Carriage Services acquisitions, hiring. . and other news

Last week public funeral home operating company Carriage Services was really in the news.  They not only announced the acquisitions of the Fairfax Memorial Park and Funeral Home in the Washington, DC area, but they announced the purchase from StoneMor Partners of the funeral home/cemetery combination facility Oakmont Memorial Funeral Home and Cemetery in Northern California They also announced the addition of a new President/COO to their corporate family as well.

StoneMor Partner’s press release mentioned the price of the Oakmont transaction as $33 million.  And, we learned from the Houston Business Journal that you can read here what the price was for the Fairfax transaction.  Here’s a quote from that article.  “Carriage Services subsidiary Carriage Funeral Holdings will pay a total of $100 million in consideration to the shareholders of the memorial park and the unitholders of the funeral home when the deal closes, per the SEC filing. “

Here are a couple of articles that we noticed after the transactions were announced.

  • Carriage Services announces offering of Senior NotesThis article states that Carriage Services will be offering a private offering of $75 million of Senior Notes bearing an interest rate of 6.625% due in 2026.
  • Moody’s Downgrades Carriage Services — In this notice from Moody’s Investors Services you can read where the company downgraded Carriage Services corporate family rating to B2 from B1.  However, their outlook was revised to stable from negative.  Following is an excerpt from Moody’s as to their rationale:

“Carriage Service’s substantial financial leverage increase to well above 6 times following the announced exclusively debt-funded acquisitions and the introduction of integration risks from multiple acquisitions completed in close succession drive the rating downgrades,” said Edmond DeForest, Moody’s Vice President and Senior Credit Officer.

The B2 CFR reflects Carriage’s small scale with 2020 revenue of less than $350 million anticipated and high pro-forma debt to EBITDA of about 6.5 times as of September 30, 2019. Free cash flow generation and interest coverage are solid, with free cash flow to debt of about 5% and EBITA to interest expense of about 2 times expected over the next 12 to 18 months. The ratings also reflect the fragmented and competitive deathcare industry dynamics with larger and smaller competitors which could create pricing pressures or limit revenue growth. Moody’s expects declining average revenue per service, a trend in the funeral industry for the past several years, to continue to pressure Carriage’s ability to grow same-store revenue. The ongoing secular trends toward the increasing use of cremation services, which often generate lower revenue than traditional burial and funeral services, could also weigh on financial performance or impede revenue and profit growth over time.”

  • Carriage Services call – Finally, we present this transcript of Carriage Services special call with analysts on December 3 in which they discussed the hiring of William Goetz as President and COO.  The company also took questions or talked about about the above mentioned acquisitions and Carriage’s strategy moving forward.  Here are a couple of comments from Carl Brink, CFO and Senior VP and Treasurer from that call.

“The successful execution of our strategic acquisition model will see Carriage partner with the best remaining independent funeral home
and cemetery businesses in large demographically attractive strategic markets across the country. We expect these businesses to have
higher-than-average organic revenue growth rates that can be leveraged into even higher growth rates in field EBITDA at high and
sustainable field EBITDA margins. Based on our evaluation of Fairfax Memorial Park and Funeral Home, we can think of no better
example of this concept.” . . . . 

“Fairfax, along with the other 3 acquisitions we’ve previously announced, all share common characteristics regarding local operating
leverage. All of them are large businesses in growing markets that have the ability to grow market share through the reputation they’ve
built and on the high-value personal service they provide to client families each and every day. This modest growth in organic revenue
can be leveraged into higher growth in field EBITDA at sustainable and expanding field EBITDA margins over time. This is especially true
of large-scale cemetery and combination businesses where operational synergies between the funeral home and the cemetery provide
greater opportunities for organic growth at higher margins. We are also excited about long-term opportunities to invest capital, primarily
cemetery inventory development in these large cemetery operations at very attractive rates of return.”

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