Carriage Services, Inc.

Good day, and thank you for standing by. Welcome to the Carat Services Third Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Metzger, President. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our third quarter results. In addition to myself, on the call this morning from management are Carlos Quesada, Chief Executive Officer and Vice Chairman of the Board of Directors, and Kian Granmaia, Executive Vice President and Chief Financial Officer. On the Carriage Services website, you can find our earnings press release, which was issued yesterday after the market closed. Our press release is intended to supplement our remarks this morning and include supplemental financial information, including the reconciliation of differences between GAAP and non-GAAP financial measures. Today's call will begin with formal remarks from Carlos and Kian and will be followed by a question and answer period. Before we begin, I'd like to remind everyone that during this call, we'll make some forward-looking statements, including comments about our business, projections, and plans, as well as 2023 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today. These risks and uncertainties include, but are not limited to, factors identified in our earnings release, as well as in our SEC filings, all of which can be found on our website. Thank you all for joining us this morning, and now I'd like to turn the call over to Carlos.

Good morning, everyone. We are pleased to share our third quarter financial performance with all of you. For today's call, I will start by giving you some color on our impressive third quarter operational results, in addition to providing you with a few updates. Following my prepared remarks, Kian will share our financial performance and our views for the remainder of 2023 and an early look at 2024. But before doing so, We would like to thank every Carriage employee for all the hard work and passion in pursuing our Being the Best mission. These results reflect your unwavering commitment to service excellence and a best-in-class customer experience for all the families that we serve. Now onto the results. For the third quarter, our cemetery portfolio delivered impressive growth of 15.5% of total cemetery operating revenue compared to last year's third quarter. Our pre-need sales team did an outstanding job delivering growth of 27.2% in total pre-need property production and an increase of 8.4% of our same store portfolio. Total cemetery fuel EBITDA grew to 9 million or 14.4% over the prior year. These results are primarily driven by the execution of our high-performance cemetery sales plan through increased activity, marketing lead generation efforts, and the optimization of Sales Edge, our in-house customer relationship management platform. Our high-performance sales organization is still in the infancy stage, and we expect to continue to grow consistently in the low double digits on an annual basis. As it relates to our funeral home portfolio, while we have seen a 5% decline in ad need volume as a consequence of the expected COVID-19 pull-forward effect on our same-store portfolio, Our acquisition portfolio and increase in sales average more than made up for it, resulting in total funeral operating revenue of $59.4 million, which is $478,000 more than the same period last year. Our total field EBITDA for the quarter was $22 million, an increase of $318,000 or 1.5%, leading to a combined funeral and cemetery field EBITDA, including financial income, of $36.1 million, an increase of 2.5% over the same quarter last year. And, despite inflationary cost pressures and microeconomic headwinds, we successfully maintained a 39.9% total field EBITDA margin, one of the highest in the industry. These results demonstrate our successful navigation of cost pressures and our ability to grow revenue against a lower death rate. CDC data in the states where we operate show a 9% decline in deaths compared to last year. However, our volume only declined 5% during the third quarter. Moreover, our internal data shows that we continue to gain market share broadly throughout our portfolio. Our adjusted consolidated EBITDA was $24 million for the quarter, an increase of $1.4 million or 6.1% over last year. And our adjusted consolidated EBITDA margin of 26.8% was an increase of 70 basis points over the prior year quarter. This performance is a result of the hard work of our managing partners and their teams, and all they do to serve families while managing their cost structure in this inflationary economic environment. We thank you all for the great work. These strong operating results translated into robust free cash flow, generating $21.4 million for the quarter, allowing us to reduce our variable rate credit facility by 16.7 million. However, despite this pay down, we experienced an increase of 2.6 million in interest expense compared to last year's quarter, significantly impacting our adjusted earnings per share, which ended at 33 cents against 45 cents last year. After accounting for approximately 12 cents increase in interest expense, our adjusted diluted earnings per share are flat compared to the prior year. We will continue to execute our capital allocation strategy with a primary focus on accelerated debt repayment and reducing interest expense. Now let me provide three additional updates. The first is related to our pre-need funeral sale strategy, which is in full swing. Our partnership with the National Guardian Life Insurance Company and Precoa Pre-Need has been deployed and fully integrated throughout our western region. We are in the final stages of integrating the central region, and the eastern region is scheduled to be completed by January 2024. While we are still in the early innings of the integration process, we have already started to see the benefits of this strategy, with GA revenue growth of 31.9% over the prior year. We expect these results to continue as we complete integration and grow exponentially over time, allowing families to plan their final wishes while our businesses are able to secure future market share. We are very excited about this performance and look forward to reporting continued progress in future calls. The second update is our digital transformation journey, known as Trinity. We have completed the data collection and the gap analysis, and we're in full-time programming mode with a pilot set to be launched at the end of the first quarter of next year. Once deployed, Trinity will increase efficiency and insights related to finance, accounting, data analytics, pricing, and other operational functions. Moreover, the automation of processes will transform how we engage with families and radically improve the customer experience. Lastly, we continue our review for strategic alternatives and will provide additional details once the Board has completed its review. Until that time, we will have no further comment on the process. In closing, after three quarters of a strong operational performance, we are very excited about where we are as a company. And while we have some headwinds due to the current microeconomic environment, inflationary cost, variable interest rates, and the death rate normalization, as the pull-forward effect of COVID-19 continues to impact volume, we believe we're well positioned to navigate the current environment while continuing to build on the areas we have highlighted throughout the year. We are very encouraged by the progress that has been made in 2023 and our ability to execute our strategy and create shareholder value over time. Thank you, and I will now pass it on to Kian.