Carriage Services(CSV) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Presents the unaudited consolidated balance sheet, statements of operations, cash flows, and changes in stockholders' equity Unaudited Consolidated Balance Sheet Total assets decreased to $1.15 billion, driven by lower trust investment values and reduced liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,178,631 | $1,151,423 | ($27,208) | | Total Current Assets | $40,212 | $36,962 | ($3,250) | | Goodwill | $391,972 | $391,071 | ($901) | | Total Liabilities | $1,050,616 | $1,028,579 | ($22,037) | | Total Current Liabilities | $60,787 | $42,831 | ($17,956) | | Credit Facility | $153,857 | $173,501 | $19,644 | | Total Stockholders' Equity | $128,015 | $122,844 | ($5,171) | Unaudited Consolidated Statements of Operations Net income improved to $10.9 million in Q2 2022 from a prior-year loss, despite a modest revenue increase Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2021 | Q2 2022 | YTD 2021 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $88,277 | $90,600 | $184,914 | $188,761 | | Gross Profit | $28,927 | $27,712 | $63,988 | $62,190 | | Operating Income | $20,924 | $19,725 | $47,170 | $44,876 | | Net Income (Loss) | ($6,167) | $10,899 | $6,766 | $27,301 | | Diluted EPS | ($0.33) | $0.69 | $0.37 | $1.70 | Unaudited Consolidated Statements of Cash Flows Operating cash flow decreased to $30.2 million YTD, with significant cash used for share repurchases Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2021 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $41,441 | $30,177 | | Net Cash Used in Investing Activities | ($7,944) | ($10,182) | | Net Cash Used in Financing Activities | ($32,893) | ($20,085) | | Net (Decrease) in Cash | $604 | ($90) | Unaudited Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity declined by $5.2 million YTD, primarily due to treasury stock purchases - For the six months ended June 30, 2022, total stockholders' equity decreased by $5.2 million, with key drivers including net income of $27.3 million offset by $34.2 million in treasury stock acquisitions and $3.5 million in dividend payments[27] Condensed Notes to Consolidated Financial Statements Provides details on accounting policies, segment reporting, debt, leases, and equity transactions - The company operates in two segments: Funeral Home Operations (approx. 70% of revenue) and Cemetery Operations (approx. 30% of revenue), operating 167 funeral homes and 31 cemeteries[30] - On May 27, 2022, the company amended its Credit Facility, increasing the revolving credit commitment from $200 million to $250 million and replacing LIBOR with BSBY as a benchmark rate[99] - The company settled the Chinchilla v. Carriage Services, Inc. class action lawsuit and accrued $1.3 million for the final settlement and associated legal fees as of June 30, 2022[112] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes financial performance, segment results, liquidity, and capital allocation strategies - The company's business strategy is built on three core models: the Standards Operating Model, the 4E Leadership Model, and the Strategic Acquisition Model, which guide operations, leadership, and growth[153] - Funeral contract volumes are normalizing to pre-COVID-19 levels at higher average revenues, while modest cost increases from inflation are noted[148][149] Financial Highlights (Three Months Ended June 30) | Metric | 2021 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $88,277 | $90,600 | 2.6% | | Funeral contracts | 10,842 | 11,006 | 1.5% | | Avg. revenue per funeral contract | $5,385 | $5,493 | 2.0% | | Gross profit | $28,927 | $27,712 | -4.2% | | Net income (loss) | ($6,167) | $10,899 | N/A | Liquidity and Capital Resources Primary liquidity sources are cash from operations and a $250 million credit facility - Primary sources of liquidity are cash from operations and the Credit Facility, with $72.5 million available as of June 30, 2022[158] - The Board authorized an additional $75.0 million for the share repurchase program; in the first six months of 2022, the company repurchased 695,496 shares for $34.2 million[125][126] Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2021 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,441 | $30,177 | | Net cash used in investing activities | ($7,944) | ($10,182) | | Net cash used in financing activities | ($32,893) | ($20,085) | Results of Operations Funeral Home segment profit grew while Cemetery segment profit declined due to higher expenses Funeral Home Segment Performance (Six Months Ended June 30, in thousands) | Metric | 2021 | 2022 | | :--- | :--- | :--- | | Total Revenue | $131,606 | $136,293 | | Operating Profit | $57,090 | $57,887 | | Same Store Contract Volume | 20,516 | 21,068 | Cemetery Segment Performance (Six Months Ended June 30, in thousands) | Metric | 2021 | 2022 | | :--- | :--- | :--- | | Total Revenue | $53,308 | $52,468 | | Operating Profit | $28,711 | $26,202 | | Same Store Preneed Revenue | $19,134 | $19,201 | - General and administrative expenses increased by $1.4 million for the six months ended June 30, 2022, due to investments in marketing, a new CIO, and technology costs[205] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate changes on its credit facility and trust fund investment values - The company is primarily exposed to interest rate risk on its Credit Facility and market risk on the investments held in its funeral and cemetery trust funds[210] - A hypothetical 100 basis point change in the borrowing rate on the Credit Facility would result in a $1.7 million change in income before taxes[212] - The $400 million Senior Notes have a fixed rate of 4.25%, with a fair value of $327.7 million at June 30, 2022, below its carrying value of $394.9 million[212] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022 - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2022[213] - There were no material changes to the company's internal control over financial reporting during the second quarter of 2022[214] PART II – OTHER INFORMATION Legal Proceedings Reports the settlement of the Chinchilla v. Carriage Services, Inc. class action lawsuit - The company is party to various legal proceedings that arise in the ordinary course of business, which are not expected to have a material adverse effect on its financial statements[217] - The Chinchilla v. Carriage Services, Inc. class action was settled, and the company accrued $1.3 million for the settlement and legal fees[112] Risk Factors A new risk factor was added to address the potential adverse effects of inflation on costs and revenue - A new risk factor was added to address the potential adverse effects of inflation on the business[218] - Inflation may increase the company's cost structure and reduce consumer discretionary spending, potentially affecting liquidity, financial condition, and results of operations[219] Unregistered Sales of Equity Securities and Use of Proceeds Details the repurchase of 205,496 shares in Q2 2022, with $48.9 million remaining authorized Share Repurchases (Q2 2022) | Period | Total Shares Purchased | | :--- | :--- | | April 2022 | 0 | | May 2022 | 127,639 | | June 2022 | 77,857 | | Total | 205,496 | - As of June 30, 2022, $48.9 million remained authorized for purchase under the company's share repurchase program[221] Other Items (3-6) Confirms no defaults, mine safety disclosures, or other information to report for Items 3-5 - Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information) are all reported as 'Not applicable'[222][223][224] - Item 6 (Exhibits) refers to the list of exhibits filed with the Form 10-Q, including certifications and XBRL data[225]