Carriage Services Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 27, 2025

Key Takeaways

  • In the fourth quarter, revenue fell by 1.1% to $97.7 M as funeral volumes declined 7.3%, partly offset by a 1.4% uptick in average contract pricing.
  • For the full year, total revenue rose 5.7% to $404.2 M, adjusted EBITDA increased 11.5% to $126.2 M and adjusted diluted EPS climbed 21% to $2.65.
  • The company reduced net debt by $42.1 M, improving its leverage ratio to 4.3x from 5.1x at year-end 2023 and cutting quarterly interest expense by $2.1 M.
  • Carriage announced expansion of its supply chain strategy with the launch of the Earn Core line and a Q2 rollout of its partnership with Express Funeral Funding to drive margin improvement and preneed sales.
  • 2025 guidance calls for $400 M–$410 M in revenue (flat to +1% year-over-year ex-divestitures), adjusted EBITDA of $128 M–$133 M, and EPS of $3.10–$3.30, excluding potential acquisition impact.
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Earnings Conference Call
Carriage Services Q4 2024
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Analyst 1

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

Steven Metzger
Steven Metzger
President at Carriage Services

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and year-end results for 2024. 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 John Enwright, Chief Financial Officer. On the Carriage Services 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 John, and will be followed by a question-and-answer period. 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.

Steven Metzger
Steven Metzger
President at Carriage Services

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.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Thank you, Steve, and welcome to everyone joining today's fourth quarter and full-year earnings call. I am pleased to share the outcomes of a transformative year at Carriage Services, a testament to our dedication and strategic execution. Our results reflect our financial strategy and commitment to innovation and service excellence. Before sharing the results, I want to express my deepest gratitude to every member of the Carriage team. Your unwavering dedication is the cornerstone of our success and provides needed comfort to the families we serve. We truly appreciate you and your alignment with our vision and values. I am also thrilled to welcome John Enwright as Carriage's new Chief Financial Officer. In just seven weeks, John has dived deeply into our operations, embraced our culture, and provided invaluable insights and leadership as we continue to grow into a best-in-class organization. Welcome to Carriage, John.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Today, I will highlight our financial performance for the fourth quarter and the full year and update you on the progress of some of our strategic objectives. John will provide additional detail focusing on overhead, cash flow, leverage ratio, and our guidance for 2025. Now, let's move on to the financial highlights. For the fourth quarter, we reported total revenue of $97.7 million, a decrease of $1.1 million, or 1.1%, compared to the same quarter last year. We experienced an anticipated decline in funeral volumes against a challenging prior-year comparable, resulting in a 7.3% decrease, partially offset by a 1.4% increase in our average revenue per funeral contract. The volume decrease is primarily linked to a shift in the flu season, which usually starts late in the fall and increases through the winter months.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Our January and February volume trends are positive, indicating that a late flu season may have shifted volume from the fourth quarter of last year to the first quarter of this year. Additionally, we experienced an 8.4% increase in preneed interment rights sold and a 4.2% increase in the average price per preneed interment rights sold, which helped offset total revenue to a decrease of just 1.1%. When breaking down revenue, funeral opening revenue was $58.7 million in the fourth quarter versus $61.3 million last year, a $2.6 million decrease, or 4.2%. Lower funeral home volumes resulted in a reduction of 831 contracts, or 7.3%. This was partially offset by a slight increase in the average revenue per contract of $75, or 1.4%.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Cemetery operating revenue for the fourth quarter was $29.8 million versus $26.7 million last year, resulting in a $3.1 million increase, or 11.6%, driven by an increase of preneed interment sold of 263 contracts, or 8.4%, and an increase per preneed cemetery contract of $937, or 9.2%, compared to the same period last year, almost offsetting the revenue loss in our funeral segment.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

For the full year, total revenue finished at $404.2 million, an increase of $21.7 million, or 5.7%, primarily driven by the continued growth in consolidated cemetery pre-need sales as we experienced a 22.9% increase in pre-need interment rights sold and a 7.3% increase in the average price per pre-need interment rights sold, which led to total pre-need cemetery sales of $94.3 million, an increase of $19.9 million, or 26.7%, when compared to the same period last year. Moving to adjusted consolidated EBITDA, for the fourth quarter, we ended at $29.3 million, a decrease of $3.1 million, or 9.6%. This decrease was driven by the lower revenue in our funeral segment combined with an expected $1.2 million increase in our Project Trinity investment, which we don't adjust for.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

For adjusted consolidated EBITDA margin for the fourth quarter, we finished at 30%, a decrease of 280 basis points compared to last year. For the full year, adjusted consolidated EBITDA finished at $126.2 million, an increase of $13 million, or 11.5%. Adjusted consolidated EBITDA margin for the full year remained strong at 31.2%, an increase of 160 basis points compared to last year. Adjusted diluted EPS for the fourth quarter was $0.62 per share, down by $0.15, or 19.5%, versus the prior year quarter. And for the full year, we ended at $2.65 per share, an increase of $0.46 per share, or 21%. We are pleased with our financial performance for the full year of 2024, highlighted by a continued focus on execution while optimizing our systems and approach to support organic growth.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Our strategic adjustments throughout the year paid off despite a decrease in funeral volumes in the fourth quarter, influenced by the shift in a later-than-normal flu season. After raising our guidance twice in 2024, we are thrilled to report that we exceeded expectations across most of our financial metrics. This achievement underscores our management capabilities and operational excellence, setting a strong precedent for continued growth. In alignment with our ongoing commitment to excellence, we're excited to announce the expansion of our supply chain strategies through the introduction of our new Urn core line. This launch reinforces our national partnerships and aligns with our strategic objectives of continuous improvement and disciplined capital allocation. These efforts collectively enhance our service capabilities and create additional shareholder value. Moving into phase two of this strategy, we're focusing on leveraging our new national partnership with Express Funeral Funding for insurance assignments.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

This collaboration will provide added value to the families we serve by enhancing the financial flexibility of our offerings, potentially increasing sales across our operations. The full rollout of this program is anticipated in the second quarter of this year, marking a significant milestone in our strategic plan. Subsequent phases will address casket core line, fleet management, and other essential procurement needs, further optimizing our operational efficiency and service excellence. In closing, as we reflect on our accomplishments and insights gained in 2024, Carriage is at the dawn of an exciting future. With a robust foundation built over the past two years, we're ideally positioned for sustained financial growth and industry leadership. Our strategic commitments to passion for service, optimizing our supply chain, and fostering continuous improvement have sharpened our competitive edge and set the stage for groundbreaking innovations.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

As we move forward, our culture of excellence through our teams is more equipped than ever to deliver superior service. Driven by our unwavering commitment to creating premier experiences, we are eager to expand our horizons, deepen our connections with the community, and become a best-in-class organization. At Carriage, we don't just adapt to change. We lead it. Thank you, and I will now pass the call on to John.

K. John Enwright
K. John Enwright
CFO at Carriage Services

Thank you, Carlos. I would like to welcome everyone to the call and share a brief update on my first couple of months with the company. I have now been at Carriage for seven weeks, and in that time, I've become even more excited about the opportunity that lies ahead for me and the company. The vision that has been laid out and executed upon over the last two years is exciting, and I feel fortunate to join the company at a time when there are so many opportunities in front of us. As important to me are the people and the culture. The team that Carlos has built is impressive, and I look forward to working with everyone in the organization to continue to drive value for all stakeholders. Now, on to fourth quarter results.

K. John Enwright
K. John Enwright
CFO at Carriage Services

Cash provided by operating activities for the quarter was $9.3 million, which was down $4.4 million from prior year quarter of $13.7 million. Adjusted Free Cash Flow for the fourth quarter was $8.9 million, which was down $3.9 million from the prior year quarter of $12.8 million. The change in Adjusted Free Cash Flow was driven by lower income in the quarter, primarily the funeral segment, working capital adjustments, and spend for Project Trinity, which equated to approximately $1.2 million in expense. We paid $3 million towards our outstanding debt this quarter, ending the year with a maintained Leverage Ratio of 4.3 times, representing almost a full turn from 5.1 times at the end of 2023. This reduction in leverage illustrates our commitment to disciplined capital allocation, along with the impact of our strong annual performance.

K. John Enwright
K. John Enwright
CFO at Carriage Services

We experienced a reduction in interest expense for the quarter of $2.1 million due to the mid-year amendment of our credit facility. At year-end, we had paid down our credit facility by $42.1 million from $179.1 million at the end of 2023 to $137 million at the end of 2024. Turning to capital expenditures for the full year, we have invested $8.8 million for growth CapEx, $7.3 million for maintenance CapEx, and $2.9 million for Trinity. Now, shifting to overhead. Overhead was $12.9 million for the quarter compared to $11.9 million in the prior year quarter, resulting in a $1 million increase in overhead expenses. The overhead variance was driven by $1.2 million relating to Project Trinity costs as we prepare for our exciting implementation of this ERP and customer experience platform early in 2025.

K. John Enwright
K. John Enwright
CFO at Carriage Services

Overhead as a percentage of revenue was 13.2% for the fourth quarter of 2024, which is up 120 basis points from the prior year quarter of 12%. If you exclude costs associated with Project Trinity, overhead as a percentage of revenue was basically flat to prior year quarter at 12%, which is within our communicated range. Now, let's shift to the outlook for 2025. As we review the outlook, it is important to note that all metrics include the impact of planned divestitures but do not include any potential benefits or impacts associated with acquisitions. As we get back to growth mode, any benefits or impacts associated with acquisitions, we will adjust our forecast accordingly. Revenues are planned to be in the $400-$410 million range compared to $404.2 million. That would result in an expectation of sales being plus or minus 1%.

K. John Enwright
K. John Enwright
CFO at Carriage Services

However, if we were to exclude the impact of divestitures, we are anticipating revenue growth in the low single-digit range, primarily driven by preneed property sales. Adjusted Consolidated EBITDA is expected to be in the range of $128-$133 million compared to $126.2 million. We are anticipating slight improvement in our margins based on our investment in supply chain in 2024, coupled with normalization of certain corporate expenses. Adjusted Diluted EPS of $3.10-$3.30, primarily driven by lower interest rates and a lower effective tax rate. We're expecting interest expense savings in the range of $5-$6 million associated with the paydown of our credit facility in both 2024 and 2025, coupled with a full-year benefit of the mid-year amendment, which resulted in lower fees. The adjusted tax rate is expected to be in the range of 28%-30%, down from 34.2% in 2024.

K. John Enwright
K. John Enwright
CFO at Carriage Services

For overhead, we continue to focus on our strategic objectives, which will result in slightly elevated overhead costs in 2025, driven by Project Trinity. However, in the long term, 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 13%-14% of revenue, which is within our expected range. Based on the above assumptions, we anticipate adjusted free cash flow in the range of $40-$50 million. As a reminder, we have adjusted our calculation of free cash flow to include total capital spend rather than just maintenance capital. Total capital spending in 2025 is expected to be in the range of $19-$21 million. We anticipate our leverage ratio to end 2025 between 3.7-3.8 times, right within our long-term leverage ratio target of 3.5-4 times.

K. John Enwright
K. John Enwright
CFO at Carriage Services

The forecast on interest expense and leverage ratio assumes that we do not have any acquisitions in 2025. That concludes our prepared remarks, and I will turn it back over to the operator to open it up for questions.

Operator

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press Star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll go first to Alex Paris with Barrington Research.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Hi, guys. Thanks for taking my call and congratulations on the beat versus a tough comp.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Thank you very much.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

First question. Yeah, my pleasure. First question, just a point of clarification on funeral volumes. On the last conference call, you said that October was kind of weak versus your experience in the third quarter. And it sounds like November and December were weak due to the shift of the flu season from fourth quarter to first quarter, said simply. You said that the trends improved in January and February. Are you saying January and February volume was up year over year? That's the point of clarification.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Happy to address your question. It's a great question, by the way, so yes, in October, we noticed a little decline on volume on a year-over-year basis. It wasn't expected because I have mentioned in the past that the pull forward effect will wind off through the fourth quarter, no later than the first quarter of 2025, and so it caught us by surprise to see that negative volume on an annual basis in October, and as you remember, we updated our guidance in October as we released Q3, and we were being very, very thoughtful and conservative because of that trend. That trend continued in November and December, leading to the negative that we just disclosed for the fourth quarter. However, as we look into what happened, we did some research with CDC.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

It seems pretty clear that there is a shift of the flu season that came late this winter season and started really more into the end of December, beginning of January, and of course, continues as we speak today. The consequence of that is that today we do have greater volume for both January and February than we had in Q1 of 2024.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Great. Thank you for that. And then your revenue guidance, $405 million at the midpoint for 2025. Again, excluding those divestitures that you called out, it'd be more like $413 million, which is very close to my estimate of $415 million. On the divestitures specifically, what did you do on that front in 2024? I think that there were some divestitures in 2024. The question is, how much revenue did those divestitures that were completed account for? How much adjusted EBITDA did they account for?

Alexander Paris
Alexander Paris
Analyst at Barrington Research

And what were the proceeds of whatever you sold in 2024? And just to prepare you, I'm going to ask you the same question about 2025.

Steven Metzger
Steven Metzger
President at Carriage Services

Hey, good morning, Alex. This is Steve. So for 2024, roughly, we sold about $5.5 million worth of revenue, which represented around $1.8 million in EBITDA. Proceeds were just over $12 million for the year. So again, just to highlight, these are non-core assets for us, so not really our premier performing assets. As we look ahead, I'll skip to your next question, anticipating 2025. As we look at 2025, right now, and some of this is what we're targeting, we have a couple of things under contract that have not closed. But we're looking at roughly, call it $25 million worth of proceeds. And there's a mix here of certain non-core assets and then some real estate. That amount accounts for around $9.5 million of revenue and about $3.3 million of EBITDA, kind of rough numbers on trailing 12.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Gotcha. But the impact you said would be $7.9 million in revenue and $2.3 million in EBITDA. You just quoted a last 12-month number, or 2024 number, for those non-core assets that are being sold.

Steven Metzger
Steven Metzger
President at Carriage Services

Yeah, that's correct because we're seeing some of that benefit, we're seeing some of that revenue and EBITDA benefit in 2025 until we divest.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

After completing these divestitures, how many funeral homes will you have remaining in terms of core funeral homes?

Steven Metzger
Steven Metzger
President at Carriage Services

Confirm the number. This should result in more or fewer funeral homes.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

What did you finish 2024 with funeral homes-wise? I don't think it was in the press release.

Steven Metzger
Steven Metzger
President at Carriage Services

I believe, and I'd have to confirm, I believe it was 217.

Steven Metzger
Steven Metzger
President at Carriage Services

That includes the cemeteries, which is fine.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Okay. And then moving on again on the guidance front, $130.5 million in EBITDA at the midpoint, up 3.4% year over year. You're getting some leverage out of OpEx and so on. But then your guidance for adjusted EPS is up 21% at the midpoint, $3.20. Is that being driven by, I think you touched on it in the overview comments, a lower interest rate expense assumption and a lower tax rate assumption? Does that explain the difference?

Steven Metzger
Steven Metzger
President at Carriage Services

That's correct, Alex. The tax rate is about, call it, five-six points lower expected to be, as well as about $5-$6 million worth of savings in interest expense.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Gotcha.

Steven Metzger
Steven Metzger
President at Carriage Services

We also bring some savings that will transmit into EPS from our supply chain strategies as well.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Great. And then I guess my last ones real quick are D&A and CapEx, both up, D&A up 10%. I'm assuming that's related to the Trinity rollout?

Steven Metzger
Steven Metzger
President at Carriage Services

A portion of that will be associated with Trinity because the Trinity won't go 100% live in 2025, so we'll see it won't be a full year's worth of Trinity, so that'll be a portion of that, and a portion of that will be the amortization of the Trinity property.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Gotcha. And then on the CapEx front, total CapEx of $21 million this year, up from around $16 million last year, up 30%. I'm assuming that's still 50/50 maintenance growth. And what explains the increase? What are you spending incremental money on in 2025 versus 2024?

Steven Metzger
Steven Metzger
President at Carriage Services

There's some larger projects we're doing in certain cemeteries ultimately that is driving that is inconsistent or different than what we did in 2024, which is really kind of the main driver of the increase. The other thing, Alex, is, as you remember, the last two years, and by that I mean 2023 and 2024, our focus was to drive as much as we could organic revenue. We were pretty much in the backseat of acquisitions. Our last acquisition was in March of 2023 with Greenlawn, and then we focused on paying down our debt. So part of that effort was to allocate capital to high-growth projects, which was basically preneed cemetery and allocating maintenance needs, really, that were required in the field. And so as a consequence to that, we had a lower CapEx number for 2023 and 2024 than we have traditionally done.

Steven Metzger
Steven Metzger
President at Carriage Services

I remember 2022 was around $26 million. 2025 allows us to now, since we are in a range where we feel comfortable with the leverage ratio, to allocate more capital to growth opportunities on the cemetery side for preneed property. Also some of those businesses that we did not put some maintenance CapEx to work to go back to work on 2025. One more thought as I wanted to address this one on revenue. You see that guidance on revenue a little lower than expected because you see the improvement on EBITDA and, of course, EPS. If we wouldn't divest from those businesses, our guidance would have been $410-$420 million of revenue for this year. Did you want to point that out?

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Good. No, I appreciate that. Last question, I promise. With your year-end CapEx or net leverage ratio target of 3.7%-3.8% in line with that long-term goal of 3.5%-4%, I'm assuming that you'll be perhaps in the second half evaluating acquisitions. Again, you'll get more active on that front.

Steven Metzger
Steven Metzger
President at Carriage Services

Yeah, Alex. So we're excited to get back to growth. I think for us, we have some, as we just mentioned, some divestiture proceeds coming in that are not insignificant. And so we will look to redeploy some of those funds towards higher quality assets. Talking to a number of owners right now with some really premier properties. Don't know how those are going to progress, but we do think it's indicative of what will be available in 2025. So as Carlos and John mentioned, while the revenue number does not contemplate growth through acquisition, we do expect to have more of an update in Q2. And we do expect to grow through acquisition this year.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Great. But just to be clear, the revenue guidance does not assume any incremental inorganic growth.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

That's correct. That's right. We want to get a better feel on what that's going to look like here in Q2, so I think there'll be a better update then. Yeah, so Alex, think about it from this perspective, right? The organic growth continues to be a focus at Carriage. However, this is the year that we're able to go back to growth mode. We have been able to get the structure that we needed over the last two years, get the team in place, get the systems right. Being able to launch Trinity in 2025 is a really big deal for us this year, and this enabled us with a better margin than we had before. I mean, our margins are probably second to the highest one since 2021 as a result of COVID-19, and so now we're able to focus on growth.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

As Steve mentioned, we have really good plans for that. An update in Q2, I'm pretty sure we'll get excitement across the board from what we have planned for in 2025.

Alexander Paris
Alexander Paris
Analyst at Barrington Research

Awesome. Thank you very much. Appreciate you taking my questions. I'll get back in the queue.

Operator

Hello. I'll move next to John Franzreb with Sidoti & Company.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Good morning, everyone. Thanks for taking the questions. I'd like to start with the fourth quarter results and what you've gleaned from maybe a seasonally somewhat weaker fourth Q with your changing the pricing strategy on a more regionalized basis in light of maybe some of that weakness. Carl, if anything you could share about the pricing strategy and how it's playing out when you have maybe some unexpected curves in the volume?

Steven Metzger
Steven Metzger
President at Carriage Services

Yeah, that's a great question, John. Good morning. So as we recognized back in October that we're struggling with some declines in volume that were not normal. As you remember, on a normal seasonal year or seasonalized year, you will have Q1 being the largest quarter of the year, Q4 being the second largest, and again, Q2 will be the third, and Q3 will be the fourth. However, if you look at 2024, Q4 is actually the last quarter of the year, which is very abnormal. But because of that, and we were able to recognize that early, we fought for any call that was there whether it was cremation or burial. That didn't allow us to be as competitive as we were in terms of keeping the price up because we wanted to keep as much volume as we wanted.

Steven Metzger
Steven Metzger
President at Carriage Services

So you didn't see that continuous trend on our pricing capacity over the last three months of the year. However, our strategic pricing review strategy continues in place. We are holding our strategic pricing review meetings for January, February, and March to update our pricing for 2024. And that will continue to be an ongoing basis for 2025, quarter to quarter.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Good. Fair enough. And there's been a fair amount of commentary in the media about this being the worst flu season in 15 years. You mentioned that January and February are off to good starts. Can you kind of put it in context of how good of a start it is in light of some of the flu numbers? And also, do you expect that flu season to spill over into the second quarter?

Steven Metzger
Steven Metzger
President at Carriage Services

I wouldn't know about the second quarter. It really depends how the weather plays out in the spring months. It's getting warmer already, at least here in Houston, and it seems like it may not last as long as we thought. But as it relates to your question for volume, we're about. I'll just give you some ranges, about 1%-3% year-over-year volume for January and about the same for February.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Got it. Got it. Just to shift a little bit about some of the cost side of the equation here. Are you done adding personnel as far as the supply chain initiatives in 2025? Are there still additive costs that are going into the SG&A line?

Steven Metzger
Steven Metzger
President at Carriage Services

Just to clarify, John, you're asking if we're going to add personnel to support the supply chain focus?

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Correct.

Steven Metzger
Steven Metzger
President at Carriage Services

We do have plans. We think there's a lot of opportunity there. So we do have plans to add another individual to help drive and accelerate those opportunities. So at some point in 2025, we expect that to be the case.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Okay. So we're going to see some increase in SG&A costs. Understood. And I guess one last question, maybe a little bit on the debt expected paydown. Is that going to most of that debt paydown come post the sale of the acquisition? Are you going to do steady-state debt repayments through about the balance of the year?

Steven Metzger
Steven Metzger
President at Carriage Services

I'm struggling hearing your question. I think you're asking if we're going to allocate the proceeds from the divestiture this year to pay down our debt. Is that what you're asking?

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Yeah. Just looking at the timing of debt repayment and how I should think about it through the balance of the year.

Steven Metzger
Steven Metzger
President at Carriage Services

Yeah. We have achieved over the last two years our long-term range for leverage ratios, 3.5-4 times. We want to keep it like that. Short term, we do have a nice pipeline of opportunities for acquisitions. But until we have something that is in the books, any proceeds from divestitures goes down to save interest expense on our facility. And then we'll use some of those proceeds once we're ready to close on some of those deals. And John, just to circle back to your question regarding OpEx.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Yeah.

Steven Metzger
Steven Metzger
President at Carriage Services

Just to circle back on your question regarding OpEx, we build all the additions into kind of our expectations. So our commentary in regards to OpEx or our guidance already includes any additions that we're contemplating.

John Franzreb
John Franzreb
Analyst at Sidoti & Company

Understood. Thanks, guys. I'll get back into queue.

Steven Metzger
Steven Metzger
President at Carriage Services

Thank you, John.

Operator

Welcome back to Liam Burke with B. Riley.

Operator

Yes. Thank you. Good morning, Carlos. Good morning, John. Good morning, Steve.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Good morning, Liam.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Good morning, John. Carlos, you had a higher average revenue per funeral contract in the quarter, but also a higher percentage of cremations in the mix. Typically, cremations are a lower revenue per contract. How are you able to have more cremation customers but higher revenue per contract?

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

That's a great question, Liam. What we've been focusing on over the last, I would say, probably about a year, maybe 10 months, is what we call conversion ratio, right? It is those families that come in with the idea of having a cremation. And perhaps for them, that means a direct cremation. And through a process of educating the families on what is available to them, we're able to have them choose something that is not just a direct cremation. That could be a cremation with a service, full service. That could be a cremation with just an upgraded urn and perhaps a small gathering to say a final goodbye. That could be some memorialization options for the family. Could be also a full-blown visitation followed by a life celebration.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

And so now we're really working on team development and helping our teams of funeral directors across our businesses so they can really present all options to all families. Because we believe that perhaps some of those families that come in, they come in with that idea of cremation but don't really know what it means and what is actually available to them. And that's been the strategy over the last 10 months, and will continue to be for 2025.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Thanks, Carlos. And John, on your free cash flow guidance, I know you mentioned that it's an all-in CapEx estimate. But how much influence does the pre-need cemetery sales have on that cash flow guidance?

K. John Enwright
K. John Enwright
CFO at Carriage Services

So it includes kind of the similar kind of ratio as you would think from prior years that pre-need is going to kind of turn a little bit slower than in kind of funeral business. So ultimately, you could think about it as it is a discounting kind of a transition from revenue into free cash flow.

K. John Enwright
K. John Enwright
CFO at Carriage Services

Okay, so the pre-need sales rate is going to be above or below this year's cadence or 2024 cadence?

K. John Enwright
K. John Enwright
CFO at Carriage Services

It will be. The expectation, it will be kind of below this year's cadence, but it's still higher than funeral revenue expectation.

K. John Enwright
K. John Enwright
CFO at Carriage Services

Great. Okay. Thank you.

Operator

Once again, it was Star One if you had a question. We will go next to George Kelly with Roth Capital Partners.

Operator

Hey, everybody. Thank you. Just a couple of questions for me. First, on Trinity, I was curious if you could go through the expected timing of the various sort of functionality, what Trinity is bringing. Can you just walk us through when you expect to turn on that functionality?

Steven Metzger
Steven Metzger
President at Carriage Services

Yeah, absolutely. Happy to do that, George. So over the last year, as you know, we've been working mostly on programming. But the last few months, I've been now working on the testing side, doing parallel testing, making sure that everything that's been done on the programming will work once we go live. There's been several iterations of that to make sure, as you know, any ERP implementation, it's very involved, is quite challenging, and you find surprises along the way. I don't think I've heard of one that goes 100% successful to plan. However, we're pretty much at that point where we're going to go to a pilot of the program in the second quarter of this year. And then 30-60 days after that, depending on how that pilot goes, a full launch to a rollout throughout the remaining of 2025 in every business, specifically funeral homes.

Steven Metzger
Steven Metzger
President at Carriage Services

We'll move into cemetery in the first quarter of 2026. We do believe that Trinity will be quite a significant opportunity to maximize, to become more efficient, improve our systems. It is not just an ERP. I do want to emphasize that. It will give us all the back office that we currently have with our legacy system, which we call CPAS, which is pretty outdated today. It will enable us to do analytics. It will allow us to bring AI into our accounting procedures and become more efficient on that. Reporting will become tremendously better. Most importantly, in addition to our compliance items, it contains a Family Portal. That's how we call it, the Family Portal. What that is, is a way to engage families from the moment they call the business to the moment they leave the funeral home or cemetery post-services.

Steven Metzger
Steven Metzger
President at Carriage Services

It is a way where they can continuously see where they are in each step of the stage of the funeral or the cemetery. That's how we're going to be able to submit paperwork, documentation, and they can track every single item within their services that are being provided. Very exciting. We're very, very happy about that because I don't believe that's an option that's currently available out there for families today, maybe, but not that I know of, at least, or familiar with. So from my point of view, I think we're the first one to have something like that. That will certainly deliver a better experience to the families. That should also deliver referrals and better experience, better reviews. As a consequence of that, potentially also better average because we'll be able to present better to families our services and our products.

Steven Metzger
Steven Metzger
President at Carriage Services

Okay. That's really helpful context. Thank you. And then second question on your guidance. So on your revenue guide, I'm a little confused. You mentioned in your prepared remarks that your guide reflects a low single-digit organic growth number. But the confusion, I guess, is just why wouldn't it be higher? You just mentioned that January and February funeral volume was positive, low single digits. I would imagine there's pricing on top of that. And then your cemetery pre-need, I'm guessing, would be at, I don't know, maybe a double-digit rate or close to it. So I'm just a little confused on what the disconnect is. What am I missing, I guess, on your organic growth target?

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

George, I mean, I know the low single digits is when you exclude the impact of the divestitures, right? That is part of the driver. But I think your question is, why isn't the core business that is still here growing at a greater rate given the fact that January and February businesses have uptick to last year? But as Carlos indicated, that was low single digits, 1%-3% is the information he gave. And from a cemetery perspective, our numbers might be a little bit lower than kind of double digits right now as an expectation as we kind of work through the year. I think it might be around if you're looking at your model associated with what you have in there for cemetery.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Okay. So maybe just to be more specific, your organic growth assumptions in your funeral and cemetery business for 2025 are what?

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

It's about 1% on the funeral side and about high single digits on the cemetery side.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

And so not to belabor this too much, but are you just saying on the funeral side, it's too hard to have comps? Two months doesn't make a trend, and you want to watch the year develop before you get too optimistic. Is that the real issue, or is there some kind of challenging comp that you'll be facing midyear?

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

No, I don't think it's a challenging comp. I do feel pretty confident where the pull forward is today for 2025. I do think we are at the end of it. But if it is a fact that the flu season shifted from the Q4 of last year to Q1 of this year, that's not sustainable, right? It will go away after Q1. And so I don't think that's going to create a trend in terms of volume for the rest of the year. And so while Q1 is looking better than we expected for that reason, and it's 1%-3% better on the volume side, I'm not speaking about revenue, just volume, it will be difficult to assume that that's going to be the trend for the remaining of the year.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

So, as you have noticed, our style is more around making sure that we commit to something that we believe we're going to really hit. Hopefully, we can do better and over-promise what we, I'm sorry, over-deliver what we promise. And so that's been pretty much our thesis of work and why we've been somewhat, to your question, conservative on the guidance, organically speaking, because we did have pretty good 2024, organically speaking. And so it will be a significant amount of growth on top of that, already pretty significant growth for 2024. So that's why we're trying to be somewhat conservative.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Okay. That's helpful. Thank you.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Thank you, George.

Operator

Steve, it appears there are no further questions at this time. I'd like to turn the conference back over to Carlos for any additional or closing remarks.

Carlos Quezada
Carlos Quezada
Vice Chairman and Chief Executive Officer at Carriage Services

Thank you, Operator. As we conclude today's call, the key takeaway is that our 2024 results reflect our collective passion, innovation, and unwavering determination to achieve our strategic objectives, as demonstrated by the impressive organic growth and a significant debt repayment accomplished last year. Carriage is set for an exciting and promising future. We are dedicated to creating premier experiences and concentrating on growth. We will continue to reach new heights and attain even greater success. Thank you. We look forward to speaking to you again when we report our first quarter performance. Have a fantastic day.

Operator

Thank you. Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect.

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