FTC Solar Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Carriage Services Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Steve Meckiger, President. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining us to discuss our 2nd quarter results. In addition to myself, on the call this morning from management are Mel Payne, Executive Chairman of the Board of Directors Carlos Quezada, Chief Executive Officer and Vice Chairman of the Board of Directors and Kian Grammaja, 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 Today's call will begin with formal remarks from Mel, Carlos, Gian and me, it will be followed by a question and answer period. 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.

Speaker 1

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 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.

Speaker 2

Good morning, everyone. I'm excited to be with you this morning As we kick off our first earnings call since the announcement of our succession plan on June 22nd, as most of you know, We've been working on this CEO succession plan for more than 2 years and the thoughtful investment of time and preparation is paying off, which is evidenced by the seamless transition that has occurred since our announcement. I have also been hard at work on my continued rehabilitation following my stroke and continue to be encouraged by my progress. I recently graduated at the top of my class, which is all about being the best From an intense 12 week program, it has been more motivated, energized and passionate about what we are doing and where we're going than ever before. While I meet with our Strategic Vision and Principles Group leadership team regularly, I look forward to spending even more time with them And focusing on the job I enjoy the most, which is serving as a mentor to Carlos, Steve and Keyon.

Speaker 2

As a co founder and largest shareholder of Carriage, I'm pleased to report that Carlos and Steve continue to exceed my exceedingly high expectations as they focus on their new roles. Together with Kion, this executive leadership dream team has been working closely together to lead the continued evolution and maturation of Carriage, which the 3 of them will talk more about in detail this morning. The alignment of this team together with their talent Has never been stronger and the execution of our clearly defined strategic vision has never been more compelling. We appreciate your interest in Carriage and for taking the time to listen this morning. I will now turn this call over to Carlos For more color on a really good quarter of performance.

Speaker 2

Carlos?

Speaker 3

Thank you, Mel, and good morning, everyone. Thank you for joining. Before I start with our report, I'd like to thank Mel and the Board of Directors, our executive team and everyone at Carriage for their support As I take on the new CEO role, it has been a thoughtful and well planned process for over 2 years, where Mel, Drew countless hours of mentoring and coaching has prepared me to leave Carriage and continue the legacy of what he created for years to come. I'm grateful for this opportunity and committed to continuing our good or great journey and pursuing our mission and vision of being the best every day. So thank you.

Speaker 3

Now moving to our Q2 high performance. For today's call, I will report on our financial performance with some operational color. Steve will provide an update on the composition of our new Board of Directors. He will share the integration process of our most recent acquisitions and other M and A activities. And Kian will provide detailed financial information.

Speaker 3

Now on to the results. We're very excited to share that our financial performance in the 2nd quarter has exceeded our expectations. As previously communicated, we have diligently focused on delivering high performance through execution excellence. Here are the consolidated financial results for the Q2. Total revenue reached $97,700,000 an impressive increase of $7,000,000 or 7.8 percent compared to last year.

Speaker 3

These outstanding results were primarily driven by the exceptional work Our Performance Printing Cemetery sales teams and the recent acquisition in Bakersfield, California. I will give more color on this point later on this call. Total field EBITDA was $40,800,000 showing an increase of $2,100,000 or 5.6 percent Enfield's EBITDA margin of 41.7 percent, experiencing a slight decrease of 879,000 or 90 basis points. This decrease is primarily attributed to higher costs in salary and benefits And general and administration. The incremental expenses in these two areas totaled $2,300,000 during the 2nd quarter.

Speaker 3

However, thanks to the dedicated efforts of our managing partners at each business, we managed to offset $1,400,000 through other cost savings opportunities. Overhead expenses amounted to $12,100,000 or 12.4 percent of total revenue, reflecting a significant reduction of $1,400,000 compared to the same quarter last year and under our previously communicated goal of reaching 13% in overhead cost by the end of 2024. GAAP income in the 2nd quarter was $8,300,000 indicating a decrease of $2,600,000 or 24 percent compared to last year. This decline can be attributed to a notable increase of $3,400,000 or 56.9 percent in interest expense over what we paid the previous year, resulting in GAAP diluted earnings per share of $0.53 The decrease in interest expense Approximately equates to $0.22 of GAAP diluted earnings per share. And as we continue executing every item Of our high performance credit profile restoration plan, we will reduce our interest expense.

Speaker 3

For our adjusted numbers, adjusted consolidated EBITDA The Q2 was $28,700,000 showing an impressive increase of $3,400,000 or 13.3 percent. Adjusted consolidated EBITDA margin was 29.4%, an increase of 150 basis points and adjusted diluted earnings per share of $0.53 outperforming consensus. We are immensely proud of these results as they reflect Our efforts and progress in executing our strategic plan to consistently and sustainably enhance our financial performance over time. These efforts have allowed us to make up for most of the decrease we experienced in the Q1 of this year due to the record high Q1 of 2022 at the peak of COVID-nineteen. Now let's move to our funeral portfolio.

Speaker 3

Funeral home total revenue reached $60,800,000 an increase of $2,700,000 or 4.6 percent. Our newest acquisitions Primarily drove this growth with comparable revenues decreasing by only $308,000 or 0.6%. Total funeral fuel EBITDA remained steady at $21,900,000 compared to the previous year, with a slight decrease of only $108,000 or 0.5%. And total funeral fuel EBITDA margin was 36%, showing a reduction of 190 basis points from last year. However, thanks to the dedicated efforts of our managing partners in the field and at the Houston Support Center, the inflationary cost margin decrease Has been significantly curved.

Speaker 3

Their working revenue growth, pricing strategy and efficient management of their controllable cost has contributed to this financial performance and we extend our gratitude for the determination and commitment to our Being the Best mission and vision. Now switching to our cemetery portfolio. We are thrilled to report that our total cemetery revenue hit an all time high, Reaching $29,100,000 in the 2nd quarter, reflecting an increase of $4,000,000 or 16.1 percent. Moreover, total cemetery fill EBITDA saw significant growth reaching $12,900,000 a $1,800,000 growth or 16.2% compared to the same quarter last year. Total cemetery fill EBITDA margin Remain very strong at 44.4%, maintaining the exact performance level achieved in the previous year.

Speaker 3

These record high revenue and EBITDA margin results were mainly due to the outstanding performance of our preneed cemetery teams, Establishing our preneed sales organization over the last 3 years has been a true game changer, coupled with the strategic acquisitions Premier cemeteries since 2019 and our existing cemetery portfolio, in addition to the impact that the execution of our preneed cemetery strategy is making, Salesedge as our customer relationship system and lead generation marketing provides us with multiple growth opportunities. That is why we're confident that we can continue maximizing these opportunities as we execute and create additional high performance in the years ahead. Regarding our prearranged funeral sales, a strategic national partnership, we are delighted to announce that the integration strategy between Precoa, The National Guardian Life Insurance Company, Encourage, has been officially launched after 2 months of planning. This strategic move We'll revolutionize how we add value to families by offering pre arrangement options for their funerals, securing future market share for each of our businesses and generating additional recurring revenue like we never had before. We will integrate our funeral home portfolio into the new program in a phased approach And we anticipate that preneed funeral sales will experience substantial growth in the range of 40% to 60% Within a year of integration, this exciting venture holds incredible potential for Carriage, our partners and the communities we serve, while generating added value for our shareholders.

Speaker 3

We want to express our heartfelt gratitude to our entire team for their unwavering dedication and hard work, Without whom none of this would be possible, witnessing the tangible results of our strategic plan during the Q2 filled us with much excitement And we're thrilled about the prospects for the future as we firmly believe that for Carriage, the best is yet to come. Thank you. And I will now pass it over to Steve.

Speaker 1

Thank you, Carlos. As most of you are probably aware, the past couple of months have seen us welcome 3 new directors to our Board, Fulfilling the commitment we made earlier this year to add new talent and diversity to our Board of Directors. We began working with a national search firm in the Q1 And our Board management team have spent the past several months meeting with a number of impressive candidates. From that group, we were able to identify 3 individuals We bring diverse experience and thought that will help drive our focus on continuous growth and improvement throughout Carriage. The newest member of our Board, Julie Sanders, Currently serves as Senior Vice President and the Chief Audit Executive for Dell Technologies, one of the world's leading technology companies, where she's held a variety of leadership positions over the past 20 years.

Speaker 1

Julie has served as a CFO for 2 other companies and has extensive experience with everything from M and A Financial Planning and Analysis. She also serves on Dell's ESG and Disclosure Committee and will be a tremendous resource as we continue to identify opportunities to enhance our focus on corporate responsibility. We've also recently welcomed Summer Webb to the Board. Summer currently serves as the Chief Financial Officer for a publicly traded Direct to consumer platform company focused on outdoor and lifestyle brands. Summer has worked for some of the top consumer focused companies in the world, including Amazon and Southwest Airlines, and she brings valuable experience to Carriage, particularly as it relates to growing companies through acquisitions.

Speaker 1

Finally, Chad Ferguson joined our Board in late June. After receiving his PhD in mathematics from Duke University, Chad spent 10 years with KKR And spent the last 10 years as a senior portfolio manager for an investment firm with approximately $15,000,000,000 under management. Chad's experience identifying and analyzing capital allocation strategies for various companies, coupled with his deep valuation expertise and knowledge of the markets, We'll serve Carriage and our shareholders well as we execute on the 10 year growth focused division laid out in this year's shareholder letter. Since the beginning of this year, there's been an immense amount of time and thoughtful effort dedicated to identifying and recruiting new leadership to join our Board of Directors. We're proud of that focus and confident that the experience and talent that Julie, Summer and Chad bring to our Board will be of great value to our shareholders and we look forward to their contributions in helping drive Carriage forward in the years to come.

Speaker 1

As it relates to our focus on growth, we continue to be encouraged by presented by our 3 most recent acquisitions. In particular, since we put a top sales team in place to support our Charlotte business, The production from the cemetery segment of that business continues to highlight why we were initially so excited to partner with Heritage and Forest Lawn East. Similarly, our most recent acquisition in Bakersfield, our largest acquisition by revenue in the history of Carriage It's only entering month 5 of our integration and we're excited about the potential that will be realized in the months years ahead as we continue to optimize the strong foundation of this Great business. As we dedicate our time and resources to supporting these new additions to the Carriage portfolio, we also continue to build relationships with owners of other premier In fact, this past quarter, we had several visits and conversations with owners of businesses that we believe will be great future partners for Carriage. These owners are aware that our current focus is integration of our newest acquisitions and paying down our debt, and many of them are willing to wait given their belief We look forward to continuing these conversations and building these relationships as we learn more about their succession plans and timelines.

Speaker 1

Finally, as we announced on June 29, our Board has initiated a process to explore potential strategic alternatives, possibly including a merger, Sale or other potential strategic or financial transaction to maximize shareholder value. As we noted at the time, There can be no assurance that this process will result in a transaction. While the Board continues this review process with the support of outside advisors, We don't have further updates at this time and will have no further comment on the topic. We will, however, provide an update when we have more news to share. With that, I'll pass it over to Keon to provide more color on our Q2 performance.

Speaker 4

Thank you, Steve. In the Q2 of 2023, Under Generally Accepted Accounting Principles, Carriage reported total revenue of $97,700,000 and net income of 8,300,000 or $0.53 per diluted share. This compares to total revenue of $90,600,000 and net income of 10,900,000 or $0.69 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 This quarter, we reported adjusted consolidated EBITDA of $28,700,000 adjusted consolidated EBITDA margin of 29.4 percent and adjusted free cash flow of $3,800,000 This compares to adjusted consolidated EBITDA of $25,300,000 Adjusted consolidated EBITDA margin of 27.9 percent and adjusted free cash flow of $12,000,000 in the Q2 of 2022. We are very pleased with our financial results and operational performance with considerable growth in both adjusted consolidated EBITDA And margin this quarter as compared to the same quarter last year.

Speaker 4

Now that we are able to compare and examine operational performance to prior periods that are minimally affected by COVID. This further highlights all the improvement, efficiencies and growth related to our operational decisions of our unique business model and strategy and how we are able to successfully navigate the near term choppy waters of a post COVID world. Now turning to this quarter's income statement, I will highlight some of the expenses down to net income. First, I'll start off by circling back to Carlos' comment on total overhead, which excludes stock based compensation and other minor overhead costs. On the income statement, the combination of total G and A and other, Along with regional and unallocated funeral and cemetery costs decreased by $800,000 primarily related to our continued effort to meet our 2024 overhead target.

Speaker 4

2nd, as Carlos mentioned, interest expense increased nearly $3,400,000 mainly driven by the average interest rate for our credit facility increasing from 2.9% in the Q2 2022 to 8.6% this quarter. Lastly, income tax expense decreased $800,000 in the 2nd quarter as a result of a lower taxable income applied to a similar tax rate for the quarter. Turning to the cash flow statement. Cash flow from operations this quarter decreased approximately $1,000,000 to $13,300,000 As compared to the same quarter last year, despite net income decreasing nearly $2,600,000 during the same period. When Demanding the comparison period to the 1st 6 months of the year, cash flow from operations and free cash flow have increased $9,000,000 $11,000,000 respectively.

Speaker 4

As you can see, cash flow continues to remain strong and we continue to strictly adhere to our capital allocation plan as outlined in the high performance credit profile Restoration plan back in December. Similarly, we continue to delever methodically from a peak leverage ratio in the Q1 of this year After closing on the Greenlawn acquisition, using our bank covenant compliance ratio as defined by our credit agreement, We ended the Q2 with 5.37 times leverage. We expect the leverage ratio to steadily decrease throughout the year. Lastly, Turning to our annual guidance. We are pleased with how we are tracking operationally in the first half of the year relative to our annual guidance.

Speaker 4

Nonetheless, we would like to take a prudent approach to our guidance and gain more visibility into the seasonality of our business in a post COVID world before revising our guidance ranges. As a result, 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 Next quarter, we will look to tighten and or update our guidance ranges for the year. Again, with that, we will open it to questions.

Operator

Thank you. We will now conduct a question and answer Our first question comes from the line of Alex Paris at Barrington Research. Your line is open.

Speaker 5

Thank you and congratulations on the better than expected second quarter results. Everyone, I have a few Follow-up questions. First off, I'd like to start with the impact of inflation, both on your P and L and on consumer behavior. Your Service Corp Announced earnings earlier this week and this was a big topic on their call, so I thought I'd ask you some of the same questions. In the Q2, your field EBITDA was better than expected driven by cemetery.

Speaker 5

Your overhead expense was less than expectations. But within funeral, while revenues were up 4.6%, the field EBITDA was down 5 10ths of a percent, suggesting some margin compression. So my first question is, Based on your decentralized structure, how do your funeral managing partners evaluate price increases In the context of the funeral standards incentive comp structure.

Speaker 3

Good morning, Alex. This is Carlos. And let me just bring in a couple of components first. If you compare the compression of margins Between Q1 and Q2 is a significant difference from where we are today and that's because of the effort and focus on pricing and cost saving strategies at the business level. Managing partners have full freedom to go and decide what the pricing should be for their business based on their competition.

Speaker 3

We highly believe as a decentralized organization that the decision making power on things that truly matter should be and remain in the field. They know their competition better than us. We're 2,000 miles away from many of them. And they know what's really going on between families that are asking questions, Making calls and shopping. And so we do leave that pricing power to them and we're working really hard in showing where the opportunity is, So it can lead to the right decision based on the financial performance expected for each business.

Speaker 3

We feel very confident with the efforts we We're catching up inflationary costs, not fully as you highlighted on our EBITDA, but it is a significant improvement compared to where we were last quarter. We believe that as we continue to move forward, that compression should be even less Because we have not experiencing increase over increase over increase quarter after quarter. It has been somewhat steady, a little increase here and there, but nothing too dramatic. So we are very, very, very we've had expectations that we should be able to have this pretty much in control.

Speaker 5

That's helpful. So while there's compression year over year, there's improvement sequentially from the Q1 During this period in which you're trying to pass along those costs.

Speaker 3

Yes, sir.

Speaker 5

Great. 2nd and related question is Service Corp. Noticed noted on their last conference call that their cemetery within their cemetery business, Excuse me, they noted more price sensitivity with their lower tier property sales, less so on their mid and premium level property Sales, did you see similar behavior in your cemetery business?

Speaker 3

Contrary to that, Alex, We had a phenomenal, phenomenal quarter for Premium Cemetery sales. Shane Pudenz and the whole team of Director of Sales The Board and every sales manager in the business did an exceedingly well job. We did 116% over Prior year on preneed property alone and pretty much same thing, 116% on preneed merchandise and services. This is the result of Two companies at different stages as it relates to preneed properties. Before, let's say, 3 years ago, Cary Spieden really have the structure to sustain growth on the preneed side through a very structured approach lead generation, CRM, things of that nature.

Speaker 3

So we are very young, really on the early stages Of, cemetery growth over time, early stages, almost maybe not an infant, but certainly a toddler. One of the executives pointed out to me today, and I believe SEI, they have done an incredible job for many, many years. And so there are more mature organization. And I believe because of that, because the past history of carriage of not having that type of organization, We just have way more opportunity. And because of that reason, we have not found any significant pushback as it relates

Speaker 5

That's good to hear. Just to be clear though, you had 100 16% increase in preneed property sales in the quarter.

Speaker 3

Correct. Now remember that that includes unrecognized revenue, Right. So they're not just pure preneed sales.

Speaker 2

So, Alice, this is Mel. Good to be back and talking to you again. Yes, same here. I've been so impressed at what Carlos has built over the last 3 years. When he got promoted, he turned over the organization to Shane Pudas.

Speaker 2

And I've been equally impressed at what Shane has done in his growth and development as a really senior leader. We had our first board meeting with all 3 new members yesterday, And I was blown away by Shane and his presentation of a game plan to keep the momentum going in preneed property sales. He didn't bring up one time the consumer being an obstacle in the 3rd Q4 of this year. So I'm assuming the momentum that he has going, which continued into July, will also be also continue into the 3rd quarter and the 4th quarter and next year and years after that. I agree with Carlos.

Speaker 2

I never could get a preneed organization to be a high performance Culture organization, Carlos knew how to do that. It took time and effort and a lot of sophistication. And now he's got it in place. We have strategic plans in all of our largest properties. We never had those before.

Speaker 2

We can allocate Precious capital to a very high return on investment in these developments. And now we have the organization who can sell it At very high margins, it will be sustainable into the future, so I'm excited about it. We never had this engine to push. We were always too relied on death rates. Now we're not.

Speaker 5

Great. Super helpful. And then just a point of clarification. And I think I know the answer to this, but Preneed property sales were up 116%, but in the press release, you talk about a 3.4% decrease in the number of pre need interment rights sold. Am I Thinking about apples and oranges here, could you explain the difference in terminology there?

Speaker 3

Absolutely. I apologize for that. So when you think about this, there's a few components on the cemetery side, Greenhouse specifically, right? One could be the number of interments, which is just the actual number of burial that will take place over time. But that doesn't really correlate directly to the revenue per One of those interments.

Speaker 3

The other piece is the unrecognized revenue. That's what you'll see a difference between the 116% On preneed property and the revenue we had recognized from those preneed properties, even though we have a phenomenal preneed recognition rate, It's still a tiny little difference between the 16 almost 17% and the 16.2% that you can see On Total Cemetery Fuel EBITDA.

Speaker 2

Is that because we don't get the down payment big enough or what?

Speaker 3

No. So that could be because Well, yes, down payment is 1 and maybe the development has not been delivered. Yes. And we need to wait for the delivery to take place in order to be able to recognize

Speaker 5

Got you. So it's a revenue difference. Yes, it does. Thank you very much. And then I guess that's it for me.

Speaker 5

I'll go back into the queue. Thank you very much and again congrats on the quarter.

Speaker 2

Thank you, Alex. Thank you.

Operator

One moment for our next question. Our next question comes from John Franzreb of Sidoti and Company. John, your line is open.

Speaker 6

Good morning, guys, and thanks for taking the questions. I guess I would like to start with the guidance expectations. I guess you do have a cautionary note that you revised the next quarter, but I'm wondering what's The status of the December 2022 outlook for 2024, any thoughts about That midterm guidance outlook and maybe an update there?

Speaker 4

Hey, John. Yes, this is Keyon speaking. Focusing on 2023, So the revision that we kind of signaled is more just tightening things up for 2024. When we look at I'm sorry, for 2023. Now when we look at 2024, you kind of want to see how things play out, but nothing has really changed in terms of Our guidance and expectations that we've laid out as a result of the December 2022 kind of forecast we had And the goals that we put out there, so we feel comfortable with those that guidance as of now.

Speaker 4

But as we get more visibility, as We get closer into next year, we will make sure to update the market appropriately.

Speaker 2

John, this is Bill. I know Carlos is going to come in We did that and it's always dangerous when you try to predict what will happen 2 years out. So we did it at a very high level. Now what we're seeing so far is that we're on track to do that, but we don't want to change anything right now. We'd rather see a little more progress, But post COVID, we're actually seeing pretty good volumes in our funeral business better than we actually thought we would and even more Success in our preneed property and cemetery portfolio.

Speaker 2

So if things keep tracking the way they are and we get more updates, We'll have a tighter range for you. That's what Keyon is alluding to, but it will be based on more data and more precise Success, I think, where we wind up at the end of 24. But we don't our main thing here now is not to disappoint. We would rather under promise and over deliver rather than over promise and under deliver, which is something we did in the past. As far as I'm concerned, I'll update that whole concept of burial.

Speaker 3

I want to leave it more color too. When you think about seasonality, this has always been a seasonalized We've talked about this in the past, Q1 being typically the number one quarter for a year, then Q4 being the 2nd quarter for the year. 2nd quarter would be the 3rd and I'm sorry, 3rd quarter will be the 3rd quarter, I'm sorry, 3rd quarter will be the last one. I apologize for that. So we're going into the Q3.

Speaker 3

In last Q3, we experienced something interesting coming off COVID-nineteen. We had a great Q1 phenomenal record breaking phenomenal Q2 and then we had a great July, Great August and suddenly dropped about 20% in September, mainly due to COVID-nineteen that's not showing anymore, right? And so we believe there should be some seasonality into 2023. However, we're highly encouraged how the normalization is setting way above The pre COVID-nineteen levels, to give an example, at 2019 into 2020, the cremation rate dropped by 3% went somewhere around 1.2% to 1.3%. What we have seen in a quarterly basis between 20222023 in the second quarter It is a variation of only 0.9%.

Speaker 3

So it seems like even the cremation mix is going back to what it was, which was about a rate of 1% every year. And that's highly encouraging as we continue to move forward. And so we just want to be thoughtful, prudent and get more insight into the next couple of months. And then we should be able to give you more guidance, especially coming off 3rd quarter

Speaker 6

Fair enough. And just When you're thinking when you're looking at the properties, are you seeing any meaningful regional differences in pricing or the willingness to accept pricing?

Operator

Thank you for holding. One moment while we work on the technical difficulty. Thank you for standing by. We're working on the technical difficulty and we'll resume shortly. Thank you for standing by.

Operator

We're working on resolving the technical difficulty and we'll be back up soon. Thank you. Thank you for standing by folks. One moment, we're working on a technical difficulty and we'll resume shortly. Yes, ma'am, we can hear you now.

Operator

Thank you very much. Sorry for the technical difficulties, folks.

Speaker 3

Sorry, John, I don't know how much of my answer you got. I really apologize for that. We certainly just got cut off while I was speaking and You don't

Speaker 6

realize. I think we got all of the 2024 outlook, but I didn't hear anything about the differences In the regional pricing, if you heard that question.

Speaker 3

I did not hear that question. If you mind repeating the question, that will be one

Speaker 6

Certainly, Carlos. I was curious if you see in the current pricing environment any meaningful Differences in the regional pricing across your properties?

Speaker 3

Is your when you say meaningful, do you mean like lower prices? Are we able to increase price? The ability

Speaker 6

to push back and or accept. I'm just curious if there's any changes in

Speaker 3

I'll give you some granularity here. So for example, the difference between our funeral average per contract between Q2 of 2022 and this Quarter of 2023 is just $1 at $54.90 for this quarter. The burial contract is $68 above what it was last year The cremation contract is $71 of what it was last year. So from a even preneed funeral sales average is $143 of what it was last year. So We do feel pretty encouraged that our pricing strategy is working and that we can increase revenue sustainably as we continue to work on that.

Speaker 6

Okay. Fair enough. And I was curious that last quarter you talked about hiring additional sales personnel. Is that process complete? Do you have all the people you need?

Speaker 3

It is in terms of upgrading. We are looking to add teams, advanced planning teams in specific properties That will just add more to our preneed strategy. And so as we continue to recruit and place those teams and as those teams recruit counselors and get them to So it will be aggregate to our performance that we have today. It's not even the calculating to our outlook just yet. Okay.

Speaker 6

And one last question, and I'll let other people who because I'm sure people have been waiting. On the relationship with National Guardian, I think you said You expect 40% to 60% growth in funeral revenue a year after it's fully What gives you confidence in that kind of a number?

Speaker 3

So, good things Just some color on to that, right? Right now, we do somewhere around $80,000,000 in prearranged funeral production in general terms. We have A lot of relationships right now over 40 and that's why we have this new agreement to remove all those 40 over time. It's going to be a phased approach Over the next year and then being able to, through this strategy, significantly grow those 80,000,000 The 40% to 60% that I'm referring to is referring to that $80,000,000 So I believe we should be somewhere around $120,000,000 to 100 and $45,000,000 $50,000,000 sometime within a full year of execution after the full rollout.

Speaker 6

Okay. Thank you. I'll get back into queue,

Speaker 3

guys. Thank you.

Operator

Thank you very much. One moment for our next question. Our next question comes from George Kelly of ROTH MKM. Your line is open.

Speaker 7

Hey, everybody. Thanks for taking my questions. So first, just to follow-up on a point, Carlos, you were just reviewing the 40% to 60% growth in the preneed funeral that you expect over the next, I think you said 12 to 18 months. The question for you is just what is it about this relationship that's so superior to your existing relationships? And I guess what do they bring that's so new and incremental?

Speaker 3

Oh, yes. What's different is, well, first, We never really focused on trying to grow our PR range funeral program. And by managing So many different commission schedules, so many different strategies by business, different relationships between Whether it's a marketer, meaning somebody that is selling on your behalf or the insurance company backing that marketer behind it, you lose number 1, You will leverage in terms of being able to have better commissions from a general agent perspective because you have to negotiate which one of those 40 different parties. We have more than 40, but it becomes very complicated. So you lose your leverage.

Speaker 3

But most importantly, you don't have a national strategy. You don't have a marketing advantage that you can use. You don't have the CRM, because you have to rely upon the strategy that each one of those partners have And their training, their capacity and there's really good ones out there. But Perkoa is really the number one national preneed company in the United States. They have a robust marketing program.

Speaker 3

They have a robust CRM already there. And by partnering with NGL, the National Guardant Life Insurance Company, they're backing us in terms of a phenomenal advantageous to Carriage into them and to every within this agreement, commission schedule, and so everybody wins, right? In our estimations, we should be doing somewhere around 4 times The general agent commission we were doing before this agreement was signed. And so when you add that in addition to the We need sales in the fuel side, it becomes very, very accretive to our financial performance.

Speaker 7

Okay. That's great. That's helpful. Thanks. And then, second question for

Speaker 3

me. Is there

Speaker 7

a I don't know if maybe this is for Mel or Ken, I'm not sure. But is there a target leverage Number that you're I don't know if it's 4 times or maybe some 4 times, but something that you just have in the back of your head that you're working towards and And you're going to be really prioritizing debt pay down until you reach that and then you'll kind of start to be Consider other uses of cash. Just curious what that number is?

Speaker 2

Yes, this is Mel. You're right. We do have a number and we've always had a number. We just haven't lived up to it. It's 4 times or less.

Speaker 2

And the reason, having started this company and not knowing anything about it, I was told early on, Mel, you don't need to know a whole lot, except there's a lot of cash that comes out of the funeral business, so you can leverage it. I did that and they were right. And then we built a bigger company and we have now Too much leverage, it scares a lot of common equity holders. I understand that. And I think when we put out our High performance credit profile restoration plan, we mentioned we want to get back to 4 times or less.

Speaker 2

SEI has proven that they can operate Really well at less than 4 times and sometimes less than 3 times, still generate a lot of cash to allocate value creation. So when we grow up, we want to be like them. Best thing I can say. They've done a great job at it. And Bob Althorp, who died in February, was a dear friend of mine.

Speaker 2

He was a founder of SEI, pioneered the consolidation of this industry starting in 1962. And Bob would tell me, Mel, I should have been broke 4 times. This industry bails me out every time. Well, I don't want to be broke And I want to create value for our shareholders and I don't want anybody to lose any money on credit or on equity. So I think getting down to a perceived safer leverage ratio will enhance our multiple

Speaker 7

Okay. I appreciate it. Thanks, Mel.

Operator

Thank you very much. At this time, I would now like to turn the conference back to Mel Payne for closing remarks.

Speaker 2

Thank all of you so much for tuning in today. This is a very special day for me. I've been back in the office now a few days after working on my stroke recovery for months months. And it's been a very emotional time for me because I've received here's the deal For all of those you listening in who might know me, it's not like I have this tame, wimpy personality, so anybody who gets to know me knows that they're around somebody who has the energy and passion for what they do. And I don't hide it.

Speaker 2

I show it 100% of the time, and that seems to be what people really like from me. Plus, I like it as myself. But I have received so many good wishes for recovery, so many prayers. I just didn't know what to do to say thank you to all those people. And lo and behold, Carlos came up with a brilliant idea and I didn't have to do anything.

Speaker 2

He said, Mel, why don't you make a video, kind of back in the saddle and send it out to all of our people. So I did, and A. J. And his team, they just put magical stuff together. Thank you, A.

Speaker 2

J. He's down the way here. What they do is amazing. So they came to my library and we recorded a video message from me to all of our people A week or so ago, and it was sent out a few days ago. I told my wife, I've had so many people send me messages, And I haven't known how I'm going to think all of them.

Speaker 2

This is going to do it. And I think maybe a lot of people will listen to it. What I wasn't prepared for is when I walked in this morning to this call, Carlos gave me pages of responses to the video. And I'm sitting here reading them while they're answering all your good questions, and I'm blown away all over again. So I just wanted to read one of them To give you a general sense of how they all sound in one way or another, and This is from Jason Wheeler.

Speaker 2

Jason is the new managing partner of Wood Family Funeral Home, Which is part of the Greenlawn acquisition in Bakersfield, California from earlier this year. So he said, hello as a text message. We would like to share this message with Mel. Please, if there is any way to pass on this message about the message Mel sent this morning, please do. It takes a lot of courage to get in front of a camera and be open and honest about such a situation.

Speaker 2

This message was obviously filled with love and encouragement. It was inspiring to say the least. So, Mel, thank you. You have shown me that this company was built by a man who cares about his people and his company. This is not a company based on profit alone, but a company that was based on its people and the client families the people serve in every business.

Speaker 2

Your words are encouraging and motivating. God bless and pray them for continued recovery. And here's the deal. It has always surprised me why people say our people are our best assets, but they don't really act like that to the people. And I've always acted like that to the people.

Speaker 2

And so they respond, they respond and we say we're decentralized, we have these high And the way I define the company is we're a high performance culture company that happens to be in the funeral and cemetery business. And what we do in the funeral business is deliver high value emotional personal services. And when you do that, You build financial performance and market share and reputation in the local community and in the industry. Same thing in the cemetery. People do a wonderful job, and I'm just so grateful to be here Back in my saddle around the people I love the most and care about the most in my life.

Speaker 2

Building this company has been the highlight of my life And I could hopefully keep doing this for a long time. I know a lot of people are looking at us right now. I'm fine with that. Look hard. Deep belief to surface because it's all good.

Speaker 2

And I just want to thank all of you for calling in and listening today. I'm so grateful for the leadership team I have in place. You got to hear Carlos in action, Steve, Keyon. This is the dream team that I always wanted. It just took me a while to get them in place and now they are and I'm so thrilled.

Speaker 2

So thank all of you for tuning in and We look forward to reporting our progress for the rest of the year.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
FTC Solar Q2 2023
00:00 / 00:00