Good day, and thank you for standing by. Welcome to the Carriage Services' First Quarter 2025 Earnings Webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Steve Metzger, President. Please go ahead, sir.

Good morning, 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 Carlos Quezada, Chief Executive Officer and Vice Chairman of the Board of Directors; and John Enwright, Senior 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 Carlos and John 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, projections, and plans. Forward-looking statements inherently involve risks and uncertainties and only reflect our views as of today. These risks and uncertainties include, but are not limited to, factors identified in our earnings press 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 Carlos.

Thank you, Steve and welcome to everyone joining us for today's first quarter earnings call. It is an exciting time at Carriage. As we turn the page on a strong 2024, I am proud to share that our momentum continues. We delivered another strong performance in the first quarter of this year, which reflects the strength of our financial strategy and our focus on disciplined execution. Before diving into the numbers, I want to recognize the incredible dedication of our Carriage team. Their passion and purpose allow us to consistently deliver comfort and care to our client families, delivering premier experiences during very difficult times. They’re the heartbeat of our performance and the reason why we continue to turn vision into value. Thank you to everyone for all that you do. Today, I’ll walk you through key financial highlights and the progress of some of our most important initiatives. Then John will provide additional insight into our cost structure, cash flow, and GAAP numbers, focusing on this year's tax benefit and leverage ratio. Let's begin with the financial results. For the first quarter, we reported total revenue of $107.1 million, an increase of $3.6 million or 3.5% compared to the same quarter last year. The breakdown of total revenue is as follows: total funeral operating revenue ended at $69.1 million, an increase of $3 million or 4.6% over the same period last year. This growth was driven by an increase in funeral home average revenue per contract of 1.8% or $103 per contract and an increase in funeral home at-need volume of 2.4% or 282 contracts. As previously communicated, we observed a shift in the flu season, moving some of the volume we would typically expect to see in the fourth quarter to the first quarter. If we look back on a comparable basis, the fourth quarter of 2024 was down 5.3% in volume compared to 2023, effectively creating a positive variance of 7.7% compared to the first quarter of 2025. Moreover, comparing funeral home at-need volumes of the fourth quarter of 2024 to the first quarter of 2025 on a same-store basis, we saw an increase of 1,435 calls or 13.5% in the first quarter of this year. We estimate that only a portion of the first quarter's volume is related to the flu season shift. Typically, the first quarter of the year represents our highest funeral home volume. We ended the quarter with total cemetery revenue of $27.9 million, an increase of $1.5 million or 5.8%. While this performance represents strong growth for cemeteries, we expect our year-over-year preneed cemetery growth rate to be between 10% and 20% for this segment of our business. During our last call, I mentioned that we have been working through several strategic cemetery development projects involving a handful of our top performing cemeteries. We expect these projects to be fully completed shortly and return to our expected growth rate range during the second quarter. We generated total financial revenue of $7.4 million during the first quarter, an increase of $613,000 or 9.1%. This increase was primarily driven by a strong preneed insurance funeral sales strategy and the preneed funeral commissions income that is generated from these sales. To showcase this growth, we finished the quarter with 2,541 net preneed insurance contracts, an increase of 332 contracts or 15% compared to the same quarter last year. We are excited about the progress made through our insurance preneed funeral strategy, and we look forward to continued execution this year. Moving to adjusted consolidated EBITDA. We ended at $32.9 million for the first quarter, a decrease of $653,000 or 1.9%. Adjusted consolidated EBITDA margin was 30.8%, a decrease of 170 basis points compared to last year. This decrease was primarily driven by the planned investment in our Trinity system, which for this quarter was $800,000 and an additional $800,000 from our field leadership development efforts invested in our Managing Partners Forum, aimed at elevating the skills and performance of these outstanding leaders. We do not adjust for either of these two expenses. However, the good news is that adjusted diluted EPS for the first quarter was $0.96 per share, an increase of $0.21 or 28% compared to the prior year quarter. We are excited about the progress made during the first quarter. And as we reflect on our strong financial results, it is natural to consider whether an update to our full year guidance is warranted. Our results certainly point in a positive direction and showcase the strength of our strategy and disciplined execution across Carriage. However, while we are encouraged by our momentum, we also recognize that the broader economic environment continues to be uncertain. The U.S. economy continues to send mixed signals regarding market volatility, inflation, and recession concerns. This reminds us to stay focused, disciplined, and forward-thinking. With that in mind, we believe the most responsible course of action is to maintain our current guidance for now. This does not reflect any lack of confidence in our performance. It is quite the opposite. It demonstrates our commitment to being thoughtful and prudent stewards of the company, ensuring we remain agile and prepared in this dynamic economic environment. While April trends have remained strong, we continue to closely monitor our performance. If our current momentum holds throughout the second quarter, we expect to raise guidance accordingly. As always, our commitment remains to execute with the same strategic discipline and operational excellence that drove our strong first quarter results. We will continue to build on this foundation and create lasting value for our shareholders. Moving to updates on our strategic objectives. Our Trinity system is in Phase 1 of implementation, which is primarily related to back-office systems. Phase 2 should begin in the third quarter. We are in the final stages of testing and are excited about the benefits and synergies Trinity will deliver. We will report more on our progress throughout the year. On the supply chain front, we have successfully launched our new earned core line, a key step in optimizing procurement, improving margins, and strengthening our national partnerships while delivering a better experience for our families through better offerings and a more thoughtful presentation of options. As we enter the next phase, we are excited about the rollout of our Express Funeral Funding partnership, which will simplify insurance assignment processes, improve families' financial flexibility, and unlock new sales potential across all funeral homes. Future supply chain phases will focus on our casket core line, fleet management, and other essential procurement categories, which will help us reduce complexity, drive cost efficiency, and elevate service delivery across all businesses. These initiatives are part of our broader continuous improvement strategy, which is now embedded into our daily operations. If you have not had a chance yet, I strongly encourage you to read our 2024 shareholder letter. It captures the foundation we have built over the past 2 years, outlines our current strategic focus, and most importantly charts a clear path forward through our ambitious 2030 vision. It positions Carriage for sustainable growth and long-term value creation. You can find our shareholder letter on the Carriage website. In closing, we are proud of our strong first quarter results that reflect the strength of our strategy, the power of our culture, and the relentless execution of our high-performance teams. This momentum results from a clear vision, disciplined leadership, and an unwavering commitment to excellence. We are redefining how value is created in our profession. Operational excellence, innovation, and a deep passion for service are not aspirations; they are the actions that consistently deliver premier experiences to the families we serve and unlock sustainable value for our shareholders. As we move forward, we do so with confidence, focus, and a bold vision of the future. Thank you for your continued trust and belief in Carriage. I will now turn the call over to John.

Thanks, Carlos, and good morning, everyone. We're glad to have you with us today. After just over 3 months at Carriage, I feel incredibly fortunate to be part of such a talented team. It's meaningful to work for a company so focused on providing the very best experience to families who trust us in their most personal and challenging moments. As Carlos mentioned, we're very pleased with our first quarter performance. It is a strong start, and we're energized by the momentum heading into the rest of the year. While the macro environment may be a bit unpredictable, we're staying laser-focused on what we can control and pushing forward with our key initiatives. So let's dive into the first quarter results. First quarter GAAP net income was $20.9 million, an increase of $13.9 million or 200.1%. The variance is primarily driven by nonrecurring expense that occurred in 2024, specifically professional service expense related to the review of strategic alternatives as well as severance and separation expense, coupled with a discrete benefit in the first quarter of 2025 associated with a tax windfall for shares vesting at a higher price than their grant value. The effective tax rate in the first quarter of 2025 compared to the first quarter of 2024 is close to a 15-point benefit in the rate, which also benefited diluted EPS ending the first quarter at $1.34, an increase of $0.89 per share or 197.8%. Moving on to cash flow statement. Cash provided by operating activities for the quarter was $13.8 million, which was down $5.9 million from the prior year quarter of $19.7 million. The change in value year-over-year is primarily driven by changes in working capital adjustment, specifically reductions in accounts payable and accrued liabilities. Turning to capital expenditures for the first quarter. We had total capital expenditures of $3.2 million compared to $3.6 million in the prior year first quarter. We invested $1.8 million in growth CapEx and $1.4 million in maintenance CapEx. We also spent $1.9 million for Project Trinity in the first quarter. Based on CapEx spend, our adjusted free cash flow for the first quarter was $13.4 million, which was down $5.1 million from the prior year quarter of $18.5 million. We paid $17 million toward our outstanding debt this quarter, ending with a maintained leverage ratio of 4.2x from 5x at the end of the first quarter of 2024. We experienced a reduction in interest expense for the quarter of $1.4 million due to the amendment in our credit facility in 2024, as well as a lower outstanding balance on the facility. At quarter end, our credit facility had $120 million drawn. Now shifting to overhead. Overhead was $15.3 million for the first quarter compared to $19.4 million in the prior year first quarter, resulting in a $4.1 million decrease in our overhead expenses. Prior year first quarter had $6.6 million in special items, primarily associated with professional service expense related to the review of strategic alternatives as well as severance and separation expense. If we were to remove those expenses, adjusted overhead in the prior year first quarter was $12.7 million or $2.6 million lower than the current year. The $2.6 million overhead variance was primarily driven by $800,000 related to Project Trinity, $800,000 related to the Managing Partner Forum, $600,000 related to payroll tax expense primarily associated with vesting of prior year grants and $530,000 related to one-time nonrecurring miscellaneous expenses. Of these expenses, we anticipate approximately $1.9 million to be nonrecurring and $800,000, specifically the Managing Partner Forum to be an expense that happens annually. Overhead as a percentage of revenue was 14.3% for the first quarter of 2025, which is 200 basis points higher than our adjusted overhead percentage of 12.3% in the first quarter of 2024. If we exclude costs associated with expected nonrecurring expenses, overhead as a percentage of revenue would be 12.5%, which is in line with our prior year and our communicated range. Now let's shift to the outlook for 2025. As Carlos indicated, we are maintaining our previously disclosed outlook as we continue to navigate the macro environment and fully expect to increase our outlook after our second quarter results, provided current momentum continues. As a reminder, our outlook includes the impact of planned divestitures, but does not take into consideration any impact associated with acquisitions. As a reminder, our outlook for the following metrics were: Revenues are expected to be in the $400 million to $410 million range, adjusted consolidated EBITDA is expected to be in the range of $128 million to $133 million, adjusted diluted EPS of $3.10 to $3.30, overhead expense to be in the 13% to 14% of revenue range, adjusted free cash flow in the range of $40 million to $50 million. That concludes our prepared remarks, and I turn it back over to the operator to open it up for questions.

We can now take our first question from Alex Paris with Barrington Research.

Hi guys. Congrats on the strong start to the New Year. Good morning, so I'll start with the funeral segment, which was up as expected, particularly given your comments on the last call that January and February were up. First question, how was March and April? I think you kind of implied in your overview comments that April continued strong as well.

Yes, the momentum has continued, same from January all the way through April, pretty strong on the funeral home side, mainly related to volume increase on a year-over-year basis and some 150 to 200 basis points related to average revenue per contract.

Gotcha. And the strength year-over-year, does this suggest that the COVID hangover is behind us?

That's a good question, Alex. It is a little challenging to forecast that. We have 2 questions. One is the one you just asked. And the second one is with the flu season shift we have experienced this year will continue to be the new seasonality on flu season moving forward. That answer we don't really know. As it relates to COVID, we have been speaking about it for quite a long time. If you take up the number of deaths coming from COVID-19 and then you account for reduction or negative volume over the last few years, we should pretty much call for a wash-off moving forward for this year. We truly believe this is a year that it levels out, that there should be a wash-off and potentially an increase of volume moving forward. And that's really what we have forecasted in our guidance.

On the cemetery side, preneed interment rights sold decreased in the quarter compared to last year. The same trend was observed with your largest competitor, Service Corp., which also reported a decline in preneed property rights sold. Typically, Q1 tends to be a smaller season for preneed interment rights sales based on historical data. Seasonality could explain part of the decline, along with a challenging comparison since that business has significantly grown in recent years. Additionally, you've mentioned economic uncertainty; how do you explain the drop in preneed interment rights sold?

So we have not seen a decline of preneed cemetery revenue coming from preneed cemetery sales related to discretionary spending. We have not seen that. As a matter of fact, we have seen an expansion in our average revenue per contract even on the cemetery side. What we attribute the decline or the acceleration because still a pretty significant growth. We had a pretty decent growth on preneed cemetery sales on a year-over-year basis. But what we have seen is the delay of available inventory in two of our premier cemeteries that we have, and particularly one, which is in California. And during the Qingming season, our Asian community really goes and buys tremendous amounts of property out of this cemetery. And we took a little bit of time. I mentioned last call that we had a delay in cemetery development. So it took us a little longer to get the permits to get the cemetery development aligned. But now we're back on track with that, and we believe we will return to our normal 10% to 20% preneed cemetery growth on a year-over-year basis starting in the second quarter of this year.

Great. That was helpful. Then I had a question about the divestitures in the quarter. In the press release, you talked about proceeds of $18.7 million and a gain of $5.8 million on those sales. The question is, is this the $7.9 million in revenue and the $2.3 million in EBITDA that you talked about in your guidance, revenue and EBITDA associated with the properties held for sale? Or are there other things left to sell in that bundle?

Yes, I'll just handle the question in regards to the guidance. This is a portion of that guidance. We still have another property that we would like to divest in the second quarter, but we're aligned with kind of the $7.9 million where we expect that to be a good number of what we invest.

And then, Alex, just to follow-up on John's point, there are some additional opportunities we're looking at that are noncore assets that we feel good about in terms of having the opportunity to divest later this year. And I think the thing that we're really excited about and want to highlight is when you look at the last 16 months, we've essentially sold about several million dollars of EBITDA. We've raised about $31 million of proceeds. During that time, we've increased top and bottom line. So as we return to acquisitions, the organic growth engine of Carriage is very strong right now and has been able to make up for the fact that we've actually had fewer businesses in the past year despite growing the company as we are able to add some more premier businesses through acquisition, which we intend to do this year. And we can combine those two things together, that's where we think we accelerate growth for the shareholders moving forward. So it's a big part of our story.

That's a great segue for my final question. With the significant improvement in your balance sheet and your targets for year-end net leverage, when do you expect to do some M&A this year? I'm curious about the scale and timing. Should we expect to see it in the third quarter or the fourth quarter?

Yes. So we are talking to a number of owners right now. And again, just kind of going back, when you think about those 16 months and $38 million of proceeds, we do intend to reinvest some of those in higher-quality EBITDA producing businesses and expect to be able to share more about that in Q3 and then again in Q4 as well. So back half of this year, there will be more to report there, but excited to be able to add acquisitions back to the value creation story for Carriage.

Great. Thanks for the additional color. And I’ll get back with you. Thank you.

Our next question comes from John Franzreb with Sidoti & Company.

Good morning. Thanks for taking my question. Carlos, I'm curious about your opinion. I know in the first quarter, we had pandemic conditions. But I'm curious about your opinion about vaccine fatigue and how you think that's playing out and impacting your business?

Honestly, I don't think I have heard our team members, including managing partners and funeral directors, discussing vaccine fatigue or any pandemic-related issues. I truly believe it is primarily a result of our strategy and plan, the adjustments we've made to our core offerings, our pricing structure, and our corporate and operating models. We have been implementing these changes for about two years now, and it appears that the momentum is continuing to build, allowing us to execute at an improved pace. Therefore, I don't think it relates to those factors at all.

Okay, fair enough. And can you just remind me what cost-saving measures you are currently engaged in, if any, the timing of the completion? And would that be completed in this year or not?

Yes. I can discuss a few things regarding our focus on the supply chain. We completed the request for proposal processes related to insurance assignments, urns, and caskets as we transitioned from last year into this year. These are significant areas for us. We are currently developing websites and surveys that we believe will lead to substantial savings. We expect to have clearer insights into the financial impact next quarter. Additionally, as Carlos mentioned, fleet management is a key focus area for us. We have already realized significant savings with our new fleet strategy, which includes approximately 800 vehicles. We will continue to concentrate on this over the next quarter or two, and we anticipate further growth in this area as the year progresses.

And just to add a little bit more to that, John, what's really exciting is that we are on the early stages of recognizing some of those savings. Our core line is being rolled out across the board at Carriage. It doesn't mean that it is fully executed in every single business. It takes time for funeral directors to adopt the change and meaningful savings will continue to be realized quarter-to-quarter through the end of this year. So we're really excited about those savings.

Got it. And Carlos, I can appreciate the measure of caution given consumer sentiment. I guess two questions. Can you kind of remind us of how Carriage reacted in previous recessions? And what kind of levers do you anticipate pulling should we go into a recessionary environment?

Yes. So as you know, John, you've been following this industry for quite a while. It is quite a resilient industry, and its years of existence have shown through recession and depression times that continues to be pretty strong. And it is a good place to invest during these times because, of course, death continues to occur and doesn't stop. People would think that most likely then families will stop spending money on celebrations of life and caskets and things like that. But through recession, whether it was 2008 or any recession we experienced lately, we have not seen that decline. The only thing that becomes perhaps a bit more difficult is the preneed side. However, in my experience on sales over the many years I've been in this industry now, it is pretty clear to me that it's just a numbers game. So for example, before you had to talk to, let's just say, 10 families to sell 1 preneed cemetery contract. All it means is now maybe you need to talk to 15 families to sell 1 preneed cemetery contract. And so all we do is just accelerate and plan for lead generation programs that deliver those numbers to continue to fulfill our goal of 10% to 20% growth on a year-over-year basis on preneed property. And so that's really all I have seen, and I haven't seen and I have been in this industry now over 2 recessions. So I feel pretty strong about it.

Great. Thanks for the color, I appreciate it.

Thank you. And our next question comes from George Kelly with ROTH Capital Partners.

Hi, everybody. Thanks for taking my questions and congrats on a strong quarter. First, just a follow-up to one of the prior questions. How big is the property you're contemplating monetizing in 2Q? And can you just sort of ballpark like what could the proceeds be from that?

Yes. So I would say, in Q2, George probably around $6 million in proceeds at this point. Some of that is contingent on closing conditions and timing, but I think $6 million is a good number for Q2.

And that sale is already factored into your guidance?

Yes, yes.

And then second question for you on the cemetery business. I appreciate all the detail on the various CapEx projects that have been underway. It sounds to me like you're already seeing a return to that 10% to 20% growth. Is that a fair statement? I just – it is a big uptick sequentially, and you had such a great Q2 last year. So just wanted to make sure like what is your visibility on that 10% to 20% as soon as Q2? And then maybe secondarily, my understanding is there is another big project underway at a different property on the East Coast. And what stage of completion is that project?

We are quite optimistic about achieving the 10% to 20% growth in the second quarter. In the first quarter of this year, our preneed property sales increased by 5.2% compared to the previous quarter, which is considerable growth for most cemeteries. Our cemetery sales strategy at Carriage is still in its early stages, having been in place for less than 5 years, and we believe this gives us more time to develop compared to other companies. My confidence comes from the excellent work our sales teams, led by Shane Pudenz, are doing in building our lead generation programs, training, and recruiting efforts essential for a successful sales team in this industry. As for the properties mentioned on the East Coast, their developments are being completed, and I have no concerns there. In fact, I can share positive updates regarding preneed cemetery sales from that specific business for April. On the West Coast, our sales were impacted by the inability to sell preneed cemetery plots during Qingming, a time when sales typically spike, as the Asian community generally prefers to purchase developed property after visiting the site. Now that Qingming has passed, we anticipate some sales in April, but overall, we remain confident in our performance for that month. I have no concerns about selling predeveloped property at those two locations moving forward for the rest of the year. This is the basis for my confidence, George.

Okay. That’s really helpful. And then maybe just one last one. On the other side of the business, on the funeral side of the business, just wanted to make sure I understood your comment. So what you've seen in April is a continuation of kind of call it, low single-digit pricing and low single-digit volume growth. Is that right?

That is correct. It is positive, certainly different than we have seen over the last almost three years since COVID-19. And so it looks pretty strong, very positive, and excited about that.

And I have one more quick one. And apologies if I missed it. Any kind of expected tariff impact?

Thanks, George. No, from a significance perspective, no, we don't think that tariff is going to impact us significantly this year. If you look at our merchandise cost, it's a small percentage or an immaterial percentage that's going to be associated with stuff that we import. So when we looked and did an analysis, the maximum impact would be less than 10 basis points, and that's on a full year basis. So not significant.

Okay, excellent. Thanks very much.

And it does appear that we have no further questions at this time. Mr. Quezada, I will turn the call back to you for any additional or closing remarks.

Thank you everybody. And as we look ahead, we remain confident in our momentum and focus on driving continued growth, innovation, and long-term value creation. We appreciate your continued support and look forward to sharing our progress in our next call. Thanks everybody.

This concludes today's call. Thank you for your participation. You may now disconnect.