HOUSTON, Feb. 25, 2015/PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced record results for the year ending December 31, 2014.

Mel Payne, Chief Executive Officer, stated, "Our 2014 full year performance was an earning power milestone record with Adjusted Net Income of $24.8 million equal to Adjusted Diluted EPS of $1.34 and Adjusted Net Income Margin of 11.0% on record revenues of $226.1 million, made possible by an extraordinarily strong fourth quarter finish of Adjusted Diluted EPS of $0.38 on record revenues of $59.4 million.  Carriage as a consolidation and operating platform for funeral homes and cemeteries has reached an "earning power sweet spot" in maturity and size, as reflected by the leveraging of a 12.9% total revenue increase in the fourth quarter into much larger increases of 25.6% in Total Field EBITDA, 27.8% in Adjusted Consolidated EBITDA, and 52.0% in Adjusted Diluted EPS.

We fully expect this sustainable earning power trend from existing operations and the value creation leveraging dynamics to continue into 2015 and thereafter and to be supplemented by new, high quality acquisitions from our growing pipeline of top quality acquisition candidates in strategic markets. We are therefore raising our Rolling Four Quarter Outlook range on revenue to $244 - $248 million and Adjusted Diluted EPS to $1.55 - $1.59.

The 2014 year was the third year in our defined Five Year Carriage Good To Great Journey with an annual theme of Carriage Services 2014:  Being the Best - One Team, One Vision!  Highlights of the year were as follows:

1. Dave DeCarlo joined Bill Heiligbrodt and me in March as a member of the Executive Team with the primary responsibility of growing the Company by selective, strategic acquisitions;
2. Entered two large, new strategic markets, New Orleans and Washington, D.C., with the acquisition from SCI in May of five funeral homes and one combination business;
3. Completed the refinancing in May of all the old high rate components of our balance sheet with low rate $325 million syndicated five year bank credit facilities and $143.75 million seven year convertible subordinated notes;
4. Established a highly collaborative Operations and Strategic Growth Leadership Team (OSGLT) comprised of the Executive Team and twelve senior leaders representing field operations and Houston Support teams.  This group operates informally as owner leaders without titles, direct reports, etc., and addresses all important Carriage value creation matters consistent with One Team, One Vision;
5. Updated and revised Strategic Acquisition Model criteria and methodologies to directly align with Standards Operating and 4E Leadership Models, and began building a new Strategic Development Team under Dave's leadership focused on building relationships with top quality acquisition candidates in large and medium strategic markets and areas.

Year Ended December 31, 2014

• Total Revenue of $226.1 million, an increase of 6.1%;
• Adjusted Consolidated EBITDA of $61.7 million, an increase of 10.1%;
• Adjusted Consolidated EBITDA Margin up 100 basis points to 27.3%;
• Adjusted Diluted Earnings Per Share of $1.34, an increase of 36.7%; and
• Adjusted Free Cash Flow of $34.2 million, an increase of 2.8%.

Three Months Ended December 31, 2014

• Total Revenue of $59.4 million, an increase of 12.9%;
• Adjusted Consolidated EBITDA of $17.1 million, an increase of 27.8%;
• Adjusted Consolidated EBITDA Margin up 330 basis points to 28.7%;
• Adjusted Diluted Earnings Per Share of $0.38, an increase of 52.0%; and
• Adjusted Free Cash Flow of $7.0 million, an increase of 4.0%

We begin the fourth year of our defined Five Year Carriage Good To Great Journey with a company that is materially better in all areas than one year ago.  While we understand that public investors must rely on our reported quantitative financial results covering a recent short period of time to judge our progress, the internal qualitative drivers of our increasing quantitative success are our Five Guiding Principles, three innovative operating, leadership and growth models,  High Performance Standards, relentless focus on  4E Leadership and Right Quality of Staff and the collaboration dynamic across all field operations and Houston Support teams.  Linked together, these ideas and concepts form our High Performance Culture Framework of value creation, which we believe will produce superior quantitative results over the next several years that will attract the best acquisition candidates and talent in our industry to join and contribute to the Carriage Good To Great Journey.

As we successfully execute our three models (Standards Operating, Strategic Acquisition and 4E Leadership) over this year and next to complete our Five Year Good to Great Journey, we fully expect to accelerate the earning power of our Carriage Consolidation and Operating Platform.  However, by the end of 2016 we will also have redefined our Carriage Good to Great Journey over a new five year timeframe with new goals, always keeping our Mission of Being The Best and Five Guiding Principles together with shareholder value creation uppermost in mind.  Lastly and importantly for our company leadership and employees, I am extremely proud to publicly announce our Good To Great annual theme for this year," concluded Mr. Payne.

"Carriage Services 2015: High Performance through Passion and Partnership!"

TOTAL FIELD OPERATIONS

For the Year Ended December 31, 2014 compared to Year Ended December 31, 2013

• Total Field Revenue increased 6.1% to $226.1 million;
• Total Field EBITDA increased 7.0% to $90.4 million;
• Total Field EBITDA Margin increased 40 basis points to 40.0%;
  
  
• Total Funeral Operating Revenue increased 6.8% to $164.3 million;
• Same Store Funeral Revenue decreased 0.7% with same store volume decreasing 1.2%;
• Acquisition Funeral Revenue increased 33.5% with acquisition volume increasing 26.9%;
• Total Funeral Field EBITDA increased 9.0% to $60.5 million;
• Total Funeral Field EBITDA Margin increased 80 basis points to 36.8%;
  
  
• Total Cemetery Operating Revenue increased 5.9% to $42.9 million;
• Cemetery preneed property sale contracts increased 5.5% to 7,408;
• Preneed property revenue recognized increased 5.4% and At-need revenue increased 10.8%;
• Total Cemetery Field EBITDA increased 4.1% to $12.2 million;
• Total Cemetery Field EBITDA Margin decreased 40 basis points to 28.5%;
  
  
• Total Financial Revenue increased 1.5% to $19.0 million;
• Funeral Financial Revenue increased 2.7% to $9.5 million;
• Cemetery Financial Revenue remained flat at $9.5 million;
• Total Financial EBITDA increased 2.2% to $17.7 million;
• Total Financial EBITDA Margin increased 70 basis points to 93.0%.

 ADJUSTED FREE CASH FLOW

Carriage produced Adjusted Free Cash Flow from operations for the year ended December 31, 2014 of $34.2 million compared to $33.2 million for the corresponding period in 2013. The sources and uses of cash for the year ended December 31, 2013 and 2014 consisted of the following (in millions):

ROLLING FOUR QUARTER OUTLOOK RAISED

The Rolling Four Quarter Outlook ("Outlook") reflects management's opinion on the performance of our existing portfolio of businesses for the rolling four quarter period ending December 31, 2015, the performance of the trusts, and our view of the activity within the industry acquisition landscape. This Outlook is not intended to be management estimates or forecasts of our future performance, as we believe such precise rolling 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.

Factors affecting our analysis include, among others, number, size and timing of closing of acquisitions, 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, Strategic Acquisition Model, Withdrawable Trust Income 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 December 31, 2015 are expected to improve relative to the same period in the previous period for the following reasons:

• Increases in Acquired Funeral Revenue and Acquired Funeral Field EBITDA;
• Increases in Acquired Cemetery Revenue and Acquired Cemetery Field EBITDA;
• Modest increases in Same Store Funeral Revenue and Same Store Funeral Field EBITDA;
• Increases in Same Store Cemetery Revenue and Same Store Cemetery Field EBITDA;
• Increases in Financial Revenue and Financial EBITDA from trust funds; and
• Reduced interest expense in conjunction with the fourth and fifth amendments to our bank credit facilities and the $143.75 2.75% Convertible Notes, including the add-back to Adjusted Diluted EPS of non-tax deductible accretion on the Convertible Notes to reflect the Non-GAAP normalized earning power of the Company.

CONFERENCE CALL AND INVESTOR RELATIONS CONTACT

Carriage Services has scheduled a conference call for tomorrow, February 26, 2015 at 9:30 a.m. CT. To participate in the call, please dial 866-516-3867 (ID-67804537) and ask for the Carriage Services conference call.  A replay of the conference call will be available through March 2, 2015 and may be accessed by dialing 855-859-2056 (ID-67804537). The conference call will also be available at www.carriageservices.com. For any investor relations questions, please contact Bill Heiligbrodt at 713-332-8553.

TRUST FUND PERFORMANCE

For the year ended December 31, 2014, Carriage's discretionary trust funds gained 8.3% compared to our 70/30 index benchmark of 5.8%. Over the same period in the discretionary portfolio, the fixed income return was 6.9%, beating the High Yield Index of 2.5% while the equity return was 7.6%, underperforming the S&P 500 at 13.7%. The current yield on Carriage's discretionary fixed income portfolio, which comprises 72% of discretionary trust assets, is 8.5% and the estimated annual income for the discretionary portfolio is approximately $10.8 million.

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.

CONVERTIBLE NOTES

On March 13, 2014, when our common stock closed at $17.03 per share, we executed a new seven year convertible subordinated debenture (new convertible notes) in the amount of $143.75 million with a coupon of 2.75% and 32.5% conversion premium equal to a conversion price of $22.56 per share.  We used a majority of the proceeds to refinance a traditional 7% coupon, $90 million convertible security due in 2029 (Tides convertible) with a conversion price of $20.44, which was adding 4.4 million shares to our reported fully diluted EPS calculation (24% dilution) when our stock price traded "in the money" above $20.44 even though none of these securities were ever converted into common stock.

In most traditional convertible securities issued prior to the last ten years (including in our refinanced Tides security issued in 1999), full dilution kicks in to the calculation of EPS once the stock price rises above the conversion price (in the money).  That will not be the case with our new convertible notes because of highly favorable anti-dilution features (net share settlement). The in the money option value can be settled in cash using any form of financing at our discretion, meaning that depending on the amount of net share settlement need at any time and the financing method selected by management, the actual number of new shares outstanding in the future may differ materially from the technical calculation of EPS pursuant to the share count mechanics of the new convertible notes.

While the mechanics of the in the money payment features on our new convertible notes are somewhat complex, the main points are that dilution is restricted to under 20% of outstanding shares as of the March 19, 2014 issue date (about 3.6 million shares).  The new convertible notes become eligible for conversion at $29.33 per share and reach the maximum potential 20% dilution at a price of $54 per share, as the New York Stock Exchange rules restrict the maximum dilution of an unregistered convertible to 20% for any listed member such as Carriage.

We had about 18 million fully diluted shares outstanding when the new convertible notes were issued in March 2014, so it is easy using the chart below to determine the EPS share count dilution calculation as our share price increases over time. For example, at a share price of $26, the threshold of 5% dilution is reached, so 5% of 18 million or 900,000 shares are added to the weighted average number of fully diluted shares for the period whose EPS performance is covered. Likewise, a share price of $32 triggers the 10% dilution threshold or 1.8 million added shares, a share price of $40 triggers the 15% dilution threshold or 2.7 million additional shares, and a $54 share price triggers the 20% dilution maximum threshold adding 3.6 million shares to our EPS calculation for the EPS period covered.