Executive Summary / Key Takeaways

• Carriage Services is pivoting back to a "growth mode" following two years of disciplined capital management and significant debt reduction, with a robust pipeline for strategic acquisitions in high-quality markets.
• The company's investment in technological differentiators like the Trinity ERP system, Sales Edge 2.0, and the upcoming AI-powered Titan agent is poised to enhance operational efficiency, customer experience, and accelerate pre-need sales.
• Strong Q3 2025 financial performance, including a 5.2% increase in total operating revenue and a 17.2% rise in adjusted diluted EPS, demonstrates the effectiveness of its strategic objectives and operational leverage.
• Management's reaffirmed 2025 outlook anticipates record highs for revenue, adjusted consolidated EBITDA, and adjusted diluted EPS, driven by organic growth, strategic acquisitions, and cost efficiencies from supply chain initiatives and lower interest expenses.
• While macroeconomic uncertainties and competitive pressures persist, Carriage Services' resilient business model, focus on personalized service, and strategic technology investments position it for sustainable long-term value creation.

A Legacy Reimagined: Carriage Services' Strategic Evolution

Carriage Services, Inc., founded in 1991, stands as a prominent provider of funeral and cemetery services and merchandise across the United States. Its operations are bifurcated into Funeral Home Operations, constituting approximately 70% of total revenue, and Cemetery Operations, contributing the remaining 30%. The company's core offerings span comprehensive burial and cremation services, related merchandise, and the sale of interment rights, catering to families both at the time of need and through pre-arranged plans. This dual-segment model provides a stable foundation in the resilient death care industry.

Following the Greenlawn acquisition in March 2023, Carriage Services embarked on a transformative two-year journey focused on debt reduction and disciplined capital management. This period saw the strategic divestiture of non-core assets, generating over $12 million in proceeds in 2024 alone, from businesses that no longer aligned with its long-term growth strategy. These proceeds were judiciously reallocated to pay down debt, successfully reducing the leverage ratio from 5.1x at the end of 2023 to 4.3x by the close of 2024. This strategic deleveraging has fortified the balance sheet, setting the stage for a renewed focus on growth.

Technological Edge: Fueling Efficiency and Customer Engagement

A cornerstone of Carriage Services' strategic evolution is its aggressive investment in technology, designed to enhance both internal operations and the customer experience. The company's "Project Trinity" ERP and customer experience platform is a prime example of this commitment. Phase 1, focusing on back-office systems, commenced in early 2025, with Phase 2 slated for the third quarter of 2025. This comprehensive system is expected to deliver significant efficiencies by modernizing outdated legacy systems, improving analytics, and streamlining reporting. The full network rollout for funeral homes is anticipated throughout the remainder of 2025, followed by cemeteries in the first quarter of 2026, with the full benefits and operational leverage expected to materialize by 2027.

Trinity's most innovative feature is its "family portal," a unique offering in the industry. This portal allows families to engage with the business from initial contact through post-service, providing continuous visibility into each stage of funeral or cemetery arrangements. It facilitates the submission of paperwork, documentation, and enables families to track every service item. This tangible benefit of enhanced transparency and convenience is expected to drive superior customer experiences, potentially leading to increased referrals and improved average revenue per contract through better service presentation.

Beyond Trinity, Carriage Services is leveraging technology to accelerate sales. The "Sales Edge 2.0" CRM platform, an upgraded system with an integrated marketing module, is designed to generate and convert leads more effectively for pre-need cemetery sales. Further pushing the technological frontier, the company plans to introduce "Titan," an AI-powered sales agent, in November 2025. Titan's stated goal is to generate leads and schedule appointments for pre-need counselors, representing a significant step in leveraging AI and data analytics to drive sales growth within the 10% to 20% pre-need cemetery sales range. These technological advancements are not merely incremental improvements; they are strategic differentiators that contribute directly to Carriage Services' competitive moat, enhancing its market positioning and long-term growth strategy by optimizing operations and deepening customer relationships.

Competitive Landscape and Strategic Positioning

The death care industry is characterized by a mix of large consolidators, regional players, and independent operators. Carriage Services operates as a mid-tier regional player, competing directly with industry giants like Service Corporation International (SCI) and other notable players such as StoneMor Inc. (STON) and Matthews International Corporation (MATW).

SCI, as the largest consolidator, benefits from significant economies of scale, a vast geographic footprint, and diversified revenue streams. Its strength lies in operational efficiency and a broader, often more standardized, service approach. In contrast, Carriage Services differentiates itself through a focus on personalized services and strong local community relationships, which can foster superior customer loyalty and recurring revenue in its specific markets. While SCI may lead in overall growth rates and profitability due to its sheer scale, Carriage Services aims to capture market share by offering more tailored and premier experiences.

Against StoneMor Inc., which emphasizes cemetery operations and memorial products, Carriage Services offers a more diversified portfolio across both funeral and cemetery services. Carriage Services' integrated service delivery, from consultation to transportation, provides a seamless experience that can enhance customer loyalty. While STON has shown improvements in cost management, Carriage Services' strategic pricing reviews and supply chain initiatives are designed to expand its own margins and maintain competitive pricing.

Matthews International Corporation, primarily a manufacturer and distributor of memorialization products, represents an indirect competitor in merchandise. Carriage Services' integrated model, which includes both services and merchandise, allows it to control the entire customer journey, potentially leading to higher customer satisfaction and average revenue per contract compared to a purely transactional product provider.

Carriage Services' technological investments, particularly the Trinity family portal and AI-powered sales tools, provide a competitive edge by enhancing service delivery and lead generation in ways that smaller, independent operators may struggle to replicate. This focus on innovation, coupled with its "Passion for Service" program, aims to create a "powerful competitive edge" by elevating service standards and team engagement. While the industry faces indirect competition from online memorial platforms and direct-to-consumer cremation providers, Carriage Services' integrated approach and digital tools are designed to adapt to evolving consumer preferences and maintain its market relevance.

Financial Performance and Operational Momentum

Carriage Services' recent financial performance underscores the effectiveness of its strategic pivot. For the third quarter ended September 30, 2025, total operating revenue increased by 5.2% year-over-year to $101.3 million. This growth was primarily fueled by an impressive 21.4% year-over-year increase in preneed cemetery sales and a substantial 61% rise in general agency commission revenue from insurance-funded prearranged funeral sales.

Despite a 1.3% decrease in funeral operating revenue in Q3 2025, driven by a 2.1% reduction in funeral volume during July and August, volumes returned to normal in September. The company's cemetery operating revenue, however, surged by 12.6% to $35.6 million in Q3 2025, demonstrating strong growth potential. This segment's performance was bolstered by a 15.1% increase in the average price per interment right sold and a 4.6% increase in the number of preneed interment rights sold.

Profitability metrics also showed strength. Total field EBITDA for Q3 2025 grew by 3.1% to $46.3 million, largely due to the renewed momentum in preneed cemetery sales. Adjusted consolidated EBITDA for the quarter increased by 7.3% to $33 million, with an adjusted consolidated EBITDA margin expanding by 160 basis points to 32.1%. This reflects strong operating leverage and effective cost management. Adjusted diluted EPS for Q3 2025 rose by 17.2% to $0.75, highlighting continued operational momentum and disciplined financial management.

For the nine months ended September 30, 2025, net income saw a significant increase of $16.1 million, driven by a $10.9 million decrease in general, administrative, and other expenses (attributable to one-time executive severance and financial advisor costs in the prior year), a $1.2 million decrease in loss on divestitures and impairment charges, and a $3.8 million decrease in interest expense. The company's strategic pricing reviews, cremation conversion strategy, and the new earned core line strategy have contributed to an increase in average revenue per funeral contract.

Liquidity and Capital Allocation

Carriage Services maintains a robust liquidity position, primarily drawing from internally generated cash flows and its Credit Facility. The company's cash provided by operating activities for the nine months ended September 30, 2025, was $46.60 million, an 18.3% increase over the prior year, driven by improved operating results. Adjusted free cash flow in Q3 2025 also increased by 7.7% year-over-year.

The company's disciplined capital allocation framework prioritizes debt repayments, dividends, internal growth capital expenditures, and strategic acquisitions. The leverage ratio improved to 4.1x in Q3 2025, down from 4.2x in the prior quarter, with approximately $5.1 million in debt reduction compared to Q3 2024. This focus on debt management also led to a $1.1 million decrease in interest expense in Q3 2025, with the average interest rate approximately 180 basis points lower year-over-year. Capital expenditures for Q3 2025 totaled $6.7 million, with $5 million allocated to growth initiatives.

Outlook and Guidance: A Path to Record Performance

Carriage Services' management has expressed confidence in its forward trajectory, reaffirming its 2025 outlook and anticipating record highs for revenue, adjusted consolidated EBITDA, and adjusted diluted EPS. The current outlook projects revenues in the range of $413 million to $417 million, adjusted consolidated EBITDA between $130 million and $132 million, and adjusted diluted EPS of $3.25 to $3.30. These figures, if achieved, would surpass results from the peak of the pandemic, positioning the company strongly for 2026.

The guidance is underpinned by several key assumptions. On the funeral side, management expects a normalized volume trend to continue, projecting 1% to 2% growth in funeral home volume for 2026. The "pull-forward effect" from COVID-19 is largely considered to be behind the industry, and favorable demographics, with the oldest baby boomers reaching 80, are expected to provide a "nice tailwind" for death rates in the near future. For the cemetery segment, the company is confident in sustaining preneed cemetery sales growth within its 10% to 20% range, supported by the completion of development projects and the rollout of new sales technologies.

The company also anticipates sustainable growth in insurance-funded pre-arranged funeral sales through 2026, with the strategy currently in its "fifth, sixth inning" of rollout. Profitability is expected to benefit from ongoing supply chain initiatives, such as the new earned core line and the Express Funeral Funding partnership, which are designed to optimize procurement and improve margins. Furthermore, lower interest expenses due to debt reduction and a favorable effective tax rate are expected to drive EPS growth. Overhead expenses are projected to be between 13% and 13.5% of revenues, with some elevation in 2025 due to the Trinity ERP system implementation, but long-term efficiencies are expected post-rollout. The company's disciplined approach to guidance aims to "over deliver what we promised."

Risks and Challenges

Despite a positive outlook, Carriage Services faces several inherent risks and challenges. Macroeconomic uncertainties, including mixed signals on market volatility, inflation, and recession concerns, could impact consumer discretionary spending on services. While the death care industry has historically shown resilience, prolonged economic caution could affect demand for higher-value services.

Changes in U.S. foreign trade policies, including new tariffs on specific goods, pose a risk of increased inflationary pressures on the economy and higher costs for merchandise, potentially impacting the supply chain. The company is actively monitoring these impacts and evaluating vendor agreements to mitigate risks. Operational risks include the ability to attract and retain skilled personnel, execute strategic objectives effectively, and successfully integrate acquired businesses. The implementation of the Trinity ERP system, while promising, also carries inherent complexities and potential for delays, with significant synergies not expected until 2027.

Conclusion

Carriage Services is at a pivotal juncture, transitioning from a period of strategic deleveraging to one of purposeful growth and technological advancement. The company's disciplined capital allocation, evidenced by significant debt reduction and improved leverage, has created a solid financial foundation. This foundation, combined with strategic acquisitions in growing markets and a robust pipeline for future deals, positions Carriage Services for sustained inorganic growth.

Crucially, the company's investment in cutting-edge technology, including the Trinity ERP system with its unique family portal, Sales Edge 2.0, and the upcoming AI-powered Titan sales agent, represents a significant competitive differentiator. These innovations are set to enhance operational efficiency, elevate the customer experience, and accelerate pre-need sales, directly contributing to its competitive moat and long-term profitability. With a clear strategic roadmap, a resilient business model in a demographically favorable industry, and a commitment to operational excellence, Carriage Services is well-positioned to deliver enhanced shareholder value and achieve record financial performance in the coming years.