Carriage Services Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Carriage Services Third Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would like now to hand the conference over to your speaker today, Steve Metzger, President. Please go ahead, sir.

Speaker 1

Good morning, everyone, and thank you for joining us to discuss our Q3 results. In addition to myself, on the call this morning from management are Carlos Quezada, Chief Executive Officer and Vice Chairman of the Board of Directors and Kathy Shanley, Chief Accounting Officer. On the Carriage's website, you can find our earnings press release, which was issued yesterday after the market closed. Our press release is intended to supplement our remarks this morning and include supplemental financial information, including the reconciliation of differences between GAAP and non GAAP financial measures. Today's call will begin with formal remarks from Carlos and Kathy and will be followed by a question and answer period.

Speaker 1

Before we begin, I'd like to remind everyone that during this call, we'll make some forward looking statements, including comments about our business, projections and plans. Forward looking statements inherently involve risks and uncertainties and only reflect our views as of today. These risks and uncertainties include, but are not limited to, factors identified in our earnings release as well as in our SEC filings, all of which can be found on our website. Thank you all for joining us this morning. And now I'd like to turn the call over to Carlos.

Speaker 2

Thank you, Steve, and thank you everyone for joining our Q3 earnings call. We're excited to share our continued progress driven by our 3 strategic objectives, which have led to another strong financial performance this quarter. But first, I want to take a moment to express my sincere appreciation to every Carriage employee for their unwavering commitment to excellence. Your dedication truly impacts the families we serve and drives our company forward. We deeply value your support and alignment with our shared vision, values and purpose.

Speaker 2

In today's call, I will highlight some of our key financial metrics and provide updates on some of our key initiatives. Kathy will then cover topics such as overhead, cash flow and the progress we have made to pay down our debt and lower our leverage ratio. For the Q3, we reported total revenue of 100,700,000 a significant increase of $10,200,000 or 11.3 percent. This marks the 3rd consecutive time we have surpassed the $100,000,000 revenue mark in a single quarter, driven by organic revenue growth despite the disposition of several divestitures of non core assets to accelerate paying down our debt. Our most notable growth was in preneed cemetery sales, which increased by $4,900,000 to $22,900,000 a remarkable 27.1% increase compared to the same quarter last year.

Speaker 2

This robust performance is a testament to our strategic initiatives and the dedication and focus of our team setting a promising tone for our future. When breaking down revenue, we observed that while total funeral home contracts experienced an expected slight decrease of only 1.2%, total funeral home operating revenue saw a positive growth of $814,000 or 1.4 percent to 59,300,000 dollars This growth is primarily due to our funeral home pricing strategy, which continues to boost our funeral average revenue per contract, contributing to these results on a per contract basis by $142 or 2.6%. This strategy has proven effective in enhancing our financial performance and reflects our sound financial analysis, planning and execution. Our pre need funeral sales strategy boosted general agent commissions, which ended at an impressive $1,600,000 or 415.4 percent compared to $312,000 for the same quarter last year. We continue to be excited by the ongoing success of our pre arranged funeral sales strategy and its positive impact on our performance.

Speaker 2

Turning to cemetery operating revenue, our pre need cemetery sales strategy continues to deliver outstanding performance. We closed the quarter at $33,000,000 up by $8,700,000 or 35.7 percent compared to the same quarter last year. Total cemetery field EBITDA came in at $15,900,000 an increase of $6,900,000 or 76.9 percent with total cemetery field EBITDA margin of 48.1%, an increase of 11.2 percentage points from 36.9% during the same quarter last year. These results highlight the dedication to excellence and commitment that drive our preneed cemetery sales teams to protect families through education and advanced planning. Moving on to adjusted consolidated EBITDA, we finished the 3rd quarter at $30,700,000 an increase of $6,500,000 or 26.7 percent over the prior year quarter.

Speaker 2

The higher average revenue per contract and our cost management initiatives contributed to this success as reflected in our adjusted consolidated EBITDA margin of 30.5%, an increase of 3.70 basis points compared to the same quarter last year. From a GAAP perspective, net income was $9,900,000 a $5,200,000 increase from the prior year. Kathy will share more details related to overhead later in the call. Our GAAP diluted EPS for the Q3 was $0.63 per share, up by $0.33 or 110 percent and adjusted diluted EPS for the 3rd quarter was $0.64 per share, up by $0.31 or 93.9 percent versus the prior year quarter. With the recent amendment to our credit agreement, we're all well positioned to reduce near term interest expense and unlock additional value for our shareholders.

Speaker 2

This marks the 7th time in the last 8 quarters that we have outperformed expectations demonstrating the long term commitment to our focus on disciplined capital allocation, purposeful growth and relentless improvement. As we look at the year through the Q3, total revenue ended at 306,500,000 dollars an increase of $22,800,000 or 8 percent over the same period last year, while adjusted consolidated EBITDA ended at $96,900,000 an increase of $16,200,000 or 20.1 percent and adjusted consolidated EBITDA margin of 31.6% compared to 28.5% last year, an increase of 3.10 basis points and adjusted diluted EPS of $2.02 an increase of $0.60 or 42.3 percent when compared to $1.42 during the same period last year. As it relates to GAAP, net income was $23,100,000 an increase of $1,300,000 or 6.1 percent and GAAP diluted EPS was $1.48 per share, an increase of $0.09 or 6.5 percent. We are proud of these results and after reviewing our key operational metrics and forecast, we are raising our 2024 guidance. We now expect to finish the year with total revenue in the range of $395,000,000 to $405,000,000 Adjusted consolidated EBITDA of $120,000,000 to 125,000,000 dollars and adjusted diluted EPS of $2.45 to $2.55 Adjusted free cash flow guidance will remain at $55,000,000 to $65,000,000 Kathy will provide more details related to our revised guidance.

Speaker 2

We are fully steam ahead and fully committed to our strategic objectives, while we continue to identify new ways to enhance our performance, creating long term value for our shareholders. As part of this commitment, our competitive request for proposal process for earns in caskets is currently underway, marking an important milestone in our broader supply chain strategy. Our recent meetings with partner vendors were highly productive as we focused on refining our merchandise options and selling strategy to serve our clients better and enhance their experience. These initiatives are prime examples of our ongoing commitment to continuous improvement. They are designed to leverage our scale leading to greater financial benefits that we expect to materialize in 2025.

Speaker 2

There's more to come from our supply chain strategy as we continue to identify both near term and long term opportunities. Lastly, the search for our Chief Financial Officer continues with deliberate care. This continues to be a thoughtful and detailed process during which we have seen several talented candidates. However, the search remains ongoing. We're committed to finding the ideal strategic partner with the right skills and experience that aligns with our values, culture and long term vision.

Speaker 2

This is a critical role for Carriage future growth and we're determined to make the right choice to ensure we have a leader who can help drive our financial success forward. We look forward to providing additional updates as we identify the best person for this critical position. Over the past 2 years, we have focused on building a strong foundation at Carriage, grounded in our values and center around our 3 core strategic objectives, disciplined capital allocation, relentless improvement and purposeful growth. These efforts align closely with our purpose of creating premier experiences through innovation, empower partnerships and elevated service. We are very proud of our significant progress.

Speaker 2

Our strong Q3 and year to date financial performance represents the hard work of many talented individuals driving these efforts. And while we still have many opportunities in front of us, there is a clear sense of excitement across the Carriage organization regarding what is to come on this journey. Thank you. And with that, I will hand it over to Kathy.

Speaker 3

Thank you, Carlos, and thank you to everyone joining us today. As Carlos highlighted in his remarks, we increased our full year guidance given our continued strong performance for several quarters. I will start by providing the cash flow and overhead highlights for the quarter and then talk about what we can expect for the remainder of the year. Q3 2024 results included cash provided by operating activities for Q3 2024 was $20,800,000 which was down $1,900,000 from the prior year quarter of $22,700,000 Adjusted free cash flow for Q3 2024 was $20,000,000 which was down $1,400,000 from the prior year quarter, up $21,400,000 primarily driven by the company's shift and revenue mix towards preneed cemetery sales, which have a slower cash conversion cycle and $813,000 of expense coming from Trinity. We paid $15,000,000 towards our outstanding debt this quarter as we continue to drive down our leverage ratio, which is now at 4.3 times, down from 5.3 times at Q3 of 2023.

Speaker 3

This reduction in leverage illustrates our commitment to disciplined capital allocation along with the impact of our strong performance. We experienced a reduction in interest expense for the quarter of $1,200,000 as a result of a more favorable fee schedule provided by the amendment to our credit agreement and our continued focus on reducing our debt. Turning to our progress as it relates to capital expenditures. Year to date, we have invested $6,700,000 for growth CapEx, dollars 5,000,000 for maintenance CapEx and $2,200,000 for Trinity. Now shifting to overhead.

Speaker 3

Overhead was $14,200,000 for the quarter versus $12,800,000 in the prior year quarter, resulting in just over a $1,300,000 increase in overhead. The overhead variance was driven by $813,000 relating to Project Trinity costs as we prepare for exciting implementation of this new ERP and customer experience platform early next year and $400,000 of accrued expense for leadership and development opportunities as we focus on the continued education of our team to ensure the successful implementation of our various initiatives. Overhead as a percentage of revenue was 14.1% for the Q3 of 2024, which is down 10 basis points from the prior year quarter of 14.2%. If you exclude costs associated with Project Trinity, overhead as a percent of revenue was 13.1% versus 14% in the prior year quarter, which is within our previously communicated range. Now let's shift to what we can expect for the remainder of the year.

Speaker 3

Although we have increased our revenue guidance as we continue to grow our businesses organically, the growth is projected to be primarily driven by preneed cemetery sales, which are collected over time. Additionally, the timing of certain payments for taxes, interest and an additional payroll will also impact our adjusted free cash flow. For these reasons, adjusted free cash flow for the year will remain within the range of $55,000,000 to $65,000,000 For the full year, we expect to spend about $7,000,000 for growth CapEx, dollars 8,000,000 for maintenance CapEx and $3,000,000 for Trinity or roughly $18,000,000 which is slightly lower than our initial expectation of $20,000,000 For overhead, as we continue to focus on our strategic objectives, we expect to experience slightly elevated overhead costs driven by Trinity. However, in the long term, as previously communicated, we anticipate overhead efficiencies after implementation is complete and in connection with other internal initiatives. For the full year, we expect adjusted overhead to finish within the 13% to 14% of revenue, which is within our expected range.

Speaker 3

We expect the leverage ratio to end the year in the 4.3x to 4.6x range, primarily due to the timing of our bond interest payment, cash tax payment and the extra pay period previously mentioned. We expect to see a reduction in interest expense of approximately $1,000,000 to $1,500,000 in Q4 2024 as a result of a more favorable fee schedule provided by the amendment to our credit agreement and our continued focus on paying down our debt. That concludes my prepared remarks, and I will turn it back over to the operator to open it up for questions.

Operator

Thank you, ma'am. Our first question comes from Alex Paris with Barrington Research.

Speaker 4

Good morning, everyone. Thanks for taking my questions and congratulations 1st off, I wanted to talk about the guidance. You had a super strong Q3 and you raised full year guidance. Given the results year to date and the updated guidance, consensus Q4 estimates at the midpoint will need to come down a bit, again at the midpoint. Couple of questions.

Speaker 4

Why would revenue be down sequentially in the Q4? Did Q3 borrow something from Q4? Perhaps related to preneed, I suspect. Number 2, what are the underlying assumptions for the balance of the year? And then 3, what would it take to be at the high end of the updated range?

Speaker 4

Because the revenue range is about $10,000,000 the EBITDA range is about $5,000,000 and the adjusted EPS range is about $0.10 So everything I just said was based on the midpoint, but what would it take to be at the high end?

Speaker 5

That's a great question, Alex. I appreciate it. When you think about where we are, the Q3, as you know, it's always been the lowest quarter of every year when you have a normalized and seasonalized year. I thought that will be

Speaker 2

the case where we had

Speaker 5

a few surprises on the Q3, which includes large sales above our expectations from preneed cemetery. And so as we were forecasting the Q4 and we're pretty close, we of course got October in the books and we know what that's looking like. We wanted to be very cautious and optimistic about elections are coming up just a couple of months, economic data coming up. You hear news about discretionary spending being decreasing and we wanted to keep it somewhat within the well, we wanted to increase our outlook, keep it within a reasonably expecting of achievement range. As it relates to what it takes to get to the higher end of our outlook, I truly believe that's really where we're going to be at the end of the day.

Speaker 5

We could have tightened a little bit more of the range. We just wanted to keep it somewhat consistent. But our expectation is to be more on the higher side of the range than the middle point.

Speaker 4

That's great. Thank you for that. And if you were at the higher end, 4th quarter revenue would not necessarily be a sequential line or sequential decline. It would be flattish sequentially,

Speaker 5

but

Speaker 4

up. So second question related, what were the monthly trends in Q3, particularly on the funeral side? I know cemetery has been going gangbusters here. But what last quarter, for example, you had said that July volumes, the 1st month of Q3 were up slightly, but you still expected it to be down for the full quarter. So same question, what was the trend in volumes in funeral during Q3?

Speaker 4

And then since October is in the books, what does October look like?

Speaker 5

Yes, that's another great question. So we continue to see, as you remember at the beginning of the year, our expectation was to have a declining decline of volume from a comparable perspective due to the pull forward effect from COVID. And that has been the case from Q1, Q2 and actually Q3, Q3 being the lowest decline that we have seen for this year at 1.2% on total contract volume. However, you could see that same trend July, August September, but October ticked up a little bit more on the decline. So that's one of the reasons why we also wanted to be cautious, not too much, but enough to decide to not extend the range too much and to keep the numbers as tight as we could.

Speaker 5

We don't expect it's a little off, honestly, on October to have like a 2.5% on net need decline. However, there is 2 businesses we closed down, right. We closed down a cremation business out of Bakersfield. So that from a comparison perspective, you see that volume going away. And then we have a business in Buffalo, New York that we also showed that the building, that building was not providing the business that we required, was not really giving any positive EBITDA.

Speaker 5

And so actually we got some savings while their volume is negative. So not that too concerned about that to be honest with you. And we continue to be very optimistic about being more a normalized year through 2025.

Speaker 4

Got you. And then a related question to the shutdowns that you just talked about. On the Q2 conference call, you had already closed a couple of divestitures for around $11,000,000 in proceeds. You talked about some excess real estate that could be sold as well that doesn't have any EBITDA associated with it. And then in total, this might have been on the Q and A, you had the opportunity to get to $20,000,000 to $30,000,000 in relatively with a relatively minor impact on EBITDA.

Speaker 4

Wondering, did you close any other divestitures in the Q3? And what are your expectations for the balance of the year?

Speaker 6

Good morning, Alex. This is Steve. So we did close a real estate focused transaction in Q3 and we have a couple of opportunities here in Q4. So the previously communicated range of $20,000,000 to $30,000,000 we're still on target for that. And I think at the end of the day when we're looking at total EBITDA that we give up with these transactions for full year 2024, it's around probably $3,500,000 and we do anticipate the proceeds to be on the high end of the $20,000,000 to $30,000,000 range.

Speaker 4

Great. And that $20,000,000 to $30,000,000 range you expect at the high end, do you expect to complete that in 2024? Hello?

Speaker 6

Yes, I'm sorry. Yes, we do. We expect to close them in 2024.

Speaker 4

Great. And then last question. It seems to me you're a little ahead of schedule in your debt reduction. You had previously communicated a year end target of 4.50 times to 4.75 times and now you're saying 4.3 times to 4.6 times by year end. To what do you attribute that to, first off?

Speaker 4

And second off, when would you think you'd become more engaged in the M and A market?

Speaker 5

Thank you. Thanks again for that question, Alex. A very good question. So yes, we're a little bit ahead of where we thought we would be. We have been able our approach to disciplined capital allocation has been some very significant successful results.

Speaker 5

As a consequence to that, we have been able to allocate more cash to paying down our debt. And of course, the amendment provided a much better result than expected as well. And please don't forget that what we also did through the amendment, as we reported on Q2 was the alignment between the adjusted numbers from the strategic review process and fees that not fees, but separation agreement out in the Q1 of 2024. So that also allow us to have a full financial leverage calculation ratio with the bank leverage calculation ratio. And so that decreased those numbers as well.

Speaker 5

So that's why it feels a little bit ahead than we expected. We do believe we will continue to be other than the Q4 for the timing of those payments that we have to do with our bond and interest deals, the extra payroll and tax payments. We truly believe we will continue to accelerate paying down our debt, especially as we close the divestitures that Steve just mentioned by the end of the quarter. We should be able to be in a very good spot as we kick off 2025. Our expectation and we have barely heard the support from the banks that we will be able to go back to full M and A shape in 2025.

Speaker 5

So that's our goal and that's the expectation.

Speaker 4

Great. Very helpful guys. Thank you so much. I'll get back in the queue.

Speaker 6

Thanks, Alex. Thanks, Alex.

Operator

And our next question comes from John Franzreb with Sidoti and Company.

Speaker 7

Good morning, everyone, and thanks for taking the questions. I'd like to go back to the preneed cemetery sales. I understand you collect some of the revenue over time, and I'm assuming some upfront. Should we be thinking about that business at elevated level?

Speaker 3

Are the

Speaker 7

changes that you made there sustainable so that it can continue at this kind of a revenue run rate? Or is that an anomaly that we've seen in the last two quarters?

Speaker 5

Well, so good morning, John. When you think about when we started with cemetery preneed sales, that was back second half really of 2020, we put the structure, created the compensation plans, got the recruiting going and we really kick off our cemetery preneed strategy in 2021. It has been an evolution of performance through every quarter to quarter since then. What has happened since 2024, now we have more than 2.5 years of CRM that is working better than and we're still working on tweaking a few things. All of it is new when it comes to bringing cemetery sales at Carriage, but it's working better than before.

Speaker 5

Marketing has done an incredible job generating leads that are now more efficient, more firm than ever before. And of course, Shane Pudenz, our Senior Vice President of Cemetery and Cemetery Sales and Marketing, I'm sorry, continues to recruit the right people. We did make some changes. If you go back to our announcement in last summer, not last summer, but summer of 2023, we had some overhead challenges and leadership challenges in some cemeteries. Since then, we have been able to recruit all the right leaders in the right cemeteries, all the right counselors and provide the training, the lead generation and of course, the programs to sustain sales.

Speaker 5

We believe the growth we have received this year is sustainable from the point of view that we'll continue to grow, maybe not at the same rates. Keep in mind that since Kerwich is somewhat new on the preneed cemetery world, we had a lot to capture from. I do think we will continue to grow and I've always been talking about low double digits, so between 10% to 20% on a year over year basis over the next probably 4 to 5 years. And that has been true since we started.

Speaker 7

Impressive number, Carlos. It's very impressive. And then when we think about the sequential outlook in the quarter, as Alex pointed out, it's kind of muted relative to historical patterns, which typically the start of the winter and maybe more seasonality kicks in. Is there any reason that you see that not playing out other than the anomaly that you said that October was?

Speaker 5

No, I do think there will be seasonality in 2025. I think depending on the winter for Q4, what happens with that and it's been interesting to see how in some areas the winter starts late, in some other it starts early. So that's very difficult to predict. However, at the end of the day, once you put all the Q4 together, we end up being somewhere around the same trends. And so I continue to expect Q1 of the year being the highest quarter, Q4 being the 2nd highest quarter for a full year, Q2 being the 3rd and Q3 being the 4th.

Speaker 5

This of the quarter is really an exception because of the large sales I mentioned, but I do expect to have a normalized seasonality in 2025.

Speaker 7

Fair enough. And you highlighted the contract volume was down 1.2%. Do you think like when we start to hit the Q4 that we've anniversaried all the COVID impacts?

Speaker 5

I think we'll experience a decline in the Q4, maybe not aligned to the 1.2% in the Q3, hoping that it is less. But it's also for us a little bit more analytical than just the pull forward effect because we're in the process of reviewing pricing throughout the funeral homes. And this is a quarterly meeting that happens. I shared some of that in our last call. And what happens is that we're improving pricing by evaluating through a data if that's right pricing for that specific business in that specific community and with the competition around it and based on our market share gains or losses.

Speaker 5

And so we're adjusting, right? In some cases, we increased prices. In some cases, we leave the price flat. In some cases, we decrease price because we may be losing volume. So some of those volume losses may be blended within the pull forward effect as we continue to adjust and maximize and find the perfect balance between price and volume growth.

Speaker 5

Now we are focusing on more volume growth and pricing because I believe we've been able to do some pretty significant progress in getting the price to where it's absorbing most of the inflationary costs we have experienced over the last probably 2 years. And so now it's the business by business making sure that we're not leaving any family behind that we are able to keep those families and continue to grow market share business by business.

Speaker 7

Okay. And one last question, I got back into queue. It's something that Kathy said that caught my attention about overhead costs being 13% to 14%. I guess, two things about it. Is that a full year number or 4th quarter number?

Speaker 7

And is that a GAAP on a GAAP basis on an adjusted basis?

Speaker 3

I would say it's on an adjusted basis. We are taking out the unique items, more specifically with regard to Trinity. And what we're looking for is a more normalized 13% to 14% in 2025.

Speaker 5

Okay. And John, just to add on that, we our purpose statement in the 3 strategic objectives call for a few additional positions, right? We created a continuous improvement department within Carriage. We created a supply chain department. And when I said department, it's really 1 person in each one of these.

Speaker 5

So we created supply chain and we're really, really and customer care, I apologize for that, I skipped that one. So there's an additional overhead compared to what we had in 2023, but you could see on the results that the focus on experience, the focus on improvement, the focus on growing with purpose and showing organic growth in this industry is not easy. It's quite challenging and we've been able to show that we can. It is a result of some of those additional team members and of course the focus that everybody else at Carriage has in making this happen. Fair enough.

Speaker 5

Thank you for

Speaker 7

the additional color. I appreciate it.

Speaker 5

Thank you, John.

Operator

And our next question comes from Liam Burke with B. Riley.

Speaker 8

Thank you. Good morning, Carlos. Good morning, Steve and Kathy.

Speaker 5

Good morning, Liam.

Speaker 8

Could we go back to Funeral Home and margins? There are a couple of things in your discussion, both in the Q and A and prepared statements in terms of working with vendors to get down costs or to and also your pricing strategy being market specific and where you sit on in terms of volumes. Could you give me a sense as using this quarter's EBITDA margin of 37% as a benchmark, do you think you can move off up from that level or is this just to maintain the steady state of the high 30s EBITDA?

Speaker 5

That's a great question, Liam. When you think about the carriage model, that's always been very decentralized, right? And we'll continue to be somewhat decentralized, but more to a central led operation, especially as it relates to supply chain. And while we're not going to be choosing the vendor for each one of the businesses, we are creating agreements that are beneficial more beneficial than ever before between the largest vendors of caskets and urns across the United States. When we did our analysis, we realized that that provides a significant opportunity to expand our margins, but not just focus on expanding the margins.

Speaker 5

It is also a focus on generating more volume by making sure we provide better pricing to those families and keep those families in our funeral homes. So it's not just about expanding the margins, it's also about what tools can we create to maximize the number of people that visit our businesses in each one of the markets. And so I wouldn't commit yet to say this is something to expand our current funeral margins, but I would say that the margins we have today are on the funeral home side are within a range of sustainability for 2025.

Speaker 8

Great. Thank you, Carlos. And just going back to pre need, is this a function of a larger sales the growth in the pre need sales, is this a function of a larger sales force or a more productive sales force?

Speaker 5

It's a function of 3 things, both of which you mentioned. So it is a larger sales force. It is a more efficient and productive sales force. But we also had 2 off cycle or not normal large sales. For ours, large sales are not as big as other competitors.

Speaker 5

But we did had a almost $1,500,000 sale in 1 cemetery and this is probably the largest sale the cemetery ever had. And we had another one in another cemetery of $400,000 So combined that is just shy of $2,000,000 So $2,000,000 are pretty much not normal and difficult to repeat or predict from a large sale perspective. We do have a very strong strategy for large sales within the range of, let's call it $100,000 to $500,000 But when you go about the $500,000 it's more challenging to say we're going to be able to repeat that. That's one of the reasons why the strength of the performance of the cemetery sales teams in the Q3 came out that impressive. And so just keep that in mind for your numbers.

Speaker 8

Great. Thank you, Carlos.

Speaker 2

Thank you, Liam.

Operator

And our next question comes from George Kelly with Roth Capital Partners.

Speaker 9

Hey, everybody. Thanks for taking my questions. So maybe to start a follow-up on one of the prior questions. You mentioned that in 2025 you expect to have the financial flexibility again to be able to contemplate getting back in the M and A market. So I'm just curious, what does the market look like right now?

Speaker 9

What have you seen with respect to multiples? And just any kind of commentary on the M and A environment would be helpful.

Speaker 6

Good morning, George. So yes, it's we've the past year, while we've been focused on paying down debt, we've been really working to continue our relationships with the different partners that we are looking to work with next year. So we think it looks good for 2025. We've got a group of businesses that we are focused on as we get back to growth for next year. And we do think that as interest rates come down, the environment becomes a little bit more friendly for folks that we'll see more and more folks out there looking to execute on their succession plans.

Speaker 6

So what we've also been doing this year is really preparing to accelerate growth over the next 5 years. So Carlos has alluded to this, but from systems to people to teams to approach, we're making sure that the integration playbook is really refined so that we can grow at an accelerated rate. I think the other thing that we've talked about that we're excited about is the call it a little under 4 years right before we got back to paying down debt. We only did 7 transactions. But those 7 transactions today account for 25% of all the company's revenue and about 38% of all of the company's EBITDA.

Speaker 6

So we did that in a very short period of time with very few transactions and that blueprint is the one that we're going to follow as we get back to growth next year. So, like I said, we're just as Karl mentioned in his opening remarks, it's kind of full steam ahead for us and we're excited to get out of the gate next year.

Speaker 9

That's really helpful. So what I'm hearing is, you've been kind of building the pipeline even while you over the last couple of years while you've been focused on debt pay down. And the assets you're looking at are meaningful. They're large you're kind of focused on larger assets. Is that a fair characterization?

Speaker 6

That's right. If you kind of like I said, if you look at what we've done from 2019 to Greenlawn in 2023, everything we're focused on will fit into those couple of different categories, very, very large with the Fairfax or Greenlawn and really nice combos like what we have in Charlotte and up outside of Dallas. And then there'll be some smaller tuck in businesses that make a lot of sense for us based on significant presence in certain markets. That's going to be our focus moving forward.

Speaker 9

Okay. That's great. And then second question, also kind of a follow-up, I guess, to one of the prior questions. Carlos, you mentioned I'm thinking high level here for 2025. And you mentioned your expectation that you can continue on the preneed cemetery side, you can keep doing kind of low double digit growth for the foreseeable future.

Speaker 9

I'm curious about in 2025, just sticking to that kind of high level, how should we think about the funeral business? Is there more pricing tailwind to be realized next year? And do you anticipate like volumes to grow next year?

Speaker 5

That's a very good question, George. So when you think about the funeral home side business, if the volumes go flat just from a comparison perspective related to the pull forward effect. That will be a phenomenal thing, right, because now we have a good baseline. The pricing will make a significant difference as it has continues to be a significant difference. It make up revenue that we lost through that 1.2%, for example, in the Q3 on volume loss.

Speaker 5

However, I do think where the strategy is more compelling is our passion for service program is going to be rolled out in the Q1 of 2025. That's an experienced approach to elevating service for families. That's going to be a significant piece to gaining market share in every business and business by business. Of course, it's going to be a rollout throughout the year. It's not going to be everybody on Q1, but you we will we should be able to see the impact as we continue to grow that.

Speaker 5

The second thing, we have been testing, I won't share too much about it, but we've been testing ways to enhance our website visits and improve our e commerce strategy. I do believe for funeral homes and I believe that's going to be significant. The results we have seen over a 60 day period is compelling enough for us to do a full rollout for 2025. And so that's going to be another significant story. And the third piece to this one, George, is prearranged funeral sales.

Speaker 5

That strategy continues to be on the early stages of performance. When you think about it, even though we signed the agreement in May of 2023, the launch started within September, slow rollout business by business in September of 2023, and it's just been over a little full year of fully being rolled out. We still have a lot of counselors to hire for selling prearranged funeral. We still need to find funeral directors that have a license, of course, to sell prearranged funeral in some states that have regulation around prearranged funeral with the license and still have some other strategies related to lead generation and a partnership with Recoa and NGL continues to grow, continues to be to know each other better, to continue to partnership growth and collaborate in such a way that I have high expectations from that point of view. I believe if we would use baseball as a metaphor for this one, I know Mel used to like the use of metaphors and it's probably appropriate after last night's game.

Speaker 5

We're probably on the 5th inning of Pierre's funeral.

Speaker 9

Okay. That's great. And then last question for me is kind of similar. Curious, again, high level for 2025, what are the headwind most significant headwinds and tailwinds with respect to margin? You've been this year fairly consistent above that kind of 30% consolidated EBITDA margin.

Speaker 9

And I know you've got I don't think you brought it up on this quarter's conference call, but that $2,000,000 of cost savings that you've articulated before for next year, any other kind of major headwinds or tailwinds for margin next year?

Speaker 5

Nothing that we could forecast other than unexpected black swan events or things from an economical perspective that we have the control over. We believe the 30% is sustainable. We certainly are upgrading the systems process and management of cost to that performance and I feel pretty positive about that.

Speaker 9

Okay. Thank you.

Operator

And we'll move to our next question from Alex Paris with Barrington Research.

Speaker 4

Hey, guys. Sorry, just one more question and point of clarification. Kathy, you said adjusted overhead in the range of 13% to 14% of revenue for this year. I think you also said for next year. What are you excluding from overhead in terms of the adjusted overhead projection?

Speaker 4

For example, Trinity, you said Trinity will be $3,000,000 for the full year, so that gets excluded also. And then just a related question, I'm just trying to get to a 4th quarter estimate. What was adjusted overhead as a percentage of revenue year to date for the 9 months?

Speaker 3

Okay. So other things that were excluded for the full year include things like severance expenses and Project Kirby. Those would be the things that would be excluded from a full year perspective, which we do not expect to reoccur in 2025.

Speaker 4

Got you. And how much was severance in Project Kirby for fiscal 2024? You've said that Trinity would be about $3,000,000 impact for the full year. What was the severance impact and what was the Project Kirby impact?

Speaker 3

Combined, they're about 11,500,000

Speaker 4

dollars So Trinity severance and Kirby is about 11,500,000 dollars

Speaker 3

No, Trinity is by itself, Project Trinity through September, yes.

Speaker 4

Got you. Okay, that's helpful. Thank you.

Speaker 5

Thank you, Alex.

Operator

And ladies and gentlemen, there are no further questions in queue at this time. I'd like now to turn the conference back to Carlos for any additional or closing remarks.

Speaker 6

Thank you, operator.

Speaker 5

This quarter's performance reflects the hard work, the commitment to our purpose statement, our strong partnerships and the dedication of every Carriage team member. We are proud of our progress and we are energized by what lies ahead as we continue to elevate our services, grow with purpose and deliver meaningful experiences to those we serve. We're building on our legacy and unlocking new potential every day. Thank you for your trust in Carriage, and we look forward to sharing more success with you when we report our Q4 and full year. Have a great day, everyone.

Operator

And ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect and have a great day.

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Key Takeaways

  • Carriage reported Q3 revenue of $100.7 million (up 11.3% year-over-year), marking the third consecutive quarter above $100 million and driven by organic growth despite non-core divestitures.
  • Preneed cemetery sales surged by 35.7% to $33.0 million, while cemetery field EBITDA rose 76.9% to $15.9 million with margins improving by 11.2 points to 48.1%.
  • Adjusted consolidated EBITDA was $30.7 million (up 26.7%) with margins up 370 basis points to 30.5%, and GAAP diluted EPS of $0.63 (up 110%) versus $0.30 last year.
  • Capital discipline drove a $15 million debt paydown, reducing leverage to 4.3× (from 5.3×) and lowering quarterly interest expense by approximately $1.2 million under a recent credit amendment.
  • 2024 guidance was raised to revenue of $395–405 million, adjusted EBITDA of $120–125 million, and adjusted EPS of $2.45–2.55, while strategic initiatives like a supply chain RFP and the CFO search remain underway.
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Earnings Conference Call
Carriage Services Q3 2024
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