Q4 2021 Carriage Services Inc Earnings Call
Thank you for your patience and please continue to standby the carriage services fourth quarter and full year 2021 earnings call in shareholder letter will begin momentarily. Thank you for your patience and please continue to standby.
[music].
Good day and welcome to the carriage services fourth quarter and full year 2021 earnings call in shareholder letter.
At this time all participants are in a listen only mode.
After the Speakers' presentation there'll be a question answer session.
Ask a question during the session you will need to press Star then one on your touch some telephone.
Anyway should require assistance during the conference. Please press Star then zero switching operator as a reminder, this call is being recorded.
I'd like to turn the call over to Steve Metzger Executive Vice President Chief administrative officer, and General Counsel you may begin.
Thank you Michelle and good morning, everyone today, we'll be discussing our fourth quarter and full year results for 2021, our related earnings release was made public yesterday. After the market closed we posted the release, including supplemental financial information on the investors page of our website.
Your conference is being recorded and an archive will be made available on our website later today.
In addition to myself on the call. This morning from management are Mel Payne, Chairman and Chief Executive Officer, Carlos Casado, President and Chief operating Officer, and Ben Brink, Executive Vice President and Chief Financial Officer.
Today's call will begin with formal remarks from nil, Carlos Ben and myself and will be followed by a question and answer period before.
Before we begin I'd like to remind everyone that during this call we'll make some forward looking statements.
Any comments made by our management team this state our plans beliefs expectations or projections for the future are forward looking.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements.
These risks and uncertainties include but are not limited to both factors identified in our earnings release and in our filings with the SEC both of which are available on our website.
During this call. We'll also discuss certain non-GAAP financial measures a reconciliation of these non-GAAP measures to the appropriate GAAP measures can also be found in our earnings release as well as on our website.
Thank you all for joining us this morning, and now I'd like to turn the call over to Mel.
Thank you Steve.
Thank you everyone who is on this call today on a day that Russia has invaded Ukraine.
In markets worldwide are crashing.
This unusual day stands in Stark contrast to all the great news about our company, which is on our 2021 shareholder letter that went out yesterday afternoon, masquerading as a fourth quarter and full year 2021 earnings release.
The shareholder letter.
It was co written proudly by the other three members of our strategic vision and principles group.
Who are present on this call all the great news about our past present and future performance.
I'd like to congratulate Carlos Casado.
He was promoted to president effective yesterday.
And.
As Chief operating officer.
I talked about Carlos in this release and what he's done and he's going to have a lot to say about what he's done centrally he's been here, but especially what he's doing now that will have legs and performance into the future.
And Ben brink who's been here, so and so nine it does a great ride up about our investment portfolio I think investors would be very intrigued by bins are personalization of the section and then Steve.
Came as our general counsel and has learned so much about the business about.
What about our people about our incentives about performance and how it all lines and so his sections are written in a way that describes the DNA of our company probably better than I could.
So with that introduction.
Of what I call. This dream team I'd like to turn it over to Carlos.
Thank you Bill and good morning, everyone.
It's an honor and privilege to be here today and represent all of our team of guarantee employees across our portfolio of businesses and in our Houston support Center.
I feel humbled by the carriage family overwhelming support since I joined the company on June 26 of 2020.
A corresponding guidance with my added responsibilities.
Or would you say unique and exceptional company that that's all for me a platform where of course EVP and innovation are not just embrace quite encourage and when paired with a one of a kind, Maine through and Mel Payne in letting sale for incredible things to happen. Thank.
Thank you so much for your support and I will work very hard everyday to earn this fantastic opportunity.
And speaking of Fantastic things I Hope you had a chance to read our earnings release as he tells our 2021 success story in a very compelling way.
For today's call I will share a little bit about the past with our 2020 one operational highlights.
Slowed by a quick stop into the breast and with what is currently happening of carriage and I will speak much more about our vision of the future and what is yet to come.
Let's start with a tour of the past we had a record year in 2021 the following highlights for each segment are the combined results for funeral same store and acquisition and separately. Our combined results for cemetery same store and acquisition portfolio's net then I will mention our total operating results.
For entire year of 2021 performance compared to 2020 if.
You know operating revenue of $253 1 million, an increase of $25 8 million or 11, 3%.
Don't feel EBITDA of 109 million, an increase of $15 5 million or 16, 6%.
If you don't feel even a margin of 43, 1% an increase of 200 basis points.
Our cemetery operating revenue of 92 million, which reflects an increase of $22 7 million or 32, 6%.
Cemetery field EBITDA of $42 5 million, an increase of $15 9 million or 59, 7% in.
And cemetery field EBITDA margin of 46, 2% an increase of 780 basis points.
Our financial revenue of $22 9 million, an increase of 3 million or 15, 2%.
So Phil he'd be them of 2021, 4 million, an increase of $2 8 million or 51% and financial field EBITDA margin of 93, 2% a decrease of 10 basis points.
All of that adds to a total revenue of 375 9 million, an increase of $46 4 million or 14, 1%.
Total field EBITDA of $174 6 million, an increase of $32 7 million or 23% and total field EBITDA margin of 46, 5% an increase of 340 basis points.
For cemetery results are five years cemetery same store trend report on our 2021 earnings release reflects the inflection point or the high performance about four transformation, which began with a five year plan in 2020 and will continue through 2024.
The plan included a new performance based compensation plan launch at the beginning of January 2021 pilot locations Siloed.
Siloed by the full integration during third cemetery portfolio throughout 2021 .
Some of the highlights coming from these cemetery hyper Homestar formation.
For the full year of 2021 our cemetery performance Preneed sales production finished at $52 4 million or 38, 5% greater than the entire year of 2020.
Same store cemetery, preneed property of $35 1 million or 39% greater than the year before.
So it'll add need sales of 36, 3% or 26, 4% over the prior year.
Total preneed sales of 65 million or $36 four over the prior year and total cemetery sales of $101 3 million or 32, 6% over 2020.
Or do you need high performance sales teams had a spectacular year after an already stellar 2020 and did a fantastic job protecting families to preneed property with a wide range of options for all families from traditional large too high and probably the memorials.
We think every sales leader and their teams so very successful sales counsellors for their hard work and their contributions to our company's success.
Great News is that our high performance Cemetery planning is not yet complete and there is much more to come.
This record performance was due to the incredible consistent in every revenue segment of our portfolio of businesses and the commitment and consistency of our managing partners, which deliver an amazing 2021 results.
In our earnings release steep covers in detail I mean, the best one year and good a great five year profit sharing program.
Or for many years, we have named every bean divest in goudeau great winners.
Well the lease for these years, so long that it will take very long time, so named them all.
We had 68 businesses and 58 managing partners achieve funeral homes standards, which led to an all time record of 78, 5% standards achievement for all of our funeral portfolio and 86, 2% for our cemetery portfolio standards achievement, which is also an all time record Mauro.
Moreover, a good to great five year Wieners consist of 35 businesses in 33, managing partners, an all time record as well we.
We'd like to thank our amazing best of the managing partners and their teams of employees for this incredible high performance encourage milestone.
Okay, now, let's talk a little bit about depression.
I'm honored to announce that <unk> is now our new vice president of sales and marketing.
Shanghai has contributed significantly to our sales success, especially in the growth of cemetery preneed sales and had been leading our CRM across our cemetery portfolio, which we now called sales edge.
We'll focus on building sustainable cemetery preneed sales throughout.
Our portfolio of businesses and the rights, whose sales leaders increasing our sales force head count deciding cemetery inventory that is appealing to the families that we serve and developing the skill set of our sales teams. We look forward to seeing Shane continued success.
We have created our first ever marketing department to support chain in our <unk> portfolio of businesses offered white, who joined carriage on January 3rd He's our new director of marketing.
She will be leading our marketing transformation in Harper, our managing partners position their brands increased market reach grow customer loyalty expand social media presence getting market share and deliver higher operating and financial performance than ever before we welcome Alfred to the carriage services family.
Now about the vision of the future of carriage.
We will have our first annual managing partner meeting since 2019, as we had to postpone 'twenty 'twenty and 2021 due to the COVID-19 pandemic.
This annual meeting, which we're calling carriage forum, we will focus on transforming servicing guest experience all of our managing partners across all businesses high potential leaders operational and sales Houston support center teams in a special guests will need to leave breathe and be challenged to think differently about service excellence and while we <unk>.
Our record performance in 2021, we believe that there is a significant opportunity to gain additional market share through highly personalized services and detail oriented experiences for both our funeral home and cemetery portfolios.
Our carriage for them will be a catalyst for further growth the beginning of a new service and guest experience for all of our families and another step on a good a great journey that never ends.
To support this vision, even further we're creating our first server carriage innovation and creativity committee comprised of the best of the best and most creative managing partners and our portfolio of businesses.
These talented group will come together to design innovative and creative tools for a thoughtful service chain, although their managing partners can use to grow their businesses, creating value to the families. They serve their employees and Gary shelf for the shareholders.
We're also very excited to announce that we have recruited a new chief information officer will start in April and whose primary responsibility will be to create a danger vision five year strategy and one year plan for the complete digital transformation of all of our IP systems.
We believe that carriage can create value by designing creating and implementing a customer centric platform that seems lean integrates with each business customer journey.
This innovative and digital transformation will include but not be limited to improve digital in situ experience integration of celebrations of license technology, a seamless change of custody fall.
Full integration of the back and front office systems in a first in class cyber security system and policies.
These technology innovations will automate Korean redundancies and other processes optimizing our operations and enabling our teams are passionate field employees to focus their time on what they do best which is to serve families. We're looking forward to accelerating the successful implementation of these complete digital transformation plan.
There is so much going on at carriage that it is impossible not to be excited about our future and with so many opportunities ahead of us here with a 2022 theme of high performance value creation culture, which is in complete alignment with our being diverse mission ambition, we will always strive to be a little bit better everyday and capped.
Every opportunity and continue our good a great journey. So that we can become the best operator, best Consolidator and there's value creative company in the death care industry.
Closing out with them.
Mystic V of carriage and the Blue Skies ahead is because from the beginning of our transformation at the end of 2018, we have been preparing and becoming better even though they're most some of the most challenging circumstances over the past few years carriage has become a value creation platform for years to come and for these recent and everything else that we have covered in our 2002.
<unk> earnings release I continue to say that this is the best time that we would courage and the best is yet to come.
Thank you and I will turn it over to Steve.
Thank you Carlos you know as it relates to the performance that you. Just described a couple of questions that have understandably come up time and again during the past two years.
First how do we know the growth in call volume and revenue isn't just related to COVID-19 .
And second how can we be sure that as deaths related to COVID-19 begin to decrease in normalized performance won't follow suit.
The reality is nobody in the industry was equipped to answer those questions at the beginning of this pandemic. However, we're now two years into living with Covid and have the benefit of data from which we can begin to make some reasonable roughly right inferences surrounding its impact on our business for.
For example, beginning in December of 2020, we began to capture Covid related deaths supported by death certificates on our contracts. When we look at total calls from 2019, the last full year prior to the pandemic to 2021 the first full year when reported Covid deaths were captured on our contracts among all of our funeral homes in our same store portfolio.
So the data supports a clear story of market share growth.
Specifically among all of our funeral homes in our same store portfolio, we've seen growth in total call volume of 29% from year end 2019 to year end 2021 of.
Of that 29% approximately 13, 2% is related to reported COVID-19 deaths.
Meaning approximately seven 7% of that total growth is not related to COVID-19 .
Furthermore, roughly 75% of our businesses and our same store funeral portfolio have achieved growth beyond COVID-19 of greater than 10%.
It's a broad and compelling story of growth beyond Covid and supports what we've been hearing from our leaders in the field about market share gains over the past several years.
And more recently when we look at our same store funeral contracts for just last month and compared to the same month last year, we see an almost identical number of total contracts, but an increase of more than 14% and non COVID-19 related contracts.
Further support for this market share growth story, we turned to data published by the CDC related to Covid deaths in the U S.
As reported by the CDC there were approximately 37000 fewer COVID-19 related deaths in the fourth quarter of 2021 as opposed to the fourth quarter of 2020.
That's 25% fewer total COVID-19 deaths in the U S quarter over quarter.
During that same comparable timeframe. Our total funeral same store call volume actually increased by more than 300 contracts.
So again, despite COVID-19 desk broadly and substantially decreasing we continue to see growth in our same store funeral portfolio.
We then looked at our preneed maturity trends to gain some additional insight.
<unk> maturity captures when a preneed contract goes at need and are served so in our preneed maturity rate goes down that means we're serving more pure walk in at need families and we our preneed families. If the premium maturity rate goes down and our total contracts go up it's highly likely we're gaining market share as there are more at need calls are being served.
Over the past several years, we've seen a steady decrease in our preneed maturity rate, including a significant decrease just last year. Despite total calls continuing to increase this.
This is just additional support to the steady growth, we're seeing is likely being impacted by broad market share gains.
There's no question that Covid is tragically in materially contributed to a number of additional desk. The past two years, we've been honored to have the privilege to serve many of these families. During these challenging times.
With that said, we've identified three separate insignificant data driven trends that all support market share growth beyond COVID-19 .
Any one of these trends is persuasive but.
When you look at all three together it becomes a compelling story of the work by our leaders in the field to continue to compete for every call and grow market share.
So what's driving this growth over the past few years at.
At a high level since September 2018, we've made significant and aggressive changes to talent and leadership, we modified our standards operating model to focus on compounded net revenue growth and serving cremation families and we revamped our unique approach to one in five year incentive compensation, placing a strong emphasis on margins is critical chain.
As have combined to help create the high performance alignment that is now seen in the financial performance, Carlos just referenced and which Ben will cover in more detail shortly.
We strongly encourage everyone to read our press release for a deeper explanation of this high performance alignment specifically as it relates to what we believe is driving market share growth and performance broadly throughout carriage, including a discussion surrounding what we're confident is the best pay for performance incentive plans in the industry.
Our unique operating model, which allows our managing partners to truly lead their businesses as owner operators combined with those best in class one in five year incentive plans, which we discussed in our release are just two of the key differentiators that we highlight for acquisition candidates, who are exploring possible succession plans.
As we look forward to the remainder of 2022 and beyond we continue to be encouraged by the prospects for growth through acquisition.
While we don't currently have any transactions to announce we continue to have advanced discussions with a number of fantastic businesses and we look forward to welcoming new partners to the carriage family in 2022.
As we've stated before we remain highly selective in our approach to growth through acquisition as we continue to build relationships with potential candidates. We're looking for a one of a kind customized succession planning option.
We are well positioned with our capital structure performance and available capital allocation opportunities outside of acquisitions to remain patient and disciplined with our acquisition strategy.
With that I'll turn it over to Ben who will provide more color regarding why we're so excited about that positioning as we look to 2022 and beyond.
Thank you, Steve and thank you for everybody who joined US on the call. This morning yesterday, we released our fourth quarter and year end 2021 earnings press release, which in true carriage fashion turned into a comprehensive in depth shareholder letter for 2021, it was a fun and collaborative process between Mel Carlo Steve myself and many others.
To not only provide a review of our phenomenal 2021 performance, but also to paint a clear vision for our future I encourage anyone with an interest in carriage to studying the shareholder letter in order to understand the drivers of our record high performance in 2021, and why we believe that the carriage high performance. Good to great journey is just getting started.
Yeah.
For the fourth quarter total revenue increased six 5% to $95 $9 million adjusted consolidated EBITDA increased seven 4% to $34 million adjusted consolidated EBITDA margin expanded 30 basis points to 31, 7% and adjusted consolidated our adjusted diluted earnings per share increased 36.
8% to 78 per share for the full year 2021 total revenue increased 14, 1% to 350, $375 9 million adjusted consolidated EBITDA increased 21% to $126 $2 million adjusted consolidated EBITDA margin expanded 200 basis.
Points to 33, 6% and adjusted diluted earnings per share increase an incredible 62, 4% to $3 <unk> per share.
In 2021, our adjusted free cash flow increased eight 1% to $75 $7 million, our adjusted free cash flow margin was 21% compared to 21, 2% in 2020.
Our pro forma adjusted free cash flow when adjusting for a full year impact of lower interest costs from our senior note refinancing in May of 2021 was $79 $7 million and our pro forma adjusted free cash flow margin was flat at 21, 2%.
Our pro forma adjusted free cash flow margin was flat year over year due to an increase in maintenance capital expenditures as we continue to reinvest back into our local funeral homes and cemeteries and due to an increase in cash taxes paid as compared to 2020.
Our total debt to adjusted consolidated EBITDA ratio at year end was four five times.
Compared to four times at the end of the third quarter and $4 two tie our four four times at the end of 2020.
As of today, our total debt to adjusted consolidate EBITDA ratio leverage is 438 times.
The increase in our leverage ratio compared to the third quarter is due to the execution of our share repurchase program in the fourth quarter. During the fourth quarter, we opportunistically repurchased 1.46 million shares for $87 million, which brought the total shares repurchased in 2021 to approximately $2 9 million shares for.
Total cost of $142 3 million at an average purchase price of $49.01.
This $49 <unk> average purchase price is 34, 7% below the $75 per share midpoint of our newly increased opinion of the roughly right range of intrinsic value per carat share.
Two 9 million shares represents a 16% decrease in our shares outstanding compared to the prior compared to prior to the execution of our share repurchase program, mainly during the second half of the year.
Recent shares outstanding will be fully reflected when we report our first quarter results with basic shares outstanding of approximately $15 3 million and diluted shares outstanding of approximately $16 5 million on a pro forma basis, taking into account the full year impacts from lower interest expense of $4 million and the estimated diluted shares outstanding of $16 five.
5 million, our pro forma diluted earnings per share for 2021 is $3 53.
17% higher than our reported diluted EPS of $3 <unk> and represented 89% increase compared to 2020.
Yesterday, our board of directors authorized an additional $75 million to our share repurchase program, which brings our total availability to approximately $83 million or 10% of our current equity market capitalization, we will continue to repurchase shares when they trade at a discount of 10% or more compared to the low end of a roughly right range of them.
Intrinsic value, while balancing the execution of the share repurchase program with our other capital allocation priorities of high quality strategic acquisitions and high return on invested capital internal growth projects.
We also intend to maintain a total debt to adjusted consolidated EBITDA leverage ratio range of three six to four four times over the long term.
Our reoccurring and growing free cash flow combined with our low cost capital structure provides us the necessary financial flexibility to allocate capital Opportunistically to continue to grow the intrinsic value of carriage.
The total return for our discretionary Trust fund portfolio in 2021 was 19, 3% compared to 28, 7% for the S&P 512, 3% for our 70 30 high yield bond S&P 500 benchmark.
The performance of our discretionary Trust fund portfolio was a continuation of our long term track record of highly successful investment management. Since we took over managing our preneed Trust assets in October of 2008 over the past 13 years. The total compound annual return of our discretionary pre need trust portfolio has been 14, 3% compared to 16.
<unk> percent for the S&P 500, which is remarkable considering on average 60% to 70% of our assets have been invested in fixed income, particularly high yield bonds.
Most importantly, given the events that are currently happening and impacting the market. We believe that since the execution of our trust fund repositioning strategy. The depths of the Corona virus market crisis have positioned that trust fund portfolio for higher interest rates and inflation environment that can remain resilient and bouts of market volatility such as we are experiencing today.
Year to date through through yesterday, our discretionary trust loan portfolio was down approximately two 5% compared to a negative return of 11, 3% for the S&P 500, and a negative return of 16, 7% for the NASDAQ.
We do expect the current market volatility caused by geopolitical conflicts higher interest rates and inflation to persist. We currently have almost 8% of our portfolio sitting in cash and we remain patient and prudent in our deployment of that capital just as we've done over the long term management of our Preneed Trust assets.
We are excited to announce a new and updated roughly right range of the performance scenarios for years 2022 through 2024.
Roughly right ranges are not meant to be exact projections of our future performance, but rather conceptual ranges of our future performance under our base case capital allocation scenario of 100% of our annual free cash flow. We believe that trying to provide precisely right projections about future performance are sure to be precisely wrong in the future.
This base case scenario has realistic expectations of organic revenue and field EBITDA growth with incremental growth in field EBITDA margins the capital allocation scenarios for each year include internal growth projects.
With high return on invested capital potential strategic acquisitions share repurchases only in 2022 and maintaining our current dividend rate.
We have included estimations of acquisition activity based on Steve as Steve has commented our view of the current acquisition landscape that remains highly favorable to carriage and our expectation that we will have opportunities to allocate capital towards strategic acquisitions in high growth markets beginning in 2022.
We have included the new three year roughly right ranges of performance scenario on page eight of the shareholder letter we released yesterday.
Total revenue, we expect to grow from $375 9 million in 2021 to a range of $450 million to $460 million in 2024 adjusted.
Adjusted consolidate EBITDA to grow from $126 2 million to a range of $155 million to $160 million in 2024.
Adjusted consolidated EBITDA margin to expand from 33, 6% to a range of 34% to 35%.
Adjusted diluted EPS to grow from $3 <unk> in 2021 to a range of $4 40 to $4 50.
In 2024.
We expect adjusted free cash flow to grow from $75 7 million to a range of $94 million to $100 million in 2024 with adjusted free cash flow margin being in a range of 21% to 22%.
We expect our net debt our total debt to adjusted consolidate EBITDA leverage ratios remain within a range of three 6% to four four times over the period and debt to remain fairly flat.
Additionally on page nine of our shareholder letter we've included potential carriage share price ranges using three different valuation methodologies enterprise value to adjusted consolidated EBITDA multiple price to earnings per share multiple and our preferred methodology free cash flow equity yield.
These are meant to illustrate the potential share price using these realistic valuation multiples on our updated roughly right ranges of performance scenario for 2022 through 2024.
The midpoint of our 2022, roughly right range of adjusted free cash flow was $84 million, which equals approximately $5 nine of adjusted free cash flow per share and a current free cash flow equity yield of 10, 3%.
The accelerating high performance transformation that you've witnessed over the past two years have turned carriage into a high and sustainable free cash flow machine.
Necessary financial flexibility to invest that free cash flow was stabbing this and discipline to grow our intrinsic value over the long term.
Therefore, we believe it is appropriate to calculate our updated roughly right range of intrinsic value by applying our free cash flow equity yield range of $6 four to seven 4% to the midpoint of our 2022 roughly right range of adjusted free cash flow.
This equals an equity market capitalization range of $1, one to $1 3 billion and an updated opinion for a roughly right range of intrinsic value rounded to $70 to $80 per carat sure.
And finally to close I'd like to read a little bit of my final thoughts from our shareholder letter.
What I've experienced up close and personal over the last two years and what should be taken away by a reader of the shareholder letter and to anyone listening on this call that there's been a complete high performance transformation here at carriage and is only accelerating.
This broad transformation has manifested itself in higher organic market share growth significantly improved cemetery sales operations and profitability.
Higher Preneed Trust fund income in financial revenue.
Proved operating leverage at our local funeral homes and cemeteries, leading to higher field EBITDA margins.
Improved overhead platform leverage with greater size and scale.
Greater consolidated platform leverage with more opportunities for capital allocation at higher rates of return on invested capital improved.
Improved capital structure leverage the low cost long term balance sheet that provides greater financial flexibility at a lower cost of capital and a significantly lower share count after this fourth quarter.
For any investor who takes the opportunity to study the shareholder letter and just curiosity has peaked by our unique and differentiated high performance culture that we described I would encourage you to begin your journey of getting to the other side by first studying our available materials on our Investor Relations website and come visit us here in Houston for a look underneath the carriage covers to truly understand.
Stan the long term value creation dynamics that are at work here at carriage.
You will find is a company that has undergone a radical transformation, which is producing accelerating high performance led by an amazing group of talented entrepreneurial leaders across carriage, who have formed an unbreakable union belief in our vision of being best in our good to great journey that will never end, it's because of this accelerating high performance transformation that all.
Those leaders here at carriage have the confidence to say the best is yet to come.
And with that I will turn the call over for questions.
As a reminder, if you'd like to ask a question. Please press Star then one if your question has been answered you like to remove yourself from the queue press the pound key.
First question comes from Alex Paris, with Barrington Research Your line is open.
Good morning, everybody. Thanks for taking my questions I wanted to offer my congratulations on the strong finish to the year and specifically I'd like to congratulate Carlos on his promotion.
Thank you very much Alex I appreciate it appreciate it thank you.
Got it.
So I also thought it was encouraging that you noted that you.
<unk> had an acceleration in December and January versus very tough comps year over year. Unlike some of the other competitors in this space to talk about that pull forward of Def in the end they are tough COVID-19 comps in 2022.
<unk>.
In that.
Uh huh.
In the annual letter that you published last night, you know many of my questions have been answered, but I have a few follow ups for you.
Specifically in the press release, you talked about headwinds becoming tailwind.
I was wondering if you could offer us a little bit more color. There you know I think you were talking about things like death rates about the appreciation of celebrating life.
Whether through traditional funeral services or through Cremations, so a little bit more color there would be helpful.
Yeah, Alex smell.
You know.
30, plus years after co founding this company.
At 48 years old.
You heard from my three.
Fellow members of our strategic vision and principles, where we've grown up.
And.
When I started this company.
I had a very sophisticated background.
And private placements with approved they were the best in the World.
One of the only companies doing what they were doing and the methodology was incredible.
And I became fascinated with why some companies in the same sector.
Become great very few rare.
And we were making private placements too you know all kinds of companies at that time.
The population was moving to the suburbs. So they're all kind of multi store operations like drug stores Department stores convenience stores Blah Blah blah, and we were the biggest private placement lender to all those companies across America.
In the seventies.
Including that that time, Walmart, which was still a private company and had 55 stores.
I got two two to be one or two analysts that got called Newark to review all the loan submissions from all the private all these loan production offices across the country.
So I learned I learned a tremendous amount about how to break down the data long term data by profit.
Division.
Product line gross margins by store and Anna and that that that that history.
What's taken them to Texas Commerzbank.
When I moved to Houston, because I didnt want a career in Newark.
And that's where I knew I would always be.
So that's a bank that became one or two AAA banks in five years' time, the other being J P. Morgan.
It's part of JP Morgan Chase, So I mean, I got to see up close and personal as Ben said.
How to how to be curious number one of how to build a great company.
Through data and high performance metrics, and then I got to be part of doing it.
Texas Commerzbank.
But as a bit Nam war veteran I always was going toward more risk.
And entrepreneurship.
Even though I was certain and I was told that I.
It could be running the bank.
In five years, it's the last thing I wonder if they wanted to do.
So I kept going and I turned around companies for 10 years I got good at that but I wasn't satisfied it wasn't meaningful until somebody said will allow new the money. We know you want your own company will allow near the money I see I have a finance company, but you got to buy a funeral homes.
That was in March of 88, I didn't start the company until.
June of 91.
It took me three years to get used to the idea that death was a noble business and I was willing to spend the rest of my career now it's been over 30 years.
And so I will tell you.
This industry has been difficult.
The master.
It's been challenging.
It's been resistant to all the high performance ideas and Databased incentive programs and talent upgrading.
Because it's so strong financially it enables mediocrity to exist.
And that is a huge competitive advantage for carriage.
And the company you see today.
Described it in the shareholder letter.
As a high performance culture company that just happens to be in the funeral and cemetery industry.
That was always my vision.
Being the best.
And when you say being the best.
And you want to show it no company will put out the kind of transparent detail, we do about our operations nobody.
If they do let me know about it and we want to buy that company in our trust funds.
Because once you put it out there you cannot take it back you got to keep getting better.
And so this is the whole notion of carriage and what Youre hearing from Carlos we're not done.
What are you hearing from Steve.
My God he is an attorney.
Talking about high performance people and talent in percentage I mean, it just makes it in my day, it's guys learned so much riding in the shareholder letter then.
Everything we do even though we're not a huge company is related to being the best at what we do whether it's investing our money acquisitions are operating.
And right now we've been we've been facing.
<unk> wins revenue trends for 30 years.
And all I heard was skepticism.
Investor Oh, cremation and blah Blah Blah Blah you what it was in the teens when I started the company.
And the baby Boomers are gonna start dying tomorrow, you'll get rich.
Well.
Here, we are 30, plus years later, and I decided somewhere along the way I wasn't gonna wait for something I could not control that gave me the high performance that I knew we could get if we just got better and better and better and better every day as Carlo said and finally, we would become the best in every market.
And we wouldn't rely on death rates going up by baby Boomers dying and when they did it would be gravy.
Who would have known that the Corona virus seems to have been a catalyst.
For a higher death rate.
And an endemic disease that will probably make along with just aging and the demographics are higher death rate for years and years to come that'd be 20 or 30, just like it's been in the last 30. It hasn't happened now what is happening.
It's hard for people to believe that that pull forward and all that crap.
Leaving that anybody who tries to predict precisely what the future will be precisely wrong, a 100% of the time you just got to get better at what you do in trust and your people put them on the play and fill and let them compete that's what's going on at carriage.
Organic revenue.
We're saying on the funeral side, Steve covered it has continued into 'twenty two all I read in the papers cases of plummeting blah Blah Blah blah blah, we don't see or we see our cases or deaths are high.
We had a positive variance in January .
Beat the Hell out of it in February .
So what's the problem there is no problem and and and I.
I don't know what the future will will bring in terms of death rates.
No as I Trust, what Carlos is doing with operations both in funeral home, how we get better servicing gas sales.
And now we got the balance sheet and the free cash flow machine to allocate we're in the best of times and I just don't know why.
Anything, including geopolitical problems will change it it's a good place to be Alex.
Well. Thank you for that additional color Mel Oh, it's what I was thinking but you said much better coming from you you did well in the face of headwinds.
And it appears that those headwinds are abating and may become a tailwind so it'll help.
Those better performers do even better going forward.
So going back to the letter from last night.
You've signaled a resumption of acquisition activity are you did four big ones in late 2019 early 2020.
<unk> been integrating those acquisitions, you've been restructuring the balance sheet, you've been reducing debt.
You're signaling a return to a growth through acquisition and you are encouraged by the number of acquisition opportunities in Europe in advanced discussions with some.
If you look at the allocation.
Allocation of free cash flow.
Using the base case.
It looks like the plan for 2022.
Is split pretty evenly between share repurchases and selected acquisition activity.
Am I right in assuming that share repurchases would be more front end loaded well our acquisition activity will be more backend loaded in 2022.
First off.
Yeah, you know under again under that base case rate just conceptually what do we think it will look like 2022 would be share repurchases more in the front end versus acquisition activity in the latter half of the year you are right.
Got you.
And then based on that forecast, 38% of adjusted free cash flow dedicated to acquisitions and 34 million allocated to share repurchases, but with regard to the allocation what is $32 million by you you know in terms of the best remaining independent operators out there I guess, what I'm trying.
To drive that is.
You're going to spend 32 million this year based on that base case more next year over $50 million.
And closer to $75 million in 2024.
I'm just wondering what multiples look like in the group.
No.
Revenue multiples or EBITDA multiples.
What can we hope for in terms of incremental revenue and EBITDA from this acquisition plan.
Yeah, Alex This is Steve and I think you know the way that we view the acquisition strategy is every business stands on its own in terms of what multiple was applied to it we have an internal.
Multiple range that we focus on but we also really get to know the owners in the business the market and the potential for growth moving forward. So.
We often talk about we're looking for businesses, where the best years are in front of them not behind them and when we find those businesses. We're focused on putting together a customized solution for them in terms of $32 million number it's a placeholder for us and in terms of what it can buy obviously depends on the size of the business and so that.
Really as a placeholder depending on what Pops up.
We'll be ready, rather that's a little bit less than 32 or more than 32 to act on the right businesses.
Got you very helpful. Thank you I'll get back in the queue again, congrats on the strong finish to the year. So Alex So I just wanted to to cover your multiple question.
No it is.
A lot of a lot of owners.
I've been challenged over the last two or three years with with Covid.
Of course, and I think.
The the idea of succession planning just like the notion of death itself.
It is inevitable as upper most of them are more people's mind today.
Both in planning for it.
And and dealing with the value of ritual to celebrate agree rely much much more and you say our average is going up our people are doing a great job because people that's what they want.
And they'll pay for it if you deliver the value.
No.
I think.
The activity should be higher.
Over the next five years.
Because of this awareness on succession planning.
Becoming part of a group.
That makes our company better versus trying to milk it for a maximum cash.
Uh huh.
That's what I think will happen and it's hard to predict quarterly or even semi annually.
How that activity will ebb and flow.
But we do have we do have a strategy, we do have existing relationships and candidates.
But I have to be ready.
And the kinds of businesses that that.
That join US now as opposed to the nineties and even some of the periods after that it got to be really good franchises.
Yeah.
Everybody knows they're good franchises and the owners know theyre good franchises and so you don't you don't get the steel any any great franchise from a owner or that business is larger and then a great market.
Positioned for better future than it was over the last 20 years, So we'll pay.
We'll pay a nice multiple.
But over the five or 10 years.
The way it worked is.
That multiple will go down because of our ability to grow and integrate it into this model.
And the returns to our shareholders and and and on the cash we invest will be.
15% and growing after that.
Got you. Thanks, again I really appreciate the additional color.
Our next question comes from Liam Burke with B Riley. Your line is open yes. Thank you and good morning Mall San Carlos.
Good morning.
Yeah.
In terms of some growth opportunities.
On a trend basis, how is cremation in terms of contract growth with market penetration and then revenue per contract because that's still another source of growth for you.
Hey, Liam this is Steven.
It's a great question and something we addressed yesterday, so just at a high level to give you. An example, we talk about changing our standards operating model to really focus on that cremation contract. So as the cremation trend increases we want to get out in front of it and look at it as an opportunity. So from year end 2020 until year end 2021.
The cremation rate increase right. So from 56, 3% to 57, 1%, but even though we saw more cremations during that past year. Our average revenue per contract broadly actually went up as well. So what that tells US is our folks in the field are doing a great job at explaining to families educating families on memorial day.
Options with cremation and taking advantage of that as an opportunity.
Great. Thanks, Steve.
In terms of underperforming assets that looks like Ben you've sort of running them down.
In a macro sense are you satisfied with your portfolio of assets now or are there other candidates that may not meet your return standards.
And we set out kind of mid 2022, we identified 18 to 20, either businesses or pieces of property that we were looking to divest and to your point. We've we've done the majority of that I think we have you know two to three more that are still on the list. We expect to get done here this year, but outside of that I feel really good about where we are with the portfolio.
How everybody is performing I would not look to do any significant divestitures anytime soon so it is it's a really good like Mel said really good spot to be totally I'll Miss Mel look.
This framework our standards are high performance standards for the funeral home and cemetery is.
It's not like we have to guess.
Who becomes a candidate.
They become a candidate because they can't achieve 50% and then grow it from there to a higher level.
Standards achievement, and that's not purely a financial.
Thing.
And for example, Steve covered it very well just the amazing history of standards achievement. After we updated the model in 18, and the incentives and the 19 and now we have very few businesses below 50% and many many businesses well above.
50% in line with average doesn't company close to 80% or something like that.
If you would've told me that five years ago, I would've said that's impossible.
But it is possible and it is being done and so you get we get our standards achievement report every month.
For every business in every region and that is that goes on a league table.
Companywide every every managing partner sees where they stand monthly on the league tables everybody knows.
That carriage is a self cleaning oven.
And if you fall down below 50%.
You know as a managing partner and you got a decent business, it's got to clean the ovens going to throw you out.
We have very little of that now and so it's it's been up.
It's been a wonderful thing to witness how this concept for all of the standards operating model has evolved and now you get the right talent, we had a board meeting yesterday and regional partners.
Shawn Phillips, Paul Elliott's carloads, they're talking about businesses, where we talk graded the managing partner it was underperforming probably under 50% now it's turned into like you. Initially thought I don't think investors really understand.
And this framework and model you get an a player.
And replace replace those.
C plus or a D plus.
That'd be plus modern look pretty good back when we had budgets.
Get a night player grower and literally it's like you've made a new acquisition.
I mean, not a small one.
One it really are throwing out performance.
Over time and it only takes 240000 the field EBITDA.
They all know it equal a penny a share so when we call a meter moving we're talking about E. T estimate are moving value creators and this is the language. This is the culture everybody understands it's not a secret accurate the Pentagon and it's it's a it's a wonderful thing to witness and that's why we invite all of you.
To come down here and get a closer look our call our standards Council members don't be shy.
I'll tell you exactly what's going on.
Great. Thank you Bill.
Our next question comes from George Kelly with Roth Capital Partners. Your line is open.
Hey, everybody. Thanks for taking my question. So I think just two for you first.
In your prepared remarks, I believe it was Carlos talking about.
The digital platform and some of the investments you plan to make over the next 10 years and it sounded like that was mostly kind of back office stuff. So curious if I heard that right and what is.
There are they're the most opportunities for efficiencies as this must be about cost savings like how how significant could could this opportunity be to put in a better tech platform.
Absolutely George Thank you for your question. So it's a it's really not about.
Processes in a cost reduction strategies for our technology transformation is really about it creating a platform that is customer centric the sign for the purpose of delivering an elevated service and guest experience, enabling those in the field. So they can focus more of their time, serving families and capturing additional gains.
Additional market share rather than you know focusing on on a manual process or some other type of things that are just in the way. It is a wait to integrate all of the French systems that we have across carriage and really maximizing that opportunity through technology.
Oh, you know death care industry as we all call it as a tremendous opportunity for disruption and we watch rather disrupt ourselves and be disrupted by others and so this transformation will be a platform for it that disruption broadly across our portfolio of businesses as well as our Houston support center and how we help dosing.
The field you know.
More time to what they do best which is several families.
Are there one or two different kind of functions are key.
Places of Investor like can you help me sort of see what it is you're speaking of what kind of.
Just if you could boil it down to like here's one place that we could really making sure different absolutely. So just to think about the way usually works right. They firmly as death are they going to are we call arrangement conference and they're going to spend you know its been a half hours three hours going through a process of selections.
Kids are services merchandise all kinds of thing serbians arrangements.
<unk> all different things that they want to do.
For the most part most of those selections are recorded manually and then go in a good recording to a computer and there's a significant amount of mental process that goes into the back end of those selections so our range.
And to get all the details coordinated throughout all did your friend.
Our team members throughout the field and so by creating a century customer journey that tackles through technology and facilitates all of that process of automating most of it and just make the selections easier going into you know and automated contract just to those elections will will dramatically change.
How we serve families helping them you know focus more on the greif rather than on the choices they need to make.
So Jordan Mel again look.
If you wanted to do one thing.
What help you understand what carriage is all about rather than.
Cost efficiencies and all that kind of thing, which is which is normal and that's intuitive.
However, what you'll find is that we're the opposite of normal and intuitive.
We're a counterintuitive and very unorthodox it's all about what goes on in the business in a very unique market like every life is unique so as every business and so you can't cookie cutter, it and you can't Mac funeral it.
And if you want to learn a lot about how this works and the technology part, there's three or four managing partners that Carlos can give you. The names up they will light up your brain and your neurons and you'll be able to get it. What this digital transformation is you're going to do for our market share our compounds.
Revenue growth and because of the inherent operating leverage at each business rather than cost efficiencies expanding field EBITDA margins, you will get it I promise you they won't bite.
I appreciate it.
Love to chat with them, so, yes, I'll follow up with you.
After after this call.
For sure one maybe two questions.
Second topic I wanted to cover is just.
The growth.
It looks like kind of a high single digit growth rate.
Baked into your <unk>.
You're roughly right outlook cures.
Curious if you could.
Help.
How much of that is organic growth.
And how much of the organic portion just for.
<unk> speaking what are your expectations for volume and pricing.
You know George again, not to get not to get Super granular in the weeds of this right that that mid to high single digit revenue growth rate is what we thought about this business long term for a long time right and we're at this point now where it's it's very real I kind of break that up into kind of half and half in terms of aqua.
Issuance and growth capital that we do versus our the organic growth of our businesses that we have here.
There are certainly that Steve talked about right, we've seen market share trends growth in that average revenue per contract that we think can continue even with there is some uncertainty about COVID-19 and the death rate in that in the very short term.
That that helps you there.
It does yes, and that's all I had thank you.
Okay.
So George.
That's just to Oh.
Elaborate a little bit on that.
The way we put this together.
It's not top down I mean, there's just not me and Ben and Carlos and stay well.
This is what we should do they really impressive out there.
No.
We have every business from the bottom up.
Looking at what they can do over the next year and maybe.
Because.
It's not like we don't know what's going on in every business here, we're very flat.
I used to say that between me and every business. There was only one layer I got Carlos.
He is the second layer.
Okay, I think that's a really good layer.
So.
We understand what's going on in the trends in each business.
So this is not.
It's a it's a bottoms up collaborative interactive with our managing partners. They know what their incentives are both one year and five year and the and the standards what they have to do to compound revenue and what that means to them and so we take every business and everyone is different.
Lay out this year and next year, and we add them all up.
And then we come up with some roughly right ranges and how they all consolidate up to us.
And we try to.
You know over promise and under lever.
And Ben Scot the DNA I mean, he got that concept don't over promise and under deliver.
What that does to the price all the Mr market and determined but that's how that that that has come about.
As a reminder to ask a question. Please press Star then one.
Our next question comes from Chris Mcginnis with Sidoti <unk> Company. Your line is open.
Hi, good morning, Thanks for taking my questions nice quarter.
And congrats on just a strong year Carlos also congrats on the promotion.
I just wanted to ask around the standards incentive.
A lot of time, a lot of time on today.
Obviously, a big change following 2018, when you changed the standards.
How do you keep that relevant going forward and do you think about any changes to that just to keep it fresh and updated.
Thank you. Thank you very much Chris so yes, so the there's always an evolution of the standards operating model. There was some changes at the end of 2018, when Mel took over as CEO of the company again and there was some small changes from 2019 and we'd go.
Had our standards Council meeting last January a few weeks back and we also made some small changes to to make those adaptations. If you will or iterations through whatever we need to tweak as time goes by as we continue through this.
Evolutionary process of organic growth and are also new growth through acquisition on both our funeral and cemetery, sometimes need that those little changes. If anything is one thing that I want to mention for example is the weight on our you know servicing guest experience, which right now it's a 10% out of 100 and as I mentioned on the earnings release.
After our care edge Forum with all of our managing partners from all businesses get together and they experience a different way to look at servicing gets experience.
And our Scottsville, we'll reconvene to evaluate whether the weighting on that sound there should or should not change. So it is a continuous process of evaluating where we are what needs to change and are based on where we're going and adapting to those those changes in that environment.
Great I appreciate it that's all I had for today, but again, congrats and good luck in Q1.
Thank you Chris.
Yeah.
Our next question comes from Richard Bush Your line is open.
Yes, Thank you I'm, a new investor in carriage I've recently taken a position I'm not part of our financial analysts.
Analyst community, but.
I took a position because not only like the numbers.
You've shown on your earnings and your revenues.
But I'm, particularly curious as to whether you have any data or findings.
On projected our business growth activity.
From a vaccine.
So there are a number of cases being reported now of heart attacks.
Cancer victims, and others that have experienced their demise due to that.
The Covid vaccine.
Senator Johnson recently expose the D. Med reports with the department of defense with startling new numbers of 300% to 1000% increases on a number.
A number of different illnesses, some of which are leading to death.
Deaths others to permanent.
But I'm just wondering.
It's impressive you've been able to grow your business activity with the decrease in Covid cases.
Now as I look ahead. The next 12 24 36 months.
What is the projection or potential.
For growths with people that have suffered from the vaccine itself.
Richard This is Steve and you know we talk a lot about we control what we can control and the trends that you just referenced are not things that we have familiarity with but.
What we can control is our family is looking for service, we want to make sure that we provide the best possible service available and compete for that call. So no insight into the trends that you referenced but we are very focused on making sure that we're equipped to serve families. When they when they need us.
Okay, well thank you.
There are no further questions I'd like to turn the call back over to Mel Payne for any closing remarks.
Thank you very much well I'd like to close.
With a profound email I got you.
Yesterday during our board meeting.
From one of our standards Council members.
My name is Christy I U S.
And she's been on a council since the end of 18, when she reached out and said how can I help.
And as she ever helped.
I won't read all of it but I will read.
A part of it because I think it sends a message.
About who our company isn't it and May clear up some of the confusion about why we are the way we are and why we're getting to high performance results that we are.
And now this is.
Her email to me.
I had heard of this quote and many times since mostly from you.
And from reading the book a few times.
Great and this is not a matter of circumstance greatness it turns out as a matter of conscious choice.
It is truly a matter of choosing to be more and then willing to go to the edge and jump off.
I made that choice when I decided to accept a position as a managing partner of a brand new acquisition with carriage services.
And in parentheses. She says that I just happened to have worked at while attending mortuary College.
You have stated in your last shareholder letter quote.
We have learned it carried that if you don't focus intensely 100% of the time.
I'm getting your people right.
With families who have just lost a loved one.
Client families will never come first.
Then this is her statement about my quote.
There is no truer statement.
That's because you won't have the right people enjoy engaging your climate families and learning about the life of their deceased loved one.
In order to recommend high value emotional ideas and options.
About how best to honor and memorialized a life of their loved one.
As you know Mel.
I had my own unique experience serving as the managing partner of my business.
And as our client families simultaneously.
My adult son passed away.
And I needed to make funeral arrangements.
That is one I knew that my focus 100% getting the right who onboard mattered.
I Trust, everyone on our team at Franklin and Downs to care for my son.
Our family and me.
They all jumped into action by putting their own lives side to ensure that my family the client family.
<unk> every detail of what I needed to pay tribute to for my combat veteran Sun.
That is because of your email you set a path for all of us to follow and let me tell you it matters and has made a difference.
I am continually amazed of the truth and all of this.
Then does she quotes are guiding principle there are five.
Honesty integrity and quality and all we do is a real thing that matters.
Hard work to ensure its success through employee ownership is actually a fact and proven through your actions.
For example compensation being recognized and treated with respect by leadership.
Outstanding service and profitability should go hand in hand proven by numbers they do not lie.
We're also the trumping companies driven by decentralization and partnership.
The realization and understanding of this concept inspires and creates a drive to succeed and it is proven at carriage.
As a good to great to recipient I must say thank you loudly.
Where is there in the funeral industry that this would even be a possibility.
Then you and your leadership team created a five year pay for sustained high performance incentive plan call good to great.
I had no idea.
When looking for a challenge.
I would find an opportunity so amazing so fulfilling and beyond any expectations.
Being part of the achievement of a company, whose mission is being the best is truly inspirational.
And a driver to actually be the best.
Christi.
And then she puts the sign off.
Energy.
And a drive to get the job done.
Energize, how a leader motivates and gets others excited.
H.
Determination to make difficult decisions and execute the.
The ability to carry out the plan and deliver results.
So and signing off.
Yeah.
And reading Christy's wonderful note during our board meeting yesterday, it might give all of you. Some idea of what you can learn about our company. If you simply went to the people who know what best.
Those are the standards Council members, we have 11.
You will not be disappointed in what you find out and then what you read in the shareholder letter all 38 pages of it will make a whole lot more sense. Thank you for calling in on such a crazy day in the world.
Okay.
This concludes the program you may now disconnect everyone have a great day.
[music].
Sure.
Okay.
[music].
Yes.
Okay.
Sure.
Hi.
[music].
All right.
[music] in Canada.
Okay.
[music].