Carriage Services, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Carriage operates funeral homes and cemeteries across the United States. At year-end, it had 170 funeral homes in 26 states and 31 cemeteries in 11 states.
Financial results and key metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $375.9 million | $329.4 million |
| Gross profit | $129.5 million | $105.9 million |
| Operating income | $93.7 million | $57.2 million |
| Net income | $33.2 million | $16.1 million |
| Diluted EPS | $1.81 | $0.89 |
| Cash from operating activities | $84.2 million | $82.9 million |
| Capital expenditures | $24.9 million | $15.2 million |
| Cash and cash equivalents at year-end | $1.1 million | $0.9 million |
- Revenue increased 14.1%; gross profit rose 22.3%; operating income rose 63.7%; and net income more than doubled.
- Gross margin was approximately 34.5% versus 32.1%. Management’s non-GAAP operating profit margin increased to 46.5% from 43.1%.
- Operating cash flow less capital expenditures was approximately $59.4 million, compared with $67.7 million in 2020.
- Year-end debt included $400.0 million of 4.25% senior notes due 2029 and $155.4 million drawn on the revolving credit facility. The company reported $42.3 million of facility availability. Total debt excluding debt discounts, issuance costs and lease obligations was $559.9 million.
- Current assets were $40.2 million and current liabilities were $60.8 million. Trust assets and related obligations are substantial but largely restricted and should not be viewed as ordinary corporate liquidity.
Material changes versus 2020
- Funeral home revenue grew to $270.1 million from $249.1 million; cemetery revenue grew to $105.8 million from $80.3 million. Cemetery property sales and trust earnings contributed to the growth.
- Same-store funeral contract volume increased 9.3%; average revenue per contract, excluding preneed trust earnings, rose 2.6%. Same-store cemetery interment-right sales volume and average selling price also increased.
- Management attributed higher funeral volume partly to COVID-19 deaths and market-share gains, and improved average funeral revenue to a return of memorial services toward pre-pandemic levels. Cremation remained the majority of same-store funeral services.
- Cash from operations increased only modestly despite higher earnings. Capital expenditures rose by $9.7 million, while share repurchases and dividends were significant uses of financing cash.
- The company issued $400 million of 4.25% notes due 2029 and redeemed $400 million of 6.625% notes due 2026. The refinancing generated a $23.8 million loss on extinguishment of debt, including a $19.9 million call premium.
- Carriage repurchased 2.9 million shares for $142.5 million at an average $49.01 per share and paid $7.3 million in dividends. The annual dividend rate was increased to $0.45 per share beginning with the fourth-quarter declaration.
- Unlike 2020, when goodwill and tradename impairments totaled $14.7 million, no goodwill or tradename impairment was recorded in 2021; 2021 included $0.5 million of held-for-sale impairment and other disposal charges.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management expected available cash and financing to cover working capital, capital spending, scheduled debt payments, commitments and dividends for the next 12 months.
- For 2022, stated priorities included integrating acquired businesses, strategic acquisitions, internal growth investment, share repurchases, dividends and debt repayment. Management expected further divestitures over the following three to six months, potentially generating approximately $3–4 million.
- Management said pandemic-related funeral volume and revenue had remained strong, but the future effects of COVID-19 and variants were uncertain. Elevated volumes may not persist.
- Key risks include the ongoing shift toward lower-revenue cremations, competition and pricing pressure, dependence on local leaders and skilled personnel, preneed sales and contract funding, trust investment returns, variable-rate debt, restrictive debt covenants, regulatory and environmental requirements, litigation, and natural disasters.
- A January 2021 ransomware incident was remediated; management said it did not have a material business or financial impact. Cybersecurity exposure remains a risk.
- A California wage-and-hour putative class action reached a $1.0 million settlement memorandum in January 2022; $1.1 million was accrued at year-end for the expected settlement and legal fees. Preliminary court approval remained to be sought.
- An adverse IRS ruling on a cemetery-property revenue accounting method change and pending approval for a related cemetery merchandise and services method change leave tax matters unresolved. The company reported $3.8 million of unrecognized tax benefits.
- The auditor issued unqualified opinions on the financial statements and internal controls; no critical audit matters were identified.
Most important facts for investors to verify
- Whether funeral volumes, contract pricing and cemetery sales growth can be sustained as pandemic-related death rates normalize.
- Cash conversion and funding needs after increased capital expenditures, repurchases, dividends and debt service; also confirm current revolver availability and covenant headroom.
- The treatment and comparability of management’s non-GAAP operating profit and adjusted net income, including the sizable 2021 debt-extinguishment charge.
- Progress and final approval of the California class settlement and resolution of the IRS accounting-method and refund matters.
- Whether announced divestitures occur on expected terms and how proceeds are applied under management’s capital-allocation plans and debt documents.