue and EBITDA Margin performance across our funeral and cemetery portfolios.

If not for a huge increase in our annual Being The Best and five year Good To Great field and corporate incentive accruals in December 2020, our fourth quarter performance would have been much higher than Adjusted Consolidated EBITDA of $28.3 million, Adjusted Consolidated EBITDA Margin of 31.4% (compared to 32.8% in second and third quarter of 2020 and 35.9% in first quarter 2021) and EPS of $0.57 (compared to $0.45 in second quarter 2020, $0.51 in third quarter 2020, and $0.81 in first quarter 2021).

We had two members of our previously ten member Executive Team resign at the beginning of February 2021 (one to retire, the other to pursue a career opportunity elsewhere). Both left Carriage on good terms with strong bench strength in their respective Houston Support Center Teams and therefore won’t be replaced by anyone from outside of Carriage, which should result in a decrease in normalized corporate overhead for the balance of 2021.

Last year amidst such uncertainty we were somewhat cautious of over-accruing for incentive compensation, so we were constantly behind and often surprised at our own deep, broad and sustainable High Performance Transformation, especially in the second half of the year. Yet even after a record first quarter in 2021 that would be difficult to sustain, we remain confident about 2021 being another record annual performance and therefore have aggressively added to our field and corporate incentive compensation accruals to “Pay All High Performers” for their continuing High Performance.

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 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, a concept which 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.

ACTUAL RESULTS, UPDATED TWO YEAR SCENARIO AND ROLLING FOUR QUARTER OUTLOOK

Ben Brink, Chief Financial Officer stated, “We are excited to once again increase our Roughly Right Scenario for 2021 and 2022. The increase in our performance expectation through 2022 is reflective of the continued High Performance execution we have witnessed across our portfolio as well as our expectations that the following drivers will only accelerate High Performance over the coming years:

  1. Increased Cemetery Preneed Sales leading to higher Cemetery Revenue growth rates with higher sustained Cemetery Field EBITDA Margins;

  2. Continuation of local market share gains across our funeral home portfolio;

  3. Growth in Average Revenue per Funeral Contract, particularly Cremation contracts;

  4. Sustained higher plateau of Financial Revenue and Financial EBITDA; and

  5. Higher Returns on Invested Capital from continued disciplined capital allocation combined with a lower Cost of Capital.

We are introducing an updated Rolling Four Quarter Outlook that captures almost a full year of anticipated lower interest costs post a potential senior note refinancing transaction. The Roughly Right Ranges of performance outcomes through 2022 represent realistic estimates for our performance by taking into account the current momentum in operating performance trends while remaining conservative due to the relative unknown trajectory of the Coronavirus Pandemic and the impact of the current vaccination campaign on the death rate in the short term. Despite the near to intermediate term unknowns, Carriage has numerous known drivers of future High Performance that, when combined with continued execution by our Managing Partners and their employee teams, provide us with multiple opportunities to achieve even higher results than outlined below:

Performance Metric

2019A

2020A

LTM

2021

RFQO

2022

3 Year
Midpoint CAGR

Total Revenue

$274.1

$329.4

$348.6

$340 - $350

$340 - $350

$345 - $355

8.5%

Total Field EBITDA

$109.8

$141.9

$157.6

$150 - $155

$150 - $155

$155 - $160

12.8%

Total Field EBITDA Margin

40%

43%

45.2%

44% - 45%

44% - 45%

44.5% - 45.5%

4.0%

Adjusted Consolidated EBITDA

$76.6

$104.3

$116.1

$112 - $118

$112 - $118

$116 - $122

15.8%

Adjusted Consolidated EBITDA Margin

27.9%

31.6%

33.3%

32% - 33%

32% - 33%

32.5% - 33.5%

5.7%

Adjusted Diluted EPS

$1.25

$1.86

$2.34

$2.45 - $2.55

$2.45 - $2.55

$2.60 - $2.80

29.2%

Adjusted Free Cash Flow

$38.8

$70.0

$84.5

$65 - $69

$70 - $74

$72 - $76

24.0%

Adjusted FCF Margin

14.2%

21.2%

24.2%

19% - 20%

19.5% - 20.5%

20% - 21%

13.0%

Total Debt Outstanding

$534(1)

$461.1

$439.4

$425 - $435

$400 - $412

$370 - $380

(11.1)%

Total Debt to EBITDA Multiple

7.0(2)

4.4

3.8

3.8 - 4.0

3.5 - 3.7

3.2 - 3.4

N/A

(1) January 3, 2020 acquisition of Oakmont and peak debt.
(2) Does not include proforma EBITDA for acquisitions.

ADJUSTED FREE CASH FLOW AND LEVERAGE RATIO

Three Months Ended March 31,

2020

2021

Cash Flow Provided by Operating Activities

$

13,546

$

26,811

Cash used for Maintenance Capital Expenditures

(1,556

)

(2,140

)

Free Cash Flow

$

11,990

$

24,671

Plus: Incremental Special Items:

Acquisition Expenses

114

Severance and Separation Costs

288

1,575

Litigation Reserve

75

Natural Disaster and Pandemic Costs

140

894

Adjusted Free Cash Flow

$

12,607

$

27,140

Our Adjusted Free Cash Flow in the first quarter increased 115.3% to $27.1 million and our Adjusted Free Cash Flow Margin, which is the amount of Free Cash Flow Carriage generates for every dollar of Revenue, increased an incredible 1,180 basis points to 28.1%. For the last twelve months our Adjusted Free Cash Flow totaled $84.5 million and our Adjusted Free Cash Flow Margin expanded to 24.2%.

When we made the decisions to acquire the four large, high quality businesses at the end of 2019 and early 2020, which increased our proforma Total Debt to Adjusted Consolidated EBITDA Leverage Ratio to 6.0 times, we made a commitment to use our internally generated Free Cash Flow to quickly reduce leverage and eliminate the perceived ‘riskiness’ of Carriage's highly levered balance sheet. Driven by our record operating performance including Adjusted Consolidated EBITDA growth from $76.6 million in 2019 to $116.1 million over the past twelve months, we have rapidly and hugely exceeded all of our original deleveraging expectations.

Our Adjusted Consolidated EBITDA to Total Debt Leverage Ratio fell to 3.8 times at the end of the first quarter, a 2.2 times decrease from January 3, 2020 and a 0.6 times decrease since the end of 2020. The rapid and significant reduction in our leverage ratio and total debt outstanding has increased our financial flexibility and will enable Carriage to enter into what we strongly believe will be a long term ‘sweet spot’ for shareholder value creation capital allocation opportunities with increasing returns on invested capital. With our high and growing amount of Adjusted Free Cash Flow and commitment to remain disciplined with our capital allocation decisions we expect the majority of our capital allocation will be self-funded by our own internally generated Free Cash Flow consistent with a policy of maintaining a normalized Leverage Ratio of 4.0 times or below.

TRUST FUND INVESTMENT PERFORMANCE

Q1 2021

12 months ended
Q1 2021

Annualized 2009 -
Q1 2021

CSV Discretionary Portfolio

8.3

%

62.0

%

14.4

%

S&P 500

6.2

%

56.3

%

15.2

%

DJIA

8.3

%

53.8

%

14.3

%

NASDAQ

3.0

%

73.5

%

20.4

%

HY Bond Index

0.8

%

23.7

%

10.9

%

70/30 HY/S&P Bond

2.4

%

33.5

%

12.4

%

We have provided extensive detail of our Trust Fund Portfolio Repositioning Strategy that we executed beginning March 6, 2020 through our 2020 earnings press releases and Mel’s recently released Shareholder Letter. The key components of this Repositioning Strategy was to position the portfolio for increased capital appreciation that would accrue to our underlying preneed funeral and cemetery contracts during a long period of time, and significantly increase the amount of recurring income generated by the portfolio which would primarily benefit the current earnings from our cemetery perpetual care trusts. Most importantly the execution of this strategy was not a one year or one time event, but rather to position our portfolio of three trusts to generate a higher, recurring amount of Financial Revenue and Financial EBITDA to Carriage over the next 3-5 years.

Our first quarter discretionary trust fund portfolio performance was 8.3% compared to 6.2% for the S&P 500. Over the last year, which encompasses the entire period since we began to execute our strategy, our total return was 62% versus 56.3% for the S&P 500 and 33.5% for our 70/30 HY Bond/S&P 500 benchmark. This performance in our trust funds translated into a $1.45 million or 34.1% gain in Financial Revenue and a $1.46 million or 38.2% increase in our Financial EBITDA in the first quarter. The $5.7 million of Financial Revenue in the first quarter should remain consistent throughout 2021, which aligns with our previously stated proforma estimates of $22.0 - $23.0 million of Financial Revenue at a 94% - 95% Financial EBITDA Margin,” concluded Mr. Brink.

Mr. Payne continued, “My Shareholder Letter titled “A TALE OF HIGH PERFORMANCE TRANSFORMATION” took 50 pages to describe the amazing story of Carriage’s transformation from September 12, 2018 until now, including during a “once in a lifetime” Coronavirus Pandemic that began in March 2020 and is continuing. The way we think about our individual businesses and our company is the same as how we report our performance results each quarter and year:

  • A Ten Year Being The Best Vision with a Five Year Strategy with “Roughly Right Ranges” of outcomes for each of our five operating and financial reporting segments, plus our Overhead segment;

  • A continuously updated (quarterly) Rolling Four Quarter Outlook and actual Rolling Four Quarter, Five Quarter and Five Year Trend Reports that reflect how we are “trending over time” in each of our major performance categories toward the Five Year “Roughly Right Ranges” of Five Year Strategy Outcomes as we execute our three core models (Standards Operating, 4E Leadership and Strategic Acquisition).

All of these high performance ideas and concepts are captured in the table on the previous page that shows performance highlights from actual 2019, 2020 and Rolling Four Quarters ending March 2021, together with our updated Four Quarter Outlook ending March 2022 and Two Year Scenario for 2021 and 2022. As comprehensively covered in my Shareholder Letter, Carriage has indeed reached the critical mass of Revenue, Adjusted Consolidated EBITDA, Free Cash Flow and EPS that should only get better over time,” concluded Mr. Payne.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, April 22, 2021 at 9:30 a.m. Central time. To participate in the call, please dial 866-516-3867 (conference ID-8534109) and ask for the Carriage Services conference call. A replay of the conference call will be available through April 27, 2021 and may be accessed by dialing 855-859-2056 (conference ID-8534109). 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 March 31,

2020

2021

% Change

Same Store Contracts

Atneed Contracts

7,539

9,295

23.3

%

Preneed Contracts

1,519

1,733

14.1

%

Total Same Store Funeral Contracts

9,058

11,028

21.7

%

Acquisition Contracts

Atneed Contracts

1,606

1,861

15.9

%

Preneed Contracts

127

141

11.0

%

Total Acquisition Funeral Contracts

1,733

2,002

15.5

%

Total Funeral Contracts

10,791

13,030

20.7

%

Funeral Operating Revenue

Same Store Revenue

$

46,696

$

56,683

21.4

%

Acquisition Revenue

8,885

10,139

14.1

%

Total Funeral Operating Revenue

$

55,581

$

66,822

20.2

%

Cemetery Operating Revenue

Same Store Revenue

$

10,907

$

14,621

34.1

%

Acquisition Revenue

2,799

6,980

149.4

%

Total Cemetery Operating Revenue

$

13,706

$

21,601

57.6

%

Total Financial Revenue

$

4,237

$

5,682

34.1

%

Ancillary Revenue

$

1,151

$

1,207

4.9

%

Total Divested/Planned Divested Revenue

$

2,815

$

1,325

(52.9

%)

Total Revenue

$

77,490

$

96,637

24.7

%

Field EBITDA

Same Store Funeral Field EBITDA

$

18,062

$

25,812

42.9

%

Same Store Funeral Field EBITDA Margin

38.7

%

45.5

%

680 bp

Acquisition Funeral Field EBITDA

3,247

4,467

37.6

%

Acquisition Funeral Field EBITDA Margin

36.5

%

44.1

%

760 bp

Total Funeral Field EBITDA

$

21,309

$

30,279

42.1

%

Total Funeral Field EBITDA Margin

38.3

%

45.3

%

700 bp

Same Store Cemetery Field EBITDA

$

3,167

$

5,711

80.3

%

Same Store Cemetery Field EBITDA Margin

29.0

%

39.1

%

1,010 bp

Acquisition Cemetery Field EBITDA

827

4,102

396.0

%

Acquisition Cemetery Field EBITDA Margin

29.5

%

58.8

%

2,930 bp

Total Cemetery Field EBITDA

$

3,994

$

9,813

145.7

%

Total Cemetery Field EBITDA Margin

29.1

%

45.4

%

1,630 bp

Total Financial EBITDA

$

3,820

$

5,281

38.2

%

Total Financial EBITDA Margin

90.2

%

92.9

%

270 bp

Ancillary EBITDA

$

295

$

242

(18.0

%)

Ancillary EBITDA Margin

25.6

%

20.0

%

(560 bp)

Total Divested/Planned Divested EBITDA

$

676

$

172

(74.6

%)

Total Divested/Planned Divested EBITDA Margin

24.0

%

13.0

%

(1,100 bp)

Total Field EBITDA

$

30,094

$

45,787

52.1

%

Total Field EBITDA Margin

38.8

%

47.4

%

860 bp

OPERATING AND FINANCIAL TREND REPORT

(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)

Three Months Ended March 31,

2020

2021

% Change

Overhead

Total Variable Overhead

$

1,636

$

6,900

321.8

%

Total Regional Fixed Overhead

1,038

1,199

15.5

%

Total Corporate Fixed Overhead

5,197

5,500

5.8

%

Total Overhead

$

7,871

$

13,599

72.8

%

Overhead as a percentage of Revenue

10.2

%

14.1

%

390 bp

Consolidated EBITDA

$

22,223

$

32,188

44.8

%

Consolidated EBITDA Margin

28.7

%

33.3

%

460 bp

Other Expenses and Interest

Depreciation & Amortization

$

4,549

$

4,942

Non-Cash Stock Compensation

831

1,308

Interest Expense

8,428

7,584

Accretion of Discount on Convertible Subordinated Notes

65

20

Gain on Divestitures

(308

)

Impairment of Goodwill and Other Intangibles

14,693

Other, Net

4

68

Pre-Tax Income (Loss)

$

(6,347

)

$

18,574

Net Tax Expense (Benefit)

$

(2,150

)

$

5,641

GAAP Net Income (Loss)

$

(4,197

)

$

12,933

(408.1

%)

Special Items, Net of Tax, except for **

Acquisition Expenses

$

90

$

Severance and Separation Costs

228

1,244

Accretion of Discount on Convertible Subordinated Notes **

65

20

Gain on Divestitures

(213

)

Net Impact of Impairment of Goodwill and Other Intangibles

9,757

Litigation Reserve

59

Natural Disaster and Pandemic Costs

111

706

Adjusted Net Income

$

6,113

$

14,690

140.3

%

Adjusted Net Income Margin

7.9

%

15.2

%

730 bp

Adjusted Basic Earnings Per Share

$

0.35

$

0.82

134.3

%

Adjusted Diluted Earnings Per Share

$

0.35

$

0.81

131.4

%

GAAP Basic Earnings (Loss) Per Share

$

(0.23

)

$

0.72

413.0

%

GAAP Diluted Earnings (Loss) Per Share

$

(0.23

)

$

0.71

408.7

%

Weighted Average Basic Shares Outstanding

17,805

17,965

Weighted Average Diluted Shares Outstanding

17,805

18,199

Reconciliation to Adjusted Consolidated EBITDA

Consolidated EBITDA

$

22,223

$

32,188

44.8

%

Acquisition Expenses

114

Severance and Separation Costs

288

1,575

Litigation Reserve

75

Natural Disaster and Pandemic Costs

140

894

Adjusted Consolidated EBITDA

$

22,840

$

34,657

51.7

%

Adjusted Consolidated EBITDA Margin

29.5

%

35.9

%

640 bp


CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)

(unaudited)

December 31, 2020

March 31, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

889

$

406

Accounts receivable, net

25,103

25,585

Inventories

7,259

7,386

Prepaid and other current assets

2,076

2,076

Total current assets

35,327

35,453

Preneed cemetery trust investments

86,604

92,363

Preneed funeral trust investments

101,235

105,201

Preneed cemetery receivables, net

21,081

21,533

Receivables from preneed trusts, net

16,844

16,976

Property, plant and equipment, net

269,051

267,055

Cemetery property, net

101,134

101,109

Goodwill

392,978

391,972

Intangible and other non-current assets, net

29,542

29,502

Operating lease right-of-use assets

21,201

20,747

Cemetery perpetual care trust investments

70,828

75,815

Total assets

$

1,145,825

$

1,157,726

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of debt and lease obligations

$

3,432

$

3,301

Accounts payable

11,259

9,543

Accrued and other liabilities

31,138

39,599

Convertible subordinated notes due 2021

2,538

Total current liabilities

48,367

52,443

Acquisition debt, net of current portion

4,482

4,442

Credit facility

46,064

27,282

Senior notes due 2026

395,968

396,122

Obligations under finance leases, net of current portion

5,531

5,445

Obligations under operating leases, net of current portion

20,302

19,876

Deferred preneed cemetery revenue

47,846

48,840

Deferred preneed funeral revenue

27,992

28,181

Deferred tax liability

46,477

47,991

Other long-term liabilities

4,748

2,677

Deferred preneed cemetery receipts held in trust

86,604

92,363

Deferred preneed funeral receipts held in trust

101,235

105,201

Care trusts’ corpus

69,707

75,360

Total liabilities

905,323

906,223

Commitments and contingencies

Stockholders’ equity:

Common stock

260

261

Additional paid-in capital

239,989

238,056

Retained earnings

102,303

115,236

Treasury stock

(102,050

)

(102,050

)

Total stockholders’ equity

240,502

251,503

Total liabilities and stockholders’ equity

$

1,145,825

$

1,157,726


CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)

Three Months Ended March 31,

2020

2021

Revenue:

Service revenue

$

40,732

$

47,757

Property and merchandise revenue

31,271

41,896

Other revenue

5,487

6,984

77,490

96,637

Field costs and expenses:

Cost of service

21,057

20,967

Cost of merchandise

25,063

28,520

Cemetery property amortization

877

1,517

Field depreciation expense

3,290

3,136

Regional and unallocated funeral and cemetery costs

2,756

6,073

Other expenses

1,276

1,363

54,319

61,576

Gross profit

23,171

35,061

Corporate costs and expenses:

General, administrative and other

5,946

8,834

Home office depreciation and amortization

382

289

Net loss (gain) on divestitures and impairment charges

14,693

(308

)

Operating income

2,150

26,246

Interest expense

(8,428

)

(7,584

)

Accretion of discount on convertible subordinated notes

(65

)

(20

)

Other, net

(4

)

(68

)

Income (loss) before income taxes

(6,347

)

18,574

Expense (benefit) for income taxes

2,136

(5,758

)

Tax adjustment related to certain discrete items

14

117

Total expense (benefit) for income taxes

2,150

)

Net income (loss)

$

(4,197

)

$

12,933

Basic earnings (loss) per common share:

$

(0.23

)

$

0.72

Diluted earnings (loss) per common share:

$

(0.23

)

$

0.71

Dividends declared per common share:

$

0.075

$

0.1000

Weighted average number of common and common equivalent shares outstanding:

Basic

17,805

17,965

Diluted

17,805

18,199


CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

Three Months Ended March 31,

2020

2021

Cash flows from operating activities:

Net income (loss)

$

(4,197

)

$

12,933

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

Depreciation and amortization

4,549

4,942

Provision for bad debt and credit losses

690

588

Stock-based compensation expense

831

1,307

Deferred income tax expense

3,596

1,514

Amortization of deferred financing costs

200

194

Amortization of capitalized commissions and non-compete agreements

328

320

Accretion of discount on convertible subordinated notes

65

20

Accretion of discount, net of debt premium on senior notes

75

80

Net loss (gain) on divestitures and impairment charges

14,693

(308

)

Net loss on disposal of other assets

60

328

Other

19

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

Accounts and preneed receivables

2,179

(1,521

)

Inventories, prepaid and other current assets

(8,748

)

(153

)

Intangible and other non-current assets

(290

)

(291

)

Preneed funeral and cemetery trust investments

(2,890

)

(2,952

)

Accounts payable

(2,133

)

(1,712

)

Accrued and other liabilities

(114

)

6,853

Deferred preneed funeral and cemetery revenue

1,080

1,183

Deferred preneed funeral and cemetery receipts held in trust

3,553

3,486

Net cash provided by operating activities

13,546

26,811

Cash flows from investing activities:

Acquisition of businesses

(28,000

)

Acquisition of real estate

(350

)

Proceeds from divestitures and sale of other assets

78

2,800

Capital expenditures

(2,738

)

(4,347

)

Net cash used in investing activities

(30,660

)

(1,897

)

Cash flows from financing activities:

Borrowings from the credit facility

63,200

15,168

Payments against the credit facility

(33,000

)

(34,068

)

Repurchase of the convertible subordinated notes due 2021

(3,980

)

Payment of debt issuance and transaction costs

(14

)

(7

)

Payments on acquisition debt and obligations under finance leases

(487

)

(233

)

Payments on contingent consideration recorded at acquisition date

(169

)

(461

)

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

361

625

Taxes paid on restricted stock vestings and exercises of stock options

(234

)

(642

)

Dividends paid on common stock

(1,339

)

(1,799

)

Net cash provided (used in) by financing activities

28,318

(25,397

)

Net increase (decrease) in cash and cash equivalents

11,204

(483

)

Cash and cash equivalents at beginning of year

716

889

Cash and cash equivalents at end of year

$

11,920

$

406

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. Special Items are typically taxed at the federal statutory rate of 21.0%, except for the tax adjustment related to certain discrete items and the accretion of discount on Convertible Subordinated Notes, as this is a non-tax deductible item. The net loss (gain) on divestitures and other costs and the net impact of impairment of goodwill and other intangibles are net of the operating tax rate in the respective quarter.

  • 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, Convertible Subordinated Notes due 2021 and Senior Notes due 2026, acquisition debt and finance leases.

  • Total Debt to EBITDA Multiple 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 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):

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Net Income (Loss)

$

(4,197

)

$

6,397

$

5,525

$

8,365

$

12,933

Special Items, Net of Tax(1)

Acquisition Expenses

90

36

(135

)

Severance and Separation Costs

228

217

1,244

Performance Awards Cancellation and Exchange

56

84

84

Accretion of Discount on Convertible Subordinated Notes(1)

65

66

69

16

20

Net Loss (Gain) on Divestitures and Other Costs(2)

3,245

1,317

(213

)

Net Impact of Impairment of Goodwill and Other Intangibles(2)

9,757

51

124

Litigation Reserve

59

154

Natural Disaster and Pandemic Costs

111

657

268

250

706

Other Special Items

371

(47

)

Tax Adjustment Related to Certain Discrete Items (1)

400

Adjusted Net Income

$

6,113

$

8,005

$

9,144

$

10,421

$

14,690


(1

)

Special Items are typically taxed at the federal statutory rate of 21.0%, except for the Accretion of Discount on Convertible Subordinated Notes, as this is a non-tax deductible item, the Tax Adjustment Related to Certain Discrete Items, the Net Loss (Gain) on Divestitures and Other Costs and the Net Impact of Impairment of Goodwill and Other Intangibles (discussed below).

(2

)

The Net Loss (Gain) on Divestitures and Other Costs Special Item and the Net Impact of Impairment of Goodwill and Other Intangibles Special Item are net of 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:

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Net Income (Loss)

$

(4,197

)

$

6,397

$

5,525

$

8,365

$

12,933

Total Expense (Benefit) for Income Taxes

(2,150

)

3,449

2,859

4,394

5,641

Income (Loss) Before Income Taxes

$

(6,347

)

$

9,846

$

8,384

$

12,759

$

18,574

Interest Expense

8,428

8,352

8,007

7,728

7,584

Accretion of Discount on Convertible Subordinated Notes

65

66

69

16

20

Non-Cash Stock Compensation

831

715

927

897

1,308

Depreciation & Amortization

4,549

4,698

5,033

5,109

4,942

Net Loss (Gain) on Divestitures

4,917

1,832

(308

)

Impairment of Goodwill and Other Intangibles

14,693

Other, Net

4

2

34

(186

)

68

Consolidated EBITDA

$

22,223

$

23,679

$

27,371

$

28,155

$

32,188

Adjusted For:

Acquisition Expenses

114

45

(170

)

Severance and Separation Costs

288

275

1,575

Litigation Reserve

75

195

Natural Disaster and Pandemic Costs

140

832

340

315

894

Other Special Items

418

(45

)

Adjusted Consolidated EBITDA

$

22,840

$

25,444

$

27,666

$

28,300

$

34,657

Revenue

$

77,490

$

77,477

$

84,393

$

90,088

$

96,637

Adjusted Consolidated EBITDA Margin

29.5

%

32.8

%

32.8

%

31.4

%

35.9

%

Reconciliation of Funeral and Cemetery Operating Income to Funeral and Cemetery Field EBITDA (in thousands):

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Funeral Operating Income (GAAP)

$

4,311

$

19,869

$

13,975

$

19,467

$

25,876

Depreciation & Amortization

2,944

2,895

2,885

2,862

2,769

Regional & Unallocated Costs

2,326

2,788

3,859

5,375

4,569

Impairment of Goodwill and Other Intangibles

14,693

4,917

1,832

(308

)

Less:

Funeral Financial EBITDA

(1,997

)

(1,921

)

(2,119

)

(2,150

)

(2,251

)

Ancillary EBITDA

(295

)

(321

)

(292

)

(278

)

(242

)

Funeral Divested/Planned Divested EBITDA

(673

)

(830

)

(378

)

(310

)

(134

)

Funeral Field EBITDA

$

21,309

$

22,480

$

22,847

$

26,798

$

30,279


1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Cemetery Operating Income (GAAP)

$

4,167

$

5,291

$

8,982

$

8,419

$

9,493

Depreciation & Amortization

1,223

1,449

1,819

1,885

1,884

Regional & Unallocated Costs

430

929

872

1,478

1,504

Less:

Cemetery Financial EBITDA

(1,823

)

(2,535

)

(3,123

)

(2,737

)

(3,030

)

Cemetery Divested/Planned Divested EBITDA

(3

)

(44

)

(40

)

(42

)

(38

)

Cemetery Field EBITDA

$

3,994

$

5,090

$

8,510

$

9,003

$

9,813


Components of Total Field EBITDA (in thousands):

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Funeral Field EBITDA

$

21,309

$

22,480

$

22,847

$

26,798

$

30,279

Cemetery Field EBITDA

3,994

5,090

8,510

9,003

9,813

Funeral Financial EBITDA

1,997

1,921

2,119

2,150

2,251

Cemetery Financial EBITDA

1,823

2,535

3,123

2,737

3,030

Ancillary EBITDA

295

321

292

278

242

Divested/Planned Divested EBITDA

676

874

418

352

172

Total Field EBITDA

$

30,094

$

33,221

$

37,309

$

41,318

$

45,787


Reconciliation of GAAP Basic Earnings (Loss) Per Share to Adjusted Basic Earnings Per Share:

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

GAAP Basic Earnings (Loss) Per Share

$

(0.23

)

$

0.36

$

0.31

$

0.47

$

0.72

Special Items

0.58

0.09

0.20

0.11

0.10

Adjusted Basic Earnings Per Share

$

0.35

$

0.45

$

0.51

$

0.58

$

0.82


Reconciliation of GAAP Diluted Earnings (Loss) Per Share to Adjusted Diluted Earnings Per Share:

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

GAAP Diluted Earnings (Loss) Per Share

$

(0.23

)

$

0.36

$

0.31

$

0.46

$

0.71

Special Items

0.58

0.09

0.20

0.11

0.10

Adjusted Diluted Earnings Per Share

$

0.35

$

0.45

$

0.51

$

0.57

$

0.81


Reconciliation of Cash flow provided by operations to Adjusted Free Cash Flow (in thousands) and Adjusted Free Cash Flow Margin:

1ST QTR
2020

2ND QTR
2020

3RD QTR
2020

4TH QTR
2020

1ST QTR
2021

Cash Flow Provided by Operating Activities

$

13,546

$

17,455

$

36,821

$

15,093

$

26,811

Cash used for Maintenance Capital Expenditures

(1,556

)

(1,342

)

(2,496

)

(3,368

)

(2,140

)

Free Cash Flow

$

11,990

$

16,113

$

34,325

$

11,725

$

24,671

Plus: Incremental Special Items:

Federal Tax Refund

(7,012

)

Acquisition Expenses

114

45

(170

)

Severance and Separation Costs

288

275

1,575

Litigation Reserve

75

195

Natural Disaster and Pandemic Costs

140

832

340

315

894

Other Special Items

418

(45

)

Adjusted Free Cash Flow

$

12,607

$

17,878

$

27,608

$

11,870

$

27,140

Revenue

$

77,490

$

77,477

$

84,393

$

90,088

$

96,637

Adjusted Free Cash Flow Margin

16.3

%

23.1

%

32.7

%

13.2

%

28.1

%

Reconciliation of Actual Results (years ended December 31, 2019 and 2020), Two Year Performance Scenario (estimated years ended December 31, 2021 and 2022), Last Twelve Months (ended March 31, 2021) and Rolling Four Quarter Outlook (ended March 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:

2019A

2020A

LTM

2021E

RFQO

2022E

Net Income

$

14,533

$

16,090

$

33,220

$

45,000

$

45,000

$

50,000

Total Tax Expense

7,883

8,552

16,343

19,000

19,000

21,000

Pretax Income

$

22,416

$

24,642

$

49,563

$

64,000

$

64,000

$

71,000

Net Interest Expense, including Accretion of Discount on Convertible Subordinated Notes

25,763

32,731

31,842

24,000

24,000

19,800

Depreciation & Amortization, including Non-cash Stock Compensation and Other, Net

19,188

22,613

23,536

24,000

24,000

25,200

Net Loss on Divestitures and Impairment Charges

4,846

21,442

6,452

Consolidated EBITDA

$

72,213

$

101,428

$

111,393

$

112,000

$

112,000

$

116,000

Overhead

37,554

40,514

46,242

43,000

43,000

44,000

Total Field EBITDA

$

109,767

$

141,942

$

157,635

$

155,000

$

155,000

$

160,000

Revenue

$

274,107

$

329,448

$

348,595

$

345,000

$

345,000

$

352,000

Total Field EBITDA Margin

40.0

%

43.1

%

45.2

%

44.9

%

44.9

%

45.5

%


Reconciliation of Consolidated EBITDA to Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA Margin:

2019A

2020A

LTM

2021E

RFQO

2022E

Consolidated EBITDA

$

72,213

$

101,428

$

111,393

$

112,000

$

112,000

$

116,000

Special Items

4,374

2,822

4,674

2,469

2,500

Adjusted Consolidated EBITDA

$

76,587

$

104,250

$

116,067

$

114,469

$

114,500

$

116,000

Revenue

$

274,107

$

329,448

$

348,595

$

345,000

$

345,000

$

352,000

Adjusted Consolidated EBITDA Margin

27.9

%

31.6

%

33.3

%

33.2

%

33.2

%

33.0

%


Reconciliation of Net Income to Adjusted Net Income (in thousands):

2019A

2020A

LTM

2021E

RFQO

2022E

Net Income

$

14,533

$

16,090

$

33,220

$

45,000

$

45,000

$

50,000

Special Items

7,999

17,593

9,040

1,757

1,850

Adjusted Net Income

$

22,532

$

33,683

$

42,260

$

46,757

$

46,850

$

50,000


Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share:

2019A

2020A

LTM

2021E

RFQO

2022E

GAAP Diluted Earnings Per Share

$

0.80

$

0.89

$

1.84

$

2.43

$

2.43

$

2.70

Special Items

0.45

0.97

0.50

0.10

0.10

Adjusted Diluted Earnings Per Share

$

1.25

$

1.86

$

2.34

$

2.53

$

2.53

$

2.70


Reconciliation of Cash Flow Provided by Operating Activities to Adjusted Free Cash Flow (in thousands) and Adjusted Free Cash Flow Margin:

2019A

2020A

LTM

2021E

RFQO

2022E

Cash Flow Provided by Operating Activities

$

43,216

$

82,915

$

96,180

$

75,000

$

78,000

$

85,000

Cash used for Maintenance Capital Expenditures

(8,795

)

(8,762

)

(9,346

)

(10,000

)

(10,000

)

(11,000

)

Special Items

4,374

(4,190

)

(2,338

)

2,469

2,500

Adjusted Free Cash Flow

$

38,795

$

69,963

$

84,496

$

67,469

$

70,500

$

74,000

Revenue

$

274,107

$

329,448

$

348,595

$

345,000

$

345,000

$

352,000

Adjusted Free Cash Flow Margin

14.2

%

21.2

%

24.2

%

19.6

%

20.4

%

21.0

%

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 cost saving expectations related to anticipated financing activities, including our deleveraging program, forecasts and planned uses of free cash flow, expected plans and projections for refinancing our senior notes, and future capital allocation, including potential acquisitions, share repurchases, dividend increases, or debt repayment plans;

  • our ability to meet the projected financial performance metrics to our updated two-year scenario, 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 (“COVID-19”), 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 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