Carriage Services, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Carriage operates funeral homes and cemeteries. At quarter-end it operated 168 funeral homes in 26 states and 31 cemeteries in 11 states. Financial statement amounts below are in millions, except per-share data and where noted.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $96.6 | $98.2 | +1.6% |
| Gross profit | $35.1 | $34.5 | −1.7% |
| Gross margin | 36.3% | 35.1% | −1.2 percentage points |
| Operating income | $26.2 | $25.2 | −4.2% |
| Net income | $12.9 | $16.4 | +26.8% |
| Diluted EPS | $0.71 | $1.00 | +40.8% |
| Operating cash flow | $26.8 | $15.8 | −41.1% |
Revenue growth reflected higher funeral contract volume and average revenue per contract, partly offset by fewer cemetery interment rights sold and a lower average price. Net income benefited from $2.0 million lower interest expense, a $1.9 million insurance reimbursement gain, and lower income tax expense; increased divestiture and impairment-related losses partly offset these benefits. Adjusted net income, a non-GAAP measure, was $15.1 million versus $14.7 million.
Funeral segment revenue increased to $74.4 million from $71.8 million; operating profit rose to $33.7 million from $32.9 million. Cemetery revenue declined to $23.8 million from $24.9 million; operating profit fell to $11.7 million from $12.9 million. Consolidated operating profit margin, as defined by the company’s non-GAAP measure, was 46.3%, down from 47.4%.
Cash from operations declined primarily due to unfavorable working-capital movements, including accrued liabilities and income tax receivables. Investing activities used $7.8 million, including $6.9 million of capital expenditures. Financing activities included $25.7 million of treasury-stock purchases and $1.7 million of dividends. Cash ended the quarter at $0.9 million.
At March 31, 2022, the company reported $174.2 million drawn on its revolving credit facility, $400.0 million principal on 4.25% senior notes due 2029, and $4.5 million of acquisition debt. Credit-facility availability was $23.5 million, with a $2.3 million letter of credit outstanding. The company reported compliance with its credit-facility covenants. Total assets were $1.18 billion and stockholders’ equity was $120.0 million. The filing states management expects liquidity to be sufficient for working capital, capital expenditures, scheduled debt payments, commitments, and dividends over the next 12 months.
Material changes and management commentary
- Funeral contracts increased 1.6% to 13,515, and average revenue per contract increased 2.3% to $5,396. Management said same-store funeral volume grew despite a 38.7% year-over-year decrease in COVID-19-related contracts, citing market-share gains and higher normalized death rates.
- Preneed interment rights sold fell 10.5% to 2,378, and average price per right decreased 1.3% to $4,490. Cemetery same-store and acquired operating profits declined, reflecting lower sales and higher expense ratios.
- Interest expense declined to $5.5 million from $7.6 million, primarily reflecting the refinancing of the former 6.625% notes with 4.25% notes in 2021.
- Management said funeral-contract volumes were normalizing toward pre-pandemic levels and reported no material pandemic-related supply-chain, liquidity, or capital-access impacts to date. It cautioned that the effects and duration of COVID-19 and variants remain uncertain.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific numerical earnings or revenue guidance. Management expected divestiture activity over the following three to six months to generate approximately $3–4 million of proceeds.
- The board increased the share-repurchase authorization by $75 million in February 2022. At quarter-end, $57.1 million remained authorized; the company repurchased 490,000 shares for $26.0 million during the quarter.
- A $1.9 million gain was recorded for insurance reimbursements related to Hurricane Ida property damage. The company also recorded a $0.7 million loss on two funeral-home divestitures and a $1.1 million accrual for a wage-and-hour class settlement, which had received preliminary court approval.
- Key stated risks include staffing and retention, competition, changes in death rates and consumer preferences, preneed sales, trust-investment performance, interest rates, debt service and refinancing, litigation, regulation, and cybersecurity. The company disclosed no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether funeral-volume normalization and higher average revenue per contract can offset continued weakness in cemetery preneed sales and margin pressure.
- Drivers of the sharp year-over-year decline in operating cash flow and the extent to which working-capital movements reverse.
- Available revolving-credit capacity, floating-rate exposure, and covenant headroom as borrowings and interest rates change.
- Execution and cash effects of the expanded repurchase program, alongside dividends, capital spending, and planned divestitures.
- Final settlement costs and resolution of the wage-and-hour action, as well as the timing and realization of remaining insurance reimbursements.