Earnings Call: Q2 2021

Jul 28, 2021

Good day, ladies and gentlemen, and welcome to the Carriage Services Second Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Steve Medeker, Executive Vice President, Chief Administrative Officer, General Counsel. You may begin. Thank you, Julie, and good morning, everyone. Today, we'll be discussing our 2nd quarter results. Our related earnings release was made public yesterday after the market closed. Have 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 In addition to myself, on the call this morning from management are Mel Payne, Chairman and Chief Executive Officer Ben Brink, Executive Vice President and Chief Financial Officer And Carlos Quezada, Executive Vice President and Chief Operating Officer. Today's call will begin with formal remarks from management followed by a question and answer period. Before we begin, I'd like to remind everyone that during this call, we will 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 Those statements are most 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 on our earnings release as well as our website. Thank you for joining us this morning. And now I'd like to turn the call over to Mel. Thank you, Steve. It's a very exciting time for me and all the rest of us on the Carriage. It's been a great journey for us. Sure, senior notes. Tom Brady bond pricing of 4.25%. By putting our money where our mouth has been. And on June 1, we celebrated the 30th anniversary of our founding By me and 3 other co founders, after I replaced the traditional budget and control performance management system With an unorthodox and counterintuitive standards operating model at the end of 2,003, The last 18 years have been akin to using the scientific method on an evolutionary trial and error learning journey, Continually adapting from what wasn't working to those ideas that worked better, Never being satisfied with simply good and always trying to become great in every area of the company. There have been periods of underperformance over the last 18 years, some longer and other shorter. All of those periods when you reflect back on them were directly related to not having the right leaders in the right seats on the bus. There have been turning points at various Times over the last 18 years, in particular, 2,003 when the Standards operating model was introduced Back to January of 2004, 2006 when we realized it was more of a leadership model than a management model and And new trend reports, very transparent. 2,008 and 2009 when we took over our trust fund management and then 2011, Have been a function of 3 major changes. Transformative large strategic acquisitions, 4 of them at the end of 2019 early 2020 updated high performance standards that emphasize compounded revenue growth and Sustainable high yield EBITDA margins for both our Funeral and Cemetery businesses at the end of 2018 and more recently in the cemetery side. And top rating the leadership in all areas of the company starting in October 18, which led to the recent promotions of Ben, Steve and Carlos, who together with me now form the This group of 3 leaders, although given my excellent health, my passion and energy for our business and our people, Plus the fact that I've never had so much fun now with our leadership across the company winning. It's a time for Carriage to win and this period of winning will last for years. I can't imagine having a job Getting paid to be here with so many high performance people and leaders. So I would like to end this call With something that Shane Hines told me on the way out yesterday afternoon to our cars in the parking garage. Shane Hynes is one of the superstar senior operations and acquisitions partners I guess, Chipotle's team, she is one of 4. And on the way out, Shane said, Mel, I joined the company in 2012, 1st year of the 1st 5 year Good to Great journey. It's been an incredible journey. Those 5 years, we went from 560 to 3864. Then we had a little decline in 2017 2018, but then we got busy and look at where we are today. He said, Mel, I know we've had really periods where we celebrate, but this is so unique and so different. He said, no, we're good. We're good everywhere. Hey, but don't take it the wrong way. We can get better and we're working on Specific places where we can get better, specific businesses, specific leaders, specific markets. I said, I know, This is one of those special moments It's my journey and we need to celebrate it. We'll go back to work, but let's take the moment and celebrate the moment. So I agree with Shane. After 30 years, it's a moment to celebrate. It was anything but, but every moment of every year, Every quarter, every year, all the highs and lows are now worth it. Look where we are and look where we're going. So Shane, I want to dedicate this call to you, our DOSs in the field, support all of our wonderful businesses and all the wonderful leaders, managing partners, sales Managers, employees and all of our Houston support leaders, let's celebrate the moment. Carlos? Thank you, Mel. Good morning, everyone. I hope you are as excited as we are because we have so much wonderful news to share with you. I am so glad to be here and honored to have the privilege to represent all of our Carriage family today. When I joined Carriage on June 26, 2020, At the time, we're in the midst of the pandemic, which served as an accelerator to technology adoption across our industry. As High performance achievements is same care results of our high performance hero partners and teams of Carriage employees across our portfolio of businesses in our which is reflected in our market share growth and consistent high performance trends over not only this year, but over the last and a half years. Now While our stock price continues to trade on a large distance to intrinsic value, we will continue to work very hard on our value creation platform and deliver high operating and financial Our 2nd quarter and year to date operations results are as follows. For our high performance funeral Our Q2 of 2021 Funeral Home same store volumes are maintaining at a healthy level compared to the elevated pandemic volumes of 2020. What As our managing partners continue to focus on 3 year compounded net revenue growth as their primary standard, they Our mission of being the best means creating incredible personalized moments and memories for On a comparable basis for the Q2 of 2020, our total funeral operating revenue grew to $55,800,000 an increase of $2,500,000 or 4.7 percent over prior. And for the first half ending June 30 grew to 100 $22,700,000 an increase of $13,800,000 or 12.6 percent over the same period last year. Moreover, while we have recently experienced a more normalized pre pandemic volume behavior, we continue to grow market share Such performance should become consistent and sustainable as we continue to focus on permission conversions, service and guest experience Our total funeral fuel EBITDA of $21,900,000 for the 2nd quarter is a decrease of 2.6%, while our total funeral fuel And we had a soft comparable from 2020 with a huge COVID-nineteen surge in the Northeast and the Orient last year. However, Asia region higher revenue averages and continued growth in market share relative to normalized post pandemic volume Our clear signs that we will continue to deliver strong high performance throughout all geographic regions of our funeral portfolio. We continue to see improvement in our commission averages back to pre pandemic levels. In Q2 2020, our average was $3,075 versus Q2 2021 with a $3,216 average, an increase of $3.41 per contract or 11%. This conference is the result of our efforts on commission conversions driven by the partnership between directors of support and our managing partners who coach, inspire and lead their On our funeral acquisition performance, we continue to grow our partnership with our 4 most recent acquisitions. The funeral home of this acquisition increased 1 I have a very aggressive travel agenda over the rest of this year to visit many of our amazing fuel businesses Understand the intricacies of individual businesses and their community and help identify opportunities for potential growth. Now moving to our transformational cemetery portfolio record breaking Q2 high performance. It has been a little bit over years since we started Sustainability and higher operational margins. The plan has worked much better than expected all of our Houston support center leaders and our awesome team of cemetery managing partners, their sales leaders and sales counselors. Prior to this amazing cemetery transformation, Carriage's primary business segment was our funeral portfolio. And certainly, we were a funeral driven organization that happened Our cemetery performance history shows flat to low growth over the years, mainly driven by our 2 top cemeteries. In fact, we became so codependent to the performance of these top two that if one of the 2 businesses got the flu, the whole cemetery portfolio will get sick and suffer. And If one or both of these 2 cemeteries would perform well, it would be a home run for the whole team regardless of the performance of the rest of the cemetery portfolio. Today, we're very excited to share that our cemetery portfolio is performing at an optimal time line. Our total cemetery revenue for the full year of 2017 was $42,700,000 in 20.18, dollars 44,600,000 in 2019, dollars 49,300,000 in 2020, dollars 69,100,000 Our total statutory EBITDA in 2017 was $13,400,000 in 20.18, dollars 13,800,000 In 2019, dollars 17,200,000 in 2020, dollars 26,600,000 and in 2021, volume 4th quarter is $39,600,000 An amazing 3 bagger from 2017. And our Douro Cemetery field EBITDA margin in 2017 was 31.4%, In 2019, 34.8 percent in 2020, 38.5 percent and Q4 ending June 2021 is 46.1%. I would like to thank all of our leaders and teams of Ripe Host in the field in Tanal has completely reshaped our cemetery portfolio, we're incorporating our performance over the last 8 months. We initially started this transformation with 14 selected cemeteries. However, today we have consistent performance. On average, 23 of our 31 cemeteries The cemetery portfolio transformation has been remarkable, There are still great things happening and to name a few, we have recruited David Bailey as our new community relationship Main goal will be the development of our seminars program, which will focus on educating the consumer on the value of protecting their We are planning, while creating new leads for our sales customers and generate future sales. We come with years of experience and we look forward to this success. We're in the final stages of implementation of Microsoft Dynamics 365 CRM, which will launch with a pilot in 5 of our cemeteries in September fully adopted across the portfolio by January 2022. We also added marketing to our new CRM, which will enable intentional, savvy and measure We have partnered with Gold Springs for the launch of our new and unique private memorials strategy, which is aimed to generate the minds of high end and exclusive progress in Brazil. We are deploying more capital to Our sales quarter record Cemetery high performance, I will start with our same store comparison, which is as follows. Operating revenue in the Q2 of 2020 was $11,500,000 compared to $60,500,000 in 2021, an increase of $5,000,000 or 42.8 percent. And our fuel EBITDA margin in 2020 was 31.7 percent against 45.9 percent in 2021, an increase of 14 20 basis points over prior year. Moreover, for same store first half comparison ending June 30, cemetery operating revenue in 2020 was $22,400,000 compared to $31,100,000 year to date, an increase of $8,600,000 or 38.5 percent. Our fuel EBITDA last year was $6,800,000 versus a stunning $13,300,000 this year, an increase of 6.4% 42.7 percent easier, an increase of 12.20 basis points. For cemetery acquisition comparison for 2nd quarter on operating revenue in 2020 was $4,000,000 compared to $8,200,000 in 2021, an increase of $4,100,000 or 101.6 Our field EBITDA last year was $1,400,000 in 2021, which was impressive $4,700,000 an increase of $3,300,000 or 230.1 percent. Enfield EBITDA margin in 2020, 35.4 percent against 57.9 Operating revenue in 2020 was $6,900,000 compared to $15,200,000 in 2021, a decrease of increase of $6,600,000 or 290.8 percent. GMC's EBITDA margin in 2020 was 33% against 58.3% in 20 an increase of 2,530 basis points. The material impact of this performance for the financial statement Thank you. This new financial dynamic has changed the Cemetery of Funeral EBITDA contribution mix. With HRS F ending June 30, our total combined operating field EBITDA is as follows. In 2020, field EBITDA contribution was 82.8% 17.2 percent for cemetery compared to 2021 final EBITDA of 70.2% and 29.8 percent for cemetery, an increase of 12.6% for cemetery. But even more amazing is that the growth compared to prior year on total The transformational cemetery high performance that I just shared with you, our estimation is 15% related to COVID-nineteen debt to ADME And 85% is correlated to our winning strategy and execution of our transformational cemetery plan for the creation of sustainable high performance sales teams across our portfolio And as previously mentioned, we are still in execution mode with more to come. In closing, Heritage has a unique and I've been a great journey along with our 4D leadership model and our continued focus on FirstGroup, then what talent acquisition program. We still have incredible opportunities in both of our cemetery and funeral portfolios. There are certainly more positive changes on its way as we continue accelerating our flywheel and Thank you and follow us closely because it is a great time to be with Carriage and the best is just to come. Now, I will pass it to Carlos, as we look back at the last two and a half years here at Carriage, it's easy and it's important to focus on the numbers that represent the transformative process However, more importantly and in my opinion more impressive than those numbers is the energy and all the developments occurring across company that combined to drive these results. There has been and remains a significant focus throughout Carriage on relentless improvement and It's also this mindset along with the new balance sheet following our refinancing efforts earlier this year that has positioned us to have a number of opportunities related to the strategic allocation of our capital that have not before been present in the company's 30 year From being prepared to secure, close and successfully integrate 4 large strategic net acquisitions in late 2019, early 2020 To aggressively paying down our debt to a level that now serves as our internal benchmark while also increasing our dividend twice last year to our current capital allocation Disciplined allocation capital allocation is the driver of every decision we make. Our senior leadership team appreciates the unique position we are in and the heavy lifting it has taken to reach this point. As we remain focused on making capital investments that will maximize value for our shareholders, our leadership team has worked together to build a capital allocation evaluation framework which will now serve as the foundation for these critical decisions. We referenced the substance valuation framework and our allocation philosophy in our earnings release, which we encourage everyone to read. What you will see in this structure are clear guideposts for each of our primary allocation opportunities. For example, we are focused on maintaining our current leverage ratio of approximately 4 times, which allows our total debt to remain Equal to approximately 10% of our adjusted free cash flow and 1% dividend equity yield on Carrot shares. This is also a target we've met. We have defined internal growth priorities subject to a return on invested capital target of at least 15%. And we have also defined what we believe serves as a material discount value of our stock and we will continue to focus on share repurchases when our stock trades at that discount. While this framework is intended to be flexible given potential opportunities that may be One of the capital allocation opportunities we're particularly excited about is acquisitions. As mentioned earlier, after significant activity at the end of 20 And excited to get back to identifying the bigger, better independent businesses who are ready to join the Carriage team. In addition to building out a more structured Capital allocation framework, we also recently completed a detailed review and refresh of our strategic acquisition model, inspired and driven by the success of performance and profile, which serves as the model for our acquisition strategy moving forward. In addition to more specifically defining the profile of a business primed to be within the Carriage portfolio, we are also focused on strategic markets that have both organic growth potential and present opportunities for competitive advantages. We are excited to see more activity within the current pipeline of acquisition candidates and true to our model we will remain selective and focused on only the best remaining independent businesses. Our approach to acquisitions does not simply involve identifying the right multiple for a business. It includes inviting owners to visit with our management partners, To talk with former owners who previously joined our team and to take the trip down to Houston to spend time with the support center leaders who will ultimately provide guidance to their business. Our it comes to our acquisition philosophy, adding businesses simply for the sake of growth is not our goal, rather the quality of the business and future growth opportunities within particular markets are the drivers. With that said, we're involved in ongoing conversations with candidates and look forward to providing more updates on acquisition As I mentioned at the beginning of my remarks, it's truly exciting to see the focus on relentless improvement in identification of incremental growth opportunities throughout our team as evidenced by the comment from Shane Hynes that Mel referenced earlier in his comments. Not just in the crucial areas of capital allocation and acquisition strategy, but throughout the field and within our support teams. The hard work of so many over the past 3 years Thank you, Steve. As we report record second quarter and first half operating and financial results It's incredible to reflect on the truly high performance transformation that has occurred here at Carriage over just the past two and a half years. Over the course of that time, we have increased annual adjusted consolidated EBITDA by 59.9 percent or $49,100,000 to $119,300,000 increased adjusted consolidated EBITDA margin by 700 basis points to 33.2%. Adjusted consolidated EBITDA adjusted free cash flow has increased 85.2 percent or 36.3 The impressive growth in our reported financial numbers are the result of evolutionary and transformative The high performance flywheel has only just begun to accelerate here at Carriage. Now on to the results. For the Q2, total revenue increased 13.9 percent or $10,800,000 to $88,300,000 Adjusted consolidated EBITDA increased For the first half of twenty twenty one, total revenue increased $29,900,000 or 19.3 percent to $184,900,000 Adjusted consolidated EBITDA increased 31.3 percent or $15,100,000 to $63,400,000 Adjusted Adjusted consolidated EBITDA margin increased 310 basis points to a record 34.3 percent and adjusted diluted earnings per share increased 83 point related to a reduction of annual cash interest cost of $9,500,000 and be accretive to adjusted diluted earnings per share by approximately $0.36 annually. On a pro form a basis, assuming the refinancing transaction would have occurred on January 1, 2021, our pro form a second quarter adjusted diluted Earnings per share was $0.70 while our year to date pro form a adjusted diluted earnings per share was $1.50 representing increases 55.6% and 102.5% respectively. The full impact from our lower interest expense will be apparent in our Q3 results and moving forward. Additionally, lower cash interest costs from our successful CNO refinancing transaction resulted in a 100 basis point decrease in our weighted average cost of capital 6.4%. Total overhead in the 2nd quarter increased $1,900,000 to $11,400,000 has increased $7,600,000 or 43.8 percent to $25,000,000 for the first half of the year. Overhead as a percent of revenue has increased 2 13.5 percent in the first half of this year as well. The primary driver of the increase in overhead expenses is a $4,700,000 increase in our variable With the uncertainty that was brought on by the early onsets of the COVID-nineteen pandemic, we dramatically reduced both our incentive compensation accruals in the first As we detailed in the press release, our operating performance for the second half of last year and continuing to record performance in the first half of twenty twenty one Has caused us to significantly increase the amount of field incentive compensation as more of our managing partners and their teams reach even higher levels of standards achievements. In 2020, this resulted in us having to accrue almost $5,500,000 more incentive compensation in the second half of the As compared to the first, we believe that we have a more balanced approach to our incentive compensation accruals so far this year and we anticipate the variable overhead in the second of this year to approximate what we have booked these past 2 quarters. Our 2nd quarter and year to date results benefited from a 2 50 basis point reduction And our GAAP effective tax rate from 31% in the first quarter to 28.5% currently. This Rolling 4 quarter outlook in roughly right 2 year scenarios. We continue to work to find additional incremental decreases in our effective tax irrespective of what may happen with federal tax policy in the near term. The strong performance from our discretionary trust fund continued in the 2nd quarter Currently $17,400,000 annually, while we have recognized approximately $25,000,000 of long term capital gains over the past 12 months, the majority of which we recognized just this past quarter. This incremental $33,000,000 of Trust earnings over the past have an additional $20,000,000 of unrealized capital gain currently within our portfolio and expect the portfolio to be positioned for higher capital appreciation as we move forward. Financial revenue increased 23.5 percent to $11,000,000 and financial EBITDA increased 24.1 We currently expect pro form a annual financial revenue to be at the high end of our previous range of $23,000,000 with a financial EBITDA margin above 94%. For the 1st 6 months of 2021, our adjusted free cash flow has increased 38.7 percent or $9,000,000 to $39,500,000 while adjusted free cash flow margin increased 320 basis points to 22.9%. Our adjusted free cash flow margin metric is defined as the amount per dollar Available of cash equity available to grow the intrinsic value carriage. For the past 12 months, our adjusted free cash year by approximately $5,600,000 due to cash tax payments and slightly higher amount of maintenance capital expenditures in the quarter compared to previous Remember, Carriage is a cash taxpayer this year as compared to last year when we weren't. Our net debt to adjusted consolidated EBITDA ratio ended the quarter 3.9 times, an increase from the Q1 due to the $19,900,000 premium payment we made to call our 6.625 Pro form a, the benefits of lower cash interest costs are roughly right range for normalized adjusted free cash flow between $75,000,000 to $79,000,000 in 2022. The midpoint of that range, dollars 77,000,000 of adjusted free cash flow, equates to approximately 4 point We believe it is appropriate to calculate a roughly range of equity intrinsic value by applying a free cash flow equity yield range of 6.4 to that $77,000,000 2022 midpoint estimate. This equals the Carriage Equity market capitalization range of $1,000,000,000 to $1,200,000,000 and an updated estimated of Carriage equity intrinsic value of $55 to $65 per share. As Steve detailed in his comments, our formalized capital allocation framework We'll be happy to make capital allocation decisions going forward in order to drive an accelerated growth in our return on invested capital provides us the necessary financial flexibility to allocate capital towards shareholder value creation opportunities, including investing in high return projects across our We view the $19,900,000 premium payment we made to call our existing 6.65 senior notes as the greatest use of our capital this year As it allowed us to facilitate the refinancing transaction, it lowered our annual interest expense by $9,500,000 and increased our annual adjusted diluted EPS Additionally in the quarter, we allocated $12,300,000 to repurchase almost 325,000 of Carriage shares At an average cost of $35 or $38 With the continued disconnect between our current equity valuation and the conservative view of A conservative view of Carriage's current intrinsic value, which at this point stands at an almost 55% discount to the midpoint of our range at $50 per We believe the best use for our capital this time is to prioritize more rapid pace of EBITDA repurchases. Our enhanced financial flexibility underpinned by our lower cost All while maintaining a more moderate net debt to adjusted consolidated EBITDA profile of 4 times or less. Once again, we are excited to announce an increase in both our Roughly Right 20 21, 2022 forecast and an updated rolling 4th quarter outlook. These estimates of our future performance are intended to provide the investment community with a realistic expectation of results based on current operational trends and conservative estimates of capital allocation activities. As we have continued to provide these updated forecasts over the past We're accumulating dollars that while the effects of the COVID-nineteen pandemic will provide unknown variables and short term results, you We have a number of known drivers for improved performance, including growth in our average revenue per funeral contract, increased local market share gains, Margins and expanding high return on invested capital allocation opportunities. Unlike our previous roughly right scenarios, we have included and have only included For 2021, we now expect total revenue to be between $345,000,000 $355,000,000 adjusted consolidated EBITDA between Thanks. Adjusted free cash flow of $72,000,000 to $75,000,000 and adjusted diluted earnings per $65,000,000 total adjusted consolidated EBITDA of $119,000,000 to $123,000,000 Our adjusted EBITDA margin at the high end of that 33.5 percent range adjusted diluted earnings per share at 3 point you all for joining us on the call today. With that, I'll turn it over to Ben. Thank you, Ben. I think anyone listening in on this call can see why I'm having so much fun. The reason I'm having so much fun is the company is as good as Shane Hanks said it was, but the best news for me is I'm not doing the heavy lifting anymore. You just heard 3 leaders that are doing all the heavy lifting of explaining what all the other leaders and employees are doing They're heavy lifting in, so everybody is pushing on the carrier to get the great flywheel. What I would like to do In this call, let's invite all of you who might have an interest as a shareholder, bondholder, Friend of the family, I don't care what your level of interest, come to Houston, come to our Austin, Come see how a high performance culture company looks in the flesh. We just moved into new space On the 3rd floor, I'm here with our Board, midst of a Board meeting with the entire executive team. So many of our employees are listening to the call from across Tom, look, the branding on the walls is different. You will never know what business we're in if you come here, Operations consolidation, value creation, capital allocation. This is not your normal company. That's why I have never sold a lot of shares and have no diversification. Come here, I've been trying to get this guy for 15 years, 15 years, June of 'six. Best business remaining in the state, maybe the best business remaining in the region. He never would come. He came with his wife. He was blown away. And when he left, he said, no, I had no idea Carriage has evolved into, I had no idea. And I bring all my people down here so they can see. You bake into the idea. That's our company. So don't go to the Filings, read about our company. Don't start February 19, 2020, read every quarter because they are like a chapter in a book. This is real and it's not going to get worse, it's going to get better. It's heard all the reasons why. And with that, I'd like to memorialize the last 30 years of Carriage. I started the company at 48 years old. I was doing fantastic turning around and restructuring companies making a lot of money. Last company I turned around was for GE Capital. I'll be able to jump out of Chicago. I started 4 year turnaround, became the owner of the business in January of 'ninety one. So I entered in a contract 4 years, bring me a lot of money. I'm going to start my own company while I do this. But Looking at this industry for 3 full years, you never pulled the trigger because I wasn't sure that would be the kind of business That I can put all my skills and vision, ideas and concepts to work at, which I learned in my career. And then my brother called me in early January 'ninety one. I have my brother, 2.5 years younger, visiting our Fort Mississippi. He's on this call, I think he is. So, brother, JJ, oldest son, 18 years old, tall, good looking guy. Lots of potential. He just killed himself as a driver, his best friend in the passenger seat And the worst part is, you killed the mother of 3 small kids in the other car. Lawrenceville, Georgia, which was a growing suburb of Please come. I'm desperate. I don't know what to do. I went And it was an incredible experience that can never be forgotten. All three visitations We're at the same night, same funeral home, Tom Wages Funeral Home, Lawrenceville, Georgia. Funeral Director was Valerie Wages. She would later become our Chief Trainer, Service Trainer. I was so stunned by the noble work and how she pulled this off. My To the father, openly with all the families here. So I asked and she said, this is very unusual. It's Community tragedy, they're all in the same school, the whole community was 1 big bedroom community. She said I'll ask. They did and I'll never forget it's close in my brain. I can see it as if it were 5 minutes ago. Big funeral home doing about 600 funerals, big reception area, the father coming, the kids on his legs, my brother coming Me and his family and my brother hugging him and telling him we were sorry. I probably saved my brother's financial life. There was no Wasu. He had a casco on his leg. He was a troubled kid in some ways. And on the way to the airport, I told my brother, Bobby, mean, you didn't know this, but I've been looking at this industry for 3 years. I've been holding back Because my career was going so well and yet I cannot go back and not start a company. So here's what I'm going to do. I'm going to go back and start a company. I already have a loan that's been offered to me for the last 3 years. I'm going to raise some equity. We're going to start a company that will consolidate and operate the funeral and cemetery And I promise you in the name of JJ and his honor, I don't know how long it will take me, but I learned the business and we will become the best in the history of doing this. It might have taken longer than I thought, but we're there, brother. Your first question comes from Alex Paris with Barrington Research. Thank you and thanks for taking my question. Nell, thank you for that story. I really appreciate it. The background on company leaders is especially important to investing With the right people, and I know the right people are you is sort of your clarion call at Carriage Services. So thank you again for that. Congratulations as well on the beat and raise and I appreciate the very thorough comments In terms of your prepared comments on the call, my takeaway is, well, comps are tough and getting tougher And volumes are moderating as COVID deaths subside. You are overcoming that headwind Through higher funeral and cremation averages, local market share gains, preneed cemetery sales, higher financial revenues Significantly lower interest expense as a result of the debt repayment and recent refi. I think you've talked about these in great detail, But I guess I wanted to focus on the increases in averages in both funeral and cemetery. And what's been driving that? I realize to some extent there's an easy comp because funeral and cemetery averages were impacted negatively last year. And can they continue? What's driving the burial averages? What's driving the cremation averages at even a greater rate? Thank you, Alex. This is Carlos. I'll ask your question. And I also want to apologize for getting So there's a couple of things driving that. The first thing is that as the pandemic At the end of February 2020, we were not able to conduct a lot of services that we were used to serving families in that manner. So that decreased our average a little bit and now that the creativity and innovation of all our managing partners and all the things that they did through the funeral directors like outside Back to pre pandemic levels. The second piece to that is the commission conversion program Our efforts, the managing I'm sorry, the regional partners and our operational support have been working really, really Our team along with the funding partners in making sure that any cremation that comes through the door, they really explain the value of funeral services. By doing so, the families really get educated as to what's possible when it comes to the life celebrations rather than choosing a reclamation over You know what could be a celebration of life, that program which actually is gaining some tremendous momentum, It is one of the main drivers for our commission average. On the burial side, we've really been able to go back to having more families winning for And we're able to celebrate the land that live. The commission side is the commission conversions that are helping us getting that average Yes, this is Mel. Look, we talked about this during COVID and we've had Discussions about this with our Standards Council members. We went through this past year and a half and more than one Council member where they had huge terrible outbreaks in California. It's amazing when people are told they can't grieve or celebrate a loved one, Others and there are things they just can't do. They begin to appreciate the value of the You may resume. I don't know where I get cut off, but the answer to the average improvement is The human species learned over the last year and a half the value of when a loved one dies, Service to you to celebrate or grieve with other humans that are friends or family, they learned the value of it when they were told what they couldn't do. Our people wait for it to overcome what couldn't be done all across the country by doing things that were not normal, Well, we're possible. And I think as we open up the country across the country, we're hearing that more and more that people are more open to choices and for a great run over the next 5 or 10 years. I don't know what the debt rate will do. I don't think it will go down. It could go up. It doesn't matter to us. We want to get whatever there is out there by just being the best in each market. And I think that's why the averages are going up. Great. That's very helpful and I appreciate it. I'll that answers my question and I'll get back in the queue. Thanks, Alex. Your next question is from Liam Burke with B. Riley. Yes. Thank you and good morning. You had strong cemetery sales on your renewed selling efforts, Which are seem to be getting a great deal of traction. Was there any benefit from deferred cemetery sales from a year ago When there was restricted access due to COVID for loved ones to attend services at the cemetery. Liam, thank you very much. This is Carlos. I mean, there may be a little bit of Thank you. There may be a little bit of payment backlog that could be deferred revenue from as you know we recognize revenue from a cemetery perspective when It reaches 10% down payment. But as a company, we don't really do much of less than 10% as we recognize most of it. There may be something in there, but not material to my estimation. However, the efforts and focus on Generating new sales teams and developing the skill set of the current ones and really having an activity plan that's very aggressive Capturing leads and generating new sales is really the main driver of our success on Great. And you also mentioned on the funeral home side, the memorialization The step up in memorialization for loved ones that have been cremated, how much runway do you anticipate seeing there to help So Information conversion, it's really a conversation that it takes place during the arrangement conference through our field directors and the family. And as they continue to educate the family on all their options they have on unique personalized services as well as Solutions of Life, that's really what the driver of that average and ultimately our revenue comes That's a program that's been in the works really for the past year, year and a half. And as we continue to grow more and more and What it means to celebrate someone's life rather than using their commission is that we're going to be able to continue growing. We can't believe that it's a little bit difficult, but based on the trend that we have, I can tell you there's a lot more to come from that end. Yes, this is Mel. I've Been doing this now 30 years and if you told me 30 years ago that our Coronation average mix would be in the 50% I'm not sure I would have carried on the mission. But it hasn't posed a challenge. It has posed a challenge, but it hasn't been something that we couldn't overcome over all the last 30 years of increasing remations. But I'll tell you what has happened and I've seen the difference over the last 18 months particularly with the COVID pandemic crisis Some of our older early season funeral managers, leaders and employees are retired. This was very hard and I see a trend towards younger Funeral directors and arrangers with a different mindset about cremation. And if you start with a different mindset about what the possibilities are versus an old school mindset of how it was, Then the upside is tremendous. So I think one of the 2 great upside opportunities for Carriage over the next 5 or 10 years is On the cremation side growing that and the cemetery sales and revenue side, plus market Sure, James, because you just the whole point of being the best is you're hungry to go get more You want to win the market share gain locally against our competition by just Being better and coming up with more ways for more people to use you versus them. This is not Sitting back, taking orders, that kind of thing. This is about building winning teams in every business across America, Whether it's funeral business or cemetery business or combination business, we're no different than a sports league And we want to build winning teams, high performance teams that make plays. They grow market share, they grow averages, they grow revenue and they grow margins And they get compensated hugely to do it. Great. Thank you, Ralph. Thank you, Carlos. Your next question comes from Chris McGinnis with Sidoti and Good morning. Thanks for taking my questions and nice solid quarter. Can you maybe just explain the confidence behind the market share gains and the ability to Yes, Chris, I will. Look, when I first started The company going around on the funeral side and I need owners and I'd say If you ask them for a financial statement, you wouldn't get one. They'd kick you out. They wouldn't even give you a bad cup of coffee. But if you ask them for a history of their business, like what's your call history? What's your funeral volume history over the last 5 or 10 years, how about 40? Very often they had it in a drawer or in some cases their shirt pocket or their coat pocket. And they were very proud to show you and they were keeping up with all the old bits in the market of all their direct competitors and they knew what the And so we can I picked up on that right away? And so we've been doing that for the last 30 years Every business now it has become a little more difficult because obituaries now not all in print In a local paper, but we track market share by competitor, by year and the trends in market share. And we've been doing that for 30 years. One of the reasons we went to an operating model in 'three is, I never could find a business model because the trends to go up broadly And market share and then you were trying to manage outcomes that never were broadly high. So that was the reason why we switched. And here we are. Now we have great people that know their market. We know it too. Maggie's team knows everything going on in the market. They know the individual employees. They know what's going on. It's not like we're sitting back here in the Pentagon. We don't know what's going on in the insurgency. We know. So and so competitor is sending us business because they want embalmed. Why would they embalmed? I have no idea. More certain of them got infections and the families came to us, I can tell you, Corpus Christi. If you want to find out how much market share we grew at Corpus Christi, Call the managing partner, Buddy Ewing, talk to him. I did. I couldn't believe what was going on, including with other consolidators. Same in San Jose, same here, same in Florida, same there. This was coming back to us broadly on a continuous basis. We're growing market share because the other people can't get supported by somebody like Carriage who have world We know we were growing market share. We know where we were growing market share and we know who we were getting it from. If you wanted to really know Get a list of the Standards Council members and call them and they'll tell you. I hate to do that myself because I don't want to talk down about Do the homework. I invite anybody to call our Standards Council and ask them that question. When you're good and getting better, this is how you can talk. I appreciate that. I guess just obviously with the new scenario for the roughly right in the capital allocation change there, Is that more of an indication of where you think the stock is versus the M and A environment and the opportunity there? Can you just speak a little bit about that? I know you spent a little bit of time on the Just the outlook for M and A versus the share repurchase at these levels. Yes. Chris, based on where the stock is trading and where we believe intrinsic value is, we believe the best use of our capital at this Time is to accelerate the pace of our share repurchase program, like I said, while maintaining that 4 times or below leverage ratio. Given the Acquisitions or continuing to invest in our business, I believe we will continue to have those great conversations with leading Owners out of the country. So it's not a kind of one or the other. I think we can do all of it, but certainly this scenario portends the majority of our So Chris, just think with me very simply for a minute. I signed up for another 7 or 8 years, I forget which. And I had options granted to me to invest on price. The first one, 55 or so, it's one of our good to grade 2 vesting points or compounded share return categories. Nobody I paid that much attention. We've gotten very few questions about it. I can promise you, you should have paid more attention. Anybody listening should I didn't put it out there to be trying to promote the stock. I put it out there because what we intend to do. Now here we are in mid-30s. We bounced off 15, that's nothing. Now we're in a position to create a lot of value. Would I want to own more of the company even though I'm best to invest on price? I want to own more of the company, me and my 2 kids. Why would I want to not own more of the company personally I'm buying it from Brandy, who doesn't see the same value in the future ownership that I do. This is not complicated. This is not complicated. It's a very simple way of thinking. It's not either or, it's why wouldn't we want Own more of this company that you've just heard the best is yet to come. I want to own more of it, 11.5% free cash flow Thank you. Thanks for taking my questions. I completely understand. I really do. I did write about that in a number of my notes. So I didn't understand it. How many other companies have 11.5 And your last question comes from George Kelly with Roth Capital Partners. Hey, everybody. Thanks for taking my question. And Mel, to follow-up on your last comment, Businesses with 11.5% yields are usually not so sort of high quality. So I think that's what I've seen at least. So my question for you is, clearly, there's a lot of momentum in your business in a whole bunch of different areas. But I'm curious, aside from COVID, what are the biggest risks that Where are there places where you have some uncertainty, especially with respect to the numbers that you've put out for the next couple of years? Frankly, George, I think what we put out for the next couple of years is a very conservative, realistic outlook I don't see any real risk in us being able to achieve the goals that we set out before us, Right. There's certainly some of those known unknowns about COVID and the variance and vaccination rates and the effects on that may happen in death rates and volumes in the short term. But to your point and what we've shown in the first half of this year and the second quarter and we've talked about this entire call, there's So many known drivers that we have here of accelerating high performance, but I don't see any real risk So George, let's go back to the point you made to start off. I agree with you. 11.5% free cash flow to equity yield is normally companies that are low quality, unreliable as far as what they will do in the future. Nobody is believing it will continue. Not as the opposite of where we are. And that's why we're buying in our Shares and I want to own more of it. I want to get the skeptical shareholders. And if you went back to February 19, 2020, That was transformative pre COVID and then you go to May 19. All right, we're in the midst of COVID. We brought down the scenario a little bit. Everybody else got rid of their entire guidance And ever since then, you went to July 28, 2nd quarter release, October 27, 3rd quarter release, then we had the full year release, Then I have my shareholder letter and then we have the financing memorandum and Tom Brady pricing on the bonds and Rodney Dangerfield pricing on the equity. Then we have the June 2 promotions. There is a book here on why carriage is high quality and nothing less. And the free cash flow yield of 11.5% is ridiculous. I think we need to find higher quality investors I understand it. If they don't, we're going to buy on the shares and take it private. This is not competition. Yes, yes. Fair enough. Thank you for the comments and best of luck. We're not counting on a lot, but we'll take it if it shows up. We put it out there. You can either like it or not, but it's real and it's going to get better. We do appreciate all the attention. You can tell I'm passionate about where we are and I get to be my best here. But The best is yet to come for Carriage over the next 5 or 10 years. We are where we always wanted to get to and we're never going to go back to where we came from, Never. I have the right team, the right people in the right seats, the right balance sheet, the right models, the right vision, Right ideas, right standards and the right free cash flow to use flexibly to create more value for you And for us. Thank you very much. And I'm showing no further questions at this time. Would now like to turn the conference back to Mao Payne. I'm done. I think I've had my say. Thank Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.