Earnings Call Transcript - CSV Q3 2022

Operator, Operator

Good day. Thank you for standing by. Welcome to the Carriage Services Third Quarter 2022 Earnings Call and Webcast. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel. Please go ahead, sir.

Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel

Thank you, Norma, and good morning, everyone. Today, we'll be discussing our third quarter results. Our related earnings release was made public yesterday after the market closed, and we posted the release, including supplemental financial information on the Investors page of our website. This audio conference is being recorded, and an archive will be made available on our website later today. 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 Ben Brink, Executive Vice President and Chief Financial Officer. Today's call will begin with formal remarks from Mel, Carlos, Ben, and myself, 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. Any comments made by our management team that state our plans, beliefs, expectations, or projections for the future are forward-looking. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, both factors identified in our earnings release and in our filings with the SEC, both of which are available on our website. During this call, we'll also discuss certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the appropriate GAAP measures can also be found in our earnings release, as well as on our website. Thank you all for joining us this morning. And now I'd like to turn the call over to Mel.

Mel Payne, Chairman of the Board and Chief Executive Officer

Thank you, Steve. As a young boy growing up in a rural farming community, I loved going to the Annual County Fair where my favorite ride was the roller coaster. By far the most thrilling part of the ride was after slowly climbing to the peak and then flying down the steep descent. I loved it. Building Carriage over the last 31 years, especially as a public company after our IPO in August of '96, has been akin to riding a much bigger and steeper roller coaster. With one hugely profound difference. Over the last 20 years, we have evolved a new business model and framework for operating and consolidating the still highly fragmented funeral and cemetery industry. It is a unique business model and framework. And throughout this period, through ups and downs in our performance as we adapted the model and improved it, together with various severe adverse economic environments that produced wild peaks and valleys in our share price, we have continuously gotten better as a company at executing our standards operating model and strategic acquisition model. Especially over the last four years, we have accelerated our progress toward our Mission and Vision and being the best at what we do. We are currently in the midst of a transition from peak performance in '21 for various documented reasons into a post-peak COVID normalization of death rates, at some point, likely in the near future. Yet even with negative performance comparisons during this transition period, we have never had a company anywhere close to this good in our history, populated by the best leadership talent and a stellar reputation as a succession planning solution for the best remaining independent businesses and the best strategic markets. My advice to those listening on this call is to hang in there. This too shall pass. Without introduction, I will turn the call over to Carlos Quezada, who is the President and COO and together with his teams of eight players is one of the main reasons that the best is yet to come. Carlos?

Carlos Quezada, President and Chief Operating Officer

Thank you, Mel. Good morning, everyone. And thank you for joining our call today. Before we start, I want to thank our Carriage family in the field and our Houston Support Center for your commitment to our diverse mission; it's the heartbeat of Carriage. Thank you for all that you do. For today's call, I will review our total field operational performance for the third quarter of 2022, and then we'll go over financial performance in more detail later on this call. I will also provide a quick update on overall operations. For the third quarter of 2022, our results are as follows: total revenue of $87.5 million, a decrease of $7.5 million or 7.9%; total field EBITDA of $35.3 million, a decrease of $9.4 million or 21%; total field EBITDA margin of 40.3%, a decrease of 670 basis points; adjusted consolidated EBITDA of $22.9 million, a decrease of $9.5 million or 29.4%; and adjusted consolidated EBITDA margin of 26.1%, a decrease of 800 basis points. The performance variance in the third quarter of 2022 compared to the same period last year is a direct result of historically abnormal seasonal peaks and record pandemic volume experienced only in the third quarter of 2021, which on a comparison basis impacted our revenues. Furthermore, inflationary costs and lower revenues over high fixed costs resulted in negative operating leverage in many of our businesses. The good news is that our same store average revenue per contract was up by $132, or 2.5%, equivalent to 232 contracts and making up for $1.3 million. Additionally, our overhead in the third quarter of 2022 was down $258,000, or 1.7%. While this performance in no way shape or form represents Carriage's high-performance culture, to put some perspective on our funeral home portfolio performance for the nine months ending September of 2022, we identified 76 businesses that were down in field EBITDA including Preneed funeral interest earnings. For these 76 businesses, 34 are still above 44% field EBITDA, which we consider a high-performance margin. These 34 businesses for the nine months ending September of 2022, while averaging a high 46.2% margin, were down by $5.6 million in EBITDA dollars versus 2021, but up by $3.1 million when compared to the same period last year. Volumes were expected to normalize at some point. And here we are now. However, we believe that death rates will normalize over the next year above 2019 levels. And we also expect seasonalized volumes moving forward. The really great news is that Carriage is a much better company than it was at the beginning of the pandemic. We are nimble and agile, and we adapt quickly in uncertain environments. Just as we adapted amazingly fast in March of 2020 at the onset of the pandemic, we are now adapting to this transition in a post-COVID pandemic environment. Also, through these inflationary periods, here are some of the actions we're taking to adjust and get back on track to higher margins. Number one, we are continuously reviewing our pricing strategy and not absorbing the inflationary costs we've seen on salary and wages, utility, gas, insurance, and merchandise. Number two, we're helping businesses that are below our standard supporting performance thresholds. Through coaching and mentoring, we help them navigate back to high performance. Number three, we're looking at process improvement and a plan that will help us improve broadly while keeping the nature of our decentralized model intact. Number four, we have identified specific businesses by business needs so that they can have performance improvements, and we're in the process of executing. Number five, we continue to bring top talent into our company areas to help us improve collectively and in alignment with being the best Mission and Vision. Number six, operations leadership team will have a weekly meeting to evaluate progress made on the post-COVID transition strategies. These are some of the specific actions we are taking, and we're confident that we will reach our goal of long-term sustainable ranges of total field EBITDA margins between 43% and 44%, overhead expense around 13%, and adjusted consolidated EBITDA margins between 30% and 31% by 2024. If there is one takeaway, I would like you to take from me today is this: the third quarter of 2022 is not the new normal. We will execute our plans and strategies and return to our high-performance normal sooner rather than later. Now for our operations update, I would start with IT. Rob Franch, our CIO, has focused over the last six months on building a solid foundational technology platform across critical infrastructure and security services, specifically cybersecurity, connectivity, and compliance. Our biggest game changer opportunity is in how we engage and collaborate with families. For example, automation and AI will help us streamline business processes and operations in addition to opening a new revenue channel through digital marketing and e-commerce. Our keystone project, Project Trinity, will aim to deliver next-generation technology capitalizing on all of these opportunities, positioning Carriage Services as an advanced digital provider of death care services in the years to come. Regarding our marketing overhead investments made earlier this year, we're seeing significant progress well above our expectations, as our marketing team has accelerated field marketing adoption and are now effectively supporting marketing projects for 80% of our businesses. Some of these projects include our website redesign, a new contracting system that improves performance, a new digital marketing dashboard for each business regarding paid digital advertisements and their return on investment, and a significant improvement in social media presence, as well as an increase in Google reviews. Through the innovative ideas of the marketing team, in partnership with our marketing partners, we are coming up with ways to improve each business and their digital profile and presence. Our marketing team is now gaining momentum in generating savings from marketing investments while delivering a seamless customer experience to the families we serve in our field teams. We have restructured our regional portfolios and provided a balance between our West, Central, and East regions. This new portfolio distribution will enable our regional partners to optimize each region effectively. Moreover, to optimize even further, we are excited to announce that Robbie Pape joined Carriage's Good To Great Journey on September 26 of 2022. She's our new Senior Vice President of Operations and Regional Partner for the Eastern Region. Robbie has 30 years of industry experience, including positions in funeral, cemetery operations, finance, sales systems, process improvement, and audit. She's a certified public accountant with a marketing and information systems degree from Baylor University in Waco, Texas. She serves as the President-Elect for the International Cemetery Cremation and Funeral Association. Robbie is also active in the Cremation Association of North America and served as a board member until the fall of 2021. Robbie's vast knowledge and leadership style will be transformational for the East region. Joining Robbie are Jeremy Weaver and Chuck Frye who joined Carriage as Director of Operations for the East region on May 23 and August 1 of 2022, respectively, in combined have over 50 years of funeral and cemetery experience. We welcome Robbie, Jeremy, and Chad to the Carriage family. In closing, our commitment to our Mission and Vision and being the best operator, consolidator, and value creator is as solid and real as ever. We have the talent, the businesses, and a company getting better every day. Our focus on seamless execution will allow us to deliver high performance as we transition to a normalized, institutionalized death rate environment.

Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel

Thank you, Carlos. As it relates to our growth through acquisition outlook, we were excited to announce our acquisition of a premier funeral and cemetery business in Charlotte, North Carolina earlier this week. Heritage Funeral and Cremation Service and Forest Lawn East Cemetery is one of the leaders in the Charlotte area with greater than 25% market share. We often tell acquisition candidates we meet that fit and relationships are critical as our reputation will become theirs, and their reputation will become ours. In the case of Heritage, we couldn't be more excited to join the reputation of this fantastic business and team. Heritage served more than 1,200 families last year, with multiple funeral homes, a cemetery, and a dedicated cremation business. We are well-positioned for broad growth in one of the more attractive markets in the country. We want to thank Harris High and Carolyn Williams for selecting Carriage to continue to lead the wonderful business that they, along with Carolyn's father, have built over the years. And we want to extend a warm welcome to the entire Heritage team. We're also pleased to announce that we're currently under a letter of intent to acquire an impressive business that serves as the leader in another large strategic market. We're particularly excited about this opportunity, and it's one that reached out to us directly to explore if Carriage may be the right succession option for their business. For more than 31 years, Carriage has worked hard to build and protect our reputation. We talk often internally about the importance of ensuring all aspects of an acquisition are successful, from the initial conversations with owners to the manner in which the actual transaction is handled, and how the integration leads. As our reputation continues to grow and spread within the industry, we take it as a compliment and are humbled when a premier business reaches out to us directly to explore partnership based simply on what others have said. We look forward to sharing more details on this particular business on our next call, and believe the history and reputation that have led to this unique opportunity will continue to lead others. Our recent Heritage and San Juan acquisitions, along with the large business we currently have under letter of intent, will combine to add approximately 4,500 funeral calls and 1,500 interments to our annual companywide totals. To put the impact of these three acquisitions in perspective, those combined numbers will represent a greater than 10% increase to annual companywide totals for funeral costs and a greater than 15% increase to our total annual interments. That's significant growth in a short period of time, and we look forward to discussing the contributions these businesses make to our performance moving forward. We're fortunate to have the opportunity to look at dozens of potential deals every year. And as we shared with our board yesterday, we determined most of these opportunities are simply not the right fit for our company. We remain highly selective and patient, focusing on three key criteria when evaluating an acquisition. First, we're looking for strong growing markets, and this usually means a larger market with positive demographic trends and forecasts. Second, we're looking for businesses that have a leading reputation and serve as a top brand in the market. And third, there must be a clear and strong path to future growth and expansion. If we believe a business, even a good business, is at peak performance, and it's not going to be the right fit for us. Also worth noting with our most recent acquisition and our current letter of intent, these two opportunities allow us to enter new large markets where we've not previously had a presence. Entering a new strategic market is important, but equally as important for us is doing it with a leading business that has a significant footprint, which is the case with both of these opportunities. That footprint and reputation facilitate our longer-term growth and expansion strategy within the market. I'll wrap up my remarks by noting that in 2019 and 2020, we took advantage of some unique growth opportunities in a very short period of time, as we closed several large deals that have proven to be highly accretive and contributed greatly to our focus on increasing our operating leverage. Following those large acquisitions, we paid down debt aggressively and quickly. While these current acquisitions don't rise to the level of that investment, we will once again turn our focus to reducing our leverage as we integrate these fantastic businesses and close on our current letter of intent. But that said, we're a growth company. And as we increasingly become the option of choice for more and more of the best remaining independent funeral homes and cemeteries in the country, we know it's important to ensure we remain financially flexible to act when a unique opportunity presents itself.

Ben Brink, Executive Vice President and Chief Financial Officer

Thank you, Steve, and thank you to everyone who has joined us on the call today. So the third quarter total revenue decreased 7.9% to $87.5 million. Adjusted consolidated EBITDA decreased 29.4% to $22.9 million. Adjusted consolidated EBITDA margin decreased 800 basis points to 26.1%, and adjusted diluted earnings per share decreased 45.1% to $0.45. Year-to-date, our total revenue has decreased 1.3% to $276.3 million. Adjusted consolidated EBITDA has decreased 15.8%. Adjusted consolidated EBITDA margin decreased 500 basis points to 29.2%, and adjusted diluted earnings per share has decreased 13.7% to $1.96 per share. The earnings per share decrease for the quarter and year-to-date is due to lower total field EBITDA, due to the continued normalization of seasonal death rate trends, higher fixed overhead expenses from our investments in our operating support platform offset by lower variable overhead expenses due to a reduction of incentive compensation accruals. An increase in interest expense from the continued rise in interest rates. Our year-to-date GAAP effective tax rate was 27.8% at the end of the third quarter, an increase of 30 basis points from the second quarter due to lower expected pretax book income for this year. Adjusted free cash flow for the third quarter declined 36.3% to $16.5 million, and the adjusted free cash flow margin declined 840 basis points to 18.9%. While down year-over-year, the $16.5 million of adjusted free cash flow and 18.9% of adjusted free cash flow margin represented our highest reported free cash flow in four quarters, which allowed us to incrementally pay down our debt while completing the acquisition of Funeraria San Juan during the quarter. Year-to-date, our adjusted free cash flow has decreased 37.5% to $40.9 million, while our adjusted free cash flow margin has declined 860 basis points to 14.8%. Adjusted free cash flow decline year-over-year due to lower operating results as well as higher cash incentive payments in the first quarter, including approximately $4 million for our five-year Good To Great incentive award, which will be a lower amount over the next three to five years due to a lower number of managing partners in each five-year group. Year-to-date adjusted free cash flow was also negatively impacted by the unusual timing due to COVID restrictions of our five incentive award or managing partner forums in the first six months of the year. We expect less expenses related to these important company events over the next few years. Year-to-date, we've invested $20.6 million back into our businesses through capital expenditures split almost evenly between maintenance and growth CapEx. $2.2 million of that CapEx spend was related to damage caused by Hurricane Ida in New Orleans last year, and was funded by insurance proceeds. Our bank covenant compliance debt to adjusted consolidated EBITDA ratio increased to 5.14x in the quarter from 4.87x at the end of the second quarter. Going forward, we expect to allocate our available free cash flow towards completing the announced acquisitions then pivot towards paying down our debt outstanding, which, when combined with our improving operating performance in the future, will allow Carriage to de-lever similarly to what happened after the four large transformative acquisitions we made at the end of 2019 and early 2020 when pro forma leverage ratio fell from a high of 6x to a low of 3.8x over the span of 15 months. Through the first nine months of the year, our discretionary preneed trust funds continue to significantly outperform the broader market with a negative total return of 8.5% compared to a decline of 23.9% for the S&P 500 and a decline of 32% for the NASDAQ Composite Index. In a volatile and uncertain market environment, where we are dealing with heightened geopolitical risk across the world, persistently high inflation, and rapidly rising interest rates, our outperformance has been led by our equity portfolio that consists of companies that have high and recurring free cash flow that's primarily returned to shareholders in the form of high and sustainable dividends. These companies have proven to be attractive investments in an otherwise tough market environment, and it has provided our portfolio with the resiliency shown in our returns. We have booked almost $43 million in long-term capital gains in the portfolio over the last 24 months, including $10.4 million so far this year. We've also increased our recurring annual income generated by our discretionary trust fund portfolio to $19.2 million compared to $9.4 million on March 6, 2020, prior to the execution of our repositioning strategy during the Coronavirus market crisis. The increase in our recurring income in the portfolio will primarily benefit our financial revenue and EBITDA from increased earnings from our Cemetery Perpetual Care Trust in the current period. While the realized long-term capital gains will accrue to the underlying preneed funeral and cemetery contracts and be recognized as earnings over the next 10 to 15 years as those contracts mature. The increased recurring annual income plus the realized capital gains will allow for all financial revenue and EBITDA to continue to incrementally increase earnings from financial revenue and EBITDA regardless of the market environment for the foreseeable future. Year-to-date, our financial revenue and EBITDA have increased 3.4% and 3%, respectively. Additional trust funds from acquisitions we have closed or expect to close will also provide an uplift of future financial revenue and EBITDA reported earnings. We have made the decision not to publish an updated rolling four-quarter outlook with this release. We believe it is prudent to have more time to assess the current normalization of death rates, our improvement in our own margin trends, and to incorporate the full impact of what is currently a very dynamic acquisition environment before we publish an updated rolling four-quarter outlook by the time we report our full year results early next year. It's important to note that we expect year-over-year quarterly comparisons from an organic perspective to be the most difficult for this past third quarter, the current fourth quarter, and the first quarter of next year. We also expect to continue to return historically seasonality to our earnings with the third quarter typically the weakest and the first quarter typically our strongest quarter. The addition of accretive earnings and cash flow from the acquisitions we have recently closed, and the business we have in our letter of intent now will provide an additional tailwind to our future results. We look forward to providing an updated rolling four-quarter outlook with our year-end results early next year. And with that, I'm happy to open it up for questions.

Operator, Operator

Our first question comes from Alex Paris with Barrington Research.

Alex Paris, Analyst

Hi, guys, thanks for taking my questions. I have a few. Let me start off with accelerated acquisition activity, which is exciting. They're your first acquisition since those four transformative acquisitions that you spoke about in late 2019 and early 2020. With that said, what does your pipeline look like at this point, particularly given your plan for a balanced approach to capital allocation, investing in organic growth, M&A, and debt reduction?

Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel

Good morning, Alex. This is Steve, so the pipeline, as we've mentioned before, is robust. And one of the things we tried to highlight this morning, which we're excited about, is we're seeing more businesses that are coming to us directly, just based on reputation and word in the industry. So as we've said before, we're happy to see all these businesses come in. We're taking a look at all of them. But the reality is we are highly selective and highly disciplined right now. So as we look to de-lever, we're going to continue to look at growing, but it's going to have to be a special business for us. The one that we just talked about under letter of intent fits those criteria. It's a unique special business and we are going to prioritize that. But at the same time, we're going to be able to manage and balance that with de-levering.

Mel Payne, Chairman of the Board and Chief Executive Officer

Yes, Alex, this is Mel. Look, when I was in the process of turning the company around in '19, from not a major decline in performance trends, but some amount of decline in performance trends, so I had to jump back in and lead operations. So '19 was a turnaround year; it turned around to some degree, but there was just a lot of work all through the year and into '20. In the last quarter of '19, you had this succession of businesses show up, and except for the one in Buffalo, I knew them all. And I couldn't believe that we had a shot at these. And it took a lot of leverage. At the same time, we were still turning the company around from lower performance in '18. When we issued the news about all this, our stock went way down because of the leverage and the perception at the time that we couldn't integrate so much, so fast. Then COVID shows up. So the roller coaster continued, real fast downtrend. After that in two big slices, here we are, we prospered during COVID. The integrated acquisitions went from being accused of overpaying and being reckless to how do you get more of those. We're not trying to steal anybody's business; we want to buy a great business, it's already a franchise that's on a great market, and then how to get better under us. And that's what's happened with each of those four. We thought post-COVID normalization there would be more activity when people start considering succession planning and what they had to go through being an independent through the worst of the crisis. We are seeing a lot more interest. Because of how we conducted our affairs through COVID in support of our businesses and our reputation, we're getting more ability to negotiate a fair deal without an auction. This has always been my vision. I wanted to become like Berkshire Hathaway. It's been a long-term vision, but it's coming true now. COVID heightened everybody's awareness of what it means to be in a group that can provide incredible support services even in the most adverse and uncertain environment. We see more of this, but we need to close the deals. Then we need to slam down the debt. I know that's scary to a lot of people, especially going into a recession. But I've been through these before; during 2000 and '08, '09 we had our best six months at the time in the first half of '09 during the great recession. The industry is an incredibly resilient and wonderful industry to be in during an environment like this. We don't have all those risks of currencies and things like that. We are managing the risks we do have.

Alex Paris, Analyst

Sure, thanks. I appreciate that. And these acquisitions look very much like those acquisitions in late 2019. Once-in-a-lifetime sort of acquisitions that you have. I think two of the three businesses or combination businesses together, they're going to really drive inorganic growth, I would think next year. With that said, your debt ratio was 5.1x at September 30; it'll probably be a little higher at December 31 just my guess. I realize the acquisitions also contribute EBITDA to that ratio. But you had at one point targeted a 4.5x ratio by the end of 2023. I'm wondering, does that get pushed off a bit? And then your long-term goal of sustainably growing the company at about 4x? So what's the timeline on debt reduction, as best as you can tell, at this point?

Mel Payne, Chairman of the Board and Chief Executive Officer

I think I made a mistake, and it's humbling. At the time, it didn't seem like a mistake; we bought in too many shares post-October 27 of last year at increasingly high prices, which ran up our leverage ratio. Then everything changed this year, into a different market, different world. Nobody knows exactly what's going to happen. All these things show up which frankly I didn't expect to happen again, these series of acquisitions. Maybe there's one more smaller one, but a fabulous business represents about 55% to 60% of what we did at the end of '19, early '20, so it's a material thing. Once integrated, they will have very high margins, like the ones we bought, and so we'll be able to de-lever.

Alex Paris, Analyst

Okay, thanks for that. I appreciate the additional color. My last question is really about the rolling four-quarter outlook. Given the elevated level of acquisition activity, which I estimate will add over $25 million to revenues on an annual basis. Easing comps once you get past Q4 and Q1, it sounds to me like you're in for a big year after Q4 and Q1 in 2023. Am I wrong there? Because pulling guidance, and I realize you're going to give it to us next quarter, but by pulling guidance, you might be sending the wrong message.

Mel Payne, Chairman of the Board and Chief Executive Officer

Well, I thought about that a lot. That was my decision; no one else's. Rather than put guidance out there, the normalization just like we were very surprised at how death rates stayed elevated. Even after the COVID deaths were greatly diminished, there are many other reasons for death and COVID lockdowns and health maintenance weren't there. The baby boomers are older and they're not healthier. We think the normalization didn't really start to happen at the revenue level and the volume level until in a major way until September. We are seeing that offset, especially in October, by much of our averages, whereas the mix, cremation versus traditional is about flat. It's a transition period that is not quite predictable. Instead of guessing and then needing to say where we're wrong, and we have the acquisitions coming on board, I said, let's just explain that the fourth quarter and first quarter is tough. After that, we ought to be up and away. We need time to assess the current normalization of death rates.

Operator, Operator

And our next question comes from Liam Burke with B. Riley.

Liam Burke, Analyst

Thank you. Good morning. Carlos, you mentioned in your prepared statements about process improvements that you're going to implement throughout the organization. Could you be a little more specific at what you'll be doing to improve the initiatives and how it's different from the way you're operating the business right now?

Carlos Quezada, President and Chief Operating Officer

Yes, absolutely. It's just really in the approach as to how we are trying to tackle price increases business by business. As you know, we're decentralized. But in a decentralized organization, it could take a longer turnaround to get all of that effectively changed. So we're trying to change a few things in that aspect to move a little quicker. There are also other aspects that would allow us to gain some momentum from a process perspective where there is manual work that is now being executed without even rolling out the new system that Rob is working on. These are just simple low-hanging fruit items that I believe that by providing some consistency and a strategy on executing on that, will definitely give us some benefit in the short term.

Liam Burke, Analyst

Just real quickly on price increases. Obviously, you've had both margin pressures both on the product and on the service side. Will you be able to get enough pricing power to offset these input costs?

Carlos Quezada, President and Chief Operating Officer

Well, we're definitely going to do our best. The business owner, the managing partner knows what's best for that community. It sometimes takes funding out where the pricing is around the competitive landscape to define what is the best balance between competitiveness and, of course, cost improvements. We'll try to find that balance based on a case-by-case scenario, business by business. That's probably the best way I can describe it. I do believe that in many cases we should be able to overcome the cost increases without absorbing them, but there may be instances where just from a competitive advantage it may not be best, because it could lead to declining volumes, which is something we never want to do.

Mel Payne, Chairman of the Board and Chief Executive Officer

We didn't see the inflationary impact until we got toward the end of the second quarter, very end, and beginning of the third quarter, when it really began to show itself. Carlos and his team went to work, and I know he mentions that the average was up. So we've seen a trend through the quarter as volumes really began to normalize downward in September that the averages began to trend up. Our managing partners are making a lot of moves, with an analyst like their own financial consultant. They are running various scenarios with price increases and measures. So what we are seeing in October is very encouraging on the average revenue.

Liam Burke, Analyst

Fair enough. Just real quickly, after looking at and reviewing the business, are there any more properties you think need to be sold?

Steve Metzger, Executive Vice President, Chief Administrative Officer and General Counsel

Yes, Liam, this is Steve. We're always looking as a team. There may be one or two here or there that are just not going to fit with the strategic growth model that we've talked about already. But right now, nothing that we're working on. But we're always looking.

Mel Payne, Chairman of the Board and Chief Executive Officer

Yes, I think Carlos and his team are continuously assessing both the talent, succession planning, top grading, and the nature of the businesses themselves and the markets in which they operate. As we bring in these bigger, better businesses, we will continuously look at pruning off those that really can't keep up with the higher growth portfolio that we're building. There may be two or three right now on the radar, but it’s too early to make the call.

Operator, Operator

Our next question comes from George Kelly with ROTH.

George Kelly, Analyst

Hi, everyone. Thank you for taking my question. I wanted to clarify something you mentioned, Mel, about October. I want to ensure I understood you correctly. You said it was encouraging, but I wasn't sure if that was solely due to the pricing changes you've made or if you're beginning to see volumes increase from what you experienced in September. Do you think you are getting closer to a more normalized seasonality, or could it potentially take until the middle of next year for seasonality to fully normalize?

Mel Payne, Chairman of the Board and Chief Executive Officer

Yes, I'm going to turn this over to Carlos, but I don't want to declare victory too early over a process that has been unpredictable since March of '20. I’m not smart enough right now to predict when we will get to normalization and whatever that will look like. I'm almost 100% sure, whenever we do get there, it will be materially higher than it was pre-COVID.

Carlos Quezada, President and Chief Operating Officer

To answer your question, George, Mel was referring specifically to what we've been observing so far in October relating to our sales average. It's very encouraging. It has grown for this month up to double digits. The question is whether that's coming from pure pricing increases or if we have more offerings on services and items for the families. We'll still need to get to the details once we close the month. That's very encouraging as it’s replacing volume from a revenue perspective. From the volume perspective, it’s too early to say; however, using the third quarter signal, it would seem as if we will get more seasonalized performance for 2023.

Mel Payne, Chairman of the Board and Chief Executive Officer

I mean, George, I don’t know whether we’ll have a flu season, to what degree. I've seen predictions of a strong one; we haven’t had a flu season in the last two winters. It’s been all COVID, and then there are new things, like RSV, plus other variants. It’s still not quite clear how the pace of normalization of death rates will occur. But I’ll make this point on those double-digit funeral revenue averages we’re seeing so far in October. That’s only with eight more days to go, and we were experiencing that. We made a decision, a business strategy decision, not to aggressively sell preneed funerals on standalone funeral homes. 20 years ago I made that decision.

Carlos Quezada, President and Chief Operating Officer

I will add, to give you some color, George, that Q3 2022 compared to 2019, we are greater by 14.3% in volume from pre-COVID levels in 2019. So that’s a good trend.

Operator, Operator

I’m currently showing no further questions. At this time, I'd like to hand the conference back to Mr. Mel Payne for any closing comments.

Mel Payne, Chairman of the Board and Chief Executive Officer

Look, we had some great questions, and hopefully, we answered those questions to your satisfaction. We have a great company getting better in a very uncertain, geopolitical world. I can't do anything about all that; all we can do is keep our focus on our talent and our businesses and execute, like I know we will, despite what happens in the economy and in the world. It’s a great place to be. If you’re part of Carriage, you’re suffering some near-term unrealized loss. That’s not how I view it. I’ve been doing this for 31 years. Five years from now, seven years from now, we’re going to be a much bigger and better company than we are today. Thank you very much.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.