• Carriage Services Announces Fourth Quarter and Full Year 2022 Results

    المصدر: Nasdaq GlobeNewswire / 22 فبراير 2023 16:37:06   America/New_York

    HOUSTON, Feb. 22, 2023 (GLOBE NEWSWIRE) -- Carriage Services, Inc. (NYSE: CSV) today announced results for the fourth quarter and year ended December 31, 2022.

    Company Highlights:

    • 2022 full year performance compared to pre-COVID 2019 resulted in an impressive 10.5% compounded annual growth in total revenue and 27.8% compounded annual growth in adjusted diluted earnings per share;
    • Our fourth quarter 2022 results exceeded internal expectations, as trends in all segments improved over the prior quarter, in part driven by a higher number of non-COVID-19 related deaths;
    • We expect to close our transaction to acquire Greenlawn Funeral Homes and Cemeteries in Bakersfield, CA, within the next couple of weeks;
    • Consistent with our High Performance and Credit Profile Restoration Plan, which we announced on December 12, 2022, our capital allocation priority for 2023 will be to pay down debt and decrease our leverage to a range of 4.0-4.3 times by the end of 2024;
    • Strong financial revenue of more than $22 million for 2022 was highlighted by a positive return from our discretionary trust fund portfolio, as compared to broadly negative full year market comparables; and
    • Moving forward, we will provide full year guidance at the beginning of each year, beginning with our 2023 outlook.

    Mel Payne, Chairman and CEO, stated, “We are excited to report our 2022 full year results, as performance exceeded our expectations, particularly against a unique 2021, during which COVID related deaths hit a peak. We ended 2022 with an impressive 27.8% compounded annual growth of our adjusted diluted earnings per share when compared to 2019, which was the last full year before the COVID impact. Net income is up nearly 25% as compared to 2021 and we continue to see positive trends within both our funeral and cemetery segments.

    This strong performance positions us well as we enter 2023 and continue to focus our capital allocation efforts on paying down debt, while we integrate our recent acquisitions, and build upon the momentum within our sales organization.

    We have also been soliciting feedback from our shareholders and have made some changes to how we report our performance, beginning with this release. While we continue to pride ourselves on being transparent, we believe this new format will help simplify the communication of our performance. Additionally, as we look to continuously improve the way we communicate expectations, we will begin providing annual guidance at the beginning of each year and update that guidance, if necessary, on a quarterly basis.

    While we held off on providing guidance during the fourth quarter of 2022, to better assess the normalization of the death rate, we are now comfortable announcing our 2023 full year outlook. Our 2023 outlook is built in connection with supporting the capital allocation priorities outlined in our High Performance and Credit Profile Restoration Plan, which we announced on December 12th. For 2023, we are forecasting total revenue in the range of $375-$385 million, adjusted consolidated EBITDA in the range of $110-$115 million, and adjusted diluted earnings per share in the range of $2.25-$2.40.

    Since 2018, we have been hard at work adding new talent, particularly within our Senior Leadership Team, implementing a new sales team, building best in class support, and providing our leaders in the field with the tools necessary to serve families at the highest level while also competing for every call. As we enter 2023, we are excited to watch these strategic investments continue to drive our performance forward while we identify new opportunities to support and accelerate our growth,” concluded Mr. Payne.

    FINANCIAL HIGHLIGHTS

      Three Months Ended  Years Ended 
      December 31, December 31,
    (000’s except margins)  2021  2022   2021  2022 
           
    GAAP Metrics:      
    Total revenue(1) $95,931 $93,916  $375,886 $370,174 
    Net income $13,347 $8,220  $33,159 $41,381 
    Net income margin  13.9% 8.8%  8.8% 11.2%
    Diluted EPS $0.77 $0.53  $1.81 $2.63 
    Cash provided by operating activities $14,547 $10,978  $84,246 $61,024 
           
    Non-GAAP Metrics:      
    Adjusted consolidated EBITDA $30,395 $28,659  $126,161 $109,312 
    Adjusted consolidated EBITDA margin  31.7% 30.5%  33.6% 29.5%
    Adjusted diluted EPS $0.78 $0.64  $3.02 $2.61 
    Adjusted free cash flow $10,308 $8,904  $75,683 $49,792 

    (1) Total revenue is comprised of funeral operating revenue, cemetery operating revenue, divested revenue, ancillary revenue and financial revenue. 
    We present both GAAP and non-GAAP measures to provide investors with additional information. We believe that providing these non-GAAP measures along with GAAP measures allows for increased comparability of our ongoing performance from period to period. The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

    Since our December announcement of entering a definitive agreement to acquire Greenlawn Funeral Homes and Cemeteries in Bakersfield, CA, we have been working closely with the Greenlawn Team and expect to close that transaction, pending regulatory approval, within the next couple of weeks. The addition of Greenlawn, which is the market leader in Bakersfield, with a nearly 40% market share, continues our strategy of partnering with premier businesses located in large, growing markets.

    As of December 31, 2022, our bank covenant compliance leverage ratio was 5.35 times. While we expect near term fluctuations in our debt leverage ratio, we are committed to our previously announced target and expect to reach a bank covenant compliance leverage ratio of approximately 4.7 times by the end of 2023 and 4.0-4.3 times by the end of 2024.

    OPERATIONS UPDATE

    Funeral Operations

      Three Months Ended Years Ended
      December 31,  December 31,
    (000’s except contracts and margins)  2021  2022   2021  2022 
           
    Funeral contracts  12,433  11,811   48,605  47,184 
    Funeral operating revenue $65,366 $63,964  $252,926 $251,396 
    Funeral operating EBITDA(1) $28,017 $26,874  $109,204 $101,951 
    Funeral operating EBITDA margin(1)  42.9% 42.0%  43.2% 40.6%

    (1)The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

    Our funeral home segment exceeded our expectations in the fourth quarter of 2022, demonstrating the resilience of our decentralized business model even in challenging times. Despite experiencing a modest 2.1% decline in funeral operating revenue compared to the peak COVID-19 death impact in 2021, we are proud to report an impressive compounded annual growth rate (“CAGR”) of 8.6% versus our pre-COVID baseline in 2019. Although funeral contracts were down by 5.0% compared to the same quarter in 2021, we are pleased to note that our fourth quarter 2022 average revenue per contract increased by 2.9% over the same period in 2021. Funeral operating EBITDA also performed well, with a decrease of 4.1%, or $1.1 million, and funeral operating EBITDA margin was down 90 basis points to 42.0%. This is primarily due to our proactive efforts to mitigate inflationary costs within our control.

    For the full year of 2022, we served 47,184 funeral contracts, representing a slight decrease of 2.9%. Despite this, our funeral operating revenue was $251.4 million, a decrease of 0.6%, and funeral operating EBITDA was $101.9 million, a decrease of 6.6%. Based on our fourth quarter performance, we are confident that we can continue driving organic growth and integrating our latest acquisitions while taking proactive measures to mitigate inflationary cost pressures. We are committed to delivering high-quality funeral services to our client families while providing exceptional value to our shareholders.

    Cemetery Operations

      Three Months Ended Years Ended
       December 31,  December 31,
    (000’s except margins)  2021  2022   2021  2022 
           
    Cemetery preneed sales $15,958 $15,696  $65,116 $62,178 
    Cemetery operating revenue $22,461 $23,169  $91,330 $90,033 
    Cemetery operating EBITDA(1) $10,019 $9,910  $42,158 $37,509 
    Cemetery operating EBITDA margin(1)  44.6% 42.8%  46.2% 41.7%

    (1)The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

    For the fourth quarter of 2022, our cemetery operating revenue grew by 3.2% compared to last year. Even through a challenging economic environment, our cemetery operating EBITDA experienced a slight decline of 1.1% due to the proactive measures taken by our field leaders to manage the impact of inflationary costs, leading to a cemetery operating EBITDA margin decrease of 180 basis points to 42.8% compared to the same quarter of the previous year, we remain confident in our ability to navigate these headwinds. We recorded a $0.4 million increase in recognized cemetery property revenue when compared to the same period in 2021, despite preneed property sales decreasing by $0.5 million or 3.8%.

    For the full year, cemetery operating revenue ended at $90 million, down by 1.4% compared to 2021, and cemetery operating EBITDA was $37.5 million, down by 11%. The decline in cemetery operating EBITDA was driven primarily by inflationary operating costs that started at the beginning of the second quarter of 2022. However, we are encouraged by our fourth quarter performance, which indicates that the measures we have taken should continue to produce positive results.

    Looking ahead, we anticipate that our preneed sales organization will continue to mature, and we expect preneed sales to grow by low double digits above 2022 levels. It is worth noting that since 2019, when we positioned ourselves to build and support our High Performance Sales Organization, our cemetery operating revenue has experienced a CAGR of 22.2%. We are optimistic about the future of our cemetery portfolio and are confident that we will continue to grow and thrive in the years to come.

    TRUST FUND PERFORMANCE

      YTD 2022 Annualized
    2009 - 2022
    CSV Discretionary portfolio 0.6% 13.3%
    S&P 500 (18.1)% 13.1%
    DJIA (6.9)% 12.7%
    NASDAQ (32.5)% 15.8%
    HY Bond index (11.2)%  8.9% 

    Our discretionary trust fund portfolio returned 10.0% in the fourth quarter of 2022, versus 7.5% for the S&P 500 and 4.2% for the High Yield Bond index. On a full year basis, the portfolio had a positive return of 0.6%, while all four indices posted negative returns. The allocation of our portfolio was roughly 46% fixed income, 43% equities, and 11% cash as of December 31, 2022.

    Since 2020, our portfolio has generated approximately $46.5 million in net capital gains, including $13.0 million of gains recorded in 2022. Our total recurring annual income is up nearly 19% to $20.8 million at the end of 2022 from $17.5 million in the previous year, and represents an 8.4% yield on the portfolio’s total market value of $246.3 million as of December 31, 2022.

    While the markets ended 2022 on a negative note as concerns about inflation, higher interest rates, and future economic growth drove volatility throughout the year, the performance of our portfolio outperformed as we maintained focus on various income-driven investments as well as some non-income investments in the energy sector.

    OUTLOOK FOR 2023

     (in millions - except per share amounts)2023 Outlook
    Total revenue$375 - $385
    Adjusted consolidated EBITDA$110 - $115
    Adjusted diluted earnings per share$2.25 - $2.40
    Adjusted free cash flow$50 - $60

    OUTLOOK FOR 2023

    A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/81f0c2c3-8f07-4c48-934f-7d6c4aef7d7a

    (1)Includes ten months of proforma EBITDA from the Greenlawn acquisition expected to close in late February/early March 2023. Lower earnings per share is primarily due to higher interest expense when compared to 2022 and increased overhead costs related to our digital transformation investments.
       

    CALL AND INVESTOR RELATIONS CONTACT

    Carriage Services has scheduled a conference call for tomorrow, February 23, 2023 at 9:30 a.m. central time. To participate live over the phone via audio conferencing click link or live over the Internet via webcast click link. An audio archive of the call will be available on demand via the Company’s website at www.carriageservices.com. For any investor relations questions, please email InvestorRelations@carriageservices.com.

    CARRIAGE SERVICES, INC.
    CONDENSED OPERATING AND FINANCIAL TREND REPORT
    (in thousands - except per share amounts)
     
       2018   2019   2020   2021   2022 
    Funeral operating revenue $190,098  $196,475  $226,819  $252,926  $251,396 
    Cemetery operating revenue  44,588   49,317   69,083   91,330   90,033 
    Financial revenue  15,688   15,878   19,689   22,708   22,452 
    Ancillary revenue     748   4,661   4,437   4,193 
    Divested/planned divested revenue  17,618   11,689   9,196   4,485   2,100 
    Total revenue $        267,992  $        274,107  $        329,448  $        375,886  $        370,174 
               
    Funeral operating EBITDA $71,727  $75,553  $93,480  $109,204  $101,951 
    Funeral operating EBITDA margin  37.7%  38.5%  41.2%  43.2%  40.6%
               
    Cemetery operating EBITDA  13,844   17,164   26,627   42,158   37,509 
    Cemetery operating EBITDA margin  31.0%  34.8%  38.5%  46.2%  41.7%
               
    Financial EBITDA  14,139   14,272   18,357   21,156   20,767 
    Financial EBITDA margin  90.1%  89.9%  93.2%  93.2%  92.5%
               
    Ancillary EBITDA     298   1,186   1,006   841 
    Ancillary EBITDA margin  %  39.8%  25.4%  22.7%  20.1%
               
    Divested/planned divested EBITDA  4,603   2,480   2,292   1,117   293 
    Divested/planned divested EBITDA margin  26.1%  21.2%  24.9%  24.9%  14.0%
    Total EBITDA $        104,313  $        109,767  $        141,942  $        174,641  $        161,361 
    Total EBITDA margin  38.9%  40.0%  43.1%  46.5%  43.6%
               
    Total overhead $36,993  $37,554  $40,514  $54,282  $53,848 
    Overhead as a percentage of revenue  13.8%  13.7%  12.3%  14.4%  14.5%
               
    Consolidated EBITDA $        67,320  $        72,213  $        101,428  $        120,359  $        107,513 
    Consolidated EBITDA margin  25.1%  26.3%  30.8%  32.0%  29.0%
               
    Other expenses and interest          
    Depreciation & amortization $17,430  $17,771  $19,389  $20,520  $19,799 
    Non-cash stock compensation  6,583   2,153   3,370   5,513   5,959 
    Interest expense  21,109   25,522   32,515   25,445   25,895 
    Loss on extinguishment of debt  502      6   23,807   190 
    Other  3,430   4,351   21,506   770   (1,524)
    Pretax income  $        18,266  $        22,416  $        24,642  $        44,304  $        57,194 
    Net tax expense  6,621   7,883   8,552   11,145   15,813 
    Net income  $        11,645  $        14,533  $        16,090  $        33,159  $        41,381 
    Special items(1) $11,650  $9,821  $25,579  $30,607  $(200)
    Tax effect on special items  1,729   1,822   7,986   8,503   95 
    Adjusted net income $        21,566  $        22,532  $        33,683  $        55,263  $        41,086 
    Adjusted net income margin  8.0%  8.2%  10.2%  14.7%  11.1%
               
    Adjusted basic earnings per share $1.19  $1.26  $1.88  $3.17  $2.76 
    Adjusted diluted earnings per share $1.17  $1.25  $1.86  $3.02  $2.61 
               
    GAAP basic earnings per share $0.64  $0.81  $0.90  $1.90  $2.78 
    GAAP diluted earnings per share $0.63  $0.80  $0.89  $1.81  $2.63 
               
    Weighted average shares o/s - basic  17,971   17,877   17,872   17,409   14,857 
    Weighted average shares o/s - diluted  18,374   18,005   18,077   18,266   15,710 
               
    Reconciliation of Consolidated EBITDA to Adjusted consolidated EBITDA          
    Consolidated EBITDA $        67,320  $        72,213  $        101,428  $        120,359  $        107,513 
    Special items(1)  2,872   4,374   2,822   5,802   1,799 
    Adjusted consolidated EBITDA  $        70,192  $        76,587  $        104,250  $        126,161  $        109,312 
    Adjusted consolidated EBITDA margin   26.2%  27.9%  31.6%  33.6%  29.5%

    (1) A detail of our Special items presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

    CARRIAGE SERVICES, INC.
    CONDENSED CONSOLIDATED BALANCE SHEET
    (in thousands)
     December 31,
      2021   2022 
    ASSETS   
    Current assets:   
    Cash and cash equivalents$1,148  $1,170 
    Accounts receivable, net 25,314   24,458 
    Inventories 7,346   7,613 
    Prepaid and other current assets 6,404   4,733 
    Total current assets 40,212   37,974 
    Preneed cemetery trust investments 100,903   95,065 
    Preneed funeral trust investments 113,658   104,553 
    Preneed cemetery receivables, net 23,150   26,672 
    Receivables from funeral preneed trusts, net 19,009   19,976 
    Property, plant and equipment, net 269,367   278,106 
    Cemetery property, net 100,701   104,170 
    Goodwill 391,972   410,137 
    Intangible and other non-current assets, net 29,378   32,930 
    Operating lease right-of-use assets 17,881   17,060 
    Cemetery perpetual care trust investments 72,400   66,307 
    Total assets$1,178,631  $1,192,950 
    LIABILITIES AND STOCKHOLDERS’ EQUITY   
    Current liabilities:   
    Current portion of debt and lease obligations$2,809  $3,172 
    Accounts payable 14,205   11,675 
    Accrued and other liabilities 43,773   30,621 
    Total current liabilities 60,787   45,468 
    Acquisition debt, net of current portion 3,979   3,438 
    Credit facility 153,857   188,836 
    Senior notes 394,610   395,243 
    Obligations under finance leases, net of current portion 5,157   4,743 
    Obligations under operating leases, net of current portion 18,520   17,315 
    Deferred preneed cemetery revenue 50,202   51,746 
    Deferred preneed funeral revenue 30,584   32,029 
    Deferred tax liability 45,784   48,820 
    Other long-term liabilities 1,419   3,065 
    Deferred preneed cemetery receipts held in trust 100,903   95,065 
    Deferred preneed funeral receipts held in trust 113,658   104,553 
    Care trusts’ corpus 71,156   65,495 
    Total liabilities 1,050,616   1,055,816 
    Commitments and contingencies:   
    Stockholders’ equity:   
    Common stock 263   264 
    Additional paid-in capital 236,809   238,780 
    Retained earnings 135,462   176,843 
    Treasury stock (244,519)  (278,753)
    Total stockholders’ equity 128,015   137,134 
    Total liabilities and stockholders’ equity$1,178,631  $1,192,950 
            


     
    CARRIAGE SERVICES, INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (in thousands, except per share data)
     (unaudited)    
     Three Months Ended Years Ended
     December 31, December 31,
      2021   2022   2021   2022 
            
    Revenue:       
    Service revenue$46,486  $45,992  $180,572  $181,271 
    Property and merchandise revenue 42,176   41,475   167,721   161,970 
    Other revenue 7,269   6,449   27,593   26,933 
      95,931   93,916   375,886   370,174 
    Field costs and expenses:       
    Cost of service 21,322   21,517   82,395   87,322 
    Cost of merchandise 29,199   29,149   113,871   116,453 
    Cemetery property amortization 1,457   1,545   6,670   5,859 
    Field depreciation expense 3,177   3,485   12,609   13,316 
    Regional and unallocated funeral and cemetery costs 7,191   5,551   25,846   22,960 
    Other expenses 1,221   1,231   4,979   5,038 
      63,567   62,478   246,370   250,948 
    Gross profit 32,364   31,438   129,516   119,226 
            
    Corporate costs and expenses:       
    General, administrative and other 9,850   9,348   35,190   37,471 
    Net (gain) loss on divestitures, disposals and impairment charges (711)  2,462   666   2,029 
    Operating income 23,225   19,628   93,660   79,726 
            
    Interest expense (5,307)  (7,687)  (25,445)  (25,895)
    Loss on extinguishment of debt    (190)  (23,807)  (190)
    Gain on insurance reimbursements    196      3,471 
    Other, net 3   4   (104)  82 
    Income before income taxes 17,921   11,951   44,304   57,194 
    Expense for income taxes (4,850)  (3,665)  (12,316)  (16,243)
    Tax adjustment related to discrete items 276   (66)  1,171   430 
    Total expense for income taxes (4,574)  (3,731)  (11,145)  (15,813)
    Net income$13,347  $8,220  $33,159  $41,381 
            
    Basic earnings per common share:$0.82  $0.56  $1.90  $2.78 
    Diluted earnings per common share:$0.77  $0.53  $1.81  $2.63 
            
    Dividends declared per common share:$0.1125  $0.1125  $0.4125  $0.4500 
    Weighted average number of common and common equivalent shares outstanding:       
    Basic 16,233   14,707   17,409   14,857 
    Diluted 17,400   15,418   18,266   15,710 
                    


     
    CARRIAGE SERVICES, INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)
     Years Ended
     December 31,
      2021   2022 
    Cash flows from operating activities:   
    Net income$33,159  $41,381 
    Adjustments to reconcile net income to net cash provided by operating activities:  
    Depreciation and amortization 20,520   19,799 
    Provision for credit losses 1,783   2,818 
    Stock-based compensation expense 5,513   5,959 
    Deferred income tax expense (benefit) (692)  3,036 
    Amortization of intangibles 1,285   1,286 
    Amortization of debt issuance costs 576   552 
    Amortization and accretion of debt 439   493 
    Loss on extinguishment of debt 23,807   190 
    Net loss on divestitures, disposals and impairment charges 847   2,029 
    Gain on insurance reimbursements    (3,471)
    Other    (155)
    Changes in operating assets and liabilities that provided (used) cash:   
    Accounts and preneed receivables (4,090)  (5,358)
    Inventories, prepaid and other current assets (4,449)  2,295 
    Intangible and other non-current assets (1,181)  (1,917)
    Preneed funeral and cemetery trust investments (31,349)  (17,679)
    Accounts payable 522   (101)
    Accrued and other liabilities 3,485   (9,120)
    Deferred preneed funeral and cemetery revenue 5,010   1,302 
    Deferred preneed funeral and cemetery receipts held in trust 29,061   17,685 
    Net cash provided by operating activities 84,246   61,024 
        
    Cash flows from investing activities:   
    Acquisitions of businesses and real estate (3,285)  (33,876)
    Proceeds from divestitures and sale of other assets 7,875   5,027 
    Proceeds from insurance reimbursements 7,758   2,440 
    Capital expenditures (24,883)  (26,081)
    Net cash used in investing activities (12,535)  (52,490)
        
    Cash flows from financing activities:   
    Borrowings from the credit facility 266,168   155,400 
    Payments against the credit facility (157,968)  (120,100)
    Payment to redeem the senior notes due 2026 (400,000)   
    Payment of call premium for redemption of the senior notes due 2026 (19,876)   
    Proceeds from the issuance of the senior notes due 2029 395,500    
    Payment of debt issuance costs related to the credit facility and senior notes due 2029 (2,197)  (922)
    Conversion and maturity of the convertible notes (3,980)   
    Payments on acquisition debt and obligations under finance leases (1,331)  (882)
    Payments on contingent consideration recorded at acquisition date (461)   
    Proceeds from the exercise of stock options and employee stock purchase 2,644   1,745 
    Taxes paid on restricted stock vestings and exercise of stock options (2,647)  (327)
    Dividends paid on common stock (7,264)  (6,763)
    Purchase of treasury stock (140,040)  (36,663)
    Net cash used in financing activities (71,452)  (8,512)
        
    Net increase in cash and cash equivalents 259   22 
    Cash and cash equivalents at beginning of year 889   1,148 
    Cash and cash equivalents at end of year$1,148  $1,170 


    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 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. The change in uncertain tax reserves and other was not tax effected. Special items were taxed at the operating tax rate.
    • 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 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 operating EBITDA is defined as funeral gross profit, plus depreciation and amortization and regional and unallocated costs, less financial EBITDA, ancillary EBITDA and divested/planned divested EBITDA related to the Funeral Home segment.
    • Funeral operating EBITDA margin is defined as funeral operating EBITDA as a percentage of funeral operating revenue.
    • Cemetery operating EBITDA is defined as cemetery gross profit, plus depreciation and amortization and regional and unallocated costs, less financial EBITDA and divested/planned divested EBITDA related to the Cemetery segment.
    • Cemetery operating EBITDA margin is defined as cemetery operating EBITDA as a percentage of cemetery operating revenue.
    • Preneed cemetery sales is defined as cemetery property, merchandise and services sold prior to death.
    • Financial EBITDA is defined as financial revenue, less the related expenses. Financial revenue and the related expenses are presented within Other revenue and Other expenses, respectively, on the Consolidated Statement of Operations.
    • Financial EBITDA margin is defined as financial EBITDA as a percentage of financial revenue.
    • Ancillary revenue is defined as revenues from our ancillary businesses, which include a flower shop, pet cremation business and online cremation business. Ancillary revenue and the related expenses are presented within Other revenue and Other expenses, respectively, on the Consolidated Statement of Operations.
    • Ancillary EBITDA is defined as ancillary revenue, less expenses related to our ancillary businesses noted above.
    • Ancillary EBITDA margin is defined as ancillary EBITDA as a percentage of ancillary revenue.
    • Divested/planned divested revenue is defined as revenues from certain funeral home and cemetery businesses that we have divested and intend to divest.
    • Divested/planned divested EBITDA is defined as divested/planned divested revenue, less field level and financial expenses related to the divested/planned divested businesses noted above.
    • Divested/planned divested EBITDA margin is defined as divested/planned divested EBITDA as a percentage of divested/planned divested revenue.
    • Total EBITDA is the sum of funeral operating EBITDA, cemetery operating EBITDA, financial EBITDA, ancillary EBITDA and divested/planned divested EBITDA.
    • Total EBITDA margin is defined as total 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 senior notes due 2029, acquisition debt, finance leases and bank credit facility, including our letter of credit.
    • Proforma trailing twelve months of adjusted consolidated EBITDA is defined as trailing twelve months of adjusted consolidated EBITDA including proforma EBITDA for our 2022 acquisitions, as well as add backs for deferred purchase price payments made during the last twelve months.
    • Bank covenant compliance leverage ratio is defined as total debt outstanding to proforma trailing twelve months of adjusted consolidated EBITDA.

    Funeral Operating EBITDA and Cemetery Operating EBITDA

    Our operations are reported in two business segments: Funeral Home operations and Cemetery operations. Our operating level results highlight trends in volumes, revenue, operating EBITDA (the individual business’ cash earning power/locally controllable business profit) and operating EBITDA margin (the individual business’ controllable profit margin).

    Funeral operating EBITDA and cemetery operating EBITDA are defined above. Funeral and cemetery gross profit 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, and iii) regional and unallocated funeral and cemetery costs. 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 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 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 operating EBITDA, cemetery operating EBITDA, financial EBITDA, ancillary EBITDA and divested/planned divested EBITDA are not consolidated measures of profitability.

    Funeral and cemetery operating 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 gross profit, 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 to Consolidated EBITDA, Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA margin for the three months and years ended December 31, 2021 and 2022:
      Three Months Ended Years Ended
      December 31, December 31,
       2021   2022   2021   2022 
    Net income $13,347  $8,220  $33,159  $41,381 
    Total expense for income taxes  4,574   3,731   11,145   15,813 
    Income before income taxes $17,921  $11,951  $44,304  $57,194 
             
    Depreciation & amortization  5,034   5,188   20,520   19,799 
    Non-cash stock compensation  1,681   1,381   5,513   5,959 
    Interest expense  5,307   7,687   25,445   25,895 
    Loss on extinguishment of debt     190   23,807   190 
    Other  (714)  2,262   770   (1,524)
    Consolidated EBITDA $29,229  $28,659  $120,359  $107,513 
    Adjusted for:        
    Special items  1,166      5,802   1,799 
    Adjusted consolidated EBITDA $30,395  $28,659  $126,161  $109,312 
             
    Total revenue $95,931  $93,916  $375,886  $370,174 
             
    Adjusted consolidated EBITDA margin  31.7%  30.5%  33.6%  29.5%


    Reconciliation of Net Income to Consolidated EBITDA, Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA Margin for the years ended December 31, 2018, 2019 and 2020:
       2018   2019   2020 
    Net income $11,645  $14,533  $16,090 
    Total expense for income taxes  6,621   7,883   8,552 
    Income before income taxes $18,266  $22,416  $24,642 
           
    Depreciation & amortization  17,430   17,771   19,389 
    Non-cash stock compensation  6,583   2,153   3,370 
    Interest expense  21,109   25,522   32,515 
    Other  3,932   4,351   21,512 
    Consolidated EBITDA $67,320  $72,213  $101,428 
    Adjusted for:      
    Special items  2,872   4,374   2,822 
    Adjusted consolidated EBITDA $70,192  $76,587  $104,250 
           
    Total revenue $267,992  $274,107  $329,448 
           
    Adjusted consolidated EBITDA margin  26.2%  27.9%  31.6%


    Special Items affecting Adjusted Net Income (in thousands) for the years ended December 31, 2018, 2019, 2020, 2021 and 2022:
      2018  2019   2020   2021   2022 
               
    Acquisition expenses $ $2,083  $(11) $  $ 
    Severance and separation costs  1,435  1,205   563   1,575   1,431 
    Performance awards cancellation and exchange  3,284     288       
    Accretion of discount on convert. sub, notes  2,192  241   216   20    
    Net loss on extinguishment of debt  502        23,807   190 
    Net (gain) loss on divestitures  556  4,217   6,864   (856)  (543)
    Impairment of goodwill, intangibles and PPE  1,019  963   14,952   500   2,358 
    Litigation reserve  1,000  750   270   1,050   200 
    Tax expense related to divested business    911          
    Net gain on insurance reimbursements    (885)        (3,471)
    Disaster recovery and pandemic costs  437     1,627   2,157   168 
    Change in uncertain tax reserves and other             (533)
    Tax adjustment related to certain discrete items  1,225     400       
    Other special items    336   410   2,354    
    Total $11,650 $9,821  $25,579  $30,607  $
    (200)


    Special Items affecting Adjusted Consolidated EBITDA (in thousands) for the years ended December 31, 2018, 2019, 2020, 2021 and 2022:
      2018 2019  2020  2021 2022
               
    Acquisition expenses $ $2,083 $(11) $ $
    Severance and separation costs  1,435  1,205  563   1,575  1,431
    Litigation reserve  1,000  750  270   1,050  200
    Disaster recovery and pandemic costs  437    1,627   2,157  168
    Other special items    336  373   1,020  
    Total $2,872 $4,374 $2,822  $5,802 $1,799


    Reconciliation of Funeral and Cemetery Gross Profit to Funeral and Cemetery Operating EBITDA (in thousands) for the three months and years ended December 31, 2021 and 2022:
      Three Months Ended Years Ended
      December 31, December 31,
       2021   2022   2021   2022 
    Funeral gross profit (GAAP) $22,377  $21,962  $89,027  $83,067 
    Depreciation & amortization  2,766   3,035   11,062   11,591 
    Regional & unallocated costs  5,419   4,414   18,918   16,813 
             
    Less:        
    Funeral financial EBITDA  (2,228)  (2,174)  (8,325)  (8,484)
    Ancillary EBITDA  (216)  (281)  (1,006)  (841)
    Funeral divested/planned divested EBITDA  (101)  (82)  (472)  (195)
    Funeral operating EBITDA $28,017  $26,874  $109,204  $101,951 
             
    Funeral operating revenue $65,366  $63,964  $252,926  $251,396 
             
    Total funeral revenue $69,584  $67,830  $270,087  $266,903 
             
    Funeral operating EBITDA margin  42.9%  42.0%  43.2%  40.6%
             
    Funeral gross profit margin  32.2%  32.4%  33.0%  31.1%


      Three Months Ended Years Ended 
      December 31, December 31,
       2021   2022   2021   2022 
    Cemetery gross profit (GAAP) $9,987  $9,476  $40,489  $36,159 
    Depreciation & amortization  1,868   1,995   8,217   7,584 
    Regional & unallocated costs  1,772   1,137   6,928   6,147 
             
    Less:        
    Cemetery financial EBITDA  (3,479)  (2,672)  (12,831)  (12,283)
    Cemetery divested/planned divested EBITDA  (129)  (26)  (645)  (98)
    Cemetery operating EBITDA $10,019  $9,910  $42,158  $37,509 
             
    Cemetery operating revenue $22,461  $23,169  $91,330  $90,033 
             
    Total cemetery revenue $26,347  $26,086  $105,799  $103,271 
             
    Cemetery operating EBITDA margin  44.6%  42.8%  46.2%  41.7%
             
    Cemetery gross profit margin  37.9%  36.3%  38.3%  35.0%


    Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the three months and years ended December 31, 2021 and 2022:
      Three Months Ended Years Ended
      December 31, December 31,
      2021 2022 2021  2022 
    GAAP basic earnings per share $0.82 $0.56 $1.90 $2.78 
    Special items  0.01  0.12  1.27  (0.02)
    Adjusted basic earnings per share $0.83 $0.68 $3.17 $2.76 


    Reconciliation of GAAP Basic Earnings Per Share to Adjusted Basic Earnings Per Share for the years ended December 31, 2018, 2019 and 2020:
      2018 2019 2020
    GAAP basic earnings per share $0.64 $0.81 $0.90
    Special items  0.55  0.45  0.98
    Adjusted basic earnings per share $1.19 $1.26 $1.88


    Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the three months and years ended December 31, 2021 and 2022:
      Three Months Ended Years Ended
      December 31, December 31,
      2021 2022 2021  2022 
    GAAP diluted earnings per share $0.77 $0.53 $1.81 $2.63 
    Special items  0.01  0.11  1.21  (0.02)
    Adjusted diluted earnings per share $0.78 $0.64 $3.02 $2.61 


    Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the years ended December 31, 2018, 2019 and 2020:
      2018 2019 2020
    GAAP diluted earnings per share $0.63 $0.80 $0.89
    Special items  0.54  0.45  0.97
    Adjusted diluted earnings per share $1.17 $1.25 $1.86


    Reconciliation of Cash Provided by Operating Activities to Adjusted Free Cash Flow (in thousands) for the three months and years ended December 31, 2021 and 2022:
      Three Months Ended, Years Ended
      December 31 December 31,
       2021   2022   2021   2022 
    Cash provided by operating activities $14,547  $10,978  $84,246  $61,024 
    Cash used for maintenance capital expenditures  (4,355)  (2,074)  (13,315)  (11,784)
    Free cash flow $10,192  $8,904  $70,931  $49,240 
             
    Plus: incremental special items:        
    Severance and separation costs $  $  $1,575  $384 
    Disaster recovery and pandemic costs  116      2,157   168 
    Other special items        1,020    
    Adjusted free cash flow $10,308  $8,904  $75,683  $49,792 


    Reconciliation of Estimated Year Ended December 31, 2023:
     
    Reconciliation of Net Income to Consolidated EBITDA, Adjusted Consolidated EBITDA (in thousands) and Adjusted Consolidated EBITDA Margin for the year ended December 31, 2023:
      2023E
    Net income $36,300 
    Total expense for income taxes  14,450 
    Income before income taxes $50,750 
       
    Depreciation & amortization  21,300 
    Non-cash stock compensation  7,800 
    Interest expense  33,100 
    Other   
    Consolidated EBITDA $112,950 
    Adjusted for:  
    Special items   
    Adjusted consolidated EBITDA $112,950 
       
    Total revenue $380,000 
       
    Adjusted consolidated EBITDA margin  29.7%


    Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share for the year ended December 31, 2023:
      2023E
    GAAP diluted earnings per share $2.31
    Special items  
    Adjusted diluted earnings per share $2.31


    Reconciliation of Cash Provided by Operating Activities to Adjusted Free Cash Flow (in thousands) for the year ended December 31, 2023:
      2023E
    Cash provided by operating activities $65,000 
    Cash used for maintenance capital expenditures  (10,000)
    Free cash flow $55,000 
    Special items   
    Adjusted free cash flow $55,000 


    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, cash flow, investment returns, capital allocation, debt levels, equity performance, death rates, market share growth, overhead, including talent recruitment, field and corporate incentive compensation, or other financial items; any statements of the plans, strategies and objectives of management for future operations or financing activities, including, but not limited, to capital allocation, the ability to obtain credit or financing, organizational performance, anticipated integration, performance and other benefits of recently completed and anticipated acquisitions, and cost and debt reductions; any statements of the plans, timing and objectives of management for acquisition 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, except where specifically noted. 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 talent recruitment efforts, 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;
    • our ability to execute and meet the objectives of our High Performance and Credit Profile Restoration Plan, if at all;
    • 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, product development and optimization plans;
    • the investment performance of our funeral and cemetery trust funds;
    • fluctuations in interest rates;
    • the effects of inflation on our business and financial condition and performance, including increased overall costs for our goods and services, the impact on customer preferences as a result of changes in discretionary income, and our ability, if at all, to mitigate such effects;
    • our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
    • our ability to meet the timing, objectives and expectations related to our capital allocation framework, including our forecasted rates of return, planned uses of free cash flow and future capital allocation, including share repurchases, potential strategic acquisitions, internal growth projects, dividend increases, or debt repayment plans;
    • our ability to meet the projected financial and equity performance goals to our updated full year outlook, if at all;
    • the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
    • the financial condition of third-party insurance companies that fund our preneed funeral contracts;
    • increased or unanticipated costs, such as insurance or taxes;
    • our level of indebtedness and the cash required to service our indebtedness;
    • changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;
    • effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;
    • the potential impact of epidemics and pandemics, including the COVID-19 coronavirus, including new variants of COVID-19, such as the Delta and Omicron variants, on customer preferences and on our business;
    • government, social, business and other actions that have been and will be taken in response to pandemics, including potential responses to new variants of COVID-19, such as the Delta and Omicron variants;
    • effects and expense of litigation;
    • consolidation of the funeral and cemetery industry;
    • our ability to 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, 2021, 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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    OUTLOOK FOR 2023

    OUTLOOK FOR 2023
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