Carriage Services (CSV) April 9, 2018 Consumer Staples Death Care Services Stock Rating Buy

Transcription

1 The Henry Fund Henry B. Tippie School of Management Brad Sandor Carriage Services (CSV) April 9, 2018 Consumer Staples Death Care Services Stock Rating Buy We recommend a Buy Rating for Carriage Services. This company has used their operational expertise to acquire and consolidate within this highly fragmented market. This leaves the company situated to grow revenue on higher average revenue per funeral contract and more contacts year to year as shifting demographics increase the number of deaths per year. Drivers of Thesis Increased overall deaths in the United States through 2053 with a CAGR of 1.8% across the fricated period provide increased revenue in both company segments. Consistent growth in per funeral contract revenue provides a majority of revenue growth while steady overhead costs provide improving free cash flow for continued acquisitions while a low.53 beta makes the stock an attractive defensive position. Risks to Thesis Investment Thesis Target Price $31-$35 Henry Fund DCF $34.10 Henry Fund DDM $21.75 Relative Multiple $24.01 Price Data Current Price $ wk Range $ $28.96 Consensus 1yr Target $34.00 Key Statistics Market Cap (B) $4.513 Shares Outstanding (M) Institutional Ownership 89.4% Beta 0.53 Dividend Yield 0.8% Est. 5yr Growth 15% Price/Earnings (TTM) 12.3 Price/Earnings (FY1) 12.2 Price/Sales (TTM) 1.75 Price/Book (mrq) 2.27 Profitability Operating Margin 19.22% Profit Margin 14.31% Return on Assets (TTM) 3.43% Return on Equity (TTM) 19.92% Rising rates of cremation threaten the average revenue per funeral contract as they provide only one third the total revenue of traditional burials and loss of market share to cremation only service providers. Large convertible bond due in 2021 could dilute ownership and EPS if management does not engage in significant stock buybacks. E-Commerce or Green Funerals may cut into Funeral Home s ability to sell related merchandise at high margins. Earnings Estimates 5 Year E 2019E 2020E 0 EPS $1.16 $1.18 $2.25 $1.17 $1.22 $1.27 growth 35% 2% 91% -48% 5% 4% 12 Month Performance Company Description 30% 20% 10% 0% -10% -20% CSV S&P 500 Source: Yahoo Finance A M J J A S O N D J F M CSV Industry SCI P/E ROE EV/EBITDA Carriage Services is a deathcare service provider that operates two business segments; funerals and cemetery services. They operate 178 funeral homes in 29 states and 32 cemeteries in 11 states across the United States. They provide traditional burials as well as cremations and also sell related merchandise such as coffins, crypts, urns and grave markers. Important disclosures appear on the last page of this report.

2 EXECUTIVE SUMMARY Carriage Services is one of three major publicly traded companies operating in the funeral home and cemetery services industry. This is a highly fragmented industry with small firms accounting for around 80% of the market share. Carriage Services offers the best investment opportunity in this industry that stands to show growth due to demographic changes. A projected uptick in the total number of deaths in the United States as the population ages will provide revenue growth across all segments. The U.S. is expected to see an increase in the number of deaths per year every year through Furthermore, the general aging trend of the U.S. population will increase the preneed sales of funeral and cemetery services as more consumers make arrangements for their eventual passing. The company has shown a recent trend of rising revenue per funeral contract in spite of the overall trend toward more cremations mostly by utilizing pricing leverage for atneed sales. While the revenue from cremations is around one third the revenue of a traditional burial, increases in the revenue per cremation and per burial have allowed the company to show good operating margins that have translated into sustainable free cash flow over the last few years. Looking forward, Carriage Services is expected to grow through strategic acquisitions. This combination of increased overall volume and price per contract allow Carriage Services sufficient cash flow to continue their consolidation strategy. COMPANY DESCRIPTION Founded in 1991, Carriage Services now operates 178 Funeral Homes and 32 cemeteries across the United States with locations in 29 states. Carriage Service Locations Source: CS Investor Presentation The company was founded as an acquisition company to consolidate the highly fragmented funeral home and cemetery industry. As an acquisition company, Carriage Services purchases homes and operates them through a decentralized control model. The company has an operational support center where they provide companywide legal, human resource and IT support. However, individual control is left to a managing partner at each location who is responsible for implementing the Standards Operating Model that Carriage Services utilizes to ensure performance across its locations. The company uses a strategic acquisition model for looking at new potential acquisitions which management feels is a useful tool in order to determine what new properties can be purchased and made profitable for shareholders in the long term. This model focuses on aspects such as: Large Strategic Market, Average Revenue per Contract, Burial/Cremation Mix, and 10 Years Same Store Volumes when determining which acquisitions to pursue. Page 2

3 Percent of Revenue by Segment Funeral Cemetery Source: CSV 10K Funeral Homes in Operation The revenue for Carriage Services comes from two segments, funeral and cemetery. These services are sold both atneed and preneed. Preneed sales account for around 20% of funeral sales and 40% of cemetery sales. 1 Atneed being contract purchased at the time of passing and preneed being purchases made during estate planning for future use. The cash flows for atneed contracts are recognized at the time of sale. Revenues for preneed services are placed into trust accounts and are recognized when the services are preformed. While the governing laws vary, some of the interest earned on the trust holdings is drawn out as financing income. This can lead to an increase in the number of preneed contracts being sold reducing the cash flow of the company as the income recognition is deferred while the fixed costs (salary, etc.) are recognized at the time of the sale. Preneed contract are more attractive to the company, however, as they average a higher per contract revenue than similar atneed contracts. While CSV does not provide their preneed vs. atneed data, other companies do. For example StoneMor shows that an average preneed cemetery contract in 2015 was $3,401 while the atneed contracts averaged $1, Funeral Segment The Funeral segment is where Carriage Services makes slightly less than 80% of its income. Currently Carriage Services operates 178 funeral homes. They have been acquiring homes at a steady pace, a trend which should continue in the near future. Source: CSV 10K The revenue for this segment is measured on a per funeral contract basis. This amount has shown a steady, moderate increase over the last several years. This average consists of three component revenue streams. This average is composed of the revenue from cremations and traditional burials, revenue from commissions earned on funeral insurance commissions, and revenue earned on interest from the funeral trusts. Funeral Insurance commissions are earned by the company when preneed services are sold as part of a life insurance policy on the customer. This revenue is recognized when the commission is no longer subject to a refund (should the customer cancel the policy). These earning amount to around 0.5% of the total funeral segment revenue and vary slightly from year-to-year with a slight downward trend in recent years. Interest from funeral trusts is interest withdrawn from funds from preneed sales in jurisdictions where this is permitted by law. These revenues account for around 4% of the total funeral segment revenue and vary from year to year based on the size of the preneed trust and the market conditions for that year. We are expecting a slight increase in this income as interest rates increase in the near future. The remaining portion of the funeral segment revenue comes from the traditional funeral home services provided to customers. These include consultation, preparation of the remains, sales of caskets or cremation merchandise, Page 3

4 and visitation and remembrance services. These services are generally broken down into two sub-segments, burial or cremation. These two segments account for 100% of the funeral services, therefore, as rates of cremation rise, the rate of burial declines. This is a major concern for the industry as the revenue for cremation is around one third of the revenue for a burial. To forecast the revenue for these sub-segments forecasts were made for each line, which were then weighted by the forecasted customer preference. This has led to a forecast of increasing perfuneral contract revenue with that growth diminishing over time as cremations become more common. $10, $5, $- However, there is expected growth in revenue per-burial, per-cremation, and per-funeral contract throughout the forecast period. Cemetery Segment Revenue Per-Contract Funeral Contract Cremation Burial Source: CSV 10Ks The other business segment for Carriage Services is their cemetery business. This segment provides customers with grave sites (plots) and mausoleums as well as grave markers and other related merchandise. This segment accounts for around 23% of total revenue. Carriage Services has not shown the same interest in acquiring cemeteries as they have in acquiring funeral homes. In 2013 Carriage Services owned 32 cemeteries, in 2017, they still owned 32 cemeteries (one cemetery was purchased, and one was sold). This segment also sells products as both preneed at atneed. The preneed funds are placed into trusts that Carriage Services can draw interest off of in certain locations. Furthermore, a portion of all cemetery revenue is placed into perpetual care trusts. This money, usually around 10% of total purchase price, is used for cemetery upkeep and maintenance. Therefore, although Carriage Services does draw internet from these perpetual care trusts, it is not considered revenue. The company also makes a small income from the financing of periodic payments on preneed purchases. This segment is forecasted for modest growth with same store sales following a historic growth rate of around 3%. CSV 2017 Updates RECENT DEVELOPMENTS In February of 2018, Carriage Services provided updates through the publication of their annual report as well as an earning call. These sources provided the following detail from management. First, Carriage Services acquired seven new funeral home businesses, two located in Colorado and five located in New York State. The company also built and opened a new funeral home business in Ohio as well as Pennsylvania. This expansion of the funeral home segment is in-line with management s stated goals and past actions. We expect that the company will continue to purchase funeral home businesses as their cash flow allows. Second, the company s board has approved additional funds for share repurchases. They have previously authorized the spending of $25 million on share repurchases in 2016 and increased this amount in 2017 by $15 million for a total of $40 million. The company repurchased $14 million worth of shares in We expect that management will use considerable amounts of free cash flow to continue to repurchase shares. This will be made easier with the reduction of tax obligation following the passage of the new tax bill. This has reduced the marginal tax rate of Carriage Services from around 40% to a management estimated 28%. Should management do nothing, the supply of shares available will increase as expected ESOP conversions occur as well as potential stock Page 4

5 from a convertible bond set to mature in The convertible bond in particular could add over 6 million shares to the current 16.5 million outstanding. The assumption that is forecasted into the DCF model is to keep the total number of available share decreasing over the forecasted period. American Religious Identity by Age (2016) Move to Cremations INDUSTRY TRENDS The ongoing trend that most represents a threat to the profits of the deathcare industry is the shifting preference of consumer towards cremations. This trend has grown steadily with 2016 being the first year where cremations accounted for the majority of funeral contracts in the United States. The predicted percent of funeral contracts as cremations is predicted to continue rising through the next two decades reaching over 70% by Source: American Values Atlas As previously noted, the revenue that is generated by a cremation is significantly lower than that of a burial. Carriage Services reports that their per-contract revenue from a cremation is around one third of the revenue from a traditional burial. The National Funeral Directors Association has the ratio somewhat higher, at about half the revenue. Regardless the more cremations that occur, the lower the overall potential revenue generated. Green Funerals Source: Statista This trend is fueled by the changing religious make up of America. As the percentage of the total population that identifies with non-traditional spirituality or secularism increases, the percent of the population that will seek a traditional burial will also decline. Green or eco-friendly funerals are gaining popularity with Americans. A green funeral will differ from a traditional funeral in the way that a body is prepared, how it is buried, and how the grave is marked. For a green funeral, the body is not prepared with formaldehyde. Some bodies are not embalmed, others are embalmed with nonformaldehyde products. When buried, the body is either not placed in a coffin, or, if a coffin is used, the coffin is made from biodegradable products. Finally, as a marker for the grave, instead of traditional headstones, markers such as trees or other plants are commonly used. 10 These services tend to be less expensive than traditional burials as they do not include embalming or coffin costs. One company specializing in these funerals, Ramsey Creek Page 5

6 Preserve, offers body burials for under $2, However, those firms that are able to successfully offer these services may find that they serve as a replacement for some of the price sensitive customers who would otherwise choose cremation services. Deaths Per 100,000 in the US (2014 & 2015) Death and Aging Trends The deathcare industry is dependent on the total number of deaths that occur in a year. As such, the current aging trend of the overall United States population and the corresponding increase in total deaths are a boon for the industry. Total deaths in the United States increased in 2017 by 2.1%. This is representative of the overall trend of total deaths in the United States outpacing the overall population growth. The Census Bureau estimates that by 2037, there will be 3.7 million deaths in the United States. This is an increase of 1 million deaths from the total death numbers in Source: US Census Bureau The growth deaths in the U.S. is projected to continue through 2053 at a CAGR of 1.06% before the total number of deaths starts to fall again. The growth used in the model is higher at 1.8% as this period represents a sharper increase than that of the total period. E-Commerce Threat Source: Statista The funeral home industry is governed by the FTC. This organization passed what is known as The Funeral Rule in This law requires that consumers be given the right to purchase only those products and services from a funeral home that they desire, effectively preventing the funeral home from forcing consumers to purchase entire package deals from them. This rule also prevents funeral homes from requiring that consumers purchase coffins from them or charging the consumer a fee for having a coffin shipped in from another retailer. 13 With the recent improvements and consumer confidence with online purchases, these rules pose a growing threat to funeral home operators. Consumer can purchase coffins online from well-known retailers such as WalMart or Costco and expect the coffin to be delivered within a few days. As seen in this breakdown of average funeral expenses, if consumers make purchases of coffins and other merchandise elsewhere, the funeral home can see its revenue decreased by 30% or more. 11 The age groups that account for the highest mortality rates of any age groups are the and the 65+ groups, which are the groups that are expected to grow the fastest in the next two decades. Page 6

7 Average Funeral Expenses be placed into trusts and some have restrictions on when interest can be drawn out. Item 2017* Non-declinable basic services $2,100 fee Removal/transfer of remains $325 to funeral home Embalming $725 Other preparation of the body $250 Use of facilities/staff for $425 viewing Use of facilities/staff for $500 funeral ceremony Hearse $325 Service car/van $150 Basic memorial printed $160 package Metal casket $2,400 Median Cost of a Funeral $7,360 With Viewing and Burial Source: National Funeral Directors Association MARKETS AND COMPETITION The deathcare market is a mature market that is highly fragmented. This industry has a high barrier of entry. While the capital requirements that are needed to enter this industry are only moderate, the ability to attract customers is much harder. This is due to deathcare being a highly traditional service offering that most consumers will choose on trust and history over price or convenience. Furthermore, the specialized skills and licensing needed to perform the embalming and other services make the barrier to entry higher. The deathcare industry is also highly regulated. The industry is under the oversight of the FTC. The FTC enforce The Funeral Rule and other Federal level regulations. Furthermore, cremation services are regulated under the Clean Air Act and operators must show emissions controls. Finally, the funds collected from pre-need sales are regulated by state laws. This has two effects; one that the funeral home must offer customers full refunds for a certain time period. Two, the funds must Peer Comparisons The funeral home, cemetery, and deathcare industry as a whole is highly fragmented. The three largest companies in this industry are Service Corp, StoneMor Partners, and Carriage Services. Together these companies account for around 20% of the total market share. Service Corp owns around 16% of the market. Carriage Services has around a 1% market share and StoneMor has around a 2% market share. The remaining 80% of the market is held by independent businesses. StoneMor Partners StoneMor Partners is a company that is comparable to Carriage Services in terms of the size of their operations. They operate 316 cemeteries and 93 funeral homes. Their total revenue for 2016 was around $326 million. However, StoneMor does not present an attractive investment opportunity. In August of 2016 the stock was trading at $21, by September it had fallen to $12. The stock now trades at around $6. This rapid decline in market value was initially due to a reduction in dividend payments followed by several reductions in earnings targets. The financial results are not yet available for StoneMor has currently filed for their second extension for the filing of their 10K. The first extension was granted, however that deadline passed on April 2 nd. The company has released preliminary unaudited 2017 results as of March 29 th, announcing at that time they would not make the April 2 nd Page 7

8 Spring 2008 Autumn 2008 Spring 2009 Autumn 2009 Spring 2010 Autumn 2010 Spring 2011 Autumn 2011 Spring 2012 Autumn 2012 Spring 2013 Autumn 2013 Spring 2014 Autumn 2014 Spring 2015 Autumn 2015 Spring 2016 Autumn 2016 Spring deadline. 3 These continued delays could cause many problems for StoneMor from delisting from the NYSE to violating the covenants governing their debt and forcing them into default. Disposable Income ECONOMIC OUTLOOK StoneMor Net Income in $Millions Source: StoneMor 10K As levels of disposable income rise, so to do the number of preneed contracts sold. As mentioned previously, companies in the deathcare industry prefer preneed contracts as they tend to bring in higher per-contract revenue than atneed contracts Disposable Income Service Corporation International 0. Service Corporation International is by far the largest company in the deathcare industry. They have a market cap of $7 billion dollars and account for around 16% of the total market share. This company has over 23,000 employees among 473 cemeteries and 1,488 funeral homes. 4 This company has been a strong performer in recent years and has been aggressive in purchasing back its stock and raising its dividend. As a result, their stock trades at a high P/E ratio of 20.2 versus Carriage Services that trades at This high P/E ratio makes this strong company less attractive to investors. Carriage Services StoneMor Service Corp Stock Price $27.60 $5.95 $37.70 P/E Ratio 13.1 N/A 20.2 Market Cap ($Millions) $449 $225 $7,154 Funeral Homes ,488 DPI in billion chained 2009 U.S. dollars Disposable income in the United States has risen steadily over the last several years. We expect that this is a trend that will continue with wage growth outpacing inflation increases for most workers Source: Statista Number of people that used a Funeral Pre-Planning Service in the Last Month Cemeteries Total Revenue (in millions) 259 $3, Source: FactSet Page 8 Millions of People Source: Statista

9 An increase in preneed contracts would also be a benefit to the company s income from trust interest as the total amount in the various trusts rises. Interest Rates As the funds in the various trust accounts are mostly in fixed income products, changes to interest rates are of interest to companies in this sector. 4.0% 3.0% 2.0% 10 Year US Treasury Rate Projections If Carriage Services can successfully use their business models to be an effective consolidator in the deathcare industry, value will continue to rise for shareholders. INVESTMENT POSITIVES Deathcare is an industry that has a steady revenue source as people will always die and the survivors will always want a remembrance and the respectful disposal of the remains. Carriage Services has experience in acquiring and integrating funeral home businesses into their model. Carriage Services Management is heavily focused on improving cash flows and returning funds to shareholders through dividends and stock buybacks. 1.0% 0.0% Source: CBO Estimates As interest rates are expected to continue to rise over the near term, this small but important revenue source should continue to provide modest growth for companies. 12 CATALYSTS FOR GROWTH Fundamentally Carriage Services will continue to grow if management can correctly identify acquisition targets and increase the operating margins of new acquisitions. Their strategy to do so is clearly laid out. For acquisitions, they rely on their Strategic Acquisition Model to identify and purchase funeral home businesses that they believe they can improve to add to shareholder value. Once they have acquired a new business Carriage Services applies their other two models, The 4E Leadership and Standards Operating models. These are used to improve businesses operating margins over the first few years that they are owned by Carriage Services. Page 9 INVESTMENT NEGATIVES The popularity of cremations is rising quickly. Should the industry not be able to capture strong margins from cremation related merchandise, the overall revenues will fall. Financing revenue from trusts is subject to market forces outside the control of Carriage Services. Furthermore, an economic downturn will likely decrease the purchases of preneed contracts, eroding overall trust values and resulting in more, less profitable, atneed contracts. VALUATION For this report, three models were created to provide an estimate of value. The Relative P/E model returned a value estimation of $ This model is not a good estimate of value as there are only two good companies with which to compare Carriage Services and prepare the model. In reality, the company has only two main competitors, Service Corp and StoneMor. StoneMor cannot be included in this model due to the negative earnings and outlook.

10 Service Corp Is included, but the size difference between these companies makes it a poor comparison. A discounted dividend model was also used and returned a value of $ The discount cash flow model that was used for this report returned a value for Carriage Services of $ We feel that this is the most accurate model and provides a good estimate of the company s value. For the creation of the DCF model many assumptions were made. Several of the most important are: Revenue growth is growing but constrained by the shift toward cremations. This is projected to shift to 58% cremations and 42% burials by the end of the model. Carriage Services has a credit line that is based on the LIBOR rate plus a spread. This was used in the calculation of the WACC in place of a 30 year US treasury. The LIBOR rate is 2.73% and the spread is 2.13%. The market rate premium used in the WACC calculation was 4.8% based on a forward looking implied rate. The total number of deaths in the U.S. was projected to increase at 1.8% across the forecast period. The assumption was made that the increase in percontract revenue for both cremations and burials will continue. The rate of growth in funeral revenue is a combination of historical norms of the increases seen in per contract growth in burials and cremations. Burials were grown at 1.6% per year and cremations were grown at 2.65%. These numbers were the applied to the proportion of the total funeral contracts that each represent and summed for the total funeral revenue. A 7% additional growth in funeral segment revenue was given in 2018 to account for the Q acquisitions. Per-Contract cemetery is forecasted to increase every year based on historic averages. However, should the number of preneed contracts increase sufficiently short-term cash flows would be negatively impacted as these funds are placed into trusts and deferred. This possibility was not forecasted. Same store operating revenue for the cemetery segment was grown at 3%. While this is consistent with historical performance, the cemetery segment has seen volatility in revenues in the past. Financial Revenue from the various trust accounts are expected to grow at consistent rates. Should rates, especially in the fixed income market drop unexpectedly, Carriage Services will likely need to use cash flows to cover expenses as these contracts are called. Carriage Services has a large convertible debt coming to maturity in Based on the current exchange rate to the current stock price, we are forecasting that all bondholders will choose to convert to equity. The forecast includes management using large amounts of cashflow to make stock buyback purchases. If this does not occur, these cash flows may show up in dividend payouts or more acquisitions. The model output is consistent with the consensus 1-year target price of $35. One major difference is that other model have a higher increase in revenue for 2018, which they have based on recent projections from management. We feel that this increase is too high and is not likely to be realized until later in the forecasted period. If management is correct, our DCF output is too low. KEYS TO MONITOR One key consideration for the future of Carriage Services will be if they can change their offering to best suit the changing preferences of deathcare consumers. With the rise of green funerals and other alternative burial options, will Carriage Services be able and willing to cater to these preferences. Finally, we want to see how well Carriage Services can stick to their own models for acquisitions and buy only those businesses that are best fits for their company. In a highly Page 10

11 fragmented industry, there are many acquisition options and if management is not disciplined, the company may find itself overextended with excess debt and underperforming homes. REFERENCES 1. Carriage Services 10K Carriage Services 10Ks ( ) 3. StoneMor Press Release 3/29/18 4. Service Corporation International 10K IBIS World Industry Reports: Funeral Homes 6. U.S. Census: 2017 National Population Projection Tables 7. Census Bureau Website: As Population Ages, U.S. Nears Historic Increase in Deaths 8. FactSet: Company Financials (CSV, STON, SCI) 9. Yahoo Finance Analyst Reports (CSV, STON, SCI) 10. National Geographic: Green Burials Offer Unique, Less Costly Goodbyes 11. National Funeral Directors Association Website 12. Congressional Budget Office: Budget and Economic Data 13. FTC.gov: The Funeral Rule 14. StoneMor Partners 10K 2015 IMPORTANT DISCLAIMER Henry Fund reports are created by students enrolled in the Applied Securities Management program at the University of Iowa s Tippie College of Business. These reports provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of our students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold an investment position in the companies mentioned in this report. Page 11

12 Carriage Services Key Assumptions of Valuation Model Ticker Symbol CSV Current Share Price $27.74 Current Model Date 3/26/2018 Fiscal Year End Dec. 31 Pre-Tax Cost of Debt 3.50% Beta 0.53 Risk-Free Rate 3.16% Equity Risk Premium 4.80% CV Growth of NOPLAT 1.1% CV Growth of EPS 3% Current Dividend Yield 1.05%

13 Sensitivity Checks Cemetery COGS as % of Sale Funeral COGS as % of Sales #REF! 55% 57% 59% 61% 63% 65% 67% 55% $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ Cost of Equity #REF! 5.55% 5.60% 5.65% 5.70% 5.75% 5.80% 5.85% 3.35% $ $ $ $ $ $ $ % $ $ $ $ $ $ $ Cost of Debt 3.48% $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ % $ % $ % $ % $ % $ % $ % $ WACC 1.28% $ % $ l Contracts as % of total 1.30% $ % $ % $ % $ % $ % $ % $ % $ % $ % $ 38.68

14 Carriage Services Revenue Decomposition Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Deaths in the US 2,712,630 2,745,182 2,802,830 2,853,281 2,904,640 2,956,924 3,010,149 3,064,331 Growth in number of Deaths 1.20% 2.10% 1.80% 1.80% 1.80% 1.80% 1.80% 1.80% Percent Burial 51% 49% 49% 47% 46% 45% 43% 42% Percent Cremation 49% 51% 51% 53% 54% 55% 57% 58% Number Burials 1,362,176 1,347,236 1,332,461 1,317,847 1,303,394 1,289,100 Number Cremations 1,440,655 1,506,045 1,572,180 1,639,076 1,706,754 1,775,232 Funeral Segment Total Funeral Segment Revenue (in thousands) 185, , , , , , , ,331 Funeral Service Contacts 32,627 33,160 34,894 37,093 37,760 38,440 39,132 39,836 Funeral Contracts % of total deaths 1.20% 1.21% 1.24% 1.30% 1.30% 1.30% 1.30% 1.30% Average Revenue Per Burial 8,681 8,819 8,886 9,028 9,173 9,319 9,468 9, % 1.59% 0.76% 1.60% 1.60% 1.60% 1.60% 1.60% Average Revenue Per Cremation 3,217 3,274 3,376 3,472 3,571 3,673 3,778 3, % 1.77% 3.12% 2.85% 2.85% 2.85% 2.85% 2.85% Average Revenue per Funeral Contract 5,621 5,642 5,705 5,775 5,845 5,916 5,987 6,058 Growth % (Weighted Cremation/Burial) 3.08% 0.37% 1.12% 1.23% 1.22% 1.21% 1.20% 1.19% Cemetery Segment Total Cemetery Segment Revenue (In thousands) 56,684 58,799 57,253 58,982 60,765 62,603 64,498 66,452 Same Store Op Revenue 43,336 45,893 45,044 46,395 47,787 49,221 50,697 52, % 4.90% -1.80% 3.00% 3.00% 3.00% 3.00% 3.00% Acquired Op Revenue 3,321 3,054 3,194 3,338 3,488 3,645 3,809 3, % 5.60% 4.60% 4.50% 4.50% 4.50% 4.50% 4.50% Cemetery Trust Earnings 8,440 8,004 7,193 7,409 7,631 7,860 8,096 8, % -5.20% % 3.00% 3.00% 3.00% 3.00% 3.00% Preneed cemetery finance charge 1,587 1,848 1,822 1,840 1,859 1,877 1,896 1, % 16.40% -2.60% 1.00% 1.00% 1.00% 1.00% 1.00% Total Revenue 242, , , , , , , ,783 Growth % 7.24% 2.35% 4.00% 5.83% 3.03% 3.03% 3.02% 3.02%

15 Carriage Services Income Statement (in thousands) Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Funeral revenues 185, , , , , , , ,331 Cemetery revenues 56,684 58,799 57,253 58,982 60,765 62,603 64,498 66,452 Total revenues 242, , , , , , , ,783 Funeral costs & expenses 109, , , , , , , ,212 Cemetery costs & expenses 31,797 33,569 34,722 35,979 37,067 38,188 39,344 40,536 Depreciation & amortization 12,034 13,919 14,374 14,539 14,485 14,480 14,522 14,607 Depreciation 10,400 11,500 12,600 12,365 12,571 12,797 13,041 13,303 Amortization 1,634 2,419 1,774 2,174 1,913 1,684 1,482 1,304 Regional & unallocated funeral & cemetery costs 11,997 10,844 13,339 13,659 14,074 14,500 14,939 15,389 Total costs & expenses 164, , , , , , , ,744 Gross profit 77,508 79,650 76,799 78,345 81,218 84,121 87,060 90,039 General, administrative & other expenses 27,114 27,944 26,253 30,051 30,963 31,901 32,865 33,856 Home office depreciation & amortization 1,746 1,502 1,605 1,912 1,970 2,030 2,091 2,154 Total corporate costs & expenses 28,860 29,446 27,858 31,963 32,933 33,931 34,956 36,011 Operating income (loss) 48,648 50,204 48,941 46,382 48,285 50,191 52,104 54,029 Total interest & other income (expense), net (14,058) (17,963) (16,159) (17,293) (17,554) (17,833) (18,128) (18,441) Income (loss) before income taxes 34,590 32,241 32,782 29,089 30,731 32,358 33,975 35,588 Net provision for income taxes 13,737 12,660 (4,411) 8,145 8,605 9,060 9,513 9,965 Net income (loss) from continuing operations 20,853 19,581 37,193 20,944 22,126 23,298 24,462 25,623 Income (loss) from discontinued operations, net of tax Net income (loss) 20,853 19,581 37,193 20,944 22,126 23,298 24,462 25,623 Preferred stock dividend Net income (loss) available to common stockholders Weighted average shares outstanding - basic 17,791 16,515 16,438 16,354 16,315 16,318 22,804 19,664 Net income (loss) per share - basic Dividends declared per share

16 Carriage Services Balance Sheet (in thousands) Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Cash & cash equivalents 535 3, ,314 33,627 53, ,788 61,355 Account receivable, net 18,181 18,860 19,655 21,172 21,815 22,475 23,155 23,853 Assets held for sale Inventories 5,654 6,147 6,519 6,830 7,037 7,250 7,469 7,695 Prepaid expenses 4,684 2,640 2,028 2,186 2,252 2,320 2,390 2,462 Other Current Assets 4,707 2, ,371 4,504 4,640 4,780 4,925 Total current assets 33,761 32,967 30,140 51,873 69,234 90, , ,289 Preneed cemetery trust investments 63,291 69,696 73,853 76,069 78,351 80,701 83,122 85,616 Preneed funeral trust investments 85,553 89,240 90,682 93,402 96,205 99, , ,125 Preneed receivables 27,998 30,383 31,644 32,783 33,778 34,801 35,852 36,934 Receivables from preneed trusts 13,544 14,218 15,287 15,746 16,218 16,705 17,206 17,722 Property, plant & equipment, net 214, , , , , , , ,698 Cemetery property 75,597 76,119 76,331 81,957 84,444 87,001 89,631 92,335 Goodwill 264, , , , , , , ,956 Intangible & other non-current assets 15,192 14,957 18,117 15,943 14,030 12,346 10,865 9,561 Cemetery perpetual care trust investments 43,127 46,889 50,229 49,993 51,511 53,071 54,675 56,324 Total assets 837, , , , ,661 1,022,629 1,350,020 1,063,560 Current portion of long-term debt & capital lease obligations 12,236 13,267 17,251 16,927 16,949 19, , Accounts payable 7,917 10,198 6,547 6,830 7,037 7,250 7,469 7,695 Other liabilities ,361 1,147 1,182 1,218 1,255 1,293 Accrued liabilities 16,541 20,091 17,559 18,577 19,141 19,720 20,316 20,929 Liabilities associated with assets held for sale Total current liabilities 37,218 44,273 42,718 43,481 44,309 47, ,739 30,447 Long-term debt, net of current portion 196, , , , , , , ,507 Convertible subordinated notes due , , , , , , ,750 - Obligations under capital leases, net of current portion 2,875 2,630 6,361 8,000 8,000 8,000 8,000 8,000 Convertible junior subordinated debenture due in 2029 to an affiliate Deferred preneed cemetery revenue 56,721 54,631 54,690 60,855 62,681 64,561 66,498 68,493 Deferred preneed funeral revenue 31,748 33,198 34,585 37,361 38,482 39,636 40,825 42,050 Deferred tax liability 39,956 40,555 31,159 31,485 31,829 32,191 32,572 32,971 Other long-term liabilities 5,531 2,567 3,378 4,098 4,222 4,350 4,482 4,617 Deferred preneed cemetery receipts held in trust 63,291 69,696 73,853 76,069 78,351 80,701 83,122 85,616 Deferred preneed funeral receipts held in trust 85,553 89,240 90,682 93,402 96,205 99, , ,125 Care trusts' corpus 42,416 46,290 49,856 49,494 50,996 52,540 54,128 55,761 Total liabilities 679, , , , , , , ,586 Redeemable preferred stock Common Stock total 214, , , , , , , ,825 Retained earnings (deficit) 3,385 22,966 57,904 75,169 93, , , ,781 Treasury stock, at cost 60,266 60,266 76,632 99, , , , ,632 Total stockholders' equity 157, , , , , , , ,974 Total Liabilites and Equity 837, , , , ,661 1,022,629 1,350,020 1,063,560

17 Carriage Services Cash Flow Statement Fiscal Years Ending Dec Net income (loss) 19,296 15,838 20,853 19,581 37,193 Depreciation & amortization 11,748 11,945 13,780 15,421 15,979 Provision for losses on accounts receivable 2,005 2,877 1,679 2,098 2,198 Stock-based compensation expense 3,583 4,622 4,444 3,229 3,162 Deferred income tax expense (benefit) 12,572 5,295 3,035 4,855 (11,651) Amortization of deferred financing costs Accretion of discount on convertible subordinated notes - 2,452 3,454 3,870 4,329 Loss on early extinguishment of debt & other costs - 1, Loss on redemption of convertible junior subordinated debentures - 2, Loss (gain) on sale of businesses & purchase of other assets - (2,150) (49) 2,077 (710) Impairment of goodwill 100 1, Loss (gain) on sale of business (6,091) Other adjustments Accounts & preneed receivables (3,329) (4,146) (2,310) (5,162) (4,254) Inventories & other current assets (337) (2,590) 2,582 1,995 1,446 Deferred charges & other non-current assets (35) (165) 150 (1,155) 149 Preneed funeral & cemetery trust investments (1,415) (203) 25,543 (14,528) (10,008) Accounts payable 1,142 (562) 1,445 2,112 (3,649) Accrued & other liabilities (3,294) (1,529) (385) Deferred preneed funeral & cemetery revenue 1, (640) 1,446 Deferred preneed funeral & cemetery receipts held in trust 2,266 (1,484) (26,461) 13,966 9,165 Net cash flows from operating activities 39,845 36,565 49,904 49,457 45,230 Acquisitions & land for new construction (19,701) (57,874) (9,725) (26,556) (28,799) Purchase of land & buildings previously leased - - (6,080) (6,258) - Net proceeds from sales of businesses & other assets 10,184 2, ,385 5,731 Capital expenditures (10,695) (23,675) (29,744) (16,846) (16,395) Net cash flows from investing activities (20,212) (79,357) (45,484) (45,275) (39,463) Borrowings from the revolving credit facility , ,900 Payments against the revolving credit facility (96,100) (82,600) Borrowings from the term loan ,063 - Payments against the term loan (11,250) (11,250) Payments on long-term debt & obligations under capital leases (11,219) (840) (1,014) (1,789) (1,962) Payments on contingent consideration recorded at acquisition date (101) Proceeds from the exercise of stock options & employee stock purchase plan contributions 894 1, ,496 Taxes paid on restricted stock vestings & exercises of non-qualified options (509) Dividends on common stock (1,817) (1,840) (1,819) (2,492) (3,709) Purchase of treasury stock - - (44,999) - (16,366) Payment of loan origination costs (621) (825) (13) (717) - Proceeds from the issuance of convertible subordinated notes - 143, Payment of debt issuance costs related to the convertible subordinated notes - (4,650) Redemption of convertible junior subordinated debentures - (89,748) Payments for performance-based stock awards - (16,150) Excess tax benefit (deficiency) of equity compensation 613 3, (216) - Net borrowings (payments) on the revolving credit facility (7,800) 3,600 52, Net borrowings (payments) on the term loan - 3,313 (9,375) - - Dividends on redeemable preferred stock (4) Net cash flows from financing acitivities (19,954) 41,828 (4,298) (1,431) (8,101) Net increase (decrease) in cash & cash equivalents (321) (964) 122 2,751 (2,334) Cash & cash equivalents at beginning of year 1,698 1, ,286 Cash & cash equivalents at end of year 1, , Cash paid for interest & financing costs 12,248 8,894 9,159 10,366 11,092 Cash paid (refunded) for taxes 655 2,674 8,283 10,874 5,902

18 Carriage Services Cash Flow Statement Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Cash Flow from Operating Activities Net Income 20,944 22,126 23,298 24,462 25,623 Depreciation 12,365 12,571 12,797 13,041 13,303 Amortization 2,174 1,913 1,684 1,482 1,304 Change in Accounts Receivable (1,517) (643) (661) (679) (699) Change in Inventories (311) (207) (213) (219) (225) Change in Prepaid Expense (158) (66) (68) (70) (72) Change in Other Current Assets (3,385) (133) (136) (140) (144) Change in Preneed Receivables (1,139) (995) (1,023) (1,052) (1,082) Change in All Trust Investments (5,159) (7,074) (7,283) (7,499) (7,721) Change in Cemetery Property (5,626) (2,487) (2,558) (2,630) (2,704) Change in Deferred Taxes Change in Accounts Payable Change in Accrued Liabilites 1, Change in Other Liabilities Change in Deferred Preneed Funeral and Cemetery Revenue 8,941 2,946 3,035 3,126 3,220 Change in Deferred Preneed Receipts Held in Trusts 4,936 5,084 5,237 5,394 5,556 Change in Care Trusts Corpus (362) 1,502 1,544 1,588 1,633 Net Cash From Operating Activites 33,836 35,813 36,971 38,167 39,402 Investing Activities Capital Expenditures (16,500) (17,078) (17,675) (18,294) (18,934) Net Cash Used in Investing Activites (16,500) (17,078) (17,675) (18,294) (18,934) Financing Activites Change in Current Debt (324) 22 2, ,631 (172,169) Change in Long Term Debt 4,008 3,265 3,482 3,694 3,904 Change in Convertible Debt 4,844 5,422 6,068 2,975 (143,750) Change in Obligations for Capital Leases 1, Dividends (3,680) (3,671) (3,672) (5,131) (4,424) Proceeds from ESOP 15,538 15,538 15, ,288 15,538 Purchase of Treasury Stock (23,000) (23,000) (23,000) (23,000) (23,000) Net Cash Used in Financing Activites (974) (2,423) ,457 (323,901) Net increase (decrease) in cash & cash equivalents 16,362 16,313 19, ,330 (303,434) Beginning of year cash ,314 33,627 53, ,788 End of Year Cash 17,314 33,627 53, ,788 61,355

19 Carriage Services Balance Sheet (in thousands) Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Cash & cash equivalents 0.24% 1.36% 0.38% 6.71% 12.31% 18.99% % 20.54% Account receivable, net 8.04% 7.78% 7.92% 8.20% 7.99% 7.98% 7.98% 7.98% Assets held for sale 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Inventories 2.50% 2.53% 2.63% 2.65% 2.58% 2.58% 2.58% 2.58% Prepaid expenses 2.07% 1.09% 0.82% 0.85% 0.82% 0.82% 0.82% 0.82% Other Current Assets 2.08% 0.84% 0.40% 1.69% 1.65% 1.65% 1.65% 1.65% Total current assets 14.93% 13.59% 12.14% 20.09% 25.34% 32.02% % 33.57% Preneed cemetery trust investments 27.99% 28.74% 29.76% 29.47% 28.68% 28.67% 28.66% 28.66% Preneed funeral trust investments 37.83% 36.80% 36.54% 36.18% 35.22% 35.20% 35.19% 35.19% Preneed receivables 12.38% 12.53% 12.75% 12.70% 12.36% 12.36% 12.36% 12.36% Receivables from preneed trusts 5.99% 5.86% 6.16% 6.10% 5.94% 5.93% 5.93% 5.93% Property, plant & equipment, net 95.02% 96.95% 99.63% 97.40% 93.68% 92.66% 91.75% 90.94% Cemetery property 33.43% 31.39% 30.75% 31.75% 30.91% 30.91% 30.91% 30.91% Goodwill % % % % % % 99.29% 96.38% Intangible & other non-current assets 6.72% 6.17% 7.30% 6.18% 5.14% 4.39% 3.75% 3.20% Cemetery perpetual care trust investments 19.07% 19.34% 20.24% 19.37% 18.86% 18.85% 18.85% 18.85% Total assets % % % % % % % % Current portion of long-term debt & capital lease obligations 5.41% 5.47% 6.95% 6.56% 6.20% 6.77% 59.55% 0.18% Accounts payable 3.50% 4.21% 2.64% 2.65% 2.58% 2.58% 2.58% 2.58% Other liabilities 0.23% 0.30% 0.55% 0.44% 0.43% 0.43% 0.43% 0.43% Accrued liabilities 7.32% 8.28% 7.07% 7.20% 7.01% 7.01% 7.01% 7.01% Liabilities associated with assets held for sale 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total current liabilities 16.46% 18.26% 17.21% 16.84% 16.22% 16.79% 69.56% 10.19% Long-term debt, net of current portion 86.88% 84.29% 85.48% 83.74% 80.32% 79.19% 78.14% 77.15% Convertible subordinated notes due % 49.32% 50.14% 50.08% 49.31% 50.01% 49.57% 0.00% Obligations under capital leases, net of current portion 1.27% 1.08% 2.56% 3.10% 2.93% 2.84% 2.76% 2.68% Convertible junior subordinated debenture due in 2029 to an affiliate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Deferred preneed cemetery revenue 25.08% 22.53% 22.03% 23.57% 22.94% 22.94% 22.93% 22.92% Deferred preneed funeral revenue 14.04% 13.69% 13.93% 14.47% 14.09% 14.08% 14.08% 14.07% Deferred tax liability 17.67% 16.72% 12.55% 12.20% 11.65% 11.44% 11.23% 11.04% Other long-term liabilities 2.45% 1.06% 1.36% 1.59% 1.55% 1.55% 1.55% 1.55% Deferred preneed cemetery receipts held in trust 27.99% 28.74% 29.76% 29.47% 28.68% 28.67% 28.66% 28.66% Deferred preneed funeral receipts held in trust 37.83% 36.80% 36.54% 36.18% 35.22% 35.20% 35.19% 35.19% Care trusts' corpus 18.76% 19.09% 20.09% 19.17% 18.67% 18.67% 18.66% 18.66% Total liabilities % % % % % % % % Redeemable preferred stock 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common Stock total 94.85% 88.78% 87.18% 89.84% 90.58% 93.43% % % Retained earnings (deficit) 1.50% 9.47% 23.33% 29.12% 34.27% 40.23% 45.72% 51.47% Treasury stock, at cost 26.65% 24.85% 30.88% 38.60% 44.89% 51.74% 58.15% 64.14% Total stockholders' equity 69.69% 73.40% 79.64% 80.37% 79.96% 81.93% % % Total Liabilites and Equity % % % % % % % %

20 Carriage Services Income Statement (in thousands) Fiscal Years Ending Dec E 2019E 2020E 2021E 2022E Funeral revenues 76.63% 76.31% 77.82% 78.41% 78.41% 78.41% 78.41% 78.41% Cemetery revenues 23.37% 23.69% 22.18% 21.59% 21.59% 21.59% 21.59% 21.59% Total revenues % % % % % % % % Funeral costs & expenses 45.02% 44.41% 46.06% 47.83% 47.83% 47.83% 47.83% 47.83% Cemetery costs & expenses 13.11% 13.52% 13.45% 13.17% 13.17% 13.17% 13.17% 13.17% Depreciation & amortization 4.96% 5.61% 5.57% 5.32% 5.15% 4.99% 4.86% 4.75% Depreciation 4.29% 4.63% 4.88% 4.53% 4.47% 4.41% 4.36% 4.32% Amortization 0.67% 0.97% 0.69% 0.80% 0.68% 0.58% 0.50% 0.42% Regional & unallocated funeral & cemetery costs 4.95% 4.37% 5.17% 5.00% 5.00% 5.00% 5.00% 5.00% Total costs & expenses 68.04% 67.91% 70.25% 71.32% 71.15% 70.99% 70.86% 70.75% Gross profit 31.96% 32.09% 29.75% 28.68% 28.85% 29.01% 29.14% 29.25% General, administrative & other expenses 11.18% 11.26% 10.17% 11.00% 11.00% 11.00% 11.00% 11.00% Home office depreciation & amortization 0.72% 0.61% 0.62% 0.70% 0.70% 0.70% 0.70% 0.70% Total corporate costs & expenses 11.90% 11.86% 10.79% 11.70% 11.70% 11.70% 11.70% 11.70% Operating income (loss) 20.06% 20.23% 18.96% 16.98% 17.15% 17.31% 17.44% 17.55% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total interest & other income (expense), net -5.80% -7.24% -6.26% -6.33% -6.24% -6.15% -6.07% -5.99% Income (loss) before income taxes 14.26% 12.99% 12.70% 10.65% 10.92% 11.16% 11.37% 11.56% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Net provision for income taxes 5.66% 5.10% -1.71% 2.98% 3.06% 3.12% 3.18% 3.24% Net income (loss) from continuing operations 8.60% 7.89% 14.41% 7.67% 7.86% 8.03% 8.19% 8.33% Income (loss) from discontinued operations, net of tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Net income (loss) 8.60% 7.89% 14.41% 7.67% 7.86% 8.03% 8.19% 8.33%