Carriage Services, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise. Carriage operated 167 funeral homes in 26 states and 31 cemeteries in 11 states.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $90.6 | $88.3 | $188.8 | $184.9 |
| Gross profit | $27.7 | $28.9 | $62.2 | $64.0 |
| Operating income | $19.7 | $20.9 | $44.9 | $47.2 |
| Net income (loss) | $10.9 | ($6.2) | $27.3 | $6.8 |
| Diluted EPS | $0.69 | ($0.33) | $1.70 | $0.37 |
- Q2 revenue increased 2.6%; first-half revenue increased 2.1%. Q2 gross margin was approximately 30.6%, down from 32.8% a year earlier.
- Operating cash flow for the first half was $30.2 million, down from $41.4 million. Investing activities used $10.2 million, including $13.5 million of capital expenditures, compared with $7.9 million of investing cash outflow and $8.8 million of capex in the prior-year period.
- Cash and cash equivalents were $1.1 million at June 30. The company reported $72.5 million available under its $250 million revolving credit facility, with $175.2 million drawn and a $2.3 million letter of credit outstanding.
- Debt included $400 million principal of 4.25% senior notes due 2029, $175.2 million drawn on the credit facility, and $4.5 million acquisition debt. Lease obligations totaled $36.7 million. The credit facility’s weighted average interest rate was 2.9% in Q2; its rate is floating. The company was in compliance with its financial covenants.
- First-half dividends paid were $3.5 million and treasury-stock purchases were $36.7 million. The quarterly dividend declared was $0.1125 per share.
Changes versus the prior comparable period
- Funeral contract volumes and average revenue per contract improved: Q2 total contracts rose 1.5% and average revenue per contract increased 2.0%, according to management. The six-month increases were 1.6% and 2.1%, respectively.
- Cemetery results weakened. Gross profit declined in both comparative periods, primarily due to higher cemetery operating expenses. Cemetery segment operating profit was $14.5 million for Q2 versus $15.8 million, and $26.2 million for the first half versus $28.7 million.
- Net income comparisons were materially affected by the prior-year $23.8 million loss on extinguishment of debt. Q2 2022 also included a $1.4 million insurance reimbursement gain; first-half results included $3.3 million of such gains. Excluding special items, company-reported adjusted net income was $9.1 million for Q2 and $24.2 million for the first half, versus $11.9 million and $26.6 million, respectively.
- Credit-facility borrowings increased from $155.4 million at year-end 2021 to $175.2 million at June 30, 2022. The company amended the facility, increasing its commitment from $200 million to $250 million and raising the maximum permitted total leverage ratio to 5.25:1.00.
Outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management said it expects existing cash resources and anticipated cash flows to cover working capital, capital expenditures, scheduled debt payments, commitments, and dividends for the next 12 months.
- Management reported funeral contract volumes normalizing toward pre-pandemic levels, while average funeral contract revenue remained higher. It noted modest vendor cost increases and surcharges beginning in Q2, expected to continue through year-end; potential effects include higher costs and reduced consumer discretionary spending.
- Other identified risks include labor recruitment and retention, competition, changes in death rates and cremation preferences, trust investment performance, interest rates, debt service and financing access, preneed contract funding and insurance-company performance, litigation, cybersecurity, and uncertainty from COVID-19 and its variants.
- A California employee wage-and-hour class action settlement received final court approval on July 26, 2022. The company accrued $1.3 million at June 30 for the settlement and legal fees; the final settlement payment was $1.2 million.
- Trust investments are held to support preneed and perpetual-care obligations and are not equivalent to unrestricted corporate cash. Their market values declined during the first half amid unrealized investment losses; management stated that trust asset and liability fair-value changes generally offset in earnings.
Important facts for investors to verify
- Whether revenue growth and funeral contract trends persist as pandemic-related volumes normalize.
- Whether cemetery cost pressures, credit-loss provisions, insurance costs, and inflation continue to weigh on margins.
- Credit-facility borrowing levels, floating-rate exposure, covenant headroom, and the company’s ability to fund repurchases and dividends while maintaining liquidity.
- Trust investment values and the associated restricted obligations, separately from unrestricted cash and borrowing availability.
- The effect of special items on reported versus adjusted earnings, including insurance recoveries, divestitures, and prior-year debt-extinguishment costs.