Carriage Services Announces Fourth Quarter and Full Year 2022 Results

Carriage Services, Inc.

Conference call on Thursday, February 23, 2023 at 9:30 a.m. central time

OUTLOOK FOR 2023

OUTLOOK FOR 2023

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 12^th. 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