Carriage Services Q3 2026 Earnings Webcast - CARRIAGE SERVICES INC

Explicit Guidance:

• FY2026 Revenue: Revised range of $415 million to $420 million (previously $435–$445 million). Implies Q4 2026 revenue of ~$106–$111 million.
• FY2026 Adjusted Consolidated EBITDA: Revised range of $125 million to $130 million (previously $135–$140 million). Implies Q4 2026 EBITDA of ~$30–$35 million.
• FY2026 Adjusted Diluted EPS: Revised range of $2.90 to $3.05 (previously $3.35–$3.55). Excluding trust tax impact, Q3 2026 adjusted EPS would have been $0.59 vs. $0.75 prior year; non-GAAP Q3 2026 EPS was $0.56.
• FY2026 Adjusted Free Cash Flow: Revised range of $40 million to $45 million (previously $40–$50 million).
• FY2026 Capital Expenditures: Unchanged range of $20 million to $25 million.
• FY2026 Financial Income: Excludes one-time trust tax impact of ~$2.5 million incurred in Q3; no further impact expected in Q4.
• Q4 2026 Funeral Growth: Anticipated flat to slightly positive (~1%) contract volume growth, with total revenue growth in the low single digits driven by Average Revenue Per Contract (ARPC) increases.
• FY2027 Leverage Ratio: Expected to remain between 4.0x and 4.1x year-end 2026, inclusive of planned acquisitions.

Business-Segment Outlook:

• Funeral Segment: Returned to positive contract growth in Q3 2026 (+2.3% same-store), improving from negative growth in Q1 (-5.8%) and Q2 (-3.5%). Management expects this trend to persist in Q4. Margin pressure persists due to salary/benefit line items, expected to continue into Q4, though management is actively managing this.
• Cemetery Segment: Pre-need sales performance remains below targets, driven primarily by weakness in California (down 7.1% YTD pre-need vs. +10.1% in other regions), specifically in contracts under $20,000. Management does not expect meaningful growth guidance for Q4 2026 but anticipates returning to expected growth trajectory by the first quarter of 2027.
• Acquisition Pipeline: Over $14 million in annual revenue represented by acquisitions under contract/LOI. Five specific deals expected to close, with timing split between Q4 2026 and Q1 2027, subject to regulatory approvals. Pipeline includes a mix of funeral homes, cemeteries, and crematories across five states, with a focus on "home-sourced" (non-competitive) transactions.
• Sales Organization: Comprehensive overhaul of cemetery sales operating system (recruiting, training, compensation, lead generation) underway since August 2026 to address productivity gaps.

Market and Competitive Outlook:

• Pricing: Focus on restoring contract volume in the sub-$20,000 bracket in California; contracts between $20,000–$30,000 saw +13.7% growth in California, indicating pricing sensitivity.
• Competitive Landscape (M&A): Multiples in competitive bidding processes remain consistent with historical ranges, though some private equity-backed competitors are driving prices "too rich" for Carriage's appetite, allowing for continued selectivity.
• Market Share: Funeral volume growth in Q3 attributed to gaining market share and sales execution rather than mortality rate recovery, despite lower-than-anticipated mortality in H1.
• M&A Cadence: Targeting a "new normal" of steady, quarterly acquisition activity starting late 2026.

Macro / Industry Outlook:

• Mortality: Mortality rates in H1 2026 were below trend, pressuring funeral volumes; no confirmation that rates have fully returned to the historical ~1% level, though Q3 volume suggests operational strength.
• Seasonality: Management notes potential risk of flu season shifting (e.g., from December to January) which could impact Q4 volume forecasts.
• Discretionary Spending: California market identified as highly sensitive to discretionary spending pressures compared to other geographies.

Strategic Initiatives:

• CarriageWay: Cultural initiative launched to unify organizational leadership, values, and operational standards; intended to drive alignment, talent development, and execution efficiency toward a 2030 vision.
• Divestitures: Non-core divestiture program effectively complete; no further sales planned.
• Technology/Training: Third-party assessment of training programs (specifically mentioning "Trinity" pilot) conducted; leadership changes in IT implemented; further updates expected post-Q4.
• Financing: New $300 million credit facility closed in Q3, providing additional borrowing capacity and $50 million increase in commitment to fund acquisitions and organic growth.

Risks and Headwinds to Outlook:

• Cemetery Execution: Significant risk to FY2026 growth trajectory due to ongoing underperformance in cemetery pre-need sales, particularly in California.
• Mortality Volatility: Uncontrollable mortality rates remain a key variable affecting volume.
• Seasonal Shifts: Potential shift in flu seasons (e.g., moving from December to January) poses forecasting uncertainty for Q4.
• Margin Pressure: Salary and benefit costs continue to pressure funeral segment margins.
• Acquisition Execution: Timing of closings is subject to regulatory approval delays.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic regarding the long-term strategy and the "fundamental" strength of the funeral business.
• Acknowledgment of Misses: Explicitly acknowledges Q3 results fell short of expectations, specifically citing cemetery sales and trust tax impacts.
• Commitment to Action: Strong emphasis on "discipline execution," "clear action plan," and "measurable progress" to restore growth.
• Strategic Pivot: Tone indicates a shift from passive waiting to active intervention in sales operations and a focus on high-quality, non-competitive M&A.
• Long-term View: Reaffirms belief in the 2030 vision, stating culture and performance are inseparable.

Miscellaneous:

• Trust Tax Impact: A one-time tax event of ~$2.5 million related to MLP sales in trusts impacted Q3; expected to be a discrete item with no future recurrence.
• Cash Flow: Adjusted Free Cash Flow for YTD 2026 is $33 million (down from $39.3 million prior year) due to higher CapEx and trust tax adjustments.
• Divestiture Proceeds: No further proceeds expected from non-core divestitures.