Carriage (CSV) Q4 2025 Earnings Transcript

DATE

Thursday, Feb. 26, 2026, at 9 a.m. ET

CALL PARTICIPANTS

• President & CEO — Carlos Quezada
• Executive Vice President & CFO — John H. Enwright
• Executive Vice President & COO — Steve Metzger

TAKEAWAYS

• Total Revenue -- $105.5 million for the quarter, up 8% year over year, attributed to growth in both funeral and cemetery operations.
• Funeral Home Operating Revenue -- $61.1 million, an increase of 9.6% year over year, reflecting segment momentum.
• Funeral Home Operating Volume -- 10,571 contracts, up 6.8% year over year, with average revenue per contract of $5,777 (2.6% growth).
• Cemetery Operating Revenue -- $33.8 million, up $5.3 million or 18.4% year over year, driven by a 25.5% rise in preneed cemetery sales production and a 15.6% lift in preneed interment rights sold.
• Financial Revenue -- $9.3 million, reflecting 15.3% year-over-year growth, attributed mainly to trust fund investment performance.
• Preneed Insurance Contracts Sold -- Increased by 33.8% year over year, emphasizing continued sales execution in funeral preneed insurance.
• Adjusted Consolidated EBITDA -- $32.5 million for the quarter, up $3.2 million or 11% year over year, with an EBITDA margin of 30.8% (up 80 basis points).
• Adjusted Diluted EPS -- $0.75 for the quarter, representing a 21% year-over-year increase; GAAP diluted EPS was $0.77.
• Cash from Operating Activities -- $4.8 million higher than prior-year quarter, representing a 52.2% increase.
• Adjusted Free Cash Flow -- Decreased by $400,000 or 5.4% from the prior-year quarter, primarily due to increased capital expenditures.
• Capital Expenditures -- Totaled $7.9 million for the quarter, with $5.2 million allocated to growth capital and $2.7 million to maintenance capital.
• Overhead Expenses -- $15.2 million, or 14.4% of revenues in the quarter, up from $12.9 million (13.2% of revenues) due to higher incentive pay.
• Bank Leverage Ratio -- Decreased to 4x from 4.3x at 2024 year-end, meeting management’s stated 3.5x-4x target range.
• 2026 Guidance -- Revenue projected at $440 million to $450 million (5.5%-8% growth), adjusted consolidated EBITDA of $135 million to $140 million, and adjusted diluted EPS of $3.35 to $3.55.
• 2025 Acquisitions -- Anticipated to contribute $16 million in revenue in 2026, offset by $9.7 million of divestitures and $4 million partial-year contribution in 2025, per management’s comment on acquisition math.
• 2026 M&A Expectations -- Additional $5 million to $10 million in revenue factored into guidance from yet-to-be-announced acquisitions, with anticipated deal multiples of 7x-9x EBITDA.
• Project Trinity Rollout -- Launch remains in pilot phase with broader deployment planned to funeral homes by third quarter and later to cemeteries, although project timelines have been delayed.
• Sales Edge 2.0 Adoption -- Company CRM reached 80% adoption by year-end 2025, contributing $2.6 million to fourth quarter preneed production; expected to drive preneed sales in 2026.
• Overhead Guidance -- Projected to be 13.5%-14.5% of revenue in 2026 due to increased IT and Project Trinity expenses as well as higher talent investment.
• Adjusted Free Cash Flow Guidance -- Expected at $40 million to $50 million in 2026, with planned capital expenditures of $25 million to $30 million aligned with ongoing investment priorities.

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RISKS

• Unanticipated employee benefit expense of $1.2 million due to high-cost medical claims in the quarter, impacting EPS by approximately $0.05 to $0.06, with management noting, "it a one-off in the last couple of years."
• Adjusted free cash flow decreased $400,000 (5.4%) in the quarter primarily because of increased capital expenditures, signaling a short-term drag on cash generation despite revenue and EBITDA growth.
• Project Trinity rollout is behind schedule, with management stating there is "frustration is that we're a little behind in terms of time frames," though long-term benefits are anticipated as integration advances.
• Management signaled that first quarter of 2026 will present a "tough comp" due to elevated prior-year flu-driven funeral volumes, which may weigh on short-term year-over-year growth rates.

SUMMARY

Carriage Services (NYSE:CSV) closed the year by emphasizing a shift into a compounding growth phase, marked by disciplined execution and intentional portfolio repositioning. Management cited completion of noncore business divestitures and targeted acquisitions, laying the groundwork for margin improvement and recurring earnings. Integrated technology initiatives like Sales Edge 2.0 and the advancement of Project Trinity are positioned to support operational scalability and data-driven decision-making moving forward. Guidance for 2026 embeds both more robust organic growth rates in funeral and cemetery operations and expectations of incremental revenue from yet-to-be-announced acquisitions. Expansion in overhead and capital expenditures is oriented toward system upgrades, new business integration, and continued improvement in core service delivery.

• Management signaled a growing focus on M&A as a central pillar of their capital allocation strategy, stating, "we truly believe now Carriage at its core is a consolidation company."
• The contribution margin for new acquisitions in 2026 guidance is modeled at the company’s average, with CFO Enwright noting, "we basically have them at the average margin, roughly."
• 2026 guidance does not include any upside from Project Trinity, per management’s clarification: "there is no expected impact of Trinity in 2026 guide."
• Company acknowledged a material overhead increase tied to incentive pay, IT investments, and Project Trinity, resulting in a projected overhead range that is above the stated long-term target.

INDUSTRY GLOSSARY

• Preneed Cemetery Sales: Advance sales of cemetery interment rights and associated products and services prior to death, supporting recurring revenue streams.
• EBITDA Margin: Earnings before interest, taxes, depreciation, and amortization expressed as a percentage of revenue, illustrating operating profitability for segment or company-wide results in the funeral and cemetery industry context.
• Project Trinity: Carriage Services’ multi-system technology initiative aimed at integrating sales, reporting, inventory, and operational workflows across funeral and cemetery operations.
• Sales Edge 2.0: Customer Relationship Management (CRM) software adopted by Carriage Services to drive preneed sales efforts and enhance sales funnel visibility.

Full Conference Call Transcript

Carlos Quezada: Thank you, Steve, and welcome to everyone joining us for today's fourth quarter and full year earnings call. As we close out 2025, I am incredibly proud of what our Carriage team has accomplished. This year reflects disciplined execution, cultural alignment and a relentless commitment to creating premier experiences for the families we serve. Before discussing our financial performance, I want to recognize every managing partner, every team member in the field and every support member across our organization. You are the heartbeat of Carriage. Our results are not accidental. They are the result of a clear vision, high expectations, accountability and a deep passion for this noble profession.

Thank you for living our values and for delivering excellence to every family every time. Today, I will highlight our financial performance for the fourth quarter and the full year and provide an update on the progress of some of our strategic objectives. John will then provide additional detail on our financial metrics, cash from operating activities, balance sheet strength, capital expenditures, overhead and 2026 guidance. Now to my report. 2025 was a year of defined purpose and intentional value creation. We continue to build a more scalable operating framework, optimize our supply chain processes, enhance our passion for service mindset and reactivated our disciplined growth strategy through high-quality acquisitions.

At the same time, we further strengthened our balance sheet and reinforced our capital allocation discipline. We are no longer in the rebuilding phase. We are now firmly in the compounding phase. Let's begin with the numbers. For the fourth quarter, we reported total revenue of $105.5 million, representing a solid 8% increase compared to the same period last year. When we look at each segment, total funeral operating revenue was $61.1 million, reflecting a 9.6% growth year-over-year. Funeral home operating volume was 10,571, an increase of 6.8% over the same period last year, while average revenue per contract was $5,777, an increase of 2.6% over the previous year's quarter.

This performance reflects our continued focus on strategic pricing, new burial information offerings, service mix optimization and steady execution in our businesses. As you may recall, December 2024 had lower-than-expected volumes due to a shift in the flu season that pushed volume to January. This December, we experienced a more typical flu season. Moving to total cemetery operating revenue. We finished the fourth quarter at $33.8 million, an increase of $5.3 million or 18.4% compared to the same quarter last year. This performance was primarily driven by a 25.5% increase in preneed cemetery sales production, a 15.6% increase in preneed interment rights sold and a 5.3% increase in the average sales per property contract.

Our cemetery performance continues to highlight the power of diverse inventory development, strategic pricing and focused preneed execution. Moving to total financial revenue. The company ended the quarter at $9.3 million, an increase of 15.3% compared to the same period last year, primarily driven by the strong performance of our trust fund investments. Preneed insurance contracts sold increased by 33.8% compared with the same quarter last year, reinforcing the continued strength of our funeral preneed insurance sales strategy and the outstanding work of our sales teams who continue to focus on the education of our families on the value of preplanning. Turning to profitability.

Adjusted consolidated EBITDA for the fourth quarter was $32.5 million, an increase of $3.2 million or 11%, and adjusted consolidated EBITDA margin was 30.8%, an increase of 80 basis points when compared to the same quarter the previous year. This margin expansion reflects the combined impact of our supply chain initiatives, strategic pricing and capital allocation discipline. Adjusted diluted EPS for the fourth quarter was $0.75 per share compared to $0.62 during the same quarter the previous year, an increase of $0.13 per share or 21%. Our fourth quarter of 2025 delivered strong performance, and we are pleased with the progress made. Now let's move to our full year performance.

Total revenue was $417.4 million, up from $404.2 million in 2024, representing a 3.3% growth. While reported revenue growth of 3.3% may appear modest at first glance, it significantly understates the company's underlying performance in the context of our portfolio repositioning. In 2025, the divestiture of noncore businesses negatively impacted revenue by approximately $9 million, and we acquired strategically selected high-quality assets in September, which contributed about $4 million in revenue. We expect these new businesses to reach $16 million in revenue in 2026.

Overall, while we felt the top line impact of the divestitures of noncore businesses in 2025, this portfolio optimization will enhance our ability to grow revenue and margins in the future and showcase our commitment to disciplined capital allocation and return of invested capital. Moving to adjusted consolidated EBITDA. We ended the year at $130.7 million, an increase of $4.4 million (sic) [ $4.5 million ] or 3.5%, while adjusted consolidated EBITDA margin finished at 31.3%, an increase of 10 basis points, both compared to the prior year. Adjusted diluted EPS was $3.20 per share compared to $2.65 per share, an increase of $0.55 or 20.8% compared to the prior year.

These results demonstrate the execution discipline of our operations and validate the effectiveness of our strategy to turn around the company. Over the past 3 years, we have rebuilt Carriage with intention, purpose and disciplined execution, not simply to improve performance and build credibility, but to create a more sustainable, profitable and predictable company. We have reshaped our revenue mix for higher quality earnings, institutionalized rigor with our operating system to reduce volatility and improve our margin profile through disciplined pricing, supply chain optimization and strategic capital allocation. These actions are designed to generate consistent cash flow, expand profitability over time and enhance earnings visibility.

Most importantly, our leadership teams are fully aligned and executing with accountability to deliver performance that we believe is repeatable and scalable. Moving to updates on our strategic initiatives. We continue to invest in systems and infrastructure to support disciplined growth, advancing continuous improvement initiatives, modernized technology platforms and enhanced reporting capabilities. These investments improve our reliability, visibility and decision-making quality, converting efforts into behaviors and repeatable outcomes. For example, we upgraded our sales infrastructure by deploying Sales Edge 2.0, our CRM, achieving approximately 80% adoption by year-end. The platform enhanced funnel visibility, campaign targeting and reporting precision, contributing $2.6 million in fourth quarter preneed production. In parallel, we fully integrated our preneed funeral sales strategy across the sales organization.

We expect Sales Edge 2.0 to become our preneed sales engine in 2026. At the same time, we develop our leadership capability and reinforce a meritocratic culture aligned with performance expectations. Culture at Carriage is a measurable economic asset that makes execution stronger, reduces risk and supports sustainable profitability. Our supply chain optimization strategy continues with our urn and casket core line initiatives now fully embedded across our organization. These strategies are driving purchasing consistency, margin improvement and a more curated presentation for families. We expect future optimization opportunities and additional national partnerships will allow us to further reduce complexity and enhance our operating leverage.

In closing, we're building a best-in-class death care company defined by premier experiences, a high-performance culture, meritocracy and accountability, all aligned with our 3 strategic objectives: disciplined capital allocation, purposeful growth and relentless improvement. Our performance in 2025 reflects disciplined execution guided by a clear, consistent framework rooted in our purpose to create premier experiences through innovation, empowered partnerships and elevated service. These are not aspirations. They are operating standards that guide capital deployment, operational decisions and long-term value creation. Our balance sheet is stronger. Our systems are more robust. Our acquisition engine is active and disciplined, and our culture is aligned with our 2030 vision. We're not chasing growth. We're building durable, predictable and compounding long-term shareholder value.

As we enter 2026, we do so with confidence, clarity and intention. Thank you for your continued trust and belief in Carriage. I will now turn the call over to John.

John Enwright: Thank you, Carlos, and thanks, everyone, for joining us today. Before I start, I'd like to look back on my first year at Carriage Services. I knew stepping into a new industry would bring professional growth, but what stood out most was the dedication and commitment throughout the organization. Our teams are truly unmatched in their focus on enhancing the care and service we provide for the families who choose us. I appreciate both our field and support center teams for everything you do each day. My comments today will primarily focus on performance in the fourth quarter of 2025 compared to the fourth quarter of 2024. After that, I will share our outlook for 2026.

We reported consolidated adjusted EBITDA of $32.5 million, representing 30.8% of revenue, an increase from $29.3 million or 30% of revenue in the fourth quarter of last year. The increase, both in absolute terms and percentage were driven by improved performance across our field operations, resulting in a $5.5 million increase in field EBITDA. However, this progress was partially offset by an unanticipated employee benefit expense of approximately $1.2 million, which stemmed from a few high-cost claimants during the quarter as well as higher volume of medical insurance claims filed in December of this year compared to previous year. Additionally, overhead expenses rose, which I'll discuss further shortly.

For the fourth quarter of 2025, our adjusted diluted EPS rose to $0.75, representing a 21% increase from $0.62 in the prior year. The previously mentioned unanticipated employee benefit expense in the fourth quarter of 2025 impacted diluted EPS by approximately $0.05 to $0.06. On a GAAP basis, diluted EPS for the fourth quarter was $0.77 compared to $0.62 in the same period last year. For the full year, GAAP diluted EPS increased by $1.15 or 54.8%, while adjusted diluted EPS grew by $0.55 or 20.8%. Moving to cash from operating activities. We saw an increase of $4.8 million over the prior year quarter or a 52.2% increase, primarily a result of year-over-year improvement in operating results.

Adjusted free cash flow in the quarter was down $400,000 or 5.4% from the prior year fourth quarter, primarily due to higher capital expenditures. Due to our ongoing commitment to disciplined capital allocation, our bank leverage ratio decreased to 4x from 4.3x at the close of the fourth quarter of 2024. In recent years, we've concentrated on enhancing operations and deploying capital efficiently. We're pleased to finish the year within our long-term leverage ratio target of 3.5x to 4x. Capital expenditures for the quarter totaled $7.9 million in the fourth quarter of 2025 compared to $4.4 million in the prior year's fourth quarter.

The $3.5 million increase was predominantly associated with growth capital, specifically investment in cemetery development, which allows us to continue to drive strong preneed cemetery sales production. For the quarter, we spent $5.2 million on growth capital and $2.7 million on maintenance capital. Overhead expenditures for the quarter totaled $15.2 million or 14.4% of revenues compared to $12.9 million or 13.2% of revenues in the fourth quarter of 2024. The increase was predominantly associated with higher incentive pay for the field based on performance for the year. On a full year basis, overhead expenses totaled $56.6 million or 13.6% of revenues, which aligns with our long-term target. Moving on to our 2026 outlook.

In forming an outlook for the upcoming year, we have shifted toward a growth-oriented approach, along with incorporating the projected full year benefits from our 2025 acquisitions. Additionally, we have factored in the expectation of certain potential acquisitions that we believe may be completed in 2026. Revenues are planned to be in the $440 million to $450 million range compared to $417.4 million in 2025, which represents a growth rate of approximately 5.5% to 8%. We expect same-store funeral growth in the low single digits and cemetery growth in the high single digits. Preneed cemetery sales production should remain within our 10% to 20% target range.

Adjusted consolidated EBITDA is forecasted at $135 million to $140 million for 2026, up from $130.7 million in 2025. Margins are expected to range between 30.5% to 31.5% compared to 2025 margin of 31.3%. Overhead is projected to be 13.5% to 14.5% a bit higher than our long-term goal of 13% to 14%, mainly due to expected increases in IT investments, ongoing Project Trinity rollout expenses and continued investment in talent. Based on these targets, we anticipate adjusted diluted EPS of $3.35 to $3.55 compared to $3.20 in 2025. Our adjusted diluted EPS will be somewhat impacted by our expected full year effective tax rate moving to a range of 28.5% to 29% compared to 26.7% in 2025.

Finally, we anticipate our adjusted free cash flow to be in the range of $40 million to $50 million, which assumes total capital expenditures in 2026 of $25 million to $30 million, reflective of the continued investment in our core business. That concludes our prepared remarks, and I will turn it over to the operator to open it up for questions.

Operator: [Operator Instructions] We'll take our first question from Alex Paris with Barrington Research.

Alexander Paris: Congrats on the strong finish to the year and the guide. My questions are in 3 parts. First, on the quarter, you beat on revenue pretty handily. And I think you said the acquisitions of the third quarter added around $4 million for the year. How much for the fourth quarter did they add?

John Enwright: They added about $3 million, generally speaking.

Alexander Paris: Okay. Adjusted EBITDA was in line despite that increase in overhead that you mentioned and the unanticipated insurance costs. Are those insurance costs included in overhead or no?

John Enwright: So they're spread between overhead as well as field margins. So predominantly, they're in field margins. But yes, there's an impact to overhead as well as we allocate.

Alexander Paris: Okay. And then adjusted EPS was a little bit lower than our expectations, but versus my model, you had higher interest expense and a higher tax rate than I had modeled. Anything else in there?

John Enwright: No, no, that's -- I mean, as you think about our expectations and how we guided to really, if we didn't have that unanticipated employee benefit expense, we would have fallen right within where we expected.

Alexander Paris: That's true. Okay. And then moving to guidance. Revenue growth, 5% to 8%, adjusted EBITDA 3% to 7%, adjusted EPS growth, 5% to 11%. My question is, what are the underlying assumptions for the low end and the high end? In other words, what would it take to get to the high end of guidance?

John Enwright: So from a high end of guidance, you would need to -- the impact of the new acquisitions would have to be at our high end. So we're estimating the acquisitions to be between $5 million and $10 million of impact to performance in 2026. So we would be at the high end of that. We would be at a little bit higher end of the -- our impact. So as you think about our funeral business, we expect low single-digit growth. That could be between 1% to 3% would be at the high end of that. And then in cemetery really between 6% and 8%, we'd be at the high end of that.

Alexander Paris: Got you. That's helpful. And then you said that, that guidance included an assumption for acquisitions that have not yet been announced. Can you quantify it? Perhaps you did in the prepared comments, but I missed it. And what's the methodology for including or not including? For example, are you at letter of intent stage by the time you increase it? What's the methodology for factoring in future acquisitions?

John Enwright: Yes. So the acquisitions, the impact to the guide is about $5 million or $10 million. We expect it to range within that. I can let Steve speak to kind of the perspective. But we -- both Carlos and I spoke in our prepared remarks, be more focused on growth and being growth oriented. And ultimately, based on that, as we are more proactive in our M&A program, we felt it appropriate to apply something this year.

Carlos Quezada: This is Carlos. I just want to reinforce. So as you remember, we spent the most part of the last 3 years trying to get all the systems updated, the foundation for growth for the company and really focusing on paying down our debt to a range that we feel comfortable, which is that 3.5x to 4x. We achieved the 4x as we close 2025. And we truly believe now Carriage at its core is a consolidation company. So really trying to advance and make some rapid moves on growth from an M&A perspective in organically speaking. And I truly believe this is why we want to signal to our investors that within the guidance that we're ready for that.

Alexander Paris: That's great. The point of clarification though, the high end of guidance includes a $5 million to $10 million impact year-over-year from I assume the third quarter acquisitions. And then you're saying there's potentially another $5 million to $10 million in acquisitions that you expect to make in 2026.

John Enwright: Yes. So that's a great clarification. So for 2026 results, we expect the acquisitions that happened in 2025 to generate about $16 million worth of revenue. You have to net that against the $4 million that they had in 2025 as well as the divested revenue that we had in 2025 of about $9.7 million. So the impact of just that program is probably an increment of about $4 million, right, roughly. In 2026, we're estimating new acquisitions that we believe will have $5 million to $10 million of impact to revenue.

Alexander Paris: Okay. Good. And then in terms of new acquisitions, I don't know if I fully heard the answer. Are these specific acquisitions that you're talking about or just a methodology to include some sort of number for acquisitions since you're a consolidator?

Steve Metzger: Alex, it's Steve. So it's a combination of both. So at this point, we -- last year, we talked a little bit about investing in more resources internally to make sure we can be more proactive on sourcing deals. And so we are talking to more owners, quite frankly, than at any time during my 8 years at Carriage. And we still balance that with looking for a very particular type of business. So at this point, we've got more that we will be able to report next quarter on some ongoing discussions with owners who are ready. So we're excited to talk about that when the time is appropriate.

But parallel to that, we're talking with a number of owners who are getting comfortable and we're getting comfortable with them with some potential opportunities this year. So it's a little bit of both. We've got some that are closer to, call it, seventh or eighth inning and then some that are earlier innings.

Alexander Paris: Got you. Okay. And then the last question is I was wondering if we can get an update on the Q3 acquisitions. They had roughly $15 million in revenue in 2024. That's what you had announced at the time of the acquisition. You're saying that they're going to be $16 million in 2026 after having contributed a partial year of $4 million in 2025. So now that we're back in the M&A business after the hiatus, what is the integration process for acquisitions once closed? What is step 1, step 2, step 3? And where are we on the integration process for those Orlando-based acquisitions?

John Enwright: It's a great question. And I would -- I'd reframe it a little bit. So the integration process really for us begins before close. So we've dialed in with our continuous improvement team, a more structured management approach to systems, employment, onboarding, policies and procedures. And we begin all of that before close, obviously, in partnership with the sellers, so we can hit the ground running on day 1. As it relates to these 2 acquisitions, very different acquisitions, although both in really strong markets. So starting with Osceola, as we talked about before, Osceola is unique in that it allows for a holistic operation in the Kissimmee market.

So between the cemetery and the opportunities on cemetery development, I think we're really excited there. So we will have some new development, significant development available for the folks in Kissimmee here in just a few months. We have been working on that development before close. The preneed opportunity for both Kissimmee and then Faith Chapel in Pensacola is significant. So we've got our preneed teams ramped up there to try and take advantage of that as well. But I would say both businesses are pretty mature, but both have a lot of opportunity. And we're seeing steady progress from, call it, day 1 back in late September to where we are now.

January was the strongest month by far for both businesses. So we're seeing kind of that preplanning on the integration side paying off for us based on kind of historical approach and look forward to seeing what they'll do this year.

Operator: We'll take our next question from John Franzreb with Sidoti & Company.

John Franzreb: Congratulations on a good year. I'd actually like to start the fourth quarter. Carlos, you mentioned that flu activity returned to normalcy, if you will, in the December period, specifically in December and of itself was very active. I'm curious what you saw in January. We're seeing the secondary resurgence of the flu. I'm curious about the comps on a year-over-year basis and how they could play out considering last year was so particularly strong.

Carlos Quezada: That's a great question, John. Thank you for the question. And so as you know, and I mentioned on my prepared remarks, December 2024 came pretty light as a consequence, we believe, to the push of the flu season into January of 2025. This last year, 2025, December came as a normal flu season. So we saw that activity volume increase on a comparable basis, December '25 to '24. And then January, it came out quite light on a comparable basis on volume.

However, I still feel pretty strong of our performance because we're able to make up that loss of volume on a comparable basis because the flu season came earlier and we still end up having a pretty decent -- I don't want to disclose too much, but January looks good even after the, let's call it, the alignment of the flu season between December and January over the past year.

John Franzreb: And what are the prospects for year-over-year growth in the first quarter versus last year's first quarter, given the tough comp?

Carlos Quezada: Your question was on volume?

John Enwright: Yes. I think the first quarter will be a little bit tougher this year from a comparable perspective because the first quarter was strong throughout the whole quarter because of the flu season in January, February and a little bit into March. So to Carlos' earlier point, we're not going to disclose exactly how we're performing, but we're happy with the performance, but it will be a tougher comp.

John Franzreb: Got it. Got it. And where do you stand in the supply chain optimization process at this point? Can you give us an update there?

John Enwright: Yes. I would say, and Steve, please jump in if you have anything different to say. I would say we're still in the early innings of that program. We really started in 2024 with one individual kind of running that program. And in '25, we've got the program up to a little bit more speed. But I would say we still have opportunity there, and we'll see some more opportunity as we see 2026 results and into '27 results.

Carlos Quezada: John, it's also a great question. I want to give you a little more context to that. It's a new department we started probably about 2 years ago, beginning of 2 years ago. And a slow start, just to be honest with you, we were able to deliver the caskets, urns, a couple of other things, but there's so much opportunity. And part of the challenge was that we're trying to change a lot of things operationally and system-wise at Carriage. And at the time, as you may remember, it was really just from a senior leadership perspective, Steve and me driving those initiatives.

And so this year, we have realigned with the changes we made and the promotions we made to allow for more focused work. So now supply chain actually reports to John, and John can place a more specific emphasis to supply chain and accelerate the journey on that side. At the same time, that Steve can put more focus on the operational side moving forward and continue to grow our organic strategy through M&A activity.

John Franzreb: Got it. Makes sense. One last question on the M&A. It seemed like last conference call that the expectation was there's going to be a lot of closure activity in the first quarter. Reading between the lines, it sounds like now that's been extended maybe a little bit. Is that a function of multiples have gone up? Or is there something else that we should be aware of?

John Enwright: Yes, John, I don't think it's a product of multiples going up. I think we're seeing those remain pretty steady. And obviously, we remain disciplined in how we approach it. It really is a matter of sellers being ready and us respecting their time lines, but also us being pretty selective. So again, the type of business we're looking for, it's a smaller group of businesses that are going to fit that profile. So there's a number of folks out there, but their time line is just as important as ours.

Operator: We'll take our next question from George Kelly with ROTH Capital Partners.

George Kelly: First one on your guide for 2026. There's a CapEx step-up versus what you've been doing in recent years. So I was wondering if that's related to a specific project or more maintenance related or just any kind of context around your CapEx guide.

John Enwright: Yes. So over the last couple of years, as we've been very disciplined in our capital allocation, we've pulled back a little bit of maintenance. So there's going to be more maintenance in 2026 than there was in '25 and '24. And we're thoughtful on what we're going to do, but there's some just needed to be done. Also, there is still some additional growth capital, right? For us to continue to deliver 10% to 20% in preneed cemetery sales, we have to develop some cemeteries and there's also some incremental capital associated with that.

George Kelly: And is that $25 million to $30 million -- I'm hearing feedback. But is that a good sort of go-forward number to use beyond '26? Or is this kind of a 1-year maintenance catch-up?

John Enwright: Yes. I would use -- I think I would use, yes, $25 million to $30 million is probably a good going-forward number.

Carlos Quezada: Yes, George, if you remember, even you go back to '20, '21, '22, we're doing $22 million, $24 million, $26 million of just maintenance and growth CapEx at the time. And we did ask our managing partners to give us an opportunity to use some of that so we can pay down our debt. And they did, they were very patient for a little over 3 years. And now it is really time to give back to them some of that. And I think the $25 million to $30 million is really the right range going forward.

George Kelly: Okay. Sounds good. And then just a couple of other ones for you. On Trinity, can you walk through the expectations for the year, the rollout testing, what you're most excited about? Just an update on that front would be helpful.

John Enwright: Yes. So from a rollout perspective, we still anticipate a rollout in the, call it, second quarter. So right now, we're still in pilot phase. So we have a location in pilot phase. We're looking to move to a pilot phase for a second location shortly. And if successful, we expect to roll out our funeral homes into basically the beginning of the third quarter, ultimately maybe at the end of the fourth quarter. And then what we would do after that is the cemetery locations or the combos is really where we think the rollout. So there will be some rollout into 2027.

Carlos Quezada: And just to give you more context, George, the truth is that we are behind with Trinity. That's the bad news. The good news is Trinity became so much more robust in terms of system integrations, API connectivity, reporting capability, our ability to track loved ones and chain of custody, our ability to increase our sales average per contract based on inventory and core lines and things of that nature. So the excitement is very, very high. The frustration is that we're a little behind in terms of time frames, but the solution has become a lot more robust with automation, AI and other components that initially were not part of the scope. So there is a lot of excitement.

There is a lot of good energy going into 2026 because of all that Trinity means, which is they collectively -- so Trinity means all of the systems that basically tap into our ERP system.

George Kelly: Okay. Maybe just one more on Trinity. Is there much of an uplift to the contract -- the average price per contract that's baked into your guide? And if not, Carlos, are you still based maybe on what you're seeing in the pilot or just generally, are you still optimistic that it can really drive a lot of pricing growth per contract?

Carlos Quezada: I'm still very optimistic that we can continue to grow our sales average revenue per contract. We have been able to achieve that and to absorb the cost and then pass on the cost to the consumer. However, it's a phased approach. And what I mean by that is, right now, we have -- thinking of more in manual presentation. We have offerings. We have materials that we present to the families that they can see. As Trinity rolls out, it will still be a combination of a manual process with the system process.

And the phase that follows to that is integrating to a full digital experience to Trinity that embeds the presentation and the contract in the same moment. And so it will be a phased approach. Now that phased approach will not slow us down from the point of view of still presenting the full story with all of the options to all families regardless where they choose burial or cremation.

John Enwright: And then to answer the question on whether or not we factored in any increases in sales performance into the guide, we did not, right? So there is no expected impact of Trinity in 2026 guide.

George Kelly: Okay. And then last one for me is just about the M&A that's contemplated in your guide. How much do you factor in or how much do you expect to pay for those transactions? What's like the value? And where do you expect to end the year on a net leverage basis? And that's all I have.

John Enwright: Yes. So again, from a multiple perspective, we're going to be disciplined. So it depends on the asset that we get because they're not all identified asset. But you can think about from an EBITDA multiple perspective, anywhere between 7 and 9 is probably a fair way to think about that. And from a debt leverage perspective, we expect to end the year based on hitting performance between 3.9x and 4x.

Operator: We'll take our next question from Parker Snure with Raymond James.

Parker Snure: Just kind of drilling down on the first quarter, I know you mentioned it's a tough comp. Are you seeing any impact from the first quarter, the winter storms or just generally the poor weather that we're seeing across the country? I guess more so on the preneed side, is that affecting any sales activity? And then also just more broadly on the entire business?

Carlos Quezada: If I give you a little bit of -- well, first Parker, thanks for the question. But if I give you a little bit of an insight on January 2026 going into our full first quarter for the year, from a comp perspective on volume, we do see a decline because January of 2025 was so strong because of that push back of the flu season from December. However, we're very pleased, as John mentioned, on our performance because our continued cemetery performance made up and then some of that plus our sales average per contract continues to remain very strong. Our ability to convert direct cremation to cremation, it's an area of focus for us.

Cremation mix continues to be within our range and is not growing at any fast rate as we have seen in some other consolidators out there. And so it's really exciting that even with a bad comp from a plugging perspective, we still have very positive results as a financial -- from a financial perspective overall in January of 2026.

Parker Snure: Okay. Okay. And then I guess just more of a bigger picture question. I like the comments you said you're moving out of the rebuilding phase into the compounding phase. And Carlos, you've undertaken a fair amount of strategic changes since taking the seat. I guess what is the next strategic frontier in your view for the business? What's the next initiative? And maybe there isn't one, maybe it's just executing on kind of the good work that you guys have done so far, but maybe just kind of speak high level on just kind of your views on the forward-looking kind of strategic initiatives for the business.

Carlos Quezada: That's a great question. So not wrong, there's been a lot of work, whether it is continuous improvement strategies and departments that are now meeting and guiding our decisions at Carriage. Our framework for decision-making within our 3 strategic objectives, all the focus on margin expansion to our supply chain strategy. And of course, all the different changes we have made over the last probably 3 years with leadership. We have now a new structure within executive rank. And so for us right now, it's really to capitalize, maximize and really optimize all those changes we have made.

I don't really have more changes that I have in my head other than deliver Trinity and really maximize and optimize the field engagement and opportunity to increase our opportunity with families through that solution to help and support Steve on the operational side and continue to grow sales at our 10% to 20% year-over-year preneed production rate. But most -- and most important, our main focus now other than optimizing what we have done over the last few years is really our focus on M&A.

Parker Snure: Okay. Yes. And just maybe just -- I know this question has been asked kind of a few times in a different way, but just broadly on capital allocation priorities. You expect to do $40 million to $50 million of free cash flow this year. There are some deals that are built into the 2026 guidance, more focused on growth. Your leverage is around 4x. I think you kind of want to keep it in that range. But just how should we think more broadly about the split of how you're going to spend your free cash flow going forward? Are we kind of -- is it going to be kind of 50-50, more levered towards M&A?

And just how do you think broadly about that whole kind of dynamic moving forward?

Carlos Quezada: We want to take an opportunistic view of the deals as they come, right? And so we have our plan. We have an idea of how that could be structured from a guidance perspective, and John did mention some of the ranges there. But they have flexibility, right? And so for example, if you have a deal, let's just say another Fairfax comes through and we may be willing to pay a little more multiple for something like that. And then we will have to move some of the flexibility we have within our balance sheet to decide if that's the right deal to do or not.

If the stock were to -- for some black swan event, we would consider that and put our numbers and make the best decision on behalf of the shareholders. We will look at all of the opportunities as they come from a very opportunistic point of view within our disciplined capital allocation framework. Does that make sense?

Parker Snure: Yes, I absolutely understood.

Operator: For our next question, we'll return to John Franzreb with Sidoti & Company.

John Franzreb: Yes. I'm actually a little curious about the $1.2 million of medical insurance cost that you incurred in the quarter. How unusual is that on a year-to-year basis? I mean, was the full year number much bigger than that? Or just contextualize it for us maybe?

John Enwright: Yes. So I can speak to the actual activity, and I've only been here a year. But we've done a really nice job from an employee benefits perspective over the last few years. There's -- being a smaller company, there's a large claim that happened. When you have large claimants that happen, ultimately, that can impact results. We haven't had a significant claim over the last few years. So I would say that was a, call it a one-off in the last couple of years. The activity associated with December results versus the December of the last 2 years, I can't really speak to why that happened, but it was just -- I mean it can happen.

So I would say we have planned for it in the guide, we have planned for what we believe is the appropriate expense associated with employee benefits, taking into consideration what happened in 2025.

Carlos Quezada: Yes. We typically look at 3 years to figure it out what the right reserve should be for claims and things like that. And we are a self-insured company from our point of view, right? And so we also have a tremendous focus on health benefits for the employees. We have a tremendous focus on making sure that all of our employees are active, are keeping their numbers within the range and helping in any way we can to drive that health performance of the company overall. But sometimes, even we haven't seen it in a long time, you get an event.

In this case, it was one major event and then maybe a couple of other events that add up to that number that you cannot really expect. It just happened. These are major things, right? I can't really disclose much, but you have hard events, rain situation events, and we just have to be responsive to the employee when those happen.

John Franzreb: Got it. I just appreciate the clarity and how -- and the frequency of it all. That's what I was kind of looking for.

Operator: For our next question, we'll return to George Kelly with ROTH Capital Partners.

George Kelly: Just a quick one. How much EBITDA contribution from your -- the 2026 M&A is baked into your guide?

John Enwright: So we basically -- in the '26 guide, so are you asking about the new acquisition, the $5 million to $10 million?

George Kelly: Correct.

John Enwright: Yes. So we basically have them at the average margin, roughly, call it, 30%.

Operator: It appears there are no further questions at this time. I'd like to turn the conference back over to Carlos for any additional or closing remarks.

Carlos Quezada: Thank you, operator, and thank you for your trust, your partnership and your continued belief in Carriage. We are building a disciplined high-performance company with a clear purpose, a focused strategy and the intention to execute with excellence. We look forward to updating you next quarter as we continue creating long-term value for our shareholders, our teams and the families we serve. Have a great day.

Operator: This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.

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