Carriage Services' Q3 2025 Earnings Call Contradictions: Funeral Volumes, Cemetery Growth, and Acquisition Strategies in Question

Date of Call: November 6, 2025

Financials Results

• Revenue: $101.3M, up 5.2% YOY
• EPS: Adjusted diluted EPS $0.75, up 17.2% YOY (prior-year $0.64); GAAP EPS $0.41 vs $0.63 prior year

Guidance:

• Revenue for FY2025 expected $413M–$417M (midpoint reaffirmed)
• Adjusted consolidated EBITDA expected $130M–$132M
• Adjusted diluted EPS expected $3.25–$3.30
• Overhead expected 13%–13.5% of revenues
• Adjusted free cash flow expected $44M–$48M
• Leverage ending 2025 expected 4.0x–4.1x; meeting outlook would produce record highs

Business Commentary:

* Revenue and Preneed Cemetery Sales Growth:

- Carriage Services reported total operating revenue for Q3 at $101.3 million, an increase of 5.2% over the same period last year, primarily driven by a 21.4% year-over-year increase in preneed cemetery sales.
- The growth was primarily due to an impressive increase in preneed cemetery sales, attributed to resumed momentum and the launch of new technology platforms like Sales Edge 2.0 and Titan.

• Funeral Home Volume and Seasonality:
• Funeral operating revenue was down $753,000 or 1.3%, primarily due to a 2.1% reduction in funeral volume during July and August.

• The decline was attributed to seasonal factors, with a significant recovery observed in September and expected to continue into the fourth quarter, aligning with normalized volume trends.

• Insurance-Funded Preneed Sales Strategy:

• Insurance-funded preneed funeral sales strategy set an all-time high in September, surpassing $7 million, accounting for 50.5% of the year-over-year growth in general agency commissions.

• The progress exceeded expectations and is supported by partnerships with National Guardian Life and Precoa, involving technological capabilities to increase sales growth sustainably.

• Financial Performance and Shareholder Value:

• Adjusted consolidated EBITDA grew to $33 million, up 7.3% year-on-year, with an adjusted consolidated EBITDA margin of 32.1%.

• This performance was driven by disciplined execution, strong operating leverage, and a focus on shareholder value creation, with an increase in adjusted diluted earnings per share by 17.2%.

• Acquisition and Divestiture Activity:

• Carriage completed the acquisition of Osceola and Faith Chapel, with collective revenues over $15 million, marking the first acquisitions in 2.5 years.
• The company systematically divested noncore assets, with Q3 divestitures representing $2.4 million in EBITDA and $9 million in revenue, aligning with strategic goals to improve leverage and focus on core growth areas.

Sentiment Analysis:

Overall Tone: Positive

• "We are very pleased with our third quarter results"; adjusted consolidated EBITDA grew to $33.0M (32.1% of revenue) vs $30.7M (30.5%) prior year; management stated meeting guidance would "mark record highs for revenue, adjusted consolidated EBITDA, adjusted diluted EPS" and expressed confidence and momentum.

Q&A:

• Question from George Kelly (ROTH Capital Partners, LLC): A couple for you. I'll start with the contract weakness that you flagged for July and August. Can you quantify what you saw monthly just intra-quarter? And then you mentioned that you expect 4Q to kind of return to normal. What did October look like?
  Response: July and August saw mid-single-digit percentage negative volume each; September recovered strongly and October trends were positive with volumes better than last year, supporting a normalized Q4.

• Question from George Kelly (ROTH Capital Partners, LLC): Just thinking high level for 2026, is it fair to baseline low single-digit volume growth?
  Response: Yes — management models funeral-home volume growth of about 1%–2% for 2026.

• Question from George Kelly (ROTH Capital Partners, LLC): Your preneed cemetery business was again really strong in the quarter after lower growth in H1. Was that related to specific CapEx projects or permitting? What is the expectation going forward?
  Response: Q3 strength partly reflects recognition of delayed sales (permits, one cemetery sinkhole) that closed in Q3; going forward company expects preneed cemetery growth to remain in its 10%–20% target range with fewer anticipated delays.

• Question from Liam Burke (B. Riley Securities, Inc.): You mentioned funeral-home margins were lower year-over-year. Is that just a function of volume or other expenses?
  Response: On the funeral-home side margin pressure was primarily leverage-driven from lower calls/volume (fixed-cost base); cemetery margins remained strong due to premium preneed sales.

• Question from Liam Burke (B. Riley Securities, Inc.): Clarifying: this is just on the funeral-home side?
  Response: Yes — the funeral-home margin compression is due to lower volumes and the fixed-cost structure resulting in lower operating leverage.

• Question from Liam Burke (B. Riley Securities, Inc.): On cemetery, are you sensing a floor EBITDA margin level at the cemetery business?
  Response: No defined floor — quarter-to-quarter variability is driven by timing of recognizing preneed sales and associated commissions versus when inventory is delivered and revenue recognized.

• Question from Parker Snure (Raymond James & Associates, Inc.): On the insurance-funded preneed progress, what inning are you in for rollout, is it fully rolled out, and where can commissions go?
  Response: Rollout is largely network-wide; recent months focused on improving underperformers and shifting models (e.g., proactive); with Precoa/NGL tech and new CRM/AI, management views the program at roughly the fifth–sixth inning and expects continued growth toward low double-digit levels over time.

• Question from Parker Snure (Raymond James & Associates, Inc.): Where are you in the Trinity implementation and are there ongoing implementation costs and when do efficiencies materialize?
  Response: Implementation pilot now, larger rollout across funeral homes in Q1 2026 and cemeteries later; implementation costs continue into 2026, with meaningful enterprise-wide benefits expected in 2027 as parallel systems are retired.

• Question from Alexander Paris (Barrington Research Associates, Inc.): On funeral services revenue/volume/price per contract and longer-term outlook — when do you expect more normalized, consistent growth given demographics?
  Response: Pull-forward effects are largely past; demographics are a long-term tailwind but management is conservative—expects gradual return to normalized volumes while monitoring seasonal factors (e.g., flu) that can shift quarter timing.

• Question from Alexander Paris (Barrington Research Associates, Inc.): You announced recent acquisitions (Osceola, Faith Chapel) and pipeline — what's the M&A pipeline and timing?
  Response: Pipeline is active with proprietary outreach; integration of recent deals is progressing; expect more acquisition activity in Q1 2026 rather than Q4.

• Question from Alexander Paris (Barrington Research Associates, Inc.): What is the level of competitive activity in M&A and what multiples are being paid?
  Response: Two deal types: sourced (less competitive) and brokered (competitive); typical multiples ~7–8x EBITDA for average businesses, high single digits for premium assets; Carriage will pay premiums for identifiable upside or synergies.

• Question from Alexander Paris (Barrington Research Associates, Inc.): When do you factor acquisitions into guidance?
  Response: Acquisitions are included in guidance only once under contract; if nothing is known by Q4 guidance, they will be excluded.

• Question from Alexander Paris (Barrington Research Associates, Inc.): Regarding the Q3 divestitures (seven funeral homes, one cemetery), what were their revenues and EBITDA and were they considered in guidance?
  Response: Divested Q3 assets represented about $9M of revenue and ~$2.4M of EBITDA, with proceeds just over $19M; the lost business was considered when setting current guidance.

Contradiction Point 1

Funeral Volume Trends and Expectations

It involves projections and expectations regarding funeral volume trends, which are crucial for understanding the company's growth and revenue outlook.

Can you quantify the July and August volume decline and provide an outlook for October? - George Kelly(ROTH Capital Partners, LLC, Research Division)

2025Q3: July and August saw a middle-digit percentage decrease in funeral volumes. - Carlos Quezada(CEO)

Where will the greatest growth occur between Q3 and Q4? - Alexander Peter Paris(Barrington Research Associates, Inc., Research Division)

2025Q2: Historically, the third quarter is our strongest quarter from an industry perspective. We expect funeral volumes to increase slightly versus 2022 levels. - Carlos Quezada(CEO)

Contradiction Point 2

Cemetery Revenue and Growth Expectations

It involves expectations for cemetery revenue growth, which is an important indicator for the company's overall financial performance.

What drove the strong preneed cemetery sales this quarter, and what are future expectations? - George Kelly(ROTH Capital Partners, LLC, Research Division)

2025Q3: We expect to see the first full impact of the 10% to 20% growth improvement in the fourth quarter. - Carlos Quezada(CEO)

What's the plan to return Cemetery to over 10% growth? - George Arthur Kelly(ROTH Capital Partners, LLC, Research Division)

2025Q2: We expect cemetery revenue growth for 2025 to be broadly in line with historical levels. - Carlos Quezada(CEO)

Contradiction Point 3

Acquisition Strategy and Past Performance

It involves the company's acquisition strategy and the reported performance of past acquisitions, which are critical for assessing the company's growth strategy and financial health.

When can consistent growth in funeral services revenue be expected? - Alexander Paris(Barrington Research Associates, Inc., Research Division)

2025Q3: Premium acquisitions are expected to materialize in Q1 of next year. Multiples range from 7 to 8 times EBITDA. - John Enwright(CFO)

Are you acquiring multiple entities or a single entity with multiple locations? Can you discuss the pricing compared to recent market acquisitions? - Alexander Peter Paris(Barrington Research Associates, Inc., Research Division)

2025Q2: Pricing is in line with kind of our philosophy on valuation. Generally speaking, for a premium business where it's a competitive landscape, which is generally the type of business we're looking at, high single digits on the multiples is a fair estimate. - Steven D. Metzger(President & Secretary)

Contradiction Point 4

Volume Trends and Expectations

It reflects differing expectations about the recovery of volume trends in the funeral segment, which is crucial for revenue projections and investor sentiment.

Can you quantify the volume weakness in July and August and share insights on October's performance? - George Kelly(ROTH Capital Partners, LLC, Research Division)

2025Q3: July and August saw a middle-digit percentage decrease in funeral volumes. September showed a strong rebound, recovering from the earlier dip. - Carlos Quezada(CEO)

What were the March and April results for the funeral segment, and does the strength indicate the pandemic's impact is over? - Alex Paris(Barrington Research)

2025Q1: The momentum in the funeral home segment has been strong from January to April, with volume increases year-over-year and average revenue per contract increases of 150 to 200 basis points. - Carlos Quezada(CEO)

Contradiction Point 5

Acquisition and Divestiture Strategy

It involves changes in the company's acquisition and divestiture strategy, which can impact the company's financial situation and growth opportunities.

What are the acquisition and divestiture plans, and at what multiples are you paying? - Alexander Paris(Barrington Research Associates, Inc., Research Division)

2025Q3: Active discussions are ongoing for premium acquisitions, expected to materialize in Q1 of next year. - John Enwright(CFO)

What was the revenue contribution from 2024 divestitures? - Alexander Paris(Barrington Research)

2024Q4: In 2024, we sold roughly $5.5 million worth of revenue, which represented around $1.8 million of EBITDA. - Steven Metzger(President)