By Thomas A. Parmalee
Carlos Quezada, chief executive officer and vice chairman of the board at Carriage Services, shared a heartfelt message of gratitude on a conference call with investors Feb. 21.
The message was directed toward the company’s co-founder and longtime chief, Mel Payne, who is transitioning to being a special advisor to the company’s board of directors.
“Mel’s retirement marks the culmination of over 33 years of exceptional leadership since founding Carriage Services,” Quezada said. “A journey categorized by visionary foresight, a steadfast commitment to being the best and a heartfelt dedication to this noble profession. Under Mel’s guidance, the company has become one of the industry leaders, setting high performance standards and fostering a culture of honesty, integrity and quality in all we do. This transition to retirement signifies not an end, but the onset of a new chapter for Mel to explore.”
He added, “The legacy left behind is a testament to a career dedicated to excellence, inspiring those who follow to continue building on this foundation. As Mel steps into the next chapter, the hope is for it to be filled with joy, peace and fulfillment, reflecting the richly deserved rewards of our remarkable career.”
As noted in the company’s fourth-quarter earnings release, Payne has chosen to step down from his role as executive chairman of the board and transition to a new role as special adviser to the board of directors, which will allow him to be available and share his wealth of knowledge and insights with the board and the senior leadership team. He will continue as a member of the board until his current term expires at the May 2024 annual meeting of stockholders.
During the conference call, Quezada also drilled into quarterly earnings, noting that Carriage made significant progress in growing revenue and reducing costs. “For the fourth quarter, total revenue grew to $98.8 million, an increase of $4.9 million or 5.2%. And for the full year, it grew to $382.5 million, an increase of $12.3 million or 3.3%.”
He added, “We saw adjusted diluted earnings per share in the fourth quarter grow to 77 cents per share, an increase of 13 cents or 20.3%, and for the full year, we ended at $2.19, which is 19 cents above the top end of our guidance.”
On the negative side, the company paid $10.4 million more in interest expense during 2023 than in 2022, which weighed on earnings.
“Debt repayment continues to be at the forefront of our near-term goals, and we intend to continue to pay down our debt with free cash flow until our leverage ratio is under four times,” he said. “We are very proud of these results, especially after outperforming our guidance for EPS, EBITDA, and revenue for 2023. Even though we did revise our outlook due to a lower than expected third quarter, we made up for it in the fourth quarter. When comparing our original full year 2023 guidance, we finished the year within our initial ranges in all categories except EPS, which was down due to the higher interest rate environment.”
Quezada also highlighted some important developments at Carriage, including the creation of a new position: director of customer experience.
“This role is pivotal to our passion for service program, focusing on training, rollout, and development of hospitality concepts within our teams, in addition to creating key performance indicators to measure customer experience in our delivery of our WOW Moments Playbook,” he said. “Our objective is clear as a company that prides itself on being driven by service and supported by a team fueled by both passion and compassion. In these service-driven times, the importance of customer experience cannot be overstated.”
He also noted, “We are excited to announce that we are embarking on a transformative journey with our new purpose statement, creating premier experiences through innovation, empowered partnerships, and elevated service. This purpose statement is our commitment to every aspect of our business. It focuses on continuous innovation, partnership, and service delivery, and is rooted in three core pillars. The first pillar is disciplined capital allocation. Our focus is to invest our capital in a disciplined manner that identifies areas with the most significant potential for returns, ensuring our resources pave the way for sustainable success. The second pillar is purposeful growth. Growth is not a mere increase in size, but a deliberate journey towards enhancing our revenue and financial metrics through strategic, thoughtful, and data-driven planning.”
The approach Quezada outlined will sharpen the company’s focus, enabling broader execution, and driving impactful results. “It’s about growing not just in scale, but in significance, organically and inorganically,” he explained. “The third pillar is relentless improvement. We understand that lasting success comes from an unwavering commitment to excellence. Every day offers a new opportunity to refine our processes, improve our systems, elevate our services, and surpass our previous achievements. This dedication to continuous improvement is at the heart of our purpose statement. Together, these three pillars are not just strategies. They are our pledge to relentlessly pursue excellence, to innovate with intention, and to lead with a level of service that redefines what is possible.”
In tandem with all the above, Carriage Services has also introduced a revamped website and new visual identity.
Other Insights
Kian Granmayeh, chief financial officer at Carriage, noted on the earnings call that for 2023, cash flow from operations increased by $14.6 million, or 24%, from the previous year to $75.6 million. “Additionally, our solid cash flow from operations translated into robust adjusted free cash flow,” he said.
He also noted that a couple divestitures of noncore assets are likely on the horizon, explaining that the company’s 2024 outlook is pro forma to include “two separate transactions that would remove approximately $5.5 million of revenue and $1.5 million of field level EBITDA in 2024.” He added, “The sale proceeds in turn would be used toward paying down our credit facility.”
While the company has identified other noncore assets that it could potentially sell, company executives declined to speculate if any additional sales might occur.
Steve Metzger, president at Carriage Services, responded to questions about the company’s recent strategic review, after which it decided it would be in the best interest of shareholders for the company to remain independent.
“We were obviously flattered as a company by the interest, but ultimately I think the board did not believe that the offers presented offered the same value to shareholders as the current strategy and opportunities that lie ahead for us as an independent publicly held company do,” he said.
Another topic of conversation was the “pull-forward effect” that funeral homes have seen in the death rate as a result of the COVID-19 pandemic.
“When it comes to pull forward, we believe it will take probably at least three more quarters if not four, to fully wash off the pull forward effect,” Quezada said. “We have been experiencing a continuous decline year-to-year on volume throughout 2023. And we think it’s going to take a little bit of time to get to a level where it’s flat and then start to grow on a year-over-year basis.”
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