Carriage Services, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022 unless otherwise noted. Carriage operates funeral homes and cemeteries, with approximately 70% and 30% of revenue, respectively. At year-end it operated 171 funeral homes and 32 cemeteries.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $382.5 million | $370.2 million |
| Gross profit | $124.3 million | $119.2 million |
| Operating income | $81.0 million | $79.7 million |
| Net income | $33.4 million | $41.4 million |
| Diluted EPS | $2.14 | $2.63 |
| Cash from operating activities | $75.6 million | $61.0 million |
| Capital expenditures | $18.0 million | $26.1 million |
- Revenue increased 3.3%; gross profit rose 4.3%. Net income declined 19.3%, primarily reflecting higher interest and corporate expenses.
- Interest expense increased to $36.3 million from $25.9 million, including Credit Facility interest expense of $17.8 million versus $7.5 million. The facility’s weighted-average rate rose to 8.6% from 4.0%.
- Gross margin was approximately 32.5%, compared with 32.2%. Operating income margin was approximately 21.2%, versus 21.5%. Management’s non-GAAP operating profit margin was 42.1%, down from 43.6%.
- Funeral segment revenue was $264.8 million versus $266.9 million; operating profit was $105.0 million versus $111.5 million. Funeral contract volume declined 2.4%, while average revenue per contract rose 0.9%; cremation rate increased to 59.0% from 57.7%.
- Cemetery segment revenue increased to $117.7 million from $103.3 million; operating profit rose to $56.1 million from $49.9 million. Preneed property units sold rose to 11,813 from 10,878, and average price per unit increased to $5,007 from $4,576.
- Year-end cash was $1.5 million. Current assets were $41.7 million and current liabilities $51.1 million. The company reported $179.1 million drawn on its $250 million revolving facility, $68.3 million available, and $2.6 million of letters of credit. Total debt was $585.1 million, excluding lease obligations; the $400 million senior notes mature in 2029 and the revolving facility matures in 2026.
Material changes and unusual items
- Revenue growth was led by cemetery preneed sales and pricing, partly offset by lower funeral volumes as COVID-19-related deaths declined. Management said overall financial performance remained at or above prior reporting periods despite lower volumes.
- The Bakersfield-area acquisition, completed in March 2023, added three funeral homes, two cemeteries and a cremation-focused business for $44.0 million. Acquisition-related cost pressures weighed on funeral margins as integration continued.
- Operating cash flow improved by $14.6 million. Management attributed the increase primarily to $8.6 million withdrawn from realized trust investment gains and earnings and a $6.0 million partnership incentive payment. The incentive is subject to partial claw-back if sales-volume conditions are not met; $0.2 million was recognized as revenue in 2023, with the balance deferred.
- Share repurchases were zero in 2023; $48.9 million remained authorized at year-end. The company paid $0.45 per share in dividends for the year.
- Leadership changed during 2023: Carlos Quezada became CEO in June and Kian Granmayeh became CFO in March. In February 2024, the Board ended its strategic-alternatives review and elected to continue as an independent public company. Founder Melvin Payne moved from Executive Chairman to special advisor; disclosed transition benefits include $2.0 million salary continuation, a $1.25 million 2023 bonus, a $3.0 million cash settlement of performance awards, and other payments and benefits.
- The company recorded a $0.2 million tradename impairment. The auditor issued unqualified opinions on the financial statements and internal controls and reported no critical audit matters.
Outlook, risks and contingencies
Management gave no specific quantified FY2024 revenue or earnings guidance in the provided filing text. Its 2024 priorities include integrating the Bakersfield acquisition, repaying debt, paying dividends and debt obligations, and funding internal-growth capital expenditures. Management expects cash resources and facility access to cover anticipated needs, while noting inflation, vendor costs and higher borrowing costs may persist; death-rate fluctuations remain difficult to forecast.
- Key risks include debt levels and variable-rate exposure, covenant compliance, refinancing and liquidity; competition and shifts toward lower-priced cremation; local death-rate variability; and preneed sales, trust investment performance and insurance-provider creditworthiness.
- The Credit Facility requires a maximum total leverage ratio of 5.75:1 and minimum fixed-charge coverage ratio of 1.20:1; the company reported compliance at year-end. A 100-basis-point increase in the borrowing rate would increase annual interest expense by approximately $1.8 million, assuming borrowings were unchanged.
- Trust assets and related obligations are subject to market fluctuations; most trust principal is restricted. The company also faces regulatory, environmental, litigation, cyber and natural-disaster risks. It reported no known cybersecurity incident likely to have had a material impact, apart from the previously disclosed 2021 ransomware attack, which it said was not material.
Investor verification priorities
- Track whether cemetery preneed growth and pricing can offset lower funeral volumes and the continuing shift to cremation.
- Verify acquisition integration progress and whether funeral operating margins recover from the Bakersfield-related cost pressure.
- Monitor variable-rate borrowing costs, debt reduction, facility availability and covenant headroom ahead of the 2026 facility maturity.
- Review realization and claw-back terms for the $6.0 million partnership incentive, and assess the cash and dilution implications of executive and employee awards.
- Assess trust investment returns, funding obligations and the growth in cemetery receivables and credit-loss allowances.