Carriage Services, Inc. (CSV) Q4 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to the Carriage Services’ Year End 2019 Earnings Webcast. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Viki Blinderman. Senior Vice President and Chief Accounting Officer. Thank you. Please go ahead.

Thank you and good morning, everyone. Today, we will be discussing the company’s year end quarter results for 2019. Our related earnings release was made public yesterday after the market closed. Carriage Services has posted the press release, including supplemental financial tables and information on the Investors page of our website. This audio conference is being recorded and an archive will be made available on our website later today through February 25th. Replay information for the call can be found in the press release distributed yesterday. On the call today from management are Mel Payne, Chairman, and Chief Executive Officer, Bill Goetz, President and Chief Operating Officer, Ben Brink, Chief Financial Officer. Today’s call will begin with formal remarks from management followed by a question-and-answer period. Please note that during the call, we will make forward-looking statements in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical information should be deemed to be forward-looking statements. These statements include but are not limited to statements regarding recently closed acquisition, the anticipated cost savings, operational improvements and other benefits related to the acquisition and the effect of such acquisitions on the company's financial performance, our milestone three year scenario, any projections of earnings, revenues, asset sale, cash flow, debt levels or other financial items., any statements of planned strategies and objectives of management for future operations, acquisition and divestiture activities and financing activities. Any statements regarding future economic and market conditions or performance any statements of belief and any statements of assumptions underlying any of the foregoing. Forward looking statements contained herein regarding the performance of our same store and acquisition businesses include assumptions related to future revenue growth. We can provide no assurances that our same store and acquisition businesses will generate the revenue growth discussed today or any revenue growth at all. I’d like to call your attention to the risk associated with these statements, which are more fully described in the company’s report filed on Form 10-K and other filings with the Securities and Exchange Commission. Forward-looking statements, assumptions or factors stated or referred to on this conference call, are based on information available to Carriage Services as of today. We expressly disclaims any duty to provide updates to these forward-looking statements, assumptions or other factors after the date of this call to reflect the occurrence of events, circumstances or changes in expectations. Furthermore, during the course of the morning’s call, we will reference certain non-GAAP financial performance measures. Management’s opinion regarding the usefulness of such measures together with the reconciliation of such measures to the most directly comparable GAAP measures for historical periods are included in the press release and the company’s filings with the SEC. Now, I’d like to turn the call over to Mel.

Thank you, Viki. Over the last five years and especially over the 2017, 2018 period after I had promoted members of the senior leadership team into executive positions and we suffered a performance decline in our portfolio, it became very obvious that we did not have within the company the executive leadership that we needed for the future. So I retained a boutique executive recruiting firm. I honestly did not think I would be able to find someone because my qualifications were extremely high and I just had to go through an incredible vetting process, both at the board level and the senior leadership within the company and at the field level. So we got lucky and in December we made a bold strategic move I think that will serve this company well for years to come. And at this time I'd like for Bill Goetz to report to you. How he has settled into Carriage and what he's found compared to what he perceived. Bill?

Great. Thank you, Mel and good morning everybody. First of all I appreciate your interest in Carriage and what I thought I would do this morning as Mel just mentioned is talk a little bit about what I've seen over the last 75 days of course. I have a lot to learn. Spend a lot of time in the business but that would be the first thing. Just give you an overview what I've seen over the last 75 days and also talk a little bit about as a leadership team, some of the strategic opportunities that we've identified and talk about how we're going to go after those opportunities. So going back to December, I was on the call on December 3rd after I joined on December 2nd. And I shared three reasons why Carriage was so attractive to me and I just want to kind of give you my assessment after being in the business the last 75 days. First of all the main reason to join Carriage was really this great culture, great people, great leaders. And over the last 75 days I have visited more of our businesses. In fact, last week I was out in California at two of our great businesses, one being Canao mountain, the other one being Heritage Deal Day in Huntington Beach. And again, I walked away just impressed with the businesses that we have, impressed with the people that are leading those businesses. And everyone just involved in servicing those families in those communities. I also had the privilege to attend a Standards Council meeting and that was again just very eye opening to see the talent in the room and not only the talent but the commitment of that team and all of our leaders to continue to make an impact on our communities, families, and of course shareholder value. And then over those 75 days I've also spent time with our Houston support team. We've got great people here in Houston that are providing support to our businesses across the U.S.. And you know I think this model that we have which is kind of the upside down triangle where we realize that it's all about our people out in the field, it's all about us helping them serve families is real and making a difference every day. The second reason that I was attracted to Carriage that I mentioned on the December call was meaningful work. And at this point my career I was looking for something more meaningful. And for those of you that know the industry you know what our businesses do each and every day to help families at the toughest times is just inspiring and that meaningful work purposes. I've visited our businesses has really stood out. And then the third reason that I discussed on the December call was really about the opportunity. And at that point you know I had a chance to look at some of the macro data on the industry, starting to get a feel for Carriage. But I was excited about that opportunity. After 75 days I would tell you I'm even more excited. I think there is a huge opportunity to grow our business, grow it in existing markets where we operate today through our decentralized model, but also very excited about what the team has done to bring new businesses into the fold over the last 60 days. We have acquired some absolutely great businesses. We've got to spend some time now integrating those businesses. But those are businesses that are really going to catapult us to even greater results over the next five years. The other thing that I've learned over the last 75 days is the decentralized model that that Mel has created that really gives the autonomy to our local managing partners is the right model. It's the right way to run the business. It's the right way for us to support families, but it's also the right way to maximize shareholder value. And then finally from an opportunity standpoint of what I've learned over the last 75 days this decentralized model where we give our managing partners the opportunities to make a difference in those communities has allowed us to attract, retain and develop A players. And I see that every day as we look at recruiting. People want to join this organization. And one of the big reasons they want to join is obviously the culture, but also the autonomy they get to run their own business. So that's my assessment over the last 75 days. Second thing I wanted to talk about is share with you a few key areas that we've identified as a team that we believe that will be crucial to really drive our good to great journey part too. And to attack these opportunities, we are forming four high performance transformative teams and we do believe these areas will be transformative to our business over the next five years. Again we're at a starting point here and I want to share those four areas with you. The first area is how we define service and guest experience. So we've put a team together again a cross-functional team that will be working on establishing and measuring the key metrics. So we have a better understanding of the service that we're providing the family and the guest experience in each business. The other thing that we're going to do is make sure we're capturing the best practices at our businesses and then sharing them across the country because today we have businesses that are doing an absolutely great job with the service and guest experience and we just want to make sure we capture those and share those. The second key strategic areas around technology. So we formed a transformative team that will focus on technology innovation and in technology we're going to really look at two areas. First how we use technology internally to make us more efficient, more effective to better serve families. Then secondly, we're going to be looking at technology that is consumer facing, that's everything from what we're doing from a digital marketing standpoint, social media, e-commerce, mobile apps and analytics.Excited about this. There's great things going on right now at a local level, but we believe that the technology piece is a big part of our story moving forward. The third strategic area that we're focused on is cremation conversion. I think everybody that knows our business and follows this industry knows that cremation continues to be an increasing trend. We look at cremation as a great opportunity. And what we're focused on is to develop the tools and training to improve our cremation with service. Right now obviously families make a decision to have their loved one cremated. We want to make sure that we have the tools and training to share with them ideas of how they can honor memorialize that loved one and so that will be a big focus. We've got a great leader in Chris Manzo, who's going to lead that team and we feel this is an area that we can move on pretty quickly to get better. Again learn from what's going on in the field today. There's a lot of great work in that area and improve our business overall from the standpoint of cremation conversion. And then finally and this was in the press release, we believe there's a big opportunity on the cemetery sale side. As you know, we recently made some big acquisitions on that side of our business. You know, as we mentioned in the press release, we're looking for a senior leader in that area that could come in and bring their experience. But also we're starting that work immediately. I'm going to be on the West Coast in a couple weeks with some of our key businesses out there better understanding what they're doing, capturing those best practices and thinking about how we develop the right sales process, the right sales management process, how we put a CRM in place to drive that process and how we incorporate and aftercare strategy to make that complete cycle to drive our cemetery sales. So that's where we are. Again, as I mentioned at the top of my remarks, I'm more excited than ever. I feel privileged to be a part of the Carriage team and work with the associates here. And looking forward to learning more about the business and helping the team move forward on these areas. So with that, I will send it back to Mel.

Thank you, Bill. Bill get to enjoy and participate in his first Carriage board meeting yesterday and I've got a lot of feedback Bill after the board meeting, from the board members. But I guess the most insightful feedback was from a young money manager that we turned over $20 million. Young guy, he's got brilliant ideas. He's done really well. And one of the things he wanted to do was to become a board observer in Carriage to improve his knowledge of how value is created. You know then we went into a turnaround mode and told about that. So he called me on my way home last night and he said Mel I got I've some board observer feedback and it's kind of an apifiny. He said sitting there in the room and I've been sitting there now for almost two years, I noticed from your senior leadership team, executive team and there are 10 of us including Bill and I, all in the room and the six board members that Bill through his executive presence, through his articulation of different things, whatever the subject might be has raised the game for the entire board meeting and each one of the players, he said I have this insight and I couldn't wait to share it with you. So I'm going Wow, thank you Jay. That's just I'm going to take that and change the sequence of our presentation on the call tomorrow. So thank you Bill for already making a difference. You raised the game, you raised the anti and I think the people in the field are excited about your leadership. I know I am. And we look forward to many, many, many high performance victories in the future. Before I turn the call over to Ben to put some meat on the bone of the next three years and this past year, I just wanted to say that it's been a lot of hard work since I got back in operations in September of ‘18 and then took control on October 31 of ‘18. I got a lot of wonderful responses last year. We had a lot of high performance winners all of them are listed in this year end earnings release, as high performance heroes. We had too many that didn't respond. We're going to divest quite a few of those, clean this up. But we made bold moves toward the end of last year, bolder than we've ever done before. And if I look back over the 29 years since co-founding Carriage on June 1 ’91, I didn't know what I was doing, I had to learn it. Almost went broke in 2000 after the mania and over leverage, stock went to a $1 again in ‘09 and we bought in a bunch of it for $3. And in this time when the performance declined, it already went down to 14, 50 [ph] So I think that's progress. I was kind of hoping it would go back to a $1 because we were ready. We got a great bunch of people and we got a great bunch of assets. We added some wonderful assets and if there's one regret that I have over the last 29 years have been different times when I've had the opportunity to go big and take a big bite, mostly when SEI bought another consolidator like Alderwoods in ‘06 for Stewart [ph] in ’14. We had the opportunity to go big. It would have stretched the company. I decided not to do that in both of those situations and in a number of others that were not public. And if there's one regret, I don't regret not doing that in all those cases because I don't think we were ready. But if there is one regret is that I didn't recognize the long term earning power of some of these big businesses in wonderful markets like the ones we bought at the end of last year. It will take us some time to integrate, there's a lot there. It is stretching us, but everybody here is excited about it. The board meeting yesterday was I mean, nothing but, let's go and what we tried to do here is layout a realistic three year, roughly right scenario. I learned a long time ago when studying Warren Buffet, that if you kind of focus on the short term in the scoreboard you're going to be a loser. And so this time we went big. We went bold and we went long term. This is going to transform our company and those who believe and want to do the hard work and study and get under the covers, I think you'll turn into a believer as well and those who don't, we accept that that's the nature of a public company market. So with that, I want to turn it over to Ben.

Thank you, Mel. Thank you, Bill. Our results for Carriage Services 2019 back to the future, a new beginning part to demonstrated an incredible amount of progress in just one year as we return to organic revenue growth in our funeral home businesses, had a record performance year in our cemetery segment, significantly improved consolidated EBITDA margins and produce a record adjusted consolidated EBITDA for the year. While our operating performance in the fourth quarter was short of our expectations, the strategic moves we made in the fourth quarter to complete the four large acquisitions and large strategic markets, along with the addition of Bill, as President COO has positioned Carriage like no other time in our history for performance and value creation success over the next five years. And now for our results. For the full year, total revenue increased 4.2% to $273.3 million. Total Field EBITDA increased $7.4 million to $110.3 million. Total Field EBITDA margin increased 120 basis points to 40.4%. Consolidated EBITDA increased $8.2 million or 12% to $76.5 million and adjusted consolidated EBITDA margin increased to 200 basis points to 28%. Again, recapturing what we had lost in that 2017, 2018 timeframe a portion of it. And then diluted earnings per share increased $0.27 or 29% to a $20. For the fourth quarter total revenue increased 7.3% to $71.1 million. Consolidated EBITDA increased 17.7% to $19.2 million and our margins increased in the fourth quarter 240 basis points to 27%. Adjusted diluted EPS for the quarter was $0.29, an increase of 26.1% year-over-year. And our same store funeral home segment, the full year revenue increased 0.2% to $157.2 million, on strong growth in the number of families we served at 2.3%. This small increase in revenue was leveraged into a slightly greater increase in same store funeral field EBITDA to $63.9 million, a 1.3% increase versus 2018 and field EBITDA margins improvement of 40 basis points to 38.2%. The fourth quarter also show continued momentum in the number of families we served, a growth of 5.2% year over year and a good indication of future market share growth. This growth in same store funeral home volume in the quarter led to a 1.8% growth in same store funeral home revenue, which was leveraged into a 5.5% increase in same store funeral field EBITDA, and 130 basis point increase in field EBITDA margin. Acquisition funeral field EBITDA margin declined 180 basis points in the fourth quarter entirely related to the acquisition and the beginning phases of integration of the two larger funeral home businesses we acquired in October. While for the full year acquisition funeral field EBITDA margin increased 160 basis points to 37.9%. The year over year increase demonstrates the margin improvement and full integration of businesses we acquired in 2018 and we'd expect the same type of improvement for the most recent acquisitions in their first full year of operating within our Standards Operating Model. It was encouraging to see year over year growth in our same store funeral home revenue, yet our greatest opportunity is to translate the larger year over year increase in contract volume into higher revenue growth more consistently across our entire portfolio. As Bill stated in his remarks, our focus is improving on a number of families choosing to memorialize their loved ones with us and increasing the average revenue per cremation contract to our dedication to this high value personal service business. In recent weeks our operational leadership team, along with our Standards Council spent two focused days here in Houston to review our 2019 results by business, as well as debate and agree on updated standards with an added focus on cremation averages. The Standards Council made up of 10 of our top performing long time managing partners has also agreed to each work with two businesses over the very near term to provide additional insight for improved performance immediately. We thank all of them for their years of dedicated service at Carriage for their expanded role here in 2020. he performance of our cemetery business for the year was simply fantastic and we finished with a strong momentum in the fourth quarter. For the year same store cemetery revenue increased 9.6% to $49.5 million. Same store cemetery field EBITDA increased 22.9% to $17 million and cemetery field EBITDA margin increased 370 basis points to 34.5%. As we said a few times this year, we believe the performance of our cemeteries can only continue to improve and we've laid important foundations regarding people and inventory development over the past 18 months. With a three new large cemeteries we have the necessary size, scale and long term growth opportunities to invest in building a world class cemetery sales organization, including at the operational leadership level. We look forward to presenting the progress of our cemetery portfolio throughout the year. Our trend report - our year end [ph] report also includes a new other revenue and EBITDA reporting categories. These include the pet memorial cremation and cremation.com businesses that were acquired as part of the acquisition of Rest Haven Funeral Home in Rockwall Texas. We've broken out these results of these businesses since they are unique within Carriage. We have been impressed with these businesses since they partnered – since we have partnered with Rest Haven, I look forward to their continued development with our partnership. During the fourth quarter we completed three acquisitions, Lombardo Funeral homes in Buffalo, New York, Rest Haven Funeral Home and Memorial Park in Rockwall Texas and Fairfax Memorial Park and Funeral Home in Fairfax Virginia which represents the single largest acquisition in the 28 years history of Carriage. Shortly after the first of the year we also closed on the acquisition of OPAM Memorial Park and Mortuary and Lapeer, California. We would like to take this opportunity to once again welcome all the team members at each of these businesses to the Carriage family and thank them for welcoming us with open arms, while they are all at various levels of their individual integrations. In a short period time we have developed definitive plans for their integrations over the course of the next year. What has been consistent is that all of us here Carriage are even more confident in the capital allocation decisions that we have made and even more excited for the future of these businesses and highly strategic markets for Carriage. In all we expect these four businesses to generate an annual run rate of $17 million in field EBITDA once fully integrated in 2020 and grow from there. All these businesses will provide Carriage multiple years of accretive, organic growth opportunities, allow us to have a higher and more consistent field EBITDA margin and improve our adjusted consolidated EBITDA margin by allowing us to better leverage our overhead and support platforms. We are intensely focused on integration these businesses and using our free cash – our growing free cash flow to pay down debt and achieve a lower leverage profile over the next 12 to 18 months. It would not surprise us to be presented with opportunities for further high quality acquisitions within that time frame and we will continue to evaluate those opportunities as they come. What investors should take away is that while we may not see this level of acquisition activity always, we do believe these businesses are indicative of Carriages long term opportunity to partner with the best remaining independent businesses in what remains a highly fragmented funeral and cemetery industry. We believe strongly that when quality independent operators have a chance to look under the proverbial Carriage covers they will find a company with a strong and well-defined corporate culture that has been built and tested over the course of 29 years. They will find the company those dedicated to belief in the value of funeral and cemetery service at the best days of our present profession are ahead of it. They will find a company full of high performance local leaders who generally care about the communities and families they serve. All led by a leadership team has been committed to Carriage since day one. Our goal is to ensure the acquisition and integration of these four fantastic businesses only validates who we are as an organization. I would also be remiss not to mention the work of our operational leadership and Houston support teams of the last four or five months the work we've done to have due diligence and start the integration process of new businesses have been truly phenomenal and I am particularly proud of all the work that's been done around here during that time. Okay, in order to finance the total $172 million of acquisition activity in the fourth quarter we issued an additional $75 million to our 6.65 senior notes due 2026 at a price of one $104 to yield 5.5% bringing the total of these notes outstanding to $400 million. Additionally we amended our credit facility to increase our capacity to $190 million and to allow for a higher leverage profile over the next year. Specifically the amendment increase is our maximum leverage ratio to six times the end of 2019. Stepping down to five and three quarters times in the first quarter and back down to five and a half times at the end of the year. We ended 2019 with a pro forma leverage ratio of 5.6 times, I expect our leverage ratio to fall to about 5.1 times by year end. Over the long term, we expect the free cash flow generation ability of Carriage to provide us opportunities to allocate capital in the best interests of all of our stakeholders, including the ability to rapidly delever when necessary. We like to think again our bondholders and banking group for their support in regards to these transactions. As we highlight in our earnings release, our improved credit profile over the next 18 months will give us another opportunity to lower our cost of capital in June of 2021 when we were able to call our bond unsecured notes at $105. Given current interest rates and the trading of our bonds we would expect the refinancing to lower interest costs by approximately $7 million and be accretive to deluded EPS by a minimum of $0.28. This is a very real value creation opportunity we have within our control over the near term. Adjusted free cash flow for 2019 was $37.4 million down approximately $5 million from 2018 due primarily to the increase in interest expense from our senior notes that we issued back in 2018. e will return to free cash flow growth in 2020 with $42 million to $45 million and produce a record free cash flow in 2021. We have made a strategic decision to divest or merge 12 to 15 funeral home businesses throughout 2020 and currently have three under a letter of intent. These businesses earn $5 million in revenue and $1 million in field EBITDA in 2019. The effect these investors including the updated scenario in our press release and our included in the divested revenue and EBITDA lines of the trend report also included in the press release. We spent $15.4 million on capital expenditures in 2019 and expect to spend between $16 million and $18 million in CapEx in 2020 with $10 million of that being allocated towards maintenance. Our growth CapEx will predominately be spent on highly high quality differentiated cemetery inventory and remodels of existing home businesses and growing markets. We are excited about the opportunities to invest growth capital with expected rates of return in excess of our cost of capital across our entire portfolio and greatly expand those opportunities with our recent acquisitions. We also remain committed to investing in our businesses through consistent amounts of annual maintenance CapEx. Our preneed discretionary trust loan portfolio had a return of 25.9% compared to 31.5% return for the S&P 500 and 19.5% return for our long term 70% high yield bond, 30% S&P equity benchmark. This compares favorably to our 11 year long term compound annual return of 13.5% since Carriage began to manage these assets internally back in 2008. This long term track performance has and will continue to accrue to the benefit of the value of the underlying funeral and cemetery pruning contracts, as well as increased income generated through our cemetery petro care accounts. Additionally, we recently completed the assumption of $27 million in new trust assets we acquired with the recent acquisitions. The addition of these trust assets will be immediately accretive to our financial revenue and EBITDA particularly in earnings from cemetery perpetual care accounts. In our press release, we introduced a three year roughly right scenario based on our expectation for future performance over the three distinct time periods, the goals of which we were described were also described in the press release, it includes the impact of expected divestitures of view at the accretive impact of a potential high yield bond refinancing next year and our expectations of the timelines for the full integration of the recent acquisitions. Based on this scenario, we are confident in the ability of Carriage to achieve important financial milestones over the next three years. Revenue above $325 million, adjusted consolidated EBITDA above $100 million, adjusted consolidated EBITDA margin above 31%, diluted earnings per share over $2.25 and free cash flow over $60 million, all of which with a much improved credit and leverage profile. All these metrics are significant improvements over just released 2019 results and presents a compelling value creation opportunity over the coming years. We will look forward to reporting our results to you along the way beginning with Carriage Services 2020 transformative high performance good to great journey part too. And with that, I would like to read our high performance heroes. Annually we celebrate our high performance heroes our Pinnacle of Service Award winners. This year we had 39 businesses achieved the Pinnacle Award and will be celebrating with them down in Mexico here in a couple of weeks we're really looking forward to that. So being the best Pinnacle of Service Award winners were Courtney Charvet, North Brevard Funeral Home; Patrick Shane, Jacob Shane & Son, Matthew Simpson, Fry Memorial Chapel, Justin Lyman, Evans Brown Mortuaries and Crematory, Alan Carrick, Dakin Funeral Chapel, Jeff Hardwick, Brian and Hardwick Funeral Home, James Bass and Coast's McLaughlin mortuary, Randy Valentine Dearly Memorial Home and cremation. Sue Keenan, Byron Keenan Funeral Home and Cremation, Todd Mueller all cremation options, Jason Cox, Lane Funeral Home, South West, Jeff Seaman, Dwayne Spence Funeral Homes. Dan Simons, Everly Community Funeral Care, Mike Connor. Connor Westbury Funeral Home, Ashley Vella. Dig in Funeral Chapels, Jason Higginbotham, Lakeland Funeral Home, Jo Newkirk, Civic Center Chapel, Robert McCleary, Kent Forest Lawn Funeral Home, Ken Duffy Johnny Day Funeral Home, Scott Sandford, Everly Wheatley Funeral Home, Phillip Well, Keenan Funeral Home, Joe Water Wash, bar case, Jordan band and funeral home and cremation center, Jeff Steadman, Sandstone Funeral Home, Tom O'Brien, O'Brien Funeral Home, Chris Texas, Cattle Della funeral home, Nicholas Welzenbach, Darling and Fischer Funeral, Locals Memorial Park, Tim Hauck, Harvey Engelhardt Fuller Metz and Lee County cremation are being the best Pinnacle of Service Award winners and winners achieved 100 percent of standards in 2019. Ken summers, PL Fry & Son Funeral Home, Steve Mora, Canelo Mountain Funeral, Brian Finian Steen, funeral homes, James Terry, James Jay Terry funeral homes. And Cindy Hoot, Smith funeral homes and winners that achieved 100% of standards this year. Joanne to Scipio, Oak View Memorial Park, Anthony Rodriguez, Higgins mom mortuary, Ben Freiberg here it is home and Crematory. David Keller Lane funeral home culture chapel and Mike page Sterling white cemetery. Congrats all of our pinnacle winners. Moving on to our Carriage good grade award winners. These are managing partners that have been able to grow their business 2% compound revenue for over five years or above a long term incentive program this is unique to Carriage. There is no other opportunity like this in our industry for local managing partner talent. The winners of this award are Todd Mohler. Mohler Thompson funeral chapels and cremation services. Allen care taking final chapels. Nicholas welcome Bob darling a fisher funeral homes. Scott Sandford, Everly Wheatley funeral home. Patrick, think of Shane son funeral home and Charlie Egan, Greenwood funeral home. Congratulations to all of the winners. And last but not least we'd like to recognize three high performance heroes from our Houston support center. These three have truly gone above and beyond over the past few months. And we'd like to publicly recognize them. John Poon, Ben Walker and David Baptist in our office support team. And with that I'll stop talking and we can open up for questions here.

No let me let me just go one more time here Ben. Before we open it up for questions. I do want to say that the future three years looks very attractive but you have to measure that look of attractiveness against the history of the company, the idea of Carriage at some point becoming the best in this industry not the biggest you know always baffle me, how would you measure that and as a as a guy who started out in the high yield business in the 70s and Michael Milken [ph] took to the public markets in the 80s. ou know that was my background and so I knew credit and cash flows. Then I went into banking great bank for five years Texas Commerce Bank became a triple a bank and then turning around companies for 10 years, but I got tired of that and wanted my own company and this is where I got lucky and landed and I loved it because it was a cash flow business and you could lever it but you could also mess it up if you didn't operate right. So my definition of being the best in the industry is a consolidation and operating platform. Over time became creating the most cash margin per dollar of revenue and for us that's a that's a rough estimate of the cash. It's the adjusted consolidated EBITDA after all overhead and you know I learned a lot about that over the years. First it was hard to get past 20 for a lot of years and then you know we got past that and accounting changes and all and then we got up to at some point 24 and at the end of 11 when we had another transition date a lot of management turnover and I took over operations again and we launched our first good to great journey for five years and we went into stock was five for 10, 12 years 15 years it had been between one in five dollars. And so we lost at first. We had a great journey on January 1 of ’12 and adjusted consolidated EBITDA margin went from 24 and change up to 29.7 in 2016 and the way I've always looked at this. And if you if you've studied Carriage we started doing five year trend reports because I learned over time this is a incremental business year over year over year over year over year and not a quarter over quarter or quarter and from 2012 to ‘16 that margin went up almost 500 basis points. And the stock went from 560 to 28, 64 about 38%, 39% compounded return over that five years. So then I step back and I promoted some people and we know what happened in ‘17 and ‘18 and now we had a partial comeback in ’19 and now we're launching our second five year Good to Great Journey. If you want to look back at ‘16 is the benchmark a standard of being the best in terms of every dollar of revenue converting to approximate cash at the EBITDA our level. We were $248 million in revenue and the field EBITDA was 104.4 that was an all time high and the margin was 42.1. This is before all overhead. After that the revenue went up $20 million in the next two years ‘17 and ‘18 and the field EBITDA stayed the same. 104.4, 105, 104.3 because the margin went from 40 to 1 to 38, 9. ‘19 we bounced back drop this included all the low performers that are now being taken out. We bounced back up and if you take them out we're at 40.4% field EBITDA in went from 104.5 10.3 [ph] So if the field EBITDA had been the same as ’16 42.1% that will added another $4.8 million to our field EBITDA and it would have added another $4.6 million to adjusted consolidated EBITDA. O we would have gone up 18% on adjusted consolidated EBITDA if we just finish the same margin taking out the low margin low performers and adding these four that once full integrated we'll have much higher margins, we'll get you to the three year beginning trend and this is why are all of our people know 42.1% field EBITDA is the near-term target, but we don't expect to stop there and we don't expect not to surpass 29.7 adjusted consolidated EBITDA margin. We're going to get past it and we're going to create a lot of free cash flow especially when we refinance the debt. We refinanced our debt and issued those bonds at exactly the 10 year high over the last few years. We priced up by 10 year high of 3.05 in May of ‘18. We priced at 368 basis points of spread over 10 year treasuries which was the same spread we place that when we issued our first bonds in 2005 as if the company got no better from a credit point of view. This time when we refinance, I can promise you our spread will be a lot lower than 368 points over 10 year treasuries and right now 10 year Treasuries are $1.53, so I'm looking forward to that. And once we do that just like Ben said, we believe we will have witnessed a complete transformation of this company over the last few years and it will be like a new platform with new earning power, new cash flow power, ability to do it at about four times leverage and still allocate capital to create value through share repurchases. If Mr. Market doesn't value is high enough for acquisitions or higher dividends we will be very flexible in our financing and very flexible and our and savvy and our capital allocation. So with that, I'd like to open it up for questions.

[Operator Instructions] Your first question is from the line of Alex Paris from Barrington Research. Your line is open.

Good morning. This is Chris sitting in for Alex. Thank you Mel, Bill and Ben for all your detailed commentary thus far. Going through some of my notes that I have here could be loosely in regard to Fairfax. Mel you had mentioned in the past about acceleration. In regard to Fairfax its ability to achieve sustain and now with the potential for further acceleration in its business. Could you provide some additional color typically on Fairfax and how this can relate to some of the buckets that Bill mentioned more specifically in regard to capturing best practices and perhaps applying them to other areas of the business?

Yeah Fairfax I know the business well then there are a bunch of times over the years dreamed of one day owning it. I didn't know if we'd ever get the chance it had 14 bidders. We recognize it's been a family business it's been not aggressively managed especially on the cemetery side. And the same. I mean the funeral home opportunity and in that overall area to expand the brand and grow the market share is incredible. But the cemetery opportunity is even better. It just it's just an amazing upside. And it will continue to be amazing for 10 or 20 years. This is the kind of park I always dream someday we would on a on my own. I've seen this kind of park in other companies like Rosehill and SGI and in L.A. others. And you know I always dreamed of having one of those bellwether companies that has incredible margin growth opportunity but also revenue growth both on funeral homes and cemeteries. I'm not sure if I can relate to what you're calling best practices but we will put the talent in here to make it home and it will it will harm once we get it going. It will be worth the price we paid which was dear and it will be a return on invested capital that will just grow and grow and grow. It's the kind of business that you know Warren Buffett talks about you want to buy businesses where beyond you want to buy it. You want to buy a good business at a fair price. Well this is not a good business at a fair price. We bought a great franchise at a high price and the great franchise has been under managed massively improperly by family that owned it all these years and now it's going to be in a company that's to know how to turn on the high performance buttons through leadership and systems and it will it will be one of these we'll look back in 10 years and say wow we've got a good deal there but it's going to take us a while to get this one home and it's a it's a big it's a big it's a big business and it's gonna it's gonna be a big growth in earnings and free cash flow driver for Carriage for years and years and years to come once we get it going it'll grow market share in in the funeral niches in and around Fairfax. There's an opportunity for brand expansion with another Chappell cemetery product. I can promise you is gonna be it's gonna be we can build product they really haven't emphasized that they've been selling land and and so it's just one of these that we'll be proud of. It will take us a little while to get it humming and I know Wall Street is not that patient when you pay a dear price but we know it was the right thing to do and it's the critical mass that we've been looking for and it's around it's around these ideas and concepts that the next five years ought to be the greatest value creation period in the history of our company that's excellence and shifting to some of Bill's comments about the four different areas for operational efficiencies or strategic objectives as this relates to your guidance how should we assess the four key areas in regard to perhaps your internal expectations as to how they develop over time or how they accelerate or show progression. I don't know if you can link directly what Bill articulated these are teams he's formed. You can tell he's got incredible energy. Our people are excited to work with him. I think whatever the the fruit of those four areas that he grows with these teams over the next few years is incremental probably to what you see in this forecast. We don't have any revenue and on there. As far as I know Ben Ben hadn't been over there have beaten Bill's door down. Go tell me how much this is gonna add. No. This is just gonna make our overall company better and the two areas I mean all those areas are critical and our people are excited about it. We want to be an innovator. We've never been that good at high and sustained symmetry. Pretty neat property sales then hit and miss for a while and then our bigger properties will would miss we'd have a top sales manager leave and you know when they got a cold. Our performance got flu but I think we're ready. This is gonna put us in in the league where we can hire the talent build the system build a culture and that's Bill's background and you know what my background but it is his. So I think all of our people are excited to follow his lead. Leadership is all about people who have ideas about the present and a vision of the future. Other like minded talent wants to follow. This was missing in 17 and 18 that's my fault. It's not missing now and these three years are not anything that we can't do. I mean there is not anything there that can't be achieved roughly in that range. So you won't come here and find anybody whining or down or I mean our field people are excited. Is there a lot of work to do. You damn right. Are we up to the challenge and do we have the ability to do it. You're damn right. So I didn't mean to use a bad word there but we're kind of passionate about where we are and hope that someone answers your question.

Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.