Carriage Services, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020. Carriage operated 173 funeral homes in 26 states and 32 cemeteries in 12 states.
Financial performance
| Metric | Q1 2020 | Q1 2021 |
|---|---|---|
| Revenue | $77.5 million | $96.6 million |
| Gross profit | $23.2 million | $35.1 million |
| Gross margin | 29.9% | 36.3% |
| Operating income | $2.2 million | $26.2 million |
| Net income (loss) | $(4.2) million | $12.9 million |
| Diluted EPS | $(0.23) | $0.71 |
| Cash from operating activities | $13.5 million | $26.8 million |
Revenue increased 24.7%. Funeral contracts rose 15.7% to 13,296, while average revenue per funeral contract was broadly flat at $5,276. Preneed cemetery interment rights sold increased 42.3% to 2,658, and their average price rose 20.4% to $4,551. Management attributed higher funeral volume primarily to a first-quarter COVID-19 death spike and said most businesses gained market share.
Reported results are affected by unusual prior-year charges: Q1 2020 included $14.7 million of goodwill and tradename impairment charges; Q1 2021 included a $0.3 million divestiture gain. Adjusted net income, a company-defined non-GAAP measure, was $14.7 million in Q1 2021 versus $6.1 million in Q1 2020. The company’s non-GAAP operating profit margin was 47.4%, compared with 38.8%.
Cash, debt and liquidity
Cash was $0.4 million at March 31, 2021, down from $0.9 million at December 31, 2020. Operating cash flow was $26.8 million; capital expenditures were $4.3 million. The company repaid a net $18.9 million on its credit facility during the quarter and paid $4.0 million to convert and settle its 2021 convertible notes, which were fully extinguished by March 31.
At quarter-end, the company had $28.3 million outstanding on its $190 million revolving credit facility and reported $159.6 million of availability after its letter of credit. It reported $400 million principal amount of 6.625% senior notes due 2026 and $5.4 million of acquisition debt. The company was in compliance with its credit-facility financial covenants. Lease liabilities were $27.7 million. The quarterly dividend was $0.10 per share, up from $0.075.
Outlook, material developments and risks
- Management said it expected existing and anticipated cash resources to meet working capital, capital expenditure, debt service and dividend needs for the next 12 months, and did not anticipate significant near-term liquidity constraints.
- Management expected continued divestitures over the following 6–9 months, potentially generating $3–5 million in proceeds. It said a successful refinancing could create capacity for acquisitions, investment, repurchases, dividend increases or debt repayment; these are possibilities, not firm guidance.
- After quarter-end, the company agreed to issue $400 million of 4.25% senior notes due 2029, with an expected $394 million of net proceeds, and planned to use proceeds plus borrowings under an expected amended credit facility to redeem its existing senior notes. The company issued a conditional redemption notice for June 1, 2021 at 104.969% of principal; completion depended on the notes offering and amended facility.
- COVID-19 restrictions affected service formats and, according to management, first-quarter revenue, volume, preneed cemetery sales and average revenue per contract. Management noted that elevated death volume may not persist and that restrictions or changing customer preferences could affect spending and preneed arrangements.
- Other risks include interest-rate and trust-investment market exposure, leverage and refinancing execution, competition, staffing and incentive costs, acquisition integration, litigation and regulatory matters. A $3.7 million reserve for uncertain tax positions remained; an IRS audit related to CARES Act carryback refund claims was in progress.
Investor verification points
- Confirm that the proposed 2029 notes offering and amended credit facility closed, and that the conditional redemption of the 2026 notes was completed; assess the total refinancing cost and resulting debt terms.
- Evaluate how much of revenue and profit growth came from COVID-related volume, acquired businesses, cemetery sales execution and trust income, and whether those trends are sustainable.
- Review cash generation against capital spending, dividends, debt service and incentive compensation; quarter-end cash was limited despite substantial reported credit-facility availability.
- Track the IRS audit and resolution of the tax refund claims, as well as any changes to the uncertain-tax-position reserve.
- Assess exposure to trust-asset market movements, floating-rate borrowing costs, and potential dilution or cash obligations under employee incentive programs.