Carriage Services, Inc. (NYSE:CSV) Q4 2023 Earnings Call Transcript
Carriage Services, Inc. (NYSE:CSV) Q4 2023 Earnings Call Transcript February 22, 2024
Carriage Services, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. 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, President. Please go ahead, sir.
Steven Metzger: 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 Quezada, Chief Executive Officer and Vice Chairman of the Board of Directors; and KKian Granmayeh, 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 KKian 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 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.
Carlos Quezada: Thank 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%. And for the full year, it grew to $382.5 million, an increase of $12.3 million or 3.3%.
The very solid cemetery sales performance are 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-need 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% from last year's quarter, and by $2.2 million or 0.9% 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%, and for the full year, we grew by $12.2 million or 13.5%.
This fantastic performance is due to the amazing job of our pre-need cemetery sales teams knocking it out of the park. With pre-need cemetery sales production increasing by $3.9 million or 25% for the quarter when compared to last year, and by $12.1 million or 19.6% for the full year. Lastly, total financial revenue took off with an increase of $3.1 million or 59.5% compared to last year's quarter, and $3.8 million or 17% 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%, and for the full year, we delivered $113.2 million, an increase of $3.9 million or 3.5% compared to last year.
We grew our adjusted consolidated EBITDA margin during the fourth quarter by 230 basis points to 32.8%, and for the full year, we grew by 10 basis points to 29.6%. Our focus on cost savings delivered excellent results, including a decrease in total overhead of $3.8 million or 7% for the year. We saw adjusted diluted EPS in the fourth quarter grew to $0.77 per share, an increase of $0.13 or 20.3%, and for the full year, we ended at $2.19, which is $0.19 above the top end of our guidance. However, compared to the previous year, we experienced a decrease of $0.42 or 16.1%, driven by the high interest rate environment's impact on our evolving 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 $0.48 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. Kian will share more regarding our debt and leverage later on this call. 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 met 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 disciplined 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 had 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 Playbook. 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 exceed 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.
Kian Granmayeh: 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 guidance ranges 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% of revenue, which is lower than our previously stated 13% target for the full year 2024.
The general decrease in overhead expense we experienced 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 outperformance 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%, 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%, 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 Greenlawn 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 EBITDA.
Despite the paydown, interest rates continue to hover around the same weighted average interest rate of 9% on our credit facility for the quarter as compared to 6.3% in the same quarter last year. For the year, our weighted average interest rate for our credit facility was 8.6% 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 million to $390 million. For adjusted consolidated EBITDA, our range is $112 million 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 million 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 carriage 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.
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