Carriage Services, Inc. (NYSE:CSV) Q1 2024 Earnings Call Transcript

Carriage Services, Inc. (NYSE:CSV) Q1 2024 Earnings Call Transcript May 4, 2024

Carriage Services, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the Carriage Services First 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.

Steve Metzger: Good morning, everyone, and thank you for joining us to discuss our first quarter results. In addition to myself, on the call this morning for management are Carlos Quezada, Chief Executive Officer and Vice Chairman of the Board of Directors; and Kian Granmayeh, Executive Vice President and Chief Financial Officer. On the Carriage Services Web site, 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 Kian 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. 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 Web site. Thank you all for joining us this morning. And now I’d like to turn the call over to Carlos.

Carlos Quezada: Thank you, Steve, and thank you all for joining our first quarter earnings call. We are excited to share our outstanding performance. But before we do, I want to express our heart fell gratitude to the entire Carriage family, whether in the field or our support center, each of you has played a crucial role in driving these results. Your wavering dedication and relentless passion for delivering an elevated service to all families have an instrumental in our success. We deeply appreciate your continued support and commitment to our shared goals. Before we start, I hope you had an opportunity to read our 2023 shareholder letter and proxy statement. Both are reaching information related to our five year strategic objectives and our core initiatives for 2024, setting the stage for a transformative vision of the Carriage of the future.

Now let’s dive into our financial highlights. We are proud to report that our strategic objective plan is well underway and the progress in executing the individual initiatives to grow revenue and reduce cost is starting to produce positive results. For the first quarter, our total revenue was $103.5 million, a substantial increase of $8 million or 8.4%. This is a significant milestone for Carriage history as it marks the first time we have surpassed the $100 million mark in a single quarter. This remarkable performance was primarily driven by the exceptional results of our preneed cemetery team and the successful integration of Greenland, our most recent acquisition. These achievements underscore our strong financial position and ability to deliver on our strategic objectives.

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Q&A Session

Looking at each of our revenue segments, we see that total funeral home operating revenue increased to $66.6 million, an increase of $1.2 million or 1.8%. Despite the expected decrease in total funeral operating volume of 1.9% as part of the post-pandemic normalization, our targeted improvements to our pricing strategy have made a significant positive impact. We have seen an increase in total funeral operating average per contract of $219 per contract or 4% compared to the same quarter last year. This result of our pricing strategy is a testament to our confidence in its effectiveness, and we believe we will continue to make additional progress throughout the year. Regarding our cemetery operating revenue, we ended the quarter at $27.6 million, an increase of $6.3 million or 29.4% compared to the same quarter last year.

This is another significant milestone for Carriage, achieving a record first quarter in preneed cemetery sales. The preneed cemetery team delivered an impressive 38.4% growth compared to the same period last year. We couldn’t be prouder of this achievement, which is a direct result of our entire sales organization hard work and dedication towards sales excellence. For total financial revenue, we ended the first quarter at $6.9 million, an increase of $868,000 or 14.3%, driven primarily by the impressive growth in preneed funeral commission income, which increased by $570,000 or 177% compared to the same quarter last year. Our preneed funeral strategy continues to produce positive results, and we continue to be very excited about our potential future performance through our exclusive strategic partnership with Pricoa and the National Guardian Life Insurance Company.

We remain committed to our growth strategy, and we will continue to explore opportunities to enhance our financial performance. Regarding adjusted consolidated EBITDA for the first quarter, we finished with $33.6 million, an increase of $5.8 million or 20.9%. The combination of a higher average revenue per contract and the continued execution of our cost management initiatives delivered great success, demonstrated by our total funeral field EBITDA margin of 41.3%, an increase of 100 basis points and total cemetery field EBITDA margin of 43.3%, an increase of 430 basis points, while our corporate overhead experienced an increase of $6.1 million during the first quarter, 90% of it was nonrecurring and related to Mel separation agreement. Adjusted diluted EPS in the first quarter grew to $0.75 per share, an increase of $0.19 or 33.9%.

While interest rates remain high, we are now at a comparable level to previous quarters. And even though we’re paying high interest rates, we continue to be focused on committing most of our free cash flow towards debt payments as evidenced by the $25 million of debt that we paid down this quarter. Kian will share more on this later in this call. We are very proud of these results as this makes 5 out of the last 6 quarters of outperforming expectations. While we had a solid first quarter, we remain diligent about capital allocation and continuing to execute our strategic initiatives, while being mindful of how seasonality and normalization post panic may impact our volumes in the near term. March had the greater decline in volume in the first 3 months of the year.

So we will closely monitor those levels going forward. Therefore, we reconfirm our 2024 outlook. As we gather more information leading into the end of the second quarter, we should have more insight to share. Kian will also cover more on this in this call. In closing, we are very excited about the future at Carriage. With our strategic initiatives well underway and the hard work and dedication invested over the past year, we are well positioned for sustained innovation and financial progress. What we’re building is not just about near-term achievements. It’s about establishing a foundation to deliver lasting value to our shareholders for years to come. Thank you for your interest and support. With that, I will now turn things over to Kian.

Kian Granmayeh: Thank you, Carlos, and good morning to everyone on the call. Before I dive into a review of our financials, I wanted to reinforce Carlos’ earlier comments regarding the recent disclosure of our new purpose statement and the relentless focus and alignment to our 5-year strategic objectives. This is important to mention since every decision we make, whether large or small, is aligned with our strategic vision and objectives in mind. This discipline and focus on achieving our outlined goals and executing on our vision is the foundation to generating long-term shareholder value. Now turning to our financials. Since Carlos provided an overview of our key financial metrics for this quarter, I will review a few additional financial highlights around overhead, cash flow and leverage, and I’ll also provide some color on completing our recent noncore divestitures and an update on our 2024 outlook.

First, I will start off with corporate overhead, where we continue to be laser-focused on spending and cost-saving opportunities. This quarter, when adjusting our special items related to the review of strategic alternatives, which concluded in late February, along with the accounting treatment of Metals transition agreement, our overhead costs totaled approximately $12.7 million or approximately 12.3% of revenue, which continues to track lower than our previously stated 13% target for the full year 2024. Next, let’s discuss cash flow for the quarter. When normalizing cash flow from operations for onetime items, our cash flow from operations increased 17.1% to $22.1 million, up from $18.9 million in the same quarter last year. This solid cash flow from operations translated into robust adjusted free cash flow.

As a reminder, we are transitioning our adjusted free cash flow calculation to a traditional calculation, which will include all capital expenditures. We have provided a reconciliation table at the end of our press release that provides a bridge between our historical reporting methodology that includes maintenance capital expenditures only and the more traditional methodology that includes all capital expenditures. We will continue reporting both methodologies for the remainder of 2024 before converting exclusively to the traditional methodology in 2025 and beyond. For the quarter, with maintenance capital expenditures lower than the prior year quarter, our historical calculation for adjusted free cash flow increased by $3.9 million and increased by approximately $4.7 million when including all capital expenditures over the same period.

As you may notice from these numbers, capital expenditures are tracking down 29% relative to the same period last year, which again highlights our focus on disciplined capital allocation without compromising our organic growth initiatives. This strong cash flow generation, along with our well-defined capital allocation strategy brings me to my third highlight, the reduction in outstanding borrowings under our variable rate credit facility. This quarter, we were able to pay down an additional $25 million on our credit facility, reducing the outstanding borrowings to $154.1 million by quarter end. Of note, included in the $25 million pay down this quarter was approximately $10.9 million in gross proceeds from 2 noncore divestitures that were directly fueled towards paying down our credit facility.