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spk02: Welcome to the Carriage Services Fourth Quarter and Full Year 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,
spk04: President. Please go ahead,
spk03: sir. Good morning, everyone. Thank you for joining us to
spk08: discuss our fourth quarter and full year results for 2023. In addition to myself, on the call this morning for management are Carlos Casada, Chief Executive Officer and Vice Chairman of the Board of Directors, and Keon Graham-Miah, 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 Keon, 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 2024 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. Thank
spk05: you, Steve, and welcome everyone to our 2023 fourth quarter and full year earnings discussion. We're excited to dive into our achievements and plans, so let's jump right in. First off, a heartfelt thank you to every carriage team member. Your dedication and hard work have been instrumental in providing outstanding service to countless families. Your efforts, passion and commitment truly matter. We are grateful for your contributions. Now, let's talk about our financial highlights. We are thrilled to report significant progress in executing our focus strategies to grow revenue and reduce costs. For the fourth quarter, total revenue grew to 98.8 million, an increase of 4.9 million or 5.2 percent. And for the full year, it grew to 382.5 million, an increase of 12.3 million or 3.3 percent. The very solid Cemetery Sales performance, our two most recent acquisitions, and our targeted efforts to better leverage our pricing power to improve average revenues per contract, helped make up for approximately 13.3 million of funeral home ad-knead revenues despite the pull forward from COVID that led to a modest decline in volume. Looking at each of our revenue segments, we see that total funeral home operating revenue experienced a reduction of 1.6 million or 2.4 percent from last year's quarter and by 2.2 million or 0.9 percent for the whole year. This decline is driven by lower volumes due to the pull forward effect. As for total cemetery operating revenue, we ended the quarter above last year by 3.7 million or 16.1 percent. And for the full year, we grew by 12.2 million or 13.5 percent. This fantastic performance is due to the amazing job of our pre-knead Cemetery Sales teams knocking it out of the park, with pre-knead Cemetery Sales production increasing by 3.9 million or 25 percent for the quarter when compared to last year. And by 12.1 million or 19.6 percent for the full year. Lastly, total financial revenue took off with an increase of 3.1 million or 59.5 percent compared to last year's quarter and 3.8 million or 17 percent for the full year. This boost in financial revenue is equally balanced between our investment strategy and the results of our new pre-arranged funeral sales program. Regarding adjusted consolidated EBITDA for the fourth quarter, we finished with 32.4 million, an increase of 3.8 million or 13.2 percent. And for the full year, we delivered 113.2 million, an increase of 3.9 million or 3.5 percent compared to last year. We grew our adjusted consolidated EBITDA margin during the fourth quarter by 230 basis points to 32.8 percent. And for the full year, we grew by 10 basis points to 29.6 percent. Our focus on cost savings deliver excellent results, including a decrease in total overhead of 3.8 million or 7 percent for the year. We saw adjusted diluted EPS in the fourth quarter grew to 77 cents per share, an increase of 13 cents or 20.3 percent. And for the full year, we ended at $2.19, which is 19 cents above the top end of our guidance. However, compared to the previous year, we experienced a decrease of 42 cents or 16.1 percent, driven by the high interest rate environment's impact on our revolving credit facility. To put things in perspective, we paid $10.4 million more in interest expense during 2023 than in 2022. With our debt remaining at a similar level, when converting this to EPS, the impact is approximately 48 cents per share. Debt repayment continues to be at the forefront of our near term goals, and we intend to continue to pay down our debt with free cash flow until our leverage ratio is under four times. Here, I will share more regarding our debt and leverage later on this goal. We are very proud of these results, especially after outperforming our guidance for EPS, EBITDA, and revenue for 2023. Even though we did revise our outlook due to a lower than expected third quarter, we made up for it in the fourth quarter. When comparing our original full year 2023 guidance, we finished the year within our initial ranges in all categories except EPS, which was down due to the higher interest rate environment. Now that we have gone over the past, let us focus on the future. We are excited to announce that we are embarking on a transformative journey with our new purpose statement, creating premier experiences through innovation, empowered partnerships, and elevated service. This purpose statement is our commitment to every aspect of our business. It focuses on continuous innovation, partnership, and service delivery, and is rooted in three core pillars. The first pillar is discipline capital allocation. Our focus is to invest our capital in a disciplined manner that identifies areas with the most significant potential for returns, ensuring our resources pave the way for sustainable success. The second pillar is purposeful growth. Growth is not a mere increase in size, but a deliberate journey towards enhancing our revenue and financial metrics through strategic, thoughtful, and data-driven planning. This approach sharpens our focus, enabling broader execution, and driving impactful results. It's about growing not just in scale, but in significance, organically and inorganically. The third pillar is relentless improvement. We understand that lasting success comes from an unwavering commitment to excellence. Every day offers a new opportunity to refine our processes, improve our systems, elevate our services, and surpass our previous achievements. This dedication to continuous improvement is at the heart of our purpose statement. Together, these three pillars are not just strategies. They are our pledge to relentlessly pursue excellence, to innovate with intention, and to lead with a level of service that redefines what is possible. Speaking of possibilities, we hope you have the chance to explore our newly revamped website and visual identity. We have brought our purpose statement to life, giving our carriage logo a fresh, innovative look and signaling our focus on driving an exciting new future. We are also excited to share a new role focused on leading our continuous improvement lean management program. This data-driven approach will result in refined processes and improved systems that will enhance productivity and identify potential cost savings and other opportunities. It represents our commitment to becoming more efficient and effective in our operations, and is aligned with the relentless improvement focus of our purpose statement. This approach to continuous improvement is something we're optimistic about. We believe it will pave the way for better processes and outcomes. As we continue to pursue our vision, we look forward to sharing our progress and learnings with you in future updates. It's a journey of growth and learning, and we're excited to see where it leads us. As part of our relentless improvement approach and driven by our passion for service excellence, we are pleased to introduce a new role within our team, the director of customer experience. This role is pivotal to our passion for service program, focusing on training, rollout and development of hospitality concepts within our teams. In addition to creating key performance indicators to measure customer experience in our delivery of wow moments playable. Our objective is clear as a company that prides itself on being driven by service and supported by a team fueled by both passion and compassion. In these service driven times, the importance of customer experience cannot be overstated. It is the cornerstone of differentiation and customer loyalty in a competitive landscape. We aim to set ourselves apart by delivering a customer experience beyond expectations. This commitment to elevating our service delivery ensures we meet and succeed our industry's evolving standards and demands. It's more than a program. It's a promise to lead with excellence and make every customer interaction an opportunity to demonstrate our unmatched dedication to service. This program paired with our ERP and customer facing system called Trinity, along with our customer centric approach, will deliver an enhanced experience that we believe will drive organic growth and increase market share. We are truly excited about the future at Carriage. The dedication and hard work we have invested over the past year, coupled with the strategies outlined today, position us for a future marked by innovation and continuous progress. This isn't just about near term achievements. It's about establishing a foundation that will deliver lasting value to our shareholders for years to come. Thank you for your attention and support. With that, I will now turn things over to Kian.
spk07: Thank you, Carlos, and good morning to everyone on the call. Since Carlos provided an overview of our key financial metrics for this quarter and for the full year 2023, I will review a few additional financial highlights for the same periods, and I will also provide color around our 2024 outlook and Guinness Rages provided in our earnings release yesterday. First, I will start off with corporate overhead. We are very proud of our downward trend in corporate overhead throughout the year. This quarter, when adjusting out special items related to the review of strategic alternatives, our overhead costs total approximately 10.7 million. And for the full year, similar overhead costs would amount to 47.9 million or approximately 12.5 percent of revenue, which is lower than our previously stated 13 percent target for the full year 2024. The general decrease in overhead expense we experience is primarily a result of lower incentive compensation relative to prior quarters in previous years, but also our relentless focus throughout 2023 on disciplined spending, which included optimizing and reducing overhead costs. Second, I would like to discuss our cash flow from operations, which increased to 13.7 million this quarter, up from 11 million the same quarter last year. This increase is a direct result of our fourth quarter out performance that Carlos discussed earlier and ultimately how those results flow down to net income. For the year, cash flow from operations increased by 14.6 million or 24 percent from the previous year to 75.6 million. Additionally, our solid cash flow from operations translated into robust adjusted free cash flow. For the quarter, with maintenance capex more or less in line with the prior year quarter, our calculation for adjusted free cash flow increased by 2.7 million or 44 percent after adding back special items. In the future, we look to align our adjusted free cash flow calculation with a standard view of free cash flow, inclusive of all capital expenditures, not simply isolating maintenance capex, which brings me to my last note on the cash flow statement, our capital expenditures for the year decreased by 8 million down to 18 million when compared to the previous year. This is a direct result of our capital allocation strategy and discipline. The 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. This quarter, we were able to pay down an additional 8.2 million on our credit facility, reducing the outstanding borrowings to 179.1 million by year end. Though this amounts to a 11.6 million year over year decrease in the amount drawn under the credit facility, we have to take into consideration that the Green Lawn Acquisition, which closed at the end of the first quarter of 2023, resulted in a peak amount drawn under the credit facility of 213.6 million at quarter end. Therefore, over the next three quarters through year end, we paid down 34.5 million on the credit facility, a considerable amount to pay down the supported with our cash flow generation and capital discipline. Looking at leverage by using our bank covenant compliance ratio, as defined by our credit agreement, we have steadily lowered our leverage ratio, ending the year at 5.13 times net debt to EVA-DOT. Despite the pay down, interest rates continue to hover around the same weighted average interest rate of 9% on our credit facility for the quarter, as compared to .3% in the same quarter last year. For the year, our weighted average interest rate for our credit facility was .6% compared to 4% in 2022, a primary driver behind the 10.3 million of additional interest expense year over year that Carlos mentioned earlier. Now, I will conclude my remarks by turning to our full year 2024 outlook that we provided in our earnings release yesterday. Before I dive into our guidance ranges, I would like to highlight that our 2024 outlook is pro forma for divestitures of non-core businesses that we have line of sight to a potential close in the first quarter of the year. This includes two separate transactions that would remove approximately 5.5 million of revenue and 1.5 million of field level EBITDA in 2024. The sale proceeds in turn would be used towards paying down our credit facility. With that disclaimer behind us, let us review the 2024 guidance ranges. For total revenue, our range is 380 to 390 million. For adjusted consolidated EBITDA, our range is 112 to 118 million. For adjusted diluted earnings per share, our range is $2.20 to $2.30. And lastly, for adjusted free cash flow, our range is 55 to 65 million. Overall, we expect 2024 to be a continuation and extension of our performance in 2023, focused on organic growth driven by our key strategic initiatives around pre-need sales, both on the funeral and cemetery sides, continued integration and optimization of recent acquisitions alongside continued capital and spending discipline. Through the course of the year, we will continue to be laser focused on reducing our leverage to a level that positions carries to pursue acquisitions opportunistically again in 2025. As a management team, we have been deliberate in our disciplined approach around capital allocation decisions and executing on our strategic initiatives. And we are pleased to see how those decisions led to positive financial results in the fourth quarter and for the year. We are excited to continue that momentum into 2024. With that, I'll pass it back to the operator for questions.
spk02: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you can press star one to ask a question. We'll pause for a moment to allow everyone the opportunity to signal
spk04: for questions.
spk02: And
spk04: we'll take our first question from
spk02: Alex Perris with Barrington Research. Please go ahead.
spk10: Thank you. Good morning, guys, and thanks for taking my questions. I want to first start off by congratulating you on the strong finish to the year and then a separate congratulations to Mel Payne on his transition from executive chairman to special advisor, i.e. semi-retirement. That's about as close as you'll see him get to retirement, I think.
spk03: Thanks, Alex.
spk10: Sure, I think I'd like to start with the strategic review. You talked about it in the press release. I'm wondering what additional color you can add. It started nearly eight months ago. You've gone through a process and the board has obviously decided that the shareholders will be best rewarded through an independent publicly traded company, which I would agree. So just any additional color you can get in that strategic review process to start.
spk08: Sure, Alex, this is Steve. I think first and foremost, you're very proud of our board and our outside advisors on the financial and the legal side. It's been a very thorough process over the past eight months, very thoughtful process. We were obviously flattered as a company. By the interest. But ultimately, I think the board did not believe that the offers presented offered the same value to shareholders as the current strategy and opportunities that lie ahead for us as an independent publicly held company do. So we put a little extra color in the 8K just to kind of highlight the amount of time and effort that went through the process. But, you know, the board is as excited as management is about the prospects that lay ahead for us that were outlined in the press release.
spk10: Great, that's helpful. So referring to the strategic plan going forward, new purpose statement and things like that. And this includes the strategic plan. I'm presuming that we're talking about the high performance and credit profile restructuring plan that was originally announced in December of 2022 that focuses on organic growth, debt reduction, and the financial and legal side. Et cetera. What would you call out there? What additional color you can give us as to a going forward strategic plan?
spk05: Yeah, it's thank you, Alex. And good morning. It is a continuation of that program with some additional concepts that I actually mentioned on my preferred marks. We are going into this journey to trying to improve a lot of the processes and systems that we have, not just to accelerate bringing carriage to a level of innovation and through technology and the way we approach things that would deliver better performance than before, but also should deliver productivity improvements and a reduction on cost over time. That's one aspect of it. That's here at the support center as well as in the field. However, we also included on the remarks the significant focus on customer experience. As the demands of the industry continues to change from the dynamics of customer changing, you know, their preferences for final placement or choices for funeral service, you know, funeral services and cemetery, we also want to adapt and get ahead, you know, for the most part than anybody else as it relates to customer experience. We have been working probably a little bit over a year and a half to build that. We have heard me talk about passion for service while, you know, playbook. And this is the time to finalize that approach, to formally launch it and to start capitalizing on that opportunity. So, we do believe that in addition to what we have on what we call the HPCPRP plan, this addition to the plan are creative and significant from a revenue growth opportunity as well as cost
spk03: savings, you know, opportunity. Great, that's helpful. And then
spk10: before I get into, I got a couple of questions about guidance. You know, guidance at the midpoint calls for revenue growth of 1%, adjusted EBITDA growth of 2% and adjusted EPS growth of 3%. But you said in the prepared comments that it's, that guidance is pro forma for the divestiture for the two transactions you expect to execute in the first quarter. My related question is, are there any other non-core businesses that are excluded from the guidance that you think you might sell this year? And just in general, are there other non-core businesses that you have identified for potential divestiture in 2024?
spk05: On our guidance, Alex, only the ones that Kian mentioned on his prepared remarks are pro forma to the guidance. We do have, however, identified other non-core businesses that we may, you know, see we want to divest from over the next few months. I wouldn't have any offers or specific plans to that, but we do have a list, target list, let's just call it, of businesses that we believe no longer fit the criteria of the high-performance nature culture of carriage and we'll work hard to make that happen. And of course, all the, you know, proceedings from that will be to pay down our debt and continue to, you know, lower our leverage ratio.
spk10: What is the approximate gross proceeds on these two transactions anticipated? It was 5.5 million in revenue and a million and a half in EBITDA.
spk08: Approximately, you know, 11, 12 million.
spk10: And then related question, of the other non-core businesses on the target list that may or may not be divested, what sort of gross proceeds can come out of that portfolio, do you think, or said another way, what sort of revenues and adjusted EBITDA are we talking about?
spk08: Yeah, I think to Carlos's point, so we haven't identified any offers yet. You know, what we look at, we have that list identified, but what we really focus on when we're talking with other people about potential divestitures is, you know, what are the tax implications, what are the multiples, and does it make sense for us? You know, obviously you'd be losing some EBITDA, but you're going to get cash in to pay down debt. So until we have those numbers in front of us, you know, a little bit tough to say that we have targeted proceeds that we're looking to close on this year. It really has to be the right deal that's presented on these businesses. Those conversations are ongoing, so we may have some more color in the quarters to come, but at this point, they're not far enough along to really be able to pinpoint that.
spk05: But to confirm also, Alex, we would not divest from assets where the valuation multiple of the sale is lower post-tax than the leverage ratio we're getting to make sure that we find a way to really make a dent on our debt.
spk10: Gotcha. So between the $11 or $12 million in gross proceeds, I'm sure there's some tax implications there. And then your expectations for free cash flow in 2024. Do you have a net leverage target for year end? I know you had in the past, you know, with the high performance and credit restoration plan. Where would you think that we finished out the year in terms of that based on current guidance for revenue in EBITDA?
spk07: Yeah, Alex, on that point, what we were focused on is, you know, the capital discipline and continuing to lower our leverage and our leverage ratio as a whole. A lot of that is dependent on kind of how things look for the course of the year on the EBITDA side. But, you know, right now we're at, you know, using our bank coverage, our bank leverage ratio, we're at 5.13 to end the year. We look to continue that strength and that pay down through the year, looking to get sub five, you know, through, let's call it in the second half of the year, and then looking to make more progress as we get to the end of the year.
spk10: Gotcha. And then I guess my last question, I'm going to ask you to let somebody else ask questions, is, Keon, any color as to the cadence of the quarters this year? We have full year guidance. I think Service Corps said on their conference call last week that for them, Q1 is going to be the last of the tough comps, and Q2, Q3, and Q4 should be more normalized growth for them. And they're taking into account the pull forward effect of COVID, as well as maybe interest rates peaking and coming down over the time. And then again, specific to them, the end of certain capital projects. So thoughts about maybe first half versus second half? Alex, I
spk07: know you asked me that question, but when it comes to kind of a long term seasonality, I think Carlos is better equipped for that. So let me kind of pass it over to him and let him give you some context if that's OK.
spk05: Sure. Thank you, Keon. So I'll break it in a couple of parts. When it comes to pull forward, we believe it will take probably at least three more quarters, if not four, for fully wash off the pull forward effect. We have been experiencing a continuous decline year by year on volume throughout 2023. And we think it's going to take a little bit of time to get to a level where it's flat and then start to grow on a year by year basis. We have been able to then account for and I'm happy to talk about later on a little bit more on that. It relates to our average revenue per contract. We believe we can sustain that to 2024, making up for some, if not most of that volume drop. And so that's that's the one piece on pull forward. I do believe systemality, meaning the typical Q1 being the highest quarter of the year, Q4 being the second highest of the year, Q2 being the third highest of the year, and then Q3 being the fourth highest of the year will be pretty much the same. So systemality for this industry, in my opinion, will come back to play in 2024. Offset here and there by the pull forward effect. So I do expect some sort of normalcy from that perspective and our ability to compensate through strategies that we have created. Two that I mentioned is continue focus on pricing power and our cremation offerings to make sure that we capitalize on every cremation opportunity that comes as a reclamation that leaves our business with some sort of service, you know, you know, offering merchandise that increase that's, you know, our return for contract.
spk10: Great.
spk03: Thanks for the additional color, everybody. And I'll I'll get back into the queue. Thanks. Thank you, Alex.
spk02: Once
spk04: again,
spk02: if you would like to signal for a question, please press star one. We'll now take our next question. And that will be coming from John Franz Ripps with the Sadolly Company. Please go ahead.
spk06: Good morning, guys. Morning, guys. And congratulations on a good quarter. I guess I'd like to start with the pre-need sales success you're seeing in Cemetery. I'm curious what's driving that and were there any sales incentives that were put in place that were successful?
spk05: Absolutely, John. So, you know, our Cemetery strategy, which started probably about three, three and a half years ago, really three years, you know, it's building up on its foundation, right? From the moment of recruiting more sales managers, getting the right who in the right place, creating the program, including our lead management system, our CRM, which we call Sales Edge, that we launched about a year and a half after we initiated this program. It's starting to, you know, that foundation that we work, you know, from the beginning, as we started to ramp up our sales, pre-need Cemetery sales teams, is starting to really become very consistent. When you add to that also that we integrated a marketing module to our CRM, our, you know, marketing team led by Alfred White has done an incredible job in integrating lead generation through different sources from websites and other type of lead generation programs that is helping. But the most significant piece, just to be very transparent with all of you, is of course the integration of the most recent acquisitions of Cemetery. We acquired two, you know, two different businesses last year. One has a Cemetery, St. Lawrence Cemetery in Charlotte and the other two Cemetery, which are combos, in Bakersfield. And so the integration of those three Cemetery's have also helped. We have been able to create new inventory on one of the three Cemetery's, which already started to show, you know, tremendous success last year and we are actually creating significant amount of new inventory on the other two. And so those also help. As a side note, as we change our same store acquisition comparison to be more fairly compared to our peers last year, Q1 will be the last year for Greenlawn as part of being same store. And after that really is all just, I'm sorry, acquisitions. Everything will be same store until we get new acquisitions. So this is also an impact of the latest integrations and we're very, very excited about the performance and we believe there's a lot more to come from that in the near future.
spk06: Great. That's very helpful. And the growth of the EBITDA and EBITDA margin in the quarter, I think you attributed to a combination of cost savings and I think overhead reduction, if I heard you properly. I'm curious where you stand on the price cost recovery as you are absorbing some higher vendor costs in the previous quarters. Are you at equilibrium? Can you kind of delve down a little bit deeper into that?
spk05: Happy to do it. So when you think about the structure of carriage being highly decentralized, we did talk about pricing and trying to pass on those increases we received through 2023 starting somewhere around March of last year. From vendors and services and other types, including salary and benefits that were increased at the beginning of the year, opposed to all the stress from COVID-19. And so we did struggle at the beginning to pass on those increased costs to the families, to the consumers, to the client families. Because of that decentralization. So it took us some time to figure out what was the right approach to pricing, to find a way to leverage our ability to influence that pricing through information, through the managing partners who have and will remain to have the decision on the pricing power for the company. And so in November, we found a formula that really helped out and we were able to make some significant changes with the support of the field leaders. They did an incredible job as a consequence to that. In the month of December, after just a month of full implementation of this, I'll share that our total contract average for all carriage increased by 5% or $274. On the barrel side increased by .6% or $155. And on the cremation side increased by .9% or $175. We believe not only these increases are sustainable, but there's a little bit more to increase as we move forward throughout 2024. And it is a great way to keep our cost where it should be, our cost structure, and making sure we deliver with an increased customer experience, higher value for that in exchange for those dollars to every family that go to a carriage or cemetery.
spk06: Great, that's very helpful. In fact, and I guess one last question. I'll let somebody else get into queue regarding the guidance. Is it safe to assume that you've embedded incentive compensation into 2024 guidance? Because it sounds like that was. Downsizably in 2023 and what it kind of assumed tax rate are you putting into that 2024 guidance?
spk07: Hey John, this is Keon. So let's answer the tax questions. The tax questions we're just kind of using our annual kind of our typical annual assumption on taxes, which is anywhere between 29 to 30%. And then on the incentive comp. So yes, we do have that embedded within our on our cost, which ultimately hit EBITDA. So that is embedded in our assumptions for the outlook.
spk03: Great. Thanks. Can I get back into queue? Yep. Thank you.
spk04: John. Our next question is coming from Lam Burke
spk02: with the rally.
spk01: Yes, good morning. Carlos. Good morning.
spk03: Keon. Morning.
spk01: Morning, Liam. Carlos, your funeral home EBITDA margins were down year over year, which is fine, but your sequential improvement was pretty dramatic. I mean, 200 basis points plus. If you look into some of the cost cuts, that's impressive. How do you see that momentum in that kind of staging going into 2024, that kind of improvement?
spk05: We do see that as a very positive momentum going into 2024. There will be, you know, we have our normal round of varied increases in the field and the Houston Support Center in February, but we're already planning of what it's going to take to make that up so we can continue the same momentum throughout the year. So we're fully ready, prepared and plan into continuing the same momentum through the next four quarters.
spk01: Okay, great. And then Keon, your financial revenue on EBITDA was sort of off trend. Could you give us some color on that?
spk07: Yeah, of course, Liam. So that's really a result of three things. I'll just kind of take through them. So one is embedded within financial income. We also have what we call general agency commission fees. And also PC income, which is our perpetual care income from our trust. So on the on the pre-need funeral side, on the insurance side, we received commissions. We're seeing that growth. You know, if you remember over the summer of 2023, we announced an exclusive arrangement with National Guardian Life from PECOA. And we started implementing that in different regions, our Western and Central regions are are fully implemented and we're looking to finalize the Eastern region. So we did see some of that come to fruition in 23 and we'll see more of that come through in 24. On the on another topic related to our, we call it general agency commission fees, which is a fees related to selling insurance policies. We did kind of have a change in recognition policy in 23. It's an outdated policy we've had for probably 15-20 years that since selling these policies was such a small part of our business, we would just defer the recognition of those fees, those commissions, 100% for over a 12-month period. We changed that recognition policy as a result of us signing this exclusive agreement in summer 2023. And now our policy is an -20% recognition. So 20% will defer and 80% will recognize. So that adjustment is also reflected in there for 2023. And then on the perpetual care income side, our trust funds just in general have generated, from the fixed income side have generated a considerable amount of income and also from the dividend payers. So that income flows through our income statements. So we saw some growth there as well as we continue to rotate into income paying securities.
spk01: And I guess my question is just to follow up on that. Is that typically the trend we can expect for in 2024? I mean, understanding, we will understand that you can't predict your income from the trust. That's fine. But
spk07: I
spk01: mean, there are other things embedded in that number that are pretty much a little more consistent.
spk07: So I'll talk about the PC income side and I'll pass it over to Carlos when it comes to the pre-need funeral strategy side and what to expect in 2024. On the perpetual care income, we do continue to, we do have line of sight on what dividends look like for our securities that we own in our portfolio and also from the dividend payers. So we do expect, you know, with a slight rotation in our portfolio that we will continue to grow our perpetual care income. So you will see slight growth on the perpetual care income side. With that, I'll pass it to Carlos on the pre-need funeral. Thank
spk05: you, Liam. On the funeral side, as you know, for the most part, Carriage never had a very specific focus to drive the arranged funeral sales through insurance. Even though we did sell them individually based on each managing partner deciding to sell some through some local or national based partnerships. After we partnered with PRECOA and the National Garden Life Insurance Company, we created a whole very holistic plan where it's just one insurance company supporting them back in Carriage for this paper. And with PRECOA, it relates to our ability to then display sales to all of the different funeral homes across the states where we operate. And so the program we have, the schedule of integration that we have led to a significant improvement in addition to the 80% recognition from what Keean just mentioned. But it is just the beginning because our schedule started really in September for integrating with the West being the first region from Carriage being integrated into this new program. December had some of the central starting to roll in and then really finalizing in Q1 of this year with the East region. So it will be only until the second quarter of this year when we'll have full integration of all of our businesses within the new partnership. So I highly expect we will be able to continue to grow on a year over year basis from our general agent commission. I reflected on financial income as PAF for years to come until we catch up to a point where year over year comparison will be more on the single digits. But in the meantime, will be, in my opinion, probably somewhere around 10 to 15% year over year.
spk03: Great. Thank you Carlos. Thank you Keean. Thanks, Liam.
spk02: Our next question is coming from George Kelly with Ralph MKM.
spk09: Hey everybody. Thanks for taking my questions. So first an accounting question, Keean, just maybe to follow up on the prior question about the change in accounting recognition in financial income or financial revenue this quarter. Just wondering if you could quantify. Sounds like you changed practices and maybe there was kind of a lump amount that hit four Q's. So could you quantify that?
spk07: Yeah. So for a go forward basis, let's call it January 1st, 2024, we will be working off an 80% recognition, 20% deferral. And that's just based off of kind of historical rates that we've used or that we've seen in our data when it comes to cancellation of those policies. So that 20% is what we're going to go with in terms of the deferral. On a look back basis within our financial income, there is a, let's call it a catch up when it comes to the 23 period of about 1 million that is added in that period.
spk09: Okay, okay, that's helpful. As a result of
spk07: the policy change.
spk09: Understood. Thank you. And then second question for Carlos. You mentioned in response to one of the earlier questions just about pricing and how it took a while and you finally kind of settled on a formula in November that worked. Just curious if you could give more detail on what exactly that means, what changed in November. And then second part of the question is just curious what kind of pricing you're anticipating in fiscal year 24 for what's facing your guidance. Is it fair to say that it's kind of a low to mid single digit pricing bump across if you were to just look at like a blended average across your businesses in fiscal year 24?
spk05: Yeah, absolutely happy to address that George. So on your first question, what we noticed is that a data driven approach to pricing brings more attention to our managing partners. So what we are doing is creating a framework where it shows market share trends for a few years for each business. Then we have pricing over the last three years to see what pricing impact has been increased or not over the last three years. Add as much competitive pricing as we can and that information is available so we can add that up. And then have a normal market share also as a percentage for the market. And then we have a normal seat down. With financial data including you know, even the margins and things of that nature to come to conclusions that based on the data become quite evident to you know, to the side, right? And so those conversations that the director of support, you know, regional partners and our FB&A team here at the Houston Support Center are having are bringing significant awareness and understanding of how pricing matters. And how we cannot absorb increases coming from inflation or you know, merchandise costs or whatever it is from our vendors and others. And so it's making a significant impact. There's nothing other than awareness through a very specific pricing review process. However, we do lead the final decision to the MP because it is very sensitive, right? We do not want to price ourselves out of the market. And so we listen to what they say, how they're thinking about their business, how what is their value proposition, which is something all of them are working on and defining what it is that this, you know, makes it different than others from a value perception perspective. And it is making a significant impact. So that's on your on your number one question. And the number two, I do believe that for 2024, we will be right in the middle of single digits for year over year increase on our average revenue per contract. Maybe a little bit higher on the cremation side because we have a very specific approach to cremation, maybe between seven to eight percent on the cremation side. And the approach to cremation is very simple. When you think about our burial mix and cremation mix at Carriage, we have about 70 percent cremation. Over that 70 percent cremation, 69, almost 70 percent too, is direct cremation. Direct cremation being the lowest average per contract that we have. And so our focus is going to be on that direct cremation volume and see how many families can we convert to what we call cremation offerings. We have created a very specific strategy to educate families with literature and offerings that include, you know, a reclamation with a service, reclamation without, you know, a pool visitation or IV or merchandise, different approaches. Customized by business through the support of the managing partner. And we believe this will lead to a significant increase on conversion ratio between cremation with something sort of service. And so we're very excited about that. This has started officially in the month of January and we believe we will see the benefits of that as we report in Q1.
spk03: Thank you very much. Thank you, George.
spk02: And this concludes today's question and the answer session. I'll now turn the floor back to Carlos Cusada for any additional or closing remarks.
spk05: Thank you, everybody, for attending the call today. We're super excited about the future at Carriage. Our ability to now manage pricing power, our continuous improvement program, our program on customer experience and being able to gain market share and better pricing from perceived value from families is very, very exciting. Our brand new purpose statement as the driver and the three supporting pillars under the purpose statement, it drives a focus and a way to continue to grow over the next years and provide shareholder value. We're very excited also about our focus on continued to pay down our debt and really delivering our promise we made to our high performance grade profile restoration plan to deliver on the leverage ratio that it is ideal for Carriage. In closing, I would like to say something regarding male pain. Male retirement marks the culmination of over 33 years of exceptional leadership since founding Carriage Services. A journey categorized by visionary foresight, steadfast commitment to being the best and a heartfelt dedication to this noble profession. Under Mel's guidance, the company has become one of the industry leaders, setting high performance standards and fostering a culture of honesty, integrity and quality in all we do. This transition to retirement signifies not an end, but the onset of a new chapter for Mel to explore. The legacy left behind is a testament to a career dedicated to excellence, inspiring those who follow to continue building on this foundation. As Mel steps into the next chapter, the hope is for it to be filled with joy, peace and fulfillment, reflecting the richly deserved rewards of our remarkable career. With that, we thank you and we're happy to report our Q1 results as we continue to
spk03: grow in 2024.
spk04: Thank you. This concludes today's webcast. We thank you for your participation.
spk02: You may now disconnect your lines at this time.
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