Carriage Services Inc (CSV) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Carriage Services fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Friday, February the 25th of 2005. I would now like to turn the conference over to Ken Dennard, Managing Partner of DRG&E. Please go ahead, sir.

Thank you, Mary, and good morning to everyone. We appreciate you joining us for Carriage Services conference call to review fourth-quarter and 2004 year-end results.

Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on an e-mail distribution list or fax list to receive future Carriage Services releases or if you experienced any technical difficulties and did not receive your e-mail or fax yesterday afternoon, please call our offices at DRG&E and relay that information to folks in our office. That number is 713-529-6600.

If you would like to listen to a replay of today's call, it will be available via webcast a couple a hours from now by going to Carriage Services.com. Additionally, they will be a telephonic instant replay for the next 7 days, 24 hours a day, and that information to access that feature is in the press release.

Please note that information reported on this call speaks only as of today, February 25th, 2005. And, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening.

Also as you know, certain statements made today in the conference call or elsewhere by or on behalf of the Company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E in the Securities Act of 1934 as amended. These statements are based upon assumptions that the Company believes are reasonable. However, many factors that are discussed under forward-looking statements and cautionary statements in the Company's annual report on Form 10-K for the year ended December 31st, 2003 and subsequent Form 10-Qs could cause the Company's results in the future to differ materially from the forward-looking statements made today and in other documents or oral made presentations made by or on behalf of the Company. A copy of the Company's Form 10-K, Form 10-Qs and other Carriage Services information and new releases are available at the Company's web site.

Now with me today is Mel Payne, Carriage Services' Chairman and Chief Executive Officer, and Joe Saporito, Chief Financial Officer. I would now like to turn the call over to Mel.

Thank you, Ken. It's a real pleasure to be here today to speak to you about our performance in 2004. Before we get into the details of that performance, however, I would like to go over a little bit of history because I think this is an appropriate time.

Carriage was the new kid on the block in the death care industry as far as a public company, going public in 1996 just as the market was accelerating and quite a bit of EPS mania was underway. We spend $400 million in 1996, 1997, 1998 and 1999 -- well over 100 acquisitions, maybe 150. I shudder to try and remember that, growing the Company into a critical mass of operations.

However, we have covered this in prior reports and annual reports. We, like the rest of the industry, grew too fast, made a lot of mistakes, overpaid -- a number of things that companies to do when the capital markets will allow it.

In 2000 when all the industries stopped acquisitions and begin to get serious about operations, we entered a period we call fresh start restructuring. It was a period of digestion, integration of operations we had previously bought, divesting those that never fit or wouldn't fit going forward, operational improvements, deleveraging and, most important, finding strong leadership that could grow and operate the Company.

We've done a good job over the last five years, and we have laid some of that out over this period of time. But 2004 was the finale of that phase, which was the second phase of Carriage. It was the period in which we grew up, we toughened up, and I think we are a lot smarter and a lot more nimble and a lot more entrepreneurial as an operating company today.

2004 was a very interesting year, and I looked back at the annual report last year, and in it, I ended that letter by saying that our goal was to organizationally and financially reposition Carriage for future growth through selective acquisitions by 2006.

Well, we beat that by a year. 2004 was a transformational year because of several major reasons. We instituted a new funeral operating model that was much more decentralized against local execution, against decentralized and best practiced standards developed by our best operators. It has focused us in the way we never focus before on the drivers of the funeral business, what really counts over the long period, which is market share and improving the leadership both at the location and in the corporate organization.

A lot of work has gone on beneath the surface, some of which reflected itself in performance in 2004, much of which will be reflected in the performance going forward. We have learned to run our Company for cash without putting stress on the operations, and we are getting even better at it by using technology in our operations and in our home office processes.

Our free cash flow improved substantially in 2004 and will continue to improve. It allowed us to pay down our debt $25 million in 2004, almost 19 percent of our senior debt. By doing that, it set up a refinancing which we initiated late in 2004 and finalized in January of 2005 of $130 million 7 7/8 senior notes for 10 years.

For the last five years, we, like the rest of the industry, have been living from refinancing to refinancing, deleveraging. And so this was the finale that allowed us to repay all our senior debt -- bank, insurance company, no more concern about restrictive covenants that limit our flexibility. These covenants and the great support we got from our lenders served their purposes, but had outgrown their purpose. This allowed us now to take the handcuffs off and to do what we do best, which is now grow the company and operate better what we already have and what we will buy.

With this refinancing, we also put $11 million in the bank, and that starting kitty plus our free cash flow, which we have laid out in the forecast to be $12 to $13 million will finance selective acquisitions over the next 5 years without increasing the debt of the Company.

We like the position the Company is in today. We are excited about it. We are breathing easy. Of course, there are challenges, and I will respond to some of those, including the weaknesses in volumes in the Q&A question period. But we are producing high margins both at the location level, both our cemetery/funeral home divisions. We think we can get better.

Our corporate EBITDA margins of about 26 percent are high in the sector, even though we are new on the block and our portfolio is probably not nearly as big on average as some of the others. We know that our corporate EBITDA margin can increase and that we can leverage an infrastructure that we have been working on very hard. Without growing the overhead, we can grow the revenue and earnings of the Company from this point on.

I'll be glad to talk about criteria of the acquisitions and how we look at the environment, but we have a competitive advantage because of our size. We don't need to do much to make an impact on the performance of our Company.

So I would like to end this beginning of the conference call by saying that we have had a lot of hard work by a lot of great people, many of them new to the company. But the leadership beneath the surface has been quiet. It is strong, and we have never been in a better position to start the next phase of our Company.

With that, I would like to turn it over to Joe.

Thank you, Mel. Good morning, everyone. I go through the financial highlights of the quarter and the year and then turn to the 2005 outlook.

We reported consolidated revenues of 36.6 million, EBITDA of 9.8 million and diluted earnings per share from continuing operations of 32 cents for the fourth quarter of 2004. Earnings included a tax benefit for deferred tax assets in the amount of 4.1 million or 22 cents per share. Excluding the tax benefit, we reported diluted earnings per share of 10 cents compared to 8 cents for the fourth quarter of 2003. Net income totaled 30 cents per diluted share. Excluding the effect of a tax benefit, net income totaled 8 cents per diluted share and includes a pretax impairment charge of 600,000 or 2 cents for two businesses to be sold.

For the year, diluted earnings per share from continuing operations were 60 cents. Excluding the tax benefit, earnings per diluted share increased from 33 cents to 38 cents or 15.2 percent. The improvement was attributable to lower interest expense and increased profitability of our funeral and cemetery segments.

Net income, which includes the effect of discontinued operations, totaled 51 cents per diluted share. Excluding the tax benefit, net income was 29 cents per diluted share compared to 37 cents for 2003. A significant portion of the decrease is attributable to pretax impairment charges of 3.7 million or 13 cents per diluted share net of pretax gains of 1 million or 3 cents per diluted share from the sale of three funeral home businesses.

We generated 4.7 million of free cash flow during the fourth quarter, which combined with proceeds from the sale of businesses in the amount of approximately $800,000, and other sources of cash enabled us to reduce senior debt in the fourth quarter by $6 million. The Company generated 18.5 million of free cash flow for the year, which includes the benefit of deferring interest payments on our convertible junior subordinated debentures, and the amount of that deferral was $7 million.

Carriage's senior debt, which excludes the convertible subordinated debentures payable to the Company's affiliated trust, totaled 110.3 million at December 31, 2004, compared to 135.3 million at December 31, 2003, a reduction of 25 million or 18.5 percent. Senior debt to total capitalization during the year declined to 34 percent from 41 percent last year.

Turning to the funeral operations, we continue to be challenged by weak death rates and market share losses in some of our funeral home markets. While our funeral operating model places significant emphasis on increasing market share, we believe meaningful market share gains for our portfolio will take longer to materialize. However, we were very pleased with the significant increase in average revenue per contract and our improved margins.

For the quarter, same-store funeral revenue decreased by 4.8 percent. Same-store contracts decreased 10.3 percent and average revenue per contract increased 6 to 1 percent. Our cremation rate was 31.7 percent compared to 31 percent in the fourth quarter of last year, and average revenue per cremation service increased by 6.4 percent to $2422 per contract when compared to last year, and we were very pleased with that increase.

The full year same-store revenue increased slightly from 111.7 million to 112.3 million. Same-store contracts decreased from 23,564 to 22,905 or a 2.8 percent decrease, and same-store revenue per contract increased from $4742 to $4903 or 3.4 percent. Year-over-year the cremation rate increased from 29.7 percent to 31.3 percent, and our average revenue per cremation service increased 1.8 percent for the year.

Our cemetery revenues in the fourth quarter increased 2.7 percent to 8.8 million because we sold more property compared to the fourth quarter of 2003. Cemetery gross profit for the current year quarter increased by 400,000 or 21 percent compared to the prior-your quarter due primarily to the higher cemetery revenues and a 2.4 percent reduction in expenses, primarily property taxes and professional fees.

For the full year, cemetery revenues increased 3 million or 8.8 percent. Operating revenue increased 3.5 million or 11.1 percent, and financial revenues declined by 600,000 or 15.8 percent.

Operating revenue benefited from a 2.6 million increase. That was 23.8 percent in preneed property sales. Lower financial revenues were caused by lower earnings on perpetual care trust funds.

Cemetery gross profit increased year-over-year by 400,000, primarily on the strength of higher revenues. However, cemetery costs and expenses increased 10.4 percent, and the cemetery gross margin declined about 110 basis points to 23.7 percent, primarily because of higher bad debt and promotional expenses.

Now I'll turn to the first-quarter and full-year 2005 outlook. Our 2005 outlook estimates results from continuing operations, and that is key to also same-store volumes. The outlook excludes the effect of asset acquisitions or dispositions and early extinguishment of debt, which I'll talk about in a few minutes.

The key assumptions for our 2005 outlook are as follows. The upper end of the outlook range assumes funeral same-store volumes are flat compared to 2004, and the lower end assumes an approximate 2 percent decrease in same-store volumes.

The average revenue per funeral contract is assumed to increase approximately 2.5 percent. Senior debt outstanding increases from 110.3 million at year end to 143 million after our refinancing, which occurred in January of 2005. We expect no borrowings on our 35 million bank credit facility during 2005.

The cumulative deferred distributions on our convertible junior subordinated debentures totaled 10.9 million at year end, and those will be paid on March 1, 2005, and the distributions are assumed to be paid currently thereafter. We expect to fund approximately $6 million in capital expenditures during 2005, and we expect to use free cash flow to acquire businesses if and when available on acceptable terms. We assume free cash flow has invested in short-term investments, and we expect our cash and short-term investments will total approximately 25 million by year-end 2005.

We have included some detailed tables in our press release that go through our first quarter and outlook for the year, and I'll just touch on the highlights from those tables in order to go through them quickly.

Our revenue projection for the first quarter is 39 to 41 million. Our adjusted net earnings per share, 14 to 17 cents, and our adjusted EBITDA is 11.8 million to 12.8 million.

For the full year, we expect revenues to be between 151 and 155 million. Adjusted net earnings per share to be 31 to 36 cents. Adjusted EBITDA is 40 to 41.6 million. Adjusted free cash flow is 12 to 13.5 million. The free cash flow that we are reporting here excludes the payment of the cumulative deferred distribution on our TIDES security, and the comparable numbers for 2004 and 2003 are 11.4 million and for 5.1 million.

While we expect free cash flow to improve in 2005, a number of factors may negatively affect earnings per share. The most significant of these factors are as follows. We expect additional interest expense net of investment income to impact earnings per share by 4 cents. We have certain costs of implementing systems and to comply with the internal control reporting requirement for Sarbanes-Oxley, and that is approximately 3 cents. And there are a couple of non-cash items that will impact earnings per share. One is increased depreciation and amortization of 3 cents and non-cash compensation related to restrictive stock grants and, later in the year, the impact of stock options. We expect that to be about 2 cents.

In connection with the early retirement of our senior debt from the proceeds of our refinancing in January, we made a required make-hole payment of $6 million in the form of additional interest and recorded a charge to write off $700,000 of unamortized loan costs. These charges equal 4.1 million after-tax or 23 cents per diluted share and will be reported in the first quarter of 2005. Mel?

Thank you, Joe. With that, I would like to open it up for Q&A.

(OPERATOR INSTRUCTIONS). Bill Burns with Johnson Rice. Please go ahead.

I am trying to get a handle on liquidity just to give me a base point for starting up my models in '04. Could you tell me how much cash and cash equivalents you have on hand currently?

By currently, you mean at the end of 2004?

Well, no. I would like to do it after the (multiple speakers) refinancing.

As of today, we have about 24 million of cash in the bank. But remember, we have to pay the cumulative deferred distributions on the TIDES --

Which is like next Tuesday or something; right?

Yes, at March 1st, and that's about $11 million.

(indiscernible). And that's what I'm trying to say. We are going to then back out from that the cumulative on the preferred?

Correct.

And that will give me a good cash balance to start with?

Correct.

The other thing -- you were talking about your outlook. You are going to be expensing options in 2005? That earnings per share number reflected that?

Yes. We expect that in the third quarter we will have to adopt the new accounting standard on stock options, and we will start to expense the compensation charge for stock options at that point.

In the third quarter?

In the third quarter.

That was my understanding. So the 2 cents, I think it was, represents just half a year?

The 2 cents represents two quarters of comp charges on the stock options, plus the increase in the charge for restricted stock. We have been using restricted stock now for about two years in lieu of options for our executive officers.

Let me backup in queue. I have got another question, but I'll wait. Thank you.

Mike Sarangella (ph) with Merrill Lynch.

I wonder if we could delve into the volume softness in the quarter a little bit, 10.3 percent. I know you attribute a lot of it to softness in the flu, which I think makes sense. But you also mention some marketshare losses in some markets. Is there any way to try to separate out those two and to try to figure out how much came from marketshare losses? And if there is any kind of anecdotal evidence you can give us about marketshare gains and losses, that would be helpful.

That's a good question, Mike, and one that weighs heavily on our mind. We ended September quarter flat in volumes for the year, but it wasn't steady-state. We actually started out 2004 with volumes being up 12 percent in January because of a real strong flu season that started mid-December '03 and continued through January. It was like a six-week very heavy period of deaths associated with pneumonia and flu.

I knew at the time, having been in this now for 14 years, that we were going to be giving it back for the rest of the year. And sure enough, that is exactly what happened. We begin to have small, same-store, year-over-year declines on a monthly basis, and we were pretty happy with that until December. And in December, it was pretty amazing. We just didn't have any flu, and we were scratching our heads as to whether it was us, whether it was the industry, whether it was marketshare. We went to work trying to figure out -- because in this business, you don't just lose marketshare in one month; it's a long-term business.

What we have done -- and as I mentioned, we did the standards starting at beginning of 2004. We have three major areas, the first one being marketshare and volumes. But part of that standard is an obit relative comparison by market to every competitor. We have been tracking this data for years and went back in late 2003 developed a standard around it that allows us -- we always looked at it from time to time, but we never looked at it all the time and made sure our people in the location were looking at it every morning in the paper like an owner does.

So we have what we think is a good data bank. We went to work looking at years of history, which we already had and had been looking at. But we went to work looking at it in terms of that December decline, to try and separate out for our own account what was death rate and what was marketshare for '04. And we've done a pretty good job, I think. And this is not perfect; it's certainly not perfect. But I think it is, over time, a reliable indicator.

We have 94 businesses. We have more rooftops, but we have 94 businesses, reportable businesses with a business boss we call a managing partner. In 2004 well over half of those businesses were actually growing marketshare, if we look at the obit comparison. Maybe 40 percent were losing; but when I say losing, that means that they just had a year-over year-year decline in their percentage of obits in that market.

What we find is that 3 percent in any one year is statistically relevant. If it's less than 3 percent, say 0.5 percent or 1.5 percent in one year, it just could be a yearly variation.

So we started again to look at what was over 3 percent. We had 27 businesses out of 94 that fit the description. Of those 27, however, we did a further -- those 27 accounted for all of the contract loss in the company for 2004. The rest of the portfolio, which is 27 from 94, were actually growing volumes. Some may have been up, some may have been down, but they were generally growing.

So it was a small group that cost most of the loss, and when we looked at how many contracts those 27 business were down, it was 837, of which about 200 were attributed to marketshare -- I mean, death rate -- and about 620 marketshare.

So we know where we are losing marketshare, and we know why. And in a lot of these cases, fixes have been already instituted. I could talk for days about what those look like and what to expect. But I know that this model has focused us on the right things, the right way at the right time. A lot of it relates to leadership, but then there are some other strategies including pre-need and others that we're using.

Of that group of 27 businesses, we actually had 15 that accounted for most of that loss, marketshare loss. And the group actually went down on a year-over-year basis about 1.3 million in EBITDA. So if that group had just been even to the prior year, our EBITDA, which went up for the first time in three years, would have been up even more. So the challenge is to stabilize the marketshare, strengthen the leadership, start growing and turning around those businesses so that we have the rest of the portfolio getting more lift, and then these are not holding them back.

But I can tell you, we know where the problems are. We know why they are the problems. We know where we are losing the marketshare.

Now, having said all that, I touched base with some other vendors and so on. And in the fourth quarter, the information I got is that a lot of independents, not just the consolidators, and a lot of vendors were down double digits, just like we were in volumes. That might make sort of misery good company, but that is not how we look at things. We don't view that as an excuse; we look at our own Company and say, what are the problems and let's fix them. So I hope that answers your question.

I appreciate you sharing that data; it's helpful. So I assume if I kind of crunch all those numbers, will I get to a place where it looks like most of the 10 percent volume decline is related to flu or death rate and not related to marketshare? And the reason I say that is because you are looking for a 2 percent decrease next year, so I assume that you think that 80 percent of the quarter's drop will go away on a go-forward basis?

That's right. I think -- we have been looking at birthrates in the 30s and early '40s. We have been looking at people living longer. We have been looking at flu things. I can't control any of that. We can control, over time, how well we do in each market. But I would say that we are trying to be conservative here on the negative 2 percent.

Just one follow-up question. The 15 facilities that you think have most of the marketshare loss, is that number kind of up, down or flat from prior periods?

Well, we've had three straight years of declines, so I would say it's probably similar.

I just trying to figure out --

It's not --

(multiple speakers) -- have always been on the radar screen, or is this a new initiative?

Yes. Looking at this group, they tend to have been -- not all of them; there may be five of the 15 that -- and I can see some on here that probably are going to bounce right back. The 3 percent -- they got put in there because it is statistically relevant. That doesn't mean that they won't bounce back in marketshare, because some of them I am looking at, and you don't know why they did that. I mean there is strong leadership, strong market position. And some of them I went back and looked, and they had the precedent to this in a prior year. Maybe three years ago, they lost 3.5 percent, and then they bounce right back.

So maybe 10 out of the 15 are what I call -- the weakness is very understood; there are clear reasons for it. And in most cases, it is fixable.

Bill Newbold (ph) with Merrill Lynch Institutional Sales.

Given the lack of visibility on the volume side and just the difficulty in building marketshare, can you comment a little bit further on the select acquisition strategy? Is this in certain regions or fill-in markets, just given the visibility in the business, would it make more sense to buy back some stock or improve the 15 facilities that are causing you the problems?

Well, the best acquisitions you make are the one in your portfolios that you fix. That is the cheapest ones. And so we've learned a lot about how to do that, and so we are going to work hard on getting performance up in those 15.

The selective acquisitions profile, though -- we don't need to buy a whole lot to make a material difference in the performance of the Company. And we have learned the hard way in looking at our portfolio, and we sort it, we group it, we know what our sweet spot is and what we are really good at. And so we want to buy businesses that have 1.5 million, 2 million minimum revenue, funeral homes, starting now. And we don't want to be in rural markets where the person is the business and you have a risk of marketshare.

We like the suburban market, but in particular we like the Northeast, where we already have a huge concentration and our reputation is second to none. Our former owners are heavily involved and supportive, highly regarded in the States. I'm talking Massachusetts, Connecticut, New Jersey, in and around Manhattan. We like that part of the country, and we have a big presence in it.

The other part is Northern California, where we have between San Francisco and San Jose, a big concentration of funeral homes and cemeteries. Probably 40 percent of our cemetery performance comes out of two cemeteries, one in east San Francisco Bay and one in San Jose. Our reputation in California, especially in Northern California, also is second to none, and we have a network of acquaintances out there. So, because we don't need to spend a lot in going to different places for there to make a material difference, that is where we will concentrate.

Now, we are also in some very good markets in the rest of the country, including Las Vegas, where there is just one big competitor, primarily, independent, and we can grow, perhaps, with a new chapel. Columbus, Ohio, where we have a great operation with a chance to expand. We also have a chance to put a new chapel on our largest cemetery in east San Francisco Bay, where it's a stand-alone cemetery and a combination operation would be awesome.

So those are sort of chapel growth opportunities, not acquisitions.

But we are big in Detroit, Northern Detroit. I mentioned Columbus and Vegas. So we might -- we would look at selective acquisitions, but those would be, like you described, more tuck-ins and known operations that would fit with our existing operations.

So that is our strategy. The environment is such that we have not been out there. We have been working on repositioning the company, but we are known in the funeral business. We have a great reputation, and I think, notwithstanding what I have heard from some of the other companies, that the prices are not where they need to be. There are succession problems with family issues, and because of our size, we are not looking to buy too much. We don't see, by concentrating in areas where we are already known and respected, that this should be a big problem, although we are going to be very cautious about not overpaying and buying properties that fit our profile.

And the main issue to look at is the leadership and the marketshare risk, the demographics, the family issues, competitor situations. So we don't want to go forward and be buying businesses that have two or three popping up with marketshare problems, we want to buy businesses that we can grow.

(OPERATOR INSTRUCTIONS). Bill Burns.

I wanted to look at just your funeral revenue and margins this quarter versus last quarter. Because of the volume declines, it looked like funeral revenue was down 4.8 percent; but, if I've got my numbers right, your margins actually improved.

That's correct, Bill.

As an old model builder, that usually doesn't happen in this business.

Well, I will tell you why; it's an interesting thing. We used to budget all of our operations, and our people were spending -- our corporate people were spending five months a year -- that's how we tallied it up -- developing budgets, revising budgets. We started in August, revised twice and then finally approved it. The location managers were sitting around working on paperwork and computers and budget items by line item, in detail, rather than working on what made the business successful.

When we went to this new model, we simply got rid of budgets. There are no more budgets in our funeral division. What we have are standards. And so we took the best of our portfolio over four years and we studied them, we soared them by group, size and cremation mix. And our own people, our best operators and former owners, developed the standards, which don't change. I mean, these are like principles; they don't change over time. And there are nine of them.

But some of them relate to -- two of them relate to marketshare, which are the big numbers. And then you have people, quality of the people, developing and upgrading, getting rid of the weak ones, hiring better ones. And then there are four operating and financial metrics, only one of which is an EBITDA number, which used to be all we talked about and worked on all the time by line item. Now we never talk about it because the people are now working on all the other things that result in EBITDA and good margins.

It's a fascinating how this happened. It took about six months for our people to begin -- not everybody, but one at a time -- to get it. And we changed the support organization to help them rather than manage them, achieve their standards. And so what happened was an interesting thing. Once our leaders at the location started to understand and get good support, which was made possible by new systems, they started making decisions on how to organize their work on this and that. And we began to see reductions in cost and increases in averages. So that, when the fourth quarter hit, this new model really began to have some traction. It just happened to turn out that way. I shudder to think how good the quarter would have been had we got the volumes. So it gives me hope for the future.

But I think your observation is right on the point. So we are encouraged by this, Bill, and we think you'll see more of it in the future.

I wish you a great '05, and look forward to talking to you in the future.

Mike Sarangella (ph).

Just a quick question on your cremation business. I noticed that the average revenue per cremation is up 6.4 percent. It seems pretty strong to me, and I seem to recall you said in the past that that was something you were just beginning to focus on. Is this a result of renewed focus on revenue per cremation, or should we expect that number to go higher from here?

I think it would go higher. I was a little surprised to see that number myself. I know that we have developed some cremation packages, which we never had. And many of our people struggle with how to present cremations to a family. We have been more of a traditional funeral home operation for years and have not done enough development work and training on cremations, which are here to stay.

And what we are hearing from the field -- we have this going on right now in some test sites -- is very exciting. Our people are passionate about it. We have had some old pros who say they have been trying to deal with -- I am talking California now -- deal with cremation and get their people to properly present options for 25 years. Maybe it would stick for a little while and then go back to the same old way.

And what they are saying is that this is pretty awesome. Our people love it. And if our people love it, they present it and the families are choosing packages that improve their satisfaction and also improve our average in financial performance.

I don't think that's in the 6.4 percent, but I think the 6.4 percent is probably because we have a standard on average now. And we do have a lot of pricing power. We spend a lot of time on training our people in different ways. And so I think it's just -- we try to get the point across that, look, if you are going to run a business like you owned it, your costs are going up. If you are doing a good job in providing value, and we have all these surveys saying you are, then you are going to have to be smart about merchandising and pricing your products so that you have got more revenues over time because your costs won't stop. And I think that is having an impact on the averages. That is a standard.

So it sounds like this is sustainable and maybe gets better?

I think so.

Gentlemen, I am showing we do not have any more audio questions at this time. Please continue.

Thank you very much for calling in today. We are proud of where we are as a Company. We are looking forward to the growth of our Company -- modest and smart. And the main point I would like to make is -- just a little bit of history. In 2000 the stock hit a $1.00. It was close to $5.00 at the end of 2004, so it's about a $4.00 increase over four years.

Over that period of time, we paid down senior data about $4.50 a share. So there was a close correlation to the drop in the debt per share to the increase in the stock per share. That was a strategy to increase shareholder value and reposition the Company.

Now that the Company's repositioned, we are looking at a strategy to accelerate shareholder value by being very smart on how we acquire and get better at operations with what we already own. We think the shareholder value will increase over time, and we look forward to reporting our progress. Thank you very much.

Ladies and gentlemen, this concludes the Carriage Services fourth-quarter earnings conference call. If you would like to listen to a replay of today's conference, you may dial in at 303-205-3000, followed by the pass code of 11024198 followed by the #. (Repeats numbers.)

Thank you for participating in today's teleconference. You may now disconnect.