Carriage Services Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 11 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Carriage Services First Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer to ask a question during the session, you will need to press star 11 on your phone. You will then hear an automated message advising your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Mezger, Executive Vice President, Chief Administrative Officer, General Counsel and Secretary, please go ahead.

Speaker 1

Hey, everyone, and thank you for joining us to discuss our Q1 results. In addition to myself, on the call this morning from management are Mel Payne, Chairman of the Board and Chief Executive Officer Carlos Quezada, President and Chief Operating Officer and Keon Gremaya, Executive Vice President and Chief Financial Officer. On the Carriage Services website, you can find our earnings press release, which was issued yesterday after the market closed. Our press release is intended to supplement our remarks this morning include supplemental financial information, including the reconciliation of differences between GAAP and non GAAP financial measures. Today's call will begin with formal remarks from Mel, Carlos, Kian and me and will be followed by a question and answer period.

Speaker 1

Before we begin, I'd like to remind everyone that during this call, we'll make some forward looking statements, including comments about our business and plans as well as 2023 guidance. Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today. These risks and uncertainties include, but are not limited to, factors identified in our earnings release as well as

Speaker 2

in our SEC filings, all of which can be found on our website. Thank you all for joining us this morning. And now I'd like to turn the call over to Mel. Good morning, everyone. It brings me a missed joy to join you all today following weeks of rigorous rehabilitation.

Speaker 2

The support and thoughtful prayers and wishes I have received from so many people across our company during my recovery Have been nothing short of heartwarming, even humbling, and I will be forever grateful for each and every one of them. Although my rehab journey to full recovery continues, I am fueled with unwavering motivation and optimism By the overwhelming encouragement from everyone at Carriage, but especially from our senior executive team, Carlos, Steve and Keyon, Who together with me comprise our strategic vision and principles group. I formed this group of senior leaders almost 3 years ago It's part of my succession plan to serve as a vehicle from which I would develop and mentor the future executive leaders of Carriage. And after working with Carlos, Steve and Keyon intimately over the last 2 months on various issues for Carriage, I am delighted to report that the future executive leadership at Carriage is indeed in great hands. Nearly 33 years ago, I embarked on a journey to build a great company in this industry, not to be the biggest, but to be the best.

Speaker 2

Today, I am proud to see that dream come to fruition. As Carriage has evolved into a high performance culture company and despite our challenges, which we view as opportunities, our progress is a testament to our unyielding commitment to excellence and our vision and mission of being the best. Thanks all of you Your interest in our company and I will now pass it on to Carlos for more color on the Q1 performance.

Speaker 3

Thank you, Mel. Good morning, everyone.

Speaker 4

We are pleased to announce that our Q1 financial performance exceeded our expectations. As we mentioned during our last earnings call on February 23, we anticipated a challenging Q1 compared to the record breaking Q1 of 2022, which was highly driven by the spike in COVID-nineteen cases. To put things into perspective, our Q1 of 2022 had 10.5% or 1409 of our Adneed funeral volume attributed to COVID-nineteen cases. In contrast, this year only 2% or 242 cases were attributed to COVID-nineteen representing a swing of 8.5% or 1167 cases. With this in mind, let's review our operating performance.

Speaker 4

For the Q1, our total funeral operating revenue was 66,500,000 a decrease of $3,700,000 or 5.3 percent. However, when we offset the COVID-nineteen volume in the Q1 of both 20222023, we saw an increase of 1.2% in funeral volume over 2022. As a result, our total funeral field EBITDA was $26,600,000 a decrease of $4,600,000 or 14.9 percent With a total funeral fuel EBITDA margin of 40.1 percent, a decrease of 4.40 basis points. In the Q1 of 2022, we had a record year with record margins, so the bar was very high. Additionally, inflationary costs put some pressure on our margins, mainly from styrene benefits and general administration expenses.

Speaker 4

However, we continue to work to adapt and pass on these cost increases to the consumer. Moving on to our cemetery portfolio, after overhauling our whole cemetery sales strategy over the last 2 years, we're very excited that all the hard work starting to pay off. For our total cemetery operating revenue for the quarter was $21,600,000 an increase of $1,100,000 or 5.5 percent. Our total cemetery field EBITDA was $8,400,000 a decrease of $202,000 or 2.4 percent, With a total cemetery field EBITDA margin of 38.8%, a decrease of 320 basis points. Our preneed teams were instrumental in driving the total cemetery revenue performance.

Speaker 4

In the Q1 of this year, we ended at $14,500,000 in preneed cemetery Reflecting an increase of 4.8 percent. Even after a record high comparison, our preneed teams executed very well And we see the positive impact the sales edge in our preneed cemetery strategy is making broadly. Additionally, I mentioned in our last call that we have been working on recruiting new sales counselors and strategically upgrading a few sales leadership positions. I am excited to report that we have achieved these goals. Just in March alone, we experienced year over year growth of 17.3%.

Speaker 4

With these positive trends against challenging comps, I feel very positive about delivering high performance in preneed cemetery sales. As I mentioned in another call, this is only the beginning for preneed cemetery sales at Carriage and we have many opportunities to grow over the next 3 to 5 years. Consequently, we confirm our previously communicated 2023 target of low double digit year over year growth in preneed cemetery sales. Regarding total revenue, we ended the quarter at $95,500,000 a decrease of $2,600,000 or 2.7 percent And our total field EBITDA was $41,000,000 a decrease of $4,400,000 or 9.7%. This variance is driven by the record Q1 during COVID-nineteen pandemic spike that led to higher volumes and margins, in addition to this year's inflationary cost, however, when we compare the Q1 results of this year to our 2019 base year, we have grown at an 8.4% CAGR in total revenue and 9.7% CAGR in total field EBITDA.

Speaker 4

Furthermore, the total EBITDA margin in the Q1 of 2019 was 41% compared to 43% in the Q1 of this year, representing 200 basis points of improvement. Now let me share an update The progress of our new system Trinity, we are pleased to announce that Trinity has achieved a significant milestone over the past quarter by completing the discovery phase, Which involve documenting requirements that will inform the product's final design. This work involved more than 150 hours of workshops with internal experts we'll provide details on critical processes within Carriage Services, accounting, finance and operations. Information gathered will be used to finalize the functionality of Trinity during the design and build phase, which is expected to conclude in the Q3 of this year. This project is currently tracking to its original plan and will begin testing later this year.

Speaker 4

Our full scale deployment is anticipated to commence at the beginning of Q1 of 2024. Upon deployment, Trinity will provide exceptional value by enabling unique digital experiences for families, enhancing efficiency through highly automated processes and supporting Carriage's ambition 10 year growth plan through scalability and improved productivity. Moving on to other great news, I am thrilled to share exciting updates. Firstly, I hope you had a chance to peruse our 2022 shareholder letter, Which is packed with valuable insights and outlines our bold 10 year goal. If you haven't had an opportunity to dive in yet, I encourage you to do so at your earliest convenience.

Speaker 4

None to the news that are sure to pique your interest. As communicated on our last call, we have been working tirelessly On our new prearranged funeral strategy and I am delighted to announce that it came down to the wire with 2 finalists. As a result, we're ready to make the final evaluation and we will announce the new partnership that will work alongside us and bring this vision to fruition before the end of this month. With this new partnership, we're going to revolutionize the way we serve and protect families through the power of preplanning, we're also creating substantial financial value for our shareholders. The possibilities are endless and we cannot wait to share more information.

Speaker 4

So stay tuned for updates as we embark on this new exciting journey. As I close my prepared remarks, I am thrilled to share that we are pleased with our Q1 performance. We remain fully committed to maintaining our consistency and discipline in executing with excellence to achieve our goals. With the COVID-nineteen pandemic high comparables not behind us, we have a clear path to delivering high performance to market share gains, delivering exceptional results through seamless acquisition integrations, driving growth in our preneed cemetery sales and optimizing financial performance in each of our portfolio of businesses. I want to express my gratitude for entire team's hard work and dedication without whom none of this would be possible.

Speaker 4

And with that, I now pass it over to Kian. Thank you.

Speaker 5

Thank you, Carlos. Before I dive into the review of our quarterly financials, I want to express my gratitude to Mel, Carlos and Steve, as well as the broader Carriage family on welcoming me to the Carriage team into the company's Strategic Vision and Principles Group. This week marks my 6th week in the seat and as you can imagine, I've been drinking through the fire hose as I work my way up the learning curve. I'm fortunate to have assumed the leadership of a hardworking first class team within my CFO organization And working with my stellar colleagues across Carriage. I am super excited to have joined Carriage at such a pivotal time, and I look forward to being a part of the company's continued success to drive long term shareholder value and performance.

Speaker 5

Now turning to a review of the quarterly financial results. For the Q1 of 2023, under Generally Accepted Accounting Principles, Carriage reported total revenue of $95,500,000 and net income of $8,800,000 or $0.57 per diluted share. This compares to total revenue of $98,200,000 and net income of $16,400,000 Or $1 per diluted share in the same period in 2022. Now looking at our adjusted financials, which are reconciled in the appendix tables of our press release. This quarter, we reported adjusted consolidated EBITDA of $27,800,000 adjusted consolidated EBITDA margin of 29.1 percent And adjusted free cash flow of $17,000,000 This compares to adjusted consolidated EBITDA of $32,500,000 adjusted consolidated EBITDA margin of 33.1 percent and adjusted free cash flow of $12,400,000 in the Q1 of 2022.

Speaker 5

As you can see, a comparison of financial results for the Q1 of this year to last year reinforces the point Carlos made earlier That an elevated Q1 2022 performance was driven by a spike in COVID-nineteen cases. Nonetheless, we are excited with how the Q1 of this year turned relative to expectations. Taking a look at this quarter's income statement compared to the same period last year, Carlos already touched on field level revenue and EBITDA, so I will focus on the other corporate expenses. First, I'll start off with total G and A, which includes regional and other corporate costs. In the Q1 of 2023, total G and A increased approximately $700,000 primarily related to an increase in salaries, benefits And incentive compensation.

Speaker 5

2nd, interest expense increased nearly $3,000,000 mainly driven by the average interest rate for our credit facility increasing from 2.1% in the Q1 2022 to 7.9% this quarter. Lastly, income tax expense decreased $1,600,000 as a result of our lower taxable income for the quarter. Turning back to adjusted free cash flow, we saw an increase of $4,700,000 or 37.8 percent this quarter over the same quarter last year. This increase was attributed to favorable working capital changes and lower maintenance capital expenditures through our disciplined approach to capital outlays. From a leverage perspective, as the team signaled on the Q4 call back in February, the Q1 of 2023 would hit a peak leverage ratio with the Greenlawn acquisition.

Speaker 5

Despite a $44,000,000 cash outlay for Greenlawn in the quarter, we only borrowed an additional net $23,000,000 from our credit facility. Using our bank covenant compliance ratio as defined by our credit agreement, we ended the quarter with 5.5 times leverage. Our expectation, which is aligned with our 2023 guidance, Is that the quarter end leverage ratio will continue to steadily decrease throughout the year. With all the positive momentum in the Q1, we are reaffirming 2023 guidance of $375,000,000 to $385,000,000 in total revenue, adjusted consolidated EBITDA of $110,000,000 to $115,000,000 adjusted diluted earnings per share of 2.25 to $2.40 and adjusted free cash flow of $50,000,000 to $60,000,000 As we continue to realize our results and deliver on our plan through the year, we will tighten up or update our guidance ranges. With that, I'll pass it over to Steve.

Speaker 1

Thank you, Keyon. As it relates to our growth through acquisition We were excited to enter the Bakersfield, California market in the Q1 by closing on the purchase of Greenlawn Funeral Homes and Cemeteries. Greenlawn is a significant addition for us as it generated roughly $18,000,000 in revenue last year and is the market leader in Bakersfield with an approximately 40% market share. In addition to our recent acquisitions in Charlotte and Orlando, Greenlawn continues our strategic focus of acquiring premier businesses in large growing markets. Our team will continue to focus on the integration of Greenlawn throughout the year as we maximize the growth potential that continues to make this such a unique and attractive opportunity for us.

Speaker 1

As Mel referenced during our December release outlining our high performance credit profile restoration plan, we've identified a few potential divestiture we have a number of opportunities that involve businesses that no longer align with our long term strategy and which we believe can potentially generate a premium valuation. As we grow through acquisition of larger businesses in bigger markets, we will also look to prune our portfolio when and where it makes sense. Our intent is to then use those proceeds to support our efforts to pay down debt. We expect to have more to share in this area in the upcoming quarters. Finally, as Carlos mentioned earlier, we included a comprehensive outline of our long term growth plan in our annual shareholder letter.

Speaker 1

In that letter, we noted that a key focus for this year is adding new talent to our Board of Directors. As we pay down debt and reposition ourselves for continued significant growth in the future, we want to ensure that we have the right expertise and experience supporting those efforts at the Board level. To that end, we've engaged Russell Reynolds to assist with our search, We are committed to strengthening our Board this year through further diversification of our directors, including gender, experience and skill set. We look forward to identifying and welcoming at least 2 new directors within the next 6 months. We'll continue to keep our shareholders apprised of our Board refreshment efforts in the coming quarters.

Speaker 1

And with that, we'll open it up for questions.

Operator

Thank you. At this time, we will conduct the question and answer session. Please standby while we compile the Q and A roster. Our first question comes from Alex Paris of Barrington Research. Alex, your line is live.

Speaker 6

Thank you. Thanks for taking the time to answer my questions. 1st of all, congrats on the better than expected Q1 results. 2nd, I wanted to welcome Mel back to the call. It's so good to hear your voice.

Speaker 6

And lastly, welcome Keon in general, his first call and look forward to working with you. So as for my questions, I have a couple. Starting first with the acquisition activity since you did a pretty good overview of the organic Results in the quarter. So you made 3 acquisitions over the last 12 months, significant including Green Lung. Could you give us sort of an order of magnitude on those three acquisitions, what they ought to contribute to 2023 revenue either actual or since Greenlawn was just closed recently on a pro form a basis, if you added the revenue Of the 3 up and the adjusted EBITDA contribution from the 3 for 2023?

Speaker 7

Hey, good morning, Alex. This is Steve. So I think in terms of order of magnitude, Greenlight obviously not only the largest of the 3, but quite frankly, I think we were talking about this the other day, the largest from a revenue perspective that we've added in the history of Carriage. So That $18,000,000 that they did last year, we're looking to hopefully grow upon this year. So that one is going to take a lot of our focus on integration.

Speaker 3

So that would be at

Speaker 7

the top of the list. And then in Charlotte, with Heritage, which we talked about on the last call, that's another one that has a lot of opportunity for us. It's a little bit larger than San Juan in Orlando, which we did in August. They have the potential on the cemetery side. They have multiple funeral homes.

Speaker 7

So that's probably 2 on the list. Mid San Juan, which is just a very different business for us, very high call rate. They do a ton of business out of 2 smaller locations in Orlando. They focus on a very particular demographic that we're going

Speaker 3

to reach out. And so their growth opportunities are

Speaker 7

a little bit different from the 2 that have the cemeteries attached to it. From a pro form a revenue perspective, roughly speaking, we're looking at $25,000,000 to $30,000,000 this year Pro form a revenue, still working on what that EBITDA will look like as we're taking some opportunities to work on prices in both Charlotte And in Bakersfield. So we'll have some more detailed information on that as we go through that price change.

Speaker 6

Great. That's helpful, Steve. Thank you. Then Carlos, you gave us a little bit of an update on Trinity. This is the new ERP system that's going to be part of funeral services going forward and I believe it's integrated in fact into or will be integrated sales edge on the cemetery side.

Speaker 6

What is it that you hope to accomplish with these 2 new technology platforms On the funeral services and cemetery sides going forward and to what extent are they rolled out? I believe Trinity is nearly rolled out. So just an update there on those 2 technology platforms.

Speaker 3

Yes. So Alex, we're still in the process. So the rollout itself will be somewhere around the Q1 of 2024. Right now, we're in the process of finding what our processes are here, compare those to the ERP that we call Trinity And then closing that gap over programming and actually the development of the tool itself is very, very broad in terms of its capacity. At the end of the day, we really believe Trinity will enhance how we service families in the front of the house, I just call it that, As well as being able to be more efficient and productive on our reporting accounting processes and overall how we work.

Speaker 3

We serve families in general terms. We will be able to do cemetery contracts digitally, which right now is still on a manual basis. That will be a Huge driver because then we will be able to close Puneet Cemetery sales on-site at the moment, whether that's a family home, an event and things of that nature. From a reporting perspective, it will enable us to have very tight reporting more than anything live because right now we work based on batches from how CPAs the levers will get information from the field and we certainly are going to get some benefit from a Productivity perspective, so it is very broad, but we're not close to a pilot. The pilot is programmed sometime around the last quarter of this year And start your deployment in 2024.

Speaker 6

Great. Thank you for that. And then my last question, I'll direct this one at and understanding fully that you've only been in the seat for 6 weeks, Given the outperformance of the Q1, you've reaffirmed guidance for the full year. And again, that Could be related to your tenure in the seat as well as some element of conservatism. But just wondering what sort of color you can give me there.

Speaker 6

And is it safe or is it aggressive is it safe or aggressive to say that you'd more likely be at the higher end of full year guidance ranges?

Speaker 7

Thanks, Alex. Really appreciate that. I think you've somewhat answered your question or your question with your question. So yes, The conservative and also me being kind of new to the seat, as I mentioned, I'm 6 weeks here. And for us, Yes.

Speaker 7

What I would prefer is that we have a little more visibility in kind of how we're performing in the Q2 and kind of how the forecast looks for the rest of the year Before we tighten up guidance, so look for us to as we get more visibility for us to either tighten up guidance or update guidance. Now for us to guide today as to whether we're tracking towards the high end of the range, again, that's not something that we have full visibility on or I just want to make sure that we have that confidence level of meeting that guidance range. So right now, we're just not comfortable providing that update.

Speaker 6

That's fair enough. I appreciate the extra color. Thank you very much and that's my questions for now.

Operator

One moment for our next question. Our next question comes from Liam Burke from B. Riley Financial. Liam, your line is live.

Speaker 8

Thank you. Mel, it's great hearing you back on the call.

Speaker 9

Great to be here, Liam.

Speaker 8

First question I had was on the Funeral Home business. Could you give some sense as to how Cremation sales were either on a year over year or percent of revenue basis and How that contributed in terms of relative margin?

Speaker 3

Yes, absolutely. As you know, the Information mix continues to change somewhat consistently over the last few years. For this quarter, we've got legal uptick on our information mix Around 2%, the deposit side, we were all we lost a lot of that with $134 increase in our average, That's 2.5% improvement year over year. This is comparing Q1 to Q1. That's for total.

Speaker 3

As it relates to same store, 2.2% of our commission mix Went up, but our average when you were higher by 189%, that's 3.5% offset from a sales average perspective. We're not really, really concerned. We do have a very good strategy as it relates to cremation conversion. That means families are going to a funeral home that want to have preclamation, how we present them with all of the options they can choose, accreditation with service or a different type of celebration of life allow us to then make up some of that accretionary change. So pretty much where we thought it would be and have a good strategy to continue to tackle on that front.

Speaker 8

So I just want to make sure I have it straight. You saw year over year growth in cremation sales and then higher per sale Realization?

Speaker 3

Thanks, Craig.

Speaker 8

Okay. Now how about on the EBITDA margin side? Have they been better than traditional burials or the same or how has that contributed to the EBITDA margin?

Speaker 3

So we don't really look at the EBITDA contribution by business in each category, right? We don't look at cremation EBITDA, burial EBITDA For funeral service EBITDA, we just look at EBITDA in general terms business by business. I can tell you that the margins, They're really, really strong, right? So ending up where we ended up, which is, where is it, 40, I 40.1%, those are very strong margins. When compared to Q1 of 2022, yes, there is 440 basis points drop, Those margins to say those are sustainable are very, very difficult.

Speaker 3

I actually feel very proud of the margins we have as you might have been on are probably some of the highest In the industry, by far. And so, we feel pretty strong. There's opportunities, nevertheless, continue to maximize that on both Funeral and 73 Businesses to continue to pass down some of those discretionary costs to the families that we serve, but we're keeping pretty good track. Now, Always explain, Liam, that it's a fine balance, right? We never want to just push prices up.

Speaker 3

This is a managing partner decision. And they're really, really wise as to how they do it because they never want to lose volume for the sake of improving margins, right, by raising prices. So we keep managing this delicately, keeping observing business awareness on a monthly basis, and we're pretty satisfied with progress so far.

Speaker 8

Great. And on the cemetery side, it looks like you're getting great traction on preneed sales. The guidance is for double digit growth. Where are you in terms of building out the marketing or the sales force Or the marketing effort, however you want to couch it.

Speaker 3

Yes, we actually made tremendous progress. As I mentioned in other calls, When COVID-nineteen suddenly stops somewhere around Q3 2022, The families that will typically go in for the previous 3 years to ask about preneed were no longer going, right. So it was a shift of mindset and strategy and really pushing customers and managers to go out and find the business. It took a little bit of time to realign that strategy, Provided the support, the development, the tools to make that happen. And we start to make progress as the following months it came after September and very, very happy to report that we have it very tight right now.

Speaker 3

We feel very confident to say that we have a full roster of very talented sales managers, our recruiting capacity from a customer perspective has been very, very good as well. We have actually new teams that we did not have the year before. To give an example, we now have an advanced planning team at Fairfax, Which on their 1st month, they almost tripled their target. And so very good strategy, very happy with the performance that Shane Boudin's and the whole Director support and leadership team for sales are doing, and that's why we feel confident that this trend will continue.

Speaker 8

Great. Thank you, Carlos.

Speaker 3

Thank you, Yale.

Operator

One moment for our next question. Our next question comes from JP Willam of ROTH MKM. JP, you are live.

Speaker 10

Good morning, guys. Thanks for taking the question. And Mel, great to have you back on the call here. If we can maybe first start with a couple of housekeeping items. On the last quarter release, you shared the Consolidated funeral contracts number, I think that was as part of a way to simplify reporting going forward.

Speaker 10

I was just curious if you could share that number for Q1 here. And is that something that you're going to be sharing normally going forward? Or Is that just a one time kind of annual number? And then the second one is just how you get to the $17,000,000 of adjusted free cash flow. If I start at $25,000,000 of cash from ops, I'm guessing that backs out the cash from the trust and then maintenance CapEx, but if you could share any color there, that would be great.

Speaker 3

Dhivir, I'll address the first question And then Kian will follow-up the second one. So what explained on the last call is that For pretty much many, many years, Carriage will have an approach of 5 years keeping their acquisition business Separately from same store. And we thought that was a very unfair comparison to other companies where they have it in 1 year. Once you have an integration, you You keep it for 5 years, you're not really being fair to year over year growth on your acquisition portfolio. So we decided to move it to 1 year for reporting purposes, Effectively Q4 or last last reporting Q4 2022.

Speaker 3

The thing that we have right now is that we only by doing so We only have now 3 businesses in our acquisition segment, which will be the recent one, Bakersfield or Bailon, Charlotte with the business acquired in North Carolina and then San Juan. And so what we wanted to wait for before this planning whether we wanted Same store and acquisition is to see the magnitude of the numbers, right, because those are businesses. Now given that the green loan is Significant, but we just got it on the last week of March. We haven't been able to really track all of that we need to in order to Consider that point. If this become significant, then we'll probably do that.

Speaker 3

But then think about it, next year, Which will not be creating additional businesses based on our amendment to the credit facility, we'll then basically remove all those 3 businesses from that line. It will be 0 reporting on acquisitions and will be all just in store. So we thought It will make sense just to keep it on total for now until we're able to get back on track aggressively on our decisions.

Speaker 7

All right. JP, I'll answer the second questions you had regarding the reconciliation to adjusted free cash flow. We actually have the tables, it's the last table in the appendix of our press release, but I'll just kind of just do a quick overview. When we start from cash provided by operating activities or cash flows from operations, we'll then take out maintenance CapEx, which is a little bit it's about half of what Spent in the same period last year. And then you're correct in identifying that the rest of the adjustment is related to About $7,000,000 that we withdrew from a preeminent cemetery trust investment.

Speaker 10

Great. Thank you on that. And I must have missed that. That is laid out there. So apologies for that.

Speaker 10

Second question just on a comment from the prepared remarks. Regarding the inflationary costs and I know the comment was something about being able to push some of the pricing on to customers, but just curious kind of where you're seeing the biggest cost pressure and if that has normalized at all in the Most recent months or if it's lingering throughout the year in your expectations.

Speaker 3

Yes, absolutely. So when you think about the increases, right, so as the Fed continue to do increases, there will be a catch up. Repeat that throughout the year, right? So as they improve or increase the rates, also people increase prices. Consequently, that we have pressure on that side.

Speaker 3

As it relates to Q1, we have just about shy of $500,000 on insurance increase, About $750,000 on thyroid benefits and about $500,000 on G and A, general and administrative. That adds to $1,700,000 increase and that when you divide that to our revenue, that's about 1.8% of the margin that That's lost on that front. We continue to keep very close eye on what's going on. There is a competition out there in terms of we want to keep our employees that are loyal to our company. You have to enable to satisfy their needs because there's pressure on their pockets as well.

Speaker 3

So we try as much as we can to continue to be passing those additional costs to the families. As I mentioned earlier, we wanted to look carefully and thoughtfully with some strategies so that we can definitely Not lose volume, right? I mean, you can increase your prices a little bit, but then you lose a few calls and then you're wash or down to your core revenue. So we'll continue to keep track. We have this on a very close eye month to month business by business basis, and we do feel confident we will continue to progress.

Speaker 3

Last but I'll share on that is that even with the margins where they right now from a total field EBITDA perspective on both, Fuel and Cemetery, those are very high margins, suspended for the industry. Above, like I said, most of

Speaker 9

Coming out of 2021, we had record lift from COVID and the revenues and volumes In our industry, which has high locally fixed costs, the operating leverage is a big deal. So if you have lift in your revenues, from a pandemic, the market share, your margins go up and your profits go up. We suffered When the pandemic started to phase out on our revenue and our margins in 2022. And a lot of that was volume driven in ways that we couldn't improve the change. Some of it was cost driven, Stationary costs like Carlos mentioned and what we've seen, if we lay this out in our high performance and credit profile restoration plan, We saw ourselves being in the high value personal services business and sales.

Speaker 9

When you're in that business, you want pricing power to better than your competition. And I think over the last 6 or 7 months, our people in the field have been raising their prices without losing market share and what we're starting to see In March and now in April, this year over year volumes are good better than expected in a post COVID environment, But the average revenue per contract has also been going up and that's because of pricing power on what they were doing before And also new services being offered and accepted. So we began to see year over year positive variances in revenue In both our funeral portfolio and our cemetery portfolio, this is also translating into higher margins at the field level. That's a really good trend, makes my day and we hope that continues in May, June and the rest of the year.

Speaker 10

Great. Thank you and best of luck.

Speaker 9

We'll take luck if he shows up, but so far I've never counted on luck. It's a lot of hard work and you got to work smarter and harder to get lucky.

Operator

All right, I would now like to turn it back over to Mel Payne for today's closing remarks.

Speaker 9

As we end today's call, I am more excited than ever about where we are as a company And what we call our good to great journey that never ends. To get some sense of why I'm so excited about where we are, I think Carlos touched on it. You should refer to the 2022 shareholder letter. It was a beautiful collaboration between Carlos, Steve and me. And as much As I was so impressed with the content they laid out, we captured the essence of Carriage both past, present and future.

Speaker 9

The presentation of the shareholder letter was a call done in house by A. J. White and his marketing team, and I want Congratulations and thank them today. It was 1st class all the way. The graphics, the design and the layout, 1st class and it told quite a story of our people and the company.

Speaker 9

So A. J, thank you so much. And to close, I'd like to mention we have outlined our financial goals we had a plan to restore our high performance and credit profile by the end of 2024. And this plan had been executed on with excellence by Carlos and his operating and sales teams. So for Carriage, for sure the best is yet to come.

Speaker 9

And we look forward to keeping you updated as we make that progress on our journey. So thanks to all of you for tuning in today and I'm just so happy to be back. That concludes our call today. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Carriage Services Q1 2023
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