Carriage Services Inc (CSV) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, 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, today's conference is being recorded Thursday, March 9, 2006. At this time, I would now like to turn the conference over to Ms. Karen Roan with DRG&E.

Please go ahead, maam.

Thank you, [Jeff], and good morning, everyone.

We appreciate you joining us today for Carriage Services' conference call to review 2005 fourth quarter and year-end results.

Before I turn the call over to management, I have a few items to cover.

If you would like to be on the e-mail distribution or fax list for Carriage Services' press releases, or if you had a technical problem and did not receive a copy of the news release yesterday afternoon, please call our offices at DRG&E, and we'll be glad to help you. That number is 713-529-6600. Also, if you would like to listen to a replay of today's call, it will be available via webcast by going to Carriage's website at www.carriageservices.com. Additionally, in a few hours, there will be a telephonic instant replay made available for the next seven days. The replay access number and code are in the earnings release.

Please note that information reported on this call speaks only as of today, March 9, 2006, and therefore, you are advised that time-sensitive information may no longer be accurate at 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 on 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 10-K for the year ended December 31, 2004, and in subsequent SEC filings, could cause the Company's results in the future to differ materially from the forward-looking statements made today and other documents or oral presentations made by, or on behalf, of the Company. A copy of the Company's form 10-Ks, form 10-Qs, and other information and news releases are available on the Company's website.

Now, with me today are Mel Payne, Carriage Services' Chairman and Chief Executive Officer, and Joe Saporito, Carriage Services' Chief Financial Officer.

Now, I will turn the call over to Mel.

Thank you, Karen.

We're pleased to report our 2005 results. 2005 was the year in which performance started out strong, but weakened at the end, primarily because of operating execution causing us to re-evaluate our field operation organization during the fourth quarter. After hosting a strategic retreat of mid-December,r in which many operators and corporate leaders were invited to have input, we re-organized our operations into four regions headed by regional partners, all of which will report to me as COO, and two of which are new to their regions, but not new to the Company. This is a very flat organizational structure with only one layer of regional leadership between me, as the COO, and the managing partner of each business.

At the same time, we also upgraded and aligned our managing partner incentive program with our standards-based operating model, which we believe will drive improved performance in 2006 and beyond. Our goal in '06, is on achievement of a higher level of standards under our model, especially on our volume and market share standards in both our funeral and cemetery operations. In order to accomplish this goal, our primary focus for the year will be on motivating, developing, or recruiting strong local leadership to grow and manage our businesses.

As far as cash generation, 2005 was a good year. We generated 8.4 million of cash in the fourth quarter and achieved our year-end goal of 25 million. We achieved 9.7 million of free cash flow for the full year.

However, we missed by 3.3 million our beginning of the year goal of 13 million in free cash flow because of three reasons -- during the year, we increased our CapEx plans by 2 million to accelerate construction of mausoleum projects that were already being pre-sold; we spent more money and accelerated the spending on our HMIS cemetery system, so that we had it in all of our cemeteries by year-end; and we also incurred about $1 to $1.5 million of operational under-performance -- EBITDA under-performance -- in both -- if you look at both cemetery and funeral home operations during the year compared to what we expected at the beginning of the year. We expect the free cash flow generation to improve significantly in 2006 over 2005, as shown in our forecast in the press release.

With the cash growing and expected to reach at least 35 million by this year-end, the question is naturally how to deploy this asset to achieve maximum shareholder value. We have worked hard over the past few years to build an overhead systems and corporate infrastructure that can be leveraged with the acquisition of new operating assets.

Especially now, with our standards-based operating model and a strong balance sheet with no debt maturities for nine years, we believe the deployment of about 60 million over the next four years to acquire about 25 to 30 million of revenue and 9 to 10 million of EBITDA, is the best way to create shareholder value for our company.

There are compelling reasons why this strategy makes sense compared to some of the other companies in the sector. Our current revenue base of 155 million and our small share count of 18.5 million means that even a modest level of acquisition growth, well executed, can make a material difference in our performance per share.

Secondly, our standards operating model framework provides a due diligence system that will prevent the mistakes of the past. The goal of the acquisition program will be to achieve a cash return on invested capital that is materially above our cost of capital.

Third, the growth strategy can be executed without additional debt or equity delusion, and will improve our credit profile over time, and finally, but not least, the addition of larger, high-quality death care assets is part of a growth strategy, will upgrade the quality of assets in our portfolio over ,and enhance our ability to keep and recruit what we refer to as A-player talent, which we have learned the hard way and, importantly, is critical to the growth of market share and profitability of these local businesses.

As far as the acquisition outlook, there's been very little activity after six years. We are beginning to get back in the market and have some feel for what -- what the activity level is and what it is becoming, but we have been very cautious in getting back in the market. We did turn down two or three deals in '05. They were small or had issues related to our standards format that wouldn't let them be a good fit in our company.

From what we see, we do believe price expectations by quality operators will be around 6 times EBITDA, but only when family motivations to sell are related to issues other than money and are eminent. We expect the number of operators who have such motivations to increase, and for those numbers to accelerate over the next three to four years as we enter this cycle of the industry consolidation.

We did make one small tuck-in acquisition in '05. We might make another one or two in '06, but we do expect our activity to begin to improve in '07, and to accelerate thereafter, during our five-year plan.

To help in this program, we hired a Corporate Development Specialist in late-2005, who is working with me and the regional partners, and our operational analysis and planning group, as well as former owners and certain managing partners to define and execute our acquisition strategy. We believe that we can successfully execute the strategy through the period of 2009 and that doing so we will achieve our four-year goals which are to reach 195 to 200 million of revenue, 49 to 50 million of EBITDA, which is 25% of revenue versus 22.7% in '05 so we do expect to increase our -- our margin about 10% over this period of time.

In just commenting on our margin for '05, after all the accounting changes, principally the one that expenses pre-need selling expenses, all the selling companies are now on that principle, and we were surprised to see that, based on preliminary results for '05, we were the highest margin public company in the sector -- if you look at the four top companies. We expect to increase that margin over time, and we think our operating model will help to do so.

Our earnings per share -- we expect to achieve $0.60 per share and 20 million in free cash flow after taxes. We remain confident that we can achieve these goals, and that when the visibility of the execution of this program improves, our stock price will respond accordingly.

With that, I'd like to turn it over to Joe for some more details.

Thank you, Mel, and good morning, everyone.

I will review our 2005 financial results with you this morning. Before doing so, though, I want to make sure that everyone is aware that we are comparing 2005 results to 2004 pro forma results that have been adjusted for an accounting change, which we reported in the second quarter of 2005 to expense commissions and other direct pre-need selling costs as incurred. Our press prelease includes all of 2004 financial data on a pro forma basis, so it's comparable to 2005.

We reported revenues of 38.7 million and EBITDA from continuing operations of 8.4 million for the fourth quarter of 2005. Diluted earnings per share from continuing operations decreased from $0.08 in 2004, on a pro forma basis and excluding the special tax benefit, to $0.04 in the current year. For the year, revenues were 155 million, or 3.5% higher; EBITDA from continuing operations were 35.2 million, or 2.2% higher; and diluted earnings per share from continuing operations was $0.25, and this excludes the divisional interest cost of our senior debt refinancing in the first quarter, compared to $0.27 in 2004, on a pro forma basis and excluding the special tax benefit.

Earnings from continuing operations in 2004 also included gains from asset sales of $0.03 per diluted share. Performance of the cemetery segment, higher interest expense, and higher general administrative expenses negatively affected the fourth quarter and full-year comparisons. General-and-administrative expenses increased 800,000 for the quarter and 1.7 million for the full-year because we incurred higher professional fees related to complying with the Sarbanes-Oxley Act of 2002, and implementing our new cemetery systems.

During 2005, we spent a total of 1.1 million, or $0.04 per diluted share, for professional and audit fees to document, evaluate, and report on internal controls. This doesn't include our internal costs, such as expanding our internal audit department and additional personnel costs to implement these systems.

Interest expense, net of investment income, increased 400,000 for the fourth quarter and 1.2 million for the full-year, compared to 2004, because our debt outstanding increased when we -- when we refinanced our senior debt in 2005.

Turning to the funeral operations, our same-store funeral revenues in the fourth quarter increased 4.2% to 28.5 million based upon a 3.7% increase, an average revenue per contract, and a 0.4% increase in same-store contracts. Funeral gross profit decreased by $100,000 because the fourth quarter of 2005 included a one-time charge of $600,000 to modify our employee vacation plan and merchandise costs increase. Approximately, 32.8% of the Company's funeral contracts during the quarter were cremation services, which was 110 basis point increase over the fourth quarter of last year. The average revenue per cremation service increased 3.9% to $2,516 when compared to the fourth quarter of last year.

For the full-year, funeral revenues increased 3.2% to 116.1 million. Same-store revenue increased 2.2%, and that consisted of a 0.3% increase in same-store contracts, and a 1.9% increase in same-store revenue per contract. The remainder of the increase was attributable to pre-need commission income. The cremation rate increased 150 basis points to 32.8%, and our average revenue per cremation service increased 2.2%, from $2,381 to $2,434 per contract.

Funeral gross margin increased from 25.3% to 26.2%.

Cemetery revenues increased 4.8% to $9.2 million in the fourth quarter. We recognized $1 million of revenue related to three mausoleums completed during the quarter. We had no completions during in the fourth quarter of 2004.

The number of interments performed decreased 5.2%, and the average revenue per interment increased 6.4%. The additional revenue provided by the completed mausoleums was substantially offset by an $800,000 decrease in our at-need revenue, primarily from deliveries of merchandise and services. Since we usually sell merchandise and services at the time of need, the decline in interments reduced the sales opportunities for these items.

Financial revenue increased $200,000 due to investment gains from the Perpetual Care Trust.

Cemetery gross profit for the current year quarter decreased by 600,000, compared to the pro forma gross profit for the prior year, primarily due to the charge for a modified vacation plan, and increases in property and merchandise costs, and facilities and grounds expenses.

For the full year, cemetery revenues increased 4.2% to 38.9 million. Investment income and gains from the Perpetual Care Trust Fund contributed a substantial portion of the increase in revenues.

Cemetery gross profit for the year was flat because property and merchandise costs, and facilities and grounds expenses were higher. In addition, costs related to the modified vacation plan and severance charges totaling $400,000 were recognized in 2005.

Now, turning to our 2006 outlook -- our outlook is intended to estimate results from continuing operations based upon same-store volumes. We believe it is prudent to present a range of outcomes because of uncertainties in estimating volumes, average revenue per service, cremation rates, and other key factors. The outlook excludes effect of asset dispositions and acquisitions of businesses.

For 2006, we will only issue an annual outlook. We believe this is consistent with characteristics of the death care business and is the appropriate period to analyze fluctuations in our operating results.

The 2006 outlook is based upon several key assumptions. First of all, the upper end of the outlook range assumes funeral same-store volumes are flat compared to 2005, and the lower-end assumes approximately a 2% decrease in volumes. The average revenue per contract is assumed to increase approximately 1.5%. This increase assumes the cremation rate for our business will increase by 100 basis points.

No borrowings on our bank facility are anticipated during 2006, and we are estimating $6.5 million of capital expenditures, which does not include any growth opportunities. We expect to use free cash flow to acquire businesses if and when available on acceptable terms. In the outlook, free cash flow is invested in short-term investments, which are expected to increase to approximately $35 million by year-end, 2006.

Our estimated revenue for 2006 is a range of 153 to 158 million. Our earnings per share will range from $0.26 to $0.31 per share. EBITDA will range from 35.8 million to 37.4 million, and free cash flow will range from 11 million to 12.2 million. There are additional details in the press release, and you can refer to those.

Lastly, I'd like to report that we've completed our first year assessment of internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act. Management concluded that the Company's internal controls over financial reporting were effective, and we have no material weaknesses to report. Management's report and the report of our independent audit firm will be presented in our annual report on form 10-K.

Mel?

Thank you, Joe.

And that last thing that Joe covered -- I just want to say that I'm very proud to have seen such a tremendous amount of work by Joe, Skip Klug and his team, and the IT department, to put in systems and controls starting years ago. A lot of work to upgrade those systems over the last couple of years in particular, to allow us to get a clean opinion under Section 404 of the Sarbanes-Oxley Act. As the COO who has to sign the statements and make the representations related to this, I'm very proud of what has been accomplished by this group of people -- way beyond the expectations that I had going into this.

So, thank you for a job well done.

2005 was a year of progress in many, many ways. As the Company transitioned to a new corporate organizational structure that is more in alignment with our operating model, and which is designed and truly expected to result in improved performance in '06 and beyond. However, we are still in the early stages of learning how to effectively execute against a standards operating model, but there is no doubt that years from now, we will look back and say that this was a break-through for the Company starting in '03, improving in '04 and '05, being tweeked at the end of '05, and evolving into something I think we will look back on and say it made the Company what it was.

We will also say that this model had important strategic consequences, not just operational benefits. Yet the evolution of the model in its execution and the strategies related to it will take time, and should not be judged by quarter-to-quarter results. You heard Joe say what we -- how we view the business year-over-year, and we're going to report year-over-year in a consistent way that year-over-year is really what this business is all about.

However, we will report our progress quarterly, and we look forward to that opportunity.

With that, I'd like to open it up for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Your first question comes from James Clement with Sidoti.

Please go ahead.

Morning, gentlemen.

[Jamie].

Joe, just a quick question -- your '06 outlook in terms of EPS -- I know it doesn't effect cash flow, but does that include options expense? I know it's only modest for you guys.

Yes, actually, [Jamie], we've been expensing quite a bit of non-cash compensation in '05 and '04, because we started issuing restricted stock rather than options to our executives and key officers back in '04, and those have been expensed as non-cash compensation during that entire period, so we don't expect really much impact from the new accounting standard this year because we just really don't have that many invested options outstanding anymore.

Okay. Very good.

And Mel, a question for you, if I may.

I know you're talking about different facilities, different markets, that kind of thing, but the difference between same-store funeral contracts during the quarter and -- and the -- the rate of interments performed, we're very, very different. And obviously, looking at the cemetery gross margin, I think you -- you guys discussed that. I just -- I was wondering if we could get a little more information on where you see the cemetery operations right now? Help us feel a little bit better going forward.

The cemetery operations were very interesting when we -- we've always been organized by division, and so, we had cemetery operations in a cemetery division. At the end of the year, we looked at -- we broke our portfolio down into several groupings -- stand-alone funeral homes, where we only had funeral homes in end-markets; stand-alone cemeteries, where we only had cemeteries in markets; we had dominant funeral home operations with small cemetery operations in the same market; and then, we had combination funeral-and-cemetery operations. Those were the four categories of business.

Once we did that and looked at the drivers of each of -- driver -- what we call the drivers of success of each one of those businesses, we then began to look at how they were organized. And the way -- the drivers we -- we look at, [Jamie], were relationships in the community on the funeral side, pre-need on both the funeral side and the cemetery side, and sales of -- of -- primarily, sales of property on the -- on the cemetery side. And when we began to look at those drivers and how we were organized, it led to a new structure so that, at the end of the day, four of our cemetery operations in the West, but three in a very small area in Northern California -- near San Francisco -- accounted for about 40% of our performance.

Okay.

And they were also in same markets of some of our biggest funeral home operations, but not really working to help each other synergistically. So, we put all of the West under one leader who -- who was running, very successfully, one of our cemetery operations, and I think what you'll see is a better long-term strategic plan of how our cemeteries and funeral homes can work together to grow market share, as well as financial performance in the West.

Now, the other two -- the other three regions also got cemetery operations to a different degree. Two of the three are primarily funeral -- Central and Eastern -- but they also have small cemetery operations in dominant funeral home markets. That left the old cemetery division with about 12 properties -- the combinations and stand-alone cemeteries. We believe that with this new attention focused on those properties that they will be re-invigorated. There will be some changes in leadership, no doubt about it, but we think it's something that you'll see improvement in over -- over this year, and certainly getting into next year, but a lot of the -- a lot of the heavy lifting is taking place right now.

So, it's going to take some work. I think that group of properties was under-performing and making the whole cemetery group look like it was under-performing when in fact, I think the West was -- was out-performing over the last few years, which probably covered up some of the symptoms. And with this organization -- it's very transparent -- and everybody knows what they have to do, and they're hard at work at it

Mel, thanks very much for the honest assessment.

I'll let somebody else get on the call.

Thank you.

Your next question comes from Bill Burns with Johnson Rice.

Please go ahead.

Good morning, Mel and Joe.

My question -- prior to 2005, we -- for the -- I think the -- prior three years consecutively, we had negative volumes, and now we've got 2005 with positive volumes, and I was wondering, Mel, maybe what kind of comments are you getting from the field about this extraordinary one-year trend? Are they optimistic -- cautiously optimistic? I know in your forecast -- I guess your upper range is flat, but--?

Right.

You got any feedback?

You bet.

You might remember that we were very concerned about market share loss, and we started tracking, based on our standards, certain businesses that had market share losses in a way that we defined them. This didn't necessarily mean that absolutely they're losing market share, but we used our OBIT count to define whether someone was losing market share or not, and so, we developed some criteria, after some weak volume performance in '04, to track certain businesses that either had a 3% drop in their OBIT market share percentage, or two consecutive years of 1%.

Now, the two consecutive years of 1% is, honestly, not that meaningful in this business. It doesn't necessarily mean that somebody's losing, but we wanted to track them, and I'm real pleased to report that we had 26 businesses that we had been tracking, and I previously made comments about them. During '05, out of those 26 businesses, 15 grew market share substantially, and 15 are now moving off of that list. We will continue to have a list like this and track it, but we made big progress within this group during 2005, and now, having looked deeper and -- and followed them over a period of time, don't believe that we have market share losses in those 15.

The 11 that will stay on the list continue to hurt us in '05, although the -- the total portfolio as a group, as you pointed out, was up. So, even though we had a number of businesses that continued to decline, that was more than offset by those that were improving. So, we're encouraged, but we'll continue to work on it and report against it.

Thanks a lot, Mel.

Thank you.

Our next question comes from Mike Scarangello with Merrill Lynch.

Please go ahead.

Hi. Good morning, guys.

Good morning, Mike.

Mel, you talked act some disappointments in '05, and I know the standards model is very important here. Can you talk about it in the context of the standards model? Was it that not everybody met their standards, were there any particular standards that your individual funeral home operators struggled with -- maybe talk about it in that context?

Yes, I -- we've been under this program for two years. We didn't say a whole lot about it after one year because you never know what one year of data really means. After two years, it is much more obvious that the standards model is very relevant to the funeral business in particular. Now, we put out standards on our cemetery business, but they -- they haven't been out there long enough for us to have enough data for us to say what is relevant and what isn't.

We did make a few tweaks at the end of '05 in our standards, primarily the one relating to average revenue per contract. We've broken that down into burial average standard and a cremation average standard, because that takes away the impact of cremation mix shifts and allows a managing partner to work on -- on both, but not be hurt because he doesn't get -- because he's hurt because of a mix increase and not working on the average.

I'd say the -- the biggest reason that we had under-performance in the -- in the last three quarters was because of execution. The leadership that I had put in place at the end of '04, wasn't really executing the model effectively. They weren't -- it wasn't focused on the right things all the time and got off-track by working on, what I call, here internally in Carriage corporate stuff. We fight against that all the time.

You have to watch -- watch that, but you can start all kinds of initiatives in a company and it looks good, but it takes up a lot of effort, and if there's no result, and it's not motivating your people, then you need to stop it. So, I looked in the mirror, said I --I put somebody in place. It wasn't their fault. They weren't doing -- they weren't skilled at leadership on a national level, and I replaced them.

I think that was the major reason, Mike, in coming into -- we maybe lost half a year of progress under the standards model because of that, but I can tell you, coming into '06, with the re-organization and some change in responsibilities and duties.

We also -- and this is huge -- we established, for the first time, a new group called Operational Analysis and Planning that also reports to me as the COO. Now, we have that group headed by Clark Harlow, who used to be our Treasurer, staffed with some professionals who are going to analyze all this data. We have great systems and wonderful data -- operating data, as well as financial data.

And so, what we can do now, with this group focused on analysis, some reporting of issues, certain standards, but very customized and very selective on businesses that are not hitting those standards -- it's not cookie cutter across the portfolio -- I think this group can support the regional partners and the managing partners in executing the standards model much more effectively going forward, and we view this re-organization as a huge improvement that aligns the corporate side with the field side as far as the model.

So, I wish I could tell you it was something else, but I think it was mostly leadership and the way we were structured.

And it sounds like the leadership shortcomings manifested itself across standards or was there--?

Yes, it did.

It manifested itself across standards, whether you were talking about averages or S&B, being in line with revenue, managing to your revenue, merchandising margins, relieving certain -- certain people of leadership positions who weren't skilled at actually growing the business or addressing market share problems. They were good at caring and serving families, but that's not what we're looking for here going forward.

So I think it was not pulling the trigger -- not making the assessment on certain leadership across the portfolio that needed to be made. That no longer is the case.

That's great, Mel.

Let me just ask you one macro-question, and I'll jump back in.

As you look across the industry and the public players, do you think we're getting to a point where we're starting to be ripe for a consolidation among the public eyes? And, then, if so, do you see yourselves playing a part in that, or would you just prefer to remain independent at this point?

That's -- that's a loaded question.

Well, we've been working really hard to -- to get our infrastructure in place. The operating model is very exciting if you were to see where we are, because everybody knows we're in the early innings, and yet execution and the evolution is just getting better and better. I think if we -- if we focus on what we call the [4E] leadership ,which we have adopted as our leadership model, to -- to develop and attract leadership to run these local businesses, you're going to see growth. It's going to take some time, but they're going to be competitive, entrepreneurial people, and the incentive program we have in place is wide-open without limit for them to make money, and some of our people are -- I mean, they're shocked that we would do what we have done here recently in terms of opening that up.

So, we're excited about where our company is going. I do think consolidation will continue to happen. We don't want to get back on the track of buying places that don't fit, so we're going to be cautious and selective.

Could there be consolidation? Absolutely.

I don't know the motivations of the other players, but definitely there could be some consolidation of the consolidators, and I guess our position would be, if that's the case, who -- who would -- who would it be between, and I don't know, but we might be in a pretty good spot to be a beneficiary of that -- not as somebody acquired, but somebody who could buy assets that the FTC would require to be divested. We did that before in the nineties when Service Corp. fought some larger consolidators. We now know how to assess those packages and call what's not good, or to get a price that makes it worthwhile.

So, I think we're in a good spot here, even if we look at consolidation of independents or consolidation within the group.

Okay.

Thank you, guys.

Thank you.

[OPERATOR INSTRUCTIONS]

Our next question comes from Alan Weber with Robotti & Co.

Good morning.

Just a few brief questions -- one is, when you talk about gross capital spending, looking at it compared to acquisitions -- I know the acquisitions will be significantly greater. Which would get you a better return -- growth capital expenditures for the most part?

The growth capital expenditures internally should get us a better return.

We're looking at a few places right now -- none of that is in our CapEx plan for '06, but there are a few instances of opportunity in our existing portfolio, primarily in California, that we will be assessing this year. I doubt if we -- we actually make CapEx related to those -- to those ideas this year, but I would expect that in '07, probably we would. But when we do that, you can bet your -- you can bet your dollar that it's going to be because we believe we can get a better return than an acquisition.

Okay.

And then, final question was -- when you -- in the five-year, you talk about margins going to 25%?

Yes.

And I was wondering, how much of the improvement will be, in your view, due to making -- in other words, to reach 25%, how much of it is -- you have to make acquisitions? If you had to make acquisitions, what would be your guess in terms of margins four or five years out?

Well, I wouldn't try splitting the improvement in margin. We were at 22.7 at the end of '05, and we're saying 25% at the end of '09 -- four years. So, that's 2.3% improvement in margin.

I can tell you that the acquisitions would be larger and of a higher quality than the average operations that we have today. That -- that also means that we will be able over time to achieve a higher EBITDA margin in those businesses. We have that profile in our existing portfolio already, and they tend to be very high-margin businesses.

So, the acquisition program will absolutely lead to higher margins because of the type of business we buy, but also, because we don't have to add proportionate overhead. We can leverage the existing infrastructure to a very high degree, without additional overhead or systems, but also, we expect over this period of time, based on the operation -- the standards-based operating model -- both on funeral and cemetery operations, to improve our margins from 22.7 to a higher number.

So, I don't think the 25% is -- is too great of a challenge, and we think it's very reasonable.

Okay.

My final question was -- over the last three years, when you look at the divestitures of the other -- say -- public companies, is there -- is there an increase in terms of competition of competitors looking to make acquisitions that are not public companies?

We've seen some new players come into the market. That always has been the case in this industry, if you went back 20, 30 years. It's a great industry. It's very forgiving. The cash flows are strong. The asset values seem to hold up, as you can see, over the last past six years, with some of the progress all the companies have made on de-leveraging.

So, there always will be new buyers coming into the market, sometimes supported by local capital, sometimes supported by venture capital, and there are some of those in the market. However, I don't think they will be serious competition for the kinds of businesses we are looking at in profiling. The better operators, the higher quality businesses, are not going to sell to a small consolidation -- consolidator, in my view, because they already know, based on past history, that the smaller consolidators are primarily looking for an exit. So, they're going to be probably selling their -- their company at some point. That's been the history, anyway, and I don't think that serious quality people want to put their business in a home that's not permanent, and where it doesn't fit.

Okay. Great.

Thank you very much.

You're welcome.

Thank you, and at this time, I show no further questions.

I'd like to turn the conference back over to management for any concluding comments.

Thank you very much. We appreciate those questions.

We've made a lot of progress in 2005. We know where we're going, and we're excited about going there, and we'll be delighted to report our progress as we do so.

Thank you very much.

Thank you.

And, ladies and gentlemen, this concludes the Carriage Services' fourth quarter earnings conference call.