Carriage Services Announces Second Quarter and Six Months Ended June 30, 2022 Results

Carriage Services, Inc.

Conference call on Thursday, July 28, 2022, at 9:30 a.m. Central Time

HOUSTON, July 27, 2022 (GLOBE NEWSWIRE) -- Carriage Services, Inc. (NYSE: CSV): today announced results for the second quarter and six months ended June 30, 2022.

• Second Quarter Revenue of $90.6 million, GAAP Diluted EPS of $0.69 and Adjusted Diluted EPS of $0.58;

• Invested $176.7 million since bond refinancing on May 13, 2021 to repurchase 3.6 million shares (19.8% of outstanding) at $49.05 per share;

• Capital allocation now focused on closing two high quality acquisitions in two large new strategic markets, continuing investment in cemetery property development and deleveraging our balance sheet for optimum financial flexibility by the end of 2023;

• Given changes in Capital Allocation priorities over the next eighteen months and the numerous economic, monetary, market and geopolitical cross-currents and headwinds, we will no longer update our Three Year Roughly Right Ranges Performance Scenario through 2024 or Management’s Opinion of Roughly Right Range of Intrinsic Value;

• Updated Rolling Four Quarter Outlook including higher investments in Overhead Talent and closing two acquisitions in the next several months; and

• Realized $42 million in trust fund capital gains since COVID-19 market crash and portfolio repositioning, and selectively now deploying new capital to increase recurring annual income to a goal of a record $20 million, 2.25 times the level on March 6, 2020.

Mel Payne, Chairman and CEO, stated, “Highlights of our second quarter performance included funeral volumes that were up over the COVID-19 elevated levels of last year, and all five reporting segments of Field Revenue that were higher than last year with Total Revenue up $2.3 million or 2.6% to a second quarter record of $90.6 million. However, our Field EBITDA declined $1.4 million, and Field EBITDA Margin declined 270 basis points to 42.6%, declines that were attributable to a $1.4 million Field EBITDA decline in our Same Store Cemetery Portfolio, where we are continuing to make top-grading talent changes and capital allocation investments in cemetery product development for sustainable and broadly higher performance in the future.

Compared to a record second quarter and first half last year of performance metrics that were somewhat elevated by COVID-19 funeral deaths, our second quarter and first half performance this year at the Operating Field Level has been strong, as Total Revenue for the quarter was higher than last year by 2.6% and for the first half of the year by 2.1%. Our Total Field EBITDA for the second quarter was down $1.4 million or 3.4% compared to last year, and for the first six months of the year was down $1.7 million or only 2.0%, again attributable entirely to same dollar declines in our Same Store Cemetery Portfolio.

The second quarter decline in our Adjusted Consolidated EBITDA and Adjusted Diluted EPS of $3.4 million (down 11.8%) and $0.06 (down 9.4%), respectively, and first half decline of $5.6 million in Adjusted Consolidated EBITDA (down 8.8%) and increase of only $0.06 in Adjusted Diluted EPS (up 4.1%), respectively, are mostly attributable to investments in controllable fixed overhead. Starting early this year, we made the decision to add leadership and functional talent to our Houston Support Center Teams, concentrated in Marketing (new centralized function previously decentralized at the local business level), Information Technology (new Executive Team Leader, Rob Franch) and Acquisition Strategy and Execution under Steve Metzger. Moreover, we have continued to top-grade our leadership talent across our three Operations and Sales Regions at all levels, especially focused on our largest Eastern Region where most of the underperforming individual businesses over the last year have been concentrated.

For the entirety of 2020 and 2021 during the extended uncertainty of the Coronavirus Pandemic, we focused on continuous and broad talent and performance improvement to drive optimization of our funeral and cemetery portfolios. We achieved a Company milestone that we have called a High Performance Culture Transformation, characterized by large increases in all our valuation performance metrics to record levels of Total Revenue; Field EBITDA, Adjusted Consolidated EBITDA, Free Cash Flow and associated Margins; as well as GAAP and Adjusted Diluted EPS. The final step in our milestone performance transformation was the successful refinancing of our $400 million 6.625% Senior Notes due May 2026 into new $400 million 4.25% Senior Notes due May 2029.

At the beginning of 2020 we initiated and announced the second five-year timeframe of Carriage’s Good To Great Journey that never ends, so we just passed the halfway mark of this five-year timeframe on June 30, 2022. The very concept of our Mission / Vision of Being The Best on a Good To Great Journey that never ends means that we are continuously striving to improve and widen our “competitive advantages moat” in each business and market in which we operate, as well as in each of the functional support teams in our Houston Support Center. So our decision to invest in substantial new overhead talent in specific value added buckets (Marketing, Information Technology, Acquisitions, Field Leadership Top-grading, etc.) was done with longer term bigger and better ideas and goals in mind.

The main idea was to invest in an increase in short term accounting expense labeled “Overhead” that would, from a Capital Allocation and Value Creation perspective, be a “No-Brainer” that would lead to increases in organic revenue and field earnings from our existing portfolio of businesses while improving our consolidation platform capacity to acquire, integrate and leverage our overhead with a faster pace of high quality large acquisitions to our portfolio in the future. In addition to higher long term revenue growth, the various IT programs being led by Rob Franch should lead to company-wide cost, time, system and process efficiencies that result in higher profitability in all revenue categories which in turn will expand our Field and Consolidated EBITDA Margins. It seems wise to invest now in an uncertain economic and market environment when expectations are low with the goal of accelerating value creation in the intermediate to long term future.

Historically, our industry has been highly resilient to adverse economic and market environments, which we believe will continue to be the case during the current period of extreme domestic and global uncertainties. Our leadership teams are excited about our Company getting better faster irrespective of the external environment because of the substantial degree to which we can control our own performance destiny and create shareholder value per share over the remaining 2½ years of the second five year timeframe of Carriage’s Good To Great Journey ending 2024. And we are really excited imagining the incremental value we can create during the third five year timeframe of our Good To Great Journey ending 2029, which coincides with the maturity of our 4.25% $400 million Senior Notes. We have therefore adopted the mantra that Carlos Quezada began to use after joining Carriage on June 26, 2020, “It’s a great time to be at Carriage, but the best is yet to come!”, concluded Mr. Payne.

SECOND QUARTER 2022 COMPARATIVE PERFORMANCE HIGHLIGHTS

• Total Revenue⁽¹⁾ of $90.6 million, an increase of $2.3 million or 2.6%;

• GAAP Funeral Operating Income of $18.5 million, an increase of $1.9 million or 11.4%;

• GAAP Funeral Operating Income Margin of 29.8%, an increase of 200 basis points;

• GAAP Cemetery Operating Income of $10.4 million, a decrease of $1.1 million or 9.4%;

• GAAP Cemetery Operating Income Margin of 36.4%, a decrease of 400 basis points;

• GAAP Net Income of $10.9 million, an increase of $17.1 million or 276.7%;

• GAAP Net Income Margin of 12.0%, an increase of 1,900 basis points;

• GAAP Diluted EPS of $0.69, an increase of $1.02 or 309.1%;

• Same Store Funeral Contracts of 9,415, an increase of 174 or 1.9%;

• Same Store Funeral Revenue of $50.6 million, an increase of $1.7 million or 3.5%;

• Same Store Funeral EBITDA of $19.0 million, a decrease of $0.1 million or 0.5%;

• Same Store Funeral EBITDA Margin of 37.6%, a decrease of 150 basis points;

• Acquisition Funeral Revenue of $7.6 million, an increase of $0.7 million or 10.1%;

• Acquisition Funeral EBITDA of $3.1 million, an increase of $0.3 million or 10.5%;

• Acquisition Funeral EBITDA Margin of 40.0%, an increase of 10 basis points;

• Same Store Cemetery Revenue of $17.0 million, an increase of $0.1 million or 0.4%;

• Acquisition Cemetery Revenue remained flat at $8.2 million;

• Financial Revenue of $5.8 million, an increase of $0.4 million or 6.7%;

• Total Field EBITDA of $38.6 million, a decrease of $1.4 million or 3.4%;

• Total Field EBITDA Margin of 42.6%, a decrease of 270 basis points;

• Adjusted Consolidated EBITDA of $25.3 million, a decrease of $3.4 million or 11.8%;

• Adjusted Consolidated EBITDA Margin of 27.9%, a decrease of 460 basis points; and

• Adjusted Diluted EPS of $0.58, a decrease of $0.06 or 9.4%.
  

FIRST HALF 2022 COMPARATIVE PERFORMANCE HIGHLIGHTS

• Total Revenue⁽¹⁾ of $188.8 million, an increase of $3.8 million or 2.1%;

• GAAP Funeral Operating Income of $44.0 million, an increase of $1.5 million or 3.5%;

• GAAP Funeral Operating Income Margin of 32.2%, a decrease of 10 basis points;

• GAAP Cemetery Operating Income of $18.6 million, a decrease of $2.4 million or 11.2%;

• GAAP Cemetery Operating Income Margin of 35.5%, a decrease of 390 basis points;

• GAAP Net Income of $27.3 million, an increase of $20.5 million or 303.5%;

• GAAP Net Income Margin of 14.5%, an increase of 1,080 basis points;

• GAAP Diluted EPS of $1.70, an increase of $1.33 or 359.5%;

• GAAP Cash Provided by Operating Activities of $30.2 million, a decrease of 27.2%;

• GAAP Cash Provided by Operating Activities as a percentage of Total Revenue of 16.0%, a decrease of 642 basis points.

• Same Store Funeral Contracts of 21,068, an increase of 552 or 2.7%;

• Same Store Funeral Revenue of $112.2 million, an increase of $4.4 million or 4.1%;

• Same Store Funeral EBITDA of $46.5 million, an increase of $0.8 million or 1.7%;

• Same Store Funeral EBITDA Margin of 41.5%, a decrease of 100 basis points;

• Acquisition Funeral Revenue of $16.3 million, an increase of $1.3 million or 8.9%;

• Acquisition Funeral EBITDA of $6.8 million, an increase of $0.4 million or 6.2%;

• Acquisition Funeral EBITDA Margin of 41.9%, a decrease of 110 basis points;

• Same Store Cemetery Revenue of $31.2 million, a decrease of $0.3 million or 1.0%;

• Acquisition Cemetery Revenue of $14.5 million, a decrease of $0.7 million or 4.4%;

• Financial Revenue of $11.4 million, an increase of $0.4 million or 3.2%;

• Total Field EBITDA of $84.1 million, a decrease of $1.7 million or 2.0%;

• Total Field EBITDA Margin of 44.5%, a decrease of 190 basis points;

• Adjusted Consolidated EBITDA of $57.8 million, a decrease of $5.6 million or 8.8%;

• Adjusted Consolidated EBITDA Margin of 30.6%, a decrease of 370 basis points; and

• Adjusted Diluted EPS of $1.51, an increase of $0.06 or 4.1%.
  

⁽¹⁾ Total Revenue is comprised of Same Store Funeral Revenue, Acquisition Funeral Revenue, Same Store Cemetery Revenue, Acquisition Cemetery Revenue, Divested Revenue, Ancillary Revenue and Financial Revenue. The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

FIVE QUARTER TREND REPORT ENDING JUNE 30, 2022

FIVE QUARTER OPERATING AND FINANCIAL TREND REPORT
(000’s except for volume, averages & margins)		2ND QTR 2021		3RD QTR 2021		4TH QTR 2021		1ST QTR 2022		2ND QTR 2022
Funeral Same Store Contracts		9,241		10,824		10,698		11,653		9,415
Average Revenue Per Contract (1)		$5,294		$5,276		$5,345		$5,280		$5,378
Funeral Same Store Burial Contracts		3,297		3,699		3,799		4,079		3,234
Funeral Same Store Burial Rate		35.7%		34.2%		35.5%		35.0%		34.3%
Average Revenue Per Burial Contract		$9,308		$9,492		$9,431		$9,385		$9,605
Funeral Same Store Cremation Contracts		5,225		6,185		6,048		6,633		5,399
Funeral Same Store Cremation Rate		56.5%		57.1%		56.5%		56.9%		57.3%
Average Revenue Per Cremation Contract		$3,464		$3,483		$3,497		$3,450		$3,526
Funeral Same Store Revenue		$48,922		$57,104		$57,178		$61,526		$50,631
Funeral Same Store EBITDA		$19,144		$25,560		$24,287		$27,499		$19,042
Funeral Same Store EBITDA Margin		39.1%		44.8%		42.5%		44.7%		37.6%
Funeral Acquisition Revenue		$6,939		$7,651		$8,007		$8,610		$7,641
Funeral Acquisition EBITDA		$2,769		$3,373		$3,578		$3,750		$3,059
Funeral Acquisition EBITDA Margin		39.9%		44.1%		44.7%		43.6%		40.0%
Cemetery Same Store Preneed Property Contracts Sold		1,211		1,280		1,120		1,068		1,228
Cemetery Same Store Preneed Sales Revenue		$11,445		$11,366		$10,926		$9,011		$12,364
Cemetery Same Store Revenue		$16,906		$16,342		$16,288		$14,251		$16,969
Cemetery Same Store EBITDA		$7,907		$6,465		$6,939		$5,300		$6,479
Cemetery Same Store EBITDA Margin		46.8%		39.6%		42.6%		37.2%		38.2%
Cemetery Acquisition Preneed Property Contracts Sold		475		294		361		299		392
Cemetery Acquisition Preneed Sales Revenue		$6,839		$5,148		$5,045		$4,298		$6,486
Cemetery Acquisition Revenue		$8,175		$6,362		$6,312		$6,297		$8,193
Cemetery Acquisition EBITDA		$4,737		$3,547		$3,140		$3,299		$4,640
Cemetery Acquisition EBITDA Margin		57.9%		55.8%		49.7%		52.4%		56.6%
Total Financial Revenue		$5,394		$5,638		$6,160		$5,689		$5,758
Total Financial EBITDA		$5,048		$5,224		$5,770		$5,260		$5,318
Total Financial EBITDA Margin		93.6%		92.7%		93.7%		92.5%		92.4%
Total Revenue		$88,277		$95,041		$95,931		$98,161		$90,600
Total Field EBITDA		$40,014		$44,651		$44,189		$45,454		$38,635
Total Field EBITDA Margin		45.3%		47.0%		46.1%		46.3%		42.6%
Adjusted Consolidated EBITDA		$28,720		$32,389		$30,395		$32,476		$25,322
Adjusted Consolidated EBITDA Margin		32.5%		34.1%		31.7%		33.1%		27.9%
Adjusted Diluted EPS		$0.64		$0.82		$0.78		$0.92		$0.58
Adjusted Free Cash Flow		$12,313		$25,922		$10,308		$12,357		$12,006
Adjusted Free Cash Flow Margin		13.9%		27.3%		10.7%		12.6%		13.3%
GAAP Net Income (Loss)		$(6,167)		$13,046		$13,347		$16,402		$10,899
GAAP Net Income (Loss) Margin		(7.0)%		13.7%		13.9%		16.7%		12.0%
GAAP Diluted Earnings (Loss) Per Share		$(0.33)		$0.71		$0.77		$1.00		$0.69

⁽¹⁾ Excludes Preneed Funeral interest earnings reflected in Total Financial Revenue. The most comparable GAAP measures to the Non-GAAP measures presented in this table can be found in the Reconciliation of Non-GAAP Financial Measures section of this press release.

Carlos Quezada, President and Chief Operating Officer, stated, “We report our performance results publicly using the same highly transparent Non-GAAP “Trend Reports” that we use internally and which have been explained in previous shareholder letters, including Five Quarter Trend Reports that reflect short term trends in our core operating, financial and overhead sectors over time. Shown on the previous page is our Five Quarter Operating and Financial Trend Report. While we report acquisitions for both funeral homes and cemeteries separately, I will focus on funeral home total and cemetery total, which will include both same store and acquisition businesses.

After a record second quarter in 2021, we are excited to report that our team of teams across our portfolio of businesses produced another quarter of revenue growth even against a very high comparable due to the COVID-19 pandemic volume lift last year. Total Funeral Operating Revenue for the second quarter of 2022 was $58.3 million, up $2.4 million or 4.3%. Total Funeral Field EBITDA was $22.1 million, up by $0.02 million or 0.9%; and Total Funeral Field EBITDA Margin was 37.9%, down by 130 basis points. The Funeral Field EBITDA Margin compression to 37.9% versus 39.2% in 2021 was mainly due to increased prices on merchandise, pay increases to hourly employees and various increases in supplies and utilities. As a percent of revenue, merchandise costs are up 0.3% versus the second quarter of 2021, and salaries and benefits are up 1.0%.

For our cemetery portfolio, we ended the second quarter with a Total Cemetery Operating Revenue of $25.2 million, which was almost flat compared to the prior year. Total Cemetery Field EBITDA of $11.1 million was down $1.5 million or 12.1%, and Total Cemetery Field EBITDA Margin of 44.2% was down by 620 basis points. Even though we continue to have some of the highest Cemetery Field EBITDA Margins in the industry, the decrease in Total Cemetery Field EBITDA is mainly due to a decline in performance in our Same Store Cemetery portfolio. After achieving flat Same Store Cemetery Operating Revenue compared to last year (an outstanding performance after a record quarter last year), we also experienced increases to merchandise, transportation and utility costs as a consequence of record inflation and global supply chain challenges. We first experienced these cost increases in May and have taken measures to return our Cemetery Field EBITDA Margins to Performance Standards Ranges.

Since the first quarter of 2020 (only 10 quarters), our cemetery sales performance and cemetery pre-need production have grown by $10.1 million to $19.3 million or 109.7% in the second quarter of 2022. Even after such a huge achievement from our cemetery portfolio over the last two years, our sales teams led by Shane Pudenz delivered fantastic High Performance in Q2 2022 with growth over prior year of $1.1 million or 6.0% in total cemetery pre-need sales production.

For the first half of the year, Total Revenue was $188.8 million, up $3.8 million or 2.1%, Total Field EBITDA was $84.1 million, a decrease of $1.7 million or 2%, and Total Field EBITDA Margin was 44.5%, a decrease of 190 basis points. Our Adjusted Diluted EPS was $1.51 for the first half, an increase of $0.06 or 4.1%, and GAAP Diluted EPS was $1.70, an increase of $1.33 or 359.5%.

Our focus on wise capital allocation investments and value creation is starting to bear fruit. For example, in marketing we now have many businesses in our portfolio with a fresh redesigned feel and look in their branding, creating a positive impact on their communities and their overall strategic brand positioning. Digital marketing is also delivering exceptional results through Google reviews, digital presence, and social media platforms, which are providing additional market share gain opportunities for each business. The other and most important reason for our certainty that value creation from our existing operations will increase over time is our people, whose commitment to service excellence and devotion to this noble profession is why families choose us over other options,” concluded Mr. Quezada.

UPDATE ON GROWTH THROUGH ACQUISITION OUTLOOK

Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel stated, “Last quarter, we highlighted our expectation that a renewed focus on growth through acquisitions would accelerate in the back half of the year, and that continues to be the case. We previously announced a letter of intent to acquire a business just outside of the high growth Orlando market and we have since signed a definitive agreement and expect that transaction to close, pending regulatory approval, within the next couple of weeks. This business consists of two funeral homes that combined to serve more than 800 families last year and we are excited to welcome them to the Carriage Family.

We also recently signed a letter of intent to acquire a fantastic business that served more than 1,200 families last year, in another high growth large strategic market where we have never had a presence. This business, which has earned a top reputation within the market, includes funeral homes, a cemetery, and a cremation focused business. We look forward to providing more detail on this acquisition next quarter.

These two pending acquisitions will account for more than 2,000 additional calls each year, which represents approximately 4% of the total number of Funeral Home Calls we currently serve annually. These acquisitions are great examples of our growth plan, which continues to center around select premier businesses in large strategic markets with strong upside revenue growth potential, or what we call “No-Brainers.”

As we mentioned earlier, we have now turned our capital allocation focus towards high quality acquisitions in high growth markets while also deleveraging our balance sheet. The investments in talent that Mel described earlier, particularly those focused on technology, marketing, and acquisitions, all directly support our growth plan and provide tools that all of our businesses can use to increase their competitive advantages locally as we continue to focus on increasing our market share broadly.

We share with acquisition candidates that we believe one of our key competitive advantages are our best in class support teams, so we know how important it is to continue to invest in these specialized teams for our colleagues serving families every day, as well as for those owners who are looking for a succession planning solution that offers first class support and tools for their business and their people. Those of you who follow our releases know that we enjoy sharing real time feedback from members of the Carriage Family of Teams, and given this topic, I would be remiss if I did not share an e-mail I received yesterday from one of our Managing Partners, who joined us by way of an acquisition in 2019, regarding two members of our HR team:

Steve,

I wanted to let you know that I love Abby Durham and Oludare “Dare” Awotesu!! They make my job so much easier. They are quick to respond, which is extremely helpful in this crazy and quick hiring world. They keep everything organized, too. Their customer service is A++++!
Please share this with anyone who needs to know how great they are!

Thank you!

Lesli Y. Johnson
Managing Partner

Lesli’s e-mail is certainly not the exception, and it is one of the key drivers for why we have continued to invest in our critical Support Center teams. These investments will not only ensure our leaders have all of the tools and support they need to serve families at the highest level and compete for market share, but also serve as an important factor for owners and businesses looking for the best succession planning option for their business,” concluded Mr. Metzger.

ADJUSTED FREE CASH FLOW/LEVERAGE RATIO

	Six Months Ended June 30,
		2021				2022
Cash Provided by Operating Activities	$	41,441			$	30,177
Cash used for Maintenance Capital Expenditures		(4,602	)			(5,982	)
Free Cash Flow	$	36,839			$	24,195
Plus: Incremental Special Items:
Severance and Separation Costs		1,575				—
Disaster Recovery and Pandemic Costs		1,039				168
Adjusted Free Cash Flow	$	39,453			$	24,363
Total Revenue	$	184,914			$	188,761
Adjusted Free Cash Flow Margin		21.3%				12.9%

Ben Brink, Executive Vice President and Chief Financial Officer stated, “Adjusted Free Cash Flow in the second quarter declined $0.3 million to $12.0 million and Adjusted Free Cash Flow Margin declined 60 basis points to 13.3%. For the first half of the year Adjusted Free Cash Flow declined $15.1 million and Adjusted Free Cash Flow Margin declined 840 basis points to 12.9%. The year over year declines in our Adjusted Free Cash Flow for the first half of 2022 were primarily the result of lower Adjusted Consolidated EBITDA, higher cash incentive compensation payments made in the first quarter related to our five year Good To Great Managing Partner incentive program and higher maintenance capital expenditures.

Our Total Debt to Adjusted Consolidated EBITDA was 4.85 times at the end of the second quarter, an increase of 0.14 times from the end of the first quarter.

CAPITAL ALLOCATION

In the second quarter we repurchased 205,496 shares for an average purchase price of $40.02, which brought the total Carriage shares repurchased since the second quarter of 2021 to approximately 3.6 million shares for an average purchase price of $49.05. The 3.6 million shares repurchased is a reduction of approximately 19.8% of our diluted shares outstanding at the end of the first quarter of 2021.

Over the course of the next 12-18 months we intend to prioritize our capital allocation initially towards the acquisition of the two high quality businesses in strategic growth markets that we have under letters of intent and then towards continued investments in internal growth capital expenditures and debt repayment with the goal of lowering our Total Debt to Adjusted Consolidated EBITDA Ratio to below 4.5 times by the end of 2023. A lower leverage profile will provide the necessary financial flexibility to self-finance accretive capital allocation that will lead to a higher long term intrinsic value per share of Carriage.

Additionally, we believe that maintaining a lower leverage profile at approximately 4 times over the long term will lead to higher valuation multiples of our common shares, as institutional investors perceive Carriage as a ‘less risky’ equity investment because of lower leverage. We have demonstrated the ability to quickly de-lever our balance sheet when we rapidly reduced proforma leverage from 6 times post the transformative acquisitions made at the end of 2019 and early 2020 to approximately 3.8 times by the time we refinanced our senior notes in May 2021.

TRUST FUND INVESTMENT PERFORMANCE

		YTD 2022		Annualized 2009 - Q2 2022
CSV Discretionary Portfolio		(5.9)%		13.2%
S&P 500		(10.6)%		13.5%
DJIA		(9.0)%		12.5%
NASDAQ		(23.4)%		16.8%
HY Bond Index		(12.8)%		9.0%
70/30 HY/S&P Bond		(12.2)%		10.6%

As we outlined in our 2021 Shareholder Letter and in our first quarter 2022 earnings release, we have positioned our discretionary trust fund portfolio to outperform in the current market environment where fears of persistent inflation, rising interest rates, recession and continued geopolitical turmoil has led to declines in the vast majority of asset classes. We took advantage of the outperformance in the second quarter of commodity, energy and healthcare stocks to exit our positions in Freeport-McMoran, Cleveland-Cliffs, Valero, Phillips 66, LyondellBasel, Abbvie, Pfizer and Bristol-Myers for approximately $9.7 million in long term capital gains.

These sales increased our available cash position to approximately $30 million that we intend to redeploy to better relative value opportunities with a focus on increasing our recurring annual income generated by our portfolio, which currently is at an all-time high of $18.1 million annually. The realized capital gains we booked in the second quarter pushed our total realized capital gains to approximately $42 million since we executed our trust fund portfolio rotation at the depths of the Coronavirus Market Crisis in March 2020.

These capital gains coupled with the high amount of annual income generated by the portfolio has led to the continued incremental growth of our Financial Revenue and Financial EBITDA, which increased 3.2% and 2.3%, respectively, through the first six months of 2022. Additionally, the long-term capital gains and recurring income has put our preneed funeral and cemetery trusts in a materially overfunded position, the value of which will be recognized as these contracts mature which will lead to continued steady growth of our Financial Revenue and Financial EBITDA.

ROLLING FOUR QUARTER OUTLOOK

This Rolling Four Quarter Outlook is our Roughly Right Ranges forecast of performance over the next twelve months, which includes the estimates of performance for the two acquisitions we have announced and plan to close within the next ninety days, the full impact of the strategic investments we have made in our Overhead Support platform and the effect of higher short term interest rates,” concluded Mr. Brink.

Revenue: $380 - $390 million

Adjusted Consolidated EBITDA: $115 - $119 million

Adjusted Consolidated EBITDA Margin: 30% - 31%

Adjusted Diluted Earnings Per Share: $2.85 - $3.00

Adjusted Free Cash Flow: $68 - $72 million

Adjusted Free Cash Flow Margin: 18% - 19%

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, July 28, 2022 at 9:30 a.m. Central time. To participate in the call, please dial 800-715-9871 (conference ID - 3178566) and ask for the Carriage Services conference call. The conference call will also be available at https://edge.media-server.com/mmc/p/umgu97d2. 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 contact Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.

CARRIAGE SERVICES, INC.
OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
	Three Months Ended June 30,									Six Months Ended June 30,
		2021			2022		% Change				2021			2022		% Change
Same Store Contracts
Atneed Contracts		7,871			7,967		1.2%				17,400			17,938		3.1%
Preneed Contracts		1,370			1,448		5.7%				3,116			3,130		0.4%
Total Same Store Funeral Contracts		9,241			9,415		1.9%				20,516			21,068		2.7%
Acquisition Contracts
Atneed Contracts		1,339			1,337		(0.1%)				2,963			2,851		(3.8%)
Preneed Contracts		107			152		42.1%				231			344		48.9%
Total Acquisition Funeral Contracts		1,446			1,489		3.0%				3,194			3,195		—%
Total Funeral Contracts		10,687			10,904		2.0%				23,710			24,263		2.3%
Funeral Operating Revenue
Same Store Revenue	$	48,922		$	50,631		3.5%			$	107,777		$	112,157		4.1%
Acquisition Revenue		6,939			7,641		10.1%				14,924			16,251		8.9%
Total Funeral Operating Revenue	$	55,861		$	58,272		4.3%			$	122,701		$	128,408		4.7%
Cemetery Operating Revenue
Same Store Revenue	$	16,906		$	16,969		0.4%			$	31,541		$	31,220		(1.0%)
Acquisition Revenue		8,175			8,193		0.2%				15,155			14,490		(4.4%)
Total Cemetery Operating Revenue	$	25,081		$	25,162		0.3%			$	46,696		$	45,710		(2.1%)
Total Financial Revenue	$	5,394		$	5,758		6.7%			$	11,088		$	11,447		3.2%
Ancillary Revenue	$	1,088		$	980		(9.9%)			$	2,295		$	2,050		(10.7%)
Total Divested/Planned Divested Revenue	$	853		$	428		(49.8%)			$	2,134		$	1,146		(46.3%)
Total Revenue	$	88,277		$	90,600		2.6%			$	184,914		$	188,761		2.1%
Field EBITDA
Same Store Funeral Field EBITDA	$	19,144		$	19,042		(0.5%)			$	45,770		$	46,541		1.7%
Same Store Funeral Field EBITDA Margin		39.1%			37.6%		(150 bp)				42.5%			41.5%		(100 bp)
Acquisition Funeral Field EBITDA		2,769			3,059		10.5%				6,413			6,809		6.2%
Acquisition Funeral Field EBITDA Margin		39.9%			40.0%		10 bp				43.0%			41.9%		(110 bp)
Total Funeral Field EBITDA	$	21,913		$	22,101		0.9%			$	52,183		$	53,350		2.2%
Total Funeral Field EBITDA Margin		39.2%			37.9%		(130 bp)				42.5%			41.5%		(100 bp)
Same Store Cemetery Field EBITDA	$	7,907		$	6,479		(18.1%)			$	13,611		$	11,779		(13.5%)
Same Store Cemetery Field EBITDA Margin		46.8%			38.2%		(860 bp)				43.2%			37.7%		(550 bp)
Acquisition Cemetery Field EBITDA		4,737			4,640		(2.0%)				8,839			7,939		(10.2%)
Acquisition Cemetery Field EBITDA Margin		57.9%			56.6%		(130 bp)				58.3%			54.8%		(350 bp)
Total Cemetery Field EBITDA	$	12,644		$	11,119		(12.1%)			$	22,450		$	19,718		(12.2%)
Total Cemetery Field EBITDA Margin		50.4%			44.2%		(620 bp)				48.1%			43.1%		(500 bp)
Total Financial Field EBITDA	$	5,048		$	5,318		5.3%			$	10,341		$	10,578		2.3%
Total Financial Field EBITDA Margin		93.6%			92.4%		(120 bp)				93.3%			92.4%		(90 bp)
Ancillary EBITDA	$	274		$	151		(44.9%)			$	516		$	372		(27.9%)
Ancillary EBITDA Margin		25.2%			15.4%		(980 bp)				22.5%			18.1%		(440 bp)
Total Divested/Planned Divested EBITDA	$	135		$	(54)		(140.0%)			$	311		$	71		(77.2%)
Total Divested/Planned Divested EBITDA Margin		15.8%		(12.6)%			(2,840 bp)				14.6%			6.2%		(840 bp)
Total Field EBITDA	$	40,014		$	38,635		(3.4%)			$	85,801		$	84,089		(2.0%)
Total Field EBITDA Margin		45.3%			42.6%		(270 bp)				46.4%			44.5%		(190 bp)

OPERATING AND FINANCIAL TREND REPORT
(IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
	Three Months Ended June 30,											Six Months Ended June 30,
		2021				2022			% Change				2021			2022		% Change
Overhead
Total Variable Overhead	$	4,545			$	4,520			(0.6%)			$	11,445		$	9,695		(15.3%)
Total Regional Fixed Overhead		1,356				1,595			17.6%				2,555			2,935		14.9%
Total Corporate Fixed Overhead		5,538				7,398			33.6%				11,038			14,029		27.1%
Total Overhead	$	11,439			$	13,513			18.1%			$	25,038		$	26,659		6.5%
Overhead as a percentage of Revenue		13.0%				14.9%			190 bp				13.5%			14.1%		60 bp
Consolidated EBITDA	$	28,575			$	25,122			(12.1%)			$	60,763		$	57,430		(5.5%)
Consolidated EBITDA Margin		32.4%				27.7%			(470 bp)				32.9%			30.4%		(250 bp)
Other Expenses and Interest
Depreciation & Amortization	$	5,594			$	5,112						$	10,536		$	9,895
Non-Cash Stock Compensation		1,230				1,478							2,538			3,085
Interest Expense		7,478				5,988							15,062			11,530
Accretion of Discount on Convertible Sub. Notes		—				—							20			—
Loss on Extinguishment of Debt		23,807				—							23,807			—
Net (Gain) Loss on Divestitures		205				(1,278)							(103)			(575)
Net Gain on Insurance Reimbursements		—				(1,376)							—			(3,275)
Net Loss on Disposal of Fixed Assets		622				85							622			149
Other, Net		(2)				(7)							66			17
Pre-Tax Income (Loss)	$	(10,359)			$	15,120						$	8,215		$	36,604
Net Tax (Benefit) Expense		(4,192)				4,221							1,449			9,303
GAAP Net Income (Loss)	$	(6,167)			$	10,899			276.7%			$	6,766		$	27,301		303.5%
Special Items
Severance and Separation Costs		—				—							1,575			—
Accretion of Discount on Convertible Sub. Notes		—				—							20			—
Net (Gain) Loss on Divestitures		205				(1,278)							(103)			(575)
Litigation Reserve						200										200
Loss on Extinguishment of Debt		23,807				—							23,807			—
Net Gain on Insurance Reimbursements		—				(1,376)							—			(3,275)
Disaster Recovery and Pandemic Costs		145				—							1,039			168
Change in Uncertain Tax Reserves and Other		—				—							—			(533)
Other Special Items		1,334				—							1,334			—
Sum of Special Items	$	25,491			$	(2,454)						$	27,672		$	(4,015)
Tax Effect on Special Items		7,457				(653)							7,881			(926)
Adjusted Net Income	$	11,867			$	9,098			(23.3%)			$	26,557		$	24,212		(8.8%)
Adjusted Net Income Margin		13.4%				10.0%			(340 bp)				14.4%			12.8%		(160 bp)
Adjusted Basic Earnings Per Share	$	0.66			$	0.61			(7.6%)			$	1.48		$	1.61		8.8%
Adjusted Diluted Earnings Per Share	$	0.64			$	0.58			(9.4%)			$	1.45		$	1.51		4.1%
GAAP Basic Earnings (Loss) Per Share	$	(0.34)			$	0.74			317.6%			$	0.38		$	1.82		378.9%
GAAP Diluted Earnings (Loss) Per Share	$	(0.33)			$	0.69			309.1%			$	0.37		$	1.70		359.5%
Weighted Average Basic Shares Outstanding		17,967				14,798							17,966			15,020
Weighted Average Diluted Shares Outstanding		18,511				15,712							18,364			16,033
Reconciliation to Adjusted Consolidated EBITDA
Consolidated EBITDA	$	28,575			$	25,122			(12.1%)			$	60,763		$	57,430		(5.5%)
Severance and Separation Costs		—				—							1,575			—
Litigation Reserve		—				200							—			200
Disaster Recovery and Pandemic Costs		145				—							1,039			168
Adjusted Consolidated EBITDA	$	28,720			$	25,322			(11.8%)			$	63,377		$	57,798		(8.8%)
Adjusted Consolidated EBITDA Margin		32.5%				27.9%			(460 bp)				34.3%			30.6%		(370 bp)

CARRIAGE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited and in thousands)
	December 31, 2021				June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,148			$	1,058
Accounts receivable, net		25,314				24,308
Inventories		7,346				7,645
Prepaid and other current assets		6,404				3,951
Total current assets		40,212				36,962
Preneed cemetery trust investments		100,903				91,352
Preneed funeral trust investments		113,658				102,843
Preneed cemetery receivables, net		23,150				25,699
Receivables from funeral preneed trusts, net		19,009				19,689
Property, plant and equipment, net		269,367				271,532
Cemetery property, net		100,701				101,348
Goodwill		391,972				391,071
Intangible and other non-current assets, net		29,378				29,653
Operating lease right-of-use assets		17,881				17,571
Cemetery perpetual care trust investments		72,400				63,703
Total assets	$	1,178,631			$	1,151,423
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and lease obligations	$	2,809			$	3,023
Accounts payable		14,205				9,064
Accrued and other liabilities		43,773				30,744
Total current liabilities		60,787				42,831
Acquisition debt, net of current portion		3,979				3,891
Credit facility		153,857				173,501
Senior notes		394,610				394,923
Obligations under finance leases, net of current portion		5,157				4,945
Obligations under operating leases, net of current portion		18,520				18,005
Deferred preneed cemetery revenue		50,202				52,494
Deferred preneed funeral revenue		30,584				31,466
Deferred tax liability		45,784				47,495
Other long-term liabilities		1,419				1,829
Deferred preneed cemetery receipts held in trust		100,903				91,352
Deferred preneed funeral receipts held in trust		113,658				102,843
Care trusts’ corpus		71,156				63,004
Total liabilities		1,050,616				1,028,579
Commitments and contingencies:
Stockholders’ equity:
Common stock		263				263
Additional paid-in capital		236,809				238,571
Retained earnings		135,462				162,763
Treasury stock		(244,519	)			(278,753	)
Total stockholders’ equity		128,015				122,844
Total liabilities and stockholders’ equity	$	1,178,631			$	1,151,423

CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)
	Three Months Ended June 30,								Six Months Ended June 30,
		2021				2022				2021				2022
Revenue:
Service revenue	$	40,119			$	42,550			$	87,876			$	92,287
Property and merchandise revenue		41,606				41,276				83,502				82,888
Other revenue		6,552				6,774				13,536				13,586
		88,277				90,600				184,914				188,761
Field costs and expenses:
Cost of service		19,583				21,389				40,550				43,488
Cost of merchandise		27,520				29,306				56,040				58,636
Cemetery property amortization		2,175				1,704				3,692				3,036
Field depreciation expense		3,142				3,253				6,278				6,550
Regional and unallocated funeral and cemetery costs		5,770				5,966				11,843				12,313
Other expenses		1,160				1,270				2,523				2,548
		59,350				62,888				120,926				126,571
Gross profit		28,927				27,712				63,988				62,190
Corporate costs and expenses:
General, administrative and other		7,176				9,180