What changed in this filing

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Item 1. Business

2023-03-01 compared with 2022-03-02 · 87 added, 70 removed, 219 unchanged (42% of the section changed)

12 unchanged sentences

Most of our funeral homes have a non-denominational chapel on the premises, which permits family visitation and services to take place at one location and thereby reduces transportation costs and inconvenience to the family.

Our cemeteries provide interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as outer burial containers, memorial markers and floral placements) and services (interments, inurnments and installation of cemetery merchandise).

Our cemeteries provide interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers and monuments) and services (interments, inurnments and installation of cemetery merchandise).

We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

CURRENT YEAR DEVELOPMENTS

Executive Team

On June 1, 2021, C.

Benjamin Brink, Steven D.

Metzger and Carlos R.

Quezada were each promoted to Executive Vice President.

Our Board of Directors (our “Board”) also appointed Carlos R.

Quezada to serve as the Company’s Chief Operating Officer and Steven D.

Metzger to serve as the Company's Chief Administrative Officer.

On February 23, 2022, our Board appointed Carlos R.

Quezada to serve as the Company's President and Chief Operating Officer.

Executive Leadership Changes

On April 1, 2022, Rob Franch joined our executive leadership team as Chief Information Officer.

On September 26, 2022, Robbie Pape joined our executive leadership team as Senior Vice President and Regional Partner.

On September 27, 2022, C.

Benjamin Brink informed the Company of his plans to resign from his position as Executive Vice President, Chief Financial Officer and Treasurer effective January 2, 2023.

Brink remained in his role through January 2, 2023 and will serve as a consultant for the Company through June 30, 2023.

The planned resignation was not the result of any disagreement Mr.

Brink had with the Company on any matter related to the Company's operations, policies, and practices, including any matters concerning the Company's controls or any financial or accounting-related matters or disclosures.

On January 2, 2023, following the resignation of Carl Benjamin Brink, Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) from the Company, our Board of Directors (our “Board”) appointed Adeola Olaniyan, the Company’s Corporate Controller and Principal Accounting Office, as the Company’s interim Principal Financial Officer until a permanent replacement is identified.

In this interim role, Ms.

Olaniyan will serve as both the Company’s Principal Financial Officer and Principal Accounting Officer.

Board of Director Changes

On February 22, 2023, our Board elected Carlos R.

Quezada, President and Chief Operating Officer of the Company, to serve as a Class II director, effective February 22, 2023, until the Company’s 2025 annual meeting of stockholders.

The Board also appointed Mr.

Quezada to serve as Vice Chairman of the Board.

Quezada will serve as a non-independent member of the Board, and the Board does not expect to appoint Mr.

Quezada to any of its standing committees.

Following the appointment of Mr.

Quezada, the Board is now comprised of six directors, including four independent directors.

Code of Business Conduct and Ethics Amendments

On February 22, 2023, our Board, on the recommendation of the Board’s Audit Committee, approved various amendments to the Company’s Code of Business Conduct and Ethics (the “Code”), which applies to all directors, officers and employees of the Company and its subsidiaries.

In addition to making certain technical and administrative updates, the amendments to the Code include, among other things, summarizing and clarifying the Company’s existing compliance

requirements and also identifies and expands upon certain policies, including those related to bribery and kickbacks, antitrust, political activity and improper influence on auditors.

The approval of the amendments to the Code did not relate to or result in any waiver, whether explicit or implicit, of any provision of the prior version of the Code.

On August 8, 2022, we acquired a business consisting of two funeral homes in Kissimmee, Florida for $6.3 million in cash.

On October 25, 2022, we acquired a business consisting of three funeral homes, one cemetery and one cremation focused business in the Charlotte, North Carolina area for $25.0 million in cash.

During the year ended December 31, 2022, we sold real property for $3.3 million and four funeral homes for $1.5 million for a net gain of $0.7 million.

On January 31, 2023, we sold one funeral home and two cemeteries in Marshall, Texas for $0.8 million.

Credit Facility

On May 27 2022, we entered into a second amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

Pursuant to the amendment, the revolving credit commitment was increased from $200.0 million to $250.0 million.

On December 9, 2022, we entered into a third amendment to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

The amendment provided, among other things, for an increase in the maximum Total Leverage Ratio and modifications to the permitted investments covenant, relating to the Company’s ability to make certain acquisitions.

For additional discussion about our Credit Facility, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.

Share Repurchase Program

During 2021, our Board increased our share repurchase program authorization by an additional $125.0 million that, including the addition of amounts previously authorized and outstanding, totaled up to $190.0 million in share repurchase authorizations.

During the year ended December 31, 2021, we repurchased 2,906,983 shares of common stock for a total cost of $142.5 million at an average cost of $49.01 per share pursuant to the share repurchase program.

At December 31, 2021, we had $8.1 million remaining available for repurchase under our approved program.

On October 27, 2021, our Board approved an increase of $0.05 per share for a total annual dividend of $0.45 per share beginning with the dividend declaration in the fourth quarter.

During 2021, we paid $7.3 million in dividends.

Senior Notes and Credit Facility

On May 13, 2021, we completed the issuance of $400.0 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “Senior Notes”).

In connection with the issuance of the Senior Notes, we entered into an amended and restated $150.0 million senior secured revolving credit facility (the “Credit Facility”).

We used the proceeds of $395.5 million from the offering of the Senior Notes, which are net of a 1.125% debt discount of $4.5 million, together with cash on hand and borrowings under the Credit Facility, to redeem all of our existing $400.0 million in aggregate principal amount of 6.625% senior notes due 2026 (the “Original Senior Notes”).

On November 22, 2021, we entered into a first amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

Pursuant to this amendment, the revolving credit commitment was increased from $150.0 million to $200.0 million.

During 2021, we sold two funeral homes and one cemetery for $2.5 million and real property for $5.2 million, for a total net gain of $0.9 million.

Chinchilla v.

Carriage Services, Inc., et al., Superior Court of California, San Joaquin County, Case No.

STK-CV-UOE-2021-0004661.

On May 19, 2021, a putative class action against the Company and several of our subsidiaries was filed.

Plaintiff, a former employee, seeks monetary damages on behalf of himself and other similarly situated current and former non-exempt employees.

Plaintiff claims that the Company failed to, among other things, pay minimum wages, provide meal and rest breaks, pay overtime, provide accurately itemized wage statements, reimburse employees for business expenses, and provide wages when due.

On January 5, 2022, the parties mediated the matter and executed a Memorandum of Understanding for class settlement in the amount of $1.0 million.

The parties will seek preliminary approval of the class settlement after executing a long-form class settlement agreement.

At December 31, 2021, we accrued $1.1 million for the expected settlement amount and associated legal fees.

Business Impact under the Macroeconomic Environment of COVID-19

On February 23, 2022, our Board authorized an increase in our share repurchase program to permit us to purchase up to an additional $75.0 million under our share repurchase program, in addition to amounts previously authorized.

During the three months ended December 31, 2022, we did not repurchase any common shares.

At December 31, 2022, our share repurchase program had $48.9 million authorized for repurchases.

Business Impacts of COVID-19

On March 11, 2020, COVID-19 was deemed a global pandemic and since then, the Company has continued to proactively monitor and assess the pandemic’s current and potential impact to the Company’s operations.

Throughout the pandemic, the Company’s senior leadership team has taken steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic.

Our businesses remain open and ready to provide service to their communities in this time of need.

While our businesses provide an essential public function, along with a critical responsibility to the communities and families they serve, the health and safety of our employees and the families we serve remain our top priority.

The Company took additional steps during this time to continually review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our businesses have appropriate personal protective equipment to provide these essential services.

The Company also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities they serve.

The overall impact of the macroeconomic environment to the deathcare industry from the pandemic may provide varying results as compared to other industries.

Our industry’s revenues are impacted by various factors, including the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts.

During 2021, changes in the macroeconomic environment as a result of the pandemic have, to this point, led to an increase in funeral volumes and the services we provide.

Our businesses have remained focused on being innovative and resourceful, providing families immediate service as part of the grieving process.

Within our financial reporting environment, we have considered various areas that could affect the results of our operations, though the scope, severity and duration of these impacts remain uncertain at this time because the ultimate impact of COVID-19 remains uncertain, including the potential impacts of new variants of COVID-19, such as the Delta and Omicron variants, and any resulting government responses to such variants.

Since that time, the Company’s senior leadership team has taken steps to assist our businesses throughout each phase of the COVID-19 pandemic, including updating our processes and procedures to comply with all regulatory mandates, along with keeping the health and safety of our employees and the families we serve our top priority.

While we believe the country has begun to transition to a post-pandemic phase, we continue to monitor the situation and may make appropriate adjustments to our operations as necessary.

The overall macroeconomic impact from the pandemic to the deathcare industry may provide varying results as compared to other industries.

Our industry’s revenues are impacted by various factors, including for example, fluctuations in the death rate, the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts.

During the year ended December 31, 2022, we continued to see the death rate normalize to pre-COVID-19 levels, which accelerated during the latter part of the year.

Although deaths directly attributable from COVID-19 have now largely decreased to have minimal direct impact on the overall death rate, the overall death rate remains slightly higher than the pre-COVID-19 pandemic period.

Regardless of these recent trends, our businesses have remained focused on being innovative and resourceful, providing families immediate service as part of the grieving process.

Within our financial reporting environment, we have considered the impact of COVID-19 on the assumptions and estimates used in preparing our consolidated financial statements.

In the opinion of management, all material adjustments necessary for a fair presentation of the Company’s financial results for the year have been made, but are complicated by the continued uncertainty surrounding the normalization of the death rate and the scope, severity and duration of the COVID-19 pandemic and its ultimate impact.

This includes the potential impacts of new variants of COVID-19, its sub-variants and any other new variants, and any resulting impacts from such variants.

We do not believe we are particularly vulnerable to concentrations, with respect to geographic area, revenue for specific products or our relationships with our vendors.

Our relationships with our vendors and suppliers have remained consistent and we continue to receive reliable service.

To date, we have not experienced any material supply chain impacts or disruptions from our vendors.

Remote working arrangements, when utilized, have not materially affected our ability to maintain and support operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.

We believe our access to capital, the cost of our capital, or the sources and uses of our cash should be relatively consistent in the near term.

While the expected duration of the pandemic is unknown, we have not currently experienced any material negative impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19.

See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for additional information related to our liquidity position.

During the latter half of 2021, we experienced a high growth rate in funeral home revenue due to elevated funeral volumes from broad market share gains and higher COVID-19 related deaths combined with incremental growth in the average revenue per funeral contract.

We will continue to assess these impacts, including the potential impacts of new variants of COVID-19,

such as the Delta and Omicron variants, and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related regulatory mandates and restrictions, if any, evolves.

To date, we have not experienced any material supply chain impacts or disruptions from our vendors attributable to COVID-19 and we continue to receive reliable service.

We believe our access to capital, the cost of our capital, and the sources and uses of our cash should be relatively consistent in the near term.

While the expected duration and potential future impacts of the pandemic are unknown, we have not currently experienced any material negative impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19.

For additional information related to our liquidity position, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.

During the year ended December 31, 2022, we continued to see deaths directly attributable from COVID-19 largely decrease to have minimal impact on the overall death rate, which accelerated during the third and fourth quarter.

However, the overall death rate remains slightly higher than the pre-COVID-19 pandemic period, and we are unable to predict or forecast the duration or variation of this increased death rate with any certainty.

As a result, we experienced lower volumes, revenues, earnings and margins when compared to the fourth quarter of 2021, but overall financial performance remains at or above prior reporting periods during and prior to the COVID-19 pandemic.

Although we expect these death rate fluctuation trends to continue, we will continue to assess these impacts, including the potential impacts of new variants of COVID-19, its sub-variants and any other new variants, and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related regulatory mandates and restrictions, if any, evolves.

Inflationary Trends

Beginning in the second quarter of 2022, we began to experience modest cost increases and surcharges from our vendors and suppliers on merchandise and goods due to broader inflationary, raw material cost increases, and global supply chain impacts.

This trend in modest cost increases continued during the fourth quarter of 2022, with the Company experiencing, for example, higher costs related to full-time hourly base rates, utilities, funeral supplies, merchandise costs and insurance.

Although we have taken steps to mitigate these cost increases and we expect these impacts to continue throughout the current year, the ultimate scope and duration of these impacts are unknown at this time.

More broadly, the U.S.

economy continues to experience higher rates of inflation, which has impacted a wide variety of industries and sectors, with consumers facing rising prices.

Such inflation may negatively impact consumers or discretionary spending, including the amount that consumers are able to spend on our services, although we have not experienced such impacts to date and our industry has been largely resilient to similar adverse economic and market environments in the past.

Although we expect these trends to continue throughout the current year, we will continue to assess these impacts and take the appropriate steps, if necessary, to mitigate these cost increases, if possible.

OUR OPERATIONS

33 unchanged sentences

We believe our capital structure provides us with financial flexibility by allowing us to invest our cash in growth opportunities, such as business acquisitions and cemetery inventory projects.

While we reassess our capital allocation strategy annually, we currently believe that our financial goals will best be achieved by continuing to improve the operating and financial performance of our existing portfolio of businesses while selectively investing our cash in growth opportunities that generate a return on invested capital in excess of our weighted average cost of capital.

For additional information regarding our capital structure, please see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.

While we reassess our capital allocation strategy annually, we currently believe that our financial goals will best be achieved by continuing to improve the operational and financial performance of our existing portfolio of businesses while selectively investing our cash in growth opportunities that generate a return on invested capital in excess of our weighted average cost of capital.

For additional information regarding our capital structure, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.

Strong Field-Level Gross Profit Margins.

We believe that we have strong field-level gross profit margins and that this performance is a testament to the success of our business strategies.

We believe we have strong field-level gross profit margins and this performance is a testament to the success of our business strategies.

Our strong margins and the ability to control costs are important advantages in a business such as ours that is characterized by a high fixed-cost structure.

30 unchanged sentences

Our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries, including the development of standardized sales systems across our portfolio of cemeteries, in order to focus on growth of our preneed property sales.

For example, during 2021, we

continued to grow our cemetery sales and marketing team to develop and implement our standardized sales system.

For example, during 2022, we continued to grow our cemetery sales and marketing team to develop and implement our standardized sales system.

Cemetery merchandise and services are often purchased in addition to cemetery property at the time of sale.

18 unchanged sentences

In most states, we are not permitted to withdraw principal or investment income from such trusts until the service is performed.

Additionally, in most states, regulations require a portion (generally 10%) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust.

Additionally, in most states, regulations require a portion (generally 10%) of the sale amount of cemetery property and memorials to be placed in a

perpetual care trust.

The income from these perpetual care trusts provides funds necessary to maintain cemetery property and memorials in perpetuity.

46 unchanged sentences

The operating environment in the funeral and cemetery industry has been highly competitive.

The largest publicly held operators, in terms of revenue, of both funeral homes and cemeteries with operations in the United States are Service Corporation International (“SCI”), StoneMor, Inc.

(“StoneMor”), Park Lawn Corporation (“Park Lawn”) and Carriage.

We believe these four companies collectively represent approximately 25% of funeral and cemetery revenue in the United States Independent businesses, along with a few privately-owned consolidators, represent the remaining amount of industry revenue, accounting for an estimated 75% share of revenue.

The largest publicly held operators, in terms of revenue, of both funeral homes and cemeteries with operations in the United States are Service Corporation International (“SCI”), Park Lawn Corporation (“Park Lawn”) and Carriage.

We believe these three companies collectively represent approximately 20% of funeral and cemetery revenue in the United States.

Independent businesses, along with a few privately-owned consolidators, represent the remaining amount of industry revenue, accounting for an estimated 80% share of revenue.

Our funeral home and cemetery operations face competition in the markets that they serve.

9 unchanged sentences

Generally, the number of deaths is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year.

However, we have experienced fluctuations in the death rate due to COVID-19, although the duration of these impacts on the death rate remain uncertain at this time because the ultimate impact of COVID-19 remains uncertain.

For example, we experienced fluctuations in the death rate due to COVID-19, with a result of increased deaths during the duration of the pandemic.

Although deaths directly attributable from COVID-19 have now largely decreased to have minimal direct impact on the overall death rate,

the overall death rate remains higher than the pre-COVID-19 pandemic period.

As a result, we are unable to predict or forecast the duration or variation of this increased death rate with any certainty.

Our operations are subject to regulations, supervision and licensing under numerous federal, state and local laws, ordinances and regulations, including extensive regulations concerning trust funds, preneed sales of funeral and cemetery products and services and various other aspects of our business.

12 unchanged sentences

Additionally, the Funeral Rule requires the disclosure of mark-ups, commissions, additional charges and rebates related to cash advance items.

On February 4, 2020, the FTC has announced that it is reviewing the Funeral Rule, which may result in changes to the Funeral Rule.

Among the subjects under review by the FTC is whether the scope of the Funeral Rule should be expanded to cover cemetery sales and merchandise and mandated disclosure of online pricing.

On October 20, 2022, the FTC announced that it was retaining the Funeral Rule and issued an advanced notice of proposed rulemaking concerning potential amendments to the Funeral Rule.

These potential amendments include, among other things, whether and how funeral providers should be required to display or attribute their price information online and through electronic means.

On December 21, 2022, the FTC voted to extend the public comment period to January 17, 2023 for its advanced notice of proposed rulemaking on potential amendments to the Funeral Rule.

We cannot predict what changes, if any, may be made to the Funeral Rule or the impact of any such changes on our business.

8 unchanged sentences

In most states, we are not permitted to withdraw principal or investment income from such trusts until the funeral service is performed.

Some states, however, allow for the retention of a percentage (generally 10%) of the receipts to offset any

administrative and selling expenses.

Some states, however, allow for the retention of a percentage (generally 10%) of the receipts to offset any administrative and selling expenses.

Additionally, we are generally required under applicable state laws to deposit a specified amount (which varies from state to state, generally 50% to 100% of the selling price) into a merchandise and service trust fund for preneed cemetery merchandise and services sales.

6 unchanged sentences

Failure to comply with environmental laws and regulations could result in the assessment of sanctions, including administrative, civil, and criminal penalties, the imposition of investigatory, remedial and corrective action obligations, delays in permitting or performance of projects and the issuance of injunctions restricting or prohibiting some or all of our activities in affected areas.

Moreover, accidental releases or spills may occur in the course of our operations, and we cannot assure that we will not incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damages to property, natural resources or persons.

Moreover, accidental releases or spills may occur in the course of our operations, and we cannot assure that we will not incur

significant costs and liabilities as a result of such releases or spills, including any third party claims for damages to property, natural resources or persons.

Also, it is possible that implementation of stricter environmental laws and regulations or more stringent enforcement of existing environmental requirements could result in additional, currently unidentifiable costs or liabilities to us, such as requirements to purchase pollution control equipment or implement operational changes or improvements.

18 unchanged sentences

Our website address is www.carriageservices.com .

Available on our website under “Investors – SEC Filings,” free of charge, are Carriage’s annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on

Form 8-K, insider reports on Forms 3, 4 and 5 filed on behalf of directors and officers and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC.

Available on our website under “Investors – SEC Filings,” free of charge, are Carriage’s annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K, insider reports on Forms 3, 4 and 5 filed on behalf of directors and officers and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC.

Also posted on our website, and available in print upon request, are charters for our Audit Committee, Compensation Committee and Corporate Governance Committee.

Copies of the Code of Business Conduct and Ethics and the Corporate Governance Guidelines are also posted on our website under “Investors – Corporate Governance.” Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any modifications to the charters and any waivers applicable to senior officers as defined in the applicable charters, as required by the Sarbanes-Oxley Act of 2002.

Information contained on our website is not part of this Annual Report on Form 10-K.

Information contained on our website is not part of this Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business