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 session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel and Secretary. Please go ahead. Hi, everyone, and thank you for joining us to discuss our first quarter 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 Kian Granmayeh, 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 and 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. 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 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 immense joy to join you all today following weeks of rigorous rehabilitation. 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 Kian, who together with me comprise our Strategic Vision and Principles group. I formed this group of senior leaders almost three years ago as part of my succession plan to serve as a vehicle from which I would develop and mentor the future executive leaders of Carriage. After working with Carlos, Steve, and Kian intimately over the last two 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. Today I am proud to see that dream come to fruition, as Carriage has evolved into a high-performance culture company. 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. Thank you all for your interest in our company, and I will now pass it on to Carlos for more detail on the first quarter performance.

Thank you, Mel. Good morning everyone. We are pleased to announce that our first quarter financial performance exceeded our expectations. As we mentioned during our last earnings call on February 23, we anticipated a challenging first quarter compared to the record-breaking first quarter of 2022, which was driven by the spike in COVID-19 cases. In contrast, this year, only 2% or 242 cases were attributed to COVID-19, representing a swing of 8.5% or 1,167 cases. For the first quarter, our total funeral operating revenue was $66.5 million, a decrease of $3.7 million or 5.3%. However, when we offset the COVID-19 volume in the first quarter of both 2022 and 2023, we saw an increase of 1.2% in funeral volume over 2022. As a result, our total funeral field EBITDA was $26.6 million, a decrease of $4.6 million or 14.9% with a total funeral field EBITDA margin of 40.1%, a decrease of 440 basis points. In the first quarter of 2022, we had a record year, so the bar was very high. Additionally, inflationary costs put some pressure on our margins, mainly from salary benefits and general and administrative expenses. However, we continue to work to adapt and pass on these cost increases to the consumer. Moving on to our cemetery portfolio, we are very excited as all the hard work we’ve put into revamping our cemetery sales strategy over the last two years is starting to pay off. Our total cemetery operating revenue for the quarter was $21.6 million, an increase of $1.1 million or 5.5%. Our total cemetery field EBITDA was $8.4 million, a decrease of $202,000 or 2.4%, 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. We ended at $14.5 million in preneed cemetery sales production for this year, reflecting an increase of 4.8%. Even after a record high comparison, our preneed teams executed very well and we see the positive impact of the sales strategy. Additionally, we have been working on recruiting new sales customers and strategically upgrading some 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%. With these positive trends, I feel very positive about delivering high performance in preneed cemetery sales. As mentioned in past calls, this is only the beginning for preneed cemetery sales at Carriage and we have many growth opportunities over the next three to five 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 $95.5 million, a decrease of $2.6 million or 2.7% and our total field EBITDA was $41 million, a decrease of $4.4 million or 9.7%. This variance is driven by the record first quarter during the COVID-19 pandemic spike that led to higher volumes and margins. However, comparing the first quarter results of this year to our 2019 base year, we have grown at an 8.4% CAGR in total revenue and a 9.7% CAGR in total field EBITDA. Furthermore, the total EBITDA margin in the first quarter of 2019 was 41% compared to 43% in the first quarter of the year representing 200 basis points of improvement. Now let me share an update on 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 involved documenting requirements that will inform the product's final design. This work involved over 150 hours of workshops with internal experts who provided 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 third quarter of this year. This project is currently tracking to its original plan and will begin testing later this year. A full-scale deployment is anticipated to commence at the beginning of the first quarter 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 exciting news. I am thrilled to share updates. Firstly, we have produced our 2022 shareholder letter, which is packed with valuable insights and outlines our bold 10-year goal. I encourage you to read it at your earliest convenience. Now to share the news that will surely pique your interest. As communicated on our last call, we have been working tirelessly on our new pre-arranged funeral strategy, and I am delighted to announce that we reached the final stretch with two finalists. As a result, we are ready to make the final evaluation, and we will announce the new partnership that will accompany us to bring this vision to fruition by the end of this month. With this new partnership, we're going to revolutionize the way we serve and protect families through pre-planning while also creating substantial financial value for our shareholders. The possibilities are endless and we cannot wait to share more information, so stay tuned for updates as we embark on this exciting journey. In closing, I am thrilled to share that we are pleased with our first quarter performance. We remain committed to maintaining our consistency and discipline in executing excellence to achieve our goals. With the COVID-19 pandemic high comparables now behind us, we have a clear path to delivering high performance through market share gains, exceptional results through seamless acquisition integrations, growth in our preneed cemetery sales, and optimizing financial performance in each of our portfolio businesses. I want to express my gratitude for our entire team's hard work and dedication, without whom none of this would be possible. And with that, I'll now pass it over to Kian.

Thank you, Carlos. Before I dive into the review of our quarterly financials, I wanted to express my gratitude to Mel, Carlos, and Steve as well as the broader Carriage family for welcoming me to the Carriage team and to the company's Strategic Vision and Principles Group. This week marks my sixth week in the seat, and as you can imagine, I've been drinking from the fire hose as I work my way up the learning curve. I'm fortunate to have assumed leadership of a hard-working, 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. Now turning to a review of the quarterly financial results, for the first quarter of 2023, under Generally Accepted Accounting Principles, Carriage reported total revenue of $95.5 million and net income of $8.8 million or $0.57 per diluted share. This compares to total revenue of $98.2 million and net income of $16.4 million 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 $27.8 million, adjusted consolidated EBITDA margin of 29.1%, and adjusted free cash flow of $17 million. This compares to adjusted consolidated EBITDA of $32.5 million, adjusted consolidated EBITDA margin of 33.1%, and adjusted free cash flow of $12.4 million in the first quarter of 2022. A comparison of this quarter's financial results to last year reinforces the point Carlos made earlier that the elevated first quarter 2022 performance was driven by a spike in COVID-19 cases. Nonetheless, we are excited with how the first quarter of this year turned out relative to expectations. Looking at this quarter's income statement compared to the same period last year, Carlos already touched on field revenue and EBITDA, so I will focus on the other corporate expenses. First, total G&A, which includes regional and other corporate costs, in the first quarter of 2023, total G&A increased approximately $0.7 million primarily related to an increase in salaries, benefits, and incentive compensation. Second, interest expense increased nearly $3 million, mainly driven by the average interest rate for our credit facility, increasing from 2.1% in the first quarter of 2022 to 7.9% this quarter. Lastly, income tax expense decreased $1.6 million due to our lower taxable income for the quarter. Regarding adjusted free cash flow, we saw an increase of $4.7 million or 37.8% 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, we expect that the quarter-end leverage ratio will continue to steadily decrease throughout the year. With all the positive momentum in the first quarter, we are reaffirming 2023 guidance of $375 million to $385 million in total revenue, adjusted consolidated EBITDA of $110 million to $115 million, adjusted diluted earnings per share of $2.25 to $2.40, and adjusted free cash flow of $50 million to $60 million. As we continue to realize our results and deliver on our plan through the year, we will tighten or update our guidance ranges. With that, I'll pass it over to Steve.

Thank you, Kian. As it relates to our growth through acquisition strategy, we were excited to enter the Bakersfield, California market in the first quarter by closing on the purchase of Greenlawn Funeral Homes and Cemeteries. Greenlawn is a significant addition for us as it generated roughly $18 million in revenue last year and is the market leader in Bakersfield with an approximately 40% market share. 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. As Mel referenced during our December release, outlining our high-performance credit profile restoration plan, we have identified a few potential divestiture opportunities that involve businesses that no longer align with our long-term strategy, which we believe can potentially generate a premium valuation. 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. 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 opportunities 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 and 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 two new directors within the next six months. We'll continue to keep our shareholders apprised of our Board refreshment efforts in the coming quarters. And with that, we'll open it up for questions.

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from Alex Paris of Barrington Research. Alex, your line is live.

Thank you. Thanks for answering my questions. First of all, congrats on the better than expected first quarter results. Second, I wanted to welcome Mel back to the call. It's so good to hear your voice. And lastly, welcome Kian on his first call. I 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 three acquisitions over the last 12 months, significant including Greenlawn. 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 forma basis?

Good morning, Alex. This is Steve. In terms of order of magnitude, Greenlawn is obviously not only the largest of the three but also the largest from a revenue perspective that we've added in the history of Carriage. The $18 million they did last year, we're hoping to grow on this year. This one will take a lot of our focus on integration. Then in Charlotte with Heritage, which we talked about on the last call 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. So that's probably number two on the list. San Juan, which is just a very different business for us with a very high call rate, has two smaller locations in Orlando focused on a particular demographic. Their growth opportunities are different from the two that have cemeteries attached. From a pro forma revenue perspective, we're looking at about $25 million to $30 million this year in pro forma revenue. Still working on what the EBITDA will look like as we're exploring price adjustments in both Charlotte and Bakersfield. So we'll provide more detailed information on that as we progress.

Great. That’s helpful. Thank you. Then Carlos, you gave us a little bit of an update on Trinity. This is the new ERP system that will be part of funeral services going forward. And I believe it's integrated into sales edge on the cemetery side. What do you hope to accomplish with these two new technology platforms on the funeral services and cemetery side going forward? And to what extent are they rolled out?

Yes, Alex. We're still in the rollout process, expected around the first quarter of 2024. Right now, we are finalizing our processes to compare with the ERP we call Trinity. The tool's development is very broad. We believe Trinity will enhance our service to families while allowing us to be more efficient and productive in our accounting and operations. We'll be able to handle cemetery contracts digitally, which will be a huge driver as we will close preneed cemetery sales on-site. It will enable us to have more live reporting since we currently compile reports based on batch processes. The pilot program is scheduled for the last quarter of this year, with deployment in 2024.

Great. Thank you for that. And then my last question is directed at Kian. Understanding that you've only been in the seat for six weeks, but given the outperformance of the first quarter, you've reaffirmed guidance for the full year. Is it safe or aggressive to say that you are likely at the higher end of full-year guidance ranges?

Thanks, Alex. I appreciate that. I think you've somewhat answered your own question. Yes, the conservativism is definitely influenced by my newness in the role. I would prefer more visibility into performance in the second quarter and how the forecast looks for the rest of the year before tightening up guidance. So look for us to either tighten or update guidance when we have more clarity on performance. For now, we are not comfortable providing that update.

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

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

Glad to be here, Liam.

First question, could you give some sense as to how cremation sales were either on a year-over-year or a percent of revenue basis? And how that contributed in terms of relative margin?

Yes, absolutely. The cremation mix has changed consistently over the last few years. For this quarter, we saw a slight uptick in our cremation mix of around 2%. Positively, we were able to offset a lot of that with a $134 increase in our average, resulting in a 2.5% improvement year-over-year when comparing Q1 to Q1. For same-store, our cremation mix went up to 2.2% with an average higher by 1.89%, translating to a 3.5% offset from concerning averages. We do have a very solid strategy regarding cremation conversion, presenting families with all options, allowing them to choose a cremation with service or a different type of celebration of life. This approach enables us to maintain our expectations moving forward.

So just to clarify, you saw year-over-year growth in cremation sales and higher per sale realization?

That is correct.

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?

We do not typically evaluate EBITDA contribution by each category. Instead, we assess overall business EBITDA. I can tell you that our margins are indeed strong. Ending up at 40.1% reflects our robust margins. When compared to Q1 of 2022, yes, there is a 440 basis points drop, but we feel confident about margins, which are likely among the industry's highest. There remain opportunities to maximize both our funeral and cemetery businesses by effectively passing down some of those inflationary costs to the families we serve. We manage this delicately, never prioritizing raising prices simply for margin enhancement; we prefer to approach pricing wisely to maintain our business volume.

Great. And on the cemetery side, looks like you're getting great traction on pre-need sales. Where are you in terms of building out the marketing or sales force?

Yes, we have made tremendous progress. After COVID-19, we had to realign our strategy to drive business development. I am very happy to report that we have a full roster of talented sales managers and the recruitment of counselors has been strong. We now have advanced planning teams that are exceeding targets. I am confident that this positive trend will continue.

Thanks, Liam.

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

Good morning, guys. Thanks for taking the question and Mel, great to have you back on the call here. If we can maybe start with a couple of housekeeping items. Can you share the consolidated funeral contract number for Q1 here? And is that something you will be sharing normally going forward?

JP, I’ll address the first question. As discussed on the last call, Carriage will move forward with a one-year approach for acquisitions to maintain fairness when comparing year-over-year growth rather than keeping acquisition businesses separate for five years. Given that we only have three current acquisition segment businesses, we are postponing the decision to split same-store and acquisition until we assess the numbers comprehensively. After considering the weight of numbers, we will determine whether to maintain this approach yearly.

JP, in response to your second question regarding the reconciliation to adjusted free cash flow: the last table in the appendix of our press release provides an overview. Starting from cash provided by operating activities, we account for maintenance CapEx, which is notably lower than what we spent in the previous year. The other adjustment pertains to approximately $7 million withdrawn from a premium cemetery trust investment.

Great. Thank you. Now, on a comment from the prepared remarks regarding inflationary costs — where are you seeing the biggest cost pressure? Has that normalized recently or is it lingering throughout the year?

Yes, there will be a catch-up as trends continue to rise. In Q1, we faced around $0.5 million in insurance increases, around $750,000 in salary benefits, and about $500,000 in G&A. This adds to about $1.7 million in total increases, impacting margins. We must keep an eye on competition and balance employee retention with price adjustments cautiously, aiming to avoid revenue losses. Overall, we believe the margins are sustainable and above most industry competitors, which we are confident we can maintain.

Coming out of 2021, we had record growth due to COVID. We have seen a drop in revenue and margins post-pandemic. We implemented a plan to restore our high-performance and credit profile. We are in a high-value personal services business, and we have more pricing power than our competitors. Recently, we've been raising our prices without losing market share, leading to upward trends in volumes and average revenue per contract. This trend is encouraging, and I hope it continues.

Great. Thank you, and best of luck.

As we end today's call, I am more excited than ever about where we are as a company and what we call a good-to-great journey that never ends. Carlos touched on it; refer to the 2022 shareholder letter. It was a beautiful collaboration between Carlos, Steve, and me, and I'm very impressed with its content as we captured the essence of Carriage's past, present, and future. The presentation was first-class, and I want to thank A.J. and his marketing team. To wrap up, we have outlined our financial goals and our plan to restore our high-performance and credit profile by the end of 2024. This plan has been executed with excellence by Carlos and the operational sales teams. For Carriage, the best is yet to come, and we look forward to keeping you updated as we progress on our journey. Thank you all for tuning in today; I’m thrilled to be back. That concludes our call today. Thank you.

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