HOUSTON, Oct. 25, 2016 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the third quarter ended September 30, 2016 as highlighted below:

Three Months Ended September 30, 2016 compared to Three Months Ended September 30, 2015

• Record Total Revenue of $60.1 million, an increase of 3.0%;
• Record Net Income of $5.7 million, an increase of 27.9%;
• Record GAAP Diluted Earnings Per Share of $0.33, an increase of 37.5%;
  
  
• Record Total Field EBITDA of $24.5 million, an increase of 5.0%;
• Record Total Field EBITDA Margin up 80 basis points to 40.7%;
• Record Adjusted Consolidated EBITDA of $17.1 million, an increase of 4.2%;
• Record Adjusted Consolidated EBITDA Margin up 40 basis points to 28.5%;
• Record Adjusted Diluted Earnings Per Share of $0.43, an increase of 30.3%; and
• Adjusted Free Cash Flow of $9.2 million, a decrease of 30.8%.

Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2015

• Record Total Revenue of $185.3 million, an increase of 2.5%;
• Net Income remained flat at $15.4 million;
• Record GAAP Diluted Earnings Per Share of $0.91, an increase of 11.0%;
  
  
• Record Total Field EBITDA of $77.2 million, an increase of 3.9%;
• Record Total Field EBITDA Margin up 60 basis points to 41.7%;
• Record Adjusted Consolidated EBITDA of $54.8 million, an increase of 2.8%;
• Record Adjusted Consolidated EBITDA Margin up 10 basis points to 29.6%;
• Record Adjusted Diluted Earnings Per Share of $1.28, an increase of 17.4%; and
• Adjusted Free Cash Flow of $34.1 million, a decrease of 12.1%.

Mel Payne, Chief Executive Officer, stated, "This year represents the last year of the first five year timeframe of the Carriage Good To Great Journey that never ends, and we are finishing strong with several notable highlights for the third quarter that relate to our exciting prospects for the future. First, our record third quarter and year to date Adjusted EPS were simply exceptional given the modest revenue growth, which reflected fewer shares outstanding this year because of our share repurchase program last year, a lower tax provision due to accelerated depreciation taken on the large amount of growth capital expenditures completed in 2015, but most importantly the outstanding execution of our Standards Operating Model broadly across our funeral and cemetery portfolios in complete alignment with our 2016 theme of We Choose to be Great!.

Secondly, Dave DeCarlo retired on September 30th after over five years of outstanding service and contribution as both a Board Member and Officer, but the quality acquisition candidate relationships that he seeded in collaboration with other leaders across the company will be harvested as "join in to get even better" acquisitions for years to come. We closed one top quality funeral home acquisition in September in a new strategic California market and should close two more first class funeral home acquisitions pursuant to letters of intent in November, one in a large new strategic market in a new state, and the other a large business in a large strategic area/market and state where we already have a significant and growing presence.

And finally and most importantly our leadership team has never been as strong, talented and collaboratively aligned as leader owners or the company as well positioned for faster and higher margined consolidated revenue growth and shareholder value creation over the next five year timeframe of our Good To Great Journey. Accordingly, we are raising our Rolling Four Quarter Outlook of Adjusted EPS by $0.10 to a range of $1.81-$1.85 for the period ending September 30, 2017.

Our Same Store Funeral and Cemetery Portfolios along with our Acquisition Funeral and Cemetery Portfolios all delivered strong performances in the third quarter with respective Revenue and Field EBITDA growth of -0.8% and 2.4% for Same Store Funeral, 5.8% and 8.4% for Same Store Cemetery, 18.5% and 22.5% for Acquisition Funeral and 41.3% and 131.2% for Acquisition Cemetery. Our Managing Partners and their teams took advantage of the operating leverage in their businesses by substantially increasing Total Field EBITDA Margins, enabling us to convert a Total Operating Revenue increase in the third quarter of $2.2 million or 4.1% (excludes $0.4 million decline in Financial Revenue) into a Total Funeral and Cemetery Field EBITDA increase of $1.6 million or 8.4% (excludes $0.4 million decline in Financial EBITDA).

Our record third quarter field operating performance together with a lower tax provision fueled an exceptionally strong consolidated earnings performance with record GAAP Diluted EPS of $0.33 up 37.5% from $0.24 last year, and record Non-GAAP Adjusted Diluted EPS of $0.43 up 30.3% from $0.33 last year. Our practice of adding back the accretion of the discount on our Convertible Subordinated Notes was 5.7¢ of the 10¢ difference between our third quarter GAAP and Non-GAAP Diluted EPS performance with the balance representing the one time retirement costs of Dave DeCarlo. Starting in 2016 we eliminated any Non-GAAP add-backs related to withdrawable trust income, recurring acquisition and divestiture expenses, and non-material severance and consulting fees.

Our performance for the first nine months of 2016 was simply extraordinary and achieved numerous records, including Total Revenue of $185.3 million and Adjusted Diluted EPS of $1.28, Total Field EBITDA and Total Field EBITDA Margin of $77.2 million and 41.7%, and Adjusted Consolidated EBITDA and Adjusted Consolidated EBITDA Margin  of $54.8 million and 29.6%. These performance records for our first nine months were all the more amazing because they were in the face of revenue headwinds related to a 180 basis point increase in the funeral cremation rate to 50.6% as well as 1.4% lower same store funeral volumes and 2.6% lower interment volumes because of the seasonably weak death rates primarily in the first quarter.

Our Adjusted Consolidated EBITDA Margin, which we consider the "cash earning power margin" of each dollar of revenue, was 29.6% for the first nine months and while a record by 10 basis points would have had a higher basis point spread this year over last year if last year was adjusted on an apples-to-apples basis using our new Non-GAAP reporting methodology.  Looking forward into 2017 as we have clean Non-GAAP reporting for the full year, we are confident in our ability to exceed our goal of achieving a 30% Adjusted Consolidated EBITDA Margin, which will be a company and industry milestone that has never been achieved by any public consolidation company in the sixty year history of deathcare consolidation using current accounting methodology.

CARRIAGE HIGH PERFORMANCE CULTURE FRAMEWORK

Since launching the Carriage Good To Great Journey on January 1, 2012, we have evolved rapidly and often in dynamic spurts into what we now refer to as the Carriage High Performance Culture Framework. This unique framework (visual schematic found in our Company and Investment Profile) has a "high performance culture engine" comprised of our three core models whose execution is designed to achieve four primary long term goals in alignment with our Ten Year Being The Best Vision:

• Being The Best at operating funeral homes and cemeteries by Being The Best at providing high value personalized services and sales to the client families and communities in which we operate;
• Being The Best at providing succession plan solutions to the best remaining independent family businesses in the best strategic markets;
• Being The Best at attracting and retaining the best and most entrepreneurial management talent (4E Leadership Characteristics) and employees that align with our Being The Best Mission and Five Guiding Principles;
• Being The Best at allocating our precious capital over the next ten years for maximum long term value creation in alignment with our Vision of becoming a Built To Last Company.

Our view of the very nature of Carriage as a high performance culture company in our industry is outlined specifically on pages 3 and 4 of my 2015 Shareholder Letter in the section titled "Carriage Framework of High Performance Ideas and Concepts." All of the major elements of our High Performance Culture Framework have been linked and sequenced so that superior execution by our leadership will achieve long term sustainable high operating and financial performance in the face of all the "bad revenue challenges" that we get asked about, i.e. lower death rates (mild flu season, longevity, etc.), higher cremation rates, volatile financial markets, seasonal unpredictability, etc. All of these revenue and earnings challenges have been present throughout the first nine months of 2016 yet we continue to achieve consistently record performance as a High Performance Culture Company "that just happens to be in the funeral and cemetery industry."

Thus our High Performance Culture conviction is WHO CARES! about the mostly short term uncontrollable vagaries of our industry that have little or nothing to do with long term value creation at Carriage. We prefer to focus on "glass half full" matters over which we have some control, i.e. Market Share, a higher value (and revenue) experience for every client family every time (especially cremation families), Managing Partner Leadership Characteristics, Right Quality and Continuous Upgrading of Staff (both in each business and support departments in Houston), leadership team cultural fit and passion about collaboration (leader owners), improving transparency in our public reporting, incentives that recognize and reward high performing leaders and employees, user friendly advanced proprietary information and reporting systems, innovative out of the box thinking at all levels for continuous improvement, taking risks and experimenting with new ideas, and last but not least allocating our capital wisely with a long term bias toward adding bigger and more revenue and profit growth potential businesses to our acquisition portfolios faster and more effectively than in the past.

Well, that's a lot to digest, especially for institutional investors who only get the benefit of quarterly updates on our performance, so maybe it would be helpful from a "big picture" perspective to share a recent email excerpt from a very progressive owner of a first class business (over 400 funerals and growing) in a bedroom community of a major metropolitan area that has not been consolidated much over the last sixty years.

"It is not required that I be much clearer to simply say Thank you. My thanks are not only for your hospitality but more importantly for my being able to take a little deeper look at Carriage Services.

We will certainly be talking in much greater detail at some point.  However, I need to commend you and your team on two things that are evident to me based on this first visit. (1) You are passionate about business enough to have figured out what superficially makes sense is not always the correct path. (2) You appear to be in the midst of assembling a team and process by which you can not only dominate Funeral Service but CHANGE Funeral Service as most know it and that idea in itself is something I absolutely LOVE about the company."

This top quality business owner observed by taking "a deeper look" that we have innovated and evolved a "process by which you (Carriage) can not only dominate Funeral Service but CHANGE Funeral Service as most know it", a reference to our Standards Operating Model and how we have linked the longer term Qualitative Standards (Market Share, Leadership, People) with shorter term Quantitative Standards through detailed analytical data correlations and trends in each business. This proprietary "process" is intended to enable a top quality local business that ranks high on our Ten Strategic Criteria (plus or minus 70%) and which is located in a Strategic Market to embark on it's own Good To Great Journey over time, joining other elite firms in what is essentially a "continuous improvement ideas and support services laboratory" (Carriage Being The Best Brand) of how to consolidate and operate within our industry better than it's ever been done before.

And finally, consistent with our growth strategy and Ten Year Being The Best Vision of affiliating with the best remaining independent businesses in the best strategic markets, we are proud to announce that on September 20thJay Chapel in Madera, California joined the Carriage family as the newest member of our family of elite firms. Carriage has entered this 4 new strategic market and area with a business that has a top quality reputation, enabling us to execute our strategy of building a portfolio of elite businesses over time in this market.

CARRIAGE HIGH PERFORMANCE HEROES

As an important part of our High Performance Culture tradition and language, listed below are Carriage High Performance Heroes for our third quarter:

STANDARDS OPERATING MODEL

As I mentioned in our second quarter earnings release, I will elaborate on one of our three core models in more detail in each quarterly earnings release. While I covered the Standards Operating Model in our second quarter release, we believe it is still not well understood by some institutional investors who have been honest with their constructive feedback to us, so I will cover it again from a slightly different angle. Once again, we highly recommend that any investor that is seriously considering CSV as a long term investment should read (and study) our Company and Investment Profile, my 2015 Shareholder Letter and the section in our second quarter earnings release titled Standards Operating Model. You should then come to visit us in Houston as our special guest, as we take seriously the allocation of your precious time and capital just as we do our own.

The two major perception issues expressed by investors about our Standards Operating Model are that (1) decentralized execution implies a lack of rigorous analytical discipline (no centralized control) and therefore is not likely to produce consistently high and sustainable financial outcomes broadly across the portfolio; (2) it does not seem plausible that high and gradually increasing Field EBITDA Margins from new acquisitions that have been integrated into our Standards Operating Model could be sustained and consistently and effectively leveraged over our consolidation platform given our expectation of more rapid growth by acquisitions in the future and therefore would not likely accelerate shareholder value creation.

What our history of operating and financial performance has proved since 2011 is that the exact opposite of the above negative perceptions is the reality. Therefore we will continue to try new ways of explaining the extreme counterintuitive and quantitative nature (Darwinian Discipline) of our High Performance Culture Framework whose core is our Standards Operating Model.

In our second quarter earnings release, I publicly mentioned for the first time the high performance ideas and concepts covered in the book Beyond Budgeting co-authored and published in 2003 by Robin Fraser and Jeremy Hope, which were also summarized in the February 2003 Harvard Business Review article "Who Needs Budgets."  The major takeaway point from their research on business models to replace budgets was that an incremental approach was doomed to failure and that success depended on first using a transformational process to build a  coherent yet radically decentralized model, thereafter followed by long-term continuous improvement. Shown below  is an excerpted table from the Harvard Business Review article that provides an accurate and relevant comparison of the primary "budget and control" model characteristics (left column) to the Beyond Budgeting concept characteristics (middle column) to the analogous more specific characteristics of our Standards Operating Model. A detailed and comprehensive explanation of our Standards Operating Model can be found in our Company and Investment Profile," concluded Mr. Payne.

Photo - http://photos.prnewswire.com/prnh/20161021/431426-INFO

ADJUSTED FREE CASH FLOW

We produced Adjusted Free Cash Flow from operations for the three and nine months ended September 30, 2016 of $9.2 million and $34.1 million, respectively, compared to Adjusted Free Cash Flow from operations of $13.4 million and $38.8 million for the corresponding periods in 2015. A reconciliation of Cash Flow Provided by Operations to Adjusted Free Cash Flow for the three and nine months ended September 30, 2015 and 2016 is as follows (in thousands):

The decline in 2016 Free Cash Flow is directly attributable to the timing of tax payments. We anticipate our Adjusted Free Cash Flow for 2016 to be flat to slightly higher than 2015 levels.

ROLLING FOUR QUARTER OUTLOOK

The Rolling Four Quarter Outlook ("Outlook") reflects management's opinion on the performance of the portfolio of existing businesses, including performance of existing trusts, and excludes size and timing of acquisitions for the Rolling Four Quarter Outlook period ending September 30, 2017 unless we have a signed Letter of Intent and high likelihood of a closing within 90 days. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe precise estimates will be precisely wrong all the time. Rather our intent and goal is to reflect a "roughly right range" most of the time of future Rolling Four Quarter Outlook performance as we execute our Standards Operating, Strategic Acquisition and 4E Leadership Models over time. Similarly, we self-publish a Company and Investment Profile, available on our website, that includes a Five Year "Roughly Right Scenario" of our future performance which together with our Five Year Trend Report provides investors a ten year past and future profile of our financial value creation dynamics and condition, making it easier to judge whether our "trends will continue to be the friend" of long term investors.

The Rolling Four Quarter Outlook ending September 30, 2017 includes two businesses under Letter of Intent expected to close by the end of November 2016.  As such, we are raising our Rolling Four Quarter Outlook of Adjusted Diluted Earnings Per Share by $0.10 to a range of $1.81 - $1.85 for the period ending September 30, 2017.

ROLLING FOUR QUARTER OUTLOOK – Period Ending September 30, 2017

Factors affecting our analysis include, among others, funeral contract volumes, average revenue per funeral service, cemetery interment volumes, preneed cemetery sales, capital expenditures, execution of our funeral and cemetery Standards Operating Model, market volatility and changes in Federal Reserve monetary policy. Revenues, Adjusted Consolidated EBITDA, Adjusted Net Income and Adjusted Diluted Earnings Per Share for the four quarter period ending September 30, 2017 are expected to improve relative to the trailing four quarter period ended September 30, 2016 due to increases in our existing Funeral Home and Cemetery portfolio and modest decreases in overhead as a percentage of revenue.

TRUST FUND PERFORMANCE

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, cemetery merchandise and services and cemetery perpetual care) at key dates.

For the nine months ended September 30, 2016, Carriage's discretionary trust funds returned 10.2% versus 13.2% for the 70/30 index benchmark.

Our overall trust fund performance for the first nine months of 2016 was driven by our fixed income portfolio and by a rebound in our 10 year warrant portfolio of five "Too Big To Fail" banks and insurance companies. The performance of our fixed income portfolio was largely attributable to the execution of our portfolio repositioning strategy of individual credit selection and rotation we began at the beginning of the year. Through individual security selection we have increased the recurring annual income by $1.6 million from our discretionary portfolio, while improving overall credit quality and liquidity of the portfolio. As of the end of the third quarter, our fixed income portfolio has returned 17.2%, which is 170 bps ahead of the High Yield Bond Index.

While we will no longer report Withdrawable Trust Income in our Non-GAAP Trend reporting, for the sake of full transparency we will disclose the total throughout 2016 in this section.  The Withdrawable Trust Income for the first nine months of 2016 would have been approximately ($1.0) million.  While negative, this will have no impact on our Adjusted Free Cash Flow for 2016.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, October 26, 2016 at 9:30 a.m. central time. To participate in the call, please dial 866-516-3867 (ID-98211636) and ask for the Carriage Services conference call.  A replay of the conference call will be available through October 30, 2016 and may be accessed by dialing 855-859-2056 (ID-98211636). The conference call will also be available at www.carriageservices.com. For any investor relations questions, please contact Viki Blinderman at 713-332-8568 or Ben Brink at 713-332-8441 or email InvestorRelations@carriageservices.com.