10-Q: Carriage Services Q3 2025: Acquisitions Boost Revenue

Sentiment:

Quarterly Report 6 November 2025 4:36 PM

Carriage Services reports increased revenue and net income for the nine months ended September 30, 2025, driven by strategic acquisitions and improved pricing, despite a decline in Q3 net income.

Summary

Total revenue for the three months ended September 30, 2025, increased by $2.1 million to $102.7 million compared to $100.7 million in the prior year.
Net income for the three months ended September 30, 2025, decreased by $3.3 million to $6.6 million compared to $9.9 million in the prior year.
Total revenue for the nine months ended September 30, 2025, increased by $5.5 million to $312.0 million compared to $306.5 million in the prior year.
Net income for the nine months ended September 30, 2025, increased by $16.1 million to $39.2 million compared to $23.1 million in the prior year.
The company acquired eight funeral homes, one cemetery, and one cremation-focused business in Florida for an aggregate of $56.5 million during the nine months ended September 30, 2025.
The company sold nine funeral homes and four cemeteries for an aggregate of $33.8 million, resulting in a gain of $0.8 million, during the nine months ended September 30, 2025.
Funeral contract volume decreased by 5.5% for the three months and 1.8% for the nine months ended September 30, 2025, compared to the prior year periods.
Average revenue per funeral contract, excluding preneed interest, increased by 2.0% for the three months and 1.9% for the nine months ended September 30, 2025.
General, administrative, and other expenses decreased by $10.9 million for the nine months ended September 30, 2025, primarily due to lower salary and benefits expenses (including executive severance) and professional fees related to a digital transformation project in the prior year.
Net loss on divestitures and impairment charges increased by $6.2 million for the three months ended September 30, 2025, to $6.6 million.
Interest expense decreased by $1.1 million for the three months and $3.8 million for the nine months ended September 30, 2025, due to lower variable interest rates and average debt outstanding under the Credit Facility.

Sentiment

Score: 6

Explanation: The company demonstrates solid nine-month revenue and net income growth, driven by strategic acquisitions and effective pricing strategies. The reduction in general and administrative expenses is also a positive sign of cost management. However, the significant decline in Q3 net income, primarily due to higher divestiture losses and a decrease in funeral contract volume, introduces short-term volatility. Macroeconomic uncertainties, including inflation and tariffs, and ongoing legal proceedings, warrant a cautious approach.

Positives

Nine-month net income increased significantly by $16.1 million (70.0%) to $39.2 million for the period ended September 30, 2025.
Nine-month total revenue increased by $5.5 million (1.8%) to $312.0 million for the period ended September 30, 2025.
Strategic acquisitions of eight funeral homes, one cemetery, and one cremation business in Florida for $56.5 million enhance the company's footprint in strategic markets.
Successful implementation of an enhanced pricing strategy contributed to a 1.1% increase in average revenue per funeral contract for the nine months ended September 30, 2025.
The Cemetery segment experienced a 6.9% increase in the average price per preneed interment right sold for the nine months ended September 30, 2025.
General, administrative, and other expenses decreased by $10.9 million for the nine months ended September 30, 2025, reflecting improved cost efficiency.
Interest expense decreased for both the three and nine months ended September 30, 2025, due to lower variable interest rates and reduced average debt outstanding under the Credit Facility.
Net gain on divestitures for the nine months ended September 30, 2025, was $1.0 million, contributing positively to results.

Negatives

Net income for the three months ended September 30, 2025, decreased by $3.3 million (33.3%) to $6.6 million compared to the same period in the prior year.
Net loss on divestitures and impairment charges increased significantly by $6.2 million for the three months ended September 30, 2025, to $6.6 million.
Funeral contract volume decreased by 5.5% for the three months and 1.8% for the nine months ended September 30, 2025.
Ancillary revenue, primarily from the online cremation business, decreased by $0.2 million for the three months and $0.6 million for the nine months ended September 30, 2025.
Cemetery adjusted operating profit margin decreased by 280 basis points to 45.1% for the nine months ended September 30, 2025, driven by increased operating expenses.
Operating expenses as a percentage of revenue increased by 1.3% in the funeral home segment for the three months and 0.7% for the nine months ended September 30, 2025.

Risks

Ability to find and retain skilled personnel.
Effects of talent recruitment efforts, incentive, and compensation plans on operational and financial performance.
Ability to execute strategic objectives and growth strategy.
Potential adverse effects on business, financial, and equity performance if management fails to meet strategic objectives.
Effects of competition in the funeral and cemetery industry.
Changes in the number of deaths in markets, which are not predictable.
Changes in consumer preferences and the company's ability to adapt to them.
Ability to generate preneed sales, including implementing the cemetery portfolio sales strategy and product development.
Investment performance of funeral and cemetery trust funds.
Fluctuations in interest rates, including increased borrowing costs under the Credit Facility.
Effects of inflation on operational and financial performance, including increased costs for goods and services and impact on customer discretionary income.
Ability to obtain debt or equity financing on satisfactory terms to fund acquisitions, expansion, working capital, and debt repayment.
Ability to meet capital allocation framework objectives and projected financial guidance.
Timely and full payment of death benefits related to preneed funeral contracts funded through life insurance.
Financial condition of third-party insurance companies that fund preneed funeral contracts.
Increased or unanticipated costs, such as merchandise, goods, insurance, or taxes.
Level of indebtedness and the cash required to service it.
Changes in federal income tax laws and regulations and their interpretation by the IRS.
Effects of the application of other applicable laws and regulations.
Potential impact of epidemics and pandemics on customer preferences and business operations.
Government, social, business, and other actions taken in response to public health threats.
Effects and expense of litigation, including class action lawsuits.
Consolidation trends in the funeral and cemetery industry.
Ability to identify and consummate strategic acquisitions on commercially reasonable terms and successfully integrate them.
Ability to successfully complete non-core asset divestitures and their financial, operational, and tax impacts.
Effects of additional imposition or changes in tariffs or trade agreements, including inflationary pressures and supply chain disruptions.
Economic, financial, and stock market fluctuations.
Interruptions or security lapses of information technology, including cybersecurity or ransomware incidents.
Adverse developments affecting the financial services industry.
Acts of war or terrorist acts and the governmental or military response.
Failure to maintain effective control over financial reporting.
Legal proceeding: Denning v. Carriage Services, Inc., et al., a wage and hour class action filed July 29, 2024, seeking monetary damages for alleged failure to pay legally mandated compensation and reimbursement expenses.
Legal proceeding: Frost v. Rolling Hills Memorial Park, a consumer class action filed October 4, 2024, alleging failure to properly set cemetery merchandise and maintain the perpetual care cemetery.

Future Outlook

The company plans to remain focused on executing its strategic objectives and growth strategy, prioritizing capital allocation for debt repayments, dividends, internal growth capital expenditures, general corporate purposes, and potential strategic growth acquisitions. It expects existing and anticipated cash resources, including additional borrowings under its Credit Facility, to be sufficient to meet anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments, potential growth acquisitions, and dividends for the next 12 months, as well as long-term financial obligations. The company will continue to assess the impacts of macroeconomic conditions, inflation, and tariffs, and take appropriate steps to mitigate any changes in consumer preferences or additional cost increases.

Management Comments

"Our plan is to remain focused on executing our strategic objectives and growth strategy."
"We expect to fund these payments using cash on hand and borrowings under our Credit Facility."
"We believe that our existing and anticipated cash resources, including, as needed, additional borrowings or other financings that we may be able to obtain, will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments, potential growth acquisitions and dividends for the next 12 months, as well as our long-term financial obligations."

Industry Context

The company operates in the funeral and cemetery services industry, which is currently experiencing mixed consumer spending trends. Higher-income consumers appear more resilient, while middle and lower-income consumers exhibit more cautious behavior, influenced by elevated inflation and heightened tariff and trade-policy uncertainty. Despite these macroeconomic challenges, the company's industry has historically been largely resilient to similar adverse economic and market environments. New and increased tariffs, particularly from the U.S. government on specific goods and countries like China, are creating substantial uncertainty and volatility, potentially leading to additional inflationary pressures and supply chain disruptions. The company has not experienced material impacts to date and expects these trends to continue, but is actively monitoring and evaluating risks.

Comparison to Industry Standards

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Executive Chairman of the Board	Founder	NA	NA	Termination expense recorded in the prior year pursuant to a Transition Agreement.
Chief Financial Officer	Former Chief Financial Officer	NA	NA	Termination expense recorded in the prior year pursuant to a Separation and Release Agreement.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Bylaws Amendment	Amended and Restated By-Laws of Carriage Services, Inc. dated June 21, 2023.	2023-06-21	NA
Credit Facility Amendment	Fourth amendment to the senior secured revolving credit facility, extending maturity to July 31, 2029, establishing Term SOFR as a benchmark rate, modifying applicable rates and pricing levels, removing certain mandatory prepayments, and modifying permitted investments covenant.	2024-07-31	Resulted in lower variable interest rates and lower average debt outstanding, leading to lower borrowing costs in 2025.

Legal Proceedings

Denning v. Carriage Services, Inc., et al. (Superior Court of California, Ventura County, Case No. 2024 CU OE 028098): A wage and hour class action filed on July 29, 2024, by a former employee seeking monetary damages for alleged failure to pay legally mandated compensation and reimbursement expenses. The company intends to vigorously defend itself.
Frost v. Rolling Hills Memorial Park (Superior Court of California, Contra Costa County, Case No. C24-02653): A consumer class action filed on October 4, 2024, against a subsidiary for alleged failure to properly set cemetery merchandise and maintain the perpetual care cemetery. The company intends to vigorously defend itself.

Related Party Transactions

Stakeholder Impact

Shareholders: Impacted by fluctuations in net income, dividend payments ($0.1125 per share in Q3, $0.3375 per share in 9M), and potential share price movements influenced by financial results and strategic actions.
Employees: Affected by talent recruitment efforts, incentive and compensation plans, and the outcome of the Denning v. Carriage Services, Inc., et al. wage and hour class action lawsuit.
Customers: Potentially impacted by changes in consumer preferences, pricing strategies, and the quality of services, as well as the outcome of the Frost v. Rolling Hills Memorial Park consumer class action regarding cemetery maintenance.
Creditors: Affected by the company's debt levels, its ability to service debt obligations, and compliance with financial covenants under the Credit Facility.
Suppliers: Potentially impacted by changes in U.S. foreign trade policies, tariffs, and any resulting supply chain disruptions or increased costs for goods.

Next Steps

Continue executing strategic objectives and growth strategy.
Prioritize capital allocation for debt repayments, dividends, internal growth capital expenditures, general corporate purposes, and potential strategic acquisitions.
Monitor and assess impacts of macroeconomic conditions, inflation, and tariffs.
Vigorously defend against ongoing legal proceedings, including a wage and hour class action and a consumer class action.

Key Dates

Date	Description
2023-12-31	Balance of stockholders' equity at the beginning of the nine months ended September 30, 2024.
2024-07-29	Denning v. Carriage Services, Inc., et al. wage and hour class action filed.
2024-07-31	Fourth amendment to the Credit Facility executed, extending its maturity date to July 31, 2029.
2024-10-04	Frost v. Rolling Hills Memorial Park consumer class action filed.
2024-12-15	Effective date for FASB ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, for fiscal years.
2024-12-31	Balance of stockholders' equity at the beginning of the nine months ended September 30, 2025.
2025-01-01	Effective date for FASB ASU, Income Taxes Improvements to Income Tax Disclosures.
2025-07-04	The One Big Beautiful Bill Act (OBBBA) was signed into law.
2025-08-01	U.S. adopted new and increased tariffs on countries and specific goods.
2025-08-31	Most recent annual goodwill and intangible assets impairment test performed.
2025-09-09	Acquisition of a business consisting of six funeral homes, one cemetery, and one cremation-focused business in Orlando, FL.
2025-09-17	Acquisition of a business consisting of two funeral homes in Pensacola, FL.
2025-09-30	End of the quarterly period covered by this report.
2025-10-30	U.S. government announced a temporary pause on the implementation of new tariffs scheduled for November 1, 2025.
2025-11-01	New and expanded tariffs on imports from China and other countries were scheduled to take effect.
2025-11-05	Date of the company's earnings release for the three months ended September 30, 2025.
2025-11-06	Filing date of the Quarterly Report on Form 10-Q.
2025-11-25	Expiration date of a $2.2 million letter of credit under the Credit Facility, expected to automatically renew annually.
2026-01-01	Effective date for interim periods within the fiscal year for FASB ASU, Income Taxes Improvements to Income Tax Disclosures.
2026-12-15	Effective date for FASB ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, for interim periods within annual reporting periods.
2027-01-01	Earliest date for liquidation of an investment in a limited partnership fund.
2028-01-01	Effective date for FASB ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software.
2029-05-15	Maturity date of the 4.25% Senior Notes.
2029-07-31	Maturity date of the Credit Facility, provided the Senior Notes do not have an earlier stated maturity date.

Recommendation

hold

The company demonstrates solid nine-month revenue and net income growth, driven by strategic acquisitions and effective pricing strategies. The reduction in general and administrative expenses is also a positive sign of cost management. However, the significant decline in Q3 net income, primarily due to higher divestiture losses and a decrease in funeral contract volume, introduces short-term volatility. Macroeconomic uncertainties, including inflation and tariffs, and ongoing legal proceedings, warrant a cautious approach. While the long-term strategy appears sound, the mixed quarterly performance and external risks suggest a 'hold' recommendation until there is more consistent positive quarterly performance and clarity on the impact of external factors.

Keywords

Funeral services, Cemetery operations, Preneed sales, Acquisitions, Divestitures, Q3 earnings, 10-Q, SEC filing, Death care industry, Trust investments, Debt, Capital expenditures, Florida market, Inflation, Tariffs

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