HOUSTON, Nov. 1 /PRNewswire-FirstCall/ -- Carriage Services, Inc. today announced third quarter results and provided a higher Rolling Four Quarter Outlook. Please go to the Investor homepage of Carriage's web site at http://www.carriageservices.com/ for a link to the Press Release that includes properly formatted Annual and Quarterly Trend Reports. Results of continuing operations for the third quarter of 2007 were as follows:
* Revenues of $40.6 million compared to revenues of $35 million for the third quarter of 2006. * Consolidated EBITDA Margin of 20.0% compared to Consolidated EBITDA Margin of 18.1% for the third quarter of 2006. * Consolidated EBITDA of $8.1 million compared to Consolidated EBITDA of $6.3 million for the third quarter of 2006. * Diluted earnings per share from continuing operations of $0.04 compared to a loss per share from continuing operations of $0.03 for the third quarter of 2006.
Melvin C. Payne, Chairman and Chief Executive Officer, stated, "We continued to improve our operating execution with a third quarter financial performance that was solidly profitable compared to last year's loss, notwithstanding weaker death rates this year versus last and an increase in overhead. Our same store cemetery operations had a good third quarter, primarily attributable to the continuing improvement at Rolling Hills Memorial Park and to broader performance in our Central Region cemetery operations. Same store funeral services decreased 3.7% during the quarter which was attributable to unusually weak death rates in our Eastern and Western Regions. The five acquisitions during the first nine months of 2007 proved to be significantly accretive to earnings in the third quarter. As a result of a 130 basis point increase in our Total Field EBITDA Margin, a relatively fixed consolidation platform overhead structure and our attractive low cost fixed capital structure, we were able to operationally and financially leverage a 16% increase in revenue during the third quarter into a 28% increase in Consolidated EBITDA and a $0.07 increase in diluted EPS. We expect the financial dynamic of leveraging relatively small revenue increases into strong earnings momentum to continue in the fourth quarter of 2007 and into 2008." Please refer to our Company and Investment Profile at http://www.carriageservices.com/ for a more detailed discussion of the financial dynamics that result from the execution of the Company's Standards Operating Model, 4E Leadership Model and Strategic Portfolio Optimization Model.
Trend Reporting
"We now report our consolidated field operating and financial results both on a multi-year and a rolling quarterly basis to present long term trends and results by quarter for the five most recent quarters to reflect short term trends and seasonality", continued Mr. Payne. "Just as we report internally for each of our businesses under the Standards Operating Model, the field level results highlight trends in volumes, revenues, Field EBITDA (controllable profit) and Field EBITDA Margin (controllable profit margin). Trend reporting allows us to focus on the key operational and financial results relevant to the longer term performance and valuation of our portfolio of deathcare businesses.
"We will maintain separate reporting for our same store continuing operations (adjusted for dispositions as they occur) and our new acquisition portfolio to show how the execution of both our Standards Operating Model and our Strategic Portfolio Optimization Model will change the sustainable revenue and earning power profile of Carriage Services over time."
"Since this is only the third quarter under our new reporting format, we are commenting more extensively each quarter during 2007 in order to point out what we believe are the most substantive observations and conclusions. Just as we are still adjusting to our new reporting format, we realize that it will take time and continued explanation and discussion for our stockholders to fully understand and appreciate this new trend reporting approach."
As mentioned previously, please go to the Investor homepage of Carriage's web site at http://www.carriageservices.com/ for a link to the Press release that includes properly formatted Annual and Quarterly Trend Reports.
UNAUDITED INCOME STATEMENT FROM CONTINUING OPERATIONS Annual Trend For the Four Years Ended December 31, 2006 and Four Quarters Ended September 30, 2007 ($000's) Pro forma(1) Pro forma(1) Actual Year Year Year 2003 2004 2005 CONTINUING OPERATIONS Same Store Contracts Atneed Contracts 17,880 79.8% 17,402 79.8% 17,353 79.6% Preneed Contracts 4,515 20.2% 4,412 20.2% 4,436 20.4% Total Same Store Funeral Contracts 22,395 100.0% 21,814 100.0% 21,789 100.0% Acquisition Contracts Atneed Contracts - - 53 64.6% Preneed Contracts - - 29 35.4% Total Acquisition Funeral Contracts - - 82 100.0% New Store Openings - - - Total Funeral Contracts 22,395 21,814 21,871 Same Store Interments Atneed Interments 2,506 27.7% 2,324 26.3% 2,006 24.4% Preneed Interments 6,554 72.3% 6,529 73.7% 6,213 75.6% Total Same Store Cemetery Interments 9,060 100.0% 8,853 100.0% 8,219 100.0% Acquisition Interments Atneed Interments - - - Preneed Interments - - - Total Acquisition Cemetery Interments - - - Total Cemetery Interments 9,060 8,853 8,219 Same Store Revenue Funeral Operations Revenue $105,499 75.3% $106,399 74.0% $108,649 73.0% Preneed Commission and Other Revenue 1,608 1.1% 1,319 0.9% 2,295 1.5% Total Funeral Same Store Revenue 107,107 76.4% 107,718 74.9% 110,944 74.6% Cemetery Operations Revenue 29,755 21.2% 33,203 23.1% 33,940 22.8% Cemetery Financial Revenue 3,304 2.4% 2,912 2.0% 3,615 2.4% Total Same Store Cemetery Revenue 33,059 23.6% 36,115 25.1% 37,555 25.2% Total Same Store Revenue 140,166 100.0% 143,833 100.0% 148,499 99.8% Acquisition Revenue Funeral Operations Revenue - - 303 0.2% Cemetery Operations Revenue - - - Cemetery Financial Revenue - - - Total Acquisition Revenue - - 303 0.2% Total Revenue from Continuing Operations $140,166 100.0% $143,833 100.0% $148,802 100.0% Field EBITDA from Continuing Operations Same Store Funeral Field EBITDA $37,201 77.2% $37,382 76.5% $39,419 76.6% Same Store Funeral Field EBITDA Margin 34.7% 34.7% 35.5% Same Store Cemetery Field EBITDA 11,011 22.8% 11,458 23.5% 11,963 23.2% Same Store Cemetery Field EBITDA Margin 33.3% 31.7% 31.9% Total Same Store Field EBITDA 48,212 100.0% 48,840 100.0% 51,382 99.8% Total Same Store Field EBITDA Margin 34.4% 34.0% 34.6% Acquisition Funeral Field EBITDA - - 92 0.2% Acquisition Funeral Field EBITDA Margin - - 30.4% Acquisition Cemetery Field EBITDA - - - Acquisition Cemetery Field EBITDA Margin - - - Total Acquisition Field EBITDA - - 92 0.2% Total Acquisition Field EBITDA Margin - - 30.4% Total Field EBITDA from Continuing Operations 48,212 100.0% 48,840 100.0% 51,474 100.0% Total Field EBITDA Margin from Continuing Operations 34.4% 34.0% 34.6% Overhead Total Variable Overhead 1,846 11.6% 1,910 11.5% 2,245 12.5% Total Regional Fixed Overhead 2,721 17.1% 2,892 17.4% 3,247 18.0% Total Corporate Fixed Overhead 11,378 71.4% 11,825 71.1% 12,501 69.5% Total Overhead 15,945 100.0% 16,627 100.0% 17,993 100.0% 11.4% 11.6% 12.1% Consolidated EBITDA from Continuing Operations $32,267(2) $32,213(2) $33,481(2) Consolidated EBITDA Margin from Continuing Operations 23.0% 22.4% 22.5% Total Depreciation & Amortization 9,159 9,285 9,065 Interest, Net 17,773 16,908 18,090 Refinancing Costs - - 6,933 Special Charges/ Other (Gains) Losses (657) (940) 698 Team Partners Incentive Expense 60 110 276 Pretax Income 5,932 6,850 (1,581) Benefit for Income Taxes due to a Valuation Adjustment - (810) - Income Tax 2,301 2,643 (456) Net income from Continuing Operations $3,631 $5,017 $(1,125) 2.6% 3.5% -0.8% Diluted EPS-from continuing operations $0.22 $0.29 $(0.06) Actual Actual Year Trailing 4 Qtrs. 2006 9/30/2007 CONTINUING OPERATIONS Same Store Contracts Atneed Contracts 16,870 78.6% 16,409 78.3% Preneed Contracts 4,597 21.4% 4,538 21.7% Total Same Store Funeral Contracts 21,467 100.0% 20,947 100.0% Acquisition Contracts Atneed Contracts 194 67.1% 921 68.3% Preneed Contracts 95 32.9% 428 31.7% Total Acquisition Funeral Contracts 289 100.0% 1,349 100.0% New Store Openings 104 464 Total Funeral Contracts 21,860 22,760 Same Store Interments Atneed Interments 2,100 25.0% 2,120 26.9% Preneed Interments 6,285 75.0% 5,766 73.1% Total Same Store Cemetery Interments 8,385 100.0% 7,886 100.0% Acquisition Interments Atneed Interments - 196 25.2% Preneed Interments - 583 74.8% Total Acquisition Cemetery Interments - 779 100.0% Total Cemetery Interments 8,385 8,665 Same Store Revenue Funeral Operations Revenue 110,778 73.6% 112,230 69.3% Preneed Commission and Other Revenue 2,267 1.5% 2,217 1.4% Total Funeral Same Store Revenue 113,045 75.2% 114,447 70.6% Cemetery Operations Revenue 32,107 21.3% 33,821 20.9% Cemetery Financial Revenue 4,052 2.7% 4,407 2.7% Total Same Store Cemetery Revenue 36,159 24.0% 38,228 23.6% Total Same Store Revenue 149,204 99.2% 152,675 94.2% Acquisition Revenue Funeral Operations Revenue 1,212 0.8% 6,622 4.1% Cemetery Operations Revenue - 2,578 1.6% Cemetery Financial Revenue - 157 0.1% Total Acquisition Revenue 1,212 0.8% 9,357 5.8% Total Revenue from Continuing Operations $150,416 100.0% $162,032 100.0% Field EBITDA from Continuing Operations Same Store Funeral Field EBITDA 41,862 79.1% 43,197 72.6% Same Store Funeral Field EBITDA Margin 37.0% 37.7% Same Store Cemetery Field EBITDA 10,645 20.1% 13,181 22.2% Same Store Cemetery Field EBITDA Margin 29.4% 34.5% Total Same Store Field EBITDA 52,507 99.2% 56,378 94.8% Total Same Store Field EBITDA Margin 35.2% 36.9% Acquisition Funeral Field EBITDA 407 0.8% 2,498 4.2% Acquisition Funeral Field EBITDA Margin 33.6% 37.7% Acquisition Cemetery Field EBITDA - 613 1.0% Acquisition Cemetery Field EBITDA Margin - 23.8% Total Acquisition Field EBITDA 407 0.8% 3,111 5.2% Total Acquisition Field EBITDA Margin 33.6% 33.2% Total Field EBITDA from Continuing Operations 52,914 100.0% 59,489 100.0% Total Field EBITDA Margin from Continuing Operations 35.2% 36.7% Overhead Total Variable Overhead 3,402 17.4% 4,365 20.6% Total Regional Fixed Overhead 2,977 15.2% 3,160 14.9% Total Corporate Fixed Overhead 13,170 67.4% 13,711 64.6% Total Overhead 19,549 100.0% 21,236 100.0% 13.0% 13.1% Consolidated EBITDA from Continuing Operations $33,365(2) $38,253(2) Consolidated EBITDA Margin from Continuing Operations 22.2% 23.6% Total Depreciation & Amortization 8,688 9,333 Interest, Net 17,106 16,908 Refinancing Costs - - Special Charges/Other (Gains) Losses 331 113 Team Partners Incentive Expense 1,151 255 Pretax Income 6,089 11,644 Benefit for Income Taxes due to a Valuation Adjustment - - Income Tax 2,375 4,624 Net income from Continuing Operations $3,714 $7,020 2.5% 4.3% Diluted EPS-from continuing operations $0.20 $0.37 (1) Effective January 1, 2005, the company changed its accounting method to expense preneed selling costs incurred for the origination of prearranged funeral and cemetery sales contracts. Results of operations for the years ended December 31, 2003 and 2004 are presented on a proforma basis applying the new accounting method. (2) Reclassified special charges (gains) and Team Partner Incentive expense to improve comparability of periods presented. UNAUDITED INCOME STATEMENT FROM CONTINUING OPERATIONS Quarter Trend For the Five Quarters Ended September 30, 2007 ($000's) Actual Actual Actual Qtr 3 Qtr 4 Qtr 1 2006 2006 2007 CONTINUING OPERATIONS Same Store Contracts Atneed Contracts 4,014 79.4% 4,148 78.2% 4,399 78.0% Preneed Contracts 1,044 20.6% 1,155 21.8% 1,238 22.0% Total Same Store Funeral Contracts 5,058 100.0% 5,303 100.0% 5,637 100.0% Acquisition Contracts Atneed Contracts 43 67.2% 52 65.8% 184 68.1% Preneed Contracts 21 32.8% 27 34.2% 86 31.9% Total Acquisition Funeral Contracts 64 100.0% 79 100.0% 270 100.0% New Store Openings 18 86 120 Total Funeral Contracts 5,140 5,468 6,027 Same Store Interments Atneed Interments 526 26.8% 508 24.1% 583 28.0% Preneed Interments 1,437 73.2% 1,602 75.9% 1,502 72.0% Total Same Store Cemetery Interments 1,963 100.0% 2,110 100.0% 2,085 100.0% Acquisition Interments Atneed Interments - 0.0% - 0.0% 39 24.5% Preneed Interments - 0.0% - 0.0% 120 75.5% Total Acquisition Cemetery Interments - 0.0% - 0.0% 159 100.0% Total Cemetery Interments 1,963 2,110 2,244 Same Store Revenue Funeral Operations Revenue $25,909 74.0% $27,875 74.4% $30,411 71.6% Preneed Commission and Other Revenue 636 1.8% 448 1.2% 642 1.5% Total Funeral Same Store Revenue 26,545 75.8% 28,323 75.6% 31,053 73.1% Cemetery Operations Revenue 7,452 21.3% 7,285 19.5% 8,768 20.6% Cemetery Financial Revenue 763 2.2% 1,423 3.8% 930 2.2% Total Cemetery Same Store Revenue 8,215 23.5% 8,708 23.3% 9,698 22.8% Total Same Store Revenue 34,760 99.3% 37,031 98.9% 40,751 96.0% Acquisition Revenue Funeral Operations Revenue 252 0.7% 413 1.1% 1,322 3.1% Cemetery Operations Revenue - - 371 0.9% Cemetery Financial Revenue - - 20 0.0% Total Acquisition Revenue 252 0.7% 413 1.1% 1,713 4.0% Total Revenue from Continuing Operations $35,012 100.0% $37,444 100.0% $42,464 100.0% 23,280 23,019 25,184 Field EBITDA from Continuing Operations Same Store Funeral Field EBITDA $9,318 81.8% $11,031 78.3% $12,721 75.6% Same Store Funeral Field EBITDA Margin 35.1% 38.9% 41.0% Same Store Cemetery Field EBITDA 2,028 17.8% 2,856 20.3% 3,713 22.1% Same Store Cemetery Field EBITDA Margin 24.7% 32.8% 38.3% Total Same Store Field EBITDA 11,346 99.6% 13,887 98.5% 16,434 97.7% Total Same Store Field EBITDA Margin 32.6% 37.5% 40.3% Acquisition Funeral Field EBITDA 42 0.4% 208 1.5% 311 1.8% Acquisition Funeral Field EBITDA Margin 16.7% 50.4% 23.5% Acquisition Cemetery Field EBITDA - 0.0% - 0.0% 76 0.5% Acquisition Cemetery Field EBITDA Margin - 0.0% - 20.5% Total Acquisition Field EBITDA 42 0.4% 208 1.5% 387 2.3% Total Acquisition Field EBITDA Margin 16.7% 50.4% 22.6% Total Field EBITDA from Continuing Operations 11,388 100.0% 14,095 100.0% 16,821 100.0% Total Field EBITDA Margin from Continuing Operations 32.5% 37.6% 39.6% Overhead Total Variable Overhead(2) 993 19.7% 955 18.9% 1,061 20.0% 1,337.00 1,285.00 1,520.00 Total Regional Fixed Overhead 748 14.8% 764 15.1% 787 14.8% Total Corporate Fixed Overhead 3,307 65.5% 3,343 66.0% 3,456 65.2% Total Overhead 5,048 100.0% 5,062 100.0% 5,304 100.0% 14.4% 13.5% 12.5% Consolidated EBITDA from Continuing Operations $6,340 $9,033 $11,517 Consolidated EBITDA Margin from Continuing Operations 18.1% 24.1% 27.1% Total Depreciation & Amortization 2,030 2,153 2,479 Interest, Net 4,216 4,188 4,174 Special Charges/Other (Gains) Losses(1) 188 113 - Team Partners Incentive Expense(2) 710 255 - Pretax Income (804) 2,324 4,864 Income tax (304) 943 1,873 Net income from Continuing Operations $(500) $1,381 $2,991 -1.4% 3.7% 7.0% Diluted EPS-from continuing operations $(0.03) $0.07 $0.16 Actual Actual Qtr 2 Qtr 3 2007 2007 CONTINUING OPERATIONS Same Store Contracts Atneed Contracts 3,961 77.2% 3,901 80.1% Preneed Contracts 1,173 22.8% 972 19.9% Total Same Store Funeral Contracts 5,134 100.0% 4,873 100.0% Acquisition Contracts Atneed Contracts 248 67.4% 437 69.1% Preneed Contracts 120 32.6% 195 30.9% Total Acquisition Funeral Contracts 368 100.0% 632 100.0% New Store Openings 126 132 Total Funeral Contracts 5,628 5,637 Same Store Interments Atneed Interments 537 27.9% 492 27.9% Preneed Interments 1,391 72.1% 1,271 72.1% Total Same Store Cemetery Interments 1,928 100.0% 1,763 100.0% Acquisition Interments Atneed Interments 81 30.1% 76 21.7% Preneed Interments 188 69.9% 275 78.3% Total Acquisition Cemetery Interments 269 100.0% 351 100.0% Total Cemetery Interments 2,197 2,114 Same Store Revenue Funeral Operations Revenue $27,857 67.1% $26,087 64.2% Preneed Commission and Other Revenue 625 1.5% 502 1.2% Total Funeral Same Store Revenue 28,482 68.6% 26,589 65.5% Cemetery Operations Revenue 9,408 22.7% 8,360 20.6% Cemetery Financial Revenue 733 1.8% 1,321 3.3% Total Cemetery Same Store Revenue 10,141 24.4% 9,681 23.8% Total Same Store Revenue 38,623 93.0% 36,270 89.3% Acquisition Revenue Funeral Operations Revenue 1,786 4.3% 3,101 7.6% Cemetery Operations Revenue 1,014 2.4% 1,193 2.9% Cemetery Financial Revenue 87 0.2% 50 0.1% Total Acquisition Revenue 2,887 7.0% 4,344 10.7% Total Revenue from Continuing Operations $41,510 100.0% $40,614 100.0% 26,173 26,446 Field EBITDA from Continuing Operations Same Store Funeral Field EBITDA $10,479 70.5% $8,966 65.4% Same Store Funeral Field EBITDA Margin 36.8% 33.7% Same Store Cemetery Field EBITDA 3,453 23.2% 3,159 23.0% Same Store Cemetery Field EBITDA Margin 34.0% 32.6% Total Same Store Field EBITDA 13,932 93.7% 12,125 88.4% Total Same Store Field EBITDA Margin 36.1% 33.4% Acquisition Funeral Field EBITDA 605 4.1% 1,374 10.0% Acquisition Funeral Field EBITDA Margin 33.9% 44.3% Acquisition Cemetery Field EBITDA 325 2.2% 212 1.5% Acquisition Cemetery Field EBITDA Margin 32.1% 17.8% Total Acquisition Field EBITDA 930 6.3% 1,586 11.6% Total Acquisition Field EBITDA Margin 32.2% 36.5% Total Field EBITDA from Continuing Operations 14,862 100.0% 13,711 100.0% Total Field EBITDA Margin from Continuing Operations 35.8% 33.8% Overhead Total Variable Overhead(2) 1,226 23.2% 1,123 20.1% Total Regional Fixed Overhead 723 13.7% 886 15.9% Total Corporate Fixed Overhead 3,345 63.2% 3,567 64.0% Total Overhead 5,294 100.0% 5,576 100.0% 12.8% 13.7% Consolidated EBITDA from Continuing Operations $9,568 $8,135 Consolidated EBITDA Margin from Continuing Operations 23.0% 20.0% Total Depreciation & Amortization 2,294 2,407 Interest, Net 4,158 4,388 Special Charges/Other (Gains) Losses(1) - - Team Partners Incentive Expense(2) - - Pretax Income 3,116 1,340 Income tax 1,200 608 Net income from Continuing Operations $1,916 $732 4.6% 1.8% Diluted EPS-from continuing operations $ 0.10 $0.04 (1) Includes charges for remediation at Rolling Hills Cemetery of $704K (Q3) 2006 and $110K (Q4) 2006 which were reclassified from field expenses. (2) Reclassified Team Partners expense from Total Variable Overhead in 2006 expense to improve comparability of periods presented. Same Store Funeral Operations
Our same store volumes have declined gradually each year from 22,395 in 2003 to 21,467 in 2006 (compound annual decline of 1.4%) consistent with a period of weak death rates nationally and the loss of market share primarily in our Central Region funeral operations. Our same store volumes decreased 2.4% for the trailing four quarters ended September 30, 2007 as recent death rates have been particularly weak in our Eastern and Western Regions, while the Central Region has reversed its previous trend by reporting slightly higher volumes in 2007. As our Standards Operating Model and Managing Partner "Being the Best" incentive program is heavily weighted on growth in the number of client families served (funeral contracts), we expect the modest historical same store decline to stabilize during the next five years and same store volumes to increase during the following five years because of favorable future demographic trends which would produce substantial operating leverage benefits to our financial performance.
Our same store funeral operations have steadily increased its revenue from $107.1 million in 2003 to $113.0 million in 2006 (compound annual increase of 1.9%). For the trailing four quarters ended September 30, 2007, same store funeral revenues increased only 1.2% because of the weak death rates during most of this year. We are targeting to achieve at least a 2 - 2.5% annual revenue increase in the future from our same store portfolio as volumes stabilize and our average revenue per funeral increases over time. During the third quarter, revenues from funeral same store operations increased 0.7%, same store funeral contracts decreased 3.7% and preneed commissions decreased 21% compared to the third quarter of 2006. Since we maintain atneed pricing power on approximately 80% of our services, our goal is to continuously improve the quality and skill set of our personnel and the value of their services to our client family customers so that we can target a modest growth rate in revenues even in the face of weak death rates, higher cremation rates and reduced preneed activities.
After implementing our funeral Standards Operating Model in 2004, our same store funeral Field EBITDA Margin increased by 230 basis points from 34.7% in 2004 to 37.0% in 2006. This multi-year increasing same store funeral Field EBITDA Margin trend has continued in 2007, as our same store funeral Field EBITDA Margin increased 70 basis points to 37.7% for the trailing four quarters ended September 30, 2007 compared to 2006 which is primarily attributable to improved Central Region performance.
Same Store Cemetery Operations
We believe that cemetery interments reflect the market share of our cemetery portfolio much like funeral contracts reflect market share of our funeral home portfolio. Whereas approximately 21% of our funeral contracts originated from a preneed sale, consistent with our selective preneed funeral strategy, 73% of our interments originated from preneed sales. Therefore, it is imperative to have a consistent and high level of preneed property sales performance over time to build new cemetery heritage and future market share. Otherwise our cemetery interment volumes and market share are relatively stable and produce a consistent stream of atneed revenue at high gross margins.
Our same store cemetery financial performance from 2003 through 2006 was characterized by increasing revenues but slightly declining Field EBITDA Margins. However, this performance was highly concentrated in only two of our California cemeteries, including Rolling Hills, whose performance declined during 2006 for reasons we previously reported. We have experienced significantly improved Field EBITDA Margin performance during 2007 as reflected by the 510 basis point increase for the trailing four quarters ending September 30, 2007 compared to full year 2006.
Cemetery same store operating revenues increased 12.2% to $8.4 million in the third quarter of 2007 compared to the prior year quarter on the strength of higher preneed sales of interment rights. The third quarter 2007 increase in our same store cemetery Field EBITDA of $1.1 million and Field EBITDA Margin of 790 basis points to 32.6% was primarily attributable to improving performance at Rolling Hills, our Central Region cemeteries and gains on trust investments.
We have moved quickly over the last year to recruit and support new operating and sales leadership in our larger and more strategically located cemeteries, and we are not finished with this initiative. Our goal is to diversify our property offerings and to build broader and deeper teams of "A player" sales leaders and counselors that can sustain consistent, modest growth in preneed property sales which will be evident in positive quarterly operating and financial trend comparisons during the fourth quarter of 2007 and into 2008.
Field EBITDA and Margins
Our 2007 quarterly Total Field EBITDA Margin trend has continued positively, as we achieved a 130 basis point increase in Total Field EBITDA Margin in the third quarter compared to 2006. We expect continued positive Total Field EBITDA Margin trend comparisons during the balance of 2007 and into 2008.
Our Total Field EBITDA increased each year from $48.2 million in 2003 to $52.9 million in 2006 (excluding the remediation charge at Rolling Hills), a compound annual increase of 2.3% over the three year period. For the trailing four quarters ended September 30, 2007, our Total Field EBITDA increased $6.6 million or 12.4% to $59.5 million and the total Field EBITDA Margin increased 150 basis points to 36.7% compared to 2006. We expect the recently higher Total Field EBITDA growth trend to continue over the next few years because of a gradual increase in same store revenues, improving Field EBITDA Margins and the increasing contribution of acquisitions.
Acquisitions
We acquired Seaside Memorial Park and Funeral Home and Corpus Christi Funeral Home in early January 2007 and are well along with integration of operations with our existing Rose Hill Cemetery operation. These businesses complement each other and are producing synergies that should lead to market share, revenue and profit growth at sustainable Field EBITDA Margins, especially in the Hispanic market segment which is forecast to grow substantially over the next ten years in their markets. We expect that generally it will take 12-18 months to complete the integration of newly acquired businesses and make the necessary changes to bring them to a level of performance that aligns with our Standards Operating Model.
During the second quarter of 2007 we closed on two acquisitions of combination businesses: Conejo Mountain Funeral Home and Memorial Park (Conejo Mountain) in Camarillo, California on April 1, 2007, and Cloverdale Funeral Home and Memorial Park and Terrace Lawn Memorial Gardens (Cloverdale) in Boise, Idaho on June 12, 2007. Conejo Mountain performs approximately 390 cemetery interments and 275 funeral services annually. This acquisition represents our entry into Southern California and positions us to pursue other opportunities in the greater Los Angeles market. Cloverdale performs approximately 600 funeral services and 400 cemetery interments annually. This acquisition complements our existing funeral operations in Boise and the adjacent markets of Caldwell, Meridian and Nampa, which together perform approximately 1,050 funeral services annually. We have also closed on two "tuck-in" acquisitions of funeral homes, which complement our "Best in Market" existing funeral businesses in Santa Fe, New Mexico (June 2007) and in the Springfield, Massachusetts market (August 2007).
In October 2007, we signed an agreement to acquire the Evans Brown Mortuary Group in Southern California, consisting of four funeral homes located in southeast Los Angeles in rapidly growing Riverside County, which together perform approximately 1,200 funeral services annually. The Evans Brown acquisition, scheduled to close in the fourth quarter, is expected to add materially to our new acquisition portfolio performance during the four quarter outlook period ending September 30, 2008, so we have increased our twelve month Outlook performance accordingly.
We have established five year goals to change the sustainable revenue and earning power profile of our deathcare portfolio through effective execution of our Strategic Portfolio Optimization Model. We will report on this progress by showing the trends in revenue and Field EBITDA from same store operations that we acquired in the early growth phase of Carriage in the 1990's versus the trends in our new acquisition portfolio. We will report results from acquired businesses in the acquisition section for at least three full years if not longer to ensure consistent comparable long-term trends. For the third quarter of 2007, 10.7% of our total revenue and 11.6% of our Total Field EBITDA was from the businesses acquired since the fourth quarter of 2005. Such businesses contributed $0.04 per diluted share to our third quarter earnings before considering any allocation of overhead or interest.
We are encouraged by the current level of acquisition activity and the quality and size of the candidates. Our selection process is rigorous using our six Strategic Ranking Criteria and ROIC Model and as a result we have declined numerous opportunities to acquire both independents and smaller consolidators, not because of price but because of strategic fit. We will integrate expected proforma results on newly announced acquisitions into our rolling four quarter outlook in conjunction with our quarterly earnings release.
Overhead
We have organized corporate and regional overhead into three categories, two of which are primarily fixed and one of which is variable (primarily incentive compensation). Our corporate fixed overhead increased approximately $2.3 million between 2003 and the trailing four quarters ended September 30, 2007 because of two significant and opposite events. First, we reorganized and streamlined our operations organization over this period, culminating in the combination of our funeral and cemetery sales and operations into three geographic regions in August 2006 within our regional structure, thereby eliminating the heads of funeral and cemetery operations in our corporate office. This streamlined organization process has allowed us to effectively use a single operations support group now included in corporate fixed overhead rather than maintaining a separate corporate support organization for funeral and cemetery operations each with a division head in Houston. We estimate that the new operations organizational structure resulted in an approximate $1.2 million decrease in corporate fixed overhead from 2003 to 2006.
Second, during this period we significantly upgraded our IT systems; successfully prepared to publicly report on internal controls; developed a fully staffed internal audit department; upgraded our Human Resources and brought our legal functions in house under a new General Counsel; and reorganized our preneed trust and investment activities. As a result, costs of our corporate support departments increased approximately $3.5 million during this period which resulted in a net increase in corporate fixed overhead of $2.3 million, a compounded annual increase of 5.1%. These costs and investments were necessary additions to our support infrastructure which are allowing us to more effectively execute our Standards Operating Model while maintaining a flat regional operations organization. In addition, we are now well positioned to execute a growth strategy while supporting newly acquired businesses to improve their operations, people, market share and financial results consistent with our Standards Operating Model.
We believe that for periods subsequent to 2007 our Regional and Corporate fixed overhead categories will increase no more than merit increases and inflation over time and will not grow as a fixed percent of revenue as we add new acquisitions to our portfolio. During the third quarter of 2007, total overhead increased $528 thousand or 10.5% when compared to the third quarter of 2006. Variable overhead included approximately $200 thousand of additional legal fees related to uninsured claims and approximately $100 thousand of additional incentive compensation. Corporate fixed overhead included approximately $200 thousand of additional costs related to support personnel added in our human resources and legal groups.
Carriage Consolidation Platform
Because of the improved same store operating performance and the addition of accretive acquisitions, we achieved a Consolidated EBITDA Margin of 20.0% in the third quarter of 2007 compared to 18.1% in the third quarter of 2006. For the trailing four quarters ended September 30, 2007, we achieved a Consolidated EBITDA Margin of 23.6% compared to 22.2% in 2006, an increase of 140 basis points and close to our sustainable earning power range of 24-26%. We expect positive quarterly Consolidated EBITDA Margin trend comparisons to continue for the fourth quarter and into 2008 because of improved same store operating results and acquisitions.
As we add acquisitions, new Field EBITDA acquired should substantially fall to Consolidated EBITDA and Pre-Tax Free Cash Flow and be accretive to EPS as well. As we leverage our new growth over our mostly fixed cost platform, we expect our Consolidated EBITDA Margin to increase to within our annual sustainable earning power range of 24 - 26%.
Cash Flow
We reported negative free cash flow from continuing operations of $3.6 million in the third quarter of 2007 compared to negative free cash flow of $2.6 million in the third quarter of 2006. In addition to being the seasonably weakest quarter of the year, the semiannual interest payment on the senior notes of $5.1 million is paid in the third quarter. In addition, funeral and cemetery preneed activities used $1.8 million of working capital in the third quarter
Free cash flow from continuing operations totaled $1.1 million for the nine months ended September 30, 2007 compared to $4.2 million for the first nine months of 2006. Though cash flow from operating activities has increased year to date by $0.5 million to $9.5 million compared to the prior year period, cash used for capital expenditures totaled $8.4 million, approximately $3.5 million higher than the prior year. Growth capital expenditures totaled $3.3 million for the nine months ended September 30, 2007 and include amounts spent on new funeral home properties, cemetery property development and improvements to the businesses acquired in 2007. Maintenance capital expenditures totaled $5.1 million year to date 2007 compared to $4.9 million in 2006. In addition, during the first quarter of 2007 we made a final $1.4 million long-term incentive payment to a former director and former owner of a business we acquired in 1997. We have also made relocation loans and other working capital advances this year totaling $0.8 million.
Rolling Four Quarter Outlook
Management is providing an Outlook for the four quarter period ending September 30, 2008, based upon the following key assumptions:
* The upper end of the Outlook range assumes funeral same-store volumes are flat compared to most recent four quarters and the lower end assumes a 2 percent decrease. * The average revenue per funeral contract is assumed to increase approximately 2.5 percent. This increase assumes the cremation rate for our businesses will increase by 100 basis points. * Includes estimated results from acquired businesses in Corpus Christi, Texas (closed January 2007), Camarillo, California (closed April 2007), Boise, Idaho (closed June 2007), Santa Fe, New Mexico (closed June 2007), Springfield, Massachusetts (closed August 2007) and Riverside County, California (closing November 2007). Excludes divestitures identified as of September 30, 2007 and classified as Discontinued Operations. * No borrowings on our $35 million bank credit facility. * Approximately $10 million of capital expenditures, of which $3 million is designated for growth opportunities. * Management expects to use Free Cash Flow (cash flow from operations less capital expenditures) to acquire additional businesses if and when available on acceptable terms. Millions except EPS Midpoint As A Range Midpoint % of Revenue Revenues $174 - $178 $176 Field EBITDA $64 - 66 $65 36.9% Variable overhead $3.9 $3.9 2% Regional fixed overhead $3.1 $3.1 2% Corporate fixed overhead $14.5 $14.5 8% Total overhead $22 $22 12% Consolidated EBITDA $42 - 44 $43 24.4% Interest $17.5 $17.5 10% Depreciation and amortization $10.3 $10.3 6% Income taxes $5.8 - $6.2 $6 3% Net earnings from continuing operations $8.7 - $9.7 $9.2 5% Diluted earnings per share $0.46 - $0.50 $0.48 NA Free Cash Flow $14 - $16 $15 9% Long Term Outlook (Through 2012) * Revenue growth of 7-9% annually, including acquisitions * Consolidated EBITDA growth of 9-11% annually, including acquisitions * Consolidated EBITDA Margin range of 24-26% * Growth internally funded without new debt or equity Summary
"We have had four consecutive quarters of considerably stronger year over year profitability in an industry where our performance should be predictable, profitable and sustainable when our three models are being executed broadly and effectively", stated Mr. Payne. "Our reporting format provides a clear picture of our long and short term operating and financial trends which in turn show a healthy portfolio of operating deathcare businesses and a consolidation platform well positioned to operationally and financially leverage new internal and external revenue growth into attractive long term rates of growth in Consolidated EBITDA, Consolidated EBITDA Margin, EPS and Free Cash Flow."
"We look forward to executing our strategies in a way that will become apparent in our trend reporting and which will be more valuable over time for long term investors who see the beginnings of a long term up cycle in deathcare and believe that Carriage is the right operating and investment platform. The "trend is our friend" and we will work hard to keep it that way. I want to thank all of our employees and leaders for our 2007 performance to date, which was in total alignment with our company's theme of "2007 - The Year Of Being The Best - No Excuses!" concluded Mr. Payne.
Third Quarter Conference Call Information
Carriage Services has scheduled a conference call for tomorrow, November 2, 2007 at 10:00 a.m. Eastern time. To participate in the call, dial (303) 205-0033 at least ten minutes before the conference call begins and ask for the Carriage Services conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until November 9, 2007. To access the replay, dial (303) 590-3000 and enter pass code 11100075#.
Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the Internet by visiting http://www.carriageservices.com/. To listen to the live call on the web, please visit the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, an audio archive will be available shortly after the call and will be accessible for approximately 90 days. For more information, please contact Karen Roan at DRG&E at (713) 529-6600 or email
Carriage Services is a leading provider of death care services and products. As of November 1, 2007, Carriage operates 134 funeral homes in 27 states and 32 cemeteries in 11 states.
Use of Non-GAAP Financial Measures
This press release uses the following Non-GAAP financial measures "Free Cash Flow and EBITDA". Both Free Cash Flow and EBITDA are used by investors to value common stock. The Company considers Free Cash Flow to be an important indicator of its ability to generate cash for acquisitions and other strategic investments. The Company has included EBITDA in this press release because it is widely used by investors to compare the Company's financial performance with the performance of other deathcare companies. The Company also uses EBITDA to monitor and compare the financial performance of its operations. EBITDA does not give effect to the cash the Company must use to service its debt or pay its income taxes and thus does not reflect the funds actually available for capital expenditures or acquisitions. In addition, the Company's presentation of EBITDA may not be comparable to similarly titled measures other companies report. 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.
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. These statements are based on assumptions that the Company believes are reasonable; however, many important factors, as discussed under "Cautionary Note," "Risk Factors" and "Forward-Looking Statements" in the Company's Annual Report and Form 10-K for the year ended December 31, 2006, could cause the Company's results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. The Company assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by, or on behalf of, the Company. A copy of the Company's Form 10-K, and other Carriage Services information and news releases, are available at http://www.carriageservices.com/.
Contacts: Mel Payne, Chairman & CEO
Joe Saporito, CFO
Carriage Services, Inc.
713-332-8400
Ken Dennard /
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 below.
Reconciliation of Net Income from continuing operations to EBITDA from continuing operations for the following periods (in 000s):
Three months Three months 12 Months ended ended ended 9/30/2006 9/30/2007 9/30/2007 Net income (loss) from continuing operations $(500) $732 $7,020 Provision (benefit) for income taxes (304) 608 4,624 Pre-tax earnings (loss) from continuing operations (804) 1,340 11,644 Net interest expense, including loan cost amortization 4,216 4,388 16,908 Depreciation & amortization 2,030 2,407 9,333 Other 898 - 368 EBITDA from continuing operations $6,340 $8,135 $38,253 Revenue from continuing operations $35,012 $40,614 $162,032 EBITDA margin from continuing operations 18.1% 20.0% 23.6% Reconciliation of Non-GAAP Financial Measures Continued:
Reconciliation of cash provided by (used in) operating activities from continuing operations to free cash flow (in 000's):
Three months Three months ended ended 9/30/2006 9/30/2007 Cash provided by operating activities from continuing operations $(91) $(787) Less capital expenditures from continuing operations (2,495) (2,777) Free cash flow from continuing operations $(2,586) $(3,564) Nine months Nine months ended ended 9/30/2006 9/30/2007 Cash provided by operating activities from continuing operations $9,006 $9,503 Less capital expenditures from continuing operations (4,853) (8,375) Free cash flow from continuing operations $4,153 $1,128
Reconciliation of estimated net income to free cash flow for the twelve months ending September 30, 2008 (in 000's):
Net income $9,200 Tax expense 6,000 Interest expense, net 17,500 Depreciation and amortization 10,300 EBITDA $43,000 Interest paid 17,300 Cash taxes 700 Capital expenditures 10,000 Free cash flow $15,000
