Carriage Services, Inc. — 2022 Form 10-K
Business and reporting period: Annual report for the fiscal year ended December 31, 2022. Carriage operates funeral homes (about 70% of revenue) and cemeteries (about 30%); at year-end it operated 171 funeral homes in 26 states and 32 cemeteries in 11 states. The filing describes fourth-quarter trends but does not provide clear standalone Q4 financial results in the supplied text.
Key financial results
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $370.2 million | $375.9 million | Down 1.5% |
| Gross profit | $119.2 million | $129.5 million | Down 8.0%; gross margin about 32.2%, versus 34.5% |
| Operating income | $79.7 million | $93.7 million | Down 14.9%; operating margin about 21.5%, versus 24.9% |
| Net income | $41.4 million | $33.2 million | Up 24.8%, partly reflecting the prior-year debt-extinguishment loss |
| Diluted EPS | $2.63 | $1.81 | Improved; weighted-average diluted shares fell to 15.7 million from 18.3 million |
| Net cash from operations | $61.0 million | $84.2 million | Down $23.2 million, primarily from unfavorable accrued-liability working-capital changes |
| Capital expenditures | $26.1 million | $24.9 million | Operating cash flow less capital expenditures was approximately $34.9 million |
Liquidity and debt: Cash was $1.2 million at year-end. Debt excluding debt issuance costs, discounts and lease obligations totaled $594.7 million: $400.0 million of 4.25% senior notes due 2029, $190.7 million drawn on the revolving credit facility, and $4.0 million of acquisition debt. The $250 million facility had $57.0 million available after letters of credit. The company reported covenant compliance at year-end. The current ratio was approximately 0.83, calculated from reported current assets and current liabilities.
Other financial measures: Funeral contract volume declined 3.6% to 47,498, while average revenue per contract rose 2.5% to $5,493. Cemetery preneed interment rights sold declined 4.6% to 10,878, and average price fell 3.0% to $4,576. The company declared dividends of $0.45 per share for 2022. It repurchased 695,496 shares for approximately $34.2 million during the year; $48.9 million remained authorized at year-end.
Material changes versus 2021
- Revenue decreased as funeral contract volumes and cemetery preneed sales and prices softened while pandemic-related mortality normalized. Average funeral revenue per contract partly offset lower volume.
- Gross profit fell $10.3 million, with higher operating expenses in both segments, including inflation-related labor, utility, funeral-supply and merchandise costs. Funeral operating profit decreased $7.3 million; cemetery operating profit fell $4.6 million.
- Cash from operations declined, while investing outflows rose to $52.5 million, including $33.9 million for acquisitions and real estate. Financing cash outflow narrowed to $8.5 million, compared with $71.5 million in 2021, when the company refinanced senior notes and made larger share repurchases.
- Net income increased despite lower operating income, notably because 2021 included a $23.8 million loss on extinguishment of debt. 2022 also included a $3.5 million insurance reimbursement gain and $2.4 million of impairment charges on assets held for sale.
- The revolving facility was expanded from $200 million to $250 million and amended to raise the maximum leverage covenant temporarily. The permitted leverage ceiling steps down from 6.00x through Q2 2023 to 5.00x for Q4 2024 and thereafter.
Outlook, commentary and risks
- Management expects death-rate fluctuations and inflation-related cost pressures to continue into 2023, but gives no specific revenue, earnings or cash-flow guidance in the supplied filing text. Management says expected cash resources should cover anticipated needs, scheduled debt payments, capital expenditures and dividends for at least the next 12 months.
- The 2023 capital-allocation plan prioritizes integrating recent acquisitions, completing and integrating one pending acquisition, debt repayment, dividends and internal-growth capital expenditures; strategic acquisitions remain subject to facility terms.
- Management reported that deaths directly attributable to COVID-19 had largely receded, with overall mortality still slightly above pre-pandemic levels. The resulting volume normalization contributed to lower second-half and fourth-quarter 2022 volumes, revenue, earnings and margins versus the fourth quarter of 2021.
- Inflation increased labor, utility, merchandise, supplies and insurance costs. Management had not observed material consumer-spending effects to date but cautioned that the magnitude and duration of inflation are uncertain.
- Key risks include leverage and variable-rate borrowing exposure, covenant compliance and refinancing access; competition and cremation-related mix shifts; recruiting and retaining local leaders and sales staff; preneed sales and trust-investment performance; regulatory and environmental requirements; litigation; and cybersecurity and data-privacy threats. A 100-basis-point change in the borrowing rate, assuming the facility balance stayed constant, would change pretax income by about $1.9 million.
- Two acquisitions were completed for a combined $31.3 million in cash: two funeral homes in Florida and a Charlotte-area group including three funeral homes, one cemetery and a cremation-focused business. The company recorded $19.5 million of acquisition goodwill. One funeral home and two cemeteries were sold in January 2023 for $0.8 million.
- The CFO resigned effective January 2, 2023; the Corporate Controller became interim Principal Financial Officer. The filing states the departure did not arise from disagreement with the company.
Most important facts for investors to verify
- Whether revenue, margins and operating cash flow stabilize as mortality normalizes and inflationary costs persist; obtain standalone Q4 results for a direct quarterly comparison.
- Current leverage, covenant headroom and the effect of the scheduled step-downs in maximum leverage limits, alongside the $57.0 million of year-end facility availability.
- Whether the lower cemetery preneed sales and prices, including sales-team turnover, recover and how cremation mix affects funeral revenue per contract.
- Trust investment values and obligations: reported trust portfolio values declined year over year, and most trust principal is restricted by state law.
- Integration and returns from the 2022 acquisitions, the pending acquisition, and any subsequent divestitures or impairments.
- Dividend and repurchase capacity under debt covenants and the potential dilution from employee performance awards; the filing estimates up to 995,873 shares could be awarded if the highest performance tier is achieved.
Audit: Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; it reported no critical audit matters.