Q1 2024 Carriage Services Inc Earnings Call
Good day, and thank you for standing by welcome.
Welcome to the carriage services first quarter 2024 earnings Conference call. Please be advised that today's conference is being recorded I went all I like to hand, the conference over to your speaker today, Steve Metzger President. Please go ahead Sir.
Steven D. Metzger: Good morning, everyone and thank you for joining us to discuss our first quarter results. In addition to myself on the call. This morning from management or Carlos Casado, Chief Executive Officer, and Vice Chairman of the board of Directors and key younger in my own Executive Vice President and Chief Financial Officer.
Steven D. Metzger: On the carriage services website, you can find our earnings press release, which was issued yesterday after the market closed our.
Steven D. Metzger: Our press release is intended to supplement our remarks. This morning and include supplemental financial information, including a reconciliation of differences between GAAP and non-GAAP financial measures.
Carlos R. Quezada: Today's call will begin with formal remarks from Carlos and Qian will be followed by a question and answer period.
Speaker Change: Before we begin I'd like to remind everyone that during this call we'll make some forward looking statements, including comments about our business projections and plans forward.
Speaker Change: Forward looking statements inherently involve risks and uncertainties and only reflect our views as of today.
Speaker Change: These risks and uncertainties include but are not limited to factors identified in our earnings release as well as in our SEC filings all of which can be found on our website.
Speaker Change: Thank you all for joining us this morning, and now I'd like to turn the call over to Carlos.
Carlos R. Quezada: Thank you Steve and thank you all for joining our first quarter earnings call.
Carlos R. Quezada: We are excited to share our outstanding performance.
Carlos R. Quezada: But before we do I want to express our heartfelt gratitude to the entire carriage family.
Carlos R. Quezada: Whether in the field or support center. Each of you has to play a crucial role in driving these results.
Carlos R. Quezada: Your unwavering dedication and relentless passion for delivering an elevated service to all families have been instrumental in our success.
Carlos R. Quezada: We deeply appreciate your continued support and commitment to our shared goals.
Carlos R. Quezada: Before we start I hope you've had an opportunity to read our 2023 shareholder letter and proxy statement, both are reaching information related to our five year strategic objectives in our core initiatives for 'twenty 'twenty four.
Carlos R. Quezada: Setting the stage for a transformative vision of the carriage of the future.
Carlos R. Quezada: Now, let's dive into our financial highlights.
Carlos R. Quezada: We are proud to report that our strategic objective plan is well underway and the progress in executing the individual initiatives to grow revenue and reduce cost is starting to produce positive results.
Carlos R. Quezada: For the first quarter. Our total revenue was $103 5 million a substantial increase of 8 million or eight 4%.
Carlos R. Quezada: This is a significant milestone for Garrett history as it marks the first time, we have surpassed the 100 million mark in a single quarter.
Carlos R. Quezada: This remarkable performance was primarily driven by the exceptional results of our Preneed cemetery team and the successful integration of reload our most recent acquisition.
Carlos R. Quezada: These achievements underscore our strong financial position and ability to deliver on our strategic objectives.
Carlos R. Quezada: Looking at each of our revenue segments, we see that total funeral home operating revenue increased to 66 6 million.
Carlos R. Quezada: An increase of $1 2 million or one 8%.
Carlos R. Quezada: Despite the expected decrease in total funeral operating volume of one 9% as part of the post pandemic normalization.
Carlos R. Quezada: Our targeting improvements to our pricing strategy have made a significant positive impact.
Carlos R. Quezada: We have seen an increase in total funeral operating average per contract of $219 per contract or 4% compared to the same quarter last year.
Carlos R. Quezada: This result of our pricing strategy is a testament to our confidence in its effectiveness and we believe we will continue to make additional progress throughout the year.
Carlos R. Quezada: Regarding our cemetery operating revenue we ended the quarter at 27 6 million.
Carlos R. Quezada: An increase of $6 3 million or 29.4% compared to the same quarter last year.
Carlos R. Quezada: This is another significant milestone for carriage achieving a record first quarter in Preneed Cemetery sales.
Carlos R. Quezada: The Preneed cemetery team delivered an impressive 38, 4% growth compared to the same period last year.
Carlos R. Quezada: We couldn't be prouder of this achievement, which is the direct result of our entire sales organization hard work and dedication towards sales excellence.
Carlos R. Quezada: Our total financial revenue we ended the first quarter at $6 9 million, an increase of 868000 or 14, 3%.
Carlos R. Quezada: Driven primarily by the impressive growth in Preneed funeral Commission income, which increased by 570000 or 177% compared to the same quarter last year.
Carlos R. Quezada: Our preneed funeral strategy continues to produce positive results and we continue to be very excited about our potential future performance through our exclusive strategic partnership with procure and the National Guardian life Insurance company.
Carlos R. Quezada: We remain committed to our growth strategy and we will continue to explore opportunities to enhance our financial performance.
Carlos R. Quezada: Regarding adjusted consolidated EBITDA for the first quarter with finish with $33 6 million.
Carlos R. Quezada: An increase of $5 8 million or 29%.
Carlos R. Quezada: The combination of a higher average revenue per contract and the continued execution of our cost management initiatives. The levered great success. The most traded by our total funeral field EBITDA margin of 41, 3% an increase of 100 basis points in total cemetery field EBITDA margin.
Carlos R. Quezada: 43, 3% an increase of 430 basis points.
Carlos R. Quezada: Our corporate overhead experienced an increase of $6 1 million during the first quarter, 90% of it was nonrecurring and related to mail separation agreement.
Carlos R. Quezada: Adjusted diluted EPS in the first quarter grew to 75 cents per share.
Carlos R. Quezada: Increase of 19 cents or 33, 9%.
Carlos R. Quezada: While interest rates remain high we are now at a comparable level to previous quarters, and even though we're paying high interest rates. We continue to be focused on co meeting most of our free cash flow towards debt payments as evidenced by the $25 million of debt that we paid down this quarter.
Carlos R. Quezada: Dan will share more on this later in this call.
Carlos R. Quezada: We are very proud of these results.
Carlos R. Quezada: This makes five out of the last six quarters of outperforming expectations.
Carlos R. Quezada: While we had a solid first quarter, we remain diligent about capital allocation and continuing to execute our strategic initiatives, while being mindful of how seasonality and normalization post pandemic may impact our volumes in the near term.
Carlos R. Quezada: March had the greatest decline in volume in the first three months of the year.
Carlos R. Quezada: So we will closely monitor those levels going forward.
Carlos R. Quezada: Therefore, we reconfirm, our 'twenty to 'twenty four outlook.
Carlos R. Quezada: As we gather more information leading into the end of the second quarter, we should have more insight to share yet.
Carlos R. Quezada: <unk> will also cover more on this in this call.
Speaker Change: In closing we are very excited about the future at carriage.
Speaker Change: With our strategic initiatives, well underway and the hard work and dedication invested over the past year, we are well position for sustained innovation and financial progress.
Speaker Change: What we're building is not just about near term achievements, it's about Stablish ingot foundation to deliver lasting value to our shareholders for years to come.
Speaker Change: Thank you for your interest and support with that I will now turn things over to Ken.
Ken: Thank you Carlos and good morning to everyone on the call.
Ken: Before I dive into a review of our financials I wanted to reinforce Carlos his earlier comments regarding the recent disclosure of our new purpose statement and the relentless focus and alignment to our five year strategic objectives.
Ken: This is important to mention since every decision we make whether large or small is aligned with our strategic vision and objectives in mind this discipline and focus on achieving our outlined goals and executing on our vision is the foundation to generating long term shareholder value.
Ken: Now turning to our financials since Carlos provided an overview of our key financial metrics for this quarter I will review a few additional financial highlights around overhead cash flow and leverage and I'll also provide some color on completing our recent noncore divestitures and an update on our 2024 outlook.
Ken: First I'll start off with corporate overhead, where we continue to be laser focused on spending and cost saving opportunities. This quarter when adjusting out special items related to the review of strategic alternatives, which concluded in late February along with the accounting treatment of metals transition agreement, our overhead cost totaled approximately $12 7 million or approximately <unk> 12.
Ken: 3% of revenue, which continues to track lower than our previously stated 13% target for the full year 2024.
Ken: Next lets discuss cash flow for the quarter when normalized cash flow from operations for one time items, our cash flow from operations increased 17, 1% to $22 1 million up from $18 9 million in the same quarter last year.
Ken: This solid cash flow from operations translated into robust adjusted free cash flow. As a reminder, we are transitioning our adjusted free cash flow calculation to a traditional calculation, which will include all capital expenditures.
Ken: We have provided a reconciliation table at the end of our press release that provides a bridge between our historical reporting methodology that includes maintenance capital expenditures only in the more traditional methodology that includes all capital expenditures.
Ken: We will continue reporting both methodologies for the remainder of 2024 before converting exclusively to the traditional methodology in 2025 and beyond.
Ken: For the quarter with maintenance capital expenditures lower than the prior year quarter, our historical calculation for adjusted free cash flow increased by $3 9 million, an increase by approximately $4 7 million when including all capital expenditures over the same period.
Ken: As you May notice from these numbers capital expenditures are tracking down 29% relative to the same period last year, which again highlights our focus on disciplined capital allocation without compromising our organic growth initiatives.
Ken: This strong cash flow generation, along with our well defined capital allocation strategy brings me to my third highlight the reduction in outstanding borrowings under our variable rate credit facility.
Ken: This quarter, we were able to pay down an additional $25 million on our credit facility, reducing the outstanding borrowings to $154 1 million by quarter end of note included in the 25 million pay down this quarter was approximately $10 9 million in gross proceeds from two non core divestitures that were directly funneled towards paying down our credit facility, we are especially.
Ken: Really proud of the fact that our capital discipline and capital allocation strategy has allowed us to pay down approximately $62 million on our credit facility. Since we closed the green on acquisition at the end of the first quarter last year, the combination of decreasing leverage and increasing our EBITDA has resulted in a decrease in our leverage ratio slightly below the five times threshold ending at four.
Ken: Nine nine times net debt to EBITDA as defined by our bank covenant compliance ratio I.
Ken: I would like to note here that our bank leverage ratio does not allow us to add back the entirety of our special item expenses in particular expenses related to our review of strategic alternatives and as a result, our leverage ratio may seem higher than normal leverage ratio calculation.
Ken: Despite the pay down interest rates continue to hover around the same weighted average interest rate of eight 9% on a credit facility for the quarter as compared to 7.9% in the same quarter last year. However, we will receive a 25 basis point relief on our interest rate spread now that our leverage ratio has landed below five times lastly, I will turn to our full year 2020.
Ken: <unk>, who brings more than 30 years of industry experience and best practices 'twenty 'twenty four is a transformational year for carriage with critical initiatives to execute on as we position the company to return to his focus on opportunistic growth through acquisition in 2025 and execute on our five year strategic and financial objectives.
Ken: Well go first to Alex Paris with Barrington Research.
Alexander Peter Paris: I got a I got a few clarifying questions here, starting first with the funeral segment.
Alexander Peter Paris: Driven by according to the press release said, two 6% decline in contract volume and a four 1% increase in the average revenue per funeral contract.
Speaker Change: I think God Carlos just said just the total.
Alexander Peter Paris: Funeral volume was down one 9%.
Alexander Peter Paris: Press release said down to 6% what what's the difference between the first of all what's the difference between the two figures your quota.
Carlos R. Quezada: Yeah. So one of those numbers includes consol.
Carlos R. Quezada: Consolidated view and the other one is post divestitures. So it's kind of on a what we call an operating revenue perspective on a go forward basis.
Alexander Peter Paris: So the 1.9 excludes the impact of the divestitures.
Alexander Peter Paris: That is correct. That's current operating you know volume.
Alexander Peter Paris: Gotcha.
Alexander Peter Paris: And then this is more reflective of our current activities.
Alexander Peter Paris: Gotcha.
Alexander Peter Paris: And then the purchase.
Alexander Peter Paris: For funeral contract how.
Alexander Peter Paris: How does that breakout between tradition.
Alexander Peter Paris: The traditional funeral cremation.
Alexander Peter Paris: Yeah, absolutely we had for the first quarter, an increase on burial contract of three 2% and on cremation contract with four 5%.
Alexander Peter Paris: Total being 4% for all total contract.
Alexander Peter Paris: On our pricing.
Speaker Change: Good that's helpful.
Alexander Peter Paris: And then again just to dig into that comment that you made Carlos that March was the most significant decline year over year in volume year to date.
Alexander Peter Paris: And you know I know, we're still dealing with the headwind of the Covid pull forward effect and you had previously said that's going to kind of be present for the full year.
Alexander Peter Paris:
Alexander Peter Paris:
Alexander Peter Paris: Do you expect that that.
Alexander Peter Paris: We will diminish in the coming quarters, and then for the full year do you expect volumes to be comparable to last year's volumes.
Speaker Change: Yeah. So great question. So what we are experience is January and February had another elevated death rate potentially from some flu season or something related to a more of that than we were expecting because we're speaking a little bit more of a decline on that volume.
Speaker Change: Year over year perspective, our basis.
Speaker Change: However March came in a little slower than we thought on volume and so that's why we wanted to just be mindful. Our projection is to continue to have a slow decline on volume throughout the rest of the year progressively down through the first fourth quarter. So we are around 191, 9% by now we evenly by.
Speaker Change: By December we should be just you know, maybe 50 basis points or around those lines. That's our hope and projections. We will see you know a margin between 1% to 2%, but we're continuing to work through market share gains to continue to make up if we can and where we can for whatever volume we lose from a you know.
Alexander Peter Paris: Those COVID-19 normalization.
Speaker Change: Got you and then a related to the divestitures completed in the first quarter.
Speaker Change: I think you had previously said the impact is $5 $5 million in revenue and $1 5 million to EBITDA.
Speaker Change: EBITDA.
Alexander Peter Paris: Hum.
Alexander Peter Paris: And then you've got proceeds of roughly $11 million for those are those all pretty much in line, where you had expected them to be and I realize that that's already included in our full year guidance.
Speaker Change: That's correct Alex It was key on so what we did is when we were looking at the upcoming year.
Speaker Change: And our 24 guidance, we'd already eliminated as you mentioned the $5 $5 million of revenue and wanted to half of EBITDA. So our 24 guidance is already reflective of that adjustment out.
Speaker Change: Okay, and then are there others that you think.
Speaker Change: Might represent similar characteristics in terms of being a noncore asset.
Speaker Change: <unk>.
Speaker Change: Ripe for divestiture in 2024.
Speaker Change: Yeah. So Alex this is Steve we've got a couple of things. We're working on now that are real estate transactions solely so nothing big on the business front, we will continue to take a look at opportunities when we do that we weigh everything including potential impact to our effective tax rate. So as those things come through the door will take a look at them, but nothing right now.
Speaker Change: Of substance to report.
Speaker Change: Got you.
Speaker Change: And then.
Speaker Change: Yeah.
Speaker Change: The last question I have for now is on that you paid down $25 million on the credit line, you're at roughly 153 million now.
Speaker Change: Your leverage ratio is $4 99, I think you had at year end target of $4 75 are all those still in line with your thinking.
Speaker Change: Yeah. So you know we feel comfortable landing with whatsapp within that kind of $4 75 to five times range, we've kind of done our model analysis and kind of looked at the scenarios and just based on various factors.
Speaker Change: On performance and Steve mentioned, the potential divestitures of noncore assets, we're going to land comfortably within that four points of five to five times range.
Speaker Change: And then I think a longer term target is 3.5% to 4%.
Speaker Change: Yeah.
Speaker Change: When do you expect to kind of fall within that range at the end of 2025 or do you have a target.
Speaker Change: Yeah. So you know as we just kind of look at our next milestones as we look at it.
Speaker Change: It kind of to year end 'twenty five the next milestone for US is getting to four five times, where interest rate spread decreased significantly by 125 basis points, and then getting down to four to five times, where we can kind of get back into acquisition mode, and we kind of anticipate getting into that level by the back half of 2025, and then getting kind of below.
Speaker Change: So that four times as probably as we turned the corner going into 2026.
Speaker Change: When we can realistically expect to kind of get to that level.
Speaker Change: Great. Thank you that's all great color I'll get back into the queue. Thanks.
Speaker Change: Thank you Alex.
Speaker Change: Okay.
Speaker Change: Thank you and good morning, Carlos Stephen Qian.
Speaker Change: Good morning Liam.
Speaker Change: I just need clarification on an earlier question on funeral home you had contract revenue for our burial up.
Speaker Change: Three 5%.
Speaker Change: Contract revenue for cremation up four 5%.
Speaker Change: Three 2% a barrel four 5% on cremation.
Speaker Change: And thats on a year over year basis, Okay.
Speaker Change: Yes, okay hopping over to your momentum in preneed sales.
Speaker Change: Have you fully staff the sales force or can we expect further build out and additional momentum here.
Speaker Change: I I believe will continue to experience a sustainable momentum throughout the year, you know you have Harry months and others.
Speaker Change: You know Ching Ming, which is a huge.
Speaker Change: Asian celebration starts in March continues through April and then you have summer, which I'll leave it more difficult due to the summer vacation time.
Speaker Change: Families are an at home, but over on a year over year basis, we should be able to continue to experience significant growth on our preneed cemetery sales, including property in merchant services.
Speaker Change: They have done an incredible job you know, we we as low a little bit of momentum.
Speaker Change: Middle year last year, mainly because we upgraded a few of our sales leadership in the cemeteries that took place last year. The development of those leaders the activity leading up to the level of activity, we need to deliver this type of sales have been in place since then and the strategy and plan to continue this momentum.
Speaker Change: It's in place. So we feel very encouraged that between the leadership team. We have in place led by <unk>. In addition to our CRM and marketing efforts for lead generation will continue to grow over the next few quarters.
Speaker Change: Great. Thank you and came back acquisitions I know you stated that where your leverage level would be where you'd be comfortable to ramp up acquisitions, but.
Speaker Change: Is there anything that you would see over the transom between now and then.
Speaker Change: That's a good question Lee I mean actually timely so yeah. We just spent some time last week.
Speaker Change: With a business that we're interested in partnering with when the time is right and so just keeping those relationships active as important to us and a key focus that we continue to look at while we continue to pay down our debt. So we keep those conversations are flowing and make sure that people are up to date on where carriage is and will continue to do that until we get to four in a quarter.
Speaker Change: Great. Thank you.
Speaker Change: Thank you Liam.
Speaker Change: Well go next to George Kelly with Roth NK and.
George Arthur Kelly: Hi, everybody thanks for taking my questions.
Speaker Change:
Speaker Change: Maybe ill.
George Arthur Kelly: I'll start with just a quick follow up to to the comments in the prepared remarks, and then I think there was a question earlier.
George Arthur Kelly: Just to follow up on the trends you saw in volume.
Speaker Change: Through the quarter I am curious if you could comment on what you've seen so far.
Speaker Change: In April.
Speaker Change: And then secondly, same topic is if you were to compare the January and February.
Speaker Change: Volume growth that you saw with March I think you said it turned negative in March I'm, just curious how great that that difference was between between sort of where you started and where you ended the quarter.
Speaker Change: Yeah. It was about 200 basis point variance between January February and then compare that to March which is within the range and issues at March happens to be a very large month for us are typically coming from preneed cemetery sales. So we made up some of it through it but from a field volume perspective, it was enough for us to kind of like pay attention.
Speaker Change: As it relates to your question on April it remains on the same line. The the really good news is that our efforts on it hasnt been a pricing strategy continues to deliver great momentum and we continue to have that ability to make up even at all a significant amount of that declining volume.
Speaker Change: That in addition to our continuous India continuing integration of our most recent acquisition, which is greenlawn, which as you know.
Speaker Change: Have three funeral homes that are continuing to perform better and better as we continue to integrate them into our company.
Speaker Change: Okay. Thank you and then next question is on.
Speaker Change: The four wall, the pricing and cost efficiency measures that you're sort of working through the system I am curious with respect to each one if you were to take pricing on one side and cost efficiencies on the other end.
Speaker Change: For Walnut.
Speaker Change: We're all set.
Speaker Change: What inning are you in in each of those.
Speaker Change: Initiatives yeah. So.
Speaker Change: Oh sure. So we just even though we had a very significant bump on pricing in December and then now reflected on our first quarter of this year.
Speaker Change: We just launched in the last month really what it is our new strategic pricing reveal which is gonna be review by business on a quarterly basis and the intention of this review is not to increase prices just for the sake of increasing price. It has to have a conversation with our leaders in the field, who know best are the communities the competition.
Speaker Change: The right pricing for the businesses and of course, what type of merchandize they need to be selling however, the review does have a significant amount of information that in reflection to the performance of the previous month or quarter should be able to meet them to best decisions and also is not just about price increase.
Speaker Change: You said about our strategy used to continue to present better to families.
Speaker Change: Presenting all options with every single families. So they can have a very comprehensive and customized you know our life celebrations, which one of their loved ones and so it's a combination of the two Reits strategic review process.
Speaker Change: Thoughtful data analytic process.
Speaker Change: Was how can we become better at presenting the families to elevate our average revenue per contract that's on the pricing side.
Speaker Change: Yep.
Speaker Change: It relates to cost which was the second part of your of your question. We have been able to do a lot of good work in getting our costs down we.
Speaker Change: We have mentioned in the past that some of the things we wanted to do with carriage is find that fine balance between the empower partnership as per our purpose statement and decentralization and our ability to maximize our scale and so we are continuing to centralize some of the items that are not.
Speaker Change: Influencing the market need our ability to grow market share to continue to establish relationships in the community and continue to grow there are their brand locally.
Speaker Change: And we're continuing to think about those things in terms of whether it's utilities whether is it decisions where there is you know HR related centralization options, but what we are very encouraged by it right. Now we have started a full blown process to review our supply chain and procurement.
Speaker Change: <unk> practices that will lead to some significant benefit as soon as we finish that process that will include negotiation with vendors. How we elect you know vendors moving forward or are you know.
Speaker Change: In terms of with each one of them and of course, this goes and rebates that may benefit and will benefit the company moving forward. So very very excited about where we are on a stage on cost initiatives, but even more excited about what's to come from from that perspective.
Speaker Change: And would you anticipate seeing that.
Speaker Change: The benefits of that exercise, we're going through right now in the next maybe by year end or when would that start to hit.
Speaker Change: I believe some will be realized before the end of the year and some will take a little bit more time. They are more comprehensive larger scope and most likely will be realized in 2025, but there'll be some low hanging fruit that we have already identified and are starting to quantify most likely we should be able to share some of that on our Q2 release.
Speaker Change: I'll be realized during 2024.
Speaker Change: And then just one last quick one for me, Steve you mentioned that there's potentially some real estate that you guys are considering monetizing can you share a little more detail on what that could look like and I'm, assuming that there's no revenue tied to that or maybe that's that's an unfair assumption anymore.
Speaker Change: I guess the magnitude as you know.
Speaker Change: Could that be larger smaller than the than the divestitures that you've already completed so far this year.
Speaker Change: Thanks, Yeah, it's a great question Jordan.
Steven D. Metzger: Great question, George So on the real estate front, you know from time to time, we will recognize that we've got a business that quite frankly sits on very valuable real estate that is more valuable and what that business is and so once we run the numbers on that to see if there's any way to kind of bridge the gap between that value, we'll make the terms.
Steven D. Metzger: It makes sense to try and market that real estate, it's not often we don't have a lot of these opportunities but.
Steven D. Metzger: But we do have a few and we're working on one right now that.
George Arthur Kelly: It's gonna be a seven figure proceeds transaction for us whenever whenever we're able to finalize it so.
George Arthur Kelly: Again, not something that I would say as frequent for us, but we do take a look at that from time to time to make sure. We're aware of what those real estate values look like.
Speaker Change: Generally when we're looking at those opportunities. It is in a market where we can then funnel those calls to a nearby business. So we're not losing out on any of the business when we sell the real estate.
Speaker Change: Understand thanks.
Speaker Change: Got it.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one.
Speaker Change: I'll pause for just a moment.
Speaker Change: Yeah.
Speaker Change: This does conclude the question and answer portion of today's call at this time I'd like to turn the call over to Carlos for any closing remarks.
Carlos R. Quezada: Thank you for joining as we conclude our call today I want to express our gratitude for your continued support and belief in our vision and purpose statement.
Carlos R. Quezada: Our strong performance this quarter is a clear indication that our strategic initiatives in five year objectives are right on track.
Carlos R. Quezada: We're confident that these efforts will continue to enhance performance in the future driving sustained growth and creating added shareholder value. Thank you and have a great day.
Speaker Change: This does conclude today's conference call you may now disconnect.
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