Q1 2022 Carriage Services Inc Earnings Call

April 28, 2022

Thank you for holding your conference will begin momentarily in a few minutes. Thank you for your patience.

[music].

Good morning, and welcome to the carriage services first quarter 2022 earnings call. My name is narrow and I'll be the operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a <unk>.

Please pose zero one on your Touchtone phone I'll now turn the call over to Mr. Steve Metzger Executive Vice President Chief Administration Officer, and General Counsel, Steve You may begin.

Thank you Neera and good morning, everyone.

Today, we'll be discussing our first quarter results 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.

This audio 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 milk, Carlos Ben and myself will be followed by a question and answer period.

Before we begin I'd like to remind everyone that during this call. We'll make some forward looking statements any comments made by our management team that stayed 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 would like to turn the call over to Carlos.

Good morning, everyone. We're glad to be here. This morning, sharing our exciting first quarter performance of 2021.

Before we get into it I would like to express my gratitude to our carriage family in the field and in our Houston support center for the passion and continue to pursue for <unk> mission and vision.

Today's call I will start with a summary of our financial performance and will provide an update on operations sales marketing and it.

Following my remarks, Steve will give an update on acquisitions, then bill will follow with financial update and mail were up it up for closing remarks.

If you have not read our 2020 once your whole later in proxy statement. We have encouraged that you do it covers the entrepreneurial spirit of carriage high performance cultural framework in excellent detail.

Now the highlights for our record first quarter of 2022.

Funeral operating revenue of $72 million, an increase of $3 3 million or four 9%.

Funeral field EBITDA of $31 3 million, an increase of zero point 96 million or three 2%.

Funeral field EBITDA margin of 44, 5% a decrease of 70 basis points.

Cemetery operating revenue of $20 5 million, a decrease of $1 million or four 9%.

Cemetery field EBITDA of $8 6 million, a decrease of $1 2 million or 12, 3%.

Cemetery field EBITDA margin of 41, 8% a decrease of 360 basis points.

Our total revenue.

Ended up at $98 2 million, an increase of one 5 million or a one 6%.

Total field EBITDA of $45 5 million, a decrease of zero point $3 million or 0.07%.

And total field EBITDA margin of 46, 3% a decrease of 110 basis points.

We believe the system performance when compared to the previous records in the first quarter of 2021, which was due to the spike of the COVID-19 pandemic.

Flex the nature of entrepreneurialism periods of carriage and the commitment and passion of our managing partners and their teams to win their trust other guests families and provide a solution to all of their needs, which by product you see increases while increased volumes and market share gains.

To achieve what they have achieved with a significant decrease in COVID-19 vets in Q1 of this year is nothing short that was starting to act.

On our Preneed cemetery sales, while we have experienced a lower sales rate in the first quarter of 2022, we're confident that after my promotion to president and CEO and since the promotion of shameful into Vice President of sales and marketing on February 12 for this year.

<unk> has successfully transitioned to his new responsibilities of leading our preneed cemetery sales teams across the portfolio.

Of cemeteries.

You will continue to focus on the top four drivers of the outperformance sales flat.

Number one to grow our sales force head count at both family servicing advanced planning by selecting the right Wholesales partners that can have a seat at the carriage high performance cultural bus.

To develop the sales skills conceptually draw your knowledge Academy learning platform, and then zone to local sales leadership.

Number three to generate engagement, which means creating opportunities to have our sales partners to engage with new families and share the story of the importance and value of preplanning.

And number four to continue to grow sales through our CRM so edge platform.

<unk>, where 85% completion rate of implementation and sales said she would be coming out we lose sales moving forward, enabling us to manage track and closed new sales opportunities.

We're also very excited to welcome Elizabeth first months, who joined carriage as a director of sell support and she is now fully integrated with their portfolio of businesses.

Elizabeth comes with use of experiencing the death care industry building developing and growing sales.

Filling the position left open by <unk> promotion, we welcome Elizabeth through the carriage team and wish her incredible success.

We are very confident that Chinese female director of sell support Elizabeth Giulio and Greg will continue executing the outperformed our sales plan when instilling the cells behaviors that will lead to sustainable and consistent cemetery preneed sales overtime Mauro.

Moreover, ramping up our marketing strategy effort or generating new leads which have the lever very positive results.

Now moving on to marketing.

Offered wide joined carriage on January 2nd of this year, we named four months. He has built a complete marketing department that is now collaborating with managing partners. They work on Brad persistent positioning online presence social media content creation advertisement and much more.

Due to the centralized nature, we know that no one knows better than the local managing partner, who knows the community and the families. They serve all.

<unk> focus will be on creating the tools and making them available on our new content management system. So that managing partners can choose which tools will work best for them.

And then the organic growth of marketing with West offering has received from the field.

Is nothing above we expected.

He and his team can definitely support managing partners into an incredible.

On the <unk> marketing campaigns programs that already delivery increased volume due to customize marketing strategies.

We are very excited for office and all of his team and we know that these journey is just the beginning for these marketing high performance team.

We're also very excited to share that on April one <unk> joined <unk> as Chief Information Officer.

It's a great company, we know that technologies, an accelerator of high performance and Ravi is now leading a complete digital transformation that will indeed accelerate of high performance flywheel.

<unk>.

Floor running and he's now on our discovery and learning journey. The detail of these digital transformation plan is shown on page 22 for 2020 once your whole later.

Rob Fantastic success in his new role at carriage.

As most of you know I have a background in hospitality.

I am very passionate about service excellence and experience delivered through high quality services that leave a lasting memorable and pressure.

With this in mind, the last update that I would like to share with you. This morning is related to the enormous opportunity to capture additional market share.

The transformation of our servicing guests experienced standard.

When combined with our revenue and volume standards all related to servicing gets experience makeup for up to 60% at a 100% of our standards operating model.

With this goal in mind, we had our first ever carriage for them, while we had our over 150 of our module partners and Houston support Center, Influencers learned and experienced service excellence through their five senses.

We designed and curated and experience that will inspire in our teams the avs of excellence in service and become creative and innovative in a way that will while the guests families moving forward.

To kick off the forum, we partner with John would you fully formed new solo pilot where they are.

Blue Angels, and the upgraded keynote speaker.

<unk> message and leaving the life of gratitude is glad to be here added two presentation capture the attention of everyone and he has become how every meeting starts in many of our businesses.

Additionally, he showed the structure of high performance model used by the Blue Angels, which inspired the whole audience through greater culture of commitment dedication the pursuit of excellence and high Trust.

We also collaborated with <unk> leadership center to learn about creating a culture of excellence the art of service.

<unk>, creating service and.

Leadership now.

All of which align perfectly with carriage high performance culture, <unk> mission and vision and our unique unbreakable union or belief.

Was evident with everyone and in every moment.

Before Wes in complete alignment with our 2022 theme of high performance value creation culture and based on the number of handwritten cards E. Mails NGL comments, we received about our carriage for them. It was a tremendous success.

Our module partners went back very inspired highly motivated and thoroughly engaged in delivering a service and guest experience second to none in each of their businesses.

The current forum was not an event, but a transformational experience and a pivotal moment towards the vision of the future of funeral and cemetery services of carriage.

And stay tuned as we work with the <unk> console on are followed through program on service and guest experience that will create memorable moments with all of our guests.

These are some of the reasons why we're so excited about the future of carriage and there is much more to come for both Preneed cemetery and funeral homes.

But when you combine carriage solid financial profile and our acquisition prospects EDC for us to say it is a great time to be at carriage and the message is to come.

You and I will now pass it onto Steve Thank.

Thank you Carlos So there's certainly a lot to be excited about as we look at the consistently strong performance. We are now seeing broadly throughout our portfolio, how we're positioned with our capital structure and the numerous opportunities for us to continue to get better in a number of areas.

Among the opportunities that we're most excited about is growth through acquisition.

Delighted to quote in our earnings release from Warren Buffett's longtime partner Charlie Munger, He was describing Berkshire hathaway's approach to acquisitions Charlie pointed out.

Two thirds of acquisitions don't work.

<unk> work, because we don't try to do acquisitions, we wait for no brainers.

Well, we can do a better job of describing carriages approach to acquiring businesses than simply point to Charlie's and Berkshire philosophy.

While there will always be a number of businesses available to be acquired in our industry. We're focused on identifying those no brainers that represent the best remaining independent funeral homes and cemeteries in the best markets.

And what has US, particularly excited right now is the number of those no brainers that appear to be ready for a succession plan.

The current acquisition pipeline is as active as we've seen in the past couple of years, and we expect that trend to activity to continue.

We've never been better positioned to grow and the team here at carriage is focused and excited about that future growth, particularly as we think about pairing that with the ongoing strong performance already taking place throughout the company.

We're spending a lot of time on the road sitting down with owners and learning more about their history their teams and what's important to them as they look at the next chapter for their business. We then have the opportunity to share with these owners what makes carriage such a unique succession planning option.

We talked about our people our culture, our 30 year history, and our owner operator model, where the teams running the business locally truly get to run the business and our support center is just that a team of talented professionals available to support them and make their lives easier by taking more of their place. So they can focus on the families. They serve.

Whether we're announcing new acquisitions or silent for a period of time you can rest assured that we're continuously doing work meeting with candidates building relationships and looking for those no brainers before crafting a customized offer and post acquisition plan based on what's important to that particular owner it's.

It's an approach and a process that requires patience and discipline.

And one which we know pays off resulting in a selected portfolio of high performing businesses and growing markets as opposed to one made up of strong businesses subsidizing weaker ones.

We previously indicated we would be able to share details during the second half of the year surrounding the deals. We're currently working on we continue to feel good about that timing given ongoing conversations and activity.

With that said, we were pleased to announced in our earnings release yesterday that we recently signed a letter of intent with a great business and a high growth area of Florida, and we are working on several other deals and new strategic markets across the country with businesses that possess great history unique owner vision and exciting upside in the years to come.

We couldnt be more excited about our future growth prospects and we look forward to sharing more details regarding additions to the carriage family in the upcoming months with that I'll turn it over to Ben to provide some more color on our first quarter performance.

Thank you Steve and thank you all for joining us on the call. This morning, as we review our first quarter results and a great start to our year I would encourage all current and prospective shareholders to review both the earnings release from yesterday and our recently released 2021 shareholder letter for a much more comprehensive and in depth look at the.

And that has occurred over the past two years and our vision for the exciting future that we have here at carriage now onto the results for the first quarter total revenue increased one 6% to $98 2 million adjusted consolidated EBITDA decreased $2 2 million or six 3% to $32 five.

$5 million adjusted consolidated EBITDA margin declined 280 basis points to 33, 1% and adjusted diluted earnings per share increased 13, 6% to 92.

Our reported adjusted diluted earnings per share benefited from a year over year reduction in our diluted shares outstanding to approximately $16 4 million and the continued decline of our effective GAAP tax rate to 26, 5%.

Our adjusted free cash flow declined $14 7 million in the first quarter compared to last year, primarily due to a $9 million increase in cash short term and long term incentive payments, a $1 $5 million increase in maintenance capital expenditures and a $1 million increase in additional cash taxes paid during the quarter.

Third quarter earnings release, and our 2021 shareholder letter Steve provided comprehensive insight into the increase in the pay for high performance incentives that were accrued for in 2021 and paid out in the first quarter of this year $3 million of this increase was related to our five year. Good to great incentive award that had been accrued for.

Certainly the type of high performance that we are happy to continue to pay for our total debt to adjusted consolidated EBITDA leverage ratio increased to four seven times compared to four five times at year end due to lower adjusted consolidated EBITDA in the quarter and higher debt balances as a result of the execution of our share repurchase program.

We intend to fund the remaining capital allocation for 2022, primarily strategic acquisitions with internally generated free cash flow, which will allow us to reduce our leverage ratio to approximately four five times by year end.

Additionally, we are working with our banking partners on an amendment to increase the size of our credit facility by $50 million to a total of $250 million, which we will complete within the next two weeks.

Our discretionary Preneed Trust funds had a total positive return of four 3% in the first quarter compared to a total negative return of four 6% with the S&P 500, and a negative return of eight 9% of the NASDAQ composite index, our outperformance in the quarter was driven by the.

By the performance of our equity portfolio that had a total return of 11, 2% in the quarter, which is a 15 180 basis point outperformance compared to the S&P 500.

For any of those curious about the current performance of our discretionary Trust fund portfolio I would highly encourage you to read our recently released 2021 shareholder letter provides a tremendous amount of detail about our investing philosophy, our long term stewardship of these assets and how we have built a portfolio during and since the depths of the Kronos Corona virus market crisis.

I would also encourage you to read our earnings press release from yesterday, where we do go in provide more granularity and detail than normal about our current positioning in individual securities that have performed well in what has become a very challenging market environment.

<unk> almost $34 million in long term capital gains over the course of the year, we expect to increase the annual income in the portfolio to over $18 million and realize additional long term capital gains that will increase the overall total to $40 million. This performance in our trust funds will be incrementally accretive to our reported financial revenue.

EBITDA through higher reoccurring income earned through our cemetery perpetual care trusts and higher earnings on our matured preneed funeral and cemetery contracts.

During the quarter, we repurchased 490000 of carriage shares at an average purchase price of $53 eight.

For a total spend of approximately $26 million.

Since we restarted our share repurchase program in the second quarter of last year. We were we repurchased approximately three 4 million shares for an aggregate investment amount of $162 5 million at an average purchase price of $49 60.

$34 three.

<unk> three 4 million shares we repurchased represent approximately 19% reduction in the shares outstanding since may of last year, and the 49 6 billion purchase price represents a nearly 30% discount to the low end of our current roughly right range of intrinsic value of carriage shares of $70.

When we take into account the full impact of the $3 4 million shares we repurchased in less than 12 months, our projected year end GAAP shares outstanding basic is $14 9 million and our estimated year end diluted shares outstanding at $16 million.

As we outlined in the updated three year roughly right scenarios in our 2021 shareholder letter, we intend to focus the majority of our capital allocation towards selective acquisitions and strategic growth markets.

We've outlined in his comments, we believe we are only just getting started on high performance execution on our strategic acquisition model.

We also intend to allocate capital towards internal growth capital projects as we continue to find great opportunities to reinvest in our businesses at high returns on invested capital. The majority of our growth capital allocation will focus on building quality and differentiated cemetery inventory Remodels and refreshes of our funeral home and cemetery.

Facilities and investment in our <unk>.

Information technology platform for the full year, we expect capital expenditures to be between 20 and $24 million split evenly between maintenance and growth Capex.

In our earnings press release from yesterday, we included a three year roughly right range for operating and financial performance for this year 2023, and 2024 as a reminder, this is not intended to be a precise forecast of future performance, but rather how we view our performance based on.

100% allocation of our projected adjusted free cash flow to grow the intrinsic value of carriage plus reasonable expectations of continued growth of our current portfolio.

The only changes we made to these ranges are a decrease in our expected adjusted free cash flow for this year and a decrease in our projected year end GAAP diluted shares outstanding to $16 million.

Additionally, we are providing an updated rolling four quarter outlook.

The intention of this is to provide the current current and prospective investors with our best view of our performance over the next 12 months based on our portfolio as it currently stands today plus any potential acquisitions that we have under letter of intent and we expect to close within the next 90 days.

We have therefore included projected conservative operating and financial performance of one pending acquisition and then with following ranges of our rolling four quarter outlook.

Revenue of $380 to $390 million, adjusted consolidated EBITDA of $128 million to $134 million.

Adjusted consolidated EBITDA margin 33, 5% to 34, 5% adjusted diluted earnings per share of $3 57.

The $3 67.

Adjusted free cash flow of $82 million to $86 million and adjusted free cash flow margin of 21, 5% to 22, 5%.

Additionally, we are reaffirming our roughly right range of intrinsic value for carriage shares of 70 to $80 using the following methodology.

The midpoint of our rolling four quarter outlook of adjusted free cash flow is $84 million is approximately $5 25.

Per share of free cash flow.

If we use the free cash flow equity yield range, a seven 4% to six 4% we've used historically.

This would equal a per share range of 71 to $82 and conservatively rounded down we believe the intrinsic value of carriage per share is between 70 to $80.

With that I will turn the call over to Mel.

Thank you Ben.

Thank you, Steve and thank you Carlos.

When I got home last night.

My son was there.

He works in Brooklyn, So does our daughter.

There's 35 and <unk> 28.

So I'm an older debt.

And.

In the early years.

Karen I started carriage at.

<unk> 48, our son was five years old.

Just moved into a new house.

Turning around companies and stuff like that.

I will tell them all I don't get too comfortable in the house.

Guarantees that will have to learn the business.

And Ive written about all of this but also look.

Good luck raising pressed them.

I'll see you in about five years.

<unk> got to go out there and learn the business.

She would tell you today that that is the biggest lie over time.

I was gone 15 or 20 years.

And I loved it and then once you've started meeting our people so to cheat.

Our sard has grown up in this.

Building process of carriage has been the many meetings meetings <unk> met all of our people all along the way even in turned here two different summers many years ago, and then so as our daughter.

So.

They know carriage.

And early on.

After the crash of <unk> 99, and then rebuilding yet.

Using a different.

Our model in.

And framework I would get them shares.

And they were single digit shares well, we started below 5%.

Still in high School and college and I kept.

And I'm sure my wife and I.

And so.

Last night.

I asked my son.

Did you read the shareholder letter.

No I didn't that it's probably in my mailbox I got locked out of my mailbox in my apartment building in Brooklyn.

One you got locked out of your mailbox.

You know.

Okay.

How are you going to vote. Your proxy shares is that I'll do that online.

What would you like to read the shareholder letter because I have a copy of it here.

And.

If you want just read the first two pages.

And then read the last five.

And even a better idea would be to started to back.

Start at the back end.

Those five first start with Christy.

And he knows Christie.

He knows to them.

Page 41, and 42% and 43, so red Christie's emailed to me first Tim.

Tim.

Any read the first two pages.

And I've set price and what do you think.

So that.

This should be taught it some advanced school of business and finance.

I said Preston that already is happening every day.

And our home office.

And I said, what would you think if I told you.

But that company you just read about you.

You own 1%.

And so there is your system.

And your mom and I on nine 9%.

He said yes.

Yes.

That's crazy.

Incredible.

To which I've said.

That's not the best part the best is yet to come.

With that I'd like to open it up for questions.

Absolutely. Thank you we will now begin the question answer session. If you have a question. Please press <unk> one on your Touchtone phone.

If you wish to be removed from the queue. Please press zero to Anika.

And if youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press <unk> one on your Touchtone phone.

Leading on standby for any questions.

And our first question comes from Alex Paris. Please go ahead.

Hi, Thanks for taking my questions and congratulations on a record first quarter, particularly against a really tough.

Tom.

Versus peak Covid last year.

Okay.

I have a few questions I would like to start with funeral services revenues were up four.

Four 9% year over year.

Margins were lower they were down a bit.

Wondering if you can give us a little bit more color why.

Assuming perhaps increased marketing expenses some of these digital things that you're doing.

I'll, let you answer the question.

Oh.

Thank you very much Alex Thank you for your question so.

It's really.

An amazing thing that they were able to increase all of our managing partners.

The market gains and the market share now we are investing as you know, we're investing significantly on the talent and marketing and <unk> platforms.

Those investments, we believe we're going to not lower margins will be just temporary investment as we continue to.

Even grow more than we ever have before especially after the carriage for almost emission on my remarks, and then what about on the release yesterday. So we're not concerned at all we believe this is part of what it takes to build a great company that through time sustainably will continue to grow market share gains in volume and average.

Over time as we transform funeral services into the funeral services over the next century.

And Alex to smell.

No.

When you look at a quarter versus quarter.

Can you can head fake yourself.

You have to look at the margins as they have trended over the last 10 years.

I wrote about that in the 2016 shareholder letter Whereabout.

We're about 200 basis points higher.

And our funeral portfolio today than we were when this model was invented and rolled out at the beginning of <unk>.

And so it's very easy for someone to say Oh, you were down.

But without understanding the business and the different margins and different size businesses in different markets historically.

Do you reach some kind of judgment about a decline that is actually.

Not spot on.

And you have to.

What's remarkable is.

The total field EBITDA margins are remaining high above 45%.

Okay.

And I wrote about this in the shareholder letter compared to the nineties.

The fact that our margins are just so much incredibly higher.

Then anything anybody was doing in the nineties are set for that matter. The issue is nobody will show you the transparency.

Yes.

And thats, good and bad because we can have people reach the wrong kinds of conclusions. The key is to have compounded revenue growth and have the operating leverage over time.

For you rather than against in each business.

That's the key.

Yes.

Totally agree.

And.

The market share gains the growth year over year in funeral services revenue, particularly given the tough comp maintaining expanding market share and I understand investment in talent marketing and ERP platform to take margins to the next level. So that's a healthy reason for a decline in the interim margin year over year.

Yes, I mean, there is a reason why.

At the beginning of this earnings release towards the end of my comments I've said look.

I don't remember anything about the first quarter 10 years ago.

And I don't remember much of anything about any quarter since that they were just a quarter.

Our company has got incredibly better in the last 10 years, just like we will get incredibly better over the next five and 10.

We're going to have some noise quarter, there were quarters in the last 10 years or terrible.

November one of 18.

No.

<unk>.

Once a quarter, it's what is going on in the company overall and we've written about this transformation.

And if somebody wants to really understand the company.

They need to get out of the covers.

And read about this in ECM curiosity about how it all works for all of the standards Council call anybody we're an open book.

<unk>.

The industry knows the industry knows what's going on there was a buzz.

And if an investor wants to know they can find out.

This is not complex to find out about carriage.

Yes.

I agree.

We have a lot of transparency and I appreciate that.

But we also have a lot of reputation and a lot of buzz in the industry about who we are and what's going on here versus anytime in the past this is not a mystery.

And if I were an investor, which I am.

I'd go kick the tires that visit businesses I would call our people standards come to the home office.

We invite everybody to come here.

We'll pull out the red carpet.

We might even take you to dinner.

I appreciate that having having been the beneficiary of that invitation in the past I can attest to that thank you.

Moving on cemetery Carlos maybe this is a question for you.

The margins were lower year over year on lower revenues and you noted in the press release I just wanted to dig into it a little bit more atypical group and larger sales.

<unk>.

As potentially an explanation for that lower revenue.

<unk> is where those particularly large or a year ago.

And then you talked about.

As you develop cemetery inventory you should be better positioned to capture these group and larger sales going forward.

Absolutely. So these gateways, particularly related to a perfect Memorial Park, we had tremendous sales large sales is our big numbers.

Although the 500000 and things like that and.

Sometimes it takes a little longer to develop cemetery inventory just because of permits and we have all the permits in place to continue to develop perfect. So we have no concern. It's probably you would note through the integration of Fairfax.

He came into carriage almost as at the <unk>.

Virgin Cemetery with no product no differentiation.

<unk> of inventory or.

Different options for families, which we have developed over the last year.

Now, what we are putting more capital locations or cemeteries alone and to continue to grow that I have no doubt that over time, we will be able to continue these.

Single or larger sales sustainably over time.

Got you. Thank you and then my final question.

Leno involves Ben and Steve as well.

Just to get a little bit more information on capital allocation.

Share repurchases in the first quarter were 25% or $26 million.

And.

Obviously huge share repurchases over the last year or so.

You said in the press release that the capital allocation is going to now.

Shift focus more towards M&A now first of all it's a little sooner than I expected I thought you expected those in the second half so congrats on the LOI.

<unk> already announced here and the other color comments you made on acquisitions.

But.

If you are going to produce $80 million and adjusted free cash flow this year and youre going to put it entirely to share repurchases.

How should we expect.

Share repurchases and M&A to play out over the course of the year in terms of mix or split.

Alex I mean, I think pretty pretty clearly right. Now acquisitions is is the highest priority. There is there's a lot of opportunity what Steve talked about.

And to deploy capital in that manner.

Put a pause on share repurchases for now.

Have that leverage come down a little bit acquire some really great businesses and some growing strategic markets really exciting time here at carriage from that perspective, I don't see it as anything more on acquisitions, but I think having been covered it well we're really excited about what we're seeing and so thats our focus this year.

Yes. This is Mel Alex.

I'm living the good life now having promoted.

Ben Steve and Carlos and their teams are just doing an awesome job. So I don't have to worry about day to day operations I can allocate my time to its highest and best use and right now number one is mentoring them all.

Love the way they've begun to use quotes.

I'm, Charlie Munger Warren Buffett.

Ben and his investment sections.

Steve.

Two in there I was just blown away by them I love them.

Carlos I mean, they're all studying mental models and all kinds of ways thinking.

Is there.

Development program, they're doing a lot of homework, they meet together and I get to allocate different things to them that will help them grow and the other way I allocate my time of course with the trust funds and Ben.

<unk> take a lot.

And acquisitions.

It almost 80.

On my left knee product needs to be replaced at some point, but I'm in great shape. So to get me out looking at an acquisition is not that easy anymore.

But I was very excited about one of these and still am.

And I'm really excited about what what I see and what Steve and Ben and Carlos are doing related to that as well as the.

The kind of activity and buzz going on in the industry.

Look at.

If Mr market.

As Rodney Dangerfield is related to carry chairs.

We still have capacity to buy in shares.

And if it gets cheap I think it's deep deep well.

Do it.

But we don't want to pass up what we're seeing right now because we will be able to grow. These these are all in new strategic markets with good growth potential upside over five or 10 years and when you can put your capital to work and grow it over a smaller share count base I mean.

It compounds really well.

So we're going to be flexible not stupid.

Great I hear you and I agree with this is a natural time to transition to M&A, particularly given that you've already bought and 19% of the shares but I do appreciate that extra comment that.

You will remain opportunistic so thank you and I'll get back in the queue.

Thank you. Our next question comes from Gary Mandel. Please go ahead.

Yes, hi.

Question on this.

Marketing performance team that you're creating.

What what is the goal of that group what is your focus going to be.

Absolutely.

<unk>.

We never really had a full formal marketing department at carriage decentralized spirit of.

<unk> spreads of carriage would allow the many partners to do that on their own. However, we decided to put together a team that will not only accelerate the learning journey of marketing, but also put out <unk>.

Best practices tools, avs thoughts and content, so that they would be able to.

Really large.

There are opportunities to aggressively pursue.

Market gains and.

Build that brand positioning if you will route them broadly across our all of our businesses both cemetery and funeral homes and so the idea with this is <unk>.

Put together our support group that can help those managing partners rebuild website.

Significant work on search engine optimization develop.

He is about content management. So they can just grab it and put it on social media and things of that nature. So.

It will definitely enabled and accelerated that learning curve or that type of profile.

Efforts on marketing, but more specifically the design and.

<unk> really really created marketing advertising and plans to grow organically and through.

<unk> all of our web page.

Okay.

And it seems that in the quarter.

Preneed contracts I know they were down versus a year ago on the walk from the previous quarter.

What was what was the reason why preneed contracts were down year to year.

In terms of revenue.

So sometimes when we have.

Those large sales that I mentioned, sometimes maybe come up in the <unk>.

Form and in this case, specifically, we have two of those.

We have multiple instruments in one contract. So these are we call group sales. So you may have.

Sure.

Religious organization or something of that nature to go and buy.

Package.

The C 100 <unk>.

<unk> or things like that and so that will dramatically.

Decrease our interim end count.

And of course also decrease our revenue we believe that with the.

The transition of input and so those personnel social marketing and all of the efforts that have been pleased right now on the what we call the bread and butter right. One sale one at a time family by family protecting for preneed.

Not only would reduce that risk, but over time, those sales will become nothing but the chevron thoughts for preneed sales.

So group sales caused pre need sales to be a little lumpy.

What was that people would be that I'm sorry.

Group sales caused pre need sales on a quarterly basis to be a little lumpy.

Well that was related just to answer the some of the terminal count the number of impairments.

Okay. Okay.

Okay Alright.

Alright. Thanks.

Thank you once again, if you have a question. Please press star one on your Touchtone phone waiting on standby for any additional questions.

And our next question comes from J P. Morgan. Please go ahead.

Hi, guys. Thank you for taking the question and congrats on the record revenue this quarter.

First question I had for you guys was just whether coming out with the carriage for.

<unk> been managing partners kind of club any resounding concerns INR days.

Perhaps some tightness around the labor markets.

Inflation concerns were there any kind of agreed upon concerns that you guys versus your own.

So we have received that.

Maybe this is Carlos we have received that question through our investors conference a lot regarding the.

Big resignation, if you will but.

At carriage, we really choose and select carefully.

<unk> individuals that are the best talent in the industry are sometimes outside of it.

That will be a right fit for the culture at carriage.

So we have even though there may be a perception out there that that's becoming more difficult we have not really experienced that ourselves mainly because we become very <unk> as to how and who we were.

Could be part of our team.

So this is mel.

That's a great question.

What we find.

At carriages.

And again, if you want to find out what it's like a read those E mails on page 41 to 43.

And you'll get a sense of what a managing partner who is really a high performer.

What they get what they get and carriage I get to own their own business and so one of the things we did.

Have to be hungry for ease of leadership get up every day.

And grow their business, regardless of the death rate, regardless of Covid, regardless of inflation, regardless of this or that.

And they've got to be very hungry and entrepreneurial to do it and what are the things that COVID-19 did.

Other than give us.

Temporary lift.

Was it did.

Cause some of our older managing partners to call it a day.

And say look you can't take anything for granted and life I've worked hard in my career that's been difficult.

Think I'll retire.

There's been quite a few of those.

And I don't want to sound cynical, but that allows us to top grade and get a younger hungrier grower entrepreneurial talent that is.

Excited and this is what we saw at the MP meeting much.

Much younger group of managing partners much more female.

Than ever in the history of the company.

And I'm talking about on fire.

We got no concerns.

But most of them are still talking about it.

We went on a good to great trip, where.

That had to win that for five five years to America, <unk> I mentioned that.

And the people there.

It was a whole bunch of them.

And they were mostly talking about the E&P.

The carriage for and how exciting it was and how they went back and.

Did that and now we are about to go on another trip in early June for the 66 winters of last year's political award.

And I know the buzz is still going to be there because I know what Carlos and his team are doing we have not experienced anything.

That is negative.

With experience.

<unk> just explained that's positive.

And so there is an excitement and buzz in the younger talent.

We can own their own business on over one in five years get treated like Kings and Queens. If there are high performance, which they are.

And Thats what were seeing.

I think great investors really miss.

Really miss.

The idea and concept of carriage I really do.

I know the industry is going to have you have certain perceptions.

But if you just take the time.

The study the point of carriage as a high performance culture company.

With unbelievable structure and incentives for high performance sustained.

Get under the covers and see what it is.

And you will find it's very different than what most people perceive it to be.

Great that sounds.

It sounds wonderful and certainly helpful to the <unk>.

We will get there.

Second question, a little bit more on the capital allocation side.

I think someone mentioned about increasing the credit facility and I was just curious how you guys are thinking.

All signs point to kind of rates continuing to move higher how are you guys thinking about managing that credit facility.

The outstanding balance or I know you intend to.

Used free cash flow for acquisitions, but just curious how you guys are thinking about that.

Yes, certainly there is a lot of uncertainty out there in credit markets and with rates right. I think right now the best thing for US is to increase the credit facility by $50 million do you have some of that floating rate lower rate exposure, we still have four and a quarter senior notes that are outstanding.

And I think what we're really kind of depends on how we continue to look at the capital structure really be driven by.

Quality of acquisitions, the quantity of them and how we see the opportunities kind of play out as we move forward currently as we see it today, what we intend to do will be funded through our internally generated free cash flow, which gives us a tremendous amount of financial flexibility.

But certainly to your point about where the capital structures where rates are.

Some of the things, we keep a pretty close eye on around here.

Great. Thank you guys very much thanks.

Thanks J P.

Thank you I'm not showing any further questions at this time I would like to turn the call back over to Mr. Mel Payne for closing remarks. Thank you very much we need to request to the next time you have a wonderful way about you.

You're very kind of so on page two of my shareholder letter.

I write about similarities between carriage and Berkshire Hathaway.

They have the insurance float and we have the pre need.

Note.

It's a great advantage that we have in terms of investing that capital.

Because we don't have any funds flow risk.

Nor do we have any mark to market, which Berkshire Hathaway has to do in a down market.

So it's a great competitive advantage and we have learned how to optimize that advantage for the benefit of value creation within carriage.

But in that second page at the top.

I've made clear that Theres, one similarity that stands tall above all the rest between carriage and Berkshire Hathaway.

And that is what he said.

And was quoted as saying in his autobiography.

Alex Schroeder Snowball Warren Buffett in the business of life.

He described his job at Berkshire Hathaway as follows.

I feel like I'm on back in there assisting chappell.

And I am painting away.

I like it when people say Gee, that's a pretty good look and painting.

But it's my opinion and when somebody says why don't you use more red instead of Blue Goodbye.

And I don't care, what they sell it for.

Obtaining itself will never be finished that's one of the great things about it.

I have been using this quote for at least 10 years.

And Karen within carriage.

First time I've shared it externally.

And my son said last night that.

I've seen your own your back.

The chapel.

For 30 years.

Wow.

That's an incredible job.

Yes. It is.

But thats not the best part the.

The best part is I got all of these other painters.

The top three of which are sitting here in this room with me today are those fees and Ben.

Honored to have you as my partners.

Honored to have so many.

On this call if investors could see how many of our people listen in to hear about them being talked about would be blown away.

I know of another company that has got so many carriage people listening in.

Y J.

On it.

This is their company.

The destiny of the future is in their hands and they all know it.

And that's why.

I'm comfortable.

Whatever you want to sell it for today it won't be that way in five or 10 years.

Look at what we've done and we plan on doing it again, thank you very much.

Okay.

Thank you and thank you ladies and gentlemen. This concludes your call. Thank you for participating you may now disconnect.

Okay.

[music].

Good morning, and welcome to the carriage services first quarter 2022 earnings call. My name is the narrow and I'll be the operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on your Touchtone.

Phone I will now turn the call over to Mr. Steve Metzger Executive Vice President Chief Administration Officer, and General Counsel, Steve You may begin.

Thank you so narrow and good morning, everyone there.

This audio conference is being recorded and an archive will be made available on our website later today.

Today's call will begin with formal remarks from Mel Carlos Ben and myself. It will be followed by a question and answer period.

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.

Thank you all for joining us this morning, and now I would like to turn the call over to Carlos.

Good morning, everyone. We're glad to be here. This morning, sharing our exciting first quarter performance of 2021.

Before we get into it I would like to express my gratitude to our carriage family in the field and in our Houston support center for their passion and continue to pursue for <unk> mission and vision.

Today's call I will start with a summary of our financial performance and will provide an update on operations sales marketing and it.

Following my remarks, Steve will give an update on acquisitions, then bill will follow with financial update and malware up it up for closing remarks.

If you have not read our 2021 shareholder and proxy statement. We have encouraged that you do it covers the entrepreneurial spirit of carriage high performance cultural framework in excellent detail.

Now the highlights for our record first quarter of 2022.

Funeral operating revenue of $72 million, an increase of $3 3 million or four 9%.

Funeral field EBITDA of $31 3 million, an increase of zero point 96 million or three 2%.

Funeral field EBITDA margin of 44, 5% a decrease of 70 basis points.

Cemetery operating revenue of $20 5 million, a decrease of 1 million or four 9%.

Cemetery field EBITDA of $8 6 million, a decrease of $1 2 million or 12, 3%.

Cemetery field EBITDA margin of 41, 8% a decrease of 360 basis points.

Our total revenue.

We ended up at $98 2 million, an increase of one 5 million or a one 6%.

Total field EBITDA of $45 5 million, a decrease of zero point $3 million or 0.07%.

Total field EBITDA margin of 46, 3% a decrease of 110 basis points.

We believe this is center performance when compared to the previous record in the first quarter of 2021 was due to the spike of the COVID-19 pandemic reflects the nature of the entrepreneurialism periods of carriage and the commitment and passion of our managing partners and their teams to win their trust other guests families and provide a solution to all their needs which way.

Product is increases while increased volumes and market share gains.

To achieve what they have achieved with a significant decrease in COVID-19 beds. In Q1 of this year is nothing short term, let's start there.

<unk> has successfully transitioned to his new responsibilities of leading our preneed cemetery sales teams across the portfolio.

Of cemeteries.

You will continue to focus on the top four drivers of the outperformance sales plan.

<unk> wanted to grow our sales force head count at both family servicing advanced planning by.

By selecting the right wholesale partners that can have a seat at the carriage high performance cultural bus.

Number two develop their sales skills conceptually to our knowledge Academy learning platform, and then zone to local sales leadership.

Number three we generate engagement, which means creating opportunities to have our sales partners to engage with new families and shared the story of the importance and value of preplanning.

And number four to continue to grow sales to our CRM self edge platform currently where 85% completion rate of implementation and sales said, she is becoming or we lose sales moving forward, enabling us to manage track and closed new sales opportunities.

We're also very excited to welcome Elizabeth first months, who joined carriage as director of sales support and she is now fully integrated with their portfolio of businesses at.

Elizabeth comes with years of experience in the death care industry building developing and growing sales. She will filling the position left open by changed promotion, we welcome Elizabeth the carriage team and wish her incredible success.

We are very confident that Chinese female director of sell support Elizabeth Giulio and Greg will cause units and given the outperformance sales plan, while instilling the sales behaviors that will lead to sustainable and consistent cemetery preneed sales overtime. Moreover.

Moreover, we are ramping up our marketing strategy effort or generating new leads which have deliver very positive results.

Now moving onto marketing.

Offered wide joined carriage on January 2nd of these year within four months. He has built a complete marketing department that is now collaborating with managing partners as they work on Brad persistent positioning online presence social media content creation advertisement and much more.

Due to the centralized nature, we know that no one knows better than the local managing partner, who knows the community and the families. They serve.

After the focus will be on creating the tools and making them available on our new content management system. So that managing partners can choose which tools will work best for them.

And then the organic growth of marketing with West operated has received from the field.

Is nothing above we expected.

He and his team can definitely support managing partners into an incredible.

On developing marketing campaigns programs that already delivery increased volume due to customize marketing strategies.

We are very excited for office and all of his team and we know that these journey is just the beginning for these marketing high performance team.

We're also very excited to share that on April one <unk> joined <unk> as Chief Information Officer.

That's a great company, we know that technology is an accelerator of high performance and Ravi is now leading a complete digital transformation that will indeed accelerate of high performance flywheel.

<unk> has hit the floor running and is now on the discovery and learning journey the detail of the digital transformation plan is shown on page 22 of our 2020 once your whole later, we wish Ralph Fantastic success in his new role at carriage.

As most of you know I have a background in hospitality.

I'm very passionate about service excellent and experienced the levered through high quality services that leave a lasting memorable impression.

With this in mind, the last update that I would like to share with you. This morning is related to the enormous opportunity to capture additional market share through the transformation of our servicing guests experienced standard.

Which when combined with our revenue and volume standards all related to servicing gets experience makeup for up to 60% at a 100% of our standards operating model.

It is a goal in mind, we had our first ever carriage for them, while we had our over 150 of our module partners and Houston support Center Influencers.

Learned and experienced service excellence with our five senses.

We designed and curated and experience that will inspire in our teams the avs of excellence in service and become creative and innovative in a way that will while the guest families moving forward.

To kick off the forum, we partner with John <unk> following a formula So long pilot for the Blue Angels and upgraded keynote speaker.

Johns message or even a life of gratitude through is glad to be here added two presentation capture the attention of everyone and he has become how every meeting starts in many of our businesses.

Additionally, he showed the structure of high performance model used by the Blue Angels, which inspired the whole audience through greater ultra of commitment dedication the pursuit of excellence and high Trust.

We also collaborated with the Ritz Carlton leadership Center ballooned about creating a culture of excellence the art of service value creating service.

And leadership now all of which align perfectly with carriage high performance culture are in the <unk> mission and vision and our unique unbreakable Union I believe which was evident with everyone and in every moment.

The forum was in complete alignment with our 2022 theme of high performance value creation culture and based on the number of handwritten cards E mails and general comments, we received about our carriage for them. It was a tremendous success.

Our module partners went back very inspired highly motivated and thoroughly engaged in delivering our servicing gets experience second to none in each of their businesses.

We encourage forum was not an event, but a transformational experience and a pivotal moment towards the vision of the future of funeral and cemetery services of carriage.

Stay tuned as we work with his Thunder console on are followed through program on service and guest experience that will create memorable moment with all of our guests.

These are some of the reasons why we're so excited about the future of carriage and there is much more to come for both Preneed cemetery and funeral homes.

But when you combine carriage solid financial profile and our acquisition prospects. It is easy for us to say it is a great time to be at carriage and the best is yet to come. Thank you and I'll now pass it onto Steve. Thank.

Thank you Carlos So there's certainly a lot to be excited about as we look at the consistently strong performance. We're now seeing broadly throughout our portfolio. How we are positioned with our capital structure and the numerous opportunities for us to continue to get better in a number of areas.

Among the opportunities that we're most excited about is growth through acquisition.

We highlighted a quote in our earnings release from Warren Buffett's longtime partner Charlie Munger, He was describing Berkshire hathaway's approach to acquisitions.

Harley pointed out.

Two thirds of acquisitions don't work Ars work, because we don't try to do acquisitions, we wait for no brainers.

We can do a better job of describing carriages approach to acquiring businesses than simply point to Charlie's and Berkshire philosophy.

And what has US, particularly excited right now is the number of those no brainers that appear to be ready for a succession plan.

The current acquisition pipeline is as active as we've seen in the past couple of years, and we expect that trend to activity to continue.

We talk about our people our culture, our 30 year history, and our owner operator model, where the teams running the business locally truly get to run the business and our support center is just that a team of talented professionals available to support them and make their lives easier by taking more of their place. So they can focus on our families. They serve.

It's an approach and a process that requires patience and discipline and one which we know pays off resulting in a selected portfolio of high performing businesses in growing markets as opposed to one made up of strong businesses subsidizing weaker ones.

We previously indicated we'd be able to share details during the second half of the year surrounding the deals. We're currently working on we continue to feel good about that timing given ongoing conversations and activity.

With that said, we were pleased to announced in our earnings release yesterday that we recently signed a letter of intent with a great business in a high growth area of Florida, and we are working on several other deals and new strategic markets across the country with businesses that possess great history unique owner vision and exciting upside in the years to come.

And that has occurred over the past two years and our vision for the exciting future that we have here at carriage now onto the results for the first quarter total revenue increased one 6% to $98 $2 million adjusted consolidated EBITDA decreased $2 2 million or six 3% to $32 five.

$5 million adjusted consolidated EBITDA margin declined 280 basis points to 33, 1% and adjusted diluted earnings per share increased 13, 6% to 92.

Our adjusted free cash flow declined $14 $7 million in the first quarter compared to last year, primarily due to a $9 million increase in cash short term and long term incentive payments, a $1 $5 million increase in maintenance capital expenditures and a $1 million increase in additional cash taxes paid during the quarter and our.

<unk> third quarter earnings release, and our 2021 shareholder letter Steve provided comprehensive insight into the increase in the pay for high performance incentives that were accrued for in 2021 and paid out in the first quarter of this year $3 million of this increase was related to our five year. Good to great incentive award that had been accrued for.

Over the last five years and 2021, we had 34 managing partners achieved this award by growing their businesses consistently over this five year period and the first quarter. They were paid half in cash and have been appreciated cared shares. This is certainly the type of high performance that we are happy to continue to pay for our total debt to adjusted consolidated <unk>.

<unk> leverage ratio increased to four seven times compared to four five times at year end due to lower adjusted consolidated EBITDA in the quarter and higher debt balances as a result of the execution of our share repurchase program. We intend to fund the remaining capital allocation for 2022, primarily strategic acquisitions with internally generated.

<unk> free cash flow, which will allow us to reduce our leverage ratio to approximately four five times by year end.

And by the performance of our equity portfolio that had a total return of 11, 2% in the quarter, which is a 15 180 basis point outperformance compared to the S&P 500.

I would also encourage you to read our earnings press release from yesterday, where we do go in provide more granularity and detail than normal about our current positioning in individual securities that are performed well in what has become a very challenging market environment.

Since the successful execution of our Trust fund repositioning during the depths of the coronavirus market crisis, we've approximately doubled our recurring annual income in the portfolio to $17 $7 million, while recognizing almost $34 million in long term capital gains over the course of the year, we expect to increase the annual income in the port.

<unk> to over $18 million and realize additional long term capital gains that will increase the overall total to $40 million. This performance in our trust funds will be incrementally accretive to our reported financial revenue and EBITDA through higher reoccurring income earned through our cemetery perpetual care trusts and higher earnings on our matured preneed.

Funeral and cemetery contracts.

During the quarter, we repurchased 490000 of carriage shares at an average purchase price of $53 eight.

For a total spend of approximately $26 million since we restarted our share repurchase program in the second quarter of last year. We were we repurchased approximately three 4 million shares for an aggregate investment amount of $162 $5 million at an average purchase price of $49 60.

$34 three.

$3 4 million shares we repurchased represent approximately 19% reduction in the shares outstanding since may of last year and the 49 60 purchase price represents a nearly 30% discount to the low end of our current roughly right range of intrinsic value of carriage shares of $70.

As we outlined in the updated three year roughly right scenario and our 2021 shareholder letter, we intend to focus the majority of our capital allocation towards selective acquisitions and strategic growth markets as Steve outlined in his comments. We believe we are only just getting started on high performance execution on our strategic acquisition model.

Cemetery facilities and investment in our information technology platform for the full year, we expect capital expenditures to be between 20 and $24 million split evenly between maintenance and growth Capex.

100% allocation of our projected adjusted free cash flow to grow the intrinsic value of carriage plus reasonable expectations of continued growth of our current portfolio.

The only changes we made to these ranges are a decrease in our expected adjusted free cash flow for this year and a decrease in our projected year end GAAP diluted shares outstanding to $16 million.

Additionally, we are providing an updated rolling four quarter outlook.

We have therefore included projected conservative operating and financial performance of one pending acquisition and then with following ranges of our rolling four quarter outlook.

Revenue $380 to $390 million, adjusted consolidated EBITDA of $128 million to $134 million.

The consolidated EBITDA margin 33, 5% to 34, 5%.

Adjusted diluted earnings per share of $3 57.

The $3 67.

Adjusted free cash flow of $82 million to $86 million and adjusted free cash flow margin of 21 5 million to 22, 5%.

Additionally, we are reaffirming our roughly right range of intrinsic value for carriage shares of 70 to $80 using the following methodology.

The midpoint of our rolling four quarter outlook of adjusted free cash flow is $84 million is approximately $5 25.

Per share of free cash flow.

If we use the free cash flow equity yield range, a seven 4% to six 4% we've used historically.

This would equal a per share range of 71 to $82 and conservatively rounded down we believe the intrinsic value of carriage per share is between 70 to $80 and with that I will turn the call over to Mel.

Thank you Ben.

Yes.

Thank you, Steve and thank you Carlos.

When I got home last night.

My son was there.

He works in Brooklyn, So does our daughter.

He has 35 and <unk> 28.

So I'm an older debt.

And.

In the early years.

Karen I started carriage it at 48, our son was five years old.

Just moved into a new house that I built turn.

Turning around companies and stuff like that.

I will tell them all I don't get too comfortable in the house.

Guarantee the debt I'll have to learn the business.

And Ive written about all of this but also look.

Good luck raising pressed them all.

I'll see you in about five years.

Gotta go out there and learn the business well she would tell you today that that is the biggest lie over total <unk>.

It was gone 15 or 20 years.

And I loved it and then once you've started meeting our people so to achieve.

Our sard has grown up in this.

Building process of carriage has been the many meetings on our meetings <unk> met all of our people all along the way even in turned here two different summers many years ago.

And then so as our daughter.

So.

They know carriage.

And early on.

After the crash of <unk> 99, and then rebuilding yet.

Using a different <unk>.

Model and.

And framework I would give them shares.

And they were single digit shares while we started below 5%.

Still in high School and college.

And I'm sure my wife and I.

And so.

Last night.

I asked my son.

Did you read the shareholder letter.

No I didn't that it's probably in my mailbox I got locked out of my mailbox in my apartment building in Brooklyn.

You got locked out of your mailbox.

You know.

Okay.

How are you going to vote. Your proxy shares is that I'll do that online.

I thought I would you like to read the shareholder letter because I have a copy of it here.

And.

If you want just read the first two pages.

And then read the last five.

And even a better idea would be to started to back.

Start at the back end and read those five first start with Christy.

And he knows Christie.

He knows Tim.

Page 41, and <unk> 42, and <unk> 43, so red Christie's emailed to me first Tim.

Any read the first two pages.

And I've said Preston what do you think.

You said that.

This should be taught some advance school of business and finance.

As Preston that already is happening every day.

In our home office.

And I said, what would you think if I told you.

But that company you just read about.

One 1%.

And so there is your system.

And your mom and I on nine 9%.

He said yes.

Ed.

That's crazy that's incredible.

To which I've said.

That's not the best apart the best is yet to come.

With that I'd like to open it up for questions.

Absolutely. Thank you we will now begin the question answer session. If you have a question. Please press <unk> one on your Touchtone phone.

If you wish to be removed from the queue. Please press two.

And if youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press <unk> one on your Touchtone phone.

Leading on standby for any questions.

And our first question comes from Alex Paris. Please go ahead.

Hi, Thanks for taking my questions and congratulations on a record first quarter, particularly against a really tough.

<unk>.

Versus peak Covid last year.

I have a few questions I would like to start with funeral services revenues were up 449% year over year margins were lower they were down a bit.

And wondering if you can give us a little bit more color why.

Perhaps increased marketing expenses some of these digital things that you're doing.

But I'll, let you answer the question.

Oh.

Thank you very much Alex Thank you for your question so.

It's really.

An amazing thing that they were able to increase all of our managing partners.

Keep the market gains and the market share.

Now we are investing as you know, we're investing significantly on talent and marketing and <unk> platforms.

Those investments, we believe we're going to not lower margins will be just temporary investment as we continue to even grow more than we ever have before especially after the carriage for almost I mentioned on my remarks, and then what about on the release yesterday. So we're not concerned at all we believe this is part of what it takes to.

<unk> built a great company that through time sustainably will continue to grow market share gains in volume and average over time as we transform funeral services into the funeral services over the next century.

In dollars the smell.

No.

When you look at a quarter versus quarter.

Can you can head fake yourself.

You have to look at the margins as they have trended over the last 10 years.

I wrote about that in the 2016 shareholder letter, we're about we're about 200 basis points higher.

In our funeral portfolio today than we were when this model was invented and rolled out at the beginning of <unk>.

And so it's very easy for someone to say Oh, you were down.

But without understanding the business and the different margins and different size businesses in different markets historically.

Do you reach some kind of judgment about a decline that is actually.

Not spot on.

And you have to.

What's remarkable is.

The total field EBITDA margins are remaining high above 45%.

Okay.

And I wrote about this in the shareholder letter compared to the nineties.

The fact that our margins are just so much incredibly higher.

Then anything anybody was doing in the nineties are assessed for that matter. The issue is nobody will show you the transparency.

And thats, good and bad because we can help people reach the wrong kinds of conclusions. The key is to have compounded revenue growth and have the operating leverage over time.

For you rather than against you in each business.

That's the key.

Yes.

Totally agree.

And.

The market share gains the growth year over year in funeral services revenue, particularly given the tough comp maintaining expanding market share and I understand investment in talent marketing and LTE platform to take margins to the next level. So that's a healthy reason for a decline in the interim margin year over year.

Yes, I mean Theres a reason why.

At the beginning of this earnings release towards the end of my comments I said look.

You know I don't remember anything about the first quarter 10 years ago.

And I don't remember much of anything about any quarter sense that they were just a quarter.

Our company has got incredibly better in the last 10 years, just like we will get incredibly better over the next five and 10.

Now we're going to have some noise quarter, there were quarters in the last 10 years and were terrible.

November one of 19.

Crashed.

Once a quarter it is.

What is going on in the company overall and we've written about this transformation.

And if somebody wants to really understand the company.

I need to get out of the covers in and read about this in the ETF curiosity about how it all works.

All of the standards Council call anybody we're an open book.

And.

The industry knows the industry knows what's going on there is a buzz.

And if an investor wants to know they can find out.

This is not complex to find out about carriage.

Yes.

I agree I agree you gave a lot of transparency and I appreciate that.

We also have a lot of reputation and a lot of buzz in the industry about who we are and what's going on here versus anytime in the past this is not a mystery.

And if I were an investor, which I am.

I'd go kick the tires visit businesses I would call our people standards come to the home office.

We invite everybody to come here.

We'll pull out the red carpet.

Might even take you to dinner.

[laughter].

I appreciate that having having been the beneficiary of that invitation in the past I can attest to that thank you.

Moving on cemetery.

Maybe this is a question for you.

The margins were lower year over year on lower revenues and you noted in the press release I just wanted to dig into it a little bit more atypical group and larger sales.

Sure.

As potentially an explanation for that lower revenue.

The question is where those particularly large or a year ago.

And then you talked about.

As you develop cemetery inventory you should be better positioned to capture these group and larger sales going forward.

Absolutely. So this gave us particularly related to a perfect Memorial Park, we had tremendous sales large sales is our big numbers.

500000, and things like that.

Sometimes it takes a little longer to develop and what their inventory just because of permits and we have all departments that are in place to continue to develop perfect. So we have no concern us probably you would note through the integration of <unk>.

He came into carriage almost as the Virgin Cemetery with no product no differentiation of inventory or.

And options for families, which we have developed over the last year.

Now, what we are putting more capital locations or cemeteries alone into to continue to grow that I have no doubt that over time, we will be able to continue these.

Single or larger sales sustainably over time.

Sure.

Gotcha.

And then my final question.

Leno involves Ben and Steve as well.

Just to get a little bit more information on capital allocation.

Share repurchases in the first quarter were 25% or $26 million.

And.

Obviously huge share repurchases over the last year or so.

You said in the press release that.

Capital allocation is going to now.

Shift focus more towards M&A now first of all it's a little sooner than I expected I tell you expected those in the second half so congrats on the LOI that you.

<unk> already announced here in the other color comments you made on acquisitions.

But.

If you are going to produce $80 million and adjusted free cash flow. This year youre going to put it entirely to share repurchases and M&A.

How should we expect.

Share repurchases and M&A to play out over the course of the year in terms of mix or split.

Yes, Alex I mean, I think pretty pretty clearly right. Now acquisitions is is the highest priority. There is there's a lot of opportunity what Steve talked about.

And to deploy capital in that manner.

Put a pause on share repurchases for now.

This is Mel Alex.

<unk>.

I'm living the good life now having promoted.

Then, Steve and Carlos and their teams are just doing an awesome job. So I don't have to worry about day to day operations I can allocate my time to its highest and best use.

And right now number one is mentoring them I loved the way they've begun to use quotes from Charlie Munger Warren Buffett.

Ben and his investment sections, Steve proposal two in there I was just blown away by them I love them.

Carlos I mean, they're all studying mental models and all kinds of ways thinking this was there.

Their development program, they're doing a lot of homework, they made together and I get to allocate different things to them that will help them grow.

The other way I allocate my time.

Of course, with the trust funds and Ben.

<unk> take a lot.

And in acquisitions.

It almost 80.

On my left knee probably needs to be replaced at some point, but I'm in great shape. So to get me out looking at an acquisition is not that easy anymore.

But I was very excited about one of these and still am.

I'm really excited about what what I see and what Steve and then and Carlos are doing related to that as well as the.

Kind of activity and buzz going on in the industry.

Look.

If Mr market.

As Rodney Dangerfield is related to carry chairs.

We still have capacity to buy in shares.

And if it gets cheap.

I think it's deep Jade, we will do it.

But we don't want to pass up what we're seeing right now because we'll be able to grow. These these are all in new strategic markets with good growth potential upside over five or 10 years and when you can put your capital to work and grow it over a smaller share count basis I mean.

It compounds really well.

So we're going to be flexible.

Good.

Great I hear you and I agree with this is a natural time to transition to M&A, particularly given what you've already bought and 19% of shares but I do appreciate that extra comment that.

You will remain opportunistic so thank you and I'll get back in the queue.

Thank you. Our next question comes from Barry Mendel. Please go ahead.

Yes, hi.

Question on this.

Marketing performance team that you're creating.

What what is the goal of that group what is your focus going to be.

Absolutely.

No.

We never really had a full formal marketing department at carriage decentralized spirit of an entrepreneurial spirit carries will allow the many partners to do that on their own. However, we decided to put together a team that will not only accelerate the learning journey of marketing, but also put out.

Best practices tools, avs thoughts and content, so that they would be able to.

Really launch.

There are opportunities to aggressively pursue.

Market gains and.

Build that brand positioning if you will route them broadly across our all of our businesses both cemetery and funeral homes and so the idea with its really.

Put together our support group that can help those managing partners rebuild websites.

Significant work on search engine optimization develop.

He is about content management. So they can just grab it and put it on social media and things of that nature. So it.

It will definitely enabled and accelerated that.

The learning curve or that type of profile.

Efforts on marketing, but more specifically the design and.

Really really created marketing advertising and plans to grow organically and through.

No advertisement all of our web page.

Okay.

And it seems that in the quarter.

Preneed contracts I know they were down versus a year ago, although up from our previous quarter.

What was the reason why preneed contracts were down year to year.

Of revenue.

So sometimes when we have.

Those large sales that I mentioned, sometimes maybe come up in the form and in this case, specifically we have two of those where you have multiple instruments in one contract. So these are we call group sales. So you may have.

Religious organization or something to that nature to go and buy.

Package of.

C 100 <unk>.

Spaces or things like that.

And so that will dramatically decrease our <unk> count.

And of course also decrease our revenue we believe that with.

The transition of input and so as vice president of social marketing in all of the efforts that have been pleased right now on the what we call the bread and butter right. One sale one at a time family by family protecting for preneed.

Not only would reduce that risk but over.

Time, those sales will become nothing by the Chevron thoughts for preneed sales.

Okay. So the group sales caused pre need sales to be a little lumpy.

What was that could you repeat that I'm sorry.

Group sales caused pre need sales on a quarterly basis to be a little lumpy.

Well that was related just to answer the some of the terminal count the number of environments.

Okay. Okay.

Okay Alright.

Alright. Thanks.

Thank you once again, if you have a question. Please press star one on your Touchtone phone waiting on standby for any additional questions.

And our next question comes from J P. Morgan. Please go ahead.

Hi, guys.

The question and congrats on the record revenue this quarter.

First question I had for you guys was just weather coming out of the carriage for.

You've been managing partners have any resounding concerns I nowadays.

Perhaps some tightness around the labor markets.

Inflation concerns were there any kind of agreed upon concerns that you guys versus your own.

So we have received that.

Maybe this is Carlos we have received that question through our investors' conference a lot regarding the.

Big resignation, if you will but we are.

At carriage, we really choose and select carefully.

Those individuals that are the best talent in the industry are sometimes outside of it.

That will be a right fit for the culture at carriage and so we have even though there may be a perception out there that that's becoming more difficult we have not really experienced that ourselves.

Mainly because we become very peaky.

As to how and who we want to be part of our team.

So this is mel.

That's a great question.

What we find.

And carriages.

And again, if you want to find out what its like all read those E. Mails on page 41 to 43.

And you'll get a sense of what a managing partner who is really a high performer.

What they get what they get and carriage I get to own their own business and so one of the things we have to be Hungary have to have the for ease of leadership get up every day.

Grow their business, regardless of the death rate regardless of Covid.

Harless of inflation, regardless of this or that.

And they've got to be very hungry and entrepreneurial to do it and what are the things that COVID-19 did.

Other than give us.

Temporary lift.

Was it did.

Cause some of our older managing partners to call it a day.

And say look you can't take anything for granted and lives.

I've worked hard in my career, it's been difficult.

Think I'll retire.

There's been quite a few of those.

And I don't want to sound cynical, but that allows us to top grade and get a younger hungrier grower entrepreneurial talent that is.

Excited and this is what we saw at the MP meeting.

Much younger group of managing partners much more female than.

Than ever in the history of the company.

And I'm talking about on fire.

We got no concerns but.

But most of them are still talking about it.

We went on a good to great trip, where.

They had to win that for five five years to America, Aldo Riviera I'll mention that.

And the people there.

It was a whole bunch of them.

And they were mostly talking about.

MP.

The carriage for and how exciting it was and how they went back and.

Did that and now we're about to go on another trip in early June for the 66 winters of last year's political award.

And I know the buzz is still going to be there because I know what Carlos and his team are doing we have not experienced anything.

That is negative.

With experience.

<unk> just explained it's positive.

And so there is an excitement and a buzz in the younger talent.

They can own their own business on over one in five years get treated like Kings and Queens. If there are high performance, which they are.

And Thats what were seeing.

I think great investors really miss.

Really miss.

The idea and concept of carriage I really do.

I know the industry is going to have you have certain perceptions.

But if you just take the time.

The study the point of carriage as a high performance culture company.

With unbelievable structure and incentives are high performance sustained.

Get under the covers and see what it is.

And you will find it's very different than what most people perceive it.

Great that sounds that sounds going forward certainly helpful to the team over there.

Second question, a little bit more on the capital allocation side.

I think someone mentioned about increasing the credit facility and I was just curious how you guys are thinking.

All signs point to kind of rates continuing to move higher how are you guys thinking about managing that credit facility.

Either the outstanding balance or I know you intend to.

Used free cash flow for acquisitions, but just curious how you guys are thinking about that.

Yes, certainly there is a lot of uncertainty out there in credit markets and with rates right. I think right now the best thing for US is to increase the credit facility by $50 million.

Do you have some of that floating rate lower rate exposure.

Still have four and a quarter senior notes that are outstanding.

I think what we're really kind of depends on how we continue to look at the capital structure really be driven by.

But certainly to your point about where the capital structure areas where rates are.

So one of the things, we keep a pretty close eye on around here.

Great. Thank you guys very much thanks.

Thanks J P.

Thank you I'm not showing further questions at this time I'd like to turn the call back over to Mr. Mel Payne for closing remarks. Thank you very much we need to request through the next time you have a wonderful way about you.

You're very kind of them so on page two of.

My shareholder letter.

I write about the similarities between carriage and Berkshire Hathaway.

And though they have the insurance float and we have the pre need float.

It's a great advantage that we have in terms of investing that capital.

Because we don't have any funds flow risk.

Nor do we have any mark to market, which Berkshire Hathaway has to do in a down market.

So it's a great competitive advantage and we have learned how to optimize that advantage for the benefit of value creation within carriage.

But in that second page at the top.

I've made clear that Theres, one similarity that stands tall above all the rest between carriage and Berkshire Hathaway.

And that is what he said and was quoted as saying in his autobiography.

Hi, Alex Schroeder Snowball Warren Buffett in the business of life.

He described his job at Berkshire Hathaway as follows.

I feel like I'm on back in there assisting chappell.

And I am painting away.

I like it when people say Gee, that's a pretty good look and painting.

But it's my pain and when somebody says why don't you use more red instead of Blue Goodbye.

And I don't care, what they sell it for.

Obtaining itself will never be finished that's one of the great things about it.

I have been using this quote for at least 10 years.

And Karen within carriage since the first time I've shared it external.

And my son said last night that.

I've seen your own your back.

The chapel.

For 30 years.

Wow.

That's an incredible job.

Yes.

It is but thats not the best part the best part is I got all of these other painters.

The top three of which are sitting here in this room with me today are those fees.

I'm honored to have you as my partners.

Honored to have so many on this call if investors could see how many of our people listen in to hear about them being talked about it'd be blown away.

Don't know of another company that has got so many carriage people listening in.

Why.

One it.

This is their company.

The destiny of the future is in their hands and they all know it.

And that's why.

I am comfortable.

Whatever you want to sell it for today it won't be that way in five or 10 years.

Just look at what we've done and we plan on doing it again, thank you very much.

Thank you and thank you ladies and gentlemen. This concludes your call. Thank you for participating you may now disconnect.

Q1 2022 Carriage Services Inc Earnings Call

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