Q4 2019 Earnings Call

[music].

The 19 earnings webcast at this time all participants are in listen only mode. Later, we will conduct a question answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder.

This conference call is being recorded.

No I'd like to turn the conference over to House, Viki, Blinderman Senior Vice President and Chief Accounting Officer. Thank you. Please go ahead.

Thank you and good morning, everyone today, we'll be discussing the company's yearend results for 2019, a related earnings release with made public yesterday after the market close.

Your services has close to the press release, including supplemental financial tables and information on their best first page of our website.

<unk> audio conference is being recorded an archived will be made available on our website later today through February 20 cents.

My information for the call can be found in the press release distributed yesterday.

On the call today from management or Mel Payne, Chairman and Chief Executive Officer, They'll gets President Chief operating Officer, and Ben Brink, Chief Financial Officer, today's call will begin with them over worked for management, followed by question and answer period.

Please note that during the call we will make forward looking statements in accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995.

All statements other than statements of historical information should be deemed to be forward looking statement.

These statements include but are not limited to statements regarding recently closed acquisition anticipated cost savings operational improvements and other benefits related to the acquisition and the effect of such such acquisitions on the Companys financial performance, our milestone three years scenario any projections of earnings revenues asset sale cash.

<unk> debt levels or other financial items any statements a plans strategies objectives of management for future operations acquisition and divestiture activities.

And financing activities.

Any statements regarding future economic and market conditions or performance any statements a belief and any statements of assumptions underlying any other foregoing.

Forward looking statements contained herein regarding the performance of our same store in acquisition businesses include assumptions related to future revenue growth.

We can provide no assurances that our same store and acquisition businesses will generate the revenue well discuss today or any revenue growth at all.

Like to call your attention to the risk associated with these statements which are more fully described in the company's report filed on form 10-K, and other filings with the Securities and Exchange Commission.

Forward looking statements assumptions or factors stated over from here on this conference call are based on information available to care service surfaces as of today.

We expressly disclaim any duty to provide updates to these forward looking statements assumptions or other factors. After the date of this call to reflect the current trends circumstances or changes in expectation.

Furthermore, during the course of the mornings call, we will reference certain non-GAAP financial performance.

Management's opinion regarding these usefulness of such measures together with a reconciliation of such measures to the most directly comparable GAAP measures were storable periods are included in the press release and the company's filings with the FTC.

Now I'd like to turn the call over to Mount Thank you Becky.

Over the last five years and especially.

2017 2018 period.

After I had promoted.

Members of senior leadership team into executive.

Positions.

And we suffered a performance decline in our portfolio it became very obvious.

That we did not have within the company.

The executive leadership that we needed for the future.

So why retained.

Oh good speech.

Second of recruiting firm.

I honestly did not think.

I would be able to find someone goes my qualifications were extremely high.

And I had to go through an incredible vetting process.

The board level in the senior leadership within the company and at the field.

Well, we got lucky.

And in December.

We made a bowl strategic move I think that we started this company will for years to go.

And it just time I'd like for Bill gets.

To report to you.

Oh, he has a settled into carriage and what do you spell compared to what he perceived built great. Thank you mail and good morning, everybody first of all I.

I appreciate your interest in carriage and what I thought I would do this morning as Mel just mentioned his talk a little bit about what I've seen over the last 75 days of course I have a lot to learn spending a lot of T. A lot of time in the business, but that would be the first thing just give you an overview what I've seen over the last 75 days in old.

So talk little bit about as a leadership team some of the strategic opportunities that we've identified.

And talk about how we're going to go after those opportunities so going back to December a I was on the call on December 3rd after I joined on December 2nd.

And I shared three reasons why carriage was so attractive to me I just want to kinda give you my assessment after.

Being in the business. The last 75 days a first of all the main reason the join carriage was really this this great culture, great people, great leaders and over the last 75 days I have visited more bar businesses. In fact last week I was out in California at a a two of our great businesses one.

Being Canetto mountain the other one being the heritage deal day in Huntington Beach, and again I I walked away just impressed with the businesses that we have impressed with the people that are leading those businesses and everyone. Just involved in servicing those families. In those communities I also had the privilege.

To attend a standards council meeting and that was.

Again, just very eye opening to see the talent in the room and not only the talent, but the commitment of that team and all of our leaders to continue to make an impact on our communities families and of course shareholder value and then over those 75 days I've also spent time with.

Our Houston support team a we've got great people here in Houston.

Dead or providing support to our businesses across the U.S. and you know I think this this this model that we have which is kind of the upside down triangle, where we realize that it's all about our people out in the field. It's all about US helping them served families is is is real.

And and making a difference every day or the second reason a that I was attracted to carriage as I mentioned on the December call was meaningful work and at this point my career I was looking for something more meaningful and.

For those of you that nobody industry, you know what our businesses do each and every day to help families and the toughest times is just inspiring.

And that meaningful work purpose is I've visited our businesses is really stood out.

And then the third reason that I discussed on the December call was really about the opportunity and at that point, you know I had a chance to look at some of the macro data on the industry starting to get a feel for carriage.

But I was excited about that opportunity. After 75 days I would tell you I'm even more excited I think there is a huge opportunity to grow our business rollout in existing markets, where we operate today through our decentralized model, but also very excited about what the team has done to bring new businesses.

Into the fold over the last 60 days, we have acquired some.

Absolutely great businesses, we've got to spend some time now integrating those businesses, but those are businesses that are really going to cata pulled us too.

Even greater results over the next five years. The other thing that I've learned over the last 75 days is the decentralized model that that Mel has created it really gives the autonomy to our local managing partners is the right model.

It's the right way to run the business, it's the right way for us to support families. But it's also the right way to maximize shareholder value.

And then finally from an opportunity standpoint of what I've learned over the last 75 days. This decentralized model, where we give our managing partners the opportunities to make a difference in those communities has allowed us to attract retain and develop.

Hey players.

And I see that everyday as we look at a recruiting people want to join this organization and one of the big reasons. They want to join is obviously the culture, but also the autonomy they get to run their own business. So that's my assessment over the last 75 days.

Second thing I want to talk about is share with you a a few key areas that we've identified as a team that we believe that will be crucial is to really drive our good to great journey part two.

And the to attack these opportunities we are forming for high performance trends formative teams and we do believe these areas will be transformative or to our business over the next five years again, we're at a starting point here and I want to share those four areas with you.

The first area is how we define service and guest experience. So we put a team together again, a cross functional team that will be working on establishing and measuring the key metrics. So we have a better understanding of the service that we're providing the family and the guest experience in each business.

The other thing that we're gonna do is make sure we're capturing the best practices at our businesses and then sharing them a across the country. Because today, we have businesses that are doing an absolutely great job.

With the servicing guest experience and we just want to make sure. We captured those ensure those the second key strategic areas around technology. So we formed a transformative team that will focus on technology innovation, and then technology, we're going to.

Really look at two areas first how we use technology internally to make us more efficient more effective to better serve families. Then secondly, we're going to be looking at technology that is consumer facing that's everything from what we're doing from a digital marketing standpoint, social media E Commerce mobile.

Apps and analytics excited about this there's great things going on right now at a local level, but we believe that the technology piece is a big part of our story moving forward. The third strategic area that we're focused on his cremation conversion I think everybody that knows our business and follow it follows the.

This industry knows that cremation continues to be an increasing trend we look at cremation as a great opportunity and what we're focused on is to develop the tools and training to improve our cremation with service.

Right now obviously families make a decision to have their loved one cremated we want to make sure that we have the tools and training to share with them ideas of how they can honor memorialize that love one and so that will be a big focus we've got a great leader and Chris Manzo is going to lead that team.

And we feel this is an area that we can move on pretty quickly to get better again learn from what's going on in the field today, There's a lot of great work in that area and improve our business overall from the standpoint of cremation conversion and then finally and this was in the press release, we believe there is a big opportunity on the cemetery side.

Sales side.

You know as you know we recently made some some some big acquisitions on on that side of our business you know as we mentioned in the press release, we're looking for a senior leader.

In that area that could come in and bring their experience, but also we're starting that work immediately I'm going to be on the west coast in a couple of weeks with some of our key businesses out there.

Better understanding what they're doing a capturing those best practices and thinking about how we developed the rights sales process. The rights sales management process, how we put a CRM in place to drive that process and how we incorporate an after care strategy to make that completes cycle to drive our cemetery.

Sales.

So that's where we are again I'm as I mentioned at the top of my remarks, I'm more excited than ever a I feel privileged to be a part of the carriage team and work with the associates here.

And looking forward to learning more about the business and helping the team move forward on these areas. So with that I will send it back them out. Thank you Bill.

Bill.

To enjoy and participate in his first carries board meeting yesterday.

And.

I got a lot of feedback Bill HM After the Board me.

From the board members.

But I guess the most insightful.

Feedback was from a young.

Money manager that we turned over $20 million young Guy He's got brilliant idea is he's done really well.

And one of the things he wanted to do was to become a board observer.

And carriage to improve his knowledge how value is created.

When we went into a turnaround mode and either our toll about that.

So he called me on my way home last night, and he said Miller.

I've got some board observer feedback.

And it's kind of a on a pivot.

He said sitting there in the room and I've been sitting there now for almost two years.

I noticed from your senior leadership team just executive team and there are two of us including billing.

All in the room and the six board members that Bill.

Through his executive presence.

Through his.

Articulation of different things whatever the subs it might be has raised the gain.

For the entire board meeting and each one of the players.

He said I have this insight and I couldn't wait the Sharon.

So I'm going Wow.

Thank you Jay they're not that's just.

I'm going to take that and change the sequence of our presentation on the call tomorrow. So thank you bill.

Already making a difference you raised the game you raise the Andy and I think people in the feel are excited about your leadership I know I am.

And we look forward to many many many high performance victories in the future.

Before I turn the call over to bend to put some meat on the bone.

Next three years in this past year.

Just wanted to say that it's been a there's been a lot of hard work since I got back in operations and September 18, and then took control.

On October 31 of the team.

Got a lot a wonderful responses last year.

We had a lot of high performance winters, but all of them are listed in this.

A year in earnings release is high performance Heroes, we had too many didn't respond.

We're going to the best quite a few of those clean this up but we.

We made bold moves towards the end of last year bolder than we've ever done before.

And if I look back over the 29 years since co founding carriage on June 191, I didn't know what I was doing it had to learn.

Almost what broke.

In 2000.

After the media and over leverage.

Stock went to a dollar again and you know nine and we bought in a bunch of it.

For $3.

And this time when the performance declined at only went down to 14 50, So I think that's progress.

It's kind of hoping it would go back to a dollar.

Oh It goes we're ready.

We got a great bunch of people, we got a great bunch of assets, we added some wonderful assets.

And if there's one regret that I have over the last 29 years has been different times when I've had the opportunity to go big.

And took a big bite, mostly when I see I bought another consolidator like Alderwoods six for Stuart and.

14, we had the opportunity to go big it would have a stretch the company I decided not to do that in.

In both of those situations and then in a number of others that we're not a public.

And if there's one regret I don't regret not doing at an all those cases, because I don't think we were ready.

But.

If there is one regret is that I didn't recognize the long term, earning power of some of these big businesses and wonderful markets like the ones we bought.

End of last year.

It will take us sometime.

Great.

There's a lot there.

It is stretching us but everybody here is excited about it the board meeting yesterday. It was I mean, nothing but let's go and what we've tried to do here is laid out.

A realistic three year roughly right scenario.

I learned a long time ago, and study and Warren Buffett said.

But if you're going to focus on the short term in the scoreboard you're going to be a loser.

And so this time, we went bid we went bolt.

And we went long term.

This is going to transform our company.

And those who believe in want to do the hard work and study and get under the covers I think you'll turn into a believer as well and those who don't.

We accept that that's the nature of a public company market.

So with that I want to turn it over to Ben.

Thank you Michelle Thank you Bill.

Our results for carriage services 2019 back to the future a new beginning part to demonstrate an incredible amount of progress in just one year as a return to organic revenue growth in our funeral home businesses had a record performance year in our cemetery segment significantly improve consolidated EBITDA margins and producer.

Record adjusted consolidated EBITDA for the year, while our operating performance in the fourth quarter was short of our expectations. The strategic needs remain the fourth quarter to complete for large acquisitions and large strategic markets along with the addition of bill as President and COO has positioned carriage like no other time in our history for performance and value creation.

The success over the next five years.

And now for our results.

For the full year total revenue increased 4.2% to 27 point 20, 273.3 million total fuel EBITDA increased 7.4 million.

To 110.3 million.

Total field EBITDA margin increased 120 basis points to 40.4%.

Consolidated EBITDA increased 8.2 million or 12% to 76.5 million and adjusted consolidated EBITDA margin increased 200 basis points to 28% again recapturing what we had lost in that 2017 2018 timeframe a portion of it.

And then diluted earnings per share increased 27 cents to EUR, 29% to $1.20 for the fourth quarter total revenue increased 7.3% to 71.1 million consolidated EBITDA increased 17.7% to 19.2 million and our margins increased in the fourth quarter 200 fate.

40 basis points to 27%.

The diluted EPS for the quarter was 29 cents, an increase of 26.1% year over year.

And our same store funeral home segment full year revenue increased 0.2% 267.2 million on strong growth in the number of families. We served at 2.3%. This small increase in revenue was leveraged into a slightly greater increase in same store funeral field EBITDA to 63.9 million a 1.3.

<unk> percent increase versus 2018 and field EBITDA margins improvement, a 40 basis points, 38.2%.

The fourth quarter also showed continued momentum in the number of families. We served a growth of 5.3% year over year and a good indication of future market share growth.

Growth in same store funeral home volume in the quarter led to a 1.8% growth in same store funeral home revenue, which was leveraged into a 5.5% increase in same store funeral field EBITDA at a 130 basis point increase in field EBITDA margin.

Acquisition funeral field EBITDA margin declined 180 basis points in the fourth quarter entirely related to the acquisition at the beginning phases of integration of the two larger funeral home businesses. We acquired in October while for the full year acquisition funeral field EBITDA margin increased 160 basis points to 37.9%.

The year over year increased demonstrates the margin improvement in full integration of businesses. We acquired in 2018, and we'd expect the same type of improvement for the most recent acquisitions and their first full year operating within our standards operating model.

It was encouraging to see year over year growth in our same store funeral home revenue get our greatest opportunity to translate the larger year over year increase in contract volume into higher revenue growth more consistently across our entire portfolio.

As Bill stated in his remarks, our focus is improving on the number of families choosing to memorialized their loved ones with us and increasing the average revenue per cremation contract through our dedication to this high value personal service business in recent weeks, our operational leadership team along with our centers Council spent to focus days here in Houston to review, our 2019 results by.

Business as well as debate and agree on updated standards with an added focus on cremation averages. The standards Council made up of Arts 10 of our top performing longtime managing partners has also agreed each work with two businesses over the very near term to provide additional insight for improved performance immediately we think all of them for.

Earlier years of dedicated service to carriage further expanded role here in 2020.

The performance of our cemetery business for the year was simply fantastic. We finished with a strong momentum in the fourth quarter for the year or same store cemetery revenue increased 9.6% to 49.5 million same store cemetery field EBITDA increased 22.9% 17 million and cemetery field EBITDA margin increased 370.

This points to 30, 534.5%.

Have you said a few times this year, we believe the performance of our cemeteries can only continue to improve and weve laid important foundations regarding people and inventory development over the past 18 months with a three new large cemeteries, we have the necessary size scale and long term growth opportunities to invest in building a world class Cemetery sales organization.

Looking at the operational leadership level, we look forward.

We look forward to presenting the progress of our cemetery portfolio throughout the year.

Our trend for our you're in turn Port also includes a new other revenue and EBITDA reporting categories. These include the pet Memorial cremation and eight cremation dot com businesses that were acquired as part of the acquisition of Resthaven funeral home and Rockwall, Texas.

We have broken out these results of these businesses. The since they are unique within carriage we have been impressed with these businesses since they partnered since we have partnered with Resthaven I look forward to their continued developments with our partnership.

During the fourth quarter, we completed three acquisitions Lombardo funeral homes, and Buffalo, New York Resthaven funeral home and Memorial Park in Rockwell, Texas, and Fairfax moral parking funeral home in Fairfax, Virginia, which represented the single largest acquisition in the 28 years history of carriage. Shortly after the first the year. We also closed on the acquisition of.

Memorial Park, and mortuary Lafayette, California.

We'd like to take this opportunity to once again welcome all the team members. It is each of these businesses to the carrots family and thank them for welcoming us with open arms.

Well they are all at various levels of their individual integrations in a short period of time, we've developed definitive plans for the integrations over the course of the next year. What has been consistent is that all of us here carriage or even more confident the capital allocation decisions that we have made or even more excited for the future of these businesses and highly strategic markets for carriage.

In all we expect these four businesses to generate an annual run rate of $17 million and field EBITDA once fully integrated in 2020 and grow from there.

All these businesses will provide carriage multiple years of accretive organic growth opportunities.

Allow us to have a higher and more consistent field EBITDA margin and improve our adjusted consolidated EBITDA margin by allowing us to better leverage our overhead and support platforms.

We are intensely focused on integration these businesses and using our free cash are growing free cash flow to pay down debt and achieve a lower leverage profile over the next 12 to 18 months.

It would not surprise us to be presented with opportunities for further high quality acquisitions within that timeframe and we will continue to evaluate those opportunities that become.

What investors should take away is that while we may not see this level of acquisition activity always we do believe these businesses are indicative of carriage as long term opportunity to partner with the best remaining independent businesses and we'll remains a highly fragmented funeral and cemetery industry.

We believe strongly that when quality independent operators have a chance to look under the prefer real carriage covers they will find a company with a strong and well defined corporate culture that has been built and tested over the course of 29 years. They will find the company those dedicated to the belief in the value of funeral and cemetery service.

The best days of our possessed profession are ahead of it they will find a company full of high performance local leaders generally care about the communities and families. They serve.

All led by a leadership team has been committed to carriage since day one.

Our goal is to ensure the acquisition and integration of these four fantastic businesses only validates who we are as an organization.

I would also be remiss not to mention the work to our operational leadership and Houston support teams over the last four or five months.

The work we've done to have due diligence and they start the integration processes businesses have been truly phenomenal and I'm, particularly proud of all the work that's been done around here during that time.

Okay in order to finance.

The total of 172 million of acquisition activity in the fourth quarter, we issued an additional 75 million to our 6.6 to five senior notes due 2026.

The price of $104 to yield 5.5%, bringing the total these notes outstanding to 400 million.

Additionally, we amended our credit facility to when you increase our capacity to 190 million and to allow for a higher leverage profile over the next year.

Typically the amendment increase our maximum leverage ratio to six times. The end of 2019 stepping down to five in three quarters signs in the first quarter back down to five and a half times at the end of the year. We ended 2019 with a pro forma leverage ratio of 5.6 times I expect our leverage ratio to fall to about 5.1 times by yearend.

Over the long term, we expect the free cash flow generation ability of carriers to provide us opportunity to allocate capital in the best interest of all of our stakeholders, including the ability to rapidly de lever when necessary.

I'd like to thank again, our bondholders and banking group for their support in regards to these transactions.

As we highlighted in our earnings release, our improved credit profile over the next 18 months will give us another opportunity to lower cost of capital in June of 2021, when you were able to call our bond unsecured notes at $105 given current interest rates and the trading of our bonds, we would expect a refinancing to lower interest costs by approximately $7 million.

And be accretive to diluted EPS by minimum of 28 cents. This is a very real value creation opportunity, we have within our control over the near term.

Adjusted free cash flow for 2019 was 37.4 million down approximately 5 million from 2018 due primarily to the increase in interest expense from our senior notes that we issued back in 2018.

We will return to free cash flow growth in 2020, with 42 to 45 million and produce a record free cash flow in 2021.

We've made a strategic decisions to divest or emerge 12 to 15 funeral home businesses throughout 2020, and currently have three under letter of intent.

These businesses earned 5 million in revenue and 1 million in field EBITDA in 2019, the effect these divestitures, including the updated scenario in our press release and are included in the divested revenue and EBITDA lines. The trend report also included in the press release.

You spent 15.4 million on capital expenditures in 2019, and expect to spend between 16 18 million and Capex in 2020 with 10 million of that being allocated towards maintenance our growth Capex will predominantly be spent a highly high quality differentiated cemetery inventory and remodels of existing funeral home business isn't growing markets.

We're excited about the opportunities to invest growth capital with expected rates of returns in excess of our cost of capital across our entire portfolio and greatly expanded those opportunities with our recent acquisitions. We also remain committed to investing our businesses through consistent amounts of annual maintenance Capex.

Our pre need discretionary trust one portfolio had a return of 25.9% compared to 35.9, 31.5% return for the S&P, 519.5% return for our long term, 70% high yield bond, 30% S&P equity benchmark this compared favorably to our 11 year long term.

Compound annual return of 13.5% since carriage began to manage these assets internally back in 2008. This long term tracker to performance has and will continue to accrue to the benefit of the value of the underlying funeral and cemetery preneed contracts as well increase income generated through our cemetery perpetual care accounts.

Additionally, we recently completed the assumption of 27 million a new trust assets required with the recent acquisitions. The addition of these trust assets will be immediately accretive to our financial revenue and EBITDA, particularly in earnings from cemetery perpetual care accounts.

In our press release, we introduced a three year roughly right scenario based on our expectation for future performance over the three distinct time periods. The goals of which we were described we're also described in the press release.

It includes the impact of expected divestitures of you would be accretive impact of a potential high yield bond refinancing next year and our expectations of the timelines for the full integration of the recent acquisitions based on this scenario, we're confident in the ability of carriage to achieve important financial milestones over the next three years revenue above 325 million adjustments.

Adjusted EBITDA above 100 million adjusted consolidated EBITDA margin above 31% diluted earnings per share over $2 in 25 cents and free cash flow over $60 million, all of which with a much improved credit and leverage profile. All these metrics are significant improvements over just released 2019 results.

And presents a compelling value creation opportunity over the coming years, we look forward to reporting our results you along the way beginning with carriage services 2020 transformative high performance good to great journey part two.

And with that I would like to read.

Our high performance euros.

Annually, we celebrate or high performance heroes, our pinnacle out of service Award winners. This year. We had 39 businesses achieved the Pinnacle award will be celebrating with them down in Mexico here in a couple of weeks, we're really looking forward to that.

So the being the best Pinnacle Service Award winners were Cornish Arvay, North Revard funeral home, Patrick Shane Jacobs, Shane Sun, Matthew Simpson Fry Memorial Chapel, Justin Luyben Evans, Brown, mortuary and crematory, Alan Carrick taken funeral chapel, Jeff Hardwick, Brian and Hardwick funeral home.

James Bass Emerald Coast Mclaughlin mortuary, Randy Valentine Dieterle lead memorial home and cremation Sue Kenan Byron Keenan funeral home in cremation, Todd Moeller, All Commission options, Jason Cox Lane funeral home South press, Jeff Seaman, Dwayne Spence funeral homes, Dan Simons Everly community.

Care My Conor Conor Westbury funeral home actually Vela Deegan funeral chapel's, Jason Higginbotham Lakeland funeral home, Joe New car Civic Center Chapel, Robert Maclary, Kent Force Lawn funeral home, Ken Duffy, Johnny Day funeral home, Scott Sanderfer Everly Wheatley funeral home Philip Hill Keenan funeral home.

Joe water wash spared case, Jordan spanning funeral home in cremation Center, Jeff Steadman sandstone funeral home, Tom O'brien O'brien funeral home, Chris check this kinda della funeral home Nicholas Welzenbach Darling and Fisher funeral homes will scholars Memorial Park, 10 Hawk Harvey Inglehart Fuller met and Lea County cremation.

Our being the best Pinnacle of service award winners and.

Winners achieved 100% of standards in 2019, Ken Summers PL frying son funeral home, Steve Mora Conejo Mountain funeral home, Brian Binion seen funeral homes, James Terry James Jay Terry funeral homes, San Cindy huge Smit funeral homes and.

And then winners that achieved 100% of standards. This year Joanna Civeo overview Memorial Park, Anthony Rodriguez Higgens mortuary, Ben Friberg Heritage funeral home in Crematory, David Keller Lane funeral home.

Culture Chapel, and Mike paved Sterling White cemetery, Congrats all of our Pinnacle winners.

Moving onto our care. It's good to Great Award winners. These are managing partners that have been able to grow their business, 2% compound.

Revenue for over five years or above the long term incentive program is unique to carriers. There's no other opportunity like this in our industry for local managing partner talent.

Winners of this award our Todd Moeller more Thompson funeral travels information services, Alan Carrick Daikon funeral chapel, Nicholas Welzenbach Darling and Fisher funeral homes, Scott Sanderfer Everly Wheatley funeral home, Patrick Shane Shane Shane son funeral home and Charlie Egan Greenwood funeral home congratulations to all of the winners.

And last but not least we'd like to recognize threem a high performance heroes from our Houston support Center. These three have truly gone above and beyond over the past few months and we'd like to public you recognize them. John team, then Walker and David that piece in our office the 14.

And with that I'll I'll stop talking and we can open up for questions here.

Let me just go one more time here Ben.

Before we open it up for questions I do want to.

Say that the future three years.

Looks very attractive.

But do you have to measure.

That look attractiveness against the history of the company.

The idea of carriage at some point, becoming the best in this industry not the biggest.

You know always baffle me, how would you measure that.

And.

As a as a guy who started out in the high yield business.

In the seventies, Michael Milton.

Took to the public markets in the eighties.

You know that was my background and so I knew credit new cash flows and I went into banking great Bank for five years, Texas Commerce Bank can be AAA back then then turning around companies for 10 years.

But it got tired of that and wanted my own company and this is where I got lucky and landed.

And I loved it because it was a cash flow business and you could lever it.

But you could also a mess it up if you didn't operate right. So my definition.

Being the best.

In the industry as a consolidation and operating platform over time.

Became.

Creating the most cash margin.

Per dollar of revenue.

And for US that's a that's a rough estimate of the cash it's the adjusted consolidated EBITDA.

After all overhead.

And.

No I learned a lot about that over the years first it was hard to get past 20.

For lot of years, and then we got passed that.

Downing changes and all and then we've got up to a at some point.

24.

And at the end of Ah.

11, when we had another transition date, a lot of management turnover and I took over operations again, and we launched our first good to great journey.

For five years, and we went in the stock was 560 for 10 12 years 15 years that have been 21 in $5.

And so we launched their first did a great journey on January one of 12.

And the adjusted consolidated EBITDA margin went from 24 and change up 29.7.

2016.

And the way I've always looked at this and if you. If you started carriage we started doing five year trend reports because I learn over time. This is a incremental business year over year over year over year over year, another quarter over quarter over quarter.

And.

From 2012 to 16 that margin went up almost 500 basis points.

And the stock went from 560, so 20 a 64.

About a 30, 839% compounded return over that five years.

So then I step back and I promoted some people and we know what happened in 17 and 18.

And now we we had a partial.

Come back and in a 19 and now we're launching our second five year good to great journey.

If you want to look back at 16 is the benchmark standard of being the best in terms of every dollar revenue converting to approximate cash at the EBITDA level.

We were 248 million in revenue.

And the field EBITDA was 104.4 that was an all time high in the margin was 42.1.

For all overhead.

After that the revenue went up 20 million in dollars in the next two years 17 and 18.

In the field EBITDA stayed the same 104.4 104.5 104.3 does the margin with 40 to one to 38 nine.

Hi, Tim we bounced back up.

This included all the low performers that now being taken out we bounce back up.

And you could take them out we were at 40.4% field EBITDA in the field EBITDA went from 104.5.

Three to 110.3.

So if if if the field EBITDA margin had been the same is 16, 42.1%.

I will added another 4.8 million.

To our field EBITDA and it would have added another 4.6 million to adjusted consolidated EBITDA.

So we would have gone up 18% on adjusted consolidated EBITDA. It would just been at the same margin.

Taking out the low margin low performers and adding these four that once fully integrated will have much higher margins will get you to the three year beginning trend.

And this is why are all of our people know 42.1% field EBITDA is the near term target.

But we don't expect to stop there and we don't expect not to surpassed 29.7 adjusted consolidated EBITDA margin.

We've got to get passed it and we're going to create a lot of free cash flow, especially when we refinance the debt.

We refinance we refinanced our debt and issued those bonds. It exactly the 10 year high over the last few years, we price stuff, but 10 year high of 3.05 in May of 18, we've we priced at 368 basis points of spread over 10 year treasuries treasuries, which was the same.

Spread we price that when we issued our first bonds in 2005.

As if the company got no better from a credit point of view.

This time, when we refinanced I can promise.

Our spread will be a lot lower than 368 points over 10 year treasuries and right now to endure treasuries or $1.53 cents.

So I'm looking forward to that and once we do that just like them said.

We believe we will have witnessed a complete transformation of this company over the last few years and it will be like a new platform with new earning power new cash flow power ability to do it at about a four times leverage and still allocate capital to create value through share repurchases.

Is it Mr market doesn't value is high enough or acquisitions or higher dividends, we will be very flexible in our financing and very flexible in our and savvy and our capital allocation so with that I'd like to open it up for questions.

Ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone.

Question has been answered you wished removed from the Q. These past the pound key.

Your first question is from the line of Alex Paris from Barrington Research. Your line is open.

Good morning, this is Chris sitting in for Alex.

Thank you Mel Bill and Ben for all your detailed commentary thus far.

Going through some of my notes that I have here, mostly in regard to Fairfax. Mel you had mentioned in the past about acceleration.

In regard to fair effect, its ability to achieve sustain and now with the potential for further acceleration in its business.

Could you provide some additional color.

Typically unfair effects and how this can relate to some of the buckets that bill mentioned.

More specifically in regard to capturing a best practices and perhaps applying them to other areas of the business.

Yes, Fairfax I know the business will.

And there are a bunch of times over the years.

Dream to one day owning it.

No we've ever gets a chance.

It had 14 bidders.

We.

We recognize it's been a family business, it's been a not aggressively manage especially on the cemetery side.

And those I mean, the funeral home opportunity in that overall area.

To access you know to expand the brand and grow the market share is incredible.

But the cemetery opportunities is even better.

It just it's it's just an amazing upside and it will continue to be amazing.

For 10 or 20 years. This is the kind of part I always green someday, we would on.

On our own I've seen this counterpart and other companies like Rose Hill, and Sci and delay.

Others, and Oh always dreamed of having one of those bellwether companies that has an incredible margin.

Growth opportunity, but also revenue growth both on funeral homes and cemeteries.

I'm not sure if I can relate to what you're calling best practices, but.

We're we're we will put the Taliban here to make at home.

And it will it will harm once we get it going.

It will be worth price, we paid which was dear.

And it will be a return on invested capital that would just grow and grow and grow it's a kind of business that.

You know Warren Buffett talks about you want to buy businesses, where.

You want to buy it.

You want to buy good business sort of enterprise well. This is not a good business at a fair price, we bought a great franchise at a high price.

And the great franchise.

Has been undermanaged passively in properly.

My family that owned at all these years and now it's going to be in a company that's going to know how to turn on the high performance buttons through leadership and systems and it will it will be one of these we'll look back in two years and say Wow.

We got a good deal there.

Well, let's go to take us a while to get this one home and it's a it's a big it's a big it's a big business.

And it's going to its going to be a big growth and earnings and free cash flow driver for carriage.

For years and years and years to come once we get it going it'll grow market share in the funeral niches in and around Fairfax.

There's an opportunity for brand expansion with another chapel.

The cemetery product I can promise you is gonna be is going to be.

We can build product they really haven't emphasize that they've been selling land.

And and so it's just one of these.

There will be proud of it would take us a little while to get at humming and I know you know wall Street is not a patient when you pay a deer price, but we know it was the right thing to do and is a critical mass that we've been looking for and it's around it's around these ideas and concepts. The next five years ought to be the greatest value creation period in that.

History of our company.

That's excellent and.

Shifting to some of Bill's comments about the four different areas for operational efficiencies or strategic objectives.

As it relates to your guidance how should we assessed.

Yeah areas in regard to perhaps your internal expectation as to how they develop over time or how they accelerate.

Or show progression I don't know that you can a leak.

Directly.

What bill articulated.

These are teams. These forms you can tell he's got incredible energy.

People are excited to work with him.

I think.

Whatever the the fruit of those.

Four areas.

That he grows with these teams.

Over the next few years is incremental probably to what you see in this forecast.

We don't have any.

Revenue and EBITDA in there as far as I know Ben Ben had been over there been bills door down go tell me how much. This is going to know this it just got a micro overall company better.

And the two areas I mean, all those areas are critical.

And our people are excited about it we want to be an underwriter, we've never been that good it hi, and sustain cemetery preneed property sales then hit Miss for Awhile and then our bigger properties will would miss would have a top sales manager, leaving you know when they thought.

Coal our performance got flu.

But I think we're ready this is going to put us in the in the lead where we can hire the talent build the system build a culture and that's built background in.

You know what my background, but it is so I think all of our people are excited to follow his lead.

Leadership is all about.

People, who have ideas about the present in a vision of future. The other likeminded talent wants to follow this was missing in 17 and 18, that's my fault, it's not missing now.

And.

These three years or not.

Anything.

That we can't do.

I mean, there's not anything there that can't be achieved roughly in that range. So you won't come here and find anybody whining are down or.

I mean, our field people are excited is there a lot of work to do you damn right.

Well, we up to the challenge and do we have the ability to do it to them right.

So.

<unk> didn't mean to use a bad word there, but we're kind of passionate about where we are [laughter] and hope to somewhat answers your question.

All of helpful. Thank you mailings.

We look forward to what's on the horizon.

So do we.

Thanks, Chris.

Your next question is from the line of Chris Mckinney's from Sidoti and company. Your line is open.

Hi, good morning, Thanks for taking my questions and thinks as well for the.

Out of all the details last night and then the commentary this morning.

Just to talk about the change on the pre need sales is that due to the the acquisitions or you see.

A significant opportunity for growth there going forward.

And how much is in place already today.

Outside of the leadership that you just talked about the someplace to drive that thanks.

Yeah, we've like I said.

We didn't have a.

Got it to the cemetery business light.

I was told being.

No business its cash flow.

Cemetery, if you have an aggressive preneed sales program you finance.

Long term receivables special in Atlanta.

You know you you could actually sell yourself in the early years into insolvency and I saw other companies do that through working capital.

And we got into the cemetery business and 97 in Northern California, We added to it at 98, so our two biggest.

Cemeteries far in Northern California, San Jose, Los Gatos, and Richmond, which is East Bay.

These are big big cemeteries.

And Weve.

We've had los Gatos really going it's like a gold mine right there in Silicon Valley Rolling Hills, as a monster and it's got three major.

Sales.

Team.

Areas the Pacific round the Asian.

And then.

The family service.

Servicing other members and friends and family buried there and then the.

Advanced planning, which is a direct sales where you're selling people would have no heritage.

We've had a lot of problem over the years, having all three of those really up and humming once.

And this past year, we had two of those homing. It wants and you saw it made a big difference in our cemetery performance along with Los Gatos, a new we have another great business down in a Camarillo, California Tonight, you know that they'll want to see these three have always been key to our.

Formats, and then we got some other big ones and see side in Corpus Christi.

Oklahoma City.

In Florida.

And so.

We havent been able to get all of them going.

And I think it's because we didn't have the REIT structure. The sales culture in system is more centralized and short term and and incentives.

And the funeral businesses for a longer term service oriented. So I think this is what we've been missing.

Sales in the process of putting that.

Structure in place and the systems go with it.

And I think double take awhile, but once we get these things up and running including the new ones.

In two of the new ones really didnt have any pre need going on at all and they were the biggest ones.

Fairfax and <unk>.

It was going to take us a little while but.

It will calm and when we get it coming.

This these things are big meter movers.

And I don't know how much of that is in the bins.

Your outlook for some of it obviously, but I mean, there's upside here that we've never realized in our existing portfolio and there is unknown, but very large upside and in the ones we've acquired.

The.

Since level I'm very hopeful and then lastly, just one question if I remember right at the end the swing.

Yeah.

Some of the incentives.

For the operators does that change would we found a new targets today and also based on a more on the acquisitions, but have you thought about changing any of those is.

You know skills had a simple look as the.

No the operations of less than the topic.

Absolutely, where our council members have made changes.

Two.

Two of the standards.

This fast time initiated a new one on cremation averages and they also approved.

Two days ago, some changes in the incentive bonuses.

Two.

To match up with performance and well what is more desired outcomes.

The one year and five year periods they absolutely.

Yeah, Chris I think what's what's important for Christmas important point has a great question wasn't point to point out is there was really no changes made to the operating model for seven years from 12 to the end of 18 and now we've had we've had a really constructive process for we brought a lot of people around the table and made meaningful changes that people bought it.

To going forward. So it's good so you know Chris I wasn't going to bring this up but since you bring it up.

I'm going to go head and say it.

And people can you just think.

Smoking dope or not I really don't care, what they think.

It's what we think.

Our senior team here.

Believes in that three years, we believe that everything we've said.

He's going to happen in a roughly right range of outcomes.

That will create a lot of value.

Why do I know they believe that because they had a chance.

You know each year, we do incentives, we look next year and Theres a.

Incentive cash bonus for hitting certain goals and targets and then there's an equity component for public company.

But last year end this year.

Our team did not take any options.

And they did not take the senior leadership team and they did not take in the grants of stock.

Instead.

They took last year I believe it or not five year.

Stock price compounding much like we did that happen from 12 to 16.

Amounted to 30 30, 839%.

And from the year on 18, we did they had a 25% was our minimum compound.

20, 530 and 35.

And if they didnt happen they get nothing.

And so we had we had an advantage Mr market price at 50 50.

This year, we did another another layer.

And we felt it believe it or else value creation incentive plan for all the executive team and a lot of the the managers here in the home office, but we also included for the first time, our standards Tim Standards Council members.

And our our price as to compound 15% over the next five years over the last.

Over the year end price at 19 of 20 560 or they get nothing.

They get nothing and they had a choice.

Given the choice Hello should we go for some stock grant for options fix the price here.

Are you know you might get something or do you want to take a leap of faith and we got to do it.

We believe it or else, that's what it's call and they get so many shares.

We create another 466 million incrementally to shareholders. After five years, if it's 15% compounding that ends up being 51 49. That's 260 370 that 686 million of incremental shareholder value, 25% 70, a 12, that's nine home.

And 45 million so the the more of the compound into more shares they get and participate in the additional value created.

Otherwise it get nothing.

And every one of them without exception is so excited about this you can't believe it, especially the council members.

Okay I.

I appreciate that and I remember that was put in place.

Okay, nobody ever questions about it because nobody believed we're good with us.

Well. Thank you very much the time today or do I think you want.

Thanks, Chris.

I'm showing no further questions at this time I would now like to turn the conference that's an okay.

We look forward.

To your continued interest in our company. It's a very interesting time for me for Bill been for Vicki everyone on our executive team and all of our people in the field many of which are listening in into this call. So stay tuned for all our progress and we hope to deliver for you not hope.

We believe we will deliver for you or else. Thank you very much.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you May August.

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